Jul 162018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

It feels like deja vu all over again. The National Flood Insurance Program (NFIP) will expire on Jul 31 unless Congress acts to extend it. The program currently is operating on a short-term extension passed in March.

In Nov, the House passed a package of bills that extended the program until 2022. However, they included reforms, including the expansion of private flood insurance to compete with the federal program. While most recognize the program needs to be reformed, the Senate wasn’t comfortable with the scope of the House vision.

Without its own NFIP reform bill, the Senate has opted to kick the can down the road one more time. It slipped another short-term extension into the Farm Bill passed at the end of Jun.

Unfortunately, the Senate version of the Farm Bill differs significantly from the House version. The two bills now go to conference committee to find a compromise that can pass both chambers. The problem is compromise could take a long time, and the clock is ticking on NFIP.

If Congress fails to extend the program, it would have to stop issuing and renewing policies. Realtors estimate this could impact as many as 40,000 loan closings each month.

Congressmen and Senators, especially those from coastal areas, are well aware of what a disaster that would be, especially with the onset of the hurricane season. I wouldn’t be at all surprised to see Congress strip the extension from the Farm Bill and pass a standalone bill just in the nick of time.

Important news before you get a HELOC

 Owner-occupied, Regulations  Comments Off on Important news before you get a HELOC
Feb 052018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

With rising home prices, you may be eyeing your increasing home equity with plans for remodeling or some other important need. However, before you do, take a few minutes to consider how the changes to the mortgage interest deduction might affect your tax bill.

It’s been well-reported that the new tax law reduces the max mortgage that qualifies for the mortgage interest deduction from $1m to $750k. For most of us, that’s not a big deal. The bigger deal is that starting this year, interest paid on a home equity line of credit (HELOC) no longer will be eligible for the deduction.

When you take cash out of your home, you have a couple options if you have an existing first mortgage. You can refinance the first mortgage adding to the balance the amount of cash you want, a so-called cash-out refinance, or you can use a HELOC, which typically is a 2nd lien on your home that leaves the existing first mortgage in place. Many folks prefer a HELOC because they have a really low rate for their existing first mortgage.

With the new tax law, the interest paid on a cash-out refinance is still eligible for the mortgage interest deduction. The interest paid on a HELOC is not.

So, before you decide which option to use, consider whether getting a new first mortgage would allow you to itemize your deductions. If it does, then you may find it’s a better financial decision to cash-out refinance your existing mortgage even though you may end up with a slightly higher interest rate.

The government wants to know your credit score

 Credit Scoring, Regulations, Residential Mortgage  Comments Off on The government wants to know your credit score
Jan 122018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

If you’ve applied for a mortgage recently, you may remember the government monitoring section of the application. The government asks you to identify your sex, race, and ethnicity so it can watch for patterns of unfair lending.

However, it seems the data the government was collecting didn’t provide enough granularity. The data might show more members of a minority group were denied loans, but it provided few insights into the disparity.

The solution – collect more data. Starting in 2018, lenders are required to report more invasive information for every loan applicant, including your credit score and debt-to-income ratio. In addition, lenders must report property values.

The stated goal of this data collection is to ensure fair lending, but it is a bit disconcerting. The CFPB insists the data is anonymized so that individual borrowers cannot be identified. However, privacy advocates worry that the expanded information collection gives nefarious actors enough hints to disaggregate the data. In addition, the data will be housed on government computer systems that have a history of being hacked.

As a consumer, you have no choice whether lenders collect and report the expanded data when you apply for a loan. Your only choice is whether you choose to identify your sex, race, and ethnicity, but that doesn’t stop the lender from reporting your other private financial data.

Congress offers relief from financial regulations – Part 2

 Regulations  Comments Off on Congress offers relief from financial regulations – Part 2
Jun 232017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Yesterday, we reviewed how the Financial Choice Act, recently passed by the House, would affect banking regulations. Today, we’re going to look at how it would change the Consumer Financial Protection Bureau.

The bill would have three major effects:

– It would change the name of the bureau to the Consumer Law Enforcement Agency and change its mission to enforcing existing consumer financial regulations rather than creating new ones. In this sense, it would function more like other independent federal agencies.

