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News From NAMB: March 5, 2018

March 5, 2018
Top Story: Trigger Lead Battle Heats Up
NAMB has asked Congress to ban trigger leads unless they are fed to an entity that is servicing the loan.  The proposal has caught the attention of the trade media and now nationally syndicated columnist Ken Harney is writing about it.  His article shows a link where a mortgage company claims to they recorded a highly misleading telemarketer apparently using a trigger lead.  Consumer groups are now becoming interested in the issue.  Of course, the credit bureaus, who rake in large profit from trigger leads, oppose any restrictions on them.

United Wholesale (Advertisement)
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Housing Groups Urge Senate to Confirm FHA Chief
The Senate has been very slow in confirming Brian Montgomery as FHA Commissioner. Montgomery was approved in November of last year by the Senate Banking Committee only to have to be reconfirmed in 2018 because the full Senate failed to act timely on his nomination. After being confirmed by committee again early this year, Montgomery is still awaiting full Senate confirmation. A long list of housing groups sent a letter to Senate leaders urging them to quickly confirm Montgomery. NAMB strongly endorses Montgomery for the position.

Ocwen to Acquire PHH
Normally, a servicer acquiring another servicer is not big news for mortgage originators. A few months ago, neither company was in a position to acquire or be acquired. Ocwen was prohibited from acquiring new servicing by state regulators.  PHH was possibly subject to a $109 million- dollar CFPB fine, about a third of the company’s real net worth. The reason this important is both of these companies are claiming the CFPB is illegally structured. It will be interesting to see if PHH continues its appeal to the Supreme Court. Experts are betting they won’t. One of the reasons cited for the merger is “achieve meaningful operational and corporate overhead cost synergies,” i.e. layoff a lot of people.  PHH was trying to find its way but looked like it was in a downhill spiral.

PMI Continues to Take Market Share From FHA
Almost 2.1 million first-time homebuyers purchased homes in 2017—300,000 more than the historical average, according to Genworth's First-Time Homebuyer Market Report. Until recently, that meant an increase in FHA business. Although FHA remains the most popular program for first-time buyers, PMI is gaining fast. Genworth says PMI increased over 20% in 2017 while FHA production was down 8%. Part of the problem is FHA’s area loan limits simply aren’t high enough, even for many first-time buyers.

New York Fed Study Says FinTech Mortgages Better than MLOs
The New York Federal Reserve Bank just released a study that touts the wonders of FinTech mortgage origination.  It should be noted what they call a “FinTech” lender.  It is a company that originates mortgages online without using a live originator.  It operates from a central location and never sees the borrower.  The study says FinTech had an 8% market share by the end of 2016.  Rocket mortgage is listed as a FinTech.  The study claims FinTech lenders are 20% faster or 14 days faster for refis and 9 days faster for purchases.  That means the average processing time for a refi is 70 days?  Someone needs to tell Ellie Mae who says it has been in the 45-day range for quite a few years.  Then, the study makes the claim that “default rates on FinTech mortgages are about 25% lower… even when controlling for detailed loan characteristics.”  The study says FinTech doesn’t save borrowers money giving “no significant difference in interest rates.”  From my MLO perspective, FinTechs take only the easiest borrowers, don’t save them money, and are nowhere near as fast as a good broker.  On top of that, you lose someone who can help you through the entire process and is a resource in the future for financial questions.

Nationwide High-Balance Pricing
Many times, we have a loan that is pushed into jumbo pricing because the area is not one of Fannie Mae’s high-balance regions. United Wholesale is now offering high-balance loans at conforming prices everywhere in the nation for loan amounts from 453,101–$679,650.  The criteria are a little more restrictive than basic DU.  The borrower must have a 680 score, 43% DITI, and max LTV is 80%.  The loan must receive a DU Approve/Ineligible.

PBS Show Attacks Lenders and Brokers as Racially Biased
The network that brought Elizabeth Warren to prominence by slamming the finance industry, is at it again. PBS appears to be trying to demonize mortgage lending by airing a one-sided, deeply-flawed program compiled by the Center for Investigative Reporting. The entire crux of the PBS story is that blacks are rejected at a higher rate than whites. That is true However, the bigger question is whether that is a social problem far beyond mortgage lending that has made more blacks a greater credit risk. David Stevens addresses the flaws in the PBS segment that refutes the idea that the mortgage industry is racially biased.

