PHH Restructuring; MBA Classes; Servicing Comp Change Bearing Away; Harsher Fraud Penalties Coming?

The e-mail wires here in Miami have been burning up with...e-mails.

PHH clients received a note from Norm Fitzgerald, explaining the recent restructuring. "I am writing to let you know we recently decided to reallocate resources from our Correspondent Lending channel to our Private Label Solutions and Real Estate Field Sales distribution channels. Although this action will reduce our Correspondent Lending volume, I want to be clear that we are committed to Correspondent Lending and will continue to participate in the business with a renewed focus on our high quality and long term customers. We made this decision in response to ongoing challenges posed by the volatility in the global economy, the capital markets and the housing markets. We believe these market uncertainties require an increased emphasis on liquidity and cash-generation. While our company focus may shift and adapt with the current market environment, our priorities remain the same, including an unwavering commitment to customer service."

Lenders One clients also received a note about PHH, recently downgraded by S&P (join the club!), under investigation by the CFPB, and which carried out significant layoffs earlier this week. "Given the potentially serious nature of the situation, we have endeavored to find out as much as possible so that we could share tangible information with the Members.  However, we also want to avoid spreading rumors or providing misinformation. To that end, we can think of no better way to ensure the most accurate distribution of information than to invite each of you to participate in the upcoming PHH earnings call which, fortuitously, is scheduled for next week...'PHH announced plans to release its fourth quarter 2011 results on Monday, February 6, 2012, after the market closes. The Company will host a conference call at 10AM EST on Tuesday, February 7, to discuss its fourth quarter 2011 results. You can access the conference call by dialing (888) 510-1762 or (719) 457-2634 and using the conference ID 4120134 approximately 10 minutes prior to the call. The conference call will also be webcast, which can be accessed at www.phh.com/invest under webcasts and presentations.'"

Not to be outdone in sending notes, Wells Fargo's wholesale management (Kevin Sexton, Bill Trees, and Jim Wyble) sent out a note to brokers. "As the competitive landscape for third party lending continues to evolve, we wanted to take this opportunity to confirm our commitment to Wholesale lending and our broker community. As other lenders exit the Wholesale business, we believe 2012 promises to be a great year with ample opportunity as we continue to work together and remain focused on quality. Wells Fargo Wholesale Lending is committed to serving you and your customers. For more than 15 years, Wells Fargo has been an industry leader in the Wholesale channel. As we've demonstrated time and again, Wells Fargo is invested in the long-term success of you, your borrowers and the wholesale business. You can count on our dedicated team to partner with you to provide valuable products and programs to American homebuyers in a fair and responsible way."

Back in September the FHFA, the overseer of Fannie & Freddie, released a "white paper" suggesting a change to the way servicers are compensated. FHFA's goal was to propose a new servicing compensation structure to (i) improve service for borrowers; (ii) reduce financial risk to servicers; and (iii) provide flexibility for guarantors to better manager non-performing loans while promoting continued liquidity in the TBA market. It asked for comments on reducing the Minimum Servicing Fee (MSF) from 25bp to 12.5bp to 20bp. (The proposal established a separate account within the trust structure of the MBS which is funded by reallocating around 5bp from the borrowers payments, and would be available to pay for non-performing loan servicing.) Under this proposal, servicers were to move from receiving 25bp of servicing to receiving a fixed dollar amount based of compensation if the loan is current ($10/loan). And in order to protect investors from churning, the enterprises were to do the following: implement a net tangible benefit test for streamline refi programs, enhance monitoring and tracking of prepayment speeds for each servicer, and restrict the amount of excess IO in a pool. But lacking was a plan for guidance on what a servicer might earn should a loan go delinquent.

We've come to learn that the FHFA is preparing to back away from this plan to overhaul the minimum servicing fees paid on Fannie Mae and Freddie Mac loans, after intense, across-the-board industry opposition to the idea. "Sources" say it's pretty much over and done with, and in a non-descript message FHFA spokeswoman Corinne Russell e-mailed, "Considering changes to the structure of mortgage servicing compensation is an important component of improving the operations of the future mortgage market. We received useful input on the discussion paper, and will provide an update on next steps in the near future." Most servicing advisory firms came out against any radical changes to compensation, as did the MBA. (Editor's note: haven't we had enough change and uncertainty from outside the industry - why do we need more from within it?)

Live and learn. There are a lot of learning opportunities from our MBA for mortgage folks out there. (Probably even a few where this might happen). For example from Feb 13-15, "Collections and Early Intervention: Regulatory Requirements and Implementation Strategies is for all the collections and customer service managers, leads, and supervisors out there to help design compliant strategies and processes for handling collections" - Link.
Continuing on, for asset managers, relationship managers, servicing managers, and commercial real estate primary services who service CMBS loans, "CMBS Restructures: How to Work with Customers on Non-Performing Loans" outlines the specific details of the responsibilities, standards, and circumstances associated with CMBS loans. More information for the Feb 16 course. And anyone who works in REO and is interested in asset management protection should look into "REO and Property Preservation," which will help participants with strategy, managing remediation costs and timetables, and calculating return on the repair dollar and its influence on the markets.  This one will take place from March 12-13.

