Mar. 1, 2013: QM & the FHA; more on fat 2012 profits; builder-affiliate relationships; on hiring new talent - how about a mentorship program?
Rob Chrisman


Even with the sequestration cuts kicking in today, it appears that the sun is coming up today. But yesterday was a rough day. Numerous folks wrote about the misspelling of “Chile” and “affiliation” in the commentary. A few more wrote about the builder/affiliated relationship. (Several notes are a few paragraphs down.)


But the big firestorm came from discussing Thin Mints in a mortgage commentary which is read by gourmands who claimed that there are actually 32 in a box and not 28. After I provided the link supporting 28 (, he retorted, “As usual, you have the backup research to support your commentary, however, I came home, went straight to the freezer and pulled out 2 tubes of Thin Mints and counted the cookies in each sleeve.  Whew, 16 cookies in each sleeve!  I know my Thin Mints.  It may be possible that the manufacturer is funding the box at 114% expecting that I will have to holdback 2 cookies for my CFPB audit.” (And what other commentary out there has Girl Scout cookies and CFPB exams in the same paragraph?)


And what is this? The FHA is going to roll out its own Qualified Mortgage (QM) rules? Many companies reliant on using the full FHA guidelines may be impacted: (And no, I don’t have any other details beside what are listed in the story.)


Even with the speed bumps thrown at the lending industry, there is no doubt that 2012 was a great year for many lenders - in spite of the continued “raising of the bar” in terms of compliance, regulations, and the cost of doing business. (Remember: one shouldn’t confuse brains with a bull market.) Speaking of which, here is what the Economist had to say about the high industry profit margins:


Here’s a Friday morning riddle for you: why are new LOs and Realtors like land? They’re not making any more of them! Turning to something that has become something of great interest to me, let’s talk about bringing new blood into the industry. “Rob, we find ourselves in a lending environment where the government controls both the supply and demand, through QM and Fed asset purchases. We see politicians who helped contribute to the mess in the first place recommending that they be the ones to determine how it is cleaned up. And, as best I can tell, we’ve seen the elimination of any entrepreneurial spirit taken out of the industry. What new college graduate, or anyone in their 20’s, is going to be motivated to start a company given the current environment?”


Starting a new mortgage company for a young person may just about be impossible. But Julian Hebron, voted as one person under the age of 40 to watch in the industry, wrote about how lenders can hire new graduates:


How about lenders, real estate companies, builders, or vendors, setting up mentoring for younger, less experienced folks? A Mentor Program (MP) is an initiative that can achieve a myriad of benefits for a bank, mortgage bank, or any company, including alignment to company objectives, growth in productivity and the creation of a strong network of opportunities that will shape the company’s culture and boost employee retention. (Assuming you like the company culture, right?) These programs are also a great way to help cement the goals and objectives designed during strategic planning sessions. When compared to a training plan, the MP encompasses a much broader scope. In effect, informal mentor-mentee relationships exist in most companies in the absence of an official program.


But a more formal program gives companies a great way to capture most of the benefits described above. Initial challenges in creating an MP vary, but most revolve around the selection of the group of employees that will function as mentors. Program success depends highly on these team members and weak mentors can hinder program credibility. This can also trigger disruptions in employee relationships, so the MP should be carefully drafted with the assistance of a human resources expert.


Mentors do not necessarily need to arise from the senior management team and mentees’ peers or colleagues with a specific set of skills can also become mentors. In recent years, certain companies created what is usually referred to as “reverse mentors,” in which employees with advanced skills, like in technology or social media, mentor senior managers that need such expertise. Consequently, employees from different areas of the organizational chart can contribute, as long as they have the expertise and the ability to create a path that will help others in their career goals. These are most effective when carefully aligned to the company’s objectives. A decisive requirement for mentors is that they should also be highly motivated individuals with the eagerness to make contributions to others. At the same time, care should be taken to identify individuals that will become mentees. This could be done by selecting certain groups (i.e. managers with a specific background or experience) or by choosing individual employees (suggested by managers and based on your strategic plans). Mentees should be motivated and looking to expand their skills or to grow within the lender. They should be willing to receive constructive feedback and to implement change. They could have a definite set of goals or topics that they would like to work towards. And so on. Give it a try!


And for one company’s perspective, Michael Martone wrote, “The ability of the mortgage industry to properly service the public is getting murkier all the time. The average age of an MLO in NJ is 52 years old and the number of MLO’s in the state is now just over 3,000. When you compare that to 2005 when there was well over 30,000 LO’s. We’re seeing similar numbers in every other state as well. There simply isn’t enough manpower to service the public, especially with the closure of lending channels by some major banks. Mortgage bankers can only pick up the slack by hiring and training new MLO’s. Residential Home Funding (RHF) has trained 43 new MLO’s already this year and we will have new training classes every month for recent college grads or professionals from other business like Accounting, Attorneys and Real Estate Agents looking for a career change. We want them all to be able to come to RHF and get first class service by expanding our Loan Officer base. (Anyone interested in entering Mortgage Banking can contact Mike Martone at


Turning to the affiliate issue, Debra Still, chairman of the MBA and the president & CEO of PulteMortgage wrote, “Thank you for your very balanced comments in regards to builder affiliate relationships.  It will be interesting to see if the CFPB will ultimately use their authority to address this disparate treatment within the QM rule or leave it to affiliated mortgage and title providers to seek legislative solutions.  We believe this rule impacts about 26% of the marketplace, well beyond just the builder affiliated community.  MBA believes that loans with the same interest rate, points and fees should be treated the same under the rule, regardless of organizational structure or business model.  Of course, the real issue is about optimum consumer choice and transparency.”


