Defense of VA Fees; Force-Placed Insurance Update; Overcoming Non-QM Loan Liabilities
the entire industry seems interested in three things: using the Federal
Home Loan Banks as a pseudo-warehouse line, jumbo deals, and
force-place insurance. Regarding this last issue, Kate Berry with
American Banker wrote an article of interest: "FHFA Should Sue Banks on Force-Placed Insurance: Watchdog".
"The Federal Housing Finance Agency should sue force-placed insurers
and large banks for inflating prices and generating losses for Fannie
Mae and Freddie Mac, the agency's inspector general says.
Fannie and Freddie suffered $158 million in 'financial harm' in 2012
alone from reimbursing servicers for 'excessively priced' force-placed
insurance. The government-sponsored enterprises reimbursed servicers for
$327 million in force-placed insurance premiums last year and for $587
million in premiums from 2009 to 2011, the report found. The 24-page
report by the inspector general recommends that the FHFA assess whether
to sue insurers and banks to recover damages. The FHFA has agreed to
complete an assessment on whether to litigate within a year. Two
insurers, Assurant Inc. (AIZ) and QBE Holdings, write more than 90% of
force-placed insurance coverage. They priced premiums paid by the GSEs
that were 79% above what was considered 'reasonable' to cover claims,
the inspector general's report found. Yet the FHFA, as the conservator
of Fannie and Freddie, never determined whether to sue to recover
damages. FHFA officials 'cited competing priorities, such as finalizing
other financial settlements, as the reason for not completing such an
assessment,' the report found. Force-placed insurance made headlines in
2011 when mortgage borrowers were hit with hefty premiums, usually after
they defaulted and went into foreclosure. The hazard insurance is
purchased by the servicer or creditor when a struggling homeowner fails
to maintain coverage on the property."
let's dig into this a little. The Federal Housing Finance Agency
Inspector General conducted an audit on the lender-placed insurance
premiums Freddie & Fannie paid on homes that have defaulted in the
past several years. In the audit, the FHFA IG found the GSEs suffered
$158M of financial harm due to excessively priced lender-placed
insurance coverage in 2012 alone. The report
states the GSEs paid $914M of insurance premiums during the years
2009-2012. As part of the audit findings, the FHFA IG recommends the
FHFA sue the servicers and insurers to recover damages related to the
excessive premiums that were charged. Those "in the know" think that if
the FHFA were to attempt to recover damages related to excessive fees on
lender-placed insurance, we should not expect any potential litigation
to be a significant hit to the large banks involved in servicing large
delinquent portfolios. But it could have a material impact on special
servicers that have a less diversified revenue base and service highly
delinquent GSE mortgage portfolios.
(Read More: OIG to FHFA: Be More Litigious Over Force-Placed Insurance)
Saturday's commentary had a note from an LO about calibrating VA fees with other programs.
I received several notes to the contrary. "What am I missing something
here? Is the originator forced to provide VA loans? If someone doesn't
like the program, don't participate in the program. VA does not say you
cannot charge, it says the Vet cannot pay. The seller, realtors, and
originators are allowed to cover any fees they want to cover. Maybe LOs
don't make as much, but the program is a good one and has been around
for a long time. The program is pretty much as it has always been. Don't
like it, don't do it."
Theresa Springer, CGA, CAPS and Senior Loan Officer and Sales Manager
with Eagle Home Mortgage writes, "All I can say to that Arkansas LO that
wrote in on VA loans today, is 'SUCK IT UP.' I write many VA loans
monthly along with my other loans and if the seller is not going to pay
those non-allowables, our company surely will without a peep, so they
can send their VA clients our way. These men and women help to keep us
free so we CAN write loans and argue with the CFPB and complain about
all our issues in a free press and do what we want in our lives FREELY. I make enough profit on my other loans to cover all my VA loans and then some very nicely, especially with selling the SRP."
Guy Keith contributed, "The 'intent' of the VA loan program is to
'help' the veteran, who has served our country and helped preserve our
freedoms at the risk of their lives, to buy a home. The
VA program is one of the rewards for their service to our country. This
is not a program to make it easier for lenders and affiliates to make
their fees. The VA
decided that they did not want the veteran to pay certain fees in the
loan process. The VA no-no came about where the veteran had no down
payment and the seller paid the closing costs which allowed the veteran
to buy a home with no money. Many
veterans coming home from military service don't have money for a down
payment. The military is not known for paying exorbitant salaries to its
soldiers. So helping the veteran buy a home needed to have something in
it to help them. Thus the VA no-no and the limitation on what the veteran can pay.
to today's home market and the VA no-no does not work nearly as well
since there is a shortage of homes compared to the number of buyers. Because
of this, sellers won't pay for anything right now. That being the case,
the only way the non-allowables can be paid it by the lender through
premium pricing. It may not seem fair to the lender, but the market
drives these things. So in the short term, the veteran pays a slightly
higher interest rate (although in some states the 1% the veteran can pay
usually is more than enough to pay the non-allowables), but the offset
is that their closing costs are several thousand dollars less. They pay a higher interest rate, but the market is driving this based on supply and demand. VA
rates are always among the lowest available and with no mortgage
insurance, even with a slightly higher interest rate to cover these
costs; their payment is lower than with any other loan program. Since a
termite report and clearance is required on all VA loans, the loan
officer needs to communicate with the real estate agent so they know
this when they make an offer. This
can definitely be an issue if the seller does not want to pay it. But
again, the termite requirement is to protect the veteran. We may not agree with some of the requirements, but if that's the case, then don't do VA loans."
