FHA's QM Final Rule – Fortunately no Surprises; 3 C's of Lending Business Success

Thernbitcoin movement just became a little more complicated: JPMorgan Chase is goingrnafter the bitcoin biz by patenting a similar system. But these few slipsrnof paper I have in my wallet are worth something, right? Right?</p

Thingsrntend to slow down during December, but LOs are still out there for business.rnGarth Graham with the STRATMOR Group writes, regardingrnthe C’s of lending, “The ‘four Cs’ of lending still serves as a good basis forrndeciding whether to approve a loan, although it’s now been subsumed into a newrnacronym: ‘ATR’ (ability to repay). However, the more compelling discussion atrnthis week’s tech show was what I refer to as the ‘3 Key Cs’ of businessrnsuccess this coming year: capacity, conversion and compliance. </p

Right nowrnwe’re in the middle of an interesting transition. Lenders are moving from anrnoperational mode that was built around managing capacity, specifically how tornbuild systems to crank more loans through the process as demand for mortgagesrnremained high. Now, the capacity question is not about doing more loans, butrndoing the lower volume of loans with less staff, as organizations are beginningrnthe rightsizing of the organization to the new market norms. That creates itsrnown technology challenges.</p

“Thernsecond key C is conversion, and this was a much bigger part of the discussionsrnat this year’s show. In fact, today lenders are measuring everything in anrnattempt to convert more of the leads they have and are focused more on pullrnthrough of the loan applications they are lucky enough to secure. There was arnlot of great discussion at this conference about lead generation, leadrnmanagement and converting those leads into closed loans. I heard one expertrnadmit from the podium that in January, 95% of his business came from refinancernloans, whereas today more than 65% are purchase money loans. </p

When the phonernisn’t ringing with new business every day, it becomes very important forrnlenders to learn how to cultivate those leads and close those loans. As lendersrnmake the move from managing capacity to managing conversion, they must bear inrnmind that the deciding factor is the customer’s experience. We are returning torna mode of business where word of mouth will be a critical factor in how manyrnleads, and what quality of leads, a lender can attract. Figuring out how tornkeep consumers happy and get them to refer business is a key success factorrngoing forward.</p

“Thernother important change, of course, is that lenders are no longer viewingrncompliance out of the corner of their eye, but rather are setting up systemsrnthat allow them to swiftly move leads through their process in a manner thatrnguarantees compliance at every point along that line. They are also takingrncustomer satisfaction very seriously and taking steps to measure it as often asrnpossible. In fact, questions about STRATMOR’s SAT product ranked among the toprnthree comments I received during the show, as lenders realize how criticalrnmeasuring consumer satisfaction is.”</p

Isrnthe final piece of the QM sector in place? HUD issued its final QM rule defining arnqualified mortgage (QM) for FHA-insured loans. The rule is effective Januaryrn10, 2014, the same date the CFPB QM takes effect. MBA summarized the rule.</p

“ThernDodd-Frank Act contained a requirement that the lender must make a reasonablernand good faith determination that a borrower had the ability to repay theirrnloan as well as a provision for a qualified mortgage that is presumed to meetrnthat requirement. CFPB promulgated the general Ability to Repay/QualifiedrnMortgage (ATR/QM) rule and FHA was among the government agencies required underrnthe Act to define its own QM rule. FHA issued a proposed rule on Septemberrn30, 2014 with a 30 day comment period. The final rule does not significantly</adiffer from the proposed rule.</p

Western Bancorp announced a 5/1 ARMrnfor self-employed borrowers using Alternative Income Verificationrn(AIV). The program also offers an interest-only option, non-ownerrnoccupied and options for first time borrowers, with loan amounts fromrn$200,000 to $2,500,000.  Income is verified using bank statements tornsupport the borrower’s income, with no tax returns, no P&L, and norn4506T requirement. Western Bancorp lends in California, Washington, Idaho andrnMontana. Contact Western Bancorp for details onrnavailability in your area.</p

TitanrnCapital isrnnow allowing inter vivos revocable trusts on its standard Jumbo product;rnhowever, land trusts, blind trusts, and irrevocable trusts will not bernaccepted.  Condos, including Garden,rnmid-rise, and high-rise (greater than four stories), have been added as anrnacceptable property type with the exception of Non-Warrantable properties.</p

