Economic Numbers are Good, but Mortgage Industry Contracting; LoanDepot & iMortgage to Tie the Knot
Many parents of young adults grapple with the, "Do we help little Sage buy a home, or let him rent?" question. The Wall Street Journal reports 37% of adults under 35 years old currently own a home, down 12% from 5 years ago. That is not great news, nor was the news yesterday from the MBA confirming what lock desks everywhere already sensed: mortgage applications in the U.S. dropped last week to the lowest level in more than two years. The index was -4.6%, and down to the lowest level since April 2011. Of particular interest to any company that built its business model on refis was that the refinance component fell for the 10th consecutive week (down nearly 8%). The fact that purchases were up about 1% was small consolation. The share of applicants seeking to refinance dropped to about 61% percent, also a two-year low.
Wells Fargo is cutting 2,300 jobs from its mortgage production unit. (Other lenders have cut staffs as well, like Florida Capital letting some, or most, of their AEs go and moving to a more centralized model and cutting back at a facility in Pennsylvania.) Per one story, the cuts, primarily in the retail sector and barely, if at all, touching correspondent, equal about 20 percent of the 11,406 mortgage loan officers employed. "Employees received 60 days' notice today and the bank is trying to retain as many as possible by finding them other jobs at the company."
It is hard to argue with the good economic news that the press, regulators, Congress, and the public sees in the media, although lenders are hunkering down. For example, the USDA, in its annual report, found the average value of all land and buildings on farms and ranches increased to $2,900 per acre as of Jun vs. $2,650 a year earlier. (The most expensive farmland was NJ as $12,700 per acre and the least expensive was NM at $550.)
Yesterday we learned that Existing Home sales continued to improve, climbing by 6.5% in July, more than forecast and to the fastest pace since November 2009. Prices increased 13.7% from a year earlier. Lawrence Yun, NAR chief economist, said changes in affordability are impacting the market. "Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines," he said. "The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers." Despite higher mortgage interest rates, Yun identified compensating factors that can sustain a continued recovery. "Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall." Toll Bros. Inc., the largest U.S. luxury-home builder, reported a jump in quarterly sales and orders as prices climbed amid a rebounding U.S. housing market. And this week Toll Brothers told everyone that its revenue for the three months through July increased 24 percent, and its orders rose 26 percent to 1,405 houses, exceeding analysts' estimate for 24 percent growth.
Correspondent investors such as Wells, Chase, and Citi are dealing with dozens of mergers across the nation. The largest one to date was announced yesterday as loanDepot and imortgage, besides having two of the most bizarrely spelled names in the industry, announced their marriage. Given past production numbers the merger will create the third largest private, independent retail mortgage lender in the U.S. But those are using past numbers, and the overwhelming bulk of their loans, especially loanDepot's, were refis - how will the new entity do in a purchase market? Regardless, past stats indicate $15 billion of annualized production, 2,200 employees (they could double that by hiring what Wells just "transitioned"), 700 loan consultants, and 60 branches. imortgage has been around 14 years, loanDepot only three, and imortgage favors the purchase biz through its 56 branches. "Joining forces with loanDepot will accelerate imortgage's aggressive national growth plans by leveraging loanDepot's 50 state footprint, competitive pricing, servicing capabilities, and direct agency approvals with Fannie Mae, Freddie Mac and Ginnie Mae."
I continue to be asked about the FHA and possible disclosure issues, and the memo that Wells Fargo sent out a couple weeks ago stating non-compliant loans would not be purchased. It looks like some lenders funded FHA loans with TILA violations, which might result in Reg Z violations, in regards to MIP. The Commissioner, Carol Galante, issued a letter last week addressing this, and suggests that more than a few lenders are not able to have their FHA loans insured and large penalties might be looming. The bulletin read, "Implementation of HUD's Mortgagee Letter on Cancellation of the Annual Mortgage Insurance Premium. FHA is aware of issues related to the implementation of Mortgagee Letter 2013-04, Revision of Federal Housing Administration (FHA) Policies Concerning Cancellation of the Annual Mortgage Insurance Premium (MIP), on-line here. "Specifically, since the effective date of this Mortgagee Letter, some mortgages have been originated using incorrect Truth in Lending Act (TILA) disclosures and/or incorrectly prepared HUD 92900-A/B forms. FHA has consulted with the Consumer Financial Protection Bureau (CFPB) regarding the impact of these issues on Regulation Z. If either error or both occurred in the origination of a mortgage, the mortgagee must resolve all errors as discussed below, before the mortgage would be eligible for FHA insurance."
