The Nitty-Gritty on the HUD & FHA changes & How Lenders Handling them

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One never knows what will cause mass hysteria. Maybe the storm hitting the Northeast? I doubt Ocwen's troubles will cause it, but the industry has watched its stock plummet and chairman resign, its battling with regulators in New York and California, it being prohibited from buying a block of servicing from Wells Fargo, adding a pastor to its board of directors, and now Reuters tells us it seems that large investors are lining up to sue it. Calgon, take me away!

FHA posted information regarding Borrowers' Notification and Full-Months Interest. As a reminder, last August a Federal Register final notice (Docket No. FR-5360-F-02) was published regarding the elimination of post-settlement interest for Federal Housing Administration (FHA) mortgages with an effective date of January 21, 2015. This rule revises FHA's regulations that currently allow an FHA-approved mortgagee to charge the mortgagor interest through the end of the month in which the mortgage is being paid. The final rule allows mortgagees to charge interest only through the date the mortgage is paid and prohibits the charging of interest beyond that date. Mortgagees may use the applicable revised Model Prepayment Disclosure Statement language in meeting their annual prepayment disclosure requirements.

There is a certain amount of confusion out there with FHA lenders, especially with those that service FHA loans, on the interest charges. One wrote, "Based on the FHA update received yesterday though it does indicate that FHA is giving lenders a way to still charge the interest on loans originated prior to January 21st. So who gets this additional interest charged when it is included in the payoffs generated? In my case the payoff was with Wells. They were adamant that the new rule only applied to loans originated after January 21st. If the interest is reimbursed to the borrower with the return of their escrow I suspect it is not quite as big of a deal than if the servicer is still sending the monies to FHA. I would just like to give my borrowers good insight on this and now that it is in place it seems that some are charging and some are not. On the payoff I received the MIP was also charged for the full month and I wonder if that should also be prorated. Maybe not but the payoff from Wells referenced the proration of the MIP. I haven't heard squat about that!"

 

According to the publications we received  FHA loans "closed after January 21, 2015" would no longer have interest charged through the end of the month. But even veteran LOs trying to decipher that wondered about what "closed" meant. Was the loan originated and closed after January 21, 2015 or was the loan originated prior to January 21, 2015 and paid off and closed after January 21, 2015? It is the former: "For FHA-insured loans which originally closed before 1/21/15 (as in origination closed), the amount of interest collected will depend on the servicer's policy and may include interest through the end of the month. Due to the variance between servicer's, all demands need to be carefully inspected by underwriting and funding to determine the interest amount that will need to be collected." In English that means if your seller's loan closed (originated) before 1/21/15 you would be wise to include a full month of interest in their net sheet. 

And then we have the MIP change. Hopefully the announcement by HUD, which includes "frequently asked questions", addresses that but also includes a warning. "Due to the expected high volume of case number assignments beginning Monday, January 26, 2015, lenders may experience slower than normal processing times.  FHA Connection (FHAC) peak times are between 11:00 AM and 3:00 PM (Eastern). As a reminder-if the new case number is replacing an old one; the old case cancellation must have been completed before the system will permit a new case number assignment. FHA will monitor processing times and, if necessary, provide updates through the FHAC Message Board, which lenders can access after FHAC log in. For Frequently Asked Questions (FAQs) regarding MIP reductions and case cancellations, go to the FHA Resource Center's online knowledge base and search by Keyword ML 15-01." 

Recently HUD released the January edition of the HUD Housing & FHA Monthly Review, which provides an overview of recent single-family and multifamily policy changes by the Agency. Topics of discussion include the MIP reduction, the expiration of the FHA's property flipping waiver, 2015 FHA loan limits, and guidance for HECM program counselors. If you currently do not receive the Monthly Review and would like to do so, please email FHA.Commissioner@hud.gov and request to be added to the distribution list. 

