Mortgages: Mortgages — Speeding Up Refinances

Borrowers looking to accelerate the refinancing process find some relief from brokers and community banks not involved with HARP.

First Horizon’s Buybacks; Buyback Legal Chatter; Basel III and Construction Loans; Congress Snubs Small Business?

I have been subtly warning groups during speeches, and writing in this commentary, about the implications of Basel III. Most of the focus is on servicing & the value of it. But did you know that under the new Basel III rules, construction lending would likely go into the “high risk commercial real estate” category and require a 150% risk weighting? “Lenders would seek deals where a developer would contribute a substantial amount of cash equity; while banks would be less likely to let developers rely just on the equity from appraisals” per American Banker. And the government and the Fed are asking why banks aren’t lending? This is just another reason.

Last month we sold the house where my kids grew up, and I had a handyman remove the doorframe where we marked heights on birthdays. I am not mentioning this to turn the daily into a Hallmark card, but because it reminded me of one thing that the press seems to forget: a house is a home and not a share of stock. And when it comes to that, the popular press seems to forget that people need a place to live, that people want a good school district for their kids, a place to get to know the neighbors, a place to create an emotional attachment. I could go on and on, but there are very concrete reasons why people who are underwater on a house still make the payments, why many who supposedly saw the real estate decline didn’t sell their home, and why so many people don’t care about minute fluctuations in the price of housing based on the latest metric.

I’ll get off my soapbox, and get on with business: I think that the last time the S&P/Case-Shiller Home Price Index went up was during the Eisenhower Administration – until now. Seriously, for the first time in eight months the S&P/Case-Shiller Home Price Indices rose over levels of the previous month.  Data through April 2012 showed that on average home prices increased 1.3% during the month for both the 10- and 20-City Composites. Prices are still down 2.2% for the 10-City and 1.9% for the 20-City over figures for one year earlier but this is an improvement over the year-over-year losses of 2.9% 2.6% recorded in March. This report followed Monday’s news that New Home Sales jumped 7.6% in May to 369k and was up 19.8% from a year ago, and last week’s Existing Home Sales, Housing Starts and NAHB HMI which all contained some positive signs.

How’s this to grab one’s attention: “Congressional Subcommittee REFUSES Small Business Brokers and Appraisers a Seat at the Table.” The notice from the NAIHP goes on, “For the second time in a week, the Subcommittee on Insurance, Housing and Community Opportunity, Chaired by Rep. Judy Biggert (R-Illinois), refused small business housing professionals the right to be represented during Congressional testimony.” Here you go:

Yes, there are plenty of rumors that the agencies are hotly pursuing buybacks to recoup taxpayer losses, and that the agencies are losing personnel except for QA & auditing. But that reasoning doesn’t help companies like First Horizon National Corp. It “cited new information it recently received from Fannie Mae as the basis for incurring the $272 million charge this second quarter. About $250 million will go to repurchase loans made with “inadequate or incorrect” documentation, and $22 million is being charged to address pending litigation.” I don’t make this stuff up.

Last week I received a legal question about buybacks. “I was asked by a former customer of a major investor’s correspondent lending group about how others are handling repurchase/make-whole requests on older vintage loans.  His experience has been that the investor will ask to be reimbursed for losses associated with loans that have been foreclosed and disposed of without being given an opportunity to refute the alleged rep and warrant deficiency.  He has had to hire a law firm to argue each of these requests and the major investor has backed off each time. Normally, when a correspondent is still active, there is obviously leverage against the correspondent under an implied or actual threat of being terminated as a customer if a make-whole is not made, and when an investor is no longer in the correspondent business, I’ve heard rumors of it being more inclined to back down but sometimes taking a former customer to court or ‘saber rattling’. Needless to say, it is expensive to have a lawyer prepare a rebuttal to a make-whole request, just to have the investor ultimately back-off – what to do?”

