Sep. 20: Letters on the USDA backlog & changes, RESPA-TILA, Bank of America, and why volumes are dragging

How much is the world worth? Darned if I know, although I guess that I could say something cute about it being worth “the smile of a child” or “the wag of a puppy’s tail.” BTN Research gives us a piece of the puzzle: at the end of August 2014, the $24 trillion stock market capitalization of all US stocks represented 36% of the world’s $66 trillion stock market valuation.


Why do politicians and the press wonder why the demand for residential credit is low, given the low interest rate environment? Low mortgage supply is the direct result of past five years of regulation, litigation, and government intervention. It’s pretty interesting how if a lender is $2 off on a settlement statement they could be drawn and quartered, yet no one exams college tuition costs increasing by thousands of dollars every year. Any other questions? And it is going to take a while for the MBA, NAR, the FHFA, homebuilders, and so on to partially unwind it. Homeownership boomed due to the 1994 Clinton initiative, but now housing policy is “profoundly ambivalent”. In terms of numbers, it peaked at 69.2% in Q2 2004 but is now at 64.7%.


The increased interest in expanded loan programs and the government suggesting that home ownership percentages be increased prompted one Wall Street vet to write to me saying, “I read the BOA piece about lending to low income borrowers. Haven’t we seen this movie before, where homeowners with no equity are more likely to walk away from their homes? As for 15 vs 30 year loans, I did a quick comp using a mortgage calculator. Unless the curve steepens dramatically, it’s not feasible for 15-yr rates to be low enough to approximate a 30 year payment. This story reminds me of FNMA and FHLMC’s efforts from a decade ago.  Please tell me I’m missing something.” Nope.


And this from a respected industry vet: “I liked your comment the other day about the GSEs doing an end-run around the aggregators to the small lenders. There is a systemic risk issue here, as aggregators perform a valuable due diligence review process that does not exist in the direct GSE sale path. The GSEs are currently taking about a year after delivery to review loan files, and then only a small sample compared to what an aggregator reviews before they purchase a loan. Lenders may not like having to deal with an aggregator’s ‘stips’, but a least they are getting good feedback on their origination quality and can correct defects before the loan is delivered to the GSE.”


But I guess our housing market must have some redeeming factors. HUD announced last week that Secretary Julian Castro will lead U.S. planning for the United Nations Conference on Housing and Sustainable Urban Development.  Castro will lead a group of government, public sector, non-governmental, academic, and philanthropic leaders to prepare for the conference scheduled to take place in 2016.  He will work with leading policy thinkers and state and federal agencies to address global housing issues.


Kate Berry with American Banker recently wrote about “Bank of America’s Next Big Countrywide Problem”. “Two hundred sixty-three thousand. Of all the numbers that have been batted around about the legacy of Bank of America’s ill-fated Countrywide acquisition after the bank’s big Justice Department settlement last week, that’s the one to keep in mind going forward. Brian Moynihan & Co. have attacked with gusto B of A’s delinquent-loan portfolio in recent years, much of which came from the 2008 acquisition of Countrywide. But even after all that work — the charge offs, the loans sales, the renegotiations — the bank still has 263,000 delinquent loans on its books ($38 billion). B of A has estimated that it will get back to a normal level of delinquent loans within two years, but that may be optimistic. Most of the loans it has left probably cannot be sold, and working out problem loans — especially those at the bottom of the barrel — is notoriously slow and labor intensive, analysts say. Such a daunting challenge is a fresh reminder of what everyone has known for years: Bank of America’s purchase of Countrywide Financial in 2008 was a bad deal. Estimates of exactly how bad have varied, but the Charlotte, N.C., bank has pegged total losses from the ill-fated acquisition at more than $63 billion over the past six years. That tally includes its purchase price, mortgage repurchase claims, litigation and settlements, loan-loss provisions and charge-offs on residential loans and home equity lines of credit.”


Her article goes on. “B of A also received a $1.5 trillion servicing operation, including a portfolio of nine million loans, but the cost to service the legacy loans has far exceeded revenues because of the portfolio’s high delinquency rates, analysts say… B of A has reduced its residential servicing portfolio to $760 billion as of June 30, down 23% from a year earlier. That’s a far cry from the end of 2008, when B of A oversaw more than $2 trillion in mortgages.


Ed W. writes, “Hey Rob, as a spectator, it seems like the adage of ‘Too big to fail’ has an inverse corollary and that is ‘Too small to succeed’. Big banks may complain about regulatory burden, but secretly, they love it. They know smaller banks can’t afford the compliance staff necessary and that will make them easy targets for acquisition. Nobody is pursuing organic growth because it has such small effect on the profitability of a company, they want big jumps in productivity and profitability and that means it comes from M&A. Then again, what do I know, I’m just an LO trying to make a living.”


“Rob, have you heard anything recently out of the CFPB about RESPA-TILA changes?” Sure. A week or so ago the CFPB released, “Last week, we took part in another webinar on the TILA-RESPA Integrated Disclosure rule. A recording of the webinar is now available. Recordings and slides can be found here. Please note that registration is required to view the recording. This was the second in a series of webinars to address the new rule as creditors, mortgage brokers, settlement agents, software developers, and other stakeholders work to implement it over the next year. This session covered some of the most frequently asked questions about the new rule.”


