Lending to Borrowers with Negative Equity: Spotlight on the FHA's Negative Equity Program
If you
made a Christmas wreath out of $100 bills would you have Areath-a Franklins?
I have been retained by a very well-capitalized mortgage bank to assist in its search for a Senior Regional Operations Manager in Sacramento, CA. It is a
national lender with a portfolio lending appetite - company-wide production is
in excess of $5 billion through its wholesale, correspondent, retail, and
direct lending channels. The ideal candidate will provide "leadership of
the continued growth, development, efficiency, and quality of the regional
operations center to support all wholesale and correspondent operations out of
assigned region, implement operational strategy and planning execution in order
to achieve operational business goals, and should have a high core competency
of understanding and practical applied knowledge of underwriting, closing, funding,
and overall wholesale and correspondent operations processes and procedures.
Experience managing a mortgage operations center, national strategic leadership
experience preferred." Please send resumes to me at rchrisman@robchrisman.com.
The Federal Reserve, the FDIC, and the OCC want your input on some proposed
rulemaking (NPR) that focuses on "the agencies' market risk capital rules for
banking organizations with significant trading activities. The amended NPR
includes alternative standards of creditworthiness to be used in place of
credit ratings to determine the capital
requirements for certain debt and securitization positions covered by the
market risk capital rules. The proposed creditworthiness standards include
the use of country risk classifications published by the Organization for
Economic Cooperation and Development for sovereign positions, company-specific
financial information and stock market volatility for corporate debt positions,
and a supervisory formula for securitization positions." Any time one combines
Basel III with Dodd-Frank and several government agencies, it can become a
little muddled: http://www.fdic.gov/news/news/press/2011/pr11189.html.
Agencies are indeed trying to clarify their supervisory and enforcement responsibilities for Federal Consumer Financial Laws. Remember (who can forget) that Dodd-Frank provides the CFPB with exclusive supervisory and primary enforcement authority over "Large Institutions," defined as institutions with total assets exceeding $10 billion. The prudential regulators retain supervisory and enforcement authority over their respective institutions falling under that threshold. But the devil is in the details: the Dodd-Frank Act does not specify how or when to calculate total assets for purposes of applying the threshold. A copy of the joint statement is available at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20111117a1.pdf.
Lending to underwater borrowers, short
sales, and foreclosures are a sign of the times. (When a borrower can come back after
one of these is discussed at www.stratmorgroup.com, top right.) On November 14th
the commentary discussed lending to a borrower who owed $280k on a home worth
$200k. Of course we have HARP, and, when the AU engines kick in, HARP 2.0, but
what about borrowers that aren't covered under that? I continue to receive
feedback. "I have run into this situation several times as well. One
suggestion I have had for clients is what I call 'equity borrowing' from a family relative. If all things are
stable and credit is good for this borrower, he may want to see if he can lower
his loan balance by having a relative take out a 2nd mortgage on their property
and provide huge savings to the borrower. In this guy's case, dropping
from 8% to 4.5% would save him a lot of money and he could certainly be able to
afford to pay the relative back, likely in a very rapid manner. It allows the
homeowner to take advantage of the low rates, keep their credit in tack, and
honor their obligations. It does not work for everybody, but for some it is a
good solution."
And another: "To the AE in California who asked for advice regarding their
"good client" who's made all their payments on time but owe $280k on a home now
worth $200k, my advice would be keep making your payments. How is it that so
many people feel someone has to help a consumer who owes more than their home
is worth? What's next, do we the tax payers send everyone whose retirement plan
has lost value a check? If I get a loan to purchase something and it turns out
to have less value than I expected do I simply stop making payments and expect
no consequences? Someone stop the insanity! If I borrow x$ for whatever
purpose, whether things work out or not, I pay x$ back, with interest. Where
were all these people's parents when they grew up? This entitlement mindset is
unbelievable. Surely my dad wasn't the only one who said no one owes you anything;
you work for what you want. Earn it. And
you pay back what you borrow."
And lastly: There are a number of lenders that participate in FHA's Negative Equity program. The FHA allows negative equity write downs, or 'short refinance' where the lender agrees to write down at least 10% of the unpaid principal balance. The program sunsets December 31, 2012. FHA insured loans, of course, are not eligible. The HUD announcement can be found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf and a handy PowerPoint at: http://www.hud.gov/local/nd/library/fhafaqs.pdf. A list of negative equity lenders can be found at HUD Neighborhood Watch: https://entp.hud.gov/sfnw/public/ after clicking through some menu options. It is interesting to note that Negative Equity loans do not affect the GNMA Seller/Servicer's compare ratio, but layering additional risks (FHA minimum score is 500) may not be advisable." (Thank you very much to Susan Kahler at kahler.susan@gmail.com for this information.)
