I am visiting Denver for much of this week, and heard this quote: "Our company culture? It consists of talking about our company culture." Kidding aside, culture sure is important, and we'll be hearing plenty of successful and unsuccessful mergers and acquisitions - and culture plays a role. Speaking of acquisitions, clients & partners of Southern California's First Mortgage received this autoreply Saturday:  As of July 18, 2015, I'm pleased to announce I am now doing business as Freedom Mortgage. We are the same great team, and are excited to continue to bring you the service you have come to expect from a top notch mortgage lender..." The issues that led First Mortgage, long esteemed in the mortgage banking business for its FHA lending and attending to underserved borrowers, to that point are a direct result of the current complicated regulatory and confusing compliance environment. It is a sad thing for the industry. (A few paragraphs down is an indirectly related FHA story.)

Last week this commentary discussed HUD's OIG report on Nova twice, and noted the importance for any FHA lender. On Friday Pete Mills, SVP of Residential Policy and Member Services at the MBA, sent out the following note: "As many of you are aware, HUD's Office of Inspector General recently issued an audit report of an FHA mortgagee asserting that certain Housing Finance Agency down payment assistance programs that utilize premium pricing do not comply with FHA rules and regulations. The OIG further recommended the lender indemnify HUD for these loans and recommended additional enforcement penalties. MBA believes the OIG report does not reflect an accurate interpretation of HUD's rules and prior guidance on these kinds of Housing Finance Agency programs. MBA has been engaged with FHA leadership and registered our concerns about the issues raised in this report, and on the impact it would have on HUD's mission if the OIG interpretation is allowed to stand.  We also have highlighted the uncertainty such a reversal of prior HUD policy would have on HUD's lender partners. MBA will continue to keep you updated as things progress. We have urged a quick resolution between HUD's program office and the OIG; however this process could be one of weeks not days. In the meantime, please feel free to reach out to me if you have any questions."

The OIG's report does not apply to every entity for DPA (down payment assistance) loans. For example, Jonathan Hanks, SVP & COO of the Utah Housing Corp., stated that "...Utah Housing does not offer DPA gifts..." and that the "DPA gifts and funding mechanisms described in the OIG audit are fundamentally different than Utah Housing's DPA loans and the issues described in the audit are not representative of, and therefore do not apply to, Utah Housing's DPA loan product."

In a somewhat related issue, Joe Light with the Wall Street Journal wrote, "Mortgage Bankers, Housing Groups Back Proposal to Curb Suits." "Major mortgage lenders and some left-leaning consumer advocates are showing rare solidarity in a bid to convince the Obama administration to ease up on lawsuits that, they say, are driving banks away from lending to borrowers with weak credit. In near-identical proposals, the Mortgage Bankers Association; 15 left-leaning advocacy groups; and a team including researchers from the Urban Institute and Moody's Analytics are calling on the administration to significantly restrict one of the most powerful tools the U.S. government has used to punish banks for mortgage mistakes. The goal is to encourage the Justice Department to pursue lenders for damages in cases of significant errors and fraud but not for minor errors that some lenders say have resulted in hefty penalties. Some lenders say fears of being hit with fines have caused them to put in place more onerous requirements for getting a mortgage than what the federal government allows, shutting out marginal borrowers.

"At issue is the Federal Housing Administration, which is run by the Department of Housing and Urban Development and is responsible for backing more than one in 10 mortgage loans. The FHA is a favorite program for first-time home buyers and borrowers with weak credit because it allows home buyers to make down payments of as little as 3.5% with a credit score of 580 on a scale of 300 to 850. Under the current rules, lenders must certify that everything in a loan is accurate, leaving them vulnerable to treble damages for even minor errors such as misstating a borrower's income by a tiny amount. Under the groups' proposals, outlined in comment letters to HUD, lenders would be held liable for treble damages claims only when they knowingly or recklessly make a mistake affecting the insurability of the loan. The lender also would be held liable if it doesn't follow the FHA's mandated quality-control process or consistently fails to execute well on the process."

Speaking of lawsuits, JPMorgan Chase just settled one for $388 million. It was with the Ft. Worth Employees Retirement Fund which had purchased the MBS fund 9 times. Didn't they do any due diligence on their own? But Wells Fargo just had one lawsuit for predatory lending dismissed in Los Angeles. And Goldman Sachs Group turned some heads last week by taking a $1.45 billion provision for mortgage-related litigation and regulatory matters in the second quarter, a move that shaved $2.77 a share in profits from the investment bank's earnings.

And as potential fodder for future lawsuits, several folks sent me the NY Post article on the Obama Administration's use of data. Aside from an odd photo - is this really a shot of Obama preparing to do battle with lenders? - is this a surprise to anyone that data mining is taking place constantly for various uses? Most believe that investors are already looking at NMLS data to check on the loan officers responsible for loans to track patterns and early payoffs.

