Oct. 18: Remember that non-QM is not the same as subprime; more Wells layoffs – at least rates are cooperating (this week)

There are two types of people in the world: Those who can extrapolate from incomplete data sets


It is a proven fact that ghosts, ghouls, vampires, werewolves, and the like all live forever. (I either read it in the National Enquirer or National Mortgage News.) Which reminds me – Halloween is approaching! Halloween dates back to Celtic rituals thousands of years ago (even though we barely celebrated it in the UK when I lived there), and our very own Census Bureau is here to help us with some Halloween-related numbers. For example, there are about 41 million kids, age 5-14, who might be on the streets throwing eggs and begging for sugar. And a number of them will stop in at the 115 million occupied housing units across the nation. And some of those houses are in terrifying places like Tombstone, AZ, Sleepy Hollow, IL, Kill Devil Hills, NC, Casper, WY, or Scarville, IA, or wherever my ex-wife’s attorney lives.


“Rob, do you think portfolio products are back again with this Dodd Frank act (1-10-14)? Are they really making an introduction for subprime lending again? Is ‘too big to fail’ back with this Act being implemented since it forces banks to do their own portfolio ‘non-conforming loans’ and only the larger banks have the capacity for this sort of product…?” Yes, but with a twist. I see either non-QM investors, and therefore lending, increasing. Or I see the definition of what kind of loan fits in the QM box being expanded by the CFPB. The points and fees and other criteria are complicated, in some cases very complicated, but they can be built into software modeling.


But even the CFPB admits that just because a loan is a non-QM loan doesn’t mean it is a bad loan. And you can’t equate non-QM with subprime. Is a loan with a 44% DTI really “subprime”? Depository/commercial banks are looking at offering non-QM products through their retail branches, and mortgage bankers are wondering if the big banks will offer the same products through correspondent or wholesale channels. Or will the non-bank investors offer something similar. Some pretty smart folks out there are working on the liability side of the equation – no one wants to provide fertile grounds for future class-action lawsuits or suit-happy attorneys.


In the old subprime days, companies such as Aames, Beneficial, or Household Finance knew the business, LOs could originate, process, close, and service the loans. And those loans were usually fully documented, relatively low LTV loans, and many were ARM products (228s, 327s, for example) with interest rates that matched the borrower’s credit profile that helped a certain type of borrower. With A-paper lenders creeping down the credit curve, however, and certainly down the documentation curve, things changed ten years ago. Many in the residential lending industry would like to see current documentation and processing requirements combined with wider underwriting criteria – and at some point I believe we will head there because too many good borrowers will be left out of QM. Now, I will get off my soapbox, but all of this certainly has an impact on volumes, as does the calendar showing we’re entering the traditional slow six months for purchase volume.


As the same number of LOs and companies continue to chase half the loans that were around six months ago, axes around the country continue to fall. Wells Fargo lopped off another chunk of mortgage employees this week:



And regarding the news that RFC had eliminated hundreds of positions and closed half its branches, I received this note from David K. Stein, Esq., SVP & General Counsel of RFC, which in part quoted Inside Mortgage Finance and read, “’Residential Finance Corp., which has received extensive national exposure because of the frequent TV appearances by Barry Habib, one of its co-owners, has closed almost half of its 30 retail branches and let go hundreds of workers since the summer, company insiders told Inside Mortgage Finance.’ That article brings to light a very nasty problem that goes on in our industry. Investors, warehouse lines, regulators and others read these unattributed statements and rely upon them to assume something is wrong.  Then, companies like ours, are forced to explain or rebuild confidence in something that is 3rd degree hearsay and based on inaccuracies. The truth is that we did close a number of branches.  Not because they were or were not quality branches, but because they were simply unprofitable for the company. We retained our top branches, which produce a healthy gain for the company and are very attentive to issues like compliance, ethical standards and were not a drain on our overall resources. Our current staffing level is over 450 employees.  Much of our reduction in force related to closing those retail branches.  Our company has decided that it will only deal with the highest level of branch operators and that our future success relies upon ensuring that new branches and new initiatives are in line with the model of local, self-sourced purchase business. Our focus is continuing to build on what we have established for nearly 17 years, and to further structure our “relationship model” to continue to increase our purchase volume.” Thank you Mr. Stein.


