The CFPB and Reverse Mortgages; It Takes Time and Money to Monitor Counterparty Risk

Remember that scene in Apollo 13 when it dawns on the astronauts that
NASA doesn’t know how to get them back? Regarding our economy, one can imagine
that Geithner and Bernanke are Houston. And overseas, if the markets expect that nothing will
come out of the European summit, then nothing will happen when nothing comes
out of the European summit, right? Possibly… but in the interim here’s a
humorous look translating what Ben Bernanke said at his last press conference.

Yes, the CFPB is very interested in reverse mortgages, and visa versa.
In response, “The Members of the Reverse Mortgage Lenders Association commend
the CFPB for working diligently and delivering their study on the reverse
mortgage industry ahead of schedule.  The report raises valid questions
and we look forward to a continuing dialogue to collaborate to find answers.
‘All of us want seniors and their children to have a better and more in-depth
understanding of reverse mortgages. That is the intent of our Borrow with
Confidence consumer education outreach, a comprehensive effort to provide tools
that will create  the utmost transparency and clear understanding of the
reverse mortgage process.'”

Yes, we live in a world where monitoring our own risk is not enough – we
must monitor the risk of the people and businesses with which we do business
.
Putting aside thoughts of George Orwell’s Big Brother in “1984”, it is on many
minds, and will certainly increase the daily costs of doing business, and
thus eventually increase the cost to borrowers and customers
. Hopefully
there is a long-term benefit. Let’s start with a technical mention of it in the
securities market.

Under the new vendor management policies, the CFPB requires that
financial institutions under Bureau supervision will be held responsible for
the actions of the companies with which they contract.
The Bureau will hold
all appropriate companies accountable when legal violations occur. Where
do we draw the line?

A veteran MBS salesman wrote, regarding counterparty risk in hedging,
“The days of getting triple AAA execution are numbered. There’s something
called “skin in the game”, without it some are more likely to take
undue capital risk. You do not need to look even further back than MF Global to
realize on a grand scale it can be a death sentence for some companies. Many
times, I am asked for our capital requirements. I always say as much as
possible and at least $10 million, and now that appears to be too little.
The only way to prove that you are in it for the long haul is by putting your
profits back into the company. In addition, margin is there for a reason, to
protect both the dealer and mortgage banker. As the agencies shy away from
risk, it will only put more pressure on the dealers to make up the difference.
My word of advice is to deal with dealers who have balance sheet and longevity
in the business – and yes even those who have margin requirements. I imagine if
you are the one company dealers are not calling for margin, then there are
probably another 25 mortgage bankers also not being called for margin. Do you
know everything there is to know about those other 25 mortgage bankers? If you
don’t, which I am sure of, then their risk is your risk, right?”

And this note from Frank Fiore (Matchbox LLC) from this week’s
comment about Fannie, capping sales, and counterparty risk: “Interesting note
about Fannie’s potential requirements. Many clients that we are working with
are in the $3MM-$4MM net worth range which is good for Fannie now but I think
will be increasing in the future – either formally or informally by
applications not getting approved. While this is ok for now, many firms are
lacking the plan for increasing their net worth once they receive agency
approval. These approvals are supposed to be providing a tangible benefit that
should equate to net worth growth once received and in the coming years. If
clients are just bordering the net worth requirements with no plan to increase,
this will affect their application review.”

Today is a free call on it at 11AM PST. “You are invited to participate
in the next conference call of the California Mortgage Bankers Association’s
Mortgage Quality and Compliance Committee
(MQAC)!  Topic –  New CFPB Vendor Management
Policies
.” The speaker is Michael Pfeifer of Pfeifer & DeLaMora, LLP. To
join the teleconference portion, dial 1-800-351-6802, passcode of 25924. (“When
dialing in, you will reach a live operator and you’ll need to provide this
passcode verbally.  Please be aware that each of your lines is in a Listen
Only Mode.  At the conclusion of the presentation, we will open the floor
for questions.  Questions should be directed to Dustin Hobbs with the CMBA
at dustin@cmba.com.)

And the commentary had some news about FHA Streamlines, and The False
Claims Act
. Owen Taylor noted, “The FHA’s final rule on
indemnification took effect on February 24, 2012. In short, if fraud or
unacceptable underwriting practices are detected, HUD will have the authority
to force lenders to reimburse FHA for insurance claims paid on mortgages that
do not meet the agency’s guidelines. The specific instances of failing to
comply with FHA requirements, which can result in a demand for indemnification,
are a failure to: Verify or analyze creditworthiness, income and/or employment
of the mortgagor; Verify the source of assets used for a down payment and/or
closing costs; Address property deficiencies identified in the appraisal, which
could affect the health and safety of the occupants or the structural integrity
of the building, and certify that the appraisal was done in compliance with FHA
appraisal requirements. HUD may seek indemnification whether or not the
violation caused the mortgage default. Good or bad, debate still swirls around
this ruling and it will for years to come. Regardless, vendor misrepresentation
knowingly, unknowingly or ignorantly has been frowned upon by the Federal
Government since at least 1863. (Thank you Owen, president of DHA
Financial, Inc.
)

