Sometimes I revert back to 5th grade. (Some would suggest I'm still in it.) Have you heard of the new HAMP-related Principal Reduction Alternative Program, known as PRA? Why didn't officials use "PRAP"? (That's the 5th grader coming out.) Seriously, in January, Treasury announced significantly enhanced payments to encourage investors to consider or expand principal reduction modifications under HAMP. "To effectuate this change, Treasury issued Supplemental Directive 12-01 on February 16, 2012, tripling the investor incentives that can be earned for permanent modifications under HAMP's PRA Program, for loans with trial period plan effective dates on or after March 1." Few of the existing HAMP incentives have enjoyed the market success desired, and only time will tell whether this initiative is more fully embraced. 

In other words, PRA provides an option for servicers to offer modifications that include principal reduction when borrowers owe significantly more on their mortgage than their home is worth, but does not obligate servicers to offer such modifications, given that principal reductions generally require the investor's consent. In an attempt to get more investors to agree to principal reductions, Treasury will offer three times the incentives it previously offered.) The Treasury will provide investors incentive payments to reduce principal down to an MTMLTV of 105%, but will not provide incentives to go below that ratio. Investors are paid substantially less, however, if the loan was more than six months past due at any time during the 12-month period prior to the NPV evaluation date. Under those circumstances, an investor will be paid $0.18 per dollar of principal reduction, regardless of the MTMLTV achieved. The PRA Program does not apply to loans owned or guaranteed by the GSE's.

On to the fun stuff, like underwriting and documentation changes in the last week or so.

In light of the tornadoes that recently devastated certain parts of the Midwest, properties listed in several zip codes will need to be re-inspected and deemed to be in satisfactory condition, which will need to be documented on or after March 2, 2012 (contact investors for a full list).  Proof of re-inspection will often be required before loans on any of these properties will close. If the property did not require an appraisal due to guidelines, investors usually will still need a satisfactory inspection and accompanying photo.

The FHA has clarified that all appraisals must be AIR compliant and that all FHA loans are required to have a copy of the termite/pest inspection on file if any evidence exists that a termite/pest inspection was "ordered, requested, required, and/or completed," even it was the borrower who elected to do so.

Fannie Mae has tweaked the DU Refi Plus program a bit: the Benefit to Borrower requirements have been modified such that interest rate reduction is considered an acceptable/eligible transaction type, and Fannie has clarified that timeshares, segmented ownership projects, and houseboat projects are not eligible.  The newest version of DU (8.3, in case you're wondering) will come into effect on March 17th (hence the rollout by many wholesalers).

Responding to popular demand, Wells Fargo Wholesale has expanded its LTV limits across the board.  For Wells-serviced Freddie Relief Refinance mortgages registered or locked on or after March 12th, the maximum LTV and CLTV on Fixed Rate Loans is unlimited, while the maximum LTV on ARMs is now 105%.  The same goes for Fannie DU Refi Plus mortgages registered or locked on or after March 19th (subject to DU updates).  Other Wells-serviced loans are subject to new minimum credit score requirements of zero (!), and borrowers are no longer limited to the number of loans they can take out on primary, secondary, and investment properties.  Note that there are no policy changes for loans not serviced by Wells.

Some housekeeping from Fifth Third: condo conversions must meet the criteria outlined in Section 1.07 in the Correspondent Seller Guide. The Correspondent Channel Early Payoff Policy, which affects any loan originated from a correspondent and purchased by Fifth Third that pays off within 150 days of purchase, is posted in full in Section 1.21.  The Mortgage Credit Guideline Manual will feature an appraisal portability table in the relevant section to clarify the transfer of an appraisal from a broker, correspondent, or other lender. Lenders should remember that, in order for loans to be purchased by Freddie or Fannie, DO and LP AUS findings must be released to Fifth Third.

Effective immediately, Franklin American increased the maximum time frame on a work completion escrow from 120 to 180 days for all FHA and USDA products and expanded property guidelines to allow both existing properties and new construction on Conventional Conforming, FHA and VA products. The Conforming Fixed Product Description now covers resubmitting loan casefiles to DU after closing for all conventional products; remember that FAMC does not allow resubmissions to LP after closing.

