News From NAMB: October 5, 2017

Top Story: Watt Implores Congress Not to Let Fannie/Freddie Go Fundless
In his appearance before the House Financial Services Committee this week, FHFA Director Mel Watt showed an evolving stand on GSE reform.  It seems quite clear that the divide is too great to think that we will have GSE reform in the near future.  With that realization, Watt advised the Committee that is not a sound business practice to run an enterprise with no reserves.  “Neither Enterprise will have the ability to weather any loss it experiences in any quarter without drawing further on taxpayer support,” Watt warned.  Watt said even if there are no hits to the economy, losses could be caused by interest rate volatility, reduced income from declining retained portfolios, reduced revenue from using credit risk transfers, and even tax reform that would reduce the value of the GSEs’ tax-deferred assets.  MBA is on record as opposing any recapitalization, insisting on full GSE reform.

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UWM Expands Elite Program
UWM’S Elite box just got bigger… a lot bigger. Conventional Elite now starts at 700 FICO/$200K/80% LTV, and FHA and VA Elite now start at 680 FICO/$125K, which means more of your borrowers now qualify for some of the best pricing in the industry. You’ll also enjoy UWM’s premium service, including 15-day turn times and direct communication with your account executive, underwriters and closers. Learn more about Elite at UWM.com.

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Dodd/Frank is the law that just keeps on giving, giving more expenses to us.  The Appraisal Subcommittee of the FFIEC (“ASC”) has adopted a final rule that tacks on millions of dollars in fees to Appraisal Management Companies (AMCs).  Under the rule, AMCs will have to pay $25/year for each appraiser on their roster.  So, if an AMC has 10,000 appraisers on the roster, they will have to pay $250,000.  This incentivizes AMCs to have less appraisers on their rosters, just what we need.  The money goes to the Appraisal Subcommittee, of course.

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Earlier this year, Ginnie Mae prevented originators from putting VA IRRLs into a standard Ginnie Mae security until the borrower has made six months of payments.  That curbed super-quick refis for a while but originators are now waiting 6 months and a day before doing the IRRL.  No one would be concerned except reviews of the files show marginal, if any benefit to the borrowers.  Senator Elizabeth Warren wrote to Ginnie Mae about the issue and received a detailed response on what Ginnie Mae has found.  Some of the more egregious practices are putting vets in ARMs from fixed-rate loans, promising veterans they can skip up to 2 payments, and effectively promising cash-out by the return of their escrow.  Some Ginnie issuers are churning their own portfolio.  Ginnie has created a task force to work on the problem which may result in revocation of some Ginnie issuers.

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Rep. Patrick McHenry is reintroducing a bill that would require the IRS to fast-track income verification.  Supposedly, the bill would allow financial services firms to quickly access income records and reduce dependence on credit bureaus.  H.R. 3860 seeks to automate verification, thus making the process more seamless and much quicker.  The bill is also being introduced in the Senate by Sen. Corey Booker.  Sen. Mike Crapo has endorsed the bill as a co-sponsor as well.  The IRS benefits because creditors will be able to access income information immediately, even for credit cards, so people who didn’t report income would get no credit.  The question is whether this is any more secure than credit bureaus.

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We all familiar with the billions paid out under the False Claims Act for underwriting.  Guess what?  HUD has found a new source of possible indemnification… public water supplies.  FHA stopped requiring water tests for wells but apparently the HUD OIG thinks lenders are still on the line for bad water, even if it is a public water supply.  The issue arose because FHA-insured properties located in Flint, MI, had lead in the water but lenders certified that the home had safe, potable water.

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The CFPB has said they are going to go after Equifax tooth and nail.  But, the CFPB has said in its preliminary payday lender rule that all small creditors must report to credit bureaus.  First, that is an economic windfall for the credit bureaus.  Thanks, CFPB.  Then, it would probably put a huge number of people in the bureaus that are not there now.  Thanks, again.  As a double whammy, the CFPB itself is gathering sensitive personal information on people.  If the SEC can be hacked, so can the CFPB.  Thanks, a third time.

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After getting billions out of the big banks and large mortgage bankers, HUD and the Department of Justice are now licking up the scraps with smaller FHA mortgagees.  Residential Home Funding of New York entered into a settlement agreement with the Federal Government to pay $1.67 million under the False Claims Act.  The DOJ claims Residential Home endorsed FHA mortgage insurance loans that did not meet the underwriting requirements between 2004 and 2012.  In addition, Residential was cited for not maintaining a quality control program that complied with HUD requirements.  One larger fish, PHH, has agreed to pay $65 million for the same things.

