The planned tweaks in mortgage put-back rules won’t draw major mortgage companies into offering loans to lower FICO borrowers, according to a client note from Sterne Agee, even though new Federal Housing Finance Agency plans to develop 95-97% LTV loans are a positive.
“In his speech to the MBA (FHFA Director) Mel Watt acknowledged that concerns and past issues surrounding rep and warranties were causing originators to operate with credit overlays that are driving up the cost of borrowing and restricting access to mortgage credit to borrowers with less than perfect credit scores,” writes Henry Coffey, analyst with Sterne Agee. “His remarks today focused on the life of loan exclusion issue, but we would be surprised to see if these clarifications will draw lenders back to the credit-impaired and first-time borrowers. As we have said before, nobody's taking the bait.”
On the issue of 3-5% down mortgages, Coffey was mildly positive.
“The development of this program, combined with what today is a sub 4.00% mortgage market, should open up some significant doors for companies like Nationstar and Walter that are actively mining their existing servicing book for borrowers who have seen an improvement in their credit profiles or who have seen an improvement in loan to value ratios due to home price appreciation,” he writes.
As expected, Coffey notes, Ginnie Mae's required net worth rules focus on the servicer, not holding company level.
“GNMA increased its required adjusted net worth levels at the servicer level from 20 bps of total outstandings (= servicing levels) to 35 bps (+$2.5 million) and increased its liquidity requirement to the greater of $1 million or 10 bps of outstandings,” Coffey writes. “In our analysis we looked at likely capital requirements based on total estimated levels of Fannie, Freddie, and GNMA or government servicing. All three of the special servicers have the required levels of capital in our view and nowhere in the release was there any mention of required, holding company level tangible common equity (as many had feared).”