RESPA-TILA update; HMDA changes in the wind; New IM system for Banks?

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How is it that this is the last week of July already? Lots of lenders seem to have seen decent Julys - but perhaps not as strong as some of their Junes - and certainly for many the upward sloping trend of lending activity and profits seen from March through June has tended to level off - it is a tough job for most to keep that kind of increase going. HR folks' jobs are sometimes pretty tough - and can  be the opposite of boring - and in a note that will make HR folks take notes, are laws & restrictions on running criminal background checks in the near future? "The law prevents criminal background checks in the private sector until after employers and hiring managers pursue the interview process with potential applicants."

Let's take a quick look at the overall market. Who says that the housing market is not doing well? We can't pick up a newspaper or see the news without seeing some study about prices, foreclosures dropping, or recovering markets, or some combination thereof. It seems to have become a national hobby...

Compass Point Research and Trading LLC reports on the banks' mortgage origination and servicing numbers for the second quarter. "Origination volumes are up roughly 25%, in-line with prevailing estimates from Fannie Mae and MBA. Gain on sale margins were up 7% on average, while correspondent lenders saw slightly more pressure than retail-heavy originators. Mortgage servicing rights (MSR) marked down 2% on average. This would indicate the non-bank mortgage originators likely will see slight pressure on margin due to the material amount of originations from the correspondent channel, while fair value marks will hit GAAP earnings. On a positive note, we have seen gain on sale margins move meaningful higher through the first few weeks of the third quarter as stable mortgage rates combined with lower agency MBS have caused spreads to widen. If this continues, the third quarter could be setting up to be a decent quarter. 

Compass Point's excellent piece went into more detail. "The spike in margins through the first weeks of the quarter...is due to a quick move down in agency MBS yields while mortgage rates have not fallen as the same pace. Typically, this is a temporary phenomenon until we see some stabilization in MBS yields. Mortgage origination volumes are up 25%, while margins are up 7% on average. Mortgage servicing income was a mixed bag. MSR amortization was more elevated than expected and we generally saw 2-5% markdowns for most servicers. We did see some hedging gains support servicing margins, but this likely won't translate for the non-banks that are reporting in the next couple of weeks." 

Lastly is an opinion on affordability. "Over the past several quarters, we have made the argument that the mortgage and housing markets have the capacity to handle higher rates given affordability index has been well above the long-term average. However, with the most recent move higher in prices during the spring selling season, the affordability index is approaching its long-term average. Meanwhile, the price-to-income ratio has pushed above the long-term average, indicating it will be difficult for the housing market to handle a significant move higher in rates without income levels going along with it. We continue to believe housing remains affordable for well-qualified borrowers, but are increasingly concerned the market can handle an increase in rates." 

Compliance is about a year away, but a mention of RESPA-TILA reform bears repeating, since it impacts every loan application. "RESPA-TILA is a huge rule and will impact your business from the time a borrower walks through the door to closing, and your business is going to need to make deep operational changes to comply. To help the mortgage industry get ready, MBA is on the road this summer with top-level legal, compliance and technology experts - including a CFPB representative. So far they have brought together hundreds of industry professionals in two states. There are just two workshops remaining - Atlanta on July 31st and Washington, D.C. on August 7th. The cost for this one-day intensive workshop is low, but space is limited." 

Yup, accurate HMDA reporting is an executive level oversight these days; the downside is too great for it not to be a concern. "With heightened regulatory and media focus on HMDA data, more lenders will find themselves the subject of fair lending exams," according to Mortgage TrueView, a provider of data-driven business intelligence services. With their new independent study, the company concluded that many lenders are leaving themselves vulnerable to fair lending exams and significant penalties by not properly monitoring and managing HMDA reporting. "Mortgage companies and banks are not taking full advantage of the insights offered in HMDA data," said Mortgage TrueView President and CEO David Moffat. Additionally, Moffat said their 2013 HMDA survey showed that many lenders are submitting their data with formatting errors, which could lead to non-compliance issues with regulators.Among the findings, include: 2013 regulatory risk indicators show a 13% year-over-year increase in loan denial rates, denial rates for white applicants increased from 17% to 21%, while denial rates for non-white applicants increased from 23% to 28%, denial rates for Hispanics increased from 25% to 30%, denial rates for non-Hispanics increased from 18% to 21%, and denial rates for female applicants increased from 21% to 26%, as opposed to males where it increased from 17% to 21%. 

