Extending Credit to Self-Employed Borrowers; FDIC Sells Delinquent Loans; Brokers Ordering FHA Case Numbers; 2nd Credit Pulls
Today is Friday, the day of the week that smaller "on the bubble" banks dread most.
What happens to the delinquent loans that the FDIC and its partner banks assume? They are sold - the most recent example being the sale of a 40% equity interest in a limited liability company (LLC) created to hold assets with an unpaid principal balance of 1,062 distressed properties for approximately $762 million from 20 failed bank receiverships. 80% of the loans are delinquent. Mariner Real Estate Partners, out of Kansas, was the winning bidder (out of 8) on this multi-bank transaction with a price of 30.93 percent of the unpaid principal balance.
As an equity participant, the FDIC will retain a 60 percent stake in the LLC and share in the returns on the assets. The FDIC offered 1:1 leverage financing and will issue Purchase Money Notes through the LLC in the original principal amount of $109 million.
In yesterday's commentary I quoted an agent who addressed the current state of extending mortgage credit to self-employed borrowers. Some agreed with the statement. Others, however...
"I agree tax cheats should not be rewarded but in reference to stated or no-doc loans, which is what this is really about, there are many people who would legitimately benefit from these programs. For example, complex loans for investors with many investment properties and renters would creates a mountain of paperwork in order to document the mortgage payment, taxes, and insurance, for each property and the rental agreements for each renter, not to mention the time and complexity involved. The added time and complexity would result in a higher rate and or costs to the borrower. So, to simplify things, the stated or no-doc loan was born, with slightly higher rate and/or costs to cover the risk but without the excessively long processing time as long as credit score and down payment criteria were met. No worry's now though, the government has made the choice for you, pretty soon you won't even have to think, you'll be protected!"
"I would like to respond to the person who said self employed persons were'tax cheats'. Many don't know what it takes to run a business, many people can't comprehend the huge amount of taxes that are paid in the way of corporate tax, employment tax, business personal property tax, FICA, and the list goes on and on. Personal tax returns at least gave the self employed some relief on their taxes through allowable and legal deductions to their income. The net income figure should not be the self employed persons figure to qualify for a loan and unfortunately many who need it most - the self employed - the backbone of this country - are being turned away. Yes some do cheat, but a blanket statement like that is not correct. "
"Perhaps this LO should understand that the tax savings (or fictitious deductions) as the LO stated are what pays the salaries of employees! Would the LO like to pay double SSI tax like the self employed business owner does every two weeks? Self employed people pay more tax than many others. I won't even touch on the "extra fee" every stated borrower had to pay just to get a loan - isn't that a "tax" too?"
Be alert! The world needs more lerts. So said a bumper sticker, but investor alerts and updates continue, it seems, unabated.
Recently Wells Fargo Wholesale clients were told about a new list of "Changed Circumstance" codes starting Monday, and that Wells will be offering reverse mortgage overview sessions for its brokers the week after next. Wells Fargo's brokers were reminded that TPO brokers will no longer have the ability to order Case Numbers via FHA Connection, and that Wells Fargo will now order FHA Case Numbers for TPO brokers. Brokers also learned that Wells Fargo Home Equity will expand CLTVs up to a maximum 80% CLTV for second homes and condominiums in Market Class 1 and 2 that meet the specific requirements below. In addition, the annual broker recertification is about to begin, and Wells is accepting electronic signatures on VA purchase agreements. 5/1 ARM's will be allowed on Wells' Super Conforming Mortgage Program, and business funds may be allowed as down payment money or to meet post-close liquidity requirements. Brokers also learned of several other changes regarding Freddie's Relief Refinance Mortgage and Fannie's RefiPlus mortgage.
For its correspondent clients, Wells adopted HUD's announcement for new CLTV requirements for R/T (or no cash out) refinance transactions. FHA Streamline Refinance program is unchanged.
