News From NAMB: June 8, 2017

June 8, 2017
Top Story: CFPB Opens Up Ability to Repay Rule
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.

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Financial Choice Act Presented to Full House This Week–Highlights
The prospects are looking good that the full House will pass the Financial Choice Act this week.  With the media fixated on the Comey hearings, we hear little about other Congressional activity but that is not stopping the Act from moving forward.  Here are the portions that would affect mortgage originators:
 
►Would End CFPB Independence: The CFPB would no longer be considered an independent agency.  The Director could be removed by the President at any time for any reason.  Congress would determine the CFPB’s funding rather than simply getting whatever it asked for from the Federal Reserve.
►Would End FHFA Independence: The Federal Housing Finance Agency is one of the very recent federal agencies that is labeled as “independent.”  They don’t answer to Congress, to the President, or to the courts as NAMB found out when it sued them over appraisal rules a few years back.  The Financial Choice Act would change some of that by bringing FHFA under the appropriations process of Congress.  FHFA pays very well.  The average salary there is about $167,000.  The bill would also make the FHFA Director removeable by the President at will.  It appears setting Congress’ sights on the CFPB put FHFA in the crosshairs as well.
►Affiliated Business Owners Love It: Currently, fees paid to affiliates of the lender are counted as points and fees.  This makes it unattractive for lenders to send borrowers to title companies they own.  The Financial Choice Act would no longer count those affiliate fees in the points and fees caps or triggers.
►Weakens S.A.F.E. Act: One very negative aspect of the Financial Choice Act is it includes what is called “transitional licensing.”  That allows originators who have been working for a depository to work for a state-licensed company for 120 days while they try to get licensed.  Worse yet, it allows loan originators licensed in a state to originate loans in any other state for 120 days without a license in the new state.  This would override state requirements that someone have education in the new state’s laws before licensure.  On the surface, these seem beneficial until problems arise with those who can easily skate the system.
►Reorganizes CFPB Role: The CFPB would be renamed the Consumer Law Enforcement Agency.  Its rule-making power would be much more subject to Congressional approval.  The emphasis of the agency would be less on rule-making and more on enforcement of rules and laws.  Courts would not need to defer to the determinations of the Consumer Law Enforcement Agency regarding the meaning of federal consumer financial law as Dodd/Frank currently requires.  The consumer complaint database would no longer be public, but would still be shared with other federal and state agencies.  The agency would no longer have UDAAP authority which has been central to CFPB enforcement actions.

CFPB Features Elder Complaints This Month. Mortgages at Top
In its Monthly Complaint Report, the CFPB spotlights complaints from older Americans.  The area most complained about by them is mortgages followed closely by debt collection.  The number of complaints about mortgages from people over 62 is nearly twice that of people under 62.  The area of greatest concern is when elders are unable to pay, especially with regard to taxes and insurance on reverse mortgages with 5 times the number of complaints against reverses in 2017 when compared to 2013.

Lenders Offering 100% Financing Grows
Freddie Mac has opened its Home Possible Advantage mortgage, a 3% down payment program with reduced mortgage insurance premiums, even further.  Lenders can provide a grant that will require no down payment from the borrower.  The trend started last year with Fifth-Third Bank.  Now, Quicken, Guaranteed Rate, and Movement Mortgage are offering the program.  The program even allows a 105% TLTV to finance in closing costs.  By the way… no reserves required.

Flood Insurance Bill Has 6 Versions. Pick Your Favorite
How many proposed flood insurance bills does it take to make everyone happy?  At least 6.  That is how many different bills House Subcommittee on Housing & Insurance chair Sean Duffy has put forth.  Give everyone their own flavor and see which one wins.  It is a novel approach.  Democrats are still not going to like much that a Republican introduced.  Can you imagine if there had been 6 different Dodd/Frank proposals?  Everyone would still be reading them.  Oh, I forgot … many said they didn’t read Dodd/Frank when it was passed.

