January_December 2010_2009 by Key Media

Issue 030 December 2009 January 2010 TheNicheReport.com

History in 10 My Wholesale And why it's not going away.

Seizing Control of Your Retirement Plan by investing in mortgages, part III.

of Intent" 22 HVCC, SAFE Act, 16 "Letters Red Flags, Oh My Flags UP! Is this guy for real?

More hazardous than the Yellow Brick Road.

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CONTENTS

Issue 030

December 2009/January 2010

NICHE REPORTS agency & FHA REVERSE HARD MONEY & NON-PRIME PORTFOLIO & ALT-A JUMBO CONSTRUCTION/REHAB COMMERCIAL

"Letters of Intent" Flags UP! Is this guy for real?

pg 42 pg 42 pg 43 pg 44 pg 44 pg 44 pg 45

Joseph andahazy

FOUNDER & PRESIDENT Robert Pegg robert@nichereportonline.com CO-FOUNDER & PRESIDENT David Pegg david@nichereportonline.com MANAGING EDITOR Stewart Mednick stewart@nichereportonline.com

My History in Wholesale

Lisa Schreiber Chief Strategy Officer NetMore America And why it's not going away.

Seizing Control of Your Retirement Bernie Navarro President and founder Benworth capital partners Plan by investing in mortgages, part III.

HVCC, SAFE Act, Red Flags, Oh My George H. Marentis President/CEO Compliance Made Simple, LLC More hazardous than the Yellow Brick Road.

Twas the Night Before Christmas 2009 Martin Andelman

December 2009/January 2010

EDITORIAL / CONTENT MANAGER Kristen Moser kristen@nichereportonline.com

Where o' Where Does My YSP Go?

ACCOUNTING MANAGER Shawna Ingram shawna@nichereportonline.com

Joshua Weinberg Calyx Software Is the spread a bit too thin?

Advertising Director Jessica Grizzle Jessica@nichereportonline.com Advertising sales Mark Moulton mark@nichereportonline.com

DEPARTMENTS

Production Manager Henry Suchman henry@nichereportonline.com

NOTE FROM THE FOUNDER

Production Assistant Dawn Exner dawn@nichereportonline.com

The Voice of housing

mbs warroom

ADVISORY BOARD Randall Marquis Senior Editor, The Mortgage Lender Implode-O-Meter

36 39 46 50

RULES & REGULATIONS HEADLINES TIP OF THE MONTH LENDER & RESOURCE DIRECTORY Bringing up the rear

COLUMNISTS Martin Andelman Karen Deis Matthew Graham Stewart Mednick Tim Rood Adam Quinones CONTRIBUTING AUTHORS Joseph Andahazy George H. Marentis Bernie Navarro Lisa Schreiber Joshua Weinberg

Published monthly by BODA Publishing, LLC PO Box 494, Bentonville, AR 72712 Phone: 866.964.2695 Fax: 703.991.2362 Email: info@nichereportonline.com www.TheNicheReport.com

SUBSCRIPTIONS This publication is intended for real estate finance professionals. If you are a mortgage broker, lender, loan officer and you do not currently receive The Niche Report, please send your name, company name, and address to subscriptions@nichereportonline.com. Send address change requests to info@nichereportonline.com. Remember to include the old address. To opt-out of receiving The Niche Report, please send your request, including name, company name, and address to opt-out@nichereportonline.com.

ADVERTISEMENTS To inquire about advertising in The Niche Report, please call 866.964.2695, or send an email to ads@nichereportonline.com. Visit our website, www.TheNicheReport.com to download a copy of our Media Kit.

EDITORIALS / ARTICLES To submit an article for consideration in The Niche Report, please send an email to stewart@nichereportonline.com or call 866.964.2695. We are interested in original writings relevant to mortgage brokers and other real estate finance professionals. If you have a comment or question about an article or editorial published in The Niche Report, or if you have a suggestion for a topic you would like to see featured in a future issue, please send an email to stewart@nichereportonline.com.

THE NICHE REPORT POLICY The information and opinions expressed by contributing authors and advertisers within The Niche Report do not necessarily reflect those of BODA Publishing, LLC employees and should not be considered as endorsed or recommended by BODA Publishing, LLC.

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NOTE FROM THE FOUNDER

A TNR reader recently posted a comment on our discussion board in our Facebook fan page which is indicative of questions and concerns we’ve been receiving from many other readers for the last couple of months. Shad Russo of Oregon Home Appraisals writes “What a shame that your magazine has published the best article written on the HVCC system (July 09), and then give the front cover to an AMC. Wow, you lost my support. Get an opinion and stick with it”. Shad, thank you for your input. This is an excellent point you bring up. Selling the front cover is certainly unorthodox, and something we have done since our inception. There is also something else unorthodox about TNR - We offer FREE subscriptions to the mortgage professional. This means the magazine is 100% supported by our advertisers - NOT our subscribers. I do understand your point regarding the hypocritical nature of advertising an AMC while publishing articles speaking out against HVCC. However, our advertisers pay for the production, print and postage for nearly 20,000 copies of TNR each month (a huge feat). Our subscriber's love that they get this full size, four color, glossy magazine without paying a dime. So what better way to pay homage to our advertisers than to offer them the most premium placement in the magazine - The Front Cover. As subscriptions grow, advertisers can only carry us so far in terms of total reach. We may be forced to start charging for subscriptions in order to meet growing subscriber demand (subscription requests are coming in more rapidly every month). We will then have to answer to both advertisers AND subscribers. It will be at that time when we need to rethink selling the front cover. For a more detailed look into this discussion, visit us at our Facebook fan page (search for The Niche Report). Feel free to join in. Happy Holidays and may your 2010 be a prosperous one. Keep up the fight,

Robert Pegg

TheNicheReport.com

my history in wholesale And why it's not going away by lisa Schreiber

get feisty when I hear that wholesale is going away! Truth be told, I get feisty about a lot of things. But seriously, who are these people making that prediction? Have they worked in Wholesale? Do they think about the mortgage industry as a business and its value propositions, are they just trying to advance their own agenda or looking for the next ‘trend’ to make a quick dollar? Today, I am what I feared I would become when I started in my business; an “old timer”. For the last 25 years I have experienced quite a few cycles as well as seen different aspects of my business get strong, weaken and then coming back bigger and better to have a positive impact. I have seen originators struggle with what was perceived as high rates (9percent 30 year fixed), which to those starting in the early 80’s is relatively low (as fixed rates at that time were 12percent and higher). In addition, I have seen GPM’s (Graduated Payment Mortgages) and how the hot product in my first full year was a 3month/1year negative amortization ARM (start rate 6.50percent). But no matter what cycle I have lived through, we always have two considerations relative to our borrowers: How can we get those who want to buy a home qualify responsibly and what product best meets their needs? How did brokers proliferate? By providing borrowers low cost options. Brokers can and will seek the best pricing, service and products in the marketplace and offer them at a cheaper cost to any borrower out in the market. In the beginning of my relationships with brokers in the early 90’s, they would beat me up for cheaper fees and pricing so they could offer the best deal to their borrowers while still making on average 1 or 1 1/2 10

December 2009/January 2010

points. Typically brokers could undercut the brick and mortar retail channels of larger organizations and they took advantage of the disparity to help their clients. The lenders who competed against brokers realized they could acquire production at a lower cost then their own branch network. Their retail human resource, commercial space and marketing costs created more overhead than wholesale originations. Additionally, if done right (the caveat to this statement) wholesale could offer less risk (which is certainly true today) because a lender could easily have tougher restrictions on their wholesale channel than their retail channel. So what went wrong? Remember my comment, wholesalers could differentiate their risk levels by more restrictive guidelines or even limiting yield spread on riskier products somehow we forgot the rules. In the couple of years prior to the “big fall” of so many lenders, we forgot that risk was something we could manage and that low start rates and high yield spread premiums (retail operations had the same issues but it was not disclosed the same way) were a recipe for greed and aggressive lending practices. We believed in the vision that all borrowers in America deserved, make that had a “right” to, own a home to the maximum level that their application allowed, which is simply not true. Some borrowers were not ready, or would never be ready to take on that fiscal responsibility. Even more disappointing, some of us in the business even drank our own Kool-Aid. We thought that home prices would continue to appreciate and it was a good deal for borrowers and ourselves. Did we not remember the market crashes in Texas in the early 80’s, Northeast and California in the late 80’s?

