Apr. 23, 2013: Mortgage jobs; Navy Fed's 100% program; Reg. Z's Appendix Q; home ownership trends
Rob Chrisman

“Rob, I keep hearing about ‘Appendix Q’ – what is that?” Geez, where have you been – get with the program! It spells out the “ability to repay” standards, such as debt to income ratio, that make up QM. But even though all this is printed out, there is still a huge amount of confusion, and attempts to clarify or change the parameters by entities such as the FHFA, the MBA, and large lenders. But here, for your reading pleasure, is Appendix Q: https://www.federalregister.gov/articles/2013/01/30/2013-00739/ability-to-repay-standards-under-the-truth-in-lending-act-regulation-z. Along those lines, we were reminded that the CFPB’s “Final Rules” aren’t necessarily final when it issued proposed clarifications to rules dealing with servicer-held escrows. We also have more proposed clarifications for public comment on, among other things, the definition of DTI (debt to income) and proposes revising the criteria for determining whether a consumer's income is stable for the purposes of DTI: http://www.consumerfinance.gov/blog/proposed-clarifications-of-the-ability-to-repayqm-and-mortgage-servicing-rules/?utm_source=newsletter&utm_medium=email&utm_campaign=Email%2B20130419%2Bregulations%2Bblog.


While the government continues to try to standardize the industry, the wholesale model is alive and well. Freedom Mortgage is searching for wholesale AE’s around the country, and has been quietly expanding under most everyone’s radar.  Last month the company funded just shy of $2bb and has grown its servicing retained portfolio to more than $23billion - where did these guys come from? Freedom is a direct seller/servicer to FNMA and a GNMA issuer/servicer, and is of course licensed in all 50 states.  For more information on Freedom visit http://www.freedomwholesale.com and those interested should confidentially contact Keith Bilodeau at keith.bilodeau@freedommortgage.com.


A leading Northern CA-based retail, purchase-focused mortgage banking firm, is seeking a Senior Operations Leader to lead teams in both northern and southern California. “Lead the Mortgage Operations team in a fast-paced environment where no 2 days are alike!” This is a strategic role requiring strong critical thinking skills and ability to work in a dynamic environment.   Position is responsible for oversight and ongoing development of Set-up, Processing, Scenario Desk, Underwriting and Closing teams in multiple locations. “Drive operations standards while motivating teams to deliver world-class service levels and drive for results.” Travel is required, and compensation is commensurate with experience.  Submit confidential resumes to me at rchrisman@robchrisman.com.


I received several responses from alert readers (Be Alert! The world needs more Lerts!”) suggesting I clarify the note from Scott G. that referenced the Prime Rate. As an example, Rodd Miller from Pacific Residential observed, “While his concern has some validity, he is incorrectly using the WSJ Prime rate as the basis for the comparison to the APR on the FHA loan.  He needs to use the Average Prime Offered Rate (http://www.ffiec.gov/ratespread/YieldTableFixed.CSV) which is a completely different index.” And another: “Rob, he confused APOR (Average Prime Offer Rates) with WSJ Prime (http://www.bankersonline.com/regs/226/226-35.html) where ‘Average prime offer rate’ means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. The Board publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Board uses to derive these rates.” You can find tables of the average prime offer rates for both fixed- and variable-rate loans on the FFIEC website at http://www.ffiec.gov/ratespread/newcalc.aspx.


And, “Rob, It's Section 32 loans, not 35, and this issue is prevalent with all loans with low 1st TD balances. The fight with the CFPB is that this legislation has already created the scenario that no one will originate small balance 1st TDs. Why spend the time, right? Most companies can validate that these low balance loans are NOT being originated because of both Section 32 and LO comp legislation - so much for ‘consumer protections’ when the legislation does the exact opposite of the intended rules. That's what living ‘inside the beltway’ vs. ‘on the streets’ does for our country.”


