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Apr. 20: Dodd Frank's potential impact on underwriting guidelines; bank earnings continue; Cantor's commercial deal; lender & investor news

By
Mortgage and Lending with Global Home Finance Inc. NMLS ID:316441 NMLS ID:184176

Apr. 20: Dodd Frank's potential impact on underwriting guidelines; bank earnings continue; Cantor's commercial deal; lender & investor newsLee Farkas, the former chairman of Taylor, Bean and Whitaker Mortgage Corp., was found guilty on all 14 charges stemming from a seven-year, multibillion-dollar fraud scheme that led to the collapse of his firm and Colonial Bank. Even the photo can make you cringe. WSJFarkas 

 At this point Mr. Farkas is probably not interested that Cantor Fitzgerald sold $635 million of bonds backed by commercial mortgages in its first sale of the securities. Congrats to Cantor, who started its real-estate finance business in September. The company is "catching the wave" since banks have arranged about $8.6 billion of commercial-mortgage backed securities this year, compared with $11.5 billion for all of last year, per Bloomberg.  Issuance hit $234 billion in 2007 and $3.4 billion in 2009. And, per the article, top-rated securities tied to commercial property loans are yielding 1.93 percentage points more than Treasuries, compared with 2.28 percentage points on Dec. 31, according to a Barclays Plc. index.

At this point Mr. Farkas is probably not interested in the bank earnings that are coming out. US Bank's profit jumped 56% to $1.05B coming in above estimates due to improved asset quality and lower provisions. Loan growth was 2.4%. Zions posted an unexpected profit of $53mm (vs. a loss last 1Q) due to a 65% drop in provision expense. Comerica posted a higher than expected profit of $102mm (vs. a loss last 1Q) due to improved credit quality and a 72% drop in provisions. Keycorp earned $184mm (vs. a loss last 1Q) due to improved credit quality and lower provisions. Wells Fargo came in this morning, with net charge-offs decreasing dramatically. 1st quarter revenue dropped slightly due to a decline in mortgage banking fee income.

How about this note that I received? "I have been originating mortgages Georgia for almost 20 years, and done my best to stay away from 'steering' my borrowers to any loans they either couldn't afford or shouldn't be in. But when are the Realtors going to face the consequences of steering borrowers into homes they can't really afford, and then collecting their 5 or 6% commissions based on that higher-priced house? Why doesn't Dodd Frank include them?"   

 

Dodd Frank is indeed the gift that keeps on giving. Earlier this week the Federal Reserve Board (FRB) requested public comment on a proposed rule under Regulation Z that would require creditors to determine a consumer's ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards. (So let's take away Fannie & Freddie, and have regulators set underwriting guidelines for private mortgage bankers?) The proposal would apply to all consumer mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans). The proposal would also implement the Dodd-Frank Act's limits on prepayment penalties. But wait - the FRB will not even finalize the rules, since this authority will be transferred to the CFPB before the comment period ends! Are we having fun yet?

 

The Community Mortgage Banking Project wrote, "(It) is important for consumers and the mortgage industry because it will allow for a side-by-side comparison with the proposed Qualified Residential Mortgage exemption and the Risk Retention regulations. These two regulations will be influential in determining the future shape of the mortgage market of the future, thus it is vital that we achieve the goal of harmonizing those two sets of regulations to the greatest extent possible. The proposed ability-to-repay regulations present two options for the Qualified Mortgage. One option reportedly offers lenders and investors in mortgages a true safe harbor from the significant liability under the Truth in Lending Act that results from failure to meet the ability-to-repay rules.  If this option does offer a true legal Safe Harbor, lenders and investors will have the legal certainty necessary to provide low cost mortgage credit without the added expense of excessive defensive measures undertaken strictly to ward off class action attorneys."

 

At this point Mr. Farkas is probably not interested that for investors, BNP Paribas said the proposed rule would be "a positive for mortgages in the intermediate and longer term due to lower supply and reduced negative convexity." To read the entire proposal, go to FedRes or check out the summary at MNDQualifiedMortgageTIL

 

 A week or two Citi announced a name change for correspondents, and several months ago AmTrust became NYCB. Another recent name change to take note of is "US Mortgage Corporation dba Mortgage Concepts", which is now officially "US Mortgage Corporation," its original name from the mid-90's. Currently licensed in over 20 states, it has plans to go nationwide - nothing other than the name is impacted by this change. And for more information on the company, visit USMortgage.

