July 3: Residential legal news; disaster area updates; FHA, VA, and Ginnie news from agencies & lenders; Angel Oak non-QM security

We’ve sailed through half of 2017 already. (“Life is like a roll of toilet paper. The closer you get to the end, the faster it goes.” Since many folks have today off, very few people are reading this, so I can get away with remarks like that.) Turning up the intellectual level a little, who is William Stanley Jevons? He was an English economist and logician, and while living in Australia wrote a book titled, “A General Mathematical Theory of Political Economy.” I bring this up because in it he developed a theory about value. Should prices be based on the cost of making goods, or should the price reflect the degree to which a consumer values a product? Should mortgage prices to the borrower be based on the cost of originating a mortgage, or should the price reflect the degree to which a borrower values the mortgage? A good discussion to have at your next sales event.

Lender & investor FHA, VA, reverse mortgage, and Ginnie changes

Plaza’s VA Fixed and ARM Program Guideline have been updated to remove the overlay capping cash-out at $150,000. FHA 203K guidelines have been updated to include requirements for borrower provided materials. Additionally, the maximum draw amount for materials drawn at closing is limited to $15,000. Preferred Purchase Jumbo Fixed and ARM guidelines have been updated to clarify that inquiries in the last 180 days (previously 120 days) must be explained.

Citi Correspondent Lending has issued its newest bulletin with updates that include:  Asset Documentation for Investment Property, Condo, Co-op & PUD Chapter, Student Loan Payment Calculation, QM/ATR: Investment Property Transactions, Properties Listed for Sale, Source of Funds: Truncated Asset Account Numbers, Installment Debt: DU Transactions, Government Lending Policy Changes and Clarifications, and Community Lending Assistance Program Structures.

Ginnie Mae has provided disclosure information for its MBS Multifamily New Issuance Loan Level data. Ginnie is also restoring access to the legacy REMIC search page and adding a link from its existing data search page to access the legacy page as well.

Mortgage Solutions Financial has updated information regarding termite inspections on FHA purchase transactions.

ReverseVision has forged a partnership with Skyline Financial Corp. (Skyline Home Loans and NewLeaf Lending) to support the lender’s growing reverse mortgage division with RV Exchange loan origination technology and RV University training programs. Skyline is excited to become a full-fledged reverse mortgage lender. ReverseVision’s RVX serves as a centralized exchange, connecting all participants in the lifecycle of a reverse mortgage and allowing them to log in to a single system to share documents and information for each part of the loan process. The system encompasses everything from point-of-sale, processing and underwriting to funding, post-closing and secondary marketing.

NewLeaf Wholesale’s bulletin advised of VA appraisal fee changes effecting Idaho, Utah & Washington. Effective for WebLGY VA appraisal orders created on or after July 1, 2017, the VA Administration revises appraisal fees for multiple states. When adding appraisal fees to the Loan Estimate (LE) for VA appraisal orders created on and after July 1, 2017, please refer to the new VA Fee Sheet located on the VA Appraisal Fee Schedules and Timelines page of the U.S Department of Veterans Affairs website.

Effective as of Monday, June 19, 2017, MWF fees for some appraisal products will be raised. View the updated Appraisal Fees posted on the MWF Wholesale Site under “Quick Links” > Fees. All Revised fees are highlighted in yellow on the appraisal fee sheet.

Lenders react to disaster news

Most investors and lenders rely on FEMA to define a disaster and the area impacted. Of course, any monies about to be lent, and recently lent, in a disaster area are questionable from an investor’s perspective. Is the borrower safe, will they make their payments, is the collateral sound? Typically a correspondent investor, such as Chase, will have verbiage in their contract referring the seller to it in the event an area is declared an investor and requiring additional appraisals.

Certain Counties in Arkansas have been declared by FEMA as Major Disaster Areas for the Incident Period Date: From April 26, 2017 to May 19, 2017. For loans submitted with an appraisal dated on or before the incident period end date or for those submitted without an appraisal, Sun West will require an interior and exterior inspection prior-to-funding or purchase of any loans with subject properties that are determined to be at risk. The inspection must verify that the property is sound, habitable and in the same condition as when it was appraised. Partners can access Sun West Seller Guide under HELP section in Sunsoft. Please refer to Sun West Forward Mortgage Seller Guide (Section 404.07) and Sun West Reverse Mortgage Seller Guide (Section 3.23) for more details.

In response to the Federal Disaster declaration for Arkansas counties of Boone, Carroll, Clay, Faulkner, Fulton, Lawrence, Randolph, Saline, Washington and Yell County and Missouri counties of Bollinger, Butler, Carter, Douglas, Dunklin, Franklin, Gasconade, Howell, Jasper, Jefferson, Madison, Maries, McDonald, Newton, Oregon, Osage, Ozark, Pemiscot, Phelps, Pulaski, Reynolds, Ripley, St. Louis, Shannon, Stone, Taney and Texas; Plaza Home Mortgage is reminding its clients to follows its Natural Disaster Policy, GD-PO-008 for properties located in these areas.

