What do banks have that non-bank residential lenders don’t? The fifth annual “State of Financial Marketing” survey conducted by The Financial Brand found the top products that banks most heavily market are mortgage loans and refinancing (64%), mobile banking solutions (61%), home equity loans and lines of credit (43%), credit cards (42%), and auto loans and refinancing (42%). Larger banks have been pumping up their customer's awareness of mobile wallets and peer-to-peer services.

For those who follow mortgage changes overseas, here is some news that an Anglophile sent along regarding, "News from across The Pond you might find interesting: a 0% deposit mortgage. There's been a bit of a backlash, both from a bubble/risk standpoint and from a social standpoint, i.e. it only benefits borrowers whose mummy and daddy won't notice the absence of a hundred grand for a few years."

Here Stateside, yesterday H.R. 2121, transitional licensing legislation, passed the U.S. House of Representatives unanimously. The bill, sponsored by Representative Steve Stivers of the Columbus area, makes changes to the SAFE Act, allowing for a temporary license for experienced loan officers transitioning from depository to non-depository institutions. The focus now turns to the Senate.

And plenty of the industry was happy to see that the 2^nd U.S. Circuit Court of Appeals threw out a jury's finding in New York that Bank of America Corp was liable for mortgage fraud leading up to the 2008 financial crisis, voiding a $1.27 billion penalty and dealing the U.S. Department of Justice a major setback. It seems that there is insufficient proof under federal fraud statutes to establish Bank of America's liability over a mortgage program called "Hustle" run by the former Countrywide Financial Corp. The case is U.S. v. Countrywide Home Loans Inc et at, 2nd U.S. Circuit Court of Appeals, No. 15-496.

"The Justice Department claimed Countrywide, which Bank of America bought in July 2008, defrauded government-sponsored mortgage financiers Fannie Mae and Freddie Mac by selling them thousands of toxic loans. But in a 3-0 decision, U.S. Circuit Judge Richard Wesley said the evidence at most showed that Countrywide breached contracts to sell investment-quality loans, and that there was no proof it intended any deception." The lawsuit was filed in 2012 (yes, four years ago - just think of how that would chew up a smaller company's legal budget!) following a whistleblower's complaint. The appeals court in New York ruled that while the bank might have breached its contract to sell mortgages of a certain quality, there was no proof it or Mairone intended to deceive the two government mortgage agencies when the agreement was executed.

A federal jury had in 2013 found Bank of America and Rebecca Mairone, a former midlevel Countrywide executive, liable for fraudulently selling shoddy loans originated through its "High Speed Swim Lane" program, also called HSSL or "Hustle." The Justice Department said the program rewarded staff for generating more mortgages and emphasizing speed over quality, and resulted in Fannie Mae and Freddie Mac being lied to about the quality of loans they bought. U.S. District Judge Jed Rakoff in 2014 imposed a $1.27 billion penalty on Bank of America and ordered Mairone to pay $1 million.

No, the legal fun just doesn't stop. Few owners of a bank or mortgage bank want to risk their financial future, and that of their family, on the possibility of having their net worth wiped out by regulators. Heather Perlberg recently reported that New York's financial regulator (the NY State Department of Financial Services) has issued subpoenas to two companies with ties to Apollo Global Management LLC as part of an inquiry into housing transactions for low-income buyers. Subpoenaed were ARM Manager LLC, an indirect Apollo subsidiary, and the real estate investment trust it manages, Apollo Residential Mortgage Inc. "The regulator also sent subpoenas to Battery Point Financial and New York Mortgage Trust Inc.

Ms. Perlberg reports that, "Apollo's housing investment that involves offering U.S. buyers with bad credit contracts called bond-for-title agreements...The deals give buyers most of the responsibilities associated with homeownership with few of the privileges they'd have in either a mortgage or a rental contract. Housing advocates and investors have called these types of agreements predatory, with few protections for consumers."

It seems that the buyer doesn't own the home or claim to the deed until the full purchase price is paid off, as many as 30 years later. "In many cases, if the buyer fails to keep up to date on insurance or is more than 30 days late with a payment, the buyer forfeits all money and interest in the property." If true, it is probably not a recipe for a consumer-friendly business model...

In the primary markets lenders have been grappling with TRID since October with varying degrees of success. What is happening the secondary markets regarding TRID risks? After all, no investor wants to buy a pool of loans full of mistakes that could potentially result in their collateral disappearing. Unfortunately, the CFPB has not been forthcoming.

So if the CFPB is not going to spell things out, leave it to the industry. Bloomberg's Charles Williams reports that the Structured Finance Industry Group (SFIG) produced a proposal to standardize the framework for checking to see if loans comply with the TILA-RESPA Integrated Disclosure (TRID) rule can adequately address risks for U.S. residential mortgage-backed securities. "More than 90% of the 1st round of loans closed under TRID had compliance violations, though many were technical, according to initial due diligence results from 3rd-party review firms. The proposed framework includes a grading scale to distinguish material violations from immaterial ones.

"Some of framework's legal positions are subject to uncertainty because SFIG relied on a non-binding interpretive letter from the CFPB director. Initially, 3rd-party review (TPR) firms tended to grade most errors as material because of lack of certainty that such errors would not carry assignee liability. The proposal would establish that TPR firms will only review those parts of the rule that are most significant to an RMBS trust. The TPR firms will review the loan estimate only in those few circumstances where there's potential liability to RMBS trust, such as when firm reviews for monetary tolerance limits, and identifies what types of actions TPR firms will deem acceptable to cure material violation.

"For the most part, the framework adequately justifies the cures available for every provision that is significant to the RMBS trust and provides a clear path for lender action to cure a violation." I guess we'll see what the CFPB has to say about it.

