Two months until the election, and soundbites are heating up. Compare Dan Rather’s, “The Donald Trump reelection strategy appears to be that only Donald Trump can save us from Donald Trump’s America” versus President Trump’s, “Joe Biden is not the savior of America’s soul, he is the destroyer of America’s jobs, and if given the chance, he will be the destroyer of American greatness.” And we still have two months of this, if not more given the potential for vote counting delays. Meanwhile, regardless of what the seemingly endless number of political polls are telling us what to believe, many parts of the nation are seeing pent-up home price appreciation come to the fore as a result of pandemic-related dynamics. The usual spring home-buying season was delayed into the summer, and as that demand entered the market, here we are approaching the autumn and potential home buyers currently have very limited inventory to choose from. Some homeowners continue to be reluctant to list their homes for sale amid the pandemic. And in many markets that lack of supply continues creating bidding wars and higher listed prices.
LIBOR to SOFR move continues
Although we’re in a fixed-rate mortgage market, trillions of dollars of adjustable-rate securities are tied to various indices. “Trillions” of dollars include billions in home loans, many of which have notes where the index is the London Interbank Offered Rate.
LIBOR is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting rate is usually abbreviated to Libor or LIBOR, or more officially to ICE LIBOR since ICE (which also owns MERS and Ellie Mae) “owns” the index.
But what if, given that fear and greed drive markets, these banks somehow colluded and it was in their best interest to mis-state their borrowing rate. That is exactly what happened several years ago, resulting in the LIBOR Scandal, which in turn resulted in a move to and index arguably immune to manipulation.
Most, if not every, mortgage notes, where the rate paid is tied to LIBOR, have a clause allowing the servicer to change it to a different index. Some transitioning has already occurred, and some LOs have told me that their borrowers have come back to them asking, “What the heck is going on?” Plenty of these ARM borrowers have converted/refinanced into fixed rate mortgages. Large servicers have dedicated resources educating staff about moving away from LIBOR, which is “not guaranteed” to be published starting next year. No servicer, or borrower, wants their loan tied to an “extinct” measure of interest rates, and so the industry is switching.
The Alternative Reference Rates Committee (ARRC) released a LIBOR ARM Transition Resource Guide to assist mortgage market participants as they move away from use of the LIBOR index. The Guide (developed with input from lenders, servicers, investors, consumer advocates, and other stakeholders) includes a timeline and key milestones, relevant risks to market participants, potential impacts of the transition, and links to various published guidance and tools.
The Guide provides further resources for institutions as they develop and execute their plans to transition away from the use of LIBOR in their adjustable-rate products.
The MBA is offering a class on the transition in a few weeks. Speaking of the MBA, it shared its recommendations given to the CFPB regarding the transition away from LIBOR. And the FHFA has a nice summary of the changes, along with links to Freddie Mac’s and Fannie Mae’s current information on their policies and procedures.
There are some that argue for an alternative. For example, R.C. Whalen of Whalen Global Advisors LLC sent, “This mounting problem with SOFR and secured mortgage finance is not widely recognized in the media or among policy makers. Fortunately, a solution is staring us all in the face. Forget SOFR and use TBAs instead. Is the Fed listening?”
And Darrell Duffie of Stanford University and other academics have created a credit-spread index that can be layered on top of the Secured Overnight Financing Rate. The Across the Curve Credit Spread Index (AXI) offers a spread adaptable to market trends and is seen as an alternative to the ICE Bank Yield Index and the American Interbank Offered Rate.
But while we’re talking about adjustable rate mortgages, the Mortgage Bankers Association provided some more information on the potential issues for 3/1 and 5/1 ARMs (or, in the case of SOFR, 3Y/6M and 5Y/6M ARMs) in the new QM proposal.
“The CFPB’s proposal includes a new methodology for calculating the APR on ARMs with an initial fixed period of 5 years or less. Under the current QM framework, creditors must determine the maximum interest rate possible over the first five years and determine whether this pushes the borrower’s DTI ratio above 43 percent. For purposes of determining the APR, the creditor must assume the maximum interest rate possible in the first five years of the loan and the fully indexed rate for the remainder of the loan term.
