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News From NAMB: February 19, 2018

John Councilman
Feb 20, 2018

Top Story: Ginnie Mae Threatens 9 Big Lenders with Program Expulsion
It appears some Ginnie Mae lenders have an unusually high rate of churn, especially on loans they originated or that are in their own servicing portfolio.  Some claim they purposely gave borrowers higher rates with the intent to refinance them several times in short order.  The result has been disastrous for Ginnie Mae.  After a study, Ginnie Mae issued 30-day warnings to New Day and Nations Lending over the issue.  60-day warnings were sent to Freedom, loanDepot, and Flagstar.  It appears Ginnie could expel these lenders into custom pools that are about 1/3% higher in rate.  Ginnie Mae Chief Michael Bright wrote in statement that removing bad actors from the program would cut mortgage rates for veterans and others by as much as half a percentage point.  This is the third major regulatory issue New Day has faced over the past few years.

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Does OCC Want to Get Out of Registering Bank MLOs?
Currently, banks have a much lighter requirement for their MLOs than non-bank mortgage companies.  They simply have to register their MLOs rather than license them.  In what looks like a simple annual notice, the OCC is asking for comments on its information collection practices.  But, they ask for comments on, “Whether the collection of information [on MLOs] is necessary for the proper performance of the functions of the OCC, including whether the information has practical utility.”  The OCC doesn’t even mention this Federal Register posting on their web site.   Most licensed MLOs think bank MLOs should have to take the same education and testing that they do, not eliminate what little requirements they currently have.  Banks commonly register everyone in a branch since the bar is so low.

VA Tightens Disclosure Rules on Refis
Some hard-sell originators purposely put vets in an ARM so they can refinance them to a fixed rate soon after.  Others convince vets that they will have a much lower rate if they go to 15-year mortgage but don’t tell them the payment will still be considerably higher.  VA provides in its Handbook that the veteran must get a statement comparing their current mortgage to the new loan.  But unscrupulous originators have been waiting until settlement to give the statement to them where it gets lost in all the other paperwork.  Now, VA is requiring that the statement be presented within 3 days of application and again at closing.  In addition, it must contain some cogent information from the Loan Estimate and Closing Disclosure.  If the IRRL’s monthly payment (PITI) increases by 20 percent or more, the lender must include a certification that the veteran qualifies for the new payment.

Trade Associations Say Non-Bank Lenders Should be State-Regulated
The Community Home Lenders Association and the Community Mortgage Lenders of America sent a joint letter to CFPB Acting Director Mulvaney calling for fair treatment.  Although Dodd/Frank section 1024 allows the CFPB to supervise even the smallest companies but it calls for some restraint when they come after a smaller company.  It is called risk-based supervision.  The two trade associations want it clarified that the CFPB can only get involved in an enforcement action against state-licensed entities if they are invited in by the state.  The letter also points out that small banks are exempt from CFPB enforcement and exams despite the fact that depository MLOs are not required to pass the SAFE Act test or take pre-licensing and continuing education.  They point out that a Treasury report called for “Congress to repeal the CFPB’s duplicative supervisory authority – specifically recommending that ‘Supervision of nonbanks should be returned to state regulators, who have proven experience in this field and an existing process for interstate regulatory cooperation.’”

Mulvaney Says He is Not Gutting the CFPB
Acting CFPB Director Mick Mulvaney has been accused of gutting the CFPB by dozens of groups and news outlets.  USA Today has been one of the most excoriating.  The paper recently wrote, “Now, in less than three months, Mick Mulvaney, the acting director named by President Trump, is dismantling the Consumer Financial Protection Bureau (CFPB) piece by painful piece.”  Mulvaney wrote a letter to the editor of the paper refuting such claims.  “The accusation that I am “gutting” the Consumer Financial Protection Bureau (CFPB) is not new. It fits a certain narrative — pushed by people who cannot accept the fact that Donald Trump is president. There is a problem with the claim, however: It is just flatly wrong.” 

