Maternity Leave Loans; Branch & LO Comp Under QM; Implications of a Conventional Loan Amount Cut
Given the change in the MBA's logo, David Frase writes, "I love the new MBa logo! It emphasizes the loss of 'capital' experienced by our industry this season." Plenty of banks and mortgage banks don't want to lose the capital they accumulated in 2012 and the first half of 2013, and are cutting FTEs. The latest example is Citigroup, which will reportedly cut about 1,000 jobs in its mortgage business (760 in Las Vegas, 100 in Irving, TX, and a scattering elsewhere. The job cuts represent about 8 percent of Citigroup's workforce in its mortgage division, which has about 13,000 employees. When you add that to Wells' 4,800, Chase's 1,800, and BofA's 2,100 announced cuts, plus the thousands from other lenders, you're talking real numbers.
Bill C. writes, "Rob is it allowable for a branch manager to paid commission on loans produced and a % of the monthly profit?" Gee, one would think so - aren't most other industries in the world compensated based on that? But nope! Attorney Ari Karen answers, "No. Further, starting in January, no branch manager will be able to receive profit off the loans of the branch regardless of whether he/she originates."
In fact, many LOs are wondering just how much they will get paid once the new CFPB rules on points and fees in Qualified Mortgages take effect. Alternatively, many of my readers who are responsible for paying their loan officers, are wondering just what they can pay them to remain competitive and without attracting sanctions. Needless to say, nothing quite focuses the mind like a threat to income! Because of this, you may be interested in knowing that the Community Mortgage Lenders Association ("CMLA") and American Mortgage Law Group ("AMLG") will be hosting a complimentary webinar on this very topic and which is scheduled to be given this Thursday at 11:00 am PST / 2:00 pm EST. If interested in attending this complimentary webinar, you can contact attorney James Brody to learn more (email@example.com) or simply register now.
I am not an underwriter - it has become way too complex for me, and frankly I don't know how they keep up. But one question that seems to come up occasionally is regarding maternity leave, and this may fall more into the Fair Housing category. Are lenders violating statutes by requiring new mothers, out on Maternity Leave, to return to work before giving them their loan? After all, many lenders say they have overlays for needing a paystub showing that the mom or dad has returned to work. But there are plenty of compliance people who will tell you that underwriting overlays do NOT pertain to federal law, and Fair Housing is a law. But don't take my word for it - here is a link to HUD's Maternity Leave info. And it apparently does not matter if it's paid or unpaid maternity leave. There are plenty of cases out there where lenders were fined on this issue (for example, here is one a couple years old but still applicable), and the law applies to paternity leave as well.
What is a wine fridge? It is a refrigeration storage unit that doesn't get that cold - kind of like the broken fridge in your college dorm. I bet a lot of people didn't know that. And maybe, it seems, a lot of people don't know that they can refinance. But Fannie & Freddie's shepherd - the FHFA - is here to not only help but to use some of its advertising budget in doing so, and says that as many as 2 million borrowers with mortgages backed by Fannie Mae and Freddie Mac can refinance with HARP. "There's a perception among some that you've got to be delinquent in order to have some government-sponsored program that can help you," Edward J. DeMarco, acting director of the FHFA, said in an interview. "What we want to do is correct that misperception."
(Read More: HARP is a No-Brainer -FHFA)
Any company based on refinancing (and that has found that purchase business is a lot harder to find than they thought) should be very interested. After all, the MBA tells us that refi biz is down 65% from May, and HARP applications, which account for 40 percent of all refinance activity, fell 54 percent in the same period. So depending on interest rates and home prices, the FHFA estimates that there are between 1 and 2 million borrowers eligible for HARP who are paying above-market interest rates and who have little or no equity in their homes. But many lenders never saddled up to the HARP trough, are quick to remind realtors and private bankers of that fact, so may be indifferent. To refinance through HARP, borrowers must be current on their loan payments and have Freddie Mac- or Fannie Mae-backed mortgages that were originated before June 1, 2009. Borrowers also can't have more than 20 percent equity in their homes. The program ends in December 2015. And no, there is no chatter about changing the 2009 date.
While we're on the agencies, I received this note. "Rob, over a month ago you wrote of the possibility of a reduction in maximum loan amounts by Fannie & Freddie, as dictated by the FHFA. We are hearing more about this, so it should not surprise anyone. But what will happen to FHA & VA loans?" That is a good question. Remember that those programs fall under HUD's jurisdiction, and I have not heard anything about HUD changing loan amounts. If F&F move their loan amounts down, let's say starting in January, the FHA super-conforming ceiling would be roughly $130,000 higher than the conventional ceiling. And just like the push or pull effect of conventional conforming gfee changes on volumes, a drop in loan limits would push more volume toward FHA products, and therefore create more Ginnie Mae jumbo-conforming pools (made up of high balance loans that might have gone conventional). Using that reasoning, this would be especially pronounced for loans with high LTVs, DTIs, and lower credit scores. Which begs the question, is this product that FHA wants, or that Ginnie wants in its pools? Banc of Manhattan, in a recent research piece, points out that, "One could expect that market spreads for super-conforming Ginnies will expand. This will worsen the pricing of FHA super-conforming loans, albeit not enough to diminish volumes (since many of these loans will have no affordable alternative). At the same time, a drop in conventional super-conforming production will tighten spreads on pools containing these products. We would not be surprised to see the concession for conventional super-conforming loans narrow to roughly ½ point by early 2014 from its current level of roughly 1 ¼ to 1 ½ points."
