News From NAMB: December 8, 2017
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News From NAMB: December 8, 2017

December 8, 2017
Top Story: Changes Start At CFPB
Acting Director Mick Mulvaney has begun reshaping the CFPB.  His first act was to place a freeze on any new hiring and regulatory action.  This week, Mulvaney appointed Brian Johnson, an attorney and aide to House Financial Services Committee Chairman Jeb Hensarling, to essentially run the Bureau.  Hensarling has been the most critical member of Congress but is reported to be on President Trump’s short list for Director.  We can expect Elizabeth Warren to turn purple if he is the choice.  Mulvaney just announced he is halting the CFPB’s collection of personal data which would have allowed the CFPB to detect financial wrongdoing down to the individual level.  Cyber security issues were blamed.  A court action against Nationwide Biweekly Administration has been quenched.  More changes are expected shortly.

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The Fight Over Who Will Run CFPB, Round 2
Just because Leandra English failed to get a temporary restraining order against Mick Mulvaney doesn’t mean she is knocked out.  Round 2 begins on December 22nd when Judge Timothy Kelly will hear a preliminary injunction case brought by English.  Mulvaney is taking no chances on the future actions of the CFPB.  He is going to put political appointees in the CFPB to watch over every major area to ensure the agency is run his way. 

Cordray Announces Run for Ohio Governor
Former CFPB Director Richard Cordray formally announced he is running for Ohio governor.  He has posted a video where he is now a folksy “Rich Cordray.”  He doesn’t look so haggard in the video.  A few week’s rest and home-cooked meals must have done wonders for him.  You can even donate to his campaign on the same site as the video.

Cordray Worries About Future of the CFPB
Richard Cordray, now free of the daily assaults he took at the CFPB, told Politco that he worries about the future of the CFPB.  He is optimistic that someone who is appointed will be less radical to get through the confirmation process.  Cordray’s biggest concern is that the new Director will starve the agency of funds.  If that happens, Cordray said, "The bureau would waste away."

FHA Hikes Loan Limits
The FHA national low-cost area mortgage limits, which are set at 65 percent of the national conforming limit of $453,100 for a one-unit property have jumped to $294,515.  High cost areas can still go as high as $679,650.  In Alaska, Hawaii, and Guam, the loan limit is an amazing $1,019,475.  The real detail is whether your county received a boost for increased values.

Will Government Shutdown Stop Mortgages?
Zillow believes 3,500 mortgages a day will stop in their tracks if the government shuts down after tomorrow.  They are counting FHA, VA, and USDA loans in that count.  During the last shutdown in 2013 FHA and VA worked with skeleton crews but seemed to keep things moving, albeit a bit slower.  USDA loans come to a stop.  Renters that receive federal subsidies may have some problems as well.

Flood Insurance Stops Tomorrow
We have reached the critical stage once again for flood insurance.  Unless Congress extends the National Flood Insurance Program, no new policies or renewals can be written after tomorrow.  Flood insurance is just one of the issues that must be dealt with.  Democrats want any defense spending increases matched with equal domestic spending boosts as well as for a deportation relief by the end of the year for undocumented immigrants brought to the U.S. as children.  The government has been funded under a temporary measure known as a continuing resolution since Oct. 1.  It looks as though we will get another extension until December 22nd as negotiations go on today.

The Last Big Bank Exits Wholesale
U.S. Bank Home Mortgage announced this week that it will exit the Wholesale Mortgage Lending channel.   They will remain in correspondent, housing finance agency lending, and retail.  Brokers will have until December 11, 2017 to register loans that must fund no later than March 12, 2018.  It would not be surprising to see banks even pull back from retail mortgages since they can make so much more money in commercial banking.  That could all reverse dramatically if major changes are made to Fannie and Freddie.

Walter Declares Bankruptcy
The parent of Ditech and Reverse Mortgage Solutions finally pulled the plug after warning that they were going to declare bankruptcy for several months.  Walter Investment made most of their income from servicing.  They thought they were going to make a killing buying the rights to service poorly performing loans a few years ago.  The problem is, true servicing contracts require you to still pay the owner of the note, even if the borrower isn’t paying.  That caused Walter to lose $529 million in 2016 with similar losses accruing in 2017.  Walter has negotiated a $1.9 billion line of credit to keep its profitable Ditech and RMS operations going.

