Nitty-gritty disclosure changes; Lots of investor changes; The impact of higher rates

June 1st, 2009 · No Comments




My kids asked me, “Which of your five senses tends to diminish as you get older?” I told them “My sense of decency.”

Fannie Mae has announced two pricing changes for their Home Affordable Refinance options: “Refi Plus (manual underwriting) and DU Refi Plus for Desktop Underwriter (DU). As stated in Announcement 09-15, Updates to Home Affordable Refinance Pricing, we will: Eliminate the Expanded Approval (EA) loan-level price adjustment (LLPA) for DU Refi Plus loans that receive an EA recommendation; and Cap at 2 percent the total of all LLPAs and the Adverse Market Delivery Charge assessed on all Refi Plus (manual underwriting) and DU Refi Plus loans. Lenders are expected to waive the EA LLPAs and apply the cap for borrowers who have not yet closed on their loans.”

Wells Fargo wholesale said that “Effective July 30, 2009, part of the Housing and Economic Recovery Act (HERA) of 2008, specifies new requirements for the disclosure portion of the loan application and fulfillment process. Highlights of these changes include: Collection of Fees: No fees, other than a bona fide and reasonable credit report fee, can be charged prior to the applicant’s receipt of the initial Truth-In-Lending (TIL) disclosure. New Business Day Definition: Saturdays are now considered a business day for purposes of disclosure receipt. Business days will include all calendar days except Sundays and federal holidays. Timing of Disclosures: Early disclosures must still be provided no later than three business days after receipt of an application. Under the new rule, early disclosures must also be provided at least seven business days before closing/signing. Early Disclosure: The initial Truth-in-Lending (TIL) disclosure is required to be provided to the borrower on both purchase and refinance transactions involving a borrower’s principal or secondary dwelling. APR Change: If the APR increases by more than 0.125 percentage points from the value last disclosed to the borrower, a corrected Truth in Lending (TIL) disclosure must be furnished to the borrower at least three business days before closing/signing. Re-Disclosure Mailing Period: When corrected disclosures are mailed, the borrower is presumed to have received their corrected disclosures three business days after mailing.”

GMAC Bank Correspondent Funding introduced the Freddie Mac Super Conforming Fixed Rate and ARM products. Freddie Mac has increased their maximum loan limits for super conforming mortgages in certain high-cost areas as permitted under the American Recovery and Reinvestment Act of 2009 (ARRA). They went on to say that Super conforming mortgages with original loan amounts <= $1,000,000 must be submitted to Loan Prospector. The loan must receive a risk classification of LP Accept - all other risk classifications are ineligible. In addition, manual underwriting is required for loan amounts >$1,000,000, subject to compliance with all credit requirements in the GMAC Bank Freddie Mac Super Conforming Mortgage Fixed and Arm product summary as well as the Freddie Mac Selling guide. 

As more companies look at retaining their servicing, many are realizing that the decision is not simple. Especially since the large investors are paying handsomely for certain types and geographic areas. Franklin American, for one, in determining to retain servicing, does not focus on certain geographic locations, but instead incorporates a best execution strategy where the goal is not to adversely select any of their investor partners.

StoneWater Mortgage, effective today, will implement a new policy governing the disbursement of Third Party Fees at loan funding. “Prior to authorizing the disbursement of loan proceeds, we will ensure that the Yield Spread Premium (YSP) does not exceed 3% of the loan amount, while the net broker compensation (including YSP) does not exceed 4% of the loan amount.”

May was the third month in a row for stock market gains. Stocks have been appreciating as the credit freeze and bank liquidity crisis has eased, while a growing number of economic indicators have signaled a marked moderation in the pace of the economic decline. As one would imagine, this has not helped rates. The S&P 500 stock index has gained about 34% since its March low. Jobless Claims are slowing down, consumer confidence is increasing with an increasing number saying that they will be buying durable goods soon, and oil prices are rising due to the expected recover. But as yields have increased, so has the number of economists who believe that this will only dampen the recover, since higher rates put a damper on housing and borrowing in general, especially refi’s. And it has the potential to cancel out the Fed’s effort to lower the cost of borrowing for consumers and businesses across a broad spectrum of loans and bonds. What is the yield curve telling us? With overnight Fed Funds still targeted at 0%, and longer-term rates going up, it doesn’t take a math major to figure out that the curve is steepening – a traditional signal of renewed economic growth and recovery. (Keep in mind that short-term rates are set, long terms rates move with the market.) If that is the case, perhaps rising bond yields are not a problem for the economy, but a reflection of a recovery. You pick!

Although higher rates may dampen the housing recovery, if one is indeed occurring, originators should remember that rates are only part of the “home buying equation”. Many houses are now more affordable, families are saving money now and may have more for a down payment, and rates are still relatively low. Complicating things is the fact that U.S. bond markets are not trading naturally due to the massive intervention by the Fed. The Fed has been buying mortgage-backed securities to keep mortgage rates low, which has reduced the spread between the Treasury bonds and mortgages unnaturally. But with a steady rise in 10-year Treasury yields, the rates on mortgages can no longer escape the Treasury market, and as we saw last week mortgage rates shot up.

For economic news it is a busy week. We have already had GM filing for bankruptcy, Personal Income and Consumption (consumer spending fell in April by .1% despite personal income posting the largest increase in 11 months, up .5%), and later this morning we will have Construction Spending and the ISM Index. Tomorrow we take a break, but Wednesday we resume with Factory Orders and the ISM Services index. On Thursday we have Jobless Claims and Productivity, and then on Friday the slew of employment data. So far mortgage prices are worse by .250 and the 10-yr stands at 3.60%.


We are about to enter the BBQ season. Therefore it is important to refresh your memory on the etiquette of this sublime outdoor cooking activity, and when a man volunteers to do the BBQ the following chain of events are put into motion:
The woman buys the food, makes the salad, prepares the vegetables, makes dessert, prepares the meat for cooking, places it on a tray along with the necessary cooking utensils and sauces, and takes it to the man who is lounging beside the grill - beer in hand.
The woman remains outside the compulsory three meter exclusion zone where the exuberance of testosterone and other manly bonding activities can take place without the interference of the woman.
Here comes the important part:
The woman goes inside to organize the plates and cutlery, and comes out to tell the man that the meat is looking great. He thanks her and asks if she will bring another beer while he flips the meat.

The woman prepares the plates, salad, bread, utensils, napkins, sauces, and brings them to the table. After eating, the woman clears the table and does the dishes.
And most important of all:
Everyone PRAISES the MAN and THANKS HIM for his cooking efforts, and the man asks the woman how she enjoyed “her night off” and, upon seeing her annoyed reaction, concludes that there’s just no pleasing some women.


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Tags: Commentary · Mortgage Market · Rob Chrisman

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