Friday, July 13, 2012

It Feels Like Friday the 13th

Last week we got to celebrate our country's birthday (albeit on a Wednesday which made the rest of the workweek strange for those of us unfortunate enough not to be able to take additional vacation). That set the month of July off on a strange note, involving a series of bizarre,Twilight-zonesque events in the lending world so that I now find myself, appropriately, on the afternoon of Friday the 13th wondering if the past five days have been an out-of body experience.

Monday, July 9th was the final day that we could give the CFPB our input about a series of proposals they are considering implementing to make mortgage lending even more difficult than it already is.  Among these include adding residual income requirements for all borrowers on conventional loans--a residual income requirement means that the borrower must have a certain amount of cash left over at the end of the month for himself and each dependant after paying all of the bills, utilities, credit cards, mortgage, etc.  Residual income requirements are currently used for VA loans, which have traditionally provided loans with reduced down payment requirements, but now the CFPB is apparently considering adding this as a requirement to the new qualified residential mortgages.  Also up for consideration--a proposal to require that every borrower prove that he has cash reserves sufficient to cover several months worth of  payments on all of his debts, credit cards, car payment, child support, and mortgage at closing.  Currently, some conventional loan products require that the borrower have two months of mortgage payments in the bank at the time of closing.  This is the first time that we have seen a proposal expanding that requirement to cover all debt.  These are just two of a number of radical new proposals which will exclude a greater number of borrowers from being able to purchase or refinance a home under the new qualified residential mortgages. The CFPB had granted an extension on the comment period through July 9th, but that also means that the final rule will not be published until after the November 2012 elections.  My own personal opinion is that delaying the final rule until after the elections was the ONLY reason for the extended comment period; based on what we have seen so far I think the CFPB probably has already written their final rule and is just waiting to publish it with no regard for any comments they may receive about it.

Also this week, the CFPB released  for public comment their proposed new version of the Good Faith Estimate and the Truth in Lending.  The Dodd-Frank bill charges the CFPB with combining these two estimates into one estimate which will be more user friendly.  I examined the form.  The three page good faith estimate and the two page truth in lending have now been combined into one new five page form.  Beyond correcting two of the serious problems in the 2010 good faith estimate--1. The estimate did not show the total amount of cash that borrowers would need to close the transaction 2. The estimate did not show the total payment including taxes and insurance--the form is very similar to the two forms it is replacing.  More disturbing is that the CFPB has released 1100 pages of proposed regulations accompanying their new five page form.  In an industry that is drowning in regulations now, I am curious to see how many more our regulators can pile on top of us.  We will find out soon.  To see the forms and the 1100 page regulations that accompany them, click the links below:

In other news, the National Association of Mortgage Brokers testified before the House Financial Services Committee regarding the unintended consequences of the Dodd Frank Act.  I hope that they also had time to comment on the intended consequences--the goal of Progressives is to cut off individual access to wealth and capital and to destroy single family home ownership in America.  To the end of achieving these goals, Dodd Frank works beautifully. To read the written testimony and view the House Financial Services Committee hearings click the links belows:

Finally, Wells Fargo closed all of its wholesale lending operations today in response to a settlement with the Department of Justice over discriminatory subprime loans originated by mortgage brokers.  Although exiting wholesale was not part of its settlement, Wells believed that no longer dealing with brokers was in its best interests as a company.  I think we can expect to see more of this as the DOJ is used increasingly as a political weapon to enforce policy decisions rather than a law enforcement agency.

To put all of this in perspective, on Wednesday I closed a refinance for a long time acquaintance of mine.  He was refinancing his primary residence to a new fifteen year loan to take advantage of the lowest interest rates since the 1950s.  Although his credit scores are over 800, he has millions of dollars, owns a number of successful companies, has been self employed his entire working life and pays himself a high six figure income, this refinance took 60 days to complete.  We had to document every company he owned, every penny he was using for closing and basically every aspect of his life.  All of this was to do a conventional rate and term refinance with the same lender who currently holds his mortgage note.  My client leans considerably left of center politically but by the end of the process, he told me that Congress needs to fix these housing regulations because as long as borrowing for a mortgage remains as difficult as it is today, the housing market will never recover, and without a robust housing market the overall economy will never recover.  He's exactly right, of course, but unfortunately, few people appear to understand the correlation between massive over-regulation that is strangling the life out of lending and the lack luster economy.  Until both the people in this country who make the laws and the people who are forced to live under them begin to recognize this problem, all of us will continue to suffer under a slow economy with high unemployment and little opportunity for advancement.

For now, I am just glad that Friday the 13th and the week leading up to it are coming to a close.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her newest novel, The Planner, about an out-of-control, environmentally-driven federal government, was released June 28, 2012. For more information, visit her website at


  1. Alexandra, I find it odd that no people testifying bring up the fact that lending has been tighter than a snare drum since beginning of 2009.

    That's 3 1/2 years!

    Please point out what specific government regulations caused this constriction of credit?

    You have members of congress blathering about lending being “too tight”. "Banks have to loosen up to get capital to small business."

    Even our illustrious Chief Executive has said the same.

    Tell me please... why isn’t anyone pointing this out during these hearings??

    Scale back if you can… big picture view from 35000 feet… look at the pattern. Look at the gestalt. Look at the disparate treatment by the regulation. Licensing? Compensation systems? NMLS? Where’s the YSP on the new GFE? Etc?

    To whom does QM (& QRM) really benefit? Why have the ‘mega-players’ puled out of Wholesale and some out of TPO?

    Why is Chase adding 1200 branch offices? I thought they were too big to fail before Washington Mutual!

    Do you see it?

    Do you want to know a great definition for the word 'platitude'? “Regulatory Flexibility Act”

  2. One more thing... If you need any more proof...

    Regarding the new 1100 page RESPA/TILA rule.

    Borrower shops and gets:

    One bank GFE.
    One broker GFE.

    Identical terms, rate, cash to close, payment, loan program. Everything identical.

    What WILL the APR be on the brokers GFE? Higher, Lower, or the same?


  3. Those are good questions and very good points. Dodd Frank is constricting credit and strangling the life out of the credit markets.

    The QMs benefit the banks--no question. And the reason that the banks are getting out of wholesale lending is that they see the writing on the wall--risk retention mortgages are going to be the only ones that are profitable.

    As to the APR--I don't know the answer. The 3% Safe Harbor Rule is going to finish killing the brokers depending on how it is defined. The APR should be very low on a broker deal except that there won't be any brokers!

    1. The new RESPA/TILA 1100 page rule proposes all closing costs (not all pre-paids) are to be considered finance charges (i.e. added to the APR). I agree with this change. It's less confusing than what we have now.

      Here's the problem:

      The whole point of TILA mandating APR, is to help consumers determine which loan is more expensive, right?

      1. We know that broker compensation is included in the origination charge.

      2. There is no longer a line item for YSP credit to offset the origination charge (e.g. Box 2 of 2010 GFE).

      3. There WILL BE a lender credit lump sum to offset total cash to close.

      4. APR on broker deals will be HIGHER than exactly priced banker deals since the lender credit doesn't directly reduce orgination charge.

      5. APR on less expensive broker deals could be HIGHER than more expensive banker deals! Read this twice.

      6. How is the CFPB "protecting" and "educating" the consumer if this is the case? Who's going to protect the consumer from their protector?

      7. A Double standard...? Please tell me why Lender paid M.I. is not ALSO added to the APR as a finance charge? It's in the rate just like broker compensation.

      I am curious of your thoughts if this is truly what the CFPB is proposing?