Jumbo Market Altering And Not For The Better

By rchrisman@robchrisman.com

(Signs of the times?)

Outside a Muffler Shop: "No appointment necessary. We hear you coming."

In a Veterinarian's waiting room: "Be back in 5 minutes. Sit! Stay!"

At the Electric Company: "We would be delighted if you send in your payment on time. However, if you don't, YOU will be de-lighted."

In a Restaurant window: "Don't stand there and be hungry; come on in and get fed up."

In the front yard of a Funeral Home: "Drive carefully. We'll wait."

At a Propane Filling Station: "Thank Heaven for little grills."

In a Chicago Radiator Shop: "Best place in town to take a leak."

On an Electrician's truck: "Let us remove your shorts."

 

"Buy land - they're not making any more of it." And the reverse is happening in Louisiana. Say what you want about global warming, or inappropriate levy building, the fact is that the state is watching a football field-sized piece of land disappear under water every hour. Per the Smithsonian Magazine Louisiana is losing 75 square kilometers of coastal terrain every year. And in California this article points out a mining company is "stealing a beach."

The International Monetary Fund and US regulators have given Deutsche Bank heat for risks posed by its 42 trillion euro derivatives portfolio, which among other factors contributed to it failing Federal Reserve stress tests. Analysts wonder if Deutsche Bank would do well to abandon its US businesses, but it has little else generating profits and is the last European holdout in the investment banking market.

 And in other news that isn't particularly good for lenders, especially for non-bank companies who offer jumbo loans, Two Harbors Investment Corp. is discontinuing its Agate Bay jumbo securitization platform. The company notes that expected costs to wind down the program will be around $3 million in the second half of 2016, and expected savings will run around $10-11 million annually.

 Why is TWO "bailing and sailing" from jumbo? The company stated that its reason for exiting the business is simply the challenging market environment confronting the jumbo securitization business. The demand to hold jumbo mortgages (mostly from banks) on balance sheets has resulted in very little jumbo production moving to the private label securitization market. Banks love the jumbo loan asset, and why pay rating agencies and attorneys thousands of dollars to securitize the loans? Banks flush with deposits have been willing to pay more for these loans than bond investors, making it more profitable for lenders to sell mortgages to banks than to securitize.

 TWO sponsored 13 securitization deals backed by nearly $4 billion in prime jumbo mortgages since the program's inception in 2013. TWO has been among the more active issuers in the non-agency securitization space for loans without government guarantees, behind Redwood Trust and a group of large banks. Two Harbors, managed by a unit of hedge fund Pine River Capital Management, sold mortgage bonds under the name "Agate Bay Mortgage Trust."

 Securities Industry and Financial Markets Association (SIFMA) reports that issuers sold about $60 billion of non-government residential mortgage bonds last year, compared with more than $1.24 trillion in 2006. Of that $60 billion, just $12 billion were traditional non-government mortgage securities. Late last year JPMorgan Chase & Co. analysts forecast that $10 billion of prime jumbo loan mortgage bonds would be sold this year but less than $2 billion of the securities have been sold through June, according to its data. Banks are happy to sit on this product.

 Other lenders that packaged jumbo mortgages into bonds have also stepped back from that business, and it doesn't take long to find out what lenders & investors are selling to a particular "end" investor. "Effective on Friday, July 29, 2016 NewLeaf Jumbo Prime and Jumbo Prime High LTV products are discontinued. All loans must be locked by 4:00 p.m. (PDT) on July 28. Extensions will not be granted after July 28. Products impacted are NewLeaf Jumbo Prime - W530, NewLeaf Jumbo Prime High LTV - W531, and NewLeaf Jumbo Prime Asset Depletion - W532."

 And NYCB Mortgage Banking sent out the word yesterday that, "Due to the immediate and unexpected closure of one of our investors, NYCB must suspend our Jumbo Fixed 30-Year loan program. Effective at 5:00 PM Eastern Standard Time (yesterday), NYCB will no longer accept new applications for the Jumbo Fixed 30-Year loan program." In order for NYCB to fund/purchase a jumbo 30-year fixed loan the loan had to have been locked, or expired loans relocked, yesterday.

 Last week, Five Oaks Investment Corp., another real estate investment trust, said it was scaling back its unit. On July 21 Five Oaks Investment Corp., the publicly traded REIT parent of Five Oaks Acquisition Corp. (Five Oaks), released a Form 8-K filing stating that effective August 1, 2016, Five Oaks will not be purchasing additional prime jumbo mortgage loans and would not renew its warehouse agreements beyond October 2016. At this time, the REIT's decision to suspend its conduit operations is not expected to impact the OAKS 2015-2 securitization or KBRA's outstanding ratings for the transaction.

