May 11, 2013: Reader input on DO/DU & VA loans, FHA life of loan MI, renegotiations, and QM's big June 1 rollout
Rob Chrisman

Sometimes numbers can be a little misleading. I noticed this headline the other day: “US citizenships being dropped in record numbers.” I thought that was really something – until you look at the actual detail. “More than 670 U.S. passport holders gave up their citizenship in the first three months of this year.” When I saw the headline I mistakenly had the impression that thousands a day were moving out, and most had names like John Smith or Tim Johnson. It turns out I was incorrect on both counts: So I don’t think that the rally in housing prices will be impacted by families renouncing citizenship.


In fact the rally in housing prices is being helped by plenty of things. Recently our compadres at RealtyTrac spread the word that foreclosure filings were reported on 144,790 U.S. properties in April, a decrease of 5 percent from the previous month and down 23 percent from April 2012.  Total foreclosure activity in April was at the lowest level since February 2007, a 74-month low. Yes, the numbers might be misleading, as in the first paragraph, but few can argue that this is not good news.


But what does statement mean to you?  “Mortgage quality is improving rapidly,” Mark Zandi, chief economist for Moody’s Analytics Inc. said in a telephone interview from his office in West Chester, Pennsylvania (with Bloomberg). “Once we’re able to work through this last bulge of foreclosed property, which I think we’ll be able to do over the next 18 to 24 months, mortgage credit quality is going to look absolutely beautiful.” If I was a regulator or a politician, it might justify the long hours I’d been putting in determining new underwriting guidelines, QM, appraisal requirements, and so on. And give me a sense of urgency in doing more?


Lots of folks have opinions, thoughts, and educational comments. I try to include them soon after receiving them, but some are pushed back due to space considerations. Let’s play some catch up with some of them.


Eileen O. writes, “Folks – heads up! Here are some of the QM regulations that are effective in – yes, it’s true – 20 days – June 1, 2013.  It is Sections 1026.36(h) and (j), and here is the excerpt from the CFPB’s site:


(h) Prohibition on mandatory arbitration clauses and waivers of certain consumer rights. (1) Arbitration. A contract or other agreement for a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer’s principal dwelling) may not include terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction. This prohibition does not limit a consumer and creditor or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim.

(2) No waivers of Federal statutory causes of action. A contract or other agreement relating to a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer’s principal dwelling) may not be applied or interpreted to bar a consumer from bringing a claim in court pursuant to any provision of law for damages or other relief in connection with any alleged violation of any Federal law. This prohibition does not limit a consumer and creditor or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim.

(i) Prohibition on financing single-premium credit insurance. (1) A creditor may not finance, directly or indirectly, any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer’s principal dwelling). This prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis.14

(2) For purposes of this paragraph (i), “credit insurance”:

(i) Means credit life, credit disability, credit unemployment, or credit property insurance, or any other accident, loss-of-income, life, or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract, but

(ii) Excludes credit unemployment insurance for which the unemployment insurance premiums are reasonable, the creditor receives no direct or indirect compensation in connection with the unemployment insurance premiums, and the unemployment insurance premiums are paid pursuant to a separate insurance contract and are not paid to an affiliate of the creditor.


I received this note from M.D.: “I have discovered recently that Fannie Mae’s DO/DU systems are issuing Refer/Eligible findings for proposed VA transactions that would normally receive Approve/Eligible findings. When I contacted Fannie Mae’s customer service and ‘senior technical team’ on the matter, they were not at all helpful with determining why the files were referring, and only would state that they ‘exceeded their risk threshold’. When I contacted the regional VA office with the circumstances and the explanation I was given by Fannie Mae’s representatives, the person openly laughed and stated ‘it sounds like you have the same frustration that we do with them’. The person went on to tell me that they had sent a representative to Fannie Mae’s offices regarding the matter, with little to no resolution. The person also stated that they are recommending that originators and underwriters use Freddie Mac’s LP system instead of DO/DU until this problem is fixed. When I used LP for the file that was receiving a REFER/Eligible from Fannie Mae, I obtained Accept findings from LP and now have a customer searching for a home that wouldn’t be otherwise. When I informed my main two lenders of this circumstance, neither of them was aware of the issues with DO/DU. However, both admitted that they had experienced files not approving that normally did and instead manually underwrote the files. We all know that a manually underwritten VA file is not as flexible as a file that is approved through an AUS. I hope that by you sharing this with you and rest of the industry, that Fannie Mae will fix their issues for our customers that deserve their support more than any other.”


