Politics and Housing; 3.8% Real Estate Tax Myth; Lots of Processing and Origination Stats


Here in Denver the city is preparing for next Wednesday’s presidential
debate. And what would an election be without a Chia Pet in the shape of
your favorite candidate.
(Although Newt looks like someone’s grandma.)

today’s trivia, the last time a Republican was elected president without a
Nixon or Bush on the ticket was 1928!! There are 41 days until the election, and it
seems like the nation has been watching the campaign and the primaries for
years. At this point many polls have President Obama ahead.  Presidential debates have the potential to tip
the scales for undecided voters, so we’ll see what happens. One thing we know,
however, is Mitt Romney unveiled a housing white paper on Friday.
It proposes a return of private capital to the secondary mortgage market,
devolution for Fannie and Freddie Mac, and places a strong emphasis on the 12
million jobs the Romney administration pledges to create. We all know, however,
that Fannie Freddie’s fate hangs with not only the president but also
with Congress – and what will replace them, if anything?  [READ: Romney vs. Obama: An Overview of the Candidates Housing Views]

is looking for account executives to cover the states of Minnesota, Michigan
and California for AllRegs Education and Mortgage Products divisions. Many know
the company as a “leader in compliance, education and risk management solutions
for the mortgage and banking industry for the last 20 years.” Duties will
include selling AllRegs solutions to new and existing customers, meeting
specific goals and targets for new sales and maintaining relationships with
multiple contacts in each account on various business matters.  The ideal
candidate will have a good working knowledge of mortgage banking and
relationships in their state territory that can be leveraged. Confidential
resumes should be directed to Linda Bomar, National Sales Manager Team
Leader, at lbomar@allregs .com.

Returning to things politically related, back in March this commentary
discussed the urban myth about the 3.8% real estate sales tax, and I
figured it was worth a repeat. “Yesterday, for the ‘umpteenth’ time, I received
an e-mail which included, ‘Due to Obamacare, did you know that if you sell your
house after 2012 you will pay a 3.8% sales tax on it?  That’s $3,800 on a
$100,000 home, etc.  When did this happen?  It’s in the health care
bill and goes into effect in 2013.  Why 2013?  Could it be to come to
light AFTER the 2012 elections? So, this is ‘change you can believe in’? 
Under the new health care bill all real estate transactions will be subject to
a 3.8% Sales Tax.’ As a fiscally conservative, socially liberal Republican, I
had to figure out if this was true. It is not true – in 2013 there will be
no “sales tax” on real estate
. Congress did approve, however, and
the president did sign, a bill authorizing a 3.8% tax on the capital gains
(unearned income) on real estate transactions over the existing $500,000
exemption for married couples ($250,000 for singles). Couples have to make more
than $250,000 in adjusted gross income for the tax to apply to them (singles
more than $200,000). And it isn’t very common these days to find married
couples in most parts of the nation making more than $250,000 a year, who then
also made more than $500,000 in profits on their house sale. See for yourself
on page 946.”

We have all kinds of industry stats: you can’t improve what you can’t
measure! Mortgage News Daily summed up Ellie Mae’s latest “Origination Insight
” (covering 20% of mortgage originations and coming through a 33% sample
of Ellie’s platform) showing that “the time needed to close a mortgage loan
has increased by almost 25 percent over the last year, from an average of 40
days to 49 and it was refinances that drove the change
. The time
needed to close a loan for purchase increased from 43 days in August 2011 to 47
days in August 2012 while during the same period the average time required to
close a refinancing increased by two full weeks to 51 days. 61% of loans closed
in August were for the purpose of refinancing compared to 58% in July.”
Interestingly “the 61%/39% refinancing/purchase split in August was identical
to that of one year earlier.  FHA loans represented 21% of all loans
closed in August and conventional loans had a 70% share.” Pipeline hedgers were
especially interested in the closing rates:  48% versus 46% in July 2012.  The closing
rate for refinancing was 41% and for purchases 60%. For more fun with numbers:
ARM’s were less than 3% of fundings in August, the average closed loan had a
FICO score of 750, LTV of 79%, and a DTI of ratio of 23/34. One year earlier
those numbers were 741, 79, and 25/36.  At the same time, denied loans had
an average FICO score of 708 in August, an LTV of 88, and a DTI of 27/43 where
one year earlier those numbers were 696, 82, and 29/45. Lastly, “The
percentage of refinances at 95%-plus LTV dropped for the third consecutive
month, from 10.2% in June and 8.7% in July to 7.74% in August, a possible sign
that HARP 2.0 continues to be cooling off.”

Secondary and management folks with whom I have spoken believe that the
increased closing percentages are a result of more purchase transactions and
timely/ easier short sale approvals from the banks. But as the president of one
mid-sized lender told me, “The processing time is crippling the industry. 
Increased scrutiny coupled with current volumes is causing infrastructure
. I’m sure an unintended consequence of this is more
restrictive access to credit for many. I am concerned the industry is
getting too comfortable feasting on high credit quality – this will create a
big imbalance at some point.”

Talking about volumes and bottlenecks, according to the MBA the level
of commercial and multifamily mortgage debt outstanding decreased by $10.4
, or 0.4 percent, in the second quarter of 2012. The measure comes
from the balance of loans in CMBS, CDO and other ABS issues. “The $2.37
trillion in outstanding commercial/multifamily mortgage debt was $10.4 billion
lower than the first quarter 2012 figure. Multifamily mortgage debt outstanding
rose to $826 billion, an increase of $5.4 billion or 0.7 percent from the first
quarter of 2012. MBA’s analysis is based on data from the Federal Reserve
Board’s Flow of Funds Account of the United States and the Federal Deposit
Insurance Corporation’s Quarterly Banking Profile.” “CMBS loans paid-off,
paid-down and were liquidated at a far faster pace than new CMBS loans were
originated during the quarter,” said Jamie Woodwell, MBA’s VP of commercial
real estate research. “The drop in CMBS balances more than offset the increases
in holdings by Fannie Mae, Freddie Mac and FHA, banks and life insurance
companies.” Commercial banks continue to hold the largest share of
commercial/multifamily mortgages. All the stats you’d ever want can be found here.

