"Imagine if all 28,394 of
us banned together." "Banded" would be the appropriate word to
use there, of course. If anyone from the Illinois Association of Mortgage Professionals would like
to change that word, you can see it in the first paragraph on your website.
Whereas I am good at butchering it, others should do what they can to preserve
the English language...
What
has the CFPB been up to lately? For starters, remember that the Consumer
Financial Protection Bureau's funding comes not from Congress but from the
Federal Reserve. The reasons why Congress didn't want to keep control over its
funding aside, last week news broke over the possible seemingly incredible cost overruns
in the CFPB's real estate practices.
Ballard
Spahr's Barbara Mishkin reports, "The ballooning cost estimates for
renovating the CFPB's Washington, D.C. headquarters was the subject of verbal
sparring between Director Cordray and Republican Congressmen during Director
Cordray's most recent appearance before the House Financial Services
Committee. That sparring is likely to become even more heated as a result
of a letter
issued earlier this week by the Office of Inspector General (OIG) for the Fed
and CFPB evaluating the CFPB's renovation budget...The letter indicates that
the CFPB's approval processes require major investments to be reviewed by the
CFPB's Investment Review Board (IRB) and while IRB approval is not necessary
for the CFPB to include a major investment in its budget, such approval is
needed for budgeted funds to be available for expenditure. To obtain IRB
approval, a CFPB program office must complete an IRB "business case"
which, according to the CFPB's internal guidance for making a "sound
business case," requires consideration of alternatives, including a
comparison of the costs and benefits of alternatives and the rationale for the
investment. It also requires a return on investment to be shown and
stresses the importance of a quantitative analysis."
Ms.
Mishkin's write up continued. "The OIG found that that CFPB did not
follow all of its internal guidance when completing the business case for the
renovation. By way of example, the OIG found that while the CFPB
listed alternatives in its business case, it did not complete any analyses of
those alternatives and did not include any quantitative information or
calculations related to a return on investment. The OIG was informed by
CFPB officials that the IRB approved the business case without such information
'because funding approval was viewed as a formality given that the decision to
proceed with the renovation had already been made.' The CFPB, however,
was unable to locate for the OIG any documentation of the decision to
fully renovate the building."
But
holy smokes... $590 per square foot? Of
course it is not quite a fair comparison, but when (and where, outside of SF or
NY) was the last time you saw a 1,000 square foot home sell for $590,000?
An
industry veteran (and who isn't at this point?) recently sent me an email and
asked how many types of reviews the CFPB is conducting. I replied back
in scientific notation; she responded with a picture of a cat hanging from a
ceiling fan. It turns out she was asking about fair lending supervisory
reviews, in which case there currently are three: ECOA Baseline Reviews,
ECOA Targeted Reviews, and HMDA Data Integrity Reviews.
An
ECOA Baseline Review helps the Bureau identify possible ECOA and Reg B
violations within a particular firm or bank. As it has been explained to me,
when such a review is warranted, the Bureau's examiners will rely on the Office
of Fair Lending, with help from regional management within the CFPB itself to
help determine the scope and breadth of the review, which is dependent on the
firm's business practices and assumptions of risk. Such a review normally
entails an evaluation of the firms fair lending compliance program, P&P's (yes,
those are actually looked at contrary to what the people who write them will
tell you), training materials, internal oversight which includes controls and
any corrective measures taken place in the past. A Baseline Review may end with
administrative actions considering the review is targeting ECOA, and may follow
with a targeted review.
An
ECOA Targeted Review is deemed appropriate if the Baseline Review
reveals that a particular institution's business model, polices or procedures,
present fair lending risks. Targeted Reviews typically include statistical
analyses, and possible loan file reviews, in order to evaluate compliance
within ECOA and Reg B for a particular line of business. The CFPB will use data
analysis and testing at this point in order to detect and assess disparities
between borrowers. If disparities are detected, the Bureau will notify the
examinee of its preliminary findings and make a formal request for further
data.
