CFPB Enforcement Action - Realtors Take Note About Referral Fees; GSE news; Jumbo Program Trends
Although I am now in Phoenix for several days, where house flipping is ramping up again, I was fortunate earlier this week to be able to attend the Texas Mortgage Banker's Secondary Market Conference in Austin. The mood was upbeat, and the attendees were genuinely interested in learning about helping consumers while making sure loans are done in compliant manner.
Legal & regulatory news: it doesn't stop...real estate companies beware
We all know that $3.5 million isn't chump change. The Consumer Financial Protection Bureau fined Prospect Mortgage, LLC, ReMax Gold Coast, and Keller Williams Mid-Willamette for illegal kickbacks relating to mortgage business referrals. Planet Home Lending was also mentioned. We all know that residential lenders and title companies, among others, have been fined before. But folks who pay attention to these things say that this is the first time the CFPB has fined a real estate brokerage for the RESPA violations noting, "we will hold both sides of these improper arrangements accountable for breaking the law..."
The RESPA violations arose from the following arrangements which were framed as payments for advertising or promotional services but were actually disguised payments for referrals: 1. The amount of the payments made from Prospect to the real estate agents for marketing were adjusted based on the number of mortgage referrals given to Prospect. 2. The brokers "wrote in" Prospect as the mortgage lender in their listings and required that Prospect pre-qualify all of the purchasers even those who had been pre-qualified with another lender.
It appears that Prospect maintained various agreements with over 100 real estate brokers which served primarily as vehicles to deliver payments for referrals of mortgage business. Prospect tracked the number of referrals made by each broker and adjusted the amounts paid accordingly. Prospect also had other, more informal, co-marketing arrangements that operated as vehicles to make payments for referrals. Prospect had brokers engage in a practice of "writing in" Prospect into their real estate listings. "Writing in" meant that brokers and their agents required anyone seeking to purchase a listed property to obtain prequalification with Prospect, even consumers who had prequalified for a mortgage with another lender.
The CFPB pointed out that Prospect and Planet Home Lending had an agreement under which Planet worked to identify and persuade eligible consumers to refinance with Prospect for their Home Affordable Refinance Program mortgages. Prospect compensated Planet for the referrals by splitting the proceeds of the sale of such loans evenly with Planet. Prospect also sent the resulting mortgage servicing rights back to Planet.
Sure, builders will have a preferred lender where there are discounts, for example, but home-buyers are permitted to use any lender or mortgage company they choose. If a potential home-buyer (i) is required to use the lender whom the real estate agent prefers or (ii) pressured to have the preferred lender pre-qualify them, they can file a complaint online with the CFPB. If successful, in addition to any damages incurred, the person may also receive a percent of the recovery.
Recently lawyers & regulators noted that PHH filed a supplemental response to the CFPB's petition for en banc rehearing and a response opposing the motion filed by Democratic Attorneys General of 16 states and the District of Columbia to intervene in the PHH appeal. Supplemental Response. The D.C. Circuit invited the Solicitor General to file a response to...
CFPB Director Richard Cordray is showing little sign of easing off the gas as the Trump administration takes hold. Cordray has recently said that he has no intention of stepping down early, despite pressure from Republicans eager to overhaul the 5-year-old agency. "It really shouldn't change the job at all," said Cordray of Trump assuming power. "We have an independent mandate to do what we do and we'll continue to work to protect consumers."
Switching gears somewhat, but staying on the regulatory train, the Independent Community Bankers of America issued a statement calling on the Trump administration "to rein in the overzealous application of fair lending laws." Ballard Spahr notes that, "ICBA stated that community banks are threatened by a recent trend of "unwarranted enforcement actions" that "harm community banks and the customers they serve by undermining the availability of credit..."
Attorney Phil Stein weighed in on litigation and legal/regulatory issues that will likely be top-of-mind for financial services companies, especially mortgage companies and banks, in 2017. Lawsuits and contractual mortgage buyback claims are still being filed with a higher percentage of mortgage buyback suits now brought by entities. Also, plaintiffs are now more prone to pitch their claims as ones for 'indemnification' rather than 'repurchase.' The CFPB may get its wings clipped to some extent by the incoming Trump administration. At a minimum, its leadership structure will need to be altered unless the PHH case ruling requiring such a change is stayed and then reversed."
On the topic of data security & privacy Mr. Stein noted, "For obvious reasons, the financial services industry stands out as one that regulatory agencies believe must be particularly prepared to defend against-and, if necessary, respond to- data breaches." And regarding financial services professionals as fiduciaries, "There is a clear conflict brewing in 2017 toward rules such as The U.S. Department of Labor final rule regarding the "investment advice fiduciary" definition under the Employee Retirement Income Security Act of 1974.
The constantly shifting world of Freddie & Fannie (GSEs)
The MBA released a briefing paper developed by an MBA Task Force outlining its recommendations for "end state" GSE Reform. "With the new Administration promising to make GSE reform a top priority...MBA's paper outlines an end state GSE reform model that will preserve and enhance the policies that work, while fixing the fundamental flaws in the system that led to their conservatorship. We spent a considerable amount of time with our diverse Task Force developing a model that will work for all market participants, regardless of size or business model." The MBA will be working on a blueprint for the transition process that will be necessary to ensure a smooth conversion and minimize the "switching costs" and developing a proposal to serve the affordable housing mission - a critical step for successful GSE Reform. The complete reform proposal will be ready later this spring.
There are changes to investor reporting start February 1st. Review the Fannie Mae Navigation Tips checklist to help you stay on track and ensure your readiness. All servicers should be sure to attend a live forum during the month of February (Tuesdays and Thursdays) -- Register today on the Changes to Investor Reporting page.
