Pre-Approval Letters, IRS Verification, DPA Tools; Impending Changes in Regulators; MBA Forecast

“If there's anyone out there who has no family and is planning to stay home alone this Thanksgiving, please let me know. I need to borrow some chairs.” Kind of cute… What isn’t cute is that the MBA has reduced its production forecast for 2025 from $2.3 trillion to $2.1 trillion given what rates have done. Let’s hope that you’re not sitting on your hands. “Today’s mortgage business is dividing into two camps: those waiting passively for the next refi wave or rate decrease to bail them out and those taking bold, decisive action to reshape their future. The latter group is positioning themselves to thrive in 2025 and beyond. Throughout 2024, STRATMOR’s experts have witnessed this firsthand while crisscrossing the country to participate, present at, and gain insights from industry events. While last year’s atmosphere was decidedly grim, 2024 brought encouraging signs of cautious optimism and renewed confidence in the industry’s future. In STRATMOR’s latest Insights Report, some of the group’s advisors share key takeaways from recent industry gatherings and provide strategic guidance for capitalizing on the opportunities ahead in 2025. Check out, “Get on Your Feet: Insights Gleaned from Mortgage Industry Events for a Prosperous 2025.” (Today’s podcast can be found here and this week’s are sponsored by Truework. By connecting every verification method into one platform, Truework helps lenders eliminate process disruptions, maintain a competitive borrower experience, and reduce the fiscal impact of verifying income. Hear an interview with Truework’s Ethan Winchell on the current housing market challenges, emphasizing the importance of adaptability and dynamic business practices.)

Lender and Broker Software, Services, and Products

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“‘Tis the season to be thankful and, in celebration of Military Family Appreciation Month, Down Payment Resource (the OG of DPA) is thanking our service members and the lenders who serve them by bringing some “atten-hut!" to homebuyer assistance programs supporting military buyers. While service members are eligible for any of the 2,400-plus U.S. homebuyer assistance programs in our searchable database, we’ve drilled down to ID 49 programs offering up to $117,000 in assistance specifically developed to help our military community members build, buy or make accessibility-related home renovations. In addition to the 49 programs that exclusively serve Veterans, we found 211 homebuyer assistance programs that exempt Veterans from first-time homebuyer requirements. Schedule a demo today to learn Lima Charlie how your military buyers can benefit from DPA.”

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“Black Friday Week: 2 for 1 deal! Join us on 12/11 for a live webinar showcasing Halcyon’s cutting-edge Tax Wallet solution and get a preview of Byte’s all-new browser-based LOS platform for free. See how lenders can streamline their IRS verification process without leaving the Byte platform. If you’re looking for a faster, more efficient and cost-effective income transcript solution or looking for a powerful, yet affordable LOS platform that gives you total control over your loan process, you don’t want to miss this webinar. Register today!

Did you know the primary system for generating pre-approval letters is Microsoft Word? That's because the process of updating pre-approval letters is so clunky that loan officers just update letter templates they have saved to their desktops. Fortunately, QuickQual by LenderLogix has made the process 100 times easier and even lets Realtors and Borrowers update their own letters on the fly. Check it out here.

Uncertainty In The Regulatory Environment

With Trump in the White House, will we have fewer mortgage loans but fewer regulations? Ed Groshans with Compass Point Research & Trading, LLC penned an interesting piece on what might happen going forward. “The regulatory environment for banks is set to improve following Donald Trump winning the Presidential election. House Financial Services Committee Ranking Member Maxine Waters’s recent comments captured the change. “We know what the future holds: Trump and his appointees will seek to gut guardrails that keep Wall Street, megabanks, and crypto in check. They will rubber stamp bank mergers to allow big banks to get even bigger and give a free pass for banks to charge billions of dollars in new junk fees.

“Her remarks reflect the essence of how the regulatory environment is expected to become less onerous for the next four years. FDIC and OCC leadership will change on January 20. Federal Reserve (Fed) leadership changes will occur in 2026. Recent changes to the bank merger guidelines are subject to revision. The Basel III Endgame (B3E) rulemaking has stalled. The prospects for the COF/DFS transaction improve to better than 85%. The late fee rule will either be overturned by the courts or materially revised by the CFPB.

“Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg announced he will resign on January 19, 2025. We expect FDIC Vice Chair Travis Hill to be designated as the Acting Chair and is likely to become the next FDIC Chair. FDIC Board Member Jonathan McKernan is in line for Federal Housing Finance Agency (FHFA) Director.

“We expect Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra and Office of the Comptroller of the Currency (OCC) Acting Comptroller Michael Hsu to announce their resignation in coming weeks. If either remains in office on January 20, we are confident that Trump will fire and replace them almost immediately after taking the oath of office.

“This creates a unique and interesting situation for the FDIC. The FDIC bylaws permit one Board member to constitute a quorum. We do not expect Trump to leave the OCC and CFPB unfilled for an extensive period, but there would be a risk the two Democratic Board seats could be. The quorum rules would permit one to three Republican FDIC Board members to implement.

“Jerome Powell’s Fed Chair term expires In May 2026 and Michael Barr’s Vice Chair for Supervision term ends in July 2026. Their respective Governor terms end in January 2028 and January 2032. Neither is required to leave early, but it is likely that both will resign from the Fed when the leadership term ends. This would permit Trump to nominate a new Fed Chair and Vice Chair for Supervision. Former FDIC Chair Jelena McWilliams is interested in the Vice Chair position.