 And WinWater Home Mortgage, a unit of hedge fund Premium Point Investments, shuttered its program earlier this year, citing similar challenges.

 LOs know that borrowers who want a jumbo loan can find them. Much of the lending, of course, takes place on the East and West Coasts, within 10-20 miles of the ocean, or in nice suburbs of major cities. And some lenders specialize in jumbo lending, and have adjusted their underwriting guidelines to accommodate wealthy borrowers. For example, Bloomberg reports on a no-money down $2 million program in Northern California. Lenders are now taking into account stock and stock option compensation for determining whether a borrower can afford a mortgage. That's okay in an appreciating or stable housing market. Otherwise...

 And there are changes in the conforming conventional world of Fannie Mae and Freddie Mac.

 Fannie Mae has announced changes to its 3% down HomeReady program. There are several changes that go into effect immediately. Income limits have been raised to 100 percent of area median income (AMI) in all areas except for low income market tracts which have no limit. Fannie believes this will expand access to affordable credit and also make it easier for lenders to determine eligibility for the loans.

 The occupant borrower will now be allowed to own other residential properties. Homeownership education courses that fulfill the HomeReady mortgage requirement have been expanded to include one-on-one pre-purchase advising from HUD-approved providers. Fannie Mae will offer lenders a $500 credit to encourage borrowers to take advantage of this option. Homebuyer education will continue to be available through Framework, Fannie Mae's education partner.

The requirement for homeownership education has been removed for limited cash-out refinances and borrowers for loans secured by two- to four-unit properties will no longer be required to take landlord education although homeownership education will remain a requirement.

 The Seller Guide announcing the above changes also noted that Fannie Mae expects to make additional enhancements later this year, including allowing a maximum loan-to-value up to 97 percent on limited cash-out refinance transactions in Desktop Underwriter (DU) if the existing mortgage is owned or securitized by Fannie Mae, expanding current HomeReady eligibility for buydowns and adjustable-rate loans to include three- to four-unit properties, and adding additional incentives for the one-on-one homeownership counseling implemented with the current changes.

 Fannie Mae's state specific Attorney Authorization Approval (AAA) Matrices have been updated to include information regarding foreclosure related title costs. Also, the Allowable Title Cost for Fannie Mae Foreclosures document has been updated on the Fannie Mae business website. These documents are available for servicers who have access using their valid user ID and password. If you need access, contact your Technology Manager Administrator.

 Beginning August 1, three new reports will be available in Fannie Mae Connect: Consecutive Months Delinquency Status (CMDS) report, Potential HomeReady Eligible Case Files report and Potentially HomeReady Eligible--Not Delivered HomeReady report. For more information on Fannie Mae Connect, the report transition from Message Manager.

 Fannie Mae'sLender Letter provides information about changes to the MassHousing Mortgage Insurance Fund requirements as well as updates to the Approved Mortgage Insurers and Related Identifiers and Approved Mortgage Insurance Forms lists.

 During the weekend of August 20, Desktop Underwriter (DU) for government loans will be updated to support FHA changes in how Required Investment from the borrower is calculated. In addition, the release will include several other messaging and logic updates. See the Release Notes for more information.

 Mountain West Financial noted on conventional transactions, Fannie Mae will allow a PACE/HERO loan to be paid through a regular cash out refinance or a HomeStyle Energy rate and term refinance, without including the assessment in the DTI, or in the impound account. However, Fannie Mae will NOT allow the PACE/HERO loan to be subordinated on a purchase, or any type of refinance. Although both FHA and VA have put out guidance, MWF is in the process of working with FHA and VA, to determine clearer guidance.

 Freddie Mac has updated its cash-to-close calculations for Total Funds to be Verified

 Fannie continues to court servicers, as in this recent update.

 Freddie Mac released additional information on its Common Securitization Platform/Single Security website, including a preliminary transition timeline and updated exchange program deck. Click here for the main CSP/SS website: The Single Security and the Common Securitization Platform, and here is the Legacy PC Exchange Program deck.

 Keeping on with the bond market and interest rates, U.S. Treasuries and agency MBS prices were nearly unchanged Thursday. You'd have thought rates would have moved one way or the other given the way since oil prices moved lower and a higher-than-expected trade deficit in goods caused downward revisions to Q2 GDP growth forecasts. (The advance estimate of Q2 growth will be released this morning.) Initial jobless claims disappointed slightly but remain near historic lows. Treasuries spent most of the New York session in a narrow range, prior to breaking out to lower yields (1.492% low yield in 10s) following the 7-year auction before retreating into the close ahead of the pricing of the multi-tranche offering from Apple.

