Fannie and Freddie foreclose on almost 16,000 homes in May, almost 4 million since 2008

Fighting Off Foreclosures

http://www.dsnews.com/daily-dose/08-08-2017/fighting-off-foreclosures

Editor’s Note:  Fannie and Freddie have foreclosed on almost 4 million homes since the financial crisis of 2008.  The GSEs typically can’t prove they own the loan if it was securitized between 1999 and 2014.  Did you know that Fannie Mae and Freddie cannot accept a note that is not properly endorsed and assigned?  A note that is not properly endorsed or assigned is considered a ‘fail’.  See Document Custodian information here.

Avoid Foreclosure BHFannie Mae and Freddie Mac wrapped up 15,683 foreclosure prevention actions in May, according to the Federal Housing Finance Agency (FHFA) May Foreclosure Prevention Report. This brings the total number of foreclosure prevention actions to 3,914,668 since the inception of the conservatorships back in September 2008. More than half of the actions reported for May—or 10,769—were permanent loan modifications, compared with 11,328 in April. All told, since September 2008, the Enterprises have granted permanent loan mods to 2,076,345 distressed homeowners.

Along those same lines, the share of modifications with principal forbearance accounted for 25 percent of all permanent modifications in May, according to the report. Modifications with extend-term only leapt to 45 percent during the month thanks to ongoing positive headwinds in house prices. Additionally, a combined 1,489 short sales and deeds-in-lieu sealed in May. There were 10 percent more—or 1,650—in April.

As for the Enterprises mortgage performance metrics, the serious delinquency rate spiraled down further, plunging from 1.01 percent at the close of April to 0.98 percent at the end of May. Loans 30–59 days’ delinquent charted at 402,780 in April; they stood at 348,141 in May. Continuing their downward trajectory, 60-plus-days’ delinquent loans hit 1.3 percent in May, decreasing from April’s 1.34 percent.

In terms of Fannie and Freddie foreclosures, third-party and foreclosure sales jumped 9 percent, from 5,523 in April to 6,042 in May. Foreclosure starts tumbled 13 percent from 17,056 in April to 14,905 in May.

The top five reasons for delinquency in May included curtailment of income (21 percent), excessive obligations (22 percent), unemployment (7 percent), illness of principal mortgagor or family member (6 percent), and marital difficulties (3 percent).

1st DCA CA: Not so Fast on Rubber Stamping Foreclosures

As we have seen for months there have been a steady stream of cases in which the courts have turned back to the fundamental requirements of due process and the rule of law. Here the court reminds (again) that judicial notice is not a substitute for foundation of facts in dispute AND that the homeowner’s right to sue for wrongful foreclosure is NOT to be dismissed even if it is poorly worded.

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See CUPP v FNMA 8/2/17

Cupp v. Fannie Mae

While once again we see the regretable tendency to keep essential decisions out of public records, we also see that the court now comprehends the basic fallacy behind “loans” subject to false claims of transfer, securitization, sale and purchase.

And once again the court states with clarity the basic elements of procedural law. The fact that you owe money doesn’t mean you owe it to anyone who sues you.  If the party initiates a nonjudicial sale they will subject to the same rigor as in judicial cases. Nonjudicial procedure was not meant to allow strangers to win cases they would lose if they were required to file suit.

Significant quotes:

The nonjudicial foreclosure system is designed to provide the lender- beneficiary with an inexpensive and efficient remedy against a defaulting borrower, while protecting the borrower from wrongful loss of the property and ensuring that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.” (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 926 (Yvanova).)

