After going through the process
of considering joining the well-publicized lawsuit, AIG, parent of
United Guarantee, has dropped that plan. According to most
sources, AIG had no choice but to consider it but by no means was
the decision not to join due to anger from congress and the
American People. One article noted, “AIG said its board had
carried out its legal and fiduciary duty to consider joining
Greenberg's lawsuit before making its decision. Greenberg has a
case pending in the Court of Federal Claims in Washington, D.C.,
and is also appealing the dismissal of a lawsuit in the federal
court in New York. AIG said it would not pursue Starr's claims nor
would it allow Starr to pursue them on AIG's behalf, setting the
stage for a fresh legal fight between Greenberg and the company.”
AIG has paid back the entire bailout of $182 billion plus almost
$23 billion in profit – not a bad return for the taxpayer. Here is
more:
http://www.cbsnews.com/8301-34227_162-57563093/aig-wont-join-$25b-lawsuit-against-u.s-government/.
Turning to another large firm, the Partnership Channel of the
retail mortgage division of Citibank is currently recruiting Loan
Originators and Sales Managers in the following states: TX, LA,
MO, IA, IN, OK, TN, KS, WI, AL, MN, KY, MI, & IL. Citibank is
a nationally recognized lender that has experienced phenomenal
growth and is focused on continuing to expand its national
footprint in 2013, and its Retail Mortgage Partnership Channel
focuses on the formation of real estate and builder partnerships,
generation of purchase mortgage volume, and effective cross-sell
routines. The channel’s unique approach redefines the traditional
boundaries of the home purchase mortgage with the industry’s
realtors and builders. Experienced candidates who are proven
leaders in the mortgage industry and have experience in both
operational and sales processes should submit confidential resumes
and qualifications to Citibank Recruiter Kenda Rice at
kenda.l.rice@citi.com.
As I have aged, it seems I become confused more easily. Take
yesterday afternoon, for example. Did or didn’t the CFPB release
QM information? Did investors and regional mortgage groups send
the information out to their members, or didn’t they? Regardless,
it seems that QM is “much ado about nothing.” And underwriters and
loan officers who became accustomed to guidelines and policies
changing at a moment’s notice will be relieved to hear that these
changes* won’t take affect until one year from now. (* “Changes”
might be an exaggeration – many if not most reputable lenders are
already offering home loans based on these criteria, and thus will
take this in stride. As one grizzled mortgage vet told me
yesterday, “We really dodged a bullet on this one.”)
The QM definition appears to leave plenty of room for exceptions.
Notably, the final rule provides a safe harbor for loans that
satisfy the QM definition and are not "high priced", though it
does provide a rebuttable presumption for higher priced loans. The
final rule also allows for a second, temporary QM with more
flexible underwriting requirements for GSE loans (while they
operate in conservatorship) and FHA/VA loans - the CFPB appears
wary of adversely impacting the mortgage market. The CFPB is
seeking comments on several aspects of the rule before it is
finalized this spring.
Remember that this all springs from the Dodd-Frank Act that
includes provisions that require creditors to determine whether
the consumer has the ability to repay their mortgage. Under the
Act, a creditor can assume that the borrower has met the
ability-to-repay requirement if the loan is deemed a QM. The QM
definition is important for two reasons: 1) mortgage originators
are unlikely to originate mortgages that do not qualify as a QM;
and 2) the Qualified Residential Mortgage (QRM) definition can be
no broader than QM.
Per the final rule, creditors must generally consider the
following factors in determining ability-to-repay (though the rule
does provide specific underwriting criteria): 1) current income or
assets; 2) current employment status; 3) credit history; 4)
monthly mortgage payment; 5) monthly payments on any other loans
associated with the property; 6) the monthly payment for other
related obligations (i.e. property taxes); 7) other debt
obligations; and 8) monthly debt-to-income ratio the borrower
would be taking on with the mortgage.
Generally, QM requirements prohibit loans with negative
amortization, IO loans, balloon payments, loans with terms greater
than 30 years, and loans in which the points and fees are greater
than 3% of the loan amount. (Most IO production now seems to be in
the ultra-prime jumbo area – watch for some grousing from jumbo
lenders.) The general QM rule requires the consumer to have a
debt-to-income (DTI) ratio less than 43%, in line with FHA
standards.
