So we've been slipping, letting little bits and pieces of our big secret out of the bag little by little and we can't hold back much longer!  We are close to introducing our Platinum Product to the Mortgage Community.  This isn't our current software re-wrapped in NEW, "pretty look and feel," with a little more functionality.  This is a brand new - better than ever - closing software on the market!  Dare I compare it to the MAYBACH of Doc Prep?  That we do.

Picture yourself sitting in the back of this luxury vehicle while we drive you around with the newest options, the newest technology, the newest products and the best service.  Enjoy yourself while the loans practically close themselves.  Are you looking forward to it yet?

For those that are interested in the details of the technology behind Platinum, here are some items of importance.

We went for a Business Rule Approach where basic rules are used to automate the business processes for repeat and consistent performance.  They are written in ENGLISH, not in Developer-speak.  Changes, upkeep and new technology are made with little risk, low cost and high speed.  The business logic is embedded in the rules engine, and even in a world as fast changing as our Mortgage Industry, allows for adaptability, flexibility, scalability and ease of use.

We created a Business Rules Engine that helps manage and automate our business rules through software, which cycles the data to classify, manage, verify, infer, relate, reject and accept.  This is the GPS in our vehicle, and as in any IT app, the rules change more frequently than the rest of the application code, so it makes sense to separate the rules out from the application code or in this case, from our engine.  Faster? Cheaper? You bet!  And highly adaptable!!!

Well-planned architecture is key to easily add applications out of software services - or individual "modules" which move data in and out, and call to other services in the same language.   Platinum will allow tons of functionality and offerings to be hooked together to get the best of the best or say that sunroof, passenger side airbags or heated car seats.

We are using an ideal Web Service support system with perfect Machine-to-Machine interaction over a network.

We are following the MISMO (Mortgage Industry Standards and Maintenance Organization) "dictionary" of mortgage data elements.  This allows for the transfer of data from one mortgage system to another, from one software product to another (LOS to Doc Prep, for example) so that seamless data transfer is a REALITY.  This eliminates added cost of integration, along with the headaches when each of your software products speaks a unique language.  So now your luxury vehicle can accept any gasoline, any oil, and any new part and run just as smooth and fast.

Platinum will surprise you.  It will exceed your highest expectation.  Picture the best ride you can imagine.  Now picture that ride as affordable, sitting in your driveway, with a driver ready to take you anywhere!  Platinum is incredibly easy to use, very little data input required, great logic in the screens and navigation, no IT department required on the Client side, ...and it churns the RIGHT documents, EVERY TIME!  Can't wait?  Obviously, we couldn't wait to tell you about it either!

More exciting news next month!

While a compliance conference isn't usually the most happening party around, this year's event, held in Washington D.C. September 23-25, was more somber than usual.  Attendees included anyone from attorneys and compliance managers to loan officers, regulators and even US Representative Brad Miller from North Carolina.  Panel discussions, roundtables and speakers focused on factors that led to the industry problems of today, reactions to these problems and what to expect next. 

A leading topic was subprime mortgages (see Subprime Mortgage Guidance Updates below) most clearly defined as, but not limited to, short-term hybrid arms like the 2/28 and 3/27.  Many agreed that there is a time and a place for subprime loans but there is a "right" way to provide them.  Some suggestions included:  straight honest advertising (especially with teaser rates), more clear disclosures, eliminating or at least limiting prepayment penalty periods, confirming realistic affordability and qualifying the borrowers at the full PITI, encouraging escrows, and vigilance in the review of quality underwriting.

Sevicing to Assist Ailing Borrowers

Servicing was another hot topic at the MBS Regulatory Compliance Conference.  Members from Wells Fargo, Lehman Brothers, JP Morgan Chase, and Countrywide spoke in panel and/or at roundtable sessions about what they were doing to assist borrowers.  Because it is unlikely (whether from fear, embarrassment or naivety), for a suffering borrower to decide to seek help, it was encouraging to see the work being done by servicers to reach and communicate with borrowers early on (before resets and/or foreclosure is immanent).  Hotlines, community outreach, public awareness campaigns, mass mailings, foreclosure prevention trainings and even DVD mailings are all ways servicers hope to prevent borrowers from losing their homes.

