Digital software provider Stavvy has agreed to acquire fellow mortgage technology startup Brace in a deal that will boost servicing capabilities the Boston-based fintech can provide.
The deal, which was announced on Tuesday, brings together two alums of Flagstar Bank’s MortgageTech Accelerator program. Financial terms of the deal were not disclosed.
The merger with Brace, which has offices in New York and Los Angeles, will add further capabilities to better facilitate Stavvy’s goal to offer an end-to-end digital loss-mitigation process through self-serve borrower options and are expected to expedite request and review. Brace’s platform also is able to produce a digital asset report based on document verifications.
Stavvy, whose products are aimed at reducing friction and paperwork in real estate transactions through processes such as electronic signatures and remote online notarization, already offered services aimed to address potential borrower defaults. Among the transactions the fintech’s tools can currently support are digital loan modifications, in addition to technology-backed loan closings and title settlements on the origination side.
“Stavvy and Brace’s unified services are set to deliver an unparalleled solution, encompassing every critical stage of default servicing — from the initial homeowner inquiry to the ultimate resolution,” Stavvy Founder and CEO Kosta Ligris said in a press release. “Our unified team of industry experts combined with research and investments in generative AI and customizable workflows positions Stavvy to independently reduce the need for antiquated mortgage processes.”
With the acquisition, both servicers and borrowers will have access to a platform they can utilize when and where needed “on their terms,” Stavvy claimed.
“Stavvy’s vision of streamlining real estate transactions aligns seamlessly with Brace’s unwavering dedication to tackle the inefficiencies and foster transparency within the mortgage industry,” said Brace CEO Eric Rachmel.
Both Stavvy and Brace are previous participants in Flagstar Bank’s accelerator program, which mentors emerging home lending fintechs working across the spectrum of mortgage services. Brace was selected to be part of the inaugural class of startups in 2019, while Stavvy took part in the program one year later.
Flagstar has also served as one of Stavvy’s clients, using the company’s digital servicing solutions to execute remote loan modifications.
To date, the two companies have raised a combined total of $130 million in capital to develop new mortgage technology, according to a Stavvy spokesperson.
The deal between the two companies arrives after the release of a recent report from servicing technology firm Black Knight that found a high degree of willingness among over 300,000 borrowers to use its self-service tool offered by some of its clients to address their loan situations during the COVID-19 pandemic. Homeowners took advantage of self-service for everything from forbearance requests to final loan modification.
Many housing experts think the development of tools borrowers can access themselves will help to ease anxiety among struggling homeowners and help lenders identify potential financial distress early, preventing small problems from turning into foreclosures.
The Jefferson Avenue commercial district in Buffalo, New York, is anchored by a supermarket.
There are dozens of other businesses and services along the 12-block corridor — a couple of bank branches, a library, a coffee shop, gas stations, a small plaza with a dollar store and a primary care clinic and a business incubator for entrepreneurs of color.
But Tops Friendly Markets, the only grocery store on Buffalo’s vast East Side, is the center of activity. More than just a place to buy food, pick up medications and use an ATM, the store is a communal gathering space in a predominantly Black neighborhood that, for generations, has been segregated, isolated and disenfranchised from the wealthier — and whiter — parts of the city.
Which explains how it came to be the site of a mass shooting on a spring day in May of last year. On that Saturday, a gunman, who lived 200 miles away in another part of the state, drove to Jefferson Avenue and went into Tops, and in just a few minutes killed 10 people, injured three and inflicted mass trauma across the community.
It is a scenario that has sadly, and repeatedly, played out in other parts of the country that have experienced mass shootings. But this one came with a twist: The gunman’s intention was to kill as many Black people as possible.
To achieve that, he specifically targeted a ZIP code with one of the highest percentages of Black residents in New York state. All 10 who died that day were Black.
“The mere fact that someone can research, ‘Where will the greatest number of Black people be … on a Saturday morning,’ that’s not by chance,” said Franchelle Parker, a community organizer and executive director of Open Buffalo, a nonprofit focused on racial, economic and ecological justice. “That’s not a mistake. It’s a community that’s been deeply segregated for decades.”
The day of the shooting, Parker, who grew up in nearby Niagara Falls, was driving to Tops, where she planned to buy a donut and an unsweetened iced tea before heading into the Open Buffalo office, which is located a block away from Tops. The mother of two had intended to complete the mundane task of cleaning up her desk — “old coffee cups and stuff” — after a busy week.
She saw the news on Twitter and didn’t know if she should keep driving to Jefferson Avenue or turn around and go back home. She eventually picked the latter.
When she showed up the next day, there were thousands of people grieving in the streets. “The only way that I could explain my feeling, it was almost like watching an old war movie when a bomb had gone off and someone’s in, like, shell shock. That’s how it felt,” said Parker, vividly recounting the community’s collective trauma in a meeting room tucked inside of Open Buffalo’s second-story office on Jefferson Avenue.
Almost immediately following the May 14, 2022, massacre, which was the second-deadliest mass shooting in the United States last year, conversations locally and nationally turned to the harsh realities of the East Side and how long-standing factors that affect the daily life of residents — racism, poverty and inequity — made the community an ideal target for a white supremacist.
Now, more than a year after the tragedy, there is growing concern that not enough is being done fast enough to begin to dismantle those factors. And amid those conversations, there are mounting calls for the banking industry — whose historical policies and practices helped cement the racial segregation and disinvestment that ultimately shaped the East Side — to leverage its collective power and influence to band together in an effort to create systemic change.
The ideas about how banks should support the East Side and better embed themselves in the neighborhood vary by people and organizations. But the basic argument is the same: Banks, in their role as financiers and because of the industry’s history of lending discrimination, are obligated to bring forth economic prosperity in disinvested communities like the East Side.
I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.
Chiwuike Owunwanne, corporate responsibility officer at KeyBank
“Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that,” said The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity, a four-year-old enterprise focused on racial, geographic and economic health disparities. “But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.”
To be sure, banks’ ability to reverse the course of the community isn’t guaranteed — and there is no formula to determine how much accountability they should hold to fix deeply entrenched problems like racism. Several Buffalo-area bankers said that while the Tops shooting heightened the urgency to help the East Side, the industry itself cannot be the sole driver of change.
