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News From NAMB: November 30, 2017

John Councilman
Nov 30, 2017

Top Story: Cordray Resigns, Attempts to Name His Successor
CFPB Director Richard Cordray turned in his resignation Friday.  That was expected, but Cordray also hand-picked his own successor, or at least tried to.  Cordray named Leandra English, who was the agency's chief of staff, as deputy director.  Within hours, President Trump named his own acting replacement, Mick Mulvaney, the current Director of OMB.  Cordray was relying on a clause in Dodd/Frank that he believed allowed him to appoint someone who would “serve as acting Director in the absence or unavailability of the Director.”  There is just one problem with Cordray’s stretch.  Dodd/Frank uses the term “vacancy” distinct from absence or unavailability in other places to refer to when the Director is no longer in the position.  Even Mary McLeod, the CFPB’s general counsel, wrote a memo to CFPB staff "I advise all Bureau personnel to act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB."  The Justice Department reached a similar conclusion.  Not convinced, English filed for a restraining order in federal court against Trump and Mulvaney.  The judge assigned to the case was a Trump appointee who quickly ruled Mulvaney is the acting director.  English is appealing the ruling but has little chance of success.  Meanwhile, Mulvaney ordered a 30-day freeze on hiring and on new regulations but said he has no immediate plans to dismantle the CFPB. Mulvaney intends to stay on at OMB. He said he'll split his responsibilities by spending three days a week at the CFPB and another three days at OMB.

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Why Richard Cordray Made a Huge Tactical Error
Running for governor of Ohio may be good for Richard Cordray but it may result in most of what he did as Director of the CFPB being undone.  Barney Frank doesn’t mention Cordray, but he explains why, in his opinion, the Director’s early resignation will do far more harm to the CFPB.  Allowing the President to name an acting Director that does not need Senate confirmation, allows a person to head the CFPB that the Senate would never approve.  It gives the acting Director at least 8 more months to modify the CFPB and rules it promulgates than if Cordray had stayed on.  One must wonder if Trump will want to start with CFPB employees who overwhelmingly donated to Democrat candidates.
Ginnie Mae Wants Out of HUD
Appearing before the House Financial Services Committee, Michael Bright, the Acting President of Ginnie Mae, said he believes Ginnie Mae should be removed from the Department of Housing and Urban Development (HUD) and become a standalone government corporation like the FDIC.  Bright has written about his idea that Ginnie Mae should still have a full government guarantee, but it would become more like Fannie Mae and Freddie Mac.  He likes the idea that they could pay like Fannie and Freddie and get better computers and offices.  On a side note, he says he has some concerns about the 150,000 homes damaged by floods that didn’t have flood insurance.  They are analyzing how that will be handled.
Fannie/Freddie Bump Conforming Loan Limits
The Federal Housing Finance Agency announced the new conforming loan limits for 2018.  They took a nice bump up to $453,100 from the current $424,100.  The new ceiling loan limit for one-unit properties in most high-cost areas will be $679,650 or 150 percent of $453,100.  
Banking Committee Approves Brian Montgomery
The Senate Banking Committee approved Brian Montgomery as FHA Commissioner this week, to no one’s surprise.  He now must be approved by the full Senate.  As expected, Elizabeth Warren didn’t vote for him and continues to campaign against him.  Montgomery will face some immediate problems such as the implosion of the HECM reverse mortgage program.  HUD recently took steps to stop the bleeding HECMs are causing to the FHA insurance fund.  Montgomery will have to decide if the changes are adequate, considering the furor raised in Congress when the latest FHA audit came out earlier this month.  There are many Republicans who would like to scale back government involvement in mortgages, something Montgomery faced during his last term and deftly deflected.  NAMB strongly endorsed Montgomery and is excited about working with him once again.

Appraiser Board Back Peddles on College Degree
In its 4th exposure draft, the Appraisal Foundation’s Appraiser Qualifications Board, has relented on a mandatory college degree for Licensed, and even Certified Residential Appraisers.  After many areas suffered a backlog and scalping by appraisers, Congress threatened to step in to alleviate the problem.  An AQB poll found respondents were evenly split on whether a college degree was necessary.  The latest exposure draft removes the degree requirement for Licensed Appraisers and creates a pathway for qualified Licensed Residential appraisers to obtain a Certified Residential credential without satisfying the college level education requirements.  With the increased education over the past several years, the proposal drops significantly the amount of experience hours as well.  The Appraisal Foundation Advisory Council voted to recommend approval of the 4th draft which is expected to go into effect shortly after the AQB’s public meeting February 1st, 2018 in Washington, DC.

FHFA and Trump Administration Having Disagreement
There could another showdown between the executive branch and another “independent” agency.  FHFA wants to keep about 5 billion in reserve for Fannie and Freddie from the $7.7. billion they are to pay to Treasury.  Some sources claim Republicans are also unhappy about how large the loans guaranteed by the GSEs are getting.

