We start the week with something pertaining to words and the internet, both near and dear to all of us. Here’s the New Yorker's cartoon take on the Trump administration repealing net neutrality. Despite claims of scaling back regulations, we have new regulations prohibiting officials at the nation's top public health agency (the CDC - Center for Disease Control) from using a list of seven words or phrases in any official documents being prepared for next year's budget. The seven words are "vulnerable," "entitlement," "diversity," "transgender," "fetus," "evidence-based" and "science-based." The Trump Administration banning words? Let's hope the mortgage industry is never forbidden to use terms like "delinquency," "fees," "ARM," "rising rates," or "renegotiating a rate lock." And now we have the 1,100-page tax bill with its hits to home owners (more below).
Products for Lenders and LO's
ARMCO announced new loan data validation tools. ACES Risk Management (ARMCO), the leading provider of financial quality control and compliance software has announced the release of a new technology for mortgage lenders and servicers that improves data validation in the QC process. ARMCO's new data validation tool is available through the most recent ACES Audit Technology upgrade, which was released on December 9, 2017. This upgrade's principal enhancement is advanced process automation functionality that enables ACES to automatically identify missing data within the loan file. Data integrity issues are one of the top causes of critical defects, according to research released in the most recent ARMCO Mortgage QC Industry Trends Report. With the system's new advanced automation functionality, ACES now fulfills an essential function for avoiding data validation errors.
Spruce, the technology-first title, escrow & closing company, has announced that its Digital Closing product is now available to lenders nationwide - the first 'zero integration, zero cost' solution to a better borrower experience. The product allows borrowers to link their bank account for secure transfer of closing costs or loan proceeds, eliminating the risk of wire fraud. It provides an Uber-like experience for scheduling closing, and can be easily configured to allow the review and signing of closing documents. It's the only solution for lenders looking to offer a digital experience to their borrowers while simultaneously lowering closing costs. You can learn more here.
Before joining Alight, Inc., Mike McFadden was SVP of Finance at Stonegate Mortgage where he used Alight to help him navigate complex financials. Now he leads Alight's mortgage business. As Group Head of Alight Mortgage Solutions, McFadden recently sat down with HousingWire to talk about the mortgage industry and his plans to bring Alight to the desk of every mortgage banking executive. "Mortgage bankers are always trying to get ready for the huge shifts that they know are coming, but can't quite see. Everyone's been looking for that elusive crystal ball and finally, thanks to Alight, I believe they can have one," says McFadden. Click here for the full story or contact McFadden directly to prepare your business for 2018.
The Tax Bill
Republican lawmakers released the details of their tax code rewrite on Friday, which reconciles differences between the House and Senate bills. Use an accountant? No longer tax deductible. Tax preparation or similar tax-related expenses, like software to file electronically, will no longer be deductible. Many of these provisions are temporary, however, and are set to expire after seven years. Most take effect in 2018. I am not going to list the changes here, as there are too many, but instead focus on housing and mortgages, and the news is not particularly good.
Yes, the SALT (state and local tax) deduction is capped at $10K (property or state/local income), the individual mortgage interest deduction on up to $750K in debt. In Manhattan, for example, the average SALT deduction is ~$57K, and the average property deduction is ~$14K. Going forward, the deduction for both SALT and property tax will be capped at $10K. Some believe that home prices in Manhattan could fall by as much as 10% because of the tax changes as workers gravitate toward cheaper cities.
As things stand now, one can generally deduct the amount one pays for state and local income taxes, including property taxes, on the federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit.
The new plan, however, changes that so taxpayers may deduct only up to $10,000 total, which may include any combination of state and local taxes, including property taxes (also sales taxes). But don't try to prepay your state and local income taxes before year-end to circumvent the new limit - your accountant won't allow it. One can also deduct the interest paid on mortgage debt up to $750,000. But if you bought a property before Dec. 15, you can still deduct interest up to $1 million (the limit under current law). Home equity loan interest is no longer deductible for anyone.
Many LOs will say that taxes are not a huge force in the home ownership decision. But the bill roughly doubles the standard deduction, it reduces the incentive to buy a home by making far fewer home owners eligible for preferential tax treatment.
Plenty of lenders and brokers are small businesses. Small-business owners will generally be able to deduct 20 percent of their qualified business income from a partnership, S corporation and sole proprietorship. Regarding pass-through businesses, as it stands now people who own small businesses of various sorts generally pay income taxes based on the normal rate for individual taxes. Often, they are involved in or run partnerships, sole proprietorships, limited liability companies and S corporations.
Now you can deduct fees you pay to an investment adviser and similar expenses related to money management but only if they add up to at least 2 percent of your adjusted gross income. The same rule applies to work expenses your employer does not reimburse you for. These will no longer be allowable deductions, though that lasts only through 2025.
Taxpayers can deduct moving expenses now, even if they do not itemize their tax returns, if the new workplace is at least 50 miles farther from the old home than the old job location was from the old home. (If you had no workplace, the new job must be at least 50 miles from your old home.) Going forward, however, moving costs would generally no longer be a deductible expense starting in 2018, though it allows some exceptions for members of the military.
