Analysis of FHA Changes; RESPA & GFE Feedback from the Trenches; Fifth Third & Goldman results

We had some very sad news recently. The founder of Taco Bell passed away at the age of 86. There is still no word on whether he's going to have a funeral or a funeral supreme.

Some FHA lenders out there had feared that the potential changes that HUD and FHA could make to their program would end up being their funeral. That turned out not to be the case, and there has been a good amount of analysis of the changes. The underwriting changes by the FHA include increases in the MI premium, an increased down-payment requirement for low FICO borrowers, a reduction in the ability to roll closing costs into the loan, and increased lender recourse to FHA lenders. What they don't include, of course, is a program-wide minimum FICO, or program-wide increase in the down payment. Generally speaking, most agree that the changes announced to FHA underwriting seem to be less restrictive than anticipated and more supportive of mortgage credit availability and the housing market at the expense of minimizing losses to the MI fund.

There continues to be confusion on broker compensation. One lender in California, Reunion Mortgage, sent out their policies, set to match regulatory changes, which will hopefully clear things up for their clients.  

"The maximum broker compensation allowed is: The broker's origination Fee (including all broker fees): < 3.5% for Conventional, 4.5% for FHA; the broker's Origination Fee (including all broker and lender fees): < 4% for VA; the total of all fees paid to broker if the loan amount is greater than $500,000, the greater of < 2% or $22,500; YSP is capped at 3%, unless otherwise indicated on rate sheet." Reunion goes on to say that "all fees must be reasonable and customary, all fees must comply with State, Federal and agency requirements, individual loan programs may have additional restrictions, and broker funds are sent to title for disbursement at funding." There you have it!

Originators are still grappling with the GFE and RESPA changes. One wrote and said, "This week we sat down with a borrower that is doing an FHA loan. The seller is paying all of the closing costs and as usual the borrower is financing the upfront MIP. Essentially the borrower is coming in with their 3.5% down payment. Our GFE was filled out correctly and yet it showed that the borrower needed $13,850 for closing. Unfortunately the new form does not take into account the fact that the borrower is financing the MIP or the seller credit of $10,000.  When we arrived at the bottom line on the GFE form, the client saw they needed $13,850 to close; they were shocked to say the least. They looked us right in the eye and said, 'You want us to sign this official looking form, and you're telling us to trust you that what is written here is not correct?' We were speechless and must have looked equally as shocked as the borrower seeing a number that was not part of the discussion.  All we could think about was HUD put us in this very uncomfortable position. Ultimately we had to show the borrower a version of the old GFE that shows the seller credit and the upfront MIP being offset by the loan amount. The only benefit for the consumer on this new form is the information on the lock expiration; otherwise we have taken about two steps backward with respect to making the closing process more understandable." Well said.

Fifth Third Bancorp's fourth-quarter loss "narrowed more than analysts expected" to $98 million, with deposits rising 2.7% and the results coming after big year-earlier charges, which is good news, right? (Frankly, I thought Wells Fargo's earnings were good, but their stock sank with the rest of the market yesterday.) Their CEO believes that "Our current expectation is for full-year 2010 net charge-offs to decline from those realized in 2009." This is nice to hear given that Fifth Third has a reputation for having a large exposure to commercial loans in depressed markets.

Chase released a series of bulletins to their correspondent clients. For example, clients were reminded that "Chase requires that all loans applied for and closed on or after January 1, 2010 use the new version of the GFE and the HUD-1." Watch for loans being suspended for this reason, and for loans applied for in 2009 but closed in 2010 it is best to check with Compliance. (More on Chase's changes tomorrow!)

GMAC correspondents were notified about some underwriting guideline clarifications that only an underwriter would love. The changes involved adjustments to occupancy, borrower eligibility, non-permanent residents, etc., etc. It would be best for clients to go directly to their guidelines.

