Credit Unions Have Good Year; Refresher on Types of Loans Under Qualified Mortgage Concept

Ever wonder where your tax money goes? A tiny slice goes to the Census Bureau so it can tell us about ourselves. The latest release focuses on housing, a good resource for anyone putting together a presentation: "American Housing Survey for Selected Metropolitan Areas: 2011 Detailed Tables" has dozens of detailed tables on the characteristics of housing in 29 selected metro areas are now available in Excel files and the Census Bureau's American FactFinder data access tool. A wide range of topics is covered, including plumbing and source of water and sewage disposal, housing problems, householder's satisfaction with home and neighborhood, value, purchase price and source of down payment, recent home improvement activity and costs, safety features and potential health hazards, features in home providing accessibility to people with disabilities, and socio-economic characteristics of the householder. The American FactFinder can be found here.

Credit unions know a thing or two about housing, and like many others, in 2012 they made more money than ever.

Milford, CT based Total Mortgage Services, LLC is an expanding mortgage banker that was founded in 1997 and is now licensed in 27 states. Total Mortgage is looking to hire a Loan Servicing Manager with three years of experience and working knowledge dealing with Ginnie Mae, Freddie Mac and Fannie Mae. Candidates must be familiar with agency guides governing sub-servicer responsibility for investor reporting, collection timelines and loss mitigation. In addition, candidates need to be versed with the FHA, VA and RD claim process. The position is based in Milford, CT, however for the right candidate an off-site structure would be considered. Send your resume and cover letter including salary history to careers@totalmortgage .com. Total Mortgage is an Equal Opportunity Employer. For more information on Total Mortgage Service please visit totalmortgage.com.

Crescent Mortgage Company is expanding into Northern California and is seeking to add an Account Executive to cover Community Bank and Credit Union accounts. Crescent is also seeking to add an Atlanta, GA based inside sales representative. Crescent Mortgage is a bank owned wholesale and correspondent lender celebrating its twentieth year of operation. Currently doing business in 43 states, National Mortgage News ranks Crescent as a Top 25 Wholesale and Top 20 Correspondent lender. You can visit its website at crescentmortgage.com. Confidential inquiries should be submitted to Fowler Williams at fwilliams@crescentmortgage .net and include resume and cover letter.

Liquidity is a very important issue, and in fact some say liquidity is more important than credit for the lending industry. When the liquidity crisis happened after the Lehman Brothers bankruptcy, the Federal Reserve took over some of HUD's powers and adopted a rule under the Truth in lending Act which, in essence, prohibited lenders from making subprime loans without assessing the borrowers' ability to repay the loan. Subsequently, Dodd-Frank required that this be expanded to mortgages other than subprime. We all know that Congress also established a presumption of compliance for a certain category of mortgages, called "Qualified Mortgages" (QMs) and the guidelines, which are slated for January of 2014, can be found here.

As a quick refresher, at a minimum, creditors generally must consider eight underwriting factors: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. Creditors must generally use reasonably reliable third- party records to verify the information they use to evaluate the factors. The rules prohibit loans with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years from being qualified mortgages. The industry, as we know, has moved away from most of these already (when was the last time you saw an ad for a neg am?) although we still have interest only loans and loans with 40 year terms. And many, including myself, and make the case for a small group of borrowers benefitting from IO loans, for example people with spiky income such as real estate brokers, or people with income about to increase such as interns soon to become doctors.

Why am I rehashing all of this? Well, the general feeling is that QM loans will make up the bulk, if not the entirety, of agency securities, leaving the non-QM loans to fill the non-agency securities or portfolio products. And what lender will want to expose themselves to potential future lawsuits by not following QM guidelines? The strict definition of a QM affords protection to both the borrower and the lender. From the point of view of lenders there will be, under these rules, 3 categories of mortgages. The first is Safe Harbor QM loans. These are loans meeting the 8 requirements and which are first lien loans having an interest rate of less than 1.5% (or 3.5% for subordinate lien loans) higher than the average prime offer rate available. From what I have heard, lenders will be entirely safe sticking with these.

The second category is QM Rebuttable Presumption Loans. These are QMs that qualify for a rebuttable presumption of compliance as protection from the same penalties and liabilities as Safe Harbor loans. These are first lien loans which have an interest rate equal or greater than 1.5% (or 3.5% for subordinate lien loans) above the average prime offer rate available in the vicinity ("Higher-Priced Loans") and which meet the QM requirements. Such loans would be subject to a rebuttable presumption that the lender satisfied the ATR requirements. Lenders I have spoken with view these loans as "iffy" in terms of potential future liabilities.

Lastly, the third category is Non-QM loans. These afford the lender no legal protection against suit by the borrowers. Lenders who originate these may try to beef up disclosures, borrower education, and so forth in order to lessen the risk of potential problems in the future. No one is making them illegal, just like not wearing a bike helmet when you're an adult is not illegal - but is it wise? Evidence shows that many IO loans, however, are jumbos, so we could see some changes.

And here is another reminder that the QM rules call for a 43% maximum debt ratio which is lower than the current maximum debt ratio for both FNMA (44.99%) and FHLMC (49.99%). In order to ease into these new ratios the rules allows the GSE's to set their own max debt ratios for the next 7 years. And they can be for a primary residence, second home, investment property but not time shares. (Hey, I bought a deeded time share in the last few years on the resale market - a great deal on a great model!)

