Here we are on June 3rd,
which means we have 7 days left to comment on the Qualified Residential
Mortgage (QRM) provisions. If you thought that the industry had forgotten,
no way. Lobbying efforts have continued. In recent news, a letter signed by 163
congressmen urges federal regulators to loosen the definition of a
“qualified residential mortgage,” allowing single-family loans with
low down payments and private mortgage insurance to be exempt from pending risk
retention rules. In the other chamber, over one-third of the U.S. Senate (a
bi-partisan group) have written a letter to the FDIC, OCC, Fed, and other
federal regulators urging they adopt a less restrictive definition of a
qualified residential mortgage than has been formally proposed.
To comment: FedQRMComments.
Folks in the trenches are watching this
The proposed risk-retention rules permit “securitizers” to allocate a
portion of the credit risk which must be retained to the originators of the securitized
assets. Because this definition of “originator” refers to the person
that creates a loan, only the original creditor of a loan (not a subsequent
purchaser) is an originator for the purpose of this rule. But anyone in the
industry knows that there is absolutely no way that an originator can set aside
5% in capital for every loan that doesn’t fit into the guidelines, with the
result being that few institutions will continue to offer various products.
There are some clever ways around the provisions, but really, do regulators
want to encourage that kind of thinking?
Here are a few key points regarding the
proposed definition of a “Qualified Residential Mortgage” which, since no risk
will be allocated to the originator of such assets, is of particular concern to
creditors seeking to avoid risk-retention altogether. QRM eligible loans must
be a closed-end, first lien mortgage or refinance of a one-to-four family
property (at least one unit must be the borrower’s principal dwelling). A
mortgage loan may qualify as a QRM only if the originator verifies and
documents within 90 days prior to closing that the borrower satisfies the
following credit history requirements: not currently 30 or more days past due
on any debt obligation; not 60 or more days past due on any debt obligation
within the preceding 24 months; and, not a debtor in a bankruptcy proceeding,
not subjected to property repossession or foreclosure, not engaged in a short
sale or deed-in-lieu of foreclosure and not subject to a federal or state
judgment for collection of unpaid debts within the preceding 36 months. QRM
eligible loans may not contain any of the following payment terms: terms
allowing interest-only payments or negative amortization; any balloon payment;
terms allowing the annual rate of interest to increase in excess of 2% (200
basis points) in any twelve month period and 6% (600 basis points) over the
life of the mortgage transaction; and any prepayment penalty. QRM eligible
loans’ LTVs may not exceed a proposed ratio cap of 75% on rate and term
refinances and 70% for cash-out refinances. For purchase
transactions, the proposal requires borrowers to provide a cash down payment in
an amount equal to at least the sum of: closing costs payable by borrower; 20%
of the lesser of estimated market value determined by appraisal or the purchase
price; and if the estimated market value determined by appraisal is less than
the purchase price, the difference between those amounts.
But wait, there’s more! QRM eligible loans’
front-end ratios may not exceed 28% and back-end rations may not exceed
36%. Originators must verify and document a borrower’s monthly gross
income, monthly housing debt and monthly total debt in accordance with the
verification and documentation standards of the HUD Handbook. QRM eligible
loans’ total points and fees payable by the borrower in connection with the
mortgage transaction may not exceed 3% of the total loan amount. QRM eligible
loans may not be assumable by any person who was not a borrower under the original
mortgage transaction. QRM eligible loans’ documents must contain a provision
obliging the creditor to have servicing policies and procedures to promptly
initiate activities to mitigate risk of default on the mortgage loan and to
take loss mitigation actions.
Granted, there are more provisions, and most,
if not all, well-intended – but what will the consequences be on the
mortgage housing industry, as well as the economy? Senators
Congressman ended the letter by stating that “Congress included the QRM
to exempt safe, well-underwritten mortgages that have stood the test of time
from the risk retention requirement. We urge you to follow our intent as you
modify the proposed risk retention rule.” READ MORE
In other news, the MBA sent a letter to the FHA
this week requesting the use of electronic signatures for all mortgage
origination forms. Most lenders already allow borrowers to apply online and
send information electronically while appraisal orders, credit reports and the
verification of deposit balances also are performed automatically and online.
Freddie Fannie have allowed electronic signatures for years, and RESPA
and the TIL Act allow the use of electronic records – so why not FHA VA?
