Mar. 23, 2013: Denmark's mortgage woes; Sandy aftermath; catch up on investor & agency updates
Rob Chrisman


“Something’s rotten in Denmark” is not quite how the saying goes. (The saying comes from Shakespeare’s "Hamlet" when Marcellus - an officer - says, "Something is rotten in the state of Denmark," having just seen the ghost of Hamlet's father, the late king of Denmark.) The United States is not the only country that grapples with the question of how much the government should interfere with the mortgage process. Denmark rejected a plan by mortgage banks to split troubled loans, forcing the industry back to the drawing board to figure out how to save borrowers who can’t afford to start amortizing interest-only debt this year. The mortgage industry wanted the government to approve a plan that would allow homeowners to treat their property debt as two separate loans, and thus give lenders the freedom to let borrowers roll over debt within an 80 percent loan-to-value threshold into new interest-only loans. Only debt exceeding that limit would be amortized. Without the proposed change, borrowers would need to start amortizing the whole amount. And a certain percentage of borrowers won’t be able to afford the interest-only loans they took out years ago once the amortization requirements kick in this year, and will question the payments given that Denmark’s property values have dropped about 20% since 2008. The government rejected the plan for fear it would reduce confidence in Denmark’s mortgage system.


Yes, the government has an obligation to care for its citizens. It seems like people have short memories, for example, regarding disasters, but for the people involved, the time can drag on. For example, the victims of “Storm Sandy” are still grappling with its aftermath, both in their day-to-day lives and with bureaucracy. About a month ago New York Governor Andrew Cuomo announced new rules to accelerate the release of insurance proceeds to homeowners affected by Storm Sandy. As requested by the administration, Fannie Mae and Freddie Mac have reduced restrictions on how banks and mortgage servicers may release insurance money to homeowners. The Governor directed the state’s Department of Financial Services (DFS) to work with banks and mortgage services so that they take full advantage of this new discretion given by Fannie and Freddie. New York’s DFS official press release can be found at Fannie Mae’s is here: and Freddie Mac’s is here:


While we’re talking about the agencies, let’s catch up on recent agency, vendor, and investor updates. They just never stop – I have no idea how folks keep up with them. And if you don’t want to read them, well, skip ahead to the joke!


Fannie Mae has updated the Servicing Guide to reflect that it is now accepting flood insurance from private providers in addition to NFIP policies so long as the terms and amount of coverage are sufficiently similar, that servicers must terminate any force-placed insurance premiums and refund any fees charged during any coverage period overlap within 30 days of receiving confirmation of a borrower’s insurance policy, and that special remittances must be reported using the Sale of Servicing, Fire Loss, and Participation Proceeds codes.


Clarification has also been issued regarding servicers’ obligations in cases where there is a transfer of ownership on a property with a mortgage when the due-on-sale or due-on-transfer provision is not enforceable because the transfer is considered an exempt transaction (i.e. transfer of ownership to a widow or orphan of a deceased borrower).  In cases such as these, servicers should implement policies and procedures to notify the new property owner that the transaction is exempt and to allow the owner to continue making mortgage payments and pursue an assumption of the loan and a foreclosure prevention alternative.  In situations where the loan is delinquent and the new owner is able to resolve the delinquency with a modification or other foreclosure alternative, servicers are required to collect a Borrower Response Package, evaluate it as if the new owner were the borrower, and submit its recommendation to Fannie via the HomeSaver Solutions Network for written approval.


Fannie will be replacing its existing cap structure for short-term DU Refi Plus ARM products with a 2/2/6 structure, effective as of April 5th.


Freddie Mac has changed the Qualifying Rate formula for all of its ARM programs with Initial Rate Periods of five years or less.  The new method by which the Qualifying Rate is determined is that the borrower must qualify at the Note rate plus 2% or the fully indexed rate, whichever is larger.


