New Credit Score Could Open Up FICO Scoring to 53 Million+ Borrowers

Fair Isaac Corp., the creator of FICO scoring, announced a new score they are developing that is intended to make millions of additional people credit worthy. Credit reporting giant Equifax and Lexis Nexis Risk Solutions are providing alternative data to include utility bill, cable bill and cell phone bill payment information.  This former “alternative credit” information now will have the potential of contributing to a credit report that could open up FICO scoring to more than 53 million additional potential borrowers who, for various reasons, have not previously been mainline users of credit, and thus, do not have a FICO score.  In the world of mortgage lending, no FICO score means no mortgage.

Fair Isaacs has partnered with 15 of the top US credit card issuers to agree to issue credit cards, based on the alternative credit score.  If the users don’t exceed card credit limits and pay as agree for only 6 months, they will then receive a standard FICO score.

This mortgage banker will watch the metamorphosis of the new FICO score, with great interest, to see just how accepting FHA, VA, Fannie Mae and Freddie Mac will be of this new “credit report”.

Forget about the congressional uproar over 3% down vs. 3.5% down payments.  This manipulation of the, up to now, sacred FICO score could dramatically skew credit assessment as well as risk analysis.

Over 1 Million Homeowners Regained Home Equity Last Year

CoreLogic reports that 1.2 million homeowners, whose homes were previously underwater (their mortgages were higher than the value of their homes), gained an equity position in 2014.

All told, 44.5 million of the 49.9 million total of mortgaged homes now have equity.  CoreLogic forecasts that another 1 million will gain equity by the end of this year, after an expected 5% appreciation in 2015.

NOTE: Nearly ½ of the homes that are still underwater have a second mortgage.

CFPB Mortgage Complaint Portal Does Disservice to Consumers, Lenders

The Consumer Finance Protection Bureau (CFPB) just dealt the mortgage industry another low blow by setting up an ill-advised consumer complaint portal on their website.

The portal doesn't ensure that the consumer complaints, that the CFPB solicits and posts, are valid, does not give financial institutions an equal opportunity to respond and does not sufficiently protect consumers privacy. 

Both CFPB and mortgage industry data show that very few consumer complaints submitted to the Bureau actually warrant any action beyond an explanation.

Finally, the posting of unverified consumer complaints, under the imprimatur of the federal government, are bound to mislead the very consumers the CFPB is charged with protecting. 

This practice needs to come to an immediate halt. 

US Interest Rates vs World Interest Rates

U.S. interest rates seem very, very low, however they are higher than most other western industrialized nations.  While the 10 year U.S. Treasury Bill is trading at 3% here at home, the same instruments are below 1% in many countries and as low as ½% in a few.

What does this mean to U.S. markets?  A flood of foreign investment in U.S. Treasuries, which means a low 10 year bond, which means continued low mortgage rates.

My buddy, Barry Habib, is projecting a 2% Treasury Bill (possibly even 1.5%).  The end result of this occurrence would be a sub 3% thirty year mortgage triggering a significant refinance boom.

When I entered the mortgage business, upon graduation from college in 1972, mortgage rates were 7.5%.  I can’t think of one other thing, in the world, that has gone down in price like mortgages have.
Amazing!  Simply amazing!

Disclosure of Congressional Fees in New Mortgage?

Federal Housing Financing Agency Director, Mel Watt stated that GSE funding of several affordable housing trust fund initiatives, targeting rehabilitation and management of low income rental housing, enacted by congress back in 2008 and never implemented, because of the mortgage melt down, will begin January 1, 2015.

His mandate, that a small portion of revenues at Freddie Mac and Fannie Mae be earmarked for these initiatives, has Republican lawmakers livid.  However, their arguments centering around some future cataclysmic financial crises necessitating the status quo, a restructure or replacement of the GSE’s is being undermined by their profitability.  Fannie and Freddie stand to earn combined profits of $25b in 2014.  

Remember, only those who have taken out a mortgage since 2008 have repaid the U.S. Treasury for the $188b bail out.  It was paid for with increased fees charged to borrowers.  This funding of the affordable housing initiatives will be paid for with these increased fees which will be collected from current and future borrowers.

Home owner taxpayers are paying more for their mortgages in order to fund social programs that they are, for the most part, unaware of.

Dodd-Frank limits what I can charge you for your mortgage and mandates my full disclosure to you, of all charges you are paying. I am subject to dire financial consequences if I, or my staff, do not fully comply with these disclosure regulations.

Why is Congress not required to fully disclose it's actions to it's taxpayers?

