NexBank of Dallas’ launch of a $100 million mortgage warehouse lending division, offering lines of credit of up to $10 million to non-depositories, illustrates the evolving relationship between community banks and mortgage bankers (www.progressinlending.com/a-bit-of-tlc). Characteristic of a regulated institution, NexBank of Dallas warehouse lending guidelines are conservative, with lines of credit limited to mortgage bankers with a net worth of at least $1 million. Targeting NexBank mortgage brokers who are trying to become bankers, NexBank says it will consider lower net worth requirements on a firm by firm basis. TLC’s William Null (william.null@titanlenderscorp.com) is an expert on how community banks and mortgage bankers are collaborating in new ways.
by Mary Kladde
Part II - in follow up to commentary by Ruth Lee
Eliminating the GSEs is like throwing the baby out with the bathwater. It is counterintuitive and ill advised. If the GSEs are eliminated the impact on the industry as whole will be severe. The days of 80% LTV were not – even if you can remember them – the “good old days” and is not a time to which we should aspire to return.
The problem that I refer to as dirty bathwater is, more literally, the legacy infrastructure and context of mortgage lending. Up to this point, our industry has been a bit, shall we say, unstructured, in many of its business practices. After all, in a non-regulated environment, there are fewer and looser “standards.”
Now, with the push for greater standardization picking up heft and the FNMA Loan Quality Initiative (LQI) providing guidance and motivation, perhaps we can get those chubby, troublesome GSEs cleaned up and on their way to health once again. And another thing - I’ve said it before and will say it again soon, I promise – Loan level review both on pre-closing side of the lender and on the pre-purchase side at investor is destined to become an industry standard, and lenders should push for it.
by Ruth Lee
Lawmakers, consumer advocates, politicos and agenda driven bystanders are all weighing in on the efficacy and relative value of the two investor giants in the market. Lawmakers cringe at the shared liability and risk exposure of the taxpayer. Consumer advocates want the GSEs to focus more on rental housing. Politicos want to assess the two GSEs with blame for every conservative, liberal or otherwise economic misstep since the collapse of the market. First, I would argue that most of these guys have a murky (at best) understanding of what they both do…and second, I think that this base misunderstanding could serve to completely destroy the housing industry if acted upon.
The GSEs don’t make mortgages. The GSE fund mortgages. Back in the “old days,” if you wanted $5K to buy a house, you would go to your local bank, thrift or savings and loan. They would lend you $5K for thirty years. They usually wanted a maximum LTV of 80%. You would participate in the risk with your local banker. When housing prices started hitting the stratosphere, a lot of local banks found that they just didn’t have that kind of money to tie up for 30 years potentially. So… the GSEs were created to fund those loans through securitization and investment. As part and parcel of that discussion, it also required some standardization, like AUS.
Perhaps there is a burgeoning private market for securitizing mortgages. Perhaps they all have a fundamental working knowledge of how to underwrite the risk, leverage the volume and inveigh investor confidence…but I sincerely doubt it. We struggle to push perfectly standard, qualified jumbo securitizations out in this market at any LTV or FICO.
Save us from the best intentions of ideologues and polemicists… they know not what they do.
by Ruth Lee
Like an infant growing into adolescence, the mortgage industry in the last five years reached a gawky, unattractive and undeniably destructive period in its development. It certainly looked like an adult, but there was a need for maturity and discipline behind the changing voice. If you’ve ever raised a child to that rebellious stage–from a sweet-faced, kiss and hug bundle of joy to a car-wrecking, school skipping, “truth bending”, beer sneaking teenager–you can see the similarities.
Now, of course, we are going through the discipline (e.g. regulatory compliance, public flogging in the media, and writing “We’ll always conduct thorough loan level due diligence whether we are servicing, selling or buying mortgages” 500 times). Maturity typically follows discipline and it is not surprising that not-for-profits are leading the growth curve. You might even say they are leading by example. Here’s how: Read the full article on our Progress in Lending blog…
by: Ruth Lee
MBA NewsLink “Survey: Industry Still 3-7 Years Away from Widespread eMortgage Use”
I think the article is interesting…but puts the onus on the tail to wag the dog. It doesn’t really matter what the originating lender wants or prefers…and being “paperless” is apples to oranges with advancing eMortgages – i.e. having a digital archive doesn’t have a thing to do with eMortgages per se. It is true… the industry is slowly becoming more comfortable with digital… and we see the slow cultural shift from the tactile security of paper. But more importantly the article misses the real impediment behind the advancement of eMortgages… that it is driven from the top down… not the bottom up. While Flagstar is miles ahead of the mainstream industry… until all the investors and/or the interim funder/warehouse lenders embrace eMortgages… they will still be primarily the exception rather than the norm.
When the new Frank-Dodd law goes into effect, many of the companies structured around subverting licensing requirements will be revisiting their business model. And for the national banks – there is more to consider. The bill eliminates the OTS and merges it with the OCC – and severely restricts the OCC’s ability to establish preemption.
