Friday, December 30, 2016

Updates on 2nds and Pricing/Fee Changes, United Shore Settles with DOJ on FHA Violations



With the holidays upon us, I would like to share a personal experience with you about drinking and driving, as I know some of you have been known to have brushes with the authorities from time to time on the way home after a "social session" with friends.

Two days ago, I was out for an evening with friends and had several cocktails followed by some rather nice red wine. Feeling jolly, I still had the sense to know that I may be slightly over the limit, so I took a cab home. Sure enough, on the way home, there was a police road block. But since I was in a cab, they waved me through.

I arrived home safely without incident. This was a real surprise as I had never driven a cab before, I don't know where I got it, and now that it's in my garage I don't know what to do with it.
So don't drink and drive!

United Shore Financial Services will pay $48 million to settle allegations brought by the Department of Justice, which accused United Shore of violating the False Claims Act by "knowingly originating and underwriting" mortgages that did not meet Federal Housing Administration standards, the DOJ announced. The settlement makes United Shore just the latest in a long line of mortgage lenders that settled with the DOJ over alleged FHA lending violations.
 As a refresher, the False Claims Act is a popular catch-all law that is used to persecute dozens of mortgage companies. If you want to look it up it is 31 U.S.C. §§ 3729-3733, and is also called the "Lincoln Law". It imposes a liability on persons and companies (typically federal contractors) who defraud governmental programs. It is the federal Government's primary litigation tool in combating fraud against the Government.
 It is called the Lincoln Law since it was enacted during his presidency in 1863 by a Congress concerned that suppliers of goods to the Union Army during the Civil War were defrauding the Army. The FCA provided that any person who knowingly submitted false claims to the government was liable for double the government's damages plus a penalty of $2,000 for each false claim. It's been amended, and in 1986, there were significant changes to the FCA including increasing damages from double damages to treble damages and raising the penalties from $2,000 to a range of $5,000 to $10,000.
 Less than a month ago, a jury found Allied Home Mortgage and its CEO Jim Hodge liable for Civil Mortgage Fraud and there were $92 million in damages. It turns out there was more than a decade of misconduct, and they will also face the trebling of damages and additional mandatory penalties for fraudulent conduct.
 In October, Primary Residential Mortgage Inc. (PRMI) and SecurityNational Mortgage Company have agreed to pay the United States $5 million and $4.25 million, respectively, to resolve separate allegations that they violated the False Claims Act by "knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements."
I could go on and on, and I am sure that there is a list somewhere, but suffice it to say that a) it has earned the government a lot of money, and b) there will be plenty more fines. The industry is watching Quicken Loans' legal maneuvers with the Department of Justice. The DOJ alleges that from September 2007 through December 2011, Quicken "knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans." And that Quicken instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages.
 Where does the mortgage settlement money go?  Since the 2008 housing crisis, federal regulators have touted billion-dollar settlements, which, by giving certainty to investors, are often accompanied by a jump in the bank's stock price.
With millions of borrowers having 30-year loans in the 3% range, they're pretty happy. So, what about 2nd mortgages? Certainly the field is dominated by lenders and investors such as US Bank, TCF Bank, Mountain West, Ditch, and Acopia. (You can always enter the state and then the 2nd program at www.mortgageelements.com to see who is doing what in what state.)
PRMG Product updates and announcements are only a click away and it is now offering Closed End Second Liens.
In addition to 10, 15 and 20 year terms, Ditech's Piggyback Home Equity Closed Product is now available in 25 and 30 year terms.
We all know that the bond market, and therefore interest rates, changes every day. But there are structural pricing and fee changes that lenders & investors are making that impact smaller lenders and their borrowers.
PennyMac announced expansion of the Best Effort grids to include specialized base pricing for loan amounts less than 200K.  Commencing with locks on or after Dec 12, 2016, PennyMac expanded the Best Efforts pricing grids for certain programs into seven loan amount buckets.
AmeriHome Mortgage announced its Secondary Market will be offering a new AOT option beginning January 3rd, 2017. Sellers currently approved for direct trade commitments will be automatically approved for the AOT commitment option. 
Fannie Mae is starting the new year by eliminating the $75 Property Inspection Waiver (PIW) fee, effective January 1, 2017. Enhanced PIWs offer freedom from representations and warranties on property value, condition, and marketability on certain refinance transactions at no cost. Discontinuance of the fee applies to all loans delivered with SFC 801 on or after January 1, regardless of when the PIW offer was issued.
Fannie Mae's AAA Matrices have been updated to reflect the changes to the maximum allowable foreclosure fees for Fannie Mae mortgage loans secured by properties in various states. The updated versions will be available on the Fannie Mae business website on December 22nd.
While we're talking money, higher mortgage rates will probably force buyers to purchase lower-priced homes, according to a survey of realtors by Redfin. Almost half think that homebuyers will be forced to lower their price range, while another 15% think it will cause buyers to walk away. The rest either see no effect or think that sellers will decide to sit tight. Homebuilders will probably shift their production to lower price points, and builders like D.R. Horton and Pulte could be situated best. And as mentioned in the commentary earlier this week, demographers are also seeing a migration of younger families from the coasts to the heartland, where real estate and the cost of living is much lower. 
  Yes, rates have gotten a little better as of late, including mortgage-backed securities. In fact, the 10-year yield now the lowest since before the FOMC hiked rates on December 14. Risk aversion briefly pushed the 10-year note yield to an overnight low of 2.47%. By the end of Thursday, the 10-year had rallied .250 in price, and the 5-year note and agency MBS prices improved by .250 also - somewhat unusual.
  The only news today will be the Chicago Purchasing Manager's Index for December at 9:45am, projected lower to 57 from 57.6. The bond market closes early today, and one can figure that lock desks will as well...or back pricing off accordingly. The 10-year is at 2.48% and agency MBS prices are unchanged versus last night.

