Credit Suisse brings fourth jumbo RMBS to market | 2014-01-31 | HousingWire


81% of loans come from Shellpoint’s New Penn

Credit ratings agency DBRS assigned mostly triple-A to a prime, jumbo residential mortgage backed securitization issued by Credit Suisse [CS]. The trust is called CSMC Trust 2014-IVR1. The triple-A credit enhancement is 6.85%.

This is the fourth deal issued by CS since the housing recovery began.

The deal is backed by 398 prime residential mortgage loans with a total principal balance of $287 billion.

The originators for the mortgage pool are primarily New Penn Financial at nearly 81%.

The loans will be serviced by Select Portfolio Servicing.

Wells Fargo [WFC] will act as the master servicer.

DBRS notes the deal bears some semblance to pre-crisis jumbo RMBS.

The representations and warranties are backstopped by a wholly owned subsidiary of Credit Suisse.

“DBRS views the representation and warranties features for this transaction to be consistent with recent DBRS-rated CSMC prime jumbo transactions, and of stronger quality than that of two previous Credit Suisse prime jumbo transactions (CSMC 2012-CIM3 & CSMC 2013-TH1),” said DBRS in its presale report.

“However, the relatively weak financial strength of certain originators coupled with the sunset provisions on the backstop by DLJMC still demand additional penalties and credit enhancement protections,” DBRS warned.

Jacob Gaffney
Jacob Gaffney is the Executive Editor of HousingWire and He previously covered securitization for Reuters and Source Media in London before returning to the United States in 2009. While in Europe for nearly a decade, he covered bank loans and the high yield market, in addition to commercial paper, student loan, auto and credit card space(s). At HousingWire, he began focusing his journalism on all aspects of the housing and mortgage markets.

Why the Homeownership Rate Is Misleading

Jed Kolko, chief economist and vice president for analytics at Trulia.

Jed Kolko is chief economist and vice president for analytics at Trulia, an online marketplace for residential real estate.

On Friday, the Census Bureau will remind us that the homeownership rate is at or near an 18-year low. After rising to an all-time high of 69.2 percent in 2005 near the height of the housing bubble, the homeownership rate fell to 64.9 percent in 2013, the lowest level since 1995. This drop represents millions of people who lost homes to foreclosure, can’t get a mortgage or haven’t been able to save for a down payment. Furthermore, the homeownership rate is likely to fall further before hitting bottom. Shouldn’t we be panicking that the American dream of homeownership is drifting out of reach?

Nope. At this stage of the housing recovery, the falling homeownership rate turns out to be misleading. In fact, for young adults, who were hit especially hard in the recession and housing crisis, the decline in their homeownership rate might paradoxically be a sign of improvement. The rate can mislead in the other direction, too: During the worst of the housing crisis, the falling homeownership rate clearly understated the damage done.

Source: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics). Source: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics).

Let me explain. Households can be one of two things: owners or renters. The homeownership rate equals the share of households that are owners. But look at people instead of households, and people have a third option: living under someone else’s roof. When young adults live with their parents, or older people live with their grown children, or people live with housemates, they count as part of someone else’s household. Those people are technically neither owners nor renters, and they don’t count in the homeownership rate. That’s why the homeownership rate can mislead: It omits people who are not in the housing market themselves as owners or renters.

This is similar to the better-known shortcoming of the unemployment rate, which doesn’t count people who are “not in the labor force” for various reasons, including having given up looking. As we know, the unemployment rate understated the weakness in the job market during and after the recession because more people dropped out of the labor force. To get the full view of the job market, economists look not only at the unemployment rate, but also at labor force participation.

A simple illustration shows how the homeownership rate can mislead. Suppose you have 10 friends, each living alone; five own their homes and five rent. The homeownership rate among this group is 50 percent. Then, one homeowner loses the house to foreclosure, and three renters lose their jobs and can’t afford to keep their own apartment. These four people all move in with one of the remaining homeowners. Now there remain four homeowners (one of whom is doing lots of laundry and dishes) and two renters, which means the homeownership rate went up to four out of six, or 67 percent. The homeownership rate missed the real story, which is that four of 10 dropped out of the housing market and are now couch-surfing.

When the homeownership rate steers us wrong, the “headship rate” — housing’s answer to the labor force participation rate – can come to the rescue. It’s the percent of adults who head a household. Put another way, it is the ratio of households to adults. If there are 200 million adults living in 100 million households, the headship rate is 50 percent. A higher headship rate means fewer adults, on average, per household. Over the longer term, demographics explain shifts in the headship rate (and in labor force participation, for that matter). An aging population, for instance, typically increases the headship rate because older adults are more likely to head their household than younger adults are because many young adults live in their parents’ home or with housemates.

In the short term, though, economic swings affect the headship rate, just as they affect labor force participation. When people lose their home to foreclosure or can no longer pay the rent and move in with someone else, the headship rate falls. When they get back on their economic feet and move out of their parents’ or roommate’s home into their own place – either as an owner or a renter – the headship rate rises.

Let’s go to the numbers. The headship rate can be calculated from two different government surveys, the Annual Social and Economic Supplement of the Current Population Survey, a joint project of the Census Bureau and the Bureau of Labor Statistics, and the American Community Survey compiled by the Census Bureau. To the frustration of housing economists, these surveys sometimes show inconsistent trends. Among other differences, the latest Current Population Survey is more recent, but the American Community Survey is based on a much larger sample.

