July 12: ARM primer from the Fed; more on end of month closings; Chase & Wells earnings; where are locked pipelines going?

“Rob, has the CFPB or the Federal Reserve put out anything on ARM loans?” You bet it has: http://files.consumerfinance.gov/f/201204_CFPB_ARMs-brochure.pdf. It is a nice primer, with pretty colors, easy-to-read print, and small words – just right for me.


I am continuing to think that mortgage bankers are like farmers. Last year, and the first half of this year, was a great time to fill the coffers. Profit margins were great, and LOs never made more money. But hey, that was then, and this is now. Just like with a farmer where there is always something to worry about (too much rain, not enough rain, great crop production driving prices down, higher prices but not enough crops in the field, land prices heading down, land prices going up, and so on), residential lenders are definitely worried about the future. “Rob, if I could do something else, I’d quit.” This was one note I received recently – regardless, it is a pretty good business.


Yesterday I was discussing the current environment with my cat Myrtle. (Don’t laugh – Myrtle is a big fan of originators.) I was explaining to her that if a loan is underwater, especially 4-6 points worse than the current market, there is no logical reason to extend it for free, or even split the difference with the LO or borrower. And if the loan hadn’t even gone through underwriting, definitely not. There are gains in the security hedges that would be a big benefit for fiscal year 2013. Myrtle countered that, first, it may be the corporation’s fault for the delay, and the reason that the rate lock was going to expire without the loan funding. And second, LOs who are big refi machines are looking at a huge drop off in commissions after their pipelines fund and are replaced with fewer loans and very much want those commissions. Myrtle then asked me to turn off the bickering folks on CNBC and turn on Bloomberg radio while she groomed herself. Sometimes she’s somewhat intelligent.


(Myrtle is not a big fan of Elizabeth Warren, the Democratic Senator from Massachusetts. Warren criticized financial regulators yesterday for settling with violators of financial laws, rather than taking them to trial. “There have been some real questions about the settlements you’ve made,” Warren told regulators from the Federal Reserve, the Treasury Department, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. Warren suggested they follow the lead of Mary Jo White, head of the Securities and Exchange Commission, and press more defendants for admissions of guilt.)


Seriously, what are the smart minds out there thinking about pipelines? The percent of refis in a given sizeable pipeline has never gone to zero. There is always someone who needs some cash out, who is moving to an intermediate ARM or shorter maturity, whatever. From the folks I have spoken to, in a stable market, with rates neither at their highs or lows, most say that refis account for 20-40% of funded loans over time. We still have HARP, for example, and home price appreciation that is helping the refi business. And just because rates are a percent or so above their lows doesn’t mean they’re still not good. Mortgage rates are about where they were in 2011. That being said, the LOs out there who were always praying, “Oh Lord, just give me one more refi boom” have probably had it. And come to think about it, loan level price adjustments have gone up, gfees have gone up, the cost of compliance has gone up – and many LOs will tell you that credit, and not rates, is the reason many borrowers don’t qualify. So if the economy continues to improve, maybe the credit picture of borrowers will improve!


Switching topics, Barbara Werth with Mortgage Training Today writes, “Rob, I wanted to comment on the note about the VA ad on CNN.  Anytime one of us sees an ad like this we need to submit a complaint to the CFPB so that they are aware of it.  We can’t assume that they see every ad.  I did submit a complaint on this ad.  Also, the CFPB and the FTC have been cracking down on deceptive ads in the mortgage industry.  Here is an article on crackdowns they did jointly in 2012: http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-warns-companies-against-misleading-consumers-with-false-mortgage-advertisements/”. Thanks Barbara!


We don’t have enough acronyms in our mortgage lives. Here’s another one: PATH. Representatives on the House Financial Services Committee announced the Protecting American Taxpayers and Homeowners (PATH) Act on Thursday to create a sustainable housing finance system. The proposal ends the taxpayer-funded bailout of Fannie Mae and Freddie Mac while phasing out the enterprises. It has a long way to go, and the odds of it even being considered in the Senate are very small, but its importance is that the proposal is yet another idea regarding Freddie and Fannie.


The Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency proposed tougher but simpler capital requirements for banks. The new rules would effectively force the biggest banks to hold capital equal to between 5% and 6% of total assets. “This will increase the overall financial stability of the system,” said Thomas Hoenig of the FDIC. http://www.reuters.com/article/2013/07/09/bank-capital-us-idUSL1N0FF1E120130709


On the subject of closing your loan earlier in the month, Gladie writes, “Regarding end of the month crunch times and the pay-off of FHA loans specifically….Ginnie Mae guarantees through the issuing lender interest to the security holders monthly. So, if a FHA loan closes on any day of the month the security holders are due the interest, period. FHA allows the inclusion of up to 60 days interest in the new loan amount so conjunction with the interest due to the security holders there is no incentive to close earlier in the month.”


And, “The talk about month-end crunch times is cracking me up.  I really love, ‘There are NO savings. Pay now or pay later, you are going to pay.’  When I originated in the dark ages, I told my customers, ‘You can pay me now or you can pay me later.’  I didn’t have any clients that insisted on closing at the end of the month – unless we were paying off an FHA or VA loan.”


Steve W. observes, “As a fellow warehouse lender, I completely agree with the comment regarding spreading fundings throughout the month. And I think that even thinking about hinting to a borrower that he should skip a payment because his refi will close by month-end is akin to malpractice. But if the borrower does so, he will not be reported late to the credit repositories on the 16th of the month. That won’t happen unless he crosses month-end without either making a payment or paying off the existing loan.” Hey, who the heck wouldn’t want to go to Vail in August? The Colorado Mortgage Lenders Association writes, “Join us August 7-9, 2013 at the Vail Marriott Mountain Resort for three days of education, celebration and networking with top mortgage industry leaders in honor of 40 years of CMLA’s Annual Convention.” The Early Bird deadline ends in a week – register at http://cmla.com/convention/2013/40th-annual-cmla-convention-schedule-events.


We continue to have bank and investor news!


JPMorgan Chase (#2 residential lender) reported a 31% rise in quarterly profit as trading revenue rebounded and the biggest U.S. bank by assets avoided another “London Whale” derivatives loss. Net income rose to $6.50 billion in the second quarter from $4.96 billion a year earlier. Chase also reported revenue of $25.96 billion. It was all better than expected. JPMorgan’s consumer and community banking, which includes home loans and checking accounts, earned $3.09 billion, down 6 percent from $3.28 billion a year earlier as mortgage-fee revenue declined. Net interest margin, which measures the profit margin on lending, shrank slightly. Mortgage fees and related revenue dropped 20 percent to $1.82 billion, compared with $2.27 billion a year earlier. Wells (#1 residential lender) is more domestic, less international, and much more focused on mortgages. Wells’ earnings surpassed estimates (98 cents versus 93 cents). The market appears to like the 19 percent increase in second-quarter profit. Wells recorded its 14th-consecutive rise in quarterly profit and ninth-straight record report. The bank had net income of $5.5 billion and revenue of $21.4 billion.


PHH has updated its flood insurance requirements to reflect recent changes stipulating that for condos, the insurance should reflect that the HOA, rather than the individual owner, is responsible for coverage, and that all policies should include a Life-of-Loan Flood Determination indicating whether or not the property is in a special flood hazard area.  Guidelines have also been updated to prohibit VA loans on properties located in Coastal Barrier Resources Systems.  PHH has clarified that these properties are ineligible for FHA and USDA loans as well; however, this is not a change to the existing policy.