Does Removing Judgments From Credit Reports Help?
The bar for placing judgments and tax liens on credit reports is so high, Lexis Nexis claims 98% of judgments and 50% of tax liens will disappear from credit reports starting July 1st.  The public records data would have to have 3 of 4, name, address and Social Security number or date of birth to be reportable.  Can you imagine putting social security numbers in public records?  Then, there is the claim by FICO that removal of this data will have no impact on credit worthiness.  If that is case, why did FICO cut my personal credit score nearly 100 points when the state incorrectly reported a tax lien on my credit report a few years ago?  If the public records information is accurate, other sources say the risk of default is anywhere from 2 to 5.5 times as great.  One good thing that will help originators will be a bump in their credit score.  On the other hand, people like Lexis Nexis are going to be producing the old-time judgment reports that will still make you track down public records information and add extra cost to the borrower.  Credit resellers plan to add this service at additional cost.

Urban Institute Calls Appraisal System “Slow and Inefficient”
The Urban Institute brought in 3 appraisal experts to discuss why appraisals are increasingly becoming a bottleneck in the system.  One of the problems discussed was the 1004 form that they say is too long and duplicative.  Then, there are the capacity issues due to ever-increasing standards that many believe are unnecessary, such as a 4-year degree in anything, just to appraise a house.  It doesn’t help that lenders want dozens of pictures, and new pictures of comparables rather than the MLS pictures that more accurately reflect the comp when it sold.  Appraisal management companies nitpick the appraisals while pushing appraiser compensation down.  The blog claims all of this gives cash buyers like investors a significant advantage over first-time buyers.

Prospects for CFPB in Supreme Court Get Dimmer
While the CFPB is battling for its life in the D.C. Court of Appeals, another appeals court and the Supreme Court have been ruling on SEC cases that would directly impact the CFPB’s PHH case in a negative way.  In a case earlier this year, the 10th District Court of Appeals held that the use of administrative law judges to adjudicate enforcement actions is unconstitutional.  That strikes at the core of the CFPB case against PHH.  That court just refused an enbanc review of the case.  This week, the Supreme Court just ruled that statutes of limitations do apply to "any civil fine, penalty or forfeiture."  Thus, the CFPB’s RESPA case seems to be facing headwinds.

House Considers Holding Cordray in Contempt of Congress
In investigating the Wells Fargo case, House Financial Services staff claim the CFPB failed to produce any documentation related to their investigation.  A staff report states, “The CFPB did not produce a single internal record related to its Wells Fargo branch sales practice investigation.”  So far, despite subpoenas, all the CFPB has provided are OCC and Wells Fargo documents according to the report.  This calls into question whether the CFPB really did an investigation or simply used information compiled by the OCC.  If they did an investigation and did not turn it over to Congress, staff says they are “preparing for possible contempt proceedings against Director Cordray.”

Should Originators Ask Title Companies for Referrals?
One would think that title companies have so many originators passing through their doors that they would not be a good source of referrals.  Not so, according to Brian Sacks, a Maryland originator and coach.  Title companies see the good, the bad, and the ugly so if you make an impression on them, they could be a good source of business.  The difficult part is the potential of triggering RESPA violations if this becomes a tit-for-tat arrangement that the title company may expect.  RESPA is counter-intuitive to the way we do business in this country so people often don’t think through possible violations.

Cordray Makes the Case for CFPB, Even How It is Good for Business
One of the things one has to admire about Richard Cordray is that he is dedicated to his cause.  He laid out a very convincing argument why we need the CFPB to a sympathetic audience.  Cordray probably really believes the CFPB is responsible for a good housing and mortgage market, strong auto sales, and decent bank profits.  He no doubt also believes mortgage companies are operating on a “level playing field” with banks and the business is better because bad actors are being drummed out or can’t make false promises.  In some things he is right, but it is likely most of those things would have happened, perhaps even faster and better, without all of the red tape.

Courts Seem to Disagree Over Mortgage Cases
Several times a month we have major appeals courts disagreeing over mortgage cases.  We had a federal judge in California disagreeing with the PHH case.  This week, an appeals court said Wells Fargo wasn’t guilty of discrimination when they were accused of violating the Fair Housing Act in Los Angeles.  The court said, “The city failed to show a robust causal connection between any disparity and a facially neutral Wells Fargo policy.”  In a similar suit, an appeals court said the city of Miami could not bring suit under the Fair Housing Act but the Supreme Court overruled and said the city could.  That suit revolved around claims that discriminatory conduct that led to a disproportionate number of foreclosures and vacancies in majority-minority neighborhoods which diminished the city’s property-tax revenue.  The case is back to the appeals court in Miami to see if Wells’ policies damaged the city.  Now, Philadelphia has filed a similar suit and other cities will try in their court systems.

