CFPB Unleashes Amendments to ECOA, RESPA, and TILA; is The FHA Doing Better or Isn't it?
Friday I had a blurb in the commentary about using income generated from growing marijuana in underwriting a loan. I received this note: "Regarding income from pot growers, if you have a Schedule F (farm) income for 2 years, you have farm income to use. It does not say 'pot growers'. If these pot growers do not claim their income (tax evasion), then you can't use it. Here in Nevada I have provided mortgage loans to 'ladies of the night' - a legal profession in some counties. They had a W-2 like any other job. Now, we called it 'entertainment' and "service provider' rather than the usual crass street terms. The ladies had good credit and down payment money, and it worked just fine." Ah, life for lenders out West!
Brideen Gallagher, Managing Director of the Collingwood Group, writes, "I just wanted to bring to your attention to last week's HUD OIG testimony and our views on it. Karen Garner, my colleague at Collingwood, notes that it is important for the 'large' FHA originators to know that the HUD OIG and Department of Justice are not through issuing subpoenas, examining loan files and asking for BIG settlements. But this should put everyone on alert - who says that they will stop here? Could be they will just continue going down the list of FHA lenders moving from large to mid-size originators. Due to the current enforcement regime, all lenders need to be sure they are producing quality loans, have a robust quality control effort and are self-reporting material findings. The files being subpoenaed, based on our experience, are all claim paid so that they can use the False Claims Act authority to request treble damages and/or Civil Money Penalties. If you are one of the lucky ones to get a subpoena - send them what they requested and immediately start your own analysis - or hire a highly experience team of FHA experts - to review the same loans. Past history shows us that the defect rate that the OIG and DOJ team will develop is likely at least two or three times the defect rate that an FHA expert would find. We have done a significant amount of work assisting lenders in this regard." Here is the link to the site from the testimony on the 10th.
Speaking of HUD, I received this question. "Rob, I have heard that the FHA's performance is one the great stories of the year, and that the quality issues of the FHA are way behind them. Do you know anywhere I can do my own research?" You bet. To keep things in context, a few months ago it was being shown that for the portfolio, the total delinquency and serious delinquency rates had each declined at least 15% from their peak delinquency levels. For recent originations, the improvement was even better. FHA's early default and claim rate has fallen below 1% for the first-time in the 14-year history of Neighborhood Watch history. It was never below 2% until 2011 and has declined steadily since then. Some analysts say that the early default data underscores the impact of FHA's exceptional credit quality - credit scores hovering around 700 since 2010.
But it is better to "drink directly from the source." The MBA's Mike Fratantoni writes, "HUD has reformatted and consolidated some of their old reports into three new monthly reports. The most recent posted reports are from June. See the loan performance trends report for the DQ rates. For originations trends that include high level summary stats and some cross tabs on endorsements by loan amount, LTV, and credit score, and a table with EPD by loan vintage, one can go here. For loan performance trends - historical IIF counts with 30-, 60-, and 90-day delinquency, in foreclosure, in bankruptcy, and seriously delinquent rates, 90+ day counts by reason for delinquency (reduction in income and excessive obligations were the top two) and other interesting breakdowns by loan purpose, credit score, vintage, property type, go here. And its monthly production report showing portfolio changes, borrower and product characteristics, HECM and MF information etc. (most similar to the old FHA Outlook reports) go here." Thanks Mike!
Of course, not everyone agrees that the FHA is doing well. Ed Pinto, Resident Fellow with the American Enterprise Institute, writes, "In 1997 and 2002, the National Training and Information Center (NTIC) published studies confirming earlier criticisms of the Federal Housing Administration's (FHA's) weak underwriting and program management practices going back to the early 1960s. FHA Watch undertook to replicate the NTIC's 2002 research on the same 22 cities at the zip code level using a 2.4 million FHA loan database. This new study confirmed that the FHA's underwriting policies continue to disproportionately impact homeowners in low-income and minority zip codes. This is in large measure attributable to FHA's failure to underwrite for risk or recognize the challenges faced by home buyers in neighborhoods with large concentrations of credit-impaired households. Use this link: FHA Watch, Vol. 2, No. 8, August 2013."
On Friday the 13th the CFPB released the final amendments to the Loan Officer Compensation, Servicing, QM and HOEPA Rules. The official release can be accessed through the link at the bottom, a quick overview of changes include.....Seller Points and Payments: Seller paid points are excluded from the points and fees calculation for both the QM and Home Ownership and Equity Protection Act (HOEPA) calculation. Seller payments for third party charges, however, that are included in the calculation such as loan originator (brokerage) compensation remain included in the calculation.
Loan Originator Definition: The definition of "loan originator" under the LO Comp rule is clarified so that administrative employees, greeters, tellers and others that do not substantively discuss loan terms with potential borrowers are not to be treated as loan originators for purposes of the LO Comp rule.
LO Comp Implementation: The implementation date for most of the LO provisions is moved from January 10, 2014 to January 1, 2014.
Rural and Underserved Areas for Smaller Creditor QM: The rule revises exceptions that allow all smaller creditors meeting the rule's requirements to make QM balloon loans regardless of whether or not they operate in rural or underserved areas.
