Details of the latest Redwood Trust March 1st deal are emerging. The $290 million residential MBS are backed by 303 loans, roughly 2/3 from First Republic Bank and the rest by PHH Mortgage. The average loan size is $977,000 with a mix of 30-yr fixed rate and 10-yr Corp., according to the filing, with over 50% being from California. The deal holds an aggregate principal balance of $296.3 million and an average balance of more than $977,000. The loans are a mix of 30-year fixed-rate mortgages and hybrid 10-year hybrid loans, and the master servicer will be Wells Fargo with Citigroup acting as the trustee. What investor is going to buy any of the deal without a rating? Apparently Redwood began working with more than one rating agency. Fitch gave the deal its highest grade, but the other two rating agencies (Moody’s and Standard & Poors) offered unsolicited opinions that raised doubts about Fitch’s assessment including questions about the risks attributable to the geographic concentration of the mortgage loans.
Last week we learned that in the Great State of Texas, Vista Bank will be purchasing Founders Bank. At the other end of the deal spectrum, however, the FDIC announced that in Georgia (unofficial slogan: "Without Atlanta, We’re Alabama") Habersham Bank was closed and its depositors moved to SCBT National Association (SC), and Citizens Bank of Effingham was absorbed by HeritageBank of the South. Out in California (unofficial slogan: ""By 30, Our Women Have More Plastic Than Your Honda") Bank of Marin assumed all the deposits of Charter Oak Bank, and First California Bank assumed all the deposits of San Luis Trust Bank.
Fraud in Nevada? No way! I can’t vouch for this source, but it seems plausible: LetemRide
What is the public hearing and seeing regarding the April Fool’s Day changes? "Starting April 1, under a new compensation rule from the Federal Reserve, borrowers who get their mortgages through brokers will most likely pay less for their services and must be offered the lowest possible interest rate and fees for which they qualify. The new rule also affects those dealing with small banks and credit unions, which typically do not fund loans from their own resources. But most banks and other direct lenders, including the few mortgage companies that function like banks, are exempt." NYTCompArticle
Provident Funding released details of its compensation plan. "Provident Funding will require a Broker Fee Agreement (between the broker and the borrower) to be uploaded for each transaction at Initial Registration beginning on March 1, 2011. You may use your own Broker Fee Agreement forms, provided all of the following requirements have been met: Must be signed and dated by the interviewer and all borrowers, must specify all broker fees to be charged in the transaction, regardless of who will be paying them, and the total for all broker fees reflected on the Broker Fee Agreement must match the GFE (i.e. Block 1 minus Lender Fees). When the GFE fees are input into the system: the Broker Origination Fee can be either a flat fee or percentage of the loan amount, and a Broker Processing Fee and up to 3 additional miscellaneous broker fees can be input. These must always be flat fees and cannot be based on a percentage of the loan amount; otherwise the GFE will be rejected."
Provident’s bulletin goes on to note, "Where state law permits the broker origination fee to be based on a percentage of the loan amount, but the Broker Fee Agreement does not have a designated space for broker compensation to be specified as such (i.e. only as a dollar amount), one of the following is required: The agreed upon percentage of loan amount for broker compensation can be handwritten or typed in, as long as it is initialed by the borrowers, or an addendum signed by the borrowers and specifying that the broker compensation is based on a percentage of the loan amount can be provided. If neither of the above is provided, all broker compensation is presumed to be a flat fee."
Recently at Bank of America, its correspondents learned that it is now adding "loan-level suspensions to loans where state licensing requirements appear not to be met." Correspondent clients, by now, should have sent BofA copies of all current state licenses. Bank of America, by the way, has discontinued its Conforming Home Possible program line.
Other "discontinuations" include M&T cutting its FHA 30-yr fixed buydown, 203k rehabilitation buydown and VA 30-yr fixed buydown products, MSI discontinuing its USDA Rural Housing 2/1 Buydown program, and Affiliated Mortgage cutting its FHA and VA 30 Year Buydown products.
Conversely, Flagstar Bank announced that the temporary suspension of "to be determined" (TBD) properties has been lifted. But like practically every other investor, Flagstar Bank is suspending all products that include a temporary interest rate buydown. Starting yesterday Flagstar is allowing "all approved FHA Sponsored Originators (formerly known as FHA TPO and FHA Sponsored Loan Correspondents) to order their FHA Case Number Assignments via Loantrac," and also told clients that "new construction attached PUDs located in Florida are eligible properties, provided the project or subdivision has a 50% pre-sale ratio. Flagstar continues to prohibit FHA and VA financing of new construction attached PUDs located in Arizona."
Fifth Third correspondent clients learned that next Tuesday, since Freddie Mac is revising their policy to require funds to close to be verified on refinance transactions (LP will not reflect the amount of funds required to be verified to close), neither will it.
