Loan Think

In response to recent changes made by the Federal Housing Administration on some of its loan programs, wholesalers are moving to increase fees and raise FICO scores for consumers. Loan brokers will soon be passing on this "good news" to loan applicants. In short, the lower the FICO score, the more a borrower will pay. The changes apply not only to FHA guaranteed products but Veteran Administration mortgages as well. Meanwhile, industry veteran Peter Cugno's Secret! University, which runs training and education classes for loan officers (and others) is not accepting any new students for its upcoming fall and winter sessions. Mr. Cugno said he is spending much of his time these days trying to raise capital to launch what he calls a "Agency Alternative Next-Generation" subprime wholesale shop. He says getting investors to commit is a "significant uphill battle"...

One of the most frequently asked questions I get is "I hear direct mail works but I have tried it and got a very poor response." Instead of trying to break it down and discover why, most people just give up and say "Direct mail just doesn't work." Most then move on to the next shiny magical lead generation tool that hits their inbox.

We're hearing scattered reports that some savings and loan institutions are becoming more open to the idea of originating jumbo mortgages (those above the Fannie Mae/Freddie Mac Mac limit) and keeping the loans on their balance sheet. Of course -- they have to keep jumbos on their books because the secondary market for such products is non-existent. Whatever these thrifts are up to, you can bet that large down payments are a key requirement. Meanwhile, don't forget that on Friday the government will release new monthly unemployment figures. Unemployment drives delinquencies (and purchases and refis). Perhaps, the economy isn't as strong as some think. This morning the Chicago Purchasing Managers Index was released. It fell to 46.1 in September rather than rising to a reading of 52 which is what most economists were expecting. The poor showing sent stocks tumbling, to some degree...

If you're like many of the reverse mortgage originators I've heard from this week, you're feeling a bit beaten up. Yes, we are about to experience a reduction in the principal limits for our clients. Yes, in some areas property values are making it tough to get some of your transactions done. It seems as though we are fighting an uphill battle right now. Makes you think about throwing in the towel and moving on to something else, right?

Did you note how the government went back three years

I'm starting to hear some ugly predictions about how low residential originations might fall to next year. In fact, the predictions are so ugly I'm not even going to repeat them (though I might in an upcoming story slated for National Mortgage News.) Suffice to say, these bearish predictions are predicated on the Federal Reserve going cold turkey on its MBS purchases -- which is supposed to happen next Spring. If the Fed leaves the market how fast will other buyers step up to the plate and when they do, how much more yield will they (China) demand? If yield needs to be increased (to entice investors to MBS) that means mortgage rates will rise for consumers. And when rates rise will it snuff out refinancings which (according to NMN's Quarterly Data Report accounted for 73% of fundings in 2Q? If refis swoon will the purchase money business pick up enough to prevent further carnage? Answer: only if the employment picture brightens. Well, at least the servicing business will stay robust. Meanwhile, mortgage bottom fisher Wilbur Ross said this morning on CNBC that he is not investing in gold and doesn't own any positions in the commodity. He described the precious metal as a "psychological commodity," one that doesn't have a lot of industrial uses. Also this morning, bank analyst Dick Bove predicted that depositories will have robust earnings from 2010 to 2013. As for the third and fourth quarters, well, he's not so sure...

Looking to increase sales? A pair of business organization consultants said that one of the best places to turn to get ideas is your employees.

