News From NAMB: August 11, 2017

August 11, 2017
Top Story: Zillow May Have to Change Ad Model
Zillow turned in pretty respectable results for the 2nd quarter but still managed to lose money.  That is one of the weird things about stocks.  It isn’t your profits; it’s your growth potential.  Zillow said the CFPB is finished its investigation into possible RESPA kickback violations and they are talking settlement.  Experts say it isn’t the fine that scare Zillow.  It is the fear that they would have to change the way mortgage originators and real estate agents pay.  That could chop as much as 10% from Zillow’s profits.  It could also chop into the profits of originators and agents that use Zillow for leads.  Meantime, Facebook has decided to venture into Zillow’s territory by offering an ad platform for real estate agents.  Amazon is even trying to cut in on Zillow, not to mention virtual real estate broker Redfin.  On the call, Zillow’s CEO gave reasons why none of these competitors worry him.  We shall see.

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Should Appraisers Be At Their Desk or In the Field?
Fannie Mae CEO Timothy Mayopoulous is concerned that appraisals are slowing down the mortgage process.  In January, Fannie issued guidance that indicates they are quite comfortable with having a trainee or even someone who is unlicensed, not even a trainee, out doing property inspections.  Some states, like Florida, prohibit a trainee from inspecting a property without their supervisor present for their first 12 months.  USPAP leaves who inspects, if anyone, on the back of the appraiser.  The standard certification states, “I performed a complete visual inspection of the interior and exterior areas of the subject property.”  Mayopoulos boldly stated in an interview with Housing Wire, “Appraisers should be at their desks,” not in the field with a measuring tape, making phone calls to track down homeowners.  That’s probably why loans were made on pictures of a property that didn’t exist a few years ago.

FHA Slips a Little With Millennials
Several months ago Ellie Mae started tracking loans made by millennials.  When they started, 36% of millennials chose an FHA loan.  That has dipped to 32% in the latest survey.  Conventional loans are now at 63% for that age group.  When one considers the skimpy loan limits in many areas and the cost of FHA insurance vs. PMI when you have a high score, this is not surprising.

Two Mortgage Brokers Make Fortune Whistle Blowing
You may have heard that Wells Fargo just paid out $108 million over claims of improperly approving IRRLs back in the mid-2000s.  Seven other large lenders paid out hundreds of millions in the same suit and there is more to come.  What happened was Wells and the other lenders allegedly charged veterans non-allowable fees on the IRRLs that disqualified the loans from being VA guaranteed.  Many of the loans went into default and the government took huge losses.  Two astute mortgage brokers teamed with attorneys to file a whistleblower lawsuit.  Whistleblowers can get up to 25% of the settlements so, even after attorney’s fees, these Atlanta brokers took home some serious money.

Mortgage Interest Tax Deduction at Risk Again
It is being reported that at White House round-table meeting with real estate industry representatives, the Trump administration intimated it is open to slashing the mortgage interest deduction.  Liberal groups have attacked the limit of deduction, now set at $1 million, as welfare for the rich.  Most industry groups have strongly opposed cutting the deduction.  The MBA is the lone exception saying, “We’re not religiously wed to the mortgage interest deduction.”  They have walked that back a little when Hillary Clinton failed to win the election.

PHH Pays Out $74 Million on Faulty Loans
Yet another mortgage company pays out a large settlement for failing to follow FHA, Fannie Mae, and Freddie Mac guidelines.  It seems the well never runs dry.  The suit said PHH failed to get paystubs, verification of employment, proper credit reports, and verification of the borrowers’ earnest money deposit and funds to close, and many other charges.  This was another whistleblower lawsuit filed under the False Claims Act by a former employee of PHH, Mary Bozzelli.  Ms. Bozzelli will receive a cool $9,067,377.33 from the settlements.  Many had hoped the Trump administration would quell these actions but has not done so.

Low Down Payment Mortgages at 7-year High
Black Knight’s Mortgage Monitor report was very positive for mortgages.  30-day delinquencies are down nearly 12% from a year ago.  Foreclosure starts are down 18.5%.  The percentage of purchase loans with less than 10% down is growing steady but is only at 40%.  In 2006, close to 60% of home purchase put less than 10% down.  How are the low-down payment loans performing?  Not all that well.  The serious delinquency rate of 97% LTV GSE originations is roughly twice that of 95% LTV loans after 15 months of observation.  Another reason Freddie pulled back 1% down loans?  On a brighter note, the serious delinquency rate of today’s 97% LTV GSE purchase loans is over 90 percent below that of those originated in 2004 and 2005.  In another area, ARMs have a long way to go to catch up with 2005 when they were over 40% of purchase originations.  Today, it is about 8%.

CFPB Wins One on Its Constitutionality
Most of us heard that the CFPB won the right to regulate Navient, the big educational lender and paid little attention since it had little to do with mortgages.  But, the judge in the case came down strongly against the constitutionality arguments on the CFPB and independent federal agencies.  He even went so far as to say its budget was controlled by Congress and the Consumer Financial Protection Act, and rules could be changed through different, legislative means.  I hate to be a second guesser of judges but what does Congress’ ability to change funding of the CFPB have to do with its impingement on the President’s executive power?

