Fannie's New G-fee Policy Concerns Lenders; CFPB's Busy Summer Season Including QM

By: Rob Chrisman •

What is 33.9%? According to Inside Mortgage Finance it's Wells Fargo's market share of the mortgage business for the 1st quarter, the most ever for any firm. Rounding out the top players were Chase (10.6%), U.S. Bancorp (5.2%), and Bank of America (4.2%). More

Other lenders are only too happy to step into BofA's, MetLife's, and ING's void. Affiliated Mortgage Company (AMC) is expanding its Retail Division in Texas, the Southwest, and Midwest. This expansion would include top producing LO's, producing managers, senior DE/LAAP Underwriters and/or retail branch teams that form enduring and useful relationships with borrowers/referral sources. AMC, the Home Loan Division of Benchmark Bank based near Dallas, is also lenders to its Correspondent Division. Interested individuals and/or teams looking for an opportunity to join a top tier mortgage bank should contact Todd Potter at amcjobs@benchmarkbank .com.

On the other side of the continent, Sterling Bank is searching for underwriters for its Retail Mortgage group in its North Seattle corporation center in Mountlake Terrace. Sterling has nearly 500 employees, originated $2.1 billion in 2011, and is on track to do $2.5 billion in 2012 with a full product menu. For more information on the bank, go to bankwithsterling.com, and if you know someone who is interested in a position, they should contact Kristy Benson at kristy.benson@bankwithsterling .com. 

"Rob, what is this rumor I hear that Fannie can now change our g-fee at will, with little or no notice? What if we have a large pipeline of loans, locked or closed, priced using a lower g-fee, and Fannie raises the fee - do we take the hit? And can Fannie base our g-fee on repurchase requests, or base g-fees on the states in which we originate? And do we now have to build a g-fee reserve into our pricing model, the cost of which is once again passed on to our borrowers, in case the government asks Fannie to pay for something and it is raised?" My answer to that is plain & simple: that your head of Capital Markets should ask their Fannie Mae rep about it. But...

That being said, Fannie did release "Selling Guide Announcement SEL-2012-03" which will be directly quoted here: "Changes to Pricing Terms - Fannie Mae is updating the terms that pertain to Fannie Mae's ability to change the pricing applicable to lenders' deliveries of mortgage loans under the standard Selling Guide provisions as well as under any existing Master Agreements and related MBS contracts. Accordingly, Fannie Mae may change the base guaranty fee, loan-level price adjustments (LLPAs), and/or guaranty fee adjustments for MBS Express or rapid payment method remittance cycles ('Pricing') applicable to mortgages delivered under MBS contracts or as whole loans as follows: Fannie Mae reserves the right to change the Pricing one or more times during the term of any Master Agreement or related MBS contract at any time."

Fannie's announcement goes on, "In each case, prior to the date on which the new Pricing will become effective ('Pricing Effective Date'), Fannie Mae will provide the lender with written notice of the proposed Pricing to be implemented. If the lender and Fannie Mae are unable to come to acceptable terms on the new Pricing prior to the Pricing Effective Date, either party may cancel the affected MBS contract(s) or the related Master Agreement by delivering written notice to the other party on or before the scheduled Pricing Effective Date." This is effective immediately for Master Agreements and related MBS contracts entered into on or after May 1, at Fannie's discretion for the time of amendment for existing Master Agreements and/or related MBS contract(s) that are amended on or after May 1, and October 1 for all other Master Agreements and related MBS contracts.

Servicing is not a walk in the park, given capital requirements, rules, regulations, possible loss, and potential liabilities. Here is some light reading for anyone considering servicing: "Conflicted Out: When Must a Servicer Follow FHA Guidelines over the Global Foreclosure Settlement Servicing Standards?". - Link

I remember being on the trading desk when Drexel Burnham blew up. It certainly gave us all a lesson in limiting counter party risk. The heads of some of the largest banks in the U.S. have met, or will meet, with Daniel Tarullo, governor of the Federal Reserve, to discuss proposed changes, particularly a proposal to limit the lenders' exposure to companies and governments. Bank executives say the rule could hinder liquidity and hurt growth. SIFMA and other industry groups recently sent a letter to the Fed raising concerns with the proposed policies. "We submit that an approach grounded in a 'too big' or 'big is bad' concept is not only contrary to Congress' intent but is misguided and detrimental to a sound, strong banking system and a strong economy," according to the groups' letter.

Speaking of bureaucracy, and how it has changed our landscape, the CFPB has become a force to be reckoned with: it is expected to come out with a final rule shortly on the definition of a Qualified Mortgage/Ability to Repay provision; other proposed rules in the pipeline are expected to address Home Ownership Equity and Protection Act triggers and ceilings, designed for more loans to be covered; mortgage servicing, in which the CFPB will be more involved; and the Truth in Lending Act and the Real Estate Settlement Procedures Act, which should come out this summer. And the line is certainly becoming blurred about regulatory structures for banks, nonbanks, and other real estate finance entities. Institutions who believe that they are too small to be impacted might just be surprised one day...It is one-sided, however, to say the least: the CFPB is a consumer-based agency, so its focus is on fraud and actions against consumers, not fraud committed against lenders.

