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News From NAMB: December 15, 2017

John Councilman
Dec 15, 2017

Top Story: New App Shows Brokers Gaining Volume
I am often asked, “What is the broker share of the market?”  Thompson-Reuters is claiming to be able to answer that question and many others within seconds.  They are giving a free peek at some of the statistics in their Mortgage Aggregation App.  One must interpolate because all of the figures are not shown, but it looks like brokers account for 15 to 20% of the mortgage market.  It shows company rankings, state rankings, and other breakdowns, reputedly all gathered from loan-level data.  The app also ranks the top buyers of correspondent loans as well as retail.  By the way, Hawaii has the highest percentage of brokered loans at 24.7%.  This is huge news since brokerage had dropped to less than 10% during the depths of the mortgage crisis.

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Ginnie Cracks Down on Churning
Over the past year, Ginnie Mae has experienced an exceptional amount of refinancing that is costly to GNMA investors.  The problem has been especially prevalent with VA IRRRL loans.  They attempted to curb the problem by putting loans refinanced in less than 6 months in more expensive pools.  That helped a little but the rush to refi continued in 6 months.  It appears the biggest problem was Ginnie issuers refinancing their own loans.  Veterans were set in at a higher rate, then refinanced in a few months to a lower rate.  According to Ginnie Mae data, Freedom Mortgage Co. and NewDay USA, issue the vast majority of the loans with rates that are more than a percentage point and a half above the rest of the market.  Now Ginnie is moving the time period so it can be no earlier than 210 days after the first monthly payment is made.  That effectively is about 8 or 9 months.  Ginnie Mae is actively monitoring the pooling activity of issuers.  Any issuer with pool performance that appears out of step with market peers will receive increased attention and engagement from Ginnie Mae.

Tax Plan Deal Reportedly Struck
Politico is reporting that the House and Senate have struck a deal on the tax plan.  If Politico is correct, housing is still the loser.  They say you would be able to deduct interest on up to $750,000 of mortgage debt, down from $1 million now.  Homeowners could deduct up to $10,000 in property taxes or $10,000 in state income tax, but not both. 

Trump Tweets His Vision for CFPB
It took President Trump only 45 words to explain his philosophy on how fines will be meted out by the CFPB and perhaps other agencies.  Trump Tweeted, “Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!”  Many of the fines the CFPB handed out were for technical violations where consumers didn’t directly lose money.  Mulvaney and Trump seem much more interested in violations where consumers or taxpayers are harmed.

FHA Will No Longer Permit PACE Loans
PACE (Property Assessed Clean Energy) loans were a darling of the Obama administration which poured billions into clean energy companies.  FHA started allowing PACE loans in 2016 when it looked as though Hillary Clinton would be elected with similar policies.  Now that Ben Carson is in charge at HUD, PACE is out.  HUD cites risk to the mortgage insurance fund and potential for abuse.  Even Dave Stevens, who was an Obama appointee, has little use for PACE.  He tweeted, “Yes! Good news! This is a rip off program that can screw consumers promoted by the last Administration. Great move @SecretaryCarson and HUD. The Obama team got this one way wrong.”

Not All FHA False Claims Act Settlements are Pre-Crisis
Most of the FHA settlements against the big banks occurred prior to the mortgage meltdown where it seemed most mortgage companies pushed FHA guidelines beyond the limits.  But the most recent False Claims Act settlement against Iberia Bank was for violations as recent as 2014.  The Justice Department claims Iberia had inadequate documentation of the borrower’s income, unresolved appraisal discrepancies, and inadequate verification down payment funds.  They also paid underwriters a commission, which violates FHA rules, despite HUD warning them about it in 2010.  Iberia will pay $11.7 million to settle the matter.

Consumer Advocates File Brief in CFPB Case
10 of most active consumer advocacy groups have filed an Amicus Brief in support of Leandra English and against Mick Mulvaney.  The brief states, “Mick Mulvaney has shown that he neither supports the agency’s mission nor values its independence.”  The groups point out that, when he was a congressman, Mick Mulvaney sponsored legislation to eliminate the bureau.  Their entire legal argument is based around the idea that Congress created an independent agency, not one that answers to the President through one of his cabinet members.  The strange part of all the arguments is whether the Constitution allows for something that operates outside of the three branches of government.  They are essentially arguing that the checks and balances of 3 branches are insufficient and what amounts to a fourth, independent branch, is necessary.

44 Democrat Senators Send Letter Opposing Mulvaney
Only 3 Democrats in the Senate did not sign on to the letter to President Trump demanding that he appoint someone to be CFPB Director who would be tough on Wall Street and financial firms that rip off consumers.   They claim that is not Mick Mulvaney.  30 of those Congressmen are now claiming that they meant for the Director to appoint the Acting Director when they wrote Dodd/Frank.  They claim “absent” means the same thing as “vacant.”  They cite Webster’s dictionary to support the claim.  The problem is that vacant, in that same dictionary, does not use any of the words used to define absent.  The Office of Legal Counsel is arguing that if Congress had wanted to make the Federal Vacancies Reform Act unavailable to the President, it should have said so specifically in Dodd/Frank.

