Pipeline Press - Rob Chrisman, Mortgage News Daily

[I am away from the computer on a daily basis, and will not be returning e-mails until September 10th. In my place are daily commentaries from a series of very knowledgeable mortgage industry people with different backgrounds, and they have been given very little direction about what to write about - the latest is below. Our views may or may not coincide, but I thank them for their time in volunteering and helping out.]  

Today's contribution comes from....

Justin Vedder
Area Senior Vice President
Arthur J. Gallagher, Mortgage Banking Division
p: 415.536.8522
e: justin_vedder(at)ajg.com
w: www.ajg.com

It is always interesting to listen to the owners of mortgage companies who share their view of Mortgagee's Errors and Omissions, Professional Liability, and Fidelity Bond policies.   Many have a perceived notion that there is complete coverage for things like repurchases or indemnification requests.  There are others who have the view that "It doesn't cover anything.  I would get rid of it if I could." These owners consider the purchase of such coverage forms as the cost of doing business.  A ticket to do business you might say. Lastly, there are a few who utilize the coverage forms as an effective risk management tool.

So what does it cover?  Why do we have it?  Let's do a little insurance 101. 

Why do you need these coverages?  Freddie Mac, Fannie Mae, Ginnie Mae, private investors, warehouse lenders and some wholesale lenders all require the Fidelity Bond and, Mortgagee's Errors and Omissions coverage forms.  Each of the aforementioned has their own specific limit and coverage requirements (which can be a daunting task for any insurance agent who does not specialize in these lines of coverage).   Professional Liability is not required but most lenders purchase the coverage to protect the company.  

Take a look at the details of each...

Errors & Omissions coverage provides protection for lenders from losses to mortgaged properties. Protects against claims alleging:

• The mortgage interest portion protects mortgagee or owner interest in under-insured properties against physical damage losses from "required" perils.
• Mortgagee's errors and omissions covers liability for accidental failure to maintain certain required insurance coverages or guarantees on mortgaged properties.
• Failure to determine a property is in a flood zone.
• Failure to arrange for hazard and/or flood insurance, FHA insurance; VA guarantee and PMI.
• Liability to investors and to mortgagors when losses occur due to certain accidental errors and omissions during the warehouse period.

You will notice it does not cover any general error and not one which is tied to a repurchase demand.  Again, you must have this coverage to meet the requirements of Fannie Mae, Freddie Mac, Ginnie Mae and other mortgage investors and not all insurance products meet these requirements.

Fidelity Bonds protect mortgage bankers from loss due to employee dishonesty. Depending on the insurance coverage acquired, it may also extend to attorneys, or other loan closing agents, performing loan-closing services on a loan originated or acquired by the business. Insurance carriers have their own definition of "employee dishonesty" and a general definition for it is "dishonest or fraudulent acts committed by an employee acting alone or in collusion with others".  These acts must be committed by the employee with the manifest intent to cause the lender to sustain a loss and/or to obtain a financial benefit for the employee or another person or entity. The definition specifically states that "financial benefit" does not include things such as salary, fees, commissions, bonuses, etc.

Fidelity Bond coverage may protect against claims alleging loss from:

• From employee dishonesty as well as from any closing agent; can also cover third party originators and/or servicing contractors.
• Theft of mortgage investor's money or collateral as required by Fannie Mae, Freddie Mac or Ginnie Mae, satisfying industry standards and most mortgage investors' requirements.
• A loss of property, including real estate documents, on premise or in-transit, check forgery and electronic or computer crime.
• Forged original documents.
• Also includes coverage for robbery, misplacement, counterfeiting, fraudulent documents and fraudulent real property mortgages.

One big misconception is that the fidelity bond covers third party fraud.   It does not.  

Professional Liability covers the legal liability for claims brought by a third party in the rendering of (or the failure to render) professional services.  Areas of coverage may include origination, counseling, underwriting, processing, marketing, warehousing, closing, selling, or servicing.   A Professional Liability policy may protect lenders against claims alleging:

• Misrepresentations of the terms of a loan to a borrower
• Non-compliance with TILA
• Non-compliance with RESPA
• Negligent acts, errors, or omissions in the performance of your professional services
• Wrongful foreclosure and eviction
• Wrongful acts of third party originators (Mortgage Brokers/Originators/Correspondents) or others considered as independent contractors
• Non-compliance with the Fair Housing Act (typically defense sub-limit only)
• Non-compliance with the Equal Credit Opportunity Act (typically defense sub-limit only)
• Wrongful loan application counseling

This is not a required coverage but purchased by nearly all lenders.   The reason is that it can protect a firms balance sheet by potentially providing legal defense and paying settlements/losses arising out of third party claims.    Again, no coverage if tied to a repurchase demand. 