I turned this over to attorney Brian Levy, who wrote, “Your question about investor willingness to sue originators over repurchase claims is difficult to answer with specificity.  My clients have been able to settle and/or avoid litigation in every engagement that I have undertaken in this area. That does not mean, however, that the threat of investor repurchase litigation over individual loans is not real or that litigation is not occurring, but it has been my experience that these disputes can be resolved (or dismissed) through extensive and detailed settlement negotiations and information exchange.  Litigation over individual repurchase claims may be fairly unusual now, but so were repurchase claims entirely prior to 2007-2008. Due to the unique nature of each originator’s position and the facts around applicable repurchase claim(s), however, it would be reckless to assume one will not be sued on specific claims based on what is generally occurring in the industry or based on what may have been past investor appetite for litigation (although these are important elements to consider in one’s strategy).”

Brian goes on. “For example, much depends on the facts and circumstances of the loan(s) in question, whether there are any other relationships between the parties that can be leveraged (loans in the pipeline, warehouse lines etc.) the overall quality, stability and reputation of the originator and, significantly, the parties’ tolerance for risk, availability or need for reserves and the desire for finality.  Moreover, investor and originator appetite for lawsuits may change over time as strategies can change in organizations and as the few cases that have been filed begin to yield decisions that are more or less favorable to one side or another. Even the tenor of discussions or lack of attention to the matter can impact a party’s willingness to file a lawsuit. All of these issues should be explored with legal counsel as part of an originator’s comprehensive repurchase management strategy.” (If you’d like to reach Brian Levy with Katten & Temple, LLP, write to him at

Here are some somewhat recent conference & investor updates, providing a flavor for the environment. They just don’t stop. As always, it is best to read the actual bulletin.

Down in California, it is time again for the CMBA’s Western Secondary conference. (I’ve been wandering around that San Francisco conference since 1986 – if those halls could talk…) The CMBA has presentations on “QM, QRM, the CFPB, Agency Direct Delivery – Reviving the Lost Art of Servicing Retained Execution, Compliance issues Facing State Licensed Mortgage Banks Today and How Regulatory Change will Impact Your Business and the Secondary Market, Manufacturing Quality – Steps to Produce a Quality Loan (Operation Focus),” and several other topics. Check it out.

In light of the increasing number of non-conforming transactions where the departure residence is retained by the borrower and is in a negative equity position, Wells Fargo issued a reminder that underwriters must weigh any and all risk factors evident in the loan file.  Each case should be weighed individually, as there are only so many situations underwriting guidelines can predict.  The Wells Seller Guide now states that, in a case where the departure residence won’t be sold at the time of closing and is in a negative equity position, paying down the lien or using additional reserves to cover the negative equity may be required to reduce overall risk.

Wells has issued another reminder that a signed Borrower Appraisal Acknowledgement is required for all loans.  The Acknowledgment, whether it’s the Wells-issued form or a custom document, must include the property address, complete lender name, borrower name, borrower signature, and borrower signature date.  If the form has checkboxes where the borrower can make a choice, these boxes must be ticked.

Due to changes to FHA Single Family Annual Mortgage Insurance and Up-Front Mortgage Insurance Premiums announced by HUD back in March, one of which requires lenders to determine the endorsement/insured date of the FHA loan as part of a Streamline Refinance transaction, Refinance Authorization results will need to be submitted to Wells with the closed loan package.  These results are necessary to ensure that the accurate MIP was applied.  This applies to all FHA Streamline Refinances with case numbers assigned on or after June 11, 2012, while loans purchased through Pass-Thru Express are excepted.

Wells’ government pricing adjusters are set to change on July 2nd.  For VA loans with scores between 620 and 639, the adjuster will go from -0.750 to -1.500.  The adjuster for loans with scores between 640 and 679, currently at -0.250, will change to -0.500.  This affects Best Effort registrations, Best Effort locks, Mandatory Commitments, Assignments of Trade, and Loan Specified Bulk Commitments.

