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RESPA and Dodd-Frank Conflict on Incentives; To Appraise or Not to Appraise, that is the Question
A few weeks ago the commentary mentioned repeated a note from a reader, "Fannie & Freddie are now allowing mortgage companies to offer incentives of up to $500 to induce consumers to do business with them. They will allow you to offer a $500 gift card for closing a loan with you? So is it not a RESPA violation if Fannie & Freddie say you can do it?" Fannie noted, "We issued the guidance on the refinance incentives at the specific request of lenders who wanted clarity on our rules. As with any Fannie Mae guideline, these standards simply reflect what is acceptable to us. It is always the responsibility of the lender to ensure they are following all applicable laws, rules, and regulations as they operate their businesses." Daniel M. Shlufman, Managing Director of Classic Mortgage, reiterated that. "The paragraph from your commentary is not a RESPA violation. But it is a violation of Dodd Frank with respect to brokers when a broker is using the lender paid compensation model. Dodd Frank prohibits paying any costs of the borrower (which a $500 credit amounts to) when brokers are paid by the lender. Though the law makes no sense - it is counterintuitive and is against the consumer's interests (which is the opposite of its intent) - it is 'the law' nonetheless! Prior to Dodd Frank, fees could be waived any time or incentives paid to borrowers. RESPA only affects fees paid to third parties, not to the borrower directly.
"However, even under Dodd Frank, (i) anybody using the borrower paid comp model can rebate to a borrower and (ii) a lender (unlike a broker) is allowed to rebate to borrowers since they are not affected by the compensation rules as their secondary market credits are categorized differently. I do wonder though how the CFPB would view this 'rose by any other name' in practice! I believe that bankers can make a very credible argument that they are allowed as well to rebate (since they are 'lenders'). But, if I was a correspondent lender as opposed to a lender selling directly to Fannie/Freddie, I am not sure that the CFPB would look favourably on this when it was brought to their attention and would counsel them to be cautious."
Yes, a focus on compliance is the new norm for lenders. And lenders continue to hire. HomeBridge Wholesale, a national wholesale lender offering both conventional and government products, has exploded into the market place and is looking to continue their rapid growth in 2013. HomeBridge is now hiring Account Executives and Regional Sales Managers nationwide. All candidates must have a proven track record, current industry experience, and an established account base or sales team. A demonstrated ability to build and foster broker or account executive relationships, excellent communication skills, and an understanding of today's lending market are required. For more information about the opportunities HomeBridge has to offer, please visit HomeBridgeWholesale.com or send your resume to Jobs@Homebridge .com.
And headquartered in New Orleans, Eustis Mortgage is searching for an Underwriting Manager. (The prior manager is retiring after 25 years with Eustis!) The ideal candidate has five or more years of experience in a manager level position with a Fannie/Freddie servicer, has FHA DE, VA SAR, and direct report experience. He or she will be responsible for the implementation of policies, procedures, the distribution of updates, and must work well with the sales staff. Eustis Mortgage has been originating loans for 57 years. It is 100% retail, with a multi-branch network spanning several states, Freddie approval in place and awaiting Fannie approval. Interested parties should contact Alan Novotny, Sr. Vice President, at alan@eustismortgage .com and for more information on the company visit weustismortgage.com.
I am not an expert on appraisal requirements, but occasionally I am asked whether or not a refinance requires an appraisal. To the best of my knowledge, it depends on the type of loan you plan to refinance. The type of refinance (rate and term vs. cash out) can also come into play. Those who refinance under HARP do not need an appraisal if a "reliable AVM" estimate is provided ("automated valuation model" is a computer's approach to your home's value).This guideline was changed back in late 2011 by the FHFA to "reach more borrowers." In short, the FHFA doesn't care as much about your current appraised value because you're only refinancing to take advantage of a lower mortgage rate, and thus a lower monthly mortgage payment. The logic here is that the same borrower with a lower mortgage payment is less likely to default on their loan, so it's a win for all parties involved, less the old investor of the loan with the higher interest rate. But because the default risk goes down with the refinance, an appraisal isn't necessary if the computer determines the refinance is eligible for an appraisal waiver.
LOs know that if their borrower currently has an FHA loan, they can refinance into another FHA loan via the FHA streamline refinance program. This program doesn't require an appraisal either, for the same reasons mentioned above. Instead, the FHA uses the original purchase price of the property, or the most recent appraised value. This is a great way to refinance if the property has decreased in value, resulting in an otherwise ineligible LTV ratio.
Another popular type of loan that does not require an appraisal is the VA's "IRRRL." IRRRL stands for "Interest Rate Reduction Refinance Loan," which means the rate should be reduced via the refinance. However, if the borrower is refinancing from an adjustable-rate mortgage to a fixed mortgage, the rate is permitted to increase. And if the borrower is looking to obtain cash out via a refinance, an appraisal will likely be required. And traditional rate and term refinances also require appraisals. Also note that some lenders may require appraisals as part of their own underwriting processes.
