An agent recently wrote to me asking, "If prices in California are up 14% from a year ago and it's been what seems like years since I've had an appraiser indicate prices were 'declining,' then why (oh why) does every conventional loan in California still have an additional fee charged by investors, or a hit to the LTV, for being in a 'declining market?'"

Darned if I know... maybe investors are waiting for the dust to settle? Or maybe they're like the price of gasoline: quick to change on the upside, slow to change on the downside?

I will say this: investor changes are coming fast and furious, and the pricing engines are trying to keep up.

GMAC updated its Conforming I/O product line(s), suspended its Freddie Mac Super Conforming ARM I/O product line, and tweaked its Fannie Mae DU Refi Plus Texas Home Equity product line. Citi has suspended its Agency Flex I/O and Agency 5/1 Libor ARM 5/2/5 Convertible product lines. Flagstar has discontinued the Flex 97 I/O LPMI and Flex 97 I/O 35 % MI product lines. Even Astoria Federal Savings is making a few adjustments to its line-up.

Fannie Mae updated its selling guide for Lender Quality Control Standards and its Selling Guide. More specifically, Fannie details its updated quality control requirements for lenders that take effect July 1.

Fannie's Selling Guide saw some changes that included Texas Section 50(a)(6) mortgages, DU® Refi Plus^TM and Refi Plus, borrower-paid fees and payments when purchasing a property through a pre-foreclosure sale or short sale, borrower Social Security number invalid format, conversion of construction-to-permanent financing in DU, and Fannie Majors® mortgage pooling requirements. It is a lengthy memo, best savored in the privacy of your office: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1004.pdf

Fannie also addressed its Lender Quality Control Standards, in which they added details to their program which first came out in late February. Their goal, of course, as is any investor's, is to enhance the ability for lenders "to deliver mortgage loans that meet Fannie Mae's underwriting and eligibility guidelines and thus mitigate repurchase risk." Beginning in July Fannie will have requirements for lenders to have written procedures for the approval of third-party originators and management procedures for third-party originations, revisions to requirements related to the lender's QC process and the lender's QC plan, revisions to requirements related to lenders that outsource their QC process, new requirement for a prefunding QC review process, updates to the timing for lenders to select and conduct post-closing QC reviews and to loan sampling methodologies, revisions to the post-closing QC mortgage review process, and an addition of the Mortgage Loan File Document Submission Requirements exhibit. It is a "must read" for anyone in compliance or QC: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1003.pdf

U.S. Bank Home Mortgage Wholesale Division told clients its requirements to determine if a FICO score is useable for approving loans with an AUS response, based on the number of trade lines used in the FICO score calculation (reported by the credit bureau). For example, conventional loans with an LTV greater than 80% requiring MI need a FICO score based on a minimum of 3 trade lines evaluated for a minimum of 12 months, as required by the MI companies. With conventional loans of less than 80%, there is no minimum requirement for trade lines beyond what the AUS systems determine are sufficient to produce a valid response (LP Accept/ DU Approve Eligible). And for government loans, all loans require an eligible FICO score to be based upon a minimum of 3 trade lines evaluated for a minimum of 12 months regardless of AUS approval.

Plaza Home Mortgage adopted FHA's Property Flip Waiver (properties can be sold in less than 90 days) but purchase transactions with a sales price ≥ a 20% increase over the seller's acquisition cost are not allowed. All transactions must be arms-length, with no identity of interest between the buyer, property seller or third parties. Plaza repeated that RESPA Regulation requires that any Good Faith Estimate (GFE) re-disclosed as a result of a valid Changed Circumstance be received by the borrower prior to closing. Plaza has defined "prior to closing" as no less than one (1) day prior to closing, which gives the borrower a reasonable amount of time to review the changes on the GFE and make an informed decision. And after Thursday, Plaza will consider the GFE with the latest date which is a least one (1) day prior to the closing date (Note date) to be the final GFE compared against the final HUD-1 for purposes of RESPA fee tolerance compliance. Any GFE in the file dated the same date as, or after closing (Note date) will be disregarded.

GMAC Bank Correspondent clients learned that, as one would expect, GMAC will adhere to VA requirements regarding allowable and non-allowable fees and upcoming changes to fee disclosure requirements in response to the new RESPA process as outlined in VA Circular 26-10-01. Starting immediately "VA-guaranteed home loans will continue to require itemization of Lender's fees that are now lumped under "Our Origination Charge" (Line 801 in HUD-1) under new RESPA rules. Confirmation of the list of "Itemized" fees that can be charged on every VA-guaranteed loan regardless if a 1% Flat Origination Fee is charged or not." The veteran may pay a maximum of reasonable and customary amounts for any of the fees listed below under "Itemized Fees and Charges," plus a 1% origination fee charged by the lender, plus reasonable discount points.

