Orange Alerts on California’s Laws and Eminent Domain Focus; Lender Updates and Many FHA Streamline Changes

This is 70 seconds of “head shaking, jaw dropping,” why one
should never bet on cards.

Many of us enjoyed a little BBQ grub yesterday. For the meat eaters,
there is almost a 1 in 3 chance that the
hot dogs and pork sausages consumed on the Fourth of July originated in Iowa
.
The Hawkeye State is home for nearly 20 million hogs and pigs – almost
one-third of the nation’s estimated total. North Carolina (8.6 million) and
Minnesota (7.6 million) were also homes to large numbers of pigs. And Texas accounts for about one-sixth of the
nation’s total production of beef hot dogs, steaks, and burgers
. (Nebraska
is #2 and Kansas #3, per the USDA.) For chicken, the lion’s share (food humor)
comes from six states: Georgia, Arkansas, North Carolina, Alabama, Mississippi,
and Texas. And let’s not forget the lowly potato: approximately half of the nation’s spuds were produced in Idaho or
Washington in 2011.

The
industry, and servicing values in the state of California, waits to see if the governor
signs into law the “Homeowner’s Bill of Rights.”
Among other
things, “The bills also create an overly-complicated approach to prohibiting
dual-tracking, lack clarity around critical definitions, and fail to address
many industry concerns, including that a new ‘right’ to modification is being
created.” Here is the latest effort to stop it.

Nearly 20 financial services trade groups issued a joint letter protesting
a plan in California to use eminent domain to seize mortgages from private
investors. [Read: Proposal to Seize Underwater Mortgages via Eminent Domain not Well Received] These groups see this as a serious threat to the mortgage market
as it offers a way to restructure mortgages without costing taxpayers a dime. If
the program in California is successful, there is a fear it would be
implemented across the United States, meaning mortgages in most states are at a
prepayment risk. It also could impose losses on whoever holds the credit
risk on the mortgages. The success of the program could cause much higher risk
premium going forward the market as there is massive prepayment risk whenever a
loan is underwater; thus, higher mortgage interest rates and a strain on the
housing recovery. Previous permits to restructure mortgages without incurring losses
for taxpayers have run into Constitutional problems or needed taxpayer funding.
Under the Constitution, the government must pay the fair value for property
seized under eminent domain. The courts have previously said this power extends
to the seizure of mortgages. This means the holder of the credit risk would
suffer a loss on the underwater portion of the loan. The government can then
restructure the loan so the borrower is no longer underwater. The Supreme Court
has long held that states cannot tax the federal government. There are
potential losses through eminent domain as similar enough to keep investors
from trying it. Whether this could apply to loans backed by Fannie and Freddie
is a more open question as these entities are now under conservatorship and the
federal government has pledged to ensure they have positive capital positions.
But they are also private companies. Not surprisingly the financial sector
objects to the use of eminent domain
, arguing it would do more harm than
good by drying up the supply of credit and further depressing home prices. 

Switching topics, though it hasn’t issued any written guidance on the
matter, the FHA has mandated that loans are not considered eligible for FHA
financing if existing tax liens haven’t been paid off or the borrower isn’t in
a repayment plan
.  Unless a fully executed payment arrangement and
proof of 12 months’ timely payments can be provided, tax liens should be paid
in full before closing.  Satisfied tax liens should be removed before
closing, and for cash-out refinances, outstanding liens may be paid off using
proceeds if an underwriter approves the decision.

In the wake of its decision to rescind previously issued guidance on
collections and disputed accounts, the FHA has decreed that the current
guidelines remain in effect.  As per this guidance, judgments must be
paid off, but collection accounts are not required to do so
.  Disputed
credit accounts or derogatory credit on public records discerned through a
credit report must be referred to an underwriter, though for accounts of less
than $500 and more than two years old, AUS approval will suffice.  The FHA
also clarified that only eligible borrowers who sign the Note and their legal
spouses are allowed to take title to VA properties at closing and that
income-based repayment student loan payments must be included in debt
ratios.  IBR payments of over $100 require the actual payment amount to be
included.  Cases where the payment is less than $100 and 1% of the total
loan balance is more than $100 will require a minimum of $100 to be included.

Game-changing investor & agency updates continue. Remember
that it is best to read the actual bulletin, but this will give you a flavor
for what is going on out there.

Wells Fargo Funding is requiring sellers to follow the standard Disaster
Policy
with regards to any properties affected by the wildfires in
Colorado.  Properties located within seven zip codes of El Paso County and
five zip codes of Larimer County must be re-inspected for damage from fire,
smoke, heat, and ash.

Flagstar is imposing a minimum FICO score requirement for all FHA streamline
refinances
that are registered on or after July 6th.  Such loans that
aren’t serviced by Flagstar will require the borrower to have a credit score of
at least 680; note that FHA DE Delegated loans are exempt and that there are no
ARM products available for these types of loans.  Clients should register
and lock non-Flagstar serviced loans using the correct product name ending in
“other servicer,” which allows the loan to be priced accurately.

Those based in New York should be aware that Fifth Third is working with
the state government on licensing requirements and should watch for
communications on any changes.  For the time being, Fifth Third will
continue to accept new applications, registrations, and locks for New York
properties.

Affiliated
Mortgage, who had announced that it will no longer lock, re-lock, or extend any
FHA Streamline Refinance transactions as of June 18th
, reminded
clients that all such loans should be delivered in fundable condition prior to
July 11, 2012 and purchased by AMC before July 18, 2012.  All FHA
Streamline Refinance transactions registered before June 15th are subject to a
-2.0 pricing adjustment.