Thursday, December 29, 2016

Flood Insurance News, Jumbo, Conforming, and Appraisal Requirement Changes



Broken pencils are pointless.
What do you call a dinosaur with an extensive vocabulary? A thesaurus.

England has no kidney bank, but it does have a Liverpool. I used to be a banker, but then I lost interest.
I dropped out of communism class because of lousy Marx.
All the toilets in New York 's police stations have been stolen. Police have nothing to go on.
I got a job at a bakery because I kneaded dough.
Haunted French pancakes give me the crepes.
Velcro - what a rip off!
Cartoonist found dead in home. Details are sketchy.
Venison for dinner? Oh deer!
Earthquake in Washington obviously government's fault.
I used to think I was indecisive, but now I'm not so sure.
Be kind to your dentist. He has fillings, too.

 NRDC submitted comments on a proposed rule by the Department of Housing and Urban Development, which, when finalized, will increase the nation's resilience to flood disasters. "The proposed rule achieves greater protection for the nation by requiring future HUD-funded projects, like affordable housing, hospitals, and other kinds of community infrastructure, to be built with an additional margin of safety against potential flooding.
 "Floods are already the most common and costly type of natural disaster in the United States, and they are only projected to increase in frequency and severity as sea levels rise and precipitation patterns shift in response to climate change. With the new standards in place, HUD will ensure that its projects are less likely to be damaged in a flood, which will reduce the Federal cost of future flood events and save taxpayer dollars.
 "Implementation of HUD's proposed rule will provide long-term benefits for the nation in avoided disaster costs, as well as safer, more prepared communities. As HUD is a significant funder of affordable housing and economic development, implementation of higher flood protection standards will reduce the risk of losing housing and essential community services in the event of a flood." If this perks your interest, you can read more here.

 Citi Correspondent Lending's Flood Insurance Best Practice (CL 317) and Hazard Insurance Best Practice (CL 227) have been updated to address current common issues specific to flood and hazard requirements and documentation.  Click a link to view each updated document: Flood Insurance Best Practice. Hazard Insurance Best Practice.

 AmeriHome posted: FEMA announced in DR-4293 that assistance has been made available to Tennessee's Sevier county to supplement individual, state, and local recovery efforts in the areas affected by wildfires beginning 11/28/2016 to 12/9/2016.

 While we're talking about lender and investor updates, let's see what everyone is doing in terms of the conventional conforming loan limits for 2017. (This commentary has had numerous updates already.)
 Effective with Best Efforts locks and loans locked in Mandatory commitments created on or after December 22, 2016, Nationstar Mortgage is aligning with the Conforming loan limit increases for standard and high balance loans, as announced by Fannie Mae and Freddie Mac.  All new loan limits will be applicable in DU for Version 9.3 or Version 10.0 loan casefiles submitted (or resubmitted) on or after the weekend of December 10, 2016. Also, note that loan casefiles underwritten through DU prior to December 10th that receive an Ineligible recommendation due only to exceeding the 2016 loan limit may be delivered after January 1, 2017, without resubmitting to DU if the loan amount complies with the applicable 2017 loan limit. To view all Nationstar's updates, click here.

 PRMG will accept the new loan limits on Government products effective January 1st, 2017. However, DU will not be updated to reflect the new limits for FHA or VA until the weekend of January 21st, 2017.
 Effective as of December 15th, Sun West is accepting lock requests per the new 2017 Conventional loan limits published by Fannie Mae and Freddie Mac.

 Citi Correspondent Lending is accepting agency loans according to the recently announced 2017 Agency loan limits as follows: DU Loans - New registrations or DU re-submissions on/after December 10, 2016. LPA Loans - New registrations or LPA re-submissions on/after December 2, 2016. System updates scheduled to be in place on Friday, December 23rd that will allow registration of a conforming loan up to the 2017 maximum conforming loan amount. As an interim solution prior to the system updates being implemented, register new loans exceeding the former maximum loan limits at the former maximum loan amount. Upon receipt and review of loan file, the loan amount per the documents submitted will be updated.
 The loan amount for all Pacific Union Financial, LLC Jumbo loan products must exceed the maximum conforming loan amount for the subject property county by $1.  With the increase to the 2017 Conforming Loan Limits, the minimum loan amount for Jumbo products will increase to the 2017 conforming limit plus $1. For its Pacific Prime product, the higher 2017 minimum loan amount will be effective for applications dated on or after January 1, 2017. Mortgage Insurance providers will accept the 2017 loan limits however, some MI providers may not allow up to the maximum loan amount.  Refer to the applicable website for information.  The Pacific Union MI Matrix will be updated as information becomes available.

 FAMC (Franklin American) is ready to purchase those loans that meet Day1Certainty requirements.

   And at the other end of loan sizes, what's new in jumbo-land?

 Effective 12/15/2016, Mountain West Financial's Jumbo II products were no longer suspended.

 Fifth Third Mortgage Company spread the word that the minimum loan amount for FTMC Non-Agency Jumbo Products has also increased because of the new maximum conforming loan amounts.
 Turning to changes in evaluating collateral, the drop in business has certainly eased up the strain on appraisers in some parts of the nation. What's up with appraisal requirements?

