News From NAMB: February 1, 2018

February 1, 2018
Top Story: Appeals Court Rules CFPB is Constitutional
The full Federal Appeals Court ruled 7-3 to overturn the 2016 decision that declared the CFPB’s single, irremovable director structure is unconstitutional.  The suit, brought as part of PHH v. CFPB, threw out the fines against PHH saying the CFPB’s legal interpretations were incorrect and wrongly applied retroactively.  But, the court ruled in favor of the CFPB on its structure.  The lower court claimed that an agency not accountable to either Congress or the President violates the Constitution.  “Consumer financial protection should be kept one step removed from political winds and presidential will," Judge Cornelia Pillard, an Obama appointee, wrote for the majority.  She wrote, if applied to other agencies, it would "broadly transform modern government." The majority were all Democratic appointees, with the exception of George W. Bush appointee Thomas Griffith, who wrote a concurring opinion, but simply said the President could find grounds to fire someone if he really wanted to. This same appeals court just granted Leandra English an expedited hearing in her quest to be CFPB Director.  It will be interesting to see if they reinstate her.  It is certain the President and PHH will appeal to the Supreme Court.

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Appraisal Qualifications Board Rolls Back College Degree Requirement
After over a year of deliberation, the Appraisal Qualifications Board ratified significant changes to the requirements to be an appraiser this morning.  The AQB voted to adopt various tracks to become a certified residential appraiser.  One track would allow for a general college degree.  Another track would allow an associates degree in targeted study.  The final track would require 30 college credits in specified topics.  College requirements are being removed for licensed appraisers.  The AQB is also cutting the hours back for residential appraisers by 1,000 hours.  The changes go into effect May 1, 2018 although states may choose to implement more rigorous standards.
Do Borrowers Love TRID?
A Stratmor Group survey found that borrower satisfaction jumped from 85 to 91 pre and post TRID.  They believe the improvement was due to borrowers being contacted pre-settlement with closing costs.  Borrowers who were not contacted with closing costs dropped the lender to an abysmal 60% score.  High scores were correlated with referrals and clients who returned to the lender.  All of this improvement in satisfaction happened despite the increase in cost TRID inflicted.

CFPB Revamp Begins with Input on Civil Investigative Demands
When the CFPB believes there is potential violation of law, it uses Civil Investigative Demands (CIDs) to gather information.   Those served with these demands for information say they are far too broad and invasive, searching for information that the CFPB lacks a reasonable basis to ask for, essentially, fishing expeditions.  These demands can cost a small fortune for those served in legal costs and employee time.  They are set on a tight time schedule that is very difficult to meet.  Richard Cordray had said the CFPB could issue these simply for “assurance” no wrongdoing was taking place.  The public and industry are invited to comment on the appropriate process and scope.

Trump’s State of the Union Says Nothing About GSE Reform
There were a lot of different things Donald Trump plans to focus on the coming months, as evidenced by his references in the State of the Union.  GSE reform may not be one of them.  It wasn’t even mentioned in the speech.  Not only GSE reform went unmentioned, there was no mention of anything that directly affects the financial services industry except for the general mention of regulatory reduction.  Some take that to mean it is not a high priority for the President or his administration.

HUD to Review Manufactured Housing Regulations
The Department of Housing and Urban Development is considering removing many of its restrictions on manufactured housing.  President Trump had called for all agencies to review regulations that may be outdated.  As a result, HUD is requesting input.  While this is primarily aimed at construction standards, it seems logical that comments on FHA insurance regarding manufactured homes would be considered. 

Is the U.S. Becoming a Nation of Renters?
The new tax law was a windfall for renters.  With doubled standard deductions, renters can generally get the same tax benefits as those who itemize to deduct mortgage interest.  But that is just a recent issue for homeownership.  Rent Café, using data from the U.S. Census Bureau, claims nearly all of the U.S. population growth between 2006 to 2016 became renters.  The population grew by 23.7 million.  23 million show as renting while only 700,000 show as homeowners.  Anaheim, California had the highest rent percentage of major metros with 57.9% of its residents renting.