If a servicer does get in contact with a borrower that is likely to foreclose, options do exist to save their home even with declining home values and tightening credit and underwriting standards.  The most popular trend is a modification agreement that gives the borrower a new start with an up to date account while preventing the investor from losing more money through a foreclosure.  Qualifications for allowing a modification agreement include:  1) loan must be in default or reasonably foreseeable default; 2) there must be a benefit to both the borrower and the servicer for modifying the loan; and, 3) limitations on the amount of information that can be modified.  Special care must be taken to report modifications correctly.  Other solutions might include payment plans, moving payment due dates, waiving origination fees if the borrower is able to switch to a fixed rate, refinancing (though unlikely in subprime scenario) or in the case of a FHA a partial claim may be an option.

Upcoming Months & Recommendations to Lenders

There will be plenty more changes both in regulations and trends in the near future; subprime recovery could take as long as another 18 months.  According to Stephen Ornstein, partner at Thacher Proffitt & Wood LLP, resets will peak in March 2008.  Look for more states adopting the Subprime Statement, new legislative reform efforts, prepayment penalty limitations and investors requiring more documentation, higher credit scores and more disclosures, especially for non-prime products. 

Regulators advised responsible lending practices: 

. Educate your borrower and disclose everything
. Confirm a borrower's ability to pay and match them to suitable programs
. Review your underwriting procedures
. Discontinue providing incentives that might promote higher priced loans
. Analyze your distribution of products
. Really listen and monitor feedback or complaints from borrowers - they are your first insight to where you may need work 
. Overall, you are responsible for fair lending - don't risk your reputation. 

Unfortunately declining markets continue to cause big hits for the secondary community as more investors shut down their correspondent lending departments in September including 1st National Lending Service and HSBC's subprime mortgage unit - Decision One.  Otherwise investors spent the month releasing changes to LTVs, documentation types and some product removal.  A few even released some new programs.

Aurora Loan Services

ALS is just the start of those that are raising credit score requirements and limiting no documentation and stated income loans.  Aurora took away the no documentation type from their Alt-A products and removed their High LTV and stated income stated assets documentation type from their Mortgage Maker product line.  They also completely discontinued their 2/6 Hybrid LIBOR ARM and Second liens, both under their Mortgage Maker product.

CitiMortgage

In a September 25th Bulletin, CitiMortgage announced new Freddie Mac 100 Mortgage and Freddie Mac 80/20 programs.  They are designed for borrowers with limited liquid assets but good credit history.  Among other changes released were new LTV/CLTV and FICO requirements.

Countrywide

On September 19th, Countrywide eliminated its One-Time Close Construction loan program.  On September 20th, and perhaps foreshadowing what was soon recommended during the Regulatory Compliance Conference - CW announced that they will no longer allow 5-year prepayment penalties on any 3-year ARM programs.  Beginning September 10th, Countrywide expanded their Home Possible programs adding 40-year terms and ARM products.  Countrywide is also revamping the naming convention of their forms.  As they are renamed and released, Mortgage Banking Systems will be adding the new updated versions to the ProClose system.  Announced Sept 6, 2007 - Countrywide reminded lenders that an additional 1% assessment of insurance premium is required in the state of Florida.  The assessment on the MI policy is a finance charge if the cost is passed on to the borrower and therefore, must be disclosed on the final Truth-In-Lending disclosure. The assessment must be disclosed until the date on which mortgage insurance will automatically terminate and Countrywide asked that all lenders make sure their TIL covers this.  This was already tested in ProClose early this year when the 1% assessment in Florida became effective and the TIL does reflect it appropriately in the payment stream.

Flagstar

On September 14th, Flagstar suspended their High LTV Alt A 3/6 Month ARM with 3-year prepay (#5418) and their YES 3/6 ARM program (#5410) including the interest-only option.

