Tuesday, September 2, 2014

NMLS & UST news; More Agency news including 203(k) proposals



 

Today New York became the latest state to adopt the Uniform State Test (UST). Ohio, Connecticut, and Oklahoma will then follow soon after. NMLS approved course providers are encouraged to keep abreast of which states are adopting the UST and to update any course material accordingly. Adoption information is posted on the testing page of NMLS Resource Center. "Additionally, we have received several course submissions with incorrect test retake information.   As a reminder, an individual who attempts to take the test and fails to achieve a passing score of at least 75% must wait 30 days before they are allowed to retake the test. An individual may take the test a total of three (3) times before the SAFE Act requires the individual to wait 180 days before attempting it again. Detailed information about the MLO SAFE Test is available in the MLO Testing Handbook."

On August 20, the District of Columbia Department of Insurance, Securities and Banking (DISB) spread the word that as of September 3 it will begin using the NMLS to manage money transmitter, check casher, money lender, retail seller, sales finance company and non-bank ATM licenses and registrations. Beginning on that date, new applicants for such licenses and registrations must apply via the NMLS. Entities currently holding such licenses and registrations must create a complete record in NMLS and submit it to DISB for approval by December 31.

Last week HUD issued its final rule prohibiting mortgagees from charging post-payment interest under FHA's single family mortgage insurance program. The final rule is responsive to the CFPB's ATR/QM rule, under which post-payment interest charges will be considered a prepayment penalty in connection with FHA loans closed on or after January 21, 2015. Because prepayment penalties are prohibited on higher-priced FHA loans, the new definition of "prepayment penalty" under the ATR/QM rule would have effectively prohibited the making of higher-priced FHA mortgage loans. Also effective January 21, 2015, HUD's final rule ensures consistency among FHA single-family mortgage products and provides the same protections for all borrowers. Under the final rule, monthly interest on the debt must be calculated on the actual unpaid principal balance as of the date prepayment is received. 

We also had HUD issuing its final rule to amend FHA's single family adjustable rate mortgage (ARM) program regulations to align with the interest rate adjustment and notification periods required for ARMs under the CFPB's new TILA mortgage servicing rules. The final rule is effective January 10, 2015 and adopted the proposed rule issued on May 8 without change. Under the final rule, interest rate adjustments resulting in a corresponding change to the mortgagor's monthly payment for an ARM must be based on the most recent index value available 45 days before the date of the rate adjustment. FHA's previous regulations provided for a 30-day look-back period. Further, the final rule mandates that mortgagees of FHA-insured ARMs comply with the disclosure and notification requirements of the CFPB's TILA servicing rules, which require at least 60-days, but no more than 120-days advance notice of an adjustment to a mortgagor's monthly payment. Previously, the regulations provided for only 25 days advance notice. 

And Fannie Mae issued Lender Letter LL-201404, which reminds lenders that when a mortgage loan is selected by Fannie Mae for an anti-predatory and HOEPA compliance review, the lender must provide requested loan information to Fannie Mae. Further, the letter reminds sellers that mortgage loans with either an annual percentage rate or total points and fees payable by the borrower that exceed the applicable HOEPA thresholds are not eligible for delivery to Fannie Mae. Additionally, Fannie Mae released an optional worksheet, available on the Fannie Mae website, designed to assist lenders in responding to any information requests from Fannie Mae. This letter highlights the continued focus of Fannie Mae regarding its anti-predatory lending quality control process. 

And I received this note from a concerned mortgage professional. "Rob, the commentary about FNMA and FHLMC allowing lenders to only provide W2, paystub, with the supporting 4506T illustrates that they are willing to continue to put good lenders in jeopardy.  The main reason many originators go that route is to not disclose 2106 expense or schedule C that would prohibit the borrower from qualifying.  We asked our QC team at FNMA what they thought. Their response was, 'If you know (or believe) the borrower occupation typically has 2106 expense you should ask for full returns'.  My thoughts are that they continue to put us in harm's way. Some lenders use this lack of proper documentation as a competitive recruiting advantage while the rest of us look long range at the implications.  By not fully documenting we run the risk of violating the ability to repay as well as creating a  repurchase risk later when FNMA or aggregator gets the taxes from the borrower during proposed workouts and  looks for borrower fraud." 

Freddie Mac's Reps and Warrants Updates remind lenders that have mortgages that obtained selling representation and warranty relief between February and July 2014, your organization will receive a Selling Representation and Warranty Relief Date Report by mid-September. Also, Freddie Mac has terminated its relationships with the following law firms providing default-related legal services (DRLS) for Freddie Mac Default Legal Matters. Connolly, Geaney, Ablitt & Willard, P.C., in the following states: Massachusetts, New Hampshire, Rhode Island, Florida and Puerto Rico. The Castle Law Group, LLC, in the following states: Utah, New Mexico, Nevada, Arizona and Wyoming. Visit default legal services for detailed information for Servicers, law firms, and Legacy Matters. Bulletin 2014-15 covers a great deal of information including: Mortgages insured by Arch Mortgage Insurance Company, Suspicious Activity and anti-money laundering (AML) noncompliance reporting, Updates to counterparty eligibility, Updates to flood insurance requirements, Updates related to ULDD, Certificate of incumbency forms, and Requirement updates for manufactured homes. 

Freddie Mac news and reminders covers Loan-to-value edits, elimination of ULDD data point for certain construction conversion mortgages and for seller-owned modified mortgages; both effective August 18th, , upcoming ZIP code edit, and changes to allow the 'Field Review' option to be selected for conforming loans.