Did you know that, in addition to the taxes you are paying, several extra dollars are being added to your mortgage closing costs in order to fund  public and low income housing grants?  Did you?
I believe that maintaining Fannie Mae and Freddie Mac is probably worth using them as a conduit for the distribution, to low income tenants, of these extra charges to home buying taxpayers.  It would just be nice for our lawmakers to have to play by the same “transparency” rules that we in the mortgage industry have been mandated by them to follow.

Minority Borrowers

Minority borrowers will exceed 50% of all mortgage borrowers in the next 10 years, according to Mark Fogarty, Editor At Large, at National Mortgage News.  I had dinner with Mark last week and he shared several statistical analysis’ that support his supposition.  Mark also believes that the minority market, defined cumulatively as Blacks, Hispanics and Asians, will be primarily an entry level market.  Mark advocates a lowering of lending criteria to best serve this emerging borrower segment of the home buying public. He cites a conflict of agenda’s between the Executive Office calling for expanded lending practices and the Federal regulatory agencies tightening credit criteria, as well as failing to adequately explain penalty triggers in their new regulations that can be very costly to Lenders if inadvertently misapplied.  I agree with Mark that we are currently in a “catch 22”.  We need to step up our communication with our legislators through avenues like the MBA’s Mortgage Action Alliance and make our voice heard.

I started in this business way before FICO scores and Automated Underwriting Systems.  I long for the days when my Underwriter and  I would pull out the FHA 4155 or the Fannie Mae Guide and make a credit decision.  For the days that our decision was honored by those who purchased our loans and for the days that my risk of penalty and repurchase was limited to my or the borrower committing fraud.  Now I am being second guessed by AUS systems and live and die by FICO scores. In this mandated environment, I am subject to buy backs, fines and penalties at the whim of the investor and/or an untold number of federal agencies.  I am fully ready to expand my minority lending.  I know how to do it.  I am a Hispanic American, for crying out loud. And I will, just as soon as I see some sanity and consistency come back into the mortgage landscape.  

Regulated Loan Docs Are Growing Out Of Control!

I just reviewed a loan package and counted 238 printed pages stuck in a bulging manila file folder. I admit that 97 pages were tax returns but the remaining 141 pages were standard  loan application, addendums/borrower documentation/verification and disclosure forms for a VA, self-employed borrower loan. And all the while I thought that we were now in a paperless lending environment.  In ’72, when I took my first loan application, I recall 9 pieces of paper in a loan file and 1 of them was the 2 sided, long legal appraisal. Are we nuts?  Do the regulatory agencies really think that the Borrowers are any better “informed” today than they were back in ’72?

Military Personnel Not Utilizing VA Financing

There are over 14m Vets and active duty military personnel who have not taken advantage of VA financing. VA notes changes on the horizon that could change that.  In an effort to overcome hesitancies by Realtors, Builders and Mortgage Originators to promote/accept the VA product on their transactions, the Veterans Administration is responding by:

1) Stepping up Appraiser approval processes to overcome appraisal time delays.  More VA appraisers are being approved every month.

2) The VA will soon offer guidelines clarifying negotiable fees to the seller, an area long criticized by the real estate community as non- competitive, by making sellers bear a substantial list of closing costs that are normally negotiable.

3) Increased communication to the real estate and mortgage industries allowing input from the marketplace in an effort to increase utilization of the product. VA is pledging much more back and forth dialogue.

The VA insured a record 629,300 mortgages in 2013.  $20m VA guarantees were issued in the first quarter of 2014.  As the consumer costs rise at Fannie, Freddie and FHA, there is an opportunity for the VA product to become more competitive and more utilized.

G Fee Increase

Are you aware that the President saddled new home buyers with a ½ point G fee increase last year, to run for 10 years, in order to cover Treasury revenue shortfalls during the government shutdown? He discovered this brand new “G fee honey bucket” and now wants to dip into it, once again.  He plans for homebuyers to provide extra funds to the Treasury, via increased G fee charges, that will only be paid by those who buy or refinance a home with a FNMAE/FHLMC loan until 2023.  Didn't our forefathers go to war with England because of “taxation w/o representation”.  Were you ever asked if you were willing to pay an extra $1000 a year on your $200,000 FNMAE/FHLMC loan for this purpose?  You realize that this extra government funding will only be collected from, and paid by, those who obtain a FNMAE/FHLMC home loan until 2023.  That’s a very small % of total “citizens”, and a very large % of those that the President and his team keep telling us they are trying to protect, with all their new mortgage regulations, who will affected.  Those citizens, who do not purchase a home with a FNMAE/FHLMC loan between now and 2023, won’t be paying for any of it.  So, the government is doing all it can, via new mortgage regulations, to “protect” the citizen/borrower, but first, let’s charge them more for their mortgage loan.  More than ever before.

