Apr. 5: Builder's tariff win; risks and rewards in GSE privatization; vendor news; states take up abusive trigger leads; portable mortgages
Honeybees in the US may have just experienced their most severe die-off on record, and we don’t know exactly why. The price of honey will be going up. Egg prices were easing heading into Easter but now are expected to increase due to import tariffs. Why did I lead off the Commentary with that? Because I wanted to try to get as much bad news out of the way right away. The South and Midwest, both of which endured recent tornadoes, are reeling from rains and flooding, taking a toll on human lives and homes. Lastly, of course anyone with money in the stock market has been hit hard (trillions of dollars of wealth vanishing) by the tariff plans (first hit will be fruits and vegetables) although the bond market has benefited. I received a few emails showing that the top seven stock market selloffs in U.S. history were while Donald Trump was president, but it is important to remember that a) he warned us, and b) the stock market is not the economy. Yet it would be hard to argue that consumer confidence and psychology are improving, potential borrowers included. Stop posting your problems on Facebook and start drinking like everyone else! But wait! The Basis Point’s Julian Hebron wrote to remind me that the National Association of Homebuilders (NAHB) has been working hard to minimize tariff impacts on U.S. housing. They noted that “tariff exceptions for Canada and Mexico amount to a major win for the NAHB.” The stakes are high because Canada accounts for about 85% of all U.S. softwood lumber imports, and accounts for nearly a quarter of the available supply in the U.S.
Abusive trigger leads are still being fought: AR, ID, TX…
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As hundreds of mortgage bankers head to Washington DC for the Advocacy event Monday, one topic that’s been “on the burner” are abusive trigger leads. Given the lack of action at a federal level, states have been busy. From Arkansas, Erica Byrne and Scott Todd write that Governor Sanders signed Act 263 on March 12th.” This law prohibits the use of a mortgage trigger lead in a misleading or deceptive manner by failing to state in the initial communication with a consumer: the loan officer's name and the mortgage broker or mortgage banker on behalf of whom the loan officer is acting, a brief explanation of how the loan officer or his or her sponsor obtained the consumer's contact information to make the communication, or an explanation of a mortgage trigger lead, that the solicitation is based on personal information about the consumer that was purchased, directly or indirectly, from a consumer reporting agency without the knowledge or permission of the lender, mortgage broker, or mortgage banker with whom the consumer initially applied, that the loan officer and his or her sponsor is not affiliated with the creditor to which the consumer made the credit application that resulted in the mortgage trigger lead, that the purpose of the communication is to solicit new business for the sponsor, and to make a firm offer of credit as provided by the Fair Credit Reporting Act.
Any company marketing to leads shouldn’t “solicit or contact a consumer who has opted out of prescreened offers of credit under the Fair Credit Reporting Act, place a telephone call to a consumer who has placed his or her contact information on a national ‘Do-Not-Call,’ or knowingly using information from a mortgage trigger lead in violation of this subdivision (18) or the Fair Credit Reporting Act.”
In Idaho, Gov. Little successfully passed House Bill 149 (HB 149) under a new section titled “Consumer Privacy in Mortgage Applications” to the Idaho Residential Mortgage Practices Act, placing restrictions on how mortgage trigger leads can be used and which companies are authorized to use them. The new provisions are expected to go into effect July 1, 2025, and it is expected that the bill shields Idaho homebuyers from being inundated with credit solicitations
The term "mortgage trigger lead" is defined in the bill as “a consumer report obtained pursuant to section 604(c)(1)(B) of the fair credit reporting act, U.S.C. 1681b, where the issuance of the report is triggered by an inquiry made with a consumer reporting agency in response to an application for credit.” But it does not include “a consumer report obtained by a lender or servicer that holds or services existing indebtedness of the applicant who is the subject of the report.” Idaho legislatures require clear disclosures from companies purchasing and using trigger leads on how they obtained consumer information and must clarify that they have no affiliation with the original lender.
As mentioned in this Commentary, the State of Texas has already passed its own trigger lead law. Thank you to Geoff Snyder who wrote saying that Texas is the first state to pass a “trigger lead” action in the nation: §56.202 and §57.202 Fraudulent, Misleading and Deceptive Practices. It is a misleading or deceptive practice for an originator, mortgage company or mortgage banker to fail to provide the five (5) items when contacting a purchased trigger lead.
“If a trigger lead is used by a mortgage company/banker, or sponsored originator, the initial communication (advertisement or solicitation) to the consumer must include a) The originator’s name and NMLS ID number and Name of the Mortgage company/banker and it’s NMLS ID number; b) A brief explanation of how the company/banker obtained the consumer’s contact information, i.e. explain lead was purchased… c) A statement that the contacting originator is NOT affiliated with the company the consumer made application with that resulted in the trigger lead, an explanation that the call is to solicit “new” business for the mortgage company/banker; and d) a firm offer of credit compliant with FCRA must be given to the consumer.”
