There is continued pressure on FHA, Fannie and Freddie to lower down payment requirements. Federal Housing and Finance Director Mel Watts, who has been a bright spot to lenders since taking over, did not include lower down payments in his strategic plan for 2014. The reason that many give for the agencies resisting lowering DP’s is the overall quality of appraisals. The federal agencies are very unsure of the quality of appraisals as delivered through the current AMC systems. Everyone is aware that the AMC’s take a big cut of the appraisal revenue leaving less than half for the appraiser. Many feel that appraisers in the AMC system(s) are lessor qualified and are being adversely selected because of their willingness to work for less. It is common knowledge that the AMC’s take up to ½ of the total appraisal fee.
We’re in a tough spot. The agencies found significant evidence of faulty value assessments and appraiser fraud on loans funded prior to 2009. While fraud has been significantly curtailed, accurate value assessments are still a concern and the agencies are not comfortable with the current level of accuracy.
When the agencies purchase a loan of $193,000 on a home valued at $200,000, they really need to be able to feel confident that the house is worth at least $200,000 on the day they funded the loan, as there is precious little equity with which to hedge a loss.
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Non-bank mortgage lenders are
increasing their direct sales to Fannie Mae and Freddie Mac. Fannie
purchased 475 (47.5%) of its business from non-bank mortgage lenders
last year, up from 33% in 2012. Freddie saw increases to 20% in 2013
vs 8% in 2012. This is, no doubt, in response to a sharp decline in
chartered bank mortgage originations during this same period. Both
agencies are looking harder at the financial stability of these
sellers than ever before. As a result, they have terminated several
relationships with smaller, lower capitalized mortgage bankers. I’m
feeling very secure (by) being a Division of PRMI, one of the
strongest capitalized mortgage bankers in the business.
FHA’s ability to sue Wells Fargo for
“reckless origination and underwriting practices, that caused FHA
to experience hundreds of millions of dollars in federal insurance
payouts” has been upheld by the U.S. Court of Appeals. Wells Fargo
had earlier entered into a 5 bank “limited settlement” of
approximately $5b with FHA on another FHA suit and maintained that
the settlement agreement in that case barred FHA from bringing
additional lawsuits against the San Francisco based mega bank. 3 of
the other 4 banks settled similar claims for about $2b.
We’re in a tough spot. The agencies found significant evidence of faulty value assessments and appraiser fraud on loans funded prior to 2009. While fraud has been significantly curtailed, accurate value assessments are still a concern and the agencies are not comfortable with the current level of accuracy.