The elements of a tort cause of action for wrongful foreclosure are: “`(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.'” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 408.) Grounds satisfying the first element include: when the trustee did not have the power to foreclose, when the borrower did not default, and when the deed of trust is void. (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 104- 105.) “A foreclosure initiated by one with no authority to do so is wrongful” and satisfies the first element. (Yvanova, supra, 62 Cal.4th at p. 929.)

our Supreme Court observed that the trustee of a deed of trust “acts merely as an agent for the borrower- trustor and lender-beneficiary” and, under section 2924, subdivision (a)(1), may initiate nonjudicial foreclosure “only at the direction of the person or entity that currently holds the note and the beneficial interest under the deed of trust—the original beneficiary or its assignee—or that entity’s agent.” (Yvanova, supra, 62 Cal.4th at p. 927.) “[I]f the borrower defaults on the loan, only the current beneficiary may direct the trustee to undertake the nonjudicial foreclosure process.” (Id. at pp. 927-928.) However, the court also recognized that promissory notes and deeds of trust are negotiable instruments that may be sold by a lender without any notice to the borrower and “that a borrower can generally raise no objection to the assignment of the note and deed of trust.” (Id. at p. 927.) The Yvanova court concluded:

“If a purported assignment necessary to the chain by which the foreclosing entity claims that power is absolutely void, meaning of no legal force or effect whatsoever [citations], the foreclosing entity has acted without legal authority by pursuing a trustee’s sale,” and the borrower would have standing to sue for wrongful foreclosure in the case of such an unauthorized sale. (Id. at p. 935.)

The logic of defendants’ no-prejudice argument implies that anyone, even a stranger to the debt, could declare a default and order a trustee’s sale—and the borrower would be left with no recourse because, after all, he or she owed the debt to someone, though not to the foreclosing entity. This would be an `odd result’ indeed.” (Id. at p. 938.) “A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity’s hands. No more is required for standing to sue.” (Id. at p. 939.) The court disapproved a line of Court of Appeal decisions that had reached contrary conclusions. (Yvanova, at p. 939, fn. 13; see Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497; Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75; Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495 (Herrera); Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256 (Fontenot).)

The trial court appears to have agreed with respondents’ contention they could conclusively establish that RTC did hold the beneficial interest at the time of the 1995 Assignment. In its preamble, the 1995 Assignment recites that, in June 1993, the Office of Thrift Supervision appointed RTC as receiver for WFSL. It further recites that, in September 1994, the Office of Thrift Supervision replaced the conservator of WFSB with RTC. Finally, the preamble states that RTC, as receiver for WFSB, “is the current beneficiary under the Deed of Trust.”

The trial court could properly take notice of the fact the 1995 Assignment was recorded, the date of its execution, the parties to the transaction, and its legal effect if that effect is undisputed and clear from the face of the document. (See Intengan v. BAC Home Loans Servicing LP (2013) 214 Cal.App.4th 1047, 1055; Fontenot, supra, 198 Cal.App.4th at pp. 264-265.) However, contrary to respondents’ repeated assertion, we cannot take judicial notice of the truth of hearsay recitations of fact contained within the 1995 Assignment. (See Yvanova, supra, 62 Cal.4th at p. 924, fn. 1; Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1369, 1375 [trial court improperly took judicial notice of truth of hearsay recitation, within assignment, that a particular entity held beneficial interest under deed of trust before its assignment]; Intengan, at pp. 1055, 1057; Fontenot, at p. 265.) Cupp clearly disputes the notion that RTC held the beneficial interest at the time of the 1995 Assignment. We conclude the trial court erred in taking judicial notice that RTC held the beneficial interest in the Deed of Trust at the time of the 1995 Assignment.[8]

The Fannie Freddie Document Treasure Trove

Editor’s Note: Former Secretary of Treasury Timothy Geitner was instrumental in greasing the runways for HAMP so the GSEs could steal homes.  But he also engineered the theft of GSE investor profits while proclaiming Fannie Mae and Freddie Mae to be on the verge of collapse.  Instead, the federal government, in an act of unconscionable bad faith, implemented net worth sweeps to steal money from investors.  These massive profits were also used to artificially prop up failing Obamacare.

The Libertarian Opinions expressed by Forbes Contributors are their own.

