APRIL 10, Worldwide ERC would like to thank today s sponsor: 2012 Worldwide ERC

Transcription

1 APRIL 10, 2012 Worldwide ERC would like to thank today s sponsor: 2012 Worldwide ERC

2 TRENDS IN THE MORTGAGE INDUSTRY AND THE IMPACT ON THE RELOCATION BUSINESS 2012 Worldwide ERC

3 Welcome and Learning Zone Instructions Technical difficulties? Dial , or questions to To submit a question 1. Click on the Q&A tab in the lower right-hand portion of your screen 2. Type your question into the dialog box at the bottom of the screen 3. Click the Send button To return to meeting room window: If you are in full screen mode, you may return to the meeting room window by clicking the View Meeting Room button located at the bottom left corner of your screen Worldwide ERC

4 CRP and GMS Certification If you are a CRP seeking CE credit for this Learning Zone, you must utilize the CRP Recertification Credit Form, available online at: (please note that all (S)CRPs must use this form and pay the $8 admin fee to receive CE credit) 2012 Worldwide ERC

5 Worldwide ERC/Learning Zone Trends in the Mortgage Industry: Impact on Relocation Business Brian Chappelle Potomac Partners

6 Overview Latest news Broader economic & housing issues Mortgage market Enforcement & overlays New regulations on the horizon Role of government in housing Future of Fannie Mae and Freddie Mac FHA

7 Latest News Washington Agenda Election Year: Schizophrenia Restoring FHA mortgage limits & then raising fees ( G-fees & MIP) Economy is growing March jobs number - a little disappointing One month does not make a trend Concern about a replay of 2011 Interest rates? Historic low rates & expected to stay here Fed: Housing remains the problem Administration s Initiatives

8 President s Refinance Plan: Broad Based Non-GSE borrowers to FHA - Legislation Current, employed, 580 & FHA mortgage limits LTV cap of 140% - Principal writedown Gov t paid closing costs if borrower puts savings into equity Program funded by proposed Financial Crisis Responsibility Fee large financial institutions Expand HARP to all GSE borrowers

9 Homeowner Bill of Rights Simple mortgage disclosure Aggregation not itemization Full disclosure of fees & penalties Premium pricing? Guidelines to prevent conflicts of interest Focus on conflict between lienholders Support to keep families in their homes and out of foreclosure Protection against inappropriate foreclosure

10 Mortgage Market Today Current dilemma: Two conflicting facts 90+% government financing & credit is tight Why is credit tight when gov t taking risk? Lenders are worried that government will put losses back to them Lender response: Overlays (e.g. credit score floors) Federal Reserve understands the problem: Lenders are applying tougher restrictions in order to limit the risk that they will have to take back such loans when they become delinquent. Aggressively putting back delinquent loans helps the GSEs at same time discourages lenders from originating new mortgages.

11 What is the impact? Fed Chairman Bernanke s view February 10 th Speech to NAHB "current lending practices appear to reflect, in part, obstacles that are limiting or preventing lending even to creditworthy households". He added: "originators appear uncertain about how they (representations and warranties") will be enforced going forward and thus have been very cautious about making loans that could be viewed as less than perfect from an underwriting perspective. Will government modify repurchase policy?

12 Good News / Bad News Recent mortgages: best credit quality in history GSE average homebuyer credit score: over 750 FHA average homebuyer credit score: about 700 Impact: Recent loan performance is excellent Both have historic low early default rates Bad news : Not doing enough loans for credit worthy borrowers Why is the Fed concerned? Impact of lack of housing demand on economy Declining house prices are a drag on household wealth and thus on consumer spending

13 Mortgage Market Overview What has happened in the last year? Waiting for regulations Qualified Residential Mortgage & Qualified Mortgage Rules Increased enforcement Repurchases are increasing - $20 billion est Servicing settlement - $25 billion Jamie Dimon: Mortgages are killing us in case you haven t noticed. More overlays are possible Good news - Knowledge and service matter Creates opportunities for those who can follow rules

14 Increased Enforcement Actions Key components Systemic errors vs. loan level mistakes Systemic: responsible for error on group of loans Enforcement actions Servicing Settlement 5 large servicers pay $25 billion DOJ lawsuit Deutsche Bank Failure to perform early payment default reviews CitiMortgage Settlement - $158 million Violations of FHA quality control rules Flagstar Settlement - $132 million Processing of manual underwrites