Home Ownership Rate Increases Slightly
Although a lot of people are renting, there was some gain in the home ownership rate in the 4th quarter of 2017.  The Census Bureau reported that the rate inched up to 64.2%.  The home ownership rate had dipped to a low of 63.4% in the second quarter of 2015 but has been increasing steadily since then.  The interesting part of the statistics is that Asian, Pacific Islander, and Hispanics showed the most growth.  Blacks showed the lowest growth.

Home Prices Skyrocketing
In its latest release, the S&P CoreLogic Case-Shiller index showed that home prices continue to rise three times faster than the rate of inflation.  Shiller is at a loss to explain the fundamentals of this sort of increase.  The report states, “Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices.  Construction costs … increasing between 2% and 4% annually, do not explain all of the home price gains.”  The study believes it is simply a factor of too few homes being built but that would indicate demand.  Could it be that builders aren’t building because of regulation?  Based on what they see, they believe the trend will continue for a good while.

House Committee Passes Bill to Remove Most Banks from CFPB Rules
The House Financial Services Committee has approved legislation that would exempt all banks and credit unions with less than $50 billion in assets from CFPB rules.  Only the largest banks and Navy Federal Credit Union would continue under the CFPB. H.R. 1264 passed out of committee 30-25 and could pass the House but is expected to meet stiff resistance from Senate Democrats.  The institutions would still be subject to rules like TRID because it would only affect rules and regulations issued after the date of enactment.

Home Supply Drops to All-Time Low
It is amazing that existing home sales were good in 2017 considering the tight inventory.  It looks to get worse in 2018.  There is only a supply of 3.2 months, a record low since records have been kept since 1999.  With new building failing to gain ground, people are forced to buy existing homes.  There are many factors preventing new home production but by far the #1 reason is regulation.  It costs a lot to develop the land, get the engineering and permits to build, and construct compliant with ever-restrictive building codes.

Who Is That You are Considering for CFPB Director?
Two little-known names have surfaced as potential nominees to head the CFPB.  Both have some background helping consumers.  Jonathan Dever is an Ohio state legislator who practiced law in debtor and creditor rights, debt restructuring, real estate litigation, and consumer law.  He has sponsored some legislation that helped consumers facing foreclosure.  Dan Iannicola Jr., who is Executive Director of the President’s Advisory Council on Financial Literacy and has served as Deputy Assistant Secretary for the Office of Financial Education in Treasury.  Iannicola chaired a series of expert panels on the best ways to provide financial education to African-American communities.  Both are a long way from being known as icons in consumer protection.

Lennar’s Eagle Home Mortgage Seems to Be Latest DOJ Target
Lennar, the nation’s largest homebuilder, reported in its latest SEC filing that the Department of Justice has subpoenaed information about “the adequacy of certain underwriting and quality control processes related to Federal Housing Administration loans originated and sold in prior years.”  It appears this is more of the False Claims Act litigation that has cost other FHA lenders billions of dollars.  Eagle is a major lender, originating over 65,000 mortgages totaling over $18 billion in 2016 and 2017, according to its SEC filing.  How many of these are FHA loans is not delineated.

DocMagic Reaches 300 Million E-sign Mark
DocMagic, the leading provider of e-sign closing documents has passed the 300 million mark for closings using e-signatures.  Former CFPB Director Richard Cordray had pushed lenders to adopt electronic closings.  But, DocMagic says it is “borrower demand driving the increase in e-Signings.”

Are You Doing Annual Mortgage Reviews?
Some of you are probably wondering what is meant by Annual Mortgage Review.  One mortgage coach says it should be your #1 strategy.  AMR is simply an attempt to contact a past client at least once a year, ideally to have a phone conversation with them.  The AMR can be with borrowers, real estate agents, or other financial partners.  Top LOs are finding it produces big results, even if you don’t get a mortgage from it.  You can listen in on some high-producing LOs technique on this LinkedIn post.

