Jan. 15: Mortgage jobs; new forecast for 2014 volume; legal notes – why is the ACE Securities case important to correspondent buybacks?

Here’s a sign in a paint store: “Men will not be allowed to select colors unless they have a note from their wives.” How true is that? One can never predict whether or not a color will be acceptable, just as one can never predict, with precision, the future. It looks like the industry did about $1.75 trillion in 2013, and the Mortgage Bankers Association (MBA) lowered its forecast for mortgage originations in 2014 by $57 billion to $1.12 trillion for the year, based on declining mortgage application activity and increasing interest rates: http://www.mortgagebankers.org/NewsandMedia/PressCenter/86781.htm. The current forecast of $1.2 trillion would represent the lowest level in 14 years, and not that my gut is ever right but if I had to pick an “under or over” I’d pick numbers for 2014 coming in under that. It will be, of course, interesting to see how QM versus non-QM shakes out. If a small lender ends up with an unintended non-QM loan on their books, that is a much larger hit on a relative basis than a bank which can add it to their portfolio – and thus smaller lenders are more wary than they’ve ever been before about lending.

Turning to the jobs front, First Community Mortgage is are now searching for driven individuals in GA, NC, SC, AL, FL, KY, IN, IL, OH, MO, MS, with specific emphasis on strengthening our presence in the Atlanta market! “Come join the Lender of Choice and align with a team that brings out the best in you! At First Community Mortgage, we make it easy for mortgage professionals who want MORE! FCM is a Top 100 Mortgage Company as ranked by Mortgage Executive Magazine. Opportunities are available as Branch Manager, Team Leader, and Loan Originator with base salary, team overrides and aggressive LO comp plans! Contact Brandon Sandefur today at brandon.sandefur@fcmhomeloans.com or Andy Voyles at andy.voyles@fcmhomeloans.com. Learn more by visiting: http://www.thelenderofchoice.com/hiring.php. FCM just announced its new expanded TPO/supervised correspondent channel to include a full delegated correspondent platform.

And Mortgage Coach looking for National Account Director. “Here’s a great career opportunity for those interested in helping completely transform the home buying experience.” Mortgage technology pioneer Mortgage Coach is rapidly growing and looking to hire National Account Directors. If you have 5+ years’ experience as a C-level sales professional earning the trust and respect of top executives and you share Mortgage Coach’s ambitious vision to deliver better advice and service to homebuyers, send your resume to sales@mortgagecoach.com. Join a team that is dedicated to helping Americans responsibly achieve the dream of home ownership. This quick video showcases the Mortgage Coach mission: http://mortgagecoach.com/confident-decision/.

Lastly, Home State Bank has an immediate opening for a Branch Manager and team in northwest suburban Chicago. Home State, a Fannie servicer, “has a very strong value proposition for loan officers, including: Raw Rates – the rate we get from our investor is the rate you take to your customer. No overlays – as a direct to agency seller/servicer, we understand how to meet agency guidelines without unnecessary overlays. Exceptional Service – our in-house operations team is staffed with seasoned mortgage professionals, committed to serving you and your customer.” Contact Regional Manager, Jim Sorenson to learn more about the Home State Advantage, at jsorenson@homestateonline.com.

At this point, every lender out there has some story about buybacks, lawsuits, or settlements. According to the New York Times, Wall St could pay as much as $50 billion to settle outstanding mortgage lawsuits. A recent settlement by one of Wall St’s largest banks has now become the template by which people are judging the industry’s total possible liability.  “A payment of $50 billion, made up of a string of separate deals, would amount to roughly half the total annual profit of large American banks in 2012”: http://dealbook.nytimes.com/2014/01/09/wall-street-predicts-50-billion-bill-to-settle-u-s-mortgage-suits/?_r=1.

The MBA filed an amicus brief in the big Ace Securities case decided recently, and here’s the link: http://mba-pac.informz.net/mba-pac/data/images/ace_amicus_motion_mba.pdf. This was an important issue for MBA to weigh in on, both for precedent value and because many PLS agreements are governed by NY law.  If upheld, this case will be especially important for smaller, correspondent lenders who sell to investors and would otherwise have to worry about receiving repurchase demands years and years into the future rather than the period specified by contract.

