There is a lot of news today, ranging from political maneuvering through Chase’s earnings and on to the PHH/CFPB court case. But how about this one: President Obama forgiving $7 billion in student debt? It is a slippery slope. Those in the mortgage industry wonder if investors will wake up to find something similar regarding government-sponsored mortgage debt.

Earlier this week we learned that Bank of America Merrill Lynch was severing its loan production ties to PHH. As rumors circulated through the industry that Key Bank is also severing ties with PHH, its court case with the Consumer Finance Protection Bureau is being closely followed by anyone subject to the CFPB's enforcement actions. It had to answer some brutal questions during oral arguments before a federal appeals court. It's seeking to argue the constitutionality of its single-director structure in a lawsuit brought by the nonbank mortgage lender PHH Corp.

Jennifer Lee is a partner at the international law firm Dorsey & Whitney in its banking and financial services practice and a former CFPB enforcement attorney. Lee assists clients in responding to Civil Investigative Demands from the CFPB and defends their interests in ongoing enforcement investigations or litigation matters, including drafting NORA response letters, negotiating compliance with CIDs and negotiating consent orders. As a former CFPB Enforcement Attorney, Jenny understands how the CFPB thinks and applies its authorities to enforce consumer protection laws, including UDAAP, EFTA, GLB Act, FDCPA, FCRA, TILA and RESPA. Jenny has extensive experience in consumer financial matters involving the CFPB, state attorneys general or state banking agencies, the Department of Justice and prudential banking regulators or in Congressional investigations.

She wrote, "Today's oral argument was the Super Bowl for CFPB. The D.C. Circuit was hostile towards the CFPB's arguments on statute of limitations, separation of powers, constitutionality of the agency, penalty calculation, and the CFPB's interpretation of the Real Estate Settlement Procedures Act ("RESPA") when it comes to defining a kickback." 
 
"The judges' questions revealed that they were not persuaded by the CFPB's argument that other agencies have a single director such that it is constitutional for the CFPB to have a single director. The judges' questions focused on whether an agency that has extremely broad powers and authorities can truly be held accountable as a government entity in the absence of a bipartisan or non-partisan commission at the helm."
 
"What was most interesting about the judges' questions was that they revealed the court's underlying assumption that if a practice is widespread in the industry, it must be because industry actors held a widespread belief that the practice was legal under RESPA. This is an underlying assumption that the CFPB does not share. If anything, the CFPB airs(sic) on the side of assuming the opposite, which is essentially the driver of each issue that was before the court today and which is what led the CFPB Director to issue its order in the first place." 
 
"What is also interesting is that the original intent in establishing the agency was to allow consumers to have a watchdog to protect their interests. But today, the CFPB faced a federal appellate court asking, which consumers were protected by the Director's order given that other insurance companies were charging about the same price such that no consumer paid more as a result of the so-called illegal referrals. At a minimum, the agency may need to revisit its RESPA enforcement program and scrub its investigations docket to parse out actual harm versus theoretical harm cases." Thank you Jennifer!

And Bose George with KBW did a fine write-up yesterday. "We attended the hearings this morning. A three-member appellate court heard oral arguments today in PHH's appeal of a $109 million fine imposed on the company by the CFPB for violations under RESPA. We felt that the tone of the hearings was quite favorable to PHH. We would anticipate a final ruling in around 60 days.

"A three-member appellate court heard oral arguments today in PHH's appeal of a $109 million fine imposed on the company by the CFPB for violations under RESPA. Judge Karen LeCraft Henderson did not participate in the oral arguments but will participate in the decision. We thought Judges Brett Kavanaugh and Raymond Randolph were more sympathetic to PHH's arguments than we anticipated and we are more sanguine about PHH's chances that the court will either overturn the CFPB's decision or, at very least, reduce the size of the fine.

"The two judges seemed bothered by CFPB's claim that there is no statute of limitation under RESPA and asked lawyers for both sides whether there are other examples of laws that lack statutes of limitation where the courts have borrowed statutes of limitations from other laws. This suggests to us that at very least, the court will want to limit CFPB's ability to penalize PHH for older violations of RESPA.

"Both judges also seemed to side with PHH on its argument that the doctrine of 'fair notice' should have required the CFPB to alert PHH and the rest of the industry of any changes in its interpretation of RESPA and a change in policy from the policy letter regarding captive reinsurance established by HUD. Furthermore, since RESPA is actually a criminal statute a legal theory called the 'Rule of Lenity' requires that any time there are ambiguities in a criminal statute, the ambiguities should be resolved in favor of the defendant, in this case PHH.

"Finally, Judge Kavanaugh seemed to be quite receptive to PHH's argument that the CFPB's structure violates constitutional principles. The Judge asked for precedents of a similar institution with power concentrated in one person and did not seem convinced when offered the examples of the social security commission and FHFA." Thank you Bose.

