Mortgage Loan Originators

Banks Keep Tweaking Requirements

Posted on Tuesday, December 21, 2010

Flagstar unleashed a spate of changes for its clients which, in my opinion, are
> unusual since they represent a definite loosening of guidelines. The changes are
> several pages long, so reproducing all of them here is impractical. But here are
> some highlights. "We are pleased to announce we are relaxing or removing the following
> current FHA and/or VA loan overlays. Loans previously denied that now meet the guidelines
> published below may be resubmitted to underwriting. Unless otherwise noted, the
> revisions apply to all brokers and correspondents, including DE Delegated and VA
> Automatic Correspondents." Areas impacted include appraisal requirements, credit
> scores, Fannie's form 1004D, purchases of 3-4 unit properties, FHA rate and term
> refinances & VA cash-out transactions that do not provide cash-back to the borrower
> or consolidate non-mortgage debt - 2 unit property & 3-4 unit properties, borrowers
> without credit scores, VA Cash-Outs, repair escrow holdbacks for REO properties,
> maximum ratios for FHA loans, converting existing homes to rental properties, purchase
> of a two-unit property, etc.
> For example, soon Flagstar will approve FHA loans for borrowers with credit scores
> between 620 and 639, subject to some overlays (including the property must be a
> single-family residence, condominium or PUD for loans less than $417k and the borrower
> have clean credit with no 30-day lates in the last 12 months). Properties located
> in declining markets will no longer require an appraisal from a Flagstar-approved
> Appraisal Management Company and purchases of FSBO properties no longer require
> an appraisal from a Flagstar-approved AMC unless the seller has owned the property
> less than 24 months - "Removal of these overlays applies to all VA IRRRL transactions
> and FHA loans requiring an appraisal, provided the correspondent is approved by
> Flagstar for FHA Appraisal Independence Compliance." And the 90-day property flipping
> requirement has been reduced to 30 days. Anyway, check the bulletin for all the
> specifics!
> Bank of America correspondent clients were reminded that the subject property address
> on the Note must match the: Deed of Trust/Mortgage, Appraisal, Preliminary Title
> Report, and Property address entered into the AUS. (What did I miss in operations
> school - what company would not have the addresses match?) This requirement also
> applies to Condominiums, PUDs and Multi-family properties where a unit number is
> part of the address. "Failure to meet this requirement could result in the need
> for a correction to any or all of the documents listed above." In addition, BofA
> recognized the recent HUD condo recertification timelines and processes, saying
> "clients are encouraged to begin the re-approval or recertification process as
> early as possible as HUD does not anticipate that it will issue any further extensions
> of project approvals. If the case number was issued before the New Expiration Date,
> the condo does NOT have to be recertified and offices may proceed in fulfilling
> and closing the loan. Certification that the project meets the FHA minimum of 50%
> (correction to previous Correspondent Lending announcement) owner occupancy is still
> required on all loans."
> Chase educated its correspondent clients that "'EarlyCheck' is a tool available
> to Fannie Mae approved sellers to identify potential delivery issues in advance
> of delivering pools to Fannie Mae. This tool includes both a loan eligibility check
> and a DU Comparison check to ensure that the terms of the closed loan match the
> terms of the final DU submission or fall within the tolerances listed in section
> B3-2-10 of the Fannie Mae Selling Guide. So in accordance with Fannie LQI initiatives,
> Chase will be performing an EarlyCheck review on Fannie Mae Fixed and ARM transactions.
> This review is intended to assist both Correspondents and Chase in ensuring the
> highest quality of loan data at time of loan delivery." Chase also clarified its
> LTV/CLTV calculations. "Under the new LTV/CLTV calculation method, the result of
> the LTV/CLTV ratio calculation will be truncated to two decimal places. The truncated
> results will then be rounded to the next whole percent."
> GMAC Bank Correspondent Funding (GMACB) told its non-delegated clients that GMACB
> is "now accepting and reviewing recertification and re-approval requests for condominium
> projects whose FHA approval are set to expire or have already expired. Condominium
> recertification will renew the project's FHA approval status for a two-year period.
> FHA has recently announced the following schedule of approval expiration dates for
> projects listed on the FHA Approved Condominium List."
> CitiMortgage released its set of overlays to correspondents. It is good to have
> these in a standard format, and by this time practically everyone in the business
> realizes that investor overlays are a sign of the times.
> While we wait for the Fed to respond to the MBA's letter on compensation, here's
> a question for folks: "Brokers use many lenders, but originators working for brokers
> must not be able to derive a larger benefit from one lender over another, right?
> That would mean that all broker-lender agreements would have to be the same, effectively
> ending competition. Or can the mortgage company make a higher profit from one lender
> vs. another, it just cannot pass additional compensation to the loan officer?"
> One executive reminded us, "Lenders should remember that monies received by the
> broker directly from the borrower or from the proceeds of a higher loan amount,
> 72% LTV versus 70% LTV, are excluded from the LO Comp rules, therefore are not subject
> to a consistent payment. The concern here with varying comp in this situation is
> not with the LO Comp rules, it's with fair lending rules."
> The latest volume figures for loan brokers are not much to cheer about - if you're
> a broker. "According to exclusive survey figures compiled by National Mortgage News
> and the Quarterly Data Report, the wholesale/broker loan channel accounted for 11.6%
> of originations in 3Q, compared to 10.5% in the second quarter, a period in which
> broker-sourced loans fell to an all-time low in terms of market share. In 3Q all
> mortgage bankers funded $444 billion of product, the industry's best quarter since
> the second quarter of 2009." The top three wholesale purchasers were Wells, Provident
> (CA), and US Bank. Of course, here we get into the odd statistical world of counting
> mortgages: the survey showed that retail production was about 47% of volume, and
> correspondent production was 41% - but of course correspondent production includes
> TPO business... Regardless of counting, the National Association of Mortgage Brokers
> has roughly 5,000 members compared to 25,000 four years ago.

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