The American Dream Home Ownership

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Us Government Shut Down

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As if the mortgage biz doesn’t have enough other things to worry about, how about a US government shut down? There are dozens of HUD programs that may be impacted, but focusing on FHA loans, there are two important steps in the origination process where FHA lenders have a dependency on FHA:  obtaining a case number for a new FHA loan and after it closes being endorsed by FHA so that a mortgage insurance certificate can be issued. The case number for an FHA loan is obtained via FHA Connection. It is possible that FHA Connection may continue to operate even if there is a government shutdown. If that is the case, obtaining case numbers would not be a problem. (During the November 1995 shutdown, case numbers could not be obtained.) The last I checked most believe that it is very likely that loans will not be endorsed and “mortgage insurance certificates will not be issued in the event of a shutdown. Lenders could continue to originate FHA eligible loans but they will need to wait to obtain an endorsement and an MI certificate. It should be noted that lenders with DE authority can potentially obtain MI certificates if FHA Connection continues to operate.” The shutdown in 1995 mainly caused a delay rather than drop in FHA loan origination, but if lenders decide to stop accepting FHA applications, it could be a problem. I have heard nothing about Fannie or Freddie’s operations.

With the comp issue settled, but in no way forgotten, our business turns its attention to the release recently of the set of Proposed Risk Retention Rules, with a comment period ending on June 10, 2011. These rules encompass more than residential mortgages – they also impact ABS & CMBS (asset-backed, like credit card debt, and commercial mortgage) instruments. Industry followers believe that the portions that seem to be generating the most discussions will include the exemption of Fannie Mae and Freddie Mac from risk retention; the narrow definitions of qualified residential mortgage (QRM), commercial real estate (CRE) loan, commercial loan, and auto loan; the creation of a premium capture cash reserve account; and the limited exemption for re-securitizations. If you’d like to comment on the risk retention proposals, go to RiskRetentionComments.
 
In spite of this being very much an agency-centric residential lending environment, there are some “off the beaten path” loan products that continue to evolve. CMG Mortgage, in California, continues to offer its HOA program with success. A few other recent entries include:

Avant Capital Partnerslaunched its “Bank Lending Program for Small Business & Owner Occupied Real Estate” program. “Loans range from $500,000 to $10,000,000 with leverage up to 90% LTV. The program offers conventional and SBA guaranteed financing solutions for owner-occupied real estate.  Acceptable property types include: office, retail and industrial (including condominium), mixed use, and many more like funeral homes, grocery stores, convenience stores and markets.  Interest rates range from 4.15% to 6.45%.” For more information, contact Adam Luysterborghs at adam@avant-capital.com.  Avant is hosting a webinar April 12thAvantWebinar
 

 And Mortgage Harmony Corp. initiated “rate resetting” mortgage, which upon the first consumer initiated change compensates originators with monthly recurring commission. The marketing material suggests that the program, HarmonyLoan, is catching on with credit unions for both conforming and jumbo loans, “mitigates investor churn, increases MSR values, offers consumer protection (improves credit risk), and provides originator income stability.” Programs include conforming and jumbo 5/1, 7/1, 10/1 ARMS and 15 year fixed, and if you want a demo go to MHarmony or read the recent press release: MortgageHarmonyNews.

Franklin American reminded clients that, starting on the 18th, “Appraisals may no longer be used to increase the insurable mortgage balance above the sum of the outstanding principal balance and the new UFMIP. In other words, closing costs, discount points or prepaid items may not be included in the new loan balance. The insurable balance may only increase above the sum of the outstanding principal balance and the new UFMIP by using a credit qualifying (streamline or rate/term) refinance with an appraisal. FHA requirements for three and four unit purchase transactions regarding self-sufficiency test, net rental income calculations, reserves and monthly payment calculations also apply to all refinance transactions of three and four unit properties.” In addition, “Maximum financing is allowed for a refinance of a former investment property at the same level as an owner-occupant if the borrower re-occupied the property 12 months or more prior to the loan application. For those who re-occupied less than 12 months prior to application, the maximum LTV is limited to 85%.”

Provident Funding told brokers of its “Section 7 of the new Loan Origination Agreement that broker compensation must be the subject of a written agreement between the mortgage broker and the borrower.  A copy of the agreement must accompany each completed loan package delivered to Provident Funding by the mortgage broker.  The written agreement must indicate that (1) broker compensation may or may not be negotiable, and (2) in setting the amount of compensation the mortgage broker has not discriminated on the basis of race, color, religion, national origin, sex, marital status, handicap, familial status, or any other legally prohibited basis.” The agreement must be executed and returned to the Broker Approval department by next Wednesday.

Parkside Lending, a West Coast wholesaler, provided its brokers with a “RESPA and TILA Disclosure” form which the agents fills to guarantee that the borrower received a valid and timely GFE, and has not been steered in any matter in their loan choice given the anti-steering provisions.

Wednesday was another not-so-good day for rates, with MBS sales volumes picking up a little bit but current-coupon prices losing about .125. Ten year Treasury notes were worse by about .5, closing with a yield of 3.54% given the inflation fears picking up again (oil is nearing $110 per barrel) along with some weakness in the US dollar ahead of an expected interest rate hike from the ECB (which did indeed happen). “REITs, banks and money managers” were better buyers at these rates.