  Nationstar Mortgage now maintains and distributes a monthly Appraiser Exclusionary Listto continue to ensure collateral quality. Correspondents are encouraged to review the Nationstar Mortgage Appraiser Exclusionary List prior to submitting a loan for loan purchase.
  Have rates stopped going up? Perhaps: yesterday U.S. Treasuries had one of their best days since the November 8 U.S. election. Coming from out of nowhere, the Treasury auction of 5-year notes was surprisingly strong. Apparently the 5-year part of the yield curve ("the belly") led the way as it was seen as the most attractively priced area. So there were buyers. By the time the dust settled Wednesday the 10-year note had improved .5 in price and was yielding 2.51%. Mortgage-backed securities had improved about .375.
 Today is the last full day of trading for 2016, and we've already had Initial Jobless Claims (-10k to 265k) and November Advanced Goods Trade (a new indicator showing a $65.3 billion deficit). Coming up is a $28 billion 7-year note auction. After these figures the 10-year is hovering around 2.49% with agency MBS prices better by roughly .125 in price versus last night.
 
 
 
 
 
 
 
 
 
 
 

Wednesday, December 28, 2016

Lender and Realtor Connections Ramping Up, Young Folks Following Affordability



They told me I had type A blood, but it was a Type-O.
A dyslexic man walks into a bra.
PMS jokes aren't funny, period.
Why were the Indians here first? They had reservations.
Class trip to the Coca-Cola factory. I hope there's no pop quiz.
Energizer bunny arrested. Charged with battery.
I didn't like my beard at first. Then it grew on me.
How do you make holy water? Boil the hell out of it!
Did you hear about the cross-eyed teacher who lost her job because she couldn't control her pupils?
When you get a bladder infection, urine trouble.
What does a clock do when it's hungry? It goes back four seconds.
I wondered why the baseball was getting bigger. Then it hit me!

Plenty of first time home buyers, not necessarily millennials, use the internet to do their initial house and lender search, and then actually use an agent and a loan officer for the task. And they'll need ducats! Research by Bank of America Merrill Lynch finds millennials (per the Census Bureau born between 1982 and 2000) will inherit $40 trillion from Baby Boomers in the coming decades. Yes, Papa was a rolling stone, but he seems to have accumulated some wealth.
There were plenty of LOs and real estate agents that read the research by the Pew Research Center that published for the first time in history (well, at least back to 1880), more people in the U.S. age 18 to 34 (33%) live with their parents vs. a spouse or partner. In 1968, 56 percent of 18- to 31-year-olds owned their own homes. In 2012, that number dropped to 23 percent.

 As I've said for years, Millennials are in no hurry to marry, have kids, or save up enough money and then finance a house? It will happen eventually. Still it doesn't stop the fascination with their every move but the ones that I talk to aren't too excited about constantly being under the microscope. It's amusing that some people approach millennials as if they are a newly discovered alien species. Like every generation, they are impacted by the times, but their basic needs and desires scantily deviate from those who came before them, and will likely scantily deviate from those who will follow them.

But it seems that the crossover point where more baby boomers are retiring than millennials entering the labor force is upon us. A Bureau of Labor Statistics (BLS) analysis released in December 2015 projected labor force change for the ten years ending 2024 as being only 0.5 percent per year. Emerging Trends has sketched the big picture in previous editions. The key change in the population cohorts from 2014 to 2024 looks like this: the number of Americans in the 25-to-34-years-old age group, the prime early-career working years, will be up by 3.2 million; meanwhile, the 65-to-74-years-old age group, those most likely to exit the labor force in retirement, will be up by 9.4 million. Many organizations are having to accelerate compensation increases for new employees, but they're funding those increases by savings from attrition from among their older, higher-paid staffers.
Yes, four in 10 homebuyers start their house-hunting with an online search, per the National Association of Realtors. Consider recommending the following tools to your readers' consumers thinking about buying a home in the coming new year. What are agents seeing out there? A Bank of America Homebuyer Insights Report noted that, "Many buyers turn to social media resources like Pinterest for inspiration on the kind of home they want. In fact, 49 percent of millennials use Pinterest, 37 percent Facebook, and 33 percent Instagram for home decorating ideas. For Gen Xers, 32 percent use Pinterest, 37 percent like Facebook and 11 percent favor Instagram."

 Ellie Mae searched its Encompass database to find that Millennials and other first time home buyers are shifting to "the heartland." "A larger proportion of millennials are buying in the American heartland where prices remain broadly lower than in many markets. The largest share of millennial buyers in October was in Minneapolis (44 per cent) closely followed by Philadelphia (43 per cent), St. Louis (42 per cent), Chicago (40 per cent) and Detroit (40 per cent). Meanwhile, to the surprise of no one, Florida and California had the metros with the lowest share of millennial buyers. I imagine it is because of the average age of one state and the average cost of living in another.
"As housing prices continue to rebound, Millennials are increasingly representing a higher percentage of homeowners in the middle of the country, where they can get more home for their money," said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae.
  The percentage of those polled by Trulia who say they view homeownership as part of the American Dream fell to 72 per cent in 2016 compared to 75 per cent in 2015. This drop was steeper among young Americans (80 per cent). Although 83 per cent of millennial buyers say they intending to buy, 72 per cent are not planning to do so until late in 2018.
Saving for a down payment is the big challenge for more than half of respondents while having poor credit and rising house prices are each concerning around a third of respondents. Interest rates and mortgage rates are not a major concern.