How sensitive are our markets to European news? Sure, instead of buying our 10-yr yielding 1.65% you could buy a Spanish 10-yr yielding 6.74%. But there is instability, evidenced by this note from an MBS trader yesterday: “News of Merkel stating Europe would not have shared liability for debt ‘as long as she lives’ caused Treasuries to immediately surge higher, only to be met by better real money selling of 7s.  While the selling did help to stall the rally, the true relief didn’t come until Reuters posted a correction to its initial release, re-quoting Merkel as having said Europe would not have ‘total shared’ liability for debt as long as she lives.  The amendment took Treasuries off the highs ahead of the 2yr auction…”

Say all you want about the market, bond prices and yields are not doing a whole heckuva lot. Tuesday the 10-yr closed at 1.63%, very close to where it’s been all week, although there was some intra-day volatility blamed on Europe. (European problems will be with us for years, and paying attention to intra-day swings can become wearisome after years…) For agency mortgage-backed securities, volume has been around “average” all week, with the usual buyers (the Fed, hedge funds, money managers, overseas parties) absorbing it. Up one day, down another – yesterday was down/worse by about .250, which was about the same as the 10-yr T-note. We could have been helped by the Conference Board’s Consumer Confidence index which dropped for a fourth straight month, to 62 from a revised 64.4 in the prior month, but nope.

No one is getting any younger… (Part 1 of 2)
I very quietly confided to my best friend that I was having an affair. She turned to me and asked, “Are you having it catered?” And that, my friend, is the definition of ‘OLD’!

Just before the funeral services, the undertaker came up to the very elderly widow and asked, “How old was your husband?”
“98,” she replied. “Two years older than me.”
“So you’re 96,” the undertaker commented.
She responded, “Hardly worth going home, is it?”

Reporters interviewing a 104-year-old woman:
“And what do you think is the best thing about being 104?” the reporter asked.
She simply replied, “No peer pressure.”

I feel like my body has gotten totally out of shape, so I got my doctor’s permission to join a fitness club and start exercising.  I decided to take an aerobics class for seniors. I bent, twisted, gyrated, jumped up and down, and perspired for an hour. But, by the time I got my leotards on, the class was over.

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Ellie Mae: Origination Insight Report for May

The average
loan to value ratio
of closed loans broke through 80 percent in May according
to the Origination Insight Report released today by Ellie Mae.  The average LTV was 81 percent, up from 80
percent in April and the highest level since Ellie Mae began tracking these
details in August of last year. 

Mae reports detail of both closed loans and denied loan applications that flow
through its mortgage management software and network and represent more than 20
percent of U.S. mortgage origination volume.

“In May, the average loan-to-value (LTV) for closed loans broke the
80% mark for the first time since our tracking began in August 2011,” said
Jonathan Corr, chief operating officer of Ellie Mae. “The increase appeared to
be driven by an easing of LTVs on conventional refinances (the average LTV was
72% in May compared to 69% in April). Last month, closed conventional refinances
with LTVs of 95%-plus jumped to 11%, up from 7.1% in April and 3.6% in March,
which may be a sign that HARP 2.0 is helping more borrowers.

At the
same time the LTV of closed loans is rising so has the LTV of denied loans,
increasing steadily from 82 percent in August to 88 percent in May while debt
to income ratios (DTI) and FICO scores have remained relatively unchanged.  While more underwater borrowers have been
attracted by the publicity attending the changes in HARP apparently many have
not successfully refinanced.  

To get a meaningful view of lender “pull-through,”
Ellie Mae reviewed a sampling of loan applications initiated 90 days prior
(i.e., the February applications) to calculate a closing rate for May. Ellie
Mae found that 47.2% of all applications closed in May compared to 48.1% in

represented 54 percent of closed loans in May, down 2 percentage points from
April.  FHA loans had a 25 percent share,
down 3 points while conventional loans increased 3 points to a 65 percent
share.  It took the average loan 46 days
to close, up one day from April. 
Refinancing loans required an average of 48 days and purchases 44.

addition to the 81 percent LTV, the average closed loan in May had a FICO score
of 744, one point higher than April, and a DTI of 24/35, a number that has
remained virtually unchanged since tracking began last August.  A loan that was denied had, in addition to
the 88 percent LTV, a FICO of 702, unchanged from April, and a DTI of 28/43, little
changed over the last ten months.

As might
be expected, there were substantial differences in the profiles of loans accepted
and denied by FHA and conventional lenders. 
What was surprising was the additional leeway FHA lenders appear to
grant to purchasers over refinancers.

