New Agency Borrowers Will Pay for Payroll Tax Cut Extension; Catch the Wave


The Census
Bureau reports that between 2005 and 2011, the proportion of young adults
living in their parents’ home increased. The
percentage of men age 25 to 34 living in the home of their parents rose from
14% in 2005 to 19% in 2011
and from 8% to 10% over the period for women.
Realtors and loan originators pay attention to this stuff, as it impacts their
advertising and pool of potential clients. Similarly, 59% of men age 18 to 24
and 50% of women that age resided in their parents’ home in 2011. (College
students living in a dormitory are counted in their parents’ home, so they are
included in these percentages.) In general, the percent of all households that
contain just one person has risen from 13% in 1960 to 28% in 2011.

My Dad, who grew up during the Depression, often wonders, “When will
people stop blaming others for their own problems?” 

Republicans “caved” to demands by President Barack Obama, congressional
Democrats and fellow Republicans for a short-term renewal of payroll tax cuts
for all workers. The breakthrough almost certainly spares workers an average
$20 a week tax increase January. Not only do we have to watch Congress go
through this thing all over again in two months (by 2/29 – maybe we should put
the Super Committee on it!), but in a clear problem for the mortgage industry, its $33 billion cost will be covered by an
increased fee on mortgages backed by Fannie Mae, and Freddie Mac
. (No, I
don’t know by how much.) I have news for Congress – new borrowers shouldn’t
bear the brunt of paying for this, and if you jack up agency mortgage costs
high enough, there won’t be enough guarantee fee income because borrowers won’t
borrow – and let Washington see how that helps our housing sector. I’ll get off
my editorial soap box now…

Many in
the industry believe that Fannie and Freddie start a new program to shed the
credit risk of the mortgages they guarantee in the private sector. Folks say it
should be simple to understand, not affect the existing agency MBS market, use
existing financial technology, and not need legislative approval. It should
also factor in that regulators will want to control loss mitigation and
mortgage modification. Security dealers have suggested issuing GSE unsecured
debt whose cash flows mimic a first loss piece, with some caveats. The coupon
of this tranche comes from the guarantee fee of the referenced collateral,
severities are fixed to remove uncertainty about liquidation timelines,
prepayments are passed on to keep the structure simple, and the tranche is sold
for cash to remove counterparty risk. The cash flows to existing agency MBS are
not affected; the investor is taking on unsecured GSE credit risk “pari passu”
with existing agency debt. The ultimate goal will be to use this program to
shed credit risk of newly issued agency mortgages. In the dealer’s mind, the
economics work for the GSEs to place the credit risk of current
well-underwritten collateral in the private markets – but not the older stuff.

The American Banker, in a story
written by Jeff Horwitz and Kate Berry, noted that Fannie “has acquired the rights to service hundreds of billions of
dollars of loans and transferred responsibility for managing them to a select
group of large subservicers
” including the August deal with BofA for $73
billion of servicing. “Why the secrecy? Fannie is ‘under a lot of political
pressure, and wants to keep everything’ quiet, says Paul Miller, managing
director of FBR Capital Markets. To Fannie, yanking servicing rights from big
banks has other appeal, Miller says. Fannie executives ‘don’t like how Bank of
America, or any other major servicer, is servicing the loans,’ he says. ‘The
biggest servicers are totally dysfunctional and putting no resources into the
process.'” The recent servicing transfers are simply the best way to protect
itself from losses resulting from botched loan management, says Amy
Bonitatibus, a spokeswoman for the company.

bills in Congress aim to wind down Fannie Mae and Freddie Mac, they at the same
time look to the FHFA to draft industry standards for private mortgage
securitization. For example, one proposal would have the FHFA establish a U.S.
database for title transfers and create a standard pooling and servicing
agreement, and another would have it develop standards for mortgage servicers,
various classes of loans based on default risk and qualification standards for
firms that securitize mortgage bonds. (Yet another related bill in the Senate
would offer foreign investors a 3 year “homeowners visa” if they
invest $500k in cash into a home and stay in it for at least 6 months.)

seems to be a huge number of investor
updates this week
– I can’t list them all. But here is a smattering of them
in no particular order:

PHH told clients that, “Cash Out Refinance transactions
involving installment land contracts are not eligible. When a land contract is
being paid off, the transaction must be considered either a purchase or a rate
and term refinance.” In addition, “for Interest Rate Reduction Loans (IRRRLs),
an appraisal is not required if (various) requirements are met such as if the existing
loan being refinanced is a PHH-serviced loan, and the new interest rate is
lower than the previous interest rate.”

Home Savings of America posted the revised VA loan limits on
its wholesale website,
ResourcesMiscellaneous, and reminded brokers that the loan limit
revisions do not apply to VA IRRRLs (‘Loan Limits’ means the maximum allowed
base mortgage for a veteran with full VA eligibility benefits and no down
payment. For all VA loans, the sum of the property equity/down payment plus VA
eligibility must be at least 25% of the base loan amount payment.)

