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Jun. 13, 2011: Miscellaneous letters on topics ranging from DTI to Freddie's Relief program; NMLS Call Report deadline approaching
Rob Chrisman
"The
evening news is where they begin with 'Good Evening,' and then
proceed to tell you why it isn't." So I won’t say “Good
morning.” As Wells Fargo Security's newsletter noted at the end
of last week, "Now that the era of stimulus is coming to an end,
decision makers must come to grips with the economy that we
have—not the one some commentators dream up. First, the housing
sector continues to work through its issues, which means
sustained subpar housing starts for several years in several
metropolitan areas. Second, the pattern of fiscal deficits
remains higher than in earlier economic recoveries. Forty years
of promises for entitlements now face the reality of limited
revenue growth at the federal and state level. The time of smoke
and mirrors has passed."
At this point, a sizable portion of loan officers would
willingly trade these low rates for an uptick in property
values, some heat in the economy, and slightly less stringent
underwriting guidelines. And brokers would like some market
share back: a report shows that brokers’ market share fell
to an all-time low of 6.9% in the first quarter, the
lowest reading ever per National Mortgage News. And an industry
observer wrote to me, "The nation's banks did 29,000 HAMP loans,
while we have over 4.2 million in foreclosure. That's about 1/2
of 1 percent or 6% annualized. Since the Fed seems to finally
admit it going to be a long drawn-out recovery, as opposed to
prior Bernanke statements that it was contained. If servicers
keep taking 800 days to foreclose, plus the several-year Freddie
or Fannie restriction on new loans or buying, we are going to
lose over 4 million buyers for 6-7 more years alone.
Lots of notes lately,
on a variety of topics:
"I have friends in
different parts of the world and nobody has had a
mortgage crisis due to debt ratio requirements. In some
countries 20% down and a 28% front-end debt will get you a home
regardless of credit. I don't agree with anything less than 5%
down. Like anyone else, I would like as many resources as
possible to earn money in the mortgage business - but with that,
we will find ourselves in a fake economy once again. The value
of homes should increase according to income once again - not
debt ratio increases. Everyone should have at least 5% in the
game. If you work hard and you make sacrifices to save at least
5%, then you are ready to purchase a home."
"Every day we hear how the banks are so conservative now: UW
rules are extremely tight, FICO risk based pricing. The reason
the banks allowed ‘anything goes’ a few years ago, is Wall St.
sold the trash. There never would have been a huge subprime
market to go bust if Wall St. had not provided the outlet to
take the subprime stuff off the banks’ books. I doubt if banks
would have provided the subprime programs that were in market if
they had to keep the stuff.”
"I run production for
my company, and I tell my sales staff that they need to figure
out a way around borrowers looking for appreciation. It doesn't
look like housing prices will be bouncing back anytime soon,
given unemployment, household formation, shadow inventory,
underwater mortgages, more stringent underwriting requirements,
and the possibility of higher rates. Rates are
great, and my staff needs to continue dialing the phone.”
We discussed Fannie
versus Freddie prepayment speeds, along with a clarification on
the Freddie Relief program. I received this note from a
broker in the Northwest; "In spite of programs being offered by
agencies, many are not really 'do-able' in the real world. With
Freddie's Relief loan, sure they’ll do all kinds of things – but
find an investor that will do it. Most have severe overlay
guidelines on the Relief program that make most of the loans
impossible to close. Transfer MI? Right. B/A or Wells would just
'love' to take on all of CHASE’s 125% LTV or higher CLTV files,
especially if subject property is investment occupancy now
(CHASE would probably provide the leads if they would), just
like Chase would 'love" to take on BofA's and Wells'. Also, if
my memory serves me correctly, Freddie did a bunch of pool
insurance, in which case you can’t get a Relief at all. Bottom
line from my experience: Relief loans are available from Freddie
but tough to close with a high failure rate from the start."
Here is a NMLS
“heads-up” for folks: on June 16 a license deficiency will be
placed on companies who have not submitted their Q1 Mortgage
Call Report. Over 11,000 companies have successfully
completed their Q1 MCR in NMLS. If you haven’t yet, get started:
http://mortgage.nationwidelicensingsystem.org/slr/common/mcr/Pages/default.aspx.
Last week the
commentary discussed REIT's impact on the residential
mortgage market. The total market capitalization, or the
aggregate value, of real estate investment trusts could be as
high as $42 billion and growing, according to an estimate from
investment bank Keefe, Bruyette & Woods (versus $500 million
in 1971 and $30 billion by the end of 2010). Real Estate
Investment Trusts have special tax exemptions and an ability to
hold more capital under upcoming risk-retention rules. So why
are REIT’s buying? This is a key reason that spreads remain
range-bound despite the news of the Treasury unwinding its MBS
portfolio, and the leverage opportunities are very attractive.
