October 30, 2014

Latest from Inside Mortgage Finance

Jumbo MBS issuance rose by 196.1% from the previous quarter according to estimates from Inside Nonconforming Markets

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Loan Origination Volume Up Again in 3Q14 But Trends Vary Widely Among Top Lenders

2014 is going to go down as the worst year in new mortgage origination volume since the turn of the century, but it’s clearly not as bad as many have feared. Mortgage lenders produced an estimated $335 billion in new single-family loans during the third quarter, a solid 9.8 percent increase from the previous period, according to a new Inside Mortgage Finance ranking and analysis. Significantly, the first and second quarters of this year were...[Includes two data charts]

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The Recent Rate Decline Isn’t Expected to Slow the Mortgage M&A Train; Guild is Still Hungry for Deals

When rates take a noticeable dive – as they have the past few weeks – mortgage lenders contemplating a sale sometimes have a change of heart, opting to ride the new production wave. But this time around, that doesn’t appear to be the case. “Most every lender I speak to understands this to be a very temporary event prior to a relatively cold and uncertain winter,” said M&A advisor Rick Roque of Menlo Company. Over the past two months, Inside Mortgage Finance has found 10 publicly announced M&A transactions with several more likely signed that weren’t disclosed. Roque, who’s working on several deals, said...

Underwriting, Compensating Factors Seen as Key For Limiting Risk When Originating Non-QMs

While originations of loans that don’t meet standards for qualified mortgages can subject lenders to increased liability, underwriting and compensating factors can help limit risks from non-QMs, according to Moody’s Investors Service. “Non-QM loans typically carry higher default risks than QM loans, but lenders can mitigate those risks by originating loans with attributes that compensate for the weaknesses that put the loans outside of the QM guidelines,” analysts at Moody’s said in a report published late last week. The rating service said...

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Inside the CFPB

CFPB Finalizes 'Right to Cure' Loans That Exceed 3 Percent Cap

In a noteworthy concession to the mortgage lending industry, the CFPB last week finalized a “right to cure” loans in which a lender inadvertently breaches the 3 percent cap on points and fees for a loan that would otherwise be deemed a qualified mortgage under the agency’s ability-to-repay rule. Under amendments finalized this past Wednesday, if a lender discovers after the loan has closed that it has exceeded the 3 percent cap, there are limited circumstances in which it can pay a refund of the excess amount with interest to the consumer and the loan will still be considered a QM. First, the refund must occur within 210 days after the loan is made. The lender must also maintain and ...

Inside FHA Lending

GNMA Raises Net Worth, Liquidity Tests

Ginnie Mae this week provided new details to the long-anticipated plan for increased issuer net worth and liquidity and a new performance scoring method for issuer activity – changes that could adversely affect small issuers and portfolio servicers. In remarks at the Mortgage Bankers Association’s annual convention in Las Vegas, Ginnie Mae President Ted Tozer said the changes are part of a larger effort to ensure the continuing flexibility and availability of the agency’s mortgage-backed securities program to as many entities as possible. New types of issuers and counterparties have entered the agency-backed MBS market in the wake of the financial crisis, which called for adjustments and tailored approaches to the evolving housing finance market, Tozer noted. Tozer said both policy changes and staff expertise will ensure the success of ...

Inside Nonconforming Markets

QMs in Non-Agency MBS Exempt From Risk-Retention Requirements

The non-agency mortgage-backed securities market got clarity about risk-retention requirements in a new final rule approved this week by six federal regulators. Given current market conditions, it is unlikely to have any impact. The regulators created an exemption big enough to drive a truck through. Sponsors of non-agency MBS backed by qualified residential mortgages are not required to retain a 5 percent interest in the transaction. As expected, the QRM parameters were lined up with ...

Inside MBS & ABS

Final Rule Setting Risk-Retention Requirements For Non-Agency MBS Features Broad Exemptions

Six federal regulators approved a final rule this week setting risk-retention requirements for residential MBS transactions, exempting the entire agency MBS universe and non-agency securities backed by qualified mortgages. There is not that much left. The risk-retention requirements for residential mortgages will take effect one year after the final rule is published in the Federal Register, which is expected shortly. Regulators opted to align the definition for qualified-residential mortgages with the standards established by the Consumer Financial Protection Bureau for QMs. The sponsor of a non-agency MBS that includes non-QRMs will have to retain at least 5.0 percent of the balance of the security, as required by the Dodd-Frank Act. In 2011, federal regulators proposed...

Inside Mortgage Trends

3Q14 Preview: Solid But Unspectacular Earnings, Unexpected Growth in Volume

Most mortgage industry experts had expected loan origination volume to drop off significantly in the third quarter of 2014, but early indicators suggest just the opposite. An Inside Mortgage Trends analysis of earnings reports from seven large banks with major mortgage operations shows their combined loan originations increased by 8.7 percent from the second quarter. Together, the group racked up $97.4 billion in mortgage originations during the third quarter ...

Inside The GSEs

Judge Denies Former Fannie CFO Discovery Access in GSE Lawsuit

GSE shareholder advocates remain undeterred following a federal judge’s decision late this week to deny a former Fannie Mae executive access to confidential evidence unearthed as part of the discovery process in an investors’ lawsuit against the government. Earlier this year, Fairholme Funds hired former Fannie Chief Financial Officer Timothy Howard as a consultant to assist its law firm Coopers and Kirk. Lawyers for the government want to deny Howard access to some 800,000 pieces of discovery in investors’ litigation challenging Uncle Sam’s “net-worth sweep” of GSE profits.

Poll

What is it going to take to convince lenders to loosen the credit box (i.e., remove underwriting overlays)?

The recent rep and warranty changes announced by the Federal Housing Finance Agency should go a long way in protecting lenders from future buybacks and help expand mortgage credit.
There won’t be any significant elimination of underwriting overlays until the government stops seeking huge mortgage-related penalties and settlements from lenders.
There shouldn’t be any expansion of the mortgage credit box since looser underwriting is what caused the recent mortgage crisis.

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