Today, we are definitely in the throes of a period of “atonement.” But in my opinion it is a bit out of whack, as our focus is NOT on the borrower that needs us more than ever, but on shedding risk at any cost. Think HVCC (please tell me who this benefits besides the AMC’s), MI guidelines (we aren’t even using delegated UW authority because we are afraid of the MI companies pulling their insurance), HERA re-disclosures (how many times in a 30 day period do we need to send more disclosures when the first time is tough to understand) and now the new RESPA requirements (how is it possible that taking an itemization of costs and lumping them together is easier for a borrower to understand). And who is to blame for all this? The mortgage broker? Wasn’t it the mortgage broker that all along had to disclose what they were making not only in the beginning of the process, but then again when the lender re-disclosed and yet again when the borrower went to closing on the HUD 1. Wasn’t it the same lenders that had big retail operations who were also pricing to attract wholesale brokers, sometimes without any barriers to entering their programs, and then UW the same loans to fill their servicing portfolios? Didn’t FNMA and FHLMC tell us that brokered loans were riskier and have higher QC requirements for themselves and us? I don’t know about other lenders, but with my management experience in the channel, including two top 10 bankers, wholesale outperformed the retail group. Today as well, the disparity of guidelines we have enacted to address risk in wholesale (mostly from the fear of our industry partners) keeps our organization as a “great performer” with our investors (even though we are over 60 percent wholesale). Our wholesale channel was always profitable, why? Lower cost to produce. Today’s pre-funding QC requirements are done on all channel originations, not

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just wholesale, so it doesn’t cost us more to process those loans and as stated earlier, we have much less overhead. The brokers that I have worked with over the last 17 years have always found a way to deal with increased regulation and as such, are most likely to find a way to deal with today’s new challenges. As the market stabilizes and servicers have to replace their poor performing assets with new higher quality loans, there is no way for them to get enough volume through their retail channels or their bank branches. They will have to be able to aggregate quality loans from a larger source. They will need correspondent lenders that are willing to be the ‘front man” to assess risk and have skin in the game when it comes to issues. They will need groups of originators and origination pools of loans at a specific risk profile (whether it is higher FICO scores or lower LTV’s) that cannot typically be acquired through retail or banking branches as they have to meet all the needs of their community while working under the “brand.” Over the last few years our industry has experienced some hard knocks, but as with all challenging times, the opportunities are the greatest for those learning from the past and looking forward for solutions. Quality brokers will continue to fulfill lenders “defined” criteria and still have other outlets to offer additional opportunity for those borrowers that need more flexibility, and lenders will thank them for their quality product. Lisa Schreiber is the Chief Strategy Officer of NetMore America (www.netmoreamerica.com), where she is responsible for defining and implementing the Company’s vision and strategy to build NetMore into the next generation mortgage banker. Lisa’s current focus is on building out NetMore’s operational and production platforms to include the highest utilization of current web based technologies, a communication strategy that will be focused on both internal and external customers and defining performance measurements that will enable NetMore to become a profitable and sustainable leader in the industry. Formerly, Ms. Schreiber was an Executive Vice President at American Brokers Conduit (ABC), where she led the vision and implementation of the platform that drove ABC to become the fastest growing and most respected wholesale mortgage lender in the industry. Prior to ABC, Lisa’s demonstrated success in sales management at Bank of America, where she grew the Southeast to a top tier region in volume, profitability and quality of performance. Lisa can be reached at lisa.schreiber@ netmoreamerica.com.

Seizing Control of your retirment Plan by investing in mortgages, Part III by bernie navarro

This will be the third in a six part series of articles on using your IRA to investment in non-traditional investments such as mortgages. he US Treasury Secretary asks for $700 Billion to buy “toxic assets” from the banks – then says, “oops“– let’s buy bank stock instead. Then joining the banks and insurance companies in the bailout queue – the automakers say, “me too –you can’t afford to let us fail”. The purveyors of the policies that got us into the mess not so surprisingly are unable to extricate us from the growing uncertainty of both a national and international economic crisis. Our stock and bond portfolios have taken a nose dive, at the very time our jobs and industries are at risk – with no personal bailout likely for any of us. We are told by many of our advisors to stick with our (or their) investment strategies – they say it’s a poor time to sell, because we must be at the bottom. Any flight to safety seems to come with little if any earnings, as yields are beaten down by the stampeding herd of investors who are sickened by the continuing losses of principal. Government policies encouraged risky lending with banks and financial institutions eager to oblige – then wrapping and repackaging these flawed instruments to sell to the greater fool. Investment opportunities with earnest sounding names such as derivatives, mortgage swaps and other creatively developed equities fed an insatiable appetite from Wall Street and international investors. Then it all came apart….. Now what? We still need to invest, we want to retire, and would prefer not moving in with our kids until absolutely

necessary. Getting back to the basics wouldn’t be a bad start. Let’s review: 1. Avoid the herd, or at least get in front of it Shop for investments much as you would buy consumable commodities for your household. Wait until they are on sale, and then buy enough to last a while. Despite what some stockbrokers may be telling you, just because stocks cost significantly less than they did one year ago doesn’t mean that they are “on sale”. That is simply the price that the market says they are worth today. Private investments often can be purchased at a true market discount simply because they are not as widely available. 2. Don’t act on impulse, rather on information Most of us have at one time or another acted on a stock tip, whispered or e-mailed from those in the know. Let’s be honest, its not investing, its gambling. Despite the outcome, with enough rolls of the dice, the laws of probability will constantly triumph. Hanging out with bright people is much better than the alternative, but building long term wealth from the crumbs off other people’s tables is unlikely. You must keep your own counsel, do your own homework. 3. Take your time – there is no rush. Build capacity Jim Seneff, the Chairman of CNL Financial Group has his own philosophy of life. Mr. Seneff started buying real estate in Orlando in 1973 – and now runs a $5 Billion real estate investment empire. Jim’s viewpoint is that you must be deliberate in your preparation for success – in

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your career, and I would extend that to your investments. If you want to invest in oil and gas, read everything you can get your hands on – and find the experts and grill them too. Then stay in touch with new trends, market shifts, demand curves – and all other critical variables in the sector. If that seems too difficult, then find a business that you can understand and track – see principal #10.

at questioning our wisdom (conventional) with their views (enlightened). It would serve us well to look at our investment choices in a similar light – questioning the appropriateness of the risk and the fundamentals of our holdings. We often take far more time to analyze new investments than we do reviewing the advisability of continuing to hold current assets that may now be underperforming.

4. Expand your advisor base – develop new relationships Investment advisors come with various backgrounds and expertise. They often earn their fees from commissions charged based on the advice they proffer. While that model may serve the investor well in times of growth, it can be unnerving when those commissions only serve to increase losses. Seek out new advisors – perhaps those that have little to gain from managing your money. Attorneys, CPAs, or simply seasoned investors may be additional voices to add to your portfolio of counselors.

6. Invest on fundamentals – then be ready to change when fundamentals do This is a bit of Warren Buffet type advice. If the economy is in decline, look to industries that are may be impervious to the downturn. If you need income, perhaps you should be lending directly, instead of investing in CDs. Banks are no longer providing loans to very qualified individuals – and that will open up significant opportunities to individuals to privately lend – including within their IRA.

5. Challenge conventional wisdom (teenager rule) For those of us that have teenagers – non are better

7. Leverage your knowledge with others Join a group that is populated with investors with similar goals and interests as your own. For example,

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Real Estate Investment Clubs are found in every major metropolitan area of the country - each dedicated to providing education in all facets of buying, holding and selling real estate and real estate related assets. 8. Manage the down side The balancing of risk with reward is a delicate act that drives the pricing of investments. Many investors are far too focused on the reward side of the equation – perhaps because that is the emphasis of their broker. Now, there is a far greater concentration on reduction of risk. Once we emerge from our current economic malaise, there is little doubt that most will forget the risk again, in a stampede for the elusive big return. Always ask – what is the worst that can happen? I used to think that AT&T would always be around – and that if the long distance market declined, certainly their equipment side, Lucent – would always survive. Worst case? Bankruptcy. If you can lose it all – what separates investment from gambling? Will real estate go to zero? Well, there are holding costs – such as property taxes and insurance if the property has improvements, but the likelihood that the equity will completely disappear is unlikely – and rental income may produce cash flow. Will a private loan go unpaid? Perhaps, but with sufficient collateral, it may not matter. Fact is, it may be possible to better understand and manage risk with private investments as well or better than those that are publicly traded. 9. Invest in the idea, then the team that is implementing it At a recent panel sponsored by the Miami Finance Forum, the subject was private equity. The panel was asked by the moderator what was the most important consideration in determining whether they were to invest in a particular company. Two of the private equity representatives agreed that the quality of the management team was paramount. The third panelist was a bit of a contrarian…. He said, the most important consideration was the power of the idea, or the fundamental business model. He felt that assembling a good team wasn’t the difficult task. 10. Invest in only what you know and understand Of all the basic principals of investing, this is the most intuitive, yet often discounted. Entire life savings are placed in the hands of advisors – trusted completely to preserve investment capital and produce a reasonable

return. The fact is, no one will care more about your investment return than you. If you are using an advisor, insist on understanding not only their investment strategy, but also why they are buying/selling/holding the individual stocks within the portfolio. In the November 2008 issue of Florida Trends Magazine, in an article entitled “Lessons from Wall Street, Ash Williams, the chief investment officer of the Florida State Board of Administration was quoted “… never invest in anything you cannot explain, ideally to a child.” Good advice. There are great opportunities in the marketplace today. Real estate is being discounted at unprecedented rates. Banks cannot meet the demand for loans, sometimes despite significant collateral. Mortgage loans yielding 13% are begging for investors. While CNN, CNBC, the Financial News Network and the nightly news continue to measure economic health by the Dow Jones, NASDAQ and S&P 500 indices – your retirement plan can employ a much different yardstick. Stick to the fundamentals, save aggressively and invest wisely. After all, it is your choice and your retirement. The choice is clear, surround yourself with good advisors and consider in investing in mortgages through your IRA. Author is Bernie E. Navarro. Mr. Navarro is currently the President and founder of Benworth Capital Partners. Benworth Capital Partners are a privately funded hard equity mortgage lender. Mr. Navarro has quickly made Benworth Capital Partners the preeminent hard equity company focusing on South Florida. This has quickly earned them the right to be named the “Hard Equity Experts.”

