May 25, 2012: Industry observations from the TMBA event; lender updates

May 25, 2012: Industry observations from the TMBA event; lender updates Rob Chrisman

(“And God promised men that good and obedient wives would be found in all corners of the world. Then He smiled and made the earth round.” The earth is indeed a big place, and some of it doesn’t even have the internet! So as I am tootling around mountain bike camping in Utah with no internet, Tom Farmer with MCT, a pipeline risk management firm, is pinch hitting for a portion of today’s commentary – brought to you through the wonders of modern technology. Thank you Tom! And there are still some lender updates, and a little humor at the end.) Deep in the heart of Texas, San Antonio to be precise, I find myself at the annual Texas MBA Conference. Full credit to the TMBA; the attendance, organization, speakers, vendor-presence, and host site are all top-notch.  It is truly impressive, especially on the heels of the widely attended National Secondary Conference in NYC. The major discussion threads seem to be centered on flat-fee pricing, selling direct to the agencies, new entrants to the correspondent investor space, and looming concerns related to current and imminent CFPB audits. The dialogue is animated and passionate, and runs the gamut from severe and nihilistic pessimism to proffered strategies for opportunistic success in the face of industry changes. Mitchel Kider of Weiner, Brodsky, Sidman & Kider, PC, stirred up a little fear, uncertainty, and doubt (perhaps, not unfounded,) with his opening keynote presentation entitled CFPB: The New Frontier. I noticed that Mr. Kider has a related presentation on preparing for a CFPB audit available on the MBA website here. The general tone of his remarks has prompted me to seek an appropriate tag line for the newly formed and significantly empowered agency. Borrowing liberally from other successful campaigns, I suggest considering some of the following, slightly modified lines: CFPB: Just when you thought it was safe to go back into the mortgage business! CFPB: Please Don’t Squeeze the Consumer! CFPB: It’s Audit Time! And, lastly… Sorry, Charlie. CPFB wants Lenders that loan good, not Lenders with good loans! (Apologies to Jaws, Charmin, Miller Beer, and Starkist Tuna… and, the CPFB, of course!) With all the attention and focus it requires to run a successful mortgage company these days, it can be a tall order to spend time analyzing internal performance metrics, let alone, benchmarking your own organization against industry peers. Of course, there are a handful of well-respected consulting and analytical firms who are available to help you measure and fine-tune your processes and improve practices. I’m always happy to share the name and contact information of firms with whom our clients have had positive experience. C. Watts Consulting, Garrett & McAuley, MatchBox, and STRATMOR are four firms that have been well received by our clients. I was also recently alerted to a potentially interesting offer from RD Consulting in Southern California, although I don’t yet have the client experience to endorse them. As I understand it, in conjunction with one of their consulting clients, RD offers a free Enterprise Process and Profitability Assessment to Mortgage Bankers. The assessment includes workflow and cost modeling for your business and quantifies your profit uplift potential via process improvement and technology enablement.  Participating lenders receive their own specific Process and Profit Improvement analysis report and summary results for all lenders which provides invaluable benchmarking data to see where they stack up with their peers.  I suspect that there is a product/service offering lurking behind the “free” study, but the analysis may be worth the pitch. If interested, you may contact David Colwell via e-mail at dpcii@yahoo.com. Note: I’m not compensated in any measure by the firms mentioned above. Everyone loves a winner, particularly, if you have a little money riding on the nose. It has been 34 years since our last Triple Crown of Thoroughbred Racing winner, Affirmed, raced home to victory in the Belmont Stakes. This year, J. Paul Reddam of Ditech fame, owns a thoroughbred poised to repeat this amazing feat. If Reddam’s horse, I’ll Have Another, finishes first in the Belmont on June 9th, we will have a 12th Triple Crown Champion. Interestingly, someone pointed out that the horse is not, in fact, named for repurchases, as much of our industry had presumed. Rather, the name was drawn for Reddam’s propensity to indulge in his wife’s homemade cookies. (Source: Wikipedia.) The uptick in interest by smaller and mid-sized mortgage lenders to establish direct agency relationships has been driven by the pull-back and exit of several large correspondent investors, the challenges of managing changing investor overlays, a justifiable sentiment of undervalued servicing, and a compression of G-Fees between large and small sellers. A shift in philosophy by the agencies to diversify beyond the larger lenders has further propelled this interest. Of course, this has created a heavy backlog of applications and slowed the approval process. In recent mini-courses we have put on to help our clients navigate this process, we have discovered many misconceptions on pricing, operational controls, and unanticipated costs with firms looking to go this route. While there are many good reasons to sell direct, the path is rife with pitfalls that can stall approvals or deliver poor results. I strongly suggest doing reasonable due diligence with a qualified consultant or your hedging advisor on requirements, process, and forecasted expenses before betting the farm on a Fannie or Freddie relationship. Election years tend to amplify the sound bites of demagogues who appeal to limited attention spans. Even simple and widely accepted ‘economic truths’ are often too much detail for rebutting the impassioned arguments of those who look to the government to fix our ailing economy. I was directed by a friend to this short video explanation as a simple tool to help educate. In a wonderfully succinct clip, Professor Antony Davies addresses the oft-cited perspective that Government has a debt problem. While correct in fact, he examines the data and summarily notes that debt is caused by deficits leaving the question of what’s to blame – too much spending or too little tax revenues? I hope you find it as entertaining and useful as I have. (If you’d like to reach Tom Farmer, of MCT, he can be e-mailed at tfarmer@mctrade.net.) How do Ops and compliance folks keep up with things? Here are some somewhat recent lender/investor 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… The protocol for submitting DU Refi Plus loans to Fifth Third using Property Fieldwork Waivers is similar.  After submitting the loan to Desktop Underwriter using a borrower-provided estimated property value and ensuring that the loan has received an “Approve Eligible” decision, the lender should review the DU findings to determine whether the borrower has received a PIW and the estimated value is suitable such that the loan may be delivered to Fannie without an appraisal.  If the findings return an estimated value but no PIW, the estimated value in Unifi should be updated accordingly.  If the findings don’t return a PIW or issue an “Insufficient Information” message, an appraisal needs to be ordered.  When submitting the loan to Fifth Third, lenders should use the property value entered into DU that returned the PIW. Fifth Third has clarified its policy on the eligibility of second home and attached property refinances in Florida; relevant non-agency Jumbo loans on these properties are no longer eligible. GMAC will be discontinuing the use of the EnGenious AU system for Jumbo products and encourages clients to be aware of the timing on rescissions and disbursements over the Memorial Day holiday, the full details of which are available at http://click.e.gmacrfc.com/?jufe1f15747363057b701d79&lsfdeb1c79746000797017767d&mfef7117372640d&lfe9616767762067c73&sfe2e137170670478721673&jbffcf14&t. For Flagstar, regarding Freddie Mac reserves, effective May 21, 2012, loans submitted through LP are no longer eligible to use the cash-out proceeds from the subject refinance transaction as reserves. When material error(s) are present on the credit report that negatively affected the risk analysis of the automated underwriting system(s), the borrower’s credit must be updated, and acceptable AUS findings must be obtained. Credit inquiries:  The number of mortgage inquiries will be taken into consideration and could result in a denial. This guideline applies to FHA as well as Conventional loans.