To go into a little more detail on this, I’ll admit that I sometimes mispronounce the word ‘statute’ when used in conjunction with ‘limitations’. I’ll also admit that, in a legal sense, I’m not an attorney, and technically, am not licensed in any of our 50 states…mainly because I never went to law school. So it’s a good thing we have the American Mortgage Law Group to keep us apprised of mortgage litigation. In a recent ruling by the New York State Supreme Court, Appellate Div., addressing ACE Securities Corp v. DB Structured Products Inc, and is a significant ruling in the long running statute of limitations between correspondents and investors. AMLG write, “The ruling held that the statute of limitations on loans delivered to investors begins to run at the time of execution of the contract between the parties, when any breach of the representations and warranties contained therein occurred.” Investors have been claiming that a correspondent’s refusal to repurchase a loan or indemnify the investor was a subsequent breach of the agreement between the parties, which therefore commenced anew the running of the statute of limitations. The Court in ACE Securities Corp has held otherwise. AMLG continue, “According to Justin Wiseman, Associate Regulatory Counsel for the Mortgage Bankers Association, this ruling will hopefully put to bed some lingering repurchase liability pending a possible appeal to the New York Court of Appeals.” Back in November the MBA filed an amicus brief that supported the proposition that the statute of limitations should run from when the representations are originally made. While the ruling is limited to matters involving New York law, the case has been followed by many in the industry.

There are many factors in lending which enable the secondary markets to work: sound underwriting practices, accurate cash flow models, borrowers making timely payments. I would argue ‘appraisals’ should be right at the top of that list too. I continue to be asked about this, so remember that the six federal financial regulatory agencies issued a final rule that creates exemptions from certain appraisal requirements for a subset of higher-priced mortgage loans. The appraisal requirements for higher-priced mortgages were established by Dodd-Frank, and under the act, closed-end mortgage loans are considered to be higher-priced if they are secured by a consumer’s home and have interest rates above a certain threshold.

Under this rule it requires creditors to obtain a written appraisal based on a physical visit of the home’s interior before making these loans. The final rule provides that loans of $25,000 or less (along with certain “streamlined” refinancing) are exempt from the Dodd-Frank Act appraisal requirements, which go into effect on January 18, 2014. But what about manufactured housing, you ask? Well, for manufactured homes, which I’ve been told can present unique issues in determining the appropriate valuation method, the requirements for manufactured home loans will not become effective for 18 months as to allow creditors to make the necessary operational adjustments. Starting on July 18, 2015, however, loans secured by an existing manufactured home and land will be subject to the Dodd-Frank Act’s appraisal requirements. Loans secured by a new manufactured home and land will be exempt only from the requirement that the appraiser visit the home’s interior. For loans secured by manufactured homes without land, creditors will be allowed to use other valuation methods without an appraisal, such as using third-party valuation services or “book values.” The complete 283 page supplement to the final rule can be found on the Federal Register: http://www.fdic.gov/news/news/press/2013/pr13116a.pdf?source=govdelivery&utm_medium=email&utm_source=govdelivery.

Keeping on with new requirements and worries for compliance and underwriters, let’s catch up with some recent investor bulletins. As always, read the actual announcement for full details.

EverBank has issued a correction of the earlier bulletin that removed the limitation on the number of financed properties a borrower may own when locking under the Preferred Non-Conforming Fixed Rate and LIBOR ARM products.  The previous maximum of four financed properties is now back in effect for all loans that are approved after January 10^th.

US Bank has added the Elite LIBOR ARM series and 10/1 Interest Only ARM products to its Extended Lock program, will no longer be accepting non-applicable fee options, and has changed the pricing of the 240 Day Extended Lock to the 60-day price on the rate sheet plus 75bps.  The changes went into effect January 8^th.

