American Home Mortgage

AHM Correspondent has shut down operations effective August 3rd after their stock plummeted following reports of bankruptcy from the company.  This comes as a warning sign to the rest of the industry as AHM was a strong lender for borrowers with credit scores above the subprime bucket.  As the 10th largest lender in the country, they became one of the largest investors to fall victim to the secondary market volatility.  AHM was not only a major correspondent player, but American Brokers Conduit ABC Lending, (a part of AHM and also part of the wide spread shut down), was once a leader in selling MTA Option ARM loans. 

GreenPoint Mortgage

Shortly after the AHM shut down, GreenPoint correspondent re-aligned its Alt-A products in a reaction to market trends - halting the funding of its Expanded Criteria Alt-A loans, 3/6 ARMs, and standalone HELOCS.  These products are part of the larger Alt-A bracket and GreenPoint is working to move their product line to create a portfolio that will be better prepared for re-sale in the up-coming months.

Countrywide

Countrywide has responded by giving up some of their subprime products including their 2-year and 3-year ARMs.  This is in line with what the larger banks are moving too; as subprime loans are becoming all but completely unsellable to both clients and the secondary market.  Countrywide's large portfolio of available A-products is still strong.

Indymac Bank

Indymac has made some additions to their product line, including expanded lender paid MI programs and their Super Jumbo/Ultra Jumbo products which include loan amounts up to $5,000,000 and credit scores down to 660.  These are available in a wide variety of adjustable rate programs. There have been reports that Indymac plans to adjust other products in response to current market trends.  Specific Details can be found on the Indymac web site.

1st National Lending Services

1st National Lending has cut their high LTV no mortgage insurance product line, labeled their NOMI products due to increased volatility in the market.  This Alt-A product was a great alternative to doing combo loans if borrowers are against mortgage insurance.  Now that mortgage insurance is tax deductible and MI companies are lowering prices, this type of product is becoming less attractive, although it still remains a strong ALT-A product due to the simplicity of its set up.  1st National Lending says it has plans to re-introduce this product in the future.

Morgan Stanley

Morgan Stanley has stepped up their guideline requirements for their ALT-A product lines.  Max LTV's have been increased in addition to stricter doc requirements.  They have also eliminated their stated income stated assets doc type on their hybrid option ARMs. 

Wells Fargo

Wells Fargo plans to release their agency product line in Mid-August.  This includes the My Community Mortgage that has received additional attention because the product allows for expanded approval decisions from DU.  It also is more likely to give approvals on scenarios that used to fall under Alt-A and subprime documentation types.  Because there is agency approval on these products and they are full doc, they are more likely to be purchased in secondary.  This is a step in a different direction for Wells Fargo Correspondent they have been positioning themselves to be the leader in the disintegrating subprime and Alt-A market over the past several months.

Subprime Lending Regulations Tightened

In July, Federal Bank regulators issued strict regulations that affect the subprime mortgage lending market.  These new regulations were created in response to the increasing number of foreclosures on subprime mortgages.

The new regulations will affect subprime lenders in two major ways.  First, it will require lenders to collect more information regarding a borrower's ability to pay the loan. Second, it will require lenders to give borrowers an option to refinance out of an adjustable-rate mortgage without penalty.  An additional feature of the regulation is that lenders are now required to underwrite loans based on a borrower's ability to make payments on a loan's adjusted reset rate.

Bank regulators anticipate that the state and local governments will follow this trend of tightening up the subprime mortgage lending market by issuing similar regulations.  ProClose® customers should continue to monitor developments in the subprime mortgage lending market, because the Federal regulators are intent on making sweeping changes to the current system.

House Financial Services Committee Issues Subprime Lending Legislation

In response to the continuing complaints about unfair practices in the subprime mortgage lending market, the House Financial Services Committee has introduced legislation aimed at protecting consumers.  Reps. Spencer Bachus (R-Ala.), Paul Gillmor (R-Ohio) and Deborah Pryce (R-Ohio) introduced the bill which is known as the Fair Mortgage Practices Act (H.R. 3012).  The bill is designed to: 

• Create a national registration and licensing system for mortgage originators;
•  Increase transparency in the mortgage process by simplifying disclosures for borrowers;
• Encourage financial institutions to evaluate a borrower's ability to repay a mortgage loan before extending credit;
• Increase support for housing counseling
• Restrict prepayment penalties on hybrid ARMs, including 2/28s and 3/27s;
• Require escrow accounts for taxes and insurance on subprime mortgages;
• Strengthen enforcement against mortgage fraud schemes; and improve integrity for appraisals.

This legislation comes on the heels of new federal bank regulations that also restrict the way subprime mortgages are issued.  The House Financial Services Committee feels that this legislation will protect borrowers and preserve their access to credit.  The ProClose® Compliance Department has reviewed the bill and will ensure that our documents satisfy any of the bill's new requirements

The Federal Reserve and State Regulators Join Forces to Combat Subprime Lending Problems

The Federal Reserve announced in July that it will team up with state regulators to evaluate subprime mortgage lenders and brokers.  This new program will silence some of the Federal Reserve's critics who believe that it has not done enough to protect consumers against deceptive lending practices. 

The most significant feature of the program is that it will conduct compliance reviews of firms with significant subprime mortgage operations.  The compliance reviews will evaluate a company's underwriting standards and compliance with state and federal consumer protections.  If a company is found in violation of any of underwriting standards or consumers protection regulations, then the Federal Reserve and state regulators will take enforcement action.  The program is scheduled to start at the beginning of the fourth quarter in 2007. 

Since the Federal Reserve and state regulators are reviewing subprime lenders and brokers, the ProClose® Compliance Team recommends that our customers approach all subprime mortgage loans carefully.

What forms are required from the new disclosure requirements of the 2007 Minnesota predatory lending statutes?

Answer:

The Minnesota predatory lending statutes require borrowers to provide verification of the borrower's ability to repay and documented evidence of a net tangible benefit to the borrower.  As a result, these statutes require the following forms: the Ability to Repay Worksheet (MN4PE1) and The Net Tangible Benefits Worksheet (MNDIA1).