Sources: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics) and American Community Survey (Census Bureau). Sources: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics) and American Community Survey (Census Bureau).

The headship rate peaked just before the height of the housing bubble, reaching 52.3 percent in 2003 and then falling to 51.2 percent in 2010, according to the Current Population Survey; the American Community Survey showed a similar decline over the period 2006-10. That drop in the headship rate translates into 2.5 million fewer households in 2010 than there would have been if the headship rate hadn’t fallen. That means that the decline in actual homeownership was steeper than the homeownership rate alone showed. The rate fell by 3.2 percent, but the actual share of all adults who owned a home dropped 4.9 percent — half again as much – because people dropped out of the housing market altogether.

Since 2010, the trend in the headship rate is murkier. The Current Population Survey shows an increase in the headship rate in 2011, 2012 and 2013, while the American Community Survey shows continued decline in 2011 and a near-flattening in 2012, the most recent survey. That means people have either started returning to the housing market or, at least, are dropping out at a slower rate.

Looking at the headship rate is especially important to understand what happened to young adults. The headship rate for 18- to 34-year-olds dropped three times as much as for adults over all, largely because the share living with their parents climbed to the highest level in decades. But this trend has either slowed or reversed. The survey shows that the number of young homeowners has stabilized (adjusting for population growth), and the number of young renters rose by 3 percent as young adults have slowly begun to move out of others’ homes and re-enter the housing market from 2011 to 2013. (The American Community Survey shows their headship rate still falling through 2012, but by less than in the several years prior.)

In fact, the headship rate is the key to how much the housing recovery contributes to economic growth. The headship rate and the population determine the total number of households, so a rise in the headship rate means more new households, all else equal. New household formation stimulates construction activity, and construction adds jobs and investment to the economy. Builders have already increased construction to keep pace with new rental demand: 2013 saw construction begin on the most new rental apartment units in 15 years.

Headship is poised to increase. Young adults still living with their parents won’t do so forever, and the Current Population Survey headship rate in 2013 – even with its recent rise — is still below its 20-year average. That will prompt more new construction. Of course, an increasing headship rate isn’t necessarily a good thing: at the extreme, a 100 percent headship rate would mean that each adult has his or her own household, either alone or with children. That would make for a huge construction boom but a lot of loneliness. Age, marital patterns and even cultural preferences all affect living patterns: Among those 65 or older in the United States, for instance, the foreign-born are four times as likely as the native-born to live with relatives rather than in their own household.

How soon will homeownership recover? It depends on job and income growth, mortgage credit availability, affordability and more. But today, since many young adults are still living with their parents, let’s watch first for an increase in the headship rate. And we should not be alarmed by the falling homeownership rate if it’s falling because people are renting their own place instead of living in someone else’s.

Higher Rates Should Lead to ARM Resurgence Freddie Mac Says

Jan 28 2014, 12:08PM

Adjustable rate mortgages remain at historic lows Freddie Mac said today as the company released results of its 30th Annual Adjustable-Rate Mortgage (ARM) Survey of prime loan offerings.  The 1-year ARM has remained essentially unchanged since last year’s survey while initial period rates on hybrid loan products rose. This, Freddie Mac said, largely reflects term structure movements in the rest of the capital markets and the Federal Reserve’s monetary policy, which has kept the federal funds rate and other short-term interest rates exceptionally low while allowing a rise in medium- and longer-term interest rates from last year.

Hybrid ARMs have a fixed rate for an initial period ranging from three to 10 years and then adjust annual thereafter.  Nearly all of the ARM lenders participating in the survey offered a hybrid with the 5/1 far and away the most common of the products both in terms of availability and use, followed by the 3/1, the 7/1 and the 10/1.  Less common are ARMs with longer repricing periods such as a 5/5 which features rate adjustments every five years for the life of the loan.

The survey, which was conducted January 6 to January 10, showed that the largest rate increases were for hybrids with longer initial fixed-rate periods.  The 7/1 ARM rose by 0.71 basis points  from last year and the 10/1 was up 0.76 basis points.

The savings in early January 2014 for a borrower taking a 30-year 5/1 hybrid ARM instead of a 30-year fixed rate mortgage (FRM) was about 1.36 percentage points.  This would result in a monthly principal and interest payment during the first five years that is about $194 less than for the fixed rate for a $250,000 loan.

Frank Nothaft, Freddie Mac vice president and chief economist said, “Homebuyers have preferred fixed-rate mortgages the past few years because of the low interest rates and the certainty of the monthly principal and interest payment. As longer-term rates rise, ARMs with their lower initial interest rates will become more appealing to loan applicants. Hybrid ARMs are particularly attractive because they have an initial extended fixed-rate period of 3 to 10 years.”

Freddie Mac surveyed 106 ARM lenders and found that 84 offered ARMS indexed to Treasury bills and 22 offered London Interbank Offered Rate (LIBOR)-indexed ARMs.  The company said that generally large national lenders offered LIBOR based loans while community and regional lenders were more likely to offer those based on Treasury indices.  Thus, even though offered by fewer lenders, the LIBOR-based product accounted for more than one-half of ARM originations. LIBOR-indexed ARMs generally had a lower margin (about 0.5 percentage points lower) than Treasury-indexed ARMs, a similar initial interest rate, but a higher index rate (about 0.5 percentage points higher).

