Nov. 28, 2012: Mortgage jobs across the nation; a primer on possible FHA changes in 2013 given its red ink
ancient days, when mortgage rates were different for various
areas around the country and people relied on carbon paper and
Fannie gold book amortization tables, mortgage volumes were
cyclical. Lenders could count on a lull in the winter months,
especially here in Colorado, since there were fewer home
shoppers. But refi’s don’t have to wait until the summer –
they’re year ‘round although no one expects mortgage rates to
go anywhere for the next year or two so there’s no hurry. I
mention this because this morning the MBA reported that
application activity was down last week about 1%, with
refi’s dropping 1.5% but purchases increasing almost 3%.
Demand for mortgage purchases rose for a fourth straight week.
Still, the refinance share of total mortgage activity was
unchanged at 81% of applications per the MBA.
is certainly news on the job front. Independent retail
mortgage banker VITEK Mortgage Group is seeking a Chief
Compliance Officer for its Sacramento headquarters. The
25 year old purchase-focused company (VITEK), which has its
GNMA seller/servicer approval, continues to grow through
builder & realtor partners. The CCO will re-engineer and
lead a compliance division, help with compliance and the
oversight of our sub-servicer. This role will also be
responsible for all corporate contract review and monitoring
of compliance with investors, agencies, regulatory bodies and
vendors. The ideal candidate should have 7-10 years’ mortgage
banking experience along with either a JD or a BA degree in
Business Administration or related field. Candidates should
send their resumes to Libby Feyh at email@example.com.
And AllRegs is growing and looking for account executives
to cover the states of Pennsylvania, Maryland and Illinois
for AllRegs Education and Mortgage Products divisions. AllRegs
is “the leader in compliance, education and risk management
solutions for the mortgage and banking industry for the last
20 years.” Duties will include selling AllRegs solutions to
new and existing customers, meeting specific goals and targets
for new sales and maintaining relationships with multiple
contacts in each account on various business matters. The
ideal candidate will have a good working knowledge of mortgage
banking and relationships in the state territory that can be
leveraged. The resumes should be emailed to Larry Zastrow at firstname.lastname@example.org.
industry continues to ruminate on the grim news nearly two
weeks ago from the U.S. Department of Housing and Urban
Development (HUD) in its 2012 Annual Report to Congress. Recall that the FHA Mutual
Mortgage Insurance (MMI) Fund suffered a $16.3 billion
deficit. In addition, for the fourth year in a row, the MMI
Fund has failed to meet its 2% statutory reserve amount, an
amount required under the National Housing Act to be held back
to cover excess loss. The Act permits HUD to draw funds from
the U.S. Treasury to meet its insurance claim obligations, if
the fund is deemed inadequate, so no, the FHA is not going out
of business, but putting this in context, the FHA has never
had to draw upon Treasury funds for a bailout during its 78
year existence. But now the reserves are at negative
1.44%. As we all know the FHA is a big contributor to
first-time home buyer funding, and it insures about 1.2
million residential loans (roughly 15% of all U.S. home
loans). The number of loans it insures has increased
dramatically over the last few years – for example in 2006 the
FHA insured just 5 percent of the all U.S. home loans.
dissection of the numbers shows that the biggest factor is bad
loans made prior to 2010, and especially those made between
2007 and 2009: more than a quarter of the loans made in
2007 and 2008 were seriously delinquent as of this summer,
as were 12 percent of 2009 loans - more than 17% of all of
the agency’s loans were delinquent by the end of September.
What does this say about the performance of FHA's traditional
borrowers, who are primarily moderate-income, first-time
purchasers, people with limited cash for down payments and
less-than-perfect credit histories? Is it them, or are they
merely a victim of the credit cycle?
just like any entity that is in the red, where you either cut
spending or increase revenues, the FHA is trying to help
its bottom line and long term solvency. After four years
of being below the minimum, this should come as no surprise.
It is raising premiums in an attempt to avoid asking the
Treasury department for a bailout. But will it be enough? The
Washington Post notes that the FHA’s predicament is worse than
the $16.3 billion figure suggests since if interest rates
remain low more high-quality loans will be refinanced out of
the FHA’s portfolio, leaving the agency with the dregs.
one should be surprised if down-payment assistance programs
take a hit. No one can argue that the performance levels of
FHA loans with Down Payment Assistance programs is worse than
the overall population, and a recent audit said that had the
FHA not allowed the programs to go forward, then the mortgage
program's $13.5 billion net worth deficit would have turned to
a positive $1.77 billion: http://blogs.wsj.com/developments/2012/11/26/fhas-biggest-loser-no-money-down-mortgages/.
no one should be surprised if the FHA raises its annual
mortgage premium to possibly 2.05% - it can do that now.
In 2013, HUD will once again raise mortgage insurance premium
charges an additional 10 basis points, which will result in a
$13 per month increase for the average FHA borrower. New
borrowers early next year are likely to be charged slightly
higher annual mortgage insurance premiums: 1.35% of the loan
balance rather than 1.25% at present. On loans above $625,500
in high-cost areas such as California and metropolitan
Washington, D.C., the annual premium will go to 1.6% from
1.5%. Conventional lenders don’t mind these changes at all.
