Dec. 27, 2012: Hiring & retaining employees the CFPB way; Mortgage Forgiveness Act in jeopardy?
so here's something entirely un-mortgage related -
productivity this week stinks anyway. The kids are back from
college, or on vacation from school, many have had great
2012's and are coasting, whatever. What's this about Mr.
Rogers being a Navy SEAL sniper? Oh, and I thought that gerbil
rumor was forgotten long ago. Read more: http://urbanlegends.about.com/od/reference/a/Top-10-Urban-Legends-Of-2012.htm.
what do you hear about the Mortgage Forgiveness Debt
Relief Act extension?" I have heard nothing about an
extension, although it is a timely question. "If the Mortgage
Forgiveness Debt Relief Act of 2007 does not get extended by
Congress by the end of the year, homeowners will have to start
paying income taxes on the portion of their mortgage that is
forgiven in a foreclosure, short sale or principal reduction.
That means if someone owes $150,000 on their home and it sells
for $100,000 in a foreclosure auction, they could owe taxes on
the remaining $50,000. For someone in the 25% tax bracket,
that would mean paying $12,500 in taxes on the foreclosure.
Similar taxes would apply for amounts that were forgiven in
short sales and principal reductions." Here is a recent
we to make of all these headlines during the last few weeks
We had, among others, Consumer Spending Jumps Most in 3 Years.
U.S. Homes Gained $1.3 Trillion in Value During 2012. Sales of
Existing U.S. Homes Rose to Three-Year High in November. U.S.
Housing Values Rose 6% in 2012 for First Gain in Six Years.
Builders Hanging Help-Wanted Signs as Industry Rebounds. Home
Building Permits Near Four-and-Half Year High. Homebuilder
Confidence Rises to Highest Level Since 2006.
Especially when these headlines are compared against another
set of headlines. Housing Starts Fall 3% in November. Housing
Market Builds Stronger Foundation, But Cracks Remain. HARP
Market Dropped 18.5% in October, Despite Record Low Rates. Are
First-Time Homebuyers Missing the Sweet Spot? Mortgage
Applications Drop in Latest Week.
we’ve recently had TransUnion projecting that the single
family residential mortgage delinquency rate for borrowers 60
days+ past due will be 5.32% this year and 5.06% by the end of
2013. In more normal times, that rate is about 1.5% to 2.5%.
But yet a report from the Fed finds household debt declined at
a 2% annual rate in 3Q, following a 2Q increase of 1.2%. Total
household debt now sits at $12.9 trillion, down about 13% from
the start of the recession in 2008.
what you will, housing appears to be improving in many markets
(see the Case-Shiller numbers near the end of today’s
commentary) which helps investor’s confidence in owning
mortgages and securities backed by mortgages, which in turn
helps demand, which in turn helps mortgage rates for
Ed Pinto writes, "The WSJ on December 24 had a front page
story entitled 'Push for Cheaper Credit Hits Wall'. The
story’s main theme is that ‘economists posit that banks are
keeping rates artificially high, boosting profits and
depriving the economy of the full benefit of the Federal
Reserve’s efforts.’ Charles Dickens could not have done a
better job making banks out to be Scrooges. How about letting
some facts get in the way of opinions posited by economists?
The article starts on solid ground by pointing out that
mortgage loan rates are about 57 basis points higher than the
norms of 2003-2005 (a basis point is 1/100th of a percent),
but quickly founders by failing to apportion this increase
among various possible causes. It turns out the biggest
contributor to ‘artificially high rates’ is not lender
rapacity, but government action. First, it is well known
that Fannie and Freddie (the GSEs) had been seriously
mispricing credit risk for a couple of decades. This is the
reason Congress, in 2011, ordered the Federal Housing Finance
Agency, the GSEs’ regulator, to assure that the GSEs’
guarantee fees ‘appropriately reflect the risk of loss, as
well the cost of capital allocated to similar assets held by
other fully private regulated financial institutions.’ As a
result, guarantee fees have increased from an average 22 basis
points per year in 2003-2006 to about 54 basis points per year
today. This increase of 32 basis points accounts for 55% of
the 57 basis point rate increase. Second, it is also well
known that increased regulations have added substantial time
and expense to the loan origination process and that this has
to get reflected in the rates charged. While hard to precisely
quantify, I would conservatively put this added expense at
12-15 basis points.”
