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Feb. 3, 2011: AVM update; good news for non-agency MBS ratings; an idea about what companies are doing for comp plans and Part VIII of comp Q&A
Rob Chrisman
Congratulations
to MF Global Inc. and SG Americas
Securities, who have been added to the list of primary
dealers. Others on the list include DLJ, Smith Barney, Bear
Stearns, Drexel Burnham... oh, wait a minute. I'm showing my
age. You're better off checking http://www.newyorkfed.org/markets/pridealers_listing.html
Yesterday I was speaking to a regional production manager for a
large investor about business conditions in 2011 for mortgage
brokers and bankers. He summed it up by saying, "’Hope’
is not a good business plan."
But there is some
hope out there. The likelihood of investors buying MBS's,
especially non-agency securities, is pretty slim without some
kind of analysis & grading, in the past provided by the
rating agencies. Being able to grade non-agency
products is viewed as a critical step to restoring that market.
"Fitch Ratings unveiled a new model to determine
potential losses from securities backed by US home mortgages.
The agency uses a new home price model to help predict which
borrowers will end up owing more than their home's value.” http://www.businessweek.com/ap/financialnews/D9L4QEFG0.htm
Many well remember the problems helped by the rating agencies,
given their sad predictive performance from 2005-2008.
Nonetheless, the agencies do exist, and produce interesting
information. Moody’s projects some markets will
have to wait decades for home prices to return to
pre-recession levels. In order, the 10 worst are Naples,
FL and Salinas, CA which will take until 2038 to recover. They
are followed by Detroit, MI; Hanford, CA; Punta Gorda, FL; Palm
Bay, FL; North Port, FL; Phoenix, AZ; Stockton, CA; and Modesto,
CA. The best areas include Pittsburgh, PA; Syracuse, NY;
Rochester, NY; Clarksville, TN and Spokane, WA, which are
expected to return to peak levels in 3 years. (The
question is, in 2005, did Moody's predict what values would do
in the following 5 years?)
Yes, appraisals are still an issue out there. Many of you have
asked for documentation regarding AVMs and
compliance to the new FFIEC (Federal Financial Institutions
Examination Council) regulations. The latest news that I
have heard is that MDA Lending Solutions and DataQuick's appraisal products and "Non-Appraisal
Evaluations" meet the new interagency guidelines issued by the
FFIEC for valuation standards. One of the primary changes
affecting lenders is the requirement that all non-appraisal
eligible loans must be supported by evaluations that include
data or photos verifying the condition of the specific property.
The MDA/DataQuick product supports this in its AVM and
AVM-Assisted Desktop solutions. For more information, because I
can't do it justice, contact your existing MDA Lending or
DataQuick Account Executive or Wendy Barnett at wbarnett@dataquick.com
for more information. And no, this was not a paid announcement.
As was mentioned
yesterday, ARM business is on the rise. Buried in the MBA’s
weekly survey yesterday was a note: applications
for adjustable rate mortgages posted a weekly jump of +17.8%.
Chase has been busy. It
announced plans to add 25 new Chase Homeownership Centers in 19
states this year, which would bring the total number of Chase
Homeownership Centers to 76 nationwide. Per Chase’s press
release, “since 2009, Chase has met with 120,000 customers at
its 51 Chase Homeownership Centers…This year, Chase will open
centers for the first time in 12 states: CT, IN, KY, LA, MD, MA,
MN, MO, NC, OR, UT, and WI. Given the weather, maybe they’ll
wait until the spring for some of those states.
Genworth Financial reported loss of $161
million, for the fourth quarter, apparently due to boosting
reserves for bad mortgages by $228 million. The company paid
$268 million in claims from its mortgage operations during the
quarter.
Winston Churchill
said, "The Americans will always do the right thing…after they
have exhausted all the alternatives." An article recently by
Kate Berry in American Banker points out that most
banks are expected to switch to a flat compensation model for
loan officers and will have to put more management controls in
place if they pay incentives based on the volume of loans
produced. The controls would be necessary to ensure that
such awards don't create a perverse incentive to make risky
loans. "Banks also are expected to revise branch managers'
compensation, because they can no longer share in the branch
profits generated by mortgages. Meanwhile, mortgage banks see
an opportunity to poach high-producing loan officers or add
brokers as affiliates with promises to find ways to preserve
their income. But loan officers that work for banks are in a
bind, since they are exempt from state licensing requirements in
working for a traditional bank and would have to become licensed
in individual states to join a mortgage bank. The mortgage
banks likely will tie compensation to the volume of loans
produced, a flat fee per loan or even a combination of both."
On to Part
VIII of compensation Q&A - remember that company's
individual policies may differ from these answers some extent.
The questions were posed by the MBA to Federal regulators, and
there is still a lot of interpretation. Many company's policies
will vary as long as there is no ability or an originator to
steer the consumer into a less favorable product.
Q27. Should a mortgage
broker evidence its compliance with the safe harbor provisions
by
providing a written disclosure to the consumer specifying the
three loan choices available and that also would require the
consumer to specify which loan he or she chose and sign the
form?
