Freddie's QC Goals; Jumbo Investor Chatter; Lender Updates; Where is Fannie & Freddie's Business Coming From?

By: Rob Chrisman •

"The check's in the mail!" Hah! The Fed reports the number of checks paid has declined from close to $50B in the 1990s to about $20B. With tax rates being what they are, and many chafing at increased government intervention in most areas of our lives, perhaps we're heading toward a barter economy.

I have heard of broadcasts, and podcasts, but...tipcasts? That's a new one for me - but Freddie has one from Chris Mock, Freddie's VP of QC, deals with Freddie's quality control goals, and is worth two minutes of your time.

Yesterday the commentary mentioned the layoffs at Flagstar - it turns out that the number is 600 of our brethren who will be on the streets. "Flag" said it will create annualized cost savings of $40 million for the company. "In 2013 we made important progress in resolving certain legacy issues, and we are now focused on further strengthening our financial and operational foundation," said Alessandro DiNello, Flagstar's President and Chief Executive Officer.  "We are committed to being a highly efficient and best-in-class operator in each of our businesses, and this restructuring will align our infrastructure with today's business environment, including the significantly reduced mortgage origination market." But why is any lender different than Flagstar and looking at production versus overhead? We can expect to see continued cutbacks, and selective hiring.

 

"Rob, what do year from jumbo investors out there? We continue to be beat up on our pricing by the big bank's retail channel." I don't see that changing much - they have huge amounts of deposits that need to be put to work. And we all know that those jumbo loans are often great credit risks - and there are no pesky gfees to worry about. The recent about-face on gfee changes is wreaking havoc with some of these new private equity investment funds. They are there to purchase jumbo production, and are probably not happy with the recent Mel Watts statement pushing gfee increased down the road. They are basically trying to figure out what they should be buying and were counting on continued gfee hikes - they cannot compete with the likes of Wells Fargo and other banks though seems they are looking to setup a few big accounts to purchase production from---i.e. large regional banks.

For example, let us look at 5/5 jumbo ARM loans - it is indicative of other products. It is a good product, but with limited investor interest. Everyone wants to get setup with Pentagon Federal's correspondent program as they have a 5/5 ARM - but word on the street is that PenFed is not bringing on new clients. So are there 5/5 jumbo correspondent buyers, either delegated or non-delegated? Mark Paoletti with Mortgage Elements writes, "In the past the 5/5 used to be a popular product of Community Banks, S&L's and Credit Unions. It was a good product to help the depository do Asset/Liability matching against 5 year CD's. But that was when many depositors had a habit of rolling a 5 year CD into a new 5 year CD when it came due and the institution could count on new 5 year CD's on a regular basis. Institutions also matched 5 year CD's to 5 year auto loans and assigned limited funds to mortgage product restricting their availability. They may do them for their own retail but won't offer them on a wholesale or correspondent basis. When their belly was full they pulled the product. That's why those 5/5 ARMs always had a history of appearing then disappearing."

What is also very telling is the percent of Freddie and Fannie volume coming from their "Top 5" lenders. If you compare 2008 versus 2013, and include all lenders' channels, the percentage of F&F's total volume from the top five sellers has been declining since 2012. In the 4th quarter of 2013, the top five lenders comprised only 39% of Fannie's total volume, compared to 61% in 2008. Freddie derived 43% from the top five versus 60% in 2008. As "Inside Mortgage Trends" points out, this is due to a number of factors, including some top lenders downsizing or bailing entirely, an increase in smaller lenders and smaller lenders selling directly to F&F (versus selling to the aggregators, who then in turn sell to the agencies), and the rise of large non-bank servicers like Nationstar, Walter, or Ocwen. And speaking of servicing - the same thing is happening there: it has become more spread out over a diverse group of companies.

This is by no means an endorsement of the program, or Chase Bank, but I found this interesting. Four years ago Chase launched its Mortgage Cash Back program; a program which allows customers with a new or refinanced mortgage - and a personal checking account - to earn up to $500 annually. Recently Chase announced that more than 368,000 customers received $87 million since the company launched the program, and that they will distribute $4 million in December '13 alone to customers with loan anniversaries occurring in the month. In 2013, Chase will pay out $37 million in program incentives. For those not familiar with the program, mortgage payments are automatically deducted from a Chase personal checking account and on the anniversary of their loan each year, customers can cash out or pay down the principal on their mortgages to save even more. By choosing the pay down option, customers receive an additional savings in interest, which could lead to paying off their mortgage early.

Let's continue on with company-specific news to see some other trends out there. As always, it is best to read the complete bulletin for full details!

SunTrust retired its high price exception for FHA transactions as of January 10th and is now requiring only one appraisal for Key Loans up to $1.5 million.

Per the Dodd-Frank rule on Points and Fees, First Community Mortgage is imposing a maximum compensation percentage of 2.75% for brokered transactions, and any loans locked within FCM limits which later fail to comply with the 3% threshold may be required to transition to borrower-paid or may have the lender administration fee lowered.  A new "No Lender Administration Fee" option will be available for all programs apart from Jumbo that will allow lenders to price the loan with the lender admin fee as a .625 LLPA that will be incorporated into the net price shown on the pricing engine for all lender-paid compensation scenarios.  This does not apply to VA loans, which will not be subject to an FCM Lender Administration Fee or any additional pricing adjustment for the no fee option.  The minimum compensation requirements have also been removed.

