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News From NAMB: November 17, 2017

John Councilman
Nov 17, 2017

Top Story: CFPB Director Cordray Resigns
CFPB Director Richard Cordray sent a letter to his staff today informing them that he will resign by the end of the month.  Democrats loved Cordray but Republicans has no use for him.  There is little doubt that President Trump will appoint someone who is more industry-friendly.  One of the big questions is what will happen to the lawsuits in which the CFPB is currently embroiled.  It seems a forgone conclusion that Cordray will run for Governor of Ohio.  Already, his Democratic primary opponents are taking shots at him in anticipation of his run.  There are many guesses whom President Trump will appoint.  It very unlikely the administration will let David Silberman, the agency's second in command, take the reins since he is cut from the same mold as Cordray.

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Reverse Mortgages Seriously Harming FHA Insurance Fund
Everyone expected FHA’s Capital Reserve Ratio to continue to improve this year.  In its Annual Report to Congress, the Reserve Ratio dropped from 2.36% in 2016 to 2.09% in 2017.   That is barely above the mandated 2% level.  The problem is HECMs.  The Capital Reserve Ratio for forward mortgages is a very healthy 3.33% but HECMs showed a ratio of -19.84% for a negative net worth of $14.5 billion.  Had FHA cut its premiums as proposed by the Obama administration earlier this year, the ratio would have been 1.76%, below the statutory minimum, possibly setting FHA up for a draw from Treasury.

VA Accused on Dragging Its Feet on IRRRL Problem
As we have reported earlier, too many veterans are getting Interest Rate Reduction Refinances that provide little or no benefit.  Ginnie Mae pools have been hit hard by companies who talk the veteran into refinancing within a few months where the veteran may take as much as 6 years or more to recoup closing costs or moving them from a fixed-rate to an ARM.  Ginnie put a band-aid on the problem by putting IRRRLs in less than 6 months in a high-rate pool.  But, when the 6 months are up, the onslaught of refis has continued.  Ginnie claims VA was supposed to bring out a fix but has done nothing.  The result is that the IRR program itself is being threatened.  Thom Tillis (R-N.C.), a member of the Armed Services and Banking committees, is drafting legislation to show a net tangible and possibly limiting fees that can be added to a loan.  Stan Middleman of Freedom, whose company is the largest VA lender and 75% of its loans are IRRRLs, is suggesting the 6-month seasoning be extended to 12 months.  Meanwhile, the Ginnie Mae/Va Task Force grinds on looking for a solution.

Realtors, Home Builders Say Tax Proposals are Assault on Housing
In it most intense attack yet, the National Association of Realtors sent a letter to Congress stating, “owning a home would make less financial sense than renting for the great majority of
Americans.”  The homebuilders stand is a bit weaker than the Realtors.  They flat-out oppose the House plan and see promise in the Senate plan.  Zillow has joined the fray, pointing out that the Senate bill is far worse than the House bill for homeowners in most circumstances because it loses the property tax deduction.  The MBA’s initial letter was “holistic,” a nicer name for a confused stand.  When the tax proposal was released with nothing but negatives to homeownership, they decided they had better write a letter more in line with NAR’s.  It is interesting that the trade groups are still not totally on the same page.  The New York Times is reporting that Senate Republicans have decided to include the repeal of Obamacare’s mandate that most people have health insurance.  That would save the government $300 billion in subsidies to low-income health care programs and may make the cuts to real estate lighter.
UPDATE:  The House passed the bill over all of the above objections this afternoon.

Tax Proposal Would Especially Harm First-Time Buyers and Seniors
While most trade groups are focusing on the mortgage interest deduction, they may have missed a far more onerous part of both the Senate and House proposals.  Currently, homeowners can escape capital gains on the sale of their residence as long as they live there for 2 years.  Both proposals would make that 5 years.  It would impact young families because they have increasing family size and change jobs more frequently, requiring them to change homes.  Older owners may need to sell to retire or for health reasons.  Having to pay thousands of dollars in capital gains tax when you sell could put a huge damper on home sales.

Top Banking Regulator Talks Right-Sizing Regulations
Randal Quarles, the Federal Reserve’s vice chair for financial supervision, said better tailoring rules to firms’ size should be adjusted immediately.  He is not talking about doing away with stress-testing and capital standards for banks, but he says the Fed should conduct these tests in a “simpler” and “much more transparent” way.  The CFPB would do well to take a page from Quarles’ book and consider how its rules affect small mortgage companies.  They could start with clear standards for a compliance management system for very small entities.  Nearly all of the guidance is really aimed at larger businesses that have considerable staff.  Fincen could also eliminate mortgage brokers since compliance in that area could, an is, easily handled by the wholesale lender.

