By rchrisman@robchrisman.com

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.

Webinars, Conferences, and Training Coming Up, Politically-Related Thoughts On Lending Continue

By rchrisman@robchrisman.com

From Louisiana comes, "I doubt that HUD will be a high priority for Trump - perhaps it will be like Ronald Reagan's view. Remember the story that President Reagan was making his way down a line of mayors visiting the White House, shaking hands, when he came to Samuel R. Pierce Jr., his Secretary of Housing and Urban Development. 'Hello, Mr. Mayor,' Mr. Reagan said to Mr. Pierce." Speaking of the government, does the average government-guaranteed loan have 150 documents? The person interviewed in this article believes so. Along those lines, ever wonder why non-depository online lenders are attracting the scrutiny of regulators? Research by KPMG finds nonbank online companies arranged about $36B of loans in 2015 vs. about $11B in 2014.

In product news, Nations Direct Mortgage is proud to announce its partnership with Freddie Mac and MGIC for their newest product offering, Freddie Mac's Home Possible Advantage. This robust program provides affordable lending opportunities for today's underserved homebuyers using flexible options such as low down payment requirements and reduced MI capabilities. "Last month, 47% of our business were first time homebuyer transactions, and with this new program we expect to significantly broaden our brokers and correspondents' reach so they can capture even more borrowers," said Martin Warren, Director of Lending. To learn more about Home Possible Advantage contact Martin at martin@myndm.com.

 

In Indiana Evansville Teachers Federal Credit Union acquired First Liberty Financial Mortgage, a regional mortgage firm founded and headquartered in Owensboro. Credit union officials say they expect the acquisition to nearly double mortgage production from $30 million to $55 million a month.

 In other company news, Incenter LLC, a provider of capital markets and fulfillment services for mortgage lenders and specialty finance companies, announced that it has acquired Boston National, a Charlotte, NC-based provider of title and settlement services. "The acquisition will allow Incenter to expand its current capabilities and to continuously optimize mortgage lending for productivity and profitability. Boston National CEO John Keratsis will join Incenter focusing primarily on the strategic integration of the title and settlement process with Incenter's other service offerings."

The California MBA Annual Legal Issues & Regulatory Compliance Conference is next week, December 5-6 in Costa Mesa, CA.

 Spanning 6 days in December and covering 7 topics, Check out Plaza's Webinar schedule for the first half of December.

 Join Black Knight Financial Services on Thursday, Dec. 8, at 2PM ET for an insightful CBA Webinar about the hidden opportunities to be realized from performing, crisis-era subprime borrowers with 10-year payment histories on high-interest-rate mortgages. Industry veterans Julian Grey and Conrad Ficca from Black Knight Financial Services will show how refinancing this market segment into new loans with risk-based pricing can effectively reduce a lender's future risk of default and improve the borrower's situation.

 Join National MI on Thursday, December 8^th to discuss Multicultural Marketing for Mortgage Professionals.In this 1-hr session, participants will learn practical differences in the consumer experience, pertinent cross-cultural communication skills, and actionable strategies to capture more mortgage business from these segments.

 And the following week National MI is providing a 2-hour webinar, Wednesday, December 14^th. Completing the URLA: A Step by Step Guide to an Accurate Mortgage Application led by Teresa Ferman of Indecomm.

Switching gears from the next few weeks to the next four years, given the significance of the Presidential election, the mortgage industry is optimistic that the new Administration and a Republican Congress will take steps to improve homeownership and reduce regulatory burdens. While many uncertainties remain, Zelman & Associates expect a softer enforcement environment will encourage more lending on the margin and a greater role for private capital. Conversely, higher interest rates may pose risks depending on the trajectory of further increases but a more competitive purchase market and less regulation could result in tighter spreads and increase the credit box.

 

Therefore, in the coming years, Zelman expects the purchase market to experience steady growth while refinance volume declines, supporting our outlook for increased competition for purchase business. Within the purchase market, it expects growth to be skewed towards low down-payment mortgages as the share of first-time buyers expands, directly benefitting the private mortgage insurers. Importantly, feedback from its survey of mortgage lenders continues to suggest that the pool of applicants is expanding as entry-level and marginal credits reenter the market. Zelman & Associates believe there is significant runway for credit quality to responsibly normalize from today's historically-high levels and expect that the guardrails established by Qualified Mortgage standards will maintain a high floor on underwriting. Although commentary around sweeping changes related to Dodd Frank and the CFPB are top of mind, Zelman believes changes will be on the margin as many lenders are supportive of many aspects of both.

 It seems like everything you read nowadays is either about the election or the interest rate hike. U.S. data is certainly leading to a December rate hike. After a weak first half of the year, 3Q real GDP growth improved to a 3.2% annualized rate. Payroll job growth was strong in the 3Q, averaging 206,000 net new jobs per month and the unemployment rate averaged around 4.9%. While the October job growth was down slightly adding 161,000 jobs, it is still evidence of a tightening labor market. All that is needed is another few weeks of benign or strong economic data.