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"Letters of intent" Flags up! Is this guy for real? by joseph andahazy

en months ago, I was commissioned to refinance a very large “entitled” land parcel in the low country section of South Carolina. The loan request was calculated just north of $30,000,000. As this was a sizable loan amount, and land financing to boot, I began thinking…”Am I that insane to spend another minute on this?” Instantly I knew our primary investor pool would not entertain this scenario. I initially had reservations taking on this request as I knew the search itself would be challenging. And just as I predicted, upon presenting the scenario to a few initial investors, they laughed and followed up with “Good Luck” or “Not in this lousy market!” If the subject property was not a cash-flowing entity, or a “lien free”

land parcel, most investors were just not interested. However, I was compelled to push forward, mainly because I get a gut feeling about things and then I just can’t let it be. Part of that feeling came from previewing the clear and concise details of the land entitlements for the proposed development. My client had spent the better part of four years and several million dollars engineering a smart community layout comprised of 4,000+ residential homes and a little more than 400,000 sq ft. of commercial space. Handed to me on four CDs were 126 files of the complete project. Everything you could possibly think of was designed, approved and market ready. Rarely do we get information as organized as this project was. I spent the better part of a week reading environmental and transportation studies, the appraisal, the community support position papers, cost estimates, the land improvements data, economic projections,

demographic forecasts, press releases and then finally the comprehensive business plan. With a little intervention and our suggestions to “simplify” the executive summary for marketing to investors, I felt confident I had a shot at finding a capital resource…but where? After some obvious frowns from initial investors and venture firms who agreed the project was “slick” and well thought-out, but scratched their heads and threw up their hands saying…”Joe, I just don’t know what to tell you”. I quickly realized it was time to pound the keyboard and find new sources of private funding via the web. After contacting a few listings about their services, most simply forgot their web sites were still advertising they finance land and they were no longer accepting applications for land – period! Some who still considering financing entitled raw land were only doing so under strict conditions. Either the property had to be in their own back yard with no encumbrances, or near a metropolitan area designated for BRAC (Base Realignment and Closure) expansion plans, or some other significant improvement such as a very large company moving their operations with 25 miles of that land. After not having much success, I decided to “post” my loan scenario on several industry based web sites. I figured instead of me finding them…let them find me! I even posted it as part of my profile on an international professional networking web site. This site allows you to connect with other business-minded contacts in the European and Asia markets. I was now thinking globally to possibly catch the interest of an off shore investor. Certainly somebody out there with $30,000,000 is ready to see this as a great opportunity. “Curse the naysayers!” While that was cooking, my next move was to try and find an investor whose heart was in South Carolina. You know, find that Big Shot person in the low country who would love to be a player in financing a large land parcel. I called the mayor’s office, the chamber of commerce, service

clubs and the realtor’s association looking for ideas. I was searching for that good old southern gent with old money. I even called all the local banks to see if they knew of anyone on their board of directors who might want to have their name engraved in the local press. Most responses were the same…“Take a hike fella!” By the way… bank people seriously lack a sense of humor. As I pressed on, I discovered I was actually having some fun coming up with all these ideas. It was like being lost with no map and I was left to my own devices to figure out what I should try next. I soon began to reflect and recall the many voices of my favorite motivational speakers whose books I’ve read and seminars I’ve attended over the years. Napoleon Hill was now pushing me forward. How could I lose? But the clock was ticking. As the weeks and then months passed, my “needle in the haystack” venture clearly was having its way with me and I started to question my motivation. I set the file aside for a while and there it sat staring at me for days on end as I worked other deals worthy of an investor’s time. Then after about six months of searching, I received

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an email from someone who read my information on the international networking web site. He was the CEO of a large corporation in Saudi Arabia which owned and operated several smaller companies in the Middle East. His email further stated he had read my profile and my quest for funding a large project in South Carolina. He wanted to learn more about the opportunity. First flag. I thought…”OK, is this guy for real? Saudi Arabia? I was curious, so I quickly performed an independent search and found that his company did exist and discovered he was also a long time member of the US-Saudi Arabian Business Council. I called the council, which was close by in northern Virginia, and learned he was a very well respected member with a long history of successful business relationships here in the US. I even called the US Department of Commerce to inquire about working with a foreign company and asked if they had anything on record regarding this company. Again the news was positive. I must admit, I began to think there might be something good happening about all this but was this “fait” or was it “bait”? I was a bit nervous, but it was totally driven by pure excitement. However, I was taking a giant leap of faith on this one. Several email exchanges ensued describing the property and loan details further with my new contact. He then stated he would be directing his counsel to contact me regarding moving forward and within a week, I had received a signed “Letter of Intent”. The cover letter and loan documents certainly looked official. However, I did noticed a few misspelled words and sentence fragments but I chalked it up as foreigners finding the English language difficult to understand. However, after a short dance I stopped and thought… ”I have to be sure”. We consultants are skeptics of things just too good to be true. I wanted to believe I had finally found a source of funding for this unique loan scenario. I wanted to believe the investor was truly for real and investing here in the United States was his way of expanding his corporate reach. I wanted to believe I had found, not only the funds for this deal, but future deals to follow. In an uncertain economy forcing the hand of most investors to hold cash close to the vest, I needed someone with “fresh eyes” to see the sun was certainly going to shine again. But I had to be sure so did some more investigating. I went directly to this investor’s web site and sent a message through the contact form regarding the Letter of

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Intent I had received. I also called the US-Saudi Arabian Council and explained my concern regarding my efforts to speak directly with the investor and verify his offer. They suggested I call him directly, and I said a call coming from the council would probably trigger a response more quickly, and so they agreed. A week went by and during this period I received another email by the investor’s counsel wanting to know if I had received the Letter of Intent and if there was a problem with moving forward quickly. Second Flag! I don’t do anything that quick at my age except run to the toilet! I replied asking for a conference call first with the investor or his designated representative on this matter. After all, conference calls are SOP in this business; even way before receiving a Letter of Intent. But maybe they did things differently overseas. What was I to know? The counsel member agreed and emailed his office number. I quickly learned the number was a listing in London. Again, I thought the investor is an international player and hired a trustworthy attorney who just happened to not live in SA. Again, what did I know? The call was set for the next day in the afternoon. That next morning in my inbox, I had a reply to the email I sent through the investor’s web site. Guess what? They never heard of me, or the deal in South Carolina and wanted to know who had contacted me. WOW! Third Flag! I was being scammed. A wolf in sheep’s clothing. I won’t go into all the nitty-gritty details that ensued between the “real company”, me and the USSaudi Arabian Council, who also finally called back to say I was being scammed, but here’s what this imposter did to shield his identify. He search online and found a company’s profile to steal. He copied the actual CEO’s photo, bio, company logo and web text off the legitimate company’s web site and created a new profile on the professional networking web site. Everything he did was well thought out and looked very professional. The only small change he made to conceal himself was to create a similar looking email address by changing two letters in the URL portion of the address to capture all responses. He almost had me. Imposter’s like him fish for deals like mine in hopes of collecting “upfront fees”, which can be large in this business for due diligence purposes. During the last ten months since I’ve been on this project I have been contacted by two other imposters who read my loan scenario posted on other industry web sites. They actually

hosted conference calls with my clients, but as our vetting became more refined, we shut them down fast. In closing I’ve learned that anybody can produce anything to get something for nothing. There is a lesson here for everyone who thinks their web site information is safe. It should be protected so it can not be copied and reproduced. Lastly, I did find a legitimate funding source for my client. I’ve sat in their conference room face-to-face and I got to tell you, there’s nothing like it. Good old fashioned networking and hand shaking. And now I’m better at reading flags. Joseph Andahazy is the managing principal of Fair Market Funding LLC, in Alexandria Virginia. An independent real estate finance consulting company specializing in corporate loan structuring, sourcing capital required for debt and/or equity through private investors funding commercial and investment properties. Email: info@ fairmarketfunding.com Office: 703-879-1828 Copywrite 2009 Fair Market Funding LLC.

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HVCC, SAFE Act, Red Flags, Oh My! More hazardous than the Yellow Brick road

by George H. Marentis

lthough new lending regulations become effective each year, the new regulations and rules that became effective this year and those scheduled to become effective on January 1, 2010 are the most dramatic changes the industry has seen in years. This year an appraisal code of conduct became effective on May 1, 2009 along with major changes that impacted lending practices and disclosures that became effective at different times in 2009. Additional HUD regulations requiring the use of a standardized good faith estimate form and HUD-1 settlement will become law effective January 1, 2010. Lastly, loan originator licensing requirements under the SAFE Act were passed by all the states that will become effective in 2010.

NEW CHANGES FOR 2009 & 2010 – ARE YOU READY? Below is only a brief overview of some of the key changes for 2009 and 2010. Additional changes have occurred at the federal and state level. For a more detail review of these changes, contact us at CMS or your current compliance vendor. HOME VALUATION CODE OF CONDUCT (HVCC) – Effective May 1, 2009 For loans that are being sold to Fannie Mae and Freddie Mac the HVCC requires a lenders production staff to be independent from the ordering or the selecting of appraisers, or having any influence over the appraisal process. Brokers cannot select, retain, or compensate an appraiser. The code also requires a lender to have written

December 2009/January 2010

policies and procedures to comply with the HVCC and to report any violators. Borrowers must receive a copy of their appraisals when complete; but no later than three business days prior to closing. Additional rules apply to in-house appraisers and their independence.

