News From NAMB: August 28, 2017

August 28, 2017
Top Story: The Death of the Real Estate Appraisal Profession
The ball is rolling quickly to eliminate field appraisers from many loans.  Freddie Mac announced this week that home buyers, not just those refinancing, may be eligible for an automated appraisal alternative.  The advantages are huge.  Appraisal management companies added a major layer of cost, driving appraisals from $300 to $500 in just a few years.  Borrowers escape the $500 fee, it eliminates the TRID hassle of waiting to pay for an appraisal, then waiting for the appraiser to provide the report.  On top of all of that, Freddie’s EVP points out "We're providing immediate collateral representation and warranty relief to lenders.”  Fannie jumped on the news and announced the same thing within hours of Freddie’s announcement.  Fannie is more explicit in noting their exclusions such as LTVs above 80%.  They say less than 5% of purchases will receive the waiver… for now.

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Why Some Loans Get Appraisal Waivers
Originators often scratch their head when a loan with a 50% LTV fails to get a PIW and one with an 80% does.  It’s all about Confidence Levels.  Every address in Fannie and Freddie’s database has a Confidence Level.  That means that a very sophisticated statistical model tells the GSE how similar comps are, how close, and even looks at the area to see how well it is performing on resales.  Freddie Mac claims that now most property estimates have a very high Confidence Level.  They say 70% of HVE estimates are rated high confidence estimates. About 25% of HVE estimates are medium confidence estimates, and less than 5% of HVE estimates are low.  That should be scary to appraisers.

HARP Extended Another Year
FHFA is directing Fannie Mae and Freddie Mac to extend HARP through December 31, 2018. There is a slight change to the program that helps the GSEs not lose money.  Many pools are now structured with credit risk transfer that makes it more cumbersome to refinance loans and still maintain the risk transfer protection that was paid for.  FHFA is modifying the structure to allow the newly refinanced loans to return to the reference pools in place of loans that prepaid.  HARP will continue to allow refinances of loans that exceed the Enterprises' maximum limits.

If Builders Won’t Build, Rental Companies Will
Yes, you read that right.  Builders are simply not turning out anywhere near the number of homes they did in mid 2000s.  This has created a huge shortage of homes.  For the past 25 months, the housing inventory has been dropping, according to Zillow.  At the end of 2016, a higher percentage of people were renting vs. owning in 52 years.  Some large rental companies are buying up new homes to meet the demand.  Going one step further, rental giant AHV Communities is now in the process of building huge single-family home rental communities.  They will have the amenities of an apartment complex but these are all detached homes.  Who do we blame for turning America into a nation of renters?  The likely culprits are laws like Dodd/Frank.

Congressman Wants to Make Renting Better Than Owning
As amazing as that sounds to those of us who believe owning is better than renting, New York Rep. Joseph Crowley is introducing legislation that would give superior tax breaks to renters.  While owners get a deduction for mortgage interest and real estate taxes, Crowley’s bill would give a tax credit to renters whose rent is more than 30% of their income.  That would probably be most renters.  If it follows typical IRS regulations, renters could actually get back from the IRS more than they would have paid in taxes.  He is a Democrat so this bill has little chance of even getting out of committee since Republicans control the committee process.

Are Veterans Still Unaware of Their Mortgage Benefits?
Some members of Congress believe veterans take FHA and conventional loans because they are not aware of their VA home loan benefits.  So, they have introduced H.R. 2777 that purports to ensure vets know about the VA loan program.  One of the requirements would be a box on the loan application that must be initialed by the veteran stating, “If you are a veteran, you may be eligible for a VA mortgage.”  It would also require the military to give VA loan counseling when the Vet leaves service.  One must wonder why active-duty veterans aren’t being counseled since they also can use VA loans.