CitiMortgage Correspondent’s channel announced a re-org. Starting March 1st CitiMortgage will support your Correspondent relationship with a newly assigned Correspondent Account Executive. Our sales coverage model offers multiple benefits, including: a seasoned, consultative Sales Account Executive that has the experience and knowledge to deliver on our commitment to you, a dedicated Client Services Consultant who will provide proactive communication and tailored support, etc. The reorganization resulted in lay-offs, as one would expect.
Mortgage Services III (MSI) posted several changes that are now on its website. Changes include revisions to refinance guidelines & verification of funds, and a revised MSI Document Preparation Form & updated procedures.
PHH told its clients that starting next Tuesday, users of its "Fastrieve" system will notice that the "PreSubmission" option will no longer be available In order to simplify the document submission process. (Users will now choose between the two remaining Package Status options, "Final" or "Conditions" and plan accordingly for existing documents.) Late last week PHH followed changes in agency guidelines, specifically with LP scored and manually underwritten loans for refinancing purchase money transactions. ("for no cash out loans scored through LP or Manually Underwritten, the mortgage being refinanced must have a Note Date of at least 120 days prior to the Note Date of the No Cash Out refinance transaction") and the verification of all assets stated on the loan app. PHH also reminded clients that "the borrower must explain in writing all inquiries shown on the credit report within 120 days prior to the date of the credit report for all LP and manually underwritten loans. Loans scored through DU are required to provide explanations for credit inquiries within the previous 90 days prior to the date of the credit report. Previously it was 90 days for all loans." Check the bulletin for exact details.
At least pricing in some areas is improving. For example, late last month Wells Fargo Funding rate sheet (for correspondent clients) pricing began reflecting an uncapped base rate sheet price (although its maximum "all-in" base price cap of 102.75 on all Best Effort Correspondent Loans remained unchanged). "For Conventional and Government Best Effort Loans, the final price, excluding SRP, may not exceed 102.750, the final base price paid to the Seller will be capped at 102.75 after adjusters have been applied, even if the "pre-adjuster" price exceeds the cap, and Servicing Released Premiums, including the non-escrow waiver, are not included in this calculation, and are applied after the all-in base price is calculated."
Remember, it’s already Tuesday! I lose track of all the housing indices that come out, but today we have the Case-Shiller 20-city Index, along with Consumer Confidence. Tomorrow is not much aside from Existing Home Sales and weekly mortgage app numbers from the MBA, which, as expected for 2011, have not been setting the world a ‘fire lately. Thursday we can look forward to Jobless Claims, Durable Goods, another housing price index, and New Home Sales. On Friday we’ll have our second look at the GDP from the 4th quarter (old news?) and a Michigan Sentiment number. In addition to the average news week, there will be Treasury auctions today, tomorrow, and Thursday, and which always have the potential of moving Treasury and mortgage rates one way or another.
Fill up those gas tanks! For news, the focus is on continued geopolitical unrest in the Middle East and Libya, the earthquake in New Zealand, and a possible downgrade for Japan by Moody’s. Oil and gold are on the rise, early indications point to a "down stock market" but the 10-yr Treasury is better by about .5 in price (and down in yield to 3.52%) and MBS prices are better by roughly .250. Rob Chrisman
February 21, 2011
New premium structure for 30- and 15-year loans will help private capital return
WASHINGTON – As part of ongoing efforts to strengthen the Federal Housing Administration’s (FHA) capital reserves, FHA Commissioner David H. Stevens today announced a new premium structure for FHA-insured mortgage loans increasing its annual mortgage insurance premium (MIP) by a quarter of a percentage point (.25) on all 30- and 15-year loans. The upfront MIP will remain unchanged at 1.0 percent. This premium change was detailed in President Obama’s fiscal year 2012 budget, also released today, and will impact new loans insured by FHA on or after April 18, 2011.
“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said Stevens. “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”
The proposed change was announced last week as part of the Obama Administration’s report to Congress, which outlined the Administration’s plan to reform the nation’s housing finance system. The Administration’s housing finance plan also recommended that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011. LEARN MORE HERE
This premium change enables FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance (MMI) fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010. The change is estimated to contribute nearly $3 billion annually to the Fund, based on current volume projections. It is vital that HUD take action to ensure that FHA will continue to serve its dual mission of providing affordable homeownership options to underserved American families and first-time homebuyers while helping to stabilize the housing market during these tough times.
On average, new FHA borrowers will pay approximately $30 more per month. This marginal increase is affordable for almost all homebuyers who would qualify for a new loan. Existing and HECM loans insured by FHA are not impacted by the pricing change.
FHA will continue to play an important role in the nation’s mortgage market in 2011. President Obama’s FY 2012 budget projects the FHA will insure $218 billion in mortgage borrowing in 2012. These guarantees will support new home purchases and re-financed mortgages that significantly reduce borrower payments.
The FHA already has the authority to do this: READ MORE
WHAT YOU NEED TO KNOW: The increase in Annual Mortgage Insurance Premiums for forward mortgage amortization terms is effective for case numbers assigned on or after April 18, 2011. The new procedures for requesting case numbers are effective on April 18, 2011. Automatic case number cancellation is effective for all case numbers not insured prior to April 18, 2011.
