The Mortgage Industry in the Era of COVID: 2020 Storylines and A Look Ahead to 2021

A calculator with the 2021 on the display

To say that 2020 was an eventful year for the mortgage industry could be the biggest understatement in history. A global pandemic that decimated many sectors of the economy fueled record low mortgage rates which, in turn, drove record high volume. Add to that the fact that lockdowns in many areas forced people to start working from home as pipelines were bursting at the seams and you have a recipe that gave everyone from frontline Mortgage Loan Originators to underwriters to ops and secondary-marketing managers heartburn.

So, as the dust settles on the strangest year of our lives, let’s take a look at some of the industry storylines that may not have received a lot of mainstream media attention and what they might mean for the future.

Technology Takes Center Stage

The mortgage industry has traditionally been slow to adopt to technological advances. For example, although the Federal E-SIGN Act became law in 2000 and Freddie Mac and Fannie Mae have been allowing electronic signatures on loan documents since 2005, they didn’t gain much traction with originators until just a few years ago. The pandemic prompted a very fast re-imagining of the entire loan process with a focus on limiting personal contact. This forced many companies – and states – to confront the issue of various forms of electronic notarization, up to and including full RON (Remote Online Notarization). As of this writing, 29 States have allowed some form of electronic notarization either permanently or temporarily.

What to look for in 2021:
Continued pressure on state legislatures from industry groups like the Mortgage Bankers Association to make temporary provisions permanent and expand RON to additional states.

Working from Home Requires More Than a Laptop

In addition to the enormous IT staff challenges to rapidly equip a largely in-office workforce for remote work, compliance and licensing professionals in many states had to deal with regulatory requirements that MLOs complete their work at a licensed branch location. To their credit, many of these states worked quickly to provide temporary regulatory relief of in-office work requirements where possible, but long-term questions remain.

What to look for in 2021:
A state-based regulatory system is one of the strengths of the modern non-depository financial services sector; what works in Texas may not work in Massachusetts, Oregon or Iowa and states have the freedom to address their own concerns in their own ways. That being said, should the demand for remote work continue for an extended period of time (or permanently), some states – especially those that license branch offices – will need to reevaluate their licensing regulation to ensure it remains effective and relevant to the current situation. Additionally, companies and MLOs in certain areas may need to determine whether it’s necessary to obtain a branch license for an individual originator’s home. Finally, with the constant threat of wire fraud (attempts up 62% in 2020) and other issues, expect a continued intense regulatory focus on cybersecurity. Now is a good time for your company to do a full review of your policies and procedures to ensure proper data integrity and security.

Servicing Lessons Learned From the Last Financial Crash Are More Relevant Than Ever

One of the cornerstones of the response to COVID-19 is a temporary moratorium on foreclosures on most Federally-related mortgage loans via the FHFA and HUD in addition to many state-level moratoria on foreclosures and evictions. Given the shift to a truly borrower-centric approach to handling distressed loans after the financial crisis of 2008, servicers are well-positioned to provide the support necessary to mortgagors who have taken advantage of the many loan forbearance options available to them via the CARES Act.

What to look for in 2021:
While deadlines for exiting/resolving forbearance have changed several times, one thing is certain: at some point, borrowers will need to resume making timely payments on their mortgage loans. Servicers will need to dust off their loss mitigation playbooks and provide loan modifications to a segment of the borrower population that has returned to work but with a long-term reduction in income. Additionally, there will undoubtedly be many borrowers who won’t be able to reinstate their loans even with a modification. It is likely we will see some form of federal relief to assist these individuals in their transition to alternative housing similar to post-2008 programs. As forbearance programs end, economists and financial analysts will be focused on how the expected increase in foreclosures and deeds-in-lieu will affect available housing inventory (which has been extremely tight in many places) and potentially slow the rate of appreciation.

In addition to the storylines discussed here, 2021 is going to bring a new administration with new priorities and new people leading critical entities affecting housing policy such as HUD, the CFPB, Treasury and (very likely) the FHFA. Expect a realignment of policies relating to fair lending, affordable housing and the ongoing conservatorship of Fannie Mae and Freddie Mac (which will also be getting a new CEO). We’ll certainly be keeping an eye on what transpires and will be ready to discuss critical issues in upcoming blog posts, courses and speaking engagements.

In the meantime, from our family to yours, have a wonderful and safe holiday season and a happy new year.

