Kicked in the gut by a "flat fee" proposal, the already winded mortgage industry seems to be barely able to catch its breath from the CFPB’s recent lurching toward yet another vaguely expected and somewhat ill-defined nostrum.*

The pattern replays itself time and again: first the news, followed by the rulemaking proposal, which is then given a brief period for public acquiescence or remonstrance; and then inevitably the final rule, which is much like the initial proposal. Early on, industry associations issue a Call to Action!

Alas, when the Federal Register publishes the effective compliance date, everybody falls in line and scrambles to adjust. Sometimes, a few organizations even threaten litigation, though, when tried, litigating has not thus far brought about much satisfaction.

Exactly what is this Flat Fee debacle?

Let’s take a peek at this flatland mystery.

IN THIS ARTICLE

DAY OF RECKONING
FLATLAND FEE
YET ANOTHER COMMITTEE
OVERVIEW AND QUESTIONNAIRE
BEFORE AND AFTER
CREDITOR-PAID COMPENSATION – BEFORE AND AFTER
CONSUMER-PAID COMPENSATION – BEFORE AND AFTER
BROKERAGE-PAID COMPENSATION – BEFORE AND AFTER
BRIEF DISCUSSION
RECAPITULATION
LIBRARY

_____________________________________

DAY OF RECKONING

"Bureau officials said that the rules, which were released Wednesday ahead of formal introduction this summer, would ban mortgage companies from charging origination fees that vary with the amount of the loan.

Those fees are sometimes referred to as origination points and are disclosed in a blizzard of documents and fees that most home buyers face at closing. But they can easily be confused with the upfront discount points that borrowers often pay to secure a lower interest rate."

The May 9, 2012 article came accoutered with Richard Cordray’s observation that "Mortgages today often come with so many different types of fees and points that it can be hard to compare offers … We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them."

It is not as if we did not see this coming. We did! At least those of us compliance nerds, wonkishly spending time around our own wonkish types, rubbing elbows with regulators, lobbyists, agencies officials, congressional staff, industry associations, and everything in between.

Still, keeping it real, even when we know that something unpleasant is coming, nevertheless a sense of disbelief is often provoked when the day of reckoning finally arrives.  

The Flat Fee, which I shall henceforth call the Flatland Fee, has now emerged from its gestational limbo.

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(always great charts)  New Home Sales Comments – by CalculatedRisk – … Update: Some people think housing will recover rapidly to the 1.2+ million rate we saw in 2004 and 2005. I think that is incorrect for two reasons. First, I think the recovery will be sluggish – 2012 will probably be the third worst year ever. Second, the 1.2 million in annual sales was due to an increasing homeownership rate and speculative buying. With a stable homeownerhip rate, and little speculative buying, sales will probably only rise to around 800 thousand at full recovery. …
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Home owners try to sell by themselves as S. Florida market rebounds – By Paul Owers, Sun Sentinel

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FHA may loosen limits on condo mortgages – By Kenneth R. Harney – The revisions could remove at least some of the obstacles that have dissuaded condo homeowner association boards from seeking approval or recertification of their buildings for FHA loans. – LA Times
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Annaly Remains Number 1 In mREIT Market Capitalization And 15% Yield – Todd Johnson – Seeking Alpha

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(in the right direction) RBC Registers $12 Billion Covered-Bond Program After SEC Letter – By Jody Shenn – … The SEC, in a so-called no-action letter posted on the agency’s website at the request of the Montreal-based lender, said it won’t penalize the bank for selling such debt as registered securities. … known as 144A offerings, are restricted to qualified institutional buyers, … “This development will be viewed positively by the fixed- income market and is a positive step forward for the broader prospects” of U.S. dollar-denominated covered bonds, Ben Colice, head of covered bonds origination at the lender’s RBC Capital Markets unit in New York, said in an e-mail. … – Bloomberg

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(fat margins for originators?) QE impact on mortgages muted by market forces: Fed – By Greg Robb, MarketWatch – A lack of competition in the mortgage market limited the impact from the Federal Reserve’s three rounds of unprecedented bond buying, according to a research report published Monday by the San Francisco Fed. With fewer competitors writing mortgages, originators were not under as much pressure to pass on decreases in rates for mortgage-backed securities to homeowners, the research showed.
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Housing Lessons From The Los Angeles Market – by (Fed governor) Sarah Bloom Raskin – … This result suggests that consumer spending may not act powerfully to revive the economy until Americans’ financial situations have improved. Alternatively understood, this research finding suggests that monetary policy alone may be insufficient to promote a more robust and sustainable improvement in household net worth. … – MortgageOrb

