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News From NAMB: December 22, 2017

John Councilman
Dec 22, 2017

Top Story: Tax Reform Passes ... What Does It Mean for Mortgages?
The landmark tax reform bill has now officially passed both houses.  We would have to say the big winners are people who rent, corporations, and high-earners.  Real estate and mortgages were affected negatively, but due to the work of those in the industry it could have been much worse.  The mortgage interest deduction was maintained although cut to $750,000 from $1 million.  However, doubling the standard deduction will stop many homeowners from itemizing and taking the mortgage deduction.  There remains a fair amount of confusion over deductibility of home equity loan interest.  It appears you will not be able to deduct interest for anything other than acquisition and home improvement.  You will only need to live in your home for 2 years to avoid capital gains.  The House had passed 5 years, but the 2-year period appears to have been retained in conference.  Property taxes will be limited to $10,000 maximum deductibility.  Losses due to fires, hurricanes, etc. will no longer be deductible unless in a presidentially-declared area.  No more moving expense deduction may make changing homes less attractive.  Unreimbursed employee expenses that exceed 2% of AGI will not be allowed.  You will still be able to deduct interest on 2nd homes with an aggregate of 1st and 2nd less than $750,000.  It will take some sorting out for everyone to get on the same page with the new law.  The President is not expected to sign it until the new year to keep a clean 2017 tax year.

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Will Problem With 4506-T Verification Stop Mortgages?
Lenders are reporting problems getting transcripts from the IRS’s IVES system.  The system had a problem similar to Equifax back in 2015 and has been steadily tightening access to tax transcripts since.  Now, a spokesperson for the Consumer Mortgage Coalition says changes put in place in December may create a logjam that could delay transcripts for months.  Some mortgage trade associations have written to the IRS urging them to roll back the new process.  It appears the delay is about 6 days now and things are backing up quickly like water in a clogged sink.  Industry leaders met with the IRS to discuss the problem.

MGIC Introduces Split PMI Premiums
For those of us who have been around for a while, there was a PMI offering where borrowers paid a portion up front and then paid monthly.  MGIC just announced that a similar product is back.  It could be a truly valuable product for those who want a lower payment without a higher rate used by LPMI.  It will be available with various upfront premiums ranging from .5% to 1.75%.

Treasury and FHFA Strike Deal On GSEs Retaining Capital
With the tax bill probably forcing Fannie and Freddie to take a draw from the Treasury Department of as much as $14 billion, Treasury and FHFA have struck a deal.  Fannie and Freddie will be allowed to keep a buffer of $3 billion dollars each.  That may be enough to let Freddie escape an expected $4 billion draw but not enough to prevent Fannie’s expected $10 billion.  Treasury Secretary Mnuchin added, “To compensate taxpayers for the dividends they would have received absent these letter agreements, Treasury’s liquidation preference for the Preferred Stock held in Fannie Mae and Freddie Mac will increase by $3 billion.”  Compensate taxpayers?  Really?  When do I get the check?