By the way, how much pull does NAR have with Fannie & Freddie? We might find out sooner than later, since NAR has sent out a public letter suggesting that the FHFA does not have the ability to change loan limits or gfees. Battle of the Titans.
(Read More: NAR Objects to DeMarco's Rumored Loan Limit Changes)
Let's play some catch up on recent lender & investor updates!
Virginia's Cardinal Financial announced that its third-quarter mortgage loan originations had declined by roughly 40% from the second quarter, and that "the marketing gain percentage for mortgages sold has decreased during the third quarter due to increasing competitive pressure related to the changing market conditions." Cardinal also said "Expense reduction and revenue enhancement measures have been and will continue to be implemented to offset the decrease in mortgage production and the decline in the marketing gain percentage," but that the bulk of the benefit of the cost declines wouldn't be realized until the fourth quarter.
Mountain West Financial has announced that closing agents no longer have to deliver ink-signed original loan documents, as it is transitioning to accept all documents in electronic format, with the exception being the original note. Ink-signed documents were accepted until September 15th, after which point signed documents and funding conditions should be delivered electronically via the loan documents upload link. The original note should still be delivered to the Collateral Department at the Redlands, CA address.
MWF has switched its Freddie Mac and Conventional 5/1 ARM caps from a 5/2/5 structure to a 2/2/5 structure.
Affiliated Mortgage reminds lenders that, following the updated FHA MIP requirements effective for case numbers assigned on or after June 3rd, the verbiage in the "FHA Mortgage Insurance Premium" section of the FHA Informed Consumer Choice Disclosure Notice issued to borrowers should align with that of HUD Form 92900-A ("Addendum to Uniform Residential Loan Application"). Worth noting as well is that the option to drop MIP once the LTV reaches 78% is no longer available for all applicable case files.
Per one report, US Bank is now accepting FHA Back to work program, wholesale and correspondent. Other top 10 lenders could very well announce their policies in the upcoming week as they allocate project resources on it. The requirements of the program make it such that there couldn't even be an application until 9/17, which is 30 days after the HUD announcement. The programs requires consumer training takes place no less than 30 days prior to mortgage application. Are you listening, LOs? Consumer training, #13-26, page 10 (out of the 15).
Bank of the Internet is now allowing manual underwriting for its Portfolio ARMs, available for transactions from $300,000 up to Jumbo products.
Western Bancorp, a wholesale and retail mortgage lender, today announced the launch of a new loan management system, LMS Xpress. LMS Xpress was released to the company's account executives and brokers, who now use the platform for wholesale loan origination. LMS Xpress was created to help mortgage originators improve productivity in today's highly regulated and rapidly changing mortgage market. The platform was designed for simplicity speed, and complete loan management from application to funding.
Freddie Mac will be updating the income documentation feedback message issued through LP to include loan-specific information customized to the exact income type in question and to eliminate the return of messages that do not apply to the subject loan's income types. The new messages will also include underwriting guidelines specific to the income type. These changes are scheduled to take effect on October 27th.
Wells Fargo reminds sellers that the fees all loans represented and warranted to comply with Regulation Z of TILA must be properly disclosed to borrowers. Loans for which the APR and/or finance charge are under disclosed due to the omission of prepaid finance charges are at risk for being ineligible for purchase. For a list of fees that should be disclosed, refer to Newsflash C13-047.
Atlanta has a new metric for measuring the health of the Atlanta residential real estate market, thanks in part to Georgia's largest non-bank mortgage lender Southeast Mortgage. The "Cal-Culator report" will be distributed to media outlets prior to being published on Southeast Mortgage's Thought Leadership blog on SaportaReport.com, Atlanta's authoritative civic website. The monthly Cal-Culator number rating will be based on a variety of factors including mortgage rate trends, single-family housing starts, the inventory of Atlanta homes, consumer confidence and the Atlanta economy. Staff will be consulting numerous sources, such as the S&P Case-Shiller Home Price Indices, Atlanta's On Numbers Economic Index, the Conference Board Consumer Confidence Index and more. The Cal-Culator for August 2013 can be viewed here.
There seems to be enough going on without worrying about rates, and sure enough, there was not much happening in the markets Monday although bond prices did improve slightly. Traders continue to report that supply from mortgage bankers is slow - everyone is in the same boat, and everyone is squeezing their margins to go after business that just isn't there. (And by the way, it isn't only at the corporate level where margins are coming down - regions, branches, and LOs are all being asked to contribute.)
Today we have some minor economic news, which, given how quiet it has been, might just move the markets. At 6AM PDT we have the FHFA home price index (expected higher to 8.0 vs. 7.8 last) as well as S&P Case-Shiller HPI (12.4 vs. 12.1 prior). At 7AM PDT is September's Consumer Confidence (expected to drop), and later is a 2-yr note auction ($33 billion) at 1pm and a couple of speakers from the Federal Reserve. For numbers, the 10-yr closed Monday at 2.71% and in the early going we're down to 2.69% with agency MBS prices a shade better.