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News From NAMB: August 31, 2017

John Councilman
Aug 31, 2017

Top Story: First-Time Buyers Highest In 18 Years
First-time buyers came out in droves in the 2nd quarter of 2017. More first-time buyers bought homes than in any quarter since 1999 according to Genworth’s latest Market Report. Q2 2017 zoomed past Q1 with 570,000 first-time purchasers compared to only 426,000 the previous quarter. First-time homebuyers accounted for 36 percent of all single-family homes sold during the second quarter, up from 34 percent a year ago. In the mortgage market, they accounted for 57 percent of all purchase mortgages originated, up from 56 percent a year ago. Historically, first-time homebuyers have accounted for 35 percent of single-family housing market and 45 percent of the purchase mortgage market. Most used low downpayment financing with 3 to 3.5% down.

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Texas Disaster Wakes Up Congress to Reauthorizing FEMA
We have watched in horror as cars, busses, houses, and people were washed away as Hurricane Harvey drowned South-Eastern Texas. It was a rude awakening that incredible flooding can bring billions of dollars in damages to major cities that aren’t normally thought of as flood-prone.  The damage from Harvey is projected to be one of the most costly in U.S. history.  The vast majority of homes had no flood insurance.  Only 15% of homes in Harris Country, which includes Houston, have flood insurance.  Only 20% of homes in Nueces County, where Corpus Christie is located, are covered.  Even still, FEMA is not likely to be able to fund what they did cover.  Meanwhile, Federal funding for FEMA runs out September 30th.  No one, from the President to Congress will be able to ignore flood insurance legislation this time around.  NAMB is supporting H.R. 2874 which makes some reforms and funds FEMA for 5 more years. 

Chairman of Colorado’s Largest Lender Abruptly Steps Down
Cherry Creek Mortgage, the largest locally-owned mortgage company in Colorado, was hit was a discrimination lawsuit a few weeks ago.  The suit claims Cherry Creek refused to give the company’s health insurance coverage to a same-sex couple.  Cherry Creek promotes itself as a Christian-based company and does not recognize same sex marriage.  It appears a tumult occurred in the board of Cherry Creek that resulted in the company revoking its earlier policy and now giving health coverage to same-sex couples.  When the company announced its policy change, its chairman, Wil Armstrong, abruptly resigned.

Wells Fargo Being Sued for Rate Lock Extensions
Wells Fargo normally locks borrowers for 30 to 90 days, depending on how busy they are.  A class-action lawsuit filed this week claims Wells Fargo did not process the loans timely and charged borrowers for rate-lock extensions.  The bank routinely blamed borrowers for delays and charged them to extend rate locks, according to the lawsuit.  The extensions generally were .125% of .25% of the loan amount.  That netted Wells an extra $300 to $1,000 more per loan. 

Hensarling to Cordray, “Are You Resigning or Not?”
It is well-known that there is no love lost between CFPB Director Richard Cordray and House Financial Services Chair, Jeb Hensarling.  Hensarling is looking for any angle to get Cordray out the job.  Most believe Cordray will run for Ohio governor but he is playing coy, infuriating Hensarling.  Hensarling has sent Cordray a letter with an ultimatum, “no later than Aug. 30 [today], he wants "confirmation that you intend to serve your full statutory term" or, if not, "confirmation of the date on which you intend to resign from office."  Cordray fired back, "At this time, I have no further insights to provide on that subject." 

HUD Revises HECM Program To Survive
To ensure the continued viability of the Home Equity Conversion Mortgage (HECM) program, FHA is making changes that HUD says are necessary to enable it to continue to endorse HECM loans.  The initial MIP rate is changed to 2.00% of the Maximum Claim Amount (MCA) and the annual MIP rate is changed to .50% of the outstanding mortgage balance.  The current initial MIP can be either .5% or 2.5%, depending on draw amount, and 1.25% annually.  That is an increase in the initial MIP for some loans and a decrease in the annual MIP.  It isn’t apparent how this will have make a significant improvement to FHA’s loss position.  The big change, hidden in the initials PLF (Principal Limit Factors), will cut how much seniors get.  The changes are effective for all HECMs with case numbers assigned on or after October 2, 2017.