You might be thinking you have more exposure than you thought and you are probably right.   In mortgage banking, there are a number of major areas of risk that Fidelity Bond, Mortgagee's E&O, and Professional Liability will not provide protection from.  Here are the most commonly referenced and tied to repurchase liability:

• Underwriting and eligibility risk 
• Fraud and misrepresentation risk
• Collateral risk
• Compliance and regulatory risk
• Interest rate risk

With the rising number of mortgage defaults and declining home prices, mortgage fraud has become one of the most costly expenses associated with mortgage loan origination. More specifically, recent research findings indicate that "fraud for property" - where a borrower misrepresents income, employment, occupancy, assets and/or debts in order to apply for a mortgage loan - is a large contributor to the overall rise of mortgage fraud.

The most commonly referenced frauds in 2009-2011 repurchases were:

• Occupancy
• Income
• Undisclosed Liabilities
• Property Valuation
• Borrower Authentication
• Employment Status

More details: https://www.efanniemae.com/utility/legal/pdf/fraudstats/fraudupdate0811.pdf

This is dangerous because regardless of whether the borrower intentionally or unintentionally omits this information, the risk is passed along to you. What's the result? An increasing number of buy-back requests - ending in significant losses.   With this in mind there are a few insurance programs many lender have already put in place and perhaps you should consider.

• Borrower Fraud Insurance - As noted above much of the losses the mortgage banking industry has faced, often stemming from repurchases, are tied to borrower fraud. A program, headlined, Quality Lending Insurance, provides protection when you are victimized by the misrepresentation of information in the application by a borrower. Whether the misrepresentation is intentional or not protection is provided.

• Insured Undisclosed Debt Monitoring - Undisclosed debt has been one of the more prevalent types of frauds tied to repurchases in the industry, especially in the last few years. Investors are diligently looking at loans for variations in the credit profile of a borrower. Fannie's LQI requirements clearly show an increased focus in the area. To combat this risk Equifax Mortgage Services developed Undisclosed Debt MonitoringTM which is a system that monitors the "quiet period" between the time of the original credit file pull and the closing of the loan. The platform is "always on" - which means the borrower is continuously monitored and daily alerts are provided to the lender that may represent potential risk associated with mortgage loans in their pipelines. This not only detects potential risks it is a more efficient way to manage your loan pipeline and review credit discrepancy from application to close. While it significantly reduces the exposure to undisclosed debt, Equifax took it a step further to assure their clients have a complete solution and coupled an insurance policy to the program to cover losses should undetected liabilities result in a repurchase demand.

• Appraisal Warranty Insurance - With borrower fraud being covered by or in part by the program referenced above that leaves appraisal risk These programs cover financial loss arising from error, omission, action, failure to act, breach of contract or breach of duty by the Insured (appraisal management co) in the rendering or failure to render their Professional Services. The action must result in the stated value deviation, generally 10%, from the original insured warranted appraisal report.

A number of insurance products are truly mortgage specific.   The key to knowing what coverages you need, the right coverage for your business and the right cost is working with someone who knows mortgage banking.  Many lenders work with local agents or different agents for various aspects of their insurance portfolio.   With some many changes in mortgage banking over the past few years you may want to consider working with someone that specializes in mortgage banking.   By working with a specialist in your area of business, you will likely learn of adjustments or changes needed to your current policies, be given an introduction to new products, or participate in the development of new products which can be beneficial to your balance sheet.    Often those insurance agents in the "business" have relationships, beyond insurance, that can be beneficial to your business as well.   

Go Bears!!

 

 

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Today's contribution comes from...

Don Brown
Co-President
Secondary Interactive
dbrown(at)secondaryinteractive.com
www.secondaryinteractive.com

GAINING PERSPECTIVE

In business, as with any other walk in life, making the right decision often is the result of having the right information at the right time. This is easily said but harder to do.

I am reminded of the story that Steven Covey tells about shifting paradigms based on new information. He was traveling in a subway, and observed a man get in with his two sons.  The sons proceeded to run all over the car generally causing havoc and bothering the people. This continued to the point where he finally got irritated enough to ask the father why he doesn't do something to control his kids. The father replies, "We just got back from the hospital where their mother died. I don't know how to handle it and I guess they don't either." Suddenly the perspective of the situation changed.

When managing a mortgage pipeline, there are multiple factors that affect its value every day. The easiest to grasp is day-to-day market movement.  However, just knowing that will not give you the complete story regarding how the value of your pipeline may have changed.  Like Mr. Covey in the parable, if you only know part of the information, you may very well make the wrong decision. Unlike Mr. Covey's situation, making the wrong decision regarding your pipeline could cost you money.

Primarily, it is important to understand the type of information that you need to know to make the best decision.  Then it is critical to gather that information in the relative time horizon.