Flagstar will not approve and/or purchase any loan having an unexpired right of redemption unless the purchase agreement, title and appraisal all show the same seller who is the original mortgagor. Title may show lis pendens notices from the bank or mortgagee, and the purchase contract may indicate a short sale.

Chase is expanding the Fannie Mae High Balance Fixed product offering to include cash-out refinance transactions. GMACB is updating the conforming Non-Arm’s Length transaction policy permitting only primary residence purchase transactions. This is a GMACB overlay. As a reminder, Non-Arm’s length transactions are not intended to bail out a family member or current owner from an existing delinquent mortgage. When individuals wish to purchase or refinance a property currently or recently owned by an individual with whom they have an established relationship, the title commitment may not evidence foreclosure proceedings or notice of default. Park Sterling Corporation, holding company for Park Sterling Bank, and Citizens South Banking Corporation announced that they have signed a merger agreement in which Citizens South will be acquired for $77.8 million in addition to $20.5 million in stock issued to the Department of Treasury from Citizens South’s participation in the Small Business Lending Fund.  The combined company will comprise 45 branches in Georgia and the Carolinas, including 14 branches in the Charlotte-Gastonia-Rock Hill MSA, and will have around $2.2 billion in total assets.  This was investment bank Keefe, Bruyette & Woods’s 93rd American bank or thrift transaction since 2009. There’s talk of VA ARMs being discontinued as of September 30, 2012.  Things are still very much in the discussion stage, but watch this space. Freddie Mac has eliminated the 50 bps cash adjustor value for commitments on Relief Refinance Mortgages taken out on or after May 15th; the cash adjustor value is now zero basis points.  This affects loans with LTV ratios over 125% that were sold under fixed-rate Cash commitments. Franklin American has updated its FICO pricing adjustments for government loans.  For FHA and VA loans with FICO scores between 640 and 679 and Jumbo FHA and VA loans with FICO scores from 660 and 679, the new pricing adjustment is -0.500. Jumbo loans locked on or after May 18th are subject to FAMC’s new pricing adjustments, which affect loans in Florida, Nevada, Arizona, Michigan, and California. Effective for loans locked or re-locked on and after May 15th, Affiliated Mortgage has changed its Early Payoff policy, previously 120 days, to 180 days from the date of purchase. Genworth Financial’s Mortgage Insurance unit has reduced monthly premium rates for borrower and lender-paid insurance for all mortgages with LTVs of 95% and under and extended new lower rates for borrowers with FICO scores less than 760.  Reduced rates are also available for mortgage lenders on monthly and single premium payment plans for borrower with FICO scores of 760 and over.  A minimum FICO score of 700 is now acceptable for loans were the DTI is between 41 and 45%, and the guideline distinctions for retail and third party lender originations have been eliminated. Other policy changes that allow Genworth to approve a wider range of loans include the broadening of cash-out refinancing eligibility for condos and the providing of coverage for mortgages that meet Fannie and Freddie’s AUS guidelines on consumer credit trade lines and financial reserves. I heard a commotion in the street outside my house and saw that a young lad had been knocked off his motorbike. So I rushed outside and pushed my way through the crowd shouting, “Let me through!” Someone asked, “Are you a doctor?” I said, “No it’s my pizza!”

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