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News From NAMB: November 22, 2017

John Councilman
Nov 22, 2017

Top Story: Reverse Mortgage Foreclosures Jump 646% in 2016
A huge spike in HECM reverse mortgage foreclosures was revealed when the California Reinvestment Coalition and Jacksonville Area Legal Aid filed a Freedom of Information Act (FOIA) against HUD.  The National Consumer Law Center claims those facing foreclosure had difficulty accessing loss mitigation and faced inconsistent and arbitrary servicing guidelines which lead to servicing abuses.   Others blamed extraordinarily expensive forced placed insurance, improperly paid property taxes, and attempted foreclosures for non-occupancy when the seniors still lived in their homes.  Servicing practices are so irregular that Financial Freedom, owned by the failed Indy Mac Bank, was responsible for 39% of all HECM foreclosures from April 2009 to April 2016 although they were only servicing 17% if the HECM market.  Critics point out this is when Steven Mnuchin and other investors purchased IndyMac.  Currently, all FHA borrowers are being penalized by higher premiums due to HECM’s problems.

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Hensarling Says FHA Condition a “Clear and Present Danger” to Taxpayers
House Financial Services Committee Chair Jeb Hensarling is alarmed by FHA’s recent report to Congress.  It shows FHA’s Capital Reserve Ratio perilously close to the 2% minimum and down from 2016.  Hensarling said the declining fiscal condition of the Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund represents “a clear and present danger to taxpayers, homebuyers and the U.S. economy” and must be addressed by Congress.  Despite his anxious tone, Hensarling does see the value of FHA.  “To be successful, the FHA must be fiscally sound and have a clearly defined mission to ensure homeownership opportunities for creditworthy first-time homebuyers and low-income families.”

Trump Likely to Appoint Mulvaney CFPB Interim Director
If you think the battles over the heart and soul are over now that Richard Cordray has announced his exit, you may be wrong.  Those close to President Trump say he plans to name Mick Mulvaney, the current director of OMB, interim CFPB Director.  However, a noted law professor states that it is Cordray who decides the person who will fill his unexpired term.  At the moment, that would likely be David Silberman, who has long ties with liberal groups.  If Mulvaney does take over, CFPB watchers say he will more or less dismantle the agency.  Even if it survives, Mulvaney would make majors changes, having called the CFPB a “sad, sick joke.”

Wholesale Lenders Join Call to BRAWL
BRAWL is an acronym standing for Brokers Rallying Against Whole-tail Lending.  The founders claim that many retail lenders use wholesale to take customers from mortgage brokers and correspondent lenders who do not service.  In what has become a very heated discussion on the proper role of lenders who also have a retail division, some top wholesale lenders have come down on the side of BRAWL.  The movement has caught fire, drawing over 2,000 participants on a webinar where the issues that fuel the movement were aired. 

