Dec. 2: Wholesale & AMC expansion; credit standards and down payment source in the news; lawsuit-mania continues

Congress is back to work for a week or two, and the public is fortunate to hear politicians bickering about the budget. What exactly does our government spend money on? Well, how about researching our dating habits? When will a study be done on obese boys?


In expansion news, Union Home Mortgage would like to welcome John Racicot, Julie Conley, and Scott Elgas to the growing team of account executives in its Wholesale Department. “Today’s wholesale business is producing quality risk profiles. We are excited for the growth in this area of our business and remain committed to this growth,” states Bill Cosgrove, UHM CEO and current Chairman of the MBA. UHM has spent the last few months on a very strategic effort to streamline and simplify its operations as it relates to the wholesale effort. Approved with, and selling directly to, all three agencies has opened the door to very positive evolution operationally for the wholesale effort during 2014. Management is looking to expand wholesale steadily throughout 2015 and any Account Executives that have a reliable group of broker partners that are currently originating agency eligible product should contact Jim Wickham. Candidates will find the positive and resourceful corporate culture at UHM a strategic benefit to growing their business as well as a tremendous motivator for personal growth with their own careers.


In appraisal company news, MyAMC is growing. “MyAMC welcomes David Mentesana to the role of Vice President of Operations and Client Development. Mentesana has over 20 years of industry experience as a certified real estate appraiser and broker, and in addition holds the MAI designation from the Appraisal Institute. ‘We were looking for an individual with the knowledge and capabilities to transform our customer experience,’ said Mills Landon, Managing Director of MyAMC. ‘With David, we’re getting an experienced appraiser with national market expertise. He has worked closely with some of the nation’s largest lenders, and has a track record of success in driving both Customer Satisfaction and Regulatory Compliance, Landon continued. Mentesana will use his role with MyAMC to become a client advocate, ensuring the consistent execution of MyAMC’s core values:  exceptional service through our dedicated team, a formal commitment to the highest quality appraisals, industry leading turn times, and unassailable compliance with Federal and State regulations. Mentesana is active in both the Collateral Risk Network (CRN) and the Association of Appraiser Regulatory Officials (AARO).  He is a former board member for the North Texas Chapter of the Appraisal Institute, and a Six Sigma Green Belt.


Plenty of companies may be tightening belts heading into the winter, and this may help. RICHEY MAY SELECT recently released the results from its 3rd quarter Independent Mortgage Bankers benchmarking survey. The 3rd quarter of 2014 marked a period of relative stability for lenders. Gross loan margins have not fluctuated more than 18 bps since the 4th quarter of 2013. Operating expenses have declined by $449 per loan since reaching their highest level in the 1st quarter of this year. Independents have seen a slow, but steady, increase in loan production since the 1st quarter and increases in expenses have begun to level off. Unrealized gains (losses) related to secondary marketing activities continue to add some noise to pre-tax income, underscoring the importance of having a clear understanding of how pipeline hedging activities affect earnings. For more information on RICHEY MAY SELECT, contact Trevor Reinhart.


And according to an October Survey published by Zelman & Associates, recent policy changes have been positively viewed by lenders as more than half (54%) of lenders are expected to ease credit standards. The policy announcements are geared towards improving credit conditions, while reducing lenders’ risk. FHFA clarified changes to the GSEs’ repurchase policies and the CFPB released post-closing cure mechanisms if the 3% cap on points and fees is violated. The survey indicated that credit standards are loosening, as the share of purchase mortgages to below 700 credit score buyers increased to 32% from 28% a year earlier. The average GSE credit score dropped to 754, down from 759 a year before, and the average Ginnie Mae credit score declined to 692 from 700 a year earlier. The survey also noted that purchase applications increased 6% YoY, while refinance applications decreased 14% YoY.


“An LTV is only a piece of a loan’s risk equation.  For 97% LTV mortgages, where the borrower does not have multiple risk factors, the high LTV is not usually an issue.  A borrower at 79% LTV can be a high-risk borrower if multiple risk factors occur which may include: A Gift for 100% of the down payment, payment shock (current housing is much lower than the new housing), little or no reserves, a FICO score that is below 660 and/and individual that has had several jobs in the past couple of years. The purpose of underwriting a loan is to evaluate risk and I am all for 97% LTV’s to borrowers that know how to manage their finances; I am cautious when I see  LTV greater than 75% if a borrower’s loan file reflects multiple risk factors.” Thank you to Donna Beinfeld:  HUD DE, HUD-RC, VA-LAAP, RMU.


On this topic David Stein with Bricker & Eckler writes, “The question of relaxing standards and ‘alternative’ products will be governed by two questions: Can a lender offer these products and still comply with QM’s ATR standards? Probably not. Documenting ATR is an upfront issue that will run with the life of the loan. Will these products be made available by some investors as non-QM loans?  Probably yes, but beware. You may be able to sell these loans to an investor, but the ATR requirements can still come back to haunt you months and years later. Increased burdens/potential for litigation/potential for liability and enforcement actions should be used to gauge whether your business model can tolerate this risk.”


Tom Showalter, Digital Risk’s Chief Analytics Officer, just put out a research piece regarding borrower down-payments falling victim to appraisal error; a link to the white paper can be found here.


