After being in Colorado earlier this week and preparing for a trip to Florida Friday, I must admit that to save time most of today's commentary had already been written (student loans, Ocwen on the ropes in California, dissecting Chase & Wells earnings, RESPA-TILA news, and so on). But the CFPB went and changed that with its announcement yesterday regarding telling consumers how to own a home, uh, actually how to partially shop for mortgages from large lenders. Before we get to CFPB possibly overreaching its purpose, how about some good news? The Mortgage Bankers Association, echoing what lock desks already knew, said its seasonally adjusted index of mortgage application activity jumped 49% last week - its largest weekly percentage gain in over 6 years. Rates have helped: refis were up over 66%, and purchases were no slouch being up 24%.
The Consumer Financial Protection Bureau released its newest consumer tool "Owning a Home" to help spur homeowner education. Richard Cordray announced, "Based on new data in the National Survey of Mortgage Borrowers, nearly half of consumers who take out a mortgage fail to shop prior to filling out an application for a mortgage. I am writing with some very exciting news today - we are launching our Owning a Home tools! We developed these tools with the goal of helping homebuyers and homeowners like you feel more confident, become more informed, and make smarter decisions about mortgages. Check out Owning a Home. We have big plans for Owning a Home. In coming months, we will continue to add new features, but today 'Owning a Home' can help you "Learn about your loan options" (as you begin your home and mortgage search, this guide will tell you all you need to know to choose the right mortgage for your situation), "Check interest rates" (this tool gives you a realistic sense for the range of interest rates you should expect when shopping for a mortgage, so you can know whether you're getting a good deal, "Understand your closing forms" (learn what to look for in your closing documents before signing), and "Get ready for closing" (as you near the end of the process, a simple checklist will help prepare you for the big day)." The CFPB is asking for feedback on the site via e-mail at email@example.com.
Of course, given that around 30% of home purchases are all cash and then, when one actually owns a home, the focus is on utility bills, property taxes, HOA issues, and buying the right linen, one wonders why "Owning a Home" is focused on rate shopping. But more on that soon...
An originator from New Jersey wrote, "I am getting hammered with this all of a sudden. Is it the end goal of the CFPB to move into the primary market by merging with FHFA? I found this to be the most deceptive information ever produced: 'Getting quotes from multiple lenders puts you in a better bargaining position. If you prefer one lender, but another lender offers you a better rate, show the first lender the lower quote and ask them if they can match it.' This violates the MLO comp Rule. Further, it would establish violations of the Disparate Treatment for many lenders. You need to read through this through everything. In some places it uses Brokers and Lender and in other its uses only Lender. There is no APR. Imagine if I advertised a rate without an APR."
And this note: "If we ever said to a regulator that we had the Best Deal on rates and fee, they would write us up every time. No one can claim to have the best deal. How do you gauge that? We're almost back to shopping using the TIL and APR calculation. And look what that got us."
From Washington came, "The CFPB's initiative is a noble effort, especially their rate shopper tool. I guess the scariest factor will be whether or not it will include lender fee adjustments that substantially affect the rate we offer the client? And, where will the consumer get their credit score that reflects a mortgage credit scoring model? Surely not from Credit Karma. I don't really know how that website generates a score for the consumer, but it is notoriously inaccurate for estimating a consumer's mortgage credit score (either good or bad, I've seen it go both directions)."
It went on. "And most surprisingly missing from Mr. Cordray's presentation was recommending to the public to check the CFPB's and state regulators' enforcement history and stay away from lenders who have had enforcement actions against them. Honestly, part of the reason that consumers probably doesn't shop many lenders, is the simple fact that many consumers don't have the time to sit through an hour to hour and half interview with multiple lenders who do explain all of the loan options and accurately gauged the consumer's income and credit, etc. If a lender says they can do this initial process in 5-10 minutes on the phone that is your first sign to keep shopping. All the CFPB did by announcing their initiatives to 'protect' the consumer is show us how little they understand the down and dirty actions we loan officers have to do each and every time we meet with a consumer and try to help them with their home financing in today's lending world."
Ken Perry, President and CEO of the Knowledge Coop writes, "This is so strange - the CFPB is becoming Lending Tree without the funding! The CFPB has created a way borrowers can get a rate quote based on their circumstances! This is insane! Its site is in beta and you can see it HERE. I am not sure what regulators are thinking with this but it is out there so we need to plan on how to deal with it. Here are my initial thoughts: 1. It is not quoting APR. The fine print shows that the rates are based on -.5 in rebate or .5 in fee... but it is REALLY small print. I am pretty sure the CFPB would take action against somebody using that small of font on a disclosure. I had to get my readers out just to see what it said! 2. I priced it out with my favorite loan officer who is on the lowest comp plan her company provides (yes, she has a 'pick your rate sheet' comp plan) and she was right in line with the lowest rate quoted today. The interesting thing is that if borrowers see this then she is the only one who will get that loan, because borrowers often want the lowest rate. For her this is awesome because she can send the link to every borrower without being concerned with the borrower leaving her. If she was on the highest rate plan her company offers then she would be off the charts on this site. So, I can totally foresee LO's with low comp plans using this to seal the deal and show the consumer that they are the lowest the CFPB has been able to find. Does this then drop rates all over the US? If low cost LO's figure out how to use it then it just might.