Weekly Jobless Claims dropped from a revised 392k down to 382k, another little bit of good news for our job market (as opposed to going the other way), but more importantly the ECB (European Community Bank) raised their rates. The Jobless Claims number was about as expected, but the ECB move tends to put a little pressure on our own Fed. Regardless, the 10-yr is up to 3.57% and MBS prices are worse by .125-.250.

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Mortgage Rates Will Get Better

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What promises to be almost as impressive as all the underwater borrowers making their payments, watch out for that moon tomorrow nightLunarDisplay.

What does Chase think about a U.S. proposal to exempt certain mortgages from rules governing securitized loans? That it may unintentionally help the biggest banks. QRM.

When speaking to various groups lately I have been asked, “When will Alt-A come back?” It is a legitimate question. Many originators fondly remember the days of companies like Thornburg or Headlands. There is little doubt that the market will come back, it is “merely” a question of squaring away the A-paper market and then finding out demand at what yield relative to A-paper/agency product? For the product originated in previous years, within the prime and Alt-A sector, traders continue to prefer super-senior bonds backed by clean Alt-A and “dirty” prime collateral. Analysts feel that the risk of cash flow disruptions owing to modifications is highest for dirty Alt-A bonds, and therefore tend to favor bonds backed by higher credit quality paper and with lower delinquencies. Over the past year, hybrid bonds have traded at 50-100bp wider spreads versus comparable fixed-rate bonds, and are now trading at the wider end of that range – is that something that an LO can sell to a borrower? Note that many Alt-A intermediate ARM’s, like 5/1’s done 5 years ago, are seeing their rates drop, which helps.

One of the key components of any mortgage rate sheet is pricing, and a key component of that is the mortgage-backed securities’ price, off of which agency loans are priced. Take those security prices away and you have… the Alt-A and jumbo markets! Say what you will about how mortgage-backed securities are priced, given the current state of the securitization market, and the lack of objective rating for these securities, the Alt-A market will probably come back once brighter-minds-than-mine figure this out.

Anyone putting together a library of documents regarding the banking and credit crisis of the last few years will want to include this piece, produced by the FDIC on AmTrust Bank and NYCB: FDICAmTrust.

The latest on the Attorney General servicer settlement news can be found here:PostAGServicer. Kate Berry, of American Banker, has been following the mortgage servicer foreclosure settlement negotiations. In a recent article she mentioned that “mortgage servicers are fuming” as it appears that the draft of the agreement is unfair and impracticable. But servicers are facing an uphill battle given the negative press on foreclosures and robo-signing scandals. “Servicers are chafing at the idea of paying out billions in a settlement with regulators because they claim very few borrowers have been wrongly foreclosed upon or were harmed by last year’s robo-signing scandal. Servicers delayed tens of thousands of foreclosures in the 23 states where the process is handled in court. They argue that the vast majority of borrowers in these cases had stopped paying their mortgages, were in default on their loan and had been living in the home for free during the foreclosure process. While servicers have admitted there was procedural misconduct in the shoddy paperwork submitted to courts, they claim the proposed penalty of upwards of $20 billion is disproportionate to the alleged crime.”

Berry’s article continues. “Lawyers for the servicers maintain that the proposal does not distinguish between loans a bank services for itself and a loan it services for others. And servicers insist they don’t have the authority under the pooling and servicing agreements governing securitizations to do a great deal of what the proposal calls for them to do. The servicers say they are not authorized by PSAs to make principal reductions on loans held in private-label securities, as the draft settlement calls for them to do, so the companies argue it is unclear if a proposed government settlement would override such contracts.” Obviously banks, servicers and investors do not want to take the losses, and did not set up reserves to handle the principal reductions.

SIFMA (a securities industry trade organization) expressed “strong reservations” about the 27 page AG proposed settlement. “The draft proposal could lead to unintended consequences for the housing market and potentially harm investors in mortgage backed securities. The figure being bantered about is north of $20 billion. SIFMA.

Deutsche Bank released a study showing that renting a home costs U.S. households more than paying a mortgage for the first time in at least two decades. The rent-buy ratio, or rent as a percentage of after-tax mortgage payments, is based on figures that Deutsche Bank compiled from NAR and the REIS information service. Rent amounted to 100.2% of home-loan costs in last year’s fourth quarter, the highest level since calculations began in 1991.

 
Should mortgage bankers be paid over time? There are many factors, but in the most recent suit, Quicken Loans proved victorious. QuickenOT.
“Having the comp plan be delayed is about as likely has having Paris Hilton win a spelling bee.” So I was told by someone who knows someone who knows someone… related to Congress. Companies are certainly moving ahead, as they should, with plans for full implementation. Some retailers are setting base salaries, with underages and overages. For example…

Provident Funding sent its clients “TILA Compensation Rule FAQ’s”, and brokers should go to www.pfloans.provident.com. “Click on the Things You Need to Know link. Click on the FAQ’s tab on the left-side menu. Select the TILA Compensation Rule category.” (Remember that the Provident Funding FAQ’s should not be considered legal advice – consult your attorney.) Provident also supplied its clients with the Broker Fee Agreement (with the borrower) sample form has been updated, although brokers are able to still use their own Broker Fee Agreement forms – make sure that the terms must be consistent.