HMDA
Data Integrity Reviews evaluate the accuracy of a firm's HMDA collections; it's
important to note, missing fields and incomplete information, which is
historically all too common in the industry, WILL LEAD TO FURTHER IN DEPTH
SCRUTINY by the CFPB. With what has been pointed out in the past, if there are
substantial data integrity concerns at any level of review, the Bureau may
determine (and has) that the examination has been impeded, and will conclude
management is solely responsible for having caused such data integrity
concerns...which is not a good situation to place your firm. To prepare for
such reviews, the CFPB published a HMDA Resubmission Schedule and
Guidelines which provides instructions and additional details on the
HMDA Data Integrity review process.
As
I wrote recently month, the CFPB and Federal Reserve's jointly scheduled
webinar, which occurred on June 17th, covered the final TILA-RESPA
Integrated Disclosures Rule that will be effective for applications received by
creditors or mortgage brokers on or after August 1, 2015. The webinar
was the first in a planned series intended to help creditors, mortgage brokers,
settlement agents, software developers, and other stakeholders familiarize
themselves with the rule's architecture and its substantive and procedural
disclosure requirements. The CFPB staff used the initial webinar to provide a
basic overview of the final rule and new disclosures. Ballard Spahr writes, "According
to the CFPB staff, subsequent webinars on the final TILA-RESPA Integrated
Disclosures rule will function entirely as a spoken Q&A to answer questions
that have been posed to the Bureau. This is in contrast to the CFPB
staff's previous approach of providing private one-on-one interpretive guidance
on implementing the Title 14 mortgage rules concerning the Ability-to-Repay and
Qualified Mortgage rules. Although the CFPB staff does not plan to issue
written Q&A, the staff believes this approach will help facilitate clear
guidance on the new rules in an accessible way.
Also
recently the CFPB opened its first public Consumer Advisory Board (CAB)
meeting, with comments regarding implementation and enforcement of CFPB
mortgage rules. Within the last year the Bureau has attempted to publicly
outline and clarify its expectations for mortgage originators and servicers.
The CFPB's initial public position, particularly with regard to the new
servicing rules, was that "in the early months" after the rules took
effect, the CFPB would not look for strict compliance, but rather would assess
whether institutions have made "good faith efforts" to come into
"substantial compliance." CFPB Deputy Direct, Steve Antonakes, made
news in February when he attempted to clarify that position in remarks to a Mortgage Bankers
Association conference. As Buckley Sandler write, "There he
stated "servicers have had more than a year now to work on implementation"
of "basic practices of customer service that should have been implemented
long ago" and that "a good faith effort . . . does not mean servicers
have the freedom to harm consumers." However, Mr. Antonakes took a
somewhat softer tone in his remarks during the CAB meeting, stating that the
CFPB's goal "is not some one-sided aim to maximize consumer protection or
industry deterrence at all costs." He cautioned that "there is such a
thing as doing too much" and explained that the Bureau's true goal is
to find "an appropriate balance where incentives for homeowners,
creditors, and servicers are aligned."
The
CFPB recently launched a new eRegulations tool, and wants to show MBA members
how it all works in an upcoming complimentary webinar. This new tool includes
section-by-section breakouts for each part of Regulation Z, the ability for you
to track how this rule has changed, either by legislation or revisions and an
explanation of terms and definitions. At the end of this webinar MBA members
will be able to read and understand Regulation Z with ease.
Compliance
folks know that in ECOA enforcement action news, on June 19th, the CFPB and the DOJ both announced
enforcement actions against a federal savings bank that allegedly violated
ECOA in the offering of credit card debt-repayment programs and allegedly
engaged in deceptive marketing practices in the offering of certain card add-on
products. The CFPB further alleges that its examiners identified several
deceptive marketing practices used by the bank to promote five credit card
add-on products. The CFPB alleges that the bank's and its service
providers misrepresented the products by: marketing them as free of charge
when the fee was avoidable only in certain specific circumstances; failing to
disclose consumers' ineligibility, causing certain consumers to purchase
products from which they could receive no benefit; failing to disclose that
consumers were making a purchase, leading consumers to believe they were
receiving a benefit or updating their account; and marketing as a limited time
offer products that were not so limited. The bank will pay a total of $228.5
million in customer relief and penalties to resolve the allegations.