FHA reissued Mortgagee Letter 2015-01 which introduced the 50 basis point reduction for the annual MIP, and now includes additional information about rates for mortgages with amortization terms less than 15 years. The reissued letter clarifies that the MIP reductions do not apply to mortgages with terms less than 15 years.  All the other policies outlined in the initial letter remained unchanged.
FHA also released Mortgagee Letter 2015-2, which outlines new HECM requirements and supersedes Mortgagee Letter 2014-07. The letter defines "ineligible non-borrowing spouse," provides new model certification language mortgagees must use at origination and throughout servicing, includes language to update HECM model documents, contains clarifications on acceptable documentation for seasoning requirements, and allows a 30-day cure to reinstate a deferral period for an eligible non-borrowing spouse.In order to allow mortgagors to take advantage of the reduced MIP rates, Plaza Home Mortgage will continue to accept new FHA loan submissions; however, Plaza will not order case numbers for new FHA loan submissions until on or after 1/26/15. New loans will be underwritten prior to Case Number assignment and will be conditioned accordingly. Loans in process with Case Numbers assigned prior to 1/26/15 will need to have the Case Numbers cancelled and a new Case Number obtained to receive the new MIP rates. For FHA loans in process, Plaza will cancel existing Case Numbers and obtain a new FHA Case Number if the loan is to close on or after 1/26/15. Please contact your Plaza Regional Office for handling of these requests. FHA loans closing before 1/26/15 are not affected by this change and will continue to have MIP rates at existing levels. Note: HUD has indicated that appraisals obtained under a Case Number that was cancelled will be acceptable under the new Case Number once the new case number is obtained. Specific requirements related to the use of appraisals obtained under cancelled Case Numbers will be provided as more information becomes available.

U. S. Bank Home Mortgage Correspondent Division is committed to following HUD's direction regarding the reduction of FHA Annual Mortgage Insurance Premium. Some guidance points are as follows: There is no need to change the case numbers on existing appraisals. Lenders can hand write the new case number on the appraisal. FHA will allow appraisals to be ordered without case numbers as you will have to wait until January 26th to order the new case number. Regarding Lock Expirations, Improvements to Annual MIP may require additional time for loan processing and lock extensions. It is the Correspondents responsibility to acquire any lock extensions if your borrower chooses to take advantage of this opportunity. If USBHM is underwriting the loan file, please allow additional time for resubmission and re-approval of the new terms.

Flagstar is handling FHA case cancellations on a bulk basis on FHA SO and FHA SO AA loans only. FHA Direct Endorsed and FHA Authorized Agent Lenders may request case cancellations directly from FHA as described in the Mortgagee Letter. Effective Friday, January 16, 2015, Flagstar Bank announced the ability to select lender paid mortgage insurance (LPMI) on the Freddie Mac Super Conforming ARM products. Additionally, the FL Tax price adjustment on loans with LPMI in the state of Florida will be removed on new locks as of Friday, January 23, 2015.

 

Switching to the markets, is it Monday again already? We have quite a bit of news to digest - some of it even inside of this country. Although we have zip today, tomorrow is the volatile Durable Goods, the S&P/CaseShiller 20-City Index with its two-month lag, New Home Sales, and Consumer Confidence. Wednesday afternoon will be the FOMC rate decision (don't look for any change). Thursday is Initial Jobless Claims and Pending Home Sales. We wrap up Friday with the Employment Cost Index, Gross Domestic Product, the Chicago Purchasing Manager's Survey, and the University of Michigan Consumer Sentiment numbers.

 

For those quantitatively inclined, we closed the U.S. 10-yr at 1.82% and this morning we're at 1.80% with agency MBS prices a shade better.

Executive Rate Market Report:

Over the weekend the Greek election results were as expected; the Syriza party won by what is thought to be a wide margin. The importance, the vote was a rejection to the EU austerity policy and a vote for stimulus. The election victory is likely to embolden populist movements and a voter revolt against austerity in other Eurozone countries. Five years of austerity dropped on the EU after the financial crisis in 2008. The election results were already discounted in recent trading within the EU and globally; what now has not been discounted and it is another problem for the European Union. Some conjecture that Greece may leave the EU and other countries may also consider the serious austerity placed on countries in the euro.

The 10 yr note opened +1 bp and MBS prices started down 15 bps before settling down into the 9:30 stock market open. NY is bracing for a blizzard that may drop as much as 3 feet of snow and winds to 65 mph, the Mayor telling people to stay home today ad work at home. Trading may get thin as the day wears pending the progress of the storm.

