Bad Mortgage Loans Almost Behind Us?; Lending Tree vs. Zillow; More on Self-Employed Borrowers; RESPA Tolerance Defects; FHA MIP Updates

I knew that I should have been a lawyer...Lending Tree suing Zillow?

Of course, there are only 6 days until it is "Talk like a Pirate Day". Why did the pirate go to the apple store? To get an iPatch. Arrrrrrrr arrr arrr

We "only" had one bank closed Friday: Horizon Bank saw its coffee mugs become collector's items when it was closed by the Florida Office of Financial Regulation, which appointed the FDIC as receiver, and then a "purchase and assumption agreement" was entered into with Bank of the Ozarks (Arkansas).

Here is some news for folks watching bad loan write-offs. Moody's believes that U.S. banks have written off about two-thirds of the bad loans they're likely to face through 2011, and that bank asset quality issues are past the peak. Moody's estimates that U.S. banks will write off a total of $744 billion in bad loans between 2008 and 2011. About $476 billion of that has already been recognized, leaving $268 billion to be booked. The agency estimated that 68 percent of residential mortgage losses have been taken, but only 49 percent of commercial real estate losses. Banks have already been setting aside less each month in reserves. And you always wondered what actuarial employees do all day...

The opinions on self-employed borrowers continue to come in. "Limited doc loans for self employed folks are a solid and profitable product if done correctly. Conservative LTV's, strong credit histories, and significant saved & liquid assets are the key to success. These kinds of products are best suited for small, local, and regional bank lenders to originate and hold as they know their specific markets well. The problem we ran into was that some thought, incorrectly, that these products could work for everyone on a large scale and that as long as someone had a high credit score they were a fit. The prime boom was over, the lenders needed to keep the revenue flowing and some of our government representatives were pushing for unsustainable homeownership levels."

"Self employed borrowers are often disqualified because of variation in income. For example a SE borrower who needed $130k in income was recently turned down by all major lenders because his income for 3 years was $800k, $350k and $500k-- therefore unstable although his worst year was more than 2x income needed -with an 800 FICO and over $1 million in liquid assets. GDP growth is fueled by small business, employees of which have fluctuations in income. No small business= no new jobs."

"Do the costs/taxes/etc. below, not come out of the self employed gross income? Are they somehow magically available to the small business owner a second time to pay their personal bills because they are "self-employed"?

"People talk about the 'deductions' that small business owners take as if they aren't real expenses and shouldn't be included when calculating income and ability to repay a loan.  They deduct expenses for a reason - because that represents an expense. If a self employed person exaggerates expenses or fails to report income - then they are tax cheats - and I'm thrilled they can't get a loan. The SE borrower problem has nothing to do with whether we pay too many taxes (we do) or whether small business people are or aren't great (they are). Stated income loans were called 'Liar Loans' for a reason - and heaven help us if those evil buggers ever come back.  I will immediately short any firm that starts writing them again."

"Many SE borrowers own businesses that pay taxes out of their gross income. Corporate tax, employment tax, business personal property tax, FICA, the list goes on and on. Regardless of who or where these monies go, they are paid, and are costs to the business - they are not available to the small business owner to pay their personal bills. Common sense suggests that a borrower cannot use this money for the small business owner's personal "ability to pay" calculations. They don't have the money even if it's for the second half of SSI or to create jobs. The money is gone, and then the self employed small business owner pays personal taxes on what's left just like any employed borrower. Let's compare apples to apples."

Want to increase your purchase rate with Wells Fargo? Wells' correspondents were reminded that loan defects that render a loan ineligible for purchase include, but are not limited to, the following: "a closed loan package containing an old format GFE where the loan originated (application was received) in 2010 and closed in 2010, a closed loan package containing only an old format GFE (including CA form 883) where the Loan originated (application was received) in 2009 and closed on a new format HUD-1 in 2010, a closed loan package with a GFE containing a signature line, or loan where the Georgia Residential Mortgage Tax fee not included in Transfer Tax - Block 8 of GFE and not held to the 10% tolerance." Remember that "a RESPA tolerance defect must be cured by reimbursing the borrower, either at settlement or within thirty (30) calendar days after settlement. As a reminder, if a correspondent loan is timely cured by the Seller either prior to or after submission for sale to Wells Fargo, the Seller must promptly provide copies of all documentation of the timely cure to Wells Fargo."