Analysts believe that
more growth could come as the mortgage market becomes dependent
on more capital. Currently, $1.5 trillion in mortgages and MBS
sit on Fannie Mae and Freddie Mac balance sheets with another $1
trillion in MBS at the Federal Reserve. Assuming a run-off rate
of 10% per year replaced by private capital, the mortgage market
could need roughly $110 billion in private capital in the next
decade which could double the current $42 billion that REIT’s
control. For more information visit: http://www.wholeloans.com/images/Mortgage_REIT_Primer_Analysis_Final_4-11.pdf.
And David Akre with Whole Loan Capital has written a
presentation for lenders considering a REIT structure. If you're
interested in seeing it, contact him at dakre@wholeloans.com.
CitiMortgage (#4 in the 1st
quarter with a 4% market share) issued an update focused on
“Low-to-Moderate Income Census Tract” (LMICT) pricing
incentives. Loans can be sold either best efforts or mandatory
to City, but Illinois markets are no longer eligible; selected
markets in Florida, New York and Texas still eligible.” There
are certain requirements, such as the loans must be locked after
5/16 and be purchased by 8/31, the property to be located in the
specified state, county, and MSA as identified per the Eligible
Counties table. To start with, enter the property address into
the FFIEC website at: http://www.ffiec.gov/Geocode/default.aspx
and click on the “Get Census Demographic” button at the bottom
of the page.
Citi also offered up
to its clients “the top pre-purchase suspense items and
post-purchase defects for conventional and government loans.”
First on the list is evidence that the property is owned “Free
and Clear”: “There must be documentation in the loan file to
demonstrate the property (other than the subject property) is
owned free and clear as stated by Final 1003. A hazard insurance
policy or binding hazard policy commitment (inclusive of all
pages) is required as part of the loan file submission if the
Final 1003 states a property is free and clear of any mortgage.
(An acceptable alternative would be to provide a Core Logic /
Real Quest Property and Ownership search against public records,
reflecting that there is no mortgage or encumbrance against the
property.) And some properties are located on private roads,
which often have maintenance agreements. “When the subject
property is on a private road (street type shows as “Private”
per appraisal report / appraisal form 2075), ensure one of the
following is included in the loan file submission: A Private
Road Agreement (states who is responsible for maintenance of
private road & the cost of maintaining the road),
comments/statement from the appraiser regarding maintenance
expense of the private road (e.g., included in the HOA fee).
For more details on best practice documents Citi’s clients can
visit www.agentsite.com/solutions
under the ‘Quality Tools’ header.
Bank of America (#2 in the 1st
quarter with a 17% market share) issued a disaster declaration
for Illinois. It also issued a product update to state specific
guidelines and an update to the Open 30-Day Charge Accounts
Policy.
GMAC (#7 in the 1st
quarter with a 3% market share) released an announcement that in
Illinois a civil union shall be recognized by the law in regard
to spouses.
The 1st
quarter’s #1 lender (with a 24% market share) Wells Fargo
Funding sent out a “Risk Advisory Bulletin” to its
correspondent clients. Topics included GFE/HUD-1 Comparison
Chart Discrepancies under RESPA, the use of correct model form
TILs, “Incomplete Copies of Notice of Special Flood Hazards,”
and dating corrected documents to cure a material finding. And
in wholesale, brokers received a Newsflash addressing
the use of the pricing calculator to determine compensation, a
reminder of “Benefit to Borrower” policy changes (that took
effect 5/21), and discussed Ohio “Zero Interest/Low-Rate
Mortgage Loan Requirements.”
SunTrust (#9 in the 1st
quarter with less than a 2% share) issued an additional guidance
for DU loans for borrowers employed by a family member,
announced the Virginia Automatic Subordination Amount is
increasing July 1, issued a statement saying borrower-paid
temporary buydowns are no longer offered, and offered up
clarification on eligibility requirements for Florida
condominiums.
As the commentary has
noted, it is hard to complain about rates. Yes, there is some
inter-day volatility, but with the 10-yr sitting around 3% and
30-yr fixed rates around 4.375%, rates are not the issue. Last
week rates closed lower, with the 10-yr at 2.97% and MBS prices
slightly better than the previous Friday's. We have zilch for
scheduled economic news today, but tomorrow the pace increases
with Retail Sales, the Producer Price Index, and Business
Inventories. Wednesday is the Consumer Price Index, Empire
Manufacturing, and Industrial Production & Capacity
Utilization. Thursday is Jobless Claims, Housing Starts &
Building Permits, and the Philly Fed. Friday is a University of
Michigan number, and Leading Economic Indicators. Quite a bit! Rates
are slightly higher with the 10-yr at 3.01% and MBS prices
worse about .125-.250.
(Warning: Parental discretion advised)
A video collection of "Dirty Jobs"'s Mike Rowe's double entendre
comments: http://dsc.discovery.com/videos/dirty-jobs-king-of-double-entendre.html#mkcpgnfbdsc7
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