 On Friday HUD came out with several proposed changes to its FHA 203(k) program. The possible changes prompted one veteran broker from New Jersey to write me saying, "There are some interesting proposals, including two appraisals (which we like) - 'as is' value and 'after improved' value. I am not sure I like the capping of the loan amount to 110% of after improved value now to include the EEM money, so hopefully I am misinterpreting this. 

FHA posted revised hudclips form HUD/VA Addendum to Uniform Residential Loan Application to implement changes for VA-guaranteed mortgages. The VA update clarifies what constitutes a valid marriage for the purpose of obtaining VA benefits.

We ended last week with the 10-yr at a yield of 2.34%. At the current time the U.S. economy is not doing well enough to warrant higher rates, and trouble overseas has increased foreign investment in our bond (and stock) market. We did find out, however, that U.S. second-quarter gross domestic product was higher than initially estimated - but it wasn't enough to reverse a rally in Treasury securities as the 30-year yield reached a 15-month low. Concern about Russian intervention in Ukraine and an expectation that the European Central Bank will soon launch a bond-buying program drove demand for U.S. government debt as a safe-haven investment in spite of second quarter GDP being revised higher to a 4.2 percent annualized rate. Headlines for housing data were mixed last week, but reports generally suggest the sector continues to gradually improve as home prices are increasing at more reasonable rates, supply is coming back and future recorded sales look to improve. 

It's Tuesday already, and we have a lot of scheduled news staring us in the face. Today the ISM Manufacturing Index will report on the general direction of production, new orders, backlogs, inventories, employment and overall demand from 300 manufacturing firms nationwide. We'll also see Construction Spending for July. Tomorrow is Factory Orders and the release of the Beige Book (the status of the Federal Reserve Districts). Thursday the 4th will have International Trade numbers, Challenger Job Cuts, ADP Employment Change numbers, Nonfarm Productivity, and Unit Labor Costs.  On Friday, September 5th, the Employment Report tells us the change in Nonfarm Payrolls, Unemployment Rate, and Hourly Earnings. 

Rates are higher this morning: as a benchmark, Friday we had a 2.34% close on the 10-yr T-note, and this morning we're at 2.38% (the 10-yr is worse by .375 whereas the 30-yr T-bond is worse a full point!). Agency MBS prices are worse between .125-.250. There is no late-breaking news, aside from stock markets around the globe rallying on Ukrainian tension subsiding somewhat. 
Opening Trend:

   FNMA 3.5% 102.67

http://globalhomefinance.blogspot.com

Friday, August 29, 2014

HELOCs on the Rise - What about the Old Ones? More on Cash vs. Security Sales



As we head into the last official weekend of the summer (no white shoes to formal events after Monday!), it is good to know that alternatives exist for the simple six-pack. In this exciting new development for beer lovers, we have the 99-pack.

 Fannie Mae plans to sell its headquarters and consolidate employees to a single location in the District, the organization announced Thursday. Here's what's behind the decision and when the move might happen. And no, it does not appear that Fannie and Freddie will be building-mates; I am sure Freddie wouldn't agree to be in the lower floors with no views, limited parking, and soda pop vending machines that only work periodically.

 

I received this note. "Fannie Mae's announcement this week that every mortgage originator and servicer in the United States that are approved by FNMA or FHLMC  must check the FHFA's Suspended Counterparty List, effective immediately, and make sure that none of their own employees are on it, ensure that any TPOs have processes in place to check their employees, and then check every loan transaction as well to be sure no one on the list is involved in any way with a GSE loan, sounds familiar like a lot of other lists lenders have to check. But when you go to the list, it has 1 name on it: Lee Farkus, who as you know is serving 30 years in the federal pension and will older than dirt if and when released. Here's the link to the 'list' and the bulletin. I have to run now as I have policies, procedures, systems, TPO and vendor applications, employment applications, etc., that all need revised to screen out Lee Farkus!    Your tax dollars and mine at work......  You can't make this stuff up!!

 

I am stating the obvious here, but many banks are seeing a renewed interest in home equity lines of credit and home equity loans. And banks are exploiting their ability to ramp up home equity loans versus that of independent mortgage banks. In total, HELOCs underwritten in Q1 this year climbed 8% to $13B from a year earlier. HELOC origination levels are still well below what they were in their heyday, but are on the rise. Also of interest is a recent study from Pepperdine University which found that home equity lines of credit are playing a more significant role in financing lower middle market business M&A deals this year. In fact, HELOCs were used by buyers to finance 17% of small business deals ($2mm to $5mm in size) and also 17% of deals between $5MM and $50MM. For both small business owners and home owners, it is likely HELOCs will continue to grow as a source of funding given a rebounding economy. Done the right way with the right level of controls in place, HELOCs can also represent a growth opportunity for community banks.  

Given the risks, larger banks have taken steps to protect themselves in this lending sector. For example, Wells Fargo recently said it would only offer interest-only HELOCs to customers with at least $1mm in savings and other liquid assets, while other customers would have to pay principal and interest on such loans. In underwriting floating rate loans, whether for HELOCs or in other sectors, it is important to assess whether potential borrowers will be able to meet the obligations of their loan, both rising interest payments and the repayment of principal in a rising interest rate environment. Loans should be structured according to the credit worthiness of borrowers with the future rate environment in mind. Banks may decide that new HELOCs should be extended only to select high-caliber borrowers with good-to-excellent credit scores and low debt. In addition to careful assessment for new underwriting, be sure to consider the risks from HELOCs that are already outstanding and to assess any flow-through impact that could occur from problems within the portfolio. Regulators are well aware that a sizeable chunk of outstanding HELOCs were originated 6-10 years ago and that the reckoning time has come for many borrowers to start paying down principal. Additionally, those loans with a floating rate structure should be assessed for the borrower's ability to withstand an increase in interest payments. 

