Dec. 13: Lender updates; letters on Realtors & LOs, closing table Dodd-Frank issues

From New York I received, “I just read all of your commentary from this week and clicked on the CFPB internal survey link.  I don’t know why but I found it humorous that there is discrimination at the bureau. What’s their motto, ‘We’ll protect the consumer and keep the discrimination in house’?”

“Rob, any idea what a reverse mortgage MSR (mortgage servicing rights) value looks like?” A servicing expert opined, “In some ways, it’s still new territory to see how the full life of reverse loan cash flow works from the servicing side. Some investors treat them as an actuarial exercise that admittedly was geared towards the whole loan side of the trade. Anyone in this business should remember that reverse rules have changed over the years (from what I recall, with the net impact that people can borrow less), with some uncertainty about how will the property fare if it must be sold in light of changing housing values. It’s difficult to find a positive cash flow on the servicing side of reverses – with the corollary that the gains seem to be primarily on the origination side. Overall the servicing industry infrequently encounters reverses so it’s tough to impart anything more than observations and client feedback.”

From Florida Scott Lushing sends, “Rob, An excellent situation to discuss would be: 1) A listing agent requires you to be pre-approved with a particular person/lender to submit an offer (if the seller put it in the listing than it is allowed from what I understand), 2) Is it allowable for the seller to offer a seller credit to the buyer if that buyer uses that specific lender only for financing instead of their own lender? 3) Is it allowable for the seller to only accept a contract if the buyer uses that specific lender only? (If not, can they counter offer that if the buyer does not use sellers preferred lender than it is a cash contract with no financing contingency?

“In this day and age there are still so many incompetent originators out there. I cannot tell you how many deals still die because the originator didn’t ask upfront if the borrower was ever divorced, pays alimony or child support, or they didn’t ask for certain documents. This is not fair to the buyer, the seller or either realtor involved. Great listing agents have their own preferred person/team that they use to help qualify all offers they receive on one of their listings and more and more do they turn to that trusted lender to make sure the offers that come in will be able to close. If a listing agent explains to a seller all that goes wrong on many deals with financing and the seller states in the listing agreement that all offers must be pre-approved by a certain person/lender, is this allowed? What if that seller also states that they will give a seller credit to the buyer only if they use that lender for financing? What if in another situation they state that they will only accept the offer if the buyer uses that lender for financing, and if the buyer refuses, they counteroffer to a cash contract and tell them if they want to use their own lender there will be no financing contingency?

Although on paper this doesn’t sound good to people not in this industry, it is getting ridiculous with how many deals fall apart because of terrible upfront origination. There are so many partial prequals done nowadays and it is just a numbers game to some lenders. Get as many prequals done and some will end up qualifying in UW and some will not. That is terrible business for everyone. You must do everything upfront: gather all documentation, cross every t and dot every i at time of prequal and not once a file is in UW.” Thank you Scott!

[Dodd-Frank requires regulators to issue incentive-based compensation regulations or guidelines for banks with more than $1B in assets. Banks above that threshold are required to have compensation structures that balance risk and financial rewards (by deferring payments, adjusting awards for risk, or reducing their sensitivity to short term performance); are compatible with effective controls and risk management and supported by strong corporate governance. Specific guidance is working its way through the regulatory system and expected to be released in the next coming months.]

PS writes, “Hi Rob: You can’t make this stuff up. A client was paying mostly cash (proceeds from sale) towards her new home. She was approved (by a large wholesale lender who recently jumped ahead of B of A in volume) for a $200,000 loan but requested to reduce the loan amount to $140,000 a few days before closing after re-calculating what she would want to have left in the bank after closing. We submitted a change in circumstance (“CIC”) form to request reduction in the loan amount and, at the same time, we submitted another CIC to reduce our borrower-paid origination charge accordingly.

“The lender dutifully reduced the loan amount and origination charge but said that the loan now failed QM because the origination charge was ‘fixed’ when it was disclosed and that the original amount had to be used to calculate QM because there was no change in “terms” on the loan (as we know, reduced loan amount is not a change in term). According to the lender, our only options were to change the interest rate, loan program or loan term if we wanted the reduced origination charge to be used in the QM calculation. No amount of foot stomping or table banging would change the lender’s mind (not really – but you get the point).

“We reduced the interest rate from 4.125% to 4.050% (yes, you read that correctly) which saved the client $6.09 per month in payment but cost her .46% ($644) in premium.  It would have taken her over 8 years for the meager monthly savings to recoup the lost premium.  I fail to see how this is in the client’s best interest.

“But all’s well that ends well.  Shortly after the interest rate was changed and re-disclosed the client came by and we had her sign a new CIC form to change the interest rate back to 4.125%. We didn’t know how the lender would react to this but they dutifully changed the interest rate back to 4.125%, re-disclosed again and closed the loan on that basis. It used to concern me that young people are not entering the mortgage business but now I take solace in the fact that if I ever wanted to go back to being a wholesale account executive, my advancing age would not be an impediment.”