Along these lines LOs are asked about is the pre-approval for a mortgage. Pre-approval for a mortgage begins with a potential borrower talking to a knowledgeable loan officer at a reputable mortgage lending company. Potential borrowers should determine their financial comfort zone for a total monthly mortgage payment. Included are principal and interest, taxes, hazard insurance, FHA mortgage insurance premiums and HOA dues if applicable. In today's market, principal and interest on a monthly payment is calculated at about $4.50 for every $1,000 of the total loan. The loan officer will analyse the information provided, verify documentation and then issue a PQF (pre-qualification form) that a real-estate agent uses when presenting a purchase offer to a seller. I think that most LOs tell potential clients that pre-approved borrowers should not make any major purchases, such as buying a new car, without first consulting their lender.
Let's move on to some conference and investor updates.
Along the lines of state MBA Advocacy Days, the Texas MBA will host its biennial event next week, March 20th, in Austin, Texas, following its SEO Conference. For more information, visit here.
PHH Mortgage has updated its credit guidelines to align with those of the USDA, which require the files for loans with FICO scores under 680 to include supporting documentation with credit waiver forms. For loans with credit scores of 680 or over and any adverse credit items, supporting documentation must be retained in the file but does not need to be sent to the USDA for review. Borrowers with credit scores under 680 are also required to verify 12 months' rent/housing payment history if they currently have rent/housing expenses. These requirements do not apply to Tier 7 loans that received a Guaranteed Underwriting System Accept recommendation. With regards to income documentation, PHH is requiring that all student loan documentation identify the current payment amount, loan type, and payment structure, as the credit report alone will not be considered acceptable.
Effective for all FHA transactions, PHH has clarified that payments for revolving accounts and monthly instalment payments of $100 or more must be included in the total monthly obligations when calculating DTI, regardless of the number of months remaining. Clarification has also been issued to state that existing subordinate liens being paid off with the refinance transaction do not have to be re-subordinated, while HELOC subordinate loans must be re-subordinated and the maximum possible credit limit included in the CLTV calculation.
Nationwide lender New Penn Financial, LLC has lowered pricing and expanded guidelines on its Jumbo Advantage mortgage program, a portfolio product that is available through brokers and mortgage bankers, and is also offered directly to consumers with FICO scores as low as 680. The enhanced loan, which is exclusive to New Penn, enables more customers seeking to purchase high-end homes or refinance an existing jumbo mortgage to qualify for financing and realize significant benefits. (The Jumbo Advantage mortgage enables homeowners to purchase or refinance up to 70% LTV for loan amounts to $2 million for a primary residence, 75% for $1.5 million, 85% to $1 million, and 75% for condos.)
"Rob, what is this I hear about Fannie raising its Gfees by 2-3 basis points on May 1?" Yup, that is the scuttlebutt - perhaps steering clients toward cash execution at the window? It is best to ask your Fannie rep - I have not heard the same thing from Freddie. And I am sure any gfee changes will be lender-by-lender - so ask your rep. And some lenders are also possibly seeing their DU fees going up, or maybe even down, based on the current contract with Fannie. Those with Affinity relationships with Fannie, for example, it will go to $30 and $25 for loans delivered directly to Fannie (a $5 rebate upon delivery).
At the loan level basis, Gfee hikes have been removed from the scorecard as an action item. In his recent speech, however, Acting Director DeMarco indicated that hikes will continue in 2013. Additionally, he said that the execution of risk sharing transactions should inform the appropriate fee level at which the private market is likely to absorb credit risk. There is likely to be tremendous policy pressure against substantial fee hikes. And as those in the industry know, these hikes, and other loan level price adjustment hits, are negating some of the intended stimulative effects of the Fed's MBS purchase program. Last week's Fed purchase data, by the way, showed the Fed decreasing their purchases of Freddie Gold 3.0's to 38% from a high of 47% the week prior so it'll be interesting to see if REIT and other investor demand can continue to prop up Gold's and whether the Gold/Fannie swap can continue to improve.
Yesterday mortgages bounced back well from Friday's drubbing - some of due to very light selling and steady demand. Traders reported supply of about $1 billion - less than the $2-2.5 billion we've been seeing, and certainly less than the $3+ billion in demand we see every day from the Fed, REIT's, and money managers. With little in the way of news the 10-yr closed at 2.06% and agency MBS prices better by about .125. In the early going the 10-yr Treasury is back down to 2.03% and MBS prices are another .125 better. Rates: up a little, down a little...
Two Irish nuns have just arrived in USA by boat and one says to the other, "I hear that the people in this country actually eat dogs."
"Odd," her companion replies, "but if we shall live in America, we might as well do as the Americans do."
Nodding emphatically, the mother superior points to a hot dog vendor and they both walk towards the cart. "Two dogs, please," says one.
The vendor is only too pleased to oblige and he wraps both hot dogs in foil and hands them over the counter. Excited, the nuns hurry over to a bench and begin to unwrap their "dogs."
The mother superior is first to open hers. She begins to blush and then, staring at it for a moment, leans over to the other nun and whispers cautiously: "What part did you get?"
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