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News From NAMB: May 26, 2017

John Councilman
May 26, 2017

Top Story: Battle Over CFPB Existence Began Yesterday
The CFPB and PHH are locked in a death spiral that can only end in one or even both sides taking a severe hit or even being killed off. PHH is showing huge losses so they could dissolve before this case is finished. The CFPB Director could be fired and a pro-business Director appointed as a result of the case. PHH is even calling for the abolition of the CFPB, saying its entire structure is unconstitutional. The court only gave verbal arguments 90 minutes. PHH’s counsel faced withering questions at the start and only recovered when one of the justices favorable to PHH answered for him. The withering questions turned to the CFPB’s attorney when he was queried. I loved the rhetorical question by a justice. If Congress can delegate the President’s authority to independent agencies, what stops Congress from delegating ALL of the President’s authority to agencies? Another really good question was, Suppose Congress had made the Director’s term 30 years? My guess is this is going to be a tight vote. No matter how the DC Court of Appeals rules, it will take them at least until late summer and probably late in the year. Then, this case is going to be appealed to the Supreme Court, who will almost certainly hear the case.

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Voters Think CFPB Structure is Unfair
The CFPB has long been accused of being heavily tilted to the left.  Apparently, voters have discovered that as well.  A Morning Consult poll commissioned by the Consumer Bankers Association, the Independent Community Bankers of America, and the American Land Title Association, found 58% of registered voters in key battleground states say the Consumer Financial Protection Bureau should be run by a bipartisan commission.  The poll also found that a mere 14% said the CFPB should keep its current structure.

Trump’s Budget Shows He Likes FHA, Not So Much HUD
We got a glimpse of HUD’s budget back in March.  This week, the president released his official budget proposal for HUD.  The 2018 budget fully funds through the FHA mortgage insurance programs, providing up to $400 billion in new loan guarantee authority and permanently lifts the 275,000 loan cap on FHA’s Home Equity Conversion Mortgage (HECM) or ‘reverse mortgage’ program.  FHA may finally get its $30 million to modernize FHA’s aging computer systems. Some that are still based upon the outdated COBOL programming language.  Lenders are not pleased that it would come from a per loan assessment.  In addition, the budget includes $500 billion in new guarantee authority for Ginnie Mae.  Overall, HUD is getting cut even more than originally proposed, a whopping 13.2%.  Congress would still have to approve all of this which is a tall order.

Trump Budget Would Defang CFPB
President Trump promised to give the CFPB a “serious haircut” but his budget looks more like a scalping.  Buried deep in the new budget being offered by President Trump is a requirement that the CFPB be made subject to the appropriations process.  The agency’s budget would go from $668 million to nearly nothing in 2019.  You can be certain the Democrats are not pleased.  This will clearly not make it through Congress unless Republicans use the nuclear option.

CFPB Gives Guidance on Asset-Based Income
In its Spring Supervisory Highlights, the CFPB discusses how they view a borrower’s ability to repay that relies on verified assets, not income.  The CFPB makes the shocking statement, “A creditor relying on assets and not income could, for example, assume income is zero and properly determine that no income is necessary to make a reasonable determination of the consumer’s ability to repay the loan in light of the consumer’s verified assets.”  In other words, if the borrower has enough liquid assets to pay the loan off, they don’t need any income.  What about size of down payment?  The CFPB says, “Down payments will not support a reasonable and good faith determination of the ability to repay.”

Derivatives May Be Back With Government Blessing
Derivatives were railed as one of the reasons we had a mortgage crisis.  What they are is a bet on the performance of something, like a bond.  Yet, Craig Phillips, a former BlackRock Inc. executive who recently joined the Treasury Department, says they could be “core” to housing policy.  The GSEs mantra lately is “credit risk transfer.”  Rather than buying the bond, a derivative could be bought on just the risk portion.  It could be the ultimate risk transfer.  There is the potential for large gains and large losses to the derivative holder.  That worries some so we will have to wait and see if things have cooled enough to allow what some consider key to reviving private investment in mortgages.

