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TH E M R EP O RT | 13 MONTH IN REVIEW Taking it to the Next Level The FHFA raised conforming loan limits for the first time in a decade, the FHA increased its loan limits, and the OCC announced that FinTechs could now become banks if they choose to; meanwhile, the Department of Justice conceded one battle while the CFPB asked for a new hearing in another. Read on for some of the month's biggest news in the mortgage industry. 1 The Federal Housing Finance Agency (FHFA) announced that it will raise the amount Fannie Mae and Freddie Mac can guarantee on mort- gage loans in 2017. The new maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2017 will increase from $417,000 to $424,100 in most parts of the coun- try. It will be the first time the baseline loan limit has increased since 2006. The baseline of $417,000 had been set by the Housing and Economic Recovery Act of 2008, with the requirement that the limit be adjusted annually in order to reflect the changes in the national median home price. However, a long period of declining home prices nation- ally stifled the growth of the baseline, and HERA stated that the loan limit could not rise again until the average U.S. home price returned to pre-decline levels. 2 The Federal Housing Administration (FHA) raised its loan limits for most areas of the country starting in 2017. Like the FHFA, which cited a return of house prices to the pre-decline level established in Q3 2007 as the reason for raising its loan limits, the FHA attributed its increase to rising house prices. According to FHA, the minimum national loan limit "floor" is set at 65 percent of $424,100, which is the national conforming loan limit set by the FHFA recently. FHA said that the floor will apply in areas where 115 per- cent of the median home price is below 65 percent of the national conforming loan limit. 3 The Office of the Comptroller of the Currency (OCC) will move forward in offering special-purpose national bank charters to financial technology companies (FinTechs) that offer banking products and services and meet certain requirements. The announcement came after more than a year of extensive research by the OCC to build a framework for responsible innovation in the financial industry and the establishment of an Office of Innovation as a non-supervisory forum for banks and FinTechs to interact with the OCC. 4 The September numbers from the S&P CoreLogic Case-Shiller Indices look impressive on the surface, surpassing peak 2006 numbers. But U.S. home prices remain still about 20 below that pre-recession peak, if you factor in inflation. Ralph McLaughlin, Chief Economist at Trulia, in fact, said that "crossing this threshold is largely symbolic." Still, the numbers from September are up, and for the 53rd straight month. According to the index, home prices climbed 5.5 percent com- pared to a year ago, and 5.1 percent from August. 5 The U.S. Department of Justice has officially conceded the battle against Bank of America in the "Hustle" case. The DOJ has given up on trying to obtain a reversal of a federal ap- peals court decision that overturned a $1.27 billion penalty against Bank of America in late May 2016. A jury verdict in 2013 found Bank of America liable of mortgage fraud through Countrywide Loans' High Speed Swim Lane (HSSL, or "Hustle") program, and a judge or- dered the bank in July 2014 to pay the $1.27 billion penalty. On May 23, 2016, the 2nd Circuit Court overturned the jury's verdict. 6 The Consumer Financial Protection Bureau (CFPB) has filed an en banc petition with the U.S. Court of Appeals for the District of Columbia over the court's ruling in October that the bureau's structure is "unconstitutional" in the PHH Corp. lawsuit. PHH Corp., a New Jersey-based mortgage lender, had challenged a $109 million penalty handed down by CFPB Director Richard Cordray, becoming the first organization to chal- lenge an enforcement action handed down by the CFPB. On October 11, a three-judge panel made the ruling in the D.C. court. The court's ruling gave the President power to remove the CFPB's director at will. 7 According to a study released by the Government Accountability Office (GAO), the FHFA's recent ac- tions as conservator of the GSEs have created more, not less, uncertainty for the housing finance system's future. In order to clear up the increased uncer- tainty created by the FHFA's actions, the GAO stated, "Congress should con- sider legislation that would establish clear objectives and a transition plan to a reformed housing finance system that enables the enterprises to exit con- servatorship." The GAO conducted the study with two objectives in mind: to determine how much the FHFA's goals for the conservatorships have changed, and the implications of these changes for the GSEs' future and for the broader secondary market. 8 Time is winding down on the FHFA's Home Affordable Refinance Program (HARP), and so is the number of borrowers complet- ing refinances through the program, according to FHFA's Refinance Report for the third quarter of 2016. HARP is set to expire in less than a year (in September 2017). Approximately 15,500 homeowners took advantage of HARP in Q3, down from 18,000 in Q2; the numbers have been declining since the third quarter of 2012 when they peaked at 319,000 for the three- month period. To date, more than 3.43 million homeowners have completed a refinance through the program since its inception in 2009. Loans refinanced through HARP represented 2 percent of all FHFA refinance activity in Q3, down from 4 percent in Q2. 9 The National Association of Realtors reported that exist- ing sales climbed 2 percent from September and 6 percent year-over- year. October finished with an annual pace of 5.6 million existing-home sales. Existing sales were most robust in the South, increasing nearly 3 percent from September. The weakest region was the West, which still grew nearly 1 percent. Lawrence Yun, NAR's Chief Economist, attributed October's num- bers to the release of the "unrealized pent-up demand that held back many would-be buyers over the summer because of tight supply. Buyers are having more success lately, despite low inventory and prices that continue to swiftly rise above incomes." 10 Fitch Ratings reported that it expects non-banks to take a larger share of the mortgage market in 2017. In an RMBS roundtable hosted by Fitch Ratings, 89 percent of industry experts on the panel said they believe that non-banks will increase their market share next year. But they expect that the growth will come from a differ- ent source than it has in the past—from new loan origination activity, as op- posed to MSR sales and subservicing, which had driven past servicing growth at non-banks. Non-bank lenders have seen their market share increase substantially over the last few years, according to HMDA data.