Loans have become harder to do, and underwriters that I have spoken to keep telling me that every deal is different. How many scenarios are there? Probably not as many as there are atoms in the universe, or possible games of chess. The Shannon number, named after Claude Shannon, is an estimated lower bound on the game-tree complexity of chess. Put more simply, people throw that out there when they're talking about the possible number of games of chess. I won't mire you down in the complexity, permutations, and different opinions, but it is up around 10 to the 123^rd power (10x10 one hundred and twenty three times). As a comparison, the number of atoms in the observable universe, to which it is often compared, is estimated to be "only" 10 to the 81^st power.

The St. Louis Post-Dispatch announced that Nationstar Mortgage is laying off 115 employees and closing a St. Louis County office that had been open for about a year. Nationstar has stated that the layoffs would be effective in mid-April. And I received word, anonymously, that Chase announced internally that it is closing the processing and underwriting center in Chase tower. As with the other processing layoffs, the employees will receive three months to find new jobs at Chase or elsewhere.

Saturday's commentary discussed the various opinions about the different licensing requirements for commercial/depository banks versus non-depository/mortgage banks. The MBA's president Dave Stevens noted, "The reason why MBA supports mandatory testing and licensing for all, regardless of business model, is to be consistent with virtually all of our policy positions. When possible, we support polices that create consistent national standards for the industry. The confusion in the market, and for the consumer, occurs when states pass a variety of different laws or when federal policy makers establish a variety of different processes for lenders based on business model, or other variables.

"This is nothing about big or small, bank or non- bank, it's about making a logical set lending rules for everyone. We supported a national servicing standard, but state laws and regulator differences on timelines have caused great confusion and high fail rates that result in frequent compensatory fees that will get passed directly to consumers. We supported reasonable points and fees limits in QM, but the application of that has created confusion and disparity between affiliates, mortgage brokers, mortgage bankers, and banks and likely is very confusing for consumers. MBA had worked on LO licensing for many years, going back over a decade, but we have a law today that varies by state and by company type. Our ability to tell every consumer that their loan officer has met a minimum testing and licensing obligation, regardless of who the lender is, cannot be made under the current rule. This is why we support the standardized state exam and a standardized testing requirement for every LO. Through consistent national standards in policy and by eliminating all of the overlaps and inconsistencies we can get to a more transparent and less confused mortgage industry that will build the confidence and trust of the American consumer and promote a broadly competitive marketplace."

Congress returns to work this week, and a certain amount of attention will be devoted to the Senate Banking Committee. Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID), who are expected to unveil a GSE reform bill in the near future. But does the government really want to dispose of its Golden Geese: Fannie & Freddie?

Last week Fannie Mae not only reported record earnings in 2013, but has paid back all of the bailout money owed to the Treasury. The fourth quarter of 2013 was its eighth consecutive profitable quarter for Fannie Mae, and the company posted net income for the entire year of $84.0 billion and pre-tax income of $38.6 billion. In 2012 the government sponsored enterprise (GSE) had both net income and pre-tax income of $17.2 billion. The 2013 annual net income includes a one-time release of the company's valuation allowance against its deferred tax assets. Fannie Mae reported net income of $6.5 billion for the fourth quarter and pre-tax income of $8.3 billion. Net income in the third quarter was $8.7 billion. The GSE will pay a $7.2 billion dividend to the U.S. Treasury in March bringing the total dividends in 2013 to $85.4 billion.  Since the company was placed in federal conservatorship in 2008 it has paid a total of $121.1 billion in dividends against $114.1 billion in draw requests.

Are the earnings for real? Sure they are: both Fannie and Freddie have been benefiting from a recovering market that lifted home prices and kept a lid on loan defaults. Their return to profitability also allowed them to reverse write-downs of certain tax-related assets, which led to large one-time windfalls. Lastly, both agencies have been the beneficiaries of various lawsuits and settlements with mortgage aggregators, investment banks, and smaller lender who were, or are, counterparties.

But what about 2014 and beyond? There is a wide range of thinking on who, what, when, where, and how the Agencies will transform - of even if they should. We are in yet another election year, and Congress is notoriously slow in making possibly controversial and difficult decisions in election years. Cynics are quick to say that there is little political reason to turn a money making enterprise over to private shareholders. There has been progress in the Senate Banking Committee about proposals for Freddie & Fannie. But, thinking back to high school civics, anything that comes out a committee has to go to the full Senate (or House of Representatives). And the House is doing the same thing. And then the bills are reconciled, voted on, and sent to the president. Many believe that in an election year, this might be a near impossibility, in which case the work is redone in 2015 based on the results of November's election. So even if a bill is introduced, it will be a long path, and even if eventually signed by the president, it will take years of hard work to affect change.

Lastly, the issues involved are very complex. Not only are the Agencies' role in the primary markets very important (standardized, pricing, uniform appraisal standards, documents, and underwriting to name a few roles), but any changes could have a significantly negative impact on the securities in the secondary markets. The MBA, SIFMA, and other organizations are very involved in the discussions - no one wants to spook the investor community.

Fannie Mae, for one, is certainly doing more business with smaller and mid-sized lenders. And that segment of the market is only too happy to sell the asset to the agencies, and either try to keep the servicing or sell it on a flow basis to someone other than an aggregator. The industry is abuzz about how the agencies are not engaging in any kind of meaningful pre-funding review, and that it is "easier" to sell to them. "Hey, they don't suspend our files like Chase does!" is something I have repeatedly heard.

But industry vets agree that a) Fannie and Freddie are not in the business of not reviewing files, and b) it is only a matter of time until the Agencies come back to lenders to correct deficiencies or for buybacks. Any back-up here or there will be corrected, files will be thoroughly audited, and they can play hardball. But yes, F&F have grabbed market share from the aggregators while the servicing market has been in flux, and by sometimes offering better prices to smaller lenders than to the aggregators. Bloomberg reports that Fannie's top 5 customers accounted for 42% of its volume in 2012, 60% in 2011, and I am sure that the trend continued in 2013. Per the story, the decline in share from big originators in recent years reflects exits from 3rd-party channels by several, and large mortgage lenders leaving the business since 2006. Non-bank share is also increasing, and although the trends show reducing the "significant exposure concentration we have built up with a few large institutions" at the same time smaller firms' "potentially lower financial strength, liquidity and operational capacity" may raise counterparty & credit risk. That will certainly prove true in 2014 - counterparty risk is the name of the game.

There has not been much volatility lately in interest rates - and no one minds. Congress returns this week with a heavy focus on housing finance reform and flood insurance. The House is expected to take up legislation similar to a recent Senate-passed bill that would delay spikes in premiums under the National Flood Insurance Program.

But this week has plenty of potentially market-moving news. There is zip today; tomorrow are some housing price numbers as well as the S&P/Case-Shiller series, and Consumer Confidence. On Wednesday will be New Home Sales, Thursday is Jobless Claims and Durable Goods (always volatile, depending on if a big airplane or machinery order came in), and Friday we'll see Pending Home Sales, the University of Michigan Consumer Confidence number, the Chicago PMI, and revisions to the fourth quarter GDP number. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Looking at the numbers, the closing yield on Friday of the risk-free 10-yr T-note was 2.73%, and this morning we're still there. Agency MBS prices are also about unchanged.