May Loan Outcomes

Closed Loans

Denied Applications





































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FHFA Releases GSE Home Retention Metrics

The two government sponsored enterprises
(GSEs) Freddie Mac and Fannie Mae completed nearly twice as many foreclosure
prevention actions
in the first quarter outside of the Home Affordable
Modification Program as they did through it. 
According to the Federal Housing Finance Agency’s (FHFA) Foreclosure Prevention Report for the
quarter, there were 111,739 home retention actions taken by the two
companies including 60,348 loan modifications, 44,636 repayment plans, 6,245
forbearance plans and 507 charge-offs-in-lieu. 
The modification figure includes just over 31,000 transacted through

Approximately half of the loan
modifications resulted in a reduction in the borrower’s monthly payment of 30
percent or more.  FHFA has repeatedly stressed
that the larger the payment reduction the greater the chance the modification
will succeed.  Nearly all of GSE
modifications resulted in some combination of rate reduction, forbearance,
and/or term extension.  Servicers are not
allowed to do principal reductions as part of modifications of GSE loans
however FHFA said that nearly one-third of the loan modifications included
principal forbearance.

Home retention actions decreased in the
first quarter of 2012 as compared to the fourth quarter of 2011 from 120,698 to
111,739 and modifications (including those done through HAMP) were down by
almost 11,000. 

Total home forfeiture actions totaled
34,360 during the first quarter, down from 34,895 in the previous quarter.  Of this number 30,601 were short sales (down
from 31,785) and the remaining 3,759 were deeds-in-lieu of foreclosure, an
increase from 3,110.

The performance of modified loans
remains strong, especially among those modified after the first few years of
the foreclosure prevention initiatives. 
Fewer than 15 percent of loans modified in the second quarter of 2011
had missed two or more payments nine months after modification.

Delinquency rates for the GSEs continue
their slow decline.  Loans that are 30-59
days delinquent represent 1.7 percent of the portfolio down from 2.1 percent in
the previous quarter.  The 60+ day rate
is 4.2 percent, down from 4.5 percent and serious delinquencies are at 3.6
percent compared to 3.8 percent.

Delinquencies continue a wild state by
state variation.  Florida has by far the
largest number of delinquencies – over 270,000 with California not even close
at about 150,000.  Florida is also notable
for being the only state with a delinquency rate over 8 percent and for the number
of delinquent loans – 160,000 – that have been delinquent for more than one

interactive version of the map below is now available.   The new Borrower Assistance Map allows
state level access to information on delinquencies, foreclosure prevention
activities, Real Estate Owned (REO) properties and refinances for GSE

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FHA Streamline Changes in the Blink of an Eye; News from Indiana and California; Mortgage Jobs in Production and Secondary

Regardless of size, regardless of defense, regardless of current QC
measures, buybacks are an issue at every level. PNC, #17 lender by
volume in the first quarter, saw its stock take a hit due to them.
(And at Stratmorgroup .com the
current blog discusses the issue of the Freddie Mac & Bank of America
buybacks, and its potential impact on the industry.)

Companies searching for employees continue. A Boston-area based $5
billion dollar regional bank is seeking an experienced high-energy executive to
run and grow their $500 million in-house retail mortgage lending operation.
The ideal candidate should be knowledgeable in all aspects of mortgage lending
from the point of sale through shipping and delivery, including secondary
marketing.  Interested parties should send their confidential resume to
Matt Lind at matt.lind@stratmorgroup .com.

In Manhattan MIAC is searching for help on its trading desk. MIAC
has been around since 1989, and provides pricing, risk management, and
accounting solutions for the mortgage and financial services industries. The
candidate will be responsible for providing assistance to account managers in
risk management, trading and customer service of mortgage pipelines for
multiple accounts, preparing best execution analysis and loan data files for
whole loan trading, preparing, reconciling, and transmitting trade information
to clients and investors, etc. Requirements include a Bachelor’s degree or 3+ years
equivalent work experience, strong working knowledge of Excel and SQL Server, strong
mathematical and analytical aptitude, and strong customer service skills. Resumes
can be directed to SSGResumes@MIACAnalytics .com.

