M&A in the Appraisal Biz, Trends in Credit Underwriting - Freddie Addresses Lack of Scores

By rchrisman@robchrisman.com

Last month when she received flowers from her husband on Valentine's Day, my friend quickly opened the card. All it said was, "No."
What did that mean? She called her husband and asked him. 
"I didn't attach any message. The florist asked if I had a message and I said, 'No'."

This week involves a fair amount of cross-country travel for me (California, Washington DC, Florida, and Utah), and as it turns out Wells Fargo is the first major US bank to roll out card-less ATMs across the country, allowing customers to withdraw money using their smartphone and a code. (Yes, another code to remember.) Do you think using an LOS (loan origination system) will become that simple? Probably not. If you want the current thoughts on LOS preparedness for digital mortgages, STRATMOR did a write up.

 For business opportunities, a privately-held investment firm is making strategic long-term investments in retail originators and service-related companies. The investment firm has over $3 billion in assets under management and has a seasoned mortgage leadership team that brings decades of experience in originations, servicing and mortgage services (title agency, valuations, technology). Firm is actively deploying significant long-term capital in the origination and warehouse lending space and is seeking entrepreneurs looking for additional patient capital to expand their business while continuing to operate independently. Target candidates are growth-oriented owners focused on distributed retail, $1 billion or more in annual production, and have agency approvals (or in process). Firm's strategy is providing value-added services such as capital, M+A support, secondary marketing, warehouse lending, and servicing retention opportunities. Serious inquiries from owners only: rchrisman@robchrisman.com.

 Mergers and acquisitions

 Depository commercial banks continue to unite due to various reasons (age of owners, cost of compliance, cultural & geographic fit). In the last week or so it was announced that in The Buckeye State the Union Bank Company ($632mm) will acquire Benchmark Bank ($132mm) for about $29.5mm in cash (100%). In the Cornhusker State five-bank holding company Pinnacle Bancorp ($9.7B) will acquire AmFirst Bank ($260mm). In the Sunflower State, new bank holding company Topeka Bancorp has been established to acquire Kaw Valley Bank ($397mm). Wisconsin's Citizens Community Federal National Association ($686mm) will acquire Wells Federal Bank ($265mm, MN) for about $39.8mm in cash (81%) and stock (19%). In the Peach Tree State the Piedmont Bank ($552mm) will acquire Mountain Valley Community Bank ($203mm) for an undisclosed sum.

 Appraisal companies also occasionally make M&A news. In this case, Mercury Network announced it has acquired Baltimore's Appraisal Scope, Inc., a provider of valuation management software. Mercury is a "valuation technology company used by more than 800 lenders and Appraisal Management Companies (AMCs)." Jennifer Miller, President of Mercury Network, stated, "With this acquisition the combined companies now have more than 45 staff members dedicated to product development and IT. Both platforms, Mercury Network and Appraisal Scope, will continue to be offered, and we plan to continue our investment into both."

 Critical as they are, appraisals are only one part of the lending process...

 What's new with the credit decision?

 June is three months away, at which time Freddie Mac will allow automated underwriting of borrowers who lack credit scores but have other financial records such as payment references, including records showing timely housing payments. "Freddie Mac currently allows lenders to manually underwrite mortgage loans to borrowers without credit scores. By allowing automated assessments, lenders can serve more potential homebuyers more efficiently and with greater certainty that the loan will be purchased by Freddie Mac. Beginning in June, borrowers without credit scores may be eligible for purchase mortgages or no-cash-out refinance transactions on one-unit owner-occupied homes. Loans will be reviewed by Loan Product Advisor, which evaluates them based on Freddie Mac's credit requirements and provides feedback on the credit risk of each loan.

 LoanStream Wholesale, a lender in Orange County, sent out an ad stating, "NO Income! NO Asset! NO TRID! NO DSCR Calculation! NO Financed Property Maximum! The word NO never looked so good... Have you heard the news? NO Doc loans are back! 3/1, 5/1 and 7/1 ARM's up to $2,000,000. Interest Only Options are Available!" In the ad, there was no mention of "investment property."

 And don't forget that Deutsche Bank is offering generous financing terms to buyers of soured mortgages in a bid to obtain credit towards its recent $7 billion settlement with the U.S. Government.

 Thank you to Alex Coleman, VP of Data Analytics & Partnerships at LendEDU.com, who sent along, "I thought it was really interesting to see that the 2011 graduating class had the smallest mortgages: "Which College Degrees Have the Best Credit Scores."
To streamline and expedite the Credit Review process, Pacific Union has changed the way that Non-Delegated Correspondents upload Credit Packages.  Rather than submitting a single Credit Package as one bulk upload, new functionality allows users to upload documents contained in the Credit Package by document type.

 Freddie Mac's new income and asset requirements have been available since March 6^th. PRMG Mortgage will be requiring a funding cut-off date (not application date) of Friday May 5^th for loans using the prior guidance.