Over the past two years the Federal Housing Administration insurance program has been a life raft for mortgage brokers that formerly made their living from nonprime products. But new changes proposed by the agency — which appear to be "pro-broker" — might wind up hurting both of these third-party independents and small mortgage banking firms.In short, FHA has decided it no longer wants to deal directly with brokers, collect their annual financial audits and approve credentials. To some, the agency is throwing in the towel on pretending it can police brokers.To conserve resources and reduce its risk exposure, the Department of Housing and Urban Development is proposing that wholesalers and correspondent lenders (and not FHA) should be the ones deciding which brokers should be trusted to make government-backed loans.If something goes wrong — or if there is fraud or misrepresentation — the agency will seek damages from the FHA-approved lender/bank that has substantial net worth to indemnify it against losses caused by broker-sourced loans. "Lenders will ultimately be accountable for the performance," said FHA commissioner David Stevens.Even though on the surface brokers appear to be getting a break from the government, there's a growing fear among some salesmen that instead of wholesalers policing brokers they might throw them in a ditch and exit the channel entirely.Shortly after the FHA announcement came out, Mike Conkle, president of First Family Mortgage of Louisiana, said he received a long list of conditions from one of his wholesale funders. "They wanted information on companies that I not only own now but info on companies that I owned over 10 years ago."HUD wants to increase the minimum net-worth requirement for FHA-approved lenders to $1 million from the current $250,000. Brokers get a pass, of course, but their table funders don't."I won't miss the cost" of the annual audit, said Josie Taylor, president of Heritage Mortgage, Chino Hills, Calif.The past president of the Orange Country chapter of the California Mortgage Brokers Association said her firm depends on FHA for nearly 95% of its volume. She believes, "It probably will be OK for lenders to take responsibility for brokers" but worries that some banks might decide to fund FHA loans themselves by relying solely on retail. Or they could turn to small banks and credit unions that don't have an FHA mini-Eagle. "That would put us out of business," she said.Brokers also are concerned that small mortgage banking firms (those that fund themselves using warehouse lines) will be forced out of the FHA program because of the higher net-worth requirement.Mortgage banking consultant Brian Chappelle expects HUD will move quickly to finalize the proposed rule. He noted the bulk of broker approvals come up for annual renewal in the first quarter. "They want to get this done quickly because they don't want to recertify brokers in the first quarter," he said.The founder of Potomac Partners in Washington doubts the net worth requirement will impact many mortgage bankers. Mr. Chappelle noted that lenders need a higher net worth just to get a warehouse line of credit.The Mortgage Bankers Association, so far, is keeping an open mind on what's been proposed. "Our membership has a mix of views," said MBA lobbyist Josh Denney. But the trade group opposes increasing the net-worth requirement for FHA-approved lenders to $1 million from $250,000."That's a pretty big jump" for small independent mortgage bankers, Mr. Denney said. MBA supports increasing the net-worth requirement to $500,000.In another risk reduction move, FHA has reduced the loan proceeds that borrowers can receive from an FHA-insured reverse mortgage by 10%, which lessens FHA risk exposure at the cost of tens of thousands of dollars no longer available to seniors on these loans.The 10% reduction on FHA-insured Home Equity Conversion Mortgages goes into effect on Oct. 1. Lenders that can get an FHA case number by Sept. 30 will be able to spare their clients from the cut.To get a case number for a HECM, the lender has to provide FHA with a certificate that the borrower has completed the agency's counseling requirements. This certificate must be signed by the senior and counselor."Counseling agencies are swamped," said Peter Bell, president of the National Reverse Mortgage Lenders Association.FHA decided to take this sudden action because the HECM program faces an estimated $800 million shortfall due to declining house prices and it's unlikely congressional appropriators will give a credit subsidy to cover this.In fact, the appropriators suggested that FHA consider a reduction in HECM proceeds."For several months, we have been working on changes to the program to improve performance and mitigate growing risk concerns," FHA commissioner David Stevens said. "We are taking prudent steps at this time to protect the viability of the HECM program."An analysis by NRMLA of the loan production by three large HECM lenders shows 21% of seniors would not be able to pay off their existing mortgage if the loan proceeds are reduced by 10%.For seniors that need a reverse mortgage to remain in their home, this means they might have to sell or face possible foreclosure.

Over the weekend I got a chance to closely review the Congressional Research Service's recent round-up of the options for the future of Fannie Mae and Freddie Mac. The report estimates that the government could reap $8 billion to $9 billion in annual stock dividends from these two. Of course, if Fannie and Freddie continually need cash infusions to maintain a positive net worth, that money is just going out the back door any way. From reading the report one thought sticks in my head: no matter what option Congress (and the White House) chooses, no one is going to be happy. There are so many 'pros and cons' to weigh that it seems doubtful that anything will get done next year as well. Meanwhile, we're still waiting on the Federal Reserve to release its annual Home Mortgage Disclosure Act findings. What seems to be the hold up, guys? Meanwhile, the top 400 lenders are ranked in the new MortgagStats.com product. For more information, send a note to: Delores.Stokes@SourceMedia.com...

It's going to be a busy October and November in Gucci Gulch. (For all you outside-the-Beltway types 'Gucci Gulch' is a sarcastic term used to describe the halls of Congress where well paid lobbyists sport designer shoes as they glad-hand Congressmen into doing their bidding while handing over bags of cash.) Rest assured, lobbyists from the Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Home Builders, will be trying to save the $8,000 first-time home buyer (FTHB) tax credit which expires at midnight November 30. Can they pull it off? Whatever happens, it will be interesting to see what the FTHB credit winds up costing the government. A tax credit results in less revenue flowing into the U.S. Treasury. The last time I checked (thanks to the 'don't tax and spend' Bush White House) we had a $1 trillion deficit last year and we're looking at another one this year -- thanks to the Obama stimulus package, TARP and a sinking U.S. economy, the latter of which results in less tax revenue flowing to Uncle. TARP, of course, was a Bush/Henry Paulson creation, one that's been fully embraced by the Obama Administration. Of the $700 billion allocated, $128 billion or so remains uncommitted...