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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Why Spend so Much Time on PHH Case?
Everything we do, from how we deal with clients, to how we underwrite loans, how we service loans, how we are paid, to even the new loan application, are dictated by the CFPB and Dodd/Frank. The CFPB essentially sets our day-to-day activities. This is the most prominent decision by an appellate court on significant legal and procedural issues raised by the CFPB. Cases like this have the power to make major changes in our lives and our career. It is only fitting they be given a full look.
CFPB Likely Not Through with PHH Case
Although the CFPB has not said whether it will appeal the decision in the PHH case, most observers are quite certain this battle is not over. The first thing the CFPB could do is ask for an “en banc” review. That would be a review by the judges of the entire D.C. Circuit. One should note that all three judges on this case were Republican-appointed judges, a minority on the D.C. court, and that the ruling was only a 2-1 decision. If one of the judges had gone the other way, it would be totally different. If the result is still the same, the CFPB can appeal to the Supreme Court. Even though it was a 2-1 decision on constitutionality, it was a unanimous decision on the statute of limitations. The full court could possibly rule that further restrictions on the Director’s power are warranted, which may give the CFPB a fear to appeal.
Will PHH Case Reopen Settlement Agreements?
There are some attorneys who would like to try to reopen settlements with the CFPB that were based on claims that were beyond the 3-year statute of limitations. These lawyers believe if the Director had unconstitutional powers, the agreements can be challenged. Most lawyers disagree. They say settlement agreements are contracts. We wouldn’t want the CFPB to come knocking at your door after you settled because a court ruled something was actionable that wasn’t charged under one of these agreements.
Could FHFA Director Be Unconstitutional Also?
Sometimes we open a can of worms when we take things to court. Indeed, the CFPB did just that with the PHH case. It may not only affect the CFPB but the few other single-director agencies in the federal government. The one most likely to affect the mortgage industry is the Federal Housing Finance Agency (FHFA) that controls Fannie Mae and Freddie Mac. Like the CFPB, it was established in response to the mortgage meltdown. Its Director can only be removed for cause, something similar to the CFPB. The lead judge in the PHH case intimated that the FHFA Director may well be unconstitutional. He stated, “The CFPB cited Congress’s 2008 creation of a single head of the new Federal Housing Finance Agency. See Housing and Economic Recovery Act of 2008, Pub. L. No.110-289, § 1101, 122 Stat. 2654, 2662 (codified at 12 U.S.C. §§ 4511-4512). That agency is a contemporary of the CFPB and merely raises the same question we confront here.”
What Effect Will PHH Case Have on the CFPB?
If the PHH case stands, it will have some very profound effects. First, it will stop the CFPB from having such large settlements because they will only be able to look back 3 years, not into practices before the 2008 financial disaster. That will give them far less leverage. Section 8 violations will become more scarce based on the court’s interpretation of 8(c). Finally, the big one, rule-making by enforcement, will essentially end. They will have to give notice that they are going to change the current interpretation of a law, and then only bring actions after the published change to the current interpretation. Rob Chrisman gave us some interesting initial responses from major legal experts on his October 15th newsletter.
Hensarling Jumps on CFPB Ruling
House Financial Services Committee Chair, Jeb Hensarling, has just written to Richard Cordray to ensure that the CFPB will comply will all executive orders. One in particular, cost benefit analysis before passing any rule, is on Hensarling inquiry list. The CFPB would also have to consult with state and local regulators before writing new rules. Cordray has not responded to Hensarling.
Another Potential Landmark Case is Coming After PHH
Another case challenging CFPB authority and rules that has had a bumpier ride could cause significant changes to the CFPB. State National Bank of Big Spring v. Lew also strikes at the constitutional core of the CFPB and Dodd/Frank. It was put on hold until the PHH case was finished. Amazingly, it has one of the same judges hearing it that produced the PHH decision. It should not be lost on watchers that the person speaking for the D.C. Circuit Court of Appeals is Judge Brett Kavanaugh, who has taught Separation of Powers at Harvard Law School each year from 2008 to 2015. We can hold our breath as Big Spring and 11 states take on the CFPB in what could be another landmark case.
Nonbank Servicers Now Have Over 50% of Ginnie Servicing
As banks shy away from FHA loans, nonbanks are filling the gap. According to Inside Mortgage Finance, nonbanks now hold over 50% of Ginnie Mae servicing which is made up primarily of FHA and VA loans. Nonbanks are also taking a hefty share of Fannie and Freddie servicing. But, don’t count the big banks out. They increased their servicing by 2.2% in the 3rd quarter.
First-Time Buyers Drive Up Home Sales
Existing home sales were up nicely in September according to the National Association of Realtors. The big driver was first-time buyers who made up 34% of existing home buyers. That is the strongest level in four years.
The Argument Against Putting HOA Dues on Credit Reports
Several weeks ago we reported that Equifax would be including HOA and condominium dues and assessments for those HOAs who wanted to participate. Already, there are those who say this is a bad idea. The issue of whether HOAs are subject to the Fair Debt Collection Practices Act is far from settled. Courts have ruled both ways. We do know that HOA expenses are likely to go up since volunteers would have to keep accurate records and ensure that the data they were disseminating was accurate or hire professionals for the reporting.
Utility Bills May Be Coming to the Internet
UtilityScore is being picked up by ATTOM, the new name for RealtyTrac. While it will not have data from individual utility bills, it will make an estimate for the area based on utility rates, home size, age, climate, etc. It will include electric, gas, sewer, and water estimates. Since utilities are as big or bigger part of home expenses than even real estate taxes, we may see that begin to be factored into underwriting.
