Deficient file documentation is the leading cause of initial “unacceptable” ratings in the FHA’s most recent post-endorsement technical review (PETR) of targeted single-family FHA loans. Published in the March 2014 issue of Lender Insight, review results showed that 50 percent of the 5,504 FHA loans selected for review in the fourth quarter of 2013 had missing or flawed documentation. Of that percentage, 65 percent of loans were rated “unacceptable.” Loans are selected for post-endorsement review based on a risk-targeting methodology and do not reflect the overall FHA portfolio. An “unacceptable” rating indicates that the loan endorsement file had a material defect at the time the loan was endorsed for FHA insurance. Such ratings are upgraded subsequently if the lender provides mitigating documentation. Unacceptable ratings are due to errors or flaws in ...

Mortgage bankers reported sharp declines in profitability during the fourth quarter, and only a little more than half of them said they were profitable at all, according to the Mortgage Bankers Association’s latest performance report. The average pretax income reported by participating companies fell 58.9 percent from the third quarter to $681,000, the MBA said. Only 57.9 percent of the lenders said they had positive pretax income for the period. Back in the fourth quarter of 2012, 93.5 percent of lenders said they were profitable.And the average ratio of pretax income to equity shriveled to just 51 basis points in the fourth quarter, compared to 12.2 percent in the third quarter and 63.4 percent a year ago.

If you’re disappointed by the sluggish mortgage market where you are, you can take some comfort in knowing that the grass isn’t much greener anywhere else. A new Inside Mortgage Trends analysis of first-quarter mortgage activity by state shows that most areas of the country produced at least 40 percent fewer mortgages in early 2014 than during the same period last year. California, still the biggest housing market of all, saw a 67.2 percent decline in mortgages securitized by Fannie Mae and Freddie Mac. That was a couple ticks worse than the 63.7 percent nationwide. In contrast, the market was down “only” 44.9 percent in Texas, the second-largest source of agency mortgages. Third-ranked Florida was also in a little better shape than the overall market, though business was down 53.6 percent from the first quarter of 2013...

The nonbank servicers under scrutiny from regulators have rankings at similar levels to banks, according to an analysis by Inside Mortgage Finance. And while there have been concerns about loss mitigation activity by nonbank servicers, they use loan modifications more than banks. Nationstar Mortgage, Ocwen Financial and Walter Investment Management’s Green Tree Servicing were among the 17 servicers that received a rating of at least three stars from Fannie Mae for their performance in 2013, the government-sponsored enterprise disclosed last week. Twelve unnamed servicers received ratings below three stars. Green Tree (four stars) and Nationstar (three) maintained...

At least 46 vintage non-agency MBS took principal forbearance-related losses in March, according to industry analysts. The losses are a concern for investors because they were taken without warning, based on forbearance that happened well before March. Most of the deals taking retroactive forbearance losses in March were issued by Bear Stearns from 2005 through 2007 and were largely serviced by JPMorgan Chase, according to analysts at Bank of America Merrill Lynch and Barclays Capital. Write-downs on the deals were as high as 6.8 percent for a single month. “When a servicer recognizes losses on loans previously modified with forbearance, it could significantly impact...

Some banks and thrifts have been able to originate enough new mortgages to replace runoff from their portfolios, but the industry’s retained holdings of first-lien mortgages continued to decline in the fourth quarter of 2013, according to a new ranking and analysis by Inside Nonconforming Markets. Banks and thrifts held a total of $1.74 trillion in first-lien mortgages as of the end of 2013, down only 3.0 percent compared with the end of 2012 ... [Includes one data chart]

The monitor of the $25 billion national servicing settlement certified last week that the five participating banks completed their loss-mitigation obligations a year earlier than the three-year deadline set by the settlement. Regulators involved in the settlement continue to defend allowing the banks to complete a portion of their obligations by modifying mortgages in non-agency mortgage-backed securities. Bank of America, Citi, JPMorgan Chase, Residential Capital and Wells Fargo ...

Origination of FHA-insured reverse mortgages fell in the fourth quarter as borrowing costs increased and loan amounts shrank due to tighter agency rules for these loan products, according to Inside FHA Lending’s analysis of agency data. The FHA reported $15.3 billion Home Equity Conversion Morgages originations for 2013, which was up 20.6 percent from $12.7 billion in 2012. Production, however, fell 12.6 percent quarter over quarter as policy changes designed to stabilize the ailing Mutual Mortgage Insurance Fund and help ensure that HECM borrowers can sustain themselves for longer periods of time took effect on Sept. 30. The changes include limiting disbursements at loan closing, or during the initial 12 months after closing, to 60 percent of the initial principal limit. Borrowers who draw more than 60 percent will pay ... [1 chart]

Lenders are cautiously expanding their guidelines on FHA lending by reducing its minimum credit score to below 580 to qualify borrowers. Carrington Mortgage Servicers this week joined a cadre of some 80 FHA lenders that have lowered their minimum FICO scores and eased their overlays to better focus on borrowers, particularly those below the 640 FICO range. The Santa Ana, CA-based lender is doing it not only for its FHA business but also for its VA and USDA loan programs. Carrington lowered its minimum FICO score to 550 for FHA loans, showing more aggressiveness than Wells Fargo, which moved its own FHA FICO floor to 600 from 640 at the beginning of February for purchase mortgages originated through its retail channel. The FHA currently requires a minimum credit score of 580 for most borrowers for 3.5 percent downpayment loans. Borrowers below 580 undergo more stringent manual underwriting and ...

The Department of Housing and Urban Development has published a proposal to eliminate the requirement that an FHA borrower be required to pay interest even after the loan is prepaid. Specifically, the proposed change would prohibit FHA lenders from charging post-payment interest, allowing them instead to charge interest only through the date the mortgage is paid. The proposed rule change is necessary to avoid FHA loans being prohibited under new Consumer Financial Protection Bureau ability-to-repay rules and revised higher-cost loan regulations starting in January 2015. It effectively aligns FHA prepayment rules with the new CFPB rules. Comments on the proposal are due by May 12, 2014. The FHA currently allows lenders to charge interest for the full month if the borrower prepays on a date other than the installment due date. Regardless of whether the loan is FHA or non-FHA, there were complaints among borrowers that ...