The average person in the residential lending sector would be hard pressed to say what Julian Castro, the current Secretary of HUD, does, or what role he serves. (Kind of like asking someone what gluten is.) We should remember that the Department of Housing and Urban Development is responsible for programs concerned with the Nation's housing needs, fair housing opportunities, and improvement and development of the Nation's communities. It has responsibilities ranging from insuring low-down-payment mortgages to administering rental assistance for low-income home owners. It does not oversee Fannie Mae or Freddie Mac, or directly oversee the myriad of residential loan lenders or investors. It does, however, carry a big stick when it comes to making sure that lenders and investors who originate its loans adhere to its policies and procedures. What does the Secretary of HUD do? He or she runs it. (I know - a cop out answer. But if you click on the link you'll see the pages and pages of job duties that are too lengthy to list here.)

But everyone sure weighed in on Ben Carson's testimony and questioning yesterday on Capitol Hill. Others were interested in Ben's choice of art work, including... a painting of him and Jesus? (That's okay - my kids think I hung out with Moses.) The topics addressed in yesterday's session should give you a good idea about HUD.

KBW's Bose George sent, "He acknowledged the growth in FHA volume since the financial crisis, and said he would explore ways to reduce that liability to the taxpayer. He said that he was surprised by the timing of the recent FHA premium cut, and would work with his FHA commissioner to examine that policy. Carson didn't address any specific policy changes, but said he supported 'some type of backstop' for the mortgage market. In response to a question regarding the preservation of the 30-year mortgage, he said, 'there are probably a number of ways to preserve that dream.' Without offering any specific policy recommendations, Carson said he was 'in favor of introducing more private entities to the market,' while still providing the security of a government backstop. President-elect Trump and his cabinet nominees have only made high-level comments regarding their stance on housing. We believe, however, the administration is generally in favor of a reduced government footprint. Any reduction in the FHA footprint should be positive for the mortgage insurers."

Bloomberg's Joe Light wrote up a description of his positions. "...He questions the need for a government backstop of the market for 30-year mortgages, saying the private market could take on much of the responsibility. Elizabeth Warren asked Carson if he could vow that no HUD funding would benefit Trump. In response, Carson said he would focus on whether policies benefit those who need help. 'I can assure you that the things that I do are driven by a sense of morals,' Carson said, adding that he wouldn't get in the way if there 'happens to be an extraordinarily good program that's working for millions of people and it turns out that someone that you're targeting is going to gain $10 from it.'

Few other countries offer a 30-year mortgage, and will often say there are few natural buyers of 30-year mortgages. "Carson also said he believes private companies should play a greater role in the mortgage market. He said he supports a government backstop in the market, but also said he believes the 30-year fixed-rate mortgage could continue to exist if that backstop ceased to exist. 'You can't do it overnight. It has to be a gradual change,' Carson said. 'We can't do it in a haphazard way.'

"At the hearing, Carson also said he wasn't briefed by the Obama administration before its decision on Monday to cut premiums the FHA charges by a quarter of a percentage point. Many Republicans lambasted the move as fiscally irresponsible, while some Democrats and housing-industry advocates said the move would help first-time home buyers. Carson said that he was surprised the administration made the decision on its way out the door and that he would revisit the policy, which takes effect on Jan. 27. He didn't say whether he would reverse the change."

Carson, in his prepared remarks, raised concern that banks are reluctant to participate in low-down payment loan programs for fear of getting sued if borrowers default. The wealthy have 'their pick of loans' while those without good credit are 'locked out,' he said.

Last month Democratic Representative Maxine Waters of California called Carson a frightening choice to lead the agency. Carson "may be a brain surgeon but he is not qualified to run HUD," Waters wrote in a statement. But four former HUD secretaries, who served under presidents Bill Clinton and George W. Bush, support him: Henry Cisneros, Mel Martinez, Alphonso Jackson, and Steven Preston.

Reporters Megan R. Wilson and Tim Devaney came up with "Four Takeaways from the Carson's Confirmation Hearing."

Compass Point's Isaac Boltansky thought that the FHA's recent mortgage insurance premium (MIP) cut is likely to stand. "More broadly, however, Dr. Carson's commentary regarding the need for more private capital in the mortgage market suggests that additional pricing changes at the FHA - either to the MIP or cancelability - are far less likely in the years ahead.

"In his written testimony, Dr. Carson said, 'Banks are loath to participate in low-down payment programs through FHA for fear of getting sued if the borrowers default. We need to make sure HUD and FHA are fulfilling their missions to help people build up an asset, like a home, which will help them climb up the rungs of the economic ladder.' We continue to expect the Trump Administration to shift the enforcement paradigm related to the False Claims Act, which should lessen lingering legal liability concerns for FHA lenders.

"In response to a question, Dr. Carson expressed his view that government support would not be necessary to ensure the viability of the 30-year fixed-rate mortgage. He suggested that the private market would offer the product following a gradual transition away from a federal backstop. As a reminder, Mark Zandi estimated that the PATH Act, which proposed largely privatizing the mortgage market, would have raised the price of a mortgage by ~90bps."

Mr. Boltansky's thoughts wrapped up with, " finance reform was barely mentioned, which reinforces our view that the odds of comprehensive reform in this Congress are only ~30%. Questions relating to the potential impact of HUD policies on the Trump companies will likely persist in the months ahead. Doctor Carson's performance was strong and we believe his path to confirmation is clear."

