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News From NAMB: February 22, 2018

John Councilman
Feb 22, 2018

Top Story: NAMB Pushing for Ban on Trigger Leads
The big three credit bureaus sell your name when you apply for a mortgage.  These leads are called Trigger Leads.  Many of us have experienced our borrowers getting calls in mid-application from someone trying to steal the borrower.  I personally have heard callers using a trigger lead saying things like, “This is _____ and I need to talk to you about your mortgage application.”  Or, worse yet, “This is ______ calling to assist you with your mortgage application.”  Borrowers can be duped into giving out personal information.  With identity thieves running rampant, this information could easily be used to divert wires or take unfair advantage of borrowers.  NAMB is urging the sponsors of HR 4028 and S 1982, the Protect Act, to add a ban on trigger leads.  It will be a tough battle because the bureaus make a lot of money from these leads.

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54 Democrats Want Answers on CFPB Fair Housing Move
A letter penned by Sen. Sherrod Brown and Maxine Waters, the ranking Democrats on Senate Banking and House Financial Services, is demanding answers regarding the reported move of the CFPB’s Fair Lending Office out of the Enforcement Division.  They point out that Dodd/Frank intended for that office to have enforcement authority.  They cite a recent study that shows people of color still face discrimination when they apply for a mortgage.  The letter is signed by 54 prominent Democrats demanding answers.  The letter contains six questions the Democrats want answered by March 1st.

Warren Investigation Castigates Equifax
Senator Elizabeth Warren began an investigation into the Equifax breach when it was announced.  She just released it this week and it is very hard on Equifax.  She claims Equifax cut corners in security to save money.  She also claims they were warned about the type of security breach they encountered before it happened.  Warren says the company did not notify consumers timely, did give them complete information, and Equifax did not notify regulators timely.  Her answer is federal legislation.

Supreme Court Refuses to Hear GSE Shareholder Suit
Three hedge funds have been trying to get a court to declare the sweep of Fannie and Freddie’s funds into the Treasury unconstitutional.  They have pointed out the misleading behavior and cited the Takings Clause but have gotten rebuffed by the courts at every turn. With the Supreme Court unwilling to hear the case, Fannie and Freddie may be the cash cows of the government indefinitely.  Congress seems unable to come to agreement on them and the current FHFA Director is leaving it up to Congress.  With an election year coming up, many politicians would just as soon stay out of the controversy.  Keeping Fannie and Freddie as is may not be the worst thing that could happen.

The Two Competing GSE Plans
When comes down to it, there really are only two plans for Fannie and Freddie that have life.  First, we have the Corker/Warner/MBA plan.  That simply breaks down the government-guaranteed mortgage market into a group of smaller issuers who would get a guarantee.  The other plan, the Moelis plan, allows the GSEs to rebuild capital with a much larger capital reserve requirement to protect tax payers.  It would also require improved management policies.  You could say there is a third, that Jeb Hensarling favors, and that is getting the government out of the mortgage guarantee business.  Hensarling has been unable to get traction on that and he is leaving Congress.  This brings us to the question, “Can a bunch of smaller entities operate more efficiently and safely than the two larger ones?”  Based on the consolidation we see every day in the mortgage business, many say “No.”  That leaves us with Fannie and Freddie, which appears to be the current stalemate position.  It would seem to be time to decide how much capital reserve they need to operate safely.  Who would know better how much funds are needed than the FDIC and people like former Chair like William Issac who prefers the Moelis plan?

Housing Starts are Rebounding
It looks as though builders are on track to provide even more homes in 2018 than in 2017.  In 2017, housing starts were up and down, ending the year on a bit of a sour note.  The good news is that builders have broken ground on 9.7% more homes than in December for an annualized rate of 1.326 million in January of 2018, 100,000 more than January 2017.  Still, it is a long way from 2.2 million before the 2008 crash.  Permits look encouraging but looking deeper into the figures shows all of the gains were from multi-family, where permits jumped 25.4% while single-family home permits fell 1.7%.

