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News From NAMB: October 19, 2017

John Councilman
Oct 19, 2017

Top Story: Cordray May Be Stuck At the CFPB
After playing footsie with Republicans about running for Ohio governor, Richard Cordray may stay at the CFPB until his term expires in July of 2018. One of the state’s most recognized Democrats, Ohio Supreme Court Justice Bill O'Neill, said he's leaning toward entering the 2018 Democratic gubernatorial primary, with a final announcement coming on the 29th of this month. O'Neill must retire from the court next year because of age limits. He has said he wouldn't run for governor if Richard Cordray, the director of the Consumer Finance Protection Bureau, enters the race. But he said Saturday that he has "grown impatient waiting for Richard." If Cordray doesn’t leave, President Trump may fire him.

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NAMB National Was HUGE!
What an event!  With over 3,700 registered compared to 2,700 last year, NAMB National in Las Vegas was a giant event. The exhibition floor featured over 110 exhibitors, up from 80 last year.  The parties were sensational. I’ve never seen so much wonderful food as Franklin American provided. Everyone also raved about PRMG’s event at the Voodoo Lounge. REMN had a party right in the exhibit hall and voice star Ddendyl Hoyt wowed attendees, courtesy of FirstFunding. The lunch with Anne Coulter sold out. For me, the highlight was the closing party with Foreigner lead signer Lou Gramm. Hit after hit with an incredible back-up band. We loved it! Don’t miss next year Dec. 8-10, 2018 at Caesar’s Palace.

Carson on FHA
In his testimony before the House Financial Services Committee, Housing and Urban Development Secretary Ben Carson did field some questions on FHA.  The written testimony was brief but the questions became fiery at times.  Congresswoman Beatty asked about cuts to FHA premiums.  It unfortunately devolved into an unproductive parley that never answered the question, although Carson said he would answer it.  Rep. Sherman also asked about the FHA premium rollback but only received an answer indicating it was HUD’s position to make homeownership affordable.  It is clear that Chair Hensarling wants to limit the size of FHA insurance.  Carson reassured him that 95% of FHA loans are in the $200,00 range.  Rep. Heck asked Carson if HECMs should be removed from the Mutual Insurance Fund.  Carson responded it would be a “worthy pursuit.”  MBA supports that move.  One question from Rep. Royce dealt with the idea of co-insurance to reduce FHA’s risk.  Carson responded that FHA is looking into that.  The question is whether investors would be willing to pay as much for loans with insurance other than that of the federal government.

Carson Attacks False Claims Act Use
Housing and Urban Development Secretary Ben Carson’s testimony before the House Financial Services Committee at the end of last week held at least one surprise.  The vast majority of lenders who have made FHA loans seem to have been second-guessed as to whether they followed FHA guidelines.  Somehow, it became twisted into those guidelines being hard and fast rules that resulted in huge fines.  Although he is late to the party on False Claims Act relief, Carson stated, “We are already addressing that problem [of how the Act has been used]; our staff, along with the DOJ staff. And we’re committed to getting that resolved, because it’s ridiculous, quite frankly.”

Equifax Work Number Also Likely Compromised
When it rains, it pours.  Tech experts believe that not only was Equifax’s credit bureau hacked, but they believe The Work Number has also been hacked.  One expert says The Work Number relies “on horribly weak authentication for access to the information.”  If access to The Work Number and similar databases becomes greatly restricted, it could be a blow to automated services being offered by Fannie Mae and private services such as Rocket Mortgage.

Are Social Security Numbers Any Longer Useful Validation Tools?
With Equifax being hacked, social security numbers along with the names and addresses of the individuals associated with them could be easily publicly available.  This brings us to the question as to whether social security numbers have any use as a security measure.  The Trump administration is exploring ways to replace the use of Social Security numbers as the main method of assuring people’s identities.  “I feel very strongly that the Social Security number has outlived its usefulness,” says Rob Joyce, special assistant to the president. “Every time we use the Social Security number, you put it at risk.”

