FHA Net Worth Requirements; Primer on Compare Ratios & Neighborhood Watch; Loan Profitability
Why do "fat chance" and "slim chance" mean the same thing?Regardless, many mortgage bankers feel that they have more of a chance of meeting the new net worth requirements as set forth by HUD.
In order to lessen the counterparty risk, and "support quality mortgage lenders", all new lender applicants for FHA programs must possess a minimum net worth of $1 million. If a lender is already approved to make FHA loans, "effective one year following the enactment of this rule: Current FHA approved lenders - with the exception of small businesses - must possess a minimum net worth of $1 million; current FHA approved small business lenders must possess a minimum net worth of $500,000." But in 3 years, both must be worth $1 million. Multi-family lenders must also have $1 million, and those servicing multifamily loans have slightly different requirements. And HUD reminds lenders that "Streamline Lender Approval - FHA-approved lenders currently assume liability for all the loans they originate and/or underwrite." Read all about it HERE
That is all well and good, but it is not helping locks. Across its survey companies, the MBAA reported that mortgage applications in the U.S. declined 11% last week. Refinancing dropped 17% but purchases increased 0.2%. In fact, the share of applicants seeking to refinance fell to 58.7%, the lowest since August, from 63.2% the week before.
Those loans are still profitable, however, or at least in the 4th quarter they were. The MBAA released its latest study on loan profitability, and independent mortgage bankers and subsidiaries made an average profit of $890 on each loan they originated in the fourth quarter of 2009, down from $902 per loan in the third quarter of 2009, but up from $296 in the fourth quarter of 2008. Apparently strong servicing rights valuations and secondary marketing gains helped profits. But looking ahead, the MBAA believes that "provision expense for repurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over 6 basis points from the fourth quarter of 2008." READ MORE
Fraud, in Brooklyn and New York? Say it ain't true!
When I ride my bike around, I see signs saying, "Neighborhood Watch Program". Somehow I think that they don't mean the same thing as HUD & FHA's Neighborhood Watch program, which produces "compare ratios" for lenders. Whether the measure examines FHA loan delinquency and foreclosure rates over one year or two, many lenders view the statistic as a lagging indicator. Recently HUD enhanced its Neighborhood Watch website to add the option to run the number over the last year instead of just the 2-yr period, which may help. No lender wants to see their ratio above the average (100%) for that area, and if they do, as long as it is improving (heading in the right direction) it is a good thing. Cottage industries have formed to reduce lender's FHA mortgage defaults, such as Lenders Compliance Group's task force.
The Compare Ratio itself is a numerical value, used by HUD, which "reveals the largest discrepancies between a lender's default and claim percentage and the default and claim percentage to which it is being compared. Lenders with a Compare Ratio of greater than 200% are subject to disciplinary action, which can include termination of underwriting authority, and possible loss of FHA approval. Using 2009 year end data, approximately 10% of FHA lenders have Compare Ratios in excess of 200%, representing an extraordinarily high number of financial institutions with excessive mortgage defaults and claims.
The percentages being compared are the percentages of originations that first defaulted during a selected period (e.g., defaults within the first two years). A higher ratio is indicative of an area (or lender) that has an unusually high default percentage in comparison with that region or lender's surrounding area. For example, if a lender has an 8% default rate in California and 4% of all California loans defaulted, then the lender's compare ratio equals 200%. Simple. "Current defaults are loans reported as currently 90 days or more delinquent by the servicing lender as of the last reporting cycle updated in Neighborhood Watch. First defaults are loans that were first reported to HUD as 90 days or more delinquent within the first or second year of loan origination. Loans displayed as "first defaults" in Neighborhood Watch may have subsequently cured." Check out http://www.hud.gov/offices/hsg/sfh/lender/nw_home.cfm
Can an appraiser be cut from an AMC for having a high Compare Ratio? Many will argue "no", since an appraiser has nothing to do with judging the credit quality of the borrower, and the appraiser may cover areas that are above other areas in delinquency rates. Obviously a borrowers' ability to meet their mortgage obligations has nothing to do with an Opinion of Market Value expressed by a Licensed Appraiser unless documentary evidence can prove over-inflating values has occurred. Of course, lenders don't choose individual appraisers any more, right?
Lenders access Neighborhood Watch through their FHA Connection, possibly having to change authorization codes to allow access for certain employees to view the report. FHA-insured data is updated daily for lenders, and they can even view FHA case numbers based on which company requested the FHA Case Number, and see loans that larger companies underwrote for its loan correspondents. But the public can see the figures (not lender figures) at https://entp.hud.gov/sfnw/public/.
Rates improved yesterday - all rates. It appears that Greece "isn't keen on the IMF being involved in any bailout" which pushed Greek bonds down and caused a bit of a flight to quality here in the US. Say what you will about the credit quality of our debt, on a relative basis it is still safer and more liquid than most. The $40 billion 3-yr note auction went ok, and in fact the market overwhelmingly believes that overnight rates (set by the Fed) will remain near 0% through August. With origination dropping, and buyers buying, mortgage spreads are behaving themselves in spite of a little volatility. Selling is coming from originators, hedge funds, and money managers, but buying is coming from other hedge funds, pension funds, and small & mid-tier banks. In the absence of much news, the 10-yr is steady at 3.95% and mortgage prices are, once again, better by .250-.375 depending on coupon.
AMAZINGLY SIMPLE HOME REMEDIES (That Really Work!)
1. AVOID CUTTING YOURSELF WHEN SLICING VEGETABLES BY GETTING SOMEONE ELSE TO HOLD THE VEGETABLES WHILE YOU SLICE.
2. AVOID ARGUMENTS WITH THE FEMALES ABOUT LIFTING THE TOILET SEAT BY USING THE SINK.
3. A MOUSE TRAP PLACED ON TOP OF YOUR ALARM CLOCK WILL PREVENT YOU FROM ROLLING OVER AND GOING BACK TO SLEEP AFTER YOU HIT THE SNOOZE BUTTON.
4. IF YOU HAVE A BAD COUGH, TAKE A LARGE DOSE OF LAXATIVES. THEN YOU'LL BE AFRAID TO COUGH.
5. YOU ONLY NEED TWO TOOLS IN LIFE - WD-40 AND DUCT TAPE. IF IT DOESN'T MOVE AND SHOULD, USE THE WD-40. IF IT SHOULDN'T MOVE AND DOES, USE THE DUCT TAPE.
6. IF YOU CAN'T FIX IT WITH A HAMMER, YOU'VE GOT AN ELECTRICAL PROBLEM.