Dec. 31: Gfee changes in limbo – kind of; year-end agency settlements; tax breaks expiring; financial services – is drug testing in everyone’s future?

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...

Thanks to FAMC for sponsoring the Franklin American Mortgage Music City Bowl. It was some great publicity for FAMC and the industry. And this is that day, at quittin’ time, when you tell your co-workers “See you next year!” Yuck, yuck, yuck.

 

I love maps. I love colored maps. I love interactive colored maps the most. So I was excited, along with thousands of LOs & Realtors who have to do presentations on this stuff for clients, when the U.S. Census Bureau recently unveiled “Census Explorer (http://www.census.gov/censusexplorer/censusexplorer.html), a new interactive map that gives users easier access to neighborhood-level statistics. The map uses updated statistics from the 2008-2012 American Community Survey, and includes graphical representations for total population, percent 65 and older, foreign-born population percentage, percent of the population with a high school degree or higher, percent with a bachelor’s degree or higher, labor force participation rate, home ownership rate, and median household income. And speaking of maps, here are the “13 best maps” – answering questions like, “Where is the best internet connection?”: http://gizmodo.com/you-are-here-the-13-best-maps-of-2013-1490022952.

 

Kansas is going to begin drug testing for welfare recipients in 2014 (http://www.columbiatribune.com/news/kansas-to-begin-drug-testing-of-welfare-recipients-next-year/article_be80d054-6f29-11e3-81b0-10604b9f1ff4.html?comments=focus). And the Department of Defense has long been a user of tests for certain drugs (http://www.defense.gov/news/newsarticle.aspx?id=121345), and many financial service sector companies require applicants to undergo drug testing prior to being hired. Is it really a stretch to predict that anyone with access to confidential financial information for consumers will not be required to be drug-free some day? Many companies have no desire, given other compliance issues, to have any questions regarding having data compromised, or legal or security issues. Some companies receive insurance premium reductions if they drug test employees. Illegal drug use/abuse is illegal, and if an employee is demonstrated to be willfully violating laws, the likelihood is generally considered higher that they might break laws in the course of work. Agencies, and aggregators, could easily expect their clients to have drug testing programs, especially for new employees or senior management. But there are arguments against it: http://smallbusiness.chron.com/employee-drug-testing-pros-cons-1276.html.

 

Here is the story on the tax breaks. It is not good news for anyone hoping for an extension for any mortgage-related breaks: http://www.boston.com/business/personal-finance/2013/12/31/congress-letting-tax-breaks-expire-year-end/TXDNNbea4MBLWsCrOqb8vL/story.html.

 

We have 7 business days until QM, and my colleague Garth Graham at STRATMOR related the cold winter weather to the cold climate in the mortgage industry. I guess it was his way of extending warm wishes: http://www.stratmorgroup.com/GarthGrahamsBlog/tabid/100/Article/160/winter-weather-advisory-layer-up.aspx. “We have checkers checking checkers all in the attempt to create the perfect loan in the changing environment. This has shown up in higher costs which were easily offset by higher margins in the past year but surely this is hard to handle when the margins compress.”

 

“Rob, what do you hear out of the Agencies, or large aggregators, about the changes, or lack of changes, with fees?” Good question. Just like the NFL audience waiting for a review of a close play, the industry is waiting to see what happens. At this point Mel Watt is not the director, and therefore the agencies are moving toward their announced changes. But aggregators and investors are taking a different approach. I received this from one VP of correspondent lending for a large investor: “We are going to hold off on implementing changes that would impact 60 day locks until 1/8. Until we get official notice from the new FHFA Director, we have to proceed as if the 4/1 issue date is still the plan. We wonder how much analysis work will be done between now and 1/6?   How soon will Mr. Watt officially review the changes?  How long will the stay be in place? Finally, will the decision to not implement these changes along with the FHA reductions be put into the President’s 1/21/14 State of the Union Address as stimulus/support for the American Dream.” For the agencies, word has it that they are waiting for a revised directive from the FHFA based on the Mel Watt announcement. Once F&F receive a new directive they will issue a formal communication. 