HOW DOES THIS ENCOURAGE THE RETURN OF PRIVATE CAPITAL TO THE HOUSING MARKET?
"FHA is still the way" in the purchase market. The modest increase in monthly payment will undoubtedly upset some folks, especially Originators and Realtors, but a positive perspective can be taken…
We’ve been complaining about over-tightened risk management policies and irrational lender overlays for two-years now. It’s gotten worse and worse as more "onesy-twosy" reforms have been implemented with no uniformity.
Beefing up FHA’s reserve fund might pave the way for a modest relaxation of underwriting regs though. Perhaps instead of saying "relaxation" we should describe the move to bolster the FHA’s reserve account as a forward looking indication of common sense FINALLY creeping back into the home loan underwriting process. Seems like a few targeted initiatives are in the works…..
If housing is ever to get back on its own two feet, we’ll need viable construction financing vehicles. Right now funding sources are scarce for rehabilitation projects. This is where FHA can encourage the return of private investment in the housing market: By giving private investors a funding vehicle aimed at REBUILDING REMODELING and REHABILITATING the glut of deteriorating housing inventory currently on the market (and shadow inventory). This will get the ball moving in the right direction when it comes to a believable stabilization of home prices in America. This will help stop the negative feedback loop.
What am I getting at?
Plain and Simple: In terms of a targeted initiative, allowing investors to participate in the FHA 203K loan program would be a step toward recovery in the housing market.
It seems like we’ll be seeing more of these "targeted initiatives" in the future. We can’t fix it all once…..
U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan has released HUD’s 2012 Fiscal Year budget request.
The latest HUD budget proposal outlines a $48 billion spending program for fiscal year 2012, an increase of more than $900 million from 2010. The $48 billion gross budget appropriation proposal is expected to be offset by a projected $5 billion in receipts from FHA and Ginnie Mae. When including receipts, HUD’s net budget authority will total $43 billion, this is a 1.1 percent reduction from FY 2010.
Donovan said that the budget meets the Presidents directive to freeze domestic spending for the next five years and because the President’s State of the Union charge to "Win the Future" requires reforming government to be leaner and more transparent, HUD is proposing reforming the administrative infrastructure that oversees its programs.
Major cuts made to trim the budget include what Donovan calls "the difficult choice" to reduce funding for new units and projects. Community Development Block Grant funds were cut by $746 million to $3.8 billion and HOME Investment Partnerships funds will drop to $1.65 billion from $1.83 billion, largely through cuts to new construction components of the Supportive Housing Programs for the Elderly (202) and Disabled (811).
Donovan said that the budget maintains HUD’s commitment to its core rental assistance programs, requesting 19.2 billion for the Housing Choice Voucher program an increase from 18.2 in FY 2010. This will allow HUD to help more than two million extremely low- to low-income families with rental assistance in the neighborhoods of their choice. The requested amount will fund all existing mainstream vouchers and provide new vouchers targeted to homeless veterans, families, and the chronically homeless. The Department is requesting $9.4 billion for Project-based Rental Assistance to preserve approximately 1.3 million affordable housing units through contracts with private owners of multifamily properties. This is an increase of $871 million from FY 2010 enacted levels.
The budget asks for $4.96 billion for the Public Housing Operating Fund, an increase of $187 million, and $2.37 billion for Homeless Assistance Grants to maintain existing units and expand prevention, rapid rehousing, and permanent supportive housing; an increase of $507 million. Another $145 million is sought for new housing vouchers for over 19,000 homeless veterans and homeless persons who receive education, health care and other services through the Departments of Education (DOE), Health and Human Services (HHS) and Veterans Affairs (VA).
The proposed budget will provide a total of $953 million for Housing for the Elderly and Housing for Persons with Disabilities Programs which will not only preserve all existing housing units but also provide $499 million for new construction and incremental project rental assistance contracts.
The budget calls again for funding the National Housing Trust Fund (NHTF) which was not funded in FY2010. It was designed to provide capital resources to build and rehabilitate housing to fill the growing gap in housing identified in the recent Worst Case Housing Needs Report.
HUD projects that FHA will insure $218 billion in mortgage borrowing in 2012. In 2009 FHA was used by 38 percent of all homebuyers. FHA along with VA and federal farm programs guaranteed 81 percent of all mortgages to African Americans, 73 percent to Hispanics, and 30 percent of first-time homebuyers.
"The budget provides a roadmap for HUD to work with our regional and local partners to win the future by investing in innovation, building neighborhoods that are connected to jobs and providing greater access to opportunity, so American businesses and communities are the best in the world" said Donovan. "The President has said that we need to live within our means to invest in the future. That has meant tough choices, including to programs that, absent the fiscal situation, we would not cut. But American families are tightening their belts and we need to do the same."