Scores of lenders are contemplating doing non-QM loans.
One of the major concerns is the potential for future liabilities.
"Three companies, Strategic Compliance Partners ('SCP'), VidVerify and
Litigation Guard, have laid the groundwork for a solution to assist both
borrowers and lenders in overcoming the potential risks posed by the
new regulations. The concept, says Ari Karen, SCP's CEO and a principal
of the Offit Kurman law firm, 'is basic.' 'The major difference between
NonQM and QM loans is that new rules create liabilities on loans that in
reality may not necessarily be riskier simply because they fall into
the NonQM box. By developing a process which marginalizes and manages
that liability up front, we remove the obstacles associated with NonQM
or borderline QM loans.'
"Litigation Guard's QMReview
'closes the gaps left by traditional origination, processing and
underwriting protocols that often result in claims against lenders.
QMReview educates the borrower at all phases of the loan process,
improving the borrower's ability to properly choose a loan, and
'unequivocally ensures that borrowers understand exactly what they are
getting and why,' says Karen. It provides safeguards to ensure that
lenders and borrowers are 'on the same page throughout the loan
process.' Further, the process provides an automated residual income
analysis and decision algorithm, relying upon the borrower's actual net
income, savings, and realistic spending habits, to determine the
borrower's ability to repay. According to Karen, the innovative QMReview
process 'will not only minimize the liability for lenders - it will result in a better experience for borrowers and overall better and safer loans.'
a purely legal perspective QMReview relies upon the concept of an
independently based and alternative assessment to demonstrate a lenders'
good faith belief that the borrower can repay the loan. This assessment is performed in three distinct phases. First, there is an independent certification performed by SCP that the lender maintains sufficient compliance infrastructures. Second,
a borrower receives a series of short videos (created by VidVerify and
reviewed by SCP) that present information in an understandable manner to
assist him or her in making educated decisions and asking the right
questions throughout the loan process. Viewership
is tracked to ensure that the borrower has received and reviewed the
information. Third, an automated borrower interactive residual income
analysis documents and confirms the ability to repay. It
also utilizes creates documentation that prevents potential
misrepresentations, omissions, steering, and other harms that have been
common fodder for lender lawsuits." For more information contact Chris Tiso (CEO of Litigation Guard), and no, this is not a paid ad.
over to the markets, there is no mystery about what the Fed is going to
buy in terms of securities. If you ever want to know, check it out for
yourself at the Fed's schedule.
It is pretty hard to attribute any market move to the Fed's activities
when it publishes, in advance, what it is going to buy! The question is
more like, "Will originators and MBS holders lock/originate/sell what
the Fed wants to buy?"
do have a lot of news this week, along with the bond markets closing
early Thursday and being closed entirely on Friday. Today we'll have the
Chicago Purchasing Manager's survey and Pending Home Sales. Tomorrow
we'll have some Manufacturing and Construction Spending numbers.
Wednesday we'll have the MBA lock numbers (just ask your lock desk now
and spoil the surprise) along with the ADP employment data and
Challenger Job Cuts numbers, and Factory Orders. Thursday all ----
breaks loose! The markets are closing early, but ahead of that we have
the Trade Balance, weekly Initial Jobless Claims, and change in Nonfarm
Payrolls, Unemployment rate, and hourly earnings. Friday the 10-yr
closed at 2.53% and in the early going today we're back to 2.51% and agency MBS prices are a shade better.
readers know, this commentary doesn't focus entirely on residential
lending. In fact, today we have a commercial job which seems pretty
Financial, LLP, a Newport Beach, CA based organization continues to
expand its wholesale commercial real estate term lending platform. Specializing
in the origination of small balance ($1 - $10 million) loans on
stabilized properties nationally through its extensive broker network,
Sabal seeks Regional Managers, Loan Analysts and Underwriters
to support the company's rapid growth. The Company has created a
proprietary, innovative technology that incorporates real-time,
risk-based pricing and deal management functionality that accelerate the
loan process while improving transparency for both brokers and their
currently manages over $7.4 billion in CRE assets worldwide,
encompassing all property types and is rated by both Morningstar and
Fitch as a Primary and Special Servicer. For more information on
career opportunities with Sabal, please send your inquiries and resumes
to Kelly Garriott.
On the residential side, one of the nation's premiere mortgage companies, Gold Star Mortgage Financial Group, is interested in speaking with the industry's finest Loan Originators and Branch Managers. Headquartered in Ann Arbor, MI and expanding from coast-to-coast, Gold Star
"has become one of the fastest growing companies and top 50 lenders in
the nation. Founded in 2000 and currently operating in 21 states, Gold
Star's commitment to relationship-based customer service, cutting edge
technology and a superior operations infrastructure fuels its stability
and success. Gold Star has been recognized as an Inc. 500/5000 company,
and most recently by Mortgage Technology Magazine as one of the nation's
Top Tech-Savvy Lenders." To learn more, contact Shawn Sirko.