June 13: Miscellaneous letters on topics ranging from DTI to Freddie's Relief program; NMLS Call Report deadline approaching
"The evening news is where they begin with 'Good Evening,' and then proceed
to tell you why it isn't." So I won't say "Good morning." As Wells Fargo
Security's newsletter noted at the end of last week, "Now that the era of
stimulus is coming to an end, decision makers must come to grips with the
economy that we have-not the one some commentators dream up. First, the
housing sector continues to work through its issues, which means sustained
subpar housing starts for several years in several metropolitan areas.
Second, the pattern of fiscal deficits remains higher than in earlier
economic recoveries. Forty years of promises for entitlements now face the
reality of limited revenue growth at the federal and state level. The time
of smoke and mirrors has passed."
At this point, a sizable portion of loan officers would willingly trade
these low rates for an uptick in property values, some heat in the economy,
and slightly less stringent underwriting guidelines. And brokers would like
some market share back:
a report shows that brokers' market share fell to an all-time low of 6.9% in
the first quarter, the lowest reading ever per National Mortgage News. And
an industry observer wrote to me, "The nation's banks did 29,000 HAMP loans,
while we have over
4.2 million in foreclosure. That's about 1/2 of 1 percent or 6% annualized.
Since the Fed seems to finally admit it going to be a long drawn-out
recovery, as opposed to prior Bernanke statements that it was contained. If
servicers keep taking 800 days to foreclose, plus the several-year Freddie
or Fannie restriction on new loans or buying, we are going to lose over 4
million buyers for 6-7 more years alone.
Lots of notes lately, on a variety of topics:
"I have friends in different parts of the world and nobody has had a
mortgage crisis due to debt ratio requirements. In some countries 20% down
and a 28% front-end debt will get you a home regardless of credit. I don't
agree with anything less than 5% down. Like anyone else, I would like as
many resources as possible to earn money in the mortgage business - but with
that, we will find ourselves in a fake economy once again. The value of
homes should increase according to income once again - not debt ratio
increases. Everyone should have at least 5% in the game. If you work hard
and you make sacrifices to save at least 5%, then you are ready to purchase
a home."
"Every day we hear how the banks are so conservative now: UW rules are
extremely tight, FICO risk based pricing. The reason the banks allowed
'anything goes' a few years ago, is Wall St. sold the trash. There never
would have been a huge subprime market to go bust if Wall St. had not
provided the outlet to take the subprime stuff off the banks' books. I doubt
if banks would have provided the subprime programs that were in market if
they had to keep the stuff."
"I run production for my company, and I tell my sales staff that they need
to figure out a way around borrowers looking for appreciation. It doesn't
look like housing prices will be bouncing back anytime soon, given
unemployment, household formation, shadow inventory, underwater mortgages,
more stringent underwriting requirements, and the possibility of higher
rates. Rates are great, and my staff needs to continue dialing the phone."
We discussed Fannie versus Freddie prepayment speeds, along with a
clarification on the Freddie Relief program. I received this note from a
broker in the Northwest; "In spite of programs being offered by agencies,
many are not really 'do-able' in the real world. With Freddie's Relief loan,
sure they'll do all kinds of things
- but find an investor that will do it. Most have severe overlay guidelines
on the Relief program that make most of the loans impossible to close.
Transfer MI? Right.
B/A or Wells would just 'love' to take on all of CHASE's 125% LTV or higher
CLTV files, especially if subject property is investment occupancy now
(CHASE would probably provide the leads if they would), just like Chase
would 'love" to take on BofA's and Wells'. Also, if my memory serves me
correctly, Freddie did a bunch of pool insurance, in which case you can't
get a Relief at all. Bottom line from my experience: Relief loans are
available from Freddie but tough to close with a high failure rate from the
start."
Here is a NMLS "heads-up" for folks: on June 16 a license deficiency will be
placed on companies who have not submitted their Q1 Mortgage Call Report.
Over 11,000 companies have successfully completed their Q1 MCR in NMLS. If
you haven't yet, get started:
NMLSQ1CallReport
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1105980352730&s=8721&e=001hrb_Gn
uPomyzT8RbJ3LxSYGR8OOUeqzcqIOZXvTmf1asn0yNkzLCrUXwuOBDiPmICI4FxhdRTOK1lbymjw
lXjY69cr3NPtH5utnsuVTD4Ijh5KIgVcL5_zk1scxA1qWb8nNLPDWRE2wziQk8TL3RJFzrh5fUJH
SOYH8gTSBMNjMUbpBLQYD1aHtQ8wlrv3X8B9hyyyQQYGM=].
Last week the commentary discussed REIT's impact on the residential mortgage
market.
The total market capitalization, or the aggregate value, of real estate
investment trusts could be as high as $42 billion and growing, according to
an estimate from investment bank Keefe, Bruyette & Woods (versus $500
million in 1971 and $30 billion by the end of 2010). Real Estate Investment
Trusts have special tax exemptions and an ability to hold more capital under
upcoming risk-retention rules. So why are REIT's buying? This is a key
reason that spreads remain range-bound despite the news of the Treasury
unwinding its MBS portfolio, and the leverage opportunities are very
attractive.
Analysts believe that more growth could come as the mortgage market becomes
dependent on more capital. Currently, $1.5 trillion in mortgages and MBS sit
on Fannie Mae and Freddie Mac balance sheets with another $1 trillion in
MBS at the Federal Reserve.
