May 2: Unintended 5% retention issues; lots of agency & servicing news; misc. bank & lender updates
Occasionally I receive e-mails that are worth saving. Like the one where someone wrote, "Your vocabulary is as bad as, like, whatever." And some websites are worth saving, like this one that tells the viewer what states/counties have been declared disaster areas by our government: FEMAUpdates.
Happy Asian/Pacific American Heritage Month, which was originally 3 days that extended from May 7th (the arrival in the US of the first Japanese immigrants in 1843) and May 10th (the completion day in 1869 of the transcontinental railroad built with large numbers of Chinese immigrants). Lenders shouldn't ignore this demographic. There are 16 million U.S. residents of Asian descent, per the census bureau, over 5 million of them in California. (NY is #2 at 1.5 million, Texas #3 at 1 million; Hawaii's population is 53% Asian.) This estimate includes those who said they were both Asian alone or Asian in combination with one or more other races. Population estimates at Census.
"Here's one for your readers to contemplate. When a seller securitizes a pool of loans, can they book the gain on the whole thing, or just 95% of it? As part of risk retention requirements, the regulators are trying to prevent the gain on sale from 'funding' the 5% risk retention value so the seller has 'cash' skin in the game. The idea here is put any 'premium' earned by the originator/seller into a performance account and somehow make that account available to other investors if the bonds perform poorly. Banks' traditional origination channels are most affected, since the premium recapture account may make it difficult for banks to get true sale accounting treatment. The fact that this does not take into account costs that push a bank's basis in originating the loan to above par means that the bank may be left paying out of pocket to fund the premium recapture account, which is worse than just holding the loan on portfolio.
"And 'perhaps the most fundamental aspect of a sale is the transfer of risk and reward associated with an asset. If I transfer a mortgage on Blackacre to Prince William, but bear risk on the performance of the mortgage, it's questionable whether I have sold the mortgage to him or merely loaned or leased it to him. The federal risk retention requirements make this issue hairier. If I am on the hook for the first 5% of the losses (or 5% of the total losses), could a bankruptcy trustee come after that mortgage as an asset of the estate? The fact that the 5% stake (vertical or first loss) is mandated by federal securities law strikes me as irrelevant to the true sale question, which is not a securities law issue, and on which Dodd-Frank takes no stance. If the transaction involves too much risk retention for whatever reason, regulatory requirement or voluntary deal design, there might be problems with the sale treatment. RetentionGame'"
There was some servicing news at the end of last week. The Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to "align servicing guidelines in four key areas: (1) borrower contact, (2) delinquency management practices, (3) loan modifications and foreclosure alternatives, and (4) foreclosure timelines." Wrapped up in the "Servicing Alignment Initiative," the components provide monetary incentives for servicers that perform well and compensatory fees for those that do not. In other words, the goal is for consistent mortgage loan servicing and delinquency management requirements for the companies servicing the two GSE's delinquent mortgages. Here is the actual press release: FHFA and if you are servicing any loans for Fannie, or have any friends or family servicing those loans, they should check out FannieServicing. And for Freddie Mac servicers: FreddieServicing.
Fannie also recently sent out notice of the release notes for the DU for government loans release occurring on June 18, incorporating a recent HUD announcement: FannieHUD.
(Freddie also released The Phase I ULDD requirements include delivery of the ULDD data point equivalents for data we currently require at loan delivery plus 53 additional ULDD data points, which starts up in December for delivery dates in March. FreddieULDD
Not wanting to be left out of the flurry of agency updates, HUD came out with a Mortgagee Letter providing FHA guidance regarding the financing of homebuyer transaction costs for homebuyers who acquire HUD REO single-family properties under a specially-authorized sales incentive that requires only a $100 minimum cash investment. "Homebuyer acquisition costs that may be financed for eligible homebuyers are limited to Upfront Mortgage Insurance Premiums (UFMIP)." In addition, another Mortgagee Letter came out focused on removing the one percent origination fee cap for standard FHA insurance programs, except for the 203(k) Rehabilitation Mortgage Insurance and Home Equity Conversion Mortgage programs. Check all letters out at MortgageeLetters.
As this commentary mentioned a while back, GNMA announced that starting June 1, all loans pooled into its mortgage-backed securities must be current at the time of issuance. Most dealers think this new requirement is unlikely to affect GNMA valuation, but instead are keeping a careful watch on the high re-default rate of re-pooled loss-mitigation loans and the lack of ways to identify them.
