Broker Compensation Regulations, MBS Market Tidbits, Market/Economic Stat Updates

Why does someone believe you when you say there are four billion stars, but have to check when you say the paint is still wet? That kind of person had better read the next paragraph.

For anyone who originates loans for a living, or knows someone who does, or who didn’t comment during the HVCC comment period and wish they had, you should know that broker compensation is in the hot seat. The Board of Governors of the Federal Reserve is accepting comments until Christmas Eve regarding the TILA changes—documents here and here. Highlights include page 178 (43408) which contains the new proposed broker compensation (little or no rebate will be paid; the broker will not be paid upon any of the loan characteristics and will have to charge a flat fee or an hourly fee, etc.) Also worth viewing are pages 43279 – 43285 (page 49 – 55) (beginning with “Background” on the bottom of page 43279).

Should one desire to comment, try an e-mail to, and be sure to include “Regulation Z; Docket No. R–1366,” in the subject line.

Of course the document raises a huge number of questions. Why should brokers and agents’ pay be fixed, but not a realtor’s? Should an originator who does a $1 million loan really receive the same pay as for doing a $100,000 loan? And if not, how should originators then be compensated? Will the proposed structure push loan officers into becoming brokers so that they have a range of pricing from different lenders? Or, instead, would the advantage go to large lenders (Bank of America, Citi, etc.) in adding origination staff since they can pay more?

MBS Market Tidbits
What has the Mortgage Bankers Association of America been up to lately? Well, they set up a council to examine and suggest a framework for the government’s role in the single-family and multifamily secondary mortgage markets. The MBAA advocates a new type of mortgage-backed security with two components. “First, a security-level, federal government-guaranteed ‘wrap’ similar to that on a Ginnie Mae security. The government backstop would be explicit and focused on the credit risk of these mortgage securities. Second, the security would be backed by loan-level guarantees provided by privately-owned, government-chartered and regulated mortgage credit guarantor entities (MCGEs). The infrastructures of the existing GSEs, including their technology, human capital, standard documents and existing relationships, would be used as a foundation for one or more MCGEs.” Share prices of both Freddie and Fannie fell yesterday, since the MBAA will ask Congress to transform Fannie and Freddie into smaller, private companies that would issue mortgage securities guaranteed by the government. Check it out at or Recommendations for the Future Government Role in the Core Secondary Mortgage Market.

Provident’s Arizona Fundings
I don’t live in Arizona, but apparently there is an issue with Provident Funding and that state’s tax bills. Provident has stopped funding loans in Arizona with impound accounts until tax bills come out at the end of the month. So, although they have locked in the loans with impound accounts, it is reported that they will not close them unless originators agree to pay a .25% fee to not have impounds. Supposedly the tax bills always come out in late September, so there is a question about Provident honoring locks that they have already taken in. “We are not closing any new loans with impounds until the tax bill comes out. If impounds are waived, it becomes the borrower’s responsibility to pay the 2009 tax bill so we can proceed. Previously we have had title hold funds to pay the bill, but this practice has ended.”

Wells Fargo Guidelines
Wells Fargo’s correspondent channel, starting in about 3 weeks, will require a minimum of six months of rent loss insurance on conventional loan transactions secured by 2-4 unit primary residences when rental income is used to qualify. (Wells said “Rent loss insurance may be waived when rental income from the subject property is not used for qualifying.”) The channel also brought out additional requirements for FHA and VA loans, also in 3 weeks. They are revising their payment history requirement for non-Wells Fargo serviced FHA Streamline Refinances and VA Interest Rate Reduction Refinance Loans (IRRRL) so that the requirement of no 30-day or greater mortgage lates (0x30) in the most recent 12 months continues to be in effect but also “the loan may continue to be documented and underwritten as a non-credit qualifying streamline refinance if the existing mortgage has a minimum of six months documented payment history (seasoning) with the current lender. If unable to document six months payment history (seasoning) with the current lender, the loan must be documented and
underwritten as a credit qualifying FHA Streamline Refinance or VA IRRRL.

SunTrust Updates
SunTrust, beginning Tuesday, told their clients that FHA Jumbo loans will be available to Government Sponsored clients. The increased loan limits are eligible only on fixed rate mortgages and may be submitted to SunTrust for underwriting, and all FHA Jumbo guidelines must be followed. Be aware that there is a special checklist that must be followed, but that all transactions are eligible for traditional underwriting or automated underwriting through DU/DO and LP.

Market & Economic Update
Yesterday’s market was more of the same: stocks feeling a little heavy, while bonds, and mortgage rates, reaped the benefits of the Fed buying securities, somewhat low lock volume, relatively weak economic information, and some nervousness about the job’s data tomorrow ahead of a 3-day weekend. Factory Orders came out +1.3%, less than expected although June was revised higher. The big news, if there was any, was release of the FOMC Minutes from the August 12th meeting. Surprises were kept to a minimum. The FOMC discussed trimming the MBS and Fannie/Freddie purchase program, see the economy slowly recovering during the 2nd half of 2009, households continuing to face tight credit but that consumer spending was stabilizing. With little inflation on the horizon, they see the risk of substantial disinflation. Not only that, but several members see a sizable risk of bank credit losses. Just what we need…

So far this morning yesterday’s bond market improvements have gone away, primarily attributed to a rally in the Asian equity markets. There is talk of the Chinese government taking steps to support their markets. (Ever notice how not much in Europe seems to impact us anymore? Their Central Bank did vote to leave their rates unchanged last night.) The only news out today was Jobless Claims (-4,000, but the prior week was revised +7,000; the four-week moving average was +4,000) and the ISM Services data at 10AM EST. Of interest that although manufacturing only contributes about 12% of GDP, recently all reports on manufacturing and businesses have been better than forecast. We will also have the Treasury’s announcement for the 3, 10, and 30-yr auction next week. The 10-yr is currently yielding 3.33% and 30-yr mortgage security prices are worse by about .250.

Daily Humor
A married man was having an affair with his secretary. One day they went to her place and made love all afternoon. Exhausted, they fell asleep and woke up at 8 PM.
The man hurriedly dressed and told his lover to take his shoes outside and rub them in the grass and dirt. He put on his shoes and drove home.
“Where have you been?” his wife demanded.
“I can’t lie to you,” he replied, “I’m having an affair with my secretary. We were naked all afternoon.”
She looked down at his shoes and said: “You liar! You’ve been playing golf!”