News From NAMB: April 6, 2017

April 6, 2017
You may have noticed that News From NAMB is not just links to other media stories but also goes to primary sources. News From NAMB is different because we find important information that may not be reported elsewhere and we comment on why it is relevant to you, often in a fun way. Best of all, it is free to NAMB members. News From NAMB is sponsored exclusively by United Wholesale Mortgage
 
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Get Ready for Much Higher Mortgage Rates
We all know that rates have been edging up but we are likely to see another sharp increase later this year after reading the Fed minutes released yesterday. The Fed wants to trim its balance sheet. That means it would no longer be reinvesting in mortgage-backed securities. That is a major issue because the Fed is pretty much buying all of Fannie and Freddie’s securities. They promised not to do it all at once but it would cause a 1/2% rise in rates at the very best and probably considerably more. If you have buyers on the fence, they need to jump in.

CFPB Wants DC Court to Rule On Its Constitutionality
The CFPB must think the entire DC Court of Appeals is its best shot at keeping its Director and perhaps its right to exist. In the brief that the CFPB filed just before the deadline, the say the full court MUST rule on the constitutionality issue. Many on the CFPB’s side had wanted the court only to rule on the RESPA claim, not the constitutionality issues. Republican appointees still outnumber Democratic appointees but they must feel the odds are better than the Supreme Court.

CFPB Being Challenged By More Companies
During the first few years, no one wanted to challenge adverse findings by the CFPB.  Most simply settled. Since the PHH case, companies have begun to take the CFPB to court and the CFPB hasn’t been faring that well. PHH gave the CFPB such a drubbing that it may cost the Director his job. A district court judge dismissed a lawsuit that the CFPB filed against the payment processor Intercept Corp. and harshly criticized the bureau for failing to present enough evidence. Pathfinder Payment Solutions, an independent sales organization, asked a judge to sanction the CFPB, claiming the agency “knowingly exceeded its statutory authority, deliberately disregarded the law and consciously distorted the facts.” 

Trump Promises Bankers Major Dodd/Frank Haircut
Speaking to the CEOs of the big banks, President Trump promised to "do a very major haircut on Dodd Frank." Trump told the bankers “We are absolutely destroying these horrible regulations that have been placed over your heads, not over the last eight years, over the last 20 and 25 years.” The bank CEOs, who have done quite well under Dodd/Frank, have been reserved about Dodd/Frank changes. But, they are warming to the idea of regulatory cuts. Jamie Dimon wants to relax FHA requirements that have cost Chase a lot of money.  

Cordray Appearance Before House Financial Services Fiery
Richard Cordray walked into the most adversarial hearing in his career. Committee Chair Jeb Hensarling started things off by saying, “Under the PHH case [the President] can dismiss you at will. Under Dodd-Frank, you can be removed for cause. Either way, I believe the President is clearly justified in dismissing you and I call upon the President–yet again–to do just that, and to do it immediately.” Cordray was calm and deliberate, simply reading his testimony, enumerating what the CFPB has done lately. He fielded questions adeptly, as usual, with the help of Democrat Congress members. The CFPB accompanying 190-page report is available for those who have the time.

The Cash-Out Craze is On
The sharp rise in home prices has generated an interesting side-effect. Homeowners have gained equity even though they have only owned the home for a few years. They are now tapping that equity at the fastest rate in eight years. Even more unexpected, one of largest groups pulling out cash is millennials. Many are choosing HELOCs but others are simply refinancing. Cash-out refinances accounted for nearly half of all refinances in the last quarter of 2016. With rates up a bit, some believe the cash-out boom will die off but there should still be plenty of people who want some cash. 

91% of Mortgages Are QM
The American Bankers Association’s 24th annual Real Estate Lending Survey revealed that fewer non-QM loans are being made as time passes. In 2013, non-QM loans accounted for 16% of the surveyed banks’ production. The number fell to only 9% in 2016. The biggest obstacle is the 43% qualifying ratio. The banks are increasingly selling off the loans they make rather than keeping them in portfolio.

Chase CEO Says $1 Trillion Not Loaned Due to CFPB Regs
Jamie Dimon is known for a bit of hyperbole but he does make sense in his latest letter to Chase shareholders. Dimon claims Dodd/Frank spawned so many regulations that if stacked, all 14,000 pages would stand 6 feet tall. He says it costs $181/year to service a performing loan and $2,386 to service a loan in default. So, lenders don’t want loans that have any potential for delinquency. As a result, Dimon claims $300 billion a year in loans were not made or $1 trillion over three years.