ripple effect of Wells’ change in its FHA Streamline policy Tuesday was felt
loud and clear on Wednesday
, especially among institutions or branches that
rely on the product. In my discussions and communications with many lenders,
there are various states of confusion about if and when to stop offering or transition
this product. The lender notices below can provide a glimpse into what is
happening, and it seems that U.S. Bank (#3 volume-wise in the 1st
quarter) is the largest investor to offer the flexibility of “different
servicer,” and it is expected at any time to change their policy. It, like lenders
out there, may not want to be “the last one standing” and be adversely selected
against, but lenders are considering only doing same-servicer product as an

there are smaller investors/lenders that are still offering it.
an entire list would be problematic, so please don’t ask for one, but one
example is First Mortgage Corporation. It is committed to offering FHA
Streamlines as prescribed through the 4155 with minimum overlays.  “FMC
accepts Streamlines manually underwritten with no minimum FICO Score.  In
addition to FHA’s requirements, FMC requires all applicants be employed, an
independent verification of occupancy (e.g., no vacant dwellings), and a
minimum of 1 year seasoning on manufactured housing.  First Mortgage
Corporation limits its fundings to most non-judicial foreclosure states.” 
For inquiry related to this program, please contact Sharon Magnuson at smagnuson@firstmortgage .com.

wrote brokers, “Due to unforeseen market changes for the FHA
Streamline Refinance program, we need to make immediate adjustments to our
pricing and guidelines…We will honor and close the existing pipeline of loans
that have been registered through SNAP or advanced locked on or before June 12,
without the new LLPA of 1.0 added to pricing. All loans must close by June 29th
and there will be no lock extensions. All new Wholesale Channel registrations as
of June 13 will be subject to a new LLPA of 1.0 added to all pricing for FHA
Streamline Refinance transactions and the new program parameters. We are
currently evaluating new program parameters that will be released at a later

M&T is expected
to released its policy and pricing on Streamline refi’s June 18th.

MSI’s broker
clients received, “Due to sudden and unforeseen disruptions in the secondary
market, it has become necessary to implement the following changes to MSI’s
FHA/VA pricing parameters.  These new pricing adjusters will become
effective on Monday, June 18th, 2012, for any/all new locks/re-locks,
irrespective of loan submission or case assignment date. All new FHA streamline
refinance locks will require an additional .75 price adjustment. In
addition, MSI must temporarily suspend new FHA high balance Streamline locks,
effective June 18th. New credit score adjustments will also apply to
ALL FHA/VA product:  FICO scores between 640-659 will require a price
adjustment of 75 bps; FICO scores between 660-679 will require a price
adjustment of 50 bps. Based upon the foregoing changes, Friday, June 15th will
be the last day to lock FHA/VA product under the current pricing parameters.”

Effective June 14th, Kinecta Federal Credit Union will no longer
accept FHA Streamline refinance transactions. Deadlines for FHA Streamline
Refinances: Loans must be locked by 5:00 PM PST June 14, complete loan files
must be received by Kinecta by 5:00 PM June 26, Loans must fund by 5:00 PM PST,
Friday, July 13. Kinecta will continue to offer regular FHA Credit Qualifying
Refinances with an appraisal; those files will not be affected by the
retirement of Streamline Refinances.”

Turning to a little state-specific news, Richmond Monroe let
clients know about the “Important Update for Mortgages in the State of Indiana…As
you may be aware Indiana enacted a new law regarding the expiration date of
mortgages recorded in the state; SENATE ENROLLED ACT NO. 298. This law requires the maturity date of the
loan to be stated on the mortgage document. If the mortgage doesn’t contain an
expiration date, it will automatically expire 10 years after the date of
execution or recordation. Indiana is allowing lenders to record an affidavit
stating the mortgage due date. 
The lender has until July 1, 2012
to record the affidavit on all loans created before July 2002. If the affidavit
is not recorded the mortgage will expire 10 years after the date of execution
or recordation. This may or may not affect a volume of mortgages. Standard FNMA
and Freddie Mac loan documents contain the maturity date.  However, it may
be prudent to review all mortgages in Indiana to ensure that the maturity date
is present in the document or prepare and file the proper affidavits stating
the due date. This will preserve the mortgagee’s position. Please contact us to
receive a complete copy of INDIANA’S SENATE ENROLLED ACT NO. 298 or if your
company needs help in reviewing Indiana Mortgages or Preparing, Recording and
Tracking the necessary Affidavits.” Here is the web information: www.richmondmonroe .com or one can
write to sales@richmondmonroe .com.

