The economy is filled with surprises, and people warning us about them - and us not listening. Every time we fill up our gas tanks we are reminded of oil's decline. But in 2013, ND had the largest rise in Gross State Product; a staggering 9.7% followed by WY at 7.8%, WV at 5.1%, OK at 4.2% and ID at 4.1%. All but ID are energy-rich states. Do you think the economies in those states won't be impacted by the precipitous price decline? The worst performing state was AK which contracted by 2.5%, followed by DC which shrank by 0.5%, MD which had no growth, VA that grew by a paltry 0.1% and PA that rose by just 0.7%.

Saudi Arabia is firm on mortgage laws: no LTV above 70%. How would that impact ownership here?

Fannie and Freddie know plenty about high-LTV lending, the difference between offering clients different gfees based on whether or not the loan is destined to go into a security or be sold to them through their whole loan window, and counterparty risk. And last week the FHFA, which overseas F&F, turned heads with new "eligibility" standards for Fannie Mae and Freddie Mac seller/servicers, including a proposal to establish a 6 percent minimum capital ratio requirement for nonbanks. Suddenly every small lender with a servicing portfolio is checking out those year-end financials to see how much cash they have. So what about the current "$2.5 million plus 25 basis points of the unpaid principal balance of the loans" a company is servicing? Stay tuned - the agency is asking for comments, and how banks are handled remains to be seen. A liquidity standard is also being proposed: 3.5 basis points of total agency servicing - be it Fannie, Freddie or Ginnie Mae.

And while we are on comments, the MBA's Pete Mills writes, "The Mortgage Bankers Association just secured a very important clarification from FASB on an issue that could have been quite problematic, especially for smaller IMBs. Recently, one of the Big 4 accounting firms required a company to change accounting practices for 90+ delinquent loans in Ginnie pools issued by the company, requiring all loans to be brought back on to their balance sheet (along with an offsetting claim receivable). We surveyed our members and found that there was diversity in practice on this issue, and we were concerned that the claw back interpretation could create significant headaches for IMBs if it were to become the new industry accounting standard. MBA's Jim Gross, who staffs our Financial Management Committee, took this issue to the FASB and argued against this interpretation. In a conference call with FASB on Jan. 28 the FASB staff agreed with MBA's position that the decision process involves two steps: A loan becomes 90 days or more delinquent (the option to repurchase is the triggering event), and the seller/servicer must then determine if the option to repurchase has "more than a trivial benefit" to the seller/servicer - based on the seller/servicer's unique facts and circumstances.

"FASB agreed with the MBA's view that the seller/servicer should put both an asset and a liability on its books for the principal amount of the loan to be repurchased ONLY IF BOTH tests are met.  If both tests are not met, then a seller/servicer should not be required to put an asset and liability on its books. The FASB staff also agreed that the 'unit of account' is the individual loan level. Thus, a seller/servicer may decide on a case by case basis whether the option to repurchase some loans represents a more than trivial benefit. The clarification applies to Ginnie pools that are serviced by the entity that issued the security. Servicers that have acquired Ginnie Mae MSRs from another issuer are not required to apply the two part test. The MBA will hold a conference call of its Financial Management Committee in the next few weeks to discuss how seller/servicers should document these loan level decisions. If you are an MBA member and want to get involved with this Committee email Jim Gross, and if you are not an MBA member, contact Tricia Migliazzo.

Speaking of groups and agencies, as a reminder the Credit Union National Association (CUNA) urged the FHFA to withdraw the Federal Home Loan Banks (FHLB) proposal regarding membership requirements. The proposal would require FHLB-members to hold 1% of their assets in "home mortgage loans" on an ongoing basis. The proposed regulation suggests that FHFA may raise the requirement to 5% sometime in the future. All FHLB-member credit unions would be required to hold 10% of assets in "residential mortgage loans" on an ongoing basis and this requirement would have to be met in order to become an FHLB member. Community financial institutions are exempt from this requirement, but under the FHFA proposal, no credit union can be considered a "community financial institution." CUNA states that the proposal could require Credit Unions to alter business practices by creating major compliance responsibilities and could result in higher cost mortgages. These cited challenges that Credit Unions may face  have already impacted the lending industry, as lenders try to comply with the new rules and regulations enforced by the CFPB. In this evolving market, there will be new regulations and requirements, no matter how inconvenient and unreasonable they may be, that industry stakeholders will have to abide by.

Reverse mortgage specialists know that they have exactly a month to go until new loans registered with HUD will see new financial assessment requirements. HUD cites the increase in property tax and homeowner's insurance defaults as the key reason for implementing these changes to the program. Lenders will now be required to assess the borrower's credit worthiness and ability to meet his or her financial obligations. As of March 2, credit will be looked at very differently than now. Lenders must perform a detailed analysis to determine if the homeowner will be able to continue to meet their obligations once they have a reverse mortgage. Where there is derogatory credit such as foreclosure, late mortgage payments, defaults etc., the lenders must determine if such derogatory credit is due to extenuating circumstances or the inability of the borrower to manage his or her financial obligations. As of March 2, HUD defines satisfactory credit as having no late payments on a mortgage or installment debt in the previous 12 months and no more than two 30-day late payments on any installment debt or mortgages in the previous 24 months.

