The Mortgage Bankers Association of the Carolinas received this question: "Can we close a loan if we discover that the borrower did not sign his/her lock-in agreement?" First of all, this shows how "out of it" I am: I didn't know borrowers signed lock-in agreements! My naivety aside, the MBAC writes, "Yes, lock-in agreements are not federally required to be in writing; however, it is a best practice to memorialize the lock-in written agreements." (This ties in with the old joke at the bottom.)

I received this note from a CEO from a mid-sized lender in "Rob, what are you hearing about margins and their impact on the mini-corr trend? Is there a correlation between the two?" In my opinion, sure there is. For the last couple years, despite LO comp changes, despite mounting compliance costs, the residential lending industry has enjoyed record profits and margins, and loan officers have had some of their best months on record. And where there are margins, there is room for middlemen.

I am not saying that a mini-corr channel is not a good thing - in many cases they are probably sustainable. (See note a few paragraphs down.) But if a company thinks that the same margins that existed in 2012, and allows room for yet another new channel besides retail, wholesale, and correspondent, will continue through the second half of 2013, I think that is not the case. We are already seeing LOs, branches, and corporations share the pain of margin compression. I am already hearing rumblings of a disconnect between balance sheets and production. Interesting times...

Here's another take on the mini-correspondent concept and how there are increasing compliance costs and decreasing margins for most originators. Let's see how pro-housing forces in Congress grapple with new borrowers dealing with rising rates, higher loan level pricing adjustments, higher gfees, higher compliance costs, fewer lenders, and increasing legal fees.

"Regards the mini-correspondent issue . . . Brokers should realize that when they get legal advice from an attorney, even one that specializes in mortgage law; it just means that attorney is willing to let them pay $300-$400 hour defending them when the attorney's advice doesn't match up with any regulator's opinion of the Law/Rule. And they should realize that they will lose either way with large costs.

"Getting their legal advice from the wholesaler or peers is just nuts. No matter what they decide, they should read the actual Dodd-Frank bill, the original proposed Rules comments (all sides) and the new proposed rules as well. Certainly the parts of it all that applies to this issue. Most of the broker supporter's points today, are already in the proposed rules from years ago, and were discounted by the powers then.

"I read it, decided a captive correspondent arrangement will not fly (probably not with HUD long term either) and shut my brokerage long ago. Going down a business path with an aggressive interpretation written up to get around a Rule with fancy technicalities with CFPB these days seems suicidal to me. The penalties today apply up and down the employee food chain equally as well. The loan officer has high liability going along with their employer's aggressive stance, if CFPB doesn't like it. Those extra commissions you get at an aggressive stance lender (broker or correspondent) may cost you a career. It may not be fair, or the right thing for consumers, but reality is what it is as the cliché goes."

On the other hand, Matt O. from Parkside Lending writes, "Rob, Mini correspondent has been around for two decades. Parkside started out as a non-delegated correspondent who depended upon the expertise of the investors to whom we sold loans. Challenging the legality of this is silly. This is not only good for the industry; it's good for our economy and consumers. We all want new entrants into markets to challenge the status quo but, to get these new entrants, we need to be realistic about the risks that they can take with underwriting and when it is prudent to take this risks. Parkside employs 150 people and funds a few billion a year. We started out one loan at a time with a starter line from Gateway Bank who would prior-approve all of our moves and thus teach us this business. What's bad about that for the consumer? We should celebrate this not try and stamp it out."

"Rob, whatever happened to the Fannie proposal that companies could only sell about 10x their net worth to Fannie?" I don't know - ask your Fannie rep. It may tie into trends in cash sales to Fannie versus lenders securitizing their own product and issuing their own securities. Rumor has it that roughly 150 lenders are issuing their own securities these days. And rumors also continue about Fannie driving more volume to its cash window through implied gfee levels, and taking advantage of specified pool pricing. One can't blame Fannie or Freddie for doing this - isn't mortgage banking a profit driven model. That aside, MBS has always been a negotiated product with the agencies, requiring a master agreement and lender eligibility, so the count is going to be lower than the count of lenders F&F do business with in total. 

Rob Z. observes, "Interesting that a trade group of small lenders (CMLA) and some markets people at Wells see GSE Reform the same, sensible way."

Speaking of the agencies, Freddie Mac has resurrected risk-sharing bonds, an instrument that the industry hasn't seen from the GSE since the 1990's. Freddie has begun marketing, with the help of CSFB, a new product ("Freddie Mac Structured Agency Credit Risk securities, or STACR), designed to offload the first-loss piece of certain government-guaranteed MBS into the private capital markets. Proponents believe that the new product gives the investor base access to not just a new type of non-agency RMBS credit, but to residential credit - creating a benchmark for credit in the mortgage market. How about those reps & warrants? The structure supposedly will include provisions that will protect investors from the risk that borrowers either pre-pay their mortgages early (pre-payment risk) or that shifting interest rates affect bond prices (convexity risk).

One story noted, "A senior/subordinate 'shifting interest' structure means that a portion of principal pre-payments due to the most subordinate bonds will be shifted to pay down the senior-most bonds first - creating a buffer protecting the highest-ranked slices. However, allocations to the senior-most bonds will decline over time. The structure will also have tranching, or slicing up, of mezzanine bonds, and the first deal will be floating-rate, which reduces convexity risk. It comes in a 'synthetic format', in that it references a pool of recently originated mortgages and includes a mechanism so that the duration of the bonds doesn't need to match the duration of the assets. The banker said that it would be a 'higher-yielding asset with a significant credit component' that would be marketed not only to traditional mortgage credit buyers, but also to high-yield and so-called crossover traders.

