CFPB’s Servicing Report; MI & VA Loans; Freddie & Manufactured Housing; Will the Election Really Matter?


Gaps of all kinds are widening out, and they are impacting business. In a story about “New Homes’ Problem: Price the
gap between the more expensive median price of newly built homes and
that of resales has exceeded $70,000 for most of the economic recovery,
the widest spread since the Commerce Department and the National
Association of Realtors started tracking the figures in 1968.

Let’s not forget that Tuesday is an election.
While a Republican Congress may make more noise about
reforming/dismantling Fannie/Freddie, this is more of an economic issue
than a political one. “Housing” is a bipartisan issue and neither party
wants to disrupt it – given that the GSEs are playing such an enormous
role at present there won’t be much appetite to rush through legislation
passing the companies fully back into private hands. Yes, we may see a
potential Senate change. Congress has been gone since mid-September
trying to protect their jobs. And gosh… there is no need for them to be
in session and drag down their approval ratings further, right? Right
now the Senate is split 55-45 Democrat-Republican but the odds are
considered high that the GOP captures 6 net seats to get them to 51 and
control of the Senate. How much would Washington change under a
Republican-controlled Congress? Probably not that much. If the majority
is slim (only 1-2 seats) the gridlock won’t go away (the Senate may pass
more bills but that may just mean Obama is forced to wield his veto
powers more frequently). Keep in mind that once these elections are over
the focus will immediately shift to 2016. But in reality Congress in 2015 may not function much different from how it does now.

Anyone owning Ellie Mae stock is laughing all the way to the bank. This year its stock is up 44% “as home lenders embrace e-signatures. “As
stiffer regulations make mortgage compliance more complicated, lenders
who still depend on fax machines are turning to technology firms.”

your firm afford a team of people to audit and monitor counterparties?
If it can’t, you may want to reconsider any decisions to service loans. The CFPB issued a report that highlights issues that surfaced during exams around mortgage servicing.
The report indicates examiners have found insufficiencies or weaknesses
in policies, problems with procedures and information sharing with
vendors that service loans. Experts recommend community bankers and
lenders active in mortgage lending activities double-check this area and
consider ramping up internal audit resources to avoid issues in the

Apparently many in the industry wondered why Freddie Mac entered the manufactured housing market.
Multifamily VP Kelly Brady put an end to the queries by publishing a
piece titled “Behind the Scenes: The Making of The Godfather”. Uh,
sorry, looking at my Netflix queue. It is titled, “Behind the Scenes: Manufactured Housing Communities.”
“We needed to prove to the MHC industry that we could be a reliable
capital source in this particular market segment. We needed to prove
that lenders and borrowers would experience the same high quality level
of service and certainty of execution that they currently receive from
us on conventional multifamily loans…Next, we needed to build expertise.
So we hand-picked a core team for MHCs, with the time and desire to
develop relationships and with a deep knowledge of the intricacies of
this business. Then, we were tenacious in pursuing business. We reached
out to community owners. This was the key to our success in purchasing
our first MHC loan…With our announcement to enter this space, lenders
and borrowers have told us that they have seen the availability of
funding go up and the cost of capital go down. And, while it’s still
early, we are bringing mortgage funds to locations we have not been
active in before, bringing much needed capital to rural areas where
traditional multifamily apartments are scarce…”

While we’re talking about Freddie Mac, “The Community Mortgage Lenders of America (CMLA)
continued its push for expanding mortgage credit for moderate income,
minority, single parent and first time buyers in separate meetings with
White House and Interagency staff and with Freddie Mac executives. A
CMLA delegation, led by new Chair, Paulina McGrath, President of
Republic State Mortgage Co., called for changes in the GSE loan review process to reduce rote repurchase demands for non-serious loan flaws.
In an October 15, 2014 White House/Interagency meeting, McGrath
stressed, ‘the impact of current GSE policy is, unfortunately, less
credit to worthy borrowers. Lenders should be given an opportunity to
correct minor flaws in performing loans. If these flaws cannot be
corrected, indemnification should be the preferred option, rather than
repurchase.’ Specifically, the CMLA is seeking a number of changes in
how the GSEs review loan quality that include: Eliminating rote demands
that lenders buy back or repurchase performing loans with minor defects,
creating specific standards of materiality for errors in loans that
clearly distinguish between fatal and minor flaws, working with the
lending industry to boost lender guarantees against loan defaults or
indemnifications, with a goal of significantly reducing repurchase
demands within the next 3 years In a similar discussion with Freddie Mac
Executives on October 24, CMLA lenders cited examples of slight loan
defects that have prompted repurchase demands. This practice, they said,
results in lenders extending credit only to the safest credit quality

And the mortgage insurance business has been in the news. Isaac Boltansky with Compass Point writes, “On October 28, Bloomberg ran an article focusing on HUD’s push to evaluate the merits of private mortgage insurers (PMIs) providing supplemental insurance on VA loans.
As a reminder, only 25% of a VA loan is federally guaranteed which
reportedly limits some lender participation. To that point, at the MBA
conference last week HUD Secretary Castro stated that the 25% limitation
‘leaves a lot of small lenders awfully exposed and reluctant to offer
veterans credit under this initiative.’ While it is far too early to
assess the potential impact of supplementary coverage on VA loans, this
policy conversation reinforces our longer-term belief that the
forthcoming finalization of the PMIERs will soften the ground for the
PMI industry’s efforts to increase and diversify the risks it insures.”
Mr. Boltansky notes it is too early to estimate the potential impact on
the PMI industry but that, “The conversation surrounding supplementary
insurance on VA loans reinforces our longer-term belief that
governmental entities will become increasingly willing to allow PMIs to
take additional and varying forms of risk given their improved capital
position in the wake of the Private Mortgage Insurance Eligibility
Requirements (PMIERs). We
believe that the PMIERs will place the PMIs on sound financial footing
which should soften the ground for industry efforts to increase and
diversify the forms of risk they insure. These efforts could take the form of supplementary insurance on VA loans or deeper up-front risk sharing for PMIs (see MBA proposal).
We continue to expect the FHFA to finalize the PMIERs by the end of
2015 or early Q1 2015 which should remove a meaningful policy overhang
for the group and allow for the PMI conversation in D.C. to evolve.

The MBA reminded us that “…last week regulators issued the final Risk Retention rule
mandated by the Dodd-Frank Wall Street Reform and Consumer Protection
Act. The final rule aligns QRM with QM and removes onerous provisions
such as down payment and maximum debt-to-income ratios that would have
restricted access to credit. Please click here for a summary of these and other provisions that will impact the single-family market.”

the Treasury market finished about where it ended Wednesday afternoon.
The 10yr closed at 2.30%. But agency MBS finished the day “in line to
5’s 3+ ticks tighter to 10’s with under $1BB in origination.” What
does that mean to the shoeshine guy down the street? It means that MBS
prices did better than Treasury prices due to supply dropping relative
to the demand for mortgages.

economic calendar closes out the week beginning at 2:30AM Hawaii time
with September Personal Income, seen unchanged to lower (expenditures).
Also out at that timeslot is Q314 Employment Costs, also seen unchanged
to lower. About an hour later we’ll have the October Chicago Purchasing
Manager’s Index and then the October (final) University of Michigan
survey which printed 84.6 previously. In the early going we’re at 2.34% on the 10-yr and agency MBS prices are worse about .125.

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