May 17: Thoughts on predicting rates, LO responsibility for compliance; lender & investor updates

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...

As I head to Manhattan for the MBA’s National Secondary Marketing Conference, I wanted to share some recent letters from readers today, along with playing catch up on recent lender, agency, and aggregator updates to give us an idea about lending trends.

 

A few days ago I wrote about successful CEOs of mortgage companies being much better at seeing trends in the marketplace and capitalizing on them rather than forecasting rates. Henry Jonas from Platinum Mortgage writes, “Rob, amen to your quote on predicting rates – or lack thereof. I started in Secondary Marketing in 1986. I was taught by some mean “old school” hedgers. One thing I learned early is that all the Gurus can only give you is “cause and effect” afterwards. Nobody knows where the market is going. One of my 5 fundamentals is to ‘never take a position on rates’. Know your pipeline and adjust pull. If you’re at a fork in the road, ‘take the fork and the coverage’.  Know that news is coming out and be prepared but also know the bottom of all the oceans is littered with charts.”

 

Lending is filled with compliance companies that happen to occasionally do mortgages. And to muddy the water, not only do we have Federal regulations but also state-level requirements. I received this note from Donna Beinfeld about where one can see state-specific requirements and a location as to where to send in the information. “Actually, we have it on our site. On the left, we have each state, and the financial requirements.  Additional requirements may apply. We also have a list of state licensing boards and mailing address.”

 

And at the intersection of compliance, loan origination, and marketing, I received this note from Bill Bodnar, SVP of Strategic Accounts with Vantage Production. “Yesterday’s writing discussed big banks having exposure for ‘off-script’ communications.  It may take time to trickle down but all lenders are already responsible for anything an LO sends or says and they need to be thinking about this stuff.  In regards to the controlling what is said at Point of Sale by the LO, if we think about everyone involved in the mortgage transaction – Lender, LO, Client & Regulator – all of their interests are aligned.  Doesn’t each party want a Loan that is ‘suitable’, presented with ‘clarity’ and is ‘consistent’ across the Lender?  Of course we do. With that said, lenders are going to need to address/control and make auditable, all loan presentations to the borrower.  Just last week, Vantage Production demoed one of the largest privately held lenders in the industry along with four CFPB regulators that were “paying them a visit”.  We showed them how our Vantage Integrated Production CRM platform can “objectively” determine product and pricing for the borrower through data integration with the lenders pricing engine.  The CFPB applauded the fact that the LO could not subjectively change rates without documenting the rationale. To your point yesterday – there are options that protect lenders from this huge liability, while at the same time enhances the selling process and user experience for the LO.  And Vantage Integrated Production is only fully integrated sales platform in the industry offering end-to-end compliance through the sales and marketing process. (If any of your readers would like to talk through what we are seeing and how our new Vantage Integrated Production platform addresses these challenges, have them send me an email at bbodnar@vantageproduction.com.)

 

And this question comes up occasionally. In reviewing advertising, should all of our advertisements state we are an “equal housing lender” or “equal credit opportunity lender”? As I understand it from C3 Compliance Consultants, the Department of Housing and Urban Development has jurisdiction to promulgate rules under the Fair Housing Act. Under HUD guidance, the logo to be used is the “Equal Housing Opportunity Logo.”  This is due to the fact that HUD’s mission is centered on providing fair housing opportunities across the country. On the other hand, banking regulators are tasked with providing equal lending opportunities across the country; therefore, their guidance requires the “Equal Housing Lender Logo.” Therefore, a lender should use the “Equal Housing Lender Logo” and a broker should use the “Equal Housing Opportunity Logo.”

 

Plaza Home Mortgage is reminding clients  of policy and procedure regarding disaster areas per FEMA as 2 counties were added for Florida ( Escambia county and Santa Rose County). Some of the loans scheduled to close in these areas may need to be suspended or delayed until confirmation of the property’s condition can be obtained. Your Account Executive will keep you informed of loan status as the impacted loans are identified. You can go to FEMA for updated lists of the counties that were declared disaster areas.

 

Carrington Mortgage Services has lowered the FICO requirement on its FHA, VA and USDA products to 550.

 

Fannie Mae has updated its property eligibility policies to require that manufactured housing units must not have been previously installed or occupied at any other location, to include boarding houses and bed and breakfasts in its list of ineligible properties, to make an exception to the requirement that properties with multiple parcels must be adjoined, and to allow multiple parcels to have non-residential zoning (e.g. agricultural) so long as all of the parcels are zoned the same.

 

Freddie Mac has launched the customer test environment in its selling system to help lenders prepare for the implementation of the ULDD Phase 2 requirements.  The CTE allows lenders to create and modify loans through manual entry or import, browse new the new purchase edit messages, allocate loans to contracts, prepare the loans for funding, and export data for downstream use.  As a reminder, the updated version of the ULDD selling system will be rolled out in full on May 19th.

 

In its recent Mortgagee Letter, the FHA stipulated that, in cases where a government entity uses a nonprofit in operating its secondary assistance programs, the nonprofit is not required to have HUD approval and placement on the Nonprofit Organization Roster so long as it has a documented agreement with the government entity.  This agreement must outline the functions performed, which must be limited to the secondary financing program, and state that the secondary financing legal documents name the government entity as the Mortgagee.  In cases where a nonprofit is closing loans in its own name, it must be both HUD-approved and on the Nonprofit Organization Roster.

