Freedom Continues to Grow; $500k Fine for RESPA Violation; Information on Individual Liability in CFPB Cases
"I'm going to retire and live off of my savings. The second day, I have no idea what I'll do." Quips aside, many Americans have no clue about how much money they'll need to fund a financially secure retirement. For example, who has a crystal ball to estimate health care costs? (Fidelity's most recent Retiree Health Care Cost Estimate found that the average couple could expect to spend more than $220K in health care expenses over the course of their retirement.) But many bank and non-bank mortgage companies are offering financial planning, and when one walks into their lobby one sees advertisements for those services. They figure, "You're telling us all about your current financial situation, we might be able to help you plan for retirement." A good number of community banks offer retirement products such as targeted savings accounts. So as demographics change, banks see this as a way to get a foot in the door with customers in their 40s and 50s who could really benefit from this type of guidance.
For some industry news, congrats to industry vet Don Emerson. San Francisco-based Bay Equity Home Loans has hired Don as Divisional Vice President to further develop and grow the California region. Don will oversee 13 company branches in California in addition to overseeing expansion in the state. Bay Equity Chief Production Officer Casey McGovern said, "Hiring Don Emerson reflects our commitment to hire only the best. Don has trained, mentored and worked beside more than 2,500 loan officers, account managers and mortgage brokers in retail and wholesale lending in California, Arizona, Texas, Oregon and Washington. Don is a perfect fit to help us implement best practices and invest in our people." Family owned and purchase focused Bay Equity has a great culture, full agency approval (Fannie, Freddie, Ginnie) and is looking for top mortgage professionals to join its team. For more information contact Casey McGovern, casey@bayeq. com.
Diversity is important in the lending biz, and MBA member received this note yesterday. "The Mortgage Lending Industry Strategic Markets and Diversity Conference held six annual conferences between 2006 and 2011. I am pleased to announce that, as part of its expanded diversity initiative, the Mortgage Bankers Association (MBA) has agreed to take future responsibility for this important event...This annual gathering provided a unique opportunity for industry professionals like you to candidly discuss the interplay of strategic lending, diversity, compliance and the bottom line. I am thrilled to tell you that this event is back (next month), and expect it will be better than ever with your support. MBA's Strategic Markets and Diversity Summit will deliver the tools you need to grow your business in a thriving, forward-looking market."
We'll also be having a free National VA Financing Webinar in June. I have previously discussed in this forum that one area in which the government has stepped up over the years is in addressing the financing needs of our Veterans, and the men and women actively serving. Nevertheless, VA financing is often either misunderstood or discouraged by many mortgage and real estate professionals. Even Vets often do not embrace it due to previous experiences or a misunderstanding of the program. We need to change that perception. I will be providing the opening comments at an informational National VA Financing Webinar on Tuesday, June 24th at 10:00 AM Pacific Time. The purpose of the free call will be to enlighten and encourage real estate and financial industry professionals to better embrace the VA financing option. The call is sponsored by iServe Residential Lending and will feature comments by Keith Pedigo, the former Director of Loan Guaranty Services and Deputy Undersecretary for Policy at the Department of Veterans Affairs. Presenting for iServe will be long-time industry Veteran, and Director of Government Lending, John McDade.
In Alabama, or any state for that matter, $500,000 goes a long way. The CFPB has fined RealtySouth that amount for "inadequate disclosures that could leave consumers unaware of their rights to choose service providers during the home-buying process." The forms either explicitly directed or suggested that title and closing services be conducted by Title South, LLC, an affiliated company owned by the same holding company that owns RealtySouth. The CFPB said the forms could leave consumers unaware of their rights to choose service providers during the home-buying process and charged that the company violated the Real Estate Settlement and Practices Act (RESPA), which protects consumers by prohibiting kickbacks for referrals of real estate settlement services.
This is quite a shot across any company's bow that is working with the consumer and may "refer" that consumer to a lender. Not a week goes by that I don't receive an e-mail, usually with proof, of Realtors and builders directing clients to a particular lender. Some of these are obvious, some are slyly worded. For example, a Realtor or builder may state that they don't require their customer use their preferred lender, but will require a pre-approval from the preferred lender. And of course, what borrower wants to go through a pre-approval and then change lenders for the actual approval?
Law firm K&L Gates reports that, "To date, the CFPB has brought 12 cases-out of more than three dozen total CFPB enforcement cases-in which it named individuals as defendants or respondents liable for violations of consumer protection statutes. Below, we consider the standards for individual liability in CFPB cases, the actual cases that have been brought, and 10 lessons that can be drawn from these cases."