First Community Mortgage has announced that it will be expanding its lending territory into Iowa, North Dakota, and South Dakota, where it will offer all of its loan types subject to the specific product's geographical restrictions.

The Agencies have issued a reminder that they will be implementing the second phase of the UAD compliance warning edits, which will be changed to fatal UAD edits in the UCDP on January 26th.  This affects the Quality of Construction Rating, Location Rating, View Rating, and Condition Rating data fields.  Any appraisal submitted to the UCDP that receives one or more fatal UAD edits will result in the issuance of Hard Stop 401 and the receipt of a "Not Successful" status, which makes it ineligible for delivery to either GSE.

Beginning February 17th, the Agencies will be requiring sellers to implement several new data elements into the ULDD, including the disclosed rate index (index rate used to draw closing docs for ARMs) and number of mortgaged properties (total number of mortgages properties for all borrowers on the loan, including the subject property).

Effective for all loans with applications dated January 14th and after, FNMA has revised its condo and PUD policies to allow no more than six month of regular common expensive assessments to have priority over the FNMA mortgage lien, even in cases where the law provides for a longer priority period.  Although the FNMA selling guide does not currently provide for this, the condo or PUD project legal documents must show compliance with this requirement.  This revision does not affect projects located in jurisdictions that enacted a law on or before January 14th that allows regular common expense assessments to have priority for more than six months, provided that the law references FNMA's requirements (i.e. the Uniform Condominium Act or the Uniform Common Interest Ownership Act).

Wells Fargo has updated its Residual Income Evaluation to exclude FHA transactions, even when they are classified under rebuttable presumption.  FHA loans with RESPA application and case number assignment dates of January 10th or after are required to comply with QM, including Points and Fees, as are all such transactions where the RESPA application is dated before January 10th.  For transactions with case numbers assigned before this date, the loan should be underwritten to comply with HUD guidelines and will be reviewed by Wells under the temporary provisions by the CFPB.

Effective for RESPA applications dated on or after January 10th, HPML transactions will be ineligible for Wells Prior Approval; however, they may still be qualified using delegated underwriting authority.

In response to recent market activity, Wells is revising its Non-Agency ARM purchase pricing adjustor from 62.5bps to 37.5bps, effective for all Best Efforts transactions locked, re-locked, or re-negotiated on or after January 21st.  For all Non-Conforming locks, re-locks, and re-negotiations, the FICO adjustor for LTVs between 70.01 and 80% has been revised to -.125.

Chase has updated its Non-Agency debt analysis guidelines to exclude Federal, State, and local taxes; FICA or other retirement contributions; commuting costs; union dues; open revolving accounts with zero balances (with the exception of HELOCs); automatic deductions to savings accounts; child care; and voluntary deductions from being included in the DTI ratio.  The derogatory credit guidelines as they pertain to DU and LP have been revised to encompass both FNMA and FHLMC guidance on seasoning requirements.

Chase's FHA guidance has been updated to prohibit the use of real estate tax credits as qualifying assets to offset the minimum 3.5% down payment requirement, and while a seller real estate tax credit can be applied towards the cash to close on the HUD-1, the down payment must be verified regardless of cash brought to or received at closing.

Turning to the markets: up a little, down a little. Yesterday rates were down a little, the 10-yr closed at 2.84%, and agency MBS prices were better by about .250 - mostly based on supply versus demand: the Fed is buying $2.86 billion a day and mortgage banker supply is only producing about $1.1 billion. (Also boosting Treasury performance Thursday was the latest monthly capital flows release from the Treasury department which highlighted that China and Japan boosted their holdings of Treasury bonds by $12 and $12.2 billion in November, respectively, to a record high.) There is certainly nothing for "inflation folks" to talk about - there is very little movement in the CPI or PPI. We will have a little news today, consisting of the December Housing Starts and Building Permits duo (they came out pretty close to expectations, but Housing Starts were down almost 10%, and Permits were down 3%), the December Industrial Production and Capacity Utilization couplet, and the normally forgettable preliminary January Consumer Sentiment number. From the housing numbers this morning, MBS prices have improved slightly and the 10-yr is down to 2.83%.

 

 

THESE ARE ACTUAL COMPLAINTS RECEIVED BY THOMAS COOK VACATIONS FROM DISSATISFIED CUSTOMERS (part 2 of 2):

11. "The roads were uneven and bumpy, so we could not read the local guide book during the bus ride to the resort. Because of this, we were unaware of many things that would have made our holiday more fun."
12. "It took us nine hours to fly home from Jamaica to England. It took the Americans only three hours to get home. This seems unfair."

 

13. "I compared the size of our one-bedroom suite to our friends' three-bedroom and ours was significantly smaller."
14. "The brochure stated: 'No hairdressers at the resort'. We're trainee hairdressers and we think they knew and made us wait longer for service."
15. "There were too many Spanish people there. The receptionist spoke Spanish, the food was Spanish. No one told us that there would be so many foreigners."

 

16. "We had to line up outside to catch the boat and there was no air-conditioning."
17. "It is your duty as a tour operator to advise us of noisy or unruly guests before we travel."
18. "I was bitten by a mosquito. The brochure did not mention mosquitoes."
19. "My fiancé' and I requested twin-beds when we booked, but instead we were placed in a room with a king bed. We now hold you responsible and want to be re-reimbursed for the fact that I became pregnant. This would not have happened if you had put us in the room that we booked."

 

 

 

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, "What Do We Know About the Future of the Agencies?" If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2014 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)