Dennis' Mortgage Blog

Question of the week:  You mentioned you were taking tests this week for a license, what were the tests and why did you take them if you are already licensed?

Answer:  Section V of the Housing and Economic Recovery Act of 2008 included the Secure And Fair Enforcment Act (SAFE) which required all state licensed mortgage originators to obtain a national license through the National Mortgage Licensing System Registry (NMLSR).  To comply with the SAFE Act I am required to pass a state exam and a national exam to obtain the national mortgage originators license and continue to originate mortgage applications.

I have advocated for a national license for mortgage originators for almost twenty years.  It is, and has been, my opinion that anyone in the industry that is negotiation rates, fees, mortgage products and amounts should have the same license whether their originations are in Long Beach, California, Tulsa Oklahoma or Springfield, Illinois.  As well whether the originator works for Stratis Financial, Bank of America, Quicken.com or WestCom Credit Union.  If you originate mortgages anywhere in the United States you should have the same license and regulations as anyone else.

Unfortunately the SAFE Act only partly achieves the goal of the “Fair Enforcement” part of its name as it does not require those originating mortgages for federally licensed/charted organizations to be licensed.  Thus those originating for Wells Fargo, Bank of America, Chase, etc are not required to be part of the NMLSR and are not subject to the same testing and on-going annual license renewal classes.  

As seen by the regulations in many sections of the financial reform bill passed yesterday the long term objective of Washington is the elimination of the independent mortgage brokers and originators and small banks in favor of corralling banking and lending activities under a reduced number of national banks that are easier to control by the federal government.  The net effect on the consumer will be reduced mortgage products and competition resulting in higher costs and rates for home buyers and mortgage seekers. 

Stratis Financial appears to benefit from the current regulations as smaller companies without the access to direct lending that we enjoy will have an increasingly difficult time participating in the market.  As a result our competition may decrease in the marketplace and opportunities arise for us to increase the number of high quality and professional loan originators in the company.  That said, it is a benefit I would rather not accrue to us because of the regulatory environment and reduction in consumer choice.

For those who feel more regulation is a positive for the consumers and the nation, I counter that we have had an extreme amount of regulation, what we have not had is enough enforcement of the regulations already in place.  Creating almost 300 new regulations for the financial sector on top of those already in place will create more policies that those disinclined for policies to follow and more oversight and enforcement from those who have not been competent in recent years to oversee and enforce existing regulations.

For your review, here is a partial list of the Federal Laws covering the mortgage industry:

• SAFE Secure and Fair Enforcement for Mortgage Licensing
• Housing and Economic Recovery Act
• TILA Truth In Lending Act
• Regulation Z
• RESPA Real Estate Settlement Procedures Act
• Regulation X
• HPA Homeowner's Protection Act
• HOEPA Home Ownership and Equity Protection Act
• FCRA Fair Credit Reporting Act
• FACT Fair and Accurate Credit Transaction Act of 2003
• Do Not Call Registry
• Gramm-Leach-Bliley Act (aka Financial Modernization Act)
• Fair Housing Act
• ECOA Equal Credit Opportunity Act
• CRA Community Reinvestment Act
• HMDA Home Mortgage Disclosure Act
• MDIA Mortgage Disclosure Improvement Act
• Regulation H Flood Disaster Protection Act

We are regulated, overseen, report to or otherwise beholden to:

• FTC
• HUD
• Federal Reserve Board
• FNMA
• FHLMC
• FHA
• FHFA
• CA DRE (or CA DOC)
• OCC

These lists look to grow in the coming year(s) as Washington continues its proclivity to enact regulations rather than enforce them.

Have a question for me?  Ask me!

Federal Reserve Governors are not rosy about the economic outlook.  In minutes released this week for their policy meetings June 21-22 the Governors expressed their belief that the economy will achieve constant and sustained growth for five to six years.  Further it will be at least 2012 until employment numbers are near pre-recession numbers.  The minutes showed the Fed is ready to react if the economy were to “worsen appreciably.”  Since Fed rates are near zero their reaction can only be to pump more money into the economy by massive buying of Treasuries.

Another way the Fed can react would be to loosen up on banks and allow them to lend more freely to small and medium size businesses.  This would require a reversal of the current audit practices of the Fed.  While Fed head Bernanke laments the lack of credit extension to small businesses, in a meeting this week a senior level Fed employee who oversees audits admitted that community banks and small banks are discouraged from riskier small business lending as the Fed does not want to see the risk on their balance sheets.  Commenting on the more than 700 banks on the “watch list” and her department’s policies of mitigating risk and increasing cash holdings the Fed auditor openly contradicted the desires of the Fed Chair with Fed policy.

Consumer hoarding is hurting overall economic growth while improving consumer savings and reserves.  Retail sales in June declined for the second month in a row.  Producer and Consumer Price Indexes both were near flat due to the lack of economic activity.  Companies are not spending nor borrowing and their cash holdings are growing rapidly. All this leads to lack of monetary circulation which creates a stagnate economy with reducing chances for growth. 

Uncertainty is the bane of any market and if every market has uncertainty than the economy as a whole suffers.  One benefit of the final passage of the financial reform bill may be to remove some of the uncertainty.  Once the legal departments across the industry digest the regulations and policies contained in the 2,300 pages they can issue advice to their boards and CEOs as to how to proceed with their business activities.  This could loosen the corporate wallets and see funds flowing into capital purchases, expansion and hirings.  If as they read through the new regulations and see continued uncertainty and await lawsuits based on the new laws to work through the courts economic growth is pushed further down the road as companies continue to accumulate cash, reduce investment and wait to see the net impact of the new laws.

Mortgage rates love the uncertainty as anyone who is investing finds bonds attractive.  Despite the massive amounts of debt sold by the Treasury, the international uncertainty has created positive results for mortgage rates in this cycle.  The Fed minutes further supported the low mortgage rate environment as investors watch for indication of the Fed increasing rates as a sign they should sell bonds and Mortgage Backed Securities and buy equities and equipment.

Expect dismal news on sales.  In its Weekly Applications Survey released on Wednesday covering last week the Mortgage Bankers Association said purchase applications for the week declined yet again, the eighth time in nine weeks and the Purchase Application Index is at its lowest rate since December 1996.  As a point of reference the average Freddie Mac 30 year fixed rate mortgage in December 1996 was 7.60% at an average cost of 1.7 points.  With these numbers the only surprise in next week’s June Existing Home Sales report would be if the number did not decline more than the decline seen in May.

Rates for Friday July 16, 2010:  A depression in rates this week with FHA rates hitting the bottom as there are no coupons for rates below 4.25%.  We are in a range of 4.25% to 4.5% that could last a few weeks depending on investor confidence and when they feel the stock markets are oversold.  Based on earnings coming out today from many banks that could be quite a while.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.25%                              Down 0.125%

30 year conforming-jumbo 4.375%                   Down 0.125%

30 year FHA    4.25%                                      FLAT

30 year FHA jumbo 4.25%                              Down 0.125%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Today is the last day of a crazy week that has seen me out of the office for SAFE testing and meetings.  I am playing hooky later today as we are headed to Staples Center to see the Ringling Bros. & Barnum Bailey Circus.  I’m around much of the weekend and next week able to resume my normal schedule and more accessible than I have been this past week---thank goodness!

Have a great week,

Dennis