Brown, Waters Join CFPB Fight

CapitolHill-BHTwo Democratic members of Congress joined the legal battle to preserve the Consumer Finance Protection Bureau as it stands today.

Sen. Sherrod Brown (D-Ohio) and Rep. Maxine Waters (D-California) filed a motion to intervene on Thursday in the CFPB’s defense of its current one-director structure.

The invention was filed in regard to a case currently being heard by the District of Columbia U.S. Circuit Court of Appeals, PHH v. Consumer Finance Protection Bureau. An October ruling found the CFPB’s current framework violates the Constitution’s separation of powers clause.

Brown is the current ranking member of the Senate Banking Committee and Waters is the current ranking member of the House Financial Services Committee.

They argue in the motion that Congress decided on the single-director upon its creation in 2010 so it could effectively fulfill its mandate.

“It knew that the CFPB’s effectiveness could be hampered by the delay and gridlock to which commissions are susceptible,” the lawmakers said in their motion. “By nullifying the removal protections for the Director provided for in Dodd-Frank, and thus transforming the CFPB into an executive agency subject to the policy direction of the President, the panel decision fundamentally altered the Bureau and hindered its ability to play the role that Congress intended.”

The two lawmakers, represented by the D.C. law firm Constitutional Accountability Center, said they felt the need to step in legally because not only did the court’s panel decision nullify their vote in favor of the CFPB’s independent status, but also nullifies the vote establishing single-director independent agencies in the future.

“It has become increasingly clear,” their motion said, that their “interests may no longer be adequately represented by the new administration.”

Attorneys general from 16 states and the District of Columbia moved earlier last week to intervene in the case as well.

Meanwhile, lawyers with PHH said in a January 27 filing that the government hasn’t made a compelling case for a review of the ruling by the D.C. Circuit’s full complement of judges.

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Anxiety Dominates Freddie Mac Monthly Outlook

House fo Sale Two BHUncertainty reigns supreme in Freddie Mac’s January 2017 Outlook report for the housing market.

Following the best year in housing for the past 10 years, Chief Economist Sean Becketti said prospects remain good for future growth. However, unease and ambiguity gives them pause.

“We must grapple with uncertainty about fiscal policy, foreign investments in U.S. real estate, and the size of the mortgage market. Among the many uncertainties we highlighted, however, a smaller mortgage market in 2017 than 2016 seems most certain.”

The Outlook issued by Freddie Mac said much of the uncertainty comes from concerns surrounding the future of economic policy under the new Donald Trump administration.

“While we still do not know all the parameters of the fiscal policy changes, the assumption is that an expansionary policy will boost both growth and inflation over the next two years and that corporate tax reform will increase long-run potential economic growth by about two-tenths of a percentage point,” they said. “President Trump’s tax proposals include increasing standard deductions and flattening marginal personal income tax rates. Increasing the standard deduction will reduce the number of households who find it advantageous to itemize deductions. This will reduce the homeownership incentives that comes from the mortgage interest deduction.”

Recent appreciation of the dollar has made U.S. real estate more expensive to many international buyers, according to Freddie Mac’s statement.

“It remains to be seen if foreign buyers will still seek to invest in U.S. real estate if the dollar trend continues in the future,” they said. “A contraction in foreign demand would have a small impact on many U.S. housing markets, but it would have a significant impact on particular markets that are more reliant on foreign investors.”

The Outlook states Freddie Mac expects mortgage origination volumes to decline in 2017 relative to 2016 and origination volume to stabilize at a lower level in 2018. The decline in overall mortgage activity will be driven by a sharp reduction in refinance activity, which they forecast to fall more than 50 percent from about $1 trillion in 2016 to about $425 billion in 2017.

“Upheaval associated with the Brexit vote last June helped to keep rates low throughout the summer,” they said. “Could we see a repeat in 2017? There are key elections in France, Germany, and the Netherlands this spring that could potentially shock markets like the Brexit vote last year. We don’t know how these elections will go and how bond markets will react, but they have the potential to drive long-term interest rates here in the U.S.”

Court: U.S. Can Withhold Some Documents in GSE Lawsuit

law BHThe U.S. government won a small victory in appeals court on Monday following a ruling narrowing the range of documents they must turn over to investors currently suing them over its seizure of Fannie Mae and Freddie Mac.

The Federal Circuit Court of Appeals said four documents could be withheld from Fairholme Funds and other investors on the basis of presidential privilege, and four other documents were protected by privilege of the deliberative process.

Eight other disputed documents were declared not privileged by the court.

Fairholme is suing the government over its August 2012 decision to seize the profits of the two GSEs, which they called an unconstitutional taking of private property.

Judge Margaret Sweeney of the U.S. Court of Federal Claims previously ruled 58 documents sought by Fairholme Funds should be released. Following Monday’s ruling, 50 of those documents “merit no privileged treatment” and will still be made available.

Investors Unite, a coalition of private investors invested in the GSEs, issued a statement Monday praising the court’s decision to make most of the documents still available.

