Vendors Offering QM Products; QM's Impact on MI, Investor Updates

I probably use about 5% of my fancy phone's capacities, and barely know how to get to e-mail, the internet, and YouTube on my computer. But walking around the conference here in Washington DC, one can see that everyone is always using their phones for various tasks: talking, searching the net, texting, and checking on their next appointment or World Series bets. And I bet that some of them are even trying to figure out the impact of QM, and if the lead-up to January be worse than the period leading up to the change in LO comp rules a couple Aprils ago. Many think it will be much worse, others think it will be a non-event (noted tomorrow), and certainly it impacts MI - see below. In my travels last week through Southern California, Kansas, and North Carolina, it continues to be a huge concern, and hundreds of lenders are hoping the agencies, investors, and vendors will lead them to the QM Promised Land. It will take more than that.

Serious lenders are serious about Dodd-Frank, the CFPB, and QM - and vendors are retooling their sales & product offerings to help. I can't write about every vendor, but for example, over at Optimal Blue the industry heard, "The CFPB exams are demanding!  Many of the answers regarding fair lending, QM and data integrity exist at your fingertips with your Pricing Engine. In response to these demands Optimal Blue took the information you need to lock a loan, expanded the abilities and developed compliance management systems within the OB system for these new issues. This allows the Secondary department to work in conjunction with the Compliance department to watch loans real time and before they close, making the exam process easy and the lender highly efficient. Real time historical searches solve the problem of not being able to take a trip back in time to see what was or could have been available to a client or why someone received a particular product or loan. Any CFPB examiner will want to know what QM/Non-QM options were available to the originator, and be archived. This is the new workflow in mortgage banking and it is saving our clients time, money, effort and hopefully regulatory penalties. Solutions can be found at www.optimalblue.com.

Over in the LoanSifter camp, management is developing a QM Indication Detail report for clients. Although clients won't find it yet on LoanSifter's site (https://www.loansifter.com/), developers have taken the six, uh, eight basic QM premises (DTI 43%, Interest Only, Balloon - not the kind at birthday parties, prepayment penalties, no negative amortization, loan term, documentation type, and points & fees cap) and is constructing a pricing/qualification model. And they seem to be aware to include PMI considerations, bona fide discount points, APOR calculation to APR, and the eight factors above in the model. Are we having fun yet?

And Michigan's LoanCraft, LLC created its LoanCraft's Income Portal to address the upcoming CFPB rules regarding Ability To Repay and QM. "LoanCraft's Income portal is an ideal solution because it provides consistency, accuracy, and uniformity to the calculation of income. The tool generates a single, comprehensive PDF document called the Ability to Repay Assessment which summarizes all calculations and contains all of the pertinent images. This document can be stored with every loan file and assures accurate, compliant documentation of the income data at the time of the loan - an item that is crucial for ongoing QM and audit requirements." Here is more.

And the MBA recently hosted a webinar with CFPB officials in the hopes of helping to alleviate a lot of confusion about QM's points & fees in regards to the MI premium impact. (I am sure that warehouse banks are also concerned about QM versus non-QM lending, if any independent mortgage banks embark down that path.) At this point QM says that a lender does not need to count MI single premium in their points & fees calculations, up to the FHA limit (1.75%) as long as it is refundable on a pro rata basis and the refund is automatic (i.e., no action required on the borrower's part to get the refund). Of course the devil is in the details!

The CFPB has never defined what they consider "pro rata." Some private mortgage insurance companies are promoting their 3 year refund schedule as "QM compliant" and saying the lender doesn't need to include it in the points & fee calculations. But some folks that I have spoken to say that while the CFPB seems unwilling to put anything in writing, on a webinar hosted by the MBA on Oct. 17 on origination rules, a CFPB official did say (barring any state law defining pro rata as something else) that, "The bureau interrupts the term pro rata to basically mean proportion, which is just the common definition given to pro rata. So this generally means that the refund should be proportional to the amount of the time remaining on the policy after the pay off and the total term of the policy. So if you wanted to do it mathematically you would say: 'refund equals total premiums multiplied by time remaining over the term of policy.'"

To listen to the MBA/CFPB/MI webinar in full visit this page (it is the second one listed on the page). The pro rata part is about 8-10 minutes in. But given this statement by the CFPB, some MI companies (MGIC, for example) does not believe its refund schedule, which currently is only based on the first 5 years, would be able to be exempt, and don't believe that a 3-year schedule would be exempt from points and fees calculations. In other words, the refund would need to be pro rata for the life of coverage which would be until it reaches 78% LTV. Now maybe that will change between now and January 10 but this is the closest thing to an official definition we have gotten from the CFPB publicly.

