New FHA MIP Structure to Slow Streamlines; Appraisal Adjustments; GSE MBS Issuance in July; FDIC Transparency; Update on Non-Agency Paper
I was talking to a correspondent rep yesterday, and he said, "I just got the best question from a client. The client (not a mortgage banker or broker) asked, "Hey, we have a borrower that up until now has been using a social security number that was 'not issued by the Social Security Administration'. They now have a green card and a valid SS number - can we go back and transfer the old income on the invalid SS# for the last few years in qualifying the borrower for a new loan?"
Ha - you just can't make this stuff up.
I realize that it is almost September, but it is interesting to see what the agencies did for MBS issuance in July. Fannie Mae issued over $42 billion in MBS, up 6.4% from June, and the highest level of MBS issuance since February. Freddie, however, dropped slightly from June to July at about $26 billion, possibly due to a drop in the purchase of refi's. Fannie reported that the serious delinquency rate (90 days or later) on its guaranteed single-family mortgages was down for the 4th month in a row, and fell below 5% for the first time since October 2009. Freddie's serious delinquency rate on its guaranteed single-family mortgages fell once again, remaining below 4% for the second consecutive month.
HUD reported that FHA-to-FHA refinancing applications were up 58% from June to July. The implications of this for investors is that they are starting to see divergence between the application data that is released by FHA every month versus the MBA applications data, which is interesting in that the FHA publishes actual application data while the MBA publishes results based on a survey. One change that may impact this is the UFMIP and MIP change regarding the rule that the borrower's total payment must be reduced in order to qualify. New MIP fees go into effect on October 4th. READ MORE
One reader wrote, "This change will increase the borrower's payment by a net $60 which will make it difficult for most of the borrowers to qualify on an FHA streamline. On a streamline you have to reduce the borrower's total payment (including escrows and MIP) by 5% in order to qualify the borrower. After the change 35 out of 100 will qualify compared to 70 out of 100. In other words, currently we can lower someone's interest rate by 50bps, save them approximately $80 a month and they would qualify. Now we have to add an additional $60 (this is on average the increase in MIP) to the $80, totaling $140, which means we have to lower their rate by at least 1% to qualify. This will cut out a large part of the market and deny consumers the ability to lower their payment. On a VA the rule only applies to P&I (excluding escrows) which makes sense."
Another writes, "The goal of HUD is simple: they want borrowers with lower DTI ratios. This is not late-breaking news - we are seeing the same thing with agency loans as DTI across the board seems to be slowly converging on 45% whereas it was formerly just limited to DU/LP findings, often going up to 60%. LP was at a 55% cap and I think still is with some lenders, but that may be changing soon."
As part of the implementation of the Dodd Frank Wall Street Reform and Consumer Protection Act, the FDIC announced a series of roundtable discussions with external parties. The first discussion is today and will focus on the new resolution authority provided in Dodd-Frank for the largest financial firms. "Government officials, industry executives, academics, and investors will discuss the framework of the resolution process, the treatment of creditors and the creation of living wills. Subsequent discussions will be announced HERE." If you don't already have an invitation, you won't be able to participate, and saying "it was lost in the mail" probably won't work. But feel free to listen in HERE
The FDIC has also issued the public list of institutions that it has scheduled for a CRA examination during the fourth quarter of 2010. To see if your favorite bank is on it, go to THIS site and follow the links.
Last Friday I discussed how the non-agency biz was evolving. One company, as it turns out, is responding to the lack of liquidity and secondary market outside of the GSE's. Capital Solutions Group specializes in non-conforming mortgages for borrowers with the ability to repay and offers a dependable source of liquidity for both brokers and borrowers. On top of that, the company is even accepting investors and offering 10% to 20% yields. Interested parties can contact Rod Colombi at email@example.com regarding potential loans and/or investment information.
(And no, this is not a paid announcement. CSG may be going back to the way non-agency loans were done 15-20 years ago. "For owner occupied homeowners the product is usually a 30-yr fixed or 30-yr, fixed for 7, IO/ARM that is fully amortizing with LTV's less than 65% and the borrower must demonstrate the ability to make the loan payment. They have to be able to repay the loan. We will evaluate all sources of documented income from W-2's to bank statements, tax returns, partnerships, etc - no stated income nor high cost loans. For non-owner loans we focus more on bridge products with terms of less than 2 years. For non-owner occupant borrowers we will also focus on ability to pay, bank statements, ability to sell other properties or assets, cross collateralizing, etc. FICO scores are a factor but not the driver, and each loan and situation is evaluated individually.")
