All FHA Today: Compare Ratios, Streamlines, Condo Approvals, LI Program Changes

Some will
call this a useful tool and a time saver – others will say it is another sign
of our privacy going away and “Big Brother” seeing everything. Enter an address, and it displays a map of
the area showing all residences/businesses, including their phone numbers

In Northern California, WBC Lending is
looking for experienced wholesale AE’s to call on brokers. WBC Lending has
“an aggressive product offering, including a super jumbo portfolio product
with start rate 1.625% and life cap of 6.25%, up to $2 million dollars with a
50% DTI, and a 40-year term.” With over 65 years of combined wholesale
mortgage banking experience, the executive management team at WBC Lending
believes they have put together a wholesale platform that is second to none,
and would prefer that candidates have a minimum of 2 years’ experience. WBC has
local underwriting, docs and funding all out of the San Jose based corporate
offices.   If interested, please inquire today by contacting John
Giagiari at,
and for more information on the company visit

Perhaps Bank of America home loans president Barbara Desoer could apply – she
will retire this month after being at the bank since 1977! Her most recent
assignment was the “integration of the Home Loans business into Consumer
Banking” after the 2008 purchase of Countrywide.

HUD, and the FHA, is definitely a big
part of the home mortgage environment.
In the name of further learning, HUD is offering a variety of training
, including an online course on the new HOPE LoanPort (HLP)
enhancements.  You can register for classes, which are take place every
Tuesday and Thursday
Also available is a series webinars on Loss Mitigation, offered in conjunction
with the FHA.  Some of the upcoming courses cover HUD’s Neighborhood Watch
System, loss mitigation, default reporting and FHA claims.  See the HUD
website to register.

Early pay-offs
(prepayments) of Ginnie Mae securities, made up primarily of FHA and VA loans,
is causing some concern among investors. Besides the initiatives announced by
President Obama in his Plan to Help Responsible Homeowners and Heal the Housing
Market, more changes, such as tweaks to the FHA mortgage insurance premiums
(MIP), could be unveiled in the next few weeks. President Obama’s plan describes “Streamlined Refinancing for FHA
Borrowers” by excluding streamline-refinanced loans from comparison ratio
. Most believe that this plan will be implemented and has the
potential to raise GNMA prepayment speeds. (There has been a recent increase in
early pay-offs; most attribute this to the “GNMA universe” becoming a lot more
refinanceable after the improvement in FHA rates this year.)

(As a
quick refresher, the compare ratio is the serious delinquency rate of all loans
originated by a lender during a one or two-year period relative to the average
of all lenders operating in the same region. If this ratio rises above 150%,
the lender may lose the ability to make new FHA loans out of that region or
branch – 200% is almost a sure thing. As higher coupon and seasoned loans have
a weaker credit and greater default risks, lenders worry that
streamline-refinancing them could push up the compare ratio.)

Streamlines are excluded from the compare ratio calculation, this should remove
a disincentive for streamline-refinancing higher-risk borrowers. This argues
for an increase in GNMA prepayments, particularly on higher coupons and
pre-2009 originations since these have the worst credit quality. But data from
HUD suggest that the compare ratios of most national lenders are now
significantly below the 150% threshold (see below), implying that this is not
the only binding condition for refinancing riskier loans. In addition, FHA’s
indemnification rules essentially grant put-back amnesty for loans originated
before 2009 – refinancing these loans would reset the clock and put the lender
on the hook for fresh rep & warranties. Unless FHA grants put-back amnesty
for all streamline refinances, lenders are likely to remain skittish. And let us not forget the various overlays
that most investors have in place on FHA Streamlines

So where are the compare ratios of “the
big boys”?
current national compare ratios for the big lenders, from research piece I read
from a large broker-dealer, are all below 130% – well below 200% recommended by
FHA. Only 6% of lenders have a compare ratio of above 200% and these lenders
comprise of only 2% of the total loans outstanding (that are considered for
calculating compare ratios). BofA has 126, Chase 39, Wells 79, Quicken 78, US
Bank 69, Fifth Third 59, PHH 66. Bank of America 90+ delinquencies have been
steadily rising and there are concerns that they will be forced to do a
one-time buyout as their 90+ delinquencies hit 5%, and/or, similar to GMAC, BofA
starts buying out just enough delinquent loans to maintain delinquencies at
that level.

Critics of
the compare ratio ask, “Isn’t it more of a long term snapshot of performance
than short term?  If a lender tightens up their guidelines would you see
an immediate impact to the compare ratio?” Some liken it to turning a cruise
ship, and only looking in the rear view mirror. And further complicating things
is the theory that most delinquencies are caused by unforeseen job losses,
rather than other reasons that might have been caught during the underwriting
process – unless one’s underwriters were very poor and the company was seeing a
first payment default problem.

of which, the serious delinquency rate for FHA mortgages reached 9.6% in
December, and the highest level in more than two years, HUD recently announced.
More than 711,000 FHA-insured loans were seriously delinquent, up almost 19% from
one year earlier, according to the HUD report, and up 3% from November. At the
same time, mostly for pricing reasons, originations are down. In December, the
FHA insured 93,700 mortgages, a nearly 30% decline from the 133,000 insured in
December 2010. Analysts are most
concerned with the FHA’s insurance fund
: in its fiscal year 2011, the FHA
Mutual Mortgage Insurance Fund slipped to a 0.24% capital ratio from 0.5% the
year prior. By law, the fund must remain above 2%. Lenders should not be surprised if the FHA insurance premiums go up
again this year.

