CIT Group to buy OneWest; Thoughts on Non-QM products; Recent Changes in FHA, VA, & HECM
Captain Obvious likes to say, "Home prices don't always go up." It's probably a cliché at this point, but it's better than the, "Buy as much home as you can afford" of the '00's. Both phrases deserve to be in the Mortgage Banking Hall of Fame (right next to "Wall St. meets Main St."), however, with the purchase market on many people's business agendas this year I was interested to read Zillow's Defining the Riskiest Markets for Home Purchases in which their analysts set out to look at the issue of home appreciation in the United States over the last 35 years. The housing markets with the highest percentage of negative five-year returns are Hartford (37 percent risk of loss), Providence (32 percent), Riverside (31 percent), Boston (30 percent) and Los Angeles (29 percent). The five least risky metro areas by the same metric are Buffalo, Pittsburgh, Louisville-Jefferson County, Raleigh, and Nashville (all less than 10%)."
"Five years ago, after the mortgage market had imploded, a group of investors - including the billionaire hedge fund managers George Soros and John A. Paulson - banded together to create a new bank from the wreckage of the failed California lender IndyMac. Now those investors are set for a big payday, thanks to the CIT Group, a lender that itself ran into trouble after the housing bust. On Tuesday, CIT said it would acquire the bank that rose from IndyMac's ashes - OneWest - paying $3.4 billion in cash and stock to its hedge fund and private equity owners."
Yesterday the commentary discussed risk. As a few readers pointed out, another big topic out there is RESPA-TILA reform - and the MBA is on it. "The deadline for RESPA-TILA compliance is just over a year away. Don't be lulled into false confidence that you have enough time to comply if you haven't started to plan yet. RESPA-TILA is a huge rule and will impact your business from the time a borrower walks through the door to closing, and your business is going to need to make deep operational changes to comply. To help the mortgage industry get ready, MBA is on the road this summer with top-level legal, compliance and technology experts - including a CFPB representative. So far they have brought together hundreds of industry professionals in two states. There are just two workshops remaining - Atlanta on July 31st and Washington, D.C. on August 7th. The cost for this one-day intensive workshop is low, but space is limited.
Here is a note that I received, very similar in nature to others of late. "What have you heard about companies like Redwood rolling out a non-QM product?" There are plenty of companies offering non-QM products. Check out Mortgageelements and select "non-QM" for your state if you don't believe me. It is not a stretch at all to believe that the folks at Redwood Trust and others wouldn't roll something out at some point. (For Redwood-specific info, ask your rep.) Remember that "non-QM" encompasses many definitions. Is it only a DTI stretch? Perhaps interest-only product similar to what Chase is already buying through its correspondent channel. Is a balloon involved, or underwriting the ARM loan based on the start rate versus the fully indexed rate? Has the industry forgotten what compensating factors are? There are plenty of areas that lenders can advance into - many of which they were buying prior to January 10th and the loans are performing just fine. And I am sure that if Redwood rolls something out, just like the other investors and lenders, the loans had better meet the Ability to Repay rules!
As a reminder, the FHA published a Mortgagee Letter outlining guidance that prohibits "misleading or deceptive" advertising and marketing for lenders participating in its Home Equity Conversion Mortgage program. The guidance in Mortgagee Letter 2014-10 is intended to protect HECM borrowers from misleading advertising and presentations that appear to limit their options rather than informing them of the full range of available HECM offerings. "Senior borrowers deserve freedom of choice when considering whether a reverse mortgage is appropriate for them," said FHA Commissioner Carol Galante. "This guidance is intended to make sure lenders know we're keeping a watchful eye on their marketing and advertising practices that might steer borrowers toward reverse mortgage options that limit their available choices."
The Mortgage Letter requires FHA-approved lenders to explain in "clear, consistent language" all requirements and features of the HECM program and may not mislead or otherwise cause a senior borrower to believe that the HECM product contains any features or limitations that are inconsistent with FHA's requirements. "Lenders are prohibited from using any misleading or misrepresentative advertising or marketing materials in connection with the HECM program or from making any statement or representation that could mislead a mortgagor as to his or her rights under a HECM," the letter said.
Texas has proposed amendments to its Home Equity Lending Interpretations. Early this month in the Texas Register, the Finance Commission of Texas and the Texas Credit Union Commission jointly proposed amendments to the term "interest", and its use, in home equity lending interpretations in the Texas Administrative Code.
Everyone knows that regular loans pay off early, but HECMs do as well, and many decisions are based upon Principle Limit Factors (PLF) associated with reverse mortgages. Principal limits on the HECM reverse mortgages are defined based on the PLF tables that are published by HUD. The HECM Mortgagee Letter announcing the PLFs came out. "As is done periodically, HUD re-evaluated the entire PLF Table for HECM loans. The subsequent revisions announced with the Mortgagee Letter considered the need for PLFs for non-borrowing spouses below the age of 62 and a prudent re-balancing of PLFs to properly manage risk. Mortgagee Letter 2014-12 more fully describes circumstances under which mortgagees ensure that mortgagors are given the information they need to make informed choices. Overall, these HECM policy changes support FHA's mission to expand sustainable mortgage financing options for seniors and create a sustainable HECM program into the future. Review Mortgagee Letter: 2014-12. The updates to its PLF tables included factors for borrower ages down to 18 years. While this update to the PLF tables was motivated by the recent changes announced by FHA regarding the treatment of non-borrower spouses, it is interesting to see that PLFs have actually increased for borrowers over a certain age. The new principal limits favor older borrowers (>80yrs), who are likely to witness an increase in principal limits of about 8-12%, compared with around 4% for those under the age of 80.
