Company News

Overview

Over the past several years FHA has seen a continued increase in certain higher-risk credit characteristics in mortgages it insures, including an increase in cash out refinances and mortgages with high debt-to-income (DTI) ratios, a decrease in average borrower credit scores and an increasing concentration of credit scores less than 640 combined with DTI ratios greater than 50 percent.
To address mortgages with higher-risk characteristics particularly when multiple risk factors are present, FHA has updated the TOTAL Mortgage Scorecard to manage the decrease in average borrower credit scores and the excessive risk layering that results when multiple risk factors are present.
Effective for all case numbers assigned on and after March 18, 2019, when Carrington Mortgage Services, LLC (CMS) submits a mortgage loan to the TOTAL Mortgage Scorecard via an automated underwriting system (AUS) CMS may receive feedback results indicating the loan file must be manually underwritten. In these cases, CMS must document the final underwriting review decision in accordance with existing FHA requirements for manually underwritten mortgages.

Last Week in Review: Complacency heading into spring

Volatility has disappeared in the financial markets and a sense of calm and complacency has emerged. Why?
Well thanks to the Fed, and inflation and higher rates not being a threat -- both Stocks and Bond prices are moving higher.
For 2019, home loan rates have been stable at one-year lows (look at the chart below), and everyone's stock portfolio is increasing in value. What's not to like?
Complacency will change to volatility at some point, and what we are watching is rising wages and how that may increase inflation in months to come.
Should that happen, we could experience a real shock to the US Bond market and the present complacent interest rate market will be over -- and in a hurry.
But for now, complacency is the theme as we head into the Spring housing market...meaning good times for us.

 
Last Week in Review: Disinflation washes up on our shores

If inflation moves lower or is expected to move lower -- rates must go lower as well. That's the situation right now.
The financial markets and interest rates also follow inflation on a global scale. Why is this important to homeowners?
If disinflation or the rate of inflation moderates in places like Europe, interest rates in those countries move lower and tend to drag US interest rates lower as well.
This past week we watched home loan rates revisit one-year lows upon news that the European Central Bank or ECB downgraded their economic outlook and inflation expectations.
The ECB said they now expect 2019 economic growth to come in at a paltry 1.1%, down sharply from a previous forecast of 1.7%. Moreover, ECB officials said inflation, which is already very low, could move lower still.
Again, if inflation moves lower in large countries around the globe -- we tend to see improvement in long-term US interest rates...that is the current trend.
Interest rates don't buy houses, jobs do!
The Bureau of Labor Statistics reported that just 20,000 jobs were created in February, well below expectations of 175,000. This was a disappointing number, but the unemployment rate fell to 3.8% and wages grew by 3.4% year over year...the highest level in a decade. Overall the labor market continues to expand and wages are rising -- all good news for housing.

On March 5, 2019, we asked our broker community about how much of their business is Non-QM. We're curious since there is so much talk in the broker and lending community about Non-QM right now and we wanted to see what you think the future will be. 316 people responded to our survey. Here are the averaged results. We think they are interesting and hope you do too.
Question: What percent of your February 2019 loan volume was Non-QM? 
Answer: 18%
Question: What percent of your total loan volume in all of 2019 do you anticipate will be Non-QM?
Answer: 26%
According to the respondents of this poll, brokers are expecting their Non-QM business to grow 44% from February through the end of the year! Wow! Are you ready for the change?

Last Week in Review: U.S. Economy showing solid growth.

This past week, the Bureau of Economic Analysis (BEA) reported the U.S. economy, as defined by Gross Domestic Product (GDP), grew at a 2.6% rate in the fourth quarter of 2018. Economists and the markets were expecting 2.0% to 2.3%, so this was a nice upside surprise.
This left GDP for all of 2018 at 2.9%. Consumer spending, which makes up nearly two thirds of GDP, expanded by a solid 2.8% in the fourth quarter - yet slower than the previous quarter.
Another solid number within the report was business investment which grew at a swift 6.2% pace.
This Q4 GDP reading was the first of three - so we will see some revisions in the months ahead.
Seeing the economy grow at such a nice clip despite high stock market volatility and the U.S. government shutdown is a good sign as we head into the spring housing market.
The increased wealth effect caused by the recent rally in Stocks along with one-year lows on home loan rates, rising wages and increased housing inventory sets the stage for an improved 2019 housing market.

Back by Popular Demand!

Carrington Mortgage Services, Wholesale Lending Division is offering to waive the underwriting fee on ALL Non-QM* submissions in the month of March. Whether you submit 1 or 100 loans, the underwriting fee ($650 in most states) will be waived!

Bonus: The Slamdunk Offer!

In by 10 and out Same Day**

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 the end of the day. How’s that for fast?
With lower costs and faster service, the Carrington Team is committed to making March very successful for all.
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*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 Windsor office by 10 a.m. Eastern Time will be completed by end of day (EDT); submissions to our Anaheim office by 10 a.m. Pacific time will be completed by end of day (PDT).
***Please see the Carrington Advantage Products Loan Submission Form.

Last Week in Review: Minutes Revealed
The highlight of this past week was the Fed Minutes from the January Fed Meeting. The Minutes are a detailed record of the Fed's monetary policy setting meeting, so the markets gain insight into the psyche of the Fed as it relates to interest rates, the economy and more.
What the markets heard loud and clear from the meeting Minutes was Patience -- meaning, the Fed is in no rush to hike interest rates and they will watch the incoming economic data to determine when they might hike again. There is now a low probability for another hike in 2019.
What are the most important reports the Fed is watching which can influence rates?

• Gross Domestic Product
• Inflation (big report next week -- more on that below)
• Jobs Report
• Consumer Confidence
• Retail Sales

In response to the Minutes, mortgage bond prices and thus home loan rates are hovering near the best levels in a year.

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.

Overview
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 lockdesk@carringtonms.com.

Overview

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.

Comparison Disclosure

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

Fee Recoupment

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.

Loan Seasoning

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