CFPB Assesses Effectiveness of Mortgage Servicing Rule

The Consumer Financial Protection Bureau (CFPB) is planning to assess the effectiveness of the Real Estate Settlement Procedures Act (RESPA) mortgage servicing rule. The rule, introduced in January 2013 and which took effect in January 2014, was designed to assist consumers who were behind on mortgage payments.

Among other things, the RESPA mortgage servicing rule requires servicers to follow certain procedures related to loss mitigation applications and communications with borrowers. Servicers must give, in writing, notices of error within five days, and investigate and respond to the borrowers within 30 days.

Additionally, the RESPA mortgage servicing rule called for greater transparency between the servicer and the borrower. It required clear monthly mortgage statements, early warning before adjusting interst rates, and gave options to avoid fore-placed insurance.

“For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures,” said CFPB Director Richard Cordray of the rule in 2013. “Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes.”

Dodd-Frank requires the CFPB to review their rules five years after they take effect, and this includes RESPA. Currently, the Bureau is seeking comment from consumers, consumer advocates, housing counselors, mortgage loan servicers, industry representatives, and the general public regarding the rule, and will issue a report of their assessment by January 2019.

The assessment will give the CFPB better understanding of the costs and benefits of the RESPA mortgage servicing rule, and, according to the Bureau, will provide the public with a better understanding of the mortgage servicing market.

The CFPB’s Information Request can be found here.

Mortgage Default Risk is on the Rise

On Thursday, VantageScore Solutions, LLC and TransUnion released the VantageScore Default Risk Index (DRI) for Q4 2016. According to the DRI, when it comes to default risk, mortgages pose a lower threat than auto loans, student loans, and bankcards with the DRI for these four categories came in at 85.4 (mortgage) , 89.3 (auto), 90.0 (student loans), and 96.8 (bankcards) respectively. Despite the lower default risk compared to other debt categories, mortgage risk is up quarter-over-quarter.

The DRI uses credit file data to measure the relative changes in risk level assumed by lenders, benchmarked against Q3 2013 (when the index was first created). The DRI also measures quarter over quarter change and year-over-year change.

Quarter over quarter, mortgages saw a rise in default risk of 3.6 percent.

“New card and auto loans showed marginally more conservative risk profiles than the previous quarter, while mortgage loans showed the opposite trend. Student loans were once again the outlier, where the seasonal pattern continued to bring low volumes and higher risk loans in the fourth quarter when compared to the fourth quarters of years past,” the companies stated.

The risk of default in student loans, and the burden this type of debt has on Americans, impacts the housing market in a variety of ways. Recognizing that student loan debt is one of the top barriers to homeownership, Fannie Mae recently released series of policies. to help borrowers with student loan debt buy a home, regardless of what their loan balance is.

“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution. These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers,” said Jonathan Lawless, VP of Customer Solutions at Fannie Mae.

Senior Housing Market Remains Strong After Post-Election Surge

shutterstock_111393506The National Association of Homebuilders’ (NAHB) 55+ Housing Market Index (HMI) revealed for Q1 2017 revealed a 12 point drop from Q4 2016, but the senior housing market is still in a strong area.

The NAHB notes the the Q4 2016 Index reading of 67 was unusually high, so the lower number this quarter came as no surprise. The current 55+ HMI is still above 50, sitting at 55, meaning more builders are viewing conditions for this market as good rather than poor. The 55+ HMI has been over 50 for 12 consecutive quarters.

“Although builder sentiment is down from the previous quarter, overall confidence is still in positive territory and builders remain optimistic,” said Dennis Cunningham, chairman of NAHB’s 55+ Housing Industry Council

The NAHB produces two 55+ HMIs. One HMI covers the single-family market, the other cover the mult-family condominium market. Each Index utilizes a survey which asks if prospective buyer traffic is and anticipated six-month sales are good, fair, or poor. The Index is divided into three components: present sales, expected sales, and prospective buyer traffic. Each of these three compentnts dropped in Q1 2017.

Present sales fell 12 points to 62, expected sales fell seven points to 68, and prospective buyer traffic decreased 15 points to 34.

According to the NAHB, the decline in the Index reflects the aftermath of a post-election surge in confidence.