Well, Fannie wrote back. “The credit risk assessment for VA loans takes into consideration typical risk factors such as LTV, and credit profile of the borrower. Higher risk profiles will move the casefile to a Refer recommendation. This casefile (in M.D’s instance) received a Refer/Eligible recommendation, which means that it appears to meet the VA eligibility guidelines, but the credit risk should to be manually reviewed by an underwriter. Refer recommendations can be driven by a layering of risk  factors such as high LTV (100%), derogatory credit events in the past,  low reserves, high total expense ratio, loan/amortization type, occupancy, and property type.”


Kevin L. from Pennsylvania writes, “As you know new regulations go into effect on June 3, 2013 regarding FHA loans and their need to have “life of loan” monthly Mortgage Insurance coverage even after the loan decreases below the 78% LTV threshold. In advance of this change we’ve run a few test cases on FHA loans where the HUD case number will be obtained after the June 3rd cutoff date. We have discovered that the APR on all of those test transactions has failed the High Price Mortgage Loan (HPML) test. The fact that the MI remains as a constant throughout the life of the loan increases the APR by a staggering amount. Granted we are running the calculations based upon present day situations/calculations but it is difficult to believe that a month from now those numbers would have changed sufficiently enough to warrant a change great enough to comply with HPML guidelines. I think if you take a moment to run your own test cases you will confer with our findings. To date we’ve not seen anything from HUD or our investors addressing the subject. Are they even aware of the issue? How many investors will purchase these FHA transactions when they exceed the HPML guidelines? Will HUD adjust their policies to permit High Priced Mortgage Loans? If investors are willing to purchase these loans will they come back to us once a loan goes into default and enforce the HPML standards as a reason for the re-purchase? Will delinquent borrowers be able to use the failure of the loan to meet the HPLM standards as a defense against foreclosure? Too many unanswered questions. While we understand HUD’s position in increasing MI coverage, we ponder whether they offered consideration to the outcome of their changes.”


Mark Chrisman writes, “This back and forth on renegotiations is hilarious.  “In fact, most customers are actually willing to pay for exceptional service and trust.....that is why they shop at Nordstrom's, buy a Lexus, or stay at the Ritz.”  I love it that Ken Jones thinks most consumers shop at Nordstrom’s, buy a Lexus, or stay at the Ritz.  Whenever I hear the “we don’t sell rates” argument from an AE, manager, recruiter, etc., I know that person either A) has never sold a loan in their life or B) Sold their soul to tow the company line when they took a management job.


Most of my clients, including the very wealthy ones, expect great service and competitive prices.  Using Ken Jones’ analogy, if I went to Nordstrom and bought a $4000 suit, got GREAT service, then walked into another Nordstrom across town that afternoon and saw my suit on the rack for $3000, how do I feel?  I’m bummed right?  So I call my sales guy and say “what’s up, same suit $1000 less” and he says “but my service was worth paying extra right?”  I would still return the suit and buy the $3000 identical one if that guy doesn’t drop the price.  I would tell my sales guy, “your service was worth a 10% markup, so sell it to me for $3300 and I’ll be happy”.   