 For today's thrills and chills, the Bank of Japan released their monetary policy decision. The experts thought we'd see another 10 basis point cut in the policy rate to -0.20% and an increase in monetary base. The BOJ pledged to increase purchases of exchange-traded funds (ETF) but kept interest rates steady at the close of its two-day meeting on Friday, confounding market expectations of hefty stimulus.

 Later today we'll have the Chicago Purchasing Manager's survey as well as the University of Michigan sentiment numbers - both rarely if ever move rates - but also the European bank stress tests. We've already had the GDP figures for the 2^nd quarter: 1.2% at an annual rate, lower than expected, and the 1^st quarter was revised downward. We've also seen Q2 employment cost, +.6%, as expected.

 After all that weak news the 10-year's yield is nearly unchanged at 1.51% as are agency MBS prices.

Servicing Market Troubles Hit Borrower's Rates - Why?

By rchrisman@robchrisman.com

(Thanks to Tony H. for this one.)

A female college student coming back from Europe is sitting next to a priest.

She: "Excuse me could you do me a favor? I used the very last of my vacation money to buy an expensive artisanal razor. It's so beautiful it's a piece of sculpture. I have no money to pay any duty fees when we land. Could you bring it through customs for me?"

Father: "Sure but as priest I cannot lie about it." and then puts the razor in a pocket of his robe.

Upon arriving the Customs Officer asked, "Do you have anything to declare?"

Father: "From the top of my head to waist I have nothing to declare."

Customs Officer: "That's an odd answer. Do you have anything BELOW your waist you would like to declare?"

Priest: "Yes I have something that was created by a master, held by the hand, made for a woman and has never been used."

Customs Officer: "Welcome to the United States Father."

 

I don't know how it is that we only have two business days left in July - time flies. For me this month has included Honolulu, Denver, Sacramento, San Francisco, and now Austin for several days - pretty nifty places. The mood out there among residential lenders? It has improved nicely as 2016 has progressed although there are grave concerns about the servicing market - see below. But lenders are licking their chops knowing that about half of securitized agency mortgages have interest rates higher than 4 percent, according to Inside Mortgage Finance. Loan officers know that not all of these loans can be refinanced as some borrowers may not have enough equity in their homes, can't qualify credit-wise, or the high cost charged by lenders to cover skyrocketing compliance costs just doesn't warrant refinancing.

My guess is that EverBank reps are running around, saying that they don't know anything more than what they've read in the newspapers about the company being on the block. (Companies being purchased always try to put a good spin on things: additional capital, portfolio products, no layoffs, efficiency, and the like. We've all seen the opposite happen, of course, but hope springs eternal.) But back to EverBank who the Wall Street Journal stated was in "advanced negotiations" with a financial services firm to be acquired. The deal, however, "is not certain." Shares jumped 13% earlier this week, making everyone forget that its profits in the 2^nd quarter fell to $21.6 million versus 2015's 2^nd quarter income of $41.6 million - primarily due to the same servicing write-down issues plaguing any company servicing loans. Total originations (in the 2^nd quarter) fell 11% to $3.08 billion.

 Are folks born between 1982 and 2000 (Millennials), including minorities, saving up their shekels to buy a house? It appears that they are. New research from TD Bank reveals that millennials are more conservative with their money than their youth would suggest. In fact, nearly two-thirds are saving cash in order to buy their first home. Nearly three-quarters of millennials (74 percent) say that saving for a down payment still represents the most significant hurdle to achieving the American dream, according to TD Bank's second annual First-Time Home Buyer Pulse, which polled more than 1,000 Americans looking to purchase a first home within the next five years.

 One-fifth of millennials (19 percent) plan to supplement their savings for a home with financial assistance from friends and family, and 65 percent plan to have a spouse or partner as a co-signer. TD tells us that "move-in ready homes" continue to be the most popular choice for busy millennial home buyers (78 percent) and those structures had better have an attractive design, a nice backyard or pool, and proximity to schools or childcare.

 "Sixty-five percent of all consumers indicated that saving for a down payment is delaying their first home purchase. More Americans (one-third) are putting less than 20 percent down on a home; the percent was even higher among millennials (35 percent). Thirty-seven percent of first-time buyers will take advantage of mortgage affordability programs."

 Well, is the FHA program a "mortgage affordability program?" What about HAMP and HARP? The U.S. Department of the Treasury, the U.S. Department of Housing and Urban Development (HUD), and the Federal Housing Finance Agency (FHFA) issued a "white paper" that is designed to serve as a guide for future loss mitigation programs. The guidance draws on lessons learned from the implementation of the government's crisis-era housing foreclosure prevention/loss mitigation recovery programs, and outlines five principles the agencies believe were essential to the success of the government's programs and should provide a foundation for any future loss mitigation programs.