Kinecta Federal Credit Unionis also offering up compensation information for its Midwest Central States Region. A WebEx presentation takes place next Wednesday, 10:30AM to 12:00 noon CST. Meeting Number: 926 578 929, password regzeasy. Go to: KinectaMeeting.

Kinecta has recently released a slew of changes, refinements, and updates to its broker clients. Included are updates on the DU Refi Plus program extension to June 2012 (original mortgages being refinanced must have been purchased by Fannie Mae prior to June 1, 2009). Note that under this program original loans not currently serviced Kinecta: “For loans where MI is required (>90% max 105% LTV 720+ FICO), MI from the original loan is transferable to the new loan at the original loans’ MI required level, except for properties located in NV, FL, and AZ. For properties located in NV, FL, and AZ MI is required at the new loan MI required levels.” Kinecta has also made some other changes recently. Its 10/1 ARM maximum LTV has been revised to 95%. For its Agency Fixed and ARM Products, cash-out is expanded to 85% if the loan meets certain restrictions on loan amount, DTI, etc. Kinecta updated its agency and super-conforming ARM and IO ARM products, cash out requirements, reserve calculations on IO ARMs, condo guidelines, the ability to count retirement accounts as assets, etc., etc.

Home Savings of America tweaked its compensation policy, set for 4/1. “In addition to a set percentage of the loan amount and a minimum/maximum, you may also select a flat dollar amount.  This will allow you to select: A set percentage, a flat dollar amount per loan or, a combination of both, as well as a min/max.”

Out west, Comstock Mortgage is setting up a forum where several wholesale lenders will announce their Loan Originator Rule Compliance Plans. The two programs are open to loan originators and branch managers of all companies, and might be useful for brokers to compare plans. There is a fee of $15 by today and $25 after today. The seminars are Wednesday in Sunnyvale and Friday in Sacramento, lunch included. For more information about the seminar contact Casey Fleming at (408) 348-3442 or Kathleen Chothia at (925) 484-1466.

Mountain West Financial told its brokers, “Due to the minimal production of Non-Conforming CalSTRS loans, the CalSTRS Home Loan Program is suspending all of their Non-Conforming Products.  CalSTRS intends to concentrate its efforts on the more popular conforming product.  The last day to lock a CalSTRS Non-Conforming loan will be Monday, March 21, 2011.”

The “market” had decided that stocks and bonds had gone far enough in one direction, and Thursday was time to bounce back. So even though the same concerns remain, bond prices dropped with the 10-year note closing down about .250 (3.25%). Agency MBS prices were worse by about .125.

There is no scheduled news today, so watch for headlines and rumors to move rates. Overnight the yen tumbled the most in more than two years against the dollar as the Group of Seven nations said they will jointly intervene in foreign-exchange markets for the first time in more than a decade. Stocks are pointing to a higher open, the 10-yr. yield is around 3.25% and MBS prices are about unchanged. Rob Chrisman

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Just Another Day

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“HVCC” is gone, but still with us in other forms. Unofficially, which services seem to be popular among retail loan agents in determining property values prior to the actual appraisal? Any agent would want speed, accuracy, reliability, lack of cost (e.g., free), etc. The popular choices, not in any particular order, include Zillow, title company public records, Yahoo Real Estate, Trulia, local Realtor’s MLS listings & opinions, Redfin, BlockShopper http://www.blockshopper.com/, and BAREIS http://norcalmls.rapmls.com/ in Northern California. Please feel free to send me any that you think others might find useful and don’t mind sharing.

The commentary might be a little late tomorrow. I’m going to head to Nevada and fetch me an empty house! According to the US Census Bureau there were 167,564 empty houses in Nevada, which is about one out of every seven houses across that state. Although I imagine that many actually have some kind of occupant, something tells me that home building will not be flourishing there for a while. For perspective, putting three people in each one would cover the population of Kansas City, and four people would cover the population of Seattle. http://www.msnbc.msn.com/id/42084625/ns/us_news/.
 
Many areas of the nation have stabilized, but falling home prices in other areas pushed more borrowers into a negative equity position. CoreLogic’s recent study showed that in the 4th quarter of 2010 23% of borrowers nationwide, or 11.1 million, were holding “underwater” mortgages which is a collective $750 billion of negative equity. Negative equity is concentrated in the hardest hit states: Nevada (65%), Arizona (51%), Florida (47%), Michigan (36%), and California (32%). And although banks and servicers didn’t plan for this, if negative equity continues to rise the principal write down argument gains strength.
 
Are we really better off winding down Freddie and Fannie entirely? I imagine that most, if not all, of the mortgage and real estate professionals in the US would suggest that we’re better off with those agencies staying around in one form or another. Here’s one: http://www.businessweek.com/news/2011-03-15/shiller-says-fannie-freddie-phase-out-threatens-housing-market.html.

