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Terri Buckman
Terri Buckmanspace
Terri Buckman
VP, Sales Manager

Pinnacle Capital
Mortgage Corporation
1390 Willow Pass Road
Suite 560
Concord, CA 94520
email Terri
Shelley Thurlow
Shelley Thurlow
RVP, Branch Manager
email Shelley
FNMA will CU Now
Collateral Underwriter

On January 26th, FNMA launches their new appraisal review system, CU (Collateral Underwriter).

Lenders are highly encouraged to use this engine in conjunction with DU to assess risk. As a matter of fact, CU will be merged with DU possibly as early as Q1 in 2015. That is the end goal here. FNMA envisions a holistic engine that assesses not only the capacity and credit worthiness of the borrower as DU does today, but also assesses the value of the collateral.

CU is just one of several steps FNMA has been making to achieve this vision. It started in 2011 with the implementation of UAD (Uniform Appraisal Dataset). UAD standardized the appraisal report so that the data could be most effectively used for automated appraisals. Once the data on the appraisal report was standardized, lenders started uploading all appraisals to the UCDP (Uniform Collateral Data Portal). 

FNMA has now collected more than 14 million appraisals and more then 20 million unique sales transactions. Thus, they are not launching the next phase which is CU. 


CU will afford lenders many benefits:

  • CU provides additional certainty by giving lenders access to the same appraisal analytics used in FNMA's quality control process.
  • CU performs an automated risk assessment of appraisals and returns a risk score (1-5 with 5 highest risk), flags, and messages to the submitting lender.
  • CU is available at no charge to lenders.

Benefits to the Loan Originator in the field:

  • Lenders will feel better about values when they receive a low risk score on the property which may allay any concerns they may have had.
  • CU utilizes data immediately as appraisals are uploaded to the portal. If values are moving up quickly, this can aid in bringing in higher values sooner.
  • Lenders will likely focus their attention to appraisals with higher risks freeing them up to spend less time and focus on the lower risked appraisals. This should assist in-house review appraisers as well.

What does this mean to the appraisal community?

FNMA indicates in their literature that CU is an additional risk assessment tool to be used in conjunction with

extensive human due diligence


DU didn't replace human underwriters and CU will not replace human appraisers.

At least not in our lifetime.  I make this statement confidently knowing that my readership is peering over their progressive lens to read this.

FNMA offers FAQs, training webinars and more on CU here.

Post Date: January 17, 2015
Lose 50 bps of Ugly MIP Fast!
FHA Streamline Refi bonanza

By now, you've heard that HUD's very first Mortgagee Letter of 2015, announced a reduction in the annual MIP by 50 bps with all case numbers ordered on or after January 26th. This takes a typical annual MIP from 135 bps to 85 bps. PCM is joining in the effort by reducing our streamline adjuster from .75 on standard FHA and 1.00 on high balance FHA down to just .375 for all FHA streamlines! Additionally, PCM always charges a reduced admin fee on all streamlines of $499.  

HUD knows that mortgagors currently in the process of obtaining FHA financing will want to take advantage of this lower annual MIP if at all possible. Accordingly, HUD has authorized a Case Number Cancellation policy allowing Mortgagees the ability to cancel Case Numbers in order to request new Case Numbers on January 26th with the new lower annual MIP. Existing Case numbers can't be cancelled until January 15th. Your wholesale representative can give you guidance on this. Here is HUD's guidance on this special authority. 


PCM will continue to accept new FHA loans prior to January 26th without Case Numbers assigned. PCM will not order new case numbers on any loan closing on or after January 26th until January 26th. Loans will be underwritten without the case number and conditioned accordingly. What a great opportunity to call your past FHA clients to wish them a Happy New Year and offer a check up on their financing! Don't let the other guy or gal call them first.

