Jun. 1, 2013: Affiliated relationships defined; investor & agency updates
Rob Chrisman


The north Atlantic hurricane season begins today and lasts through Nov. 30. The U.S. Census Bureau produces timely local statistics that are critical to emergency planning, preparedness and recovery efforts. Fortunately there were only 10 hurricanes during the 2012 Atlantic hurricane season, with only two of them as major hurricanes (Category 3-strength or higher). One of the major hurricanes, unfortunately, was Hurricane Sandy. It struck southeastern Cuba at Category 3 strength, then made landfall in New Jersey as a post-tropical cyclone. It was the second costliest cyclone on record (not adjusted for inflation) at $50 billion, ranking only behind Hurricane Katrina from 2005.


I received a few questions from Phillip K. that is very pertinent regarding affiliated relationships. “As you may know, the CFPB has issued a “final amendment” indicating that loan officer compensation (at least for mortgage bankers) will NOT be included in the 3% Cap associated with QMs. The other question related to the 3% cap is how “affiliated” entity is defined. I can’t seem to find the term defined anywhere.  If I own stock in Allstate, will I need to include the cost of homeowners insurance in the 3% cap if Allstate is the borrower’s insurance provider? What if I own a mutual fund that owns stock in Allstate? Along the same line is what if some owners (but not the licensed entity) own minority interests in service providers (title companies for example)? Are you hearing anything that might help to clarify how “affiliated” is being interpreted by the CFPB?  HR 1077 appears to be setup to exempt affiliates from the calculation, but who knows if that’s going to pass. As you know, there are lots of joint ventures out there and lenders MIGHT need to unwind those pretty soon.  I believe the regulation is supposed to go into effect in January 2014 (7.5 short months away).”


Here is what I received from very knowledgeable source. “Here is the scoop on affiliate definition under TILA/Reg. Z: ‘Organization 1 is only an affiliate of Organization 2 if (1) org 1 holds a "controlling interest" in org 2; (2) org 2 holds a "controlling interest" in org 1; or (3) org 1 and org 2 a under "common control."  The TILA citation for this definition is 1026.32(b)(2) and the nomenclature in the definition sources back to the Bank Holding Company Act definition of affiliate (all noted in the regulation’s text). Your inquirer should not have to worry about their Allstate stock!” Here are some relevant links: 1026 http://www.bankersonline.com/regs/12-1026/12-1026-032.html and Bank Holding Company Act http://www.fdic.gov/regulations/laws/rules/6000-300.html#fdic6000sec.2a.


There’s no denying the plethora of investor, agency, training, vendor, and banking updates that has come out in recent weeks. As always, it is best to read the full bulletin, but these will give you a taste of the trends out there – some of them aren’t so bad!


Earlier this week Plaza Home Mortgage reminded clients that requests for case number assignments must be submitted to Plaza no later than yesterday. If this is news to you, so sorry. “If a confirmation of the case number assignment is not received by 4:00 pm on Friday, May 31, please contact us to ensure the request was received.”

Starting Monday Mortgage Success Source, LLC will change its name to Vantage Production, LLC.


Freddie Mac has announced June 23rd as the release date for its Loan Prospector updates, which will provide additional clarification in purchase restriction feedback messages.  Sellers will be provided with additional product-specific purchase restriction information and details of loan eligibility earlier on in the origination process, and the messages will be revised to better align with those received in the selling system.  This will affect loans submitted for investment properties, manufactured homes, 1-unit primary residences, 2-4 unit primary residences, ARMs, and temporary subsidy buy downs and all loans submitted under the Relief Refinance, Home Possible, Super Conforming, and Construction Conversion and Renovation products.


Of course, following up on the implementation of the “ability to repay’ provisions of Dodd-Frank, the GSEs announced that QM would officially take effect on January 10, 2014.  The official language states that Fannie and Freddie will limit purchases to loans that “are qualified mortgages under the ability to repay rule, including those meeting the special or temporary mortgage requirements [and] are exempt from the ability to repay requirements, such as investor transactions.”  This means that the GSEs will not purchase non-fully amortizing loans, loans with terms over 30 years, and loans with points and fees that exceed 3% of the total amount.  The jury is still out on the final rule for HARP and HAMP.


