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News From NAMB: January 12, 2018

John Councilman
Jan 12, 2018

Court Rules Mulvaney Stays at CFPB
Judge Timothy J. Kelly has just ruled that Leandra English’s request for a preliminary injunction to remove Mick Mulvaney as Acting Director of the CFPB is denied.  Kelley, a Trump appointee, said its not about how either would run the CFPB; it is about the merits of her claim to be the rightful Acting Director.  Kelley wrote, “The Court finds that English is not likely to succeed on the merits of her claims, nor is she likely to suffer irreparable harm absent the injunctive relief sought.”  English’s claim that the Federal Vacancies Act is overridden by Dodd/Frank is based on a clause in the FVR that excludes from it appointees to agencies run by multiple members.  Kelley pointed out that the CFPB is run by one person.  As for Dodd/Frank overriding the FVR, Kelly said English did serve as Acting Director for a few hours until the President used his authority to appoint someone else.  Now that Mulvaney is firmly implanted, we shall see if he takes more aggressive action.

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Is the Federal Reserve Way Off Base?
The Producer Price Index, one of main indicators of inflation, was a shocker, dropping .1%.  Even the core, that excludes volatile food and energy prices, was down .1%.  Economists had expected a .2% rise in producer costs.  We get the Consumer Price Index tomorrow.  It often lags the PPI since it takes a little while for prices retailers charge to catch up.  As Ricky used to tell Lucy, “You got some ‘splainin to do” if the Fed continues to push up rates without any evidence of inflation.

New Year Off to a Bang Up Start
Late December is always slow for real estate and mortgages.  We had dreary numbers as usual for the last 2 weeks of December.  The good news is January numbers are looking great.  MBA’s Purchase Index increased 5% compared with the previous week and is about the same as one year ago.  Refis took off, up 11% and taking 52.9% of the market.  Where are those people who said LOs doing refis would soon starve?

China Has Bond Traders Fearing End of 3-year Bull Market
Most economic experts are predicting higher interest rates over the next several years.  Most of those predictions are for very small increases, less than ½%.  This week, senior Chinese officials recommended slowing or halting purchases of U.S. Treasuries, according to Bloomberg.  Since China is the largest buyer of US debt, that could have some impact.  Before we get too worried, experts claim even if China stopped buying Treasuries, it would only have a significant impact if China divests a large share of its total holdings in a short time period.  They would have to find someone willing to buy to do that.  Adding to China’s complications would be they have to do something with all of the dollars they get from the huge trade deficit.  China did sell off most of its Treasuries in 2011 but found it was a bad idea.  It seems more like political posturing than reality, but it did spike mortgage rates.

SEC Says Hard Money Lender Bilked Investors Out of $1.2 Billion
The Securities and Exchange Commission claims the Woodbridge Group of Companies bilked wealthy seniors out of $1.2 billion promising high returns by investing in hard-money commercial loans.  The deal was Woodbridge would charge borrowers 11 to 15% and pay those investing 5 to 10% for using their money, but didn’t really do that, according to the SEC.  The SEC says $64 million of the money went to investment advisors who promoted the deal and another $21 million went to Robert Shapiro, the owner.  If that is the case where did the rest of the $1.2 billion go?  There seems to be assets, large ones, including Sonny and Cher’s LA mansion, so it is not the typical Ponzi scheme.  Interestingly, it was owned by Ameriquest’s founder who passed away a few years ago.  Shapiro left the company when it filed for Chapter 11 and the new management says the SEC merely watched for a year while Woodbridge took in $350 million more from investors in 2017.

HUD Delays Fair Housing Rule
A 2015 rule that was aimed at finishing the work of the 1968 Fair Housing Act, is being delayed by the Trump administration.  The rule required local governments to analyze their communities to ensure that communities were completely desegregated.  That meant low-income housing projects would have to be built in more affluent neighborhoods and low-income housing would have to built in areas with the best schools.  This was very unpopular with people who specifically moved to neighborhoods to avoid the problems found in low-income neighborhoods.  HUD Secretary Ben Carson called the rule, “social engineering” and vowed to change it.  Trump and Carson have taken tremendous fire from Democrats like former HUD Secretary for the delay saying, “they've gutted AFFH.”

