It is hard to drive by a corner without seeing a gas station or a bank these days. That doesn't mean banks are all huge, especially here in Colorado, but a few of them are. The FDIC tells us at the end of March that there were about 7,000 banks in the U.S., but that the 19 largest banks in the United States held 61% of the $14.42 trillion of assets controlled by all domestic commercial banks and savings institutions. Each of the 19 banks has at least $100 billion of assets. (It has been several years since a new bank was formed from scratch.)

Here's a quick compensation tidbit. Often, the branch manager is the biggest producer in the branch and according to the STRATMOR Compensation Survey, about 40% of branch manager pay in 2012 was incentive on personal production. Branch managers are most often paid on the same tiers as Loan Officers for personal production and then an override on other branch production. (For more information about branch manager compensation, contact STRATMOR at nicole.yung@stratmorgroup.com.)

No one wants to be mentioned in a speech given by Richard Cordray, but Castle & Cook's Matthew Pineda and Buck Hawkins were. The Consumer Financial Protection Bureau filed suit in federal court against Utah's Castle & Cook Mortgage, alleging it steered customers into higher interest rate loans, based on resulting bonus incentives, violating rules put into place back in 2011. The CFPB is not pushing for C&C (22 states, $1.3 billion in 2012) to exit the business, but has asked the court to end the firm's loan officer compensation practices and to provide restitution along with civil penalties. The CFPB claims Castle & Cooke, as well as Pineda and Hawkins, violated the Federal Reserve's loan originator compensation rule, which had a compliance date of April 6, 2011. The rule prohibited compensation based on loan terms, including those that adjust pay for higher interest rates. Bureau investigators claim Castle & Cooke's quarterly bonus program violated this rule by paying 150 loan officers higher levels of bonus compensation for distributing more expensive loans. How much are we talking?

In a statement, the bureau wrote: "The average quarterly bonus ranged from $6,100 to $8,700. By contrast, those loan officers who did not charge consumers higher interest rates did not receive quarterly bonuses. The CFPB estimates that more than 1,100 illegal quarterly bonuses were paid and that tens of thousands of customers may have been upsold since April 2011."

The CFPB also alleged Castle & Cooke violated a rule forcing companies to retain compliance records for a certain period of time. The bureau claims Castle & Cooke failed to record what portion of each loan officer's quarterly bonus was the result of a particular loan being issued. Here is what the public sees: , and here is the CFPB release.

"Rob, is there anything wrong with me paying my LOs 70% of what they're owed on a loan, and then spreading the remaining 30% out over their next few closings?" As always, I recommend speaking to an attorney that specializes in compensation. In my uneducated opinion, putting a portion of the LOs compensation into a "bank" and then spreading it out over the next few fundings is indeed something I have heard of, and it is probably legit.

Here's an interesting development. "Rob, have you heard of a new position: 'Director of Marketing'? Supposedly companies, in avoiding the LO name, have created a position whereby unlicensed loan officers, often high volume originators, are moving from banks to the non-banking sector. They do not discuss interest rates, but perform all other duties." First, no, I have not heard of this position. And second, in my opinion, the long term prospects are slim of companies "trying to get around" some regulation or legal verbiage.

New residential applications continue to decline. The MBA reported that last week apps were down 1.2% from a week earlier. The refinance index fell 1% from a week earlier to reach its lowest level in two years, driven by a 12% decline in the government refinance index while the conventional refinance index rose 2%. (Purchases were down 2 %.) Refi apps were unchanged at 63% of all apps, ARMs were 7%.

The headlines, besides a royal baby preparing to make an appearance, show that BB&T and Fifth Third saw record residential mortgage production during the 2^nd quarter, in addition to great results from Wells Fargo, Chase, and Bank of America. That is very good news, but the markets notoriously look to the future, and analysts are concerned about the 3^rd and 4^th quarters. KBW, a Stifel company, viewed JPM's mortgage results as better-than-expected, while WFC's results were somewhat mixed. "JPM's gain-on-sale margin was up quarter over quarter, increasing 31 bps to 2.62% from 2.31%, and the net mortgage banking margin (which includes expenses) increased 38 bps to 1.19% from 0.81%. Wells Fargo's gain-on-sale margin declined 35 bps to 2.21% from 2.56%, which is more in line with what we are expecting for the industry. JPM's mortgage origination volume of $49 billion was down 7% QoQ and WFC reported volume of $112 billion, up 2.8% QoQ. We are generally expecting moderately lower volumes for the industry, while the Mortgage Bankers Association (MBA) is forecasting that industry volumes will be up 2.5% QoQ. WFC noted that its application pipeline of $63 billion at quarter end was down from $74 billion at March 31. WFC reported that purchase applications increased to 46% from 35% in 1Q, suggesting that purchase applications on a dollar basis were up 37%."

