Reaction to CFPB's "Tell Your Story"; RMBS Chatter; VA's Appraisal Changes; USB Reacts to G-fee Hike

"I would be moody too if I was standard and poor." I don't know how old that pun is, but many in the industry continue to wait for the rating agencies (those that had the lion's share of the business 6 years ago) to take more of the blame for the credit crisis. There are newer firms, however, releasing information to help us better understand how residential mortgage-backed securities perform - or don't perform - a question that I am sometimes asked. In a piece done last year by Kroll Bond Ratings (known more for commercial MBS rating), the author identifies the following independent variables as being highly correlated to the performance of a RMBS: FICO, documentation, occupancy, loan purpose, margin, adjusted CLTV, refinance incentive, age, prepayment penalty, and loan balance. For more visit krollbondratings.com.

Redwood Trust doesn't have a monopoly on jumbo deals. Recently Two Harbors Investment Corp. and its partner Barclays Bank agreed on a May 17 deadline for the issuance of a new residential mortgage-backed securities deal, according to a filing with the SEC. The two firms said in May they would be targeting a $250 million RMBS deal using a warehouse line to gather the jumbo mortgages. Assuming this goes through, however, it would only be the fourth private-label RMBS offering since 2007 - the other three were done by Redwood. Reportedly should Two Harbors, the seller in its deal, fail to deliver the security before May 17, Barclays, which is the initial purchaser, would agree to buy the assets. Two Harbors must obtain an AAA rating on the security from at least one ratings agency. Don't forget about possible risk retention rules - if they exist by then!

Hey, did you hear the big rumor? Me neither. But some rumor pushed Bank of America's stock to surge the most in two months of trading ("skyrocketing" to $6.31 per share) amid speculation that "the U.S. may introduce a new mortgage refinancing program." I'm always the last to hear this stuff, and didn't hear the rumor until after an Obama administration official who asked for anonymity denied speculation that the White House is considering a trillion-dollar plan to refinance home loans. Doubt it.

The VA upped its appraisal requirements, and lenders such as Guild, Home Savings, and everyone else is following suit. The VA released VA Circular 26-11-21, which states that effective immediately, "VA requires Staff Appraisal Reviewers (SARs) to issue the Notice of Value (NOV) at the appraised value reflected in the appraisal. Furthermore, SARs are no longer permitted to issue an NOV at a value other than that reflected on the VA appraisal. SARs must continue to contact the appraiser to resolve errors, omissions and discrepancies discovered when reviewing the appraisal. In the event the appraiser's revisions result in a changed value, the SAR must re-issue the NOV at the new appraised value reflected on the revised appraisal. Only VA staff or the original appraiser is permitted to make adjustments to the appraised value." In HSOA's case, "On a limited basis, when significant disputes related to property value arise, HSOA will submit the VA appraisal to VA staff for their review and possible value adjustment." The impact of this VA policy change is that value resolution may take longer if the SAR (HSOA's appraisal review underwriter) disagrees with the appraisal's content or conclusion.

But wait - there's more! Going forward for all appraisals, in addition to VA's current exterior photograph requirements, VA appraisers must provide photographs of the following rooms and/or property conditions: kitchen (mine's a mess!), all bathrooms (don't ask), main living area (fair), and all physical deterioration, if applicable (you bet it is), along with examples of recent updates, such as restoration, remodeling and renovation, if applicable (do particle board-on-cinder block bookshelves count?).

"As the new Director of the CFPB, and as someone who has been helping to build the Bureau for about a year now, I can tell you it's an extraordinary privilege to work on behalf of American consumers. Consumers like you. Tell your story: https://help.consumerfinance.gov/app/tellyourstory." So wrote Richard Cordray.

Some in the mortgage industry told theirs. Mike Hillman wrote, "Here's my story. I have worked at all levels of the mortgage industry for the past 27 years and, almost without exception, every single regulation you sophomorons in Washington have implemented to 'protect the consumer' has stood in the way of what the vast majority of us in the Industry can offer by way of products and services to the vast majority of those in need of real estate financial services. You should take a lesson from the medical profession, 'First Do No Harm.'" And over at The Basis Point, LO Julian Hebron provided an open letter on his thoughts.