Why Verbal Tee-Ups Like ‘To Be Honest’ Often Signal Insincerity


Elizabeth Bernstein
Jan. 20, 2014 5:39 p.m. ET

James W. Pennebaker, of the University of Texas, Austin, says these phrases are a form of dishonesty


Use of conversational ‘tee-ups’ can obscure what you are trying to say, but also may signal that you are being insincere. Adam Doughty

A friend of mine recently started a conversation with these words: “Don’t take this the wrong way…”

I wish I could tell you what she said next. But I wasn’t listening—my brain had stalled. I was bracing for the sentence that would follow that phrase, which experience has taught me probably wouldn’t be good.

Many people use verbal “tee-up” phrases like “to tell you the truth…”. Elizabeth Bernstein discusses when they’re useful and when they’re a bad idea, and guest Betsy Schow shares her personal experience of being on the wrong side of a tee-up. Photo: Getty.

Certain phrases just seem to creep into our daily speech. We hear them a few times and suddenly we find ourselves using them. We like the way they sound, and we may find they are useful. They may make it easier to say something difficult or buy us a few extra seconds to collect our next thought.

Yet for the listener, these phrases are confusing. They make it fairly impossible to understand, or even accurately hear, what the speaker is trying to say.

Consider: “I want you to know…” or “I’m just saying…” or “I hate to be the one to tell you this…” Often, these phrases imply the opposite of what the words mean, as with the phrase, “I’m not saying…” as in “I’m not saying we have to stop seeing each other, but…”

Take this sentence: “I want to say that your new haircut looks fabulous.” In one sense, it’s true: The speaker does wish to tell you that your hair looks great. But does he or she really think it is so or just want to say it? It’s unclear.

Language experts have textbook names for these phrases—”performatives,” or “qualifiers.” Essentially, taken alone, they express a simple thought, such as “I am writing to say…” At first, they seem harmless, formal, maybe even polite. But coming before another statement, they often signal that bad news, or even some dishonesty on the part of the speaker, will follow.

“Politeness is another word for deception,” says James W. Pennebaker, chair of the psychology department of the University of Texas at Austin, who studies these phrases. “The point is to formalize social relations so you don’t have to reveal your true self.”

In other words, “if you’re going to lie, it’s a good way to do it—because you’re not really lying. So it softens the blow,” Dr. Pennebaker says.

Of course, it’s generally best not to lie, Dr. Pennebaker notes. But because these sayings so frequently signal untruth, they can be confusing even when used in a neutral context. No wonder they often lead to a breakdown in personal communications.

Some people refer to these phrases as “tee-ups.” That is fitting. What do you do with a golf ball? You put it on a peg at the tee—tee it up—and then give it a giant wallop.

Betsy Schow says she felt like she was “hit in the stomach by a cannonball” the day she was preparing to teach one of her first yoga classes. A good friend—one she’d assumed had shown up to support her—approached her while she was warming up. She was in the downward facing dog pose when she heard her friend say, “I am only telling you this because I love you…”

The friend pointed out that lumps were showing beneath Ms. Schow’s yoga clothes and said people laughed at her behind her back because they thought she wasn’t fit enough to teach yoga. Ms. Schow had recently lost a lot of weight and written a book about it. She says the woman also mentioned that Ms. Schow’s friends felt she was “acting better than they were.” Then the woman offered up the name of a doctor who specializes in liposuction. “Hearing that made me feel sick,” says Ms. Schow, a 32-year-old fitness consultant in Alpine, Utah. “Later, I realized that her ‘help’ was no help at all.”

Tee-ups have probably been around as long as language, experts say. They seem to be used with equal frequency by men and women, although there aren’t major studies of the issue. Their use may be increasing as a result of social media, where people use phrases such as “I am thinking that…” or “As far as I know…” both to avoid committing to a definitive position and to manage the impression they make in print.

“Awareness about image management is increased any time people put things into print, such as in email or on social networks,” says Jessica Moore, department chair and assistant professor at the College of Communication at Butler University, Indianapolis. “Thus people often make caveats to their statements that function as a substitute for vocalized hedges.” And people do this hedging—whether in writing or in speech—largely unconsciously, Dr. Pennebaker says. “We are emotionally distancing ourselves from our statement, without even knowing it,” he says.

So, if tee-ups are damaging our relationships, yet we often don’t even know we’re using them, what can we do? Start by trying to be more aware of what you are saying. Tee-ups should serve as yellow lights. If you are about to utter one, slow down. Proceed with caution. Think about what you are about to say.

“If you are feeling a need to use them a lot, then perhaps you should consider the possibility that you are saying too many unpleasant things to or about other people,” says Ellen Jovin, co-founder of Syntaxis, a communication-skills training firm in New York. She considers some tee-up phrases to be worse than others. “Don’t take this the wrong way…” is “ungracious,” she says. “It is a doomed attempt to evade the consequences of a comment.”

Her advice is either to abort your speaking mission and think about whether what you wanted to say is something you should say, or to say what you want to say without using the phrase. “Eliminating it will automatically force you to find other more productive ways to be diplomatic,” Ms. Jovin says.