"The Federal Housing Finance Agency (FHFA), which regulates the GSEs, hopes eventually to achieve consistency and regularity of issuance of STACRs from both entities, with a market evolved enough to offer predictability in terms of pricing levels and execution. The risk-sharing bonds are part of an ongoing effort by the FHFA, and the US government, to gradually wind down and phase out the GSEs' overwhelming footprint in the market. The two companies currently finance nearly 90% of the country's mortgages."

"You know why lawyers should be buried 12 feet deep?  Because deep, deep down, they can be good people. I know, an old joke, but it leads nicely into the latest lawsuit settlement story about Citigroup paying Fannie Mae $968 million to resolve mortgage claims on 3.7 million loans. Fannie has been chalking up some victories lately. It has been actively seeking compensation from banks that it claims misrepresented the quality of home loans sold to it during the housing boom. When the housing market crashed, homeowners defaulted on those faulty loans en masse, saddling Fannie with billions of dollars in losses.

"The Citigroup agreement covers troubled loans and any potential future claims on mortgages made between 2000 and 2012 that were purchased by Fannie Mae. Most of the settlement amount is covered by Citigroup's reserves, but the bank said it will set aside an additional $245 million. This follows a deal Bank of America struck with Fannie Mae in January. Bank of America agreed to spend $6.7 billion to buy back about 30,000 troubled mortgages from Fannie at a discount from their original value. The bank also made $3.6 billion in cash payments to the government-owned mortgage giant. Bank of America struck a similar deal with Freddie Mac in 2011."

How about some conference and training news?

In Oklahoma, on August 21st the OMBA will be hosting a Day of Compliance at the Cowboy Hall of Fame and Western Heritage Museum.  "We will have a speaker from the CFPB along with an attorney who has become a leading voice to the mortgage industry. Our luncheon speaker is Dave Stevens!" For more information contact president Kent Carter at kentcarter@citywide-loans.com.

In conjunction with HUD, the FHA will be holding a webinar on the roles of Direct Endorsement lenders and Direct Endorsement underwriters in FHA loans on July 10th.  The training provides a basic overview of the program and is suitable for anyone new to FHA or looking for a refresher.  Register HERE.

On July 17th the FHA is offering a webinar on the condo approval process that will cover how to determine project eligibility, loan-level requirements, liabilities, monitoring, and lender requirements.  Register HERE.

The FHA is holding a "Fundamentals of Insurance Endorsement" webinar on July 24th for loan closers, post-closers, LOs, and processors.  Topics discussed include the elements of the case binder, certification reviews, the late request for endorsement process, prerequisites of the mortgage notes and forms, and changes made after mortgage insurance.  The training will also go over release of portion of security, change of location, housing approval of title exceptions, and the lender insurance program.  Register HERE.

For those interested in the FHA Energy Efficient Mortgage program, the FHA will be presenting a webinar on July 31st that will walk through the process and provide an overview of the program requirements, the HERS energy report, and how to process and underwrite.  Register HERE.

The markets continue to show some stability - never a bad thing, right? We all heard, on June 19, that policy makers may begin slowing purchases under quantitative easing this year and end them in mid-2014. Ten-year note yields, which have climbed about 80 basis points over the past two months, touched a high of 2.66% before improving to 2.48% to close the quarter.

Yesterday bonds started off the week on a decent note after a not-so-good read from the ISM Index. (The market focused on the manufacturing employment index which fell off from the prior month - this is the first negative employment reading since September 2009, which is not a good sign for manufacturing payroll growth on Friday.) And Construction Spending was softer: +0.5% month over month versus expectations of +.6%. By the end of the day the 10-yr T-note was better in price by nearly .125 and closed at a yield of 2.48%. Mortgage prices, however, were helped by light production/lock volume coupled with the typical Fed buying, and by the end of the day were better by .125.

We'll have an early close tomorrow, Thursday is the holiday, and then Friday is the unemployment data. Payroll numbers seem to be expected at +165k for the headlines with a down-tick in the unemployment rate to 7.5%. If that happens, the decline in the unemployment rate may get a lot of attention, especially if the headline figures are around consensus. And the smartest guys in the room say that if we get a strong print, we could see another move higher in rates. A weak print raises more question marks though - and much of the market activity may happen Monday as Friday will be an odd trading day.

Today we get economic reports on June ISM New York area business conditions at 9:45AM ET, May Factory Orders at 10:00AM ET, various auto sales reports throughout the morning and total vehicle sales at 5:00PM ET. Treasury prices are up slightly this morning with the 10-yr at 2.47%, but MBS not doing much.

(I know, another oldie but goodie.)

A Loan Rep died and was instantly in front of St. Peter.

St. Peter said: "My son let me show you around," and then quickly took him to hell. He was shown the pleasant surroundings, golf and cigars, abundant liquor, and 24 hour parties.

St. Peter then took the man and said, "My son, I will now take you to heaven." lt appeared very similar to Hell, but there was no golf, no cigars, no liquor, and no partying.

St. Peter asked, "Which do you choose my son?"

The man asked, "Can I think about it overnight?"

St. Peter said yes.

He was ushered back home and the next day he was again whisked before of St. Peter who again asked him, "Where do you want to go?"

The man said, "Both places seem fine but I think hell better fits my needs."

Instantly he found himself in hell. It was awful! Pain, heat, and suffering.

Yelling up from Hell the man shouted out, "St. Peter, St. Pete!"

St. Peter replied, "Yes my son, what do you want?"

The man said, "Hell is awful. It is nothing like you showed me yesterday!"

There was a long pause and St. Peter yelled back, "You should have locked then!"