MPF Direct. Product Overview. FHLB Des Moines. April 18 th, 2018

Transcription

1 MPF Direct Product Overview FHLB Des Moines April 18 th, 2018

2 About this Material These training materials and accompanying training dialogue are not intended as legal, tax or compliance advice. This material is intended for our client s internal use. Please consult your own institution s legal, tax and compliance advisors for guidance on interpreting legal and regulatory matters applicable to your institution. Mortgage Partnership Finance and MPF are registered trademarks of the Federal Home Loan Bank of Chicago. The MPF Mortgage Partnership Finance logo is a trademark of the Federal Home Loan Bank of Chicago. Redwood Residential Acquisition Corporation, NMLS #

3 MPF Direct Investor Who is Redwood Trust? Redwood Trust is a private investor (NYSE: RWT) Redwood Trust was established in 1994 and primarily invests in residential mortgage loans, securities and other forms real estate financing Redwood Trust operates the Sequoia securitization platform, through which it securitizes many of the residential mortgage loans they acquire Redwood Trust has been the largest issuer of Jumbo private label mortgage-backed securities in the last four years Redwood Trust, through a subsidiary, is a member of the Federal Home Loan Bank of Chicago 3

4 What We Are Seeing The current market lacks options for lenders to implement a rational expansion of credit for borrowers with otherwise prime credit profiles Many potential first-time homebuyers are self-selecting themselves out of the market due to misconceptions about affordability Jumbo loans with expanded credit options represent significant revenue opportunities for revenue and business growth for lenders 4

5 The MPF Direct Product The MPF Direct product provides a variety of loan programs to serve the Jumbo borrower There are 3 delegated Jumbo QM options available: Select QM Select 90 QM Choice QM 5

6 MPF Direct Program Comparison Guideline Select QM Select 90 QM Choice QM Loan Types 10, 15, 20, 25, 30-Year Fixed* 5/1, 7/1, 10/1 ARMs 20, 25 and 30-Year Fixed 10, 15, 20, 25 and 30-Year Fixed* 5/1, 7/1, 10/1 ARMs Minimum FICO Score Max LTV/CLTV Primary Purchases Rate and Term Refinances 85% LTV No MI No Secondary Financing 90% LTV No MI No Secondary Financing 90% LTV/CLTV No MI Secondary Financing Permitted Max LTV: Primary Cash-out Refinances 70% LTV: Minimum 720 FICO 65% LTV: Minimum 700 FICO Not Available 80% LTV: Minimum 680 FICO 70% LTV: Minimum 661 FICO Max LTV: Second Home Purchase Rate and Term Refinance Cash-out Refinance 80% LTV Purchase: 720 FICO 75% LTV Rate/Term: 720 FICO 60% LTV Cash-out: 740 FICO Not Available 80% LTV: Purchase: 661 FICO 80% LTV: Rate/Term: 661 FICO 65% Cash-out: 661 FICO Max LTV Investment (1-4) Units Purchase/Rate and Term Cash-out Refinances 70% LTV Purchase: 740 FICO 70% LTV Rate/Term: 740 FICO 60% LTV Cash-Out: 740 FICO Not Available 75% Purchase: 680 FICO 70% Rate/Term Refinance: 680 FICO 60% Cash-out Refinance: 680 FICO * Not all amortization terms may be available in all cases

7 MPF Direct Program Comparison Guideline Select QM Select 90 QM Choice QM Condominiums Must be Warrantable Must be Warrantable Non-Warrantable Features Permitted in some cases without exception Reserve Requirements* 6-36 months months 3-24 months Maximum Loan Amount $2,500,000 $1,500,000 $2,000,000 Minimum Loan Amount $1 over conforming $1 over high balance limit $1 over high balance limit Mortgage/Housing Lates No Late Pays in Past 24 Months No Late Pays in Past 24 Months 1x30 past 12 months; 2x30 past 24 months Adverse Credit Events (Foreclosure, Bankruptcies, Short Sales, etc.) Allowed after 7 years New None Allowed Allowed after 4 years Non-occupant Co-Borrower with Blended Ratios Not Allowed Not Allowed Max. 80% LTV, Max. 43% DTI Primary Residence Only Immediate Family Members Only *Increased reserves may be required if the borrower has additional financed properties

