Occasionally
I am asked about how the agencies handle certain types of debt. As a reminder,
Fannie Mae requires that all deferred installment debt, including student loans
not yet in repayment, be included in the calculation of the borrower's
debt-to-income ratio. In determining the payment for deferred student loans,
Fannie Mae currently requires that the lender obtain a copy of the borrower's
payment letter or forbearance agreement or calculate the monthly payment at 2%
of the balance of the student loan. Research has shown that actual monthly
payments are typically lower than 2%. In addition, many student loan repayment
structures now use an income-based approach in calculating changes in the
payment due over time.
As
a result, Fannie Mae modified the monthly payment calculation from 2% to 1% of
the outstanding balance. In addition, for all student loans, regardless of
their payment status, the lender must use the greater of the 1% calculation or
the actual documented payment. An exception will be allowed to use the actual
documented payment if it will fully amortize the loan over its term with no
payment adjustments. Therefore even if the payment is deferred they still have
to factor in either the actual future payment or use the 1% calculation.
Bloomberg
reported that the Federal Housing Finance Agency (FHFA) is considering extending
the Home Affordable Refinance Program (HARP) beyond the current deadline
of year-end 2015. Uh, and why would it do that? Isn't the housing market doing
pretty well, and HARP borrowers already took advantage of the
government-sponsored program? And doesn't the government want to make us less
reliant on it for home loans? But some companies like Walter and NationStar are
sure hoping it is extended and broadened: supposedly the FHFA is also
considering whether the program should be broadened to include borrowers with
loans originated after May 31, 2009. Given strong home price appreciation since
2009 many think the remaining pool of borrowers with negative equity is not
large, unless the change allows borrowers who have already done a HARP
refinance to do another one.
The
American Bankers Association has renewed endorsements of Fannie Mae's secondary
market options to help community banks maintain their competiveness in local
markets. The partnership with Fannie Mae began in 2002 and allows ABA member
banks to meet the needs of their customers and take advantage of the secondary
market. The endorsement will allow for reduced transaction fees on Desktop
Underwriters, customized training; updates to help lenders remain current on
critical issues; and customizable marketing materials. The press release can be
found here.
With
the addition of Fannie Mae's Collateral Underwriter (CU), Fannie Mae has
updated appraisal underwriting rules. In December 2014, Fannie Mae removed the
requirement that if comparable sales exceeded 15 percent net and 25 percent
growth, appraiser shad to provide an explanation as to why it was included in
the appraisal report. Further review indicates that most appraisal reports
never exceeded the 15 percent of 25 percent guideline as many appraisers
focused on keeping the amount of modifications within the guidelines instead of
reflecting market reaction for specific characteristics. Fannie Mae also
reminds lenders that photographs in the appraisal report must be clear and
descriptive. In order to promote use of comparables sales that have closed
within the past 12 months and are most relevant, specific comments from an
appraiser if a comparable sale is older than 6 months is no longer required,
but a comment is still mandated when a comparable sale is older than 12 months.
The
implementation of Fannie Mae's Collateral Underwriter (CU) has many in the
industry up in arms about how to adapt to the new software and what it means
for the housing industry. Fortunately, Fannie Mae has published a fact sheet, highlighting
sections of the Collateral Underwriter Lender Letter that was published
on February 4th, 2015. Lenders are reminded that CU is free and is
not a requirement. The purpose of CU is to identify risks and potential discrepancies
in the appraisal report, and be utilized as supplementary advisory information
when lenders analyze an appraisal. CU rates appraisal's based on a
numeral risk score from 1 to 5, with 1 indicating low risk. CU takes into
consideration the relevance of each potential comparable sale based on physical
similarity, time and distance. Lenders are prohibited from providing the CU
report to appraisal management companies or appraisers. Fannie Mae also does
not suggest that lenders ask appraisers to address all or any of the 20
comparables provided by CU but expects CU to further instill confidence in
lenders regarding the appraisals they receive. Additionally, Fannie Mae's
Appraiser Quality Monitoring (AQM) process will identify appraisers who
repeatedly show a pattern of inconsistencies and inaccuracies in their
appraisal reports, which can later be used as training purposes and guidance.
The AQM process involves data and technology similar to CU to identify patterns
or potential issues with appraisal reports, triggering a red flag and human due
diligence to determine relevancy and accuracy of the results from the automated
system. There is also no correlation between CU risk score and AQM.
