News From NAMB: July 6, 2017

July 6, 2017
Top Story: Budget Cuts Could Hamstring CFPB
In Washington, much of what cannot be passed in stand-alone bills can be accomplished in the budgeting process.  Since the Choice Act that passed in the House does not appear to be passable in the Senate, House leadership is working on putting portions in an important appropriations bill.  It would roll back CFPB funding to 2015 levels and diminish CFPB supervisory authority.  The transitional license wording is included in the bill.  The CFPB would lose UDAAP authority to solely determine unfair practices which is key to many CFPB enforcement actions.  Much of the bill is written in strike this, move this, language that makes it very difficult to do a quick read.  Democrats would find it politically dangerous to stop an appropriations bill since they would be in the position of effectively shutting down numerous federal agencies.

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Redfin Takes on Zillow With a Different Model
Redfin is serious about becoming the most profitable real estate web site in the country.  They are going public to raise $100 million to take on Zillow and Realtor.com toe-to-toe.  Redfin is really nothing like either of those sites.  It is like a web-based Century 21.  It is essentially a national real estate brokerage that also offers financing and other real estate services.  Redfin is already the most visited real estate broker web site in the country and looks to grow by offering discounted brokerage fees and agent compensation based on consumer satisfaction, not just sales price.  It worth reading their prospectus since it details their entire philosophy.

Another State Requires Licensure of Lead Generators
Thanks to the S.A.F.E. Act, every state has a loan originator licensing law.  Those laws are often somewhat vague and may or may not intend to license lead generators.  Recently, states have begun to consider lead generators to be either loan originators or mortgage brokers.  Connecticut just passed a law that says if you contact consumers for the purpose of offering a mortgage loan, you need to be licensed.  This gets tricky because it could be construed to catch things like trigger leads provided by credit bureaus and other advertising.  The criteria seems to be the passing of information about a borrower to another party to facilitate a loan.  There is a lot to consider for lead generators and those who use them.  In the Northeast, many states license lead generators already.  New York licenses lead generators as brokers.  In Virginia, it is more complicated.  If you collect a social security number or decisioning information, you are a mortgage broker.

Nevada Revamps Its Mortgage Origination Laws
Nevada has made major changes to its mortgage lending law that would regulate both brokers and mortgage bankers similarly as as “mortgage companies.”  Originator education will be upped from 8 hours to 10 hours, 3 of which must be Nevada law. Nevada had required monthly activity reports and annual audits.  That is now up to the Commissioner’s discretion and will likely change considering that there are NMLS call reports.

New Hampshire Not Waiting for Federal Transitional Licensing
As we have reported earlier, the Choice Act and a stand-alone bill in the House contain transitional mortgage licensing.  The bills would allow existing MLOs to operate in a new state for 120 days without being licensed in the state.  New Hampshire has passed a bill that is waiting for the governor that would allow MLOs licensed in another state 60 days to operate without a license in the state provided: (1) The MLO has passed the UST  (2) They take 2 hours of New Hampshire education.  It appears that this does not include bank registered originators who wish to become licensed.

The Race Is On For Fast Closings
Companies like Movement Mortgage and United Wholesale have developed a reputation of super-fast closings despite the TRID waiting periods.  A REMN rep is now publicly touting an example of how a wholesale FHA loan was sent to closing in just 7 days.  The example doesn’t say when they issued the preliminary Closing Disclosure and exactly when the loan closed but it looks a bit longer than 7 days.

Loan Defects Rise
The frequency of mortgage defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased 2.5 percent in May 2017 as compared with the previous month.  Somewhat more shocking is when compared to May 2016, the Defect Index increased by 13.7 percent.  The questions are, Is this a result of the faster closings noted above and Is the resulting cost already built into pricing?

