Quicken vs. the U.S. Government; Agency fee changes - much ado about nothing?

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Let's start with something simple, like a bill introduced last week to amend the Real Estate Settlement Procedures Act of 1974 to prohibit certain financial benefits for referrals of business and to improve the judicial relief for certain violations, and for other purposes.

 

But the big recent news: dogs sleeping with cats, geese flying south for the summer, toast landing on the floor butter-side up... and Quicken Loans, the nation's largest Federal Housing Administration (FHA) mortgage lender, filing suit in Federal District Court against the United States Department of Justice (DOJ) and Department of Housing and Urban Development (HUD). "The company was left with no alternative but to take this action after the DOJ demanded Quicken Loans make public admissions that were blatantly false, as well as pay an inexplicable penalty or face legal action."

 

The Wall Street Journal noted that, "Because lenders must certify that the FHA-backed loans they make have no errors, the government has sometimes pursued damages under the False Claims Act, a Civil War-era law that lets the government recover triple damages. That's led to what some banks say are onerous settlements for minor penalties. Rather than audit banks' entire loan portfolios, the Justice Department also tends to extrapolate mistakes based on a sample, another practice that has drawn some banks' ire. 'The risks of doing FHA loans for lenders is too high and marks a low point when a Quicken Loans has to fight back,' said David Stevens, president of the MBA, which lobbies on behalf of lenders. 'This has gone too far and will only hurt consumers' access to credit.' A Quicken spokesman in an email said that the company would continue to make FHA loans in the near term and that "like nearly every lender in the country, we will be evaluating the prudence of our continued participation with FHA." Maybe they should talk to Chase...

Libertarian originators and industry analysts were quick to write.....

"God bless Quicken for having the money, determination and principle to become the aggressor in this matter. The DOJ and HUD should not be allowed to blackmail and strong arm those doing it best. I have been brokering loans to Quicken for about 5 years and have found them to be of the highest quality to partner."

"It takes the biggest to even attempt something like this.  Needless to say, I hope it works. Other lenders and I have spoken and believe there should be a remedy for consumers that will be damaged by the new archaic rules being implemented on 8/1/2015.  A purchase cannot be treated like a refi at closing. When the consumer is financially damaged by the poorly thought out, arrogant rules issued by the CFPB, they should be able to recoup their losses from the CFPB."

 

And for Agency news, to the surprise of no one the Federal Housing Finance Agency (FHFA) released the results of a comprehensive review of the Fannie and Freddie guarantee fees. In short, the review findings were that there is no current compelling reason to change the current g-fee structure... with a couple of notable exceptions. First, seven years after its implementation in 2008, the 25 basis point upfront adverse market charge is to be removed. The FHFA is also setting aside its December 2013 decision to retain the adverse market charge in certain high foreclosure states. And the FHFA is applying targeted and small fee adjustments to a subset of Enterprise (Fannie and Freddie) loans. This includes small fee increases for certain loans in the LTV/credit score grid and certain loans with risk-layering attributes (i.e. cash-out refi, investment properties, secondary financing, and jumbo conforming.) But to repeat, "As a result of FHFA's review of guarantee fee levels, the agency concludes that the current guarantee fee level is appropriate under current circumstances." And before anyone becomes all riled up, the changes to the LLPAs will be implemented for all loans purchased or delivered into MBS pools issued on or after September 1, 2015.

 

One cynic said, "They took away the adverse market fee but added a bunch of other fees based on purchase date - not commitment date - seems like a lot of fuss about not much." Most will see this as favorable - at least the FHFA removed the onerous adverse market fee and appear open to market input - but this will not generate a large systemic change in pricing/rates, and in that there will be little or no change for most borrowers.

With all this excitement who cares about the bond markets? Someone might - and there isn't much volatility - and for news this week we've had the Chicago Fed National Activity Index (-.42), zip tomorrow, Wednesday are the FHFA House Price Index and Existing Home Sales, Thursday is Initial Jobless Claims & New Home Sales, and Friday is Durable Goods. For numbers we closed the 10-year at 1.85% and this morning we're at 1.87% with agency MBS prices roughly unchanged depending on coupon.

