G-fee Changes in Limbo; Wells Settles with Fannie; Tax Breaks Expiring; Drug Testing in Financial Services’ Future?

News

Thanks to FAMC
for sponsoring the Franklin American Mortgage Music City Bowl. It was
some great publicity for FAMC and the industry. And this is that day, at
quittin’ time, when you tell your co-workers “See you next year!” Yuck,
yuck, yuck.

I
love maps. I love colored maps. I love interactive colored maps the
most. So I was excited, along with thousands of LOs Realtors who
have to do presentations on this stuff for clients, when the U.S. Census
Bureau recently unveiled “Census Explorer“, a new interactive map that gives users easier access to neighborhood-level statistics.
The map uses updated statistics from the 2008-2012 American Community
Survey, and includes graphical representations for total population,
percent 65 and older, foreign-born population percentage, percent of the
population with a high school degree or higher, percent with a
bachelor’s degree or higher, labor force participation rate, home
ownership rate, and median household income.

Kansas is going to begin drug testing for welfare recipients in 2014. And the Department of Defense has long been testing for certain drugs, and many financial service sector companies require applicants to undergo drug testing prior to being hired. Is
it really a stretch to predict that anyone with access to confidential
financial information for consumers will not be required to be drug-free
some day? Many companies have no desire, given other compliance
issues, to have any questions regarding having data compromised, or
legal or security issues. Some companies receive insurance premium
reductions if they drug test employees. Illegal drug use/abuse is
illegal, and if an employee is demonstrated to be willfully violating
laws, the likelihood is generally considered higher that they might
break laws in the course of work. Agencies, and aggregators, could
easily expect their clients to have drug testing programs, especially
for new employees or senior management. But there are arguments against
it
.

Here is the story on the tax breaks. It is not good news for anyone hoping for an extension for any mortgage-related breaks.

We have 7 business days until QM, and my colleague Garth Graham at STRATMOR related the cold winter weather to the cold climate in the mortgage industry. I guess it was his way of extending warm wishes.
“We have checkers checking checkers all in the attempt to create the
perfect loan in the changing environment. This has shown up in higher
costs which were easily offset by higher margins in the past year but
surely this is hard to handle when the margins compress.”

“Rob, what do you hear out of the Agencies, or large aggregators, about the changes, or lack of changes, with fees?”
Good question. Just like the NFL audience waiting for a review of a
close play, the industry is waiting to see what happens. At this point
Mel Watt is not the director, and therefore the agencies are moving
toward their announced changes. But aggregators and investors are taking
a different approach. I received this from one VP of correspondent
lending for a large investor: “We are going to hold off on implementing
changes that would impact 60 day locks until 1/8. Until we get official
notice from the new FHFA Director, we have to proceed as if the 4/1
issue date is still the plan. We wonder how much analysis work will be
done between now and 1/6?   How soon will Mr. Watt officially review the changes?  How
long will the stay be in place? Finally, will the decision to not
implement these changes along with the FHA reductions be put into the
President’s 1/21/14 State of the Union Address as stimulus/support for
the American Dream.” For the agencies, word has it that they are waiting
for a revised directive from the FHFA based on the Mel Watt
announcement. Once FF receive a new directive they will issue a
formal communication.

Wells Fargo has agreed to pay $591 million to Fannie Mae
to settle disputes over bad mortgages the bank sold to Fannie during
the subprime housing boom. The agreement covers loans originated by
Wells Fargo before 2009 that Fannie Mae was trying to force the bank to
buy back. The deal “resolves substantially” all repurchase issues
related to those loans, the company said. Wells Fargo will pay $541
million in cash to Fannie Mae, with the rest covered by credits from
earlier repurchases. And Michigan’s Flagstar Bank has agreed to settle a dispute with Freddie Mac
over loans made between 2000 and 2008. “Flag” will pony up $10.8
million, $8.9 million in cash with the remainder made up of credits and
adjustments. Last month Flagstar reached a similar settlement with
Fannie for $121.5 million – which cost $93.5 million after credits and
adjustments.

Here are some recent vendor, aggregator, and lender policy and underwriting changes from recent weeks of note.

First,
last week in the commentary I mentioned that “FHA also allows
non-occupant co-borrowers
that are family members and use what are known
as ‘blended ratios,’ meaning that the income to debt ratios of the
primary applicant who will occupy the home do not matter as long as the
total ratios fit the guidelines.” LO Joseph Levy countered with, “I
believe Freddie also allows non-occupant co-borrowers.”
I asked the folks at Freddie, who answered, “Yes, like FHA, Freddie Mac
does allow non-occupant co-borrowers.” (This is not an underwriting
manual, so if you need more specifics about the ratios etc., they can be
found in Freddie’s Single-Family Seller/Servicer Guide, Volume 1,
Chapters 22-28: General Mortgage Eligibility, or Chapters 37-38: Credit
Underwriting.) Thanks guys!

Wells
will be requiring a residual income evaluation on all Qualified
Mortgages that have a rebuttable presumption of compliance as of January
10th.  The
loan should be tested using a standard Residual Income Evaluation prior
to consummation to show sufficient residual income by the borrower to
meet monthly living expenses after paying their mortgages and other
debts.

