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Nov. 24, 2010: Fed's "safe mortgage" comment period; several investor changes including condo, appraisal, foreclosure, and flip policy changes
Rob Chrisman
In what can be summed up as, "One man's junk is another
man's treasure," although originators may not want (although
they understand) the higher Freddie Mac fees, investors in MBS’s
pleased about the news. Why? Higher fees from GSE's
translate to tighter lending and therefore more early
pay-off/prepayment protection in the higher LTV / lower FICO
borrower sector. Fannie has not followed the changes yet,
and they don’t commence until March, but the changes continue to
point to borrowers with less-than-perfect credit have to pay
higher fees and rates. Gee – higher risk borrowers pay more for
a loan? What a novel concept.
But
what is slightly different here is that these Freddie fee
changes aren’t just hitting the weakest borrowers – the
higher fees are starting to have a real impact on middle-tier
borrowers, and anyone with a 2nd mortgage. For
example, a borrower with a 715 FICO with a 77% LTV now has to
pay a full point delivery fee or about .25% higher in mortgage
rate. A 695 FICO borrower with a 77% LTV has to pay 1.75 points
or an extra .375-.50% in mortgage rate.
How is the current mortgage broker business being portrayed in
the press? http://www.boston.com/realestate/news/articles/2010/11/22/imagine_a_new_mortgage_model/
Last week the Federal Reserve Board requested comments on a
proposed rule to implement provisions of the Dodd-Frank Act.
Many of the comments will focus on the 2 year implementation of
the “Volcker Rule” which generally prohibits banking entities
from engaging in proprietary trading in securities, derivatives,
or certain other financial instruments, and from investing in,
sponsoring, or having certain relationships with a hedge fund or
private equity fund. Remember, however, the legislation
requires lenders to retain a 5% stake in loans packaged and
sold to investors. The idea was to force lenders to keep
some “skin in the game” which is fine until one begins to wonder
if small lenders can keep capital amounting to 5% of their
monthly production. The question is still being asked, “What
is the definition of a ‘safe’ loan in order to be excluded
from these new restrictions?” The MBA recently wrote a
letter to federal housing regulators opining that mortgages with
adjustable rates should qualify for an exemption from the
risk-retention rules as long as they have an initial fixed
payment period of at least three years. Feel free to check out
some relevant links: http://www.federalreserve.gov/newsevents/press/bcreg/20101117a.htm
http://www.federalreserve.gov/newsevents/press/bcreg/20101117b.htm
http://blogs.wsj.com/developments/2010/11/10/mortgage-lenders-push-for-exemption-from-dodd-frank/
HUD released a few new Mortgagee Letters. One introduced
a revised HUD-1, Settlement Statement (HUD-1), closing
certification where the certification language has been changed
to include new statutory authority to impose penalties for false
certifications or fraudulent activities, include new
certification language for sellers of a HECM for Purchase
transaction; and replace the language which is required for HECM
traditional and refinance transactions. http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/
Back in
May we all learned that after 1/1 FHA Approved Loan
Correspondents, also known as Sponsored third party
originators, (those without FHA Direct Endorsement or
Authorized Agent approval) will no longer exist and may no
longer be able to close and disburse FHA loans in their own name
or access the FHA Connection after December 31. So only Direct
Endorsement Mortgagees will have that ability to close in their
name, which is why many smaller lenders are pairing up with
larger producers. For example, US Bank Home Mortgage
Wholesale Division told clients that any FHA loan locked with it
“by an FHA Approved Loan Correspondent (not DE approved), must
be cleared to close by underwriting on or before December 17,
2010, close on or before December 24, 2010, and disburse by
December 30, 2010 regardless of your lock expiration date.”
Freddie Mac has updated its manufactured housing
guidelines to require that manufactured homes meet all FHA/HUD
codes pertaining to manufactured homes including a foundation
inspection from a licensed professional engineer. Starting next
Monday U.S. Bank will require that the foundation be
inspected by a licensed professional engineer validating that
the foundation meets all FHA/HUD codes on all conventional
manufactured housing loans, both purchase and refinance.
CitiMortgage
released its monthly set of existing overlays. It is a rare
investor that does not have credit or collateral requirements
over and above what the government dictates. In Citi's case, it
sends out a 2-3 page document showing overlays to DU, LP, DU
Refi Plus, LP Open Access, FHA, VA, and VA IRRRRRRL. Obviously
too broad to sum up here, Citi's clients are advised to read
them in the bulletin.
Flagstar implemented the changes that Genworth Mortgage
Insurance made last week. Namely, the program allows LTV’s up to
97% for all borrowers with a FICO 720 or greater, regardless of
whether or not it is a first time home buyer. It is not for
borrowers in CA, FL, AZ or NV. I wonder why? A minimum 660 FICO
is needed for Purchase and Rate/Term Refi's on primary
residences on 95% LTV or less, but this. Not eligible in FL.
(System updates will be in place Wednesday, November 24, 2010.)
Borrower minimum contribution is being reduced from 5% to 3% of
borrowers own funds.
Bank of America reminded correspondent clients that many
of the HUD condo requirements for recertifying projects expire
on December 7. BofA clients should be aware that “Numerous FHA
condominium project approvals expire December 7, FHA condominium
projects with expiration dates of December 7, 2010 will convert
to “Expired” status, FHA case numbers will not be issued on
condominium projects with “Expired” status, loans with case
numbers assigned before December 7 will not require project
recertification, FHA condominium projects that expire December 7
must have case numbers assigned prior to the expiration date,
and that lender certification that the project meets the FHA
minimum of 51% owner occupancy is still required on all loans.