“To be perfectly honest…” is another phrase to strike from your speech, she says. It often prefaces negative comments, and can seem condescending. It signals a larger issue: If you are taking the trouble to announce your honesty now, maybe you aren’t always truthful.

“You are more likely to seem like someone who is perfectly honest when you are no longer commenting on it,” Ms. Jovin says.

—Write to Elizabeth Bernstein at or follow her at or

Worst rental affordability crisis that this country has known – Yahoo Homes




Since the housing crisis began in 2008, approximately 4.6 million homes were lost to foreclosure, according to CoreLogic. The vast majority of those homeowners became renters. Even as housing recovered, credit tightened, pushing even more potential buyers out of homeownership and into rentals, both apartments and single-family rental homes.

There are now 43 million renter households, or 35 percent of all U.S. households, the highest rate in over a decade for all age groups, according to Harvard’s Joint Center for Housing Studies; 4 million more renters today than there were in 2007. For those aged 25 to 54, rental rates are the highest since the center began record keeping in the early 1970s.

As a result, rental vacancies have fallen dramatically, and rents have skyrocketed.

“We are in the midst of the worst rental affordability crisis that this country has known,” said Shaun Donovan, U.S. Secretary of Housing and Urban Development.

Half of all U.S. renters today pay more than 30 percent of their incomes on rent. That’s up from 18 percent a decade ago, according to the Harvard center. For those in the lowest income brackets, the jump is even worse.

“Over four years, a 43 percent increase in the number of Americans with worst-case housing needs,” said Donovan. “Let’s be clear what that means, they’re paying more than half of every dollar they earn for housing.”

The numbers are not lost on Annie Eccles, who is in her late 20s. She has been renting for over two years, and the rent on her Bethesda, Md., apartment has increased by the maximum the county allows every year.

“It’s frustrating because we pay for rent, we also pay for parking, and just knowing that every June it’s going to increase significantly, it’s frustrating,” said Eccles.

And Eccles pays almost as much each month on student loan debt as she does in rent. Put together, it makes it very hard for her and her husband to save up enough to buy a home of their own.

“It would be hard buying in this area, just because it’s so expensive,” she added.

Most younger Americans, like Eccles, want to be homeowners someday. While so-called millennials favor mobility and city living, they still see homeownership as a goal.

“Nineteen out of 20 people that are surveyed say that they intend to buy a home at some point in the future, if they’re under the age of 30,” said Eric Belsky, director of Harvard’s Joint Center for Housing Studies. “There is no question that the will toward homeownership remains there, it’s the way.”

Home prices are rising faster than expected, due to heavy investor demand, ironically in single-family rental housing. While more than 3 million owner-occupied homes are now investor-owned rentals, there is still a lack of supply in the market. New rental stock is coming soon, but demand is not easing. Renters may want to be buyers, but many still can’t, due to rising home prices and mortgage rates.

“You add in other things, like higher student debt for many people, you add in the fact that incomes for low- and moderate-income people have not been going up as fast as inflation, and you have a situation where it’s going to be very difficult to buy homes,” said Belsky.

How QM Harms Homeowners -House Committee Hearing

Jan 14 2014, 4:14PM

The House Financial Services Committee heard testimony from five persons, almost all representing mortgage lenders, at a hearing today entitled How Prospective and Current Homeowners Will Be Harmed by the CFPB’s Qualified Mortgage Rule.  Given the title of the hearing it is not surprising that four of the five spoke out against the regulations.

Jack Hartings, President and CEO of The Peoples Bank Company and Vice Chairman of the Independent Community Bankers of America told the committee that reform of QM is a key plank of ICBA’s Regulatory Relief Agenda.

Mortgage lending by community banks represents approximately 20 percent of the national mortgage market and is often the only source of mortgage lending in the small communities they serve, he said.  The 20 percent actually understates the significance of their mortgage lending as they make a larger share of their home purchase loans to low-or moderate-income borrowers or borrowers in low- or moderate-income neighborhoods and make a larger share of home purchase loans than loans for other purposes such as refinancing or home improvement.

Hartings said there is question that the QM rule will adversely affect his own bank’s mortgage lending even though it qualifies as a small creditor making fewer than 500 mortgage loans annually and having less than $2 billion in assets.  “Even though my asset size is well below the $2 billion, in 2012 I made 493 mortgage loans.  We believe this threshold is far too low and is not consistent with the asset threshold.”   He later pointed out that such low thresholds could prevent his bank from expanding its lending as the economy recovers.

Non-QM loans will be subject to significant legal risk under the Ability to Repay (ATR) rule and the liability for violations is draconian, he said.   Non-compliance with ATR could also serve as a defense to foreclosure if the loan is deemed not to be a QM loan and small community banks do not have the legal resources to manage this degree of risk. Thus these banks, he said, will not continue to make some of the loans they have made in the past such as low dollar amount loans, balloon payment mortgages, and higher priced mortgage loans.

The full impact of ATR goes beyond QM compliance as banks must still analyze each loan for ATR compliance, a costly and time consumer procedure.  It is necessary to expect that regulators will want to see documentation of the eight ATR underwriting factors and if they are not sufficient the asset could be downgraded and subject to high capital requirements.

