Lenders Should Pay Attention to Wells' Settlement

By rchrisman@robchrisman.com

 

A father was having a conversation with a neighbor about his four sons.

"My first son has a degree in economics from UT. My second son has an MBA from Cal. My third son has a PhD from the University of Michigan. And my fourth son is a thief."

Neighbor: "Why can't you throw the fourth son out of your house?"

Father: "He is the only one earning money. The rest are unemployed."

 

Last week I was in Coeur d'Alene (for Banner Bank's sales staff celebrating a great 2015) and I was reminded that tomorrow is "Free Cone Day" at Ben & Jerry's! Do they have ice cream in prison? I don't know, but here is an interesting quick read on a mortgage person's trip to prison.

Gosh, if I were a lender I would be chomping at the bit to originate FHA loans! (Is there a sarcasm font?) Although lenders are certainly happy to originate and grab market share in profitable FHA loans, it is not hard to see why others, such as Chase, have scaled way back in the government program. The news of an expected Wells Fargo/Department of Justice settlement came out in February, but not the magnitude! The Department of Justice announced that the United States has settled civil mortgage fraud claims against Wells Fargo Bank, N.A. and Wells Fargo executive Kurt Lofrano, stemming from Wells Fargo's participation in the FHA Direct Endorsement Lender Program. In the settlement, "Wells Fargo agreed to pay $1.2 billion and admitted, acknowledged and accepted responsibility for, among other things, certifying to the Department of Housing and Urban Development (HUD), during the period from May 2001 through December 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when some of those loans defaulted."

 "This Administration remains committed to holding lenders accountable for their lending practices," said Secretary Julián Castro for HUD. "The $1.2 billion settlement with Wells Fargo is the largest recovery for loan origination violations in FHA's history. Yet, this monetary figure can never truly make up for the countless families that lost homes as a result of poor lending practices." Come on..."Countless"?

 A story in Reuters stated that in the settlement "Wells admitted to deceiving the U.S. government into insuring thousands of risky mortgages, and 'admits, acknowledges, and accepts responsibility' for having from 2001 to 2008 falsely certified that many of its home loans qualified for FHA insurance," and "to having from 2002 to 2010 failed to file timely reports on several thousand loans that had material defects or were badly underwritten, a process that Lofrano was responsible for supervising. According to the Justice Department, the shortfalls led to substantial losses for taxpayers when the FHA was forced to pay insurance claims as defective loans soured." "Several lenders, including Bank of America, Citigroup, Deutsche Bank, JPMorgan Chase, previously settled similar federal lawsuits. But Wells Fargo held out, and its payment is the largest in FHA history over loan origination violations."

 "Friday's settlement is a reproach for years of reckless underwriting at Wells Fargo, U.S. Attorney Preet Bharara in Manhattan said in a statement. "While Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust," Bharara added.

 And although I am sure there are private comments inside "The Coach," lost in the shuffle was Wells Fargo's own public comment.

 Taking a step back, here's a little primer on the situation for Wells and any other lender doing FHA loans. As a Direct Endorsement Lender, Wells Fargo has the authority to originate, underwrite and certify mortgages for FHA insurance. If a Direct Endorsement Lender approves a mortgage loan for FHA insurance and the loan later defaults, the holder or servicer of the loan may submit an insurance claim to HUD for the outstanding balance of the defaulted loan, along with any associated costs, which HUD must then pay. Under the Direct Endorsement Lender program, neither the FHA nor HUD reviews a loan for compliance with FHA requirements before it is endorsed for FHA insurance. 

 DE lenders are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance and maintaining a quality control program that can prevent and correct any deficiencies in their underwriting. The quality control program requirements include conducting a full review of all loans that go 60 days into default within the first six payments, known as "early payment defaults"; taking prompt and adequate corrective action upon discovery of fraud or serious underwriting problems; and disclosing to HUD in writing all loans containing evidence of fraud or other serious underwriting deficiencies. The simple explanation of the legal action was that Wells Fargo failed to comply with these basic requirements.

 While we're on FHA & VA related news...

 Effective with FHA loan submissions on or after February 25 Sun West simplified its underwriting practices to expedite the processing of loans. To streamline the underwriting process and ensure that Sun West does not go above and beyond the requirements of the new HUD handbook 4000.1, Sun West has eliminated its published Risk Factors used for underwriting review.

 There is only one more open FHA Electronic Appraisal Delivery (EAD) portal onboarding phase. The last chance for Federal Housing Administration (FHA)-approved mortgagees to register for the final EAD portal onboarding phase is quickly approaching - the mandatory use date is June 27. Mortgagees must be registered by April 14 for this last onboarding phase that begins on April 15. More information about EAD portal onboarding is available on FHA's EAD portal Mortgagee Onboarding Process web page. Mortgagees that have not completed onboarding to the EAD portal before the June 27 mandatory use date will not be able to submit appraisals to FHA; manually enter appraisal information in the FHA Connection (FHAC) Appraisal Logging Screen; or obtain an FHA insurance endorsement.

