Settlements and Super Lien News; Not Everyone is Raving About FHA Changes
Not everyone is wild about the FHFA (which oversees Freddie & Fannie) joining the Federal Home Loan Bank System. Last week the MBA submitted its comments to the Federal Housing Finance Agency strongly opposing the proposed Federal Home Loan Bank System membership rule. And while we're discussing the junction between the government and the banking system, how about this story of impropriety from several years ago about the recent Obama nominee to the Federal Reserve?
Litigation, the potential for litigation, or the impact of litigation, is impacting all aspects of residential lending. Servicers are fervently tracking super lien news, and Friday a story broke in MarketWatch titled, "Condo-fee foreclosures become headache for homeowners".
Bank of America has agreed to a settlement with Utah's SecurityNational Mortgage Co., a company that BofA accused of selling it defective mortgage loans. SecurityNational Mortgage Co. did not disclose the amount the bank has been paid under the settlement.
And Reuters reported that JPMorgan Chase has agreed in principle to spend $500 million to settle class action litigation arising from Bear Stearns' sale of $17.58 billion of mortgage securities that proved defective during the recent U.S. housing and financial crises.
The industry continues to digest the news last week regarding the reduction in the FHA's annual MIP. Although it was covered extensively in this commentary, and FHA loans make up only 10% of current production levels, the subject bears further explanation - there are certainly entities in favor of it and those against it. "The Federal Housing Administration (FHA) published Mortgagee Letter 2015-01, Reduction of FHA Annual MIP Rates and Temporary Case Cancellation Authority. This Mortgagee Letter implements the 50 basis point (0.50%) reduction in FHA's annual Mortgage Insurance Premium (annual MIP) rates for most Single Family Title II forward mortgages...is effective for FHA Case Numbers assigned on and after January 26, 2015 for most Title II forward mortgages with amortization terms greater than 15 years."
The Mortgagee Letter includes a table which shows the current and new annual MIP rates by amortization term, base loan amount, and loan-to-value ratio. The rate reductions have also been incorporated into FHA's Mortgage Insurance Premiums table for forward mortgages. The "FHA will temporarily approve Case Number Cancellation Requests for loans with FHA Case Numbers assigned but not yet closed, to allow mortgagees to obtain the reduced annual MIP rates. Mortgagees must submit Case Number Cancellation Requests under this temporary authority using the submission instructions specific to this temporary authority posted today on FHA's Case Processing Requirements web page. Mortgagees may begin requesting Case Number cancellations on January 15, 2015, but must submit all Case Number Cancellation Requests under this temporary authority by 11:59PM EST, on February 26. Mortgagees should not order new Case Numbers under this temporary authority until they have confirmed in FHA Connection that the previous Case Number has been cancelled."
In a nice nod toward keeping us informed the FHA will host an industry briefing conference call on January 15 from 3-4PM EST for mortgagees and all other interested stakeholders to review the contents of Mortgagee Letter 2015-01. The dial-in number is (866) 233-3842 and the participant access code is 350538.
So the change, based on case number date, is effective 1/26, and does not impact 15-year FHA loans. Loans with LTV<=95% continue to see a 5 bp lower MIP (so go from 130 bp -> 80 bp), and loans with LTV>90 still need to pay the MIP for the life of the loan, and loans with LTV<=90 still must pay MIP for 11 years. By most reckoning this would mean that loans in process would be assigned the 135 bp levels but the FHA is temporarily allowing the old case # to be canceled within 30 days of the new MIP effective date. Analysts think that many case numbers will be canceled and reassigned in the last week of the month which will delay loan closings for the month, so prepayment speeds will be slower than expected this month but faster in February, and March pools will be the first with an appreciable amount of new-MIP loans. And remember that on January 21 the new FHA policy to eliminate collecting post-payment interest charges kicks in - close those loans anytime!
The announcement comes after more than a year of advocacy from MBA and its members, including a letter MBA wrote to Secretary Castro in December 2014. That letter showcased in-depth analysis using the November 2014 Actuarial data to show how a reduction in MIPs would support FHA's financial health by reducing adverse selection among borrowers and making FHA-insured mortgages more attractive to high-quality first time and low and moderate-income homebuyers.
But after the release of President Barack Obama's plan to make housing more affordable by cutting mortgage-insurance premiums charged by a federal agency, bond investors responded by pushing up interest rates on the same loans. The announcement caused Ginnie Mae-backed mortgage securities (used by lenders to package and sell FHA-insured loans) to fall the most since June. That boosted yields on securities that guide FHA borrowing costs to a greater degree than other mortgage debt, signaling a larger increase in rates on the loans for borrowers. Why? Investors sold Ginnie Mae bonds as the initiative threatens to increase supply and make it worthwhile for more homeowners to refinance existing loans. Prepayments on mortgage bonds trading for more than face value damage holders by returning their principal faster at par. Steady increases in FHA premiums in recent years proved a boon for Ginnie Mae investors, as they often locked borrowers into their mortgages even as rates fell.