Without “small creditor” status, he said, his loans will be subject to a 43 percent debt-to-income limitation, a lower price trigger for “high cost” QM status which carries higher liability risk, and restrictions on balloon loans.  ICBA is urging Congress to raise the loan volume threshold. The problem could be easily addressed by disregarding loans sold into the secondary market in applying the threshold,” Hartings said.

Daniel Weickenand CEO, Orion Federal Credit Union testifying on behalf of The National Association of Federal Credit Unions said that credit unions have always been some of the most highly regulated of all financial institutions, facing restrictions on who they can serve and their ability to raise capital and the Federal Credit Union Act has strict consumer protection rules.  Despite the fact that they were not the cause of the financial crisis, they are still firmly within the regulatory reach of rules promulgated by CFPB.

The impact of this growing compliance burden is evident as the number of credit unions continues to decline, he said, dropping by more than 900 institutions since 2009.  One cause of this decline is the increasing cost and complexity of complying with the ever-increasing onslaught of regulations.  “We remain concerned about the QM standard and that this rule will potentially reduce access to credit and hamper the ability of credit unions to continue to meet their member’s needs,” he said.

A number of mortgage products sought by credit union members and offered by credit unions are non-QM loans and may disappear from the market.  He said a forty-year mortgage loan, a product sought by credit union members in high costs areas, exceeds the maximum loan term for QMs, and because of a problematic definition, a number of credit unions make mortgage loans with points and fees greater than 3% because they can leverage relationships with affiliates to get the best deal for their members.

Because a credit union will not receive any presumption of compliance with the ability-to-repay requirements for a non-QM loan, the least risk to credit unions would be to originate only QM loans.  His own credit union, Weickenand said, has decided to go that route and a recent NAFCU survey revealed that a majority of credit unions will cease or greatly reduce their offerings of non-QMs.

Weickenand said that NAFCU strongly supports bipartisan pieces of legislation in the House (H.R. 1077/ H.R. 3211) to alter the definition of “points and fees” prescribed by the QM standard and an exemption from the QM cap on points and fees: (1) affiliated title charges, (2) double counting of loan officer compensation, (3) escrow charges for taxes and insurance, (4) lender-paid compensation to a correspondent bank, credit union or mortgage brokerage firm, and (5) loan level price adjustments which is an upfront fee that the Enterprises charge to offset loan-specific risk factors such as a borrower’s credit score and the loan-to-value ratio.

Like Hartings, he supports an increase in the exemption’s asset size and 500 mortgage thresholds.  He said many credit unions are approaching one or both thresholds which will render the small lender exemption moot for them.

The Association also believes that all mortgages held in portfolio should be exempt from the QM rule not just small credit unions and would like to be able to continue to offer mortgages of 40 years or less duration as QMs.  NAFCU also supports Congress directing the CFPB to revise aspects of the ‘ability-to-repay’ rule that dictates a consumer have a total debt-to-income (DTI) ratio of 43 percent or less which will prevent otherwise healthy borrowers from obtaining mortgage loans and will have a particularly serious  impact in rural and underserved  areas where consumers  have  a limited number of options.

Bill Emerson, CEO of Quicken Loans and Vice Chairman of the Mortgage Bankers Association spoke on behalf of the trade group, starting his testimony by saying, “I can tell you categorically that Quicken Loans, like the overwhelming majority of lenders, will not lend outside the boundaries of QM. In fact, even if we wanted to, we wouldn’t be able to make non-QM loans because there is no discernible secondary market for them. The only place these loans can be kept is on a bank’s balance sheet.”

“Beyond that, the liability for originating non-QM is simply too great. Claimants can sue for actual and statutory damages, as well as a refund of their finance charges and attorney’s fees, and there is no statute of limitations in foreclosure claims. By MBA’s calculations, protracted litigation for an average loan can exceed the cost of the loan itself.

Given this uncertainty, at least for the foreseeable future he said non-QM lending is likely to be limited to three categories; loans where there are unintended mistakes, higher balance and non-traditional loans to wealthier borrowers, and loans made by a few lenders to riskier borrowers, but at significantly higher rates. He said the rate sheets he had seen suggest borrowers could pay an interest rate of 9-10 percent for non-QM loans.

Emerson said it remains very important to make adjustments to the QM rule. “The CFPB (Consumer Financial Protection Bureau) deserves enormous credit for working with all stakeholders, lenders and consumer groups alike, and fashioning a rule we think is a substantial improvement over Dodd-Frank. We are also grateful the Bureau is open to making additional revisions in the near future.”

There is a major problem with the 3 percent cap on points and fees for QM eligibility.  Because so many origination costs are fixed, a lot of smaller loans, particularly in the $100,000 to $150,000 range, will trip the 3 percent cap and fall outside the QM definition, pricing consumers, especially first-time homebuyers and families living in rural and underserved areas, out of the market.

“Additionally, the final rule picks winners and losers between affiliated and unaffiliated settlement service providers, even though their fees are subject to identical regulation. At Quicken Loans, we have chosen to affiliate with title and other service providers to ensure our customers have the best loan experience and that there are no surprises at the closing table.”  His company, he said, has won awards because its affiliated arrangements have led to a smooth closing process.

