Apr. 20, 2013: More thoughts on renegotiation strategy, policy, and common sense; Denver's fiesta
Rob Chrisman


I flew out of Colorado yesterday, apparently missing a little party in Denver today in honor of April 20th (420) “As tens of thousands of people gather to celebrate and smoke marijuana in Denver, police will be out in full force”: http://www.usatoday.com/story/news/nation/2013/04/20/denver-pot-holiday/2098755/. By the way, that story comes from USA Today, founded by Al Neuharth. Who can miss one of those any time you walk around practically any hotel in the morning? Critics dubbed USA Today “McPaper” when it debuted in 1982, and they accused Neuharth, of dumbing down American journalism with its easy-to-read articles and bright graphics. USA Today became the nation’s most-circulated newspaper in the late 1990s. Mr. Neuharth died yesterday in Cocoa Beach, Florida at age 89.


The volatility of the markets declined somewhat this week after rates moved much lower a couple Friday’s ago and then went right back up again. Talk of renegotiating rate locks continued. This is despite the apparent consensus of those who have asked the CFPB about rate lock renegotiations, and those who have interpreted its material that renegotiating one rate lock and not renegotiating others could be frowned upon at best but viewed as disparate lending with possible monetary sanctions at worst.


Steve K. writes, “The ‘problem’ I see with this issue is that a majority of loan officers lock in their loans as a means of ‘securing the client’ as opposed to securing the rate. They forget that they are supposed to use their expertise as a mortgage professional to advise their clients while making sure that the ultimate decision to lock in a specific rate is made by mutual agreement between the client and the loan officer. This means that client is made aware of the potential for improvement during the time the rate is locked to closing, understanding that once the rate is locked and secured, they are bound by the lock regardless of any potential or actual improvement, with the benefit and security of locking outweighing the potential for possible improvement. Hopefully, the originator studies the market movement and signals in order to offer the best rate lock advice. Personally, by doing this, I have never – not a single time – had a borrower threaten to walk from the loan due to a better rate made available. And, in fact, more often than not I am able to show them how ‘our’ decision to lock secured a better rate for them if or when pricing worsened. Sometimes this means locking in a rate early in the process, other times prudently waiting for market improvement makes more sense. Either way, YOU as the originator are the professional, but the client always – or should always – be an active and agreeable partner in the decision. In addition, most lenders have rate renegotiation policies, but the costs are sometimes prohibitive, and typically require at least an improvement of .250% in the rate. If you have read the market somewhat accurately the need to renegotiate should only occur when dramatic and unforeseen market fluctuation occurs. Rate renegotiation should rarely need to occur.”


A producing branch manager observed, “I’ve been originating since 1991 and have worked for a savings & loan, mortgage banker, and full broker. Never at any of those entities have I had a Secondary Marketing manager explain in plain English what the per loan cost is for renegotiating a lock – and I think that’s all that would be necessary to get the LOs off their back. Just as consumers want transparency, so do I.  It’s not that I think Secondary is being dishonest but by continuing to speak to LOs in their Secondary lingo we can’t understand, they perpetuate this confusion. As a second step I’d suggest companies show their LOs what the rates would look like if company policy were to allow float downs.  I’m assuming that can be done and it just takes a different hedging model. And I’m assuming all rates would be higher than without a float down policy, so we are not going to want that. But at least we could see the difference. I suspect the majority of this issue comes down to the fact that most LOs just haven’t given the client the correct expectation when they lock.  In fact I’ve sat next to LOs and heard them tell their client, ‘Don’t worry, if rates drop and the lender won’t renegotiate I’ll just move your loan to another lender.’ If, on the other hand, a clear statement that, ‘Mr. and Mrs. Borrower, when you lock the rate you are locked. No worsening if rates go up and no improvement if rates go down.  Is this what you want to do?’ might cure things.”


Another senior manager wrote, “The concern over providing more rate/price concessions to non-protected borrowers is a valid issue.  Companies should have specific policies involving the acceptable circumstances for concessions and staff (e.g. secondary marketing) empowered to grant concessions. In many cases, competitive pricing pressure (‘need to improve terms to avoid losing the deal to competition’) is cited. Therein lies the issue where the frequency and/or degree of concessions granted to certain groups are proven to be statistically significant. Communications throughout the organization explaining how concessions granted could open up the firm to allegations of  disparate impact and monthly back testing on all concessions granted, by product with the ability to drill down to the LO level are a good initial action steps.  Reporting and discussing the results to production, operations, the owners, and the board of directors is vital. Finally, taking action where required (e.g., modifying policy or restricting certain originators who are exposing the company).  In many cases, the LO, who keeps the company lights on is left in the dark. Production staff should be informed as to what is happening and consulted with to help an organization through this issue.  The pros I've worked with care to be part of the solution and not the problem.”


