While many major banks plan to offer mortgages that don’t meet qualified mortgage requirements, the originations will largely be limited to interest-only mortgages for well-heeled borrowers. A handful of smaller players have plans to offer a different sort of non-QM, aimed at borrowers with higher debt-to-income ratios or via hybrid adjustable-rate mortgages. Among the firms targeting the non-QM space beyond IOs is Fenway Summer, headed by Raj Date, the former deputy director at the CFPB ...

A significant number of lenders report that the liability posed by loans that don’t meet qualified-mortgage standards is so large that they won’t offer non-QMs. Others would like to offer non-QMs but can’t at the moment because they don’t have portfolios and a secondary market for non-QMs has yet to develop, due at least partly to liability concerns. “The risks of liability and protracted litigation are greatest for these loans where there is no presumption of compliance and there is a strong ...

The Home Affordable Modification Program’s second-lien loss-mitigation program has seen increased activity in recent months and is poised for further growth as agency mortgages were recently added to the program. About $2.5 billion in outstanding second-lien balances have been forgiven via the program. Some 123,714 HAMP Second-Lien Modification Program mods were active as of the end of November, according to the Treasury Department. Through 11 months in 2013, 21,000 2MP mods had been started ...

While originations of prime conforming mortgages declined significantly in the fourth quarter of 2013, there are new signs of life in the nonprime sector. Citadel Loan Servicing raised $200 million in seed money a year ago and is operating at a current run-rate of $130 million a year. The lender offers subprime mortgages with a 20 percent downpayment requirement. Company founder and CEO Dan Perl told Inside Nonconforming Markets that the firm hopes to issue a nonprime mortgage-backed security ...

Subprime borrowers opted for adjustable-rate mortgages during the last boom due to economic considerations, not because of a lack of financial sophistication, according to new research published by the Federal Reserve Bank of San Francisco. The Fed researchers found that even accounting for house price appreciation, subprime borrowers were at least as sensitive to changes in loan pricing and other interest-rate related fundamentals as borrowers with credit scores of 760 and above. The findings were detailed in ...

The Department of Housing and Urban Development sold 62,062 distressed loans in 2013 through its expanded Distressed Asset Stabilization Program (DASP) to increase recoveries to FHA’s Mutual Mortgage Insurance Fund. HUD made 10 offerings of nonperforming FHA-insured loans in a series of quarterly competitive auctions last year, participated in by pre-qualified bidders, including nonprofit organizations. The defaulted single-family mortgages were provided by FHA-approved loan servicers and sold through large national pools and “neighborhood stabilization outcome” pools. The NSO pools consist of loans in ...

The FHA's recently updated manual underwriting standards provide some objective criteria for qualifying more borrowers but, at the same time, some of those standards could bar certain people from obtaining an FHA mortgage, according to compliance experts. A key change in the guidelines is the lowering of the credit score threshold from 620 to 580 to allow manually underwritten borrowers – those that have received a “refer” recommendation from FHA’s Total Mortgage Scorecard or those that were not scored because they did not have credit scores – to use compensating factors in order to ...

Program eligibility is one of the top five reasons a loan can get an “unacceptable” rating in a post-endorsement technical review of a targeted sample of FHA loans. In a sample review conducted by FHA between July 1, 2013, and Sept. 30, 2013, 10 percent of the 6,692 targeted loans were defective due to program eligibility. Of that 10 percent, 76 percent were rated unacceptable by FHA. The results reflect the initial rating of each file reviewed during the quarter, which include conforming, deficient and unacceptable. An unacceptable rating may change if the lender submits mitigating documentation to FHA. But even if subsequently mitigated, the fact ...

Lenders whose fiscal years ended on Oct. 31 or Nov. 30, 2013, must complete their annual recertification by their respective deadlines, Jan. 31 and Feb. 28, 2014, or face dire consequences, the FHA warned. These lenders must complete their recertification through the current system, the Lender Assessment Sub-System (LASS), which will soon be retired and replaced with the Lender Electronic Assessment Portal (LEAP). The LASS enables lenders to submit their information, including net worth, liquidity and audited financial data, electronically. LEAP will go live in April and ...

The Department of Housing and Urban Development’s Mortgagee Review Board sanctioned 57 lenders in FY 2013 and withdrew the authority of 29 others to originate, underwrite and service FHA-insured loans due to various offenses. The MRB meted out civil fines of more than $2.5 million and imposed sanctions from Oct. 1, 2012, through Sept. 30, 2013, according to an agency report. Additionally, the FHA reached 21 settlement agreements with various lenders in FY 2013, and entered into indemnification agreements with 10 more lenders during the period. The agreements covered 187 FHA-insured mortgage loans. Cases heard by the MRB from ...