Ken's note finishes with, "3. I think the CFPB has clearly crossed a line here. The government posting expected rates while not knowing the exact circumstances of every borrower is crazy. You know that 534 FICO borrower who saw they were a 765 on freecreditscore.com and has a foreclosure less than a year ago is going to cry foul when you don't drop him/her right into the CFPB rate range. This is crazy!"
Another note commented, "Is this for real or is he still not getting it? The FRB said that SRPs and YSPs are the same form of compensation. So, what are the differences? How many banks, in the current mortgage environment retain all their loans in a portfolio? 'Consumers should realize that their business is selling mortgages and that lenders and brokers have different business models and make money in different ways.' If the loan doesn't close they don't get paid, why would a borrower ever want the opposite, where the institution got paid whether the loan closes or not? Heck, some banks have been running 90-120 days in underwriting, denying HARP loans that should be approved, and they now want someone to originate loans with no incentive? This is the disconnect between government and private business. And why doesn't the CFPB suggest a person shop for a Realtor the same way?"
John Hudson opined, "The CFPB has launched a website to quote mortgage rates in order to encourage consumer shopping. I think we can all agree that consumer shopping is good. However, the CFPB's website apparently only pulls data from 'a mix of large banks, regional banks, and credit unions'. ...Why not mortgage brokers? Their data is pulled from a private firm from CA which does market research and offer 'mystery shopper' services. In statements today, the CFPB Director Cordray seemed disappointed that half of consumers only talk with one mortgage firm before they buy....as if he doesn't believe that consumers can find a mortgage professional they can trust the first time. Will the CFPB launch a site posting auto financing rates soon? How about credit cards? What about what gas stations are charging at various areas around town? How monitoring the price of color copies? I'm curious to hear what other Mortgage Professionals have to say. Will this help the consumer shop? FHA, VA, and USDA rates are not options on the site. Is the CFPB overreaching on their mission here? And why not get rate quotes from mortgage brokers?"
Turning briefly to the markets, yes, Chase's earnings fell short of estimates ($1.19 versus $1.31) - so are the results poor or were the people who created the estimates misguided? Wells Fargo, however, was right on the money ($1.02) for the fourth quarter. (And once again folks are asking, "If these big, complicated banks can produce their earnings only two weeks after the end of the quarter, why do I have to wait a month for my accounting group to do the same thing?")
We do have a 30-year bond auction ahead of us, but we did have Retail Sales which were -.9% for December - pretty weak. After that number the 10-yr is down to 1.82% and agency MBS prices are better .250-.375. Heck, the 30-yr bond is down to 2.44%!
Jobs and Announcements
For company expansion news, "Wilshire Bank Warehouse Lending would like to thank our client and vendor relationships for a successful growth campaign in 2014! Your collaboration contributed to more than $150 million in new facility commitments. Located in Los Angeles, CA and celebrating our 35th Anniversary, we're proud to share the Bank received a distinguished honor in being named one of Forbes' 50 Most Trustworthy Financial Companies for 2014. With a strong commitment to serving the independent mortgage banking community, and an optimistic outlook for the new year, Wilshire Bank is poised to expand our service offerings to additional counterparty warehouse relationships. For more information on our warehouse lending capabilities please visit WilshireWarehouseLending or contact Brandon Faus."
And Greg Frost is looking for a few more Branch Partners. "Yes, it's the same Greg Frost who was the mortgage industry's first billion dollar Loan Originator and current popular motivational sales trainer. Greg's organization currently has Branch Partners in New Mexico, Arizona, California, Colorado, Texas, South Dakota, Illinois, Iowa and Mississippi. If you're operating in one of these states, and would like to investigate his very profitable Branch Partner business model, just click here to schedule a confidential conversation with Greg. Imagine working with and being mentored by one of the industry's' most prolific mortgage professionals. Click Here now."
For those companies using sub-servicers, Richey May will again be conducting sub-servicer oversight reviews in 2015 to assist companies with their monitoring and oversight responsibilities. "If you are an agency seller/servicer, or GNMA issuer, you are fully responsible for monitoring and overseeing your sub-servicer's performance. Richey May & Co, an accounting firm that is heavily specialized in the mortgage industry, 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. This year Richey May plans on conducting reviews over several sub-servicers starting with Dovenmuehle in January. If you are interested in learning more about Richey May's sub-servicer oversight review programs, or participating in the upcoming Dovenmuehle review, please contact Kurt Blohm.