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Jul. 27, 2011: Loan limit cut preparations trickling down; news from most major investors from BofA through ING to Wells
Rob Chrisman
A
loan agent sent me a joke yesterday: “What’s the difference
between the US government and a subprime borrower? None - they
borrow money that they can't pay back in hopes that some
inflated value will bail them out in the end.” But given our low
rates, one analyst asked, “Has US government debt become a safe
haven for its own downgrade?”
One
thing for sure is that US banks are holding on to more cash and
locking in longer-term financing as they brace themselves for
the consequences of a potential downgrade of the US’s triple A
credit rating. The Financial Times notes that if US government
bonds lose their AAA rating, banks using them as collateral may
have to endure higher “haircuts” on the collateral, potentially
sparking a credit crunch especially in the $3 trillion
repurchase, or “repo”, market, on which large institutions rely
for short-term funding.
Bank
of America
is not out of the woods yet. Recently six Federal Home Loan
banks have “launched a salvo” against Bank of America’s proposed
$8.5 billion mortgage bondholder settlement, suggesting the
payout may need to be triple that amount. “Research reports used
to determine the settlement figure were too favorable to B of A,
used faulty estimates from the Charlotte, N.C., bank and ‘raise
more questions than they answer.’" This reminds us that the
FHLB’s don’t all have to act together in matters such as this,
and the six (Boston, Chicago, Indianapolis, Pittsburgh, San
Francisco and Seattle) have filed a separate claim. Others, such
as the Federal Home Loan Bank of Atlanta were part of the June
settlement along with PIMCO and BlackRock.
Flagstar is not out of the
woods yet, either. The holding company for Flagstar Bank
reported a 2nd quarter net loss of almost $75
million, following a first quarter 2011 net loss of almost $32
million, and a second quarter 2010 net loss of $97 million. The
loss is attributed primarily attributed to “legacy balance
sheet” issues. Flagstar has ramped up its commercial lending
this year, which has helped, along with selling $68 million in
non-performing commercial real estate assets. In the 2nd
quarter “Mortgage rate-lock commitments increased $0.9 billion,
or 16.8 percent, from prior quarter.”
Moving
from Michigan to Iowa, Wells
Fargo will be undergoing some mortgage-related changes in
management. Cara Heiden, co-president of the mortgage
business, will be following Mark Oman (who runs mortgage and
consumer finance) into retirement. Mike Heid will become the
sole president of Wells Fargo Home Mortgage, and Avid Modjtabai
will head up the Consumer Lending Division (which includes
mortgage, home equity, and student loans). Promoting from
within…
Anyone
in compliance or quality control may want to participate in the
next monthly conference call/webinar of the California Mortgage
Bankers Association's Mortgage Quality and Compliance
Committee (MQAC). Several speakers will be discussing the
“Impact of New Fair Lending Oversight Initiatives,” and it’s
free tomorrow (Thursday) at 11AM PST. Contact Dustin Hobbs for
webinar login information at dustin@cmba.com although the
teleconference portion can be heard by dialing 1-800-351-6802
with verbal passcode 437841.
Regardless
of
whether you are in favor or not of extending the temporary loan
limits, investors from the top down are preparing for 10/1 when
they are scheduled to be scaled back in many areas. (Freddie's
page can be found at http://www.freddiemac.com/sell/selbultn/limit.htm.)
For Freddie, the
expiration of the temporary maximum loan limits will impact the
sale of super conforming mortgages with note dates on or after
10/1. "Super conforming mortgages will be subject to the limits
determined according to the Housing and Economic Recovery Act of
2008 (HERA). Mortgages with note dates on or after October 1,
2011 must have an original loan amount equal to or less than the
2011 HERA limit for that county/#units combination. The maximum
allowable limit for a 1-unit property in the highest cost
counties (exclusive of those in AK, HI, GU and VI) will be
$625,500, with 2-4 units being higher." Freddie also reminded us
that "Congress might act on loan limit legislation again before
October 1, 2011. Should that occur we will provide you with
further guidance."
This
obviously trickles down. U.S.
Bank told its brokers that, "The Super Conforming Loan
Limits for FHLMC/FNMA/FHA are due to expire on September 30.
From all indications, it is likely that the current limits will
not be extended and the new limits will be reduced not only to
the absolute limit (reduced from $729,250 to $625,500) but
individual county limits as well. Exact limits will not be known
until sometime around the first week of September…” USBHMWD will
be taking several steps ahead of that, such as putting a 9/30
deadline in place for any closings, disbursements, and file
deliveries. USB notes that for VA loans, however, “the maximum
loan amounts available through USBHM will not change however,
the Veterans maximum eligibility/entitlement available in Super
Conforming counties is subject to change.” Check with USB for
details.
And
it trickles down further. Out in California, for example, Mountain West Financial
told brokers of instituting funding cut off dates for
Conventional, FHA and VA maximum loan limits. “MWF will require
that these loans (under the temporary loan limit) fund by
September 23. For mortgage loans with note dates after September
30th, revised limits will apply. The maximum limit is $625,500
for a 1-unit Property in the continental United States. General
Loan Limits for 2011 will remain unchanged from the 2010 general
loan limits. MWF will require that FHA and VA loans under the
current high cost limits to fund by August 31. FHA loan limits
would likely decline in 669 of the 3,334 counties or county
equivalents that are eligible for FHA insurance.”
Recently
the
commentary noted that Chase
referenced a HUD bulletin concerning the annual MIP change.
