Feb. 18, 2013: Mortage PR battle; eminent domain still with us; VA defines role of brokers; fixed income markets closed
Rob Chrisman


What does the public continue to see about lenders? Here’s one story from the last few days, in relatively mainstream media, titled, “Protect Yourself from Crooked Broker.” Don’t shoot the messenger! But this is exactly the perception that we, as an industry, have to beat:

http://www.foxbusiness.com/personal-finance/2013/02/15/protect-yourself-from-crooked-mortgage-broker/. And stories about fraud perpetrated by guys with names like Vitto Grippo: http://www.nj.com/monmouth/index.ssf/2013/02/jackson_man_pleads_guilty_in_44_million_mortgage_loan_scheme.html. And it doesn’t help that the public is also following the FHA’s plight: independent actuarial review conducted by Integrated Financial Engineering (IFE) and released in November measured the economic net worth of FHA's portfolio at the end of the fiscal year and found it had a capital reserve ratio of a negative 1.44 percent, and the Fund's economic value stands at negative $16.3 billion.


But there is some good publicity about mortgage bankers out there. As an example, here’s some from Oklahoma, where the wind comes sweepin' down the plain: http://normantranscript.com/opinion/x1525015002/Veteran-mortgage-banker-bullish-on-Oklahoma.


The Fed is keenly aware of the eminent domain issue that won’t go away. Here is a recently published research piece on the topic titled, “Underwater and Drowning? Some Facts about Mortgages that Could Be Targeted by Eminent Domain”: http://libertystreeteconomics.newyorkfed.org/2013/02/underwater-and-drowning-some-facts-about-mortgages-that-could-be-targeted-by-eminent-domain-.html.


Much of the publicity in recent years has focused, deservedly, on the sand states (CA, NV, FL, and AZ) – but they aren’t the only ones making news. The Virginia Corporation Commission (“Commission") has adopted proposed changes to Chapter 160 of Title 10 of the Virginia Administrative Code that were proposed by the Bureau of Financial Institutions ("Bureau"). These changes went into effect on January 28. The Commission modified and added to the established definitions of mortgage lending to further define the role of loan brokers and lenders versus underwriters and processors. They did this by adding a definition of "loan processor or underwriter" that includes a clear description of what their job can entail and what it cannot. The tasks that processors and underwriters cannot do include communicating with a consumer regarding a residential mortgage prior to a borrower completing an application, taking an application or negotiating the terms of a mortgage and counseling consumers about the terms of mortgages. It also adds explicit language that the term "mortgage broker" does not include someone engaged in loan processing or loan underwriting as long as that person is not also engaged in activity that would fall under the definition of "mortgage broker."


Significant changes were added to the law governing the operations of mortgage lenders and brokers ("licensees"). A licensee shall not provide any information to a borrower or someone looking to be a borrower that is "false, misleading or deceptive." Chapter 160 already required a licensee to file a report with the commission if one of many specified actions occurred. This list of actions was added to and modified. Previously, the licensee had to report if anyone working for them are indicted or convicted of a felony. Now, they must also report if an individual falling into the listed categories is convicted of a misdemeanor "involving fraud, misrepresentation, or deceit." Additionally, the term "exclusive agent" was added to the list of covered individuals already including employees, officers, directors and principals.


The section dealing with acceptable actions by originators was modified to state that a licensee cannot permit an individual to take an application or negotiate the terms of a loan on their behalf unless four criteria are met. These criteria are: a) the individual is a licensed loan originator under Chapter 17; b) the individual is covered by the licensee's surety bond; c) a sponsorship request has been submitted by the licensee on the individual's behalf; and d) the individual is either a bonafide employee of the licensee or an exclusive agent of the licensee. The exclusive agent relationship must be defined in a written agreement between the agent and licensee and the licensee must agree to conditions relating to the use of exclusive agents by the bureau.


The Commission also added a section stating that loan processing and underwriting can be outsourced by a licensee so long as it is pursuant to a written agreement and prior to that agreement the licensee must complete a due diligence review on the processor or underwriter. The written agreement must include a requirement that the loan processor or underwriter comply with applicable laws and allow the commission to investigate or examine its business. It also forbids the underwriter or processor from subcontracting out any of its services to anyone that is not their bonafide employee.


In addition to operation changes a significant change was also made to the commission’s ability to enforce this and other laws applying to mortgage lenders. Applicable language in the enforcement section of this act was changed from "licensee" to "person required to be licensed" which will most likely open enforcement options to those who should have a license and not just those who do. Each violation of the applicable statute can result in a civil penalty up to $2500. This amount is for each violation and when compounded can result in a much higher fine.


Down the coast in Florida, the foreclosure crisis just won’t end. RealtyTrac reports that FL had the biggest increase in home seizures last year, and the highest foreclosure rate.  One in every 32 Florida households received a notice of default, auction or repossession in 2012, more than double the average U.S. rate of one in 72. Home repossessions increased by 16,276 during the year to 84,456, the biggest gain nationwide. Adding to the state’s woes is a backlog of foreclosures caused by a required court review of each case. Many markets around the United States are doing well. For example, Phoenix and San Francisco area values have both advanced more than 22 percent from their lows, San Diego is up 12 percent and Las Vegas rose more than 11 percent. But the best performing markets in Florida, per the S&P/Case-Shiller data, were “only” up 8% (Tampa) and 9.5% (Miami) – but at least they’re improvements! Both of those cities are still down by about half from their market peaks in 2006, according to the measure. Most analysts point to judicial supervision of repossessions is slowing Florida’s rebound, in contrast to California and Arizona, so-called non-judicial states, where lenders send notices to delinquent borrowers and record defaults at the county level without court intervention.