And John Jacobs with Patriot Bank Mortgage chips in, “I think the issue is a ‘self-inflicted wound.’ In my nearly 40 years of managing both production and the secondary & capital markets functions, I have always resisted having a renegotiation policy.  By having a policy, it connotes that renegotiation is possible.  If a loan officer knows that the first lock is the best lock they will ever get, then they tend to fend off the renegotiation question much better.  Particularly, now that you cannot reduce the loan officers’ compensation, they need to know that the company is willing to let the loan ‘walk’, and thus they get nothing. I am not stupid, in that I know economically that we are 100% better off closing the loan than letting it go, but the loan officers need to sell their case each time to the secondary department rather than having a policy that says, ‘If rates improve by .25% , then we will do…’. We have virtually no requests for renegotiations at our company.  The borrower is given the option of locking at application or any time during the process, but they are told that once they do lock, they need not look at interest rates any longer, as they are protected.  It is also explained to them that 3 things can happen to interest rates during their loan processing: rates can go up, down, or stay the same.  In 67% or 2 out of 3 instances they could get better pricing by not locking. [Editor’s note: I am not necessarily advising never to lock.] They obviously will get better pricing if rates improve, but they will also get better pricing if rates stay the same, because they will get a shorter lock period which has a better price. Lastly, I do agree that by renegotiating, you could open your company to a disparate pricing allegation.  For that matter, making price concessions of any kind could trigger that claim, but that is a discussion for another day, and after CFPB clarification (I hope).


On to some relatively recent investor and lender updates from those that negotiate rates and those that don’t!


As part of its plans to expand the set of Uniform Collateral Data Portal data fields later this month, Freddie Mac will begin comparing information submitted through the selling system and the UCDP in order to better monitor data quality.  Users should ensure that the Appraisal Identifier in the selling system matches the Doc File ID in the UCDP, as this will be driving the comparison.  The changes to the data fields, which go into effect on April 22nd, will include scrubbing property addresses to convert them to the U.S. Postal Service listing (e.g. “Oak Rd” to “Oak Road”) and to compare them with the information submitted through the UCDP; in cases where there is a discrepancy, an edit message will be issued.  Users will also be able to export UCDP-specific data in the selling system for their files, for which an “Export Your Loan Data” job aid will be available starting on the 22nd (http://freddiemac.sparklist.com/t/436923/4682831/4967/29/). 


PHH has updated guidance for all DU Refi Plus products such that condos are only eligible for PHH-serviced loans rather than sub-serviced or new servicer loans as previously allowed.  In cases where the borrower on the existing mortgage will be removed from the new mortgage, they no longer need to be removed from the title, and it has been clarified that existing loans that were closed in the name of individual borrowers but later transferred to an Inter Vivos Revocable Trust are eligible for HARP so long as the borrowers on the current note are the only parties.  Guidance has also been expanded to allow the use of Property Inspection Waivers on loans with subordinate liens provided that the subordinate holder allows it, and investment properties no longer require the use of the Single Family Comparable Rent Schedule, even if the borrower is using rental income to qualify.  Effective for all DU Refi Plus 5/1 ARM transactions that were registered on or after April 5th, PHH is requiring that loans be submitted and set to “In Underwriting” status by May 6th.  Closed loan packages must be submitted and set “In Post Closing” status by June 5th so that they can be purchased by July 6th.  As a reminder, 5/1 DU Refi Plus ARMs with 5/2/5 caps have been replaced with the new 2/2/6 cap structure product.


For Relief Refi Open Access program transactions, PHH has aligned its guidance with that of Freddie to allow streamline reviews of condo projects, though condos are only eligible if serviced by PHH.  Borrowers are also no longer limited to a maximum number of mortgages when second homes or investment properties.


PHH reminds clients that they must submit a condition for the borrower’s 2012 tax returns and tax transcript for any loan in underwriting status that doesn’t close by April 15th.  For full details, see the Tax Return Requirements in the reference section of the PHH Sales Manual.


Effective for all Conventional products, Franklin American has expanded guidelines to allow a Renewal and Extension Rider on Texas loans with subordinate financing provided that the first lien is not a Texas (a)(6) refinance.  FHA guidelines have been updated to include asset documentation requirements for funds required at closing, to prohibit agents acting on behalf of approved governmental agencies or HUD-approved non-profits from acting as a subordinate finance provider for second liens, and to require a water system inspection if the appraiser has noted any deficiencies (which also applies to VA transactions).


FAMC has also clarified that subordinate financing cannot have payment terms that restrict repayment (e.g. prepayment penalties) unless the subordinate lien is a HELOC or closed end second that lets the lender recoup the closing costs up to $500 if the borrower pays off the subordinate financing early.  Tax transcript guidelines now state the date that tax transcripts for the most current filing year are required as well as the acceptance of “No Record of Return,” and construction-to-permanent financing guidelines have been aligned with those of Fannie Mae.  FAMC has also announced that it will no longer accept any loans submitted for purchase that include an AUS with lender specific conditions for any other lenders.


For all FHA Streamline refinances in the state of Virginia, M&T Bank is requiring lenders to verify, document, and determine the eligibility of any funds the borrower needs to bring to closing; this includes non-credit qualifying, credit-qualifying, M&T-to-M&T, and non-M&T-to-M&T transactions.  Due to the manually underwriting requirement for Streamline refinances, lenders need to provide full documentation, either in the form of a Written Verification of Deposit and one month’s bank statement or the original bank statements covering the most recent three month period.  Any large deposits or gift funds must be documented and explained and are subject to all standard documentation requirements.



Two little kids are in a hospital, lying on stretchers next to each other outside the operating room, the first surgeries of the day.

The first kid leans over and asks, "What are you in here for?"

The second kid says, "I'm getting my tonsils out, and I'm afraid."

The first kid says, "You've got nothing to worry about. I had that done when I was four. They put you to sleep, and when you wake up they give you lots of Jell-O and ice cream. It's a breeze."

The second kid then asks, "What are you here for?"

The first kid says, "Circumcision."

"Whoa!" the second kid replies, "Good luck, buddy. I had that done when I was born.

Couldn't walk for a year."



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 Changes in FHA Loan Pricing Will Lead to Changes in Investor Demand." 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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http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)




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