FHA, VA, IRS, and Renegotiation Policy Changes

By rchrisman@robchrisman.com

(Thanks to Tony H. for this one.)

A husband and wife who work for the circus go to an adoption agency. 

Social workers there raise doubts about their suitability. 

The couple produce photos of their new 50-foot motor home which equipped with a beautiful nursery. 

The social workers raise concerns about the education the child.

"We've have a full-time tutor who will teach the child all the usual subjects along with 4 languages."

Then the social workers express concern about a child being raised in a circus environment.

"Our nanny is a certified expert in pediatric care, welfare, and diet."

The social workers are finally satisfied. "What age child are you hoping to adopt?"

"It doesn't really matter as long the kid fits in the cannon."

 

The capital markets are always changing, and the latest news to turn some heads is that JPMorgan Chase is streamlining its operations and will no longer settle Treasury trades for most dealers by the end of 2017. SIFMA data show that more than $500 billion of Treasury securities were traded on average daily in the first half of this year. To keep things in perspective, since that is always a good thing, foreign exchange clocks in at over $5 trillion a day. The New York Stock Exchange, on the other hand, although it garners more press and publicity only weighs in at about $50 billion a day. And as we know, the biggest buyer of agency MBS is the NY Federal Reserve at $2-3 billion a day.

Jumbo, FHA, VA, and USDA updates from the government and lenders? Of course there are!

 FHA published Issue #12 of its quarterly Lender Insight(dated June 2016) newsletter. Because there has been no measurable improvement to the initial material defect rate over the past eight quarters, this issue of Lender Insight primarily focuses on the causes of the high initial unacceptable ratings for the top five mitigated findings. The objective of Lender Insight is to provide lenders with information on what FHA is seeing in its quarterly loan review updates, status summaries, and other topics of interest in the lending community. Each issue also contains core information designed to help lenders better understand the trends and policies that affect their business.

 Ditech issued a reminder that USDA will no longer require that the interest rate on the refinance loan be at least 1% below the interest rate of the original loan. The new rate must now be less than or equal to the rate of the loan being refinanced. Refer to its product summary for all product restrictions.

 Flagstar clients are being reminded that all FHA loans with case numbers assigned on or after June 27, 2016, mortgagees are required to deliver appraisal data to the EAD before loan endorsement. Also noted, for Freddie Mac mortgages secured by a detached (site) condo project located in the State of Michigan, it is not required to obtain a condo questionnaire if specified requirements have been met.

 Effective August 15^th, Wells Fargo is updating its student loan payment requirements for Non-Conforming Loans as described below to mitigate the risk of unusually low student loan payments and ensure accurate payment calculations. Also noted, in order to mitigate risk due to employment volatility in areas that rely heavily on the oil industry for employment, Wells Fargo Funding will restrict CLTVs for Non-Conforming Loans where the property is located within an energy market, as identified by Wells Fargo Funding. For details, view the Wells Fargo Funding Energy Markets (Exhibit 24) list to support this change.  Additionally, Wells is removing it overlay requiring an exception from Wells Fargo Funding for High Balance VA Loans with total Loan amounts greater than $700,000 and less than or equal to $1,500,000 with debt-to-income ratios greater than 41%.

 And there are IRS, tax-related, and renegotiation investor changes of note.

 The deadline for submission of your certification documentation to either your vendor or the IRS for obtaining IRS tax transcripts was July 15. If you are unable to obtain a tax transcript for a Closed Loan Package due to the short window to comply, please contact a member of your Wells Fargo regional sales team to discuss delivery options.  While Loan-level exceptions may be granted for Closed Loan Packages not containing IRS transcripts, they may only be permitted for a limited time. Closed Loan Packages without IRS transcripts will require additional review, which may delay Loan funding. According to the IRS, vendors will be required to suspend access to the transcript service for any lender that fails to complete the required certification as of Friday, July 15th.

 Sun West requires the following documentation when business income is reported on Schedule K1 and used for qualification: Income documents must include the most recent two-year individual tax returns (Form 1040) with all schedules, most recent two-year business tax returns - with Schedule K-1, Form 1065 for Partnerships/LLCs, and form 1120S for S-Corporations/LLCs. For Use of Self-employment income from Partnership or S Corporation business: Ordinary income, net rental real estate income, and other net rental income reported on Schedule K-1 may be included in the borrower's cash flow provided: the borrower can document ownership share (using Schedule K-1); and the borrower can document access to the income (such as a partnership agreement or corporate resolution); and the business has adequate liquidity to support the withdrawal of earnings.