REGULATION Z AMENDMENTS (Two Amendments) 1. Truth in Lending Act / Mortgage Disclosure Improvement Act of 2008 (MDIA) (Early TIL and Timing) - Effective July 30, 2009 This amendment requires an early Truth in Lending Notice on all closed end real estate purchases and refinances within three (3) business days of application and outlines a new definition of “application”. No fees can be collected from the borrower other than a reasonable fee credit report prior to giving early TIL. You can not close the loan until seven (7) business days after delivery of the required TIL and requires a redisclosure if the APR changes by more than 1/8 of 1 percentage point in a “regular” transaction, or more than 1/4 of 1 percentage point in an “irregular” transaction. The redisclosure must be RECEIVED by the borrower no later than three (3) business days before the date of the closing. Receipt is defined as three business days after mailing or when delivered in person. Additionally, the amendment requires that the borrower be provided a copy of the appraisal at least three (3) business days before close. 2. Truth in Lending Act / closed end credit and advertising open/closed end credit. - Effective October 1, 2009 and April 1, 2010 for escrows on higher priced loans This amendment of the Truth in Lending Act creates a new category of loans that is defined as a higher priced

www.OSIExpress.com mortgage loan. The amendment prohibits the influence of appraisers and unfair or deceptive servicing standards on closed end loans secured by the borrowers dwelling, establishes additional advertising rules for open and closed end credit, and changes certain criteria on HOEPA loans.

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Regulation X (RESPA) – Effective January 1, 2010 Substantial changes are being made to the Good Faith Estimate and the HUD 1 Settlement Statement, which in part includes limits on the amount a fee can vary between the GFE and Settlement based on type of fee. These changes lock creditors into fees disclosed for 10 business days from ome tyle H disclosure unless a change of circumstances occurs and new ean S erran it d e wM disclosures are sent within three business days of change in Beautiful Ne circumstances.

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Jim Jenkins, Real Estate Agent\Broker The Jenkins Team 888.123.4567 www.JenkinsTeam.com Cnv Fxd

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SAFE ACT The SAFE Act mandates that ALL states enact a licensing system for individual mortgage loan originators (“MLO(s)”) by July 30, 2009. The Act requires all MLO’s seeking state-licensure, or currently holding a state license, to pass the NMLS-developed S.A.F.E. Mortgage Loan Originator Test, including both national and state components, with a score of 75% or better on each component. Sufficient information must be provided for a background check and running of a credit report to determine the loan originators credit score. Note that each state will set a minimum credit score the loan originator must have in order to be eligible for licensure in that state. FHA – Effective January 1, 2010 The major changes in the FHA Title II loan program includes a new annual requirement of Audited Financial Statements, changes to the Streamline Refinance Program, and amendments to the appraiser and appraisal requirements. A summary of the FHA appraisal changes includes: • Modification of Procedures for Streamline Refinance Transactions • Adoption of Home Valuation Code of Conduct Guidelines (some not all) • Updated Appraisal Validity Period • New Appraisal Portability Regs In addition to the changes effective on January 1, 2010, HUD has also announced a proposed rule change for FHA originators approval and net worth requirements. The proposal states Loan Correspondents (mortgage brokers) will

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Bob Smith, Senior Mortgage Consultant Office: 888.555.1212 Cell: 800.123.4567 Email: bob@prospectmtg.com t 1234 Main Street, Hometown, 92869 ~ Licensed Mortgage Broker enUSA tate Ag Real Es 2322322 Whether you are a �irst time or step up ll Jones, Mary 23.4567 Cerealty.com homebuyer, Uncle Sam has a tax credit that 800.1 friendly @ can give you a bag of money. mary n the loa cting in sele ist you . to ass r budget you igned suits is des ncing st closely of This fina offer erty that mo not an gram rop

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These credits apply directly against income taxes owed, and may actually create a refund for some homebuyers.

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rate Li ant ith, Senio card wSm ll: 800.1 m 869 ~ to 12orCe tgag n, USA 92 Bos,bcar lo cons55 e pa ol.12 an8.5 ymen at m metow s, et idet, Your Office: 88 c.re eHo t is in onth ain St and curr34 crea ly de you12 enM t sing bt su wan interest ch t a lo as cr You wer rate is hi edit As a paym gher tuit want to ion, ent. than help mortga Equal Housing Lender. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to lend. Consult a professional Tax Advisor for complete details. vaca “cash ou toda * A first time homebuyer is a buyer who has not owned a principal residence in the past three years. ** A step up buyer is one who has owned the same home for 5 consecutive of the last 8 years. tion y’s ra with ed man ge profe , or t” equi te hom ty to e im us we ca many y differe ssional, prov e for co d emen lle if no n discu ifferen nt types I have ts. ge tn w ss o

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continue to be able to originate FHA insured loans through their relationships with approved mortgagees; however, they will no longer receive independent FHA approval for origination eligibility. Additionally, the proposal seeks to increase the Net Worth Requirement from $250,000 to $1,000,000.

RED FLAGS – Delayed again: New Effective date June 1, 2010 The Red Flag Rules of the Fair and Accurate Credit Transactions Act (FACTA) requires financial institutions and creditors to implement a written identity theft prevention program (Policy & Procedure). The purpose of this policy is to detect identity theft and detect it before damage and loss occurs to the borrower and financial institution. Enforcement of the “Red Flags” Rule has been delayed until June 1, 2010, for financial institutions and creditors subject to enforcement by the FTC. However, it does not affect other federal agencies’ ongoing enforcement for financial institutions and creditors subject to their oversight. The policy and procedure should: 1. Identify relevant patterns, practices and specific forms of activity that are “red flags” signaling

2. 3. 4. 5.

possible identity theft, and incorporate those red flags into the program; Detect red flags when they occur; Respond appropriately to any red flags detected to prevent and mitigate identity theft; Ensure the program is updated periodically to reflect changes in risks from identity theft as your business model evolves; and The program must be managed by your Board of Directors or senior employees and must include appropriate staff training and oversight.

The contents of this article is for informational purposes only and is not intended to be legal advice. George H. Marentis is President/CEO of Compliance Made Simple, LLC, a company that provides licensing services and other compliance related services to the mortgage lending industry nationwide. For more information see www. compliancemadesimple.org or call 303.859.8550. Mr. Marentis has a Juris Doctorate and over 15 years of mortgage lending experience ranging from frontline operations, origination to regulatory and legislative compliance. Information provided in this article is not intended to be legal advice and is informational only.

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Rising Requests for Loan Buy Backs by Tim ROod

hat a difference 18 months can make. Need an example? Look no further than recent news from the GSEs that lenders are thumbing their noses at repurchase and reimbursement requests in record numbers. As reported in their quarterly filings, Fannie Mae and Freddie Mac are seeing an increase in the number of lenders not honoring agreements to repurchase loans that breached representations about the eligibility and quality of loans they sold. While this is not uncommon in the current economic environment, there is noticeable difference: Lenders have told us that the GSE’s are showing real stamina and commitment to auditing non-performing loans, and a new toughness towards collecting on repurchase demands. Contrary to what many have feared or “heard,” the GSEs generally try to avoid issuing repurchase demands for subjective issues, or compliance issues, and focus on material misrepresentations or omissions. It’s very likely that the GSEs would tell lenders that 90% of repurchase requests are because their AUS findings and requirements were not followed and/or properly underwritten or documented by the lender. Improperly calculated or inconsistent income, unverified assets, and undisclosed debts are the major culprits. While bad appraisals and fraud are legitimate triggers for repurchase demands they are far less likely to be the primary reason because of their subjective nature. During the heady times of 2003-2007 lenders were far more focused on velocity on loans then they were on the quality of the loans. As volume continued to spike the

rating agencies, secondary market investors, and regulators got more and more comfortable with “certifications” and “representations.” As an industry, we have always had the difficult task of measuring the return on investment in areas related to loan quality vs. loan marketing and origination. It was easy to see the return on hiring one more loan officer or sending out one more marketing piece, but how do I justify another quality assurance person?!?! Isn’t that going to slow things down and cost us more money in the long run? We need to feed the beast – grow market share! As a result, we all know where the investments were made. And market competition and lax oversight moved us from the model of “trusting and verifying” to simply “trusting.” Understanding the problem and its genesis is only part of the story. What about the enforcement of repurchase demands? 18 Months ago, the GSEs could be a little light handed in their enforcement of repurchase demands because they didn’t want to risk losing a lender’s loan production and delivery business. Frankly, they didn’t want to lose a lender to the competing GSE. There were times when substantial repurchase demands would go unpaid (not forgiven) as a concession to large lenders when it came time to negotiate their delivery contracts. That was then, this is now. The GSEs now have no choice but to get as strict as possible in enforcing these agreements. Many lenders think the GSEs will simply settle for pennies on the dollar as customary in today’s market when buying and selling mortgage and real estate assets. But think about the unintended consequences of the GSEs TheNicheReport.com

The voice of housing settling for a fraction of what they are contractually owed. Say the GSEs took 90 cents on the dollar as a settlement for the repurchase demands made to a lender. Will that lender, and the industry for that matter, due more or less due diligence on loans that they can sell for 103bps and in the off chance the loan underperforms and is audited that they can buy it back for only 90% of the note amount. Not a great precedent. Financial institutions in particular have one large and legitimate grievance. For as long as the GSEs have been issuing preferred shares bank regulators have treated the assets as riskless as Treasury bonds. Therefore, banks made an economic decision to hold the preferred shares as TIER 1 capital since they were higher yielding and seemingly had the full faith and credit of the United States (why else would regulators require the same amount of capital against them as Treasuries?) With those preferred shares virtually worthless, lenders are naturally less sympathetic to the demands made by the GSEs to make them whole on their losses. The enigmatic part of the equations is that as private enterprises the GSEs could make the business decision to settle their claims with lenders to improve capital positions and cash flows. But there’s a catch. Today, the Treasury

essentially owns all or partial interest in both GSEs as well as in many of the entities (banks) requiring to repurchase the non performing loans. Compensation and penalties enforced by one entity now cause offsetting penalties or compensation to the other. Either way the Treasury comes out on the short end of the deal. I would not expect the pattern or volume of audits and repurchase demands to slow or change in 2010. It is very likely to get worse before it gets better for lenders as the GSEs work through the backlog of NPL files they currently have and prepare for new ones. Lenders and investors need to get better at originating loans with built in quality vs. our tendency to inspect in quality after a loan has closed. Regrettably, this is just one example that we’re in for a long haul in our way out of the housing crisis and into a restructured primary and secondary mortgage market. Tim Rood is a managing director of the Collingwood Group. In his two decades of mortgage industry experience Tim co-founded Capital Financial Solutions, was Vice President at First American, and served as Senior Director and Principal of Fannie Mae’s eBusiness Division.