Along those lines, Equifax sent out a blurb saying, "Between 2004 and 2008, low home prices and loose credit standards led to a significant increase in the amount of HELOCs that were originated. The typical HELOC resets into amortization after 10 years of interest only payments and borrowers who are a decade removed from their originations will have to begin repaying the principal balance. Today, HELOCs opened between 2004-2008 account for 60 percent of outstanding loans and more than $221 billion in HELOC loans will hit the market from 2014-2018. However, the financial circumstances of borrowers and the value of properties against which these lines are held have deteriorated. On July 1, 2014 the FDIC, OCC, Federal Reserve Board and NCUA released a financial institution letter, promulgating risk management principles and expectations that should be adhered to by FDIC-insured banks. Equifax is available immediately to provide insight on the updated guidance and additional considerations for lenders managing HELOC resets, including addressing underwriting precautions for renewals, extensions and rewrites, maintaining compliance with existing agency guidelines, leveraging data to develop well-structured and sustainable modification terms, and analyzing end-of-draw exposure in allowance for loan and lease losses estimation processes (ALLL)

 Edgar Degas stated, "Painting is easy when you don't know how, but very difficult when you do." Helping guide a behemoth like the U.S. economy is difficult to say the least, and it doesn't make it any easier when the press expects you to have a crystal ball. I love it when the press says things like, "'Fed's Yellen Remains Mum on Timing of Rate Change.'  Janet Yellen delivered a cliffhanger in the mountains of Wyoming. The Fed chairwoman left the public guessing about when the central bank will start raising short-term interest rates." Are "the markets" expecting someone to come out and say, "Okay, Tuesday, February 10th, 2015 we'll raise the overnight Fed Funds target to 0.125%. And then we'll raise it again on Thursday, July 9th, 2015to .250. Because we know that on those dates the unemployment rate will be 6.5% and 6.2%, respectively, and the inflation rate will be 2.1% and 2.8%." No one has a crystal ball - certainly no one that nine months ago were predicting noticeably higher rates by this time in 2014.

Matt Graham contributes, "Regarding the comment, 'There is seems to be a disconnect between bonds and stocks,' this comes up so often on MBS Live that I've written a few reference articles to explain the phenomenon.  This one addresses it both generally and specifically (and with a few interesting charts!). And in this one I wrote up a more user-friendly recap of how we got here and what might be important going forward. I'm pretty sure this is 'the answer' to the disconnect question. Of course it's rarely as simple as ONE factor doing all the work, but I think this is the biggest consideration right now, and it appears that larger media outlets are finally starting to talk about it."

The MBA's Dan McPheeters spread the work earlier this week about the Securities and Exchange Commission. "The SEC adopted new asset-backed securities disclosure rules, commonly referred to as Reg AB II. While the SEC has not release the final text of the rule, an official fact sheet can be found here. We are continuing to gather information, and will follow-up when the final text becomes available. Also adopted today were credit rating agency rules governing conflicts of interest, corporate governance, and transparency. A fact sheet of this rule can be found here." 

Continuing on with the markets, housing and jobs drive the economy, and we've sure had a slew of housing numbers. I have lost track of which index has told us what, but yesterday the National Association of Realtors told us that Pending Home Sales picked up in July, increasing by 3.3% following a drop in June. Although down about 2% from a year ago, the index is at its highest level since August 2013.  

LOs need to remember that even though Treasury rates may drop (mostly due to overseas events), MBS prices may lag - and that is what we're seeing now. This mostly takes place in higher coupons as investors think, "If rates drop, these higher loans will refinance and won't be on our books as long as lower rate mortgages - and pools made up of those mortgages." Yesterday the 10-year improved nicely and closed at 2.33%, but agency MBS improved less than .125. The month wraps up today with Personal Income and Consumption (+.2% and +.1%, respectively) as well as 9:45AM EST's Chicago PMI (52.6 last) and the University of Michigan survey of confidence comes by 10 minutes later. We had a close of 2.33% Thursday, and in the early going today we're at 2.34%. Don't look for much change on rate sheets.

Thursday, August 28, 2014

Subservicer & new jumbo product; Flagstar & the CFPB; the theory of M&A with an MBA workshop



 

There has been a huge rise in servicing by small and mid-sized lenders, and due to potential liability most turn to a subservicer. LoanCare, part of the Black Knight family of companies, is a leading national provider of full-service, interim, component and back-up subservicing as well as servicing performance solutions to the mortgage industry. With subservicing volumes exceeding 550,000 loans totaling over $110 billion in unpaid principal balance (UPB), "LoanCare has been the smart solution for subservicing since 1991. LoanCare offers award-winning technology to its lender/servicer clients featuring superior data access for full transparency and robust reporting capability. In addition, LoanCare deploys an intuitive borrower-facing website and powerful mobile platform for its customers, providing convenient 24/7 access through their smartphones or tablets, better enabling them to manage their mortgage loans. LoanCare will be at the ACUMA 2014 Annual Conference in Las Vegas the week of September 14-17 and the 20th Annual ABS East Conference in Miami Beach. If you are interested in meeting and speaking with the LoanCare team at the event, please contact Gene Ross.