A few weeks back the commentary had a couple letters from senior executives about LOs and aging, and about LOs taking charge of their own careers. I received this note from the president of a well-known lender. “So I really have learned a lot from the letters in your commentary. I am going to get on the front lines and see for myself, but try to also show that there is the other side as well that the originators are not exposed to. I do agree that the ‘sales managers’ rarely see the business from the originator’s eyes. I love the idea of having empathy for the originator.  The managers are trying to teach from their offices and the thought that they need to get and see the front lines is terrific. I am determined to get to the ground level and see for myself and make changes as needed.  I do think we spend a huge amount of time on training and what I see on the back end is something that isn’t shared with the originators.”

And this: “The bigger point is that there are no young people coming into this business. We need to focus on how to get them to want to come into this industry. We used to get massive requests for interns, and now we rarely get asked. As originators, we used to brag about our industry at dinner parties, and I doubt that is happening any more. The greatest salesmen for the mortgage industry used to be the originator, but now they are clearly having a hard time and disenchanted by our industry. What is going to happen in 10 years when a huge number of originators are retiring?”

What have random lenders been up to in the last several weeks?

Banc Home Loans has revised its Mortgage Loan Purchase Agreement and Sellers Guide and are posted to its website.

U.S. Bank posted its bulletin 2014-070 regarding FHA Loans in a Presidentially Declared Disaster Area. To view the bulletin, click here.

Flagstar Wholesale has updated conventional underwriting guideline for Condominiums and Planned Unit Developments that have a unique address. The unit number does not need to be included on the closing documents (e.g. note, mortgage, etc.) if the unit number is not part of the appraisal or purchase agreement and is only referenced in the legal description. Flagstar also updated procedures regarding FHA and VA 92900A procedures. The Initial FHA HUD-92900-A Page 1 must be signed and dated by the Broker. The Broker is no longer required to sign the following documents:  Initial FHA HUD-92900-A page 4, Final FHA HUD-92900-A pages 1 and 4, Initial VA 26-1802a, Final VA 26-1802a.

LDWholesale announced pricing improvements on select Jumbo products and a purchase program incentive implemented for select Jumbo programs. Additionally, effective November 21st, 3/1 Arms on FHA and VA including streamline and IRRLS will be available.

Mountain West Financial Wholesale has implemented USDA program updates to include the amount collected for the upfront annual fee from 2 months to 1 month, which will be collected at closing and must be disclosed correctly on the Truth-In-Lending Disclosure Statement and Final HUD 1 effective immediately. Also, effective Wednesday, November 19, 2014 MWF will accept borrowers E-signatures on Brokers Initial Disclosure Packages and Initial 1003’s as long as they are documented with electronic signature(s) containing watermarks, electronic date stamped and/or transaction log and meets the Uniform Electronic Transaction Act (UETA).

New Leaf Wholesale posted updates to its VA and FHA programs. The Initial FHA HUD-92900-A Page 1 must be signed and dated by the Broker. The Broker is no longer required to sign the following documents: Initial FHA HUD-92900-A page 4, Final FHA HUD-92900-A pages 1 and 4, Initial VA 26-1802a, Final VA 26-1802a.

Effective with applications taken on or after October 15, 2014, PennyMac is aligning with Freddie Mac’s Higher Priced Covered Transaction (HPCT) requirements as announced in Bulletin 2014-18, and extending the HPML requirements to include transactions with a subject occupancy of owner-occupancy, second home, and investment. For all occupancy Open Access HPML/HPCT loans, the requirements of a minimum 620 FICO and maximum 45% DTI must be manually applied.

Plaza Home Mortgage announced the rollout of Plaza’s 203(k) Full program on November 12, 2014. The 203(k) Full program offers additional renovation options not available in the 203(k) streamlined program. The handling FHA Payoffs, in response to CFPB ATR rule, for loans closing on or after January 21, 2015, the final rule requires mortgagees to charge interest only through the date the mortgage is paid and prohibits the charging of interest beyond that date. Plaza will begin accepting FHA loans complying with revised regulations with loans closed on or after January 21, 2015. In the meantime, sellers should review and update their internal processes to support this change and work with their document preparation vendors to implement the new FHA Note version for loans closing on or after January 21, 2015.

Kinecta Federal Credit Union updated its guide to coincide with Fannie Mae’s recent updates.

For details, click here. Choose the Lending Announcements link for your channel. The Alerts are posted under the Compliance category, dated 11/17/14. Also, Jumbo Fixed Rate and Jumbo ARM credit eligibility was updated to align with investor guidelines. These updates are effective immediately. The matrices will be updated to reflect these changes.

HIGH SCHOOL: 1957 vs. 2014 (part 4 of 4)

Scenario 7:

Johnny takes apart leftover firecrackers from the Fourth of July, puts them in a model airplane paint bottle and blows up a red ant bed.

1957 – Ants die.

2014 – ATF, Homeland Security and the FBI are all called. Johnny is charged with domestic terrorism. The FBI investigates his parents – and all siblings are removed from their home and all computers are confiscated. Johnny’s dad is placed on a terror watch list and is never allowed to fly again.

Scenario 8:

Johnny falls while running during recess and scrapes his knee. He is found crying by his teacher, Mary. Mary hugs him to comfort him.

1957 – In a short time, Johnny feels better and goes on playing.

2014- Mary is accused of being a sexual predator and loses her job. She faces 3 years in State Prison. Johnny undergoes 5 years of therapy.

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.)