Hope springs eternal, right? As the residential lending industry wraps up a couple rough months tomorrow, everyone is hoping for a more robust March and April. They are basing this hope on the seasonality of the purchase business out there, and the hope that the worst of the winter storms are past. Few are banking on lower rates, lower costs to originate, or a big influx of HARP-related business. Others are repeating the mantra, "Hope is not a strategy," and are moving ahead with expansion & hiring plans, scaling back operations staff due to production predictions that were too optimistic, analyzing capital increases or decreases, and adjusting projections. Life goes on and people need home loans - just not as many industry-wide as a year ago.
News out of Congress regarding possible changes to the tax code certainly turned some heads out there. Here is a statement by National Association of Realtors President Steve Brown: "NAR supports reforms that promote economic growth, but we strongly oppose severely altering the rules that govern ownership and investment in real estate. Real estate powers almost one-fifth of the U.S. economy, employs more than 17 million Americans, and contributes a quarter of all federal and state tax revenue and as much as 70 percent of local taxes. We are extremely disappointed with several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp's tax reform draft released today, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes. These proposed changes to the taxation of real estate will impact every single American, either directly or indirectly. NAR will carefully analyze the details of the Chairman's plan so we can best educate Congress and the public about how this plan would impact the owners, consumers, and producers of both residential and commercial real estate."
And Barbara Thompson, the
Executive Director of NCSHA (National Council of State Housing Agencies)
issued a statement on Chairman Camp's Tax Reform Discussion Draft. "On the
one hand, we are pleased that House Ways and Means Committee Chairman Dave
Camp's tax reform discussion draft preserves the Low Income Housing Tax Credit,
though we are still analyzing the impact the many changes the draft proposes
would have on the program. On the other, we are deeply disappointed that the
discussion draft eliminates the ability of states and localities to issue
tax-exempt bonds to finance affordable housing by terminating private activity
bond authority. This authority allows states and localities to issue bonds for
affordable housing, student loans, energy projects, water facilities,
transportation developments, and other vital uses. State Housing Finance
Agencies (HFAs) issue tax-exempt Housing Bonds to finance affordable mortgages
for first-time homebuyers and rental housing developments. Forty percent of all
Housing Credit production annually is made possible by Housing Bonds. Both
programs have a proven track record of success in providing affordable housing
help to the growing number of lower income people who need it. We urge Congress
to ensure that any tax reform plan it advances preserves and strengthens both
of these essential programs."
The CFPB said it is making mortgage
loan servicing a "significant priority" for
itself as it plans to make sure servicers are actively reaching out to
customers in default to try to help them. The regulator said they expect
servicers to pay "exceptionally close attention" to servicing transfers
and only use force-placed insurance "as a last resort." But what
happens when you combine servicing and subprime loans? Here is a take from Reuters. The press loves
to use the word "subprime" since it seems to incite the pubic and
regulators, and the industry should do what it can to stop using the term.
Borrowers who don't have sterling credit have always existed, and always will,
and will always want to borrow money - a fact somehow lost on some reporters.
But the definition of the word
has always been nebulous, especially when it is tied to a FICO
score (much to the dismay of other credit score providers). And
"inconsistent income" has always been a problem for self-employed
borrowers, generally the group mentioned as left behind in the Ability to Repay
movement. Forgotten are compensating factors, such as LTV or assets in the
bank. When Wells Fargo announced its retail group extending credit to that
segment, it never uttered that term, but somehow it garnered plenty of press in
spite of dozens of other lenders offering similar products especially in the
FHA segment. Even Bloomberg jumped on the
bandwagon with the headline, "Subprime Called Safer Makes Comeback as
'Nonprime'" in a story highlighting NewLeaf Lending. But gosh,
haven't we been through this "slide down the credit curve" before?
"Gone are the days when
lenders handed out mortgages without requiring documentation and down payments.
Today's purveyors of subprime call the loans 'nonprime' and require as much as
30 percent down to safeguard their investment. And they see a big opportunity
for growth as tougher federal lending standards shut out millions of Americans
with poor credit from the mortgage market. You're going to have to make all
types of loans, ones that conform to all the new standards and ones that don't,
to keep powering the housing recovery," said Bill Dallas, CEO of Skyline
Financial Corp. in Calabasas, California. "There needs to be a solution
for people who don't fit in the box, and rebuilding nonprime lending is
it."
About $3 billion of subprime
mortgages were made in the first nine months of 2013, matching the year-earlier
period, according to Inside Mortgage Finance. In 2005, subprime originations
reached $625 billion. But even that number, combined with jumbo
securitizations, is less than 5% of overall historical production. Most
companies are doing what they can to avoid non-QM lending, but in my
discussions with CEOs they admit that eventually, if the investor market
improves for this product, they will take a hard look at it. And then
instead of Household, Beneficial, and Associated, we'll be hearing names like
Advancial Mortgage, Athas Capital Group, B of I Federal Bank, Citadel
Servicing, Impac, LoanStream Mortgage, New Leaf Wholesale, New Penn Financial,
Parkside Lending, Quick Funding, Union Bank, Virage, and Western Bancorp. Regardless,
the industry, and the press, should not equate non-QM with subprime.
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