July 19, 2017 marked the release of the first set of much-awaited government documents that addressed the government knew and when, before the implementation of its net worth sweep on August 17, 2012, which gave the government all profits from the operation of those two Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac.  That deal was embodied in the Third Amendment to the original Senior Preferred Stock Purchase Agreements (SPSPAs) of September 2008.  Analytically, these documents are irrelevant: the case against the government is air tight without them. Practically, these documents should transform all phases of this complex litigation.  The best way to beat the government in litigation is to show its bad faith throughout.  It is important to see why both the propositions are true, and how they impact on the ongoing litigation.  I am offering this analysis, in my capacity as an advisor to institutional investors.

The Analytics.  A close look at the disclosed documents tell us nothing about the net worth sweep that is not apparent on the face of the published agreement that the Federal Housing Finance Authority (FHFA) and the Department of Treasury used to put the Net Worth Sweep (NWS) in place. These were expert lawyers and they meant what they said and said what they meant—namely, that the sole purpose of the deal was to make sure that all the future profits generated by Fannie and Freddie would end up in the pockets of the United States Treasury above and beyond the 10 percent dividend set in the original 2008 agreement.  It would have been, of course, imprudent for the two government agencies to announce their intention to collude publicly, so they engaged in a planned, but sham, transaction, that made it appear as if their joint action was the salvation of Fannie and Freddie.  The supposed benefit was that the enterprises were relieved of any obligation to pay money to Treasury when they did not have money to pay it.

Unfortunately, for the government, the enterprises and their private shareholders already had two airtight defenses against such an unhappy result.  First, if a company is insolvent it can’t pay any money to its shareholders as dividends or to its creditors anyhow.  So it is a simple sham to claim that consideration has been supplied by relieving parties of any obligation to pay amounts that could not pay in any event.  Second, as a legal matter, the SPSAs contained a so-called payment-in-kind clause, which allows Fannie and Freddie to not pay cash dividends so long as the deferred amounts accrue at a rate of 12 percent annually, two points higher than the 10 percent rate stipulated for cash dividends.

The ability to exercise this deferred option carries with it two unambiguous consequences. First, it meant that Treasury never had to make any further advances to the entities if it thought it imprudent to do so.  The GSE amounts due would just continue to accrue.  Accordingly, there could be no death spiral in which Treasury would have to make advances to prop up a worthless enterprise, and no exhaustion of Treasury’s financing commitments.  Second, this arrangement was not an open invitation for the conservators of the enterprises to squander money.  Any net distributions to the enterprises’ private shareholders, whether as dividends or distributions on liquidation, were subordinate to the government’s senior preferred stock.

It would therefore be unwise for any prudent trustee to incur higher rates of payment on the senior preferred if cash were available to make current cash dividends.  The initial deal had a built-in financial stability that worked well in all states of the world.  At no point in the documents did Treasury make reference to this decisive clause.

Similarly, the judicial treatment of the complete dividend arrangement on the motion to dismiss, no less, completely misunderstood these provisions.  That short cut is perfectly permissible if the opinions make an accurate assessment of the stated transaction.  But that was not to be had.  In the original 2014 trial court decision by judge Royce Lamberth in Perry Capital v. Lew, this additional shareholder option was perversely construed as a penalty for late payment, which therefore had to be ignored in deciding on the validity of the NWS.   Similarly, the clause was put to one side on the decision of the majority of the D.C. Circuit in Perry v. Mnuchin,  with the glib pronouncement that director of FHFA, as a fiduciary, did not have to avail himself of the one option that worked to the greatest advantage of his beneficiaries, but could instead fork over all that excess cash to the government knowing that it received nothing of value in return. Why this extreme statement? Because there is no state of the world in which the private shareholders were better off after the NWS than they were without it.  On the downside, the got no money either way.  On the upside, they got no money either, as all the cash above the standard 10 percent (or, if appropriate, 12 percent) dividend went to the government.  The government should have lost on the motion to dismiss.

