June 15: Down payment trends; does home ownership lead to higher unemployment? Investor & conference updates

“Rob, are you seeing underwriting guidelines loosening up?” Certainly, on the banking side, depository banks are flush with deposits, and the demand for loans is down. So, in effect, with lots of cash chasing fewer deals, either rates drop (on a relative basis) or underwriting loosens up for portfolio product. (That does not mean, of course, that documentation and net worth requirements fly out the door.) Along those lines, banks seem to be loosening standards for down payments. The average down payment in purchases with a 30-year fixed-rate mortgage dropped to 16.1% nationwide in May from 17.6% two years ago, according to online mortgage marketplace LendingTree. In some states, like Mississippi and West Virginia, the average down payments are as low as 12%, the survey found. But is a drop of 1.5% nationwide newsworthy? Not really, but the shrinking down payments are, in part, an indication of the growth of mortgage insurance, and the pick up during that time period of FHA/VA biz. By the way, the highest down-payment states are Hawaii & Massachusetts (18%), New York & California (19%), and New Jersey (20%).


(Speaking of states, recently the Oregon Supreme Court overturned the 07/2012 Appeals Court ruling preventing MERS from doing non-judicial foreclosures. The 1 year Court/Judge followed by the 6 month redemption period of a judicial foreclosure is not required again. As one originator from that state observed, “This might help Oregon catch up to the rest of the nation on the housing recovery and get some shadow inventory available quicker than before the new ruling.”)


But what is plainly going on out there is interest in home ownership. Does that mean we’re going to see unemployment go up? There are lots of smarter minds in the room, but for me that is a real stretch – like hemlines and stock market performance. But the results of the National Bureau of Economic Research working paper show that rising homeownership rates foreshadow sharp rises in unemployment. “A doubling of the rate of homeownership in a U.S. state is followed in the long run by more than a doubling of the later unemployment rate,” according to the work of Dartmouth College economics professor David Blanchflower and University of Warwick economics professor Andrew Oswald. “The problem isn’t that homeowners are inherently unemployed or unemployable. Rather, people who own houses suffer from lower levels of labor mobility, greater commuting times, and live in neighborhoods that are less open to new businesses.”


How about interest in owning a home with a pool? “In August, houses with pools sell for about 0.2% more than homes without pools while in May, June and July pools add just 0.1%, half as much. Conversely, from November through March, swimming pools reduce house prices by about 0.15% while in April, September and October pools have no impact. Even at their peak in August, pools don’t raise house prices by the cost of the pools.” So noted economist Elliot F. Eisenberg, Ph.D.


Meanwhile, down in Texas, the Texas Department of Housing and Community Affairs somewhat recently published the following notice to all interested mortgage lenders: “The Texas Department of Housing and Community Affairs intends to implement a Mortgage Credit Certificate Program to assist eligible very low, low, and moderate income first-time homebuyers with the purchase of a residence located within the State of Texas.” Under the department’s initiative, eligible first-time home buyers may receive a federal income tax credit. To be considered eligible, the borrower must satisfy a few income conditions; however, the mortgage credit certificates will be issued to qualified mortgagors on a first-come, first-served basis by the department. They will review applications from lending institutions and prospective mortgagors to determine compliance with the requirements of the program and determine that mortgage credit certificates remain available under the program. For more information, interested parties should look no further than Texas’ own Department of Housing.


It is a good day to list out some conference, bank M&A, investor, and vendor updates.


The Mortgage Bankers Association of Hawaii Conference on June 27-28, 2013, to be held at the Hawaii Prince Hotel Waikiki in Honolulu, Hawaii.  I will have the pleasure of speaking at their conference themed “The Lending Games: Catching Fire” which cleverly depicts the hot topic on everyone’s mind:  the regulatory lending changes and their impact on our industry.  They have a full line-up of top notch speakers scheduled.  Just follow these 3 simple steps to join me at this informative mortgage industry event: 1) Register for the conference at www.mbahawaii.org; 2) Send in your payment with registration; and 3) Book your flight & hotel.  Hope to see you there!


