Fannie and Freddie Conventional Conforming Changes Across Multiple Lenders

Huh? The year is half over? Didn’t 2017 just start? Time has a way of flying by. Via rocket ship. July starts tomorrow… and we hear of a new marketing idea. SoFi is offering a month’s worth of avocado toast to anyone who takes out a mortgage with it in July.

Freddie, Fannie, and conventional conforming changes

Here are substantive changes that companies are implementing thus impacting LOs and borrowers, thus make their way into the secondary markets. There is a lot of headline news about housing and GSE reform. I'll cover some of that next week, as a portion of it is merely posturing and making opinions known rather than actual action items like these.

Last June the Federal Housing Finance Agency (FHFA) issued a final rule amending its regulations to allow certain state-chartered credit unions without Federal share insurance to obtain Federal Home Loan Bank memberships. The final rule is substantially the same as the proposed rule issued by the FHFA in September 2016 with the exception of an added revision intended to help streamline credit union Bank membership applications. The amendment was adopted in order to implement a provision of the Fixing America's Surface Transportation Act and goes into effect July 5, 2017.

Freddie has plenty of upcoming underwriting changes.

Fannie published a list of enhanced guidelines that will be effective on July 29, 2017. Here is a brief explanation of the enhancements and why LOs like them. Debt to Income (DTI) Ratio: Currently 45% is the maximum ratio a borrower can have and qualify for a loan. The new maximum DTI will be 50%.

Disputed accounts: In the old days borrowers would bombard the credit bureaus disputing derogatory credit items. The bureaus had to remove the item while it was being investigated which provided a small window for some borrowers to slip in and get a loan. FNMA and Freddie got wise to this loophole and said, "OK if you have a dispute then we are not going to underwrite the loan until the dispute is resolved." FNMA will evaluate loan files with credit disputes, and in some cases will not require further action.

Fannie tells us that effective in July 2017, most tax liens and civil judgments will not appear on credit reports.

Self-Employed Documentation: Currently FNMA requires two years of Federal Tax Returns for self-employed borrowers. The new enhancement allows some (not all) self-employed borrowers to submit just one year of tax returns. Some LOs say that this may be the best enhancement of the bunch as it will really help many self-employed borrowers. The key is getting the borrower pre-approved to determine if he/she is eligible for the one year requirement. Freddie Mac used to have the one year eligibility requirement however Freddie Mac recently modified guidelines which are no longer as favorable.

Student loan cash out refinances: If a borrower is taking out cash to pay off a student loan, the refinance is not priced as a cash out loan.

ARM Loan to values (LTV): FNMA will allow a maximum of 95% LTV on ARMs.

Treatment of timeshare loans: Currently, timeshare loans are treated as a mortgage type loan. When a lender sees a mortgage late on a credit report the first instinct is to stop the loan. FNMA's enhancement states that timeshare loans will be treated as an installment loan, like a car loan.

Don't forget that last month the FHFA requested information (RFI) on limited English proficiency (LEP). The FHFA surprised a few industry advisors by weighing into this somewhat complex and fraught issue. But it is just a RFI.

Wells Fargo Funding reminded its clients that Fannie & Freddie Mac issued Uniform Closing Dataset Implementation update on June 6, 2016, stating that embedding the Closing Disclosure (CD) PDF in the UCD XML data is not required by the GSEs on September 25, 2017. The GSEs will still require a successful submission of the borrower UCD XML dataset for loans with Note dates on and after September 25, 2017. The GSEs will fully enforce the requirement to embed the CD PDF in the UCD XML data no earlier than April 2018.

Plaza is aligning with the Freddie Mac updates announced in Bulletin 2017-8 including the acceptance of Freddie Mac's Automated Collateral Evaluation (ACE) appraisal waiver. Plaza's Program Guidelines will be updated on July 3rd; however, this change is effective immediately. And its Fannie Mae SEL-2016-07 and Freddie Mac Bulletin 2017-2. High Balance mortgage loans will continue to require a valid credit score for each borrower.

