FHA and VA News

By rchrisman@robchrisman.com

(Thank you to Steve S. for this one.)

Wife: "Dear God, I wish you could make my husband pay more attention to me, protect me, take me out all the time, sleep close to me at night. I wish he would be more caring, even if I got the smallest of scratches, and think about me all the time."

God turned her into a smartphone.

To start off the week, besides the first full moon on a summer solstice since 1967, here's an interesting Bloomberg chart about the Federal government's percent of ownership of consumer debt, the money that we owe Uncle Sam. Ever since Obama nationalized the student loan sector, at $1.3 trillion they have taken their percentage of consumer debt from 5% to 28%. Many expect some sort of write-down of student loan debt in the future, and a study by the National Association of Realtors and SALT finds 71% of people with debts from student loans say the load from paying that debt is keeping them from buying a home and adding to it. More than 50% expected it would take 5 years until they felt comfortable buying a home given their current debt load.

 Redwood Trust recently launched an expanded credit jumbo purchase program, branded as Redwood Choice. The Redwood Choice program allows FICO scores down to 661, LTVs up to 90% and reduces minimum post close cash reserves to 3 months. The program allows non-warrantable condos and condotels and has both a QM and non-QM option available. Pricing is competitive and reactions to the program from loan officers and originators thus far has been extremely positive. Redwood believes the Choice program greatly expands loan officers' options for their jumbo customers and will help broaden the loan officers' customer base. Redwood has been buying jumbo loans since 1995 and is excited to offer this new product to currently approved counterparties. The legacy Redwood product has been rebranded as Redwood Select. Please contact your Redwood relationship manager for details on the program.

 (Occasionally I am asked about a 1% down payment program from Quicken Loans. If you want to know the complete details contact Quicken, but here is the link from Quicken March 3, 2016.)

 Returning to jobs, companies aren't always searching for new staff. In this case, Pacific Investment Management's (PIMCO) 25% drop in assets is prompting the firm to cut its global workforce 3% - 68 workers - and to close six dividend-income strategy funds. "Our current business plans will reduce expenses in some areas while, of course, ensuring investment and hiring in others," PIMCO spokesman Michael Reid said.

 Here's a handful of free upcoming webinars.

 ATS Secured is offering a free webinar on vendor management presented by Moorari Shah of Buckley Sandler. Tomorrow (the 21^st) lenders and title agents can find out exactly what they need to do to manage vendors, reduce their 3rd party risk and satisfy regulatory requirements.

 California MBA is providing a free webinar on June 23^rd to help you prepare for the CFPB Exam. Are you ready?

 On June 22^nd, join California MBA Tech and Marketing Committee to find out how the traditional buyer path model is out-of-date.  Do you know about "The Loop"?Register now and hear from top industry experts how you can adapt to the new reality and drive more business.

 In news that certainly caught everyone's attention Friday, the Justice Department's pursuit of 77-year old Angelo Mozilo is over. After earlier dropping a criminal investigation of Countrywide's Mozilo, federal prosecutors recently decided against filing a civil fraud case against him. Prosecutors in Los Angeles, in coordination with those at the Justice Department in Washington, spent more than two years reviewing the merits of pursuing a civil fraud case against Mozilo.

 Mozilo and several other former Countrywide executives supposedly recently received letters from federal prosecutors notifying them that they had officially ended an investigation. In May, prosecutors suffered a blow when an appellate court in Manhattan overturned a jury's verdict that had found Rebecca Mairone, a former Countrywide executive, liable under FIRREA. The panel said although Countrywide may have sold flawed mortgages to two government-sponsored mortgage finance firms, there was insufficient evidence that the firm and Mairone had engaged in any deliberate deception.

 The possibility of the Justice Department filing a so-called FIRREA lawsuit against Mozilo first came to light when Bank of America reached a $16.65 billion settlement of its own FIRREA case in August 2014. The inquiry by the Justice Department of Mozilo was seen by some legal critics as a way for prosecutors to address complaints that little had been done to hold individuals to account for the financial crisis. But lawyers for Mozilo argued a civil fraud case would be duplicative of the efforts of the Securities and Exchange Commission, which sued Mozilo and two other former Countrywide executives in 2009. On the eve of the trial in 2010, Mozilo and the other defendants reached a settlement that required the mortgage financier to pay $67.5 million in fines and restitution.

 FHA & VA news? You can't ignore those programs, and in fact Ginnie Mae, where the lion's share of FHA & VA loans wind up, guarantees $1.6 trillion of mortgage securities. (Of course lenders don't "sell" loans to Ginnie Mae, like they do to Freddie and Fannie.) Ginnie Mae broke its own volume record by guaranteeing $464 billion in 2013 - and this year may be even better.

 Few expected another refinancing boom after the Fed started lifting short-term borrowing costs in December. Lenders are reporting VA IRRL biz is great. Longer-term yields in the bond market have been plunging this year as money managers seek shelter from sinking stock markets and from slowing growth in China, underscoring the limits of the central bank's power as it tries to normalize lending costs.

 If you are a mortgagee who has not yet transitioned your operations to the FHA Electronic Appraisal Delivery (EAD) portal for all of your FHA appraisal submissions, FHA is reminding all mortgagees that all appraisals must be submitted through the EAD portal for all originations with case numbers assigned on and after June 27, 2016. On and after the June 27 mandatory use date, mortgagees will no longer be able to: Use both the EAD portal and other appraisal submission methods concurrently for originations; Submit appraisals for originations with case numbers assigned on and after June 27 to FHA through any method other than the EAD portal; nor Access the Appraisal Logging Screen in FHA Connection (FHAC) for case numbers that require an appraisal to be submitted through the EAD portal.

