The average person is curious about what their neighbor, or co-worker, earns. And in this age of transparency, where nothing is private and there is a camera monitoring most traffic intersections, compensation at Freddie and Fannie is "an open kimono." Not only that, but the industry is abuzz about how the FHFA's Ed DeMarco's days are numbered - who can concentrate in that kind of environment? Here is a report on what various EVP, SVP, and director positions earn in the agencies. (Given an uncertain future or the recent high turnover, no jokes, please, about "LTI" comp - long term incentives.)

Aging folks remember the Carpenter's song, "We've only just begun..." Well, that might be appropriate for the Dodd Frank legislation, since we will be dealing with its aftermath for the rest of our lives.

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One person that won't be applying will be Bob Ryan, who served as a top housing adviser in the Obama administration and is now heading to a senior mortgage-banking position at Wells Fargo. Mr. Ryan is currently a senior advisor to Shaun Donovan, the secretary for Housing and Urban Development. He joined HUD in 2009 as the first ever chief risk officer at the Federal Housing Administration and served briefly last year as the agency's acting FHA commissioner. He previously spent 26 years at Freddie Mac. He will become a senior vice president within the capital markets group at Wells Fargo Home Mortgage, where he will coordinate strategy with industry trade groups and consult with policy makers on a range of housing-finance issues. More

Switching to underwriting, "Rob, someone told me that VA loans may exceed the published county maximum provided that the sum of the down payment/equity entitlement is at least 25% of the sales price or appraised value. Is that true?" Well, I'd ask your underwriter, or the VA, but I believe that the down payment requirement is 25% of the DIFFERENCE between the VA county loan limits and the sales price - not 25% of the Sales Price or AV.  This makes down payment requirement much less than conventional loan."

Yesterday the commentary had a link to a news story on reverse mortgages, pointing out five flaws in the program. It was meant to show what the public sees and reads. I did receive, however, several notes commenting on the one-sidedness of the article, one coming from Neil S. who wrote, "I enjoy your commentary a great deal and was disappointed to see that you sent a link to possibly one of the worst and most incomplete articles on reverse mortgages ever written giving many industry professionals the wrong idea about a program that has helped thousands of seniors remain in their homes for many years beyond what would have been possible without this option. I would encourage you to read what a Wharton emeritus finance professor had to say in response to a recent NY Times article slam piece and follow up with a link to your readers."

Neil goes on, "In the article you referenced, the writer claims: 1. Fees are often high. Not true, many low cost options available in today's market.  In some cases fees are lower than on comparable forward mortgages, even true no cost options are available. 2. High Interest Rate - Higher than what?  Our Libor product is today 2.5% fully indexed rate and provides a guaranteed line of credit that grows over time which cannot be cancelled.  Fixed rates are in the mid 4s.  Would you consider this is high for a loan with no specified term, no income or credit qualifications and no monthly payment? 3. Heirs Might Not get the house - reverse is non-recourse, your heirs are not responsible to pay off the debt beyond what the house would sell for.  Zero money comes out of the estate regardless of how large it is. If you have a conventional loan and you die that loan also must be paid back before the heirs get any net proceeds.  You can be upside down with any kind of loan can't you? 4. You have to repay the loan when you move out - not exactly true, you don't have to 'start repaying' the loan is the author indicates when you move out.  In most cases when the borrower moves out the house is sold.  This is normally the case anyway... How long do people normally hold on to vacant houses?  If you end up in a nursing home, they will require that the house be sold as well... in this case the heirs also may not get the house. 5. You are still responsible for home costs - Being responsible to upkeep your home is a reason not to take a loan?  Are there loans available where the lender pays for upkeep?  Who pays for upkeep if the house is free and clear and is that a reason not to own a house?" thanks Neil!

