News From NAMB: September 21, 2017

September 21, 2017
Top Story: CFPB Finds TRID Violations Still Happening
The Consumer Financial Protection Bureau just released it September Supervisory Highlights which list adverse findings in their examinations. In the mortgage origination category, here are some of the common findings:
 
►Amounts paid by the consumer at closing exceeded the amount disclosed on the Loan Estimate beyond the applicable tolerance threshold;
►The entity failed to retain evidence of compliance with the requirements associated with the Loan Estimate;
►The entity failed to obtain and/or document the consumer’s intent to proceed with the transaction prior to imposing a fee in connection with the consumer’s application;
►Waivers of the three-day review period did not contain a bona fide personal financial emergency;
►The entity failed to provide consumers with a list identifying at least one available settlement service provider, if the creditor permits the consumer to shop for a settlement service;
►The entity failed to disclose the amount payable into an escrow account on the Loan Estimate and Closing Disclosure when the consumer elected to escrow taxes and insurance;
►Loan Estimates did not include the date and time at which estimated closings cost expire;
►The entity failed to properly disclose on the Closing Disclosure fees the consumer paid prior to closing.

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UWM Expands Elite Program
UWM’S Elite box just got bigger… a lot bigger. Conventional Elite now starts at 700 FICO/$200K/80% LTV, and FHA and VA Elite now start at 680 FICO/$125K, which means more of your borrowers now qualify for some of the best pricing in the industry. You’ll also enjoy UWM’s premium service, including 15-day turn times and direct communication with your account executive, underwriters and closers. Learn more about Elite at UWM.com.

GOP Staff Report Says Cordray Botched Wells Investigation
The staff of the House Financial Services Committee has released a scorching report that claims CFPB Director Richard Cordray botched the investigation into Wells Fargo abuses.  The report claims the CFPB has withheld information requested by Congress but they have uncovered a “Recommendation Memorandum” approved by Cordray.  The report asserts that Cordray ignored CFPB staff estimates of $10 billion in damages and settled for a mere $100 million.  Additionally, the report says the CFPB closed its investigation prematurely, totally missing recent revelations of wrongdoing by Wells. 

Equifax Troubles Far From Over
For those who haven't been paying attention, hackers penetrated Equifax's computer systems, apparently compromising the extensive information contained in the bureau's files, going on undetected for 4 months. About 150 million people were affected. Congress proposing legislation and lawsuits will no doubt abound. Over 50 class-action lawsuits have been filed so far. Now, the Justice Department is looking into why Equifax waited until September 7th when they became aware of the breach on July 29th. It is curious that top management sold $1.8 million in stock in August. In the most recent revelation, Equifax has reportedly been sending victims to a phishing site, allowing them to steal data. Equifax is good company. The Securities and Exchange Commission just revealed it has been hacked, potentially allowing inside information to be used to trade stocks.

Warren Bill Would Restrict Access to Data
Senator Elizabeth Warren has introduced the Freedom from Equifax Exploitation Act that would make it much easier for consumers to freeze and unfreeze their credit.  Bureaus could not charge to do either as they do now.  Bureaus could not sell consumer’s data while a freeze is in place under the bill.  The bill falls short by not restricting unauthorized selling of consumer’s data and there is no mandate to make repository data more secure.  In addition, consumers still will have to pay some service to monitor their credit since they still would have to pay to see their own report more than once a year.

NAR Survey: Student Loans Do Stop Home Ownership
Student loans are the largest single category of non-mortgage debt, composing 35% of personal debt.  The National Association of Realtors found that only 20% of Millennials that have student loan debt own a home. That is compared to approximately 40% for Millennials as a whole.  32% reported that they had defaulted sometime, although many become current later.  Although Fannie and Freddie have backed off how they count student loan debt, student loans continue to grow at an exponential rate.

CFPB Issues Rule on New Loan Application
Fannie Mae and Freddie Mac used the same firm that created the Loan Estimate and Closing Disclosure to create a new loan application.  The form has been out since 2016 but the CFPB had not clarified mandatory use.  The good news is that while the rule is effective on January 1, 2018, the form won’t be mandatory for lenders until January 1, 2022.  Creditors that are not HMDA reporters will be allowed to voluntarily adopt new practices for collecting applicant information, or simply transition to the 2016 URLA.

Democrats Urge Recapitalization of Fannie and Freddie
The top six Democrats of the Senate Banking Committee are imploring Mel Watt and Treasury Secretary Mnuchin to recapitalize Fannie Mae and Freddie Mac while they are in conservatorship.  They are very concerned that when Fannie and Freddie have no reserves starting January 1st, 2018, they will need to take a draw from Treasury, even for a small loss.  It is inevitable that the GSEs will not be profitable every quarter.  These senators want a buffer rather than sending all profits to Treasury.