17 State Attorney Generals Say They Will Enforce CFPB Rules
Led by NY Attorney General, Eric Schneiderman, 17 Democratic Attorney Generals wrote a letter to Donald Trump warning him that they will not allow consumers to be ripped off, even if he hamstrings the CFPB.  It is almost as though we are going full circle with states getting back in the regulatory business, which was the case prior to Dodd/Frank.  The ironic part is the CFPB was created because mortgage companies and originators were not properly regulated by states.  NAMB was the sole driving force through its Model State Statute initiative that urged licensing of originators, weeding out the worst offenders in states that adopted it.

Congress Averts Shutdown for 2 Weeks
Congress waited until the last minute to avoid a partial government shutdown at the end of last week.  They approved a resolution that funds the government for just 2 weeks, until December 22nd.  If they had failed, there would be no new flood policies and USDA loans would have come to a halt.  Since the 22nd is just 3 days before Christmas, what are odds that they will extend out past New Year’s so they can go home and enjoy the holidays?  Would you say 100%?  The Big 4 met at the White House.

House Financial Services Approves Bill to Prevent Recap and Release
The House Financial Services Committee passed Rep French Hill’s H.R.4560 - GSE Jumpstart Reauthorization Act of 2017 this week.  It would do 2 things.  First, it would prevent Treasury from selling its preferred stock until 2019 which means it would get dividends.  Second, if FHFA doesn’t pay a dividend, the Housing Trust Fund gets no money.  That is a darling program of Democrats that Mel Watt is not about to harm.

Hensarling Still Wants to Shut Down Fannie and Freddie
House Financial Services Chair Jeb Hensarling is no fan of Fannie Mae, Freddie Mac or FHFA.  Speaking at a conference on the future of the U.S. housing market, Hensarling reiterated that he still believes we need to shut down Fannie Mae and Freddie Mac.  “Fannie and Freddie must be wound down and their charters repealed. I fear any plan to recap and release may very well constitute deja vu all over again,” Hensarling said.  He also believes FHA should be just for first-time, lower-income borrowers.

Bank LOs Could Move Easily to State-Licensed Mortgage Companies
The House Financial Services Committee passed H.R. 2948 with a rare 100% vote.  It would allow bank mortgage originators to move to a state-licensed mortgage company without passing the test or having the requisite education if they have a clean record.  The registered LO could start originating loans immediately and have 120 days to finish licensing requirements.  Another part of the bill allows a licensed originator to cross state lines immediately as long as they put in an application in the new state.  Yes, you could originate in all 50 states if you are willing to pay the licensing fee and you are currently licensed in one.  The authority would also expire in 120 unless you become licensed.

Penny Mac Opens Wholesale Channel
Penny Mac, who recently showed as the largest purchaser of GNMA product from correspondents, is entering wholesale.  Looking at their product list shows they are looking for FHA loans with a score down to 640.  That must mean they intend to be a rate leader.  It is interesting to note that they are touting their culture, which they claim is reliable, accountable, and ethical.  Since brokers have a fixed lender comp, rate has often become slightly less important than culture.  It will be interesting to see if brokers will come since Penny does retail origination, something that has become a hot button lately.
Rate Outlook
Rates have been edging up for the past several weeks, mostly because of a general feeling that the economy is doing well.  The Federal Reserve is fully convinced of that and that inflation will break out at any time.  This past Friday’s employment report sealed the rate hike, making it a foregone conclusion that they would raise sort-term rates at the December meeting, which they did to no one’s surprise.  True to the Yellen form, it was a small move, just ¼%, leaving room for more hikes in the coming year.  That brings the Fed Funds Rate to 1.5%.  The experts are all calling for 3 more Fed rate hikes in 2018.
Bond traders seemed to share the Fed’s beliefs this week, gobbling up 3-year treasuries at the latest auctions but showing tepid interest in 10-year notes.  It makes a lot of sense though.  You get less than ½% difference in yield on the 3-year vs. the longer-term treasuries.  Why take the risk, especially when there is little chance rates are going to drop a lot and will likely go up?
Just as one would think bond traders made sense, the 30-year auction had strong demand.  It appears just that extra .4% yield over the 10-year created appetite.  It proves bond traders buy to sell, not hold for long-term yield.
The week began with the Producer Price Index coming in hotter than expected at .4% and the core at .3%.  This is the second month the PPI has come in showing inflation and the highest reading in 6 years.
For the second time in a row, the Consumer Price Index came in cooler than the PPI.  While the PPI also registered at .4%, the core was only up .1%.  That provided a little relief for mortgage rates, but it is still somewhat inflationary, adding fuel to the fire for rates to rise some more. 
This morning, mortgage rates were again hammered by good news.  Retail Sales were up .8% vs. the expected .3%.  Weekly jobless claims fell to 225,000, matching the lowest jobless rate this year.
Long-term rates are resilient though.  Rates are clawing their back to yesterday’s levels this afternoon.  Inflation is just too mild to hit long-term rates for now.

John Councilman, CMC, CRMS of AMC Mortgage Corporation in Ft. Myers, Fla. is Past President of NAMB. He may be reached by phone at (239) 267-2400 or e-mail [email protected].

Dec 15, 2017