 It's been three weeks since the presidential election, and...Well Mr. Trump, YOU'RE HIRED. Regardless of your political views, unless something extraordinary happens in a recount, Donald Trump is the new president of the United States. Now, what does that mean for the markets. Think back: the entire night of election brought uncertainty and we watched the futures market crash. However, the morning after the election the Dow went up 300 points to an all-time high. But, with Donald Trump as the President-elect, the potential for major economic policy changes brings about heightened uncertainty in the near-term as the markets incorporate the new administration into the outlook.

 With three weeks of volatility and reports of strong U.S. financial market performance, everyone expects the fed to raise rates in December. Donald Trump's surprising victory will have little direct impact in the near-term but will likely have a more significant impact on the medium-term outlook. Uncertainty is likely to rattle the markets, but many economists expect the impact to be short-lived. They look for the financial markets to sync with Trump's economic policies of lower taxes, infrastructure and defense spending, regulatory reform and a new deal on international trade. And that is exactly like the bond and stock markets have been trading.

 Volatility has certainly picked up. Yesterday, for example, the 5 and 10-year notes led the Treasury market higher during a session with no significant U.S. economic releases. There was no substantive news, and most of the headlines were focused on the possibility of an agreement among OPEC producers to limit or reduce supply at their meeting on Wednesday. Where have we heard that one before? And remember the concern over Brexit? European Central Bank President Mario Draghi said that the Eurozone economy has proven resilient in 2016 and that the global economy should continue to recover. He said that much of the Eurozone recovery can be attributed to ECB policy.

 

In the United States, mortgage-backed securities put in one of their more impressive performances in the last three weeks. Wall Street folks with whom I spoke talked about the market "being overdone on the downside." Investors came back after a holiday weekend, and found that there wasn't a lot of selling going on - and the Fed is still buying a billion or two a day of agency MBS and production is down. Declining volatility also helped. The 10-year note improved almost .5 in price Monday to yield 2.32%. Agency MBS prices and 5-year notes improved roughly .250 but where all over the map depending on coupon, maturity, and type of security. Watch those cross-hedges!

 We've had some news today, not that it will really impact the odds of a Fed increase in a few weeks (100%). We've seen the second update to Q3 GDP (+3.2%, stronger than expected). Coming up are some store sales numbers along with the S&P/Case-Schiller Home Price Index for September and November Consumer Confidence. The 10-year is currently yielding 2.35% and agency MBS prices are worse about .125 from Monday evening.

 

 

 

Conventional Conforming Program Changes, Are Loan Limits As Important As They Once Were?

By rchrisman@robchrisman.com

FHFA announced that the 2017 conforming loan limit for mortgages acquired by Fannie Mae and Freddie Mac will be increased nationwide from $417,000 to $424,100. The FHFA said its own home-price index (HPI), which it uses to set loan limits, showed values rising 6.1 percent in the third quarter from a year earlier. (Recall that the Housing and Economic Recovery Act of 2008 (HERA) set the baseline loan limit at that existing level for one to four family houses in most of the U.S. and required it be adjusted each year to reflect any changes in the national average home price. When prices continued to decline HERA also made clear that the baseline could not be adjusted upward until the average U.S. home price returned to its pre-decline level.)

 The increases in the conforming loan limits could make it much easier and cheaper for some first-time homebuyers to enter the market, as the down payment and credit requirements for government-backed mortgages are often looser than those of jumbos. The increase could bring a negative reaction from some Republicans who say the government should have a smaller footprint in the mortgage market.

 FHFA reported on Wednesday that its third quarter House Price Index (HPI) is now 1.7 percent higher than in the third quarter of 2007 and the agency has raised conforming loan limits by 1.7 percent to $424,100. The new loan limits are effective January 1, 2017.

 For those along the coasts, and a couple spots in-between, FHFA designates as so-called high-cost areas, markets where 115 percent of the local median home value exceeds the baseline loan limit.  HERA sets the maximum loan limit as a function of the area median home value with a ceiling on the limit of 150 percent of the baseline limit. Under this formula, the new limit for the highest cost areas will have a ceiling of $636,150 in 2017. Other counties will have limits below that amount, but higher than the new baseline. FHFA said as a result of generally rising home values, the increase in baseline loan limit, and the rise in the ceiling loan limit, the maximum loan limit rose in all but 87 counties (or county equivalents) in the country.

 (There are additional separate calculations for Alaska, Hawaii, Guam, and the U.S. Virgin Islands for one-unit properties with additional exceptions for some especially high cost specific locations.)

