Jan. 5: Notes on VA cash-outs, what happens after a merger or acquisition; HMDA fields ready for input
The new year is off to a bang with VA cash-out changes coming, rumors of a well-known AMC exiting the business, state law changes, borrowers wanting a Nordstrom experience at a Costco price, M&A continuing, and the government shutdown. (By the way, despite the IRS remaining closed during the partial government shutdown, on Monday, January 7, it will begin processing requests for tax transcript information made through the Income Verification Express Service (IVES) program.) Julian Hebron with The Basis Point penned a piece on “The Most Overused Financial Technology Word of 2018.” Hint: It isn’t “digital,” which is unexpected. Let’s see what is on reader’s minds!
VA cash-out program comments
David G. writes, “I don’t condone predatory lending behavior nor question the need of only originating loans that truly benefit the borrower, but much of the benefit evaporates because of high closing costs determined by location. Individual state laws dictate and govern the closing process. The top 10 states with the highest closing costs are HI, VA, WA, CA, PA, VT, MD, DE, NY, DC. Coincidentally, some of these states house a high percentage of veterans and active military personal.
“A state mortgage tax coupled with a laundry list of other state dictated fees like attorney fees, recording fees, environmental fees, restriction, encroachment and mineral fees can account for over 60% of the cost associated with non-VA refinanced home loan. For VA loans, I understand some of these fees are waived but many are not. The VA caps the lenders compensation to 1% of the loan amount, so the balance of fees are usually generated by the state and required third parties. If the states want to help our veterans and active military personal waiving redundant refinance fees paid the first time around may be a good suggestion. It’s easy to blame the lender, but there can be no comparison between fees on a $250,000 cash-out refinance and a $2 ATM charge.”
Mike Swaleh, a branch manager at Fairway Independent, had some thoughts on the VA cash-out situation. (“The VA funding fee on a cash out is 3.3% by itself, so they are paying a ton of fees, which is just added to their loan balance.”) “Any idea what percent of vets are disabled (FF waived)? Any idea what percentage of VA IRRLS have points charged? To add some perspective, I think it would be helpful to know that, and more, about the make-up of the refinances being done. Fairway did a lot of IRRRLs in 2016, but almost all of them were either priced above PAR, to reduce or cancel out the FF, or at par if they were exempt. I don’t think we charged points on a single one, and often gave LCs to cover standard closing costs as well.
“There are plenty of lenders taking advantage of vets out there, but at Fairway we try to do just the opposite, not just with our American Warrior Initiative events but also by the way that we do business. We used to have clients call us with offers in hand from one large national lender in particular that charged 3-4 points (and would sometimes even be an ARM, though thankfully not often), and we would instead show them how to compare that to our offers of two still-lower-than-what-you-have-now rates, one with rolling in closing costs and prepaids and one with credits to cover everything and roll in nothing. There’s a right and a wrong way to do things; we need to stop the former but save room for the latter.”
As an executive summary, late in 2018 the CFPB announced the availability of a beta version of a Home Mortgage Disclosure Act (HMDA) data platform for companies to test the filing of 2018 data. The CFPB has now announced that the beta testing period is closed and the HMDA data platform is open for the filing.
Under the title of, “Things that cost lenders a lot of money and don’t add anything to revenue,” last month the CFPB released final policy guidance applicable to the public disclosure of data collected and reported pursuant to the Home Mortgage Disclosure Act (HMDA). The following applies to data collected by financial institutions in 2018, which will be reported and made publicly available in 2019.
Public loan-level HMDA data will exclude:
(1) universal loan identifier or non-universal loan identifier.
(2) date the application was received or the date shown on the application form.
(3) date of action taken by the financial institution on a covered loan or application.
(4) address of the property securing or proposed to secure the covered loan.
(5) credit score or scores relied on in making the credit decision.
(6) unique identifier assigned by the Nationwide Mortgage Licensing System and Registry for the mortgage loan originator, and
(7) result generated by the automated underwriting system used to evaluate the application.
In addition, the publicly available data will exclude free-form text fields used to report the following data: race, ethnicity, the name and version of the credit scoring model used, the principal reason or reasons the financial institution denied the application, and the automated underwriting system name.
The following public loan-level HMDA data will be modified to reduce the precision of most of the values reported for the following:
(1) loan amount or the amount applied for will be disclosed as the
midpoint for the $10,000 interval into which the reported value falls, and there will be an indication as to whether the reported value exceeds the applicable dollar amount limitation on the original principal obligation in effect at the time of application or origination.