“With the CFPB proposing to eliminate the DTI ratio threshold in the QM framework, they are concerned that the existing APR calculation ‘could understate the APR for short-reset ARMs by failing to sufficiently account for the risk that consumers with such loans could face payment shock early in the loan term.’ To address this concern, the new APR calculation would require creditors to assume that the maximum interest rate possible over the first five years remains the interest rate for the remainder of the loan term. As such, this would increase the APR that is calculated for these loans.
“Because the new proposal defines QM loans as those for which the APR is within 200 basis points of APOR (subject to other conditions), a higher APR would – all else equal – make these ARMs less likely to qualify as QMs.”
The MBA’s note goes on. “To preserve the more appropriate QM treatment of 3/1 and 5/1 ARMs, some potential options are maintain the existing APR calculation, increase the APR/APOR spread for ARMs, or apply the new APR calculation only to 3/1 ARMs rather than 5/1 ARMs. The first option benefits from simplicity and the experience of the past several years. The second option is also simple, though probably less likely to be viewed favorably by the CFPB. The third option is feasible, though it would only improve the situation for 5/1 ARMs – not 3/1 ARMs.”
(If you have other ideas or thoughts about these options, contact Dan Fichtler at the MBA.)
Vendors to lenders do a lot more than make up clever names capitalize letters in the middle of words, and have photos of happy Millennials looking at computers or meeting with each other on their websites. Let’s take a random look at who’s been doing what lately.
7 Mortgage successfully launched OpenClose’s LenderAssist LOS and ConsumerAssist in July, delivering an enriched digital mortgage experience for both partner credit unions and the members they serve. 7 Mortgage now offers an array of new features, further distinguishing itself as a premier CUSO for residential mortgage lending. Using the new solution, 7 and its members are expected to benefit from OpenClose’s #1 rated customer service, better connectivity, reduced operating costs, quicker turn times and expanded options by which to conduct business.
The first-of-its-kind Mobile App from Insellerate delivers full lead management, lead distribution, click to call, inbound call routing, first call automation, and two-way compliant text messaging and provides access to critical loan information without having to use a laptop or log into their LOS system. It also empowers loan officers by intelligently distributing leads, managing pipelines, prioritizing their day, automating best practices, and personalizing the borrower’s journey all from their mobile application. Built by mortgage professionals, the Insellerate platform has full CRM & Engagement functionality with built-in lead management and automated marketing.
ValueLink Software has partnered with Accurate Group to create a seamless experience for their customers enabling them to deliver reliable, fast, and cost-effective valuations while helping lenders mitigate risks. This alliance also unlocks the potential for ValueLink to expand its set of offerings to its clients and for Accurate Group, greater flexibility, and configurability for its clients.
Reverse Mortgage Funding LLC announced the launch of its proprietary product’s line of credit option, The Equity Elite Line of Credit. This powerful financial tool is geared towards the unique needs of those age 60* and older combining the power of a traditional Home Equity Line of Credit (HELOC) and the flexibility of a reverse mortgage into one versatile product and has attractive advantages over other proprietary lines of credit. Currently available in California and Florida through RMF’s retail and third-party origination (TPO) broker channels. The product option will be expanded to additional states over the next several months.
CoreLogic has introduced LoanSafe Explorer and Settlement Agent Risk Assessment for fraud solutions. LoanSafe Explorer provides a macro-level view of a lender or servicer’s loan portfolio, offering insight that can help highlight fraud risk and spot patterns that may not be detectable at the transaction level. Settlement Agent Risk Assessment (SARA) is a systemic solution, integrated through both LoanSafe Risk Manager and LoanSafe Fraud Manager reports, to vet settlement agents, provide wire instructions, and help lenders meet regulatory guidelines and protect their closing process.