 The paper recommends five governing principles for future loss mitigation including accessibility, affordability, sustainability, transparency and accountability. "These principles are designed to help maximize foreclosure-avoidance and reduce losses on mortgages which should be in the interest of all concerned stakeholders."

 Daniel Goldstein did a piece on FHA & first time home buyers. "The Federal Housing Administration lowered mortgage insurance premiums (MIP) on its loans in most cases by $800 to $900 a year (and in higher-priced areas of the country even more), in an effort to entice first-time borrowers to become homeowners." Did it work with Millennials and other first time home buyers? I guess not.

 One of the big topics at the California MBA's Western Secondary conference this week was the deteriorating market for servicing, specifically FHA/VA servicing demand. It is rumored that servicing buyers will soon be, if not already, adding restrictions to lenders selling FHA/VA servicing. But check with the servicing buyers for specifics.

 Why should every LO and every company be aware of this issue? Because the value of servicing is as important in determining the borrower's rate sheet price as MBS prices, loan level price adjustments, and profit margins.

 Seth Sprague with Phoenix Capital said that, "It is estimated that over 70% of the [Ginnie Mae MSR] deals brought to market in 2016 did not trade." Ouch! Why not? There are many factors impacting the liquidity of the MSR (mortgage servicing rights) asset. These include the Basel III impact on banks, risk overhang from the FHA using the False Claims Act to persecute lenders, elevated FHA servicing costs and policy uncertainty, MIP uncertainty, and prepayment speeds (especially with IRRLs and FHA streamlines or from certain lenders known for their refinancing). And don't forget the myriad of federal, state, and local rules governing servicing.

 There are factors impacting the liquidity of non-bank servicers. Per the MBA these include the lack of financing for Ginnie MSRs, the Ginnie acknowledgment agreement, structural issues (can't split pools, bifurcate R/W), financing for servicing advances & DQ buyouts, sub-servicer capacity, and the pullback by private equity MSR buyers.

 And then we have GNMA policy concerns. The size of Ginnie's book of business has grown dramatically in recent years but its staffing and funding has not kept pace. There is a lack of resources for counterparty management. Ginnie's staff is concerned with inexperienced issuers with unseasoned books, and its need for data, liquidity metrics dashboard, and a suitable stress test. Lastly, Ginnie's management has expressed concern that there are too many "opportunistic" MSR buyers.

 One concern is exemplified by a recent enforcement action. Laurence Platt with Mayer Brown, LLP, writes, "The United States Securities and Exchange Commission ('SEC') continues to bring enforcement actions focused on government-guaranteed residential mortgage backed securities, notably including those guaranteed by the Government National Mortgage Association ('Ginnie Mae' or 'GNMA'). Most recently, on May 31, 2016, the SEC announced that First Mortgage Corp. ("FMC") and six of its senior executives agreed to pay $12.7 million to settle charges of defrauding investors in the sale of residential mortgage-backed securities ('RMBS') guaranteed by Ginnie Mae. Importantly, when bringing these cases, the SEC has been seeking penalties against not only the companies but also the senior executives. Another important takeaway is that not only are public companies subject to the enforcement scrutiny of the SEC but...any issuer of Ginnie Mae mortgage-backed securities is subject to certain aspects of the federal securities laws as well.

 "The Securities Act Section 17(a) and Exchange Act Section 10(b) are the most commonly cited statutory provisions prohibiting fraud in the United States securities markets. The SEC adopted Rule 10b-5 to implement the fraud prohibitions of Section 10(b). Rule 10b-5 makes it unlawful for any person, in connection with the purchase or sale of securities, directly or indirectly to: (1) employ any device, scheme or artifice to defraud; (2) make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; or (3) to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. Section 17(a) prohibits similar conduct in connection with the offer or sale of securities. It is critically important for issuers of securities in the GNMA market to understand that they are, and will continue to be, subject to the antifraud provisions of Section 17(a), Section 10(b) and Rule 10b-5. As demonstrated by the SEC's recent action, the penalties for issuers and their officers for violating these provisions can be severe.

 "The SEC Enforcement Division has been focusing on RMBS since before the financial crisis. In 2010 it strengthened its ability to bring enforcement actions arising from RMBS by creating a specialized investigative unit now known as the Complex Financial Instruments Unit.

 "As seen in the FMC case and earlier enforcement actions against Taylor, Bean & Whitaker Mortgage and Radius Capital, the SEC's Enforcement Division will continue to scrutinize issuers in the governmental-backed securitization market and those issuers must be prepared to demonstrate their compliance with the US securities laws and regulations. Issuers of GNMA RMBS must be particularly careful to comply not only with HUD and GNMA regulations but with the requirements of the federal securities laws as well." Thank you Mr. Platt!