15 Impact of enforcement actions Importance of maintaining of a good default rate Government looks at a lender s default rate in reviewing processing and underwriting Will likely reduce access to credit Many lenders believe they have to place restrictions on new loans since they cannot avoid technical, procedural mistakes Should have limited effect on relocation business

16 Washington s View of the Causes No skin in the game Borrowers (downpayment) or mortgage lenders (risk retention) Adverse steering Fed loan officer compensation rule Weak regulatory oversight SAFE Act Licensing of loan officers Regulator response: Be tough on crime Solution: Dodd Frank Act

17 Dodd-Frank Act: Key Components Consumer Financial Protection Bureau (CFPB) Richard Cordray appointed Director Take fresh look at rules Focus on nonbanks Peggy Twohig Assistant Director Nonbanks Size will be very important in reviewing lenders Focus on fair lending in reviews Discussed consumer complaint system in December 2011

18 Dodd-Frank Act: Three Key Mortgage Components Risk retention ( skin in the game ) What loans will obtain exemption? Borrower Ability to repay standard Loan originator compensation Federal Reserve implemented final rule pursuant to its existing authority (Truth in Lending Act)

19 Dodd-Frank Act: Risk Retention Require risk retention by lender skin in the game retain 5% of credit risk on non-exempt loans Exemptions Government loans qualified residential mortgage (QRM) Assumed initially that all conventional loans would be included Proposed rule 10% or 20% downpayments Exempt GSE loans in conservatorship Proposed rule: Comment period ended last August Good News: Regulators are rethinking rule

20 Dodd-Frank Act: Ability to repay standard Law: Lender must make reasonable & good faith determination that consumer has a reasonable ability to repay the loan Liability flows to assignees (servicers) Penalty: 3 years finance charges + legal fees Proposed rule provides protection : Qualified mortgage - 3% cap on fees What constitutes a Qualified Mortgage? Regulators are (hopefully) rethinking this rule

21 Loan Originator Compensation Everyone thinks others have advantage If a plan sounds too good to be true, it probably is. Additional written guidance is expected this year Proposed rule in next couple of months State bond programs Profit sharing programs Enforcement risk No one wants to be poster child

22 Future Role of Government in Housing Immediate problem Fannie, Freddie & FHA are not doing enough purchase loans 1.7 million purchase loans in % below 2010 Fed concern about house price stability What to do w/ Fannie/Freddie? Private/public structure did not work Objective: Reduce government role Effect: Increase interest rates

23 FHFA s 2012 Corporate Objectives FHFA sent strategic plan to Congress in February FHFA has directed GSEs to: Build single securitization platform Develop and finalize a plan by December 31, 2012 Reduce the GSEs role in the marketplace Contract the Enterprises dominant presence begin implementing plan to increase guarantee fee pricing Objectives included in senior executive compensation plan Is now the time to start this process?

24 FHA: How are its finances? FY 2011 actuarial review Stayed positive (barely) - $2 billion Snapshot of portfolio as of September 30 th How will portfolio perform in run-off scenario? Rely on economic projections (house prices) Tug of war between performance & projections CY books have saved FHA Performance & credit quality have been excellent Will FHA remain positive in 2012? Budget projects $688 million shortfall Quality of new loans vs. problems w/ old loans New loans are 75% of portfolio

25 FHA Issue Update Secretary Donovan recent CSPAN interview Balance risk w/ helping first-time homebuyers Recent changes More premium increases Increase upfront (1.75%) & annual (10 bps) April 9 th Additional 25 bps on loans over $625,500 June 11 th Lower streamline refinance premium pre - 6/09 Tighter underwriting policy Seller concession proposed notice published 3% (or $6,000) whichever is greater Payoff collections over $1,000 - delayed

26 Quick Review of Upcoming Actions More Administration housing initiatives Will Adm n refinance program get off the ground? Revise buyback policy? Regulatory changes Define Qualified Residential Mortgage (Q!RM) What will be minimum downpayment? It will affect government programs (FHA/USDA) Finalize ability to repay standard Loan originator compensation guidance Combined RESPA/TILA form Role of government in housing

27 Summary Economy is improving Will there be more schizophrenia? More changes to improve housing recovery? More enforcement/regulations that discourage mortgage lending? Knowledge & customer service will continue to be important Changes play to strength of lenders that know how to follow rules Impact on relocation business

28 Questions & Answers

29 Thank you for attending! Visit the Worldwide ERC web site at or contact Worldwide ERC for more information on these topics Worldwide ERC