But wait – there’s more! Nothing is simple anymore, and the final
rule provides for a second, “temporary” QM category that allows
for more flexible underwriting requirements. The release notes
that this exemption is driven by the "fragile state of the
mortgage market" and the fact that in many cases borrowers can
afford a DTI ratio above 43%. To qualify under the temporary QM
definition, a mortgage must meet the general product feature
requirements and be eligible to be purchased or guaranteed by
either the GSEs (while in conservatorship), the FHA, VA, or
Department of Agriculture or Rural Housing Service. Hey, no one
wants to be accused to hurting our “fragile” housing market,
right?
Since there is a not a whole lot going on otherwise, here is more
information on this very important set of rules:
Today the Consumer Financial Protection Bureau (CFPB) adopted a
new rule that will protect consumers from irresponsible mortgage
lending by requiring lenders to ensure prospective buyers have the
ability to repay their mortgage. The rule also protects borrowers
from risky lending practices such as “no doc” and “interest only”
features that contributed to many homeowners ending up in
delinquency and foreclosure after the 2008 housing collapse.
“When consumers sit down at the closing table, they shouldn’t be
set up to fail with mortgages they can’t afford,” said CFPB
Director Richard Cordray. “Our Ability-to-Repay rule protects
borrowers from the kinds of risky lending practices that resulted
in so many families losing their homes. This common-sense rule
ensures responsible borrowers get responsible loans.”
Leading up to the mortgage crisis, certain lenders originated
mortgages to consumers without considering their ability to repay
the loans. The gradual deterioration in underwriting standards led
to dramatic increases in mortgage delinquencies and rates of
foreclosures. What followed was the collapse of the housing market
in 2008 and the subsequent financial crisis. The 2010 Dodd-Frank
Wall Street Reform and Consumer Protection Act created broad-based
changes to how creditors make loans and included new
ability-to-repay requirements, which the CFPB is charged with
implementing.
Under the Ability-to-Repay rule announced today, all new mortgages
must comply with basic requirements that protect consumers from
taking on loans they don’t have the financial means to pay back.
Among the features of the new rule:
Financial information has to be supplied and verified: Lenders
must look at a consumer’s financial information. A lender
generally must document: a borrower’s employment status; income
and assets; current debt obligations; credit history; monthly
payments on the mortgage; monthly payments on any other mortgages
on the same property; and monthly payments for mortgage-related
obligations. This means that lenders can no longer offer no-doc,
low-doc loans, where lenders made quick sales by not requiring
documentation, then offloaded these risky mortgages by selling
them to investors.
A borrower has to have sufficient assets or income to pay back the
loan: Lenders must evaluate and conclude that the borrower can
repay the loan. For example, lenders may look at the consumer’s
debt-to-income ratio – their total monthly debt divided by their
total monthly gross income. Knowing how much money a consumer
earns and is expected to earn, and knowing how much they already
owe, helps a lender determine how much more debt a consumer can
take on.
Teaser rates can no longer mask the true cost of a mortgage:
Lenders can’t base their evaluation of a consumer’s ability to
repay on teaser rates. Lenders will have to determine the
consumer’s ability to repay both the principal and the interest
over the long term − not just during an introductory period when
the rate may be lower.
Qualified Mortgages
Lenders will be presumed to have complied with the
Ability-to-Repay rule if they issue “Qualified Mortgages.” These
loans must meet certain requirements which prohibit or limit the
risky features that harmed consumers in the recent mortgage
crisis. If a lender complies with the clear criteria of a
Qualified Mortgage, consumers will have greater assurance that
they can pay back the loan. Among the features of a Qualified
Mortgage:
No excess upfront points and fees: A Qualified Mortgage limits
points and fees including those used to compensate loan
originators, such as loan officers and brokers. When lenders tack
on excessive points and fees to the origination costs, consumers
end up paying a lot more than planned.
No toxic loan features: A Qualified Mortgage cannot have risky
loan features, such as terms that exceed 30 years, interest-only
payments, or negative-amortization payments where the principal
amount increases. In the lead up to the crisis, too many consumers
took on risky loans that they didn’t understand. They didn’t
realize their debt or payments could increase, or that they
weren’t building any equity in the home.
