Sep. 3: Compliance morsels; Bank of America’s 0 percent down program; Freddie’s secondary market deals
“Twas the third of September, the day I’ll always remember… Wherever he laid his hat was his home… And when he died, all he left us was alone.” Or maybe it was “a loan.” Regardless, brokers and lenders grapple with all kinds of things being thrown their way with each loan. I received this from a veteran broker out West. “Is there anything that can be done to stop real estate agents pushing/forcing buyers to their in-house lenders? Many buyers are being ripped off. I lost a VA purchase. The Realtor told me she got a higher commission percentage with the buyer using the in-house lender. That must be illegal. I know I was a minimum of .25 percent better in the rate, and I close loans fast. I am not able to reach the buyer/borrower. I assume they were simply pushed into the inhouse loan and did not pay attention to the higher rate, and I am sure fee structure. This was a new realtor who does not help, and a real estate broker that is not the best. I would like to know why realtors do not appear to have any fiduciary responsibility. Ugh!”
(Due to the holiday there is no Saturday Spotlight. Contact Chrisman LLC’s Anjelica Nixt for more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured.)
Bank of America’s 0 percent down program turning some heads
Independent mortgage banks are often reminded of advantages that depositories like banks and credit unions have. This week Bank of America rolled out a new program, and the Commentary noted, “One wonders about reverse discrimination, but if you’re Black or Latino in Dallas, Bank of America has a 0 percent down loan.”
The entry prompted Texas’s Nikki V. to send, “Reverse discrimination? The ‘reverse of discrimination’ is ‘no discrimination.’ But if you mean white men are ‘triggered’ because the industry is trying to mitigate previous wrongs, which were/are extensive and continue to be an issue and have prohibited generation wealth building in minorities, then sure, let’s call it reverse discrimination. The lack of seeing these issues does not mean they didn’t and don’t continue to exist- it means you are privileged enough not to see them.”
From Virginia, Joe N. wrote, “It is a program for homes in the census tracts that are predominately minority not a program for minorities borrowers. The bank receives CRA credit for making loans in those census tracts.”
What is the program? Rather than take liberties with the verbiage, I used BofA’s words. “Bank of America Introduces Community Affordable Loan Solution™ to Expand Homeownership Opportunities in Black/African American and Hispanic-Latino Communities. Zero down payment, zero closing cost mortgage advances efforts to broaden access to homeownership and adds to its existing $15 billion Community Homeownership Commitment.
“Bank of America today announced a new zero down payment, zero closing cost mortgage solution for first-time homebuyers, which will be available in designated markets, including certain Black/African American and/or Hispanic-Latino neighborhoods in Charlotte, Dallas, Detroit, Los Angeles, and Miami. The Community Affordable Loan Solution™ aims to help eligible individuals and families obtain an affordable loan to purchase a home.
“The Community Affordable Loan Solution is a Special Purpose Credit Program which uses credit guidelines based on factors such as timely rent, utility bill, phone and auto insurance payments. It requires no mortgage insurance or minimum credit score. Individual eligibility is based on income and home location. Prospective buyers must complete a homebuyer certification course provided by select Bank of America and HUD-approved housing counseling partners prior to application.
“This new program is in addition to and complements Bank of America’s existing $15 billion Community Homeownership Commitment™ to offer affordable mortgages, industry leading grants and educational opportunities to help 60,000 individuals and families purchase affordable homes by 2025. Through this commitment, Bank of America has already helped more than 36,000 people and families become homeowners, having provided more than $9.5 billion in low down payment loans and over $350 million in non-repayable down payment and/or closing cost grants.
“To date, two-thirds of the loans and grants made through the Community Homeownership Commitment has helped multicultural clients to achieve homeownership. Bank of America also has a 26-year relationship with the Neighborhood Assistance Corporation of America (NACA), through which the Bank has committed to providing an additional $15 billion in mortgages to low-to-moderate income homebuyers through May 2027.
“According to the National Association of Realtors, today there is a nearly 30-percentage-point gap in homeownership between White and Black Americans; for Hispanic buyers, the gap is nearly 20 percent. And the competitive housing market has made it even more difficult for potential homebuyers, especially people of color, to buy homes.
