May 6, 2017: Notes on influence on taxes and employment on lending & housing; CMB program; 10-day closes

Think things can be rough in residential lending? Try lending on a mall containing a JC Penny’s or Sears. Credit Suisse research projects more than 8,600 brick & mortar retail stores will close this year vs. 2,056 last year and 5,077 in 2015. If this level is reached, it would exceed the prior record hit in 2008 by almost 40%. Through April 6, closings have already been announced for 2,880 retail locations.


The government, lending, housing, and the economy


Congress has a lot on its plate, and will continue to make headlines every day. One of the issues facing it is tax reform. Scott Olsen writes, “I’ve read about potential plans to significantly boost the standard deduction. CHLA is very concerned that, however well intentioned, this could result in a significant devaluation of the mortgage interest deduction (MID). CHLA sent a letter to the Chairs and Ranking Members of the tax committees to express our ‘serious concerns’ about this, to try to create more visibility about the issue, and to make two specific requests.


“First, since the impact is indirect (a transfer of the way families take their deduction from the MID to the standard deduction) Members of Congress won’t see the impact on the MID in the official tax scoring of a tax bill – making it harder to have the informed debate that ought to take place. Therefore, CHLA is requesting that the Joint Committee on Taxation calculate and display the total revenue impact of this loss of the MID, along with the number of homeowners that would be affected.


Secondly, CHLA is requesting that if the standard deduction is significantly boosted, the MID negative MID impact should be ameliorated – through a mortgage interest credit or deduction outside the standard deduction box.


Adam Thorpe, President and COO of Castle & Cooke Mortgage, opines, “President Trump’s recent proposal on tax reform has raised many questions about what his plan would mean for the housing market. Primarily, will increasing the standard deduction rate offset the loss of state and local tax and mortgage interest deductions? To answer the question, an evaluation of both positive and negative potential repercussions for homeowners and real estate investors is necessary.


“On the upside, tax reductions typically result in an uptick in demand for housing. Trump’s proposal to increase standard deductions, coupled with a drop in corporate taxes, will directly impact individuals by lessening tax burdens and putting more money into consumer pockets. This money can then be invested into the real estate market.


“On the other hand, the proposed elimination of deductions for state and local taxes, and the higher threshold for taking the mortgage interest deduction, may negatively impact homeowners who count on these deductions to offset their tax burden. Additionally, the recommended elimination of the 1031 exchange will likely cool real estate investment if investors can no longer use it to defer tax on real estate investment gains. Ultimately, a more formalized and detailed tax bill will need to be proposed before a definitive answer presents itself.”


And Les Parker, SVP at LoanLogics suggested, “This is fairly simple. If net personal income increases, housing will benefit. Additionally, if businesses are more efficiently taxed, business investment should stimulate employment and growth. A good economic environment positively impacts housing. Some may argue that interest rates would rise and decrease housing affordability, but it tends to lag.”


Yesterday’s employment data prompted Doug Duncan, Chief Economist at Fannie Mae, to author, “The pickup in hiring in the April jobs report supports the popular view that March’s weak headline was a weather-induced slowdown. The trend in nonfarm payrolls so far this year points to a steady improvement in job gains, propelling the labor market further into full employment territory. The unemployment rate dipped to a fresh expansion low. More importantly, the broadest measure of labor underutilization, the U6 rate, fell for the sixth time in the past seven months to 8.6 percent, the lowest level since November 2007. The message from today’s report is clear: The labor market is tight, with continued declines in discouraged workers and part-timers who prefer full-time jobs. The report is consistent with a faster pace of monetary policy normalization this year and supports our expectation of two rate hikes in June and September and a change in the Fed’s reinvestment policy in December.”


And First American Chief Economist Mark Fleming mentioned that the employment situation continues to improve, but asks if it is happening fast enough for housing. “The employment situation report was strong, particularly in comparison to the March report. The increase of 211,000 non-farm payroll jobs makes up for last month’s 98,000. The total number of non-farm payroll employees is more than 10 percent higher than at the end of the recession and six percent higher than before the recession. Good news for the economy as a whole, but there are concerns for the housing sector.


“Specifically for the housing market, construction employment, which needs to expand to increase the pace of housing starts and increase the housing stock, was a disappointment with only 5,000 new jobs reported. The pace of construction-job growth has been declining on a year-over-year basis for over a year. This month’s increase of 5,000 jobs is only a 2.6 percent increase from a year ago. The ability to increase housing starts is highly dependent on construction employment. Home builders are reporting that the lack of construction workers is hampering their ability to increase production, which is a desperately needed source of supply, as most markets already have very tight inventories of homes for sale. In fact, we have been underbuilding residential housing relative to demand since 2009.”