 Does it mean as much as it used to? I received this note from an ex-Agency officer. "Rob, in the past the conforming loan limits were used as a benchmark for the industry. They still are. But the weight the limit carries has become more symbolic than practical. The limits have no bearing on non-QM loans, portfolio product, or on any non-agency products. Pools allow up to 10% of super-conforming/high balance conforming loans. In fact, in many areas the rates on "jumbo" loans are less than Fannie & Freddie loans. Why? With jumbo loans, there is no ~50 basis point guarantee fee, which many feel is over-charging borrowers and lenders for the risk on current production - portfolio lenders are financially valuing the perceived risk lower than the Agencies want to earn on their gfees. The loan limits are a convenient way for lenders to measure home values, but their importance has diminished."

Lenders and investors far & wide continue to adjust their conforming conventional offerings.

 Wells Fargo updated its LTV/TLTV/CLTV matrix for Prior Approval Loans to reflect Fannie Mae's 90% maximum LTV for purchase and "No Cash-Out" Refinance ARM Loans secured by primary residence cooperatives.  Wells has removed its overlay related to real estate commissions totaling more than 8% of the sales price on conventional Conforming, Non-Conforming, and Guaranteed Rural Housing (GRH) Loans. Wells also announced it has expanded its identity of interest policy for Non-Conforming Loans by removing the requirement for a Generic VECTORTM automated valuation model (AVM) or field review.

 Wells announced changes to its Preferred Payment Plan (PPP) which offers borrowers a .250% interest rate reduction on their loan when their payment is automatically withdrawn (also known as ACH) from a Wells Fargo checking or savings account. The new policy allows borrowers to select a financial institution of their choice for the automatic payment withdrawals.

 Sellers can now Register/Lock Fannie Mae HomeReady Loans combined with Fannie Mae's high balance mortgage loan amounts on wellsfargofunding.com. A call to Priceline is no longer required. Also, Wells has consolidated its subordinate financing guidelines for Non-Conforming Loans within Section 825.09: Credit - Long-Term Debt in its Seller Guide for ease of use.

 Fannie Mae servicers are reminded, as they complete their principal reduction modifications, to reference the eligible campaign codes listed on page 10 of the Principal Reduction job aid. The campaign codes listed, in addition to the campaigns codes specific to the principal reduction program, are the only campaign codes eligible for Principal Reduction - Case Two submissions.

 NationStar's Correspondent Seller guide has been updated.

 Effective for new casefiles created in DU 10.0 on or after December 10 purchase transactions will no longer be eligible for Property Inspection Waivers (PIW) for Pacific Union Financial correspondents. Casefiles created in Desktop Underwriter 10.0 prior to December 10 and resubmitted to DU on or after the Fannie Mae update are eligible to proceed with the PIW provided the purchase transaction meets all PIW requirements, an appraisal has not been obtained for the transaction, and the final Desktop Underwriter submission reflects PIW eligibility. The Correspondent is responsible for ensuring that the Property Inspection Waiver (PIW) is eligible, per applicable state law. If not eligible, a full appraisal is required.

 Mortgage Solutions Financial is now offering the FHLMC Home Possible program.

 Parkside Lending is integrating with Fannie Mae's DU validation service that will verify employment, income, assets and estimated property value electronically! "This new service will save you and you borrowers the time you'd otherwise spend collecting bank statements, tax returns, pay stubs and scheduling appraisals - and enable quicker loan decisions. Look for this option to be available after Fannie Mae's update of DU 10.0 during the weekend of December 10."

 

For all conforming DU approved loans, PennyMac will be aligning with the updates announced in Fannie Mae SEL 2016-08.

 loanDepot's Wholesale division now offers a new low down payment option to its broker partners: Fannie Mae HomeReady Mortgage.

 On December 10, lenders will receive Fannie Mae's Day 1 Certainty with freedom from representations and warranties on property value for eligible loans with a Collateral Underwriter risk score of 2.5 or lower on the appraisal. Follow these steps to gain Day 1 Certainty on appraised value.

 While the income validation component of Fannie Mae's Day 1 Certainty initiative is available to lenders, the other components (asset, employment, PIW and CU relief) are not being launched until December 10^th. As they become available from Fannie Mae, M&T Bank will purchase loans from Correspondent lenders who engage in the Day 1 components, obtaining the various rep & warrant relief.

 Effective December 1 Mountain West Financial will no longer entertain Investment Purchase Transactions to First Time Homebuyers. In addition, effective 12-2-2016 the following changes to the Sapphire program will be implemented: 640 minimum FICO score, 45%+ debt-to-income (DTI) ratio requires two month reserves, 700 FICO score required for 50%+ DTI and 50% DTI requires two-month reserves. MWF has also suspended the Mountain Combo product until further notice.

 Mortgage Solutions Financial has made changes to its loan level price adjustments.

 All lenders can now opt in to Fannie Mae's Desktop Underwriter (DU) validation service. The DU validation service is currently available for the upfront validation of income and will be expanded on December 10 to include the validation of employment and assets.

