Loan Servicer Settlement Process Far From Over; Fed Webinar on Originator Comp; Net Tangible Benefit Impact on Borrower Qualification;
For much of next week I am fortunate enough to be visiting the Chicago area - not to be missed for St. Patrick's Day. The number of residents who claimed Irish ancestry, according to our Census Bureau, was about 37 million in 2009. For the folks playing along at home, this number was more than eight times the population of Ireland itself (4.5 million). Irish was the nation's second most frequently reported ancestry, trailing only German. IrishEyesAreShining
What difference do rates make to investors in mortgage-backed securities? It is a simple question, but deserves an explanation that impacts mortgage originators. Any investor, especially investors who purchased pools of mortgages above par (thus paying a premium) usually wants that MBS to pay them a return well into the future, and moves in rates impact their projections on the duration of that pool of mortgages, assuming that the borrowers are making their payments. Now, for example, with rates chopping around 5-5.25%, new & seasoned 5.5% mortgages remain in the "refinancing window" although with many of the remaining borrowers are constrained by either home equity or credit issues. Note that investors watch for any changes to loan level pricing adjustments ("LLPA" - with Freddie raising theirs 3/1 and Fannie on 4/1) or FHA mortgage insurance fees, as increases in those raise the hurdle rate for refinancing. In fact, including MPI costs, the "effective FHA rate" suggests that over 85% of all FHA borrowers are out of the refinancing window and much of the prepayment activity is driven by housing turnover and involuntary pay downs.
For some time now, a foreclosure settlement has been in the works. In yet another leaked report, the supposed proposals that state attorneys general had sent to various banks was published by American Banker. The document is not the final settlement but a draft of what was sent to servicers, and supposedly will still take months to figure out - it is not even complete. There have already been dozens of publications about the pros and cons of the draft, and rather than use space here repeating a summary of them, you can take a look at the actual document: ALongWaytoGo
While we're on servicing, the head of Bank of America's new Legacy Servicing division, which controls about half the 14 million loans serviced by BofA, was quoted as saying that they'll work through the backlog of delinquent mortgages in the next three years. Legacy Servicing, like the Island of Misfit Toys, received the "misfits": virtually all of the 60+ day delinquent loans which are estimated to be over 2 million loans! It seems to be a job with a future - when you adjust for expected modifications, re-defaults and new delinquencies from legacy loans, Legacy will be attempting to dispose of 80,000-90,000 loans per month!
Turning to new production, recent change to the definition of "Net Tangible Benefit" introduced by FHA/HUD doesn't make it more difficult to qualify for a streamline refinancing for existing FHA borrowers. In fact, according to one analysis, this change alone makes it slightly easier to qualify for streamline refinancings which in turn impacts existing pools of higher coupon Ginnie Mae securities. On Valentine's Day HUD announced changes to their annual insurance premium structure and revised some guidelines on their streamline refinance program, but never really addressed the potential impact of the changes to the "net tangible benefit to a mortgagor" requirement imposed by the FHA for streamline refinancing of FHA mortgages. Reports indicate that this new guidance bases the calculation of the net tangible benefit on the principal and interest (P&I) and Mortgage Insurance Premium (MIP). MIP has always been included in calculating the "net tangible benefit."
An Arizona minister with a world-wide following indicted for mortgage fraud? Say it ain't so! LetUsPray
The Federal Reserve Board is offering up a webinar on the TILA changes on March 17th. Check out its Philadelphia Member Bank Website. FedCompWebinar. And to register go to this link: ImportanttoRegister
Provident Funding has released an update to its "Pricing Matrix Calculator" to reflect how loan scenarios will be affected by the TILA Compensation Rule, and brokers can specify whether broker compensation is to be paid by the borrower or lender. "If the Lender Paid Broker Compensation Level has been setup for your account, the Pricing Matrix Calculator will automatically reflect the set percentage level when running lender-paid scenarios. Otherwise, the percentage level can be entered in the calculator between 0.000% and 2.000% in increments of 0.005%."
