The Tortilla Industry's Relation to LO and Realtor Comp; Thoughts on MBS Versus Rate Sheet Prices

I know that some folks only read the first paragraph of this daily blather, and then skip to the joke. That's why I am putting this in now: http://www.consumerfinance.gov/notice-and-comment/. Don't say that you never commented on the plethora of things the CFPB is considering, especially QM - the borrower's ability to repay proposals. The CFPB delayed new rules to create standards for the mortgage-lending industry, and extended the public comment period above. Not to be confused with QRM, "Qualified Mortgage" rules will eventually outline what types of loans are available to most borrowers and provide some lawsuit protection to banks. My opinion is that certain loans were able to help certain borrowers, and shouldn't be outlawed, but the press believes that the Dodd-Frank law mandates the consumer bureau's mortgage rule exclude many types of loans that "helped fuel" the financial crisis. Richard Cordray noted, "We want to ensure that consumers are not set up to fail with mortgages they cannot afford and we want to protect access to affordable credit." A noble goal indeed.

Fortunately, while parts of our industry muddle along, others continue to expand and are looking for staff to take advantage of rates. AmeriSave Mortgage has an immediate need for experienced underwriters across the nation and processors in its Atlanta, Dallas, and Tampa markets. "Founded in 2002, the company offers competitive salary, good benefits and work-from-home opportunities, and combines expert technology with experienced leadership & innovation. AmeriSave is one of the nation's leading and fastest-growing retail and third party mortgage lenders, closing over $5 billion in 2011 and servicing customers in all 50 states with over 500 employees nationwide."  If you're interested, or know someone who is, they should contact resumes@amerisave .com.

And in California, California mortgage broker Back Bay Funding is seeking experienced and talented loan officers to join a very established team of originators and processors, many of which have worked together for many years.  Back Bay Funding is a mid-size firm located in Irvine, CA with 40+ lenders including Union Bank, SunTrust, Interbank, Wells Fargo, Flagstar, Plaza, Parkside and many others (www.backbayfunding .com). Originators have the ability to generate conventional, jumbo, VA, FHA, construction, commercial and private loans and take advantage of fast turn times, and very competitive commissions. Loan officers will need to be DRE and NMLS licensed to be compensated; satellite offices welcome. For inquiries contact Darren McLellan or Amisha Hansji at Darren@backbayfunding .com or Amisha@backbayfunding .com.

Until the mid-1990's, the price of tortillas in Mexico was fixed. (Hey, I don't make this stuff up.) But in early 2007 the price of tortillas soared nearly 400% in the span of a few months. "We will take all the measures within reach of the federal government to avoid escalating prices," Mexican President Felipe Calderon said. But he added the government did not fix tortilla prices. As it turns out, Mexico, the birthplace of corn, now imports much of the grain from the United States, and back then the demand for corn-based ethanol fuel made grain prices shoot up. One news story said, "The Federal Competition Commission regulatory body will launch a probe into tortilla prices.'The objective of the investigation is to determine whether there is any collusion to fix prices, restrict amounts of the goods or divide markets between competitors,' it said."

I mention that because price fixing, whether it is a fixed origination fee, or a 6% Realtor fee, is on many originators' minds given the CFPB's recent stance. One LO wrote to me saying, "I think the NAR and the state RE orgs need to really lobby on this one, they could be next and this will harm their industry. Do you think banks will get exemption as they did for current compensation rules?  As a correspondent we have the best of both worlds, we can continue business as usual under correspondent funding and use YSP to compensate ourselves, pay borrower costs or if need to  broker we follow the broker comp rules on deals.  I am wondering if a similar industry split may occur with flat fee loan pricing. Will our national mortgage industry will be based on the Mexican Tortilla model?"

Before going through some recent agency & investor updates, there is one correction to a DTI number from Friday for MGIC. Namely, starting on 5/21, MGIC's DTI was increased from 41% to 45% (NOT 51%) for loans in certain improving markets (FL, AZ, NV) for certain loans up to $625k.

In training news, there will be an FHA Update webinar Wednesday that discusses recent changes and developments in the FHA's single family program.  The webinar will feature speeches by senior HUD staff and will cover topics such as pending policy clarifications, lender insurance, 203(k) loans, and MIP changes. Register through the MBA here.

Chase is changing the price adjustments for Agency Fixed and Agency ARM cash-out refinance transactions.

SunTrust announced new FHA mortgage insurance premiums, as well as DU Refi Plus enhancements. It also declared perpetual homeowners insurance policies as unacceptable. SunTrust announced changes to FHA's policy on treatment of escrows at FHA loan payoff.

Flagstar announced the Guaranteed Rural Housing (GRH) Rural Refinance Pilot program, making it easier for borrowers to refinance their existing Flagstar-serviced GRH loan at a lower interest rate.