Let’s turn to some lender, bank, and investor news.


FBC Mortgage plans to launch a new division to buy mortgages from community banks. Per the Orlando Business Journal (who says I only read the National Enquirer?) FBC is testing the purchasing of mortgages and plans to launch the new operations under its CloseQuick brand to buy the home loans. FBC is a subsidiary of Alabama’s Sterne Agee Group, and did about $1 billion last year, retaining the servicing on 20% of its production.


Bank M&A continues. Renasant Bank ($4.2B, MS) will buy Merchants and Farmers Bank ($1.6B, MS) for $119mm or about 1.19x book. Heritage Bank ($965mm, KY) will buy Sumner Bank & Trust ($184mm, TN) for 14.3mm in cash or about 0.84x equity.


But on the flip side, Illinois’ Covenant Bank was closed Friday, and became part of Liberty Bank and Trust Company out of Louisiana.


Effective for originations taken on or after February 19th, Mountain West Financial will no longer accept handwritten Settlement Service Provider’s Lists.  Instead, originators can use the interactive form available on the MWF website; variations of the form will also be accepted so long as they are computer generated and disclose the date prepared, the borrower’s name, and the property address and include a line for the borrower’s signature.  Forms should also identify any third party settlement service providers that are required and borrowers provided with a list of available services.  Should borrowers chose to go with one of the services listed, there is a 10% tolerance for any fee adjustments.  Clients are also reminded that the form should be generated at within three days of the initial 1003 and GFE.


MWF has updated its compensation structures for its CHF Platinum product such that all brokers are now allowed to retain the full 1.5% origination fee when originating transactions with borrower-paid compensation.  This replaces the previous guideline stating that they were allowed to keep 1% while MWF received the remaining 0.50%.  Brokers who are only eligible for lender-paid compensation can originate CHF Platinum if the broker compensation plan is 150bps or lower, with the 1.5% origination fee being charged to the borrower and paid to MWF.  The changes are effective immediately.


Fifth Third has announced that it will be increasing its LTV limits for FHLMC Open Access and FNMA DU Refi Plus loans from the current maximum of 105%.  LTVs will be expanded to 125% within the next couple of months.


US Bank has produced a Minimum Documentation Requirements list for Freddie Mac Open Access Streamline refinance transactions that directly corresponds with the FHLMC Seller Guide and condenses the documentation needed for a Streamline Accept response.  For US Bank-serviced loans, the maximum DTI can be determined by LP, while for all other loans, DTI is capped at 50% unless the borrower has 12 months’ PITI in verified reserves.  Freddie is also allowing borrowers to be omitted form the Note and still retain an ownership interest in the subject property so long as they sign the deed to preserve a clear foreclosure interest for the lender.  These changes are all effective for locks taken on or after February 13th.


Franklin American has lowered its FHA Streamline refinance pricing adjuster from -0.750 to -0.500, effective for locks taken on or after February 8th.


As a heads-up, M&T Bank has implemented new product codes to differentiate between M&T-to-M&T and Non-M&T-to-M&T (difference servicer).  Contact your account executive for full details.  M&T has also announced that it is now offering non-M&T-to-M&T High Balance Streamline refinances to all of its clients, including those on the West Coast.


Cole Taylor Mortgage has expanded its Jumbo offerings to allow LTVs up to 80% for fixed-rate transactions up to $1m and 75% for fixed-rate transactions up to %1.5m.  Maximum $250,000 cash-out refinances are now permitted for primary residences transactions up to $1m and LTVs under 65% (60% for loan amounts up to $1.5m).  For second home transactions up to $1m, the LTV has been raised to 70%, and the reserve requirements have been reduced to six months’ PITI for sub-$1m loans, 12 months’ for first-time homebuyers and second home transactions, and nine months’ for loan amounts above $1m, and 18 months’ cases where the borrower owns 3-4 financed properties.  Up to 60% of retirement accounts may be used for reserves as well.


National Mortgage News has announced that the 7th Annual Mortgage Servicing Conference will be hosted in Dallas, TX from April 22nd-24th. (The MBA’s starts today, also in Dallas!) The program will focus on the CFPB’s new servicer rules on error resolution, policy and procedure, contact issues, force-placed insurance, and loss mitigation early intervention; third party vendor oversight; HAMP and GSE requirement changes; and how customer service fits into things.  See http://click.sourcemediamail.com/?qs=ae7c680084df0d07b3be4ebd1f653c157de59aed30ec537e06d3a0f05f3f9eecac41e96df2003a56 to register; sponsorship opportunities are also available.


The markets? The markets are closed today, so beware the prices on any rate sheets. They are usually a combination of Friday’s close, what may have happened in Asia and Europe, and a good measure of cushion. And mandatory locking availability is rare – most are best efforts, with their own pricing cushion.




Today is the start of the MBA’s National Servicing Conference at the Gaylord Texan Hotel, Texas. For today’s “humor”, several readers wrote to remind me of this same event a few years ago, discussing strategic defaults and marking a dark time in MBA history, as told by Jon Stewart: http://www.thedailyshow.com/watch/thu-october-7-2010/mortgage-bankers-association-strategic-default.



If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is how "Basel III Could be a Game Changer for Lenders and Servicers." 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.


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