HUD has announced a whole series of aggressive steps it
intends to introduce to help shore up its flagship program. Some measures may be accomplished
by the Department on its own, without seeking authority from
Congress. Those proposed initiatives may include revisions to
FHA’s loss mitigation home-retention options to better assist
delinquent borrowers, changes to streamline FHA short-sales,
and/or innovations to property disposition practices. In
addition, to raise revenues, expect HUD to revise its premium
cancellation policy, such that mortgage insurance premiums
will be required of mortgagors throughout the life of the
loan, rather than ceasing once the outstanding UPB drops below
78%. We’ll see how this stacks up against state-specific laws.
are statutory and therefore will require Congressional
There are six such proposals, listed in the Annual Report. The
first is to “Extend Indemnification Authority for Direct
Endorsement Lenders.” The FHA has been trying since 2010 to
get Congress to allow the Department to demand indemnification
from DE lenders (which represent 70% of all FHA lenders).
Right now, HUD has authority to require lenders with Lender
Insurance (LI) approval to indemnify HUD for losses. Now HUD
will seek to expand that authority to all DE lenders.
second is to revise indemnification authority. Presently, in
order to demand that a lender indemnify HUD for losses
associated with FHA loans, HUD must prove that the lender
“knew or should have known” of the fraudulent or errant
conduct. HUD seeks an amendment to the National Housing Act
that will require FHA lenders to retain all fraud-related
risk, similar to the standards imposed by the
Government-Sponsored Enterprises. Expect this proposal to
cause major indigestion for FHA lenders.
third is to expand its flexibility to terminate
origination and underwriting authority, making it easier
for HUD to terminate a lender’s ability to originate or
underwrite FHA insured loans if HUD were to find that the
lender had an excessive rate of defaults or claims. Fourth, we
may see a revision in Credit Watch Thresholds. This change
would revise the statute governing Credit Watch termination
authority, by allowing the Secretary greater flexibility to
fine tune compare rates of defaults and claims based on
geographic area, underwriting standards or populations served.
Bottom line – it would allow HUD to more easily terminate a
lender’s authority to originate and underwrite FHA loans.
for those servicers out there, HUD may seek authority
to transfer servicing. It is believed that HUD will seek
Congressional authority to allow it to transfer servicing from
the current servicer to a specialty servicer identified by
HUD; require the servicer to enter into a sub-servicing
arrangement; or, request a servicer to engage a third party
contractor to assist it with loss mitigation activities.
Lenders who find themselves in a Tier III ranking, or others
whose servicing is deemed inadequate, will likely be subject
to this new authority.
for reverse mortgage lenders, look for more
flexibility in HECM program changes by acting through
Mortgagee Letters to make changes to the HECM program. The
reverse mortgage program (which enables senior homeowners to
withdraw funds based on the equity in their properties)
dominates the industry but has produced inordinate losses to
the FHA insurance fund because of home-value declines and the
failure of some borrowers to make their property tax and
insurance payments, thereby triggering foreclosures. Look for
changes to the program to possibly include restricting the
amounts that seniors can draw down in a lump sum upfront. The
MBA’s Dave Stevens suggests that the FHA also needs to
consider some form of basic "qualification standards" for
those in the program, perhaps that applicants should have
sufficient income and assets to ensure that they don't blow
through their initial lump-sum drawdowns and have nothing left
to pay taxes and insurance. Currently there are no such
FHA Acting Commissioner Carol J. Galante said the agency plans
to streamline the short-sale option — where owners are
permitted to sell their house for less than the balance on the
mortgage — to avoid the huge costs of foreclosures.
are plenty of opinions. Jeff M. writes, "I think FHA wants to
get back to the stability of the late 90s market share and
their changes are pushing for this; I think FHA likes to let
Fannie and Freddie drive the market with their products and
act as a supporting role to that drive, but rising to the
occasion in times of crisis; as we see now. Regarding
life-of-loan insurance premiums, I actually agree with FHA not
allowing premiums to drop off like conventional loans since
FHA’s insurance policy statutorily must remain in effect for
the life of the loan; this was FHA policy from (I believe) its
inception. I don’t think this will hurt the consumer since as
soon as rates drop MLOs will churn the FHA loans into
conventional ones. Regarding the future of FHA refinances,
having originated FHA loans for 15 years and being a former DE
underwriter I think there will always be a place for the FHA
refinance given the lack of price adjustments for lower scores
along with the more flexible underwriting guides. The FHA
refinance will most always be used (as has been the case in
the past) for borrowers that either need to streamline their
existing FHA loan (and can’t go conventional due to high LTV)
or due to their credit profile, a conventional refinance is
too expensive because of the price hits. When the economy
comes back and equity comes back, people’s debt will again
rise with their income (“Parkinson’s law of economics”), then
with the confluence of these factors FHA’s 85% cash-out
refinance will be the loan of choice to consolidate debt for
these people; though we are years away from this scenario."
to the markets, yes, rates are great – they may very
well stay great for another year or two. But during that time
there is continued economic news, so for example yesterday we
a Durable Goods (better than expected) and some strong housing
price numbers from Case-Shiller and the FHFA – but rates still
improved. It is hard to argue with the Fed buying $4 billion a
day of residential MBS! By quittin’ time MBS prices improved
by .250 on decent volume whereas the 10-yr was only up .125
(1.65%). Today we have the release of New Home Sales, a $35
billion 5-yr note auction, and the release of the Fed's Beige
Book. Currently the 10-yr is down to 1.61%, and look for an
improvement of about .125-.250 in rate sheets.
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you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at www.stratmorgroup.com.
The current blog discusses some of the considerations facing
the FHFA regarding Fannie and Freddie. If you have both the
time and inclination, make a comment on what I have written,
or on other comments so that folks can learn what's going on
out there from the other readers.