CFPB Tools for Research; 4506-T Indemnification Thoughts; Parts of PHH up for Sale?
Debi B. writes, "Thought for the day... We are always hearing about how Social Security is going to run out of money. How come we never hear about Welfare running out of money?" And there is plenty of money in the agency MBS markets, and F&F, and the FHFA, are indeed working on a platform for common securitization.
"All of the talk about lenders 'loosening' their requirements for IRS transcripts. Lenders should remember that just because an investor or aggregator does not require a customer to provide an IRS transcript for a borrower doesn't mean they are 'in the clear.' As you are aware, the agencies and many aggregators or national lenders include in their sale agreements with customers a clause saying the originating institution would have to repurchase any loan that contains fraud. For lenders that underwrite, certainly they could be in a repurchase situation for not correctly calculating a borrower's income. Let's say a lender, aggregator, or GSE executes the 4506-T as part of its post-funding Quality Control and sees unreimbursed business expenses, side jobs, or other discrepancies in the approved borrower's income. This would mean that it was not run through DU or LP correctly and potentially that there is borrower fraud since they signed a 1003 at closing not disclosing certain income or losses thereto. The question is not 'Will my lender let me close a loan without tax transcripts?' The correct question is, 'Without the transcripts from the IRS, what is the repurchase or indemnification exposure I have on this loan, if eventually the 4506-T is executed and my income figures are not correct.'" So wrote Fowler Williams, president of Crescent Mortgage Company - thank you!
(Speaking of the 4506-T question, here is what the public sees regarding Fannie & Freddie's stance on the requirement)
Not only is the lending industry grappling with potential future liabilities regarding 4506-T issues, but lenders will still somewhat confused about the QM/non-QM question, and even what kind of loans they can originate. As a reminder, the CFPB came out with a quick reference chart. "Our newest chart maps out the types of qualified mortgages that small creditors can originate. View the quick reference charts here. These charts offer an easy way to visualize how the new mortgage rules are likely to apply to certain products or transactions in a variety of circumstances. These charts are not substitutes for the regulation text and official interpretations, but they can give you an idea of where to start."
And for fans of maps, as a reminder the CFPB also provides heat maps and illustrative graphs that detail local mortgage market trends. The tool relies on data gathered through the Home Mortgage Disclosure Act (HDMA) to offer consumers information on mortgage loan applications and originations, mortgage loan volume, and the volume of loans insured by the Federal Housing Administration (FHA) and the Veterans Administration (VA). Here you go. OK, so maybe the guys and gals at the CFPB have a ways to go before they rise to the level of analytics of say, a Wells Fargo, or even a well-staffed originator, but at least they've made something relatively mundane (spending any amount of time on a .gov website) somewhat interesting. The CFPB is planning additional features for the site, including "easy-to-use tools" that allow users to filter HMDA records and create summary tables and an application programming interface that will allow researchers and software developers to incorporate the CFPB-provided HMDA data into other applications and visualizations.
When I learned that CFPB examiners have found mortgage servicing problems at banks and non-banks, I immediately thought about sitting in my dentist's waiting room thinking, "What are the odds he doesn't find anything and they'll be no drilling?" Not good on both accounts as the older I, and Dodd-Frank, become. The agency released its recent report detailing mortgage servicing problems, which also found that many non-banks lack robust systems for ensuring they are following federal laws. Some of the mortgage servicing problems contained in the report are disorganized account transfers, poor payment processing, and loss mitigation mistakes. Some issued noted in compliance include: missing consumer compliance programs, the lack of formal policies and procedures, and the lack of independent consumer compliance audits. This is yet again, another indication of the role compliance, and compliance accountability, will play in mortgage banking moving forward. The official report can be found here, and is a useful guide for companies thinking about starting to build their own servicing portfolio.
Soon we will all be partnering with the CFPB! In late September the CFPB announced a partnership with the City of Jackson, Mississippi, to accept and respond to questions and complaints about financial products and services posed directly to the Bureau by local residents. The agreement will allow Jackson consumers to dial a local hotline and be connected with the CFPB's Consumer Response team, which will screen complaints for completeness, jurisdiction, and non-duplication. This agreement is one of several the CFPB has entered with localities around the country and is at least the second time that the CFPB has partnered with a locality on a consumer complaint hotline. We all know that the CFPB is currently accepting complaints regarding credit cards, mortgages, deposit products and services, consumer loans, private student loans, credit reporting, debt collection, and money transfers.
Yes, companies are going to merge, and the landscape is going to change - plenty or originators would rather focus on originating and not compliance. There is no doubt about it. Servicing is being transferred, personnel shifted or eliminated, originators are being courted, and companies are looking at getting bigger, smaller, or merging. For example, last week we learned that PHH was laying off hundreds of workers, and now the industry is digesting news/rumors that PHH is for sale, or at least parts of it are. So PHH is thinking about selling the company for up to $1.5 billion, which is roughly in line with the current capitalization of the company. KBW reports that the current tangible book equity of the company is $1.6 billion. The article also stated that PHH had approached both Ocwen and Nationstar about buying the mortgage company in recent months.
