“Government: If you think the problems we create are bad, just wait until you see our solutions.” I don’t believe the rumor that this is the new motto for the U.S., but the lending industry is awash in rules, regulations, and paperwork seemingly hastily put together by various regulators and agencies in an effort to repair damage from lending 8 years ago. A few weeks ago I provided a list of residential lending regulations. There is a site, indicative of why lenders are not only overloaded with them and confused by them, but also why compliance personnel command big paychecks.
Under the “new products” banner, Banc Home Loans, the residential lending division of Banc of California (NASDAQ symbol “BANC”), purchases comprehensive sets of Agency and non-Agency loans in all 50 states through its Correspondent Lending Division and is now offering its Portfolio Expanded Criteria loan product. This unique QM loan is offered on a non-delegated underwriting basis and allows purchase transactions and Rate/Term refinances on primary residences for borrowers with no seasoning requirements for Foreclosure, Short Sale or Deed in Lieu (& 2 years from BK discharge); Max 80% LTV; loans to $4M; allows FICO scores to 620. BHL’s non-agency Jumbo offering allows for balances to $5M, cash-out refis to $750K, FICOs to 680 and investment properties.
In addition, Banc of California recently acquired RenovationReady®, a national fulfillment provider serving banks, credit unions, and mortgage bankers, and offers a variable cost solution to FHA 203(k) and FNMA Homestyle home improvement programs. Combining Banc Home Loans Correspondent and Warehouse Lending Divisions with RenovationReady® fulfillment, approved sellers have access to a product processing expertise, fund control/draw administration, 100% warehouse financing for all agency renovation products, and a synchronized correspondent purchase program. “For more information on how the aforementioned innovative products and services can get help grow your business (including brokers looking to become mortgage bankers) or to meet us at the National Secondary conference in NYC later this month, please contact Larry Maitlin at [email protected].
And on the jobs side, Angel Oak Funding is currently seeking a Business Development Manager to sustain an aggressive growth plan to expand its retail channel. Angel Oak’s retail division is a traditional, relationship based platform that earns its business from the recommendations of a loyal referral network. The role will report to the Managing Director of Sales & Marketing and will be based out of corporate headquarters in Atlanta. Primary responsibilities include, but not limited to, creating and maintaining a national recruiting platform, promoting consistent growth in retail sales, and assisting with building national brand recognition. Current target markets include: AL, AZ, CA, FL, GA, NV, NC & SC, ND, TN, TX, and WI with other East Coast States pending. “AOF offers a unique value proposition with a combination of expansive capital markets knowledge, non-agency expertise, innovative portfolio programs, and industry leading turn times. AOF is driven by our client satisfaction scores as a service driven, decentralizedoperations team. AOF seeks a candidate that strengthens the opportunity for companywide success.” Qualified candidates should contact Whitney Fite at [email protected].
Hey, I have an idea! Let’s have the government encourage expanding lending to riskier borrowers. That way we can sell more houses, real estate agents can make their commissions, and when things go south, we’ll blame the lenders! Didn’t we try all that about ten years ago? Okay, I will put my cynicism away, and the following verbiage has plenty of conditional statements. But what set it off was NAR’s press release that “The Federal Housing Agency is taking additional steps to expand access to mortgage credit for underserved borrowers, according to Department of Housing and Urban Development Secretary Shaun Donovan, who spoke to Realtors® today at the FHA: 80 Years and Counting – Regulatory Issues Forum during the Realtor® Party Convention & Trade Expo. Donovan said lending to potential buyers with lower credit scores has fallen dramatically in recent years and announced a new blueprint for greater consumer access to credit, through a new FHA housing counseling program that will launch later this year. The four-year, two-phase pilot program, called Homeowners Armed With Knowledge or HAWK, will offer a 50 basis point reduction in the upfront mortgage insurance premium and a 10 basis point reduction in the annual premium at the time of loan origination to first-time homebuyers who complete the program. Loans that remain in good standing will also receive reductions, which could add up to thousands of dollars in savings for homebuyers over the life of their loan.