NAMB Call to Action on 3% Broker Cap
NAMB is calling all mortgage brokers and originators to push their representative in Congress to support H.R. 2570, The Mortgage Fairness Act of 2017.  It is a very simple bill that the CFPB failed to correct when it modified the loan originator compensation rules several years ago.  Brokers and originators are stuck with a cap of 3% with slightly higher percentages under $100,000.  It wouldn’t be so bad if lender fees were not thrown into the cap.  Buying them out raises the rate, something borrowers often don’t want.  Lower-income and inner-city borrowers are more or less pushed to retail lenders since brokers find it difficult to make a profit after paying their LO and all of the expenses to reach that market.  H.R. 2570 would simply level the playing field.  Please contact your representative and ask them to sign on as a sponsor.
Higher-Priced Mortgage Definition Changed
The CFPB just released the final rule pertaining to Higher-priced Mortgage Loans (HPML).  One of the significant changes is the APR trigger for jumbo loans.  For conforming loans, the threshold to be an HPML remains at 1.5% but the rule is being changed to 2.5% above the APOR for jumbo loans.  The change will allow jumbo loans to avoid a mandatory escrow if they are not HPMLs.  It will also allow more loans to escape a mandatory written appraisal under HPML.
2,500 Groups Rally to Oppose Mortgage Interest Deduction
Not everyone thinks the mortgage interest deduction is a good idea.  With so many people renting, especially in lower-income brackets, the mortgage interest deduction has turned into class warfare.  2,500 groups have joined to form United for Homes, an organization that is spinning the mortgage interest deduction into a racial issue.  They are much more concerned about providing affordable housing in any form than home ownership.  They are actively writing to Congress to attack the mortgage interest deduction and encourage subsidized rental housing.  Their recent letter was a mere one page but had 61 pages of signatory organizations.
Investors Not as Thrilled with Non-Prime Security
Angel Oak has led the way with securitization of non-QM or non-prime mortgages.  Most have been met with a lot of enthusiasm.  The latest offering was not as well-received as past offerings, despite the return rising from 6.87 to 7.14%.  It is unclear if the market is becoming more wary of non-QM securities or other factors are in play.  It could be that investors are waiting for rates to rise further.  Another factor could be that 28% of the loans are in Florida, a more volatile market than many areas of the country.
GSE Reform Pushed Into 2018
The Trump administration is still seriously looking at GSE reform.  They want to tackle it when tax reform is finished, which is expected in early 2018.  There are many problems they face.  First, members of Congress don’t like to do things just before elections that can make them targets.  Next, many of the key players are retiring.  Jeb Hensarling, who opposes government guarantees, and Bob Corker, who masterminded the previous GSE reform effort, will be gone by the end of the year and are lame-ducks.  That may make them more willing to compromise or it may harden their stands.  It could be a different world for mortgage originators depending on what happens.
Fannie Mae Joins the Rush to Renting
Because purchasing a home is out of reach for some, Fannie Mae is immediately reinstituting its Low Income Housing Tax Credit program.  The federal government reduces a developer’s taxes, dollar-for-dollar under LIHTC.  Still, investors don’t like to develop subsidized apartment complexes because the rent is capped.  So, an investor, in this case Fannie Mae, makes a "capital contribution" to the partnership or limited liability company that owns the project in exchange for being "allocated" the entity's LIHTCs over a ten-year period.  The slick part of this is that Fannie knows that their current net worth is heavily based in tax credits that will be cut in half if tax reform passes.  That would force the GSEs to take a draw from Treasury to stay out of bankruptcy.  All of these tax credits would restore Fannie’s net worth.  Nothing like killing 2 birds with one stone.
CFPB Not Going to Sleep Despite Corday Leaving
The CFPB has been quite active in past week.  First, they are suing Think Finance who oversaw loans made by Indian tribes that were considered usurious or lacked proper licensing.  Then, Director Cordray sent a letter to the banks the CFPB supervises advising them to implement technology that would give consumers much greater control over their credit cards, debit cards, and other payment methods.   Next, the CFPB is fining Conduent Business Services, a Xerox company for selling faulty loan servicing software.  Finally, the Bureau fined Citibank over student loans where some clients were made to pay late fees and interest when they were eligible to defer payments.  While none are directly aimed at mortgages, the principles involved do pertain to mortgages.
DU Will Still Underwrite Loans if Only One Bureau is Frozen
As more borrowers freeze their credit histories due to the Equifax breach, it creates a challenge to obtaining a mortgage.  If only one bureau is frozen, DU will still underwrite the loan but it will issue a new Potential Red Flag message.  That message warns, “The lender remains responsible for preventing fraud, which includes, but is not limited to, ensuring the borrower’s identity has been verified.  In addition, the lender must continue to investigate any liabilities or derogatory credit that is disclosed by the borrower but not reflected on the credit report.”  So much for Day1 Certainty in this instance.”
