Confusion Over HUD QM rules; Diversity Comment Period Extended; CFPB Staffing Levels; OIG reports on CFPB exams


Saturday I mentioned a misspelling in a mortgage document (“…MERS holds
leugal title…”). It turns out that it is not a MERS or Fannie issue,
but an Ellie Mae issue. Fannie contacted Ellie, who responded that its
staff became aware of the typo on the Oregon document and fixed it in
November. Glad to hear it is taken care of!



Ward said, “The pessimist complains about the wind, the optimist
expects it to change, and the realist adjusts the sails.” Yesterday we
learned that applications for U.S. unemployment benefits declined last
week to the lowest level in a month. Analysts can pick apart these
numbers all they want, but much of our economy is based on jobs and housing – and both are doing pretty well.
(Jobless claims fell by 2,000 to 339,000 in the period ended Dec. 28.)
In areas other than residential lending, gains in business and consumer
spending should help the U.S. economy.

But things are not so rosy for
many companies that base their livelihood on mortgage banking. Apps were
decent in October and November, leading to December being a decent
funding month. But pragmatic
management is looking at estimated fundings for January through March
or April, and comparing that to overhead levels, and wondering if more
cuts aren’t in the cards. And yes, we may see a new HARP cutoff
date, or refis come in due to appreciating values, or the purchase
market pick up after Easter. But hope is not a strategy.



being said, as homes appreciate, many who have 30-yr year fixed-rate
loans in the 3% range will need cash for the usual reasons. For example,
according to the 2013 Houzz Home Survey, over the last five years
nearly 40% of home improvement dollars have gone into kitchens. People
spent an average of $28k on kitchen remodels over the past 5Ys and
another $10k+ on bathroom renovations.


I know what you’re thinking, that we need more Dodd-Frank news. I agree. Back in October of last year, six federal agencies had proposed joint standards for assessing the diversity policies and practices of regulated entities relating to employment and contracting with third parties.
The proposal was developed by the agencies’ Offices of Minority and
Women Inclusion (OMWI). The Dodd-Frank Act directed the Consumer
Financial Protection Bureau, Office of the Comptroller of the Currency,
Federal Reserve Board of Governors, Federal Deposit Insurance
Corporation, National Credit Union Administration, and Securities and
Exchange Commission (aka “the Agencies”) to establish an OMWI. The Act
also required each Agency’s OMWI to develop assessment standards for the
entities the Agency regulates. The Agencies were seeking comments for
the proposal, which were due by December 24, 2013. The CFPB has extended the period for filing comments on its proposed policy statements. The new deadline for filing comments is February 7, 2014.


created the Consumer Finance Protection Bureau, which in turn created
the Qualified Mortgage criteria. At this point we have five business
days until its implementation, and the press is finally taking note of
it. If you find yourself in Washington DC on Tuesday, Realtors
(through NAR) and CFPB Director will be discussing “New Protections for
Homebuyers the Market Impacts” of QM. It will be held at NAR headquarters, 500 New Jersey Ave. NW on the 12th floor. Presenting will be Chris Polychron, president-elect, National Association of Realtors, Richard
Cordray, director, CFPB, Lawrence Yun, chief economist of NAR, and
Barry Zigas, director of housing policy, Consumer Federation of America.
If you’d like to attend, write to Jenny Werwa at
“In advance of the new CFPB mortgage rules going into effect on January
10, 2014, the National Association of Realtors is hosting a discussion
about the impacts the rules will have on consumers, lenders and the
housing market. The Ability-to-Repay rule establishes strong consumer
protections that will ensure qualified homebuyers have access to safe,
affordable home loans. Richard Cordray, the director of the Consumer
Financial Protection Bureau, will join NAR President-Elect Chris
Polychron to deliver remarks at the briefing and take questions.”



As a reminder, since there still seems to be some confusion out there, the
Department of Housing and Urban Development (HUD) has issued its final
rule defining a “Qualified Mortgage” (QM) as required by the Dodd-Frank
Act.  The new rule, HUD says, builds off of the existing QM rule
issued by the Consumer Financial Protection Bureau (CFPB) earlier this
year.  Like the CFPB QM the new HUD, which applies only to loans
insured, guaranteed, or administered by HUD/FHA will go into effect on
January 10. In order to be a qualified mortgage as defined by HUD as
loan must meet the following requirements: require periodic
payments without risky features; have terms not to exceed 30 years;
limit upfront points and fees to no more than three percent with
adjustments to facilitate smaller loans (except for Title I, Title II
Manufactured Housing, Section 184, Section 184A loans and others as
detailed below); and be insured or guaranteed by FHA or HUD.


HUD’s rule establishes two types of QM. The Rebuttable Presumption QM
will have an annual percentage rate (APR) greater than the Average
Prime Offer Rate (APOR), the rate for the average borrower receiving a
conventional mortgage, plus 115 basis points plus the on-going (FHA)
Mortgage Insurance Premium (MIP) rate. Lenders that offer these loans
are presumed to have determined that their borrower meets the
Ability-to-Repay standard set out in the Truth-in-Lending Act (TILA) but
consumers can challenge that presumption by proving they did not have
sufficient income to pay the mortgage and other living expenses.



