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HMDA Shows Nearly Half Applications Rejected
We often look at how many applications were made to see how mortgages are doing. HMDA data just released shows that 12.1 million made application but only 7.4 million resulted in a mortgage. We often wonder why originators must get commissions in the thousands of dollars. The reason is many loans they work on never close, not to mention the sales effort on loans that eventually go elsewhere. The HMDA data still reveals black and Hispanic borrowers are rejected at a higher rate than whites and Asians.
False Claims Now Catching Smaller FHA Mortgagees
Now that the big banks have nearly all been milked for alleged FHA violations, the Department of Justice is going after the smaller players. Two Utah lenders, Primary Residential Mortgage and Security National Mortgage, agreed to settle rather than spend the huge amounts of legal fees to fight. Primary has agreed to pay $5 million and Security National $4.25 million dollars. DOJ listed violations that include not documenting income or assets, not verifying an earnest money deposit, and giving a loan to a borrower who was delinquent on federal debt, along with other violations. Isn’t it is strange that 2 lenders from Utah were hit at once when there are so many FHA Mortgagees?
New York Investigating Caliber’s Subprime Originations
The New York Department of Financial Services has requested information about mortgages Caliber Home Loans has begun writing to borrowers who have subprime credit. Caliber will consider borrowers who have filed for bankruptcy or been foreclosed on but are repairing their credit histories. New York is also looking into loan servicing complaints about Caliber that are sparking the inquiry into Caliber’s move into subprime.
Quicken Economist Says Branch Loan Officer is Dying Profession
Quicken Loans’ chief economist, Bob Walter, told NerdWallet, “I think that branch loan officer is a dying profession.” Walter was specifically alluding to the loan officer who takes loans for a bank branch. Walter believes banks are not espousing technology like Quicken’s Rocket Mortgage and not offering a variety of programs causing them to lose market share to non-banks. Walter says Rocket can instantly verify employment and income for more than 60% of workers and download asset statements from 95% of U.S. financial institutions. Combined with eSignature and custom pre-approval letters, Rocket makes things easier and more certain for borrowers. Walters believes that is what borrowers want more than talking to a person at the local bank branch.
Brokers, Consumers Lose Out Under Dodd/Frank
As we all know, Dodd/Frank capped broker compensation at 3% and that is not of the loan amount. It is 3% of the loan amount less certain costs. A recent study by the Urban Institute shows that average originator company profit is about 3.2% and as was a much a 5% during years like 2013. As bad as that is for brokers, consumers are paying even more dearly for Dodd/Frank. Prior to the law, originator profitability was less than 2% so it looks like Dodd/Frank is costing consumers $20 to $30 billion dollars a year and in peak years, $100 billion or more. That is more than Fannie and Freddie took as draws which they paid back anyhow. Look at page 13 of the study.
FHA Lender Gets in Trouble Over Downpayment Assistance
With the growing interest in whether a lender can get in trouble for linking with communities to provide downpayment assistance, the Evergreen case we reported earlier needs a second look. Evergreen was cited by the HUD Office of Inspector General for operating an improper downpayment assistance program. Fourteen borrowers received downpayment assistance ranging from about $7,500 to $25,000 from a City of Las Vegas program. The assistance came with a repayment clause that required repayment to the City of an amount equal to the current market value of the property less costs if the borrower sells or leases the property. 24 CFR 203.41(d) prohibits communities from requiring any more than the amount of the assistance be repaid. So far, OIG has not brought any actions based on lender-paid downpayment assistance despite the OIG saying it is improper.
Surprise! Banks Are Lending Again
Perhaps it comes as no surprise to those of us who originate loans since we know who has scooped up the jumbo mortgage market. Because these loans are so large, banks now have 34% of the market, not far behind the 43% Fannie and Freddie hold. The interest rate banks charge is often lower than the GSEs and they have little or no competition besides each other. This data comes from page 8 of the Urban Institute’s huge statistical study.
Compliance Automation Gets Huge Boost
A lawyer friend told me that as long as there is RESPA and TILA, he would have plenty of work. Perhaps not if IBM has its way. IBM just bought leading compliance firm Promontory, a firm so “prominent” that it has been dubbed the industry's "shadow regulator." The firm’s bevy of former regulators and lawyers will teach IBM’s proprietary software how to make loans comply. It’s kind of like saying LOs will be replaced by computers, something that has never come close to happening. IBM says it will do for mortgage compliance what it has done for automated medical diagnosis software. Based on that, I’d say compliance officers are pretty safe.
BB&T Latest Bank to be Fined for FHA Violations
The Department of Justice has fined yet another bank for violations of FHA rules under the False Claims Act. BB&T has agreed to pay $83 million for claiming it adhered to FHA guidelines when DOJ claims it did not. DOJ uses the threat of treble damages to push banks to pay up or possibly pay an even bigger fine with huge legal fees. I am told none of this money goes to the FHA fund but DOJ really doesn’t say much about where the money goes.
Waters Calls for Breakup of Wells Fargo
Ranking House Democrat Maxine Waters says she is going to pursue legislation to break up Wells Fargo. Another California Democrat, Brad Sherman, said, “This bank is too big to manage and it’s time to break them up.” If Wells were to be broken up, it would have a significant effect on the mortgage market since Wells remains the nation’s largest mortgage lender. The House and others have warned Wells that the investigation is just beginning.