 

On the new product front, things are alive and well in the jumbo origination sector. For example, California lender Western Bancorp, noted for its innovative Jumbo ARM offerings and extensive wholesale lending experience, has added another jumbo to its program offerings: the Newport Jumbo loan program, with loan amounts to $2.5 million. This marks the third Jumbo program Western Bancorp has added over the past few months, demonstrating its growing commitment to the Jumbo Market. Learn more at the Newport Jumbo page or contact management through email Western Bancorp.

 

But all is not peaches and cream for lenders. (If I said Peaches and Herb, I'd be showing my age.) Compass Point Research and Trading reports that Flagstar filed an 8-K disclosing that the bank 'has commenced discussions with the CFPB related to alleged violations of various federal consumer financial laws arising from the bank's loss mitigation practices and defaults servicing operations dating back to 2011.' The bank also disclosed it had received a Civil Investigative Demand (CID) from the CFPB. There have been large mortgage servicers that have received CIDs from the CFPB, albeit not all of them have been disclosed. Considering Flagstar felt it was necessary to mention the company was in discussions with the CFPB, we believe a material settlement may be imminent. We believe FBC has little to no reserves established for this issue. At of the end of 2011, FBC had a $64B servicing portfolio compared to the current portfolio of $25B. Since the end of 2011, we estimate the company sold over $100B of servicing UPB in order to reduce operating risk and increase much needed capital. Most of the recent settlements we have seen between the CFPB and other mortgage servicers have included several other regulators, including the state attorneys general. This regulatory discussion appears to only involve the CFPB which makes it difficult to give an estimate of any future penalty payment."

 Since we're on the CFPB, who is Global Client Solutions? It is the latest contributor to the CFPB's Civil Penalty Fund. And no, it is not a mortgage company but instead a debt-settlement payment processor - but the issue does have tidbits to see what the CFPB is up to. In its complaint filed in a California federal court concurrently with the proposed stipulated final judgment and consent order, the CFPB alleged that the defendants had violated the Telemarketing Sales Rule (TSR) by assisting and facilitating the charging of unlawful advance fees by debt-relief companies (DRCs) and that such unlawful conduct also violated the Consumer Financial Protection Act.  The consent order requires the defendants to pay over $6 million in relief to consumers as well as a $1 million civil penalty.  The CFPB alleged that after a consumer enrolled in a debt relief program, the DRC would instruct the consumer to stop making payments to creditors and instead make payments to Global for deposit in a custodial account.  The CFPB claimed that at the time Global transmitted advance fees to DRCs, it knew that it had not yet transmitted any funds from consumers' custodial accounts to creditors.  The CFPB also claimed that Global had received hundreds of complaints from or on behalf of consumers.  

The vast majority of the CFPB's settlements involved an administrative proceeding and did not involve the filing of a complaint by the CFPB in a federal court.  The CFPB's filing of a complaint against Global concurrently with the consent order likely reflects the CFPB's desire for the Global defendants to be subject to the more severe consequences that attach to violating a court order than an administrative consent order. Should the Global defendants violate the injunction entered by the court, the CFPB could move to have them held in contempt of court.   

Besides bank mergers and acquisitions, there are plenty of smaller deals being contemplated and explored, especially as smaller mortgage brokers and mortgage bankers join up with larger players. I receive plenty of notes that say things like, "Rob, we are a one-branch operation and are being recruited by numerous companies. In this current mortgage environment making the right decision is more important than ever especially in terms of competitive loan compensation, strong reverse mortgage presence, and diverse product options, all with an operations team that loves their Loan Originators. What do you suggest?" Although the STRATMOR Group tends to focus on whole company transactions and not individual branches, I turned to Jeff Babcock who replied, "Anyone thinking about transitions like this should start with a few basic items.  Prepare a check list (in rank order of importance) of the factors which are most critical in your evaluation process. Assess each prospective company against that check list so that you can compare one against the other on an apples-to-apples basis. Pay close attention to the corporate culture; while culture is very intangible and subjective, cultural compatibility is the key element of a successful new business relationship.

The question is whether everyone is thinking the merger or acquisition through strategically, or whether this is more of a fad that will fade as loan demand heats up and profitability jumps for banks of all sizes (already happening). Bankers have heard all the statistics and dire predictions that smaller banks just aren't going to make it. The argument is that costs are too high and every bank under (pick a number) in asset size will have to merge or perish. This generalization is not true. Certainly bank size is one measure, but all markets are different, overhead costs vary dramatically, competition is vastly different and many banks & mortgage banks simply do a great job no matter their size. The success rate for mergers has not been that great - whether looking at banking or other industries. Think of the culture clash between Daimler-Benz and Chrysler, or remember when Quaker bought Snapple for $1.7B and then sold it 27 months later for $300mm. Look also at the time period between 2000 and 2008 when Wells Fargo acquired 19 banks. This was all about gaining market share and geographic coverage and probably little time was spent worrying too much about cultural fit of these acquisitions.