PHH's clients, starting today, have different guidelines for the paying of a subordinate lien that was used to acquire the subject property. It will be permitted on a R/T refinance when the loan-to-value ratio (LTV) exceeds 80% when the borrower and client meet certain underwriting and documentation requirements. (Previously, payoff of a subordinate lien was limited to a maximum 80% LTV.) Remember that "if the second lien being paid off was not used towards the purchase of the subject property, or there have been draws against the HELOC, the transaction will be considered a cash out refinance, regardless of seasoning", standard refinance guidelines must still be met, and non-conforming guidelines remain unchanged.
PHH also updated its conventional derogatory credit information. Starting today, the requirements for re-established credit after a bankruptcy, foreclosure, pre-foreclosure, deed-in-lieu, or short sale have been updated to align with GSE requirements and current market conditions. (Non-conforming loans will follow these guidelines unless stated differently within the product description.) For example, Chapter 13 Bankruptcy guidelines are being enhanced to allow a recovery period of 2 years after a dismissal or discharge when extenuating circumstances are documented, and enhanced guidelines for pre-foreclosure, short sale, and deed-in-lieu of foreclosure now allow a shorter recovery period based on the LTV (possibly as short as 2 years). Foreclosure guidelines have been updated to reflect the requirement for a full 7-year recovery period instead of a 5-year recovery period. The recovery period with documented extenuating circumstances remains unchanged at 3 years.
US Bank Home Mortgage told its clients that instead of applying only to conventional loans, the underwriting treatment of "Purchase of Short Sales - Fee information" now applies to all products (conventional, FHA and VA). "In an increasing number of purchase transactions, USBHM is seeing property sellers engaging the services of short sale "negotiators" who will then approach the underlying lien holders and negotiate payoff figures less than the outstanding balances owed. The short sale negotiator expects a fee for providing this service and those fees are paid by the seller and/or the buyer as part of the new purchase transaction."
US Bank wholesale reminded brokers that although it is not requiring that a 2nd credit report be pulled at closing, starting Monday they will be asked to complete a disclosure form in order to protect the broker in case a borrower opens more credit between the time of application and closing. If this document is not in the initial underwriting file, the loan will not be submitted to an underwriter.
Guild told clients that it is adopting the new FHA CLTV guidelines. "The maximum LTV/CLTV on FHA rate and term (or No Cash Out) refinances with new or existing subordinate liens is 97.75%. The maximum LTV/CLTV on FHA cash out transactions with existing subordinate liens is 85% CLTV (new subordinate liens currently have a maximum 85% CLTV). FHA to FHA streamlines with or without appraisals are limited to 103% CLTV Financed Upfront MIP is not included in the calculation of the CLTV for any refinance types."
Pinnacle Capital told its brokers that the minimum trade line requirements for FHA and VA loans have been removed.
It was not a good day for rates on Thursday, and today may not be much better. MBS sellers were out in droves yesterday, selling $4 billion, and current coupon "rate sheet" mortgage security prices worsened by about .5 by the end of the day. The $13 billion 30-yr auction did not go all that well and early on we had stronger-than-expected Jobless Claims and trade numbers. Fears about looming prepayments continued to impact trading activity today - what do folks expect with these low mortgage rates? The 10-year note lost almost a point, rising to 2.76% - today we start with it sitting around 2.79% and mortgages are worse between .125-.250.
(If September 11th were on a weekday, I would not have a joke as a very, very small nod toward 9/11. I will instead publish a serious tip.)
For recognizing a stroke: Remember the 1st three Letters....S.T.R.
Sometimes symptoms of a stroke are difficult to identify. Unfortunately, the lack of awareness spells disaster. The stroke victim may suffer severe brain damage when people nearby fail to recognize the symptoms of a stroke. Now doctors say a bystander can recognize a stroke by asking three simple questions:
S - ask the individual to SMILE.
T - ask the person to TALK and SPEAK A SIMPLE SENTENCE (Coherently, i.e., "It is sunny out today.")
R - ask him or her to RAISE BOTH ARMS.
Lastly, ask the person to 'stick' out his tongue. If the tongue is 'crooked', if it goes to one side or the other, that is also an indication of a stroke.
If he or she has trouble with ANY ONE of these tasks, call emergency number immediately and describe the symptoms to the dispatcher.