It’s All About the Rate
Surveys have produced conflicting conclusions when it comes to why borrowers choose a particular lender or broker to originate their loan.  Most recent surveys put customer service ahead of rate/price.  A new survey by Free and Clear says it is all about the rate and nothing is even close.  Sometimes one must wonder what the questions were that produce such divergent results.  If you asked the borrower, “Would you choose an originator with a shady reputation if they were offering the lowest rate?”, you may get a different answer.

Refis Pushing 50% of Loan Activity
As rates slide downward slightly, refinances have come alive again.  This week’s MBA survey shows refinances had 49.4% of the applications this week.  Applications for purchases have been pulling back, giving refis a larger share.  Overall, purchases are still 4% better than this time last year.

CFPB Releases Detailed Summary of New RESPA/TILA Rule
Several weeks ago, the CFPB released a number of changes to the Know Before You Owe (TRID) rule.  They weren’t huge policy changes but the CFPB expects the TRID rules to be followed to the tiniest detail.  Just the clarifications to the original rule took 560 pages in the agency’s attempt to cover the bases of what they expect.  The 24-page list that summarizes the changes does help rather than wading through all 560 pages.  Compliance with the 2017 rule is optional until October 1, 2018.

Top 5 Banks Still Losing Share
As non-banks continue to gain market share, the 5 biggest banks in the nation are losing market share, despite a little bump in originations in the 2nd quarter.  In a recent Forbes Magazine article, you can see that every one of the big 5 dropped 6% of their market share just between Q4 2016 and Q2 2017 where they only took 24% of the market.  Recent studies by the Urban Institute indicate the average FICO for nonbanks is 50 points lower than banks and Debt-to-Income ratios are several points higher.

Zillow Says Zestimate is Very Accurate
Zillow is boasting that it Zestimate is so accurate that it is competitive with actual appraisals.  A few years ago, Zillow was about 15% to 20% accurate and wildly inaccurate on some appraisals.  Zillow is taking great pains to make the Zestimate the most accurate online valuation tool.  According to its web site and news releases, Zillow says their median margin of error has dropped to less than 5%.  But, when you read the fine print it is a little different.  Zestimates are currently within 5% of the final sale price only 54.4% of the time.  They are within 10% of the final sale price 74.5% of the time and within 20% of the final sale price 86.9% of the time.  Zillow checks its estimates against sales.  I wonder how human appraisers would fare if they were compared to actual sales before the property is listed.

Warren Buffet Buying Up Banks
It is well-known that Warren Buffet is the largest shareholder of Wells Fargo.  Buffet’s Berkshire Hathaway owns 10% of Wells.  Berkshire also owns a nice chunk of Chase.  This week, Berkshire exercised warrants to acquire over 700 million shares of B of A stock for roughly $7.14 each, well below their closing price of $23.58.  Not hard to make money when you can buy stock for less than a third of value.  No wonder he has that sly grin on his face.

Interested in Learning the History of Credit?
If you have a little extra time on your hands, you can learn the history of the industry in which we are employed.  Equifax points out that credit goes back at least as far as 3,500 B.C.  Do you know when the first credit bureau was started?  You can see how our current system of credit evolved in a graphical presentation by Equifax.

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 economy is still looking good.  Q2 GDP was revised upward from +2.6% to 3.0%, good news for TrumpEnomics.
So far, it looks like August was another excellent month for employment.  The ADP payrolls report, the first of three jobs-related releases this week, showed an increase of 236,000 jobs. Traders were expecting ADP to print at 185,000.  The 2nd piece, jobless claims, came in at 237,000, staying well below the 250,000 marker.
Friday, we get the most important piece of economic news, the Bureau of Labor Statistics Jobs Report.  June and July were both strong months.  If that continues into August, it would be three in a row and could push rates up somewhat.  A weak jobs report could continue the trend toward lower rates.
As the job market tightens, employers are cautiously giving raises.  Personal income rose .4% in August which would make a strong annual gain of around 5%.  PCE Inflation came in at a mere .1%, showing inflation is still quite dead.  According to the law of supply and demand, one would have to think that more money chasing price-frozen goods would create inflation.  It has the Fed baffled.
In addition to the jobs report, we get the ISM Index and University of Michigan Consumer Sentiment survey tomorrow.  The first week of the month always brings a rush of economic news.

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].



Aug 31, 2017