November 2016 - End of the Road?

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12 | TH E M R EP O RT MONTH IN REVIEW Big Names Making Even Bigger News What with rumblings of 'unconstitutionality' at a high- profile agency, the axing of a mortgage origination services agreement at a mega bank, and newly released data revealing tons of insider info on homebuyers (including why they aren't buying)—and that's just for starters—the past month was a month to remember. Here, we distill some of the most relevant stories to hit the headlines over the past four(ish) weeks. 1 The U.S. Court of Appeals for the District of Columbia or- dered a restructuring of how the Consumer Financial Protection Bureau (CFPB) operates within the executive branch, calling the Bureau's structure "unconstitutional." New Jersey-based mortgage lender PHH Corp. had chal- lenged a $109 million fine handed down by CFPB Director Richard Cordray, becoming the first organization to chal- lenge an enforcement action leveled by the CFPB. Judge Brett Kavanaugh in the D.C. Circuit Court of Appeals ruled that the CFPB will be allowed to continue operating as an agency, and perform its duties as it has been, but that the president now has the author- ity to supervise the Bureau's director and remove him without cause. 2 The September Fannie Mae Home Purchase Sentiment Index report (HPSI) found that fewer homebuyers in September felt good about buying for the second straight month. This slip, said Doug Duncan, SVP and Chief Economist at Fannie Mae, has dampened what had been a moderately optimistic outlook on the housing market. Duncan said that a tight supply of starter homes and price appreciation, as well as an unsettled political environment, is causing consumers to question their home purchase sentiment. 3 Single-family rental REIT Altisource Residential Corporation (Residential, or RESI) has acquired a portfolio containing 4,262 single-family rental properties, ac- cording to an announcement from Residential. Residential purchased the portfolio at an aggregate price of $652.3 million in a seller-financed transaction, and the assets were purchased from investment funds sponsored by Amherst Holdings, LLC, according to Residential. The acquisi- tion more than doubles Residential's single-family rental portfolio. 4 Bank of America is terminat- ing its private label mortgage origination services agreement with non-bank lender PHH Mortgage Corporation, a wholly owned sub- sidiary of New Jersey-based PHH Corporation. BOA sent written notice to PHH on September 27 that it was exercising its right to terminate with- out cause the agreement pursuant to which PHH Mortgage provides the services on behalf of Bank of America subsidiary Merrill Lynch. 5 According to Trulia's MarketMatch report, the un- derlying reason why people are not buying houses despite high demand is that properties are too expensive. In fact, the higher the general market value of a given metro, the more buyers are looking at disproportion- ally low-priced properties. This is particularly true in Florida, North Carolina, and Texas, the report notes. It found that 10.4 percent (nationally) of searches at a certain price point failed to match the available inventory at that price point. A year ago, the percentage was 8.3. 6 Home appraisers received a reprieve in the form of a clarifica- tion of a requirement issued earlier this year in HUD's recent updates to FHA's Single-Family Housing Policy Handbook. When published earlier this year, the handbook contained a new requirement for appraisers to physically observe and operate appliances in a home while an ap- praisal was being conducted. The new guidelines clarify the requirement; in most cases, appraisers are now only required to make sure that certain appliances that contribute to a property's market value are physically present. 7 The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) recently post- ed the public portions of the required "targeted submissions" for the eight systemically important domestic banking institutions in order to better increase transparency. In April, the agencies jointly determined that each of the 2015 resolution plans, or "living wills," of Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, and Wells Fargo were not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. 8 According to the Census Bureau's August 2016 Construction Spending report, single- family construction spending declined on a monthly basis for the sixth month in a row in August. Not only that, it declined on a yearly basis (by 1.5 percent) for the first time in the hous- ing recovery period. But according to National Association of Homebuilders, the numbers for both construction spending and single-family housing starts for the last six months are right on par with the data reported for the last six months of 2015. 9 The First American Financial Corp. Loan Application Defect Index for August 2016 revealed that conventional loan risk is down 14.6 year-over-year, compared to a 17.7 percent decline for Federal Housing Agency (FHA)/Veterans Affairs (VA)/ U.S. Department of Agriculture (USDA) transactions for that same period. Also, the transactions involving FHA/VA/ USDA loans were found to be 14.5 per- cent less risky than conventional mort- gage loans. The Loan Defect Index is down by nearly a third (31.4 percent) since peaking in October 2013. 10 The Black Knight Financial Services' August 2016 Mortgage Monitor found that homeowners tapped out a total of $22.6 billion via cash-out refinances in the second quarter, which was the highest total since Q2 2009. Though the number of cash-out refi loans has increased over-the-quarter for nine consecutive quarters, they have a way to go before they reach pre-crisis levels. Approximately 42 percent of all refinances during Q2 2016 were cash- out refis, which is slightly more than half of the peak total of 80 percent in Q3 2005. What that comes down to is there is still a substantial amount of equity for homeowners to tap.

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