Emerson said the MBA urges the House to promptly pass H.R. 3211, the Mortgage Choice Act.

Michael D. Calhoun, President of the Center for Responsible Lending was the only one of the five presenting testimony in favor of the CFPB’s rules.  Calhoun said those rules strike the right balance of providing borrower protections while also ensuring access to credit.

The QM rule covers 95 percent of current originations according to Moody Analytics he said that this broad coverage is because CFPB established four different pathways for a mortgage to gain QM status. The first uses a 43 percent back-end debt-to-income ratio. A second is based on eligibility for purchase by Fannie Mae and Freddie Mac and a third is specifically crafted for small creditors holding loans in portfolio. Lastly, there is a pathway for balloon loans as well. This multi-faceted approach will maintain access to affordable credit for borrowers.

“This broad definition is key for borrowers, including borrowers of color who represent 70% of the net household growth through 2023.  The broad definition means that borrowers will not be boxed out of getting a home loan and will also benefit from the protections that come with a Qualified Mortgage.  In addition, several lenders have said they will originate mortgages that do not meet QM requirements, holding them in their own portfolios.  Calhoun said he expects this will only grow over time.

As a whole, these rules continue the CFPB’s approach of expanding access to credit while ensuring that loans are sustainable for the borrower, the lender and the overall economy, Calhoun said.

Also testifying was Frank Spencer, President and CEP of Habitat for Humanity’s Charlotte, North Carolina Chapter.  Spencer was primarily asking for relief from QM and ATR requirements for his organization which currently services approximately 780 mortgages.  Spencer said that despite the fact that the mortgages are non-interest bearing and that most of the chapters that originate them fall far below the thresholds of QM, some of the charity’s operations trigger the requirements and present significant liability for its officers and community partners.

‘Zero-day’ hacking reform raises hackles with US tech groups

January 14, 2014 2:54 pm

By Chris Bryant in Frankfurt

Not so long ago it was common for hackers to report a newly discovered software security flaw to the vendor so it could be patched. In exchange the hacker would be rewarded with a T-shirt, or perhaps just the bragging rights.

But today hackers are able to sell previously unknown software vulnerabilities, known as “zero days” due to the time between discovery and the first attack, for six-figure sums on a booming grey market. The buyers tend not to want to fix the software vulnerability but rather to exploit it.

As well as criminals, they include western governments that need an arsenal of zero days in order to spy and build cyber weapons.

The US National Security Agency is thought to be a large customer, spending more than $25m last year on “covert purchases of software vulnerabilities”, according to documents obtained by Edward Snowden, the contractor turned whistle blower, and seen by The Washington Post.

As President Barack Obama prepares this week to announce reforms of spying practices in the wake of Mr Snowden’s disclosures, the issue of zero days has come sharply into focus.

Amid an outcry from US technology companies, which say the government’s activities are undermining security and their overseas businesses, the panel appointed by Mr Obama to review the NSA’s activities has controversially recommended greater oversight of how the US handles such software vulnerabilities. They should be quickly patched to protect US networks and only on rare cases should the US authorize a zero-day attack for “high priority intelligence collection”, the panel wrote in a December report.

The appropriate balance between attack and defense has long been a source of debate within the NSA due to its dual mission to tap electronic communications overseas and protect US networks at home. The NSA was not immediately available for comment.

Companies eye lucrative zero-days market

cyber crime

Vupen, a French start-up that recently opened an office in Maryland, home also to the National Security Agency’s headquarters, is one of a growing number of companies selling hacking tools, known as “zero days”, to the intelligence community.

According to documents obtained via a freedom of information request in September by Muckrock, an open government news organization, the NSA is one such customer . . .

Richard Clarke, the former White House cyber tsar and member of the NSA review panel, told the Financial Times in a 2012 interview: “I think what is happening is when NSA is told about a vulnerability, they start exploiting it, and they say we’ll tell American companies about it if we ever see signs [that] China, or Russia have figured it out and are using it. But until then we’re going to use it.

“[But] I think the US government’s first responsibility is not to run around getting into other countries’ networks. The US government’s first responsibility is to protect networks in the US – banks, electric power companies and things like that. It’s not clear to me that there is a decision-making process that takes all that into account.”

The use of zero-day technologies has its defenders in the intelligence community. Joel Brenner, former NSA inspector-general and senior counsel, now a consultant, says: “To some degree the proposal to forbid the use of zero-day attacks is a proposal to shut down signals intelligence. The idea that we would unilaterally disarm our signals intelligence agencies is cockeyed.”

Also, Morten Stengaard, chief technology officer at Secunia, a Copenhagen-based cyber security company, says: “Cyberspace is where the next wars will take place. Saying governments should disclose these vulnerabilities is like saying they shouldn’t be allowed to buy weapons to defend their countries.”

Western governments have, however, begun to recognize that in the wrong hands, zero days can be extremely harmful.

Saying governments should disclose these vulnerabilities is like saying they shouldn’t be allowed to buy weapons to defend their countries– Morten Stengaard, Secunia

Millions of Adobe customers were left exposed in August when the company’s source code was stolen. Armed with that code, criminals can much more easily spot zero-day vulnerabilities in its popular Photoshop software and Acrobat document reader and exploit these to hack into users’ machines. Meanwhile, regimes with poor human rights records can use zero days to help them install surveillance software on the computers and mobile phones of opposition activists.

