News From NAMB: November 3, 2017

November 3, 2017
Top Story: Top Financial Congressman to Retire
The Chairman of the House Financial Services Committee, Jeb Hensarling, announced that he will not run for reelection in 2018.  Hensarling is a constitutional conservative who believes government’s role in the financial sector should be limited.  He detests the CFPB and its Director, Richard Cordray, calling for Cordray’s firing many times.  Hensarling generally fought like a true Texan for less regulation, something we will miss.  No doubt his frustration with the Senate failing to act on many of his favorite projects led to his decision.  Some Washington insiders think Hensarling may turn up again as FHFA or CFPB Director.  Both jobs would be a little strange for Hensarling since he is not a fan of the GSEs and he tried to defund the CFPB.  His successor’s selection is still a while off but Patrick McHenry of North Carolina, the Committee vice-chair is an odds favorite.

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FHA May Have to Cancel MIP at 78%
Congresswoman Maxine Waters of California, the ranking Democrat on the House Financial Services Committee, has introduced legislation that would force FHA to cancel the annual premium (which is paid monthly) at 78% of the original value.  Strangely, she introduced it as a modification to the National Housing Act which implements FHA rather than the Homeowner’s Protection Act.  That creates some small differences.   It would make it easier to have consistency in our laws.  Since FHA is just coming out of the woods, the question is whether this would postpone an annual premium cut that most originators would probably prefer.  Nonetheless, the bill is supported by powerhouses like NAR and NAHB and some powerful consumer groups.  We see only one smaller lending group supporting the legislation.  Perhaps that is because it is not clear if FHA insurance would also terminate at 78% when the borrower stops paying premiums.

Montgomery Well-Received at Senate Hearing
Former FHA Commissioner Brian Montgomery finally reached his confirmation hearing before the Senate Banking Committee to once again take the helm at FHA.  For the most part, the hearing was very positive.  Even the ranking Democrat, Sherrod Brown, acknowledged that Montgomery would be confirmed.  Only Senator Elizabeth Warren was confrontational.  NAMB strongly supported his nomination.  You can watch the confirmation hearing in its entirety to get further insight.

Bill Would Give Non-Borrowing Spouses More HECM Rights
It was a busy week for California Congresswoman Maxine Waters.  She also introduced the Preventing Foreclosures on Seniors Act that she claims would “help prevent unfair foreclosures on seniors.”  The heart of the bill is a requirement that HECM loss mitigation be mandatory rather than optional and that non-borrowing spouses be treated as borrowing spouses for the purposes of loss mitigation.  In addition, the bill requires mandatory assignment to HUD if there is an eligible non-borrowing spouse living in the home upon the death of the borrower and other protections.

Did We Really Need a New Loan Application?
Considering Fannie and Freddie have pushed back mandatory usage of the new URLA and the CFPB isn’t even mandating that we retire the old form until 2022, was it really necessary to redesign the form?  It will certainly cost a lot of money to update all of the software and retrain people.  But, we have to begin “deaggregagting” all of the demographic information starting January 1, 2018.  That means you won’t just check Hispanic.  There are boxes for Mexican, Puerto Rican, Cuban, or Other Hispanic and you fill in where the borrower’s national origin.  The same is true of race, such as Asian, which lists various countries.  Even if are not using the new URLA yet, you will need to fill out the Demographic Addendum starting January 1, 2018.  The only two categories that get no breakdown are White and African-American.

What Language Would You Like for Your Loan Application?
A recent addition to the new loan application form is the Language Preference section.  It advises, “Your loan transaction is likely to be conducted in English.”  But, if you would like it in Chinese, Korean, Spanish, Tagalog, Vietnamese, or something else, tell us.  We may not understand you but…  The form warns, “Your answer does not mean the Lender or Other Loan Participants agree to communicate or provide documents in your preferred language.”  Apparently, originators who cannot communicate should refer them to HUD or the CFPB.  At least now I know Tagalog is reportedly spoken by more people in the U.S. than French or German.

