Nov. 17, 2012: FAQ for Fannie underwriting; underwriting’s impact on loan officer & company efficiency; classic Thanksgiving joke

Nov. 17, 2012: FAQ for Fannie underwriting; underwriting’s impact on loan officer & company efficiency; classic Thanksgiving joke Rob Chrisman

I have no idea how this is done, but when the guy stops running, place your cursor about one inch (on the screen) above his head:  http://www.selfcontrolfreak.com/pakken.html.

Many years ago I had an underwriting working for me who had a favorite saying: “If you break a rule, then you’ve made a new one.” Especially in subprime underwriting, where “story loans” were the norm, guidelines were not written in stone for many investors, and underwriters were actually “underwriters” rather than “auditors” as they are sometimes called. But now about 75% of the market is Freddie or Fannie, and few lenders want to go outside the box, and in fact, companies and underwriters almost seem afraid of their own shadow, and with good reason: it only takes a few $300,000 loan buybacks to sink a small lender. And while I am the first to admit that I am not an underwriter, there is some potentially useful information to pass along.

Though underwriting standards are in a somewhat constant state of flux, there are a few areas in which underwriters delivering loans to Fannie always have questions.  One of the most frequently asked, according to Fannie, is whether purchasing a primary residence are obligated to contribute their own funds, the short and unsatisfying answer being that it depends on the borrower.  Borrowers taking out loans with LTVs of 80% or less, for instance, are permitted to fund the entire transaction using gift funds, while high-balance loans with LTVs over 80% are subject to a 5% minimum borrower contribution requirement.  It depends on the type of funds as well: religious institutions, municipalities, nonprofit, employee assistance programs, and public agencies are considered acceptable sources, while credit unions, to name one, aren’t.

Fannie apparently also gets a lot of queries about the Delayed Financing Exception and whether borrowers with five to ten financed properties are eligible, which, provided they purchased the subject property in the last six months and meet the slew of other requirements, they are.  In this case, the borrower’s new loan amount can’t exceed the original purchase price plus closing costs, prepaid fees, and points, and the HUD-1 must confirm that no mortgage financing was used to obtain the property originally.  The purchase has to have been an arms-length transaction using an appropriately documented source of funds (bank statements, personal loan documents, HELOC on another property, etc.) in addition to meeting the standard requirements for cash-out refinances.

Another FAQ: if a borrower doesn’t meet the Continuity of Obligation policy but is still on the title, is the loan Fannie-deliverable?  Again, there are a few variables at work.  If there aren’t any outstanding liens and the property was purchased within the 6 to 12 months before the application date for the new financing, the transaction must meet the LTV/CLTV/HCLTV requirements as per the lesser of the HUD-1 sales price or the current appraised value for the loan to be eligible.  If there are outstanding liens, the borrower must have been on the title for at least 6 months and the LTV/CLTV/HCLTV can’t exceed 50%, based on the current appraised value.  Provided those requirements are fulfilled, the loan is underwritten, priced, and delivered to Fannie as a cash-out refinance.

Fannie is also constantly asked about the eligibility of borrowers who aren’t US citizens, as the Selling Guide doesn’t disclose any specific documentation requirements.  The official policy is that lawful permanent and non-permanent residents are eligible for Fannie mortgages under the same terms as citizens.  The decision on documenting residency status rests with lenders, who, by delivering the mortgage to Fannie, represent and warrant that the non-US citizen is indeed complying with residency laws.

Those are just the top four most frequently asked questions, but Fannie has published a list detailing the top ten, complete with links to the relevant Seller Guide sections.  The list will be updated periodically depending on what underwriters are asking and is available via the Fannie website.

Of course, the speed of underwriting impacts LO and company efficiency, and along those lines I received this note recently. “Here is another perspective for your volume based organizations.  How many high producing originators are making money at the expense of others?  Forget, ‘I don’t make the rules I just play the game.’ Maybe the industry should not have all these originators anyways. If you get rid of the Obama housing policy and do loans based on collateral, thousands of these ‘high producing’ loan officers would not exist. There are over 100,000 borrowers that have refinanced over 125% LTV through August.  How have you made the housing industry better by making money on a loan with no collateral? Has the mortgage industry forgotten the C’s of lending? Maybe the best people in your organization are the low producers because they have values. But values don’t make anyone money, right?” “Signed – The Professional Loan Officer not doing Harp2 refinance loans doing less than 3 loans a month.” And a very successful broker from Northern California wrote, “Interestingly, my loan brokerage partner and I now consistently close 50 loans per month (together), which I see from your comments puts us near the top in production now days.  This is only slightly discouraging in light of the fact that I sometimes closed 100 loans per month with only 3 assistants back in the ‘hay day’.  But what is more interesting is that we went to great difficulty to figure how many ‘man hours’ now go into the closing of a single loan in today’s market.  This is from the start of the origination process through the final accounting after the loan closes.  The answer is an average of 25 to 28 hours. This includes everyone who touches the file at our firm, and it is probably 4 to 5 times what it was back in 2006.  Regulations, excessive documentation requirements, and explaining everything to the borrowers are what take up the extra time. What is most interesting to me is that I bet very, very few managers are truly aware of how many man-hours go into a closing a loan at the retail level.  My partner and I are only able to close so many loans because we have a small army of uber-trained assistants.” While we’re talking about underwriting, efficiency, and the slowdown of the process, let’s list some relatively recent investor guideline and policy changes. I will give my usual disclaimer that it is best to read the bulletin for full details.

