Agency Updates; Spate of Housing Economic News
Wildfires in the west have already burned more than 7 million acres. (To put things in context, the entire state of California has about 101 million total acres.) Lenders and investors everywhere are attuned to the usual disaster policies with lists of hard-hit counties being distributed along with notes like, "If the property is located in one of the counties listed...with a completed appraisal dated prior to August 21, a 1004D re-inspection completed by the Appraiser is required to certify that 'the property is free from fire damage'. For appraisals in these counties dated on or after August 21, the Appraiser must comment on the condition of the property and any effects to the marketability and confirm that 'the property is free from fire damage' detailed in the body of the appraisal. If the appraisal or re-inspection indicates damage, the extent of the damage must be addressed. If the subject property sustained minor damage, the repairs must be completed prior to closing. If the damages are structural or major subject to rebuild, the loan will be declined due to collateral condition. The re-inspection and any extension to accommodate repairs will be charged to the Borrower."
Fannie Mae knows a thing or two about 4506-Ts, but the Agency turned some heads yesterday with a slate of news. We had Announcement SEL-2015-09 which addresses changes in Self-Employed Income, Project Eligibility Review for Attached Planned Unit Developments, HomeStyle Renovation, and Cash Back Pair-offs on Mandatory Whole Loan Commitments. Anyone working with Fannie, or selling loans to companies that do, saw an update to self-employed income policies and guidelines to provide clarity on how to calculate and document income. The Cash Flow Analysis (Form 1084) is updated and available on Fannie Mae's website. They also saw changes to the current planned unit development (PUD) review policy to align the requirements for attached PUD units with the existing requirements for detached PUD units.
Additionally the required documentation for removing recourse from HomeStyle Renovation mortgages changed. A change was also made to reflect that a master contract and credit variance will no longer be required to deliver HomeStyle Renovation loans. Cash back on pair-offs of a mandatory whole loan commitment is now available to all Fannie Mae-approved lenders as a standardized process and has been updated in the Selling Guide.
Fannie Mae just posted a press release yesterday to go along with the news. The new HomeReady product replaces MyCommunityMortgage. Yes, Fannie Mae announced its HomeReady mortgage, "an innovative lending option aimed at helping creditworthy borrowers with lower and moderate incomes have access to an affordable, sustainable mortgage." HomeReady will replace Fannie Mae's MyCommunityMortgage. Geez Fannie loves those compound names with capitals in the middle! "HomeReady features new functionality for lenders through Desktop Underwriter to automatically flag potentially eligible loans and fully leverage Fannie Mae's integrated suite of risk management tools for greater certainty and efficiency. Under the new guidelines, Fannie Mae pricing is favorable and simplified for lender use, and eliminates or caps standard loan level price adjustments. Borrowers will be required to complete an online education course preparing them for the home buying process and providing post-purchase support for sustainable homeownership."
For the first time, income from a non-borrower household member can be considered to determine an applicable debt-to-income ratio for the loan, "helping multi-generational and extended households qualify for an affordable mortgage...Other HomeReady flexibilities include allowing income from non-occupant borrowers, such as parents, and rental payments, such as from a basement apartment, to augment the borrower's qualifying income. First-time and repeat homebuyers can purchase a home using HomeReady with a down payment of as little as 3%.
Fannie Mae will provide additional details to lenders in the coming weeks through a Selling Guide announcement, with HomeReady guidelines anticipated for Desktop Underwriter inclusion in late 2015. Fannie Mae anticipates accepting loan deliveries under the HomeReady guidelines in late 2015 as well."
Cash-back pair-offs are the key change in this announcement but there are some important underwriting changes lenders asked for too. Effective as of August 31 lenders will be eligible to receive cash back on whole loan pair-offs when the price at commitment is greater than the price at the time of the pair-off as a result of market fluctuations. "No action is needed on your part. Selling Guide Announcement SEL-2015-09 provides additional details on cash back on whole loan pair-offs, including commitment eligibility criteria."
The Agencies continue to reform themselves - who can wait for Congress to do anything with any kind of controversy? By making themselves indispensable to residential lending both Freddie and Fannie are working to secure their futures - but should they be part of the government and therefore be related to taxpayers? They are not without their critics as seen in a recent Wall Street Journal piece: Put Fannie and Freddie out of Taxpayers' Misery. Seven years after the crash, why is the American public still on the hook for three out of every four new mortgages? Ed DeMarco wrote "Congress should pass legislation making sure that within four years all securitizations involve enough risk transfer so that taxpayers are left with credit risk only in catastrophic circumstances. Lawmakers can then decide whether to stop there, as in some current legislative proposals, or move the remaining risk away from taxpayers. Second, housing-finance reforms being developed under the FHFA's direction should accommodate firms beyond Fannie and Freddie. One reason for the conservatorships in 2008 was that the country lacked a viable secondary market without them. The common securitization platform introduced by FHFA in 2012 will fix that by creating the operational infrastructure for other firms to issue mortgage-backed securities equivalent to Fannie and Freddie's. That will enable Congress to end the conservatorships and replace the Fannie-Freddie model."
Of course lenders react to Agency changes. Effective September 1st, all Agency Condo and PUD warranty forms will be updated to reflect recent guidance from Freddie Mac and Fannie Mae on M&T submissions.
Fannie Mae has provided details on the launch of the new Loan Delivery Test Environment planned for Sept. 1, Special Feature Code delivery guidelines, and key components of the new and updated Business Rules. Read more on Fannie Mae's new loan delivery application coming soon.
Citi Correspondent Lending implemented changes to Best Efforts and Single Loan Mandatory as well as Mandatory Pricing (AOT, Direct and Block Trades). New Loan Level Price Adjusters (LLPAs) became applicable for all conventional loans - existing pipeline, new registrations and new commitments - effective in late July. Updated LLPAs were applied to all conventional loans, regardless of registration, lock or commitment established date.