Chase told correspondent clients that a minimum of 84
months seasoning required regardless of reason for foreclosure,
and the minimum seasoning for borrowers who declared bankruptcy
is either 36 or 60 months, depending on the cause.
Wells Fargo wholesale alerted its broker clients about
changes in the Verbal VOE process, ordering second appraisals
(or not) on Conventional property flips, which FHA form to order
on a final inspection, and moving from a 5-year waiting period
to a 7-year waiting period for borrowers with a foreclosure.
Also, Wells’ “Easy-to-Own Remittance Mortgage Program” has come
to an end.
Across
the hall, Wells Fargo correspondent clients learned of a change
coming up on December 20th. Namely, "Wells Fargo Funding will
not purchase FHA flip transactions when the sales price of the
subject property is 20% or more above the seller’s acquisition
cost. This includes those transactions complying with the
additional conditions set forth in the HUD waiver (which allows
for a one year waiver to its flip policy on transactions where
the property seller is owner-of-record 90 days or less. In that
Waiver, HUD provided additional requirements for FHA flip
transactions where the sale price of the subject property has
increased by 20 percent or more above the seller’s original
acquisition cost.)
SunTrust alerted its clients that the Verbal Verification
of Employment (VVOE) that is required on all loan transactions
may now be completed up to ten (10) business days for salaried
borrowers and thirty (30) calendar days for self-employed
borrowers prior to closing. In addition, SunTrust followed
Freddie Mac's recent guideline revisions which included revised
minimum cash reserve requirements for certain mortgage
transactions, revised rental income requirements when converting
an existing 1-4 unit primary residence to an investment
property, and revised waiting periods, maximum LTV/TLTV/HTLTV
and eligible transactions for borrowers who have experienced a
previous short sale.
What is
going on with the economy? Good question – but as has been the
case in recent weeks, the news points to an economy on the
mend. Inflation is low, and expected to be well in hand
through 2011. We learned that Existing Home Sales dropped 2.2%
in October – attributed to foreclosure moratoriums and lack of
credit. Regardless, single family home sales are as slow as they
were in the mid-1990’s, although the median home price is
roughly unchanged from a year ago. But in a more global view,
the minutes of the 11/2 FOMC meeting were released. Although
they were pretty much as expected, the information suggested to
many economists that not only will QE2 be completed, but that a
QE3 may be discussed in early 2011. When will this stuff ever
end?
Tuesday
MBS prices ended the day better by "a shade", which could either
be unchanged or up .125, depending on the investor. A little
more than half the normal daily trading volume crossed the
wires. Treasuries rallied on a flight to quality associated with
continued worries about Ireland and Portugal’s debt, along with
North Korean aggression against South Korea. The 10-year note
closed up 13+/32nds to 2.76%.
This
morning we found out that last week’s mortgage application
numbers (from the MBA) were up about 2%. This follows the
previous week’s -14%. Purchase apps were up over 14%, the
largest increase in two years. Refi’s dropped 1% and now account
for less than 79% of all apps. We also found out that Durable
Goods were -3.3%, much worse than expected. Jobless Claims
dropped to 407,000, also lower than expected – is employment
really recovering? The trend in folks claiming unemployment
benefits is certainly pointing down – the 4-week moving average
dropped 7,500. (Today’s claims data cover the employment survey
period for the week after November payrolls; thus the data tell
us more about next month’s employment report than the one we are
getting next Friday.)
Personal
Income came out at +.5% and Personal Consumption was +.4%. This
shows an increase in the savings rate – something that many
economists like to see, although others are hoping that
households start spending more than they save. Next up at 9:55AM
EST is the final November Michigan Sentiment reading, and five
minutes later we have New Home Sales. All that is left after
that is the $29 billion 7-year note auction at 1:00, after which
activity is likely to slow considerably as participants head out
for Thanksgiving. The yield on the 10-yr is back up to 2.83%
and 30-yr MBS prices are worse by .250-.375.
(By the
way, there will be no commentary tomorrow - I will be too busy
exercising for 30 minutes, pretending that is enough to burn off
the calories that I will spend the rest of the day consuming.
The daily blather will return on Friday.)
A man wanted to get married. He was having trouble choosing
among three likely candidates. He gives each woman a present of
$5,000 and watches to see what they do with the money.
The first does a total makeover. She goes to a fancy beauty
salon, gets her hair done, new makeup; buys several new outfits
and dresses up very nicely for the man. She tells him that she
has done this to be more attractive for him because she loves
him so much.
The man was impressed.
The second goes shopping to buy the man gifts. She gets him a
new set of golf clubs, some new gizmos for his computer, and
some expensive clothes. As she presents these gifts, she tells
him that she has spent all the money on him because she loves
him so much.
Again, the man is impressed...
The third invests the money in the stock market. She earns
several times the $5,000. She gives him back his $5,000 and
reinvests the remainder in a joint account. She tells him that
she wants to save for their future because she loves him so
much.
Obviously, the man was impressed.
The man thought for a long time about what each woman had done
with the money he'd given her.
Then he married the one with the biggest chest.
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