CoreLogic Buying Mercury Network
The big gobble up good smaller companies.  Mercury Network shows promise of being a good alternative to the traditional AMC.  It hasn’t gone unnoticed.  CoreLogic bought a 45% share and now is buying the rest.  Mercury Network provides software solutions for AMCs but also makes it easy for lenders to select appraisers directly while not compromising appraiser independence or to manage multiple AMCs.  Over the last several years CoreLogic has bought LandSafe, FNC, and RELS.

Lender Costs Up, Profit Drops as Market Tightens
With fewer loans coming in compared to the 4th quarter of 2016, lender origination profits are feeling the squeeze. Mortgage lender profits were cut in half in the 1st quarter of 2017 according to the MBA, dropping from $575 to $224 per loan.  The expense to originate a loan skyrocketed to an all-time high of $8,887 per loan in the 1st quarter, over $1,300 higher than the $7,562 in the 4th quarter.  Rates have dropped to the lowest level since November 2016 but the drop is fairly small as rates remain with about a ¼% variance since then.

What Will Optimal Blue Purchase of Commergence Mean?
Optimal Blue, which is owned by private equity firm GTCR, gobbled up Commergence this past week.  Since its inception, GTCR has invested more than $12 billion in over 200 companies and is now making an attempt to cover as much of the mortgage software arena as possible.  They are particularly looking to dominate the genre of “facilitating transactions between buyers and sellers of loans."  Although Commergence will be owned by GTCR, the entire staff will remain in place so the acquisition should be unnoticeable to users.

Refis Take Big Hit in Q1 2017
Refinances are driven by low interest rates.  Q4 2016 delivered those low rates and Q1 2017 had a spike in rates.  The effect on refinances was dramatic.  The MBA showed applications dropped from a share of over 60% to the low 40% range.  Black Knight showed similar drops in closed loans, with a 45% drop.  An interesting sidelight of the Black Knight statistics shows refis with people who had scores over 700 dropped 50% while those with scores below 700 only dropped 24%.

Gen X Anxious and Fearful for Financial Future
Generation X, those aged 34 to 49, are a nervous lot.  But, they are the biggest part of our population as baby boomers exit this world.  You see them moving into tiny homes on television.  They don’t really like debt.  FICO’s latest consumer trend research has uncovered that 38 percent of Gen X-ers believe that we are headed for another financial crisis in the next 10 years, an outlook higher by 5 percent than that of other generations. This is coupled with 41 percent of Gen X-ers also feeling the need to save more for the future.  This would explain why they are choosing to rent.  It is interesting that my parents, who lived through the depression, viewed real estate as the only imperishable investment and had a very different view than Gen-X parents who lost value in the last recession, all of which has been regained.

Stearns Acquires PCM Mortgage
Stearns is looking to grow again.  After slipping behind UWM as the top wholesale lender, Stearns is looking to gain ground by acquiring a new company.  PCM (Primary Capital Mortgage) is based out of Atlanta and operates in wholesale, correspondent, and retail origination.

Rate Outlook
The jobs report last Friday was a surprise, coming in at 138,000 jobs created, well below estimates of 185,000.  The other surprise is that it really didn’t help bond prices.  That is because stocks took off again, closing the week about 150 points higher.  With the jobless rate at only 4.3%, it is believed more jobs weren’t created because employers knew there wouldn’t be that many applicants.  The consensus is the lower job numbers will not deter the Fed from raising rates this month.
 
This is a slow week for economic news.  Productivity for the 1st quarter was unchanged, unit labor costs increased 2.2% which was not particularly rate friendly, Factory Orders were down .2% as expected.  Consumer Credit was a bit shocking, coming in at 2.6%, the lowest rate of usage change since 2012 but still at all-time highs.  These aren’t the news that changes much.
 
Weekly jobless claims were 245K versus the expected 240K.  Still below the 250K mark but that has helped rates a little.
 
The Fed meets again next week and is expected to hike short-term rates ¼%.  That is built into current mortgage rates and may even cause mortgage rates to drop a little.
 

 

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.