Dodd-Frank is not set in stone. There is some small bit of hope that the comp issue will be delayed, although it is not likely. But House Republicans are drafting five bills to repeal or change parts of the Dodd-Frank financial-overhaul law that have been opposed by business groups. A story in the WSJ noted that the bills are to be discussed at House subcommittee hearing today. The group is not trying to reverse the entire bill, but is targeting specific provisions.
 
FHA Commissioner Dave Stevens, who announced his resignation last week, will be merely having a different morning commute: he will become the MBA’s president and CEO in early May. The MBA “represents more than 2,400 firms in the nation’s real estate finance industry,” although critics claim that the membership has such divergent goals and objectives that it is nearly impossible for the MBA to adequately address them. One story noted that, “An administration official said Stevens signed a pledge when he took office not to lobby any official for the remainder of the Obama administration and not to speak on official matters for two years with anyone from HUD, if he left government.”

Freddie Mac announced a new offering of multifamily mortgage-backed securities – $1 billion of Structured Pass-Through Certificates (“K Certificates”). They are expected to price next week and settle the week after, and are backed by 76 recently originated multifamily mortgages and are guaranteed by Freddie Mac. Check out http://www.freddiemac.com/mbs/data/k011oc.pdf. Goldman Sachs and Citigroup are marketing $1.4 billion of bonds tied to commercial property loans: 57 mortgages on 111 properties across the U.S. with the highest concentration in Texas. According to Reuters & Bloomberg, “the transaction will bring 2011 sales of commercial- mortgage backed securities to about $8 billion, compared with $11.5 billion in all of 2010…Top-rated securities backed by skyscraper, hotel and shopping mall loans are yielding 2.02 percentage points more than Treasuries, compared with 1.91 percentage points a month ago, according to a Barclays index.”

Lenders that act as both mortgage brokers and mortgage bankers need to pay attention to this recent court ruling, noted by law firm BuckleySandler. “Court Rules Lender, Acting as Mortgage Broker, Breached Fiduciary Duty to Borrower. A California court of appeals affirmed a trial court’s decision to award damages against a mortgage lender for breach of fiduciary duty and misrepresentation, where the loan officer for the lender acted as a mortgage broker.” The case involves shopping a loan for a borrower that didn’t qualify, prepayment penalties, and then doing the loan through the agent’s mortgage bank thus bringing up the question of their fiduciary duty to the borrower. See www.buckleysandler.com/Smith_v_Home_Loan_Funding.pdf.

In Florida Freddie Mac pulled its cases from the Law Offices of Marshall C. Watson, a Florida law firm that is under investigation by the Florida attorney general. The firm represents lenders in foreclosure cases, but is one of four foreclosure firms targeted by the AG (Attorney General) investigation.
 
Wanna buy some Litton servicing? Goldman Sachs may be looking to exit the servicing business entirely: http://online.wsj.com/article/SB10001424052748704662604576202980158164482.html.
 
Bank of America’s correspondent clients were reminded of the UAD requirements being rolled out, and that the Uniform Collateral Data Portal (UCDP) will serve as the portal through which lenders submit electronic appraisal reports to Fannie Mae and Freddie Mac. “Clients should determine how and when in the loan process appraisals should be submitted to UCDP. Both the GSEs and Bank of America recommend submitting early in the loan process to allow sufficient time to resolve any UCDP edit failures. If Clients choose to submit directly to UCDP, they should ensure that their appraisal management company provides them the appraisal in either an acceptable XML (MISMO or ACI) or first-generation PDF format*. There is no lack of training for it: https://www.efanniemae.com/lc/webseminars.jsp?
 
This week GMAC’s correspondent clients saw the removal of the non-delegated adjustment of -.250 on Government products. And GMAC, who is expanding its wholesale operation, reminded its correspondent clients that starting April 18, “when requesting FHA case number assignments through FHA Connection, all lenders will have to certify that the case number corresponds to an active loan application for the subject borrower and property in accordance HUD/FHA policy and procedures. The borrower’s name, Social Security Number and property address will be required for all transactions including proposed and new construction loans. The Case Assignment screen in FHA Connection will be modified to contain these certification statements that lenders will need to acknowledge and check.”  

Flagstar has “added a flood insurance escrow requirement to our system for all loans falling within a flood zone. However, escrows will not be required for flood insurance if the property is a condominium, PUD, or co-op.”

Wells Fargo’s wholesale also continues to release comp plan information for its brokers. Under the Consumer Paid Plan, for example, the broker or loan officer will directly negotiate with the consumer regarding compensation. “Compensation typically will be paid through the loan principal or cash from the borrower at closing. Compensation must not be paid through the interest rate. A party other than the consumer – such as the seller – may pay the compensation. At no time can the other party who pays the compensation be the lender. There is no fixed minimum dollar amount of compensation. There is a fixed maximum dollar amount and percentage that corresponds to the level the broker owner has selected on the lender-paid model. For example, if the selected lender-paid level is 1.5%, then the consumer can’t pay more than 1.5% of the loan amount in compensation. The lender-paid fixed maximum for that state will also apply to the consumer-paid level. Premium pricing can be used to pay third-party costs, but must not be used to pay broker owner compensation. Total premium pricing must not exceed the total of the third-party costs by more than $250. If the rate selected includes discount points, then the borrower will pay those to Wells Fargo at closing. On a purchase transaction, seller concessions may cover the discount points.”
 