Treasury Asks HUD to Reconsider Disparate Impact Rule Use
For those who are a little unclear what disparate impact means to mortgage originators, here is a little history.  HUD has brought at least seven major actions against mortgage lenders and many more against smaller mortgage companies for practices that may have impacted a protected group, even though the lender did not intend to discriminate.   In 2015, the Supreme Court upheld disparate impact but laid down 3 principles that must exist.  (1.) Specific policies must be identified that cause discrimination.  (2.) The defendant must prove a legitimate business purpose.  (3.) There isn’t a reasonable alternative to the policy.  Although the current push is against insurance companies, it boils down to the argument whether the defendant absolutely needed to have a certain policy.  Deep inside its October report, Treasury apparently believes the latest round by HUD is off-base.  Over the years, smaller companies have settled any such accusation rather than fight it since can easily cost a million dollars in legal costs.

Why the Arbitration Rule Overturn is Important to Mortgages
The Arbitration rule battle was more or less a spectator sport for the mortgage industry since arbitration is not allowed in mortgage actions.  But, mortgages have had some perilous run-ins with class action suits.  We nearly lost lender compensation a few years ago thanks to class-action suits.  Opponents claimed the CFPB’s research showed the arbitration rule was not a financial benefit to borrowers.  The rule spawned an even more damning study on class-actions that calls into question their benefit to consumers.  In a strange twist, CFPB Director Cordray appealed directly to President Trump to veto the repeal.  Trump responded by quickly signing the override of the rule.

Mortgage Interest and Property Taxes Capped in Tax Proposal
The Mortgage Interest Deduction will be capped at $500,000, a 50% cut from the current $1,000,000.  That may not sound like something horrible unless you live in California where starter homes are more than $500,000.  Ways and Means Chairman Kevin Brady announced Saturday,  “At the urging of lawmakers, we are restoring an itemized property tax deduction to help taxpayers with local tax burdens.”  States with high property taxes had threatened to vote against the tax proposal if that was not included.  But, it will be capped at $10,000.  Democrats have declared war on the tax proposal.  They claim cutting the mortgage interest deduction would raise taxes on the middle class and lower them on the rich.   The corporate tax drop to 20% and doubling the standard deduction remain in the bill.

NAHB is Disappointed By Tax Proposal
The National Association of Home Builders, who had been one of the wishy-washy groups on the mortgage interest deduction, is now not happy.   NAHB now says, “The nation's home builders warned that the proposal would severely diminish the effectiveness of the mortgage interest deduction and presented alternative policies that would retain an effective housing tax incentive in the tax code.”  House leadership just told NAHB there will be no credit, but it still looks like we still have part of the mortgage interest deduction… so far.  This is what happens when your message is not clear.

Freddie Mac Turns in Another Nice Profit
One of Treasury’s cash cows turned on the milk once again in the 3rd quarter.  Freddie Mac paid the U.S. Treasury $4.7 billion-dollars more as part of the profit sweep that swept stockholders into the dust bin.  $2.9 billion of the profit was an undisclosed settlement with a large player over non-agency mortgage-backed securities.   Could that be part of the RBS settlement with FHFA in July?  Fannie Mae will release earnings today.

CFPB Launches Delinquency Tool
In its never-ending quest for data, the CFPB has launched a new tool in cooperation with the Federal Housing Finance Agency.  Mortgage Performance Trends is a tool that tracks delinquency rates nationwide.   CFPB Director Richard Cordray touts, "This rich information source identifies mortgage delinquency rates down to the county and metro-area level, making it a useful public tool."  One would presume it could also monitor mortgage companies as well.   Supposedly, it can’t be used to check on people individually though.

Lenders May Be Surprised What Courts Say Laws Really Are
With all of the changes in laws and regulations over past 9 years, there have been many court cases to determine what the law really is.  But, just because a lower court rules one way or the other, it usually doesn’t set precedent.  Appeals courts often rule against lower courts.  Because appeals take so long, many appeals are just now being decided.  Litigation involving the various state homeowner bills of rights that were enacted years ago are just now reaching appellate courts.  In one prominent situation, we don’t even know if the CFPB is even constitutional.  We are still waiting for the DC Court of Appeals to redecide that and then it could be appealed to the Supreme Court.  
There Are Lots of Young Mortgage Originators

Many times, we hear that most mortgage originators are over 50.  It depends on what circles you travel in.  If you are a retail person who works realtors or other traditional types of business, you are correct.  The average age is 47, according to a survey by the Stratmor Group.  But, if you are working for a consumer-direct shop, i.e. call center, the average age is 37.  In fact, the largest age group for call centers is under 30.  These younger people are licensed or registered.  They may not have the contacts the older folks have, but it may be that they in a training ground to pick up when us golden oldies retire.