 

PennyMac is no longer requiring HPML FHA Streamline loans to be fully credit qualified, effective for all case numbers assigned on or after January 10th.  The same applies to HPML VA IRRRL; however, both programs still require a Verbal Verification of Employment to verify the income source.

 

Following up on the announcement from early 2014, PennyMac is now permitting correspondents to deliver loans secured by properties in Massachusetts without having to be specifically approved.

 

Franklin American has revised its policies such that the correspondent is no longer responsible for the payment of monthly mortgage insurance premiums if the mortgage payment is being collected by FAMC.  Correspondents are still accountable for the remittance of all MI premiums, including up-front mortgage premiums, premiums due prior to the first payment date, and monthly mortgage insurance premiums on any payments collected by the lender.

 

PHH has updated its Conventional Conforming underwriting guidelines to require that, in cases where 401(k) assets are being used as reserves, the originator proves that the borrower has access to the assets regardless of their current employment status and that the assets are vested.

 

Effective for all GreenTree products, Mountain West Financial Wholesale has removed the 75% LTV maximum on ARMs and 15-year fixed transactions, the 10% LTV reduction for borrowers with more than two financed properties, and the payment shock requirement for borrowers who have owned a home in the last three years.  Guidelines have been updated to allow properties with more than ten acres but less than twenty and condo projects with fewer than ten units if the situation is typical for the area, and the Jumbo 5/1 ARM has been reinstated.  Rental income guidelines have also been updated to state that if the borrower is not using rental income from the subject property to qualify, the gross monthly rent must be documented through the appraisal or Form 1007, an opinion of market rents when provided by an appraiser, or a signed lease from the borrower or a statement form of the gross monthly rent being charged.

 

MWF is now offering its USDA Guaranteed Rural Housing product in AZ, CA, CO, OR, and WA, effective immediately.

 

Impac has updated its guidelines to allow FICOs down to 720 on cash-out refinances on 1-unit primary residences and second homes and will now permit the same types of assets that may be used as reserves to be used for the down payment and cash to close.  The revised guidelines also state that Impac will lend in all states except New York.

 

WesLend has revised its 5/1 ARM guidelines such that the qualifying rate for the term is now the greater of the fully indexed base or the start rate plus 2%, effective for both Jumbo and Agency transactions.

 

Under the Direct ARM program, WesLend is offering a 90% LTV option on all loan amounts up to $417,000 with no requirement for mortgage insurance. The program is available for 5/1 and 7/1 purchase, rate/term, and cash-out transactions on owner-occupied and second homes and requires a 680 minimum FICO and DTI of 43 or less.

 

Nationstar has revised its overlay matrix to consider cash-out refinances and transactions where the Attorney-in-Fact is an employee of the lender, broker, title, or realtor as ineligible, effective for all products.  For FHA products, guidance has been added that Texas 50 (a)(6) that qualify using the expanded Back to Work program are not considered to be eligible products and that subordinate financing from a government agency providing down payment and/or closing costs assistance may exceed the usual 100% CLTV maximum by up to 100% of the cost to acquire the property.

 

As part of its efforts to expand into the West and Southwest, First Community Mortgage is now lending in CO, KS, WY, NE, NM, LA, OK, and TX through its wholesale channel.  In Texas, fixed-rate owner-occupied 50(a)(6) refinances are permitted provided that they are locked manually by calling the lock desk, comply with the 3% fee restriction outlined in the TX Constitution, have an LTV of 80 or below, do not use Power of Attorney, have a full appraisal, and comply with all FNMA requirements.  New state pricing adjustors have also been published.

 

Genworth has integrated with Optimal Blue to provide lenders with more information on their products as they apply to specific loans and to price loans with MI more accurately and more efficiently.  With the new platform, lenders can also email rate quotes to multiple parties involved in the origination process, view the loan parameters being used to generate the MI quote, and generate a scenario ID for a loan originator to recall a specific OB-Genworth rate quote obtained through Rate Express.

 

 

(For today, a little trivia.)

In the heyday of sailing ships, all war ships and many freighters carried iron cannons. Those cannons fired round iron cannon balls. It was necessary to keep a good supply near the cannon. However, how to prevent them from rolling about the deck?

The best storage method devised was a square-based pyramid with one ball on top, resting on four resting on nine, which rested on sixteen. Thus, a supply of 30 cannon balls could be stacked in a small area right next to the cannon.

There was only one problem: how to prevent the bottom layer from sliding or rolling from under the others. The solution was a metal plate called a ‘Monkey’ with 16 round indentations. However, if this plate were made of iron, the iron balls would quickly rust to it. The solution to the rusting problem was to make “Brass Monkeys.”

Few land lubbers realize that brass contracts much more and much faster than iron when chilled. Consequently, when the temperature dropped too far, the brass indentations would shrink so much that the iron cannonballs would come right off the monkey.

Thus, it was quite literally “Cold enough to freeze the balls off a brass monkey.” (All this time, you thought that was an improper expression, didn’t you.)

 

 

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.)