PMI Still Lagging FHA/VA
Up to the meltdown in 2009, PMI generally insured more dollar volume than VA and FHA put together.  In the 2003 to 2006 era, FHA insured so few loans that everyone wondered if we really needed it.  Suddenly, in 2009, FHA was insuring 85% of the loans.  Several PMI companies went under in that era.  Finally, it 2014, PMI caught up with FHA and it has remained that way since.  PMI still is a far cry from its earlier self, still only writing about $250 billion in business compared to over $400 billion in earlier years.  The mortgage insurance market is about evenly split with FHA, VA, and PMI all taking about 1/3rd.  Had FHA retained its premium cut, PMI may have shrunken substantially.  A new study by the Urban Institute points out the government’s competition with PMI and its importance to Fannie and Freddie.

Foreign Buyers Sucking Up American Real Estate
We are seeing a trend in foreign buying of American real estate that is having an impact on inventories.  284,455 U.S. properties were bought by foreign buyers (up 32 percent from 2016), and purchases accounted for 10 percent of the dollar volume of existing-home sales.  China tops the list with Canada holding the #2 spot.  Not everyone in China is low wage.

What is Reverse Occupancy Fraud?
We all know of people who claim a property will be their personal residence so they can get a lower rate or less proof of income.  That was one of the reasons for the 2008 crash.  Creative fraudsters have now created the reverse according to Fannie Mae.  People claim they will be renting the house so they can use the rental income to qualify or avoid the highly restrictive rules of Dodd/Frank and the CFPB, then move into the house as their residence.  The risk is that they won’t have the rental income to make the payments.

Carson’s Home Vandalized
HUD Secretary Ben Carson posted on his Facebook account that his Virginia home was vandalized, apparently related to the Charlottesville violence.  Although Carson is African-American, it appears he was targeted by people who opposed racism in Charlottesville simply because he was a member of the Trump administration.  "We were out of town and our house was toilet papered," Carson told News4.  "They had painted 'F Trump' on it as well."

Why Banks Will Continue to Lose Mortgage Share
Previous generations visited their bank at least once a week.  Not so with Millennials.  They only visit their bank once a month, if they visit at all.  The largest percentage say they never visit their bank.  Some of the most popular banks with Millennials, like Ally, have no branches.  The bank is not a place where they have built a significant relationship.  On the other hand, massive advertising by companies like Quicken and SOFI have changed the thought process of younger people regarding where you get a loan.  It’s a great opportunity for non-bank mortgage companies.

Refinance Activity Creeping Up Again
In its latest survey, the MBA shows purchase mortgage activity beginning to stall.  Refinance activity had dropped to the low 40% range of mortgage applications but has now rebounded to near 50%.  Combined with the dip in new home sales, despite low exiting home inventory, makes one wonder if home price increases are reaching a tipping point.

Banks Post Record Profits
It seems using their money for things other than mortgages is good for banks’ bottom line.  The FDIC reports Q2 2017 was the best quarter for banks since 2007.  Community banks are making excellent returns on alternative loans.  Some community banks are even doing HOEPA loans, giving them a huge spread on deposits.  The FDIC also just exempted them from having as much capital reserves as bigger banks, boosting their profits even further.

Zillow Could be Crippled by RESPA Actions
Zillow has been downplaying the consequences of the CFPB’s investigation of its marketing practices.  Last week, its CEO said the subject of the investigation would only affect its bottom line by less than 10% in a worst-case scenario.  Columnist Ken Harney points out that Zillow’s Premier Agent monthly payments are a crucial part of Zillow's business model, amounting to nearly $190 million during the second quarter of 2017 alone. This represented more than 70% of Zillow's total revenues.  This puts Zillow in the awkward position of preferring to settle for a fine that leaves the program intact.

Zillow Wins Zestimate Lawsuit
There was good news for Zillow on at least one front.  A federal judge in Chicago dismissed a lawsuit that claimed homeowners are harmed by Zillow posting home values that are not accurate.  Zillow is careful to say that Zestimates are not appraisals.  The judge agreed and added that the appraisal licensing laws aren’t enforceable by ordinary citizens.  Unfortunately, while Zestimates are popular, they aren’t a major source of revenue for Zillow.  But, it’s not over for Zillow.  The plaintiffs say they are revising their suit for another go at it.