"Will mortgage rates stifle home buying in 2017? We think not. At present, mortgage rates would have to double nationally for the cost of renting to beat the cost of buying a home," said Trulia's Chief Economist Ralph McLaughlin. "Even with the recent rate hike, homeowners appear to be far more concerned about saving for a down payment, having poor credit, and rising home prices than qualifying for a mortgage."
Builder Magazine chips in with a story on the over-studied Millennials, and trends that interest builders. "Instead of limiting their households to children, parents, and grandparents, plenty of people are going a step further, making homes with friends and even strangers. Co-housing, in which a large community lives together and shares household duties, is gaining popularity. In co-housing, individuals or families generally have their own houses, bedrooms, or apartments but share things like kitchens and community spaces. They'll commonly trade off on responsibilities like cooking and chores."
Credit Plus' newest installment of America's Mortgage News is now available and details the challenges and opportunities the Millennial demographic segment presents the mortgage industry. "The video identifies the events and technology advances that shaped them, their habits, their passions and what, exactly, makes them tick. Together, these things have direct implications on how we reach and relate to Millennials - and the effective strategies for winning their mortgage loan business."

 Shifting to the bond markets, rates aren't doing much. It's a holiday week! Monday was a day off, and Tuesday the bond market (and stock) started the day on a soft note and soft is pretty much the way it remained for the entire session. Home prices in the U.S. rose to new highs and consumer confidence hitting its highest level since August 2001. The 2-yr auction saw a high yield of 1.28%.
The S&P Case-Shiller Home Price Index was up 5.6% year-over-year in October, hitting a new high, while the 20-City Composite Home Price Index rose 5.1%. LOs know that strength in home prices reflects limited inventory for sale and is helping to drive up home equity positions for existing homeowners.

 For numbers the 10-year closed Tuesday with a yield of 2.56%. There is no economic news early today; later, at 10AM ET, we'll see Pending Home Sales, and a $34 billion 5-year note auction. The 10-year is at 2.56% this morning and agency MBS prices are unchanged.

Tuesday, December 27, 2016

CFPB/HMDA/Reg. Z Changes Big Bank and Lender Credit Underwriting Changes



I changed my iPod name to Titanic. It's syncing now.
I tried to catch some Fog. I mist.
When chemists die, they barium.
Jokes about German sausage are the wurst.
A soldier who survived mustard gas and pepper spray is now a seasoned veteran.
I know a guy who's addicted to brake fluid. He says he can stop any time.
How does Moses make his tea? Hebrews it.
I stayed up all night to see where the sun went. Than it dawned on me.
This girl said she recognized me from the vegetarian club, but I'd never met herbivore.
I'm reading a book about anti-gravity. I can't put it down.
I did a theatrical performance about puns. It was a play on words.

IT staffs around the country are now focused on HMDA, and the changes to be implemented in terms of an increased data file size - better make sure a) all those fields are correct, and b) they don't show discriminatory lending practices! Last week the CFPB announced annual adjustments to two asset-size exemption thresholds. First, the CFPB has made no change to the asset-size exemption threshold under HMDA/Regulation C which is currently set at $44 million. What does that mean? Banks, savings associations, and credit unions with assets at or below $44 million as of December 31, 2016, will continue to be exempt from collecting HMDA data in 2017.

 Second, the CFPB has increased the asset-size threshold under TILA/Regulation Z for certain small creditors operating primarily in rural or underserved areas to qualify for an exemption to the requirement to establish an escrow account for higher-priced mortgage loans (HPML). The threshold is currently set at $2.052 billion. Loans made by creditors operating primarily in rural or underserved areas with assets of less than $2.069 billion as of December 31 (including assets of certain affiliates) that meet the other Reg. Z exemption requirements will be exempt in 2017 from the escrow account requirement for HPMLs. (Ballard Spahr reports that the adjustment will also increase the asset threshold for small creditor portfolio and balloon-payment qualified mortgages which references the HPML escrow account asset-size threshold.)

 My cat Myrtle reminded me that the CFPB "only" has direct jurisdiction over banks with more than $10 billion in assets. What happens when a bank crosses over that asset level? All kinds of things. In terms of lending standards and credit risk, large U.S. banks raised their own risks by pushing down lending standards for a fourth consecutive year in 2016, per the OCC. The banks loosened underwriting standards mostly in direct consumer loans, conventional home equity, commercial real estate loans, and residential mortgages.

 "If such trends continue, increasing credit risk could accelerate," the report warned. Just wait until banks are scrambling for market share even more than they are now. "Looking at 90 percent of the debt in the federal banking system, equal to $5.2 trillion, the OCC found that banks are easing standards because of competition from other banks and nonfinancial firms, their appetite for risk is expanding, and they are seeking to make more loans."

The "OCC added that banks are relying less on derivatives and loan sales to manage credit risks. The regulator said its biggest worries are aggressive growth in lending, concentration, deterioration in energy-related portfolios, and further underwriting loosening. During times of economic expansion, banks generally ease lending standards, the OCC said. Since 2012, there has been abundant liquidity in the market, making more dollars available to lend and pushing banks to hunt down more borrowers, it added. For commercial loans, the OCC found looser standards in pricing, guarantor requirements, and loan covenants. In retail, easing was mostly in collateral, loan size, and debt-to-income requirements. Approximately 24 percent of banks introduced new loan products this year, and another 23 percent plan on offering new ones next year, the survey found."

 What about residential lenders and credit underwriting? There is a trend to add more and different information to the underwriting process. I have heard plenty of LOs say, "I don't care what their credit score is, I'd make a loan to that person!" There are other indicators of credit risk beyond FICO such as VantageScore which uses an algorithm to provide lenders additional information. Others, like SoFi, are trying to use online behavior to deduce credit risk. The theory being that socially connected folks with access to networks, geography and education may be a better risk than FICO currently states. 

 There was lots of noise around the Digital Mortgage Conference about technologies that improve the borrower experience, but what about technology that help mortgage companies process and underwrite loans faster with fewer people?  FinLocker, which automates many processor and underwriter functions, was introduced last week at the conference.  FinLocker accesses consumer financial data electronically and applies configurable business rules and algorithms to analyze employment, income, assets, credit, taxes and other information to validate guideline issues and highlight conditions that require processor/underwriter attention.  FinLocker is managed by a veteran team of technology and mortgage leaders, including Bryan Garcia, former CTO of Equifax and Tim Stern and Barry Sandweiss, co-founders of Lenders One Mortgage Cooperative.