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

The fires in Colorado have, or will soon, result in lenders instituting
disaster plans on loan review.
My wife lived in Colorado Springs before
moving home to California, and she has been keeping a keen internet eye on the
horrific fire there. Aside from Waldo Canyon being one of her favorite
mountain bike rides, anytime 32,000 people are evacuated, it’s a blow to the
economy and to the community.   If you’re interested, through modern
technology you can follow along with the Waldo Canyon firefighters on the
internet stream of their radios.
 I’m sure when this is all over she will
find interest in cooking me dinner again…

Wells
Wholesale
clarifies that the Return Transcript (Box 6A), Record of Account (Box
6C), and Box 8 of Form W-2, Form 1099 series, or Form 1098 series must all be
checked and/or completed for all loans.  If these fields aren’t completed,
the loan will remain in the receiving department until a fully filled-out form
is received.

A new Wells Wholesale policy on lock timelines requires a minimum of seven
calendar days to C20 a Purchase transaction or NON-rescission impacted
refinance (second home or investment).  Eight calendar days are required
to C20 a rescission impacted refinance transaction
 
Citibank Correspondent has issued guidance on best practices for final
HUD-1s.  Clients should ensure that they have confirmed that the HUD-1 has
the latest settlement date, the payoff mortgage is listed in the 100 section,
and that Box H includes both the Settlement Agent’s name and address.  For
non-escrow states, the final HUD-1 should include the signatures of all
borrowers and sellers, where applicable.  For escrow states, the estimated
closing statement should be signed by the borrower and seller, while the final
HUD-1 settlement or escrow/final closing statement signed by the escrow officer
is required within three business days of the closed package’s receipt.

Fifth Third has clarified its policy on the 2055 exterior-only
inspection for the sale or conversion of primary residences.  The inspection
is only necessary to document the LTV/CLTV/HCLTV as 70% or less for the current
primary residence only in cases where the required reserves have been reduced
to two months PITI for each property or rental income has been used to qualify
the borrower for the previously occupied property.

Just as a reminder, Fifth Third requires a fully executed 1003 form, reconciled
AUS findings with their associated tri-merged credit report, LTV and CLTV
calculations, fully completed purchase contract, assets documented as per the
AUS findings, income documentation as dictated by the loan program, income
calculations shown on either the 1008 or income calculation worksheet, and the
name and contact information for the underwriter as part of all submissions.

Yesterday we learned that the MBA mortgage applications index dropped -7.1%
with the refi portion of the index down -8.3% for the week ending June
22nd.  The Government Refi Index is also down -23.5% compared to last
week’s incredible increase of +120%. Last week’s surge in government refis
seemed to have stemmed from FHA’s program to grandfather MIPs (annual and
upfront mortgage insurance premiums) for the pre-June 2009 borrowers which went
into effect June 11th.

I don’t know why it seems like a Friday to me, but yesterday (Wednesday)
was another day of not-much volatility. By the close 30-year FNMA prices were
marked higher/better by .125 – not enough for rate sheet changes – and the
10-yr closed at 1.62%. There wasn’t much news, although there continue to be
good signs out of the housing market as Pending Home Sales rose a larger than
expected 5.9% to 101.1 in May and is up 13.3% year over year. In fact, the
latest reports on home prices (S&P, FHFA), New and Existing Home Sales,
Housing Starts and the NAHB HMI all contained some positive signs regarding the
state of the housing market as well.

For today’s delights we’ve had a quiet overnight session in Europe, and
then the final Q1 GDP reading (predicted unchanged at +1.9%, which is where it
came in – it’s old news anyway) and Initial Jobless Claims (coming in at 386k
from last week’s revised 392k). Later we have a $29 billion 7-yr note auction. The
markets will also be tuned into any information from Europe as a two-day summit
gets underway to discuss the crisis – I remain skeptical. Possibly providing
excitement as well could be the Supreme Court’s decision on the health reform
legislation.

No one is getting any younger… (Part 2 of 2)

An elderly woman decided to prepare her will and told her preacher she had two
final requests.  First, she wanted to be cremated, and second, she wanted
her ashes scattered over Wal-Mart.
“Wal-Mart?” the preacher exclaimed. “Why Wal-Mart?”

“Then I’ll be sure my daughters visit me twice a week.”

My memory’s not as sharp as it used to be.
Also, my memory’s not as sharp as it used to be.

Know how to prevent sagging?  Just eat till the wrinkles fill out.

It’s scary when you start making the same noises as your coffee maker.

These days about half the stuff in my shopping cart says, “For fast
relief.”

THE SENILITY PRAYER: Grant me the senility to forget the people I never liked
anyway, the good fortune to run into the ones I do, and the eyesight to tell
the difference.

…(read more)

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