Effective Risk Management Program Primer; UBS vs. FHFA; CFPB and the Insurance Industry?
Let's see the local appraiser tackle this one.
Here's one case that the mortgage industry, is watching: UBS is striving to
block a lawsuit by the Federal Housing Finance Agency (conservator of Freddie
& Fannie) over claims of losses on $6.4 billion in mortgage bonds sold to
Fannie Mae and Freddie Mac. The case hinges on whether the 2008 law
establishing the FHFA also gave the government more time to file claims against
lenders. Here are more details.
Yesterday's CFPB comments inspired some interesting notes. "I'd
like to know when the CFPB is going to turns its gaze to the insurance
business. The catch word lately is "disparate" and I
believe the insurance industry, particularly medical insurance is totally
disparate. If you work for the government, or a large corporation, you
have employer provided insurance coverage, either paid by the employer totally
or partially. If you work for a small company, or are self-employed, you
must find individual insurance coverage. The difference in identical coverage
is HUGE! Employer-based coverage is 1/3 the cost of individual provided
coverage. That is disparate. If you leave your employer, then your insurance is canceled. If you
transfer to COBRA and keep the coverage, your premium will increase 3 times,
minimum, for the exact same coverage you had. That is disparate. Someone
should point this out to the CFPB. There
are areas in Consumerville that are far worse than mortgage lending when it
comes to disparate transactions."
Mike L. from California writes, "Maybe the question we SHOULD be asking
all these lawyers writing the new regs is if they would be happy if they were
all required to charge the same hourly rate, regardless of the type of law they
practice or how long they've been a lawyer? It seems fair to me to apply
the same rules to the Regulators as to the Regulated."
Speaking of things to think about, the Fed has identified four key things
every bank should have in order to have an effective risk management program. (And
mortgage companies may-as-well have them also.) The first component identified
is to have active board and senior management oversight. They should question
where revenues are coming from, expenses are going, and why things change from
period to period. Determine the biggest risks in the bank; generate reports to
measure, monitor and manage them; and raise awareness and education to help get
more smart people around the organization to help.
Another area regulators focus on is whether or not the bank has adequate
policies, procedures and limits. Our parents told us that too much of any
one thing can be a bad thing, and banks and mortgage companies are no
different. All your loans coming from FHA streamlines? All your overhead in
payroll? The need for diversification is one key lesson from the credit crisis,
and policies, procedures and limits exist for a reason and trouble can appear quickly
and unexpectedly when they are not followed. When exceptions appear, ask why,
focus on the primary reasons driving the exceptions and determine an
appropriate course of action.
A third area of focus is on whether the bank has an adequate
risk-measurement, monitoring and management information systems. You can't
improve what you can't measure! Technology continues to change and more
than ever, regulators now expect to see board and management reports with a
decent amount of useful detail. You must be able to monitor concentrations,
understand funding sources and have some way to perform forward-looking
Finally, Pacific Coast Bankers Bank notes to make sure the bank (or
mortgage company) has comprehensive internal controls. Here, regulators will
test to see how well the internal controls are keeping pace with changes in its
risk profile and growth in relation to the external risk landscape. Challenging
budgetary assumptions as industry conditions change, closely reviewing
examination and audit reports and understanding how and where issues may arise
in general as a result of industry changes are good places to start. All
internal control functions including internal audit, risk management and
compliance should be reviewed on a regular and ongoing basis to stay on top of
areas that may need improvement.
Things are actually relatively quiet out there. Sure, the commentary
could talk about FHA problems, lawsuits, interest rates, and so on, but we're a
behind on investor, agency, investor, and MI news. So here's a chunk to
give you an idea for trends out there.
MI announced the receipt of its state license from the California Insurance
Department to write mortgage insurance.
updated its FEMA assistance eligibility requirements for
borrowers whose personal property or workplace is in an area affected by a
natural disaster. The revisions expand seasoning requirements for
documentation and property valuation, require servicers and law firms to
temporarily suspend foreclosure sales and evictions, expedite the release of
insurance funds to affected borrowers, allow short-term forbearance for a
period of up to three months without a written agreement, and permit servicers
to extend short-term forbearance based on verbal agreements. The forbearance
requirements for HAMP and Standard Modification Trial Period Plans have also
Hurricane Sandy has influenced gfee activity as well: to make things a bit
easier for borrowers, Freddie is delaying the gfee increase originally
scheduled for December 1st for mortgages sold through the Guarantor and
MultiLender Swap programs. In order to be eligible, properties must be
located in designated disaster areas and have settlement dates no later than
March 31, 2013.
As another part of the FHFA's Servicing Alignment Initiative, Freddie's
Deed-in-Lieu initiative has been updated to improve the options available to
borrowers facing foreclosure. For servicers, that means increased
incentive ($1000, up from the previous $275) and expanded authority to approve
Deeds-in-Lieu. The guideline changes also require servicers to conduct an
interior inspection no more than two days before the Deed-in-Lieu is executed
and have their performance measured against their state's Freddie foreclosure
timeline. The Borrower Response Package, eligible hardship verification,
and borrower contribution requirements for borrowers with FICOs of less than
620 who are delinquent 90 days or more have been removed. In certain
cases where the subject property is the borrower's primary residence and they
aren't required to make a financial contribution towards the debt, relocation
assistance of up to $3,000 has been made available.