A. Fed Response - The Board is not compliance counsel and will
not advise on how best to comply.
Q28. It is practically impossible for a lender
to know whether a broker has in fact complied with the
anti-steering provision. Does the Board regard creditors as
liable for an originator’s violation of the anti-steering
provisions?
A. Fed Response - No. A creditor is not liable for violation of
226.36 (e)(1). That section applies to originators. The section
prohibits an originator, particularly a mortgage broker or
mortgage broker loan originator, from directing or steering a
consumer to consummate a transaction based on the fact that the
loan originator would greater compensation for that transaction
as compared to other transactions, unless the transaction is in
the consumer’s interest. By its terms, the section does not
apply to creditors and make them liable for originator/mortgage
broker steering.
Q29. May a creditor charge fees to a loan
originator by deducting the fees from the compensation due the
loan originator when the loan originator fails to follow the
creditor’s
policy and, as a result, the creditor is not able to impose fees
on the consumer under RESPA, which it would otherwise impose?
A. Fed Response - No. The Board views this as a variation in
pricing or a concession akin to an underage that would be
impermissible. However, the creditor can consider the error in
resetting compensation to the creditor going forward assuming
such reset considers a reasonable period of time.
Mortgage Services III recently sent out six
pages of underwriting, policy, and price adjustments to its
clients. Six pages is too much to reproduce here, but the
changes centered on 4506-T and Tax Transcripts Reminders, MSI’s
“amortization policy” for purchased loans, MSI’s required Seller
Warranties regarding “environmental issues and other hazards,”
MSI guidelines regarding Reserve Requirements, a revision to the
language “HVCC” to Appraisal Independence Requirements (AIR) per
Fannie Mae and Freddie Mac, and corrects/clarifies the MSI
Escrow Waiver Policy and MI for MSI-Underwritten loans.
Mountain West released a 15-page list, also too
long to repeat here, of FHA and VA underwriting overlays. These
ranged from credit scores, appraisal procedures, condominiums,
all the way to units and VA rate reductions. As usual, it is
advised for clients to read all 15 pages directly.
NYCB recently let its
brokers know that for any loan where the property being
purchased is a short sale transaction, NYCB Mortgage requires
written documentation on company letterhead from the current
lien holder(s), approving the short sale and indicating the
amount they will accept for the short sale, and several other
requirements. NYCB Mortgage will not approve new first mortgage
financing for short sales that involve any "off the HUD-1"
payments to a subordinated lien holder by the buyer, seller or a
third party. There are other restrictions. The firm reminded
clients that for jumbo fixed rate loans, the program is
available with a 60 day lock term only. “Jumbo loans are not
eligible for eSign closings and escrow accounts required for all
jumbo loans (excluding properties in California and Washington,
D.C. as restricted by state law. (The company also told its
customers that to avoid confusion related to the registration
date or state-specific rules, Blanket Closing Protection Letters
issued in both company names are highly recommended to avoid any
possible delays at closing: AmTrust Bank, a Division of New York
Community Bank NYCB Mortgage Company, LLC.) It is always best to
look at the investor's update.
I have yet to hear
anyone give a convincing argument about why rates should go
down much or up much from here. One trader from
Jefferies wrote, "Given that we have spent so much time in and
around these dollar prices market participants are where they
need to be for current rate levels and will need a catalyst
before significantly altering portfolio allocations. That being
said, we did see two-way activity from money managers and
insurance companies along with hedge fund selling of discounts
both outright and versus treasuries/swaps. Up-in-coupon was
performing nicely early in the session but ultimately
underperformed on profit taking as well as mortgage bankers
moving their hedges from 4s to 4.5s and 5s."
Yesterday was not the
best day for the fixed-income markets. They started off pretty
well, in spite of the strong ADP number, and the yield on the
10-yr was sitting around 3.40% - comfortably inside the range it
has been in for a few months. But by the end of the day the
10-yr had touched 3.50%, and MBS prices were worse by .125-.250,
blamed on another better-than-expected economic report (ADP) and
worries about inflation related to higher commodity prices.
(Since last Friday’s
close, 10-year Treasuries have dropped 1.25 in price with the
yield increasing about .16 %.)
Today and tomorrow
are busy days for economic news, which so far are showing
strength. We’ve had Jobless Claims, Productivity, and Unit Labor
Costs. Productivity was +2.6% (better than expected) and Unit
Labor Costs were down .6%. Jobless Claims went from 457k down to
415k, down 42k. The 4-week moving average is +1k. Ahead of us,
at 8AM MST, are Factory Orders and ISM Non-Manufacturing Index.
And tomorrow we will have the Nonfarm Payroll number, expected
to be +140k. But after this early news, the 10-yr
is still sitting around 3.50% and MBS prices are a shade
worse.
The graveside service
just barely finished, when there was massive clap of thunder,
followed by a tremendous bolt of lightning, accompanied by even
more thunder rumbling in the distance...
The little old man looked at the pastor and calmly said, 'Well,
she's there.'
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