8 Primary Residence > 80% LTV Select QM Maximum 85% LTV - No MI Maximum loan amount: $1,000,000 Minimum FICO: 760 Reserves: 12 months (18 months for FTHBs) 1 appraisal required Fixed and ARMs permitted Select 90 QM Maximum 90% LTV - No MI No secondary financing Maximum loan amount: $1,500,000 (FTHB $1mm) Minimum FICO: 720 (FTHB 740) Maximum DTI: 43% (FTHB 38%) Reserves 12 months with DTI 38%; 18 months for 38.01% %; 15 months for FTHB 2 appraisals required for refinances 20, 25 and 30-year fixed only Choice QM Maximum 90% LTV/CLTV No MI Secondary financing permitted Maximum loan amount: $1,000,000 Minimum FICO: 680 Maximum DTI: 38% Reserves: 6 months (9 months for FHTBs) 1 appraisal required Fixed and hybrid ARMs permitted 8

9 Comparison of MI and No MI Loan Details BPMI (Borrower paid MI) Redwood No MI Loan Amount $810,000 $810,000 Note Rate 4.500% 5.125% MI Cost/Rate Standard Jumbo P&I Payment with MI Excludes Taxes & Ins.63% n/a $ ,104 = $4,529 $4,410 $900,000 Sales Price Owner Occupied 90% LTV 740 FICO 30 year fixed rate Savings of $119 per month 9

10 90% LTV Advantages of No MI 90% LTV There are no separate MI guideline overlays No complicated MI tables No separate underwrite for the MI No delegation limits Retain control of the the transaction Allows up to 20 acres ( no cap at 15 acres) Higher loan amounts Choice to $1 million Select 90 to $1.5 million 2 unit properties up to 90% LTV permitted on Choice QM 10

11 MPF Direct Niches Rate and Term Refinances Allows up to 1% cash back to borrower with no cap on dollar amount (except Texas primary residence) No seasoning requirement if paying off a first mortgage Seasoned subordinate financing may be included, not just purchase money seconds Cash-Out Refinances Cash-out limits range from $250,000 to $750,000 depending upon occupancy, loan amount and LTV Delayed Purchase Refinances Refinance of a property purchased for cash within the past 6 months Priced and underwritten as a rate and term refinance (except Texas) CD from purchase to document sales price and funds to close Borrowed funds are allowed (HELOC funds, 401k loans, margin accounts) as a source of funds used to purchase Gift funds and business funds are not allowed for source of funds used to purchase 11

12 MPF Direct Niches Stock Accounts, Mutual Funds and Bonds Valued at 100%, not discounted 2 months statements required, proof of liquidation not required Retirement Accounts- IRA, 401(k) Borrowers 59 ½ years old use 70% of vested value (minus any outstanding loans) Borrowers 59 ½ years old use 60% of vested value (minus any outstanding loans) 12

13 MPF Direct Niches Business Funds Allowed for down payment and closing costs Allowed for reserves (except Select 90 QM) If using for reserves, reserve requirements are then double the regular requirement Cash flow analysis required using 3 months business bank statements to show no negative impact to the business Borrower must be 100% owner of the business Gift Funds Allowed on primary residences (80% LTV or lower) and second homes Borrowers must have 5% of their own funds into the transaction and their own reserves Allowed from domestic partner, fiancé or family member 13

14 MPF Direct Niches Alimony Paid by Borrower Allowed to be treated as a reduction to income rather than a monthly liability This example below illustrates how the impact on the DTI can be substantial: Monthly Income: $15,000 PITIA: $4,100 Monthly Debts: $500 Alimony: $3,500 If alimony is included in liabilities, the DTI is 54% $8,100 $15,000 = 54% If alimony is subtracted from the income, the DTI is 40% $4,600 $11,500 = 40% Restricted Stock Units (RSUs) and Stock Options for Income Consider for qualifying income if received for 2 years and if the vesting schedule indicates the income will continue for 3 years at similar levels as the prior 2 years 14

15 MPF Direct Niches Number of Financed Properties (Choice QM) Allows up to 10 financed properties Max LTV 80% for borrowers owning 5-10 financed properties Rental Income 2-year landlord history is not required A lease is required if rental income is used for qualifying or used to offset the payment If the departure residence is being converted to a rental, 25% equity in the former residence is required in order to include any rental income from the property The 25% equity can be documented with proof of the prior purchase price, 2055 exterior appraisal or a full appraisal 15

16 MPF Direct Niches Non-Occupant Co-Borrower with Blended Ratios/Assets (Choice QM only) Available for 1 unit primary residence, purchase/rate and term refinances up to 80% LTV/CLTV $1,000,000 maximum loan amount or $1,500,000 in CA, CT, NY, NJ Blended ratios up to 43% DTI Blended assets: down payment and reserves can come from either the borrower or the non-occupant borrower Relationship must be family members Additional 6 months of reserves are required There is no LLPA for non-occupant co-borrower transactions 16

