For this upcoming weekend's cocktail party, tape 1 hour of CNBC on your
DVR, play it back during the party, and take a shot every time someone says,
"fiscal cliff." Guaranteed fun times - and a hangover!
What is not "fun times," but with the potential hangover, is the reality of the
situation, and the consequences, intended or otherwise. It was December of 2008
when the Fed cut short term interest rates to zero. Four years ago! But
this rate environment raises many issues. A.T. writes, "I may be missing
something since I am a simple-minded Secondary guy, but... would the bump and
extension in MI for FHA push the APR on these loans up to a level to consider
them 'High Cost Loans' (APR 1.5% higher than the Average Prime Rate)?
If that is truly the case, wouldn't that be up there as one of the stupidest
unintended consequences of government in action? The prime rate is 3.25%, so
1.5% above that is 4.75%, and few are doing 4.75% mortgages. A perpetual MI
premium would calculate into the APR much more than the current method. A
current MI premium of 125bps in perpetuity should bump the APR calculation more
than the current calculation which I believe shows it falling off after getting
down to 78% LTV. If they bump the MI more and it never drops off, isn't
there an issue there? A file I randomly pulled from the summer with a 3.875%
rate actually had a 4.650% APR bumped up due to the MI." Great observation!
It seems that Congress is once again tempted to come back to the "mortgage
well" since the House passed HR 1629, the STEM Jobs Act of 2012. The bill
amends the Immigration and Nationality Act to make up to 55,000 visas available
to qualified immigrants with certain advanced degrees who agree to work for at
least five years for the petitioning employer or in the United States in a STEM
field. STEM is a designation indicating advanced training in
science, technology, engineering or math. (Not mortgage banking or real
estate.) When it was sent to the House Rules Committee the bill was altered
with what is generally known as a "payfor" which would require
Fannie Mae and Freddie Mac to increase their guarantee fees to cover the cost
of implementing the STEM Jobs Act. The MBA's Dave urged Congress to
reconsider their approach of using guarantee fees for this purpose. He
said in part, "Fannie and Freddie's guarantee fees are supposed to be used
to help offset the risk inherent in providing mortgages, and any increases to
those fees should be used for that purpose. Dipping back into the housing
piggybank to pay for unrelated policy items on the backs of America's
homebuyers sends the wrong message at a time when the housing market is
starting to show signs of recovery." [Read: Bill Raising G-Fees Faces Tough Battle]
of the MBA, it and the STRATMOR Group have conducted the Peer Group Survey and
Roundtable Program since 1998. This program creates a forum for participating
mortgage banking companies to review their financial results and operating
practices in relation to their peers. This program is widely regarded not only
for its detailed benchmarking outputs by production channel, but also for its
1.5-day roundtable meetings. The meetings allow companies to network and share
ideas and issues with peers. Peer groupings are flexible and change over time,
but include: mid-sized independents, large independents, mid-size
bank-affiliated lenders and large bank-affiliated lenders. For each group
meeting, the MBA/STRATMOR team compiles a detailed presentation of historical
trends and analyses of the most current data series. If you would like to participate
in the MBA/STRATMOR upcoming Spring 2013 peer group survey (data as of December
31) or would like additional information, please contact Marina Walsh in MBA's
research and economics division, at mwalsh@mortgagebankers .org
or Jim Cameron at STRATMOR Group at jim.cameron@stratmorgroup .com.
Moving on to the CFPB, Paul G. observes, regarding the budget and the
CFPB, "A recent article states that the CFPB can draw on up to 10% of the
Federal Budget. That claim is just plain wrong. The CFPB's request for FY
2013 was $448 million, not $360 billion, which is what CFPB's budget would
have to be in order for it to represent 10% of the $3.6 Trillion federal
budget. $360 billion would represent half of all discretionary spending in the
budget. I realize that the CFPB is a convenient boogeyman for many people in
our industry, but in order to have any credibility, those writing about it,
especially in industry publications, need to describe the CFPB as accurately
And Julian Hebron's The Basis Point points out, "Most discussion
about the fiscal cliff fails to address the most serious structural fiscal
problems. These problems are so called 'entitlements.' Calling these
entitlements does not mean that anyone is legally entitled to these. All that
it does is relieve Congress from budgeting for these. This has been done for
the convenience of Congress and is entirely against the best interests of the
nation. The Treasury data analyzes the money presently in these accounts,
future anticipated revenues and future anticipated expenses. It then present
values the future shortfalls. The conclusion is that the present value of
future shortfall was in 2010, $77.9 trillion. What does this mean? It means
that if we had $77.9 trillion in these funds, instead of essentially zero, we would
be fine." (For the full story, go to http://thebasispoint.com/
and page down once or twice to the entitlement story by Lepre.
Huh? Now the home loan industry might be competing with Wal-Mart or PayPal?
What makes them want to enter such a new, compliance & regulatory laden
industry? Perhaps it is the returns being earned by current lenders, and
potential borrowers are interested.
So eventually recent lender and investor updates may include news from
Costco, Wal-Mart, or PayPal, but until then we'll take a look at some relatively
recent training, investor, and lender updates.