Credit Life Insurance: The rule clarifies the prohibition against a creditor's financing up front credit insurance premiums under earlier rules including when premiums are considered to be monthly for purposes of the exclusion from the prohibition.
Changes to Loan Servicing Provisions include.....First notice or filing: The CFPB initially proposed to define first notice very broadly to include any document that would be used as evidence of compliance with state foreclosure proceedings. The CFPB revised its interpretation to more closely track the FHA definition.
Short-term forbearances: The CFPB is generally adopting its provisions creating a general exclusion for short-term forbearance from the prohibition on offering loss mitigation based on an incomplete application as proposed.
Designated address for notices of error and information requests: The CFPB took the recommendation of the MBA that the proposed designated address requirements were overbroad and would have been unduly burdensome. The final and complete CFPB rule can be accessed here:
A copy of the final rule can be found here. And don't forget that the Bureau has published a Regulatory Implementation website, which consolidates all of the new 2013 mortgage rules and related implementation materials, and can be found here.
Let's move on to some upcoming events, many of which involve learning things: a good idea! In no particular order:
On Wednesday the 18th, from 10-11AM PDT, California wholesaler JMAC Lending is having training for mortgagee letter 2013-26 for "Back to Work."
In Northern California, the East Bay chapter of the California Association of Mortgage Professionals (CAMP) is having a luncheon on September 26th, "Understand Next Round of Change for 2014!" Law firm Medlin & Hargrave will give "An overview on QM (Qualified Mortgage), ATR (Ability to Repay) and the 3% cap on fees." There are several other speakers of note, and for full details go here.
I'll probably get into hot water for mentioning it, since I think it is way oversubscribed, but the Mortgage Bankers Association of the Carolinas is having its annual conference soon. Go to MBAC for more details. (Sorry to miss it this year.)
The Maryland Association of Mortgage Professionals will be presenting a talk on "The Pros and Cons of Becoming a Mini-Correspondent" in Columbia, MD on September 17th. The program, led by professionals from Access Mortgage Research and Consulting, Caliber Funding, and Franklin American, will focus on the upcoming regulatory changes as they pertain to mini-corr platforms. To register, go here.
The FHA is holding a free classroom training on hot topics and updates on Tuesday the 17th in Minneapolis, MN that will discuss current underwriting guidelines, insurance and eligibility issues, recent Mortgagee Letter, refinances, REO transactions, and income and asset scenarios. See this for registration details.
Also in Minneapolis but on the 18th, the FHA is hosting full-day training on FHA appraisals, including the steps of the process, policy updates, and how to determine eligibility. This is equally suited for appraisers new to the FHA protocol and seasoned professionals wanting a refresher. To register, go here.
The South Los Angeles CAMP chapter is sponsoring a live, one day 8 hour NMLS continuing education course on Saturday, October 12th. "The course will be taught by Duane Gomer, one of the top trainers for lending and real estate in the nation." The one-day course will satisfy the 2013 NMLS 8 hours of continuing education requirement for California. The course will be held in Long Beach, and includes lunch and the $12 NMLS bank fee and a reference book. Please click on this link to register prior to the class (there is no pay-at-the-door option). (Click on the PayPal link at the top of the page, which will take you to the bottom of the page where you can put in your name and pay for the course.)
The Ohio Mortgage Bankers Association is offering a two-day VA underwriting training session in Cincinnati, OH over the 15th and 16th of October. Designed for underwriters, processors, loan officer, and managers alike, the classes provide a comprehensive review of all things VA. To register, email omba@ohiomba.org.
The OMBA will be presenting a series of talks on appraisals for self-employed borrowers that will discuss potential red flags that could result in a repurchase along with how to better detect mortgage fraud as an organization. These will be held on October 17th and 18th and November 13th in Columbus, Cincinnati, and Cleveland, respectively, and attendees can register by emailing omba@ohiomba.org.
Turning to rates, Friday was a decent day for MBS prices, caused mainly by weaker-than-expected Retail Sales and Consumer Sentiment numbers, and for the week current coupon agency MBS prices improved about .625. Wells Fargo's Economics Group writes, "Economic data released last week points to a continuation of subdued growth, as relatively weak consumers create few inflationary pressures, and businesses remain mired with uncertainty surrounding taxes and regulations." Yup - that pretty much sums it up here in this country.
It is a new and titillating week, however, and the highly anticipated Fed statement will come out on Wednesday at 2PM EDT, followed by a press conference in the locker room with Coach Bernanke as Fed Governors stroll around in the background with towels around their waists. But we have other things to watch, like today's Industrial Production & Capacity Utilization duo, along with Empire Manufacturing. Tomorrow is the Consumer Price Index (CPI) and another mind-numbing house price index (this time from the NAHB). Wednesday is the Housing Starts and Building Permits couplet; Thursday is Jobless Claims and Existing Home Sales, along with the Philly Fed and Leading Economic Indicators. The big news this morning was the withdrawal of Larry Summers from contention for Ben Bernake's job, and the expected nomination of Yellen - so some uncertainty has been removed from the market. With it, stocks and bonds have both rallied. Friday the 10-yr closed at a yield of 2.90% and this morning it is down to 2.81%; look for agency MBS prices to be better by about .375.