Below is a collection of articles, news, and announcements associated with our industry.

Archive for May, 2010

In the News – Is HVCC working? The Real Answer? Well, It Depends.

Thursday, May 27th, 2010

Federal Housing Finance AgencyThe industry has had a year to operate within HVCC guidelines and the benefits of it pretty clearly depend on just whom you ask.

May 1, 2009 marked the implementation of another regulation on the mortgage industry when Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC) as a result of an agreement between their regulator, the Federal Housing Finance Agency (FHFA), and the New York State Attorney General.  One of many initiatives aimed at improving loan quality in the wake of the subprime market meltdown (and we’re finding quality problems weren’t limited to the subprime market) HVCC’s intent was to ensure appraiser independence in the valuation process, thereby improving appraisal quality.  Doing so, it was reasoned, would better serve lenders because they would get more accurate valuations on which to base their loan decisions.  And borrowers as well would be protected from obligating themselves on loan amounts based on inflated property values.

So is HVCC working?  Well, who are you asking?  Basically you have four different players in the origination process impacted by HVCC- the lender (and we’ll include Fannie and Freddie in this category to keep it simpler), the appraiser, the originator and the borrower.  Let’s take it one step at a time.

Lenders, at least publicly, seem to be content HVCC is working.  Remember here the originator was the popular choice of many as the culprit responsible for a lot of the problems in the industry (that is an entirely different debate to be saved for another day).  And eliminating contact between the originator and the appraiser eliminates the likelihood that the originator will influence the appraiser’s opinion of value.  No matter your role in the business, I think we can all agree that is a good thing.  Originators are not trained to appraise real estate.  Additionally, this separation basically eliminates for lenders another front for attack from regulators on appraisal quality.  There are statistics out supporting the position that appraisal quality is up, appraisal fraud is down and better loans are being made today as a result of HVCC.  Arguments for the success of HVCC from lenders abound.  But talk to appraisers, originators and consumers and you’ll likely get a very different view.  And not surprisingly, those views won’t all be the same.  So is HVCC working for them?  Well, it depends.  We’ll dissect their views a little bit next time.

Additional Resources:

HVCC FAQs

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BlogTalkRadio Podcast – May 24, 2010

Tuesday, May 25th, 2010

BlogTalkRadio SummaryMortgage rates made a nice move lower last week.  In fact, they have moved lower each of the last four weeks, to the lowest level of the year.  Many of us thought mortgage rates would head higher after the Fed stopped buying mortgage-backed securities (MBS) at the end of March.  Mortgage rates did move higher just prior to and just after March 31st,   but new circumstances entered the market in April.   Uncertainty has pushed investors out of riskier assets like stocks (the Dow is well off its recent highs) and into less risky assets like government insured MBS.  Several things are contributing to this uncertainty.  The European debt crisis and a tightening monetary policy in China have made investors very uncertain about future economic growth in the US.   In addition, the passage by the Senate of a financial reform bill has many investors questioning how freely banks will make capital available to US businesses to finance their expansion.  This uncertainty combined with very low inflation rates have made MBS an attractive alternative.

Dave Lykken hosted today’s show from the exhibit floor of the MBAs National Secondary Market and Expo.  He reported that the conference was well attended and the mood was generally upbeat.  Senate Bill 3217 was the topic of conversation at the conference.  Attendees were pleased by the amendment to the risk retention provisions of the original bill.  There was almost unanimous belief that the provisions of the bill restricting how loan officers are compensated will become law without significant revision.

Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr :

MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.

Tune in every Monday at 1:00pm(et)  for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending

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In The News: Loan Officer Compensation and Senate Bill 3217

Friday, May 21st, 2010

It is being reported that Senate Bill 3217 Restoring American Financial Stability will soon pass out of the Senate.  There are many things in this bill which will effect the mortgage industry.  In an earlier blog post I discussed the likely impact of the “Skin in the Game” provisions of this bill.  In this post, I will discuss the provisions in this bill which will restrict Loan Officer compensation.

Glen Corso, Executive Director of The Community Mortgage Banking Project, discussed on the BlogTalkRadio/Lykken-on-Lending show on Monday that the amendment to Senate Bill 3217 which, among other things, prohibits loan originators from receiving compensation based on the terms of the loan.  He explained that the amendment was introduced late Tuesday evening May 11th and was passed on Wednesday morning May 12th, giving himself and other industry advocates no chance to weigh in on the amendment.  The intent of the amendment is to remove any incentive for an originator to charge more in origination fees to a borrower or to give a borrower a higher mortgage rate than the basic rate and price as established by his or her origination company.  So this amendment essentially prohibits companies from paying loan officers a portion of any overage and prohibits wholesale lenders from paying brokers more yield spread premium for a higher rate on a loan.

Ironically, as Glen reported,  the amendment also prohibits a company from paying an originator less commission based on the terms of the loan.  This means that an originator may no longer be able to give up part of his or her commission to get a deal.  This certainly seems like it might be  an unintended consequence, but apparently not.  Those promoting the amendment in the Senate understood that this practice, this consumer benefit, may end.