Yesterday rates improved again, although they started off the day much better but then tailed off. The Treasury’s 10-year notes closed up 6+/32s (3.32%) after being better by almost 1 point earlier in the day. After starting off strong (better by about .5), agency MBS’s finished the day only better by about .125 on “below normal” volume. Traders are reporting that the Treasury market volatility is not being mirrored in the agency MBS market – a good thing for hedgers! As expected, the FOMC statement was close to January’s (which was identical to December’s), but with a little more underscoring of inflation concerns. In short, the statement was slightly more bullish. With all that has happened in Japan and the Middle East, the Fed wanted to emphasis stability so did not deviate too much from last statement.
 
This morning we learned from the MBA that last week’s mortgage applications fell slightly after a 15% jump the week before. The four-week moving average is up 4.9%, while the four-week moving averages for the purchase index and refinance index are up 1.6% and 6.6%, respectively. Refinancing accounts for 66.4% of total applications.
 
This morning we also had Housing Starts & Building Permits. Recall that initial Housing Starts numbers jumped 14.6% in January to a 596,000 annual rate, but the entire increase came from a 78% surge in multifamily starts following the rush of multifamily permits in December ahead of building code changes. Single family starts, which comprise 70% of the market, fell 1%. Last month Permits were down about 10%. Housing Starts dropped 22.5% and Building Permits dropped 8.2% – painful numbers.
 
We also had the Producer Price Index, which for last month was +1.6%, with the core rate (ex-food & energy) was+.2%. After this news, and given the continued impact of Japan, Europe, the Middle East, etc., the 10-yr’s yield is down to 3.28% and MBS prices are better by roughly .125. Rob Chrisman

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Market Moving Over The Disaster In Japan

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From an economic perspective, world stock markets are hitting 2 1/2 month lows today, and Treasury yields have dropped due to the devastation. Contrary to what some Wall Street analysts believe, one reader wrote, “What happened in japan is a complete human and economic disaster, not an opportunity for economic growth.  Rebuilding projects after a natural disaster are not stimulative whatsoever – the immediate economic effect of the quake/tsunami was that tons of capital and material wealth/assets were destroyed instantly (not to mention all the lives lost).  Rebuilding the infrastructure returns that area to where they were before the quake/tsunami.  That doesn’t equal growth in an economic sense – you have to distinguish between the seen (so-called job creation of the quake/tsunami) and the unseen (economic growth potential of that same labor and capital had there been no quake/tsunami). If one quake/tsunami is ‘supportive to economic growth’, wouldn’t that mean that 10 quake/tsunami’s would be phenomenal for economic growth? That makes no sense whatsoever.”

The MERS saga continues. We’re continuing to see various rulings by various states on MERS’ ability to actually assign and foreclose on mortgages. Most recently it was the Supreme Court of the State of New York, which ruled in favor of Mortgage Electronic Registration Systems. The ruling judge wrote, “Plaintiff has shown that the assignment of the mortgage was not made retroactively…Although the assignment refers only to an assignment of the mortgage, physical delivery of the note is sufficient to transfer the obligation, and plaintiff has established that the note was delivered to it prior to the commencement of this action.”

Data improvements continue to be made. For example, the GSEs are focusing their efforts on providing resources to assist lenders and the appraisers they work with to prepare to implement the UAD (Uniform Appraisal Dataset). Any lender interested can visit Fannie’s and Freddie’s websites to glean more information than I can repeat here, which is recommended since it is the “wave of the future:  FannieUAD and FreddieUAD.

Out in California, Paramount Equity Mortgage (CA, OR, WA) announced plans to partner with infomercial direct-sales company Guthy-Renker. The two will roll out a mortgage, insurance and solar power marketing platform as early as this summer – draw your own conclusions. Guthy-Renker is primarily a marketing company, and is taking a “significant” equity interest in Paramount’s mortgage banking operation. It will work with Paramount to create multi-media marketing for Paramount’s three main products, which includes home mortgages, life & auto insurance products, and residential photo-voltaic systems. “The mortgage market is really poised for growth right now.”

In the mortgage software vendor space (doesn’t that sound techy?) PCLender.com has been acquired by Lender Processing Services, Inc. (LPS). LPS is a provider of technology solutions for mortgage origination, processing, settlement, valuation, appraisal, and default services. “Joining forces enables LPS to provide PCLender’s leading enterprise mortgage software and technology solutions along with Empower, LPS’ premier, enterprise-wide loan origination system. Together, under LPS’ Origination Technology Solutions division, we can now provide lenders of every size with state-of-the-art, end-to-end loan origination solutions to maximize operational efficiency, further reduce costs and better serve your customers.”

