Dangerous Combination of GMAC, Massachusetts, a Lawsuit, Unpaid TARP, and Possible Bankruptcy

"Rob - my rep just wrote her clients an e-mail regarding gifts for this holiday season. Instead of contributing to the trade imbalance and sending out some trinket that no one wants, she will either make a contribution to a veteran's organization or will sponsor, and participate with, her clients in doing work for Habitat for Humanity. Digging a foundation or hammering nails instead of supporting a foreign manufacturer is a great way to build a relationship. I think that your readers might find this of interest, and perhaps try to do the same." (Editor's note: I couldn't agree more.)

Is Massachusetts Attorney General Martha Coakley angling to replace Barney Frank? Perhaps. Whether it is legislation or litigation, the mortgage industry is mired down in it, with the latest story being Massachusetts' lawsuit against five national banks, Bank of America, Wells Fargo, JP Morgan Chase, Citi and GMAC Mortgage in connection with their roles in allegedly pursuing illegal foreclosures on properties in that state, as well as deceptive loan servicing. Of course MERS was thrown in for good measure.

Shortly thereafter, GMAC Mortgage (the mortgage origination and servicing operation of Ally Financial) announced that it will "cease purchasing new mortgage loans in the Commonwealth of Massachusetts that are originated by correspondent lenders and wholesale brokers...GMAC Mortgage has taken this action because recent developments have led mortgage lending in Massachusetts to no longer be viable.  The company will continue to service its existing customers and honor its contractual obligations as a servicer. The company is disappointed that it can no longer participate in offering certain financing options in Massachusetts; however, it has an obligation to manage risks and deploy capital in an appropriate manner and in a way that protects the investment of the U.S. taxpayer." I am sure that the borrower is better off for all of this.

I am not an attorney, or a master corporate strategist, or even a reporter for that matter, but when you combine those events with the fact that GMAC received $17 billion of TARP money three years ago that it has pretty much not paid back (which means that a company mostly owned by the U.S. government has stopped buying loans in one of its states), and that Ally considered putting ResCap into bankruptcy, well, it makes for a pretty juicy story. There does seem to be some precedent for this. I seem to recall that several years ago some lenders stopped doing business in Georgia after the legislature passed some type of high-cost loan law. As I remember it, the law held the mortgage companies liable in some way that was viewed as unfair, and the lenders stopped buying Georgia loans for a week or two until the legislature reversed course.

Primarily for banks in the Midwest, the Chicago FDIC presents, "To Pay or Not to Pay - Mortgage Loan Originator Compensation" on 12/8 from 10-11AM CST. "Do you offer mortgage loans? Then this call is for you. Learn the do's and don'ts of mortgage loan originator compensation. This one hour session will cover certain aspects of the mortgage loan originator compensation rule and how they impact your bank, including: prohibition on compensation based on loan terms or conditions, prohibition on dual compensation, prohibition on steering." The one hour call will be comprised of FDIC Compliance Examiners and will include a Q&A at the end. Register by tomorrow at https://fdicsurvey.inquisiteasp.com/fdic/surveys/R5ECF8/  or call Christina McKnight at (312) 382-6923 or email chiconferencecall@FDIC.gov.

"Rob, I know most of us are tired of hearing about Loan Originator Compensation, however, there are elements of LO Comp that are not being widely used to help the originator when competing for larger loans, or struggling to generate enough revenue on the lower loan amounts, and that is the use of the minimums, and maybe even more importantly, the maximums.  Our company (Clearpoint Funding) has been on a robust recruiting effort these last several months, and the level of interest by the sales candidates in how our LO comp works has increased dramatically over those recruited months earlier. Through these interview processes it has been clear that many lenders aren't looking at the maximums as a powerful tool. For example, if the originators average loan balance is $200,000 and they need $4,000 on average to run the shop and pay their LO's then in theory they would select a 2% rev tranche.  This works well until they have the chance to originate the $800,000 loan, and not only is it hard to sell collecting $16,000, the other problem is the premium caps that exist on most all jumbo loan products where adjusting the price by 2.00% will, in most cases, result in a discount to the consumer.  Using a maximum in the LO Comp Grid of say $8,000 would translate to a price adjustment of 1.00% instead of 2.00%, which should be able to be covered in most pricing grids, and possibly still allow some premium to the consumer.  $8,000 is also double their average revenue per file. Likewise, minimums can help protect the downside.   If you or your readers are more interested, they can contact us, or better yet, contact one of our new Divisional Managers (Sharon Bitz at sbitz@clearpointfunding.com or Corey Moore at cmoore@clearpointfunding.com)  who are experiencing this first hand. (Info on Clearpoint can be found here.)

