It's time to pick a side. Bull or bear? I—we—are taking the side of the bulls. While credit unions haven't been immune to the effects of the economic downturn, we have reason to be bullish, if, for no other reason, as you'll learn in a moment, we've gained mortgage lending market share for the past two years in a row. We're up 2% since 2006, a doubling of our position in 24 months. That's one reason we think it's time to put the bears into hibernation.
HASP
Another reason we're optimistic is Treasury's announcement last week of the Homeowner Affordability and Stability Plan, or HASP. Housing Secretary Donovan, in a recent interview, made the statement "...that housing led us into this problem, housing has to lead us out..." We couldn't agree more. HASP is the latest and largest initiative aimed at the housing situation. To help you get up to speed on this important program we've included an article in this edition of Prime Alliance News by Prime Alliance Loan Servicing's Dave Miller. While it's difficult to fit all the answers into this space, Miller's article is rich on information and available resources.
Stimulus Package and Homebuyers
Until the housing market stabilizes consumer confidence won't return. Until consumer confidence returns very few people will take advantage of another effort to stimulate housing: the $8,000 tax credit for first-time homebuyers. You all know how strongly Prime Alliance feels about the strategic fit between credit unions and first-time buyers; we've been banging this drum for more than a year. Yet the facts are the facts. Rates are at 40 year lows. Affordability, according to the National Association of Realtors, has reached levels we haven't seen in years. If we effectively use the tools HASP provides, we'll be able to help first-timers act before December 1, the date the tax credit sunsets.
Market Share Tops 4%
Amidst 2008's market turmoil and scads of bad news, foreign and domestic, credit unions emerged as one of the best news stories and successes of the year. Our industry's share of the U.S. mortgage market surged yet again, up to an all time high of 4.1% from 2.6% at the end of 2007, a gain of 150 basis points in 12 months' time. The news is even better if we look at the final quarter of the year. For the three month period ended December 2008 our share rose to 4.3%.
Take a moment, congratulate yourself, congratulate your mortgage department and the entire credit union. After a decade of languishing at 2%, we’re on the move. We're becoming a market force for reasons both in and out of our control. On the 'in our control' side of the ledger, the reasons are simple: credit unions remained true to their purpose while all other lenders about us were losing theirs. We didn't play the subprime game. We did as we always had, made simple, affordable, sustainable mortgages in our communities. That's precisely what members—and the general public—want today.
On the other side of the ledger, the reasons are many. The onset of the credit crunch in August 2007 impacted mortgage brokers first. Almost 19 months later there are, in many markets, 40% fewer mortgage brokers, most of which will never return. The crunch next chewed its way through thinly capitalized mortgage bankers. Those that closed their doors aren't coming back either. Of course there's the subprime guys and several large prime lenders. They're gone, too. All in all about one-third of the industry's capacity disappeared. We had nothing to do with any of this, obviously, yet our industry has benefitted substantially.
Our members are benefitting, too. What we've known for years—that credit unions are the best deal in town for mortgage loans—isn't much of a secret any longer. For being the good guys for so long, we've gotten a great deal of 'earned press' from the media these many months, advertising we could never afford and would look rather disingenuous if we had. Members and the general public came knocking, and we answered. Every loan we've financed since August 2007 when our share began growing is a member who is better off than if they had borrowed elsewhere.
A 200 basis point increase in market share comes at a price. As an industry we've had to rapidly expand our capacity while keeping quality high. Our members expect excellent service, another skill we've been honing for a decade. If we hope to maintain and grow our market share, we can't sacrifice quality. Prime Alliance Solutions has three ways to help. First, less than 30 days ago we published 'Refi Readi©, Six Survival Suggestions for the next Six Months'. Haven't seen it? View and download it at our website. Second, we're working on our next Paper. Authored by Tracy Ashfield and David Mendelson, under the working title 'Scalability', it offers a look at the way three of our top customers manage rapid changes in volume. Suggestions and metrics found in this Paper are sure to be helpful as you design your own strategies for growing market share. Third, we perform operational reviews. The first step at becoming more efficient is often having someone with a fresh perspective look things over. We've helped many of our customers in this way. We'd like to help you, too. Talk with your account executive if you're interested.
Let's keep growing. The CU Housing RoundTable's Two to Ten Initiative has us shooting for 10% share by 2016, which, at the end of this 2009, is just five years away. Four years in, we've made substantial progress. Let's commit to at least 5% by the end of this year. Then all we need is a 100 basis point gain in each of the next five years. One last thing. We hit over 4% share. Curious about how many dollars that represents? $70.3 billion out of $1.7 trillion was our take. In the fourth quarter we loaned $13.8 billion out of the market total of $322 billion. Not bad, not bad at all.
Bull or Bear?
We choose bull, hands down. Credit unions headed into the economic crisis stronger than most other financial institutions. We'll emerge from it, too, much stronger, with greater member loyalty, stronger market recognition and greater market share. There's no doubt in my mind this is the best time in history to be a credit union mortgage lender. And, that's just one more reason to side with the bulls.