GMAC Bank (GMACB) Correspondent Funding
Approved Correspondent Clients please note that "effective December 1, 2011
GMACB implemented a new set of adjustment caps on DU Refi Plus products. The
previous cap was -1.75. The new caps are: for Primary Residence >80
LTV and Term <=20 years cap will be +.250, for Primary Residence >80 LTV
and Term >20 Years cap will be -.500, for Primary Residence <=80 LTV or
Second Home or Investment Properties the cap will be -1.75."
Wells Fargo let its brokers know
that a few days ago the USDA Rural Development office announced an increase in
the Upfront Guarantee Fee that will be charged on Refinance transactions using the
Guaranteed Rural Housing program (which is also known as the Single Family
Housing Guaranteed loan, Rural Development or Rural Housing). "The Upfront
Guarantee Fee will increase from 1% to 1.5%, effective Dec. 7, 2011. To support
the fee increase, updates are needed to the Broker's First® website and LPS.
Because of the required updates, Wells Fargo will be temporarily unable to
accept Refinance Guaranteed Rural Housing loans after Tuesday, Dec. 6, 2011.
Purchase Guaranteed Rural Housing loans continue to be accepted." Wells
went on: "According to the industry update from the national USDA Rural
Development office, the fee increase will generate more than $1.1 billion in
refinance funds available to eligible homeowners. Interest rates for these
loans continue to be low and the fee increase provides responsible homeowners
with an opportunity to refinance their existing mortgage for lower monthly
payments."
Franklin American clarified its
stance on FHA loan limits. "The maximum (ceiling) loan limits will increase from
$625,500 back to $729,750 as well as increase many county loan limits. For Case
Numbers assigned before 11/18, these loans are subject to the lower limits in effect
during the time period of 10/1-11/17 unless they meet criteria for certain exceptions.
Case Numbers Assigned 11/18-12/31: the loan limits that were in effect from 1/1/11
through 9/30/11 as referenced in ML 2010‐40
and reiterated in ML 2011‐39
will apply. For Case Numbers assigned in 2012, the loan limits that were in
effect from January 1, 2011 through September 30, 2011 as referenced in ML 2010‐40 and reiterated in ML 2011‐39 will apply, with the exception of six
counties." And on 11/7 FAMC has acknowledged the HARP/DU Refi Plus enhancements as announced by FHFA. We are
currently performing a risk analysis, and evaluating secondary marketing
opportunities in anticipation of the AUS
update scheduled for March 2012.
Prices of mortgage-backed securities have been improving relative to
"risk-free" Treasury prices for the past few weeks, which also means
that mortgage rates have been coming down relative to Treasuries. Currently,
the yield on the current coupon Fannie 30-yr MBS is higher than blend of the
5-yr and 10-yr T-notes by 1.57%. This is .13% "tighter" than at
Thanksgiving. Over that same time frame, the Ginnie 30-yr current coupon is
.14% tighter to 128 bps. Prepayments have been flat, and there has been
relatively little supply of mortgages: originators just do not have any paper
to sell now that we've been at these mortgage rate levels for over a
month. We closed Wednesday with the 10-yr improving to 2.02% and MBS
prices improving as well by roughly .250.
Volatility
could pick up a little tonight/tomorrow, however, given the various EU
headlines and the EU summit. Eurozone officials will likely agree to loan
EU150B to the IMF via bilateral loans from Europe's central banks (this sum is
a bit smaller than some would have liked to see) but giving the ESM a banking
license is "off the table." In this country we've had Initial Jobless Claims,
reported at 381k down from 404k, a drop of 23k. That is some good news for the
economy. Later we have Wholesale Inventories and Sales for October along the Treasury
announcing details of next week's auctions of 3- and 10-year notes and 30-year
bonds - estimated unchanged at $66 billion. In the early going we have the 10-yr at 2.07% and MBS prices worse by
about .125. - MBS Prices
Overheard in a retirement community diner:
"My
arms have gotten so weak I can hardly lift this cup of coffee," said one.
"Yes, I know," said another. "My cataracts are so bad; I can't
even see my coffee."
"I couldn't even mark an "X" at election time, my hands are so
crippled," volunteered a third.
"What? Speak up! What? I can't hear you!"
"I can't turn my head because of the arthritis in my neck," said a
fourth, to which several nodded weakly in agreement.
"My blood pressure pills make me so dizzy!" exclaimed another.
"I forget where I am, and where I'm going," said another.
"I guess that's the price we pay for getting old," winced an old man
as he slowly shook his head.
The others nodded in agreement.
"Well, count your Blessings," said a woman cheerfully. "Thank
God we can all still drive!"
If you're interested, visit my twice-a-month blog at the STRATMOR Group web
site located at www.stratmorgroup.com . The current blog discusses the time
frames for borrowers returning to A-paper status after a short sale or
foreclosure. If you have both the time and inclination, make a comment on
what I have written, or on other comments so that folks can learn what's going
on out there from the other readers.