New FHA MIP in Effect; Foreclosure Mess Impacts Title Companies; Wells Stops Short Sale Extensions; Servicers Review Processes

Today is the big day for the FHA mortgage insurance premium change, and the day that MI companies have been waiting for. Investors from big to small, correspondent to wholesale to retail, have all alerted their clients that FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years.MORE DETAILS

First American Financial, Fidelity National Financial, Old Republic, etc., are all publicly held title companies.

I mention this a) because there is some conjecture that the share price of title companies may suffer, given the current foreclosure "hubbub", and b) Old Republic will no longer write new policies for homes foreclosed upon by Chase and Ally Financial's GMAC Mortgage unit -- a sign that concerns about faulty foreclosure paperwork could now endanger new sales of foreclosed homes.

Fannie and Freddie, for one, believes that this situation will not have a material adverse impact on its title business. FNF's title insurance underwriters issue title policies on REO properties to new purchasers and lenders to those purchasers, and these policies will not result in additional claims exposure to the title company because the new owners and their lenders would have the rights of good faith purchasers which should not be affected by potential defects in documentation. FULL STORY

If servicing loans is difficult, it will soon become more difficult. And on the lending side, the feeling is mounting that if the government forgives mortgage debt, the whole concept of contract law and personal responsibility is invalid. At the end of the day this is basic contract law. One industry vet wrote to me and said, "All these people know they signed the mortgage documents with the obligation to repay. What's the issue?"

The OCC asked the nations' seven largest lenders to review its foreclosure processes for any sign of faulty documents. The banks in question are Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, HSBC, PNC, and U.S. Bank. And for those looking to increase their vocabulary skills, middle managers signing affidavits without reviewing them or having a notary present is known as "robo-signing". (I guess I do that every time I rent a car or go rafting...) Ally (GMAC) is not under the OCC umbrella, although JPMorgan Chase is indeed under the auspice of the Office of the Comptroller of the Currency.

Most know that on Friday Bank of America suspended all foreclosure proceedings in 23 states, two days after Chase did the same and following Ally. Of course, one must wonder what is going on in the bowels of Wells Fargo's servicing department. I imagine they, along with Citi, HSBC, etc., had a busy, fun-filled weekend. Stay tuned.

Wells Fargo is no longer granting more than one extension for homeowners to complete a short sale. In working through a number of investor-related concerns regarding the time it takes to complete a short sale, Wells decided to implement this policy in order to stay consistent between short sale transactions. A spokesman said certain mortgages owned by the bank, which investors are looking to take in a short sale, will still be allowed one foreclosure postponement provided there is some indication the short sale is guaranteed to be approved.  "We do allow for one foreclosure postponement provided we have a short sale in hand that has been approved, the buyer has proof of funds of financing approved, and the short sale can close within 30 days of the scheduled foreclosure sale."

There has been, it seems, a development in this area, and as opposed to dealing with bad loans on the back end, a new firm called The Loan Value Group is working with at-risk borrowers in conjunction with servicing companies in trying to prevent loans from going bad by giving borrowers positive reinforcement, even if the property is underwater and has negative equity (the main driver of strategic default). Its model is built around changing borrower behavior rather than modifying the mortgage, and keeping the underwater borrower current.  Go to www.LoanValueGroup.com, check out "The Responsible Homeowner Reward Program" at www.RHReward.com, or write to Art Yeend at ayeend@loanvaluegroup.com.

Name a company that did over $1 billion in nationwide originations in 2007 that closed its doors Friday. If you answered First Horizon, you're correct. First Horizon National announced it will close the last portions of its mortgage operation at the end of 2010 and lay off its remaining staff. "Everything is going to operate as it does today through the end of the year," states First Tennessee's president of banking. Two years ago the company sold its national mortgage business to MetLife and at the same time entered into a third-party arrangement with PHH to handle all the back office operations and underwriting, for which First Horizon garnered some fee income.

While we're on closing up shops, Wakulla Bank (FL but with an Hawaiian name) was closed by regulators, and the FDIC entered into a purchase and assumption agreement with Centennial Bank (AR) to assume all of the deposits. At the other end of the country, Shoreline Bank (WA) was closed, the FDIC entered into a purchase and assumption agreement with GBC International Bank (CA) to assume all of the deposits.