Affiliated Mortgage has rolled out its new FHA Streamline Refinance product, which it is currently offering to Direct Endorse lenders.  This program allows LTV/CLTVs up to 115% for credit scores as low as 660, while LTV/CLTVs of up to 135% are permitted for credit scores of 680 and above.  Owner-occupied properties in all states and territories apart from Alaska, Hawaii, Massachusetts, and the US Virgin Islands are eligible provided they are assigned FHA Case Numbers and receive Refinance Authorization.  Affiliated will accept Core Logic GEO AVM and FHLMC HVE or Drive By appraisals so long as the FSD is 20 or less for the former and the HVE confidence score is M or H for the latter.  An adjuster of -0.275 will apply to all transactions where the LTV is 115% or less, while LTVs between 115% and 135% will be subject to an adjuster of -0.750.  For full product overlays, consult the Affiliated selling guide: http://www.affiliatedcorrespondent.com/wc/content/correspondentdocuments/70003_FHA_Fixed_Rate.htm.


Affiliated has revised its credit and policy overlays for its 15-, 20-, and 30-year fixed rate FHA products, the full details of which are available at http://www.affiliatedcorrespondent.com/wc/content/correspondentdocuments/70003_FHA_Fixed_Rate.htm.  The requirements for purchasable Governments loans have also been revised and state that Affiliated Is not currently purchasing FHA or VA loans on properties in Alaska, Hawaii, and the US Virgin Island (Streamline refinances in Massachusetts are also ineligible, along with Florida condos).  All VA loans and FHA purchases, rate/term refinances, and cash-out refinances require a minimum credit score of 640, while FHA Streamline refinances require a credit score of at least 660 for CLTVs up to 115% and 680 for CLTVs up to 135%.  For further details on verbal verifications of employment, Up-Front Mortgage Insurance Premium and VA Funding Fees, manufactured housing, HUD REO requirements, the FHA Condominium Approval Process, VA Authorized Agency, and VA IRRRLs, refer to http://www.affiliatedcorrespondent.com/wc/content/correspondentdocuments/70001_Gvt_Loan_Purchase_Req.htm.


MSI is now accepting LTVs up to 97% on fixed rate DU primary residence transactions with a FICO score of at least 720 and DTI below 41% that receive an Approve/Eligible.  At least 3% of the down payment must come from the borrower’s own personally sourced funds, and second or subordinated loans will not be permitted.  Condos are not eligible unless they have received a full project approval from Fannie, and construction-to-permanent loans are not permitted.  This is effective with all loans locked on or after July 8th.


Effective immediately, MSI is requiring that all loans on properties in the state of Massachusetts that close in the name of First State Bank rather than the seller must be ordered in the name of First State Bank and disclosed as such on the appraisal.


WesLand Wholesale has implemented a -1.00 adjuster for all high balance LP transactions (e.g. locked under the LP Super Conforming program) and has clarified its policies on borrowers paying off debts to qualify for Fannie and Freddie high balance programs in its selling guide.


Rates seem to want to gradually improve after a rough 2-3 weeks. Is the 10-yr going to go back to 1.60%? Probably not – the smartest guys in the room say we’re more likely to hit 3% before we hit 2%. Nonetheless, markets recovered from Wednesday’s FOMC Minutes-related underperformance as the market responded to remarks late yesterday afternoon from Chairman Bernanke at a National Bureau of Economic Research conference saying that “a highly accommodative policy is needed for the foreseeable future.”


And locks and hedging seem to have picked up a little bit. Traders reported that mortgage banker supply eased back to the $1 billion area after Wednesday’s pop to $2 billion. (Hey, the Fed could buy less agency MBS, but lenders could be producing less as well in the coming months.) Current coupon MBS prices were better by about a point, and the 10-yr improved by .875 to close at a yield of 2.58%.


Economic releases scheduled for today are June’s Producer Price Index (PPI); it was expected unchanged from last month at +.5% and came in at +.8%, with the core rate +.2%. We’ll also have, at 9:55AM EDT, the preliminary July Consumer Sentiment number, which is projected higher to 85 from 84.1. In the early going the yield on the 10-yr is down to 2.56%, and generally rates are a shade better than Thursday’s close – look for rate sheets to catch up a little.



One day at the veterinarian’s office where I take my cat, a man and the receptionist were verbally sparring.

After a few moments a technician came to her co-worker’s defense.

“Sir…Do you know what happens to aggressive males in this office??”



Rob Copyright 2013 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.)


Rob Chrisman