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Although natural disasters often do cause delinquencies, people catch up and stay in their homes.  That may be different with Irma in Florida.  About 170,000 homes affected by Irma still have negative equity and another 180,000 have less than 10% equity according to a new report by Black Knight.  Unlike Houston, hit by Harvey, Florida is still in the midst of financial crisis recovery mode.  With high hurricane deductibles of $15,000 to $50,000, it is likely a fair number will simply walk away, even if they have paper equity.  Much will depend on how FEMA deals with filling the deductible gap and the loss of income.  Long delays may cause major problems.  With Fannie and Freddie having no reserves, major losses could spin them into trouble as well.

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Congresswoman Maxine Waters, the ranking democrat on House Financial Services crafted the Comprehensive Consumer Credit Reporting Reform Act of 2016 late last year.  Democrats are pushing the bill that looked dead last year and renamed it 2017. It is by far the strongest legislation so far.  It would change the dispute process so that credit bureaus, not consumers, bear the burden to prove the accuracy and completeness of credit information; limit derogatory information to 4 years instead of 7; provide free credit freezes and free credit monitoring to vulnerable consumers, and u\ch more.  The rationale for the bill is large but the bill is even much longer at 221 pages.  What happened to bills that members of Congress are likely to read?

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Home Mortgage Disclosure Act (HMDA) data for 2016 showed originations in 2016 increased by 13% over 2015 with refinances increasing by 16% and purchases by 11%.  Despite the general increases, loans made to low- and moderate-income borrowers (those with income of less than 80 percent of area median income) fell about 3%.  Pull through is still high.  Of 13.9 million home loan applications only 8.4 million resulted in loan originations, so about 40% of loans apps did not close.  Non-banks led banks as expected.

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In recent weeks, people who should be supporting the mortgage interest deduction are saying we don’t need it.  Among those not supporting the deduction are Quicken Chairman Dan Gilbert, Redfin Chief Economist Nela Richardson, Urban Institute co-director Laurie Goodman, The National Association of Home Builders, and even MBA CEO David Stevens.  They claim most low-to-moderate income borrowers don’t itemize so it doesn’t benefit them.  If the standard deduction is doubled, even fewer taxpayers would itemize.  Only the National Association of Realtors is standing firm on homeownership incentives.  Ken Harney points out that many families could pay more rather than less under the plan.  Is it possible the trade groups like the corporate tax cut more than help it gives some consumers?  Has anyone thought of giving a mortgage deduction even to those who take the standard deduction?

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The Office of the Comptroller of the Currency, the regulator of the largest banks, released a report that says the CFPB’s arbitration rule will significantly raise costs to consumers with no substantial benefit.  While mandatory arbitration is already prohibited for mortgages, it is significant when the other major regulator tells the CFPB they are wrong.  The CFPB stated banning mandatory arbitration for credit cards would not increase costs.  The based its analysis on a study where the author said he could not statistically prove switching to class-action suits would increase costs.  What the CFPB ignored was he also couldn’t statistically prove that the rule would not significantly increase costs.  It doesn’t take a statistician to know that class-action lawsuits costs lots of money.  Someone has to pay.  Then there is the issue of how consumers fare in class-action suits.  They generally get pennies, if anything, while the lawyers get rich. 

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Not only do Republicans and Democrats have their spats, so do the Republican-controlled House and Senate.  The House tried to slip in language that would allow private insurers to offer flood insurance without FEMA.  The Senate said, “No way” and sent the bill back to the House without the flood language.  The House, unwilling to shut down the FAA for lack of funding, accepted the Senate’s change by voice vote.  The opposition to the flood bill believes private insurers will cherry-pick properties and leave FEMA with the properties that are more flood prone.

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One state has taken the initiative to elevate mobile homes, more politely known as “manufactured homes,” to real property status, even if they are in a park.  Rhode Island has created resident-owned communities (known as ROCs) that are classified as real estate.  ROCs, are cooperatives owned by the residents of the communities, similar to a condo structure.  This allows Fannie, which is limited to real property financing, to buy loans in mobile homes in parks, giving lower income borrowers a housing alternative.

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The U.S. Chamber of Commerce and various local chambers filed suit against the CFPB over the new arbitration rule.  They were joined by the banks and other lenders.  Once again, the plaintiffs assert the CFPB has an unconstitutional structure.  In addition, they say the CFPB violated the Administrative Procedures Act and based their action on a “deeply flawed study.”  Finally, the Chambers claim the rule is contrary to the “public interest or consumer welfare: it precludes the use of a dispute resolution mechanism that generally benefits consumers (i.e ., arbitration) in favor of one that typically does not (i.e., class-action litigation).  The rule is also being considered for repeal under the Congressional Review Act.

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The CFPB recently gave very flexible timelines for use of the new Loan Application in its most recent ECOA rule.  During the past several months, Freddie Mac and Fannie Mae (the GSEs) gathered industry feedback on the implementation timeline for the redesigned URLA.  Freddie Mac will publish an updated version of the redesigned URLA by the end of 2017.  Fannie Mae will start testing MISMO submissions with the new DU specifications in January of 2019.  The industry may begin using the redesigned URLA starting July 1, 2019.  The GSEs will require the use of the redesigned URLA for all new loan applications on and after February 1, 2020.  The new form will be another computer programmer’s nightmare since it is not designed to be a fixed form.  The designers (CFPB’s folks) envisioned the borrowers filling out the form, which never happens anymore.  At least they allow square tab headings and more flexibility in the form than the CFPB did for the LE and CD.