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(on shortcomings of BPOs and AVMs) Addressing Problems That Obscure A Property’s True Value – Suzanne Ball – MortgageOrb

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(would it ever be otherwise?) Realtors Believe in Housing Recovery – by Mike Wheatley – Real estate agents in the US believe that the housing industry is finally in recovery mode, with nearly 70% of respondents in a recent survey saying they expect prices to start rising soon. – Realty Biz News

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(force placed insurance) New York Investigates Insurer Payments to Banks – By MARY WILLIAMS WALSH – … The state Department of Financial Services is looking into whether the insurance firms effectively bought their dominant positions by paying kickbacks to banks disguised as commissions or other business, according to the department’s superintendent, Benjamin M. Lawsky. … – NY Times 
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Tightening rental market will provide support for home prices - Sober Look Blog – … Given the shadow inventory overhang, the housing market continues to look fairly unattractive as an investment. But as the US population grows and owners coming out of foreclosure become renters, the rental market is tightening. Rental vacancies continuing to decline. At some point this will translate into higher rent levels. We are seeing at least anecdotal evidence that this is already taking place in certain areas. …
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(good summary of Ellie Mae) Why You Should Accumulate Ellie Mae – by Shareholders Unite – Seeking Alpha

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(appraisals limit deals plus lots of stats) Prices Fall in April, 2-3 Bids Per Property: HousingPulse Survey – BY: ESTHER CHO – … Homes are selling below the list price, and if a home is subject to a bidding war, the high offer becomes quashed by lower appraisals. … “Yes, we are experiencing bidding wars on desirable properties, but many times the appraisals don’t come in at the [contract] price. The appraisers are keeping the [transaction] prices down even when buyers see the value and are willing to pay more,” said one real estate agent in the survey. … – DS News

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Impact of Principal Reduction on (Private label) RMBS Through the (AG) Settlement: Fitch – BY: ESTHER CHO – … According to Fitch Ratings, the funds set aside for writing down principal will have little impact on private label residential mortgage-backed securities (RMBS). Fitch stated that the private label result of principal reduction through the settlement will likely reach only 10 percent of underwater borrowers. … – DS News

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(from bear to neutral, lots of charts) Is It Time To Buy A House? – Cullen Roche – Seeking Alpha

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BofA Will Buy Back $330 Million Of Mortgages From Freddie – By Jody Shenn -  … Payments on the “vast majority” of the loans are current … Bank of America agreed to the refunds “because the valuation method used at origination did not meet the investor’s technical requirements,” … – Bloomberg

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(realtors want to protect their 6%?) California Moves to Block Bulk REO Sales – by Mike Wheatley – Realty Biz News

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3 Reasons Why You Might Not Get Freddie Mac’s 3.79% Mortgage Rate – Dan Green – The Mortgage Reports Daily
1. If your bank can’t close a loan start-to-finish in 30 days, your mortgage rate will be higher no matter what.
2. … because you’re not applying for the basic Freddie Mac loan covered by the survey. Applicants of the HARP refinance program fall into this camp.
3. … you may not applying for a Freddie Mac conforming mortgage. (ex. FHA, jumbo)
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Many eligible borrowers passing up foreclosure reviews - By Julie Schmit, USA TODAY – … By April 30, fewer than 165,000 people had applied to have their foreclosures checked for mistakes — about 4% of the 4.1 million who received letters about the free reviews late last year, according to the Office of the Comptroller of the Currency. The reviews were agreed to by 14 major mortgage servicers and federal banking regulators in a settlement last year over alleged foreclosure abuses. …

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Housing’s Future: Renting and Downsizing - By Kathleen Madigan – Be it ever so humble, there’s no place like a rented apartment. That may be the mantra of U.S. households for the next three years, according to a new study released Tuesday by the Demand Institute division of the U.S. Conference Board. Most Americans still hope to own a home, the study found — but that home will be smaller than the MacMansions of the housing boom. - WSJ Blogs