The concept of restricting overage and yield spread premiums is not new.  The proposed changes to Reg Z, which were announced over six months ago, include similar prohibitions.  The House version of a financial reform bill also contains prohibitions on paying originators based on the terms of the loan.   John Courson, President & CEO of the Mortgage Bankers Association, told the Texas Mortgage Bankers on Tuesday that in his opinion we are likely in a “brave new world” as it relates to compensating loan originators.  He does not see much chance to change the loan officer and loan broker compensation provisions of this act before it is passed into law.

On a positive note, this same amendment includes a provision which may offset some of the pain from prohibiting overage.  The amendment says that compensation to a lender from the sale of a loan in the secondary market is allowed.  This is obviously a good thing, but what it may also do is allow a lender to share gains from intraday market movement with an originator.  I know most large lenders will not do this, but some small lenders may.  Don’t think of the extra money as overage.  Think of it as benefit from intraday market movement.  If you quote the rate sheet price in the morning and the borrower agrees to it there is no overage.  But, if before you lock it with the investor in the afternoon prices have improved you have extra money.  This is not overage.  It is market movement.  MBSQuoteline is great at helping you capture improved prices due to intraday market movement.  It is also great at documenting this should the payment ever be challenged.

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MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.

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In The News: “Skin in the Game” – Risk Retention Amendment to Senate Bill 3217

Friday, May 21st, 2010

Senate Bill 3217 Restoring American Financial Stability is working its way through the Senate and is expected to be passed in the coming weeks.  Certain provisions of this bill will have a significant impact on the mortgage industry.

As you may recall, the Senate Bill 3217, as originally proposed, included a provision which would have required 5% of the risk on all loans originated be retained by the originator upon sale to investors.  The provision was not clear as to which entity or entities in the origination chain would be required to retain the risk.  It was not clear whether the risk that was to be retained would be an ownership interest in the loan or reserves supported by cash.   It was also not clear how long the originator would have been required to retain the risk.  The original provisions would have been devastating to the mortgage industry.  The 5% risk retention would have forced many mortgage originators from the business and would have driven mortgage rates much higher.  After significant industry efforts, this provision was amended last week.

The amendment, as passed by the Senate, does very little to answer these questions, but what it does do is exempt Qualifying Mortgage Loans from the requirement to retain risk.  Qualifying Mortgage Loans are defined as loans that are originated using thorough underwriting procedures and which have terms that are very basic.  Think today’s Fannie, Freddie and FHA/VA loans.  Think jumbo loans originated under guidelines similar to Fannie and Freddie guidelines.  The vast majority of loans originated in today’s market will meet the Qualified Mortgage Loans definition.  This is a good thing.

There are still issues with the risk retention provisions of Senate Bill 3217, even as amended.  Because the exemption to risk retention only applies to Qualified Mortgage Loans, there will be little room for innovation or for new mortgage loan programs in the future.   This is probably the desired result from the lawmakers’ perspective.  New programs will have to meet the Qualified Mortgage Loans definition or the interest rates for the new programs will have to be much higher to pay for the 5% risk retention.  Many of the special programs created over the last decade were simply not good for the borrower and were too risky for the investor.   Senate Bill 3217 will make it unlikely that anything resembling those programs will ever come back.  But many of the special programs, when used for the right borrower, were perfectly sound programs.  As an example, stated income programs made sense when used for high-earning self-employed professionals with low LTVs.  Even pick-a-pay loans made sense for the right borrowers.

Senate Bill 3217 is not yet law.  It must first be passed by the full Senate and then go through a reconciliation process with the House version of the financial reform bill before it will be final.  The risk retention provisions of Senate Bill 3217, as amended and if passed, will have a significant effect on the mortgage industry going forward.  As amended, though, we can at least expect to have an industry to affect.

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BlogTalkRadio Podcast – May 17, 2010

Thursday, May 20th, 2010

Senate Bill 3217 Restoring American Financial Stability was the focus of discussion on the show Monday, particularly two recently passed amendments which are of great interest to the mortgage banking industry.  The amendments deal with risk retention and loan officer compensation.  One is good for the industry and the other is not.  Glen Corso, Executive Director of The Community Mortgage Banking Project, joined the show to bring a first hand understanding of the amendments and their status.

The amendment that is good for the mortgage industry deals with the risk retention provisions of the original  bill.  The original bill would have required mortgage originators to retain “skin in the game”.  It would have required originators to retain 5% of the risk on all the loans they originated and sold to investors.  The amendment exempts from the 5% risk retention requirement certain mortgage loans which meet the definition of Qualified Mortgage Loans.  Since 90% or more of today’s loans will meet the definition of Qualified Mortgage Loan, the amendment significantly reduces the number of loans on which originators will be required to retain risk.

The amendment that is not good for the mortgage industry restricts how loan originators are to be compensated.  Glen Corso explained that this amendment was introduced Tuesday evening last week and passed on Wednesday morning, giving Glen and other industry advocates little time to discuss its drawbacks with Senators.  The amendment restricts paying commission based on the terms of the loan, which likely means no overage or yield spread premium.