Peter


Real Estate Institute offers NMLS-approved Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape. Please don’t hesitate to contact us online or at 800-995-1700 with any questions about loan office training or requirements. 

Not So Fast: HUD Rescinds MI Premium Cut

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As you may have heard in various media reports, HUD issued Mortgagee Letter 2017-07 on Friday, January 20, rescinding the annual Mortgage Insurance Premium (MIP) cuts announced in Mortgagee Letter 2017-01. While there has been much news and opinion analysis on this story, the only effect on your daily business is the annual MIP will not change effective with closings on or after January 27.

The actual impact on the mortgage market is likely very minimal, with the most likely outcome being that some loans on which disclosures were sent to borrowers between January 10th and 20th – showing the reduced premium – will have to be re-disclosed. Before re-disclosing, I suggest doing a quick double-check to ensure that the change has been applied throughout the loan file, including the APR on the Loan Estimate. It remains to be seen whether the new administration will decide to move forward with any premium cuts in the months to come.

Peter

FHA Lowers Mortgage Insurance Premiums Again

OLYMPUS DIGITAL CAMERAToday, HUD released Mortgagee Letter 2017-01, announcing a reduction in the FHA annual mortgage insurance premium by 20-25 basis points across the board and eliminating MI surcharges on loans over $625,500 in high-cost areas. This announcement, sure to please originators across the country, comes on the heels of the FHA Mutual Mortgage Insurance Fund (MMIF) once again reaching its statutory-mandated reserve of 2% in 2016.

The premium cut goes into effect with closings/disbursements on or after January 27, 2017. This is a slight departure from typical FHA policy changes which are usually implemented by the date the case number is obtained. Note, the UPFRONT MI Premium (UFMIP) is not changing and remains at 1.75% for forward mortgages.

The new annual premiums, effective January 27th, are highlighted below.

Happy originating!

Peter

Honoring America’s Veterans: Are Veterans Missing Out on Special Real Estate and Mortgage Programs?

Veterans Day - Remember our veteransTo all who have served and all who continue to give their time and effort to defend the freedoms of this great country; to all who have fought and continue to fight for our friends, allies and defenders of freedom and liberty worldwide, a sincere and heartfelt thank you from the Real Estate Institute family.

On days like today, our thoughts naturally turn to things we can do to help our veterans. For those of you in the real estate and mortgage professions, helping is easier than you might think! In fact, it all begins with a simple question: “Have you ever served in the United States Armed Forces?” That simple question will help you identify those clients and/or borrowers that are entitled to special benefits that their service has earned them. However, the unfortunate fact is that many professionals in our industry don’t make a habit of asking this question; they assume veterans will simply volunteer the information. Frequently, however, that’s not the case. Some vets might not be aware that there are, in fact, special programs for those who have served and may view their veteran status as irrelevant to the transaction at hand. Others may feel that modesty dictates that they don’t simply volunteer the information, and still another group of veterans may be trying to adjust to civilian life once again and avoid mentioning their service unless asked directly. I strongly encourage you to ask every client who walks through your door about their veteran status. Not doing so could actually cost you new relationships, and/or result in veterans not being aware of programs such as:

The VA-guaranteed mortgage loan

VA loans have arguably the most attractive terms of any mass-market loan product available today. These loans generally require no down payment (100% financing) for both purchase and refinance loans, including cash-out transactions! The rates are typically lower than those on conventional financing – especially so in the lower FICO bands – and unlike FHA loans, there are no monthly mortgage insurance premiums associated with VA loans. There is an upfront fee (called the funding fee) charged to the veteran at closing; this fee can vary between 0.5% and 3.3%, depending on the loan’s characteristics. It can always be financed into the loan, even if doing so causes the LTV to exceed 100%, and the fee is waived for any eligible veteran with a service-connected disability.

Finally, unknown to many, VA does NOT have a maximum loan amount, so “jumbo” loans are eligible as well! Note, though, that some investors may not offer jumbos, and the ones that do typically demand a minimum down payment equal to 25% of the portion of the purchase price exceeding $417,000 or the “county loan limit” for the county in which the property is located.

