Although direction from the FHFA may change in the future, one way to think about the current situation is that there is a “Standard QM” (43 DTI, ARMs max interest rate, and so on) and a “Special QM” (exemption GSE for 7 years – a loan is QM if eligible for sale to an agency, but this expires in 7 years or if they come out from conservatorship). To the best of my knowledge there is no intent to reduce DTI at this point. But why take my word for it – the agencies have put forth guidance. For example, Fannie has its “Quarterly Compass” – two pages which list everything that has announced, along with upcoming dates. And Fannie has consolidated everything it has published on QM in three publications: Lender Letter LL-2013-05 – Qualified Mortgages, Lender Letter LL-2013-06 – Additional information about ATR and QM requirements, and Announcement SEL-2013-06 – Updates related to Ability to Repay and Qualified Mortgage (QM). Links to each of these documents are available through the Fannie Mae Quarterly Compass.
There will be more on this in tomorrow’s commentary, but folks in the industry shouldn’t forget Fannie’s interactive site, the Housing Industry Forum, which will answer many questions.
And others are thinking that parts of the current environment just aren’t for them. “Due to concerns regarding QM compliance and Fair Lending, BB&T has elected to cease accepting lock-ins or registrations of all third party originated loans, effective January 6, 2014. All TPO loans locked with us by that date will be eligible for funding provided they satisfy our pre-funding review process (or pre-closing underwriting process, if applicable). For purposes of this change in our requirements, loans originated by a “DBA” entity will continue to be accepted by BB&T provided our approved Correspondent owns 51% of the DBA entity. While the overall quality of our TPO production has been very good, the future regulatory landscape continues to be challenging…Please note, this bulletin pertains only to TPO (Third Party Originations…..aka loans originated by mortgage brokers and other companies other than by our Correspondent) loans.”
For anyone confused by exactly what type of lender was included in this, BB&T sent out a follow-up. “The previous memo which you received concerning TPO production applies to Correspondents which have been authorized to sell BB&T Correspondent Lending production originated by their third party originators. We have simply decided to begin accepting only retail production originated by our approved sellers and their DBA entities as of January 6, 2014.”
A BBT memo to clients observed, “TPO business has been an excellent performer for BB&T, as noted in the memo, but accounts for less than 5% of our Correspondent production. As stated in the memo, the regulatory environment for those loans concerns us. If you are selling loans to BB&T in which your company originates (Retail) the loan or under a DBA in which your company owns at least 51% of the entity, this will not have an impact on you or your ability to sell closed loans to BB&T in 2014.”
Impac Mortgage Holdings announced the sale of its fully licensed and agency approved seller/servicer subsidiary, AmeriHome Mortgage Corporation. “The sale is subject to change of control requirements by the state, and government agencies including Fannie Mae, Freddie Mac and Ginnie Mae. The transaction includes the sale of AmeriHome's primarily agency servicing portfolio of approximately $700 million in unpaid principal balance, but will not affect the ongoing operations of Excel Mortgage Servicing, Inc., dba Impac Mortgage, the Company's nationally licensed mortgage originator that is also a Fannie Mae, Freddie Mac, and Ginnie Mae approved seller/ servicer. Excluding AmeriHome, Excel's originations are estimated to be $2.7 billion in 2013 and the retained portion of the servicing portfolio is estimated to be $2.5 billion by December 31, 2013. Currently, Impac Mortgage is originating over $500 million per quarter which are predominately Ginnie Mae, Fannie Mae and Freddie Mac eligible loans.
The sale of AmeriHome, which was a redundant mortgage operational platform, will not only improve near term cash balances and profitability but will also help the Company to streamline its mortgage operations. The additional cash from the sale will allow the Company to continue to build its mortgage servicing portfolio.”
In California, Western Bancorp announced the launch of a Correspondent Lending division - a non-delegated correspondent channel for qualified brokers. The new division is led by Joe McKone, VP of Correspondent Lending, and Sharon Bitz, SVP Wholesale Lending. The Correspondent division is supported by staff based in San Jose and Rancho Cordova, CA and is fully operational. “As many U.S. banks exit wholesale lending, Western Bancorp remains focused on the growth and continued success of its wholesale partners. As part of this initiative, the company is set to assist mortgage brokers who want to take the next step in their business growth in becoming Mortgage Bankers. Western Bancorp's Correspondent Program includes training for brokers on how to secure a warehouse line and manage transactions with its proprietary LMS Xpress mortgage platform. The program also provides access to vendors and coaching on file flow, internal and external communications, regulatory risk management and more. The company’s proprietary loan management system, LMS Xpress, was recently launched for use by mortgage brokers and will also support the Correspondent Lending channel.”
Let’s play catch up with some agency news, most of which has been incorporated into the markets but will give us a sense of the trends out there.
The FHA will hold an overview of the HUD Early Delinquency Activities and Loss Mitigation Program via webinar today that will cover general loss mitigation, collection best practices, and variance requests. Register Here.
The GSEs have published a preview of the new data points that will be implemented in ULDD Phase 3 that support QM and ATR, which is currently scheduled for Q4 of 2015. These include 13 new data points that will be required by both FNMA and FHLMC and two data points not related to ATR that were deferred from Phase 2. The November 2013 UCDP Release Notification has also been published and states that warning edits for the Quality of Construction Rating, Location Rating, View Rating, and Condition Rating fields will be converted to data UAD edits and that the presence of one or more of these edits will result in Hard Stop 401 and the issuance of a “Not Successful” status. This becomes effective for the four pertinent fields as of January 26, 2014.
Freddie Mac has updated and published a cornucopia of job aids that span the full life cycle of a loan from origination to servicing, all of which are available via the Learning Center. These cover topics like the anti-predatory lending requirements, the LP documentation matrix, best practices for Best Efforts commitments, validating both LP and non-LP loans in the selling system, deed-in-lieu of foreclosure transactions, the CFPB's servicing rules, mortgages impacted by disasters, and more.
Freddie has received an insurance policy from Arch Reinsurance Ltd. that will cover up to $77.4 million of credit losses for a portion of the credit risk associated with a pool of single family loans that was funded in Q3 of 2012 with the aim of attracting new sources of private capital from non-mortgage guaranty insurers and reinsurers with an interest in the Agency’s portfolio. This newest risk sharing initiative follows the two STACR debt offerings and credit insurance earlier this year.
Freddie and Fannie have updated the Louisiana Mortgage (Form 3019) and West Virginia Deed of Trust (Form 3049) to reflect changes in applicable state law. These can both be found on the Agency websites.
With all this going on, and Christmas shopping to do, who cares about rates? Obviously some folks do, which is understandable. Rates improved a little Tuesday, and are unfortunately worse this morning. And the news was not good out of the MBA on mortgage applications: apps were down almost 13% over the holiday week with purchases off -4% and refi's -17%. Conventional refi's declined by 19% and FHA/VAs were down 13%. As one trader noted, “Despite the fact that adjusted seasonally for ~3.5 days, the number is clearly not good for the refi market…After the 90-day moving average had bottomed out, this latest print initiates another downward trend for the index.”
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