Reverse Mortgage Exit Motivations; Assessing Counterparty Risk; TILA & HOEPA Fee Based Triggers; HUD Training

Today we have, in the Northern Hemisphere, 5 hours and 14 minutes more daylight than the winter solstice six months ago. For the most part it is something everyone north of the equator can be happy about, unless you're on the west coast working New York bond market hours and going to bed 2 hours before the sun sets.

"A bus station is where a bus stops. A train station is where a train stops. On my desk, I have a work station." But somehow the work goes on. For the next twelve business days, however, my access to e-mail will be sporadic, my ability to send out commentaries will be diminished, and I will be six hours ahead of New York in time zones. I have twelve knowledgeable "guest writers" of varying mortgage backgrounds who will be taking my place every day. So not only will you receive a vacation from my usual blather, but will receive a different take on the industry from different perspectives: production staff, compliance, risk management, and so forth. I am looking forward to being away for a bit on my bicycle, may or may not answer e-mails, and I hope that this all works out.)

Somehow a 22-year old buying a 57,000 square foot mansion is wrong. Maybe not - I just wish I'd returned her numerous phone calls to me over the last few years... IsThereRoomForMe?

Anyone who remembers companies like Drexel Burnham, and knowing how important it is to assess counter-party risk, should note that the SEC is "on the case." (DLJ doesn't count - they were bought out by Credit Suisse about 10 years ago.) Last week the SEC issued proposed amendments to Rule 17a-5 in order to enhance the auditing and oversight of broker-dealers. The amendments would require them to file new annual reports on their compliance with rules relating to net capital and customer protection, and to file reports of their independent auditors regarding compliance with those rules and the internal control over such compliance. Comments on the proposed amendments are due within 60 days of publication in the Federal Register, and for a list of the proposed amendments go to CounterPartyRisk.

Some people's eyes glaze over when information is released like, "Federal Reserve Publishes Its Annual Adjustment to TILA and HOEPA Fee Based Triggers." Others find talk like, "Pursuant to TILA and Regulation Z, creditors must comply with HOEPA's requirements if the total points and fees payable by the consumer at or before loan consummation exceed the greater of $400 or 8 percent of the total loan amount. TILA and Regulation Z also require the $400 figure to be adjusted annually by using the Consumer Price Index as reported on June 1 of the preceding year" very interesting. Those are a) the folks we want in compliance departments, and b) folks that should peruse the FederalReserve.

Last week it was Capital One and ING, this week it is PNC Financial Services Group offering to buy the U.S. retail operations of Royal Bank of Canada for $3.45 billion, making it the fifth biggest among U.S. banks. PNC said that the transaction will bring its total to 2,870 branches. RBC Bank (USA), based in Raleigh, N.C., has 424 branches and about $25 billion of assets. PNC has also agreed to buy certain credit card assets of RBC Bank, (Georgia) National Association. RBC says that it will receive $165 million for the credit card assets.

A title company lawsuit is heading to the Supreme Court: a case against First American Title holding a minority interest in title insurance agencies that sell First American title policies. Denise Edwards sued First American Title, claiming an illegal kickback plan. Denise Edwards claimed First American violated provisions of the Real Estate Settlement Procedures Act of 1974 by buying a minority interest in title agencies and establishing an exclusive agency agreement with those agencies to sell First American's title insurance policies, and that these agreements were exclusive in nature and not in compliance with guidelines established under the anti-kickback provisions of RESPA.

Noteworthy reader comments continue: "I think I have to disagree with the first writer who said that 'stringent lending requirements,' are the old/new normal. Hmmm. Ok I recently sent in a full doc loan. Conditions included prove A&P is the Atlantic and Pacific Tea Company. This isn't the first one like this. I have numerous brokers calling me asking who will do a loan. Even with everyone delivering agency product it seems we are finally seeing some variations in the lending practices. But, and it's a big but, until we get movement in the MBS markets expect to see continued restraint. No one wants to have a buyback. And with the various bills being considered, the fact that anyone on the Hill still believes the regulators and rule makers are acting in the interest of the country and not a select few companies is evidence of a lack of understanding of what is transpiring." (Speaking of the residential MBS market, and securitizing loans, check out STRATMOR for an article about the near-term news on non-agency securitization.)

