News From NAMB: February 22, 2017
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When the U.S. Government took over Fannie and Freddie, they were considered a severe risk. When things began to look much better in 2012, the government decided it was time to take all their profits and give none to shareholders. The shareholders with deep pockets, the hedge funds who had invested in them, sued. They lost in 2014 and just lost again in a rehearing. Their options are getting less and less. They can appeal for an en banc review by the whole appeals court or appeal to the Supreme Court. There is some glimmer of hope that newly appointed Treasury Secretary Steve Mnuchin will turn the GSEs back over to the shareholders but that is a long shot. The biggest question is what happens in 2018 when the GSEs have no reserves and they take a loss? One must suppose they will draw from the government.
State National Bank and 11 states had filed with the DC federal court that the CFPB is unconstitutional long before the PHH case was filed. While PHH hit pay dirt on the Director being unconstitutional, the bank’s suit claims the whole agency is unconstitutional. They have had a much rougher road on that claim with the court. Now, State National wants in on the PHH case since the court is possibly deciding on a similar issue. It looks like it is going to hard for the DC court to just rule on RESPA and not constitutionality in this case.
Ted Cruz introduced a bill last week that would simply amend Dodd/Frank cutting out Title X which authorizes the CFPB. This week, a bill introduced in the Senate last year is back for a second try using a different tactic to kill the CFPB. The Consumer Financial Protection Bureau Accountability Act of 2017 (S. 387), introduced again by Senator Perdue of Georgia, could cut off funding to the CFPB. It would put the CFPB under Congressional appropriations who could cut funding to nothing if the so chose. The bill has 16 sponsors so far.
Treasury Secretary Steven Mnuchin reiterated again today that he does not intend to let Fannie and Freddie remain under government control. He said he intends to ensure that there is plenty of 30-year fixed-rate money in the mortgage market no matter what happens to the GSEs. He considers it vital that the middle class have enough funds to keep the housing industry booming. He is still trying to balance those who want to simply dismantle the GSEs with those who would like them to continue more or less as is.
That is not a misprint. Burkey Loans is offering a portfolio product that will allow borrowers burdened down by student loan debt to purchase a home with a 120% LTV loan. You may be thinking, “How can that be beneficial? The rate has to be higher.” There appears to be a catch to it. Hidden in Burkey’s press release is, “The 120% LTV Mortgage product will allow related parties to participate in a borrower's mortgage loan without disrupting their own investment portfolios. A benefit of this relationship creates access to capital, lower rates and an ability for borrowers to move forward.” Can you say “blanket” or “hypothecation?”
Now that lenders and brokers are not in close contact with appraisers, some miscreants found that it is not too difficult to impersonate an appraiser. They simply assumed the state registration number and began doing appraisals. The HUD OIG has caught up with some but one must wonder how widespread impersonation may be now that no one knows appraisers personally.
Nationstar Mortgage, i.e. Mr. Cooper, turned in a blazing 4th quarter profit. Net income was up 500%. Wow! How did they do it? It actually is pretty easy to turn huge profits on troubled and subprime loans when the market is turning in your favor. Nationstar says they were able to refi a lot of the people and generate fee income as property values increased. Those who don’t pay when they have no equity somehow find a way to pay their mortgage when they suddenly have tens of thousands of dollars in equity. If home prices continue to escalate and jobs are strong, it is a good time to be a servicer, especially of subprime.
As I reported last week, big banks are looking at the potential for regulations to be cut under the Trump administration. Not only would big banks find it attractive to come back, but regional banks may find mortgages attractive once again. The biggest issue that the banks may weigh is how predictable regulation will be. Much of what cost the banks billions was considered acceptable practice. Fannie Mae issued DU findings that required no proof of income. Who would have thought that meant they weren’t requiring the lender to provide it to them but you still had to have it? Who would have thought FHA would want indemnification because the borrowers were $50 short on their bank statements? What Trump’s people think is fine may well not be fine under a new president.
Last year, 58% of lender’s loan estimates to home buyers had to be revised before closing according to a new survey released by ClosingCorp, a provider of data on closing costs and technology. From the initial loan estimates, borrowers said things changed. What changed? Some cited closing costs, insurance costs, and taxes as the most common fees that needed to be adjusted. Unless a loan closed on a specific day, things will change, especially tax prorations. That is expected. The most complaints came from changes resulting from fees that were adjusted due to something about them or the loan. Can you believe 17% of those interviewed didn’t know mortgages have closing costs?
Every Quarter Fannie and Freddie are paying the government billions. Freddie just announced it will pay $4.5 billion to the Treasury this quarter and Fannie is expected to pay $5.5 billion. Despite its best efforts to drain the GSEs’ net worth, Freddie’s worth increased this year from $2.94 billion to $5.08 billion. There is mounting pressure to just recapitalize the two GSEs. ICBA just issued a statement in support of letting the GSEs rebuild capital.
Last month, Remax started Motto Mortgage, a franchised mortgage brokerage that is owned by the realty company. Supposedly, it will give homebuyers one-stop shopping. Redfin says they are starting a mortgage brokerage. Currently, their portal just refers people to originators who appear to be paying to get referrals. Now, Jack Conway real estate is teaming with New Penn to form a joint venture mortgage brokerage in the Boston area. Doesn’t this sound a lot like the Prospect Mortgage model that the CFPB just cracked down on?
In the latest MBA survey, mortgage applications were down 2% from the previous week. The refinance share decreased to 46.2 percent of total applications, the lowest level since November 2008, from 46.9 percent the previous week. The ARM share decreased slightly to 7.3 percent of total applications. The week was still better for purchases than one year ago.
With banks not taking as large of a share of the mortgage market, non-banks were hungry for warehouse funding. Warehouse funding climbed to $1.38 trillion in 2016, surpassing 2015's $1.03 trillion. Utilization also climbed to 59% from 51% the previous year.
Dan Gilbert, Quicken’s founder, has promoted the top leadership of the company a step. He appears to be grooming longtime CEO Bill Emerson to take his spot one day. Emerson was bumped up to vice-chairman, making room for Jay Farner to take his old job. So many titles it’s hard to really know who does what without a scorecard.
NAMB has often called upon the Small Business Administration to help with regulators and Congress. President Trump’s pick for Administrator of the U.S. Small Business Administration (SBA), Linda E. McMahon, was recently approved by the Senate. Perhaps the name doesn’t mean anything to you. Does Vince McMahon? Have you heard of World Wrestling Entertainment, Inc. (WWE)? Linda is Vince’s wife and co-founder of WWE. Can you imagine if she needs a little muscle to get her point across? She can call on plenty. Trump knows McMahon. Do you remember this encounter?
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 email@example.com.