 Valuation Management Group is already prepared for FHA's June 27^th EAD portal mandatory usage. It announced its integration with the Federal Housing Administration's (FHA) Electronic Appraisal Delivery (EAD) portal and has begun successfully submitting FHA appraisal files for its lender customers prior to loan endorsement.

 It's the final countdown to be on board with FHA's Electronic Appraisal Delivery (EAD) portal's June 27 mandatory use date. On this date, all mortgagees must begin submitting all appraisalsthrough the EAD portal for all originationswith case numbers assigned on or after June 27. To avoid potential disruption in case processing, mortgagees who have not yet done so should finalize the transition to full use of the EAD portal for appraisal submissions to FHA.

 U.S. Bank Home Mortgage provided VA and FHA updates in a recent bulletin. Effective with all case numbers assigned on or after June 1, VA Circular 26-16-10 addressed unreimbursed expenses when commission income is equal to or exceeds 25% of the borrower's total income.  IRS Form 2106 expenses must be deducted from gross commission income with the exception of an automobile lease or loan payment. Also updated is FHA reduction to the requirement of 2% loan balance calculation to 1%; however, FHA will no longer allow the use of a payment less than 1% unless it is the fully amortized payment according to the original terms of the note.  Income Based Repayments-IBR less than 1% may not be used The guidance is effective for all case numbers assigned on or after June 30, 2016; however, Lenders may begin using the policy immediately.  Please refer to Mortgagee Letter 2016-08 for guidance as revisions will be incorporated into FHA's Single Family Housing Policy Handbook 4000.1(Handbook 4000.1) on June 30, 2016.

 The M&T FHA 203(k) product pages have been updated to reflect a correction to the maximum allowable LTV on refinances to 110% LTV. Reminder: FHA requires a separate calculation of the LTV for the application of MIP (which appears on the 203k Maximum Mortgage worksheet), versus the calculation of LTV for the actual loan (which must appear on the HUD-92900-LT Loan Transmittal).

 VA's VALERI Special Announcement for May 17, 2016 contained information regarding the VA Home Loan Program's Real Estate Owned Portfolio Servicing Contract.

 Mountain West Financial will now allow W-2 transcriptsfor borrowers who ONLYuse W-2 income to qualify for a loan approved by Desktop Underwriter (DU) or Loan Prospector (LP) on VA loans. For borrowers with income that is supported exclusively by W-2 transcripts,the originator must follow DU/LP guidance when requesting documentation from the borrower to include in the loan file. Additionally, the loan must be approved by DU/LPand the DU/LP cert must substantiate use of W-2 income only.

 If you're interested in rates and world economic affairs, this is a big week. Britons will vote on whether to remain a member of the 28-nation European Union or leave the bloc - which will take many months if not years. The EU's fundamental philosophy, meant to stimulate competition and efficiency but show unity, is "one territory without any internal borders or other regulatory obstacles to the free movement of goods and services." If you look at Britain's performance with GDP and employment, however, it tracks closer to the US and Germany than it does with the rest of the EU that's severely underperforming. Those arguing for an exit highlight the expense to the United Kingdom, and the increased regulation. When the UK joined the EU in 1973, the EU's GDP made up 37% of the world's GDP. The IMF estimates that number will drop to 22% by 2025.

 Many Britons are fed up and unlike Greece, they actually have the financial firepower to follow through. Polls as of Friday show 48% are in favor of Brexit. The European Central Bank stands ready to work with the Bank of England in the event the U.K. votes to leave the European Union. But markets don't like uncertainty...

 So the focus will be on England since there is very little in the way of scheduled economic news this week in the United States. In fact, there is nothing scheduled for today or tomorrow. Wednesday we have the MBA's application data, and also Existing Home Sales, the FHFA House Price Index, and Federal Reserve Chair Janet Yellen semi-annual testimony before the House Financial Services Committee (aka Humphrey Hawkins). Thursday has Jobless Claims and New Home Sales. Friday closes out with Durable Goods Orders and some statistics from grad school students at the University of Michigan. We closed last week with the 10-year at 1.62% and this morning it is at 1.68% with agency MBS prices worse about .125.

Nationstar Adds $50 Billion in Servicing - Does it Make Money?

By rchrisman@robchrisman.com

 

(Thanks to Rhonda M. for this one.)

GOD'S PLAN FOR AGING

Most seniors never get enough exercise. In His wisdom God decreed that seniors become forgetful so they would have to search for their glasses, keys and other things thus doing more walking. And God looked down and saw that it was good.

Then God saw there was another need. In His wisdom He made seniors lose coordination so they would drop things requiring them to bend, reach & stretch. And God looked down and saw that it was good.

Then God considered the function of bladders and decided seniors would have additional calls of nature requiring more trips to the bathroom, thus providing more exercise. God looked down and saw that it was good.

So if you find as you age, you are getting up and down more, remember it's Gods will.

 

If you're a loan officer and need some data for a presentation to some real estate agents, here's a decent source. Using data collected by the U.S. Census Bureau's Survey of Construction, this "Characteristics of New Housing" report provides annual statistics on the characteristics of new privately owned residential structures by census region. Things like the number of bedrooms and bathrooms, the location of the laundry, presence of a homeowner's association, the buyer's source of financing and the structure's square footage. And if you want to hone in on single-family housing, like how many houses have more than four bedrooms, here you go.

