Sep. 17: Notes on youth, debt, and home buying; cybersecurity news; CMLA & CHLA speak out; There are 2,500 DPAs? Yes!

Seeing is believing, right? Well, here’s something totally non-mortgage related: an optical illusion that proves that human’s eyes aren’t entirely accurate. It’s worth a gander. As for me, I found it very frustrating.


Valid concerns about young potential buyers and debt? You bet there are. Angela Robbin submits, “As a millennial with truly enormous student loan debt, I read the updates on lending to my generation with particular interest. There have been a lot of notes on the difficulties posed by high student loan payments and on ways to lower them (like the refinancing program in yesterday’s commentary). One piece that I’d like to add is that GSE guidelines on student loans are disqualifying many solid borrowers that already have affordable monthly payments. As federal student loan debt started growing out of control in the last decade or so, new income-driven repayment (IDR) plans were created. IDR bases payments on the borrower’s income, which is updated and verified annually. After 20-25 years of payments, any remaining balance is forgiven. IDR is a huge financial relief; payments go on for a while, but they’re predictable, relatively affordable, and only increase if there is a corresponding increase in income.


“Instead of using this actual, documented, monthly payment, Fannie Mae includes IDR payments at the greater of the actual payment or 1% of the outstanding balance. Just to give you an idea of the potential discrepancy here, my DTI (excluding housing) is 11% when you include my actual payment – totally affordable and well able to accommodate a decent mortgage payment. If you ignore the actual payment and pretend I pay 1% of my balance monthly, my DTI skyrockets to 42% – ouch. The 1% number is irrelevant to my monthly payments, but it’s apparently the industry standard for DTI calculation (used by GSEs, FHA as of 6/30/16, and RD).”


Angela’s note continued. “Someone will probably point out that the guidelines allow you use the actual payment if it is documented and fixed, but ‘fixed’ means that the payments amount can’t adjust. The whole point of IDR plans is that they can adjust annually to match any changes in income. If my AGI increases, then, yes, my loan payment will go up.  My DTI would actually go down overall if that were to happen, but the payment adjusts, so game over.


“With rents climbing, I have a lot of friends from law school that are trying to buy houses.  They have down payments saved, great credit, and are well able to afford a mortgage payment (PITI is often lower than their current rent), but they’re blocked out of the market because the industry doesn’t understand their student loans. In case anyone is thinking this is just a couple of borrowers, the Department of Education’s most recent Quarterly Student Aid Report (available here) shows that approximately 4.8 million federal student loan borrowers are on IDR plans. I wish ‘whoever’ (CFPB, Congress, POTUS, etc…) would take a look at the silly cost of higher education in this great country. Make no mistake, college is BIG BUSINESS and the people running it are only after one thing – PROFITS.


“A young person shouldn’t have to go into debt to the tune of $100,000 to attend a state institution (e.g. Michigan State). Paying $400 per credit hour for an entry level college course taught by a TA who speaks English as a second language is absurd. Mark my word – student loan debt will do more long term harm than the mortgage/real estate crisis……” Thank you Angela!


Plenty of first-time home buyers take advantage, usually with the help of a smart LO or broker, of a down payment assistance program. Some of them are pretty darned sweet. A while back Rob Chrane, CEO of Down Payment Resource, noticed, “We’re experiencing a sharp spike in unsolicited interest from not only depository-owned mortgage operations, but independents, the GSEs and MI companies. One of our GSE friends told us that 14 out of the 15 customers she met with at the MBA Secondary Conference a while back asked for access to more DPAs and other affordable lending programs. Separate, but related, are two new reports we released just last week and may be of interest to you: “The Little Known Way to Buy a Home with Almost No Cash Down” and “2,500 Down Payment Assistance Programs.”


Cybersecurity… one could do a daily piece on trends in that business, and I imagine they’re out there. But let’s check in with some recent news over the last few weeks that may impact lenders.


The Federal Financial Institutions Examination Council (FFIEC) published a press release announcing the issuing of a revised Information Security booklet, which is part of the FFIEC Information Technology Examination Handbook (IT Handbook).


The Commodity Futures Trading Commission has approved final rules requiring commodity and derivatives firms to test IT hacking vulnerability quarterly and cyberattack responses annually. “[The rules] will apply to the core infrastructure in our markets — the exchanges, clearinghouses, trading platforms and trade repositories,” Chairman Timothy Massad said.


The Society for Worldwide Interbank Financial Telecommunication said in a letter to clients that since June, when it informed them of a series of attacks, there have been additional efforts by cybercriminals directed at banks, and some have been successful. “The threat is persistent, adaptive and sophisticated — and it is here to stay,” the letter said. Visit SIFMA’s Cybersecurity Resource Center.


Proposed cybersecurity regulations for banks and insurers in New York would be the first in the country, says Gov. Andrew Cuomo, who drafted the proposal with the Department of Financial Services. The rules would require institutions to develop cybersecurity programs, including the addition of a chief information security officer, as well as detection and deterrence measures.