And we have a new inflation counter. As the New York Times points out, now there are different ways to measure the change in the cost of living. Right now, the federal government largely relies on what's known as the Consumer Price Index, referred to as the C.P.I. The bill would change the measure to what's known as the chained C.P.I., which generally rises more slowly than what is used now. This would slow the speed at which tax brackets grow with inflation, so taxpayers would more quickly find themselves in higher marginal tax brackets.
Using a slower-growing measure also means certain tax breaks would also grow more slowly, like the earned-income tax credit, among others.
What about the capital gains when selling a home? With some exceptions, a married couple filing their taxes jointly can exclude up to $500,000 in capital gains on the sale of a home, if they have used it as a primary residence for at least two of the last five years. A single individual can exclude up to $250,000. The House and Senate both proposed to make this rule stricter, but neither provision prevailed, and the rule will remain the same.
In many markets, retail development remains soft as many consumers turn to forego regional malls in favor of e-commerce. Neighborhood centers have fared better than the malls as demand for space in town centers and transit oriented projects command premium rents.
In terms of our bond markets, and interest rates, volatility continues to decline - it seems like mortgage rates have been here most of the year- and last week the 10-year note finished a mixed week yielding 2.35%. We had a smidgeon of news in the form of the New York Empire State Manufacturing Index ("18") in December, a little lower than expected, Industrial Production was in +.2% in November - manufacturing production recorded its third consecutive monthly gain and oil and gas extraction returned to normal levels after being held down in October by Hurricane Nate. Excluding the post-hurricane rebound in oil and gas extraction, total industrial production would have been unchanged in November.
This week is the last busy week on the scheduled economic calendar until the New Year. Today we only have the December NAHB Housing Market Index. Tuesday brings November Housing Starts, November Building Permits, and Q3 Current Account Balance. Wednesday the weekly MBA Mortgage Index, and November's Existing Home Sales. Thursday is the third estimate of Q3 GDP, December Philadelphia Fed Index, Core PCE, Weekly Initial Claims, and October's FHFA Housing Price Index. Friday wraps up the week with November Personal Income, Personal Spending, November Durable Orders, November New Home Sales, and December Michigan Sentiment. We start the week with rates a shade higher versus at the end of last week, with the 10-year at 2.37% and agency MBS prices worse .125.
Pacific Residential Mortgage, (PRM), has recently begun a search for experienced mortgage bankers and mortgage banking teams for its California Division. PRM is a Fannie Mae direct mortgage lender headquartered in Portland, Oregon with current locations in Oregon, Washington, Idaho, California and Colorado. Voted as one of the "100 Best Companies to work for in Oregon" several years running, Pacific Residential Mortgage takes pride in the fact that the average tenure of its originators is 10+ years! If you are looking for a new opportunity with a stable and reputable company, please email your resume to Angelo C. Stratigos, VP of Production. All correspondence will be held in confidence.
"Magnolia Bank is expanding our lending area and is seeking experienced account executives to build new territories. Magnolia Bank is a well-established lender, based in Kentucky offering Conventional, USDA, FHA and VA products. Our clients are both operate as both broker and non- delegated correspondents. In addition to offering a full product menu, competitively priced, state of the art technology, we specialize in extraordinary client service, ease of doing business and the flexibility to meet the specific needs of our clients. If you are a producing Account Executive, looking for a place where service matters, contact Dee Anna Hatfield."
If you have interest in hiring a dynamic and talented delegated correspondent sales team, with a small operations group, a National Manager, producing Regional Sales manager and several AEs covering the Mid-Atlantic, Southeast, South, and Midwest is searching for a home. The team & coverage is a great start to a national footprint. The ideal Mortgage Banker would have the desire to grow servicing, be a Fannie, Freddie, GNMA seller/servicer, and be competitive in the large loan balance products. If you are an aggressive and service oriented mortgage banker who is focused on Regional and National growth, please email me with your contact information to forward along; please specify opportunity.
PRMG is proud to announce the recent hiring of Chester Ruiz, VP Multicultural Development to shepherd their Multicultural Lending efforts. PRMG has big plans going into 2018. With the hiring of Chester Ruiz, Vice President of Multicultural Development, the organization will be making a conscious effort to foster relationships with NAHREP; NAIREB; NAREB; AREAA; and other ethnic trade associations. Chester will be reporting directly to SVP, Director of National Retail Production; Chris Sorensen. "PRMG has always done business with ethnic and minority groups, however with Chester Ruiz coming on board, PRMG is taking on a prominent role to providing more resources and open line of communication with minority borrowers", said Kevin Peranio, Chief Lending Officer, PRMG. If you're ready to join a top-tier team and a company that is devoted to the multicultural community, then it's time to talk! Chester can be reached at firstname.lastname@example.org or 650.771.4831.
From Illinois comes word that Diamond Residential Mortgage Corporation ("DRMC") has a new staff member. Industry veteran Leon Pinsky has been hired to serve as the Company's Financial Controller.