Every FHA lender knows that the fees on FHA loans make up nearly 20 percent of a monthly mortgage payment. Interestingly, Carol Galante, FHA commissioner and assistant secretary for housing, joined Donovan at the forum and agreed that there are too many responsible creditworthy buyers who are being shut out of the market. She has gone on record recently, however, saying that insurance fees would not be reduced – but apparently under certain situations (first time home buyers, NAR events, etc.) it is still a possibility.
Not to be outdone by the FHA making a splash at the NAR extravaganza, in his first public speech since taking office FHFA Director Mel Watt spoke at the Brookings Institute where he delivered the 2014 Conservatorship Scorecard. He announced that increased emphasis would be placed on the “MAINTAIN” goal, increasing its Scorecard weight to 40% from 20%. This goal focuses on foreclosure prevention activities and credit availability for new and refinanced mortgages. Under this topic, he said there would be no change in the HARP eligibility date as the number of borrowers they could add was relatively small; however, he did say they would retarget their outreach efforts to the approximately 750k borrowers who qualify for the program. Given the burnout and ongoing outreach already made, not much impact is expected from any renewed effort.
He also highlighted yesterday’s late announcement by the GSEs of rep and warranty changes effective July 1, 2014. Watt particularly highlighted the relaxation in the payment history requirement for rep and warranty relief which will allow two delinquent payments in the first 36 months versus zero previously. The changes also are not expected to alter the prepayment outlook over the foreseeable period; however, “over the longer term, we think these changes will potentially have an impact on speeds as lenders drop the additional credit overlays that they have in place,” said MBS analysts at Morgan Stanley.
He acknowledged though that more needed to be done to ease putback risk, and that over the course of the year they would continue to look into the various issues raised by lenders. In addition, there were no changes made to LLPAs as the FHFA continued to study that and he said the conforming loan limit would also remain unchanged.
Isaac Boltansky with Compass Point Research and Trading did a good synopsis of Director Watt’s presentation. Paraphrasing, “Director Watt’s comments reinforce our view that the FHFA’s fundamental focus has shifted from curtailing the GSE footprint to maintaining the core operations of the GSEs. As was expected, Director Watt did not introduce a 2014 multifamily origination reduction target for the GSEs. Director Watt noted that the FHFA will release a request for public comment on GSE guarantee fees (G-Fees) ‘very soon.’ We continue to believe that future GSE pricing changes under Director Watt likely will include a focus on providing relative LLPA relief to borrowers in lower credit bands. The FHFA’s 2014 Conservatorship Scorecard fully embraced the ongoing GSE effort to utilize risk-sharing transactions to reduce taxpayer risk. Director Watt announced that the 2014 risk-sharing transaction dollar amount targets would be raised from $30 billion to $90 billion for each GSE and that at least two different risk-sharing mechanisms be used to achieve these goals. Director Watt announced that the FHFA would not make changes to the HARP eligibility parameters. FHFA Director Watt’s comments, coupled with the move in rates, effectively end the HARP eligibility date debate. Unsurprisingly, Director Watt announced that the FHFA will not use its authority to lower conforming loan limits.” Thank you Mr. Boltansky!
But keeping on with Agency news, lenders should know that on May 9 the United States Department of Veterans Affairs (“VA”) issued an interim final rule defining which VA-guaranteed and VA-originated loans will have qualified mortgage (“QM”) status under the Truth-in-Lending Act’s (“TILA’s”) Ability to Repay (“ATR”) rule. TILA’s ATR rule, issued by the CFPB, provided temporary QM status to all loans “eligible to be guaranteed, except with regard to matters wholly unrelated to ability to repay, by the [VA]” as long as they: (i) provided for regular payments that were substantially equal except for the effect of an adjustable rate feature, and that did not have an interest-only, negative amortization, or balloon feature in most cases; (ii) had a loan term no longer than 30 years; and (iii) had “points and fees” not exceeding thresholds established by the ATR rule (3 percent of the total loan amount for loans of $100,000 or more).