Regarding the general tone of the industry, a few weeks ago the entire residential lending industry was abuzz about the article on housing in the Economist lambasting mortgage banking. Blake Ward sent, “A decade on, the presumption is that the mortgage-debt monster has been tamed. In fact, vast, nationalized, unprofitable and undercapitalized, it remains a menace to the world’s biggest economy…But until America’s mortgage monster is brought to heel, the task of making finance safer will remain only half-done.”


Yes, there are lots of things going on in lending. For example, in spite of rumors that we’re heading toward a paperless society, and we’re trying to make the experience easier for the borrower, some argue that the 1003 heading our way flies counter to that. I received this from a broker in the New York area. “Yes there are times it could be less than 11 pages, but from what I’m seeing on Fannie’s site, for example, I think it’s a long term mess. It seems they took what could have been 3-4 pages and expanded it. I just do not get the “WHY”? Just look at the increasing document load: borrower application (7 pages), additional borrower application (4 pages), and unmarried addendum (1 page).


Even though there’s a lot of talk about Fannie and Freddie, even if a plan was formulated, it would take years to carry it out. And remember that the two agencies can’t save any money: they must pay the Treasury dividends which are basically their profits. And thus we sit with an occasional proposal sent up like a rescue flare. Last month Karen Kapen sent this note after the agencies report their profits for the 2nd quarter. “…The Community Home Lenders Association (CHLA) renewed its call for the Federal Housing Finance Agency (FHFA) to suspend dividends of Freddie Mac and Fannie Mae, in order to allow them to build up a capital buffer and avoid a future Treasury advance.  CHLA believes that such actions are needed to preserve mortgage access to credit and GSE investor confidence. (A modest capital buffer) is needed to avoid a potential future Treasury advance under the Sweep Agreement, along with its harmful consequences for mortgage access to credit and GSE investor confidence.


“Twice in the last four quarters Freddie Mac has incurred a small quarterly net loss – because of hedging mark to market accounting. And twice in the last four months, CHLA has joined in letters to FHFA Director Watt, urging FHFA to use its legal authority to suspend payments otherwise due under the so-called Sweep Agreement (the PSPA) – in order to allow the GSEs to build up a capital buffer.  Under the one-way Sweep Agreement, net profits are swept quarterly, but net losses deplete the GSEs’ net worth.  This is exacerbated by provisions in the Sweep Agreement that will artificially reduce Fannie Mae and Freddie Mac’s net worth each down to $600 million at the end of this year and zero at the end of the following year.  These contrived terms dramatically increase the risk of a Treasury advance, with negative consequences for consumers and lenders.


“’The recent earnings report shows how contrived the Sweep Agreement is. A loss next quarter just slightly higher than this quarter’s gain would result in a Treasury advance – even though they balance each other out. The simple answer is that the GSEs should be able to keep these modest profits in good quarters to balance potential small losses in future quarters,’ the CHLA commented.”


More recently Scott Olson with the CHLA sent this along regarding the CFPB and its Advisory Board. “The Community Home Lenders Association (CHLA) sent a letter to CFPB Director Cordray, jointly with the Community Mortgage Lenders of America (CMLA), asking for the naming of community mortgage bankers to the Advisory Boards and Councils that CFPB added members to last week.


“CHLA is the only national association exclusively representing non-bank mortgage lenders, and therefore its members are the very types of lenders that are not included on CFPB’s Advisory Boards.


“’We are writing to register our concern over the failure to name any representatives from mortgage banking companies to any of the CFPB’s existing Advisory Boards or Councils enumerated in your August 19th announcement,’ the joint CHLA/CMLA letter said.


“The letter went on to say that ‘We therefore request the formation of a Community Mortgage Banking Advisory Council, which should include strong representation from community mortgage bankers.  We also request the addition of at least one community mortgage banking representative on the Consumer Advisory Board.’


“The letter noted that non-bank mortgage bankers account for more than 50% of new mortgage loans, and contrasted that with failure to include any non-bank mortgage lenders on any of the four Advisory Boards and Councils created by the CFPB. Noting that the CFPB press release emphasized that CPPB is ‘taking into account the wide variety of perspectives and views’ the letter argued that inclusion of mortgage bankers on these Advisory Boards is necessary to achieve that objective.


“The need for representation was highlighted in the letter by pointing out that: ‘Over the last several years, as a number of Dodd-Frank rules have been implemented by CFPB, mortgage bankers have expressed concerns both about the guidance and clarity of these rules and the challenges of being fully compliant. Thus, we believe it is especially critical for the CFPB to create a forum for community mortgage bankers to communicate on these issues.’”



(Far be it from me to draw an analogy with Wells Fargo.)

A man was the first to arrive at work one morning.

The phone rang and he answered. When the caller asked for some specific information, the man explained that it was before normal business hours but that he would help if he could. “What’s your job there?” the caller asked. The man replied, “I’m the company president.” There was a pause. Then the caller said, “I’ll call back later. I need to talk to someone who knows something about what’s going on.”





(Copyright 2016 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