In focusing on what information you need to know, let's look at a hypothetical scenario involving a decision to set coverage. Imagine a static $40 million pipeline with a mark to market ("MTM") of 50 bps. That MTM is comprised of a cumulative 100bp gain in the uncommitted loans and a 50bp loss in the open MBS positions. 

Over the course of the next day, the market moves a quarter of a point but the MTM deteriorates to 40 basis points. The initial conclusion could be that something changed in the hedge to make it inefficient and, as a result, I must either blame my hedge advisor or my secondary marketing company.

Upon further review, however, that may not be close to the right conclusion.   In reality, there may be several factors causing this problem. Causes could include status changes to the loans in the pipeline or the pricing to those loans. Perhaps the characteristics of the loan changed resulting in changes to the applicable eligibility or loan level adjusters.  Or, maybe there were changes to the TBAs or investor commitments that make up the trade side of the MTM.  Without knowing this information it is difficult, if not impossible, to be sure why your MTM moved.

Understanding this information historically has been difficult and takes considerable research.  Having this information at your fingertips, on demand, is essential to ensuring that you have the best information, at the right time, to make the pipeline and loan decisions that are critical to your profitability.

The opportunity now exists to have all this information at your fingertips.  More importantly it is also possible to know, at the touch of a button, the fiscal impact of these factors on your MTM from one day, or one period, to the next.

It is possible to know, at the push of a button, all of the following:

• loan pricing variations,
• changes to the existing pipeline eligibility,
• new loans coming into the pipeline,
• loans that were relocked,
• loans that were cancelled,
• loans that were taken out of commitments, and/or
• loans that were purchased.

On the trade side, you can now immediately understand the impact of:

• new trades,
• changes to existing forward commitments,
• new commitments,
• newly filled commitments,
• newly filled; or
• closed trades.

Knowing this information helps you make the right decisions, with the right information, at the time when the decision needs to be made.

As you continue to invest in your loan tracking and pipeline management systems, it is not unreasonable to insist that you have this information at your fingertips before you make critical hedge position and loan sale decisions.

MARGIN CALLS AND MORTGAGE BANKERS

The recent market volatility has been incredible.  It has caused unprecedented, if not unexpected, disruptions to broker-dealer credit availability resulting in an increase in the trend towards margin calls.

It was 2006 when one of our mortgage banking clients first was approached by a broker-dealer with a request to post margin.  At the time, the client chose to expand their lines with other broker-dealers rather than put money up.

My how times have changed.

While there still are opportunities out there to secure lines without a margin account, the trend is going the other way.  Over the years, broker-dealers have afforded mortgage originations with great credit. From time to time, to their detriment. 

We get it that no one wants to tie up capital unnecessarily.  However, given the exposure that quality broker-dealers have endured over the years, it is time for originators to recognize that risk and be open to reasonable discussions about posting margin to ensure the continued symbiotic relationship between Wall Street and Main Street.

VOLATILITY AND BEST EFFORTS MANDATORY SPREADS

There are many reasons for the fluctuation in spreads between best efforts and mandatory pricing.  One clear trend, however, is that in times of great volatility, the spreads tend to widen.

During volatile times, pull-through can suffer and as a result, investors may increase their hedge costs which, in turn will widen spreads. This certainly occurred in the fall of 2009 and persisted into early 2010.

Recently, we have seen investors become cautious about overloading their fulfillment operations. As a result, they have tampered their best efforts pricing.

The result is the same: increased spread between best efforts and mandatory delivery pricing. A quick study show that this increase in pricing spreads across the board.  If you would like the details do not hesitate to contact me.

We are often asked by prospects during times when spreads are low why they should bother with hedging if the spread is only 15 bps. The answer is to put yourself in a position to take advantage of episodes when the spreads widen.

Unfortunately, converting to mandatory delivery takes preparation. If you wait until the spreads are at their widest, you may miss the window in preparation.  There is a reason why the bigger mortgage bankers focus on mandatory deliveries - even when the best efforts-mandatory spreads are smaller.

HEDGE EFFICIENCY

At Secondary Interactive, we have had countless discussions about measuring hedge efficiency.  Again, this is a concept that is discussed often but rarely is it accurately defined.

The Garret Watts Group talks of the concept of leakage.  We have a client that uses our reports to realize what he calls "findage" - presumably the complement to leakage.

The critical conclusion is that the more you know about your data, and the more accurate that data is, the better decisions you can make about setting your hedge position and, perhaps more importantly, selling your loans.

You now have the ability to understand quantitatively what the potential mandatory pick up could be the day that you provide the lock commitment to the borrower and, more importantly, understand how much of that spread you actually were able to capture when you sell.  In our book, that is how you manage hedge efficiency.