An opinion of Rocket, from the trenches
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Every lender and originator should be aware of Rocket Companies buying Redfin (a source of leads) and Mr. Cooper (a source of retaining clients). This comes from a traveling notary in the Midwest. “I'm always thrilled when I receive a Rocket assignment. Its customers are always happy, the documentation is simple, clear, straightforward, and minimal. And Rocket pays well. Needless to say, I don't get enough of them, but I’m always happy when I do. Compared to the docs from other some lenders, Rocket’s are a dream. Some of the files I get are around 200 pages. One recent file from another lender had three, yes three, copies of the appraisal! What the heck?! Most lenders do not include the appraisal, and certainly not three times.”
Are portable mortgages an option?
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Occasionally someone will write, asking about if industry leaders have thought about “portable” mortgages, similar to other counties or lending in the distant past. “Rob, are there any discussions about making all existing loans assumable with some sort of indemnification and ramping up second mortgage lending? If the leaders of the FHFA, Fannie, Freddie, the Fed, NAR, and the MBA could all sit down together and hash it out. I'm sure note holders would want some sort of indemnification agreement.”
This is interesting idea, but like “retroactive portability,” it is not a viable idea. All of today’s conventional mortgages (except certain ARMs) have due-on-sale clauses. Investors have factored that into all of their prepayment assumptions and valuations which would be impacted, and any effort by FHFA or the GSEs to waive due on sale en masse for trillions of dollars in MBS outstanding would face massive litigation and raise constitutional questions (abrogation of contracts, takings, due process, etc.). Servicers and securitization trustees would be in the middle of this, which quickly becomes very expensive and messy. It would also adversely impact pricing on new issue MBS. The cost of indemnifying investors for that lost value on almost $8 trillion in GSE MBS would be staggering for the GSEs or the federal government.
In addition, if any states were thinking about an “end run,” in 1982 the U.S. Supreme Court ruled in de la Cuesta that state’s efforts to prevent enforcement and override due on sale clauses were preempted by federal regulations permitting the enforcement of due-on-sale clauses.
Should private investors profit from GSE privatization?
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Alex J. Pollock and Edward J. Pinto share something besides the same middle initial. “Not Another Free Lunch” speaks to one truth: the essence of a GSE is to convert a free government guarantee and public risk into private profit. That should not happen again. Fannie and Freddie should pay for their government guarantee at a fair rate. If they can’t do that, they must remain stuck in the government. They should not be allowed to turn back into GSEs.
“Once again, we have efforts to release Fannie Mae and Freddie Mac from the conservatorship of the Federal Housing Finance Agency in which they have been confined for nearly 17 years—ever since the US Treasury did a 100 percent bailout of their creditors in 2008. Pros and cons are hotly debated relative to the proposed release of the twins that continue to rank among the largest systemically important financial institutions in the world.
“The ongoing conservatorship means that the government has total control over these huge government-backed mortgage enterprises, with $7.7 trillion in combined assets. Since the bailout, the government has also been by far the biggest equity investor in them. Although they are often still called ‘GSEs’ (Government-Sponsored Enterprises’), in fact, while they are in conservatorship, they are not GSEs, but something very different: Government-Owned and Government-Controlled Enterprises. The proposed “release” transaction would give private shareholders control instead. Unfortunately, this could turn Fannie and Freddie back into GSEs, which would be a grievous mistake.
“The US Treasury owns all the senior preferred stock of Fannie and Freddie; this stock has a combined liquidation preference of $341 billion as of December 31, 2024. This is more than twice their combined total book equity. In other words, not counting the government’s investment, Fannie and Freddie are deeply insolvent and have been since 2008.
“In addition, the Treasury owns warrants that give it the right to acquire new stock so that it owns up to 79.9 percent of Fannie and Freddie’s common stock for a minuscule exercise price. (The specific exercise price of the warrants is one-thousandth of one cent per share.) Exercising these warrants could give the Treasury a large profit, but they expire in September 2028, during the term of the current Trump administration. This gives the Treasury a duty to realize their value before they expire. Treasury could sell the warrants, exercise them, and then sell the stock, or exercise them and simply hold the stock along with the senior preferred stock.
“To retire the government’s preferred and common equity stake would require a refinancing of massive scale, or a taxpayer gift from the US Treasury of tens of billions of dollars to Fannie and Freddie, or both.
“The conventional narrative is that an exit from conservatorship would be a ‘privatization’ and Fannie and Freddie would again become ‘private’ companies. It is not the case. To be a GSE means that you have private shareholders, but you also have a free government guarantee of your obligations. As long as Fannie and Freddie have that free government guarantee, they will not be private companies, even if private shareholders own them.
“As GSEs before 2008, the companies always enjoyed such a hugely valuable but free government guarantee. Because they did, no private company could successfully compete with them, and they were never private companies themselves. As our colleague Peter Wallison explained in his book, Hidden in Plain Sight, they were an unhealthy mix of socialized government risk and private profit.