The Documents.  The overall message from the published documents is in perfect sync with the basic structure of the underlying deal.  None of them are remotely privileged. The only damaging information that they contain is directly pertinent to the case, namely, on the state of mind of key government officials on the eve of the NWS. In order to best understand their impact, it is useful to examine the documents in reverse chronological order, starting with those that prepared just before the NWS was implemented.  The point is quite simple.  Whatever the earlier uncertainties, given the indications of the GSEs’ financial strength right before planned enactment, the government could have simply canceled the NWS without any public fanfare, knowing that the financial situation had stabilized.  By going forward with the NWS, the high government officials knew that the NWS was not a salvage operation to prevent the bailout from collapsing, but a calculated effort to strip all the profits from the GSEs in a no-risk transaction for the Treasury.

Thus, on the Monday, August 13, four days before the announcement of the NWS, an email from Jim Parrott to Brian Deese, takes the candid view that:

  • We are making sure that each of these entities pays the taxpayer back every dollar of profit they make, not just a 10% dividend. (emphasis in original)
  • The taxpayer will thus ultimately collect more money with the changes.
  • With the overall set of changes, we have removed any doubt about the long-term fate of these entities: they will NOT be allowed to return to profitable entities at the center of our housing finance system, but instead wound down and replaced with a system driven by private capital and lower risk to the taxpayer.

That of course is exactly what the NWS did.  The obvious reading of this document is that four days before the NWS all the relevant officials on the eve of the NWS knew that government stood to make profits in excess of the agreed 10 percent dividend rate, notwithstanding any earlier doubts Treasury and FHFA had several months prior about the expected financial performance of Fannie and Freddie.

Just before the NWS, these officials knew with certainty that there was no possibility of a death spiral in which the Treasury would constantly have to lend money to the GSEs in order to collect the required dividend from them. That result is confirmed by an earlier memo dated July 30, 2012, which announces the government’s intention to announce the changes on Friday, August 10 after the markets close.  (The actual launch date was a week later, still on a Friday in in August in order to avoid serious media attention.)  The memo’s stated rationale for the NWS was “GSEs will report very strong earnings on August 7, that will be in excess of the 10% dividend to be paid to Treasury.”  The relevant information had not changed from July 30 to the announcement of the NWS on August 17.

The next critical document was dated June 25, 2012 from Treasury official Mary Miller to Michael Stegman.  It relates that Ed DeMarco, the acting head of FHFA, had some doubts about how to proceed but no doubts about the increasing financial strength of Fannie and Freddie.  Its relevant portion reads:

  • Through weeks of negotiating terms of possible amendments to the PSPAs, he [DeMarco] never questioned the need to adjust the dividend schedule this year. Since the Secretary raised the possibility of a PR [principal reduction to benefit distressed homeowners] covenant, DeMarco no longer sees the urgency of amending the PSPAs this year.
  • He has raised two competing reasons for this new position: (1) the GSEs will be generating large revenues over the coming years, thereby enabling them to pay the 10% annual dividend well into the future even with the caps; and, (2) instituting a net worth sweep in place of the dividend will further extend the lives of the GSEs to such an extent that it would remove the urgency for Congress to act on long-term housing finance reform. He now sees the PSPA amendments as a backdoor way of keeping the GSEs alive-getting to an Option 3-type plan [calling for the separation of special purpose vehicles for good and bad assets] without the need for legislation.

For these purposes the most salient portion of the document is the acknowledgment of the large revenues that will be sufficient to cover the dividend payments in the future with the caps in place, which meant that Treasury understood that no additional advances would ever be needed.  The third option mentioned in the last paragraph refers to a position paper submitted to Secretary Timothy Geithner on December 12, 2011, or over eight months before the bailout took place. It contained a preliminary discussion of various policy options, the first of which called for restructuring “Treasury’s dividend payments from a fixed 10 percent annual rate to a variable payment based on available positive net worth (i.e. establish an income sweep). This will ensure that remaining PSPA funding capacity is not reduced in the future by draws to pay dividends.”  At the very least both Miller and Stegman knew that both Fannie and Freddie could turn profitable shortly, which came to pass to its knowledge when the NWS was put into effect in August, 2012.  This case is open and shut.