On reverse mortgages: "Wells' reasoning for getting out of reverse is a bit of 'inside baseball' if you know what I mean. Lenders do not want to foreclose on reverse mortgage borrowers who do not pay their taxes and insurance. The PR would not be pretty - 'Wells forecloses on little old lady who has a reverse mortgage.' What has been happening is that Wells and other reverse servicers were paying the taxes and insurance for the 5% or so of reverse borrowers who were delinquent. HUD has been insisting that lenders foreclose - it is a system practically designed to fail and to cause more problems for the servicers. I think Wells got tired of waiting for HUD to create a solution. (There's something novel - waiting a long time for HUD to act.) Anyway, what this means for MetLife and others in that sector is an opportunity. I think that Wells' move will get HUD off the dime."

"One of your readers wrote, 'There are four safety nets our society has now, that were not in existence in the early thirties: Social Security, Medicare, Medicaid, and Reverse Mortgages.' Really?  Reverse mortgages are now one of the "four safety nets our society has?"  In 2010, Medicare/Medicaid spent $800 billion.  Social Security spent $700 billion.  Reverse lending was roughly $10 billion.  And not all of the $10 billion goes into the senior's pockets - some is being used to pay off an existing lien.  The reader then says, "If you take away any one of the four programs noted above, and you will have seniors digging through the dumpsters. In 'The Grapes of Wrath,' Granny was in the Ford heading west, and not for the fun of it."  Grapes of Wrath?!  If reverse loans went away?!  That's just funny.  Reverse mortgages could disappear without so much as a whimper from seniors - but if Medicaid/care or SS disappeared - there would be a blue-hair revolt."

How does FEMA view a garage in a flood plain - is it "the lowest floor"? Last week the agency let underwriters know that, "An attached garage in a single-family non-elevated building is excluded for rating when there is no machinery or equipment servicing the building, even if the garage has no proper flood openings." And now its manual reads, "I. Lowest Floor Determination, A. Non-Elevated Buildings, the third paragraph is revised as follows: ''An attached garage floor elevation below the BFE can be excluded as the lowest floor for rating if the garage has no machinery or equipment." If you have any questions concerning this, write to a FEMA underwriter and not to me: iServiceUnderwriting@ostglobal.com.

HUD offers training, and we need to be reminded of that occasionally. The National Community Reinvestment Coalition (NCRC) is offering FREE HUD-funded housing counseling training around the nation. "Participants will learn how to identify fair lending abuses & mortgage fraud; prevent fraud & ensure access to equity for Older Americans; address discrimination with foreclosure prevention programs, & conduct a full fair lending file review. To obtain a certificate of completion participants must attend & complete the entire four-day training. Lodging & travel scholarships are available." There are sessions all over the nation - last week in St. Louis, later in June in New Orleans, July has Detroit & Milwaukee, August in Philly & San Diego, etc. For more information & to register for all of the training opportunities, visit the NCRC website at: http://www.ncrc.org/ or email: lmelgarejo@ncrc.org. FHA Loss Mitigation Program Training will come to Winter Park, Florida on Thursday: Register for this training at: https://eclass.hudtulsa.org/.

I guess that it is a sign of the times that a growth industry is lenders fighting foreclosures. CompaniesHiringLoanModStaff

Greece, this week's FOMC meeting, and looming quarter-end and end of QE2 are all working on the prices and volumes in the fixed-income markets. That being said yesterday was pretty quiet with the 10-yr ending at 2.96% after being lower in the morning. In fact, overall the market started off slightly better, MBS price-wise, then worsened somewhat, but not enough to warrant investors sending out price updates. And don't look for much more today, as it is another light weight session in terms of the data and events calendar.  

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog takes a look at near-term news for non-agency securities, such as jumbo residential loans. If you have both the time and inclination make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

(Watch for guest writer commentaries starting tomorrow, with occasional overseas input from me - see second paragraph.)

The Recession is really hitting everybody hard!

Yesterday I got a pre-declined credit card in the mail.  A stripper was killed when her audience showered her with rolls of pennies while she danced. I saw a polygamist with only one wife. If the bank returns your check marked "Insufficient Funds," you call them and ask if they meant you or them. Angelina Jolie adopted a child from America. My cousin had an exorcism but couldn't afford to pay for it, and they re-possessed her. A truckload of Americans were caught sneaking into Mexico. The Treasure Island casino in Las Vegas is now managed by Somali pirates. Congress says they are looking into this Bernard Madoff scandal. So the guy who made $50 billion disappear is being investigated by the people who made $1.5 trillion disappear!