The Treasury Department
released its long-awaited Report on the United States Financial System this week. It was very critical of the current state of our system. The report noted that we have had a very poor recovery from the Great Recession in terms of loan growth and GDP. “The largest stalled asset class is residential mortgage lending, showing only 5% growth since 2010,” the report claims. FHA and VA’s permissive standards and the exemption of these loans and those of the GSEs from the QM Rule have concentrated 70% of the market in government-supported programs according to the report. The report goes on to attack the ATR/QM rule saying, “Another feature of the ATR/QM rule that may limit originations is a cap on the points and fees that can be charged based on the loan size, a limitation that may impact the feasibility of originating low balance loans.”
Here are some of the recommendations directly affecting mortgages:
►Supervision of nonbanks should be returned to state regulators, who have proven experience in this field and an existing process for interstate regulatory cooperation.
►Work to align QM requirements with GSE eligibility requirements
►Allow a loan to be a QM loan even if one criterion falls outside the bounds; e.g., a higher DTI loan with compensating factors.
►Increase the $103,000-dollar loan amount threshold for application of the 3% points and fees cap.
►Resolve uncertainties (especially for TRID) through notice and comment rule-making and/or through the publication of more robust and detailed FAQs.
►Allow a more streamlined waiver for the mandatory waiting periods.
►Improve the flexibility of the Loan Originator Compensation rule and allow for correction of errors
►When an agency is run by a sole director, he should serve at the will of the President.
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Yellen Agrees With Much of Treasury Report
Federal Reserve Chair Janet Yellen says, “Treasury has set out a list of objectives for regulations that
I’m sympathetic to and endorse.” Yellen disagrees on the effect of regulation. “I don’t think that our regulations have played an important role, at least broadly speaking, in impeding credit growth and the growth of the economy,” she said. Yellen is up for reappointment in February.
New Wells Fargo Scandal Hits Mortgages
As if Wells Fargo didn’t have enough problems, they are now being sued for illegally modifying mortgages that were in bankruptcy. The suits allege that Wells lowered borrowers’ monthly payments, which would seem to benefit borrowers, particularly those in bankruptcy. But,
according to the New York Times, deep in the details Wells Fargo’s changes would extend the terms of borrowers’ loans by decades. Any change to a payment plan for a person in bankruptcy is subject to approval by the court and the other parties involved. The suits claim Wells Fargo put through big changes to the home loans without such approval. The bank claims borrowers and the court were notified and these were part of trial modifications.
Financial Choice Act Passes House
The
Dodd/Frank modification bill, H.R. 10, passed the House 233 to 186 without a single Democrat voting for it and a lone Republican, Walter Jones, voting against it. Jones often votes with Democrats. Despite the media hyperbole, it does not repeal Dodd-Frank or deregulate the financial sector. It also offers few changes for mortgages, none beneficial to smaller companies. The bill is mainly about banks. The biggest change for mortgages will hopefully come when Richard Cordray leaves office, whether early or in 2018. The Senate seems not to mind the parts about relaxing rules on small banks but they reportedly don’t like much else.
Case Building to Fire Cordray for Cause
As I have pointed out since the President was sworn in, the Republican members of Congress have been building a case to fire CFPB Director Richard Cordray for cause. They don’t like him but current law only allows the President to dismiss him for cause. Ann Wagner, Chair of the subcommittee on Oversight and Investigations, has
made it clear for several months that they are building a case. In the latest hearings, the Republican staff report framed the Wells Fargo case as an example of the CFPB being late to the party and grandstanding on the work of others. They also claim the CFPB has ignored subpoenas to bolster their case. No matter how the court rules on the CFPB Director’s constitutionality, they believe they already have enough evidence for Cordray to be fired for cause. There are those who believe Cordray is itching to have them fire him to help his chances to be Governor of Ohio, so he is tweaking them.
States Eliminating Duplicative Disclosures
Various states have begun to drop disclosures that are covered in the TRID disclosures.