Next week we also have the Mortgage Bankers Association of Missouri’s annual convention, June 23 & 24. For registration, visit: http://www.mbamo.org/convention.php.


The Mortgage Bankers Association of New Jersey will be holding its annual Tri-State Wholesale Lending Fair at the Trump Taj Mahal Casino Resort in Atlantic City, NJ on July 17thThe panel will discuss the recent final amendments to CFPB rules, including the removal of LO comp from the QM points and fees cap, as well as how the rules slated to go into effect on January 10th of next year will impact wholesale lending.  To find out more and to register, go to http://r20.rs6.net/tn.jsp?e=001HjkaoHBlZYU9QLwBqR6wGIfa1ZmVKO9s93UU3qkWUyEoPaH3mq39rGwwZ3j6gij34tlCeWQC2tDxqcIqjGLVgB0kxs3dN8J_9I9JV4rQXcsZcaSSyGo4ShC73UubWxAW_5TrtcatnouRKmzJ4AJEAA_9K2mWvOz9tcDhkpUhHnnCLiOV89AVKeG-fgResXbV8nvOkzuv6xd43oxvAA68B-s3KUffJWtGaXcj1k_UOlJT79B1K18ypQ==.


There will be a special FHA-HUD webinar on 203(h) mortgage insurance for disaster victims on June 19th that will provide an overview of the program and discuss eligibility requirements, maximum insurable mortgages, closing costs, prepaid expenses, minimum borrower cash investment, mortgage terms, MIP, and refinancing policy.  The training will also go over strategies for determining for which borrower circumstances the program will be particularly beneficial.  See http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=1749&update=N to register.


Four Corners Community Bank ($222mm, NM) will buy Citizens State Bank of Cortez ($81mm, CO) – undisclosed sum. And Heartland Financial USA ($4.9B, IA) will buy Morrill & Janes Bank & Trust ($751mm, KS) for $61.5mm in cash/stock.



PHH has revised its refinance guidelines to allow real estate taxes to be included in the new loan amount for rate/term transactions so long as they are not more than 60 days delinquent and the borrower has established an escrow account.  For cash-out transactions, escrow accounts are not required if the real estate taxes are current.  In cases where real estate taxes are more than 60 days past due on the note date but not yet a lien against the property, PHH requires there to be an escrow account, and the delinquency will be analyzed to make sure that it does not present additional risk.  For Texas Homestead transactions, PHH will permit no more than 60 days’ delinquent taxes to be included in the loan amount for rate/term refinances and will require an escrow account.  Taxes more than 60 days delinquent that aren’t a lien against the property must be paid outside of closing; in addition, the source of funds must be verified except in cases where the subject property qualifies as a 50(a)(6).  They are also ineligible to be included in the loan amount if their inclusion is the only grounds on which the transaction is cash-out.  In all cases, delinquent taxes that have become a lien against the property must be paid in full with funds whose source has been verified.


For all Conventional transactions, PennyMac is now allowing split premium mortgage insurance with an initial payment at closing and an ongoing monthly premium paid from accumulated escrow accounts.  Escrow holdbacks on both Conventional and Government products are being permitted as well, provided that correspondents follow Fannie, Freddie, FHA, or VA guidelines as applicable.  Loans where the appraisal is disclosed as “subject to” improvements will require a copy of the final title policy endorsement ensuring the priority of the first lien and a copy of the 1004D confirming completion.  PennyMac also requires a copy of the escrow agreement stating how the account will be managed and funds disbursed.


PennyMac has aligned its guidelines with those of Freddie Mac to allow Streamline Reviews on Super Conforming condo properties, effective immediately.