“We saw an unusually high 55+ single-family HMI in the 4th quarter of 2016 due to a post-election surge in optimism. As this wears off, confidence is returning to a more sustainable level,” said NAHB Chief Economist Robert Dietz. “Although builders are struggling with shortages of labor and lots, as well as higher lumber prices, market conditions on balance remain favorable, and we expect solid growth in the 55+ housing sector.”

Find the complete Index here.

Credit Suisse to Pay $400 Million in RMBS Litigation

After allegedly selling toxic residential mortgage-backed securities which led to the failure of three credit unions, Credit Suisse Securities has agreed to pay $400 million in a settlement on Wednesday, Law360 reports.

The National Credit Union Administration (NCUA) settled with Credit Suisse, one of Switzerland’s largest banks, ending a litigation that has lasted nearly five years. The NCUA filed a motion for voluntary dismissal in Kansas federal court on Tuesday.

“We are pleased that with the finalization of this settlement, another legacy matter has been resolved,” Nicole Sharp, a spokeswoman for Credit Suisse, said in a statement.

The NCUA alleged in its complaint that Credit Suisse made false statements about the quality of mortgages underlying around 20 securities it sold to Lenaxa, Kansas-based U.S. Central Federal Credit Union; San Dimas, California-based Southwest Corporate Federal Credit Union; and Plano, Texas-based Western Corporate Federal Credit Union prior to the financial crisis, says Law360.

Credit Suisse had previously seen these claims trimmed in original litigation, and the bank fought to dismiss the case entirely. In 2013, U.S. District Judge John Lungstrum rejected federal claims related to 12 residential mortgage-backed securities sold by Suisse Bank, and purchased by U.S. Central Federal Credit Union, Western Corporate Federal Credit Union and Southwest Federal Credit Union. Judge Lungstrum preserved the federal claims of eight other banks.

The bank had previously reached a settlement of $50 million with the NCUA following the failure of several other credit unions in April 2016.

Law360 noted the NCUA has seen around $5.1 billion in settlement from several banks over the sales of mortgage backed securities to five failed federal credit unions.

“NCUA has pursued litigation for nearly six years with the aim of holding responsible parties accountable and reducing the burden of stabilization fund assessments on credit unions,” NCUA Acting Board Chairman J. Mark McWatters said in a statement.

GDP Growth Doesn’t Meet Expectations

In Q1 2017, the economy grew by just an estimated 0.7 percent according to the Bureau of Economic Analysis, a slower rate of growth than Q4 2016’s rate of 2.1 percent.

This was below the Wall Street estimate for the quarter, but in the opinion of Brett F Ewing and S. Lance Mitchell, Chief Market Strategist and Research Director (respectively) for First Franklin Financial Services, this is an “inflection point” for the economy in the midst of a tight labor market.

“One thing that surprised us was the pickup in business investment despite the uncertainty in the future of business policies that the Trump administration is targeting,” said Ewing and Mitchell. “That’s a great sign because if the environment improves, which we think it will, more investment will follow. It definitely shows a pent-up demand and willingness to invest, even in the face of a murky future.”

The New York Times noted that the drop in spending followed a large increase in Q4 2016, and was an inevitable reversal. Michelle Meyer, Chief United States Economist at Bank of America Merrill Lynch, told Times that healthier business investment indicated that the overall economy was performing better than the headline numbers would suggest.

Additionally, the report notes that the current-dollar GDP increased 3.0 percent, or $137.9 billion, in the first quarter to a level of $19,007.3 billion. In the fourth quarter, current-dollar GDP increased 4.2 percent, or $194.1 billion. The price index for gross domestic purchases increased 2.6 percent in the first quarter, compared with an increase of 2.0 percent in the fourth quarter. The PCE price index increased 2.4 percent, compared with an increase of 2.0 percent. Excluding food and energy prices, the PCE price index increased 2.0 percent, compared with an increase of 1.3 percent.

The Bureau of Economic Analysis emphasized that the first-quarter advance estimate released on Friday is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the first quarter, based on more complete data, will be released on May 26.

Non-current Loans Lowest in 11 Years

UnderwaterMarch saw the lowest level of non-current inventory in 11 years, according to the Mortgage Monitor report released by Black Knight Financial Services on Monday. It also marked the fourth consecutive month the level has fallen below historical norms.