Loans meeting the definition of a temporary VA-eligible QM were deemed to comply with the ATR rule, as “safeharbor QMs,” provided they were not “higher-priced covered transactions” (i.e. loans for which the annual percentage rate (“APR”) did not exceed the average prime offer rate (“APOR”) (as both terms are defined under Regulation Z) by 1.5 percentage points or more for a first lien or 3.5 percentage points or more for a subordinate lien). Otherwise, they were entitled to a rebuttable presumption of compliance. Temporary QM status for VA-eligible loans was initially slated to run through 2021. The CFPB’s rule, however, contemplated that the VA would act to adopt permanent QM definitions prior to that point.
Under the VA’s rule, most VA-guaranteed and VA-originated loans will be safeharbor QMs. Those that are not safeharbor QMs will be “rebuttable presumption QMs.” See the links above for the specifics, but they include all purchase money loans that are guaranteed or insured by the VA will be safeharbor QMs, and most refinances that are guaranteed or insured by the VA will be safeharbor QMs. Interest Rate Reduction Refinance Loans (“IRRRLs”), however, will only will be safeharbor QMs if the loan being refinanced was originated at least six months before the new loan’s closing date, the recoupment period for allowable fees and charges financed as part of the loan or paid at closing does not exceed 36 months, and the loan meets all other requirements of a VA-guaranteed IRRRL. Otherwise, IRRRLs will be rebuttable presumption QMs;
Turning to the markets, the U.S. stock markets are at all-time highs, yet rates continue to be stable, and in fact are lower than where they were at the beginning of the year. What’s up with that? First, the scaling back by the Federal Reserve of its asset purchases is priced into the markets – the “surprise aspect” has been taken out of the market. Second, the U.S. economy is not heading to the moon, and in fact is kind of waffling along. (A technical term.) Third, unrest overseas has caused a flight to quality, and the demand for U.S. securities is good. But certainly parts of the economy are doing well, and M&A activity continues, people have to put their money somewhere, and thus we find the stock market doing well.
Yesterday was a good day: agency MBS prices improved about .125 (we don’t want too much, otherwise LOs are asking about renegotiations) and the 10-yr T-note rallied over .250 and closed at 2.62%. Besides the MBA’s applications numbers (last week was +3.6% , with purchases up less than 1% unadjusted over the week – but were 12% lower than the year-ago period – and refinances hit 50% of total applications from 49% the prior week) we had the April Producer Price Index numbers. PPI was +.6%, with the core rate (ex-food and energy) +.5%. These numbers are somewhat inflationary, but rates did little – perhaps the economy just isn’t doing well enough to warrant higher rates. For numbers, at 2.58% the 10-yr.’s yield is 4 basis points lower than Tuesday’s close, and agency MBS prices are better by another .125.
“When Engineers die”
An engineer dies and reports to the Pearly Gates. Saint Peter checks his dossier and not seeing his name there, accidentally sends him to Hell. It doesn’t take long before the engineer becomes rather dissatisfied with the level of comfort in Hell.
He soon begins to design and build improvements. Shortly thereafter, Hell has air conditioning, flush toilets and escalators. Needless to say, the engineer is a pretty popular guy.
One day, God calls Satan and says: “So, how are things in Hell?”
Satan replies: “Hey, things are going great. We’ve got air conditioning, flush toilets, and escalators. And there’s no telling what this engineer is going to come up with next.”
“What!” God exclaims: “You’ve got an engineer? That’s a mistake – he should never have been sent to Hell. Send him to me.”
“Not a chance,” Satan replies. “I like having an engineer on the staff, and I’m keeping him.”
God insists: “Send him back or I’ll sue.”
Satan laughs uproariously and answers: “Yeah, right. And where are you going to get a lawyer?”
(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.)