The August 7th Note Investors Forum Meetup focus on:
TOPICS: Several New Case Studies
Where Does a New Note Investor Begin
Bring your questions, This will be an interactive meeting.
The August 7th Note Investors Forum Meetup focus on:
TOPICS: Several New Case Studies
Where Does a New Note Investor Begin
Bring your questions, This will be an interactive meeting.
Over the past few months, Mick Mulvaney has provided smaller indications about how much differently the Consumer Financial Protection Bureau will function under his leadership than it did under the bureau’s former director, Richard Cordray.
But Monday, Mulvaney fully revealed his plan to dramatically alter how the CFPB operates.
The CFPB on Monday released a new strategic plan, in which Mulvaney lays out how the CFPB will now operate and established new goals for the bureau.
“If there is one way to summarize the strategic changes occurring at the bureau, it is this: we have committed to fulfill the bureau’s statutory responsibilities, but go no further,” Mulvaney said in a statement. “By hewing to the statute, this strategic plan provides the bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers.”
According to the CFPB, the plan “draws directly” from the Dodd-Frank Wall Street Reform and Consumer Protection Act, and “refocuses the bureau’s mission on regulating consumer financial products or services under existing federal consumer financial laws, enforcing those laws judiciously, and educating and empowering consumers to make better informed financial decisions.”
Included among the changes is that the CFPB will now focus on “equally protecting the legal rights of all, including those regulated by the bureau,” a tactic Mulvaney previously revealed in a memo to the CFPB’s employees.
Also, it appears that the only new rulemaking the CFPB will engage in will be to “address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.”
As Mulvaney previously stated, the CFPB will no longer be “pushing the envelope” when it comes to new rules, regulations, or enforcement.
“Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people, as established in law by their representatives in Congress and the White House,” Mulvaney says in the strategic plan. “Pushing the envelope also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes. I have resolved that this will not happen at the bureau.”
In pursuit of this goal, the CFPB establishes a new mission that is much different from what it was previously.
Under Cordray, the CFPB’s mission (as taken from the CFPB’s previous strategic plan) was the following: “The CFPB is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”
The CFPB’s new mission, as laid out by the new strategic plan is this: “To regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws and to educate and empower consumers to make better informed financial decisions.”
According to the new plan, the CFPB will accomplish its new mission by: seeking the counsel of others and making decisions after carefully considering the evidence, equally protecting the legal rights of all, confidently doing what is right, and acting with humility and moderation.
The new strategic plan also lays out new goals for the CFPB.
Previously, the CFPB had four goals:
Under Mulvaney, the CFPB’s new goals are:
Part of that first goal will be to “regularly identify and address outdated, unnecessary, or unduly burdensome regulations in order to reduce unwarranted regulatory burdens,” according to the plan.
Under the second goal, the CFPB lays out two objectives that are designed to help meet the goal, including protecting consumers from unfair, deceptive, or abusive acts and practices and from discrimination.
To meet that objective, the CFPB will “enhance compliance with federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for both individuals and companies and promote fair lending compliance and education,” and “strengthen prevention and response to elder financial exploitation.”
Additionally, under the “implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive” goal, the CFPB will “enforce federal consumer financial law consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.”
Included in the strategies to achieve that objective is focusing supervision and enforcement resources on “institutions and their product lines that pose the greatest risk to consumers based on the nature of the product, field and market intelligence, and the size of the institution and product line.”
The third goal deals mainly with the CFPB’s internal operations, including safeguarding the CFPB’s data, maintaining a “talented, diverse, inclusive and engaged workforce,” and working to manage risk and promote accountability at the bureau.
To read the CFPB’s new strategic plan in full, click here.
This story has been updated.
Richard Cordray, one of the few remaining Obama-era banking regulators, said on Wednesday that he plans to step down as head of the Consumer Financial Protection Bureau by the end of the month, clearing the way for President Trump to remake a watchdog agency loathed by Republicans and Wall Street.
Cordray’s turbulent six-year tenure at the 1,600-person agency was marked by aggressive efforts to rein in banks, payday lenders and debt collectors that often drew protests from the business community. His frequent clashes with conservatives turned Cordray, an otherwise ordinary Washington bureaucrat from Ohio, into a favorite of Democrats and consumer groups and a villain to Republicans and the financial industry. A federal judge once said that Cordray had “more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the president.”
