The reason for the increase in mini-correspondent offerings to brokers; investor & vendor updates

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

The broker segment continues to mull over the final “final” rule from the CFPB regarding compensation. Sure, there are some nuances, but many boil the verbiage down to its essence that brokers’ compensation is included in the 3% cap, and that mainstream investors will only buy Qualified Mortgages that provide them a safe harbor against future lawsuits.

 

I received this note, from a broker. “In the ‘this is good news for small brokers’ do we mean that it just not as bad as it was before? I mean, really, a correspondent lender can earn a yield spread premium (YSP) of 5, 7 or more, and brokers are limited to 3, less the other fees that are included in the calculation, so let’s say 2-ish? It’s akin to saying, ‘We have great news – your cancer is going to kill you in 4 months not 3!’ Gee, great, thanks. I honestly don’t know why I keep trying to be a broker. Maybe it’s because I have spent the last 25 years trying to create a good business and help the community. We have already had to give up a good portion of our market (lower end mortgages) because we can’t afford to lose money on every closing.”

 

And this one. “Wholesale lenders, depending upon loan size, typically are charging 1% or more of the loan amount in fees up front in underwriting/admin/etc. type fees. Rather than one company being limited to 3%, now you have two companies that are trying to earn their piece of the pie out of that 3%? It would seem that broker companies are going to begin having their income capped at no more than 2% of the loan amount unless the wholesale business is restructured to increase the rates offered to brokers in order to no longer charge actual fees to the borrower on the loan? The borrowers may end up getting a better deal for fees charged to them at closing, but I would think this would cause interest rates to be higher for the consumer.”

 

Which of course ties directly in to this question: “Rob, why are all these wholesale lenders offering mini-correspondent programs?” My opinion is that the vast majority of brokers are smart, independent businessmen and women who are going to do what it takes to survive and continue to serve their client base. The same can be said for investors still offering a wholesale channel (and those that don’t), but a mini-correspondent channel is seen as a way around the fee cap. But with a mini-correspondent counterparty relationship comes higher net worth requirements, licensing, warehouse, underwriting requirements, and so on (depending on the investor) – basically higher accountability standards. The alternative is to find a new home, and focus on originating loans – and thus I am fielding numbers of e-mails from brokers asking for opportunities out there and from companies looking for new branches.

 

Let’s play catch up on investor and vendor news. As always, it is best to read the actual bulletin for full details, but these will give you a sense of the trends out there.

 

When qualifying borrowers on Best Effort transactions, Wells Fargo is requiring that all payments, including HELOCs on REO other than the subject property, use a fully indexed and fully amortizing principal and interest payment calculation in order to provide a more accurate assessment of their ability to repay.  Per the new guidelines first mortgages on non-subject properties should use the outstanding principal balance, fully indexed note rate, and existing amortization term to calculate the qualifying principal and interest payment, and borrowers should be qualified with a full PITI payment that includes HOA fees where applicable.  The calculation for non-conforming HELOCs depends on the loan purpose, subject property status, and whether or not the loan is a Wells or a non-Wells HELOC; a full matrix can be found in Newsflash C13-022.  This applies to all Best Effort loans locked or registered on or after June 17th.

 

Wells has updated its requirements for conventional Conforming manually underwritten loans qualified with non-traditional credit such that only purchases and rate/term refinances of 1-unit primary residences will be eligible and self-employment income may not be used to qualify borrowers. 

 

As per the updated loan score requirements issued by Fannie, Wells will require a minimum credit score of 680 for manually underwritten 1-2 unit primary residence, co-op, and condo transactions where the LTV is less than 75%.  For Home Opportunities 1-unit condos and co-ops, the minimum score will be 680 regardless of LTV.

 

In order to align with Agency salability requirements, Wells will no longer consider 3-4 unit properties to be eligible the 5/1 ARM Home Opportunities product.  Along with all of the aforementioned Wells updates, this will apply to all Best Efforts registration and locks dated July 1st and after.

 

US Bank is now requiring all Freddie Mac Open Access Streamline refinances and Fannie Mae DU Refi Plus loans on investment properties not currently serviced by USBHM to include a full appraisal.  These properties are no longer eligible for a PFW or HVE offering.

 

Citibank has updated its credit overlays to add guidance on FHA short sales, which states that loans where the current note holder writes off the amount of debt that can’t be refinanced into a new FHA mortgage are not eligible for refinance.  Guidance on departure properties has also been clarified to require that the value of the departure property be documented with at least an exterior-only inspection.  For the full matrix of Conventional credit overlays, see http://images.communications.citimortgage.com/Web/CitiMortgage/CL133_Credit_Overlays_052213.pdf.

 

For all condo and attached PUD transactions, Fifth Third is requiring lenders to submit any documentation used to represent and warrant the condo project or attached PUD’s eligibility.  Fifth Third has also published updated checklists for pre-close credit review and closed loan submission checklists, mandatory for all loans.

 

In cases where borrowers who do not own a primary residence are purchasing an investment property, Franklin American is requiring a minimum of six months’ verified income reserves regardless of AUS recommendation.  In addition, borrowers must be qualified without the use of the subject property’s rental income.  This applies to all transactions locked on or after June 15th.

 

FAMC has reduced the minimum FICO for all FHA Streamline refinance transactions from 680 to 660, effective as of June 3rd.

