Dec. 18, 2012: US Bank comp plan turning heads; jumbo rates improving on a relative basis; how many of us live paycheck to paycheck?
Rob Chrisman

Human Resources (HR) managers take note: a court has ruled that an employer may be liable for an accident to an employee during a work trip. But for the rest of us, especially those with an odd sense of humor, this case, which dragged on for five years, has a twist worth checking out:


With conforming mortgage rates continuing to be very low, lenders out on both coasts, and a couple cities in-between but maybe not here in Kansas, are wondering about the spread between the jumbo and the conforming rate. It is pretty easy to calculate: grab a rate sheet and figure the difference between a “generic” conforming and jumbo loan. Of course, we have seen gfees continue to escalate, with more hikes expected in 2013 to bring risk in line with the private market. Gfees have nearly doubled since the start of 2011, and have gone up twice this year by a total of 20 basis points. LO’s often wonder what conforming rates would do if Freddie and Fannie were taken out of the picture. (Of course, one wonders if that happened – and it isn’t likely for them to entirely go away – who would be left to come to an agreement on what “conforming” meant? And what would happen to our very liquid agency MBS market?) So the spread between conforming and jumbo rates measures the effect GSEs have on the market and their role in reducing the risk associated with mortgage lending. In early 2006, this spread was below 40 basis points. In the months leading up to Lehman Brothers declaring bankruptcy in September 2008, the jumbo vs. conforming credit spread was right around 50 basis points. After that, it spiked to around 120 basis points although it came right back down to 50 basis points around the middle of last year. Those folks who look at dozens of rate sheets indicate the spread has now, on average, moved from around 60 basis points more toward the 50 bp mark. And at this point, for lack of a better proxy, LO’s can figure jumbo rates are where conforming rates would roughly be if government support were removed.


We are indeed seeing an interesting trend among banks when it comes to which loans to hold on their books. Aside from periodic jumbo securitizations from Redwood Trust or a couple investment banks such as Barclays, it is being reported by the Financial Times that, “US banks are holding more mortgage loans on their balance sheets rather than send them to the government-backed housing agencies for securitization. More loans held by banks could be a sign of renewed confidence in the housing market, but it could also reflect higher fees being charged by US housing giants Fannie Mae and Freddie Mac, as well as profit pressures created by low rates. Executives at the twin housing giants, financial regulators and policy makers in Washington are hopeful that increased retention of home loans by banks is the first step towards a more robust private securitization market. The two government-sponsored enterprises (GSEs) are trying to use higher fees to crowd out taxpayer money and put private capital to work when it comes to bearing the credit risk of mortgages. However, some mortgage market participants say banks are keeping the best loans for themselves and sending the rest to Fannie and Freddie.” Heck, if I was a bank, wouldn’t I want to keep more of the best loans for myself due to new regulation around mortgage servicing rights? Why put them out into agency securities, CMO’s, or REMIC’s?


Speaking of REMIC’s, the question has arisen regarding the IRS’s tax rules on mortgage securities, and the possible impact on the credit crisis. If you’re interested, I wrote up a little piece and you can find it near the top right corner on the STRATMOR Group web site located at


Norway has a population of about 5 million spread over 149,000 square miles. (For comparison, California as 37 million in 164,000 square miles.) Not that Norway is the role model for the US mortgage & banking sector, but Norway’s mortgage/bank capital requirements are interesting given our QM countdown to the 2nd week of January (the expected release of QM):


It is always troubling to me, but not to LO's and underwriters who see it every day, when I see statistics that show almost half of Americans live paycheck to paycheck. One hopes that a survey size of only 1,000 is too small, and actually the numbers would improve if more people were surveyed, but nonetheless:,c9348289.


LO's often mention how borrowers, who may not have obtained a loan in years, or Realtors (who do one or two deals a year) seem "misguided" when it comes to realizing what the current lending environment is like. Some borrowers come through it, only to emerge and say they were "brutalized" by the current mortgage underwriting process. Not that I am here to tell LO's how to do their jobs, but if they can lay some groundwork it might help all parties involved. For example, borrowers might be well advised that "sourcing funds" is an extremely important part of our anti-laundering procedures and enforcement is horrendous for the lender/originator. (In large part due to how property flipping can be used to cleans cash deposits.) Most people outside the banking and lending industry don’t understand SAR reports.  Sourcing funds is also an extremely important part of meeting the new letter of the law of understanding the borrower's ability to repay as well as establishing a savings pattern. Most people purchased homes when mortgage underwriting was a joke. It’s important for every borrower to know that obtaining a loan today is a whole different story, especially traditional (non FHA) lending.


