News From NAMB: December 16, 2016

John Councilman
Fri, 2016/12/16 - 12:41pm

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Four Bank Trade Associations Call for CFPB Commission
The presidents of the Consumer Bankers Association, Independent Community Bankers of America, Credit Union National Association, and the National Association of Federal Credit Unions sent a letter to the Senate Banking Committee urging them to change the CFPB Director to a five-person commission. The letter charges that the current setup gives the “sole director unprecedented authority over financial institutions with minimal oversight.” In contrast, a “bipartisan board or commission will provide a balanced and deliberative approach.”


The Latest From Congress on Fannie and Freddie
Democrats and Republicans have new bills being introduced to change Fannie and Freddie. The Republican bill is sponsored by Ed Royce of California. Royce’s bill, HR 6487 would require those selling to the GDEs to take a first risk position. It would also increase G-Fees. One should note that Royce’s top contributors are banks and credit unions. Three Democrats, led by Rep. John Delany of Maryland, have introduced a bill that would also create risk sharing. Neither bill has the blessed of committee leadership at this time.


NMLS Says Renewals are Pouring In
There are 581,000 licenses managed within the NMLS. Sixty-three percent were submitted for renewal and more than half (230,000) were approved. That is 35,000 ahead of last year.  There is a little puffing in the NMS numbers since companies and LOs hold multiple licenses. But it is clear that non-banks have been hiring, growing, and gaining market share.


Fannie and Freddie to Make Mobile Home Loans
Fannie Mae and Freddie Mac had promised a while back to begin doing more mobile home loans. When I say “mobile” that is the correct word. The GSEs are apparently going to start making loans on manufactured homes that are not permanently attached to land. It seems they have gotten the horse ahead of the cart. It is still extremely difficult to do a manufactured housing loan on a single-wide or older unit that is permanently affixed to land. It makes no sense to jump straight to chattel loans when land could be mortgaged that does not depreciate in the same way as mobile homes. In addition, guidelines on manufactured homes with land could be eased.


Refinance Prospects Drop By More Than 50%
Rates continue to rise creating a huge drop in homeowners who would profit from a refinance. The number of prospects is dramatic. According to Black Knight Financial Services, the pool has dropped from 8.3 million to around four million. Since around 55 percent of mortgages over the past year were refinances, is likely there will need to be a contraction with possible layoffs in the industry.


Big Banks Defending Dodd/Frank
The big mega banks are telling Donald Trump, “Don’t mess with Dodd/Frank.” Why on earth would they do that? The obvious answer is that it gives them  an advantage. Big companies can deal more easily with the tons of regulations that Dodd/Frank spawned. Small companies don’t have extra people reviewing other people’s work. Nothing in what the banks want changed has anything to do with mortgages. They like the fact that Dodd/Frank forces them to use good sense in lending.


VA Has Record Year
There was a time when even veterans opted for some other type of 100 percent financing rather than VA. Times have changed and veterans are rediscovering their home loan benefit. The year 2016 was a record year for VA. VA now accounts for nearly 10 percent of the market. VA purchase loans rose nearly 10 percent from last year to 353,002, while refi activity rose 14.1 percent.


Fed May Taper MBS Buying
According to Rob Chrisman, the Federal Reserve will begin tapering its buying of Fannie/Freddie Mortgage-Backed Securities later in 2017. Right now, they are buying $1 to $2 billion a day of MBSs. That’s about $400 to $500 billion a year which accounts for most of the GSE’s production. The Fed is only reinvesting prepays now which will automatically slow their purchase if rates continue to climb. All of this points to higher rates in the future. Hopefully, we will not have over stimulation and see something like what happened in the Carter years.


Risker Loan Security Receives AAA Rating
Both Fitch and DBRS rating agencies assigned AAA grades to bonds backed by riskier, recently made home loans. Fitch projects a loss of 24.75 percent and DBRS projects a loss of 23 percent for the AAA-rated tranche. There are apparently some mitigating factors that created the rating such as scores above 700, bank statement income verification, and average assets of over $150,000. What they may forgetting is that quite a few states do not allow deficiency judgments, something that burned a lot of Alt-A investors.


New Home Sales Up
Not everything is gloom and doom. News home sales applications continued to increase in November. Applications were up 7.5 percent from October and 12 percent better than this time last year. Home prices fell slightly on average to $329,389 in November from $329,634 a month earlier. Mortgage applications were down last week. Surprisingly, refis did a little better than purchases for the week.


SOFI Enters Jumbo Securitization Market
SOFI has a keen eye on the mortgage market, striking specials deals with Fannie Mae and now issuing private securities to reach the jumbo market. For now, the offering is small but is expected to grow. SOFI is going after the elite jumbos with scores in excess of 760 and high cash reserves. The company is known for cutting red tape which may be attractive to many prime jumbo borrowers.



Rate Outlook
The big news of the week is that that Fed is raising short-term rates by 0.25 percent. It would have been a shock to the markets if the Fed had not raised. The hike is only part of the news. People will be parsing the Fed announcement to see how the Fed views the economy and what future Fed policy will be. The announcement was quite aggressive for the Fed. They are promising three rate hikes in the coming year when the market was expecting only two. The net result is mortgage rates are shooting up.

Part of the effect on rates came from the Producer Price Index which jumped .4% and the core also +.4%. That really is not surprising since the PPI hasn’t been in sync with the CPI so it was time for it to catch up.  Nonetheless, it raised inflation fears and we are in a very strong trend toward higher rates.

Retail Sales were only up .1%, which was lower than expected.  Industrial production fell 0.4% and capacity utilization stood at 75.  These were a little worse than expected.  The Consumer Price Index was up, but nowhere near as strong as the Producer Price Index, coming in at .2%.  Jobless claims dipped a little but still remain above the 250K threshold. 

Another shocker was released when the Philadelphia Fed reported economic activity in the Mid-Atlantic region jumped to 21.5 when experts expected 9.

If we keep getting unexpected large spikes in economic areas and the Fed signaling lots of increases, bond traders are going to push rates up more and more.  Until something breaks this trend, there is no end in sight to the rate increases.



 

John Councilman, CMC, CRMS of AMC Mortgage Corporation in Ft. Myers, Fla. is immediate 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.