Union Bank reminded its brokers that "loans should not be submitted to the Broker Platform that are Path 4 until they are completely processed and include complete documentation.  Files submitted to the Platform that are not fully processed or do not include complete documentation may be denied." It is best to look at the Union Bank bulletin for the definition of complete, but includes the fully completed loan app, prelim, 4506T, purchase contract, verifications, etc. UB also updated its Condo-PUD guidelines to say, "For new projects that have been completed for over one year and still have a significant amount of unsold units (i.e., over 50% of the units) will be considered on a case-by-case basis.  Projects in which the developer has rented out units are ineligible for financing. For 'Established' Condominium projects, 70% of the units in the project must be occupied as primary residences or second homes."

Nationstar updated its appraisal transfer policy. "For all new loan submissions with an appraisal with an effective date that is more than 30-days past the date of submission, for conventional loans Nationstar will not accept appraisals transferred by another HVCC compliant lender if the effective date of the appraisal is greater than 30-days old at the time of loan submission. And for FHA & VA loans, Nationstar will not accept a submission which contains an FHA or VA appraisal with an effective date greater than 30-days old at the time of loan submission. These loan types prohibit the ordering of additional appraisals and will be ineligible for submission." The company did institute some rate lock extension changes whereby brokers can now extend the rate-lock by 20 or 25 days.

AmTrust has new requirements for refinances with "other signers": the observance of the Final TIL Waiting Period on Owner Occupied, Refinance transactions for any loans with Other Signers. Purchase transactions with Other Signers are not affected by these policy changes. For refinances, you may request a waiver or reduction of the Final TIL Waiting Period by following specific instructions that apply to Correspondents and Brokers."

Friday I mentioned an update from Flagstar - "All borrowers must have at least one valid credit score to be eligible. All transactions not meeting this guideline must be locked on or before Oct 7, 2010 to be eligible." This is only for conventional loans.

Friday Caliber Funding notified its brokers that it has established policies and procedures in compliance with Fannie Mae SEL-2010-01 Selling Guide for the Loan Quality Initiative (LQI). Going forward, Caliber requires documentation in the submission package that all parties to the loan transaction are to be verified against the LDP/GSA list for all files, including but not limited to, Government and Conventional products, and, in a related requirement, all FHA files require the FHA Case Number Assignment and CAIVRS report.

Last week, in spite of some volatility, rates closed about where they began. Just think - all that nervousness about when to lock was probably for naught. On Friday, even though we didn't have the employment data as we usually do on the first Friday of a month, we did have Construction Spending. It showed an unexpected rise of 0.4% in August, and July was revised higher. That would explain all the streets being torn up near where I live. We also learned that the ISM Manufacturing Index decreased from a month earlier. "Manufacturing has enjoyed a stronger recovery than other sectors of the economy, but it appears that weaker growth is the expectation for the fourth quarter." And the University of Michigan Consumer Sentiment survey dropped from August to September more than expected. (Is that really someone's job? To predict the results of this survey? How do you explain that to your kids?) We ended the day better by about .125, with minimal mortgage banker supply (less than $1 billion) and decent buying.

Today we have some "these don't usually move rates" numbers: Pending Home Sales and Factory Orders, and the same tomorrow with another ISM number ("Nonmanufacturing Index"). Wednesday and Thursday we have zip, but then Friday we have all the employment data. More on the employment data later in the week. But for now, the 10-yr has improved to 2.49% and mortgage prices are .125-.250 better depending on the coupon.

Science Translations (Part II)

The following list of phrases are applicable to anyone working on a Realtor presentation, Ph.D. dissertation, or academic paper anywhere!

"It is believed that" = I think.

"It is generally believed that" = A couple of others think so, too.

"Correct within an order of magnitude" = Wrong.

"These are complex matters":  Specially reserved for when you're a guest speaker on a radio Q&A show on mortgages and a caller stumps you with a question.

"According to statistical analysis" = Rumor has it.

"A statistically oriented projection of the significance of these findings" = A wild guess.

"A careful analysis of obtainable data" = Three pages of notes were obliterated when I knocked over a cup of coffee.

"It is clear that much additional work will be required before a complete understanding of this phenomenon occurs" = I don't understand it.

"After additional study by my colleagues" = They don't understand it either.

"Thanks are due to Tony Russo for assistance with the experiment and to Denise Colvin for valuable discussions" = Mr. Russo did the work, and Ms. Colvin explained to me what it meant.

"A highly significant area for exploratory study" = A totally useless topic selected by my committee.

"It is hoped that this study will stimulate further investigation in this field" = I quit.