News From NAMB: May 12, 2016
You may have noticed that News From NAMB is not just links to other media stories but also goes to primary sources. News From NAMB is different because we find important information that may not be reported elsewhere and we comment on why it is relevant to you, often in a fun way. Best of all, it is free to NAMB members. News From NAMB is sponsored exclusively by United Wholesale Mortgage.
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Home-buying Slams on the Brakes
Appraisal orders are dropping quickly week-over-week for the last 4 weeks. It’s not supposed to happen this way in the spring. That coincides with mortgages applications dropping, for both refinances and purchases for the past two weeks in a row until stabilizing with a slight gain this week. Realty Trac is also reporting a sharp drop in mortgage originations. If this is a good indicator, look for slower sales in May and June which could lead to lower home prices.
NMLS Redefines What Is an Application
There are more different definitions of “application’ in federal laws and rules than one could imagine. Now, the NMLS has created its own definition of “application.” “An application is an oral or written request for an extension of credit encumbering a 1-4 family residential property. Include inquiries or Pre-Qualification requests that result in denial of credit.” They go on to say that all pre-approvals are applications. You need to know this for your call reports.
Fannie Mae Still In The Black
Unlike its sister GSE, Fannie Mae managed to turn a profit for the first quarter of 2016. The $1.1 billion-dollar profit was less than half of its $2.5 billion profit in the previous quarter. One thing you will note is G-Fees did not decline. Fannie claims it still has a net worth of $2.1 billion, not very much, considering it guaranteed $115 billion in the first quarter alone. At least this should dull the voices of those who pointed to Freddie Mac’s losses as a need for immediately disband the GSEs. But, no business is profitable all of the time. Unless the government is prepared for inevitable bailouts, they must have fairly robust capital reserves.
Shortage of Originators Looms
According to the MBA, the average age of a mortgage originator is 55. That means quite a few are in their mid to late 60s. Unless we all keep working forever, there is going to be an acute shortage of MLOs. While XINNIX, a trainer of MLOs, is probably overstating the number needed at 200,000, we are facing an imminent need of about 20 to 30,000. No wonder companies are paying big bonuses and high comp plans.
Two PMIs to Join Fannie In No-Score Program
Beginning June 25th, Fannie Mae will start allowing loans with just 2 pieces of alternative credit to be used when the borrower has no score. One must be rent or a non-reporting mortgage and the other could be a utility bill, unreported car loan, etc. as long as they both cover 12 months. According to the Orange County Register, 2 PMIs, Radian and Arch, will issue PMI insurance on these loans. One catch is no-scores will be considered to have a 620 score for pricing. NAMB is providing a Webinar with Fannie Mae on May 18th that will feature DU 10.0.
FHA Mortgagee Review Board Back in Action
FHA’s Mortgagee Review Board published a significant list of FHA mortgagees with infractions. Most are pretty old, dating back to 2014. There is a long list of companies that didn’t get their renewals in on time with fines ranging from $3,500 to $16,000. Aren’t you glad you can originate FHA loans without having to be a mortgagee?
Quicken Loans Tells DOJ to Pound Sand
The fight between Quicken Loans and the Department of Justice over alleged violations of FHA guidelines is still boiling. Recently, HUD Secretary Castro said HUD wants to work with lenders to help low-to-moderate income borrowers get homes. That riled Bill Emerson, Quicken CEO, who is being sued by the DOJ over FHA issues. Emerson took to the airwaves to tell people the claims are petty and Quicken did not commit fraud. One of the funniest parts of CNBC’s story is the reporter noted the DOJ suits “resulted in more than $100 million in mortgage settlements.” Wells and Chase alone settled for almost $2 billion. And people think reporters what they are talking about.
Consumers Don’t Spend Much Time Shopping Mortgages
A recent study by Zillow, the king of strange studies, shows people spend almost as much time shopping for a computer as they do for their home loan. They spend twice as much time shopping for a car. Has Zillow thought it may be because most of the loans all go to the same place and the prices are so similar it isn’t worth shopping that much? P.S. Don’t tell the CFPB, they may sentence borrowers to mortgage shopping.