M&TrnBank hasrnclarified in its VA and HomeStyle product descriptions that it will be doing arnpre-purchase review on all relevant transactions and has updated the FNMArnHomeStyle eligibility matrix to state that C1-a of the HomeStyle MMWS cannot bernmore than 50% of the appraised value upon completion.  For FNMA High Balance loans, the guidelinesrnhave been revised to reflect the LTV change for 1-unit primary residences,rnpurchases, and LCO refinances with 660 FICOs from 75% to 80%.</p

Impacrnhasrnupdated its guidelines for its FNMA Fixed and LIBOR ARM, DU Refi Plus, FreddiernFixed and Super Conforming, and LP Open Access, the primary changes to whichrnare the addition of Essent as an approved MI company and the addition of condosrnon Freddie products using Fannie’s CPM Expedited Full Review approval processrnas an eligible property type.</p

PHHrnisrnnow requiring 7/1 and 10/1 ARM borrowers to be qualified at the greater of thernnote rate or fully indexed rate, replacing the previous qualification using thernnote rate based on a fully amortizing principal and interest payment.  The selling guide has also been updated asrnwell to define restructured mortgages as a loan for which the terms of thernoriginal transaction has changed and resulted in forgiveness of a portion ofrnthe principal and/or interest on either a first or second mortgage, principalrncurtailment by a lender to simulate principal forgiveness, conversion of anyrnportion of the original mortgage to a “soft” subordinate mortgage, orrnconversion of any portion of the original mortgage from secured to unsecured. Asrna reminder, any transaction that qualified as a restructured mortgage is notrneligible for purchase by PHH.</p

Effectivernimmediately, PHH has relaxed its Conventional Conforming guidelines to allowrnFICOs down to 720 for single family PUDs and condos with LTVs over 80% and LTVsrnup to 95% for purchases and rate/term refis on owner-occupied co-ops (85% forrn2-units and 90% for second homes, purchases, and rate/term refis with a FICO ofrnat least 720).  Owner-occupied, purchase,rnand rate/term refi transactions now permit FICOs down to 660 with LTVs of 80%rnand over, and the maximum cash-out for owner-occupied transactions with an LTVrnover 80% has been increased from $75,000 to $100,000.  In addition, the overlays for soft, distressed,rnand severely declining markets have been eliminated for the 15- and 30-YearrnFixed P&I Conforming Plus and 30-Year 3/1, 5/1, 7/1, and 10/1 ARM P&IrnConforming products.</p

Effectivernimmediately, Envoy Mortgage has removed the -.250 adjustor for FICOrnscores of 620-639 and the -.125 adjustor for scores of 680-739 on allrnConventional Conforming fixed rate products.</p

WesLendrnhasrnrevised its DU High Balance guidelines to allow FICO scores down to 620 with uprnto 80% LTV for purchases and rate/term refinances, replacing the previous minimumrnscore of 660.  For cash-out refinances,rnthe minimum FICO has been lowered from 740 to 680 with LTV capped at 60%.  In compliance with the recent DU updates,rnInterest Only transactions are no longer permitted, and the maximum tradelinernand DTI are now dictated by DU.  WesLendrnhas also approved Hawaii as a state.</p

Irnspent Wednesday in San Jose with the local chapter of CAMP, and a fair amountrnof comments were directed at interest rates. Prices were lower from the outsetrnand spreads (to Treasury rates) veered wider. The current thinking is that withrnWashington/Congress accomplishing things, the economy might actually pick uprnsome steam, which could in turn lead to higher rates. Agency MBS pricesrnfinished the day worse by .125-.375, depending on coupon.</p

Thisrnmorning I am heading to our 50^th state, and it is pretty early. Butrnwe’ll have weekly Jobless Claims, Import Prices, and November Retail Salesrn(expected higher), along with a 1PM EST auction of $13 billion 30-yr bonds. Inrnthe early going rates haven’t changed much: the 10-yr closed Wednesday atrn2.84% and this morning it is at 2.85% with MBS prices “off a shade.”

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