While the theory of QM is sound ("don't lend to anyone who can't repay the debt") Section 1412 of Dodd-Frank provides that a qualified mortgage under its "ability to repay" standards cannot have points and fees in excess of 3 percent of the loan amount. Try asking any lender or LO to originate a $100,000 loan for that. The MBA and numerous other trade groups have said an unnecessarily narrow definition of QM that covers only a modest proportion of loan products and underwriting standards and serves only a small proportion of borrowers would undermine prospects for a housing recovery and threaten the redevelopment of a sound mortgage market. They want a broadly defined QM using clear standards so that lenders are not afraid (any more than they are now) of a higher risk of an ability to pay violation and even steering violations, and a "safe harbor" provision that would protect lenders and servicers from billions of dollars in litigation.

HARP 2.0 continues to breed uncertainty. A few weeks ago Grand Bank's Icon Residential turned some heads by drastically changing its HARP 2.0 requirements. On April 19th brokers received a bulletin saying, "Icon Residential is revising Icon Announcement 12-16 issued April 10, 2012 as follows: Icon will no longer require HARP loans to be in "approved" status to be locked.  HARP 2.0 loans may now be locked prior to loan approval subject to Icon's published lock policy which is posted on Icon's website at iconwholesale.com under the Rates/Matrices link. (Here) is a summary of the recent changes to the Portfolio DU Refi Plus/HARP program: Expanded Approvals (EA I, II and III) are no longer eligible for submission regardless of lock status; "Approve/Eligible" is the only acceptable DU Finding. Loans with an EA I Finding, submitted and locked on or before April 10th, will be underwritten, evaluated and decisioned on a loan level basis and these loans must fund by the original lock expiration; lock extensions or re-locks are not eligible. The maximum LTV/CLTV is now 150%. Loans with an LTV/CLTV > 150% that were approved and locked on or before April 16th must fund by the original lock expiration; lock extensions or re-locks are not eligible. Loans with an LTV/CLTV > 150% that were not in approved status and locked on or before April 16, 2012 are not eligible."

Icon went on to say, "A CoreLogic ValuePoint4 AVM, with a Confidence Score of 80% or higher, or a FNMA 2055 is required on loans that receive a property inspection waiver (PIW) with a stated value > 125% LTV/CLTV.  This requirement was effective with new submissions on or after April 11, 2012. Second home and investment properties are no longer eligible. Loans > 125% LTV with a PIW (without an AVM or 2055) and loans secured by a second home or investment property must have been locked on or before April 11, 2012. Second home and investment properties are still eligible under the Agency DU Refi Plus guidelines.  Refer to the matrix posted on Icon's website."

The markets are quieter than quiet, which tends to help mortgage originators focus on originating mortgages rather than reacting to volatility. Yesterday we had the ADP Employment Report Private Payrolls number which increased by 119,000 in April following a revised 201,000 in March and weaker than the median forecast for a 170,000 advance. (Tomorrow's Bureau of Labor Statistics' nonfarm-payroll data, which includes government workers, is expected +160k and an unchanged unemployment rate of  8.2%.) Factory Orders fell 1.5% in March, the biggest loss in 3 years. With numbers like that, and continued problems in Europe, you'd think we'd rally more, but we didn't. Some of the Fed governors were speaking around the nation, and given their comments it seems that QE3 (another round of Quantitative Easing) is unlikely. The 10-yr closed at 1.92%, MBS prices were better by about .125, and mortgage banker selling was well below its recent average levels. Hey, low rates can only help refi's for so long, right?

Today, for action-packed excitement, we'll have Initial Jobless Claims (expected lower), the preliminary Q1 readings for Productivity and Unit Labor Costs (expected at -0.5% and +2.8%, respectively), and at 10AM EST is the ISM Non-Manufacturing number for April. Thursday is starting with rates right about where they were at Wednesday's close, with the 10-yr at 1.93% and MBS prices unchanged.

 
(An oldie but goodie.)

A guy is driving around the back woods of Montana and he sees a sign in front of a broken down shanty-style house: "Talking Dog for Sale."

He rings the bell and the owner appears and tells him the dog is in the backyard. The guy goes into the backyard and sees a nice looking Labrador retriever sitting there.
"You talk?" he asks.
"Yep," the Lab replies.
After the guy recovers from the shock of hearing a dog talk, he says "So what's your story?"
The Lab looks up and says, "Well, I discovered that I could talk when I was pretty young. I wanted to help the government, so I told the CIA. In no time at all they had me jetting from country to country, sitting in rooms with spies and world leaders, because no one figured a dog would be eavesdropping. I was one of their most valuable spies for eight years running."

"But the jetting around really tired me out, and I knew I wasn't getting any younger so I decided to settle down. I signed up for a job at the airport to do some undercover security, wandering near suspicious characters and listening in. I uncovered some incredible dealings and was awarded a batch of medals. I got married, had a mess of puppies, and now I'm just retired."
The guy is amazed. He goes back in and asks the owner what he wants for the dog.
"Ten dollars," the guy says.
"Ten dollars? This dog is amazing! Why on earth are you selling him so cheap?"
"Because he's a liar. He's never been out of the yard."