New Forecast for 2014 Volume; Legal Notes - Why is the ACE Securities Case Important to Correspondent Buybacks?
It looks like the industry
did about $1.75 trillion in 2013, and the Mortgage Bankers Association (MBA) lowered its forecast for mortgage originations in 2014 by $57 billion to $1.12 trillion for the year, based on declining mortgage application activity and increasing interest rates. The
current forecast of $1.2 trillion would represent the lowest level in
14 years, and not that my gut is ever right but if I had to pick an
"under or over" I'd pick numbers for 2014 coming in under that.
It will be, of course, interesting to see how QM versus non-QM shakes
out. If a small lender ends up with an unintended non-QM loan on their
books, that is a much larger hit on a relative basis than a bank which
can add it to their portfolio - and thus smaller lenders are more wary
than they've ever been before about lending.
At this point, every lender out there has some story about buybacks, lawsuits, or settlements. According to the New York Times, Wall
St could pay as much as $50 billion to settle outstanding mortgage
lawsuits. A recent settlement by one of Wall St's largest banks has now
become the template by which people are judging the industry's total
possible liability. "A
payment of $50 billion, made up of a string of separate deals, would
amount to roughly half the total annual profit of large American banks
The MBA filed an amicus brief in the big Ace Securities case decided recently.
This was an important issue for MBA to weigh in on, both for precedent
value and because many PLS agreements are governed by NY law. If upheld, this case will be especially important for smaller, correspondent lenders
who sell to investors and would otherwise have to worry about receiving
repurchase demands years and years into the future rather than the
period specified by contract.
To go into a little more detail on this, I'll admit that I sometimes mispronounce the word 'statute' when used in conjunction with 'limitations'.
I'll also admit that, in a legal sense, I'm not an attorney, and
technically, am not licensed in any of our 50 states...mainly because I
never went to law school. So it's a good thing we have the American Mortgage Law Group to keep us apprised of mortgage litigation. In a recent ruling by the New York State Supreme Court, Appellate Div., addressing ACE Securities Corp v. DB Structured Products Inc, and is a significant ruling in the long running statute of limitations between correspondents and investors. AMLG write, "The
ruling held that the statute of limitations on loans delivered to
investors begins to run at the time of execution of the contract between
the parties, when any breach of the representations and warranties
contained therein occurred." Investors have been claiming that a
correspondent's refusal to repurchase a loan or indemnify the investor
was a subsequent breach of the agreement between the parties, which
therefore commenced anew the running of the statute of limitations. The
Court in ACE Securities Corp has held otherwise. AMLG continue, "According
to Justin Wiseman, Associate Regulatory Counsel for the Mortgage
Bankers Association, this ruling will hopefully put to bed some
lingering repurchase liability pending a possible appeal to the New York
Court of Appeals." Back in November the MBA filed an amicus brief
that supported the proposition that the statute of limitations should
run from when the representations are originally made. While the ruling
is limited to matters involving New York law, the case has been followed
by many in the industry.
are many factors in lending which enable the secondary markets to work:
sound underwriting practices, accurate cash flow models, borrowers
making timely payments. I would argue 'appraisals' should be right at
the top of that list too. I continue to be asked about this, so remember
that the six federal financial regulatory agencies issued a final rule
that creates exemptions from certain appraisal requirements for a subset
of higher-priced mortgage loans. The appraisal requirements for
higher-priced mortgages were established by Dodd-Frank, and under the
act, closed-end mortgage loans are considered to be higher-priced if
they are secured by a consumer's home and have interest rates above a
this rule it requires creditors to obtain a written appraisal based on a
physical visit of the home's interior before making these loans. The
final rule provides that loans of $25,000 or less (along with certain
"streamlined" refinancing) are exempt from the Dodd-Frank Act appraisal
requirements, which go into effect on January 18, 2014. But what about manufactured housing, you ask?
Well, for manufactured homes, which I've been told can present unique
issues in determining the appropriate valuation method, the requirements
for manufactured home loans will not become effective for 18 months as
to allow creditors to make the necessary operational adjustments.