Sean Silva with Prosek Partners sent along an announcement from Rohit Gupta, President and CEO at Genworth US Mortgage Insurance. "Genworth is disappointed in the Administration's decision to announce a new FHA premium reduction. We are concerned about the long-term impact of this price reduction to the solvency of the FHA and in turn to the overall housing market, particularly as this plan reintroduces significant taxpayer burden. For loans with private mortgage insurance with the private MI industry in the first loss position, nearly $44 billion in claims has been paid to the GSEs since 2007, directly reducing taxpayer exposure. Our preliminary analysis suggests that this price decrease could reduce revenue to the FHA by approximately $3.75 billion per book year, before considering any resulting volume increase. We further estimate that the FHA would need to increase volume by over 40% to offset lost revenue. An increase in market volume of that magnitude is unlikely, and even if possible, it directly conflicts with HUD's stated goal of reducing the FHA's market share. The FHA's financial health impacts the risk taxpayers face when FHA loans default, and we believe this dramatic price reduction will put greater strain on the health of FHA's capital fund. The FHA's capital is still well short of its required 2% capital minimum and this move will delay any return to solvency."
And the US Mortgage Insurance group released, "Last November, FHA released updated information on the status of the FHA insurance fund. While progress was made in restoring the financial health of the fund, it fell well short of its 2% capital ratio mandate. In light of that report, USMI urged policy makers to proceed cautiously and to carefully assess the impact of any potential FHA premium reductions on its solvency as well as its stated objective of returning the FHA to a smaller and more traditional share of the mortgage market. USMI member companies urge Congress, FHA, and regulators to work together to further expand sustainable access to credit while increasing reliance on private capital. Mortgage insurers putting their own capital at risk should be preferred to government risk taking, consistent with the principles put forward by the Administration for housing reform. The MI industry has the capacity and capability to further reduce taxpayer risk and lower costs for many home buyers while expanding access to mortgage credit."
Last week we had a smattering of economic news, and most agree that U.S. economic data from year-end 2014 continues to impress thus setting the stage for solid momentum in 2015. (Certainly plenty of lenders had a good December care of a boost in October rate locks.) U.S. job creation remains strong in December as 252,000 payroll jobs were added on a net basis, and the already strong October and November numbers were revised up. With nearly 3 million jobs added in 2014, last year posted the largest annual job gains since 1999. The Unemployment Rate is the lowest it's been since 2008 but some of the decline can be attributed to a drop in the labor force which pushed the participation rate to its cycle low and average hourly earnings declined in December and were revised lower for November. For those watching short term rates, no one is expecting the Fed to boost overnight Fed Funds until the middle of 2015.
Here we are on another Monday, although for many next Monday is a holiday. There isn't much in the way of scheduled news today or tomorrow aside from some minor labor market & business studies. On Wednesday, however, we'll have Retail Sales, Import and Export Prices, and the Fed's Beige Book. Thursday is a commotion: weekly Jobless Claims, the Produce Price Index, Empire Manufacturing, and the Philadelphia Fed Index. Friday, ahead of Monday's holiday, are the Consumer Price Index, the Industrial Production & Capacity Utilization duo, and Consumer Sentiment from the University of Michigan. For those of you who like numbers, the 10-yr closed Friday at 1.97% and this morning is pretty much unchanged as are agency MBS prices.
Jobs and Announcements
Contrary to some opinions, there are new lenders & investors. Nexera Holding is a dynamic start-up setting the standard for efficiency, simplicity and transparency in the lending marketplace. "We are building proprietary web technology with an exceptional combination of automation and communication tools to reshape the way a consumer shops for and closes a loan. Founded by Steve Abreu and backed by industry veterans with unique access to the capital markets and strategic relationships, Nexera will deliver a diverse product offering covering a wide range of consumer needs. We will operate under two national brands: 'NewFi' for our consumer direct business and 'BluStream' for our wholesale business. Both NewFi and BluStream leverage an operating model that significantly drives down costs resulting in superior market pricing." Nexera Holding will launch in Spring 2015 will focus on the mortgage-lending channel and is ready to build a select team for its national sales and operations center in the San Francisco Bay Area: Call Center Loan Officer, Wholesale Sales Support, Digital Marketing Manager, Controller, and Underwriter. For confidential details and inquires contact Pat McCauley.
And PRMG, one of the top 25 mortgage companies in the United States, is seeking a Correspondent Underwriting/Operations Manager at its headquarter location in Southern California to lead the overall loan process. This position is responsible for ensuring that all service level agreements as set by the company are maintained, while efficiency, quality and productivity goals are met for (processing, closing and underwriting). The individual in this position will also work to facilitate a positive, dependable, team-oriented environment among Operations and Sales staff. Requirements include a bachelor's degree or equivalent work experience, a minimum 5 years of operations management and a proven track record in mentoring and leadership. PRMG has over 750 employees nationally and is licensed in 47 states with nearly 50 branches located throughout 10 states. Contact HR@prmg.net for a complete job description or confidential inquiries.
On the expansion side, Midwest Equity Mortgage, LLC (MEM), a direct to consumer retail mortgage lender, welcomes Len Tortorice to the role of Director of Business Development. Tortorice has over 30 years of industry experience in many aspects of the mortgage industry and more recently a Divisional Manager for a large wholesale lender. Len will be focusing specifically on recruiting Senior Loan Originators as well as origination teams/branches within the states of IL, WI, KS, MO, IN, CA, WA and the FL. MEM has grown significantly over the last 24 months as a direct result of its originators' success and offers a combination of resources and compensation packages which are second to none. Please contact Len Tortorice to make a confidential inquiry of opportunity.
Lastly congrats to Brian Vieaux as Flagstar Bank has named him as national sales director for Wholesale Lending. He joined Flagstar in 2012 as senior vice president and head of Home Lending with responsibility for Flagstar's national network of retail home loan centers. In his new position he is responsible for the day-to-day management of the bank's broker and correspondent channels.