“It has been a joy of my life to have the opportunity to serve our country as the first director of the Consumer Bureau by working alongside all of you here,” Cordray said in a message to employees. “I trust that new leadership will see that value also and work to preserve it – perhaps in different ways than before, but desiring, as I have done, to serve in ways that benefit and strengthen our economy and our country.”
Republicans had become increasingly exasperated that Cordray, whose term does not end until next summer, had not stepped aside when Trump took office, and instead continued to press for aggressive rules disliked by the business community. Trump has on at least two occasions griped about Cordray in private and wondered what to do about his tenure, according to two financial industry executives who attended the meetings. Under the agency’s current structure, Trump could only fire Cordray for cause.
Cordray did not explain the timing of his decision, but it clears the way for him to potentially run for Ohio governor. It also comes just a month after the CFPB suffered a major rebuke from Republicans in Congress who took the unusual step of blocking an agency rule that would have allowed consumers to sue their banks for the first time. Cordray appealed to President Trump directly not to sign the legislation but was rebuffed.
With Cordray’s departure, the regulatory structure put in place by the Obama administration in the wake of the global financial crisis has been nearly entirely replaced. The head of the Securities and Exchange Commission has been replaced by a former Wall Street lawyer and the Senate is moving to approve Trump’s pick to lead the Office of the Comptroller of the Currency, another important banking regulator.
Trump is also remaking the Federal Reserve. He has nominated Republican Jerome H. Powell, a current governor on the Fed board, to replace Janet L. Yellen as chair of the Federal Reserve. His pick for vice chairman of supervision, Randal Quarles, a former private equity investor, is expected to be much friendlier to the banking industry than his predecessor in the role.
Rolling back regulations has been a cornerstone of the Trump administration, which argues that excessive rulemaking strangles economic growth. But Congress has struggled to deliver sweeping regulatory relief to the industry. Earlier this week, Sen. Mike Crapo, the Republican chairman of the Senate Banking Committee, announced a bipartisan deal to free dozens of large financial institutions from some of the most rigorous regulations put in place after the global financial crisis. But those changes are much more modest than what many in the banking industry have called for.
The most efficient way, industry officials say, to remake the rules is through appointing new regulators who can change an agency’s focus, tone and priorities. Cordray’s departure “will complete the Team Trump take over of the regulatory agencies. It should mean by summer there are Republicans running all of the banking agencies,” said Jaret Seiberg, an analyst with Cowen and Co.’s Washington Research Group.
The transformation coming for the CFPB could be significant. The agency was one of the central achievements of the Obama administration following the 2008 financial crisis. Created under 2010’s financial reform bill, known as Dodd Frank, it regulates the way banks and other financial companies interact with consumers, policing everything from payday loans to mortgages. It has extracted billions in fines from big banks, including $100 million from Wells Fargo last year for opening millions of sham accounts that customers didn’t ask for.
Cordray “held big banks accountable. He is a dedicated public servant and a tireless watchdog for American consumers–and he will be missed,” said Sen. Elizabeth Warren (D-Mass.), who helped established the bureau. “The new Director of the CFPB must be someone with a track record of protecting consumers and holding financial firms responsible when they cheat people. This is no place for another Trump-appointed industry hack.”
But the CFPB has been controversial among Republicans since its inception. Critics complain that CFPB has made it more difficult for people to get a mortgage loan and has overstepped its power to regulate some industries, including auto loans.
Within minutes of Cordray’s public announcement, one of the CFPB’s staunchest critics, Rep. Jeb Hensarling (R-Tex.), chairman of the House Financial Services Committee, cheered the move.
“We are long overdue for new leadership at the CFPB, a rogue agency that has done more to hurt consumers than help them,” said Hensarling, who has touted legislation that would strip the agency of many of its powers. “The extreme overregulation it imposes on our economy leads to higher costs and less access to financial products and services, particularly for Americans with lower and middle incomes.”
Republicans were particularly frustrated that the CFPB continued to issue new rules over the last year despite the Trump administration’s focus on loosening regulations to spur economic growth. Last month, for example, the agency finalized wide-ranging rules targeting the billions of dollars in fees collected by payday lenders offering high-cost, short-term loans. The rules would radically reshape the industry and even “restrict” the industry’s revenue by two-thirds, according to the CFPB.
Payday lenders and Republicans in Congress called the rules excessive. “We didn’t always see eye-to-eye with Director Cordray and in particular with his actions, which turned the Bureau into a highly partisan agency,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents the payday lending industry.
The group hopes Trump will appoint a replacement who “will listen to customers rather than special interests,” he said.
