Aug. 7: Reverse mortgages in the news; the President’s mortgage plan & MBA’s response; FDIC videos on interest rate risk

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...

We all feel let down once in a while – let down by a spouse that forgot an anniversary, let down by an underwriter who misplaced the rush file, let down by senior management that didn’t stick up for your department. How about feeling let down by someone who’d always let you down? Here you go – football season is less than a month away, and I just had to throw this one in: http://www.newsnet5.com/dpp/sports/football/browns/cleveland-browns-to-honor-fan-who-wanted-players-as-pallbearers-to-let-him-down-one-last-time.  

Yes, reverse mortgages are alive and kind of well. HUD and Congress want them to be weller. Before it took off for a month of R&R, Congress authorized HUD to improve its reverse mortgage program. (By the way – here’s a little primer on reverse mortgages, right-hand column at titled, “A Little Primer on Reverse Mortgages”: http://www.stratmorgroup.com/.) Last week the U.S. Senate passed by unanimous consent the Reverse Mortgage Stabilization Act, H.R. 2167. The bill, which was passed by the House in June and now goes to the President for his signature, will allow HUD to use notices or mortgagee letters to establish additional or alternative requirements necessary to improve the fiscal safety and soundness of the Home Equity Conversion Mortgage (HECM) program.   The bipartisan bill would “authorize the secretary of Housing and Urban Development to establish additional requirements to improve the fiscal safety and soundness” of the Home Equity Conversion Mortgage (HECM) program. “In order to more appropriately match loans with potential borrowers, leaders at HUD asked for the authority to quickly add consumer safeguards and make other changes to improve financial performance of the HECM insurance fund. Among the changes HUD is considering are financial assessments of HECM applicants to determine if they have the capability of meeting the responsibilities of the loan—including tax and insurance payment obligations, mandating the set-aside of funds for tax and insurance payments to ensure borrowers can meet those obligations, restrictions on the amount of proceeds that can be drawn initially, in order to prolong the useful life of the assets, and a change to how the borrower’s spouse is included.  

Reverse mortgage lenders know all this, but another bill (the Senate Banking Committee’s FHA Solvency Act of 2013) includes amendments that would, among other things, (i) provide that in addition to the principal dollar amount limitation on all insured HECM loans, fixed rate HECMs may not involve  a principal limit with a principal limit factor in excess of .61, (ii) allow HUD to promulgate rules to require servicers of FHA loans to enter into a subservicing arrangement with any independent specialty servicer approved by HUD, and (iii) prohibit FHA from insuring a mortgage executed by a borrower who was the borrower under any two residential properties that have been previously foreclosed upon. In addition, during the markup committee members offered and then withdrew numerous amendments that later could be included in the bill that is considered by the full Senate. For example, those amendments would (i) create a statutory requirement that HUD/FHA repay Treasury for any funds needed to stabilize the MMI Fund, (ii) revise the indemnification provisions to provide certainty for lenders, and (iii) provide the FHA additional flexibility in times of financial crisis to ensure it can play a countercyclical role. Finally, committee members agreed to work with the FHA to expand loss mitigation options for individuals who receive income from sources other than employment.  

Yes, as much as they say that want to, politicians can’t stay away from housing – at least with dealing with the GSEs. In a press conference in Phoenix, President Obama laid out his plan for restructuring the GSEs.  His plan sounds very similar to what is being proposed in the Senate, so there were no big surprises: a wind down of Fannie and Freddie (no specific timetable provided) to make room for the private sector, and some form of government backstop as necessary to encourage a liquid market for mortgage-backed securities (MBS) and the 30 year fixed rate product. The government backstop would insure investor recovery of principal and interest, but would only be paid after substantial private capital has been depleted. He offered a couple of things that are a little easier to accomplish, like creating a common Fannie/Freddie platform for issuing new MBS and reducing Fannie’s and Freddie’s mortgage holdings. He emphasized that any restructuring needs to provide adequate opportunity for first time home buyers (1-800-GO-FHA?). Dave Stevens with the MBA sent a note out to MBA members, with a response. “I wanted to make sure you had a copy of the speech, a fact sheet released by the White House and MBA’s statement reacting to the remarks.”   Switching gears, but still staying in the government, more than 50% of internet usage is through videos. And some of them don’t even involve panting or repetitive music.

Our brethren at the Federal Deposit Insurance Corporation (FDIC) announced the release of a new video in its third installment of “technical assistance videos to provide useful information to bank directors, officers, and employees on regulatory issues and proposed regulatory changes. This video addresses the key elements of a bank’s interest rate risk framework. It includes a discussion of the types of interest rate risk, measurement systems, assumptions used in interest rate risk models, and risk limits and mitigation. This video is intended for management teams of community banks, particularly those involved in the asset/liability management function, including members of a bank’s Asset/Liability Committee or similar senior management committee.” It’s kind of like owning the first season of the Sopranos: five additional videos will be released as part of this third installment of videos. The additional videos will be released over the next five months and will cover fair lending, appraisals and evaluations, troubled debt restructurings and the allowance for loan and lease losses, evaluation of municipal securities, and flood insurance coverage. “The first installment of six videos was released in early April and was aimed at new bank directors to help prepare them for their important fiduciary role. The second installment of six videos was released on June 30 and was a virtual version of the FDIC’s Directors’ College Program.” Don’t be the last on your block to own them! The FDIC’s technical assistance videos and additional information can be accessed at http://www.fdic.gov/resourcecenter.  

How about a little agency and regulator news?  

