Mar. 28, 2013: Should LOs care about the new streamline mod program? And more agency & investor updates - they never stop
“My secondary guy keeps talking about servicing values, convexity, duration, whatever. Can you boil it down to a couple sentences?” Kind of – remember that the rate (and price) borrowers & brokers see on rate sheets is the product of several things. The primary component is prices on residential mortgage backed securities. Next up, however, is the value of servicing – the value of the expected stream of cash flows that are collected by the servicer. When rates go up, traditionally loans stay on the books longer (increase in duration), and the value of those cash flows go up. When rates go down, the threat of the loan paying off goes up, decreasing the future cash flows, and the servicing value usually drops. There are many other things that go into the value of servicing, but as with most things, it boils down to supply and demand, and what impacts those – so when the CFO of Wells Fargo said at an investor conference that Wells is considering selling its mortgage servicing rights, but is not in any rush (other competitors have already been doing so for various reasons, not the least of which is the continuing threat/uncertainty of Basel III), that may drive up the supply, drive down the price, which is relayed onto rate sheets.
Was yesterday the rollout of the HARP 3.0 everyone had been hoping for? I don’t know, but at first glance the impact may be pretty small. The FHFA announced a new initiative to help streamline modifications for eligible borrowers. Specifically, the loans must be first liens, between 90 days and 24 months delinquent, at least 12 months old, and with an LTV >= 80. If a borrower meets these criteria he or she will be put into a 3-month trial period. Once the trial period is satisfied, the modification will become permanent.
Analysts say that the impact on residential MBS is expected to be fairly small, for several reasons. First, Fannie and Freddie already buy out loans that are delinquent for 120 days, so this program would impact only those securities with loans that are between 90 and 120 days delinquent. It will take some time to implement the modification, which would probably bring the loans to 120 days (or more) delinquent, in which case they would have been bought out anyway. Second, the size of the eligible universe is relatively small. Chase, for example, indicates that only 0.67% of the 2006-07 5.5% pools (made up of 5.75-6.125% loans) are 90 days delinquent currently, and the actual take-up rate by borrowers will clearly be below 100%.
Focusing on more recent production, lower coupon securities have a negligible amount of loans eligible for the program. Maybe borrowers who are 30-60 days delinquent will go 90 days delinquent, given that other incentive programs (such as HAMP) are already available to borrowers? I hope not. Interestingly, the new streamline program does not require borrowers to document hardship, which might make it marginally more attractive. The new modifications will still negatively impact borrower credit scores.
A couple experts thought that the timing of this change is interesting given that FHFA has recently stated that F&F will try to sell $30 billion of credit risk into the market in 2013. (See more on this a couple paragraphs down.) It is unclear what this change would do to investor demand for these credit tranches.
So, what can lenders hang their collective hats on? Fannie Mae and Freddie Mac will offer a new, simplified loan modification initiative to minimize losses and to help troubled borrowers avoid foreclosure and stay in their homes. Beginning July 1, servicers will be required to offer eligible borrowers who are at least 90 days delinquent on their mortgage an easy way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation. You’ll note the word “servicers” in there. The new Streamlined Modification Initiative eliminates the administrative barriers associated with document collection and evaluation. Eligible borrowers must demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified. Homeowners are encouraged to continue working with their servicer to evaluate all of their foreclosure prevention options. Documenting income and financial hardship could result in a modification with additional savings for the borrower. You can read all about it in the agency bulletins – here is Freddie’s for example: http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1305.pdf.
