Lender Updates Only an Underwriter Could Love; MBA Loan Buyback Seminar; Real Yields
A thief broke into the local police station and stole all the toilets and urinals, leaving no clues. A spokesperson was quoted as saying, "We have absolutely nothing to go on."
Economists have lots to go on, and usually everything is pointing to different economic trends, depending on one's viewpoint. What difference do numbers like Industrial Production, Capacity Utilization, Producer Price Index, etc., mean for anyone in the mortgage business?
Well, aside from moving rates around, last week we saw strength in manufacturing production (pushing commodity prices higher), weakness in final demand, and negligible inflation. The Consumer and Producer Price Indices have fallen for two months in a row. CPI is now up just 2% over the past year, but the PPI is up 5.3% over the past year. This leads us to believe that companies cannot pass along their higher costs to their end consumers, which in turns suggests that profit margins in coming quarters will be impacted. The same applies to mortgage banks - many would prefer to increase their profit margins, but don't want to risk any market share so are forced to keep things slim.
Nevada Security Bank wasn't so secure, and on Friday Umpqua Bank, through the FDIC, assumed all its deposits. The bank didn't make it to see the summer solstice, which occurred this morning at 7:28AM EST. (From here on, the days will become shorter in the Northern Hemisphere.)
Mortgage bankers, and anyone faced with buyback issues, who are in the Chicago area may want to attend a presentation by The Prieston Group & American Mortgage Law Group at the MBA's Repurchase Workshop on June 24th. Soak up information on repurchase negotiation and defense, along with approaches for lenders to position their company and be prepared for repurchases. A link: http://www.mortgagebankers.org/RepurchaseWorkshop.htm
Fannie Mae came out with some direction on its stance on the lapse in issuance of flood insurance policies. The Agency issued a Lender Letter describing purchase conditions for delivery to Fannie Mae of loans closed during the NFIP lapse. Originators are advised to read the actual letter, since investors will probably follow it if they haven't already, but "Until evidence of active flood insurance is obtained, a lender may deliver a mortgage loan to Fannie Mae on the condition that the borrower can provide acceptable evidence of a completed application for flood insurance and a copy of a check or the final HUD-1 Settlement Statement reflecting payment of the initial premium, or the assignment of an existing flood insurance policy from the property seller to the purchaser. Lenders must have a process in place to identify mortgaged properties securing loans sold to Fannie Mae that do not have proper evidence of active flood insurance, take all steps (insofar as permitted by applicable law) necessary to facilitate the issuance of coverage once the NFIP insurance authority is renewed, and retain documentation to support acceptable evidence of flood insurance." https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/ll1008.pdf
Freddie Mac sent out a bulletin addressing "an extended set of requirements for the temporary Freddie Mac HAMP Backup Modification and the Cap-to-Reinstate modification for Home Affordable Modification program (HAMP)-ineligible borrowers." Freddie expanded the eligibility requirements for these solutions in order to assist a larger population of distressed borrowers avoid foreclosure, and also extended the eligibility timeline to now include borrowers with stated income Trial Period Plan effective dates on or before May 1 instead of April 1.
Franklin American reminded its clients that it, as other investors have, will be enforcing both the SAFE Act and the Nationwide Mortgage Licensing System (NMLS). To this end, every loan originator, loan origination company and branch office must have a license number, referred to as a "Unique Identifier", and the loan originator and either the loan origination company or branch office's NMLS Unique Identifier must be provided in the space provided on Page 4 of the application. FAMC also reminded us that employees and subsidiaries of federally insured banks and Credit Unions are not required to maintain state or NMLS issued license numbers. Applications from these institutions must display "Exempt" on the application in the area indicated in the example above. Lastly, Franklin told its clients that it will no longer purchase loans secured by properties that are still within a right of redemption period. If the expiration date for the right of redemption, as evidenced on the title commitment, has not yet expired the loan will be ineligible for sale to FAMC.
US Bank's National Wholesale Sales Division revised its entire suite of Interest Only Programs. Given the changes in DU and LP, this would be expected, but for USBHM's IO products a manual underwrite is required which in turn requires Standard Documentation; LP and DU are not allowed - no AUS "decisioned" documentation. Loans must be submitted to a USBHM Underwriting Center, and lenders with delegate authority and MI Contract Underwrite approval are no longer available on these products. USBHM also changed its procedures for ordering FHA appraisals, originally implemented in mid-February. For "Table Fund & CUSB Lenders", for FHA loans that close in U.S. Bank's name and/or are funded by U.S. Bank, the appraisals must be ordered in the name of U.S. Bank N.A. (This will meet FHA guidelines and still insure appraisal portability in those cases where a borrower chooses to switch lenders.) And for correspondent lenders (lenders with Full Eagle status), for loans that close in the name of the Correspondent and are funded by the Correspondent and subsequently sold to USBHM, the appraisals must be ordered in the name of the Correspondent as Lender/Client.