Post Date: January 16, 2015
Bona fide Discount: What's the point?
Bona fide Discount vs. Required Point
So, here it is January 21st and we are now living in the world of ATR and QM. In my December blog post, Terms of Careerment, we discussed new industry jargon associated with ATR and QM. Terms like, General QM vs. Temporary QM, the APR to APOR test and the Points and Fees Test. What we did not discuss however, was "bona fide" discount points. Turns out this is the area our industry is having the most difficulty in agreeing on. Consequently, I am devoting this entire post to the topic of bona fide points as they relate to the QM points and fees test.

Let’s start by saying bona fide is just a ten dollar word for genuine or authentic, but genuine or authentic as defined by what standard? Unfortunately, when the CFPB gave us their ruling on QM they did not include a concrete definition of bona fide discount. Many of us following this since the initial proposal have been asking this question to anyone who would listen. What is a bona fide discount point?

The ruling gave no explicit guidance on how we distinguish a bona fide discount point from any other point. The name itself implies there is non bona fide discount. And it is imperative that we understand this because as you all know by now, we can exclude a certain amount of bona fide discount point(s) (up to 1% or 2% depending) from the points and fees test. This can mean the difference between a pass or fail for QM status which can ultimately impact your loan approval.

Enter the Mortgage Bankers Association (MBA) who on September 4, 2013 asked the CFPB staff this exact question. The MBA posted a document noted as takeaways from CFPB discount point meeting and titled it, Guidance from CFPB on Appropriate Rate for Excluding Discount Points under Final ATR Rule. Let me see if I can synopsize this for you.

The CFPB staffer responding to the MBA was Paul Mondor. Mr. Mondor, when asked what a discount point was answered by saying the CFPB interprets the statute to require a discount point to be the amount but for the payment of which the consumer would have paid the starting adjusted rate.

This begs the question, what is a starting adjusted rate? It is yet another new "term of careerment" and it is the rate available to your borrower at zero points or as close to zero points as you can get. It is sometimes also referred to as the undiscounted rate and also the rate without any discount. All LLPAs (loan level price adjusters) and lender paid compensation should be factored in when determining the starting adjusted rate. Now, understanding this, you may be better able to follow Mr. Mondor's explanation of bona fide discount points.

Essentially, he is saying that any points the borrower pays to lower the rate from the starting adjusted rate will be considered bona fide discount and thus eligible for exclusion from the points and fees test up to the applicable maximum of 1% or 2% caps.

Note: The starting adjusted rate is the rate compared to APOR when determining maximum discount eligible for exclusion from points and fees test. If the starting adjusted rate does not exceed APOR by more than one percent up to two bona fide discount points may be excluded. If the starting adjusted rate does not exceed APOR by more than two percent up to one bona fide discount point may be excluded.

What if there is no zero point option available when determining your starting adjusted rate?
Since the inception of LO Compensation rules it is rare that we have a rate available for our client
with a corresponding price of exactly par or zero. We can get close to par as Mr. Mondor suggests, but we will generally end up with a price slightly in premium pricing (rebate) or slightly in cost.

What if corresponding price to our starting adjusted rate is in premium/rebate pricing?
Understand that the discount points that are excluded from points and fees may not exceed the actual discount point paid by the consumer. So, if the starting adjusted rate offers a rebate and the borrower pays discount points, only the amount of points actually paid are the maximum that can be excluded from the points and fees test.
Here is an example from the Mondor to MBA guidance:
Starting adjusted rate of 4.25% with a .375 point rebate. Borrower agrees to pay 1.5 discount points to lower the rate to 3.75%. The maximum discount points that could be eligible for exclusion from points and fees test is 1.5 points.

What if corresponding price to ur starting adjusted rate is a cost and no higher rates are available?
This will happen. After all, those LLPAs can really add up. Just take a gander at any wholesale rate sheet and check out the LLPAs for lower credit scores, subordinate financing, condos and non-owners. Then you add lender paid compensation on top of that, and sometimes there just isn't enough YSP (yield spread premium) to cover it all. Indeed some product types don't start out with a lot of YSP to begin with. Look at the max YSP available on ARMs for example. I guarantee there will be times you won't be able to get a zero point or premium/rebate option for your starting adjusted rate.