HUD’s budget, working in coordination with the Department of the Treasury’s budget request is proposing two reforms to the Low Income Housing Tax Credit (LIHTC) that will replace the current cap on household income at 60 percent of area median income with the option that properties serve households whose average income is no greater than 60 percent of AMI and with no individual household above 80 percent of AMI. This will allow greater income-mixing at the project level, creating opportunities for workforce housing; help align LIHTC with HUD’s and USDA’s affordable housing programs (which define low-income at 80 percent of area median income); and lead to the creation of more units targeted to the lowest income households.
HUD is requesting $72 million, to support administration of two Fair Housing programs and for funds for a multi-agency initiative to assist communities in using their funds more effectively to support job creation-an improved successor to the Empowerment Zones that expire this year.
Donovan said of the budget, "The American people deserve a federal government that works effectively across its "silos" to deliver results. This Administration has prioritized collaborative initiatives that feature agencies streamlining and coordinating their funding processes, so they complement rather than complicate-or even conflict with-each other." To that end, the budget continues cross-agency collaborations with the VA, Department of Transportation, and the Environmental Protection Agency.
February 18, 2011
There’s a saying, "We are born naked, wet, and hungry. And then things get worse." But perhaps, just perhaps, smaller mortgage brokers and bankers won’t see things get worse with the Qualified Residential Mortgage ("QRM") plans. Dodd-Frank requires lenders to retain 5% of the credit risk of any mortgages closed outside of the guidelines – but what are the guidelines? Will it be based on agency – effectively killing the jumbo/non-agency market? What if the agency guidelines go away? Will it be based on LTV, cutting into FHA or the MI company business share? Anyway, the issue has been somewhat quiet, but recently the Senate Banking Committee heard from FDIC Chairman Sheila Bair, and she told members that regulators will soon release its QRM that will determine how much risk loan originators retain after securitization. Apparently it is targeted at larger institutions. Per Ms. Bair the direction of the rule will be focused on issuers and securitizations, not small originators – which include community banks. Mortgage brokers and bankers are hoping they’re also included.
Yesterday I regurgitated the latest public information on comp from Wells (wholesale) and GMAC. A well informed reader wrote, "I have a good perspective on how the various lenders were viewing LO comp. Unfortunately for anyone looking for uniformity, their perspectives vary significantly. SunTrust, for example, is clearly ahead of the curve in policy implementation. Wells wants to micromanage everything a broker does, and MetLife seems to be more like Wells than SunTrust. It appears that Stearns will offer an anti-steering document that is going to be required in every file. Whether it is to be signed by the broker or borrower or both is yet to be determined. Regarding oversight, most wholesale companies, at this point, aside from a ‘reps and warranties’ addendum to the broker agreement that the FRB regs were being followed, are taking the approach that there would be no oversight. The exceptions are Wells and MetLife, with Wells expected to produce an 18-question form that would be going out to broker principles very shortly that deals with broker compensation plans."
I receive a fair number of questions along the lines of, "What if I don’t have a comp plan by 4/1?" or "Why are Wells and MetLife going to require our comp plans – aren’t reps and warrants like other investors are doing enough?" It is not hard to see why, given the possible financial liabilities of a foreclosure or lawsuit, there is pressure to sign off on a comp plan. Will anyone be watching? You bet: WhistleblowersUnite
As I noted last week, "The maximum amount of any liability of a mortgage originator to a consumer for any violation of this section shall not exceed the greater of actual damages or an amount equal to 3 times the total amount of direct and indirect compensation or gain accruing to the mortgage originator in connection with the residential mortgage loan involved in the violation, plus the costs to the consumer of the action, including a reasonable attorney’s fee." Although I could not find it, it is purported that penalty highlights also include an increase in the rescission period, so "Penalty highlights" (costs/fees/penalties) include the rescission period increasing from 1 to 3 years, in addition to 3 times the MLO comp received, penalties include all finance charges, interest, fees, and legal fees, and unlimited rescission period for loans in foreclosure. Much of this is paid for by the servicer out of foreclosure proceeds.
In the event of a foreclosure, scenarios show that the penalty reduces the servicer recovery during the foreclosure/REO process, and for a performing loan the penalty reduces the funds owed by borrower if the loan is in rescission period, or the borrower’s UPB is reduced if it is outside of the rescission period. So in terms of numbers, loan size = $450,000; interest rate = 5.25%, pre-paid finance charge = $5,670; total interest paid for 3 years = $70,875, originator comp broker = 2.50% (estimate) x 3 = $33,750, estimated attorneys’ fees = $65,000, total penalty= $175,295.
One can pick apart these numbers all one wants, but the fact remains that large investors with capital on the line are concerned about anything close to them. I will throw in my opinion here, and say that I doubt that attorneys will be turning a blind eye to any indiscretions, given the current environment. And it would not take many "deals gone bad" to cause severe financial damage to a thinly-capitalized lender which is why large investors and servicers are extremely cautious – whether this involves reviewing comp plans or stringent reps & warrants. And lenders are spending a lot of resources setting up plans. "Don’t do the crime if you can’t do the time."