“Former Democratic Congressman J. J. Pickle of Texas pointedly summarized the GSEs: ‘The risk is 99% public and the profit is 100% private.’ It was always said that the government guarantee of the GSEs was only ‘implicit,’ but it was and is nonetheless fully and unquestionably real. This was definitively demonstrated by the Treasury’s $190 billion bailout of Fannie and Freddie in 2008, and the simultaneous creation of explicit government credit commitments during conservatorship. The bailout completely protected all of Fannie and Freddie’s creditors, even egregiously including the investors in their theoretically risk-absorbing subordinated debt.
“Creditors of GSEs are always saved by the government, and everybody knows it. The global sales of their securities and the credibility of the sponsoring government depend on it. To paraphrase the memorable words of a MasterCard commercial, what is the value of a free, unconditional, irrevocable, ever-greening line of credit from a sovereign creditor to an insolvent debtor? ‘Priceless,’ the commercial said, but we calculate in the last section below the significant price that Fannie and Freddie should have to pay.
“J. J. Pickle’s insight again fully applies to the new Fannie and Freddie ‘release’ proposals and the ongoing debates of 2025. It displays the financial essence of a GSE: the immense value of the free government guarantee is a gift to the private shareholders, with little benefit to first-time homebuyers, as research has demonstrated. This obviously bad idea nonetheless has been supported by many politicians in the past. In their perennial search for a free lunch, they should not make the same mistake again.
“The current debates must confront the fact that an ongoing government guarantee for Fannie and Freddie is an indispensable part of any ‘release’ transaction. These fundamental questions and answers make that clear.
“Question: Is Fannie and Freddie’s business model sustainable without a government guarantee? Answer: No. Their business, their size in the bond market, their leverage, their access to credit risk-averse global investors, and their claim to lower mortgage interest rates all entirely depend on the government guarantee.
“Question: As a practical business matter, can Fannie and Freddie exit conservatorship without the government guarantee? Answer: No. The government guarantee would be always critical to their credit standing, but even more so immediately after their release from conservatorship.
“Question: Could the government get out of its guarantee, even if it wanted to? Answer: No. The government is locked in because Fannie and Freddie are “To Big to Fail” (TBTF), just like the largest banks. Indeed at $7.7 trillion and growing they are Far Too Big to Fail (FTBTF, we might say). No matter what the government may claim, the market will believe they are in fact guaranteed and the market will be correct.
“Since no ‘release’ deal is possible without a government guarantee, we arrive at this essential question: Should Fannie and Freddie’s government guarantee be a free guarantee? Answer: No. In line with Pickle’s point, public risk should not be turned into private profit. The government, and hence the taxpayers, should be fully and fairly remunerated for the risk and the cost of their massive guarantee. This will require legislation, and Congress must make sure it is part of any ‘release’ transaction.
“Therefore, we must determine what the price of the government guarantee should be.”
Call them vendors or third-party providers…
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It is easy to argue that no lender would find it cost effective to duplicate all of the services already offered by outside companies. Let’s take a random look at who’s doing what. Navigating vendor partnerships is more critical than ever in the mortgage industry, with 95 percent of lenders relying on third-party providers for everything from automation to compliance. But not all vendors are created equal, writes John Wines in the latest Thought Leadership piece for the Chrisman Commentary. The right partnerships can drive innovation, efficiency, and cost savings, while the wrong ones can lead to inefficiencies and risk. Learn how to spot high-value vendors, identify red flags, and turn these relationships into long-term investments that strengthen your mortgage operations. Read more to ensure your vendor strategy sets you up for success.
Truework, a leading provider of income and employment verification technology, is expanding its intelligent orchestration with new data methods, predictive modeling and more to create Truework Intelligence, the first fully automated and comprehensive verification platform for mortgage lenders and property managers. Truework is the only verification solution to focus on solving business outcomes. "It's not about returning the first data set we find," said Ryan Sandler, CEO and Co-Founder of Truework. "That's what everyone else does. And it doesn't work. It makes organizations leverage subpar vendors to fill data gaps. We are looking at the bigger picture by providing an accurate and complete picture of every consumer, using technology to handle data with trust and attention to detail." Check out Truework's latest product enhancements.
CoreLogic is now Cotality. The new brand reflects commitment to providing the entire property industry with empowerment, accuracy, and innovation. Its spirit is best expressed by new tagline: Intelligence beyond bounds™. View the Announcement for details.
BSI Financial Services, a national mortgage fintech platform, has launched a specialized Home Equity Line of Credit (HELOC) subservicing solution designed to address critical inefficiencies in the HELOC servicing market. The new offering comes at a time when HELOC volume is growing, yet many servicers still struggle with inefficient draw management, inconsistent compliance controls, and suboptimal borrower experiences.
Tip for a successful marriage: Don’t ask your wife when dinner will be ready while she’s mowing the lawn.
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you're interested, visit my periodic blog at the STRATMOR Group web site. This month’s piece is titled, “Mergers and Acquisitions Aren’t Going Away, and In Fact…” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).
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