Sep. 29: Notes on rate direction, LO comp priorities, what California’s doing that impacts lenders

September 29, 2018 No Comments

As we end the last week of September, and the 3^rd quarter, lenders across the nation continue to help clients with financing. With Congress focused on the election in a few months, and other headline-grabbing items, the mortgage industry continues to make subtle changes within our industry or at the state level.

I received this note from Pete Mills with the Mortgage Bankers Association. “Earlier this week one of your readers noted that, ‘…at no point have we seen an effort to correct the imbalance caused by the MLO Comp Rule or the SAFE Act.’ Nothing could be further from the truth — on both counts. Our members know that LO Comp has been a major priority for the MBA over the past year. This year, an MBA Task Force developed a series of specific recommendations for revisions to the LO Comp rule that will help consumers and lenders alike. During the Bureau’s RFI process we made it clear that addressing these flaws in the LO Comp rule was our top priority. See our comment letter here. Following the RFI process, our Chairman, David Motley, and other financial services industry leaders met with Acting Director Mulvaney to discuss next steps for the Bureau, now that the RFI process was complete. At that meeting, Motley presented MBA’s concerns about the adverse impact the rule was having on the lenders and consumers alike, and clearly conveyed this was a top priority.

“This week we released an MBA-spearheaded letter to the BCFP that was joined by a dozen financial industry trade associations and mortgage cooperatives that collectively represent the vast majority of the housing finance industry. That letter calls on the BCFP to revise the LO Comp rule a major priority as the regulator moves from the RFIs to making actual regulatory changes and refinements. Read the full letter below. It is important for readers to understand — if the Bureau heeds our call, they will need to draft a rule, propose it in the Federal Register, take comments, review them, and revise the rule. That will take some time, but certainly faster than going to Congress for legislation. This is heavy lift, but MBA is ‘all in’ on this issue.

“Regarding the SAFE Act, MBA was the main driver behind the just-passed SAFE Act amendments requiring the states to permit LOs moving from a bank to a nonbank temporary authority to originate while they complete their education and testing. States will be required to comply by next November, and MBA is working to allow those states that are ready to adopt the transitional framework early.

“A final note — engaged MBA members know the depth and breadth of issues we are working on. If you think ‘that nobody is doing anything about this or that,’ the answer to that is that we are almost always working on the issue. If you are with an MBA member company and want to get more involved in these efforts, sign up for one of our policy committees here and get engaged. If your company is not an MBA member, but you care about the regulatory and legislative issues impacting our industry, consider joining the cause. To learn more about all the benefits of MBA membership, reach out for Tricia Migliazzo.”

California’s doing what?

Given the California accounts for 20% of the residential mortgage volume, the industry is very concerned about November’s Prop 10. It would allow local governments in California to institute rent controls. Specifically, Prop 10 would repeal the Costa Hawkins Rent Control Act, which had three key components: (1) prohibited local Californian governments from implementing rent controls on new covered units, which generally meant units constructed after 1995; (2) provided for rent increases on covered units after tenant departure; and (3) explicitly exempted single-family homes and condos from rent increase limitations. Prop 10 would repeal Costa Hawkins and add the following language to the state’s Civil Code: “A city, county, or city and county shall have the authority to adopt a local charter provision, ordinance or regulation that governs a landlord’s right to establish and increase rental rates on a dwelling or housing unit.” While each city and county would address the rent control debate differently, passage of Prop 10 would provide local governments in California with a clear path to limiting rental rate increases.

Compass Point Research & Trading’s Isaac Boltansky writes, “There is growing interest among our clients in California’s Proposition 10 (“Prop 10”) ballot initiative, which would effectively allow local governments to institute rent controls. We believe the odds of Prop 10 being enacted are ~60% and expect an increase in market attention as November 6 nears. While it would take time for local governments to institute new policies if Prop 10 is successful, we believe passage of this ballot initiative in November would weigh on investor sentiment for California-exposed apartment REITs and possibly single-family rental firms.”

The California MBA weighed in on Prop 10. “The California MBA is partnering with many other organizations to help stop Prop 10. In fact, California MBA CEO Susan Milazzo serves on the Steering Committee for the No on Prop 10 campaign and notes that, “It is vitally important to defeat the measure in 2018. Proponents are already poised to promote the split tax roll initiative that has qualified for the 2020 ballot. Contributions are needed to fund the ad campaign over the coming weeks to help defeat this dangerous proposal.”

And the California MBA weighed in on the privacy bill. “Throughout the 2018 legislative session, the California MBA led the effort to negotiate a legislative alternative to an even more onerous ballot initiative that would have had disastrous effects on the industry. Additionally, after the passage of SB 375, the California MBA and other groups successfully urged lawmakers to pass a bill that provided for an exemption for GLBA, which was not included in SB 375 and would have negatively affected lending in California.”

Under the California Military Families Financial Relief Act, a reservist who is called to active duty is authorized to defer payments on mortgages, credit cards, retail installment accounts and contracts, real property taxes and assessments, vehicle leases, and obligations owed to utility companies, for the period of active duty plus 60 calendar days, or 180 days, whichever is the lesser.