Hammerhouse, which is making a name for itself, publicly released the results of its latest survey on the industry, discussing a wide range of topics. Here is the link: http://www.teamhammerhouse.com/?p=2885.


Navy Federal Credit Union is putting members in homes with its proprietary Home Buyers Choice mortgage - a one hundred percent financed, no private mortgage insurance required, 30-year, fixed rate, conventional loan - and says the program can “enhance the beginnings of mortgage industry's turnaround.” Per the press release, 53% of Navy’s purchase volume are first-time homebuyers who generally don't have the cash reserves to make large down payments. “Despite the scrutiny received by no-money-down mortgages, Navy Federal asserts its program to be both attractive in its security of fixed rates and solid in its performance. The credit union experienced tremendous growth in 2012--a $10 billion closing year…Navy Federal continues to report gains, even in its recent dip in mortgage volumes, due to a shift towards a purchase market. By the end of the first quarter, the credit union closed at $3.2 billion, almost doubling its number from 2012. March originations alone stood at $1.2 billion--the highest month in the credit union's history…Navy Federal Credit Union is the world's largest credit union, with $54 billion in assets, 4 million members, 229 branches, and a workforce of over 10,000 employees worldwide. The credit union serves all Department of Defense and Coast Guard active duty, civilian and contractor personnel, and their families.”


There is little doubt that credit unions and the military are a powerful combination. (And credit unions had a record mortgage year in 2012.) I have fielded some e-mails in recent weeks regarding preferred Realtor programs that don’t present things in a flattering light. For example, here is one opinion piece that details how the Cartus/USAA 40% referral program works. The referral agent agrees to give back 40% of his 3% sales commission to Cartus/USAA. See http://sarahiouslyspeaking.com/2012/03/no-im-not-a-usaa-or-a-navyfed-prefered-realtorr/.


Speaking of the military, Mitchell Fielder reminded me that a piece of his that focused on educating returning troops was recently published: http://www.onlinedegrees.org/returning-troops-the-transition-back-to-school/. The article identifies the biggest challenges, questions, goals, etc. that military students have as they enter or return to the education world.


Many ex-military personnel go to work for small businesses. The Treasury recently released a new report showing that participants receiving capital through the Small Business Lending Fund (SBLF) boosted lending for the seventh straight quarter. In total, SBLF participants have increased small business lending by about $8.9 billion since the depths of the recession in 2009. This increased lending represents an estimated 38,000 additional small business loans over baseline levels. To view this information graphically, as well as detail on the increased lending across all regions, click http://www.treasury.gov/connect/blog/Documents/20130402_SBLF.pdf. "In every region of the country, the Obama Administration's Small Business Lending Fund is supporting small and family-owned businesses with the funds they need to create jobs and grow," said Deputy Secretary of the Treasury Neal Wolin. "This quarter's report shows that SBLF participants are continuing to help thousands of small businesses invest, hire, and expand in their local communities." The report also shows that SBLF participants increased their lending by $1.5 billion more than the prior quarter, representing the second highest increase since the start of the program. Community banks participating in SBLF have increased business lending by 38 percent, a substantially greater amount than a peer group of similar banks across median measures of size, geography, and loan type.


Lending is one thing, but what about those 100% equity, all-cash folks? Has the percentage of homeowners who are free-and-clear changed over time? In 1940, 55% of non-farm homeowners owned their homes outright. By 1980, this share dropped to 35%. Seemingly leveling out into the following decades (but not without fluctuations), Census data shows 33% of homeowners free and clear in 2010, and Zillow’s Negative Equity 2012 Q3 data shows 29% of homeowners are free-and-clear on their homes. Various government programs such as the FHA  insurance program and the creation of Fannie Mae in the 1930s were intended to encouraging homeownership and combat the Great Depression by providing jobs in new housing construction.  These policies opened the possibility of homeownership to a larger portion of the population.  States’ legal limits on the loan-to-value ratio of mortgages, some as low as 40%, were relaxed or removed entirely. Federal insurance on mortgages allowed banks to loan to more “risky” households, and the average length of fully amortizing mortgages increased.


