LO Education and Bank vs. Non-bank Requirements Under the SAFE Act; Are Foreclosure Prices Really Different?
Are you really back at work, reading this? It is kind of hard to get back
in the swing of things...so let's start with some estimates of the future from
our very own Census Bureau. The U.S. population will be considerably older and
more racially and ethnically diverse by 2060. No big surprise there, but look for
the U.S. to become a "plurality nation" where the non-Hispanic white
population remains the largest single group, but no group is in the majority. Furthermore,
the population is projected to grow much more slowly over the next several
decades, compared with the last set of projections released in 2008 and
2009. That is because the projected levels of births and net international
migration are lower in the projections released today, reflecting more recent
trends in fertility and international migration. According to the
projections, the population age 65 and older is expected to more than double
between 2012 and 2060, from 43.1 million to 92.0 million. The non-Hispanic
white population is projected to peak in 2024 at 199.6 million. Meanwhile, the
Hispanic population would more than double, from 53.3 million in 2012 to 128.8
million in 2060. Consequently, by the end of the period, nearly one in three
U.S. residents would be Hispanic, up from about one in six today. The black
population is expected to increase from 41.2 million to 61.8 million over the
same period. Its share of the total population would rise slightly, from 13% in
2012 to 15% in 2060.
Last week the commentary mentioned LO education for borrowers, but how about LO
education itself? I received some thoughtful notes on the subject.
"For the past year I have been helping loan officers prepare to pass the
federal and state test. The potential MLO's are new, and a large percentage are
from the banking side of the industry. The 80 loan officers I have worked with
shows me that the loan officer coming from the banking side are not
understanding of the laws and are having a very difficult time passing the test.
In some cases it is like deer in headlights. So to hear the banking industry
claim their loan officers are better trained, and understand the system, is not
even close. In my opinion that at the least they should be required to take the
8 hours of CE each year. Ultimately it should be an even playing field, but
that probably isn't going to happen, too bad. The consumers are the only ones
that are being hurt."
And another from a highly placed source. "'The SAFE Act has ensured that
all salespeople, brokered or banked, now receive an adequate base of training
in order to get licensed.' Interestingly - only non-supervised institutions
have to pass the NMLS testing process. I have files of cases of LO's who
failed the test and ended up working for a bank (Wells, Chase, etc.) who are
exempted. Only independent mortgage bankers are obligated to be tested. SAFE simply
registers the bank employee but does not insure they are 'trained.' If our industry wants to be able to
guarantee to all consumers that the LO they meet with has been tested to the
same standard, the only way to get there is to require the testing of all LO's,
not just non-bank ones."
And this note on current underwriting standards: "I can't help but shake my head at how
we, as an industry, have become effete whiners who never miss an opportunity to
find a cloud in every silver lining. The cries about 'tight lending' or
'borrower brutalization' are comical. I can only imagine the folks who
voice that opinion haven't looked at a loan file in 20 years. Are they aware
that a person can buy a home with only 5% down (less for FHA and VA) and much
less when one considers seller concessions? Are they aware that a person can
qualify for a loan with a total debt load of 45% of their gross income (much
more with FHA)? Are they aware a person can get a mortgage with a 620 credit
score (often less with FHA depending on a lender's takeouts)? Have they looked
at the credit report of a person with a 640 FICO? Have the documentation and
compliance requirements of the secondary markets really exploded in the last
few years? Increased, yes, but exploded? No. Aren't these folks really decrying
their own ability to process and close loans efficiently and effectively?
Aren't these folks really still longing for the days when they could throw a
few documents into a bag on a stated income, 100% LTV, 600 FICO loan, ship it
to someone and earn a tasty fee? Are loans cleaner than they've been in a
while? Yes. BUT - I promise you that if you looked at many of your FHA loans
and many of your higher LTV, lower FICO agency loans you'd say to yourself, 'I
wouldn't make that loan if it were my money.' Lending isn't tight now. Lending
is rational now. Is it perfect? No. Problems still exist with getting homes
appraised reasonably. The agency rules around condominiums are comically
stupid. But, in general, well qualified borrowers are not being excluded
from purchasing and refinancing homes. If there are a plethora of 'great'
loans out there that aren't being made because of supposed tight guidelines -
here's an idea: Stop the insipid complaining and make a market. Money is made
when supply meets demand..."