The next step is to identify specifically why you failed to realize the entire potential margin.  There are obvious reasons, such as bid/ask spread, and less obvious reasons, such as failing to deliver to the best execution, missing delivery deadlines and, of course, an in efficient hedge position. 

Understanding these specifics is not unreasonable. We strive to continue to get more and more specific information to our clients so they can improve your performance and reduce their leakage and there is no reason that you can't expect that same sort of effort from your partners.

 

 

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[I am away from the computer on a daily basis, and I cannot respond to e-mails until September 11th. In my place are daily commentaries from a series of very knowledgeable mortgage industry people with different backgrounds, and they have been given very little direction about what to write about - the latest is below. Our views may or may not coincide, but I thank them for their time in volunteering and helping out.]  

Today's contribution comes from...

John Boyles
Opes Advisors
jboyles(at)opesadvisors.com

I often pick on Rob about his commentary, primarily because I remember when he was at Tuttle, where his humor was a bit more locker-room appropriate and his opinions were a little more... opinionated.  In asking me to guest write this commentary, I am sure was his way of telling me to put up or shut up.

He left the door wide open and I have been struggling about what I should pontificate on.  I received several suggestions:

• volatility in the MSR's;
• my experiences with hedging firms from Tuttle, Compass and finally MIAC;
• the upcoming conference in Chicago and the relevance of the MBA;
• anything about new hedge fund money coming into the industry (unfortunately they all made me sign NDA's)
• The stubbornly high unemployment...

None of these topics did it for me, so onto a few other topics....

I am sure Bank of America didn't like being outed by the WSJ, but anyone paying attention knew something was up. I never expected BAC to stay in correspondent lending in the first place. They stepped out of the market years ago, and only inherited the CLD channel with the Countrywide bailout. 

Many critics say a correspondent lending division distances an institution from the borrower, and the reps & warrants are only as good as the counterparty.  As a mortgage banker and correspondent lender I am obliged to disagree.  I am hopeful that BAC finds a committed buyer for their platform or that at least someone like Flagstar, MetLife, Franklin American or Aurora will step up and try to fill the 24% market share void left behind.

We try and do considerable amount of forward looking planning here at Opes... we, like many mortgage bankers, are always trying to be ahead of the curve in our planning.  Some in this industry might look at this as an opportunity to build out their own servicing portfolio. A great resource is the MBA, which recently published a white paper on the subject. 

Rob is currently in South America, I assume trying to unravel the mystery of the Mayan calendar.  He often tells me I can be "retired" like him but only after spending another decade or two defending my pricing strategy and dealing with pull through, lock renegotiations and regulatory changes. 

Occasionally when I speak with originators, they express concern about the effects of LQI and similar initiatives.   On August 19th, FNMA updated their FAQ on the subject -- it's worth a read.

How do you take something that is inherently complex, always subjective and surprisingly fluid and improve the quality? According to FNMA you focus on "facilitating a match between the loan file data and the delivery data in both the loan origination and loan delivery processes." That's code for saying they want to make sure what you say you did is exactly what you did. This is a conversation I often have with my four-year-old son JP. 

I will leave you with one last thought. This month we saw:

• the ^TNX drop below 2%.
• unprecedented declaration from the Fed about rates.
• S&P downgrade of US debt
• And the swelling pipelines and bulging bellies of mortgage bankers.

All this news gave many of us a gift of production.  Yet I look forward and I know "winter is coming." I hope that we all have enough deliberate practice, dedication and mentorship to make it through. 

I asked Rob to take a look at this before I was complete. He said; "A little more about who you are. You have a very good perspective on the business, and the audience needs to know it."

I never like talking about myself.  I thought maybe I could share something of myself by writing about a few of the mentors and coaches who have helped me along the way. 

Lennart Wahlquist. When I went to work for this guy in 1994, I didn't know what a "1003" was. He made me read every seller's guide starting with Saxon, Impac, then ALS.  My first retail loan was for my sister. (We were a wholesale shop.) He made me come up with the difference when I was floating her price and in one day the market sold off. Two weeks later the price was back to where I wanted it. He made me eat the lock. This taught me two things: 1) Never promise a borrower and not deliver. 2) Never blow a lock at a lender for a better price.

Nancy Corlett (Carter).  Nancy ran me into the ground at Aurora Loan Services (Lehman) - I never worked so hard in my life. (That said, we were in San Diego, where mandatory office attire included board shorts and flip flops.)  No matter how late we were out the night before with clients, Nancy was in the office by 6:00 the following morning.  I learned the value of hard work and dedication; her drive to grow the business is the strongest I know.

