The USDA's program is
going through its usual gyrations, and plenty of lenders are sending out
notices like, "As happens at the beginning of each fiscal year, funding
for the Single Family Housing Guaranteed Loan Program (SFHGLP) will not be
available for a short period of time at the beginning of Fiscal Year 2015 (FY
2015), which starts October 1, 2014. During the temporary lapse of
funding, Rural Development will issue Conditional Commitments "subject to
the availability of commitment authority" for purchase and refinance
transactions. An upfront guarantee fee of 2 percent accompanied by an
annual fee of 0.5 percent will apply to both purchase and refinance
transactions in FY 2015."
For those tracking these
things, the New York State Department of Financial Institutions and the Ohio
Division of Financial Institutions have begun using the National SAFE mortgage
loan originator (MLO) test with Uniform State Content on the Nationwide Multi-State
Licensing System & Registry (NMLS), bringing the total number of state
agencies using the test to 43. Also, there is a "Request for Public
Comment" on the Mortgage Call Report and Surety Bond Tracking in NMLS. SRR
is inviting public comment on two proposals related to functionality in NMLS.
Comments for proposed changes to the Mortgage Call Report and new electronic
surety bond tracking in NMLS are due October 30, 2014. See Proposed Mortgage Call Report Changes or Electronic Surety Bond Changes.
Licensing and the tedious
process are always a hot topic, so it is with some interest I note Maryland.
Back and in early spring, Maryland Governor Martin O'Malley signed Senate Bill 1091, also known as the Registered Mortgage
Loan Originators - Expedited Licenses, into law. The law, which took effect
on October 1st, adds additional articles and requires the Commissioner of
Financial Regulation to expedite license applications from Registered Mortgage
Loan Originators who meet certain requirements. How does the law expedite the
licensing process? Well, it directs the Commissioner to waive the State
criminal history records check for Eligible Applicants. According to the Maryland
Mortgage Bankers Association, the elimination of this requirement
for licensing should provide faster processing of the application, assuming all
other requirements are met. How does someone apply for an expedited MLO
license? Submit the Maryland MLO license application through NMLS, and complete
the checklist. Be sure to include the information for the most recent date of
employment as a registered MLO. Forward the checklist and other application
materials to the Commissioner at the address noted below. When to apply for the
expedited MLO license? Beginning October 1, 2014, expedited MLO license
applications may be submitted by Eligible Applicants.
Geez there is a lot going on
the FHA sector. The Federal Housing Administration wants lenders to make
fewer mistakes when writing mortgages for the government insurance program. The
agency also wants to serve more borrowers with low credit scores. FHA lenders
have already have felt the tension between these two demands. A hard line on
defects means lenders are more likely to be on the hook for losses in the event
of default, and lower credit scores make defaults more likely. Many FHA lenders
have been pulling back from the market for this reason. The FHA expects 75% of
the loans it insures from now on will be made to borrowers with FICO scores of
680 or below, but the housing downturn took many of these borrowers out of the
home buying market and the FHA is looking for ways to bring them back.
The FHA, however, thinks that
the defect rate for FHA loans is still too high and defects on FHA loans appear
to be on the rise. In June, the FHA provided a breakdown of 6,645 loans it
reviewed in the first quarter and found that just 16% were deemed acceptable,
meaning they had no mistakes. A whopping 48% were "unacceptable,"
with material defects, while another 36% were considered "deficient,"
with errors that could potentially be corrected. Lenders are still trying to
get their arms around the FHA's quality assurance plan announced in March. The
FHA has said its "blueprint" for evaluating underwriting defects
should reduce lenders' fears of having to indemnify the agency for losses on loans
to riskier borrowers. FHA's share of mortgage originations has fallen
dramatically in the past year. Still, FHA officials have stressed that the
agency will not roll back its 1.35% annual mortgage insurance premium or its
1.75% upfront premium, although the industry would view that quite favorably.
Though such a change would make loans more affordable, the FHA had to raise
premiums to strengthen its insurance fund, which must maintain a 2%
surplus. The share of FHA borrowers with credit scores between 640 and 680
"is half the size of what it used to be." Lenders have essentially
retreated from lending to that segment of the market, resulting in the loss of
a borrower class over the last 10 years. Since 2013, the FHA has intentionally
pulled back from insuring loans to borrowers with strong credit scores and
ceded that market share to Fannie Mae and Freddie Mac for borrowers with FICO
scores of 680 or more.
As recently as 2011, 65% of
FHA's volume went to borrowers with FICO scores above 680. Those higher credit
scores were something of a departure from the FHA's mission and its history. In
2007, at the beginning of the financial crisis, 55% of FHA-insured loans went
to borrowers with FICO scores below 640. Moreover, 30% of those loans were to
borrowers with scores 580, which ultimately hit the agency with a massive wave
of defaults. The FHA now expects 25% of the loans it insures will be to
borrowers with FICO scores of 640 or below. Another 50% will go to those in the
middle ground of 640 to 680. The remaining 25% will be to those borrowers with
scores above 680. Efforts have been underway to get lenders to remove so-called
credit overlays - FICO score requirements of 680 or more that are used to
screen out borrowers with a higher probability of default. Some lenders have
lowered credit score requirements this year, largely to drum up business.
Many others haven't budged from imposing credit overlays out of fear they will
ultimately be forced to eat losses for any FHA loans that default.
FHA posted
the draft Servicing section of its draft Single Family Housing Policy Handbook.
This posting is a continuation of FHA's progress toward a single, consolidated
SF Handbook that will make it easier for stakeholders to do business with FHA.
Visit the Servicing page link on the SF Drafting Table to access the draft section content and
supporting documentation. Feedback from stakeholders will be accepted from
September 11 through October 17, 2014. U.S. Department of Housing and Urban
Development (HUD) issued Mortgagee Letter (ML) 2014-19 introducing its new
loan servicing contractor, NOVAD Management Consulting. The new contract became
effective September 29.
And The Federal Housing
Administration's (FHA) Single Family Office of Lender Activities and
Program Compliance (OLAPC) announced the publication of the 6th issue of its
Lender Insight newsletter.
Suddenly there is a lot going
on in the markets. After a nice rally on Wednesday, Thursday we took a little
breather ahead of this morning's employment data. In recent months attention
has shifted from Ukraine to Syria to Hong Kong and now to Ebola. (Yes -
epidemics like SARS do have a negative impact on GDP, which in turn serves to
keep rates lower.) For mortgages, the demand continues to be good for MBS, and
the supply seems to be slowing - leading to higher prices and lower rates. (Of
course, rates can't go down too much given gfees and loan level price
adjustments.)
This morning, however, the
September payrolls and unemployment results were announced. Nonfarm Payrolls
were expected at +215k (after only being up 142k last month) and came out at
+248k with a back-month revision to +180k. The Unemployment Rate, expected to
be unchanged at 6.1%, came in at 5.9% (the lowest since July 2008), and Hourly
Earnings were roughly unchanged. The strong numbers have pushed rates higher in
the early going: 10-year up to 2.48% and agency MBS prices worse about .250.
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