Extensive Updates From Citi and Chase; Extended Lock Fees; NMLS Deadlines; Approved Fraud Detection Vendors; Quarterly Bank Performance;
"I quit the plant in '57, had some time for farmin' then. Banks back then was lendin' money - the banker was the farmer's friend..."
Don Henley's "Month of Sundays" lyrics could've foreseen the current situation. The USDA-Rural Development has exhausted its fiscal year 2010 funding for the Guaranteed Rural Housing program. So most transactions on hold until additional funding is appropriated by Congress, signed into law by the President, and made available to USDA-Rural Development. As things stand now, a bill to provide additional funding has passed the U.S. House of Representatives and is being debated by the Senate. Some funding may be available in limited areas of certain states that received disaster funding for prior natural disasters (such as Louisiana), but for the most part investors are not processing new applications, nor funding loans under this program until funds are allocated by the government. READ MORE
How do politics work? The recently enacted federal health-care overhaul prohibits private lenders from making federal student loans after June 30. Don't ask me how a health care bill impacts student loans, but going forward the overhaul ends the current program that subsidizes banks and other financial institutions for issuing loans, instead "allowing" students to borrow directly from the federal government. Starting July 1, all new federal student loans will be delivered and collected by private companies under performance-based contracts with the Department of Education. It is no surprise that Wells Fargo, and probably others, announced that it is starting a student loan for parents or other sponsors, allowing college students access to more funds to cover educational expenses without increasing their own debt.
The House-Senate conference committee is where debate will be held on the Financial Reform Bill. The Senate website defines a "conference committee" as a temporary, ad hoc panel composed of House and Senate conferees which is formed for the purpose of reconciling differences in legislation that has passed both chambers. Conference committees are usually convened to resolve bicameral differences on major and controversial legislation. Several key issues will have to be resolved there, including restrictions on derivatives trading by banks, broker compensation and yield spread premium, the proposed liquidation fund to be financed by financial firms and the relationship between the Fed and the new consumer financial protection agency. One can expect a vote by the July 4th recess.
The Board of Directors of the FDIC approved a global settlement of the bankruptcy case involving Washington Mutual (for which FDIC was appointed receiver in September, 2008). The FDIC is a participant in the global settlement because of claims and counterclaims involving the company resulting from its role as receiver. The agreement also settles claims between WMI and JPMorgan Chase, the acquirer of the failed Washington Mutual Bank. The FDIC also announced that commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $18.0 billion in the first quarter of 2010, a $12.5 billion improvement from the $5.6 billion the industry earned in the first quarter of 2009. More than 52% reported year-over-year improvements in their quarterly net income, and about 19% reported net losses for the quarter, compared to 22.3 percent a year earlier. Check out the entire report HERE. Lastly, the FDIC "only" took over one bank Friday: Pinehurst Bank (MN) is now owned, lock, stock, and barrel, by Coulee Bank, based in La Crosse, Wisconsin. The failure of Pinehurst Bank, #73 this year, double the pace of 2009, is expected to cost the deposit insurance fund about $6 million.
CitiMortgage reminded its clients that on June 19th, DU and DO will be updated to version 8.1. This update will change the interest rate used in qualifying 1-year, 3-year and 5-year ARMs (it will be the greater of the fully-indexed rate or the note rate + 2.0%), IO's will only be available for 1-unit primary residence or second home purchase, or limited cash out refinances with maximum LTV/CLTV/HCLTVs of 70%. IO is no longer available for MyCommunityMortgage or Flexible mortgages, and borrowers must have a minimum 720 representative FICO and 24 months PITIA reserves. Deed-in-Lieu of Foreclosures reported within 2 years of the credit bureau date will receive a "Refer with Caution/IV" recommendation. Loans with LTV/CLTVs greater than 80% with a DIL/FC completed within 2-4 years prior to the credit report date will be "Ineligible" and loans with LTV/CLTVs greater than 90% with a DIL/FC completed within 4-7 years prior to the credit report date will be "Ineligible". Citi's bulletin also addressed appraisals on leasehold properties, work completion escrows, and although Freddie Mac is modifying its project approval requirements for purchase transactions of condominium units located in Florida where Freddie Mac currently holds the existing mortgage, CitiMortgage has determined that "it is unable to comply with all of the Freddie Mac requirements for this effort, and therefore this project approval type is not acceptable."
Citi is complying with Fannie's Loan Quality Iniative, beginning June 1. "Lenders are required to confirm the identity of each borrower prior to extension of credit." Although Fannie Mae permits ITIN numbers as an alternative on a limited basis, CitiMortgage does not permit ITIN numbers, and correspondent clients must "rep & warrant" that loans comply with these and other requirements under the initiative. Citi stated its bankruptcy policy. "For manual underwriting documentation, two or more borrowers with individual bankruptcies should not be considered cumulative. For example, if the borrower has one bankruptcy and the co-borrower has one bankruptcy, this is not considered a multiple bankruptcy. Borrowers who have had a bankruptcy within the past 7 years must provide copies of the bankruptcy petition, schedule of debts and discharge or dismissal, evidence to indicate that all debts not satisfied by the bankruptcy have been paid or are being paid, and any other evidence necessary to support the determination that the borrower has re-established and maintained an acceptable credit reputation." And for these manually underwritten loans, the following criteria for re-establishing credit has been added to the existing criteria for re-establishing credit after a significant derogatory event: the waiting period for the event along with related requirements have been met, the loan meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements, and the borrower has traditional credit as outlined. Nontraditional credit or "thin files" are not permitted.
