"My friend has a lifesaving tool in her car which is designed to cut through a seat belt if she gets trapped. She keeps it in the car trunk." Sometimes even the things that make the most sense don't quite jive with reality. For example, rates continue to very good, yet I am hearing that many mortgage companies are feeling like June and future months are indicating a slowdown in activity, or at least a slowdown from the fast pace of April and May. Sure, the MBA reported yesterday that last week's mortgage applications fell (the overall index declined 9% with purchase apps -5% and refis -13%). These numbers may give some numerical backing to the feeling of activity cooling slightly. Many lenders experienced a very poor January and February, a nice rebound in March, more good news in April and May, but now... perhaps engines are idling rather than accelerating. No one is talking about "changes" in overhead - yet.

I know enough to know that I don't know anything about force-placed insurance. But some top-notch legal minds at K&L Gates do. "Force-placed insurance is under continuing scrutiny by the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB). However, each agency's focus is slightly different. FHFA, perhaps galvanized by a New York enforcement action, has focused on conflicts of interest between servicers and insurers. The CFPB has focused on erroneous placing of insurance and excessive charges. 'Force-placed' or 'lender-placed' insurance is property insurance obtained by mortgage servicers when the borrower fails to demonstrate adequate insurance coverage. The cost is generally charged to the borrower, but for Fannie Mae or Freddie Mac loans, the enterprise may end up paying the bill if the borrower fails to pay. Thus, perceived abuse of force-placed insurance is both a consumer protection issue and a potential drain on Fannie Mae and Freddie Mac's finances."

K&L Gates goes on. "The FHFA's concern about force-placed insurance is that certain conflicts of interest are driving up the cost of force-placed insurance to the detriment of borrowers, Fannie Mae, and Freddie Mac. Specifically, if the servicer is an affiliate of an insurer or receives kickback payments, the servicer may not drive the hardest bargain for force-placed insurance. FHFA first officially expressed concern about these conflict-of-interest issues within days of a March 2013 settlement between New York Superintendent of Financial Institutions Benjamin Lawsky and the nation's largest force-placed insurer. The consent order states that the insurer paid commissions to insurance agents and brokers that are affiliates of servicers, used reinsurers affiliated with servicers, and made payments to servicers for certain expenses. This was allegedly a form of "reverse competition" to reward servicers for selecting the insurer, in place of competition for the lowest insurance premiums, and violated New York insurance laws. At FHFA's direction, Fannie Mae issued Servicing Guide amendments in December 2013, effective on June 1, 2014, that addressed perceived conflicts of interest: "Fannie Mae is now requiring that the lender-placed insurance premiums charged to the borrower or reimbursed by Fannie Mae must exclude commission or payments earned or received by the servicer, or other entities or individuals affiliated with the servicer (employees, agents, brokers, etc.)." Additionally, "Fannie Mae now requires that the [insurer or reinsurer] must not be an affiliated entity of the servicer." Finally, Fannie Mae requires servicers to submit a certification of compliance with force-placed insurance requirements. Freddie Mac has introduced similar conflict-of-interest and certification requirements, worded slightly differently but effective on the same date.

"FHFA rejected a bolder plan that Fannie Mae proposed in which Fannie Mae might have placed insurance directly, rather than relying on servicer to do so, which Fannie Mae maintained would result in significant savings. Some consumer advocates argued that FHFA gave in to industry pressure in rejecting that path. In May 2014, FHFA's strategic plan for the enterprises' conservatorship identified force-placed insurance abuse and overcharging as one of its top priorities. Thus, FHFA is likely to introduce further reforms in 2014.

The CFPB is certainly interested on erroneous placements and excessive charges, since they negatively impact the consumer. "The CFPB's RESPA Servicing Rule, effective January 10, 2014, implemented portions of the Dodd-Frank Act by establishing procedures to prevent the erroneous force-placement of insurance when the borrower in fact has adequate coverage. The servicer must generally send specific notices to the borrower before charging him or her for force-placing insurance and refund money when there is overlapping coverage, among other requirements. See generally 12 C.F.R. § 1024.37. The RESPA Servicing Rule also limits charges to the borrower, generally allowing only those that are bona fide and reasonable, for a service actually performed that bears a reasonable relationship to the servicer's cost of providing the service, and not otherwise prohibited by applicable law.

In a related vein, a December 2013 settlement between the CFPB, state authorities, and a servicer provided that 'ny force-placed insurance policy must be purchased for a commercially reasonable price.' Accordingly, if a servicer fails to comply with the prescribed procedures before force-placing insurance, inflates the charge to the borrower above the actual cost, or assesses a charge that compares unfavorably with market prices, it could invite CFPB enforcement. However, the CFPB has not formally prohibited certain conflicts of interest, as the FHFA has done. A conflict of interest, such as placing insurance with an affiliate where the affiliate price for insurance is higher than the market price, could be used as evidence that the cost is excessive. However, by itself, the relationship does not yet appear to be prohibited for purposes of the laws administered by the CFPB. On the other hand, the CFPB has vigorously opposed perceived conflicts of interest in other arenas, such as private mortgage insurance, and may turn its attention to these relationships in the future." As usual, great stuff from K&L Gates.