Mulvaney: CFPB Should Exercise Restraint
One thing is certain, Mick Mulvaney has a different mission for the CFPB than his predecessor, Richard Cordray.  “If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further,” Mulvaney wrote in a mission statement for the agency.  Cordray viewed his mission as reshaping the industry while Mulvaney believes it to simply stop lawbreakers and educate.  Mulvaney laid out 3 main areas where the CFPB will focus, protecting consumers, enforcing consumer protections laws consistently, and create efficient processes within the agency.  The statement seems to allude in area #2 that Mulvaney wants to level the playing field between banks and other financial services companies to foster competition.  He wants consumers to be able to choose their loan program instead of having the CPFB say what type of loan is acceptable.

Latest GSE Bill Facing Liberal Headwinds
Senators Bob Corker and Mark Warner, a Republican and a Democrat have released draft legislation to reform Fannie and Freddie.  The crux of the bill is that it would allow multiple smaller entities to have a government guarantee that only the GSEs currently offer.  Left-leaning housing groups are already criticizing the bill saying it doesn’t include affordable housing goals for the private guarantors that would package home loans into securities and it doesn’t hold them to a “duty to serve” certain markets.  Already, Elizabeth Warren has come out in opposition to the bill.

Corker Said to Be Reconsidering His Retirement
Sen. Bob Corker (R-TN) has had conversations with a few colleagues in recent days about whether he should reconsider his decision not seek re-election this year, according to CNN.  No one is certain if it is just idle chatter or serious reconsideration.  It would certainly have an impact on the shape of GSE reform.  It doesn’t make everyone in the GOP happy.   Marsha Blackburn has already started running for the seat.  President Trump and Corker have had a war of words with Corker questioning the President's competence and calling the White House an adult day care center.  Trump fired back Corker “couldn't get elected dog catcher.”  That could signal the President may not support anything with Corker’s name is on it.

Fannie and Freddie Will Need a Treasury Draw
One may wonder why Fannie and Freddie, the cash cows of mortgage, would need to take a drawl.  Aren’t they making a profit virtually every quarter?  Accounting is a strange world that tries to forecast the future by giving value to things yet unused like tax benefits accrued from prior losses.  That only works if the rules stay the same.  The tax rules changed in a big way and those tax deferred tax benefits became far less valuable.  Since Treasury swept all of the net worth out of Fannie and Freddie, they will have a severely negative net worth that should put them in receivership rather than conservatorship.  No one wants that, so Treasury allowed them to keep $3 billion each last month, but it was no where near enough to make up for the huge loss of tax assets.  They are both going to have to draw from Treasury to be solvent to the tune of about $3.7 billion for Fannie alone.  This is in a great market.  What if the economy turns and many loans begin to default?  The real answer is to allow the GSEs to rebuild a real capital buffer.

Equifax Offers Free Alternative to Credit Freeze
Consumers often use a credit freeze to prevent someone from opening credit in their name.  The problem is credit freezes cost money and are cumbersome and slow to add or remove.  Equifax is offering a free alternative that seems much more advanced called “Lock and Alert.”  Other bureaus are changing for similar services, but Equifax is offering it for free to polish their image a bit.  Equifax claims you can turn it on and off with the click of a button on your computer or smart phone.  That makes one wonder what happens if you lose your smart phone.  Credit freezes and locks still have a lot of holes.  Your credit can still be accessed by your existing creditors, bill collectors, government agencies, credit monitoring and identity protection services, and pesky marketers offering prescreened credit and insurance offers.

