This morning we learned from the MBA's poll of 75% of retail lenders that residential mortgage applications in the U.S. rose last week as refinancing activity climbed by the most in two months. The overall index was +2.6%, the first advance in a month, although the MBA also released data for the week ended Dec. 27, which showed the index decreased 4.2 percent to the lowest level since December 2000. The gauge of purchase applications fell 0.5 percent after rising 2.4 percent the week before. The measure of refinancing climbed 4.6 percent after decreasing 8.9 percent in the previous period. (Refi biz is still running at about 63% of total apps.)

(Read More: Mortgage Applications Rise Just Slightly from 12 Year Lows)

Three days until QM - and hopefully it will be a non-event for lenders since we've had so much advance notice. Senator Elizabeth Warren, in fact, believes that the new rules will help buyers. But lenders remain unconvinced, and time will tell.

The MBA is certainly keeping an eye on it, as is the National Association of Realtors. It is hoped that we'll see "homebuyers access safer mortgages that meet strong underwriting standards." Or so spoke Consumer Financial Protection Bureau Director Richard Cordray at an event held by NAR.  "The Ability-to-Repay rule is straightforward. It puts behind us once and for all the kind of irresponsible lending that disrupted the housing market and so badly damaged our economy, and it provides strong new consumer protections while preserving needed access to mortgage credit," he said of the rule and its Qualified Mortgage standard. To echo that, NAR President-elect Chris Polychron observed, "These regulations will go a long way to protecting consumers from receiving loans that may be inappropriate for them and gives them additional legal protections. NAR supports these changes and has provided input throughout the rulemaking process."

Not so fast, however. Cordray acknowledged concerns that the new rules could further constrain credit in an already tight lending environment. "Importantly, our rule also takes careful account of these access-to-credit issues," he said. "Those lenders that have long upheld strong underwriting standards have little to fear from the Ability-to-Repay rule. Qualified mortgages cover the vast majority of loans made in today's market, but they are by no means all of the mortgage market." Cordray explained the basic criteria for Qualified Mortgages, which cannot be made to a borrower with a debt-to-income ratio greater than 43 percent. "They also cannot have certain risky features, such as paying interest only or even negatively amortizing so that each month the consumer owes more than they did before and loans must have relatively reasonable points and fees," he said. (Remember that F&F have not, at this time, modified DU & LP regarding DTIs.)

The rule includes a 3 percent cap on points and fees, which NAR believes unfairly discriminates against affiliated lenders who have to count many more items toward fees and points than large retail financial institution, such as title insurance charges and escrow for homeowner's insurance. "The problem is that under this rule, affiliated and non-affiliated firms are treated differently," said Polychron. "It's NAR's view that this would be a disadvantage to many real estate affiliated lenders and reduce the choices available to consumers of where they can get a mortgage, and because the unaffiliated lender must still use a title company, the consumer pays the same amount either way."

At the event, Lawrence Yun, NAR's chief economist, explained the future of homeownership depends on greater access to credit. "Over the past eight years, homeownership in the U.S. has decreased while many in the growing population have turned to renting instead of buying a home. We need to ensure that good, creditworthy renters can someday have the appropriate access to credit so they can build equity through homeownership." But Barry Zigas, the director of housing policy for the Consumer Federation of America, applauded the CFPB for listening to stakeholders across the country to create a meaningful rule to protect consumers. "Consumers are finally going to be in an environment where their ability to repay a loan will be the fundamental determining factor about whether they'll get a loan or not. This is a terrific week for Americans," he said.

Let's see what those clever lenders, investors, and vendors are up to - nothing ever remains the same, right?

California's Mountain West Financial alerted clients to its Compliance Resource Portal.



Mortgage Grader announced the US Patent and Trade Office granted it a patent that describes various features of a lender compliance testing and measuring system. "On the heels of the Consumer Financial Protection Bureau's 2014 Ability-to-Repay (ATR) and Qualified Mortgage (QM) Rule requirements, Mortgage Grader will soon offer its lender compliance testing and measuring system. Mortgage Grader will offer independent, fact-based loan file reconstruction, proving that lenders accurately qualified borrowers, accurately priced loan terms to borrowers and accurately matched and offered the lender's best available credit terms with ATR and QM in mind. Borrower data is analyzed to calculate income and debts. Nothing is assumed. Pricing data and the lender's eligibility/underwriting guidelines from the same date and time are used to determine approvals or denials as well as the actual pricing for those approved loans.  Just like a math proof, there may be no better way to demonstrate whether lenders are accurately qualifying borrowers except when the reconstructed loan file figures match exactly with the original terms that the lender provided." For more information go to or contact Jeff Lazerson at

New York Mortgage Trust announced the pricing of its public offering of common stock.

