Of the 45 educational sessions
here at the MBA conference, 87 of them have to do with QM. (No, that is not a
misprint.) If you have to ask the person in the next cubicle over what
"QM" or "ATR" is, you might want to get up to speed soon -
see below for continued information on this.
"Vegetarian" is an old
Indian word for "bad hunter." There are many misunderstood things,
and topics to argue over, in life. Here is one: whether or not to even buy a
house. In this Forbes article, the author
explains why she will never own another house - and every LO is advised to
figure out counterarguments for each topic.
JMAC Lending continues to expand,
and is looking for wholesale AEs in Virginia, Washington, Oregon, Florida,
Colorado, and Texas. JMAC, incorporated over
20 years ago, JMAC has an interesting business model for brokers with 80% or
higher pull through: it takes the pull-through, arbitrage gain and incentives
collected from this positioning to create an incentive program for client
retention. And it has resulted in production which has more than tripled in the
last four years into the billions/year with the help of Cor Choice (a viable
correspondent solution offered to selected clients for over a year) adding to
the " the strength and stability exhibited through the quality of our
production." For further inquiries, or to submit a confidential resume,
contact Eric Nguyen at Eric@jmaclending.com (who
will be in VA next week) or visit Careers.
Did the industry really dodge a
bullet last week when Federal Housing Finance Agency (FHFA) acting Director
Edward DeMarco said the agency will announce next month whether to reduce loan
limits guaranteed by Fannie Mae and Freddie Mac? He stated that any change will
not take effect until mid-2014 and would be "across the board" rather
than in certain portions of the country. He also stated that possible
increases in guarantee fees and more emphasis on GSE risk sharing will be part
of the transition toward private participation in the secondary mortgage
market. DeMarco also added that FHFA will give lenders and other mortgage
market participants at least six months' notice, which could put any change
effective date out to late spring of 2014 at the earliest. This was his first speech in five months -
it must be odd to have the press out there talking about your replacement.
But what are the smartest guys in
the room saying about maximum loan levels and gfees? First,
he said that, "One of the most direct ways to increase private sector
participation and reduce taxpayer exposure is through a reduction in the
maximum size of loans that the Enterprises guarantee. This summer the President
specifically endorsed a gradual reduction in maximum loan size. I understand
the potential timing issues associated with such a change given the other
regulatory changes that are scheduled to take place in the mortgage market. FHFA
will follow its practice of announcing the 2014 conforming loan limits in late
November, at which time further information will be provided on potential
reductions in the size of loans the Enterprises will guarantee going forward. We
expect to give market participants at least six months' notice of any change.
Any reduction would be across the board, not just in some parts of the country.
And, consistent with our practice when increasing guarantee fees, any change
would be measured and gradual so as not to disrupt markets." So at least
nothing will happen until May, but it is a question of "when" and not
"if". And look for changes to both the $417k and the $625.5k.
"With an
uncertain future and a general desire for private capital to re-enter the
market, the Enterprises market presence should be reduced gradually over time.
We have three main tools to accomplish this objective: First, risk-sharing
transactions are important for reducing the taxpayers' long-term risk exposure.
Second, guarantee fees on new mortgages average about 50 basis points...While
that level is difficult to evaluate with precision, I believe we are getting
closer to a level that would encourage more private sector participation, and
we plan to continue pursuing gradual guarantee fee increases in the near
future. Third, one of the most direct ways to increase private sector
participation and reduce taxpayer exposure is through a reduction in the maximum
size of loans that the Enterprises guarantee." In other words, we can
expect another gfee increase, perhaps by as much as 20 basis points,
orchestrated by the FHFA so impacting both Fannie and Freddie.
Even though the administration is
searching for his replacement, DeMarco's opinion still matters, and he still
opposes spinning the GSEs back out to the markets. "Of the various
legislative proposals that have been introduced in Congress, none of them
envision the Enterprises exiting conservatorship in their current corporate
form. The recent quarterly earnings reports by the Enterprises show a return to
profitability. To be sure this is good news compared to the previous years of
losses. But we should keep the recent reports of positive net income in perspective.