“The Appeals Court ruling stems from a writ of mandamus the government filed in October after Sweeney issued a sharp rebuke of the government’s efforts to claim the documents sought were ‘privileged’ information,” Investors Unite said in their statement. “In this and other rulings, she has methodically chipped away at claims of executive privilege.

“Until the 50 documents cleared for review by Fairholme’s attorneys are made public we can only speculate as to their exact content, but the fact that the Appeals Court stood with Sweeney on 86 percent of the documents is a positive sign for shareholders seeking justice,” they said. “We could learn more should Judge Sweeny request the government to revise its privilege claims.”

Investors Unite’s statement said despite the court’s decision to make 50 of the documents available, there remains 11,000 more yet to be released.

“The fine points of Constitutional law concerning executive privilege notwithstanding, the more straightforward question that must be asked repeatedly is this: Why would the government be trying so hard to keep so many documents so secret five years after the Sweep, especially if there were no national security matters at stake? Each procedural development moves us close to an answer on that.”

Pending Home Sales Increase: Rebound or Not?

hands-writing-BHSolid increases in pending home sales in the south and west offset slower sales in the northeast and Midwest leading to an overall uptick in December, according to data released by the National Association of Realtors (NAR).

The NAR’s Pending Home Sales Index, a forward-looking indicator based on contract signings, increased by 1.6 percent to 109.0 in December from 107.3 in November. This puts the index .3 percent above its level in December 2015, which was 108.7.

NAR’s Chief Economist Lawrence Yun said contract activity throughout the country was mixed in December, but finished strong to end the year positively.

“Pending sales rebounded last month as enough buyers fended off rising mortgage rates and alarmingly low inventory levels to sign a contract,” Yun said. “The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”

Dr. Joseph Kirchner, Senior Economist with Realtor.com, urged industry monitors to not take December’s rise as indicative of a surge in sales.

Kirchner said the uptick in the pending sales home index is “merely oscillation around a seven-month downward trend” and doesn’t make up for November’s year over year decline of .4 percent.

“The most important factor contributing to the declining trend in pending sales is lack of supply, which has made it difficult for buyers to find a home that meets their needs,” Kirchner said. “The persistent trend of price appreciation exceeding income appreciation means homes on the market become less affordable every month. The decline in pending sales began in May, several months prior to mortgage rate hikes, so rising mortgage are not yet a dominant factor in the decline in pending sales.”

Yun said a large percentage of the overall housing supply right now is at the upper end of the market, as evident from sales data showing homes sold at or above $250,000 increased by 10 percent. Meanwhile, homes sold between $100,000 and $250,000 only increased 2.3 percent.

“The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most,” Yun said. “As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41 percent cumulative rise in existing home prices since 2011.”

NAR experts expect existing home sales climb by 1.7 percent from 2016 to 5.54 million this year. Last year itself was the best year for home sales since 2006. National median existing home price are expected to rise by 4 percent.

“Especially if construction-related regulations are relaxed, all eyes will be on the homebuilding industry this year to see if they can finally start making up lost ground on the severe housing shortages impacting much of the country,” Yun said.

Citigroup Says Goodbye to Mortgage Servicing

New Residential Investment Corp announced today that it has entered into an agreement to purchase nearly $97 billion in unpaid principal balance (UPB) of mortgage servicing rights from CitiMortgage Inc. The agreement represents an acceleration of Citigroup’s initiative to move out of mortgage servicing.

“Over the past several years, we have made significant progress transforming our business to deliver a sustainable annuity of growth,” stated CitiMortgage President and CEO C.D. Davies. “CitiMortgage remains a critical part of serving our customers, deepening relationships with existing and prospective retail bank clients and driving growth in our core markets. We will continue to originate loans for current and new clients.”

The move represents the company’s “increasing focus on retail banking customers,” Director of Citi Public Affairs Mark Rodgers told DS News. As the release notes, all loans sold to New Residential in the agreement were third-party loans, and CitiMortgage plans to maintain its focus on all loans which originated within the firm’s retail banking unit.

The New Residential and CitiMortgage agreement was accompanied by a Nationstar Mortgage Holdings subservicing agreement with New Residential for the mortgage loans in question. Of course, regulatory approval will forestall some of the expected proceedings. A release by New Residential states that: “Citi will continue to subservice the portfolio on behalf of NRM, pending receipt of GSE and regulatory approvals to transfer servicing to Nationstar Mortgage LLC.”

All involved parties apparently expect that the agreement will be approved by the respective regulatory bodies, with Nationstar releasing a statement in anticipation of the subservicing agreement. “This announcement further demonstrates Nationstar’s role as a leading subservicing provider to the residential mortgage servicing market,” stated Nationstar CEO Jay Bray. “We look forward to welcoming over 750,000 customers to Nationstar, and believe our strategic relationship with New Residential will create meaningful value for these customers and our shareholders.”

Moody’s had this to say of the subservicing agreement: “If not managed properly, the operational and integration risks to Nationstar of such a large servicing transfer have the potential to negatively impact the company’s credit profile. However, Nationstar has a solid track record of successfully boarding and integrating large servicing transfers.”

