Subservicer Audit Program; What CFPB Consent Order Might Tell Us; Decent Housing Numbers Continue

All this hope (hype?) that the mortgage industry is placing on the Millennials to bolster volume makes my head spin. (Scholars can't even agree on the range of birth years for the group but it seems to be about 1981-1996.) But hey, if you're going to offer them a mortgage, it is good to know their language, as this refinance video shows us. No gnarly closing costs but no trophies for merely showing up. Per the Washington Post, this age group should be buying houses right now! Forget the fact that when you're 25, maybe the last thing you want is to be tied down to an actual house, be caught up in the next credit crisis, or sign 100 pages of CYA lender docs.

And this next piece of information is especially timely given the preponderance of companies using subservicers. "Counterparty risk and vendor management are increasingly gaining the attention of the CFPB, GNMA, FNMA and other regulators. As an agency seller/servicer, or GNMA issuer, you are fully responsible for monitoring and overseeing your sub-servicer's performance. Ensure that you are adequately assuming your responsibility and mitigating risk by having Richey May & Co, an accounting firm that is heavily specialized in the mortgage industry, assist with your loan sub-servicer oversight procedures. Richey May has developed an oversight review program that includes testing of the sub-servicer's policies and procedures and internal controls on behalf of multiple clients at the same time, thereby sharing expenses and creating cost savings that are passed on to our clients. Having already completed sub-servicer oversight reviews of Dovenmuehle and Cenlar on behalf of a number of clients, Richey May is currently developing a similar review program for Provident Funding.  If you are interested in learning more about our Dovenmuehle or Cenlar review programs, or participating in the upcoming Provident Funding review, please contact Kurt Blohm."

Not a week goes by these days without lawsuit news applying to residential lending. For example, a U.S. appeals court has ruled that the National Credit Union Administration's lawsuit was not filed too late against issuers of mortgaged-backed securities, which include the Royal Bank of Scotland Group and Nomura Holdings. The lawsuits were filed three years after the securities were sold.

In other legal news, Goldman Sachs has agreed to buyback over $3 billion in loans from Fannie & Freddie. It boggles one's mind to think of all the potential lawsuits that could come from 50 states and various federal agencies, suing all the lenders, investment banks, and rating agencies that were doing business ten years ago.

And let's not forget a recent penalty against a servicer for $16 million - here's a nice write up from Bilzin Sumberg's Phil Stein and Sacha Boegem.

Lastly, and this is public record, Fifth Third Mortgage is suing Chicago's Townstone Financial for repurchase. It appears from reading the case that Fifth Third's ultimate claim is that 5 3 does not guarantee their underwriting approvals. The case is in the United States District Court for the Northern District of Illinois Eastern Division, Case: 1:14-cv-01878 Document #: 23 Filed: 07/30/14.

Although this impacts the auto lending business, the news turned some residential lending heads recently, and a quote from a well-written Ballard Spahr bulletin. "The CFPB announced a consent order with First Investors Financial Services Group, Inc., an auto finance company that both makes loans to consumers and purchases retail installment sale contracts from auto dealers. Under the terms of the consent order, First Investors agreed to pay a $2.75 million civil penalty relating to allegations that it knowingly failed to fix flaws in a computerized credit reporting system it had purchased from a third-party vendor. Although First Investors notified the vendor of the problem, the CFPB took issue with First Investors continuing to use that system without any fix being put in place by the vendor. Importantly, this consent order suggests that the CFPB does not place much significance on whether it can show any resulting consumer injury in determining that a practice warrants a significant civil penalty. Notably, although 'the severity of the risks to or losses of the consumer' is one of the mitigating factors to be taken into account in determining the amount of a civil penalty under Dodd-Frank, there is no mention of any actual consumer injury in the CFPB's consent order, press release, or related prepared remarks. Instead, the CFPB stated only that First Investors 'potentially harmed tens of thousands of its customers' and that in 'strategically target[ing]' subprime consumers and then 'knowingly' sending incorrect information to the credit reporting agencies, First Investors 'put consumers with credit profiles that were already impaired into an even more perilous position.' As such, the CFPB seems to say that the mere existence of a practice that it believes poses significant risks to consumers is sufficient to warrant a civil penalty in the millions. This means that companies cannot take comfort in the fact that a practice the CFPB may deem problematic resulted in only potential, not actual, consumer harm. The potential for consumer injury appears to be as unacceptable to the CFPB as injury in fact."

Let's keep playing catchup on recent agency, lender, and investor news to gain a sense of the trends out there...

Four draft appraiser-specific policy documents that will be part of the Federal Housing Administration's (FHA) Single Family Housing Policy Handbook (SF Handbook) were posted today for stakeholder review and feedback. An extension from July 29 to August 15, 2014 has been granted to allow stakeholders additional time to provide voluntary feedback on the draft Doing Business with FHA-FHA Lenders and Mortgagees and Quality Control Posted for Feedback. HECM New Principal Limit Factors Use and Other HECM Reminders 2014-12, regarding Principal Limit Factors (PLFs) and Mortgagee Letter 2014-07, regarding Due and Payable policies for an eligible Non-Borrowing Spouse are effective for FHA Case Numbers assigned on or after August 4, 2014 Mortgagee Letters.

