Freddie’s QC Goals; Jumbo Investor Chatter; Lender Updates; Where is Fannie & Freddie’s Business Coming From?

News

“The
check’s in the mail!” Hah! The Fed reports the number of checks paid
has declined from close to $50B in the 1990s to about $20B. With tax
rates being what they are, and many chafing at increased government
intervention in most areas of our lives, perhaps we’re heading toward a barter economy.

I
have heard of broadcasts, and podcasts, but…tipcasts? That’s a new one
for me – but Freddie has one from Chris Mock, Freddie’s VP of QC, deals
with Freddie’s quality control goals, and is worth two minutes of your time.

Yesterday the commentary mentioned the layoffs at Flagstar
– it turns out that the number is 600 of our brethren who will be on
the streets. “Flag” said it will create annualized cost savings of $40
million for the company. “In 2013 we made important progress in
resolving certain legacy issues, and we are now focused on further
strengthening our financial and operational foundation,” said Alessandro
DiNello, Flagstar’s President and Chief Executive Officer.  “We are
committed to being a highly efficient and best-in-class operator in each
of our businesses, and this restructuring will align our infrastructure
with today’s business environment, including the significantly reduced
mortgage origination market.” But why is any lender different than
Flagstar and looking at production versus overhead? We can expect to see
continued cutbacks, and selective hiring.

 

“Rob, what do year from jumbo investors out there?
We continue to be beat up on our pricing by the big bank’s retail
channel.” I don’t see that changing much – they have huge amounts of
deposits that need to be put to work. And we all know that those jumbo
loans are often great credit risks – and there are no pesky gfees to
worry about. The recent about-face on gfee changes is wreaking havoc
with some of these new private equity investment funds. They are there
to purchase jumbo production, and are probably not happy with the recent
Mel Watts statement pushing gfee increased down the road. They are
basically trying to figure out what they should be buying and were
counting on continued gfee hikes – they cannot compete with the likes of
Wells Fargo and other banks though seems they are looking to setup a
few big accounts to purchase production from—i.e. large regional
banks.

For example, let us look at 5/5 jumbo ARM loans – it is indicative of other products.
It is a good product, but with limited investor interest. Everyone
wants to get setup with Pentagon Federal’s correspondent program as they
have a 5/5 ARM – but word on the street is that PenFed is not bringing
on new clients. So are there 5/5 jumbo correspondent buyers, either
delegated or non-delegated? Mark Paoletti with Mortgage Elements writes, “In the past the 5/5 used to
be a popular product of Community Banks, SL’s and Credit Unions. It
was a good product to help the depository do Asset/Liability matching
against 5 year CD’s. But that was when many depositors had a habit of
rolling a 5 year CD into a new 5 year CD when it came due and the
institution could count on new 5 year CD’s on a regular
basis. Institutions also matched 5 year CD’s to 5 year auto loans
and assigned limited funds to mortgage product restricting their
availability. They may do them for their own retail but won’t offer them
on a wholesale or correspondent basis. When their belly was full they
pulled the product. That’s why those 5/5 ARMs always had a history of
appearing then disappearing.”

What is also very telling is the percent of Freddie and Fannie volume coming from their “Top 5” lenders.
If you compare 2008 versus 2013, and include all lenders’ channels, the
percentage of FF’s total volume from the top five sellers has been
declining since 2012. In the 4th quarter of 2013, the top
five lenders comprised only 39% of Fannie’s total volume, compared to
61% in 2008. Freddie derived 43% from the top five versus 60% in 2008.
As “Inside Mortgage Trends” points out, this is due to a number of
factors, including some top lenders downsizing or bailing entirely, an
increase in smaller lenders and smaller lenders selling directly to
FF (versus selling to the aggregators, who then in turn sell to the
agencies), and the rise of large non-bank servicers like Nationstar,
Walter, or Ocwen. And speaking of servicing – the same thing is
happening there: it has become more spread out over a diverse group of
companies.

