CFPB Exam Findings; Thoughts on the CFPB and Dodd Frank Determining Underwriting; Will PMI Emerge from Bankruptcy?
Even if you had to have the borrower come back to resign a document, or you had to eat a one day extension, or locked a loan under the wrong program, it isn't as bad as this.
I am often asked, "Have you seen any CFPB exam results? Have any fines been leveled? Are the mortgage companies that have been audited, such as Stearns or Guild, under some type of secrecy order?" Well, just like the results of your IRS audit, or an FDIC exam of a bank, to the best of my knowledge the results are not made public, but here is information that will help regarding CFPB findings and fines.
I received this opinion note regarding the CFPB from an originator in the Rocky Mountain States. "I have been following the CFPB with a fair amount of attention as I am very concerned about the continuing CFPB actions as I believe that they constrain commerce through their massive regulatory net. It is easy to characterize industry concerns as being self-serving and 'the same old bank complaints.' However, as a person with 40 years in the real estate financing world, I have had many folks from both the residential and commercial banking sectors say that in the absence of clear, reasonable, and well defined regulations, everyone is sitting tight and therefore greatly limiting their lending so as not to run afoul of the regulators. The so the result is that good, qualified borrowers are not able to build their businesses or refinance to lower interest rates that frees up capital to get our economy going again. As examples, recent residential refinance we commenced for a couple ran 46 pages of disclosures before the file even went to compliance for review. Most residential refinances now run 64 days from application to closing!"
The note went on. "I cite a number of appalling CFPB issues per recent Wall Street Journal articles: (1) The CFPB has NO oversight body that it has to report to. Neither Congress nor the Fed (who ostensibly is supposed to fund its operations) has any oversight rights, nor does the Administration. (2) The CFPB can draw at will (and has and then some) 10% of the Fed's annual budget. (3) The CFPB can fine any institution (B of A paid $39.4 BILLION in fines and buy backs the year ending 7/31/12 to various government entities and then was sued for another $1 billion two months later) without any oversight or consideration of the consequence to the institutions or the economy. [Editor's note: the fines did not come from the CFPB.] As such, the CFPB and FHFA have an unlimited budget through fines and Fed draws, with no oversight! Is there another Federal institution, outside of the Federal Reserve and the US Supreme Court that has such powers and lack of oversight as the CFPB? There is no question that there were gross abuses (just read Michael Lewis' "The Big Short") but the industry has largely self-corrected (most 5 to 6 years ago). Today the US consumer and our economy are now paying the price for the indiscriminate actions of a new federal agency that accounts to no one."
I also received this note, indicative of some of the confusion out there, along with the depth that the government appears to be entering the business of making a home loan. "Do the regulators want the credit underwriting and the appraisal underwriting functions to be separated? If yes, do they want the appraisal underwriters to report into the corporate umbrella instead of the line of business? There seems to be a lot of confusion surrounding this. A number of Banks have separated the appraisal and credit underwriting functions. This comes with its own set of challenges since the two functions are so closely integrated. Now there seems to be a move afoot that Bank's audit/compliance departments do not want the appraisal underwriters reporting into Mortgage Operations. I disagree strongly as I think an appraisal underwriter needs line of business expertise. What are you hearing?" (I have not, but if you have any thoughts that can be passed along, please feel free.)
The industry expects news from the CFPB very soon on QM (Qualified Mortgages) and QRM rules, and most believe that they will not be onerous when it comes to LTV, DTI, "skin in the game," and so on. But there is still uncertainty, and I received this opinion: "Unfortunately, we are stuck with the QM rule, so how best to proceed? Determining a borrower's capacity to repay (one of the three C's of underwriting, in addition to creditworthiness and collateral) involves a number of assessments including factors such as the number of months' reserves of liquid assets, and the income left over after debts and other expenses have been paid. Such factors need to be weighed against one another, as well as against others reflecting credit and collateral. It is the entire borrower's risk profile that ultimately determines whether a loan will default or not, not simply the ability to repay. The CFPB ought to look at the automated underwriting scorecards used by Fannie Mae, Freddie Mac and the Federal Housing Administration as a basis for developing an industry QM scorecard that weighs all relevant borrower risk factors in place of a few simple rules such as maximum DTI. The CFPB could instruct lenders to manually override the model in cases where one risk factor was simply too great (a debt-to-income ratio of 55% would be worrisome no matter how high the same applicant's down payment or credit score, for example). Importantly, the spreadsheet of scenarios would be transparent to the entire market, so there would be no doubt as to whether any loan fit the QM criteria. While such an approach would not reduce the problem of the QM definition restricting credit availability, it would provide greater underwriting flexibility than a handful of capacity-to-repay factors and at least create a rule more in line with prudent practices that had been in place for years before the boom. Regardless of the outcome, Dodd-Frank did the industry and borrowers no favors in prescribing how mortgages should be underwritten."
Time to look at some recent lender, MI, and agency updates to give us a flavor for the policy and procedure trends. For full details, read the full bulletin.
Indianapolis' Stonegate Mortgage made a personnel move by hiring Rob Wilson away from Freedom Mortgage as senior vice president of loan acquisitions (TPO), and inked a deal on a lending relationship.
"Mortgage insurer PMI not likely to emerge from bankruptcy" is not a good headline to wake up to. Here is the story.