Maryland is eliminating their Financing Agreement and Commitment. Florida dropped their broker agreement several years ago and Pennsylvania eliminated its mortgage disclosure form in 2014. There really is no need for many of the state-specific disclosures now that we have TRID. It’s something good that TRID has done.
First-Time Buyers Dominate Q1 2017
Using more than 20 million first-time homebuyer records from mortgage origination data,
Genworth has compiled the first-ever study of first-time buyer data. The report shows that first-time buyers accounted for 38% of all buyers in the 1st quarter of 2017. The Housing Crisis had frozen around three million first-time homebuyers from the housing market that are now buying thanks to low to no down payment mortgages. Genworth this is pent-up demand that will drive renters into the housing market.
Why Credit Unions Dislike CFPB
CFPB Director Richard Cordray is always trying to mend fences with credit unions but it always turns out like the rebuffed lover. In his latest speech, Cordray said credit unions are doing so much better under Dodd/Frank and his rules. Their profits are up. Credit unions say Cordray isn’t listening. Matt Kershaw, a credit union head,
laid out their complaints very clearly. First, he says the rules cost members money, $73 per year. That is much more than the interest they earn on a couple of thousand dollars in the CU. Kershaw says you can’t regulate small credit unions the same way you regulate Bank of America. (Sound close to home?) Finally, Kershaw claims their member dividend would have been double if not for the compliance expenses and lost opportunity. By the way, Kershaw was the mortgage broker at the credit union previously.
CFPB Looks At “Non-Loans” Ruining Credit Histories
The
CFPB just released a study that shows lower-income borrowers have their credit history ruined by “non-loans” such as medical bills. This prevents these lower-income borrowers from establishing credit through loans that creates a cycle of poverty. When lenders pull their credit, they find only negative information that may not reflect their willingness to repay. An astonishing 1 in 4 lower-income borrowers have only negative non-loans in their credit profile.
Carson Says FHA Will Finalize Condominium Rule
Last fall,
HUD released a rule, based on a law passed in 2016, that would greatly liberalize FHA lending on condominiums, including bringing back spot loans. So far, that that rule has not been finalized although HUD did change its guidelines a little. In May,
Carson claimed to be in “lock step” with the rule and just a few days ago alluded that the rule may be released soon.
CFPB Seeks Comments on How Involved It Should be in Small Commercial
RESPA and TILA exempt commercial loans, including rental properties. Most states do the same. But one law does not, ECOA.
Section 1071 of Dodd/Frank adds new reporting requirements to ECOA that makes lenders provide information that may show if they discriminate against minority and women-owned businesses or small business. It is something like a small business HMDA. The strange part is the word “or” before small business. Are small businesses a protected category? The CFPB is considering how to write the rules for this and is
asking for your input. Credit unions are already saying, “Exempt us.”
Flipping Hits 9-year High
After reaching the recent decade high last year,
flipping has set even higher levels this year. Despite the cost homes and transfer taxes, flippers have found they can turn a profit by quickly reselling homes in less than 12 months. Only about 1/3 of flippers use financing which gives them strong negotiating positions. Homes flipped in the first quarter of 2017 were sold for a median price of $200,000, a gross flipping profit of $64,284 above the median purchase price of $135,716. That is also an increase in profit over previous years. I wonder if appraisers are realizing how much condition adds to value as this demonstrates?
Fannie Says “Don’t Look, Don’t Worry”
Many of us were concerned what Fannie Mae would require regarding public records when they are no longer on the credit report. Essentially, Fannie says if it isn’t on the title report or somewhere else that makes you aware of it, don’t go looking. Interpretations of this agreement say bankruptcies will still appear although they don’t have 3 of the 4 requisite items needed to report. It is unknown if foreclosures will show which never have 3 of the 4 items. What happens when the borrower says they didn’t have a foreclosure but really did? My bets are Fannie is going to look to the lender.