“There are a lot of institutions … that can certainly play a part in reversing the challenges that we see today,” said Chiwuike “Chi-Chi” Owunwanne, a corporate responsibility officer at KeyBank, the second-largest bank by deposits in Buffalo. “I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.”
A long history of segregation
How the East Side — and the Tops store on Jefferson Avenue — became the destination for a racially motivated mass murderer is a story about racism, segregation and disinvestment.
Even as it bears the nickname “the city of good neighbors,” Buffalo has long been one of the most racially segregated cities in the United States. Of the 114,965 residents who live on the East Side, 59% are Black, according to data from the 2021 U.S. Census American Community Survey. The percentage is even higher in the 14208 ZIP code, where the Tops store is located. In that ZIP code, among 11,029 total residents, nearly 76% are Black, the census data shows.
The city’s path toward racial segregation started in the early 20th century when a small number of job-seeking Black Americans migrated north to Buffalo, a former steel and auto manufacturing hub at the far northwestern end of New York state. Initially, they moved into the same neighborhoods as many of the city’s poorer immigrants and lived just east of what is today the city’s downtown district. As the number of Blacks arriving in Buffalo swelled in the 1940s, they were increasingly confronted with various housing challenges, including racist zoning laws and restrictive deed covenants that kept them from buying homes in more affluent white areas.
Black Buffalonians also faced housing discrimination in the form of redlining, the practice of restricting the flow of capital into minority communities. In 1933, as the Great Depression roiled the economy, a temporary federal agency known as the Home Owners’ Loan Corporation used government bonds to buy out and refinance mortgages of properties that were facing or already in foreclosure. The point was to try to stabilize the nation’s real estate market.
As part of its program, HOLC created maps of American cities, including Buffalo, that used a color coding scheme — green, blue, yellow and red — to convey the perceived riskiness of making loans in certain neighborhoods. Green was considered minimally risky; other areas that were largely populated by immigrant, Black or Latino residents were labeled red and thus determined to be “hazardous.”
“The goal was to free up mortgage capital by going to cities and giving banks a way to unload mortgages, so they could turn around and make more mortgage loans,” said Jason Richardson, senior director of research at the National Community Reinvestment Coalition, an association of more than 750 community-based organizations that advocates for fair lending. “It was kind of a radical concept and it has evolved over the decades into our modern mortgage finance system.”
The Federal Housing Administration, which was established as a permanent agency in 1934, used similar methods to map urban areas and labeled neighborhoods from “A” to “D,” with “A” considered to be the most financially stable and “D” considered the least. Neighborhoods that were largely Black, even relatively stable ones, were put in the “D” category.
The result was that banks, which wanted to be able to sell mortgage loans to the FHA, were largely dissuaded from making loans in “risky” areas. And Buffalo’s East Side, where the majority of Blacks were settling, was deemed risky. Unable to get loans, Blacks couldn’t buy homes, start businesses or build equity. At the same time, large industrial factories on the East Side were closing or moving away, limiting job opportunities and contributing to rising poverty levels.
“Today what we’re left with is the residue of this process where we’ve enshrined … a pattern of economic segregation that favors neighborhoods that had fewer Black people in them and generally ignores neighborhoods that had African Americans living in them,” Richardson said.
Case in point: Research by the National Community Reinvestment Coalition shows that three-quarters of neighborhoods that were once redlined are low- to moderate-income neighborhoods today, and two-thirds of them are majority minority communities.
Adding to the division between Blacks and whites in Buffalo was the construction of a highway called the Kensington Expressway. Built during the 1960s, the below-grade, limited-access highway proved to be a speedy way for suburban workers to get to their downtown jobs. But its construction cut off the already-segregated East Side even more from other parts of the city, displacing residents, devaluing houses and destroying neighborhoods and small businesses.
As a result of those factors and more, many Black residents have become “trapped” on the East Side, according to Dr. Henry Louis Taylor Jr., a professor of urban and regional planning at the University at Buffalo. In 1987, Taylor founded the UB Center for Urban Studies, a research, neighborhood planning and community development institute that works on eliminating inequality in cities and metropolitan regions. In September 2021, eight months before the Tops shooting, the Center for Urban Studies published a report that compared the state of Black Buffalo in 1990 to present-day conditions. The conclusion: Nothing had changed for Blacks over 31 years.
As of 2019, the Black unemployment rate was 11%, the average household income was $42,000 and about 35% of Blacks had incomes that fell below the poverty line, the report said. It also noted that just 32% of Blacks own their homes and that most Blacks in the area live on the East Side.
“Those figures remain virtually unchanged while the actual, physical conditions that existed inside of the community worsened,” Taylor told American Banker in an interview in his sun-filled office at the center, located on the University at Buffalo’s city campus. “When we looked upstream to see what was causing it, it was clear: It was systemic, structural racism.”
Banks’ moral obligations
As the East Side struggled over the decades with rampant poverty, dilapidated housing, vacant lots and disintegrating infrastructure, banks kept a physical presence in the community, albeit a shrinking one. In mid-2000, there were at least 20 bank branches scattered across the East Side, but by mid-2022, the number had fallen to around 14, according to the Federal Deposit Insurance Corp.’s deposit market share data. The 14 include four new branches that have opened since early 2019 — Northwest Bank, KeyBank, Evans Bank and BankOnBuffalo.
The first two branches, operated by Northwest in Columbus, Ohio, and KeyBank, the banking subsidiary of KeyCorp in Cleveland, were requirements of community benefits agreements negotiated between each bank and the National Community Reinvestment Coalition. In both cases, Northwest and KeyBank agreed to open an office in an underserved community.
Evans Bank opened its first East Side branch in the fall of 2021. The office is located in the basement of an $84 million affordable senior housing building that was financed by Evans, a $2.1 billion-asset community bank headquartered south of Buffalo in Angola, New York.
Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that. But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.
The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity
On the community and economic development front, banks have had varying levels of participation. Buffalo-based M&T Bank, which holds a whopping 64% of all deposits in the Buffalo market and is one of the largest private employers in the region, has made consistent investments in the East Side by supporting Westminster Community Charter School, a kindergarten through eighth-grade school, and the Buffalo Promise Neighborhood, a nonprofit organization focused on improving access to education in the city’s 14215 ZIP code.
