It is "bring your kid to work" day. Some kids are
fascinated with how much others make. They grow up to be underwriters. Others
are fascinated with the ebb and flow of compensation, and the inherent
inequality in government versus private market pay structures. They grow up to
be reporters, or CEOs. Here's something that had both groups, and everyone
in-between, buzzing yesterday: a story about how regulators make more than
banking and mortgage folks: "Guess Who Makes More Than Bankers:
Their Regulators." "The average
compensation at the Office of the Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection
Bureau (CFPB) exceeded $190,000 in 2012. At the OCC, secretaries make on
average $79,182 per annum. Motor vehicle operators (the agency's limo drivers)
at the FDIC earn $82,130. Human resources management trainees at the CFPB make
$110,759 a year." I need to brush off my resume!
Here's something that is kind
of interesting, in a nerdy-mortgage way. Yesterday's MBA applications
numbers showed that adjustable rate mortgages, as a percent of total dollars of
loans was 18.6%. But as a percent of the total number of applications, ARMs
were 8.5%. The MBA states that its numbers capture 75% of the retail originations
out there, and putting aside the usual questions about how much of that 75%
Wells, Citi, Chase, and BofA constitute, I suppose more higher balance loan
applications are being received for ARMs than for lower balance loans. And as
we know, plenty of those loans are going into the portfolios of those banks.
After all, generally most lenders would rather do one loan for $800,000 than
four loans for $200,000 since doing the one loan uses less overhead, and may
price accordingly.
If I had a sense of humor, I
would find this hysterical: let's create a problem by overregulating and
creating an environment where lenders are terrified to make a mistake, and then
"discover" the problem that said regulation created! The CFPB
published a report which finds that many consumers are frustrated by the short
amount of time they have to review a large stack of complex closing documents
when finalizing a mortgage. The Bureau also released guidelines for an upcoming
eClosing pilot project to assess how electronic closings can benefit consumers
as they navigate the mortgage closing process. "Mortgage closings are
often fraught with anxiety," said CFPB Director Richard Cordray. "We
have taken action to address some of the problems consumers face, but more
needs to be done. Our eClosing pilot project will provide valuable insight into
how to improve the closing experience for consumers. "
The Bureau is now in the process of preparing for this rule to
be implemented in August 2015. The report is the culmination of research
conducted over the past year. As part of that research, in January 2014, the
Bureau published a Request for Information
about the challenges consumers face when closing on a home. The request asked
for input from market participants, consumers, and other stakeholders on ways
to encourage the development of a more streamlined, efficient, and educational
closing process that would be beneficial to consumers.
The Bureau heard about three major pain points for consumers
during the closing process: Not enough time to review, overwhelming stack of
paperwork, and the complexity of documents and errors. Gosh, any single
borrower, Realtor, or lender could have told the CFPB that in about 10 minutes.
The CFPB identified electronic closings, also known as eClosings,
as one solution to address the problems. "eClosings are already happening
in the market today, but adoption is low. There is a lot of misinformation
about the legality and feasibility of eClosings. Today, the Bureau is releasing
its guidelines for a pilot project to study eClosings. The pilot project, which
will launch later this year, is designed to enable the CFPB to better
understand the role that eClosings can play in addressing consumers' pain
points."
It was recently brought to my
attention, although I was looking for the break room at the time and didn't
necessarily want to talk about home equity rescissions, that some LOS systems
may claim that they provide all the "material disclosures" for the
right of rescission but fail to outline what disclosures are supposed to be
given to the borrowers. For purposes of the right of rescission in home
equity plans, the five following disclosures are considered "material
disclosure" requirements: the method of determining the finance charge
and balance upon which the finance charge will be imposed, Annual Percentage
Rate (APR), the amount or method of determining the amount of any membership or
participation fee that may be imposed as part of the plan, the length of the
draw period and repayment period, and, for both the draw period and repayment
period, an explanation of how the minimum periodic payment will be determined
and the timing of the payments, including the required disclosures if paying
the minimum payment may or will result in a balloon payment.
Recently the Mortgage Bankers
Association of the Carolinas addressed the "Dangers of a QM Loan Gone
Non-QM". I quote, "Many lenders think repurchase or nonsalable, when
they think of the possibility of a mistake on a QM loan that actually causes
the loan to fall into Non-QM status. While this is certainly a
significant problem, the issues with the sale or possible repurchase of the
loan only represent the beginning of a lender's troubles. Indeed, the lender
-- who has just essentially admitted to having botched the origination and/or
underwriting of the loan by identifying it as something it is not -- is
extremely vulnerable to a lawsuit under the ability to repay rules.
Remember, the ATR rules require a lender to have a good faith belief the
borrower can repay the loan. Yet, the existence of that good faith belief
can be easily challenged where the lender's internal errors caused it to
improperly classify the loan as QM when it really was a Non-Qm loan.
Making the jump from a "mistake" to lacking a "good faith
belief" will likely not be too difficult for a jury, unless the error is
the result of some improper action by the borrower. Where the lender's
internal processes fail, the finding of an ATR violation is extremely possible.
For this reason, lenders must be especially careful when dealing with loans
that have a higher propensity for QM determinative error. If those loans
(e.g. at 42.9 Debt to Income Ratio) ultimately cross into non-QM territory, not
only does the lender lose the safe-harbor and experience multiple problems
relating to salability, the lender is likely stuck in an extremely vulnerable
position if the loan ultimately defaults. As such, it would be wise to
place extra scrutiny on those loans having the greatest risks of error.
This is especially true when mistakes could be material to QM status."
Besides all this news,
something else that caught everyone's attention was the New Home Sales numbers
yesterday. New Home Sales dropped 14.5% in March to a 384,000 annualized pace,
lower than any forecast of economists and the weakest since July and were down
13.3% from a year earlier. (It follows Tuesday's drop in Existing Home Sales.)
But the median price of a new home reached its highest level ever in March at
$290,000, the report said, up 11.2% from February. (And remember that sales of
new homes represent a small portion of houses purchased in the U.S. and can be
subject to large revisions.) Quicken Loans Vice President Bill Banfield
offered, "The sharp decline in March's new home sales is further evidence
that winter weather is not the catalyst for the sluggish housing data the past
few months. The rise in interest rates and prices of new homes is
leaving some potential buyers with sticker shock and ultimately prolonging
their home search process." Bill - let's not forget loan level price
adjustments, no inventory, the narrow QM box, and the fact that many don't want
to leave their cozy 3.5% 30-yr fixed rate financed homes!
But the fixed-income markets took it as a sign of weakness in
the economy, pushing prices higher and rates lower. Plus, fewer homes means
fewer mortgages, which means less supply of MBS. So agency MBS prices improved
about .250, and the 10-yr closed at 2.69%. But that was yesterday. Today we've
had March Durable Goods (+2.0 expected, actually +2.6%) and Initial Claims
(expected +310k, it was +329k up from 305k). Later is a $29 billion 7-year note
auction and the NYFRB release of its weekly report on MBS purchases for the
week ending April 23. After these early numbers rates are slightly higher
with the 10-yr at 2.72% and agency MBS prices worse about .125.
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