 

Wells Fargo has agreed to pay $591 million to Fannie Mae to settle disputes over bad mortgages the bank sold to Fannie during the subprime housing boom. The agreement covers loans originated by Wells Fargo before 2009 that Fannie Mae was trying to force the bank to buy back. The deal “resolves substantially” all repurchase issues related to those loans, the company said. Wells Fargo will pay $541 million in cash to Fannie Mae, with the rest covered by credits from earlier repurchases. And Michigan’s Flagstar Bank has agreed to settle a dispute with Freddie Mac over loans made between 2000 and 2008. “Flag” will pony up $10.8 million, $8.9 million in cash with the remainder made up of credits and adjustments. Last month Flagstar reached a similar settlement with Fannie for $121.5 million — which cost $93.5 million after credits and adjustments.

 

Here are some recent vendor, aggregator, and lender policy and underwriting changes from recent weeks of note.

 

First, last week in the commentary I mentioned that “FHA also allows non-occupant co-borrowers that are family members and use what are known as ‘blended ratios,’ meaning that the income to debt ratios of the primary applicant who will occupy the home do not matter as long as the total ratios fit the guidelines.” LO Joseph Levy countered with, “I believe Freddie also allows non-occupant co-borrowers.” I asked the folks at Freddie, who answered, “Yes, like FHA, Freddie Mac does allow non-occupant co-borrowers.” (This is not an underwriting manual, so if you need more specifics about the ratios etc., they can be found in Freddie’s Single-Family Seller/Servicer Guide, Volume 1, Chapters 22-28: General Mortgage Eligibility, or Chapters 37-38: Credit Underwriting.) Thanks guys!

 

Wells will be requiring a residual income evaluation on all Qualified Mortgages that have a rebuttable presumption of compliance as of January 10th.  The loan should be tested using a standard Residual Income Evaluation prior to consummation to show sufficient residual income by the borrower to meet monthly living expenses after paying their mortgages and other debts.

Per the CFPB LO Comp Rule, Wells will require the loan originator’s name, loan originator’s organization’s name, and NMLSR IDs on the application, note, and security instrument when the document is provided to a consumer or presented to a consumer for signature beginning on January 10th.  The rule also stipulates that non-compliant loans must be recommended for non-purchase, and failure to provide the name and NMLSR information cannot be cured at post closing.

 

Wells is no longer purchasing 3/1 ARMs due to the QM/ATR requirements that ARMs qualify at the maximum rate for the five years following the first payment.  Other QM/ART-related changes include reducing the maximum DTI for non-owner occupied transactions to 43 and treating accounts with ready reserves on checking accounts with a balance as revolving accounts for Non-Conforming loans.

 

360 Mortgage Group released its Freddie product offering to both the wholesale and delegated correspondent business channel. Just like its Fannie products, there no overlays. (Meaning, just like DU Refi Plus, 360 is one of a few lenders who will take it with no LTV caps or “guideline adjustments” of any kind.) Additionally 360 Mortgage will accept standard LP products including super conforming.

 

PennyMac has also issued an announcement that it will not purchase loans where the relevant NMLSR information is not disclosed on the credit application, note or loan contract, and security instrument per the LO Comp Rule.

 

Per the VA’s November announcement, PHH has updated its VA underwriting guidelines to state that properties served by individual water and/or sewer systems are only required to be connected to public water and/or sewers if required by the local building, planning, or health authorities and that well water or septic tests or certifications on properties with individual systems will be considered valid for 90 days unless otherwise stated by the local health authority.

 

Mountain West Financial has revised the underwriting guidelines for borrowers with 5-10 financed properties, they highlights of which require a 720 minimum FICO, allow cash-out as an exception when the subject property is eligible for the delayed financing requirement, and stipulate that if the subject property is non-owner occupied the transaction must go through the Direct Program.