Hurricanes Could Prevent Any FHA Premium Cut
Even though many homes had hurricane insurance, the deductibles are often very high.  FHA requires a 5% hurricane deductible but that is still sizeable.  On a $250,000 house, it is $12,500 that owners may not have.  When we consider Puerto Rico, it is a much bigger story.  Only half of Puerto Rican houses had hurricane insurance and there are 117,000 FHA-insured homes there.  People are simply walking away and heading to the continental U.S. to start over.  Losses to lenders could easily be in the billions.  Since everything is under a payment moratorium there, it is too early to tell what the effects will be.
You Picked a Good Time to Be a Mortgage Originator
Rates are low, employment is strong, and people want to buy.  All of those bode well for the next few years in housing.  Fannie Mae projects mortgage rates will not be affected much by all of the Fed rate hikes.  Fannie’s latest attempt at the crystal ball says we will only slow slightly in 2018 due to fewer refis but 2019 will show continued growth in home sales and new construction.  They expect rates to stay in low 4s all the way through 2019. 
Freddie Mac Leapfrogs Fannie Mae on Proposed Income
Freddie Mac has introduced a very aggressive policy on income that is proposed but will not be received by settlement.  Freddie will allow no-cash-out refinances now instead of just purchases. 
They will also permit using a future salary increase with the Borrower’s current employer as qualifying income as long as there is explicit proof.
Government Shutdown Looms
There have been so many threats of shutdowns, no one really expects one to happen.  The latest shutdown will occur Friday night at midnight if the House and Senate can’t agree to keep things running.  Congress is so caught up in the tax reform euphoria that we just may have a shutdown for a few days.  The House is expected to vote today but word is the Senate Democrats will not approve what the House is trying to pass.  That would stop flood policies and USDA but would little to no effect on FHA, VA, and the GSEs.
Fraud is Back on the Rise, Big Time
In previous years, fraud was stemming from those inside the industry.  While that is still there, we are facing a tidal wave of fraud attempts from outside the industry.  Mortgage companies and title companies are being inundated with fake emails attempting to unleash malicious code that the perpetrators can use to steal money.  Borrowers are also being targeted when they can be identified in one of these attacks.  One of the best ways to identify if an email is fraudulent is when it lacks both the borrower name or property address.  Ideally, it should contain both.  Just because it has a legitimate name of a person or company and even their logo isn’t enough.  Don’t hesitate to send a reply email if in doubt asking for further conformation information.  NEVER open an attachment or click on a link unless you are 100% confident the email is legit.
Borrowers Putting More Money Down
According to Attom Data Solutions, median down payment for the third quarter was $20,000, up from $18,161 in the previous quarter and way up from $14,400 in Q3 2016 to a new high as far back as data is available, Q1 2000.  That is about 7.6%, a strange figure.  It is unknown if that was due to Fannie and Freddie reworking their algorithms in DU and LP or people simply had more to put down.  One should note that “median” is simply the middle value.  Average, or “mean” down payment, was much higher.  One must question why “mode” is not used for this analysis, which is the most common amount put down.
Mortgage Bank VP Conned Warehouse Banks out of $12 Million
It seems unfathomable that a warehouse bank could be swindled into advancing money on loans that were being funded by other warehouse lenders.  But, John Reimer, a Vice President as now defunct First Republic managed to pull that off, the U.S. Attorney for New York says.  They say he even kept funding for mortgages that never closed.  All of this happened back in 2008 and 2009 so we would hope warehouse lenders have become more savvy since then. 
The $1 Trillion Dollar Question…Who Wants to Compete Against Fannie & Freddie?
As Congress, buoyed by its success with tax reform, turns its attention to Fannie and Freddie reform, some really difficult questions arise.  The plan floated by Senator Bob Corker, who is retiring, would create similar entities to the GSEs with a government guarantee.  He believes if one or more of those fails, it wouldn’t be big enough to collapse the industry.  This makes absolutely no sense.  If we faced a market collapse like the one in 2008, they likely all would fail.  Next, what makes anyone think these “competitors” would operate as efficiently as Fannie and Freddie since they would have to create the same operating systems as the GSEs spread over a smaller base?  Then, there is the fact that there may not be people willing to compete against Fannie and Freddie.  They have years and billions invested in technology and infrastructure, not to mention specific exemptions from laws that contribute to their profitability.  The same is true of FHA.  While PMI companies are supposed to be competitors to FHA, they really aren’t.  FHA essentially has no competition, perhaps other than Fannie and Freddie.  
Don’t Like Your Lender’s AMC?  Create Your Own… Not.
Two Chicago area brothers, Steven and Michael Garcia, operated American Financial Mortgage Services Inc., a licensed mortgage brokerage in Schaumburg, Illinois.  The U.S. Attorney’s office is charging that the Garcias bypassed FHA regulations by controlling a purportedly independent appraisal firm – Residential Appraisal Management Company Inc. – through a nominee.  The office says the Garcias used RAMCI to steer appraisals to hand-picked appraisers, including a relative of the Garcias, who would provide an appraised value sufficient to support a proposed loan, while falsely representing to lenders that RAMCI selected appraisers based on experience and skill.  The question here is, “Are the lenders being reviewed by HUD for failing to follow FHA rules on Appraiser Independence?”  Also, “What about the appraisers?”
Housing Starts Rise, Builder Optimism Soars
Housing starts rose in November 3.3% over October.  The bigger story is that single-family starts were up 5.3% and 12.9% over this time last year. The NAHB builder confidence index, jumped to 74 in December, the highest report since July 1999, over 18 years ago.  Adding to strong employment and low interest rate, builder confidence has improved on hopes of an improved regulatory environment that has been choking residential construction.  In tangible terms, home buyer traffic rose eight points, showing that demand for housing is on the rise.  We should see strong new home sales.