The reservist is required under the law to deliver to the obligor (1) a copy of his or her activation or deployment order and any other information that substantiates the duration of the service member’s military service, and (2) a letter signed by the reservist, under penalty of perjury, requesting a deferment of financial obligations, in order for the obligation or liability to be subject to the provisions of the Act. This amendment removes the requirement to provide a signed letter under penalty of perjury and instead requires the reservist to deliver a written request for a deferment of financial obligations to the obligor. Under the amendment the “written request” includes an electronic communication. These provisions are effective on January 1, 2019.

California enacted provisions relating to its Consumer Privacy Act of 2018 applicable to businesses that collect, sell or disclose, for business purposes, personal information collected from consumers and grants consumers multiple rights related to the data collected by businesses about them effective on January 1, 2020.

The Act defines what is considered “personal information” as well as the definition of “Business purpose”. The Act applies to any business, whether or not based in California, that collects personal information from California residents and satisfies one or more of the thresholds stated in the Act.

Businesses that collect personal information must in response to a verified request from a consumer disclose the categories and specific pieces of personal information the business has collected about that consumer; the categories of sources from which that information is collected; the business purposes for collecting or selling the information; the categories of third parties with whom the business shares the information.

Under the Act, a consumer has a right to request disclosure regarding the categories of personal information that the business collected, sold and to which third parties the information was released. Consumers also have the right under the Act to request a business to delete their personal information which the business has collected from them unless the data is required for specific listed purposes cited in the Act.

Also, a business that sells consumers’ personal information to third parties is required to provide a notice to consumers informing them that their data may be sold and that the consumers have the right to opt out of the sale of their personal information. The obligations required under the Act will not restrict a business’s ability to comply with federal, state, or local laws, comply with civil, and criminal investigations and process, cooperate with law enforcement, or exercise or defend legal claims. The act also does not apply to personal information collected under certain federal laws such as the Health Insurance Portability and Accountability Act (HIPAA), Gramm-Leach-Bliley Act (GLBA), or the Fair Credit Reporting Act (FCRA).

Interest rates: few are saying they’ll go down

Ruben Gonzalez, chief economist at Keller Williams, wrote, “We have started to see some evidence that inventory restrictions may begin to ease in some markets; however, levels are still low and we expect to continue to see year-over-year price gains in the 5 to 7 percent range in the near term nationally. If inventory does begin to increase, we may see the pace of growth slow slightly moving into 2019.” (Keller Williams, the world’s largest real estate franchise by agent count, has more than 975 offices and 186,000 associates. The franchise is also No. 1 in units and sales volume in the United States.)

And prior to this week’s Fed rate increase Brad Bennion opined, “Following the pattern of Federal Reserve Open Market Committee meetings over the past year, a rate increase announcement might be expected from the Fed’s next meeting on Wednesday, September 26. Rising inflation may also suggest a rate hike is in order. ‘Beginning last November, Fed meeting outcomes have alternated between no change and a ¼ point hike in the Fed Funds Rate,’ observes Richard Barrington, MoneyRates.com senior financial analyst. ‘The most recent meeting resulted in no change, making a rate increase seem more likely this time around.’

“Of course, Fed Policy is not based on a simple pattern, but recent decisions are partly a reflection of the Fed’s stated rate normalization policy. This is designed to restore rates to more normal levels after they were driven down to near zero in reaction to the financial crisis and Great Recession. Despite seven rate increases over the past three years, including three over the past year alone, Fed rates are still well below average. This is not simply because the current policy range of 1.75 percent to 2 percent is significantly lower than the 50-year average of 5.32 percent.

“Fed rates should be viewed in the context of inflation, and over the past 50 years Fed rates have exceeded inflation by well over 1 percent, on average. That flipped over the past 10 years due to the Fed’s aggressively stimulative policy so on average Fed rates have trailed inflation by about 1 percent over the past decade.

‘It might be reasonable to assume that normalization would entail pushing Fed rates back above inflation over time,’ asserts Barrington. Using the Fed’s preferred measure of personal consumption expenditure (PCE) inflation, prices rose by 2.17 percent over the past year through the end of June. Using the more widely-followed consumer price index, (CPI) inflation measure, prices rose by 2.80 percent over the same period.

“Not only are both figures above the current 1.75 percent to 2.00 percent Fed rate policy range, but inflation is a moving target. Year-over-year inflation was near zero three years ago but has risen steadily to its current level above 2 percent. ‘In other words, if the Fed stands still, it risks falling further behind,’ Barrington cautions.

“With unemployment extraordinarily low and job growth remaining steady, all the facts seem to point toward a Fed rate increase announcement on September 26. The X factor, however, is that this is the last Fed meeting before the mid-term elections. Historically, the Fed has tried to stay studiously apolitical, avoiding even the appearance that any change was somehow intended to influence an election. The vote to raise rates is in line with the facts and recent policy.”

A farmer and his recently hired hand were eating an early breakfast of biscuits and gravy, scrambled eggs, bacon and coffee that the farmer’s wife had prepared for them. Thinking of all the work they had to get done that day, the farmer told the hired man he might as well go ahead and eat his lunch too.

The hired man didn’t say a word but filled his plate a second time and proceeded to eat. After a while the farmer said, “We’ve got so much work to do today, you might as well eat your supper now too.”

Again, the hired man didn’t respond but refilled his plate a third time and continued to eat. Finally, after eating his third plate of food, the hired man pushed back his chair and began to take off his shoes.

“What are you doing”? the farmer asked.

The hired man replied, “I don’t work after supper.”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “The Rise of the Credit Unions.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2018 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

Harrison National Employment