Susan McHan.  A little over six years ago she invited me into her company (Opes Advisors) to run secondary and eventually capital markets.  At this small business headquartered in Northern California, never a day goes by where I don't learn something new.  She has grown Opes from about 15 to over 300, and she cares for each one of us.  She reminds me of that when I start to complain about giving free lock extensions or price concessions.  Here I learned the most important lesson about operating with care and concern for everyone.   

 

 

 

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[I am away from the computer on a daily basis, and I cannot respond to e-mails until September 11th. In my place are daily commentaries from a series of very knowledgeable mortgage industry people with different backgrounds, and they have been given very little direction about what to write about - the latest is below. Our views may or may not coincide, but I thank them for their time in volunteering and helping out.]  

Frank Fiore
Partner
e: ffiore(at)matchboxllc.com
w: www.matchboxllc.com

Last month's news that Datatrac was being acquired by Ellie Mae definitely created some shock waves in the industry.  Shockingly, there are many who still haven't heard the news!  Any time the two leaders of an industry segment join together it changes the landscape and I for one am curious to see how this combination will affect the market. As the recent press releases have stated, the combined entity now supports 30% of the mortgage community and we all know they're looking for that number to grow. Like many other industries, the mortgage market has become increasing dependent on technology and while there are more offerings, it's clear that with this move, only the strong will survive.  And I always say that competition breeds innovation so I imagine that other LOS providers have their development teams working overtime.  

This acquisition was clearly a combination of alternate business models, Datatrac has employed a module based model where its product offerings are external and  integrated origination, document management , web portal, and commission systems tied into its core banking software Datatrac. Included in this model was the premise that clients could use the "best in breed" philosophy in allowing clients to select their choice of third party vendors to integrate into Datatrac. It gave the clients more versatility in vendor selection and if the integration was built, it provided a seamless process. The multiple software connections sometimes proved to be cumbersome for support but overall the model worked well. The best is breed philosophy led to many vendor relationships wanting to develop integrations with Datatrac. The system began as a mortgage banking software truly tied to mortgage banking procedures from submission through post-closing. Over the years they saw the need to integrate into other areas of the loan process through technology.

Ellie Mae on the other hand took the route of building an end to end solution. Through acquisition and development, the Encompass 360 banking software increased its offerings within the same product. The system evolved overtime to offer increased amount of functionality within the same system. Through the Ellie Mae network, clients have the ability to also engage third party vendors and have the results in most cases delivered back into the system.  It has a robust offering of services that come with the product and has made the end to end promise a reality. Through the acquisition of a document company, pricing system, and compliance engine, it has made the Encompass 360 banking platform a one-stop shop. 

The combination of the two firms creates an interesting merger of philosophies and it will be intriguing to see how, if and when they combine and integrate the systems.   I'm sure they're working overtime as well, looking at how to pull the best part of each system and roll out a unified system in the future.  Imagine the best of the Datatrac suite of products being re-branded or re coded to an Ellie Mae product in one form or another.  There is an incredible amount of talent within each company and the combined mindset working together instead of as competitors makes for a game changer for the market. The new entity will control a good portion of the market and will look to take on more with a unified message. As the unified approach becomes clearer the best of both systems will be obvious. I think that the current products being offered will change for the better and ultimately will benefit the user which is the most important It appears that the end to end model is taking the lead on what the future holds for mortgage technology .

The bigger picture speaks to the future of technology providers and further consolidation.  This is only one of numerous acquisitions in 2011 but I'm sure not the last.   The remaining players, although strong, have to be thinking about strategic moves in order to complete.  If Datatrac and EllieMae can combine forces, anything is possible.  Vendors will also be re-thinking integration options as the new Ellie Mae will be a strong entity and will most likely determine who they would like to have relationships with.   With Calyx purchasing Loan Score this year, there have been integration moves that point to merging technology under the same platform.  Who's next?  This is only the beginning of technologies merging as unfortunately, if they fail to do so I'm afraid they'll begin to lose their competitive advantages.  As with any integration, changes take time and although the benefits of the combined entity are clear today I think it will take some time for them to be achieved and reach the market.  Ellie Mae was already a strong system and got much stronger with the Datatrac acquisition. I look forward to the combined entities offerings as I am sure it set the bar for the entire industry.

 

 

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[I am away from the computer on a daily basis, and I cannot respond to e-mails until September 11th. In my place are daily commentaries from a series of very knowledgeable mortgage industry people with different backgrounds, and they have been given very little direction about what to write about - the latest is below. Our views may or may not coincide, but I thank them for their time in volunteering and helping out.]