HUD Still Chasing Improperly Approved Loans
There are only so many big fish where DOJ can get big settlements under the False Claims Act.  This week, DOJ went fishing for minnows, fining First American Mortgage Trust of Massachusetts $1.025 million dollars for approving loans that did not meet FHA requirements.  It's a far cry from the $100+ million they have been getting but a million is still a million.

Hurricanes May Have Major Impact on Mortgages
The devastation caused by perhaps the most active hurricane season in history will be felt in the mortgage industry.  Builders can't build when the land is flooded and there is no power.  There will be weeks where the economy in several of our largest states came to a standstill.  People didn't work, they incurred major expenses, all of which will make mortgages default.  Black Knight is reporting that delinquencies jumped 16% so far in the Houston area and Irma has affected 3 times as many homes.  That will harm their credit making it more difficult for them to buy or refinance.  Homes don't sell in the midst of a disaster.  Experts are predicting a sharp hit to the economy and GDP.  On the bright side, Lowes and Home Depot should have a phenomenal quarter.  As noted in the Rate Outlook below, so far, the disasters have had a minimal effect on sales so far.

Here's Why the Government Shouldn't Regulate Commercial
Things often just don't go as planned in commercial lending.  Take as an example a motel that is worth $2,000,000 at best.  But it has $2,100,000 in mortgages, $145,000 in past-due property taxes, and $95,000 in other liens.  With the mortgages in default, would you just tell the owners there was nothing you could do for them?  A creative mortgage broker and lender didn't.  Check it out.

Housing Starts in August Show Slight Decline
Builders seem unwilling to build as many homes as they did prior to the real estate meltdown.  Construction slowed by 0.8 percent in August, the second straight monthly decline.  The good news is that there was a slight gain in single family that helped to offset a steep drop in multifamily construction.  Single-family housing completions came in at 724,000, 13.3% below the 835,000 for the previous month.  Experts believe builders have decided to build for those who can afford single-family homes rather than the less affluent who utilize multi-family.  Of course, this is all pre-hurricane data.

Chickens Come Home to Roost for Allied Home Mortgage
If you’ve been in the business for at least 8 years, you know about Allied Home Mortgage.  A federal jury found Allied, with Allied’s CEO, Jim Hodge’s knowledge and approval, operated over one hundred “shadow” branch offices that originated FHA loans without HUD authorization.  Allied Capital then tagged the loans from those “shadow” branches with the ID numbers of other approved branch locations, allowing those shadow branches to escape HUD oversight and enabling Allied to hide the default rates at those branches with the default rates of branches whose IDs they were using.  Allied was very popular in the days when brokers had to be FHA-approved.  Brokers flooded to be branches to avoid audits and net worth requirements.  In addition, Allied was known for approving FHA loans that other lenders wouldn’t touch.  A federal judge was quite displeased and tripled Allied’s penalty to $296 million.  Hodge was also fined $25 million personally.  Wonder if they will collect.

Fed Holds Rate Steady
The Federal Reserve showed they are in no hurry to raise their benchmark rate in their meeting statement yesterday.  But, they indicate they are not finished raising rates.  Fed watchers believe they will hike ¼% at the December meeting.  The economic outlook statement really hasn’t changed in several years.  Job gains are solid, unemployment is low, household spending is expanding, and inflation is low.  The target range for the federal funds rate at 1 to 1-1/4%.  I looked back at a statement in 2015 and they used the same phrases.  Perhaps the most important statement to those of us in the mortgage industry is the Fed’s statement that they will begin to trim reinvestment in mortgages by $4 billion a month starting in October, and trimmed by $4 billion every quarter.  Rates responded with a ¼ point hit today but fell back later in the day.

Why Lenders Want the Title Commitment Before Underwriting
I have noticed that many wholesale lenders want to see the title commitment before they will underwrite the loan.  The reason is linked to the removal of liens and judgments from credit reports.  A lender spends a fair amount of money underwriting a file, not to mention the issues associated with rate locks, TRID, and state laws.  If a public record turns up an issue when the title company searches, it can completely derail a loan.  Some lenders are still choosing to run a public records report immediately to ensure they have a viable loan.

CoreLogic Says Wholesale Has Higher Risk of Fraud
CoreLogic's Mortgage Fraud Report claims mortgage fraud is increasing slightly.  The report posits that the increase is due to more purchase transactions and more wholesale lending activity.  "Purchase transactions have higher risk due to the stronger motivations and increased opportunities to commit mortgage origination fraud," the report stated. You can download the report to see deeper details.  While the summary of the report does not mention why wholesale is more susceptible to fraud.  While their calculation of pure wholesale transactions is much lower than other studies, they say the share jumped by 50%.  Very impressive.