I love political correctness. Instead of saying someone was fired we now say, "They were managed out." Certainly Wall Street trading jobs are shrinking, and employment in banks seem to be as well. In an effort to adjust its expense base, Trustmark National Bank ($12.8B, MS) reduced its workforce by 6% by offering early retirement packages to employees who were at least 60Ys old and had at least 5Ys of service. Swiss bank UBS said it plans to cut its US wealth management hiring by about 40%. And Bank of America is expected to reduce staffing in its consumer banking division by as many as 8,000 more jobs. BofA has already reduced the staffing in its consumer division from more than 100,000 in 2009 to about 68,400 as of the end of the first quarter of 2016. Those reductions have come as Bank of America transforms its retail financial centers for digital banking.

 Speaking of Bank of America, its CEO Moynihan warns us that the stress test process may be causing banks to restrict lending.

High levels of market volatility have put a damper on bank stocks, pushing them down to sharply lower levels. This decline will reduce M&A activity, as buyers lose currency and sellers have less interest in stock based deals. But the recently announced bank mergers and acquisitions keep coming. United Fidelity Bank, fsb ($386mm, IN) will acquire Bank of St. Croix, Inc. ($148mm, VI). In Iowa Wayland State Bank ($88mm) will acquire Peoples State Bank ($29mm). United Community Bank ($1.8B, IL) will acquire Illini Bank ($282mm, IL). In Pennsylvania Prudential Savings Bank ($537mm) will acquire Polonia Bank ($288mm) for about $38.1mm in cash (50%) and stock (50%) or roughly 1.01x tangible book. Byline Bank ($2.6B, IL) will acquire Ridgestone Bank ($433mm, WI) for about $105mm in cash (35%) and stock (65%).

 In West Virginia, arguably one of the most scenic states, Summit Community Bank, Inc. ($1.5B) will acquire First Century Bank, Inc. ($410mm) for about $42.8mm in cash (35%) and stock (65%). Out west Farmers & Merchants Bank of Central California ($2.6B) will acquire Delta Bank ($106mm) for about $6.6mm in stock. And in the "Land of 10,000 Lakes" Flagship Bank Minnesota ($101mm) will acquire Landmark Community Bank ($82mm). But stop the presses: SunPac Financial (CA) and Security First Bank ($112mm, CA) have mutually agreed to call off their merger announced in Feb of 2015.

 And certainly there is non-bank, but financial services mergers and acquisitions. Bank of Montreal ($681B, Canada) will acquire boutique investment banking advisory firm Greene Holcomb Fisher (MN). Optum Bank, Inc. ($5.0B, UT) will acquire the health savings account business line from Wells Fargo Bank. Optum is a subsidiary of UnitedHealth Group Inc. Microsoft will acquire business online platform LinkedIn for about $26.2B in cash, as the company seeks to boost its productivity and business processes segment offerings.

 For those playing along at home, S&P Global Market Intelligence research finds the top 10 largest banks and thrifts in the US by assets as of Q1 2016 are: JPMorgan ($2.4T, NY), Bank of America ($2.2T, NC), Wells Fargo ($1.9T, CA), Citigroup ($1.8T, NY), US Bancorp ($429B, MN), Bank of New York Mellon ($373B, NY), PNC Financial ($361B, PA), Capital One ($330B, VA), HSBC North America ($289B, NY) and TD Group ($274B, DE).

 In non-bank news, Nationstar Mortgage (NSM) was selected by Seneca Mortgage Servicing to subservice its $50 billion UPB portfolio of owned mortgage servicing rights (MSRs). This portfolio is in addition to the previously announced $55 billion subservicing portfolio. NSM will assume Seneca's existing site and team. NSM has shown that it can continue to grow its servicing portfolio, and it expects its subservicing book to be over $100 billion by year end. This portfolio is in addition to the previously announced $55 billion subservicing portfolio. NSM had indicated on a recent earnings call that it expected the $55 billion portfolio to generate $30 million to $40 million in pretax income from the earlier $55 billion of subservicing.

 NSM has said that it targets at least 25% margins in subservicing. This would translate into at least $120 million in revenues on the $55 billion of earlier subservicing (22 bp) which is high relative to what other subservicers seem to be seeing. For example, Pennymac (PFSI) charges PMT $7.50 per month (around 5 basis points) for non-delinquent loans.

 (And while we're on servicing, Lakeview Loan Servicing posted changes regarding Freddie Mac's Condominium Project and PUD Insurance requirement changes. The changes prohibit mortgages secured by units in projects with a master or blanket policy combining coverage for multiple unaffiliated projects or PUDs. Fidelity or employee dishonesty insurance is not required when the calculated amount of insurance coverage is less than or equal to $5,000. Professional management firms may be insured under its own fidelity or employee coverage, with proof submitted to the condominium HOA; or, under the condominium HOA's insurance policy. These changes are effective August 1 but may be implemented immediately.)

 Last month the U.S. Treasury Department issued its white paper regarding the online marketplace lending industry. In it, Treasury writes, "Advances in technology and the availability of data are changing the way consumers and small businesses secure financing. Online marketplace lending has emerged as an industry offering faster credit for consumers and small businesses. Through this effort, Treasury took steps to understand the potential opportunities and risks presented by this evolving industry." The report identified, and introduced the following recommendations to the federal gov't and private sector participants: (1) support more robust small business borrower protections and effective oversight, (2) ensure sound borrower experience and back-end operations, (3) promote a transparent marketplace for borrowers and investors, (4) expand access to credit through partnerships that ensure safe and affordable credit, (5) support the expansion of safe and affordable credit through access to government-held data, and (6) facilitate interagency coordination through the creation of a standing working group for online marketplace lending.