USDA Still Several Years Away From Delegated Underwriting
We reported several months ago the Congress had passed the Housing Opportunity Through Modernization bill that gave FHA direction to liberalize condo requirements. I pointed out that the bill also contained provisions for delegated USDA RHS underwriting. In an interview with National Mortgage News, Joaquin Tremols, the go-to man at RHS, said " We are very excited about that new authority." But the wheels of RHS move very slowly, even when excited. Tremols went on to say he would like to see the roll-out of the delegated underwriting program by the end of 2018. It appears RHS needs $2.5 million in new technology to implement the program and they want to go to Congress to get funding rather than fund it internally.
Would GSE Risk Sharing Endanger Small Lenders?
Scott Olson, executive director of the Community Home Lenders Association, says having a PMI policy sharing some of the risk with Fannie and Freddie could harm smaller lenders. Olson is worried that PMI companies would give mega-lenders discounts on the insurance, disadvantaging smaller players. Olson doesn’t seem to mind “back-end” risk sharing where the lender itself shares in some of the risk if the loan defaults. One would think larger lenders would have a huge advantage there in being able to stand behind product they originate that smaller lenders would not. It is always hard to keep the biggies from taking over everything. That is U.S. history. Just read about the J.P. Morgan the original super-banker.
Wells Fargo Puts Mortgage Chief in Charge of All Loans
Franklin Codel, Wells Fargo's head of mortgage lending, will assume expanded responsibilities overseeing all consumer lending. Codel had just replaced previous mortgage head, Mike Heid, in August. Heid, who retired after 28 years with the bank, had seen Wells’ share of the mortgage market drop precipitously. The bank is reorganizing the leadership of most of departments and clawing back money from some top staff who should have never let the most recent scandal happen.
Caliber Claims #2 Spot
Inside Mortgage Finance says Caliber Home Loans is now the #2 wholesale mortgage lender in the U.S. behind United Wholesale. It is one of the few wholesale lenders showing growth in 2016. Caliber is still only 13th in the nation when all mortgage originators are considered.
Immigrant Homeownership Rate Increasing
Many groups and politicians have decried the dip in homeownership which has dipped to the lowest levels ever. However, immigrants are one group that is choosing to buy a home. The homeownership rate for natives is about the same as it was in 1984. But, immigrants have edged up from 48.1% to 50.5%. It could be because mortgages have become more immigrant-friendly. The trend seems to be upward, a good tip for originators.
Most Banks Reporting Sizable Profits
Wells Fargo turned in solid profits for the 3rd quarter, driven by strong mortgage earnings. Little wonder they put the man in charge of mortgages in charge of all lending. Next quarter will tell if the cross-selling scandal has hurt the bank. Some areas like new bank accounts are already showing some hits. Chase also beat expectations. Citi was the big loser of the day, with mortgage earnings down 30% from last year. If you can’t make money in mortgages now, you may want to rethink being in the business. Surprisingly, Citi still beat expectations.
Student Loans Growing and Re-defaulting
Student loans have now surpassed credit card and auto loan debt. As student debt rises, so does delinquency. This is particularly problematic because your student loan never goes away and is not dischargeable in bankruptcy. The government lets people who default renegotiate the payment to a much lower amount to keep an insurgency down. Still, defaulters often re-default, even with a lower payment. The problem is that now Fannie Mae and FHA want the debt to count as though amortized, not at the current payment, stopping many people from getting loans. All of this is not lost on the CFPB as their complaint database is getting an increasing number of complaints.
Ditech In a State of Flux
David Schneider, Ditech president and the architect of wholesale, just turned in his resignation. It is unknown if that will change Ditech’s commitment to the wholesale channel which Schneider just restarted. Ditech just entered the wholesale mortgage business this summer as it moved out of retail branches. Its parent, Walter Investment, has gone through 4 CEOs this year trying to gain traction. Schneider had been hired by a previous CEO. CEOs like to pick their own people.
Does Your Company Have a URSIT Rating?
That is short for Uniform Rating System for Information Technology. It was first implemented in 1978 and has been updated over the years. What is new is that the Federal Reserve has just published proposed rules that would make anyone who provides services for a bank, mortgage brokers could be included, must be URSIT compliant. In its latest proposal, the FRB wants significant nonbanks and those providing services to them to be compliant. One must consider how long it will be before the CFPB mandates the same for all nonbanks. That means you will likely have to have a written URSIT rating compiled and monitored by an IT expert if this goes as planned. The cost to do mortgages just continues to go up.
Rate Outlook
Rates gave been edging up slightly and are now at levels just prior to Brexit. They are still very good and look to stay that way, at least until the election. Even then, with odds of a Clinton victory, it is believed things will be similar to the Obama administration.
This past week brought us the 2 most important barometers of inflation, the Producer Price Index and the Consumer Price Index. The PPI as up .3% with the core up .2%, a little better than expected. Then, the CPI showed a ,3% increase with the core up .1%. Both show moderate inflation, enough to justify the Fed raising rates.
Retail Sales did well, up .6%, which was expected as we approach the holiday seasons. Builders were a little less bullish, claiming foot traffic was down somewhat. Industrial Production was up slightly at .1% and Capacity was the same.
New weekly jobless claims moved back up a little, coming it a 250,000, right on the marker for the bottom of the range.
Tomorrow has no major economic news, so rates are not likely to have major changes.
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].