The MBA argues that allowing e-signatures on all forms would result in less
paperwork lost, fewer possibilities for fraud, a reduction in the time it takes
to close a loan and even lower costs for borrowers – especially if they move
from a conventional loan to an FHA loan during processing. FULL STORY
Earlier this week I noted a letter saying, “Six years ago underwriting was
‘anything goes’ to ‘nothing doing’ now, which reflects banks attitudes that
they are not willing to take the risks that they did prior to the housing crash
and subsequent decline in economic growth. The private market for funding
mortgages is broken and will take a long time to fix and the government is not
helping by the talk that the FHA should tighten up when they are almost the
only game in town….” But I received this note from an executive of a leading
MI company: “After three FHA pricing increases and countless MI guideline
changes in the direction of becoming less restrictive, I’d have to respectfully
disagree with the above comment that the FHA is ‘almost the only game in
town.’ At 97% LTV, 45% DTI, 90% LTV Jumbos to the FHFA limit, and FICOs
down to 660 and while you’re at it, throw in 2nd homes to 90% LTV and even
cashouts for some MI’s, the landscape has changed dramatically. There are
some market restrictions with some of the MI’s to the guidelines mentioned
above but not nearly as many as some might perceive. From a pricing
standpoint, there is typically a 40-60% premium savings over five years on a
higher quality loan relative to the FHA MIP. We are accountable, of
course, to get this message out to lenders but my belief is that the
combination of guideline and pricing changes has resulted in the private MI’s
going about as far as they could/should to provide sustainable homeownership
for low down payment borrowers.
For some other lender/investor bulletin
NexBank rolled out a program for buying jumbo loans of more than $2
million, under which it will do all of the underwriting and processing.
New Penn Financial has been acquired by Shellpoint Partners, an
investment firm owned in part by Ranieri Partners. New Penn is indeed a new
company since it was founded in 2008, but has 24 offices and more than 400
employees who originated $1.2 billion in conventional and FHA/VA mortgages last
Many smaller institutions, especially depositories, resent selling loans to the
large servicers of the world, believing that they are “losing a
client.” Quicken Loans rolled out “Rate Drop Advantage,”
a program that will pay most of a borrower’s closing costs if they take out a
purchase money mortgage or refinance loan with Quicken and then refinance with
Quicken again within seven years.
Prices were better by .625-.750 on Wednesday,
and then on Thursday they sprang back and were worse by .5. The 10-year note
was down about .5 in price to a yield of 3.03%.
Mortgage volume has really picked up recently
– all those fence-sitting refi’s locking and being sold? The markets certainly
took notice of a warning from Moody’s that it would put the US on its watch
list for a possible downgrade if lawmakers didn’t make some progress on budget
talks by July. (By the way, Moody’s, one of the top rating agencies that many
believe mis-rated billions in mortgage debt in the last 10years, had already
placed the senior debt of BofA, Wells Fargo, and Citi on “review”.)
Today’s employment data, expected to show
Non-farm Payrolls +170k, were only up 54k, the smallest increase since
September, with a Unemployment Rate of 9.1%. This compares to April’s +232k. As
one would expect, these disappointing numbers are pushing stocks down, as well
as rates…CHECK OUT A CHART
(Parental discretion advised)
The madam opened the brothel door and saw a rather dignified, well-dressed,
good-looking man in his late forties or early fifties. “May I help you
sir?” she asked.
“I want to see Valerie,” the man
“Sir, Valerie is one of our most expensive ladies. Perhaps you would
prefer someone else,” said the madam.
“No, I must see Valerie,” he replied.
Just then, Valerie appeared and announced to
the man she charged $5,000 a visit. Without hesitation, the man pulled out five
thousand dollars and gave it to Valerie, and they went upstairs. After an hour,
the man calmly left.
The next night, the man appeared again, once
more demanding to see Valerie. Valerie explained that no one had ever come back
two nights in a row as she was too expensive. But there were no discounts. The
price was still $5,000. Again, the man pulled out the money, gave it to Valerie,
and they went upstairs. After an hour, he left.
The following night the man was there yet
again. Everyone was astounded that he had come for a third consecutive night,
but he paid Valerie and they went upstairs.
After their session, Valerie questioned the
man, “No one has ever been with me three nights in a row. Where are you
from?” she asked.
The man replied, “Ontario.”
“Really?” she said. “I have
family in Ontario.”
“I know,” the man said. “Your sister
died, and I am her attorney. She asked me to give you your $15,000