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News From NAMB: May 19, 2016

John Councilman
May 19, 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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FHA Proposes Major Revision to HECM Program
FHA published a proposed rule in the Federal Register that would continue to restrict the HECM program.  Currently, only fixed charges such as taxes and insurance are required in the financial assessment.  The rule proposes to also include utilities. HECM adjustable rates would be brought into alignment with forward FHA ARMs at 1%/5% caps. There are other changes as well.

New Overtime Rule Will Affect Mortgage Industry
The new overtime rule released today by the Department of Labor boosts employees who must get overtime from $23,660 to $47,476 effective December 1st. It is particularly significant since last year the Supreme Court ruled mortgage originators must be paid overtime. Many processors and clerical positions will also now require overtime.  The consequences of this are major for mortgage companies.  Don’t automatically assume you have it covered unless you have had specific training on this. Compliance is more complex than simply seeing if someone will make more than $47,476.  You should consult your accountant or lawyer to avoid serious consequences. House Republicans are working on legislation to block the overtime rule.

Trump Says He Will Dismantle Dodd/Frank
In an interview with Reuters, Donald Trump said, "it will be close to dismantling of Dodd-Frank." Trump says Dodd/Frank is harming the economy because “It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop." Trump went on to say, "Will there be bad loans made? Yes. But there are bad loans made now with Dodd-Frank."  Reacting on Twitter to Trump's comment, Hillary Clinton called it a "reckless idea" that would "leave middle-class families out to dry." Even on Wall Street not everyone is comfortable with doing away with Dodd/Frank.

Are Home Sales Slowing or Not?
Last week, I reported the sharp drop in appraisal orders and the Realty Trac report showing slowing purchase mortgages for the 1st quarter of 2016. That seems to conflict with what the National Association of Realtors is reporting. There are several reasons for this apparent conflict. First, last week’s story was well past March 31st and is very current. Because it only covers a 30-day period, it also can be volatile.  Even though the numbers are down for the last 30 days, we could have a pickup in sales. Secondly, it depends if you are comparing the previous quarter or the same period last year. NAR’s 1st quarter report showed home sales were up only 1.5% from the previous year. Nonetheless, NAR is still bullish for 2016 sales. Their report for April comes out tomorrow.

Mortgage Applications Drop… Again
In the latest MBA survey, mortgage applications for purchases dropped again this week.  Refinance activity increased slightly. A drop in purchase mortgages is surprising since mortgage rates are at the lowest level in three years and home purchases are still relatively good. The bright side is purchase activity is still up from last year at this time.

It’s Time To Change How We Qualify Rental Properties
As long as I can remember, Fannie Mae and Freddie Mac have qualified 1-4 family residential investment real estate by the same method as owner-occupied.  New research shows that is not the best way.  Research by Morningstar shows that the income of the property is more important than the income of the borrower.  If you are making money on a property, you don’t let it default.  If the borrower has good credit and the property has at least a 1.2 debt service coverage ratio, default rates are very low.  The higher the DSC, the lower the default rate.  The study was done on properties mortgaged between 2002 and 2007, the height if the no-income verification mania.

FHA Spot Loans May Be On the Way
Even if FHA doesn’t act on its own with new rules, HR 3700 would loosen condo requirements for FHA loans. Insiders think more liberal condo guidelines will come out of FHA’s current review of its guidelines.  If not, HR 3700, which has already passed the House, 427-0, will force FHA to approve a lot of condo loans currently not allowed.

VA Latest Not to Count Employee Expenses
Fannie Mae and Freddie Mac no longer count unreimbursed employee expenses against a borrower’s income. Now VA has followed suit. Effective June 1st, borrowers who are less than 25% commissioned will not have their income reduced by these expenses. If taxes are provided and they show on Schedule A, FHA still counts them.

CFPB Increases Lender Paranoia
In a December letter to the MBA, CFPB Director, Richard Cordray indicated that lenders shouldn’t worry about class-action lawsuits over the Loan Estimate.  He said, “As a general matter, consistent with existing principles, liability for statutory and class action damages would be assessed with reference to the final Closing Disclosure issued, not to the Loan Estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability.”  Now, the CFPB has releases the legal citations upon which the Loan Estimate is based seems to prove producing an inaccurate or incomplete Loan Estimate is a direct violation of TILA.

New Consumer Paranoia, Your Credit Score
As an originator, I know that people worry when I pull their credit.  They all want to know what their credit score is.  The strange part is the people with an 800 score worry about their score as much or more than the people with a 680.  A new survey revealed that even the wealthy can have lower scores.  I’m certain you’ve found the spouse who fails to tell the other half they are maxing out a card or have made a late payment.  I hear all of the time from originators who obsess about mega-banks having such low rates for jumbo borrowers.  Those banks only want high-score, low LTV borrowers, leaving lots for non-banks and brokers.

Regulation Major Culprit in Home Prices
Normally, existing home prices are mediated by the cost of new homes. So, if the cost of new homes is pushed up, it inadvertently increases the cost of existing homes. This pushes many potential homeowners out of the market.  NAHB has compiled a chart of how much regulation has increased the cost of a new home. It is dramatic. The scary part is new regulations have been approved that aren’t in this calculation. And, this doesn’t include the cost of regulation on mortgages, title companies, appraisers, and ever-increasing real estate taxes.