Why Replacing Trump’s Chief of Staff Affects Mortgages
 Currently, the White House Chief of Staff is Gen. John Kelly.  There are rumblings that Kelly may be on the way out and the man President Trump is turning to when he wants something done now is Mick Mulvaney.  If he appoints Mulvaney, the Assistant Director, Leandra English would become the Acting Director.  One would think Trump would appoint a new Acting Director simultaneously with moving Mulvaney.  Combined with the lawsuit going before a potentially CFPB-friendly DC Court of Appeals, the agency could become a yo-yo.  This instability could be enhanced if the President decides to appeal the constitutionality of the CFPB Director to the Supreme Court.  Mulvaney said “absolutely not” to rumors about his becoming Chief of Staff.

New Tax Law Affects Cash-out Refis
I am hearing MLOs and ads advising consumers to payoff their HELOC with a cash-out refinance to maintain tax deductibility.  Many tax advisors are saying that cash-out may not be tax deductible, irrespective of whether it is a HELOC or a fixed-rate mortgage.  It seems clear the intent of the new tax law was to end deductibility of interest for anything other than acquisition or home improvement.  The IRS will interpret these rules but has not done so at this time.  But, I wonder if a court wouldn’t hold an MLO liable for all of the tax on interest someone paid that wasn’t deductible.

President’s Budget Has a Lot Regarding Housing
The budget President Trump released contains many cuts to federal agencies not favored by the President.  Community Development Financial Institutions, CDFIs, mission is to support community development lenders, investors and financial service providers.  Their funding would be cut to $0.  FHA would get up to $400 billion in new loan guarantee authority and $130 million to support improvements to FHA’s IT systems that would be paid by a lender fee.  On the revenue side of the budget, FHA is projected to turn a $26 billion profit over the next 3 years.  The budget also requests $550 billion in new guarantee authority for Ginnie Mae and $62 million to support HUD’s fair housing mission.  It seems there is some confusion how this reconciles with the appropriations bill just signed into law.  Housing Wire is reporting HUD’s budget increased to $41.24 billion while the budget released Monday still shows a cut to $39.2 billion.  USDA’s guaranteed single-family housing will get $24 billion.  Another important proposal in the budget is to double Fannie/Freddie’s G-fees from 10 to 20 basis points.  The budget freezes CFPB draws from the Fed this year and would eliminate its draws from the Fed by 2020.  The presumption is the CFPB would either have to stop operating or go to Congress for money.  Presidential budgets have been called wish lists and this seems to be no exception.

The Deck is Stacked Against Single Homebuyers
There are many reasons single-earner households don’t buy.  The first is they generally don’t earn as much as dual-earner households.  They have a harder time saving money for a downpayment than those with more income.  But a reason no one seems to cite is Fannie Mae’s Desktop Underwriter is predisposed against single-income households.  DU produces a message that says, “The following aspects of the borrower's loan application had a negative impact on the recommendation... No co-borrower.”  DU goes on to say, “Additional information about each of these risk factors can be found in the Lender Guidance For Use With Applicants section of this report.”  That section states, “No co-borrower: The presence of more than one borrower on a mortgage application generally helps to reduce risk.  Research has shown that mortgages with more than one borrower tend to have a lower delinquency rate than mortgages with only one borrower.”

TRID Improvement Act Passes House
Currently, TRID requires that title insurance be shown as the full amount without any discounts for simultaneous issue.  Richard Cordray refused to acknowledge that this causes consumers to think their closing costs are higher and they will need more money at closing.  A bill revising RESPA that would require actual title insurance, with mandatory discounts be used, has passed the House.  Amazingly, 144 Democrats and 1 Republican voted against a common sense bill like H.R. 3978.

31 Senators Concerned About CFPB Handling of Equifax Probe
31 Democrat senators want details about why the Consumer Financial Protection Bureau has halted its investigation of Equifax’s data breach.  The letter, authored by Sen. Brian Schatz (D-Hawaii), is signed by every Democrat on the Senate Banking Committee.  They understand the Federal Trade Commission is investigating and can mete out penalties.  But, the CFPB has direct supervisory authority over credit bureaus and can change the way they operate.  The letter is addressed to Leandra English, Acting Director, which is likely to make certain it gets filed in the circular file.

