D a i l y C o m m e n t a r y By Rob Chrisman

D a i l y   C o m m e n t a r y

By Rob Chrisman

April 7: A few new residential programs; government's shutdown impact on FHA; QRM site for comments

As if the mortgage biz doesn't have enough other things to worry about, how about a US government shut down? There are dozens of HUD programs that may be impacted, but focusing on FHA loans, there are two important steps in the origination process where FHA lenders have a dependency on FHA:  obtaining a case number for a new FHA loan and after it closes being endorsed by FHA so that a mortgage insurance certificate can be issued. The case number for an FHA loan is obtained via FHA Connection. It is possible that FHA Connection may continue to operate even if there is a government shutdown. If that is the case, obtaining case numbers would not be a problem. (During the November 1995 shutdown, case numbers could not be obtained.) The last I checked most believe that it is very likely that loans will not be endorsed and "mortgage insurance certificates will not be issued in the event of a shutdown. Lenders could continue to originate FHA eligible loans but they will need to wait to obtain an endorsement and an MI certificate. It should be noted that lenders with DE authority can potentially obtain MI certificates if FHA Connection continues to operate." The shutdown in 1995 mainly caused a delay rather than drop in FHA loan origination, but if lenders decide to stop accepting FHA applications, it could be a problem. I have heard nothing about Fannie or Freddie's operations.

With the comp issue settled, but in no way forgotten, our business turns its attention to the release recently of the set of Proposed Risk Retention Rules, with a comment period ending on June 10, 2011. These rules encompass more than residential mortgages - they also impact ABS & CMBS (asset-backed, like credit card debt, and commercial mortgage) instruments. Industry followers believe that the portions that seem to be generating the most discussions will include the exemption of Fannie Mae and Freddie Mac from risk retention; the narrow definitions of qualified residential mortgage (QRM), commercial real estate (CRE) loan, commercial loan, and auto loan; the creation of a premium capture cash reserve account; and the limited exemption for re-securitizations. If you'd like to comment on the risk retention proposals, go to RiskRetentionComments.
 
In spite of this being very much an agency-centric residential lending environment, there are some "off the beaten path" loan products that continue to evolve. CMG Mortgage, in California, continues to offer its HOA program with success. A few other recent entries include:

Avant Capital Partnerslaunched its "Bank Lending Program for Small Business & Owner Occupied Real Estate" program. "Loans range from $500,000 to $10,000,000 with leverage up to 90% LTV. The program offers conventional and SBA guaranteed financing solutions for owner-occupied real estate.  Acceptable property types include: office, retail and industrial (including condominium), mixed use, and many more like funeral homes, grocery stores, convenience stores and markets.  Interest rates range from 4.15% to 6.45%." For more information, contact Adam Luysterborghs at adam@avant-capital.com.  Avant is hosting a webinar April 12^th: AvantWebinar
 

 And Mortgage Harmony Corp. initiated "rate resetting" mortgage, which upon the first consumer initiated change compensates originators with monthly recurring commission. The marketing material suggests that the program, HarmonyLoan, is catching on with credit unions for both conforming and jumbo loans, "mitigates investor churn, increases MSR values, offers consumer protection (improves credit risk), and provides originator income stability." Programs include conforming and jumbo 5/1, 7/1, 10/1 ARMS and 15 year fixed, and if you want a demo go to MHarmony or read the recent press release: MortgageHarmonyNews.

Franklin American reminded clients that, starting on the 18^th, "Appraisals may no longer be used to increase the insurable mortgage balance above the sum of the outstanding principal balance and the new UFMIP. In other words, closing costs, discount points or prepaid items may not be included in the new loan balance. The insurable balance may only increase above the sum of the outstanding principal balance and the new UFMIP by using a credit qualifying (streamline or rate/term) refinance with an appraisal. FHA requirements for three and four unit purchase transactions regarding self-sufficiency test, net rental income calculations, reserves and monthly payment calculations also apply to all refinance transactions of three and four unit properties." In addition, "Maximum financing is allowed for a refinance of a former investment property at the same level as an owner-occupant if the borrower re-occupied the property 12 months or more prior to the loan application. For those who re-occupied less than 12 months prior to application, the maximum LTV is limited to 85%."

Provident Funding told brokers of its "Section 7 of the new Loan Origination Agreement that broker compensation must be the subject of a written agreement between the mortgage broker and the borrower.  A copy of the agreement must accompany each completed loan package delivered to Provident Funding by the mortgage broker.  The written agreement must indicate that (1) broker compensation may or may not be negotiable, and (2) in setting the amount of compensation the mortgage broker has not discriminated on the basis of race, color, religion, national origin, sex, marital status, handicap, familial status, or any other legally prohibited basis." The agreement must be executed and returned to the Broker Approval department by next Wednesday.

Wednesday was another not-so-good day for rates, with MBS sales volumes picking up a little bit but current-coupon prices losing about .125. Ten year Treasury notes were worse by about .5, closing with a yield of 3.54% given the inflation fears picking up again (oil is nearing $110 per barrel) along with some weakness in the US dollar ahead of an expected interest rate hike from the ECB (which did indeed happen). "REITs, banks and money managers" were better buyers at these rates.

Weekly Jobless Claims dropped from a revised 392k down to 382k, another little bit of good news for our job market (as opposed to going the other way), but more importantly the ECB (European Community Bank) raised their rates. The Jobless Claims number was about as expected, but the ECB move tends to put a little pressure on our own Fed. Regardless, the 10-yr is up to 3.57% and MBS prices are worse by .125-.250.