Accordingly, western governments – including the US, UK, Russia and most EU states – in December agreed to toughen export controls on “intrusion software” under the so-called Wassenaar Arrangement on dual-use technologies. While praising this first step, Marietje Schaake, a Dutch MEP, says: “However, the EU needs to do more to implement the export controls, to broaden the scope and clarify the definitions used.”

FT Video

Privacy and security

October 2013: David Cass, chief information security officer at Elsevier, speaks to the FT’s Paul Taylor, Connected Business editor, about cybersecurity and cloud computing, privacy and the role of the CISO

Software companies have also raised so-called bug-bounties for hackers willing to disclose a software flaw directly to the vendor; in June, for example, Microsoft said it would pay up to $100,000 for newly identified vulnerabilities, a figure dismissed by some hackers as too small.

In the meantime, western governments continue to search for and exploit zero days, fueling an arms race that critics say makes software and hardware less secure. Mikko Hypponen, chief research officer at F-Secure, a Finland-based computer security company, complains that “one of the main threats to large American software companies right now is the likelihood of their software getting hacked by their own government.

“If someone had told me a decade ago that by 2013 it would be absolutely normal for civilized democratic nations to create malware and backdoors and use them against their own citizens and other democratic nations, I wouldn’t have believed it. But here we are today,” he concludes. “I don’t think it’s going to go away.”

GMOs are here to stay — should you be worried? –


Video: Although the FDA says that genetically modified ingredients in food are safe, some still believe they may be harmful. NBC diet and nutrition editor Madelyn Fernstrom reveals how to tell whether there are genetically modified organisms in what you’re eating.

GMOs are a whirlwind of controversy in areas ranging from long term safety, to consumer labeling issues. Are genetically modified organisms safe in the food supply? Should consumers be worried?

The Food and Drug Administration says, no. But some consumer groups believe that GMOs should not be freely available in the food supply.

This relatively new concept of genetically engineered foods, known as GMOs, is a process where the genetic material (DNA) of one plant is transferred to the DNA of another plant or microbe, taking on the positive qualities of the added DNA. This process produces a new plant that can be more resistant to pests, able to grow in harsh weather conditions, or contain an improved nutritional profile.

Because GMOs are here to stay, it’s important to take a closer look at the evidence-based science on GMO safety. Another key question is not about GMO safety, but about labeling. A valid point is the public has a right to know if GMOs are in a food they are buying, to opt out if they choose.

The main GMOs in the US food supply are corn, soybeans, canola, and cotton. The GMO process, including safety and allergen testing has been approved by the FDA, meaning that GMO seeds that grow into these plants can be used as either food ingredients, or as a stand-alone food (think corn or soy beans). While critics of GMOs claim that long term safety has not been documented, and can increase the occurrence of food allergies (especially in children), the FDA states that no evidence of an increased incidence of food allergies or toxicity is observed when comparing genetic or traditional plant farming.

But if you DO want to avoid GMOs in the food you choose, you do have some choices. Look for the USDA organic seal. The FDA regulates organic foods, and one requirement is the complete absence of any GMO ingredients. This is not true of products labeled “contains organic ingredients”. And while not an FDA-affiliated program, the GMO-free verification seal represents a third-party company assessing the presence of GMOs in food ingredients. Some products simply say “no GMOs”, and a call or email to the company to verify the statement is a good idea.

A number of food companies are responding to the public demand for information, in two important ways:

  • Removing the GMO ingredients from at least part of their product lines.
  • Keeping the products the same, but provide labeling information of which products are not made with GMO ingredients.

While GMOs remain a safe part of the food supply from a regulatory standpoint, there are increasing options if you choose to eliminate them from your diet.

Common Short Sale Myths Dispelled

Jan 13 2014, 12:59PM

Thanks to key changes in the program, completing a short sale through Freddie Mac is taking less time than ever before.  The company’s Senior Vice President Tracy Mooney, writing in Freddie Mac’s Executive Perspectives Blog, said that despite the improvements and that short sales are an important tool for helping distressed homeowners avoid foreclosure and eliminate their mortgage debt, they remain a mystery to many who might benefit from them.  In her occasional column “Dispelling the Myths” Mooney lays out eight misconceptions about short sales and the facts she says every distressed homeowner should know.

The first myth is that the homeowner will be responsible for the entire amount owed on the mortgage.  Under the company’s Standard Short Sale program, borrowers who complete a short sale in good faith and in compliance with all laws and Freddie Mac policies will not be pursued for the after-sale mortgage balance.  However, if a borrower has the financial ability he/she may be asked to make a one-time payment or sign a promissory note for a portion of that balance.

Many homeowners think a short sale is not possible for an investment property or second home.  Mooney said the important factor is whether the borrower meets the program’s eligibility requirements, not the status of the property itself.

The third myth is that a homeowner must be delinquent on the mortgage to be eligible for a short sale.  A homeowner who is current must meet the general eligibility requirements for the program and have a debt-to-income ratio greater than 55 percent.  In addition, in this case the property must be the homeowner’s primary residence.

