May 10: Agency, lender & investor updates; primer on debt service ratio; one suggestion to cure FHA’s woes

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...

“Under the current rules, would it be illegal for a company to offer a mortgage program that had discounted mortgage rates for people with college degrees and even greater discounts for PhDs? I’m guessing it would violate Fair Housings disparate treatment, what do you think? How do major institutions make discounted or preferential loans to teachers, police, or union members? If we were to make the assessment that college graduates have better loan performance and fewer delinquencies, shouldn’t that be where the discounts lie, and not to the politically-connected unions?” Editor’s note: answering that one is way above my pay grade…

 

Cody Miles, the Marketing Coordinator for MortgageDashboard, published an article titled, “15 Advertising Tips From Regulation Z”. He wrote, “In my experience, I’ve found that originators often have a healthy desire to advertise in print /social media and an equally unhealthy fear of regulatory conditions.  We’ve published this short guide as a resource for lenders that may help dispel some of the confusion surrounding the advertising rules in Regulation Z.”

 

In spite of comments from FHA’s leadership, many in the industry still hope that it will lower its insurance premiums. Steve Sherwood with Alerus writes, “The answer to FHA seems simple.  Quit lending money to people who won’t pay it back. One of the greatest underwriters of all time, Bob Peifer, put it this way: ‘If they are going to pay you back, lend them the money. If they are not going to pay you back, don’t. Try not to make it any more complicated than that.’ Bob has had some health setbacks and everyone that ever knew him is cheering for him. He was the head of underwriting for U.S. Bank. The FHA should immediately impose a 640 credit score for their minimum down program.  Below that you simply need to fix your life before you buy a house. This is really not that complicated if you could just get Congress out of the way.”

 

(The Comptroller of the Currency tells us that 14.7% of subprime mortgages were 60 days or more delinquent as of the end of 2013, compared to 8.4% of Alt-A loans and 1.6% of prime mortgages.)

 

This week the commentary noted that next week the Realtors are having a conference in Washington DC. (Next week there is a Realtor conference to be held in Washington DC. “Lawmakers, federal officials, and real estate industry leaders will address more than 8,000 Realtors at next week’s Realtor Party Convention & Trade Expo. They’ll be covering topics such as the future of FHA, innovation in real estate and the need for patent reform, the implementation of new flood insurance laws, commercial and residential economic trends, and the impact of commuting on home prices…Realtors will also be visiting the CFPB and VA to discuss housing programs with staff from both agencies. For more info visit Onsite registration.)

 

S.T. contributed, “I think the only way we can fight the new regulation for a HUD to be in a borrower’s hand 3 days prior to the closing date is to have the Realtor Association understand what’s being proposed. The mortgage associations are not all part of one group because there is still a lot of separation between the banker’s associations and the broker’s associations on issues. Therefore when we go and talk to Congress we are showing up with very few ‘votes’. Lawmakers listen to realtors, however, because in order to become a Realtor it is a requirement to become a member of their association. They were smart and patented the name REALTOR. I believe no realtor wants to have their closings delayed for any reason so having them back us on this issue would be extremely important.”

 

Fannie & Freddie are certainly in the news: the government wants them out, but the motivation now that they’re making money and in an election year to do much is truly debatable. Meanwhile, some big money is taking bets on both sides. Forrest C. contributes, “Here’s an interview on Bloomberg with activist investor Bill Ackerman. Ackerman is in favor of keeping F&F but he makes an interesting argument why the government will lose big money by shutting down F&F. The total video is 12 minutes long but you get the main points in the first 2-3 minutes: http://www.bloomberg.com/video/why-bill-ackman-is-bullish-on-fannie-and-freddie-AfzF~58nT1G91bXB8L6wfg.html.” Thank you Forrest!

 

“Rob, have you ever heard of something called a ‘debt service ratio’, and if you have, can you put it into English?” Sure – there have been some encouraging numbers regarding the average “debt service ratio” for American households as of late. Prior to the financial blowup, consumers borrowed lots of money, some through credit cards, but especially with HELOCs and other means. They borrowed against what we now realize were significantly and artificially inflated home values. It’s been an ugly unwinding and taken more than 5 years, but in the final quarter of 2012, the household debt service ratio hit its lowest level since record keeping began in 1980. Like the air coming out of a balloon, things are finally deflating back toward normal. Household debt service ratio tells us how much disposable income is being spent toward paying interest, whether it is on mortgages, consumer loans or other types of credit.

 

Low interest rates have played a large part in the reduction of this number of course. Almost anyone who is able has refinanced their mortgage and that has been good. Mortgage rates were around 7.00% for a 30-year loan in 2007 and fell to around 3.40% in the late part of 2012. This added substantial cash to homeowners’ pocket books and rates also fell on car loans and credit cards. To be sure, this has been the aim of the Fed all along, in its efforts to keep interest rates low by various means to restart the economy. Part of the improvement in the ratio though is because there have also been many defaults. People have walked away from debts they could not repay, especially mortgages. Through foreclosures and repossessions, homes flooding the market, prices fell and supply looked around for demand. New buyers just don’t need to borrow as much given all of this, which helps the average debt service ratio. It does not help those homeowners who are underwater on their mortgages, however as home prices declined by a third between 2005 and 2012. Since then, there has been a recovery in many areas and with that home prices have also recovered. The past year alone, some 1.7mm underwater homeowners escaped negative equity.

