May 9, 2013: Mortgage jobs; the evolution of correspondent lending; what happens if QE3 ends? Interesting discrimination action
Rob Chrisman

It finally happened. The OCC executed an enforcement action against Community Bank (Pikesville, MD) for lending policies & rates that allegedly favored minorities and women, and in turn discriminated against white men and married couples. The American Banker noted it “has become proof for some of just how frustrating it is for institutions to comply with fair lending laws…The disparity stemmed from a lending program created by the bank to specifically assist minorities, which capped the institution's compensation at 2.5% of the loan amount for minority and women borrowers. Such a cap was not in place for white borrowers, causing the bank to generally charge them more.” The OCC ordered the bank to refund 64 affected borrowers an average of $1,144 per person. As every lender and compliance department knows, tougher mortgage rules have also heightened bank fears that they could inadvertently commit fair lending violations. For example, the new rules effectively encourage banks to make so-called "qualified mortgages" to ultra-safe borrowers. Many banks have vowed only to make QM loans because they have a legal safe harbor, but worry that could result in denying loans to riskier borrowers that may include minorities or single women.


In spite of the compliance maze, lenders are continuing to grow. Located in Southern California, a national mortgage lender and servicer is seeking an SVP of Servicing. This position will be responsible for managing the servicing function supporting a portfolio of $4B+ which is growing rapidly as the company expands nationally and through different lending channels.  The ideal candidate should be located in S. California or be open to relocation, a seasoned mortgage professional with extensive experience managing servicing functions, and possess expertise  with all agencies including GNMA (minimum 3 years). The company is also seeking a Wholesale Division Sales Manager for the central U.S. This position can be located anywhere within the central US states and the ideal candidate must have recent experience managing and coaching high volume wholesale sales teams.  Both roles will be key members of an entrepreneurial senior management team with the opportunity to expand nationally utilizing best in class technology and best practices.  Interested parties should send their confidential resumes to me at


Of course the employment picture continues to evolve. For example, earlier this week BB&T announced it will consolidate 37 markets into 23 and eliminate 14 regional president positions, as it seeks to streamline operations and reduce costs.


There will continue to be discussion about how the CFPB’s QM will impact borrowers seeking lower loan amounts (will any LO want to do a loan below $100k?). But QE3 is a huge issue also, and impacts the global fixed-income markets. Warren Buffett, who knows a thing or two about economics, recently suggested that bonds are over-valued, given that the Fed is artificially keeping rates low. You can’t really argue with him. But what will be the impact on investors, and on mortgage-backed securities, if and when QE3 ends? If you’re interested you can visit the STRATMOR Group web site located at - the current blog is, “Mortgage Backed Securities: Life After QE3" – just click on the link near the top right.


Yesterday the commentary discussed how important names were (RFC – GMAC - Greentree), and I received this note, “Rob, don’t forget that ING Financial announced it will rebrand itself in the US and switch to the name ‘Voya Financial,’ which is short for ‘voyage.’ ING will roll out the new brand over the next few years.” Thanks – it removed itself from the mortgage biz a few years back, but one never knows if it’ll return.


“Rob, my team and I are coming out of the MBA’s Secondary Marketing Conference, and among other things we had five meetings with five different companies that are suddenly pushing their correspondent divisions. My head of production loves it. My head of secondary and head of Ops are asking me why should we re-structure our operations in order to sell to companies whose business models are built around the juicy spreads from 2012? Why should I sign up with a company who is basing its strategy on 2012 spreads to create a correspondent division when one didn’t exist before? What’s a CEO to do?”


Darned if I know – that’s why you’re the CEO! Seriously, yes, spreads were huge last year, in spite of all the hurdles the industry had. And remember that companies are scrambling to add servicing assets that “the big guys” are under valuing for various reasons. Retooling your operations department for underwriting and delivery purposes is a business decision that you need to make. Brokers are well known for going with “the flavor of the month” because they are typically smaller than you are (this CEO’s company happens to be doing a few hundred million a month) and more nimble, but to spend precious time, resources, effort, and money moving a production machine to a company that is .125 better this week is a decision that only you can make. Thus many lenders have sought direct agency approval, keeping the servicing if they can afford to or selling it in a bifurcated procedure, or are continuing to sell to the “usual suspects.”


Lenders looking for new investors should remember that there is a difference between the smaller, "mini" correspondent programs and the new medium and large programs. (I am not going to name names.) Many brokers who have recently become mortgage bankers may see some benefit from using smaller correspondents, possibly citing service, training, and slightly better pricing – but the benefits for a large, established lender making a switch are questionable. Many of the “big guys” have raised their net worth requirements, nudging smaller lenders toward start-up correspondents. From the investor perspective, plenty of companies are hedging their bets, so if the wholesale channel shrinks they will have correspondent (and/or retail) to help provide some stability and to attract talent to the company in general while continuing to add servicing to their own books.