The MA
and agency updates have been a deluge in September
. As always,
it is best to read the actual bulletin, and “good luck” if you’re looking for
less documentation, lower net worth requirements, or easier processing.

Publicly held Crescent Financial Bancshares will be merging with
publicly held ECB Bancorp
. This is the second recent merger announcement
for Crescent Financial Bancshares (Crescent State Bank): last month Crescent
State Bank and VantageSouth Bank announced that they had entered into a
definitive merger agreement. And in North Carolina CapStone Bank will buy
Patriot State Bank
for about $10.6mm in cash and stock.

As a reminder, the FHA has revised its policy on qualifying income such that
any income from the Social Security Administration may be used provided that it
is verified and likely to continue for at least three years following the date
on the mortgage application.  This includes Supplemental Security income,
Social Security income, and Social Security disability insurance.  Lenders
are permitted to verify these income types using federal tax returns, a Proof
of Income Letter from the SSA, a copy of the borrower’s Social Security Benefit
Statement, or the most recent bank statement, assuming it discloses receipt of
SSA income.  Borrowers must also provide a copy of the most recent Notice
of Award letter stating the SSA’s confirmation of their eligibility for SSA
income or any equivalent document establishing their award benefits.  If
the Notice of Award or corresponding document doesn’t have a defined
expiration, the lender may consider the income effective and likely to

The FHA has reissued the waiver for borrowers with manufactured homes in
FEMA-designated flood areas, available here
The waiver is good for one year from the date of its original issuance, July
24, 2012.

As a reminder, the VA has ceased to require the VA certificate for IRRRLs.

With the signing of Honoring America’s Veterans and Caring for Camp Lejeune
Families Act into law, the maximum guaranty limits for VA loans are
subject to increases for the next few months.  The relevant county limits
should be used to calculate the VA’s maximum guaranty amount for all loans
closed through December 31, 2012.  Once the FHFA provides median price
data in November, the VA will publish the loan limits for the 2013 calendar
year.  In cases where a county’s 2013 limit decreases, the VA will
guarantee loans using the previous higher limit when provided with evidence of
a pre-approval based on a sales contract or URLA completed prior to December
31, 2012.  For all the counties not listed here,
the current loan limit is $417,000.

All non-bank residential mortgage lenders and originators are reminded that
they should have established anti-money laundering and suspicious activity
reporting programs as per FinCEN’s requirement under the Bank Secrecy
The official deadline was August 13th, but those who require
additional guidance can consult FinCEN’s official communications on the matter
and the Anti-Money Laundering Examination Manual.

The USDA Up-Front and Annual fee structure will be changing on the first of
October with the arrival of the new fiscal year.  For purchase and
refinance transactions, the Up-Front Guarantee fee will be 2% (an increase from
the previous 1.5% for refinances) and the Annual fee 0.40%.  As funding
for refinances was exhausted by the end of August, all new refinance
commitments dated August 22, 2012 or after are being issued under the FY 2013
fee structure.

Switching to the markets, is everyone thinking that QE3 (QE Unlimited)
is the best thing since sliced bread?
It is important to note that while
QE3 is already in full force with the Fed buying agency MBS with “newly printed
money,” the money will not reach the economy for a couple of months. Many
critics argue that instead of sparking economic growth and lower unemployment
that QE3 will devalue the U.S. dollar, raise commodity and asset prices (like stocks),
and heighten inflation fears. They argue that there is a limit to what monetary
policy can do, especially on the labor market front, and that lenders
refinancing the same borrowers they did six months ago will have little real
impact. More easy money doesn’t necessarily inspire someone to make an
investment, take risk, and hire folks.  If the Fed wants inflation they
may get it and hopefully not too much of it. But be careful what you wish
for: when inflation rises, rates must rise with it.

We are seeing a little inflation in certain housing markets. Both the
July House Price Index released by the Federal Housing Finance Agency (FHFA), and
the SP/Case-Shiller report showed increases in housing prices nationally. 
However, unlike Case-Shiller which showed improvement across all cities in its
universe two months ago, the FHFA numbers indicate continued weakness in three
census divisions (East South Central, New England, and the Middle Atlantic).

We also found out from the Conference Board that Consumer Confidence
Index rose nine points this month, far better than expected. In spite of that,
fixed-income markets rallied, and 30-year FNMA 3.0%, 3.5%, 4.0%, 4.5% and 5.5%
coupons all set historical highs – up about .250 in price. The Fed buying more
loans than are being produced certainly helps prices, but even the 10-yr T-note
was up about .250 and closed at 1.68%. And mortgage lenders certainly seemed
willing to sell into the rally, with Tradeweb reporting volumes at 122% of the
30-day moving average. (It is important to remember that Tradeweb does not
include many regional dealers who are buying MBS.)

Today we’ll have more housing news with New Home Sales for August at 10AM
EST, and a $35 billion 5-yr note auction at 1PM EST. We’ve already had mortgage
applications from the MBA: up almost 3% with refi’s accounting for more than
81% of the apps. In the early going the 10-yr is down to 1.63% and MBS
are about .25 better.

Okay, here is something totally non-mortgage related and not really a joke, but
is pretty cool and is about 2 minutes long. Out in California, an Aptos dad found
2 minutes of YouTube fame with the launch of his son’s toy train into the
stratosphere, and it has a happy ending.


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