FHFA and Lender Overlays

Mortgage lenders met at the White House with the administration and Mel Watt, Chairman of FHFA. The discussion centered around lender overlays that have been imposed in an effort to safeguard against loan re-purchase requests from the GSE’s for minor procedural mistakes and documentation errors that do not necessarily reflect on the borrowers’ ability to repay.

It appears that Mr. Watt will be allowing the mortgage industry a 3 year sunset period in which a 3rd party will evaluate GSE claims for re-purchase with regard to whether or not the lender made significant errors in documentation collection, credit evaluation or solving to an ability to repay.

I, for one, recently paid over $80,000 in costs to scratch & dent a loan file for re-sale that had been current for 3 years, went delinquent, was allowed to modify by the loan servicer, went into delinquency once again and finally was foreclosed upon.  I was told that an audit showed that we had made a material error in our credit analysis.

So, after 3 years of paying as agreed, the borrower loses his job, goes into foreclosure and it was deemed that a faulty credit evaluation on our part had led to the loss.

It doesn’t appear that this will happen as easily with the new agreement from Mr. Watt and the FHFA.  Couldn’t have come too soon for me.  The pendulum appears to be moving closer to center.

A less draconian and  more common sense approach to identifying the causes of loan non-performance will be welcomed by the entire mortgage industry.

Foreclosure Inventory

Core Logic reports that 4.4% of all home loans in America were seriously delinquent in May, however, this number is down 23.9% from May, 2013. 660,000 homes are currently in foreclosure, down from a million in 2013. The reduction of foreclosure inventory is most evident in states with non-judicial foreclosure laws. Foreclosure inventory in these states, as a percentage of total mortgages in place, is half of what it is in states that require a judicial foreclosure process.

Foreclosures Down, Still Long Way To Go

Foreclosures stood at 47,000 in May, down for the 31st straight month and at their lowest level since 2007. While things are certainly moving in the right direction, it is sobering to note that prior to 2006 the average foreclosures per month were 21,000, so we still have a long way to go.