Refis Still Gaining Ground
In the latest MBA survey, refinances increased to 52.1% of applications, up from 51% the previous week.  It was a short week because of the Labor Day holiday which skewed the number of applications.  Both purchase and refis were lower due to the shortened week but after adjusting for the lost day, they were both up nicely.  It seems hurricanes didn’t slow things down.

Home Prices May be Slowing
Based on purchase prices of houses financed with mortgages that have been guaranteed by Fannie Mae or Freddie Mac, the Federal Housing Finance Agency (FHFA) monitors housing prices.  The index increased a mere 0.2% in July after increasing 6.3% in the past year.  This coincides with a study by the Florida Atlantic University and Florida International University that reveals a decline in house prices.

High Risk Flood Insurance Doesn’t Make Sense
High risk properties make up only 2% of the properties insured by FEMA flood insurance but that 2% make up 30% of the claims.  An example is a property in Kingwood, Texas that flooded again.  Texas is known for rivers that suddenly overflow their banks creating flash flooding.  Brian Harmon owns a home on the San Jacinto River that has flooded 22 times since 1979, making it one of the most flood-damaged properties in the country. The property is worth about $600 to $800,000 but FEMA has paid out $1.8 million in claims on the property.  It is this type of property that pushes up flood insurance premiums for everyone.

FHA Mortgages Subsidizing HECMs
One reason the Upfront and Annual MIPs can’t be cut is they are subsidizing the HECM program.  It used to be that HECMs were in a separate pool that did well.  But, when property values plummeted, they were put in the MMI with forward mortgages.  Now that people are living longer, HUD has had to cut how much seniors can get with a HECM.  There are those who are calling for HUD to take HECMs out of the MMI Fund to allow fair pricing for both programs.

NAMB National Rocks!
The nation’s most exciting mortgage show is coming to Las Vegas October 14-16th!  Great entertainment and parties are in store for attendees.  You’ll hear the fiery rhetoric of Ann Coulter who has deep insight into the Trump administration’s regulatory agenda, including the CFPB.  The leaders of the top wholesale lenders will give you tips on how to be a market leader.  Then, party on Saturday night at the incredible Omnia nightclub in Caesar’s Palace with America’s #1-rated DJ and recording artist Martin Garrix.  Sunday, the huge trade show opens with over 100 lenders on display with many new alternative programs.  Sunday night, it all culminates with Foreigner lead singer Lou Gramm and his new band.  Room reservations are selling out.  Register now

Rate Outlook
The stock market continues to roar ahead with nearly every day setting a new record.  The question is whether this is irrational exuberance or economic conditions so wonderful that the prices being paid are reasonable.
 
The naysayers have been saying stocks are overpriced for 3 or 4 years but prices continue to soar.  Most experts say stocks are fairly-priced.  We shall see.
 
Three Democrat senators have proposed eliminating the debt ceiling.  The founders required that Congress directly authorize each major expenditure.  That held until 1917 when Congress wanted to spend ever increasing monies on World War I.  The debt ceiling has held for nearly 100 years but politicians love to spend and can’t be bothered with how much they are borrowing.  President Trump also likes borrowing so binge spending for the U.S. may be in the near future.  The U.S. can afford more debt at current taxation levels.  A major tax cut combined with increased spending has to be short-lived.
 
We really do have almost ideal conditions, employment is essentially at full employment, inflation is low, housing is doing well, rates are low.  According to the Census Bureau, the median household income is officially at its highest point ever recorded at $59,039.  Can’t get much better than that.  It’s like the borrower with a big line of credit.  They have new cars, take lavish vacations, and buy all the toys.  If the credit line had no limit, that could go on for a long time until the debt service was too great.
 
Last week ended with retail sales down slightly.  This week the NAHB Housing Index was down slightly from 67 to 64 due to concerns about the hurricanes.  Housing Starts and Permits were up, indicating builders are still increasing building volume.  Traffic to new homes was only down 1 point.
 
Existing home sales fell 1.7% in August to the lowest level in a year, reflecting a shortage of properties on the market and a sharp drop in Houston home purchases because of Hurricane Harvey. 
 
Weekly jobless claims were surprisingly low at 259,000. Expectations were the hurricanes would push claims to 310,000.  Employers are holding on to their people.
 
The Philly Fed survey, and an indication of manufacturing activity in the all-important Mid-Atlantic region, printed at 23.8 vs. the expected 17.1. More good economic news.
 
The FHFA House Price Index showed home prices increased by only .2% but 6.3% in the past 12 months.
 
There is no consequential economic news tomorrow so expect rates to remain similar for the next few days.  We are at a low spot according to Freddie Mac’s latest Primary Mortgage Market Survey.  But, Sean Becketti, Freddie Mac’s chief economist, predicts mortgage rates “could see an increase in next week’s survey.”

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.