Leaders in GSE Reform Nearly All Leaving Congress
Another member of Congress who was heavily involved in Fannie/Freddie reform is retiring.  Republican Ed Royce announced he will not run for reelection.  That comes after Jeb Hensarling, Randy Neugebauer, and Bob Corker all announced they are not running again.  It is important to note that these are all Republicans who generally wanted to marginalize Fannie and Freddie and have private industry play a bigger role.  Senator Mark Warner, a Democrat, appears to be staying on.  An even bigger story is, with Darrell Issa retiring, Republicans now have 36 House members retiring or running for something else, a very high number that could flip the House to Democrat control.

FHFA May Place Fannie & Freddie in Receivership
It seems strange to think that two of the most profitable entities in the world would be placed into receivership but that is being bantered about in Congress’ attempts to deal with Fannie Mae and Freddie Mac.  The strange part of all of this is receivership is normally used for insolvency.  If the GSEs are insolvent, FHFA’s conservatorship was a horrible failure.  We all know Fannie and Freddie are capable of operating profitably, even if they were taken totally private.  The big problem is most Republicans want to eliminate them and most Democrats want them for social programs.  Neither is completely practical.  An unanswerable question is how a receiver will dispose of their assets.  Who could or should buy them and who gets the proceeds?  Until an alternative(s) is created and operating, disposing of them could be the biggest mistake of the decade.

Brookings Says GSE Reform Would Harm Rural Lending
There always seems to be yet another area that would be impacted by GSE reform.  The Brookings Institute just released a study that shows rural mortgage lending is different than urban lending.  Over 1/3 of the mortgages in rural America are made by smaller banks.  These banks need to sell loans to keep on lending. Fannie and Freddie’s cash windows are perfect for them to sell one loan at a time.  Another interesting item in the report is that Ginnie Mae plays a very small role in rural communities.

Was Leandra English Qualified to be CFPB Director?
Sen. Ron Johnson, R-Wis., has asked the Office of the Special Counsel to investigate how Consumer Financial Protection Bureau Deputy Director Leandra English got her job.  "According to information provided by OPM, it appears that OPM hastily approved Ms. English's conversion in the waning days of the Obama Administration based on information that included errors, potential conflicts of interest, and insufficient independent verification," Johnson wrote to the Office of Special Counsel.  Johnson believes English is an example of “burrowing,” where a political appointee is placed in a job without proper vetting and outside the competitive hiring process.

Hensarling Aides Move to CFPB
First it was Brian Johnson, a top aide to House Financial Services Chair Jeb Hensarling, to move to the CFPB.  Now, it is Kirsten Sutton Mork, staff director of the House Financial Services Committee.  She will take over as CFPB Chief of Staff, the position held by Leandra English.  Makes one wonder if the staff moves are preparing the way for a Hensarling move to the CFPB.

Ohio Makes Major Changes to Its Mortgage Broker/Lender Laws
Ohio is redefining “Mortgage Broker” and making many other major changes to its mortgage laws.  There are now 3 categories under Mortgage Broker.  First is the traditional definition.  Then the law adds, “A person that solicits financial and mortgage information from the public, provides that information to a mortgage broker … and receives… money or other valuable consideration.”  That would seem to include those that advertise mortgages and get a fee.  Other states have picked up on this because these ads are often hard to discern from real broker or lender ads.  Also in the definition of Mortgage Broker is, “A person engaged in table-funding or warehouse-lending mortgage loans that are first lien residential mortgage loans.”  It retains Ohio’s brick and mortar requirement.  The exemption for Fannie Mae/HUD/VA approval was removed.