  Does anyone care what rates are doing this week? Sure they do. LOs aren't letting those precious pre-election rate locks expire when 30-year rates are .5% higher than in October. But on Friday we had an early close, and the markets were closed yesterday for the Christmas holiday. One thing to note: Friday's slight advance helped the 10-yr note secure its first weekly gain in seven weeks, pressuring its yield to 2.54% from last Friday's 2.60%. We did have New Home Sales and the University of Michigan Consumer Sentiment Index, the key takeaway from the revision is that the post-election surge in consumer confidence had tapered off by mid-December.

 For exciting, titillating news this week we have, if you care about housing values before Halloween, the October Case-Shiller 20-city Index at 6AM PT today, along with December Consumer Confidence and a $26 billion, 2-yr auction. Wednesday we'll see the MBA Mortgage Index for last week, Pending Home Sales, and a $34 billion 5-yr auction. Thursday brings the usual weekly Initial Jobless Claims, along with International Trade in Goods and a $28 billion 7-yr auction. Friday is the December Chicago PMI.

 For anyone wondering where rates are this morning compared to Friday, we closed the 10-year at 2.54%; this morning, on no substantive news, it is yielding 2.55% and current coupon agency MBS prices are worse .125 versus late last week.

Friday, December 23, 2016

Trends in the Compliance & Regulatory Environment



 There is hope. President Elect Donald Trump named Carl Icahn to be his adviser on regulatory overhaul. "Under President Obama, America's business owners have been crippled by over $1 trillion in new regulations and over 750 billion hours dealing with paperwork," Icahn said in a statement released by the Trump transition team. "It's time to break free of excessive regulation and let our entrepreneurs do what they do best: create jobs and support communities." Of course, Mr. Icahn owns stock in many companies that are affected by government regulation.

 The Community Home Lenders Association (CHLA) sent a letter to President-Elect Trump, outlining a series of bold actions, including some focused on the regulatory environment, the incoming Administration could take in its first 100 days to "help working families, by improving access to mortgage credit and reversing a declining homeownership rate at its lowest level in 51 years "  and noting that the recommendations "would benefit the middle class, including minority families, younger persons saddled with student debt, and other qualified borrowers with lower FICO scores and limited down payment resources."

 Here are its recommendations for a streamlining the mortgage regulatory policies. ("Streamlined Mortgage Regulatory Policies, While Protecting Consumers.") (1)  CFPB - support a change to a Commission, with more transparency and accountability, (2) Streamline regulatory treatment for both community non-banks and banks, and (3) Let mortgage lenders correct compliance problems prior to CFPB enforcement action."

 The letter also has suggestions for the FHA, Fannie Mae & Freddie Mac. It can be found at www.communitylender.org; go to the "Actions" tab at the top and the letter is first item.

 And let's not forget Section 342 of Dodd-Frank. Back in September the Council for Inclusion in Financial Services (CIFS) was formally launched by a coalition of industry leaders with the goal of helping the financial services industry develop and sustain an inclusive workforce while enabling compliance with Section 342 of the Dodd-Frank Act. The CIFS is providing industry resources for both suppliers and financial institutions, including offering the industry's only online Diversity & Inclusion Self-Assessment tool from VRM University. Additionally, the organization has launched what is designed to be the industry's most comprehensive, online-sourcing portal to connect vendors, suppliers, and requisition groups at financial institutions and solution providers.

"The CIFS' new sourcing portal will enable vendor management and sourcing departments to search for vendors and suppliers based on fields including service category and geography, while providing financial institutions the ability to track and report on utilization. Additionally, The CIFS will offer vendors and suppliers the option of becoming a CIFS-certified vendor, which entails a broad industry-standard background check, and basic training covering topics that help organizations build in-house programs to support diversity and inclusion efforts. Moreover, CIFS will provide certification programs for compliance officers on diversity & inclusion and develop VA and college internship programs to attract more women, minorities, and Veterans into the industry. And a tool for self-assessment.

Lenders and regulatory bodies dealing with lenders, of course, must react to compliance
changes.

 The following changes will be made to Flagstar's disclosure of credit report fees and are effective with table funded loans registered on or after January 3, 2017: Flagstar will no longer input an amount, i.e. will disclose $0, for the credit report fee prior to disclosing the initial Loan Estimate (LE) provided the originator did not enter in an amount greater than $0 to be disclosed. If any amount is entered by the originator after the initial LE is disclosed at $0, the fee amount will be changed to $0 for any subsequent disclosures. If an amount greater than $0 is input by the originator prior to the initial LE being disclosed to the borrower(s), that amount will be disclosed on the initial LE.  The originator may not subsequently increase the fee amount disclosed on the initial LE, however Flagstar may in their discretion update the fee due to any subsequent credit report fees which are approved as valid changed circumstances.

 The Department of Veterans Affairs requires all VA Authorized Agents to pay an annual recertification fee to each lender with whom they intend to have an ongoing relationship in the coming year. The $100 recertification fee must be paid to Flagstar by December 30, 2016 to prevent delays in submitting VA loans to Flagstar under the VA Authorized Agent program.  Beginning November 1, 2016, the recertification fee may be processed via credit card payment. Please contact us at (866) 945-9872, option #3, and then option #5. A $2 transaction fee will be applied. Have your Flagstar Seller ID and VA Authorized Agent ID available when calling to make your payment.