 The American Bankers Association CEO and President, Rob Nichols comments, "We applaud Treasury's efforts to better understand the emerging market of online non-bank lending through an open and collaborative process. A policy ecosystem that supports innovation both inside and outside banks is wholeheartedly supported by the banking industry." Continuing, Rob writes, "While there is much to support in Treasury's recommendations, enacting more laws is not one of them. There are numerous laws today that ensure small business loans are made responsibly. What is needed is proactive oversight to ensure that rules are followed and borrowers are treated fairly regardless of the provider."

 Turning to interest rates, as expected the big news yesterday was the Federal Open Market Committee Meeting, despite its inactivity. U.S. Treasuries rallied in a "curve-steepening trade" after analysts came to the conclusion that six Fed officials expect only one more rate hike in 2016, up from only one official in March. The statement that accompanied the decision to keep rates on hold said that "the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up." Given the great employment statistics in the U.S. it is hard to imagine the Fed lowering rates; given the worldwide issues & Brexit it hard to imagine the Fed raising them in the near future. The odds of two rate hikes by the end of the year has fallen and now more committee members are seeing a more gradual increase in rates.

 As a reminder, global investors are so worried about the potential for a UK (British) exit from the Euro (Brexit) that active buying has pulled the yield on the 10-year German bond into negative territory for the first time ever. Those same strains have also driven overseas buyers into the US in droves, pulling our own 10-year Treasury yield into the high 1.50% area.

 For mortgages, the market rallied following the afternoon's FOMC announcement.  Origination supply for the day was in line with recent averages and totaled about $2.25 billion for the day. Despite the great rates lock desk volumes are somewhat steady - perhaps lenders have kept rates fairly sticky and have been unwilling to chase the market lower given the volatility in the market and the fact that capacity is already tight for many in the market.

 This morning we've had weekly Initial Jobless Claims (+13k to 227k), the Consumer Price Index (+.2%, core +.2%), and June Philadelphia Fed (+4.7). For housing news later is the June NAHB Housing Market Index from the home builders at 7AM PDT. For LOs who didn't lock yesterday, rates are a little better today. We closed the 10-year with a yield at 1.60% and this morning it is 1.57% at with agency MBS prices slightly better - see note above.

Servicing Values Impacting Borrower's Rates And Lender P and L’s

By rchrisman@robchrisman.com

 

(Yes, I know that I have used this before, but it is worth an occasional repeat.)

One night at Cheers, Cliff Clavin said to his buddy, Norm Peterson:

"Well, ya see, Norm, it's like this. A herd of buffalo can only move as fast as the slowest buffalo. And when the herd is hunted, it is the slowest and weakest ones at the back that are killed first. This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members!"

He continued. "In much the same way, the human brain can only operate as fast as the slowest brain cells. Excessive intake of alcohol, as we know, kills brain cells. But naturally, it attacks the slowest and weakest brain cells first. In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine! That's why you always feel smarter after a few beers."

 

The Fed's latest report on household debt and credit finds US households owed $12.25 trillion at the end of the first quarter, up 1.1% from the end of 2015. Overall, housing debt represents about 72% of the total, while non-housing debt is the remaining 28%. If we wade into the weeds, mortgages (70%), student loans (11%), auto (9%), credit cards (6%) and home equity lines of credit (4%) are of interest. Speaking of debt, what do you think the CFPB would think of borrower's collateral in the form of naked photos?

iServe Residential Lending is back in the news, and as part of its branch support and passionate interest in the education of the Real Estate community, complimentary seminars are regularly offered throughout the U.S. Over the coming months, VA Financing Seminars will be held throughout key locations with a focus upon the many benefits of the VA home loan. Although iServe has a complete offering of loan products, it has taken the lead in assisting real estate professionals to better understand VA financing. iServe believes strongly that VA financing is the most "common-sense" product on the market today, and unfortunately the most misunderstood. The overall goal is to help our qualified military heroes secure their home front with a benefit they have so deservingly earned. The next seminars will be in Allentown PA, Scottsdale AZ, Chesapeake VA and Reno NV. For additional information on these or future seminars, new branches or originator opportunities, contact Allen Friedman for the Western U.S. (415-298-2500) or Rick Trew for the Eastern U.S. (619-869-0408).

Next week Mayer Brown is offering a free webinar 11AM PDT on June 23 titled, "RESPA Enforcement: Lessons Learned, the PHH Appeal and What's Still on the Table": the ramifications of the PHH decision, lessons learned from recent CFPB enforcement cases, including Egbahli, discuss marketing and promotional activities still in the table, and CE credit." "RESPA enforcement has been among the CFPB's highest priorities since it opened its doors for business five years ago. This means lenders, homebuilders, realtors, title companies and other settlement service providers must ensure that their policies and procedures comply with this complicated act. Please join Phil Schulman as he discusses the impact of the PHH Corporation appeal pending before the US Circuit Court of Appeals, lessons learned from other recent RESPA enforcement cases, RESPA's impact on marketing and promotional activities, including advertising agreements, lead-generation arrangements, Internet advertising and event sponsorships." E-mail Jeremy Fegley with questions or to register, or click the link above.

 Today HomeBridge Wholesale is conducting FNMA Homestyle and 203K Renovation training.

 In Northern California, the CAMP Silicon Valley Chapter Officer's Installation event is on Friday, June 24^th and will feature California Real Estate Commissioner Wayne Bell officiating the installation of Richard Wang as president and the incoming board members. The location is Maggiano's Little Italy Restaurant, Santana Row, San Jose.  For more information, contact TJ Roberts at 408-802-8522.