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Borrowers Face “Interrogation” From Mortgage Lenders – by Mike Wheatley – …  lenders are concerned. They can ask questions about absolutely anything – such as cash deposits in the applicant’s bank accounts, their income, disputes about late payments, and many other seemingly trivial matters, even if they took place years before. …reports the WSJ. … – Realty Biz News
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MBA: Delinquencies and Foreclosure Starts Down, Inventory Up Slightly – BY: ESTHER CHO -  …  according to first quarter 2012 delinquency survey results released by the Mortgage Bankers Association (MBA). The delinquency rate was 7.40 percent on a seasonally adjusted basis in the first quarter of 2012 compared to the 2011 fourth quarter rate of 7.58 percent and the year ago quarter’s 8.32 percent. On a non-seasonally adjusted basis, the delinquency rate saw an even greater decrease at 6.94 percent compared to the previous quarter’s 8.15 percent and 7.79 percent a year ago … – DS News

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South Florida suffers from credit ‘hangover’ with record delinquencies – By Donna Gehrke-White, Sun Sentinel

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(you knew this – legislation that has not been written yet, etc.) Fed Governor: Uncertainty Is the Market’s Greatest Hindrance – BY: KRISTA FRANKS BROCK – Uncertainty is the greatest hindrance to housing recovery today, according to Federal Reserve Governor Elizabeth A. Duke speaking before the National Association of Realtors on Tuesday. – The M Report

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(mainly about Quicken Loans Mortgage Services, a division of Detroit-based Quicken Loans) Mortgage lenders maneuver to gain market share – By Justin T. Hilley – Housingwire

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(charts and research) Rental Housing Boom Set to Explode – John Burns Real Estate consulting – Rental households comprise 34% of the housing stock, and are growing at the incredible rate of 1.6 million per year, while owned households are actually declining in number. This is an incredible surge in demand.

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Treasury Sells Inflation Notes At Record Low Negative Yield – By Cordell Eddings – The U.S. sold $13 billion of 10-year inflation-indexed notes at a record negative yield with investors willing to pay a premium to guard against the threats of rising consumer prices and Europe’s worsening debt crisis. The Treasury Inflation Protected Securities were sold at a so-called high yield of negative 0.391 percent, the third consecutive auction where investors paid the government to hold their money. TIPS pay interest at lower rates than regular Treasuries on a principal amount that’s adjusted based on the Labor Department’s consumer price index – Bloomberg
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(always great charts) Fannie Mae Delinquencies: March 2012 – The latest release of the Fannie Mae Monthly Summary indicated that total serious single family delinquency declined slightly in March while remaining at distressed levels. … It’s important to understand that Fannie Mae does NOT segregate foreclosures from delinquent loans when reporting these numbers - Paper Economy – A US Real Estate Bubble Blog
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A federal foreclosure lecture California can do without – By Jon Healey – Should federal officials lecture state lawmakers on policy? … Alfred Pollard, who was a longtime banking industry executive and lobbyist before joining the FHFA, blasted the bills in a letter to five members of the conference committee. In addition to offering some specific technical objections to the bills, Pollard went on at length about the drawbacks of slowing the foreclosure process. … – LA Times

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Bank’s no Ally for NY homeowners – By CATHERINE CURAN – Ally Financial, formerly GMAC, filed Chapter 11 bankruptcy for its troubled Residential Capital mortgage unit last Monday. Ally owes taxpayers roughly $12 billion in bailout money and is majority-owned by Uncle Sam. … But GMAC has sent out notices to attorneys regarding non-foreclosure litigation, indicating it’s taking advantage of the automatic freeze bankruptcy puts on such cases. … “GMAC is using bankruptcy to maximize its position in litigation,” said Tirelli. “It will proceed in foreclosures, but for any borrower with a claim against GMAC, they are saying, Sorry, go to NY and file a motion.’ … – NY Post 

