News From NAMB: October 2, 2017

CFPB Director Richard Cordray told Equifax and the other bureaus, via CNBC and other media, “They’re going to have to recognize the old days of just doing what they want, being subject to lawsuits now and then, are over.”  Cordray told PBS similar restrictions were on the way shortly after the incident became public.  The CFPB intends to embed investigators at the bureaus to ensure everything possible is being done to protect privacy.  The impact on mortgage companies and credit providers could be significant.  It is likely bureaus will want proof of originators’ security measures which could be part of onsite facility investigations.

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The CFPB took action this week against Meridian Title Corporation for allegedly steering consumers to a title insurer partially owned by several of its executives.  The CFPB said Meridian did not make disclose its relationship with the title insurer, thus illegally benefitting from the referrals for title insurance.  Under the consent order, the CFPB is ordering Meridian to ensure that it ceases the illegal practice, provide disclosures whenever it makes a covered referral, and pay up to $1.25 million in redress to consumers.  This week, the Bureau also fined Top Notch Funding who targeted former NFL players suffering from neurological disorders, victims of the Deepwater Horizon oil rig disaster, and 9/11 first responders, all who had large payouts coming.  Top Notch offered advance loans on the payouts with rates as low as 2% and in 1 hour.  The CFPB says it was not true and fined the company $60,000.

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Just because a government entity provides the down payment assistance doesn’t mean that it is acceptable to HUD.  The HUD Inspector General says Security National originated 8 FHA loans that had down payment assistance from the city of Las Vegas.  The problem is the down payment assistance contained a repayment clause that required repayment to the City of an amount equal to the current market value of the property, less actual borrower funds to acquire or improve the property.  HUD’s objection is that the borrower could repay more than the assistance received.  HUD wants Security National to indemnify it for any present or future losses on the loans.  Venta Financial Group was cited for the same violation.

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MB Financial made the mistake of simply rejecting FHA loans that were not approved by FHA’s Total Score Card.  MB claimed that it was not aware that it was required to manually underwrite loans that fail to be approved by Total Score Card.  HUD also found that MB failed to follow HUD guidelines on 4 other loans that they originated.  The penalty was not onerous.  MB simply had to agree to indemnify HUD if any of the 4 loans go bad and train their underwriters better.

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The CFPB conducted a survey in the 4th quarter of 2016 to measure the financial well-being of the population.  Respondents to the survey answered 10 questions and provided other data.  43% of the respondents reported having difficulty meeting their bills.  34% said they were unable to buy food some of the time or go to the doctor when needed.  It is unclear why it took the CFPB nearly a year to release this study.  One would not think it is political considering there was a different President and Congress when the study was made.  Meantime, the House is holding hearings on how to help low-income families become self-sufficient and build wealth.

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The Competitive Enterprise Institute, just released a new study titled, "The Case Against the Consumer Financial Protection Bureau: Unconstitutionally Structured and Harmful to Consumers."  The study points out that the CFPB views financial products with a one size fits all mentality.  The writers asset it is a “false premise that a government agency can design the appropriate financial products for a large and diverse society. This has denied many consumers
access to useful, money-saving products… and products that suit their individual circumstances.”  Professor Todd Zywicki noted, “a 30-year, interest-only, adjustable rate mortgage can be a prudent choice” for some people.  For certain, ARMs would have been a windfall for everyone for the past 8 years.  The study goes on to say insulation of the CFPB from Presidential or Congressional oversight will likely continue to remove choices from consumers.

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The Equifax hack brought people to the realization that hackers can buy pretty much any of your personal information they want.  Not only are your social security numbers now in the dark domain, everything about your credit and buying habits is there too.  But it doesn’t stop with Equifax.  As an article in the Orange County Register points out, even your signature is out there in the public land records.  How easy it could be for someone armed with all of your personal information to sell your house or your car.  You would have to file an expensive quiet title action for your house.  You may be arrested if you for buying a stolen car.  Expect more scrutiny from underwriters and title companies.

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According to the Office of Inspector General report, “examiners appeared to be pursuing components of the ECP (Examiner Commissioning Program) before being fully prepared, which limited their likelihood of success and affected employee morale.”  The report also concluded the CFPB “did not have a formal method to evaluate and update the ECP” and examiners were having to take the various elements multiple times to pass.

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When you use their mortgage company, Lennar will give homebuyers up to 3% of the purchase price to pay down student loan debt.  The program is available to buyers with as little as 3% down.  Buyers may also be eligible for other incentives – such as credits toward closing costs, funded by Lennar’s in-house lender, Eagle Home Mortgage.  Lennar claims the 3% does not increase the price of the home or add to the mortgage loan balance.  They do not say that it doesn’t increase the interest rate.

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PACE (Property Assessed Clean Energy) is a loan program for financing home repairs to enhance energy efficiency and strengthen against hurricanes.  The program received a major setback when Fannie and Freddie refused to purchase loans with a PACE property tax assessment lien.  Now, the FBI and SEC are probing the business of Renovate America, which provides such loans.  The FBI is looking into how Renovate America marketed its financing, especially with reference to outside contractors.

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Q1 was a truly abysmal quarter for originations, the worst in 10 years for refis and 3 years for purchases.  The statistics are just coming in for the 2nd quarter of 2017 and things look much better.  Originations were down 30% in Q1 but Q2 was up 31% from Q1.  Q2 was still down 12% from 2016, mainly due to the reduction in refinances.  As home prices edge up, more loans have co-borrowers.  In Q2 22.8% of all purchases involved co-borrowers, up from 21.3% from Q1 and up from 20.5% in Q2 2016.

