100% LTV Credit Union Programs, but Some Common Ground With Banks; Borrower Surveys
How about some historical perspective to help LOs learn a little history on assumable loans? I recently received this note: "FHA and VA had assumable loans back in the day. All you did was sign the assumption form and pay $300 or transfer everything. The original borrower was not released from liability, and the vet did not regain VA eligibility until that loan paid off. In the past Fannie/Freddie never had assumable loans for fixed product - the ARMs were assumable to a qualified borrower as long as it remained an ARM. The ARM loans that could be fixed after a time were not assumable once the loan became fixed. A "due on sale" clause was up to the lender, although in some states this is prohibited. This stuff was a hot topic back in the 1980s when rates were so high. I remember calculating ARM loans and if the maximum rate did not exceed 10% it was considered a pretty good loan. The original 1 year ARMs were called CHARM loans. Lord, they were horrible but we were able to keep real estate moving and loans moving when the prime rate was 22% and fixed mortgages were 18%."
And this from Ken Jones on renegotiations: "This is to the wholesale AE taking shots from the brokers about whether or not his company hedges, I usually respond, 'Last time I checked you can only compete on a few things....product, price, or service. Since we all have the same products that leaves price or service. We don't compete on price, because as we all know, that is the death spiral. So this leaves me to compete on service. Now if I deliver really good service I'm pretty sure the customer will stick with me through price cycles...at least that's what all the survey statistics validate. In fact, most customers are actually willing to pay for exceptional service and trust.....that is why they shop at Nordstrom's, buy a Lexus, or stay at the Ritz. My goal is to provide you outstanding service which in turn creates a positive experience for your borrower. Have you considered conducting formal service/quality surveys with your clients to find out what they really think about your company? If you stay focused on doing what you do best as a broker, that is generating more prospective borrowers, I promise you we'll always have a competitive price and enable you to deliver exceptional service to your clients. Absent of this agreement, it's not a win/win for you and my company"
Sometimes it seems like I can't eat a meal or fill up my gas tank without taking a survey about it. But a home loan is a big deal, and companies should care about their service. Speaking of the borrower's experience, the STRATMOR Group has recently launched MortgageSAT, a product that allows lenders to measure borrower satisfaction with the mortgage process, and allows participating lenders to benchmark their scores and take action to improve them. MortgageSAT is a portal of what the consumer actually thinks about the process. It even lets you figure out what is impacting the results and what to do about it. Click here for more information.
It is good to know what borrowers think about a lender. And we found out recently what mortgage brokers (through the NAIHP) think about the USDA when this press release came out: "USDA Denies Mortgage Brokers Equal Compensation." "Fourteen months ago, the USDA rolled out their Rural Refinance Pilot Program. This program was designed to reduce underwriting conditions, allowing more borrowers to refinance into lower rates. USDA also made provisions in this program to reduce the expenses associated with refinancing. Specifically, the origination fee charged to the borrower could not exceed 1% of the total loan amount, whether borrower paid or lender paid. NAIHP immediately recognized the 1% cap on originator compensation targeted mortgage brokers. As a result, our team began working with the USDA to create equal compensation for all originating entities. Before meeting with the USDA in Washington last week, NAIHP President Marc Savitt wrote to the USDA concerning this issue. The following is from the association's email: "It's my understanding USDA wants to keep the settlement costs for borrowers as low as possible. We're in agreement. However, it appears every originating participant, but brokers- receive their normal fees. For example, USDA still receives their 2% upfront guarantee fee, and monthly fee. Creditors are allowed to charge the borrower additional fees for smaller loan amounts and/or lower credit scores. Settlement agents still receive their regular fees. Moreover, I'm sure you're aware- in addition to the 1% origination fee, correspondent lenders and creditors are permitted to receive additional compensation by service release premiums (SRP). Brokers are prohibited from receiving dual compensation. It appears reducing consumer costs only applies to broker originators."
The release went on. "The NAIHP was disappointed to learn the USDA decided against eliminating the 1% origination fee cap. As many broker originators are unwilling to participate in this program, due to their inability to earn a profit, removal of this cap would have created greater originator competition, thereby reducing consumer costs. 'Once again, mortgage brokers are the victims of government picking winners and losers. Besides the Pilot Program's disparate guidelines, brokers are prohibited from receiving dual compensation. This is the same dual compensation deemed unfair and deceptive by the CFPB, as justification for banning brokers from receiving yield spread premiums, but apparently not unfair and deceptive enough to ban creditor SRPs,' said Savitt."