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By The Time Operation Twist 1 Is Over, The Fed Will Have Quietly Completed 40% Of Operation Twist 2 As Well – Submitted by Tyler Durden – …What the finding above means is that the Fed has been ramping risk assets, read the S&P even more than where it should have been, based on simple flow models, and that contrary to market expectations, the S&P500 should have been about 40% lower compared to where it will be on June 30 if the Fed has pursued its stated goal, and targeted solely a 100 month average maturity. … – Zero Hedge
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20 American Cities That Are Getting Slammed By Foreclosures - Mamta Badkar – …We drew on RealtyTrac data to put together the 20 metropolitan areas where foreclosure activity is remains high. … – Business Insider 

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Higher-Income Households Soon to Be FHA Borrower Majority? – by Elizabeth Ecker – A new study finds the Federal Housing Administration is largely serving a population it didn’t necessarily set out to assist. Instead of aiding low-income borrowers, the FHA is increasingly serving home buyers whose incomes exceed those of average Americans, according to a report released Thursday by the George Washington University’s Center for Real Estate and Urban Analysis – Reverse Mortgage Daily

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Mortgage-Bond Transparency Plan Meets Resistance From Traders - By Jody Shenn – (about MBS) … Investors and dealers are concerned that the level of detail Finra proposes to publish on trades of government-backed securities as so-called specified pools will reveal shifts in strategy because individual bonds are often owned by only one holder, according to the Securities Industry and Financial Markets Association. “There’s a concern the confidentiality of that money manager’s trading patterns and positions would be jeopardized,” Chris Killian, a managing director in New York at Sifma, said in a telephone interview. … – Bloomberg
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(Sue Allon gets bad break from OCC?) Allonhill sideswiped by OCC: Lessons learned – Posted by Jacob Gaffney – …  Anyone who knows Sue Allon and how she runs her business would be shocked to find a conflict of interest. … – Housingwire
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Fortress Gathering Capital for Mortgage-Servicing Rights – By Sabrina Willmer – … The more than $700 billion of unpaid balance in the available pipeline may surge to $4 trillion over the next five years, Fortress estimated. … – Bloomberg

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U.S. Demographics And The Likelihood Of A Housing Recovery – Sami J. Karim – … Mr. Dimon’s estimate looks too optimistic on two accounts. First, the US population will more likely grow by 23 to 26 million in the next 10 years. And second, the demographic bracket which includes over 80% of home buyers will grow at a much lower rate. … It is not enough to tabulate the number of new Americans (newborns or immigrants) to estimate the likely impact on housing. We have to also look at the likelihood that they are in an age segment and in an economic bracket that will lead them to spend a fair amount of money on a home, regardless of whether they are renting or buying. … – Seeking Alpha

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(protecting 6% commission) Bill would stop bulk REO sales in California – NAR backing sponsor Gary Miller’s reelection bid – BY INMAN NEWS – California Rep. Gary Miller — who’s getting major backing from the National Association of Realtors as he runs for reelection to Congress in a new district — has introduced a bill that would put the brakes on bulk sales of Fannie Mae real-estate owned (REO) homes in the state.

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FHFA Unveils Changes to Reform Plan for Secondary Market – BY: RYAN SCHUETTE – The Federal Housing Finance Agency (FHFA) unveiled new additions to the strategic plan it released in February this year, with many changes focused on moving the secondary mortgage market back to private capital sources and creating infrastructure needed to replace Fannie Mae and Freddie Mac. The additions include four principles, such as safety and security for the residential mortgage market, stability and liquidity in housing finance, and preservation of current enterprise assets…. more … – The M Report

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Housing Recovery To Occur In Two Phases: Demand Institute – BY: ESTHER CHO – The housing recovery will come in two phases. First, home prices will rise by just under 1 percent in the second half of 2012. In 2013, prices will rise by 1.5 percent, then go up another 2.5 percent in 2014. For the second phase, home prices will increase 3 to 3.5 percent between 2015 and 2017. These are the predictions from a report released by the Demand Institute, which is jointly operated by The Conference Board and Nielsen. – DS News
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The right lessons of JPMorgan fiasco – The Volcker rule should not resurrected and deified, the author writes. – By JONATHAN MACEY – … As attractive and simple as the Volcker rule’s ban on proprietary trading looks, it has two fatal flaws: Implementing it would inhibit both hedging and market making, which, in turn, could fatally wound the very capital markets it purports to save. So it’s an essentially silly idea. It should be consigned to the scrap heap — not resurrected and deified.  … – Politico
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Foreclosed Americans find way back to homeownership – (Reuters) – When Jennifer Anderson’s family could no longer afford their mortgage and lost their home, she expected many years to pass before they would again become property owners. But less than two years later, in March, they purchased a $297,000 house outside Phoenix, Arizona, after qualifying for a loan backed by the U.S. government. They joined a small but growing number of Americans who are making a surprisingly quick return to homeownership after defaulting on their loans or being forced into short sales that cost their banks money. – Chicago Tribune

