Guarantee Fee Increase Chatter; Cordray in at CFPB? MERS Update; PHH's New Chief

There sure is a lot going on for a holiday-shortened week. First off, the Fed sent Congress a little missive on how to fix the housing and mortgage market. Among the ideas is forming a national strategy to facilitate the conversion of foreclosed properties into rentals, allowing banks to rent their repossessed homes rather than forcing lenders to sell them, changing the compensation structure for mortgage servicers, companies that collect payments from borrowers and pursue foreclosures in the event of a default, creating a national online registry of liens to track ownership interests, and altering existing Obama administration policies to allow for more refinancings and mortgage restructurings. These are a few of the twelve ideas - although many of the Fed's proposals either have been considered by policymakers or are under consideration now, the report is the Fed's most comprehensive effort to date to identify the ailments plaguing the US property market and potential solutions for policymakers to consider. Here is a summary. But don't believe everything you read - here is the actual paper.

Politics can be dirty: President Barack Obama plans to appoint the first director of the CFPB while Congress is on holiday, through a "recess appointment," defying Republicans who had vowed to block any nominee from taking power. Richard Cordray, known for his Jeopardy game prowess, will receive the nod to head the agency after being nominated in July. Last month Senate Republicans blocked a vote from taking place. It seems no one really minds Cordray...they just don't like the agency itself. Proponents like the agency since is meant to supervise previously under-regulated industries, like nonbank mortgage lenders. Others view it as another layer of unnecessary bureaucracy and an added compliance expense.

Can you believe that regulators have missed roughly three-quarters of the deadlines for implementing the Dodd-Frank financial reform law through 2011, according to a new report? So far, 200 deadlines for drafting rules to implement the Wall Street overhaul have come and gone, and regulators have met only 51 of them, according to the law firm of Davis Polk. Another 200 rulemaking requirements stemming from the law still await regulatory action. Just 21.5% of the rulemaking requirements have resulted in finalized rules, while 38.75 percent currently have proposed rules. Another 39.75 percent of rules that ultimately will have to be implemented to make the law a reality have yet to be proposed. Look under "resources" at http://www.davispolk.com/.

When it rains it pours. PHH, in the news lately for being downgraded by S&P, saw its president and CEO Jerome Selitto resign. He has been replaced by COO Glen Messina, who was with GE prior to PHH. No reason was given for Selitto's resignation.

Tongues are wagging and speculating about the GSE guarantee fee increase coming up. FHFA has noted that the g-fee shall be increased to reflect the risk of loss, as well as the cost of capital allocated to similar assets held by other fully private regulated financial institutions, but it should be no less than an average of 10 basis points for each origination year above the average fees imposed in 2011 for such guarantees. The GSEs will be prohibited from offsetting the cost of the fee to originators, borrowers and investors by decreasing other charges, fee, or premiums, in any other manner. FHFA can allow the increase in the g-fee charged by the GSEs to be phased-in gradually over a 2-year period, and should provide "uniform pricing" among lenders.

Fannie and Freddie will increase their guarantee fee on all residential loans being pooled by 10bp on April's Fool's Day, but most believe that this increase should start to reflect on mortgage applications in February, if not sooner. Other increases might be needed over the next couple years, especially if g-fees are raised to match what a non-government institution would charge for the risk. Some estimates that I have seen on this are another 15-35 basis points over the next two years (on top of the 10bp increase effective 4/1). Lastly, yesterday the commentary mentioned a buydown ratio of 2:1. As several astute readers pointed out, the actual ratio is closer to 4:1, so a 10 basis point increase could easily cost borrowers 40 basis points, or roughly .125% in rate. And all to support a two month payroll tax waiver extension! One can just shake their heads in disbelief...

A research piece from Morgan Stanley noted that, "The FHFA will need to increase fees again to "make up" for fees not collected in Q1. This increase would depend on how much issuance would occur in Q1 versus how much will be expected in Q2-Q4, meaning if issuance was expected to go up, the additional fee increase could be smaller. In addition, it is likely that the average fees collected for HARP loans will be lower in 2012 relative to 2011 due to reduction in the LLPA cap under HARP 2.0 from 200 bps to 75 bps, and the FHFA will need to "make up" that shortfall as well. There are two ways in which the FHFA could increase fees again: another across-the-board increase, and/or an increase in risk-based fees."