 Glancing at the capital markets, and interest rates, research by the Treasury finds Japan has moved into the top spot of ownership of US debt at $1.13 trillion as of October, while China has dipped to the second spot at $1.12 trillion. China's holdings as of October were the lowest in 6 years.

 Not much happened in the bond market yesterday, and today includes an early close. Thursday's trading action was quite uneventful as securities across the curve held to narrow trading ranges despite a large batch of economic data hitting the wires. The front end of the yield curve fared better than the back end of the yield curve, which led to a slight steepening in the 2-10 spread. MBS closed mixed in price and mostly tighter on spread, led by lower coupons, as another round of heavy Fed support, tight ranges, declining volatility all contributed to MBS outperformance.

 For those of you who missed the economic news, the numbers continue to point to a U.S. economy that is doing well. Q3 GDP was revised up to 3.5% from 3.2%. The GDP Deflator was left unchanged at 1.4%. But Durable Goods orders declined 4.6% - a 73.5% decline in orders for nondefense aircraft and parts acting as the major drag. Excluding transportation, durable orders were up 0.5%. Initial Jobless Claims for the week ending December 17 increased 21,000 to 275,000 but remained below 300,000 for the 94th consecutive week. The FHFA Housing Price Index for October +0.4%, so house prices for loans done by Fannie & Freddie continue to improve. Personal income was little changed in November and Personal Consumption/spending increased 0.2%. The PCE Price Index and the core PCE Price Index, which excludes food and energy, were both unchanged. And the Conference Board's Leading Economic Index was unchanged in November.
 Hey, just because it is the day before a holiday weekend doesn't mean there isn't more economic news today. We'll have the New Home Sales report for November at 4AM Hawai'i time, as well as the University of Michigan Consumer Sentiment for December. SIFMA is recommending an early close today for the bond market, which means it will happen - and who the heck is going to lock in a loan this afternoon? For anyone guessing where rate sheets will be, we closed last night with the 10-year yielding 2.55% and this morning it is yielding 2.54% with agency MBS prices better by nearly .125.

Thursday, December 22, 2016

LOS Survey Results, Banks Buying Non-Banks, Lehman vs. Loandepot and Imortgage



(Yes, this is a gal's joke; I am merely passing it along.)
Looking in the mall for a cotton nightgown, I tried my luck in a store known for its hot lingerie. To my delight, however, I found just what I was looking for.
Waiting in the line to pay, I noticed a young woman behind me holding the same nightgown. This confirmed what I suspected all along, that despite being over 50, I still have a very "with it" attitude.
"I see we have the same taste," I said proudly to the 20 something behind me.
"Yes," she replied. "I'm getting this for my grandmother for Christmas."

Per STRATMOR's LOS Technology Insight Survey, 30% of lenders report that are not satisfied with their LOS and are either actively looking to replace or are in the process of replacing their system. Lender Satisfaction is only one component of the detailed results report that is now available for purchase. The full report includes the results from more than 250 lenders and reports on LOS Functionality, Market Share, Overall Satisfaction, User Experience, Implementation Experience, Expenditures and Required Resources and other LOS considerations as well as Third-Party Integrations such as Document, Lead Management/CRM, POS and Pricing Engine software. The report also includes detailed lender feedback on 17 unique Loan Origination systems including satisfaction, user experience and a functionality assessment. To download a sample of the report or to purchase the full report, click here.  
We have some news from the continuing Lehman Brothers saga. Josh Rosenthal, an attorney with Medlin & Hargrave, PC, writes, "LBHI just filed an adversary proceeding in the Lehman bankruptcy against Imortgage.com, Inc. and Loandepot.com, LLC, for indemnity related to the Fannie Mae settlement LBHI entered into in 2014.  LBHI has already filed some of these actions against nearly 200 loan originators (of the 3,000 or so loan originators that it has indemnity claims against).

"This action is related to claims LBHI has been making in demands to loan originators over the past year. LBHI has taken the position that loan originators that purchased certain assets of other loan originators that originated the loans that were the subject of the Fannie Mae settlement are also responsible for liabilities of those loan originators. It has convinced the bankruptcy court to force these alleged successor companies into the Alternative Dispute Resolution procedure it has in place which requires loan originators to mediate with LBHI in New York.  Now, LBHI is filing actions against these alleged successors based on asset sale agreements. 

 "Due to a ruling by the 10th Circuit Court of Appeal in February of 2016, the statute of limitations that may apply to indemnity claims related to the Fannie Mae settlement is the three year limitations period of Delaware, not the six year period of New York. So, Lehman may feel some pressure to get all of its claims on file by the end of next month or risk not being able to file any of the claims." Thanks Josh!
 Residential lending and legal entanglements aren't confined to the United States. Spanish banks lost a court case over mortgage interest payments. The EU Court of Justice ruled that Spanish banks may have to refund billions of euros to mortgage customers who paid too much interest on home loans.

Lawsuits aren't cheap, and the increasing cost of regulation, coupled with the need to invest in technology, creates fixed costs that hurt residential lenders and community banks overall. Companies can mitigate these costs primarily by getting bigger, which has prompted increasing M&A activity among community banks - and we will see plenty more among lenders in 2017. Research by Deloitte finds the biggest impediments to achieving a successful M&A transaction cited by large corporate executives and private equity investor respondents are: insufficient due diligence process (88%), improper target identification (83%), not valuing the target accurately (81%), changing regulatory and legislative environment (81%) and failure to effectively integrate (78%).