Wells Fargo wholesale clients also received a large number of changes to their program. Topics included enhancements to the HVCC Appraisal Process (will now allow certain forms to be e-mailed rather than faxed), Guidance on Disclosure of YSP, Broker Credits, and Going from a Float to a Lock (disclosure of YSP on the GFE - "Box 2 of the GFE should reflect the total YSP associated with the loan's rate according to Wells Fargo rate sheets, regardless of what the broker expects to earn on the loan. Box 1 of the GFE should reflect the total compensation the broker expects to earn - plus the Wells Fargo underwriting fee and other fees required to be disclosed in Box 1 - the broker's total compensation should include any broker fees, plus
any portion of YSP the broker expects to receive as; "If a GFE is issued on a loan in "float" status, and later that loan is locked with different pricing, a redisclosed GFE will be required, and only certain boxes on the redisclosed GFE may change. While Box 1 cannot increase based solely on going from a float to a lock, the YSP in Box 2 and the Adjusted Origination Charges in Box A may change, depending on the circumstances.") Clear about all that? Wells' wholesale goes on to update their mortgage broker/originator fee disclosure, and discuss some changes to their Home Equity program.

Wells Fargo correspondents also had material to chew on. They are now accepting High Balance FHA Streamline Refinances, made some changes to Conforming Extended Lock Fees which will be available with High Balance ("Effective with Best Effort Locks on and after January 25, 2010, Wells Fargo will begin offering extended locks up to 180 days for High Balance Conforming transactions. 1.50 for 180 days, 3.50 points for a year with certain products"), changed their conventional underwriting fees ("Effective with all Wells Fargo Prior Approval and Third Party Contract Underwritten loans registered on and after February 15, 2010, Wells Fargo Funding will begin charging a $200 underwriting fee. This fee will apply to all loans
underwritten using our Prior Approval and Third Party Contract Underwriting process, whether purchased by Wells Fargo or not"), updated their market classification list (no change to policy, just shuffling counties around).

In the markets, volatility has been very low, which tends to favor mortgage prices relative to Treasury prices. Dealers continue to report low origination, and the usual buying from the Fed, hedge funds, and money managers. "Steady as she goes" one trader wrote. Gold was in the spotlight yesterday, dropping almost $30 an ounce, which doesn't directly impact mortgage rates, but at least makes my 86-yr old Dad not as anxious to replace some of his fillings.

Today we've already had Jobless Claims, soon will have the Philly Fed, and later will have next week's Treasury auction announcement. (The Fed also meets next week.) Jobless Claims unexpectedly rose last week as claims delayed from the year-end holidays were pushed through. Initial claims for state unemployment benefits rose 36,000 to a seasonally adjusted 482,000 in the week ended Jan. 16, up for a third straight week.

Goldman Sachs Group reported fourth-quarter net income of $4.95 billion compared with a loss of $2.12 billion a year earlier. Goldman also reduced its fabled 2009 bonus pool as it posted this better-than-expected fourth-quarter profit. Overall the markets are quiet, with the 10-yr unchanged at 3.66% and mortgage prices unchanged.

(Normally I try to stay away from political jokes, but in this case humor won out.)

Father O'Malley rose from his bed. It was a fine spring day in his new Washington DC parish. He walked to the window of his bedroom to get a deep breath of air and to see the beautiful day outside. He then noticed there was a jackass lying dead in the middle of his front lawn.

He promptly called the US House of Representatives for assistance.

The conversation went like this:

"Good morning. This is Speaker Pelosi. How might I help you?"

"And the best of the day te yerself. This is Father O'Malley at St.Brigid's. There's a jackass lying dead in me front lawn. Would ye be so kind as to send a couple o' yer lads to take care of the matter?"

Speaker Pelosi, considering herself to be quite a wit, replied with a smirk, "Well now father, it was always my impression that you people took care of last rites!" There was dead silence on the line for a long moment.

Father O'Malley then replied: "Aye, that's certainly true, "but we are also obliged to first notify the next of kin."