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- Fed Buying Up Debt
- Compliance
- Investor Updates
- Question of the Month |
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The Federal Reserve now plans to use the proceeds from the Fed’s large mortgage-bond portfolio to buy long-term government debt. As a reaction to this measure, long-term interest rates may experience even more downward pressure, and stimulate banks to lend more money. Consumers will likely see mortgage rates at record lows for an extended period of time.
Much of the proceeds come from the $1.25 trillion in mortgage-backed securities and about $175 billion in debt owed by government agencies, with most of it from the housing finance entities Fannie Mae and Freddie Mac. The initial plan was to allow the size of that portfolio to shrink gradually as the securities matured or debts were prepaid.
Now, however, the Fed will reinvest those principal payments in longer-term Treasury securities. This hopefully will stimulate bank lending, as banks have been reluctant to make loans since the recovery began due to tighter regulations and fears of losses. Instead, they have preferred investing in safe-haven Treasuries.
While bond yields are at historic lows, the difference between short-dated and long-dated yields has made it profitable for banks to engage in so-called carry trades. However, the spread between 2-year and 10-year yields shrank to 225 basis points, the smallest margin since May 2009.
Only time will tell if the Fed’s measures will have the desired effect as they try to delicately walk the tightrope that is the U.S. economy. |
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FHA Short Refi Program for Underwater Home Owners
In an August 6th, 2010 press release, the U.S. Department of Housing and Urban Development (HUD) announced their FHA Short Refinance option. Aimed at keeping struggling but responsible borrowers in their homes, in particular those in areas where property values declined, the program is effective for loans with case numbers issued as of September 7, 2010 and closed on or before December 31, 2012.
Qualifications include:
- Borrowers must owe more than the home is worth and be current on their existing mortgage.
- Borrowers must meet standard FHA underwriting requirements for the new loan and have a credit score equal to or greater than 500.
- The existing loan cannot be FHA insured and must have an LTV of no more than 97.75%.
- Lenders must agree to write off at least 10% of the unpaid principal of the first mortgage, making the borrower’s combined LTV ratio no more than 115%.
- The property must be the primary residence.
Lenders should inform Borrowers that short refinancing under this program may reflect as a negative feature on their credit score. Borrowers should also be advised to consult with their tax advisors regarding possible tax consequences and cancellation of debt. Read Mortgagee Letter 2010–23 for more information.
The Latest on LQI
In our last newsletter we discussed Fannie Mae’s new Loan Quality Initiative (LQI). We wondered what impact this might have on lenders attempting to comply with the heightened scrutiny on undisclosed liabilities, and how this might affect loan closings. It’s evident now that many in the business had similar concerns with the policies as first announced by Fannie in SEL-2010-01. The initial bulletin created confusion and led to what the Agency calls misinterpretation of its stated requirements. Consequently, the Agency issued new announcement SEL-2010-11 on August 13, 2010 to clarify and update its policies, in particular with regard to the re-underwriting of loans after the underwriting decision was made, up to and concurrent with loan closing.
Many lenders interpreted the new requirements as necessitating a borrower be re-qualified up until closing, and believed this included obtaining a new credit report just prior to loan closing; however, the requirements are thus: if new debt(s) and/or reduced income are discovered after the loan has been underwritten, either through disclosure by the borrower or discovery on the part of the lender, the lender must:
- Document each additional debt by verifying the unpaid balance, terms of repayment and borrower’s payment history. This is to be done per existing Selling Guide documentation requirements, and may be documented by information obtained from either the borrower or the creditor. *The lender is not required to obtain a new credit report to verify this information.*
- Verify the borrower’s income based on updated documentation.
- Re-underwrite the loan if there is new subordinate debt on the subject property.
- Recalculate the DTI ratio based on the revised debts and income noted above and follow the steps outlined in the Announcement should this ratio show an increase from the original underwriting. Re-underwriting may or may not be required, based on the increase calculated.
- Revise the final loan application to include all income and debts verified, disclosed or identified during the loan process.
- Deliver the qualifying monthly income and expense amounts on the final loan application upon delivery of the loan to Fannie.
Note: Should the lender choose to order a new credit report the loan must be re-underwritten.
FHA MIP Changes Delayed
Vicki Bott, Deputy Assistant Secretary, announced August 10, 2010, that the effective date of the new FHA mortgage insurance premium fee changes is postponed from its original date of September 7, 2010. The new effective date is for all new case numbers provided on or after October 4, 2010. Upfront MIP will be lowered to 100 basis points while the annual MIP increases to 85-90 points. The postponement was in response to industry concern over system implementation and testing time. Mortgagee Letter coming soon from FHA.
Maryland Extends Licensing Deadline
The MD Office of the Commissioner of Financial Regulation designated originators who were previously exempt from licensing and applied for an interim license by July 31, 2009 as “Approved Deficient.” They were originally allowed until July 31, 2010 to complete the Maryland Licensing requirements. After realizing the licensing process was being delayed for reasons the licensee could not control, the deadline was extended to September 30, 2010. No additional grace periods will be offered. The licensees who were “Approved Deficient” must complete the following requirements before September 30, 2010:
- Pre-licensing Education
- SAFE MLO Test
- Federal Criminal Background Check
- State Criminal Background Check
- Credit Report
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As part of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act), several investors released notices clarifying new application requirements. The unique Loan Originator Identifier number issued by the Nationwide Mortgage Licensing System (NMLS), the Loan Origination Company Identifier from the NMLS and the NMLS printout are common requirements. Federally insured banks and Credit Unions may need to indicate “Exempt” on the application. Review individual investor notices for more information.
Franklin American
As of September 1, 2010, Franklin American requires an executed Appraisal Certification document be included in all conventional and FHA loan packages delivered for purchase. This form confirms a compliant appraisal ordering process was used for each obtained appraisal. MBS-ProClose created a similar generic form, AADIO1, to be used for Franklin American and other investors with similar requirements.
GMAC
GMAC Bank introduced their new VA Energy Efficient Mortgage (EEM) programs effective July 26, 2010. This program allows the borrower to finance 100% of the home energy efficient improvements. VA Fixed Rate 15-Year (W72), 30-Year (W73), and VA High Balance Fixed Rate 30-Year (W77) are products eligible as an EEM. Acceptable energy improvements include but are not limited to:
- Solar heating and cooling systems
- Caulking and weather-stripping
- Furnace efficiency modifications
- New insulations
- Storm windows and/or doors
SunTrust Mortgage
In late June, SunTrust announced the introduction of their new Jumbo Solution Second Mortgage Loan Program. A fully amortizing fixed-rate second mortgage program, it may only be closed simultaneously with a SunTrust Agency or Agency Plus first mortgage. On July 9, 2010, SunTrust announced the immediate addition of limited cash-out refinance transactions to their Jumbo Solution Second Mortgage Loan Program. Under the same program, the state of Minnesota (at first ineligible) was also added effective for loans on or after August 2, 2010.
According to SunTrust Bulletin COR 10-216 dated July 9, 2010, SunTrust updated their Closing Submission Checklist form COR 0013. The document submission order has changed.
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How do I Export my ProClose Report to an Excel Spreadsheet?
Answer
You can export from the preview screen of the report. The button, (white envelope with a red arrow), is located near the printer icon at the top of the screen. From the Export window, select the desired format (i.e. Excel) from the dropdown then select Destination. If the application is chosen, the report opens directly into an Excel spreadsheet. If the destination "disk file" is selected, a window opens up to allow the user to save the report in the selected format to a desired location. |
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