Compensation discussions are happening around the country. In Northern California, Comstock Mortgage announced two panel discussions "examining the impact the Federal Reserve Loan Originator compensation rules will have on our industry and on loan originators." Using a set of solid panelists, the purpose of the panel is to give loan originators and their management a chance to ask questions of mortgage industry professionals who are actively engaged in studying the issues and implementing the rules for their specific companies. The discussions are slated for 2/23 in Dublin, CA and 2/25 in Sacramento, CA. For information contact Casey Fleming at firstname.lastname@example.org or to register for the seminar, contact Kathleen Chothia at (925) 484-1466.
Three thousand miles away, in Parsippany, New Jersey, NYLX is putting on a seminar on the same topic on the 24th. "Join us at the Hilton Parsippany on February 24th from 9am-12:15pm as we host an informative session with noted experts that can help you achieve your 2011 compliance goals without compromising your competitive edge. Find clarity and direction amidst the confusion!" To start the registration process, go to NYLX
The compensation issues, as well as others, have certainly caused those remaining in the mortgage industry to band together. One such organization that has sprung up is the Mortgage Action Alliance which is a "grass roots, voluntary, non-partisan, and free lobbying effort to help make sure our voices are heard." Per one of the organizers, "Mortgage Action Alliance allows you to be kept updated with the key legislative issues that affect our business. One signs up online for MAA, and when there is a key issue up for debate, a "call to action" may take place, in which you will receive an email from MAA and be asked to "take action" by simply completing a few steps online – the result is that automatic letters will be sent to your Congressmen immediately." MAA
Merscorp Inc., owner of MERS (and the electronic-registration system that contains about half of all U.S. home mortgages), will propose a rule change to stop members from foreclosing in its name. MERS (which is easier to say) has certainly been in the press, and it hasn’t helped the industry that courts have issued different verdicts on whether MERS, as an agent for the mortgage owner, has the right to bring a foreclosure action. MERS
Looking at the markets, interest rates are behaving themselves – whatever that means. Yesterday the Conference Board’s Leading Indicators increased 0.1% in January after rising 0.8% in December. Six of the 10 indicators in the leading index contributed to the increase, led by the interest-rate spread and the stock market. The Philadelphia Federal Reserve general economic index rose to 35.9, the highest level since January 2004, having risen from 19.3 in January. But Treasuries preferred, wisely, more on the rising tensions in the Middle East, and an increase in U.S. Jobless Claims. The yield on the 10-yr hit 3.56%, the lowest level since Feb. 4th (and much lower than the 3.77% Feb. 9 level). Today we have no scheduled economic news. China stole the headlines by raising reserve requirements in that country by 50 basis points to further combat inflation. So far this morning we find the 10-yr at 3.61% and MBS prices worse by about .250. Rob Chrisman
February 17, 2011
And now, turning to sports-related mortgage news, who is Daniel Carbo? Quicken Loans (#1 online lender) paid off Mr. Carbo’s mortgage as part of its "Thanks a Million" contest during halftime at a Cleveland Cavaliers basketball game at Quicken Loans Arena. Apparently Quicken closed its one millionth mortgage in late 2010. Every client who closed a mortgage last year between August – December was automatically entered into a drawing to pay off one client’s loan, up to $250,000.
Recently Bank of American and Citi have announced a series of branch closures. At the other end of the “trend,” JPMorgan Chase announced it will open 225 branches this year and more than 2,000 over the next 5 years. The bank is seeking to increase its presence in FL, CA, NY and IL. Out on the West Coast, First California Mortgage announced the opening of two new fulfillment centers, in Irvine, CA and Seattle, WA, bringing the total of Regional Fulfillment Centers to 5 including; Northern California, Arizona and Colorado.
In a story that falls under the “it just won’t go away” title, the House Committee on Oversight and Government Reform issued a "wide-ranging subpoena" to Bank of America for all documents and records related to Countrywide’s VIP program, the so-called "Friends of Angelo" circle. The Committee has been investigating Countrywide for over two years. A statement read, “Countrywide orchestrated a deliberate and calculated effort to use relationships with people in high places in order to manipulate public policy and further their bottom line to the detriment of the American taxpayers even at the expense of its own lending standards." Anyone servicing Freddie loans should be aware that in preparation for the phased migration of all servicers to the Service Loans application this year, Freddie’s Single-Family Seller/Servicer Guide has been updated: http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1103.pdf.
Chase notified correspondents that it will be implementing the changes detailed in Freddie Mac’s announcement 2011-2 (Refinance Mortgage Eligibility and Verification of Funds), and also told clients that Chase improved its 10-yr pricing adjustment by .250.
GMAC updated its HomePath product summary guidelines, specifically to include a more detailed description on the different types of financing for the HomePath program.