Speaking
of penalties, it can't be good when "fraud" and "real estate
agent" are used to make the headline to a news story; and it's not.
According to the Press Democrat, a former
Petaluma, California real estate agent is behind a $20 million Ponzi scheme
that bankrupted dozens of retired investors, resulting in 73-year old former
real estate agent Aldo Baccala being was sentenced to 20 years in prison and
ordered to pay a $6.4 million fine.
The
markets?! I won't waste your time: there's not much going on with rates,
although agency MBS prices improved about .125 yesterday. For benchmarks, the
10-yr ended last week at 2.63% and ended Monday at 2.62%. And to maintain the
"short and simple is better" approach, there is no scheduled news
today. In the early going rates are a shade better with the 10-yr.'s yield
down to 2.60% and agency MBS prices better by a shade.
Executive Rate Market Report:
Last
Thursday’s June employment report headlines were very good, +288K jobs, the
unemployment rate 6.1% down 0.2%. The guts of the report however, while not bad, were not good.
The labor participation rate at 62%, the U-6 indicated about 24% of those with
part-time jobs wanted full time jobs. The reaction as you know sent the 10 yr
note rate to 2.69% Thursday morning and ended Thursday at 2.63% up just 1 bp
frm Wednesday’s close. Yesterday the 10 fell 2 bps and this morning at 9:00 at
2.58% 4 bps points lower than prior to employment data. We noted yesterday this
week is absent of data allowing traders and investors to digest the employment
data; the digestion appears to suggest employment may not be as firm as
original takes. Adding more perspective; last Thursday after employment the
DJIA increased 92 points; at 10:00 this morning the DJIA is down 122 points frm
the close last Thursday.
US
stock indexes were lower early this morning; in Europe the stock markets continue to
sell off. Stock markets in Europe look shaky and may experience a major
correction, if that were to happen it would increase the correction outlook
here in the US that has gained more attention in the last few weeks. Why do we
worry about the equity markets? Because if (when) the equity markets decline
the bond and mortgage markets will benefit in terms of price improvements. This
year there have been numerous times when the stock and bond markets moved in
the same direction (stocks up, bond rates up; stocks down rates down), that
will not occur again if equity markets come under sustained pressure.
Today
begins the long earnings season with Alcoa reporting after the markets close
this afternoon; (Alcoa always starts earnings season). There won’t be lot of
earnings this week, I think only four companies report. The majority of
earnings floods the market on July 21st week. About everything I have read
recently from those who specialize in the equity markets has been positive with
the majority expecting better earnings to be reported. It is therefore curious
that the key stock indexes were weaker yesterday and starting very soft this
morning. At 9:30 the DJIA opened -50, NASDAQ -9, S&P -5; the 10 yr note
yield at 9:30 2.58% down 4 bps points and 30 yr MBS price +11 bps. (see below
for 10:00 levels).
The
only significant data to be reported at 3:00 pm, May consumer credit, expected down to +$17.5B
frm April’s +$26.8B. The report generally doesn’t get a lot of attention, at
least outwardly, but it is a key measurement of what consumers’ spending
patterns are doing. We pay most attention to revolving credit (credit cards) to
see whether consumers’ attitudes have firmed enough to begin using credit. The
Conference Board’s monthly consumer confidence index and the U. of Michigan’s
consumer sentiment index are helpful, but consumer use of credit is where the
rubber meets the road.
Treasury will begin this week’s auctions this afternoon at 1:00 with $27B 3 yr note;
not much of interest to long end of the curve though. Tomorrow $21B of 10s will
be closely monitored as a measurement of demand for MBSs.
Europe’s stock markets continue to decline; in the US the same
is happening after the markets were unable to sustain the marginal rally last
week on the June employment report. Technically the 10 yr is back testing a key level at 2.56%.
The 10 has fallen 12 bps in yield frm its highs Thursday morning after
successfully holding its 100 day average. Currently the 10 is back below its 20
and 40 day averages this morning. A break below 2.55% on the note will set up a
run to 2.50%. As noted, with earnings reports beginning we don’t expect the
stock market will collapse in the long-awaited correction until there is a
better look on Q2 earnings.
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