Good night Irene..... Not so fast

Frank Fiore
Partner
e: ffiore(at)matchboxllc.com
w: www.matchboxllc.com


Being in the Northeast, I can honestly say that Hurricane Irene left her mark in more ways than one. Due to her sheer strength she left a trail of destruction that went up the coast from the Carolinas through to  Vermont.  I mention not to repeat the obvious but more to let you know that her effects will be felt in the mortgage industry for months to come. Residential Appraisers and Appraisal Companies were finally getting busy with the recent refi surge and now they will be over whelmed with recertification requests on the same properties.  The already busy pipeline is going to be slowed by the after effects of the appraisal requests due to the hurricane. If you add the accessibility challenges due to downed trees,  power lines, and inability to get in contact with homeowners, you have to be looking at delays that will weigh on your pipeline.

If you have any properties in the affected states, you should pull them and be creating a separate process for these properties as the collateral conditions and expected  timeframes will be delayed. This will have an effect on your turn times and will definitely have an impact on your locked pipelines. Any property in an affected area that has a lock expiration date in the next two weeks should be pulled for collateral review. If the appraisal is not in, you should be making rate lock extension provisions as the timeline for these loans is yet to be determined.    It will also be hard to gauge because most appraisal companies will not be able to provide confident feedback. It is not their fault as the ability to get to properties is not within their control.  Be in contact with your clients and get updates on the status of the property. If cell phone is the only contact available, make sure the appraisal company has this information to assist in their contact.

In regard to your closed pipeline,  as has happened in the past, investors will create their own set of collateral provisions for affected properties which will delay purchase turn times. Reach out to your investors now and see what will satisfy those conditions now rather than wait for them issue conditions. It will only delay their purchase and keep loans on the lines longer. Speaking of warehouse lines, they may also be issuing collateral requirements as well for any affected properties that are on their line. Locked pipelines grew over the past few weeks and the concerns about internal efficiency crept up. You could have the best operation around but the effects of Irene could still wreak havoc on your pipeline. Do not wait and let this become an issue. Get ahead of it and create a separate process for these deals as they will be delayed which leads to secondary exposure and profitability erosion. Get ahead of it and be prepared. That is what I head all weekend so I am passing onto you as a public service announcement.   

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(Please visit the site to view this media)CNBC's Diana Olick reports on delinquencies at Fannie Mae and mortgage rates this week....(read more)

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(Please visit the site to view this media)Sept. 1 (Bloomberg) -- Jacques Attali, president of Planet Finance, talks about European bank capital, the French economy and the outlook for the euro and U.S. dollar. He spoke yesterday in Jouy-en-Josas, France, with Bloomberg's Caroline Connan. (Source: Bloomberg)...(read more)

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(Please visit the site to view this media)WSJ's John Shipman reports the number of Americans filing for initial jobless claims rose at a lower pace than expected last week, but remains above 400,000. Photo by Alex Wong/Getty Images

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(Please visit the site to view this media)Amid high housing costs and a weak economy, some Bay Area residents are deciding to live full time on boats. So-called live-aboards are attracted by the relative affordability of a home on the water.

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(Please visit the site to view this media)Sept. 1 (Bloomberg) -- Chris Matten, a partner at PricewaterhouseCoopers LLP, talks about banks' preparations for a raft of new financial regulations. He speaks from Singapore with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)...(read more)

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(Please visit the site to view this media)CNBC's Diana Olick has the story on the plunge in weekly mortgage applications due to a big pullback in re-financing....(read more)

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(Please visit the site to view this media)CNBC's Rick Santelli has the data on last month's factory orders, and a look ahead of Friday's jobs report, with Steve Ricchiuto, Mizuho Securities, and CNBC's Steve Liesman....(read more)

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(Please visit the site to view this media)The numbers are tepid and disappointing but not unexpected, says Joel Prakken, Macroeconomic Advisers chairman, who says it is not impossible that we are in a recession but the likelihood is very small....(read more)

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Mortgage banking and real estate are typically not physically hazardous professions. In case you're ever tempted to throw down your pen & pencil and pick up a shovel to earn a living, check these out.  (I especially like the guy in the pink shirt.)

Last night news came through the Wall Street Journal that "Bank of America Corp. intends to sell its correspondent mortgage business, as the troubled lender looks to narrow its focus and bolster its financial strength...Employees could be notified as soon as Wednesday that the lender has decided to exit the correspondent channel because it no longer fits with the long-term strategy for its mortgage unit. The company decided to get out roughly four to six weeks ago, following a review led by mortgage chief Barbara Desoer. The business employs more than 1,000 people.

The move represents another repudiation of Bank of America's 2008 purchase of Countrywide Financial Corp. That deal turned the Charlotte, N.C., lender into one of the nation's largest mortgage players but also saddled it with hundreds of thousands of delinquent loans and an array of mortgage-related lawsuits. The bank has already exited the wholesale business, which involves buying loans from independent brokers, and it has stopped offering reverse mortgages....Loans purchased from correspondents accounted for 47% of Bank of America's mortgage originations, or $27.4 billion, in the first quarter of 2011, according to Inside Mortgage Finance. Bank of America had a 24.3% share of the correspondent market in the first quarter, second only to Wells Fargo & Co."