 Turning to interest rates, although the yield on the 10-year stayed in the 1.50% range Wednesday we still had a nice rally. U.S. fixed-income security prices climbed ahead of the afternoon release of the FOMC policy statement, continuing their advance after the release. It was no surprise that the statement left the fed funds target range at 0.25% to 0.50%. The statement did not raise concerns that policymakers are in a rush to raise rates, but it was noted that "near-term risks to the economic outlook have diminished." The FOMC statement "tilted hawkish" but not enough to merit much of a change in the odds of a September rate hike.

 Perhaps of more use was the NY Fed's release of its FedTrade schedule covering the July 28 to August 10 period. The information continues to be transparent, and no MBS trader is surprised by the Fed. The schedule sees the Desk purchasing up to $19.525bn Class A, B and C MBS, and sees operations every day during the period.

 Today we've already had the usual Weekly Initial Claims (+14k to 266k) but also June International Trade in Goods ($63.3 billion). Later the NY Fed will be buying MBS. We'll also have a $28 billion 7-year note auction - yes, the government buys and sells fixed income securities.

 Yesterday the 10-year note improved .375 to yield 1.51% whereas 5-year Treasuries and agency MBS prices improved about .250. This morning we're at 1.53% with agency MBS prices worse nearly .125.  

Challenges For First Time Buyers

By rchrisman@robchrisman.com

On their wedding night, the young bride approached her new husband and asked for $20.00 for their first lovemaking encounter. Her husband readily agreed.

This scenario was repeated each time they made love, for more than 40 years, with him thinking that it was a cute way for her to afford new clothes and other incidentals that she needed.

Arriving home around noon one day, she was surprised to find her husband in a very drunken state.

During the next few minutes, he explained that his employer was going through a process of corporate downsizing, and he had been let go. It was unlikely that, at the age of 59, he'd be able to find another position that paid anywhere near what he'd been earning, and therefore, they were financially ruined.

Calmly, his wife handed him a bank book which showed more than forty years of steady deposits and interest totaling nearly $1 million.

Then she showed him certificates of deposits issued by the bank which were worth over $2 million, and informed him that they were one of the largest depositors in the bank. She explained that for more than three decades she had "charged" him for sex, these holdings had multiplied and these were the results of her savings and investments.

Faced with evidence of cash and investments worth over $3 million, her husband was so astounded he could barely speak, but finally he found his voice and blurted out, "If I'd had any idea what you were doing, I would have given you all my business!"

That's when she shot him.

You know, sometimes, men just don't know when to keep their mouths shut!

 

One of the biggest challenges faced by business owners today is attracting and retaining great people. Millennials and those with diverse ethnic backgrounds make up an enormous part of today's workforce, at this point larger than the Baby Boomers, and survey after survey finds that this generation values flexibility as much and sometimes more than compensation. Here's a piece about this group and their effect...not on housing but on food! But there is more below about the generation's impact on housing.

For a dose of learning Vantage Production and Weiner Brodsky Kider PC attorney's Jim Milano and Melissa Wachtel will be conducting a fast-paced briefing during the webinar "RESPA & Co-branded Marketing-Critical Guidelines for Remaining Compliant" on August 3, from 1-2PM EDT. Don't miss the opportunity to listen in and submit your questions to two of the mortgage industry's leading compliance attorneys. Register now!

 In company news Republic First Bancorp, Inc., parent company of Republic Bank, announced that it has entered into an agreement to acquire Oak Mortgage Company, LLC, a residential mortgage company headquartered in Marlton, NJ. Oak Mortgage will maintain its current business model and operate as a wholly owned subsidiary of the Bank. Apparently the lender is a "natural fit" for Republic's growth strategy in the southeastern Pennsylvania and southern New Jersey market. Oak Mortgage currently has 64 employees that specialize in the origination of residential mortgage products. In 2015, Oak closed more than $330 million in mortgage loans - about $30 million a month. "Anyone that visits a Republic Bank store will now have direct and immediate access to an experienced residential mortgage lender and all customers of Oak mortgage will have full access to the products and services of one of the fastest growing financial institutions in the Philadelphia region."

 In the last week or two things have been pretty quiet in terms of announced bank mergers - the dog days of summer. Equity Bancshares, Inc. Announces Merger Agreement with Community First Bancshares, Inc. First National Bank of Pennsylvania ($20B, PA) will acquire Yadkin Bank ($7.5B, NC) for about $1.4B in stock. In Michigan Bank of Ann Arbor ($1.2B) will acquire Bank of Birmingham ($274mm) for about $33mm in cash.