Lenders One Mortgage Cooperative has added Priceweaver to its list of preferred providers, which means that members now have access to Priceweaver's flagship internet product, LenderHub.  The web-based service can be used for pricing by both secondary marketing professionals and originators, allowing them to work in tandem.  It's also suitable for lenders of varying sizes.

Jumbo Fixed and Jumbo ARMs at GMAC are subject to this week's Loan/FICO adjustments. And additional cap for determining a new mortgage's maximum base loan amount for the purposes of calculating the Credit-Qualifying FHA Streamline Refinance with Appraisal has been put in place as well.  Loans with a DTI > 40 and <= 45 and LTV > 75% for Jumbo ARMs will have underwriting changes soon.

Chase's ChaseLoanManager has been updated to include new FHA High Balance Market Type 107 loan amount thresholds, Non-Agency 5/1 ARM availability, and modified Product Switch policies.

Citibank, keen to reduce the incidence of post-purchase quality defects, continues to encourage lenders to use its recently designed Quality Control Environment assessment to identify any weak areas in the loan origination and delivery process.  The self-assessment involves reviewing systemic prevention controls, which target the source of the risk (think second signature requirements, checklist additions, documentation of staff accountability), and detective controls, which detect omissions or errors that have already been made.  Citi promises lots of feedback to those who complete the analysis.

As more banks set down standard definitions of what constitutes a "large deposit" requiring verification, Flagstar has issued its own guidelines.  For Flagstar purposes, a "large deposit" is any deposit or aggregate of all deposits that is over $1,000 per month and exceeds 30% of a borrower's total monthly gross income.  If the deposit or aggregate exceeds 2% of the sales price, the FHA requires verification, and loans requiring mortgage insurance are subject to the MI company's own guidelines. Flagstar has amended guidelines regarding rolling property taxes and insurance into a new loan amount for all conventional products.

MGIC spread the word to clients that new lower premium rates for borrowers with credit scores of 760 and over will come into effect for MI applications received on or after March 12th - unless you happen to live in New York or Washington.

United Guaranty announced an enhancement to its Performance Premium (its risk-based MI pricing) for MI applications and rate quote requests received on or after March 12, 2012 (subject to state approval). "For many high-credit-score borrowers, borrower-paid monthly premium rates will be even lower." Check out details at

Guild is offering a Standalone California Homebuyer's Downpayment Assistance Program in conjunction with FHA, VA, Conventional and USDA loans.  The program lets first-time homebuyers to put down 3% of the sale price or the appraised value as a down payment or closing cost and allows for property.  To qualify, borrowers must fall within these income limits and have 640 FICO, DOs, and Freddie or USDA automated approval.  They will also have to complete certain homebuyer education requirements.

Bay Equity is offering enhanced Lender Paid Mortgage Insurance, including blended rations for non-occupant co-borrowers to 90% LTV and conforming cash-out 85% LTV.  Also available is the FNMA Multiple Property Financed program, which provides loans to borrowers with five to ten financed properties.

Finally, for those interested in training, Ballard Spahr LLP will offer a webinar (part two of three, in fact) on how to implement an anti-money laundering program on Thursday, March 22nd.  Aimed specifically at residential lenders and originators, the webinar is designed to help industry professionals prepare risk assessments, establish the necessary policies and procedures, and develop training programs in compliance with FinCEN's February 7th ruling.  To register or find out more, contact Lorna Burns at

Two Irish nuns have just arrived in USA by boat and one says to the other, "I hear that the people in this country actually eat dogs."
"Odd," her companion replies, "but if we shall live in America, we might as well do as the Americans do."
Nodding emphatically, the mother superior points to a hot dog vendor and they both walk towards the cart. "Two dogs, please," says one.
The vendor is only too pleased to oblige and he wraps both hot dogs in foil and hands them over the counter. Excited, the nuns hurry over to a bench and begin to unwrap their "dogs."
The mother superior is first to open hers. She begins to blush and then, staring at it for a moment, leans over to the other nun and whispers cautiously: "What part did you get?"