Last week I also mentioned current business conditions for mortgage bankers and brokers. One wrote, "If a wholesale company, calling on brokers, doesn't have substantial volumes coming in their door, they either have a rate or a performance/turn-time issue. The good wholesalers are all 2-3 weeks for underwriting. As for us, starting about 3 weeks ago we're swamped and can't keep up."
Kenneth Harney recently wrote a piece focusing on deals falling out because of a low appraisal. "Lenders unilaterally may be lowering the numbers on the appraisals submitted to them in order to avoid accusations that the loans they sell to giant investors Fannie Mae or Freddie Mac are based on inflated appraisals - even slightly inflated. Such value inflations can expose lenders to dreaded "buyback" demands, forcing them to repurchase loans at huge costs." But starting tomorrow Fannie Mae is prohibiting lenders who sell it loans from changing appraisers' numbers - lenders must contact appraisers to "resolve" any disagreements about the valuation. "If that's not possible, they should order a second appraisal - not just chop the value supporting the real estate contract." Freddie has yet to weigh in.
Yesterday I said that "Flagstar alerted brokers doing business in North Carolina that starting Wednesday the state points and fees percentage limit for North Carolina will be lowered to 4% (currently at 5%)...Please note that FHA MIP, VA funding fee, and PMI are currently included in North Carolina's points and fees calculation." A reader noted that only 1.25% of any funding/guarantee/UFMIP related to a government loan product will be included in the 4%.
Fairway Independent Mortgage Corp. will be entering the nationwide wholesale market for select banks, credit unions and brokers. The company did over $3 billion last year, and the group that will be running its wholesale division is from Union Federal Bank and MidAmerica Bank. "As the mortgage industry continues to rebound, we see a fantastic opportunity for us in the wholesale market," said CEO Steve Jacobson.
Everyone knows that interest rates fluctuate, but the last several business days have drilled this home. It doesn't help when you combine major economic news with light volumes and thinly staffed trading desks. Friday saw a lot of volume, and bond prices dropped. Yesterday, however, the supply dried up, and economists began to pick apart options that the Fed has to improve the economy. Ongoing worries regarding domestic and global growth sent equities lower and Treasuries higher. After all, housing is still very sluggish, even with these great rates, as evidenced by the Existing and New Home Sales figures last week. If the borrowers or property don't qualify under current guidelines, what difference do rates make? And if consumers don't have jobs, they can't really go out and spend money to boost the economy.
(One thing to note in yesterday's Personal Income and Personal Consumption numbers was the change in the savings rate here in the US. - it was revised down in June, and dropped even more in July to 5.9%. While higher savings will allow consumers to improve their balance sheets, a moderately lower saving rate could indicate a pickup in consumer spending - unless it is because more folks are jobless.)
A Red Sox fan, with two ice chests full of lobster, was stopped by a game warden in the bay off Chatham. As he was leaving a cove well-known for its lobsters, the game warden asked the man, "Do you have a license to catch those lobsters?"
"No, sir", replied the Red Sox fan. "I ain't got a license heah. You must understand, these are my pet lahbstahs."
"Ay-yah! Every night, I take these lahbstahs down to the bay and let 'em swim 'round for awhile. Then, when I whistle, they jump right back into these ice chests heah and I take 'em home."
"That's a bunch of hooey! Lobsters can't do that."
The Red Sox fan looked at the warden for a moment and then said, "It's the truth Mr. Government Man. I'll show ya. It really works."
"'O. K.", said the warden. "I've got to see this!"
The Red Sox fan poured the lobsters into the bay and stood and waited. After several minutes, the warden says, "Well?"
"Well, what?" says the Red Sox fan.
The warden says, "When are you going to call them back?"
"Call who back?"
"THE LOBSTERS!"' replied the warden.
"What lahbstahs?" replied the Red Sox fan.