Wednesday the commentary discussed Pacific Union Financial and its "minimal overlay FHA and FNMA product (scores to 560, no DTI limitations with approve eligible, flips over 20%, 5-10 NOO, etc.) and they recently released a standard FHA product (that still allows high DTI and flips with over 20% appreciation)." This set off a debate. "I'm disappointed that you would highlight a program like this that to me is a throwback to subprime lending.  Have we all not learned anything from the lending crisis?  Sure FHA still technically allows this type of product to be originated but with that said don't we all recognize that granting credit to a borrower with a combination of a 560 FICO and limited down payment or a combination of a high debt ratio and limited down payment is a recipe for disaster? Low FICO loans combined with low down payments results in a ridiculously high percentage of foreclosure as do loans with high FICO's and limited down payments (which then culminates in bad press for our industry).  And people wonder why the legislature is trying to regulate "an ability to re-pay" standard?"

On the flip side, "The industry seems to have given up on doing loans that 'make sense.' Would you deny credit to someone who may have been in the hospital and missed some bills? Pac Union's lower FICO program has less than 1% delinquency on the 60 day plus metric. This is actually public knowledge through its servicing numbers on Neighborhood Watch." One employee wrote, "There are several compensating factors in underwriting. For example, all of these loans require approve/eligible from DU or Total Scorecard so the scores in the 500's don't seem to make it very far unless they are a low LTV. The highest LTV I have seen with a 560's score has been 47. Our average score is 652 so some sellers are dipping into the lower scores while others are staying in the higher scores but may have a higher DTI or it could be a flip. Our wholesale channel had a compare ratio of 56% last I checked."

U.S. Bank Home Mortgage (wholesale) announced its pricing move to cover the costs due to the mandatory increase in guarantee fees required by FHFA. "Locks taken prior to 1/3 that do not close and fund by 2/17 and that require an extension, the following new extension fees will apply: 20/25/30 year term - current lock extension fee schedule plus 40 basis points, 10/15 year or less term - current lock extension fee schedule plus 35 basis points. Our standard lock extension fee schedule will apply to any locks taken on or after 1/3." For delivery fees, "Locks taken prior to 1/3 that are not received for delivery to USBHM by 2/17 that do not meet our good delivery requirements (deficiencies cleared within 7 calendar days of notice) are subject to the following late clearing of deficiency fees AND new fees: 25/30 year term - current lock extension fee plus deficiency fee plus 40 basis points, 15 year or less term - current lock extension fee plus deficiency fee plus 35 basis points. Again, Seller will have the greater of the expiration date or 7 calendar days from notification to clear funding deficiencies without any pricing penalty."

Freddie Mac sent word that effective for Freddie Mac settlement dates on or after January 5, 2012, "we are eliminating the minimum Indicator Score requirement of 620 for Relief Refinance Mortgages - Same Servicer with LTV ratios less than or equal to 80 percent, provided the principal and interest payment does not increase by more than 20 percent, and eliminating the minimum Indicator Score requirement of 620 for Relief Refinance Mortgages - Same Servicer with LTV ratios less than or equal to 80 percent, provided the principal and interest payment does not increase by more than 20 percent. Effective for Freddie Mac settlement dates on or after January 5, 2012, we are eliminating the maximum total LTV (TLTV) and Home Equity Line of Credit TLTV (HTLTV) ratio requirement of 105 percent for Freddie Mac Relief Refinance Mortgages - Same Servicer and Relief Refinance Mortgages - Open Access with LTV ratios of less than or equal to 80 percent." It is best to read the full bulletin.

The markets have been behaving themselves - certainly no one is complaining about rates. (One little tempest in a teapot has been the underperformance of Ginnie Mae securities in recent weeks, impacting FHA & VA prices. But if you think about it, those prices had run up in recent months - besides, what foreign investor doesn't want some type of explicit guarantee with some of these securities?) Yesterday investors couldn't decide which side of the risk equation they wanted to be on: ADP Employment and Initial Claims were better than expected, but Europe is still a pain in the neck. 10-year T-notes closed virtually unchanged at 1.99%, and in mortgage-land originator selling remained limited to the $1 billion area which isn't enough to satisfy the Fed let alone other investors so prices improved slightly.

This morning we've had the employment numbers. Non-farm Payroll was +200k, much stronger than expected on widespread job growth, although November's number was revised downward from +120k to +100k (October's was revised slightly higher). Are folks just dropping out of the hunt for jobs, which impacts the number? The unemployment rate was 8.5%, down from November's 8.7%, and the average workweek rose slightly. Prior to the numbers the T-note was at 2.01%, and it moved to 2.02% - not a big move, and mortgage prices are slightly above Thursday afternoon's closing prices.

A woman gets on a bus with her baby.  The bus driver says: "That's the ugliest baby that I've ever seen. Ugh!"
The woman goes to the rear of the bus and sits down, fuming. 
She says to a man next to her: "The driver just insulted me!"
The man says: "You go right up there and tell him off - go ahead, I'll hold your monkey for you."

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.