“In addition to expanding access to credit and down payment assistance, Bank of America provides educational resources to help homebuyers navigate the homebuying process, including: First-Time Homebuyer Online Edu-Series,™ a five-part, easy-to-understand video roadmap for buying and financing a home, available in English and Spanish. BetterMoneyHabits.com free financial education content, including videos about managing finances and how to prepare for buying a new home. Bank of America Down Payment Center – site to help homebuyers find state and local down payment and closing cost assistance programs in their area. Bank of America participates in more than 1,300 state and local down payment and closing cost assistance programs. Bank of America Real Estate Center – site to help homebuyers find properties with flags to identify properties that may qualify for Bank of America grant programs and Community Affordable Loan Solution™.”
Wondering the requirements to get current with servicing quality control? As a Master Servicer, you should prioritize implementing a robust structure for servicing quality control. First and foremost, you will need to go back at least twelve months, maybe longer, to get servicing quality control to the point that it is acceptable to the GSEs. The Plan should be sufficient in scope to enable the company to evaluate the accuracy, compliance, and consumer protection within loan servicing operations. It should also provide independent evaluation, separated from the required operational functions.
Monthly quality control of your loan servicing is a critical obligation. It is an essential requirement of your relationship with investors. If you are not conducting servicing quality control, you are bucking for an adverse rating from the GSEs. Without sequential monthly reports for servicing quality control, a Ginnie Mae Issuer application will be dead in the water. If auditors identify a deficiency, senior management must be notified. Prompt and effective corrective measures should be taken and documented where loan servicing deficiencies occur. A material finding, material misrepresentation, or verified fraud must be immediately remedied to avoid the possible repeat of the same issues.
Mr. Jonathan Foxx wrote on the explanation for how timing the disclosure of the property address is important and impacts originating and servicing loans. For purposes of Loan Estimates, Closing Disclosures, and Special Information Booklets, an “application” consists of the submission of six pieces of information: (1) the consumer’s name, (2) the consumer’s income, (3) the consumer’s social security number to obtain a credit report, (4) the property address, (5) an estimate of the value of the property, and (6) the requested mortgage loan amount. Without a property address, there exists a failure to fully document compliance with TILA and RESPA. Among other relevant information, multiple failures can block the entry of summary judgment.
Did you know that mortgage fraud and money laundering differ? Money laundering is typically described as occurring in three stages: placement, layering, and integration. However, as more financial transactions are conducted electronically, the lines between the three phases are gradually blurring. Simply stated, fraud creates value for the fraudster. Money laundering is the process by which that value enters the financial system and then moves around within and exits the financial system.
Money laundering is the criminal practice of processing ill-gotten gains, or “dirty” money, through a series of transactions; in this way, the funds are “cleaned” so that they appear to be proceeds from legal activities. In effect, money laundering is the process of disguising funds derived from illicit activity in order to permit the use of the funds without the detection of the illegal activity that produced the funds. Fraud negatively impacts an organization’s balance sheet, as the fraud will likely result in a loss of assets. The goal of a fraud is to steal value from the financial services provider.
Agencies in action
The “deals” done by Freddie Mac, Fannie Mae, and others help determine the rates that borrowers see. These securitizations “test the waters” for demand for mortgages with an implied government backing, especially given how strong F&F’s market share is in residential lending. Let’s take a random look at Freddie Mac’s activities.
Freddie Mac priced a new offering of credit risk transfer securities backed by Tax-Exempt Loans (TELs) made by state or local housing agencies and secured by affordable rental housing. This is the company’s twelfth ML Certificate offering and sixth ML-Deal with the sustainability bonds moniker. The company expects to guarantee approximately $292 million in fixed-rate ML-12 Certificates) that are supported by a pool of fixed-rate TELs. The ML-12 Certificates are designated as “sustainability bonds” within Freddie Mac’s Sustainability Bonds Framework. The proceeds will be used to finance multifamily properties that (a) finance affordable housing to low-to-moderate-income families, (b) may have features, or are located in areas, that further economic opportunity for residents and (c) may include certain environmental impact features.
ML-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. ML Certificates typically feature a wide range of investor options with stable cash flows and structured credit enhancement.