Home Prices Up Again in January
Using multiple list data, Redfin says home prices are up 7.8% nationally from January a year ago.  Oddly, Memphis, Tennessee had the highest price increases, up 24.6%, followed by San Francisco and San Jose, up 23.8% and 21.6 % respectively.  Prices may be up but the number of homes sold is down, way down in some markets.  In Michigan, Detroit and other cities sales are down over 29%.  The reason is believed to be short inventory.  There are 14.4% fewer homes on the market than in January of 2017.  The shortage has pushed average days on the market down to just 53 days and much shorter in some markets.

Ginnie Mae Breaks Issuance Records
It’s a far cry from 2006 when most people thought FHA and even VA were no longer needed.  Ginnie Mae, where most FHA, VA, and USDA loans end up, is breaking record after record.  Fiscal year 2017 was a record year for Ginnie whose mortgage-backed securities totaled $504.58 billion issued.  Ginnie Mae’s total outstanding principal balance is now up to $1.924 trillion, nearly $200 billion higher than January 2017.

Freddie Mac Pushes Back Date for Rental Income Changes
Freddie Mac had planned to make the revisions to its rental income calculations effective February 9th.  They are now pushing back the date of Bulletin 2017-12 to November 30th.  They say it is because they are reviewing feedback.  One of the more negative provisions is that borrowers may only count 30% of the net rental income if they don’t show rental income on their tax return.

Time is Running Out to Comment on HUD Manufactured Housing Rules
HUD is reviewing its manufactured housing rules as part of President Trump’s mandate that all federal agencies review and update regulations with an eye on removing outdated rules and reducing regulatory burden.  Manufactured housing makes up 9.5% of single-family units or about 22 million people.  Many are not eligible for FHA or Fannie/Freddie loans.  You are invited to comment on manufactured housing rules but the comment period expires on the 26th.  It could open the door to many more loans that have had to turn to higher-rate loans.

Higher Rates Taking Toll on Applications
As mortgage rates begin to edge past 4.5%, applications have begun to decline.  It is hardly a rout, but applications were 6.6% lower this week according to the latest MBA survey.  Both purchases and refinances slowed about 6 to 7% week over week.  The good news is that purchases were still up 3% from this time last year.  Refinances have dipped to 44% of the market after being over 50% just a month ago.  Ellie Mae's Origination Insights Report says refinances were up, but that was data from January and it is closed loan data not applications.

Existing Home Sales Take A Dip
Single-family home sales fell 3.8%, the lowest level since July 2016.  But condominium and co-op unit sales rose 1.6%.  First-time buyers made up 29% of all sales, down from 33% a year earlier.  It isn’t for lack of demand.  The inventory is just that short.  It only took 42 days for a home to sell, much less than the 50 days on the market this time last year.

UWM Expands E-Closings to 12 More States
United Wholesale Mortgage is pushing hard to keep ahead of the curve by allowing e-closings in 12 more states.  UWM rolled out its first e-closing in July of 2017.  The original plan included 4 states, Illinois, Montana, Virginia and Washington.  Now, e-closings will be available in Alabama, Florida, Indiana, Kansas, Maine, Maryland, Missouri, Nebraska, Nevada, New Hampshire, Ohio and Tennessee.  It will be available to any title company that becomes e-certified with UWM.

A Borrower Making $200,000 Can’t Buy a Median-Priced Home?
You are probably thinking it is because that borrower has car payments or huge child support.  No.  We are talking about Cupertino California where Apple, Facebook, and Google are located.  Their engineers and software experts are averaging about $188,000/year and are finding it hard to buy a home or even rent, for that matter.  The average sale price in Cupertino is $1.7 million.  With 10% down at 4.5% the P&I alone is $7.752 plus at least $2,000 for taxes, insurance, and PMI.  Then, there are HOA dues.  Sounds like a pretty good argument to move some of these companies.  Somehow, I can’t imagine Google in Little Rock.

Moody’s Not Comfortable with Move Away from Appraisals
Moody’s, one of the big bond rating agencies is concerned that Fannie Mae and Freddie Mac are using automation to value properties in mortgage-backed securities.  Moody’s released a new report showing appraisal alternatives such as hybrid appraisals, broker price opinions and automated valuation models could weaken credit quality of new residential mortgage backed securities.  They point out that alternative approaches often produce values that sometimes produce significantly different values, indicating someone is wrong.

