Last Week in Review: Canary in the coalmine.
The financial markets are sensing a government shutdown and protracted trade war with China will be averted. This is good news and a reason why Stocks have continued to push higher and home loan rates have capped for the past few weeks.
But last Thursday, Retail Sales was reported at a shocking 9-year low. Combing through the report, a 3.9% decline in internet purchases was a huge negative surprise. With consumer spending making up nearly 70% of GDP, there is fear in the markets that this very poor Retail Sales number is an early warning sign that both consumer spending and thus economic growth are indeed slowing.
One thing we know for sure — Bonds love uncertainty and bad news. This Retail Sales report brought both and, as a result, pushed prices and home loan rates near the best levels in a year.
We will be watching future Retail Sales reports to see if this is just one bad report or the start of a negative trend.
In any case, reports like these support the Fed to not raise rates in 2019.
The Carrington Mortgage Services, LLC (CMS) Lock Desk will be closed on Monday, February 18, 2019 for Presidents Day, which is a Federal Holiday. Normal lock hours will resume on Tuesday, February 19, 2019.
Locks that expire on the holiday will automatically roll to the next business day. In addition, there are some important disclosure considerations associated with the holiday:
- Monday, February 18, 2019 cannot be included in the rescission period for refinance transactions.
- Monday February 18, 2019 cannot be included in the seven (7) business day waiting period between the date the initial Loan Estimate (LE) was provided to the borrower and the consummation of the loan
- When re-disclosure of the LE is required, Monday, February 18, 2019 cannot be included in the four (4) business day waiting period between the date the revised LE was provided to the borrower and the consummation of the loan.
- When re-disclosure of the CD is required, Monday, February 18, 2019 cannot be included in the three (3) business day waiting period between the date the revised CD was provided to the borrower and the consummation of the loan.
Issues related to locks should be sent via email to firstname.lastname@example.org.
On December 17th, 2018, the Veteran’s Administration (VA) published an Interim Final Rule addressing VA guaranty requirements for cash-out refinance loans. The rule will be effective for loan applications taken on or after February 15th, 2019 and applies to all Full Doc refinance loan transactions (even if the existing loan is NOT a VA loan). The rule does not apply to VA IRRRL loans.
This rule change is intended to ensure Veteran borrowers continue to have access to responsible credit options for refinancing. In addition, the rule provides Veteran borrowers with sufficient information regarding the impact of a refinance loan on their current and future financial position. Highlights of the new rule include:
- New Comparison Disclosure form
- New Total Loan to Value (TLTV) calculation limited to 100% TLTV
- Expanded Net Tangible Benefit options
- Recoupment Certification only required on VA to VA Rate/Term refinances
Note: Loan Seasoning requirements are not changed.
The Comparison Disclosure within three (3) days of loan application and at closing. The Veteran borrower is required to sign and acknowledge receipt of the form.
The disclosure shows the refinancing loan passes NTB and provides a comparison of key loan characteristics for the existing and refinancing loan, including:
- Current Balance (UPB) vs. New Loan Amount
- Amortization type (Fixed/ARM) for Prior and New Loan
- Interest rate (Prior/New)
- Loan term (Remaining vs. New Term)
- Total amount the Veteran will have paid after making all payments as scheduled (Prior/New)
- LTV (Based on UPB versus Note Amount)
- Home equity being removed from property
To comply with the three (3) day disclosure requirement:
Broker Disclosed loans: Brokers are required to meet the requirements and provide the Comparison Disclosure dated within three (3) days of application. CMS will ensure compliance at Submission Acceptance or reject the loan submission.
CMS Disclosed loans: CMS will complete NTB form. If any required data elements are missing, CMS will condition the broker and cannot accept the submission until the missing items are received.
Total Loan-to-Value (TLTV)
Under the rule, the LTV is now calculated based on the total loan amount and not the base loan amount, resulting in a higher TLTV when there is a funding fee. VA will no longer guaranty refinancing loans when the TLTV exceeds 100 percent; therefore, it may be necessary to reduce the loan amount to qualify or if the Veteran borrower chooses to close a loan in which the loan amount exceeds 100 percent of the reasonable value of the property, they must pay the amount which exceeds 100 percent of the property value at loan closing.
