Safe Harbor Rule Open for Interpretation; FHA Mortgage Insurance Premium Increase; Lenders Looking to Hire

By: Rob Chrisman •

I continue to receive input from the origination "trenches. "'Safe Harbor' against the steering provisions in the new LO Compensation regulation is a farce.  To qualify for the Safe Harbor, one of the provisions (as I understand it) is that the loan originator must have presented to the consumer at least one option for a loan without 'risky features.'  Included in the 'risky features' are Neg Am, prepayment penalties, a balloon payment in the first 7 years, a demand feature, and shared equity or shared appreciation.  In my almost 20 years in this industry, I have yet to see a loan that didn't include either a Due on Sale Clause or an Acceleration Clause in the Note, both of which are commonly referred to as 'demand features.' The regulators may not have intended for it to be that broad, and more than likely meant a true 'demand clause,' but that's not what it says.  Based on the way it's written, I don't know that's its actually possible to meet that particular part of the safe harbor.  And if there's no safe harbor, anything is possible.  I'm sure there is more than one attorney waiting to test this against a lender who feels that they have met the Safe Harbor requirements by getting a bogus disclosure signed or offering products that don't include any of the other "risky features".  Absent of an official definition of the term used in the regulation, I think it's wide open for interpretation, and more importantly, leaving an opportunity for some lender to get burned."

"Rob, do you think that the new regulations needed to be put into place when for the most part we had plenty of regulations in place to enforce if the actual enforcement arms of our government actually did their job? Instead of the FRB putting a halt to competitiveness by claiming the right to dictate how we can get paid in the mortgage industry how about some simple statements saying 'no more subprime mortgages, no more pay option arms and guess what, Fannie and Freddie, the underwriting standards that were create should be followed?' How about some massive fines for the rating agencies for incorrectly or perhaps on purpose advocating the pools of risk upon layered risk that they so freely endorsed. As an industry supporter and an advocate for industry checks and balances, mortgage brokers and their associations have asked for a balanced playing field for many years. I have personally gone to DC to inform our representatives about how we would gladly police our own industry, what we can all do to help prevent abuses. No one member of Congress or the Senate would do anything about it until the meltdown came. What a shame our government now believes they need to dictate how we should be compensated. I believe our government has now gone too far. I believe a consumer very rarely ever reads any documentation that is provided to them regarding their rights under consumer protection or anything for that matter. They counted on the person they trusted to get the job done. I don't believe that the LO Comp is protecting the consumer nor is MDIA or many of the other things that have passed recently."

I have been retained by an expanding residential retail lender that is searching for a Director of Operations. The lender is looking for someone who either lives in California or is willing to relocate. The right person should be strategic, yet hands-on, when it comes to managing the Mortgage Banking Operation, and must have experience in managing processing, underwriting, QC, doc drawing, funding, shipping, and post-closing functions. He or she will have credit authority, and needs to be able to establish service oriented culture even through this new environment. In addition, the ideal candidate will be able to exhibit leadership skills in order to manage and develop other supervisors. Please feel free to pass this on if you know someone who'd be interested as it is a very good opportunity to join a solid company with a seasoned management team.  Confidentiality is important - please send questions or resumes to me at rchrisman@robchrisman.com. 

On the flip side, I receive my fair share of "out of office" replies. But this unfortunate one caught my eye yesterday: "Thanks for your interest in City Mortgage Services.  Unfortunately due to a new law that took effect Wed April 6, 2011, City Mortgage Services is no longer able to stay in business.  This email is being forwarded to Norman H. at -------@gmail.com.  Please direct any questions or concerns to that email address."

But some companies continue to expand. In the wholesale sector Real Estate Mortgage Network is hiring regional managers and AE's in Arizona, California, Colorado, New Mexico, Nevada, and Oregon. REMN has been in mortgage banking since the 1980's and is servicing about $1.4 billion as a Ginnie Mae seller/servicer, but just opened up the West Coast wholesale operation. For more information go to http://www.remnwholesale.com, and/or contact Tom Conklin at tconklin@remn.com.

Chicago Bancorpwill be buying a Kansas bank in order to "break into banking as regulatory controls over non-bank mortgage lenders have increased in the wake of the housing-led recession." The company, which originated over $1 billion in 2010, secured approval from the U.S. Office of Thrift Supervision to purchase Overland Park, Kan.-based Generations Bank. "The Calk brothers hope to shift the mortgage business they do at Chicago Bancorp to Generations Bank. The reason: Their regulatory costs have soared as states have instituted separate licensing programs for sales reps. A federal banking charter allows banks to operate under a single regulator." KansasBank 

Down in Oklahoma (unofficial motto: Like the play, but without the singing), for its 5th acquisition in less than a year, BancFirst will purchase 1st Bank Oklahoma for an undisclosed sum. BancFirstGrowth 

Monday is the day that FHA originators have been worrying about, which is the day that the MI premiums increase. But private MI companies hope the change will mean they can move away from generic paper towels in lunch rooms and buy name-brand products, as it seems that private MI will become relatively much less expensive and thus more popular. Every scenario is different, of course, but I have heard figures as high as private MI becoming over 50% less expensive than FHA MI. The borrower's MI versus MIP cost will be significantly lower, but private MI companies still have some challenges with the total GNMA vs. GSE MBS execution. On the government side, look for an increase in its Annual Mortgagee Insurance Premium of 25 basis points, or 0.25 - for loans with case numbers ordered on or after Monday the new annual premium will be 110 bps for loans equal or less than 95%, while loans over 95% will have a 115 bps premium. Up-front premiums will continue at 1%. 

FHA specialists point out that even with the increase in the annual premium, FHA will continue to be a viable option for homebuyers, with the more lenient credit qualifying, and lower FICO scores when compared to conventional financing at 95% for many cases. But it seems that private MI savings going forward, in most cases, will be greater because the private MI can be cancelled under HOEPA before 5 years, sometimes as soon as two years. And taking a broader look, what typically does a mortgage insurance policy cover? Usually MI covers mortgage payments for periods of between 12 months and 5 years, though terms between three and five years are increasingly difficult to find. Insurance usually kicks in when the borrower is unable to meet their mortgage payment obligations because of sickness, injury or unemployment - MI does not cover fraud.

 With no market-moving news yesterday, mortgage prices pretty much just sat although I noticed a few intra-day improvements. MBS volume was very light, indicating that locks are down everywhere, and in fact Tradeweb volume averaged just 61% of the 30-day average. With selling volume down, and continued buying interest from REIT's and money managers, mortgage did ok on a relative basis. The 10-year note was about unchanged at 3.57%.

(Warning: parental discretion advised.)

Stuttering Cat - as explained by a 4th grade pupil:

A teacher was explaining biology to her 4th grade students.
"Human beings are the only animals that stutter," she says.
A little girl raises her hand. "I had a kitty-cat who stuttered."
The teacher, knowing how precious some of these stories could become, asked the girl to describe the incident.
"Well", she began, "I was in the back yard with my kitty and the Rottweiler that lives next door got a running start and before we knew it, he jumped over the fence into our yard!"
"That must have been scary," said the teacher.
"It sure was," said the little girl. "My kitty raised her back, went, 'Ffffff!, Ffffff!, FfffffF,' but before she could say the 'F-word!,' the Rottweiler ate her!