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May 2, 2011: Unintended 5% retention issues; lots of agency & servicing news; misc. bank & lender updates
Rob Chrisman
Occasionally
I receive e-mails that are worth saving. Like the one where
someone wrote, "Your vocabulary is as bad as, like, whatever."
And some websites are worth saving, like this one that tells the
viewer what states/counties have been declared disaster areas by
our government: http://www.fema.gov/news/disasters.fema.
Happy Asian/Pacific
American Heritage Month, which was originally 3 days that
extended from May 7th (the arrival in the US of the
first Japanese immigrants in 1843) and May 10th (the
completion day in 1869 of the transcontinental railroad built
with large numbers of Chinese immigrants). Lenders
shouldn’t ignore this demographic. There are 16 million
U.S. residents of Asian descent, per the census bureau, over 5
million of them in California. (NY is #2 at 1.5 million, Texas
#3 at 1 million; Hawaii’s population is 53% Asian.) This
estimate includes those who said they were both Asian alone or
Asian in combination with one or more other races. Population
estimates at <http://www.census.gov/popest/estimates.html>.
"Here's one for your
readers to contemplate. When a seller securitizes a
certain pool of loans, can they book the gain on the whole
thing, or just 95% of it? As part of risk retention
requirements, the regulators are trying to prevent the gain on
sale from 'funding' the 5% risk retention value so the seller
has 'cash' skin in the game. The idea here is put any 'premium'
earned by the originator/seller into a performance account and
somehow make that account available to other investors if the
bonds perform poorly. Banks’ traditional origination channels
are most affected, since the premium recapture account may make
it difficult for banks to get true sale accounting treatment.
The fact that this does not take into account costs that push a
bank’s basis in originating the loan to above par means that the
bank may be left paying out of pocket to fund the premium
recapture account, which is worse than just holding the loan on
portfolio.
“And ‘perhaps the most fundamental aspect of a sale is the
transfer of risk and reward associated with an asset. If I transfer a mortgage on Blackacre to Prince
William, but bear risk on the performance of the mortgage,
it's questionable whether I have sold the mortgage to him or
merely loaned or leased it to him. The federal risk
retention requirements make this issue hairier. If I am on the
hook for the first 5% of the losses (or 5% of the total losses),
could a bankruptcy trustee come after that mortgage as an asset
of the estate? The fact that the 5% stake (vertical or first
loss) is mandated by federal securities law strikes me as
irrelevant to the true sale question, which is not a securities
law issue, and on which Dodd-Frank takes no stance. If the
transaction involves too much risk retention for whatever
reason, regulatory requirement or voluntary deal design, there
might be problems with the sale treatment. http://www.creditslips.org/creditslips/2011/04/skin-in-the-game-true-sale-implications.html?’”
There was some
servicing news at the end of last week. The Federal Housing
Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to
“align servicing guidelines in four key areas: (1) borrower
contact, (2) delinquency management practices, (3) loan
modifications and foreclosure alternatives, and (4) foreclosure
timelines.” Wrapped up in the “Servicing Alignment Initiative,”
the components provide monetary incentives for servicers that
perform well and compensatory fees for those that do not. In
other words, the goal is for consistent mortgage loan servicing
and delinquency management requirements for the companies
servicing the two GSE’s delinquent mortgages. Here is the actual
press release: http://www.fhfa.gov/webfiles/21190/SAI42811.pdf and if you are
servicing any loans for Fannie, or have any friends or family
servicing those loans, they should check out https://www.efanniemae.com/sf/servicing/pdf/saioverview.pdf. And for Freddie Mac
servicers: http://www.freddiemac.com/service/factsheets/pdf/servicing_alignment.pdf.
Fannie also recently sent
out notice of the release notes for the DU for government loans
release occurring on June 18, incorporating a recent HUD
announcement: https://www.efanniemae.com/sf/guides/duguides/pdf/current/rndug0611.pdf.
(Freddie
also released The Phase I ULDD requirements include delivery of
the ULDD data point equivalents for data we currently require at
loan delivery plus 53 additional ULDD data points, which starts
up in December for delivery dates in March. http://www.freddiemac.com/sell/secmktg/uniform_delivery.html
Not wanting to be left out of the flurry of agency updates, HUD came out with a Mortgagee Letter providing
FHA guidance regarding the financing of homebuyer transaction
costs for homebuyers who acquire HUD REO single-family
properties under a specially-authorized sales incentive that
requires only a $100 minimum cash investment. “Homebuyer
acquisition costs that may be financed for eligible homebuyers
are limited to Upfront Mortgage Insurance Premiums (UFMIP).” In
addition, another Mortgagee Letter came out focused on removing
the one percent origination fee cap for standard FHA insurance
programs, except for the 203(k) Rehabilitation Mortgage
Insurance and Home Equity Conversion Mortgage programs. Check
all letter out at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/.
As this commentary
mentioned a while back, GNMA announced that
starting June 1, all loans pooled into its mortgage-backed
securities must be current at the time of issuance. Most dealers
think this new requirement is unlikely to affect GNMA valuation,
but instead are keeping a careful watch on the high re-default
rate of re-pooled loss-mitigation loans and the lack of ways to
identify them.
FHA lenders know all
about the “TOTAL Scorecard,” which has also had
some clarification lately. “If the credit report reveals that
the borrower is disputing any credit accounts, Manual Downgrade
of a TOTAL Scorecard Approve/Accept recommendation is not
required if: 1. The disputed account has a zero balance, 2. The
disputed account is marked as “paid in full”, or “resolved”, 3.
The disputed account is both a. less than $500, and b. more than
24 months old, based on the date of dispute. All this can be
found at: http://www.fhaoutreach.gov/FHAFAQ.