 Summer CAMP 2016 is California's premier destination event for the California mortgage industry. Held at Napa's Westin Verasa, Summer CAMP 2016, August 7^th-10^th, provides attendees the opportunity to meet exclusive vendors and learn from the best in the business.

 Join the CFPB for a free public webinar with Acting Deputy Director David Silberman where it will provide an overview of the recent updates it has made to the eRegulations tool. The webinar will take place on Wednesday, June 22 from 2-3PM EDT.

 Join Julia M. Wei Esq. from the Law Offices of Peter N Brewer for a free webinar on Tuesday, June 21st, covering the essentials of partition actions in California. As more and more "baby boomers" are inheriting property, and with the popularity of co-ownership investments in the Bay Area, this webinar will cover the basics of partition actions that real estate professionals need to know. REALTORS® will learn about how to proceed in transactions where co-owners may not agree, while homeowners & investors will discover the mechanics of how to address divergent ownership interests among family members or co-investors.

 FHA's appraisal training is coming to Boston, MA. Topics will include property inspection requirements, appraisal validity period, manufactured homes, water and septic, attic and crawl spaces inspection. Space is limited so register now for this June 24^th live training.

 Are you ready for The National Association of Women in Real Estate Businesses (NAWRB) 3rd Annual Conference being held in Orange County, CA. on August 30^th and 31^st? This years' session will address topics from the power of and challenges in women's homeownership to the importance of increasing the number of C-suite women in America's boardrooms. Register today to secure your chance of learning what the future of housing has in store for you.

 Turning to the markets, fixed-income security prices are doing well but the servicing values are fading - nearly by the day. As mentioned several times in this commentary, companies that decided to be aggressive last year and into the first quarter of this year and pay up for servicing have paid the price. And continue to pay the price. Granted, existing borrowers are "stickier" - who the heck wants to go through refinancing with its costs and delays and compliance hurdles - but refis are surging. And when a borrower refis a loan that the servicer thought they were going to have on their books for a while, well, someone has to pay the price.

 And thus LOs who thought they could guess where rate sheets were going to be based on the MBS market...can't. And capital markets vets find themselves explaining how mortgage servicing rights work, and why the bank aggregators (Wells, Chase, Citi, US Bank) and others are seeing a resurgence in volumes at the expense of the agency/co-issue execution. As the world turns!

 The latest MBA profitability study for the first quarter, in part, reflects this trend in retreating servicing values. Yes, the figures showed that mortgage bankers are starting to rebuild after the financial storm caused by TRID at the end of the fourth quarter: profits roughly doubling at the start of this year compared to the end of last year. The Mortgage Bankers Association's Quarterly Mortgage Bankers Performance report stated that independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $825 on each loan they originated in the first quarter of 2016.

 However, profits still have a long way to go to get back to the level witnessed in the first quarter of 2015 when independent mortgage banks and mortgage subsidiaries of chartered banks recorded a net gain of $1,447 on each loan they originated. This time around average production volumes were down slightly from the fourth quarter of 2015. The volume by count per company averaged 2,196 loans in the first quarter of 2016, down from 2,265 loans in the fourth quarter of 2015.

 THE Marina Walsh, MBA VP of Industry Analysis, observed that, "Production profits in the first quarter of 2016 showed modest improvement over the fourth quarter of 2015 despite declining volume and an increase in per-loan production expenses...Compensating for the cost increases were higher production revenues that grew by $431 per loan (16 basis points) over the fourth quarter." Total production revenue (fee income, secondary marking income and warehouse spread) increased to 378 bps in the first quarter of 2016, compared to 362 bps in the fourth quarter of 2015. 

 One other key area in the report was its findings on mortgage-servicing rights. As noted in this commentary a few weeks ago, the first quarter's historically low interest rates pulled down the performance of Nationstar Mortgage, Walter Investment, and Ocwen Financial thanks to the impact of negative adjustments to the "fair value" of each company's mortgage servicing rights portfolio.

 Walsh said, "On the servicing side of the business, a drop in mortgage interest rates resulted in mortgage servicing right (MSR) impairments and hurt profitability. Net servicing financial income dropped to a loss of $118 per loan serviced in the first quarter, from gains of $107 per loan in the fourth quarter."

 The report stated that servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, remained relatively flat at $205 per loan in the first quarter of 2016, from $207 per loan in the previous quarter. Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $7,845 per loan in the first quarter of 2016, from $7,747 in the fourth quarter of 2015. And productivity decreased to 2 loans originated per production employee per month in the first quarter of 2016 compared to 2.4 in the fourth quarter of 2015.

 Speaking of the MBA, a big congrats are due to CMG's Chris George who was nominated to be the eventual Chairman of the MBA! He's a huge fan of mortgage banking and of taking an active role in advocacy.

 Tuesday was a decent day in the fixed-income markets. MBS ended narrowly changed - barely enough to impact borrowers. We began the day with a little rally due to activities overseas (German rates going negative, stock markets selling off). The usual entities were in selling mortgages and the usual entities were in buying them. The 10-year note & agency MBS prices were pretty much unchanged. The upcoming Brexit vote in Britain next week about whether or not they will remain a part of the European Union continues to drive the market: forecasts that the Brexit vote will pass have driven yields lower.  

 Today we've had the MBA's survey of 75% of the retail application data for last week (-2.4%, with purchases -5% and refis -1%). We also had the May Producer Price Index figures (+.4%, core +.3%), and the June Empire Manufacturing Survey (+6.01). Coming up are Industrial Production and Capacity Utilization will be released at 9:15AM (expect 0.1% and 75.4, respectively). Later today will be the FOMC decision with the statement at 2PM EDT followed by Fed Chair Yellen's press conference. We closed the 10-year at 1.61% and this morning after the initial spate of news its at 1.62% with agency MBS prices worse a shade.