Tax Reform Has Now Passed Both Houses of Congress
The House passed its version of tax reform back in November and the Senate just passed its version in the middle of the night Friday.  There was little for the real estate industry to cheer about in either bill.  Just fighting for the status quo for real estate was a gargantuan task.  The mortgage interest deduction is maintained at $1 million in the Senate plan but cut to $500,000 in the House version, the ability to sell and not pay capital gains was pushed from 2 years to 5 years, and the property tax deduction is capped at $10,000.  The doubling of the personal deduction will make it less attractive for people to buy or give to charities.  NAR and NAMB were the only 2 groups with a clear message not to make any compromises on housing which headed off worse results.  One good point is Senator Rounds got in an amendment that prevented a tax disaster for mortgage servicers.  Now, the House and Senate must reconcile the bills, but it looks like tax reform will pass.  NAR believes it may still not be too late for you to tell Congress that you don’t want a cut in real estate deductions and has an online form to contact your member.

First-Time Buyers Highest Since 2000
Not even when Fannie and Freddie were offering 100% financing did we have so many first-time buyers.  First-time homebuyers accounted for 40% of all single-family homes sold and 56% of all purchase mortgages financed according to Genworth’s First-Time Homebuyer Market Report.  FHA is still beating PMI with first-time buyers insuring 197,000 to 181,000 for PMI.  The number of repeat buyers actually declined in the 3rd quarter.

CFPB Releases New Guide to TRID Forms
In July, the CFPB made some significant changes to how the TRID disclosure forms are to be completed.  The Bureau has just released a new Guide to the Loan Estimate and Closing Disclosure Forms.  Areas changed on the Loan Estimate include the General Requirements, General Information, Loan Terms, Projected Payments table, Costs at Closing, Loan Costs and Other Costs, Calculating Cash to Close table, Alternative Calculating Cash to Close table, Comparisons, and Confirm Receipt. 

Fannie Mae Profit Sweep Could Stop Soon
As strange as it may sound, the suit against the CFPB’s constitutionality may be the impetus to stop the GSE’s worth sweep.  FHFA is structured very similarly to the CFPB as an “independent” agency.  Just as the Department of Justice has turned on the CFPB, it should be noted that Chad R. Readler is defending FHFA while simultaneously attacking the CFPB for what are in effect the same claims.  We shall see if the President and DOJ begin work on the FHFA next.

Is FHA Cheaper Than Rent?
The answer isn’t always the same.  It depends on what area of the country you live in.  If you live in Florida, Pennsylvania, Maryland and states where housing is less expensive, it is cheaper to buy using FHA than rent.  But, if you live on the west coast where homes are expensive, like California, Seattle or Portland, it is considerably cheaper to rent.  The country is about evenly split.  It should be a no-brainer for people to buy one would think if it is cheaper.  It all boils down to being able to come up with the cash to close, the #1 impediment to buying.

Trump Names “Impeccable Conservative” to Federal Reserve
President Trump nominated Professor Marvin Goodfriend to the Federal Reserve Board of Governors.  Goodfriend is a professor of Economics at Carnegie Mellon University.  Previously he was Director of Research at the Federal Reserve Bank of Richmond from 1993 to 2005.  House Financial Services Committee Chairman Jeb Hensarling (R-Texas) called Goodfriend “a highly respected researcher on monetary and macroeconomics and an impeccable conservative.”  On the negative side, he chastised the Fed for purchasing mortgage-backed securities.  He is very radical on his economic beliefs, swinging from jumping to higher rates to curb inflation rather than easy steps, but using negative interest rates when the Fed would want to stimulate.  He is no Janet Yellen.

Senate Banking Passes Bill to Ease Regulations on Banks and Credit Unions
Although some are touting S. 2155 as a “repeal of Dodd-Frank Act,” it is nothing of the kind.  It could more accurately be named “Relief for Community Banks and Credit Unions.”  It allows banks and credit union with less than $10 billion in assets to make loans that would be qualified mortgages as long as they are held in portfolio.  The only two areas that directly affect non-banks; the ability for loan originators to move from banks to non-banks without meeting the required standards for 120 days and, loans where the rate is dropped wouldn’t have a second waiting period.  The latter is more of a clarification than a change and the better solution to the first would be for all originators to be properly tested and licensed.  As the mortgage industry evolves, it seems short-sighted that only depositories could make portfolio loans with reduced requirements.