The FHA has published a complete list of the administrative actions taken by the Mortgage Review Board between January 1, 2012 and September 20, 2012, which includes 20fact-based lender cases and 145 lender recertification violations.  To access full details, go to http://www.gpo.gov/fdsys/pkg/FR-2013-04-11/pdf/2013-08520.pdf.


As per Mortgagee Letter 13-16, the FHA has implemented Phase II of the Adjusted Net Worth Requirement, which stipulates that all single family program approved lenders and applicants for approval must possess a net worth of at least $1 million plus an additional 1% of the total volume in excess of $25 million of FHA single family insured mortgages originated, underwritten, purchased, or serviced during the previous fiscal year.  Not less than 20% of the required net worth amount must be liquid assets consisting of cash or an equivalent considered acceptable by the Secretary.  The same requirement applies to lenders participating in multifamily programs.


The USDA is now requiring underwriters to complete two additional exhibits before it will accept loans submitted for approval.  These are the USDA Worksheet for Calc Income, which shows the income used for eligibility and the income used for repayment, and the Stacking Order Checklist, which shows what is required to be submitted for various approvals, GUS-approved or GUS Refer (Manual), and the order in which they require the documents.


Clarification has been issued for USDA loans that receive a GUS “Refer” or “Refer With Caution” for which lenders must request a waiver for ratios.  In order for the request to be considered for loans with qualifying ratios higher than 29%/41%, the housing ratio must be between 29% and 32%, the DTI between 41% and 44%, and the FICO at 680 or higher.  In addition, there must be full documentation of the proposed PITI being less than or equal to the borrower’s current verified housing expense for the most current 12 months, liquid cash reserves after closing of three months’ or more PITI, or the borrower’s continuous employment with their current employer for a minimum of two years. The underwriter must also file a written Ratio Waiver request and note that the file includes the required documentation.


Effective for all Freddie ARM products, Fifth Third is requiring borrowers to be qualified at the greater of the note rate plus 2% or the fully indexed rate.  This includes Financed Permanent Buy down Mortgages and ARMs with temporary subsidy buy down plans.


Fifth Third’s disaster policy is in effect for properties in Cook, DeKalb, DuPage, Fulton, Grundy, Kane, Kendall, La Salle, Lake, McHenry, and Will Counties in Illinois following the recent storms and flooding and subsequent presidential declaration of a disaster area.


US Bank is now requiring all investment properties on HASP loans to undergo a full appraisal, as these are no longer eligible for a PFW or HVE offering.


M&T Bank issued a clarification in its FHA 203(k) product guidelines stipulating that ARMs are not allowed on CEMAs.  The guidelines now state that NY CEMAs are permitted for fixed rate transactions only and that the parties have to be the same from the original loan to the new CEMA unless M&T has been provided with a documented death or divorce with a new deed.


M&T Bank has clarified its FHA Streamline refinance guidelines to state that applicable ARM transactions must be converted to credit-qualifying if the existing loan meets he Tangible Benefit requirements listed in the FHA Underwriting and Eligibility Standards and the payment increase exceeds 20%.  With regards to FHA Streamline interest rate re-locks, M&T has clarified that worst case pricing applies for 30 days after the lock expires.


M&T has updated its standard VA IRRRL guidelines, for both M&T-to-M&T to non-M&T-to-M&T transactions.  For the former, M&T is now allowing second homes and investment properties with no maximum LTV and a minimum FICO of 620, while the maximum LTV for the latter remains 100% and borrowers are required to have a FICO score of at least 680.  All transactions require a credit report with no housing lates in the last 12 months, a 2055 Exterior Appraisal report, verification of income and employment, and a DTI of 41% or less.  All VA IRRRL transactions are credit qualifying and are not subject to seasoning requirements or asset verification.



Kinecta is no longer accepting government loans for 2-4 unit properties in New Jersey.  All such loans locked prior to May 17th will still be honored provided that they fund before May 31st.

Stearns Wholesale has rolled out its USDA program, which allows 100% LTVs with 2% Up-Front Guarantee Fees on purchase transactions and .4% Annual Guarantee Fees on loan amounts up to $417,000.  Borrowers must have a credit score of at least 640 and reside in an eligible rural area but are not required to be first-time buyers.  Flips that acquire more than 20% of the original value will be permitted, and those under 91 days do not require a waiver.


