In a speech this week to the Consumer Federation of America Consumer Finance Protection Bureau’s Director Richard Cordray said that it is a myth that borrowers who fall outside the qualified mortgage definition won’t be able to find home financing. He said, "The rule does not change anything about your current mortgage; it only applies to new mortgages that you apply for on or after January 10, 2014." And it does not stop lenders from lending to any borrower with a debt-to-income ratio above 43%; this particular claim is wrong in three ways." By now the industry knows that the three ways: lenders can rely on the origination standards for loans backed by the government-sponsored enterprises, smaller local creditors also are able to issue non-QM loans as long as they hold them within their portfolios, or lenders have the ability to issue a non-QM loan by simply using their own judgment after evaluating the borrower’s ability-to-repay and assessing the overall risk. "Another myth is that this rule restricts down payments; in fact, it says nothing about how much of a down payment you have to make on the house, but leaves that entirely up to you and your lender.” QM, with 23 business days left: our friend! Here is the speech.


Dennis Loxton writes, “A question I frequently get is, ‘how does QM impact HECM?’. Fortunately for us, the reverse mortgage business falls outside QM and it does not have an effect on our industry. However, the HECM business has other challenges.  For the first time starting in January/February of 2014 (HUD initially announced 1/10/2014 as the starting date but hinted at a few week delay) the implementation of taxes and insurance underwriting to determine if borrowers have the capacity to maintain all relevant property charges.  This change comes on the heels of a reduction in principal limit factors (better known as LTV's) were for the 3rd time in the last few years and draw limits at closing.


“At closing, borrowers will be limited to drawing the amount of any liens and other closing costs (including HOA dues, HOI, and tax liens, etc.) up to the available principal limit (APL).  If the liens are below 60% of the APL, the remainder is unavailable until after the 1st year - at which point it can accessed via a line of credit or monthly payments. For example, if a client with a $200k home has a total APL of $100k, closing costs of $8k, and liens of $20k, the client could access $60k at closing less $28k for a net cash of $32k at closing. The remaining $60k would be in a LOC that could then be accessed after the first year.”


Mr. Loxton’s note finishes up: “These changes are shifting the reverse mortgage from a product of last resort to one that is increasingly used for purchased and by more affluent borrowers. LOs that get their leads from financial advisors, Realtors, and the like will still do OK in the face of a potential 20-40% short-term volume drop along with a 30% drop in UPB at closing. However, those that are heavily dependent on lead buying will have to closely examine their ROI in the face of these challenges. It seems that this product is returning to where it is in 2004 before the last boom.  Also, for those that are able to secure a HECM GNMA ticket (more difficult than a traditional forward one) will print money on the tail LOC draws - enough to make Tony Soprano come back from the grave!”


Technology is a two-edged sword. Computers can be temperamental. And the amount of software testing is mind-boggling – but problems slip through, as was brought to my attention yesterday by the staff of MIAC regarding Ellie Mae’s Encompass loan tracking. As anyone hedging a pipeline knows, data is critical – one doesn’t want to be hedging a pipeline of loans that don’t exist. MIAC wrote, “We became concerned about it when reviewing an Encompass user’s fallout data that contained zero (0) cancellations.  When we looked at the data, we found that Encompass had constructed the data extract using a field for Lock Expiration (Field 762) that was being cleared systematically during the lock cancellation process.  However, we have been advised by Ellie Mae that there is another Lock Expiration field that does not get cleared in this process (Field 2151) that should be used in the data extract for fallout analysis and for the daily pipeline data file. We have alerted all of our clients who use Encompass.”


MIAC’s note continued, “Here’s what Ellie Mae sent in response to an inquiry about the impact of lock cancellations on the presence of the Lock Expiration Date in their system: ‘I spoke with the developer, and I ran my own tests to confirm. I think the issue is that your clients may be using field 762 to determine the lock expiration date. We do clear the lock date, # of Days, Lock Expires, and Rate is Locked checkbox when a loan is cancelled, but we do not clear the lock information in the Buy Side Lock and Pricing Column. So if you are looking for field 762 to be retained after the loan is cancelled, that does not happen. You can, however, use field 2151. I ran a report for the lock expiration date after my lock was confirmed and after I cancelled the lock and the dates were the same.’” If you have questions, check with your hedging firm, or with Ellie Mae.


Let’s continue on with some upcoming conferences and training events that might be of interest!


In California, the Silicon Valley Chapter CAMP Holiday function is next week in San Jose. (I was fortunate enough to attend last year, and will do so again this year, and look forward to seeing everyone!) Here is the registration link.


On December 11th, The FHA will host a Loss Mitigation: Home Retention Options webinar that addresses special forbearance, loan modifications, and HAMP.  Participants will be instructed on how to review, qualify, and process each option and the actions required to comply with HUD.  Register here.


The FHA is holding a webinar on HUD’s Pre-Foreclosure Sale program and deed-in-lieu transactions on January 8th.  The training includes an overview of loss mitigation home disposition options and how to review, qualify, and process each one.  Registration is available here.


For those interested in HUD’s Neighborhood Watch system, the FHA is offering a webinar that walks through the system and how to use the servicing reports as part of the loss mitigation review process.  Register here.