This is by no means an endorsement of the program, or Chase Bank, but I found this interesting. Four years ago Chase launched its Mortgage Cash Back program;
a program which allows customers with a new or refinanced mortgage –
and a personal checking account – to earn up to $500 annually. Recently
Chase announced that more than 368,000 customers received $87 million
since the company launched the program, and that they will distribute $4
million in December ’13 alone to customers with loan anniversaries
occurring in the month. In 2013, Chase will pay out $37 million in
program incentives. For those not familiar with the program, mortgage
payments are automatically deducted from a Chase personal checking
account and on the anniversary of their loan each year, customers can
cash out or pay down the principal on their mortgages to save even more.
By choosing the pay down option, customers receive an additional
savings in interest, which could lead to paying off their mortgage
early.

Let’s continue on with company-specific news to see some other trends out there. As always, it is best to read the complete bulletin for full details!

SunTrust retired its high price exception for FHA transactions as of January 10th and is now requiring only one appraisal for Key Loans up to $1.5 million.

Per the Dodd-Frank rule on Points and Fees, First Community Mortgage is
imposing a maximum compensation percentage of 2.75% for brokered
transactions, and any loans locked within FCM limits which later fail to
comply with the 3% threshold may be required to transition to
borrower-paid or may have the lender administration fee lowered.  A
new “No Lender Administration Fee” option will be available for all
programs apart from Jumbo that will allow lenders to price the loan with
the lender admin fee as a .625 LLPA that will be incorporated into the
net price shown on the pricing engine for all lender-paid compensation
scenarios.  This
does not apply to VA loans, which will not be subject to an FCM Lender
Administration Fee or any additional pricing adjustment for the no fee
option.  The minimum compensation requirements have also been removed.

First
Community Mortgage has announced that it will be expanding its lending
territory into Iowa, North Dakota, and South Dakota, where it will offer
all of its loan types subject to the specific product’s geographical
restrictions.

The
Agencies have issued a reminder that they will be implementing the
second phase of the UAD compliance warning edits, which will be changed
to fatal UAD edits in the UCDP on January 26th.  This affects the Quality of Construction Rating, Location Rating, View Rating, and Condition Rating data fields.  Any
appraisal submitted to the UCDP that receives one or more fatal UAD
edits will result in the issuance of Hard Stop 401 and the receipt of a
“Not Successful” status, which makes it ineligible for delivery to
either GSE.

Beginning February 17th, the Agencies will be requiring sellers to implement several new data elements into the ULDD,
including the disclosed rate index (index rate used to draw closing
docs for ARMs) and number of mortgaged properties (total number of
mortgages properties for all borrowers on the loan, including the
subject property).

Effective for all loans with applications dated January 14th and after, FNMA has
revised its condo and PUD policies to allow no more than six month of
regular common expensive assessments to have priority over the FNMA
mortgage lien, even in cases where the law provides for a longer
priority period.  Although
the FNMA selling guide does not currently provide for this, the condo
or PUD project legal documents must show compliance with this
requirement.  This revision does not affect projects located in jurisdictions that enacted a law on or before January 14th
that allows regular common expense assessments to have priority for
more than six months, provided that the law references FNMA’s
requirements (i.e. the Uniform Condominium Act or the Uniform Common
Interest Ownership Act).

Wells Fargo has
updated its Residual Income Evaluation to exclude FHA transactions,
even when they are classified under rebuttable presumption.  FHA loans with RESPA application and case number assignment dates of January 10th
or after are required to comply with QM, including Points and Fees, as
are all such transactions where the RESPA application is dated before
January 10th.  For
transactions with case numbers assigned before this date, the loan
should be underwritten to comply with HUD guidelines and will be
reviewed by Wells under the temporary provisions by the CFPB.

Effective for RESPA applications dated on or after January 10th,
HPML transactions will be ineligible for Wells Prior Approval; however,
they may still be qualified using delegated underwriting authority.

