Here’s a new date for you to remember: August 1, 2015. We have nearly nine months to implement new disclosure forms.

CFPB announced its first enforcement action against a payday lender, with $14 million in reimbursements and a $5 million penalty.

33 business days and counting until QM…“Rob, my capital markets guy tells me that the industry is confused over what ‘bona fide discount points’ are. I thought it was spelled out. What’s up with it?” It had been defined by Fannie Mae, but the definition is no longer on its site. (Scuttlebutt says Fannie was nervous about providing the only definition in the industry, so yanked it given the exposure.) It has become an issue, however, since 2 bona fide discount points can be excluded from the famed 3 points of points and fees as spelled out in the upcoming QM paradigm. Unfortunately, different investors and lenders have different definitions of points, and the buyup & buydown ratios associated with them.


For example, two different consumers could easily have a different borrowing experience, one obtaining a loan where a 2:1 ratio is used, and another that is given a 6:1 ratio. And if those two consumers are a different nationality, or race, or live in a different neighborhood, well… the term “disparate impact” comes up. So yes, the industry is waiting for the CFPB, or the agencies, to define the term. To be considered “bona fide” the discount must be an “industry standard”. How do lenders defend their actions as being in line with industry standard when no industry standard exists?


But things are not quite as simple as “let’s wait.” As it turns out, Fannie removed the definition of bona fide discount points because management received feedback from lenders that the definition may not work across all markets.  An appropriate ratio of points to interest rate discount varies based on market dynamics. Fannie felt, as always, lenders should document what the discount was, and that they are applying a consistent ratio to borrowers in a given market based on market dynamics.  In practice Fannie believes it will be important for a lender to demonstrate a consistent approach to calculating the discount points for borrowers of all demographic characteristics.


Across the playground at Freddie, the agency had sent out guidance in an October 1 bulletin. Paraphrasing here, Freddie noted, “No changes to quality control processes. Freddie Mac recognizes the challenges Sellers face in implementing the wide range of regulatory requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Additionally, we are aware that implementation of the points and fees thresholds described in the CFPB final rule may be particularly challenging for the mortgage finance industry. Accordingly, during an initial transitional period (the duration of which is uncertain), we are not making any changes to our quality control sampling methodology, review scope, documentation requirements or repurchase processes related to the purchase eligibility requirements announced in Bulletin 2013-16.”


Freddie’s note continued. “Compliance with CFPB final rule and State laws:  Freddie Mac recognizes the complexities in implementing the CFPB final rule, including the definition and calculation of points and fees. We encourage Sellers to review the resources and guidance provided by the CFPB on its regulatory implementation page and to stay informed on further clarifications that the CFPB may issue on these matters. Some States have adopted rules and regulations that may be more restrictive than the CFPB final rule. As required by the Guide, in originating Mortgages for sale to Freddie Mac, Sellers must comply with all applicable laws.


“Treatment of Freddie Mac delivery fees: As noted in Bulletin 2013-16, Sellers may decide to recover the costs of delivery fees from the Borrower by including some or all of the delivery fees in the interest rate and/or by passing some or all of these delivery fees through to the Borrower by including the fees on the closing settlement statement. Including delivery fees in the interest rate may impact whether a Mortgage is a Higher-Priced Mortgage Loan. Passing through delivery fees to the Borrower on the closing settlement statement may impact whether a Mortgage meets the applicable thresholds for points and fees and it could also impact the annual percentage rate (APR). As a reminder, it is the Seller’s responsibility to comply with applicable requirements to determine the total amount of points and fees and APR consistent with our eligibility requirements.”


And speaking of waiting, on the wholesale side I know a lot of brokers are waiting for their lenders to address the upcoming broker compensation changes for 2014. Thirty three business days…


Even the rating agencies are interested in what is going on with QM. As we all know, if there is limited investor demand for residential mortgage-backed securities the price goes down and rates go up. So what are Kroll, Moody’s, S&P, and others going to do about it? They sure would not want to slip up as they did in their ratings of MBS from 2000-2010. (Kroll was not in that group, fortunately.) Fitch, for example, is seeking industry feedback by Dec 9th.


Let’s keep playing catch up with some agency and investor news from the last couple weeks.


Optimal Blue reports that “Fannie Mae has suspended its Expanded Approval product line(s). As a result, these products will no longer be offered in the Optimal Blue system. Please Note: DU Refi Plus EA I, II and III are still being supported thru DU Version 9.0.”


