Proposed changes for Truth in Lending
The Federal Reserve Board will issue new rules for mortgage lenders next week that could require mortgage brokers obtain written agreements from borrowers in order to collect yield spread premiums, and prohibit the coercion of appraisers to inflate property valuations. Changes to Regulation Z, which spells out the Fed’s implementation of the Truth in Lending Act, were proposed in December (see story).
At the time, the Fed said it was also considering requiring lenders making "higher priced" loans to verify a borrower’s ability to repay an adjustable-rate mortgage loan after a payment reset, document income and assets using tax returns or other third-party documents, and establish escrow accounts for taxes and insurance, which borrowers could opt out of after one year.
The Fed, which has received more than 2,500 comments on the proposed changes, is scheduled to vote on them Monday. In a speech Tuesday, Federal Reserve Chairman Ben Bernanke said poor lending practices contributed to the sharp increase in mortgage delinquencies and foreclosures, and that the new rules will "address some of the problems that have surfaced in recent years … especially high-cost mortgage lending." The rules will apply to all lenders, not just banks, Bernanke said, adding that the Fed "received many helpful comments on our proposal and we incorporated a number of them into the final rules."
IndyMac sells off mortgage branch offices
Prospect Mortgage Co. LLC will acquire most of troubled alt-A lender IndyMac Bancorp’s retail mortgage branch offices, the company said Tuesday. More than 60 IndyMac branch offices with 750 employees will be rebranded as Prospect Mortgage, with IndyMac executives John Johnston and Ron Bergum remaining on board and reporting to Prospect Mortgage CEO Mark Filler.
In a press release, Filler said the acquisition represented "growth for the right reasons, not just for the sake of growth," allowing Prospect Mortgage to boost its investment in marketing, technology and customer service. Prospect Mortgage, which last year acquired Metrocities Mortgage LLC, is backed by a private equity fund, Sterling Partners. IndyMac announced this week that it would stop originating most loans after the company was unable to raise capital needed to meet regulatory requirements.
HUD warns Congress against meddling with FHA
Secretary of Housing Steve Preston warned Congress Tuesday against requiring the Federal Housing Administration to guarantee loans made with seller-funded down-payment assistance, and called a proposed moratorium on risk-based pricing for FHA insurance premiums "a big mistake."
The Bush administration will implement risk-based pricing on Monday, charging FHA borrowers an upfront premium of 1.25 percent to 2.25 percent, depending on their credit standing. Until now, all borrowers have paid an upfront premium of 1.5 percent of their loan balance, regardless of credit score (see story). Critics say risk-based pricing will hurt lower-income borrowers. A sweeping housing bill moving through the Senate would not only expand FHA loan guarantee programs by $300 billion but would block FHA from implementing risk-based pricing.
Preston said risk-based pricing will actually benefit many low-income borrowers, because they tend to have higher FICO scores than other borrowers FHA has worked with in the past. On a $150,000 mortgage, the difference between the existing 1.5 percent upfront premium and the 2.25 percent premium is about $7 per month, HUD says. A moratorium on risk-based pricing would force FHA to increase premiums across the board, or seek taxpayer funds as soon as October to cover potential losses, Preston said.
The House’s version of the legislation moving through the Senate would also require HUD to continue insuring loans made with seller-funded down-payment assistance. HUD claims the loans are three times as likely to end up in foreclosure, and has tried to make them off-limits for FHA loan guarantee programs. Nonprofit groups that operate down-payment assistance programs largely financed by builders have successfully blocked implementation of the rule change in court, forcing HUD to reopen the rule-making process. HUD is accepting comments on its proposed ban of seller-funded down-payment assistance until Aug. 15 (see story).
Preston said that because the proposed rule change is still in the public comment period, he could not discuss the matter in great detail. But he said that if FHA is forced to insure loans backed by seller-funded down-payment assistance, it would need to seek taxpayer assistance — even if upfront premiums were raised to 2.25 percent for all borrowers across the board. Historically, FHA loan guarantee programs have been self-sustaining through premiums collected by borrowers, but HUD now says it faces a $1.4 billion shortfall if it can’t implement the changes it seeks.
Mortgage applications up 7.5 percent
A survey that measures mortgage loan application volume showed an increase of 7.5 percent for the week ending July 4, after an adjustment to account for the holiday, the Mortgage Bankers Association reported. Refinance loan applications increased 8.7 percent from the week before, while purchase loan applications rose 6.7 percent. Conventional purchase loan applications were up 1.6 percent, and government-backed purchase loans (largely FHA) were up 19.8 percent.
Applications for refinance loans accounted for 37.3 percent of all applications, compared with 36.8 percent the week before. The adjustable-rate mortgage share of activity increased from 8.5 percent to 10 percent.
The average contract interest rate for 30-year fixed-rate mortgages increased to 6.43 percent from 6.33 percent, with points decreasing to 1.06 from 1.09 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 5.94 percent from 5.90 percent, with points increasing from 1.02 to 1.1 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year ARMs increased to 7.24 percent from 7.14 percent, with points decreasing to 0.26 from 0.31 (including the origination fee) for 80 percent LTV loans.
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