The holidays have not slowed the M&A pace. Just in the last week or so it was announced that in Florida IBM Southeast Employee Credit Union ($947mm) has filed an application to acquire Mackinac Savings Bank ($110mm). In Virginia Sonabank ($1.1B) will merge with EVB ($1.3B) in a merger of equals transaction. The deal is valued at about $178.3mm & after close will result in Sonabank owning about 51% of the company and EVB owning about 49%. HomeTrust Bank ($2.7B, NC) will acquire municipal leasing company United Financial (NC). (United underwrites & originates municipal leases for fire stations & other municipal buildings.) First Republic Bank ($68B, CA) will acquire student loan technology company Gradifi. (Gradifi offers programs that help members pay down student loans faster.) Simmons Bank ($8.2B, AR) will acquire Bank SNB ($2.5B, OK) for about $564.4mm in cash and stock or roughly 2.10x tangible book. In California Bay Commercial Bank ($653mm) will acquire United Business Bank ($451mm) for about $38mm in cash and stock. And in Texas Veritex Community Bank ($1.3B) will acquire Sovereign Bank ($1.1B) for about $162mm or roughly 1.74x tangible book.

 Today we had the usual Thursday Initial Jobless Claims. Here's something regarding the employment situation. Research by the Bureau of Labor Statistics finds the share of farm employment has declined from 40% back in 1900 to only 2% as of 2014. And research by Smith finds 65% of Americans believe computers and robots will take over the work people do now within the next 50 years. Of note, research by Korn Ferry finds 44% of leaders of large global businesses believe robotics, automation and AI will make people "largely irrelevant" in the future (when it comes to work). Crowe Horwath Financial Institutions Compensation Survey. The survey noted that more banks are now willing to pay above-market rates given a tight jobs market - a trend that's risen sharply over the past 4Ys. Consider that in the 2016 study, almost 29% of banks reported plans to pay more than 10% above market for some jobs. That's up 5bp from the 2015 study, 10bp from the 2014 study and 15bp from 2013. Not surprisingly, as compensation has ticked up, employee turnover has also risen. According to the survey, bank employees are changing jobs at the fastest pace in 10Ys, with non-officer turnover peaking at almost 19% and officer turnover reaching nearly 7%. By contrast, only 1Y ago, non-officer turnover rates stood at about 16% and officer rates at fewer than 5%.
Rates? Heck, we could be here for the next couple weeks. Fixed-income securities started Wednesday with a slightly positive bias and it held that slightly positive bias throughout the session, with all securities respecting some pretty tight trading ranges. There was no news yesterday to move rates although November's Existing Home Sales were +0.7% to seasonally adjusted annual rate of 5.61 million. November has the highest sales pace since February 2007. Housing inventory is at 4 months of supply, versus 4.3 months in October, which should continue to drive up median prices and crimp affordability for prospective buyers. Median existing home price for all housing types increased 6.8% to $234,900, which is the 57th straight month of year-over-year gains.

Today we've already had a tidal wave of data, so let's wade in. (Like that one?) November Durable Goods (-4.6%), final Q3 GDP (revised higher to +3.5%, topping forecasts), Initial Jobless Claims for last week (+21k to 275k), and the Chicago Fed National Activity Index (-.27). Later, in a spread of indicators across months, we see the FHFA Home Price Index (Oct), leading indicators (Nov), and the KC Fed's manufacturing survey (Dec). And if you have some spare ducats at 1PM the Treasury will auction $14 billion of 5-year TIPS.
The 10-year note closed Wednesday better by nearly .250 in price and yielding 2.54% while 5-year securities and agency MBS prices were better by about .125. After this first volley of economic data the 10-year is yielding 2.56% with MBS prices worse a shade versus last night.

Wednesday, December 21, 2016

F&F Updates Including Duty to Serve, Risk Sharing, HARP, HAMP, ULDD



Two shepherds lean on their crooks at the end of a long day. The first asks the second, "So, how's it going?"

The second one sighed and shook his head, "Not good. I can't pay my bills, my health isn't good, my kids don't respect me, and my wife is leaving me."

The first replied, "Well, don't lose any sheep over it."

FormFree spread the word that, "Four of the most critical pillars of the loan are income, identity, asset, and employment. Now that Fannie Mae has weighed in on using automated verification technology for three of these four pillars (i.e. asset via AccountChek and Employment/Income via Equifax) through the Day 1 Certainty Initiative, the savvy lender will be turning their attention to bundling and automating all four pillars to create a true straight-through process environment in underwriting. This is an area to which FormFree has turned its attention in recent months, and we anticipate bringing to market an integrated verification platform called Passport, which we previewed at the SourceMedia Digital Mortgage Conference in San Francisco. The platform securely leverages both direct-access data and records from trusted third-party consumer information repositories to bundle and deliver this critical verification information into one easy report."

 The FHFA continues to push Fannie & Freddie on credit-risk sharing.  A regulatory 2017 scorecard for Fannie Mae and Freddie Mac calls on the firms to transfer a significant portion of credit risk to third-party private investors on at least 90% of unpaid principal balance of newly acquired single-family mortgages. And legislation pops up occasionally.

 Moody's: Privatizing Fannie Mae, Freddie Mac Would Cost "Hundreds of Billions".  According to a new report from Moody's Investors Service, privatizing the GSEs is not only unlikely to happen any time soon, it's also hugely cost-prohibitive, and it would be a negative for bond investors as well. 

 The Federal Housing Finance Agency (FHFA) issued Final Rule on Fannie Mae and Freddie Mac Duty to Serve Underserved markets. The statute requires Fannie Mae and Freddie Mac to serve three specified underserved markets: manufactured housing, affordable housing preservation, and rural housing, by improving the distribution and availability of mortgage financing in a safe and sound manner for residential properties that serve very low, low, and moderate-income families.

