The Week Ahead
The House and Senate are scheduled to be in recess until July 20.
- NRMLA Summer, 7/14-15
- ABA: Risk, Compliance, 7/28-20
- WHF Annual, 8/18
- NEXTSUMMER20, 8/23-25
- MBA Risk and Fraud, 9/13-15
- Digital Mortgage, 9/14
- MBA Annual, 10/18-21
- NCSHA Annual, 10/24-27
- NEXTDC20, 11/10
Recovery as Precise as C-19 Predictions
The Labor Department published its monthly jobs report this week finding that employers added 4.8 million jobs in June — the biggest increase on record. Economists had expected 3 million.
The nation’s jobless rate is up 7.6 percentage points compared to the start of the year, when it sat at a half-century low. There are 12 million more out-of-work Americans today compared to February.
Over 20 million jobs were lost in the first two months of the pandemic, so the labor market has a very long way to go to reach full recovery.
As COVID-19 infections increase against the backdrop of a reopening economy, the reality of the job market is now likely far bleaker. Americans filed 1.4 million new applications for unemployment benefits last week, according to the Labor Department. As uncertainty abounds, we lean toward downside risk planning.
In an interview this week, Federal Reserve Bank of San Francisco President Mary Daly said, “If we can get the public health issues under control … then it could take just four years or five years [to recover]. But if we end up with a pervasive, long-lasting hit to the economy, then it could take longer.”
Slim Legislative Calendar Remains for Congress
As currently scheduled, the Congress is in session for ten more days this summer. This week, both chambers acted to pass an extension of PPP to August 8th.
We expect a fourth COVID package to be negotiated that includes consumer and business relief and ongoing foreclosure and eviction stays.
Meanwhile, the House has initiated a series of bills that decouple priorities from the HEROES Act. In addition, the House has introduced an Infrastructure bill. As the saying goes, it is hope over expectations … for this Congress.
SCOTUS Rules CFPB Structure is Unconstitutional
This week the Supreme Court ruled 5-4 in the Seila Law LLC v Consumer Financial Protection Bureau that the President may fire the agency Director, but held that the agency itself was constitutionally established.
Senator Elizabeth Warren (D-MA) lauded the decision saying via twitter that “After years of industry attacks and GOP opposition, a conservative Supreme Court recognized what we all knew: The CFPB itself and the law that created it is constitutional. The CFPB is here to stay.”
In the 114th Congress, then House Financial Services Committee chairman Rep. Hensarling (R-TX) addressed the Board structure through the Financial CHOICE Act, which would establish a five member board to run the agency. However, that measure was not passed by the Congress.
Thus the CFPB structure is unlikely to be addressed until after the 2020 election.
“The CFPB continues to be an independent agency. Their job is to get the tricks and traps out of credit cards, mortgages, student loans, and other financial products and hold big banks accountable. Nothing in the Supreme Court ruling changes that,” said Sen. Warren (D-MA).
Mortgage Fraud Ticks Up
First American’s Loan Application Defect Index increased for the first time in 15 months, rising 1.6% in May relative to one month ago.
Both refinance and purchase loan fraud risk increased as the coronavirus pandemic continued to impact the mortgage market.
Higher income and employment fraud risk is likely a result of applicants, whose job and income may be affected by the pandemic’s impact on the economy, attempting to hide that impact from the lender.
An economic downturn can pressure home buyers to misrepresent information on a loan application in order to qualify for financing. The competitive home-buying market may also influence home buyers to misrepresent information in their loan applications to be more competitive when bidding for a home, creating an environment ripe for accelerating fraud risk.
UCB: CA Homebuilding Impact Fees top $150k
The University of California at Berkley’s Terner Housing Center published a report this week identifying four homebuilding stimulus measures to support economic recovery.
The report suggests new production policies should be guided by four principles:
- Maintain homebuilding momentum — Keep new housing projects moving forward and give localities more tools to do so.
- Expand where homes can be built — Allow more homes in more places, including more types of homes at greater densities in certain locations.
- Build homes faster — Create certainty in the homebuilding process through straightforward rules and processes.
- Build homes more affordably — Lower the cost of building to make rents and home prices more affordable.
We view the final point on building more affordably as the most challenging, yet the most opportunistic given its ties to the Administration’s efforts to rollback development costs. California cities charge housing impact fees at an average of three times higher than cities in other states, with some cities charging fees in excess of $150,000 per new home. These high fees raise the cost of building and, ultimately, the cost to rent or buy a home. While some good ideas have been proposed in the legislature, significant reform remains elusive. Fees could be reformed without removing cities’ ability to cover project impacts by restructuring how they calculate their fees.
Terner suggests one way to address this cost is to reexamine building code requirements that have accreted rapidly over recent years, driving up the complexity and cost of projects. Because building codes are intricate and change every three years, time should be taken to unpack this issue and uncover a reasonable path for restructuring code back to a cumulative cost level in line with 2008 levels.
We support the UCB study and view it as urgent to address California’s affordable housing challenges that plague such a large percentage of the state’s residents.
Faith’s Corner: Survey Finds Digital Growth
This week Fannie Mae published a Special Topics Report in its Mortgage Lender Sentiment survey and noted a byproduct of COVID-19 is an increasing willingness on the part of consumers to adopt and use digital applications in the home buying process. We believe these changes in borrower behavior are likely to carry-over into the post-pandemic lending environment.
Interestingly, the impact of COVID-19 on digital applications was polarizing for lenders – with 40% citing they do not offer, nor plan to develop, a digital portal despite lender reports that all digital applications saw an increased or consistent usage, according to the survey. Business process streamlining and consumer-facing technology topped the list as the two most important business priorities for the fourth year in a row.
The largest increases in digital applications for loan originations were video meetings between borrowers and personnel of the firm, online applications and electronic verification of income, employment and assets.
The survey was conducted in early May, and included more than 200 senior mortgage executives with the goal of understanding the biggest challenges lenders and servicers have faced for mortgage origination and servicing in response to COVID-19.
The health and safety of staff, gaining clarification on loan eligibility and forbearance, and supply chain disruptions were the three biggest challenges cited by lenders and servicers in response to COVID-19. As the virus continues to disrupt business operations, lenders are prioritizing streamlining processes and optimizing consumer-facing technology to keep up with the evolving conditions.
HUD Extends Appraisal, VOI C-19 Policies
This week HUD extended its appraisal and re-verification of employment guidance originally documented in ML 2020-05 through August 31, 2020.
HUD noted the policy updates in ML 2020-20 are temporary and will not be incorporated into the HUD Single-Family Housing Policy Handbook 4000.1.
Rolling Out #NEXTDC20
This week we published a Speakers List for our virtual conference on November 10 where we will recap the state of the industry post-election.
Our intent is to gather with the nation’s top housing officials and take stock of the consequences of the 2020 national elections.
To date, registrations and sponsorships far surpass last year indicating the value placed on our event and the outstanding virtual hosting plans being administered by our co-host NEXT Mortgage Events.
I have reached out to many of you directly about NEXTDC20, but always feel free to call.
Editor’s note: This is a compilation of industry periodicals (including American Banker, Bloomberg, Mortgage Bankers Association media, Politico and the Wall Street Journal among others) and is intended solely for the use of the addressee and not for further distribution without the sender’s permission.
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Faith Schwartz is the owner of Housing Finance Strategies, a professional services firm founded in 2016 to provide Strategic Advisory Services, Government and Industry Relations, Public Policy Expertise, Roundtable and Event Management and Professional Speaking Services.