It goes on. "Incorrect TILA disclosures. Where the TILA disclosures incorrectly reflected an APR calculated with annual MIP cancelation at 78% LTV, a Regulation Z violation has occurred. The mortgagee must take the necessary steps to cure this violation of Regulation Z in accordance with 15 USC § 1640. The mortgagee could choose to cure the violation by ensuring that the borrower is not charged in excess of the amounts disclosed. In order for loans with incorrect TILA disclosures to be insured by FHA, the mortgagee must cure the TILA violation and reaffirm it is ultimate responsibility for the payment of MIP based on the actual FHA policy on the payment of MIP in effect at the time, rather than the previous policy allowing cancellation at 78% LTV. FHA will require that the mortgagee satisfy their requirement to pay the MIP even after the borrower's obligation has expired. FHA is in the process of determining what specifically it will consider sufficient to satisfy the mortgagee's liability for the full expected MIP due over the life of the mortgage."
And then, "Incorrect 92900-A/B Forms. Mortgagees who originated the mortgage with incorrect information concerning the payment of MIP reflected on the HUD 92900-A/B have not complied with FHA requirements for obtaining mortgage insurance. If the mortgagee is able to secure corrected HUD 92900-A/B disclosures from the borrower(s), these mortgages may still be eligible for endorsement by FHA."
Let's just keep going with some relatively recent investor, state, and agency updates.
California's JMAC Lending announced recent changes. These included VOD's are acceptable subjects to QC, reserves can be gifted for owner occupied transactions at max 80% LTV/CLTV, late acceptances for 1x30 mortgages within 12 months subject to DU approval (excluding JUMBO), if subject is non-owner, JMAC can go up to 10 financed properties (conforming loans), MyCommunityMortgage (97% financing and all gifts allowed (refer to matrix), LPMI up to 97% with a minimum FICO score of 680, and Agency Delayed Financing Cash-Out Refinance.
The State of Maine is now requiring company registration through NMLS, which means that as of November 15th, lenders will need to deliver the NMLS ID in the Loan Originator Company Identifier field for all relevant loans when delivering to FNMA.
The FHA has proposed a new workaround for the condo market, suggesting in late July that it might consider relaxing the requirement for boards to conform to the guidelines on "transient" (short-term rental) units that demand the amendment of underlying covenants, conditions, and restrictions. The workaround itself is very simple, as all boards would have to do would be to provide a statement affirming that there are "no units in the project currently rented for less than 30 days and/or pursuant to the lessor providing any services normally associated with a hotel."
We had some volatile markets yesterday, which never do anyone much good. The economy in Europe is no longer headline news, and in fact seems to be good, Asia is quiet, and the news here continues to be solid. "Home sales have been increasingly robust since the dark days of 2009 and 2010. The powerful combination of historically low mortgage rates, revamped home prices and unleashed pent up demand are behind the steady increase. Additionally, the recent rise in interest rates has created a sense of urgency in many buyers as they look to capitalize on today's rates before they move higher."
But yesterday center stage was held by the release of the Fed minutes from its July meeting. There is still debate about if and when to taper off the purchases of fixed-income securities, most notably those made up of agency mortgages, based on employment and inflation data. But as one analyst noted, "Net net, it seems they are very much in debate mode with still little discussion around any material details of tapering. To the extent they're on the verge of a big policy shift then one (me) would expect they would discuss the details."
MBS prices were nearly unchanged from Tuesday's closing levels before the release of the FOMC Minutes from the July 31 Fed meeting. Unfortunately the reaction in MBS markets was a swift decline followed by volatility; the Dow sold off to its lowest level in nearly two months. Once again, stocks and bonds moving in the same direction.
The July Ellie Mae Origination Insight Report recorded the mix of purchase loans to refinances was 53 percent versus 47 percent. This was the largest percentage of purchase loans since Ellie Mae began tracking the data in August 2011. Jonathan Corr, president and chief operating officer of Ellie Mae, noted as well that "Credit standards continued to ease in July. The average FICO score fell to 737, from 742 in June 2013, and it is now at the lowest level since we began our tracking in August 2011. Similarly we saw slight increases in both loan-to-value and debt-to-income ratios last month-signs that lenders are willing to accept slightly more risk to maintain volume."