Fannie Mae Pilot Testing Airbnb Income
Fannie Mae is testing refinancing loans where Airbnb income is used in qualifying. The unique part of Airbnb income is that it is derived from renting out parts of your primary residence. Airbnb already tracks the income data and will now provide documentation for a mortgage application. Quicken Loans, Citizens Bank and Better Mortgage are participating in the pilot.

Did the CFPB Get it Wrong on Taking Out a Reverse Mortgage?
In one of the Cordray CFPB’s last consumer briefs, the agency advised against taking out a reverse mortgage to delay taking social security and thus get a higher payout. The CFPB claimed “the reverse mortgage loan costs exceed the cumulative increase in Social Security that homeowners would receive in their lifetime.” Wade Pfau, PHD, and Professor of Retirement Income in the PhD program for Financial and Retirement Planning at The American College says the CFPB got it wrong. Pfau says the CFPB is wrong, “because it does not address how to fund the spending need.” Taking early social security will always leave a gap in the need while getting a larger social security check may terminate the need for further draws on the HELOC.

Removal of Judgments Did Little to Help Borrowers
Many expected the removal of judgments from credit reports to give a nice bump to a large number of borrowers.  75% of consumers remained in the same score band after the public records were removed as they had been before.  Around 13% of consumers who had judgments moved from a lower score band into a higher score band before the public records change.  That increased to 17% moving upward, so only 4% more really gained from the change.  The CFPB now believes the change did very little for consumers.

Mulvaney and Elizabeth Warren Take Off the Gloves
It’s out and out war between Sen. Elizabeth Warren and Acting CFPB Director Mick Mulvaney.  Warren sent Mulvaney a letter accusing him of stopping a CFPB suit against a payday lender because he received political contributions from payday lenders. This clearly irritated Mulvaney who fired back a letter to Warren saying he could accuse her of pandering to trial lawyers because they have given heavily to her campaign.  You don’t spit into the wind and you don’t mess around with Mick. Warren is still in the fight though, she now accuses Mulvaney of not answering her questions. Mulvaney then proceeded to make fun of her sleepless nights over his being CFPB director in a speech to credit unions Tuesday.

Mulvaney Speaks to “Right-Sizing” Regulation
In a speech to the Credit Union National Association Government Affairs Conference, Mick Mulvaney spoke about a lot of things that pertain beyond credit unions.  Mulvaney said “one size does not fit all when regulating this industry. We hope to be able to tailor regulations to the size, the complexity, the activities, of the entities we are regulating.”  He assured the audience that the CFPB will still be going after bad actors and “there is a role for the Consumer Financial Protection Bureau in this nation.”  He promised to look at the costs of each regulation.  He said the agency was not going to look for creative ways to sue people.

Freddie Mac: If Rates Continue Up, Origination May Slow By 30%
In its latest Insights report, Freddie Mac tracks the history of rising interest rates and issues a warning.  The report states that, “increasing rate environments … are almost always accompanied by reductions in mortgage originations, home sales, and housing starts across the board.”  What does that mean in real numbers?  “If the 30-year fixed rate would rise above 5.25 percent before declining… and we are more than one-third of the way there… mortgage originations are expected to fall by 30 percent.”  Those projections are if rates hit 5.25% and stop.  If they continue up, Insights says things would be much worse.

Refinance Applications Plummet
Mortgage applications increased 2.7% over the previous week but it was all purchase driven.  Purchase applications were up 3% from the same period last year.  The refinance share of mortgage activity decreased to 41.8%, sharply down from from 44.4% the previous week. The adjustable-rate share edged up only slightly to 6.7%.  Fixed-rate prices have not scared off buyers.

Federal Reserve: Hike in March and Take a Breather
Freddie Mac’s warning above is backed up by statistics that should give the Fed pause before making 4 rate hikes in 2018.  Existing home sales for January, saw a 3.2% percent drop month-over-month and 4.8% drop year-over-year.  That was blamed on lack of inventory.  But new home sales dropping for the 2nd straight month cannot be blamed on inventory shortage.  In the Northeast, new home sales plummeted 33%, no doubt weather driving that.  Since WWII there have been 13 major Fed rate hike cycles; 10 resulted in a recession.  Some recessions were small, but others, like 2004 to 2006, where the Fed continually raised from 1.25% to 5.25%, nearly collapsed the country.