The states with the highest percentage of non-current loans were largely in the South, including Mississippi, Louisiana, Alabama, New Jersey, and West Virginia. The states with the lowest share were in the Midwest and Western U.S., including Idaho, Montana, Minnesota, North Dakota, and Colorado.

According to the Monitor, total U.S. loan delinquency for March was 3.62 percent—14 percent less than February’s numbers. The country’s foreclosure pre-sale inventory rate was 0.88 percent, a dip of nearly 5 percent over last month.

The month’s 30-day delinquency rate came in at more than 25 percent less than its 2000 to 2005 average. The serious delinquency rate, which includes loans that are 90 or more days past due, was also down, falling 14 percent for the quarter and 20 percent over the year. Serious delinquencies were still above historical average by about 25 percent. States with the highest percentage of seriously delinquent loans were Mississippi, Louisiana, Alabama, Arkansas, and Tennessee.

The number of loans under active foreclosure followed suit, dropping 7 percent in Q1 and 29 percent over last year, though they’re still way about what Black Knight calls “normal levels”—about 45 percent higher. There are about 250,000 more loans in serious delinquency or active foreclosure than a healthy market would normally allow.

In total, the quarter saw nearly 70,000 foreclosures completed—a 21 percent drop from a year ago, but a 12 percent increase over Q4 2016.

The Monthly Monitor also looked at HELOCs, finding that 1.5 million of all active HELOCs—or 19 percent—will be up for a reset this year. However, only one-fifth of those borrowers has less than 10 percent equity, which could pose a problem when seeking refinancing.

“For those still facing resets, however, equity continues to be a struggle,” the report stated. “One-third of borrowers whose HELOCs will reset in 2017 have less than 20 percent equity in their home, making refinancing problematic. One in five have less than 10 percent, and one in 10 are actually underwater.”

To view the full Monthly Monitor report, visit BKFS.com.

The Week Ahead: Taking a Look at the Financial CHOICE Act

On Tuesday at 10 a.m. EST, the Financial Services Committee will meet for the markup of the Financial CHOICE Act. Financial Services Committee Chairman Jeb Hensarling (R-Texas) had introduced the Financial CHOICE Act on Wednesday of last week as an alternative to the Dodd-Frank act.

“The Financial CHOICE Act guarantees that the era of big bank bailouts and ‘too big to fail’ is over. For banks that fail, there will be bankruptcy, not bailouts,” said Chairman Hensarling. “In order to qualify for much-needed regulatory relief, financial institutions will have to be so well-capitalized that they pose no threat to hardworking taxpayers or to our economy.”

The CHOICE act announcement came alongside Wednesday’s tax reform plan announcement, which calls for a reduction of corporate taxes down to 15 percent, cutting the top tax bracket down to 35 percent, and doubling the standard deduction. Treasury Secretary Steven Mnuchin called the reform the “The biggest tax cut and largest tax reform in history of this country.”

Also, this week, congress will vote on a federal funding bill. On Friday, Congress extended the funding deadline for another week with a vote of 382-30, avoiding a government shutdown over the weekend. The Associated Press (AP) stated that Congress plans on passing the complete funding package sometime this week, which will finance the federal government $1 trillion through September 30, the end of the fiscal year.

“We’re willing to extend things for a little bit more time in hopes that the same sort of progress can be made,” Senate Minority Leader Charles E. Schumer (D-New York) told The Washington Post on Friday morning.

A government shutdown would have slowed the mortgage process and even prevented some buyers from closing, as access to tax information and social security would have been halted during the shutdown.

This Week’s Schedule

Census Bureau Construction Spending report for March, Monday, 10:00 a.m. EST

AEI National and State Mortgage Risk Indices Update Conference Call, Monday, 11 a.m. EST

Collingwood Managing Director Tom Booker joins Jim Bohannon Radio show, Monday, 11 p.m. EST

Freddie Mac to Release Q1 Financial Results, Tuesday, 9 a.m. EST

MBA Mortgage Applications, Wednesday 7 a.m. EST

Freddie Mac Weekly Mortgage Survey, Thursday, 10 a.m. EST