Here’s one for the title company folks: a woman finds out that someone else owns half her house: http://www.nydailynews.com/news/national/idaho-widow-discovers-home-owned-woman-article-1.1488735.


And here’s one for the fans of the Mortgage Bankers Association. David Stevens, President and CEO of the Mortgage Bankers Association (MBA) announced today that Michael Fratantoni, currently MBA’s Vice President, Single Family Research and Policy Development will be appointed Chief Economist and Senior Vice President, Research and Industry Technology, reporting directly to MBA’s President and CEO David Stevens.  Mr. Fratantoni will succeed Jay Brinkmann, and his appointment will be in time for Valentine’s Day next year. Congratulations to Mike.


And congrats to a couple banks out there! The Federal Reserve Board announced the termination of the enforcement actions concerning Premier Bank, Denver, Colorado (Prompt Corrective Action Directive dated May 23, 2012, terminated October 15, 2013) and Union Bancshares, Inc., Marksville, Louisiana (Written Agreement dated August 5, 2010, terminated October 7, 2013).


The American Bankers Association – through its Corporation for American Banking subsidiary – has endorsed Sterne Agee Mortgage, a division of FBC Mortgage, a subsidiary of Sterne Agee Group Inc. to offer correspondent lending solutions designed to meet the unique needs of community banks. “Sterne Agee’s flexible service options, available to ABA banks at reduced fees, will enable member banks to interact with the secondary market in a variety of ways. By having options, banks can decide the scale of their mortgage operation that will best balance the goals of meeting customer’s needs and managing risks. ‘We are pleased to announce this endorsement of Sterne Agee Mortgage,’ said William Kroll, executive vice president of ABA’s Corporation for American Banking. ‘Sterne Agee’s exceptional mortgage program gives our member banks the competitive edge they need to succeed in the secondary market.’”


We may-as-well continue playing catch up with vendor, agency, and investor updates to give us a sense of the trends out there, including clarifying a PennyMac policy from yesterday.


The collection and processing of paper bank statements and VOD’s has finally evolved towards a paperless and instantaneous workflow. FORMFREE was just nominated for the Mortgage Technology Fix It Award because its product ACCOUNTCHEK pulls digital bank statements in a few minutes and includes an instant VOD. “LOs and borrowers will never have to touch another paper statement again, which means virtual elimination of bank statement fraud, faster turn times and increased operating efficiency.”  Working with the likes of Fannie Mae, Equifax, and AmEx, it appears that ACCOUNTCHEK‘s automated collection of bank statements and VODs is part of the next generation in loan processing. (If you want more information on AccountChek, contact George Manolis at george@formfree.com, and no, this is not a paid ad.)


PennyMac sent out its “Announcement 13-68” addressing the end of the government shutdown. “As the Federal Government has ended the partial government shutdown and resumed normal operations, correspondents should be able to request IRS tax transcripts. PennyMac expects there to be a tax transcript backlog and will continue the temporary suspension of tax transcripts until further notice. As a reminder, PennyMac has not suspended the requirement for tax transcripts in the following cases: Where there is an investor requirement (such as Fannie Mae’s 5-10 multiple financed properties), all Jumbo loans, and loans with Note dates on or before September 25, 2013. Note: PennyMac will continue to require that a Verbal Verification of Employment (VVOE) be in the file by the time of delivery to PennyMac for loans that require a VVOE. Please contact your Regional Manager with any questions.”


“The following is an update to Plaza’s Temporary Government Shutdown Policy issued on October 3, 2013. IRS Transcripts – Until we are able to assess the IRS backlog, Plaza’s temporary government shutdown policy regarding transcripts will remain in place. Once we better understand the backlog, we will send out a communication indicating when we will again require IRS Transcripts.  Verbal verifications for furloughed employees – effective immediately, verbal verifications will be required in accordance with Plaza’s underwriting guidelines. We will provide additional information as we learn more about backlogs and capacities for the various government departments. Please contact your Account Executive for more information and regular updates.”