Lenders Tightening Credit Box a Little
According to the MBA’s Mortgage Credit Availability Index (MCAI), availability of mortgage products dropped by 1.8 percent in December.  The largest drop was in the government sector which was down 2.6%.  The Government MCAI has been trending down for most of 2017 after peaking at about 450.  The index is now around 430.  All other categories were down but jumbos were still the big gainers in availability in 2017, up a full 20% from 2016.  It doesn’t seem the index accounts for much of non-QM product.

Angel Oak Gets $291 to Invest in Non-QM
Angel Oak Real Estate Investment Fund has raised $291 million to fund its investment in non-QM mortgages.  Unlike bond issuances, this fund is tapping private equity.  It appears demand was so strong that the fund had to be closed to new investors since the firm greatly exceeded its initial fundraising goal of $250 million.  Angel Oak originated more than $1 billion in non-QM loans in 2017.

Bill to Exempt More Sellers from S.A.F.E. Act Introduced
It has become complicated for people who rehab properties or sell off some rentals to offer seller financing.  They then have to become mortgage originators if they finance more than 3 properties a year.  That also means they must work for a licensed mortgage lender.  There are quite a few people and companies that offer seller take-backs that have been pressuring lawmakers to totally exempt seller financing from federal lending laws.  Rep Stevan Pearce of New Mexico wants to expand the number to 5 loans before licensing is required.  It appears they may not be high-cost or non-standard adjustable-rate loans.

Warren/Warner Bill Would Severely Punish Credit Bureaus for Breaches
Sen Mark R. Warner (D-VA) and Elizabeth Warren (D-MA) introduced the Data Breach Prevention and Compensation Act to impose mandatory penalties on credit reporting agencies (CRAs) for breaches.  Referring to Equifax, Warren claims, “Legal liability is so limited that it may end up making money off the breach.”  The bill would cost the CRA $100 for the first piece of personal identifying information (PII) compromised and another $50 for each additional.  That would have cost Equifax about $1.5 billion dollars.  The perpetrators have never been caught and it is believed it was a foreign government.  Fingers are being pointed at China.

Fannie Mae Says Borrowers More Worried About Their Jobs
Fannie Mae’s Home Purchase Sentiment Index (HPSI) found that those who say they are not concerned about losing their job decreased 6 percentage points in December.  While that is good news for wage inflation, it is a concern since people uncertain about their jobs often rent rather than buy.  Despite the drop, 68% still aren’t worried about losing their job.  Mainly due to ever-increasing home prices, only 24% of those surveyed believe it is a good time to buy, a decrease of 5 percentage points compared to November and down 8 percentage points compared to the same period last year. 

IRS Managing to Keep Up With Transcripts So Far
There were dire warnings last month that the IRS could fall months behind in providing tax transcripts.  It appears the IRS has taken corrective actions to speed up income verification, but many are complaining the system is still running slowly.  There some verification companies that claim you will not have the slowdown problem if you use them.  Lenders are waiving the need for 4506-Ts if the borrower is purely W-2.

VA Allows 3rd Party Verification Services
There was a question as to whether VA lenders could accept 3rd party verifications.  VA has clarified that in Circular 26-17-43 which simply says you may use 3rd parties.  They cite 38 C.F.R. §36.4340(j) that allows other parties to perform the verifications.  The VA reminds lenders that there is no such thing as an independent contractor who performs this service.  The provider is viewed as the agent of the lender and all responsibility for its actions fall back on the lender.

Smaller Banks Join Non-Banks Not Selling Servicing
It used to be that when you brokered a loan it would always end up being servicing by Wells Fargo, Chase, or Citi.  Recent figures show those big banks are losing mortgage servicing share, little by little.  It started with non-banks deciding to service their loans.  Now, mid-sized banks are deciding to keep their mortgage servicing.  In the 3rd quarter, the big banks share of servicing dropped 1.6% while Flagstar jumped 4.7%, HomeStreet was up 4.4%, and First Republic increased 3.6%.  Mr. Cooper showed the greatest increase at 7.6% while Ocwen and BSI lost servicing.

