Builder Product; Legal News and Settlements; Government Personnel Changes
Welcome to March. What happened to January and February? This commentary occasionally discusses “tiny homes” (yes, okay with the Agencies if comps can be found), houses made from shipping containers, and other trends in home building. Now we can shift our curiosity to… swimming pools made from shipping containers? Yup – and darned easy to install.
Legal, Political and Regulatory News Impacting Lenders
Don’t care about the elections this November? Think again. A total of 468 seats in the U.S. Congress (33 Senate seats and all 435 House seats) are up for election on November 6, 2018. Put another way, every House of Representatives seat is up for grabs.
There’s plenty going on in the legal arena. For example, a report is circulating that CMG Financial is being sued by New Penn over a “weekend raid” of dozens of personnel.
The US Department of Justice has settled with Deloitte, the world’s biggest professional services firm, for $150 million over its alleged failure to detect a long-running fraud at Taylor, Bean & Whitaker. In 2009 TBW collapsed, and several executives from TBW and Colonial Bank (its warehouse bank) were sentenced to various prison stretches. Deloitte served as TBW’s independent outside auditor from 2002 until 2008, during which time it signed off on financial statements that were “materially false and misleading”, the DoJ said. TBW’s fraud involved the sale of fictitious or double-pledged home loans and as a result, inflicted losses on the FHA. “When auditors fail to exercise their professional judgment, and make false statements that allow bad actors to remain in government programs and submit false claims to the government, there will be consequences.”
Last week Capital One settled a GreenPoint lawsuit, totals rewards reserves. Thank you to Ken S. who passed along this story where “Capital One Financial Corp. said in its Form 10-K filed Feb. 21 that it resolved long-running litigation over its closed GreenPoint Mortgage Funding Inc. unit. The mortgage unit, which was shut down in 2007, was named as a defendant in a lawsuit by U.S. Bank NA, Syncora Guarantee Inc. and CIFG Assurance North America Inc. in 2009. The suit alleged that GreenPoint breached certain representations and warranties in two contracts on 30,000 mortgage loans it sold that carried an aggregate original principal balance of approximately $1.8 billion to a purchaser that ultimately transferred most of these mortgage loans to a secularization trust.
“The plaintiffs sought damages and an order compelling GreenPoint to repurchase the entire portfolio of loans based on alleged breaches of representations and warranties relating to a limited sampling of loans in the portfolio or repurchase specific loans related to the alleged breaches of representations and warranties. GreenPoint resolved the litigation for a total of $540 million in December 2017, according to the filing. Its discontinued operations results included a pretax charge of $169 million related the settlement of previously recognized reserves.”
"They can't collect legal taxes from illegal money." Al Capone, before he was convicted of tax evasion. The White House released its fiscal 2019 budget request, Efficient, Effective, Accountable, an American Budget (2019 budget proposal), along with Major Savings and Reforms (MSR – as if we need another acronym) and an Appendix. Residential lenders were quick to note that under the MSR’s “Restructure the Consumer Financial Protection Bureau” section, Congress and the current administration would implement a broad restructuring of the Bureau to “prevent actions that unduly burden the financial industry” by restricting its enforcement authority over federal consumer law. Among other things, the proposed budget would cap the Federal Reserve’s (Fed) transfers this year at $485 million (an amount equivalent to its 2015 budget) and eliminate all transfers by 2020, at which point the Bureau’s appropriations process would shift to Congress.
It seems that the government is in turmoil. Out in Utah Mitt Romney is running for the Senate. New Jersey Republican Rep. Rodney Frelinghuysen, the chairman of the powerful House Appropriations Committee, announced that he will not seek re-election in 2018. Frelinghuysen's announcement comes as about three dozen other Republican members and a host of other House chairmen have announced their retirements or plans to run for other offices outside of Congress amid speculation that the 2018 midterms could be a wave election for Democrats.
For example, Orin Hatch is retiring. Jeb Hensarling is retiring. House Oversight Committee Chairman Trey Gowdy announced that he will not seek re-election this year, becoming the 24th Republican opting to retire at the end of this Congress. Rep. Pat Tiberi (R-OH), a high-ranking member on Ways and Means Committee, resigned from his congressional post this year to take an executive position with a business group in his home state. Rep. Ileana Ros-Lehtinen (R-FL) attributed her early decision to retire in part to a level of partisanship and gridlock that she said is a “detriment to civility and of good government.”
Vox reports that, “The list of congressional Republicans calling it quits keeps growing. Gowdy is heading for the justice system at the end of this year. “I enjoy our justice system more than our political system.” Frelinghuysen is bailing with four years left in his chairmanship. Twenty-one House Republicans have announced retirement this Congress, and a host of others are leaving to seek different political office or have already resigned.
“But there are some overarching trends worth mentioning: Congressional leadership has increasingly centralized decision-making away from individual lawmakers, and there’s a growing understanding that House Republicans could slip into the minority after this midterm election cycle. Paired together, lawmakers are likely asking themselves the point of being in the Capitol…Most of the congressional retirement announcements have come with a feeling of frustration; an admission that perhaps being in the House of Representatives lacks the influence that most associate with the country’s power center.
ProPublica published a review of the State of the CFPB. One interesting excerpt: “I’m really passionate about my work and the people we serve,” said one CFPB attorney.
The differences between the Consumer Financial Protection Bureau’s (CFPB) philosophies under acting director Mick Mulvaney compared with those under Richard Cordray’s leadership are becoming evident. On February 14, the CFPB released its fourth Request for Information (RFI) in a series seeking feedback on the bureau’s operations. While prior RFIs have focused on various aspects of the Bureau’s enforcement process, this RFI solicits public comment on “how best to achieve meaningful burden reduction or other improvement to the processes used by the Bureau to supervise for compliance with Federal consumer financial law.”
