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Inside FHA/VA Lending

November 10, 2017

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Correspondent Platforms Feast on FHA, VA Securitization Market

Correspondent-based lending operations are accounting for a growing share of the FHA and VA home loans pooled in Ginnie Mae mortgage-backed securities, according to a new analysis and ranking by Inside FHA/VA Lending. In fact, correspondent originations are the only production channel to see year-over-year growth in FHA and VA business through the first nine months of 2017. Retail and wholesale-broker production is down for both FHA and VA loans. Correspondent programs are most dominant in the FHA market, perhaps reflecting a preference among large producers to have recourse to a primary-market lender if the government later finds defects in how the loan was originated. Correspondents accounted for 48.7 percent of FHA loans pooled in Ginnie MBS during the first nine months of the year, up from 43.1 percent in all of 2016. Volume was up 1.7 percent from the ... [Charts] Read More

Analysts Expect Positive Actuarial Results for FHA Insurance Fund

Analysts are predicting continued positive results in the forthcoming actuarial report to Congress on the status of the FHA Mutual Mortgage Insurance Fund. The FY 2017 annual report is expected to show stable FHA financials, which could prompt renewed industry calls for a cut to the annual mortgage insurance premium, according to a Bank of America Merrill Lynch analysis. Rising home prices and loan-to-value curing are likely to suppress forecasted losses in the MMIF’s single-family forward portfolio, enabling the fund to stay above its mandated 2.0 percent capital reserve ratio, analysts said. However, the BAML analysts see a “low likelihood of an actual cut in MIPs.” Although Department of Housing and UrbanDevelopment Secretary Ben Carson said he would study MIP reduction once a new FHA commissioner is confirmed, the Trump administration is less likely to ... Read More

Will Net Tangible Benefit Test Stop Churning? Yes, Analysts Say

A new net tangible benefit test for ensuring that a VA borrower benefits from a refinancing appears to be the obvious solution to the VA’s churning problem, according to analysts at Bank of America Merrill Lynch (BAML). Modeled after the FHA net tangible benefit test, the test seems to be a “foregone conclusion” for VA, analysts said. A Ginnie Mae/VA task force is currently working to resolve the problem, which is causing rapid prepayments in Ginnie mortgage-backed securities and raising serious doubts as to whether aggressive refinancing truly benefits veterans and servicemembers. “There is a critical need to ensure that veteran borrowers are not harmed by repeated refinancings through VA’s Interest Rate Reduction Refinance Loan program,” said Mortgage Bankers Association President/CEO David Stevens during a recent appearance before the House Financial Services Committee. IRRRLs, also referred to ... Read More

Stakeholders Warn of Tax Bill’s Ill Effects, Call for Several Changes

Industry stakeholders are calling for changes to some of the mortgage- and housing-related provisions in the House Republicans’ proposed tax reform bill. On Nov. 9, 2017, the House Ways and Means Committee passed H.R. 1, the Tax Cuts and Jobs Act, retaining provisions that may significantly reduce homeownership tax incentives. At the same time, Senate Republicans unveiled their tax reform package, which limits the mortgage interest deduction, eliminates state and local tax deductions and nearly doubles the standard deduction, among other provisions. The Mortgage Bankers Association, National Association of Realtors and the National Association of Home Builders each had a list of concerns but were uniformly opposed to proposed changes to the mortgage-interest deduction. Among other things, the bill would cap the mortgage-interest deduction (MID) at $500,000 for new ... Read More

MBA Calls for Changes to LRS, Remedies for Lender Complaints

FHA lenders think the new Loan Review System is a “modern and streamlined system” that is less user-friendly than Neighborhood Watch, according to the Mortgage Bankers Association. In a letter to the Department of Housing and Urban Development, the MBA called on the FHA to continue its ongoing discussion with lenders and other industry stakeholders on how the improve the LRS and its response timelines. Implemented last May, the LRS is an electronic platform for monitoring and reviewing the quality of single-family mortgages that FHA has insured. It replaced the post-endorsement technical review performed by the FHA Connection/Underwriting Review System (URS), review functions for post-closing test cases submitted by direct endorsement lenders, and lender self-reporting functions in Neighborhood Watch. The LRS also includes a defect taxonomy, which features a list of ... Read More

MBA Chief Calls for ‘Targeted’ FHA Reforms to Broaden Credit Access

Targeted reform of the FHA housing program, not broad structural changes, can potentially improve borrowers’ access to credit while clarifying the rules for lenders and protecting taxpayers, a top industry executive told Congress earlier this month. Testifying before the House Financial Services Subcommittee on Housing and Insurance, David Stevens, president and CEO of the Mortgage Bankers Association, said FHA reforms do not entail changes to the program’s scope, such as FHA market share or its customer base. Stevens noted that first time or low- to moderate-income borrowers are typical FHA borrowers. “The structure and coverage of FHA insurance has served borrowers and lenders well,” he said. “It should not be reduced or otherwise altered.” The Mutual Mortgage Insurance Fund capital ratios and thresholds are likewise appropriate, though options to improve the fund’s long-term solvency should ... Read More

Expert Discusses Lessons Learned From Sampling, Proximate Cause

The whopping $298.5 million verdict in an FHA lawsuit against Americus Mortgage Corp. offers valuable lessons to mortgage shops and their executives to help them avoid potentially staggering liability under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act, according to a legal analysis. Apart from the chief executive officer’s individual liability, the case is noteworthy because the court sided with the government in two post-trial rulings on proximate causation and statistical sampling in large-scale fraud cases. The case, U.S. v. Americus Mortgage, et al., involved two mortgage companies formerly known as Allied Mortgage and their chief executive officer, Jim Hodge. Filed in the Southern District of Texas in 2011, the lawsuit alleged fraud against FHA over a 10-year period. The Department of Justice sought damages under the FCA and FIRREA for losses stemming from ... Read More

USDA to Reevaluate ‘Rural’ Area Designation for Housing Programs

The U.S. Department of Agriculture has issued guidance for conducting its mandated five-year review to identify areas that no longer qualify as rural for housing programs. For purposes of establishing eligibility to participate in USDA direct and indirect single-family housing guaranteed programs, “rural” and “rural area” are defined as “any open country, or any place, town, village or city which is not part or associated with an urban area.” To be designated as rural or rural area, the area must have a population not exceeding 2,500 inhabitants or a population of more than 2,500 up to 10,000, “if it is rural in character.” An area with more than 10,000 inhabitants up to 20,000 may be classified as rural if it is not within a standard metropolitan statistical area and “has a serious lack of credit for lower and middle-income families, as determined by the [USDA] secretary or the secretary of the ... Read More

Around the Industry

Maintenance Notice of HUD’s Lender Electronic Assessment Portal and Electronic Appraisal Delivery System. The Department of Housing and Urban Development has announced a systems check for its Lender Electronic Assessment Portal (LEAP) and Electronic Appraisal Delivery (EAD) system as part of routine maintenance. LEAP will be unavailable from 8 a.m. (Eastern), Nov. 10, 2017, through 8 a.m. (eastern), Nov. 12, 2017. During the period, lenders will be unable to submit recertification packages, change requests, notices of material events, or edit institutional data. Normal operations will resume at 8 a.m., Nov. 12. The EAD Integration and Production system is scheduled for regular maintenance and will be unavailable from 12 p.m., Nov. 11, 2017, through 9 p.m., Nov. 12. Operations will resume once systems check is complete. FHA Issues Policy Waiver for Major Disaster Areas in Puerto Rico. The ... Read More

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