Nationstar is now accepting investment properties as an eligible property type and has lowered its minimum FICO for FNMA products with 90% LTV to 680.


For all Conventional products, Franklin American has updated its rate/term refinance seasoning requirements to permit the use of the appraisal value, regardless of the seasoning of the original mortgage, replacing the previous requirement of the lesser of the purchase price or appraised value for loans with unsupported increases in value for refinance transactions seasoned less than 12 months.  Effective for all Conforming Fixed/ARM High Balance and Conforming ARM products, FAMC is now accepting LP as an acceptable AUS, and the overlay requiring California condos to have $2m in liability coverage has been removed.


FAMC has aligned its guidelines with those of the FHA to state that an appraisal is not required if the value is not a benefit to the borrower for refinance and reminds sellers that it does not offer the Back to Work—Extenuating Circumstances program, which is listed as an ineligible feature in the FHA Product Description.


FAMC has discontinued the tax transcript exception it had in place as a response to the government shutdown. All delivered loans are once again required to comply with standard FAMC policy.


PHH has updated its underwriting guidelines to define “temporary leave” as being short in duration and for both short-term health-related disabilities and any other leave type acceptable by law and/or the borrower’s employer.  The Conventional Underwriting Guidelines have been revised to provide details on required temporary leave documentation as well as the calculation for both qualifying and supplemental income.


PHH has revised its escrow waiver requirements for serviced HARP loans to state that the escrow must currently be waived on the existing loan that is being refinanced, the loan must be a no-MI product, the property must be a primary residence, and there may be no tax liens against the subject property reflected on the title or credit report.  The AUS scoring requirements and 740 minimum FICO have also been removed.


Rates got whacked Wednesday afternoon, for lack of a better term (yes, I am catching up on The Sopranos episodes). At first the move was attributed to stronger/better than expected news, although we saw rates go up and the stock market selloff. October Retail Sales rose 0.4% from September, and October CPI fell 0.1% from September – inflation is not an issue. October Existing Home Sales declined 3% from September to an annual rate of 5.12M units, which was slightly below the consensus, but they were still 6% higher than one year ago. Total inventory of existing homes available for sale declined 2% a 5.0-month supply. 


(Read More: Making Sense of the FOMC Minutes' Impact on Mortgage Rates)


But the fixed-income selloff, with corresponding rate increases, picked up steam with the release of the latest FOMC meeting. The “market” decided it was time to focus on the odds of tapering (scaling back bond purchases by the Fed), and perhaps moving up the schedule. Chatter like, “Fed officials have not ruled out beginning to scale back their bond purchases at the next meeting in December” hit the newswires, and then the Fed Minutes indicated that Fed officials expect improvement in the labor market to warrant tapering to begin "in coming months." Others felt that the minutes did not provide anything illuminating in regards to taper timing; it is data dependent and it could happen at coming meetings. There was, however, a remark about tapering between the asset classes that suggests that MBS will not be reduced at a slower pace versus Treasuries. "A number of participants believed that making roughly equal adjustments to purchases of Treasury securities and MBS would be appropriate and relatively straightforward to communicate to the public."


(Read More: MBS RECAP: Bond Markets Weakest Since September after FOMC)


The damage was done and half my e-mails yesterday were from investors worsening prices: current coupon agency MBS prices worsened by at least .5, and the yield on the 10-yr ended the day around 2.80%. Today we have more economic news, including weekly Initial Jobless Claims (expected -4k to +335k) and October PPI (-0.2 headline, +0.1 core), the November Philly Fed, and the Treasury announcing the details of next week's auctions of 2-, 5- and 7-year notes, estimated at $96 billion. In the early going the 10-yr is sitting at 2.79% and MBS prices are roughly unchanged from Wednesday’s close.



For “lexophiles” (lovers of words - part 3 of 3):

I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian.
She was only a whiskey maker, but he loved her still.
No matter how much you push the envelope, it'll still be stationery.
A dog gave birth to puppies near the road and was prosecuted for littering.
Two silk-worms had a race; the result was a tie.
Atheism is a non-prophet organization.
I wondered why the football kept getting bigger. Then it hit me.
A sign on the lawn at a drug rehabilitation center said: “Keep off the Grass.”
Old soldiers who survived mustard gas and pepper spray are now seasoned veterans.

Don't join dangerous cults; practice safe sects.