ACLU Sues FHFA; FHA Loan Limit Changes - Not a Big Deal, or Yet Another Constriction?

My Dad called me yesterday, wondering if they delivered e-mail on Sundays. After all, the post office is delivering on Sundays for Amazon, right? The term I hear more and more these days is “the new normal.” I don’t necessarily know what that means, but I do know change is virtually guaranteed in most areas of life. So it goes without saying that over the last decade, Americans and their living arrangements have changed as well. The U.S. Census Bureau has us covered, though, with their recently released “America’s Families and Living Arrangements." The latest "Annual Social and Economic Supplement to the Current Population Survey" was conducted in February, March and April of 2013 from a nationwide sample of about 100,000 addresses. Some interesting statistics that could be dropped at your next Christmas party: 66% percent of households in 2013 were family households, compared with 81% in 1970. The median age at first marriage in 2013 was 29 for men and 27 for women, up from 23 for men and 21 for women in 1970. And the proportion of one-person households increased by 10 percentage points between 1970 and 2013, from 17 percent to 27 percent.

Lay-offs have continued: last week 824 people lost their jobs at Ocwen Financial, including 228 in Waterloo, Iowa. Another 12 were released by the Des Moines office of Mortgage Compliance Advisors “as the industry trimmed staff in response to falling refinancing activity and delinquency rates".

The long-awaited FHA loan amount news broke late last week. The bad news is that loan amounts were lowered; the “good” news is that it impacts less than 1% of current FHA production. The FHA Loan Limits are set to lower as of January 1, 2014. The change is for all case numbers assigned during the 2014 calendar year. The MBA notes that, “The higher loan limits were on a temporary extension authorized by congress and, without congress passing legislation, expire at the end of the 2014 year.” Here is the HUD announcement. The key items of change are: 1. The high cost market maximum declines from $729,750 to $625,500; 2. The floor loan limit remains unchanged at $271,050; 3. The formula for calculating area loan limits between the floor and the cap will be reduced from 125% of area median value to 115%. Per Compass Point, using HUD’s recent production information, the most recent data shows that only about 0.53% of FHA single family endorsements were on loan balances above $625,500.

As Dave Stevens, president of the MBA notes, “While this should not have been a surprise, I wanted to make sure you all had this information. The FHA announced new loan limits based on the roll back from the temporary extension of the $729,750 to $625,500 and the 125% TO 115% of area median home price. The MBA expected this. What was not expected and not shared with anyone was the total surprise new calculation, we think, of area median price. We are hearing of six figure loan limit declines for FHA drops in places like parts of California. We all need to quickly assess the impact. I would suggest everyone study the new tables against the previous and do an assessment of impact, but my email has lit up over the past hours and the one thing I do know is that this was a complete surprise as to the extent. The simple adjustment from 125% to 115% would not have caused these massive drops. Let us be clear, there is no alternative to borrowers hit by these declines. I am concerned about many other markets that are above the floor but may have been hit by new HUD calculations. I would suggest we all quickly triage the landscape of impact and convene next week to determine how significant the impact will be beyond what was expected. I do expect a strong outcry from many areas in California.”

The American Civil Liberties Union is suing the Federal Housing Finance Agency (which oversees Freddie & Fannie) over the FHFA’s position on the use of eminent domain to reduce the mortgage principal for underwater homeowners. The FHFA said it would instruct Fannie Mae and Freddie Mac not to guarantee loans in municipalities that used the plan, citing concerns that “such programs could negatively affect the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.” But the ACLU’s suit against the FHFA isn’t necessarily to stop it. The suit seeks information on how the agency decided to take that position and the role big banks might have played in influencing the decision, according to a report in the Credit Union Times. The ACLU attorney, Linda Lye (tough name for an attorney) said, “The FHFA has taken an aggressive stance on this issue in a way that has harmed minority communities. The public deserves to know why.” Here you go.

What’s LIRA? Well, it was the currency of Italy, Malta, San Marino, and Vatican City at one point; today LIRA stands for Leading Indicator of Remodeling Activity, and is a number produced by the Joint Center for Housing Studies. The JCHS was originally formed in 1959 as the Joint Center for Urban Studies of MIT and Harvard, and took up the challenge of addressing intellectual and policy issues confronting a nation experiencing widespread demographic, economic and social changes. With principal support from the Ford Foundation, the research agenda was based on the premise that the resolution of these issues called for imaginative interdisciplinary approaches to the study of urban problems and issues and required cooperation among universities, government and industry. Earlier this fall they released their forecast for the remainder of the year, and into 1Q14. JCHS write, “The home remodeling market continues to improve, with strong gains expected for the remainder of 2013 and the beginning of 2014, according to the LIRA released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. While the LIRA continues to project annual improvement spending increasing at a double-digit pace in the near term, a slowdown of this growth can be expected by the middle of 2014.”