Assuming a run-off rate of 10% per year replaced by private capital, the
mortgage market could need roughly $110 billion in private capital in the
next decade which could double the current $42 billion that REIT's control.
For more information visit REITPrimerAnalysis
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1105980352730&s=8721&e=001hrb_Gn
uPomwFzm0gUtsof7WOamN0dy62I5Mv9gWx9fQXDM9lCvU5hmDQXUQi6AjwlBmwYMxWzNZbcCaImx
Zmoi9mT9zMSdY9Ru1h16tcRu7k7AQgE56ZLFwT9Xn5UW3my6BXg32V4EGCcEf22M0gc8XxiJJtfe
778yOz9MozO2mAFUV3w2xZK2nJEgrDzRqw].
And David Akre with Whole Loan Capital has written a presentation for
lenders considering a REIT structure. If you're interested in seeing it,
contact him at dakre@wholeloans.com [mailto:dakre@wholeloans.com].
CitiMortgage (#4 in the 1st quarter with a 4% market share) issued an update
focused on "Low-to-Moderate Income Census Tract" (LMICT) pricing incentives.
Loans can be sold either best efforts or mandatory to City, but Illinois
markets are no longer eligible; selected markets in Florida, New York and
Texas still eligible." There are certain requirements, such as the loans
must be locked after 5/16 and be purchased by 8/31, the property to be
located in the specified state, county, and MSA as identified per the
Eligible Counties table. To start with, enter the property address into the
FFIEC website at FFIECGeoCode
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1105980352730&s=8721&e=001hrb_Gn
uPomzRTRI6sHnLGsYZDzZgtxqMkofYuCoBO2mXZ4aTlTvi4ay4rfD2tQC-X3jdrovodXaPlZl9yj
OfW2H9mVp8SLxcN3jyGFbkPfTWZqplijjcrQo7HnwyZQZJENS54xe_5QA=]
and click on the "Get Census Demographic" button at the bottom of the page.
Citi also offered up to its clients "the top pre-purchase suspense items and
post-purchase defects for conventional and government loans." First on the
list is evidence that the property is owned "Free and Clear": "There must be
documentation in the loan file to demonstrate the property (other than the
subject property) is owned free and clear as stated by Final 1003. A hazard
insurance policy or binding hazard policy commitment (inclusive of all
pages) is required as part of the loan file submission if the Final 1003
states a property is free and clear of any mortgage. (An acceptable
alternative would be to provide a Core Logic / Real Quest Property and
Ownership search against public records, reflecting that there is no
mortgage or encumbrance against the property.) And some properties are
located on private roads, which often have maintenance agreements. "When the
subject property is on a private road (street type shows as "Private" per
appraisal report / appraisal form 2075), ensure one of the following is
included in the loan file submission: A Private Road Agreement (states who
is responsible for maintenance of private road & the cost of maintaining the
road), comments/statement from the appraiser regarding maintenance expense
of the private road (e.g., included in the HOA fee). For more details on
best practice documents Citi's clients can visit www.agentsite.com/solutions
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1105980352730&s=8721&e=001hrb_Gn
uPomxlmvXeU6d7QHdh1OrGByzj1rmv_BlxHTa175DWEs_RpnoqgekjeqWhhifOjvvM-DtDnqTqTe
8PA1AfOBE_qK4a2IX0xw8-O1uTaDJJCFlsRt8dQ9VADd1-]
under the 'Quality Tools' header.
Bank of America (#2 in the 1st quarter with a 17% market share) issued a
disaster declaration for Illinois. It also issued a product update to state
specific guidelines and an update to the Open 30-Day Charge Accounts Policy.
GMAC (#7 in the 1st quarter with a 3% market share) released an announcement
that in Illinois a civil union shall be recognized by the law in regard to
spouses.
The 1st quarter's #1 lender (with a 24% market share) Wells Fargo Funding
sent out a "Risk Advisory Bulletin" to its correspondent clients. Topics
included GFE/HUD-1 Comparison Chart Discrepancies under RESPA, the use of
correct model form TILs, "Incomplete Copies of Notice of Special Flood
Hazards," and dating corrected documents to cure a material finding. And in
wholesale, brokers received a Newsflash addressing the use of the pricing
calculator to determine compensation, a reminder of "Benefit to Borrower"
policy changes (that took effect 5/21), and discussed Ohio "Zero
Interest/Low-Rate Mortgage Loan Requirements."
SunTrust (#9 in the 1st quarter with less than a 2% share) issued an
additional guidance for DU loans for borrowers employed by a family member,
announced the Virginia Automatic Subordination Amount is increasing July 1,
issued a statement saying borrower-paid temporary buydowns are no longer
offered, and offered up clarification on eligibility requirements for
Florida condominiums.
As the commentary has noted, it is hard to complain about rates. Yes, there
is some inter-day volatility, but with the 10-yr sitting around 3% and 30-yr
fixed rates around 4.375%, rates are not the issue. Last week rates closed
lower, with the 10-yr at 2.97% and MBS prices slightly better than the
previous Friday's. We have zilch for scheduled economic news today, but
tomorrow the pace increases with Retail Sales, the Producer Price Index, and
Business Inventories. Wednesday is the Consumer Price Index, Empire
Manufacturing, and Industrial Production & Capacity Utilization.
Thursday is Jobless Claims, Housing Starts & Building Permits, and the
Philly Fed.
Friday is a University of Michigan number, and Leading Economic Indicators.
Quite a bit! Rates are slightly higher with the 10-yr at 3.01% and MBS
prices worse about .125-.250.
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