There have been three major announcements in the last few months, all related to the value of collateral associated with mortgage loans, affecting all lenders, including credit unions. These announcements change the rules under which relationships with appraisers must be managed and how appraisals must be conducted. All three are the result of alleged abuses that took place during the subprime lending peak. They are:
- The Home Valuation Code of Conduct (HVCC);
- The 1004MC Market Condition Addendum; and
- The Homeowner Affordability and Stability Plan.
Here’s a synopsis of each and how they affect your credit union and your members.
Home Valuation Code of Conduct:
In March 2008, Fannie Mae entered into an agreement with the Federal Housing Finance Agency (FHFA), which requires both Fannie Mae and Freddie Mac to increase the integrity of the appraisal process. The Home Valuation Code of Conduct (HVCC) implements the agreement.
Effective May 1, 2009, Fannie Mae and Freddie Mac will no longer purchase from sellers that do not comply with the code. Also, effective for single-family mortgages with loan application dates on or after May 1, 2009, Freddie Mac and Fannie Mae Seller/Servicers must represent and warrant that the appraisal report is obtained in a manner consistent with the Code. To view the Home Valuation Code of Conduct in its entirety click here.
In a snapshot:
- A copy of the appraisal must be provided to the member no less than three days prior to closing.
- All appraisal services must be completely independent from the loan production staff or any entity reporting to an officer with any responsibility to that area.
- Appraisers must be compensated directly by the lender or a third-party specifically authorized by the lender.
To reference the related frequently asked questions and answers click here.
How does this apply to you?
May 1 is right around the corner. Prime Alliance Solutions (PA) and Prime Valuation Services (PVS) help you meet HVCC requirements. PVS manages over 15,000 appraisers across the country. Ordering through PVS ensures appraiser and appraisal independence. PVS handles the entire appraisal process: how appraisers are managed, panel management, independent appraisal assignment, appraiser payment, and electronic delivery of the completed report to you. PA delivers the report to the member once your credit union has reviewed the results, thus meeting the requirement of delivery prior to closing. Together we’re committed to lending efficiencies; this is simply one more way we help reduce your lending costs.
1004MC Market Condition Summary Addendum:
1004MC is a market conditions addendum required by Freddie and Fannie on all appraisals of one to four unit properties performed on or after April 1, 2009. It requires the appraiser to include local market condition information regarding the property such as inventory analysis, median sale and list price, seller concessions, and foreclosure sales. It is expected that in some circumstances, the appraiser will not be able to provide all of the information listed on the form because of the nature of disclosure in some markets. Prime Valuation Services’ appraiser panel has been working with a similar addendum for the last year, so the transition for our appraisers will be fairly smooth. To see a sample of the form and the Fannie Mae announcement click here.
Homeowner Affordability and Stability Plan:
On Wednesday, March 4, the Obama Administration announced new U.S. Department of the Treasury guidelines that enable servicers to begin modifications of eligible mortgages under the Administration's Homeowner Affordability and Stability Plan - announced by President Barack Obama just two weeks ago. The release of detailed requirements for the "Making Home Affordable" program facilitates implementation of the critical provision that will help bring relief to responsible homeowners struggling to make their mortgage payments, while preventing neighborhoods and communities from suffering the negative spillover effects of foreclosure such as lower housing prices, increased crime and higher taxes.
Prime Alliance Solutions is hearing from servicers that they are busy developing processes for this new program (see Dave Miller’s article, also in this edition of the Prime Alliance News) and lenders are beginning to receive calls from borrowers interested in participating. Prime Valuation Services is prepared to assist you or any servicing agents you work with to make the appropriate valuation products and services available for this program.
Products currently available as defined in the Program Guidelines:
- AVMs - Prime Valuation Services offers six commonly used nationwide AVMs including the Freddie Mac developed HVE (GSE AVM).
- Broker Price Opinions - Prime Valuation Services offers both interior and exterior inspections through our nationwide network of over 10,000 brokers.
- Appraisals - Prime Valuation Services offers a full suite of full appraisal products through our nationwide network of over 15,000 appraisers.
Interested in learning more? Join us for our Home Valuation Code of Conduct Webinar during the first week in April. We’ll be posting the dates at www.primealliancesolutions.com later next week.
On March 4, 2009, U.S. Treasury Secretary Timothy Geithner stated, “It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets. This plan will help those members in default and foreclosure, as well as members on the verge of default.”
We all know of the problem. No single action will stabilize the economy, yet on this one point there is no disagreement: housing’s downward spiral has to be arrested. Mortgage loan servicers have been struggling to keep up with the onslaught of customer calls, the increasing number of defaulted loans, and the ever-changing plethora of regulatory, investor and insurer requirements. And, we have been hiring origination experts—underwriters, processors and legal staff—to lend assistance to the overwhelming pressure that we, as servicers, are facing.
