Jan. 27, 2011: LO Comp Part III; Freddie & Fannie chatter; MBA priorities for 2011; letters & lawsuits
Rob Chrisman

And for those ex-mortgage originators who always dreamed of being a snow plow driver: http://www.newsnet5.com/dpp/entertainment/snowplow-sinks-into-snow-covered-hole. (Thankfully no borrowers were injured during filming.)

Sometimes I wonder if reps from the big banks feel like that snow plow driver. There is always a program or underwriting guideline offered from some other channel within a bank that is better/faster/stronger... One example of this is within Wells Fargo, where retail (branch) originators accept FHA mortgages with credit scores as low as 500. "For borrowers with credit scores 500-579 a 10 percent down payment is required…For borrowers with credit scores 580-599 a 5 percent down payment is required…Borrowers with a credit score of 600 or higher are required to have a 3.5 percent down payment and a gift is acceptable." But at the wholesale channel, for example, 640 is the minimum score. Can you say, “cross-channel envy?”
 
A team of scientists from Japan, Russia and the United States hopes to clone a mammoth, a symbol of Earth¹s ice age that ended 12,000 years ago. The researchers say they hope to produce a baby mammoth before Freddie and Fannie cease to exist. http://nhne-pulse.org/scientists-trying-to-clone-mammoth/.
 
According to a story in the Financial Times, Freddie and Fannie have been quietly lobbying the US Treasury to cut the dividend they pay on preferred stock issued as part of their government bail-out. “A lower dividend would allow the two to begin repaying $150bn in taxpayer aid, these people said. It would also pave the way for a restructuring of the companies by cutting the amount of outstanding preferred stock held by the Treasury. Were it not for the dividend, both Fannie and Freddie would be close to breaking even. “Borrowing from the Treasury to repay the Treasury doesn’t make a whole lot of sense,” said Bose George of Keefe, Bruyette & Woods.
 
Regarding the agency's glut of homes owned, and to be sold, I received a note: "If I owned 241,000 homes, I'd be thinking of renting them, and giving the lessee an option to purchase after 1, 2, or 3 years.  241,000 homes at a thousand per month works out to about $2.8 billion per year. Get some folks in there, using the plumbing, cutting the lawn. Although the agencies aren't geared that way, maybe they should think outside the box and set up a huge leasing program."
 
Moving on, the MBA released its 2011 legislative and regulatory priorities. The MBA has come under some criticism lately for focusing on the needs of its larger members, sometimes at the perceived expense of the mid-sized and smaller mortgage bankers. Regardless, here is what's going on for 2011: http://www.mbaa.org/files/IssueBriefs/2011LegislativeandRegulatoryPriorities.pdf

The National Association of Mortgage Brokers (NAMB) sent a letter to the Fed, among others, asking for the delay in enforcement of the changes to Regulation Z for 12 months and “for further clarification pertaining to loan originator (LO) compensation which is set to be enforced as of April 1.” http://www.namb.org/images/2011-01-18_Letter-to-Federal-Reserve_LO-Compensation.pdf

By the way, the Federal Reserve just released its Reg. Z and TILA compliance information - a "must read" for any compliance personnel. http://www.federalreserve.gov/bankinforeg/regzcg.htm
 
NJPMO and NAIHP are seeking contributions for a Federal law suit against the Federal Reserve which will go into a fund and any unused funds will be returned pro rated. "NJ Profession Mortgage Originators, hereby requests the Federal Reserve Board (FRB) immediately suspend the planned April 1, 2011 implementation of the finalized Federal Reserve’s Rule on Mortgage Loan Originator Compensation. The Regulatory Flexibility Act requires a federal agency to prepare an initial regulatory flexibility analysis (IRFA) to assess the economic impact of a proposed action on small entities. Although the FRB did issue an IRFA, as acknowledged by the SBA, we believe it was grossly flawed in is premise and data. We have found no FRB TILA Rule that is said to have had an economic impact, yet the purpose of FRB intervention in business is to have an economic impact. The FRB has yet to issue Compliance Guidelines as require. NJPMO would hereby ask for an independent study by the GAO into the economic impact of the referenced FRB Rule."

