News From NAMB: June 30, 2017

June 30, 2017
Top Story: Transitional License Bill Is Back
Last year, Rep. Steve Stivers of Ohio introduced H.R. 2121, the SAFE Transitional License Act.  This year, it is back as H.R. 2948.  In short, the bill had 2 purposes.  First, it would have allowed MLOs working for banks to begin originating for a state-licensed company without any delays for doing what is required by state law such as getting NMLS-approved education, passing the criminal background check, passing the licensing test, and being responsible with credit.  The second part allows an originator who is licensed in at least one state to start originating in another state for 120 days without going through the licensing process.  What is not clear is what happens if a bank MLO either doesn’t pass the test (65% of test takers fail) or doesn’t get licensed for some other reason.  Questions arise such as “Can the MLO be compensated if the loan closes after 120 days?”  What happens if the company has a license in that state but doesn’t have any MLOs at the time?  NAMB members are sharply divided over this possible change.  Similar language is contained in the Choice Act but even its sponsor admits it had little chance of making it through the Senate. 

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Company Guarantees Lowest Rate/Price
There is always someone out there who buys the market. Nearly always it is a company that has only been around for a short period. The latest is a fintech company called Better Mortgage. They have been funded by some heavy hitters like Goldman Sachs. According to Housing Wire, they are offering borrowers $1,000 if they can’t beat anyone’s price. You give them your Loan Estimate less than 4 days old. If they don’t beat the price and you actually close on the competitor’s loan, they give you $1,000. Interestingly, the guarantee is not obvious on their web site.
This Is the Week Judgments Come Off Credit Reports
Starting July 1st, most judgments and liens will no longer show on credit reports.  According to FICO, it will affect about 7% of the population.  For them, scores will generally increase by about 20 points.  Now may be a good time to review all of the people where you pulled credit but didn’t make a loan.

Pending Home Sales Drop Again
For the third consecutive month pending home sales declined. In May, pending sales were down .8%. The index measures housing contract activity, and is based on signed real estate contracts. Because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing Home Sales by a month or two. The experts all agree that the cause is a shortage of housing, especially in the affordable price range.

Freedom Buys NYCB
In a $500 million deal, Freedom Mortgage swallowed up a competitor. NYCB has been a major player in wholesale and correspondent lending after acquiring the assets of Amtrust in 2009. They have been known as a vanilla lender with excellent rates. Price competition has no doubt made that position more difficult. Freedom was already a top 10 lender and will go near the top with this acquisition.

How Is Zero Down Performing?
About this time last year, Fifth Third Mortgage offered 3% of the purchase price in down payment assistance, leaving the borrower to put zero down on the home.  Borrowers don’t need to be first-time buyers, but must be either located in a Low Income Census Tract or borrower must meet the FFIEC low income limit threshold. The program is only available in the bank’s footprint, which includes Michigan, Indiana, Illinois, Kentucky, Tennessee, Ohio, West Virginia, North Carolina, Georgia and Florida.  Fifth Third talked about the social benefits but did not reveal performance statistics in an interview with Housing Wire.  When home prices are appreciating quickly, loans tend to perform better.  It is when prices decline that borrowers seem to find more difficulty making payments.

Mortgage Applications Dip
Last week mortgage applications declined by 6.2% according to the MBA.  Both purchase and refinance activity slowed.  One must wonder if the news media’s coverage of the Federal Reserve raising short-term rates may have had a psychological effect on mortgage seekers.

Would You Buy a House You Had Never Seen?
 Amazingly, a new study by Refin says about a third of buyers did just that.  That certainly throws the fixer-upper TV syndrome.  If looking at the house is not that big of deal, what is?  Remarkably, many of those surveyed would be hesitant to move to a place where people have different political views; more than half of Arab, Asian and Latino respondents said immigration orders influenced their moving plans.  Another piece of good news is that only 5% said it would scuttle their house-buying if rates exceeded 5%.

Home Prices Continue to Rise… and New Tariffs Will Push up More
Home prices set a new record for last month.  Normally, home prices are kept in check by a good supply of new homes.  Due to excessive regulation, builders aren’t turning out anywhere near the number of new homes they have in the past.  Combine that with low inventory of existing homes and you have sharply rising prices. Now, the Commerce Department is jacking tariffs on Canadian the 2nd time in a month.  The new tariff moves the tax on Canadian lumber to over 30% from around 17% earlier this year.

Bad Week For Credit Repair Companies
This week the CFPB came down hard on 4 California-based credit repair companies.  The CFPB fined Prime Credit, LLC, IMC Capital, LLC, Commercial Credit Consultants and their principals millions of dollars for alleged illegal behavior.  The CFPB alleges they collected illegal upfront fees, had a very limited money-back guarantee, and promised to remove items and increase scores that didn’t happen in many cases.  In addition to the fines they are prohibited from offering credit repair for 5 years.

Credit Unions Can Securitize Loans Now
NCUA had proposed a rule back in 2014 that would allow credit unions to securitize their loans, something only banks were allowed to do.  NCUA finalized the rule on Friday.  With the ability to securitize, credit unions are allowed to take a step into the world of giant loan production.  The Federal Credit Union Act allows credit unions to sell their loans, but they lose control and must meet all the terms of the buyer.  They would still be prohibited from securitizing loans they purchase, but it appears they may be able to securitize loans obtained through brokers if the borrower becomes a member.  Already, some credit unions are working the wholesale mortgage market and could fill a void banks made when they left wholesale. 

Undisclosed Debt Verification or Refresh Report?
We all became aware of Fannie Mae’s requirement that a borrower’s debt must be re-evaluated just prior to settlement.  The first run at this created the Refresh Report, a credit report that just updates trade lines but does not change the score.  For about a year now, credit resellers have been offering the Undisclosed Debt Monitoring. It doesn’t cost a lot more than a Refresh Report and may include information not on the Refresh Report.  Since it notifies you in real time about changes to your borrower’s credit profile, it has the side benefit of notifying you if another mortgage company pulls your customer’s credit to see if you may be in danger of losing your loan.

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
Rates are again moving sideways with little bombshell news to drive them up or down sharply.
 
This week, orders for durable goods, such as planes and computers, fell in May for the second month in a row and registered the biggest drop in six months, suggesting that an early-year surge has faded.
 
Consumer Confidence was stronger than expected at 118.9 vs. the expected 116.7.  People have not lost confidence despite the war between Donald Trump and the media.
 
The economy is not on fire.  Revised GDP showed 1.2% growth, more less what we have seen for 8 years.
 
Today brings personal income, outlays, core PCE inflation and the University of Michigan consumer sentiment.  These will have some importance to rates, since the Fed closely watches PCE and wage pressure will cause inflation.
 
Next week, the biggest news of the month, the Employment Report, will tell us if we are to expect further raises in the Fed rate and mortgage rates as well.
 

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.