And, if you are like us, you are receiving calls daily from members who are looking for help and looking for answers. Everyone seems to know a little about HASP, but no one knows a lot. It’s time we all study up. Quickly, get your smartest and best people focused on the Obama Administration’s Homeowner Affordability and Stability Plan (HASP). This program is mandatory for Fannie Mae and Freddie Mac loans but is optional for your portfolio loans. For more information on the HASP program you can use the following link to the government website: www.financialstability.gov. Our understanding is that you will need to sign a contract with the U.S. Treasury Department’s agent in order to participate in HASP for your non-agency loans. The U.S. Treasury Department has selected Fannie Mae to act as their agent for these transactions.
There’s plenty of reading to do. Here are several sources we’ve found helpful:
- Fannie Mae Announcement 09-04: Home Affordable Refinance – New Refinance Options for Existing Fannie Mae Loans (03/04/09)
- Fannie Mae’s Home Affordable Refinance FAQs dated March 4, 2009
- Freddie Mac Bulletin 2009-5 dated March 4, 2009
- Fannie Mae Announcement 09-05: Introduction of the Home Affordable Modification Program, HomeSaver Forbearance™, and New Workout Hierarchy (03/04/09)
Here is some basic information about the Home Affordable Modification Program that will get you started.
- Servicers can immediately begin to modify eligible mortgages under The Home Affordable Modification Program. New members will be accepted into the program until December 31, 2012. Program payments will be made up to five years after the date of entry into the Program with continuous monitoring throughout the identified modification plan. The Treasury Department expects that these guidelines will become industry standard practice. Additionally, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidelines. Fannie Mae and Freddie Mac will use these guidelines, and the U.S. Treasury will work with regulators and other federal and state agencies to implement the guidelines across the entire mortgage market.
- To be eligible, the loans must have originated on or before January 1, 2009. It must be a verified first lien, owner-occupied, with an unpaid principal balance up to $729,750 for single family homes, tiered up to $1,403,400 for four unit properties. The home may not be investor-owned, and may not be vacant or condemned. Bankruptcies are not automatically eliminated from consideration for a modification, and members in active litigation regarding their mortgage loan can qualify for a modification without waiving their legal rights. Any foreclosure action will be temporarily suspended during the trial period or during the time that they are considered for alternative foreclosure prevention options. Loans can only be modified once under The Home Affordable Modification Program. There is no minimum or maximum loan-to-value ratio for eligibility.
- The member’s payments will have to be first reduced to no greater than 38% Front-End Debt-to-Income (DTI) ratio. The Treasury will further match reductions in monthly payments with the lender/investor down to a 31% DTI ratio. If the Back-End DTI is 55% or higher, the servicer must send a letter to the member stating that counseling is required in the modification plan; the member, in turn, must acknowledge in writing that counseling will be obtained.
- Servicers will receive a Servicer Incentive Payment of $1,000 for each eligible modification; the servicer will then receive Pay-for-Success payments as long the member stays in the program, up to $1,000 each year for up to three years.
- The members are eligible to receive a Pay-for-Success Payment that goes towards reducing the principal balance as long as the loan is current; members can receive $1,000 each year for up to five years.
- The qualification for both servicer and member incentives require that full monthly payments, including escrows, must be reduced by a minimum of 6%. The servicer will receive the lesser of $1,000 or half the reduction of the annualized monthly payment on Pay-for-Success incentives.
- Interest rates are floored at 2% and must remain in place for five years. The interest rate will then gradually increase by the less of 100 basis points per year or an amount needed to reach the Interest Rate Cap. The Cap is the lesser of the fully indexed and fully amortizing original rate or the Freddie Mac Primary Mortgage Market Survey rate for 30-year fixed rate conforming mortgage loans. No interest will accrue on the forbearance amount if the servicer chooses to forebear principal.
- There are no modification fees charged to the member. Any fees charged for this service, such as notary fees or appraisal fees, will be reimbursed by the investor. Unpaid late fees to the member will be waived. Assumable mortgages will be cancelled with this program.
- It is critical for servicers to maintain records of key data points for verification and compliance reviews. Servicers should refer to Fannie Mae and Freddie Mac guidelines for descriptions of auditing for fraud prevention and detection.
The U.S. Treasury will also provide details of the required data elements for reporting, such as member profiles, property information, underwriting analyses and loan modification terms.
The Obama Administration estimates up to 5 million homeowners could be helped by these programs. With approximately 30% of the population belonging to credit unions, there may be up to 500,000 members we can help. Taking part in HASP is another way credit unions will further build their mortgage lending brand and establish our industry as the lenders that always put our members’ best interests first.
For more information on these programs, you can call David J. Miller Jr, President, Prime Alliance Loan Servicing Powered by Cenlar at 609-883-3900 ext 5404, or send a note to dmiller@cenlar.com.
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