SAFE Act for Depositories and Non-depositories; CMG Halts the HARP; USDA Program in Turmoil Again

As I've gotten older I've developed the unusual ability to stare at something and not see it. I am particularly good at doing this with car keys on a table and then walking out to the car without them - being able to ignore something obvious is a learned trait! I am sure that the CFPB does not want to be accused of missing the obvious, given the large number of public comment periods, and in its latest treatment of mortgage loan originators (MLO's). After all, why should an originator at a depository lender be different from one at a non-depository lender? Along those lines, here is an excerpt from last week's proposal: "Where a loan originator is not already required to be licensed under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), the proposal would require his or her employer to ensure that the loan originator meets character, fitness, and criminal background check standards that are equivalent to SAFE Act requirements and receives training commensurate with the loan originator's duties." This is page 5 here.

Can a state tell Freddie and Fannie how to run their businesses? Maybe: [READ: Massachusetts AG: GSE's Must Comply with New Mortgage Modification Law] And if they can, does it mean each and every state can exert that much influence?

Brokers focused on the HARP 2.0 program now have one less outlet. CMG suddenly halted the program, with no advance notice, to "catch up" rather than adjust pricing or submission requirements. The president sent out a bulletin, "...CMG Financial was one of the first lenders to fully embrace the HARP 2.0 program without restrictions to LTV, Agency, or level of approval...What we didn't know was that so few lenders would have stopped either partially or completely offering HARP 2.0. As a result, we have become inundated with business." (Editor's note: perhaps that should have said, "so many lenders would have stopped...") The bulletin went on, "...we feel the need to temporarily stop taking HARP 2.0 loans to allow us to catch up and deliver on the promise of service you have come to associate with our company. Starting Wednesday August 22nd we are temporarily suspending all new Wholesale HARP 2.0 loan submissions. All existing loans that were either submitted or locked on or before Tuesday 8/21 will be accepted and can continue to close. Once our turn times are back in line we will resume taking submissions of HARP 2.0 loans as we have in the past." The industry hopes that it is indeed a temporary suspension since it was one of few in industry doing these loans per agency guidelines without heavy overlays.

Word swept through company ranks last week about more drama in the USDA program. The USDA produced a draft spread sheet listing 923 communities that would not be ineligible for USDA rural housing funds on October 1 if Congress does not pass legislation to extend their eligibility. Congress is on vacation, but for the Farm Bill there are two amendments in the bill in both the house and the senate. The House bill, offered by a Nebraska republican, would extend eligibility through the end of FY13 for places that were eligible before the 2010 Census and have current populations less than 35,000 but would become ineligible because of population growth between the 2000 and 2010 Censuses. Over in the Senate, a democrat from Nebraska has offered an amendment (#2242) to the Farm Bill (S. 3240) that would keep these places eligible so long as their population in 2010 was below 35,000. (The population cap is 25,000 in the current grandfathering provision, which applies to places that were eligible before the 1990 and 2000 Censuses.) It is said that Boenhner and others are not happy about the language in the bill regarding food-stamp funding; they want them cut even more. Because of this, a vote does not look likely even if the Senate passes the bill off to the House.

For the city folks out there, the USDA home loan is a 100% financing home loan for people in eligible areas that earn up to 115% of the median income for the area. The program is largely used in bedroom communities for working families. The program is budget neutral and doesn't cost the tax payer a dime because it essentially funds itself. The program also boasts a very low delinquency rate when compared to other traditional forms of financing. But the lack of Congress to act on this has an economic impact: annually, an estimated 33,000 ($500-600 million per month in home sales) USDA home loans/sales would be left out starting October 1st if the Farm Bill, amendment or CR is not reached in Washington.

The USDA developments prompted one to write, "Normally this would not be a big deal, but with the overall tightening on FNMA/FHA the last few years, this is just another credit tightening coming from Washington. Probably not much impact in CA or FL but across most of America geographically, it will be felt. It will hurt the small suburb cities that are on the outskirts of large metro areas across the country."

Another wrote, "Probably more of a niche "newsworthy" item, but like I said, with all the other tightening, it is just one more straw on the back. I don't hold out much hope for Congress to do anything, much less this, before the election. The issue is not 33,000 affected in these areas, but rather how many the 33,000 represents of the total sales in these limited areas (I don't have access to that). With that margin gone, how will it impact home prices and the housing recovery in those areas? Can we afford to lose those margins now? The areas affected are often within 15-25 miles from a city center in outlying suburbs with 2-3 mile countryside stretches between them and the main metro area. Anecdotally, about 20% of my purchase loans YTD have been USDA, and three streamline refi's USDA, that all would be ineligible after 10/01. I'd say 2/3 of the USDA ones I did could have gone FHA, but may have chosen not to buy yet. It won't ruin me or others, but it will have an impact."

