Dec. 28: Agency & investor updates; letters on bitcoins, flood insurance, and regulations driving lending underground

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...

“If you think women are the weaker sex, try pulling the blankets back to your side!” Along those lines, congrats to Debora Crane, a mortgage originator with REMN (Real Estate Mortgage Network) who was named VIP Woman of the year by the National Association of Professional Women. Never heard of NAPW? You should – they have over 600,000 members (http://www.napw.com/National-Association-of-Professional-Women.cfm).

 

I’ll take my change the gas station in dollars and cents, thank you very much. But it is oddly interesting to follow the development, or lack thereof, of the bitcoin. From Nevada: “Now we have a currency –bitcoin – that is accepted, and that currency does not have any backing. It is not issued by a country. It is ‘mined’ using computers: http://dealbook.nytimes.com/2013/12/21/into-the-bitcoin-mines/?_r=0. How can something that does not actually exist have value? As loan originators we have to prove everything 5 times over to get a loan done. Yet, someone can have a cyber-account with money that does not actually exist, and purchase things with that?”

 

(Regarding bitcoins, former Fed Chair Greenspan called it a “bubble” and said it is difficult to determine its “intrinsic value;” China has ruled it is not a currency and banned its banks from doing business in it; Bank of America has predicted it will become a “major means of payment for ecommerce;” current Fed Chair Bernanke said the Fed has no plans to regulate it; the ABA said bank interest in doing Bitcoin transactions is “not high” on the list of priorities; the Treasury is warning anyone using Bitcoin they will need to comply with regulations as a money transmitter and with anti-money laundering rules; China banned its country’s Bitcoin exchanges from accepting new inflows of cash and Denmark is working on standards around virtual currencies as it clamps down. Heck, we don’t even seem to know if we should capitalize the word!)

 

Switching gears, from the Great Pacific Northwest, Chris B. writes, “One quick question….did you know the Fannie Mae boiler plate Deed of Trust has a misspelling of the word ‘legal’ in the MERS paragraph?  It’s misspelled “Leugal” on the form.  I have a client who is a PhD and editor for a school district, and she asked the obvious question, ‘How could this be misspelled’? I wonder if someone with more ability to garner the attention of the editorial board at Fannie Mae could mention this and have it corrected. I know it’s a minor detail in the explosion of change the industry is under, but if we’re being held to a higher standard…”

 

“The Wall Street Journal reports that some of the largest investors in the world are responding to increasing risks for major institutions by altering their trading. For example, some investors are using more ‘upstairs trades,’ where deals bypass the broader market and are instead conducted among institutions. Investors say an increase in algorithmic trading and other changes have made such moves necessary. What is to stop residential lending from making a similar shift and ‘going underground’? Private, ‘off the record’ lending is already on the rise. Does that help the consumer?”

 

A while back, from Southern California, Gerald L. wrote to me saying, “The CFPB’s final rule (May 3, 2013) removes the requirement for a credit card lender to consider a consumer’s ‘ability to repay’ for those over age 21; and allows them to consider ‘income and assets to which such consumers have a reasonable expectation of access’. What happens to ATR if a court rules that this consideration can also apply to other forms of consumer debt?” (Here is the information: 25818 Federal Register, Vol. 78, No. 86, Friday, May 3, 2013, Rules and Regulations; BUREAU OF CONSUMER FINANCIAL PROTECTION, 12 CFR Part 1026 [Docket No. CFPB–2012–0039], RIN 3170–AA28, Truth in Lending (Regulation Z); SUMMARY: The Bureau of Consumer Financial Protection (Bureau) issues this final rule to amend Regulation Z, which implements the Truth in Lending Act (TILA), and the official interpretations to the regulation…Regulation Z currently requires that issuers consider the consumer’s independent ability to pay, regardless of the consumer’s age; in contrast, TILA expressly requires consideration of an independent ability to pay only for applicants who are under the age of 21. The final rule amends Regulation Z to remove the requirement that issuers consider the consumer’s independent ability to pay for applicants who are 21 or older, and permits issuers to consider income and assets to which such consumers have a reasonable expectation of access.)

 

From Florida I received this note: “Basically the Federal Government is raising flood insurance rates to deal with a $24 billion dollar deficit in the National Flood Insurance Program.  This will (and already has) increase many premiums tenfold.  For example, a couple in the area purchased a home last month, and the premium that previously was $3600/year increased to $44,000. What do you think this will do to the affected housing markets? Where I live, many homes require flood insurance due to either being on the water or the low elevation.  These new premiums, in addition to being undesirable and unaffordable, will cause many prospective and previously-qualified buyers to no longer be eligible.  This could be a disaster in the local housing markets.  Since the U.S. Housing Industry is a bell-weather for the economy, and the government has done a LOT to prop the industry (HARP, HAMP, GSE purchases of MBS’s), how could they allow this to happen?”

 

The Biggert-Waters Flood Insurance Reform Act of 2012 significantly revised Federal flood insurance statutes. Certain provisions of the Act require the Federal agencies (Fed Board of Gov, CFPB, et al) to issue implementing regulations and conforming revisions to their current flood insurance regulations. According to Black, Mann & Graham LLP who have written extensively regarding this issue, “the proposed rulemaking would establish requirements with respect to the escrow of flood insurance payments, the acceptance of private flood insurance coverage, and the force-placement of flood insurance. The proposed rulemaking also would clarify the Agencies’ flood insurance regulations with respect to other amendments made by the Act and make technical corrections. Furthermore, the OCC and the FDIC are proposing to integrate their flood insurance regulations for national banks and Federal savings associations and for State non-member banks and State savings associations, respectively.” The Agencies’ proposed rulemaking would implement only certain provisions of the Act over which the Agencies have jurisdiction. Therefore, lenders should consult the Act for further information about revisions to the flood insurance statutes that will not be implemented through this rulemaking.