Freddie Mac priced a new offering of Structured Pass-Through Certificates (K Certificates), which are backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 10-year terms. The company expects to issue approximately $1.1 billion in K Certificates (K-134 Certificates), which are expected to settle on or about November 24, 2021. The K-134 Preliminary Offering Circular Supplement can be found here.
Freddie Mac priced a new offering of Multifamily WI K-Deal Certificates (WI Certificates), which are initially backed by cash assets that will be used to purchase the A-M class of a to-be-issued reference K-Deal. Once the reference K-Deal class is issued and purchased by the WI trust, the WI Certificates will be indirectly backed by a pool of fixed-rate multifamily mortgages with predominantly 7-year terms. The company expects to issue approximately $160 million in WI Certificates (Series WI-K747), which are expected to settle on or about November 23, 2021. Class A-M ($160 million), the one offered class, has a weighted average life of 7.26 years, a spread of S+24 bps, a 1.75 percent coupon, a yield of 1.742 percent, and a $99.9950 price.
Freddie Mac priced a new offering of Structured Pass-Through Certificates (K Certificates), which includes a class of floating rate bonds indexed to the Secured Overnight Financing Rate (SOFR). The approximately $734 million in K Certificates (K-F125 Certificates) are expected to settle on or about November 23, 2021. The K-F125 Certificates are backed by floating-rate multifamily mortgages with 7-year terms, which are SOFR-based. Class AS ($734.3 million), the only offered class, has a weighted average life of 6.75 years, a coupon of the 30-day SOFR average + 22 bps, and a $100.00 price. The K-F125 preliminary offering circular supplement can be found at http://capitalmarkets.freddiemac.com/mbs/data/0kf125oc.pdf.
THE MIDDLE WIFE: The “Middle Wife” by an Anonymous 2nd grade teacher.
I’ve been teaching now for about fifteen years. I have two kids myself, but the best birth story I know is the one I saw in my own second grade classroom a few years back.
When I was a kid, I loved show-and-tell. So I always have a few sessions with my students. It helps them get over shyness and usually, show-and-tell is pretty tame. Kids bring in pet turtles, model airplanes, pictures of fish they catch, stuff like that. And I never, ever place any boundaries or limitations on them. If they want to lug it in to school and talk about it, they’re welcome.
Well, one day this little girl, Erica, a very bright, very outgoing kid, takes her turn and waddles up to the front of the class with a pillow stuffed under her sweater.
She holds up a snapshot of an infant. “This is Luke, my baby brother, and I’m going to tell you about his birthday.”
“First, Mom and Dad made him as a symbol of their love, and then Dad put a seed in my Mom’s stomach, and Luke grew in there. He ate for nine months through an umbrella cord.”
She’s standing there with her hands on the pillow, and I’m trying not to laugh and wishing I had my camcorder with me. The kids are watching her in amazement.
“Then, two Saturdays ago, my Mom starts going, ‘Oh, oh, oh, oh!’”
Erica puts a hand behind her back and groans. “She walked around the house for, like an hour, ‘Oh, oh, oh!’” (Now this kid is doing a hysterical duck walk and groaning.)
“My Dad called the middle wife. She delivers babies, but she doesn’t have a sign on the car like the Domino’s man. They got my Mom to lie down in bed like this.” (Then Erica lies down with her back against the wall.)
“And then, pop! My Mom had this bag of water she kept in there in case he got thirsty, and it just blew up and spilled all over the bed, like ‘psshhheew!’” (This kid has her legs spread with her little hands miming water flowing away. It was too much!)
“Then the middle wife starts saying, ‘Push, push,’ and ‘breathe, breathe.’ They started counting, but never even got past ten. Then, all of a sudden, out comes my brother. He was covered in yucky stuff that they all said it was from Mom’s play-center, so there must be a lot of toys inside there. When he got out, the middle wife spanked him for crawling up in there in the first place.”
Then Erica stood up, took a big theatrical bow, and returned to her seat. I’m sure I applauded the loudest. Ever since then, when it’s Show-and-tell day, I bring my camcorder, just in case another ‘Middle Wife’ comes along.
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