But keep in mind that the CFPB is not going anywhere. Reporter Sylvan Lane put out a piece noting that, "Two Democratic lawmakers are calling on the nation's top consumer protection agency to ramp up its oversight of nonbank mortgage servicers. Sen. Elizabeth Warren (Mass.) and Rep. Elijah Cummings (Md.) asked the CFPB on Monday to identify all of and collect more data on the growing number of financial institutions other than banks that service mortgages.

"Warren and Cummings pointed to recommendations from a non-partisan government watchdog report released Monday. Warren, a long-time financial industry watchdog, and Cummings, the top Democrat on the House Oversight Committee, requested the Government Accountability Office (GAO) study.

"'Collecting information on and regulating nonbank mortgage services to protect consumers is well within CFPB's statutory authority and core mission,' wrote Warren and Cummings in a letter to CFPB Director Richard Cordray. 'We hope that you take actions to do so as rapidly as possible.'"

The GAO report requested by the lawmakers found that 25 percent of all mortgages were serviced by nonbank entities by the second fiscal quarter of 2015. That's almost four times as many as were in serviced in 2012, when nonbank entities serviced 6.8 percent of American mortgages. Mentioned was that nonbank servicers often lack the resources, infrastructure and experience to handle "regulatory compliance, risk and internal controls." This can lead to errors with transfers and payment processing that could put homeowners at risk of foreclosure.

The U.S. Treasury market (e.g., the fixed-income market) closed Tuesday with decent sized losses "across the curve" as supply both in the US and Europe and a risk-on tone (notably after the crude oil announcement in the mid-morning) had rates under pressure.

The Fed, through FedTrade, continues to invest billions every day from the loans in its portfolio that pay off early. There are no surprises here, and in fact the New York Federal Reserve released the latest FedTrade schedule covering the April 13 to 26 period in addition to the reinvestment estimate covering the April 13 to May 11 period. Per IFR Markets MBS reinvestments over the coming four-week period are estimated at $33 billion. "This is the largest estimate since the period ending May 12, 2015 when the estimate was $40bn which was the largest total since reinvestments began in 2012."

What are traders & investors looking at in the markets? The focus overnight and today will remain on global markets ($/yen, oil, equities), the Verizon employee strike, along with Retail Sales and the March Producer Price Index (-.3% and -.1%, respectively). We also have the $20 billion 10-year note re-opening. And let's not forget this morning's highly scrutinized earnings announcement from JP Morgan - they beat estimates. We also had the MBA's weekly mortgage application numbers: +10%, refis +11% and purchases +8%. Later today, at 2PM, the Fed will release the latest Beige Book report. We closed Tuesday with the 10-year at 1.78% and in the early going it seems content at 1.78% with agency MBS prices better a smidge.

Jobs and Announcements

In private sector job news, Michigan Mutual, Inc., an agency direct/seller/servicer/issuer based in Port Huron, Michigan, continues to expand its wholesale sales and operations team in the West and is excited to announce that they have opened an operations center in Roseville, California. MMI is currently looking for experienced Wholesale Underwriters, Processors, and Closers for this location to support its' growing Sales team in the west. "If you are an experienced mortgage professional seeking an opportunity to join a thriving company with a positive culture and corporate values, please contact Karley Warwick (HR Specialist, 248.286.9490) or Al Crisanty (Director of Wholesale Lending, 916.761.1624). You may also visit our careers page to complete an application.

REMN Wholesale "had a banner month in March and without a slowdown in sight, needs to add seasoned account executives in all markets. If you're an experienced AE looking to work with a leading wholesale lender known nationwide for its dedication to a superb broker experience, this could be the opportunity for you. REMN strives to stay ahead of the curve in providing its customers with what they need to maintain their pipelines both next week, and next year. With a leadership in renovation lending few can match, REMN offers free weekly reno lending webinars and seminars, along with its Renovation Concierge Service support team, helping to ensure their customers can leverage one of the hottest products in today's housing market. Match that with its exemplary reputation for same day turn times on new files and it's easy to see that REMN's dedication to its customers is more than just lip service. Interested and experienced wholesale account executives, in any market across the country, looking to join a proven wholesale leader should send their resumes to aerecruiting@remn. com."

And Roadrunner Solutions has an offer out to loan officers: "Stop losing business to local lenders! Check out Roadrunner Solutions free service to help you connect your pre-approved borrowers with local Real Estate professionals that will reinforce your relationship with the borrower. Roadrunner has a large network of Realtors that will respect the relationship between the LO and their borrower. This service will improve your closure rate and help deliver the high level of customer service required for the purchase money borrower. If you are a Call Center LO, run a Call Center Platform, originate loans outside of your local area, or just struggle to find quality Realtors, Roadrunner is a great service for you to try with no fees or any cost to you or the borrower. If you would like to find out more e-mail us."

Congrats to Betty Lonis: Stonegate Mortgage Corporation announced that she has been named Senior Vice President of Human Resources and lead the company's human resources efforts. She will report directly to Jim Smith, Stonegate Mortgage President and COO.