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Mar. 17, 2011: Who is still refinancing and how? New IO product; electronic doc question; more free property valuation services
Rob Chrisman
Don't
forget to wear a little green today. Everyone here in Chicago
knows that St. Patrick is best known for introducing
Christianity to Ireland in the 5th century, right?
Yesterday I mentioned
several free services for loan originators to quickly and
(hopefully) reliably gauge the value of a property. Here are
three more that readers sent in: http://www.cyberhomes.com/,
http://www.sawbuck.com/,
and www.eppraisal.com.
Here’s a handy-dandy
state-specific guide to NMLS “Mortgage Call Report Requirements
by Jurisdiction”:
http://mortgage.nationwidelicensingsystem.org/slr/common/mcr/NMLS%20Document%20Library/MCR%20Table.pdf.
It is NCAA
basketball time, with many folks around the nation both
filling out their pool picks and approving loans. Both tasks involve a
strategy involving maximizing your returns. Good loan pricing,
underwriting, and pool picking take into account return, the
probability of an outcome, and the expected amount of such
outcome should it occur. Whether you are managing loan pricing
or NCAA brackets, understanding the probability of winning (or
losing) and the expected amount associated with each decision,
should help drive your choices. In spite of being boring and
predictable, most NCAA pool participants pick all the #1 and #2
seeds to win the first round. This is similar to finding an
“express” approval process for certain loans with strong debt
service coverage. After you have part of the first round of the
NCAA brackets picked, start in the center by picking the Final
Four and working outwards. These are the highest probability
plays and are rarely wrong – similar to underwriting loans where
the lower credit risk loans and the higher credit risk loans get
approved or rejected with very little increase in resources.
Like the NCAA, the difference between success and failure in
banking is what you do in the middle. Now that you have the
lowest ranked teams thrown out and your teams in the Final Four,
it is time to spend the bulk of your time & energy on the
rest of the loans, or team choices, using probabilities,
ratings, win/loss records, credit factors, or Vegas odds. Have
fun!
The ability for a
borrower to refinance is determined by several factors: current
rates, credit quality, and collateral value being primary.
Lenders know that higher fees have a negative
impact on refinancing volumes going forward as FHLMC, FNMA
and the FHA have all recently increased costs for certain
borrowers. Loan Level Price Adjustment changes by Fannie &
Freddie, and the increase in FHA’s MIP fees, make home purchases
more expensive and raise the refinancing bar. But for a very
long time mortgage applications show that over 60% of loans are
refinances. Who & why are these borrowers
refinancing? On the retail side, lower rates can be found
for high quality borrowers with pre-existing relationships with
the lending institutions. Otherwise, borrower's with lots of
equity, government loans because of LTV, borrowers who paid cash
for their home and are now taking money out, and borrowers
converting from ARM’s to fixed-rate mortgages are refinancing.
In addition, lenders report that there are still borrowers out
there with higher note rates that can still refi into a lower
rate, those taking advantage in some areas of the $729,750 loan
amount while it exists, or even borrowers in divorce situations
help make up the refinancing pool.
Sometimes originators
wonder what happens to loans after they fund and are sold to
investors. Merrill Lynch/Banc of America is rolling
out a product that helps shed some light on this: an Excess
Servicing IO (Interest Only) security. “Servicers collect
payments from underlying homeowners in MBS loans, and they
forward these payments to the relevant Agency (Fannie, Freddie,
Ginnie). In return, servicers are allowed to collect an IO strip
(the servicing spread between the loan gross coupon – GWAC - vs.
the pass-through rate). Specifically, excess servicing can be
defined as: Interest Rate on a mortgage loan, less the Pass-thru
Rate on the MBS backed by the loan, less the Guarantee Fee, less
the minimum Servicing Fee ( currently 25 basis points), less any
MI premiums, less any net amount from the lender buying up or
buying down the rate. Voila! If you’re a servicer interested in
hearing more, or selling some of this, contact Steve Harris at sharris41@bloomberg.net.
Fannie &
Freddie were in the subprime business? The SEC is checking
into it: http://online.wsj.com/article/SB10001424052748704893604576198930001374132.html?modWSJ_hps_sections_business.
Late last week I
mentioned a note from an LO warning, “Don't sign a
contract to purchase a foreclosed property until you know all
the paperwork involved with the foreclosure is accounted for.
As an originator, doesn't even start the process for your
clients until you know the foreclosure paperwork is ALL
accounted for." One reader wrote, “One slight problem: REO
& short sale negotiator departments won’t even activate a
file until they have a buyer’s signed offer. It is a 'chicken
& egg’ situation, where the buyer always has to take the
risk and at present, the lenders still just don’t seem to care
that much."
Does a decline in foreclosures mean that the improving job
market is helping folks make payments, or that the servicers are
so backlogged it is holding things up? http://www.cnbc.com/id/41998996.