And sure enough, in recent days investors and lenders spread the word of the impending funding, a result of Congress's inability to act. USDA / Rural Housing has just notified Lenders that their funding authority for refinance loans is now exhausted, therefore U.S. Bank Home Mortgage Wholesale Division will NOT purchase any USDA / Guaranteed Rural Housing (Program #3001) refinance loans with Conditional Commitments that are "subject to funds availability" until the Loan Note Guarantee can be provided. Correspondents must provide the Loan Note Guarantee issued by the Rural Housing Authority when submitting refinance transaction loans for purchase to USBHM. This does not change our current policy to allow purchase transactions however funding may soon run out for these transactions as well. As a reminder, when new refinance funding becomes available, it will be subject to the higher guarantee fees in effect October 1, 2012.

"Effective immediately, Flagstar is reactivating the Rural Housing programs for most transactions. Rural Housing loans may now be submitted, underwritten, locked, closed, and funded. In addition, Rural Development (RD) has announced that they have exhausted all funding for refinance transactions for fiscal year 2012."

M&T spread the word, "The USDA has announced that they have run out of funding for refinance transactions only. Funds will be re-instated on October 1, 2012. They still have plenty of funding available for purchase transactions. Any refinance transactions not already approved by the USDA with a conditional commitment issued, will need to wait until the USDA's new fiscal year begins October 1st, to be sent to the USDA for approval."

For other relatively recent bank, agency, and investor news, in California First PacTrust ($1.5B) will purchase Private Bank of CA ($650mm) for approximately $50mm, or about 1.0x tangible book. (This is PacTrust's 3rd deal in 14 months.)

The Fannie trading desk spread the word that on September 10, "In an effort to support the Home Affordable Refinance Program and borrowers with higher LTV ratios, Fannie Mae is adding two new whole loan products for DU Refi Plus and Refi Plus loans with LTV ratios greater than 105%. With these products, lenders will be able to deliver loans with terms greater than 180 months and up to 240 months against a 20-year whole loan mandatory commitment rather than a 30-year whole loan mandatory commitment. These new products will also be added to the eCommitONE platform (terms must be equal to 240 months) for best efforts commitments: 20-year Fixed Rate, Refi Plus LTV ratio 105.01% through 125%; and 20-year Fixed Rate, Refi Plus LTV ratio >125%."

Regarding transfer fees last month, "In light of the recent guidelines published regarding private transfer fee covenants, Fifth Third has announced that it will not permit properties encumbered by such fees.  Transfer fees payable to the federal, state, or local government, and transfer fees that defray the actual costs, fall out with the definition of private and remain exempt."

Effective for all HASP Open Access loans whose applications are dated July 23, 2012 and after, Fifth Third requires the borrower to pay any additional fees on the payoff statement.  Statement delivery and recording fees, amongst others, should not be included in the loan amount and be paid off by the borrower.

US Bank has issued a reminder that all loans registered with its Home Mortgage Wholesale Division that subsequently closed must be delivered to USBHM.  As a rule, 70% of all locked loans should be delivered to USBHM, as clients who deliver less than 70% of their locked loans create hedge cost losses that are difficult to absorb.  Clients are asked to exercise diligence in monitoring their pull through to make sure that they meet this 70% requirement and risk termination if they fail to do so.

The USBHM underwriting guidelines regarding self-employed borrowers have been revised such that two years of tax returns are required regardless of AUS findings for all products apart from existing rate/term refinances, Freddie Open Access loans, and Fannie DU Refi Plus loans.  The guidelines on including an Undisclosed Debt form in the initial credit package have been updated as well.

The U.S. economic news did not result in much market movement yesterday. Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, higher than the estimates calling for 365,000. The four-week moving average, a less volatile measure, increased to 368,000. And New Home Sales climbed 3.6% to a 372,000 annual pace, following a 359,000 rate in June that was higher than previously estimated.  Last month's rate was the same as in May, which was the strongest since April 2010. Given the current thinking that the Fed will add more stimulus, the 10-yr was up (better) by .25 in price and closed at 1.67%.

This morning Durable Goods came in at +4.2%, Ex-transportation -.4%. There is not too much other news, and in the early going on this summer Friday we find the U.S. 10-yr down to 1.66% and MBS prices are unchanged.

(Late breaking news.)
TAMPA - With the threat of Hurricane Isaac hitting Florida next week, the Republican National Committee took the extraordinary step today of moving their 2012 National Convention to the seventeenth century.
While the decision to send the convention four centuries back in time raised eyebrows among some political observers, R.N.C. spokesperson Harland Dorrinson downplayed the unusual nature of the move.
"After exploring a number of options, we decided that moving to the seventeenth century would cause the least disruption," he said. "We're not going to have to change a thing."
Mr. Dorrinson added that despite recent controversy involving the U.S. Senate candidate Representative Todd Akin (R., Miss.), there would be no modification of the Party's official platform: "After we ban abortion in cases of rape and incest, we're going to focus on America's spiraling witch problem."

(Thanks to the Borowitz Report for this one.)