Agencies to Limit Counterparty Risk? HARP and MI; HARP 3.0 on the Way?

One never knows what is going to happen next here at the MBA's National Secondary. One minute you're meeting with a team of smart investment bankers about their jumbo product, and five minutes later, on 50th Street, you come upon Ben Stiller in a gray trench coat and a skateboard filming "The Secret Life of Walter Mitty." (Almost as entertaining as delegated underwriting!)

Speaking of video, we now find more than 50% of internet usage focused on video applications. LO's, lenders, and vendors are providing video content, and book ads for LO's (see paragraph near bottom). As an example, FNC, a national appraisal software company in Mississippi that standardizes, scores, and distributes collateral information, produces a weekly video. (My head spins at the amount of public collateral data information that they control.) Even the agencies are using video to get the message across: https://www.efanniemae.com/sf/kyo/wayshome.jsp and http://www.freddiemac.com/corporate/company_profile/fm_your_mortgage.html.

Independent retail mortgage banker On Q Financial is looking for an experienced servicing employee to establish a servicing function including but not limited to third party servicing oversight, internal short term servicing, reporting, auditing, and verifying compliance agency guidelines. Based in Scottsdale, On Q Financial, with 23 offices across the nation and approved to lend in a couple dozen states, is a Fannie Mae approved seller/servicer.  Previous experience in servicing and third party oversight is required, and experience in reviewing ledgers, reports, completing internal and external audits, and maintaining an active communication with management is strongly recommended. Candidates should send their resume to Renea Aderhold at renea.aderhold@onqfinancial.com.

In the Washington DC metro area, 1st Portfolio Lending is staffing up and hiring processors and underwriters for offices in Vienna, VA and Bethesda, MD.  Ideal candidates are those looking for work in an innovative positive environment.  1st Portfolio Lending is an independent, privately-owned direct mortgage lender focused on providing exceptional service to its residential mortgage customers in Virginia, Maryland, the District of Columbia, Delaware, North Carolina and Florida. For more information on the firm, visit http://firstportfoliolending.com/, and those interested in submitting resumes should send them to Barbara Evans at bevans@firstphc.com


Does the industry, and the borrower, need a  HARP 3.0? That is a loaded question, and to detailed to discuss here but you can read some thoughts on it at www.stratmorgroup.com near the top right.

Here at the MBA's National Secondary, one of the big topics is monitoring & limiting counterparty risk, the current version, with a few twists, of "Don't put all your eggs in one basket." Pipeline hedging firms advise not doing all your security trades with one broker-dealer, just like a wholesale lender doesn't want all its business coming from broker. The CFPB has pretty much said that financial institutions need to concern themselves with, and in some cases be responsible for, their counterparties following policies and procedures. One piece of scuttlebutt from this conference in NY is the possible capping of agency counterparty risk in the form of limiting sales to Freddie & Fannie based on net worth. At this point it is a rumor, but if it plays out, it could severely hamper small independent mortgage bankers in selling large sums to Fannie & Freddie and help the depositories. Makes sense... if your net worth is $3 million, and you're selling $100 million a month to an agency, does the agency want that potential liability? (Questions about agency approval can be found on the agency websites such as https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0823.pdf and https://ww3.freddiemac.com/ds1/singlefamily/beourcustomer.nsf/frmEligReq?OpenForm.

The commentary mentioned a couple of weeks ago that much of the world's GDP strength has the potential of turning over this year through elections. Sure enough, the Greek elections were the real market driver yesterday, not France's.  The two pro-bailout parties, New Democracy and PASOK, suffered material setbacks at the polls, both doing worse than many anticipated.  It looks like the two may be able to form a coalition government that would barely give it a parliamentary majority (some estimates think a coalition of the two parties would have 153 seats out of 300) although it isn't clear if such a dynamic could survive (a 3 seat majority would make for an extremely unstable coalition.