And speaking of supply and demand, and reminding us that statistics have
to be believed only with skepticism, according to Zillow, several recent
analyses that report the discount associated with foreclosure sales but these
use the median sale price of foreclosures compared to the median sale price of
non-foreclosures. A significant pitfall with this approach is that the
typical foreclosure property is likely quite different than the typical
non-foreclosure property. The homes may be different in size, location or a
variety of other attributes that affect property value beyond simply their
status as either foreclosure or non-foreclosure homes. For example, in the
Detroit metro area there was a 59% difference in the median values of
foreclosures and non-foreclosures ($47K/$113K); an indication that cheaper
homes are more likely to be in foreclosure than more expensive homes, whereas
many buyers likely interpret this figure as the discount they might expect on a
foreclosure relative to the fair market value of the home (which it distinctly
Zillow decided to compare the sale price of foreclosure resales to the
estimated full fair market value of the home. In the analysis, a foreclosure
resale is defined as essentially an REO sale (a sale to a private party by a
lender or equivalent institution that is immediately subsequent to a
foreclosure liquidation) Nationally, the median discount is only -7.7% even
though the median sale price of foreclosures is 41% less than the median sale
price of non-foreclosures because foreclosures are more likely to be cheaper
homes than non-foreclosures, not because the discount is this high. The
greatest discount is found in Pittsburgh (-27%) and the least discount is found
in Las Vegas and Phoenix, both of which have no discernible discount between
foreclosure and non-foreclosure sales. Looking historically at the foreclosure
discount since 2004, nationally, the true foreclosure discount reached its
greatest level, -24%, in mid-2009 after REOs reached their highest share of
overall sales earlier that same year. Thereafter, the discount became
increasingly less, possibly because buyers became more familiar with buying
foreclosures leading to higher demand for the product, and/or because the
quality of foreclosures improved as a higher volume of relatively new homes
entering into foreclosure simply because of negative equity. This is
important to home buyers who may form unrealistic expectations about the
discounts they will find when shopping for foreclosures. The phrasing
"below market value" implies that a buyer could expect to realize this discount
on any foreclosed home relative to a non-foreclosed price on the same home. In
practice, the actual discount will be considerably less. The fact that the true
discount is less than commonly reported also matters for the implications
analysts draw from the continued flow of foreclosures into the market over the
next few years, as it wouldn't be surprising to see the foreclosure discount
decrease even more. Thank you Zillow!
How about some recent bank and investor updates?
CertusBank ($1.7B, SC) will buy mortgage lender Resource Financial Services
(SC) for an undisclosed sum.
And Michigan's Capitol Bancorp ($1.8 billion in assets) has sold
their 54% interest in Oregon's High Desert Bank ($30mm) to a group of
investors. The group also infused the bank with $1.4mm in new capital.
Effective immediately, Flagstar is no longer requiring the use of an
approved settlement agent in restricted counties for New York
transactions. Loans closing under Fannie's Cooperative Property Program
must engage one of the designated law firms on the list of Approved Settlement
Agents for Cooperatives; if you have a login see here
Flagstar is now reviewing the Information Government Monitoring Purposes
section of the 1003 to ensure compliance with Regulation C of the Home Mortgage
Disclosure Act. Loans for which the 1003 is not completed accurately will
held in Submission Review and have a condition added. Clients can see the
updated Conventional Submission Review Checklist
and the Government Submission Review Checklist for details.
US Bank rolled out a new 10/1 ARM product subject to the same
guidelines, adjustment and lifetime CAPS, margins, and underwriting
requirements as the Elite 7/1 ARM but allows LTVs up to 80% and financing up to
$2 million on 1-unite properties. Purchases, rate/term refinances, and
cash-out refinances are all eligible.
In conjunction with the FHA's announcement that it would be extending its
current anti-flipping policy through the end of the year, US Bank reminds
lenders that it only allows FHA loans where the resale price is less than 20%
above the seller's acquisition cost. Any loans that exceed the 20% limit
will be considered ineligible.
GMAC has updated its Jumbo fixed-rate rate sheet for all loans under $1
million, FICO over 750, and LTV over 70, which are now subject to a pricing
adjuster of .0375.
What is up with the fixed-income markets? Well, they're not doing much in
the early going (equities aren't doing much either). There is no real
market-moving news that is new since Friday, even with the president slated to
cut his vacation and fly back due to the fiscal cliff deadline. Can they really
do anything in the next 18 hours that they couldn't do in the last 18 months?
Perhaps, but as many are beginning to believe, the changes that will take place
might not be so bad in the long run. Two big events could occur in the next few
days. The first is that the Treasury will declare it has officially run out of
borrowing capacity, although emergency measures could buy it a few more months
(so the end of Feb is the real crucial date). But this warning may be enough
for the rating agencies (in particular Moody's) to at least warn of a downgrade.
The second is that the IRS will publish formal withholding guidance for
2013. Technically it could allow companies to keep the 2012 rates in place
into next year if the expectations for a deal are high - but expectations for a
"large deal" are quickly fading and now the best that can be hoped for is a
fiscal cliff avoidance plan accomplished in stages over the coming weeks
So we can call focus on closing loans rather than worrying about rate
swings when locking in new ones! The 10-yr T-note closed Monday at 1.77% and
this morning we're around 1.78%, and MBS prices are nearly unchanged.
Did you ever wonder why there are no dead penguins on the ice in Antarctica? Where
do they go?
Wonder no more!
It is a known fact that the penguin is a very ritualistic bird which lives an
extremely ordered and complex life. The penguin is very committed to its family
and will mate for life, as well as maintain a form of compassionate contact
with its offspring throughout its life.
If a penguin is found dead on the ice surface, other members of the family and
social circle have been known to dig holes in the ice, using their vestigial
wings and beaks, until the hole is deep enough for the dead bird to be rolled
into, and buried.
The male penguins then gather in a circle around the fresh grave and sing:
"Freeze a jolly good fellow."
"Freeze a jolly good fellow."