Back in the ‘00s I remember watching a Discovery Channel show on people summiting Mt. Everest. One of the amateur climbers matter-of-factly said that he financed his THREE attempts by taking out a HELOC on his home. I remember thinking, “I hope I didn’t securitize this guy’s loan.” HELOC’s were banished to the preverbal woodshed over the past few years, but now appear to be back. In a recent Bloomberg article about $1,000 faucets (http://www.bloomberg.com/news/2013-11-25/faucets-at-1-000-abound-as-home-equity-spigot-opens-mortgages.html) Kathleen Howley writes, “Helocs are making a comeback as the housing market recovers enough to make the junior mortgages a safer bet for banks more than seven years after the beginning of the housing crash that saddled them with billions of dollars of losses. The median price for an existing home probably will gain 11 percent this year, according to the Mortgage Bankers Association in Washington, after plunging about 33 percent during the crash.” HELOC originations will increase to $91 billion in 2013 and increase to $97 billion next year, according to an estimate by Moody’s. Both are the highest levels they’ve been since 2008.
We have 21 business days until QM rules the land, and investors are preparing for it. Right House Capital, a purchaser and broker for investor fallout loans, has been preparing for QM for the past several months. Right House will be able to assist with the liquidation of all loans deemed Non-QM by the primary investors. Right House will have the ability to deliver these to the GSEs should a loan be rejected due to an investor’s QM overlay, or for subjective reasons where QM compliance could be interpreted differently. For loans that are a clear violation of QM, Right House also has a home for these. They have strategically partnered with true “scratch-and-dent” buyers who will have an appetite for Non-QM loans. For more information, please contact your RHC Account Executive, or Craig Beard, Director of Sales, at firstname.lastname@example.org, or visit www.righthousecapital.com.
MenloCompany (www.menlocompany.com) has a client of its mortgage M&A business that is expanding aggressively in Arizona, California, Colorado, Maryland and Missouri. “This National Retail Origination Lender is well capitalized and has set forward to invest, expand and support local mortgage teams to include all local fulfillment – underwriting, funding, closing etc. With a strong retail focused, loan officer supported company culture, this company is looking for licensed mortgage brokers or teams of mortgage bankers, doing a monthly production minimum of $2M/month or more; with the right size and monthly production ($5M-$15M/month), a financial acquisition is possible. Their stated commitment is to build a lending center around these targeted teams in these states, to exceed $10M/month.” To learn more, email Rick Roque at email@example.com.
Deutsche Bank banned online chats for foreign exchange FX and fixed income staff – I guess that would include mortgage backed securities. “Deutsche Bank has prohibited its foreign exchange and fixed income staff from using online chat rooms, joining a growing band of lenders who have halted the use of such forums over concerns of mounting scrutiny from regulators.” Read it at Reuters: http://uk.reuters.com/article/2013/12/04/deutsche-chatrooms-idUKL5N0JJ1GM20131204.
The acronym of the day is “FHFA”: the Federal Housing Finance Agency. Last week’s announcement of the major overhaul of mortgage insurance master policy requirements by Fannie Mae and Freddie Mac turned a lot of heads. Improvements to policy requirements include changes to loss mitigation, claims, assurance of coverage, and communication policies. “FHFA has worked with Freddie Mac and Fannie Mae to revise the MI master policy requirements to ensure consistent and reliable MI coverage, and support our efforts to achieve clarity of coverage, greater operational efficiency, and transparency in the mortgage market. Fannie & Freddie have “confirmed that the MI companies with whom we do business have included the new requirements in their master policies. We anticipate that each MI company will file its revised master policy with the appropriate state insurance regulator by the end of 2013, with an implementation date to be announced by Freddie Mac in mid-2014. The master policies will be effective for all loans originated and sold to us after the implementation date.” Although lenders are discussing the changes directly with their MI companies, here is the press release: FHFA press release.
