Law firm K&L Gates reported on the Supreme Court’s “Freeman v. Quicken Loans” RESPA Section 8(b) violation case last week. “The U.S. Supreme Court held that a charge for settlement services must be divided between two or more persons to constitute a violation of Section 8(b). This is welcome news for settlement service providers, who can rest assured that their own prices, whether as part of a mark-up of a third-party fee or their own unilateral charges, cannot violate Section 8(b) of RESPA…’a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons’ to establish a violation of Section 8(b) of RESPA. Section 8(b) of RESPA provides that ‘no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed’."

K&L Gates went on to note that the Court referred to the 2001 Policy Statement issued by HUD that identified the categories of fees that HUD deemed to be violations of Section 8(b): (1) fees split or shared by two or more parties; (2) the mark-up by a single party of a third party's fee without services performed; (3) the charging of a fee by a single party for no services performed (at issue in Freeman); and (4) the charging of a fee by a single party in excess of the reasonable value for services performed (overcharges). With regard to the last category of fees, overcharges, the Court deemed this interpretation by HUD to be "manifestly inconsistent with the statute" and RESPA's legislative history. The Court even noted that Freeman acknowledged that Section 8(b) of RESPA does not cover overcharges. With regard to the second and third categories of fees, the Court reasoned that it was not necessary to determine whether HUD's interpretation should be given deference. Rather, the Court stated, ‘In our view, [Section 8(b)] unambiguously covers only a settlement service provider's splitting of a fee with one or more other persons; it cannot be understood to reach a single provider's retention of an unearned fee’."

“Ultimately, this decision is a victory for settlement service industries. Until now, providers were faced with the possibility that a mark-up of a third party's fee or the charging of their own unilateral fees could be deemed a RESPA violation. With this decision, Section 8(b) of RESPA can no longer be used to challenge the prices charged for settlement services. A Section 8(b) violation exists only to the extent a settlement service provider collects its fee and shares a portion of that fee with another person that performs no services. That said, providers should still be cognizant of unfair and deceptive trade practice laws, including the fact that the CFPB could use its unfair, deceptive, or abusive authority to circumvent the Court's holding and target settlement service providers with allegedly unfair fees.” Thank you K&L.

What happens when a borrower falls behind on a USDA Rural Housing loan? “Unlike private firms, the USDA doesn't need permission from a court to start collecting on unpaid debts. It can in some cases seize government benefits and tax refunds before a foreclosure is completed. After foreclosure, the USDA can go after unpaid balances, even in states that limit such actions by private lenders.” For WSJ subscribers: http://online.wsj.com/article/SB10001424052702304371504577406002591760584.html.

How about some Wells Fargo updates from the last few weeks? As always, it is best to read the actual bulletin, but this will give one a flavor for what is happening out there with the #1 investor:

Wells Fargo Wholesale is updating its WFHM/WFHE Market Classification List, which affected stand-alone Wells Fargo Home Equity registrations dated May 19th or after and Wells Fargo Home Mortgage and simultaneous transactions registered May 21st and after.

The credit policy on reserve requirements for a current Primary Residence to become a Second Home or Investment Property has been updated.  At present, the borrower must either have at least six months’ Principal, Interest, Taxes, and Insurance (PITI) for both properties or fulfill the standard post-closing liquidity/reserve requirements.  After May 21st, Wells will also consider the risk of negative equity and take both the borrower and Wells Fargo into account when structuring the new loan.  The length of ownership, original investment, existing Wells secondary financing, marketability of the departure residence, total reserves pre- and post-closing, reasons behind the new purchase, amount of negative equity, and overall layered risk will all be taken into consideration.

The Pricing Calculator on the Wells Broker’s First website (https://ilnet.wellsfargo.com/ilonline/whole/index.html) has been enhanced with a new Total Loan Amount field, which negates the need to put the total loan amount (e.g. base and mortgage insurance premium) into the Base Loan Amount field.  The Total Loan Amount field isn’t mandatory and won’t be used or submitted when the loan is registered; the Base Loan Amount field will still be used as the value sent at the point of loan registration.  Additionally, it’s now possible to select a 10-year amortization term for 15-year fixed products on Broker’s First in the Product Type dropdown menu.  The site also features a new message box that displays specific HARP product pricing adjuster caps to aid in accurately calculating pricing for HARP products.

Wells has improved home equity line of credit pricing on standalone transactions in Arizona, California, Idaho, Iowa, and Nevada; full details are available on the Home Equity Rate Sheets. The new pricing is effective immediately.