Much of it has been related to one-time adjustments, such as the reversal of
the valuation allowance against the deferred tax asset, or releases of loan
loss reserves related to improved housing market conditions. And the
Enterprises' positive net incomes continue to benefit from their access to
capital markets at close to Treasury rates, and their ability to operate
without any capital."
But here's a bit of good news, at
least for one vendor. Secure Settlements spread the word that it has successfully
completed an intensive SSAE16 audit process and has been awarded SSAE16 Audit
Certification. SSAE 16, developed by the Auditing Standards Board (ASB) of the
America Institute of Certified Public Accountants (AICPA), replaces the
Statement on Auditing Standards No. 70 (SAS 70), which was the standard used
for reviewing service organization control processes for nearly two decades.
The outside auditor performed an independent audit and extensive testing of
control activities and effectiveness at the SSI corporate headquarters and data
center, with a full assessment of operations, information technology, human
resources policies and procedures, risk assessment monitoring, data security
and privacy management, organization integrity and ethics, financial controls,
management philosophy and operating style, and oversight by executive
management.
On Friday Mortgage News Daily
reported that, "Savvy entrepreneurs or established organizations have
little to fear from the new qualified mortgage (QM) and Ability-to-Repay (ATR)
regulations about to come into effect a new white paper from CoreLogic
says. They will find a way to deliver qualified and non-qualified mortgages
in a way that meets all the regulations, incorporates sound lending and
consumer protections, and makes a profit. The paper, ATR/QM Standards:
Foundation for a Sound Housing Market, written by Faith A. Schwartz,
CoreLogic's manager of government business and former director of HOPE NOW and
Margarita S. Brose, a former director in Barclay Bank's Operational Risk
Management Group, is upbeat about the mortgage market, its regulatory
environment, and the opportunities it presents. They point to the current
environment as resulting from President Obama's goals for a new housing finance
system; that private capital will be at its center, but it must maintain
affordability and access to homeownership. The Dodd-Frank Act (DFA)
required lenders to assess the borrower's ability to repay a mortgage loan and
the Consumer Financial Protection Bureau's (CFPB) regulations have formulated
the rules to guide this.
I also received this note from J.
Steven Lovejoy with Shumaker Williams (Maryland): "In reference to
your ATR/QM analysis. My reading of the final Rule is that
even if a loan qualifies as a QM loan, the creditor is responsible for jumping
through all the hoops to ensure the borrower's ability to repay. In other
words, even if the loan qualifies as a QM loan, it does not eliminate the need
to meet the underwriting factors. You appeared to characterize meeting those
factors as a seeming alternative to qualifying under QM. I think
those factors must be satisfied even for a QM loan because the rule does
not provide an exception, only a safe harbor/rebuttable presumption. In
my current view, even if you meet the DTI and upfront fees aspects of QM, you
don't have a QM-qualified loan if you skip the 8+ underwriting factors."
(This ties in precisely with the 8 factors in LoanSifter information in
yesterday's commentary: DTI 43%, Interest Only, Balloon, prepayment penalties,
no negative amortization, loan term, documentation type, and points & fees
cap.)
So what are companies talking
about with regard to minimizing underwriting risk in this QM/non-QM world? Some,
perhaps more on the portfolio side, are going back to "old school" underwriting,
not limited by Appendix Q or GSE analysis. One can use non-traditional income
and asset sources, and verify income & job prospects while keeping good
records of your assumptions. Remember that LTV is important to credit, but
irrelevant to the Ability to Repay (ATR) rules. Successful payment over time is
evidence of ability to repay, and companies may only make loans they are
confident will repay. Sounds like the old Thornburg days!