Here's a note on Reg. B and disparate treatment/impact - with all the uncertainty out there about exams and violations, it is always good to see what others are experiencing. "I am writing now to pass on a recent experience my bank and my department had from our FDIC Compliance Exam, with special regard to the Reg. B. violations & disparate/treatment impact. All in all it was a good exam, but we were cited for violations of: '1002.4(a) of Regulation B prohibits a creditor from discriminating against an applicant in any aspect of a credit transaction on the basis of marital status.' [330106]. the issue relates to joint applications that involves unmarried individuals.  A creditor cannot charge the unmarried applicants for any additional cost if 2 individual credit reports are ordered versus what the cost of a joint credit report. The difference is about $14.00 with the credit vendor my department uses. The FDIC doesn't care one way or the other if individual credit reports are ordered by the creditor as long as the creditor doesn't pass along a higher cost to the applicants. Neither I nor the bank's compliance officer had ever heard of this interpretation. I have mentioned this to others in the mortgage industry and its news to them as well. After I did a scrub on applications for the last 3+ years, I found a handful of impacted files. I am mailing out refund checks this afternoon."

Farewell Triad? The mortgage insurances ranks may be losing another.

The Fed caught the market's attention yesterday, although much of what it announced was expected - and we are reminded that one branch of the government is issuing securities while another branch is buying them. What's wrong with this picture? The Federal Reserve said it will buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program, and it linked the outlook for its main interest rate to unemployment and inflation. "The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor-market conditions," the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. The Fed said interest rates will stay low "at least as long" as the unemployment rate remains above 6.5 percent and if inflation "between one and two years ahead" is projected to be no more than 2.5 percent. The buying announced today will be in addition to $40 billion a month of mortgage-debt purchases (don't forget that the $40 billion is over and above prepay reinvestments). The latest move will follow the expiration at the end of this year of Operation Twist, in which the central bank each month has swapped about $45 billion in short-term Treasuries for an equal amount of long-term debt. That program kept the total size of the balance sheet unchanged, while the new purchases will expand the Fed's holdings.

"Success consists of going from failure to failure without loss of enthusiasm." And say what you want about government intervention in the mortgage business, the Fed's purchasing twice the average daily production of agency product is helping keep agency rates low, and therefore a success. But many cannot not pay attention to the man behind the curtain: "In many areas housing is mostly improving based on the Fed purchasing Freddie and Fannie (and some Ginnie) MBS. What happens when it stops?" And the Fed threw out a question to the banks recently asking why mortgage rates haven't fallen as fast as The Fed has forced them down. 

Those are two separate questions. When the Fed stops buying securities, the laws of supply and demand dictate that prices will drop and rates will go up - plain and simple. Experts think that Freddie and Fannie rates would go up at least as high as jumbo loans - probably more since many believe that the risk on agency product is higher than some of the creampuff jumbo loans being securitized. And rate sheet rates have not fallen as fast as MBS rates because lenders are padding the prices, pushing margins higher, because they don't have to lower rates to be swamped with business, because they need to cover the higher costs of originating a loan, because investors and agencies have higher net worth requirements, and they are putting aside money for future liabilities. One never knows when the next class action lawsuit will come your way! Agency MBS prices didn't like the news much, and a good portion of rate sheets yesterday worsened. Don't ask me why - the Fed is still buying about $4 billion a day!

The numbers are in for today, although we still have a 30-yr auction later. The Producer Price Index for November was -.8%, November Retail Sales were +.3%, and Initial Jobless Claims came in at 343k, a big drop from the revised 372k. The result of these decent numbers was to nudge rates higher: the 10-yr is up to 1.71%, and MBS prices are worse .125-.250, depending on coupon.


A couple was Christmas shopping at the mall on Christmas Eve and the mall was packed. As the wife walked through the mall she was surprised to look up and see her husband was nowhere around. She was quite upset because they had a lot to do.
Because she was so worried, she called him on her mobile phone to ask him where he was.
In a calm voice, the husband said, "Honey, you remember the jewelry store we went into about 5 years ago where you fell in love with that diamond necklace that we could not afford and I told you that I would get it for you one day?"
The wife choked up and started to cry and said, "Yes, I remember that jewelry store."
He said, "Well, I'm in the bar right next to it."