German Rates Go Negative

By rchrisman@robchrisman.com

 

Two older women were fussing about their husbands over coffee one day.

"I do wish my Raymond would stop biting his nails - it makes me nervous," the first one said. "Oh, my Elmer used to do the same thing," the other woman commented. "But I broke him of that habit real quick."

"What did you do?"

"I hid his teeth."

 

An Experian survey finds about 45% of first time homebuyers say they have delayed buying a home in order to improve their credit score. Speaking of credit scores, investors and lenders continue to change guidelines - see below.

 

Trends in credit scores? Yes there are.

 

PERC, as part of National Financial Literacy Month, released preliminary results of a study on the effectiveness of personalized credit counseling services showing that more than two-thirds of consumers had an increase in their credit scores after receiving a credit counseling session. This is more than seen in a comparison group. The strong results from the study support efforts underway to convince policymakers to increase consumer access to this type of credit counseling information and services. Among the interim findings of the study, within 90 days after completing a personalized credit education session with a credit advisor from a nationwide consumer reporting agency included more than two-thirds of counseling participants (68 percent) had an increase in their credit scores, with 38 percent of the increases greater than 20 points. Nearly all participants (93 percent) reported they have a better understanding of the actions they need to take to improve their credit score. If you would like to read more of PERC's initial results, download the PDF report here.

 Wells Fargo has removed its policy overlay for court-ordered debt on Conventional Conforming Loans and will follow Freddie Mac and Fannie Mae's current guidelines.

  Tongues are wagging about Fannie delaying the release of its DU 10.0. Originally slated for June 25, the talk on the street has it pushed back to August, at least. "To support a successful implementation, we are postponing the DU Version 10.0 release that was scheduled for the weekend of June 25, 2016. As we prepared for the release, we experienced issues with the testing environment and decided it would be prudent to delay the release. We are rapidly addressing this issue in order to deliver these new enhancements to our customers to help provide even more certainty and simplicity while expanding access to credit and sustainable homeownership for creditworthy borrowers. We'll let you know as soon as possible and give you ample time to get ready.

 The industry, and credit reporting companies, was anticipating the release of this since the new version of DU incorporated "trended credit data" thought to help more borrowers. As Equifax puts it, "Trended, historical, longitudinal or time-series data is an invaluable tool for gaining practical perspective into consumer behavior. It works by measuring a sequence of data points at successive points in time spaced over uniform time intervals. Analyzing the data creates the opportunity to extract meaningful statistics and help predict future values based on previously observed values. When measuring trended data within a consumer credit profile, analysis on direction, velocity, tipping points and magnitude of changes within the profile can help provide valuable insight into consumer credit behavior."

 For its part, Freddie Mac, in its Single-Family Seller/Servicer Guide (Guide) Bulletin 2016-10 from last week, revised requirements related to the Home Affordable Modification Program (HAMP) expiration, extending the Lender-Placed Insurance (LPI) deductibles mandatory effective date for certain Servicers, and more. "As the HAMP program winds down at the end of 2016, we're aligning with certain expiration dates and removing HAMP-specific forms and references from our solicitation requirements so we aren't promoting an imminently-ending program. We're extending the mandatory effective date for LPI deductibles for certain Servicers that use American Modern Insurance Group (AMIG) as their LPI provider. The revised effective date for Servicers that use AMIG is on or after July 1, 2017. Servicers must use IRS Form 1099-C when reporting a cancellation of debt in connection with a short sale."You can see for yourself at Summary of Upcoming Requirement Changes.

 In case you haven't heard, on Saturday, June 11, 2016, FHA implemented a technical change to its Technology Open To Approved Lenders (TOTAL) Mortgage Scorecard technology. Effective on June 11, the TOTAL Mortgage Scorecard will no longer return either Upfront or Annual Mortgage Insurance Premium (MIP) factors to an Automated Underwriting System (AUS) for subsequent return on the AUS's feedback certificate. Mortgagees should consult Appendix I of the FHA Single Family Housing Policy Handbook 4000.1 (SF Handbook) for applicable MIP factors. AUS vendors have been notified of this change, and are making accommodations to their systems in advance of the change.

 Do you need an avenue for a customer's major derogatory credit issue? NewLeaf's Access Product, per the company, might be your answer.

 Citadel Servicing Wholesale has partnered with Valuation Link allowing the capability to order Non-QM appraisals for 2nd MTG's. Borrowers can qualify with Up to 85% CLTV, 1-day seasoning from Short Sale, 1 year seasoning from Foreclosure or BK, Up to $1mil. combined loan amount, Loan amounts up to $500,000, Bank Statements used for income self-employed. Visit Citadel's website for complete details.

 Congrats to Credit Suisse, who is marketing the deal, Fitch, who rated it, and to Caliber Home Loan which has priced a $137 million mortgage bond deal, the industry's first rated non-prime home loan securitization in a decade. Critics quickly asked what was different about the usual rating agency being paid by the issuer to rate its deal than ten years ago, the fact that it "only" has an A rating, and to the relatively small size of the deal compared to the billions of residential loans being funded daily. But hey, its's a step in the right direction, right?

 Caliber is owned by Lone Star Funds and last year issued a string of non-rated securitizations of similar non-prime home loans. "Although the mortgage loans were originated to satisfy the Consumer Financial Protection Bureau (CFPB) ability to repay (ATR) rules, they were made to borrowers who generally do not qualify for agency, government or private label non-agency prime jumbo products for various reasons described above. In accordance with the CFPB Qualified Mortgage (QM) rules, 2.6% of the loans are designated as QM Safe Harbor, 41.4% as QM Rebuttable Presumption and 51.8% as non-QM. Approximately 4.2% of the loans are not subject to the QM rules."