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Deutsche Bank Largest Unsecured Creditor in ResCap BK Filing, FHFA, Too – Paul Muolo – … When Residential Capital Corp. filed for bankruptcy protection earlier this week it left behind a trail of unsecured creditors with claims totaling well over $1 billion, according to court documents. At the top of the list is Deutsche Bank, which is listed as unsecured creditor in six different places and is owed a combined $952 million by the nation’s fifth largest residential servicer … – National Mortgage News
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(read it all) Nationstar deal to buy ResCap comes with AG settlement strings – by Jon Prior – … Ally placed its independent mortgage subsidiary ResCap into bankruptcy this week, costing the parent bank roughly $1.3 billion in the second quarter. As part of the restructuring plan, Nationstar, with some investment from Newcastle Investment Corp., made a stalking-horse bid to acquire $374 billion in mortgage servicing rights. If the deal does not close by December, Nationstar can withdraw the bid. … Also, the purchaser — in the likely case Nationstar — cannot "be obligated to pay any of the amounts owed by the ResCap parties or (Ally) under the consent judgment." … – Housingwire

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3 from MortgageOrb:
New Report: Write-Downs Unlikely To Impact RMBS Ratings – by MortgageOrb.com – … Fitch Ratings, adding that it has "conducted sensitivity analyses and found that RMBS losses would be lower than currently expected if principal forgiveness is offered to delinquent borrowers – even if half of them re-defaulted post-modification. However, this could increase the likelihood of losses associated with strategic defaults, which would offset this benefit, particularly when larger amounts were assumed to be forgiven." …
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(ltv specific data) Ellie Mae: 48.1% Of Residential Applications Closed In April – by MortgageOrb.com 
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(rules change?) FHFA Jettisons Salary Cap For New Freddie Mac CEO - by MortgageOrb.com – The Federal Housing Finance Agency (FHFA) has apparently ignored its previously announced plans to cap the pay for government-sponsored enterprise executive salaries at $500,000 by announcing that Donald H. Layton, the newly appointed Freddie Mac CEO, will receive a $600,000 salary.

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MGIC sues Freddie Mac in insurance dispute - (Reuters) – … The disagreement has been going on for some time, and centers on loss limits on policies that insure Freddie Mac, the No. 2 provider of U.S. mortgage money. MGIC said in April that it believes the loss limit decreases as policies lapse, while Freddie asserts that the initial limit remains in place until the last of the policies expires. The difference in the two interpretations, the company said, is about $535 million. Had MGIC used Freddie Mac’s interpretation when calculating its results, the company said its losses would have more than tripled in the first quarter. …
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(more power for Ben) No Hassle For Bernanke: New Fed Governors Won’t Limit The Chairman – Agustino Fontevecchia – , Forbes
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(new gov’t moneymaker?) Feds seek higher penalties in lieu of admission of guilt requirements – By Jon Prior – Federal regulators rejected the idea of requiring an "admission of guilt" in settlements with financial institutions, but the Securities and Exchange Commission asked for the flexibility to clawback higher penalties. And some lawmakers expressed interest in granting it. – Housingwire

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Bank of America offers up to $30K for short sale – By Ilyce Glink – (CBS) (MoneyWatch) … In the release, Bank of America announces the launch of a nationwide program that offers delinquent borrowers increased assistance with relocation expenses upon the completion of a qualifying short sale. … Qualifying Bank of America borrowers could receive anywhere from $2,500 to $30,000 in cash upon the close of a short sale. The amount of assistance provided under the new program is determined on a case-by-case basis,…

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(centralized planning problem) Fed’s operation twist is distorting the treasury market – … "unintended consequences" into the market. The 10-year treasury yield has collapsed on the back of Eurozone’s latest troubles. One would expect the two-year note to trade with a lower yield as well. But in fact the 2-year yield has been moving up. … The question now is whether these yields will reverse direction once Operation Twist ends this summer. … but the central bank will soon run out of two-year treasuries to sell. The next step will be sterilized purchases. … – Sober Look Blog