Citi's bulletin did not stop with these items. It also clarified Freddie Mac's Relief Refinance program's subordinate financing, property inspection waiver policy ("investment properties are not eligible for Property Inspection Waivers"), told clients that FHA requires that all borrowers have a valid Social Security Number and that ITIN's are not an acceptable alternative, and that for VA loans a written VOD and VOE form are no longer exceptions. Citi also published a list of acceptable fraud report vendors: DataVerify's DRIVE, CoreLogic's LoanSafe Fraud Manager, CREDCO, Kroll Factual Data's various products, Lexis Nexis, Digital Risk's Risk IQ, LPS Verification Bureau's 1003 Appscan, Veri-tax, or Interthinx's FraudGUARD.
Chase Correspondent changed its extended rates lock and rate caps, making the program available for not only fixed rate products but now also ARM's. Chase eliminated the upfront fee for the 90-day extended rate lock option and also improved its pricing adjustments for those extended locks. Chase also beefed up its fraud procedures, requiring that a fraud detection report be ordered on all borrowers. "The report must include, at minimum: alerts to suspicious addresses, telephone numbers and social security numbers, inconsistencies between the application data and the applicant's credit history, and unusually frequent requests for credit over the past 30 days." Chase reminded customers that they can order reports in conjunction with the credit reports (Safescan from Equifax, Fraud Shield from Experian, and High Risk Fraud Alert from TransUnion) but also separate fraud reports from companies such as DataVerify DRIVE, CoreLogic CREDCO, Kroll Factual Data TruAlert FactualID, Lexis Nexis, or Interthinx FraudGUARD.
Chase, along with other investors, is going along with Fannie Mae's DU 8.1 revisions and changing its Agency IO policy to reduce the maximum LTV/CLTV to 70/70%, increase the minimum credit score to 720, increase the minimum reserves to 24 months (fully amortizing PITI), and eliminate the cash out refinance option. In an interesting move, "ChaseLoanManager Registration/Lock and ZiPPY will not be programmed with the changes referenced in this bulletin. However, Agency Interest Only loans locked or relocked with features outside new program guides on or after June 21, 2010, will not be considered valid, and may result in a lock cancellation or repurchase. To discourage locks the following adjustments will be revised to reflect a -25.000 price adjustment on the June 21, 2010 Rate Sheet: Agency Interest Only Fixed and ARM >90% < 95%, and Sub-Financing".
Mortgage brokers in California, Utah, Montana, Oregon, and Texas need to submit their credentials for a new federal Nationwide Mortgage Licensing System by the end of this week. READ MORE
Volatility is in everyone's vocabulary after last week's roller coaster in both the fixed income and equity markets. Looking at the entire week, however, 10-yr yields dropped 25 basis points, and 30-yr current coupon MBS's improved 15 basis points in yield. This puts the yield on the 10-yr back to where it was in late 2008, right after Lehman Brothers failed. But given where other key indices are trading, current yields reflect slow economic growth and low inflation rather than a real panic - nice to hear. Economists everywhere are changing their rate forecasts, believing that rates will stay low for the remainder of 2010. There is no inflation - in fact the CPI's year-over-year core rate had the lowest reading in 40 years.
Mortgages have done pretty well, although as usual in any kind of rally they will lag Treasury price movements due to prepayment risk. The current coupon is now thought of as 4.0% MBS's, made up of 3.25-4.625% mortgages, but there has been little issuance of that security ($190 billion in conventional 4.0s outstanding versus $661 billion of 4.5's and $738 billion of 5.0's), so because of the small issuance don't look for hedging companies to use Fannie or Freddie 4's to hedge. This week we have another set of auctions with which to grapple. $42 billion in 2-year notes, $40 billion of 5-yr, and $31 billion of 7-yr. notes. We have Existing Home Sales today and New Home Sales on Wednesday. Durable Good is on Wednesday, and on Thursday one of the usual GDP revisions for the 1st quarter (old news). The Chicago PMI manufacturing index and Personal Income & Consumption are scheduled for Friday. The current 10-yr is at 3.21% and mortgage prices are worse by about .250. READ MORE
A 75 year old lady calls her local hospital and this conversation follows:
"Hello, I'd like some information on a patient, Mrs. Tiptree. She was admitted last week with chest pains and I just want to know if her condition has deteriorated, stabilized or improved?"
"Do you know which ward she is in?"
"Yes, ward P, room 2B."
"I'll just put you through to the nurse station."
"Hello, ward P, how can I help?"
"I would just like some information on a patient, Mrs. Tiptree, I was wondering if her condition had deteriorated, stabilized or improved?"
"I'm pleased to say that Mrs. Tiptree's conditioned has improved. She has regained her appetite, her temperature has steadied and after some routine checks tonight, she should be well enough to go home tomorrow."
"Oh that's wonderful news, I'm so happy, thank you ever so much!"
"You seem very relieved, are you a close friend or relative?"
"No, I'm Mrs. Tiptree in room 2B. Nobody tells you anything around here."