MBA president Dave Stevens weighed in with, "While clearly we need to find ways to get more private capital back into the housing system, the role of a government guarantee behind a segment of the mortgage system is critical to insuring a steady flow of capital in good economies and in bad. Pulling the rug out could result in a significant disruption to housing."

The Association of Mortgage Professionals (for some reason still calling itself NAMB) broadcast, "NAMB and its members are committed to working with Dr. Carson and HUD in developing policies that will expand affordable credit, therefore moving more Americans towards the dream of homeownership," said Fred Kreger, CMC, NAMB President. HUD is integral to mortgage lending and plays an important role in supporting NAMB's goal of consumer protection through clear regulation and consumer education. We look forward to working with Dr. Carson and his team to ensure that HUD continues to be vital to homeownership. We wish Dr. Carson great success as the new secretary."

And the National Rental Home Council "shares Dr. Carson's goals to improve housing security for all Americans and build stronger, more inclusive neighborhoods. We recognize the important role that rental housing can play in helping to advance these priorities, which is why our members are committed to providing many Americans with a quality, affordable housing option and an excellent resident experience. We look forward to collaborating with Dr. Carson to ensure America's housing market remains vibrant and continues to serve the full spectrum of America's housing needs."

Turning to the capital markets & rates...  Are you positive that rates are going higher? Me neither, and there are reasons why rates may stay here or actually slide back down a bit. No one has a crystal ball... certainly the demand for mortgages has fallen since the autumn, but then again, in talking to lock desks they are seeing signs of life as clients, and LOs, adjust to slightly higher rates. Then again, the business plans of top lenders and originators are rarely entirely dependent on rates. Or forecasting them.

Jobs and housing drive the economy, although the weekly Initial Jobless Claims numbers have been good for so long their impact has worn off somewhat. They have remained near historic lows all year and only a sustained upturn is likely to concern investors. Unfortunately, speeches by the presidents of the various Federal Reserve districts have lost some of their impact as well: several of them seem to be speaking on any given day. (Of note, however, was Philadelphia Fed President Patrick Harker saying that the Fed would have to think about halting the reinvestment of interest income from its portfolio once the Fed funds rate gets to 1.00%.) Rates barely budged, again, Thursday.

This morning we've had a spate of bank earnings for the 4th quarter, and thus all of 2016, for Wells Fargo, JP Morgan, and the Bank of Italy, uh, I mean America (+43%!). December's Producer Price Index figures (+.3%, ex-food & energy +.2%, kind of a non-event) and December's Retail Sales (+.6%, a little lower than expected) and Retail Sales ex-auto (+.2%). Coming up is the January Michigan Sentiment figure, usually of little consequence. After this we find the 10-year, which closed Thursday yielding 2.36%, at 2.38% and agency MBS prices worse a shade versus last night. Bond market is closed Monday.

Jobs and Announcements

A trusted provider of Quality Control and Due Diligence Auditing since 2011, Buckley Advisors is expanding its Audit area this year. "Our audit services are compliant with GSE and Agency requirements; staff has on average over ten years of underwriting/audit experience and we can assist in developing solutions to address recurring defects. We offer competitive pricing and personalized services not available elsewhere. For more information contact Mike Celenza at 904-329-7247."

In retail product news, "Is there a doctor in the house? Sierra Pacific Mortgage understands the unique financial needs of Medical and Dental Professionals who are in a residency program and/or a clinical fellowship program. That's why they just released a Medical Loan program aimed at providing new doctors and dentists with simple solutions to meet their home financing needs. You should contact your local retail branch for more information about this loan or joining the team. Your podiatrist needs a place to rest his feet at the end of a long day. Now he can, in his own home."

In TPO job news, Plaza Home Mortgage, Inc. has exciting opportunities in New Jersey and Virginia! Management is currently looking for two experienced Account Executives, one in each market. Account Executives will have a great opportunity to grow market share with both wholesale and mini-correspondent clients, in addition to a very advantageous compensation plan! Their loan programs are tailor-made for the NJ and Mid-Atlantic region, with Agency, FHA/VA down to 580, jumbo, renovation loans, reverse, manufactured homes and flexible condo guidelines." Interested candidates can contact Deborah Robertson, Sales Manager, at 904-332-6380, ext. 2459. Plaza is an EEOC employer and follows all federal, state, and local laws relating to fair employment.

A veteran independent mortgage banker, in the west, is searching for lenders operating in the region who would like to merge or sell. The ideal candidate is funding less than $30 million a month, holds a California DBO license and an active FHA Approval. There are several purchase options available depending on the situation. For a confidential discussion, please email me to be connected with the principals and specify the opportunity. Principals only please.

For those companies using subservicers in 2017, Subsequent QC, LLC (SQC) an affiliate of Mortgage Quality Management and Research, LLC (MQMR) will again be conducting its annual round of subservicer oversight reviews on behalf of numerous clients for all major subservicers. SQC, a servicing risk mitigation and compliance advisory firm, has developed an oversight review program for master servicers that utilize subservicers. If you are interested in learning more about SQC's subservicer oversight program or how to participate in an upcoming subservicer review, please contact Britt Haven. (Britt is attending the IMB Conference if you'd like to meet in person or look for Nicholas Corpuz, VP of Servicing Oversight, at the MBA Servicing Conference next month who will be speaking on the topic of Pros and Cons of In-House Servicing vs. Use of Subservicer.)