 Plaza will allow the re-use of a prior appraisal report for a subsequent transaction when an appraisal update is obtained and specific requirements are met. This will save time and money for borrowers who have already determined they wish to refinance.

 NYCB Mortgage's rate-lock renegotiation policy has a few key features. One Rate/Price Renegotiation is Permitted per Loan Number to current market price.The renegotiation must result in either a rate reduction of at least 1/8 of 1% or an increase of the borrower credit. A one-time renegotiation Fee of .625% price adjustment applies to the rate/price renegotiation request. There is no restriction on the price the applicant receives. The price paid is the current base price for the original lock term after the applicable rate and price adjustments minus the one-time renegotiation fee.

 Franklin American Mortgage Company has made specific changes regarding its rate renegotiation policy. These changes are in effect as of Monday June 27^th with changes available in the chapter online.

 PennyMac posted a reminder of its trailing document policy as well as to share best practices for managing trailing documents with PennyMac. Click here to view.

 Trainings and events:

 California Mortgage Bankers Association's Mortgage Quality and Compliance Committee (MQAC) is providing a free webinar on fraud issues, July 28^th.

 The Colorado Mortgage Lenders Association is hosting its Annual Convention on August 3rd, 4th, and 5th in Vail, Colorado.  The conference will be held at the Vail Marriott Mountain Resort, and features a variety of networking events, a line-up of nationally renowned speakers, and opportunities to learn about important topics and trends affecting the mortgage industry. You can view a YouTube video all about this event.

 Fannie Mae has requested enhancements to the HomeTracker Lender Center application effective August 11. Live webinar training sessions will cover updated requirements for P&P submissions; the new related bid process; two new worklists for effective workflow management; and ad hoc reporting updates. Register for any available training throughout the month of August.

 Free online FHA training opportunities:

 August 3^rd An overview of FHA-Approved Servicer requirements including: early delinquency activity, timelines, general loss mitigation, and collection best practices.

 August 10^th guidance on Forbearance Plans and HUD's Loss Mitigation Home Retention Options - Special Forbearance and Loan Modification. Topics include: the features and benefits of each option; how to review, qualify, and process each option; and the actions required to comply with HUD.

 August 17^th guidance on HUD's FHA-HAMP Loss Mitigation Home Retention Option. Topics include: how to review, qualify, and process the FHA-HAMP option, and the actions required to comply with HUD.

 August 31^st HUD's Loss Mitigation Home Disposition Options: The Pre-Foreclosure Sale Program and Deed-in-Lieu.

Registration is underway for MBA's Risk Management, QA and Fraud Prevention Forum 2016 in Los Angeles September 28^th - 30^th.  Identify risk versus reward, analyze mortgage fraud threats and evaluate quality assurance practices by providing targeted, practical solutions to your unique business challenges. Topics include guidance on loan quality assurance, fraud prevention strategies, underwriting and compliance updates and other risk management topics.

 Turning to the bond markets, Monday continued last week's lack of volatility. Short-dated U.S. Treasuries ticked down, but everything else traded in a very narrow range and didn't move much. The 10-year yield did hit a high of 1.59%, but closed at 1.57%. The NY Fed was in doing its usual purchase of agency MBS - in Monday's case about $2.5 billion.

 Yesterday there was no scheduled news to move things around. This morning we have some actual news, but the kind of stuff that rarely move rates but gives economists something to talk about regardless. We'll have the May Case-Shiller 20-city Index at 9:00AM EDT, July Consumer Confidence at 10AM EDT, as well as New Home Sales. For those wanting to put some cash to work the Treasury will auction $45 billion of 1-month bills and $34 billion of 5-year notes. In the afternoon the FOMC two-day meeting will commence.  ahead of Wednesday's decision on monetary policy.

 In terms of rate sheets this morning the 10-year note yield is back down to 1.55%, and both the 5-year T-note and agency MBS prices are better by nearly .125.