Morgan goes on to say, "As part of the HARP 2.0 program changes, 30-year HARP loans will have an LLPA cap of 75bps (loans with terms of 20 years or less will have a cap of 0. This presents a significant restriction on how many additional fees can be collected from those loans. Any across-the-board fee increase will get passed on to HARP loans as well, in our view. However, any risk-based fees are more likely to be capped at 75 bps. Any future risk-based guarantee fee increase, therefore, must take into consideration how many loans are likely to be refinanced through HARP versus the non-HARP channels."

And while we're talking about our government making more money, the Treasury said it will start charging banks with more than $50 billion in assets a to-be-determined fee based on consolidated assets to cover the cost of the Financial Stability Oversight Council and the Office of Financial Research. DFA requires the government to bill banks for operations, which will start in mid-2012.

The OCC is rolling out its first public service announcements to alert consumers about the Independent Foreclosure Review announced by it, the Fed, and the OTS in early November.  The campaign follows the distribution of over 4 million letters to potentially eligible borrowers which include forms for submitting requests and instructions on how to use them. The public service materials include a feature story and two 30-second radio spots in English and Spanish.  These will be distributed to 7,000 small newspapers and 6,500 radio stations throughout the U.S. The announcements inform consumers of the specifics of the program which lets borrowers who faced foreclosure during 2009 or 2010 request reviews of their cases if they believe errors in the procedures used by servicers pursuing foreclosure actions caused them to suffer financial loss.  The parameters for determining eligibility are explained and borrowers are directed to a starting point for their requests.  Over 20 of the largest servicing companies are mandated to offer and process the reviews:  America's Servicing Company, Aurora Loan Services, Bank of America, Beneficial, Chase, Citibank, CitiFinancial, Citi Mortgage, Country-Wide, EMC, EverBank/Everhome, Freedom Financial, GMAC Mortgage, HFC, HSBC, IndyMac Mortgage Ser vices, MetLife Bank, National City, PNC, Sovereign Bank, Sun-Trust Mortgage, U.S. Bank, Wachovia, Washington Mutual, and Wells Fargo.

Mortgage Electronic Registration Systems (known as "MERS" on coffee mugs and pens everywhere) secured a legal victory this week when the Denver-based 10th Circuit Court of Appeals upheld three lower court opinions granting MERS the right to foreclose when the company is listed as nominee of the note. One can only wonder at what MERS legal bills must be like, and how many attorneys are working for it. The appellate case ("Commonwealth Property Advocates v. MERS") dealt with three foreclosure cases on appeal. The homeowners argued the securitization structure prevents MERS from having a right to foreclose since investors with an ownership stake in loans held in trust never received a chance to approve the foreclosure action. Commonwealth Property Advocates became the plaintiff after the homeowners conveyed their properties to the entity. The 10th Circuit, which reviewed Utah appellate court decisions, upheld MERS ability to foreclose, saying the deed of trust specifically gave MERS the right "to foreclose on behalf of lender and lender's successors and assigns."

The fixed-income markets had a little bit of a roller coaster ride Wednesday. 10-year T-notes opened over 1/2 point higher, reversed to nearly 1/2 point lower mid-afternoon, before ultimately closing lower by about .250 in price to a yield of 2.00%. Thomson Reuters noted that "originator supply is estimated at remaining below $1.5 billion which is deemed not enough to satisfy demand, especially with the Fed buying over $1 billion per day on average." This helped MBS's, and rate sheet prices, to have some stability.

Today's economic calendar includes/included the ADP Employment for December showing +325k private jobs, much higher than expected. (Its predictive ability for the government's Non-farm payroll number on Friday is subject to debate.) Initial Jobless Claims for 12/31 showed a drop from 382k down to 372k, with the 4-week moving average being -3,250; later we'll have ISM's Non-Manufacturing index. After the solid jobs numbers we find the 10-yr at 2.01% and MBS prices roughly unchanged.

A border collie went to a telegram office, took out a blank form and wrote: "Woof. Woof. Woof. Woof. Woof. Woof. Woof. Woof. Woof."
The clerk examined the paper and politely told the dog: "There are only nine words here. You could send another 'Woof' for the same price."

"But," the dog replied, "then it would make no sense at all.

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog discusses the time frames for borrowers returning to A-paper status after a short sale or foreclosure. 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.