Price Is Not #1 When Consumers Select a Mortgage Company
Although the CFPB firmly believes price is everything in mortgage shopping, consumers don’t agree. Post-closing surveys by Quicken and the Stratmor Group show that only 13% of borrower used price as the #1 determinant on which originator they chose. What was #1? Customer service quality. It is important in new loans and even more important to get repeat loans.
Blackstone Quietly Poising to Revive Non-Government Lending
Blackstone, the largest alternative investment firm in the world, puts its $340 billion heavily in real estate-related activities. In its first steps to dominate the mortgage business, Blackstone created Finance of America and bought top retail and wholesale lender Stearns. Then, Blackstone acquired Interactive Mortgage Advisors which would put them squarely in the middle of getting funds and providing services for other mortgage bankers. Now, Blackstone is working toward registering Incenter Securities Group, a wholly owned mortgage-focused broker-dealer. No one is better poised to bring Wall Street back into mortgage investments. The Association of Mortgage Investors (AMI) concurs that private capital is looking to return to mortgages if regulators could decide what they rules are.
PHH Exits Correspondent
PHH Mortgage announced it is leaving correspondent mortgages. PHH said the channel has become increasingly competitive and they believe opportunities are greater in other channels. The ironic part of that decision is PHH had decided to expand correspondent just a few months ago. PHH is under the same ownership as Century 21 and Coldwell Banker. This agreement more or less gives them a first shot at the Realtor business those franchises create. That channel may not be immune to problems either since at least one class-action lawsuit has been filed against PHH based on RESPA.
Redwood Trust Widens Jumbo Box
Redwood Trust announced it is interested in Non-QM jumbos. They will accept interest-only loans and loans, a DTI up to 49% and credit scores as low as 660. They cautioned that a loan can’t have all of those risky characteristics. Redwood accepts jumbos with an LTV up to 90%.
TRID Won’t Affect Bond Rating… Really?
Fitch, Moody’s and Kroll Bond Rating Agency have said loans with TRID violations will not be a big deal in the secondary market. But digging a little deeper, that may be empty rhetoric. Kroll warned recently that it might refuse to rate certain non-agency mortgage-backed securities subject to TRID until the CFPB issues formal guidance. Earlier, Fitch listed seven areas of violation would be assigned a grade of 'D'; uncured errors in any other TRID area be assigned a grade of 'C'.
It’s a Seller’s Market
Fannie Mae’s Home Purchase Sentiment Index Sell component reached an all-time high in April. Consumers who think now is a good time to sell a home rose 16 percentage points. However, the Good Time to Buy component dipped to an all-time survey low, creating the narrowest gap on record between these two measures. So far, buying has always been higher in sentiment than selling but selling is catching up. People feel more secure in their jobs but wages are flat which is dragging down the Buy side. But, sellers beware, low buyer sentiment will eventually turn into low seller sentiment.
Consumer Groups Don’t Like New Flood Bill
H.R. 2901, a bill that would make it easier for smaller, state-approved companies to get in the flood insurance business is raising the ire of consumer groups. Like many laws, the bill sailed through the full House of Representatives before everyone really had a chance to digest it. Opponents claim it allows super-high deductibles and exclusions from coverage. It doesn’t even require a loss-payee clause for the lender. It will be interesting to see if the Senate picks up on these or if the President will threaten a veto.
Should Reverse Mortgages Have Escrow Accounts?
The media has seized on the sad plight of seniors who have taken out reverse mortgages and then don’t even have enough money to pay the taxes and insurance. There are at least 2 alternatives. First, HECMs could require the annuity deduct taxes or the lump sum be reduced by a tax escrow if taxes go unpaid. Both would greatly reduce the amount of money borrowers would get. A far better option is Congress should force localities to drop property taxes on the elderly poor. Some localities have but hardly enough. Meantime, HUD says the new HECM requirements are improving risk but slowing the number of HECMs.
Clinton Promises to Expand CFPB Arbitration Rule
Hillary Clinton has made it clear over time that she believes we need more regulation in the financial services area. She has said she would like to expand the arbitration rule just released. Many on Wall Street are banking on Clinton not to expand regulations, thinking what she is saying will change once she clinches the Democratic nomination.