In compliance with Washington state law, Wells Fargo correspondent is
permitting sellers to submit a title company Trust Certification in place of an
Attorney's Opinion letter and copies of trust documents for transactions that
involve living inter vivos trusts.
Wells has updated its non-conforming fixed-rate and ARM price adjusters, which
will apply to all Best Effort registration and Best Effort locks on and after
November 19th. The changes don't affect other non-conforming adjusters.
The document formerly known as the Tax Information Sheet (Form 16) has been
incorporated into the Wells Loan Submission Summary; as such, sellers will no
longer need to fill out a separate Form 16.
Citi has identified Verbal Verifications of Employment to be one of the
most common sources of pre-purchase suspense items and post-purchase
defects. As such, clients are reminded that the VVOE must be carried out
no more than 10 days before closing for wage earners and that verification
sources, if necessary, should be updated as soon as possible to make sure that
For properties located in counties designated as having been impacted by
Hurricane Sandy, Flagstar is requiring that same servicer HARP loans
insured by MGIC, Radian, or RMIC be re-inspected. This includes
properties in Orange, Putnam, Sullivan, and Ulster Counties in New York, the
four of which were recently added to Flagstar's list of disaster-affected
Flagstar Jumbo loans that are currently being processed are also subject to new
hurricane-related guidance. All properties with an appraisal effective
date of October 26, 2012 or before will require an internal and external
inspection that includes photographs, a map, and a narrative description of any
damage inflicted, as well as commentary on the condition of neighboring
properties as it pertains to the subject property's marketability. Those
properties with an appraisal effective date after October 26th won't require a
full re-inspection, but an appraiser must note any damage, necessary repairs,
and the general condition of the neighborhood.
Several changes to the Flagstar Jumbo program went into effect with loans
submitted this last week, including a requirement that program refinances must
have the appraisal included at the time of submission. For properties
valued at $1 million and higher, appraisers are required to have a Certified
General License, while properties valued at less can be appraised by either a
Certified Residential or Certified General appraiser. Brokers should
consult the list of approved AMCs in the Flagstar Sellers Guide, while
correspondents should choose between PCV, Murcor, StreetLinks, and iMortgage
for their Jumbo appraisals.
Everbank has revised its policy for pricing re-locks that are less than
60 days expired. In cases where the current market is worse than on the
original lock effective date, worst case pricing applies for a one-time
re-lock, while loans are eligible to re-lock for 25bps for a maximum of 30 days
if the current market conditions have improved. Clients are reminded that
loans must be "Approved with Conditions" status or beyond in order to re-lock
and that they are allowed one re-lock at a maximum of 30 days. Extension
requirements remain unchanged.
Yesterday was another quiet day in the markets, and so far today is shaping
up to be the same. Much of it comes down to, as it always does, supply and
demand: on the supply side, mortgage banker selling was below $2.0 billion, and
on the demand side, the Fed's daily average appetite is over $3 billion. Those
folks on Wall Street who think about these things expect the Fed to buy through
QE3, $500 billion in MBS outright with another $250 to $300 billion through
paydowns received from its Agency MBS and debenture holdings while organic net
issuance is predicted to be negative to modestly positive. Sounds like
paradise for LO's and mortgage companies for most of 2013!
Oh, but wait, we still have the fiscal cliff, once again demonstrating
why the public's opinion of Congress is so low, and headlines from Europe. But
overnight we saw that Euro-zone finance ministers and the International
Monetary Fund have broken deadlock over how to reduce Greece's long-term debt
to a level that the country can pay it back. Major creditors agreed to a long
list of measures that could reduce Greek debt to 124% of gross domestic product
Turning to rates, yesterday the U.S. 10-yr improved by .250 in price and
closed at 1.67%, and MBS prices were also better by .250. How much of that made
it onto rate sheets remains to be seen, given higher overhead costs and setting
aside reserves for future liabilities.
Today we've had the volatile Durable Goods number (October). It was
expected at -.1% from +9.8% last month but came in at unchanged with a revision
to last month to +9.2%. Later we have the S&P/Case-Shiller Home Price Index
(expected higher, with its two month lag), Consumer Confidence (also expected
higher), and the FHFA's House Price Index (also expected higher). We also have
a $35 billion 2-yr note auction today. In the early going the 10-yr is unchanged
at 1.67% and MBS prices are as well.
Let's go to the way back machine for this TV clip. "Well you see, Norm, it's
like this...A herd of buffalo can only move as fast as the slowest buffalo. And
when the herd is hunted, it is the slowest and weakest ones at the back that
are killed first. This natural selection is good for the herd as a whole,
because the general speed and health of the whole group keeps improving by the
regular killing of the weakest members. In much the same way, the human brain
can only operate as fast as the slowest brain cells. Now, as we know, excessive
intake of alcohol kills brain cells. But naturally, it attacks the slowest and
weakest brain cells first. In this way, regular consumption of beer eliminates
the weaker brain cells, making the brain a faster and more efficient machine.
And that, Norm, is why you always feel smarter after a few beers."