 But vendor news continues to come out, impacting lenders. There has been a huge shift toward outsourcing segments of the residential lending process to individuals or companies that specialize in certain tasks: ol' Betsy just can't manage post-closing QC, shipping, and investor relations all by herself anymore. Of course that means that lenders must hire personnel to manage those third party relationships, and can even hire companies that specialize in vendor management!

 Clayton Holdings LLC mortgage industry, announced that it has developed an end-to-end underwriting, valuation and due diligence solution for the growing "fix and flip" lending market. Jeff Tennyson, president of Clayton stated "We have designed an integrated, one-stop solution for warehouse and hard-money lenders that draws on Clayton's deep experience in underwriting and the unique skill sets in valuing and monitoring single-family rental properties that reside within our Green River Capital and Red Bell Real Estate subsidiaries."

 Ellie Mae launched a new version of Encompass, its all-in-one mortgage management solution. Encompass 16.2 offers new and enhanced integrations with Freddie Mac tools, and enhancements to the Total Quality Loan (TQL) program, including strengthened strategic partnerships and updates to Encompass Product and Pricing Service (EPPS). Encompass will offer Loan Product Advisor, the replacement for Freddie Mac's automated underwriting system, Loan Prospector^®, and the cornerstone tool of Freddie Mac's Loan Advisor Suite. Loan Product Advisor is the next generation in the evolution of automated underwriting with a focus on further streamlining the underwriting process for greater efficiency. In addition, Encompass will offer integration with Freddie Mac's Loan Quality Advisor, available to Freddie Mac sellers. The integration of Loan Quality Advisor, Freddie Mac's risk and loan eligibility assessment tool, into Ellie Mae's Encompass allows its customers to originate loans within Freddie Mac guidelines more easily and with greater certainty, taking immediate advantage of the new features Freddie Mac is bringing to market.

 FirstClose announced that United Heritage Credit Union has chosen The FirstClose Report to support all of its Home Equity Lines of Credit (HELOCs) and Home Equity Loans. The patent-pending FirstClose Report provides credit union lending operations with instantaneous title search, flood certification, valuation and property information with $500,000 of lien protection insurance. Headquartered in Austin, Texas, United Heritage Credit Union serves communities in Austin, Tyler and Central Texas, and is the next in a long list of financial institutions who view The FirstClose Report as a way to gain a competitive edge. "Because The FirstClose Report delivers everything that it needs to approve these loans instantly, United Heritage Credit Union can dramatically reduce closing times from 40+ days to less than 10 days. At the same time, The FirstClose Report helps cut costs by an average of 40% and reduces risk with $500,000 of A+ XIII rated lien protection insurance per loan."

 A Bank of America survey of Millennials finds their biggest financial concerns are: cost of living (61%), ability to save (58%), cost of housing (56%), finding new job (49%), taxes (43%) and losing their job (31%).

 Household formation was depressed during the Great Recession and has been coming back. Housing starts are still lagging, however. Throw in obsolescence and you have a housing shortage, which is driving up prices. That pent-up demand is going to get released as the Millennials age, and that is going to push housing starts up to where they should be, around 2 million units a year. Of interest to those who like numbers, Harvard University research finds the median size of a newly built single-family house has reached a record of 2,467 square feet. This compares to the median size of a unit in a new multifamily building which has declined to 1,074 square feet.

 Plenty of minorities, Millennials or not, are interested in owning their own home. According to a survey by Fannie Mae's Economic and Strategic Research Group, many consumers think it's difficult to get a mortgage in today's market. And forty-five percent of those respondents cite too much existing debt as a top reason. Yet, in that same group, more than half don't actually know the maximum debt-to-income ratio (DTI) required by lenders. The result -- potential buyers may be wrongly disqualifying themselves before they even apply for a mortgage. That's why it's key to provide information, resources, and tools to educate consumers on the mortgage process, and any perceived barriers, including DTI. Download more insight on DTI and learn about the overall study here.

 Just take a look at recent home sales stats. June's pace of sales was the fastest since February 2007. Supply was down 5.8% y/y, reflecting a continuing problem with inventory. Dwindling supply helped push prices up 4.8% y/y to $247,700. But first-time home-buyers rose to 33%, a four-year high!

 The problem is there isn't much on the market first-time buyers can "actually afford" - that's the single greatest challenge identified by 49% of the agents. New listings are in price ranges that have moved beyond the reach of many first-time buyers in most markets. Here is a story from 2015, still very relevant, & chart of the top seven reasons, as identified by realtors, as the greatest challenges facing first time home buyers.

 There just isn't much going on with rates, which is fine by most capital markets folks as well as originators who are more focused on closing their pipelines than on dealing with rate volatility. Tuesday's bond market barely budged, aside from some minor price/spread changes between securities and coupons. The risk-free 10-year Treasury-note improved about .125 in price and closed yielding 1.56%; the 5-year T-Note and agency MBS prices were unchanged from Monday's closing levels.