Banks and Credit Unions Push for GSEs to Stop Sweep
National Association of Federally-Insured Credit Unions (NAFCU) and the Independent Community Bankers of America (ICBA) wrote a letter to FHFA Director Mel Watt advising him to stop the sweep and let Fannie and Freddie rebuild capital.  They are only asking for a modest buffer, perhaps enough to operate for a quarter.  Meantime, the hedge funds that bet on Fannie/Freddie recapitalization are appealing to the Supreme Court.  Their argument is based on whether FHFA can always avoid the courts.  The DC Court has differed from 2 other appeals courts on this issue.

Tax Proposals May Impact Real Estate Values
The Trump administration is proposing several tax law changes that could impact real estate values.  Increasing the standard deduction, in itself, would make it far less attractive to itemize and benefit from the mortgage interest deduction.  This would make it less attractive to buy a home rather than rent, even if the MID is retained.  The second, and perhaps even more damaging aspect, would be to eliminate the deductibility of local real estate taxes.  As real estate taxes continue to escalate, losing this deduction would act as an increase in tax revenues to the federal government and increase the overall tax burden, despite doubling the standard deduction.

Rapid VA Refis May Harm FHA and USDA Loans Too
The Securities Industry and Financial Markets Association (SIMFA) is very concerned about the rapid refinances of VA loans in Ginnie Mae pools.  The association wrote, “Based on research by our members, it appears that borrowers are being put into higher interest rate loans and quickly refinanced into lower interest rate loans.  We are concerned that these activities may negatively impact VA borrowers and believe they have negatively impacted the mutual funds, 401k plans, and other savers invested in Ginnie Mae MBS.  If the cost of funding loans through Ginnie Mae MBS increases, the cost of mortgage loans increases for FHA and RHS borrowers, in addition to VA borrowers.”

Why Are G-Fees Still So High?
With mortgage delinquency rates at historical lows, we would expect that the fees charged by Fannie and Freddie to Lenders and passed on to consumers for mortgages, would be down, not up, reflecting this decreased risk.  With homeownership near all-time lows, one would think these add-on fees could be reduced, if not eliminated.  All other bailouts combined had a $7.51 billion net profit (1.73% ROI); the GSEs' net profit is $270 billion (62% ROI).  Since all of the profit from the GSEs goes into the Treasury, this is essentially an unwarranted tax on homeownership. 

Ocwen Dumps Wholesale
Subprime servicer Ocwen faced actions from the CFPB and thirty state mortgage and banking regulatory agencies and two state attorneys general.  They told Ocwen they were taking regulatory actions against the company, alleging various deficiencies in Ocwen’s compliance with laws, regulations and licensing requirements.  Many have now settled.  Earlier in 2017, Ocwen exited the correspondent channel.  In August, they said they were expanding wholesale.  Suddenly, in their latest 8K filing, the company said they were out of wholesale altogether; not enough profit.  It is surprising that brokers were sending loans, considering the negative publicity.  Ocwen will remain in retail origination and reverse mortgages.

First American Says It Can Reduce Appraisal Time By 20%
First American Mortgage Solutions is offering “smart” valuation, which seamlessly integrates big data, mobile technology and reconfigured workflows.  By giving appraisers all of the research in one package, early metrics demonstrate a 16 to 20 percent reduction in appraisal turn times, along with improvements in quality.  In addition, using ACI Sky technology, it is moving the back-end quality control process to data validation at every step.

Huge Security Hole Discovered in Wi-Fi Networks
Most mortgage companies have gone to wireless networks to avoid the expense and tethering of wired networks.  Unfortunately, Wi-Fi broadcasts sensitive information into the airwaves, making it potentially vulnerable to hackers who can pick up the signal.  Wi-Fi security, such as WPA2, is used to encrypt data that was thought to be totally secure.  A new weakness has been found, nicknamed KRACK, that allows attackers to read information that was thought to be safely encrypted and even put malware on devices and servers.  Windows and Apple claim they have fixes for it.  But many devices do not yet have a patch.  Google says it will not have a patch for Android until November 6th.  Some security providers, like Norton, are advising using Virtual Private Networks (VPNs) but they can greatly slow down data and some sites won’t let you on if they don’t recognize you.

