Deferred Debt Payment Calculation; Collateral Underwriter; Oil Impacting Commercial Real Estate
Occasionally I am asked about how the agencies handle certain types of debt. As a reminder, Fannie Mae requires that all deferred installment debt, including student loans not yet in repayment, be included in the calculation of the borrower's debt-to-income ratio. In determining the payment for deferred student loans, Fannie Mae currently requires that the lender obtain a copy of the borrower's payment letter or forbearance agreement or calculate the monthly payment at 2% of the balance of the student loan. Research has shown that actual monthly payments are typically lower than 2%. In addition, many student loan repayment structures now use an income-based approach in calculating changes in the payment due over time.
As a result, Fannie Mae modified the monthly payment calculation from 2% to 1% of the outstanding balance. In addition, for all student loans, regardless of their payment status, the lender must use the greater of the 1% calculation or the actual documented payment. An exception will be allowed to use the actual documented payment if it will fully amortize the loan over its term with no payment adjustments. Therefore even if the payment is deferred they still have to factor in either the actual future payment or use the 1% calculation.
Bloomberg reported that the Federal Housing Finance Agency (FHFA) is considering extending the Home Affordable Refinance Program (HARP) beyond the current deadline of year-end 2015. Uh, and why would it do that? Isn't the housing market doing pretty well, and HARP borrowers already took advantage of the government-sponsored program? And doesn't the government want to make us less reliant on it for home loans? But some companies like Walter and NationStar are sure hoping it is extended and broadened: supposedly the FHFA is also considering whether the program should be broadened to include borrowers with loans originated after May 31, 2009. Given strong home price appreciation since 2009 many think the remaining pool of borrowers with negative equity is not large, unless the change allows borrowers who have already done a HARP refinance to do another one.
Sure enough, a quote from Mel Watt noted that HARP was not intended to go on indefinitely. Do some LOs think it really should?
The American Bankers Association has renewed endorsements of Fannie Mae's secondary market options to help community banks maintain their competiveness in local markets. The partnership with Fannie Mae began in 2002 and allows ABA member banks to meet the needs of their customers and take advantage of the secondary market. The endorsement will allow for reduced transaction fees on Desktop Underwriters, customized training; updates to help lenders remain current on critical issues; and customizable marketing materials. The press release can be found here.
With the addition of Fannie Mae's Collateral Underwriter (CU), Fannie Mae has updated appraisal underwriting rules. In December 2014, Fannie Mae removed the requirement that if comparable sales exceeded 15 percent net and 25 percent growth, appraiser shad to provide an explanation as to why it was included in the appraisal report. Further review indicates that most appraisal reports never exceeded the 15 percent of 25 percent guideline as many appraisers focused on keeping the amount of modifications within the guidelines instead of reflecting market reaction for specific characteristics. Fannie Mae also reminds lenders that photographs in the appraisal report must be clear and descriptive. In order to promote use of comparables sales that have closed within the past 12 months and are most relevant, specific comments from an appraiser if a comparable sale is older than 6 months is no longer required, but a comment is still mandated when a comparable sale is older than 12 months.
The implementation of Fannie Mae's Collateral Underwriter (CU) has many in the industry up in arms about how to adapt to the new software and what it means for the housing industry. Fortunately, Fannie Mae has published a fact sheet, highlighting sections of the Collateral Underwriter Lender Letter that was published on February 4th, 2015. Lenders are reminded that CU is free and is not a requirement. The purpose of CU is to identify risks and potential discrepancies in the appraisal report, and be utilized as supplementary advisory information when lenders analyze an appraisal. CU rates appraisal's based on a numeral risk score from 1 to 5, with 1 indicating low risk. CU takes into consideration the relevance of each potential comparable sale based on physical similarity, time and distance. Lenders are prohibited from providing the CU report to appraisal management companies or appraisers. Fannie Mae also does not suggest that lenders ask appraisers to address all or any of the 20 comparables provided by CU but expects CU to further instill confidence in lenders regarding the appraisals they receive. Additionally, Fannie Mae's Appraiser Quality Monitoring (AQM) process will identify appraisers who repeatedly show a pattern of inconsistencies and inaccuracies in their appraisal reports, which can later be used as training purposes and guidance. The AQM process involves data and technology similar to CU to identify patterns or potential issues with appraisal reports, triggering a red flag and human due diligence to determine relevancy and accuracy of the results from the automated system. There is also no correlation between CU risk score and AQM.
Recently I answered a question about risk sharing between Fannie and Freddie in the capital markets. Issuance is robust from last years $10.8 Billion mark; in January Freddie Mac completed an $880 million offering, and as Jody Shenn of Bloomberg writes, it is "the first in which some of the bonds exposed investors to principal losses before homeowner defaults exceed certain levels." This is an important deal perimeter moving forward. Ms. Shenn continues, "Bond buyers are flocking back to the market for securities used by mortgage giants Fannie Mae and Freddie Mac to share their risks with investors. Fannie Mae sold $1.5 billion of the debt Thursday, through which it can potentially transfer some of its losses from guaranteeing $50.2 billion of loans, the Washington-based company said in a statement. One portion of the offering carries a yield that floats 4.55 percentage points above a benchmark rate, down from the 5 percentage point spread that investors demanded on similar notes in a November sale."