But I also received several notes from independent mortgage lenders with a slightly different perspective. “I read with great interest the comments your friend in the builder-affiliated mortgage company shared (below).  While he/she makes valid points as to the prequalification and underwriting perspective the builder's mortgage company takes towards the prospective buyer, I cannot in good conscience agree with his/her statements regarding the ‘incentives’ to use said company for financing. As he/she indicated, I too have only my experience to draw upon. That experience includes over 5 years of managing a builder-affiliated mortgage company.  The cold, hard reality is that the price of the home (base price......excluding any options) has already been calculated to include the financing incentives (concessions if you will) for the buyer using the builder's mortgage company.  While each builder has their own method of offering this ‘lump sum’ (usually a percentage of the purchase price), e.g., paying for title policy, origination fee, $ to use for closing costs, etc. the practice has morphed over the years. These days, many builders offer the incentive (lump sum) towards upgrades (the granite counter tops referred to below), rather than as financing assistance.  At the end of the day, it's merely a basket of money that the buyer can use towards various options IF they utilize the builders mortgage company.  And frankly, the buyer is actually hurting themselves by choosing to use those dollars towards ‘upgrades’ (those granite counter tops for example) because the upgrades have a profit margin to the builder already built in when the buyer selects said upgrade. Thus, the buyer is getting less ‘bang for the buck’ than if he/she opted to apply the dollars towards closing costs, origination fees, etc.  Ask any builder friend of yours (not their mortgage company) what their margin is on ‘upgrades’ versus the margin on the base price of the house itself. I believe you'll find I am spot on in this statement.”


The writer continues. “Your friend at the builder-affiliated mortgage company - while eloquent - is simply not responding with reality and has chosen to obfuscate the question you posed to him/her.  By responding that the concessions are ‘options’ for the homebuyer, rather than concessions, alters the reality. As to your original questioner that asked about the separate forms that a builder should offer (with & without concessions).  Seriously?  I believe there is a very simple answer for him/her which is, ‘Are you familiar with the initials NAHB? Have you ever heard a little thing called BUILD-PAC?  If not, please Google and learn of same. Once you're familiar with these entities, I think you will choose to withdraw your question of the separate forms disclosures – it is not going to happen in your - or my - lifetime.”


And from another note from an independent originator, “My experience has been somewhat contradictory to the reply you received. Now yes, anyone can charge anything. I’m all for free markets, and I disagree with the QM 3% restriction, non-variable compensation, and the Merkley Amendment, as I believe they will develop a disparate impact on lower economic zones and rural areas. But if the theory is presentation is that the ‘affiliate’ saves the borrower money by having it all in-house, the affiliate should save the borrower money not increase the profit margin.  Affiliates flourish because of a captive audience and the diminishment of competition.”


With so much to focus on, sometimes it is hard to write much about interest rates: up, down, all around. Yesterday’s month-end gave us a few minor twists, as lower coupon securities, filled with lower coupon mortgages, gained some support from the Fed and REIT buying. American Capital announced it would sell 50 million shares of common stock, and at 6 times to 8 times leverage calculates to between $10 billion and $12 billion in potential MBS buying ahead – that certainly helps the demand side of the equation. (Speaking of which, for the week ending Feb. 28, the NYFRB reported gross and net MBS purchases totaled $18.8 billion, or $3.8 billion per day on average which is where it has been for the past three weeks. Over this same period, mortgage banker supply averaged $2.5 billion per day.) When the dust settled the 10-yr was at 1.89% and MBS prices rose/improved nearly .250.


This morning we learned that Personal Income for January was down 3.6% (some of which was attributed to bonuses being accelerated into December) and Personal Consumption/Spending was +.2% although last month was revised slightly down. In the early going the 10-yr is down to 1.85%, and MBS prices have improved accordingly – better by .125-.250 – much of it due to the implementation of spending cuts and its potential to slow down the economy.



This just in from Shanghai: In a rare announcement from a notoriously publicity-shy group, Chinese hackers revealed today that they were dropping the United States government from their official list of high-value targets.

“We have to allocate our time and energy to hacking powerful organizations,” a spokesman for the hackers said. “Right now, calling the United States government an ‘organization’ would be a reach.”

He added that the hackers’ ultimate goal had been to hurl the U.S. government into a state of abject paralysis, “and they seem to have already taken care of that on their own.”

The spokesman acknowledged that despite years of compromising U.S. government computers, the hackers had obtained little of value, especially on the hard drives of congressional offices.

“Those computers did not appear to be used for anything work-related,” the spokesman said. “Basically all we found were restaurant reservations and porn.”

U.S. stock markets plummeted on the news of the hackers’ downgrade, which was widely denounced by American politicians as a hostile act designed to cripple the economy. “This is an insult to the American people,” said House Majority Leader Eric Cantor (R-Virginia). “We demand that the Chinese resume hacking us at once.”

But according to the hackers’ spokesman, any chance that they might put the U.S. government back on their list of targets was remote at best.

“We need to focus on higher-functioning governments,” he said. “We’re taking a close look at Venezuela.” (Thanks to the Borowitz Report for this one.)



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