 M&T Bank is removing overlays from the VA Jumbo program. The changes are: The maximum DTI is capped at 41%; M&T will accept the AUS Findings and will no longer impose a cap. 6-months reserves were required; this also will be whatever the AUS Findings require. M&T's product pages have been updated to reflect the changes.

 FAMC has removed some overlays and expanded programs. Some updates include the removal of the restriction on Conventional Construction-to-Permanent that only 1 unit properties are eligible for construction-to-permanent financing. 1-4 unit properties are eligible per standard agency requirements. Also, it has removed the mortgage payment history requirement where a borrower is limited to a 1 x 30-day late payment on FHA. This applies to both Standard and Jumbo products. In addition, projected income may be used per the requirements in the USDA Handbook if the employment is not from a family member or an interested party to the transaction.

 Wells Fargo Funding will follow Freddie Mac requirements for updated Loan Product Advisor (LPA) messaging related to their revised income and asset underwriting requirements. Purchase deadline for Loans underwritten to current requirements. To meet Freddie Mac's settlement date requirement, all Loans underwritten to current Freddie Mac requirements must be purchased by Wells Fargo Funding on or before May 19, 2017.

 HomeXpress Mortgage underwrites to its own credit guidelines, not the agency's. Some advantage includes 24-48 hour turn time for UW, Conditions, CD, and docs. Loans may close in 30 days or less, some as fast as 14 days. Contact Andrew Goldthorpe.

 Beginning April 1, the following changes affect Arch MI's Quality Control procedures. Arch MI typically selects loans to review from delegated customers on an annual basis. Arch MI is instituting a random selection process for all lenders. This allows fewer loan audits per lender. At most, lenders will be eligible for audit only once per quarter. There may be instances in which Arch may need to select more loans on a discretionary basis. In addition, Arch MI audits all loans that have a reported delinquency within the first 13 months called Early Payment Default (EPD) loans. These loans will continue to be selected for post-close review upon notification of the EPD. Effective May 1 Arch will also randomly select non-delegated loans for a post-close review. When these loans are requested, lenders can send the entire loan origination file (including the closing package), or a limited set of documents that would include any updated credit documents received after the loan was originally submitted to Arch MI as well as the complete closing package.

 Capital Markets

 While Freddie has been issuing re-performing loans pools since 2011, issuing $26 billion to-date, Fannie only began in 2016 and has issued about $12 billion to-date. Analysts are quick to point out the extensive loan level data for modified loans released by Fannie to better understand the prepay differences across various modified loans and vintages. There are other collateral characteristics that impact prepayments for modified loans.

 Compass Analyticsannounced the launch of the first fully web-enabled version of its mini-bulk trading platform, CompassBid with two products: a buy-side website for investors, already leveraged by some of the top correspondent buyers, and a sell-side website for those originators not already using Compass's pooling and best execution tools. Compass also announced it is offering Whole Loan Trading services for those clients who want full price transparency.

 Rates have certainly been behaving themselves recently, and Friday U.S. Treasury prices moved a tad higher (and thus rates moved lower with the 10-year settling at 2.40%) in a curve-flattening trade as the prospect for significant fiscal stimulus appeared to dim along with hope for passage of the American Health Care Act (AHCA). In Fed speaker news, San Francisco Fed President Williams (non-FOMC voter) told the Wall Street Journal that he expects three or four rate hikes this year. He said that hiking sooner rather than later gives the Fed more flexibility and that the Fed is not trying to overshoot to compensate for undershooting. The Fed is continued to purchase about $1 billion a day of MBS for the foreseeable future. Remember - there aren't as many loans paying off as there were before, and that's where the money comes from.

 The big news from Friday was the lack of a vote on the health care bill. The news moved prices lower after the 3PM (noon PT) future's close due to reports that AHCA had been pulled due to shortage of votes. What happens now is anyone's guess, and plenty of pundits are saying tax reform should have been tackled first. With the health care bill setback, it may be tougher to gain momentum to do much to taxes. Regardless, the "risk-off" trade is gone, and money is flowing into the "defensive" bond markets - helping rates. The thinking that is President Trump's inflationary economic ideas may not move through Congress easily.

 This week's economic calendar is a bit light on data but heavy on Fed speakers with 11 FOMC participants scheduled to make 15 public appearances in the coming week. Do those Fed Presidents have any time to get any actual work done?

 There is no scheduled news today of any substance. Tomorrow we'll have March Consumer Confidence, the trade balance, the S&P Case-Shiller numbers for January, and a $34 billion 5-year Treasury auction. Wednesday's slate includes the MBA Mortgage Index for the week ending 3/25, February Pending Home Sales, and a $28 billion 7-year Treasury auction. Thursday, we turn things up a notch with the third estimate of Q4 GDP & the GDP Deflator along with Initial Jobless Claims. Friday the 31^st is February Personal Income and Spending, the PCE Price Index and PCE Price Index, March Chicago PMI, and March Michigan Sentiment numbers - usually not big market movers. We start the week with the 10-year yielding 2.36% and agency MBS prices better .250-.375 versus Friday's closing levels.