As of July 2nd, Franklin American ceased to allow FHA streamline
refinances on 2-4 unit or investment property transactions.
Franklin
American also revised its pricing adjustment for USDA loans with FICO scores
over 720 to +0.250.  For loans with FICO scores between 640-679, the
adjuster has been updated from -0.250 to -0.500.

 

Clearpoint
Funding has updated its offerings to include a non-credit qualified FHA
Streamline Refi loan
that will allow current FHA borrowers to refinance
without an appraisal and less in the way of documentation.  In order to be
eligible for the non-credit qualifying loan, homeowners must have a
mortgage-only credit report from all three repositories with a minimum score of
660 and 12 months’ payment history, while the credit qualifying loan requires a
minimum score of 640 and six months’ payment history.  The maximum cap for
all FHA Streamline Refinances has been updated and is now 4.25%.

Mortgage
Harmony Corp
., home of the borrower initiated interest rate
reset feature trademarked as the “HarmonyLoan” has been busy recently. They
just launched a web based portfolio retention solution, called HarmonyLoan
Conversion Software, which portfolio lenders can use to immediately free up
sorely needed back office personnel.  In less time than it takes to
process, underwrite, and close 1 loan, they deliver a solution to retain
thousands of loans at the “click” of a button. For additional information, please
contact Kevin Ziolkowski at kziolkowski@mortgageharmony .com
or see Kevin at the California Mortgage Banking Conference in San Francisco,
July 9-12th, 2012.

US Bank has revised its submission requirements such that applications
should include the updated version of the broker’s specific office or company
form, the Title Company Fee Sheet, a signed and dated Fannie 1003 form, the
Borrower’s Authorization Form, a fully completed Mortgage Loan Origination
Agreement, and Anti-Steering Disclosure.  For HELOCs, the Title Company
Fee Sheet and Anti-Steering Disclosure aren’t necessary.

Fifth Third has clarified its Property Fieldwork Waiver policy for DU
Refi Plus loans.  If either Fifth Third or the correspondent seller has
obtained an appraisal on a subject property in the last six months, the
appraised value must be entered into the property value field in DU. If a PFW
is not returned, the appraisal should be underwritten as per the DU findings.

United Guaranty issued a reminder that borrowers should be designated as
“self-employed” when they own 25% or more of a business and the positive income
from the self-employment is being used to qualify them.  Borrowers must
fulfill both criteria to be considered self-employed, while borrowers who own
less than 25% of a business or who aren’t using the self-employment income for
qualification do not need to be indicated as being self-employed.  When
verifying borrowers’ self-employment, UG requires a verbal verification to be
obtained within 30 calendar days prior to the note date; for regular
employment, the verbal verification should be obtained within 10 business days
prior to the note date. 

GMAC reminds correspondent clients that all loans submitted for purchase
on and after March 7, 2011 will mandate a Closing Protection Letter.  The
letter should include the names and addresses of the borrower and closing agent
and all of the necessary signatures.  In addition, the Title Underwriter
issuing the letter must be the same as the Title Commitment Issuer.  Loans
that don’t include this letter will be suspended until it is received by GMAC.

Stearns
Lending
launched its Initial Disclosure Portal, a system that lets brokers more
easily request Initial Disclosure documents and create a TIL program.  The
IDP is accessible via SNAP and will be available for loans that are in the
process of locking or registering with Stearns; loans pre-locked through Quick
Pricer will not produce this option.

Weststar has updated the FICO adjusters on all FHA, VA, and USDA loans
with credit scores in the 620-639 and 640-679 ranges.  For the former, the
previous -1 adjuster has been revised to -1.5, while for the latter the
previous -0.250 has been revised to -0.500. A reminder has been issued by
Weststar that electronic signatures may not be used for FHA initial
disclosures, final applications, final disclosures, and closing
documents.  They are, however, permitted on FHA third party documents and
Fannie, VA, and USDA forms.

Turning to the markets, Tuesday, with the early close in the fixed-income
markets, MBS prices finished down/worse by about .125 – better than the US
10-yr note which was down about .375 and closed at 1.62%. But that was then,
this is now. This morning’s ADP came in better than estimates by 75% – +176k.
And Jobless Claims dropped 14k to 374k, lower than forecast.

And the MBA reported what lock desks everywhere already knew: last
week’s applications dropped almost 7%
, with refi’s down over 8% and
purchases up almost 1%. It is the third straight week of declines. The
refinance share of total mortgage activity slipped to 78 percent of
applications from over 79 percent the week before. The government refi index
had declined by 21%.

At 10AM EST is the ISM Non-Manufacturing Index for June, called lower,
and at 11AM is the Treasury’s announcement of the details of next week’s
auctions of 3- and 10-year notes and 30-year bonds – estimated unchanged at $66
billion. But tomorrow is the big day for news with the 5:30AM PST employment
reports. But in the early going, MBS prices are better than Tuesday
afternoon by about .125 and the 10-yr yield is at 1.59%.

Very punny, part 1 of 2:
52 cards = 1 decacards
1 kilogram of falling figs = 1 FigNewton
1000 milliliters of wet socks = 1 literhosen
1 millionth of a fish = 1 microfiche
1 trillion pins = 1 terrapin
10 rations = 1 decoration
100 rations = 1 C-ration
2 monograms = 1 diagram
4 nickels = 2 paradigms
2.4 statute miles of intravenous surgical tubing at Yale University Hospital =
1 IV League
100 Senators = Not 1 decision

…(read more)

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