Apr. 15, 2013: Mortgage jobs; what Wells & Chase results indicate to mortgage bankers; will you be fined for renegotiating a rate lock?
Rob Chrisman


“Daddy, how many people live in the world?” “I don’t know – go ask your Mother. Why do you ask me questions like that, for Chrissakes – you’re 28 years old?!” Well, now you can refer the “little” nipper to this Census site that constantly updated population figures: http://www.census.gov/popclock/


A small percentage of the nation’s population works in helping others obtain financing, and work for companies that are expanding. I have been asked to help a well-capitalized, mid-size mortgage company with extensive industry experience is aggressively seeking a Corporate Controller in its Originations and Capital Markets Division.  Ideally it will be a senior leader with 10-15 years of experience in finance & accounting, responsible for providing a wide variety of transaction and accounting expertise to support the company’s growth and development objectives. Publicly-traded company experience required.  Position is based in Philadelphia, PA area.  Send email with resume to me at rchrisman@robchrisman.com. The lender is also hiring for experienced mortgage loan officers, processors, and underwriters.  Referrals welcome.


San Diego based BofI Federal Bank is continuing the growth of its nationwide warehouse lending business and is searching for a VP, Warehouse Lending Relationship Manager in Southern California. BofI recently expanded its eligible products to include Jumbo, Conventional, HARP, and FHA production and remains a leading option for funding non-agency loans. Sanford Trefethen of First California Mortgage wrote, “We are extremely pleased with the level of support and ease of use that BofI’s Warehouse Lending platform offers. They are a great partner and should be at the top of any mortgage banker’s warehouse lender shopping list”. For more information, please contact Darin Sullivan at dsullivan@bofi.com.


Last week the commentary repeated a note saying, “I am concerned that renegotiating a borrowers rate will not only cost us money on the execution side but also exposes us to charges, fines and lawsuits related to giving a non-protected borrower a better rate than a protected borrower simply because one forced me to renegotiate and the other didn't.” A senior manager in the Western U.S. wrote, “That comment hit the nail on the head.  We went through a CFPB exam and they absolutely believe that when we give a price concession, renegotiation, or free extension, that borrower did not get a good deal, and every other borrower was cheated because they didn’t get that deal.  They alluded that the only way to comply with fair lending was to not give price concessions to non-protected classes.”


And a builder affiliate wrote, “Under the broad interpretation of disparate impact, almost any lender could be subject to a suit. If you renegotiate a rate for a non-protected class borrower, chances are it’s going to be picked up by any sort of moderately sophisticated matched-pair or regression analysis (you need to be doing this on a regular basis).  What you need to have in the file is documentation of the borrower initiating the action.  You also need to have a rate-renegotiation policy that dictates that the borrower must initiate it, when renegotiations are acceptable, the terms that will be given, and it would be wise to include a statement that renegotiations are made without regarding to age, sex, gender, race, etc.”


And Optimal Blue’s Director of Fair Lending and Compliance, Tammy Butler, also wrote. “Hi Rob, I thought I could lend some clarity on this issue.  Fair lending is very gray and complex, yet there are many things a lender can do to protect their company from penalties, fines, poor exam results and aggravations. The CFPB is fully aware that pricing exceptions occur and understand that there should be no issue with that in the exam, unless…1.  Those exceptions are not applied equally across protected and non-protected classes.  This means that you are responsible for ensuring that when you offer exceptions to non-protected classes, that you are also offering those exceptions to protected classes. This requires a sharp eye on your exceptions, whether it is for pricing or underwriting. PS. I have not met any examiner yet, that will tell you how to apply exceptions equally. However, we are all smart and can figure this out.  It is also important to have policy surrounding exceptions as indicated by your builder affiliate.  Just keep in mind that this alone will not protect you. 2. Make sure that you track every single exception AND document the reason why, along with any supporting documentation that you may have, such as a competitor offer or rate sheet. This also holds true with documenting the reason for each re-lock.  No one wants to have to explain that the borrower started with 3.25% and closed at 3.75% without having the documentation to back it up! 3. Underwriting exceptions are just as important as pricing exceptions.  Monitor them and document deviations from your underwriting rules. 4. Evaluate the types of exceptions and reasons for the exceptions.  While giving exceptions is a normal part of our business, the reality is that if we give too many exceptions then a company should really take the time to look at their pricing and underwriting guidelines.  Too many exceptions may mean that you are priced out of the market or too strict in your guidelines. 5. To avoid any sort of redlining, each lender should do a thorough analysis of any MSA they are doing business in.  If many other lenders are doing business in an area of protected class clients with lower rates and less stringent underwriting guidelines than your company, the examiner will ask you why you cannot do the same. I hope this helps your readers.” Thank you Tammy - much more information can be found on OB’s blog, www.optimalbluefairlending.com or write to Tammy at tbutler@optimalblue.com.


