A Letter from Scott Weghorst, President of Diehl Mortgage Training and Compliance
Scott Weghorst President of Diehl Mortgage Training and Compliance serving the mortgage industry since 1983.
FHA MI REDUCTION
FHA's first mortgagee letter of the year is a big one. As you may have heard by now, the MIP is dropping substantially. You may be thinking about the reduction and some of the following questions...
Why the reduction? HUD Secretary Julian Castro announced the reduction based upon the current status of the MMI fund growing $3.8B to 2.32%, above the 2% reserve. Castro also pointed to FHA's desire to "pass along some modest savings to working families". Ed Golding, Principal Deputy Assistant Secretary of HUD stated, " This conservative reduction in our premium rates is an appropriate measure to support them (middle-class families) on their path to the American dream.”
Who wins? FHA lenders and FHA borrowers with an estimated savings of $500 this year. Ultimately FHA wins by advancing the dream of homeownership responsibly and to more people at a lower cost.
Who loses? Critics fear that the reduced premiums will result in a smaller FHA insurance fund which raises risk and the potential of government intervention being required at some point. Personally, if you've been in the mortgage industry, you may feel that this fear is unfounded. FHA has been serving the borrowers since the great depression and the reserve levels have proven adequate. With the fund solidly above the 2% reserve it seems appropriate to lower the cost.
Who else loses? Without naming names, let's just say that private mortgage insurance companies' share values dropped around 2 to 3% yesterday as the change was announced. over time that will moderate as well. We don't see this as significant or having any long term negative impact.
What are the "nuts and bolts" of the change? FHA has done away with loan size being a factor in the annual MIP calculation. It will still be based on LTV and loan term. For loans terms longer than 15 years, this means an average reduction of 37%. Looking a little deeper, loan amounts greater than $625,000 see the biggest MIP decrease with just under a 44% drop. What about those loans with terms of 15 years or less? For those, the reduction averages 46.17%. The biggest drop is for loans more than $625,000 and borrowers putting at least 10% down. Their MIP reduction is almost 65%!
What doesn't change? The hefty down stroke for the upfront MIP which is currently 1.75%.
How does this measure up against private MI? The monthly MI certainly gets more attractive now with the reductions that FHA is implementing and the upfront MIP is really the big difference. Will the borrower see this? Time will tell, but the real question becomes...
Which will borrowers focus on more- upfront MIP or the monthly payment? It may depend on who's paying the upfront MIP. If it's being paid by seller concessions, it may not be perceived as a cost. Outside of that, you have a lot of dollars being paid upfront compared to private, but normally with lower monthly payments. Remember that private MI eventually goes away and even though FHA has dropped, FHA MI is still paid for the life of the loan with LTVs greater than 90%.
How will all of this unfold in the coming year? It will be interesting to see if there any changes to how these issues are viewed under the incoming administration. Will they place greater value in FHA
reducing its costs, or will they see this as government protected competition against private industry?
When does this happen? The good news is that it's fast. FHA loans with a closing/disbursement date on or after January 27 will have the new lower MI. Also, good news that it is based on closing/disbursement dates and not case number assignment date like some changes. This eliminates numerous case number cancellations and new case number requests. The bottom line is with FHA's reserves growing, it makes sense to pass along reduced premiums to FHA borrowers.
We know that 2017 holds a lot of opportunity for the growing purchase market, and lower costs can certainly contribute towards that. The overall projections for 2017 from the Mortgage Bankers Association show approximately a 40% decline in refinances, but growth in purchases. The initial projections don't show growth in purchases completely offsetting the drop in refis, but a strong economy with perceivable positives in incomes and employment followed by more attractive program availability may help bridge that gap.
FHA Press Release 17-0003;
FHA Mortgagee Letter 2018-01; https://portal.hud.gov/hudportal/documents/huddoc?id=17-01ml.pdf
One of the most significant data changes coming in 2017 will be the delivery of the Uniform Closing Dataset (UCD) to Fannie Mae and Freddie Mac, which becomes mandatory on September 25, 2017. The UCD is a component of the GSEs’ Uniform Mortgage Data Program® (UMDP®) which defines data initiatives for loan closing, collateral, appraisal and loan delivery, in order to enhance data quality and standardization for the industry. UCD defines common industry data around the Consumer Financial Protection Bureau’s (CFPB) integrated disclosure laws; lenders will now be able to transmit the CFPB Closing Disclosure documents and data electronically. This way, regulators and the GSEs see “what the borrower sees.” The files also create an accurate loan file that is consistent for all lenders who sell loans to the GSEs.