Under new Republican leadership, the agency is likely to focus less on writing new rules for the financial industry or extracting big fines, industry experts say. The CFPB has been working on rules concerning debt collectors and bank overdraft fees, for example, but those efforts are likely to stall under the new leadership, said industry officials.
“The CFPB will face substantive changes in the years ahead as policymakers recalibrate the regulatory environment,” said Isaac Boltansky, a Washington policy analyst for the investment firm Compass Point Research & Trading.
Cordray’s decision is likely to renew speculation that he will run for governor of Ohio, where he once served as attorney general. He would have to declare his candidacy by February.
Cordray has repeatedly declined to answer questions about his political ambitions, but his potential opponents have already begun to lash out against him. One website, www.cordray2018.com, initially appears to be pro-Cordray and features a “Cordray for Ohio” slogan at the top and a large picture of the Democrat. But then the site attacks him and calls the CFPB “one of America’s most corrupt government agencies.”
“If Director Cordray decides to run for Governor, which is highly anticipated, the people of Ohio should be wary of his crony behavior and reject his candidacy outright,” said Ken Blackwell, a former adviser to the Trump presidential transition team and former Ohio treasurer
I was so honored and pleased to be part of the The Seller Finance Coalition first annual fly-in event July 18th and 19th in our Nation’s Capital. What an impact we made! There was close to 40 attendees from all over the country on Capitol Hill for a day and a half telling the story of how seller financing can impact consumer’s ability to become homeowners as well as its effect on stabilizing neighborhoods.
The theme of affordable housing and providing access to private capital in underserved markets such as inner cities and rural communities was well received from members of Congress on both sides of the aisle.
The group had an experience to remember as we heard from four Congressmen and one U.S. Senator on their latest on where they stand on regulatory relief and their support of The Seller Finance Enhancement Act known as H.R. 1360.
The event also included panel discussions as well as meeting with over 70 Congressional and Senate offices including meeting with another of our original bill sponsors Henry Cuellar (D-TX) and Chairman of the Financial Services Committee, Jeb Hensarling.
One of my visits was with
Congresswoman Martha McSally (R-AZ-2).
She was genuinely very warm & friendly. She was the first American woman to fly in combat following the 1991 lifting of the prohibition of women in combat.
In addition to meeting with Congresswoman McSally, I met with
All of the meetings went well, with no push back on our message.
My message was very simple–
H.R. 1360 –The Seller Finance Enhancement Act is a one page Amendment to the Dodd-Frank Act keeping all the provisions of the bill but one–it changes the number of seller financed transactions a seller can have from 3 per year to 2 per month.
Passage of the one page bill will benefit several groups:
The trip was hot. The People were great. It was a wonderful experience.
Forbes Magazine published an article titled “How Do Homeowners Accumulate Wealth? ‘ October 14, 2015. The article was written by the chief economist for the National Association of Realtors, Lawrence Yun. He quoted the Federal Reserve…”The differences between buying and renting are massive. According to the Federal Reserve, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400. The data reflects 2013 and the next survey of household finances, which is conducted every three years..”…Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016 and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.”
To that Point, the Dodd-Frank Act is stunting this process. That is why the Seller Finance Enhancement Act — currently H.R. 1360 should be passed. This bill would make some minor focused and targeted changes to the rules governing the housing market to allow for more flexibility and greater consumer choice.
H.R. 1360 amends both the Safe Act and Dodd-Frank to allow up to twenty-four seller-financed transactions per year without the need for the seller to be licensed as a mortgage originator. It requires the Treasury Department to study the low-value home market over the next three years and report back to Congress with suggestions to improve the sales and financing of these homes.
What this bill does not do is remove any of the safeguards related to these transactions. Specifically, seller financers must still comply with the “ability-to-pay” portions of Dodd-Frank as well as the interest rate rules and the ban on balloon payments. Seller financers are currently limited to doing only three deals in a twelve-month period of time without obtaining licensing as a mortgage originator. This came as a result of the Safe Act taking us down to five and Dodd-Frank taking us down to three.
The key arguments in support of raising the number of seller financed deals to twenty-four per twelve-month period is that this number is a compromise reached after extensive negotiations in meetings between the National Association of Realtors and various mortgage and banking interests. Raising the number to twenty-four satisfies the needs of 85-90% of all those who do seller financing and allows the National Association of Realtors to remain neutral on the bill.
Some of the key proponents of H.R. 1360 are the original sponsor Roger Williams and original co-sponsor Henry Cuellar.