 REI Oklahoma, which works with various lenders about down payment assistance programs, announced that it's adding the Freddie Mac HFA Advantage mortgage to its current list of offerings. The HFA Advantage mortgage goes up to 97 percent loan-to-value. In addition, REI Oklahoma offers 3.5% or 5.0% down payment assistance in the form of a gift to qualified homebuyers. Learn more about REI Down Payment Assistance, income limits and guidelines, and find a lender in your area.  Interested lenders should contact Dena Sherrill at 800.658.2823.

 While we're on agency stuff, Sun West Mortgage Company has published guidance on acceptability of properties with outstanding Property Assessed Clean Energy (PACE) or HERO programs. The guidance is available in General Requirement section in Underwriting Guide for Forward Mortgage, both wholesale and correspondent.

 Shifting to the capital markets, since all these F&F loans end up there anyway, in Wednesday's trading session treasury prices fell causing rates to move higher as a reading on US manufacturing demand (Durable Goods) was significantly higher than forecast. The 10-year's ended Wednesday at 2.35%. And on Friday U.S. Treasuries were nearly unchanged despite stocks hitting all-time highs; the 10-year ended the week yielding 2.36%.

 

More on PHH v. CFPB, Refis Continue To Drop

By rchrisman@robchrisman.com

Yes, residential lending continues to be at the vertex of federal, state, and local regulators. For those wondering what might be coming up, this legal update from Mayer Brown LLP summarizes reports released by the CFPB, the OCC and the FCA about recent developments in their respective efforts to facilitate responsible financial innovation and offers predictions on what the industry can expect in this space during the coming months.

 Earlier this week I reminded readers of the CFPB's Compliance Bulletin 2016-02, which updates the Bureau's guidance on vendor management and oversight. The Bulletin clarifies that the depth and formality of the risk management program put in place to monitor service providers may vary depending on the type of service(s) being performed and the performance of the service provider in complying with federal consumer financial laws and regulations. Specifically, the Bureau noted that the size, scope, complexity, importance, and potential for consumer harm were factors to take into consideration when assessing the scope of a vendor risk management and oversight program.

 Jonathan Foxx wrote in addressing the CFPB's update to its service provider review requirements ("Compliance Bulletin and Policy Guidance 2016-02, Service Providers") which is an update to its Bulletin that was issued on April 13, 2012, called "CFPB Bulletin 2012-03, Subject: Service Providers." The new update has been carefully outlined in a downloadable article by Mr. Foxx of Lenders Compliance Group, on behalf of his affiliate, Vendors Compliance Group. A great feature of the article is that is provides a Question & Answer format, which brings a lot of clarity to understanding the CFPB's expectations. Head on over to Vendors Compliance Group to download his article, entitled "Compliance Bulletin and Policy Guidance 2016-02 - Service Providers - Questions and Answers."

Switching gears to the capital markets...To be or not to be. Will there be a rate hike in December? Or will this be a year of one and done? There was a consensus view that the Federal Open Market Committee (FOMC) "would elect not to raise the fed funds rate after its November meeting." That turned out to be the case. But the world has changed, and practically every economist and trader believes that the December meeting will result in a move in short-term rates. Inflation continues to increase; CPI is up 1.5% year over year. "Continued strength in services inflation and energy base effects should allow prices to rise further toward 2 percent in the coming months." The Fed has previously stated that they would like to see 2.0% inflation. Each passing month sees inflation inching closer to that target.

 Speaking of things that the fed has previously stated, they continue to discuss that they would like to see a strong labor market in order to raise interest rates. The labor market continues to improve, and some think we're already at full employment as they estimate payroll gains of at least 100,000 jobs per month - enough to reduce remaining labor underutilization and spur modestly higher wage growth. Overall, the outlook is for a tightening labor market and rising inflation to prompt a fed funds rate increase in December. 

 Economists and traders are still ruminating on the stock and bond markets surrounding the election. Besides the ups and down of the stock market over uncertainty in the election, it was a light week for economic data. During the day of the election, when there was uncertainty in the air in what was supposed to be a Clinton victory, stock market futures crashed, global financial markets were affected. Leading the charge was the Mexican Peso plummeting. Afterward there were two days of strong U.S. financial market performance, following the shock of Trump's campaign victory, led by the Dow charging to an all-time high, few expect to see a repeat of the Tuesday election night swan dive. This is important for the upcoming FOMC meeting in December which is set to raise interest rates at that time. 

 In Tuesday's bond market rates improved somewhat with the 10-year closing at 2.32%. Agency mortgage-backed security prices rallied almost .125, and spreads were mostly tighter versus treasuries - a good thing. The Treasury auctioned $34 billion five-year notes at a yield of 1.76%, the highest mark since December 2015.

 It will be interesting to watch the supply and demand dynamics over the coming months as supply falters and demand continues to be strong. November prepayment speeds are expected slow 4% to 5%, and certainly that was seen in today's MBA application data for last week with refis continuing to drop. Will lenders and vendors who made their money on refis be nimble enough to switch to a purchase market?

