More on Temporary Leave, Branch Manager Comp; are Companies Liable for Employee Fraud?
I didn't make it to the gym today. That makes five years in a row.
Speaking of five years, WAMU's failure - the largest commercial bank failure in US history, took place on 9/25/08. For those of you who work for companies that have $5 or a $10 million in the bank, Washington Mutual had assets of $328 billion at the time it failed. And for all of you who like tying up your entire 401K in your company's stock, well, this was another lesson not to.
Here's a nifty periodical put out by our government, or more specifically HUD. "Lender Insight" is meant for any serious lender doing FHA or VA loans. "The goal is to offer insight to FHA lenders about what we see behind the scenes in lender approval, recertification, monitoring and compliance, and enforcement actions. Each issue will contain core information designed to help our lenders better understand the trends we are seeing. The newsletter will be distributed to readers via FHA's Single Family Housing Industry Email List. If you would like to receive the newsletter, but are not on the list, please visit this link to subscribe." Here is another link.
Are companies on the hook for fraud perpetuated by their employees? It sure seems that way - just ask TD Bank.
Years after residential loan originator compensation was supposedly set and regulated, it is still up in the air - especially with regard to how branch managers can be paid. I received this note from a respected attorney: "By making it illegal to incentivize salespeople based on profitability, we in mortgage industry have watched while our government legitimized the 'revolutionary' idea that the most fundamental law of supply and demand (the profit motive) is somehow a bad thing."
The question, apparently still somewhat up in the air, is whether or not branch managers can obtain profit compensation on the loans that the branch manager originates as an LO, or is there an exception if the manager originates less than 10 loans, and if so does the manager qualify for the 10 or less exception? There is a school of thought out there that believes the LO Comp rule expressly permits branch managers who originate 10 or less loans per year to be paid on profitability (just not on any of the 10 loans). For that matter, you can pay lots of people based on mortgage profits or overrides (including the C-Suite execs) because LO comp doesn't apply to any employee or manager that is not an LO (as defined by the rule). A branch manager, underwriter or secondary markets guy who only deals with other employees and doesn't interact with consumers can definitely be paid on profits, override or whatever, because they aren't subject to the rule. Producing managers, however, (with more than 10 loans per year) are definitely prohibited from getting paid on net profits, but an override would be permitted.
Other attorneys, however, believe that the definition of "origination" & "originator" has changed such that a non-producing branch manager is now an originator. Hence the 10 loan limit does not safeguard them from the rules. That being said, they are as much an originator as someone covered by the rules as a loan officer. And an originator cannot be paid on terms of multiple loans by multiple originators. That all being said, it is best to speak to your firm's attorney on their interpretation of the QM final rule amendments and what will happen in January.
Regarding the HUD information on maternity and paternity leaves, and the requirement for a paystub, the General Counsel of a well-known lender wrote and said, "I wanted to comment on the maternity leave issue you commented on in this morning's blog as there is another side to the story. I agree with you that ECOA and the FHA do not allow lenders to single out maternity or paternity leave. However, it is perfectly acceptable, and perfectly prudent as a lender, to require anyone on a temporary leave of absence from work due to disability or family leave to demonstrate their intent to return to work following the leave of absence. The key here is that this must apply to all instances of such leave and must not single out mothers on maternity leave. Employees must be properly trained to know the fair lending implications of the appropriate credit overlays and be able to effectively communicate them to a borrower. If you don't educate you can end up with complaints just due to the way your loan officers or underwriters are communicating these decisions to the borrower."
A check of the Fannie guidelines suggests that both yesterday's commentary and today's is correct. For example, west coast Pinnacle Financial's underwriting interpretation of Fannie's shows that for "Temporary Leave Income (can be included if the lender has the) Borrower's written confirmation of his or her intent to return to work, no evidence or information from the borrower's employer indicating that the borrower does not have the right to return to work after the leave period. And as long as they call it disability leave, then it would be acceptable for requiring a paystub showing they went back to work. Regardless of the date of return, the amount of the 'regular employment income' the borrower received prior to the temporary leave must be used to qualify."
On the MI side, a look at MGIC's information, on page 55 & 56, for example, also reflects this.
Let's continue playing catch-up on vendor, investor, and agency updates!
Pricing engine Optimal Blue released its "Real Time Compliance Management" product to its clients. Pretty snazzy.
Investment banker KBW announced that in the Northwest the holding company for Banner Bank the holding company for Home Federal Bank announced the signing of a definitive merger agreement pursuant to which Banner will acquire Home. The combined company will have approximately $5.2 billion in assets and will be the fourth largest Pacific Northwest headquartered bank as ranked by assets. It also will have a top 10 deposit market share position in Washington, Idaho and Oregon with an established platform for growth and continued operational improvement throughout the Pacific Northwest.