Fannie Mae, Freddie Mac Announce Uniform Dataset to Support CFPB Closing Disclosures. On July 30, Fannie Mae and Freddie Mac announced that they are developing a standardized dataset to support the consolidated closing disclosure forms expected to be finalized by the CFPB in the coming months. The new Uniform Closing Dataset (UCD) is a component of the broader Uniform Mortgage Data Program currently being implemented by Fannie Mae and Freddie Mac, which is designed to standardize the way loan data is defined, captured, and delivered. The enterprises are currently obtaining input from select industry participants and will release the UCD after the CFPB finalizes its rule.  

Fannie Mae Announces Lender Quality Control Requirements, Other Selling Guide Updates. On July 30, Fannie Mae announced in Selling Guide Announcement SEL-2013-05 significant revisions to its Lender Quality Control Requirements, including specific requirements related to lender’s ongoing quality control (QC) assessment of loan origination activities and associated procedures, with the aim of reducing the risk of repurchases. The announcement provides a table of numerous revised requirements and highlights several new requirements, including that lenders (i) ensure that the QC vendor complies with the lender’s QC plan and Fannie Mae’s requirements, (ii) review at least 10% of the loans reviewed by vendors, (iii) only use Fannie Mae’s appraisal field review forms, and (iv) provide to Fannie Mae upon request a copy of QC audits and audits of the QC process. The announcement also includes numerous other Selling Guide updates related to, among other things (i) compensatory fees, (ii) field reviews, and (iii) authorizations to transfer funds.  

Fannie Mae Announces Standard and Streamlined Modifications Rate Adjustment. On July 31, Fannie Mae announced that as of September 1, 2013, the rate for standard and streamlined modifications is 4.625%, an increase from the 4% applicable to modifications with approved dates between December 1, 2012 and August 31, 2013. The notice reminds servicers that the interest rate used for the permanent loan modification must be the same interest rate reflected in the borrower’s Trial Period Plan.  

The CFPB issued a final procedural rule a couple of weeks ago that stipulates the process by which the Bureau will determine if it has reasonable cause to decide if a non-bank lender has offered or provided financial services in such a way that poses risk to consumers, a.k.a. the “reasonable cause” rule.  In cases where there is reasonable cause, the CFPB now has the right to supervise the entity in question or any so-called “covered persons.”  This includes covered persons who offer any sort of service involving the mortgage of any personal or family connection or household purpose, is a larger participant of a market for other consumer financial products or services, or offers or provides any private education or payday loan.  If served with a Notice of Reasonable Cause (!), respondents should explain how they do not fall into any one of the above categories, supply any necessary documentation to prove that, make a request to present a supplemental or oral response, and submit an affidavit or declaration that the response doesn’t contain anything that would make it materially misleading.  The takeaway from this?  The CFPB doesn’t want you modifying loans for your frat brothers anymore.  

HUD has developed a workaround for the issues that have come up with the Department of the Treasury rejecting payment of up-front mortgage insurance transactions where the ampersand (&, better known as the “and” sign) is included in the ACH account holder names.  Lenders that receive this error message should re-submit the payment in FHA Connection, and if the payment is rejected because of a duplicate payment issue, it should be submitted again but with a penny added to the amount.  In cases where late charges need to be added to the payment to make it go through, lenders should add the 4% late fee, which HUD will adjust and refund once the payments are reflected in the system.   Due to a jump in the number of condo approval applications for projects that allow unit rentals for less than 30 days or the use of units for hotel purposes and contain mortgagee exception clauses, all of which previously made these projects ineligible, the FHA is rolling out an alternative option for amending the project legal governing documents.  The Association Board may provide a signed, dated, and executed written statement affirming that there are no units within the project currently permitted to rent for less than 30 days or the recorded Covenants, Conditions, and Restrictions may be amended to remove this particular language.  In cases where the Association will not execute a legal document but will provide a statement, the originating lender can provide a statement to be submitted as part of the case binder for insurance endorsement.  Borrowers must execute a Borrower’s Contract with Respect to Hotel and Transient Use of Property (HUD-92561) as part of the general requirement for FHA-financed condo loans.  

There just aint a lot of news moving the markets, so we may-as-well go back to the usual “comments from Fed officials suggesting that the Fed could begin to taper its bond purchases as soon as September hurt MBS” story. The Fed’s Evans said that the exact timing would depend on future economic data – geez, is that a surprise? But interestingly, perhaps borrowers are becoming accustomed to these rate levels: volume in MBS picked up to 93 percent of the 30-day moving average versus 56 percent on Monday per Tradeweb. (And apps edged higher last week.) By the end of the day agency MBS prices were about unchanged, and the 10-year note was nearly unchanged at 2.64%.  

I head up to the Seattle area today, and it is a bit early to know where the market is. There is little to move the markets although we do have a $24 billion 10-year Treasury note auction at 1PM – bid early and bid often! The 10-yr is a shade better at 2.63% and MBS prices are basically unchanged.     How about part 2 of a run on some trivia? The song, Auld Lang Syne, is sung at the stroke of midnight in almost every English-speaking country in the world to bring in the New Year. Drinking water after eating reduces the acid in your mouth by 61 percent. Peanut oil is used for cooking in submarines because it doesn’t smoke unless it’s heated above 450F. The roar that we hear when we place a seashell next to our ear is not the ocean, but rather the sound of blood surging through the veins in the ear. Nine out of every 10 living things live in the ocean. The banana cannot reproduce itself. It can be propagated only by the hand of humans. Airports at higher altitudes require a longer airstrip due to lower air density. The University of Alaska spans four time zones. The tooth is the only part of the human body that cannot heal itself. 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.)