The CFPB also announced, “We’re updating the Small Entity Compliance Guide for the TILA-RESPA Integrated Disclosure Rule, as well as the Guide to the Loan Estimate and Closing Disclosure forms. These replace the editions published in March 2014 and April 2014, respectively. We also have a timeline that can help you understand the timing requirements under the rule. This timeline illustrates the process and timing of disclosures for one specific real estate purchase transaction under the TILA-RESPA Integrated Disclosure rule that will become effective on August 1, 2015. Check out the updated guides, the timeline, and other resources:”


USDA turn times continue to plague rural lenders. I’ve heard that Oregon’s turn times are at 35 business days. And here is a note from Kansas: I wanted to give you an up-date on KS USDA. I am not bagging on the KS office but rather blaming the government for their lack of support to our KS office. As you all know they added 3 cities at the same time they laid off 30% of their staff.  These three cities added 200,000 people to be eligible for USDA loans. Now we approach October 1st.  If your loan is at USDA it will need to be re-disclosed at the higher .50% monthly fee before it can be approved.  With October comes running out of funds. I have heard that the New Hampshire office has a 24 hour turn time. Missouri is at about two weeks right now. I am guessing resources aren’t allocated per state when the funds are available again or by the percentage of loans. I would warn all that 90+ days or a Christmas gift is what we are looking at.  If you know someone who can help us with a petition or getting the word out through appropriate government channels I would love to hear about it!  We are the Midwest, rural state after all, but Dorothy’s red slippers are not clicking their heels for us!!!”


Remember, the USDA has announced an increase in its Annual Guarantee Fee. The increase (annual guarantee fee from .4 to .5) applies to all conditional commitments issued by USDA on or after October 1, 2014. This increase may affect loans currently in progress at USDA. One can click on the following links to confirm your borrower’s property meets existing and future eligibility: Property Eligibility Disclaimer. There is currently no change to the Upfront Guarantee Fee and it remains at 2.000%.


Speaking of the USDA plan, Tom Davis, regional VP of correspondent lending at PMAC Lending Services, contributed a USDA Map Update- “Rural in Character”. “The Farm bill included a provision that extended the current definition until the 2020 Census and increased the population threshold. This provision did NOT, however, make any changes to other criteria for eligibility, including the requirement that a community be ‘rural in nature.’ USDA has always had the discretion to exclude communities that were not ‘rural in nature,’ but, to our knowledge, had never done so. Last month, constituents in Arkansas realized that several communities (with populations well below the limit, and even some that were never included on USDA’s list of impacted communities) were no longer ‘rural in nature,’ giving them less than 2 months’ notice before it were to go into effect. Sen. Pryor weighed in. As a result, USDA agreed to put off implementing these changes until September of 2015. This ONLY impacts communities that USDA says are not ‘rural in nature,’ not communities that were scheduled to lose their eligibility due to an increase in population, or some other reason.​”


Tom’s noted continued. “’Congress Enacting a Continuing Resolution’: As we prepare this Budget Bulletin, Congress is in the midst of enacting a short-term Continuing Resolution to fund the government at current levels through December 11, 2014. At this hour, the House is voting on the CR. The Senate will take up the bill later today. Both the House and Senate will adjourn today and will return after the mid-term elections. The fate of Fiscal Year 2015 (FY15) appropriations hinges on the outcome of the mid-term elections and which party will control the Senate in the next Congress. If Democrats are able to maintain control, Congress will likely pass an Omnibus Appropriations bill for all federal agencies, including USDA. If Republicans win the six seats necessary to gain control of the Senate, we expect Congress to pass another CR though sometime in March. This will give a Republican House AND Senate the opportunity to pass a series of budget and appropriations bills that will almost certainly aim to eliminate or curtail many Obama Administration initiatives. The fiscal year begins for the USDA on 10/1, more than likely the USDA will issue ‘subject to funds’ commitments during the beginning of the fiscal year.” Thank you Tom!



“STUDENT WHO GOT 0% ON AN EXAM” (No, I did not run this through Snopes.) Q1. In which battle did Napoleon die? * His last battle. Q2. Where was the Declaration of Independence signed? * At the bottom of the page. Q3. River Ravi flows in which state? * Liquid. Q4. What is the main reason for divorce? * Marriage. Q5. What is the main reason for failure? * Exams. Q6. What can you never eat for breakfast? * Lunch & dinner. Q7. What looks like half an apple? * The other half. Q8. If you throw a red stone into the blue sea what it will become? * Wet. Q9. How can a man go eight days without sleeping? * No problem, he sleeps at night. Q10. How can you lift an elephant with one hand? * You will never find an elephant that has one hand. Q11. If you had three apples and four oranges in one hand and four apples and three oranges in other hand, what would you have? * Very large hands. Q12. If it took eight men ten hours to build a wall, how long would it take four men to build it? *No time at all, the wall is already built. Q13. How can u drop a raw egg onto a concrete floor without cracking it? *Any way you want, concrete floors are very hard to crack.



(Copyright 2014 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