 

As per Agency requirements, FAMC has updated its guidelines to state that private transfer fees are not eligible unless allowed by state regulation.  See the guide for a full State Specific Private Transfer Fees table.

 

Mountain West Financial has reduced its CalFHA CHDAP Document Preparation fee from $295 to $250.  Specialty programs such as MCC, down payment assistance, EEMs, etc. will still require an additional $295 Document Preparation fee; however, this will be waived for EEM transaction through June 2013.  All fees will be disclosed in the first block of the GFE, and the base $250 fee will be disclosed in both the GFE and the HUD-1.

 

PennyMac is now allowing both Conventional and Government HPMLs, provided that they comply with all federal and state regulations.  The borrower’s ability to repay must be validated through verification of income, liability, and assets, and all primary residences require the establishment of an escrow account.  HPMLs are not allowed on Jumbo or ARM loans with an initial fixed rate period of less than seven years.

 

Effective immediately, PennyMac has increased number of available note rates for its Jumbo Fixed Rate 30-Year product and now offers rates from 3.375% to 5.125%.

 

PennyMac has expanded its FHA Streamline refinance guidelines to allow LTV/CLTVs up to 135% for borrowers with FICO scores of at least 680 and LTV/CLTVs up to 115% for scores of 640.  The mortgage history policy has been revised to align with FHA guidance and now requires that loans with less than 12 payments being paid off have no 30 day lates during the life of the loan.  This also applies to loans that have 12 months’ or more payments, for which all mortgage payments must have been made within the month due for the three months prior to the date of the loan application.  In addition, the FHA Streamline Refinance has been revised to reflect LTV/CLTV such that 0-115% LTV transactions incur an adjustment of -0.375 and LTVs from 115.01-135% incur an adjustment of -0.750.

 

M&T Bank has clarified that VA IRRRL transactions are subject to a limit of $625,500 and that they do not require pest inspections.

 

Plaza Mortgage has implemented a separate compensation plan outside of brokers’ existing compensation plans on file for HECM Reverse Mortgage ARMs, effective immediately.  This is due to the fact that reverse mortgage ARMs are considered “open-ended” and therefore fall outside Regulation Z.  For full details of the compensation policy, refer to http://click.plazahomemortgage-rates.com/cp/redirect.php?u=NDQ2MXwyODc3NjR8cmNocmlzbWFuQHJvYmNocmlzbWFuLmNvbXw3NTI1NzN8MTcwMzQ5MTAzfDEwMjY1NjQ=&id=16704627.

 

Plaza’s updated living trust policy has been published in full on its website and now includes details of acceptable types of trusts and signature types and a Living Trust Checklist.  One-four unit primary residences, second homes, and investment properties locked as fixed rate or ARM Agency, Elite Jumbo, FHA, or VA transactions are all eligible.

 

Stearns Wholesale has lowered its credit score LLPAs for FHA and FHA Streamline transactions, reducing the adjuster for scores of 680-719 from .5 to .25 and scores of 640-679 from 1.5 to .5.  As a reminder, the minimum FICO for an FHA Streamline is 640.

 

MSI has reduced the minimum FICO for all Conforming High Balance 1-unit single family purchases and rate/term refinances to 700.

 

Clarification has been added to the “For Sale by Owner” restrictions on Conforming Multi-Unit transactions stating that if MSI underwrites the loan the underwriter may permit the property to be a FSBO based on a comprehensive review of the loan, seller, and borrower.  Sellers may not be in default, foreclosure, or short sale, and Non-Arm’s Length transactions are automatically ineligible.

 

MSI is no longer accepting FHA loans for 2-4 unit properties based in New Jersey, effective immediately for all new registrations.

 

Freedom Mortgage has announced the official launch of its commercial lending division, which will be based in New York and managed by Mary Davenport, Nichole Kim, and Shawn Townsend.  The team anticipates the initial originations for CMBS executions to fall in the $2-10 million range.

 

Stonegate Mortgage has sold $115 million in common shares as part of an effort to fund its expansion into the Jumbo market and bolster its servicing portfolio.  Having begun to lend Jumbos directly to borrowers earlier this month, it plans to roll out the new product to brokers and correspondent lenders in the coming weeks.

 

Interbank has issued an announcement that it will not be giving out any free extensions on 30-day locks due to the market’s recent nosedive.  Seven-day extensions are priced at 0.125%, while 15-day extensions cost 0.25%.

 

Carrington Real Estate Services has launched a mobile platform called MyFUELCenter that allows real estate agents to access the information required to close deals on the go.  The interface incorporates a training and education portal with key compliance resources and provides direct access to Carrington’s lead channel.

 

Software provider Aklero Risk Analytics and pricing analytics company NYLX have announced that they will be merging into a new Fort Washington, PA-based company by the name of LoanLogics.  Howard Coynack, founder and CEO of NYLX, will serve as chairman and founder, while Brian Fitzpatrick, CEO of Aklero, will serve as president and CEO.

 

 

Some folks seem to have fun upsetting New York citizens: http://laughingsquid.com/how-to-piss-off-every-new-yorker-in-36-seconds/.

 

 

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “Mortgage Backed Securities: Life after QE3.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers. Rob (Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. 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.)