Morning Commute: Dodd-Frank ‘Reliance’ And Getting Real About Unemployment

MORNING COMMUTE: Welcome to the inaugural edition of “Morning Commute,” a semi-regular blog dedicated to those mortgage professionals who have long commutes – whether by auto, train, cab, shuttle or subway, or any mix thereof! It’s about commuting, music, and of course, the mortgage industry.

The music for this morning’s commute is: “History – America‘s Greatest Hits.”

Yes, indeed, I am a child of the 1970s. Born in 1964, my favorite decade for music is 1970-1980. Sure, there is a lot of music from 1964 to 1970 that I absolutely love: Growing up, I was a huge fan of the Beatles, Rolling Stones, The Who, Led Zeppelin, Jimi Hendrix, The Doors … basically all of the big rock acts of the late 1960s.

Because my siblings are all considerably older than myself, I remember endlessly long nights trying to fall asleep while my brother (who is next in line and eight years older) and two sisters (one of whom ran away from home in 1968 at age 16 to live in a commune in Haight-Ashbury) listened to the classic rock of the late 1960s on their radios and record players. Those achingly familiar melodies and riffs would come wafting into my bedroom like a warm summer breeze, and I would often lie there and soak it in for a while before gently drifting off to sleep. I believe that the music of the late 1960s/early 1970s had a profound effect on my development.

Glorious times. Simple times. In fact, I think the quality of life in the U.S. peaked in the early to mid-1970s, despite Watergate, Vietnam and a lot of the other nasty stuff that was going on abroad.

But, despite my appreciation for the music of the late 1960s, I find that the “canon” of my favorite rock is mostly concentrated in 1970-1980. That’s probably because I am a huge fan of progressive rock (yes, Genesis, King Crimson, Pink Floyd, etc.) and jazz fusion (Mahavishnu Orchestra, Return to Forever, Miles Davis, Weather Report, etc.), and a lot of that stuff didn’t start coming out until the early 1970s.

Of course, I didn’t really develop an appreciation for progressive rock and jazz fusion until I was in my teen years and working on becoming a musician myself. After high school, I attended Berklee College of Music (trombone, drums, bass and production/engineering) in Boston for two years, and that’s really where I developed a much stronger affinity for these two distinct styles.

But, back to America for a moment: This is one of the bands that I’ve always felt was representative of the early 1970s – and their music really takes me back every time I listen to it (interesting, given the band’s name, that they’re British-produced). I guess it’s the simplicity of the song structures, along with the catchy hooks and great vocal harmonies that gave America such an enduring sound. For me, “Horse With No Name,” “Tin Man” and the eternal “Ventura Highway” are the standout tracks from this particular collection. Like I said, these songs really take me back to a time when things seemed so much less complex than they are today – great stuff for my hour-long car ride from Greenwich to Oxford, Conn., each day.

Now, onto the mortgage industry: On Friday, President Donald Trump signed an executive order directing the Treasury Department to conduct a review of the Dodd-Frank Act. Whether this means Dodd-Frank will be watered down or repealed is kind of hard to say – but I’m inclined to think that the administration will seek to “adjust” it rather than completely eliminate it. At the same time, though, I don’t think the media is going overboard by writing headlines saying Dodd-Frank will be “dismantled.” Even if the administration guts 10% of it, that still counts as some form of “dismantling” in my book. Adjusting it even a little is a huge step, no matter how one looks at it.

Some say a full repeal of Dodd-Frank would be “impossible” – but I say if the administration can dismantle Obamacare, it’s not that much of a stretch to say it could eliminate Dodd-Frank, if that’s what Trump wants. Do you think this administration will really weigh the “unintended consequences,” if Trump just wants this thing gone no matter what? Go ahead and bring on those lawsuits – it’s gonna happen if they want it to.

However, at the same time, I’m hearing a lot of mortgage execs saying that the industry has, at least to a degree, become appreciative of, if not even reliant on, Dodd-Frank and that it will be more trouble than it’s worth to try to adjust to any new legislation that might take its place. The industry has spent six long years acclimating itself to this sweeping piece of legislation – and all of its various parts – so, it makes sense that no one wants to deal with a full repeal. What’s more, most of the large lenders and servicers have already told me, in no uncertain terms, that they consider these new “rules of the road” as a “competitive differentiator.” This isn’t really surprising when one considers the current situation with loan performance (delinquencies and defaults are now near pre-crisis lows), not to mention the fact that both lenders and servicers have realized tremendous operational efficiencies in recent years through technology and automation. All of this change probably would have come about much slower had Dodd-Frank and the Consumer Financial Protection Bureau (CFPB) not come along when they did.

It’s fascinating, at this point, to think about all the possibilities of even a partial repeal. For example, if the sections of Dodd-Frank that pertain to mortgage lending and servicing are demolished – or, more specifically, if the CFPB is eliminated or “de-fanged” – what level of disruption might that cause for the industry? Would it mean that lenders would, once again, have to “rip and replace” all of their processes and systems? Or would it mean that lenders would keep what they already have in place but the CFPB’s enforcement powers would be greatly reduced?

And, if that happens, does it necessarily mean we will see a significant increase in the variety of mortgage products available in the market? I find it sort of hard to believe that, should the rules remain mostly intact, private label securitization will come raging back. I think in order for that to happen, you’ve got to be willing to rip up most of what’s currently in place and come up with a new regulatory framework that actually paves the way for the introduction of new products. How keeping the qualified mortgage rule in place would help foster that, I’m not sure.

On another note, I applaud Trump for “getting real” when it comes to unemployment and how it is reported. He said last week that he wants the government to change the way it reports unemployment statistics – i.e., he wants the Bureau of Labor Statistic’s (BLS) unemployment figures to account for the millions of Americans who have basically given up looking for work and, thus, are not included in the official count. He also wants to account for the “underemployed” – which is basically all of the people who want full-time work but can only find part-time work. The BLS report from Feb. 3 shows that total non-farm payroll employment increased by 227,000 positions in January, while the unemployment rate remained unchanged at about 4.8%.

Thank you, President Trump, for finally saying what most Americans already know: that the unemployment numbers that have been reported during the past eight years or more simply are not “real.” He said more than once during the campaign that the federal government was horribly understating these figures. In fact, he said the “real” unemployment number is “probably 28 percent, 29 percent, as high as 35 percent. In fact, I even heard recently 42 percent.”

Of course, it all depends on how you break it down. I think it’s important to make employment reporting as accurate as possible, and that means not counting all of the people who aren’t seeking work because they simply don’t have to – for example, people who opt to be stay-at-home parents, certain disabled people and elderly people who are retired.

I think the monthly unemployment report should include a clearer picture of the types of jobs we are adding to our economy and how that affects wage growth: As the January BLS report shows, a large percentage of the 227,000 positions that were added were service-related jobs – you know, restaurant workers, store clerks, landscapers – the types of jobs that generally pay $10 to $15 an hour.

As I’ve said many times before, Corporate America can create all the jobs it wants, it doesn’t matter if it doesn’t pay a liveable wage. All you’re really doing is creating more “poor people.” Of those 227,000 positions, only a tiny sliver will have any meaningful impact on home sales. What we really need is solid wage growth, which is still sorely lacking. Anecdotally, I can tell you that most of my friends who were making $120,000 a year in 2006 are now making $80,000 a year or less; the ones who were making $80,000 a year are now making $50,000 or less; and the ones who were making $50,000 are now making $30,000 to $40,000. A lot of them sold their homes during the past few years, and now they are renting. You want to see housing recover? This is what you have to fix. Good luck!


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