 

In more recent M&A activity, the data shows the average buying bank has been around $1.5B in assets and the average seller around $300mm. For banks of this size, one could argue cultural fit matters a great deal. Any bank considering a merger should delve deeply into how the merger will build franchise value. There are many elements beyond the purely financial that are critically important, and these cultural and strategic elements must be considered. They are best assessed by the people who truly know the bank - namely, the people within the bank. Merging banks also don't have to be the same, indeed differences between merging parties can complement one another and diversify the business model. When assessing a potential strategic fit, banks must ask and answer a lot of questions. First, assess each market as measured by its population density. Also assess population and economic growth dynamics. Are the economic engines of the merging banks similar or complementary? Also consider the product mix. For instance, if one bank has primarily agriculture lenders and the other bank focuses on commercial real estate, there could be great synergies or a potential clash of cultures. Is this an opportunity for a bank to diversify its income stream, or will it lead to problems? Do the merging banks have similar competitive forces and market share in their respective markets? Do the management teams have a similar outlook and are business customs compatible? 

Pacific Coast Bankers Bank reminds us that "if the merger appears to be a good fit after careful consideration of all things financial and cultural, the next hurdle is one of integration. Obviously the customer experience is of paramount priority but so is the handling of important employees and producers in the bank. Management should be decisive about the direction of the new organization and make every effort to integrate the most successful elements from the existing banks into the new organization. The new bank will then grow out of the best of the new and old and should have a good chance for success. For those banks that are doing fine just as they are, our advice is to keep up the good work and stick to a simple business model that feeds off of an expanding economy." 

Switching gears again, no one is complaining about rates. But the costs of origination are high, millions of borrowers have lower rates than what is being offered now, every deal is tough, and purchase volume typically wanes heading into autumn. Ugh. It helps our bond prices when prospects of further easing by the ECB (European Central Bank) rise. Remember the chaos surrounding Portugal, Italy, Greece, and Spain? Well, Italian, Spanish, German, and several other countries' bonds are all yielding less than our 10-year T-note. 

As desks start to be vacated ahead of the 3-day weekend , the focus will continue to be on European markets and what/when the ECB chooses to do either next week or this fall and geo-political headlines. Also on tap today was Weekly Initial Jobless Claims (-1k), the second look at Q2 GDP (+4.2% up from 4%); later is Kansas City Manufacturing, and Pending Home Sales, along with a $29 billion 7-year note auction. So Wednesday...bonds rally, stocks rally... will the fun never end? The 10-yr closed Wednesday at 2.36% and we're at 2.34% this morning with agency MBS prices better by .125.
http://globalhomefinance.blogspot.com

Wednesday, August 20, 2014

CFPB issues Servicing Rules&Annual CARD,HOEPA & QM Adjustments; Market Report




Here is something a little unusual. With an eye on possible Christmas presents, for something non-mortgage related here is a gun that shoots a small amount of table salt to kill house flies - and with a five foot range! Returning to something more usual, this morning we learned that mortgage applications rose 1.4 percent in the week ended August 15. The MBA reported that refis were up 3 percent (and account for 55% of all apps) and purchase apps fell 0.4 percent.

 

On the servicing side of things (most lenders want to service their loans, but not all can actually afford to do so) the CFPB released a bulletin outlining expectations for mortgage servicers that transfer loans; bulletin includes information on how mortgage servicers should pay attention to new rules protecting consumers applying for loss mitigation help or trial modifications. The updated bulletin, which can be accessed here, replaces the CFPB's February 2013 guidance. The CFPB explains that its "concern in this area remains heightened due to the continuing high volume of servicing transfers."

Most view this updated bulletin as a more detailed supervisory tool rather than a departure from the CFPB's previous stance (in place since January) on mortgage servicing transfers. For example, the original bulletin included seven general information requests for certain servicers planning transfers and this bulletin includes the same list except it added the following request: "A detailed description of how the servicer will ensure that it is complying with the applicable new servicing rule provisions on transfers." The CFPB's approval is not necessary for a mortgage servicing transfer unless there is an overriding agreement (e.g. consent order) governing the company. Given the wave of transfers and the corresponding increase in headline pressure, it is not surprising to see continued regulatory headwinds impacting specialty servicers which are likely to further increase the costs associated with growth via acquisitions. 

(Speaking of transferring servicing, MSR tapes? I've seen a few. MountainView Servicing Group has had two offerings, the first; a $1.6B FNMA/GNMA servicing portfolio. The package was 94% fixed rate, 94% retail, WaFICO 740, WaLTV 80%, WAC of 3.92%, $225k average loan size, with New York (30.9%), California (12.1 %), New Jersey (11.5%), and Virginia (5.6%); the second a $348M FHLMC/FNMA portfolio with 99% fixed rate/first lien, WaFICO 755, WaLTV 75%, WAC of 4.18%, $234k average loan size, with Colorado (61%), California (15%), Arizona (6.5%), and Illinois (6%); Interactive Mortgage Advisors' offerings included a $3.17B GNMA package with  3.67% Wtd Avg Note Rate, a 12 month Average Escrow Balances of 1.07% of UPB, sub-serviced by nationally known company, with DLQs (not including FC/BK) of 5.37%.) 

But the CFPB impacts all areas of residential lending, not merely servicing, and recently released its annual CARD Act, HOEPA, and QM adjustments, as shown in this Ballard Spahr release. "The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank.  The adjustments made by the final rule are effective January 1, 2015. The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor.  The calculation did not result in a change to the current $1.00 minimum interest charge threshold.  However, in the final rule, the CFPB increased the current penalty fee safe harbor of $26 for a first late payment and $37 for a subsequent violation within the following six months to, respectively, $27 and $38. 