(GMAC Bank does not participate in the HomePath Renovation Mortgage Financing Product or the HomePath manufactured housing mortgage product.) The investor also let clients know that the FHA Comprehensive Risk Assessment Worksheet has been updated to apply to FHA refinance as well as purchase transactions, and is required for all manually underwritten loans, including automated underwriting Refer decisions and Approve decisions that have been downgraded to a Refer decision.
Guild Mortgage let brokers know that starting 4/18 it would be adopting the new FHA MIP fees. And also on that date “FHA systems will require mortgagees to: certify at the time of requesting a case number that they have an active application for the borrower and property, and provide the borrower’s name and social security number for all new construction (proposed, and existing less than one year old). (FHA systems will automatically cancel any uninsured case number where there has been no activity for 6 months since the last action except for loans where an appraisal update has been entered and/or loans where the UFMIP has been received.)
What is the latest exciting news on compensation developments? Lenders are continuing to research historical production data for their producers, as well as paying attorneys to analyze the rules and regulations. And smaller lenders are waiting for the Top 5 investors to continue to announce their policies, which in turn will be used to formulate their own, especially when required to submit comp plans to their investors.
With that in mind, Wells Fargo’s wholesale group sent the word out to “Broker owners” (company owners) saying that the owners should submit their broker owner compensation policies and procedures to Wells Fargo by March 15, 2011. “Broker owners will need to submit your Broker Owner Compensation Policies and Procedures, which should give an overview of your compensation policies and how you implement them. Wells Fargo will not require individual Loan Officer compensation agreements or contracts. Every single broker company must outline their rules and governance and submit their broker owner compensation policies – even if you are a one-person company or a partnership company that compensates in a salary plus distribution structure.” Wells will send out an e-mail with a questionnaire, a “request for information letter,” which provides a high-level overview of Wells Fargo’s compensation policy screening.
Wells stated that, at a minimum, broker owner policies must include all of the following: how the broker owner compensates its individual loan officers who act as loan originators, how the broker owner compensates its producing branch managers, whether the broker owner compensates its individual loan officers differently based on whether the consumer or the lender is paying broker compensation, and record retention guidelines. “Broker owners should outline in their policies how they compensate their loan officers under both the consumer- and lender-paid models. Under current interpretation of the rules, loan officers who originate loans under the consumer-paid model can’t receive compensation based on commission – their compensation must be based on a salary or salary plus bonus structure. Therefore, if a loan officer originates loans under both the consumer and lender-paid models, then their compensation can only be based on salary or salary plus bonus structure.”
GMAC Bank Correspondent Funding sent out compensation word that it will provide its clients with two compensation options: lender paid compensation or consumer paid compensation. The compensation option must be selected before the loan application is submitted to GMACB. Under its Lender Paid Compensation arrangement, “Compensation is based on established upfront terms negotiated between the broker client and GMACB that will remain in effect for a quarterly period. The compensation will be based on a set percentage of the loan amount and cannot vary from one transaction to another. GMACB will pay compensation directly to the broker client. The quarterly compensation amount will be used for all loans sent to GMACB where lender paid compensation is selected and will be set-up prior to registering loans. The consumer may pay discount points to reduce the interest rate. The consumer may pay bona fide third party costs and GMACB fees by paying cash at closing, or by financing them through the loan principal or interest rate. The consumer cannot pay any compensation to the broker client or any loan originator. The broker client/loan originator cannot reduce the lender paid compensation amount by offering concessions or paying for tolerance violations. The broker client must establish compensation agreements with its loan officers that comply with the Final Rule.”
For GMAC’s Consumer Paid Compensation, “The broker will negotiate compensation directly with the consumer. The consumer may pay bona fide third party costs and GMACB fees by paying cash at closing, or by financing them through the loan principal or interest rate. Premium pricing cannot be used to compensate the broker client/loan originator. The consumer may pay discount points to reduce the interest rate. The consumer must pay compensation to the broker client from their own funds or from the principal proceeds of the new loan. No other person (other than the borrower) may provide any compensation to a loan originator, directly or indirectly, in connection with the loan transaction. The broker client must establish compensation agreements with its loan officers that comply with the Final Rule. Compensation to the broker client can vary from one transaction to another. However, compensation from the broker client to its loan officers for any particular transaction may be comprised only of a salary or hourly wage. Other aggregate bonus related compensation from the broker client to its loan officers cannot be based on prohibited terms and conditions.”
Lastly, GMAC reminded us that “Loan originators must provide the consumer with loan options from a significant number of the creditors with which the loan originator regularly does business. For each type of transaction (i.e., fixed rate, ARM), in which the consumer expressed an interest, the loan options presented must include: The loan with the lowest interest rate, the loan with lowest origination points or fees and discount points, and the loan with the lowest interest rate without certain features (prepayment penalty, IO payments, etc.). “Loan originators must obtain options from at least three creditors, unless the loan originator regularly does business with fewer than three creditors.”