Florida Passes Massive Reform to Estoppel Certificates
Nearly all states have some method of checking with home owner associations to see if assessments are current and nothing else is due. In Florida it is called an “Estoppel Certificate.” Associations started using these certificates as revenue enhancements, sometimes charging as much as $1,000. Rush fees could cost several hundred dollars. No more.
A new law gives associations 10 days to produce the certificate and it will be good for 30 days. Fees will be limited to $250, an additional $100 to produce it in 3 days, and an additional $150 if the owner is delinquent.
IRS Transcripts May Be Delayed
You may notice several days delay in getting your tax transcripts at the end of this week through next week. The IRS is moving to a different platform for a technology upgrade. They are taking their e-Services offline beginning Thursday, June 15 at 6:00pm until Monday, June 19 at 6:00am. This will automatically delay requests during that time period and create a backlog for a while.
Big Win For Loan Correspondents
The Supreme Court was faced with the issue of whether those who purchased a loan and did not originate the loan were mere debt collectors or actual creditors under the Fair Debt Collection Practices Act. Creditors are not subject to all of the restrictions of the Fair Debt Collection Practices Act while debt collectors are. Had the court ruled that you had to actually originate the loan to be exempt from all of the FDCPA rules, it would have made correspondent loans less valuable.
Judge Gorsuch wrote the opinion in the case that went 9-0, showing his intellectual power.
Movement Mortgage CEO Buys Bank
Movement Mortgage is one of the fastest growing mortgage companies in the country. To get cheaper funds, mortgage companies have often bought banks.
Movement’s CEO, Casey Crawford, is buying a small, troubled, black-owned bank in Danville, Virginia. If Crawford aligns the bank with Movement, this may start a trend since banks can operate across state lines without licenses and avoid many state laws. They get the side benefit of hiring on MLOs without any of the testing, formal education, licensing fees, and a less stringent background requirement.
900,000 More Loans Could Have Been Made
Rosen Consulting Group (RCG) estimates that more than 900,000 additional home purchase mortgages would have been issued, according to a new report "
Hurdles to Homeownership: Understanding the Barriers." The 900,000 figure is for just 2016, “if the lending environment returned to more normal credit conditions, like those in the early 2000s.” An interesting side note showed that in 2016 households with credit scores of 760 or greater nearly doubled their share of total mortgage originations versus 2003 growing from 30% to 58%, while those with good to excellent credit scores between 720 and 759, dropped in half of market share from 35% to 17%.
CFPB Opens Up Ability to Repay Rule. Your Comment is Important
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.
Rate Outlook
To no one’s surprise, the Federal Reserve raised its discount rate by ¼ point. The effect was to slightly lift mortgage rates since it was built into current rates and may even cause mortgage rates to drop a little in the near future. No one is certain if the Fed will continue to raise rates this year as they have promised. There is so much drama and tension in the government at the moment it seems somewhat miraculous that the economy is doing as well as it is.
One disturbing takeaway from the Fed meeting is that they are starting to taper buying mortgage-backed securities now instead of later this year. It will start at $4 billion/month and increase every three months by another $4 billion. Many economists think there are sufficient buyers to withstand the impact of the Fed ceasing to buy MBS. We shall see.
It appears the Fed has given up on using inflation as one of the measures they are using to justify raising rates. The Producer Price Index was unchanged with the core down .1%. The Consumer Price Index fell .1%. Both are an indication that inflation is simply not there.
Retail Sales dropped .3% vs. the expected increase of .1%. Industrial production was unchanged, and capacity utilization stood at 76.6%. Both near expectations.
The bright side is that employment is doing well. Jobless claims beat expectations at 237,000 vs. the expected 240,000.
In talking to leading wholesalers, it seems loan production has been strong since March. We really can’t worry about rates if people are buying and refinancing.
John Councilman, CMC, CRMS of AMC Mortgage Corporation in Ft. Myers, Fla. is past president of NAMB—The Association of Mortgage Professionals. He may be reached by phone at (239) 267-2400 or e-mail [email protected].