 Looking at today, it is a full trading day in the bond market, but one must ask who is working a full day today. Tomorrow is a holiday; Friday bond markets are open but everyone will be lightly staffed - and who is going to lock in a loan? The holiday likely contributed to the relatively light volumes yesterday.

Today we have a full platter of news with typical Thursday releases moved up a day with Friday being an early close. Weekly mortgage applications (w/e Nov 18) from the MBA kicked off the day (+5.5% with purchase apps +19%, refis -3%). We've also had the always volatile Durable Goods orders for October (+4.8%, higher than expected) and weekly Initial Jobless Claims for the week ending November 19 (251k, up from 233k, still solid).

 

Coming up are the FHFA Housing Price Index (Sep), at 9AM ET, Markit Manufacturing PMI (preliminary Nov.) at 9:45AM ET, Michigan Sentiment (final for Nov.) at 10AM, October's New Home Sales, a $28 billion 7-year note auction at 1PM ET, and the minutes from the November FOMC meeting will be released at 2PM ET. Whew! To start the day, after those strong numbers, the 10-year is at 2.35% with agency MBS prices worse .250 versus Tuesday night. Given the holiday, trading will most likely be choppy and liquidity may be an issue as we move into the afternoon.

FHA & VA Lender Changes, Declining Number of Banks

By rchrisman@robchrisman.com

It's Black Friday and mall is packed with shoppers and Frank can't find his wife.

He goes up to a very attractive woman and says, "Excuse me, can you help me? I cannot see my wife, and I know that she is here in the shopping mall somewhere. Can you just talk to me for a couple of minutes?"

The attractive woman replies, "Why?"

Frank comes back with, "Because every time I talk to a beautiful woman, my wife materializes out of thin air."

Another day, another settlement. Ally Financial Inc said it agreed to pay $52 million to settle claims made by the U.S. Department of Justice against its former mortgage unit related to alleged misstatements about its residential mortgage-backed securities (RMBSs). The investigations and potential claims were against former unit Residential Capital LLC and its units (ResCap RMBS).

We recently told you about the X-Ray mortgage intelligence dashboard, which transforms massive amounts of information on loans, leads and accounting, as well as information from customer relationship management systems and loan operating systems, into easy-to-understand, readily available analytics and reports that drive top-level decisions at mortgage companies/branches. Well, Big Valley Mortgage is utilizing the dashboard, which was developed by Special Agent X, and has a glowing review. "The X-Ray dashboard offers Big Valley Mortgage a very efficient and reliable resource to capture the necessary information to allow our management team to quickly assess production levels, trends and business mix," said Michael Pankow, senior vice president of Big Valley Mortgage. "The simplicity of the X-Ray dashboard makes it an excellent tool to quickly dive into, grab the intel you are looking for and move on." Big Valley Mortgage isn't the only one either. Other clients of Special Agent X include American Pacific Mortgage Securus Group, AP Connect, Vitek Mortgage Group, Cobalt Real Estate and West Coast Mortgage Group. Schedule a demo at specialagentx.com; questions can be directed to Dave Hoggatt.

The events and training just keep coming!

 What lies ahead in 2017 for the mortgage industry? Stay ahead of industry trends in this free exclusive Vantage Production webinar with Sue Woodard, president/CEO of Vantage Production, and me. The outlook will cover, "The Political Arena and What It Means for the Industry, When the Fed meets December 13 and 14 - then what? The Digital Mortgage Movement, and Housing Market Trends." Sign up here.

 "2017: your best purchase year? Rates skyrocketing. Refis plummeting. Yet the MBA is forecasting 2017 to be the best purchase market we've seen in a decade! That's why National Mortgage Professional's nmpU is offering a Purchase Bootcamp and Business Plan session on Tuesday, December 13. This is not a webinar - it is a live 90-minute video streaming broadcast. nmpU's Head Coach and Executive Director, Ron Vaimberg, an industry leader in originator purchase production growth and development, will help you prepare a purchase business plan that works for YOU! One that has an Action Plan that is easy to implement. There's even a Follow-up Accountability Conference Call. Your entire office can attend for one low price. Use code "Chrisman" on checkout to save $100.Learn more here."

 Essent invites you to enrollin any of their professional skill-building classes. Two of the featured topics for December are Time Managementskills for email composure and inbox triage, as well as Risk Managementskills needed for warding off mortgage fraud.

 HUD has training. December 7^th Webinar: overview of FHA-Approved Servicer requirements including: early delinquency activity, timelines, general loss mitigation, and collection best practices.December 17^th Webinar: HUD Loss Mitigation - Option Priority Waterfall, Forbearance Plans and Special Forbearance Option.January 4^th Webinar: HUD Loss Mitigation - FHA HAMP Option.January 11^th Webinar: HUD Loss Mitigation - Home Disposition Options.