But there was more to come! Any lender that specializes, or at least makes a market in, non-agency and/or jumbo loans, or FHA/VA loans, or private money, received some good news yesterday. At least the 25 basis point adverse market fee is finally going away in most states! “The Federal Housing Finance Agency (FHFA) today took additional steps toward fulfilling the Strategic Plan for Enterprise Conservatorships that FHFA published in February 2012. That Plan established a conservator goal of gradually contracting Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying and shrinking their operations. The basic premise behind the ‘contract’ goal is that with an uncertain future and a general desire for private capital to re-enter the market, the companies’ market presence should be reduced gradually over time. When FHFA set forth the 2013 Conservatorship Scorecard in March, it also set an expectation that guarantee fees would continue to be gradually increased in 2013 in furtherance of the strategic plan. Today, FHFA directed Freddie Mac and Fannie Mae to raise guarantee fees in three components: the base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points; the up-front g-fee grid will be updated to better align pricing with the credit risk characteristics of the borrower; and the up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Freddie Mac and Fannie Mae since 2008 is being eliminated except in the four states whose foreclosure carrying costs are more than two standard deviations greater than the national average.
These changes, of course, will be passed on to new borrowers. If any LO out there is complaining about Wells or Chase jumbo rates in their branches being better than conforming rates, just wait until this hits! Remember that jumbo loans don’t have specific gfees, and the implied loss on jumbo loans is much, much less than the 50 or 60 basis point loss (in theory) implied by the agencies on their loans. So yes, increasing the guarantee fee will ultimately make it more expensive for lenders to use F&F to back their loans and give them an incentive to use private money instead. I am sure that the FHFA’s actuaries have figured out the impact on volumes, and therefore profits, that the combination of higher rates & higher gfees and therefore lower volumes will have.
Speaking of volume, subconsciously there must be some merit to piping in cheerful music while you grocery shop, because this past week while trying to find the perfect loaf of sourdough I thought to myself, “you know what, I think I WILL have a holly, jolly, Christmas.” When I find myself too high on life, I tend to read things which bring me down to reality. Barron’s article “Obama’s Next Mess: The Mortgage Market” (http://online.barrons.com/article/SB50001424053111904227604579199922934013530.html) is a good tonic this holiday season. (You’ll need a subscription.)
With QM approaching, the CFPB’s definition of “cradle to grave” is expanding and the penalties are, well, punitive. In the past your biggest compliance risk started at the GFE. However, the cradle starts at the rate quote and APR most be disclosed and you must have an audit procedure in place that ensures APR is being disclosed. Fact is, many loan officers are still putting their companies at risk by quoting rates without APR and/or in an inconsistent manner that conflicts with company policy. Compliance expert Ken Perry (CEO, The Knowledge Coop) and Dave Savage (CEO, Mortgage Coach) recorded this quick 5-minute compliance briefing that speaks directly to these issues and how you can easily achieve company-wide compliance. Click here to watch it: http://www.mortgagecoach.com/qmcompliance.
Let’s move on to some relatively recent lender, vendor, and investor updates to obtain a sense of the trends out there!
ARM’s are not dead, and here is a sign of the times: Western Bancorp now offers its wholesale partners an option for jumbo borrowers who want an alternative to rising fixed-rate loans. With a 1.125 % start rate, a 6.25% life cap and a low 0.5% per-adjustment cap, this loan provides borrowers with flexibility, cash flow and rapid principal reduction opportunities. Even if this ARM adjusted straight to the life cap (unlikely) it won’t reach current Jumbo fixed rates for over 3.5 years. Western Bancorp lends in California, Washington, Idaho and Montana. This product is offered in selected markets. Contact a rep (http://www.westernbanc.com/contact-us/) for details on availability in your area.
Affiliated Mortgage is no longer taking locks in Alaska, Delaware, Hawaii, Maine, Maryland, Nevada, New Hampshire, New Jersey, New York, Rhode Island, Vermont, Washington DC, and West Virginia.