FHA Appraisers Will No Longer Test Appliances
Appraisers complained that they are not home inspectors. FHA agreed. So, appraisers are now only required to make sure that certain appliances that contribute to a property’s market value are physically present. Appraisers are not required to operate those appliances to see if they work. I guess having a college degree to be an appraiser isn’t enough for you to be able to operate a dishwasher. Can you say, “Let’s visit the junk store?”
CFPB Officially Blesses New Loan Application
Lenders will be considered to have met their obligations under Regulation B and Regulation C when they use the new Loan Application. The CFPB is considering it to be a violation to use previous versions of the form instead of the new one coming out in January of 2018.
Latest HMDA Data Shows Some Racial Improvement
Although the HMDA data released by the Federal Financial Institutions Examination Council (FFIEC) is only for 2015, it will be poured over by those reading it so we had better pay attention. The good news is that purchase loans to black borrowers increased 4.9%. White Hispanic borrowers were up .4% but Asians were down .2%. The news that will likely affect regulations is that black and Hispanic borrowers were much more likely to be declined than white borrowers. Higher-priced loans dropped several percent, not much interest there. High-cost loans are virtually non-existent.
Federal Reserve Not Satisfied with HMDA Racial Improvement
You can just about always find a way to paint things negatively and the Federal Reserve isn’t impressed by the increase in mortgages to black borrowers. They see it as just an uptick in a downward trend for approvals to black borrowers since 2006. It is true that blacks are down from over 8% in 2006 to below 6% in 2014. (The FRB ignores the continued improvements in 2015). The study draws the conclusion the problem is credit scores rather than income.
Second Homes Are Hot
There are lots of opportunities to both refinance and finance purchases of second homes. Second home values have skyrocketed, up 28% since 2014, giving people opportunities to refinance out of PMI and get lower rates. About a year ago, Fannie Mae clarified that simply because a borrower counted rental income from their second home, doesn’t make it an investment property. This often killed refis of second homes. They still can’t count the rental income but borrowers can refi at much lower second home rates.
Deutsche Bank On the Ropes
The bank that loved Ameriquest and other subprime loans is running out of money. The U.S. Justice Department wants to fine Deutsche Bank $14 billion for securities violations but the German super-bank may not have enough to pay it. The options are Deutsche not paying the full payment on its debts, trying to raise capital, or a German government bailout. The German government says it won’t bail the bank out and who would want to invest in the bank? That means some kind of “bail-in” or default on some debt. There are those who think if the bank failed it could take down the German economy and possibly dismember the Eurozone and even cause Chinese banks to fail. Not good news for the financial markets. It looks like DOJ may take $5.4 billion considering the bank’s circumstances. The bank has even spilled into the presidential race because Hillary and Bill Clinton were paid nearly $1 million dollars to speak by the bank. Trump’s financial-disclosure filings show that Deutsche is the creditor on four of his companies' 16 loans, with principal totaling roughly $360 million.
Know Thy Realtor. Who are They?
Probably to no one’s surprise, there are a lot more women Realtors than men. NAR says 62% of Realtors are female. The typical Realtor is a 53-year-old woman. 81% of Realtors own their home so they believe in home ownership. 74% are full-time. 14% if their business comes from past clients and 18% from referrals. That is only 32% of their business. Do you think they would appreciate a loan originator who sends clients their way?
This is the week when the most important piece of economic news is released, the Bureau of Labor Statistics Jobs Report. There is no Federal Reserve meeting in October so it will not trigger a hike in short-term rates, no matter how good. The next FOMC meeting in November 1,2 and then in December 13,14. It seems unlikely the Fed would raise rates in November for several reasons. First, it is too early in the month to get any reports. Secondly, the Fed normally tries to be apolitical. They don’t want to be seen as trying to influence an election.
Just because the Fed isn’t meeting this month doesn’t mean economic news won’t have an effect on rates. A very strong jobs report could drive rates up and a very poor report could push them down a little. We are pretty much bottom surfing so the pressure is to raise.
So far this week, the ISM Index which measures manufacturing, showed some improvement from August, as expected. Construction spending fell in August for the second straight month to its lowest level since December 2015. This was surprising since active home building was hoped to have pushed economic growth in the third quarter. The future looks more promising with Factory Orders rising 0.2%, near expectations. ADP’s jobs report was underwhelming with only 154,000 added to payrolls. The US ran a trade deficit of 40.7B vs. the expected $39.1B.
Jobless claims broke an important psychological barrier, coming in at 249,000, just a hair below 250,000. That indicates people are not being laid off. We will have to wait until tomorrow to see if a significant number of new jobs are being created.
Consumer Credit and the BLS jobs report come out tomorrow. Probably too late to lock since lenders were locking as early as Wednesday in a defensive move on the Jobs Report.
Just as an aside, we are still in a very volatile world-wide economy and political scene. Foreign banks are still not healthy. The middle-east is a powder keg. Russia is saber-rattling, suspending its nuclear agreement with the U.S. The Russians continue to build troop levels in Eastern Europe. A confrontation with NATO is a possibility. Russia is telling its citizens to prepare for a nuclear strike from the U.S. These have to weigh heavy on the minds of the Fed and other world leaders.
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@example.com.