In 1944, the VA home loan program was originally conceived extending mortgage credit to the men returning from World War II. But times change and the dramatic reduction in the percentage of homeowners free and clear on their mortgages during the pre-1980 decades coincided with a dramatic increase in the homeownership rate. In 1940, only 44% of homes were owner-occupied. Only those who could afford to pay in cash or pay off their debt quickly owned homes, leaving most free and clear. By 1980, with home financing more readily available because of government programs, a larger portion of homes were owner-occupied (64%) precisely because holding more mortgage debt was possible. After 1980, the free-and-clear rate pattern still mirrors the homeownership rate. As the percentage of owner-occupied homes increases, the percentage of homeowners who are free-and-clear decreases. The driving force behind these more recent patterns, however, is reasonably a story of home prices. In earlier decades, conventional economic wisdom linked housing prices directly to construction costs, pure and simple. But in recent decades, as epitomized by the housing bubble, home values have also been driven by speculation as housing took root as a consumption and investment good. As the bubble built in the 1990s and early 2000s, subprime mortgages were born, and homeownership rates increased as the free-and-clear rate decreased. Households and investors fueled the bubble by flocking to this “safe” asset. In general, fluctuations in the percentage of homeowners who are free-and-clear on their mortgages are driven by access to mortgage credit throughout the population and the affordability of housing. The drivers behind these metrics are part of an evolving story from new government programs in the 1930s and 1940s to unsustainable speculation in the early 2000s.


Switching gears entirely, for those folks out there anxious to learn about Fannie Mae’s best efforts program, Fannie will be hosting a webinar today at 3PM EST, noon PST. “If you commit a loan on eCommitONE and it does not close, you will not incur a pair-off fee.  The session will offer more information about this flexible and competitive execution, including the bullet points, ‘change product, note rates, and loan amount within the same commitment without incurring fees, also great for managing your HARP, 20-year, 15-year or 10-year product pipelines, commit and manage loans after Fannie Mae business hours, and competitive pricing and extension policies.” Here you go: https://www.fanniemae.com/singlefamily/hfi-spotlight.


Rates go up a little, down a little, and yesterday was down a little. Most of this was attributed to the report on existing home sales report showed a 0.6% drop in March home sales from the month prior. Should the industry be wringing its hands? Probably not – there just aren’t enough listings to go around as sellers await more appreciation so they don’t have to sell their house at a loss, and folks with a little gain seem happy where they are. In other words, housing inventories are lagging far behind demand which certainly helps values. Existing homes, which include single family houses, condominium units, and cooperative apartments, sold at a seasonally adjusted annual rate of 4.92 million during the month, down 0.6% from the February rate but still 10% above the pace one year earlier.  March was the 21st consecutive month in which sales were higher than during the same period one year earlier.


But by the time the fixed income markets closed for the day, we were nearly unchanged from Friday’s closing levels. But the 10-yr’s yield is very low ahead of today smattering of data: the February FHFA home price index (expected +0.7) and March New Home Sales (expected slightly higher) along with a $35 billion 2-yr note auction at 11AM MST. In the early going the 10-yr yield is down to 1.67% and agency MBS prices slightly better.



Here – put on your thinking caps for part 2 of 2 of some puns:

A dyslexic man walks into a bra.

PMS jokes aren’t funny. Period.

Why were the Indians here first? They had reservations.

Class trip to the Coca-Cola factory. I hope there’s no pop quiz.

Energizer bunny arrested: Charged with battery.

I didn’t like my beard at first. Then it grew on me.

How do you make holy water? Boil the hell out of it!

What do you call a dinosaur with an extensive vocabulary? A thesaurus.

When you get a bladder infection, urine trouble.

What does a clock do when it’s hungry? It goes back four seconds.

I wondered why the baseball was getting bigger. Then it hit me!

Broken pencils are pointless.



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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