Starting on July 18, 2015, however, loans secured by an existing
manufactured home and land will be subject to the Dodd-Frank Act's
appraisal requirements. Loans secured by a new manufactured home and
land will be exempt only from the requirement that the appraiser visit
the home's interior. For loans secured by manufactured homes without
land, creditors will be allowed to use other valuation methods without
an appraisal, such as using third-party valuation services or "book
values." The complete 283 page supplement to the final rule can be found
on the Federal Register.
Keeping on with new requirements and worries for compliance and underwriters, let's catch up with some recent investor bulletins. As always, read the actual announcement for full details.
issued a correction of the earlier bulletin that removed the limitation
on the number of financed properties a borrower may own when locking
under the Preferred Non-Conforming Fixed Rate and LIBOR ARM products. The previous maximum of four financed properties is now back in effect for all loans that are approved after January 10th.
US Bank has
added the Elite LIBOR ARM series and 10/1 Interest Only ARM products to
its Extended Lock program, will no longer be accepting non-applicable
fee options, and has changed the pricing of the 240 Day Extended Lock to
the 60-day price on the rate sheet plus 75bps. The changes went into effect January 8th.
updated its Power of Attorney guidelines to state that the borrower
must sign the initial loan application unless he/she is in the military,
in which case POA must be used in accordance with the VA Lender Handbook. In
addition, POA cannot be used to sign loan documents if no other
borrower has executed such documents unless the attorney is a relative
or attorney at law. All
loan files delivered to PennyMac must include a written statement
explaining the use of POA, and lenders may be required to provide
supporting document as well. The Sellers guide has also been updated such that cash-out transactions containing a DU decision are no longer eligible for purchase.
has released an addendum to its previous QM and ATR bulletin clarifying
that the amount paid to and retained by any affiliates of the creditor
must be included in the Points and Fees ("Net Amount") calculation and
that such charges may be reduced by a lender credit or credit for rate
Net Amount will be included in the verification of Points and Fees
where documentation such as invoices can be provided; if documentary
evidence is not available, PennyMac will include the entire amount from
the HUD-1 settlement statement paid to the affiliate of the creditor. Non-origination-related
fees paid to the broker or an affiliate of the broker should not be
included in Points and Fees; these fees may include administrative tasks
unrelated to taking a mortgage application or negotiating credit terms
and real estate broker activity.
immediately, PennyMac will begin procuring trailing documents on the
client's behalf for all loans that are 60 days delinquent or more. The
standard $100 per document fee will be applied, and once this is paid,
the trailing document team will procure the necessary documents
is now accepting photocopied recorded security instruments for
properties in all states apart from CO, CT, FL, IA, LO, NJ, NY, and VA,
for which county-certified copies are still required.
updated its guideline requirements for properties in CA, IL, MA, and
MI, for which it is no longer permitting trusts, 20-year loan terms,
loan amounts under $50,000, FHA loans with CLTVs over 100%, or cash-out
and Streamline FHA transactions. For
properties in Massachusetts, the maximum LTV for VA loans is now 90%,
and Manual Underwrites and Conventional LP loans are no longer eligible
Turning briefly to the markets,
yesterday prices worsened, and experts blamed it on the
stronger-than-expected Retail Sales number and a pick-up in MBS selling.
(Per Thomson Reuters, "'real money', REITs, fast money and servicers
sold more than US$2 billion, primarily in 3.5s and 4s, while originator
supply was in excess of US$1 billion. In total, it was more than what
the Fed could absorb." Heck, remember the old days when the Fed wasn't
morning we've already had the MBA's applications numbers, and
apparently there were some pent-up apps: the overall index rose 11.9%
for the week January 10th after rising by 2.6% the week prior. Refinance
applications were up by 11.2% (its largest week over week increase
since September 13, 2013). Purchase applications were also up by 11.5%.
Refinance applications as a percentage of total applications lowered
just slightly to 62.3% vs 63.3% the week prior. And we've had the PPI
(Producer Price Index) figures: expected +.4% headline, +0.1% core, they
came in at +.4% and +.3%. And January Empire Manufacturing came in at
"12.51" - thought to be a little strong. Rates have nudged higher: the
10-yr. closed Tuesday at 2.87% close, and now we're at 2.88% and MBS
prices are worse a shade.