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News From NAMB: May 4, 2017

John Councilman
May 04, 2017

Top Story: Fannie Mae Changes Fast and Furious
It’s hard to keep up with all of the changes Fannie Mae has implemented this year. We reported last week on Fannie’s new student loan policies. But there are a lot more. Non-mortgage debt can be excluded from ratios if it is paid for the past 12 months by someone else, except for the seller. The big change here is the person paying the debt doesn’t even have to be on the loan. Limited cash-out refis on condos owned by Fannie only need to show they have insurance if the LTV is 80% or less. Cash-out refinances can now be done for properties listed in the last 6 months. Just cancel the listing. Finally, you only need to show the last 4 digits of asset accounts, not the whole account number.

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Choice Act Passed By Committee
The Financial Choice Act passed the House Financial Services Committee today by a 34 to 26 vote. Democrats are fighting the bill that would limit the CFPB’s powers tooth and nail. They have dubbed it “The Wrong Choice Act.” It now goes to the full House and it is expected to pass over the objections of Democrats. It will likely face a tough battle in the Senate where the votes are not there at this time.

Dodd/Frank Rewrite Gets Classy Video
House Republicans are taking their case directly to the American public with a well-produced 90 second video touting the Financial Choice Act. The video claims Dodd/Frank caused the worst economic recovery in 70 years. It points out the too-big to fail banks are even bigger. The push also includes HFSC members writing commentaries in various major newspapers. It appears they are trying to push the Senate to accept their changes.

Seasoned Veteran Nominated for HUD Deputy Secretary
Many people were concerned that Ben Carson lacked the experience necessary to be HUD Secretary. If that was their concern, the person nominated to be Deputy Secretary should allay those fears. The Trump administration has nominated Pam Patenaude, a HUD veteran for the job. Some had floated Patenaude as FHA Commissioner, post not yet nominated. MBA said it was an “exceptional choice” and NAR declared it an “ideal choice.”

Crapo Doesn’t See Dodd/Frank Reform Passing Senate
Speaking to a Women in Housing & Finance meeting, Senate Banking Committee chair Mike Crapo is pessimistic about getting any Democratic support for any changes to the CFPB. Crapo says it will be easier to get GSE reform than get any changes to the CFPB. It will be interesting to see if the CFPB reform bill which will likely pass the House will be simply ignored in the Senate.

Trade Groups Weigh in on Choice Act
The Financial Choice Act to modify Dodd/Frank is generally liked by the mortgage industry but there are a few things they don’t like or want. The ICBA, which represents community banks, has few complaints other than they want relief from having to file the extended Call Report. The MBA has some other issues. They don’t like the fact that the Choice Act was changed to retain a single director instead of a 5-member commission. They also want the CFPB to give better guidance on rules.

How Will the Fed Exit the Housing Market?
The Federal Reserve is hinting that it will stop reinvesting mortgages that pay off at the end of this year. The Urban Institute has commented on three paths the Fed could take and what would happen. A hard stop would spike rates sharply and is not expected.  If the Fed tapers, the Institute believes rates will ease upward. If the Fed starts selling its holdings instead of just letting them pay off, it would perhaps create a shortage of buyers. Right now, the Fed owns 30% of the mortgages, more than anyone else. A bigger question is not how the Fed bowing out will affect rates but who will fill the gap? Foreign investors would be the likely buyers. Banks are holding jumbo and legacy loans. Fannie and Freddie will only be a conduit and will not hold any loans starting in 2018.

New York Attacks Captive Title Companies
Many lenders and real estate companies provide most or all of their owned or affiliated title company’s business. New York is proposing regulations that require title companies to operate independently of their affiliate. That means no shared employees and a substantial amount of their business must come from other lenders or sources. This could have a major effect on mega lenders and banks since they likely cannot offer “special” packages very easily.  

State Bank Regulators Sue OCC Over FinTech Bank Charters
The Conference of State Bank Supervisors is suing the OCC, who regulates the banks, for deciding to give Fintech companies a national bank charter. CSBS asserts that giving bank charters to something other than traditional banks “exposes taxpayers to the risk of inevitable FinTech failures.” Indeed, it is hard to see how companies like Credit Karma, SOFI, and Paypal fit into the regulated role of the OCC.

Owner Household Growth Finally Passes Renting
Since 2006, the number of households renting was growing faster than households who chose to own. Trulia issued a report using Census Bureau data that shows households buying is now increasing. They believe this is a significant reversal that bodes well for home ownership and mortgages. Meantime, Fannie Mae is giving greater support to big landlords.  Are they behind the times?

