"I named my dog '5 Miles' so that I can legitimately tell
people I walk 5 Miles every day."……..Happy Spring!.....
The
Impac Mortgage Correspondent lending team continues to expand and is adding
correspondents. It's a two-step process to become an approved correspondent
seller with Impac Mortgage: 1) download and complete the Correspondent Lender Questionnaire
(PDF), then 2) email the completed questionnaire to imcorrespondentpackages@impacmail.com. Impac
is highlighting its underwriting: "Impac is your underwriting wingman
with a full slate of choices available to sellers via a live person, ready to
handle questions and give quick answers - aka, you can reach someone. The list
of functions they handle includes flexible underwriting options, which are
tailored to their customers' requirements, including: Pre-close Underwriting
which provides for no PTD or PTF conditions, only those conditions required for
purchasing the loan. Clients may also choose to have a Full Underwrite from
Impac's underwriting team on any of its programs and products offered, as well
as Manual Underwriting for its FHA / VA programs, and full underwriting on both
Standard and Streamline 203k loans to correspondents. Or, feel free to refer
any underwriting scenario to Impac Correspondent by email at UWCorrespondent@impacmail.com.
No
one should equate non-QM loans with subprime loans, and every borrower should
exhibit the ability to repay. The rating agencies are warming to the non-QM idea, and
in an edition of "Consumer Financial Services Watch" K&L Gates'
Laurence Platt noted that "Non QM Lending Facilitated by New Fitch Ratings
Criteria". Here is the link to the Fitch report.
Mr. Platt writes, "Non-QM lending received a big boost this week when
Fitch Ratings issued its criteria for analyzing residential mortgage-backed
securities under the ATR and QM rules issued by the CFPB. It announced that it
would apply a relative 'credit enhancement' adjustment (i.e., extra
collateralization) to non-QM loans pooled to back RMBS, but the level of credit
enhancement reflects its belief that the risk of massive losses on such loans
is relatively slight. In reliance upon required third-party due-diligence
reviews, Fitch said that it would assume the accuracy of an originator's designation
of loans as 'safe harbor' QM loans, higher-priced QM loans or non-QM
loans."
His
letter goes on. "Violations of the ATR requirements can lead to
affirmative claims against creditors and defensive claims against assignees for
potentially significant monetary damages consisting of actual damages, $4,000
in statutory damages, a refund of finance charges paid at closing, and three
years of interest actually paid and attorneys' fees. Concern over the amount of
such damages and the potential impact of a borrower claim on a foreclosure
action has caused some lenders and purchasers to restrict their loan purchases
to loans that are conclusively presumed to satisfy the ATR requirements. The
lack of an active securitization market for non-QM loans, however, constrains
those who want to participate in this segment of the market but want an
ultimate 'take out' for non-QM loans that they make, purchase or finance.
"Fitch
identified a number of 'key ratings drivers' that informed its analysis, only
some of which relate to potential performance of the loans. As a threshold
matter, any transaction must include adequate representations and warranties,
'robust' enforcement mechanisms and indemnification for breaches. It also will
review the originators' and aggregators' processes for ensuring compliance with
the ATR rules, both in design and in implementation. Fitch also will require
additional credit enhancement for deal structures that deduct expenses from
available trust funds rather than from a mortgage pool's net weighted average
coupon rate."
Mr.
Platt writes, "But the heart of the analysis relates to the likelihood
of losses based on ATR violations resulting in defensive claims against
assignees. A rating of a securitization is based in part on estimated cash
flows on the loans backing the RMBS. Losses resulting from ATR violations would
impact such cash flows unless the loan is repurchased based on a breach of a
selling representation and warranty. So the key is trying to model the number
of potential claims and the likelihood and severity of losses resulting from
such claims. This is where Fitch took a very practical perspective. In
determining the probability of an ATR violation, Fitch first looked at the
probability of default as determined by its mortgage loan loss model. It
limited its analysis to defaults in the first five years of origination, which
in its view excluded 40% of defaults that its model predicted would occur,
although it decreased the size of this exclusion for short-term, hybrid adjustable-rate
loans. It then differentiated between states that require judicial foreclosure
and states that permit nonjudicial foreclosure, positing that borrowers in
nonjudicial states are less likely to seek counsel and file a claim in court.
Also relevant to its analysis is credit quality: it assumes that non-QM 'lite'
loans, such as jumbos with debt-to-income ratios only slightly above 43%, pose
a lesser risk. Fitch also created assumptions for probability of resolution as
a percent of challenges and anticipated legal fees to defend such
challenges."
His
note concludes, "The result of this analysis is an assumption that, at
least for now when there is not yet any judicial precedent that would provide
additional guidance regarding ATR challenges, higher-priced QM loans and non-QM
loans '...reflect a low probability/high severity scenario whereby Fitch
expects a limited portion of defaulted loans to challenge ATR/HPQM status but
that significant legal costs will result.' Interestingly though, it concluded
that 'Fitch expects loan modifications to be the most common resolution to
ability-to-repay disputes for higher priced QM loans.'"
Here
is some bedtime reading: "Audit of the Department of Justice's Efforts
to Address Mortgage Fraud". Unfortunately fraud is not dead in lending
(or probably any other business, for that matter), and you can read all about
it here.
Redwood
Trust
has not issued a non-agency bond since 2013. But that is about to change. (The story also includes an
update on other non-agency news.)
Rates: up some, down some.
Yesterday it was up some after the FOMC statement, SEP projections, and Fed
Chair Janet Yellen's first press conference. As expected, the Committee
announced another $10 billion in tapering, split equally between MBS and
Treasuries, while forward guidance was shifted to a qualitative approach from
quantitative with the 6.5 percent threshold for the unemployment rate removed.
But the Fed turned out to be much more hawkish, a surprise to some given the
recent data (much attributed to weather), and analysts opined that there is a
strong potential for a Fed rate hike in mid-2015. The 10-year Treasury note was
down/worse about .75 in price, and agency MBS prices fell between .5-.625.
So beginning in April, outright
MBS purchases from the Fed will decline to $25 billion from $30 billion.
Thomson Reuters writes, "Combined with paydowns, MBS buying is projected
to decline from $2.3 billion per day over the last half of March to just over
$2 billion in the first half of April. Although supply/Fed-demand technicals
remain supportive over this time, it is deteriorating. Currently, originator
selling is averaging roughly $1.2 billion recently, but is anticipated to
increase as purchase activity strengthens into the spring home buying
season."
Rates were quiet overnight, but
today we'll have Initial Jobless Claims, which is expected to increase to 322k
from 315k, Existing Home Sales for February, Leading Economic Indicators for
February, and the Philly Fed survey for March. At 5AM Hawaii time the Treasury
announces details of next week's auctions of 2-, 5- and 7-year notes and 2-year
floating rate note (e: $109 billion) and at 7AM HST auctions $13 billion
reopened 10-year TIPS. Our risk-free 10-yr T-note closed Wednesday at 2.77%
and in the early going is nearly unchanged as are agency MBS prices.
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