Hello, everyone. Well, as you may have heard, the Federal Housing Finance Agency has authorized and approved Freddie Mac conducting a pilot on second mortgages, and I should say offering second mortgages. So here’s what we know so far. This is based on essentially the proposal that was published that we did talk about on this show a few episodes back, back when it was pending, to propose what this second mortgage program would look like. So here’s the reminder on what it would look like. It’s a closed end second mortgage program, primary residence. Freddie must own the first mortgage. So you’re not going to be able to attach this to an FHA, a VA, or even a Fannie loan. The first mortgage has to be seasoned at least two years. It’s not eligible for some scenarios like land trusts or co-ops. The max total loan to value would be 80% for most residences, with the exception that it would be 65% for manufactured homes, and not to go over the max for any other transaction restrictions like cash out. It would be a 20 year term. Manually underwritten to start with, so that causes some DTI challenges right then and there and then secondary side, it would be delivered through the cash window. Freddie would initially provide spot bids rather than forward prices to sellers. And then loans would remain in Freddie’s portfolio for about six to nine months until creation of a second mortgage non TBA guaranteed securities and for the system implementation. Overall, the servicing is the same. There would be some specific loss mit solutions for the foreclosure activity that would require Freddie approval and then if the first is paid off, The second must be paid in full unless otherwise stopped by state law. Your rep and warrant framework for the second would be the same as what we have today for our first mortgages, but it would be applied separately. So essentially you would get, it could have a challenge, whereas your first may not or vice versa. So I got that data from the Federal Register for when it was published back like I said, in April. We don’t know about the MI companies. They’re a little lukewarm on this. Obviously, at a 80 percent total loan to value, we wouldn’t need them on the transaction, so at least for now, we don’t think it matters so much where the MI companies stand, but just wanted to give you an idea of what that program’s going to look like. It’ll just be in pilot. They’ll have 18 months to run through this, and then, for those of you who aren’t in the pilot, at least by listening to this, you’ll know what you’re up against competitively. If you go to the proposed rule, you can see where they’ve done a side by side comparison on getting a second versus getting a cash out refinance. So that’s a good formula to have in your tool belt as you’re trying to sell against a second, because obviously that’s going to depend greatly on where interest rates are for first and seconds at the time. So that’s the scoop on the Freddie Mac second mortgages that you will be seeing coming to the occasional lender who’s part of the pilot and later in 2024. The other piece of news that I have for you is please check out, today is your last day, so June 24th, this is, unfortunately it came out after the show last week. They only are giving us a week to comment on a mortgagee letter that is in draft. It basically is editing a section of FHA’s defect taxonomy, it currently states that fraud or misrepresentation falls into areas of subject matter of severity and essentially it’s always been implied that we’re responsible as a lender for any of our third party brokers, but this is really putting the verbiage very clearly out in front that the TPO, if the, if your third party origination partner could have or should have known that there was misrepresentation in the file, that we as entity who purchased that loan would have responsibility in repurchasing it also. So, I think it’s a time for all lenders to revisit their agreements with any of their third-party origination partners. Make sure that you’re buttoned up on fraud because the industry is seeing a large increase in mortgage fraud. There are lots of rings out there. And what’s old is new again in terms of companies being set up to create fraudulent employment. You’ll see people’s names reoccurring throughout loan files who are creating fraudulent documents. So, this is big folks, make sure you got your people trained on how to spot mortgage fraud and as this FHA mortgagee letter is pointing out, make sure your TPO agreements are buttoned up so that you’re all protected and your systems are protected watching out for mortgage fraud. That’s my report for today, back to you.
Alice Alvey, Master CMB
Vice President Partner Education and Training at Union Home Mortgage
8241 Dow Circle
Strongsville, OH 44136
D: 440.420.4294
C: 248.941.1939
She handles development of their World Class Training program designed to support UHM partners and organizational effectiveness.
Prior to UHM, Alice served as Senior Vice President at Indecomm leading the Indecomm-Mortgage U division, Internal QA and Compliance and SaaS technologies. Indecomm acquired Mortgage U in 2013, where Alice was President/Co-founder, providing training and consulting since 1996. Prior to MU she served as SVP of Operations at a national bank overseeing operations for wholesale, retail and correspondent from underwriting through servicing, and compliance.
She has been in the trenches of mortgage lending operations from application through servicing for over 30 years. Her authoring work in training content, policies and procedures and the FHA/VA Practical guides illustrates her ability to bridge regulatory requirements with day-to-day operations.
Alice has been a weekly contributor to the Lykken on Lending show since its beginning in April 2009 and has made her weekly contributions to 450+ episodes!