Mortgage Forgiveness Act in Jeopardy? Hiring and Retaining Employees the CFPB Way

Okay, so here's something entirely un-mortgage related - productivity this week stinks anyway. The kids are back from college, or on vacation from school, many have had great 2012's and are coasting, whatever. What's this about Mr. Rogers being a Navy SEAL sniper? Oh, and I thought that gerbil rumor was forgotten long ago. Read more.

"Rob, what do you hear about the Mortgage Forgiveness Debt Relief Act extension?" I have heard nothing about an extension, although it is a timely question. "If the Mortgage Forgiveness Debt Relief Act of 2007 does not get extended by Congress by the end of the year, homeowners will have to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction. That means if someone owes $150,000 on their home and it sells for $100,000 in a foreclosure auction, they could owe taxes on the remaining $50,000. For someone in the 25% tax bracket, that would mean paying $12,500 in taxes on the foreclosure. Similar taxes would apply for amounts that were forgiven in short sales and principal reductions." Here is a recent update.

What are we to make of all these headlines during the last few weeks of December? We had, among others, Consumer Spending Jumps Most in 3 Years. U.S. Homes Gained $1.3 Trillion in Value During 2012. Sales of Existing U.S. Homes Rose to Three-Year High in November. U.S. Housing Values Rose 6% in 2012 for First Gain in Six Years. Builders Hanging Help-Wanted Signs as Industry Rebounds. Home Building Permits Near Four-and-Half Year High. Homebuilder Confidence Rises to Highest Level Since 2006.

Especially when these headlines are compared against another set of headlines. Housing Starts Fall 3% in November. Housing Market Builds Stronger Foundation, But Cracks Remain. HARP Market Dropped 18.5% in October, Despite Record Low Rates. Are First-Time Homebuyers Missing the Sweet Spot? Mortgage Applications Drop in Latest Week.

And we've recently had TransUnion projecting that the single family residential mortgage delinquency rate for borrowers 60 days+ past due will be 5.32% this year and 5.06% by the end of 2013. In more normal times, that rate is about 1.5% to 2.5%. But yet a report from the Fed finds household debt declined at a 2% annual rate in 3Q, following a 2Q increase of 1.2%. Total household debt now sits at $12.9 trillion, down about 13% from the start of the recession in 2008.

Say what you will, housing appears to be improving in many markets (see the Case-Shiller numbers near the end of today's commentary) which helps investor's confidence in owning mortgages and securities backed by mortgages, which in turn helps demand, which in turn helps mortgage rates for borrowers.

Yet Ed Pinto writes, "The WSJ on December 24 had a front page story entitled 'Push for Cheaper Credit Hits Wall'. The story's main theme is that 'economists posit that banks are keeping rates artificially high, boosting profits and depriving the economy of the full benefit of the Federal Reserve's efforts.' Charles Dickens could not have done a better job making banks out to be Scrooges. How about letting some facts get in the way of opinions posited by economists? The article starts on solid ground by pointing out that mortgage loan rates are about 57 basis points higher than the norms of 2003-2005 (a basis point is 1/100th of a percent), but quickly founders by failing to apportion this increase among various possible causes. It turns out the biggest contributor to 'artificially high rates' is not lender rapacity, but government action. First, it is well known that Fannie and Freddie (the GSEs) had been seriously mispricing credit risk for a couple of decades. This is the reason Congress, in 2011, ordered the Federal Housing Finance Agency, the GSEs' regulator, to assure that the GSEs' guarantee fees 'appropriately reflect the risk of loss, as well the cost of capital allocated to similar assets held by other fully private regulated financial institutions.' As a result, guarantee fees have increased from an average 22 basis points per year in 2003-2006 to about 54 basis points per year today. This increase of 32 basis points accounts for 55% of the 57 basis point rate increase. Second, it is also well known that increased regulations have added substantial time and expense to the loan origination process and that this has to get reflected in the rates charged. While hard to precisely quantify, I would conservatively put this added expense at 12-15 basis points."

Mr. Pinto continues, "So the reality is that government actions account for 44-47 basis points or about 80% of the increase. That leaves maybe 12 basis points or about 20% attributable to Grinch-like banks accused of stealing Christmas. The truth is, thanks to direction from Congress, credit risk is on the road to appropriately reflecting the true risk of loss and capital. The bad news is that since the Government Mortgage Complex continues to account for 90% of mortgage credit risk, the bulk of these fees are effectively paid as dividends to Treasury, whereupon they are immediately spent. They should be accruing as capital and contingency reserves held by private sector mortgage guarantee entities. Instead we have a government-dominated $10 trillion housing finance system with virtually zero capital behind it (correction: with the FHA's insolvency, the total is actually negative) and taxpayers are being left once again to pick up the tab. Contrast this to a healthy private housing finance market that would be backed by about $300-$400 billion in core capital, which capital would be supported by appropriated priced loan guarantee fees."

The CFPB has issued its second annual report to Congress on the CFPB's workforce.  The Dodd-Frank Act requires the CFPB to submit an annual report that includes a Recruitment and Retention Plan, Training and Workforce Development Plan, and Workplace Flexibilities Plan. Titled "Growing our Human Capital," the report describes the CFPB's progress in building its workforce since July 21, 2011 (the date of its first annual report.)  According to the report, the CFPB had 1,014 employees as of November 3, 2012, with 34% of the CFPB's employees self-identifying as a minority. The report describes the CFPB's "key accomplishments" in recruitment and hiring, training, and developing workplace flexibilities.  The "key accomplishments" in recruitment and training include, respectively, the CFPB's recruitment campaign for examiners and four initiatives for training examiners.  Consistent with the CFPB's focus on fair lending enforcement and emphasis on fair lending in its examination procedures, one of those initiatives is a fair lending course for examiners. Here you go.