As it turns out, the change in MIP was not announced via a
Mortgagee Letter but instead the change was made directly to HUD
TOTAL Scorecard and CHUMS. I received a note, “Regarding the
HUD/FHA MIP change, in HUD's defense they did let the industry
know during a 6/2 MBA industry conference call that the changes
were coming.” An astute reader noted, “We identified the change
via a difference between our LOS and FHA TOTAL Scorecard annual
MIP values. Loans with a loan terms <15 years and LTV’s
<78% now reflect 0.00 in the Annual MIP returned from TOTAL
Scorecard. Additionally if the Correspondent checks the
FHAConnection Case Query screen, they will see a 0.0 factor for
this segment of loans. The Correspondent would use the TOTAL
Scorecard findings and the FHAConnection Case Query screen as
their documentation. The Mortgagee Letter is still pending from
HUD.”
Another
wrote,
“Regarding ML 2011-22: FHA’s Mortgagee Letter 2011-22
Condominium Approval Process for Single Family Housing was
released 6/30/11, also affects Quality Control and Record
Retention requirements for some Lenders. Lenders who perform FHA
Condo Project submissions under the Direct Endorsement Lender
Review and Approval Process (DELRAP) option will need to
implement a new addition to their FHA Quality Control Review
Procedures and Record Retention requirements. This ML requires a
QC review minimum of 10 percent of all project approval reviews
and a 3 year record retention period of all legal documents and
other supporting & associated documentation in connection
with a DELRAP participant’s review and approval or denial of the
condo project submission after the date of the last action
taken: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/.
Bank
of America
recently notified its correspondent clients of a change in the
way they can view Residency Status and Documentation
Requirements for Conforming, FHA and VA loan programs (all in
one section now) and its Rural Housing guidelines now include
that the borrower may be a Qualified Alien. Clients should refer
to USDA Rural Housing Policy for eligibility.
GMAC continued to
make pricing adjustments. This time correspondent clients
learned that, starting last Thursday, GMAC will be adding two
rate adjustments to the LPMI products: +.250 rate adjustment on
FICO >p0 and loan amounts >$417,000 and <$625,500,
and +.500 rate adjustment on FICO >p0 and loan amounts
>$625,500 and <$729,750.
SunTrust revised
their tradeline underwriting policy. ("SunTrust Mortgage
considers borrowers who have too few reported tradelines or
insufficient trade histories on a case-by-case basis. Strong
compensating factors must exist. We require a second tier
review by a SunTrust Mortgage Underwriting Team Lead or
Underwriting Manager.") It also refined its appraisal policy
("SunTrust Mortgage, Inc. revised the Appraisal Guidelines to
specify review appraisals as field review appraisals. We do not
allow the use of desk review appraisals.") and published
additional guidance regarding permanent resident alien green
card expiration dates and acceptable documentation for clients
with a green card expiring within six months after closing.
ING reminded brokers
that, “pursuant to your company's executed Broker Agreement, in
the event that the Broker solicits the refinance of a Loan
previously funded by ING within one hundred eighty (180) days of
the funding date by ING, Broker shall repay ING, within (30)
days, any premium or similar amounts paid to broker by ING at
the time of original purchase and/or funding of the Loan." To
avoid recapture do not submit a refinance of a loan previously
funded by ING Mortgage within 180 days of the funded date.”
Yesterday
we
had the
S&P/Case-Shiller numbers: down from a year ago, up from
the previous month. The index for 20 cities fell 4.5% from
May 2010. Nineteen of the 20 cities in the index showed a
year-over- year decline, led by a 12% plunge in Minneapolis.
Washington showed the only increase, up 1.3% from May 2010.
Month over month, the 10- and 20-City Composites were up 1.1%
and 1.0%, respectively, in May over April. New Home Sales decreased
1% to a 312,000 annual pace in June, but the median sales
price increased 7.2% to $235,200 from June 2010, and the average
sales price was $269,000. (We have about a 6.3 month supply at
the current sales rate.) Lastly, the Conference Board Consumer
Confidence Index improved slightly in July to 59.5, up
from 57.6 in June.
What
did all that do to rates? Not much, really – the debt issue is
impacting the stock and bond markets more than weekly or monthly
economic news. European problems gave us a flight to quality
bid, and now we have speculation that a continued deadlock on
the U.S. debt limit will slow economic growth. The 10-yr closed
at 2.95%, and MBS prices gained between .125-.250, depending on
coupon. “Meanwhile, mortgage banker supply was uneventful at
around $1 billion.”
This
morning
we learned that mortgage apps dropped last week by 5%, with
refi’s down 5.5% and purchases down almost 4%. Refi’s still
account for almost 70% of new business. We also found out that
Durable Goods were -2.1% for June (a volatile number) and
although there are several ways to slice it the Durable Goods
number continues to point to a slow economy. Later we have the
Fed's Beige Book (11AM PST) and a $35 billion 5-yr note auction.
The 10-yr is nearly
unchanged at 2.97%, as are MBS prices.
Some
humor for the kids:
Two
peanuts walk into a bar. One was asalted.
A jumper cable walks into a bar. The barman says "I'll serve
you, but don t start anything."
A sandwich walks into a bar. The barman says, "Sorry we don't
serve food in here."
A
dyslexic man walks into a bra.
A man walks into a bar with a slab of asphalt under his arm and
says: "A beer please, and one for the road."
Two
aerials meet on a roof, fall in love get married. The ceremony
wasn't much but the reception was great.
Two
cannibals
are eating a clown. One says to the other: "Does this taste
funny to you?"
A
guy walks into the psychiatrist wearing only Glad Wrap shorts.
The shrink says, "Well, I can clearly see you're nuts."
If
you're
interested, visit my twice-a-month blog at the STRATMOR Group
web site located at
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