NMLS Call Reports

Quick question for mortgage bankers - Who's handling the Q1 NMLS call reports for your firm? If you hesitated, it's time to move this up your list of key items to address. If you were one of the VERY few bankers which confidently answered that question, here's a quick follow-up - How are these reports put together? Some LOS's have built out functionality but data integrity and HMDA issues are likely to rear their ugly head. Here are some quick thoughts relating to these new NMLS Call Reports which must be submitted in exactly one month from today:

• Talk about increasing your operational costs. These reports are only due once a quarter but they could be as daunting as an additional audit. I can see key personnel from QC, Compliance, Ops, or Management taking a week out of their schedule to compile this data.


• The more complex the operation, the larger the task. Call reports need to be broken down on a state and loan officer level, not to mention retail, wholesale, and servicing platforms.


• Look out for HMDA red flags. Too many lenders deny, cancel and withdraw files but then actually close them. Think about this a bit as it's not exactly kosher.


• Files with missing or inaccurate data will cause inaccurate reporting. Are certain key fields left blank in an LOS? Do files sit in the pipeline for months without being decisioned or moved to a new status or folder?


• Rumor has it that these reports may be referenced by the Consumer Finance Protection Bureau to help monitor lender compliance with new regulations (LO comp, Dodd-Frank etc)

These call reports are pretty detailed and for large firms operating in multiple states with multiple business channels, putting them together will be pretty taxing. With the banking conference in two weeks and the reports due shortly after, many lenders really have about two weeks to get this data and process ironed out.

The Stay Is Over

Well April 1 turned into April 6 and the hope was pretty short-lived. All new LO compensation schedules and rate sheets were rolled out today, or should've been!!! Think that was the hard part? I wonder how many bankers thought this whole change through. How will weighted average margins be affected? (i.e. NET revenue) Were lock policies and guidelines updated? I sure hope so. Were margins updated and how so? I see costs increasing and therefore rates which may translate to non-competitiveness in the market! No? The bankers who kept everything status quo will see their revenue plummet in the coming months. Striking the right balance is a delicate dance. How about the wholesale channel - brokering loans out and taking in TPO files. What a mess. Dozens of custom rate sheets, originating loans at losses, ensuring partners are compliant and don't get me started on the safe harbor nightmares - I still haven't heard one solid plan from any originator for that. Who's modeled out the implications here? Nobody is immune!!! -If margins (and rates) aren't up, they're down; either way volume and revenue will see a change. -Limit options for sales and both volume and fees tighten -Think loan officers have their head in the game? We're not even a week into April and I've heard from dozens of LOs looking to make moves and exit the mortgage game. Some will struggle, others will succeed. I see a bright future for only those with their eyes wide open.

AAA - All Bout Allocation

Product Allocation
Most bankers are managing their margins by product. If they're not they soon may be with the compensation regulations coming on 4/1. FHA vs Conventional...Arms...203ks...high balance...VA...USDA, each have their own margin.

Everyone tracks volume but how many lenders are tracking, managing and manipulating allocation? 50M may be a great volume target and keep Ops busy, but if typically allocation is 60:40 FHA to Conventional and the pipeline shifts to 60:40 Conventional, there's likely to be a significant swing in blended or weighted average margin and therefore, net revenue. Volume could even increase which keeps everyone patting themselves on the back but if there's a shift in product allocation, more volume and increased overhead and overtime could equate to less net revenue! Volume tells you half the story, allocation tells you the entire story. Shouldn't a secondary marketing and capital markets department be more than a lock desk; proactively managing and manipulating margins and product volume is the important piece which requires specialized skills.

And how about origination allocation? The delineation between a wholesale channel, branches, and various retail operations are critical as each source is likely to have it's own revenue model. Costs to originate, secondary margins and total revenue on wholesale loans are not the same as retail. Many firms will even see differences between various retail groups depending on fixed costs, marketing, pull through, compensation models etc etc.

Lastly, how many secondary marketing departments focus on investor allocation? Maybe secondary does some sort of best-ex pricing and determines which investor will be targeted. Believe it or not, at some firms Loan Officers are making these decisions - YIKES! Hopefully this doesn't continue post 4/1. Investor allocation is key as volume is a lenders asset and when selling any asset there are methods for negotiating the best possible price. Leveraging volume for optimal pricing is essential to recognizing a firms full potential. Volume incentives, SRP variances, improved price bids, etc etc - all investors are hungry for volume in 2011 and are willing to pay for it. Even if I take pricing out of the equation, it's not the only factor in targeting an investor. How about the ease of clearing stips or the frequency of denials? Are pre-purchase review turn times slow at times? These issues impact costs and exposure and therefore impact the bottom line.

It's All About Allocation!!!

GSE Reform

So the big news late last week came from Washington as the President released some rough details on possible GSE reform. Of course there weren't too many details and specifics on Fannie and Freddie but mortgage bankers did get a few unexpected curve balls that surprisingly haven't garnered as much attention as one would have thought.

Key updates to note:
-Max ltv to be lowered on Agency programs. Expect Fannie/Freddie to require a 10% down payment and a maximum ltv of 90, down from 95. Expect this to push some more volume toward FHA programs.

-Temporary high balance loan limits are set to expire in October. This will mostly affect those in the northeast and California. A re-set from 729k back down to 625k could certainly hurt some regional real estate markets. It would be a little too presumptuous to count on the private labeled jumbo products to support this portion of the market.

-Although you wouldn't think FHA loans would included in this GSE reform, they're party of the party as well. Expect the annual MI premiums to increase by .25% come mid-April; I'm thinking case numbers on/after 4/15 but we'll just wait for the mortgagee letter. This isn't a tremendous increase but it will have an impact on affordability and qualifying and it's just another item for management and IT to implement and track.

Sure there are more immediately pressing issues facing mortgage bankers right now, but these updates cannot be ignored.