Although yesterday was a Federal holiday and we should have all had the day off, the number of residential lender, investor, and MI updates in the last week or so warranted their own special edition of the commentary. This edition is longer than normal, as it is pretty thorough; most are pretty dry, many downright uninteresting, but some trends can be spotted that are important to note. Some only an underwriter would love - so readers can skip to the joke. So in no particular order:
We all know to say, "Goodbye" to Bank of America's correspondent channel, and we wish the job-seekers well.
MGIC, still the largest U.S. insurer of home loans, put $200 million of capital into an underwriting subsidiary to continue writing new policies nationwide. The contribution helps the company fund new business as a capital waiver from the Office of the Commissioner of Insurance for the State of Wisconsin was going to expire. "Because MGIC is able to write new business on a nationwide basis without the need for any waiver of capital requirements, there is no immediate need to extend the OCI's waiver" or the deal with Fannie and Freddie. "However, we expect MGIC's capital to diminish in 2012 and thereafter. Thus, we remain in discussions with OCI, Fannie Mae and Freddie Mac regarding the terms under which this strategy may be continued." MGIC's stock price has dropped more than 90% from its high, and the company has posted four straight annual losses.
MGIC's current "Same Insured/Servicer and New Insured/Servicer Programs will remain in place for Non-HARP refinances. The HARP RTM program will be available for RTM requests received on or after Dec. 1, 2011."
American International Group (AIG)'s mortgage-insurance subsidiary United Guarantee plans to launch a product next month that will independently review and store loan paperwork for a fee. Banks that agree to use United Guaranty Corp's "CoverEdge" will pay a 10-15% fee in exchange for a full review of mortgage documents, both before and after loan closing. Look for the cost to be passed on to the borrower, of course. UG will "independently verify borrowers' credit scores, payment histories and income, as well as home appraisal values and other details that are viewed as predictors of loan performance. The insurer will also act as a repository for the paperwork, which can be accessed when claims arise." Fannie has agreed to purchase loans that have been vetted by the CoverEdge program, while Freddie Mac is reviewing the product.
Starting on the 3rd United Guarantee "is enhancing the reserves underwriting requirements for Performance Premium mortgage insurance submissions. "For a 1-unit Primary Residence on a Rate/Term Refinance, no reserves are required (versus 2 or 6 month's PITIA reserves based on loan amounts). All other minimum reserve requirements continue to apply."
RMIC, although it is currently not writing new MI coverage, reiterated its participation in the enhanced HARP. "These updates are acceptable to RMIC, and we will continue to fully participate in the enhanced HARP program. Any RMIC-insured loan that is eligible under Fannie Mae or Freddie Mac's enhanced guidelines will be eligible under RMIC's HARP guidelines. RMIC's Recovery Assistance Program Resource Center is available at www.rmic.com with tools such as eligibility parameters, frequently asked questions, submission options, and forms for RMIC's HARP Same Servicer and New Servicer Programs, as well as the Home Affordable Modification Program (HAMP).
Anyone with questions on the HARP 2.0 developments can see recent changes on Fannie's matrix: https://www.efanniemae.com/sf/mha/mharefi/pdf/refiplusmatrix.pdf.
FHFA has given us the schedule for that bump in guarantee fees, mandated by Congress. ("We want to quickly phase out these burdensome agencies, but let's have them pay for a two-month tax deal for the next ten years.") Effective April 1st all G-fees charged by Fannie and Freddie will be increased by 10 basis points. (Many remember the industry's little comp change happening last year on April Fool's Day - what is it with that date?) In addition, FHFA said that during the first part of 2012 they will determine whether the new law will require additional increases in the G-fees. Look for the 10 bp's to be added to new agency loans sooner than later, in spite of the 4/1 pooling date. "Fannie Mae will increase the guaranty fee applicable to loans in MBS pools with issue dates on or after April 1, 2012, by 10 basis points. The increase will also apply to the standby purchase fee applicable to loans committed under long-term standby purchase commitments or any other negotiated guaranty transactions on or after April 1, 2012. Fannie Mae will also make similar adjustments to loans committed through its whole loan programs, including eCommimtting, eCommitONE, the Servicing Execution Tool(SET), and any other negotiated transactions."
sent out a similar note. "Effective for mortgages with Freddie Mac settlement
dates on or after April 1, 2012, we are implementing a 10 basis point increase
in required spreads for all mortgage products."
By the way, Freddie Mac's LP considers a non-occupant co-borrower's income in the qualifying income. Very similar to FHA, all borrower's income and liabilities are combined for debt ratio qualification. LP may not require disputed accounts to be addressed. If the disputed accounts are addressed in the findings, the account must be cleared. This is not available for use on all Freddie programs.