Detroit Is Potential Housing Bubble?  What?
The poster child for a city that was devastated by the mortgage implosion of 2008 is now listed by the Urban Institute as a possible housing bubble.  Property values in the Detroit area have appreciated 3rd fastest in the nation according to the study.  That isn’t hard to do when city properties were selling for under $1,000.  Detroit still ranks as the one of the most affordable cities in the nation. 
Builders Consolidating into Giants in Both Building and Mortgages
The small custom builder is facing behemoths that are growing even bigger.  For most mortgage originators, that no doubt means being shut out as builder mortgage companies control the new home market.  Lennar has leap-frogged to the largest builder in America by swallowing luxury builder WCI and CalAtlantic, the merger of Standard Pacific and Ryland.  D.R. Horton falls back to the #2 position despite buying ForeStar Group.  Small builders can’t get land in more populated areas.  That is why Lennar bought WCI, to get their 13,700 homesites.  These builders aggressively coral buyers into their mortgage companies using incentives from the building side of their business, making competition nearly impossible.  Universal American Mortgage, dba Eagle Home Mortgage, ranked 41st in total origination last year and could double that this year.   D.R. Horton says its mortgage company, DHI Mortgage, sells off everything to 3rd-party investors, including servicing.  Its SEC filing says the company, “transfers eligible loans to the counterparties against the transfer of funds by the counterparties,”  making it a mini-correspondent.

First-time Buyer Share Continues Slide
With a scarcity of entry-level homes and escalating homes prices, first-time buyers are finding it more and more difficult to purchase.  Despite higher qualifying ratios and lower downpayments, the percentage of homes going to first-time buyers is dropping.  The National Association of Realtors says, “In this year's survey, the share of sales to first-time home buyers2 inched backward to 34 percent (35 percent in 2016), which is the fourth lowest share since 1981. In the 36-year history of NAR's survey, the long-term average of first-time buyer transactions is 39 percent.”

Rate Outlook
Various news outlets are reporting that President Trump has notified Fed Governor Jerome Powell that he is being nominated as the next Fed Chair.   Powell is regarded as being open to deregulatory efforts by the administration and Congress.   He also mostly sides with current Fed Chair Janet Yellen, who has been a stabilizing force in the financial markets.  Powell would be a like a Yellen #2 with a little more bend toward deregulation if the experts are correct.
 
The Federal Reserve decided to keep the Fed Fund Rate the same at their most recent meeting.  That was pretty much as expected.  However, most experts believe there will be a ¼% rate hike in December, as predicted.
 
Consumer Sentiment, as measured by the University of Michigan, went through the roof in October.  It registered 110.7 compared to 95.1 in September.  That is only the 2nd time in its history that it has been above 100 and that was in 2004.  Clearly, quite a few people are pleased with TrumpEnomics.
 
GDP surprised economists by hitting 3% growth again in the 3rd quarter.  They had expected the recent hurricanes to dip the GDP.  This is the 2nd quarter with growth 3% or better which hasn’t happened since 2014.  There hasn’t been a full year with 3% GDP growth in over 10 years.
 
ADP payrolls were robust at a 235,000 gain.  Economists’ expectations were for the creation of 215,000 jobs.
 
PCE inflation, the Fed’s favorite measure, was up .37% and only .13% excluding food and energy.  The annualized rate so far this year is a mere 1.63% and 1.33%.  Despite all of the hot economic news, inflation is near non-existent.  It’s almost like a fairy tale economy.
 
Today, weekly jobless claims printed at 229,000.  Expectations were for claims at 235,000.  The last time weekly jobless claims were this low was 1973, further proof the labor market is tight.
 
Productivity in Q3/2017 rose 3% and labor costs rose 0.5%. That data was near expectation.
 
Friday is the very important BLS Jobs Report.  Get ready for a possible sharp boost as workers took jobs to repair the damage of the hurricanes.  Experts say 300,000 jobs will be created, an astounding figure, if true.
 
Rates have been edging upward after falling back to the lowest levels of the year in the summer and early fall.   According to Freddie Mac’s weekly survey, last week ended at 3.94%, the highest level since July.

John Councilman, CMC, CRMS of AMC Mortgage Corporation in Ft. Myers, Fla. is Past President of NAMB. He may be reached by phone at (239) 267-2400 or e-mail jlc@amcmortgage.com.