Apr. 6, 2011: Do builders make good landlords? Proceeding with 4/1 comp plan; "Net tangible benefit" for FHA refi's, mortgage training & jobs
Rob Chrisman

Under the just-made-up category of "If you can't build 'em, join 'em," Beazer Homes USA is officially entering the rental business, as the home builder started a new division to acquire and rent recently built, previously owned homes. Beazer will include pre-owned homes built since 2004 near Phoenix, including homes built by Beazer, purchased, or re-purchased, in distressed sales. And when the housing market recovers it will re-sell them. Something tells me that they're not alone in doing this. Besides private investors with lots of cash buying non-owners, waiting for the same thing to happen, Lennar Corp., with orders down 12%, is doing the same thing with its Rialto Capital business. People need a place to live, right?

KB Home, whose joint venture deal with Bank of America is rumored to be in trouble, reported a 32% drop in home orders for the December-to-February quarter compared to it’s year-ago results. Builders everywhere are grappling with potential buyers who are in no hurry to sign on the dotted line given the potential of falling prices and cheaper inventory coming onto the market, unemployment & a plodding recovery, and tighter documentation and underwriting standards.
 
Word spread quickly yesterday that the Appeals Court has dissolved the administrative stay of the rule and denied the motion of the NAMB and the NAIHP for emergency relief from the change in Reg. Z. The word on the street is that this action is not likely to be appealable, which means that the rule is effective immediately (today), and that companies should not accept any applications unless and until they are able to do so in compliance with the rule. Companies that already rolled the new comp structure out have little to do; companies that did not will be rolling it out today.
 
What are banks saving their money for? For buybacks and settlements, the latest of which is Wells Fargo settling with the SEC. The Financial Times reports that The Coach has “agreed to pay $11.2m to settle civil charges that its Wachovia Capital Markets unit improperly sold two complex securities backed by residential mortgages just as the housing market was beginning to unravel…Goldman Sachs last year agreed to pay $550m to settle SEC civil charges that it misled investors by failing to disclose that a hedge fund betting against the housing market had helped pick mortgages that went into a CDO called Abacus 2007-AC1.”
 
Guild Mortgage Company, who recently rolled out a correspondent division and continues to add servicing, has opened a regional sales and operations facility in Granbury, Texas (southwest of the Dallas area). Guild is now looking for both retail and operation employees in that area of the nation, and is opening up branches in Granbury, Weatherford, Houston, Colleyville, Corpus Christi, and Ennis. For employment opportunities in Texas please contact Arthur Ochoa (aochoa@guildmortgage.net) or Jed Rudd (jrudd@guildmortgage.net).
 
Yesterday the commentary discussed REIT's raising money to buy MBS's, and then a story broke about PIMCO doing exactly that! There is, of course, little correlation, and granted, the $600 million that Pacific Investment Management Co. is raising is less than the average daily volume of MBS's traded in the market, but it is a good sign. PIMCO recently made financial headlines by divesting itself of all Treasury debt, claiming that debt levels were unsustainable given the budget problems facing the US. The REIT money will go toward commercial and residential mortgage-backed securities, real estate-related assets and other financial assets. “Significant increases in regulation and public policy are influencing which investors will have the financial ability to hold real estate-related assets. We believe that private non- bank capital will represent an increasing share of these assets in the years to come.”
 
Is servicing worth the hassle? Probably - it seems that many, many mortgage companies are starting servicing operations. But the government is not making it any easier.
http://www.bloomberg.com/news/2011-04-05/mortgage-servicers-said-to-agree-to-fix-foreclosure-procedures.html.
 
Yesterday I wrote that, "Mark Ryan, the first Risk Manager of the FHA and a Freddie vet, will become FHA's Acting Commissioner when Dave Stevens departs." It is Bob Ryan, not Mark Ryan, and my apologies to Bob. But speaking of FHA loans, the share of borrowers using FHA loans fell to its lowest level in 27 months in February, according to DataQuick, with “only” 33.3% of purchase money mortgages originated being FHA loans.
 
And along those lines, clarifications continue to come out regarding “net tangible benefit” and FHA refinancing. BNP Paribas put out a research piece noting that “Lenders will no longer have to certify a borrower's employment and income. Note however that the borrower will have to be current according to requirements already in place. HUD stressed however that the borrower will have to be current both in the prior month and the month of refinancing. We think that these requirements are likely to blunt the effect of the income doc relaxation. The 5% reduction in payments that allows mortgagors to qualify for streamline refi's shall be based on P&I + MIP rather than PITI (Principal, Interest, Taxes, Insurance) + MIP. Closing costs and other financing costs now cannot be added to the new loan balance, (which actually) would be a tightening rather than a relaxation of standards, and could negatively impact refinancing considerably.”
 