PennyMac has updated its Power of Attorney guidelines to state that the borrower must sign the initial loan application unless he/she is in the military, in which case POA must be used in accordance with the VA Lender Handbook.  In addition, POA cannot be used to sign loan documents if no other borrower has executed such documents unless the attorney is a relative or attorney at law.  All loan files delivered to PennyMac must include a written statement explaining the use of POA, and lenders may be required to provide supporting document as well.  The Sellers guide has also been updated such that cash-out transactions containing a DU decision are no longer eligible for purchase.

PennyMac has released an addendum to its previous QM and ATR bulletin clarifying that the amount paid to and retained by any affiliates of the creditor must be included in the Points and Fees (“Net Amount”) calculation and that such charges may be reduced by a lender credit or credit for rate chosen.  The Net Amount will be included in the verification of Points and Fees where documentation such as invoices can be provided; if documentary evidence is not available, PennyMac will include the entire amount from the HUD-1 settlement statement paid to the affiliate of the creditor.  Non-origination-related fees paid to the broker or an affiliate of the broker should not be included in Points and Fees; these fees may include administrative tasks unrelated to taking a mortgage application or negotiating credit terms and real estate broker activity.

Effective immediately, PennyMac will begin procuring trailing documents on the client’s behalf for all loans that are 60 days delinquent or more.  The standard $100 per document fee will be applied, and once this is paid, the trailing document team will procure the necessary documents.

PennyMac is now accepting photocopied recorded security instruments for properties in all states apart from CO, CT, FL, IA, LO, NJ, NY, and VA, for which county-certified copies are still required.

Affiliated has updated its guideline requirements for properties in CA, IL, MA, and MI, for which it is no longer permitting trusts, 20-year loan terms, loan amounts under $50,000, FHA loans with CLTVs over 100%, or cash-out and Streamline FHA transactions.  For properties in Massachusetts, the maximum LTV for VA loans is now 90%, and Manual Underwrites and Conventional LP loans are no longer eligible for purchase.

Turning briefly to the markets, yesterday prices worsened, and experts blamed it on the stronger-than-expected Retail Sales number and a pick-up in MBS selling. (Per Thomson Reuters, “’real money’, REITs, fast money and servicers sold more than US$2 billion, primarily in 3.5s and 4s, while originator supply was in excess of US$1 billion. In total, it was more than what the Fed could absorb.” Heck, remember the old days when the Fed wasn’t even there?)

This morning we’ve already had the MBA’s applications numbers, and apparently there were some pent-up apps: the overall index rose 11.9% for the week January 10th after rising by 2.6% the week prior. Refinance applications were up by 11.2% (its largest week over week increase since September 13, 2013). Purchase applications were also up by 11.5%. Refinance applications as a percentage of total applications lowered just slightly to 62.3% vs 63.3% the week prior. And we’ve had the PPI (Producer Price Index) figures: expected +.4% headline, +0.1% core, they came in at +.4% and +.3%. And January Empire Manufacturing came in at “12.51” – thought to be a little strong. Rates have nudged higher: the 10-yr. closed Tuesday at 2.87% close, and now we’re at 2.88% and MBS prices are worse a shade.

We are having some bank earnings this week, and in honor of that, let’s take a look at some financial statement comments that make little or no sense, part 3 of 3.

21. “Investment guru [insert name] says stocks are [insert forecast].”

Go to Morningstar.com. Look up that guru’s track record against their benchmark. More often than not, their career performance lags an index fund. Stop calling them gurus.

22. “We’re constructive on the market.”

I have no idea what that means. I don’t think you do, either.

23. “[Noun] [verb] bubble.”

(That’s a sarcastic observation from investor Eddy Elfenbein.)

24. “Investors are fleeing the market.”

Every stock is owned by someone all the time.

25. “We expect more volatility.”

There has never been a time when this was not the case. Let me guess, you also expect more winters?

26. “This is a strong buy.”

What do I do with this? Click the mouse harder when placing the order in my brokerage account?

27. “He was tired of throwing his money away renting, so he bought a house.”

He knows a mortgage is renting money from a bank, right?

28. “This is a cyclical bull market in a secular bear.”

Vapid nonsense. 

29. “Will Obamacare ruin the economy?”

No. And get a grip.

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.)