Are banks starting to securitize non-agency (read: jumbo) loans again, rather than throw them into their portfolios? Maybe - as long as the price and yields work out between sellers and buyers, right? Aside from an Everbank intermediate ARM deal, reportedly pulled back last week to slice up in a different way to make it more palatable for investors, WinWater came to market with a $250 million residential jumbo deal was rated by Kroll Bond Rating Agency. There are reports that Citi will also be issuing a non-agency security backed by 285 loans with total principal balance of $217.9 million and filled with mortgages acquired by Citigroup Global Markets Realty (the top three lenders who originated the loans are Stearns Lending, Nationstar, and Freedom Mortgage). And we also have a Colony Capital LLC deal. Colony American Homes Inc. is planning to sell $558.5 million of bonds backed by 3,700 rental homes it manages in seven states, the fifth deal in the new securitization market since November per Bloomberg. Trade 'em if you got 'em!

And BNY Mellon plans to launch "Home Equity Retirement Solutions" later this year, a business that purchases, securitizes and services reverse mortgages and provides advisory services to brokers, financial advisors, and asset managers on how reverse mortgages fit into retirement plans. The program will be designed to provide U.S. retirees with cash to supplement their retirement plans and help them achieve sustainable homeownership throughout their retirement. "BNY Mellon is designing a rigorous suitability survey for use by intermediaries, outlining a socially responsible lending approach. The consumer loans and advisory services are expected to be offered through a variety of distribution parties, including brokers and fee-based advisors...As part of its focus on retirement, BNY Mellon will work with loan originators to provide the tools and intellectual capital that will enable them to present home equity retirement solutions to home owners in a manner that enhances retirement outcomes and reduces their risk. Once originators close their loans, BNY Mellon will re-underwrite every loan to determine if they are suitable for BNY Mellon's securitization process. BNY Mellon will purchase and securitize loans that are suitable."

Looking at the markets, the Federal Reserve said growth is bouncing back and the job market is improving as it continued to reduce the monthly pace of asset purchases. The press can slice and dice the announcement, and press conference answers, all it wants, but the concrete news is that the FOMC trimmed bond-buying by $10 billion for a fifth straight meeting, to $35 billion, keeping it on pace to end the program around Halloween or Thanksgiving. The Fed will divide its bond purchases between $20 billion in Treasuries and $15 billion in mortgage-backed securities beginning in July, the FOMC said in its statement. After that we can listen to the experts talk about how long to keep interest rates near zero here in the U.S. And everything rallied on the news. The 10-year Treasury note improved nearly .375 and closed at 2.61%. And a sizeable percentage of my e-mails yesterday were from investors improving their mortgage prices, which finished the day better by .250-.375 depending on coupon.

It is still pretty early here in Atlanta, but later in the morning we'll have the usual Thursday Initial Jobless Claims (expected roughly unchanged), 10AM's Leading Economic Indicators (expected +.6% for May), and the Philly Fed for June. We'll also hear about next week's Treasury auctions of 2-, 5- and 7-year notes. The 10-yr., which closed at 2.61%, has come down overnight to 2.58%, and we can expect a little more improvement in agency MBS prices.

Jobs

And selected companies are continuing to expand. AllRegs, the leader in compliance, education and risk management solutions for the mortgage and banking industry for the last 25 years, is looking for an account executive to cover the entire state of California for AllRegs Mortgage Products division.  Duties include selling AllRegs solutions to new and existing customers, meeting specific goals and targets for new sales and maintaining relationships with multiple contacts in each account on various business matters. The ideal candidate will have a good working knowledge of mortgage banking and relationships in California that can be leveraged. Interested parties should contact Linda Bomar.

Bayview/Lakeview continues to expand its correspondent lending channel and is seeking to hire correspondent lending business development directors for the Northwest, Northeast and Texas (including several surrounding states). "Bayview companies are well established in the mortgage investment and servicing industry with experience in managing mortgage assets since 1995. Bayview/Lakeview offers a broad product line including: conventional, government and non-QM portfolio loans. If you are interested in joining a great company, please send your questions and resume to Jeff Lemieux."(Bayview Asset Management is minority-owned by affiliates of The Blackstone Group, L.P (NYSE: BX).)

Lastly, a "Top 20 retail mortgage bank is looking to partner with high producing, purchase-focused branch managers and loan originators. American Pacific Mortgage Corporation, founded and run by Originators, continues to thrive to be the best by delivering consistent results. In 2013, American Pacific Mortgage funded over $4.3B and was ranked not only 19thin the top 100 Mortgage Companies in the US by Mortgage Executive Magazine, but also 4th in ranking for the best and most rewarding places to work!  American Pacific Mortgage has a unique perspective when it comes to the needs of its originators and takes a fanatical approach to branch service and support, believing management's job is to make producers and branch managers look good and provide them with what they need. With innovative and strategic programs like Keys on Time, Fast Trac Funding and SecureLock, APM provides purchase focused originators with the tools and operational support necessary to distinguish themselves in today's competitive market." Interested parties should contact Mike Haden.

Congrats to Mike Williams, Prospect Mortgage's new CEO.