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News From NAMB: May 12, 2017

John Councilman
May 12, 2017

Top Story
Brian Montgomery to Be New FHA Commissioner
The White House has signaled that it wants Brian Montgomery to run FHA again.  Montgomery served as FHA Commissioner under George W. Bush and for 6 months under Barack Obama.   His probable nomination is only being reported in Politico and won't be announced until he completes requisite background checks.  After leaving FHA, Montgomery co-founded the Collingwood Group, a team of industry veterans who assist lenders.  He was one of the featured speakers at last year’s NAMB Legislative Conference.

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Fed Member Claims Its Exit Won’t Sink MBS Market
Tapering of the Federal Reserve’s balance sheet won’t sink the mortgage-backed securities market, said Boston Fed President Eric Rosengren.  Rosengren says prices may have to adjust to tempt investors into buying bonds currently being purchased by the Fed.  “Our capital markets are deep enough that I’m not as worried about the ability to be able to fund those mortgages,” he told an audience in New York. “Price will change,” he added.  In 2013, Fed Chairman Ben Bernanke sent bond yields soaring, in a so-called taper tantrum when he unexpectedly announced the Fed might begin slowing its asset purchases.  We may get more clues when the Fed releases the minutes of last week’s policy meeting on May 24.

Fannie Says Lenders Can Open Credit Box Considerably
We often hear about how tight credit is while others think we have gone too far with things like 1% down and sub 580 scores.  In an interview with the Scotsman’s Guide, Fannie Mae Executive Vice President Andrew Bon Salle said lenders seldom go to Fannie’s 620 minimum FICO with a 97% LTV.  Lenders add overlays that often discourage lending to those who could get a Fannie Mae loan.  Bon Salle says lenders do that because it costs too much to service a loan that doesn’t pay timely.  He defended LLPAs, saying they are necessary to implement risk-based pricing but Fannie has cut them for programs like Home Ready.

CFPB Says They Want In On Commercial Loans
Their name is the Consumer Financial Protection Bureau but the CFPB believes they should regulate loans to small business as well.  Director Cordray announced his intent to regulate small business lending at a listening session in Los Angeles.  The one federal law that applies to both residential and commercial lending is ECOA.  Dodd/Frank Section 1071 put ECOA under the regulation of the CFPB.  A close look at Dodd/Frank Section 1071, shows it expands ECOA to “credit for women-owned, minority-owned, or small business.”  Note the word “or.”  That goes far beyond ECOA.  This would allow the CFPB to exercise considerable power over small business finance.  It appears Cordray is on the move in this area because On August 21, 2015, eighty-four Democrat members of the House of Representatives wrote Director Cordray to “urge the Consumer Financial Protection Bureau (CFPB) to expedite rulemaking on the implementation of Section 1071.”  His failure to do anything in this area could be cited as a reason for the President to dismiss him for cause.

VA Originations Top FHA, Total Originations Up
Too often loan originators fail to ask if a person is VA qualified.  That appears to be changing as VA grabbed 10.8% of total originations last week and FHA only 10.5% in the latest MBA survey.  This trend has been continuing for a few months.  Overall, mortgage originations for the week were up 2.4%, despite rising home prices and scarce inventory.  Jumbo rates remain slightly better than conforming rates by a very slight margin.

Will PHH Survive Long Enough to Finish Its CFPB Suit?
PHH has a lot more problems than just the CFPB.  The company announced it lost $67 million dollars in the first quarter of 2017, more than double its $30 million-dollar loss in Q4 2016.  The company has sold off its servicing rights and closed its loan origination unit.  PHH used have a preferred lender arrangement with Century 21, Coldwell Banker, and ERA.  Likely, the CFPB’s stand on Marketing Service Agreements made that untenable.  They are putting everything on the line to become a sub-servicer.  CEO Glen Messina said in a conference call with investors Wednesday that all strategic options for the company, including dissolution, remained on the table should its plans to restructure the company fail.

Trump Review of Dodd/Frank May Be Delayed
In February, President Trump ordered Treasury Secretary Steven Mnuchin to review Dodd/Frank and report back within 120 days, saying his administration expected to be cutting large parts of it.  Congress couldn’t wait and went ahead with Financial Choice Act in the House.  Trump is generally supportive of the House changes but wants more solid proof of how the law has impacted the country.  Some sources say the Treasury Department is still filling vacancies and there are not enough officials to get the full review done by early June.  Treasury’s response is that it “will begin reporting our findings to the president in June.”  They admit the reporting will be piecemeal with banking impact getting the first report.

Trump Tax Plan’s Impact on Housing
While the details of President Trump’s tax are still sketchy, we can deduce certain aspects about how it may affect housing.  If the standard deduction is increased, it could put more money in buyer’s pockets to buy homes although that will not improve ratios.  On the negative side, there may be adverse consequences from the eliminating deductions for state and local taxes and the higher threshold for taking the mortgage interest tax deduction.  Trump’s tax reform plan appears to eliminate the 1031 exchange.  That would chill investment in real estate.  Overall, the plan is slightly negative toward real estate.

Elizabeth Warren and Trump May Agree on One Thing
Normally, Elizabeth Warren and Donald Trump are trading insults and agree on nothing.  It appears there is one thing they agree on, breaking up the biggest banks.  Warren just wants to break them up but is talking to the White House about reinstituting Glass-Stegall.  That law prohibited banks from doing stock market trading.  That has become a huge part of the big banks’ revenue.  Spinning off their stock trading would probably cut most of them in half immediately.

Senate Intent on Moving GSE Reform
The Senate Banking Committee is moving forward with discussions about reforming our nation’s housing finance system, which is a top priority for Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH).  They will be holding a hearing today featuring FHFA Chairman, Mel Watt, titled “The Status of the Housing Finance System After Nine Years of Conservatorship.” 

Chase Lures Millennials With Points
Existing Sapphire credit card customers who purchase a mortgage with Chase will get 100,000 Chase Ultimate Rewards points, which can be used for travel, gift cards, cash back and more.  You must have been an existing Sapphire holder before this offer started.  Older folks who haven’t bought a home can jump in also but about 50% of Sapphire holders are millennials.  The offer is only valid through Aug. 6, 2017.  Isn’t this cross subsidizing?  Didn’t some folks get in trouble for negotiating reduced title fees for certain customers?

Homeowners Are Renovating
Those who have chosen to be homeowners are spending more on renovation.  In a Houzz survey, those who bought their first home in 2016 spent $33,800 on home renovations, on average, a 22% increase relative to 2015.  Most used a credit card.  One would think Fannie’s HomeStyle and FHA’s 203K are not being utilized in relation to demand.  As the person who invented the Streamlined 203K, I can say these loans are easy to do but lenders either don’t do them or charge more, making them unattractive.

Rate Outlook
After a weak March jobs report, April came roaring in like a lion with 211,000 new jobs being created and the unemployment rate at 4.4%.  That may keep the Fed on track for more rate hikes this year.  Bond traders believe the next rate hike will come in September although some Fed members say they should raise now.
There are some legitimate concerns about inflation.  We have wage pressure as the employment pool tightens.  Today, weekly jobless claims came in at 236,000, well below the 250,000 general benchmark.  Worse yet, Producer Prices were up .5% vs. the expected .2%, pushing inflation fears.  Tomorrow brings the Consumer Price Index.  If that is up similarly, we can expect some further losses in the bond market.  Retail Sales also comes out tomorrow.
Rates are on the defensive at the moment, about ½ point worse than where we started the week.  Those who were on the fence will pay about 1/8 more in rate by not locking.


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 12, 2017