Executive Rate Market Report:

Friday the stock markets around the world took big hits; the DJIA down 279, Nasdaq -76. China made it easier to short their stock market in an effort to slow speculation, Greece back in play on comments frm Christine Lagarde that she isn’t interested in any extensions unless Greece increases its austerity programs. Nothing however has changed for trading US stocks; for months now any day when the key indexes decline in big swings the following day the market rallies. Traders have to love it, wait for a major sell-off then buy on the close, the next trading day will be an up day. This morning the key indexes are stronger at 8:00.

The 10 fell to its resistance level on Friday at 1.86% down 4 bps frm Thursday; we thought this morning the note would continue lower and break out of the three week plus trading range. Not the case, the 10 traded up 1 bp to 1.87%. MBS prices on Friday didn’t improve much closing the day 9 bps better on the day. MBSs also locked in narrow ranges unable to exit.

Over the weekend, talks between the government and the institutions overseeing the Greek bailout took place in Paris. Negotiations have so far yielded little in terms of progress and European officials have cautioned that discussions between the two sides are nowhere near the point where bailout money can be disbursed. Chinese officials over the weekend made an attempt to cool the negativity that exploded last week by lessening the reserve requirements of banks hoping that would spur increased lending. The decision to lessen reserves in a sense counters Friday’s news that the government made it easier to short the Chinese markets, a move to calm global markets. It was the second in less than three months and the largest in magnitude since the 2008 financial crisis.

Today Europe’s equity markets recovering a little from Friday’s selling; Hong Kong suffered their largest one-day tumble this year on Monday and trading volumes in Shanghai jumped to a fresh record, as reassurance from Beijing over the country’s slowing economy failed to persuade investors.

This week’s trading should be focused on global markets; China and Europe. US earnings also will be in play, so far 75% of earnings reported have been better than estimates. Only three economic reports but all of the them have the potential of moving US market outlooks; March existing and new home sales and March durable goods orders.

The DJIA opened +160, NASDAQ +30, S&P +14. The 10 at 9:30 1.87% +1 bp, 30 yr MBS price +2 bp frm Friday’s close and +11 bps frm 9:30 Friday morning.

This Week’s Calendar:
Wednesday,
7:00 am MBA mortgage applications
9:00 am Feb FHFA home price index (+0.6%)
10:00 am March existing home sales (+4.5% to 5.045 mil frm 4.88 mil)
Thursday,
8:30 am weekly jobless claims (-8K to 286K)
10:00 am March new home sales (-3.9% to 517K frm 539K)
Friday,
8:30 am March durable goods orders (+0.5% frm -1.4% in Feb; ex transportation orders +0.3% frm -.06%)

Debate within Europe and the US whether the EU and IMF will let Greece default and eventually leave the EU will be in play. If Greece leaves the EU what are the downside repercussions? Will the debt issues spread to other southern Europe countries and cascade into more defaults then threaten the very existence of the EU? Safety moves should push investors toward US treasuries with our interest rates substantially higher than other safe sovereigns. In the end we expect Greece will not leave, the possibility of other debt ridden countries leaving while remote is too great to bet on the end of Greece.

We floated over the weekend, not much benefit; thought there was a better risk that the US 10 would finally break below 1.86%; so far it hasn’t happened. Expecting two strong down days in the US stock markets continues to be wishful rather than possible. How many times in the last two months have the key indexes had triple digit moves lower (on the DJIA) only to encourage buying on any dips. Both MBS prices and the 10 yr treasury are at critical pivots, the 10 at 1.86% and FNMA 3.0 coupon at 102.63 (at 10:00 102.54). We expect the 10 will break lower but the longer it holds it lessens our enthusiasm . Friday afternoon we said if the 10 yield does break it will drop to 1.70% and MBS prices would decline 200 basis points, a freshman brain fade, MBS price would increase 200 bps.