Homeowners sometimes presume they won’t qualify because of their servicer’s strict guidelines about short sales.  But Mooney says that Freddie Mac has increased the authority of its servicers to approve short sales for qualifying financial hardships for homeowners who are past due or current on their mortgage.  Servicers also now have independent authority to approve short sales without a separate and potentially time-consuming review by the mortgage insurance company.

Myth #5 is that a short sale will affect a homeowner’s future eligibility for a mortgage.  If the financial difficulties arose from circumstances outside the borrower’s control such as job loss or a health emergency he/she may be eligible for a new Freddie Mac mortgage with a minimum of 24 months acceptable credit after the short sale.  If the short sale was necessitated by personal financial mismanagement the buyer might need 48 months of acceptable credit to obtain a new Freddie Mac loan.  Mooney advises all homeowners to begin discussions with a lender two years after the short sale closes to find out about specific requirements in their individual case.

Many people think that short sales can take a long time but Mooney reiterates that under the new guidelines timelines are shorter than ever.  Servicers now have 30 days to make and communicate a decision once they receive a completed application and, once approved, the sale should take less than 60 days to close.  She says that working with an experienced real estate agent might further speed the process

It is also a mistaken belief that having a second mortgage will make a short sale impossible.  If other eligibility requirements are met a second mortgage is not necessarily a barrier because Freddie’s short sale program can offer second lien holders up to $6,000 to release their lien and extinguish the underlying debt

The final myth is that a short sale will ruin a homeowner’s credit. While only the credit reporting agencies can determine how a credit score will be computed it is possible that a short sale could be less damaging than a foreclosure.  Even if this isn’t the case a short sale can give a homeowner time to arrange other housing and exit homeownership gracefully.

Mooney says a homeowner should consider a short sale if

  • He/she does not qualify for any options to keep the home;
  • Needs to move in order to keep or obtain employment.
  • Doesn’t think the home will sell at a price that will cover the outstanding mortgage amount.

The first step in the process is to determine if Freddie Mac owns the mortgage by using its  Loan Look-up Tool.   If it does the next step is to contact the mortgage servicers.  Contact information, Mooney says, should be listed on the monthly mortgage statement or in the coupon book.

Housing Scorecard: Nearly 6 Million Fewer Underwater as Prices Hit 2005 Levels

Jan 13 2014, 10:49AM

Rising home prices are continuing to drive down the number of homeowners who are underwater according to the December Housing Scorecard published by the Departments of Treasury and Housing and Urban Development (HUD).  HUD Associate Deputy Assistant Secretary for Economic Affairs Edward J. Szymanoski said, “Since the beginning of 2012, the number of homeowners underwater has declined by 5.7 million and homeowners’ equity has risen by 55 percent to $9.7 trillion.”  Homeowners’ equity jumped $418 billion, or 4.5 percent, to $9.669 trillion in the third quarter of 2013, returning to a level slightly higher than at the end of 2003.

As of October 2013, the Federal Housing Finance Agency (FHFA) purchase-only index rose 8.2 percent from last year and ticked up 0.5 percent (seasonally adjusted) from September, showing that home values are now on par with prices in early 2005. The S&P/Case-Shiller 20-City Home Price Index for October posted returns of 13.6 percent over the past 12 months and was up 0.2 percent (not seasonally adjusted) over September, indicating that home values are at the same level as in mid-2004.

The Scorecard notes there is much good news to report but the overall recovery remains fragile.  Szymanoski said there remains more work to do to address the 6.4 million homeowners who remain underwater; “Nevertheless, these are encouraging signs that the housing market recovery is providing millions of American homeowners with more economic security.”

The Scorecard is a monthly recap of housing data from sources such as FHFA and S&P Case-Shiller as well as RealtyTrac, the National Associations of Home Builders and Realtors®, and the Census Bureau, most of which has been previously reported by MND.  It also contains by reference the monthly record of the Making Home Affordable (MHA) Program and nearly half dozen initiatives operating under that umbrella.

The MHA report this month contains data through November 2013 and this month spotlights the Second Lien Modification Program (2MP).  That program was expanded in September and now, when a borrower’s first lien is modified under the GSE Standard Modification requirements (which applies to loans owned or guaranteed by Fannie Mae or Freddie Mac) and the first lien satisfies the Home Affordable Modification Program (HAMP) eligibility criteria, the 2MP servicer must offer to modify or extinguish the borrower’s second lien under 2MP.

The report says that more than 123,000 second lien modifications have now been completed through 2MP and homeowners with an active permanent 2MP modification save a median of $153 per month on their second mortgage and a median total of  $784 on first and second mortgages, 41 percent of the pre-modification payment.  Homeowners who receive a full extinguishment of their second lien receive a median total first and second lien monthly payment reduction of $1,047, or 53 percent of their before-modification payment.

MHA says the various programs it operates, HAMP, 2MP, Home Affordable Foreclosure Alternatives (HAFA) and the UP Forbearance Program, have assisted 1.9 million homeowners since they were initiated in 2009 and later.  Of these, 1.3 million were modifications done through HAMP.  Since the last HAMP report there have been 22,814 permanent first lien modifications initiated and a total of 35,869 assisted through all MHA programs except its . Principle Reduction Activity (PRA).   That program has eliminated $10,124,838,950 in outstanding principal and another $2.5 billion in principle has been reduced outside of PRA.  GSE loans are not eligible for principle reduction.