Currently, Buffalo Promise Neighborhood operates four schools. In addition to Westminster, it runs Highgate Heights Elementary, also K-8, as well as two academies that serve children ages six weeks through pre-kindergarten. Twelve M&T employees are dedicated to the program, according to the Buffalo Promise Neighborhood website. The bank has invested $31.5 million into the program since its 2010 launch, a spokesperson said.
Other banks are making contributions in other ways. In addition to the Jefferson Avenue branch and as part of its community benefits plan, Northwest Bank, a $14.2 billion-asset bank, supports a financial education center through a partnership with Belmont Housing Resources of Western New York. Meanwhile, the $198 billion-asset KeyBank gave $30 million for bridge and construction financing for Northland Workforce Training Center, a $100 million redevelopment project at a former manufacturing complex on the East Side that was partially funded by the state.
BankOnBuffalo’s East Side branch is located inside the center, which offers KeyBank training in advanced manufacturing and clean energy technology careers. A subsidiary of $5.6 billion-asset CNB Financial in Clearfield, Pennsylvania, BankOnBuffalo’s office opened a month after the shooting. The timing was coincidental, but important, said Michael Noah, president of BankOnBuffalo.
“I think it just cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up,” Noah said.
In terms of public-private collaboration, some banks have been involved in a deeper way. In 2019, New York state, which had already been pouring $1 billion into Buffalo to help revitalize the economy, announced a $65 million economic development fund for the East Side. The initiative is focused on stabilizing neighborhoods, increasing homeownership, redeveloping commercial corridors including Jefferson Avenue, improving historical assets, expanding workforce training and development and supporting small businesses and entrepreneurship.
In conjunction with the funding, a public-private partnership called East Side Avenues was created to provide capital and organizational support to the projects happening along four East Side commercial corridors. Six banks — Charlotte, North Carolina-based Bank of America, the second-largest bank in the nation with $2.5 trillion of assets; M&T, which has $203 billion of assets; KeyBank; Warsaw, New York-based Five Star Bank, which has about $6 billion of assets; Northwest and Evans — are among the 14 private and philanthropic organizations that pledged a combined $8.4 million to pay for five years’ worth of operational support, governance and finance, fundraising and technical assistance to support the nonprofits doing the work.
Laura Quebral, director of the University at Buffalo Regional Institute, which is managing East Side Avenues, said the banks were the first corporations to step up to the request for help, and since then have provided loans and other products and education to keep the program moving.
Their participation “is a signal to the community that banks cared and were invested and were willing to collaborate around something,” Quebral said. “Being at the table was so meaningful.”
Richard Hamister is Northwest’s New York regional president and former co-chair of East Side Avenues. Hamister, who is based in Buffalo, said banks are a “community asset” that have a responsibility to lift up all communities, including those where conditions have arisen that allow it to be a target of racism like the East Side.
“We operate under federal charters, so we have an obligation to the community to not only provide products and services they need but also support when you go through a tragedy like that,” Hamister said. “We also have a moral obligation to try to help when things are broken … and to do what we can. We can’t fix everything, but we’ve got to fix our piece and try to help where we can.”
In the wake of a tragedy
After the massacre, there was a flurry of activity within banks and other organizations, local and out-of-town, to respond to the immediate needs of East Side residents. With the community’s only supermarket closed indefinitely, much of the response centered around food collection and distribution. Three of M&T’s five East Side branches, including the Jefferson Avenue branch across the street from Tops, became food distribution sites for weeks after the shooting. On two consecutive Fridays, Northwest provided around 200 free lunches to the community, using a neighborhood caterer who is also the bank’s customer. And BankOnBuffalo collected employee donations that amounted to more than 20 boxes of toiletries and other items that were distributed to a nonprofit.
At the same time, M&T, KeyBank and other banks began financial donations to organizations that could support the immediate needs of the community. KeyBank provided a van that delivered food and took people to nearby grocery stores. Providence, Rhode Island-based Citizens Financial Group, whose ATM inside Tops was inaccessible during the store’s temporary closure, installed a fee-free ATM near a community center located about a half-mile north of Tops, and later put a permanent ATM inside the center that remains there today. And M&T rolled out a short-term loan program to provide capital to East Side small-business owners.
One of the funds that benefited from banks’ support was the Buffalo Together Community Response Fund, which has raised $6.2 million to address the long-term needs of the East Side.
Bank of America and Evans Bank each donated $100,000 to the fund, whose list of major sponsors includes four other banks — JPMorgan Chase, Citigroup, M&T and KeyBank. Thomas Beauford Jr., a former banker who is co-chair of the response fund, said banks, by and large, directed their resources into organizations where the dollars would have an immediate impact.
“Banks said, ‘Hey, you know … it doesn’t make sense for us to try to build something right now. … We will fund you in the work you’re doing,'” said Beauford, who has been president and CEO of the Buffalo Urban League since the fall of 2020. “I would say banks showed up in a big way.”
Fourteen months later, banks say they are committed to playing a positive role on the East Side. For the second year, KeyBank is sponsoring a farmers’ market on the East Side, an attempt to help fill the food desert in the community. Last fall, BankOnBuffalo launched a mobile “bank on wheels” truck that’s stationed on the East Side every Wednesday. The 34-foot-long truck, which is staffed by two people and includes an ATM and a printer to make debit cards, was in the works before the shooting, and will eventually make four stops per week around the Buffalo area.
Evans has partnered with the city of Buffalo to construct seven market-rate single family homes on vacant lots on the East Side. The relationship with the city is an example of how banks can pair up with other entities to create something meaningful and lasting, more than they might be able to do on their own, said Evans President and CEO David Nasca.
The bank has “picked areas” where it can use its resources to make a difference, Nasca said.
“I don’t think the root causes can be ameliorated” by banks alone, he said. “We can’t just grant money. It has to be within our construct of a financial institution that invests and supports the public-private partnership. … All the oars [need to be] pulling together or this doesn’t work.”
‘Little or no engagement with minorities’
All of these efforts are, of course, welcomed by the community, but there is still criticism that banks haven’t done enough to make up for their past contributions to segregating the city. And perhaps more importantly, some of that criticism centers on banks failing to do their most basic function in society — provide credit.