In addition to Adams, Boulder, Larimer, and Weld Counties in Colorado, Plaza has added El Paso as one of the counties where its disaster policy is now in effect.


Plaza has updated its Conforming ARM, Fixed Agency, and Fannie Mae Retained product guidelines to remove Mixed Use classifications from the list of ineligible properties, the 120-day reference as it pertains to the Disaster Policy, and the 90% LTV limitation for non-occupant co-borrowers.  In terms of pricing, the escrow waiver price adjustment has been waived for all Conventional Conforming and High Balance programs.  For DU Refi Plus, Property Fieldwork Waivers are now allowed in Texas, and Relief Refinance loans are no longer considered eligible if the subject property loan was previously restructured or modified.  The Assets section of the underwriting guidelines has also been updated to permit second home transactions for gift of equity transactions, both for DU and LP.


Effective immediately, Plaza has improved its FHA and VA ARM margin from 2.25% to 2.00%.

For all locks moving forward, Plaza has revised the guidelines for its Elite Jumbo program to lower the maximum DTI from 45% to 43% and to waive the cash-out limitation in cases where the previous transaction was a purchase and the proceeds are being used to pay off a pledged asset or retirement account loan.


US Bank’s updated loan file requirements for loans submitted for underwriting are now in effect, and will become effective for loans submitted for purchase on October 7th (so obviously effective now).


Fairway Independent Wholesale sent this out to its brokers: “Last call for Conventional loans with 3% down!!! After November 16, 2013 the maximum loan to value (LTV) requirement for Conventional, Fannie Mae loans, will be reduced from 97% to 95%. Now is the time to reach out to your prospects needing a 97% LTV before a higher down payment is required in November. For more information regarding Fannie Mae’s LTV changes, please contact your Regional Account Manager at Fairway Wholesale Lending.”


MSI has updated its guidelines to only allow future income for Conventional transactions if the borrower has a contract for employment that starts before loan closing and can provide evidence at the closing table in the form of a pay stub reflecting at least 30 days YTD.  A Verbal VOE must also be completed.  In exceptional cases, MSI will consider contracts for professionals who receive a “contract of employment” or borrowers who work for a Fortune 500 company.  In order to be eligible, the loan must be locked in and underwritten as directed by MSI.


MSI is requiring all disputed accounts AUS conditions to be cleared before it will fund/purchase any Conventional loan.  In cases where the FICO changes as a result of the loan’s re-submission to the AUS, current market pricing will be applied regardless of the lock date.

Effective immediately, MSI is requiring all loans to have flood insurance that is the lower of the amount needed to compensate for any damage or loss on a replacement cost basis that includes the foundation or the maximum insurance available under the relevant National Flood Insurance program.  


Turning to the markets, with the politically-caused slowdown in the U.S. economy, fixed-income securities have hopped on to the rally train. This was evident Thursday, as forecasters don’t see much reason for rates to head higher in this quarter or possibly next, and agency MBS prices improved about .625 and the 10-yr by .75 (to close at a yield of 2.59%). The Fed, of course, remained a sizeable demand force. According to the latest MBS purchase report for the holiday-shortened week ending October 16, buying averaged $2.575 billion per day, which was in line with expectations based on their purchase amount of $55 billion ($40 billion outright and $15 billion in paydowns reinvestment) over the mid-October to mid-November period. Meanwhile, mortgage banker supply has been averaging $1.5 billion per day lately. In the early going the 10-yr’s yield is down to 2.57% and MBS prices are better by another .125.



Old people in this industry are easy to amuse: http://img0.liveinternet.ru/images/attach/c/5/3970/3970473_sprite198.swf. (You may have to cut and paste the link into your browser.)




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Rob Chrisman