News From NAMB: July 14, 2017

Starting about a year ago, the CFPB decided to put in writing what they had been advising those who contact them with TRID questions.  One should not look at this as changes but formal guidance on a few issues.  One stands out as a “give” to a big trade association.  Realtors had been complaining since TRID began that lenders were not sharing information about the transaction with them.  Some of the changes of import to originators pertain to construction-permanent loans, what constitutes good faith estimate of costs, when to issue a new LE or CD, and tolerances for Total of Payments.  You should read the portion on disclosing settlement service providers that seems to prohibit just listing a title company that is providing various services.  The CFPB declined to clarify the “black hole” that occurs between a final LE and the CD.  The rule and commentary are 560 pages which will take you a while.

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Everyone seems to have an opinion on how to reform Fannie Mae and Freddie Mac.  Some prominent lawmakers want to do away with them.  This week, the National Association of Realtors offered their ideas of reforming the mortgage giants.  NAMB has a committee working on the issue from an originator’s perspective.  NAMB president, Fred Kreger, did an excellent job of explaining NAMB’s thinking in an interview with the National Real Estate Post.

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Amazon.com sent shares of Zillow tumbling by simply putting an inactive link on its web site inviting people to “Hire a Realtor.”  Amazon is setting records with its Prime business model and millions are coming to its site.  One would assume that it will not be long before Amazon tries to enter the mortgage origination market if the Realtor link works.

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The National Association of Realtors 2017 National Housing Pulse Survey found that 84% of Americans think buying a home is a good investment.  Many millennials had begun to question that when home values plummeted.  Now that home prices have regained most of what they lost a few years ago, owning a home has become much more financially attractive.  Now, the big concern is that houses are too expensive.  Of interest to originators, 4 in 10 respondents believe that a down payment of 15 percent or more is necessary. Seventy percent feel that a reasonable down payment should be 10 percent or less.

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Some of the largest wholesale lenders shared with me how their companies are handling the removal of public records from credit reports.  They pretty much agreed on policy.  If the public record shows up in the title work, they must research it and consider it in debt ratios. Some are running a separate report to determine if a public record exists that could affect debt ratios even though Fannie and Freddie don’t require it.  For the moment, it appears most are simply following Fannie and Freddie rather than worrying if they have done due diligence under Ability to Repay.  It is interesting that even collections that fall off a credit report may still be collectible under some state laws.

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When you have a robust housing market, we find there is a shortage of homes, appraisers, buildable land, etc.  Now, the National Association of Home Builders is warning that there is a lumber shortage.  The shortage of new homes has driven up prices of existing homes already.  A shortage of the primary building material could drive up and delay new more homes.

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Don’t like all of the rigor of audited financial statements?  Just make them up.  That is what HUD claims Pennsylvania mortgage lender Seckel Capital did.  The Mortgagee Review Board stated, “HUD found that Seckel Capital and John Seckel engaged in a years-long pattern of submitting false financial statement to FHA, representing them as properly audited by independent certified public accountants.”  And they were just suspended?

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The largest state trade show in the nation is coming up August 9-12th in Orlando.  The Florida Association of Mortgage Professionals trade show features over 100 exhibitors with over a thousand attendees year over year.  In addition, the breakout sessions will cover everything from how to boost your sales to understanding how to avoid legal pitfalls.  You can also get your 8 hours of continuing education at the event.

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For the first time, the average national credit score has reached 700, according to FICO.  Average credit scores bottomed out at 686, during the housing crisis when there was a sharp increase in foreclosures.  Now that mortgage delinquencies and foreclosures are at very low levels, scores go up.  It is too early to tell if this is also related to the removal of public records from reports.

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Already the top wholesale lender in the country, United Wholesale Mortgage (UWM), continues to grow.  The company set a new loan production record in June, closing more than 10,000 loans in the month.   In 2016, UWM set a company record with volume of $23 billion.  Management says they expect to surpass $30 billion in loan production in 2017.  This indicates substantial growth in the broker industry.

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If you have a borrower that thinks house prices will decline a little in the near future, it’s time to bring them into reality.  A recent study by Arch MI shows that there is about a 2% chance of home prices dropping in the next 2 years in most of the country.

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That question may seem totally irrelevant to you at the moment but it may be in the near future.  As computers move to kill off appraisers, programmers are attempting to identify factors that affect sale price in far more detail than just simple size and room count that appraisers are currently using.  For example, they believe that an attractive tree in the front yard may have a significant effect on sale price and needs to go in the algorithm.  Can you imagine a borrower being told, “Sorry, the house didn’t appraise because there is no tree in the front yard?”

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Sindeo, the fintech mortgage broker that shuttered its doors several weeks ago is back.  Sindeo had to stop operation after its primary investor pulled the plug.  It appears a Chinese social network Renren, one of Sindeo’s investors, has acquired Sindeo and all of its assets.  Perhaps borrowers will be ported to an LO in China where there is cheap labor?

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The proposed arbitration rule received 110,000 comments, 50 times more than the average rule.  To accept a loan, many contracts called for mandatory arbitration rather than going to court.  This saved lenders the huge expense of fighting cases in court.  It will not have an effect on mortgages since arbitration clauses are already banned in home loans.  Lenders can still have arbitration clauses but they will not protect against class-action lawsuits.  The important impact of this is that the rule is being challenged under the Congressional Review Act that allows Congress to say a rule is not what they intended.  If use of that Act becomes common, it could greatly limit federal agency rule-making.

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The CFPB is assessing the Ability to Repay rule, also known as the Qualified Mortgage rule, they released in January of 2014.  Under the rule, we have a 43% ratio that essentially only applies to private industry loans and a 3% cap that really only applies to mortgage brokers because of all of the exemptions.  This is your opportunity to comment.  Certainly, I would recommend that they remove lender-paid compensation from the 3% cap.  That would give an even playing field for all originators, that the CFPB claims to want to create.  Secondly, the government loan exemption from the 43% ratio expires in 2021.  The CFPB must decide in this iteration if that should be extended.  Changing to a 50% DTI would be the best choice but we really need to extend the GSE/FHA/VA exemption if raising the DTI is not their choice.  They also need to make certain streamline refinances remain QMs.

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