In 2021, the New York State Department of Financial Services issued a report about redlining in Buffalo. The regulator looked at banks and nonbank lenders and found that loans made to minorities in the Buffalo metro area made up 9.74% of total loans in Buffalo. Overall, Black residents comprise about 33% of Buffalo’s total population of more than 276,000, census data shows.
The department said its investigation showed the lower percentage was not due to “excessive denials of loan applications based on race or ethnicity,” but rather that “these companies had little or no engagement with minorities and generally made scant effort to do so.”
“The unsurprising result of this has been that few minority customers or individuals seeking homes in majority-minority neighborhoods have made loan applications … in the first instance.”
Furthermore, accusations of redlining persist today, even though the practice of discriminating in housing based on race was outlawed by the Fair Housing Act of 1968.
In 2014, Evans was accused of redlining by the New York State Attorney General, which said the community bank was specifically avoiding making mortgage loans on the East Side. The bank, which at the time had $874 million of assets, agreed to pay $825,000 to settle the case, but Nasca maintains that the charges were unfounded. He points to the fact that the bank never had a fair lending or fair housing violation, no specific incidents were ever claimed and that the bank’s Community Reinvestment Act exam never found evidence of discriminatory or illegal credit practices.
The bank has a greater presence on the East Side today, but that’s because it has grown in size, not because it is trying to make up for previous accusations of redlining, he said.
“Ten years ago, our involvement [on the East Side] certainly wasn’t what you’re seeing today,” Nasca said. “We were looking to participate more, but we were participating within our means and our reach. As we have grown, we have built more resources to be able to do more.”
Shortly after accusations were made against Evans, Five Star Bank, the banking arm of Financial Institutions in Warsaw, New York, was also accused of redlining by the state Attorney General. Five Star, which has been growing its presence in the Buffalo market for several years, wound up settling the charges for $900,000 and agreeing to open two branches in the city of Rochester.
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. In a 2022 report, the group said that KeyBank is engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of residents are Black. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, the report said.
KeyBank denied the allegations. In March, the coalition asked regulators to investigate the bank’s mortgage lending practices.
Beyond providing more credit, some community members believe that banks should be playing a larger role in addressing other needs on the East Side. And the list of needs runs the gamut from more grocery stores to safe, affordable housing to infrastructure improvements such as street and sidewalk repairs.
Alexander Wright is founder of the African Heritage Food Co-op, an initiative launched in 2016 to address the dearth of grocery store options on the East Side, where he grew up. Wright said that while banks’ philanthropic efforts are important, banks in general “need to be in a place of remediation” to fix underlying issues that the industry, as a whole, helped create. (After publication of this story, Wright left his job as CEO of the African Heritage Food Co-Op.)
Aside from charitable donations, banks should be finding more ways to work directly with East Side business owners and entrepreneurs, helping them with capital-building support along the way, Wright said. One place to start would be technical assistance by way of bank volunteers.
“Banks are always looking to volunteer. ‘Hey, want to come out and paint a fence? Want to come out and do a garden?'” Wright said. “No. Come out here and help Keshia with bookkeeping. Come out here and do QuickBooks classes for folks. Bring out tax experts. Because these are things that befuddle a lot of small businesses. Who is your marketing person? Bring that person out here. Because those are the things that are going to build the business to self-sufficiency.
“Anything short of the capacity-building … that will allow folks to rise to the occasion and be self-sufficient I think is almost a waste,” Wright added. “We don’t need them to lead the plan. What we need them to do is be in the community and [be] hearing the plan and supporting it.”
Parker, of Open Buffalo, has similar thoughts about the role that banks should play. One day, soon after the massacre, an ATM appeared down the street from Tops, next to the library that sits across the street from Parker’s office. Soon after the ATM was installed, Parker began fielding questions from area residents who were skeptical of the machine and wanted to know if it was legitimate. But Parker didn’t have any information to share with them. “There was no outreach. There was no community engagement. So I’m like, ‘Let me investigate,'” she said. “I think that’s a symptom of how investment is done in Black communities, even though it may be well-intentioned.”
As it turns out, the temporary ATM belonged to JPMorgan Chase. The megabank has had a commercial banking presence in Buffalo for years, but it didn’t operate a retail branch in the region until last year. Today it has four branches in operation and plans to open another two by the end of the year, a spokesperson said.
After the Tops shooting, the governor’s office reached out to Chase asking if the bank could help in some way, the spokesperson said in response to the skepticism. The spokesperson said that while the Chase retail brand is new to the Buffalo region, the company has been active in the market for decades by way of commercial banking, private banking, credit card lending, home lending and other businesses.
In addition to the ATM, the bank provided funding to local organizations including FeedMore Western New York, which distributes food throughout the region.
“We are committed to continuing our support for Buffalo and helping the community increase access to opportunities that build wealth and economic empowerment,” the spokesperson said in an email.
In the year since the massacre, there has been some progress by banks in terms of their interest in listening to the East Side community and learning about its needs, said Nicholas. But he hasn’t felt an air of urgency from the banking community to tackle the issues right now.
“I do experience banks being a little more open to figuring out what their role is, but it’s slow. It’s slow,” said Nicholas. The senior pastor of the Lincoln Memorial United Methodist Church, located about a mile north from Tops, Nicholas is part of a 13-member local advisory committee for the New York arm of Local Initiatives Support Coalition, or LISC. The group is focused on mobilizing resources, including banks, to address affordable housing in Western New York, specifically in the inner city, as well as training minority developers and connecting them to potential investors, Nicholas said.
Of the 13 members, seven are from banks — one each from M&T, Bank of America, BankOnBuffalo, Evans and KeyBank, and two members from Citizens Financial Group. One of the priorities of LISC NY is health equity, and the fact that banks are becoming more engaged in looking at health disparities is promising, Nicholas said. Still, they have more work to do, he said.
“I need them to think more on how to strengthen and build the economy on the East Side and provide leadership around that, not only to provide charitable things, but using sound business and banking and community development principles to say, ‘OK, if we’re going to invest in this community, these are the types of things that need to happen in this community,’ and then encourage their partners and other people they work with … to come fully in on the East Side.”
Some bankers agree with the community activists.
“Putting a branch in is great. Having a bank on wheels is great,” said Noah of BankOnBuffalo. “But if you’re not embedded in the community, listening to the community and trying to improve it, you’re not creating that wealth and creating a better lifestyle for everyone.”