M&T Latest Victim in FHA Penalties
M&T Bank has become the latest victim in the Department of Justice’s unrelenting pursuit of FHA violations. M&T settled for $64 million over alleged violations. M&T signed the certification that the loans met “applicable requirements” so it is slam-dunk pay up time if DOJ has clear violations of absolute rules. What I don’t understand is there are mandatory borrower disqualifications and the rest were called “guidelines” repeatedly by FHA in the old 4155.1. A guideline is not an “applicable requirement” by any definition I can find but a lot of what DOJ is claiming are things that fall under guidelines.

Now Conservative Groups Want to Recapitalize GSEs
Liberal groups like National Community Reinvestment Coalition, the NAACP, and the League of United Latin American Citizens have been pushing to bring Fannie and Freddie out of conservatorship for some time.  Now, a group of 60 conservative groups are pushing H.R. 4913 which would declare the GSEs’ debt paid in full and allow them to recapitalize.  Despite all of the people pushing reform, leading members of Congress don’t want to touch GSE reform until January.

Consumers Reviewing Mortgage Disclosures Jumps 18%
In a survey of over 700 homebuyers, the American Land Title Association found that more consumers are reviewing their closing documents prior to closing thanks to TRID. Prior to TRID, only 74% of borrowers reviewed their closing documents prior to closing. That number has now jumped to 92%. No doubt, because prior to TRID, borrowers didn’t get the HUD-1 until shortly before closing. The survey also showed most closings occurred when scheduled. That also could mean agents have scheduled closings later. One tribute to MLOs in the survey is that 38% found their LO to be the most helpful person in the process. The next closest was the title agent at 30% and Realtor at 29%.

Seller Financing New Target of CFPB Scrutiny
The CFPB recently began an informal inquiry into seller-financing arrangements or contracts for deeds. The bureau has assigned two enforcement lawyers to research the seller-financing market and determine whether the terms of some deals violate federal truth-in-lending laws. New York is not waiting for the CFPB and has issued subpoenas to 4 companies who do seller financing on a large scale.  These loans generally have higher interest rates and are made to low-income families.

New Legislation Would Add to CFPB Duties
Rep. Tom Emmer (R-MN) has introduced a bill that would append more duties to the CFPB’s duties. This one is a little different. HR 5211 would charge the CFPB with reviewing and assessing how its rules and regulations would affect consumer choice. The public would be allowed to comment. If the director disagrees with the findings, he would simply submit a notice of disagreement that accompanies the CFPB action. Would this really change anything since the CFPB is publicly defending its actions now?

Analysis Claims CFPB Complaint Database Not Statistically Usable
A Ph.D. researcher has compiled a white paper on the CFPB’s complaint database and finds that data is “not generalizable to all consumers in the marketplace or to the behavior of any given segment of the financial services industry.” In essence, it is nothing more than a compilation of anecdotes that have no real marketplace value. The study was conducted for ACA International, the association of credit collection professionals.

NBC Paints HECMs in Positive Light
Reverse mortgages have had a lot of negative publicity over the past few years. Everything from aged spouses being evicted to people who didn’t have enough money to pay their taxes. It is unfortunate that such a valuable program has had so many problems. NBC points out that those issues have been corrected and financial planners are often recommending reverses now. The story is a good human interest story. One part that may mislead people is it looks like the couple will retain some of their equity after subtracting out the reverse. That usually will not be the case after a few years.

Class Action Suits Take a Gut Punch
Those of us who have been around the business for a while remember how RESPA class action lawsuits nearly put brokers and wholesalers out of business. The Supreme Court just handed us a very nice victory this week. In Spokeo v. Robbins, the Supreme Court ruled that just having a technical violation of a law does not allow a class action suit unless there is actual monetary loss or injury. In this case, a Fair Credit Reporting Act violation did not cause money damages so the Court threw it out. That doesn’t mean the CFPB can’t fine you for violating the law. You just can’t be sued for billions.

Rate Outlook
It hasn’t been a particularly good week for mortgage rates.  Fears of inflation have reared their head again.  The Consumer Price Index was big news, coming in at .4%, the highest level of inflation in 3 years.  That seems to contradict the Producer Price Index that was only up .2%.  Oil is pushing that, up now to $49/barrel.

Retail Sales were strong for April, up 1.3%, so consumers do seem to have cash or credit cards.  Industrial production in April posted the biggest increase since November 2014 and factory utilization increased slightly.

Housing starts came in better than expected but still only minutely better than the same month last year but the quarter was better.  Looking at a chart, one can see housing starts do tend to bounce a bit.  The NAHB Housing Market Index was slightly off showing builders are still not jumping into high gear.

Fears of a Fed rate hike in June to quell inflation seem to be edging back into the mix which seems to be what is influencing rates at the moment.  The April meeting minutes indicated a June rate hike is a very real possibility saying, “… leaving open the possibility of an increase in the federal funds rate at the June FOMC meeting.”

It is kind of funny that no one agrees where rates will go this year.  Fannie Mae’s Chief Economist believes the 30-year mortgage rate will decline 15 basis points in 2016 to 3.7%.  Freddie Mac’s chief economist is forecasting a 23-basis-point increase to 4.08%.  The MBA is still in the middle, predicting a 10-basis-point rise to 3.95%.


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 protected].




May 19, 2016