[for more Titan Lenders Corp insight on Frank-Dodd and other mortgage lending regulations and compliance hurdles, read the detail at: http://www.progressinlending.com]
Ruth Lee
CNN Money: “Pending home sales ‘fell off a cliff’”
The tax credit expired yesterday. Thousands of new homeowners were able to meet much stricter lending guidelines due to the government’s subsidization of their required “skin in the game.” Whether this has expanded the moral hazard evident in 100% LTV financing is not yet clear. What is clear is that the American economy is resilient enough to respond to a deal, a bargain or a “giveaway,” but not resilient enough to spend without it. In much the same way that car sales plummeted after the “cash for clunkers” giveaway expired, I don’t think it is shocking to see home sales follow the same path. Americans have exhibited much higher savings rates over the last year – realizing that a world of unlimited, cheap credit is gone…eternal equity and housing appreciation has disappeared… and that the consequences of abusing or luxuriating in a life above your means can set you and your family up for a hard and painful fall.
We read with interest the Systemic Risk Information Study issued this month by the Securities Industry and Financial Markets Association (SIFMA) and business consulting firm Deloitte & Touche. In fact, we hear a familiar tune behind its findings for creating a systemic risk regulator: data standardization and greater transparency are needed, including non-regulated entities. Still, for the purposes of regulation, we agree that “relying on . . . massive quantities of granular information may provide a false comfort to a systemic risk regulator, who should consider a more holistic view, such as of overall trends, major concentrations and imbalances, and significant interconnections between firms. A data-centric approach poses the risk that the systemic risk regulator could ‘miss the forest for the trees.’”
http://www.sifma.org/regulatory/pdf/SIFMA_Systemic_Risk_Information_Study_June_2010.pdf
Ruth Lee
Reference:
HUD is asking a lot of questions about ‘required use’
Kenneth R. Harney
Washington Post
Ten years ago, I worked on coordinating consumer testimony to the Texas state legislature on this exact topic. While our consumers provided hours of testimony and tales of woe, steering and strong arm tactics to the committee… the attorneys for some of the largest builders in the country strolled in and greeted the legislators by name – flashing college rings and golf-tanned faces. Needless to say, as one of the largest lobbying and GR power centers in the country, the consumers were marginalized and then ignored.
While I believe that there are good builders that aim to effect a smooth purchase transaction for their clients – the assertion that there wasn’t a profit motive for builder originations is just outrageously untrue. That is like saying that McDonalds starting selling their lucrative coffee products because they just wanted more alert patrons.
Builders have gotten a bad name in mortgage banking for the same reason that everyone else has…because they pushed homes people couldn’t afford with bad mortgage products and strong-armed clients into loans that they could have shopped – if it meant that the builder wouldn’t rescind the offer to pay for concessions – or title insurance premiums – or upgrades. When faced with the option of losing $30K or more… well, you suck up the slightly less favorable interest rate or higher origination charges. I have even personally worked with builders that will refuse to sell the home – unless it is originated and closed per their specific directive with their “affiliates.”
From a call with Pulte in 2007 on earnings:
- The second quarter pre-tax income from Pulte’s Financial Services operations was approximately $7 million, or a decrease compared with the prior-year quarter of approximately $8 million. The decrease during the second quarter is mainly attributed to lower revenues from decreased volumes offsetting a favorable product mix shift to higher profit loans and an increase in the capture rate.
- The level of adjustable rate mortgage products originated during the second quarter of 2007 decreased from approximately 33% of origination dollars funded from a warehouse line in the second quarter of the previous year to approximately 9% this quarter. Pulte Mortgage’s capture rate for the current quarter was approximately 93%.
We applaud the FHFA’s new initiative for GSEs to advance data standardization and uniformity for appraisals and other loan data, as reported today by National Mortgage News, including the mandated application of MISMO Version 3.0 standards. Looking forward to the delivery of the Uniform Loan Delivery Data Specification later in the year, we hope this signals an industry-wide epiphany that standardization both of data and processes is critical to the stability and effectiveness of the U.S. Residential lending economy.
[in National Mortgage News today] GSEs Advance Industry Standards
The Federal Housing Finance Agency has launched a major new initiative by Freddie Mac and Fannie Mae to improve the consistency and quality of data for appraisals and other loan information, said the government entity on its website, which has both GSEs mandating the use of MISMO Version 3.0 data standards. ”FHFA directed the enterprises to undertake the development of the standards to provide greater uniformity in the data they collect,” said FHFA acting director Edward DeMarco. “This initiative is a major step toward meeting industry requests for uniformity in appraisal and loan data. Improvements in data quality will benefit all mortgage market participants and strengthen the housing finance system.” The GSEs have now gone forward to standardize mortgage lending using MISMO as the backbone of all loan delivery to both GSEs. Specifically, Freddie Mac and Fannie Mae have developed the Uniform Loan Delivery Data Specification, which defines the Uniform Loan Delivery Dataset and the common GSE approach to single-family loan delivery data requirements for all mortgages that will be delivered to either GSE on or after Sept. 1, 2011.