And don’t forget the CFPB’s recently finalized Strategic Plan for 2018-2022. Democratic lawmakers are objecting to acting CFPB Director Mick Mulvaney's decision to strip the fair-lending office of enforcement powers. And the White House plans to scale back the powers and budget of the CFPB. President Trump’s 2019 budget proposal included increased spending for defense, infrastructure, and border security. There were also several provisions to curtail spending.
"If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau's statutory responsibilities, but go no further," said Acting Director Mick Mulvaney. "By hewing to the statute, this Strategic Plan provides the Bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers."
The plan draws directly from the Dodd-Frank Wall Street Reform and Consumer Protection Act and refocuses the Bureau's mission on regulating consumer financial products or services under existing federal consumer financial laws, enforcing those laws judiciously, and educating and empowering consumers to make better informed financial decisions. Among changes from the prior Strategic Plan, the Bureau will now focus on equally protecting the legal rights of all, including those regulated by the Bureau, and will engage in rulemaking where appropriate to address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.
Capital Markets
Yesterday U.S. Treasuries ended on a higher note, price-wise, on the back of mostly disappointing economic data. Notably, pending home sales declined 4.7% in January while the December reading was revised down to 0.0%, leaving the Pending Home Sales Index at its lowest level in three years. And Q4 GDP was revised slightly down to 2.5%, as expected, after the original reading of 2.6%. The GDP Price Deflator was expected to remain unchanged at 2.4%, but was revised down to 2.3%, due mostly to a change in private inventories. And the Chicago Purchasing Manager’s Index dropped from 65.7 in January to 61.9 in February, well short of estimates and marking the lowest reading since August 2017.
Turning to today, Fed Chairman Jay Powell will return to Capitol Hill to deliver the second part of his testimony on monetary policy before the Senate Banking Committee. His opening remarks will not differ from those offered to the House Financial Services Committee on Tuesday.
Additionally, we have a full economic calendar, headlined by the January PCE report. Income and spending were expected to both increase 0.2% MoM, but were +.4% and +.2% respectively. We’ve also had weekly jobless claims for the week ending February 24 (-10k to 210k, very low). Later in the morning we have the February Markit PMI and ISM Manufacturing PMI releases. Then comes January construction spending, Freddie Mac's Primary Mortgage Market Survey, and an afternoon NY Fed report on MBS purchases for the week ending February 28. The day starts with the 10-year yielding 2.84% and agency 30-year MBS prices better .125 versus last night’s close.
Jobs, Promotions, and Products
Plaza Home Mortgage, Inc. is currently looking for an Account Executive in the western Washington region. Management has a rare opportunity for an AE role that will have access to existing clients and prospects and is looking for a knowledgeable and motivated individual that can add to their book of business with Plaza. Join a growing team with a very competitive compensation plan, some of the best training in the industry, real-time marketing support and a regional operations center! For more information on this opportunity, please contact John Forsythe, Regional Vice President (206-499-1551). Plaza is an EEOC employer and follows all laws relating to fair employment. Company NMLS #2113
Mortgage Information Services, Inc., a national title insurance, escrow/settlement and appraisal management company is seeking a Regional Account Executive to generate new business from mortgage bankers/brokers, banks and credit unions. The preferred candidate has at least five years of related experience in the real estate service industry with a vendor and/or mortgage company and would be in the MidAtlantic Region – overnight travel of approximately 50% will be required. No relocation necessary. Resumes can be sent to David Stroop, Regional VP (888.901.4647, ext. 2170).
Are rising interest rates, the new tax rules and/or housing inventory issues slowing down your momentum? Attend one of the 10 upcoming Sales Momentum Workshops to learn how to overcome these roadblocks and win more deals this year. Gibran Nicholas, CEO of CMPS Institute, will be the keynote speaker at the Sales Momentum workshops, which will kick off on March 12. Locations include Irvine, San Diego, San Ramon, Seattle, Denver, New York, Philadelphia, Washington DC, Atlanta and Dallas. This is a great opportunity for branch managers and LO’s to invite your strategic partners, because you’ll essentially be getting a third-party endorsement from the stage. “I'll be talking about why Realtors and financial advisors need you in light of millennial trends and the changing market,” says Gibran. “You and your strategic partners will walk away with a 30-day action plan to create massive sales growth together!” Click here to watch a 3-minute video and sign up.
National MI is pleased to announce the promotion of Elaine Till to Account Manager covering Oregon, Hawaii, and southwest Washington. She has been with the company for 5 years, most recently as Account Representative in Oregon and Washington. Elaine is replacing Account Manager Dennis Jordan, CMB, who is retiring after over 4 years with National MI, and over 40 years in residential mortgage banking. Please reach out to Elaine Till (314-368-4755) to learn more about how she can help you.
“Caliber Home Loans, Inc. is proud to announce our Builder’s Choice Extended Lock, which offers rate lock options for today’s competitive housing market. Caliber’s enhanced extended lock options mean that interest rate volatility will no longer be a concern for builders or new home buyers who work with us. We have a 360-day rate lock option, which now applies to ARMs and 5-star ARM, and reduced pricing on other lock options like the 120-day lock. Longer locks. Lower rates. More coverage. More reasons why Caliber Home Loans is the Builder’s Choice for Home Financing. Builder-focused loan officers should contact Jeremy DeRosa or Michael Brown to learn how our new home financing options can grow your sales volume.”