PRICES @ 10:00 AM

10 yr note: +1/32 (3 bp) 1.86% unch

5 yr note: +1/32 (3 bp) 1.30% unch

2 Yr note: +1/32 (3 bp) 0.50% -1 bp

30 yr bond: -10/32 (31 bp) 2.53% +2 bp

Libor Rates: 1 mo 0.180%; 3 mo 0.275%; 6 mo 0.402%; 1 yr 0.691%

30 yr FNMA 3.0 May: @9:30 102.55 +2 bp (+11 bp frm 9:30 Friday)

15 yr FNMA 3.0 May: @9:30 104.92 +5 bp (+13 bp frm 9:30 Friday)

30 yr GNMA 3.0: @9:30 103.61 +8 bp (+12 bp frm 9:30 Friday)

Dollar/Yen: 119.05 +0.15 yen

Dollar/Euro: $1.0745 -$0.0061

Gold: $1195.60 -$7.50

Crude Oil: $55.54 -$0.20

DJIA: 18,039.10 +212.80

NASDAQ: 4970.79 +38.97

S&P 500: 2098.30 +17.12

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HUD, VA, FHA, and Recent Government Lender Updates of Note

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Late last week someone asked about HUD's Equal Access Rule. A month or so ago Bankers Advisory released a notice regarding HUD's update to equal access rules for marital status, gender identity and sexual orientation. HUD published the notice on February 2^nd in order to raise awareness of the HUD Equal Access Rule requirements for actual or perceived discrimination. The final rule was published on February 3^rd, 2012 and changes to HUD's general rule include expanding the definition of "family" to include "a single person, who may be an elderly person, displaced person, disabled person, near-elderly person or any other single person; or a group of persons residing together, including family with or without children, elderly family, near-elderly family, disabled family, displaced family and remaining members of a tenant family." The term "gender identity" includes actual or perceived gender-related characteristics and "sexual orientation" means homosexuality, heterosexuality or bisexuality. The rule also revises HUD's general program requirements by adding that ant recipient of HUD funds may not "inquire about the sexual orientation or gender identity of an applicant for, or occupant of, HUD assisted or HUD-insured housing for purposes of determining eligibility. It is permissible to inquire into sex for temporary, emergency shelter with shared sleeping areas or bathrooms, or to determine the number of bedrooms to which a household may be entitled." The Office of Single Family Housing has included the updates into its Single Family Housing Policy Handbook, 4.0001, effective June 15, 2015. 

The February edition of the HUD Housing & FHA Monthly Review has been published, which provides an overview of January mortgagee letters and recent activity. Highlights from the report include mortgagee letter 15-01 implements the 50 bps reduction in FHA's MIP rates for most FHA Title II mortgages and allows for cancellation of existing case numbers in order to utilize the MIP rates found within the mortgagee letter. Mortgagee letter 15-02 provides policy guidance applicable to "ineligible" non-borrowing HECM spouses that will not be eligible for the due and payable deferral period, previously announced in mortgagee letter 2014-07. The requirements in ML 15-02 may be implemented for all HECM case numbers assigned on or after January 5, 2015. In addition, on January 29^th, the Multifamily Housing published a memo providing guidance for Multifamily Property Assessed Clean Energy (PACE) in California. The memo discusses prospective benefits of PACE and clarifies information regarding the processes by which HUD insured and assisted properties in California can receive assistance for energy and water efficiency improvements within the program. 

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau announced new residential construction statistics for February 2015. Privately owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,092,000. This is 3 percent above the revised January rate of 1,060,000. Privately owned housing starts in February were at a seasonally adjusted annual rate of 897,000. This is 17 percent below the revised January estimate of 1,081,000. Privately owned housing completions in February were at a seasonally adjusted annual rate of 850,000. This is 13.8 percent below the revised January estimate of 986,000. 

And as a reminder the Federal Housing Administration (FHA) published additional sections of its Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1): including Doing Business with FHA-Lenders and Mortgagees; Doing Business with FHA-Other Participants in FHA Transactions - Appraisers, Quality Control, Oversight, and Compliance-Lenders and Mortgagees; Quality Control, Oversight, and Compliance-Other Participants in FHA Transactions - Appraisers, and Origination through Post-Closing/Endorsement for Title II Forward Mortgages (Origination through Endorsement) Appraiser, 203(k) and 203(k) Consultant Sections. The March 18, 2015 SF Handbookis now available on HUD's Client Information Policy Systems (HUDCLIPS) web page.  