17 MPF Direct Niches Limited Review for Attached Condominiums (Select QM and Choice QM) Must meet Fannie Mae limited review requirements Primary residences with 80% LTV/CLTV or lower Second homes with 75% LTV/CLTV or lower Allowed in all states except Arizona, Florida, Michigan, Nevada and Texas 17

18 MPF Direct Niches Non-Warrantable Condo Features (Choice QM only) Transaction must be 10% below the required maximum LTV/CLTV Primary and second homes only Non-warrantable features permitted (projects with more than one nonwarrantable feature are not allowed) Commercial Space allows up to 35% of commercial space; if the commercial space is owned and controlled by an HOA separate from the residential HOA, then up to 50% of commercial space is allowed Single Entity Ownership allows up to 25% for projects with more than 10 units Presale - New or converted projects may have a presale percentage as low as 30% Budget - Less than 10% replacement reserves is allowed The project must meet Fannie Mae s full review guidelines with the exception of the one non-warrantable feature 18

19 MPF Direct Niches Condotels (Choice QM only) Transaction must be 10% below the maximum required LTV/CLTV Primary and second homes only Features allowed: Daily rentals Housekeeping Front desk Card key access Commercial space up to 50% The unit must have a minimum of 500 square feet and a fully-functioning kitchen Must be located in a resort or metropolitan area and affiliated with a high-end hotel brand Project must not allow fractional ownership Must not be subject to mandatory rental pool Maximum investor concentration should be 50% or less 19

20 MPF Direct Niches Acreage Up to 40 acres permitted (excludes Select 90 QM) Requirements for properties with acreage between acres 20, 25, 30 year fixed rate only Max LTV to be reduced by 10% on Select QM Max LTV to be reduced by 5% on Choice QM Allows up to 20 acres on Select 90 QM Max land value limited to 35% on properties between acres 20

21 Scenarios Lilly is moving to a new condo in Del Boca Vista, the complex has commercial space of 35%, allows daily rentals, provides housekeeping and has a front desk Choice QM Jack and Jill are newlyweds looking to purchase a home together. They are just starting out and have only saved enough for a down payment of 10%. The lowest mid-fico is 724. The purchase price is $953,000 and they have 13 months reserves. What if they only had 6 months reserves? Select 90 and Choice QM 21

22 Scenario Cyndi is recently divorced and is required to pay alimony of $4,000 per month. She wants to start fresh and buy a home closer to her job and elderly parents. Because of the high rental demand in her area, she would like to keep her current home and rent it out. She spoke to a large bank in the area and they expressed concern that she would not qualify because of the $4,000 monthly alimony payment. They also didn t think she could use the rental income to qualify because she had no experience as a landlord. Select QM, Select 90 QM and Choice QM 22

23 Scenarios Alice is a recent college graduate. She doesn t want to rent and asks her parents to buy her a condo. Due to Alice just starting her career, she has nothing to contribute to the transaction. Choice QM Harvey experienced some health issues in As a result, he could not work and fell behind with his mortgage payments. In 2013 he was back to work and was able to start rebuilding his credit and savings. Choice QM 23

24 Exceptions The MPF Direct product offers the ability to request exceptions for those situations that don t quite fit the guidelines Your credit team may contact your MPF Direct Team to discuss exception scenarios Common exception requests include: Credit score Credit tradelines Loan amount LTV/CLTV (provided it is not over the product maximum) Lot sizes over 40 acres More than 4 financed properties Cash out greater than the maximum allowed Non-warrantable condos (outside the non-warrantable guidelines) Unique properties Hobby farms 24

25 Exceptions There are a few situations that cannot be considered for exception requests DTIs over 43% FICO below 661 LTV/CLTV/HCLTV greater than 85% for Select QM LTV/CLTV/HCLTV greater than 90% for Select 90 QM and Choice QM Manufactured or mobile homes Working farms, ranches or orchards Properties in Lava Zones 1&2 (Hawaii) Properties located in areas where a valid security interest cannot be obtained 25

26 MPF Direct: A Product that Works Underwriting is fully delegated, therefore you control the process and the closing timeline Dedicated MPF Team is available to discuss underwriting scenarios and potential exception requests Both fixed and adjustable rate options are available Exceptions available for many situations that don t fit into the box 26

27 Sign Up for MPF Direct Forms Approvals Training Ready to Go Complete MPF Direct Questionnaire Copy of Quality Control plan, if not already provided Résumés and organizational chart of key staff members Approval from FHLB and RWT Execute PFI MPF Direct Addendum to PFI Agreement Execute New MPF Direct Master Commitment Free online webinars Master Commitment activated 27

28 Questions? 28