Fifth Third has clarified that the required amount of MI coverage must be the more restrictive between the AUS findings and the guidance outlined in the applicable product guide and that sellers should note the discrepancy on the 1008.  This applies to all loans apart from Open Access and DU Refi Plus.


Effective with Best Effort Locks on and after March 18th, Fifth Third now permits escrow accounts established by the seller for postponed improvements so long as all work has been finished and documented by a clear final inspection before the loan is purchased.  Sellers will need to ensure that the closing agent has prepared the Holdback Agreement in accordance to the underwriter approval terms, that the borrower and seller have executed the agreement, that the closing agent has established a Holdback Escrow Account, and that the HUD-1 has been prepared such that the amount and holder of funds is indicated on Line 1307.  Fifth Third is requiring that the final inspection, Holdback Agreement, HUD-1 evidencing the holdback, Certificate of Completion, and evidence of final disbursement of funds be delivered prior to purchase.  Loans that use an acceptable DU Recommendation/LP Feedback Cert should be underwritten as per the relevant agency’s guidelines.


Beginning with all loans whose applications are dated May 1st and after, Fifth Third is requiring that specific language regarding flood insurance be added to the Notice of Special Flood Hazards and the Servicing Disclosure Settlement Notice to first lien applicants.  For the specific verbiage, see the Fifth Third website.


US Bank has retired its Government 3/1 ARM products.  All other Government products are still on offer, and lenders are advised to use the FHA and VA 5/1 ARM products in lieu.


As per the recent Freddie guidance on calculating the Qualifying Rate for ARM transactions, US Bank is requiring all loans locked under its 3/1 and 5/1 ARM products to be closed, funded, and delivered by May 17th.  Any loan that fails to meet the deadline will need to be qualified using the new formula, and loans locked as 5/1 Conforming or Super Conforming ARMs must be qualified using the new method immediately.


As per recent FHA guidance, Kinecta is no longer issuing government mortgages for properties located in Coastal Barrier Resource Systems (see for the full statement from the FHA).  The Standard Flood Hazard Determination form will be used to decide whether or not a property is located in a CBRS or an Otherwise Protected Area and if flood insurance is available.  Location maps of CBRS and Otherwise Protected Areas as designated by the U.S. Department of Fish and Wildlife Service can be found at  Fannie Mae, however, will accept mortgages for properties in CBRS and OPAs where federal flood insurance is not available if sufficient private flood insurance is in place.


MSI has issued a reminder that it requires but will not order Life of Loan Flood Certifications for all loans that it funds.  LOLs must be purchased from an approved vendor (CoreLogic, Elite Lender Services, LPS National Flood, Wells Fargo Flood Service, or AFR Services) and dated on either the closing date or within 120 days of the Note date.


Effective for all Conventional Agency loans where the borrower has multiple properties, MSI is no longer imposing a limit on the number of properties held by the borrower, either financed or unfinanced.  If the subject property is a primary residence, MSI must be provided with tax returns in order to calculate the income/loss for each owned property; documentation of PITI and association dues, including a copy of the 1003 with the REO section reflecting all real estate owned in its entirety and copies of current mortgage statements that disclose monthly payments; and document taxes and insurance if escrows have been waived.


MSI’s new VA Jumbo product is now available to lock.  VA Jumbo loans follow essentially the same underwriting guidelines as VA High Balance loans apart from the fact that the loan amount can exceed the current county limits, provided that the borrower has a minimum 25% equity on the amount that exceeds the limit, and that the cash paid for cash-out refinances is limited to $250,000, regardless of whether or not the property has a lien.  Loans must meet both the current VA requirements and any additional overlays imposed by MSI, which currently state that MSI will not accept a Note that exceeds $700,000, regardless of the VA maximum.

MSI has revised its LTV/HTLTV restrictions on Jumbo loans in Declining Markets such that in Michigan, restrictions apply only to refinance transactions, and in Nevada, restrictions apply to both refinances and purchases.


