Research shows that in seven years, "Gen Y" consumers will represent 40% of the US workforce. Are you ready for them? Are they ready to move out of their parent's house? Speaking of "ready", how can we be only two weeks away from Thanksgiving already?
There are a lot of lenders and vendors going after a slightly smaller pool of loans. The MBA reported that last week's apps were down 1.8% with purchases off 0.5% and refis off by 2.3%. And looking at the bigger picture, residential loan originations took a hit in the 3rd quarter (and expected to do the same this quarter) but the top three lenders and servicers maintained their standings. An estimate from Mortgage Daily shows that total U.S. originations from all lenders during the third quarter is $441 billion, down roughly 20% from the 2nd quarter. Wells Fargo clocked in around 18% of the total market, Chase was #2 with an estimated 9%, followed by Bank of America, US Bank, and Quicken.
Compared to the second quarter, business was up 20% at Walter Investment Management -- more than any other company although its subsidiary Green Tree is under investigation by HUD and the CFPB. Nationstar Mortgage followed with a 13% gain in the third quarter - a portion of which will be going to Stonegate (which had the third-biggest increase: 12%). MD reports that "with a 62.3% decline between the second and third quarters, Provident Funding had the biggest drop."
Servicing, which provides an income coveted by many companies, was again dominated by Wells Fargo. "The Coach" has approximately 19% of total outstandings with $1.8 trillion. Chase was #2 at $1 trillion, Bank of America $900 billion, Ocwen & Nationstar at $400 billion.
The industry is watching how these large players handle the advent of QM. 38 days... As Aaron Miller with Banner Bank commented, "The best description I can come up with is I'm running to a cliff and the person packing my parachute is still waiting for someone to print the instructions on how to make it all fit in the pack so it's ready when I jump...in 38 days." But here's something to cogitate on: "unofficial transcripts" from the recent MBA/CFPB webinars. Although not quite as interesting as the Frost/Nixon interviews, they will help give lenders a feel for where the CFPB stands on many issues.
Despite many wondering if the CFPB will delay QM, Director Cordray appears to remain unwilling to delay QM's effective date. Years from now, when a purported QM loan is found not to be, plaintiff's attorneys won't care, but Cordray has reiterated the CFPB's intention to be reasonable in enforcement when a company makes a good faith effort to comply with the new rules. It is comforting to hear, "Our oversight of the new mortgage rules in the early months will be sensitive to the progress made by those lenders and servicers who have been squarely focused on making good-faith efforts to come into substantial compliance on time - a point that we have also been discussing with our fellow regulators."
And for LOs and senior managers who think that the CFPB is not going to pursue them, they are wrong. In a recent speech, Director Cordray spelled things out. The CFPB is committed to pursuing individuals, and not just companies, when exercising its enforcement authority. As many know, the CFPB has already named individuals as defendants in two RESPA enforcement matters involving affiliated business arrangements, and as Ballard Spahr reports "one matter was settled in May and the other was filed last week and in two mortgage modification enforcement matters, one against the Gordon Law Firm and the other against National Legal Help Center. In these matters, there have been no admissions of wrongdoing by the individuals who have agreed to settlements."
I asked one person to tell me what their company has told them about QM & non-QM, and safe harbor versus rebuttal presumption. (It, although somewhat incomplete and simplistic, may help some folks out there with a way of thinking about it.) They wrote back, "Many vendors only see part of the information on a loan, and either have to rely on the lender for the accuracy of it or don't see all the required pieces for QM determination. But we were told that QM is a special status that affords the creditor different levels of protection, based upon two different levels of qualified mortgage. The more protected level is called "Safe Harbor" which is granted to creditors who originate loans meeting the QM requirements and the loans are NOT higher-priced loans. The lesser protected level is called "Rebuttable Presumption" which is granted to creditors who originate loans meeting the QM requirements but the loans ARE higher-priced loans."
The person went on. "The main difference between Safe Harbor and Rebuttable Presumption QMs is that if a loan went to court, it would be conclusively presumed that Safe Harbor QMs are in compliance with the ATR rule, and therefore, not scrutinized by the court; whereas, Rebuttable Presumption QMs, while assumed to be in compliance with the Ability-to-Pay rule, could be rebutted by the consumer of this type of loan. The consumer could argue that together with their income, other debt obligations, and payments on the loan and any simultaneous loans, the customer did not have enough left over money to survive-a.k.a. residual income." (That is, of course, a huge concern: the "what ifs".)
