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.
On Friday, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act. This Act uses increased guarantee fees on new mortgages to pay for reduced payroll taxes. The amount of the g-fee increases will be included in future mortgage rates. Below are general provisions pertaining to increasing the Guarantee Fees for Fannie, Freddie, and FHA. Several elements in the bill are not quite clear and may take weeks or months to determine. The primary questions are: 1. How much will the Fannie and Freddie g-fee rise? The Act calls for a minimum increase of 10 basis points, but the amount of the increase is to be determined by FHFA and is supposed to a)"cover the risk of loss associated with the guarantee", and b) be based on "the cost of capital allocated to similar assets held by other fully private regulated financial institutions". This definition could result in a wide range of fee increases. The early expectation from insiders is that the increase will be 10 basis points. 2. When will the increase become effective? The Act says the increase is to be applied to guarantees issued after enactment of this section. The date this provision is to [...]
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 [...]