U.S. Bank told clients that starting 1/1, “for lenders
that close FHA loans in U.S. Banks name, certain FHA Streamlined Refinance loan transactions submitted to U.S. Bank
Home Mortgage Wholesale Division for underwriting will be subject to special
underwriting guidelines.  This change does not impact Correspondent
Lenders utilizing their own DE authority to approve the transaction. The
special underwriting guidelines that will apply are: FHA Streamline Refinance
Applications with borrower FICO scores 660 will require full underwriting
of income, employment, assets and credit with supporting documentation. 
LP or DU (TOTAL Scorecard) must be utilized to score the loan and to indicate
the Accept or Refer documentation level.  Appraisals will not be
required.   TOTAL should be processed as a rate and term refinance.
Enter the Original Property Value when running TOTAL.  This value is
obtained from the Refinance Authorization Results on the FHA Connection. 
Refer findings will be manually underwritten utilizing FHA manual underwriting
documentation requirements. Borrowers with FICO scores 660 remain eligible
for FHA Streamline Refinance reduced documentation. Existing minimum FICO score
requirements are still applicable.”

Fifth Third Wholesale Lending will “accept a credit report in lieu
of a payoff statement for all FHA loan transactions on loan submissions. The
updated checklist is attached and will be available on And
for all Conforming and Portfolio Products: Combined Fifth Third Liens $1MM,
two appraisals are required when the combined amount of Fifth Third liens
originated through any Fifth Third entity is $1million. Subordinate
financing held with a lender other than Fifth Third is excluded from the total
amount of combined liens
Note: For transactions involving a HELOC, the high credit limit must be used to
calculate the combined loan amount.” Lastly, the maximum loan to value limit is
95% for the LTV/CLTV on all attached housing including PUDs, Condos, and HARP
Programs.” Please refer to the product guidelines for additional restrictions.

On the
correspondent side, Fifth Third Mortgage “does not require a cushion for
mortgage insurance escrows. After purchase of the loan, Fifth Third Mortgage
Company’s Servicing Division will perform an analysis of the borrower’s escrow
account using the aggregate accounting method, and will provide an Escrow
Disclosure Statement as required by the regulation. The Initial Escrow Account
Disclosure is a required attachment to the HUD-1 on escrowed loans. A two-month
cushion is required by Fifth Third Mortgage Company on escrowed tax and
homeowners insurance unless otherwise mandated by state law.”

Flagstar reminded its brokers  that,
“Effective for VA loans registered on or after January 1, 2012, if two or
more veterans are using entitlement to obtain VA financing and the veterans’
funding fee factors are not identical, the loan is ineligible for approval,
closing and/or purchase by Flagstar. At this time, Flagstar’s systems are
capable of calculating only one funding fee factor for the entire loan, so
exceptions cannot be made.”

Aurora rolled out a jumbo product this week.
Aurora Bank FSB’s program highlights include, “15 and 30 year fixed rates, 5/1,
7/1, 10/1 Hybrid ARMS, maximum $2,000,000 loan amount, O/O 1-2 units, O/O , 80
% LTV available at 700 Fico Score for a maximum of $1,000,000 loan amount, cash
out allowed up to 60% LTV. In order to participate, all appraisals must be
ordered by the Correspondent through an Aurora Bank FSB approved Appraisal
Management Company (AMC).  The AMC completed appraisal will be subject to
a full underwrite as a part of the non-delegated Jumbo process – if you have
any questions, please contact Client Support at 

Yesterday we saw that the University of Michigan Consumer Sentiment index for
the end of December rose to 69.9 from the 67.7 reading earlier this month, up
from 64.1 in November, and higher than the 68.0 expected by economists. The
Conference Board Leading Economic Indicator Index increased 0.5% in November to
118.0, following a 0.9% increase in October. Lastly, the FHFA House Price Index
fell .2% in October, and September was revised downward to reflect a 0.4%
increase, rather than the 0.9% increase originally reported. Mortgage-backed
securities (MBS-agencies) had a decent day.

morning Durable Goods, always a volatile number, were up 3.8% in November, but
ex-transportation it was only +.3%. November Personal Income was +.1%, Personal
Consumption was +.1%, both a little less than expected. After that, 9AM CST offers
up October New home sales that are expected to also exceed prior reads. After the news we find the 10-yr at 1.98%
and MBS prices worse by about .125-.250 – but who would lock today?

Three men died on Christmas Eve and were met by Saint Peter at the pearly

“In honor
of this holy season,” Saint Peter said, “You must each possess something that
symbolizes Christmas to get into heaven.”
The first man fumbled through his pockets and pulled out a lighter. He flicked
it on. “It represents a candle,” he said.
“You may pass through the pearly gates,” Saint Peter said.
The second man reached into his pocket and pulled out a set of keys. He shook
them and said, “They’re bells.”
Saint Peter said, “You may pass through the pearly gates.”
The third man started searching desperately through his pockets and finally
pulled out a pair of women’s panties.
St. Peter looked at the man with a raised eyebrow and asked, “And just what do
those symbolize?”
The man replied, “These are Carols.”

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web
site located at . The current blog discusses the time
frames for borrowers returning to A-paper status after a short sale or
foreclosure. 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.

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