Here in
Miami, and everywhere else condos exist, condo
buyers are having a hard time obtaining FHA mortgages
, and often it’s down
to the building’s financial status, not the borrower’s.  Since February
2010, the FHA have required that the whole building be deemed financially
viable rather than just the single units, which has resulted in a proliferation
of rejected buildings, a headache for condo sellers who rely on the FHA stamp
of approval as a marketing mechanism, impeding the housing market’s recovery. FHA
regulations now dictate that buildings must be 50% owner-occupied, that no more
than 10% of the units are owned by one entity, that no more than 15% of the
units are 30 days past due on their monthly assessments, and that at least 10%
of the association budget be set aside for capital expenditures and deferred
maintenance.  The general consensus in the housing industry is that, given
consumer demand for FHA-backed mortgages, the regulation is short-sighted.

mortgagees participating in the Lender Insurance (“LI”) program will be
required to indemnify HUD for self-endorsed loans that HUD deems ineligible for
FHA insurance based on a final regulation published by HUD on January 25. The
regulation finalizes changes to the LI regulations and will take effect on
February 24. In addition to the significant changes to HUD’s indemnification
authority for self-endorsed loans through the LI program, the final regulation
also amends mortgagee eligibility criteria to participate in the LI program,
including acceptable default/claim rates, amends HUD’s authority to monitor
lenders participating in the LI program, and implements a process for FHA
lenders terminated from the LI program to request reinstatement of their LI

HUD made
clear that these amendments are designed to improve and expand the risk
management activities of the FHA and to strengthen the FHA Insurance Fund by
limiting “unnecessary and inappropriate risks” to the Fund associated with
loans that the Department determines should not have been endorsed through the
LI program. As HUD notes, this is the latest in a series of steps the
Department has taken to strengthen the financial soundness of the FHA program
and mitigate the risk of possible insolvency of the FHA Insurance Fund as HUD
continues its efforts to increase FHA’s capital reserve ratio to meet the congressionally
mandated threshold of two percent.

Last week
was not kind to fixed-income U.S. securities, especially after that strong jobs
number Friday. But the U.S. economy is not setting the world on fire, and Europe
still poses a threat – and could for years. So we can all expect rates to
drift and drift down. Rates are holding record lows as mortgage bonds (MBS)
rally ever higher. Any modest improvement in our economy would nudge investors
into equities and out of bonds – but the overhang of the Eurozone debt crisis
proves to be too much. Our 10-yr T-note closed Friday at about 1.94%

economic calendar will be very light this week – so watch for Europe to perhaps
regain center stage. We do, however, have some Bernanke testimony and Treasury
auctions tomorrow, Wednesday, and Thursday; the Trade Balance and Consumer
Sentiment will be released on Friday. Ahead
of that rates and prices are nearly unchanged from Friday.

HIGH SCHOOL — 1957 vs. 2010 (Part 1 of 2)
Scenario 1:
Jack goes quail hunting before school and then pulls into the school parking lot
with his shotgun in his truck’s gun rack..
1957 – Vice Principal comes over, looks at Jack’s shotgun, goes to his car and
gets his shotgun to show Jack.
2010 – School goes into lock down, FBI called, Jack hauled off to jail and
never sees his truck or gun again. Counselors called in for traumatized
students and teachers.
Scenario 2:
Johnny and Mark get into a fist fight after school.
1957 – Crowd gathers. Mark wins. Johnny and Mark shake hands and end up
2010 – Police called and SWAT team arrives — they arrest both Johnny and Mark.
They are both charged with assault and both expelled even though Johnny started
Scenario 3:
Jeffrey will not be still in class, he disrupts other students.
1957 – Jeffrey sent to the Principal’s office and given a good paddling by the
Principal. He then returns to class, sits still and does not disrupt class
2010 – Jeffrey is given huge doses of Ritalin. He becomes a zombie. He is then
tested for ADD. The family gets extra money (SSI) from the government because
Jeffrey has a disability.
Scenario 4:
Billy breaks a window in his neighbor’s car and his Dad gives him a whipping
with his belt.
1957 – Billy is more careful next time, grows up normal, goes to college and
becomes a successful businessman.
2010 – Billy’s dad is arrested for child abuse; Billy is removed to foster care
and joins a gang. The state psychologist is told by Billy’s sister that she
remembers being abused herself and their dad goes to prison. Billy’s mom has an
affair with the psychologist.
(Part 2 tomorrow.)

…(read more)

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