As mentioned in this commentary earlier this week, members of the $16 billion PenFed will now be able to change their mortgage rate without refinancing through software developed by Mortgage Harmony.

And now Wells Fargo has created a "Swat Team" to keep its loans in-house in response to QM. In a Bloomberg story by Dakin Campbell and John Gittelsohn, Wells Fargo has assigned about 400 underwriters to originate mortgages for the bank to hold, with as many as 40 percent of the loans likely to fall outside government guidelines taking effect this week. "The bank is training the group as a way to increase lending without losing control of quality, according to Brad Blackwell, head of portfolio lending for the San Francisco-based lender. The group will review loans including those with terms that prevent them from qualifying for protections provided by the Consumer Financial Protection Bureau, or CFPB, under new rules, he said...pushing the initiative to compete for wealthier clients seeking non-conventional loans such as those with interest-only payments."

The article goes on to say, "Wells Fargo wants to give its clients more loans that can't be sold to the government-backed firms. The bank is confident the new underwriting group, which will make both qualified and non-qualified mortgages, will allow it to originate debt that doesn't meet the CFPB's safe harbor, said Blackwell. Non- qualified mortgages could be about 5 percent of the bank's total mortgage production, he said. The approach represents a change for the bank, which long made loans with the intention of selling them all. 'In the early days of our history, we were a mortgage bank: our primary responsibility was to originate and sell,' Blackwell said. 'Today we are originating for our portfolio. These are loans that we will hold for their lifetime.'" Hey, Wells, or any lender, isn't in business for their health. Here's the link.

BAML has updated its Non-Conforming guidelines to cap maximum loan amounts at $1.5m for 2-unit properties and $1m for 3-4 unit properties for purchase, rate/term, and cash-out transactions; to require nine months' reserves for loan amounts of $1m or les, 12 months' for loan amounts of$1-2m, and 24 months' for loan amounts over $2m; and to no longer consider co-ops eligible for secondary financing.  The maximum CLTV adjustor for properties in AZ, FL, and NV has been changed to 5.0 for all loan amounts up to $1.5m, and the cap structures across all ARM products will remain at 5/2/5 to align with the retail bank.  In addition, all CA ARM transactions will be subject to an additional pricing adjustment of -.25.

Green Tree has updated its guidelines to state that it will not purchase loans to principal owners or majority shareholders (25% or greater ownership) of Business Lending clients.  Additional revisions stipulate that investment property borrowers have a two-year history of rental property management within the last three years, that the LTV/CLTV/HCLTV be based on the lesser of the sales price or current appraisal value, that a Lender Full Review be provided for all primary residence existing Florida condo projects, that seller contributions to high balance primary residence and second home transactions are subject to a 3% maximum, that all foreign assets used for down payment and closing costs be deposited into a US bank account prior to closing, that all second home and investment property transaction must be arm's length, that desk reviews will not be permitted in place of appraisals, that all AUS Approve and Manual Underwrite transactions require two reported credit scores, that all disaster-related repairs be completed as required by the appraiser, and that a year-end profit and loss statement be provided if the borrower has not filed prior year tax returns.  In addition, Green Tree has clarified that written VODs and VOEs cannot serve as standalone documentation and that one month's bank statement/paystub is required for all loans regardless of AUS decision.

No one seems to be wringing their hands over Europe anymore. In fact, Ireland has re-entered the bond market for the first time post bail-out.  But why should anyone here care about "shadow banking" in China? Well, no one doubts the size of China's economy - but what about its strength? If China's economy is weaker than we thought, then the world's economy could be in the same shape - which would lead to lower rates. But I doubt anyone is hoping for a world economic slowdown.

Turning to the markets, following Monday's improvement Tuesday did not disappoint anyone waiting to lock in rates. The Fed's buying is "more than a match", as Thomson Reuters pointed out, for the originator supply that continues to be less than $1 billion per day. "This led to spreads holding tight," and helped agency MBS prices to rally about .250.

We've had the December ADP employment numbers, which have varying degrees of relevance and predictive ability. They were expected to show an increase of 200k, and came in at +238K. Later today we'll have a $21 billion 10-yr note auction, and the minutes from the December 18-19 FOMC meeting and investors will find out more on the discussion to taper and possibly how it will proceed. For numbers, yesterday the 10-yr closed at 2.94%, and in the early going today we're at 2.98% and MBS prices are worse .250.