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The Mortgage Bankers Association says they like a lot of what the CFPB is doing but they believe the agency is ready for “CFPB version 2.0.”  The MBA compiled a whitepaper that focuses primarily on the sore spot of “regulation by enforcement.”  The trade association president asserts, “The Bureau's reluctance to issue clear guidance on the laws it inherited, such as the Real Estate Settlement Procedures Act, has resulted in a confused, uneven market that actually narrows consumers' access to sustainable credit.”  The whitepaper goes on to give an 8-item wish-list for CFPB reform.

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A former Wells Fargo employee told Congress that the company charged many borrowers improper rate-extension fees.  Wells admits 110,000 borrowers paid about $98 million in rate-lock extension fees Sept. 16, 2013, through Feb. 28, 2017.  Wells now says that it will refund customers who paid mortgage rate lock extension fees if it was Wells’ fault.  Admittedly, some borrowers simply ignore requests for documents but when you have 110,000 people not getting closed on time, one must question when the documentation was requested and how long processes inside Wells took, such as processing, appraisal, underwriting and closing.  Democrats have introduced a bill to shut down banks that harm consumers.  Maxine Waters says Wells Fargo would be one.

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Ellie Mae is not afraid to spend large amounts of money to acquire companies that they believe will place them in the position of total service provider.  Ellie announced it would be purchasing Velocify, a popular CRM, for the tidy sum of $128 million in cash.  “Ellie Mae’s North Star is to automate everything automatable for the residential mortgage industry, and we believe that a true digital mortgage must encompass the entire loan cycle, from targeted marketing automation to lead generation to application to automated investor delivery,” said Jonathan Corr, president and CEO of Ellie Mae.

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Freddie Mac is opening Borrower Help Centers around the country to help educate and assist borrowers having financial issues such as foreclosure.  According to Dwight Robinson, Freddie’s Chief Diversity Officer, the latest center to open in the Mississippi Delta has attracted 500 walk-ins in just the 3 months it has been open.  The area has low income and is 66% African American.  The trick will be finding housing these folks can afford.  Mortgage originators have often teamed with real estate agents around the country to hold mortgage education sessions with great success.  I have participated in some of these events and I always go away stoked with the good feeling of really helping people.

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The price of dorm rooms has become quite high at some colleges compared to owning a condominium.  A good example is the University of Arizona where dorm costs are $811/month and you can buy a condo with a P&I of $545.  Refin, who did the analysis, forgot the real estate taxes and insurance, not to mention condo fees.  But, if you can get another student to come in at $700/month, you are way ahead.  You may even make money if you could house 3 students.  Certainly, this should not be lost on originators who work with real estate investors either.

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The nation’s most exciting mortgage show is coming to Las Vegas October 14-16th!  It is much bigger and even better.  With nearly double the number of exhibitors, this is an event you can’t afford to miss to keep up with all of the new programs available.  The leaders of the top wholesale lenders will give you tips on how to increase business.  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 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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Last week ended with more egg on the Fed’s face.  Income continued to increase slightly, up .2%, as expected, while inflation, as measured by the Fed’s favorite index, the PCE, was up a mere .1%.  The Fed just can’t understand how we can have a growing economy, essentially without inflation.  I’m certain they will come up with some sort of explanation after a while.  That’s what PHD’s always do and teach it to those who will be programmed to recite it.

 

It looks as though President Trump is likely to replace Janet Yellen as Fed chair.  He says she is still in the running but he has interviewed Fed Gov. Jerome Powell, former Fed Gov. Kevin Warsh and Treasury Secretary Steven Mnuchin as possible candidates to lead the central bank.

 

University of Michigan Consumer Sentiment declined slightly to 95.1 after hitting 96.8, a 7-month high in August.  People are still pretty happy with how the economy is doing.

 

Manufacturing was up significantly at 60.8.  That is the highest level for U.S. manufacturing since April of 2011.  Construction spending was also good, up .5%, in a continuing upward trend.

 

Not even the hurricanes can dampen the jobs market.  ADP’s employment creation was slightly less than expected at only 135,000 jobs but still respectable.  Jobless claims are only slightly elevated at 260,000 just slightly above the 250,000 normative mark.

 

Tomorrow, we get the Bureau of Labor Statistics Jobs Report, the most important economic news of the month.  If jobs come in low, the Fed will simply write it off as temporary due to the hurricanes.  A hot number would solidify another rate hike this year.

 

Meanwhile, mortgage rates are flat to slightly upward and likely to continue that trend.

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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].

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