Regulatory Arbitrage Alert! FHFA’s Calabria Ends G-Fee Discounts For High-volume Lenders Like Quicken

Recently Federal Housing Finance Agency Director Mark Calabria issued a directive ordering the end of the GSEs’ practice of guarantee fee discounts for high-volume lenders.

The Temporary Payroll Tax Cut Continuation Act of 2011 required the FHFA director, in setting guaranty fees, to:

  • “provide for uniform pricing among lenders;” and
  • “provide for adjustments in pricing based on risk levels.

From my FNAN 432 class at George Mason University using Python to analyze Freddie Mac’s Q4 2017 online mortgage data,

All Data Average St. Deviation
FICO 748 110
LTV 74 16
DTI 35 10
Count of Quicken loans: 18,261 (about 6% of all the loans)
Quicken Average St. Deviation
FICO 730 50
LTV 71 15
DTI 36 10

Quicken has the lowest FICO (credit) scores of lenders selling loans to Freddie Mac and lower LTV and higher DTI than the rest of the pack.

Yes, as lenders try to avoid regulatory burdens, lenders like Quicken originate loans and sell to Fannie Mae and Freddie Mac, we may see a change in Fannie and Freddie’s loan purchases from non-bank, high volume lenders.

My students will have an update on Fannie Mae loan purchases by Monday.

It’s Always Sunny at GMU School of Business using Python in my class! 


Rollercoaster! Mortgage Refi Wave Seems Over As Refi Apps Decline 15% WoW

Refi rollercoaster!

US home mortgage rates fell from almost 5% in November 2018 to 3.5% in September 2019 before rising a bit. This spurred a “refi wave” since late November 2018.

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But the refi party seems to have ended (for the moment).

Mortgage applications decreased 10.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 20, 2019.

The Refinance Index decreased 15 percent from the previous week and was 104 percent higher than the same week one year ago.

Yes, the “refi wave” seems over as


The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 9 percent higher than the same week one year ago.

Now, as Democrats in the US House of Representatives undertake their impeachment of President Trump in part for not releasing the transcript of his call with the Ukrainian President Zelenskyy (that has been released), it will likely lead to an increase in Treasury Note 10y prices and a decline in yields (and mortgage rates) as Democrats focus on impeachment and stonewall any attempts at a trade agreement with China.


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Briar Patch: Wells Fargo, Bank of America, Quicken Loans, Others Want DTI Requirement Eliminated From QM Lending Rules

Yes, the patch for Fannie Mae and Freddie Mac from the Consumer Financial Protect Bureau (CFPB) gives some lenders an advantage over other lenders since F&F aren’t covered by the QM’s debt-to-income requirement.

Housing Wire — Four of the largest mortgage lenders in the country are leading a coalition that is calling on the Consumer Financial Protection Bureau to make to changes to the Ability to Repay/Qualified Mortgage rule.

Specifically, the group, which includes Bank of America, Quicken Loans, Wells Fargo, and Caliber Home Loans, wants the CFPB to do away with the QM rule’s debt-to-income ratio requirement.

The Ability to Repay/Qualified Mortgage rule was enacted by the CFPB after the financial crisis and requires lenders to verify a borrower’s ability to repay the mortgage before lending them the money.

The rule also includes a stipulation that a borrower’s monthly debt-to-income ratio cannot exceed 43%, but that condition does not apply to loans backed by the government (Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture).

Additionally, Fannie Mae and Freddie Mac are not bound this requirement either, a condition known as the QM Patch. Under the QM Patch, loans sold to Fannie or Freddie are allowed to exceed to the 43% DTI ratio.

But some in the mortgage industry, including Federal Housing Finance Agency Director Mark Calabria, believe that the QM Patch gave Fannie and Freddie an unfair advantage because loans sold to them did not have to play by the same rules as loans backed by private capital.

But the QM Patch is due to expire in 2021, and earlier this year, the CFPB moved to officially do away with the QM Patch on its stated expiration date.

And now, a group of four of the 10 largest lenders in the country are joining with some sizable trade and special interest groups to call on the CFPB to make changes to the QM rule in conjunction with allowing the QM Patch to expire.

This week, Wells Fargo, Bank of America, Quicken Loans, and Caliber Home Loans joined with the Mortgage Bankers Association, the American Bankers Association, the National Fair Housing Alliance, and others to send a letter to the CFPB, asking the bureau to eliminate the 43% DTI cap on “prime and near-prime loans.”

As the group states, a recent analysis by CoreLogic’s Pete Carroll showed that the QM patch accounted for 16% of all mortgage originations in 2018, comprising $260 billion in loans.

But the group notes that the QM Patch (or GSE Patch, as they groups refer to it as in their letter) has limited borrowers’ options for getting a mortgage. And the group believes that removing the DTI cap will allow for a responsible expansion of lending practices.

Of course, lenders can always avoid the patch by selling originated loans to Fannie Mae and Freddie Mac.

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Laurie Goodman at the Urban Institute has argued that the DTI ratio is misleading. But it is clear from the above chart (produced by George Mason University School of Business  finance students) that average DTI has been rising since 2012.

CFPB’s “patch” or briar patch is a form of regulatory arbitrage since lenders can evade regulations but selling loans to Fannie Mae and Freddie Mac.


US Home Price Growth Weakest In 7 Years (Phoenix Now Fastest Growing Home Prices, Seattle Home Prices Declining)

US national home price growth has slowed to its lowest level in 7 years, according to  June’s Case-Shiller report.

The decline in national home price growth coincides with The Fed’s decision to let its balance sheet self-unwind.


Phoenix, my former residence, is now the fastest growing metropolitan area in the US, even faster than Las Vegas. Seattle is now the slowest growing metro area in terms of home prices and is actually declining. San Francisco is barely above 0% at 0.7% YoY.

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The FHFA purchase-only home price index YoY has fallen to 1.0.


Time for some more “Fed Fresh” spray?