Mountain West Financial has revised its policy on non-permitted additions, improvements, and conversions, which, for FHA and VA loans, must be described in the appraisal as being of “workmanlike quality” by the appraiser.  The addition cannot change the number of units, and the appraiser must be able to show market acceptance by comparing the subject property to at least one comparable sale with similar addition footage.  For Conventional loans, non-permitted additions, improvements, and conversions must comply with all local building and zoning codes, and the property must be deemed safe and structurally sound as per MWF’s Minimum Property Requirements.  These include the appraiser’s attestation of “workmanlike quality,” proof of hazard insurance that covers the total square footage of the property, and a comparison showing that the property conforms to the subject neighborhood and property.  In cases where the addition or conversion is conforming to the neighborhood building and zoning codes, MWF will permit its inclusion in the market value.


Effective for all submissions received on or after June 10th, United Guaranty will be aligning its Reporting Acceptance Program minimum FICO requirements for Broker TPO loans with the corresponding 680 minimum for retail loans.  Broker TPO Housing Finance Agency loans that use the expanded down payment requirements for subordinate financing and/or minimum borrower contribution are not eligible for RAP despite this revision; however, they can still be submitted as full-file submission.  As a reminder, lenders must have an agreement already in place in order to use RAP.


Genworth will be offering 23 training classes over the month of June that will cover a variety of mortgage insurance-related areas, including understanding credit reports, examining loan documentation to detect fraud, underwriting self-employed borrowers, and comprehensively reviewing assets.  The sessions will be available in person as well as via instructor-led webinars, videos, and recorded webinars that can be accessed at participants’ convenience; for full details see http://mortgageinsurance.genworth.com/training.  Genworth will continue to offer training throughout the year, including classes on processing HARP 2.0 refinances, increasing origination capacity, and using social media as an effective branding tool.


Information services provider Informative Research has named senior executive Stan Baldwin as its new COO.  Baldwin, who previously occupied the role of President of Rels Credit, will head the implementation of customer solutions, strategic relationship management, market share growth initiatives, and new product development.


CastleLine Holdings and AJ Gallagher have entered into a strategic relationship as part of an initiative to provide a more comprehensive suite of risk management products for originating, underwriting, and purchasing.  Castleline’s offerings focus on providing alternative solutions that insure originators and investors against losses from repurchases resulting from errors, omissions, and fraud during the underwriting process, while Gallagher will provide clients with complimentary risk management products in a variety of areas, including property/casualty and E&O/D&O.


First Guaranty Mortgage Corp has added a division to its TPO group that will focus primarily on USDA Rural Housing Program and VA, FHA, and conventional mobile home transactions.  A longtime GNMA and FNMA direct issuer, FGMC is now offering manufactured housing loans for Fannie along with its full range of USDA products in the new division.  Following the hiring of several experienced USDA underwriters and senior processors, FGMC is also opening a fulfillment center in USDA hotbed Boca Raton, FL.  Future plans for expansion include establishing relationships with mortgage brokers and setting up flow and bulk MSR transactions with counterparties.



A Spanish teacher was explaining to her class that in Spanish, unlike English, nouns are designated as either masculine or feminine. ‘House’ for instance, is feminine:  ‘la casa.’ ‘Pencil,’ however, is masculine: ‘el lapiz.’ A student asked, “What gender is ‘computer’?”  Instead  of giving the answer, the teacher split the class into two groups, male and  female, and asked them to decide for themselves whether ‘computer’ should be a masculine or a feminine noun.  Each group was asked to give four reasons for its recommendation. The men’s group decided that ‘computer’ should definitely be of the feminine gender (‘la computadora’), because:

1. No one but their creator understands their internal logic; 2. The native language they use to communicate with other computers is incomprehensible to everyone else; 3. Even the smallest mistakes are stored in long term memory for possible later retrieval; and 4. As soon as you make a commitment to one, you find yourself spending half your paycheck on accessories for it. The women’s group, however,  concluded that computers should be Masculine (‘el computador’), because:  1. In order to do anything with  them, you have to turn them on; 2. They have a lot of data but still can’t think for themselves; 3. They are supposed to help you solve problems, but half the time they ARE the problem; and 4. As soon as you commit to one, you realize that if you had waited a little longer, you could have gotten a better model.




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