Should We Give the IRS More Money to Solve the Transcript Problem?
Testifying before the Senate Finance Committee, Acting IRS Commissioner David Kautter has asked Congress for $397 million to implement the new tax reform law.  Of that amount, $291 million would go to update the agency's information technology systems.  Some think this would solve IRS’ slow return of tax transcripts.  There may be two flaws in that thinking.  First, IRS used to return transcripts much quicker just 6 months ago using current software.  The second flaw is the request shows a mere $8 million for tax and information returns processing, the area likely to help transcript processing.

AEI’s Wallison Calls Treasury a “Rogue Agency” for GSE Stand
The American Enterprise Institute is one of the most fiscally conservative think tanks in Washington, DC.  Senior Fellow Peter Wallison is one of the loudest voices against a government guaranty for housing finance.  Wallison is attacking the Treasury Department for supporting it.  He says it is contrary to what President Trump stands for, less government involvement and less regulation.  The American Enterprise Institute held a seminar for encouraging the elimination of Fannie and Freddie this week.  You can watch it on their site.

Community Bankers Call for Larger GSE Reserves
This past quarter, Fannie and Freddie both posted losses and needed a cash infusion from Treasury.  The GSEs have a mere $3 billion-dollar capital reserve but guarantee trillions in loans.  The Independent Community Bankers Association thinks that is far too small.  These banks, like most non-banks, depend on Fannie Mae and Freddie Mac to continue operations.  In an article published in Financial Regulation News, ICBA warns that any disruption could create “instability for taxpayers and the community banks that depend on Fannie Mae and Freddie Mac for direct access to the secondary mortgage market.”  In one of the few areas where community banks and credit unions come together, the credit unions also want to keep the GSEs.

HMDA Reporting Pare Back Called Rip Off of Blacks
The CFPB, under Mick Mulvaney, said it may reconsider parts of its 2015 rule regarding HMDA collection and it was not planning on levying penalties on companies for errors in their 2018, 2019 reporting.  Since HMDA’s primary purpose to prevent discrimination, that has led to various groups and media framing it as an assault on blacks.

Be Careful About Calling Yourself a “Financial Advisor”
Many mortgage originators are creative in what they call themselves.  I have seen where some call themselves “financial advisors.”  The SEC Chairman recently warned an audience of stock brokers that they should not call themselves “financial advisors” since that is a regulated title that also has a fiduciary duty.  What could happen to you?  Severe fines and suits by people whom you advise.

Democrats on Senate Banking Face Hard Election Road
The Senate Banking Committee primarily determines everything that happens to the mortgage industry, from passing laws to approving heads of agencies.  Currently, Republicans hold a slim majority.  In the 2018 election cycle, Republicans will be defending just 8 of the 34 seats that are up for re-election in November, most of which are in solidly red states.  Not to mention Republicans have amassed the largest amount of political donations ever for an off-cycle election.

Rate Outlook
It seems a foregone conclusion that the Fed will raise rates at their March meeting and at least 2 or 3 times more this year.  With inflation showing some gains in the Consumer and Producer Price Indexes in January, fears of inflation may be real. The increases were not that large to produce panic, but the Fed is determined to stamp out inflation before it starts.  And they wonder why we never get to their 2% goal.
 
The week started with mostly negative economic news.  New home sales disappointed with only 593,000 units selling vs. the expected 645,000.  Durable Goods orders fell 3.7% vs. the expected 2% decline.  Then, we were smacked with a red-hot Consumer Confidence Report that came in at 130.8, much better than the expected 125.  That is the highest consumer confidence level since November of 2000 and the news sent rates spiraling up.
 
GDP was healthy at 2.5%, as expected, but not a market mover. 
 
A lot of financial news came out today, all slightly more than expected. Personal Incomes were up .4% compared to the estimated .3%. Outlays were up .2%, as expected.  PCE Inflation, the Fed’s favorite measure of inflation, was up .3% vs. the expected .2%.  Finally, jobless claims are falling through the floor.  Claims came in at 210,000, the lowest rate in 48 years, back when Nixon was President.  Now, don’t start jumping to similarity conclusions.
 
Rates sluffed it off.  The only reasonable explanation is stocks took it on the nose and people are looking for safety.
 
Even though this week has the first of the month, the BLS Jobs Report will not be released until next Friday, March 9th.  So, be careful next week.  It seems unlikely unemployment can get much better.  A bad number could give a little rate relief.  Bets are that job creation will be good so don’t be too optimistic.

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.