Dec. 7: Catching up on investor updates; letters on affiliate fees, disclosure docs, portfolio product conflicts, etc.

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...

Today is Pearl Harbor Day. For those interested, here is a short video about what happens after the tours have gone: http://www.youtube.com/embed/MgE2KiPd3xg?feature=player_detailpage.

 

Let’s plunge into some notes and letters received this week, giving us an idea as to what people in the lending & real estate industry are thinking.

 

“I was watching MSNBC, so take this with a grain of salt, and the person being interviewed said that medical expenses were more to blame than the subprime market on the recent housing crisis. Think GAO and CFPB would run a study on that idea. Check out the 5:45 mark at http://www.msnbc.com/morning-joe/watch/concerns-over-er-costs-79118403854.

 

Regarding the question about rate sheet retention to defend against future claims of disparate pricing, Larry Huff, the CEO of Optimal Blue (https://www2.optimalblue.com/) writes, “Rob, I would like to note that Optimal Blue keeps all instances of Fannie, Freddie & Ginnie for all downloads for each customer’s unique pricing. We also have the ability to keep the market pricing (MBS/TBA) if needed as well. With our historical pricing and research feature, we have the ability to recreate market or customer specific pricing including LO comp, margins, or any other component that may affect a lender’s pricing back to Feb 2012.”

 

And yes, we have until mid-2015 for the new disclosure documents to be rolled out – but it won’t be a cake walk. Pillsbury Winthrop Shaw Pittman LLP partner Joe Lynyak (http://www.pillsburylaw.com/joseph-lynyak) writes, “After practically 30 years of attempting to combine loan origination disclosures required by RESPA and Regulation Z, the CFPB issued an 1,800-page document that will likely result in mortgage landers completely revamping their loan origination systems. Although the CFPB listened to the industry and has allowed 18 months to comply, all of the mortgage changes adopted in January of this year will have to be funneled through these changes.”

 

Many banks are well on their way to offering portfolio products, if they aren’t already, with some being QM but some being non-QM. And sometimes channel conflicts arise between competing bank business lines. I received this note from a bank consultant: “I have seen recent examples of banks competing with themselves, like private banking products versus conventional conforming products, which unfortunately may be against the current regulations! For example, if you go to http://www.law.cornell.edu/uscode/text/15/1639b, you’ll find verbiage prohibiting ‘(B) mortgage originators from steering any consumer from a residential mortgage loan for which the consumer is qualified that is a qualified mortgage (as defined in section 1639c(b)(2) of this title) to a residential mortgage loan that is not a qualified mortgage; (C) abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but of different race, ethnicity, gender, or age; and (D) mortgage originators from— (i) mischaracterizing the credit history of a consumer or the residential mortgage loans available to a consumer; (ii) mischaracterizing or suborning the mischaracterization of the appraised value of the property securing the extension of credit; or (iii) if unable to suggest, offer, or recommend to a consumer a loan that is not more expensive than a loan for which the consumer qualifies, discouraging a consumer from seeking a residential mortgage loan secured by a consumer’s principal dwelling from another mortgage originator.”

 

A NorCal Wholesale/Correspondent AE writes, “Has it not occurred to the CFB/Dodd-Frank folks that all DTIs are not created equal? Using a flat 43% DTI for ATR makes no sense. I won’t bother to mention other variables like employment type, duration, LTV, FICO and reserves, but simply focus on income. Is a 43% DTI for a family earning $7k per month as ‘safe’ as a 43% DTI for a family earning $15k per month? Residual monthly income should be factored into the ATR! 20+ years ago, the Chief Credit Officer at the large national bank where I worked had a sliding DTI chart, based on monthly income. A 50% DTI for someone earning $20k per month is ‘safer’ than a 43% DTI for someone earning $5k per month. When and where will the madness end?”

 

Regarding the 3% point threshold, most companies have it under control, but there are still pockets of confusion. I received this query: “With the QM 3% cap, what affiliations are included? I am assuming title, appraisal and realtor. Most lenders are not including a realtor is that right?”