Defaulted FHA Loans

Did you know that co-borrowers on defaulted FHA loans are not being noted and listed?  In some instances co-borrowers, on previously defaulted FHA loans, have been granted new FHA insured loans, as the primary borrower within days of foreclosure.  This is an interesting glitch in FHA’s CAIVRS system which provides lenders with qualification data on potential borrowers on FHA loans in process. 

Foreclosure Inventory

Core Logic reports that 4.4% of all home loans in America were seriously delinquent in May, however, this number is down 23.9% from May, 2013. 660,000 homes are currently in foreclosure, down from a million in 2013. The reduction of foreclosure inventory is most evident in states with non-judicial foreclosure laws. Foreclosure inventory in these states, as a percentage of total mortgages in place, is half of what it is in states that require a judicial foreclosure process.

Foreclosures Down, Still Long Way To Go

Foreclosures stood at 47,000 in May, down for the 31st straight month and at their lowest level since 2007. While things are certainly moving in the right direction, it is sobering to note that prior to 2006 the average foreclosures per month were 21,000, so we still have a long way to go.   

The Cost Of FHA

The cost of a seat at the table to originate FHA loans has increased, once again.  Mortgage Bankers who wish to originate FHA product must keep a cumulative net worth equal to the sum of net worth requirements for each FHA loan type they wish to originate.  For example the net worth requirement for a lender wanting to originate standard Single Family and Reverse Mortgages (HMBS) will need a minimum net worth of $7.5m.  Once upon a time you only needed $1m net worth to get in the game.  Not so these days. Industry consolidation is well under way.  

On HUD Being Vilified

I just read an article the other day, which vilified the mortgage industry because the Fed had to invest $1.7b in HUD to maintain its’ reserves (said investment will be fully repaid to the Fed by HUD by November). This Fed loan was typified in the article as a terrible thing. My concern is with the tone and presumption of negativity with which these articles are regularly written.  I wonder why an investment in housing the citizens of the U.S. is so demonized?  What is so bad about the government, from time to time, making a temporary investment in housing its citizens?  Why must HUD be vilified for needing this temporary help?  What else in government pays its’ way, like housing? Why is the spending of a hundred million here or a hundred million there on remodeling government office buildings (CFPB headquarters), or a billion on a new airplane or cruiser or new regulatory agency (CFBP) not put under the same microscope?

Here HUD functions for 80 years, quite well I might add, stimulating the housing and real estate industry, and along with it the economy by making home ownership a reality for millions of Americans and once, during the 80 years, the Fed is asked for temporary funds to help HUD get past a rough spot and Congress and the President scream, at the top of their lungs, that the American people must be protected from any future malfeasance by HUD and the mortgage industry.

This just doesn’t make any sense.  How about Congress protecting us from ongoing Wall Street corruption, from the perennial billions spent on social engineering around the world, from the ongoing billions spent on getting us into unnecessary wars, from the billions lost to the devaluation of our currency, from the inequity of taxation, the ridiculous IRS system, the intrusion into our private lives under the guise of protecting us etc., etc.  The mortgage industry has contributed, for more than 80 years, to the housing of America.  Congress and the President need to stop this irrational, negative posturing and let us get back to our business.  There’s a reason why fewer Americans are buying homes than ever before and it’s not the mortgage industry.

More Mortgage Company Mergers On The Horizon

Look for more mergers of mortgage companies as the rising costs and increasing liabilities of the compliance monster, along with continued pressure on existing earnings models makes “going it alone” an unattainable option. In addition net worth requirements, to keep a seat at the investor table, continue to rise. Once upon a time, the mortgage banking industry was a private practice between mortgage lenders, bank and insurance company investors and the GSE’s.  Now, the proverbial government gloppity, glop regulation machine, under the premise of protecting its' citizens, has, once again, overreacted to what was a temporary aberration of excess. A blip which occurred, but once, in the 80 year history of the mortgage industry.  I maintain that over compliance has caused more strife and put more costs on the consumer than the value of problems it has resolved.  Wouldn’t it have just been easier to put Angelo and his Wall Street cronies, who devised, marketed and sold those toxic mortgage programs, in jail?  Then, after replacing those avarice driven CEO’s of the GSE’s and withdrawn their golden parachutes for cause, we could have gone back to the mortgage industry as it was and had been. A noble partnership between the private and public sector, which housed this country.