We only have 22 business days until QM, and are you looking for an industry panel discussing its ramifications? LoanSifter is hosting one with investors, Radian, and a couple others on what to expect, how to prepare and tools you might need. If you’re interested, contact QM@LoanSifter.com for the webinar invite. There are 2 panels: tomorrow, Tuesday, 12/10 at 1PM CST for mortgage brokers, and Wed, 12/11, at 1PM CST for mortgage bankers (correspondents), and banks & credit unions.

Denver-based Universal Lending Corporation announced it has partnered with ReverseVision as its reverse mortgage origination software platform. “The company, which has long offered reverse mortgages among its loan products, has 33 years in the mortgage lending business and says the partnership with ReverseVision will simplify its lending process.” ReverseVision has recently formed new partnerships with LiveWell Financial and Mason-McDuffie, and now counts more than 5,000 firms among its client base. In addition to its loan origination software platform, ReverseVision recently rolled out its ReverseVision University program for reverse mortgage originators.

Mountain West Financial has expanded its guidelines for FHA and VA loans with FICO scores between 620 and 639 to allow manual underwrites on AUS Refer/Eligible transactions provided there is a minimum of three trade lines on the credit report.  Housing ratios that exceed the respective 31% and 41% maximum will be considered if there are valid compensating factors, and gifts and DPAs are allowed for down payments.  These changes do not apply to high balance, Streamline refis, IRRRLs, ARMs, and Manufactured Housing transactions.  

MWF has implemented a new Limited Review Process for Conventional loans on eligible condos that is available for all relevant transactions that receive the applicable DU finding.  Lenders should ensure that the Condo Limited Review checklist is fully completed and included with every loan that uses the Limited Review Process.

Earlier in November, MWF updated its underwriting guidelines on maximum acreage, several sources of income, second home borrowers with five to ten financed properties, cash value of life insurance, alimony/child support/separate maintenance payments with less than ten months remaining, conversion of principal residences, the maximum allowed financed properties under the DU High Balance product, Manufactured Homes, condo eligibility, permanent and non-permanent resident aliens, the maximum allowed loans made to one borrower in a contiguous area, multiple FHA loans to the same borrower, employment history of less than two years, grossing up non-taxable income, temporary leave and disability income, installment loans with fewer than ten payments, loans secured by retirement accounts, continuity of obligation requirements, FHA collections and disputed accounts, FICO scores between 620 and 639, same sex marriages, occupancy after retirement, and intermittent occupancy.  Refer to the guide for full details of the updates.

Nationstar is now purchasing FHA HPML transactions so long as the term is 30 years and the DTI is 45% or lower and has raised the maximum DTI for USDA transactions from 45% to 50%.

In order to align with Agency guidelines, Fifth Third is no longer treating credit counseling as a bankruptcy.

PennyMac is now accepting mortgage insurance from Genworth on its Open Access and DU Refi Plus products in addition to Radian, PMI, MGIC, RMIC, TRIAD, and CMG.  Lenders are reminded that the MI certificate or accompanying documentation discloses the coverage amount, initial rate, MI type, payment type, and premium amount.

Turning to the markets, agency MBS prices had a wild ride Friday after the release of a stronger-than-expected Employment report. From a high of +.250 prior to the data, MBS dropped to a low of -.375, but then recovered and turned positive. Separately, Core PCE inflation, the Fed's preferred inflation indicator, matched the consensus for an increase of 0.1%, and it was just 1.1% higher than one year ago. And Personal Income rose less than expected.

This week capital markets crews will have a chance to do some Christmas shopping as it is a light week for scheduled news. Tomorrow we’ll have Retail Sales, Thursday Jobless Claims, and Friday is the Producer Price Index. But keep in mind that the market is becoming more comfortable with the idea of tapering as the economy’s numbers continue to come in with positive data. Looking at the numbers, on Friday the 10-yr risk-free T-note closed at a yield of 2.88%; here this morning we’re down to 2.84% although agency MBS prices are unchanged.