Moving on to some recent investor news...

MSI has issued guidance on the documentation necessary for borrowers who have been victims of taxpayer identification theft, who are required to submit proof that the theft was reported to and received by the IRS, a copy of the alert of possible theft sent to the borrower from the IRS, and either a police report or proof of having filed a complaint with the Federal Trade Commission.  In terms of verifying income, borrowers must submit a W-2 or 1099 transcript that discloses the same mortgage interest, unemployment, and interest/dividend as shown on the 1040.

For all loans locked on and after December 20th, MSI requires that co-signed mortgage-related obligations be included in the DTI calculations, even if the borrower isn't the one making those payments.  The only circumstance under which real estate debt can be excluded is if the debt is assigned by a court order, which must be backed up by a copy of the court documents and evidence that the borrower has been removed from the title.

In response to the increasing default rates for student loans, MSI has started calculating Income-Based Repayment payments as the greater of 1% of the principal balance or $100 for all USDA loans.

MSI is now accepting 15-year terms for all FHA High Balance loans provided that the borrower has not had a serious issue with credit (bankruptcy, foreclosure, or short sale) over the past seven years, regardless of AUS findings.

M&T Bank has amended its VA guidelines such that it will not accept loans where an appraisal transfer has taken place, regardless of written assurance or certification deemed acceptable by the Appraiser Independence Requirements.  The M&T overlays for 203(b) and 203(k) loans have also been updated and are available on MEME.

SunWest's disaster policy is in effect for Barnstable, Bristol, Dukes, Nantucket, Plymouth, and Suffolk Counties in Massachusetts, properties in which must be re-inspected to certify that they have not been adversely affected by Hurricane Sandy.

Caliber Funding has expanded its LP Open Access offerings to include mortgage insurance transfers and allow unlimited CLTVs and the use of the HVE value on the LP approval.  Non-owner-occupied properties are subject to a 105% LTV maximum and an LLPA cap of 1.750, while a .50 LLPA cap applies to all owner-occupied transactions where the LTV exceeds 80%.
Bank of the Internet has transitioned to the LOANSIFTER platform, which will enable users to view BofI products within their investor consoles.  The platform supports fixed-rate Meridian and portfolio ARM loans, which includes asset depletion income calculation, pledged asset loans, foreign national lending, and vesting title in entities.

Optimal Blue has announced its new Zillow Direct integration, which provides aims to provide consumers with up-to-the-minute and compliant rates. To request a demo go here.

In training and events news, registration for Fannie's HFI InDepth courses is now available for 2013.  The offerings include training on interpreting DU findings reports, reconciling actual/actual custodial accounts and loans, and customer service for financially-pressed borrowers, the last of which is new for 2013.  See the Fannie Learning Center to find out more and register.

We did have a slight bit of news yesterday, although it was more to gauge the general health of the housing market rather than move interest rates. The Case/Shiller 20-city Index showed that home prices year-over-year ending in October rose by 4.3%, up from the 3% registered in September. The month-to-month number, however, saw a decrease of 0.1% in October which comes after a 0.2% gain in September. The 4.3% gain year-over-year in October was the largest gain since May 2010. Case Shiller index of 10 major metropolitan areas and the 20-city index eased 0.1% in October from September. Compared with a year earlier, the 10-city index increased 3.4%, and the 20-city index grew 4.3%.

Rates did little, if anything, yesterday and the 10-yr T-note closed about where it started at 1.76%. It was indeed a slow day with sources estimating originator supply at 50% of averages at about $1 billion, and with the Fed buying $3-4 billion a day so you'd expect a slight price improvement relative to Treasuries.

It is a new day today, but we probably won't see much volatility although we have a lot of economic news from around the world. US (Initial Jobless Claims, Continuing Claims, Consumer Confidence, New Home Sales); EuroZone (French Producer Prices, French Consumer Confidence, Italian Business Confidence, Italian Economic Sentiment, British Home Prices);Other (Japanese Housing Starts, Japanese Construction Orders, Taiwanese Leading Index, Taiwanese Coincident Index, Hong Kong Trade Balance, Japanese PMI, Japanese Jobless Rate, Japanese CPI, Japanese Retail Trade, Japanese IP). Yes, the world is a big place!

Today's Jobless Claims led off at 350k, down 12k from a revised 362k and better/stronger than expected. At 10AM EST November New Home Sales is expected to have risen while December Consumer Confidence is seen lower. Tomorrow we have another chunk of news: US (Chicago Purchasing Manager, Pending Home Sales); EuroZone (French GDP, French Consumer Spending, Spanish Retail Sales, Italian PPI, Spanish Current Account). In the early going the 10-yr is nearly unchanged from yesterday's close at 1.77% as are MBS prices.

Here are 6 short "Rules of the South":

1)      When you pass someone in their truck and they smile and wave at you, you are expected to do the same.
2)      We always respond to our elders by saying "yes sir" and "yes ma'am".
3)      Tea is supposed to be served both sweet and cold.
4)      The first day of deer/turkey season is a holiday.
5)      Camouflage is acceptable attire for any occasion.
6)      NASCAR is indeed a team sport.