Plaza Mortgage is now offering a lender-paid mortgage insurance premium option for loans with LTVs up to 97% for its Conforming Fixed products.


GMAC has issued a reminder that it does not originate or purchase “high risk home loans” in the state of Illinois.  This follows the signing of IL House Bill 5019, which delays the updates made to high risk loan regulation until January 1, 2014 (originally scheduled to become effective on the first of this year).  The bill, when it eventually goes into effect, will change the index used and the definition of “points and fees” and will add various prepayment penalties that make loans “high risk.”


In order to align with the GSEs’ ULDD requirement, PHH is now requiring that all loan files delivered for purchase include a “Date Loan Locked with Borrower” field, where this date is defined as “the date on which the interest rate reflected on the Note was locked with the borrower (not with PHH).”  In cases where the lock was extended, sellers are asked to provide the original lock date.  PHH also requires a Borrower Acknowledgement of Receipt of Appraisal that has been signed at closing to be included in all closed loan packages.


Green Tree is now allowing Approved Wholesale clients to originate DU Refi Plus loans in West Virginia provided that the DTI is 50% or below, the LTV/CLTV/HCLTV does not exceed 100%, and both an interior appraisal and an Exterior Only Appraisal Report (Form 2055) are completed.


Genworth has rolled out a new tool that allows users to compare mortgage insurance rates and obtain quotes by completing a mere five required fields (loan amount, state, credit score, LTV, and loan interest rate).  The tool also provides lenders with MI premium tax information, underwriting assistance, comparisons between Genworth and FHA coverage, and a HARP certificate search capability and allows users to create an unlimited number of loan scenarios to see how adjusting certain factors affect their borrowers’ payments.  For more information, see


LoanSifter has added MGIC to its MI Best Ex platform, which now allows lenders to price and qualify loans to find the best MI option from the four leading companies.  The online pricing and 1003 platform, eOriginations, has been successfully integrated with DU, which means that lenders can now run DU on an application submitted by a consumer through LoanSifter’s private-labeled configurable pricing and 1003.  There’s also talk of rolling out a historical pricing capability; watch this space for additional details.


Gleacher & Company has entered an agreement with Homeward Residential whereby they have purchased all the assets of ClearPoint Funding, aligning ClearPoint with one of the country’s top five non-bank financial organizations. As such, any Wholesale Broker Agreements that were executed with ClearPoint have been assigned to Homeward.



Metaphors (Part 1 of 2)

Every year, English teachers from across the USA can submit their collections of actual analogies and metaphors found in high school essays. Here are recent winners.
1. Her face was a perfect oval, like a circle that had its two sides gently compressed by a Thigh Master.
2. His thoughts tumbled in his head, making and breaking alliances like underpants in a dryer without Cling Free.
3. He spoke with the wisdom that can only come from experience, like a guy who went blind because he looked at a solar eclipse without one of those boxes with a pinhole in it and now goes around the country speaking at high schools about the dangers of looking at a solar eclipse without one of those boxes with a pinhole in it.
4. She grew on him like she was a colony of E. coli, and he was room-temperature Canadian beef.
5. She had a deep, throaty, genuine laugh, like that sound a dog makes just before it throws up.
6. Her vocabulary was as bad as, like, whatever.
7. He was as tall as a six-foot, three-inch tree.
8. The revelation that his marriage of 30 years had disintegrated because of his wife's infidelity came as a rude shock, like a surcharge at a formerly surcharge-free ATM machine.
9. The little boat gently drifted across the pond exactly the way a bowling ball wouldn't.
10. McBride fell 12 stories, hitting the pavement like a Hefty bag filled with vegetable soup.
11. From the attic came an unearthly howl. The whole scene had an eerie, surreal quality, like when you're on vacation in another city and Jeopardy comes on at 7:00 p.m. instead of 7:30
12. Her hair glistened in the rain like a nose hair after a sneeze.

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at 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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