Part 3 of the Fed answers to the MBA’s list of questions:

Q9. Can an incentive compensation plan for a loan originator based on loan volume provide for different percentage amounts based on the aggregate dollar volume of the loan originator’s loans over a particular period (such as X basis points for an aggregate volume over $5.0 million and less than $10.0 million, Y basis points for an aggregate volume over $10.0 million and less than $15.0 million, and Z basis points for an aggregate volume over $15.0 million)?
A. Fed Response - Yes. Such an incentive compensation plan would not result in compensation that is based on the terms of any particular loan. The compensation is based only on aggregate loan volume levels, and the number of loans that it would take to reach each level would not be consistent from period to period, thus the compensation would not even be indirectly based on the terms of any particular loan.
Q10. Can a loan originator establish a price for a loan that is higher than the price offered by the creditor, such as 1 percent of the loan instead of the 75 basis points offered by the creditor as long as the loan originator’s compensation does not vary based on the loan terms (except for a fixed percentage of the loan amount, subject to a fixed minimum or maximum dollar amount)?
A. Fed Response - Yes. The rule restricts basing loan originator compensation on the loan terms, and not the pricing of a loan when the loan originator compensation does not vary based on the terms of the loan.
Q11. Can a manager be compensated based in whole or part on profits during a particular period attributable to an area over which the manager has authority, such as a branch manager with respect to a branch? Can profits be calculated in whole or part based on the aggregate value of loans originated during a particular period in the applicable area based on secondary market value?
Fed Response - Yes. As a general matter for purposes of the restriction in § 226.36, managers, administrative staff, and similar individuals who are employed by a creditor or loan originator but who do not arrange, negotiate, or otherwise obtain an extension of credit for a consumer, and whose compensation is not based on whether any particular loan is originated, are not loan originators subject to the prohibition against compensation based on rate or terms. Accordingly, such a manager or similar staff can be compensated based in whole or in part on profits including aggregate value of loans. The calculation of the aggregate value of loans can be based on secondary market value or other metrics. Secondary market gains and losses are based on numerous factors, such that two identical loans with identical prices can have two different secondary market values and two loans that are different and have different pricing can have the same secondary market value. This is because factors such as time of lock, existing market conditions, and the location of the secured property, factors that have nothing to do with individual loan terms, affect secondary market value.
 
Yesterday’s New Home Sales turned some heads. Released by the Census Bureau and HUD, it showed a 17.5% increase in single-family home sales rather than the 3.1% that was expected. “Out West” sales were up over 70%. But for the year, NH Sales were down 14% from 2009’s levels, which weren’t anything to write home about either.
 
We also had the 5-yr auction, which went well and certainly better than Tuesday’s 2-yr auction, a stock market hovering around good levels, and the FOMC meeting’s results. (And don’t forget Europe’s problems!) As expected, the first FOMC meeting of the year was uneventful but it still gave everyone in the press something to jabber about. The Statement was almost identical to last month’s (which was identical to the months before). The Fed acknowledged stronger economic data and that commodity prices has risen (a new addition). The Statement continued to reference that housing “remains depressed,” “[core] inflation is somewhat low” relative to the mandate and an unemployment that is “elevated.” The recovery is continuing, but remains “too slow to sufficiently improve the labor market.” Business spending in software and equipment is rising and household spending has increased. In addition, the “money statement” that the benchmark rate will be “exceptionally low for an extended period” remained in the verbiage.

MBS prices finished the day worse by .375-.50, and US 10-year notes were down (worse) by .875 to yield 3.43%. Today we have some news, but it is not at the importance level of yesterday’s news. We will have the usual Jobless Claims, along with Durable Goods, Pending Home Sales, and the Treasury’s auction of $29 billion 7-yr UST notes. Ahead of those, the yield on the 10-yr is about 3.47%, and MBS prices are worse about .125.
 
 
NINE WORDS WOMEN USE

(1) Fine: This is the word women use to end an argument when they are right and you need to shut up.
(2) Five Minutes: If she is getting dressed, this means a half an hour. Five minutes is only five minutes if you have just been given five more minutes to watch the game before helping around the house.
(3) Nothing: This is the calm before the storm. This means something, and you should be on your toes. Arguments that begin with nothing usually end in fine.
(4) Go Ahead: This is a dare, not permission. Don't Do It!
(5) Loud Sigh: This is't actually a word, but is a non-verbal statement often misunderstood by men. A loud sigh means she thinks you are an idiot and wonders why she is wasting her time standing here and arguing with you about nothing. (Refer back to # 3 for the meaning of nothing.)
(6) That's Okay: This is one of the most dangerous statements a women can make to a man. That's okay means she wants to think long and hard before deciding how and when you will pay for your mistake.
(7) Thanks: A woman is thanking you, do not question, or faint. Just say you're welcome. (I want to add in a clause here - This is true, unless she says 'Thanks a lot' - that is PURE sarcasm and she is not thanking you at all. DO NOT say 'you're welcome'. that will bring on a 'whatever').
(8) Whatever: Is a woman's way of saying F-- YOU!
(9) Don't worry about it, I got it: Another dangerous statement, meaning this is something that a woman has told a man to do several times, but is now doing it herself. This will later result in a man asking 'What's wrong?' For the woman's response refer to # 3.