More information is available at http://www.benefits.va.gov/homeloans/

Special down-payment assistance through the state’s housing finance agency

Many states have special programs, available through their housing finance agency (HFA), that entitle veterans to levels of down-payment assistance that are above and beyond what is offered to non-veterans. For example, the Illinois Housing Development Agency (IHDA) offers a program called Welcome Home Heroes, which entitles qualified veterans to up to $10,000 in down payment assistance.  This assistance can be used in conjunction with VA, FHA, USDA or conventional financing, and eligible veterans can also use the Mortgage Credit Certificate (MCC) program offered by the federal government to reduce their tax liability by up to $18,000 over the life of the loan.

Visit your state’s HFA website for details on what’s available in your state.  For information on the Illinois program, visit http://www.ihda.org/homeowner/gettingLoan.htm#WelcomeHomeHeroes.

Reduced costs for settlement services and insurance

Many companies that provide services associated with the real estate and mortgage industries – like title and escrow companies, home inspectors, contractors and insurance agents – will give special discounts to those who have served our country in the armed forces. Be sure to ask your providers what discounts are available for your veteran clients/borrowers to get them the best deals possible.

It’s important for us to remember – on Veterans Day and every day – that our men and women in uniform stand willing to give their last full measure of devotion so that we may continue to enjoy the freedom earned by the generations of those who went before them; freedom that was bought and paid for with the blood, sweat, tears, dedication and lives of countless American and allied soldiers. By doing our small part to make their lives better – starting with a simple question – we can show them the respect, dedication and honor they deserve.

 


 

For over 20 years, Real Estate Institute has been providing convenient, high-quality pre-license, continuing education and exam preparation programs. Each year, over 20,000 real estate, mortgage, insurance and legal professionals choose our school.  For more information visit, www.InstituteOnline.com or call 800-995-1700.

FANNIE AND FREDDIE LIMITED TO QUALIFIED MORTGAGES

In response to a directive last week from the Federal Housing Finance Agency, both Fannie Mae and Freddie Mac today issued bulletins indicating that they will only purchase qualified mortgages when the Ability-to-Repay rule goes into effect on January 10, 2014.  EFFECTIVE WITH APPLICATIONS TAKEN ON OR AFTER JANUARY 10, 2014, both Fannie and Freddie will rely on selling lender Representations and Warranties that all loans purchased are, in fact, qualified mortgages or are otherwise exempt from the ability-to-repay rule (i.e. the loan is secured by an investment property).

Aren’t ALL loans eligible for sale to the GSEs automatically Qualified Mortgages?  Why is this a big deal?

While there is a “GSE Exemption” in the QM rule that grants loans eligible for purchase by Fannie and Freddie QM status for the next 7 years (or until the GSEs are no longer in receivership, whichever occurs first), those loans still must meet certain overarching guidelines.  In order to ensure that this happens, Fannie Mae and Freddie Mac are making the following changes to their product eligibility guidelines effective with applications taken on or after January 10, 2014 (note that individual lenders/investors may modify their product guidelines before this date, so be sure to watch for bulletins for those that you do business with):

  • Loans that are not fully amortizing will be ineligible for purchase (i.e. interest-only loans) except for investment properties
  • Loans with terms longer than 30 years will be ineligible for purchase
  • Loans with points and fees greater than 3% of the loan amount (or that exceed limit for small-balance loans, if applicable) will be ineligible for purchase, except for investment properties

The elimination of the interest-only and other odd products will only impact a small percentage of the GSEs’ business (based on recent origination trends), but the points-and-fees restriction could have a large impact on originators – ESPECIALLY those with affiliated business relationships – because of the way that “points-and-fees” are calculated under the rule.

We’ll be discussing the Ability to Repay and Qualified Mortgage rule in depth in our CE courses this year, so be sure to get your spot reserved early!  We’ll be publishing our CE schedule for 2013 later this month.

In the meantime, you can find the bulletins from Fannie Mae and Freddie Mac and some good information on compliance with the QM/ATR rule from the CFPB at the links below.

See you in class!

Peter

Fannie Mae Lender Letter LL-2013-05

Freddie Mac  Industry Letter 5/6/2013

CFPB Ability to Repay and Qualified Mortgage Rule: Small Entity Compliance Guide

More FHA MIP Hikes in the Works

It appears as though FHA is poised to increase the annual premium on new applications for FHA insurance starting in January.  Look for a Mortgagee Letter to be issued soon that increases the annual MIP by at least 10 basis points and eliminates the expiration of premiums on certain loans.  I’ll be sure to post an update when final details are known, so stay tuned.