What could make a substantial difference in terms of banks’ impact on the community is a combination of collaboration and leadership, said Taylor. He supports the idea of banks leading the charge on the creation of a comprehensive redevelopment and reinvestment plan for the East Side, and then investing accordingly and collaboratively through their charitable foundations.
“All of them have these foundations,” Taylor said. “You can either spend that money in a strategic and intentional way designed to develop a community for the existing population, or you can spend that money alone in piecemeal, siloed, sectorial fashion that will look good on an annual report, but won’t generate transformational and generational changes inside a community.”
Banks might be incentivized to work together because it could mean two things for them, according to Taylor: First, they’d have an opportunity to spend money in a way that would have maximum impact on the East Side, and second, if done right, the city and the banks could become a model of the way to create high levels of diversity, equity and inclusion in an urban area.
“If you prove how to do that, all that does is open up other markets of consumption all over the country because people want to figure out how to do that same thing,” Taylor said.
Some of that is already happening, at least on a bank-by-bank case, said KeyBank’s Owunwanne. Through the KeyBank Foundation, the company is able to leverage different relationships that connect nonprofits to other entities and corporations that can provide help.
“I see this as an opportunity for us to make not just incremental changes, but monumental changes … as part of a larger group,” Owunwanne said “Again, I say that not to absolve the bank of any responsibility, but just as a larger group.”
Downstairs from Parker’s office, Golden Cup Coffee, a roastery and cafe run by a husband and wife team, and some other Jefferson Avenue businesses are trying to build up a business association for existing and potential Jefferson-area businesses. Parker imagined what the group could accomplish if one of the banks could provide someone on a part-time basis to facilitate conversations, provide administrative support and coordinate marketing efforts.
“In the grand scheme of things, when we’re talking about a multimillion dollar [bank], a part-time employee specifically dedicated to relationship-building and building out coalitions, it sounds like a small thing,” Parker said. “But that’s transformational.”
The 21 top recipients of TARP funds saw minimal increases in overall lending in February compared to a month earlier, according to data released today by the Treasury Department.
The median growth in total lending was actually negative two percent in February, with nine banks posting increases and 12 experiencing declines.
“Against a difficult economic backdrop, banks extended approximately the same level of loan originations in February as in January,” the Treasury said in a release.
“The relatively steady overall lending levels observed in February likely would have been lower absent the capital provided by Treasury through the CPP, an indication of the critical role this program has played in stabilizing markets and restoring the flow of credit to consumers and business.”
However, residential mortgage originations across the 21 banks increased by a median 35 percent, thanks to a flurry of refinance activity.
The median change in mortgage refinancing during the month was an increase of 42 percent from January, thanks in part to record low rates; home equity loan originations saw a median increase of 18 percent.
Wells Fargo was the top mortgage lender for the second month running with $34.8 billion in monthly loan originations, trailed by Bank of America with $28.6 billion and Chase with $13 billion, all substantial increases from January.
Meanwhile, loan originations for consumer loans, such as auto, student, and personal loans, decreased a median 47 percent, partially attributable to poor demand in these industries.
New credit card originations also slowed by a median three percent, while the average loan balance of credit accounts fell by a median one percent.
It appears as if the banks that received billions in TARP funds are only willing to originate low-risk, government-backed mortgages (FHA loans, VA loans), while cutting back on all other types of credit.
[Note from the editor: Originally published on Thomvest’s Blog]
Today we’re pleased to release an updated version of the real estate technology market map we originally published in 2018. A high-resolution version of the map can be accessed here, and the full list of companies is available here.
This market map includes 180 real estate technology companies operating across every phase of the home purchase value chain. These companies have collectively raised more than $20B in venture capital, and range from seed stage businesses to public companies. If you’d like to suggest a company to be added to this market map, please submit them using this form.
You’ll notice that several companies are included in more than one section — this is due to the fact that many of these businesses have expanded their product areas to capture multiple phases of the transaction process. For instance, while Blend’s original product focused specifically on the mortgage point-of-sale, the company has since expanded to offer home insurance and digital closings. As such, we’ve included the Blend logo in those areas.
At Thomvest, we’ve been actively studying how technology is being utilized in real estate. We view technology as both a means of lowering transaction costs and an enabler of new transactions by better matching demand and supply. Software is also being adopted across some of the more labor-intensive areas of real estate — for instance, in property management and home improvement — as a means of improving efficiency and productivity.
Personally, I’ve been impressed by the quality of entrepreneurs building technology companies in residential real estate. Founders here are passionate about creating better experiences for consumers. Many have experienced their own frustrations when buying or selling a property, and aspire to rebuild the experience from the ground up. Others are seasoned operators within real estate and see technology as a competitive advantage in an otherwise analog asset class.
Impacts of COVID-19 on technology adoption
Every constituency within the real estate sector — including agents, lenders, title companies, and attorneys — are scrambling to adjust to life under lockdown. In my last post on the housing market, I touched on the dramatic impact COVID-19 has had on transaction volume and home showings. In many ways, the pandemic has accelerated existing trends around digitization of the home buying process. There are a few areas in particular where technology is being utilized:
1. Deepened reliance on “home shopping” apps Shelter-in-place is created new behaviors around the home shopping experience. Rather than spending a half day touring open homes, prospective buyers are relying on apps like Zillow and Realtor.com to “tour” properties in lieu of an in-person visit. Zillow created 525% more 3D home tours in April compared to February, and CEO Rich Barton recently remarked that “the virtual tools home shoppers need for safety today will become their expectations for convenience tomorrow.”
2. Rapid adoption of digital tools for real estate transactions Many of the processes associated with closing a real estate transaction are traditionally completed in-person. These include appraisals, inspections, notarizations and local government filings. Fortunately, startups are here to help. Companies like Blend, Modus, Side and Snapdocs offer products that enable digital closings. 46 states now let notaries do their jobs using a combination of video and online document sharing, up from 23 prior to the pandemic. Additionally, large mortgage buyers like Fannie Mae and Freddie Mac are increasingly relying on automated home valuations in lieu of in-person appraisals. We believe these new methods are here to stay, which will be a strong tailwind for startups building digital home buying experiences.