Reverse Mortgage Lenders Called “The Big, Bad Wolf”
When a borrower doesn’t pay their real estate taxes or insurance, the promises that you can stay in your home for the remainder of your life evaporate.  It seems some reverse lenders are too quick on the gun to foreclose.  A little old lady in Houston very nearly lost her home even though she had paid her taxes.  Her son said his research shows seniors are regularly harmed by reverse lenders because older folks often don’t defend themselves.

Comments on CFPB Regulation of Business Loans Extended
Dodd/Frank requires that the CFPB sticks its nose into commercial ventures through regulation of small business loans.  Commercial lending has been an area that has remained somewhat free of government constraints.  The deadline for comments was supposed to occur on July 14th but only 29 people have commented so far.  Banks said they are not certain how to comment so the deadline has been extended to September 14th.  If this is an area of concern to you, you can join the few who are commenting.

Philly Fed Blesses Fintech Loans
Using data provided to them by a large fintech lender, the Federal Reserve Bank of Philadelphia determined that fintech companies are helping consumers.  The data provided by Lending Club seems to indicate that fintech lenders are reaching communities where banks lack penetration.  Loan performance figures seemed to downplay debt-to-income ratios and even FICO scores.  Lending Club uses proprietary algorithms to calculate risk.  To cap it all off, Lending club was better-priced for riskier borrowers.

Lower Tax Rate Could Harm Affordable Housing
One may wonder why on earth would lower corporate taxes harm affordable housing?  It is because the tax system has become so specialized that it is riddled with huge tax breaks.  It turns out that under very conservative Ronald Regan, lenders who invest in affordable housing get tax credits, and they are huge.  Even dropping from a 35% tax rate to 15% would not offset these tax credits.  There should be work-around for this though.  Just make certain those who invest in affordable housing don’t come out worse under a tax cut.

Who Owns All of the Houses?
A Harvard Study projects by 2035, more than one in five people in the US will be aged 65 and older and one in three households will be headed by someone in that age group.  The oldsters don’t want to go into assisted living so they aren’t selling, even if it’s a 5-bedroom house and it’s just one person.  80% of those 65 and older own their home.  People 55 and older own 53% of owner-occupied houses, the biggest share since the government started collecting data in 1900, according to real estate website Trulia.  That’s up from 43% a decade ago.  Those ages 18 to 34 possess just 11%.  That creates an ever-increasing shortage of single-family housing in many areas. 

Learning How to Attract Millennials
There is a lot to learn from companies that attract a lot of Millennials.  Two companies that are doing an excellent job are Ally Bank and Quicken Loans.  Don’t let anyone tell you web sites are passé.  Ally has no branches but it has one of the most user-friendly web sites in the business.  It passes on the savings from having no branches in the form of no fees and high rates for savings.  Millennials are willing to forego seeing someone in-person if they can get what they need online.  But don’t make the mistake of having no one to answer when they do call.  Quicken Loans, who considers itself a technology company as much as a mortgage company, is always careful to state that you can talk to someone at any time you need help.

Is Your Web Site ADA Compliant?
For the first time, a company has been successfully sued because their web site was not compliant with the Americans With Disabilities Act.  This time around it wasn’t a financial services company but you can bet lawyers look for opportunities.  Looking at how your web site is supposed to be constructed, you can be certain web developers had input with eye on profit.  The issue was the blind person’s e-reader could not decipher the text on the site.  Looking at what WCAG 2.0 contains, I can’t see why much of what is supposed to be needed would be a help to people with disabilities.

Two Excellent State Conferences Coming Up This Month!
Smaller states can put on great conferences.  More than ever originators need keep up to date with all of the do and don’ts of this industry.  With the wide variance in loan programs and even how lenders view Fannie, Freddie, FHA, and VA programs, you income and your reputation are at stake if you’re not taking advantage of state conferences.  The Louisiana conference is being held August 24th and 25th at the New Orleans Hilton Riverside Hotel.  You can simply sit back and listen as David Luna makes getting your 8 hours of continuing education easy.  For western states, the Utah Association always puts on a first-rate conference.  The keynote speaker is Congresswoman Mia Love.

Rate Outlook
Last week’s Jobs Report was considerably stronger than the expected 180,000 new jobs being created.  The report came in at 209,000 with wage growth of .3%, slightly hotter than expected.  That would be an annual wage growth of 3.6%.
 
The most reliable experts believe the Fed will start tapering its balance sheet at its late September meeting and give one more rate hike as a Christmas present.  That is not universal, however.  St. Louis Fed President, James Bullard, says we are still in the same slow growth pattern of the past few years and the Fed should stay with its current rate level.  Some areas of the economy, like car loans are slipping a bit.
 
Meantime, the strong jobs market and consumer confidence is driving a very active home purchase market.  Demand is outstripping supply in most areas of the country but people are still buying what is available.
 
Most of the economic news this week was found in treasury auctions.  The 3-year auction was very solid.  Not so for the 10-year.  Investors aren’t willing to bet rates will stay this low for 10 years.
 
Rates have bumped along pretty much the same thanks to the saber-rattling with North Korea. People still like U.S. Treasuries even if a Korean missile may be able to hit New York.  The 30-year auction was strong in contrast to the 10-year as the Korean threat registered.
 
The Producer Price Index came in weaker than expected at -.1%, showing inflation is barely alive and we may see deflation.  Tomorrow brings the Consumer Price Index that may drive another nail in inflation.  If that shows no inflation, the Fed may have to rethink any rate hikes.
 
Jobless claims came in at 244,000, still very good and well below the 250,000 area.

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.