Pricing and underwriting engines such as LoanSifter are also in full preparation mode for these comp plans. For example, LoanSifter’s eOriginations tool “has been enhanced to be compliant with these new rules” specifically to give quotes and show specific options to the borrower meeting "safe harbor" requirements.
MBS prices finished Wednesday about where they began – worse about .125 – on slightly above normal volumes. 10-yr yields hit a low yield during the day of 3.58% on some “Iranian warships were going through the Suez Canal to Syria” news caused a flight to quality. But here in the US, continued signs of economic strength (Housing Starts, higher than expected Core PPI, and upwardly revised FOMC outlook) nudged rates higher, and the 10-yr closed at 3.62%. The release of the FOMC Minutes was not a huge event, and basically showed no changes to the employment or inflation picture. And a dissection of the Housing Starts number showed that starts rose in the Northeast, Midwest and South, but declined in the West, and the NAHB Housing Market Index held steady.
Today closes out this week’s economic news. The CPI (Consumer Price Index) was +.4%, with the core rate (for no one who eats or travels) up .2%. Jobless Claims were up 25,000 from 385k to 410k. Later this morning we’ll have Leading Economic Indicators (expected +.2%) and a Philly Fed number, as well as next week’s government auction totals. So far the 10-yr.’s yield is down nicely to 3.58% and MBS prices are better by .125-.250. Rob Chrisman
February 16, 2011
Something else to take away is that the jumbo market is making baby steps, but at least they’re steps. Redwood Trust Inc. is marketing a $280 million residential mortgage-backed security, the first private deal of this year, backed by a mix of fixed-rate and adjustable-rate mortgages. According to news on the issue, the average loan size is $978,000 and the average FICO score is 775 – pretty similar to last year’s Redwood deal made up of Citi loans. Redwoods is in its “quiet period,” and probably not adding originating customers, but if you are originating similar type loans, consider getting in touch with Redwood Trust later in the quarter. And please, don’t e-mail me asking for contacts. For complete details on the deal go to http://sec.gov/Archives/edgar/data/1510079/000114420411009020/v211544_fwp.htm
Let’s hope that they have some loans to fill those securities! Last week mortgage applications dropped 9.5% to a level last seen in November 2008. Refinancing activity was down 11.4%, and now accounts for 64% of new apps, and purchases were down about 6%. Braver Stern Securities wrote that, “with conforming mortgage rates at (these levels), almost 60% of the FH/FN mortgage universe does not have an economic incentive to refinance at the current time. For FHA borrowers this number is just over 85%.”
I have never seen a Federal Budget in person, and something tells me that I am not missing much. Analysts have happily plunged into dissecting the 2012 budget, however, which begins in October (for some reason) and details are coming out on its housing & mortgage numbers. The cost of rescuing mortgage giants Fannie Mae and Freddie Mac is likely to sink to nearly half of the current cost over the next decade, for example. The budget estimates keeping Fannie and Freddie afloat will cost $73 billion by 2021, reflecting dividends paid back to the Treasury Department and is 45% lower than the $131 billion cost to date and much lower than outside estimates. Fannie and Freddie must pay 10% dividends on the quarterly cash infusions they receive from the Treasury, which some argue should just be forgiven, thus saving them a tremendous amount of ducats. In fact, the White House estimates that the companies will be paying back more in dividends by 2013 than they receive in cash infusions and from 2014 on, the companies are expected to need no more funding. Turning to HUD, the budget proposal outlines a $48 billion spending program for fiscal year 2012, an increase of more than $900 million from 2010.
A fellow in secondary marketing wrote to me and said, "When is technology going to be socially curbed? I love to see people who spend hours at Starbucks using their iPhones and laptops suddenly complain about the traffic camera on the busy intersection. The people in business offices who complain about having to have a Blackberry with them at all times, are always the ones who send out emails on Saturday mornings. And cell phones? Just because you CAN get ahold of me, doesn’t mean you SHOULD."
But technology is critical to many facets of the mortgage process, not the least of which is servicing. Recently the Federal Housing Finance Agency (FHFA), who oversees Freddie & Fannie, has become very involved in reforming mortgage servicing rights and due compensation, which in affect sets up a new payment structure for mortgage servicers in the future. A panel at the American Securitization Forum conference last week in Orlando agreed now is a good time to change the fee structure, because simply put, it seems unfair. Some want to increase it, others decrease it, and industry vets remember Countrywide wanting to eliminate it entirely (due to capital issues). As is known by many servicers & investors, securitizing mortgages, which helps not only agency but also jumbo and other loan types, is dependent on a good servicing model – and inefficient servicing operations are part of what’s holding back new securitization.
It is not a simple topic. The industry must make sure that MSR (mortgage servicing rights) reform doesn’t kill the mortgage servicing business in the revamp, but also that the fees are more relevant to the actual tasks and suited to the responsibility of the servicer. Does servicing a current Fannie loan really warrant .25%? Does servicing a delinquent loan warrant the same .25%? Should the originator be the only one responsible for the servicing – like the subprime days of the past? Basel III is scheduled for implementation in 2014, and at this point MSRs will not count as common equity for Tier 1 capital – what will that do to BofA, Wells, and others? The president of Ginnie Mae (Theodore Tozer) suggested a sliding scale based on constant versus variable costs.
The servicing rights for an MBS (MBSR) or most mortgages include receiving both principal and interest. Currently for agency loans the GSE bonds have a minimum 25 basis point servicing “piece” retained by the servicer and used to fund the processing of the principal, interest, and any delinquencies. The servicer also receives float on the money received by the homeowner, since there is a lag between the payment is received and when the money is due to the investor. It is pennies on individual loans, but adds up if you have billions in servicing. And of course servicers receive late fees (some borrowers are surprisingly regularly late), ancillary income from other marketing efforts such as credit cards, insurance, etc., and a good shot at refinancing the borrower should it come to that. It is truly an interesting business model, and more & more companies are looking at it closely.
“I’ve been charged with murder for killing a man with sandpaper. To be honest I only intended to rough him up a bit.” According to a recent research piece by Barclays, servicers may get roughed up a bit pretty soon. In fact, Barclays suggests that the FHFA, HUD and the GSEs are much farther along in this process than many people may realize. The goals include “improving the servicing of non-performing loans and reducing GSE credit losses, relieving banks of their capital requirement issues under Basel 3, and reducing the risk of servicer concentration in the market.” Barclays’ report states, “Although banks should face less onerous capital requirements and experience less earnings volatility under such a structure, the servicing side of the business is likely to become much less profitable in future.”
We have three brand-spankin’ new Mortgagee Letters from HUD. The first introduces a 25 basis point increase to the Annual Mortgage Insurance Premiums for forward mortgage amortization terms. It also provides guidance on the validity period of case numbers and new requirements for requesting them. The second clarifies and updates existing guidance to mortgagees concerning refinance transactions for FHA insurance. And the third announces the FHA servicing lenders’ tier rankings for Round 42. They were calculated using established criteria for HUD’s Tier Ranking System (TRS) based on activity during the performance period from October 1, 2009 through September 30, 2010. (I guess I wasn’t paying attention to Rounds 1-41.) The letters can all be found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/
The PMI Group “only” lost $184 million in the 4th quarter, although it had a 128% increase in new loan insurance for the period and a slight decline in the number of PMI-insured U.S. primary loans classified as in default. The loss is less that than 2009’s 4th quarter loss of $228 million, but still worse than expected.
Stearns Lending let its brokers know that its Declining Market Policy has been removed for loans under $417k in CA, AZ, FL, and NV for loans requiring MI. There are other restrictions, so check the bulletin.
J.P. Morgan Chase rolled out some new programs to help military and veteran customers stay in their homes as it seeks to repair its image after wrongly foreclosing on military families and overcharging thousands for mortgages. Chase also recently updated its Reps & Warrants section of its Guide to “specifically reference the Appraisal Independence Requirements” under Dodd-Frank and the Appraiser Independence Requirements issued by Fannie Mae and Freddie Mac to replace HVCC. Chase, as have others, temporarily suspended temporary buydown loans until regulators address paperwork issues. And Chase decreased the price adjustment for Agency Fixed Rate High Balance loans, improving pricing by .375.
Kinecta Federal Credit Union announced the rollout of FHA 15- and 30-year fixed rate products. “Business Partners must obtain separate approval to originate FHA loans. Products are eligible in the following states: CO, IL, IN, KS, MI, MN, MO, ND, NE, OH, OK, SD and WI.”
For economic news today we’ve had Housing Starts were up 14.6%. But Building Permits were down 10.4%. The Producer Price for January was +.8%, as expected, although ex-food & energy it was +.5% – the biggest jump since 2008. The Consumer Price Index comes out tomorrow, and we’ll be able to see if these price pressures have come down the consumer level. We find the 10-yr at 3.63%, and MBS prices very similar to where they closed Tuesday.
February 15, 2011
There is an old joke about, "Why is a man like a zero coupon bond? (They pay little interest, and have no maturity.) Roughly 85% of bank deposits have a maturity of 3 months or less. Given that, banks should take care to monitor the amount of fixed rate loans and fixed rate securities going onto the books to limit the risk to rising interest rates. When I speak to various groups, I often mention that this spread income (e.g., the difference between what a bank pays its depositors – about 0% – and what it earns its money, let’s say a 5% mortgage) is a huge part of a bank’s income. But it was not enough to overcome difficulties for four more banks last week, as the FDIC shut them down. In Florida Sunshine State Community Bank was sold to Premier American Bank. Peoples State Bank was sold to First Michigan Bank up in Michigan, in Wisconsin Badger State Bank is now part of Royal Bank, and out in California Canyon National Bank was sold to Pacific Premier Bank.