There is a free webinar on Thursday, Dec. 6, at 2PM EST: "Top LOs: How to
Recruit, Train, Support & Keep Them. Learn what to look for in hiring
great salespeople, the best recruitment methods to use, plus tips and tricks to
help you grow your staff successfully! The webinar is hosted by Guaranteed
Home Mortgage Company headquartered in New York and licensed in 28 states. The
link for sign-ups is here.
The Mortgage Bankers Association of New Jersey will be presenting the
Annual Joint Mortgage Lending Conference on December 11th in Monroe Township,
NJ. The program will focus on the future of CFPB regulation and will
include a speech by the Acting Deputy Associate Director of the CFPB.
Register at http://www.mbanj.com/.
Third is now requiring all closed loan files that were received on or after
November 19th to include a standardized Tax Information form, which should be
completed and submitted with the closed loan package in lieu of any tax
information currently being used. The new form can be accessed online.
As a reminder, Fifth Third will suspend all loans that are missing the
documentation necessary to verify the interest rate data as required by the
Home Ownership and Equity Protection Act for higher-priced loans, including the
HOEPA/HMDA Required Information Form and a screen print of a populated FFIEC
rate spread calculator.
Fifth Third has announced that its new Age of Note and First Payment policies
will take effect for all loans that are currently in the pipeline on or after
December 3rd. The Age of Note policy states that the loan must be purchased
within 60 days of the note date and that for escrow closing states, the closing
documents must be signed within 15 calendar days of the note date. Under
the First Payment policy, loan payments must be current as of the date of
purchase. If the loan is purchased after the first payment due date, the
correspondent seller must have collected payment from the borrower or made
disbursements from the escrow account, the latter of which will require the
seller to provide a payment history of all pre-purchase transactions.
Sellers are also reminded that they are required to have the ability to service
Flagstar has updated its policy on long-term disability income, which
must be verified by a copy of the disability policy or benefits statement from
the institution paying the benefits or, in the case of Social Security income,
a copy of the SSA's award letter, signed federal income tax returns, copies of
the borrower's most recent bank statements, or a Social Security Benefit
Statement. Self-employed borrowers are also subject to updated guidance
requiring two years of their most recent tax returns.
Effective for loan applications dated November 30th and after, Flagstar will no
longer permit streamline reviews on primary residences in condo projects in
cases where the LTV/CLTV/HCLTV exceeds 80%.
Due to the high volume of appraisal orders Mountain West Financial has
been receiving of late, its AMC Mortgage Works will be implementing a fee
increase for FHA, conventional conforming, and conventional non-conforming
loans. Applicable fees will be increased by $50 as of December 1st.
Property types that fall outside the typical appraisal coverage area (Unusual,
Unique, Rural, Acreage, Waterfront, and the like) will require a direct quote
from Mortgage Works and will be subject to additional fees on top of the $50
MWF has announced that conventional loans with LTVs over 80% may now be fully
funded by gift funds provided that they meet specific DTI, credit score,
mortgage insurance, and loan amount criteria in addition to the standard gift
requirements. If all of the additional guidelines aren't met, gift funds
will be considered after the borrower has fulfilled the 3% contribution
Turning to the markets, on Friday Treasuries were roughly unchanged on the day
while news flow regarding the fiscal cliff remained light. That certainly
didn't change much over the weekend, with some light chatter out of Asia and
Europe but it seems the world can focus its attention on the inability for
politicians to compromise until faced with...who knows? But there is a slate of
economic news this week although most of it is "2nd tier." Today we
have some forgettable ISM index, and Construction Spending. Zip tomorrow, and
then on Wednesday the ADP employment data and Factory Orders, along with some
productivity and unit labor costs that only an economist would love. Thursday is
Jobless Claims, but then we have Friday's Unemployment Report from the U.S.
Department of Labor. The unemployment rate equals the number of employed
persons divided by the total number of persons in the labor force which is
measured from a survey of 60,000 households. Wall Street watches this report
closely and reactions tend to be dramatic, although with the Fed buying $40-80
billion a month of MBS, can home loan rates really do much? (Preliminary estimates show an increase in
NFP of about 85k.)
On Friday we closed the 10-yr at 1.61%, and MBS prices hardly different
from Thursday's levels. This morning we find the 10-yr at 1.64% and agency
MBS prices worse by about .125.
I recently picked a new primary care doctor. After two visits and exhaustive lab
tests, he said I was doing "fairly well' for my age. (I am turning sixty in two
weeks. (The joke teller, not me!))
A little concerned about that comment, I couldn't resist asking him, "Do you
think I'll live to be 80?"
He asked, "Do you smoke tobacco, or drink beer, wine or hard liquor?"
'Oh no," I replied. "I'm not doing drugs, either!"
Then he asked, "Do you eat rib-eye steaks and barbecued ribs?"
I said, "Not much... My former doctor said that all red meat is very unhealthy!"
"Do you spend a lot of time in the sun, like playing golf, boating, sailing,
hiking, or bicycling?"
"No, I don't," I said.
He asked, "Do you gamble, drive fast cars, or have lots of sex?"
"No," I said...
He looked at me and said, "Then, why do you even give a 'darn'?"