CFPB Still Pushing Zillow for RESPA Settlement
Earlier this year the CFPB served Zillow with a Civil Investigative Demand (CID) requesting information regarding a possible RESPA Section 8 violation.  The investigation revolves around Zillow’s co-marketing program under which a lender pays 50% of the advertising cost to alongside a real estate agent.  Within the Zillow Co-Marketing Program, lenders may not refer business to agents and agents may not refer business to lenders.  But, the restriction does not apply to referrals by agents and lenders that are separate from the Zillow Co-Marketing Program.  The CFPB apparently believes it is a referral platform that violates RESPA.  Zillow confirmed they are still negotiating with the CFPB on their latest earnings call.

JD Power Has Tie for #1 Spot, Online Systems Disappoint Borrowers
Quicken Loans has enjoyed the top spot in JD Power’s US Primary Mortgage Origination Satisfaction Study for quite a few years but this year it was a tie for #1.  Quicken had to share the top spot with Guild Mortgage who had the same points score.  43% of mortgage customers indicate applying digitally in 2017, up from just 28% in 2016 but they weren’t impressed with the technology.  With all of the hype about just push a button and your loan is approved, borrowers had expectations of a much quicker, easier process than what they received.  Online satisfaction dropped 18 points year over year and trails satisfaction with in-person applications by 10 points this year.  The key to a high rating is a good originator.  With the top spot scoring 878 points, 358 of them are attributed to having a good LO.

Non-Prime Securitization Heats Up
In 2015, Angel Oak Capital Advisors sold the first non-QM mortgage security.  That was so well received they have issued 3 more for a total of $630 million so far.  Now, Impac Mortgage Holdings is looking to securitize its non-QM production.  Notice that they are called non-QM rather than subprime.  No one wants to open that can of worms.

Courts Find Must Have Damages for RESPA Claim
While the case of Jaki Baez v. Specialized Loan Servicing was about a RESPA violation stemming from loan servicing, it sets an important principle in all RESPA cases.  Baez sued Specialized because they failed to properly respond to a Request for Information which is a RESPA violation.  She claimed a certified mail fee and her retainer that she was paying an attorney for her modification that was not specific to the Request for Information claim.  The court found her expenses did not flow from the RESPA violation, so she could not recover in a civil suit.  Although it has not been tested, we then presume that a RESPA violation in origination disclosures where the borrower suffered no loss won’t be awarded money in a lawsuit.  That doesn’t mean that a regulator can’t bring an action or fine the violator.

Flagstar Paying Borrowers to Take 100% Financing
Quite a few banks and credit unions are beginning to offer loans with no money down.  Some offer them without PMI insurance.  The latest entrant into the zero-down foray is Flagstar.  The bank is not only offering no-downpayment through a bank gift, they are giving the borrower up to $3,500 toward closing costs.  It is limited to the bank’s immediate geographic area of Michigan to help it fulfill its CRA requirements.  The Federal Reserve insists CRA lending did not create the mortgage meltdown.  Rather, it was banks lending outside their CRA area.

Banks Should Use Brokers for CRA Loans
Let’s face it, banks don’t like to open branches in less affluent neighborhoods because that isn’t where the money is.  Without branches, they have difficulty reaching those underserved neighborhoods.  Smart banks would do well to open their CRA lending program to mortgage brokers who are present in less affluent and minority-heavy neighborhoods.  It would be good for the banks and for brokers.

Can Brokers Select the Appraisal Management Company?
Some lenders allow the broker to select one of their approved AMCs.  Others say that is prohibited.  The questions is, “What prohibits it?”  Some believe it is Dodd/Frank or the CFPB’s Appraisal Independence Rule.  Actually, neither one of those prohibit it.   It comes from an FAQ on Fannie Mae or FHA’s guidelines where it says, “May a lender order an appraisal by directing a broker to select an AMC from among a group of specifically authorized AMCs, one of which would receive information from the broker about the loan application and begin the appraisal process?  No. Such a process would give the broker an element of responsibility for selecting or retaining the appraiser, and therefore would not be compliant.”

