Just like the industry counted down to QM, now we can count down to Girl Scout Cookie Season! We have about 16 days - but there is a lot about these treats the public doesn't realize. As was noted in this mortgage commentary last year, two commercial bakers are licensed by Girl Scouts of the USA to produce Girl Scout Cookies: ABC Bakers (Interbake Foods, owned by George Weston LTD.) and Little Brownie Bakers (Keebler, owned by Kellogg's) - based on geography. Thin Mints make up 25% of the total sales, followed by 19% from Caramel deLites (from ABC)/Somoas (from LBB) - so the name for the same cookie depends on the bakery. And the number of cookies per box, which has not only dropped over the years to save money, varies based on where you are in the country! The dark underbelly of the industry...where is the protection for the consumer from the CFPB??

Yesterday I mentioned the Flagstar layoffs, and mortgage banking results. "Flagstar, which laid off 600 last week, announced its earnings. Mortgage banking income fell to $44.8 million from $75.1 million in 3Q. Total mortgage originations came in at $6.5 billion, down 16.9% from $7.8 billion in 3Q. Rate lock commitments fell 22% to $6.5 billion from $8.3 billion. The gain-on-sale (GOS) margin (based on closings) fell to 0.66% from 0.90%." I received a few comments that should be noted as they are justified. First, "Rob, what about the upside (positive) that Flagstar also showed a profit of $160.5 million for the 4th quarter?" And also, "Flagstar did not lay off 600 people last week. The bank laid-off somewhere south of 350; approximately 200 were laid off in September of last year and approximately 65 employees retired or left on their own during Q4 2013."

A daily commentary on the mortgage industry tends to encompass a lot of subjects, most of which have their own special newsletters, periodicals, and so on. But one trend that is hard to ignore is the huge wave of servicing pieces moving back and forth between companies. Citigroup will lay off 950 people in its mortgage servicing unit after it sold the rights on 64,000 loans to FNMA. The latest big block was Wells Fargo selling its mortgage servicing rights on 184,000 loans (UPB of $39 billion) to Ocwen Financial for an undisclosed sum. The sale will be finalized as servicing is transferred over the course of 2014. Plenty of analysts think Ocwen (New Co. spelled backwards) will be buying/obtaining about $100 billion during 2014, so this is no surprise. The loans underlying the MSRs are primarily in private label securities - in the past this has been the highest margin business for Ocwen because of the high delinquency rates on private label portfolios. It is viewed as a positive for Home Loan Servicing Solutions (HLSS) because these MSRs should good assets for HLSS to invest in. Assume a purchase price of 40 basis points for the MSRs, the cost of the MSRs would be $156 million. Throw in some ducats for the company's investment in servicing advance equity (assuming a 5% delinquency rate and an 11% advance rate) and we're talking about $350 million of capital when this portfolio is moved to HLSS.

And the packages just keep coming (last week this commentary listed off several billion up for sale). Mortgage Industry Advisory Corporation ("MIAC"), announced it is offering up three pools, mysteriously named R1-0114, R2-0114, and R3-0114. Pass me the decoder ring! The pools are $509 Million FNMA and FHLMC mortgage servicing, $25 million FNMA and GNMA mortgage servicing, and $669 million FNMA and GNMA mortgage servicing portfolio, respectively. MountainView Servicing Group is brokering a $224 million FHLMC/FNMA non-recourse servicing portfolio and a Fannie Mae MSR portfolio with total unpaid principal balance of $1,267,880,877.

Not that I am any soothsayer, but I have been saying for quite some time that companies are going to be needing cash, and that servicing loans is not for amateurs - hence the rise of subservicers. GOS (gain on sale) margin compression, on top of drastically smaller pipelines, is the driver for companies selling blocks and flow servicing. Long term thinking would conclude the asset will appreciate nicely with rising rates, if we find ourselves in that environment (which would lead to the next industry trend: even deeper cuts to expenses). Like I said - not for amateurs.

So what are the servicing buyers thinking? Housing values are doing well, and rates are expected to creep higher over the long run, so adding servicing is good - right? But a company just doesn't go out and start it up next week like the old days: buying, boarding, collecting the payments, remitting to investors, charging fees, and handling delinquencies. Refis are only a pen-stroke away in this era of government-sponsored assistance programs like HARP, HAMP, and HARP 2.0. Telemarketers are combing, and re-combing, over pools of loans, looking to pick the low hanging fruit. But buyers are faced with high premiums - after all, this the is the cleanest, best documented, lowest rate product ever - who wouldn't want to own that? Just like the cost of originating a compliant loan is only going to increase, the cost of servicing is only going up. Loss mitigation is not cheap. And the owner of servicing had better be prepared to defend that servicing against the barbarians at the gate - putting the photo of the LO on the monthly statement is so...2008.