The industry continues to monitor progress, or lack thereof, in the electronic signature realm. Whereas progress has been made in other industries, in residential lending it is a challenge having a large lender embrace the program, a large warehouse lender lend on loans using it, a large investor buying e-signature loans, etc. Most agree it will come eventually, but Black Knight announced some progress in setting up rules that lenders might find of interest.

Speaking of technology, "Rob, have you heard that any other lenders are keeping a redundant backup LOS online in the event their primary goes down? As you know we are more concerned with down time and how we serve our borrowers if our LOS is down for any period of time." I turned to Len Tichy with STRATMOR who has his finger on the pulse of this topic. "The bottom line answer is no. LOS vendors who host solutions for lenders, and many others (some of whom  will also allow you the option of self-hosting as you do now), act as the primary provider of redundancy in the event of a failure in the LOS primary data center.  It is part of their Disaster Recovery and Business Continuity role, and you are looking to them for the protection you seek.  

"What happens if their redundant solution fails? You will experience an outage, just as will your peers using that system.  Your options to remedy this situation would include: a) Negotiating some kind of Service Level Agreement failure penalty to compensate you for losses (I.e., damages) after the fact. b) Negotiating some kind of special arrangement wherein the LOS vendor provides an extra layer of redundancy at a premium price - however, they may not at all be equipped to offer of manage such a specialized solution on a one-off basis. c) Self-host and do all of this yourself, if such an option in offered by your LOS vendor - which it is not for some of the more popular LOS. Trying to create a separate LOS universe wherein you redundant platform would be a different LOS, but perform identical functions would cost more than 2X your primary solution, due in no small part to the maintenance cost of keeping two functionally equivalent solutions up and running, but adding on the extra burden of keeping them in synch. This same problem is also faced by customers of end-to-end outsourcing firms. They are all good companies who must provide the redundancy protection that they and some LOS are promising.  There is no good, simple, and practical solution to this problem - when the trusted provider has an outage, you are down." (Len eats and breathes this, so if your company needs a hand, write to him.)

Turning to rates, volatility has died back down in the bond markets. But the chorus that thinks rates are going higher is growing. Things appear to have settled down in Europe with the third bailout of Greece - now approved by Germany, allowing "the markets" to focus on our economy which is moving forward. Of note from Friday were Housing Starts which rose to 1174K in June, better than expected. Building Permits also jumped to their highest level since July 2007.

Looking ahead to this week there isn't much in the way of scheduled economic releases, which may lead to us merely stewing in our own juices. There is zip this morning; tomorrow we'll have the Industrial Production & Capacity Utilization duo. Wednesday is chockfull of housing updates with the MBA Application Index, May FHFA Housing Price Index, and June Existing Home Sales. Thursday is Initial Jobless Claims and June Leading Indicators. Friday is Junes New Home Sales. We closed the 10-year at 2.35% Friday and this morning we're at 2.34% with agency MBS prices roughly unchanged.

Jobs and Announcements

For jobs, a privately held seller/servicer that chooses to remain private is looking to fill a branch manager position in the Phoenix area. "This branch is fully functional and waiting for a top notch branch manager to step in and take control! This company has virtually NO OVERLAYS and is direct to Fannie, Freddie, and Ginnie! As a strong Government lender with no minimum FICO other that what is prescribed by the GSE's and HUD, you will be able to follow the DU findings on both Approve/Eligible as well as Refer/Eligible findings! This company has been around for 18 years and will expand your universe of borrowers by eliminating the overlays that have otherwise held you back! With a culture of teamwork and very hands on executive team, this company will help you say "YES" to more borrowers and make you want to say "NO" to those recruiters!" Confidential inquiries should be sent to me at rchrisman@robchrisman. com.

Ellie Mae is continuing to expand is and is looking for a Sr. Compliance Manager in Pleasanton, CA. The Sr. Compliance Manager is responsible for managing the team which facilitates the implementation and maintenance of residential mortgage lending compliance and industry changes across the company's various software applications, systems, and the residential mortgage loan documents produced by them in order to maintain and enhance the compliance integrity of such applications, systems, and documents, while supporting and improving quality, accuracy, and uniformity across all residential mortgage lending products and services offered by the company. The ideal candidate will have expertise in residential mortgage lending compliance evidenced by a minimum of 8 - 10 years of consumer residential mortgage compliance experience. Experience directly related to mortgage compliance technology products and services, including knowledge of loan origination systems, residential mortgage loan documents, and the delivery of compliance solutions through technology. Knowledge of Encompass & strong knowledge of federal and multistate consumer lending compliance.  For more information please visit EllieCareers.

Congrats to Ty Kern. Mr. Kern is joining Home Point Financial Corporation as Senior Managing Director, Production Acceleration.  He will be based in California and his focus will be to identify and integrate production expansion opportunities for the Home Point platform. Ty was most recently the Chief Operating Officer at Emery Financial Group, a Division of W.J. Bradley Mortgage Capital. And BOK Financial Mortgage has added Rhonda DeLuca as vice president, underwriting manager for the company's correspondent lending channel.