Something else turning heads this week is the housing-related economic news. The FHFA House Price Index rose 0.2% in June, lower than expectations. And the S&P Case-Shiller index of real estate prices fell 0.12% in June but is up 5% year-over-year. New Home sales rose to an annualized pace of 507k in July, slightly lower than expectations. Yes, although the numbers are two months old the S&P/Case Shiller composite index of 20 metropolitan areas in June gained 5% year over year, a bit quicker than the 4.9% rate in May. Denver, San Francisco and Dallas again experienced the biggest year-over-year home appreciation among the 20 cities with price increases of 10.2%, 9.5% and 8.2%, respectively.
According to the overseer of Freddie & Fannie, the FHFA, U.S. house prices rose 1.2% in 2Q 2015, the 16th consecutive quarterly price increase in the purchase-only, seasonally adjusted index. FHFA's seasonally adjusted monthly index for June was up 0.2% from May. House prices rose 5.4% from the second quarter of 2014 to the second quarter of 2015.
And New Home Sales bounce back 5.4% in July to an annual rate of 507,000, recovering from a slide in purchases in June. Sales of new homes jumped 21.2% through the first half of 2015, although the government sales report is volatile on a monthly basis. New-home purchases climbed 23.1% in the Northeast, with smaller gains in the South and West. Sales slumped in the Midwest. The median sales price has risen 2% to $285,900 over the past 12 months.
Home value growth is expected to slow down but rental demand will remain at a high level. The third quarter Zillow Home Price Expectations Survey asked panelists to predict annual changes in the U.S. Zillow Home Value Index through 2019. The experts said they expect home values to increase more slowly in the new few years and the homeownership rate will stabilize before rising slowly. Survey respondents said that home values will be up 4.1 percent YoY by the end of the 2015.Home value appreciation is predicted to even out beginning of next year and through 2019. The national homeownerships rate rests at 63.4 percent but more than two-thirds of the expert's surveyed said they anticipate the homeownership rate to rise over the next five years and reach 63.7 percent by 2020. As rental demand rises contributing to a rental affordability crisis, two-thirds of panelists said rent control policies would create more problems than they solve.
As far back as February the signs were in place. When Quicken Loans released its February Home Price Perception Index (HPPI) and Home Value Index (HVI), for the first time in 18 months, appraiser home value opinions fell below homeowner estimates as the February HPPI is 0.13 percent less than homeowners' estimate. In January, appraiser opinions were 0.18 percent higher than homeowner estimates and they were 2.11 percent higher than homeowners' opinions a year earlier. Of the 27 metros analyzed by the HPPI, 18 of the areas had appraiser opinions higher than homeowner estimates, with both Atlanta and Baltimore dropping to negative HPPI values, dragging down the national average. Home values increased by 1 percent in February according to the national HVI and have grown 8.46 percent since last year.
Some capital markets folks are wearing neck braces from the whipsaw yesterday - certainly anyone playing the stock market. Tuesday saw a reversal of the recent rally as the "risk-on" trade had Treasuries under pressure overnight and throughout much of the New York session. Anyone creating rate sheets know that the U.S. 10-year note has traded over nearly a .25% range over the past two sessions (1.905-2.135%), and the 30-year bond almost a 5 point price range. The focus continues to be on the continued reaction in global markets to the news out of China of their cut in interest rates and reduced bank-reserve requirements, the late sell-off in US equities, and the precipitous drop in oil prices.
The drama continues today. We've already had the MBA mortgage application data from last week (not much change to any measures). Still ahead of us are July's Durable Goods Orders and a $35 billion 5-year note auction. In the very early going the 10-year T-note, which closed Tuesday at 2.13%, is sitting at 2.10% and agency MBS prices - used to set rate sheets - are better by roughly .125.
Jobs and Announcements
In job news Planet Home Lending's Retail Retention Division is looking for experienced Loan Officers and Lead Generators at its Dublin and Aliso Viejo locations in California. In addition, the Company is actively searching for a Director of Loan Servicing to expand its Servicing Division in its Dublin, California office location. "Planet Home Lending is a fast-growing national residential mortgage lender and servicer with over $13 billion in servicing. It supports multiple business channels uniquely positioned to provide competitive products and services. The company is an approved Fannie Mae and Freddie Mac Seller/Servicer, full Ginnie Mae Issuer, and an approved originator and servicer for FHA, VA, and USDA. If interested in joining our dynamic and growing organization," please send an updated resume in confidence to Chase Gonzalez.
On the wholesale side, 20-year old United Fidelity Funding is "celebrating the success of the of its California headquarters. Longtime industry veteran, John Bell, has built a well-capitalized and stable wholesale platform serving the West Coast with a combination of competitive pricing, a competitive comp plan, a full product menu and a core Ops Team that has worked together for over 10 years. Unlike other companies, it is not over-saturating California with AEs and is looking for a small handful of highly professional and seasoned AEs and/or Sales Managers to work the entire state. UFF is open to bringing your entire team aboard as well. United Fidelity Funding is a FNMA/FHLMC seller-servicer and offers FHA and VA. They are currently licensed in 18 states. It's a great environment that will give you the opportunity to expand your success. All inquiries will be treated in absolute confidence and with utmost discretion." Please email your resume to Mike McCarthy or John Bell.
In product news, interest rates are at a historical low and rent is at an all-time high. That means it's the perfect time to buy a new home! 4506-Transcripts.com partners with mortgage brokers and lenders to provide expedited 4506-T results. "Through our automated system and IVES partnerships, we deliver fast results and great customer service. Let us help your team deliver the best experience to new home buys/ customers/ clients. For more information click on the link above or contact CEO Sandra James.