 

M&T Bank has updated its Agency Underwriting & Eligibility Standards guide for lenders to use when underwriter Fannie and Freddie products with registrations dated December 26th and after.  The military personnel, age of tax returns, employment-related assets as qualifying income, temporary leave, and self-employed income fields of the Income section; the business assets used for closing, employer assistance, grants, and IDA/matching program fields of the Assets section; and the deferred installment debts and real estate tax estimates for qualifying and escrows in the Liabilities sections have all been updated to align with current Agency guidelines.

 

Cole Taylor will begin offering a No Lender Admin Fee option that will give borrowers the option to obtain pricing with the cost of the lender admin fee incorporated into the net price through a new set of LLPAs for all loans locked on January 10th and after.  This will be available for all programs apart from Jumbo.

 

WesLend is considering properties with UAD condition ratings of C5 or C6 as ineligible in “as is” condition and is requiring lenders to cure deficiencies that caused the rating and/or complete the hypothetical condition that must be completed.  This applies to Conforming and high balance/Super Conforming Fixed and ARM programs.

 

WesLend has updated guidelines on Non-Arm’s Length transactions, which are not eligible for second homes and investment properties; rent loss insurance, for which clarification has been added to specify when the insurance is required and where it may be waived; and for its Direct FHA program, for which the maximum DTI has been revised to 43 and the minimum FICO to 620.  The Non-Conforming Jumbo product guidelines have also been updated to cap the LTV/CLTV for Florida condos at 75.

 

MSI will be requiring specific Residual Income and Reserves on all QM Rebuttal Presumption loans as of January 10th.  For primary residence transactions, a monthly residual income between $800 and $2500 will require the greater of three months’ liquid PITI or the minimum reserves for the specific loan product, while residual incomes under $800 will not be eligible for funding or purchase.  All second home and investment property transactions require a residual income of $2500 or more.

 

Effective immediately, MSI is requiring that the owner own 100% of the business if they intend to use business funds as a down payment or reserves.  The guidelines for FNMA DU Approve loans with an LTV over 80% have also been updated to allow gift funds from a public or nonprofit organization or municipality or an employer with an established employee assistance program.

 

United Wholesale has rolled out its new Flex Term program, which allows borrowers to select their preferred amortization term and refinance without resetting the mortgage clock.  Terms from 8 to 30 years are available and may be combined with other UWM products.

 

Software provider Mortech, a division of Zillow, has partnered with AllRegs to upgrade the workflow for its Marksman pricing engine, which now allows loan officers to directly access investor underwriting guidelines.  This new option is available on both the product and rate screens, with the results color coded to indicate whether a borrower can qualify for a particular program based on the loan criteria entered.

 

Monday was (finally) a good day for agency MBS prices. The only news out was the November Pending Home Sales number which rose slightly from an October reading (which, in turn, was revised lower), falling short of expectations and was 2% lower than one year ago. The yield on the 10-yr didn’t do much, closing at 2.98%, but MBS prices, that help set rate sheets, were better by .250-.375.

 

Today we’ll have the Chicago PMI Manufacturing and Consumer Confidence releases, but we’ll also have an early close in the markets ahead of tomorrow’s holiday – so don’t look for cutting edge prices because in the afternoon there will be no way to hedge any incoming locks. In the early going the 10-yr’s yield is at 2.99% and agency MBS prices are worse by .125.

 

 

With the holidays upon us I would like to share a personal experience about drinking and driving.

As you know some of us at some point in our lives have had a few brushes with authorities from time to time on the way home after a “social session” out with friends.

Well, two nights ago I was out with friends and had several drinks, followed by some very nice red wine. Feeling quite happy, I still had the sense to know I was over the limit. That’s when I did something I’ve never done before: I took a bus home!

Sure enough there was a DUI checkpoint, but since it was a bus they waived it past. I arrived home safely without incident. This was a real relief and surprise because I had never driven a bus before. Heck, I don’t even know where I got it and now that it’s in my driveway, I don’t know what to do with it.

Help! How do I get rid of this bus?!

 

 

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, “What Do We Know About the Future of the Agencies?” 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. 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.)