Commentaries on the released documents.  Most of the commentators who read the documents thought that they revealed that Treasury and FHFA had a full knowledge that the GSEs had turned the corner into positive territory when the NWS was adopted. Gretchen Morgenson’s article of July 23 was entitled “U.S. Foresaw a Better Return in Seizing Fannie and Freddie Profits.”  It was well understood”, she wrote “that decision to divert the profits knew that the change would most likely generate more revenue for the treasury.  She explicitly concluded that Treasury’s stated explanation, to protect the taxpayers from further losses, was contradicted by the documents which showed “as early as December 2011, high level treasury official knew that Fannie and Freddy would soon become profitable again.”

Her views were adopted wholesale by HousingWire, where once again the headline tells the whole story:  “Newly sealed documents reveal real reason for Fannie, Freddie Profit sweep:  Report:  Geithner knew in 2011 that GSEs would soon be profitable.”  Bloomberg News told the same story when it wrote “New Documents Give Hope to Fannie Shareholders seeking redress,” specifically pointing out that evidence undercut the key government claim that the NW was necessary to avert “a process known as a ‘circular draw’ or ‘death spiral.’”

The impact on litigation.  The last question is how these revelations will impact ongoing litigation.  The documents were released in connection with the Fairholme takings claim in the Federal Court of Claims.  The sound theory of that case is that government had confiscated shareholder property when it stripped them of their dividend rights, their liquidation preferences, and their voting rights—the three attributes that give shares their value. Similarly, Jerome Corsi at InfoWars stated: “New Docs Support Fannie Mae and Freddie mac Shareholders in Court: Apologist [John Carney] Ignores Evidence They Illegal Confiscated Fannie and Freddie Earnings.”

That claim is made out by an examination of the relevant documents. If these cases are treated as direct expropriation of funds, governed by the per se rule in Loretto v. Teleprompter  Manhattan CATV Corp.  the bad faith of the government should not matter.  But, if, as thus far has been the case, the NWS is evaluated under the more flexible doctrine of Penn Central Transportation Company v. City of New York this evidence fills any gap in the plaintiff’s case. Penn Central requires an explicit examination of the government reasons for imposing the sweep.

The Treasury’s bad faith of the government overrides any potential government justification for making these shareholders bear a disproportionate share of funding general government activities.  In the language of Penn Central, the NWS “has interfered with distinct investment-backed expectations,” without reference to any traditional police power concerns with health and safety.  As Justice Holmes quipped in Pennsylvania Coal v. Mahon “a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.”  The government has meet its financial needs from general revenues, not by picking the pocket of the private shareholders. The takings claim therefore should be solidified by the release of these documents.

The documents revealed in the takings litigation should also influence the treatment of the various breach of fiduciary and contract claims in Perry Capital v. Lew, and in Perry Capital v. Mnuchin.  Both the trial court in Lew and the D.C. Circuit on appeal in Mnuchin let the government win on summary judgment, without the benefit of any discovery at all.  A correct reading of these documents shows that they gave summary judgment for the wrong party, the government.  But now that Mnuchin is back to the District Court on remand, it should take those documents into account in making its decision on the validity of the plaintiff’s surviving contract claims.

The first time around, the Circuit Court badly mangled the proper tests for determining expectation damages. Its decision to divide outstanding shares into different subclasses destroys the underlying market, which can function only if all shares have identical attributes.  Hence it was a huge mistake to insist that shareholder claims be fractionated so that individual shareholder expectations somehow depend whether the shares were purchased before or after the NWS was into place.  The correct answer in all cases is that shareholder expectations are fixed at the time of initial issuance and purchase of these shares, such that any resales or other transfers of those shares do not affect the nature of the contract claims.