The Seller Finance Coalition is a lobbing group Capstone Capital USA supports and is a member of. It’s is to overcome the lack of knowledge as to how this problem is preventing people who, for various reasons, are not qualified by the banks to obtain capital needed to buy homes, or are looking to purchase a home in a market for which banks are either unwilling or unable to lend money.
A recent survey of consumers commissioned by the National Association of Realtors revealed that 80% believe that purchasing a home is a good financial decision (2015 National Housing Pulse Survey). Most consumers appear to already understand the simple math and the benefits of homeownership. Real Estate Market Place leaders all agree that home ownership steadily builds wealth. Seller financing is a way for more people to be able to accomplish this dream.
The Seller Finance Coalition http://www.sellerfinancecoalition.org/ is having a “FLY-IN” to lobby at Capital Hill July 18 – 19. Updates of that lobbying effort will be posted on this site. I will be a participant of that effort.
Last week, the U.S. House of Representatives voted to roll back a number of banking rules enacted in 2010 under the Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act, known simply as “Dodd-Frank” for short, was passed in response to the housing crash and subsequent financial meltdown in 2007 and 2008. The legislation was arguably the most significant financial regulation adjustment since the reform bills that followed the Great Depression. Dodd-Frank has been hugely controversial since its inception because of the extremely heavy oversight it placed not just on the financial industry, but also due to the far-reaching effects of the federal entities it created, such as the Consumer Financial Protection Bureau (CFPB). Last week’s passage in the House of the “Financial CHOICE Act” could, if the bill also passes in the Senate, roll back many regulatory changes that have not necessarily protected consumers and that have made getting a mortgage far more difficult for the average homeowner.
Individual real estate investors were caught in the crossfire, so to speak, when then-President Obama signed Dodd-Frank into law in 2010. One of the biggest ways in which it affected real estate investors revolved around new regulation of seller financing, which the law categorized (appropriately) as creating mortgage notes. When a property owner seller-finances the sale of their property, they allow the buyer to make payments to them on the property rather than requiring a traditional bank loan. Dodd-Frank placed stricter rules than had previously been in place on how sellers could finance properties that they were selling to owner-occupants and required that companies and individuals who made more than three home loans each year hire a mortgage loan originator (MLO) to complete transactions. Dodd-Frank also affected how private lenders made their loans and changed how a number of investors and real estate instructors who had previously offered students and colleagues valuable “proof of funds” letters for transactions did business.
On the whole, however, Dodd-Frank mainly affected conventional homebuyers who found themselves unable to finance their primary home purchases via traditional 30-year-fixed mortgages because lenders were wary of the regulations and legislation. Many analysts blame the act for the “credit crunch” that has existed since 2008 as lenders backed off lending practices that they felt might open them up to litigation or create another wave of foreclosures in the future, but smaller players were less affected than many had initially feared. By and large, real estate investors adjusted their practices and then continued with business as usual.
If it was largely “business as usual” for investors once the initial furor over Dodd-Frank passed, what happens now that the current administration might succeed in repealing the act? According to House Financial Services Committee Chairman Jeb Hensarling (R-TX), the biggest effect of the CHOICE act will be to strip a great deal of power from the CFPB. The CFPB was originally intended mainly to protect borrowers from unscrupulous lending practices, but it has extended its reach far beyond that and into all aspects of the nation’s credit industry and into other “consumer protections” as well. Not surprisingly, such federal reach (or overreach, as many see it) has not been well-received in many business sectors where entrepreneurs, small-business owners, and investors feel unfairly targeted. “We will replace Dodd-Frank’s growth-strangling regulations…with reforms that expand access to capital,” Hensarling promised last week. He introduced the CHOICE Act to the House and has promoted it as an avenue to increase small businesses’ options for obtaining capital.
Most real estate investors and, indeed, most of the financial industry, have instinctively applauded the notion of a Dodd-Frank repeal because this population generally supports lower levels of federal oversight. President Trump, an astronomically successful real estate investor himself, has said repeatedly that “tight lending practices” and overzealous bank regulation in the wake of the financial meltdown have hindered a true economic recovery in the United States. Opponents to the repeal like Pamela Banks, senior policy counsel for Consumers Union, say that it could cause another financial crisis by “leaving Americans vulnerable to financial fraud and rip-offs” such as poorly-backed mortgage loans that precipitated the housing crash in 2007.
