Changes In 4506-T Requirements And In Credit Trends

By rchrisman@robchrisman.com

 

In 1986, Peter Davies was on holiday in Kenya after graduating from Louisiana State University.

On a hike through the bush, he came across a very young bull elephant standing with one leg raised in the air. The elephant seemed distressed, so Peter approached it very carefully.  He got down on one knee, inspected the elephants foot, and found a large piece of wood deeply embedded in it. As carefully and as gently as he could, Peter worked the wood out with his knife, after which the elephant gingerly put down its foot.

The elephant turned to face the man and with a rather curious look on its face, stared at him for several tense moments. Peter stood frozen, thinking of nothing else but being trampled. Eventually the elephant trumpeted loudly, turned and walked away. Peter never forgot that elephant or the events of that day.

Twenty years later, Peter was walking through the Chicago Zoo with his girlfriend. As they approached the elephant enclosure, one of the creatures turned and walked over to near where Peter and his girlfriend Misty were standing. The large bull elephant stared at Peter, lifted its front foot off the ground, then put it down. The elephant did that several times then trumpeted loudly, all the while staring at the man.

Remembering the encounter in 1986, Peter could not help wondering if this was the same elephant. Peter summoned up his courage, climbed over the railing and made his way into the enclosure. He walked right up to the elephant and stared back in wonder. The elephant trumpeted again, wrapped its trunk around one of Peter legs and slammed him against the railing, killing him instantly.

Probably wasn't the same elephant.

 

With news swirling of US Bank's mortgage reorganization last week, let's not forget the regulator that touches every residential lender: the CFPB. There is industry chatter that it is skipping TRID-related presentations at conferences, which hopefully is not true as we all are looking for firm guidance and rules on the topic seven months into it. And there is also the PHH/CFPB situation. But Director Richard Cordray, whose term is due up in 2018, is also watching other court cases in establishing exactly what the bureau can and can't do. For example, the CFPB was dealt a setback last week. "A federal judge struck a blow to the Consumer Financial Protection Bureau's recent foray into college accreditation, ruling that the bureau lacks the authority to investigate how accreditors approve for-profit colleges."

Ever had an agent say to you "I am already working with another loan officer"? Ever been used as the lender of last resort? The challenges of winning agents over and avoiding being relegated to the lender who gets the loans that others won't approve are one of the toughest challenges when trying to increase purchase volume. Successful agent relationships develop when you know exactly what to say and how to say it. National Mortgage Professional Magazine hosts a FREE webinar presented by Ron Vaimberg, President of Ron Vaimberg International and Executive Director of NMP University titled "How to Deliver the Ultimate Agent Presentation" this Thursday, April 28 at 2PM EDT/11AM PDT.

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 May 5^th is the date to join Maryland Mortgage Bankers Association (MMBA) for its Annual Conference featuring fabled MBA Chief Economist Mike Fratantoni.

 Join Michigan Mortgage Lenders Association (MMLA) and MORBANPAC for its luncheon May 11th in East Lansing. Learn about legislative and regulatory issues. on the state and national level. You will also be helping MORBANPAC, the MMLA's Political Action Committee. Please take a moment to click on the video to watch this message from MMLA Immediate Past President and Legislative/MORBANPAC Chairman, Andy Baker. Strength in number helps the MMLA press forward on the many issues that are impacting our industry. Click here to register.

 Join Washington Association of Mortgage Professionals (WAMP) in Tacoma on Thursday, May 19^th, 11-2PM, for the 2^nd installment of its popular Coaching for Success series. Details and registration are available on this link.

 Taxes were due a little over a week ago, and plenty of lenders released 4506-T and other tax-related changes.

 

First Community Mortgage posted new 4506T form requirements.

 

Beginning March 25, 2016, all 4506T forms submitted to Freedom Mortgage Wholesale for processing by the IRS must be completed on the revised form dated 09-2015 and have the attestation box marked. If the wrong form is completed or the correct form without the attestation box marked it will be returned for correction and will delay the processing of the tax transcripts/W2s.