Nothing on the calendar today. Crude oil a little higher in early trading.

At 9:30 the DJIA opened -38, NASDAQ -12, S&P -5; 10 yr note 1.81% +1 bp. 30 yr MBS price at 9:30 -6 bps.

This is a critical week for the bond market. The FOMC will begin its meeting tomorrow, the policy statement will come at the conclusion on Wednesday at 2:00 pm. Treasury will auction $90B of notes beginning tomorrow with a 2 yr, Wednesday a 5 yr and Thursday a 7 yr auction. Friday we get the advance look at Q4 GDP expected at +3.2%, down from +5.0% in Q3.

Based on the reaction to the Greek election in currency markets, it looks as if markets are not too concerned. The euro currency hit an 11 yr low on Friday, this morning trading a little higher. While European equities fluctuated, amid speculation fallout from the election of the anti-austerity Syriza party in Greece will be contained. U.S. stocks declined with gold.

The high level of volatility is not so far affirming our weak economic outlook for Europe, China, Japan and the US. The US stock market has and is continuing to attract high levels of investments in US equity and interest rate markets. Likely it will continue since there is not much alternative compared to other global markets. That however, is not going to save the coming decline in key stock indexes this year and lower interest rates.

The FOMC meeting is likely going to be a doozy with serious debates concerning when the Fed will begin increasing interest rates. At the Dec meeting there were three regional Fed Presidents that voted against the policy that was released. In the meantime more discouraging economic reports from around the globe may cause the Fed to hold of the lift off of rates presently expected mid-year. Dec US retail sales were quite weak, inflation is exceptionally low her and even worse in Europe and Asian economies. Will the Fed ignore that or send an encrypted message (Fedspeak) that the increase in rates may be pushed back?

This Week’s Calendar:

Tuesday,

• 8:30 am Dec durable goods orders (+0.7%, ex transportation +0.8%)
• 9:00 am Nov Case/Shiller 20 city home price index (+4.3% yr/yr, in Oct the index +4.5%)
• 10:00 am Jan consumer confidence index from the Conference Board (92.6 from 96 in Dec)
• Dec new home sales (+2.9% to 452K units)
• 1:00 pm $26B 2 yr note auction
  Wednesday,
• 7:00 am weekly MBA mortgage applications
• 1:00 pm $35B 5 yr note auction
• 2:00 pm FOMC policy statement (no press conference after the release)
  Thursday,
• 8:30 am weekly jobless claims( -7K to 300K)
• 10:00 am NAR pending home sales (+0.9%)
• 1:00 pm $$29B 7 yr note auction
  Friday,
• 8:30 am Q4 advance GDP (+3.2%, down from Q3 at +5.0%)
• Q4 employment cost index (+0.5%)
• 9:45 am Jan Chicago purchasing mgrs.. index (57.7 from 58.3 in Dec)
• 9:55 am U. of Michigan consumer sentiment index (98.2 unch from mid-month)

PRICES @ 10:10 AM

• 10 yr note: -5/32 (15 bp) 1.81% +1 bp
• 5 yr note: -4/32 (12 bp) 1.37% +7 bp
• 2 Yr note: -2/32 (6 bp) 0.52% +2 bp
• 30 yr bond: -8/32 (125 bp) 2.39% +1 bp
• Libor Rates: 1 mo 0.168%; 23 mo 0.256%; 6 mo 0.357%; 1 yr 0.622%
• 30 yr FNMA 3.0 Feb: @9:30 102.67 -6 bp (+7 bp from 9:30 Friday)
• 15 yr FNMA 3.0 Feb: @9:30 104.70 -3 bp (+7 bp from 9:30 Friday)
• 30 yr GNMA 3.0 Feb: @9:30 103.23 +8 bp (+14 bp from 9:30 Friday)
• Dollar/Yen: 118.24 +0.47 yen
• Dollar/Euro: $1.1271 +$0.0067
• Gold: $1283.60 -$9.00
• Crude Oil: $45.48 -$0.11
• DJIA: 17,640.75 -31.85
• NASDAQ: 4753.23 -4.65
• S&P 500: 2048.93 -14.22

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