Jumbo?
"Once again Parkside Lending raises the bar with new additions to its superior suite of Jumbo products. Now with four different Jumbo products (Jumbo I, Jumbo III, Expanded Jumbo and Premier Jumbo), we're offering robust guidelines with aggressive pricing. LTVs as high as 95% with or without MI, and both fixed rates and ARMs. These products offer great options for investment properties and are an alternative to High Balance and Super-Conforming products. Please contact your Parkside Account Executive for more information or sales@parksidelending.com."
NYCB Mortgage Banking updated its Jumbo Fixed 30 Year and Standard Jumbo 5/1, 7/1 and 10/1 ARM. Self-Employed income requirement includes business tax returns, year-to-date P&L and Balance Sheet are required for all self-employment income sources, regardless if the income/loss from the business is used in qualifying and percentage of ownership. Also, Mixed Use Properties are not eligible including single family dwellings that have businesses operating within the dwelling or where the business rents space inside the home (examples: hair salons, animal groomers, child care services, business pays rent to borrower etc.).
PRMG posted various product updates. Changes effect Agency Fixed/Agency ARMs/ Agency High Balance, Agency Portfolio, Du Refi Plus, FHA products, VA/VA High Balance, USDA and Gold Jumbo.
Mortgage Credit Availability Increased in December. The MCAI increased 0.6% to 175.2 in December. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. Of the four component indices, the Jumbo MCAI saw the greatest increase in availability over the month (up 1.3%), followed by the Conventional MCAI (up 0.7%), the Government MCAI (up 0.6%), and the Conforming MCAI (up 0.04%).
Capital Markets: More corporate debt issuance
Agency MBS prices and U.S. Treasuries pushed higher Tuesday. Why? The economic data releases came up light. The Chicago PMI unexpectedly fell to 50.3 for January and the Conference Board's Consumer Confidence Index fell by almost two points to 111.8. Consumer confidence is still at relatively high levels, although consumers' outlook was reined in a bit following the post-election surge. Lastly, call it "old news" but the Case-Shiller 20-city index rose 5.3% y/y in November. (October's rate was 5.1%.)
Impacting supply & demand, AT&T announced a debt offering with six tranches of 5, 7, 10, 20, 30, and 40 years following Microsoft's $17 billion announcement Monday. Longer term mortgage rates are set by supply and demand, not pegged directly by the Fed. Yet the New York Fed continues to influence the supply and demand curves by buying $1-2 billion a day of agency MBS. One can argue that these corporate debt deals can soak up money to be invested in fixed-income securities by money managers. Regardless, Tuesday the 10-year closed at 2.45% improving .250 in price whereas the 5-year T-note and MBS prices improved about .125.
This morning we've had the MBA's survey of application data said to represent 75% of the retail origination machine. Due in large part to a drop in FHA applications, overall apps were down about 3%, and volume last week was 18 percent lower than the same week one year ago. Refis are 32% lower than where they were last year, and now account for less than 50% of total residential applications, but purchases are up 2%. I have mentioned that some appraisers have told me that their business is down 50% versus late last year.
Next up was ADP employment (private payrolls in January were +246k, more than expected). Ahead of us are the Treasury's announcement of next week's quarterly refunding, which is expected to consist of all new issues of 3-year, 10-year, and 30-year risk-free paper, Market Manufacturing PMI, January ISM Manufacturing, and December Construction Spending. Later brings the latest decision from the FOMC, which will be released at 2:00pm ET with the committee expected to keep policy unchanged. With all this going on we start the day with the 10-year chopping around 2.49% with MBS prices worse .125-.250 versus last night.
Jobs and Announcements
In sales job news, Orange Coast Title Company, "an industry leader since 1974 and one of the largest independently owned title insurance companies, is growing again and has an excellent opportunity for a National Sales Executive. As our National Sales Executive, you will acquire, build, and maintain strong, long-lasting client relationships with the top mortgage lenders in the country. The ideal candidate will possess a broad knowledge of the loan origination and servicing space, have sales experience with a proven track record of exceeding goals, and be self-motivated to succeed in a fast-paced, competitive environment." Interested candidates should send their resumes to Tim Curtis, National Sales Manager.
Founded in 2003, Century Lending Company is an experienced wholesale and correspondent lender focused on the highest standard of service. Century combines the personal services of a community lender with the power and reach of a national mortgage banking institution to bring our business partners the fastest and most efficient production environment nationwide. To build upon our success, we are seeking Account Executives (AEs) in the California, Colorado, Georgia, Pennsylvania, and Texas regions. Contact President Marla Guillaume for more information.
In other parts of the nation, a top well-known correspondent lender & warehouse capital provider is looking for 2 AEs - one to cover the Midwest and one to cover New York/New Jersey. AEs can work with both delegated and non-delegated clients, offering a full product line, including innovative non-QM products, Govies, and Conventional products. If you are looking for an exciting opportunity with huge earning potential, email your resume to me and specify the opportunity.
On the education side of things, Sierra Pacific Mortgage's Market Power series is starting the year off with some heavy hitters from the MBA. On Thursday, February 9, Pete Mills and Mike Fratantoni will be discussing the post-election world and how a variety of potential policy shifts are expected to affect the housing market. They will also be sharing what the political and regulatory atmosphere is today, as well as the MBA's goals and focus with the new Trump Administration. You don't want to miss this, so register today for this free webinar.
In hiring news, Franklin American Mortgage Company announced the addition of Jennifer Werner as VP, Director of Project Marketing. Ms. Werner has over 20 years of experience in conceiving, developing, implementing, and driving B2B and B2C marketing strategies within financial services, payments, and healthcare industries.