There has been no progress today toward a resolution to the government shutdown. Fortunately, the initial impact of the shutdown on mortgage originations has been small. The biggest concerns are obtaining transcripts from the IRS and social security verifications from the SSA. Certain Government produced economic reports will not be available. The Construction spending report due out this morning was not issued. The Non-Farm Payrolls report due on Friday may be affected. The impact on the mortgage market of this lack of data is difficult to anticipate. At this time, Fannie, Freddie, and Ginnie say they will continue to operate as normal. VA says that they, too, will have no disruptions in services. FHA, however, expects delays due to reduced staffing. Origination companies, correspondent banks, and warehouse lenders may react differently as they access the risks associated with an extended shutdown.
In a press conference this afternoon, President Obama laid out his plan for restructuring the GSEs. His plan sounds very similar to what is being proposed in the Senate, so there were no big surprises. His plan includes a wind down of Fannie and Freddie (no specific timetable provided) to make room for the private sector. His plan includes some form of government backstop, as necessary to encourage a liquid market for mortgage-backed securities (MBS) and the 30 year fixed rate product. The government backstop would insure investor recovery of principal and interest, but would only be paid after substantial private capital has been depleted. He acknowledged that this will take a long time. He offered a couple of things that could be done much sooner, like creating a common Fannie/Freddie platform for issuing new MBS and reducing Fannie’s and Freddie’s mortgage holdings. He emphasized that any restructuring needs to provide adequate opportunity for first time home buyers.
Our special guest on the Lykken-on-Lending blog talk radio show today was Doug Duncan, the Chief Economist for Fannie Mae. Doug provided his thoughts on the economy, housing, Europe, and inflation, but the most interesting comments had to do with his answer to a question asking how he would characterize what will happen in 2012. Doug answered by directing the listeners to a Fannie Mae research paper entitled 2012 – Year of the Political Economy. This paper can be found on the Fannie Mae web site at http://www.fanniemae.com/portal/about-us/media/financial-news/2012/5609.html. Doug explained that 2012 will be very heavily effected by the number of regulations just added to the books, as well as the many new regulations to be issued in the months to come. The consequence of the huge number of new regulations is UNCERTAINTY. He estimates that uncertainty will cost the economy 1% in Gross Domestic Product or $500 to $750 billion in 2012, effecting both the consumer and businesses. Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline's Joe Farr: Listen to internet radio with David Lykken on Blog Talk Radio MBSQuoteline supplies the essential market information necessary for effective decision making [...]
This morning, FHFA announced their enhancements to the HARP refinancing program. Operational details of the plan are to be released on November 15. Only loans that were purchased or guaranteed by Fannie Mae or Freddie Mac on or before May 31, 2009 and have a current LTV over 80% are eligible. In addition, the loan must be current, no late payments in the last six months and no more than one late in the last 12 months. There are no restrictions on who may refinance these loans. Program guidelines include: *No limit on LTV, if new loan is a fixed rate loan (current LTV must be above 80%) *Loans previously refinanced under HARP not allowed *Certain agency fees will be waived if new loan is a shorter term loan *Appraisals not required where Agency AVM is available *Certain originator Reps and Warrants will be waived Borrowers can determine if their loan is owned or guaranteed by Fannie or Freddie at http://www.fanniemae.com/loanlookup/ or http://www.freddiemac.com/corporate/ If you need additional information about this blog post, please visit our website MBSQuoteline.com or call 800-627-1077.
Glen Corso, Managing Director of The Community Mortgage Banking Project, joined the show today and offered his “inside the beltway insights on the effects the change of control in the U.S. House of Representatives may have on the mortgage industry. According to Glen, the single biggest effect will come from Barney Frank no longer being the Chairman of the House Financial Services Committee. Barney has been such a significant influence over mortgage related legislation that without him in the Chairman position, future legislation will likely be less hands-on. Glen said to expect some technical corrections to the Dodd-Frank Bill. The corrections may be a little more than technical corrections, but far short of wholesale changes the Republicans would like. He expects little to be done about Fannie Mae and Freddie Mac now that the Republicans control the House. The two parties are very far apart in their belief about the proper course of action for Fannie and Freddie and without Democratic control of both the House and the Senate neither party is likely to succeed in pushing their plan. Glen reminded everyone that funds have already been committed to Fannie and Freddie to replenish their capital as losses continue to [...]
Mortgage companies and mortgage originators will be significantly affected by what Congress does in the final Financial Reform bill. The bill made it through the House and Senate Conference Committee last Friday. Glen Corso, Executive Director of the Community Mortgage Banking Project, returned to the show today to describe what the bill now looks like. He focused on the two provision directly affecting the mortgage industry: Risk Retention and Loan Officer Compensation. The current Risk Retention provision actually improved in the conference committee. There is still a requirement for originators to retain 5% of the risk on the loans they originate and sell. This would be devastating for the industry, except for the fact they the bill exempts almost all of the loans being made today. The bill says that the requirement to retain risk does not apply to government guaranteed loans (FHA, VA, and USDA) and all other loans “well underwritten. Well underwritten loans are loans that are fully documented and have reasonable ratios, are not negative amortization loans or loans with large payment adjustments possible. Most Fannie and Freddie qualifying loans would meet this definition. Glen believes the bill will allow an allocation of the retained risk between [...]
So overall, lenders seem to be content with HVCC. That’s one out of four. But how about appraisers? The popular method for lenders to comply with HVCC has been to contract with an appraisal management company (AMC) to handle the appraisal process (though some are managing the process internally). In this arrangement, the appraisal order is placed with the AMC by a non-production person in the lender’s office, the order is assigned on a random basis to one of the appraisers in a pool, and if the appraiser accepts the order, the appraisal goes forward. Sounds simple enough and workable, right? Most appraisers I’ve talked to are somewhat ambivalent on the issue. They’ve lost business from long term, cultivated, relationships but picked up business from others in the random assignment process. There’s a middleman now (remember the AMC) and middlemen have to get paid. We’ve all heard of AMCs demanding appraisers to accept a lower fee for reports to be on their panel. A common refrain is less qualified appraisers that otherwise might not be able to get business on their own, gladly step in on these terms with the result being poorer quality appraisals. So, appraisers have had to [...]
The 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 [...]
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 [...]
“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 [...]