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CFPB Director Ruled Unconstitutional
In a shocking decision, the U.S. Court of Appeals, the seconnd highest court in the country, ruled that the CFPB director’s powers are unconstitutional. The court said, “The Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the President.” “The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power.” PHH had asked the court to invalidate Dodd/Frank and shut down the CFPB. Instead, the court only chose to make the CFPB Director an “at-will” employee who serves at the whim and direction of the President. The court pointed out that even Elizabeth Warren had originally proposed a commission not a single director. Overall, the court trimmed the Director’s wings a little but left most of his powers and the CFPB intact.
PHH Suit Much Bigger Than Director is Unconstitutional
The banner headline is sensational but it masks the far more important other parts of the decision. The court stopped the CFPB’s ability to look back without regard to a statute of limitations, only allowing the agency to look back three years. It also greatly trimmed the CFPB’s ability to retroactively override previous interpretations of law such as RESPA interpretations by HUD. Finally, the court looked at Section 8 violations as based on overcharges rather than simply a referral or tying agreement from a company to its affiliate where a service at market price was performed. Thus, captive reinsurance is perfectly legal and who knows how many other captive service provider arrangements. The court’s interpretation of Section 8(c) moots referrals where a service or payment is made. One point that could give us a greater voice is how the court viewed the CFPB’s treatment of its boards, as nothing more than advisory. These boards have often strongly disagreed with the CFPB but that disagreement was often simply ignored. The court spent a large portion of its opinion on enumerating the benefits of boards.
Be Ready to Use New Application on January 1, 2017
We thought we had until Jan. 1, 2018 to implement the new Fannie Mae loan application. It turns out the CFPB wants it in use much earlier. Although lenders can still use the old application, I would imagine they would try to start using it earlier to please the CFPB. Where things are found on the new form is so different it will be difficult for software vendors to have it ready as early as January.
Many Counties Will Need Damage Inspections
If you started an application prior to Hurricane Matthew and ordered the appraisal, you will likely need to get a damage inspection. ounties in at least three states are disaster areas and there may be more. You can look up by address to see if your property is affected. Most lenders will also require a borrower certification signed at closing attesting that they are not aware of any damage to the property.
Non-Bank Hiring Continues
As non-banks take a larger and larger share of the mortgage market, they are hiring. Non-banks added 900 more jobs in August according to the Bureau of Labor Statistics. This is the highest level of non-bank employment since the 2008 meltdown.
Wells Fargo CEO Decides to Retire
Wells Fargo Chairman and CEO John Stumpf is stepping down after the bank has been under wide attack for the past several weeks. Most observers believe that still will not stop the anger aimed the mega-bank. Everyone from Congress to labor activists are taking a shot at Wells. The new Chairman, Stephen Sanger, is a Wells insider who has been a director throughout the scandal which doesn’t do much to reassure dissidents that he will operate the bank differently. Wells had a number of mortgage scandals since the mortgage meltdown that have also helped to tarnish its reputation. The bank’s financial results are coming out shortly but those will mainly reflect activities prior to the scandal.
Mortgage Applications Dip
As rates took a slight bump up, mortgage applications were down a bit. Applications for the week were down six percent, driven by an eight percent drop in refinance applications. According to the MBA’s weekly survey, new home applications are up seven percent from a year ago. Most new home buyers use conventional loans with 68.8 percent of borrowers going conventional to only 17.5 percent for FHA and 12.7 percent going VA.
Banks are Ruining the Reputation of Banking
First, it was the huge subprime crisis where the big banks gave out loans like option ARMs to pad their balance sheets when consumers who hadn’t a clue about the product. Then there was robo-signing so the banks could foreclose faster. Lately, we have Wells Fargo opening accounts and charging fees consumers didn’t know about. All of that pales in comparison to the latest scandal from Royal Bank of Scotland (RBS). RBS was the bank at the heart of the LIBOR rigging scheme as few years ago. Now, they are accused of targeting small companies who had loans with them. They allegedly would do things like jack their rates up from 1.5 percent to 4.25 percent. If the business could still pay, great. They made a huge profit. If the business failed, they would scoop up the assets at a below-market price. And they wonder why people are beginning to hate banks.
CFPB Updates Compliance Guide
The CFPB has published on its Web site updated versions of the Know Before You Owe Small Entity Compliance Guide and the Guide to Forms. They list changes or updates at the beginning of the Guide. They are not earth-shattering changes, but you may want to visit the site to see what they have done.
Another Reason Renters Aren’t Buying
We’ve had lots of reasons offered for why renters don’t make the jump to homeowners. We've heard it is student loan debt, lack of job stability, families not being formed, people love their landlords and where they live, etc. NeighborWorks is throwing a new reason into the mix. They believe rents are so high that people can’t save up for a downpayment. A recent survey by the housing group found 56 percent of people said that rents are too high where they live to save enough to purchase a home.
Stating an Assumption Can Get You In Trouble
Navy Federal Credit Union was just fined $28.5 million dollars for loan servicing violations. Among the chief reasons for the fine were some statements by the CU that really could have been true. First, they told borrowers that failure to pay their debts may harm their ability to get credit. I thought everyone more or less took that for granted but the CFPB said they were no position to make such a statement. Then, the NFCU people told delinquent borrowers that they may take them to court when they usually didn’t. I wonder what the debt collectors are allowed to say, “Sweetie, would you please pay your bill?” There those who believe originators speaking to borrowers about their credit report or score is a problem. We may see that next.
The Bureau of Labor Statistics Jobs Report threw some confusion into the mix last Friday. It looks as though job creation is not exactly on fire with only 156,000 jobs created in September, about 20,000 below expectations. The headline unemployment number edged up to 5%. Since there is no Federal Reserve meeting in October so we really won’t know what the FOMC thinks about it until November. The committee will not have the October report yet when they meet in November so it is unlikely rates will be raised then.
The minutes from the September meeting revealed that 3 of the committee members wanted to raise the discount rate by .25% at that meeting. Some economists believe the slower job creation is not a big deal since they claim the energy sector was not adding but other industries were. They believe a .25% increase will have no economic effect since it had been priced in already. It seems like a foregone conclusion the Fed will raise rates in December and it won’t affect anything.
Treasury auctions this week were well-received. That is a bit strange if the investors believe rates will be higher in a month. Maybe they don’t care about a .25% differential… I doubt that.
The biggest economic news this week was the jobless claims report. It continued to dip to 246,000, well below the 250,000 marker. Employers are not letting go of employees anymore, indicating they see a good future.
Tomorrow we get the Producer Price Index, Retail Sales, and Consumer Sentiment. None are expected to be market-changers but could sway rates a little.
The Eurozone is still weak so U.S. bonds are attractive but the key to low rates is still the Fed buying mortgage-backed securities. As long as they do that, rates will be low.
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].