And the discussion about LOs and Realtors won't go away. John Hudson with Premier Nationwide Lending writes, "For what it is worth, in a meeting last year with Carol Galante and her top staff on behalf of NAMB, we asked directly about broker LO's also working as realtors. They said, point blank, 'We are only concerned with direct endorsed lenders...however, we do recommend wholesalers do their due diligence with originators they do business with...'"
And on the topic of banks, credit unions, and the tax free status of the latter, K.G. from Texas writes, "There is another side to the taxation issue for credit unions and banks. There are about 1700 community banks in the US that are S corps. They pay no taxes at the corporate level and essentially have the same tax status as credit unions. There are lots of other restrictions on credit unions - access to additional capital being the most challenging. Credit unions are free to change their charter to become community banks and banks can become credit unions so my thought is that each organization should choose the right structure for their respective members/shareholders/customers. I spent the first 30 years of my career in banks or wholly owned mortgage banking subsidiaries and only came to the credit union industry 3 years ago. I'd suggest that true community banks and credit unions have far more in common than either side would think and perhaps we should stop this discussion and focus on larger issues, such as the crushing regulatory burden imposed by our friends at CFPB."
Well, it just so happens that the American Banker recently ran a story about "Banks and credit unions have finally found common ground - they both loathe the Consumer Financial Protection Bureau." Neither community banks nor credit unions think they should be subject to CFPB regulations, and representatives are letting Congress know it. The National Association of Federal Credit Unions supports the National Credit Union Administration's attempt to overrule or delay any CFPB regulation, and to require the CFPB and NCUA to perform a "look-back, cost-benefit analysis of all new rules." As one executive noted, "It is not one single regulation that is creating this ever-increasing burden - rather [it is] the tidal wave of new rules and regulations." American Banker wrote, "James Ballentine, chief lobbyist for the American Bankers Association, was open to those proposals. However, if credit unions get those breaks, small banks should, too, he said. 'To the extent there is going to be a level playing field, we would agree to that,' Ballentine said in an interview. 'But to say banks should perhaps have this level of regulation and [credit unions] shouldn't, we certainly would not agree to that.' Further, Ballentine said that credit unions and banks, despite their longstanding animosity toward each other, could cooperate to fight CFPB regulations.
But some credit unions, evaluating the risk of their own members and servicing portfolio, are making headlines by offering 0% down mortgages. And the rest of the industry, still smarting from the backlash against such loans, is wondering what the implications will be for the competitive landscape.
Turning to the markets, last week's action-packed news schedule served to remind us that the U.S. economy, and that of many other economies around the world, is experiencing "slow growth." And experts remind us that we don't want negative growth (that would certainly help rates, but at what cost?) nor a big jump in economic activity (no doubt pushing rates much higher). Slice and dice it however you see fit, the April employment report signaled that job growth continued but at a moderate pace. Personal income and spending data further indicated a weakening underlying trend in consumer spending, a view that was reinforced by the slower pace of auto sales in April.
This week is slim on scheduled news - in fact, aside from the usual Thursday Jobless Claims, there are practically no market moving numbers. Coming in to this morning, overnight the Japan and London markets were closed for holidays. Our 10-yr., which closed at a yield of 1.75%, is seeing a bit of a rebound to 1.74% and agency MBS prices are a shade better than Friday's closing levels.
The MBA's Secondary Marketing Conference is in full swing in New York, and a glance around the conference no doubt shows a large number of mortgage bankers - none of whom are getting any younger. So...
Two old guys are pushing their carts around Wal-Mart when they collide. The first old guy says to the second guy, "Sorry about that. I'm looking for my wife, and I guess I wasn't paying attention to where I was going."
The second old guys says, "That's OK, it's a coincidence - I'm looking for my wife, too. I can't find her and I'm getting a little desperate."
The first old guy says, "Well, maybe I can help you find her. What does she look like?"
The second old guy says, "Well, she is 27 years old, tall, with red hair, blue eyes, long legs, and is wearing shorts. What does your wife look like?"
The first old guy says, "It doesn't matter - let's look for yours."