Kinecta is offering a Savings Advantage product that allows loan amounts up to $1.25 million for borrowers with LTVs up to 89%, DTIs up to 38%, and FICO scores of at least 720.  The product is available for purchase and rate/term refinance 5/1, 7/1, and 10/1 ARMs for owner-occupied and second property 1-units and condos.  Mortgage insurance is lender paid, and for certain scenarios Kinecta has expanded its guidelines to allow one appraisal and one field review instead of the usual two appraisals.


Along with its new Savings Advantage, Kinecta has rolled out its Fixed Second product, which it is offering in addition to the Piggyback and Stand Alone HELOCs, its other second lien products.  The Fixed Second is a fully amortizing 15-year loan with no balloon payment and not coupled with any specific first lien that is available for primary residences and second homes for up to $500,000 at 65% CLTV.   These can be put behind any eligible Kinecta product; note, however, that they will not be allowed on cash-out refinances and investment properties.


Mountain West Financial is permitting FHA-insured transactions involving a HUD REO property with a repair escrow that requires no more than $5000 to be meet the Minimum Property Requirements to be marketed for sale in “as is” condition so long as the purchaser establishes a cash escrow to ensure the completion of those repairs.  Purchasers will be allowed to include an amount up to 110% of the estimated cost of the repairs in their mortgage.


Ameris Bancorp entered into a definitive merger agreement with The Prosperity Banking Company under which it will acquire the Florida-based Prosperity Bank.  This will expand Ameris’ network to 69 branches across four states, and upon completion of the merger, the combined company will have $3.6 billion in assets, $2.5 billion in loans, and $3 billion in deposits.


The Office of the Comptroller of the Currency has closed down Lexington, KY-based First Federal Bank, which had approximately $100.1 million in total assets and $93.9 million in deposits, and appointed the FDIC as receiver. Your Community Bank of New Albany, IN has entered into a purchase and assumption agreement and assumed the aforementioned deposits.


Chatham, IL-based United Community Bank will be acquiring seven banking offices from Bloomington-based Heartland Bank and Trust.  This expands United Community Bancorp’s footprint to Quincy, Macomb, Colchester, and Bushnell, as well as Palmyra, MI, increasing its network to 31 locations and increasing its deposits by $188 million to total $1.5 billion.


BBCN Bancorp of Los Angeles has signed a merger agreement under which it will acquire Chicago-based Foster Bankshares, which is predicted to position the former as the leading Korean-American bank in Chicago and provide an entry to the Korean-American market in the Washington, DC metropolitan area. Foster Bankshares, which had total assets of $412.6 million and deposits of $357.4 million as of the end of last year, is a state-chartered bank that operates eight branches in the Chicago area and one branch in Annandale, VA.


On June 6th, the FDIC will hold a teleconference on best practices for third-party risk management, add-on products, social media, and mobile banking for San Francisco Bay Area Supervised Banks.  Presidents, CEOs, COOs, general counsels, compliance officers, chief risk officers, LOs, and internal auditors are all encouraged to attend.  See http://fdic.gov/news/conferences/sf_region/2013-06-06.html for details and registration links.


The FHA will be hosting loss mitigation trainings in Nashville, TN, Atlanta, and Chicago on June 11th. These are designed for HUD-approved counseling agencies, servicing lenders, and non-profits.  See http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=1718&update=N to register for the Nashville session, http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=1719&update=N for the Atlanta session, and http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=1720&update=N for the Chicago session.


Freddie Mac servicers now have the option of offering eligible borrowers the new Streamlined Modification, including Hurricane Sandy victims who are completing their disaster forbearance plans.  In an effort to speed up the evaluation process, Freddie is no longer requiring property valuations.  Effective for 2-4 unit and manufactured homes, interior property inspections are no longer required; instead, servicers must request a broker’s price opinion with an exterior inspection through BPOdirect. The terms of trial period plans must be generated using servicers’ proprietary systems or a third-party system until the Streamlined Modification is incorporated into Loan Prospector on July 15th.


You think you’ve had bad days? Keep an eye on the driver of the scooter near the top center of the screen: https://www.facebook.com/photo.php?v=177097245782715



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, “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.


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