VA Announces Appraisal Fees for Western States
Not only are houses expensive in much of the west, so are appraisals.  In an attempt to keep appraisers on the VA roster, the Veterans Administration has jacked up appraisals in Western states to over twice the rate in the East effective July 1st.  Montana leads the list with a single-family home appraisal costing $900.  If the property is deemed complex, the VA allows appraisers to charge even more, with VA approval.

HELOC Payments Jump Massively
Although the Federal Reserve has only made ¼% hikes in short-term rates, as a percentage, they are significant.  Since most HELOCs are based on the Prime Rate, which is in turn based on the Fed Discount Rate, HELOC payments have jumped significantly.  If the Fed raises again this year, as proposed, HELOC payments could jump by as much as 50% this year.  If the Fed senses inflation, HELOCs could double over the next few years.

Trans Union Loses $60 Million Suit
In the days before the CFPB, lenders and other credit-related entities were kept in check by class action lawsuits.  Those are still alive and well and can rival any of the CFPB’s fines.  Trans Union just lost a $60 million-dollar class action suit under FCRA.  The overarching commonality of Ramirez v. Trans Union was Trans Union’s failure to ensure “maximum accuracy” in its credit reports and failure to provide consumers with proper disclosures.   Ramirez sued because he was denied a loan because he was improperly placed on the OFAC list.  Even though the error was corrected, the California 9th Circuit ruled, based on Spokeo v. Robbins, you don’t have to suffer concrete injury to be awarded damages.  The 9th Circuit is a favorite of class action lawyers but a new Supreme Court ruling may stop lawyers from shopping for the court most favorable to their case.

It May Be Dangerous for Borrowers to Go to Loan Matching Websites
The Federal Trade Commission admits that there are false loan-matching websites.  How many?  They don’t tell us but they recently shut down Blue Global.  The FTC claims the site took sensitive personal information primarily for the purpose of selling it.  Only about 2% of those who came to the site were actually matched.  The FTC warns that the sites tout secure online applications when they did not have the promised protection.  The FTC said that company’s sites captured information on over 15 million potential borrowers.  Some very good arguments why borrowers seem to prefer dealing with a real person they know.

Insurance Rising Faster Than Home Prices
Many decry the escalation of home prices as pricing potential homeowners out of the market.  There are other costs that are increasing even faster.  Real estate taxes rise at least as fast as home prices since they are keyed to the values of homes.  They can rise even faster if governments raise the factors, which is not uncommon.  The real cost increases are coming from a smaller but significant monthly cost, home insurance.  The average price of home insurance in 2000 was $508.  By 2015 that average price had increased to $1,169. That was an increase of $661, or 130%.  That is even faster than the rise in consumer-paid health insurance.  Flood insurance is priced far below what it should cost and may double in the next decade.  No wonder so many ads on TV are for insurance.

Senate Hearings on GSE Reform Amicable
A lot of the hearings on Capitol Hill are little more than showboating positions of various members of Congress.  The Senate hearing on GSE reform was much better than that.  The panel of three industry leaders took a very thoughtful approach and the Senators were not at each other’s throat, and listening intently.  The consensus is that the GSEs do still need reform but they are important to affordable housing.  The panel also agreed that Fannie and Freddie should be accessible to all players, large and small.  The question is whether the House can keep such a level of discussion.

Is the CFPB More Effective Than DOJ?
When it comes to enforcing financial laws, there are those who think the CFPB is far more effective the Department of Justice.  As a result, Democrats are trying to move enforcement of laws that protect veterans to the CFPB.  The Military Consumer Protection Act is being offered in the Senate that would give the CFPB primary authority over the Servicemember’s Civil Relief Act.

Can a MLO Reimburse a Borrower for an Appraisal?
Many times, an MLO would like to pay for something to make a deal sweeter.  The question is, “Is it legal?”  Lender’s Compliance says the lender can reimburse the borrower for the appraisal or anything else that incentivizes the borrower to do business with them.  Unfortunately, MLOs can’t.  It acts as a reduction in the MLO’s compensation which is illegal.  In addition, Fannie Mae/Freddie Mac require that MLOs may not pay the appraiser.