Per
the CFPB LO Comp Rule, Wells will require the loan originator’s name,
loan originator’s organization’s name, and NMLSR IDs on the application,
note, and security instrument when the document is provided to a
consumer or presented to a consumer for signature beginning on January
10th.  The
rule also stipulates that non-compliant loans must be recommended for
non-purchase, and failure to provide the name and NMLSR information
cannot be cured at post closing.

Wells
is no longer purchasing 3/1 ARMs due to the QM/ATR requirements that
ARMs qualify at the maximum rate for the five years following the first
payment.  Other
QM/ART-related changes include reducing the maximum DTI for non-owner
occupied transactions to 43 and treating accounts with ready reserves on
checking accounts with a balance as revolving accounts for
Non-Conforming loans.

360 Mortgage Group
released its Freddie product offering to both the wholesale and
delegated correspondent business channel. Just like its Fannie products,
there no overlays. (Meaning, just like DU Refi Plus, 360 is one of a
few lenders who will take it with no LTV caps or “guideline adjustments”
of any kind.) Additionally 360 Mortgage will accept standard LP
products including super conforming.

PennyMac has
also issued an announcement that it will not purchase loans where the
relevant NMLSR information is not disclosed on the credit application,
note or loan contract, and security instrument per the LO Comp Rule.

Per the VA’s November announcement, PHH has
updated its VA underwriting guidelines to state that properties served
by individual water and/or sewer systems are only required to be
connected to public water and/or sewers if required by the local
building, planning, or health authorities and that well water or septic
tests or certifications on properties with individual systems will be
considered valid for 90 days unless otherwise stated by the local health
authority.

Mountain West Financial has
revised the underwriting guidelines for borrowers with 5-10 financed
properties, they highlights of which require a 720 minimum FICO, allow
cash-out as an exception when the subject property is eligible for the
delayed financing requirement, and stipulate that if the subject
property is non-owner occupied the transaction must go through the
Direct Program.

MT Bank has
updated its Agency Underwriting Eligibility Standards guide for
lenders to use when underwriter Fannie and Freddie products with
registrations dated December 26th and after.  The
military personnel, age of tax returns, employment-related assets as
qualifying income, temporary leave, and self-employed income fields of
the Income section; the business assets used for closing, employer
assistance, grants, and IDA/matching program fields of the Assets
section; and the deferred installment debts and real estate tax
estimates for qualifying and escrows in the Liabilities sections have
all been updated to align with current Agency guidelines.

Cole Taylor will
begin offering a No Lender Admin Fee option that will give borrowers
the option to obtain pricing with the cost of the lender admin fee
incorporated into the net price through a new set of LLPAs for all loans
locked on January 10th and after.  This will be available for all programs apart from Jumbo.

WesLend is
considering properties with UAD condition ratings of C5 or C6 as
ineligible in “as is” condition and is requiring lenders to cure
deficiencies that caused the rating and/or complete the hypothetical
condition that must be completed.  This applies to Conforming and high balance/Super Conforming Fixed and ARM programs.

WesLend
has updated guidelines on Non-Arm’s Length transactions, which are not
eligible for second homes and investment properties; rent loss
insurance, for which clarification has been added to specify when the
insurance is required and where it may be waived; and for its Direct FHA
program, for which the maximum DTI has been revised to 43 and the
minimum FICO to 620.  The Non-Conforming Jumbo product guidelines have also been updated to cap the LTV/CLTV for Florida condos at 75.

MSI will be requiring specific Residual Income and Reserves on all QM Rebuttal Presumption loans as of January 10th.  For
primary residence transactions, a monthly residual income between $800
and $2500 will require the greater of three months’ liquid PITI or the
minimum reserves for the specific loan product, while residual incomes
under $800 will not be eligible for funding or purchase.  All second home and investment property transactions require a residual income of $2500 or more.

Effective
immediately, MSI is requiring that the owner own 100% of the business
if they intend to use business funds as a down payment or reserves.  The
guidelines for FNMA DU Approve loans with an LTV over 80% have also
been updated to allow gift funds from a public or nonprofit organization
or municipality or an employer with an established employee assistance
program.

United Wholesale has
rolled out its new Flex Term program, which allows borrowers to select
their preferred amortization term and refinance without resetting the
mortgage clock.  Terms from 8 to 30 years are available and may be combined with other UWM products.

Software provider Mortech, a division of Zillow,
has partnered with AllRegs to upgrade the workflow for its Marksman
pricing engine, which now allows loan officers to directly access
investor underwriting guidelines.  This
new option is available on both the product and rate screens, with the
results color coded to indicate whether a borrower can qualify for a
particular program based on the loan criteria entered.

Monday was (finally) a good day for agency MBS prices. The only news out was the November
Pending Home Sales number which rose slightly from an October reading
(which, in turn, was revised lower), falling short of expectations and
was 2% lower than one year ago. The yield on the 10-yr didn’t do much,
closing at 2.98%, but MBS prices, that help set rate sheets, were better
by .250-.375.

Today
we’ll have the Chicago PMI Manufacturing and Consumer Confidence
releases, but we’ll also have an early close in the markets ahead of
tomorrow’s holiday – so don’t look for cutting edge prices because in
the afternoon there will be no way to hedge any incoming locks. In the early going the 10-yr’s yield is at 2.99% and agency MBS prices are worse by .125.

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