 

At this point Mr. Farkas is probably not interested that investor changes continue. M&T Bank suspended its FHA Streamline product line.

  

ING reminded its brokers that the new compensation rules prohibit steering or directing the borrower to a loan solely to increase broker compensation. To this end, although the Rule does not require the use of any new specific disclosure, beginning April 20th brokers sending loans to ING will be required to certify on the ING Broker Gateway prior to the submission of a loan that the Borrower was not directed or steered to a loan solely to increase the Broker compensation. "Further, you will certify that you met the 'safe harbor' provisions by disclosing the following options to the Borrower: Loan with the lowest rate; Loan with the lowest total dollar amount for origination points or fees and discount points; and Loan with the lowest interest rate and no risky features such as negative amortization, prepayment penalty, interest-only payments, balloon payment in first 7 years of loan, demand feature or shared equity or appreciation."

 

The future impact of Basel III is continuing on. It came to light that Citi is selling $12.7 billion of assets, much of it mortgages, ahead of compliance: CitiBaselIII  
Flagstar has a lengthy series of training sessions. Reg. Z Compensation Changes. "Let our professional training staff outline Reg. Z changes and show you how Flagstar makes compliance easy. Classes are offered daily. Don't delay. Class sizes are limited." FlagstarTraining

    

 

Housing Starts and Building Permits were both a little stronger than expected - good news for the housing biz although they remain low by historical standards. Today at 9AM CST we have Existing Home Sales, which in February fell 9.6% with declines in every region of the country. Distressed transactions accounted for 39% of all transactions for the month and the median price of an existing single-family home down about 4% over the last year. But analysts are calling for a slight improvement in this morning's number.

 

The MBA came out with its weekly index, shopping a little pop last week of 5.3%. Refi's were up almost 3%, and purchases were up 10% (driven by FHA/VA production). The percentage that refi's constitute of overall business continues to drop, and is now about 58% - the lowest in almost a year. And ARM share increased to 6.5%.

 

Rate-wise, yesterday was uneventful. The data was limited to Housing Starts, not a big market-moving number. Agency MBS prices closed around unchanged and the Treasury's 10-yr settled around 3.36%. A trader reported that "mortgage banker supply remained minimal." This morning rates are a shade higher, with the 10-yr at 3.40% and agency MBS prices worse by about .125.

Comments (2)

Jeff Markell
Empire Home Loans Inc. - Tustin, CA
Sr. Mortgage Consultant - Forward & Reverse

Hi Brad, I saw the unflattering photo of Lee Farkas this morning. Couldn't have happened to a nicer guy. Not sure if you saw the video posted by the NAMB yesterday; According to a video posted by the NAMB, Rep Barney Frank has sent a letter to the Federal Reserve Board stating that the Fed Rule is in conflict with the Financial Reform Act (Dodd – Frank). Yes, this is the same Barney Frank who has been viewed by many as an enemy of the mortgage industry. Rep Frank is asking the Federal Reserve Board to change the wording in the Fed Rule and allow loan originators to be paid a commission on Borrower Paid Transactions. A strange twist of fate...

Apr 20, 2011 08:44 AM
Anonymous
Brad Cahoone

Hey Jeff.  Barney Frank is a piece of work.  I could start a whole blog just about that guy.  Then the Fed is another story.  How can a private group of 12 private banks print money and set how much I can pay my loan officers? Why should they be able to devalue our currency by printing more money (Quantative Easing) and set policy when they are not the government? Elitism?  We are allowed to be paid only by the consumer on borrower paid transactions and not a mix of yield spread premium and origination as was the case.  This is driving direct cost up to the consumer either in higher rates or more closing costs.  When we allow the government to makie choices for us we lose the ability to think for ourselves!  Have a good day and great talking to you. 

Apr 20, 2011 09:52 AM
#2