US Bank Home Mortgage told its clients that HUD will be using the new calculation of the Net Tangible Benefit, and it “is based on the principal and interest and the new monthly mortgage insurance premium. Taxes and insurance are no longer considered in the calculation. The purpose of the change is to allow borrowers who can reduce their P& I and MIP by 5% to do a streamline refinance thus increasing their ability to repay their mortgage. The mortgagee must determine that there is a net tangible benefit to the borrower as a result of the streamline refinance transaction, with or without an appraisal. “Net tangible benefit” is defined as a) a 5% reduction to the P&I of the mortgage payment plus the annual MIP, or b) refinancing from an ARM to a fixed rate mortgage. Reducing the term of the mortgage, in and of itself, is not a net tangible benefit. Also, when refinancing to a hybrid ARM, mortgagees must treat the new hybrid ARM as a fixed rate mortgage.”
 
Last week the HVCC appraisal requirements are officially replaced by Appraisal Independence Requirements (AIR) as required by the Dodd-Frank legislation. For many companies the change is nearly invisible. Home Savings of America, for example, told brokers that “there is no impact to our appraisal and appraiser requirements or processes, except for USDA loans…all appraisals must be in compliance with AIR…Accordingly, all HSOA appraisals must be ordered through Streetlinks; transferred-in appraisals will be accepted according to AIR appraisal transfer requirements. With this change, originators may no longer use the appraiser of their choice for USDA loans.”
 
Bank of America spread the word to its correspondents that “when purchase money transactions are refinanced, Freddie Mac will now require the Note date on the loan being refinanced to be at least 120-days prior to the Note date of the new refinance loan. This requirement will apply to rate and term refinance transactions…Since this requirement will not be systematically enforced by the AUS, clients must manually apply the guideline on loans with CLUES and LP decisions. This requirement does not apply to loans 'decisioned' and approved by DU.”
 
Remember when there was training on non-compensation issues? HUD will be offering webinar training on the HOPE LoanPort for counselors. “Last year, HOPE NOW announced the launch of a new web portal that allows HUD-approved housing counseling agencies the ability to efficiently transmit a borrower’s application to partner mortgage servicers and submit completed Home Affordable Modification (HAMP) applications for borrowers at-risk of foreclosure…HUD encourages all HUD-approved housing counseling agencies providing foreclosure prevention services to participate in the HOPE LoanPort…” There is a “Live Meeting” webinar demonstration of the HOPE LoanPort next Tuesday, April 12, from 2-4PM EST, followed by an interactive Q&A session for all participants. Reserve a seat by going to https://www3.gotomeeting.com/register/442665606.
 
ClearPoint Funding will be offering its brokers a series of training sessions titled “Fundamentals of FHA.” The completion of this training session is accepted for CPF's education requirement for FHA Sponsorship, and the first is tomorrow, 4/7, at 11AM CST via Webex. Seating is limited, and if you’re interested you should e-mail Jenda Pegoda at jpegoda@clearpointfunding.com.
 
The mortgage market saw some volatility yesterday, but unfortunately for those waiting to lock it pushed rates higher. MBS volumes picked up a little, generally not a good thing on a down day, with current-coupon prices worse by about .250 and the yield on the 10-yr closing at 3.49% (worse by .5 in price). This was despite a larger than expected decline in the ISM Non-Manufacturing index for March. The market was more focused on comments from PIMCO's Bill Gross, who said he thought current yield levels were unattractive, as well as hints from the last FOMC meeting’s minutes that they’re seeing the recovery pick up a little.
 
There is no scheduled news today, aside from the MBA releasing its weekly application numbers for last week. Apps didn’t do much, dropping 2%, but refi’s dropped over 6% while purchase apps were up over 6%. The percent of applications made up of refi’s is now down to 61%, a word of warning to anyone basing their business on refinancing their rolodex clients. And ARM share rose above 6%, a warning to anyone who has forgotten what a “margin” is. Rates are a tad worse with the 10-yr at 3.50% and MBS prices down a few ticks.
 

Two Tennessee rednecks are out hunting, and as they are walking along they come upon a huge hole in the ground. They approach it and are amazed by the size of it.
The first hunter says, "Wow, that's some hole; I can't even see the bottom. I wonder how deep it is."
The second hunter says," I don't know, let's throw something down and listen and see how long it takes to hit bottom."
The first hunter says, "There's this old automobile transmission here, give me a hand and we'll throw it in and see".
So they pick it up and carry it over, and count one, and two and three, and throw it in the hole.
They are standing there listening and looking over the edge and they hear a rustling in the brush behind them.
As they turn around they see a goat come crashing through the brush, run up to the hole and with no hesitation jump in head first.
While they are standing there looking at each other, looking in the hole and trying to figure out what that was all about, an old farmer walks up.
"Say there," says the farmer, "you fellers didn't happen to see my goat around here anywhere, did you?"
The first hunter says, " Funny you should ask, but we were just standing here a minute ago and a goat came running out of the bushes doin' about a hunert miles an hour and jumped headfirst into this hole here!"
The old farmer said, "That's impossible. I had him chained to a transmission!"