“New leadership at the Fed, FDIC, and OCC will permit the agencies to revisit controversial/onerous rulemakings, including bank merger guidelines, B3E, and Community Reinvestment Act requirements.

“A Republican dominated FDIC Board, be it one or three Board members, could initiate rulemakings to revise the bank merger guidelines. A new Acting Comptroller could also revise its merger guidelines. If the agencies were to revisit these guidelines, we expect the asset levels to be raised to $250 billion versus $100 billion for the FDIC and $50 billion for the OCC. We also expect more clarity regarding market/submarket concentrations. Finally, we expect the FDIC to remove the requirement that a merger “better” meets the needs and convenience of the communities served.”

What about the dreaded “Basel III Endgame?” “Chopra resistance can significantly delay B3E. Chopra’s ardent opposition to Barr’s B3E revisions will materially lengthen the timeline to complete the rulemaking. In addition, it will give the new FDIC board the opportunity to further soften the capital impact.

“We do not expect the B3E process to end. First, Barr said he will serve out his full term, which expires in July 2026. Second, the Basel regime is a global agreement on the framework for bank capital requirements. In July 2024, the Bank of England and European Commission separately announced their intention to delay the implementation of their respective B3E requirements. These announcements followed Powell testimony to the Senate Banking Committee on July 9, 2024, when he advised Congress that the B3E proposal would be revised and reproposed. We expect the global regulators to continue to coordinate on B3E framing and implementation. Our projection is the Fed and FDIC will repropose the B3E rule given the global coordination. Chopra’s opposition, Trump’s election, and the new bank regulator leadership points to an extended revision process. If the FDIC and Barr do not reach an agreement, the process could be further delayed until Barr’s replacement is confirmed.

Barr indicated the capital increase for G-SIBs would be 9%. The outcome of the election makes that the cap/worst case scenario. Changes at FDIC will likely result in the reproposed B3E requirements being lowered. This could result in capital requirements that are 5-7% higher.

Junk Fees. Our forecast is the CFPB late fee case will remain in the Northern District of Texas and that the Fifth Circuit Appellate Court will overturn the rule. The next CFPB Director will determine how the process moves forward.

The Director can request the case be paused to permit the agency to review the rule. The CFPB materially revised the payday lending rule after it was finalized by former CFPB Director Richard Cordray. The revision gutted the payday lending rule, which was not revisited by Chopra. With regards to the late fee rule, we expect the Director to once again materially revise the rule. These revisions would likely reset the rule closer to the framework put in place by the Federal Reserve. This means the safe harbor late fee would be materially higher than $8, a deterrent fee would be permitted, and the CPI adjustment would be reinstated.

“The second path would be to permit the lawsuit to move forward. If, as we expect, the court overturned the rule that would end the CFPB’s late fee rule.”

Ed’s piece wrapped up with, “Former CFPB Deputy Director Brian Johnson and former counselor to the Treasury Secretary Craig Phillips are under consideration to be CFPB Director.”

Capital Markets

For the financial community, the headline to open this abbreviated Thanksgiving week was that Scott Bessent has emerged as the nominee for Treasury Secretary, a development that has garnered widespread approval from Wall Street and financial markets. A seasoned hedge fund executive and investor, Bessent is viewed as a stabilizing force, with traders describing him as a “safe hands” candidate. His appointment has been met with optimism, particularly among bond market participants, as his reputation suggests a focus on maintaining economic and financial stability rather than pursuing polarizing political objectives.

This market-friendly sentiment has eased concerns over potential inflationary pressures tied to extreme policies such as sweeping tariffs or mass deportations. Consequently, bond yields trended lower at the start of the week, reflecting renewed confidence in steady economic stewardship. Meanwhile, equity markets have seen continued investment inflows, as investors express hope that Bessent's leadership will prioritize pragmatic financial management over political posturing. The relief in financial circles underscores the broader expectation that his tenure could bring a much-needed sense of calm and predictability to fiscal policy.

This week's shortened trading schedule, influenced by the Thanksgiving holiday and early market close on Friday, places a spotlight on tomorrow's release of the core Personal Consumption Expenditures (PCE) index. Expected to show a 0.3 percent monthly gain, the data could suggest inflationary persistence. However, Federal Reserve Chair Jerome Powell has previously indicated that such fluctuations are part of the uneven progress toward the 2 percent inflation target, implying the Fed has already accounted for this in its guidance.

While speculation continues about a potential rate pause, Powell’s recent remarks suggest the Fed may delay such a decision until early 2025, taking a cautious approach to evaluate economic conditions before adjusting its policy trajectory. FOMC members have been consistent in saying that inflation really isn't put to bed and with the economy humming along they can be patient with rate cuts. Markets now price in about a 50 percent chance of a 25-basis point cut for next month and just 75-basis points in further rate cuts by the end of next year.

After a light opening to the week (a strong 2-year note offering from Treasury was beneficial for bonds), today’s economic calendar packs a heavier punch. We are already under way with Philadelphia Fed non-manufacturing for November. Later today brings Redbook chain store sales, house prices for September, FHFA announcing the 2025 conforming loan limit, consumer confidence for November, October new home sales, Richmond Fed surveys for November, Dallas Fed Texas services for November, Treasury auctions that will be headlined by $28 billion reopened 2-year FRNs and $7 billion 5-year notes, and the minutes from the November 6/7 FOMC meetings. We begin the day with Agency MBS prices roughly unchanged from Monday evening and the 10-year yielding 4.29 after closing yesterday at 4.27 percent; the 2-year’s at 4.25.