But I do my best to avoid politics in a commentary about mortgage banking, but sometimes one can't help it. The political path between now and the November elections is relatively clear: only minor new legislation is expected to come out of Washington, Mitt Romney will challenge the Democratic incumbent Barack Obama for the White House, the Republicans will look to defend their hold on the House of Representatives and will attempt to wrest control of the Senate from the Democrats. At the end of the year, only seven weeks after the election, we have the scheduled sunsetting of the Bush tax cuts, worth hundreds of billions of dollars per year, the expiration of the 2%-point payroll tax holiday and emergency unemployment compensation, and the automatic budget cuts written into the Budget Control Act as penance for the Supercommittee's failure to reach agreement last fall. All told, under current law, through a combination of tax hikes and spending cuts, fiscal policy is set to tighten by over $500 billion at the beginning of next year. Not only is that an enormous sum-almost 4% of GDP-but it is all set to occur at a single point in time.

Our GDP is only 2.2%, and you don't need a 3rd grade number line to tell you it would put GDP into the negative. What Superhero will keep these events combining to put the U.S. into a recession or depression? It probably won't be a Superhero, but instead Congress kicking the proverbial can down the road by changing the laws so that most of the tightening of fiscal policy will be temporarily or indefinitely deferred to future years. Neither Republicans nor Democrats have an incentive to throw the economy into recession, so the odds are good they'll just extend things. But, of course, the public doesn't like uncertainty, or the games Congress plays. And maybe, if the Mayans are right about the end of the world, we won't have to worry about it anyway.

I received a few notes regarding HARP and MI cancellation. "Because MI's are simply modifying the existing coverage, there are no changes to the coverage percentage and premium rate.  Of course while the premium rate itself does not change, the premium rate may be applied to a new loan amount. Any increase or decrease in the loan amount may affect the premium amount accordingly. While it is true that the clock for automatic cancellation is reset at the point that the new loan is certified, the Homebuyers Protection of 1998 requires automatic cancellation at either 78% of the new value OR at the midpoint of the new loan's amortization period, whichever comes sooner.  So, in a 30 year mortgage example, the MI would drop off at 15 years (provided the borrower is current) at worst regardless of the LTV.  The MI position on cancellation is simple:  any borrower paid MI policy is cancellable by the insured (lender) at any time.  For the insured, they very well might want to keep MI on an underwater loan until they feel the risk is decreased enough to warrant cancelling it. All of that written, your reader is absolutely correct that a full cost/benefit analysis should be done for any borrower considering the HARP 2.0 program."

And another: "We are already getting calls asking us when does the MI drop off a HARP loan.  On primary residence - HOEPA would go into play - and after that - it is the servicer that decides when to cancel the MI.  The MI companies do not dictate this.  And second and investment properties do not follow under HOEPA and would be decided by the servicer."

And lastly: "With reference to the MI and HARP...Does one really think the MI companies are going to release MI on a HARP refinanced loan within the original 7 years? Even without HARP, releasing MI is not automatic."

The commentary started off discussing the use of videos. I can't publish every ad, of course, but received this from an old acquaintance: "Whether you are a loan officer or a big lending company, you need to market, and video is the most efficient marketing tool out there today.  Online video helps SEO, lead conversion and credibility issues, plus it's cheaper than ever to produce.  But you have to make it interesting to watch. Check out the new book "Video Marketing For Dummies" created by Kevin Daum.  It tells you everything you need on how to create, post, and promote great business videos.  It even tells you how to stay out of copyright trouble.  (No you can't use that song by the Clash!)  Check out this hilarious video for the book: http://bit.ly/JLb9e4. (Cat and Baby lovers beware.)" Here is the Amazon link:
http://bit.ly/IXLjU5.

The markets barely budged yesterday, and the 10-yr is right where it started at 1.88%, which is a good thing since we have enough other "stuff" to worry about.


12 Things I've Never Said Regarding Air Travel
1. Oh, thank goodness. I have the middle seat! I LOVE THE MIDDLE SEAT.
2. Man, this food is delicious.
3. These security measures are so darn efficient.
4. That TSA agent was as gentle as she was attractive. (Note: I can actually see how this could be said, albeit not in a complimentary way).
5. The stranger who is seated next to me is being incredibly respectful of my personal space.
6. He also smells wonderful.
7. Aww, did you see all the wonderful people who jumped up to help that woman place her bag in the overhead compartment? Humanity is great.
8. I love flying. We should do MORE of it.
9. You know, they really give you TOO much legroom.
10. I can't believe how little we paid for these tickets.
11. I think wearing just socks to the airplane lavatory is a great idea!
12. Yay! We landed early AND we have a gate!