 Freddie Mac issued the following Statement on Duty to Serve Final Rule. "We look forward to working with the Federal Housing Finance Agency (FHFA) and stakeholders to implement the Duty to Serve provisions. We're proud to responsibly increase our activities involving manufactured housing, affordable housing preservation and rural housing to help more American families. This is an opportunity for the entire mortgage industry to work together to address some of the toughest issues in housing, including the distribution and availability of both mortgage financing and affordable rental housing for working families. The Duty to Serve provisions align with our mission to build both a better Freddie Mac and a better housing finance system for this country."

 Fannie Mae, Freddie Mac Offer New Loan Modification Program.  Fannie Mae and Freddie Mac announced new programs to provide relief for distressed borrowers. The Flex Modification programs will replace the Home Affordable Mortgage Program, the government mortgage assistance program developed in 2009 in the wake of the subprime loan crisis. HAMP is set to expire Dec. 31.

 There were "only" 243,000 Fannie & Freddie residential loans that were refinanced in October of this year, which also saw the slowest HARP month on record. Mortgage Daily reported, "GSE Refinances Fall, Slowest HARP Month on Record."  Just a month after surging to a three year high, refinances of government-sponsored enterprise loans fell, with federally funded transactions falling to an all time low.

 Fannie Mae updated its Servicing Guide to reflect changes in Verifying Master Project Insurance, Maximum Allowable Foreclosure Attorney Fees for Judicial States, and Servicing Fees for Redeemable Mortgage Loans and Third-Party Foreclosure Sales. Read the Announcement for full details. Fannie Mae's Servicing Management Default Underwriter™ (SMDU™) Version 7.1 has been implemented. The SMDU Version 7.1 Release Notes supports the retirement of four modifications (HAMP, Mod24, MyCity Modification, Principal Reduction Modification). In addition, to create more efficiency, servicers can now utilize SMDU for additional case management functionality.

 The Freddie Mac Flex Modification foreclosure prevention program, which is designed to help America's families by offering significant reductions in their monthly mortgage payments, replaces Freddie Mac's version of the Home Affordable Modification Program (HAMP), which is set to expire at the end of this year. The new program was developed in alignment with Fannie Mae at the direction of the FHFA. The Flex Modification incorporates input from a wide range of industry participants as well as lessons learned from earlier programs. It's expected to provide a 20 percent payment reduction for eligible borrowers. A high percentage of those who are at least 60 days' delinquent would be eligible; the modification could also be an option for those who are current or less than 60 days' delinquent in certain situations. Servicers must implement the new program by Oct.1, 2017. In the interim, while HAMP expires on Dec.30, Freddie Mac's Standard and Streamlined Modifications will remain in effect until the new program is implemented. Visit Freddie Mac Flex Modification web page for additional information, including reminders and a link to the fact sheet. FHFA's statement about the Flex Modification is available here.

 Desktop Underwriter (DU) has been updated with new features and functionality to help you enhance your business. Fannie Mae has implemented all components of Day 1 Certainty including: DU validation service for income, employment, and asset validation; Enhanced Property Inspection Waivers (PIWs) on eligible refinance transactions; and Certainty on appraised value powered by Collateral Underwriter® (CU™). Incorporated the updated HomeReady eligibility guidelines.

Day 1 Certainty provides lenders enforcement relief from representations and warranties, as well as efficiencies by bringing some quality control processes upfront with the DU validation service. The Quality Control Considerations job aid provides the information you need to adjust your prefunding and post-closing QC when using the optional DU validation service for income, assets, and employment.

Fannie Mae and Freddie Mac have announced the Uniform Loan Delivery Dataset (ULDD) Phase 3, along with updates to each GSE's specification. ULDD Phase 3 will include approximately 30 new data points and updates to existing data (see Appendix D for a complete list). Nearly half of the new data consists of borrower demographic information in support of the HMDA rule (effective January 1, 2018). More information on the Phase 3 implementation timeline is forthcoming in Q1 2017.

 Fannie Mae has implemented CU Version 4.0, which provides a new, easy-to-use CU web application design and layout. The new CU was designed based on customer feedback to enhance and simplify the appraisal review process. It delivers the dynamic functionality and cutting-edge analytics you've come to expect from CU in a new, attractive, streamlined format. Here's a short introduction video.

 Fannie Mae recently announced the elimination of the $75 Property Inspection Waiver (PIW) fee. To accommodate this change, Pacific Union's Correspondent channel will discontinue the assessment of the $75 fee for loans purchased on or after December 16, 2016. Pacific Union will continue to audit the use of a PIW or appraisal and will rely on the Lender's Reps and Warrants as to impact of the PIW fee change to the Loan Estimate and/or Closing Disclosure.

 Rats? Uh, I mean rates? Not doing much, given no economic news and some market participants are done for the year so hopefully we just sit around here through the end of December. Since nothing is going on here, let's look overseas. Investors in China are becoming more worried about wealth management products, financial products that were used to circumvent low bank deposit rates. Many of those WMPs borrowed money from short-term money markets to buy stocks, bonds, or bank loans. With the People's Bank of China now tightening liquidity in money markets to slow down China's credit expansion, some of which has been filtering into the property sector, and that tightening has caused unwinding in these WMPs as they have lost access to cheap financing.

 Tuesday agency MBS closed unchanged to a touch lower in price. The New York Fed was in doing its usual buying, which knocks off next week for the holiday week. But the 10-year note sold off .250 in price to yield 2.57% and 5s worsened .125.

 Today we've seen the MBA's weekly update on mortgage applications (+2.5%-3%, purchases & refis). November Existing Home Sales will be released at 10AM ET. To start the day the 10-year is yielding 2.56% and current coupon agency MBS prices are unchanged versus last night's close.