We're all watching the residential lending industry change, although in Saturday's commentary I noted several bank mergers from recent weeks. Whether it is banks, or mortgage banks, I received this note from a long-time industry vet that sums things up: "The cause of many mergers is a result of increasing regulatory costs eroding marginal profit during times of shrinking pipelines." (See below for more on changing thoughts on business channels.)

Any broker thinking about becoming a banker has to look at things from many perspectives - not the least of which is compliance. Thomas Morgan with QuickStart Mortgage Manuals wrote an article on this issue from a compliance perspective - trying to shake some sense into the community. Regarding this trend, I received this note from a West Coast correspondent rep on the NAMB risk write up: "Rob - the NAMB piece is an excellent summary of not only Mini-Correspondent risk, but general mortgage banker risk overall. Sometimes brokers and loan officers look at the spreads that their employers / wholesale investors take and wonder if they really need that much......or see it as an opportunity to maybe consider going into business for themselves. One quick look at this summary says it all, although I would also argue that once an entity becomes a lender (correspondent, mini-corr, small bank, big bank, whatever) then their corporate name is on the note, and there's also litigation risk. This wasn't defined in the NAMB attachment, but it is very accurately and clearly spelled out by attorney Brian Levy."

Sensing the changing landscape, the STRATMOR Group is hosting its semi-annual Consumer Direct Sales and Operations Focus Group meeting in Chicago on September 26-27. It is a unique round-table event that will allow participants to network with 20+ Direct Lending executives.  This highly interactive forum will include dynamic polling on key issues throughout the day and a half meeting. Since rates are up and refinance business is waning, the meeting agenda will be focused on how to create success in this new environment.  Topics for discussion will include but are not limited to key performance metrics for Consumer Direct operations, capacity management and staffing models, sales recruiting and retention practices, optimal organizational structures, process workflows, data mining and lead generation practices and the latest developments in technology.  And all of these topics will be discussed in the context of the new market dynamic.  If you would like more information on the meeting you can click on the following link.

(Speaking of STRATMOR, Garth Graham had a few humorous blog posts regarding how the NFL is like the mortgage industry).

"Rob, do you think that the mini-corr channel will cut much into the traditional correspondent investors?" In my opinion, no, probably not. According to recent figures that I have seen, through June correspondent production accounted for less than 30% of the mortgage pie (along with less than 10% for wholesale). Some of the top 12 correspondents offer this channel, others do not. Through June, per Inside Mortgage Finance, Wells, once again, nearly equaled all the production from the other eleven! (The order was WF, Chase, US Bank, PennyMac, Flagstar, BB&T, Franklin American, Citi, SunTrust, PHH, Ally, and Provident.)

With that list of investors, let's check in on some recent updates.

First, a quick note on an event this week in Washington.  The 2013 Mortgage Expo is being hosted by the Washington Association of Mortgage Professionals. It is September 13, from 8:30AM-7PM in Bellevue. Register here.

There is a lot going on in Texas! CitiBank Correspondent told clients, "The following is a follow-up to Bulletin #2013-11 dated June 28, 2013. As all Correspondents who originate Texas 50a(6) Home Equity Loans ("Texas Equity Loans") are aware, on June 21, 2013, the Texas Supreme Court issued a ruling invalidating certain long-standing Finance Commission of Texas interpretations regarding the origination of Texas Equity Loans. Further industry analysis of the Texas Supreme Court's opinion regarding the 3% fee cap associated with Texas Equity Loans leaves unclear whether interim interest (aka per diem interest) must be included in the maximum 3% fees calculation for Texas Equity Loans. Therefore, until Texas law is clarified Citi is modifying existing policy as follows: Effective with all loans closed after June 21, 2013, all fees paid to the lender by the borrower including interim/per diem interest and discount points (including bona fide discount points) must be included for your calculation of the 3% fee cap."

Law firm Black, Mann & Graham wrote, "Revised Residential Mortgage Loan Originator Regulations Effective September 5, 2013. In the August 30, 2013, issue of the Texas Register (38 TexReg 5702), the Finance Commission of Texas published final amendments to the residential mortgage loan company, mortgage banker and residential mortgage loan originator rules in Title 7, Part 4, Chapters 80 and 81 of the Texas Administrative Code (7 TAC Chapters 80 and 81) to implement statutory changes made to Chapters 156, 157 and 180 of the Finance Code by the 2013 legislative session (see Senate Bill 1004, eff. September 1, 2013). These Texas Administrative Code amendments generally are of a technical nature, the main thrust of which is to align Chapters 80 and 81 with the statutory movement of the individual residential mortgage loan originator licensing provisions from Chapter 156 to Chapter 157 of the Finance Code. These amendments to Chapters 80 and 81 of the Texas Administrative Code did not change from the proposed amendments published in the July 5, 2013, issue of the Texas Register (38 TexReg 4253)." (If you wish to have a copy of these Administrative Code amendments, you may contact ddulock@bmandg.com. These amendments are effective September 5, 2013: www.bmandg.com/articles.)

