Nov. 24, 2010: Fed’s “safe mortgage” comment period; several investor changes including condo, appraisal, foreclosure, and flip policy changes

Nov. 24, 2010: Fed’s “safe mortgage” comment period; several investor changes including condo, appraisal, foreclosure, and flip policy changes Rob Chrisman

In what can be summed up as, “One man’s junk is another man’s treasure,” although originators may not want (although they understand) the higher Freddie Mac fees, investors in MBS’s pleased about the news. Why? Higher fees from GSE’s translate to tighter lending and therefore more early pay-off/prepayment protection in the higher LTV / lower FICO borrower sector. Fannie has not followed the changes yet, and they don’t commence until March, but the changes continue to point to borrowers with less-than-perfect credit have to pay higher fees and rates. Gee – higher risk borrowers pay more for a loan? What a novel concept.   But what is slightly different here is that these Freddie fee changes aren’t just hitting the weakest borrowers – the higher fees are starting to have a real impact on middle-tier borrowers, and anyone with a 2nd mortgage.  For example, a borrower with a 715 FICO with a 77% LTV now has to pay a full point delivery fee or about .25% higher in mortgage rate.  A 695 FICO borrower with a 77% LTV has to pay 1.75 points or an extra .375-.50% in mortgage rate. How is the current mortgage broker business being portrayed in the press? http://www.boston.com/realestate/news/articles/2010/11/22/imagine_a_new_mortgage_model/ Last week the Federal Reserve Board requested comments on a proposed rule to implement provisions of the Dodd-Frank Act. Many of the comments will focus on the 2 year implementation of the “Volcker Rule” which generally prohibits banking entities from engaging in proprietary trading in securities, derivatives, or certain other financial instruments, and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. Remember, however, the legislation requires lenders to retain a 5% stake in loans packaged and sold to investors. The idea was to force lenders to keep some “skin in the game” which is fine until one begins to wonder if small lenders can keep capital amounting to 5% of their monthly production. The question is still being asked, “What is the definition of a ‘safe’ loan in order to be excluded from these new restrictions?” The MBA recently wrote a letter to federal housing regulators opining that mortgages with adjustable rates should qualify for an exemption from the risk-retention rules as long as they have an initial fixed payment period of at least three years. Feel free to check out some relevant links: http://www.federalreserve.gov/newsevents/press/bcreg/20101117a.htm http://www.federalreserve.gov/newsevents/press/bcreg/20101117b.htm http://blogs.wsj.com/developments/2010/11/10/mortgage-lenders-push-for-exemption-from-dodd-frank/ HUD released a few new Mortgagee Letters. One introduced a revised HUD-1, Settlement Statement (HUD-1), closing certification where the certification language has been changed to include new statutory authority to impose penalties for false certifications or fraudulent activities, include new certification language for sellers of a HECM for Purchase transaction; and replace the language which is required for HECM traditional and refinance transactions. http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/   Back in May we all learned that after 1/1 FHA Approved Loan Correspondents, also known as Sponsored third party originators, (those without FHA Direct Endorsement or Authorized Agent approval) will no longer exist and may no longer be able to close and disburse FHA loans in their own name or access the FHA Connection after December 31. So only Direct Endorsement Mortgagees will have that ability to close in their name, which is why many smaller lenders are pairing up with larger producers. For example, US Bank Home Mortgage Wholesale Division told clients that any FHA loan locked with it “by an FHA Approved Loan Correspondent (not DE approved), must be cleared to close by underwriting on or before December 17, 2010, close on or before December 24, 2010, and disburse by December 30, 2010 regardless of your lock expiration date.” Freddie Mac has updated its manufactured housing guidelines to require that manufactured homes meet all FHA/HUD codes pertaining to manufactured homes including a foundation inspection from a licensed professional engineer. Starting next Monday U.S. Bank will require that the foundation be inspected by a licensed professional engineer validating that the foundation meets all FHA/HUD codes on all conventional manufactured housing loans, both purchase and refinance.   CitiMortgage released its monthly set of existing overlays. It is a rare investor that does not have credit or collateral requirements over and above what the government dictates. In Citi’s case, it sends out a 2-3 page document showing overlays to DU, LP, DU Refi Plus, LP Open Access, FHA, VA, and VA IRRRRRRL. Obviously too broad to sum up here, Citi’s clients are advised to read them in the bulletin. Flagstar implemented the changes that Genworth Mortgage Insurance made last week. Namely, the program allows LTV’s up to 97% for all borrowers with a FICO 720 or greater, regardless of whether or not it is a first time home buyer. It is not for borrowers in CA, FL, AZ or NV. I wonder why? A minimum 660 FICO is needed for Purchase and Rate/Term Refi’s on primary residences on 95% LTV or less, but this. Not eligible in FL. (System updates will be in place Wednesday, November 24, 2010.) Borrower minimum contribution is being reduced from 5% to 3% of borrowers own funds. Bank of America reminded correspondent clients that many of the HUD condo requirements for recertifying projects expire on December 7. BofA clients should be aware that “Numerous FHA condominium project approvals expire December 7, FHA condominium projects with expiration dates of December 7, 2010 will convert to “Expired” status, FHA case numbers will not be issued on condominium projects with “Expired” status, loans with case numbers assigned before December 7 will not require project recertification, FHA condominium projects that expire December 7 must have case numbers assigned prior to the expiration date, and that lender certification that the project meets the FHA minimum of 51% owner occupancy is still required on all loans. Chase told correspondent clients that a minimum of 84 months seasoning required regardless of reason for foreclosure, and the minimum seasoning for borrowers who declared bankruptcy is either 36 or 60 months, depending on the cause. Wells Fargo wholesale alerted its broker clients about changes in the Verbal VOE process, ordering second appraisals (or not) on Conventional property flips, which FHA form to order on a final inspection, and moving from a 5-year waiting period to a 7-year waiting period for borrowers with a foreclosure. Also, Wells’ “Easy-to-Own Remittance Mortgage Program” has come to an end.   Across the hall, Wells Fargo correspondent clients learned of a change coming up on December 20th. Namely, “Wells Fargo Funding will not purchase FHA flip transactions when the sales price of the subject property is 20% or more above the seller’s acquisition cost. This includes those transactions complying with the additional conditions set forth in the HUD waiver (which allows for a one year waiver to its flip policy on transactions where the property seller is owner-of-record 90 days or less. In that Waiver, HUD provided additional requirements for FHA flip transactions where the sale price of the subject property has increased by 20 percent or more above the seller’s original acquisition cost.) SunTrust alerted its clients that the Verbal Verification of Employment (VVOE) that is required on all loan transactions may now be completed up to ten (10) business days for salaried borrowers and thirty (30) calendar days for self-employed borrowers prior to closing. In addition, SunTrust followed Freddie Mac’s recent guideline revisions which included revised minimum cash reserve requirements for certain mortgage transactions, revised rental income requirements when converting an existing 1-4 unit primary residence to an investment property, and revised waiting periods, maximum LTV/TLTV/HTLTV and eligible transactions for borrowers who have experienced a previous short sale.   What is going on with the economy? Good question – but as has been the case in recent weeks, the news points to an economy on the mend. Inflation is low, and expected to be well in hand through 2011. We learned that Existing Home Sales dropped 2.2% in October – attributed to foreclosure moratoriums and lack of credit. Regardless, single family home sales are as slow as they were in the mid-1990’s, although the median home price is roughly unchanged from a year ago. But in a more global view, the minutes of the 11/2 FOMC meeting were released. Although they were pretty much as expected, the information suggested to many economists that not only will QE2 be completed, but that a QE3 may be discussed in early 2011. When will this stuff ever end?   Tuesday MBS prices ended the day better by “a shade”, which could either be unchanged or up .125, depending on the investor. A little more than half the normal daily trading volume crossed the wires. Treasuries rallied on a flight to quality associated with continued worries about Ireland and Portugal’s debt, along with North Korean aggression against South Korea. The 10-year note closed up 13+/32nds to 2.76%.   This morning we found out that last week’s mortgage application numbers (from the MBA) were up about 2%. This follows the previous week’s -14%. Purchase apps were up over 14%, the largest increase in two years. Refi’s dropped 1% and now account for less than 79% of all apps. We also found out that Durable Goods were -3.3%, much worse than expected. Jobless Claims dropped to 407,000, also lower than expected – is employment really recovering? The trend in folks claiming unemployment benefits is certainly pointing down – the 4-week moving average dropped 7,500. (Today’s claims data cover the employment survey period for the week after November payrolls; thus the data tell us more about next month’s employment report than the one we are getting next Friday.)   Personal Income came out at +.5% and Personal Consumption was +.4%. This shows an increase in the savings rate – something that many economists like to see, although others are hoping that households start spending more than they save. Next up at 9:55AM EST is the final November Michigan Sentiment reading, and five minutes later we have New Home Sales. All that is left after that is the $29 billion 7-year note auction at 1:00, after which activity is likely to slow considerably as participants head out for Thanksgiving. The yield on the 10-yr is back up to 2.83% and 30-yr MBS prices are worse by .250-.375.   (By the way, there will be no commentary tomorrow – I will be too busy exercising for 30 minutes, pretending that is enough to burn off the calories that I will spend the rest of the day consuming. The daily blather will return on Friday.) A man wanted to get married. He was having trouble choosing among three likely candidates. He gives each woman a present of $5,000 and watches to see what they do with the money. The first does a total makeover. She goes to a fancy beauty salon, gets her hair done, new makeup; buys several new outfits and dresses up very nicely for the man. She tells him that she has done this to be more attractive for him because she loves him so much. The man was impressed. The second goes shopping to buy the man gifts. She gets him a new set of golf clubs, some new gizmos for his computer, and some expensive clothes. As she presents these gifts, she tells him that she has spent all the money on him because she loves him so much. Again, the man is impressed… The third invests the money in the stock market. She earns several times the $5,000. She gives him back his $5,000 and reinvests the remainder in a joint account. She tells him that she wants to save for their future because she loves him so much. Obviously, the man was impressed. The man thought for a long time about what each woman had done with the money he’d given her. Then he married the one with the biggest chest.