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U.S. Bancorp Beats BofA, Citi In Q1 Mortgage Lending – Trefis Team -  U.S. Bancorp overtook banking giants Bank of America and Citigroup to become the third-largest mortgage originator in the U.S. for the first quarter of the year. … Wells Fargo continues to rule the roost with an unrivaled market share of 33.9% followed by JPMorgan Chase with a 10.6% market share. U.S. Bancorp’s share stood at 5.2% – indicating that the top three banks were responsible for nearly half of all mortgages given out over the period. … – Forbes

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(read this) Cantor Fitzgerald Presents Reverse Mortgage “Mythbuster” - by Elizabeth Ecker – A new research report from reverse mortgage securities trading player Cantor Fitzgerald aims to provide a “mythbuster” regarding the secondary market for reverse loans. Looking at prepayment data from every fixed rate HMBS pool issued since 2008, Cantor reported several important findings Tuesday … – Reverse Mortgage Daily 
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Brace Yourself For More Fed Easing In June, Goldman Sachs Says – Agustino Fontevecchia – Forbes

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(Diversion – hattip NDP) Needy States Use Housing Aid Cash to Plug Budgets – By SHAILA DEWAN – Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps. In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nation’s biggest banks and earmarked for foreclosure prevention – NY Times 
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Homebuilder Confidence Rises To 5 Year High As Actual Sales Remain Near All Time Lows – Submitted by Tyler Durden – Zero Hedge
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Attention Developers: These Five Counties Have the Highest Projected 55+ Growth – by eecker – … with the help of U.S. Census data, Esri narrowed down the five counties with the highest projected growth for older Americans. It found St. Bernard Parish, Louisiana would see the greatest increase between 2010 and 2016 (65%) with Geary County, Kansas; Sublette County, Wyoming; Fort Bend, Texas; and Lincoln South Dakota having the next highest increases. “Developers need to determine which type of seniors they want to target, since housing requirements for seniors are as varied as seniors themselves,… ,” Esri writes … – Senior Housing News

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(QRM he wants 5% down) Revisit down payment rule - (US Senator) Johnny Isakson  – … Unfortunately, the administration is circulating a proposed QRM rule that would require a minimum of 20 percent down payment to qualify for an exemption from risk retention requirements. Our original QRM proposal required a 5 percent minimum down payment and private mortgage insurance on any loan amount above 80 percent and up to 95 percent. ... – AJC.com Opinion

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Why Dodd-Frank could be a harder sell than Obamacare – Posted by Suzy Khimm – Washington Post

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JPMorgan Loss Leads Lawmakers to Delay Debate on Dodd-Frank – BY BEN PROTESS – NYT Dealbook 
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Romney continues call for the repeal of Dodd-Frank – by Daniel Purt – Bank Credit News
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For Rob Chrisman’s latest daily post, click here.

To subscribe to Joe Garrett’s news letter, send an email to  jgarrett at garrettmcauley dot  com

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Read this 31 page pdf on a proposal by Fed economists to revive the MBS market (quick read)  http://chicagofed.org/digital_assets/others/events/2012/bsc/hancock_051112.pdf

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Essentially, the US would sell default protection on the 70%-subordination, super-senior tranches created from residential mortgage pools.

In terms of cashflow waterfall, concept, and credit-enhancement levels, these new mortgage-backed securities would exactly mirror the ABS CDO super-senior tranches which handily blew apart TBTF banks which the Federal Reserve regulated.  By fueling low down payment finance for income-unaffordable homes again, this would be Version 2.0 of a structurally leveraged bet against mortgage default correlation, with explicit taxpayer subsidization of private moral hazard and default loss.  Can anyone who survived 2008 guess how this publicly turbo-charged locomotive ride might end?

This FRB proposal supposedly works well up until tail risk. Yet, such tail risk would be not some ultra-remote event, but is as probable as very recent history.   

For proof, just look in the rear-view mirror, while running for your life.

People who try to design circular firing squads seem always at the cusp of success…..until failure somehow strikes at the very last moment.

Thank you.