No, I am not talking about the Castle & Cooke/CFPB situation, expected to be positively resolved any day now. No, I am talking about that not only did Nationstar report its earnings this morning (just like everyone else, it is not immune to higher rates and lower margins - see below), but yesterday broke the news to a portion of its wholesale employees that they would be Stonegate employees. As for the other portion of employees, well see below for the details - hopefully the deal works for all involved.

Nationstar had GAAP EPS of $0.91 on net income of $82 million, pro forma EPS of $1.08, excluding BofA ramp and other one-time expenses totaling $25 million. At the end of the quarter Nationstar had a servicing portfolio UPB of $375 billion; pro forma UPB of $415 billion and had executed new agreements to acquire $25 billion in servicing. For fundings the company had $8.0 billion with a year-to-date recapture rate of 45%. "Within originations, we are focused on the profitable creation of servicing assets, hence our forward emphasis on the core consumer-direct origination channel. Our strategic initiatives target a lower cost operating model and the formation of capital vehicles that will generate greater cash flows. I am confident in our ability to execute as we remain focused on generating long-term shareholder value."

Far north of Lewisville, Texas, Stonegate announced that it has entered into a binding letter of intent to acquire the wholesale lending channel and certain distributed retail assets of Nationstar Mortgage Holdings Inc. For the first six months of this year, Nationstar's wholesale lending channel originated $3.26 billion in mortgages. Pursuant to the terms of the letter of intent, Stonegate agreed to purchase the assets and offer employment to certain employees associated with these businesses. "For Stonegate Mortgage, the acquisition complements the company's existing wholesale and retail channels and accelerates its geographic expansion."

One has to wonder exactly what one buys when buying a wholesale channel, besides eliminating a competitor. After all, rate sheets aren't patented, and employees are free to move, for example - is there anything worth value? Some will argue "no." But "Since our founding in 2005, Stonegate has focused on building a fully integrated and diversified mortgage banking platform. This acquisition enables us to further drive retail originations and serve an even larger group of mortgage brokers through our wholesale channel", said Jim Cutillo, Chief Executive Officer of Stonegate Mortgage. As part of the acquisition, Stonegate will gain a team of leaders from Nationstar. "We are excited to have such an outstanding group joining our team to strengthen what I believe is the best non-bank mortgage company in the industry today...(the deal) fits well within Stonegate's focus on branch geographic expansion," said Jay Bray, CEO of Nationstar Mortgage. "The transaction also fits well within Nationstar's strategic focus on servicing, Solutionstar, consumer direct originations and correspondent."

With all the turmoil in the wholesale channel, Flagstar Bank sent me a note out saying that it is committed to the TPO business. Flagstar continues to bring on new brokers and correspondents. As part of the on-boarding process there is a 25 bps price improvement for the first 120 days. For more information check out www.wholesale.flagstar.com. And by the way Flagstar expects to roll out its QM system training in mid-December.

A couple weeks ago SunTrust exited wholesale, and now this. These will not be the last big deals done, and there will be plenty of companies exiting lending over the next six months. Yes, we can all expect a lot of changes over the next 6-9 months. If rates stay the same, and the cost to produce a loan continues to go up, is there really enough business to go around? Is the great business in the first half of 2013 enough to carry forward into 2014? Jeff Babcock from the STRATMOR group opined, "The recent market developments have taught us, once again, that there is no soft landing in the mortgage business. 

It may have taken longer than expected for refinance to dry up, but as always it was abrupt and merciless when it happened. From a broad market perspective, production volume has fallen at least 25% on average during the 3^rd quarter from the 1^st half of 2013. Net Income margins are down, on average, twice to three times production volume declines. Lenders must spread fewer loan units over their fixed costs which are inherently difficult and slow to reduce. However, the operative phase here is 'on average.' STRATMOR had a very busy MBA Convention, meeting individually with some 50 lenders plus two group sessions which included another 50 lenders. This was a wonderful opportunity to gather live fresh market intelligence at the individual lender level. What struck me was just how variable the key performance metrics are running from lender to lender.  We are hearing from certain STRATMOR clients (albeit a few) who are anticipating up to 20% increases in 2013 volume over 2012 levels. At the other end of the spectrum are lenders suffering 40% to 50% declines which is quickly making them unprofitable. Averages tend to obscure how individualized this market has become."

Jeff's note continued. "In between these two extremes, we are observing lenders with a range of strategic responses. The more successful retail lenders have several common characteristics. One is they are approved with one or both of the agencies and as Ginnie Mae issuers; became proficient at selling directly to the agencies on a servicing retained basis, thereby reducing their secondary marketing dependence on the Aggregators. Another is that successful lenders mostly implemented purchase initiatives before mortgage rates started rising. Before the competition become so intense, the successful lenders were focused on recruiting efforts during the last half of 2012 and early 2013 which have generated enough incremental production volume to largely compensate for the market shrinkage. Successful lenders have a commitment to real sales management practices have sustained LO productivity despite the reduction in refinance opportunities. They have adopted a strategic approach to originator compensation plans and avoided "pick-a-pay" and other potentially non-compliance programs. Many did organizational right-sizing - aggressively implemented comparatively early in 2013. And lastly, these companies demonstrated anticipatory leadership to prepare their organization for more challenging market conditions. Each lender's circumstances and business model are unique. Above are some examples of solution which lenders have deployed in response to the challenges of today's market. (If you're interested in learning more, or are interested in M&A, contact Jeff Babcock at jeff.babcock@stratmorgroup.com.)