But there is some good news out there. First, MGIC Investment Corp. posted its first quarterly profit in three years. MGIC is the second-largest U.S. private mortgage insurer, and it, and the other MI companies, has benefited as fewer people defaulted on their home loans: the number of delinquent loans fell 24 percent in the second quarter to their lowest level in five years. (And, of course, all the MI companies are increasingly grabbing market share from the Federal Housing Administration.) The last profit that MGIC reported was from early 2010, and its recent cumulative loss is $5.3 billion.

Second, Radian announced that it has seen improved financial results in the quarter and the first half of the year. Chief Executive Officer S.A. Ibrahim reported, "Compared to the second quarter of last year, our new mortgage insurance business written grew 60% and we reduced our inventory of primary delinquent loans by 21%.  The loss ratio for our mortgage insurance business was approximately 70% for the second consecutive quarter, and the mortgage insurance loss provision for the first half of 2013 reached its lowest level since the first half of 2007." Radian, however, did report a net loss for the 2^nd quarter of $33.2 million. S.A. continued, "Also in the second quarter, we achieved an important milestone with our high quality, profitable new business written after 2008 now representing 53% of our primary risk in force, outweighing our legacy mortgage insurance book.  This improved composition has helped our mortgage insurance business achieve profitability, absent the impact of fair value gains and losses, for the quarter and six months."

The third piece of good news, kind of, is a report from the Wall Street Journal that regulators "are preparing to relax" QRM ("skin in the game") rules. The MBA and others want QRM, if it happens at all, to match existing QM rules. "The watchdogs, which include the Federal Reserve and Federal Deposit Insurance Corp., want to loosen a proposed requirement that banks retain a portion of the mortgage securities they sell to investors...Advocates of more stringent standards said that a broad exemption to the risk-retention rules would undermine the initial goal of imposing market discipline. 'My sense is that Washington has lost its political will for serious reform of the securitization market,' said Sheila Bair, who served as FDIC chairman until 2011." The industry has been concerned, since Dodd-Frank stipulated that issuers should retain 5% of all mortgage-backed securities issued without government backing. "The idea was to ensure that the firms had 'skin in the game,' addressing problems that arose when lenders didn't pay close attention to the quality of loans issued as securities so long as the bonds could receive triple-A ratings. But Congress also created an exception to the skin-in-the-game requirement. Lawmakers directed six regulators to specify certain loans-such as traditional 30-year, fixed-rate mortgages-that wouldn't be subject to the new rules. At issue now is how to define this so-called qualified residential mortgage."

Asking any lender to set aside, or keep, 5% of whatever it securitizes would freeze the industry - the intent is good, but for a small or midsize lender to, for example, have $50k in cash for every $1 million in jumbo loans it produces would be game-changing. But there is talk that banks would have to retain 5% only of mortgages that allow borrowers to make "interest-only" payments or that don't fully document a borrower's ability to repay a mortgage-a much smaller portion of the market that includes the riskiest loan products that caused much of the crisis-time losses. Reporters Nick Tirimaos and Alan Zibel noted, "To be exempted those loans would still have to meet other standards issued earlier this year by the Consumer Financial Protection Bureau on Dodd-Frank's requirements that banks ensure a borrower's capacity to repay a mortgage."

There has been plenty to criticize: the complexity of the new rules would likely raise costs for lenders and consumers, costs and restrictions will dampen any housing recovery, there is a good argument that down-payment standards should be set by the market and not by regulators, and so on. Opponents have argued that shoddy loan products and lenders' carelessness in determining a borrower's ability to repay a loan-not down payments-were bigger contributors to the mortgage crisis.

Any market chatters pales in comparison to all this news. The Fed is continuing to buy agency MBS, originator volumes continue to be "below normal" - but it is easy to argue that there is a new normal. (That being said, traders reported that volume was just 68 percent of the 30-day moving average, coming in at $1.2 billion consisting largely of 30-year 4% securities.) At the end of the day MBS prices were worse about .250, and the 10-yr T-note was down about the same and closed at a yield of 2.52%.

Don't look for a big move today either: besides company earnings coming in, the only news will be New Home Sales (expected to increase about 1%). That being said, rates have crept up a little, and the 10-yr is sitting around 2.56%, and MBS prices are worse about .125, based on some decent earnings news.