Plenty of people expect the regulatory environment to
change under the new Administration. Plenty of experienced lenders, however,
know that a certain amount of regulation was, and is, called for - the trick is
in creating make-sense rules and appropriately enforcing them. And at the
center of this is the Consumer Finance Protection Bureau, having garnered
plenty of legal attention with the recent PHH vs. CFPB case.
The D.C. Circuit has entered an order directing PHH
Corporation to file a response to the CFPB's petition for rehearing en banc in
CFPB v. PHH Corporation. The order, filed November 23, requires PHH to file
its response within 15 days. It also invites the Solicitor General to file a
response to the petition for rehearing en banc, expressing the views of the
United States, but does not set a date by which the Solicitor General must file
any response. One can expect the Solicitor General to support the CFPB's
petition and given the impending change in Administrations, to file a response
promptly. The order states that absent further order of the court, the court
will not accept a reply to the responses.
Put another way, the full D.C. Circuit ordered PHH to
respond to the CFPB's petition for en banc review of the
October 2016 three-judge panel decision in PHH Corp. v. CFPB. The
CFPB's November 18 petition challenged,
among other things, the conclusion by the majority of the panel that the CFPB's
structure was unconstitutional and that, to remedy this defect, the Director
must be removable at will by the President. PHH's response, which is due by
December 8, would not have been permitted without the court's order. Similarly,
the CFPB is not permitted to file a reply unless ordered by the
court. Importantly, the en banc court also "invited" the U.S.
Solicitor General "to file a response to the petition" to
"express the views of the United States." The Dodd-Frank Act
does not allow the CFPB to petition the Supreme Court for review without the
approval of the Attorney General (12 USC § 5564(e)).
Obviously the CFPB is not without its fans. Americans for
Financial Reform (AFR), the Center for Responsible Lending (CRL), and other
civil rights and consumer advocacy organizations, as well as 21 members of
Congress submitted amicus briefs to the U.S. Court of Appeals for the District
of Columbia Circuit in the case of PHH Corporation v. CFPB, in
support of the CFPB. The groups and members of Congress urged the full court to
grant the CFPB's petition for a rehearing of a 2-1 panel decision last month, which they believe incorrectly ruled that the
President may remove the CFPB Director without cause. They also underscored the
need to maintain a strong and independent CFPB, as Congress intended, free from
political and outside industry influence. "By invalidating the CFPB
director's for-cause removal protection, the panel decision topples Congress's
design for this critical new agency and imperils its ability to function as
intended. Worse still, the panel's one-hundred-page opinion reaches this result
without even once addressing why Congress took such care to structure the CFPB
as it did or how the CFPB's design is so critical to its proper
functioning...This structure allows the Bureau to make decisions that protect
consumers-even when those decisions are opposed by intense lobbying,' wrote
AFR and CRL. 'Since the CFPB began operating in July 2011, it has proven to
be highly effective in identifying violations of consumer protection law and
remedying the problems with precision and agility. The CFPB's effectiveness,
and its ability to respond to unlawful practices quickly, is attributable in
part to its leadership by a single director and its insulation from political
influence and industry capture.'"
The CFPB is not sitting on its hands by any stretch of the
imagination, and is expected to speed up any changes ahead of the new
Administration. It, the Federal Reserve Board, and the Office of the
Comptroller of the Currency (OCC) have issued a final rule regarding future
adjustments to the threshold for appraisal exceptions for higher-priced
mortgage loans. Remember that Dodd-Frank amended the Truth in Lending Act,
adding a requirement that lenders get a written appraisal based on an interior
inspection of a home's interior. Loans for $25,000 or less were exempted from
this requirement with a provision that the exemption level be revisited
annually and revised on January 1 to reflect increases in the Consumer Price
Index for Urban Wage Earners and Clerical Workers (CPI-W).
Ballard Spahr's Barbara S. Mishkin
wrote, "The CFPB has adopted changes to its Reg Z commentary to
memorialize the calculation methods used each year to adjust the thresholds for
exempt consumer credit transactions and for transactions exempt
from the special appraisal requirements for higher-priced mortgage loans and to its Reg M
commentary to memorialize the calculation method used each year to adjust the
threshold for exempt consumer leases. The Fed and OCC have adopted
corresponding changes to their commentaries. The changes are effective
January 1, 2017.
Without miring you down in the technicalities of
determining the process or index, lenders tuned in to the fact that using
current calculation methods, the agencies have made no changes to the three
exemption thresholds. Effective January 1, 2017 through December 31,
2017, these exemption thresholds remain: smaller loans exempt from the
appraisal requirement for "higher priced mortgage loans," $25,500
consumer credit transactions exempt from Truth in Lending Act/Regulation Z,
$54,600 (but loans secured by real property or personal property used or
expected to be used as a consumer's principal dwelling and private education
loans are covered regardless of amount).
Turning to the capital markets, many are thinking that with
the run up in rates and less regulation non-QM loans will become fashionable,
two non-agency MBS deals totaling $815 million and made up of seasoned
nonprime mortgages are anticipated to be issued in the next few weeks.
Cerberus Capital's FirstKey Mortgage is planning to issue the $551 million.
"The loans have seasoned for an average of nearly 10 years and 71.0
percent of the collateral has a clean payment history for the past two years,
per Fitch Ratings." And New Residential Investment is preparing the $264
million New Residential Mortgage Loan Trust 2016-4. Affiliates of the issuers
plan to use vertical retention to meet risk-retention requirements for the MBS.
Will those bonds be less valuable with the increase in
rates? Or more valuable given the solid payment history of the loans? Stay
tuned. But rates dropped a little Tuesday despite a strong Q3 GDP number - the
market is seeing the demand outpace supply, and lower volatility. And don't
forget that the Conference Board's Consumer Confidence Index jumped to its best
level since August 2007. The Case-Shiller 20-city index of U.S. home prices
rose 5.1% year over year in September.
This morning we've already had a bevy of economic news.
The MBA's Mortgage Index for last week quantified what lenders already knew.
Apps fell over 9%, with refis taking it on the chin being down 16%. November
ADP Employment Change was strong: +216k. October Personal Income and Spending
was +.6% and +.3%. And October Core PCE Price Index was . Coming up are the
November Chicago PMI, October Pending Home Sales, and November Fed's Beige Book
(14:00 ET)
Yesterday the 10-year note improved .125 in price (2.30%)
and the 5-year Treasury and current coupon agency MBS prices also rallied about
.125. It's all been given back this morning: the 10-year is up to 2.36% and
agency MBS prices are worse .250-.375 versus last night.
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