Movement Mortgage Stops Processing TBD Mortgages
Movement Mortgage became a top 20 mortgage originator by making everything happen quickly, touting a 7-day contract-to-closing time frame.  Applicants who are still home shopping will continue to receive upfront underwriting, but Movement will wait to process the loan until they select their property.  The company laid off about 75 people who were doing the unproductive processing.

Flagstar Buys Santander Warehousing Division
Flagstar Bank is acquiring the mortgage warehouse loan portfolio from Santander Bank. Flagstar intends to hire the existing relationship managers to ensure their clients feel comfortable with the transition.  Flagstar, already a power player in warehouse, will add features not available from Santander such as eNotes.  Flagstar offers customized lines from $1 million to $50 million.

Fannie Mae Offering Marketing Materials
Fannie Mae seems to be realizing that small companies are on the rise in the mortgage business.  Fannie is offering free promotional materials in their Marketing Center.  If you want a flyer for 97% LTV loans, you can build a branded one there.  They are pushing their condo materials that could help in the marketing of condominiums.  You don’t need to be a seller-servicer to utilize the materials, just sign up.

Cordray Slams New CFPB Mission
Richard Cordray, the feisty former CFPB Director, has a low opinion of financial firms.  In a public radio interview Cordray mocked Mick Mulvaney saying, “There has been a shift there to say, ‘We have to look out for financial firms, which includes scammers and fraudsters and abusive debt collectors and payday lenders, and they have rights and interests, too.’ Well, they’ve always been able to assert their rights.  We were standing on the side of the people who don’t always get a fair shake.”

What Is a Digital Financial Identity?
Like it or not, nearly every American has one already, to a limited degree, if they use a search engine or shop on the web.  That is why you see ads tailored to where you have searched.  Tech gurus and social engineers want to push it much further by creating a global digital identity standard that would utilize blockchain to ensure the data is accurate.  It would allow lenders to evaluate loans in seconds using the data contained in your identity.  There is only one thing standing in the way… people.  Fannie Mae has found people have no interest in it and over half are afraid of it.

New Penn Expands its Realtor Branch Network
New Penn Financial is active in both wholesale and through multiple subsidiaries and joint ventures.  New Penn’s latest joint venture is Synergy Home Mortgage who will provide mortgage services for Dickson Realty and Ferrari-Lund Real Estate, the #1 and #2 real estate firms in the Reno, Nevada area.  New Penn operates 25 such relationships throughout the country. 

Rate Outlook
Despite the up and down of the stock market and the general increase in interest rates, most economists believe the Federal Reserve is on track to raise interest rates 4 times in 2018 starting at their March meeting.  While mortgage rates are not directly affected by Fed rates, bond traders are buying into the Fed’s thinking that inflation is about to break out at any time.  There is some evidence that we are seeing some inflation uptick with the rises in both the Consumer Price Index and the Producer Price Index.  The increase in home prices will have to drive up wages, especially in areas where homes prices have soared.
Rising rates could have a profound affect on real estate and mortgages.  If rates continue to rise, it will have to affect refinances.  It also affects home sales as people hold on to the low rates they already have.  There is currently a shortage of homes for sale.  That shortage doesn’t seem to be abating.  This leads me to believe first-time buyers and those who have been renting will drive the market.  Homes in many markets are still affordable and competitive with renting.
Mortgage rates are definitely beginning to feel the heat from inflation warming.  We are at 2 discount points worse now than in January, which generally equates to about 1/8% in rate for every ½ point in the market.
Bond traders are pulling back.  The 2-year Treasury auction and the 5-year auction this week were both poorly received. The 7-year auction today was also very week.  Bond traders are convinced rates are not finished going up.
The yield on the 10-year Treasury, often a precursor of mortgage rates, is now pushing 3%.
Jobless Claims remain very low at 222,000 this week.  Leasing Economic Indicators came in at 1%, higher than even the aggressive .8% increase forecasted.
The Fed minutes released this week reinforced what the Fed has been saying for at least several years.  They believe inflation is a risk.  But, they are still confused.  They admitted that the most popular models “offered little guidance to policymakers on how to conduct policy.”  In essence, the Fed is just winging it.  Reassuring, isn’t it?

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 22, 2018