Phishers Are Trying New Tricks
Now, mortgage originators are receiving emails from people who claim to be looking for a mortgage.  It looks very legitimate.  It has a person’s name as the sender.  The emailer says they have attached a PDF with their information so you can give them a quote on a mortgage.  Of course, if you open the file nasty things will happen to your computer.

Are Consumers Better Off Under TRID?
Now that we have been using TRID forms for several years, one would think the dust would have settled on opposition to them.  Not really.  Credit Unions view TRID as a giant step backwards in disclosure.  They understand that borrowers want settlement cost certainty.  But, in an article in the Credit Union Journal, they say that borrowers find TRID disclosures harder to understand than the previous disclosures.  The article believes there is still a lack of clarity on how to disclose certain things on the forms.  A real stone in the craw of credit unions is how TRID treats lender credits.  Many credit unions offer to pay all of the costs.  If the CU estimates the appraisal will cost $500 but really only costs $400, they are required to not only pay all of the settlement costs as promised, but they must give the borrower $100 additional.  That discourages lenders from paying all loan costs.

FEMA Legislation May Increase Premiums for Flood-Prone Homes
Brock Long, the administrator of the Federal Emergency Management Agency, says taxpayers can’t continue to pay to repair homes that keep flooding.  The federal government spent $357 billion on disaster recovery in the past 10 years with 2016 being the 2nd worst year.  The government has had to fork out twice what they did to bail our Fannie and Freddie with premiums not beginning to cover the costs.  It will all be coming to a head in the next month or so as the program will need to be reauthorized.

NAMB National Rocks!
The nation’s most exciting mortgage show is coming to Las Vegas October 14-16th!  Great entertainment and parties are in store for attendees.  You’ll hear the fiery rhetoric of Ann Coulter who has deep insight into the Trump administration’s regulatory agenda, including the CFPB.  The leaders of the top wholesale lenders will give you tips on how to be a market leader.  Then, party on Saturday night at the incredible Omnia nightclub in Caesar’s Palace with America’s #1-rated DJ and recording artist Martin Garrix.  Sunday, the huge trade show opens with over 100 lenders on display with many new alternative programs.  Sunday night, it all culminates with Foreigner lead singer Lou Gramm and his new band.  Room reservations are selling out.  Register now

Rate Outlook
The Federal Reserve Bank of Atlanta is forecasting real GDP growth (seasonally adjusted annual rate) for the third quarter of 2017 to be 3.8 percent.  The primary driver they say is real residential investment growth which increased from -0.5% to 3.7% in August’s new residential construction report from the U.S. Census Bureau.  That would be a very good quarter, if true, and possibly could drive the Fed to raise rates.  However, most experts are far less optimistic, forecasting GDP growth in the low 2% range.  We will see if Atlanta has egg on its face in a month.
 
San Francisco Fed President John Williams says the Fed is itching for more rate hikes.  Williams thinks the Fed is only halfway there with rate hikes.  He wants Fed rates to normalize around 2.5%.  They are currently at only 1.25%.  That means home equity lines credit would jump to the 5.5% to 6% range.  If mortgage rates hold in the face of Fed rate increases, it would seem a lot HELOC borrowers will want to refi.
 
New home sales dipped in the month of July to a seasonally adjusted annual rate of 571,000 which was 8.9% lower than July of last year.The FHFA Home Prices Report continued to show home price appreciation.  Home prices were up 6.6% from last year and 1.6% better than the 1st quarter of 2017.
 
Jobless claims were still very low, up from 232,000 last week to 234,000 this week.
 
Durable Goods is the only remaining news of the week which is not likely to make rates move much.
 
Next Friday, we get the most important piece of economic news, the Bureau of Labor Statistics Jobs Report.  June and July were both strong months.  If that continues into August, it could push rates up somewhat.  A weak jobs report could continue the trend toward lower rates.
 

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.