Recently
I answered a question (and wrote about it; see Feb 20th commentary)
about risk sharing between Fannie and Freddie in the capital markets.
Issuance is robust from last years $10.8 Billion mark; in January Freddie Mac
completed an $880 million offering, and as Jody Shenn of Bloomberg
writes, it is "the first in which some of the bonds exposed
investors to principal losses before homeowner defaults exceed certain
levels."This is an important deal perimeter moving forward. Ms.
Shenn continues, "Bond buyers are flocking back to the market for
securities used by mortgage giants Fannie Mae and Freddie Mac to share their
risks with investors. Fannie Mae sold $1.5 billion of the debt Thursday,
through which it can potentially transfer some of its losses from guaranteeing
$50.2 billion of loans, the Washington-based company said in a statement. One
portion of the offering carries a yield that floats 4.55 percentage points
above a benchmark rate, down from the 5 percentage point spread that investors
demanded on similar notes in a November sale."
Fannie Mae updates to its seller guide
include clarification
regarding project standards policies, reorganization of co-op topics, and
postponement of policy relating to delivery of loans with more than two
borrowers that was previously released in Announcement SEL-2014-13. Also,
clarification to the effective date for the pricing policy previously released
in Announcement SEL-2014-13 and updates to the Lender Breach of Contract topic
in the Selling Guide to align with the 2014 revision of the Servicing
Guide. Details for its announcement SEL-2015-02: are available inThis
Announcement.
Lower
gasoline prices have certainly changed my consumption behavior; I'm now able to
afford I Can't Believe It's Not Butter, instead of relying on the
kindness of KFC employees to add an extra handful of butter packets when I make
a biscuit run....as Tom Petty says: It's good to be king. But what are
Americans (who don't value synthetic butter) doing with their windfall? Not
much, according to Wells Fargo, mainly because
the "savings" are much like stock options in the '90s tech industry,
mostly on paper; the economic group writes, "January's disappointing
retail sales figures have many people scratching their heads as to what has
happened to the savings from lower gasoline prices. Prices at the pump in
January were down 46.5 percent from their year ago level and the typical
household is expected to save between $500 and $800 on gasoline purchases this
year. So far, however, little of this gain has showed up in retail sales."
My bet is to capture any arbitrage you may have at the moment, here in
California prices have already started to tick upwards as summer approaches. Unleaded
is over $3 a gallon already in Northern California after being near $2 a gallon
a month or two ago.
Continuing
on, Bloomberg points out that the price of oil is changing things. Sarah
Mulholland observes that, "The oil glut is threatening to expose cracks
in the commercial-mortgage bond market. Nomura Holdings Inc. estimates that
$16 billion in property debt that has been sold to investors as securities is
vulnerable to default after crude prices plunged, posing risks for the
economies of U.S. cities and towns built around the boom. Wall Street analysts
are poring over commercial-mortgage backed securities for signs of distress as
the oil crash weighs on demand for real estate in energy hubs. Properties that
house workers -- such as apartment complexes, mobile-home parks and hotels --
are likely to be the first to see vacancy rates rise as oil rigs idle and jobs
vanish, according to Nomura debt analysts Lea Overby and Steven Romasko. 'If
this oil story persists, oil workers are going to go someplace else -- they're
transient,' Overby, a New York-based analyst at the bank, said in a phone
interview. 'Demand is going to go from very high to zero overnight, and that's
a problem.'"
That
is what we need - more problems. So are we sitting here hoping for oil to go
back to $100 a barrel? Geez... we can't even make up our minds!
Let's
talk about something simple, like the economic calendar for this week. I will
cut to the chase - there isn't a whole lot of important scheduled news here in
the U.S. on the platter until Thursday. At that point we'll see Retail Sales,
Initial Jobless Claims, and Import Prices. Friday is the Producer Price Index
(does anyone care about inflation anymore?) and a series of forgettable
University of Michigan numbers. (Hope I am not sounding too cynical here...)
Rates have crept up because the economy here in the U.S. is not doing badly -
housing & jobs are doing just fine, thank you - and we ended last week with
the 10-yr at 2.24% and this morning we're at 2.21% with agency MBS prices
better by .125 - mostly based on a flight to quality on more chatter about
Greece and nervousness in global stock markets.
No comments:
Post a Comment