Don't forget that FHA Streamline Refinance loans with case numbers assigned on or after June 11th will be subject to the new mortgage insurance premium structure.  The Up-Front premium will be 0.01%, regardless the base loan amount, while the Annual MIP will be 55 bps.  Lenders may request FHA case numbers for Streamlines with reduced MIPs from June 11th and will be permitted to cancel existing case numbers provided that they're for Streamline refinance mortgages that have not yet closed and were endorsed on or before May 31, 2009.  Case number assignments are predicted to take longer than normal due to a high volume of requests.

Previously Fannie Mae had allowed lenders a 90-day repurchase and make-whole requirement, effective until June 30th.  This extended repurchase accommodation, in which lenders can complete a repurchase or submit any documentation necessary to back up a formal appeal, will now be effective until December 31, 2012.  Fannie has also postponed the effective date for implementing the new lender-placed property insurance requirements, which had previously been set at June 1st.  Communication on the new effective date is coming soon.

For those who tweet, Fannie is on Twitter and can be followed here: http://twitter.com/#!/FannieMae.

New foreclosure prevention job aids are available on the Fannie website. The "Know Your Options Marketing Storefront," includes free marketing materials like brochures, letters, flyers, and pocket folders that can be customized and printed directly.

The Fannie Correspondent Lending Manual has been updated to include clarifications on flood insurance, liability insurance on attached condos and PUDs, an update on the Conventional PUD Questionnaire, FHA netting escrows, refi authorization, and DU update on government loans.

The Freddie Mac Standard Modification interest rate will be lowered from 5% to 4.625% for new trial period plan evaluations conducted on July 1st and after, and services are encouraged to begin using the new rate as soon as possible.  The fixed interest rate should be used when evaluating borrowers to determine eligibility, the terms of a trial period plan payment, and final modification.

New Freddie guidelines are in effect for cash-out transactions, whose proceeds may not be used as reserves.  Amended guidance on trade equity states that the net proceeds of the trade-in of the borrower's previously owned home are now permitted for purchase transactions.  The proceeds, which should be documented by an appraisal of the previously owned residence as well as a copy of the trade-in contract, are determined by subtracting any outstanding liens and any transfer costs from the lesser of the appraised value of the property or its trade-in price as listed on the contract.

Freddie has also issued updated guidance on rent credits stating that any of the borrower's prior rental payments are allowed to be credited towards the purchase price.  The payments may be used as Borrower Personal Funds.  The amount of credit towards the down payment is calculated from the difference between the market rent and the actual rent that was paid over the previous 12 months, the former of which is determined by the property's appraiser.  In such circumstances the loan file should include a copy of the rental/purchase agreement and copies of the borrower's canceled checks or money order receipts from the past 12 months to serve as proof of the rental payments.

Friday the commentary discussed how the high premiums in the MBS market (104, 105, 106) were not appearing on rate sheets for a variety of reasons, and Mark C. from LoanSifter wrote, "The only thought I'd add to your comment on premiums and retaining servicing is:  In some cases, the MBS price (especially after specified payups) may be higher than the capped price you'd get from a correspondent lender.  So you may have faster speeds, but as long as you don't only retain those (and get in trouble with the agencies), if the servicing is free, do you retain it?" (My answer would be "yes, if you can afford to retain it.")

John J. from Patriot Bank observed, "We are seeing that the higher rate loans are driven by the LLPA's of the various investors, i.e. investor properties, FICO/LTV combinations, etc.  For companies to cover their branch costs, commissions, a profit margin, and the LLPA's, a price of 104-107 is necessary.  As long as these LLPA's are being applied by the agencies and most investors, there should not be an opportunity for the borrowers of these higher rate loans to refinance to lower rates.  Shying away from note rates in the 4-5% range may be in line with popular thinking and our former experiences, but in today's risk-based pricing 'world' it may not be rational."

Rates are great - where do they go from here? Friday's poor U.S. employment report momentarily shifted attention away from Euro concerns, which will be with us for years but still have the same result on our markets: turmoil and slow economic news create a flight to quality that is keeping our rates low. On Friday our 10-yr hit 1.44%, but closed around 1.47% and rallied about 1 point. As you'd expect in a rally, agency MBS prices lagged, and were "only" better by about .5.

There is not a whole lot of U.S. news to push things around this week. Factory Orders today, ISM Services tomorrow, some Productivity and Labor Costs on Wednesday, along with the Fed's Beige Book. Thursday is Jobless Claims, and that wraps it up. In the early going our 10-yr is at 1.50%, and MBS prices are about -.125 from Friday's close.

A teenage boy had just passed his driving test and inquired of his father as to when they could discuss his use of the car.
His father said he'd make a deal with his son: "You bring your grades up from a C to a B average, study your Bible, and get your hair cut. Then we'll talk about the car."
The boy thought about that for a moment, decided he'd settle for the offer, and they agreed on it.
After about six weeks his father said, "Son, you've brought your grades up and I've observed that you have been studying your Bible, but I'm disappointed you haven't had your hair cut."
The boy said, "You know, Dad, I've been thinking about that, and I've noticed in my studies of the Bible that Samson had long hair, John the Baptist had long hair, Moses had long hair and there's even strong evidence that Jesus had long hair."
The Dad replied, "Did you also notice that they all walked everywhere they went?"