2017 Best Year for Housing in a Decade
Modest economic growth, robust job gains, and low interest rates all made 2017 the best economic environment for housing and mortgage markets in a decade.  The year began with strong housing starts and sales, overcoming a slight slowing toward the end of the year.  Freddie Mac’s Outlook forecasts that interest rates will remain low by historical standards, but gradually creep higher over the next two years. It also forecasts that housing construction will gradually pick up, helping inventory-starved markets.  Increased supply and modestly higher rates will moderate home price growth.  Refinance activity will drop to very low levels and the mortgage market will be dominated by purchase activity.  Outlook predicts the slightly slower growth in 2018 will return to positive growth in 2019.  They do footnote that changes to tax policy could have potentially large effects on the economy not considered in the report.
Senate Banking Committee Passes Its Own Tax Reform Bill
The Senate Banking Committee has passed a tax reform bill that varies from the bill the House passed last week.  The strange part of both tax package is that all of the hits are being taken by home owners.  Both bodies of Congress have pushed tax reform through at breakneck speeds, perhaps in an attempt to minimize the time opposition can build a case against it.  The full Senate plans to vote on the bill in the next few days. 
Fannie/Freddie Loan App Changed Again
In 2019, it will be mandatory to start using the new Uniform Residential Loan Application for Fannie/Freddie loans.  It has now grown to an astounding 17 pages.  At least 3 of the pages deal with what language the borrowers want to speak and their racial/national background and ethnicity.  The property address, which used to be at the very top of previous applications, has been relegated to page 5.  This gives insight into the politics that have moved mortgage lending from secured lending to a societal benefit.  It coincides with FHFA’s Minority and Women Inclusion Rule that took effect in August of 2017.
Walter Bankruptcy Won’t Affect Ditech
Walter Investment Management is expected to file Chapter 11 bankruptcy soon.  Fitch Ratings says, “Walter’s operating entities (including Ditech) are expected to remain out of the Chapter 11 proceedings and to continue their normal operations throughout Walter’s financial restructuring process.” Fitch says they do not expect any servicer disruptions or impact to Ditech’s bond credit risk.  In addition to Ditech, Walter is also the parent company of Reverse Mortgage Solutions. Fitch also says Walter claims to have sufficient liquidity to support both subsidiaries and the overall costs of the restructuring itself.
Default Rates on 2nd Mortgages Beginning to Edge Up
For the first time since January 2017, the default rate for autos, bank cards and mortgages all rose together according to a Standard and Poors/Experian press release.  2nd mortgages took a nasty spike up at .26 while 1st mortgages were only up .01.   The release says the data does not suggest any unusual financial stress facing consumers to explain the increase.
Banks Don’t Need Mortgages to Turn Great Profits
After the meltdown, U.S. banks pulled back from the mortgage market.  They are just too tempting a target for lawsuits and regulators.  Their diminished share of the mortgage market hasn’t hurt their profits at all.  Bank profits rose 5.2% in the second quarter of 2017 from the same period in 2016, reaching $47.9 billion, the Federal Deposit Insurance Corp (FDIC) said on Tuesday. 
Rate Outlook
Janet Yellen will be leave the Federal Reserve Bank board rather than stay on as simply a board member.  She said she will step away when her successor, Jerome Powell is sworn in.  Powell’s Senate confirmation hearing is scheduled for the 28th of this month which would mean Yellen will probably leave in early December.  Powell is considered to be a Yellen clone when it comes to monetary policy, so we should expect slow and deliberate changes.  There will undoubtedly be a rate hike in December barring some unforeseen circumstance.
Goldman Sachs and other Wall Street firms are predicting the Fed will continue to raise rates in 2018.  Most believe employment is so strong that there will be 3 or 4 increases in the coming year.
Friday, housing starts were up 13.7% from September but down 2.9% compared to October 2016.
There has been some significant economic news packed into just 3 days this week.  It started with Leading Economic Indicators on Monday jumping 1.2% increased 1.2 percent in October showing sustained economic growth.  Existing home sales rose 2%, sharper than expected.
Weekly jobless claims came in at 239,000, within the range they have been for some time. Orders for durable goods, items lasting more than 3 years, fell 1.2% vs. the expected .4% rise. That data was the only negative data this week.
The University of Michigan consumer sentiment report printed at 98.5 vs. the expected 97.9. The Fed minutes released this afternoon showed no surprises.  Everything is good on all fronts and inflation remains low.  The economy is just too good, prompting the Fed to worry that inflation will eventually break out, so they are on track for another rate hike in December.
Mortgage rates have held steady, defying the belief that inflation will recover and the Fed continuing to raise short-term rates. 

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 22, 2017