Aug. 11, 2012: TBW – the gift that keeps on giving; investor updates; low rates aren’t everything

Aug. 11, 2012: TBW – the gift that keeps on giving; investor updates; low rates aren’t everything Rob Chrisman

It is making the rounds that President Obama called Michael Phelps to congratulate him on his world record number of Olympic medals and here is what he told him: “Congratulations Michael, but remember you didn’t win all those medals, someone else did. After all, you swam in public pools, built by state employees using tax dollars. You got training from the USOC, and ate food grown by the Department of Agriculture. You should play fair and share your medals with the people who can barely keep their head above water, let alone swim.” Speaking of the President, has the current administration won a “housing victory“? Here’s one opinion: http://thehill.com/blogs/congress-blog/economy-a-budget/242905-obamas-housing-victory.

Yes, Taylor, Bean, & Whitaker is still in the news, with the latest coming this week after a Florida judge ruled in favor of BofA suing the FDIC. It certainly takes some hutzpah to sue your regulator: A Florida bankruptcy judge said Bank of America can move forward with its $1.75 billion lawsuit against the FDIC, a win for the bank in its long-running battle over who is ultimately on the hook for losses tied to the multibillion dollar fraud at TBW. The judge lifted the bankruptcy code’s automatic stay provision for TBW’s Ocala Funding LLC conduit (a mortgage-financing vehicle that was at the heart of the fraud) allowing the bank to pursue its lawsuit against the FDIC in Washington D.C.: http://www.foxbusiness.com/news/2012/08/09/bofam-can-pursue-175-billion-suit-against-fdic/.

Economists are buzzing about home renovation, its cycles, and its reasons for going up or down. There is reason to be optimistic about growth in the home renovation market. There was a strong gain at the beginning of the year, partly owing to abnormally warm weather, and hence a mild weakening in recent months. Many believe that we will see some slowing through year-end as the economy weakens but are convinced of the longer-term recovery in the renovation market. Why is that? Merrill Lynch suggests, “In the more immediate future, the combination of investor conversion of distressed inventory into rentals and pent-up discretionary alterations should help support renovation spending. Over the next several years, this will be augmented by the eventual recovery in household formation and, therefore, greater housing turnover, in our view.”

Analysts are starting to notice something that those in the industry have known for a long time: rates don’t mean everything. Data from the Mortgage Bankers Association, Freddie Mac, and so on shows record low mortgage rates may not have as much of an effect on housing demand as some people think. With rates steadily hitting new lows week after week, there is actually little evidence to suggest that this activity is translating into heavier demand. The increase in demand for mortgage finance over the past three quarters hasn’t shown up in mortgage applications for home purchase, which have remained relatively flat. Compounding this is mortgage credit conditions have not relaxed since the credit crunch, meaning many potential borrowers might not be able to secure a loan. Recent home sales gains can be attributed to growing demand from investors and cash buyers, two groups that don’t directly benefit from lower mortgage rates. However, with bond yields and savings rates low, investor demand is likely tied to lower mortgage interest rates in a more general sense. Also, falling rates have had a more indirect effect on housing demand. With refinancing levels seeing in an increase as rates drop, more homeowners are able to stay in their homes, keeping supply down and inflating demand. I can just see every LO out there saying, “Huh? This is news?”

What is news are recent training, investor, and agency updates. As I always remind folks, it is best to read the actual bulletin, but these will give you a flavor of what’s going on out there.

CampusMBA, the education department of the Mortgage Bankers Association (MBA), is now taking applications for its Path to Diversity Scholarship Program, which enables industry professionals from diverse backgrounds to advance their professional growth and career development through industry education. The program provides the opportunity for employers to encourage and promote employees from diverse backgrounds. Scholarship recipients get a $2,000 voucher toward CampusMBA education courses and designations. Here you go: http://www.campusmba.org/CertificatesandDesignations.

Effective Wednesday, August 1st, two additional changes to the FHA Streamline product only went into effect at Carrington. Its Lender Fee increased to $499, and Max Price Cap will increase 50bps from (4.25) to (4.75) which includes broker compensation.

LO’s doing FHA loans know that the following guidelines apply to borrowers who have existing tax liens. This guidance mirrors the existing guidance for judgments and is based on recent industry articles in which Carol Galante, Acting Assistant Secretary for Housing – Federal Housing Commissioner has confirmed that loans are not eligible for FHA financing unless tax liens are paid off or the borrower is in a repayment plan. FHA has not issued official written guidance at this time. Tax liens must be paid in full prior to closing unless both of the following items are provided: Fully executed payment arrangement and evidence timely payments have been made (evaluated on a case-by-case basis generally for a minimum of 12 months). When qualifying the borrower, the payment must be included in the debt-to-income ratios. When the borrowers live in or purchase a property located in a community property state, tax liens belonging to a non-borrowing spouse are subject to all the above requirements. All satisfied tax liens on title must be removed prior-to-closing. For cash-out refinances, proceeds may be used to pay off outstanding tax liens at closing – underwriter exception approval required and exceptions are granted on a case-by-case basis. The originating lender must provide evidence the tax lien was paid at closing. A while back July Flagstar reminded clients, “Due to FHA’s recent reduction of mortgage insurance premiums for Streamline refinances of FHA loans endorsed (insured) prior to June 1, 2009, FHA Streamline volume has increased significantly. The following items address some of the more confusing aspects of Streamline refinances and answer some frequently-asked-questions: The LTV for Streamline refinances without an appraisal is calculated using the original appraised value displayed on the Refinance Authorization screen in FHA Connection. Using any appraised value other than the original appraised value may cause the loan to close with an incorrect annual (monthly) mortgage insurance premium. If the loan closes with an annual mortgage insurance premium that is too low, the Lender must pay for a life of loan mortgage insurance policy that pays the difference between what FHA requires and what the borrower pays.