The Wells Fargo Home Equity Broker Guide has updated guidance on gifts or grants as eligible asset types, derogatory credit and the aggregation of liens as part of the credit history criteria summary, monthly payments that affect the debt to income ratio, seasonal unemployment with associate unemployment income, payoff of contracts for deed as purchase transactions, REO contracts, and simultaneous close and direct submission transactions.

A number of Wells Wholesale credit policies for Conforming, High-Balance and Non-conforming Co-op transactions have been updated.  The current 20% exposure limit on Wells Fargo Home Mortgage loans will be raised to 30%; this may be exceeded if certain circumstances.  Cases where CPAT can obtain a CVAS on a Conforming or High Balance loan, where exposure is less than 30% but the project will increase it more than 30%, and where the transaction is for refinancing a current Co-op loan or the purchase or a Co-op loan currently financed with Wells with the aim of replacing the loan used in the exposure calculation are all considered exceptional circumstances where the exposure may be more than 30%.  The policy on transfer (“flip”) taxes has also been changed; flip taxes of 3% or less no longer require an exception, and only the difference between the total flip tax and 3% will be used when adjusting the loan amount and LTV.

For Wells Wholesale clients based in New York, leasehold projects in New York City, which are presently permitted only with an exception, will be allowed if the leasehold documentation is submitted for review and the property is approved the Wells Fargo Co-op Project Approval Team (CPAT).  Co-op projects with 3-4 units will be allowed without the previously required exception so long as they’re 100% owner occupied and Wells finances only one of the units.  The appraisal for such projects should show that they’re located in areas with demonstrated market acceptance and show similar comp sales from other 3-4 unit projects in the subject market area.  The appraiser may use a list of other 3-4 unit projects in the subject market area to confirm that 3-4 unit co-ops are prevalent if these comps are not available.

The full details of Co-op policy expansions, retractions, and clarifications on commercial use, unit owner delinquency, the flood insurance deductible, the insurance rating, pro rata shares, presale and owner occupancy, subsidies and tax abatements used to qualify borrowers, appraisal requirements, business income insurance, title insurance, common elements, and financial statements can be found in Section 333 of the Broker Guide.

Turning to the markets, long gone is talk about double dip recessions, especially after last week’s economic data. April housing data on new and existing home sales came in a bit better than expected and home prices showed more signs of stabilizing. Normally this would tend to nudge rates higher, but, as the Wells Fargo economics report put it, “Europe and Asia Vie for Title of Worst News of the Week.” “Eurozone manufacturing and services contracted more than expected in May. In addition, consumer confidence in Italy fell to the lowest on record and German business confidence fell for the first time in seven months. In the United Kingdom, retail sales fell and first quarter GDP contraction turned out to be worse than estimated. Japan’s credit rating was downgraded this week as the debt-to-GDP ratio was forecast to rise further. Japan also reported weaker-than-expected export growth. Meanwhile, Chinese manufacturing may be losing steam and the World Bank cut its forecast for Chinese growth.”

To sum up, the slow pace of global economic growth and the uncertainty in Europe support these very low U.S. mortgage rates. While the economic troubles in Europe have been well documented, and the possibility that Greece will leave the European Union continued to grow, even emerging economies such as China and Brazil are showing signs of a slowdown. Weaker economic growth reduces inflationary pressures, and uncertainty increases demand for safe assets, both of which help mortgage rates. With rates near record lows, though, the risk increases that an improving global economy or a reduction in European political uncertainty could cause rates to move higher.

But it’s a new, holiday-shortened week. (Yes, it’s already Tuesday!) Today we’ll have a Consumer Confidence number, and a Case-Shiller number; tomorrow is Pending Home Sales. Thursday we’ll see a revision to the 1^st quarter GDP (old news) and Chicago’s PMI numbers. But the biggest economic report will be the employment data on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. But also on Friday we have Core PCE price index, Personal Income, ISM Manufacturing, and Construction Spending! For yields, our 10-yr closed Friday at 1.75%; in the early going we’re down to 1.72% and agency MBS prices


Puns (Part 1 of 4):
I did a theatrical performance about puns. It was a play on words.
They wrote me that I had type A blood, but it was a Type-O.
Why were the Indians here first? They had reservations.
Class trip to the Coca-Cola factory - I hope there's no pop quiz.
Energizer bunny arrested. Charged with battery.
I didn't like my beard at first. Then it grew on me.
Did you hear about the cross eyed teacher who lost her job because…she couldn't control her pupils?
When you get a bladder infection, urine trouble.
What does a clock do when it's hungry? It goes back four seconds.