Quicken Adopts E-Note Technology
E-notes are hardly new but it is always newsworthy when a major lender like Quicken adopts new technology since it pushes the rest of the industry to follow.  United Wholesale completed a totally digital closing back in July.  As we all know, notes were lost in the last mortgage fiasco.  E-note technology stores enforceable notes in an E-vault where they will never be lost.  Quicken is using eOriginal, a Baltimore-based provider of digital products for the financial services industry.  eOriginal claims their platform can leverage any loan origination system (LOS) or document preparation provider and is designed to be extensible as lenders complete their digital transformation.  Earlier this year, Fannie Mae moved billions of dollars of assets to enable the secure management of eNotes throughout their lifecycle using eOriginal.

MGIC Reports Big Profit
MGIC, the PMI giant, had a very good quarter, beating all estimates.  With low-downpayment loans being very popular, PMI is writing a lot of loans at a good rate.  Defaults are near non-existent, making PMI premiums almost pure profit.  This resulted in third quarter of 2017 losses of only $29.7 million, compared to $60.9 million in the third quarter of 2016.

Texas Is Hottest Single-family Housing Market
According to a new report from Ten-X, Texas has the top 3 spots for single-family real estate.  The top five markets, in order, were San Antonio, Fort Worth and Dallas, Texas, followed by Columbus, Ohio and Tampa, Florida. Each region experienced strong buyer demand, home price appreciation, strong affordability, and economic and demographic growth.  The three Texas cities saw double digit home price gains, yet they remain very affordable areas to buy homes.  It remains to be seen what impact Hurricanes Harvey and Irma will have on construction labor forces and housing inventory in Texas and Florida.  Meanwhile, Southern California and Northeast markets continue to cool due to soaring prices and low inventory, which keeps homeownership out of reach for many first-time buyers."

Florida Homeowner’s Insurance Remains Intact
As most Floridians know, nearly all of the homeowner’s insurance companies in the state are small and not rated by A.M. Best.  They rely on reinsurers and on catastrophe bonds to pay when these little companies can’t.  As Hurricane Irma approached, it looked as though these little companies and those who reinsure them may get wiped out.  The good news is damage was not even close to what was projected.  Unfortunately, the scare may cause insurance rates to rise sharply in Florida.

Bank Regulators Waive Appraisals in Disaster Areas
The Federal Reserve Board, FDIC, NCUA and OCC are allowing banks and credit unions to extend credit for real estate transactions without an appraisal if lenders document the property value to support the value.  The waiver apply to transactions in areas of Florida, Georgia, Puerto Rico, Texas, and the U.S. Virgin Islands and expire three years after the date the president declared each area a major disaster. 

Rate Outlook
Janet Yellen is not out of the running for another term as chair of the Federal Reserve.  President Trump plans to interview her this week about the possibility of staying on.  Yellen is only one of a number of people who have been mentioned as contenders for the position, including National Economic Council Director Gary Cohn, Federal Reserve Bank of Minneapolis President Neel Kashkari, Fed Governor Kevin Warsh and economist John Taylor.
Meanwhile, the Federal Reserve has started its taper of buying mortgage-backed securities.  Purchases will be limited to 9.7 billion for the October 16-27 period.  That is down about $4 billion from previous periods.  It is too early to tell the impact.
This week the big news was weekly jobless claims.  It appears very few people are getting laid off.  First-time claims came in at 222,000, the lowest level since 1973.  Economists are explaining that the hurricane recovery created many jobs, some possibly temporary.
Most of the other economic news for the week was good, for the economy but not particularly good for rates.  U.S. industrial production rose .3% in September despite disruptions caused by major hurricanes.  NAHB Housing Index, which measures builder sentiment, was up to 68 from 64.  The Philadelphia Fed survey, an indication of manufacturing activity in the all- important Mid-Atlantic region, printed at 27.9. Traders were expecting a read of 20.  Very hot.
There were two negative trends.
Leading Economic Indicators (LEI) fell 0.2%. Economists’ expectations were for LEI to rise 0.1%. Housing starts decreased 4.7 percent and permits dropped 4.5%.  Some of this can be attributed to the hurricanes but some worry we may be seeing a new-home slowdown.  The good news is single-family home starts were up 1.7%.
With stocks above 23,000, it is surprising bonds have done as well as they have.  But, inflation is dead and that trumps stock competition.  Right now, we about ½ point worse than the best levels of the month, trending toward rate improvement.

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].

Oct 19, 2017