GMAC Bank Correspondent Funding clients were told that its conventional underwriting fee is going up to $225.00. They were also notified of the new FHA/HUD premium schedule for the Upfront Mortgage Insurance Premium (UFMIP) and the Annual Mortgage Insurance Premium (AMIP) that is paid monthly. "The UFMIP has been lowered to 100 basis points (BPS) across-the-board and the AMIP has been raised based on their initial loan to value ratio (LTV). For loan terms greater than 15 years and LTV greater than 95%, the AMIP will be adjusted to 90bps. For loan terms greater than 15 years and LTV equal to or less than 95% LTV, the AMIP is 85 BPS. The MIP changes will be effective for loans with FHA Case numbers assigned on or after October 4, 2010."

Along those lines Bank of America correspondents were told that after 10/4 "FHA Upfront and Annual MIP will change as follows: Upfront MIP will be 1.00% on all mortgage terms, Annual MIP will be 0.90% for LTVs greater than 95% for mortgage terms greater than 15 years, Annual MIP will be 0.85% for LTVs less than or equal to 95% for mortgage terms greater than 15 years, and there is no change to Annual MIP for mortgage terms less than or equal to 15 years." BofA also gave its clients an update on the New Jersey disclosure situation. "Bulletin No. 10-17 was issued to clarify the use of New Jersey disclosures. The Bulletin notifies all entities and individuals involved in residential mortgage lending activity regulated under the New Jersey Licensed Lenders Act and the New Jersey Residential Mortgage Lending Act of the means by which they may comply with New Jersey disclosure requirements without altering the HUD forms that have been revised to conform to the new RESPA regulations. In order to satisfy the fee disclosure requirements without affecting the scope of required RESPA disclosures, the borrower should be presented with a New Jersey Disclosures Form that is completely separate and apart from the HUD forms and on which all of the applicable origination and settlement fees are listed."

And BofA, in North Carolina, mentioned new regulations revise the definition of "Points & Fees" to exclude the portion of any up-front FHA/VA/USDA insurance fees that exceeds 1.25% of the total loan amount, and the portion of any up-front private mortgage insurance premium, charge, or fee that exceeds 1.25% of the total loan amount (provided that the charges or fees are required to be refundable on a prorated basis, any refund is automatically issued when notice of the satisfaction of the mortgage is received, and the borrower has the statutory right, either on a state or federal level, to request/receive a prorated refund.)

PHH rolled out its Fannie Mae HomePath product to clients for Fannie Mae owned REO properties. It helps to visit the website to make sure that the property is eligible (refer to http://www.HomePath.com for property listings), and there are some other PHH procedures that need to be followed.

After October 18 SunTrust will be eliminating its VA Government Sponsorship Program and "will not purchase VA loans from VA Government Sponsored clients. SunTrust will not underwrite or purchase VA Government sponsored loans that are not locked by October 15." SunTrust also let its clients know that the "SunTrust Mortgage Approved Condominium Project List" and "SunTrust Mortgage Approved Attached PUD Project List" have been updated, along with the confidential, password protected "SunTrust Ineligible Appraiser and Appraisal Company List". Lastly, the investor announced the elimination of MGIC's SmartPath and PMI's Home of Your Own Program Affordable Lending Products.

Economic news-wise, things pick up a little this week. (Last week's news went a long way toward easing fears of a double dip recession, and interest rates bore the brunt of this, finishing with Friday's .5 worsening of MBS prices.) There is no news today, but tomorrow we have Retail Sales, Industrial Production & Capacity Utilization on Wednesday, and the inflation reports (PPI and CPI) on Thursday and Friday. We have a few purchasing managers' surveys for the month of September, the NY Fed release tomorrow, and the Philadelphia Fed report on Thursday. It is all supposed to show that the economy is slowly expanding. So far this morning the yield on the 10-yr is up to 2.82% and mortgage prices are slightly worse than Friday's close.

In Mason, Texas, where there is a large German speaking population, a farmer notices a man drinking from his pond with his hand.

The farmer shouted, "Trink das Wasser nicht. Die Kuehe haben da reingeschissen."

(Politely translated: "Don't drink the water, the cows have bathed in it.")

The man shouted back, "I'm from Washington DC and just down here campaigning increasing government employee benefits. I can't understand you - please speak in English."

The farmer replied, "Use two hands, you'll get more water."