This is what sparks a renegotiation, the fact that the same product can be had for much cheaper.   If you are actually selling loans you know that the worst case is your borrower says “Mark, you are awesome and I want to work with you, but we are talking about $300 / month for 30 years, you have to get close or I have to go with the best deal”.  The alternative is they stick with the transaction out of loyalty but still harbor negative feelings that they could have gotten a better rate elsewhere.  You may close that deal but they may hesitate to call you the next time or refer you as the guy with great service and rates.  With the market the way it is I am definitely placing my loans with the lenders who have the most favorable renegotiation policies, my customers deserve that.


And a couple weeks ago the commentary raised the question about whether or not the CFPB would rule that renegotiating a single lock might have a disparate impact on lending. (“Does it discriminate against borrowers who locked on the same day, have the same terms, but did not have their rate reduced, or extended?”) I received a note from an industry vet in Reno. “I have not heard the term ‘float down’ for a while.  I love lender lingo – it sounds great but is actually worthless. The old ‘float down’ rates were all based on the 60 day price.  So, if you locked a loan on a 30 day price, what good is a 60 day price to you?  The price has to be better by .5 or no go. The 60 day price would never be that much better than a 30 day price.  If it is, the financial world just ended. I do my best to get a loan in, and when approved, lock. Most borrowers now are just so happy to have their loan approved and go to docs.”


And another on disparate impact: “The CFPB and politicians in Congress want one lender, and all borrowers treated the same. Yet I don't hear anyone complaining about the banks changing different corporate rates for different companies. The prime rate is only for ‘special’ corporate clients, whereas everyone else pays more. Taking this to an extreme, we will wind up with just Wal-Mart: everyone pays the same.  Who is the heck came up with ‘disparate’? Everything is disparate.”



Differences between Man and Women in a Shower

How to Shower Like a Woman:

Take off clothing and place it in sectioned laundry hamper according to lights and darks.

Walk to bathroom wearing long dressing gown.

If you see husband along the way, cover up any exposed areas.

Look at your womanly physique in the mirror - make mental note to do more sit-ups/leg-lifts, etc. Get in the shower.

Use face cloth, arm cloth, leg cloth, long loofah, wide loofah, and pumice stone.

Wash your hair once with cucumber and sage shampoo with 43 added vitamins.

Wash your hair again to make sure it's clean.

Condition your hair with grapefruit mint conditioner enhanced.

Wash your face with crushed apricot facial scrub for 10 minutes until red.

Wash entire rest of body with ginger nut and jaffa cake body wash.

Rinse conditioner off hair.

Shave armpits and legs. Turn off shower.

Squeegee off all wet surfaces in shower.

Spray mold spots with Tilex.

Get out of shower.

Dry with towel the size of a small country.

Wrap hair in super absorbent towel.

Return to bedroom wearing long dressing gown and towel on head.

If you see husband along the way, cover up any exposed areas.

How to Shower Like a Man:

Take off clothes while sitting on the edge of the bed and leave them in a pile.

Walk naked to the bathroom.

If you see wife along the way, shake wiener at her making the 'woo-woo' sound.

Look at your manly physique in the mirror.

Admire the size of your wiener and scratch your butt.

Get in the shower.

Wash your face.

Wash your armpits.

Blow your nose in your hands and let the water rinse them off.

Break wind and laugh at how loud it sounds in the shower.

Spend majority of time washing privates and surrounding area.

Wash your butt, leaving those coarse butt hairs stuck on the soap.

Wash your hair. Make a Shampoo Mohawk.


Rinse off and get out of shower.

Partially dry off.

Fail to notice water on floor because curtain was hanging out of tub the whole time.

Admire wiener size in mirror again.

Leave shower curtain open, wet mat on floor, light and fan on.

Return to bedroom with towel around waist.

If you pass wife, pull off towel, shake wiener at her and make the 'woo-woo' sound again.

Throw wet towel on bed.



If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog is, “Mortgage Backed Securities: Life After QE3." 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.


(Check out or For archived commentaries or to subscribe, go to 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.)



Copyright - Rob Chrisman