 MBA's National Mortgage Servicing Conference & Expo will be held near Dallas from February 14^th-17^th. This conference is designed to provide practical and relevant information needed to succeed now and in the future. This year, innovation in mortgage servicing will be at the forefront of discussions, including new strategies and tools to achieve results for today's and tomorrow's borrowers and investors, along with a close look at the future of loss mitigation, a timely conversation as HAMP ends just a few weeks prior to the conference. Early Registration ends on January 5^th, find out the details today.

 "Buy land - they're not making any more of it." Can the same be said for banks? There are about 5,100 banks in the United States. But it doesn't take a rocket surgeon to see the bank numbers heading downward. As there is more and more wealth created, and the number of banks steadily declines, more money will be in fewer banks - it is being concentrated. They must get bigger, right? Within the last week the banking industry learned that First Interstate Bank ($9.0B, MT) will acquire Bank of the Cascades ($3.2B, OR) for about $589mm in cash (25%) and stock (75%) or about 2.15x tangible book. Simmons Bank ($8.2B, AR) will acquire First South Bank ($464mm, TN) for about $72.2mm in cash and stock. And Trustmark National Bank ($13.1B, MS) will acquire Reliance Bank ($210mm, AL) for approximately $25.6mm in cash (100%).

 And banks, at least the large ones, are seeing their mortgage market share diminish. At this point, everyone in the industry knows that the latest Home Mortgage Disclosure Act (HMDA) data found that nonbanks' share of the mortgage market is rising while banks' share is shrinking. What is the reason for the shift? Banks have multiple income sources (fees, credit cards, auto loans, and so on) to lean on when mortgage income goes down whereas non-depository lenders don't - and therefore are entirely focused on profits, mortgage market share, and perhaps taking risks that a depository won't. Along those lines, we've seen this shift in FHA lending - some banks have scaled way back due to potential liabilities and litigation but non-depositories have been happy to absorb the market share.

 And don't forget credit unions that represent a growing share of the 6,913 institutions who reported HMDA data for 2015. Credit unions avoided much of the bad press in the last ten years, and are experiencing increased visibility and are promoting their value proposition to bank depositors - and mortgagors.

 Bankrate.com's surveys showed that depository banks' market share declined from 47 percent in 2014 to 43 percent in Q4 2015. Meanwhile, nonbanks' share of the mortgage market increased from 44 percent to 48 percent from Q4 2014 to Q4 2015 and credit unions' market share stayed flat at 9 percent. Per Bankrate.com, Wells Fargo was the largest mortgage lender in the country in Q4 2015 with $47 billion worth of mortgage loans originated, more than double the volume of the second-ranked JPMorgan Chase ($23 billion). The top-ranked nonbank lender was Quicken Loans, which placed third behind Wells Fargo and Chase with $19 billion in loans originated in Q4 2015.

 The conventional loan limits for 2017 are expected to be released any time now. But let's see what's new in FHA & VA land.

 Effective with loans locked on or after November 8, Pacific Union Financial will require a minimum seasoning requirement of six consecutive monthly for the following streamlined refinance transactions: FHA Streamlined Refinance (Simple Refinance, Credit Qualifying and Non-Credit Qualifying):  A minimum of six monthly payments must have been made prior to the case number assignment date for the new refinance transaction. VA Interest Rate Reduction Refinance Loans (IRRRL):  A minimum of six monthly payments must have been made prior to the loan application date for the new refinance transaction. USDA Streamlined Refinance and Streamlined Assist:  Due to the 12-month payment history requirement for USDA Streamline Refinance transactions, Pacific Union is removing the previously announced overlay of six months and will follow USDA guidelines for Streamline Refinance transactions. 

 Stearns is making changes to its policy for submitting signed 4506T forms to the IRS for processing. Although Stearns will still require an executed Form 4506T on every loan transaction, at submission and again at closing, it will not submit the signed form for processing on most Conventional, FHA, and VA credit qualifying loans.

 Flagstar's payoff statement expiration dates have been extended from 5 business days to a maximum of 15 business days when ordering from any of its automated systems.  FHA loans closed on or before January 21, 2015 where the interest is calculated through the first of the month will remain at the 5-business day expiration date. Also, as of November 21, Freddie Mac's Loan Product Advisor (LPA) is available in Loantrac. Existing LP pipeline loans that are rerun on or after November 21 will be automatically converted from LP to LPA.

 Plaza has updated its VA IRRRL Program Guidelines. Effective for all VA IRRRLs funded on or after January 1, 2017, Plaza will require that, at the time of the refinance, at least six consecutive monthly payments have been made on the existing loan.

 Effective for loans with commitments taken on or after 12/1, AmeriHome will require that at least 6 consecutive monthly payments must have been made on the existing loan for all Government streamline(d) refinance transactions per Ginnie Mae's APM 16-05.

 

Mortgage rates are set by supply and demand, not the government. Helping the demand side of things, AIG is looking to boost its investment in residential mortgages. Management intends to make "direct investments" into the sector, which may mean buying whole loans instead of MBS.