And while we're on LO comp, if you'd like 425 frequently asked questions (132 pages) on LO comp, visit http://lenderscompliancegroup.com/113.html.

One reader wrote, "The Fed Rule's penalty for LO Comp violations is 3 times the commission for the loan officer and for the lender the ability to foreclose becomes questionable. There is no provision for a government agency to perform any enforcement action. When a group of us met with Paul Mondor at the Fed, he said his solution is to let the plaintiff's bar enforce the Rule. This is Paul's way of letting the market enforce the Rule. When he made that comment, several of us sat there with our mouths open. If you read the Rule, it does not say anything about trial lawyers, but that is what the Fed had in mind.  So, when some lender ends up with an unenforceable mortgage, the word will get out most of the under the radar players will get in line. It is maddening, but those kinds of players are really not the competition for those of us who play by the rules, whenever we can understand the rules."

Yes, there is actually a 203(k) program out there. The trick is finding lenders who will do them and investors who are actually interested in buying them. REMN is hosting a training session on 203(k) complete with a Q&A session.

Bank of America told remaining correspondents that on Pearl Harbor Day it will no longer waive the DU underwriting fee when a loan is referred by CLUES, and that 12/15 is the last day Bank of America Correspondent Lending will purchase any loan. In regards to any post-purchase adjustment issues, requests for these must be received by Correspondent Lending no later than January 13 and will be settled no later than February 10.

GMAC/GMACB announced the extension of the DU Refi Plus program through December 31, 2013. Borrower Benefit information that is being added to the Underwriting section of the DU Refi Plus product summaries and updates to the Escrow Waivers section of the DU Refi Plus product summaries can be found on the GMACB Correspondent website.

 
SunTrust now allows the use of a written or fax verification of employment (VOE) when a verbal VOE is unavailable for all Agency products to verify the borrower's current employment status. Correspondent clients may also want to know that they need to provide the borrower with a Notice of Assignment, Sale, or Transfer of Servicing Rights (the "Notice") that complies with the Real Estate Settlement Procedures Act (RESPA) requirements.

PHH got the word out to clients that, "Effective for all FHA case numbers assigned on or after January 1, 2012, and for all appraisals performed on HUD REO and Pre-Foreclosure Sale (PFS) properties with an effective date on or after January 1, 2012, appraisals completed on Fannie Mae/Freddie Mac Form 1004/70 and Fannie Mae/Freddie Mac Form 1073/465 must be UAD compliant. The Uniform Residential Appraisal Report (Fannie Mae/Freddie Mac Form 1004/70) and the Individual Condominium Unit Appraisal Report (Fannie Mae/Freddie Mac Form 1073/465), forms which are currently required by FHA, have been modified by Fannie Mae and Freddie Mac to incorporate UAD requirements." As always, check the original bulletin for full details.

Wassup with this market? Not much: the 10-yr UST yield traded in a 28-basis-point range during November, with a high of 2.15% and a low of 1.87%, versus a 70-basis-point range in October, with a high of 2.42% and a low of 1.72%. During the past week, agency MBS's had a great run relative to Treasury prices, primarily due to supply and demand. And the 10-yr closed out at 2.04%. After last week's excitement, this week is pretty tame for economic news. Today we'll have Factory Orders and the ISM Services Index. Zip tomorrow and Wednesday; Thursday is the usual Jobless Claims, and then on Friday some trade figures and a Michigan Consumer Sentiment number.

(I am heading off to three days of mortgage meetings in Arizona, so replies to any e-mails will be late or sporadic.)

I studied a long time to become a doctor, but didn't have any patience.
Next, was a job in a shoe factory - tried hard but just didn't fit in.
I became a professional fisherman, but discovered I couldn't live on my net income.
I managed to get a good job working for a pool maintenance company, but the work was just too draining.
So then I got a job in a gym, but they said I wasn't fit for the job.

After many years of trying to find steady work, I finally got a job as a historian - until I realized there was no future in it.

My last job was working in Starbucks, but had to quit because it was the same old grind.


If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog reminds everyone about how government intervention in the housing market is nothing new. If we forget history, we are doomed to repeat it, and it is important to know the last 15 years of the history of the agencies. 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.