 

James W. Brody, Managing Member of the American Mortgage Law Group, P.C. (jbrody@americanmlg.com) writes, “Concerning your recent query, certain ‘real-estate related fees’ paid to an ‘affiliate’ of a creditor are to be included in calculating QM points-and-fees. The definition of an ‘affiliate’ is a company that controls, is controlled by, or is under common control under another company, as set forth in the Bank Holding Company Act of 1956 (‘BHCA’).  The BHCA defines control as (i) direct or indirect ownership, control, or power to vote 25% or more of any class of voting securities of a company; (ii) control in any manner over the election of a majority of directors or trustees of a company; or (iii) a determination by the Federal Reserve Board (here, the CFPB) that a company directly or indirectly exercises a controlling influence over the management or policies of the company.  If the relationship does not trigger (i) or (ii), then you must consider the totality of the circumstances to determine if an affiliate relationship exists based on common control over management and policies.

 

“In the presence of an affiliate relationship, section 1026.4(c)(7) provides that the following ‘real-estate related fees’ are to be included in the points-and-fees calculation: (i) title fees; (ii) fees for preparing loan-related documents (e.g., deeds, mortgages, and reconveyance or settlement documents); (iii) appraisal and inspection fees; (iv) amounts required to be paid into escrow if not otherwise included in the finance charge.  Note, the foregoing list does not identify realtor fees as being included in this points-and-fees calculation. At the end of the day, a real estate agent’s commission is not the type of fee that the CFPB has stated would have to be included under the Real Estate Related fees commentary when paid to an affiliate. The fees they have outlined are fees related more closely to the loan production aspect, such as appraisals and title work, not the commissions real estate agents are retaining as their compensation. I have not seen any commentary or discussion from the CFPB, other regulators, or others in the industry that states otherwise.”

 

And Attorney Brian Levy with Katten & Temple responded, “Sorry, but no. See a good lawyer to get advice tailored to your business as the ATR/QM Rule is very complex with serious consequences for getting it wrong (and do that soon because time is short). That said, while affiliated settlement service company fees are included in the 3% points and fees test, there are lots of nuances around the definition of ‘affiliated’ which is tied into the Bank Holding Company Act of 1956 definition (http://www.ffiec.gov/exam/InfoBase/documents/02-con-4_k_bank_holding_comp_act-991112.pdf). Also, with respect to real estate commissions, remember that the 3% QM cap applies to the borrower’s fees – typically the real estate commission is a seller charge.”

 

“Rob, are buybacks still an issue out there?” You bet they are! I received this note from an attorney: “Long story short, the types of assertions you reference made by wholesale and correspondent AE’s to originators to encourage them to sign ‘non-negotiable’ agreements with unfair loss shifting provisions were rendered untruthful by the mortgage ‘meltdown’ and the search to pin losses on someone else.  Today, if the loans sale contract permits it, you will get a repurchase/indemnification demand for virtually any reason regardless of whether there is any causation of the loss.  I fully understand and sympathize with your ‘Alice in Wonderland’ perspective. I defend these kinds of matters all the time for originators, but usually before the case becomes a lawsuit (although my firm can handle the litigation as well). Certain investors have become very bold in their litigation strategies, but I try to negotiate the best deal possible for my clients. Unfortunately, there are no magic bullets, but there are a lot of ways to push back on the numbers and, depending on your agreements, the liability question. As with any dispute, the facts are critical. If the case has not yet gone to litigation, my fee structure is typically a relatively small fixed fee up front with a contingent success fee if we are able to settle (on your terms) or get the claim rescinded.  Litigation is handled based on an hourly fee rate.”

 

And on the question of “funding” versus “closing” a loan, Rachel B. writes, “Just a quick note per below: ‘Some use the term ‘when your loan closes’ and others use ‘when your loan funds.’ The first problem is that there is no definition of ‘closing date’ in RESPA/TILA. Therefore are companies are forced to define the closing date for themselves. On page 1432 of the new rule: (Integrated Mortgage Disclosures) (ii) Closing date.  The date of consummation, labeled “Closing Date.’ As we know the consummation date as defined by the CFPB is the date the consumer becomes obligated to the terms of the transaction (signing of docs): http://files.consumerfinance.gov/f/201311_cfpb_final-rule-amendments-to-regulations_integrated-mortgage-disclosures.pdf.”