And finally this: "Texas Amends Statutes Regarding Loan Officers and Licensing Fees" by Matthew Dailey, Esq. "The state of Texas recently adopted changes under the Texas Finance Code which grants rulemaking authority to the Finance Commission of Texas. The amendments concern mortgage loan originators and bankers and the licensing regulations that affect them. These amendments are effective as of September 15, 2013. 7TAC§§80.100, 80.103, 81.100, 81.103 - Licensing: Any person who holds themselves out to be a "mortgage loan originator," "mortgage banker" or "loan officer" must apply for and receive a license under the Finance Code. It has always been the case that the Commissioner of Financial Institutions has authority to conduct an investigation against an originator if there is reasonable cause to suspect or believe that an originator may have been convicted of a criminal offense which may constitute grounds for the suspension or revocation of that originator's license. Also, the Commissioner may require such additional, clarifying, or supplemental information from any applicant for the issuance of any license pursuant to Finance Code, Chapter 156 as is deemed necessary or advisable to determine that the requirements of Finance Code, Chapter 156 have been met. However, the Legislature has now allowed the Commissioner or the Commissioner's designee to issue a license on a conditional basis at their own discretion after reviewing the circumstances of each situation. §80.100, §81.100."

Mr. Dailey's note goes on: "Also, in a minor change, for examinations that are conducted out of state, the Commissioner may collect reimbursement of actual expenses in compliance with department's policies and procedures. §80.103, §81.103. These changes apply not only to Finance Code §156 dealing with Mortgage Loan Originators and Mortgage Loan Companies but also now to Finance Code §157 dealing with Mortgage Bankers.

"The Finance Commission of Texas also adopted new statutes regarding the education and background of mortgage loan originators. The Commission now requires pre-licensing and continuing education courses under Finance Code, Chapter 180 and also that they be reviewed and approved by the Nationwide Mortgage Licensing System and Registry. In addition to the pre-licensing educational requirements, in Finance Code, Chapter 180, a residential mortgage loan originator must complete three hours of education classes specifically relating to Texas statutes and rules.§81.106. Next, the Commission enacted a statute that requires loan officers to disclose every location where he or she is conducting business with the Nationwide Mortgage Licensing System and notify the Commission of any change of address, name change or changed company. §81.107. Lastly, every mortgage loan origination applicant shall provide authorization and fingerprints as prescribed by the Nationwide Mortgage Licensing System and Registry necessary to conduct a criminal background history check through the Federal Bureau of Investigation, the Texas Department of Public Safety. The applicant must allow the Commissioner to obtain an independent credit report and provide any knowledge of civil or criminal findings against the applicant as well. §81.108.

Congrats to Stonegate Mortgage Corp., which filed plans for an initial public offering of up to $100 million in stock. The WSJ reports, "The integrated mortgage company derives its revenue from mortgage origination, mortgage financing and mortgage servicing. According to a filing with the Securities and Exchange Commission, Stonegate is one of the fastest growing non-bank mortgage originators. The company's origination volume nearly quadrupled during the six months ended June 30. Its loan originations are primarily sourced through its network of retail branches and relationships with 955 third-party originators. The company focuses on mortgage loans associated with the purchase of residential real estate, which represented 45% of its loan originations for the 12 months ended June 30, as opposed to the refinancing of existing mortgage loans. For the six months ended June 30, Stonegate reported its profit soared from a year earlier to $18.9 million as revenue nearly tripled to $84.2 million. During that period, the company originated $4 billion in loans. As of June 30, Stonegate mortgaged a portfolio with an unpaid principal balance of $7.6 billion. Stonegate expects its shares to trade on the New York Stock Exchange under the symbol SGM."

Rates: up and down and all around. Friday's payroll report is not indicative of an economy that's going gangbusters. In fact, net of the revisions to the past two months, we added less than 100k new jobs this month. Also the household survey showed a drop of 115k jobs last month - and the only reason the unemployment rate fell to 7.3% is because 312k folks left the labor force. The participation rate is back to levels last seen in August 1978.

Well, certainly there is no reported inflation (CPI & PPI - of course it seems I am paying more for everything every month...), but we have a 10-yr T-note that has sold off 130 basis points in 4 months, and the 3 month moving average of payroll growth is LESS than 150k. As one analyst noted, "What's the rush to remove accommodation?" Most of the smart folks think that the labor data, in spite of being quirky, should not prevent the Federal Open Market Committee from voting to dial down QE3 on September 18. But last week we had the jobs data, we had a trade gap widen, an increase in construction spending, an improvement in the ISM Manufacturing Index, and a big jump in auto sales, which hit a 16.1 million unit annual rate. This was the strongest sales rate since October 2007. Automakers will increase production this fall to keep up with strong demand.

It is a new week, and the big day will be Friday when Retail Sales, PPI, and Consumer Sentiment will be released. We'll have Jobless Claims and Import Prices on Thursday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. The 10-yr closed Friday at 2.94%, and in the very early going we're at 2.92% with agency MBS prices (that form the base price for rate sheets everywhere) roughly unchanged.

Very punny (part 1 of 3)

There was the person who sent ten puns to friends, with the hope that at least one of the puns would make them laugh. No pun in ten did.
I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian.
She was only a whiskey maker, but he loved her still.
A rubber band pistol was confiscated from algebra class, because it was a weapon of math disruption.
No matter how much you push the envelope, it'll still be stationery.
A dog gave birth to puppies near the road and was cited for littering.
A grenade thrown into a kitchen in France would result in Linoleum Blownapart.
Two silk worms had a race. They ended up in a tie.