Staying on this vein, the FHA announced a web-based platform for mortgagee submissions of FHA appraisal data and reports: Mortgagee Letter 2015-08, Electronic Appraisal Delivery (EAD) Portal for FHA-Insured Single Family Mortgages. This Mortgagee Letter announces FHA's implementation of its EAD portal, and provides information about the portal and its mandatory use with FHA case numbers assigned on and after June 27, 2016. The EAD portal will allow transmissions to FHA of only those appraisals that comply with FHA's Single Family Housing Appraisal Report and Data Delivery Guide. When submitting an appraisal, the portal provides confirmation of a successful submission, or information regarding required corrections that may need to be made before resubmitting and transmitting to FHA.  When an individual appraisal is submitted-whether through the EAD portal or through the existing process until the mandatory effective date-the appraisal submitted becomes the appraisal of record. FHA does plan to incorporate the EAD portal into the Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1). 

FHA Announced Electronic Appraisal Delivery (EAD) Portal Implementation in its Mortgagee Letter 2015-08. This information outlines details of the portal and its mandatory use with FHA case numbers assigned on and after June 27, 2016. "The EAD portal will make it easier to do business with FHA by offering process and technology efficiencies that streamline appraisal data transmission, promote quality up-front appraisal data, and reduce post-endorsement appraisal data corrections." 

SunWest announced it will be removing the Automated Valuation Model (AVM) requirement on VA IRRRLs with qualifying credit score equal to or greater than 580 for locks / commitments made on or after September 16, 2014. For loans with the qualifying credit score less than 580, a conventional appraisal (must be ordered through Sun West's vendor order website) or an AVM, with specific requirements is required to determine the LTV ratio. 

A while back we learned that new and Reduced Documentation Requirements for M&T-to-M&T FHA Streamline Refinances and enhancements to its FHA Streamline Refinance Program for existing M&T-serviced loans sold back to M&T are in affect starting last month. Some key product highlights include: No Credit Report Required - a Risk-Based Pricing Disclosure from the Lender's standard credit reporting vendor is required. Verification of Employment Not Required. Verification of Income Not Required. IRS Form 4506 Required at Closing Only. Another option to be added is an FHA Streamline Refinance with an Appraisal for M&T-to-M&T transactions only. 

A VA "Joint" loan is defined as a VA loan having any co-borrower other than the veteran-borrower's married spouse.  This could include (but is not limited to) a veteran and girlfriend (not wife), a veteran and another relative (i.e. two brothers), etc. The M&T Bank VA product page(s) has been updated. Regarding flood insurance for FHA transactions, flood IS required to cover any Non-Residential Detached Structure that has any part located in a Special Flood Hazard Area (SFHA). This is required for FHA transactions even though it is not a FEMA requirement and is required whether or not the detached structure was given value by the appraiser.

 Today analysts continue to cogitate on Friday's employment number. The weaker-than-expected March jobs data adds to uncertainty about the timing of fed funds interest rate lift-off. Some analysts have already concluded that the weaker-than-expected March jobs data eliminates the possibility of June lift-off but that fails to account for normal monthly fluctuations in jobs data and ignores the fact that expectations were simply too high. The March jobs report is the last one that the Fed will see before the April 28/29 FOMC meeting but they will see three more weekly Initial Jobless Claims reports. Many expect those reports to be strong so don't eliminate the possibility of a June more in short term rates quite yet. The probability of September lift-off has increased has increased. Janet Yellen has repeatedly said that the timing of lift-off is data dependent - as if we need to be reminded.

 

In a week like this where this is no substantive scheduled economic news here in the U.S., the markets tend to focus on a) overseas events, and b) minor news which ordinarily are of little consequence. We do have a smattering of news, including the Fed's release of its Minutes from the March 17-18 FOMC meeting, Initial Jobless Claims Thursday. But that's about it. Rate sheets are roughly unchanged: we closed the 10-yr at 1.84% and this morning we're at 1.84% with agency MBS prices about the same.

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