So yes, companies are continuing to evolve. Yesterday the commentary discussed Nationstar, and its first quarter earnings and its purchase of Greenlight Financial. It prompted this e-mail from a Wall Street analyst. “Don’t forget that while Nationstar is making great moves to drive higher ROEs and grow the servicing portfolio, its growth is fundamentally based on its ability to replenish portfolio run-off. It needs to keep adding more loans to its servicing portfolio in order to make up for the loans that are lost when investors default (and the loan no longer generates serving income) or when loans are paid off (either by refinancing with someone other than Nationstar, selling the home and not originating a new loan with Nationstar or just paying off the mortgage). This is a tricky business because the more Nationstar grows its servicing portfolio, the more it needs to replenish its run-off. Historically in the mortgage business, there were not many opportunities to acquire large MSR portfolios but in the recent years as banks rethink their mortgage strategy or other servicing companies get swallowed up, there have been plenty of opportunities to grow servicing portfolios in big chunks.”


She continued, “At some point this period of significant transfers will come to an end and Nationstar will need to be more reliant on its own mortgage origination capabilities to get new loans in its servicing portfolio. We’re seeing that with its purchase of Greenlight, and its development of its wholesale channel. This evolution would make Nationstar look very similar to the pre-crisis mortgage banks (i.e., Countrywide). Once this happens, the company will be competing with the banks and companies like Quicken Loans for new originations, so adding production is very important. I hope that the company does not go the way of the pre-crisis mortgage companies who offered lower lending standards (i.e., going into sub-prime or Alt-A) or unique loan products - the same avenues that led to the run-up prior to the crisis. Not only would this be a complete repeat of the past, but this will be harder this time around with new regulations defining ‘qualified mortgages’ which will make it more costly to originate and securitize those types of loans.” That analysis could apply to many companies currently in the business – thanks for the note.


Yes, I know that we’re in May, and computers transmit data at the speed of light, but for some reason the FHFA (which oversees Fannie & Freddie, among other things) just reported HARP numbers for February. The Home Affordable Refinance Program (HARP) continued to increase refinance numbers in February, and F&F reported 97,738 HARP refinances throughout the month, bringing the total number of HARP refinances (from the program's inception) to approximately 2.3 million. FHFA also reported HARP refinances accounted for 21% of total refinance volume in February. In other late breaking news, the U.S. Post Office reported mail traffic increased 4% between 1973 and 1974.


The MBA is a little quicker with its application data, in fact downright fast by most standards. Yesterday it came out with the usual application numbers for the prior week, and this time purchases apps were at a 3-year high! Overall applications were up 7% with purchases +2.4% and refis +8.3%. The average size on loan refis jumped from 207k to 213.7k. Conventional refis moved up 8.8% while GNMA refis rebounded by 5.7%.


And a lot of those refis are flowing through to Freddie Mac. Freddie announced earnings of $4.6 billion from January through March, making it profitable in the past six quarters. That makes our government happy: it will pay a dividend of $7 billion to the U.S. Treasury next month and requested no additional federal aid for the fourth consecutive quarter. This is a nice increase from the $577 million it made in the first quarter of 2012. (And for those playing along at home, Fannie & Freddie have received loans about $170 billion and so far the companies have repaid a combined $62.2 billion.) Helping the agency’s income is a better housing market (fewer delinquent loans on their books) and higher fees to guarantee the loans.


There continued to be “not much going on” in the fixed income markets Wednesday. MBS prices traded in a somewhat narrow range, although there was some jockeying among coupons and among swap levels. Demand was weaker-than-average for the 10-yr Treasury auction, but MBS prices moved higher after the results came out. The 10-yr closed at a yield of 1.76% - pretty close to where it started.


Today we’ll have Jobless Claims at 8:30 EST. And the results from the 30-yr Treasury auction will come out around 1PM EST. Ahead of that rates are slightly higher, and the 10-yr is sitting around 1.78%. The weekly jobless claims figures, by the way, are expected to have risen by 11k from the previous week to 335k.


(Parental discretion advised.)

A Christian Way to Call Someone a B-st-rd:
A guy was getting ready to tee off on the first hole when a second golfer approached and asked if he could join him. The first said that he usually played alone, but agreed to the twosome.

They were even after the first few holes. The second guy said, "We're about evenly matched, how about playing for five bucks a hole?"

The first guy said that he wasn't much for betting, but agreed to the terms.

The second guy won the remaining sixteen holes with ease.
As they were walking off number eighteen, the second guy was busy counting his $80.00. He confessed that he was the pro at a neighboring course and liked to pick on suckers. The first fellow revealed that he was the parish priest.
The pro was flustered and apologetic, offering to return the money.
The priest said, "You won fair and square and I was foolish to bet with you. You keep your winnings."
The pro said, "Is there anything I can do to make it up to you?"
The priest said, "Well, you could come to Mass on Sunday and make a donation. And, if you want to bring your mother and father along, I'll marry them. "


If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog is, “Mortgage Backed Securities: Life After QE3." 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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