Effective for all conventional loans approved on or after November 6th, Clearpoint
Funding has revised guidelines on MGIC and Genworth mortgage insurance, foreign
income, employment leave, delayed financing, the removal of cash-out refinances
from the market prior to application, subordinate financing, multiple
mortgages, ineligible condo projects, rental income on investment properties,
transferred appraisals, limits on high balance and ARM products, verification
of employment for self-employed borrowers, escrow transfers, and mineral
rights. There have been several updates to documentation requirements and
to government programs as well; see the full Lending Guide (accessible via http://www.clearpointfunding.com/LGAArchives.aspx)
for complete details. Clearpoint Funding is now permitting conventional fixed
loans on 2-unit primary residence properties with LTVs of up to 85% and FICOs
of more than 660.
US Mortgage Corp has rolled out a new HARP 2.0 product featuring
unlimited CLTVs, LTVs over 105%, high debt ratios, and eligibility based on LP
and DU findings.
Fannie Mae and Freddie Mac have announced that they will be implementing
new requirements that will hold servicers responsible for choosing and
maintaining communication with law firms to handle their default-related legal
services, which includes foreclosures, loss mitigation, and bankruptcy
litigation. As per the FHFA's October 2011 decision, this will align the
GSEs' policies and will affect all new referrals after June 1, 2013. The
existing requirements of the Designated Counsel Program, which will be referred
to as "Legacy Matters," remain in effect until then, and servicers dealing with
default-related legal matters are permitted to stay with their current firms
until they're resolved.
Several sections of the Fannie Selling Guide have been amended, including those
on reserves, loan redelivery, premium recapture, pool purchase contracts, the
financing of real estate taxes pertaining to refinances, depository accounts,
delayed financing, outstanding collections, HUD-1 signature requirements, and
ownership of loans prior to purchase or securitization. DU Refi Plus and
Refi Plus guidance has also been updated to reflect changes to the eligibility
requirements for mortgages with investor-paid primary or pool mortgage
insurance.
Fannie has launched its new business-to-business web portal, which marks the
demise of www.efanniemae.com. All
bookmarked content will lead users to the portal.
Both Fannie and Freddie are making certain concessions in a bid to help out
those homeowners that have been affected by Hurricane Sandy. To speed the
completion of mortgage loans being processed, Fannie is temporarily loosening
up underwriting requirements for impacted borrowers and accepting documents and
maintaining pricing that was in place at the time of the storm.
Underwriting and property valuation documents are also valid for 180 days in
affected areas. In addition, Fannie is authorizing servicers to extend forbearance
for up to 12 months, provide loan modifications once borrowers are able to
resume their monthly payments, waive any late payment charges, temporarily
suspend credit reporting for borrowers receiving disaster relief, and delay the
initiation of foreclosure action.
Fortunately, through all of this, home loan rates are behaving themselves. Heck, with the Fed buying as much as they are every day, why wouldn't they? Wednesday and Friday saw basically unchanged markets, so volatility has dropped, and every Capital Markets guy likes that. And any LO who didn't lock last week, and is locking today or tomorrow, is happy they didn't lose 3-4 days of processing time when it takes so long to close a loan anyway.
This week brings a 2-yr, 5-yr, and 7-yr Treasury auction. For some reason we escaped the release of any scheduled economic news today (and none last Thursday or Friday), but the rest of the week makes up for it. Tomorrow we have Durable Goods, the Case-Shiller 20-city index, Consumer Confidence, and yet another house price index (FHFA). Wednesday is more housing news (New Home Sales) and the release of the Fed's Beige Book. Thursday we have Jobless Claims, GDP (2nd look at the third quarter), and more housing news (Pending Home Sales). Lastly, on Friday we have Personal Income and Consumption, some PCE numbers, and the Chicago Purchasing Manager's survey. The 10-yr T-note closed Friday at a yield of 1.69%, and this morning is at 1.67% and MBS prices are perhaps .125 better in price than last week.
(I know that this is a repeat, but still rings true.)
The governor from California is jogging with his dog along a nature trail. A
coyote jumps out and attacks the governor's dog, then bites the governor. The
governor starts to intervene, but then reflects upon the movie "Bambi" and
realizes he should stop because the coyote is only doing what is natural.
He calls animal control. Animal control captures the coyote and bills the state
$200 for testing it for diseases and $500 for relocating it. He calls a
veterinarian. The vet collects the dead dog and bills the state $200 for
testing it for diseases. The governor goes to the hospital and spends $3,500
getting checked for diseases from the coyote and getting his bite wound
bandaged.
The running trail gets shut down for six months while the California Fish and Game
Department conducts a $100,000 survey to make sure the area is now free of
dangerous animals. The governor spends $50,000 in state funds implementing a "Coyote
Awareness Program" for residents of the area. The Legislature spends $2 million
to study how to better treat rabies and how to permanently eradicate the
disease throughout the world.
The governor's security agent is fired for not stopping the attack. The state
spends $150,000 to hire and train a new agent with additional special training,
re: the nature of coyotes. People for the Ethical Treatment of Animals (PETA)
protests the coyote's relocation and files a $5 million suit against the state.
Whereas...The governor of Texas is jogging with his dog along a nature trail. A
coyote jumps out and tries to attack him and his dog. The governor shoots the
coyote with his state-issued pistol and keeps jogging.
The governor spent 50 cents on a .380-caliber, hollow-point cartridge. Buzzards
ate the dead coyote.
And that, my friends, is why California is broke and Texas is not.