Speaking of the intersection of government and finance, a week ago we were at the Secondary Conference where I listened to a presentation by NY Fed SVP Nathaniel Wuerffel. The primary topic was liquidity: few investors want to own something that can't be relatively easily sold again. But how do we measure it? He opined that investors and policy makers may need "new ways of measuring liquidity" due to structural changes that have taken place in the MBS and Treasury markets.

Electronic & automated trading, bank regulation & risk management, and public sector ownership are three important ongoing changes impacting the fixed income market's structure. Regulation has combined with private decisions to manage risk more prudently in the last several years.

But there's an 800- pound gorilla: the FOMC now owns $2.5 trillion in Treasuries and $1.7 trillion in agency MBS, and this has the potential to increase or decrease liquidity in these markets. In fact, the Fed owns about 30% of agency MBS outstanding - the largest single holder. The Treasury market has roughly $13 trillion outstanding with $600 billion a day being traded; agency MBS about $6 trillion with $200 billion being traded on an average day. But capital markets folks know that 90% of agency MBS trading occurs in TBA (to be announced) market.

It seems that the SVP has heard chatter about less liquidity. But despite a "notable amount of market commentary" regarding a fall in liquidity he said that, "It has been difficult to find compelling evidence" to support such claims using traditional liquidity measures. Liquidity "can be a fairly abstract concept and there are numerous ways to define and measure it." Overall, Mr. Wuerffel said before sitting down in the audience, that the Treasury market liquidity measures present a "largely positive" picture and that Agency MBS liquidity indicators "like the Treasury market" have declined in recent years but are near long-run averages.

While we're in this trading discussion, it was a snoozer of a day in the bond market Monday. The only news, if one could call it that, was when two FOMC members (who spoke publicly) said little new, or are not likely to be deciding votes at the June FOMC meeting. The NY Fed, as usual, was in using the money from early mortgage payoffs to buy new agency MBS.

Today we'll have the Philadelphia Fed's Non-Manufacturing Survey for May and the non-market moving April New Home Sales figures at 9AM CDT, and also a Treasury auction of $26 billion of 2-year notes. Monday ended with the risk-free 10-year T-Note priced to yield 1.84% and in the very early going today its unchanged (at 1.84%) as are current coupon agency MBS prices.

Jobs and Announcements

American Financial Network (AFN) is once again expanding its geographic footprint and is searching for very select, top-tier mortgage professionals capable of rapidly progressing into a multi-branch Regional Management role. Branch opportunities are available in WA, AZ, CO, VA, NJ and PA, although AFN is licensed across the country. "The ideal candidate is currently a mortgage broker or an existing retail branch manager, with monthly production of $3-5+M, and possesses strong recruiting and leadership skills. As a direct seller to FNMA, FHLMC and GNMA, we offer a comprehensive suite of agency products with virtually no overlays along with non-QM products through our delegated partners. To support your production, our divisional fulfillment center offers dedicated teams (processing thru funding) of experienced professionals that only work for you! To maximize your earnings, managers have direct input into operating margins and MLO compensation. Qualified candidates in search of benefiting from superior pricing, 100% branch credits and multi-branch overrides are encouraged to submit a letter of interest and/or resume to Gary Fioretti."

Congratulations to Frank and Steve Curry on their recent move to Endeavor America Loan Services. Frank and Steve will be charged with growing Endeavor America's national Wholesale and Non Delegated footprint in the role as EVP's of Wholesale Sales. As part of this expansion, EA will be opening a 13,000 Sq. Ft location in Irvine, Ca. in June. EA is also hiring professional AE's in all major markets around the nation, as well as, professional operational teams for the Southern California location. Specifically, EA is looking for Account Managers, Underwriters, Closer and Set up staff in both its Irvine location and to work remote. It's no surprise that EA was ranked as the Top Mortgage Employer in 2016, was recently rated #3 Best Place to Work in the Bay Area, and was also named a 2016 Visionary Organization by National Mortgage Professional's Magazine. Confidential inquiries can be addressed to Steve and Frank above.

A well-capitalized private equity firm is searching for a small to mid-sized residential retail or wholesale mortgage lender to purchase in any part of the nation. The current management team and principals are essential to this partnership. Companies seeking interest in this strategic partnership should possess 6 or more regionalized state licenses, and a Fannie Mae seller servicer license or a Ginnie Mae seller servicer license. The ideal origination number is a minimum of $15mm/month for the past 12 months. Lastly, the inquirer should have a minimum net equity of no less than $3 million on its balance sheet. Principals only; inquiries should be directed to me; please specify opportunity.

A quick addition: yesterday the commentary had a listing from HomeStreet Bank for a Single Family Asset Assistant Manager in Seattle. Candidates can use this link to apply online, and questions can be addressed to Cathy Nelson OR Dean O'Shields.

In company-specific news, Angel Oak Mortgage Solutions has created an infographic that highlights how the non-prime mortgage lending industry has changed from the sub-prime lending crisis and shared the huge opportunity to expand homeownership. In this infographic, Angel Oak breaks down credit score, down payment and proof of income and more. Download the "Sub-Prime Mortgage Market: Then and Now" infographic.

And on June 7, ATS Secured is hosting a free webinar, "Navigating TRID and Vendor Management". With major security breaches making headlines, it's important to assess and address internal and external risks to keep your mortgage loans in compliance. Presented by Brandy Hood and Moorari Shah, both of BuckleySandler LLP, the webinar will highlight the latest enforcement trends and best practices that can help you ensure compliance with regulatory and investor expectations.