(2) age of an applicant or borrower will be provided in bin values in ranges such as: 25 to 34; and will indicate whether the reported value is 62 or higher.
(3) ratio of the applicant’s or borrower’s total monthly debt to the total monthly income relied on in making the credit decision under 36 percent and over 50 percent will be reported as bin values; however, values greater than or equal to 36 percent and less than 50 percent will be reported without modification.
(4) value of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan, will be disclosed as the midpoint for the $10,000 interval into which the reported value falls.
(5) number of individual dwelling units related to the property securing or proposed to secure the covered loan, will be reported as bin values in ranges such as 5 to 24; 25 to 49; 50 to 99; 100 to 149; and 150 and over.
(6) number of individual dwelling units related to the property securing or proposed to secure the covered loan, that are income-restricted will be disclosed as a percentage of the total number of individual dwelling units related to the property securing the covered loan.
“As reflected above, in this most recent policy guidance, the Bureau changed the treatment of the following data fields from its original proposed approach: total debt to income ratio, number of individual dwelling units securing or proposed to secure the loan, and the number of individual dwelling units that are income-restricted. Moreover, the Bureau intends to commence a rulemaking in the spring of 2019 that will enable it to identify more definitively modifications to the data that it determines to be appropriate under the balancing test applied and incorporate these modifications into a legislative rule.”
Regarding HMDA… we’re off to the races! The CFPB announced that the filing period for HMDA data collected in 2018 opened on January 1. The beta testing period for the 2018 HMDA Platform is closed. “The objective of the beta platform release was to provide financial institutions with an opportunity to determine whether their sample HMDA data complied with the reporting requirements outlined in the Filing Instructions Guide for HMDA data collected in 2018. The beta period also allowed the Bureau to gain valuable information regarding the performance of the system and provided an opportunity to make any necessary enhancements. All test data uploaded during the beta period has been removed from the system.
“All user accounts created during the 2018 beta testing period and during the filing period for data collected in 2017 will be maintained for the 2018 filing period, and users can login to the 2018 HMDA Platform using their existing credentials. We encourage financial institutions to continue providing feedback on their experience using the HMDA Platform and to direct any questions regarding the HMDA Platform to HMDAHelp@cfpb.gov.”
After the courtship and marriage ceremony of two companies joining forces, with the usual platitudes about “expanding our reach,” “cultural mesh,” and “perfect fit,” the actual work begins. Frank Fiore of Matchbox LLC addressed that in a note to me this week. “Rob, with all of the merger and acquisition activity, there is always a lot of excitement around the announcement of the union of the two companies, but it is once the agreement is signed, the real fun begins, from a technology standpoint.
“There are a number of options that companies face from just the LOS perspective: handling of the pipeline (migrate loans or wind down the pipeline), merging of workflows, migrating functionality between same systems, standing up a new environment as opposed to absorbing one company into a complex legacy environment, handling of data and reporting, training and support. This speaks nothing to migration and handling of Product and Pricing engines and Secondary data and pipelines, vendor integrations and conversions, HMDA, NMLS, and document conversion.
“The technical aspect of a union of firms is one that requires experienced companies that ask the right questions and provide the right options and solutions. We are seeing many companies make poor decisions because they either did not explore or were presented with the right options from a technology perspective. These unions are supposed to create efficiencies and economies of scale but it won’t be achieved without a well-thought-out technology migration plan. Especially if there are two Encompass based clients coming together, there are a number of items to be determined and options that can be considered for the short and long term.” Thanks Frank! (If anyone is in need of some guidance on this front, please contact Frank Fiore at matchbox to discuss your current or future plans to see if the matchbox and Ignite teams could be of service to you.)
Three missionaries were imprisoned for their faith: a Baptist, a Mennonite, and a brunette capital markets person. They were scheduled to be shot at sunrise at which time they were lined up against the prison wall.
The firing squad leader yelled, “Ready! Aim!” and the Baptist yelled, “Earthquake!”
Everyone went to run & hide from the earthquake and the Baptist climbed over the wall & got away.
After a while they lined up the Mennonite and the brunette capital markets person and the leader shouted, “Ready! Aim!” and the Mennonite yelled, “Tornado!”
Everyone hid from the tornado and the Mennonite climbed over the wall & got away.
After a while they found the capital markets person and put him against the wall.
“Aha!” he thought, “All I have to do is call out some natural disaster, and I can get away too!”
The leader bellowed, “Ready! Aim!” and capital markets person yelled, “Fire!”
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