3. More tools for homeowners to manage their largest asset Startups in the real estate vertical must take advantage of their agility relative to incumbent banks, and design products and services that reflect today’s changing consumer needs. This can take the form of better credit products (for example, smart loans powered by LoanSnap or HELOCs offered by Figure), or novel home equity products like Unison. We’re also seeing a number of interesting businesses that help homeowners maintain and improve their property, including Pro.com and Made Renovation. These startups help automate much of home renovation process, including design, planning & construction.
Fannie Mae Moderator: Good day, and welcome to the Fannie Mae Second Quarter 2023 Financial Results Conference Call. At this time, I will now turn it over to your host, Pete Bakel, Fannie Mae’s Director of External Communications.
Pete Bakel: Hello, and thank you all for joining today’s conference call to discuss Fannie Mae’s second quarter 2023 financial results. Please note this call includes forward-looking statements, including statements about Fannie Mae’s expectations related to: economic and housing market conditions; the future performance of the company and its book of business; and the company’s business plans and their impact. Future events may turn out to be very different from these statements.
The “Forward-looking Statements” section in the company’s Second Quarter 2023 Form 10-Q, filed today, and the “Risk Factors” and “Forward-Looking Statements” sections in the company’s 2022 Form 10-K, filed on February 14, 2023, describe factors that may lead to different results.
A recording of this call may be posted on the company’s website. We ask that you do not record this call for public broadcast, and that you do not publish any full transcript.
I’d now like to turn the call over to Fannie Mae Chief Executive Officer, Priscilla Almodovar, and Fannie Mae Chief Financial Officer, Chryssa C. Halley.
Priscilla Almodovar: Welcome, and thank you for joining us today. Let me begin by spending a few minutes on the economic environment before turning to our performance in the second quarter of 2023. After that, our Chief Financial Officer, Chryssa Halley, will discuss our second quarter results and current outlook for the economy.
Macroeconomic Conditions
Economic data was mixed in the second quarter, though GDP growth was stronger than anticipated. The Federal Reserve continued tightening monetary policy and raised their target Fed Funds rate twice in the past few months. One of the focal points in their decision-making has been how much housing contributes to inflation. And while overall inflation has slowed, housing’s contribution to inflation has remained elevated.
The resiliency of the housing market continued to surprise many of us, especially since mortgage rates and high home prices continue to weigh on housing affordability. The lack of housing supply is a major contributing factor. Many current homeowners are reluctant to sell their existing homes and give up their low mortgage rates they locked in in 2020 or 2021. Earlier this month, the National Association of REALTORS® reported that there were 1.08 million existing homes for sale last month compared with 1.92 million in June 2019. This lack of existing home supply drove stronger than expected home price growth. In fact, we estimate that single-family home prices rose about 5% during the first six months of the year, while many of us were anticipating a decline.
Single-family mortgage origination volumes in the overall market were about 35% lower than the same time last year, despite the estimated $120 billion increase quarter-on-quarter due to the typical spring homebuying season.
It continues to be a tough market for our lender counterparties — something we are monitoring closely.
Thanks to the dedication of our leadership and teams across the company, we continued to support an unprecedented housing market while generating strong financial results and effectively managing risk.
Second Quarter Financial Results
Now, turning to our second quarter financial performance. The strength in home prices during the quarter had a direct impact on our earnings, largely due to the decrease in our single-family allowance that Chryssa will talk about.
We reported $5 billion in net income and $7.1 billion in net revenues. As a result, through retained earnings we continued to build our net worth, which reached $69 billion as of the end of June.
I’m proud that through our efforts, we provided $104 billion of liquidity to the single-family and multifamily markets. In doing so, we helped borrowers obtain mortgage credit for approximately 420,000 home purchases, refinances, and rental units. This included approximately 139,000 units of multifamily rental housing, a significant majority of which were affordable to households earning at or below 120% of area median income. We also helped 108,000 first-time homebuyers purchase a home.
Mission Performance
Despite challenges with housing affordability and supply, consumers’ homeownership aspirations remain high. And while Fannie Mae cannot directly control these factors, we are working to help address housing challenges consumers face — especially those that disproportionately burden underserved renters and homeowners. And we’re doing so safely and soundly. Let me touch on a few examples.
First, we advanced our mortgage pricing model. The new construct improves support for traditionally underserved borrowers while further aligning our pricing model to our capital requirements. Second, we continued to support Special Purpose Credit Programs, currently active in six markets, that are expected to make loan qualification easier for underserved borrowers. And third, we introduced a new option for lenders to verify a property’s market value and eligibility as part of our journey to make the home valuation process more effective, efficient, and unbiased.
Now, our role is not just about helping consumers get into a home — it is also about ensuring they remain stably housed. Housing stability is key to well-being, for both individuals and communities. On that note, I’m gratified that as of the end of June, we stood at less than 100,000 seriously delinquent single-family loans, coming a long way from the over 1 million seriously delinquent loans we saw in our single-family book in February of 2010. In addition to market factors, this is a testament to the enhanced underwriting policies, servicing options, and support we give to lenders and borrowers. This includes things like free counseling assistance to borrowers and renters impacted by natural disasters and free foreclosure prevention assistance to borrowers in distress. We remain focused on continuing to support renters and homeowners as they face the uncertainties of the current market.
Wrap Up
You know, this fall marks 15 years since Fannie Mae was placed in conservatorship. A lot has changed since that time. Today Fannie Mae has been transformed. Fannie Mae is safer and stronger, thanks to years of work to improve the resiliency of our business and our steadfast focus on strong risk management. Because of this, we continue to be a stabilizing force in the market and to deliver on our mission — like we did through the COVID-19 pandemic, and how we’re doing now through this challenging economic cycle. We are committed to being a reliable source of liquidity and stability to the housing finance system in the United States.
Now, I’ll turn it over to Chryssa to discuss our second quarter financial results.
Chryssa C. Halley: Second Quarter Results
Thank you, Priscilla. And good morning.
As Priscilla mentioned, we reported $5 billion in net income in the second quarter, a $1.2 billion increase compared to the first quarter of this year. Our second quarter net revenues remained strong at $7.1 billion thanks to healthy guaranty fee income. This is relatively flat compared to the prior quarter. A $1.3 billion benefit for credit losses was the primary driver of the quarter-over-quarter growth in net income. This was mainly driven by stronger than expected actual home price growth during the quarter of 3.6% that resulted in a decrease in our single-family allowance.