It seems that successful LO’s aren’t afraid to tell clients that credit blemishes and credit scores are much more important now than they were. With average credit scores skyrocketing over the last 3 years, what was once a great score like 700+ is now somewhat less than an average score - most non-industry types don't know the trend. Appraisals are more critical than ever before. The lender's underwriter and the investor's due diligence underwriters/auditors read everything - so should the buyer. (Ha!) Appraisers are struggling to do more appraisals for less money, and it is okay for a lender to challenge a finding in an appraisal, but be prepared to pay for a second appraisal or have an inspection to support your challenge. Prepping the borrower is more important than ever and leaving the critical disclosure of today's mortgage lending reality up to the Realtor or processor is foolish and lazy. Referrals come from insight, education, and performance by both the LO and their processor. I am repeatedly told by originators that they set expectations early and often and remember adults need to hear something 6-7 times before it really locks in (just ask my wife).


For some recent investor news that may be of interest out there, the industry is abuzz about the comp changes announced by US Bank. Brokers are very tuned in to US Bank’s plan that it will no longer allow each individual company to select which broker compensation they wish to use, and instead will move to a statewide plan. 


For example, all loans brokered to US Bank for the state of California will now be set at 1.5%. US Bank reminded brokers that it wants the new agreements by 12/26, and the comp plan starts with locks 1/1. “Bulletin 2012-073: attention CUSB and Table Fund Lenders - Broker Compensation Plan Changes. The changes in loan originator compensation as defined by Regulation Z, took effect April 1, 2011, and changed the way in which brokers are compensated for loans that close in U.S. Bank’s name or with U.S. Bank funds. As stated in Bulletin 2012-061 U.S. Bank Home Mortgage (“USBHM”) Wholesale Division will be making changes regarding our Broker Compensation Policy. Effective with all loans registered/locked on or after January 2, 2013 our Broker Compensation Policy will be amended as follows: Broker Compensation (Lender Paid Compensation “LPC” and Borrower Paid Compensation “BPC”) will be set equally between 1.5% and 2% at a state level by USBHM. Both LPC and/or BPC will be based on the state where the property is located regardless of where the Broker is located and or the loan is originated. LPC and/or BPC will be set by the property address based on a USBHM Broker Compensation State Table. The state compensation rates will be provided per the USBHM Mortgage Broker Compensation State Table in the U.S. Bank Seller Guide (Exhibits-General section). Brokers may only select BPC if they agree to acknowledge the revised USBHM guidelines per the Broker Compensation Addendum to the Mortgage Broker Agreement. BPC may never exceed the LPC assigned for a particular state and may be never be less than .375 bps below the assigned LPC for a given state. (For example if the LPC for a state is 1.625% then BPC for any loan originated within that state may never exceed 1.625% and may never be less than 1.25%.) If the requested BPC is less than the USBHM assigned LPC for the state (defined in the USBHM Broker Compensation State Table) USBHM will require an explanation form to be approved prior to funding.”


I received this note from a broker in the Midwest. “My brokerage has been a table-funded correspondent with US Bank Home Mortgage for several years.  Imagine our chagrin when we read Bulletin 2012-073 that mandates lender-paid compensation depending on property state effective on new registrations/locks Jan 2, 2013!  Further, borrower-paid compensation is capped at the same limit. Where does state-variable lender-mandated broker compensation come from?  Our rep at US Bank offers nothing other than an, ‘internal re-interpretation of Reg. Z,’ and that, ‘pricing disparity among retail and wholesale channels cannot continue.’ What a paranoid and anti-capitalistic reaction to the regulatory climate!  Discontinuing broker-based wholesale, like their peers, seems a nobler deed.  Unable to conform, we will be walking away from a longstanding business partnership."

(As a side note, per National Mortgage News, the top 20 wholesalers who reported numbers during the 3rd quarter were Wells, Provident, Flagstar, NYCB, US Bank, Stearns, United Wholesale, Franklin American, Fifth Third, SunTrust, Union Bank, Sierra Pacific, Cole Taylor, Nationstar, Stonegate, EverBank, Cardinal Financial, Kinecta, Sovereign Bank, and Grand Bank.)

Be careful what you wish for – it seems moves toward compromise in order to avoid the fiscal cliff are nudging rates higher. Fortunately for agency MBS prices, and therefore rate sheets, the Fed continues to buy mortgage backed securities so their performance was good Monday on a relative basis. Thomson Reuters reported that “mortgage banker selling was well below normal in the $2 billion area and well off the Fed's daily average purchasing pace of $3.7 billon. Buyers overall reportedly outnumbered sellers by a 3:1 ratio, albeit, in below normal volume of 86 percent based on Tradeweb's experience.”


But auction supply and less risk aversion on hopes of a deal regarding the fiscal cliff sent 10-year Treasury notes lower by .5, closing at a yield of 1.76% and MBS prices were worse about .125. And for economic news today – well, there isn’t much unless you count a homebuilder sentiment index at 10AM EST. (We do have a $35 billion 5-year T-note auction at 1PM EST.) Currently we find the 10-yr up to 1.78% and MBS prices slightly worse.


Got those docs ready in order for the loan to fund by year end? Check this out:

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog discusses the role of the IRS and REMIC’s in the current credit crisis. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.




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Copyright - Rob Chrisman