Quicken Accused of “Wiretap” Violation On Its Website
A class-action lawsuit has been filed against Quicken Loans claiming they wiretapped consumers’ electronic communications with the website.  The suit is based on the Electronic Communications Privacy Act which prohibits snooping on data not specifically being sent to a party.  The case centers around the concept that gathering emails and such when the consumer doesn’t click the Submit button is illegal.  Quicken says the case is meritless and intends to fight it.

New Penn Undergoes 2nd Acquisition
Wholesale lender New Penn was started in 2008, around the time of the mortgage implosion.  They were bought in 2011 by Shellpoint Partners, a company founded by one of the pioneers of mortgage securitization Lewis Ranieri.  Now, Shellpoint has been swallowed by New Residential Investment Corp which trades under the symbol NRZ.  New Residential primarily invests in subprime mortgages, according to their 10K.  This allows them to pay very high stock dividends of over 11%.  Their loans are generally serviced by Ocwen and Nationstar who are known for subprime servicing.  No one knows exactly what they see in New Penn, whether they just want to use its servicing platform to get away from Ocwen and Nationstar or whether they want to take New Penn more toward subprime or use it to acquire more prime loans.

Some Democrats Ready to Change CFPB Rule
In what appears to be a growing abandonment of the rules CFPB Director Cordray implemented, several Democrats have signed on to the payday lending rule repeal.  Three Democrats have signed on to Dennis Ross’ bill that would send a stinging rebuke to the CFPB.  This follows legislation that just passed repealing the CFPB’s arbitration rule.   With elections coming up and Cordray resigning, it may be that support for the CFPB in Congress is eroding.

Bills Introduced in House and Senate to Cut CFPB Pay Scale
Senator Mike Enzi, chairman of Senate Budget Committee, and Representative Sean Duffy, who chairs the House Financial Services Subcommittee on Housing & Insurance, have introduced a bill that would put CFPB employees on the GS pay scale.  Duffy had introduced the CFPB Pay Fairness Act back in 2013, 2014, and 2015, but none ever passed the Senate.  Now its back with a companion bill in the Senate.  The GS scale starts at a maximum salary of $103,672  and tops out after 10 years at 134,776.  Currently, the average CFPB salary is $118,000 with 25% of them earning over $150,000 and some over $200,000.  These high pay scales allowed them to hire away some of the best people from state regulators.

Good Servicing Can Improve Originations
No doubt you’ve had more than one borrower who refinanced just to get away from a horrible servicer.  As more and more wholesaler lenders service the loans they originate, I find it is a valuable sales tool to tell borrowers that the company who will be servicing their loan is nice to work with.  If they like the servicer, they will tell others who will come to you.  Quicken loans is on to this.  They have found that servicing reputation is important. They are heavily promoting their J.D. Power servicing awards.  Quicken is even going a step further by doing a few little niceties for their customers.

Rate Outlook
Jerome Powell was confirmed by the Senate Banking Committee for Fed Chair this week.  Although he generally followed Janet Yellen on economic policy, that may surprise some if he changes direction with the new members of the Fed.  Yellen was a hardcore economist, Powell is really a lawyer.  Yellen, who will step down when Powell takes office, was conservative to the point of being timid.  Marvin Goodfriend, who is a hardcore economist, but a proponent of radical rate hikes and cuts, is joining the board.  It will be interesting to see if Powell is influenced by them or retains his Yellen mindset.  Powell has been a strong advocate of mortgages being provided by private capital and the cutback or elimination of Fannie and Freddie.  2018 will be an interesting year.
 
The first week of the month always brings a lot of economic news.  This week, we started with factory orders for October were down .1% after showing gains in August and September.  The trade deficient increased slightly in October. 
 
Manufacturing has been expanding every month since 2010 and November was no exception.  The overall economy continues to grow.  That hasn’t hurt rates yet but is reassuring that people will have wages to buy houses.  The ISM reported healthy manufacturing productivity and the rate of price increases slowing.  That is good news for rates which are heavily influenced by inflation.
 
ADP released its payroll report showing a gain of 190,000 jobs.  Weekly jobless claims were slightly better than expected, sinking to 236,00.  Friday will bring the Bureau of Labor Statistics employment report which is expected to be good.
 
Based on what we see so far, everything is ripe for inflation, but it just isn’t there.  The Fed isn’t going to take any chances and is virtually assured to raise the discount rate again this month.  That seems to be good for mortgages so far because it tends to dampen the economy a bit.

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 jlc@amcmortgage.com.