United Wholesale is Moving
United Wholesale has been growing by leaps and bounds, becoming the largest wholesale lender in the United States for the last several years.  The company is buying and renovating a 600,000 sf facility in Pontiac, Michigan, formerly owned by Hewlett-Packard.  It’s not a long distance, just about 8 miles.  The move, which will be completed in 2018, will give employees a massage area, a Starbucks to keep them revving, and even a dance floor and basketball court.

Another Mortgage Origination Magazine Begins
There is no lack of magazines and newspapers that target mortgage origination.  Some target just the originator while others contain articles for all of the mortgage industry.  One area of origination that has been neglected is the private lender/hard money area.  No longer.  This month marks the first month of Originate Report.  The magazine is published by the Geraci Law Firm that has close ties to the American Association of Private Lenders.

Whatever Happened to the Originator Overtime Rule?
Last year, the Obama Administration made a huge change to the rules regarding overtime and DOL ruled most MLOs would be eligible for minimum wages and overtime.  Just as the rule was set to go into effect in December, a federal judge stopped it with an injunction that remains in place.  The judge said Congress set overtime rules based on duties, not pay-scale.  So, the rule has been in limbo for 6 months.  Now, the Trump administration wants the court to decide if overtime can be set by pay rather than duties.

Bankrate Bought by Tech Company
Financial publisher Bankrate was scooped up for $1.24 billion by a company most of us have never heard of named Red Ventures.  Red Ventures does all sorts of high tech development that makes the internet work for other companies like Direct TV.  It appears Red Ventures does not intend to initially change much about Bankrate but will add to its technology capabilities.  

CFPB Opens Up Ability to Repay Rule.  Your Comment is Important
The CFPB is assessing the Ability to Repay rule, also known as the Qualified Mortgage rule, they released in January of 2014.  Under the rule, we have a 43% ratio that essentially only applies to private industry loans and a 3% cap that really only applies to mortgage brokers because of all of the exemptions.  This is your opportunity to comment.  Certainly, I would recommend that they remove lender-paid compensation from the 3% cap.  That would give an even playing field for all originators, that the CFPB claims to want to create.  Secondly, the government loan exemption from the 43% ratio expires in 2021.  The CFPB must decide in this iteration if that should be extended.  Changing to a 50% DTI would be the best choice but we really need to extend the GSE/FHA/VA exemption if raising the DTI is not their choice.  They also need to make certain streamline refinances remain QMs.

Rate Outlook
I would have to say the Fed is frustrated.  They have done everything in their power to create inflation at the 2% level and have totally failed.  The minutes of the Fed’s June meeting show even the Fed was not expecting the “surprisingly low recent readings on inflation.”
 
Home sales would be even better but a shortage of homes for sale and builders’ inability to turn out reasonably-priced homes in a reasonable time due to red tape is even slowing the red-hot housing market.  Car sales have dropped 2 1/2 % since the first of the year despite as much as 25% price concessions on more expensive vehicles.  Things can always be better but they are far from bad.  Perhaps the federal economy mangers should just chill and let things take their course.  Things are really pretty good.  Why fight it?  Considering the disagreement between Fed members on reducing their balance sheet, that may be what they choose to do.
 
This week, rates have been somewhat defensive, awaiting the Jobs Report tomorrow.  Today, ADP’s employment report showed jobs slipping a little with ADP employment up 158,000 vs. the expected 185,000.  Jobless claims edged up to 248,000, the highest in a month or so.
 
The trade deficit remained steady at $46.5 billion vs. the expected $46.1 billion.  Manufacturing cooled at bit with the ISM dropping below 50 at 49.7.  New orders dropped to 47.8, both indicating some manufacturing slowdown.  Europe is actually improving a little which will dim some safe-haven buying of U.S. bonds.
 
Even if the Jobs Report tomorrow is weak, it probably won’t push rates down much but a very strong report could push up 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.