– It would allow Congressional oversight through the appropriations process.

– It would change the leadership from a single, unaccountable director to one who serves at the pleasure of the President.

Democrats seem most exercised about this provision as they view the current untouchable director as a way to maintain their preferred regulatory scheme across presidential administrations.

As I said yesterday, the bill’s fate in the Senate seems dim, but three additional developments offer hope to those favoring change:

– A Congressional Budget Office analysis indicates the Choice Act will reduce the deficit by $33 billion, which makes it possible Republicans could use the reconciliation process to pass reforms with only 51 Senate votes.

– Second, the courts seem poised to decide that the CFPB current structure is unconstitutional, but the final decision still may be a couple years away.

– Finally, it seems likely the CFPB’s current director will resign to run for governor of OH, which would allow President Trump to appoint a reformer to the position.

Congress offers relief from financial regulations – Part 1

 Regulations  Comments Off on Congress offers relief from financial regulations – Part 1
Jun 222017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

President Trump came to office promising to cut regulations that are stifling job growth, and one of his top targets was the Obama-era Dodd-Frank Act that put tough regulations on consumer lending and created the Consumer Financial Protection Bureau (CFPB).

Congressional Republicans recently offered an assist by passing the Financial Choice Act that repeals major aspects of Dodd-Frank. Based on a Congressional Budget Office analysis, the bill offers regulatory relief to community banks and credit unions in exchange for greater capitalization, which should make them safer. Larger banks are unlikely to meet the capital requirements needed for relief.

Large banks do like provisions of the bill that would streamline and reduce the frequency of exams and that would repeal the Volker Rule. The bill also would classify some loans banks hold in portfolio as “qualified mortgages,” which could loosen up bank lending a bit.

Democrats unanimously oppose the bill, but most of their statements so far have been fear-mongering claims that the bill’s passage will lead to another financial crisis. Given the opposition, the bill’s prospects in the Senate are dim for now. Senate Banking Comm Chair Crapo said the Choice Act is a good starting point, but he will craft his own bill with input from Senate Democrats. However, those favoring major change can be cheered by the fact that the Choice Act stakes out a very strong starting point.

Tomorrow, we’ll dig into how the bill changes the Consumer Financial Protection Bureau.

TX home equity loans on the ballot in Nov

 Owner-occupied, Regulations, Residential Mortgage  Comments Off on TX home equity loans on the ballot in Nov
Jun 142017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Texans will have a chance to vote this fall on important changes to lending rules for home equity loans. The changes will allow those with lower-valued homes and rural homes to gain access to their home equity.

Texas has strong homestead protections that are written into the state constitution. Thus, changes to rules governing home equity require voter approval.

Currently, fees associated with a home equity loan are capped at 3% of the loan amount. While a cap on fees sounds great, it doesn’t take into account that certain fees, such as the appraisal and survey fees, don’t vary by loan size. This has prevented many homeowners of lower-valued homes from accessing their equity because the fees would exceed the cap. The new rules cap the fees at 2% but exclude fees associated with the appraisal, survey, and title policy.

The new rules also will allow owners of homes on agricultural land to apply for home equity loans. While this is a favorable development, it will be interesting to see which lenders will be interested in these loans. I suspect conventional lenders will shy away because the loans will be difficult to package with other home equity loans.

A final change will particularly benefit homeowners who used higher-rate, home equity second mortgages for things like remodeling their homes. Previously, a home equity loan only could be refinanced with another home equity loan. The change allows the homeowner to refinance their first and second mortgages into a new conventional loan that is free from the home equity restrictions.

Click here for more information about the amendment.

Oh, no! Trump dismantling consumer protection

 Regulations  Comments Off on Oh, no! Trump dismantling consumer protection
Feb 202017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Despite the hysterical headlines that President Trump was dismantling consumer financial protections by executive order, the truth is much less exciting.

Trump has called Dodd-Frank, the recession-era law that created the current regulatory structure, a disaster and pledged major reforms. Earlier this month, he ordered his financial team to review the law and develop a plan to overhaul it. This starts a likely many-month process to modify Dodd-Frank and other financial regulations that are stifling lending and driving community banks out of business.

