Freddie Mac Hikes Fees on Higher Risk Loans; DU 8.2 Update Coming Soon; Fraud in the Mortgage Business; Free Refi Offer from Chase?

Fraud continues to be an issue, both currently and in the past.  For example, in Citi's latest bulletin, "Correspondents must have policies and procedures in place for fraud detection, prevention, training and reporting that comply with Fannie Mae, Freddie Mac, and CitiMortgage requirements for each stage of loan origination and servicing process, including employee screening, hiring and training, quality control and reporting. Lender employees must receive fraud training updates at least once a year."

Yesterday we learned that a Kansas City-area mortgage loan officer and an area real estate agent were among nine people indicted in an $11 million mortgage fraud scheme that involved a network of fictitious businesses and straw buyers. Back in 2005 and resulted in $11.1 million in bad loans on 16 residential properties in several Missouri communities. The sale prices for the properties were illegally inflated, and more than $2 million was paid to buyers solicited to help in the conspiracy, as fraudulent mortgage applications were submitted and buyers created fictitious businesses that issued false invoices that claimed the businesses had provided work and services for which they were entitled to receive loan proceeds.

Oregon's attorney general believes American Team Mortgage, out of California, improperly charged 32 homeowners $80,000 for loan modification application fees. The lawsuit was filed in Oregon, and alleges that most of those fees were charged in advance of providing services to clients in violation of Oregon law. The company may have only actually obtained loan modifications for two Oregon clients, and went out of business 5 months ago.

On the good news side of things, Redwood Trust "is working on a second securitization that it expects to complete in the first quarter of next year. By the end of October, the company had purchased $160 million of residential mortgage loans and had made commitments to purchase an additional $138 million. FULL STORY

Freddie Mac told its customers of a higher fee structure that is set to begin in March. Freddie will be "increasing the Indicator Score/LTV delivery fee rates for mortgages with certain Indicator Score/LTV ratio combinations" and "revising the secondary financing delivery fee rates therefore increasing delivery fee rates for mortgages with certain LTV/total loan-to-value (TLTV) ratios and Indicator Score combinations and adding a new secondary financing delivery fee for these mortgages with second liens and LTV ratios less than or equal to 65% and TLTV ratios greater than 80% and less than or equal to 95% in the Mortgages With Secondary Financing fee rate table." The fee increases, aimed at higher risk loans, will raise some of the upfront fees by as much 0.75 percent of loan balances, and lenders are seen offsetting an upfront fee of 0.25 percent by raising the rate on a 30-year loan by 0.05 percentage point, causing a rise of about $10 in the monthly payments on a $200,000 loan. Investors believe that this should slow prepayment speeds on higher LTV/lower FICO loans. (So far Fannie has not had similar increases...so far.).

Freddie also came out with new pooling options for fixed-rate super conforming mortgages, along with streamlining the process for correcting data for mortgages delivered under a Best Efforts contract and reminding Sellers about our requirements for proper note endorsements. Currently, the association that regulates the bond market has a 10% cap on "jumbo conforming" loans that can be put into a security. Freddie is now providing sellers the option "to form non-TBA Gold and Giant Participation Certificate (PC) pools that comprise up to and including 100 percent of 15-, 20- and 30-year fixed-rate super conforming mortgages under our Guarantor and MultiLender Swap executions. While we are providing new pooling options for fixed-rate super conforming mortgages, Sellers can still deliver super conforming mortgages into TBA pools, as long as the aggregate unpaid principal balance (UPB) of the super conforming mortgages does not exceed 10 percent of the total UPB of the PC pool."