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T'was the Night Before Christmas 2009 By Martin Andelman T'was the night before Christmas-2009, With 12 months having passed, it was finally time. To pen this Christmas poem, and recap the past year, So I sat by the fire and cracked open a beer. Last Christmas, if you recall, we were watching the clock, Awaiting a new president, by the name of Barack. For he had won last year's bout, over McCain he came sailin', No surprise when you consider the factor named Palin. And when Barack Obama, into office was sworn, With almost half the nation feeling disdain and scorn, Finally the man who had pledged hope and change, Would be our 44th President, although his name did sound strange. Within weeks, while our new Pres was still embryonic, He went to work on a bill of stimuli economic. Republicans said NO, but they looked kind of nuts, All singing in harmony: "Three Cheers for Tax Cuts!" The bill provided millions for re-seeding the Mall, And for condoms, and solar, so global warming would stall. I knew Barack's promise of jobs was no whim, I just hadn’t realized they'd all be working for him. Running Treasury would be Geithner, what's a little tax evasion? When I first saw him I thought: "No one could be more Caucasian." He had to keep the banks open, in case you hadn't heard. Without "Nationalization," this year's dreaded 'N' word. GM finally went BK, and it was such a bummer. Recession or not, Americans do love their Hummer. But while Fannie & Freddie were the only ones lending, It would soon be apparent that most folks would stop spending. Throughout most of the year we pumped cash never ending, So banks would be healthy, or so we'd be pretending. There was Citi, and Wells, B of A, and then Chase, They were "too-big-to-fail," they said with a straight face. And finally Obama spoke of the plan known as HAMP. When it came to speeches he was the undisputed champ. He said his plan would save millions from being foreclosed, But most homeowners say that they just plain got hosed. Obama said loan modifications were free! You could just call your bank, and for loan mods press '3'. But the banks had their own way of handling things, Only answering phones after 10,000 rings. Tim Geithner decided he would not let us see, The formula whose initials were N-P and V. I now knew this administration would taketh the cake, When they said "transparent," they meant extra opaque. Unemployment kept rising each day after day, While the left thought "asked soldiers" should tell when they're gay. The banks kept reporting on their loan mod mail-outs, I suppose so that Geithner would not stop the bailouts.

As the summer progressed and foreclosures climbed higher, I learned that Tim Geithner was a talented liar. Between Geithner and Bernanke it was hard not to scoff, Like getting your forecasts from Bernie Madoff. Timmy G. changed accounting, yes he was a bank's friend, So when banks incurred losses they'd just extend or pretend. Their balance sheets started to look better to best, Regardless how they'd scored on their secret stress tests. Then throughout the summer it was health care at odds, Would the public option cover the death squads? Republicans screamed socialism from atop the highest hill, And that was six months before there was a bill. T’was Bill Clinton to the rescue, for two in North Korea. He just walked up to Kim Jong Il and said "Hi, nice to see ya’. They asked me to come, to share my wisdom in pearls, And besides I'm experienced at picking up girls.” Still homeowners kept trying to go the extra mile. But instead of a break they'd get tribulation and trial. People started to wonder if Barack still had a plan, 'Cause he seemed more concerned with Afghanistan. And even though our Pres received the Nobel Prize, His star started fading in quite a few teary eyes. For Ben “Greenshoots” Bernanke the recession would soon end, Proving that truth he had learned how to bend. Then up on the roof there arose such a clatter. I sprang to my feet to see what was the matter. And what my eyes saw looked positively sillary, In a red Santa suit, t’was a Clinton named Hillary. What happened to Santa, I asked so politely. Didn’t want to make waves, so I thought I'd tread lightly. She said: "I was sent out to spread American cheer, And by the way, who did you cast your vote for last year?" While around the world soldiers still huddled in bunkers, Here at home we were all getting cash for our clunkers. Santa said he had presents for all, I said: "Thanks!" Then he winked as he whispered "And lumps of coal for the banks." And when I saw what Santa left me there under the tree, It read: Bonuses Cut to $0 at AIG! I said: "Thank you Santa," as he flew out of sight. And I said “Merry Christmas,” and I turned off the light. As I drifted to sleep, I dreamed the crisis foreclosure, Would finally receive the much deserved exposure. Now I knew I'd love Christmas, even though I am Jewish. I couldn't wait to see Santa go after Dimon, Stumpf, Blankvein and Lewis...

HO, HO, HO! Merry Christmas & Happy Hanukah!

Face the Future with Knowledge D

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Regional Conference Of MBAs z

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attend the 27 Annual Regional Conference of Mortgage Bankers Associations March 14 - 19, 2010 th

Trump Taj Mahal Casino Resort, Atlantic City, NJ

$85

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Commercial Property Highlights Our 2010 Commercial Property Program features: General Session: A Market Perspective from Seasoned Industry Leaders - Panel I of our General Session will cover Office, Retail, Fannie Mae and Freddie Mac, Panel II will speak to Recreating the Capital Markets: The New Paradigm Our Afternoon Session deals with Workouts on Commercial Loans: How to Handle a Commercial Loan Portfolio in a troubled market: How are the Banks handling Current Market Issues? Tuesdays Session features a panel entitled Unlocking pension fund capital followed by a Lenders Panel Come hear about the concepts on how business can be done in the new credit underwriting cycle. The panel will share with you their vision and underwriting guidelines as to how they are closing deals in this unpredictable marketplace. The lenders will be in the house on Tuesday morning, will you? Enjoy lunch in our Commercial Property Exhibit Hall New for 2010 - Our Opening Residential Networking Cocktail Reception on Tuesday Evening is in the Exhibit Hall. Weâ&#x20AC;&#x2122;ll start this yearâ&#x20AC;&#x2122;s conference off with a BANG at our Grand Opening Reception on the Exhibit Hall Floor!

Residential Program Highlights Our General Session will look at The Future of Mortgage Finance: Making a Profit in the Current and Future Markets. Enjoy lunch in the Exhibit Hall and meet with your colleagues and gain valuable face time with your clients Wednesday afternoon our Regulators Roundtable feature Regulators from NJ, PA, NY and MD as well as NMLS Representatives. Enjoy our Second Cocktail Reception sponsored by:

Thursday morning the Information Exchange experts will be seated at roundtables, which will be identified by a sign at each table, available for individual or group exchange on their respective topics. Also in the program: Federal Law update; Special Speaker lunch on Thursday and much more! SAFE Education will be provided at the 2010 Regional Conference on Tuesday, Thursday and Friday.

For Registration and Exhibit Information visit www.mbanj.com

Where o’ Where Does My YSP Go? Is the spread a bit too thin? by Joshua Weinberg

mong the confusion in complying with HUD’s new RESPA Rules, it is likely no issue has raised quite as much concern as the treatment of Yield Spread Premiums (YSP). As an industry leader, Calyx feels a responsibility to help do part to clear up some of the confusion. We are proud to be the first major LOS to bring the new Good Faith Estimate (GFE) to market (August 2009 with Point 7.1) and through of our close collaboration with HUD, we’re also very confident our implementation is accurate and compliant. Throughout the design and execution of our 7.2 release this past November , we had the opportunity to analyze and consider many facets of the RESPA Rules and the required implementation changes. We also had a chance to speak with many interested industry participants and through this “in the trenches” experience have discovered several issues we feel the industry needs help understanding. As of January 1, 2010, YSP will ONLY be considered a credit to the borrower. The concept of “front-end” and “back-end” compensation disappears, and all compensation the Originator expects to receive must be clearly indicated upfront, and may not change. This means Originators are required to enter any and all amounts they desire to be compensated in Block 1, “Our Origination Charge” of the GFE. Since originators must include the exact amount they will be compensated in Block 1, YSP does not affect the originator’s compensation directly; it simply reduces the borrower’s closing costs, which may be used to pay the

originator’s compensation. So what about YSP? Well, it would be helpful to erase the phrase YSP from our vocabulary. Moving forward, we need to gain an understanding that the specific interest rate chosen by the borrower may provide an indirect payment that is credited to them for the acceptance of an above par interest rate. Or, the specific interest rate chosen may require the borrower’s payment of a charge (Discount) in order to receive the interest rate they desire. This concept reinforces HUD’s repeated mantra that “a credit and a charge [for the specific interest rate chosen] cannot occur together in the same transaction.” Because this is all new and a little confusing, using some real life scenarios may make this easier to understand. 1. Let’s assume a loan amount of $100,000 and that the originator wants to make 2percent on the deal. There are processing fees of $300 and underwriting fees of $450. Block 1, “Our Origination Charge” would display $2,750 (2,000 + 300 + 450 = 2750). The borrower says they want an interest rate of 5.5percent. Checking today’s rate sheet shows that 5.5percent is exactly PAR (no payment or charge for the specific interest rate chosen). a. If the originator is a Lender, they may check the first checkbox in Section 2,”Your credit or charge for the specific interest rate chosen” which indicates any credits or charges for the interest rate are included in “Our Origination Charge.” b. If they are a mortgage broker, they may check either the second or third checkboxes, and $0