Pinto continues, “So the reality is that government actions
account for 44-47 basis points or about 80% of the increase.
That leaves maybe 12 basis points or about 20% attributable to
Grinch-like banks accused of stealing Christmas. The truth is,
thanks to direction from Congress, credit risk is on the road
to appropriately reflecting the true risk of loss and capital.
The bad news is that since the Government Mortgage Complex
continues to account for 90% of mortgage credit risk, the bulk
of these fees are effectively paid as dividends to Treasury,
whereupon they are immediately spent. They should be accruing
as capital and contingency reserves held by private sector
mortgage guarantee entities. Instead we have a
government-dominated $10 trillion housing finance system with
virtually zero capital behind it (correction: with the FHA’s
insolvency, the total is actually negative) and taxpayers are
being left once again to pick up the tab. Contrast this to a
healthy private housing finance market that would be backed by
about $300-$400 billion in core capital, which capital would
be supported by appropriated priced loan guarantee fees."
has issued its second annual report to Congress on the
The Dodd-Frank Act requires the CFPB to submit an annual
report that includes a Recruitment and Retention Plan,
Training and Workforce Development Plan, and Workplace
Flexibilities Plan. Titled “Growing our Human Capital,” the
report describes the CFPB’s progress in building its workforce
since July 21, 2011 (the date of its first annual report.)
According to the report, the CFPB had 1,014 employees as of
November 3, 2012, with 34% of the CFPB’s employees
self-identifying as a minority. The report describes the
CFPB’s “key accomplishments” in recruitment and hiring,
training, and developing workplace flexibilities. The “key
accomplishments” in recruitment and training include,
respectively, the CFPB’s recruitment campaign for examiners
and four initiatives for training examiners. Consistent with
the CFPB’s focus on fair lending enforcement and emphasis on
fair lending in its examination procedures, one of those
initiatives is a fair lending course for examiners. Here you
on to some recent investor news…
has issued guidance on the documentation necessary for
borrowers who have been victims of taxpayer identification
theft, who are required to submit proof that the theft was
reported to and received by the IRS, a copy of the alert of
possible theft sent to the borrower from the IRS, and either a
police report or proof of having filed a complaint with the
Federal Trade Commission. In terms of verifying income,
borrowers must submit a W-2 or 1099 transcript that discloses
the same mortgage interest, unemployment, and
interest/dividend as shown on the 1040.
For all loans locked on and after December 20th, MSI requires
that co-signed mortgage-related obligations be included in the
DTI calculations, even if the borrower isn’t the one making
those payments. The only circumstance under which real estate
debt can be excluded is if the debt is assigned by a court
order, which must be backed up by a copy of the court
documents and evidence that the borrower has been removed from
In response to the increasing default rates for student loans,
MSI has started calculating Income-Based Repayment payments as
the greater of 1% of the principal balance or $100 for all
MSI is now accepting 15-year terms for all FHA High Balance
loans provided that the borrower has not had a serious issue
with credit (bankruptcy, foreclosure, or short sale) over the
past seven years, regardless of AUS findings.
M&T Bank has amended its VA guidelines such that it
will not accept loans where an appraisal transfer has taken
place, regardless of written assurance or certification deemed
acceptable by the Appraiser Independence Requirements. The
M&T overlays for 203(b) and 203(k) loans have also been
updated and are available on MEME.