GMAC also rolled out a 10-yr conforming fixed rate loan, which also includes 8 year loans. Its clients will have this option starting Monday - watch those program codes! But more immediately, as in Thursday, the escrow requirements from July 2008 final rule amending Reg. Z concerning "higher priced mortgage loans" will become effective April 1. An escrow account for property taxes and mortgage related insurance (including hazard, flood, MI) required by the creditor is required on all "higher priced mortgage loans." Escrow accounts are not required if the creditor does not require the insurance, but the consumer chooses to purchase insurance such as voluntary earthquake insurance, for loans secured by shares in a cooperative or by condominium units, where the condominium unit association has an obligation to the condominium unit owners to maintain a master policy insuring condominium units.

CitiMortgage released an extensive bulletin to correspondent clients. Starting Monday, FHA Streamline Refinances destined to Citi require an appraisal, and as a result the "FHA Streamline Refinance without an Appraisal" Program is no longer available. Loans without must be purchased by May 31. And although it is not required by VA, CitiMortgage requires all VA IRRRL loans to include an HVCC compliant conventional appraisal that includes a Fannie Mae Market Conditions Addendum, and any current VA IRRRL loans without an appraisal must also be purchased by May 31. (And for VA loans, Citi limits amount of entitlement to $36,000 on cash out transactions.) CitiMortgage reminded folks that when processing appraisals through First American CoreLogic, there are now three categories of results under the Appraisal Quality Score: Pass - Appraisal is concluded to be acceptable based upon quality score findings as compared to program guidelines. Value Assigned - Original appraisal value is not concurred, but sufficient data and confidence exists to be able to assign a value conclusion that is lower than the original value recommendation from the original appraiser. Fail - Appraisal is considered unacceptable. All cash-out transactions for Citi require a full appraisal; property inspection waivers are not acceptable.

Starting yesterday, on loans submitted to Citi for purchase where the borrower is not a US citizen, proof of residency status (i.e., visa classification) is required. Every attempt should be made to provide a copy of the original USCIS document with the closed loan package; however as an alternative, CitiMortgage's enhanced "Alien Status ID Certification" form may be used on conventional loans. (But check with your MI company first about what it requires!)

As of March 22, 2010, mortgage insurance companies have discontinued MI coverage for IO loans, regardless of the FICO score. Therefore, the maximum LTV for conforming IO loans has been reduced to 80%. Additionally, because of the discontinuation of MI and resulting change in LTVs, IO loans are no longer available products for the Fannie Mae Flexible and Freddie Mac Alt 97 programs. Cash-out IO is no longer available for the DU Agency Jumbo program. Loans with existing valid MI certificates will be accepted by Citi until May 22. And Citi is eliminating its convertibility option for 5/1 ARMS with a 5/2/5 cap structure, although it is ok for 5/1 ARMS with a 2/2/5 cap structure.

Starting Monday, for HPML products (HIGHER PRICED MORTGAGE LOANS), secured by a first lien, regulations require mandatory escrow impound accounts to be established to pay all property taxes (including special assessments), property-related insurance (hazard, flood, HO-6, etc.) and mortgage insurance premiums. The escrows must remain in place for at least one year from the loan closing date and may be waived only in response to the a consumer's dated written request to cancel the escrow account received no earlier than 365 days after consummation. Subject to the requirements above, escrow waivers are not permitted for HPML loans, and Regulation Z requirements supersede state-specific requirements.

AmTrust alerted clients that to ensure an arm's length transaction, "Third Party Closers cannot be related to the borrower, seller, or Client in the mortgage transaction." Who is a "Third Party Closer"? They are typically signing services, attorneys, or independent notaries contracted by the Closing Agent for the purpose of securing the execution of mortgage loan documents by a borrower.

Although we receive a break from the auctions this week, on Thursday the government announces the schedule for next week right ahead of Friday's unemployment data. And of course tomorrow is the last day of the Fed purchase program - we end with the current coupon mortgage yield, spread to the Treasury's 10-yr, in the high 50s, near the all time lows. Believe it or not, if mortgage supply drops by much, and demand is decent, we could actually see mortgage rates hold steady or even improve relative to Treasuries!

Regardless, the markets were pretty quiet yesterday, with both stock and bond markets improving a little. There is no government-sponsored economic news this morning, but at 6AM we do have the S&P/Case-Shiller Home Price Index, and at 7AM we have Consumer Confidence. Ahead of those we find the yield on the 10-yr sitting at 3.85%, and the 5-yr Treasury and mortgage prices about unchanged from Monday afternoon's levels.

John is out with his friends and stops by his grandmother's house for a visit.

There's a bowl of peanuts on the coffee table, so John and his friends start snacking on them.

When they're ready to leave, his friends say, "Nice to meet you, ma'am, and thank you for the peanuts." 

Grandma says, "You're welcome. Ever since I lost my dentures, all I can do is suck the chocolate off of them."