If the lender concludes that the borrower has not shown a willingness to meet his/her financial obligations and no extenuating circumstances exist, the lender will require a fully funded Life Expectancy Set-Aside which allows the lender to set aside proceeds from the Home Equity Conversion Mortgages to pay property taxes and insurance premiums. If there is not sufficient equity in the home, the loan request may be declined. The changes to this program are significant. Anyone considering a reverse mortgage would be well advised to meet with a lender that offers the program to discuss options sooner rather than later. By the time mid-February rolls around, it may be too late to get in on the current, more relaxed guidelines.

While we're talking about March, which is now only next month, you have until March 30 to comment on a new proposal issued by the Consumer Financial Protection Bureau aimed to make it easier for consumers in rural and underserved areas of the United State to obtain mortgages. The CFPB proposed several changes to its mortgage rules to encourage responsible lending by small creditors in rural areas, that if approved could increase the number of small institutions able to offer mortgages and help small creditors to comply with business practice rules set forth by the agency. Currently, there are restrictions on lending mortgages to borrowers whose debt would exceed 43% of their pretax income. The proposed changes would free more banks and credit unions to offer loans to borrowers above this 43% debt-to-income ratio. As a result of that change, the CFPB says it could increase the number of small lenders, which includes banks and credit unions, to 10,400 from around 9,700.

Turning to the markets, we have had some news out of the US lately. NAR told us that Pending Home Sales dropped in December 3.7%. Despite last month's decline (the largest since December 2013 at 5.8 percent) the index experienced its highest year-over-year gain since June 2013 (11.7 percent). More importantly last week we had the Federal Open Market Committee's statement. Given the run-up in the value of the trade-weighted dollar, the continued decline in oil prices and significant moves from foreign central banks in recent weeks, there was some hope that the language of the FOMC statement might signal either a renewed commitment to mid-year tightening or a move to a more dovish stance. Nope.

For me this week involves travel to Texas and Florida, but we have a tremendous amount of scheduled news coming at us. Today is the Personal Income & Consumption duo, along with the PCE Deflator numbers, Construction Spending, and some Institute of Supply Management numbers. Tomorrow is Factory Orders - are they healthy? Wednesday is the ADP employment numbers (private payrolls), and Thursday is the Trade Balance and standard Initial Jobless Claims. Friday is the usual first-Friday-of-the-month set of employment data. Friday the 10-year closed at a yield of 1.67% and this morning we're at 1.68% with agency MBS prices roughly unchanged.

Jobs and Announcements

On the jobs front, Crescent Mortgage Company (NASDAQ: CARO), a bank-owned national correspondent and wholesale lender founded in 1993, continues to grow its business. Management is currently interviewing for Account Executives in four territories: South Texas (Austin) territory, Arizona / New Mexico territory, Missouri and Kansas Territory, and Pennsylvania/Ohio.  Crescent's primary customers include over 1,000 Community Banks, Credit Unions, and high quality Mortgage Brokerages throughout the country. Product offerings including Fannie Mae, Freddie Mac, FHA, VA, USDA Rural Development, and portfolio Jumbo options. We also offer Financial Institution specific products such as our One-Time Close, and Two-Time Close construction to permanent programs as well as optional contract processing services to our partners. If you are interested in joining the Crescent Mortgage Family and working with high quality financial institutions, please send resume and cover letter to Alex Williams, SVP Sales at awilliams@crescentmortgage. net

And recently the commentary mentioned San Francisco's Social Finance expansion into mortgage lending this year. Social Finance is searching for directors of business development and sales for SoFi Mortgage. The candidates will help grow SoFi Mortgage origination volume through direct contacts with Realtors, developers and homebuilders, and their professional networks. There are open positions in the San Francisco Bay Area, greater Los Angeles, and Seattle. The desired skillset includes 5+ years of experience in mortgage originations or real estate sales, established Realtor networks and relationships, the ability to work in a fast-paced and entrepreneurial organization and ability to travel. One will have the opportunity to "help create a truly disruptive financial services company." SoFi is an entrepreneurial company with freedom to take responsibility and define outcomes, offering a competitive salary with quarterly performance bonus, share options, and benefits. For a full job description, confidential inquiries and resumes should be sent to jobs@sofi.com.

And the commentary continues to discuss M&A in the financial services sector. The Money Source and Endeavor America Loan Services are proud to announce the merger of their two correspondent divisions into one group (to operate under The Money Source brand) and under the leadership of industry veteran Phillip Kukafka. The newly combined team will operate under The Money Source brand.  Additionally, TMS is lowering its minimum FICO to 550+ effective February 2^nd. "TMS will continue to promote their unique philosophy with regards to People, Product, Price, and the 4^th P, Philosophy. Philosophy is probably the most intangible of the four Ps, but it can have the most dramatic effect on a lender's profitability. The Money Source is making a name for itself in the correspondent arena. TMS' credit philosophy is to truly follow FHA, VA, USDA, and Fannie guides with minimal overlays. Learn more on how to become approved with The Money Source by visiting its website.

Speaking of moves, Boulder, CO based Montage Mortgage announced the appointment of Fobby H. Naghmi as EVP, National Sale Director. "Since 2010, Montage has been lending to borrowers with scores ranging from 500 and up for FHA/VA & USDA by implementing a 'No Overlay Manual Underwriting' approach, as well as an Alt-Income Doc program for self-employed borrowers and Non-QM programs for borrowers needing expanded guidelines to obtain a home loan.