The Biggest Mortgage Stories of 2016
This was a year of shocks and surprises, including a multimillion-dollar verdict after one lender sued another, regulations putting a lender out of business, Brexit driving rates down and Donald Trump's election pushing them back up. Here are 10 events and trends from 2016 that changed the industry.
Mount Olympus Mortgage's $25 million verdict in a case against Guaranteed Rate, which recruited a former loan officer from the company, helped to define the legal issues whether the company or the employee owns customer contact data. But just as important, the case also raised questions about data security and breaches. It is inevitable that a data breach will occur and lenders must be prepared to deal with it.
There were plenty of lenders whose business suffered because of problems with the new TILA/RESPA integrated disclosures. But W.J. Bradley paid the ultimate price; because the company had nonagency loans it was unable to sell in the secondary market as a result of TRID compliance issues, it shut its doors for good in March. For many lenders their implementation process was not smooth. As the new routines became familiar, there were fewer critical TRID-related application errors by the end of the second quarter, according to ACES Risk Management.
Housing was not a major campaign issue in the presidential election, so there was plenty of speculation about the approach President-elect Donald Trump would take on government-sponsored enterprise reform. However, his cabinet appointments have shed some light. Treasury Secretary-designate Steve Mnuchin supports privatizing Fannie Mae and Freddie Mac. At the same time, some believe Department of Housing and Urban Development designee Ben Carson could influence Trump to focus more on housing.
Trended data, used by nonmortgage lenders in underwriting, made its debut in the mortgage business in September. That's when Fannie Mae began requiring lenders to submit trended data for mortgages processed through Desktop Underwriter. But the use of this deeper-dive consumer credit information has yet to be embraced by Freddie Mac.
A pair of election surprises was the primary driver of mortgage interest rate movement in the second half of 2016. When British voters voted "yes" in a June 23 referendum to leave the European Union, yields on the 10-year Treasury note, the benchmark for longer term rates, reached record lows. The yield began creeping up prior to the U.S. presidential election. In the aftermath of Donald Trump's victory, the yield broke above 2% for the first time since January and hit 2.6% in December.
The Federal Housing Finance Agency and the Federal Housing Administration announced higher loan limits for 2017, as home prices have finally recovered from their crisis levels. The conforming loan limit will rise to $424,100; it had been set at $417,000 since 2006. FHA's floor, set at 65% of the conforming loan limit, will rise to $275,665 in 2017 from the current $271,050.
Looking for alternatives to the Federal Housing Administration program, conforming lenders began rolling out low down payment options, first Bank of America in February and then Wells Fargo in May. Fifth Third Mortgage followed in July, but the uptake was slower than expected, possibly because of a lack of awareness among consumers about these programs. But that didn't stop more programs from coming online at nonbank lenders. United Wholesale Mortgage came out with a 1% down program it originates through brokers. Freddie Mac is working with New American Funding and Alterra Home Loans on a pilot that uses a wider range of underwriting criteria.
When Consumer Financial Protection Bureau Director Richard Cordray increased the fine assessed to PHH for a Real Estate Settlement Procedures Act violation to $109 million, the lender fought back in court — and won. The bureau's structure was unconstitutional, according to U.S. Court of Appeals for the D.C. Circuit. Although CFPB is appealing, its future is in doubt in the Trump Administration. And it may be a Pyrrhic victory for PHH: losing Merrill Lynch and HSBC as private-label clients has raised questions about the company's future.
Mortgage lenders, looking for clarity in implementing the TILA/RESPA integrated disclosures, instead were forced to rely on informal guidance from the Consumer Financial Protection Bureau. As a result, document errors and the time needed to close a loan increased. In July, CFPB delivered on the update. But industry participants were left unsatisfied with the proposal that is set to be finalized in April 2017 and implemented by October.
National Mortgage News celebrated its 40th anniversary by taking a look at the defining moments and trends of the past that will influence the future of the industry. As mortgage lenders move into 2017 more uncertain about the future than before, they need to remember the lessons from the past and use them as indicators of what's to come.