Reputational Risk is, or should be, a huge concern in the industry. It goes without saying, the mortgage industry has many PR concerns, and with many banks moving their brands away from solely a "price leader" to a more "customer friendly" look, those concerns rise proportionally. Late last month, Jeb Hensarling (R-TX), a member of the House Financial Services Committee sent letters to the Federal Reserve, the OCC, the OCC, the FDIC, and the NCUA asking the regulators to explain their use of "reputational risk." In the letter the Congressman asked each regulator to add clarity to a few issues, such as: whether it consider reputation risk in its supervision of depositories, and, if so, to explain the legal basis for such consideration and why it is appropriate; what data is being used to analyze reputational risk and why such data is not already accounted for under the Uniform Financial Institutions Rate System (aka CAMELS); and) whether a poor reputation risk rating could be sufficient to warrant recommending a change in a depository's business practices notwithstanding strong ratings under CAMELS.
Ellie Mae released its insightful Insight Report. One link is worth a thousand words, right? According to the report, which obviously doesn't include loans that don't pass through Ellie Mae, the FICO average of purchase conventional loans that closed was 755 and LTV average was 80% which was just slightly eased from an average of 759/80 for 2013 and 763/79 in 2012; 64% of closed loans were for conventional loans.
So how are recent housing numbers looking? Taken from various reports, existing home sales YTD are down about 6.5% according to data from the National Association of Realtors. Housing analysts estimate repeat buyers are down 1.6%, first-time buyers are down 12.3%, investor purchases are down 10.2%, and non-investors are down 5.6%. However, cash buyers are up 4.7%, non-cash buyers are down 11.3%, and distressed purchases are down 39%. Home prices appearing to remain strong, up 1.4% YTD and up 12.2% year-over-year through early spring. New home sales are down 1.8% First-time homebuyers still remain weak. Going back to 2008, first time homebuyers accounted for roughly 30% of home sales and reached 45-50% during the first time home buyer tax credit, but have steadily drifted to slightly below 30%.
The Fed is still worried about housing, as the sector continues to grow as expected. Unfortunately, the Fed doesn't have a lot of levers to deal with the underlying issues of low household formation, tight credit, and lenders frightened of their own shadows. Again, all real estate is local, and the problems are mainly in the Northeast, which is still dealing with a large shadow inventory of foreclosures. In areas where this has been dealt with already (California), there is a tremendous amount of building.
And regarding servicing, from reporter Jody Shenn comes this story about Freedom Mortgage. Freedom's at $50 billion in servicing - nothing to sneeze at!
For a couple recent state-level updates...
Maryland, with passage of Senate Bill 583, has revised statutes on interest escrow accounts and savings accounts which have been created for a specific purpose. The state legislature has made revisions to commercial and financial statutes relating to escrow accounts created in connection with loans secured by a first mortgage or deed of trust on residential property. Section 12-109 now contains a new minimum interest rate payable to borrowers with such escrow accounts. It states, "a lending institution doing business in Maryland must now pay interest on the funds in the escrow account at an annual rate of no less than the weekly average yield on United States Treasury securities adjusted to a constant maturity of one year."
And Indiana has made revisions to pre-licensing education requirements for originators. The department has eliminated a prior requirement of two hours of education on the topic of state law and rules concerning residential mortgage lending, The state of Indiana's pre-licensing education requirements for mortgage loan originators currently mandate a minimum of twenty hours of relevant education. The regulations state that pre-licensing education must include, at a minimum: two hours of training related to lending standards for the nontraditional mortgage products marketplace, three hours of education on ethics, including instruction on fraud, consumer protection, and fair lending issues, and three hours of education on federal law and regulations.
GDP numbers for the United States were released yesterday, and they were poor. First quarter GDP was revised downward to -1% versus expectations of -.5% - how long can we blame the weather? Initial Jobless Claims fell to 300k, and Pending Home Sales increased .4% month-over-month, but fell 9.4% in the year-over-year number.
Rates are driven by supply and demand. Overall, the recent bond rally (bond prices going up, rates going down) has caused a pick-up in lock activity, and thus a pick-up in selling agency MBS to hedge the production. Traders also saw some selling from hedge funds. The pick-up in MBS sales is not only quite a bit over the recent daily averages but well over the Fed's daily purchases of about $1.8 billion. In terms of numbers, Thursday saw the 10-yr down a smidge and close at a yield of 2.45% and agency MBS prices worsen about .125.
Here on the last business day of the month the economic news calendar has a fair amount of news: April's Personal Income and Consumption (expected +0.3 and +0.2, respectively), Core PCE Prices (expected +0.2), the May Chicago Purchasing Manager's Index, and the final May Consumer Sentiment number. In the early going the 10-yr. is at 2.46% and agency MBS prices are roughly unchanged.