Cap on how much income can go toward debt: Qualified Mortgages
generally will be provided to people who have debt-to-income
ratios less than or equal to 43 percent. This requirement helps
ensure consumers are only getting what they can likely afford.
Before the crisis, many consumers took on mortgages that raised
their debt levels so high that it was nearly impossible for them
to repay the mortgage considering all their financial obligations.
For a temporary, transitional period, loans that do not have a 43
percent debt-to-income ratio but meet government affordability or
other standards − such as that they are eligible for purchase by
the Federal National Mortgage Association (Fannie Mae) or the
Federal Home Loan Mortgage Corporation (Freddie Mac) − will be
considered Qualified Mortgages.
There are two kinds of Qualified Mortgages that have different
protective features for a consumer and different legal
consequences for the lender. The first, Qualified Mortgages with a
rebuttable presumption, are higher-priced loans. These loans are
generally given to consumers with insufficient or weak credit
history. Legally, lenders that offer these loans are presumed to
have determined that the borrower had an ability to repay the
loan. Consumers can challenge that presumption, though, by proving
that they did not, in fact, have sufficient income to pay the
mortgage and their other living expenses.
The second, Qualified Mortgages that have a safe harbor status,
are generally lower-priced loans. They are generally prime loans
that are given to consumers who are considered to be less risky.
They will also offer lenders the greatest legal certainty that
they are complying with the new Ability-to-Repay rule. Consumers
can legally challenge their lender if they believe the loan does
not meet the definition of a Qualified Mortgage.
The Ability-to-Repay rule does not affect the rights of a consumer
to challenge a lender for violating any other federal consumer
protection laws.
Today, the CFPB is also releasing proposed amendments to its
Ability-to-Repay rule. These amendments would, among other things,
exempt certain nonprofit creditors that work with low- and
moderate-income consumers. The proposed amendments would also make
exceptions for certain homeownership stabilization programs − such
as those that offer loans made in connection with the Making Home
Affordable program − which help consumers avoid foreclosure. The
proposed amendments would also provide Qualified Mortgage status
for certain loans made and held in portfolio by small creditors,
such as community banks and credit unions. Finally, today’s
proposed amendments invite comment on how to calculate loan
origination compensation under the points and fees provision of
Qualified Mortgages.
The rule and proposed amendments are at:
http://www.consumerfinance.gov/regulations.
A factsheet further explaining the new rule is at:
http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-factsheet.pdf.
A summary of the final Ability-to-Repay rule is at:
http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf.
The information above is much more interesting than the markets,
which have had none of the usual news upon which to trade.
Wednesday, however, we did see a slight improvement, and some
lenders issued improved rates. Thomson Reuters noted, “Prices on
30-year FNMA MBS ranged from flat on 4.0s to +4+ ticks on 3.0s,
while higher coupons declined between 1 tick and 2+ ticks. 10-year
notes held in positive territory at +4+/32nds (1.86%) despite a
mediocre 10-year note auction (re-opened) and slight gains in
equities.”
As for economic news, Initial Jobless Claims for the week ending
1/5 came out. Projected lower to 365k from 372k, it was actually
at 371k up from a revised 367k. (The 4-week moving average is
+6,700.) In the early going the 10-yr is back up to 1.89% and MBS
prices are a shade worse. Later the Treasury winds up its first
round of coupon auctions for 2013 with $13 billion re-opened
30-year bonds at 1PM EST and one hour later the New York Federal
Reserve Bank will report on MBS purchases for the week ending Jan.
9.
It is Thursday, and Thursday night has its share of Happy Hour
outings for many office-mates. Here are some bar, and other, bets
you’re sure to win:
http://biggeekdad.com/2012/11/10-more-bets-you-will-win/.
If you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at
www.stratmorgroup.com.
The current blog discusses the role of the IRS and REMIC's in the
current credit crisis. 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.
Rob
(Check out
http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx
or
www.TheBasisPoint.com/category/daily-basis.
For archived commentaries, go to
www.robchrisman.com.
Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid
notices do appear. This report or any portion hereof may not be
reprinted, sold or redistributed without the written consent of
Rob Chrisman.)