With agency loans come guarantor/guarantee fees, basically a payment by the borrower (or lender) to give investor’s comfort of the loan’s performance. Last week the commentary had a significant amount of discussion about the fees, and one gray-haired industry participant responded to my comments on increased g-fees: “Rob, While one could make the argument that the increase in g-fees is a tax on those with Fannie/Freddie mortgages, one could also argue that the increased fee simply raises the cost closer to a non-government subsidized rate that is more consistent with the private market. With record annual $1 trillion annual deficits and a nearly $17 trillion national debt, perhaps it is time to stop subsidizing mortgage rates for all borrowers with F/F loans and maybe to target only below median income borrowers or some other socially accepted segment of society. I see no reason why the country should continue to subsidize mortgages on second homes of to borrowers who could otherwise afford a non-subsidized mortgage. I believe the reason that g-fees are increasing has to do with lowering the risk profile of F/F by making the private market more competitive. With the 20 basis point increase in 2012, the private market is very close to being competitive on jumbo conforming, and with additional increases this year that segment of the market will move to the private market. Additional increases also will potentially facilitate risk sharing, where the private market takes the first 3% to 5% of losses with F/F acting as more of a catastrophic insurer.”
And of course recently we had the Federal Housing Finance Agency’s Acting Director Edward DeMarco lay out the FHFA's plans for Fannie Mae and Freddie Mac for 2013. After all, why wait for Congress to address it? These plans will lay a foundation for the new infrastructure in the secondary markets. In the coming year, the FHFA expects to support its first goal by creating an independent business entity that will serve as a securitizing platform. “To continue contracting the Enterprises' presence, the FHFA (i) has asked each Enterprise (Fannie, Freddie) to conduct risk sharing transactions to meet a target of $30 billion of unpaid principal balance in credit risk sharing transactions, (ii) plans to continue increasing guarantee fees, (iii) aims to reduce multifamily business volume by 10 percent, and (iv) plans to sell five percent of the less liquid portion of the enterprises retained portfolios”. Special thanks to BuckleySandler LLP for including this in their blog: http://www.infobytesblog.com/fhfa-takes-initiative-on-idled-housing-finance-reform/
And in more related news but dealing with foreclosures, as a reminder in Fannie Mae’s March 6th Servicing Guide (https://www.fanniemae.com/content/announcement/svc1304.pdf), FNMA issued requirements regarding the cancellation of hazard coverage in the event of foreclosure. They write, “Effective immediately, for all mortgage loans where the foreclosure sale was or will be held on or after October 1, 2012, servicers must cancel hazard insurance coverage (for both borrower and lender-placed policies) within 14 calendar days after the property appears on the Vacancy Report in HomeTracker”. The policy took effect immediately.
Keeping on with recent agency and investor updates…
Karen Crawford has joined Stearns Lending as its new Chief Legal Officer, where she will be leading the company’s legal, compliance, and internal audit strategy for sales, servicing, and origination. Before joining Stearns, Crawford served as Chief Risk Officer at MetLife and worked in a legal capacity for Fannie Mae and Countrywide.
As per updated Fannie guidance, Kinecta is allowing cash-out refinance borrowers to include real estate taxes in the new loan amount provided that an escrow is established and that the inclusion of the taxes complies with all applicable laws and regulations. In states that do not allow lenders to require escrow accounts under certain circumstances, loans are eligible as limited cash out refinances without an escrow account, while in cases where a lender is allowed to require an escrow account but an account is not being established, the loan is considered to be cash-out. Real estate taxes that are more than 60 days delinquent may not be included in the loan amount.
Kinecta has lowered the minimum credit score for DU Refi Plus loans, which was previously 700 for amortization terms of 25 years or more and 680 for less than 25 years. The minimum score for all owner-occupied and second home transactions is now 680. The FICO score for Jumbo 90% loans, which are available for loans up to $850,000 with LTVs up to 90%, has also been lowered to 760 (720 for credit union rates).
Franklin American has updated its Anti-Steering Disclosure policy to prohibit sellers from issuing borrowers with the same loan option multiple times, which could be construed as steering and therefore nullify the Safe Harbor. Table-funded lender-paid transactions with applications dated April 1st or after that are delivered to FAMC will not be considered eligible for purchase.
