Thank you to Carol Kimball who sent along this site of "inexplicably terrible real estate photos." My guess is that every underwriter has seen their share of them.

I asked my cat Myrtle if she thought that the cost of producing a loan has gone up. She gave me a look that reinforced my opinion that she couldn't care less. But plenty of lenders want numbers, and although regulators rarely consider the costs of regulations to an industry or the consumer, they should be aware of them. After all is said and done, the costs are passed on to borrowers, of course. For example, KBW's research team in a recent piece points out that Stonegate Mortgage's net cost to originate a loan and retain the MSR is 100 basis points. (This "net cost to originate" is revenue minus expenses, and does not include the mortgage servicing rights, and results in creating an asset worth 125 basis points. Stonegate hopes to increase this 25 basis point spread by driving down the net cost to originate to 80 basis points in 2015. Per the piece, Stonegate is continuing to focus on growing the percentage of its volume that comes from the retail and wholesale platforms where margins are greater.)

Every lender knows when underwriters go from 6 files a day to less than 2 the cost per file is going to go up, if underwriter's pay is constant. And every lender knows that the marginal costs for large banks to originate a loan will be consistently less than other lenders - yet in many cases smaller lenders are "better" at originating loans than the big banks.

Garth Graham, Managing Director at STRATMOR Group shared with me this week that, "Since 2009, Direct Product Expenses have increased annually by an average of $400 per year. So, that adds over $2,000 to the average cost of origination and, with an average loan amount of $200,000, equates to an extra 1% on every loan. It's as if the market now requires an 'extra point' on every loan. Production expenses cannot continue to increase at the pace of the last five years. Since 2009, Direct Production Cost for larger independent mortgage bankers has increased by an average of 562 bps per year. Compensation accounts for 79% of Direct Production Expenses.

"Per the STRATMOR Group, following the industry meltdown, intensified regulatory and compliance oversight has triggered a return to more manual, inefficient processes. The result is skyrocketing production costs and increasingly irritated borrowers. Additionally, antiquated loan manufacturing processes still average 45 to 50 days from application to closing. Current loan origination systems were designed around past practices rather than optimizing the information submission process and automated decisioning. Our CIO study shows that lenders remain heavily focused on adding MORE compliance to these systems (not less) and are less focused on the cost to originate or even making sales people more effective. STRATMOR however predicts that as the market begins to normalize (less refinance volume), the pressure from rising expenses will reach a point that will trigger true technology innovation designed to update the manufacturing process with the requisite efficiencies.  When? Who knows, but the MBA Mortgage Tech show may be interesting."

Annemaria Allen with The Compliance Group wrote an article for Mortgage Banking Magazine last August, and contributes, "For the lender who both retains all its servicing rights and performs the servicing on its portfolio loans, being a servicer can be very lucrative. Servicing your own loans creates an asset on your balance sheet that can yield a nice return. This constant residual income can help your organization during flat origination cycles. For example, sub-servicer Flagstar Bank, Troy, Michigan, made public its intention to more than triple its servicing portfolio from 370,000 loans to 1 million with a mix of servicing and subservicing roles. Flagstar cited that for every 100,000 loans added to its 'book,' it adds between $5 million to $7 million in operating profit. Granted, Flagstar is a top-20 servicer and a top-10 subservicer, but the profit strategy accrues to smaller operations, too.

"Lenders that retain servicing rights but outsource to a subservicer not only realize considerably less profit in the short run, but also lose the long-term value cultivated through customer care and personal touch points. That's why for many lenders, the value of servicing outweighs the cost regardless the cycle. There are important points, however, of which to be mindful. First, it's no longer cheap to service a loan; and second, servicing is now at the forefront of regulators' minds, whereas seven to 10 years ago, not so much. Fitch Ratings, New York, predicted in early 2012 there would be a sharp rise in the cost to service mortgage loans. At that time, Fitch estimated the cost of servicing a performing mortgage could increase by as much as 25 percent to 50 percent from pre-crisis levels. The agency said nonperforming loans' servicing costs would likely to double or more.

"And, in fact, the cost to service a loan continues to rise. According to Mortgage Bankers Association's Servicing Operations Study and Forum (SOSF), prior to the credit crisis it typically cost servicers an average of $55 per loan per year. Today experts estimate the cost to service at $208 per loan per year or more. The cost to service non-performing loans is rising, too, such that it now costs four times what it cost to service a delinquent borrower just four years ago."

And Dustin Pfluger with Richey May writes, "The costs to originate, and in particular fulfillment costs, have been on the rise since 2012. Variability in production volumes, which at times has resulted in excess capacity, has contributed to at least a portion of the increase in costs on a per-loan basis, but does not account for the entire $400 increase in costs to originate over the last three years.  Regulatory compliance has played a significant role in the overall increase and has impacted processor and underwriter productivity levels. Fulfillment costs include those related to processing, underwriting, and closing.  Back office costs include those related to secondary marketing, post-closing, QC, compliance and other corporate personnel. Richey May came out with a graphic showing the rise and the breakdown of costs. (Loans per month is calculated by dividing the total number of funded loans by the number of full-time equivalents within each functional area, and the data comes from RICHEY MAY SELECT which compiles quarterly financial and operational metrics from independent mortgage lenders across the United States.)