 Caliber...is the originator and servicer for all loans in the portfolio. "Wells Fargo will act as the Master Servicer, Securities Administrator and Certificate Registrar. U.S. Bank National Association will serve as Trustee." That means any advances required but not paid by Caliber will be paid by Wells Fargo.

 "The 368 mortgages were originated under five programs. Jumbo Alternative (35%) - borrowers with unblemished credit seeking larger balance mortgages. These loans may have interest-only features, higher debt-to-income (DTI) and loan-to-value (LTV) ratios, or lower credit scores as compared with those in traditional prime jumbo securitizations. 2. Homeowner's Access (50%) -borrowers who do not qualify for agency or prime jumbo mortgages for various reasons, such as loan size in excess of government limits, alternative or insufficient credit, or prior derogatory credit events that occurred more than two years prior to origination.

 "3. Fresh Start (10%) - borrowers with lower credit and significant recent credit events within the past 24 months. 4. Investor (4%) - borrowers who finance investor properties where the mortgage loan would not meet agency or government guidelines because of such factors as property type, number of financed properties, lower borrower credit score or a seasoned credit event. 5. Foreign national (0.4%) - non-resident borrowers holding certain types of visas who may not have a credit score."

 As mentioned yesterday, rates continue to benefit from the world political scene, as well as our economy not going gangbusters. Put another way, U.S. fixed-income securities rallied as risk assets around the world sold off on concerns that the U.K. will vote to leave the European Union on June 23. The probability of the U.K. remaining in the EU is now 64%, according to some odds makers.

 For news today, German rates have turned negative - arguably more important than news in the U.S. today. We've had the May Export Price (+1.1%) and Import Prices (+1.4%) as well as May Retail Sales (+.5%, stronger than expected). We closed Monday with the 10-year at 1.62% and we're down to 1.59% this morning with agency MBS prices better by nearly .125.

Oil and World Budgets

By rchrisman@robchrisman.com

 

Everyone's thoughts and prayers are with the victims of the horrible shooting in Orlando. But yes, Father's Day is coming up, and the first presidential proclamation honoring fathers was issued in 1966 when President Lyndon Johnson designated the third Sunday in June as Father's Day. There are nearly 75 million fathers across the nation, over 25 million of whom are part of a "married-couple families with children younger than 18." And 21% were raising 3 or more children younger than 18. There were 1.9 million single fathers in 2015 but only16% of all single parents are men. About 45 percent were divorced, 33 percent were never married, 17 percent were separated, and 6 percent were widowed. There was an estimated 199,000 stay at home dads.

Learn everything you need to know about LO Compensation, MSAs, and RESPA in XINNIX, The Mortgage Academy's, latest Leadership Lessons webinar on Wednesday, June 15th at 1:00 PM EDT. During this live webinar, mortgage regulation expert, Mitch Kider, Managing Partner of Weiner Brodsky Kider PC, will share how to keep you and your organization within regulatory guidelines. This live webinar is complimentary, but registration is required. Click here to learn more and register.

 The BakerHostetler Financial Services Industry team is partnering with the Indiana Mortgage Banking Association, the Mortgage Banking Association of Kentucky, the Ohio Bankers League and the Ohio Mortgage Bankers Association to host a complimentary, one-hour webinar with key state mortgage regulators.  This webinar will include two prominent members of the Multistate Mortgage Committee - Kirsten Anderson of Oregon and Jedd Bellman of Maryland. They will share their insights on current trends in examinations, coordination between state agencies and multistate enforcement efforts, as well as best practices for preparing for mortgage audits and examinations.

 

USDA news? Yup

 

The rural housing biz is abuzz over the United States Department of Agriculture (USDA) announcing lower upfront and monthly fees for its home loan program, starting October 1. Those who offer the program know that this mortgage type is extremely popular with first-time home buyers since some of its program require zero down payment. And the Rural Development (RD) loan program, as it is also known, is a favorite because it comes with cheaper monthly mortgage insurance fees than do FHA loans.

 USDA fees are about to drop even further by Halloween, and many believe the USDA loan will become one of the most affordable home loans available, second only to the veteran-exclusive VA home loan. And of course this will entice renters since a USDA home loan can make owning a home less expensive than renting one. As the housing market recovers, the USDA program costs less to operate and sustain. The savings are passed on to USDA program borrowers.

 For those of you who don't know, the purpose of the USDA mortgage is to promote homeownership in rural areas. But what is "rural?"  Many suburban neighborhoods are eligible for USDA financing. Buyers often use this program just outside of major metropolitan areas. The loan offers 100 percent financing, meaning no down payment is required. Some lenders may have overlays, but straight guidelines indicate that applicants with credit scores down to 640 are eligible.

 Similar to FHA loans, the USDA mortgage requires two types of fees: an upfront guarantee fee and a monthly fee. The term "guarantee" simply refers to USDA's loan backing that allows lenders to issue loans according to its guidelines. The upfront guarantee fee stands at 2.75 percent of the loan amount, and the "annual fee" is currently 0.50 percent, paid in twelve equal installments and included in each mortgage payment.

 As mentioned above, however, we learned in mid-May the upfront fee will be reduced from 2.75% to 1.0%. And the monthly fee will also drop from .5% to .35%. Lenders who do rural loans know that the upfront fee is typically added to the loan balance so that home buyers do not have to pay it in cash. And the monthly fee rate is dropping to 0.35 percent annually, or about $30 per $100,000 in loan balance.