The D.C. Circuit’s revised opinion of July 17, 2017 backs off that categorical error.  Nonetheless it still goes astray because of its failure to affirmatively state as a matter of law the correct rule that treats all shares identically.   Instead its states the relevant inquiry on remand is “whether the Third Amendment violated the reasonable expectations of the parties.”  The government knew at the time of the NWS that it was claiming more than it was entitled to.  That fact should shape the reasonable expectations of the private parties who are entitled to think that the government will not consciously abuse its power by collusive transactions that were intended to strip the shareholders of all value in a sham transaction.

The NWS benefited the government, and only the government.  The District Court cannot decide this case in an informational vacuum, but must take this information into account in determining the reasonable shareholder expectations. The abuse of NWS is as relevant to the contract claims as it is to the takings claims.  Judge Lamberth should not ignore undisputed evidence, which points to the total viability of the contract claims that the D.C. Circuit has asked him to reevaluate on remand.

Richard A. Epstein is the Laurence A. Tisch professor of Law at NYU, senior fellow at the Hoover Institution, and senior lecturer at the University of Chicago Law School.

Refinancing mortgage? Maybe you don’t need that appraisal after all

Editor’s Note:  The Fed is doing everything in its power to maintain the real estate bubble in order to maintain demand- by lowering credit score requirements, offering lower down payments (1 to 3%), and now removing the lender’s responsibility for home valuations.  What could go wrong?

http://www.miamiherald.com/news/business/real-estate-news/article157002859.html

Fannie Mae eases credit requirements boosting purchasing power by 22%

WOW! BIG Housing & Mortgage Easing News: This Changes Thing

https://mhanson.com/6-2-hanson-wow-big-housing-mortgage-easing-news-changes-things/

by

Fannie Mae pulls a 2006-style credit ease…this changes things.

 

QUESTION:  How do you know you that you are past mid-stage in a housing bubble? 

QUESTION:  How do you know that the overlords are worried about a housing market correction?

QUESTION:  How do you know the keepers-of-the-economy are worried that the mortgage-refi-capital-conveyor-belt coming to a halt will drag the US into recession?

 

ANSWERBecause Fannie Mae just eased credit guidelines to such a degree — specifically, ratcheted higher Debt-to-Income Ratio tolerances from 43% to 50% of GROSS INCOME – purchasing/refinancing power was increased over 20% instantly.

 

Remember, counter-cycle credit guidelines – loosening credit guidelines to fight a tightening credit cycle — is exactly what created BUBBLE 1.0 from 2003 to 2007.

 

Additionally, Fannie made it much easier for self-employed borrowers and ratcheted higher the LTV/CLTV/HCLTC allowances to 95% on all their loans (including interest only) to match the current 30-year fixed guidelines.

 

Bottom line:  This changes things at the margin;  INCREASES PUCHASE & REFINANCE POWER good credits by 22% and requires less down/equity, in order to compete with FHA. Put another way, somebody can suddenly buy 22% more house, or refinance a much larger loan, than they could previously on the same income with less down, or equity respectively.

 

Then, again, based on data I gather and watch daily it may be too late to keep house prices in the green. In fact, major, core metro regions will be printing NEGATIVE YY house prices this year;  he bubbliest parts of the San Fran Bay Area already are.

Think about it…when has .gov or the Fed ever acted truly proactively?  Perhaps Fannie’s models show house prices rolling over in the nearer-term and these changes are a hail-Mary to try to counter that.

 

BUT, this will also make it so the ultimate reversion to the mean is that much more destructive.

 

ITEM 1)  MY CHART SHOWS THAT GOING FROM 43% TO 50% DTI INCREASES PURCHASING POWER BY 22%.

43% vs 50% DTI MEANS A LOT

  1. The 1st column shows you could buy a $370k house with an income of $66k under the OLD, 43% DTI guidelines.
  2. NOW, (2nd column) you can buy a $450k house with the same income under the NEW, 50% DTI guidelines.  

Note, this assumes 20%, which is rare. At 5% down, purchase prices decline substantially but the 20% increase remains intact.