And CliftonLarsonAllen's Anna DeSimone reports on the CFPB's latest thoughts on simplifying the HMDA reporting for financial institutions. (Under the proposal, financial institutions that make 25 or more closed-end loans or reverse mortgages in a year would be required to report HMDA data.) Even in this era of computers we still don't have the 2013 numbers yet, but "in 2012, 7,400 financial institutions reported information about approximately 18.7 million mortgage applications and loans. While the HMDA dataset is the leading source of information about the mortgage market, it has not kept pace with the market's evolution. For example, the HMDA data do not provide adequate information about certain loan features that helped contribute to the mortgage crisis, such as adjustable-rate mortgages and non-amortizing loans.  

"The July 24 announcement... is proposing to improve the quality and type of HMDA data as required by the Dodd-Frank Act. The Bureau is also looking at ways to make submission of data easier for lenders and to improve the user experience in accessing the public data. The proposed changes include improving market information. In the Dodd-Frank Act, Congress directed the Bureau to update HMDA regulations by having lenders report specific new information that could help identify potential discriminatory lending practices and other issues in the marketplace. This new information includes, for example: the property value; term of the loan; total points and fees; the duration of any teaser or introductory interest rates; and the applicant's or borrower's age and credit score. The CFPB is proposing that financial institutions provide more information about underwriting and pricing, such as an applicant's debt-to-income ratio, the interest rate of the loan, and the total discount points charged for the loan, which all fall under monitoring access to credit. This information would help regulators determine how the Ability-to-Repay rule is impacting the market, and would also help the Bureau monitor developments in specific markets such as multi-family housing, affordable housing, and manufactured housing. The proposed rule would also require that covered lenders report, with some exceptions, all loans related to dwellings, including reverse mortgages and open-end lines of credit. 

It is quite an undertaking, and to see all the information and form your own opinion in order to comment by October 22, see the CFPB's press release on HMDA.

Freedom Mortgage Corporation, a privately held, full-service mortgage lender licensed in all 50 states, let everyone know that it funded over $2 billion in residential mortgages in the month of June 2014...Two years ago, in July 2012, the company achieved monthly volume of $1 billion in funded loans for the first time. This dramatic increase in volume over the past two years is the result of leadership's vision and strategic growth plans. Roughly half of the $2 billion volume was funded by its Structured Products Group, the company's correspondent lending division."

In Northern California comes news that Mechanics Bank and RPM Mortgage, Inc. have announced an agreement for RPM to originate mortgage loans for Mechanics Bank customers. 

Within the last month Mountain West Financial Wholesale announced that, per the California Housing Finance Agency changes to the term of the CHDAP reservation, MWF will lock the CHDAP reservation for only 30 days. It is recommended that you not request a CHDAP reservation until the loan is ready for underwriting submission. As a reminder, CalHFA' s Bulletin 2014-08 stated that for all new CHDAP reservations subordinate to any first mortgage made on or after June 2, 2014, the first mortgage maximum allowable fees charged by a lender may not exceed the greater of 2% of the first mortgage loan amount, or $3,000.

Darned we have a lot of scheduled economic news this week here in the U.S.! Today is Pending Home Sales, tomorrow is the S&P/Case-Shiller house price numbers with their two-month lag, along with Consumer Confidence. Wednesday we have the MBA application numbers, along with the ADP employment change numbers, GDP, and an FOMC rate decision. On Thursday the 31^st we'll have the Employment Cost Index, Initial Jobless Claims, and the Chicago Purchasing Manager's Survey. And then on Friday, drum roll please, we can look forward to all the unemployment data, along with Personal Income and Consumption, the University of Michigan Consumer Confidence survey and Construction Spending. 

Looking at the traditional benchmark 10-yr T-note yield, it has been in the 2.44%-2.80% range since January. We're at the lower end of that now due to unrest overseas and the fact that the U.S. economy is not expanding very rapidly. Friday it closed at 2.47%, and this morning we're sitting at roughly the same level, and agency MBS prices are also unchanged.

Executive Rate Market Report:

Last Friday the MBS prices were +18 bps and the 10 yr note rate declined 4 bps to 2.47%. For the week there was no change in MBS prices and the 10 yr slipped just one basis point, from 2.48% to 2.47%. Early this morning ahead of a big week for markets the 10 at 2.48% +1 bp and MBS prices started down 10 basis points. The only report out today in a very significant week; NAR released June pending home sales at 10:00, expected to have increased 0.3% after increasing 6.1% in May, as reported sales declined 1.1%, more nasty data on the housing sector; yr/yr though the expectation was a decline of 5.0%, as reported -4.5%.