Bear with me, I’m on a roll.

All FHA loans, including Streamline refinances require evidence of the borrower’s valid social security number. The full social security number must be recorded on a third party document such as a social security card, W-2, pay stub, etc. If no verification exists, direct verification from Social Security Administration is acceptable. Tax returns and tax transcripts are not acceptable evidence of the borrower’s social security number. FHA continues to require proof of sufficient funds to close. If the borrower is required to bring funds to close, provide two months’ bank statements as evidence of the borrower’s funds to close. The amount of cash required for closing on the final HUD-I Settlement Statement may not exceed the amount of verified assets indicated in the final closing condition. This is an FHA requirement and loans that close with the borrower bringing more than the verified assets to closing require a principal reduction equal to the amount by which the borrower’s actual cash-to-close exceeded the verified assets. For both credit qualifying and non-credit qualifying Streamline refinances, evidence of three months’ reserves is required for all three and four unit properties. Therefore, loan submissions for all three and four unit properties must include two months’ bank statements or other acceptable verification of the required reserves. For additional information, refer to the “Asset” section of FHA Underwriting Guidelines.

The MIP refund credited on the HUD-I Settlement Statement must be the lesser of the new upfront MIP or the “unearned UFMIP” for the month in which the loan funds are disbursed. The amount of the unearned UFMIP is stated on the Refinance Authorization Results printed from the FHA Connection. Do not use the unearned UFMIP from the month in which the loan closes unless the loan funds will also disburse that month. Therefore, if a loan closes on June 27 but funds on July 2, the UFMIP refund on the HUD-I Settlement Statement must reflect the unearned UFMIP refund recorded in the July 2012 column on the Refinance Authorization screen. The borrower must have made the mortgage payment for the month prior to the loan funds being disbursed. Therefore, if the closing condition indicates the loan must close and disburse by June 30 but the loan will not disburse until July, prior to closing the loan, resubmit an updated payoff statement and evidence the borrower made the June mortgage payment to underwriting. The underwriter must recalculate the loan amount using the revised principal balance on the updated payoff statement. FHA continues to prohibit lenders from applying the existing escrow balance from the loan being refinanced to the closing costs and/or pre-paid expenses on the new loan, and no servicer may reduce the amount of the payoff by the existing escrow balance. Therefore, the payoff amount on the HUD-I Settlement statement may not be reduced by the existing escrow balance, and the amount of the existing escrow balance may not be credited to the borrower anywhere on the HUD-I Settlement Statement. While FHA permits lenders to provide Streamline refinance borrowers an “interest-free advance” in the amount of the borrower’s existing escrow balance on the loan being refinanced, Flagstar does not offer the advance on any loans.”

Are we having fun yet? No? Well, here’s a little more:

GMACB amended the Confidentiality and Privacy of Consumer Financial Information sections of the Client Guide. Effective immediately, mortgages on properties encumbered by private transfer fee covenants prohibited by C.F.R. Part 1228 in the Federal Register, are ineligible if those covenants were created on or after February 8, 2011. Fees that do not directly benefit the property are subject to C.F.R. Part 1228 and are therefore ineligible. Private transfer fees are eligible for loans in which the covenants were created prior to 2/8/2011. However, if the creation date is not known, the loan is not eligible. The Market Portal for Jumbo loans has been updated with the most recent market data. As a reminder, all Primary Residence, Jumbo Products must be submitted to the GMAC Bank Market Indicator Portal. The portal serves as our Declining Market database tool. The Market Indicator Tool will give a rating of A, B, C or D. Please refer to the Jumbo Product Matrices (Box 15) for the limitations of each market grade rating. As of July 1, 2012, MERS System Members must include both the P.O. Box and street address for Mortgage Electronic Registrations Systems, Inc. (“MERS”) on MERS-as-Original Mortgagee (MOM) security instruments and other recordable documents identifying MERS in the state of Mississippi. GMACB will begin to audit for this requirement on all loans that close in the state of Mississippi. Loans that do not comply with this policy update will be suspended from purchase until corrections have been made.

That’s enough for a summer Saturday morning.   Things we know because of TV! (Part 3 of 3.)

– No matter how badly a spaceship is attacked, its internal gravity system is never damaged. – If there is a deranged killer on the loose, this will coincide with a thunderstorm that has brought down all the power and phone lines in the vicinity. – All bombs are fitted with electronic timing devices with large red readouts so you know exactly when they’re going to go off. – It is always possible to park directly outside the building you are visiting. – Revolvers will fire at least ten or fifteen times without reloading. – If you decide to start dancing in the street, everyone you bump into will know all the steps and join in with you. 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 the FinCen, SAR’s, and the impact on mortgage lenders. 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 Rob Chrisman.  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.)