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News From NAMB: November 12, 2015

John Councilman
Nov 12, 2015

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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Old Methods of Manipulating Credit Scores May Stop Working
As I pointed out a few weeks ago, Fannie and Freddie will be implementing “trended data” in 2016. Trended data uses a significantly different method than FICO 5. It is much more sophisticated and will not align to current credit score algorithms. Simply paying down a credit card will not have the dramatic impact it currently has. It seems likely that Fannie and Freddie will move away from FICO 5 to a newer model to have scores more closely resemble their underwriting findings.

Join Me At the New York Association Conference Tuesday, Nov. 17th
I will be speaking over lunch at the New York Association’s Annual Conference next week. You won’t want to miss this speech where I forecast the future of the mortgage industry, something I have never done before. Just after Hawaii and D.C., New York has the highest average home prices in the nation at $425,000 and has the fastest price increases. With even the average loan above the conforming limit, you need to know what all of the wholesale lenders offer. There are some great compliance sessions and the Deputy Superintendent NYSDFS will be speaking.

CFPB Target of Attack Advertising
In the Republican debate this week, the American Action Network ran 7 ads attacking the CFPB and Elizabeth Warren. The ads blame the CFPB for causing your loan to be denied. There have been claims the ads were funded by Navient, a company that offers student loans, formerly known as Sallie Mae. Navient denies that.

CFPB Still Facing Constitutional Challenge
The suit claiming the CFPB is not constitutional and its Director was illegally appointed rolls on in DC Federal Court. State National Bank of Big Spring has been the only entity regulated by the CFPB to be bold enough to make such a challenge. They filed a motion for summary judgment this week, a typical move that is unlikely to prevail but makes the other side reveal its arguments. Should the bank prevail in the argument that the Director was illegally appointed, it would nullify the Ability to Repay Rule and the Integrated Disclosure Rule to name a few.

Refinances Still Outpacing Purchase Loans
Before you start pounding the streets for Realtor business, you should be aware there is plenty of refinance business out there. People have begun to view refinancing as a great way to improve or manage their financial goals. Despite the fact that purchase volume is at the highest level since June of 2007 refinances still have nearly 60% of mortgage applications.

TRID Leniency Not Stopping Audits
There are those who thought mortgage companies and banks would not be audited for TRID compliance for a while. Wrong. The OCC made it very clear they are going to be auditing although they may be somewhat more lenient. The same is true of the CFPB. Companies will still be examined for their Compliance Management System that should be TRID ready. We would assume state auditors will be doing the same.

RESPRO Complains About CFPB Mingling MSAs with ABAs
In its recent bulletin warning about Marketing Services Agreements, the CFPB repeatedly referred to ABAs. RESPRO took offense. They believe ABAs are an approved part of RESPA and should not be considered with MSAs. Obviously, the CFPB believes differently and has not responded to RESPRO’s statement.  ABAs have long been a sore spot with many mortgage originators who side with the CFPB on this.

MSAs, ABAs and Joint Ventures Still Around
Not everyone has abandoned Marketing Services Agreements (MSAs). Everbank is still using an MSA with WCI Communites, a large builder. PHH has a joint venture with Realogy who owns Coldwell Banker, Century 21, and Zip Realty to name a few. Nationstar has a joint venture with KB Homes called Home Community Mortgage LLC. Don’t believe for a minute the CFPB’s warnings about MSAs and ABAs have really freed up realty and builder shops.

IRS Pushes Back New 4506-T Date
The IRS issued a new form 4506-T recently and warned that the form must be used by Dec. 7, 2015 or the request would be rejected. The IRS has relented and has moved the deadline to March 1, 2016, “to accommodate for programming, etc.”

Another Powerful Voice Says “Recapitalize Fannie”
The Brookings Institute is now releasing a study that supports recapitalizing Fannie and Freddie. This is interesting since one of the authors has worked for the Presidents Obama and Clinton. The President has been pushing to keep the GSEs wards of the government. Brookings points out that shelving Fannie and Freddie would turn the mortgage industry over to the big banks which would not be politically popular.

Automating Appraisals Has Major Issues
Automated appraisal reviews such as Collateral Underwriter have huge gaps in their usefulness. Sure, they can check to see if the previous appraiser has the same square footage or the same number of bathrooms, but even that could have changed. The real problems with these systems are the subjective things such as condition, view, functionality, etc. As anyone in real estate knows, these can make more difference than room count and square footage. Just check the TV shows and see what staging does for sales price. Hopefully, Fannie, Freddie, FHA, and VA will realize the limitations of their systems.