The Reason So Few Software Companies Write Mortgage Software?
For the most part, mortgage software is dominated by Calyx and Ellie Mae.  That has been the case for decades since Ellie bought the previous leaders.  A very good reason not to enter this market is the CFPB intends to directly oversee and examine any service provider.  It is set forth in the Spring Supervisory Highlights. “The Dodd-Frank Act grants the Bureau the authority to examine “service providers” to certain entities. More specifically, under Dodd-Frank Act subsections 1024(e) and 1025(d), the Bureau has the authority to examine, in coordination with the appropriate prudential regulator(s), service providers to entities described in Dodd-Frank Act subsections 1024(a)(1) or 1025(a), to the same extent as if the Bureau were an appropriate Federal banking agency under section 7(c) of the Bank Service Company Act.”  Theoretically, the CFPB could audit Microsoft or Apple.  No wonder companies are complaining that the CFPB was given more power than the President, all in the hands of a single Director.

Freddie Mac No-Score Program Begins
The first leg of Freddie Mac’s venture into borrowers with no score began on May 15th.  This version still requires one borrower to have a score but the borrower with no score can contribute more than 50% of the income now.  No-score borrower can now be self-employed.  A perfect credit history on all accounts, even if they aren’t on the credit report, is also no longer required.
On June 26th, loans with no borrower having a score will be allowed.

California Court Rules CFPB Director is Constitutional
As the CFPB faces a constitutional challenge that has gained traction in DC, a California judge saw a constitutional challenge there as simply a way not to answer a subpoena.  Interestingly, the California judge attacked the DC Appeals Court decision that the CFPB Director was unconstitutional at great length.  We shall see if the full DC court pays any attention to the Californian.

First-Time Buyers Really Need To Talk To A Good Originator
In a survey conducted at the MBA’s Secondary Market Conference by Genworth, mortgage executives cited the #1 reason first-time buyers don’t buy a home is lack of knowledge of the homebuying process.  Despite the advertising that all of this can be done online with a push of a couple of buttons, there is still quite a few hoops to jump through and things to understand.  One of the leading misconceptions is how much downpayment you need.  The second reason they don’t buy is the lack of homes that are in their price range or that appeal to them.

Realtors Predict Rates Around 5% Early Next Year
The National Association of Realtors has released a chart showing recent history and projections for many major economic statistics.  One of the projections is that rates will start to tick up again starting toward the end of this year and will be at or near 5% in early 2018.  They are predicting that will not stop home sales.  NAR believe both new and existing home sales will go up in the next year; so will home prices.  Now is a good time to buy.

AATOM Says Q1 Originations Lowest In 3 Years
AATOM and its RealTrac subsidiary monitor recording offices to gather data.  They cover about 80% of the country that is automated.  So, their figures are different than the MBA’s that only tracks applications, not closed loans.  It is also different than Ellie Mae who only monitors those who use its software.  The real culprit in the dearth of originations is refinances that hit a 14-year low in the first quarter of 2017.  We have been in a declining-rate market for nearly 30 years making this expected.  Also, you will notice from AATOM’s chart that Q1 is slow every year.

CFPB To Reassess Mortgage Servicing. How About QM?
The CFPB normally reviews rules it promulgates every 5 years.  It appears they are reviewing the mortgage servicing rule they wrote in 2013 because it has caused a lot of hardship for mortgage servicers.  Attorneys for lenders claim the strict time requirements in the rule, requiring borrowers to be entitled to an affordable loan modification, and requiring servicers to communicate with borrowers in their native language, have become excuses to unnecessarily postpone or evade foreclosure.  It has made fewer companies interested in servicing or even making loans, especially community banks and credit unions.  Don’t think this will happen quickly since the review won’t end until 2019.  Meanwhile, QM was invoked at the same time and the CFPB hasn’t announced any review despite that rule costing borrowers billions in layers of regulations.