"HOEPA requires the CFPB to annually adjust the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent of such amount.  In the final rule, the CFPB increased the current dollar thresholds from, respectively, $20,000 to $20,391, and $1,000 to $1,020. Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan must not exceed to satisfy the requirements for a QM.  The CFPB must also annually adjust the related loan amount limits.  In the final rule, the CFPB increased these limits to the following: For a loan amount greater than or equal to $101,953 (currently $100,000), points and fees may not exceed 3 percent of the total loan amount. For a loan amount greater than or equal to $61,172 (currently $60,000) but less than $101,953 (currently $100,000), points and fees may not exceed $3,059 (currently $3,000). For a loan amount greater than or equal to $20,391 (currently $20,000) but less than $61,172 (currently $60,000), points and fees may not exceed 5 percent of the total loan amount. For a loan amount greater than or equal to $12,744 (currently $12,500) but less than $20,391 (currently $20,000), points and fees may not exceed $1,020 (currently $1,000). For a loan amount less than $12,744 (currently $12,500), points and fees may not exceed 8 percent of the total loan amount." But hey, don't take Ballard Spahr's word for it - read all about it in the Federal Register.

 

The volatility that we saw last week is dissipating from the market. (Let's see what happens in October when the Fed isn't engaged in QE3!) Yesterday we saw a combination of lack of market-moving news from overseas (Ukraine and Israel) and good news here stateside. Housing Starts rose almost 16% in July to their highest level in eight months, and Building Permits increased by 8.1% to a 1.05 million pace, the fastest rate of building applications for single-family dwellings since November.  No wonder builders are optimistic! From a year ago, home construction was up 21.7%.  Starts on single-family homes, which reflect the bulk of the market, climbed 8.3% in July from June.  Construction of multifamily units-mostly condominiums and apartments--rose 33% to a pace of 423,000 units, the highest level since January 2006. We also were reminded about the lack of inflation, in spite of the best forecasts by "experts". The Consumer Price Index was +.1% in July, the smallest gain since February. QE has not caused the widespread inflation many thought - yet.

 

Originators keep producing, and the Fed keeps buying. The New York Fed's daily MBS operations amounted to $1.591 billion total, or 92.2% of the scheduled $1.725 billion slated for purchase. But rates edged higher, basically because they wanted to, and 30-yr agency MBS prices closed lower/worse about .125.  

The economic calendar at midweek features the Fed minutes from the July 29-30th meeting. These come out at 2PM EST, 8AM HST, as the market will no doubt be scrounging for any information and tidbits beforehand. In the early going this morning the 10-yr yield is slightly higher at 2.41% and agency MBS prices are worse a tad.

 

Executive Rate Market Report:

 

Generally quiet start early this morning but no improvement in the MBS or treasury markets even with US stock indexes aiming at a lower opening at 9:30. At 9:00 the 10 yr -2/32 2.41%, 30 yr MBS prices -5 bps frm yesterday’s closes. At 9:30 the DJIA opened -15, NASDAQ -7, S&P -3; 10 yr unchanged at 2.41% while 30 yr MBS prices -6 bps in price.

 

Mortgage applications increased 1.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 15, 2014. The Refinance Index increased 3% from the previous week. The seasonally adjusted Purchase Index decreased 0.4% from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 11 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 55% of total applications from 54% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.8% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.29% from 4.35%, with points increasing to 0.26 from 0.22 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.18% from 4.24%, with points increasing to 0.23 from 0.19 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.99% from 4.04%, while points remained unchanged at 0.03 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.44% from 3.48%, while points remained unchanged at 0.30 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 3.10% from 3.24%, with points decreasing to 0.44 from 0.45 (including the origination fee) for 80% loans.

Yesterday and Monday we got better housing data with the NAHB index gaining 2 points and July housing starts and permits twice as strong as forecasts. Starts up 15.7%, permits +8.1%. The better data set off a run of experts declaring the housing market getting back on track with the outlook much better. The MBA data this morning didn’t co-operate with those more positive reports on purchase apps, down 0.4%. The re-finance sector was widely declared as dead by a few housing experts, saying all re-finances have now been achieved; this morning MBA data showed re-finances increased 3.0% frm the previous week.

This afternoon (2:00 pm) the minutes of the 7/30 FOMC meeting will be released. Always something to chew on with more specifics than we get when the meeting concludes with the policy statement. Likely the minutes will get a little ink, but with Yellen speaking Friday at Jackson Hole, the minutes are somewhat dated given the title of her speech is “The Labor Market”, following her remarks Mario Draghi will also speak on the EU economy.

Not likely MBS prices will improve today with treasuries still unwinding huge long positions. No geo-political reasons for short term traders to buy now, the issues are still out there but this week there has been no fearful news from Ukraine, and Putin is scheduled to meet next week with Ukraine leaders and EU countries. Some relaxation occurring now in Ukraine, Israel and Iraq; nothing really has changed, just not worsening. The fear factor into treasuries has ebbed this week. The economy is back in the headlights. As we noted last Friday, the bond market had become overbought basis the near term; since then prices have slipped and interest rates have Increased a little; the 10 yield up 7 bps frm Friday’s close while MBS prices -36 bps since Friday’s close. Trading volume though is the lowest we have seen this year in both stocks and bonds ahead of Jackson Hole on Friday. The wider outlook is still bullish, a close over 2.48% will change the pattern and turn the 10 bearish frm a technical perspective.

WE SUGGEST KEEPING LOCKED THROUGH THE DAY. POTENTIAL FOR VOLATILITY IS HIGH, NOT MUCH ACTUAL TRADING IN STOCKS OR BONDS THIS WEEK.