Citi reminds lenders with loans on properties affected by Hurricane Sandy that are currently in the pipeline that they should contact the Transactional Services Team to notify them of any impact and include any re-inspection documents that are required under their disaster policy in the loan file upon submission.  For loans originated after the storm, lenders aren’t permitted to use a DU property fieldwork waiver if they believe that fieldwork is necessary and need to order the minimum level of fieldwork as determined by DU. Any repairs will require a completion report before the loan can close.  Lenders should also ensure that the borrower information in the file (income, assets, etc.) hasn’t been affected by the disaster.

Citi has aligned its DU Refi Plus and LP Open Access disaster policies and its age of credit documentation with the policies set forth by Fannie and Freddie.  Clients are instructed to refer to the Agencies’ guidelines for full details.

Over the next few weeks Fifth Third will be updating guidance related to delivery of seasoned loans.  The revisions will affect MERS procedures, the Real Estate Tax Payment policy, the First Payment policy and the documentation it requires, RESPA guidelines, and the age of note definition and requirements.  The Age of Note policy will take effect on December 3rd, while more specific information on the other changes will be released in the coming weeks.

Fifth Third has updated its Fannie product guidelines to state that a new credit report will not be required if the DU findings don’t include the disputed tradeline message.  If the dispute tradeline shows a payment, it should be factored into the total expense ratio, and borrowers that don’t qualify with the disputed tradeline payment included will be required to submit a letter of explanation in order to determine the account ownership.

Loans submitted to Fifth Third through DU 8.3 should be registered and locked before November 16th in order to be purchased by Fifth Third by February 14, 2013.

United Guaranty reminds clients that all transactions in areas affected by Hurricane Sandy are subject to the UG disaster policy, which follows that of Fannie and Freddie.  Provided that workout terms for individual cases comply with the GSEs’ recommendations, servicers will not need prior approval from UG to take actions that they think are appropriate for the given situation, and the master policy still applies to work out plans that aren’t successful.  Any relief action should be reported through the standard delinquency and MI workout reporting processes, referencing Hurricane Sandy.  UG has also affected a disaster policy for new originations and HARP refinances that aligns with Fannie and Freddie guidelines and allows servicers to make workout agreements for individual cases without prior approval.  See the GSEs’ guidelines for full details. US Bank’s natural disaster policy remains in effect for properties located in federally designated disaster areas, which may require to be re-inspected for evidence of storm damage before loans can close or fund per the findings of the underwriting department.  Re-appraisals may be performed by a specialized property inspection company, the homeowner’s insurance company, or the original appraiser. As of November 8th, GMAC has increased appraisal fees in all states apart from Arizona, Connecticut, Washington, D.C., Kentucky, Louisiana, Missouri, Nebraska, New Mexico, Oklahoma, Pennsylvania, South Carolina, and West Virginia.  Complex properties valued at $1 million and more are not affected by the increases.  See the released fee matrix (http://click.e.gmacrfc.com/?jufe2615757d640675701375&lsfdfc1d767760047b76167177&mfef7117372640d&lfe9516777767007d7d&sfe2b13717067047b701479&jbffcf14&t) for the new pricing. A banker in Charlotte calls his son in San Francisco the week before Thanksgiving and says, “I hate to ruin your day, but I have to tell you that your mother and I are divorcing; forty-five years of misery is enough.

“Pop, what are you talking about?” the son asks.

“We can’t stand the sight of each other any longer,” the father replies. “We’re sick of each other, and I’m sick of talking about this, so you call your sister in Chicago and tell her.”

Frantic, the son calls his sister, who explodes on the phone. “Like heck they’re getting divorced,” she shouts, “I’ll take care of this.”

She calls home immediately and screams at her father, “You are NOT getting divorced. Don’t do a single thing until I get there. I’m calling my brother back, and we’ll both be there.”

As she hangs up her phone, the old man hangs up on his side and turns to his wife. “Okay,” he says, “they’re coming for Thanksgiving and paying their own way.”

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses some of the considerations facing the FHFA regarding Fannie and Freddie. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2012 Chrisman LLC.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)