Mini Correspondent - The New Paradigm? Agency & Investor Updates
Are you looking forward to a day off tomorrow? Me neither - the commentary never sleeps - but agencies like HUD and the IRS do. These, and other agencies, have 4 remaining furlough days scheduled for 2013, one being tomorrow. All services will be shut down as they would be if it were a federal holiday. The furlough days currently scheduled will take place on June 14, July 5, July 22, and August 30. All public-facing operations will be closed on these dates, including the toll-free operations and Taxpayer Assistance Centers. The IRS will not accept nor return any orders on those days, however Equifax will continue to receive and prepare request for submission. Transcript receipt and turn time delays normally associated with holiday closures can be expected. The U.S. Department of Housing and Urban Development (HUD) told us that "on designated furlough days, employees are forbidden to engage in any agency-related activities and all HUD/FHA Offices will be closed."
Profits are the name of the game in any capitalist society, and lots of companies had great volumes and profit margins in 2012, some of which spilled over into first half of 2013. What about the second half of 2013? Besides companies cutting margins (at all levels, corporate, branch, and LO) the chatter out there is around wholesale hybrid models. "Rob, just when I have learned the three origination channels (retail, wholesale, correspondent) along comes something called 'mini-corr.' What is it, how does it work, who underwrites the loan, draws the docs, and funds it? What happens if a loan goes bad? Does the CFPB exempt two businesses engaged in mini-corr business from its rules and regulations? As a broker, why should I do this?"
Of late there seems to be a lot of discussion around the broker model converting to a "mini correspondent" model based on certain changes in regulation. Based on the basic transaction, the mini correspondent model is no different than the broker / wholesale model whereby the investor continues to underwrite, condition, and issue closing instructions as done in the broker / wholesale model. The difference comes in around the name the loan closes under and who funds the loan. While the wholesale investor continues to issue the closing documents, the closing is done in the name of the broker who then funds the loan with their own warehouse facility. There is a small risk should any action occur at closing which could impact the marketability of a loan, the wholesale investor may not purchase the loan. Other than this, the reps and warrants which apply to a broker loan mirror the reps and warrants to a mini correspondent loan.
Many companies have been offering something like this for years, if not decades. Others are skeptical, and suggest that the only advantage they can see at this time for a broker to convert to a mini correspondent is it provides them more control over the transaction closing. Further it is the next logical step toward moving from a broker to a true delegated correspondent lender. Different players in the market have different mini correspondent models. For example, some allow the "broker" to prepare the closing docs. Some provide the broker the warehouse line. A broker that moves to the mini correspondent model may not achieve the relief on the 3% fee cap they are seeking since that cap applies to the lender and the lender is typically defined as the entity making the credit decision. And keep an eye on net worth requirements - lower net worth requirements for mini correspondent lenders allow the broker to grow their business slowly.
From Texas, Greg Chaffin (FirstFunding) notes, "I have been selling the 'Mini Correspondent' Channel for about 10 years. The mini correspondent channel is not all about avoiding the 3% fee cap. The primary reason many brokers make the transition is that they are able to take control of their income, price transactions competitively and pass through cost. Regarding your other assertions - Not all investors require a higher net worth and licensing requirements vary by state but here in Texas the requirements are the same. I am unaware of a mini correspondent channel that allows the originator to underwrite and most require the outsourcing of the compliance and data audits to ensure a compliant closing. There are higher accountability standards but there is also the opportunity to grow profits and capture more business."
Let's play some catch-up on agency, investor, MI, and lender news from the last week or two. The trend seems to be toward a slight loosening of credit requirements, but that is just a sense. But certainly net worth, pricing, and documentation requirements are not showing much letting up.
The industry is pretty much expecting higher gfees at some point this year, which certainly pushes the general mortgage banking industry toward using more private money. In the meantime, Adam Q. from Thomson Reuters reports on Fannie's Lender Forum. "Am getting lots of feedback but the Reservation G-Fee program and new BU/BD grids are a hot topic. High-level color is FNMA has been piloting a G-Fee commitment program. Basically you commit to a delivery amount (for 1 month up to 6 months) and FNMA locks-in your G-fee over that period. Doesn't protect you from FHFA policy changes but FNMA will supposedly start allowing lenders to negotiate their BU/BD grids (like the good ol' days?). Pair-off costs are obviously huge if you can't fill trades. While we've been hearing about this for a few months, details have yet to be confirmed."
A new "Data Validation Center Loan Review" report for Fannie Mae's Message Manager will be available on and after June 15th. The report provides lenders with a monthly list of loans that have been selected for post-purchase review and have potential data issues. More details HERE.
Ginnie Mae is considering revising its policy that allows the purchase of loans out of GNMA pools in cases where the borrower fails to make any payments for three consecutive months. The new requirement could use the application of payments to the loan record in place of the current one, which is based on the borrower's action, to determine eligibility. Further details on how Ginnie would implement the proposed change are available HERE.