Could Your Vendor Policies Withstand an Audit?
The CFPB, and now state auditors are looking to see if your vendor relationships adequately protect consumers. The real truth is that most vendors really don’t spell out what they do to protect consumer data to smaller companies. Very few companies could produce documents from their vendors if an auditor asked for them. Then, there is the issue if they would even notify you if a breach occurred. A study by Buckley/Sandler showed that 58% of respondents couldn’t tell if their vendors were compliant.
Criminals Are OK Except as MLOs
Recently, the Supreme Court ruled that landlords could not refuse to rent to criminals as a blanket policy. Are criminals a protected category? Not yet. Because some races have more criminals than others, the Court reasoned that it may be racial discrimination. Dissenters claim this means that only minority criminals get to rent. Since investors are still a large portion of the housing market, this could dissuade people from being landlords to avoid dealing with criminals. HUD says mere arrests can never be used as a reason not to rent. It makes one wonder if purchaser approvals by HOAs commonly found in some states will be ruled illegal.
Congress May Remove the Extra “A” From UDAAP
In you don’t know what UDAAP stands for, you probably aren’t well setup for compliance. It is the acronym for Unfair, Deceptive, or Abusive Acts or Practices. The extra “A” was added in Dodd/Frank and the CFPB has used it at least 3 times in major actions. Congressman Blaine Luetkemeyer has introduced H.R. 5112 that would remove the CFPB’s authority to label an act abusive. The reasoning is that the term is too vague and already covered by unfair or deceptive which would bring Dodd/Frank into harmony with the FTC Act.
Small Commercial Lenders Having Problems
Two companies who specialized in loaning to small business appear to be having financial problems. Prosper.com is laying off 28% of its workforce. OnDeck, who has a very different business model for the small business loans, has lost over 50% of its stock value in the last few months. Lending to small business is risky. Charging rates less than 10% to very small companies is likely even more risky than the worst subprime loans. But, the government, in its infinite wisdom thinks this area needs more regulation because some lenders charge high rates and fees. Businesses fail. Just ask Donald Trump.
War Breaks Out Between Small Banks and Mega Banks
In what most would consider a conciliatory article in the Wall Street Journal, Chase CEO, Jamie Dimon, took some blame for the financial crisis. That clearly wasn’t good enough for Independent Community Bankers CEO, Camden Fine. ICBA believes mega banks are a problem that small banks have had to shoulder and get too much government preference.
Last week’s employment numbers were hardly encouraging. With only 160,000 jobs gained, it was only a few thousand off the worst levels in the past 12 months. There was one bright spot; it was one of the best months for employment in the finance sector. 20,000 of the job gains were in finance. Do you suppose they were mostly in compliance? Perhaps those rules were written to create more jobs. (LOL)
Fannie Mae is headlining that the jobs report will ensure there is no Fed rate hike at the next meeting in June. There are those who worry slowing jobs will eventually slow the housing market. It is too early to worry at all since one report does not make a trend. People tend to focus too much on the Fed hikes. They are important but not as important to long-term rates as some think. Notice that rates are lower since the Fed hiked a few months ago.
After last week’s heavy economic news, this week had virtually no economic news. The only significant news was today’s unemployment report that was not good news for the economy. Weekly unemployment claims jumped to 294,000, pressing the very important 300,000 mark. That is particularly bad news when job creation numbers last week showed weakness.
So far, rates have ignored the bad economic news. It seems bond traders are focused on the price of oil which has jumped to $48/barrel. Remember, a few months ago it was down to $26. The huge fear is that we could not only have a bad economy, we could have inflation. That is a death spiral no one wants to see.
Tomorrow, we do get some significant economic news. The Producer Price Index will be watched closely to see what effect oil prices are having on inflation. If retail sales slip, it will alarm economists. Consumer Sentiment comes out tomorrow was well which is not a precise metric but it is watched by economists.
John Councilman, CMC, CRMS of AMC Mortgage Corporation in Ft. Myers, Fla. is immediate past president of NAMB—The Association of Mortgage Professionals. He may be reached by phone at (239) 267-2400 or e-mail email@example.com.