The Senate Bill is not yet law.  It must first be passed by the full Senate and then go through a reconciliation with the House version of a  financial reform bill before it will be final.

We will discuss the risk retention amendment and the loan officer compensation amendment in further detail in separate posts later this week.

Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr :

MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.

Tune in every Monday at 1:00pm(et)  for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending

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In The News: Why Greece Matters for the US Mortgage Industry

Thursday, May 13th, 2010

The economic troubles of Greece have been in the news frequently in recent weeks. Its ability to recover from significant budget deficits and to pay its debts has been questioned and the government debt of Greece has been downgraded. The economy of Greece is tiny, however. The problem is that investors are concerned that other smaller European countries will reveal similar problems. Financial institutions and other private investors have become very reluctant to buy the government debt of these countries, requiring very high yields to do so. The fear is that as the problem grows, banks will become increasingly selective about lending worldwide, as they did during the subprime mortgage crisis.

The clear solution is for the Greek government to cut spending, but this takes time and is politically unpopular to accomplish, while the reduced access to credit markets has already taken place. Last week, the European Union (EU) and the International Monetary Fund (IMF) agreed on a $146 billion economic aid package for Greece to allow enough time for the country to stabilize. Still, Greek workers responded to proposed austerity measures with strikes and protests. Financial markets in Europe continued to fall as investors were skeptical that the bailout package would succeed.

Monday, the EU and the IMF surprised investors with the announcement that they will make available up to $1 trillion to support Greece and other EU members which are experiencing economic troubles. This enormous amount of aid demonstrates the commitment of the stronger European countries to maintaining the European Union and allowing the weaker countries time to recover. The Euro currency strengthened against the dollar and other currencies, and global stock markets rallied strongly.

US mortgage markets were helped by the troubles in Greece in two primary ways. First, in response to the uncertainty in Europe, investors shifted funds to safer investments, including US Treasuries and mortgage-backed securities (MBS). Second, investors expect that continued economic turmoil in Europe will reduce US exports to the region, slowing US economic growth and reducing inflationary pressures. Increased demand for MBS and lower future inflation are both positive for mortgage markets.

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In the News: March Pending Home Sales

Friday, May 7th, 2010

March Pending Home Sales increased 5.3% from February, and were 21% higher than one year ago at this time. The Pending Home Sales index, which measure sales of existing homes based on contracts which have been signed but not yet closed, is a leading indicator for the housing sector. The index provides guidance for future Existing Home Sales reports.

The chief economist of the National Association of Realtors (NAR) suggested that the home buyer tax credit has helped “stabilize the market”. Contracts had to be signed by the end of April to qualify for the tax credit, so many buyers rushed to take advantage before the deadline. As a result, the NAR chief economist expects “measurably lower sales” in May. The growth in housing sector activity will then depend largely on the performance of the economy and the labor market. The housing sector may also benefit from increased availability of jumbo mortgages and other forms of credit from non-governmental sources.

http://www.realtor.org/press_room/news_releases/2010/05/phs_upswing

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BlogTalkRadio Podcast – May 3, 2010

Wednesday, May 5th, 2010

“Skin in the game.”  Most mortgage bankers, especially those who have experienced a loan buyback, feel like they have some.  If Senate bill S3217, Restoring American Financial Stability Act, is passed in its current form mortgage bankers will learn what “skin in the game” means to the current Administration.  This bill calls for mortgage bankers to retain the risk on 5% of the loans they originate.  The language in the bill is not clear, but some have suggested that retaining risk means funding a reserve with cash.  Lets do some math.  If a mortgage company is really efficient, it might earn 1% on the loans it originates and sells.  If they are required to hold 5% as a risk reserve, it will not take long for mortgage bankers to originate themselves into bankruptcy.  Who would participate in this business?

Glen Corso, Managing Director of Community Mortgage Banking Project, joined the show today to discuss his efforts to lobby the Senate to add an amendment to the “skin in the game” provision of S3217.  The amendment would exclude “well underwritten” loans from the risk retention requirement.  Think Ginnie, Fannie, or Freddie loans.  They cannot be defined that way because we may not have a Fannie or a Freddie loan much longer.  Under Glen’s amendment loans that are fully documented, supported by an appraisal, reasonable ratios, no negative amortization, limits on ARM adjustments, etc. would be excluded from this risk retention requirement.

Glen reported that a couple of studies, one by the Mortgage Bankers Association and the other by Chase, estimated that the consequences of this provision of S3217 passing in its current form would be the loss of 50,000 mortgage banking jobs and mortgage rates rising by 300 basis points.  Are either of these acceptable? To anybody?   Even Congressmen out to punish the mortgage industry cannot see these as acceptable.

Debate on S3217 will likely continue for a couple more weeks.  Now is the time for anyone interested in seeing a vibrant mortgage industry to contact their Senators to let them know that the “skin in the game” provision in S3217 needs to be amended.  Consumers need mortgage rates to stay low and they need the mortgage bankers to assist them through the home buying process.

Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr :

MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call 800-627-1107.

Tune in every Monday at 1:00pm(et)  for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending

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