But to confuse things, how about we take a look at the CFPB's "Small Entity Compliance Guide for the Loan Originator." For example, on page 35 we learn that "If you are a person who is paying a loan originator, you may not compensate a loan originator based on a factor that is a proxy for a term of a transaction." A proxy is a "the agency, function, or office of a deputy who acts as a substitute for another, authority or power to act for another, a document giving such authority; specifically: a power of attorney authorizing a specified person to vote corporate stock, a person authorized to act for another." I am sure legal-minded HR folks and attorneys have figured this out already - but I don't have a clue.
But as a reminder, the American Bankers Association expressed strong support (by way of a comment letter sent to U.S. regulators) for the re-proposed Qualified Residential Mortgage standard. Their proposal aligns QRM with the CFPB's Qualified Mortgage rule, released earlier this year. "A QRM standard that mirrors the CFPB's QM rule is a big step forward in strengthening the housing market," said Frank Keating, ABA president and CEO. "QM loans will be well underwritten and cannot include risky features, so it makes little sense to define QRM more narrowly." Contained in the letter, the revised rule, "reduces the risk of default and delinquency, provides clarity and consistency for mortgage professionals, and ensures creditworthy homebuyers have access to safe mortgage financing." The ABA warned that an alternative approach included in the proposal, known as QRM-plus, which requires borrowers to put 30 percent down, will constrain the availability credit and encouraged its abandonment.
The CFPB must be sensing the frustration that the industry is feeling ("All we need are the rules; just tell us the rules so we can play the game!"). Last week it issued an interpretive rule, bulletin, and press release instructing lenders on how to comply with the counseling requirements set forth in the new mortgage rules, which go into effect in January. Here's more reading for the compliance-inclined.
Ballard Spahr reports that, "Regarding this counseling, although included along with the 2013 HOEPA Final Rule, the counseling requirement is set forth in an amendment to Regulation X under RESPA that applies to all federally-related mortgages, not just HOEPA loans. Only reverse mortgages and loans for time-shares are excluded from this rule. As described in the interpretive rule and bulletin, there are two ways lenders can comply with this requirement. A lender can either obtain a list through the CFPB's website or independently generate its own list using the same HUD data used by the CFPB. The CFPB acknowledged in the bulletin that because developing the systems necessary to comply with the second option will take some time; lenders may alternatively follow a prescribed interim procedure to comply with the rule. While working to build systems, lenders may direct borrowers to the CFPB's housing counseling agency website to obtain a list of counselors. According to the bulletin, if lenders use the CFPB's suggested format and text for this interim procedure while working in good faith to build their systems, these steps 'would achieve the goals of the regulation and would not raise supervisory or enforcement concerns.'"
And throughout all this, lenders are still, at their cores, trying to help borrowers save money every month or buy a house. J.D. Powers reported in its customer satisfaction survey for residential mortgage lenders that satisfaction reached a seven year high - congrats to everyone! Quicken Loans came in numero uno for the fourth consecutive year - congrats on that one. It was followed by BB&T and U.S. Bank. "The study measures customer satisfaction in four key factors of the mortgage origination experience (in order of importance): application/approval process; loan representative; closing; and contact."
There are some lessons in the findings. Overall satisfaction is lower among home buyers than among home owners who refinance, in part due to refinance customers' familiarity with the process. Overall satisfaction higher among first-time home buyers is 772, compared with 757 among repeat buyers. Customers purchasing a home continue to experience difficulties understanding the loan options available to them. The use of electronic closing documents improves customer closing satisfaction.
My sense, limited as it may be, is that LOs and companies barely care about what rates are doing - there is just too much else to keep track of. And it isn't as if pipelines are overflowing, and rates aren't expected to do too much aside from the usual "up some, down some"...but still, it is good to know what is going on out there. Yesterday, for example, we saw fixed-income prices partially take back what was lost in Friday's sell off, and the stock market rally - on no real news other than some talk of a lower bid for risk globally. But heck, we'll take it, and agency mortgage-backed security prices improved .250-.375.
Besides Janet Yellen's talk today (and we already saw her speech/views yesterday), we have several key economic reports: weekly Initial Jobless Claims (expected +330k), September's International Trade, and Q3 Productivity and Unit Labor Costs. Later we have the final leg of the Treasury Refunding with $16 billion 30-year bonds auctioned at 7AM Hawaii time. Yesterday's closing 10-yr. yield was 2.72%, and so far we are unchanged this morning.