Fifth Third wholesale reminded brokers that Freddie Mac currently requires a "minimum of 6 months to elapse between the time a borrower purchases a home and subsequently applies for a cash-out refinance. A cash-out is now permitted within 6 months of a purchase if no financing
was obtained for the purchase transaction and all of several restrictions apply such as the new loan amount cannot exceed the sum of the original purchase price plus the related closing costs, financing costs and prepaids/escrows as documented by the HUD-1 from the purchase transaction, purchase was arms-length," and so on. Check its guides! 5 3 also told brokers that it "will accept a credit report in lieu of a payoff statement for standard FHA loan transactions for loan submissions. FHA Streamline transactions will still require a payoff prior to underwriting submission."
Franklin American reminded us that, "Currently on Condominiums/Attached PUD units, Fannie Mae requires coverage of the lesser of 20% of the unit's appraised value or replacement cost. For applications dated on or after January 1, 100% replacement coverage of the exterior and interior of condominiums/attached PUD units will be required. If the 'master' or 'blanket' policy for the condominiums/attached PUD development does not provide full coverage of the interior or is a "bare walls" policy, then an individual HO‐6 ("walls‐in") policy must be obtained to reach the full 100% coverage. The HO‐6 policy must be sufficient to repair the interior of the unit, including any additions, improvements and betterments to its original condition in the event of a loss. The HO‐6 policy is required to cover 100% of the insurable replacement cost of the unit's interior improvements and betterments, including kitchen cabinets, lighting, flooring and plumbing fixtures. This updated insurance requirement will apply to all products and program types including Conventional Conforming, Non‐Conforming, FHA and USDA Rural Development loans."
Franklin American also noted that, "Mortgage Electronic Registration Systems, Inc. has announced that all MERS as Original Mortgagee (MOM) loans must be originated by a MERS Member. Loans delivered by Non-MERS members and closed on MERS Security Instruments must be purchased by FAMC by February 10, 2012. Loans from Non-MERS members will not be eligible for purchase after February 10, 2012 unless it has been originated on a standard security instrument and then assigned to MERS on a standard Non-MOM Security Instrument to MERS Assignment."
Also, "Dodd-Frank legislation expands compliance with Appraisal Independence Requirements (AIR) to all appraisals. Previously, AIR applied to Conventional loans only. Beginning with loan applications taken on January 1, 2012, all loans delivered to FAMC for purchase must adhere to AIR disclosure guidelines in order to be eligible for purchase. In addition, the borrower must sign a Borrower Appraisal Acknowledgement at closing acknowledging receipt of the appraisal. As previously published in Bulletin #2011-12, a Borrower Appraisal Disclosure must be provided at the time of application on all loans acknowledging the borrower is/is not waiving their right to review the appraisal three (3) days prior to closing."
Flagstar addressed VA's NOV Value Adjustments and Appraisal Photograph requirements: "The VA has just released VA Circular 26-11-21, which states that effective immediately, VA requires Staff Appraisal Reviewers (SARs) to issue the Notice of Value (NOV) at the appraised value reflected in the appraisal."
GMAC sent out word that, "FHA has announced a proposal to discontinue their mortgage insurance program for military impacted areas under Section 238(c) of the National Housing Act. As a result of FHA's announcement, GMACB will no longer offer loans under FHA Section 238(c) Single Family Mortgage Insurance in Military Impacted Areas. New registrations and/or locks will not be accepted on or after January 1, 2012."
GMAC also tweaked its Loan Exception request policy (for example, "Loan Exception Requests for Prior Approvals must be submitted with the entire credit package to GMAC Bank for Underwriting. The Loan Exception Request Form must be completed in its entirety and submitted with the loan file. Please review GMACB's Underwriting Submission Checklist for documentation when submitting a file for Prior Approval..." and so on.) Read the bulletin for complete details.
CitiBank told its correspondent clients that, "Under the umbrella of Income Calculation, the calculation of non-reimbursed business expenses has been identified as a top post-purchase defect. The policy that should be followed is, "When a borrower has non-reimbursed business expenses, such as classroom supplies, uniforms, meals, gasoline, auto insurance and/or taxes, a recurring monthly debt obligation should be developed based on a 24-month average of the expenses (from Schedule A and IRS Form 2106 from the tax returns). Automobile depreciation may be netted out. The 24-month average should be deducted from the borrower's stable monthly income. If there is not a full 24-month history, the underwriter should develop an annualized monthly average. Automobile loan payments and automobile lease payments that are included as non-reimbursed expenses on the tax returns may not be deducted from income. They must be included as recurring debts in the total debt ratio."