 

Let’s continue playing catch up with investor and lender updates to spot the trends out there.

 

Due to an improvement in market conditions (before Nonfarm Payrolls, at any rate), Chase will no longer be applying the quarter Non-Agency ARM margin adjustment for Best Efforts Amortizing and Interest Only loans over $1.1m, including both new locks and loans that are re-priced to current market due to a re-lock, product change, or renegotiation.  To accommodate this change, sellers should ensure that all notes disclose the 2.25 margin instead of 2.50, regardless of the loan amount.

 

Citi has made the official announcement that it will not be purchasing non-QM loans and that the HPML option will only be available for FHA and VA non-streamline loans, with HPML eligibility for DU Refi Plus and LP Open Access transactions having been discontinued about two weeks ago.  In addition, manually underwritten loans will be subject to a maximum DTI of 43%, and the 5/2/5 cap option on 5/1 LIBOR ARMs will be discontinued.  These changes take effect for all applications dated January 10, 2014.

 

In order to align its policy with FNMA, Citi is not allowing a Power of Attorney to be used to sign a security instrument or note on cash-out refinances.

 

Recently EverBank began requiring all loan files to contain a Rate Lock Agreement. Sellers will need to submit the initial and all subsequent Rate Lock Agreements in the closed loan package.

 

US Bank has announced that it will be using the 2000 Census data to determine eligibility for all USDA loan applications requesting conditional commitments before January 10, 2014.  All packages requesting conditional commitments received by Guaranteed Rural Housing after that date will employ the 2010 Census data.

 

US Bank has clarified that, for Home Possible primary residences with LTV/TLTVs of less than 90%, contributions by interested parties is limited to 3% of the lesser of the sales price or appraised value.

Effective immediately, US Bank has replaced the previous 15-year draw period and 10-year repayment period for its HELOC products with a 10-year draw period and 20-year repayment period and has lowered the rate ceiling listed on the Equiline Agreement from 25% to 18%.  The minimum prepayment penalty has been removed and replaced with a new “early closure” fee, which is calculated as the lesser of 1% of the line amount or $500 and will be incurred if the borrower prepays in full and closes the line of credit within three years.

 

Nationstar is now accepting investment properties as an eligible property type and has lowered its minimum FICO for FNMA products with 90% LTV to 680.

  

For all Conventional products, Franklin American has updated its rate/term refinance seasoning requirements to permit the use of the appraisal value, regardless of the seasoning of the original mortgage, replacing the previous requirement of the lesser of the purchase price or appraised value for loans with unsupported increases in value for refinance transactions seasoned less than 12 months.  Effective for all Conforming Fixed/ARM High Balance and Conforming ARM products, FAMC is now accepting LP as an acceptable AUS, and the overlay requiring California condos to have $2m in liability coverage has been removed.

 

FAMC has aligned its guidelines with those of the FHA to state that an appraisal is not required if the value is not a benefit to the borrower for refinance and reminds sellers that it does not offer the Back to Work—Extenuating Circumstances program, which is listed as an ineligible feature in the FHA Product Description.

 

FAMC has updated its LLPAs for 2-4 unit properties, effective for all Conventional Conforming Fixed and ARM transactions.  Two-unit properties are subject to a -1.375 adjustment, while 3-4 unit properties are subject to a -1.750 adjustment, replacing the previous adjustment of -1.250.

 

 

Smith climbs to the top of Mt. Sinai to get close enough to talk to God.

Looking up, he asks the Lord, “God, what does a million years mean to you?”

The Lord replies, “A minute.”

Smith asks, “And what does a million dollars mean to you?”

The Lord replies, “A penny.”

Smith asks, “Can I have a penny?”

The Lord replies, “In a minute.”

 

 

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.)