FHA Trends; Bank M&A; LO Comp Shifting Away From Volume?
A major conversation topic is how lenders must adhere to a new certification when making a Federal Housing Administration-backed mortgage. The FHA unveiled a step last week that said it would make it easier for banks to avoid steep penalties for some errors committed during the mortgage process. With the new provision, banks' liabilities for some loan errors will be limited, which could mean mortgages will become easier to get for borrowers who qualify for government backing but have low credit scores or high debt.
Plenty in the industry say that the FHA program is the "new subprime" although many would disagree. The FHA backs loans to home buyers or mortgage refinancers with a down payment of as little as 3.5% and a credit score of as low as 580 on a scale of 300 to 850. The question that lenders have, of course, is whether to follow those guidelines or put on overlays. And let's not forget the trouble that many lenders are having with HUD and the DOJ coming after them for triple damages.
The MBA's Dave Stevens was quoted as saying, "We appreciate FHA's efforts to increase certainty in the underwriting and processing of FHA-insured mortgages, and on first review this language appears to be an improvement over the previous lender and loan-level certifications. The ability to serve and support sustainable and affordable homeownership has been a core mission of both FHA and lenders across this country. Having the confidence to lend demands clear and reasonable accountability. This has been the goal of all stakeholders.
"Individual lenders will need to review the new certifications, assess the legal and reputational risks associated with FHA lending, and determine whether the new language provides sufficient protection to allow them to responsibly expand liquidity for FHA lending. Similarly we intend to study these updated requirements and we look forward to continuing to work with FHA and other stakeholders to strengthen the housing market and provide access to sustainable mortgage credit for qualified borrowers."
Federal Housing Administration (FHA) announced the completion of its revised and final Form 92900-A, HUD/VA Addendum to the Uniform Residential Loan Application (Form 92900-A Loan-Level Certification). Mortgagee Letter 2016-06 announces and includes the new form, effective for use with FHA case numbers assigned on or after August 1, 2016. Concurrently, today FHA published a 30-Day Notice of Proposed Information Collection in the Federal Register (Docket Number FR-5909-N-13) that is required as the next step toward finalizing its proposed revisions to the Lender Initial and Annual Certifications (Lender-Level Certifications) to be accessible through FHA's Lender Electronic Assessment Portal (LEAP) system.
Technical updates and revisions to existing policy are listed in FHA's SF Handbook March 14, 2016 Transmittal. As noted in the Transmittal, an additional 200-plus Single Family Housing Mortgagee Letters and other policy documents have been superseded in full by the SF Handbook. Read more about the SF Handbook's March 14, 2016 updates, additions, and other SF Handbook changes in FHA's online article. The FHA Resource Center's online, searchable Frequently Asked Questions (FAQ) site will be updated over the next several days with new and revised FAQs to reflect policy that became effective on or after March 14.
As part of the Single Family Housing Policy Handbook 4000.1 (SF Handbook) update on March 14, 2016, FHA published revised sample 203(k) Maximum Mortgage Calculation Resource Documents under 203(k) Related Documents on the 203(k) Sample Documents web page on HUD.gov. Due to a technical error, the revised sample documents for the Standard 203(k) Purchase Program andLimited 203(k) Purchase Program contained an incorrect Maximum LTV Factor at Step 3.F, Determining Loan-To-Value Factor for Maximum Mortgage Eligibility. For Standard 203(k) and Limited 203(k) purchases with a Minimum Decision Credit Score (MDCS) at or above 580, and for No Credit Score with Manual Underwriting, the correct Maximum LTV factor is 96.5 percent. Previously downloaded the 203(k) Standard or Limited Purchase Program Maximum Mortgage Calculations sample documents that list a different maximum LTV factor should be discarded.
In regard to FHA - HUD REO properties, Flagstar Bank is requiring Appraisals for properties that meet HUD's minimum property requirements (MPRs) must be completed "as-is". Appraisals for properties that do not meet HUD's MPRs must be completed "subject to the following repairs or alterations" and the appraiser must provide an estimate of the cost to cure the deficiencies. Also announced, effective immediately, High Balance loan limits will be available with the HomeStyle Renovation program.
Pricing for FHA Streamline Refinance and VA IRRRL products are now included on Mountain West Financial rate sheets. This includes both standard and high balance products.
Plaza's 203(k) Program Guidelines have been updated to allow for disbursement of certain prepaid renovation costs or material orders at closing. Refer to the Draw Process Section of Plaza's 203K Program Guidelines for complete details. Other Minor changes have also been made including the removal of references to case numbers assigned prior to September 14, 2015 and the product names have been updated to reflect FHA's new convention of Limited and Standard 203(k) as communicated in HUD Handbook 4000.1.
Mountain West Financial will accept a full credit report on non-credit qualifying FHA Streamlines, in lieu of a mortgage rating with a FICO score. FHA requires a mortgage rating on a non-credit qualifying streamline refinance. Any other information in the report is not relevant for the streamline refinance since it is non-credit qualifying. There is no need to address other items on the credit report on a non-credit qualifying streamline refinance. A FICO score is required per MWF guidelines. A mortgage rating with a FICO score is still acceptable as well. This change is effective immediately.