 Rates haven't gone back to where they were November 7^th. Or during the rest of 2016. And they probably won't, given the potential inflationary impact of the expected infrastructure build during the next four years. Given a sub 5% unemployment rate, where are those road pavers going to come from? The market remains focused on the anticipated effects of U.S. stimulus in 2017 on both economic growth and inflation.

 That aside, yesterday the bond market tried to rally a little but failed - just not enough reason to rally on no news. The $26 billion 2-year Treasury auction was met with mediocre demand and that helped to flatten the yield curve (short term rates edged higher relative to long term rates). But at least rates didn't go up relative to Friday's close, and the 10-year ended unchanged yielding 2.34%. Agency MBS prices didn't do much either.

 Today there isn't much news to move bond prices either. We've had the Philadelphia Fed's Non-manufacturing number (+15.6) for November. Later is Existing Home Sales (October) along with the Richmond Fed's Manufacturing and Services, Revenues Indices. And if you have some lose coins at home, feel free to bid: The Treasury will auction $55 billion 1-month bills, $13 billion in 2-year notes, and $35 billion in 5-year notes. We start the day with the 10-year yielding 2.30% and agency MBS prices better .125 versus Monday's close.

 

 

Appraisal Institute Goes to Washington DC

by rchrisman@robchrisman.com

A young man named John received a parrot as a gift. The parrot had a bad attitude and an even worse vocabulary. Every word out of the bird's mouth was rude, obnoxious and laced with profanity. John tried and tried to change the bird's attitude by consistently saying only polite words, playing soft music and anything else he could think of to "clean up" the bird's vocabulary. Finally, John was fed up and he yelled at the parrot.

The parrot yelled back.

John shook the parrot and the parrot got angrier and even ruder. John, in desperation, threw up his hand, grabbed the bird and put him in the freezer. For a few minutes the parrot squawked and kicked and screamed. Then suddenly there was total quiet. Not a peep was heard for over a minute.

Fearing that he'd hurt the parrot, John quickly opened the door to the freezer.

The parrot calmly stepped out onto John's outstretched arms and said "I believe I may have offended you with my rude language and actions. I'm sincerely remorseful for my inappropriate transgressions and I fully intend to do everything I can to correct my rude and unforgivable behavior."

John was stunned at the change in the bird's attitude. As he was about to ask the parrot what had made such a dramatic change in his behavior, the bird continued, "May I ask what the turkey did?"'

Just how much did rates go up recently? Freddie Mac's Primary Mortgage Market Survey showed a 37 basis point (.375) jump in the average 30-year rate, week-over-week, to 3.95%. Convincing anyone with rate less than that to refinance is going to be tough...roll out the home equity lines of credit!

Is the only thing better than a closed loan a free party? This industry works hard and plays hard. National Mortgage Professional Magazine knows that! That's why this year's Holiday Networking Parties in December in Irvine, CA, Fort Lauderdale, FL and in Long Island, NY they're giving originators a powerful program of business building workshops before it's party time....and it's all FREE. These events include strategies on building your purchase business from Ron Vaimberg, a powerful presentation from Frank and Brian of National Real Estate Post, a Certified Military Home Specialist Workshop by Boots Across America, learn how to "Knock Out Your Competition" with Barry Habib, and a Renovation Lending Workshop with Damon Richardson. Workshops will be followed by a networking party where attendees will mix and mingle with other successful mortgage loan officers and celebrate the evening with music, complimentary food, prizes and a heavy dose of holiday cheer! Learn more about these Holiday Parties here.

 

Rain on the scarecrow, blood on the plow? The Fed reports the number of banks seeking additional collateral on farm loans is now the highest level in 25 years. A drop in farm land values and a global crop surplus has led to a decline in loan payments so banks are acting. In addition, yesterday I had CFPB updates. After the commentary went out the CFPB published a list of counties determined to be "rural" and a list of counties determined to be "rural or underserved" during 2016 for purposes of applying certain regulatory provisions related to mortgage loans during 2017 (2017 lists). Rural counties are generally defined by using the USDA Economic Research Service's urban influence codes, and underserved counties are defined by reference to data collected under the Home Mortgage Disclosure Act.

 Appraising ag land can be a real challenge. Heck, appraising a house in Phoenix or Ramsey, MN can be a real challenge as well. This week The Appraisal Institute, the largest professional association of real estate appraisers, went to Washington DC told a Congressional hearing there is a "better, less-complicated approach" that would modernize the U.S. appraisal regulatory structure by improving quality, reducing costs and addressing fundamental concerns that drive appraisers from the profession.

 In Capitol Hill testimony before a subcommittee of the House Financial Services Committee, the Appraisal Institute suggested that Congress realign the appraisal regulatory structure with those of other industries in the real estate and mortgage industries. The Appraisal Institute recommended using as a model the National Mortgage Licensing System cooperative among state agencies. "Appraisers are being choked by rules and regulations in nearly every facet of their business," Bill Garber, Appraisal Institute director of government and external relations, said in written testimony. "Appraiser's' professional lives have become extremely complicated, more expensive and less productive due to a dated and archaic regulatory structure. Thus, consumers suffer from increased turnaround time, delays in loans and potential higher costs."