In these circumstances when you have a cost associated with your starting adjusted rate, this amount must go into the points and fees test as required points. That is if your lender is taking Mr. Mondor's advice to the MBA and many lenders are.
Here is an example from the Mondor to MBA guidance:
Starting adjusted rate of 4.125% with 0.125 discount points. The borrower agrees to pay 1.625 in discount points to lower the rate to 3.75%. Only 1.50 additional discount points paid by the borrower to lower the rate is eligible for exclusion from the points and fees test since the .125 points paid are required to get the starting adjusted rate.

Some lenders, however, are going with their own interpretation of the ruling with some not excluding any points as bona fide and some excluding all points as bona fide and other calculations in between. It'll be interesting to see where this ends up.

Calyx Point absolutely took Mr. Mondor's advice when creating their QM tool, LoanScoreCard which is conveniently included in Point. In fact, you can see the terminology they adopted for LoanScoreCard is directly from the MBA guidance mentioned here.

Seems to me a safe approach for roll out as this guidance is the most explicit direction given to date.

It should be noted that this interpretation means there will be some loans that simply won't be able to pass the points and fees test no matter how low the broker sets their compensation and no matter if the lender converts their admin fee to an LLPA. This is particularly true on wholesale loans where the broker compensation has to go into the points and fees test (again). If the LLPAs chew up all the YSP available and your starting adjusted rate has a cost of 2.5 for example, that does not leave much room for the brokers compensation. Fortunately, these will be few and far between.

The bigger point here, sorry for the pun, is to note the difference between bona fide discount points which are eligible from exclusion and required points which are not eligible for exclusion and thus must go into the points and fees test. Knowing the difference may enable you to direct a customer to another product that offers more YSP or restructure to reduce LLPAs and could save their loan.

I highly recommend reading the MBA guidance on bona fide discount and I also recommend utilizing LoanScoreCard if you are a Point user.

Hey, on a positive note, Dodd-Frank is about 90% implemented and I don't know of any other dynamic shifts heading our way until the new disclosures roll in late 2015. Looks like we're getting a much needed reprieve.
Post Date: January 21, 2014
    Read Past Blog Articles    
New Terms of Careerment 12/23/13
TIL death do they part? GFE & TIL tie the knot... 11/23/13
Vet your 2012 Business Plan! 10/25/11
Score Two for the Brokers! 9/29/11
Dodd-Frankly Speaking... 6/8/11
LO Comp for Affiliates vs. Wholesale Customers 4/20/11
One Extra Step before completing your GFE on LPC... 4/6/11
Prepare for LO Comp Reform... 12/21/10
Comp Reform Dominates CAMP Show Chatter in Long Beach 8/23/10
Will LO Comp Reform fuel the Broker to Banker Trend? 7/27/10
Be an Industry Expert! 7/16/10
LQI new fact of life as of June 1st 6/18/10
LO Compensation 2011-Still a little Merkley... 5/23/10
CAIVRs is NOT a spelunking term! 4/26/10
We're looking for a few good Davids... 3/26/10
Jumping Aboard the Banker Train? 3/15/10
Whose YSP is it anyway? New World Order... 3/5/10
Happy CAMPers hit Capitol Hill 2/26/10
Mini-Eagle going way of Dodo Bird! and expected HUD changes Q1.... 1/12/10
Forget Red Flags, where’s my White Flag?! 12/19/09
My Blog solely represents my own personal opinions and commentary and does not represent the opinions of any corporate entity or other individual. The intent of this blog is to start conversation on topical mortgage issues. This is not advice and should not be acted on accordingly. Further, this information is intended for mortgage professionals only and is not intended for consumers.
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