Yesterday we all learned what lock desks and pricing engines already knew: mortgage applications in the U.S. jumped last week by the most in a month. It is hard for borrowers not to see how low these rates are, since they're all over the newspapers. The MBA's index, which reportedly covers 75% of retail applications, was up nearly 17%. This was due almost entirely to refi's, which were up over 21% from the week before. (Purchases were basically flat.) The industry keeps waiting for the percentage to drop, but refi's accounted for over 80% of applications. Catch the wave! But eventually purchases will return.

The MBA does other things besides tally apps, of course. It managed to keep its president, and seems to have lived down that messy little office building fiasco a few years back. And it is definitely a vocal force in trying to cobble the Qualified Mortgage rules together. MBA Chair-Elect Debra Still told a House subcommittee this week that without a clearly defined "safe harbor" for lenders in a proposed Qualified Mortgage rule, originators might be reluctant to underwrite certain mortgages, which in turn could result in consumers having less access to credit. This is, of course, no surprise to industry folks, but the more times regulators and politicians hear it, the more chance it has to sink in.

(A quick note. At the risk of belaboring this QM topic, folks in all segments of the biz need to understand just how large of an impact this CFPB-related set of rules might have - thus my attention to it in the daily commentary. Any time the government tells the industry how to underwrite loans, it is worth paying attention.)

Ms. Still cautioned that should the CFPB adopt a narrow definition of Ability to Pay/Qualified Mortgage provisions in its upcoming rulemaking under the Dodd-Frank Act, the results could have unintended consequences and limit the availability of affordable mortgage credit, particularly for first-time borrowers and low- and moderate-income borrowers. Yesterday the commentary noted the harm QM could cause to Habitat for Humanity, but if the CFPB puts this in place haphazardly, time to lower the boom. Overall, as Ms. Still put it, "the impact will likely be worse for the very borrowers we are trying to protect and hinder the availability of credit for far too many borrowers who are otherwise qualified. We will undoubtedly end up with a far more restrictive lending environment then we have today and simultaneously harm the larger economy for years to come."

She continued, "Without lending, the economy will not recover, especially for the middle and lower/middle class who buy starter homes and lower priced homes. However, current lending practices appear to reflect, in part, obstacles that are limiting or preventing lending even to creditworthy households."

The MBA backs four principles that should guide QM: to reach as many borrowers as possible with safe, affordable and sustainable financing, the QM needs to be broadly defined, the rule must include clear, specific and objective standards, by incorporating unambiguous requirements, the QM should provide lenders and borrowers the legal certainty that meeting the standards will provide them a clearly defined safe harbor, given the QM's massive effect on the existing market, the rule should be designed in a way that avoids unintended consequences.

Still said one proposal under consideration that would provide a "rebuttable presumption," i.e., provide borrowers with option to go to court to seek review of an alleged violation. She said that under Dodd-Frank, CFPB can choose either a safe harbor or a rebuttable presumption. "Under a rebuttable presumption, the scope of the inquiry is left to the court, with wide variations from one court to another on how to apply the presumption, including when and how extrinsic evidence may be brought in beyond the standards," Still said. The question comes down to one of "rebuttable presumption" ("Three years ago that underwriter should have known that the plant would close down, and should have denied this loan knowing I could not make the payments.") versus the industry asking for a "safe harbor" to shield lenders from this. Lenders should not be faced with this.

"Such an inquiry, in all cases, is more open-ended, unpredictable and far more costly." Still said without bright-line standards and a legal safe harbor, lenders will have no choice but to alter their business strategies. "Some lenders may choose to exit the business, lessening competition," she said. "Others, to mitigate risk, will create even tighter credit guidelines than the QM definition. And still others will price their loans higher. Whether it's less competition, tighter credit, or higher costs, all of these outcomes will harm consumers.

On to something simple like somewhat recent state/agency/investor/M&A/training/agency updates, providing a flavor for the environment. They just don't stop. As always, it is best to read the actual bulletin.

North Carolina lenders are reminded of the restriction placed on fees for loans of $300,000 or less.  Trust review, recording service, processing, copy/courier, HOA certification, document review, wire transfer, reconveyance, fax, loan tie-in, closing, escrow, settlement, and EDD fees may only be charged by an attorney at the time of closing.

The state of Washington now allows for use of the Multi-State Trust Certification form, as is reflected in the updated "Trust Definitions, Eligibility, and Documentation Requirements" document on the Broker's First website.

In Texas, the agencies are now allowing tax rollbacks for properties whose land use is designated as "agricultural" and then changed to a higher-tax designation.  The difference between the two tax rates can be assessed for up the five previous years.  Taxes should be disclosed as "paid in full" or "not yet due and payable" on the final title policy, and any taxes listed as unpaid should be reviewed by an underwriter.

In order to adhere to new FHA requirements, all manually underwritten or Accept/Approve Refer FHA mortgages with recent deposits exceeding 2% of the sales price require a credible explanation of the source of the funds, including documentation.  Deposits of this proportion should be explained and documented, regardless of the percentage of the borrower's income.