Guaranteed Rate to Get Major Cash Infusion
Guaranteed Rate is one of the companies that has grown exponentially in the post-crash world.  They have some of the highest-producing originators in the nation.  This is one model, albeit an expensive one, compared to Quicken Loans who uses mega advertising dollars and call-centers.  Guaranteed Rate is selling a “meaningful stake” to Thomas H. Lee Partners, a Boston private equity firm.  We hear a dozen reasons for founder Victor Ciardelli’s sale of a large interest in the company ranging from plans to invest in technology to recruiting to developing jumbo products to paying off its original investors.  Despite its volume of nearly $20 billion a year, the net profit isn’t enough to do these things.  It’s a very competitive market.  Guaranteed has a lot going for it right now.  Their joint venture with Realogy, owner of Century 21 and Coldwell Banker, Sotheby’s and more, is now up and running. 75% of GR loans were for purchases in 2017.

CFPB Interim Director Lawsuit Goes to Court
The suit by Leandra English, who claims to be rightful heir to Richard Cordray, will be heard in federal court tomorrow.  There are tons of amicus filings to wade through, even from Dodd and Frank who wrote the law.  Can you imagine anything getting done at the CFPB while this is going on?  You dare not take sides for fear of who will be in charge tomorrow.  It may take a few weeks for the judge to rule although he is expected to side with the President.
Another “Independent” Dodd/Frank Agency May Bite the Dust
Let’s be honest, how many of us have ever heard of the Office of Financial Research?  It was supposed to gather data for agencies like Treasury, FSOC, and the CFPB to determine how the financial system was performing.  They were chastised by GAO for late reports and the CFPB decided to gather its own data.  Congress is now looking into whether to just roll the function into Treasury. 
More On Ask A Lender
For those who missed the blurb last week about a new site for consumers to find a mortgage, we have an update.  The site, which is provided by Scotsman Guide, is free of charge to both originators and consumers.  We were assured that, although it is named, brokers can also post to the site.  Nothing beats free.  If you get one deal a year, you made a billion percent return on your advertising dollar.
Rate Outlook
The DOW is closing in on 25,000 due to the corporate tax cut in the recently passed tax reform bill.  Many believe it will continue upward, sending money into equities rather than bonds.  Rates have been taking about a ½ point hit so far this week on all of the good economic news and the rally in stocks.
Goldman Sachs is predicting 4 Fed rate hikes in 2018.  That may send HELOC owners scrambling to refi into fixed rates.  Experts are beginning to become concerned that short-term rates could be pushed past long-term, something they believe is destabilizing to the economy.
Housing starts were strong, up 12.9% from the previous year.  GDP continues to blaze, up 3.3%, something that hasn’t happened since the meltdown.  Weekly jobless claims were slightly higher at 245,00 vs. last week’s 225,000.  The Philly Fed survey shows robust economic activity in the Mid-Atlantic region at 26.2 vs. the expected 21 reading.  Existing home sales rose 5.6%, the highest level in 11 years.
Friday still holds a lot more important data with Personal income and outlays, PCE core inflation, Durable Goods Orders, New Home Sales, and University of Michigan Consumer Sentiment.  Most is expected to be positive, putting pressure on rates.  The one unknown is PCE inflation.  If that shows inflation is breaking out, rates could jump.

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 22, 2017