Indymac

Indymac announced new loan products under their Agency eligible programs September 17th.  40-year terms are now offered for both fixed and 3/1, 5/1, 7/1, & 10/1 LIBOR ARMs.  Several My Community Products were released including:  5/1, 7/1, & 10/1 LIBOR ARMs with Interest-Only options allowed on the Fixed and 5/1 LIBOR.  Minimum credit scores and documentation types have been updated as well for several of their products.

Wells Fargo

An announcement was released September 20th, that due to market conditions, in particular lack of liquidity, Wells Fargo will no longer be able to offer their home equity products.   No new loan registrations were accepted after September 28th.  Becoming effective October 1st were changes to their documentation requirements for several still offered loan programs.

For More Information 

Visit your investor's web site or find more details by logging into our client support site.

Subprime Mortgage Guidance Updates

In the past month, 9 more states have adopted "The Statement on Subprime Mortgage Lending (Subprime Statement)."  The Subprime Statement was developed by the Conference of State Banker Supervisors, the American Association of Residential Mortgage Regulators, and the National Association of Consumer Credit Administrators to address emerging risks associated with certain subprime mortgage products and lending practices.  

Joining many other states, Arizona, New York, Georgia, South Carolina, Wyoming, Indiana, Kentucky, Alabama and Massachusetts have adopted the Guidance in entirety.

The Subprime Statement was created after the Guidance on Nontraditional Mortgage Product Risks ("Guidance"), which the majority of states have already adopted.  Both were developed in an attempt to assist state regulators in promoting consistent practices in the mortgage market, and to clarify how mortgage lenders and brokers can offer products other than prime loans in a fair and clear manner disclosing the risks to borrowers that they may assume. 

The key themes of the Subprime Statement listed below, were recurrent topics at the MBA's Regulatory Compliance Conference:

Risk Management - ARMs should be underwritten at the fully indexed rate with a fully amortizing repayment schedule, plus qualification must consider a reasonable estimate for real estate taxes and insurance (escrowed or not).  Stated income and reduced documentation should only be acceptable on a limited basis.

Workouts - Institutions should work constructively with borrowers who are in default or whose default is reasonably foreseeable.  Workout must be in the best interest of both the institution and the borrower.

Consumer Protection Principles - Prepayment penalties should not exceed the initial reset period and should allow the borrowers reasonable time to refinance their loans without incurring a prepayment penalty before reset.  Consumers must receive the information (in particular in added disclosures) about the material features of subprime loans.

Control Systems - Due diligence should be done on mortgage brokers and correspondents and compensation to them as well as to loan officers should not provide added incentive for originations without sound underwriting.

Maine Proposes Guideline for Determining Reasonable, Tangible Net Benefit and Ability to Pay.

Together Maine's Bureau of Consumer Credit Protections and Bureau of Financial Institutions proposed a rule intended to clarify the concepts of "reasonable, tangible net benefit" and "ability to pay."  These practices were originally prohibited in the "Act to Protect Maine Homeowners from Predatory Lending" signed into law on June 11, 2007.

The rule contains the requirements that creditors must follow to avoid engaging in the act or practice of "flipping" a residential mortgage loan.  In addition it sets forth the criteria for creditors to use to determine whether or not, borrower will be able to make the scheduled payments associated with such a loan.

The hearing for this proposed rule will be held at 10:00 a.m. on Wednesday, October 17th at the Gardiner Annex, 124 Northern Avenue, Gardiner, Maine.

Why might the ProClose FHA Monthly MIP not match the Amount Calculated in a LOS?

Answer:  Per HUD Mortgagee Letter ML 98-22, all lenders must calculate monthly mortgage insurance premiums based on HUD's calculations. ML discusses computation of the annual average outstanding balance to be used in these calcs.  ProClose performs the calculation exactly as HUD specifies, which may result in a slightly lower monthly MIP than that calculated by the LOS (often calculated off the initial base loan amount, and not an average of the balance). User will need to consult with the LOS about any adjustments necessary so that they can match their LOS calculation to the HUD required calcs.