USDA refinances are subject to a new credit policy regarding adding and removing borrowers.  The updated guidelines mandate that at least one of the borrowers remain on the refinance transaction.  Any late mortgage payments from the previous 36 months on the current loan will be analyzed and reviewed by the underwriter to get an idea of the borrower's financial soundness; the minimum credit score remains at 640.

In response to increased demand for HARP modifications, United Guaranty has rolled out a pair of new options to help borrowers speed up the process.  The expedited program requires borrowers to pay premium supplements, which allows lenders to process modification requests without a full underwrite and avoid delays.  One of the options involves the lender paying a supplement of 50 basis points on the new loan amount of every modification, which applies to all HARP refinances submitted.  This adds about $1,000 in MI costs to a $200,000 loan.  Lenders can also opt for a premium supplement of 200 basis points on individual Same Servicer and New Servicer modifications, which allows them to request waivers on specific loans that would otherwise necessitate a full underwrite.  For a $200,000 loan, the resultant costs total around $4,000.  Lenders aren't required to partake and may opt to continue using the current system, which doesn't incur any supplemental fees.

Fifth Third has clarified that, for all conforming and portfolio products, appraisals are valid for six months and require an update of value using Form 442/1004D after 120 days.  Appraisals that are transferred expire 120 days after the client ceases to be listed as Fifth Third.

In the wake of all the changes to FHA Streamline Refinances, Flagstar has issued guidance on a number of affected areas to serve as "helpful hints."  The LTV for such transactions should be calculated using the original appraised value disclosed on the Refinance Authorization Screen in FHA connection, as using any other value can cause the loan to close with an incorrect MI premium, resulting in the lender having to pay the difference for MI premiums that are too low.  Social Security verification should be in the form of a third party document; Social Security cards, W-2s, and pay stubs are all acceptable.  If no such verification is available, the Social Security Administration may be contacted. 

MI premium refunds for FHA Streamline Refinances are determined as the lesser of the new upfront MIP or the "unearned UFMIP" for the month during which the loan funds are disbursed.  The unearned UFMIP from the month when the loan closes should not be used as a value, apart from cases where the funds will also disburse that month.  In addition, the borrower is required to have made the mortgage payment for the month prior to disbursement.

Flagstar reminds clients that, for any new FHA Streamline Refinances that it takes on, it will require borrowers to have a FICO score of at least 680 and the loan to be assessed on a loan level price adjustment.  Such loans should be registered and locked using the product name ending in "other servicer" to avoid confusion.

In compliance with FHA regulation, FHA borrowers with existing tax liens will be required by Fifth Third to pay those liens off in full before closing unless they can supply a completed payment arrangement and evidence of timely payments made from the last 12 months.  This includes tax liens for borrowers living in or purchasing a property in a community property state, and satisfied tax liens should be expunged from the title prior to closing.  In the case of cash-out refinances, the proceeds are allowed to be used to pay off outstanding liens where underwriters give approval.

Additional updates have been made to guidance on assets, the prohibition of escrow credits, and TOTAL Scorecard requirements for FHA Streamline Refinances.  The full details of the changes may be viewed by contacting the Flagstar Underwriting Department, and further information is available in the HUD Handbook, FHA Underwriting Guidelines, and FHA Mortgagee Letter 2011-11. 

With the spreading of the Colorado wildfires, Flagstar has updated the listing of zip codes where the funding of loans for properties has been suspended.  The full list of zip codes may be obtained from the Underwriting Department.

Stocks and bonds both rallied Wednesday, which isn't that unusual although they did so for different reasons. Stocks liked the news on favorable housing and earnings reports and prospects of further Quantitative Easing, while fixed-income markets strengthened on general risk aversion related to global growth worries. The Fed did released the fabled Beige Book report on the 12 Fed Districts (Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco) which really didn't tell us anything we didn't know before. But housing continues to grind better: declines in home inventories, stabilization of house prices in some markets, increased refinancing activity, and increasing apartment rents in some of the Districts.

With things pretty quiet in Europe, and no scheduled news tomorrow, today is it! We've had Jobless Claims (386k from a revised 352k - given the seasonal adjustments, probably about where we ought to be). At 7AM PST look for Existing Home Sales and Leading Economic Indicators for June. We'll also have some Philly Fed number, and the Treasury announcing next week's auctions. In the early going the 10-yr is at 1.51% and MBS prices are worse a tad (a very technical term).

A city boy, Jamie, moved to the country and bought a donkey from an old farmer for $100. The farmer agreed to deliver the donkey the next day.
The next day the farmer drove up and said: "Sorry son, but I have some bad news. The donkey died."
Jamie replied, "Well then, just give me my money back."
The farmer said, "Can't do that. I went and spent it already."
Jamie said, "OK, then just unload the donkey."
The farmer asked, "What ya gonna do with him?"
Jamie: "I'm going to raffle him off."
Farmer: "You can't raffle off a dead donkey!"
Jamie: "Sure I can. Watch me. I just won't tell anybody he is dead."
A month later the farmer met up with Jamie and asked, "What happened with that dead donkey?"
Jamie: "I raffled him off. I sold 500 tickets at $2 apiece and made a profit of $998.00."
Farmer: "Didn't anyone complain?"
Jamie: "Just the guy who won. So I gave him his $2 back."
Jamie grew up and eventually went to work for a large financial institution...