CFPB Not Likely to Change How It is Funded
Currently, the CFPB is funded by the Federal Reserve.  Congress has no say in how much money the Bureau gets.  Republicans want to bring the agency under Congressional appropriations to exercise more control.  That passed the House last year, but Democrats held firm in the Senate.  This year, 40 Democrats have preemptively vowed to prevent that change.  Since 60 votes are need in the Senate, that pretty much dooms any Congressional financial control.

Fannie Mae Caught Up in Sexual Harassment Scandal
Soleil Bonnin claims she was working as an adult dancer at a Washington, D.C. gentlemen’s club when she met Joseph King, a senior manager at Fannie Mae. Bonnin says she told him she would like to get out of dancing, so King allegedly offered her a job working for him in July 2016.  She claims, King isolated her from colleagues, took her on outings where he demanded sex, and threatened to fire her if she didn’t comply.  Bonnin alleges that senior managers at Fannie Mae were aware of their relationship and willingly provided him with travel and lunches where he became intoxicated.  Fannie has since fired King but Bonnin is suing Fannie claiming, “Fannie Mae promotes a culture that mistreats women, including hiring and paying them to have sex with upper management, and tolerates illegal, extreme, and abhorrent sexual harassment.”  Bank of America has had similar problems recently.

Do Employees Have Freedom of Speech on the Web?
Social media may be wonderful for keeping up with friends, but it become a huge nightmare for employers, especially in the finance industry.  We know how many laws an employee can violate by simply making comments on Facebook.  Some employers went so far as to prohibit employees from posting on personal web pages.  Complicating matters, the National Labor Relations Board had held that employers might violate employees’ freedom of speech by impinging on their social media posts.  Sanity has made a slight return with NLRB’s most recent change of leadership that rescinded some rules and recent court precedents.  Employers have the right to monitor and control employee posting but they must show a legitimate business purpose

The Bizarre Department

Twitter seems to have become a place where people unleash poison arrows with increasing frequency.  Case in point, a Twitter war between Lynn Patton, the HUD official in charge of New York and New Jersey and April Ryan, a American Urban Radio reporter.  It all began when Patton dismissed Ryan’s claim of death threats for her reporting.


Tired of the Ice and Snow?
With temperatures in much of the US below freezing this week, wouldn’t it be nice to see some white beaches and temperatures above freezing?  NAMB Focus is coming right to the beach in sunny Destin, Florida February 15-17.  Focus will feature a lender trade show, breakout sessions that will help you operate your business, and keynote speaker Jeffrey Gitomer, the King of Sales.  There are non-stop flights from many cities into Fort Walton airport and it very well may all be tax deductible.  Many wholesalers are offering free admission.  Can’t get better than that.

Rate Outlook
The Federal Reserve did not raise short-term rates at its meeting this week, as predicted.  The Board said they will raise rates this year as conditions warrant.  Considering they said employment is strong and the economy is expected to grow, most experts are betting there will be a hike at the March meeting.  We are getting close to the tipping point where continued Fed hikes in the past have had disastrous results.
 
This is a huge week for economic news with important news every day.  The week started with personal income and spending.  Both came in up .4%, pretty much as expected.  That doesn’t mean they didn’t have a negative effect on bonds.  Consumer spending’s increase was the biggest since 2011.
 
The PCE index, the Fed’s most watched indicator of inflation, still shows very little inflation.  The full PCE was only up .1% and the core, which strips out the volatile price of food and energy was up a mere .2%.
 
Consumer Confidence rose from 122.1 in December to 125.4 in January.  This is an indicator retailers will do well in the coming months.  People seem quite happy about the economy.
 
ADP Payrolls came in very strong at +234,000 vs. the expected +190,000.  The Employment Cost Index jumped .6% vs. the expected .5% increase.  With employment costs rising, experts are wondering how long inflation can remain low.
 
Weekly jobless claims were 230K. Analysts looked for a reading of 240K. Q4 productivity fell 0.1% versus the expected 1% increase. Unit labor costs rose 2% versus the expected 1% increase.
 
Nearly all of the week’s economic news was good which has driven rates up 1/8 to ¼%.
 
Friday brings the Bureau of Labor Statistics Employment Report.  This is generally considered the most important news of the month.  It could move rates either way so be careful.

 

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.