PRICES @ 10:00 AM

10 yr note:-5/32 (15 bp) 2.42% +1 bp

5 yr note: -2/32 (6 bp) 1.59% +1 bp

2 Yr note: -1/32 (3 bp) 0.44% +1 bp

30 yr bond: -12/32 (37 bp) 3.23% +2 bp

Libor Rates: 1 mo 0.155%; 3 mo 0.234%; 6 mo 0.328%; 1 yr 0.552%

30 yr FNMA 3.5 Sept: @9:30 102.42 -6 bp (-30 bp frm 9:30 yesterday) 4.0 coupon 105.58 -3 bp (-27 bp frm 9:30 yesterday)

15 yr FNMA 3.0: @9:30 103.47 +1 bp (-16 bp frm 9:30 yesterday)

30 yr GNMA 3.5 Sept: @9:30 103.52 -11 bp (-24 bp frm 9:30 yesterday) 4.0 coupon 106.27 -3 bp (-23 bp frm 9:30 yesterday)

Dollar/Yen: 103.33 +0.41 yen

Dollar/Euro: $1.3287 -$0.0033

Gold: $1297.30 +$0.60

Crude Oil: $95.76 +$1.28

DJIA: 16,916.93 -2.66

NASDAQ: 4520.33 -7.18

S&P 500: 1980.58 -1.02

Tuesday, August 19, 2014

MBA networking groups; MISMO update; Recent Agency news



 

Given the amount of change facing our industry, open dialogue amongst industry peers is more important than ever before. The MBA is focused on giving its community lender members the ability to discuss their unique opportunities and challenges. To that end, the MBA now has two members-only networking groups - the brand-new Community Bank and Credit Union (CBCU) Network, which is open to all MBA member banks and credit unions with 10 billion or less in assets, and its popular network for Independent Mortgage Banks. Both groups meet regularly via phone and in person, and serve as forums to share information, as well as pool knowledge and resources. MBA hosted the first of many member-led CBCU Network calls on August 12, receiving rave reviews and a high level of participation. Contact MBA's Tricia Migliazzo or Tamara King to learn about either of these groups, and about special first-year member benefits.

Speaking of the MBA, I learned a new term (for me) yesterday: "backwardly compatible." My guess is that many failed personal relationships could use that term, but in this case it applies to the latest update on MISMO (Mortgage Industry Standards Maintenance Organization). Most IT and Ops folks already follow developments on its website.  

There is a lot going on with the Agencies! Yes, the FHFA has requested input on its proposal for a single security structure for agency MBS (and you should comment!). Fannie Mae and Freddie Mac also recently reported 2Q14 earnings. Earnings declined at both companies driven primarily by lower litigation and other one-time gains. Fannie Mae reported $3.7 billion of operating profit before the payment of preferred stock dividends, while Freddie Mac reported $1.4 billion of operating profit before preferred dividends. Fannie was helped by the release of some reserves, and Freddie earned some coin on derivative gains. Fannie's serious delinquency rate decreased to 2.05% from 2.19% in 1Q. Fannie's loss reserve of $42.1 billion (from $45.3 billion) declined to 1.32% of the guaranty portfolio vs. 1.41% in the prior quarter, and its single-family loss severity rate was 18.89% (although this excludes REO disposition costs), down from 20.31% for the full-year 2013. The company took a reserve release of $1.6 billion vs a release of $774 million last quarter. Charge-offs were up to $1.9 billion from $1.6 billion in 1Q. 

Freddie Mac's credit also continued to improve. The serious delinquency rate fell to 2.07% from 2.20%. Freddie Mac's loss reserve fell to $22.8 billion from $24.1 billion, or 1.3% of loans, down from 1.4%. Total non-performing assets fell to $122.6 billion from $124.8 billion in 1Q. The reserve equated to 18.6% of non-performing loans. The company's single-family loss severity rate for 2Q was 33.4%, down from 35.6% (unlike for Fannie Mae, this includes most REO disposition costs). The company took a release of $618 million, down from a provision of $85 million in the prior quarter. Charge-offs were down to $1.22 billion from $1.46 billion. 

If you'd like some input on the direction of Freddie and Fannie, their conservator (the Federal Housing Finance Agency) is requesting input by Sept. 15 on the plan for fiscal years 2015-2019. As it stands, the Plan lists three strategic goals: ensure safe and sound regulated entities; ensure liquidity, stability and access in housing finance; manage the enterprises' ongoing conservatorships. 

There continues to be a lot of talk among LOs about the short sale that came out in June. Just to remind folks, this information is from a FNMA bulletin dated June 17, 2014. Background info, right now if a borrower had a short sale 2 years ago and has 20% to put down, FNMA will let them back in the game. If the borrower has less than 20% to put down they have to stay on the bench for four years.  Effective August 16th FNMA is changing their policy; "A new policy will apply to mortgage accounts that have been subject to a charge-off that will require a four-year waiting period after the charge-off occurred before the borrower is eligible for a new loan that would be salable to Fannie Mae." Furthermore, if the charge off is due to extenuating circumstances, then FNMA would be OK with a two year wait. We hope that FNMA publishes a precise definition of "Extenuating Circumstances " we don't think that any lender is going to risk having an un-saleable loan on their hands, therefore we do not think that anyone that has a short sale is going to be OK with less than a four year wait. 