NYLX offers up a research paper on the comp changes taking place April Fool's Day. NYLX
Yesterday I mentioned a question regarding compensation challenges for retail LO's on jumbo portfolio and state bond products - what if they have lender paid comp that is below the predetermined level, and fixed commission structures? I had some responses worth noting. "For jumbo loans, you can cap the dollar amount of commission. This enables the lender to make the price a little more competitive." "Rob, we are really struggling with this question as well, and have asked a number of 'experts' from various industry committees, and other competitors, and everyone seems to be at a loss on this one. The only real solution we have come up with is let these loans go through a separate channel where the originators will get paid on a salary basis, not a commission basis, but it may be unrealistic to think that these loans will be referred or redirected this route if the referring commissioned LO is giving these leads up." "Our interpretation is that you cannot comp someone differently on product [period]. You would be hard pressed to clear the regulatory hurdles...in something like a pricing engine. However... you can mess with this a little bit in the comp plan." And lastly, "Hire a good attorney, or follow what the jumbo investors are doing."
QRM revisited: A highly placed executive at a highly placed mortgage firm wrote, "You may want your readers to know that risk retention will only be borne by the issuers of securities unless something drastic changes in the future. But there are many questions still unanswered, such as if loans are covered by MI, are they QRM eligible? And how about Fannie, Freddie, and FHA loans - will they be included in any definition?"
As if the mortgage biz doesn't have enough other things to worry about, how about a US government shut down? Believe it or not, a shutdown could be a positive for Treasuries. But in the MBS market, the FHA loan origination process, for example, may be impacted to some extent due to a shutdown. There are two important steps in the FHA loan origination process where FHA lenders have a dependency on FHA: obtaining a case number for a new FHA loan and after it closes being endorsed by FHA so that a mortgage insurance certificate can be issued. The case number for an FHA loan is obtained via FHA Connection. It is possible that FHA Connection may continue to operate even if there is a government shutdown. If that is the case, obtaining case numbers would not be a problem. (During the November 1995 shutdown, case numbers could not be obtained.) Barclays' analysts believe that it is very likely that loans will not be endorsed and "mortgage insurance certificates will not be issued in the event of a shutdown. Lenders could continue to originate FHA eligible loans but they will need to wait to obtain an endorsement and an MI certificate. It should be noted that lenders with DE authority can potentially obtain MI certificates if FHA Connection continues to operate." The shutdown in 1995 mainly caused a delay rather than drop in FHA loan origination, but if lenders decide to stop accepting FHA applications, it could be a problem.
Yesterday we had a very good 10-yr auction. And without any economic releases, the focus was/is indeed on the auction (supply versus demand), continued oil issues, and debt problems in Europe. So the Treasury's $21 billion auction went well, coming in around 3.50% with a good bid-to-cover ratio. Stocks finished roughly unchanged, whereas MBS prices finished the day better between .375-.5.
We did have some news this morning. Weekly Jobless Claims came in at 397k, up 26k from a revised 371k. And the trade balance for January widened by $6 billion ($40.3 to $46.3 billion) to its highest level since last summer, viewed as putting more of a crimp in consumer spending. Less than 20% of the trade change was attributed to oil.
Thank you Ronald Reagan for this one...
Back in the early '80's, when there were still many issues surrounding the IRA, the US government decided to send a man undercover to Ireland to do some surveillance. Murphy was brought in and instructed that there would be no contact what so ever for a few months, and the US would come get him when they felt enough time had passed. The code words to recognize the agent as from the United States was, "Tis a beautiful day and tomorrow looks even better." So off Murphy goes to Ireland.
A few months elapse, and the government sends in an agent to go find Murphy. No one has any idea where he is, but the approximate a small town where he might be. The agent enters the town and, given that Murphy is an Irishman, walks into the first tavern he sees to look for him. He and the bartender strike up interesting conversation, so the agent tells the barkeep he is looking for a man named Murphy.
The bartender says, "That's a very common name. The roofer down the street is Murphy and the horse shoe maker across the way is Murphy. I, myself, am named Murphy."
So the agent figures he got lucky, so repeats the phrase, "Tis a beautiful day and tomorrow looks even better."
To that, the bartender exclaims, "Ahh, you're looking for Murphy the spy!"