Mulvaney Says CFPB Still Investigating Equifax
Reuters reported that inside sources at the CFPB told them Acting Director Mick Mulvaney had quelched the Equifax investigation.  When accused of that by the Senate Budget Committee, Mulvaney said there's been "no change" compared to the CFPB's previous leadership, which launched the probe.

5% Interest Rate Doesn’t Scare House Hunters
Some are worrying that interest rates as high as 5% will slam the brakes on the housing market.  Not according to a new survey by Redfin.  Redfin asked, “If mortgage rates were to rise above 5%, what effect would it have on your home-buying plans?”  To many people’s surprise, only 6% said it would stop their plans to buy.  About ¼ said it would have no impact while others said they may chose a less expensive home or slow down their search while another 21% said it would actually as urgency to their search before rates went higher.

Criminals are Getting Slicker on Wire Fraud
Most scams trying to get borrowers to wire money to a foreign bank rather that to the title company are pretty crude and identifiable.  But, when criminals are able to compromise a computer in the chain or intercept email, it can be a lot trickier.  In one instance, the buyer was on the phone with the title company representative. She said she would email the wire instructions within two minutes.  When the buyer opened his email, he already had a message that appeared to be from the title company representative. He did not immediately notice that the email had actually come a few hours earlier.  The email had the correct dollar amount for the loan, to the penny.  The only thing that tipped the borrower off was the return email was to a gmail account rather than the title company.

Mr. Cooper Getting Divorced, Remarried
Nationstar, aka Mr. Cooper, is merging into WMIH Holdings, the parent of the now defunct Washington Mutual.  The FDIC took over its Washington Mutual Bank subsidiary and turned it over to Chase.  That left WMIH with a rather profitable reinsurance business, but it doesn’t have the bank to send it business.  When Japan’s Softbank bought Fortress, Nationstar’s parent, the company apparently was deemed disposable.  Since Nationstar is the largest subprime servicer, one would think there may some ancillary opportunities there besides servicing revenue for WMIH.

Rate Outlook
We had a government shutdown for several hours, mainly due to procedural issues, and no one noticed.  It looks like we have found common ground for Democrats and Republicans… spend like crazy and borrow more.  Some say that will increase spending by $300 billion over 2 years and some say $500 billion.  Who cares?  It’s only about a half-billion a day.  It’s just funny-money anyway.  Democrats forgot all about the dreamers when they got all the spending they wanted.
Well, there were some people noticing, bond traders.  All three Treasury auctions last week were subpar.  New spending, tax cuts, and rising interest rates are ballooning borrowing needs.  This new deal will boost borrowing to $1 trillion for the first time, nearly double what the government borrowed in 2017.  That means mortgage bonds will have to compete with more and more Fed borrowing.  You can guess that will push up rates.
In economic news this week, the Consumer Price Index was up .5% with the core up .3%, better than the expected .4% and .2%.  Retail Sales were down .3% vs. the expected gain of .2%.  Rates are responding more to the increase in prices than the drop in sales.
Total business sales were up 0.6%, outpacing business inventory growth of only 0.4% in December, indicating that things are flying off the shelf.  Industrial Production fell .1%.  Capacity used was also slightly lower than expected at 77.5%.  Neither is significant enough to have any effect on rates.  The Philadelphia Fed showed strong economic conditions in the Mid-Atlantic, coming in at 25.8 vs. the expected 22.  The NAHB Housing Index was 72, as expected.
Producer Prices, a closely-watched metric, rose .4% with the core also up .4%. This follows a nasty increase in the Consumer Price Index earlier in the week.
The only remaining new is Housing Starts tomorrow which won’t do much to rates.
The train is rolling down the track toward higher rates.  Barring a train wreck, expect rates to be in the mid to upper 4s and perhaps as much as 5%.


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].

Feb 20, 2018