In
response to recent market activity, Wells is revising its Non-Agency
ARM
purchase pricing adjustor from 62.5bps to 37.5bps, effective for all
Best Efforts transactions locked, re-locked, or re-negotiated on or
after January 21st.  For
all Non-Conforming locks, re-locks, and re-negotiations, the FICO
adjustor for LTVs between 70.01 and 80% has been revised to -.125.

Chase has
updated its Non-Agency debt analysis guidelines to exclude Federal,
State, and local taxes; FICA or other retirement contributions;
commuting costs; union dues; open revolving accounts with zero balances
(with the exception of HELOCs); automatic deductions to savings
accounts; child care; and voluntary deductions from being included in
the DTI ratio.  The
derogatory credit guidelines as they pertain to DU and LP have been
revised to encompass both FNMA and FHLMC guidance on seasoning
requirements.

Chase’s
FHA guidance has been updated to prohibit the use of real estate tax
credits as qualifying assets to offset the minimum 3.5% down payment
requirement, and while a seller real estate tax credit can be applied
towards the cash to close on the HUD-1, the down payment must be
verified regardless of cash brought to or received at closing.

Turning to the markets: up a little, down a little.
Yesterday rates were down a little, the 10-yr closed at 2.84%, and
agency MBS prices were better by about .250 – mostly based on supply
versus demand: the Fed is buying $2.86
billion a day and mortgage banker supply is only producing about $1.1
billion. (Also boosting Treasury performance Thursday was the latest
monthly capital flows release from the Treasury department which
highlighted that China and Japan boosted their holdings of Treasury
bonds by $12 and $12.2 billion in November, respectively, to a record
high.) There is certainly nothing for “inflation folks” to talk about –
there is very little movement in the CPI or PPI. We will have a little
news today, consisting of the December Housing Starts and Building
Permits duo (they came out pretty close to expectations, but Housing
Starts were down almost 10%, and Permits were down 3%), the December
Industrial Production and Capacity Utilization couplet, and the normally
forgettable preliminary January Consumer Sentiment number. From the housing numbers this morning, MBS prices have improved slightly and the 10-yr is down to 2.83%.

 

 

THESE ARE ACTUAL COMPLAINTS RECEIVED BY THOMAS COOK VACATIONS FROM DISSATISFIED CUSTOMERS (part 2 of 2):

11.
“The roads were uneven and bumpy, so we could not read the local guide
book during the bus ride to the resort. Because of this, we were unaware
of many things that would have made our holiday more fun.”
12. “It
took us nine hours to fly home from Jamaica to England. It took the
Americans only three hours to get home. This seems unfair.”

 

13. “I compared the size of our one-bedroom suite to our friends’ three-bedroom and ours was significantly smaller.”
14.
“The brochure stated: ‘No hairdressers at the resort’. We’re trainee
hairdressers and we think they knew and made us wait longer for
service.”
15. “There were too many Spanish people there. The
receptionist spoke Spanish, the food was Spanish. No one told us that
there would be so many foreigners.”

 

16. “We had to line up outside to catch the boat and there was no air-conditioning.”
17. “It is your duty as a tour operator to advise us of noisy or unruly guests before we travel.”
18. “I was bitten by a mosquito. The brochure did not mention mosquitoes.”
19.
“My fiancé’ and I requested twin-beds when we booked, but instead we
were placed in a room with a king bed. We now hold you responsible and
want to be re-reimbursed for the fact that I became pregnant. This would
not have happened if you had put us in the room that we booked.”

 

 

 

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com.
The current blog is, “What Do We Know About the Future of the
Agencies?” If you have both the time and inclination, make a comment on
what I have written, or on other comments so that folks can learn what’s
going on out there from the other readers.

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx. For archived commentaries, or to subscribe, go to www.robchrisman.com.
Copyright 2014 Chrisman LLC. All rights reserved. Occasional paid job
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Chrisman.)

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