House Passes Flood Insurance Bill, Senate Doesn’t Like It
The House passed H.R. 2874 this week to extend the National Flood Insurance Program for 5 more years.  The program is set to expire on December 8th if legislation is not enacted extending it.  The problem is that risky properties are dragging down the program’s finances for everyone.  The bill allows private insurers to become fully involved and requires small premium raises for less risky properties.  For multiple loss properties, FEMA must raise premiums by at least 15% annually if the premiums do not reflect full risk.  Democrats don’t like raises on all properties because they say it is the risky properties, owned by more affluent owners, that are causing the problems.  Plus, they aren’t keen on private insurance.  The Senate has a lot of opposition and requires more votes which may bring this down to the wire or cause a lapse.

Refis Surge Again
As rates dip below 4%, refis are now out pacing purchase mortgages.  It almost seems as though refinancing has become the great American pastime.  With companies advertising no cost refinances, people are willing to jump to a new lender with as little as ¼% cut in rate.  The latest MBA survey shows refis with 51.3% of the market and purchases now below 50%. 

We’re at The End of The Alphabet for Young Borrowers
First, it was Generation X, then Generation Y, now its Generation Z for those who were born between 1995 and 2010.  Never fear, the creative namers will come up with something now that we’ve used the last letter.  They have now named the people in assisted living “the Silent Generation.”   A study by Zillow is full of choice housing information but one thing seems to generally ring true; people are happy renting.  Most don’t want to move, like where they live and find it to be a good value.  While over 80% of Generation X and Millennials often think about buying, only 57% of Generation Z do so.  The top amenity for home buyers is a safe neighborhood, cited by 71%.

Equifax Shows a Loss but Shows a Profit
No, that isn’t a mistake.  Equifax shows on its GAAP financials that it lost money in its latest quarter, a lot of money.  Compared to last year, its net earnings were down 28% because they have spent $90 million on the data breach.  But, the SEC allows companies to produce financial statements using non-GAAP figures based on what things would be like without having a loss that is considered non-recurring.  Of course, the top managers’ bonuses are based on the non-GAAP figures.  It is still unknown what liability Equifax faces.  Courts have been unwilling to apply the Fair Credit Reporting Act penalties of up to $1,000 per person for information breaches.  That would be $145 million times $1,000 = $145 billion and goodbye Equifax.  If they assess $1 per person, as they have in some cases, $145 million is less than Equifax’s annual profit.

Facebook Still Moving Slowly into Real Estate
Facebook has been trying to figure out the best way to make money from real estate for at least since the beginning of this year.  They developed Dynamic Ads for Real Estate that allows Realtors to push ads to their connections.  It is not a simple process, so most agents will need to hire someone to set it up.  The social media giant is now setting its sights on its Marketplace.  Right now, they are going full bore after rentals.  Landlords will need to sign up with Zumper to get their ads on the Marketplace.  Facebook has the resources to take on Zillow and other online sites, even the multiple list.  One only need to read Realtor comments to know they are worried.

Rate Outlook
Economic experts are noting that the Treasury yield curves are flattening.  What does that mean to you?  It could mean quite a bit.  Yield curve flattening is where longer-term rates are becoming very close to short-term rates.  That means experts believe the Feds raising interest rates is a mistake; that it will cause an economic slowdown.  Economic slowdown means longer-term rates, like mortgage rates, are likely to not increase as much as some are forecasting, if at all.
This week, we have a fair amount of important economic news.  The Producer Price Index, a measure of what producers of goods charge retailers, was up quite a bit more than expected at .4%, even without considering more volatile items like food and energy.  The market shrugged it off, waiting for the Consumer Price index that came out Wednesday showing only a .1% increase with the core up .2%.  Inflation still is very low.
Retail Sales were up .2%, in line with expectations.
Weekly jobless claims were up since last week at 249,000.  Expectations were for claims at 234,000.
The Philly Fed survey, an indication of manufacturing activity in the all-important Mid-Atlantic region printed at 18.9. Traders were expecting a read of 24.6. A reading above -0- indicates economic expansion and the index has printed above that level for 16 straight months.
Lastly, industrial production rose 0.9% and capacity utilization stood at 77%. Economists’ expectations were for production to rise 0.7% and utilization at 76.3. Tomorrow brings housing starts which shouldn’t have a huge effect on rates.
While we are not at the best levels of the month, rates are stable for the time being.

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 [email protected].

Nov 17, 2017