In addition, a
company must send in FHA single family claim-related remittances
using the “Claim Remittance” feature in FHA Connection. “This
feature can be accessed through the FHA Connection by selecting
Single Family Servicing, Claims Processing, and Claim
Remittance. Banking information can be entered securely during
the one-time cash flow account setup using the Cash Flow Account
Setup module in FHA Connection.” For more instructions it is
best to visit http://www.hud.gov/offices/hsg/comp/premiums/arsclaims.cfm.
It appears that The Leaders Group, out of Oak Brook, Illinois
(and owners of Leaders Bank) reached an agreement late last week
with the Federal Reserve Bank of Chicago: http://www.federalreserve.gov/newsevents/press/enforcement/enf20110428a1.pdf
On the other hand, in
Florida Premier American Bank, National
Association (including Florida Community Bank), took over the
banking operations and deposits of First National Bank of
Central Florida, and Cortez Community Bank. Bank of
the Ozarks (Arkansas), acquired the banking operations,
including all the deposits, of First Choice Community Bank, and
The Park Avenue Bank, both of Georgia. And way up in Michigan,
Community Central Bank, Mount Clemens, was closed and operations
assumed by Talmer Bank & Trust, formerly
known as First Michigan Bank.
Friday the commentary mentioned several things. One was a story
about Zillow offering gift cards at Lowe's to mortgage
applicants, up to $1,000. It turns out that Zillow
and Century 21 Real Estate LLC have teamed up "to provide
CENTURY 21 brokers and agents with exclusive discounts on
Featured Listings on Zillow. These Featured Listings will appear
on the Yahoo!/ Zillow Real Estate Network, the largest real
estate network on the web. http://realestateinsidernews.com/celebrity-homes/zillow-partners-with-century-21/
Another was the cost of regulation, warranting this note: "I am
no fan of more regulation and any time you start making
decisions that run counter to market forces, you are going to
get some irrationality. However, it remains to be seen what the
true cost of regulation is. Like all edicts, some will be good
and some bad. Every day we hear that a $300mm bank can’t survive
and must merge to stay competitive, but that may be a fallacy.
For starters, while the cost of banking has increased with
Dodd-Frank, so far it is not prohibitive. Like SOX, DFA may
require a bank to add another full time person, but at the end
of the day, the change in the cost of regulation
will not be material to drive a bank out of business. The
biggest killer is the tighter controls on leverage."
GMAC's (#5 lender for the 4th quarter
with about a 4% market share) correspondents continue to see
refinements and adjustments on underwriting guidelines, using an
easy-to-read but lengthy "current policy to new policy" format.
GMAC has recently clarified criteria such as Community Land
Trusts, installment land contracts, interested party
contributions, Texas equity loans (need to certify that the
borrower received those documents!), monthly housing expenses,
verbal VOE's, principal curtailments, living trusts, removing
the MIP form from the list of required FHA documents, reminding
clients of the expiration of case numbers, net tangible benefit
definition, and so on.
Mountain West Financial updated its policy on
multiple financed properties for the same borrower on Conforming
Loan Amounts only ($35,000 - $417,000), including: “If the
mortgage is secured by the borrower’s principal residence, there
are no limitations on the number of properties that the borrower
can currently be financing. If the mortgage is secured by a
second home or an investment property, the borrower may own, or
be obligated on, up to ten financed properties (including his or
her principal residence). The financed property limit applies to
the borrower’s ownership of one-to-four unit financed properties
or mortgage obligations on such properties and is cumulative for
all borrowers. These limitations apply to the total number of
properties financed, not to the number of mortgages on the
property.”
With many Secondary
Marketing folks attending the conference here in New York,
things may be a little slow. The news that Osama bin Laden has
been killed impacted foreign currency markets slightly, but has
little real impact. Last week, for the week, 10-year T-notes
gained nearly 1 point and the yield dropped to 3.30%, and
current coupon agency mortgage prices improved about .75 in
price. We finished Friday with prices better by .125 after
Personal Income was +.5%, Personal Consumption was +.6%, and
Consumer Confidence rose – all slightly better than expected.
Economic news this week bolts right out of the gate with
Construction Spending and the ISM Index today. Tomorrow is
Factory Orders, Wednesday some Challenger and ADP jobs numbers,
and Thursday Jobless Claims and some productivity statistics.
Friday we'll see all the unemployment, uh, I mean employment
data.
A man feared his wife wasn't hearing as well as she used to and
he thought she might need a hearing aid.
Not quite sure how to approach her, he called the family doctor
to discuss the problem. The Doctor told him there is a simple
informal test the husband could perform to give the doctor a
better idea about her hearing loss.
"Here's what you do," said the Doctor, "stand about 40 feet away
from her, and in a normal conversational speaking tone, see if
she hears you. If not, go to 30 feet, then 20 feet, and so on
until you get a response."
That evening, the wife is in the kitchen cooking dinner, and he
was in the den. He says to himself, "I'm about 40 feet away,
let's see what happens." Then in a normal tone he asks, 'Honey,
what's for dinner?
No response.
So the husband moves closer to the kitchen, about 30 feet from
his wife and repeats, "Honey, what’s for dinner?"
Still no response.
Next he moves into the dining room where he is about 20 feet
from his wife and asks, "Honey, what’s for dinner?"
Again, he gets no response.
So, he walks up to the kitchen door, about 10 feet away. "Honey,
what's for dinner?"
Again there is no response.
So he walks right up behind her.
"Honey, what’s for dinner?"
"Edgar, for the FIFTH time, CHICKEN!"
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