TARP Update; FHFA REO News; Comment on FHFA's PACE Loan Prohibition; Still Waiting for Buyback Clarity
I remember in the 1980's there were charity events to help farmers. (Farmers
care about the weather - be sure to check out the weather report at the end of
the commentary.) And now farmland price appreciation seems to be leading the
nation. Granted, there is a difference between small family farms and huge
corporate farms, but still... is a
rapping farmer from Kansas the answer? Check it out.
Yesterday the commentary had a note from the CEO of a mid-sized lender, saying
that the CFPB was the best thing that ever happened to him since it, and other
trends, had raised the bar so high that no new companies were going to enter
residential lending. But how is the CFPB's non-consumer customer service?
A broker west of the Mississippi wrote, "I thought you might find this
very interesting and telling as to the focus or intentionality of the CFPB. At
any time a borrower can call the CFPB, speak to a live person, learn to file a
complaint, ask any questions, etc. A mortgage originator, however, has no such
hotline. I understand the CFPB has a "help desk" (I use that term loosely) for
mortgage banks to e-mail and ask questions or request clarification."
The note went on. "A month ago I sent an email with a question regarding LO
comp (whether we can pay loan officers less for house leads for their own
leads) to them. I have sent three since, and have only received one response
and that was to my email on 6/20 and it was as follows: 'Hello, replies can
take a couple weeks, depending on the attorney's workload, number of questions
received and research needed to be done to answer the question - your question
will be sent to the original attorney assigned.' Ironically the California DRE
will respond on the phone within 24 hours. The CFPB should speak to them and
see how they can respond so quickly. It would seem that resources directed at
answering our questions would be very important also and assist all of us with
the interpretation of the rules." Thanks for the note!
Last week the US Treasury auctioned off its position in TARP funds for 20
banks, receiving 90 cents on the dollar. For those playing along at home, the
Treasury has made $824 million in proceeds this year - visit here for more TARP blather.
REO's? The FHFA is on it! The latest.
(Speaking of buying REO's, sometimes the question arises, "Can I refinance
a property that I bought for all cash, and take cash out?" I am not an
underwriter, but as I understand it, Fannie Mae, for example, allows a cash-out
refinance within six months of a purchase transaction when no financing was
obtained for the purchase transaction under these parameters. A) The new loan
amount is not more than the actual documented amount of the borrower's initial
investment in purchasing the property, plus the financing of closing costs,
prepaid fees, and points (subject to the maximum LTV, CLTV, and HCLTV ratios
for the transaction). B) The purchase transaction was an arms-length
transaction. C) The purchase transaction is documented by the HUD-1, which confirms
that no mortgage financing was used to obtain the subject property. The
preliminary title search or report must also confirm no liens on the subject
property. D) The source of funds for the purchase transaction can be documented
(bank statements, personal loan documents, HELOC on another property). Any
loans used as the source for the purchase transaction will be required to be
repaid on the new HUD-1. And e) All other cash-out refinance eligibility
requirements are met and cash-out pricing is applied.)
I am still asked about how the Federal Housing Finance Agency (FHFA), conservator of Freddie &
Fannie, has issued a proposed rule that would prohibit the GSEs from
purchasing loans affected by the Property Assessed Clean Energy (PACE) program.
PACE is a local government initiative designed to help homeowners finance
energy-efficient and renewable energy projects for their homes, available in 18
states and the District of Columbia. The program has homeowners repay the
government for the financing through property tax adjustments. PACE precedes
the pre-existing first mortgage in lien priority, subordinating Fannie Mae and
Freddie Mac security interests in the property, which presents a safety and
soundness concern by transferring financial risks to the regulated entities and
lacking in adequate consumer protections and standards for energy retrofitting.
FHFA's proposed rule is open for comment for 45 days from its date of
publication, June 15. To comment on this, and other FHFA initiatives, go to http://www.fhfa.gov/Default.aspx?Page=89.
Recently the FHFA, concerned that lenders are tightening standards even
for the most creditworthy home buyers, announced plans to help banks avoid
being forced to buy back mortgages. The industry (and people in general) prefers
some clarity and certainty in their lives. (Heck, I bet we could ten lenders in
a room, ask them to detail their LO comp plans, and have twelve different
plans, with half the lenders being accused of cheating - was that the intent of
the LO comp rules?) Back to the topic, the FHFA, which runs Fannie and Freddie,
will eventually detail flaws that would trigger a putback request, while also
standardizing the data Fannie Mae and Freddie Mac collect on each loan as to
have more information when buying mortgages from lenders. F&F are currently
demanding lenders repurchase faulty loans with unpaid principal balances
totaling $15 billion - that could sure put a lot of lenders out of business. Lenders
are setting up departments just to research and argue their points, with no
small success. Attorneys are hired, resources spent - and of course the costs
are passed on to borrowers.