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would be displayed in the amount column. Block A, “Your Adjusted Origination Charges” would display $2750. 2. Using the same scenario, let’s say the borrower decides they want an interest rate at 4.875percent. Based on the rate sheet pricing, 4.875percent has a charge (discount) of 1.5percent. The interest rate selected by the borrower has no impact on the compensation the originator receives. Block 1 still shows $2,750. However this time, regardless if the originator is a Lender or a mortgage broker, the third checkbox in Section 2 must be checked, indicating the borrower is paying a charge for the specific interest rate chosen. $1500 would be included in the Amount column and Block A would display $4,250 (2750 + 1500 = 4250). 3. Finally, again using the same scenario, the borrower decides they can afford a higher monthly mortgage payment and would prefer not to pay as much at the closing table. The originator looks at the rate sheet and determines that an interest rate of 6.5percent provides an indirect payment to the borrower of 2percent. This point is so important it’s worth repeating one more time. The interest rate selected by the borrower has no impact on the compensation the originator receives. Block 1 still shows $2,750. a. In this scenario, if the originator is a mortgage broker, they must check the second checkbox in Section 2, indicating the credit to the borrower reduces their settlement charges. In the amount column -$2,000 would be displayed. Block A would display $750 (2750 – 2000 = 750) and indicate the borrower’s adjusted origination charges are reduced to $750 because they are indirectly paying $2,000 by accepting the above par interest rate. b. If the originator were a Lender, they have the option of checking the first checkbox in Section 2, indicating the charge for the interest rate is included in the amount in Block 1; however it is likely the originator would be paid internally from the lender and their 2percent origination charge would be subtracted from Block 1. If that were the case, Block 1 would display only $750. Section 2 would display $0 and Block A would display $750.

Working through these examples highlights a very significant component of the RESPA Rules. Originators will no longer be compensated based on the pricing related to the interest rate. HUD believes borrowers were taken advantage of and that interest rates were used as a sales tool; an opaque method of increasing originator’s compensation. “HUD’s intention of the revised Rules is to increase transparency of the costs for obtaining a mortgage and to increase shopping, which they estimate will reduce the cost of financing by $668 per loan”, according to Ivy Jackson, Director, Office of RESPA and Interstate Land Sales US Department of Housing and Urban Development in written testimony on 5/22/08. While the treatment of YSP has generated much debate, the creation of a bright line separation between originator’s compensation and the borrower’s selection of the interest rate is probably a good thing. Again, the amount listed in Block 1, “Our Origination Charge” cannot change at all from the time the disclosure is issued. However, the credit or charge for the specific interest rate chosen may - continued on page 41

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MBS WARROOM

MBSWARROOM.COM The Grand Unified Theory of Floating or Locking an Origination Pipeline by Matt Graham

here are two kinds of jobs: those we go to school for and those we don’t. It seems that it’s rare to find someone who is “doing what they set out to,” this is as true for the mortgage industry as it is for any other. Maybe that’s why we are woefully underserved from an educational standpoint. This isn’t to say that there is NO EDUCATION available to the mortgage industry… Between setting up one of those drinking-bird toys to refresh your online CE every 9 minutes and 59 seconds and the awesome origination handbook you’re using as monitor stand, there are a few options. But certainly, there is no mortgage lending college degree, and the certifications and coursework pale in comparison to the CFA and other more specialized degrees in finance. But we deal with substantial financial transactions too! And although a MORTGAGE is often one of our CLIENTS’ largest financial considerations, the INCOME from a group of those mortgages – THE PIPELINE—is often one of OUR largest financial considerations. In fact whereas a client who wants different terms can shop around, if WE want to change how we profit from our Pipeline, a bit more effort is required. So what do we do to affect such changes in the absence of the more intense education and the broader base of knowledge available to many other financial professionals? Even if we can’t manage our Pipeline with the same TOOLS as a trader, for instance, we CAN

December 2009/January 2010

do much more than the average originator to apply similar STRATEGIES. In other words, you may not have the luxury of hedging potential rate changes with the purchase or sale of various securities, but you CAN create a strategically similar FRAMEWORK FOR YOUR PROFITIABILITY. If that sounds daunting, don’t worry… We already did that for you… This then, is the Grand Unified Theory of Floating or Locking Origination Pipelines, or GUT-FLOP. What follows will synthesize years of verbal and written analysis, discussion, best-practices, advice, strategies, opinion, fact, folly, and wisdom, shared by us or with us, during our loan origination, secondary marketing, production management, or analytical careers, on the topic that can be most sweepingly identified with the question we discussed in the last issue: “Should I lock or float?” It arose out of need to frame our analysis in the appropriate context. The industry has been poorly served by short term strategies with MBS prices, and more importantly by the implication that there is ONE correct answer to the “lock or float” question. And we were (and still are) dead tired of saying “it depends.” So in order to merely BEGIN defining what it depends ON, and what we should do about it, the GUT-FLOP was born. It’s not conclusive, but we hope it will help you think about your pipelines more like a trader thinks about their portfolio—

MBS WARROOM

ultimately leading to an increase in the size and stability of your profits…

Core Concepts: The pipeline as a managed fund. o It might not be fun in the short term to lock certain loans and see prices improve or to float certain loans and see prices worsen, but it’s a necessary evil of risk management, and will make for the “fun” that you’re really after, long-term net profit. Think “slow and steady wins the race.” Those who fight the urge to chase every last ounce of potential profit and spread out their risk generally come out ahead in the long run. Risk allocation o There are several different variables to consider when allocating risk in our industry. By “risk allocation” we’re basically talking about allocating a certain portion of your pipeline to different levels of risk based these variables. The analogous activity for a managed fund would be deciding what portions of the portfolios money will be allocated to different risk levels.

o Aggressive risk = higher potential return, higher potential loss. By allocating different loans to different lock/float timings among other things, the originator is doing the same thing as a fund manager allocating different monies to investments with differing levels of risk. In the end, the yardstick is the same: what makes us the most money. 1. For most of us, our first risk allocation consideration: What Pays The Bills i. If you think about the money you need to pay the bills, and reverse engineer to come up with a minimum number of loans needed to generate it, factoring in fallout, this should usually be allocated to our LOWEST risk category. ii. This means that whatever lock or float considerations that could harm the deal should be avoided. 2. Purchase versus Refi business i. In general, most originators will want to allocate purchase business to a lower risk category which will usually mean purchase deals should be more

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predisposed to locking. ii. Keep in mind that some pipelines will be such that purchase transactions will cover the primary risk consideration of paying the bills. In this case, the two risk categories are interchangeable. iii. Even if purchase deals CAN be allocated to higher risk categories, there is the additional consideration of customer service and client necessity that suggests that purchase loans that are not part of the “paying the bills” allocation should still be more predisposed to locking than refinancing borrowers that have no pressing necessity for a loan other than trying to lower their rate. 3. Considerations for deals in addition to those allocated to above minimum risk categories i. If one has a large enough pipeline that there are extra deals beyond those allocated in the categories listed above, riskier allocations can be considered. ii. Here too, client preference is a consideration. Just because YOU have the ability to take on more risk of rate movements doesn’t mean YOUR CLIENT wants to. Out of this group of deals, the clients that do not WANT risk are used to fill low risk slots, usually meaning either a predisposition to locking or other risk management strategy. iii. Rate Sensitivity. Even if a client doesn’t necessarily care about locking or floating, it’s up to you as the manager of your portfolio to know when rate sensitivity can kill a deal. A good example is DTI. If a small increase in rates means the DTI will disqualify the deal, it should logically be allocated to a lower risk category, thus predisposed to locking. iv. Time Frame. Purchase deals are usually the most sensitive to time frame. If a purchase has not already been assigned to a lower risk category because it’s a purchase, the next consideration would be the time frame. Is there a time frame after which this deal is no longer viable? The closer you get to that, the lower and lower the risk level to which it should be assigned. The same is true for time sensitive refi’s. v. Client Preference. Plain and simple, the nature of a lock or float should be disclosed to a client. If the client is not comfortable floating, even if you are personally guaranteeing the rate, most of us will agree this would automatically get slotted in a low risk category. 4. Risk Management Tools i. Rather than intrinsic qualities of a deal, these are tools or strategies that can mitigate a portion of risk

MBS WARROOM

across any category where floating is an option ii. Float Downs / Renegotiations. Different lenders have different float down and/or renegotiation policies that can help you round out your risk strategy nicely. In cases where today’s price level is satisfactory to all parties involved, and the hit you’ll take for a float down or Renegotiation will not kill the deal, these can nearly bring normally floated deals into your lowest risk categories. Some of the more aggressive policies border on “having cake and eating it too.” Understand that the cost for the renegotiation or float down is something you are paying in exchange for being moved into a lower risk category. It’s up to you to decide if it’s worth it. iii. Stop Loss. This is both an essential tool your risk management arsenal, but also a fairly brutal one. Simply, you set an income level on a particular deal at which you’ll absolutely lock at a loss from your original float, in order to remove the risk of any future losses. Employed shrewdly this can prevent most deals from dying. It will FEEL like this has a big impact on your bottom line, especially if the stop loss point is reached and rates improve before the deal is closed, but if the risk of making nothing on the deal is getting bigger and bigger each day, that risk can eventually be bigger than the income lost by not locking earlier. If rates do in fact get

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worse, the stop loss then turns out to be a net positive on your pipeline. It would be great if we could forget all of the above and simply help you do a little bit better on each loan, but it doesn’t now, nor will it ever, work like that. The gains that one realizes from floating, over time, come from an average gain, factoring in good decisions and bad. To try to generally float everything when you think rates will improve and vice versa for locking has a good chance to be more frustrating and costly than employing a measured risk management strategy. The originators that most consistently earn profits from floating have gains and losses, and the average among them is positive by design. There are glory stories and horror stories of floating. Your chances of both are lower in the short term if you employ a strategy. But in the long term, if you can average higher profit than you otherwise would simply locking every deal, that is not only glorious to some extent, but there was little to no risk of a horror story. Matt Graham is the creator of the MBS War Room, a first of its kind service bringing institutional quality market data and analysis to mortgage market professionals. Adam Quinones is Managing Editor of Mortgage News Daily and co-founder of the MBS War Room.