That being said, increasing premiums across the board is NOT the answer.  As FHA gets more expensive, it just causes more borrowers to self-select out of the FHA program and into a comparable conventional program.  As it stands today, 95-97% LTV programs on the conventional side are already less expensive for borrowers with good FICO scores who elect the monthly PMI option, AND conventional MI does not have an up-front payment (outside of split-premium).  There is no incentive for low-risk borrowers to select a 30-year FHA loan, and maybe that’s as HUD wants it.  We know they’ve been trying to pare-down their portfolio.

Unfortunately, HUD needs to face the truth and admit that it simply does not have the luxury of focusing only on its core clientele.  To do so in the current context of “one size fits all” MI premiums is nothing short of suicide because it ensures deterioration in FHA’s credit quality (which has been quite high for the last few years).  A deterioration in credit quality leads to a higher default rate, which leads to more claims paid, which leads to another hike in premiums, and so forth and so on.

It is time for HUD to go back to 2008 and re-institute the risk-based MI premium that was stopped with the passage of the Housing and Economic Recovery Act.  Insurers can’t afford to pretend that everyone is equal in terms of risk; when someone with a perfect driving history purchases auto insurance, they aren’t charged the same premium as someone with two accidents and a DUI.  Mortgage insurance is no different.  It’s time for reality to set-in at the Federal Housing Administration, or endless taxpayer-funded bailouts are a virtual certainty.

FHA STREAMLINE REFINANCE MIP UPDATE

This morning, HUD released mortgagee letter 12-04, formally announcing the MIP changes discussed in our last blog post.  There is one addition that I need to tell you about, and it only deals with FHA STREAMLINE REFINANCES.

EFFECTIVE WITH FHA CASE NUMBERS ASSIGNED ON OR AFTER JUNE 11, 2012:

If you are originating a streamline refinance and paying off an existing FHA loan that was endorsed for insurance on or prior to May 31, 2009, the UFMIP on the new loan will decrease to 0.01% of the new base loan amount, and the annual MIP (paid monthly) will decrease to 0.55%.  Some industry groups have already lodged an inquiry with HUD as to why the May 31, 2009, date was chosen.  If we get an answer to that question, I’ll be sure to let you know. 

Additionally, the effective date for the increases to the up-front and annual MIP that was discussed in our last blog post has been changed.  The first increase for all loans will now be effective with case numbers assigned on or after APRIL 9, 2012, and the additional increase for high-balance FHA loans will now be effective with case numbers assigned on or after JUNE 11, 2012.

Let’s get the word out!  Pick up the phones, close some loans, and (as always) happy originating!

IMPORTANT – Upcoming FHA MIP and Underwriting Changes

MIP Changes

In order to continue stabilizing the mutual mortgage insurance fund, and due to requirements in the payroll tax extension bill passed at the end of 2011, HUD has announced the following MIP increases for forward mortgages:

Effective with case numbers assigned on or after APRIL 1, 2012:

1)      The up-front mortgage insurance premium will increase from 1.00% to 1.75%, regardless of loan term

2)      The annual premium will increase by 0.10% for all loans.  A summary of the new premiums is below:

Loan terms greater than 15 years Loan terms of 15 years or less
LTV > 95%:    currently 1.15%   NEW: 1.25% LTV > 90%:     currently 0.50%  NEW: 0.60%
LTV </= 95%: currently 1.10%  NEW: 1.20% LTV </= 90%: currently 0.25%  NEW: 0.35%

3)      Additionally, the annual MIP will increase by an additional 0.25% for loans over $625,500 effective with case numbers assigned on or after JUNE 1, 2012.

Underwriting Changes

On March 1, 2012, HUD published mortgagee letter 2012-3 (dated February 28th), containing some significant underwriting changes regarding self-employed borrowers, disputed credit accounts and identity-of-interest (non-arms length) transactions.  A copy of the mortgagee letter can be found here.  The underwriting changes detailed in this letter are effective with case numbers assigned on or after APRIL 1, 2012, so plan accordingly.  As usual, these updates do not apply to non-credit qualifying streamline refinances or HECM (reverse) mortgages. 

Friendly reminder: FHA requires mortgagees to have an active loan application for both the borrower and property before requesting a case number (see Mortgagee Letter 2011-10).

SELF EMPLOYED BORROWERS

1)      Self-employed borrowers MUST show a year-to-date P&L (Profit-and-Loss) and Balance Sheet if more than one calendar quarter has elapsed since the filing of the most recent tax return (annual or fiscal-year).  This requirement applies regardless if the loan is AUS-approved or not.