AMX - DU Waiting Period Changes on 8/16/2014 waiting period requirements for borrowers who have had a previous deed-in-lieu of foreclosure or pre-foreclosure sale are being updated to now require a four-year waiting period; though a two-year waiting period will be permitted if the event was due to extenuating circumstances and the loan complies with all requirements specific to a deed-in-lieu of foreclosure or a pre-foreclosure sale due to extenuating circumstances, as specified in the Fannie Mae Selling Guide. The loan-to-value restrictions previously tied to different waiting period time-frames are also being removed.

Secure Settlements, Inc., a data intelligence and risk analytics company for the mortgage industry, announced that it had concluded a multi-year exclusive agreement with Maverick Funding Corp. (Maverick Funding) for the SSI Closing Guard and Vendor Check vendor management and risk monitoring products and services. Maverick Funding, headquartered in Parsippany, New Jersey, is recognized as an industry leader in mortgage services throughout the United States.

Lenders are swift to react to the FHFA changes on short sales. For example, an AE with United Mortgage out of New York let broker clients know, "Fannie Mae came out with some new mortgage codes that we will use to help us get more DU approvals. If you have a foreclosure (over 4yrs with extenuating circumstances) or a short sale (over 2yrs with extenuating circumstances, or 4yrs No Extenuating needed)  we now have a way to ignore that mortgage on the DU even if it is miss-reporting to credit.  Also if a mortgage Foreclosure was included in a BANKRUPTCY we don't have to wait 7yrs.  We can go off the BK waiting period. 4yrs normal or 2yrs with extenuating."

There is a growing body of evidence is showing that the housing market, which has been largely disappointing in 2014, may have turned a corner this summer. Builder sentiment/confidence has increased. After four months in contraction territory (below 50), the National Association of Homebuilders index crested above 50 in July and climbed higher, to 55, in August. July housing starts jumped to an eight-month high in a welcome affirmation of the improvement in homebuilding sentiment. Building permits also shot up. Single-family housing starts reversed two straight monthly declines to rise to the fastest pace reported yet in 2014. The number of properties listed for sale by U.S. homeowners climbed to nearly 2.4 million, the highest number of listing since August 2012, and the pace of existing home sales rose to a 10-month high of 5.15 million at an annualized rate.

A thousand years ago I'll bet there was a guy staring at his plot of corn seedlings wondering if the rains would come, and wondering if the future would be bountiful or if it would be sparse. My point is that we always look for someone, or something, to predict the future; uncertainty scares the farmer, and it scares the banker too. Wells Fargo writes, "In the past, many have believed that yield spreads between investment instruments have predictive power for economic growth. In fact, economic research has shown that changes in the yield curve have accurately predicted the past seven recessions."  However, Wells asks the question: has the link between the yield curve and economic growth changed behavior since the past recession? If so, how has the relationship between the yield curve and GDP growth changed? The article is worth a few minutes time (written by chief economists Azhar Iqbal and John Silvia) and concludes that their statistical analysis suggests that the relationship between the yield curve and GDP growth rates is different in the post-1990 era compared to the complete sample period, and that the overall relationship is not as straightforward as suggested by conventional economic theory.

This will be one of the slowest weeks of the year (the UK markets are closed today and the US is closed next Monday). We had a lot of news out last week, although agency MBS prices did very little - and in fact prices were basically unchanged from the prior Friday! Janet Yellen still sees "significant" under-use of labor resources. Basically the job market is improving, but not enough to direct policy quite yet. But that is only half the economic puzzle - the other is housing...

I don't know how we arrived at the last week of August so quickly, but we did. It is a busy week of scheduled news, so let's just wade in. As if we didn't have enough housing news last week, today we have New Home Sales. Tomorrow is Durable Goods (anything with more than a 3 year life), another bunch of measures of house prices (from Fannie & Freddie's boss the FHFA, and from the S&P/Case-Shiller indices with their two month lag). We'll also have Consumer Confidence - are you more than confident than a month ago? Wednesday will be GDP - a biggie - along with Personal Income & Consumption and some core PCE numbers. Thursday is, along with counting down to a 3-day weekend, Initial Jobless Claims and Pending Home Sales. Friday, if anyone is left at their desk, we'll have Personal Income and Spending, more PCE numbers, and the Chicago Purchasing Managers antics. And let's not forget the University of Michigan Consumer Confidence number.

For numbers, the 10-yr closed Friday at 2.40%; this morning, before the 7AM PST's New Home Sales, we're at 2.38% and agency MBS prices are better by about .125.

Jobs

On the jobs side of things, HeritageBank Mortgage is looking for serious and seasoned originators to fill only eight more openings in Southern Colorado and Denver. HeritageBank Mortgage is a boutique mortgage lending institution serving Colorado and the Southeast, has been in the banking business for nearly 60 years, and the bank's Mortgage Division is growing rapidly with production volume over $100million/month and a heavy emphasis on purchase business. "The Colorado Mortgage Division is truly changing the game for originators looking to dominate in their market with local and in-house operations, quick approvals and closings, comprehensive products, competitive rates, and a marketing platform that is unmatched in the industry. HeritageBank is a direct lender and servicer with Fannie Mae and Freddie Mac. Headquartered in Atlanta and supported by a 5-Star Bauer Financial Rated bank with close to $2B in assets, HeritageBank Mortgage is an exceptional career option for the experienced originator." For more information on working at a State Chartered Bank, email Jeff Garman, head of Business Development. You can find HeritageBank on NASDAQ: HBOS. NMLS #412081. Equal Housing Lender. Member FDIC.