RULES & REGULATION HEADLINES

Rules & Regulation Headlines Wow! There were 17 rule and regulation updates within the last 30 days or so— the biggest number this year! And these are just the ones that affect loan originators, processors and managers. Here are just a few of them (condensed version) that you will find at www.MortgageCurrentcy.com.

FHA Condominium Approval Process – Final Rules with Temporary Exceptions (Effective December 7, 2009) This new comprehensive guideline is a huge reprint of Mortgagee Letter 2009-19 plus the new stuff. Use this new version as your guide and throw away 2009-19. If you want more detail on the entirety of these guidelines you can read the Mortgagee Letter 2009-19. • Temporary Guidance for Condominium Policy - Mortgagee Letter 2009-46A

Spot loans: You can do them on case numbers issued before February 1, 2010. After that they are gone. But after December 7, 2009 your spot loan approval checklist is going to have to change to accommodate the new requirements. FHA Concentration Limits: This is going to save our backsides, but only for another year. It’s really nice that we can go to 100% concentration in some cases. But once we go back to that 30% limitation next December we will have a LOT of projects that will be ineligible for a VERY long time. • Condominium Approval Process for Single Family Housing Mortgagee Letter 2009-46B

DELRAP Approved Lenders: Under the previous version, DELRAP approved lenders were told that if they were approved, they could NOT use the HRAP option and submit an approval package to HUD. This change assures them that if they have a project they aren’t feeling super confident about, they can pass the buck to HUD instead of putting themselves on the line and approving it. It would also allow them to stop approving projects internally, for whatever reason; short-staffed; risk issues, etc and send everything to HUD. 36

December 2009/January 2010

THE BOTTOM LINE: Start asking for guidance now on how to originate loan files . What will your company’s policy be on certification? That’s really your primary focus, because we don’t have to worry about project “recertification” until next year. For goodness sake, do not over promise on ANY condo loan until it has passed all the criteria tests. You have no idea if the project will make it through the checklist or not. FHA Offers Half-Price Homes! Good Neighbor Next Door - What a Deal! Good Neighbor Next Door (GNND) is the new name for an old program. Most of you may know it as Teacher Next Door or Officer Next Door. In 2005 the program was changed to include firefighters and emergency medical technicians (EMTs). Whatever the name, it is, and always has been a screamin’ deal. $100 down and a 50percent discount…wow! HUD provides the 50percent discount in the form of a “silent second” that is recorded at the time of purchase. There is no monthly payment required on this note. At the end of the 36-month period, the note is released. If the borrower violates the terms of the silent second, HUD can demand repayment and take other administrative sanctions. Buyers deployed on active military duty are not considered in violation of occupancy. (Mortgage Talking Points™ flyer available on website.) • Teachers, firefighters and EMTs must be employed by an entity that serves the area where the home is located. • Borrower does not have to be a first-time homebuyer, however, neither the borrower nor their spouse can have owned residential real estate in the previous year from the date of the bid.

RULES & REGULATION HEADLINES

• Neither borrower nor their spouse can have previously purchased a home through the GNND program.

Fannie Reorganizes the Selling Guide We just started to swim around in this thing, so I can not tell you that it is great…I can tell you that the jargon and difficulty for interpretation still exists. As always Mortgage Currentcy will break it down to give you solutions and help you apply the information to what you do on a daily basis. Changes to the guide are supposed to be frequent – in fact within 2 months another update to the Selling Guide will occur in order to incorporate outstanding announcements 09-28 & 09-29 as well as changes made between now and then. You can access new Selling Guide at www.efanniemae.com Fannie Mae Provides Lender Tips for the 4506-T and FAQ for Misc Underwriting, Eligibility and Property Updates – Announcement 09-19 The 4506-T is a tool to validate income, not document it. The information from the IRS must match exactly – here we go… Except for reasonable explanations…Why do you always feel like you’re playing Russian roulette? Questions to ask: • Joint return, but only one borrower? • Change of Jobs? • Did borrower receive a promotion? • Compensation change – salary vs. commission? • Bonus or Overtime no longer receiving? Or not offered previously? • Not enough income to file taxes before? • Undisclosed Self-Employment Loss? For co-borrower? For non-borrowing spouse? – This one is like the kiss of death

Lenders must review info and determine reasons for discrepancies…if those reasons are not in the file, additional info must be obtained. The FAQ is also available –but it’s as clear as mud.

Fannie Mae Lender Letter 2009-07 Energy Loan Tax Assessment Programs Energy Loan Tax Assessment Programs or ELTAPs are becoming more common across the country as local governments enact legislation to assist energy efficiency programs for housing. Energy efficient loan programs are also referred to as Property Assessed Clean Energy (PACE) programs. Guidance: Fannie Mae is still reviewing these programs and will issue official guidelines in the near future. Until that time,

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RULES & REGULATION HEADLINES

lenders should treat ELTAP payments as a special assessment in underwriting a borrower where the security property is subject to an existing ELTAP loan. The loan payments will be required to be escrowed and considered by servicers in the annual escrow analysis. If the ELTAP structure is subordinate and cannot take priority over the Fannie Mae Lien, an escrow is not required. Freddie’s Best Practices – Finally Addresses Property Flipping Issues Property Flips are strictly addressed by FHA, but are not treated the same way by Fannie or Freddie. The conventional world simply put, in front of the underwriter, a list of red flags and relied on the underwriter to use common sense. Don’t get me wrong – that’s the way we like it – really, what difference does the date of the contract (91 days) make if someone is intent on committing some sort of fraud. What Freddie has done here strikes a medium balance – notice I didn’t say “happy”. Not only did they give us guidance for additional due diligence, but this time, the guidance comes with a big stick. We all know the players in the market that are buying and flipping – We know the players we trust and the rest we don’t know – right? I can tell you this – the ones you trust are going to be questioned in ways they likely haven’t been. Prepare your referral sources to get documentation of everything – sketchy renovations will not fly. Share the Mortgage Talking Points™ called “Best Practices for Property Flips” this month—your real estate investors and agents will thank you for it. USDA Flood Zone Waiver Authority Eliminated (Effective Immediately) This is a big deal for properties located in the 100-year flood zone. Gone is the ability for states that had blanket waivers—to waive the requirements! Elevation surveys will add a couple of hundred bucks to the costs (not to mention the additional time it takes to complete it). If the furnace, electrical, well or septic is located at or below the 100-year flood plain, the loan won’t be approved. Period. No Exceptions.

Provided monthly by www.MortgageCurrentcy.com Interpreting the Rules and Regulation Changes for loan officers, processors, underwriters and owners/managers. Mortgage Talking Points ™, charts and checklists included.

TIP OF THE MONTH

TIP OF THE MONTH Me LLP BY STEWART MEDNICK

business is an entity that provides a service or creates a product for profit or not for profit. The business may have hundreds of thousands of employees or be a sole proprietorship. It could also be incorporated, limited, a partnership, or just you. In fact, I would suggest that regardless of where you work, the type of work or the amount of people with whom you work, you should never loose sight of being your own self-contained company; Me LLP. The idea of the nuclear family, job security and an eight percent interest rate on a savings account at the neighborhood Savings and Loan are ghosts of a past economy. The classic notion of post World War II, ‘… get a good education, get a good job, buy a house with a 30 year fixed mortgage and pay it off, and retire after 40 years at the same company,’ is now on display in the Smithsonian next to the Dinosaur exhibit. The only things that we do know for sure are taxes, tax credits that we do not qualify, more taxes and government programs to offset taxes by taxing something else that if you do not have to tax then you may be eligible for an earned income credit that the state will tax if you qualify on a federal level. This is just a bad Rodney Dangerfield monologue riddled with 21st century Confucius-isms. Sad as it may seem, the only trustworthy element of your career development and retirement planning is you. So, say “hello” to Me LLP. I am a Limited Liability Partnership with myself. I share equal portions of risk

and reward; assets and liabilities. I market and advertise through my actions, accomplishments, and presentations. I perform trust and estate planning with my checking account and 401k. Each handshake is another deal closed. My stock increases with every raise, bonus or commission check earned. And every night I have a board meeting with my wife during dinner or while watching NCIS. This is American Capitalism of today. My tip this month is introspective. It is short but powerful. So here are a few bullet points on how to shine everyday as a successful business: • Look in the mirror before you leave the house. Remember that you are an ambassador to YOU! Image is everything. • Learn the subtleties of interpersonal etiquette; a firm handshake, direct eye contact, chivalrous manners to the ladies; Southern Lady charm to the men. • Use complete sentences and avoid slang, contractions, and saying “um.” • Be on time, and leave with contact information, action points, and a scheduled future appointment. Repeat until the deal is closed. • Live within your means. • Love what you do, it will show to your clients. Do it well and the money will follow. Finally, a definition of success to me is not necessarily a goal, but a process of everyday actions. Think successful and you will be, as some gurus of the business realm may say. Dress for success, others would say. I will sum up success in an old Cherokee Indian story of two wolves:

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TIP OF THE MONTH One evening an old Cherokee told his grandson about a battle that goes on inside people. He said, "My son, the battle is between two â&#x20AC;&#x2122;wolvesâ&#x20AC;&#x2122; inside us all. One is Evil! It is anger, envy, jealousy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, and ego. The other is Good. It is joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, compassion and faith." The grandson thought about it for a minute and then asked his grandfather: "Which wolf wins?" The old Cherokee simply replied, "The one you feed." Feed the LLP in you! Stewart Mednick is a seasoned mortgage banker and published author. His writing focuses on relationship development, personal empowerment, customer satisfaction, marketing and sales techniques. Stewart is available for marketing consulting, personal coaching and training sessions. If you have a comment or a question for Stewart, contact him at 651-895-5122 or smednick1@netzero.net

- continued from page 31

change before the interest rate is locked. As a result, if Block 2 changes, it will affect the calculation in Block A, “Your Adjusted Origination Charges.” After the interest rate is locked there is a zero tolerance for change, unless the requirements of a “Changed Circumstance” exist. If the line between originator compensation and the credit or charge for the interest rate chosen were blurred, it is likely the figure in Block A would also be held to a $0 tolerance, leaving originators subject to market conditions while the interest rate was not locked. So, while the mystery of how to document YSP on the GFE beginning in January has hopefully been solved, the saga of originator compensation continues. The Federal Reserve Board’s proposed amendments to the Truth in Lending Act (TILA) contain restrictions on how loan originators may legally be compensated and how that figure is determined. For instance, the proposed rule changes state that originator’s compensation may not be based on the “Terms and Conditions” of the loan, leaving many industry participants wondering what the charge would then be based on. The current pace of regulatory and compliance change is frenetic and odds are things will continue like this for at least the next year and probably longer. Turn to the sources you know and trust for assistance in guiding through these complex issues and tumultuous times. We at Calyx will continue to be an advocate for the mortgage industry and are committed to doing our part to bring clarity and stability when it’s needed most. Joshua Weinberg is a Business Analyst for Calyx Software, in charge of Compliance, Government Loan programs and Reverse Mortgages. Weinberg is a member of the Product Management team and is the lead designer for all features and requirements related to those topics. Weinberg is a Certified Residential Mortgage Specialist, licensed as a Broker by the California Department of Real Estate and has been originating loans since 2004. Weinberg is active in the industry and works closely with the Department of Housing Development, the Federal Reserve Board, and many State regulatory agencies and also sits on committees for the Mortgage Bankers Association as well as the National Association of Mortgage Brokers. Previously, Weinberg worked in retail banking environments and owned his own mortgage broker company. Currently he originates loans for one of the largest independent retail branching companies in the industry

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Mission Hills Mortgage Same name since 1969. Stable, family owned, well capitalized residential retail lender. Division of Gateway Business Bank. Select retail branch opportunities available on the West Coast www.mhmb.com Phone: 925-849-1806 Contact: John Connelly Email: JConnelly@mhmb.com

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BRINGING UP THE REAR - continued from page 50

that? BWHAHAHAHA… We are asking that all servicers move rapidly to expand servicing capacity and improve the execution quality of loan modifications. And they did “ask” that all of the servicers move more rapidly to get loan modifications. Who asked? Why the U.S. Department of the Treasury, that’s who. You would think that Treasury would have some clout with the mortgage servicer crowd, especially when you stop to consider that the list of servicers include such names as Wells Fargo, Bank of America and Chase. Yet, here we are… three more months since Barr did his stand up routine, and the progress being made by servicers has been stellar… if measured by the increasing number of foreclosures. If we’re counting loan modifications, however, well… in that case… they would have to be considered either monumentally incompetent, or they just don’t give a rat’s behind what the government says or wants. As of about a month ago, fewer than 2,000 of the 500,000 trial loan modifications in the works had become permanent under Making Home Affordable, according to a congressional oversight panel. Next month, Treasury says it will release new numbers, but I’d say it’s an absolute lock that they’ll report a insanely low number of permanent loan modifications. So, how many chances are we going to give these ineffectual fools before we storm the castle? G.W. Bush and Hank Paulson totally blew it. Now Obama and Geithner have somehow managed to under-perform their abysmal track record. It’s not funny… it’s heartbreaking… people have taken their own lives and died from the stress of this free fall in the housing market. So, I open the New York Times today to read a story about how the Obama administration is under pressure to do something effective to stem the tsunami of foreclosures, and who’s being quoted once again, my pal Michael Barr: “The banks are not doing a good enough job. Some of the firms ought to be embarrassed, and they will be.” Does Mikey have a learning disability? Why would anyone think that the banks are capable of feeling shame? I mean, absent the multi-billion intervention by the federal government, Goldman wouldn’t even be here, and yet they’re paying out the highest bonuses in history… $16.7 billion. Shame? You, Mikey, are the one who should be ashamed for even suggesting at this stage of the game that shame has even a modicum of potential to do anything.

The Times went on to report that: Mr. Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.

“They’re not getting a penny from the federal government until they move forward,” Mr. Barr said. All right… that’s enough, Mr. Barr. That might just be the most ridiculous sentence of this entire decade. Now I have to go take a hot bath, pour a glass of wine, and try my hardest to stop thinking about how joyous it would be to kick your ass. The banks aren’t going to get a penny until when, you moron? You want to re-think that line and get back to me? According to Barr, the mortgage program has sufficient tools to deliver relief, and he characterized the slow pace as “reflecting a lack of follow-through, and not structural defects requiring a revamping”. Shut up Mike… just shut up. You haven’t been right about this topic even once. You’ve failed repeatedly when this country needed you to succeed. Some Democrats say the time has come to reconsider a measure opposed by the Obama administration: giving bankruptcy judges the right to amend mortgages as a means of pressuring lenders to extend reductions. Ya’ think? And since when is the Obama Administration opposed to bankruptcy reform that would allow for judicial loan modifications? President Obama said he was for it in his speech introducing his Making Home Affordable program last February. Has something changed? Oh yeah, I remember now. Since he became president, he decided to be the best friend the banks have ever had in the White House, and let the people, as they say, eat cake. Look, after watching two years of this unbridled ineptitude and absolute folly, I’ve learned one thing of which I am now absolutely certain: Neither our politicians nor our bankers possess the capacity to experience shame. So, since their answer to the foreclosure crisis is once again SHAME… like it was last July when they published the report cards, then it’s game over as far as I’m concerned. Step down, Mr. Barr. Your services are no longer required. And you can leave today, as far as I’m concerned. No need to wait until your replacement is found, because having no one in your position, as compared with having your useless carcass in the seat… well… let’s just say there’s no chance you’ll be missed, and leave it at that. TheNicheReport.com

MIchael S. Barr

Treasury's Assistant Secretary for Financial Institutions BY MARTIN ANDELMAN

n May 21, 2009, Michael Barr was confirmed by the United States Senate to serve as the Treasury Department’s Assistant Secretary for Financial Institutions, which means he’s the guy responsible for developing policy on legislative and regulatory issues that affect the banks et al. You might not remember him because he paid his taxes. Barr is predominantly an academic. He taught at University of Michigan’s Law School, and was a Senior Fellow at the Center for American Progress and at Brookings. He was also Treasury Secretary Robert Rubin’s Special Assistant, Deputy Assistant Secretary of the Treasury, Special Advisor to President Clinton, Special Advisor at the State Department, and Law Clerk to Justice Souter. He got his law degree at Yale and was a Rhode Scholar. So, why am I bringing him up as this month’s REAR? Well, because Michael S. Barr puts the ingenuous into disingenuous, and I just had to say something about it before he learns so much from Geithner and Bernanke that I can’t tell what he’s saying anymore. This past September 9th, Barr gave a speech about the Home Affordable Modification program, or HAMP. This was more than a month after Secretary Geithner had summoned the servicers to Washington D.C. and allegedly read them the riot act, which was followed by the publication of the so-called shame inducing report cards. In his speech Barr said: There are clear signs that the incentives offered under the Home Affordable Modification Program are having a

December 2009/January 2010

substantial effect. These participating servicers have extended offers on over 570,000 trial modifications. Over 360,000 trial modifications are already underway.

Now, come on… that’s funny stuff, right? Not only was I laughing along, but I couldn’t help but feel a bit sorry for this erudite and accomplished academic who somehow ended up going from being a Senior Fellow at Brookings to the PR guy for Tim Geithner. And then he said: HAMP's pay-for-success structure aligns the interests of servicers, investors and borrowers in ways that encourage loan modifications that will be both affordable for borrowers over the long term and cost-effective for taxpayers.

CMY

LMAO... HAMP is a structure that aligns the interests of borrowers in ways that encourages loan modifications? Who writes Mike’s speeches over there at Treasury? That chick from Legally Blond? And then: Participating servicers are also required to evaluate every eligible loan using a standard net present value (NPV) test. If the test is positive, the servicer must modify the loan.

BWHAHAHAHAHA… The servicer “must” do something? They must? Oh, I needed this, I really did. This is therapeutic. Go on, Mikey, please go on… At this early date, HAMP has already been more successful than any previous similar program in modifying mortgages for at risk borrowers to sustainably affordable levels, and helping to avoid preventable foreclosures.

Sop it. Stop it. It’s hurting my cheeks, I’m cramping up over here. “More successful than any previous similar program in modifying mortgages?” Hope-4-Homeowners? You don’t mean to say that HAMP is more successful than - continued on page 49

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