The FDIC will host a national conference on "The Future of Community Banking" on February 16 in Arlington, Virginia. The conference will provide a forum for community bank stakeholders to explore the unique role community banks play in the country's economy and the challenges and opportunities this segment of the banking industry faces. Ben Bernanke and FDIC Director Tom Curry are scheduled to deliver the keynote addresses at the conference. FDIC Acting Chairman Martin J. Gruenberg will also make remarks -  additional information. Before you book your flight, attendance at the conference is by invitation and will be open to credentialed members of the media - so the conference will be broadcast live and archived through a publicly available webcast on the FDIC's Web site here.

In keeping with regulation trends, the US Sentencing Commission has proposed harsher sentencing guidelines for securities and mortgage fraud violations. (Who knew our government had a sentencing commission - but these days who is surprised?) It is seeking comment on whether or not the current guidelines under Dodd-Frank account for potential and actual harm to the public and financial markets from securities, mortgage and financial institution fraud.  Regarding securities, the Commission is focusing on insider trading, while for mortgage fraud, they're looking to amend the way loan fraud loss is calculated. The latter would be assessed by taking into account the amount recovered from the foreclosure sale where the collateral is disposed as well as reasonably predicted administrative costs incurred by the lending institution associated with the foreclosure of the mortgaged property. The Commission also wishes to amend the sentencing for specific financial harms such as "jeopardizing the financial institution."  To view the proposal in full, see http://www.ussc.gov/Legal/Federal_Register_Notices/20120119_FR_Proposed_Amendments.pdf.  Note as well that they are accepting public comments until March 19th!

The California Department of Real Estate (DRE) is constantly asked, regarding short sale transactions, whether a buy can be charged to compensate either the sale negotiator or the broker.  As of July 2011, California state law prohibits the charging of additional fees in exchange for the written consent of the sale.  Under the Real Estate Law, short sale fees may still be charged, but, to maintain a certain level of transparency, the negotiator must be properly licensed under California law, and there must be full written disclosure to all parties involved, including the short sale and originating lenders.  The compensation fees must be disclosed in the purchase agreements, escrow instructions, and HUD 1 statement.  Any "special fees" charged must be authorized by the DRE via an advance fee contract; Additionally, the Real Estate Settlement Procedures Act (RESPA) requires these fees to correspond to an actual service performed-in other words, the buyer must be getting work done for any money paid.  Any "junk" or "special" fees and they'll be on you like a ton of bricks.

Yup, rates are good, and should be for quite some time. Like Ground Hog Day, yesterday was more of the same: good supply/selling from mortgage bankers (maybe locks are picking up with these record low rates?) met by more demand by the Fed, hedge funds, banks, and money managers. Investors are piling into agency MBS in anticipation of a QE3 round from the Fed - officials have been hinting lately about plans to potentially launch another round of QE (w/this one focused on mortgages instead of Treasuries). The Fed's appetite continues to be a constant $1-1.2 billion a day, so any selling above or below that by originators tends to tilt the scale. (Bernanke, who testified yesterday in Washington, said nothing new to move the markets.) Yesterday, by the close, MBS prices were better by almost .250 and the 10-yr T-note closed at 1.83%.

We've had the 1^st-Friday-of-every-month jobs numbers this morning. January's Nonfarm Payrolls, expected +150k, down from +203k in December, came out at +243k. The Unemployment Rate dropped from 8.5% to 8.3% (the lowest in almost 3 years). With no substantive news from Europe, this will probably determine trading for today, and soon after the strong jobs number the 10-yr worsened from 1.82% to 1.92%, and MBS prices appear worse by .375-.50.

For more weekly insight into MBS / secondary markets, make sure to read and subscribe to: Calculating Current Coupon in a Record Low Rate Environment by Bill Berliner.

A guy took his blonde girlfriend to her first football game.
They had great seats right behind their team's bench.
After the game, he asked her how she liked it.
"Oh, I really liked it," she replied, "especially the tight pants and all the big muscles, but I just couldn't understand why they were killing each other over 25 cents."
Dumbfounded, her boyfriend asked, "What do you mean?"
"Well, they flipped a coin, one team got it and then for the rest of the game, all they kept screaming was, 'Get the quarterback! Get the quarterback!' I'm like...Helloooooo? It's only 25 cents!!!!"

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 residential lending and mortgage programs around the world, part 2. 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.