 M&T recently clarified the rental verification requirements on VA loans. The VA has confirmed that a VOR is not required if the loan receives an AUS Accept/Approve. Its product pages have been updated to reflect this clarification. M&T also issued a reminder regarding FHA Minimum Photograph Requirements.  Lenders are responsible to assure that all the required photos are present. One of the most common photos missing is the side view of comparable sales, listings, pending sales, rentals, etc. Stock photos sometimes used for this purpose, are taken "straight-on" and do not show the side view. This is unacceptable. FHA Appraisers, as of 09-14-15, were required to take side-view photos. If they do not supply same, they must state a reasonable explanation as to the "why" in their report.

 Mountain West Financialclarified the guidance in the 4000.1 bulletin, regarding vacating a primary residence, and obtaining new FHA financing on a new primary residence. If the current mortgage on the vacating primary residence is an FHA loan, FHA's guidance for two FHA loans applies. There are 4 circumstances in which a Borrower with an existing FHA-insured Mortgage for a Principal Residence may obtain an additional FHA-insured Mortgage on a new Principal Residence. Policy exceptions include relocation, increase in family size, vacating a jointly owned property, and non-occupying co-Borrower on an existing FHA-insured Mortgage requesting an FHA-insured Mortgage on a new Property to be their own Principal Residence.

 MWF also announced the new FICO requirement for FHA and VA conforming fixed rate loan products is 600 down from 620.

 Private mortgage insurance news? Of course there are developments.

 Congratulations to National MI Corp.: this private mortgage insurer is celebrating Its third year in business with over 1,000 lender customersright around the time of celebrating its 3^rd anniversary since the company insured its first loan. "National MI was the first company to offer 12-month rescission relief on most insured loans, through its National MI SafeGuard coverage, protecting lenders from coverage rescissions and denials upon borrowers making their first 12 timely monthly mortgage payments." The full press release is available here.

 MGIC has reported its monthly operating statistics for January, citing a decline in new notices by 14.9 percent YoY and a 0.6 percent drop in paid claims MoM. Cures of 5,332 were up 1.4 percent MoM and the cure ratio increased to 80.6 percent in January from 79.7 percent the month prior. Ending delinquent inventory of 62,774 was up 0.2 percent MoM, but down 21.7 percent YoY. Net rescission and denials dropped to 76 from 81 in December. With a new business reporting policy in place, MGIC did not report on new insurance written, but reported on Insurance-in-Force. It's estimated that the new insurance written for January was $3.3 billion, similar to December's report.

 As of April 4^th, MGIC is making some modest refinements to its recently announced monthly rates. It is also removing the rate adjustment add-on for rate/term refinances. Details are available here.

 Genworth introduced a new BPMI rate card. For the 660+ FICO buckets these new rates are largely in line with rates recently introduced by NMIH and Radian. Rates are modestly lower in the sub 660 FICO buckets. Genworth sees this move as in line with industry trends.

 Currently in effect, United Guaranty announced it has expanded underwriting guidelines for doctors, attorneys, and pharmacists with high debt-to-income ratios due to student loans. Click the link to view information on its new Professional Program.

 Arch MI is implementing updated Monthly rate sheets. These rates reflect an expected rate reduction, on average, for rate sheet pricing. The updated rates apply to Borrower paid monthly mortgage insurance (BPMI) and Lender Paid Monthly mortgage insurance (LPMI). Click here for the updated rate sheet. Arch MI is filing the updated Monthly rate sheets with state insurance agencies, as needed.

 Last but certainly not least, Radian Guaranty has relaunched its consumer-focused website, www.achievethedream.com. "The newly enriched website, prepares and arms homebuyers with the tools and in-depth knowledge they'll need to inform one of the most important financial decisions they'll make - buying a home. 'We developed the original achievethedream.com because we heard from loan officers across the country that home buyers are entering the real estate market without the necessary knowledge to capitalize on their buying opportunities,' said Brien McMahon, chief franchise officer, Radian. 'In order to meet increasing online demand and actively support educated decisions about home buying we redeveloped www.achieve.thedream.com. With its amplified content, we're confident our new website serves as a unique and helpful information hub to aid consumers in making smarter home buying decisions, and can provide valuable information for real estate agents as well.'" 

 Turning to the bond markets & interest rates: up some, down some. On Friday agency mortgage-backed securities put in a strong performance relative to Treasury securities - somewhat surprising as there was no news of substance of move rates. But dealers reported some good buying interest from the Fed and investment banks squaring up positions ahead of the weekend. Agency MBS prices ended nearly unchanged; still, overall rates went up with the 10-year yield ending the week at 1.72%.

 As we march toward mid-April it's a new week, with a new economic calendar. There's plenty on it although we have zip today. Tomorrow (the 12^th) we'll have some import price data; Wednesday are the MBA's application data for last week, Retail Sales for March, the Producer Price Index for March, and the U.S. Federal Reserve's Beige Book    release in the afternoon. Thursday we have the usual Initial & Continuing Jobless Claims but with March's Consumer Price Index thrown in for good measure. On Tax Day we wrap up with the Industrial Production & Capacity Utilization duo along with some University of Michigan numbers measuring consumer sentiment. Currently the 10-year is at 1.74% with current coupon agency MBS prices worse nearly .125.