Solar Technology Breakthrough Could Change Homeownership Costs
Elon Musk has developed another amazing new technology.  This time it is aimed at housing.  Musk has developed the solar roof.  We are all used to seeing the ugly solar panels on homes that only put out enough electricity to power some lightbulbs.  Musk is introducing roof shingles that make the entire roof a solar panel.  Lest you worry that it isn’t durable, he demonstrates that it is tougher than existing roof technology.  Coupled with a new, low-cost battery with double the capacity, the cost to live in a home may drop substantially.  Even better news is that it is cheaper than high-end roofs like metal and tile.

Roy Moore Defeat Gives New Democrat Seat on Senate Banking
In the soap opera election for the US Senate in Alabama, Democrats gained a seat.  Doug Jones, who narrowly defeated Judge Roy Moore, has been named to the Senate Banking committee, the committee with jurisdiction over mortgages.  Alabama has some large banks like Regions and Compass that make it a good choice for Jones.  To avoid a tie vote, Senator Jerry Moran of Kansas, a previous committee member, was reappointed, making it 13 Republicans and 12 Democrats.

Why We Aren’t Ready for Blockchains in Real Estate
With all the hype that blockchains will replace county recorders, real estate agents, and mortgage company staff, they leave out one cogent fact.  Blockchains are only as good as the information they are fed.  If mortgage companies, banks, counties, etc. don’t post information to ledgers, blockchains don’t get that information, at least reliably.  So far, there are only a handful mortgage companies that claim they are utilizing blockchain technology.  If they are accepting Bitcoin, which is based on blockchains, they may have issues with Fannie Mae who has told sellers that you must convert Bitcoin to U.S. currency and show a complete paper trail of the sourcing and conversion.  That paper trail may prove to be difficult.  Those trying to evade laws have used currencies like Bitcoin to avoid tracing.  Irrespective of Bitcoin, blockchain is a valid technology and it, or something like it, will be the future.  It just will have to be more accepted to meet its potential and that looks years away.

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
Despite all of the rhetoric about how the job market is on fire, the BLS jobs report last Friday threw a wet blanket on it.  With ADP saying 250,000 jobs were created and analysts conservatively saying the BLS report would show 190,000 new jobs, the report showed an underwhelming 148,000 jobs were created in December.  That is poor, at best, considering it was Christmas season.  The strange part is that every category showed a gain of about 25,000 jobs except retail that lost 20,000 jobs and 67,000 for the year.  It looks like online retailing is killing stores.  The strange part of all of this is ADP says retail added a lot of jobs.  Makes you wonder whom you should believe.
Politco is reporting Congress is considering skipping a budget this year.  Republican leaders think it would likely be an exercise in futility with their waning margins and internal squabbles.  It doesn’t seem like anyone pays attention to it anyway.  The government is a lot like subprime borrowers in that area.
In other economic news, Factory Orders were up 1.3% exactly as expected.
The 3-year Treasury auction this week went well, and the 10-year and 30-year treasury auctions were rock solid.  Considering this was in the face of the China rumor and all of the talk of rising rates, many buyers with big pockets think rates are going nowhere and possibly down.
As reported above, the Producer Price Index came in at .1% for both total and core, a good sign for mortgage rates.  As a double whammy, Jobless Claims jumped to 261,000, the 4th increase in a row and now at levels only exceeded in 2017 when the hurricanes hit.
Tomorrow, we get the Consumer Price Index, Retail Sales, and the University of Michigan Consumer Sentiment Survey.  The CPI will be the one to watch for inflation, especially since the PPI came in so low.  Still, experts believe the CPI may track the November PPI which showed a .4% increase.

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].

Jan 12, 2018