It is no wonder that most banks are requiring credit scores on agency
(F&F and FHA/VA) loans that are between 100-200 points higher than the
minimums set by government agencies. This comes after the government-controlled
agencies demanded lenders repurchase more than $80 billion in flawed loans over
the past three years. Loan officers are citing buyback risk as a reason they
won't lend, a reason to be more conservative in originating those loans.
Stricter lending standards are restraining the housing rebound, even as the Fed
pushes down borrowing costs to record lows. Low rates are good, but they are
not the whole story. As I understand it, banks usually end up paying about half
of the unpaid principal balance on a successful putback demand, so the FHFA is
working with Fannie Mae and Freddie Mac to develop a framework that will
provide lenders a higher degree of certainty and clarity around repurchase
exposure and liability as well as consistency around repurchase timelines. The
FHFA is suing 17 banks, alleging that they misrepresented the quality of loans
in mortgage-backed securities F&F purchased for their own portfolios. Remember
that the FHA doesn't make repurchase demands because it doesn't buy loans, but
aggregators still have overlays since they have the servicing risk.
Here are some somewhat recent investor/M&A/agency updates,
providing a flavor for the environment. They just don't stop. As always, it is
best to read the actual bulletin.
Yesterday the commentary mentioned a "stated" product, which
turned out to be an incorrect statement from a loan officer. Darned LO's and
their sales skills! The company - Skyline Financial - has contacted
various publications in an effort to correct the information. In reality, "The
SkyBox Platinum Portfolio Product is designed for self-employed borrowers with
a strong credit profile, who can document ownership of an established on-going
business generally for a minimum of two years. Self-employed borrowers are
defined as individuals with a minimum of 25% interest in a business." I am not
going to list all the program requirements, but they include "OO only, Purchase
and Rate & Term Refinance (no cash-out), minimum credit score of 740,
maximum loan amounts up to $1.5 million based on LTV, 12 months required reserves
(if LTV is <55% 6 months may be acceptable), a maximum of 6 financed
properties with 6 months additional reserves for each property, and documentation
requirements of 'A full disclosure of income, assets and liabilities is
required on the application (at least one borrower must be self-employed), salaried
borrowers must be employed in same line of work for minimum of 2 years, and complete
Verbal VOE to verify borrower's length of employment is required.'"
Over in California Opus Bank will buy 10 branches from the parent
company of Pacific Western Bank for a reported blended deposit premium of
2.5%. Opus gains $145mm in deposits, while PacWest improves efficiency, profitability,
and books $2mm in after-tax cost savings.
sold a commercial property lending business to EverBank for $2.51
billion as it continues the reshaping of its GE Capital finance arm. The "Business
Property Lending" division that GE is selling has loans of about $5.4 billion to
small and midsized companies, about 1% of GE Capital's total assets. Go
EverBank Go! EverBank said it would take on GE's staff and existing
relationships and expected the unit to be able to make $1 billion of new loans
a year. For those who track these things, EverBank is backed by private equity
groups Sageview Capital, New Mountain Capital and TP Group.
As a reminder, the FHA has updated guidance to state that all
taxes must be paid in full and documented using the Mortgagee Comments
section of Form HUD-27011 Part A by the date of conveyance. Any further
documentation that verifies payment, e.g. paid receipts, should be included as
well. Hard copies of invoices and paid bill receipts should be retained
in the claim file, as these are required to be provided to HUD within a 24-hour
period if requested. Any water, sewer, and other assessment fees must be
paid off before securing an FHA-insured mortgage and conveying the property to
HUD. The new guidance also states that, in cases where foreclosure is
necessary, mortgagees must name and serve the condo/HOA in the proceedings and
then pay any outstanding condo/HOA assessments after the foreclosure sale has
been completed and before the property has been conveyed to HUD.
The amended guidance continues on to say that, with regards to conveyance,
additional documentation in the title evidence is required for all manufactured
homes, including verification that the manufactured home is attached to land,
classified and taxed as real estate, and that the title has been surrendered or
purged. All revised guidance on title approval at conveyance will go into
effect on August 1, 2012.
A clarification has been issued that borrowers with FHA-insured mortgages are
not exempted from complying with laws affecting the protection and preservation
of their properties. FHA policy doesn't supersede state and local
regulation, and approval should be sought from the MCM if the borrower wishes
to demolish a property.
Sometimes I run out of room to talk about the markets, and Tuesday,
fortunately, was pretty quiet. But traders report that it was another very
quiet and news-less night and most of the world's major stock indices are
essentially flattish Wed morning. The MBA's weekly application index
showed that apps last week dropped about 2%, with refi's down 3.4%. This was
the fourth straight week of slower times for lock desks - gosh, do you
think low rates can only help so much? Anyway, it was another overall muted
This morning in the early going we find the 10-yr nearly unchanged at
1.52%, as are agency MBS prices - so don't look for much change on the rate
sheet. There are a couple of numbers coming out this morning including
Trade Balance and Wholesale Inventories, and at 1PM EST we'll have a $21
billion 10-year treasury auction. And don't forget that the June FOMC minutes
will be released at 2PM with investors looking for any additional QE3 clues.
You'll need, and want, sound for this one.