Supreme Court Says Cities Can Sue Lenders
Even though cities would not normally be considered parties that would be protected under the Fair Housing Act, the Supreme Court has decided they can file suit. The Fair Housing Act allows any “aggrieved person” to file suit.  If one were to follow that train of thought, virtually anyone could file suit when a Fair Housing violation occurs.  At least the court made it clear that there had to be a close relationship between the harm and the violation.  It calls this is to “‘fall within the zone of in­terests protected by the law.”  The decision didn’t determine if the banks directly caused all of the foreclosures by discrimination or whether they were caused by other reasons.  We will have to wait to see what the lower court says.

CFPB Expectations for Diversity
The CFPB met with leaders of large mortgage banking firms, banks, and regulators to chart out a course they want for diversity compliance.  The reason you need to take notice is that failure to follow their guidelines could easily result in fair lending or ECOA violations.  The expected, such as hiring a more diverse workforce, corporate leadership showing a commitment to diversity, advancement of minorities and women, etc. were all part of the resulting report.  Some participants listed their lender-paid downpayment assistance as an equal opportunity program because it benefits women and minorities.  Notoriously missing from the entities listed were any mortgage brokers, despite the fact that as a group, we originate more than anyone at the meeting.

Blacks Still Have Low Homeownership
The latest figures from the Census Bureau show that blacks made a little headway in the first quarter of 2017, gaining almost 1%. But blacks are still well behind every other racial category at just 42.7% owning a home. Hispanics fared a little better at 46.6%, Asians at 56.8%, and whites at 71.8%.  Overall home ownership is still near all-time lows at just 63.6%.

Bonds Could Go Longer Than 30 Years
The Treasury this week asked the primary dealers about investor interest in an ultra-long Treasury bond in its quarterly refunding questionnaire.  Some talked about a 100-year bond but it seems no one wants anything longer than 50 years.  If there is a 50-year Treasury bond could it mean that there could be 50-year mortgage bonds in the future?  What a thought… you take out a loan when you are 30 and it’s just getting paid off when you are 80.  Not that much different than renting.

How Would Housing be Affected by Government Shutdown?
Congress passed a weeklong stopgap spending bill Friday that prevented a government shutdown for a week.  Then, they have approved an extension until September.  Donald Trump is declaring victory because he got a large increase in military spending.  If the government shuts down, the biggest effect on mortgages would be stopping access to tax return verifications.  HUD and VA can operate for a while before they would be affected.  We will see in September if we are facing a shutdown again.

Joining NAMB May Make You Live Longer!
As bizarre as that may sound, it has a scientific basis.  I don’t mean just paying dues, I mean joining NAMB.  That means joining a committee, coming to events, getting to know people.  NAMB is a community, not just an organization.  How does that make you live longer?  A very sophisticated study shows that social isolation can be as damaging to your health as smoking a pack of cigarettes a day or physical inactivity and obesity.  Come join us!  A great place to start is NAMB National in October in Las Vegas.  Stop at the NAMB booth and say, “I would like to get involved.”

Rate Outlook
The Fed decided to leave things alone this month, which was expected.  They are keeping their reinvestment in mortgage bonds for now which will keep rates low.
Things aren’t making sense in the economic sector.  Consumers are saying they are very confident that the economy is on the right track.  Normally, high consumer sentiment leads to increased consumer spending but consumers pulled back on spending in the 1st quarter.
Consumer spending, accounts for approximately 71% of overall economic growth in the U.S., It grew at a mere 0.3% rate, down sharply from 3.5% in the final three months of 2016. The slowdown was a result of less spending on long-lasting goods like computers and kitchen appliances, motor vehicles, clothing, and energy. 
GDP was anemic at .7% but the Employment Cost Index rose 0.8% versus the expected 0.6% increase. Wage inflation is with lower product is not good economic news.  Real estate remains hot even if consumers aren’t buying big items.
Often, the 1st quarter doesn’t reflect what will happen the rest of the year.  Most believe this economic news can be explained as an aberration.  We shall see.
One thing is certain, the stock market loves Donald Trump.  In President Trump's first 100 days in office, the Dow has booked the best performance in the postwar era under a first-term president. The Dow has rallied 14.22% since Trump's election since he promised many Wall Street friendly policies, including tax cuts, deregulation and a boost in infrastructure spending.  Since stocks generally compete with bonds, a good stock market tends to drive bond rates up.
Rates took a little hit today as unemployment claims fell back below 250,000 to 238,000.  Productivity fell 0.6% in Q1/2017 vs. the expected 0.1% increase. Factory orders rose 0.2% which was near expectations.
Tomorrow brings the monthly jobs report, the biggest economic new of the month.  Very few experts are making predictions on that after last month’s anemic jobs growth.  Another weak month could help 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 [email protected].



May 04, 2017