As announced by Fannie Mae, updated HomeReady income limits will be implemented in DU and in the Eligibility Lookup tool during the weekend of July 8. It will also publish the census tract lookup spreadsheet and income eligibility summary on the HomeReady page.

Starting 6/19, AmeriHome began accepting the new "ACE" appraisal waiver offered by Freddie for certain LPA transactions.

The Fannie Mae Servicing Guide has been updated to simplify servicing. Updates include reducing post-foreclosure risks and costs, streamlining processes by allowing servicers to leverage the Flex Modification recordation requirements, and simplifying short sale processing.

Effective immediately, wholesaler MWF's clients should note that the maximum Debt to Income (DTI) ratio for the Golden State Finance Authority (GSFA) Platinum conventional program is now 45.00% with DU "Approve/Eligible" or LPA "Accept" unless a lower maximum DTI is required for product/property type per GSE or Insurer. GSFA has made this change in accordance with Freddie Mac HFA guidelines. The maximum DTI for the GSFA Platinum FHA program remains at 45.00%. The DTI for manually underwritten Platinum conventional loans remains 36.00% unless a lower maximum DTI is required for product/property type per GSE or Insurer.

MWF sent out an alert stating High balance loan limits (by the County) are now allowed on the CalHFA conventional and FHA programs. The maximum first mortgage loan amount on Conventional products may not exceed the Fannie Mae conforming loan limit with a maximum of $636,150 for conventional loans. The maximum conforming LTV is 95.00% for high balance loans. FHA maximum first mortgage loan amount may not exceed the FHA loan limit for County in which the property is located for FHA loans. All loans exceeding $424,100 will be subject to an additional high balance fee. See CalHFA rate sheet for high balance fees (may change daily).

To expand homeownership opportunities to more borrowers, Freddie Mac has updated its Loan Product Advisor to allow lenders to assess mortgages for borrowers without credit scores, effective for mortgages originally submitted on or after May 14, 2017, with settlement dates on or after June 26, 2017. Loan Quality Advisor will also be updated with this capability as of May 14, 2017. Requirements to allow the assessment of these mortgages include the following transaction characteristics: Must be a purchase or a "no cash-out" refinance mortgage, must be secured by a 1-unit property and all borrowers must occupy the property as their primary residence. LTV, total LTV (TLTV) and Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios must not exceed 95%, and must be a fixed-rate mortgage. The loan must not be a mortgage secured by a manufactured home, or a super-conforming mortgage.

Pacific Union Financial posted that the Loan Product Advisor (LPA) and the Home Possible Income and Property Eligibility tool have been updated to reflect the 2017 AMI estimates issued by the FHFA.  The AMI increased in over 80% of the United States census tracts; therefore, customers who may not have been eligible for Home Possible under the 2016 AMI limits may now be eligible.

PennyMac is aligning with the updates announced in Freddie Mac Bulletins.

Capital markets

Yes, interest rates crept up but now have, we hope, stalled. But hope is not a strategy. They crept up based on some news from Europe revolving around the prospects of the European Central Bank's eventually tapering off its asset purchases - something we can look forward to. Nothing really has changed here in the U.S. - thus the potential stall. Global bond yields continued to surge higher only to stall as equities markets cratered sending volatility soaring only to stage a sizable recovery into the close.

Our bond market is still attractive. Despite tightening monetary policy, Treasurys will continue to be a valuable asset to insulate investors from downturns in stocks and high-yield credit, said Scott Mather, a portfolio manager at PIMCO. "US Treasurys are one of the most liquid, high-quality ways to diversify and potentially provide the negative correlation to most risk assets that investors seek in core bonds," he said. But that didn't keep the 10-year from selling off over .375 Thursday and closing at 2.27%. Fortunately, agency 30-year MBS only worsened about .250.