Speaking of costs, per the Credit Union National Association (CUNA), Target's holiday shopping season data breach is costing the nation's credit unions an estimated $25 million to $30 million. The hack cost about $5.10 per new credit card issued. Added up, that comes to tens of millions of dollars for the financial institutions. Credit unions and banks have criticized Target over the data breach. Even though the financial institutions had no involvement with the incident, they have to finance the cost of reissuing new cards for shoppers affected by the hack. "Contrary to what some may think, these expenses will not be reimbursed to credit unions and their members by Target or other retailers," CUNA President Bill Cheney said in a statement. "Rather, credit unions must solely cover these costs of card program administration, including in these circumstances of reacting to a merchant data breach."

Banks are not reimbursed either, and we can certainly expect some class-action Target lawsuits. In fact, many banks and credit unions are incurring the expense of helping their depositors and card holders deal with this event. (Speaking of credit unions, in Wisconsin Oshkosh-based CitizensFirst, Neenah-based Lakeview and Calumet County-based Best Advantage credit unions say their boards of directors have approved the merger. While CitizensFirst's charter will remain, the members of Lakeview and Best Advantage need to approve the merger. Votes are expected to take place at their annual meetings over the next two months. The merged credit union will have a new name. It will have $600 million in combined assets, with 10 branch locations serving 47,000 members. Currently, the three credit unions have locations in Oshkosh, Fond du Lac, Appleton, Neenah, Sherwood and Brillion.)

The dust has settled on thousands of disappointed loan officers, or, for that matter, any company pinning its survival on another HARP-related refi boom. At the ABS (Asset-backed Securities) Conference, Michael Stegman, the top housing policy advisor at the Treasury Department, weighed in on extension of the HARP eligibility date. He said that the Treasury Department believed there should be no change in the HARP eligibility date. He added, "Very few homeowners whose loans were originated after the cut-off date are underwater and advancing the date would do more harm than good by prolonging market and investor uncertainties." While FHFA Director Watt has not provided any information on what changes he might make to HARP, it would seem likely he would take note of these remarks and behave in a partisan manner. This may aid flows up in coupon with odds potentially lower now of increased call risk related to HARP extension. Isaac Boltansky with Compass Point LLC writes, "One of the most talked about policy changes that could occur administratively at the FHFA (i.e. without legislation) would be a change in the eligibility date for the Home Affordable Refinance Program (HARP). A change in the HARP eligibility date would allow borrowers who have previously refinanced through the HARP to refinance through the program for a second time (i.e. "re-HARP"). Currently, only loans which were sold to the GSEs prior to May 2009 are eligible to refinance through HARP. If that cutoff date was moved to May 2010, as some have called for, then borrowers who refinanced through HARP between May 2009 and May 2010 would be able to refinance through the program for a second time. There have been numerous pushes to either extend the eligibility date by 1 year or remove it completely."

(Read More: Treasury Official Throws Cold Water on Fannie/Freddie Optimism, HARP Extension)

Before LOs start combing the Want Ads, he adds that it does not end the debate completely. "But it does bring a degree of clarity to the issue. There has been uncertainty regarding Director Watt's policy priorities since he took over the FHFA earlier this year. Director Watt could break with the Obama Administration by expanding the HARP eligibility despite the Treasury's opposition. This outcome as unlikely but note that it remains a possibility - one can expect the White House to continue pressing for the expansion of mortgage refinance opportunities to borrowers without government-backed mortgages. As a reminder, the HARP is only for borrowers with GSE-backed mortgages. For example, Stegman stated: 'We must not forget about the inability of performing underwater borrowers whose loans are held in private label security trusts to access refinancing.' Expect President Obama to once again mention mortgage refinancing during his State of the Union address on January 28 but... the issue of expanding refinancing opportunities is probably more rhetoric than policy priority at this point in time.

How 'bout these rates!? Sure, we had some news here in the U.S.: weekly Jobless Claims were up 1k, and the FHFA House Price Index was up 0.1% in November (up almost 8% for the year), and Existing Existing-Home sales were up 1% in December (2013 was the strongest year in seven years - the national median existing-home price for all of 2013 was $197,100,  11.5% above the 2012 median of $176,800, and was the strongest gain since 2005 when it rose 12.4%).

But the big news came from China, which showed a weak manufacturing report (PMI). If China's economy is weak, that means that the world is not ordering as many goods from China - so maybe the world economy is a shade weaker than thought? China's PMI manufacturing index dropped to 49.6, below the consensus of 50.3. Readings below 50.0 indicate a contraction in the sector. China has been an important engine of growth for the world economy, so a slowdown would have significant implications for global markets.

Regardless of the reason, LOs and borrowers will take it. But Capital Markets personnel are nervous - no one wants too much improvement during a rate lock period - no one wants renegotiations on loans - Wall Street certainly doesn't renegotiate on the hedges which allow lenders to sell loans at a better price! Thursday prices on 30-year FNMA 3s through 4.5s ranged from +17+ ticks to +8+ ticks, more than recovering Wednesday's losses. The 10-yr. T-note saw a 2.77% close, and this morning we're down to 2.74% and seeing a further, small improvement in agency MBS prices.