US Bank has rolled out a new 20-year Jumbo product that is now available to register/lock. The product shares the same guidelines as 15- and 30-year Jumbo products and allows up to $2 million on purchases, rate/term refinances, and cash-out refinances of 1-unit primary residences. Maximum LTVs range from 65 to 85%, with TLTVs being subject to a maximum of 85%.
Green Tree (the platform formerly known as Prince, uh, I mean GMAC) has issued a reminder that brokers are required to disclose the addition of borrowers to the Note, appraisal final inspections or re-inspections, Subordination Fees in cases where the broker didn’t know that a subordination would be necessary at the time of the initial GFE, and appraisal fees along with any changes to compensation (e.g. lender-paid to borrower-paid and vice versa), broker compensation on borrower-paid transactions, appraisal method, title companies and/or fee schedules, and MI payment method. All applicable documentation should be provided to GT along with a fully executed Change of Circumstance form, after which brokers will be issued a revised GFE and TILA Disclosure as necessary.
GT has updated its DU Refi Plus guidelines to differentiate between Same Servicer and Non-Same Servicer transactions such that the former is no longer subject to LTV limitations, the only exception being the 80% maximum that applies to the Fixed Rate Texas Home Equity products. The differentiation affects qualifying ratio, LTV, escrow waivers, assets and reserves, real estate owned limitations, appraisal requirements, and income documentation. At the moment, borrowers in Hawaii, New York, and West Virginia are ineligible for all DU Refi Plus products, and the Conforming LIBOR ARM, Fixed Rate Interest Only, Jumbo Fixed Rate, Jumbo ARM, Freddie Mac Fixed Rate, Freddie Mac Super Conforming Fixed Rate, and Freddie Mac Super Conforming LPMI Fixed Rate products are currently unavailable.
Affiliated Mortgage has announced that it will be conducting reviews of Truth in Lending disclosures for every loan it purchases and reminds lenders that the courier, wire, Closing Protection Letter, copy, and settlement of closing fees must be in included in the prepaid finance charges.
Ginnie Mae has announced plans to publish the first part of Version 1.0 of its HECM MBS Loan-Level Disclosure Layout, which is scheduled to be implemented by the third quarter of 2013. The data will draw from items currently collected from issuers, while Phase 2, targeted for Q1 of 2014, will encompass monthly loan-level disclosures and new issuance disclosures. Users can expect a test file to be available sometime in Q2 of this year. Version 1.0 of the MBS Loan-Level Disclosure Layout is also slated to be implemented by the third quarter of 2013.
Ginnie has released its issuance statistics for December 2012, with the total coming to $41.21 billion. GNMA II single-family pools, at $33.62 billion, made up the majority as usual, with GNMA I single-family pools totaling $4.09 billion and multifamily MBS totaling $3.49 billion.
Based on data received from issuers of GNMA I and II pools on the fourth day of the month, Ginnie is computing the preliminary security factor (“Factor A File”) for each pool and the aggregate Remaining Principal Balance of each multiple issuer MBS pool. Ginnie has now added a “Factor B File,” which will disclose the complete and updated final security factor based on the final RPBS reports from issuers on the sixth business day of each month.
Rates are fine. (Sometimes I am tempted to just stop there.) Wednesday traders reported average supply from mortgage bankers, and, as usual, it was soaked up by the Fed, REITs, money managers, and hedge funds. MBS prices ended the day better by .250 whereas our “benchmark” 10-yr closed up better by .5 and yielded 1.85%. This morning we had the final reading on fourth quarter GDP (+.4%, pretty close to expected) and Initial Jobless Claims (+357k, up 16k from a revised 341k, with the 4-week moving average at +2,250). At 1PM the Treasury will auction $35 billion in 7-year notes. We’re looking at nearly an unchanged bond market heading into today’s early close, and entire close tomorrow.
At 41 seconds, this is worth your time for a chuckle, especially if you’re part of the aging mortgage banker & Realtor population that need glasses: http://www.youtube.com/watch?v=VELQ39QAYP4
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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