But there is also news in the larger-loan area for FHA. Greystone has provided a $6,525,500 FHA-insured loan to the Justus Companies to refinance Oakdale Square Apartments in Bloomington, IN. The loan was originated by Brian Fintz of Greystone. The loan carries a 35-year term at a low, fixed interest rate. Loan proceeds will be used toward immediate and future repairs to the property. Oakdale Square Apartments consists of 200 units, many of which are home to Indiana University students, with multiple amenities. "Justus Companies is a fourth generation family business and has been focused on providing quality housing to the Greater Indianapolis area for over a century," said Mordecai Rosenberg, head of Greystone's FHA lending group. "As a committed and sophisticated owner/operator of multifamily housing, Justus had sought a loan product that offered the longest low fixed-rate financing available in the market today and the FHA 223(a)(7) was a cost-effective and expeditious way for them to meet that goal." Rosenberg added, "While the FHA loan programs completely mitigate the interest rate risk associated with owning a property, many multifamily owners are still scared of the HUD product due to the traditional length and complexity of the HUD underwriting process. "Greystone proved itself a trusted partner in this deal," said Walt Justus, President, Justus Companies. "We were able to lock in low rates for long-term financing which will allow us to meet our objective of channeling money into immediate and future repairs to maintain the property's attractiveness to both existing and future tenants."
Rates moved a little higher Monday. Why? I didn't see or hear a reason worth repeating - something about Fed Governor conjecturing about the future of short term interest rates. The only data out - existing home sales data for February - was weaker than expected. In fact U.S. existing home sales fell to a one-year low in February if you exclude the November 2015 reading, which was artificially depressed by changing home-lending regulations. The December and January totals were two of the three highest readings for the recovery (5.45 mln and 5.47 mln), so the general trend of the data series remains strong.
Hey, don't forget that the bond markets are closed Friday! The only scheduled data due out for today is the January FHFA Housing Price Index at 11AM Chicago time, the preliminary March Markit Manufacturing PMI data, and the Philly Fed services PMI (Mar) - none of them typically big market movers. We closed the 10-year at 1.92% Monday and in the very early going we're at 1.90% with agency MBS a shade better.
My heartfelt sympathies go out to Tyler Sherman and the rest of Denver's Motivity clan who lost Todd Sherman over the weekend. Everyone is sorry to hear of their, and the industry's, loss. And also to the families of the innocent victims of the explosions in Brussels overnight.
Jobs and Announcements
An expanding national mortgage lender, licensed in 48 states, is increasing its footprint in the Southwest Region by accepting resumes for a Regional Vice President position. "The Southwest Region has multiple long-standing branches and is seeking to bring on an experienced, senior leader that can manage, develop and oversee expansion throughout Southern California and Arizona. Funding over $3billion in 2016, this tech-savvy mortgage bank has not only reached, but has broken through milestone goals in 2015. This year will no doubt be a game changer for this company. Compensation plan is highly competitive." Interested candidates can click here to contact me. (Please excuse any delays in response due to travel in the Chicago area.)
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It will come as no surprise that Loan Officer compensation is primarily driven by incentives based on volume originated. However, according to STRATMOR Compensation Connection, roughly 10% of LO Comp was driven by non-volume related factors such as loan quality and pull-through. When it comes to compensation, it matters what you pay, but also how you pay. STRATMOR Group's compensation study - Compensation Connection - provides participant lenders with valuable information on the average compensation of key positions in mortgage banking. This year's survey includes enhanced tools to make the data collection easier and faster for participants. Each one of our modules (Executive Management, Retail Sales, Consumer Direct Sales, TPO Sales, Fulfillment and Production Support) have been updated to collect additional data elements including frequency of payouts that provide you with actionable information as you analyze and administer your compensation plans. Join us for this exciting new year of Compensation Connection. For full details, visit the 2016 STRATMOR Compensation Connection website or email compconnection@stratmorgroup.com.
Banks are in the mood to merge. Just in the last week it was announced that Summit Community Bank ($1.5B, WV) will acquire First and Citizens Bank ($127mm, VA) for about $21.8mm in cash. Community First Bank ($234mm, WI) will join with Livingston State Bank ($166mm, WI) in a merger of equals. In Illinois Morton Community Bank ($3.1B) will acquire Heritage Bank of Central Illinois ($266mm). TBK Bank, SSB ($1.6B, TX) will acquire Colorado East Bank & Trust ($758mm, CO) for about $70mm in cash, or roughly 1.3x tangible book.
Out in Colorado Guaranty Bank and Trust Co ($2.4B) will acquire The Home State Bank ($877mm) for about $133.7mm in cash (about 26%) and stock (74%) or roughly 1.66x tangible book. Wayne Bank ($749mm, PA) will acquire The National Bank of Delaware County ($370mm, NY) for about $15.4mm in cash (25%) and stock (75%) or about 1.16x tangible book. Here in Illinois First Community Financial Bank ($1.0B) will acquire Mazon State Bank ($85mm) for $8.5mm or about 1.15x tangible book. Midwest BankCentre ($1.6B, MO) will acquire Bremen Bank and Trust Co ($172mm, MO).
It isn't always voluntary, however. A few weeks ago North Milwaukee State Bank, Milwaukee, Wisconsin, was closed by the government & regulators and First-Citizens Bank & Trust Company, Raleigh, North Carolina assumed all of the deposits of North Milwaukee State Bank. And The Huntington National Bank ($71B, OH) will close 107 branches in OH, IL, MI, PA and WI.