 On the West Coast plenty of capital markets personnel are attending the California MBA's yearly Western Secondary conference, where most of the talk revolves around the disappearing bid for FHA/VA servicing and the write down of servicing portfolio values.

 This morning we've already had the MBA's report on last week's application data. Applications plummeted 11%, but overall volume is up 42 percent compared from the same week one year ago, when rates were higher. Refis fell 15% and purchases dropped 3%.

 We've also had June Durable Goods Orders (-4%, worse than expected; ex-transportation -.5%). Coming up is June Pending Home Sales, a $15 billion 2-year auction, and the Federal Reserve's Open Market Committee meeting results: no one expects no change in monetary policy though forward guidance could be tweaked, in light of recent improvement in economic data to increase the odds of a September or December 25bp hike in the fed funds range.

 In the early going rates are down slightly. The 10-year is at 1.55% and agency MBS prices better by a couple ticks - hardly noticeable.

FHA, VA, IRS, and Renegotiation Policy Changes

By rchrisman@robchrisman.com

(Thanks to Tony H. for this one.)

A husband and wife who work for the circus go to an adoption agency. 

Social workers there raise doubts about their suitability. 

The couple produce photos of their new 50-foot motor home which equipped with a beautiful nursery. 

The social workers raise concerns about the education the child.

"We've have a full-time tutor who will teach the child all the usual subjects along with 4 languages."

Then the social workers express concern about a child being raised in a circus environment.

"Our nanny is a certified expert in pediatric care, welfare, and diet."

The social workers are finally satisfied. "What age child are you hoping to adopt?"

"It doesn't really matter as long the kid fits in the cannon."

 

The capital markets are always changing, and the latest news to turn some heads is that JPMorgan Chase is streamlining its operations and will no longer settle Treasury trades for most dealers by the end of 2017. SIFMA data show that more than $500 billion of Treasury securities were traded on average daily in the first half of this year. To keep things in perspective, since that is always a good thing, foreign exchange clocks in at over $5 trillion a day. The New York Stock Exchange, on the other hand, although it garners more press and publicity only weighs in at about $50 billion a day. And as we know, the biggest buyer of agency MBS is the NY Federal Reserve at $2-3 billion a day.

Jumbo, FHA, VA, and USDA updates from the government and lenders? Of course there are!

 FHA published Issue #12 of its quarterly Lender Insight(dated June 2016) newsletter. Because there has been no measurable improvement to the initial material defect rate over the past eight quarters, this issue of Lender Insight primarily focuses on the causes of the high initial unacceptable ratings for the top five mitigated findings. The objective of Lender Insight is to provide lenders with information on what FHA is seeing in its quarterly loan review updates, status summaries, and other topics of interest in the lending community. Each issue also contains core information designed to help lenders better understand the trends and policies that affect their business.

 Ditech issued a reminder that USDA will no longer require that the interest rate on the refinance loan be at least 1% below the interest rate of the original loan. The new rate must now be less than or equal to the rate of the loan being refinanced. Refer to its product summary for all product restrictions.

 Flagstar clients are being reminded that all FHA loans with case numbers assigned on or after June 27, 2016, mortgagees are required to deliver appraisal data to the EAD before loan endorsement. Also noted, for Freddie Mac mortgages secured by a detached (site) condo project located in the State of Michigan, it is not required to obtain a condo questionnaire if specified requirements have been met.

 Effective August 15^th, Wells Fargo is updating its student loan payment requirements for Non-Conforming Loans as described below to mitigate the risk of unusually low student loan payments and ensure accurate payment calculations. Also noted, in order to mitigate risk due to employment volatility in areas that rely heavily on the oil industry for employment, Wells Fargo Funding will restrict CLTVs for Non-Conforming Loans where the property is located within an energy market, as identified by Wells Fargo Funding. For details, view the Wells Fargo Funding Energy Markets (Exhibit 24) list to support this change.  Additionally, Wells is removing it overlay requiring an exception from Wells Fargo Funding for High Balance VA Loans with total Loan amounts greater than $700,000 and less than or equal to $1,500,000 with debt-to-income ratios greater than 41%.

 And there are IRS, tax-related, and renegotiation investor changes of note.

 The deadline for submission of your certification documentation to either your vendor or the IRS for obtaining IRS tax transcripts was July 15. If you are unable to obtain a tax transcript for a Closed Loan Package due to the short window to comply, please contact a member of your Wells Fargo regional sales team to discuss delivery options.  While Loan-level exceptions may be granted for Closed Loan Packages not containing IRS transcripts, they may only be permitted for a limited time. Closed Loan Packages without IRS transcripts will require additional review, which may delay Loan funding. According to the IRS, vendors will be required to suspend access to the transcript service for any lender that fails to complete the required certification as of Friday, July 15th.