While we’re on the topic, many first time home buyers are turning to family members to assist them in buying a home. Last year, 27% of first-time buyers received a cash gift from relatives or friends to come up with a down payment, according to NAR. The inability to afford a down payment was the number one reason why people chose to rent rather than buy in 2013 and 10% of those leasing apartments last year were looking to buy. NAR reported that 54% of first-time buyers in 2013 said their purchases were delayed due to student loan debt, which prevented them from saving enough for a down payment. To make matters worse, college graduates from 18 to 34 years old experienced a $3,000 decline in average annual earnings from 2007 to 2012. Current first time home buyers account for only 29% of previously-owned home purchase, down from the national average of 40%. As more young adults turn to parents for down payment assistance, the baby boomer generation is seeing their wealth rebuild and are willing to aid their offspring while they can. According to the IRS, each spouse can make a gift of $14,000 to a child or other individual and be excluded from paying taxes. A drawback of greater reliance on gift funds is that it may worsen wealth inequality, as minority parents are probably less likely to own a home and even more unlikely to have built up the cash reserves to aid in down payments. A link to the article can be found here.


Perhaps Fannie & Freddie’s recent moves will indeed spur lenders to remove overlays, but there are plenty of legal issues still outstanding. A sign of the times are lawsuits being settled – the latest being a settlement between Credit Suisse and Assured Guaranty. Credit Suisse and “Assured, which had guaranteed the loans, sued Credit Suisse in 2011 alleging that the bank had misstated the quality of loans, and that a ‘massive number’ of bad mortgages were packaged into the securities.”


And what happens when one combines Quicken Home Loans, Countrywide, Bank of America, and HAMP? A different lawsuit, and then a different settlement.


Yes, lawsuits continue to be filed, and make headlines. Just last week the nation learned of a U.S. Bank lawsuit “being brought by Advocates for Basic Legal Equality, a legal aid group. In a twist, the group is suing U.S. Bank in federal court in Ohio on behalf of the United States government, using the False Claims Act. This legislation, which dates to the Civil War, allows private citizens and groups to pursue legal action against companies and other entities for receiving payments from the government on false grounds.”


In Florida the trial will soon begin for suspended North Miami Mayor Lucie Tondreau who is accused of taking part in an $11 million mortgage fraud scheme. Prosecutors say Tondreau, who has pled not guilty, and others conspired before she became mayor to defraud lenders using straw buyers, who obtained inflated loans for 20 properties. The scheme allegedly involved recruiting buyers through a radio program catering to Haitian-American listeners. Tondreau’s business partner, Karl Oreste, previously pleaded guilty in the case.


And Cook County is suing Wells Fargo over discriminatory lending. The good times never end!


Speaking of “good times”, it is important for us (and politicians) to remember that when it comes to the future of Fannie Mae and Freddie Mac there is a difference between “elimination”, “overhaul”, and “reduce the government guarantee”. With Republicans set to take control of Congress in January a deal could emerge. Sen. Richard Shelby, R-Ala., incoming chairman of the Senate banking committee, will face pressure to write legislation similar to a measure that reduces the government guarantee behind loans issued by Fannie and Freddie. The measure was drafted by Rep. Jeb Hensarling, R-Texas, head of the House Financial Services Committee.


There might be some folks out there wondering where rates are heading. No one knows for sure (and anyone who tells you they do is trying to sell you something) but the persistent undershooting of the 2% inflation goal is increasingly becoming a concern for those inside the Fed. PPI and CPI have been meager, and inflation expectations are starting to slip. A little bit of inflation is a good thing, and the Fed wants to see some before it increases short-term rates. But hey, don’t take my word for it – here’s an article from Reuters on the topic. Oil prices are certainly anti-inflationary, and the oil price decline will only intensify disinflationary pressures, allowing the Fed to stay on hold for significantly longer than market’s presently assume; it may not be until later in ’15 or early ’16 when rate hikes might commence.


For anyone doing an ARM loan, the Federal Home Loan Bank of San Francisco reported that the COFI index for October 2014 is 0.671%, an increase from September’s index of 0.663%. The COFI index, which is determined based on the actual interest expense reported by its member banks, was 0.963% in October 2013. The average total funds used in October 2014’s calculations was $15.6 billion.


Monday rates moved higher and stock prices lower on no real news. ‘Nuf said. We did see some intra-day price changes for the worse yesterday, however. And the only scheduled news for today is 10AM EST’s October Construction Spending which is seen higher +0.6% versus the prior decline of -0.4%. The 10-yr T-note closed at 2.24% and this morning is little changed, as are agency MBS prices, at 2.24%.



There were five houses of religion in a small town: the Presbyterian Church, the Baptist Church, the Methodist Church, the Catholic Church, and the Jewish Synagogue.

Each church and synagogue was overrun with pesky squirrels.

One day, the Presbyterian Church called a meeting to decide what to do about the squirrels. After much prayer and consideration they determined that the squirrels were predestined to be there and they shouldn’t interfere with God’s divine will.

In the Baptist Church the squirrels had taken up habitation in the baptistery. The deacons met and decided to put a cover on the baptistery and drown the squirrels in it. The squirrels escaped somehow and there were twice as many there the next week.

The Methodist Church got together and decided that they were not in a position to harm any of God’s creation. So, they humanely trapped the squirrels and set them free a few miles outside of town. Three days later, the squirrels were back.

But…the Catholic Church came up with the best and most effective solution. They baptized the squirrels and registered them as members of the church.  Now they only see them on Christmas, Ash Wednesday, Palm Sunday and Easter.

Not much was heard about the Jewish Synagogue, but they took one squirrel and had a short service with him called circumcision and they haven’t seen a squirrel on the property since.





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Rob Chrisman