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Freddie Mac made some minor changes to its underwriting guidelines this week.  Appraisers can now use MLS pictures instead of current pictures of the comp.  Who cares what the comp looks like now anyhow?  They are also reducing the number of units in a condominium project that must be sold from 70% to 50%.  Borrowers using assets to qualify are being limited to where at least one Borrower is 62 years old.

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Fannie Mae’s third quarter 2017 Mortgage Lender Sentiment Survey says lenders are rolling back restrictions on every loan type.  The survey claims this is the biggest easing of credit requirements since the survey started in 2014.  Participants in the survey cited market competitiveness as the key reason.  This is the fourth consecutive quarter in which lenders’ net profit margin outlook deteriorated.  A secondary reason is lenders are feeling more confident about repurchase risk thanks to programs such as Day One Certainty.  Lenders are much less worried about government regulatory compliance now that also leads to more aggressive underwriting.

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Until recently, most Ginnie Mae securitization was done by banks.  In 2013 non-banks started gaining ground and in 2015 non-banks ran past depositories.  Now, non-banks have 75% of Ginnie’s business.  HUD’s OIG points out that, “Its staff lacked the skills necessary to immediately respond to increased risks posed by these changes.”  The risk is that non-banks “may not be able to properly service loans absorbed in a default and may require additional funds from the United States Treasury to pay investors in the event of a large issuer default.”  Ginnie upped its net worth requirements in 2014 and must feel they are sufficient.  Dave Stevens, MBA’s CEO, took umbrage to the idea that non-banks pose more risk to Ginnie and fired off a letter to the OIG.

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The National Association of Realtors reports renters now believe it is a good time to buy a home. Last quarter only 52% believed it was a good time to buy but the share who believe now is a good time climbed to 62 percent for the 3rd quarter.  60 percent felt it was a good time to buy a year ago.  The strange part of the survey is 51% of renters expect to pay more in rent next year but only 15% of respondents will consider buying a home.

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The Federal Reserve is apparently attempting to drive up mortgage rates for some reason.  It has been dubbed QT or Quantitative Tightening, the reverse of Quantitative Easing.  The FRB announced it will slow its reinvestment in Agency-backed mortgage securities by $4 billion every month, then continue to decrease reinvestment in steps.  Eventually, $20 billion will be retired without reinvestment every month by the end of next year.  The result is that the GSEs and Ginnie Mae will put about $100 billion up for sale and the FRB will not be buying $20 billion, as it had been.  Economists believe that will drive rates up close to 5% a year from now.

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USDA’s Rural Housing Program nearly always faces about a 2-week time period at the first of October where it cannot issue commitments.  The USDA will only be issuing commitments that contain the wording, “Subject to the availability of commitment authority.”  Most lenders presume that the Rural Housing program will be funded for the next fiscal year and continue to underwrite and fund loans even during that time period.

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There those who think the CFPB will attempt to punish Equifax for its behavior in the data breach.  The agency had fined Equifax earlier this year for selling credit scores that weren’t FICO scores and thus pretty much worthless.  Equifax could have handled the breach much better and really shouldn’t have even had a breach.  This opens the door for the CFPB to fine Equifax as much as $1 million a day for UDAAP violations, the CFPB’s favorite tool.  Unfair, deceptive, and abusive acts and practices were a new standard created by Dodd/Frank that the CFPB uses in 80% of its actions.  The fallout continues as Richard Smith, the chairman and chief executive officer of Equifax Inc., stepped down this week.

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Non-prime bonds were a hot topic as bond investors gathered at ABS East in Miami.  They would love to have more non-prime mortgage securities.  The problem isn’t investor appetite, according to Asset Securitization Report; it’s the relatively small supply of loans.  Established non-QM lenders are setting origination records.  Citadel had its best month ever, producing $200 million in the month of August.  This seems reminiscent of the days when bond buyers were so hungry for loans that subprime reps would virtually camp on your door step.  Hopefully, we are not seeing a race to the bottom again. 

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Apple’s new phone, the iPhone X, has built in face recognition so accurate that the company claims there is only a 1 in 1 million chance it will not properly recognize.  That is compared to a 1 in 50,000 chance for fingerprint readers.  It comes with a hefty $1,000 price tag but the technology will certainly spread to all phones before long making it easy to prove the person clicking on documents is who they are supposed to be or eliminating clicks altogether.  Lenders and brokers will have to keep the video for proof but it negates the need for a notary and perhaps signatures.

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When loans don’t fit in one of the government guaranteed buckets, people have perennially gone to small banks, private hard-money lenders, and recently some Wall Street connected firms.  There could be room for micro lenders that aren’t any of those three.  It used to be that you were in violation of securities laws if you tried to pool some investors together to invest in mortgages.  Back in 2015 the Securities and Exchange Commission made an exception that allows crowd funding up to $1 million dollars per year.  Most of us have been taught to think of crowd funding as where a group of people make donations to help someone buy a house.  A few smart hard-money lenders are realizing they can put together tiny pools that give small investors a very high return and they make a tidy profit for providing the loan structure and servicing.

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The nation’s most exciting mortgage show is coming to Las Vegas October 14-16th!  Great entertainment and parties are in store for attendees.  You’ll hear the fiery rhetoric of Ann Coulter who has deep insight into the Trump administration’s regulatory agenda, including the CFPB.  The leaders of the top wholesale lenders will give you tips on how to be a market leader.  Then, party on Saturday night at the incredible Omnia nightclub in Caesar’s Palace with America’s #1-rated DJ and recording artist Martin Garrix.  Sunday, the huge trade show opens with over 100 lenders on display with many new alternative programs.  Sunday night, it all culminates with Foreigner lead singer Lou Gramm and his new band.  Room reservations are selling out.  Register now! 

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