To sum things up on the MI front, lenders should be careful about accepting MI advice without thoroughly checking available sources. It could cause processors to miscalculate their points & fees. It is also one of the reasons some say that monthly MI, which has been officially stated as excluded, is the simplest way to stay QM compliant. All this would be simpler if the CFPB would put something in writing on pro rata but so far it has been reluctant to do that. The industry seeks clarity!

And some investors, lenders, and agencies are trying to do exactly that. Let's see what's new out there.

MGIC is rolling out quite a change. MGIC reduced the premiums on Monthly premiums for all LTVs and credit scores, and reduced most rates on its borrower-paid and lender-paid single premiums. For loans above $625,500 MGIC raised the max loan amount to $850,000, lowered the required credit score, and now allow rate/term refis.

Freedom Mortgage is announcing Carl Streicher as its new SVP and Western Division leader. Freedom (licensed in all 50 states) has him responsible for establishing and building out the company's retail sales division for the Western U.S., an area comprised of California, Arizona and Nevada. Carl is charged with managing all day to day operations involved in creating the western division's sales team, including development of policies and procedures, recruiting and on-going training. "We have plans to open 12 to 15 new offices in California, Arizona and Nevada in the next 18 to 24 months."

Stonegate Mortgage announced an expansion of its retail growth strategy which includes the hiring of a retail management team. The new team brings expertise in acquisitions, operations, capital markets, sales and marketing in both non-bank and bank origination platforms and will be led by Jeff Walton, who has been named President of Retail Lending. Prior to joining Stonegate Mortgage, Mr. Walton was President of National Residential Mortgage, a Heartland Financial Company. Mr. Walton will report directly to Dan Bettenburg, President of Stonegate Mortgage.

And a few thousand miles away, CMG Financial announced the addition of John Hummel to its senior leadership team. John will serve as Senior Vice President of Business Development. In this role, he will focus on client growth and overall development of CMG's Correspondent, Consumer Services, Homebuilder, Wholesale, and Affinity business divisions. Prior to joining CMG Financial, John held several senior positions at Citibank.

Wells Fargo has revised its income analysis requirements for all of its Non-Conforming products to assess income for stability, regularity, and the likelihood that it will continue at current or increasing levels for at least three years.  Ideally the borrower's employment should be stable, with a history in the same job or a similar job of at least two years, and income whose source cannot be verified is now allowed to be used in calculating income ratios.  The borrower's current employer should verify that the current employment has not been or is not set to be terminated and that the borrower has not given or been given notice of employment suspension or termination.  Frequent job changes in the same field that can be verified are acceptable, while numerous job changes without advancement or in different lines of work will require more intensive review.  Any employment gaps of a month or more will require a written explanation and be determined not to affect employment stability.  Any income that has an end date (alimony, child support, trust income, etc.) must be verified to continue for at least five years or three years if it makes up less than 25% of the total qualifying income. This went into effect for all Non-Conforming loans immediately.

The guidelines on overtime, bonus, and commission income for Non-Conforming loans have also been updated.  Overtime income may qualify as stable monthly income if borrower's employer verifies that it has been received for at least two years and is likely to continue, along with the total dollar amount paid in the last year.  If overtime pay is not likely to continue, it cannot be used as qualifying income.  The same goes for bonuses, while commission income must be verified with the most recent two years' federal tax returns and W-2 forms, current paystub, and a Verbal VOE.  In cases where any of these income types have declined more than 20% over the last several years, Wells requires a DTI of less than 5%, a housing ratio of less than 35%, or post-closing liquidity that exceeds the minimum required as a risk offset.  Wells has also made updates to second job, part-time, mortgage differential, investment, and trust income used to qualify for Non-Conforming loans, the full details of which are available in Newsflash C13-048FR.

Last week rates continued to improve after the employment numbers for September were finally released, perpetuating the same modest growth in the labor market seen since the "recovery" took hold. But on Friday the report on Durable Goods Orders showed they increased 3.7% in September after a revised 0.2% gain in August. It is volatile, but definitely showed some strength. But wait! Consumer Sentiment in the U.S. fell to 10-month low in October - and that trumps Durable Goods anytime. All in all, the Fed tapering off security purchases has been pushed back several months.

This week, in addition to the MBA's conference, is very busy with economic news. Today we'll have the Industrial Production & Capacity Utilization duo, along with Pending Home Sales. Tomorrow is Retail Sales, the Producer Price Index, Consumer Confidence, and the Case-Shiller Index with its two-month lag. Wednesday, is an ADP employment number, Consumer Price Index, and the FOMC rate decision (don't look for any change). The morning of Halloween we'll see Challenger Job Cuts, Initial Jobless Claims, and the Chicago