Senior management at lenders everywhere were keenly interested in the results from Wells Fargo and Chase for the 1st quarter, given that they are #1 and #2 in mortgage lending in the U.S. For example, JPM reported a 3% increase in origination volumes, but an 8% decline in application volume. Meanwhile WFC reported a 13% decline in origination volume and 8% decline in applications. Well, Chase clocked in Friday with a 1st quarter net income of $6.5 billion – a record. Of interest to those Basel watchers: Basel I Tier 1 common1 of $143 billion, or 10.2%, estimated Basel III Tier 1 common1 of 8.9%4, up from 8.7% in the prior quarter. In those three months Chase took in 260,000 mortgages. I don’t have my HP 12C on me, but that’s about 4,300 per day! Mortgage banking net income was $673 million, a decrease of $306 million, or 31%, compared with prior year. Noninterest revenue was $1.5 billion, a decrease of $596 million, driven by lower mortgage fees and related income. The provision for credit losses was a benefit of $198 million2, compared with a benefit of $192 million in the prior year. The current quarter reflected a $650 million reduction in the allowance for loan losses. Noninterest expense was $1.8 billion, a decrease of $337 million from the prior year, due to lower servicing expense.


Wells Fargo, though, intentionally or unintentionally, is watching its dominance in mortgage banking slip. WFC cited during the conference call the reason as being "increased competition" and not a strategic pullback from the company. Wells Fargo saw home lending volume dip to $109 billion in the first quarter, down from $125 billion in the fourth quarter and $129 billion a year earlier – still huge numbers. Wells saw a decline in mortgage applications, which fell to $140 billion from $152 billion in the fourth quarter and $188 billion in the first quarter of 2012. As a result, the company’s unclosed mortgage pipeline shrunk to $74 billion, down from $81 billion in the linked quarter and $79 billion a year ago. Mortgage Production pretax income was $427 million, a decrease of $317 million from the prior year. Mortgage production-related revenue, excluding repurchase losses, was $1.2 billion, a decrease of $401 million, or 25%, from the prior year. These results reflected lower margins, partially offset by higher volumes. Production expense2 was $710 million, an increase of $137 million from the prior year, primarily reflecting higher volumes. Repurchase losses were $81 million, compared with losses of $302 million in the prior year and a benefit of $53 million in the prior quarter – nice! The current quarter reflected a $100 million reduction in the repurchase liability and lower realized repurchase losses compared with prior year and prior quarter, primarily driven by a decline in outstanding repurchase demands.


Wells Fargo’s servicing machine weighed in. Mortgage servicing’s pretax loss was $101 million, compared with a pretax loss of $160 million in the prior year. Mortgage servicing revenue, including amortization, was $778 million, a decrease of $22 million, or 3%, from the prior year reflecting lower loan servicing revenue due to lower average third-party mortgage loans serviced. Mortgage servicing rights ("MSR") risk management was a loss of $142 million, compared with MSR risk management income of $191 million in the prior year, largely due to model assumption updates, primarily driven by an improvement in housing price appreciation assumptions. Servicing expense was $737 million, a decrease of $414 million from the prior year, which reflected the impact of approximately $200 million for foreclosure-related matters in the prior year and lower servicing headcount.