Per the recently published Mortgagee Letter 13-27, the FHA will be updating the Home Equity Conversion Mortgage program requirements to revise mortgage insurance premium and principal limit factors, restrict the amount of HECM funds allowed to be disbursed at closing and over the first 12 months following closing, require all HECM mortgagors to complete a Financial Assessment, and require that a portion of the loans proceeds is set aside or a portion of the line of credit withheld for the purposes of paying property taxes and insurance. Mortgagee Letter 13-28 follows up on this and provides additional details on the parameters for the required financial assessment that must be submitted before the FHA will approve all insured HECM transactions.
As part of the resources offered to assist lenders in their data delivery, Fannie Mae has published a defect categories list based off its post-purchase review of its acquired loans. The list can be viewed in full via the Loan Quality section of the Fannie website.
Fannie will be making several changes to the servicing reports issued via Message Manager, including modifying the Pool Deficiency report that is currently distributed. Cancelled Modifications, Highest Paydown, Loan Re-add, Loan Removal, Paid Off Pools, Pool Out-of-Tolerance, and Pool Pass-Through Rate Discrepancy reports, which are presently emailed by Fannie Mae Investor Reporting to applicable servicers, will also be added to Message Manager. The changes go into effect on October 4th.
HomeBridge Mortgage is offering the FHA Back to Work Program.
Freddie Mac failed to refer nearly 58,000 foreclosed mortgages with about $4.6 billion in shortfalls to vendors who assess borrowers' ability to repay and are responsible to collect mortgage payments, thus foregoing a chance to recover dues from homeowners who had the ability to repay, according to an audit report from the Federal Housing Finance Agency's Office of Inspector General, or OIG, in Washington.
Ginnie Mae's MBS New Issuance Monthly Loan Level-Disclosure File for the month of August is now available on the Data Disclosure Download page.
Franklin American is no longer offering a 5/2/5 on its 5/1 Conventional ARM product; this has been replaced with a 2/2/5 structure and affects both Conforming and high balance loans. When selecting a plan in DU, underwriters should continue to use the Generic ARM Plan.
FAMC has improved its pricing on 20-year Government loans by 75bps, reducing the previous -1.00 hit to -.25.
PHH will be locking all new Conforming 5/1 ARM registrations with a 2/2/5 cap structure and officially retiring the old 2/2/6 structure beginning on October 4th. Loans in the pipeline with the 2/2/6 caps must be sent for review and in "In Underwriting" status (Tier 6) by December 5th, closed and in "In Post Closing" status by January 2, 2014, and purchased by January 15, 2014. Eligibility requirements will remain the same, as will the cap structures for Non-Conforming and Interest Only 5/1 ARM products.
PennyMac is now issuing invoices for trailing documents that are outstanding for more than 240 days from the date of purchase. The $100 per trailing document fee will be reversed if the documents are submitted within the 30 day grace period provided following receipt of the invoice, and as a reminder, sellers may be required to repurchase loans with any trailing docs outstanding more than 270 days from the purchase date.
Mountain West Financial has announced that it is now paying for all second appraisals required by program guidelines for all loan types on Conventional, FHA, and VA transactions. Orders should continue to be placed through WebTrac, in which originators should select the "Net 30" option under the payment dropdown tab and include second the appropriate notes in the sections for additional comments and instructions.
M&T Bank has changed the state tier adjustment for 30-year fixed Government loans on properties in Florida and Georgia from 0 to +.125, effective immediately. For financed mortgage insurance on Conventional loans, the previous -.25 hit has been reduced to 0.
Moving over into the markets, fixed-income securities had a nice rally Tuesday. Why? For one thing, New York Fed's William Dudley "Do-Right" said that the debt ceiling issue is creating a cloud of uncertainty and it could have a negative effect on the economy. "Mr. Dudley went on to say that the Fed won't rule out tapering this year, but is it driven by economic data, not by a timeframe" per MMG. The two-month old Case-Sheller numbers came out, showing that the 20-city Home Price Index for July rose by 12.4% compared to July of 2012 to the fastest annual pace since 2006. However, from June to July there was a 1.8% increase, the smallest monthly gain since March, as 15 of the 20 cities saw slower growth (although Phoenix has had 22 months of positive returns!). Obviously, the recent rise in rates has slowed down originations. But perhaps most importantly, Consumer Confidence for September came in at 79.7, the lowest reading since May.
But bond prices, and practically every other commodity, are determined by supply and demand. And with mortgage banker production down (with many companies by 50%), buying from the Fed, overseas, bond funds, and hedge funds was strong and steady. By the close Fannie, Freddie, and Ginnie securities were better by .375-.625 (whether that is fully priced in to rate sheets remains to be seen) and the 10-yr closed at 2.65%.
Here in Kansas, in the very early going, rates are basically unchanged from Tuesday's close, so we may see rate sheets catch up a little. We'll have the MBA's application index, the always volatile Durable Goods (expected up slightly), New Home Sales for August (expected up slightly), and a $35 billion 5-year Treasury note auction at noon CST.