Another Bank Leaves Mortgage Space
American Southwest Mortgage, a subsidiary of Spirit Bank, is being sold to Mid America Mortgage.  Both companies have similar production volume.  American Southwest has had a long history of working with Mid America, using Mortgage Machine software developed by Mid America until a few years ago when Mortgage Machine was discontinued, thanks to TRID.  Mid America continued to develop software, but for its own use.  American Southwest never really got the software it needed to compete.  Mid America’s enhanced software capacity was cited as a primary driver of the sale.  As margins tighten, it becomes readily apparent that large-scale mortgage operations are simply not profitable enough for many banks.

First-Time Buyers Increase
First-time homebuyers have increased by 42% since August 2013.  That is great news for mortgages and the housing industry.  Fannie Mae and Freddie Mac are offering programs that allow borrowers to purchase with 1% and even no personal downpayment.  With credit unions and banks following suit, one of the biggest obstacles to first-time buyers has been overcome.  Qualifying ratios have been upped to 50%.  But, not everyone is happy about these programs.  The American Enterprise Institute claims the large percentage of buyers with little skin in the game increases risk.
AMC Behavior Prompts Regulations
Appraisal Management Companies are a phenomenon of the last 10 years.  HVCC and Dodd/Frank have pushed lenders to use AMCs in the name of appraiser independence.  Some AMC practices brought on a bevy of state laws regulating them but states like Louisiana, and now Utah, are writing further restrictions to curb abuses.  Louisiana wrote rules that required appraisers to be paid “reasonable and customary fees.”  The FTC claimed that was price-fixing so the Board is allowing AMCs to prove they are paying properly instead of choosing the lowest bidder and sucking up most of the fee.  Now Utah is proposing regulations that would require AMCs to give appraisers 120 minutes to decide if they are qualified to accept the appraisal.  Many real estate agents complain that appraisers are assigned by who is fastest or cheapest rather than appraisers from the area. 
CFPB Administrative Law Judges May Be History
Even if Richard Cordray was still at the CFPB, it seems agency administrative law judges may be history.  Those are the people that decide who gets fiend and how much.  The Trump Administration said it will no longer support the SEC using in-house judges, some of whom also work for the CFPB.  The Supreme Court is deciding if it will hear the case.  Under the Constitution, judges should be appointed by the President.   These judges are appointed by the chief administrative judge. 

ABA Endorses a Single Correspondent Lender
The American Bankers Association chose to select only one company to recommend to banks acting as correspondents.  The ABA says they chose Amerihome “because they offer consistent competitive pricing, as well as integrated and client-focused service, and the type of value banks are looking for.”  ABA says Amerihome approached them and their research resulted in the endorsement.  It is not clear if this is part of ABA’s paid Service Membership or an unpaid endorsement.  Amerihome is the 4th largest correspondent lender in the nation and is licensed in all states except New York.  Tells you something about the regulatory environment in New York.
Buyers Hungry for New Homes
Builders have been cautious in producing large numbers of new homes.  That has lead to buyers snapping up what is available.  In HUD’s study of October home sales, it was the best month since October of 2007 with 685,000 new homes sold interpolated into an annual rate.  That is 18.9% better than October of last year when 577,000 new homes had sold. 
Tax Law Could Harm Lender-Paid Comp
Mortgage servicer’s have discovered that a small detail in the Senate’s proposed tax law could reduce the value of mortgage servicing.  Because lender-paid comp flows from servicing revenue, anything that makes servicing less valuable, affects origination income.  The Senate bill contains a provision that would move servicing rights income to year one rather than the year the income is earned.  Mortgage servicers are frantically working to get an exemption for mortgages.  Some other provisions are losing popular support.  44% of voters surveyed by Morning Consult don’t want to scrap the state and local tax deductions or cap the property tax deduction at $10,000.  That is up from 35% one week earlier.
Bank Fined for Misleading Origination Charges
You disclose all of the fees in all of the right places at the right time and you are in the clear, right?  Not necessarily.  There is a lesson learned about discount points from a recent Federal Reserve action.  Peoples Bank of Kansas disclosed the fees accurately but claimed the discount points borrowers paid bought down the rate.  The Federal Reserve said that wasn’t the case and fined Peoples $2.8 million dollars.  Peoples is not only getting out of the mortgage business, they are being sold, so it appears they aren’t going to fight the charges.

Working with Private Investors Can Be Risky for Brokers
A brokerage in California acted as middlemen for investors whose money was then loaned to developers of residential projects.   Investors were promised 12% return on their investments and borrowers were provided loans more quickly than banks.  Real Property Lenders charged borrowers 1 to 2 percent of their loans for its fees.  A good deal for everyone, that is until the market went bad in 2007.  Builders couldn’t pay, and the investors lost money.  The investors turned on the mortgage brokers, claiming they didn’t advise them properly when builders began to default.  The case has gone to trial twice with juries unable to agree on a verdict.  Who knows how much the legal fees have been, but a good guess would be in the hundreds of thousands of dollars.