At JPMorgan, mortgage applications fell about 8 percent over the quarter to $60.5 billion. Compared with a year earlier, applications at JPMorgan were up just 1 percent. For Wells, however, applications were down 25 percent as noted above. JPM’s gain on sale down 30%, WF’s was flat. JPM reported a 30% decline in gain on sale margins from 1.83% to 1.34%. WFC reported 2.56% gain on sale, exactly the same number as last quarter and probably due to a slight pullback in correspondent lending and WFC recording production income at origination. (If a larger piece of their mortgage originations were through retail channels, they would earn higher margins.)


Lastly, Wells sold $423 million worth of MSRs. If we assume they sold the MSR at the same valuation as the rest of their portfolio, it would equate to a $60 billion portfolio (UPB). We know they sold $12 billion of reverse mortgages to Walter, but I do not know what happened to the rest. So the industry wonders, Wells specifically pointed out the company continues to hire mortgage personnel and invest in the business, and that the servicing business is very valuable to the company. But to the outsider, Wells’ actions seem to contradict these statements (lower correspondent lending, selling MSRs). The thoughts of Basel III, and its potential impact on the servicing market, continue to be a huge concern.


Most analysts expect gain on sale margins will decline 30-35% for the industry from the levels we saw during the 4th quarter. And as a result, along with the higher cost of originating a loan, plenty of firms are looking for partners or a suitor. And origination volumes are likely to remain resilient this quarter given the increase in purchase volume and only slight decline in refinance volumes. Sustained volumes have been confirmed by the MBA application index, which averaged roughly 2% higher than last quarter on an unadjusted basis. Mortgage servicers will likely see a 5-15% markup in their MSR this quarter as mortgage rates backed up roughly 25 basis points from the end of the fourth quarter.


In spite of a lot of potential, inflation is not currently a problem here in the States as the economy continues to grind along. Last week we learned that retail sales in the U.S. dropped in March by the most in nine months, pointing to a slowdown in consumer spending as the first quarter drew to a close. The University of Michigan Consumer Sentiment sank in April to 72.3 after three months of gains. And the Producer Price Index for Finished Goods dipped by 0.6 percent in March as energy prices fell. The combination of a weakerthanexpected retail sales report for March and a weakerthanexpected consumer sentiment report for April highlights the concern about consumers’ vulnerability to fiscal tightening.


Lukewarm economic news Friday led to a nice rally in fixed income (including MBS) prices. By the end of Friday MBS had improved .375 in price, slightly higher than the early morning levels and resulting in some re-pricing. It’s a new week, which means another set of economic data to tell us rates should go up a little or down a little. But with the government providing a “backstop” for Treasury and MBS, no one expects rates to go up too much. Today we have Empire Manufacturing, Total Net TIC Flows, NAHB Housing Market, tomorrow is the CPI, Housing Starts, Building Permits, Industrial Production, Capacity Utilization, Manufacturing Production, Wednesday is the Fed Beige Book, Thursday is Initial Jobless Claims, Continuing Claims, Philly Fed, Leading Indicators, and Friday is zip/nada/nuttin’. In the early going most of the attention is on the price of gold (down almost $100 per ounce due to selling, making some of my teeth worth less), but the 10-yr is sitting around 1.71% and MBS prices are roughly unchanged.



A distraught senior citizen phoned her doctor's office.

“Is it true,” she wanted to know, “that the medication you prescribed has to be taken for the rest of my life?”

“Yes, I'm afraid so,” the doctor told her.

There was a moment of silence before the senior lady replied, "I'm wondering, then, just how serious is my condition? Because this prescription is marked, 'NO REFILLS’.”



If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “How Changes in FHA Loan Pricing Will Lead to Changes in Investor Demand." 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.


(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)




Copyright - Rob Chrisman