The few, the proud, the certified mortgage banker


Folks in the business ask me about whether they should pursue a Certified Mortgage Banker designation from the MBA. I asked Dave Stevens, President and CEO of the MBA about it, and he replied, “I can tell you from firsthand experience that this certification is one of the hardest things I’ve done in my 30 years in the mortgage business. I had to take a 6-hour written test covering loan administration, secondary markets, regulations, and more. That was followed by an oral exam from an executive board who grilled me on a variety of mortgage topics.  Thankfully I passed the test, but would not have had I not studied and taken the courses. Look, I have had nearly every job in the mortgage industry. Loan officer, President of Long & Foster, ran the single-family business at Freddie Mac, FHA Commissioner, and even with all that, it was struggle for me to pass the written and oral exams.


“MBA makes virtually no money from the program and in fact it barely breaks even. Fees are nominal ($350 for enrollment, $350 for the written/oral exams – combined). The designation is a points-based program that does not have a required curriculum—you do not have to take MBA’s Schools of Mortgage Banking (or any other program offerings) to get this designation. This allows the individual to choose their own path, on their own schedule, and within their budget. Candidates can attend any industry mortgage finance program/course/conference/event and apply that towards their points for the CMB. We offer an interactive (and optional) prep courses taught by current CMBs to help candidates prepare for both the written and oral exams. CMBs include professional industry consultants, mid-level management up to C-suite professionals. I personally challenge any industry professional who doubts the merits of this program to take the CMB exam. Without studying, I guarantee they won’t pass it. All the experience won’t prepare you for this exam, unless you take the courses and study your tail off!”


And Dave Zitting, CEO at Primary Residential Mortgage, Inc., shared, “I started in the business when I was 17 years old. I’ve processed & closed (escrow), I’m an FHA DE UW, have extensive credit training in all product categories, solid understanding of capital markets, originated for ten years, extensive ERM / CMS training, and built PRMI – and there is NO possible way I could have passed this test without prep-courses, the 6 weeks of study – and I had to cram like crazy the day before the exam. And it was certainly one of the toughest exams I’ve taken.


“Candidates enter a point system where the candidate earns points by attending conferences and participate in panels, boards, committees and the like. That’s certainly not a revenue generator for MBA, but to some that can be a bit costly (travel, time away from the office, etc. etc.). And as for those who think utilizing other formal education to replace or subsidize points, it is not a good idea.


“We all know plenty folks within our industry sporting Ivy League educations, and there’s no possible way they could pass this test (which ‘defines’ the professional as a ‘mortgage banking expert’) – nor would they qualify for many of the jobs within our industry that define this broad, and often esoteric knowledge.”


Switching gears to processing times, JJ Mazzo sent in this defense regarding JJ’s company’s “10-Day Quick Close Guarantee.” “With all the attention on the housing inventory shortage, some Loan Officers are touting a quick close guarantee. We’ve seen 15, 10 and shorter. The Mazzo Group, now at Summit Funding, is the Originator of the 10-Day Close Guarantee and backs the promise with a $100 per diem penalty to the seller.


“Our 10-Day Close Guarantee starts when the consumer completes the application and indicates their intent to proceed, the 10-Days are total calendar days. Although we find many company disclosures including our own leave a way out, we go out of our way to honor a true

10-Day Close or any short time frame needed to compete and beat other offers.


The key is really, setting the proper expectations with the client to provide us any requested documentation within 24-hours. We also have service level agreements to ensure 24-hour underwriting, 24-hour appraisals and 24-hour docs and table funding, on all in-house products at our San Juan Capistrano Branch.



(Thank you to Ken S. for this one.)

They are the final twosome in the Arkansas Country Club Championship and are tied for the lead. The 18th hole is a beautiful par four with a deep valley, descending down to a dogleg right. Both Bubba and Bo hit long, straight tee shots which disappear down into the valley. A short time later, the fore caddie appears at the top of the hill and announces that both balls are within 6 inches of each other, but there’s a problem. Both of the golf balls are Titleist # 4s. Bubba and Bo look at each other and realize that they had not informed each other as to what kind of ball they were playing, nor its number. They quickly descend into the valley and, sure enough, their two Titleist golf balls are right next to each at the bottom of the valley in the middle of the fairway. Bubba looks at Bo and says, “We had better get a ruling from a tournament official to straighten this out. This is the Arkansas Country Club Championships and we don’t want to be disqualified for making a mistake and hitting the wrong ball. After all, we are tied for the lead.” Soon after, a rules official appears and examines the two # 4 Titleist golf balls. He then looks up at Bubba and Bo and says, “Which one of you is playing the orange ball?”






(Copyright 2017 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman