May 12, 2012: No one’s getting any younger; plethora of vendor & investor updates; a long but interesting joke

May 12, 2012: No one’s getting any younger; plethora of vendor & investor updates; a long but interesting joke Rob Chrisman

Several special interest groups seem to have laid claim to May as their “month.” A meeting with the National Council of Senior Citizens resulted in President John F. Kennedy designating May 1963 as Senior Citizens Month. In 1980, President Jimmy Carter’s proclamation changed the name to Older Americans Month, a time to celebrate those 65 and older through ceremonies, events and public recognition. There are about 40 million codgers (did I use that term?) in the U.S. who are 65 or older – including my 89-yr old father. This is about 13% of the population. The census estimates that by 2050, there will be 88 million folks older than 65 – all competing for those “Early Bird Specials” – and 1.6 billion worldwide! Here in the U.S., since 2007, real median household income declined for all age groups except 65 and older. For more stats that only actuaries and reverse mortgage lenders would love, visit <http://www.census.gov/newsroom/releases/archives/aging_population/cb10-72.html>.

Probably as a result, during a Congressional hearing it was agreed by members of Congress, advocates for senior citizens, and representatives of financial services companies that reverse mortgages are an important tool in providing a better life for seniors. “HECM (The Home Equity Conversion Mortgage program) has been a useful tool, helping hundreds of thousands of seniors maintain their homes and lead more financially stable lives,” testified Peter Bell, president of the National Reverse Mortgage Lenders Association. And look for QM news on reverse mortgages coming up in the future.

Do you think other occupations see the same changes that we do? I guess life would be boring without them, although my head continues to spin wondering how Ops and compliance folks keep up with things. So how about some somewhat recent lender/investor/agency/MI/vendor updates? As always, it is best to read the actual bulletin, but this will give one a flavor for what is happening out there. In no particular order…

Ellie Mae rolled out a three year loan buy-back insurance option to its Total Quality Loan (TQL) program through its Encompass360 mortgage management software. “TQL offers a suite of fraud detection, valuation, validation and risk analysis services, tailored to individual aggregator & investor requirements…Correspondent lenders participating in TQL can now choose to insure and be covered for losses of up to $100,000 per loan.  Underwritten by affiliates of Lloyd’s of London and Liberty Mutual Group, the insurance policy protects lenders from losses due to borrower and appraisal fraud and regulatory non-compliance.” There are plenty of details beyond the scope of this commentary, but the insurer is Arthur J. Gallagher Risk Management Services; for more information contact Justin Vedder at justin_vedder@ajg.com.

Regarding the FHA’s $1,000 limit on outstanding collections, US Bank has issued a reminder about its own overlay requirement for indebted borrowers looking to have the FHA insure their mortgage loan.  This rule dictates that borrowers with debt exceeding this limit who have reached an agreement with their creditor must provide evidence that they have made a minimum of 12 months’ payments according to the arrangement.  The DTI ratio should take into account these monthly payments. Franklin American has updated its right of redemption requirements such that it will purchase loans with an unexpired right of redemption if the loan meets certain conditions.  Unexpired rights of redemption should be identified, disclosed, and stated as an exception in the mortgagee’s title insurance policy in the title commitment/binder, and the borrower should be provided with and sign a written disclosure.  FAMC will not purchase loans where the transaction involves either the borrower exercising their right of redemption or being assigned a right of redemption.  Also keep in mind that FAMC will assume that any rights have either been waived or do not exist if the title commitment doesn’t mention them and that, should the rights be exercised on any loan FAMC purchases, the mortgagee must be paid out of the redemption proceeds. Flagstar reminds clients that the Mortgage Electronic Registration System (MERS) is continuing to accept applications for membership and that applications should be submitted as soon as possible.  This is to ensure that clients meet the June 4, 2012 deadline for becoming a member and sharing the information with Flagstar, as applications are taking 30-60 days to process due to the backlog. Wells Fargo Wholesale has issued guidance on the underwriting timelines for Freddie Mac Relief Refinance Mortgages™, which, if they were qualified using Home Value Explorer (HVE) instead of an appraisal, must close before the HVE value expires.  If the loan isn’t closed before the HVE expiry date, it will require a new HVE value or a full appraisal.  Wells encourages clients to submit Freddie Relief Refinance Mortgages as soon as possible to allow sufficient time for underwriting and to avoid the above hassle. The updated loan submission checklist has gone into effect at Fifth Third.  MCAW/1008, the fully executed 4506 T, and the VA IRRRL Indebtedness Questionnaire have been removed, and clarification has been provided on earnest money verification on purchased files and payoff statements for FHA Streamline and VA IRRRL loans.  The amended checklist must be attached to all registrations. Under Regulation B, Fifth Third is required to return a credit decision of either Conditional Approval or Statement of Credit Denial to borrowers within 30 calendar days after receiving the application.  If Fifth Third is not supplied with enough information to make a sound decision, it will issue the borrower with a Notice of Incompleteness (a.k.a. a 10-Day Letter) extending the 30-day Regulation B clock and requesting more information.  The 10-Day Letter will request documentation of items in the borrower’s exclusive control; any documentation needed from third parties cannot be included in the 10-Day Letter and is instead requested via a separate External Pend Notice that is sent to the broker.  If borrower-provided and third party documents are both missing from the application, Fifth Third will issue both a 10-Day Letter to the borrower and an External Pend Notice to the broker, after which both parties will have 10 calendar days to provide the necessary documents. Under Code of Federal Regulations title 24 205.5 (d), Fifth Third will not consider reduction of loan principal as an eligible purpose for the use of escrow funds, and lenders with an existing loan cannot put escrow funds towards reducing the outstanding loan balance in the payoff amount.  This is effective for all new applications received on or after April 16th. Fifth Third provides a friendly reminder that valuations should never be deleted from a loan file (except for FHA Streamline products).  If multiple valuation products have been obtained, the most comprehensive one should be used. As per the “Automated Underwriting Section” of the Fifth Third Correspondent Seller Guide and Product Manual that refers to the validation of AUS findings, the correspondent seller is required to submit the most current LP or DU findings that reflect the terms as approve and closed.  The information on the DU and LP assignment screens serves as sufficient verification and should be included in the loan closing package. Citibank has reminded underwriters that they should log into the Citi website and validate their data before delivering any registered loan.  The content in the Borrower, Loan, and Final Info tabs and the Borrower Application date in particular should match the final 1003; Final Info should also match up with the Note rate.  The Consumer Rate Set Date should match the date the loan was locked with the borrower, and underwriters should ensure that they indicate whether they consider the loan to be a Higher Priced Mortgage Loan (HPML).  All of these fields must be filled out to make it through the underwriting process. The Citi policy on Calculating Cash Flow and Operating Income and the Operating Income Statement has been clarified.  DU loans that have received an Approve/Eligible or Approve/Ineligible in cases where Citi will accept ineligibility criteria as acceptable should be processed according to the DU Findings Report.  Similarly LP loans that receive an Accept Credit Risk classification should be processed according to the LP Feedback Certificate and the LP fact sheet. Closed loan packages received for loans in an escrow state on and after May 1st will require both the estimated HUD-1 statement and final HUD-1 settlement statement.  Where these are not available, another estimated closing statement signed by the borrower and seller and a final escrow statement/final closing statement signed by the escrow officer will suffice.  Both documents must be received by Citi within three business days following the receipt of the closed loan package. Loan Prospector (LP) can now be used for Limited Review Detached Condos.  Provided the property is a detached condominium, Citi will accept a limited review on primary residences and second homes when the loan is manually written or submitted to LP or DU.  Certain programs allow amortization terms under 15 years, though the 15-year fixed rate product must be selected. Following its recent announcement on new policies for DU Refi Plus and LP Open Access products, Citi implemented the enhancements on Saturday, April 21st.  A fully detailed matrix of the changes is available from the Citi Client Services Team or the Correspondent Lending Bulletin #2012-06.

(A long joke, but there must be some mortgage banking analogy somewhere…)

A toothpaste factory had a problem: they sometimes shipped empty boxes, without the tube inside. This was due to the way the production line was set up, and people with experience in designing production lines will tell you how difficult it is to have everything happen with timings so precise that every single unit coming out of it is perfect 100% of the time. Understanding how important that was, the CEO of the toothpaste factory got the top people in the company together and they decided to start a new project, in which they would hire an external engineering company to solve their empty boxes problem, as their engineering department was already too stretched to take on any extra effort. The project followed the usual process: budget and project sponsor allocated, RFP, third-parties selected, and six months (and $8 million) later they had a fantastic solution on time, on budget, high quality and everyone in the project had a great time. They solved the problem by using high-tech precision scales that would sound a bell and flash lights whenever a toothpaste box would weigh less than it should. The line would stop, and someone had to walk over and yank the defective box out of it, pressing another button when done to re-start the line. A while later, the CEO decides to have a look at the ROI of the project: amazing results! No empty boxes ever shipped out of the factory after the scales were put in place. There were very few customer complaints, and they were gaining market share. “That’s some money well spent!” he says, before looking closely at the other statistics in the report. But the number of defects picked up by the scales was 0 after three weeks of production use. It should’ve been picking up at least a dozen a day, so maybe there was something wrong with the report. After some investigation, the engineers come back saying the report was actually correct. The scales really weren’t picking up any defects, because all boxes that got to that point in the conveyor belt were good. Puzzled, the CEO travels down to the factory, and walks up to the part of the line where the precision scales were installed. A few feet before the scale, there was a $20 desk fan, blowing the empty boxes out of the belt and into a bin. “Oh, that!” says one of the workers. “Boudreaux the Cajun put it there because he was tired of walking over every time the bell rang.”

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