The move by Citi seems indicative of general trends throughout the banking industry. As Fitch Ratings aptly noted, “Mortgage servicing market share for non-banks has grown steadily over the past several years. A report from federal regulators noted that non-banks accounted for 32 percent of total mortgages serviced by the top 30 firms in 2015, up from just 7 percent in 2011.” The continuing growth of non-bank players in the mortgage servicing market will likely be a consistent factor driving the industry in upcoming years.

New Residential was not available for comment at the time this article was published.

Senate Democrats Boycott Mnuchin Vote

Steven Mnuchin

Democrats on the Senate Finance Committee boycotted the vote to continue the confirmation process of Treasury Secretary appointee Steven Mnuchin, much to the chagrin of their Republican counterparts.

The hearing, moved to Tuesday morning after it was postponed from Monday night so Democrats could participate in events protesting the recent immigration order, saw no Democratic participants taking part in the vote. At least one Democrat is needed for the Senate Finance Committee to form a quorum.

Senate Finance Committee Chairman Sen. Orrin Hatch (R-Utah) called the Democrats actions’ “abysmal,” saying never before has the United States gone so long without a confirmed Treasury Secretary.

“This has never happened before, that we’ve had this kind of treatment of cabinet officials,” Hatch said. “This is the most pathetic thing I’ve seen in my whole time in the United States Senate.”

Hatch said the Democrats presented him with a “list of demands” without which they would refuse to vote on Mnuchin’s appointment. Hatch called their behavior “amazingly stupid.”

“I’d like to see someone with courage on the other side,” he said. “Stop posturing and acting like idiots.”

Democrats told reporters outside the committee’s chambers that they want more information on Mnuchin’s time at OneWest; specifically, they want him to respond to claims the bank used automated “robosignings” during foreclosures.

Sen. Bob Casey (D-Pennsylvania) said via Twitter he has documents showing OneWest engaged in robosigning, contrary to his statements before the committee.

“Mr. Mnuchin just hasn’t been straight with the facts,” Casey said. “He must do so before committee process moves forward.”

Senate Democrats are using similar tactics to delay the vote on Secretary of Health and Human Services Tom Price, who they say engaged in questionable stock transactions.

“Political debate and disagreement is the core of democracy, but refusing to take part in the vote is a dereliction of duty,” said Ed Delgado, President and CEO of the Five Star Institute and former Wells Fargo and Freddie Mac executive. “Steven Mnuchin is an eminently qualified choice for Treasury Secretary, and despite how Democrats may feel about his history he deserves a yes or no vote.”

No information on the next attempted vote has been released.

Mnuchin, nominated by President Donald Trump shortly after his election in November 2016. He indicated at that time he would roll back key provisions of the Dodd-Frank Act, signed into law by President Barack Obama in 2010 to regulate Wall Street. He also said he would end the governmental conservatorship of Fannie Mae and Freddie Mac.

If confirmed by the Senate, Mnuchin would succeed Jack Lew, who took office on February 28, 2013 under former President Barack Obama. Adam Szubin is currently serving as acting secretary. Mnuchin would be the third former Goldman Sachs executive to lead the Treasury after Henry M. Paulson and Robert E. Rubin.

The Dow Hits 20,000—So What?

Frank Nothaft

The Dow Jones Industrial average made history on Wednesday, cracking 20,000 for the first time ever. Frank Nothaft, Chief Economist withCoreLogic, said the Dow’s record-shattering levels can have both direct and less direct effects on the housing market and American home buyers.

“It does have a positive effect on the margin,” Nothaft said. “For those families who have been saving up to be first time home buyers, some of their financial assets are probably held in equity markets. As the stock market rises, the value of equity holdings increase.”

Nothaft said those families could use the proceeds from the sale of that equity to fund the purchase of a home.

“It helps provide some additional capacity for some household,” he said. “At the margin, it’s certainly helpful.”

The Dow hitting 20,000 doesn’t really directly affect 54 percent of Americans, as according to a Bankrate.com study that percentage of Americans have no money in the stock market. That means no money in stocks, 401(k)s, IRAs or mutual funds.

However, Nothaft said the rocketing Dow can affect American consumers beyond equity markets in ways more difficult to quantify.

“It’s widely seen as good news, confidence in the economy,” Nothaft said. “Expansion is much more likely to continue. It conveys a positive outlook for business and the labor market as well. This kind of positive news can affect in a very subtle fashion the optimism and outlook consumers have.”

He said as consumers grow more confident in both the health of the American economy and that of their own finances, they become more likely to make “big ticket” purchases, such as cars or homes.

“A house is the biggest ticket thing the average person will ever buy,” Nothaft said.

The economist said the rising Dow lends itself to a subtle effect he says economists call the “wealth effect.” As financial wealth increases broadly in the economy, consumers feel wealthier and are more likely to engage in broad consumer purchases, ranging from consumer products like televisions all the way to homes.

“Those purchase activities generate more job growth, which translates into income growth for families,” Nothaft said. “It puts families in a position to buy a home.”