Residential legal tidbits

Hard money lenders provide financing for borrowers who are left out of the conventional lending process, and offer supplemental loans to help complete real estate deals. These kinds of lenders typically take a second position to the lender of the primary loan, which is typically a bank.

When a borrower recently defaulted on two loans secured by a four-unit residential property in Berkeley, the hard money lender in second position faced the possibility of being wiped out by the foreclosure initiated by the institutional lender in first position. Attorney Henry Chuang of The Law Offices of Peter N. Brewer stepped in to help protect the client. First by reinstating the first loan, and then by defending claims of predatory lending and fraud lodged by the borrower.

The strategy utilized by attorney Henry Chuang not only won the case but also resulted in 100% of the attorney fees paid. If you would like to read more about this case, download the Case Study.

Have you ever heard, “get it in writing”? Of course, you have but do you heed the advice? One broker learned this rule of thumb the hard way in a recent California case between Westside Estate Agency Inc. and James Randall.

The broker agreed to assist a “friend” in purchasing a $40+ million home in Bel Air but didn’t get anything in writing as to the terms of his assistance. The broker prepared 2 offers for purchase which were rejected. But, the seller remained interested. A couple months later, the “buyer” hired an attorney to prepare a new slightly higher offer which was accepted. The attorney received $925,000 commission. The broker filed suit against the buyer claiming he was owed the commission under a breach of an implied contract theory. The brokers suit did not meet the statute of frauds according to both the Trial Court and Appellate Court, here’s why.

The Appellate Court held that even though the two unsuccessful offers contained language that stated that the broker would collect a commission, since the broker was not the procuring cause of the eventual purchase, he had no right to a commission.

California statute of frauds declares invalid any “agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate” unless that agreement is in writing and signed by the brokers client (Civ. Code 1624, subd, (a)(4).) Merely putting a prospective purchase on the track of a property which is on the market will not suffice to entitle the broker to the commission contracted for, and even though a broker open negotiations for the sale of the property, he will not be entitled to a commission if he finally fails in his efforts.

Capital markets

FHFA Director Watt, before the American Mortgage Conference of the North Carolina Bankers Association indicated that the GSE are looking to expand credit risk transfer programs to include 15-year and ARMs while Treasury Secretary Mnuchin, before the Senate Committee on Banking, Housing, & Urban Affairs, indicated stressed the importance of housing finance reform and the need to resolve the GSEs. Of course, there is a lot of talk about what to do with the very profitable Fannie Mae and Freddie Mac. But what happens if they have a losing quarter?

Last Friday Angel Oak Capital wrapped up its second bond of the year: AOMT 2017-2. The pool amount to about $196 million (700 loans) of mostly 30-year non-QM loans. As everyone knows, non-QM loans carry higher interest rates, and for these loans the average coupon was 6.87%. Also, about 30% of Angel Oak borrowers by loan balance used banks statements to document their income, not W2s and tax returns. Another 11% closely resembled no income verification loans, according to S&P, because the deals were vetted as investment properties and did not require personal income or employment checks.

Casting a quick look at interest rates (yes, the bond market is open today), on Friday the 5- and 10-year U.S. Treasury were the highest they’ve been in over a month. Fixed-income securities here and in Europe continued their sell-off that began on Tuesday (prices move inversely to yields). Despite Mario Draghi’s hawkish remarks earlier in the week supposedly being “misinterpreted” by the market, investors & traders have continued to sell. Granted, the economic news here in The States (personal income & consumption/spending, Core PCE Prices, the Chicago PMI, and the Michigan Sentiment Index of consumer confidence) either met or exceeded expectations.

For Friday’s session, the 10-year note price worsened nearly .375 to close yielding 2.30% while the 5-year, which is a little closer in price movement to the typical mortgage-backed security, worsened about .125. Mortgage rates experienced one of their worst weeks in 2017 as originators were posting rates 0.125% to 0.25% higher compared to the same time a week ago. The 10-year treasury finished the day at 2.30% and for the month of June the 10-year increased by approximately 10bps.

There’s an early close today in the bond market, and most companies are only partially staffed, but we do have some news coming out: Markit Manufacturing PMI, Construction Spending for May, and the ISM PMI. Wednesday we’ll have the MBA’s application data for last week, May Factory Orders, and the June 13-14 FOMC Minutes. Thursday are June Challenger Job Cuts, June ADP Employment Change, Initial Jobless Claims, May Trade Balance, and June ISM Services Index. And then on Friday is all the employment data. We start the day and week with rates a shade higher than Friday afternoon: the risk-free 10-year T-note is yielding 2.31% and agency MBS prices are worse a few ticks.

(Thank you to Steve G. who reminded me of this quote from Will Rogers, who died in 1935.)

Will was talking to oil execs.

Your motto is service. Back on the farm, when I heard that the bull was ‘servicing’ the cows, I looked behind the barn. And, gentlemen, what the bull was doing to the cow is exactly what you people have been doing to the public all these years.” So said Will Rogers to the Board of Directors of Standard Oil.

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Rob Chrisman