Someone just sent me 90 seconds of amazing footage of a CFPB auditor graduating from the program. (I especially like the nonchalance of the other auditors in the background.)

I have been retained by a very well-capitalized mortgage bank that is searching for experienced, dynamic managers to support its growing Wholesale & Correspondent Lending division. It is seeking senior underwriting managers in Sacramento, CA and Dallas, TX as well as a Senior Operations Manager for its Jacksonville, FL location. This national lender has a portfolio lending appetite with company-wide production in excess of $5 billion. The ideal candidates have minimum 5 years' experience, are strong leaders with excellent communication skills and the ability to train and mentor. Underwriting Managers should possess their DE and VA/LAPP designations. Please send resumes to me at rchrisman@robchrisman .com.

As a quick note, yesterday's commentary noted, "It is a dangerous combination: a law firm trying to get some publicity, a city that declared bankruptcy, and public opinion that a) is against mortgage banking, and b) doesn't really understand what this could mean. Recently California made headlines, and the mortgage industry & investors shutter, when eminent domain was discussed as a way to seize mortgages out of pools by San Bernardino." A clever Patrick M. observed, "In the first full paragraph, 'shudder', not 'shutter'."

Regarding the eminent domain issues, here is a link to SIFMA's opinion. And here is a link to a good opinion piece in the Sacramento Bee.

Like nuclear waste that has a half-life but, looking at a graph, never goes away entirely, concern about Qualified Mortgage regulations don't either. Nor should they. To be truthful, some of the QM proposals make sense. But the industry doesn't like uncertainty (remember how things froze up ahead of LO comp, and still remain muddled?), and QM represents uncertainty. The only thing we know is that it is coming. The general feeling is that soon-to-be-announced mortgage rules implementing Dodd-Frank's ability-to-repay provisions must be broad enough to ensure qualified buyers have access to credit and must include clear criteria for lender compliance, but narrow enough to satisfy those in Congress that voted for Dodd-Frank's suite of regulations. Those who testified at a recent congressional hearing on the potential impact of Title XIV of the Dodd-Frank Act broadly agreed on those points. However, there were sharp divisions over key rulemaking details, including the calculation of points and fees and the eventual structure of the qualified mortgage.

Many of you write to me saying the QM regulation is too narrowly defined, thus threatening the beginning-to-blossom housing and economic recovery by denying creditworthy borrowers access to safe, quality loan products. Remember that the QM regulation was designed to ensure that lenders only make loans to borrowers who have the ability to repay the loan. But due to its controversy, the NAR (National Association of Realtors) asked for the development of a more broadly-defined regulation. NAR is the leading advocate for housing issues, and has a very strong lobby. And its members love first time home buyers, so it doesn't want QM to negatively impact that group. NAR believes that by broadly defining QM so that it encompasses the vast majority of the safe, high quality lending being done today, uncertainties in the housing market can be avoided.

NAR believes that an unnecessarily narrow QM definition that covers only a modest proportion of loan products and underwriting standards and serves only a small proportion of borrowers would undermine prospects for a full housing recovery and threaten the redevelopment of a sound mortgage market. A narrowly defined QM puts many of today's loans and borrowers into the non-QM market, which means that lenders and investors face a high risk of steering or ability-to-pay violations. The increased risks would result in costlier loans that lack important consumer protections. NAR supports a QM definition that provides strong incentives for lenders to focus on making well-underwritten mortgages affordable and abundantly available to all creditworthy borrowers, which requires a legal safe harbor for lenders. This would establish strong consumer protections, higher mortgage liquidity, and offers lenders a safe harbor that reduces litigation exposure, all while contributing to the revival of the home lending market.

So last Wednesday the House Subcommittee on Financial Institutions and Consumer Credit held a hearing addressing consumer and market perspectives of mortgage reforms made by The Dodd-Frank Wall Street Reform and Consumer Protection Act. Both consumer and industry members provided testimony, including the MBA and ABA. The ongoing CFPB rulemaking to implement the Dodd-Frank ability to repay rule and special status under the rule for qualified mortgages was the focus of both trade groups' testimony.

The trade groups both believe that the concept of a qualified mortgage should be broadly defined in a manner that will permit safe loans to be made to a wide range of borrowers. The underlying concern of the groups is that, based on the significant liability that will apply to violations of the ability to repay rule, most lending will be limited to qualified mortgages and, therefore, if the concept of a qualified mortgage is narrowly constructed, many deserving consumers will not be able to obtain mortgage loans. Consumer representatives generally share this view. "Don't eat the golden goose" or "Don't throw out the baby with the bathwater" come to mind.