Every residential lender out there is impacted by what the agencies do or don't do. And the agencies are under the conservatorship of the FHFA, which has no permanent director. Ed DeMarco is acting as the director, and there has been a lot of press about the current nominee, Mel Watt. He has garnered his share of controversy, as everything does in Washington DC these days.

With this in mind, Dave Stevens from the MBA noted, "Rob, I read the comment in your commentary about the MBA statement of support for Mel Watt. As you know the Realtors, Homebuilders, and the MBA all made statements of support for the nominee. The decision was made after a lengthy discussion in the board of directors meeting in October, the same week of the Senate deliberation. The MBA Board, consisting of both residential and multifamily lenders, feel that a permanent director is needed to help provide continuity to the policy debate on GSE reform going forward. Ed Demarco has been a great acting director, but he is limited in his role as a conservator. Some members raised concerns about continued guarantee fee increases, loan limit changes, and further reductions in the multifamily business. The MBA has traditionally supported the Presidents Nominees though previous administrations for the key housing regulatory bodies and while some might have different preferences, the vote taken by the board recognized the fact the Congressman Watt had over two decades on the house financial services committee, was a Yale graduated attorney, and clearly understood the political process which could be helpful in the GSE debate that will consume housing over the next few years. The Board of Directors voted to support the nominee, consistent with past protocol, and joined the Realtors and Builders in the process."

Ray White with Equifax Mortgage Services writes, "Your commentary on the QM and having a DTI unknowingly go over 43% is something lenders need to be concerned with. We have done some research at Equifax for clients and when they use the traditional soft pull LQI or LLR solution a gap is created between when you pull the report and the actual closing. One study found 12.1% of new trades reported within 5 days of closing and 22.2% within 10 days of closing. Lenders need to be using a credit monitoring tool as it eliminates any gap. Monitoring also allows the lender to deal issues when they occur and not wait just before closing. Equifax has large percentage of their using our Undisclosed Debt Monitoring solution and not only is the gap eliminated, but their loan officers can be more proactive when new trades or inquires show up on their clients credit file." (Thank you Ray).

Let's chip away at some upcoming training events, along with some investor & aggregator news - the flow of changes continues to amaze me.

SIFMA (Securities Industry and Financial Markets Association) is having its annual meeting next week (November 11 & 12) in New York.  "Helping Americans Succeed, Helping Main Street Prosper" and brings the leaders of the financial-services industry together with prominent policymakers, thought leaders and financial media. "We are honored to have President Bill Clinton and Gov. Jeb Bush provide our keynote addresses. Featured speakers include Lloyd Blankfein, Chairman and Chief Executive Officer of Goldman Sachs; Larry Fink, Chairman and Chief Executive Officer of BlackRock; and Mary Jo White, Chairman of the U.S. Securities and Exchange Commission." Sounds like the MBA last week.

Ari Karen will be speaking at the November 21^st Mortgage Bankers of Kansas City luncheon - an extended program. Anyone who is interested in attending can go to the MBAofKC site to register.

The Mortgage Bankers Association of New Jersey and the New Jersey Mortgage Bankers Association will be hosting their annual Joint Mortgage Lending Conference in Edison, NJ on December 4^th.  Sponsorship opportunities are still available; visit http://www.mbanj.com/ for more information.

First Mortgage is seeing great interest in its new NHF First Down program, which FM recently rolled out to correspondents lending in AZ, NM, NV, TX & UT.  This DPA 2nd combined with an FHA 1st allows borrowers to come in with just .5% down payment. (Inquiries can be directed to Sharon Magnuson at smagnuson@firstmortgage.com.)

New Penn is pleased to announce that it has expanded HARP guidelines.  New Penn now offers DTI ratios up to 60%, no foreclosure or bankruptcy seasoning on DURP, and LTV up to 125% on non-owner occupied.  New Penn also offers unlimited LTV on owner occupied and accepts DU EAI, EAII and EAIII.  For more information on New Penn's HARP guidelines, visit www.gonewpenn.com.

Banc of Manhattan has released updated underwriting matrices for its correspondent platform product suite, including DU Exclusive (Conventional Conforming Fixed, High Balance Fixed, Conforming Conventional Hybrid ARMs, and High Balance ARMs), FHA (Streamline, Conforming, and High Balance), Open Access, and VA (Conforming and High Balance).

Turning to rates, there isn't much going on in the early going. Overnight we had a surprise cut in rates "across the pond" in Europe. That has caused a bit of a buzz in markets here, although yesterday we did see a bit of bounce back in agency MBS prices from Tuesday's debacle - they improved about .125. Today we have Initial Jobless Claims (335k expected versus 340k last) and the first GDP reading for Q3 (+2.0 expected). The 10-yr closed Wednesday at 2.64%, and this morning it is down to 2.62% and agency MBS prices are better by about .125.