NAFCU Says Too Much HMDA Data Is Public
The National Association of Federal Credit Union (NAFCU) is asking the CFPB to exclude more HMDA data from public disclosure.  The Bureau intends to make HMDA data scrutinizable to the loan level.  NAFCU writes, "HMDA's statutory purpose does not specify that the public should be able to dissect every aspect of a lender's underwriting process, and while NAFCU understands that transparency is valuable, there is a point at which the risks to privacy outweigh the benefits of expanded disclosure."  In the wake of the Equifax breach, NAFCU also cites security concerns.
Michigan Company Offers Underwriting Assist Tool
As most of us know, the Detroit area is not just the home of the big car companies.  It is also the home of a lot of major mortgage lenders like Quicken, United Wholesale, Flagstar, and quite a few others.  It is little wonder that it also spawned a company that offers an automated underwriting assist, Uber Underwriter.  UU has launched a blog that is full of useful information that can be used by originators, processors, and underwriters that can help you navigate Fannie/Freddie loans.
HomeStreet Bank Chastised for Mortgage Participation
HomeStreet Bank, one of Washington state’s largest banks, has always been very heavily into mortgages.  One of its largest shareholders blames HomeStreet management for lower profits due to its devotion to mortgages.  It is true that banks are turning higher profits as they move away from mortgages to more lucrative commercial banking.  Even HomeStreet has dropped from 100% to 44% of its income being from mortgage banking in just 5 years but not fast enough for some.
Equifax Remains Only Supplier of Automated Employment Verification
Although Fannie Mae has signed up quite a few vendors to provide automated data validation, all of those providers must validate employment manually or through Equifax’s Work Number with a few exceptions.  With all of the issues associated with Equifax, one would think Fannie and Freddie would want to also create their own employer portal.  If they choose not to do so, there seems to be a large window of opportunity for others playing a minor role to develop an employer portal.  Those who are providing data to Equifax must use a protocol that should be easily pointed to other data vendors by employers.  As Equifax continues to hike its prices, there could be growing interest.
How to Respond to a Complaint in the CFPB Database
Hopefully, you or your company will never have a complaint that is registered in the CFPB complaint database.  But, some consumers are simply unhappy no matter what you do.  The CFPB considers the appropriate handling of consumer complaints a foundational pillar of your Compliance Management System.  The CFPB requires certain steps for handling complaints in the Company Portal Manual.  Jonathan Foxx of Lender’s Compliance Group posted a look at what the CFPB expects of those who find they have a complaint in the CFPB’s database.  Many states are now requiring a formal policy in their audits as well.
Should the Government Have to Pay When It Loses a Case?
One of the reasons so many companies settle with the government, is the cost of litigating against the government.  The government can spend unlimited amounts of money in its quest to prosecute or fine a company or person.  In an interesting twist, a Colorado court ruled that the state is going to have to pay for a company’s legal fees when they failed to prove their case.  The state of Colorado had sued Castle Law, a local law firm that handled foreclosures, saying they didn’t do their job, allegedly causing problems for homeowners and lenders.  It appears the case was so flimsy that the judge not only ruled against the state, it is forcing it to pay millions of dollars in legal fees the law firm incurred.  I wonder if the CFPB will have to pay for any of the cases it brought and lost?  Probably not.
Rate Outlook
Rates have been holding remarkably steady considering mostly positive economic news.  The continued flurry of positive economic news is pushing rates up a little but not as much as one would expect.  John McCain said today he will support the tax reform bill which has caused rates to take about a 3/8 point hit and stocks to jump well above 24,000.
Treasury auctions this week showed investors don’t want lower-return notes.  The 2-year note auction was weak.  5-year notes, drew demand near average with good foreign demand.  7-year notes went back to having weak demand.  There doesn’t seem to be a pattern.
Gross Domestic Product continues to outperform previous years, coming in at 3.3% in the 3rd quarter, much better than expected.  2nd quarter GDP was revised upward to 3.1%.  PCE prices increased 1.5% in the 3rd quarter, giving a hint of inflation.
New home sales continue to improve at 685,000 vs. the expected 629,000.  Prices for homes continue to rise.  Case Shiller reports a rise of 6.2% because of low rates and limited inventory.
Consumer sentiment continues to be strong.  Experts predicted a fallback to 124 after last month’s report of 126.2.  Instead, they got a giddy 129.5, the highest reading since 2000.
The Fed’s Beige book, which measures economic activity, says wages are beginning to show growth and prices for raw materials are increasing.  That could a sign of inflation or simply a response to the huge amount of materials needed to repair hurricane and fire damage. Weekly jobless claims remain about the same at 238,000, as expected.
Personal income rose .4% and PCE Core Inflation was only up .2%.  All of this good news and no inflation.  Economists are stumped.

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 30, 2017