This morning we've seen personal income and spending for May (+.4%, +.1%). The Core PCE Price Index was only +.1%. Coming up is June Chicago PMI, and the University of Michigan Sentiment Index. The 10-year is yielding 2.27% and agency MBS prices are roughly unchanged versus Thursday's close.

Jobs and Announcements

National MI is a new member of the American Mortgage Diversity Council (AMDC), furthering its corporate commitment to promoting multicultural diversity and inclusiveness in the mortgage industry to open more opportunities for homeownership in the U.S. The company has been active in helping lenders expand their outreach to many first-time homebuyers, including multicultural segments, through its MI University via webinars such as "Building Relationships in a Highly Digital Multicultural Environment," scheduled for Thursday, July 20th.

The Wholesale division of Finance of America Mortgage, which was ranked #8 for wholesale lenders by volume by Scotsman Guide, is expanding its team of top producing AEs across the country. Expansion into new markets offers new AEs access to open territories with no account overlap or internal competition. FAM Wholesale AEs have access to a diverse suite of products including Renovation, Commercial (Fix & Flip, Investor Line of Credit) HELOC product and Non-Delegated Correspondent. FAM Wholesale offers a consistent, competitive pricing model along with customer-centric operations centers. To learn more, visit Elevate your Career, contact Brady Shepard (317-727-9493), or email Brady Shepard.

A "Top 10 Retail Lender, with a deep-pockets parent, is looking to purchase/merge originating lenders with production of $500m-$6 billion annually. We offer extremely competitive compensation, pricing and sales support structure. Key areas where we would like to add new teams as part of our family are; NC, SC, VA, IL, MI, MW, TX, OK, Northeast, OH, AL, LA and MS. We are not opposed, however, to other areas of the country as well.  We will negotiate the best terms for the best companies. A 'plug n play' approach allows for smooth transitions with little interruption to business flow. If interested in having an initial discussion, please email Rob Chrisman so a direct connection can be made." Please specify opportunity.

"Already recognized as well known in the non-Agency space, Angel Oak Mortgage Solutions continues to make themselves easier to work with. In addition to all the new Account Executives that have joined, Angel Oak has recently developed a correspondent channel headed up by Sean Marr as well as added a new lender-paid compensation option. These two new options give the broker even more flexibility in how they can partner with Angel Oak. If you're interested in learning more about either option, simply contact your Account Executive or email info@angeloakms.com. They also continue to hire additional Wholesale AEs across the country as well as underwriters and other operations positions in their Atlanta headquarters. Come build your career with the nation's top Non-QM lender by emailing careers@angeloakms.com or watch this clip from their Mortgage News Network's Top Mortgage Employer's interview for more information."

In retail news & job opportunities, GSF Mortgage has been selected to partner with Google's Accelerated Growth Team. "This exclusive Google team chooses businesses that they believe exemplify the ability to thrive in the digital marketing space. GSF Mortgage's business plan is to utilize digital marketing techniques and campaigns to drive attention to local branch operations. This partnership has already proven to be fruitful for our branch managers and loan originators. The strategies that have been implemented in a short timeframe have increased the consumer-to-branch contact by 75%. A similar plan is underway with Facebook and Instagram as additional resources to drive online generated leads directly to the branch. "We are very honored and excited to be selected by the Google team. Our goal is to leverage technology to enhance our originators local effectiveness and this partnership helps a great deal," says President Chad Jampedro. GSF Mortgage has branch manager and loan originator opportunities across the country. If you are interested in learning more about joining our team, contact Rich Obermeier at (262) 957-8901."

"Considering acquiring or merging with another lender? Wondering whether your company qualifies for the expanded requirements of the research and development tax credits? Or, are you simply looking for a seasoned audit and tax firm with mortgage expertise who can share best practices that can help improve your bottom line and reduce your tax liabilities? Discuss these questions and others with Jeff Spiegel, CPA, Principal, at Spiegel Accountancy Corp., at the upcoming Western Secondary Market Conference. Email Jeff Spiegel to schedule a meeting or go to www.spiegelcorp.com to learn more."