The question about whether or not Freddie or Fannie
accepts e-signatures occasionally comes up. For example,
Fannie answers the question at https://www.efanniemae.com/sf/technology/commitloandel/emtg/pdf/emtgdela.
But this appears to be for the note and e-delivery to Fannie
only. But FHA issued a Mortgagee Letter concerning what
documents it would accept electronic signatures on (such as
initial 1003, disclosures, purchase contracts), but, according
to one reader, Fannie has not issued guidance on this. “Our
private investors only want to accept e-signatures per FHA's
guidance, and don't want to extend the policy to conventional
loans because Fannie doesn't make any specifications. Freddie
Mac believes that authentic electronic signatures from duly
authorized individuals that comply with E-SIGN and UETA are as
enforceable as authentic pen and ink signatures from duly
authorized individuals that comply with applicable law. In
either case, a signature (pen & ink or electronic) must be
capable of being legally attributable to the signer. The
conventional agencies don't give much further guidance, as most of their e-Mortgage guidance refers to the
mortgage documents not ancillary documents." If anyone is
listening…
MetLife gave brokers their
updated mortgage insurance information, along with a reminder
that MetLife will order the MI for them. The MI guidelines
included MGIC, Radian, RMIC, UG, PMI, and Genworth.
The usual options apply: Up front Single Premium MI, Financed
Single Premium MI, and Split Premium Plans. Though banking
regulators are advancing a proposal mandating that loans
receiving an exemption from new regulations have a 20% down
payment, loans sold to government-controlled mortgage giants
Fannie Mae and Freddie Mac are likely to be exempt as long as
they are under federal conservatorship, the Journal has
reported.
For its correspondent
channel Chase approved Essent Guaranty as a MI
company.
(Speaking of MI
companies, it seems that they may no longer have to worry about
being “squeezed out of the market” due to the Dodd-Frank
provisions. Nothing is set in stone, but recent reports hint
that the requirement that banks retain 5% of the risk of a loan
– “skin in the game” – may not apply to agency
loans while in conservatorship. Non-agency loans are still
a big question mark, as are any loans done that have more than
an 80% LTV. Six federal agencies - the Federal Reserve, the
FDIC, the OCC, HUD, the SEC, and FHFA - must sign off on the
proposal before it is released for comment.)
ICBA Mortgage
Solutions, a firm that offers
mortgage lending programs to member banks through a central
platform, announced that it has hired seven regional account
managers. It is an affiliate of ICBA Mortgage and a subsidiary
of LenderLive Network, Inc. For the story go to http://www.businesswire.com/news/home/20110316005414/en/ICBA-Mortgage-Solutions-Appoints-Regional-Account-Managers.
I continue to hear
few complaints about rates –
obviously lenders have other things to worry about. In
the markets, Japan, Europe, and the Middle East continue to
dominate the news, and this uncertainty has helped the
“safety” bid on Treasuries. Yesterday the 10-yr hit a low
of 3.15% but closed around 3.21%, its lowest level in months as
the markets seemed driven by rumors of rumors. Over in the
mortgage camp, as might be expected, the higher prices and lower
yields kept many investors near the sidelines or taking profits,
particularly in higher coupons. There was servicer buying in the
lower coupons to add duration, and by the end of the day current
coupon agency MBS prices were better by about .5.
How much of this is
transferred to better rate-sheet pricing that LO’s benefit from
remains to be seen. Barclays notes that primary-secondary
spreads have held above 80 basis points over the past three
months and has been pretty steady due to capacity constraints at
the mortgage bankers, increased g-fees, reduced competition, and
other costs associated with originating and servicing loans. If
rates continue lower, however, watch for rate sheets to improve
nicely, especially if the supply of new mortgages slides.
Today we have a slew
of economic data. Last month we learned that the previous
month’s Consumer Price Index (CPI) rose 0.4% in January, mostly
due to gasoline and food costs. But clothing (cotton) and
airfare prices were also on the rise. Today’s CPI was expected
to also be +.4% and came out at +.5% with the core rate, for
those who don’t drive or eat, at +.2%. Initial Jobless Claims
were 385k, down 16k from the prior month with the 4-week moving
average (smoothing out the volatility) is down 7k. Later we will
see Industrial Production and Capacity Utilization, along with
Leading Economic Indicators and the Philly Fed Survey. So far rates have drifted higher with the 10-yr yield
at 3.26% and MBS prices worse by about .250.
An Irishman by the name of O'Malley proposed to his girl on St.
Patrick's Day. He gave her a ring with a synthetic diamond.
The excited young lass showed it to her father, a jeweler. He
took one look at it and saw it wasn't real.
The young lass stormed out the door and threw it back at her
future husband. She protested vehemently about his cheapness.
"It was in honor of St. Patrick's Day," he smiled.
"I gave you a sham rock."
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