ITEM 2)  FANNIE MAE EASES GUIDELINES TO COUNTER RATE INCREASES (JUST LIKE DURING BUBBLE 1.0)

RED HIGHLIGHTS ARE MY EMPAHSIS. mH

New Fannie Mae DU Version Eases DTI Requirements

by: Jann Swanson

May 31 2017, 10:55AM

Fannie Mae has announced changes in underwriting for loans submitted to its Desktop Underwriter (DU), Version 10.1.  The new DU version will be implemented on or after the weekend of July 29. The changes are outlined in release notes issued on Tuesday and will apply to new loan casefiles submitted to DU on or after the weekend of July 29, 2017. Loan casefiles created in DU Version 10.0 and resubmitted after the weekend of July 29 will continue to be underwritten through DU Version 10.0.

Among the more significant changes accompanying the new version are the following.

  1. The maximum allowable debt-to-income (DTI) ratio that can be submitted in DU will be 50%. For DTIs between 45 and 50 percent, certain additional compensating factors will no longer be required. Cases exceeding a 50 percent DTI will receive an “ineligible” recommendation.
  2. The criteria that determines the documentation required to verify a self-employed borrower’s income will be updated and the number of DU loan casefiles eligible for the one year of personal and business tax return documentation requirements will increase.
  3. The maximum allowable LTV, CLTV, and HCLTV ratios (LTV ratios) for adjustable-rate mortgages will be aligned with fixed-rate mortgage LTV ratios for all transaction, occupancy, and property types, up to a maximum of 95%. Additional information on the effective dates of this change will be available in the Selling Guide.
  4. A loan casefile with a disputed tradeline that is approved with that information will no longer require further action. If such a loan casefile does not receive an Approve recommendation, the lender must determine the accuracy and completeness of the tradeline information. If the borrower is responsible and the information accurately and completely reports the account, then the lender may manually underwrite the loan if it is eligible. Tradelines reported as medical debt will continue to be excluded from the disputed tradeline identification and lenders are not required to investigate disputes.
  5. DU is regularly reviewed to determine if its risk analysis is appropriate. Version 10.1 will include an update to this risk assessment and it is expected to increase the percentage of Approve/Eligible recommendations received by lenders, particularly those with DTI rations between 45 and 50 percent.

The new DU version will also contain changes in or will generate new messages about underwriting issues in the following areas:

  • Income and Employment Updates
  • Property Inspection Waivers
  • Student Loan Cash-Out Refinance
  • Employment Offers
  • Multiple Financed Properties
  • Site Condo Reviews
  • Timeshares
  • Homebuyer Education

Version 10.1 will also support the final Consumer Financial Protection Bureau rule implementing amendments to the Home Mortgage Disclosure Act (HMDA) which modified the reportable data requirements related to collection of information of borrower ethnicity, race, and gender.

Fannie Mae says that with the release of the DU Version 10.1, Version 9.3 will be retired.  Effective the weekend of July 29, resubmissions of loan casefiles to the old version will not be accepted although applications and Underwriting Findings reports will still be available for viewing. To obtain an updated underwriting recommendation after the retirement date customers must create a new loan casefile.

http://www.mortgagenewsdaily.com/05312017_fannie_mae_lending.asp

Fannie Mae to lower Consumer Financial requirements in July

It’s the No. 1 reason that mortgage applicants nationwide get rejected: They’re carrying too much debt relative to their monthly incomes. It’s especially a deal-killer for millennials early in their careers who have to stretch every month to pay the rent and other bills.But here’s some good news: The country’s largest source of mortgage money, Fannie Mae, soon plans to ease its debt-to-income (DTI) requirements, potentially opening the door to home-purchase mortgages for large numbers of new buyers. Fannie will be raising its DTI ceiling from the current 45 percent to 50 percent as of July 29.DTI is essentially a ratio that compares your gross monthly income with your monthly payment on all debt accounts — credit cards, auto loans, student loans, etc., plus the projected payments on the new mortgage you are seeking. If you’ve got $7,000 in household monthly income and $3,000 in monthly debt payments, your DTI is 43 percent. If you’ve got the same income but $4,000 in debt payments, your DTI is 57 percent.