Envoy Mortgage CLD announced the release of Fannie's 97 LTV option for both Conforming Fixed Rate and MyCommunity products. Standard MI is required (35% for conforming fixed rate and 18% for MyCommunity products).
Fannie Mae updates to its seller guide include clarification regarding project standards policies, reorganization of co-op topics, and postponement of policy relating to delivery of loans with more than two borrowers that was previously released in Announcement SEL-2014-13. Also, clarification to the effective date for the pricing policy previously released in Announcement SEL-2014-13 and updates to the Lender Breach of Contract topic in the Selling Guide to align with the 2014 revision of the Servicing Guide. Details for its announcement SEL-2015-02: are available in This Announcement.
Lower gasoline prices have certainly changed my consumption behavior; I'm now able to afford I Can't Believe It's Not Butter, instead of relying on the kindness of KFC employees to add an extra handful of butter packets when I make a biscuit run....as Tom Petty says: It's good to be king. But what are Americans (who don't value synthetic butter) doing with their windfall? Not much, according to Wells Fargo, mainly because the "savings" are much like stock options in the '90s tech industry, mostly on paper; the economic group writes, "January's disappointing retail sales figures have many people scratching their heads as to what has happened to the savings from lower gasoline prices. Prices at the pump in January were down 46.5 percent from their year ago level and the typical household is expected to save between $500 and $800 on gasoline purchases this year. So far, however, little of this gain has showed up in retail sales." My bet is to capture any arbitrage you may have at the moment, here in California prices have already started to tick upwards as summer approaches. Unleaded is over $3 a gallon already in Northern California after being near $2 a gallon a month or two ago.
Continuing on, Bloomberg points out that the price of oil is changing things. Sarah Mulholland observes that, "The oil glut is threatening to expose cracks in the commercial-mortgage bond market. Nomura Holdings Inc. estimates that $16 billion in property debt that has been sold to investors as securities is vulnerable to default after crude prices plunged, posing risks for the economies of U.S. cities and towns built around the boom. Wall Street analysts are poring over commercial-mortgage backed securities for signs of distress as the oil crash weighs on demand for real estate in energy hubs. Properties that house workers -- such as apartment complexes, mobile-home parks and hotels -- are likely to be the first to see vacancy rates rise as oil rigs idle and jobs vanish, according to Nomura debt analysts Lea Overby and Steven Romasko. 'If this oil story persists, oil workers are going to go someplace else -- they're transient,' Overby, a New York-based analyst at the bank, said in a phone interview. 'Demand is going to go from very high to zero overnight, and that's a problem.'"
That is what we need - more problems. So are we sitting here hoping for oil to go back to $100 a barrel? Geez... we can't even make up our minds!
Let's talk about something simple, like the economic calendar for this week. I will cut to the chase - there isn't a whole lot of important scheduled news here in the U.S. on the platter until Thursday. At that point we'll see Retail Sales, Initial Jobless Claims, and Import Prices. Friday is the Producer Price Index (does anyone care about inflation anymore?) and a series of forgettable University of Michigan numbers. (Hope I am not sounding too cynical here...) Rates have crept up because the economy here in the U.S. is not doing badly - housing & jobs are doing just fine, thank you - and we ended last week with the 10-yr at 2.24% and this morning we're at 2.21% with agency MBS prices better by .125 - mostly based on a flight to quality on more chatter about Greece and nervousness in global stock markets.
Jobs and Announcements
What is simple, however, is the desire by expanding firms to search for talent and grab market share. A progressive Northeast-based closed-loan aggregator of prime jumbo residential loans is looking for experienced sales people to fill 'VP of Correspondent Sales' positions with a focus on middle market and regional jumbo lenders. Relationships with non-California concentrated lenders are a plus. Please submit confidential inquires & resumes to me at rchrisman@robchrisman. com.
And 1st Alliance Lending LLC, a national leader in FHA lending to the underserved borrower, recently announced the roll out of its Wholesale and Premier Partner channels nationwide. The Company is expanding its footprint across the country and is currently hiring Business Development Managers in most major markets throughout the U.S. including Chicago, New York/New Jersey, Dallas, Houston, Sacramento, Phoenix, Southern California, Southeast Florida, Virginia, and for its inside sales team in Connecticut. The Company offers a truly competitive salary/ bonus plan and a best in industry benefits plan. The East Hartford based approved GNMA issuer/servicer also offers VA, USDA and Conventional products. Qualified mortgage sales professionals with a minimum of two years proven track record of success can forward their confidential resumes to Kelly Shepard, HR Administrator.
And First Mortgage Corporation is expanding its sales and operations teams throughout Texas. "First Mortgage is a leader in serving the underserved, encompassing 40 years of expertise, privately-held servicer seeking branch managers, loan officers and processors in Houston, Austin, and the Dallas markets. If you are interested in exploring the opportunity contact our National Production Director, Nanette Dambly."
On the flip side of hiring, the Financial Times reports that the Royal Bank of Scotland is reportedly planning to cut up to 14,000 positions in its investment banking unit in the next 4 years which equates to roughly 80% of its total staff.