But Affiliated Mortgage has expanded its Conventional Conforming guidelines to allow inter vivos revocable trusts, construction modifications, escrow for completion holdbacks, borrowers with up to ten financed properties, financed PMI, escrow waivers on loans with HO6 walls in coverage, and partial escrows. Appraisal guidelines have been relaxed such that they are not required until 75 days from closing, the interest credit period has been extended to ten days from disbursement, and the time period for proof of payment of taxes/insurance from the closing date has been reduced to 30 days.
For FHA and VA loans, Affiliated is now allowing escrow for completion holdbacks, expanded its loan seasoning requirement to 120 days, increased the HPML DTI requirements to 50% (VA only), reduced the time period for proof of payment of taxes/insurance from the closing date to 30 days, and removed the FHA streamline requirement for AVM and the requirement that the borrower names appear in the same order on the mortgage application as the signed closing docs.
Mortgage Market Alert (MMA) is the first mobile service of its kind to provide mortgage professionals real time market data in the palm of their hands. “No need to sit at your desk. With our push notification service, you won’t miss any significant changes in the market that may benefit or hurt your clients. This is an indispensable tool that every professional mortgage advisor must have to properly serve their clients. Real time market data feeds, push and/or email notification of real time market movements, quickly email or text this data to your clients to motivate them to act on their mortgage needs, and so on.” No, this is not a paid ad, but there is a 7-day free trial to start providing top-notch advice directly from your mobile device: www.mortgagemarketalert.net.
Mortgage rates are behaving themselves again. Everyone, and their uncle, knows that the Fed will eventually reduce their buying of fixed-income securities. Friday’s, Monday’s, and (so far) today’s improvements seems to indicate that the markets have become comfortable with tapering – whether it happens this month or early next year, it is going to happen. And it won’t be the worst thing to happen. (“In the latest Reuters poll of 63 economists conducted after Friday’s employment report, 14 percent said they expect the FOMC to announce a slowing in its pace of asset purchases at the December meeting; 30 percent said January, while 52 percent think it will be in March.”)
Aside from a 1PM EST Treasury auction of $30 billion three-year notes, there isn’t much going on. (Thursday and Friday we’ll see Jobless Claims, Retail Sales, and the Producer Price Index – but when was the last time inflation was a worry?) The yield on the 10-yr t-note, a proxy for rates in general, closed Monday at 2.86% but is down to 2.82% early Tuesday, and MBS prices are tagging along, up/better by about .125.
Christmas Carols for the Psychologically Challenged
(1) Schizophrenia — Do You Hear What I Hear, the Voices, the Voices?
(2) Amnesia — I Don’t Remember If I’ll be Home for Christmas
(3) Narcissistic Personality Disorder — Hark the Herald Angels Sing About Me
(4) Bipolar Disorder (Manic Episode) — Deck The Halls And Walls And House And Lawn And Streets And Stores And Office And Town And Cars And Buses And Trucks And Trees And Fire Hydrants And…….
(5) Multiple Personality Disorder — We Three Queens Disoriented Are
(6) Paranoid — Santa Claus Is Coming To Get Us
(7) Borderline Personality Disorder — You Better Watch Out, You Better not Shout, I’m Gonna Cry, and I’ll not Tell You Why
(8) Antisocial Personality Disorder — Thoughts of Roasting You On an Open Fire
(9) Obsessive Compulsive Disorder — Jingle Bells, Jingle Bells Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells
(10) Agoraphobia — I Heard the Bells on Christmas Day But Wouldn’t Leave My House
(11) Alzheimer’s Disease/Senile Dementia — Walking In a Winter Wonderland Miles from My House in My Slippers and Robe
(12) Oppositional Defiant Disorder — I Saw Mommy Kissing Santa Claus So I Burned Down the House
(13) Social Anxiety Disorder — Have Yourself a Merry Little Christmas While I Sit Here and Hyperventilate
(14) Attention Deficit Disorder — We Wish You……Hey Look!! It’s Snowing!!!
Rob (Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)