KBW goes on to say that, "...we believe that there are operational challenges for any buyer of the mortgage business. PHH is not a traditional mortgage company. The bulk of its mortgage volume comes through mortgage originations it makes on behalf of its partners. As part of the company's contract with its partners, PHH has to provide certain levels of service. We believe that this gives PHH somewhat less flexibility in cutting its costs, and management noted on the 2Q earnings call that it would seek to amend certain private label contracts to reflect fundamental changes in the industry. We agree that the company's $229 billion servicing portfolio ($133 billion of owned servicing) would be very attractive to both Ocwen and Nationstar. But neither company has paid meaningful premiums to book value to purchase MSRs. If we assume that the mortgage company is worth book value, the market is now valuing the fleet management business at around $140 million over book value. We believe that further upside to the current share price in a sale would largely depend on any potential buyer valuing the fleet management business at a level higher than this."
Keeping on with lender and vendor news, let's take a look at some recent announcements to see the trends out there in residential lending along with some upcoming events.
Radian's management reiterated that they expect the GSEs to introduce new risk-to-capital standards as early as year-end, likely in the range of 16-18 to 1 with potential haircuts for subsidiary capital. There is expected to be a phase-in period for the new rules. Given its holding company liquidity, the company expects to be able to comply with any new requirements. "While conditions in the mortgage insurance sector remain competitive, management believes that the overall growth in private mortgage insurance relative to the FHA should help limit competitive pressure. Further, the company noted that there are meaningful barriers to entry given the long timeline to profitability so it is unlikely there will be new entrants into the industry in the near term."
Effective October 1, the new name for Secondary Interactive is now Optimal Blue Secondary Services. "We are changing our name to better integrate our secondary marketing products and services with the Optimal Blue family and brand, a recognized leader and innovator in mortgage technology." To learn more about Optimal Blue Secondary Services, visit www.optimalblue.com.
Paramount Residential Mortgage Group announced the recent expansion of its Retail Division in the South Eastern U.S. "The Southeast territory will be headed up by the recent hiring of PRMG's new Retail Regional Manager, Steve Levine. Levine brings over 13 years of independent retail mortgage banking experience to an already robust PRMG retail platform."
MBA is holding a one-day Retained Servicing Workshop on Wednesday, November 13 at the Westin - DFW Airport, Dallas, TX. "We have a strong line-up of expert speakers, including executives from mortgage companies that have ramped up their servicing in the past few years. They will discuss their major operational decisions, such as servicing loans in-house versus using an outside subservicer. All companies that are starting to retain servicing must understand the CFPB servicing requirements that go into effect in January and what exemptions may apply to them as smaller servicers. Financially, they need to understand how to properly value servicing rights and explain their valuations process to regulators and auditors. Strategically, they need to decide if it makes sense to grow their servicing portfolios going forward. Click here to find out more.
In Georgia, its MBA October events will be held at the City Club of Buckhead (Financial Center) in Atlanta on October 23. FNMA will speak to the new changes (effective Nov.16th) as it relates to QM, DU 9.1 guidelines, Rep & Warrant framework, QC Overview and ULDD Phase 2 updates (more...). There is a Free Networking event hosted by the MBAG and anyone can attend. And lastly on the 23rd is a session on understanding the impact of the CFPB's Final Rule on ATR/QM on the Broker Model. "This is a Broker-Only Luncheon sponsored by the Mortgage Bankers Association of Georgia's Membership Committee and presented by Loretta Salzano" - here you go.
The Texas Mortgage Bankers Association is now accepting registrations for its annual Educational Seminar and Marketplace, which is scheduled for November 12th and 13th in Dallas, TX. The event will focus on best practices, with breakouts in operations and sales and general sessions on technology and compliance, and culminate with a CEO roundtable. Register here.
The Mortgage Bankers Association of Florida has announced the dates for the Eastern Secondary Market Conference, scheduled for February 5-7th in Orlando, and its 61st Annual Convention, scheduled for June 18th and 19th in Delray Beach.
As I head to San Francisco today to give a speech, there just is not much going on out there for the markets to latch onto. Partial government shutdown...blah blah blah...light MBS flows...market nervousness...delayed government economic announcements.... There just is not much going on with interest rates, and certainly lenders have much more on their minds. The economic calendar today contained more postponed data than released ones as the government shut down continues and August Trade Balances are the latest casualty - it is not coming out. The Treasury, however, will auction off $30 billion of 3-yr notes today. The "benchmark" 10-yr yield saw a 2.63% close on Monday, and this morning it is at 2.64%, with very little change in agency MBS prices.
Here are some facts for football fans, part 2 of 2:
It takes 600 cows to make enough footballs for one NFL season. Moo!
The Dallas Cowboys haven't played in Dallas since 1971. Cowboys Stadium is located in Arlington, TX.
The St. Louis Rams were the first NFL team to use their logo on their helmets.
The Green Bay Packers are a publicly owned corporation, the only team in the NFL to have this status.
President Theodore Roosevelt radically changed American Football rules when he introduced the forward pass in 1906.
Dr. James Naismith introduced helmets to football, but he is better known as the inventor of basketball.
Former Minnesota Vikings kicker Fred Cox invented the Nerf football in 1972...he still receives royalties for every unit sold.
The NFL is considered a non-profit and is thus tax-exempt.
The NFL requires that all stadiums be built facing north/south so the sun never interferes with a play.
The average life expectancy of an NFL player is 55 years.
The league minimum for an NFL rookie in 2013 is $405,000. In 2014 it will be $420,000. Somewhere, Ricky Williams smiles.
The NFL averages 290 million television viewers a week. That is four times the population of the United Kingdom.