The interesting thing about the UCD mandate is that it could serve as a springboard to greater acceptance of eMortgage and eDocuments. By simply making the step of sharing disclosure and closing data electronically with the GSEs, the industry is taking out another speed bump to a completely paperless lending infrastructure. As more millennials begin buying their first homes, their demand for more electronic documents will coincide with the increased acceptance from GSEs and regulators of electronically signed forms.
Preparing for the UCD
Preparing for UCD will not be as complicated as the implementation for TRID, but there are still some key steps lenders need to take. One of the best things every lender should do is embrace the MISMO data standards. The UCD and other upcoming data reporting requirements like the new HMDA will all leverage the MISMO standards, making the collection and sharing of data fields a consistent experience.
From there, lenders will need to make sure they have the technological capabilities to embed the UCD file into their GSE loans. Naturally, some lenders will prefer to build a workflow and IT backbone in-house, but most lenders will want to work with their document and LOS providers to ensure they can meet the GSEs needs.
We’re helping our customers prepare for this update by providing a test environment more than nine months ahead of the deadline. Earlier this month, we updated ConformX to provide a test UCD file. Using this file, lenders can begin testing the workflow for accuracy and the most efficient approach to collecting and reporting the data.
Other partners, such as the LOS, may not be as far along in the process, but lenders should reach out to their vendors to inquire about timelines, capabilities and any possible training.
We’re already preparing our customers with tools to bridge any gaps in a lender’s tech environment. For example, ConformX has a test user interface that generates a UCD from our screens so lenders can see how it fits into the workflow. This way, lenders can have staff fully trained by summer, well in advance of the September deadline. We can also connect directly to the GSEs to transmit the UCD file in the event that a lender’s LOS cannot handle the changes by the implementation date. While ideally, the LOS and Document providers are both UCD-compatible, we know that sometimes there are delays, and we want to ensure that no lender is left behind.
Evergreen, Colo., January 5, 2017 – Advantage Credit, Inc. is pleased to announce the introduction of FACTCheck™. This solution allows lenders to calculate and validate the income used to determine and prove ability-to-repay (ATR) decisions.
FACTCheck uses advanced analytics to review and compare income data residing in a variety of different documents, including tax returns, W-2s, 1099s, paystubs, bank statements and IRS 4065 tax transcripts.
“We are extremely excited to introduce this service to our customers,” said Zach Broyles, specialized sales associate for Advantage Credit, “FACTCheck is able to streamline and standardize the income calculation process saving our clients time.”
FACTCheck will save loan officers and processors considerable time on complicated tax returns by instantly calculating income correctly every time. And it will help Underwriters remove any inconsistencies across multiple documents when reviewing documents supporting the borrower’s income.
“This is a valuable tool that de-mystifies the self-employed income calculations and provides our processors and underwriters independent income analysis for comparison. I look to FACTCheck to save our company both time and money in underwriting” said Wes Masters, senior vice president with First Financial Bank.
About Advantage Credit, Inc.
Advantage Credit Inc. is a national leading provider of mortgage and banking solutions, background and tenant screening and business credit solutions with corporate offices in Evergreen, Colorado. Advantage Credit Inc. has a proud 23-year history of providing superior customer service while leveraging the most advanced credit technologies for leading mortgage companies, banks and credit unions nationwide. For consecutive years, Advantage Credit was honored by being named as one of the top fifty mortgage service providers in the country by Mortgage Executive Magazine.
First American Mortgage Solutions LLC, a subsidiary of First American Financial Corporation, has announced the completion of its integration with LoanLogics, a recognized technology leader in loan quality management and performance analytics. The integration provides users of LoanLogics' LoanHD platform with streamlined access to FraudGuard, First American's data-driven decision-support tool that helps lenders comply with regulations, improve the speed and efficiency of application reviews, and increase loan quality.
The LoanHD platform, LoanLogics' flagship loan quality management technology, offers real-time loan quality reporting and best practice audit workflows. From within the LoanHD platform, users can now order FraudGuard services directly from the AppQ Network vendor management portal, which provides lenders with easy access to an entire ecosystem of third-party services that create efficiency and reduce errors in the audit lifecycle.
"LoanLogics is committed to ensuring our clients have the tools they need, when they need them," said Craig Riddell, Senior Vice President and Chief Business Officer for LoanLogics. "By continually expanding our LoanHD network with the addition of best-of-breed solutions like FraudGuard, we're helping our clients drive toward zero defects, improve their loan manufacturing process and reduce cost, while increasing the efficiency of audit reviews through technology and automation.”
Kevin Wall, President of First American Mortgage Solutions, said, “FraudGuard's unparalleled data assets make it a stand-out among loan quality management tools. We're pleased to bring LoanLogics users on-demand access to the critical data insights and automated decision-support services they need to originate high-quality loans with confidence."
TMC - Chief Operating Officer