Freddie Mac to Allow Appraisal Waivers on Purchases
Fannie Mae and Freddie Mac have been building a robust property database that seems to be on track to cut the need for appraisals. Currently, Fannie allows Property Inspection Waivers and Freddie has Property Inspection Alternatives, but only on refinances. According to Mat Ishbia, Freddie is going to start giving waivers to purchase loans. Ishbia also talks about big lenders wanting to put a prepay on VA loans.

HUD Releases List of Companies Sanctioned by FHA
If you have a curiosity about who ran into trouble with the FHA Mortgagee Review Board recently, HUD has published a list in the Federal Register. Most of the big fines over the past two years you probably already know about. Then, there are those companies that failed to renew timely and others who now fail to meet FHA approval standards.

Carson Says Infrastructure Bill Will Restore HUD Cuts
HUD Secretary Ben Carson told an audience in DC that the $6 billion cut from HUD’s budget will be covered in the trillion-dollar infrastructure plan.  Most of the cuts were to public housing such as the popular Section 8 program rather than FHA which normally pays its own way.

Student Loans Still Bogging Down Potential Home Buyers
We constantly hear that young people are not buying homes because they are paying significant student loan debt. William Dudley, president the Federal Reserve Bank of New York is just another in long list of notables that blame student loan debt for millennials not buying. One must ponder if the cost of education has become too high. I pay little attention to whether an LO or processor has a degree. I don’t see the big difference in employee quality. We hire using a competency test and it works out much better. It would also help if the GSEs and FHA used the projected payments for the current year rather than the 1% or amortized method.

Leaker Lacker Resigns
They say people live up to their names and that is apparently the case with Richmond Fed Chair Jeffrey Lacker. Lacker admitted he leaked Fed policy information to an analyst who used it to help clients make trading decisions a day early.  Lacker continually wanted the Fed to raise rates and didn’t like the Fed buying mortgage-backed securities something less than a favorite with our industry. Despite the fact that his leak appears to have illegally profited people, his attorney says no charges will be brought against him. Of course not.

HUD Goes After Loan Correspondent for 2005-2008 Violations
One would think that issues that occurred more than 10 years ago were off bounds. Not in the case of MDR Mortgage and its president. He was indicted on an unrelated securities violation in 2005 and certified on his HUD renewal that he had no indictments. HUD and the Department of Justice sued and won $10 million dollars against him personally. The case is under appeal.

Register Now for NAMB’s Leg Conference
We can actually lobby this year and have a possibility something we are lobbying for could be passed or changed. That makes this Legislative Conference, April 22-25, particularly important. You will hear from members of Congress, the CFPB, and other groups that make things happen in DC. This is your chance to shape what laws will determine how you do business. It’s a beautiful time of year in DC so plan a tour while you are here. Hotel rooms are filling fast so register now.

Rate Outlook
Stocks continue to pull back, down about 500 points from their highs in mid-March. That has given mortgages a little respite for the time being. There is a lot of nervousness now instead of thinking President Trump could solve all of our woes in 90 days or less. So far, he isn’t having a lot of legislative success. He will be in meetings with China, one of the main purchasers of U.S. debt. They aren’t exactly pleased with his campaign rhetoric. Then, there are the perennial middle-east and terrorism issues that haven’t really changed.
 
Tomorrow is the biggest economic news of the month, the Bureau of Labor Statistics Jobs Report.  Estimates say it will be about 180,000 jobs gained, somewhat cooler then the previous month.
 
So far, this week, we had very bullish news on jobs. ADP said we gained 263,000 jobs, much higher than what experts were expecting. Weekly jobless claims came in at 234,000, well below the 250,000 claims mark and considerably below the last few weeks that were above the 250,000 mark. Factory orders rose 1.8% vs. the estimated .8%.
 
Fortunately, inflation still is very weak with PCE Core Inflation on up .2%.
 

 

John Councilman, CMC, CRMS of AMC Mortgage Corporation in Ft. Myers, Fla. is past president of NAMB—The Association of Mortgage Professionals. He may be reached by phone at (239) 267-2400 or e-mail jlc@amcmortgage.com.