And the Arkansas Mortgage Bankers Association, the Mississippi Mortgage Bankers Association, and the Tennessee Mortgage Bankers Association have banded together to set up the Tri-State Mortgage Bankers Conference. Last year more than four hundred industry professionals joined together in Memphis for an event that “brought in the value of the National MBA convention to our Regional area; offering high-profile speakers and education applicable to our states for about 1/8 of the cost of the national convention, and in a key location that is easily accessible.” Here is more information on it.


On the lender and investor front, Dan Upton, CEO of Nations Direct Mortgage, LLC, announced the opening of its new Correspondent Lending Division, NDM Correspondent. The newly formed Division will initially purchase FHA and FNMA loans on a Delegated basis in 18 states across the US. Nations Direct Mortgage has hired Jeff Haar (ex-New Penn & Saxon) as Director of Correspondent Lending. “Nations Direct maintains an outstanding reputation based on their Wholesale Lending Division, and we will work to leverage those same ideals and resources to build a Correspondent division that stands in equal esteem in the industry. In our initial phase we will stick to a few mainstream products, work with seasoned Mortgage Bankers and Financial institutions that meet the profile of the markets we intend to compete in, and grow volume on a controlled basis through trusted relationships.” NDM Correspondent is now accepting applications for new Lenders - to become an approved Correspondent Partner, go to and click on the “Correspondent” link.


Wells Fargo is once again requiring sellers to submit tax transcripts in their loan files, effective immediately for all Prior Approval and delegated loans (both Government and Conventional).


American Capital Mortgage Investment Corp. announced that, through a subsidiary, it has acquired Residential Credit Solutions, Inc., a licensed mortgage servicer based in Fort Worth, Texas.


The American Bankers Association – through its Corporation for American Banking subsidiary – has endorsed the secondary market options available through Fannie Mae to help community banks remain competitive in their local markets. “Since the partnership began in 2002, Fannie Mae has helped participating banks effectively compete in their marketplace while managing their interest rate risk. The alliance provides reduced transaction fees on DU; customized training; updates to keep lenders current on critical issues; and customizable marketing materials. Our alliance with Fannie Mae allows ABA member banks to take full advantage of the secondary market,” said William Kroll, executive vice president of ABA’s Corporation for American Banking. “We are confident that this continued partnership will provide critical solutions to our members to help them meet their customers’ mortgage financing needs.” More information on the alliance.


Chase is expanding the Chase Legal review of inter vivos revocable trusts, which should be submitted to Chase Customer Support; however, the credit file should still go to underwriting.  This is available only for Agency and non-Agency non-delegated loans.


In order to align with Agency guidelines, Chase has expanded the maximum LTV/CLTVs for Agency ARMs with Accept/Eligible findings in LP, FNMA Fixed Rate 2-Unit Primary Purchase transactions, and FHLMC Fixed Rate 1-Unit/Condo/PUD Non-Owner Occupied Purchase transactions.  The Agencies’ new LLPAs for cash-out LP Conforming ARMs with expanded LTVs will apply as well.  Applicable loans with an LTV between 75% and 80% will incur an adjustor of -1.250 for FICO scores between 700 and 739 and -.500 for scores of 740 and over.


Chase has removed the -.125 cure-by extension fee that applies to all direct trade loans and has clarified its policy to state that if all of the requested information is not received by the end of the third business day or cure-by date, the loan will be re-priced per the delivery schedule based on the date the last conditioned is received.  Loans for which all of the requested information is received before that deadline will receive the original pricing based on when the closed loan package was received, and as a reminder, loans must be locked prior to file delivery, and when Chase identifies new conditions as a result of documentation received through the suspense process, the cure-by date will not be reset.


Economists are good at explaining things, and I mention this because, given yesterday’s numbers, economist Elliot Eisenberg writes, “While Q3 GDP was revised up from 2.8% to 3.6%, hold the applause. Inventory growth was raised by 0.85%, essentially responsible for the entire increase. Worse, household spending was revised down from a growth rate of 1.5% to 1.4%, and net exports were revised down by 0.24%. Despite the great headline, this was a weak report. Bernanke-Yellen are not talking December taper.”


Thursday we started with the jobless claims release which showed that applications fell last week to the lowest level in more than two months: more support that the labor market continues to improve.  GDP was released and showed an increase of 3.6 percent annualized rate driven by the largest increase in inventories that the market has seen since 1998. But Personal Consumption, a dominate factor in the U.S. economy, slowed to +1.4% quarterly annualized, close to a four year low. Origination supply came in at $1.2 billion for the day – a decent amount these days. Rates went up on the strong news and yields hit three month highs, with the 10-yr closing at 2.84% and agency MBS prices worsening about .125. (We’ve also had a reminder that stocks and bonds are independent: both markets have been selling off.)


Any borrower who waited to lock until today made a mistake – at least in the early going. The November Non-farm Payrolls number was +203k, with some slight back-month revisions, about as expected. But the headline-grabbing Unemployment Rate dropped to 7.0% from the “household survey”, a clear surprise. One can dissect that number all they want, and talk about the broad labor pool, or the influence of the government shutdown, but 7% raises eyebrows – and rates. There is a lot of volatility, but the yield on the 10-yr hit 2.93%, and MBS prices sold off accordingly.