 

Regarding the agencies, Scott Chaplin, a senior LO, writes, “A while back I read through DeMarco’s speech and couldn’t help but think about what got the GSE’s into the mess that they were in prior to 2008 conservatorship to begin with.  Are people so short-sighted that they can’t see it was the ‘everyone-should-own-a-home’ mentality that was mandated by Barney Frank and his cronies that caused them to fail in the first place?! They may not have directly caused it but they set the wheels in motion and the unintended consequence of greed from buyers, to loan officers, to realtors, to banks, to secondary marketing, and global investors all added to the problem generated by this notion.  The GSE’s were forced to compete and comply with riskier mortgage products than they had ever done like ALT-A and level II, II & IV products. Fannie Mae was perfectly healthy for 70 years and Freddie Mac for 38 years prior to this. As a loan officer for a more conservative lender at the time, Chase Manhattan Mortgage Corporation, I was taught to do business the right way.  I knew I was in this for the long-haul and wanted to what was right for my company and my customers.  Unfortunately, I probably lost a lot of money that could have been made but at least I was able to sleep at night.  I can’t tell you how many times I would prequalify buyers and tell them what they could actually afford but they didn’t like the number so they went down the street to another lender (insert many names here) and would get twice the loan they qualified for.  Six months to a year later I would get a call asking me if I could help them because they couldn’t afford their payment!  It sure is frustrating to watch our industry get totally restructured through unreasonable regulation/legislation by the same people that generated the problems in the first place…Dodd, Frank, and irresponsible politicians.”

 

Let’s keep playing catch up with some relatively recent agency, lender, and investor updates to gain a sense of the residential lending trends out there.

 

As a reminder, Fannie Mae has updated its policies on bankruptcy and foreclosure attorney fees and other reimbursable expenses, the full details of which are available via www.fanniemae.com.

 

Fannie Mae has expanded its Standard Modification and Streamlined Modification programs to include loans with a pre-modified mark-to-market LTV of less than 80% where this is calculated as the UPB divided by the current value of the subject property.  Services will no longer be required to submit the case for review and approval through HomeSaver Solutions network so long as the loan meets the applicable requirements for a Standard or Streamlined Modification.  This policy will become mandatory as of April 1, 2014.

 

As of March 1, 2014, master servicers will be required to obtain written approval from FNMA prior to transferring loans to a subservicer, from one subservicer to another, or back from the subservicer.  The Request for Approval of Servicing Transfer has been updated to require the transferee servicer to indicate if there will be a subservicer involved in the servicing transfer, and approval will be subject to review by FNMA for performance and capacity.

 

FNMA has implemented several changes into the Selling Guide, the first of which states that trading limits, margin requirements, a designated threshold amount, and a minimum transfer amount may be applied to a lender for whom a trading account is established and that all of these may be amended or cancelled at any time.  Under the revised policy, FNMA and lenders may elect to change variation margin if there is a price differential on the open trades subject to the applicable designated threshold and minimum transfer amounts.  Fannie, for example, may request that the lender wire cash if a lender’s securities it is contracted to purchase or sell are out of the money, while the lender may request that Fannie wire money if they are in the money. 

 

Citi has clarified that, for the purposes of determining eligibility for LP Open Access, “non-warrantable condos” include co-ops, condo hotels, and manufactured homes and that borrowers who have met the requirements of a Restructured Mortgage are eligible to be refinanced.

 

Fifth Third has expanded its guidelines for all Freddie products apart from Open Access to allow up to six financed properties for borrowers financing second homes and investment properties.  Borrowers may now own up to six 1-4 unit residential properties so long as the loan meets the second home or investment property credit guidelines and any MI credit guidelines where applicable.

 

Effective for all Freddie products (including Open Access), Fifth Third has also eliminated the requirement for a legally enforceable maintenance agreement for privately or community-owned roads.  The appraisal must state that private roads are typical for the area, maintained sufficiently, and in good repair and should contain at least one comparable sale that has street maintenance to the subject property.  The ingress/egress must also be recorded.  The Freddie guidelines have also been updated to consider non-contiguous properties as eligible property types provided that the home is separated from the vacant lot by road or other easement, the vacant lot use is purely recreational, and the appraisal contains at minimum one comparable sale with similar characteristics.  The final Freddie guideline expansion increases the maximum amount allowed for an escrow holdback to 15% of the property value and eliminates the requirement for escrow accounts for incomplete improvements, so long as the improvements are less than 2% of the “as completed” value of the property.

 

MSI is no longer accepting paper checks for USDA fees; instead, the fee amount will be netted from the final purchase price.

 

MSI is requiring an AIR Appraisal Acknowledgment signed by the borrower for all product types.  At a minimum, the form must contain the borrower’s signature confirming the date the appraisal was provided to them, a “block” for the borrower to acknowledge waiver of the receipt if they have chosen not to receive a copy, and the receipt date.

 

Parkside Lending has reduced the pricing hits by .125 for LTVs over 75 and FICOs of 720 and over for all Conforming, High Balance, and Super Conforming products, including those with Lender Paid MI. In addition, the loan amount adjustors for loans between $100,000 and $200,000 have been removed, and a .125 improvement has been implemented for AK, AR, AZ, CO, CT, DC, ID, IL, MN, MT, NC, OR, TN, TX, UT, WA, and WY state adjustors.

 

Investors have issued reminders that, as most employers are closed or short-staffed for the last two weeks of the year, lenders should allow extra time to obtain Verbal VOEs.

 

 

A little girl asked her mother, “Mom, what’s it like to have the greatest daughter in the world?”

Her mother replied, “I don’t know – you’ll have to ask Grandma.”

 

 

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.)