Lenders are contemplating future
liabilities and legal assaults, and are trying to figure out what to keep in
each file. One thing that is important is why a loan doesn't qualify for QM,
and a lender should document the need for higher pricing or special loan
features. The ATR is a "reasonable and good faith" standard; lenders
should document all income sources and expenses more than needed to qualify if
possible, along with solid analysis of each of the eight factors. Certainly
they should identify verifications and job/income stability assumptions, and do
their utmost in minimizing the risk of any data sources being called into
question.
What is the current chatter about
record keeping? First, it should be easily retrieved, and kept for at least the
life of the loan. A disaster recovery plan is important. Who is going to
service the loan? Many lenders are saying "bye-bye" to their
subservicers - they want control over servicing in order to mitigate the risk
of foreclosure and borrower losses. The old subprime folks will tell you that
servicing loss mitigation efforts can dramatically impact the borrower's
ability to succeed. If a loan fails after 3 years, consider remedies other than
foreclosure to mitigate liability. And for those out there who have seen the
movie "Taken", recall what the kidnapper says to Liam Neeson:
"Good luck."
KBW recently announced a couple
deals. Cascade Bancorp, the holding company for Bank of the Cascades,
and Home Federal Bancorp, the holding company for Home Federal Bank, announced the signing of a definitive agreement and plan of merger
whereby Cascade and Home Federal will merge in a transaction valued at
approximately $265.7 million, payable in a mix of cash and Cascade common stock
to Home Federal's stockholders.The combined company will have approximately
$2.4 billion in assets, serving communities across Oregon and Idaho. In
addition, Northrim BanCorp, Inc. and Alaska Pacific Bancshares announced the
signing of a definitive agreement for Northrim BanCorp to acquire Alaska
Pacific in a stock and cash transaction currently valued at approximately $14.3
million.
The American Bankers Association
- through its Corporation for American Banking subsidiary - has endorsed
Freddie Mac to provide ABA members with exclusive benefits to assist in their
mortgage lending activities. "The alliance offers ABA member banks access
to a special set of secondary market advantages including loan origination
tools, customized training, and portfolio management services."
PennyMac rolled
out their USDA Guaranteed Rural Housing product, which is now on the rate sheet
and eligible for purchase for all correspondents who have been approved for
delivery.
Taking a quick look at the
markets, using the 10-yr as a proxy for rates in general (not always 100%
accurate, but somewhat close), on Friday we closed at a yield of 2.50%.
Monday we closed at 2.51% - rates have hardly budged. It is too early in DC
to know what rates are up to, but we do have a lot of news later. It begins at
8:30AM EDT with the delayed September PPI (+0.2 expected versus +0.3 last) and
Retail Sales (+0.1 versus +0.2) reports. At 9AM EDT is the S&P/Case-Shiller
Home Price Index (Aug) which is expected slightly higher to +12.5 percent from
12.4, and at 10AM EDT are October Consumer Confidence (75.3 from 79.7) and August
Business Inventories (+.03 versus +0.4). In addition, Treasury auctions $35
billion in 5-year notes at 1PM EDT.
(Rated PG.)
Mike was going to be married to
Karen. So his father sat him down for a little chat.
He said, "Mike, let me tell
you something. On my wedding night in our honeymoon suite, I took off my pants,
handed them to your mother, and said, 'Here, try these on.'''
She did and said, 'These are too
big. I can't wear them.'
I replied, 'Exactly - I wear the
pants in this family and I always will.'
Ever since that night, we have
never had any problems."
"Hmmm," said Mike. He
thought that might be a good thing to try.
So on his honeymoon, Mike took
off his pants and said to Karen, "Here, try these on!"
She tried them on and said,
"These are too large. They don't fit me."
Mike said, "Exactly. I wear
the pants in this family and I always will. I don't want you to ever forget
that."
Then Karen took off her panties
and handed them to Mike. She said, "Here, you try on mine!"
Mike did and said, "I can't get
into your panties."
Karen said, "Exactly.
And if you don't change your smart-a$s attitude, you never will."