Quick note to remind people that on July 29th Fannie Mae issued SEL-2014-10, "Selling Guide" updates. The update included changes to the following: Significant Derogatory Credit Events, Property Insurance Requirements, Lender Quality Control Policy Updates and Clarifications, Notification Requirements for Misrepresentation or Breach of Selling Warranty and Fraud, MBS Buyup and Buydown Ratio Grids, Incorporation of Announcement SEL-2014-08, Fannie Mae Announces Approved Mortgage Insurance Forms, Incorporation of Announcement SEL-2014-09, Anti-Money Laundering Requirements, Special Feature Codes, and Miscellaneous Selling Guide Update. 

Fannie Mae posted Initial Results from the Mortgage Lender Sentiment Survey. Inaugural results of the survey show significant improvement from Q1 to Q2 2014 in lenders' near-term profit margin expectations, with fewer lenders in Q2 reporting that they expect their profit margin over the next three months to decrease More Results

Fannie Mae recently published updated lender resources for mortgage products to finance home construction, renovation, and energy-efficient improvements. The materials construction-renovation-energy of updated resources include: a HomeStyle Renovation (HSR) on-demand recorded training tutorial that provides detailed loan origination, delivery, and servicing information; a HomeStyle Renovation Fact Sheet; a HomeStyle Renovation Product Matrix; a Construction-to-Permanent Product Matrix; and an Energy Improvement Feature Fact Sheet. Additionally, Fannie's announcement covers information pertinent to Adverse Action Notices, Allowable Foreclosure Attorney Fees, Evaluation Model Clauses, and the Master Custodial Agreement reminding servicers of the requirements. 

Lastly, this last weekend Fannie rolled out DU 9.1. Included are changes to foreclosure message updates, deed-in-lieu of foreclosure and pre-foreclosure sale message updates, charge-off policy message addition, 2014 Area Median Income limits, Special Feature Code retirement, and updates to align with the Selling Guide. 

Freddie Mac Reps and Warrants Updates reminds lenders that have mortgages that obtained selling representation and warranty relief between February and July 2014, your organization will receive a Selling Representation and Warranty Relief Date Report by mid-September. Also, Freddie Mac has terminated its relationships with the following law firms providing default-related legal services (DRLS) for Freddie Mac Default Legal Matters. Connolly, Geaney, Ablitt & Willard, P.C., in the following states: Massachusetts, New Hampshire, Rhode Island, Florida and Puerto Rico. The Castle Law Group, LLC, in the following states: Utah, New Mexico, Nevada, Arizona and Wyoming. Visit default legal services for detailed information for Servicers, law firms, and Legacy Matters. Bulletin 2014-15 covers a great deal of information including: Mortgages insured by Arch Mortgage Insurance Company, Suspicious Activity and anti-money laundering (AML) noncompliance reporting, Updates to counterparty eligibility, Updates to flood insurance requirements, Updates related to ULDD, Certificate of incumbency forms, and Requirement updates for manufactured homes. 

Four draft appraiser-specific policy documents that will be part of the Federal Housing Administration's (FHA) Single Family Housing Policy Handbook (SF Handbook) were posted today for stakeholder review and feedback. An extension from July 29 to August 15, 2014 has been granted to allow stakeholders additional time to provide voluntary feedback on the draft Doing Business with FHA-FHA Lenders and Mortgagees and Quality Control Posted for Feedback. HECM New Principal Limit Factors Use and Other HECM Reminders 2014-12, regarding Principal Limit Factors (PLFs) and Mortgagee Letter 2014-07, regarding Due and Payable policies for an eligible Non-Borrowing Spouse are effective for FHA Case Numbers assigned on or after August 4, 2014 Mortgagee Letters

On August 19, 2014, FHA will host a webinar FHA QC Update: Loan Review Findings and Trends. Topics will include: FHA trending resources, a one-year look back at FHA's quarterly loan review findings report, trends over time, lessons learned, and future mitigation. August 27th in New York, FHA is offering Underwriting Training that covers the underwriting of loans proposed for Federal Housing Administration (FHA) mortgage insurance. The training is for underwriters that are currently employed, or wish to be employed, by FHA-approved lenders. 

Sometimes government agencies get it right....and no, I'm not nipping at the schnapps at 5am. The National Association of Realtors commended Congress for their timely implementation of the Homeowners Flood Insurance Affordability Act which relieved property owners of costly premium hikes and stabilized housing markets where flood insurance is required for a mortgage.   Within a month of the legislation's implementation, FEMA issued rate-relief guidelines to insurers so that homebuyers would not have to pay more than current owners would at the time of their next flood insurance policy renewal. The relief also applies to current homeowners who bought a new policy or let one lapse, not just to owners who bought property after the Biggert-Waters Flood Insurance Reform Act went into effect last year. Testifying in front of Congress last week, NAR Flood Insurance Task Force Chair Donna Smith said, "The progress so far has been encouraging, but there is still more work to be done. FEMA still needs to set up an Office of the Advocate called for by the Biggert-Waters Act to provide property buyers with the timely help they need to address problems with flood insurance and other rate issues that they face. It is also critical that FEMA and the NFIP ensure the long-term accuracy of flood rates and maps. Homeowners need an independent government advocate who has experience and access to the necessary information to fully investigate and resolve suspect rate quotes."

The bond market sold off a little bit Monday - but no big deal, right? Rates are still great. Besides - folks rooting for lower rates should ask themselves: why? If rates go much lower, it is because our economy is doing pretty poorly - and who wants that? Certainly not a borrower with a rate lock, or a secondary marketing department with a locked pipeline. So we had a break yesterday, and agency MBS prices worsened about .125-.250 and the 10-yr closed at 2.39%.
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