In other corporate news, Grandpoint Capital (CA) will buy Orange Community Bancorp (CA) for $30mm in cash, or approximately 1.5x book value, and in Louisiana Iberiabank will purchase Cameron Bancshares for roughly 1,7x book value.

Wells Fargo Funding – the correspondent channel – has been busy lately. Yesterday, as a result of Freddie Mac’s announcement that it will require verification of funds for refinance transactions, Wells Fargo requires “LP Approve/Eligible case files of refinance transactions without verification of funds to close be purchased by Wells Fargo Funding on or before April 15” and loans should be delivered to Wells Fargo Funding on or before April 1. Also in response to a change made at Freddie regarding the seasoning of purchase money mortgages for 120 days prior to refinancing as a rate/term (or “no cash-out”) refinance transaction, Wells will also require, for all manually underwritten loans: 120 days of ownership (using the note date). Anything in pipelines with less time needs to be purchased by 4/15 and delivered by 4/1.

As a follow up to bulletins focused on Reg. Z non-compliance penalties, in mid-February Wells released information on its Counterparty Policy and Procedure Review (Correspondent Seller Compensation Questionnaire, Attestation of Compliance, Loan Origination Policies and Procedures,  Attestation of Compliance, and so on), Annual Recertification, and Wells Fargo Wholesale Lending’s requirements for brokers. “Effective with applications taken on and after April 1, 2011, for any transactions where the anti-steering “safe harbor” liability protection is applicable, Wells Fargo will require that an anti-steering loan options disclosure be used and evidenced in the Loan file, including the borrower’s signature acknowledging receipt, in order for such Loans to be eligible for purchase by Wells Fargo. Sellers may include a loan options disclosure in Loan files where the safe harbor protection is not applicable, if they choose. The information is helpful to borrowers on any transaction.”

(That begs the question, “What is the safe harbor?” When a rule offers a “safe harbor,” it means that if certain steps are taken, you are considered to be in compliance, which is a valuable benefit. The safe harbor in this rule offers benefits for loan originators, lenders, investors, and borrowers.)

Over in Wells’ wholesale channel, it has been busy as well. Yesterday brokers learned that the non-conforming rate sheet pricing will change to include the 0.25% rate reduction for borrowers who enroll in the Preferred Payment Plan with a Wells Fargo or Wachovia checking or savings account. Cross-selling! And this is the last week to lock reverse mortgages with Wells – brokers learned that the rate and origination structure for HECM products (Standard and Saver) is changing and will now be priced at 5.06% and include an origination charge calculated as a 1% Maximum Claim Amount (MCA) with a $2,000 cap. But send them in soon.

Wells’ brokers took note of a 3/26 date: consumer- and lender-paid models will be available for loans registered with Wells Fargo. “Loan files priced under the current compensation rules will need to have a Wells Fargo application date on or before Friday, March 25, or will be subject to the new compensation requirements.” “How Wells Fargo reviews the GFE will be different than it is today with the lender-paid option. Wells Fargo will conduct an enhanced review of all fees represented on the initial GFE before acceptance. On a lender-paid transaction, if after review of the GFE, it is apparent that a GFE refund will be required, then Wells Fargo will not accept the GFE.”

Last month Wells Fargo announced that it will lower its minimum FICO requirement from 600 to 500 for loans originated through retail channels. For third-party originations Wells’ minimum FICO will remain at 640 and over on the retail side, to balance things out, low FICO borrowers will be required to put down larger down payments in order to qualify. This expansion of credit comes as the Secretary of HUD has encouraged banks to expend their underwriting guidelines. And now Plaza Home Loans announced it will go down to a 580 FICO. There are, of course, more stringent DTI and LTV guidelines than for higher FICO borrowers.

Investor changes continue our way. GMAC tweaked its government pricing. SunTrust updated its Agency Plus and DU Refi Plus product lines, and discontinued its Agency Plus 30-yr fixed IO product. Chase and Mortgage Services III posted updated pricing for their USDA products.

I have one small correction to some information from yesterday regarding Stearns Lending. I stated that, “loans have to fund by 3/31 to be under the old rules” but Stearns requires loans be locked and submitted by 3/31 to close under current compensation guidelines. So loans locked and/or submitted after 4/1 are subject to the new rules – a file received by 3/31 does not have to be locked to be protected under current regulations.

HSOA sent out links to its forms in preparation for the two compensation options scheduled for 4/1. “Brokers will have the option to receive compensation from either the lender or the borrower, but not both on any one transaction…HSOA will allow changes to the compensation agreement on a monthly basis. All changes will be effective on the 1st day of the following month. Change requests must be submitted to HSOA by the 22nd of the current month to be effective on the 1st day of the subsequent month. Their forms: Comp and Addendum.
 

 Caliber Funding told its brokers that the margin on Government ARMS has changed from 2.250 to 2.000.

For the markets, MBS prices ended Monday nearly .250 better in price, while the 10-yr Treasury improved by about .375 and closed out at roughly 3.35%. Pushing bond and equity markets are, of course, the disaster in Japan, unrest in the Middle East-North Africa area, and European sovereign risk issues – all helping move money into US Treasuries. Believe it or not, one mortgage trader mentioned, “While supply has been limited, there are concerns that it will pick up some with the recent decline in mortgage rates.”