2)      If the income used to qualify the borrower exceeds the average of the previous two years’ tax returns, an audited P&L or a signed quarterly tax return obtained from the IRS must also be provided.  Again, this applies regardless of AUS decision.

HANDLING OF DISPUTED CREDIT ACCOUNTS, COLLECTIONS AND PUBLIC RECORDS

1)      Disputed accounts will no longer trigger an automatic review by an underwriter if BOTH of the following requirements are satisfied:

     a.   The outstanding balance of all disputed accounts is less than $1,000
     b.   Two years have elapsed since the date of last activity listed on the credit report for all disputed accounts

2)      If the aggregate dollar amount of disputed accounts exceeds $1,000, all of the disputed accounts must be resolved.  In other words, the accounts must be paid in full at or before closing or a payment agreement must be in effect on the account(s) and the borrower must show that three months of payments on the payment agreement(s) has been made in a timely manner.

3)      Disputed accounts resulting from identity theft or fraudulent or unauthorized use of credit cards can be excluded from the $1,000 limit if the borrower provides documentation of the circumstances (a police report, for example). The lender must also include documentation that the account(s) in question are verified as not the borrower’s debt in the final case file.

4)      If the aggregate total of collection accounts exceeds $1,000, ALL collection accounts must be resolved (paid in full or a payment agreement established with a minimum of three months of timely payments).  If the total of collection accounts is less than $1,000, they are not required to be resolved/paid.

5)      FHA continues to require all judgments to be satisfied or an acceptable payment agreement established (with 3 months of on-time payments) before a loan can be insured.

IDENTITY-OF-INTEREST TRANSACTIONS

The  definition of “family member” has been expanded to include brothers, sisters, step-brothers, step-sisters, uncles and aunts.

FHA Extends Anti-Flipping Rule Waiver Through 2012

On Friday, the Federal Housing Administration announced that the ‘anti-flipping rule,’ which prohibits a buyer from purchasing a property using FHA financing if the seller has owned the property for fewer than 90 days prior to the date the contract was written, has been waived through December 31, 2012.

 HUD initially waived this rule in 2010 in order to remove barriers for individuals wanting to purchase properties that were recently acquired by investors through the foreclosure sale process.  Recognizing that the foreclosure rate is still dramatically elevated across the country, HUD has taken the necessary steps to ensure that the waiver remains in place through 2012.  We expect a notice about this action to be posted on HUD.gov and/or FHA.gov soon.

FHA’s Loss is MBA’s Gain

Peter Citera - Real Estate InstituteIt was announced yesterday that current FHA Chief, David Stevens, will leave the agency at the end of this month to head the Mortgage Bankers Association.  Those of you that have been following the goings-on in the industry since the subprime debacle (and who hasn’t) will know that David is a strong and competent leader who has successfully guided the FHA through the toughest market in history.  A huge increase in market-share coupled with a huge increase in default rate is a challenge that no sane mortgage lending executive would want to face, yet David tackled the Agency’s problems head-on.  While the dragon is not yet slain – FHA still has some substantial money issues with the mutual mortgage insurance fund – the program is certainly on much more sound footing now than when Stevens took over in 2009, and he deserves credit for righting the ship.

Yes, there have been bumps in the road.  Those of you who have followed me throughout 2010 know that I believe that the MIP changes, though necessary, could have been better handled.  There was no sound logic to the April 2010 decision to raise the upfront MIP to 2.25% in a declining market rife with foreclosures, especially considering that the UFMIP is nearly always financed and, at the time of the policy change, the purchase market was artificially inflated due to the homebuyer tax credit.  It was a knee-jerk reaction to a huge problem that was not well thought out, proving that crisis decisions do not generally breed good policy.

The October reduction in the UFMIP, coupled with an increase in the annual MI, was the logical solution from the start as it generates much more predictable revenue growth and has the added benefit of not raising the size of an insurance payout upon borrower default.  Be that as it may, at the end of the day, it is through Stevens’ leadership that the FHA has managed to remain well-positioned as the product of choice in a still-uncertain mortgage lending world.  I wish him the best as he assumes the position of industry advocate at the MBA.  Godspeed, David – now more than ever the industry needs a well-respected voice advocating for prudence, temperance and tact in an increasingly restrictive regulatory environment.