It may well be the case that the set of lenders willing to do QM Rebuttable Presumption Loans decreases substantially. In effect the government may well be curtailing subprime (certainly non-QM) lending, resulting in another wave of government pressure for lending down the credit curve, as we saw ten years ago with the fabled National Homeownership Strategy. But ask anyone in the industry - not everyone in society should own a home.

So in the near future, we can watch as the definition of "safe harbor" QM lending leads to private securitization of what are now conforming loans. We are a few years from this but with FNMA and FHLMC in receivership, private securitization will be on the upswing.

Investors know a lot about liquidity, and QM versus non-QM loans. Let's go to some relatively recent investor updates that may be of interest to folks. As always, it is best to read the full bulletin, but these will give you a flavor for the trends.

JPMorgan Chase sent out a note to clients regarding the process of releasing liens on charged-off loans. "This letter shall constitute notice that JPMorgan Chase Bank National Association ("JPMCBNA") will begin the process of releasing the liens on loans reported as charged-off in our monthly data files ("Servicer Reports") and will release the liens on loans reported as charged-off on all Servicer Reports on a going forward basis. Consult your tax advisor as to tax reporting obligations. You are receiving this notice because you are in the role as trustee, master servicer or owner for loans being serviced by JPMorgan Chase Bank National Association for (certain) deals." (Attached was a list of the impacted loan population, found on the monthly Servicer Report, and a recent court decision in IVIASTR Asset Backed Securities Trust 2006-HE3 v. WMC Mortgage Corporation.) "This will occur unless you notify us of your instructions to transfer servicing of the charged off loans within 30 days of the date of this letter. A group email box has been established to receive these instructions - trusteetransfer.nctice@chase .com. Please note that unless we receive a direction with instructions to transfer servicing, we will begin the process of releasing the liens of charged-off loan."

Freddie Mac has updated its selling system to allow users to edit, save, and re-price best efforts data changes and has added drop down menus for AUS recommendation and country codes.  For more information and training opportunities, see here.

US Bank has begun accepting FHA Streamline refinances for which it is not the servicer and Delegated Correspondents who use their own Direct Endorsement authority.  Along with current guidelines, such transactions require verification of income, verbal verification of employment or verification of the existence of self-employed borrowers' businesses, verification of any funds needed to close, 12-month history of no late payments, and credit scores of at least 680.  A maximum of 30 days' interest may be included in the payoff of the loan being refinances, and all transactions are subject to a 50bps price adjuster.  This option is available for 1-4 unit primary residences and second homes only.  To register FHA Streamline refinance loans, a change request must be submitted through the SellUS website.

GMAC has changed its pricing for LLPAs, including adjusters for FICO scores between 720-750 for loans under $1 million, FICO scores less than 750 for loans between $1 and 5 million and between $1.5 and 3 million, 2-unit properties, and second homes.  All changes apply to fixed rate products.

Turning to the markets, stocks grabbed all the headlines yesterday with new records being set. "Critics" can't quite understand it, given the sequestration, our economy continuing to bump along, continued problems in Europe (it is in a recession), a possible Chinese housing bubble, and so on - but recently the markets have taken the "glass half full" view. Mildly interesting is that in spite of stocks shooting higher, our rates have hardly budged. One trader, in "traderese", noted "The inability for US Treasuries to leak lower in the midst of equity strength likely points to a solid short-base present in the market, which should keep the range tight for the next couple trading sessions." There was certainly no market reaction to the FHFA news about future plans to consolidate the securitization platform for Freddie & Fannie - it was well expected. As usual, the Fed and REITs soaked up whatever below-average supply was out there. But the time the dust settled, MBS prices were nearly unchanged and the 10-yr was at 1.89%.

Scheduled economic news, which may likely nudge rates one way or the other, picks up a little today. How 'bout that weekly application number from this morning! Last week apps picked up nearly 15%. Both purchase & refi apps were up almost 15%, and refi's still account for 77% of total applications. We'll have the February ADP Employment, always released prior to the government's unemployment data. It is projected to decline to 170k from 192k in January. We'll also see February Factory Orders (-2.2 percent versus +1.6 percent last) and the Fed's Beige Book at 2PM EST which will provide economic anecdotes from around the 12 Districts in preparation for the FOMC's March 19-20 meeting. Early on the 10-yr is slightly higher at 1.92% and MBS prices are worse by about .125.

How about a little mid-week trivia?

Q: Why do men's clothes have buttons on the right while women's clothes have buttons on the left?
A: When buttons were invented, they were very expensive and worn primarily by the rich. Since most people are right-handed, it is easier to push buttons on the right through holes on the left. Because wealthy women were dressed by maids, dressmakers put the buttons on the maid's right! And that's where women's buttons have remained since.
Q: Why do ships and aircraft use 'mayday' as their call for help?
A: This comes from the French word m'aidez -meaning 'help me' -- and is pronounced, approximately, 'mayday.'
Q: Why are zero scores in tennis called 'love'?
A: In France, where tennis became popular, round zero on the scoreboard looked like an egg and was called 'l'oeuf,' which is French for 'egg.' When tennis was introduced in the US, Americans (mis)pronounced it 'love.'