American Financial Resources, Inc. (AFR) recently introduced Streamline Express, an expedited process and special pricing for eligible FHA refinances. With simplified requirements and competitive rates, borrowers receive an expedited credit approval process, including underwriting decisions in as little as one (1) business day.
First American Mortgage Solutions has integrated with Clarifire enabling automated orders of First American Mortgage Solution’s FirstMod loss mitigation products and services suite for CLARIFIRE® technology users. Loss mitigation document generation, title reports, partial claims and lien priority insurance can now be delivered directly to CLARIFIRE user dashboards-eliminating most manual input from the process.
Clarifire’s intuitive workflow software, CLARIFIRE, which standardizes and simplifies complex business processes, has completed a strategic integration to include credit reports and scores from CoreLogic. As a result, mortgage servicers using CLARIFIRE will be able to provide borrowers with their loss mitigation options in minutes, while simultaneously improving compliance, lowering costs, and creating a better experience for the borrower.
According to the Federal Reserve Bank of New York, technology-based lenders process mortgage applications about 20% faster than other lenders while decreasing the default rate by approximately 25%. Taking a technology-based approach, leading lenders are tapping into Capacity, ahelpdesk powered by AI; simultaneously supporting mortgage loan officers and borrowers.
A partnership between Blue Sage and FormFree has made AccountChek available through the Blue Sage Borrower Portal, Loan Officer Portal and Retail LOS, enabling automated asset verification at various stages in the lending process. Through the integration, consumers can quickly verify assets as they apply for a loan using the Blue Sage Borrower Portal. Loan officers can email borrowers a link to verify their assets and submit report orders through the Blue Sage Loan Officer Portal and Retail LOS
Pavaso has been granted Remote Online Notarization (RON) Compliance Certification through the Mortgage Industry Standard Maintenance Organization (MISMO). The program establishes industry standards for all RON providers, including credential analysis, borrower identification, capturing and maintaining a recording of the notary process electronically, audio and video requirements, record storage and audit trails. As one of the first eClosing providers, Pavaso’s RON solution allows home buyers and sellers to execute all of their real estate documents from the safety and comfort of their homes, where permitted.
Indecomm’s BotGenius is a collection of software robots that are pre-programmed to emulate human computer interaction functions for specific standardized processes, tasks, and workflows throughout the mortgage lifecycle. Why hire BotGenius as your digital worker? It can determine and establish ROI upfront, there is no maintenance costs, no lock-in to a licensed software, cost-effective and rapid implementation with success-based pricing. The BotGenius suite of robots automates tasks across the mortgage lifecycle from loan setup through default servicing. In the title and settlement services industry, Indecomm’s solution addresses the lifecycle from order intake through commitment and report preparation.
Top of Mind and MobilityRE have combined forces to give SurefireCRM customers access to MobilityRE’s Mortgage Market Intelligence (MMI), which helps lenders build Realtor networks that best support their marketing strategies. Notably, lenders can identify which real estate agents are closing the most loans of a given type within a given geographical area, track agent activity in real time and receive alerts as Realtors post new listings, helping them strategically pursue the most advantageous real estate agent relationships.
Now available inside the Roostify platform, consumers or loan officers can request a conditional approval notification. This capability is incredibly important to Roostify’s mission of enabling a self-service experience for consumers. It provides a better upfront customer experience and frees up lender resources to focus on closing more loans, faster.
A partnership between DocMagic and Simplifile advances eClosing adoption, eNotarizations, and eRecordings This powerful combination of technologies instantly qualifies eNotarizations by county, facilitates eClosing usage, and automatically e-records documents post-closing. Loan closings done through DocMagic’s Total eClose platform can now be automatically routed to the settlement agent thorough Simplifile for electronic closing coordination, thus streamlining access to DocMagic’s Total eClose room for the eClosing. The integration with Simplifile extends automation of the process through post-closing to ensure final documents, data and fee information are returned to the lender after recording is complete, which provides lenders with greater control over the process.
Labor Day Weekend… To me, “drink responsibly” means don’t spill it.
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