Broker's Share of Biz Drops; Fannie & Freddie Update Policies Including QM/ATR, ULDD, and Fees
There is a lot of continued controversy and focus over the various compensation plans for loan officers and regulatory audits. Obviously, these comp plans must eventually go through a company's HR department and in-house legal counsel. The MBA is hosting a 1.5 day Human Resources Roundtable for those in charge of incentive plan design and those who must approve and administer plans and/or ensure compliance with the regulations. Top law firms such as Weiner Brodsky and Ballard Spahr will be participating, and attendance is limited to ensure adequate Q&A opportunities. Here is the agenda. This roundtable is offered primarily to companies that participate in the Mortgage Banking Compensation Survey Program, but here is the registration.
A week ago this commentary noted, "Rob, I keep hearing about Fannie Mae and Freddie Mac, i.e., the FHFA, wanting to encourage 'private money' coming back into lending. How are they doing that?" And I wrote, "There are two major tools at their disposal: guarantee or guarantor fee (gfee) and loan amount. It is widely anticipated that a gfee increase announcement will happen before too long, probably giving lenders a few months to prepare. And the general feeling is that the agencies will increase gfees to the point where they think private capital would have to be compensated to assume more risk. But loan amount changes could also be in the cards. Taken to an extreme, if F&F lower loan limits to $100k nationwide, think of what that would do to residential lending! No group is going to be in favor of that, mind you, but it is an option." I continue to receive questions about potential gfee increases, loan amount decreases, loan level price adjustment changes, and the relentless adverse market fee of .250. Ask your Fannie and Freddie rep about the certainty of these things, as I don't claim to have any inside knowledge. But I do know that F&F announced some major upcoming changes regarding QM (ability to repay) polices to procedures, and I explain those a few paragraphs down in the investor section.
There is a big swing toward retail origination, although many argue that the death of the mortgage broker has been greatly exaggerated. I would tend to agree, and many look at the mortgage broker as a strong model to build their business on and use this model to reach consumers. Certainly there are non-bank wholesale shops anxious to pick up market share vacated by larger lenders. That being said, mortgage brokers that use table funding saw their production market share fall to 9.7 percent in the second quarter, matching the yearly low established in 2011, according to a new analysis and ranking by Inside Mortgage Finance. Per the study the retail share reached an all-time high of 64.6 percent in 2Q, with correspondent coming in at 25.7 percent, one of the lowest shares in several years. "The surge in retail production appears largely tied to ongoing strength in refinance activity. But lenders that are turning their attention to the purchase-mortgage market should consider that correspondents (34.8 percent) and brokers (22.0 percent) had higher concentrations of purchase loans than retail producers (19.3 percent) during the second quarter, based on Fannie Mae/Freddie Mac figures compiled by IMF. I don't have a subscription, but the full story is here.
Hey, if you have $3-4 billion, how about helping Weyerhaeuser out and buy its home building unit? Yes, with builders on the upswing it will be interesting to see where it trades.
Let's continue on with investor, vendor, training, and agency updates!
Fannie recently noted that as the lending market turns its attention to adjustable rate mortgages, and more specifically to cap structure, it is important to note that Fannie Mae accepts delivery of both 2/2/5 and 5/2/5 cap structures on 5/1 ARM's. However, in the mortgage-backed securities market, 5/1's with the same coupon but different cap structures trade differently. A 5/1 with a 2/2/5 cap structure generally trades behind a 5/1 with a 5/2/5 cap structure due to the potential for the investor to forgo yield when interest rates rise. According to Fannie Mae's trading desk, currently 5/1s with a 2/2/5 cap structure are priced back 20/32nds (or -.625 pt.) vs. same coupon 5/1s with a 5/2/5 cap structure. FNMA believe an increase in 5/1 (2/2/5) issuance will lead to more liquidity in the product which may improve pricing levels vs. the 5/2/5 structure. Since 2012, issuance of FNMA 5/1s has been nearly $13B, with almost all the production, 99%, being in a 5/2/5. This is mainly attributable to the fact that, when rates rise, a lender who wishes to make the same return may need to offer a higher rate on a 2/2/5 vs. a 5/2/5, given the pricing differences that exist in the marketplace today.
Vantage Production, LLC, the mortgage industry's premier provider of customer relationship management (CRM) solution that delivers superior marketing, sales and content, announced that GSF, a leading wholesale, retail and consumer direct lender, has selected Vantage's Integrated Production (VIP) to improve the effectiveness and efficiency of sales and marketing across all of its businesses.
The Ohio Mortgage Bankers Association will be presenting a regulatory training class for non-depository LOs entitled "Comprehensive Loan Origination under the CFPB" in Cincinnati, OH on September 4th. Loan officers will get a review of compensation, Truth in Lending, RESPA, ECOA, HMDA, the Safe Act, advertising rules, and Fair Credit Reporting Act. The same training will also be available in Cleveland on October 2nd. Contact omba@ohiomba.com for more details and registration info.
The New Mexico Mortgage Lenders Association, in conjunction with Fowler Financial Education and Consulting, is presenting its SAFE Comprehensive Continuing Education day on September 19th in Albuquerque, NM. This eight-hour course satisfies all CE requirements for New Mexico loan originators and includes a 90-minute training session for the Uniform State Exam. More information can be found on the NMLSA's website.