Bopping over to the markets, for thrilling news yesterday we learned from the National Association of Realtors that Existing Home Sales improved slightly in February. They were +1.2% in February and the median sale price for a previously owned home was up 7.5% from a year earlier to $202,600 in February. Total housing inventory at the end of February increased 1.6 percent to 1.89 million existing homes available for sale, but remains 0.5 percent below a year ago (1.90 million). For the second straight month, unsold inventory is at a 4.6-month supply at the current sales pace. But the lack of inventory persists.

One thing that caught traders' interest was the fact that the 10-year and current coupon agency MBS prices both improved about .125 - somewhat unusual to have those both move by the same amount.

Today we will take a look at inflation through the CPI numbers although no one under the age of 30 remembers what serious inflation is. Expected +.2%, it was +.2%. We can also expect the FHFA House Price Index for January, the Markit Manufacturing PMI - whatever that is, New Home Sales for February (expected to decline 2.3%), Richmond and Philly Fed PMIs  for March, and a $26 billion 2-year note auction by the Treasury.

Soon after the CPI the 10-yr, which saw a 1.91% close Monday, is at 1.92% and agency MBS prices are roughly unchanged.

Jobs and Announcements

Optimal Blue is currently recruiting for a Secondary Services Sales Specialist (based in Denver) and a Mandatory Pricing Relations Manager (location flexible). The Sales Specialist role will be responsible for assisting in the sales efforts on the secondary service model, working with the sales team to promote secondary services functionality, performing detailed demonstration of the software and explaining the model characteristics and functionality. The position requires a strong background in mortgage capital markets with a strong understanding of hedging models including empiricals, duration and convexity, mark to market, trade operations, servicing valuations, risk management and best execution analysis. The Mandatory Pricing Relations Manager will be part of the Investor Relations Department and is responsible for building and managing the relationship with our mandatory investor clients. The ideal candidate will have experience working at an investor with emphasis on trading and pricing as well as a strong understanding of mandatory structures, AOT, bulk, direct trades and co-issue structures. E-mail inquiries to careers@optimalblue. com.

Freedom Mortgage is growing again, and looking for experienced wholesale AEs throughout all areas of the US. Freedom is licensed in all states, a direct FNMA Seller Servicer, and one of the nations' largest GNMA issuers. "Whether it's Freedom's outstanding Broker program, or its Wholesale Correspondent program, Freedom is designed to serve all client needs: brokers, emerging broker to bankers, wholesale correspondents, and financial institutions. Become a part of Freedoms family, and join the 2015 '25 Year' Anniversary celebration. For more information please contact SVP of Wholesale Keith Bilodeau.

Greg Frost is looking for a few more Branch Partners. "Yes, it's the same Greg Frost who was the mortgage industry's first billion dollar Loan Originator and current popular motivational sales trainer. Greg's organization currently has Branch Partners in New Mexico, Arizona, California, Colorado, Texas, South Dakota, Illinois, Iowa and Mississippi. If you're operating in one of these states, and would like to investigate his very profitable Branch Partner business model, just click here to schedule a confidential conversation with Greg. Imagine working with and being mentored by one of the industry's' most prolific mortgage professionals. Click Here now."

WinWater Home Mortgage LLC is searching for a person for its Tampa office to assist members of the Conduit team by providing administrate\clerical support. The individual will be responsible for ordering, receiving all information\documentation necessary to assist in the purchase of loans. This is an extremely detail-oriented position in which a successful candidate will perform essential support duties with external and internal customers and vendors to ensure work-flow deadlines are met. They include monitoring and documenting condition submissions and emails from correspondents, sending daily updates to WinWater's Third Party Review (TPR) vendors, and so on. For a complete job description or to send confidential resumes, contact Joseph Kohout, SVP and Head of Residential Credit & Pipeline Management.

And if you're an LO licensed in Florida, "The next generation of internet-based, purchase mortgage loan origination is here. One of the fastest growing multi-billion dollar, full agency direct mortgage lenders in the country is seeking very select licensed mortgage loan professionals for Miami-Dade, Broward, Palm Beach, Orange, Martin, Lee, Hillsborough and Pinellas counties.  As an originator for this one-of-a-kind opportunity, the company will provide you with multiple PRE-QUALIFIED, PRESET, IN-PERSON customer appointments every week.  Proven, top-tier purchase originators can expect 5+ appointments weekly. You will enjoy complete flexibility to work from our office or your home. These buyers are highly motivated and actively seeking to purchase a new home. Allowing you to focus strictly on sales, we provide you with full processing and underwriting/closing support at our dedicated Florida fulfillment center. Qualified top-performing, purchase-mortgage originators are encouraged to submit a resume or letter of interest" directly to me at rchrisman@robchrisman. com.

Congrats to Daniel Gardner as Freddie Mac tapped the Capital One VP to lead its affordable mortgage lending efforts. And Envoy Mortgage, Houston-based full-service mortgage banking firm, has announced the hiring of two industry veterans on the West Coast, Michael Castanon and Michael Kuehner. Mr. Castanon, an executive with over 20 years of mortgage and financial industry experience, has been hired as Regional Vice President, Southwest for Envoy Mortgage's retail operation, which includes Southern California and the state of Arizona. Mr. Kuehner is heading up the Northern California.