While Trump conceivably could rewrite or reverse some financial regulations once his appointees take charge at various federal agencies, he cannot change statutory rules, such as those enacted through Dodd-Frank, without Congressional action.

Unfortunately for those hoping for quick action, that appears unlikely. While the House already is moving legislation to rewrite the law, Senate Republicans need help from Democrats. Senate Banking Comm Chair Mike Crapo says, “The climate right now in the Senate is as toxic as I’ve ever seen it.” Crapo hopes he can get some Democratic support for changes that will promote lending by easing rules for smaller and community banks.

The eventual changes could be significant, but the pace of change will allow for serious consideration and certainty doesn’t justify the silly headlines.

Could spot condo approval return for FHA?

 Owner-occupied, Regulations, Residential Mortgage  Comments Off on Could spot condo approval return for FHA?
Oct 242016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

We talked a couple weeks ago about the changes FHA adopted to make it easier to get FHA financing for condos. Unfortunately, the changes are temporary, but FHA is trying to rectify that by proposing new regulations that take these changes a step further and make them permanent.

The biggest news is FHA is proposing the reinstate spot approvals for condos. Typically, a condo project must be FHA-certified for its units to be eligible for FHA financing. A spot approval allows a lender to seek approval for a single unit in an otherwise uncertified project.

Another proposed change that’s receiving mixed reviews would establish a range within which FHA could set the minimum percentage of units that must be owner-occupied. Currently, the minimum is 50%. The proposed range is 25% to 75%. FHA says this would give it flexibility to respond to market conditions. Congress has suggested 35% is appropriate, and the housing industry would prefer the certainty of the fixed, lower number.

FHA also is proposing to establish a range for the maximum commercial space within a mixed-use development. The current maximum is 50%. The proposed range is 25% to 60%.

You can find the proposed rule on HUD’s Web site, hud.gov, and FHA invites your comments.

The possibility of better flood insurance

 Regulations, Residential Mortgage  Comments Off on The possibility of better flood insurance
Jun 062016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Congress is diddling with flood insurance again, and if you’re in a flood zone, you may want to pay attention. The House passed a bill about a month ago that would authorize state insurance commissioners to approve flood insurance policies that would be accepted for conventional and government mortgage loans. This means you would have a private insurance alternative to the National Flood Insurance Program (NFIP), which for many is currently the only game in town.

Obviously, the idea is that more competition will lead to more consumer choice. Consumers will be able to shop for an insurance product that meets their particular needs rather than be stuck with the current one-size-fits-all government product.

One interesting twist in the bill is that it would allow homeowners who switch to private insurance to switch back to the NFIP if they aren’t satisfied. Their NFIP insurance rate wouldn’t change as long as they don’t allow coverage to lapse.

The Senate is considering a similar bill that has bipartisan support, so it’s quite possible private flood insurance will become a reality this year.

Why are appraisals so expensive? – Part 2

 Regulations, Residential Mortgage  Comments Off on Why are appraisals so expensive? – Part 2
Jan 202016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Yesterday, we started discussing why appraisal costs have soared. We identified regulations requiring that lenders order appraisals through middlemen. Let’s look at a couple other factors.

– Regulators have increased appraisal requirements. Appraisers not only have to estimate the property’s value but also have to assess the strength of the area’s housing market. FHA appraisers now have to crawl into a home’s attic or crawl space among other new requirements.

– Finally, the new integrated disclosures regulation requires lenders to quote appraisal fees exactly at loan origination. Given that little is known about the property this early in the loan process, appraisal companies that provide the quotes must consider the risk that the property has complexities. Thus, their quoted prices have risen.

– The new regulation also has virtually eliminated the market for appraisal orders. When you eliminate market competition, you get higher prices.

The added workload and lower pay pushed a number of appraisers out of business, and the inability to control appraisal fees because of appraisal company middlemen makes the profession unattractive for potential new appraisers. As a result, a number of housing industry experts is warning of a coming appraiser shortage. For homebuyers, this initially could mean delayed closings. Eventually, it probably means even higher appraisal prices as that may be what’s necessary to attract new people to the profession.