Optimal Blue has released Bank of America's Non-Agency product line to its clients. They should be aware, however, that Bank of America requires approval to access these products - so talk to a rep for details.
CitiMortgage correspondent clients received a lengthy update late last week. Citi advises, but does not require, its clients to run the CoreLogic Correspondent Validation Program (CCVP) on every loan to Citi for purchase. The company also added a new fraud company - PitchPoint Solutions - to its approved vendor listings.
Under "seller carry backs", "if financing provided by the property seller is more than 2% below current standard rates for second mortgages, the subordinate financing must be considered a sales concession and the subordinate financing amount must be deducted from the sales price." CitiMortgage requires that the borrower obtain rent loss insurance for agency-salable loans if the subject property is a 1-4 unit property, and rental income is used to qualify the property, "Energy Efficient" loan programs are ineligible for purchase by CitiMortgage since the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that take lien priority over a first mortgage.
For conventional loans, Citi's policy around earnest money deposits has been rewritten to mirror Fannie Mae and Freddie Mac policy: "when an earnest money deposit is used as part of the borrower down payment it must come from the borrower's own funds and the source of funds must be verified. Refer to the Manual for a list of acceptable forms of verifications." Citi clarified its position on Texas first mortgage and non-equity loans, and VA refinance definitions (IRRRL's, cash-out, and "other"). Its bulletin goes on to tweak/clarify/address Fannie's LQI, underwriting for individuals employed in a family owned business, business funds, Texas and natural disaster appraisal requirements, income documentation ("All income used to qualify must be documented in the loan file wherever the underwriter's rationale and reason supporting their loan decision is documented"), its "Appraiser Ineligible List", and the required scrutiny of any new additional credit requests by borrowers.
Mountain West Financial amended its existing VA primary residence conversion policy to address veterans converting a primary residence to a rental. "Both the current and proposed monthly housing expenses must be used to qualify, rental income may not be used to offset the mortgage payment, and evidence of cash reserves totaling 6 months PITI for both properties must be provided." MWF's update also addressed a conversion to a second home.
Caliber Funding adjusted and clarified several underwriting guidelines. For example, for rental income, going forward if the net rental income "relates to the borrower's current principal residence which is being retained as an investment property, up to 75% of the rental income may be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property, as proven by the value from an appraisal or AVM, minus the outstanding liens." The rent must be well documented of course, but this compares favorably to Caliber's previous guideline where no rental income from the borrower's current principal residence could be used. Caliber also addressed FHA property flipping, moving from the position of not allowing properties sold within 90 days to be eligible for FHA financing to one of using the 20% increase cut-off. (Above 20% is still ineligible, under 20% is permitted with certain restrictions.) Caliber also adjusted its non-occupant co-borrower, credit score requirements, FHA transferred appraisal, non-cash out refi, condo, cash out refinance transaction guidelines, etc. - clients are advised to read the extensive changes in the actual bulletin.
What seems to be pushing rates around right now? There is some feeling out there that bonds are once again paying attention to growth and inflation rather than the latest crisis. And, of course, there is little or no inflation, which leaves the growth aspects of the US economy front & center. Paul Jacob from Bank of Manhattan, for example, believes that the new 10-yr yield range is 3.15% to 3.40-3.50%. The "real" 10-year Treasury yield measured against the 1-year change in core CPI is 2.25%, almost precisely equal to its average level since 2000.
In terms of economic news, there is nothing today. Tomorrow we have some "10AM EST numbers", long thought to be not as important as the "8:30AM EST numbers", with Existing Home Sales, FHFA Home Purchase Index, and the Richmond Fed Index. Wednesday is New Home Sales, but later on we'll have the end of the Federal Reserve's FOMC meeting. (No matter how much the press wants to talk about the meeting, there will be no change to overnight rates, and little, if any, change to the actual announcement.) Thursday we have Initial Jobless Claims and Durable Goods. Friday is GDP, and the University of Michigan Consumer Sentiment Survey. And in order to finance activities of the US government, the Treasury will auction $40B in 2-, $38B 5- and $30B 7-year notes beginning tomorrow. The 10-yr is back up to 3.30% and current coupon 30-yr MBS prices are down about .250.
A husband and wife are shopping in their local Wal-Mart. The husband picks up a case of Budweiser and puts it in their cart.
"What do you think you're doing?" asks the wife.
"They're on sale, only $10 for 24 cans", he replies.
"Put them back, we can't afford them," demands the wife, and so they carry on shopping.
A few aisles further on along the woman picks up a $20 jar of face cream and puts it in the basket.
"What do you think you're doing?" asks the husband.
"It's my face cream. It makes me look beautiful,' replies the wife.
Her husband retorts, "So does 24 cans of Budweiser and it's half the price."
On the PA system: "Cleanup on Aisle 25, we have a husband down."