The second type of qualified mortgage is the Safe Harbor QM. These
loans must have an APR less that that laid out under the formula above
for Rebuttable Presumption loans, and are thought to offer lenders the
greatest legal certainty they are complying with TILA.  Consumers can
still challenge their lender but only on the basis that their loan does
not meet Safe Harbor requirements.



has also adopted CFPB’s list of transactions that are exempt from the
ability-to-repay requirements including Reverse Mortgages; short term
(12 months or less) bridge loans, construction to permanent loans, and a
list loans available under specialized HUD financing.  The
new QA rule also covers Title II manufactured housing, Title I
manufactured housing and property improvement loans, Section 184 Indian
Home Loan Guarantee Program mortgages, and Section 184A Native Hawaiian
Housing Loan Guarantee Program mortgages. The rule designates loans
insured under these programs as Safe Harbor Qualified Mortgages
regardless of upfront points/fees and APR to APOR ratio so as not to
interfere with current lending practices until appropriate parameters
can be determined.



remember an equities analyst once commenting on coffee giant Starbucks
by saying, “they’re hiring more people than any company right now…as if
they expect to open up stores on Mars and Venus.” Well I’m not too sure
about the regulatory climate on other planets, but here on earth the
CFPB added an additional 335 workers to their payroll, according to its
financial report for 2013. At the end of FY2012, the CFPB employed about 970 individuals; at the end of FY2013 the CFPB had 1,335 employees on staff.
During the course of the year, the CFPB received $518.4 million in fund
transfers from the Fed (more than three times the $161.8 million in
funds transferred in FY 2011 and $175 million more than the $343.3
million transferred in FY 2012). For FY2013, under Dodd-Frank, the CFPB
was entitled to receive up to approximately $597.6 million in funding
from the Fed. With all the increases in employment and funding, however,
the report states “at the end of fiscal year 2013, the CFPB was still
below the full employment levels and funding it estimates for its steady
state in future years.” Maybe they do have plans of interstellar office
openings, or at the very least, the CFPB expects to need warm bodies in



The Office of Inspector General (OIG) has issued a report criticizing the CFPB for bringing enforcement attorneys to exams.
In November the CFPB ended its controversial practice of having
enforcement attorneys regularly participate in examinations of
supervised entities. In the report, the OIG, make a few noteworthy
observations on the former practices of the agency: (1) the CFPB’s
supervision and enforcement staff had varying levels of awareness of the
CFPB’s policy for how and when enforcement attorneys were to interact
with the CFPB’s examination teams, (2) the CFPB did not formally train
enforcement attorneys on the CFPB’s examination process, (3) the CFPB
did not have a policy on the ability of enforcement attorneys to access a
supervised entity’s systems during examinations, and (4) the CFPB has
not provided clear guidance to staff regarding the process for resolving
legal questions that arise during examinations. In its letter
responding to the OIG’s report, the CFPB indicated that it agreed with
the OIG’s recommendation that the CFPB define the roles and
responsibilities of all relevant parties with regard to addressing legal
questions from examination staff. The CFPB indicated that it “is
addressing the concerns raised in this recommendation through its new
policy on enforcement attorney integration into examinations.”



look, the CFPB doesn’t only pick on mortgage originators! Recently, the
Bureau has “requested” that financial institutions post on their
websites their marketing agreements with colleges and universities for financial products other than credit cards;
this would include deposit accounts, prepaid cards and financial aid
disbursement accounts. In accordance to the CARD Act of 2009, card
issuers must submit their campus credit card agreements annually to the
CFPB together with their related marketing agreements, including the
amount of compensation they paid to schools; there is no federal law
requirement for financial institutions to disclose their marketing
agreements or similar information for other financial products. As
Ballard Spahr write, “The CFPB’s “request” is an outgrowth of the
findings on campus financial products it released in October 2013. The
CFPB found that campus financial product marketing arrangements have
shifted away from credit cards towards student checking and debit or
prepaid cards. Most notably, the CFPB found that arrangements between
financial institutions and schools to offer student banking products
are not well-understood.” Full CFPB Monitor posting.



at the markets, rates did a little better Thursday, and we had a little
housing news: Pending Home Sales were up .2% in November (the first
move higher in five months), and New Home Sales were down 2.1% in
November, but is 16.6%
above the November 2012. The median sales price of new houses sold in
November 2013 was $270,900; the average sales price was $340,300.
(Remember that “median” is “half above, half below.”) Selling from
mortgage bankers averaged below $1 billion per day versus Fed purchases.
The are expected to decline just slightly to $2.5 billion area from
$2.7 billion based on projected paydowns received in December of $15
billion plus $35 billion in outright purchases for January.



is no scheduled news of any substance today as the Southwest is dealing
with temperatures above 80 degrees and the Northeast just wants to stay
home due to snow. Yesterday
the 10-yr closed at a yield of 2.99%, and in the early going we’re
still there at 2.99% and agency MBS prices are worse a tad.

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