And out in California, as California tries to pass its six Homeowner
Bill of Rights, the Center for Responsible Lending and the MBA have joined the
.  The bills, to put it basically, are modeled on the recent
foreclosure abuses settlement, and seek to ban robo-signing, increase the
number of days a tenant has to leave the property after foreclosure from 60 to
90, and prohibit the practice of “dual tracking,” where servicers
simultaneously negotiate modification and head towards foreclosure.  The
bills have proposed a $25 fee that servicers would have to pay each time they
record a notice of default; this money would be put into a real estate trust
fund for the investigation and prosecution of real estate fraud. The MBA points
out that the bills would result in increased consumer costs and that
“California families” would end up “pay[ing] more for fewer choices.”  It
would also mean saddling lenders and servicers with additional regulation, and
with California’s shaky economy, have negative implications for the state.

The California Mortgage Bankers Association has a box on its homepage at that provides complete background
information, video of legislative testimony, comment letters on the issue that provide
the latest on this. The CMBA, along with other financial trade associations,
have been participating in numerous meetings with legislative leadership and
senior staff over the course of the past two weeks.  They are reviewing
the aspects of the bills in discussion on a line-by-line basis.  While it
was expected that we’d see final legislative language on this package and a
vote this week, that most likely won’t happen until next week as the California
Legislature is “focused” on California’s budget crisis.

Here is a smattering of recent lender/investor updates. As always, it is
best to read the actual bulletin.

Flagstar is now requiring a completed Submission Review Checklist for
all loan types and documentation uploaded for a file to be sent to
Underwriting.  It is also advisable to have the Net Tangible Benefit
Worksheet completed prior to underwriting even though it isn’t on the

Affiliated Mortgage has revised its Settlement Agent and/or Title
Company list, the updated version of which is available here
The list features settlement agents and title companies that are not eligible
to close transactions that will be delivered to AMC.

As of June 8th, Plaza has begun requiring all DU Refi Plus loans with
LTVs over 105% to be approved through DU with a Property Inspection
Waiver.  In addition, the LTV of DU Refi Plus and LP Relief Refi loans
will be limited to 105% starting on June 12th.  HARP loans with an LTV
that exceeds this should be locked prior to that date, and loans that Plaza has
received should have a valid lock, re-lock, or extension.

With all this going on, who cares about rates? Still, Treasury prices
rose yesterday with the weak economic news – a disappointing retail sales
report coupled with a three notch downgrade of Spain by Moody’s were catalyst
for the day’s movement. Our 10-yr yield went down to 1.60%, although traders
reported that the early morning action was dominated by origination selling (
about $2.5 billion for the day) which eventually was met with good buying from
the usual suspects: the Fed, hedge funds, insurance companies and some money

Prior to the 5:30AM PST numbers, rates were a shade higher after a quiet
day in Europe and ahead of the US Treasury’s auction of $13 billion of 30-yr. bonds.
In US economic news the Consumer Price Index was expected down .2% due to
falling commodity prices, with the core rate (which excludes volatile food and
fuel costs) expected +.2%. The CPI came in -.3% with the core rate +.2%. And weekly
Initial Jobless Claims came in at 386k, up 6k from a revised 360k – moving toward
that perceived 400k level at which it will be hard to make a case for job
growth. After this we find the 10-yr at 1.59% and MBS prices a shade better
than Wednesday’s close.

The 5 toughest questions for men. (Part 5 of 5; guaranteed to get me into hot
water, but I will gladly print the opposing view if someone sends it to me.)
1. What are you thinking about?
2. Do you love me?
3. Do I look overweight?
4. Do you think she is prettier than me?
5. What would you do if I died?
What makes these questions so difficult is that each one is guaranteed to
explode into a major argument if the man answers incorrectly (i.e. tells the
truth). Therefore, as a public service, each question is analyzed below, along
with possible responses.
Question# 5: What would you do if I died?
A definite no-win question.
(The real answer, of course, is “Buy a Corvette!”)

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