Rumblings of this had been out in the market for quite some time. But the escalation of this from conjecture to print will motivate mortgage companies today to take action. BofA correspondent reps will spend the day not only wondering about their jobs, but also handling phone calls - no mortgage banker wants to take a financial risk if there is no upside, and the difference between "selling its correspondent business" and "closing its correspondent business" may be lost in the shuffle. Many lenders had already scaled back their book of BofA business, either due to poor pricing or in expectation of this happening. Shipping departments and secondary marketing managers will be checking their commitment reports and unshipped funded loans. Pipelines will be analyzed for BofA-only production, with perhaps calls placed to the remaining large investors ("Will you take this type of loan with this underwriting?") Chase does not buy third-party originated loans, so that complicates things somewhat. And many are wondering what will happen to the pricing at Wells, Citi, or GMAC with the loss of a competitor. And write-ups have begun spring.

The latest lawsuit against Bank of America comes from U.S. Bancorp, which wants Bank of America Corp. to repurchase poorly-written mortgages sold by Countrywide Financial in 2005. The suit claims Countrywide sold U.S. Bancorp a pool of over 4,000 loans originally valued at $1.75 billion but ignored its own mortgage underwriting guidelines when issuing those loans. According to the complaint, Countrywide agreed to repurchase loans within 90 days if any of the statements made in the loan contract wound up being untrue. Those statements included an assertion that the loans complied with the bank's underwriting guidelines.

Appraisal news and comments continued in the Wall Street Journal.

But tomorrow is a big day, appraisal-wise. If you don't know why, that is not a good thing. But here's a hint: it involves the initials U-A-D. Read a summary here.

"To be sure of hitting the target, shoot first and call whatever you hit the target." Of course Congress is on vacation, putting any talk of extending loan limits on hold. (Did you know that, according to TheHill.com, 80% of Congress has no background in business or economics?) But there is a rumor about loan limits being reduced even below the $417k level. Could the permanent loan limits go down? In the old days, next year's loan limits would come out around Thanksgiving, and reflect value trends. While there have been median home price declines over the past three years, FHFA followed a policy to 'not permit declines relative to the prior HERA limits.' Several months ago, FHFA and Fannie Mae published the permanent loan limits applicable to loans originated on or after October 1, 2011, and which are acquired by Fannie Mae in 2011. Therefore, no changes are expected to those permanent limits between October 1, 2011, and December 31, 2011.  FHFA has not indicated whether it will continue its policy of not permitting declines in HERA-based limits beyond 2011." More information can be found here.

FHA, of course, is "a whole 'nother animal," and questions regarding its loan changes can be seen here. And, of course, there is the official Mortgagee Letter from last week.

As an example of the loan amount issue, Flagstar recently reminded brokers, "Effective for FHA loans closing October 1, 2011 through December, 31, 2011 and barring congressional intervention, FHA's national loan limit "ceiling" in high-cost areas is decreasing from 175% to 150% of the conforming loan limit. Please see full memo for details."

Data-and-analytics company CoreLogic said it hired investment bank Greenhill & Co. to help with a possible sale, stock buyback or something else that might help the stock price. "Exploring strategic alternatives" comes to mind, especially with the stock down 50% during 2011.

The hurricane did its share of damage across the Atlantic Seaboard, and investors are reacting: it should come as no surprise that, for the most part, additional appraisals with updated photos will be required. Wells Fargo told its correspondent clients, "All appraisals completed prior to the disaster will require an acceptable property inspection report completed after that date. Neither Wells Fargo nor FEMA have yet to issue a declaration specifying impacted areas. It is expected that FEMA will announce a Declaration stating specific disaster areas within the next few days. Reminder: Precautions must be taken for loans originated within affected areas. Regardless of whether FEMA has formally declared a disaster, all transactions showing any indication of damage to the collateral should comply with the published Disaster Policy Guidelines as outlined in Seller Guide Sections 820.19 and 820.20 (Government Loans must follow FHA/VA guidance). States with locations that may have been impacted by this hurricane include: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington D.C."

Fifth Third reminded clients of its Federal Disaster Area policy. "The following applies to all fully approved purchase transactions that are expected to close on or before September 9, 2011: Borrower Property Condition Cert Form, a confirmation in writing from the borrower's insurance company evidencing there is no material damage and they are able to place coverage on the scheduled closing date. Note: If the property is in a flood zone a re-inspection is required. A re-inspection is required on condos and attached PUD's that require a master policy insurance. All purchase transactions not fully approved today or scheduled to close after September 9, 2011 a re-inspection is required. All refinanced transactions are required to provide the following: Re-inspection is required - All damage that impacts the property's value or marketability OR exceeds 2% of the property's value (appraisers to provide cost to cure) must be repaired prior to closing. Note: Required re-inspections are ordered through RealEC and should be completed by the original appraiser; if the original appraiser is unavailable the AMC must have the inspection completed with another appraiser or inspector assigned by the AMC. This will result in a changed circumstance from a disclosure perspective requiring a new GFE reflecting the re-inspection charge."