If the CHOICE Act passes the Senate, which is the next step for the bill if it is to become law, it will move to President Trump’s desk for his approval, which he would likely give. In that event, here are three things that could happen that would directly affect your real estate investing business:
In 2016, first-time home buyers accounted for fewer than one-third of all home purchases for the previous year. That is historically low; the long-term average for this number is closer to 40 percent. Homeownership also was nearly the lowest since the federal government began tracking it, with fewer than two-thirds of the population owning rather than renting. If the Dodd-Frank repeal does loosen loan standards, there is likely to be a burst of buying activity as would-be owners try to make purchases before interest rates rise. The Federal Reserve has said it will raise rates a total of three times in 2017.
Opponents of the repeal say that loosening lending standards will precipitate another housing crash. In 2007, the housing market melted down in large part because homeowners had borrowed far more money than they could afford to pay back over the long-term due to easy access to subprime loans that required little to no money down and that had what housing advocates call “abusive” terms that required large balloon payments a few years into the loan or that allowed interest rates on those loans to rise abruptly and sharply after an introductory period of low interest. Homeowners took on these loans believing, in many cases, that they would be able to refinance their homes on better terms thanks to fast appreciation, but often failed to successfully do so, resulting in tsunami of foreclosures that culminated in the housing crash.
Most experts agree that another housing crash in the near future due to a Dodd-Frank repeal is unlikely because subprime lending is not incentivized as it was prior to the housing crash and lenders are unlikely to repeat those poor decisions without those incentives in place. Furthermore, tight inventory on the lower, starter-home end of the spectrum is likely to keep demand for real estate both for rentals and ownership strong. Finally, a stabilizing economy and improving employment numbers will probably counteract, at least in the short term, any instability that might result from easier access to mortgage loans.
While the repeal of Dodd-Frank will likely send an immediate flurry of buyers into the market, over the long term it is likely that single-family rentals in particular will continue to be big business for real estate investors. With millennials comprising the largest number of would-be first-time buyers, the amount of existing debt that this population will bring to the table when attempting to buy will likely interfere with their ability to actually land a traditional mortgage. Furthermore, thanks in large part to astronomical student-loan debt, millennials as a population are less likely to find homeownership and the mortgage loan that goes with it as appealing as older generations. The nearly 70-percent homeownership numbers that the U.S. posted immediately prior to the housing crash are unlikely to be repeated even if Dodd-Frank is repealed in its entirety (unlikely in itself), and rentals will quite likely continue to be a strong, stable source of income for investors around the country.
Perhaps most important for real estate investors to remember as Dodd-Frank dominates the headlines is this: at present, not much has actually changed. President Trump signed an executive order on Dodd-Frank back in March of this year basically demanding a “review” of Dodd-Frank in preparation for the rollout of some type of legislation like the Financial CHOICE Act, but so far, little has happened to really change financial regulation. The CHOICE act has a great deal of support, but it is highly partisan in nature, which will make it difficult for the bill to pass the Senate without being adjusted in order to avoid a filibuster. The Senate announced last week that it would begin work on its own version of the CHOICE Act this summer, and it seems likely that the CHOICE Act will not survive a Senate vote unless the repeal is “toned down” fairly significantly.
For now, the best thing that real estate investors can do is keep their cool and monitor the situation. Dodd-Frank was not the end of the industry, as doomsday-sayers predicted when it passed, nor will its repeal (or the lack of a repeal) save or condemn the national housing market. As is always the case, the true strength of our national housing market and the real estate industry lies in the investors who are active in the sector and who work creatively within whatever confines the government and the market set to generate housing opportunities for the public and new opportunities for success for themselves and others in the process.
First time home buyers have not been helping the housing recovery. Not because they do not want to buy, it’s that they can’t buy.
According to Fannie Mae, the now young renters (those between ages 18-39) say they’d like to buy, it’s just that lifetime economic realities do not allow them to buy a home.
Thus their absence is one reason why the housing recovery has not been better.
Less-then –perfect credit, lack of savings, and huge student debt load are holding them back. Additionally they are not forming households as quickly as their parents.
The numbers certainly confirm this phenomenon –home ownership rate dropped 64.8% in the first quarter sown from 65.2% in 2013. While that may not seem like a lot, in 2004 the rate was as high as 69.2% in 2004.
The key reasons are: unemployment, low savings, low credit scores, high student debt, and delays in starting a family.
In 2012 1.3 million students had student debt compared to 900,000 in 2004. Credit scores for the group are in the 628 range compared to 735 for baby boomers and 643 for Generation X.
Add new mortgage regulations, set into motion by the Dodd-Frank Act, and require that borrowers have no more than a 43% debt-to-income ratio (with debt encompassing monthly housing costs and debt payments, including those on student loans).