LHFS Wholesale issued a reminder regarding policy as it relates to 4506T transcripts and Extension requirements. For transactions after April 15th, 2016and an extension was filed, the following must be provided: Copy of the extension (IRS Form 4868), If money is due on the extension, include a copy of the cancelled check for the IRS tax payment. 4506T results must show "No Results Found" for 2015. If the borrower has filed their 2015 tax return and the tax transcript is unavailable, the following must be provided: A copy of their 2015 tax return. 4506T results must show "No Results Found" for 2015. Evidence the refund for 2015 has been received or a copy of the cancelled check for the IRS tax payment.

 

How about changes in how underwriters view credit?

 

According to the TransUnion Q4 2015 Industry Insights Report, as more consumers, and more nonprime consumers, are receiving auto loan and credit card access, delinquency levels for these credit products have only risen slightly and remain at relatively low levels. Both mortgages and personal loans experienced yearly drops in their delinquency levels, with mortgages dropping nearly 30% in the last year. This report states the mortgage delinquency rate declined from 3.29% in Q4 2014 to 2.37% in Q4 2015. While delinquencies dropped, mortgage debt per borrower increased from $187,139 in Q4 2014 to $189,707 in Q4 2015. The rapid decline in delinquency but increase in debt is a positive sign for the residential mortgage market, per TransUnion. TransUnion data show that at the conclusion of 2015 there were 1.26 million more subprime borrowers with credit card accounts showing a balance, and 1.21 million additional subprime consumers with auto loan accounts, compared to the end of 2014. The share of subprime accounts compared to other risk tiers also rose slightly in the last year. TransUnion's report includes auto loan, credit card as well as mortgage loan statistics.

 Zelman and Associates published its Mortgage Originator Survey indicating a continuation of a solid purchase market. Survey respondents reported a 19 percent YoY increase in purchase applications in February, compared to a 15 percent average in 2015. Applicant credit quality index reached 62.3 in February, slightly down from 62.5 the prior month. The drop in the index is largely due to a greater share in first time home-buyers and the recession-impacted consumers. Underwriting criteria also dropped to 61.8 in February from 62.4 a month earlier as lenders have reduced credit overlays, particularly on LTV and credit score restrictions. Entry-level mortgage credit availability rose to 66 from 65.7 last month and private mortgage insurance index decreased to 72.3 in February due to less availability of LPMI. Refinance applications increased 3 percent YoY compared to a 24 percent decline in January.  As TRID has been underway for five months, most of the industry has adjusted to the new guidelines, but post-closing loan sale challenges remain. For more information regarding the Mortgage Originator Survey, contact Ivy Zelman. 

 And lenders are reacting. For example, "To improve transparency and to help clients better understand how a borrower's credit is reviewed during the manual underwriting process, Sun West has updated its manual underwriting guidelines specifically for the review of a borrower's credit. The updated guidelines include additional information on how various risk factors associated with a borrower's credit are analyzed during a manual underwriting review."

 With all this going on in the industry, at least things are relatively quiet in the capital markets arena although it is still "up a little, down a little." Monday U.S. Treasuries, and agency MBS prices, declined slightly for no real reason. In fact, the only news, in theory, should have moved rates lower: new home sales were slightly soft in March, following a bad miss on housing starts and building permits data reported last week. The $26 billion 2-year Treasury auction was met with moderate demand.

 For news today we'll have Durable Goods - always volatile depending on things like aircraft orders, and also the S&P/Case Shiller series of numbers if you want to find out housing prices in February. And let's not forget Consumer Confidence. We closed the 10-year Monday at a yield of 1.90% and this morning, in the very early going, it has improved slightly to 1.89% - one would expect agency MBS prices to be slightly better but not enough to impact rate sheets for borrowers. That may change as the economic news comes out.