In lights of the FHA's recent changes to Annual MIP, Wells Fargo reminds sellers that credit-qualifying FHA Streamlines are allowed on Higher-Priced Mortgage Loans but that any such non-credit qualifying transactions are not.
Effective for all Agency products, Citibank will be changing its Single Loan Mandatory price adjusters that appear in the "Additional Price Adjusters-All Products and Programs" section of its daily correspondent rate sheets. An Agency price adjuster of .06 will apply to 15-day mandatory locks; .11 to 30-day locks; and .16 to 45-day locks. This will apply to all relevant locks taken on or after June 17th.
US Bank has expanded the guidelines for its Conventional Non-Conforming, Elite LIBOR ARM, and Elite Treasury ARM products to allow financing up to $1.5m at 65% LTV on 1-unit second homes and increase the maximum TLTV by 5% for secondary financing that is not sourced by USBHM. The LTV/TLTV limits on loan amounts from $650,000-$750,000 and from $1-2 million have been expanded for 1-2 unit primary residences as well. The minimum FICO for LTVs of 65% or less has been changed to 680, while 65-70% LTV transactions require a score of at least 700 and LTVs of 70% and over require a minimum FICO of 720. In terms of state-specific requirements, the declining markets restriction has been removed for Michigan, and condos are now in allowed in Florida with a full PAD review on primary residences and second homes provided that the LTV/TLTV/HTLTV is 75% or less.
Effective immediately, US Bank has begun accepting FHA rate/term refinances with a different servicer.
Per the recent Freddie update, US Bank is now allowing Streamline Reviews on Super Conforming condo mortgages. USBHM Underwriting and the Project Approval Department are also removing the requirement for detached condos to be reviewed for Agency loans.
Provident has made a number of guidelines changes and is no longer requiring the submission of federal tax returns for the previous two-year period for borrowers who received commission income that is not used to qualify. Fiancés/fiancées have been added as eligible gift fund donors, and "early termination" penalties have been added to the restriction on secondary financing with prepayment penalties are not permitted. The 5/1 LIBOR ARM guidelines have also been updated to remove the 5/2/5 cap structure and add the 2/2/5 structure for Standard Conforming and Super Conforming products.
Last week, REMN launched its Community Banks and Credit Unions channel, which was designed specifically with independent local lending institutions in mind and will focus on mortgage products and infrastructure in such a way that that they won't risk having big banks lure away their customers for their non-mortgage needs. Business Development Manager Brian Joy will head the new division.
Following up on the recent expansion of its hazard insurance premium requirements for refinances, Fifth Third has clarified the guidelines by removing the requirement that the borrower must pay one year premium if the closing date is less than 60 days from the renewal date. The updated guidelines state that the policy must be current and in effect for a minimum of 60 days after closing.
Given that there was no substantive news on Wednesday, it was a relatively volatile day in the bond market - which of course includes mortgage-backed securities. The good ol' 10-yr T-note had a half point price range, finally closing at 2.23%, and MBS prices finished worse by nearly .375 versus Tuesday's close. But traders reported, once again, below-average sales volumes, and as long as Fed & investor demand is decent, agency MBS prices should hang in there relative to their Treasury cousins.
Today we have more news upon which to chew. (One can't end a sentence in a preposition, right?) Later we'll have a $13 billion 30-year bond auction, but we've already had Initial Jobless Claims (expected +345k versus 346k, were down 12k to 334k), Import Prices were -.6%, and Retail Sales were surprisingly +.6%, and ex-auto & gas, +.3%. In the early going rates are roughly unchanged with the 10-yr at 2.22% and agency MBS prices perhaps a shade better (I know - a highly technical term).
WRONG E-MAIL ADDRESS
A Minneapolis couple decided to go to Florida to thaw out during a particularly icy winter.
They planned to stay at the same hotel where they spent their honeymoon 20 years earlier.
Because of hectic schedules, it was difficult to coordinate their travel schedules.
So, the husband left Minnesota and flew to Florida on Thursday, with his wife flying down the following day.
The husband checked into the hotel.
There was a computer in his room, so he decided to send an email to his wife. However, he accidentally left out one letter in her email address, and without realizing his error, sent the e-mail.
Meanwhile, somewhere in Houston, a widow had just returned home from her husband's funeral. He was a minister who was called home to glory following a heart attack.
The widow decided to check her e-mail expecting messages from relatives and friends.
After reading the first message, she screamed and fainted.
The widow's son rushed into the room, found his mother on the floor, and saw the computer screen which read:
To: My Loving Wife
Subject: I've Arrived
Date: March 19, 2009
I know you're surprised to hear from me.
They have computers here now and, you are allowed to send emails to your loved ones.
I've just arrived and have been checked in.
I've seen that everything has been prepared for your arrival tomorrow.
Looking forward to seeing you then!
Hope your journey is as uneventful as mine was.
P. S.: Sure is freaking hot down here!