Today we have had Import Prices (+1.4%) and Export Prices (also +1.4%) and the Empire State Manufacturing data (stronger than expected at “17.5” versus February’s “15.4”). We also have the start of another FOMC meeting, but no change to rates is expected. Keep in mind that these monthly economic numbers really pale in comparison to the monumental events overseas. We are now at the low yields of the year, with the 10-yr down to 3.25% and MBS prices are better by .5. Rob Chrisman

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New Compensation Change April 1st

 

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Wouldn’t it be something if this whole compensation thing was put on hold for months? Think of all the tens of millions already spent in attorney and operation costs, and the fact that many companies have already rolled it out. It is rumored that House Financial Services Committee Chairman Spencer Bachus is drafting a letter which will be mailed to Chairman Bernanke early this week and which specifically request that the Board delay implementation of the compensation rule and will site its inconsistency and vagueness as some of the reasons for the requested delay. In addition, a letter co-authored by Senators David Vitter from Louisiana and Jon Tester from Montana was sent Bernanke requesting a delay in the implementation of the Fed’s loan originator compensation rules.

The industry is watching the lawsuits filed by NAMB and NAIHP. I received this note from one industry vet, “Where is the MBA in all of this? The MBA, in my opinion has a conflict of interest. Its biggest members are clearly the largest lenders, who are not mortgage bankers they are banks: the ‘Banks that are Mortgage Bankers Association’. Pure mortgage banks are under-represented. If this Rule goes into effect and it is as bad as expected, the wholesalers are in trouble if they do not have a bank behind them. What are mortgage bankers supposed to do? Clearly, what is in the interest of Chase is not in the interest of any mid-size wholesale investor.”

FHFA will not be giving up HARP for Lent. It announced an extension of the Home Affordable Refinance Program, which is administered by Fannie Mae and Freddie Mac, to June 30, 2012.  In addition, Fannie Mae and Freddie Mac will make the following adjustments to their programs: Freddie Mac will exempt HARP loans from their recently announced price adjustments and Fannie Mae will conform their eligibility date to May 2009.  The program expands access to refinancing for qualified individuals and families whose homes have lost value. Looking at the stats for loans with LTV’s from 80-125%, HARP did about 190,000 in 2009 and 622,000 in 2010.

 

TMAC Mortgage Co filed with the SEC to raise up to $300 million from an IPO. The company said it expects to use all the net proceeds to buy agency securities, including fixed-rate residential mortgage-backed securities and adjustable-rate mortgage securities. Deutsche Bank, Barclays Capital and Credit Suisse are underwriting the offering. TMAC itself is a Los Angeles-based, TCW-managed REIT formed to invest in residential mortgage-backed securities. This is indicative of a growing REIT trend: since the beginning of December 2010, mortgage REITs have raised about $5bn new capital, which has resulted in about $40-$50bn of net demand for agency MBS. If demand for MBS’s is strong and the supply is down, one would expect prices to increase and rates to drop.

Broadly speaking, a REIT (Real Estate Investment Trust) owns and manages a pool of commercial properties and mortgages and other real estate assets and its shares can be bought and sold in the stock market. Its tax designation leads to a reduction or elimination of corporate income taxes since it is required to distribute 90% of its income, which may be taxable, into the hands of the investors. Mortgage REITs seem to have bought several billion dollars of higher coupon MBS which had resulted in higher coupon MBS significantly outperforming lower coupon MBS over the past three months. Most of this is new production due to the need to take delivery of actual mortgage pools (instead of buying TBAs and rolling them) so that helps the price of new pools versus that of existing pools. Watch for REIT’s to garner a fair amount of attention going forward.

On Friday the First National Bank of Davis, Davis, OK was closed by the OCC, which appointed the FDIC as receiver. Someone at the FDIC called The Pauls Valley National Bank, Pauls Valley, Oklahoma, who will be assuming all of the deposits. Up in Wisconsin, Legacy Bank of Milwaukee also found its stationary worthless, as it transfers its deposits to Seaway Bank and Trust Company, Chicago, Illinois. In an FDIC-assisted transaction, bids are placed for both assets and deposits. When it comes to deposits, the liabilities are either bid at par or a premium, with the majority done a par. The acquiring bank gets a period of time to reset the stated rate down on all or a portion of the liabilities. In addition, the acquiring bank may also choose to impose fees. Of course, dropping the rate and increasing fees, means the acquiring bank will face run-off of volume so one of the key assumptions in an acquisition is what the predicted deposit defection will be, which in turn is based on the age of the account, the type of account, current balance, current rate, market rate (or alternatives) and the amount of other services utilized by the account. Most run-off happens within 3 months.

Provident Funding told its broker clients that if they “fund at least five lender-paid loans with Provident Funding in one month in the same state, the percentage level can be adjusted for the next month.”