Tips For a Compliant LO Comp Plan
Small broker/banker shops can’t afford an in-house legal counsel but they should always pay attention when compliance experts like Jonathan Foxx give advice.  Foxx warns not to impose a monetary penalty on an MLO for failing to follow policy (i.e., collecting all required fees) on a per loan basis. That amounts to varying compensation based upon a term of the transaction.  His web site has lots of helpful information for owners and LOs.

Trump Tax Plan’s Effect on Mortgage Interest Deduction
Not even Donald Trump wants to be the one who kills the mortgage interest deduction.  But, if his new tax plan passes as is, it would not be used by a lot of people.  Trump envisions increasing the standard deduction for a married couple to $24,000 from $12,700 for a married couple filing jointly.  Then, only mortgage interest and charitable donations would be deductible.  Real estate taxes, an item that is approaching the principal payment of the mortgage, would not be deductible.  That would push a lot of people into the standard deduction rather than itemizing.  It is a slick way of effectively killing the mortgage interest deduction.  If only a small number of people are using it, they can get rid of it more easily.  With homeownership at all-time lows, one must question the wisdom of making owning a home less attractive.

Mnuchin Testimony Outlines Big Changes … Maybe
Steven Mnuchin made Wall Street and the big banks very happy when he testified before the Senate Banking Committee.  He seems to have backed off any proposed changes such as getting banks out of investment banking.  He promised GSE reform “sooner rather than later.”  Bu then Mnuchin said not until tax reform is settled which could be later than sooner.  You can watch his testimony if you are having difficulty sleeping at night.

The Other Debts That Ruin Your Credit
The public thinks that just paying your monthly loan payments gives you a good credit score.  As the nurse who called me today suddenly realized, other things can ruin your credit, even if you pay credit cards and car payments on time.  Many people wait for their insurance to pay their medical bills and then are surprised when it shows as a collection or paid collection.  Cell phones and utilities are perennial credit spoilers.  A recent survey by Credit Sesame claims utilities are particularly aggressive and will not remove the delinquent history, even when paid.  It is sad that many people’s credit is ruined by utility collections that average just $378.

Deutsche Bank To Make Executives Pay For Fines
Deutsche Bank says it is close to an agreement that would have former executives help pay for fines the lender suffered because of past misconduct.  Deutsche’s chairman gives it a positive spin by calling it “a substantial financial contribution.”  These executives must have really made some cash to make any dent in fines that totaled $7.2 billion to the U.S. alone.  Even Jamie Dimon is reportedly only worth a billion.

Remember When Chase Blamed Brokers For Their Losses?  Guess What?
Chase CEO Jamie Dimon took the bank out of wholesale mortgage lending in the last decade when Chase lost their shirt in mortgages.  He claimed it was all the fault of mortgage brokers.  Then, Dimon lost billions on false certifications to FHA and buybacks to Fannie Mae.  In 2016 he went so far as to say mortgage lending is not a good business.  This week showed that Chase not only failed to monitor bad brokers, they failed to monitor their own LOs.  This past week a former senior loan officer at Chase Bank admitted in court that he took part in a massive mortgage fraud scheme during the height of the mortgage boom that cost the bank more than $33 million.  Who watches the store at Chase? 

Rate Outlook
Experts are betting the Federal Reserve will hike rates again in June.  Some give it as much as an 83% probability.  Setting odds before the employment report and other economic news in May is a bit premature.
The DOW is soaring again, well above 21,000 which keeps mortgage rates from dipping further.
New home sales just can’t seem to get off the ground.  April’s report shows only 569,000 sold vs. the expected 605,000.  Tight inventory held Existing Home Sales down, dropping 2.3% from March.  The average home stayed on the market just 29 days.
Weekly jobless claims were 234,000, below analysts’ expectations of 238,000 and well below the 250,000 benchmark.
Tomorrow brings Durable goods orders, GDP, and consumer sentiment.  But this market is still not driven that much by most economic news as the Fed keeps buying.  Next week could have an impact as the Jobs Report shows how employment is doing.



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 26, 2017