From CMG Financial, veteran LO Guy Schwartz answers the question, "Can a Veteran have two VA loans at the same time?" "With FHA you may have a second loan if you are moving for a job related reason (more than 50 miles). FHA and VA guidelines overlap in many areas and we thought this may be one... It depends on two factors. The two factors are a) does the veteran have any entitlement left (in-depth examples of VA entitlement), and b) does the move make sense, is the veteran being transferred, are they moving closer to their place of employment, etc.? These reasons make total sense. Reminder, FHA and VA require 25% equity in the current home (75% LTV) in the current principal residence in order to offset the PITI with rent. Conventional loans require 30% equity (70% LTV).
And the percent of VA loans is increasing per this article in Bloomberg. The VA's share of new mortgages is at a 20 year high and in the first quarter of 2014 accounted for 8.1% (just under $20 billion). Last year, VA's share in Q1 was 6.9% and 10 years ago it was under 2%. The record was 28% in 1947, as one would expect as WWII troops found their financial footing and the building boom began.
Providing GNMA with data? Then you'll want to either look at its recent posting, or forward it along to someone who does....Ginnie Mae has provided a reminder of upcoming Data Disclosure file changes on the Data Disclosure Download page. These changes are applicable point forward from the 1st Date Applied date. The complete list can be found here.
Ginnie Mae has added "MBS Liquidated and Terminated Loans Disclosure Layout." To view the complete bulletin: GNMA bulletin
FHA recently updated HECM Reasonable Diligence Timeframe Extensions. All content information can be viewed in the bulletin FHA INFO #14-34. HUD
Ginnie Mae has added "Addition of CSV Loan Level download files on the MBS and HMBS Search Pages." To view the bulletin: Ginnie Mae
Franklin American Mortgage Company updated its VA Qualified Mortgage policy specific to IRRL loans. In order for an IRRL to be exempt from the income verification under ATR/QM provisions under TILA, the total QM points and fees on the loan must not exceed 3% of the principal loan amount of the new loan amount. Additionally, FAMC Correspondent National Bulletin 2014-21 includes updates on Conventional Refinance Transactions, Sourcing Large Deposits, Conforming Fixed 97, Rent Loss, Tax Return Signatures, Homeownership Counseling Disclosure, VA Rate/Term Cash Back, USDA Properties with Outbuildings, Clarification on Conventional Assets, FHA Manual Underwriting and Manual Downgrade Policy, Flood Zone Determination and Reminder on LDP/GSA Documentation.
First Community Mortgage shared information regarding VA's policy clarification on unallowable fees. If the Lender charges the full 1% maximum allowable origination fee, they cannot charge unallowable fees.
Mountain West Financial Wholesale has made changes to 203k Rehab Loan, High Balance are now available. Effective July 14, 2014, FHA High Balance loan limits are available for both the 203(k) Standard (FF30KF), and 203(k) Streamline (FF30KS) programs.
You all know this, but as a reminder FHA has extended the re-certification deadlines; the vast majority of the problems impacting lender recertification functions have been addressed. While some isolated issues specific to particular lenders are still being investigated, lenders should be actively attempting to complete their re-certifications Deadlines.
FHA mortgagee review board posted administrative actions.
Alright, enough new and old news - let's take a look at this downright boring bond market. We did have some potentially market-moving news yesterday. In fact, bonds were just slightly higher after dealing with a tame consumer inflation reading (CPI +.3%, about as expected) and some fading of the geo-political, flight-to-safety trade. On a year-over-year basis, the headline CPI was up 2.1%, matching the May number, but up from 1.1% in February. The Core was up 1.9%, down from the 2% in May and up from 1.6% in February. Inflation has been on the rise and will be closely watched by the Fed.
In housing news, the Federal Housing Finance Agency (FHFA) reported that its Home Price Index rose by 0.4% in May, while the year-over-year number was up 5.5%. The FHFA House Price Index (HPI) is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. The price appreciation numbers have been falling in recent months and are coming back to more normal levels.
But for numbers, by the end of Tuesday we were about where we were Monday, which is about where we were on Friday... The 10-yr, which yesterday ended at a yield of 2.47%, this morning is at 2.46% and agency MBS prices are better by about .125.
Jobs
Prospect Mortgage is looking to acquire small to large mortgage lenders. "As a top 5 non-bank retail lender in the purchase-money market, management has created a national platform that supports retail LOs and their Realtor partners. Prospect is known for the synergy that exists between its sales and operations teams. Supporting Realtor partners in closing on time is the number one company goal. This purchase focus has positioned Prospect to win in the new "post-refi" mortgage market. If you're looking for an exit strategy, need a succession plan while remaining entrepreneurial, or want to preserve your hard-earned equity and stay in the game, talk to Prospect. Let them show you how to keep growing your business and take your risk off the table." Contact John Manglardi for more information.