This year's New England Mortgage Bankers Conference is scheduled for September 18-20th in Newport, RI. Along with training with reps from the GSEs, a wide variety of topics will be covered, including servicing released products, consumer advocacy, responsible lending, state banking audits, top fair lending concerns for the coming year, and realtor partnerships. For more information and registration links, reach out to any of the participating state MBAs.
The Washington Association of Mortgage Professionals is holding its annual Business and Humanitarian Leadership Awards night on October 18th in Seattle, for which nominations are still open. Submit nominations here.
The Texas Mortgage Bankers Association will be hosting its annual Education Seminar and Marketplace in Dallas, TX on November 12th and 13th. This year the program, which includes both separate sessions for operations and sales as well as general sessions on technology and compliance, will focus on improving the efficiency of internal processes and features a best practice forum of prominent Texas CEOs. Register Here. Marketing opportunities are available as well; refer to the sponsorship form here.
A quick note on Mortgage Harmony. In Saturday's edition it was noted that "Mortgage Harmony and Denver-based LenderLive have entered into an agreement whereby the former will begin servicing the latter's loans. In addition, LenderLive will offer the HarmonyLoan product, a consumer-initiated interest rate-resetting mortgage with a recurring LO comp structure, to its borrowers." The "former" and "latter" were backwards, and LenderLive will be servicing HarmonyLoans.
Yesterday Fannie and Freddie announced updates/refinements to their policies and procedures dealing with QM. Here is Freddie's bulletin, for example: "To help you prepare for the Consumer Financial Protection Bureau's (CFPB) final rule implementing the ability to repay (ATR) provisions under the Truth-in-Lending Act, we are announcing updated mortgage eligibility requirements in today's Single-Family Seller/Servicer Guide (Guide) Bulletin 2013-16. The Guide Bulletin supports the announcements we made in our May 6, 2013, and July 2, 2013, Industry Letters. With these changes we are supporting your success in today's housing market by providing further clarity of Freddie Mac's mortgage eligibility criteria.
"Review today's Guide Bulletin and the applicable Guide chapters for complete details on our revised requirements summarized below. Effective for mortgages with Application Received Dates on or after January 10, 2014: Mortgages with original maturities exceeding 30 years will not be eligible for sale to Freddie Mac. Prepayment Penalty Mortgages will not be eligible for sale to Freddie Mac. We are introducing new points and fees thresholds for mortgages to replace the existing Freddie Mac five percent points and fees threshold. For higher-priced mortgage loans, we are updating our requirements for Freddie Mac Relief Refinance Mortgages and adjustable rate mortgages that have initial periods of seven or 10 years. Mortgages with original maturities in excess of 30 years and Prepayment Penalty Mortgages must have a Freddie Mac Settlement Date on or before July 31, 2014.
"It is important to note that while Freddie Mac has established our own mortgage eligibility requirements in response to the CFPB's final rule, Freddie Mac will not make the determination if a mortgage is exempt from, or complies with, the CFPB final rule or whether a Seller's designation of the status of a mortgage under the CFPB final rule is correct. These determinations of compliance with the CFPB final rule and other applicable laws are the Seller's responsibility. Please review today's Guide Bulletin for other important information and reminders, including, but not limited to: ATR covered and ATR exempt mortgages, treatment of Freddie Mac delivery fees, mortgages evaluated through LP, application of the representation and warranty framework on the new mortgage eligibility requirements, purchase of government mortgages, Uniform Loan Delivery Dataset requirements, and changes to negotiated provisions." Here is the bulletin.
Fannie issued its own announcement (yes, they're still separate companies) HERE.
Fannie Mae will be upgrading its test environment for loan delivery on September 10th, the changes to which will allow users to log in using loan delivery production user IDs and passwords and test with DU and Appraisal Doc File ID test data.
For those interested in learning more about reverse mortgages, Fannie has published a new job aid to its Know Your Options website that specifically addresses the needs of seniors. A variety of educational information and recourse are now available here.
The market goes up some, down some. Fortunately yesterday rates were down some, basically evening out Monday's price and rate movement. Higher yield levels attracted investor interest, until they don't, and there was also a bid for quality as emerging market growth risks are increasing, until the market decides to focus on something else. Interestingly, selling production picked up, although I remain to be convinced that lock desks are terribly busy. In fact, there are plenty of rumors of cutbacks around the residential lending world - so maybe remaining personnel are busy. Anyway, the yield on the 10-yr went back down to 2.81% and current coupon agency mortgage-backed securities improved about .625.
But now it is Wednesday, and this week's main risk event is at 11AM PDT with the release of the FOMC minutes. A September start to the Fed's tapering of its asset purchases is seen as largely priced in and so further indications that it is likely to be the case should have a limited impact. There will be a lot of jawboning about the whole release of the minutes, but it will be interesting to see if the Fed lets on about cutting back on Treasury purchases or MBS purchases. We'll also have the Mortgage Bankers Association's release of its weekly report on mortgage applications; later is July's Existing Home Sales (5.15 million expected from 5.08 million last). The 10-yr closed Tuesday at 2.81%, and in the very early going this morning it is trading at 2.83% with agency MBS worse a shade.