This Wednesday Kinecta Federal Credit Union is hosting a meeting & WebEx presentation from 8:30-10:00AM PST at its processing center in El Segundo. Call 1.800.854.4600 for more information. Meeting Number: 926 212 908 / Meeting Password: regzeasy. Go to KinectaMeeting 

Flagstar announced its jumbo ARM program credit score is increasing to 720 under for most circumstances, and for the week issued updates on a slew of changes including an AMC requirement update for delegated clients, news on the execution of the VA Origination Statement, clarifications and new policies on FHA refi’s, revised the FHA MIP and case number policy, tweaked the program for condos and rental income and closing in trust, and discontinued the SureClose eClosing and ACH Payment programs. Recently Flagstar lowered the application fees for all new broker and correspondents, and also lowered the net worth requirements. (Applications are now $50 and net worth requirements are $25,000 for brokers and $75,000 for correspondents.) And as this column previously noted, Flagstar issued information regarding comp plans. LO’s must be sure to structure their compensation plans correctly because if they want to get paid under both borrower paid and lender paid models, they need to be set up under the hourly/salary/bonus structure. Most lenders are no longer asking for and reviewing comp plans, but rather having customers submit an agreement or individual loan disclosure that reps and warrants they will be paid according to the new rules. Flagstar still requires brokers to take advantage of safe harbor option to avoid steering by providing a disclosure on a per loan basis, although it is still awaiting a possible industry standardized disclosure. For the initial roll out Flagstar will limit brokers to one schedule per ID.

Essent Guaranty is seeing some good signs out there in the housing market, and in on 3/25 turn is “implementing a prudent guideline eligibility expansion in conjunction with expanded pricing options to enhance our value proposition to our clients. Essent now offers credit guidelines and Monthly and Single Premium rate plans covering both fixed and Non-Fixed rate loans for LTVs up to 97% and FICO scores down to 660. As a reminder, for Retail originations, Essent continues to have no additional guideline limitations for properties located in declining markets except for condominiums in Florida,” and it has removed Michigan from its list of designated declining markets; this expands the business acceptable to us for Non-Retail originations.

Home Savings of America announced a reduction in its High Balance adjustment for the Conforming 30yr Fixed (CF30J) to .80 from 0.900. HSOA will now allow current market relocks 30 days after expiration, cancellation, or denial on FIXED products. ARM products will still require a 60 day window to relock at current market, but the standard ARM margin on HSOA’s government ARM products has been reduced to 2.00 from 2.25. The company recently released a slew of other changes to FHA loans centered on refinance charges, seasoning on cash-out transactions, occupancy of former investment property, etc.

Here is some good news: Prospect Mortgage introduced a new jumbo program. ProspectJumbo

Pinnacle Capital Mortgage sent out a series of underwriting guideline updates which included an updated LARA policy, a clarification of contingent liabilities, clarified that the financed property limit is cumulative for all borrowers, an updated calculation of HELOC payment on subject property, etc.

Stearns told broker clients about the upcoming critical TILA dates. The Broker and Compensation Agreements have to be to Stearns by 3/25, loans funded by 3/31 can be done under existing rules and regulations, and April 1 things change.

NYCB sent out a series of product updates, dealing in part with Fannie’s DU Refi Plus Program, life estates eligibility, warrantable condo conditional final project acceptance, etc.

MSI has posted a clarification of the FHA Guidance changes and imposes MSI overlays, a revision of  the MSI Minimum FICO for 5/1 Streamline ARM loans, more information on USDA announcements, etc.

What is the bond market focused on? One item that has really turned some heads recently was the letter from PIMCO’s Bill Gross, stating that its Total Return Fund sold all of its Treasury holdings. Mr. Gross has been right and wrong in the past. One quote said, “PIMCO’s not sticking around to see what happens when QE II ends” in June. Currently 70% of the Treasury’s annual bond supply is being gobbled up by the Fed through quantitative easing – what happens if the purchases stop? Even with the turmoil around the world there is little “Flight to Quality” bid for US Treasury debt because the Fed is “busy printing dollars to create Inflation to solve our own debt crisis.

Investors are also worried about the potential impact on global recovery the event in Japan could produce. Japan is the world’s 3rd largest economy, the 4th largest exporter, 3rd largest importer of oil and 5th largest importer overall, so concerns are running high – Japan’s debt is already at 200% of GDP. Even before the earthquake, Japan’s economy had been struggling to recover from deflationary pressures and investors are concerned the government has little room to borrow the funds needed to support massive rebuilding efforts. Look for rebuilding projects to eventually be supportive to economic growth, as disaster cost estimates are nearing $200 billion. Look for central banks worldwide to keep liquidity flowing into the system, as they work together to ensure economic growth and Japan are supported.

Here in the US, there is no scheduled economic news today, but tomorrow we have the Empire Manufacturing number. On Wednesday we have some Export & Import Price data, the Producer Price Index, but also the end of the Fed meeting – don’t look for any change to rates. Thursday is Jobless Claims, Housing Starts & Building Permits, and the Consumer Price Index. On the 17th we have Industrial Production & Capacity Utilization, along with Leading Economic Indicators and the “Philly Fed” numbers. MBS prices ended the day Friday worse by about .250; this morning we find the 10-yr yield sitting around 3.38% and MBS prices +.125. Rob Chrisman

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