 The new fees apply to USDA applications for which USDA issues a "Conditional Commitment" on or after October 1, 2016. A USDA-issued commitment happens near the end of the home buying process and as lenders know most home purchases take between 30 and 90 days to complete.

 As a result of last month's Federal Register snipped about the USDA (it announced a qualified mortgage - QM - definition. As a result, Wells Fargo is removing its residual income evaluation (RIE) requirements for Guaranteed Rural Housing (GRH) Loans applicable on conditional Commitments issued on or after June 2^nd. Although the Federal Register also included a USDA Rural Development (RD) final rule making the Streamline Assist Refinance pilot a permanent program and part of Rural Development policy, effective June 2; Guaranteed Rural Housing (GRH) streamlines remain ineligible at this time. As specified in Seller Guide Section 750.04: Eligible Transactions, Wells Fargo Funding does not currently purchase RD Streamline Refinances of GRH loans. In addition, Wells issued a reminder, with the exception of primary residences subject to age-related resale deed restrictions, Wells Fargo Funding will purchase Conventional Conforming and Non-Conforming Loans subject to resale deed restrictions only after Wells Fargo has approved the resale deed. This includes delegated underwritten loans.

 As of Monday, June 6, Pacific Union's standard state adjusters for FHA, VA, USDA and Agency loans will be replaced by a new schedule. At this time, all of Pacific Union's search engine partners are aware of the update and will have the updated price on Monday. In order to enable customers to prepare their pricing tools, Pacific Union will provide a sample template of the schedule. This change is only applicable to FHA, VA, USDA and Agency products. In addition, Pacific Union Financial announced it is offering USDA sponsorship through the GUS Lender Agent Security Role.  Under the new role, recently announced by USDA, approved Lender Agents will have access to create applications, order new or reissue existing credit reports, and complete preliminary GUS submissions.

 First Guaranty Mortgage posted information to assist its clients with the June 2, 2016, USDA final rule for 7 CFR Part 3555 and the revised technical handbook, HB-1-3555, which will be effective for all conditional commitments issued by USDA.  To help fully understand the program enhancements and the changes to its guidance, the Agency has prepared two documents: the 3-Part Rule and Handbook Revision and the 502 Guarantee Refinance Options Job-Aid.  These documents explain in detail the regulatory and handbook changes made to the sections cited below. If you would like to learn more about First Guaranty and its slogan, We Know Gus! Click here.

 Effective with loan commitments issued on or after June 2, 2016, PennyMac is aligning with USDA Rural Housing's release of the Streamlined-Assist refinance program.

 Switching gears, although they've leveled off somewhat oil prices have fallen quite a bit since last year. Over the prior two years, crude oil, which saw a high in the summer of 2014 of $110 per barrel, is currently trading at around $50 per barrel. So what do oil producing countries do when their export income impacts their budget? They turn to the international debt markets like the rest of us. Recently Qatar sold $9 Billion in Eurodollar bonds, and encouraged by the strength of the sale, Saudi Arabia is weighing a sale of at least $10 billion in five-, 10- and 30-year bonds after Ramadan ends in July, according to Bloomberg.

 "Governments in the six-nation Gulf Cooperation Council, which includes the two-biggest Arab economies of Saudi Arabia and the United Arab Emirates, are turning to public markets after the plunge in oil prices punched holes in their budgets. Qatar last week attracted $23 billion in orders for its $9 billion sale, the biggest-ever from the Middle East. Abu Dhabi raised $5 billion from the sale of five- and 10-year securities in April, while Dubai is also said to be preparing an international bond sale this year." How does this impact the United States, you ask? Well, geo-politics aside, when countries sell debt instruments they need ratings agencies, market makers, traders for buyers, traders for sellers, etc. HSBC, JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group, Morgan Stanley, Deutsche Bank AG and Bank of Tokyo-Mitsubishi UFJ are all expected to pitch for a role in organizing the bond issue.

 How 'bout these rates! The refi boom just won't dissipate, despite industry experts saying it would be long over with by now. And even if rates stay here, plenty of areas are appreciating to the point where cash out refis are becoming popular again. Using houses as piggy banks... uh oh.

 Regardless, rates here in the United States are attracting investors from overseas. And why not with the German 10-year Bund now trading at 2 basis points and the Japanese Government Bond yields negative 13 basis points? Swiss and Japanese government securities, already carrying negative yields have fallen further, and benchmark US Treasuries have plunged to their lowest yields since 2013

 We have a fresh new week of titillating economic news from various government departments and private research firms. The fun never ends! There is nada today, however, but tomorrow we'll have some NFIB Small Business Optimism number of little consequence, and, more importantly, the Import Price Index and Retail Sales. On Wednesday we have the MBA's application numbers from last week, and also the Producer Price Index series. And let's not forget Empire Manufacturing for June and the Industrial Production & Capacity Utilization couplet.

 The Federal Reserve's Open Market Committee puts out its rate decision on Wednesday. There will be no change, but that won't stop all the financial news folks from talking about it endlessly. There is too much worldwide nervousness, too much nervousness about the US economy after the poor recent jobs number.

 Thursday will be Initial Jobless Claims and also the Philadelphia Fed Business Outlook, the Consumer Price Index, Real Average Weekly Earnings, and the National Association of Home Builder's Index. We wrap up Friday with more housing news in the form of Housing Starts & Building Permits.

 If you're trying to figure out rate sheets, we closed the 10-year at 1.64% and this morning it is sitting around 1.63% with agency MBS prices slightly better - but lagging due to investors wondering about existing loans refinancing.