New TLTV Calculation: Divide the total loan amount (including VA funding fee, if applicable) by the reasonable value on the Notice-of-Value (NOV) of the property determined by the appraiser.
Net Tangible Benefit (NTB) Requirements
All cash-out refinance loans must pass NTB. The refinancing loan must satisfy at least one of the following:
- Eliminate monthly mortgage insurance
- Decrease the loan term
- Decrease monthly (P&I) payments (changes from PITI to PI Only)
- Reduce the interest rate
- Maintain TLTV equal to or less than 90%
- Refinance an interim construction loan
- Increase monthly residual income
- Refinance from an adjustable-rate loan to a fixed-rate loan
Recoupment is only required on VA to VA Rate/Term refinance transactions.
Recoupment Calculation – Divide all fees, closing costs, expenses, and incurred costs (excluding taxes, escrow, insurance, and like assessments), by the reduction of the monthly principal and interest payment as a result of the refinance. If the loan being refinanced has been modified, the principal and interest reduction must be computed / compared to the modified principal and interest monthly payment.
The rule does not affect existing loan seasoning requirements and all VA-guaranteed cash-out refinance loans must be seasoned for a period of time. The required seasoning is the later of:
- The date that is 210 days after the date on which the first payment is made on the loan, and;
- The date on which the sixth monthly payment is made on the loan
Special February Promotion
We have a sweetheart of a deal for you!
Carrington Mortgage Services, Wholesale Lending Division is offering to waive the underwriting fee on ALL Non-QM* submissions in the month of February. Whether you submit 1 or 100 loans, the underwriting fee ($650 in most states) will be waived.
In by 10 and out by 5**
For any full submission*** received in underwriting by 10 a.m., we will commit to have a same day turnaround and have a response to you by 5 p.m. How’s that for fast?
February is a short month, but with lower costs and faster service, the Carrington Team is committed to making February very successful for all.
Already an approved broker?
*Carrington Flexible Advantage (Non-QM) product requirements vary depending on the consumer’s credit grade, LTV, DTI, and FICO scores and may require reserves from 3 to 6 months. Ask your Account Executive for additional details and requirements. Not available in MA and ND. No cash out in TX.
**Submissions to our Westfield office should be completed by 10am Eastern Time; submissions to our Anaheim office should be completed by 10am Pacific Time.
***Please see the Carrington Advantage Products Loan Submission Form.
Last Week in Review: No rate hikes in 2019. Who wins?
Stocks continued to react positively to Fed Chair Powell’s Jan 4th speech, where he essentially said, “we have your back”…meaning that the Fed will be flexible and may not raise rates at all in 2019.
There is an old saying in the financial markets – “don’t fight the Fed.” This means that if the Fed is saying or doing something (hinting no rate hikes) that helps Stocks, that theme will continue until the story changes.
Typically, when stocks move higher, so do long-term rates, like home loans. And this past week, we saw the recent nice trend of lower rates get disrupted.
Even though the recent trend of lower rates, the lowest since the Spring, is very much at risk – we should not expect long-term rates to move too high. Why? Inflation is not a threat.
Fed President Bullard, also said he expects inflation to be near current levels for the next FIVE years. If that is the case, home loan rates will remain relatively attractive for longer than most expect.
Last Week in Review:
Apple, Congress negate solid jobs numbers
I-Phone maker, Apple, was a downer this week as the company announced a surprise weak sales and earnings forecast for the first quarter of 2019.
Stocks and interest rates fell on the bad news, concerned that Apple, the first big tech firm to report weak growth in 2019, is the canary in the coalmine and that more companies will report weaker sales and earnings.
Regardless of Apple’s current woes, the U.S. economy is still humming along as was evident in Friday’s Jobs Report which showed an eye-popping 312,000 jobs created in December.
Adding to the good news in the Jobs Report was a 3.2% hike in wage gains year over year – the highest level in a decade.
Remember, jobs buy houses, not rates, so the positive jobs numbers and wage growth are great for housing.
But while we are on the subject of rates, the bad Apple news helped rates improve again this week to the lowest levels in nearly a year.
Rates have been steadily improving since early November. What happened in early November? Congress became divided. Bonds and home loan rates love uncertainty, chaos, stalemates and bad news – Congress can provide plenty of it from time to time.