SunWest’s disaster policy is in effect for Barnstable,
Bristol, Dukes, Nantucket, Plymouth, and Suffolk Counties in
Massachusetts, properties in which must be re-inspected to
certify that they have not been adversely affected by
Caliber Funding has expanded its LP Open Access
offerings to include mortgage insurance transfers and allow
unlimited CLTVs and the use of the HVE value on the LP
approval. Non-owner-occupied properties are subject to a 105%
LTV maximum and an LLPA cap of 1.750, while a .50 LLPA cap
applies to all owner-occupied transactions where the LTV
Bank of the Internet has transitioned to the LOANSIFTER
platform, which will enable users to view BofI products within
their investor consoles. The platform supports fixed-rate
Meridian and portfolio ARM loans, which includes asset
depletion income calculation, pledged asset loans, foreign
national lending, and vesting title in entities.
Optimal Blue has announced its new Zillow Direct
integration, which provides aims to provide consumers
with up-to-the-minute and compliant rates. To request a demo
training and events news, registration for Fannie’s HFI
InDepth courses is now available for 2013. The offerings
include training on interpreting DU findings reports,
reconciling actual/actual custodial accounts and loans, and
customer service for financially-pressed borrowers, the last
of which is new for 2013. See the Fannie Learning Center at
did have a slight bit of news yesterday, although it was more
to gauge the general health of the housing market rather than
move interest rates. The Case/Shiller 20-city Index showed
that home prices year-over-year ending in October rose by
4.3%, up from the 3% registered in September. The
month-to-month number, however, saw a decrease of 0.1% in
October which comes after a 0.2% gain in September. The 4.3%
gain year-over-year in October was the largest gain since May
2010. Case Shiller index of 10 major metropolitan areas and
the 20-city index eased 0.1% in October from September.
Compared with a year earlier, the 10-city index increased
3.4%, and the 20-city index grew 4.3%.
did little, if anything, yesterday and the 10-yr T-note closed
about where it started at 1.76%. It was indeed a slow day with
sources estimating originator supply at 50% of averages at
about $1 billion, and with the Fed buying $3-4 billion a day
so you’d expect a slight price improvement relative to
is a new day today, but we probably won’t see much volatility
although we have a lot of economic news from around the world.
US (Initial Jobless Claims, Continuing Claims, Consumer
Confidence, New Home Sales); EuroZone (French Producer Prices,
French Consumer Confidence, Italian Business Confidence,
Italian Economic Sentiment, British Home Prices);Other
(Japanese Housing Starts, Japanese Construction Orders,
Taiwanese Leading Index, Taiwanese Coincident Index, Hong Kong
Trade Balance, Japanese PMI, Japanese Jobless Rate, Japanese
CPI, Japanese Retail Trade, Japanese IP). Yes, the world is a
Jobless Claims led off at 350k, down 12k from a revised 362k
and better/stronger than expected. At 10AM EST November New
Home Sales is expected to have risen while December Consumer
Confidence is seen lower. Tomorrow we have another chunk of
news: US (Chicago Purchasing Manager, Pending Home Sales);
EuroZone (French GDP, French Consumer Spending, Spanish Retail
Sales, Italian PPI, Spanish Current Account). In the early
going the 10-yr is nearly unchanged from yesterday’s close
at 1.77% as are MBS prices.
Here are 6 short “Rules of the South”:
When you pass someone in their truck and they smile and wave
at you, you are expected to do the same.
2) We always respond to our elders by saying “yes sir”
and “yes ma’am”.
3) Tea is supposed to be served both sweet and cold.
4) The first day of deer/turkey season is a holiday.
5) Camouflage is acceptable attire for any occasion.
6) NASCAR is indeed a team sport.
you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at www.stratmorgroup.com.
The current blog discusses the role of the IRS and REMIC’s in
the current credit crisis. If you have both the time and
inclination, make a comment on what I have written, or on
other comments so that folks can learn what's going on out
there from the other readers.