The US stock indexes opened slightly weaker taking the 10 yr and MBS prices off their early morning lows. The DJIA started -11, NASDAQ +1, S&P -1; 10 yr unchanged at 2.47% and 30 yr MBS prices +11 bps from 9:30 Friday morning and generally unchanged from Friday’s close.

This week has a plethora of releases and events; Treasury will auction $93B of notes beginning tomorrow with $29B of 2s, usually our end of the yield curve doesn’t pay a lot of attention to the 2 yr; Wednesday $35B of 5s, a little more interesting, then Thursday $29B of 7 yr notes that will get attention from bond and MBS investors. The 7 yr will take place one day after the FOMC policy statement adding additional focus on the demand. The FOMC meeting begins tomorrow and concludes on Wednesday afternoon with the policy statement (there will be no Yellen press conference after this meeting)

Wednesday the advance Q2 GDP will be reported, the current expectations are for GDP to have increased 3.1% in the quarter after declining 2.9% in Q1. The advance report is usually revised from the advance to the preliminary that will be reported one month from now, some of the third month of the quarter data isn’t complete on the advance report. Also Wednesday the July ADP private jobs report is expected to show an increase of 235K jobs; in June ADP said 281K private jobs were created and its data was the same from the BLS official employment data. Friday the BLS will report that unemployment was unchanged from June at 6.1%; non-farm jobs 233K,  private jobs are also expected at 233K. Also this week two reports on consumer attitudes, the Chicago PM July index, the national ISM manufacturing index, June personal income and spending, construction spending. The calendar is loaded (see below).

Ukraine/Russia and Israel/Hamas; both situations are status quo this morning. Israel and Hamas tried a few hours of cease fire then went back to the rocket lobbing’s back and forth. Ukraine tensions haven’t changed; the US claims Russia is supplying heavy weapons to the separatists, Russia denies it. Overall at the moment the two situations have been pushed back off the table and buying of treasuries as a safety move has waned in the last week. Both still are being monitored closely but with the US not adding sanctions after a lot of strong talk and Europe with little interest in doing much, presently we can say the Ukraine/Russia and Israel/Hamas issues are considered regional with little geopolitical consequences. Stay tuned though.

Richard Fisher, Dallas Fed, saying he is becoming increasingly concerned that the Fed is slipping behind the curve in delaying increasing rates. He said the economy is much better than the Fed is thinking and is concerned that the present lower rates are forcing increasing risk-taking in the stock market. Fisher at one point was a regular banker and has managed hedge funds in the past, maybe a little credibility there in his remarks.

This Week’s Calendar:
          Monday,
             10:00 am June pending home sales (+0.3% from +1.6% in May; as reported
         Tuesday,
             9:00 am May Case/Shiller 20 city index (+9.9% annual)
            10:00 am July consumer confidence (85.5 from 85.2 in June)
                          FOMC meeting begins
             1:00 pm $29B 2 yr note auction
        Wednesday,
            7:00 am weekly MBA mortgage applications
            8:15 am July ADP private jobs report (+235K from 281K in June)
            8:30 am Q2 advance GDP (+3.1%, Q1 -2.9%, deflator +2.0%)
            1:00 pm $35B 5 yr note auction
            2:00 pm FOMC policy statement
       Thursday,
           8:30 am weekly jobless claims (+21K to 305K)
                        Q2 employment cost index (+0.5%)
          9:45 am July Chicago PM index (63.2 from 62.6 in June)
          1:00 pm $29B 7 yr note auction
      Friday,
         8:30 am July employment data (unemployed 6.1% inch, non-farm jobs +233K, private jobs +233K, hourly earnings +0.2%)
                      June personal income and spending (income +0.4%, spending +0.4%; PCE core +0.1%)
        9:55 am U. of Michigan consumer sentiment index (81.5 from 81.3)
       10:00 am July ISM manufacturing index (56.0 from 55.3 in June)
                     June construction spending (+0.5%, +0.1% in May)\
       2:00 pm July auto and truck sales (16.7 mil from 13.4 mil in June)

AM Tracking Quote:

FNMA 4.0% 105.52 now -5 bps: 09:31 -5  Open 105.57

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Have a great day!

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