Common Reasons for Declined Loans; Using the NMLS Logo; Broker Marketshare Feedback; Loan Limits


The parent of Marie
Callender’s restaurants (around since 1964), who also owns Perkins
Restaurants Bakeries, has filed for bankruptcy protection and closed 31
locations nationwide. Wendy’s/Arby’s Group has cut a deal to “unload”
most of its Arby’s chain on private-equity firm Roark Capital Group in a deal
valued at $430 million. There are 3,600 Arby’s (the name coming from
“America’s Roast Beef Yes Sir”). And “the roof’s caving in on Bank
of America
“? Read about it in the NY Post. Meanwhile,
Facebook, according to CNBC, is likely to go public by the first quarter of
2012 at a valuation that could be pegged at north of $100 billion.
People don’t have to eat, but they have to socialize on-line?

Thousands of text books have been written
about why interest rates go up and down. Yes, an expanding economy often
pushes rates higher, but often rates move based on supply and demand. Just like
how the lack of demand for a purple Ford Pinto forces the price lower, if
the demand for US securities drops, that may push prices down, and thus rates
higher. The story may be coming to a theater near you this summer: DebtDemand

World economies are struggling, debt in the US is mounting, mortgage bankers
are grappling with disclosure, buyback, and volume issues, banks are holding
huge amounts of cash reserves in case the “worst case scenario” hits,
and…NMLS is reminding everyone that “the NMLS Approved Course
Provider logo
will no longer be authorized for use after July 1,
2011.  Providers who are currently using the logo on their web site and/or
are using it in marketing materials should begin the process to remove it. We
are currently finalizing the new approved course logo and anticipate starting
to send the updated logo to providers the first week of July.  To deter
unauthorized use, the new logo design incorporates the unique course ID number and
a digital watermark.”

Life is tough when even the agency set up to regulate you seems to not only
take the credit for your improved performance, but then indicates it would
rather you went away: FHFA

Yesterday the commentary mentioned a report
stating that broker business was down to about 7% of total originations. Say
what you will about how mortgage production statistics are tabulated, broker
business is down. What is the “investor chatter” out there with
regard to broker business?
Barclays released a piece reminding us that for
brokers, “The new loan compensation guidelines, which went into effect on
April 1, have several key provisions that limit the types of compensation that
they can receive. Yield spread premiums are prohibited. Compensation based on
loan characteristics or terms is prohibited, other than the loan balance. Only
the borrower or the lender, but not both, may compensate the loan originator for
making a loan. A broker can no longer receive fees from both parties. Overall,
these changes seek to eliminate the incentives for originators’ steering
borrowers into riskier loans for financial gain. While correspondents, and
retail lenders are somewhat affected by these rules, they substantially
restrict the previously existing business model for brokers.”

The piece goes on. “The pullback in
wholesale lending has already reduced the broker share in recent years, and the
change in originator compensation rules looks to do more of the same. Under the
new guidelines, most of the economics for brokers are permanently impaired and,
consequently, should result in further shrinkage of the broker channel. As
third-party origination in general looks to decline with these changes, it
suggests that overall prepayments could be somewhat less, all else being held
equal. As broker and correspondent originated loans tend to be more reactive to
rates, their declining share should somewhat temper the refinancing response.
With most other profit channels shut off, we expect brokers and
correspondents to increase their focus on high balance loans
. While they
have done so in the past, the new regulations suggest that the loan size
prepayment gradient for TPO collateral could steepen sharply.”

The term “girding your loins” is a
little dramatic, but investors everywhere are setting up for the loan limit
. PHH (#5 in originations in the first quarter of 2011 –
where did they come from?) reminded clients that, “The current Conforming
Plus and FHA maximum mortgage limits apply to loans closed within the
government’s current fiscal year which ends on September 30, 2011. Loans that
are closed with a Note Date that is on or after October 1, 2011 will be subject
to new loan limits which will be lower in many areas…PHH will rely on the
correspondent to verify a loan is within allowable limits. Any loan not meeting
GSE or FHA limits will be ineligible for delivery/purchase.” And high
balance loans underwritten on its system after 7/1 will receive a warning,
“Maximum loan amounts are established by federal law and are subject to
change on 10/01/11. Correspondent must insure a loan is within these mandated
limits based on property location and closing/note date as required by the

In preparation for the loan amount changes,
PHH ended its 120 lock option on June 3rd for loans above a certain
balance in its Conforming Plus and FHA sectors. “As September 30th
approaches, PHH will continue to modify the available lock lengths. However, to
maximize lock option availability, the 30-90 day options will be handled
differently. Availability will be based on the limits FHFA and HUD have
established for loans closed between October 1, 2011 and December 31, 2011.
30-90 day lock options will remain available for loans within the new

PHH has also been busy in other areas. About
a month ago it announced a change in the process for delivery of collateral
documents (“Complete collateral document packages must be delivered to PHH’s
document custodian, Bank of New York Mellon”). PHH also delivered an
extensive closed loan checklist to its clients, and recently announced the
introduction of its 5/1 VA ARM and new suite of “conforming plus”
products: 7/1 ARM, 7/1 ARM IO, 10/1 ARM and 10/1 ARM IO.

Over at Fifth Third (#13 in the
industry in the first quarter in originations), with the decrease in rates, the
wholesale float down policy is being revised starting today. “The intent
of this policy is to assist brokers in the event a borrower demands a lower
rate and is not intended to solely improve pricing to the borrower.”
Brokers were provided with the e-mail and fax for the request, and the
transaction must meet certain terms. “The rate must be lowered at least an
.125 with the execution of a float down, the loan must be conditionally or
fully approved status, 15 day and 30 day float down option is available (15 day
float down is only available on a Fully Approved loan, while a 30 day float
down is available on a Conditionally Approved loan), and so forth. Brokers can
only do it once, and program changes can be made. “Broker income cannot
improve through float down execution on Borrower Paid compensation option and
cannot change on Lender Paid compensation option…All pricing improvement will
be credited to the borrower, the compensation option (Lender or Borrower Paid)
cannot be changed after float down execution.”

Bank of America issued a note on the
signature requirements for “Non-Titled Spouse Notice of Right to Cancel
(NRTC).” BofA also issued disaster updates for Alabama and Tennessee.

CitiMortgage spread the word to
brokers on “Common Reasons for Declined Loans.” It was good to see,
although none were a shock. “Reasons Related to Insufficient Income/Funds –
Insufficient income for mortgage obligations and for total obligations,
insufficient funds to close the loan, insufficient stability of income, lack of
cash reserves.” Also listed were Citi’s underwriters unable to verify
income, assets, residence or occupancy, or credit references. Lastly,
additional common reasons for declining loans were an incomplete credit
application, the CLTV/HCLTV exceeds maximum allowed, unable to verify
employment, and ineligible property type(s).

Turning to the markets, yesterday MBS prices
were unchanged although traders reported higher-than-average volumes.
“J.P. Morgan anticipates that buying from banks and REITs will more than
offset the dealer positions, while a new quarter and month will bring in some
balance sheet space.” The 10-yr ended at 2.99% with no substantive news.


A blonde calls Delta Airlines and asks, “Can you tell me how long it’ll take
to fly from San Francisco to New York City?”

The agent replies, “Just a minute.”

“Thank you,” the blonde says, and hangs up.

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