In the mortgage arena, the lower your DTI ratio, the better. The federal “qualified mortgage” rule sets the safe maximum at 43 percent, though Fannie Mae, Freddie Mac and the Federal Housing Administration all have exemptions allowing them to buy or insure loans with higher ratios.

Studies by the Federal Reserve and FICO, the credit-scoring company, have documented that high DTIs doom more mortgage applications — and are viewed more critically by lenders — than any other factor. And for good reason: If you are loaded down with monthly debts, you’re at a higher statistical risk of falling behind on your mortgage payments.

Using data spanning nearly a decade and a half, Fannie’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have good credit and are not prone to default.

“We feel very comfortable” with the increased DTI ceiling, Steve Holden, Fannie’s vice president of single family analytics, told me in an interview. “What we’re seeing is that a lot of borrowers have other factors” in their credit profiles that reduce the risks associated with slightly higher DTIs. They make significant down payments, for example, or they’ve got reserves of 12 months or more set aside to handle a financial emergency without missing a mortgage payment. As a result, analysts concluded that there’s some room to treat these applicants differently than before.

Lenders are welcoming the change. “It’s a big deal,” says Joe Petrowsky, owner of Right Trac Financial Group in the Hartford, Conn., area. “There are so many clients that end up above the 45 percent debt ratio threshold” who get rejected, he said. Now they’ve got a shot.

That doesn’t mean everybody with a DTI higher than 45 percent is going to get approved under the new policy. As an applicant, you’ll still need to be vetted by Fannie’s automated underwriting system, which examines the totality of your application, including the down payment, your income, credit scores, loan-to-value ratio and a slew of other indexes. The system weighs the good and the not-so-good in your application, and then decides whether you meet the company’s standards.

Fannie’s change may be most important to home buyers whose DTIs now limit them to just one option in the marketplace: an FHA loan. FHA traditionally has been generous when it comes to debt burdens: It allows DTIs well in excess of 50 percent for some borrowers.

But FHA has a major drawback, in Petrowsky’s view. It requires most borrowers to keep paying mortgage insurance premiums for the life of the loan — long after any real risk of financial loss to FHA has disappeared. Fannie Mae, on the other hand, uses private mortgage insurance on its low-down-payment loans, the premiums on which are canceled automatically when the principal balance drops to 78 percent of the original property value. Freddie Mac, another major player in the market, also uses private mortgage insurance and sometimes will accept loan applications with DTIs above 45 percent.

The big downside with both Fannie and Freddie: Their credit-score requirements tend to be more restrictive than FHA’s. So if you have a FICO score in the mid-600s and high debt burdens, FHA may still be your main mortgage option, even with Fannie’s new, friendlier approach on DTI.

New products could increase the number of investors shorting U.S. home loans

A sluggish mortgage-bond market could be jump-started by a new service that allows investors to short home loans.

Skeptics say the rise of derivatives on credit-risk transfer notes sold by Fannie Mae and Freddie Mac has echoes of the 2008 credit crisis, when the market plunged under the weight of collapsing subprime securities.

Fannie and Freddie – the biggest guarantors of U.S. home loans –  started transferring mortgage-default risk to bond funds and other investors in 2013 to help reduce risks to taxpayers according to Bloomberg. But the program has been generating more traction in recent months, after New York-based Vista Capital Advisors rolled out a pilot program that would eventually allow investors to bet on U.S. homeowner defaults.

Craig Phillips, a former BlackRock executive serving as head of financial markets advisory and client solutions for the Treasury Department, said credit-risk transfers will be core to U.S. housing policy.

The madness begins again with creative new derivatives and credit risk transfers that put the risk on the taxpayer.

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