Let me now turn to a few highlights of our Single-Family business. Despite higher mortgage interest rates quarter-over-quarter, our single-family acquisition volumes increased by 32%, to $89 billion in the second quarter compared to $68 billion in the first quarter. However, this was still 48% lower than the $172 billion of single-family loans we acquired in the second quarter of last year. Not surprisingly given the rate environment, the purchase share of our acquisitions reached 86% in the second quarter — a level we have not seen for at least 23 years. Our overall single-family book of business remained strong, with a weighted average mark-to-market loan-to-value ratio of 51% and weighted average credit score at origination of 752. Our single-family serious delinquency rate remained at historically low levels, and as of June 30 stood at 55 basis points. We continue to manage credit risk through credit risk transfer transactions. In the second quarter, we transferred a portion of the credit risk on approximately $116 billion of mortgages through our single-family credit risk transfer programs.
Shifting to our Multifamily business, we acquired $15.1 billion of multifamily loans in the second quarter, bringing our acquisitions through June 30 to $25 billion. Our volume cap for the year is $75 billion. The overall credit profile of our multifamily book remains strong, with a weighted-average original loan-to-value ratio of 64% and a weighted-average debt service coverage ratio of 2.1 times. However, our multifamily seniors housing loans, especially those that are adjustable-rate mortgages, remain stressed. Seniors housing loans represent 4% of our multifamily book as of the end of the second quarter, but nearly 40% of these loans had a debt service coverage ratio below 1.0 as of June 30, indicating a heightened risk of default. We recorded a $152 million provision for credit losses in the second quarter in our multifamily book, primarily due to decreases in estimated property values seen in the overall multifamily sector following years of strong growth. Our multifamily serious delinquency rate increased slightly to 37 basis points as of the end of June, up from 35 basis points at the end of March. Our primary way to share risk on our multifamily book is through our unique DUS® risk-sharing model, where originating lenders typically retain approximately one-third of the credit risk on loans we acquire. In addition, in April of this year, we closed a multifamily credit insurance risk transfer transaction, transferring a portion of risk to diversified insurers and reinsurers.
Outlook
Before we close out, I’ll touch on our current economic outlook. The economy has remained more resilient than we expected earlier in the year, but we believe it is still on a decelerating path, and additional drags are likely forthcoming. While noting the probability of a “soft landing” may have increased of late, our Economic and Strategic Research Group expects the economy will enter a modest recession in the fourth quarter of this year or the first quarter of next year. The full effects of tighter monetary policy and tightening credit conditions to date have yet to be fully felt in the real economy and on consumers, and additional banking stress remains a possibility. Given current housing demand and the lack of existing homes for sale, we expect strength in new home sales and construction will support the overall economy as it exits a modest recession. We currently forecast the 30-year fixed rate mortgage rate will average 6.6% for the year.
When we spoke last quarter, we anticipated single-family home price declines on a national basis in 2023. However, given strong home price growth in the first half of the year, we now project national home price growth of 3.9% for the full year. We continue to expect regional variation in home price changes. Our expectations are based on many assumptions, and our actual results could differ materially from our current expectations.
As a reminder, we make available on our webpages a financial supplement with today’s filing that provides additional insights into our business.
Thank you for joining us today.
Fannie Mae Moderator: Thank you, everyone. That concludes today’s call. You may disconnect.
A top bank isn’t always the highest flier, but one that can survive the tough periods in a more turbulent economy.
That’s the story of Gateway First in Jenks, Oklahoma, the No. 1 bank on the 2022 list of top-performing banks with $2 billion to $10 billion of assets compiled by the consulting firm Capital Performance Group. The list ranks the banks by their three-year average return on average equity. The $2.1 billion-asset Gateway’s three-year average ROAE of 25.36% put it at the top of the list.
But compared to its top-performing peers that hovered in the 20% to 30% range in the last three years, Gateway First had a very different journey. Its ROAE was slashed in half from 2020 to 2021, going from 45.66% to 26.58%. This then plummeted down to 3.84% in 2022.
“I don’t think there’s any company I’ve seen that has been through more change in the last five years than we have,” said Scott Gesell, CEO of Gateway First Bank. This included changes brought on by an acquisition and a change in strategy.
“But we’ve weathered the storm,” Gesell added. “And it’s because we got great people.”
The bank, originally an independent mortgage company called Gateway Mortgage Group, acquired Farmers Exchange Bank and became Gateway First Bank in 2019. Gateway First’s dominance in the mortgage market proved to be a boon during the pandemic when rates were cut in an attempt to spur economic activity. In 2020, the 30-year fixed-rate mortgage fell below 3% for the first time, and then hit an all-time low of 2.65% in January 2021.
Gesell noted that those were some of the “best years in the history of mortgage lending.” The bank’s mortgage loans peaked at $11.8 billion dollars in the middle of 2020, he added.
Then came the end of 2021, when the bank’s mortgage loans fell to only $4 billion. “It was a transition year away from that and into kind of the worst year in mortgage banking, probably since 2008,” he said.
Interest rates have spiked to more than 7% this year. Ninety-nine percent of borrowers had a mortgage rate lower than 6% or the current market rate, according to Goldman Sachs earlier this year. This has deterred refinancing, with the number of these loans dropping from 1.8 million in the first quarter of 2021 to just 9,700 in the fourth quarter of 2022. Gesell called it a “perfect storm in the mortgage industry today.”
Gateway has made efforts to diversify its balance sheet by racking up more commercial loans while maintaining and monitoring its current mortgage portfolio. Gesell highlighted that mortgage banking is a more “fickle and volatile business” than other lines of business.
Steven Reider, president of the consulting firm Bancography, said that facing a dearth of refinancing and mortgage activity, it’s good for a bank to look for other revenue streams.
“There’s a benefit from diversification because all of our business lines and all our economic sectors don’t tend to move in lockstep,” he added. “But it takes time to build the product. It takes time to build the personnel.”
The industries of Gateway’s commercial loans are diverse, according to Gesell, ranging from hospitality to energy lending. Meanwhile, the bank has steered clear from lending on commercial office real estate given the uncertainty of that business right now. Remote work has persisted since the pandemic, and office vacancies have reached an all-time high at 16.1% in the first quarter.