FHA lenders know all about the "TOTAL Scorecard," which has also had some clarification lately. "If the credit report reveals that the borrower is disputing any credit accounts, Manual Downgrade of a TOTAL Scorecard Approve/Accept recommendation is not required if: 1. The disputed account has a zero balance, 2. The disputed account is marked as "paid in full", or "resolved", 3. The disputed account is both a. less than $500, and b. more than 24 months old, based on the date of dispute. FHAOutReach.
In addition, a company must send in FHA single family claim-related remittances using the "Claim Remittance" feature in FHA Connection. "This feature can be accessed through the FHA Connection by selecting Single Family Servicing, Claims Processing, and Claim Remittance. Banking information can be entered securely during the one-time cash flow account setup using the Cash Flow Account Setup module in FHA Connection." For more instructions it is best to visit HUD.
It appears that The Leaders Group, out of Oak Brook, Illinois (and owners of Leaders Bank) reached an agreement late last week with the Federal Reserve Bank of Chicago.
On the other hand, in Florida Premier American Bank, National Association (including Florida Community Bank), took over the banking operations and deposits of First National Bank of Central Florida, and Cortez Community Bank. Bank of the Ozarks (Arkansas), acquired the banking operations, including all the deposits, of First Choice Community Bank, and The Park Avenue Bank, both of Georgia. And way up in Michigan, Community Central Bank, Mount Clemens, was closed and operations assumed by Talmer Bank & Trust, formerly known as First Michigan Bank.
Friday the commentary mentioned several things. One was a story about Zillow offering gift cards at Lowe's to mortgage applicants, up to $1,000. It turns out that Zillow and Century 21 Real Estate LLC have teamed up "to provide CENTURY 21 brokers and agents with exclusive discounts on Featured Listings on Zillow. These Featured Listings will appear on the Yahoo!/ Zillow Real Estate Network" NewPartnership.
Another was the cost of regulation, warranting this note: "I am no fan of more regulation and any time you start making decisions that run counter to market forces, you are going to get some irrationality. However, it remains to be seen what the true cost of regulation is. Like all edicts, some will be good and some bad. Every day we hear that a $300mm bank can't survive and must merge to stay competitive, but that may be a fallacy. For starters, while the cost of banking has increased with Dodd-Frank, so far it is not prohibitive. Like SOX, DFA may require a bank to add another full time person, but at the end of the day, the change in the cost of regulation will not be material to drive a bank out of business. The biggest killer is the tighter controls on leverage."
GMAC's (#5 lender for the 4th quarter with about a 4% market share) correspondents continue to see refinements and adjustments on underwriting guidelines, using an easy-to-read but lengthy "current policy to new policy" format. GMAC has recently clarified criteria such as Community Land Trusts, installment land contracts, interested party contributions, Texas equity loans (need to certify that the borrower received those documents!), monthly housing expenses, verbal VOE's, principal curtailments, living trusts, removing the MIP form from the list of required FHA documents, reminding clients of the expiration of case numbers, net tangible benefit definition, and so on.
Mountain West Financial updated its policy on multiple financed properties for the same borrower on Conforming Loan Amounts only ($35,000 - $417,000), including: "If the mortgage is secured by the borrower's principal residence, there are no limitations on the number of properties that the borrower can currently be financing. If the mortgage is secured by a second home or an investment property, the borrower may own, or be obligated on, up to ten financed properties (including his or her principal residence). The financed property limit applies to the borrower's ownership of one-to-four unit financed properties or mortgage obligations on such properties and is cumulative for all borrowers. These limitations apply to the total number of properties financed, not to the number of mortgages on the property."
With many Secondary Marketing folks attending the conference here in New York, things may be a little slow. The news that Osama bin Laden has been killed impacted foreign currency markets slightly, but has little real impact. Last week, for the week, 10-year T-notes gained nearly 1 point and the yield dropped to 3.30%, and current coupon agency mortgage prices improved about .75 in price. We finished Friday with prices better by .125 after Personal Income was +.5%, Personal Consumption was +.6%, and Consumer Confidence rose - all slightly better than expected.
Economic news this week bolts right out of the gate with Construction Spending and the ISM Index today. Tomorrow is Factory Orders, Wednesday some Challenger and ADP jobs numbers, and Thursday Jobless Claims and some productivity statistics. Friday we'll see all the unemployment, uh, I mean employment data.
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