 

There could be opportunity for community banks in this trend. In the recent past, consumer lending has primarily been the market of either very large banks or credit unions, but with the improved health of household balance sheets, community banks may want to consider it as well. The loans are smaller sized and the rules have shifted, so banks should be careful in how they proceed (or admin costs may quickly override the value of assets added and interest earned). Banks already have a lot of the information necessary to make wise decisions though. If a bank has refinanced a mortgage for a customer, then it already has tax returns and income statements for that customer and this should help it make a good decision based on live information. The debt service ratio should be watched no matter what a bank does, as it ticked upwards in Q1 of 2013 (so we may have already seen the best of this trend). Consumers may be binging on credit cards again, but more likely the rise in mortgage rates is causing an increase in household interest payments. If an uptick in the ratio occurred in Q1, then we can be assured more is probably on the way, in particular with the rise in rates over recent weeks.

 

Let’s see what lenders, the agencies, and investors have been up to recently.

 

Are you ready for the upcoming selling system update? Beginning Monday, May 19, 2014, the Freddie Mac selling system will be updated to include the Uniform Loan Delivery Dataset (ULDD) Phase 2 requirements. This important milestone marks the beginning of the selling system transition period, which ends on August 24, 2014. Remember: The ULDD Phase 2 requirements are effective for all loans with Application Received Dates on or after March 1, 2014, and delivered on or after August 25, 2014.

 

Additional updates from Freddie Mac and Fannie Mae (the GSEs) are the May 2014 Uniform Collateral Data Portal (UCDP) Release Notification and Uniform Appraisal Dataset (UAD) Update to announce: Changes to Accepted MISMO XML File Formats in the UCDP. Beginning July 13, the GSEs will only accept the MISMO XML file format in the UCDP.

 

Implementation of Third Phase of UCDP Conversion of Warning to Fatal UAD Edits on July 13. There will be an additional phase of fatal UAD edits, details to come. And there is a reminder on Submissions of Appraisals in the UCDP: lenders should designate the required appraisal in the Appraisal 1 Section (not Appraisal 2 or 3 Sections). In addition, the Document File ID assigned from the UCDP must only be used for one loan.

 

Freddie knows a thing or two about current trends, such as the purchase business. “Energize your purchase market in 2014 through Freddie Mac’s comprehensive support and smart solutions.” Its Purchase Market Resource Center was created for a single purpose – to help reach more potential buyers and bring more customers in the door. Topics include how to Reach First-Time Homebuyers, Help Homeowners Sell and Buy a Home, Discover Affordable Lending Opportunities, Explore Down Payment Assistance Options, and Navigate the Short Sale Purchase Process. Check out the Single-Family News Center article for information about our Purchase Market Resource Center and special tools to reach first-time and low- to moderate-income borrowers: http://www.freddiemac.com/purchasemarket/. In the months ahead, Freddie continues to share ideas and resources to help build your purchase market and succeed in today’s market.

 

Fannie Mae updated its policy regarding unemployment benefits eligibility as of May 7th. The requirements relating to the treatment of unemployment benefits for DU Refi Plus and Refi Plus mortgage loans, effective immediately, unemployment benefits may be used in qualifying an applicant for a DU Refi Plus or Refi Plus loan whether they are seasonal or non-seasonal. For complete information, visit all-regs online: http://www.allregs.com/.

 

Ginnie Mae published Loan Level Disclosure Data Correction for loans in Multi Issuer Pools on 4/30/14 to the Updates Page of the website. Additionally, in a recent Ginnie Mae bulletin, Full Size Test File and a Layout Update for HMBS Enhanced Monthly Pool Disclosure are on the horizon with target date of the third quarter of 2014 for implementing the HMBS Enhanced Monthly Pool Disclosure file. For more information visit: http://www.ginniemae.gov/pages/default.aspx.

 

PennyMac Correspondent Lending has announced changes to the Jumbo program effective with applications taken on or after June 9th, capital gains income will no longer be allowed for qualifying income. Additional guideline changes to the jumbo product effective as of May 9th, 2014 include topics of maximum LTV and loan limits, max cash-out, incidental cash back, minimum loan amount, state restrictions, trade line requirement and delayed financing changes.

 

In accordance with PennyMac’s existing disaster policy, FEMA’s recent declaration of several counties in Alabama, Arkansas, Florida and Mississippi as eligible for Individual Assistance due to severe storms, tornadoes, straight-line winds, and flooding. PennyMac will be requiring post disaster inspections for specific counties. Contact your sales representative for specific and complete guideline changes and disaster policy information.

 

Fifth Third Correspondent Lending News has clarified MI cushion requirements for all conforming and portfolio loans. Fifth Third Mortgage Company does not require a cushion for mortgage insurance escrows. Specifically for HASP Open Access and DU Refi Plus ONLY, a cushion of one (1) month MI must be collected before or at closing as the MI is transferred.

 

Cole Taylor Mortgage Wholesale Lending is excited to announce that the much anticipated launch of Appraisal e-Delivery utilizing DocMagic technology is finally here.

 

PHH Mortgage has implemented an enhancement to its SOAR portal to assist in the uploading process with the addition of a column added to the Loan Pipeline page to indicate whether the 1003 data has been uploaded successfully to SOAR. Contact your account executive with any questions.

QM compliance adjustments continue in the industry. New Penn Financial Correspondent will be requiring an ABA Attestation with loans submitted for purchase beginning May 15th; in an effort to maintain QM compliance.

 

 

A man went to church one day and afterward he stopped to shake the preacher’s hand. He said, “Preacher, I’ll tell you, that was a damned fine sermon. Damned good!” The preacher said, “Thank you sir, but I’d rather you didn’t use profanity.” The man said, “I was so damned impressed with that sermon I put five thousand dollars in the offering plate!” The preacher said, “No s–t?”
Rob

(Copyright 2014 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.)