It’s “Abusive” Because the CFPB Says So
The CFPB has declared that it will penalize based on what it thinks are abusive practices and not attempt to tightly define abusive acts. So far, there haven’t been court challenges to that. A lawyer specializing in financial service litigation doesn’t think this loose interpretation will stand up in court. He believes courts will require the CFPB to be more specific if they want to levy huge fines.

Want to Hear Something Outrageous?
Lourie Brown got a subprime loan from Quicken way back in 2006 and the legal battle is still on. You have to read this story. Quicken had saved Brown about $300/month and gave her $41,000 in cash. Brown stopped paying after two payments and sued Quicken on a technicality. Brown sued Quicken and won a $2+ million punitive judgment. Quicken thought that was outrageous and appealed to the West Virginia Supreme Court. On remand back to the trial court, the judge upped the judgment to nearly $5 million in compensatory and punitive damages and legal fees, and allowed Brown to sell the house when she pleases. Quicken appealed again that but it doesn’t look good for Quicken.

Should a Consumer Have to Prove Harm to Sue?
Many of the CFPB’s and other regulators’ fines are based on a violation of a regulation. They don’t have to prove a consumer was harmed. But consumers can also sue. The question at hand is whether FCRA, RESPA, TILA and other statutes allows a consumer to sue for an violation when there are no recognizable damages. The case, Spokeo, Inc. v. Robins, is currently before the Supreme Court.

Freddie Mac Warns of Credit Scams
Freddie Mac wants mortgage companies to warn consumers about credit scams, especially those that promise credit repair. It seems consumers who are shopping for a loan are particularly vulnerable. It is little wonder with so many companies on the internet pretending to offer loans that aren’t licensed lenders or brokers. Then there are those who buy trigger leads of low-score borrowers. Seems like a good area for the CFPB to find some real abuse.

Unscrupulous Debt Collectors Finally Getting Slammed
Nearly every originator has encountered debt collectors that play tricks with people’s credit reports. One debt collector admitted to having three companies so he could shift the collection from one company to another. The FTC claimed they tried to collect debt from people that weren’t even the right people. The end result was the debt collector’s companies not only had to disgorge their corporate assets, they had to give up their cars and boats. Do you think debt collectors will behave better?

What Would You Do Without E-mail for a Day?
Losing one’s email provider or taking a minute or two to open one email is happening with frightening regularity. They are called DDOS attacks, short for Distributed Denial of Service. Even if your company is important enough for a cyber-criminal to attack it, bring down one of your services or investors can create major problems. Companies who have everything out on the cloud are particularly vulnerable to be shut down. 

Political Front
Without going into the merits of each candidate, there was a common theme in the recent GOP debate, “Too much regulation.” Dodd/Frank and the CFPB took it on the chin as the poster child of over-regulation. Marco Rubio went so far as calling for the repeal of Dodd/Frank as soon as possible.

Rate Outlook
The jobs report last week is still resonating. As I had indicated, the experts were expecting a good jobs report. It was far better than even they had expected and sent rates into a tailspin. A rate hike by the Federal Reserve seems imminent in December. Along with job creation, wage inflation was huge. Average hourly private-sector earnings were up 9 cents. In September they were down a penny. A new labor market indicator being used by the Fed, the LMCI, was positive over the past 6 months.

"Barring catastrophe, everything looks set for the Fed to raise rates in December," National Association of Federal Credit Unions Chief Economist Curt Long said.

Remember, the Fed only controls overnight rates and somewhat generally the Prime Rate. Mortgage rates have been trending upward for a few months so inflationary pressures have more or less been priced in. The Fed hike has driven down stock prices which is good for bonds. Unless there are strong signs of inflation, we should be in a trading range for a while. Rates may even dip since the Fed hike will likely dampen inflation.

Although it is tangential, there is still a lot of economic instability out there. People have written off Puerto Rico’s crisis as not that significant. A closer look may be needed. Congress is considering a special bankruptcy case for Puerto Rico that would allow them to escape a lot of their debt. The reason that is so important is that even American states are not allowed to restructure under bankruptcy. Cities can, but not states. Some states are in pretty poor shape, like the President’s home state of Illinois. Allowing states to get in on debt escape could be a disaster for the financial system.

Some Fed governors are looking worldwide. Governor Lael Brainard said at the IMF conference, “Looking ahead, a further weakening of foreign growth could pose downside risks to the U.S. outlook."  No doubt he is referring especially to Europe whose Euro has slide to only $1.10.  Many blame the Muslim refugees.

Things are pretty flat at the moment. The cost of a small increase to rates has already been priced in and nothing this week has given fuel to the rate increase fire.


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].


Nov 12, 2015