Mountain West Financial told us that "AXIS AMC will no longer be available as an appraisal order option. Please place all appraisal orders through our Appraisal Department."
Wells Fargo's wholesale group spread the word to its broker clients that, "As a reminder, Iowa, Minnesota and New York do not allow the borrower to pay the tax service fee. However, RESPA requires this fee to be disclosed on the initial and all subsequent Good Faith Estimates (GFE) and the HUD-1 documents as a lender (lender-paid transactions), broker (consumer-paid transactions) or seller-paid fee. There is no valid changed circumstance if this fee does not appear on the initial GFE, and it may result in a GFE refund." In addition, Delaware and Hawaii passed legislation that becomes effective on Sunday, Jan. 1, 2012, establishing civil unions and extending the same rights, benefits, protections and responsibilities of married spouses to civil-union partners. This law also provides that a legal union between two individuals of the same sex validly formed in another jurisdiction (whether termed a marriage, domestic partnership or civil union) must be recognized as a validly established civil union under Delaware and Hawaii law. Ensure unmarried applicants who are residents of California, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Nevada, New Hampshire, New Jersey, Oregon, Rhode Island, Vermont and Washington complete the required Domestic Partnership Civil Union Form to demonstrate that the required questions were asked when applying for a loan."
Kinecta Federal Credit Union is reminding everyone about the uniform appraisal dataset requirement for FHA loans where a full appraisal is ordered and the case number is assigned on or after January 1, 2012. "The FHA has adopted the Uniform Appraisal Dataset (UAD) and two of the UAD compliant appraisal reporting forms. All full appraisals, with case numbers assigned on or after January 1, 2012 for single family residences, PUDs and condominiums will be required to be completed on the UAD compliant appraisal reporting forms. The UAD standardization includes standardized formats for fields that include specific dates, dollars amounts, Property condition, quality of construction and values, etc." Remember to complete the updated appraisal forms!
PHH noted that, "FHLMC Relief Refi Open Access loans with an application date prior to December 1, 2011, will be required to close by January 31, 2012. For Tiers 6 and 7, loans must also be delivered to PHH in purchasable condition by February 28, 2012. This change is due to FHLMC closing/delivery requirements announced in Bulletin 2011-22."
SunTrust revised interest party contribution guidelines. It also expanded the LP Guidelines for disabled children and elderly parents. It issued updates regarding Agency Subordinate Secondary Financing Guidance and the Employment Status Verification Guideline. Also, "Beginning on Jan. 1, 2012, FHA and VA appraisals must comply with Uniform Appraisal Dataset (UAD) requirements. Correspondent lenders must ensure that FHA and VA appraisals are UAD-compliant for loan deliveries to SunTrust Mortgage."
Chase is temporarily suspending specific LTV/CLTV and minimum Credit Score options on the Non-Agency 5/1 ARM (Market Type 516). The product eligibility changes outlined in the bulletin are effective with Non-Agency 5/1 ARM Best Effort locks and relocks on or after December 27, 2011.
Home Savings of America clarified its stance regarding HOA
assessments being junior to the first lien mortgage for FHA products (not
VA). "FHA requires evidence that homeowner's association assessments
are subordinate to the first lien. To meet FHA's requirements, the following
must be documented for all FHA purchases and rate and term and cash-out
refinance transactions (streamline transactions are exempt). For FHA loans
secured by a PUD, one of the following must be provided prior to closing: a
copy of the homeowner's association by-laws indicating that HOA assessments are
subordinate to mortgage liens, or a subordination agreement executed by a
representative of the homeowner's association indicating that all current and
future HOA assessments are subordinate to mortgage liens, or the title commitment
stating the title company will insure over any HOA assessment liens, or a
letter on letterhead from the title company indicating that HOA assessments
cannot take first lien position in the state in which the property is located,
or if state law gives HOA assessments a "super-lien" position, a letter from
the HOA indicating that all HOA assessments with the exception of the mandatory
super-liens are subordinate to the FHA mortgage is required. For FHA approved
condominiums, evidence of condominium approval is sufficient to demonstrate HOA
assessments are subordinate to the first lien; no further documentation is
Darn that's a lot!! I am glad I am not an underwriter! Here's a little dessert:
A couple of New Jersey hunters are out in the woods when one of them falls to the ground. He doesn't seem to be breathing and his eyes are rolled back in his head.
The other guy whips out his cell phone and calls the emergency services. He gasps to the operator: "My friend is dead! What can I do?"
The operator, in a calm soothing voice says: "Just take it easy. I can help. First, let's make sure he's dead." There is a silence, and then a shot is heard.
The guy's voice comes back on the line.
He says: "OK, now what?"
If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses the time frames for borrowers returning to A-paper status after a short sale or foreclosure. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.