Don't look now, but December 11 is right around the corner. Fannie Mae has issued Frequently Asked Questions (FAQs) related to DO and DU Version 8.2, which will be released December 11. "The updates in the release of DU Version 8.2 will support policy changes regarding foreclosures and pre-foreclosure sales; simplified high-LTV transactions and the removal of the "Flexible mortgage" label; rounding of the LTV/CLTV/HCLTV ratio; Community Seconds loan eligibility; inclusion of all revolving debts in the debt-to-income ratio; updated unit number requirements; updated minimum borrower contribution requirements; and other message updates." SELLER GUIDE UPDATE

The new DO/DU version will enforce underwriting changes that will allow buyers to use gifts and grants from nonprofit groups for their minimum 5% down payment. Currently, borrowers had to contribute a minimum 5% down payment from their own funds, but additional down payment money could be from a gift (though never from a home seller). The exception was for borrowers who put 20% down: all that money could come as a gift. But with overlays, many lenders now require a down payment of 10% or more, the new rules mean that borrowers will still have to come up with extra funds - either their own or gifts. But with Version 8.2 comes tougher DTI ratios: the maximum ratio for those seeking a conventional mortgage will drop to 45 percent from 55 percent under the new guidelines. Buyers who have missed a payment will have 5% of the total balance added to their ratios. And borrowers who have gone through foreclosure will be excluded from obtaining a Fannie-backed loan for seven years, up from four.

Yesterday I wrote about how HAMP is going. I was reminded that, "HAMP is actually 'Home Affordable Modification Program' and is part of the MHAP - 'Making Home Affordable Program' initiative by the government. MHAP also includes HARP - 'Home Affordable Refinance Program'. Said another way, "HAMP stands for Home Affordable Modification Program, HARP stands for Home Affordable Refinance Program.  Both of these are part of the MHA program." Thank you.

Berkadia Commercial Mortgage LLC, sprang forth from Capmark Financial and is the servicer backed by Berkshire Hathaway, Warren Buffet's company. Berkadia announced plans to use its own capital to fund a least $200 million in fixed-rate loans to be securitized and sold to investors. "The program, which will focus on mortgages of $5 million to $25 million, will help Berkadia win business from brokers that don't issue loans with their own capital." "It's going to make us much more competitive with other mortgage bankers." Berkadia earns income by servicing $215 billion in mortgages, and will be targeting loans on offices, retail buildings, warehouses and apartments.

There are signs of industry titans attempting to increase market share. Chase is mailing a flyer to existing borrowers for a free refinance: no appraisal, no income statements, no fees, and titling the offer the "Chase Rate Reduction Program."

Wells Fargo appears to have eliminated its processing time issues.

Pricing engines such as Optimal Blue have set up Bank of America's 30-yr Fixed Rural Housing Direct Leverage product, although GMAC has discontinued its Conforming 7/1 LIBOR ARM 40 Yr.

Union Bank cleared up a question on its Tenants-in-Common Vesting on 2-4 unit properties: "effective immediately, on refinance transactions, all current vested owners and borrowers must remain the same, with no additional new borrowers added." Fannie Mae seller/servicers learned that Fannie Mae will continue accepting hazard insurance coverage from State Farm Florida Insurance Company, despite its rating being downgraded by A.M. Best, on properties securing certain Fannie Mae mortgage loans in Florida.

There is no argument that most of the recent data on the economy has been better than forecasts. The question comes up, of course, were our expectations too low, or is the economy really starting to improve? Yesterday we had no substantive news, but like a spring that was stretched too far last week, bonds continued to spring back toward lower rates. Last week, and the week before, mortgage rates begin to move higher for a variety of reasons: stronger than expected economic data signaled growth which for some reason always makes some folks fear inflation, and substantial opposition to the quantitative easing program from other countries and from many US politicians and economists. The $35 billion 2-yr auction was decent, and the 10-yr note was up better than .5 in price to yield 2.81%. In mortgage-land, traders reported seeing less than half the normal volume, and MBS prices finished the day better/up by about .250 in price.

The Transportation Security Administration recently implemented new search routines at airports. There is growing public controversy over pat downs and full body scans at airports, The TSA Administrator stated that "there is a continual process of refinement and adjustment to ensure that best practices are followed."

To go along with this change in policy, a series of TSA airport signs are about to be released, with catchy slogans:

"Can't see London, can't see France - unless we see your underpants."

"Grope discounts available."

"If we did our job any better, we'd have to buy you dinner first."

"Don't worry - my hands are still warm from the last guy."

"Wanna fly? Drop your fly!"

"We are now free to move about your pants."

"We rub you the wrong way, so that you can be on your way."

"It's not a grope, it's a freedom pat."

"We handle more packages than the UPS."