As the CFPB considers the best approach to the ability-to-repay rule under the Dodd-Frank Act, the MBA submitted its cautionary outlook on the proposed rule. According to the MBA, the rule "is the most significant rule required by Dodd-Frank affecting mortgage lending." "How it is finalized - what it contains and how it is structured - will determine how many consumers have access to safe, affordable and sustainable mortgage credit for generations to come," the trade group stated in its letter to the CFPB. If written poorly, QM rules can take a chunk out of residential lending, and our housing market doesn't need more restrictions on lending.

For example, if you ask a servicer or underwriter about whether or not the debt-to-income (DTI) ratio is a good indicator of a borrower's ability to repay, the answer is usually "no." So why should QM rely on it? We all know that a borrower's ability to repay is affected by "multiple factors," not the least of which is job security (hard to measure) but along those lines, as the MBA notes, an "emphasis on documentation and verification of income, assets, and employment." The MBA also recommends that the CFPB should not create QM requirements for HUD, the FHA, the VA, or the Department of Agriculture and Rural Housing Service.

The stakes are pretty high, and I have heard from a number of CEO's that once the QM guidelines are set, their companies will veer away from originating non-QM loans in order to lessen liabilities and lawsuits in the future. And as we know the fear of litigation is one of the things promoting setting aside more reserves, which means setting higher margins, which impact the price all borrowers' pay for loans.

Speaking of lawsuits, the MBA believes that "establishing the QM as a rebuttal presumption will invite litigation, increase costs and cut off credit to too many qualified borrowers." Those in the biz believe that a safe harbor with clear standards should be adopted for qualified mortgages so as to provide greater certainly to lenders to assess compliance with the rule when making ability to repay determinations, and to limit challenges to a lender's determination to the specific and clear elements of a qualified mortgage. If legal challenges could be mounted against lenders based on a variety of other factors not included within the qualified mortgage standards, the trade groups caution that lenders would face significant litigation risks and costs and, as a result, may significantly constrain lending through the tightening of already conservative underwriting standards and with some lenders actually exiting the business.

As you might expect, consumer advocacy groups do not generally agree with the safe harbor approach, as they believe that in certain cases a safe harbor may shield a lender who could have foreseen the inability of a consumer to repay a loan. ("The underwriter should have known that International Paper was going to close that paper mill in four months.")

Since the CFPB re-opened up the comment period, it has heard from all of these groups. Law firm Ballard Spahr provided an analysis of litigation costs and related matters to the MBA in connection with its comment letter.

It is worth taking a gander at how big of an impact HARP is having on refinances. Pretty darned big, per the FHFA, at least in May. This report yields some interesting tidbits for folks who aren't overwhelmed by too many numbers.

With rates this low, adjustable rate mortgages are like the red-headed step child of residential production, thus the apparent "collective shrug" at Barclays & LIBOR here. But how is HARP impacting pools of existing production, and how is it impacting pricing? The TPO effect for hybrid ARMs remains significantly weakened today despite lower rates, and analysts point out that prepayment rates ("speeds") have not increased by as much as one would have thought. Since there is virtually no generic TBA ("to be announced") market for ARMs, companies originating hybrid ARM products face greater pricing uncertainty. No investor wants their pools to pay off too fast, and so it is believed that lenders could be managing their speeds by selecting less aggressive brokers and correspondents.

There is no question that many borrowers have ARM loans on houses that are underwater, which has made them prime candidates for HARP 2.0. Under HARP guidelines, the new refinanced loan must demonstrate a "movement to a more stable product." The effect is most pronounced for high LTV 7/1 and 10/1s. Meanwhile, the effect on 5/1s is tamer since many of these loans are resetting. In the old days, ARM rates would generally reset higher, but now many ARM's are resetting to lower rates and incur none of the hassle or cost of a refinance. That is a tough sell for a loan officer, and investors sense it.

Turning to the markets, our economy continues to muddle along. We learned yesterday that Retail Sales decreased 0.5% in June, the first time since 2008 that retail sales have fallen three months in a row. One thing to note is that auto sales have been a bright spot in an otherwise tepid recovery, but motor vehicle and parts sales were down 0.6% in June. Economists believe that this is a definite warning sign that the economy has lost steam, but it is not sufficient, by itself, to raise the recession flag.

Overall it was pretty quiet out there. Through its sources Thomson Reuters reported that "flows were light and supply was even lighter." Agency MBS prices improved by about .250, and the 10-yr closed at 1.46%. Today we'll have June's Consumer Price Index, expected to be roughly unchanged, along with Industrial Production & Capacity Utilization and the July NAHB housing market index. In the early going the 10-yr is at 1.48% and MBS prices are better.

I was in a bar Saturday night, and had a few drinks.
I noticed two large women by the bar. They both had strong accents so I asked, "Hey, are you two ladies from Ireland?"
One of them screamed, "It's Wales you idiot!"
So, I immediately apologized and said, "Sorry, are you two whales from Ireland?"
That's all I remember.