 Sun West requires the following documentation when business income is reported on Schedule K1 and used for qualification: Income documents must include the most recent two-year individual tax returns (Form 1040) with all schedules, most recent two-year business tax returns - with Schedule K-1, Form 1065 for Partnerships/LLCs, and form 1120S for S-Corporations/LLCs. For Use of Self-employment income from Partnership or S Corporation business: Ordinary income, net rental real estate income, and other net rental income reported on Schedule K-1 may be included in the borrower's cash flow provided: the borrower can document ownership share (using Schedule K-1); and the borrower can document access to the income (such as a partnership agreement or corporate resolution); and the business has adequate liquidity to support the withdrawal of earnings.

 Plaza will allow the re-use of a prior appraisal report for a subsequent transaction when an appraisal update is obtained and specific requirements are met. This will save time and money for borrowers who have already determined they wish to refinance.

 NYCB Mortgage's rate-lock renegotiation policy has a few key features. One Rate/Price Renegotiation is Permitted per Loan Number to current market price.The renegotiation must result in either a rate reduction of at least 1/8 of 1% or an increase of the borrower credit. A one-time renegotiation Fee of .625% price adjustment applies to the rate/price renegotiation request. There is no restriction on the price the applicant receives. The price paid is the current base price for the original lock term after the applicable rate and price adjustments minus the one-time renegotiation fee.

 Franklin American Mortgage Company has made specific changes regarding its rate renegotiation policy. These changes are in effect as of Monday June 27^th with changes available in the chapter online.

 PennyMac posted a reminder of its trailing document policy as well as to share best practices for managing trailing documents with PennyMac. Click here to view.

 Trainings and events:

 California Mortgage Bankers Association's Mortgage Quality and Compliance Committee (MQAC) is providing a free webinar on fraud issues, July 28^th.

 The Colorado Mortgage Lenders Association is hosting its Annual Convention on August 3rd, 4th, and 5th in Vail, Colorado.  The conference will be held at the Vail Marriott Mountain Resort, and features a variety of networking events, a line-up of nationally renowned speakers, and opportunities to learn about important topics and trends affecting the mortgage industry. You can view a YouTube video all about this event.

 Fannie Mae has requested enhancements to the HomeTracker Lender Center application effective August 11. Live webinar training sessions will cover updated requirements for P&P submissions; the new related bid process; two new worklists for effective workflow management; and ad hoc reporting updates. Register for any available training throughout the month of August.

 Free online FHA training opportunities:

 August 3^rd An overview of FHA-Approved Servicer requirements including: early delinquency activity, timelines, general loss mitigation, and collection best practices.

 August 10^th guidance on Forbearance Plans and HUD's Loss Mitigation Home Retention Options - Special Forbearance and Loan Modification. Topics include: the features and benefits of each option; how to review, qualify, and process each option; and the actions required to comply with HUD.

 August 17^th guidance on HUD's FHA-HAMP Loss Mitigation Home Retention Option. Topics include: how to review, qualify, and process the FHA-HAMP option, and the actions required to comply with HUD.

 August 31^st HUD's Loss Mitigation Home Disposition Options: The Pre-Foreclosure Sale Program and Deed-in-Lieu.

Registration is underway for MBA's Risk Management, QA and Fraud Prevention Forum 2016 in Los Angeles September 28^th - 30^th.  Identify risk versus reward, analyze mortgage fraud threats and evaluate quality assurance practices by providing targeted, practical solutions to your unique business challenges. Topics include guidance on loan quality assurance, fraud prevention strategies, underwriting and compliance updates and other risk management topics.

 Turning to the bond markets, Monday continued last week's lack of volatility. Short-dated U.S. Treasuries ticked down, but everything else traded in a very narrow range and didn't move much. The 10-year yield did hit a high of 1.59%, but closed at 1.57%. The NY Fed was in doing its usual purchase of agency MBS - in Monday's case about $2.5 billion.

 Yesterday there was no scheduled news to move things around. This morning we have some actual news, but the kind of stuff that rarely move rates but gives economists something to talk about regardless. We'll have the May Case-Shiller 20-city Index at 9:00AM EDT, July Consumer Confidence at 10AM EDT, as well as New Home Sales. For those wanting to put some cash to work the Treasury will auction $45 billion of 1-month bills and $34 billion of 5-year notes. In the afternoon the FOMC two-day meeting will commence.  ahead of Wednesday's decision on monetary policy.

 In terms of rate sheets this morning the 10-year note yield is back down to 1.55%, and both the 5-year T-note and agency MBS prices are better by nearly .125.