Rates continue to be historically good, and should be for quite some time. Of course we will see daily fluctuations, but with the Fed firmly in the 0% overnight camp, mortgage rates should continue to sit around these levels for quite some time. But speaking of daily fluctuations, traders and originators are lining up for Friday's unemployment data. The talk of refi.gov has died down somewhat (along with political grandstanding) although there is still conjecture about Obama's speech next week. But for firm news, yesterday, the Conference Board's index slumped to 44.5, the weakest in two years, from a revised 59.2 reading in July. "Sharp deterioration" was the descriptive language, and although stocks had a slight rally, the number does not help the case for a strong economy.

We also had the S&P/Case-Shiller Home Price Indices which showed that national home prices rose in the 2nd quarter by 3.6% after falling 4.1% in the 1st quarter. This puts national prices back to their early 2003 levels per this index. And the minutes from the August FOMC meeting showed that some members favored aggressive easing. 10-year notes surged .875 in price and closed around 2.17%. In MBS's, buyer's interest outnumbered sellers despite the higher prices, and current coupon MBS prices improved by about .5.

Today we've already seen the mortgage applications data for last week: -9.6%. Refinancing activity dropped over 12% while the purchase numbers showed a pick-up of about 1%. Refi biz is sitting at about 78% of total volume, but watch that ARM production: its share of activity increased to 7.1% from 6.2% of total applications a week ago. We also have the ADP Employment Change (+91k), and will have the Chicago PMI and Factory Orders. Currently the 10-yr yield is at 2.16% and MBS prices are roughly unchanged.

(From 9/2 through 9/9 I will be out of the country, my access to e-mail will be sporadic at best, and my ability to send out commentaries will be diminished. There will be a slate of guest writers on different perspectives: contract negotiation, insurance, compliance, risk management, and so forth.)

Looking forward to retirement?
Question:  Why do retirees count pennies?

Answer:  They are the only ones who have the time.

Question:  What is the common term for someone who enjoys work and refuses to retire?

Answer:  NUTS!

Question:  Why are retirees so slow to clean out the basement, attic or garage?

Answer:  They know that as soon as they do, one of their adult kids will want to store stuff there.

Question:  What do retirees call a long lunch?

Answer:    Normal.

Question:  What's the biggest advantage of going back to school as a retiree?

Answer:  If you cut classes, no one calls your parents.

Question:  Why does a retiree often say he doesn't miss work, but misses the people he used to work with?

Answer:  He is too polite to tell the whole truth.  
QUESTION:  What do you do all week?

Answer:  Monday through Friday, NOTHING..... Saturday & Sunday, I rest.

...(read more)

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(Please visit the site to view this media)Aug. 30 (Bloomberg) -- Karl Case, professor emeritus of economics at Wellesley College and co-creator of the S&P/Case-Shiller index of U.S. property values, talks about the U.S. housing market and the outlook for government policy to boost home purchases and economic growth. Residential real estate prices in in the U.S. decreased in the year ended in June at a slower pace than in the prior month, according to the latest Case-Shiller report. Case speaks with Lisa Murphy and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)...(read more)

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(Please visit the site to view this media)Charles Dallara, Institute of International Finance, discusses whether weaker than expected growth in Europe and continued Euro Zone debt concerns will lead to a TARP-like bailout for European banks....(read more)

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(Please visit the site to view this media)Aug. 31 (Bloomberg) -- Bryn Jones, a fund manager at Rathbone Unit Trust Management Ltd., talks about the outlook for a third round of Federal Reserve quantitative easing and his investment strategy. He speaks with Francine Lacqua on Bloomberg Television's "Countdown." (Source: Bloomberg)...(read more)

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(Please visit the site to view this media)Aug. 30 (Bloomberg) -- David Blitzer, chairman of the index committee at Standard & Poor's, talks about the outlook for the U.S. housing market. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent from June 2010, after a 4.6 percent drop in the 12 months ended May that was the biggest since 2009, the group said today in New York. Blitzer speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)...(read more)

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(Please visit the site to view this media)CNBC's Phil LeBeau has the story on the comeback in subprime auto loans....(read more)

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(Please visit the site to view this media)CNBC's Diana Olick has the details on the latest report on home prices showing a mixed bag....(read more)

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