 Noting that the federal regulatory structure for real estate appraisal essentially has been untouched since 1989, the Appraisal Institute's written testimony said regulation is "overwhelming" appraisers and proving to be "counter-productive" for the profession and for users of appraisal services. "Real estate appraisers face a 'layering effect' of rules and regulations that creates a disincentive for potential entry into the profession, while also diminishing the profession's profitability," the Appraisal Institute said in its written testimony.

As examples of these rules, the Appraisal Institute cited background checks with no federal mandate or efficient processing system, and unappealing supervisor-appraiser and trainee-appraiser requirements, among others.

 "Presently, real estate appraisers pay for the operation and maintenance of the regulatory structure in a variety of ways, including imposing license renewal fees, course requirements, and mandates to purchase rules and regulations. After almost 27 years, it is time to make the appraisal regulatory structure and process more efficient and responsive to the needs of practitioners and consumers," Garber told the subcommittee at the hearing.

The subcommittee's hearing on "Modernizing Appraisals: A Regulatory Review and the Future of the Industry" took place in Room 2128 of the Rayburn House Office Building. Representatives of the Appraisal Subcommittee, The Appraisal Foundation, Clearbox, the National Association of Home Builders and Mountain State Justice, Inc., also were scheduled to testify at the hearing.

 Nationstar Mortgage now maintains and distributes a monthly Appraiser Exclusionary List. Correspondents are encouraged to review the Nationstar Mortgage Appraiser Exclusionary List prior to submitting a loan for loan purchase.

 Flagstar has updated its Conventional guidelines to clarify that one-unit properties that contain multiple accessory units on the same property are not permitted.

 One discussion topic that comes up any time appraisers and/or underwriters have a drink or two is why manufactured housing still has a bad connotation. A recent article from our neighbors to the north is, "Factory Built homes Could Help Cities with Housing Crunch." These aren't tiny homes that you see on the backs of the trucks driving on the freeway, or with wheels and a license plate. "The public's negative perception of new construction methods is a considerable factor that hinders the development and use of modular construction as they are often thought to be similar to mobile homes found in trailer parks." But, I think it is important to pay attention to the fact that they aren't mobile homes. These homes can be thousands of square feet. They are built in a factory then transported in blocks and assembled at the building site. There are transportation challenges and perceived product inferiority. The positives are cheaper, faster results, fewer workplace injuries, and construction in a controlled environment. The idea should be considered because in a time when housing pressures mount, alternatives need to be heard.

 Moving on to interest rates, supply and demand set mortgage rates, not the U.S. Government. Traders have seen a shift in bond markets since post-crisis regulations discouraged lenders from acting as market makers, with investors facing difficulties finding attractive deals due to a lack of trading activity. Two percent of outstanding bonds are traded daily compared with 3.5% in 2008, per SIFMA. That may very well change...

 In less than one week, mortgage rates have shot up by nearly 0.5% and the global bond market has lost a whopping $1 trillion in value. Gibran Nicholas, CEO of CMPS Institute conducted a webinar this week to give loan originators scripts, charts and graphs to explain what's been happening in the market. The webinar is called, "Trumponomics: How the Trump Presidency Impacts the Mortgage & Housing Markets." Click here to "view" the recording.

 Anyone who didn't lock prior to Tuesday, if they could have, is ruing that decision, and every LO out there is tending to their locked pipelines, knowing that the market is three points worse and "free" extensions don't make much sense from an economics perspective. In fact, yesterday the U.S. Treasury market, and agency MBS, took another leg lower although the losses were concentrated in the longer maturities after Fed Chair Yellen maintained her relatively dovish tone in her remarks. The case for a rate hike has begun to build rather rapidly as market-based inflation expectations have ripped higher over the past week, although Yellen merely said that a rate increase could be appropriate "relatively soon."

 And the economic news of late certainly bears that out. We had a strong jump in housing starts during October, and Initial jobless claims fell to a 43-year low. What do bond traders think? As ThomsonReuters put it, "Further adding to the malaise of 30-year 3% and 3.5%, in particular, was the long end leading the market lower as the recent curve flattening was a welcome reprieve for the MBS basis as traders became more comfortable with their durations. That was being threatened in the afternoon, with the long bond breaking back through 3% with 10s comfortably through 2.25%." There you have it. But by the end of the day the 10-year sold off .5 in price to close at 2.28% and agency MBS prices worsened .250.

 There is no scheduled news to move rates, although Leading Economic Indicators is later this morning. There are plenty of Fed Presidents speaking around the country, pretty much all saying the same thing but in sly, subtle, varying ways: rate increase in mid-December. Fortunately, it is pretty much priced into the current market. In the early going the 10-year's yield is still 2.28% and agency MBS prices are better about .125.