Besides diversifying its loan portfolio, the company also cut operations and staffing since the mortgage boom ended. The company cut its number of mortgage centers from 170 to 125 and trimmed its headcount from 1,800 employees who work on mortgage originations to 1,100.
“It’s a tough deal but people know that we aren’t doing it lightly,” added Gesell. “The nice thing is we had a couple good years that allowed us to buffer and soft-land the process of downsizing.”
Gateway’s near-future growth strategy will continue to focus on commercial lending, while fortifying its deposit base — the bank currently has one of the highest loan-to-deposit ratios in the top-performing banks ranking at around 140%. Gesell said that they will be able to do this through organic customer growth and acquisitions of banks heavier on deposits than loans. He is aiming to decrease Gateway’s loan-to-deposit ratio to 90% by the end of 2024.
“That’s sort of been the history of the organization. There has been a commitment to reinvesting in the organization on an ongoing basis because you want to maintain yourself in a position to continue to grow,” said Gesell.
In our latest real estate tech entrepreneur interview, we’re speaking with Paul Burke from ColivingCircle.
Who are you and what do you do?
I’m the Founder and CEO of ColivingCircle, a marketplace for finding coliving. I’m a solo founder working on everything from development, design and content to partnerships and customer support.
What problem does your product/service solve?
As coliving grows in popularity among renters we’re seeing more companies enter the space. Because every coliving space is unique – geared towards different lifestyles and interests, there is a need to provide a marketplace that helps consumers find the right coliving space for them.
You previously built RentHoop to connect roommates (interview is here). What learnings from that led you to your new product, ColivingCircle?
We’re actually talking to buyers regarding selling RentHoop which will be the end of a long chapter of my life that occupied most of my mid-20s.
As a first-time founder, I didn’t have the context or experience to know how to best build a product, evaluate an industry, allocate resources or manage a team. It’s all trial by fire when you’re just starting.
Over a span of a couple of years, I began to develop a level of objectivity that helped me see the industry from a different light. While the need for a product like RentHoop was, and still is, massive, there’s a reason people still use Craigslist, primarily, for finding roommates. It’s a tough business to monetize until you achieve density, scale and products people will pay for. Those things typically require a good amount of capital, especially for a low-velocity product like finding a roommate, room or sublet.
My goals this time around are very different than they were for RentHoop. For ColivingCircle, I am not looking to build a ‘startup,’ one optimized for user growth and raising money from VC’s, but a business with limited overhead that seeks profitability and can be self-sustaining.
What are you most excited about right now?
Coliving is “the antithesis to social distancing” as Rolling Stones Magazine put it. In the short-term, many coliving spaces are taking a hit.
The positive is that many people who are sticking it out in coliving spaces are able to experience community in a wonderful way. From some of the interviews I’ve done on the ColivingCircle podcast, we’re hearing about how people don’t feel isolated or lonely because they have others around.
We’re going to see demand for coliving explode in the next year and enter the mainstream.
What’s next for you?
Continue to advocate for the industry and connect people with a coliving space near them. We already have about a dozen partnerships with coliving spaces in the United States so we’re excited to officially launch!
What’s a cause you’re passionate about and why?
I’m half-Egyptian and those roots are extremely important to me. My family and I took a trip to Egypt this past September and we got the opportunity to work closely with a boys and girls orphanage. In the last week we were able to purchase them a school bus with the help of some family and friends. We continue to support them so they can receive an education and the opportunity to live out their dreams.
Thanks to Paul for sharing an update to his story. If you’d like to connect, find him on LinkedIn here.
We’re constantly looking for great real estate tech entrepreneurs to feature. If that’s you, please read this post — then drop me a line (drew @ geekestatelabs dot com).
Before I delete the GRS forums, I’m moving the best posts here. Last month I shared Vintek’s introduction to mutual funds. Here he explains index funds.
In my previous discussion of mutual funds, I mentioned index funds:
Along came index funds, and this was hailed as the ultimate in investing. You’d invest not in just a basket of stocks, but in the entire market. Since the manager wasn’t required to do research and pick stocks (all he had to do was buy it all and hold it), his fee was reduced to a fraction of an actively managed fund’s fees (about 0.2%). Yes, you could have years of losses (2000, 2001 and 2002 were the most recent), but studies show that the market always recovered, even if some of the companies in the index didn’t. If you wanted put your investing on autopilot and be assured of a long-term (any 20 year period since the 1920s had an average gain of 10% per year) winner, this was the way to go.
That’s the basic introduction. Now let’s talk about what it all means.
What’s an index? In most cases, an index is just a group of financial instruments (mostly stocks, but also bonds, REITs and other things) designed to represent something. The index is typically used as a baseline against which a person’s investments can be measured. For example, the S&P 500 is supposed to be the 500 biggest stocks on the market, per Standard & Poor. The DOW is a collection of 30 stocks that are supposed to represent American industry as a whole. The Wilshire 5000 is supposed to represent all of the stocks currently being traded over the stock market. Ditto the Russell 3000. Interestingly enough, the Russell 3000 is broken into two parts: the Wilshire 1000 (kind of the Wilshire counterpart to the S&P 500), composed of the biggest 1000 stocks on the market, and the Wilshire 2000, composed of everything else.
What’s an index fund? An index fund is exactly what it sounds like. It’s a fund that’s designed to follow an index. For example, if you bought into an index fund that tracked the S&P 500, you’d be buying into every stock listed in the S&P 500. Because that fund covers the largest of the stocks (by capitalization) on the market, it would be considered a large-cap fund index fund. By contrast, a fund following the Russell 2000 would be considered a small-cap index fund. The really interesting thing is that the large caps stocks are so big that they overwhelm everything else by comparison. For example, if you singled out the companies that comprise the S&P 500, they would comprise about 70% of the Wilshire 5000! 70%!
What makes an index fund such a good choice? Good question. Well, we know that the market always recovers from downturns and goes up in the long term. Stocks and (managed) funds don’t always recover. We know that if we hold an index fund, there won’t be a lot of trading because a manager won’t be jockeying for the best performing stocks. He’d just hold stocks according to the index. As a result, this keeps trading costs (and therefore expenses) on the fund low. Furthermore, an index fund is tax-efficient because it doesn’t trade much. If it doesn’t trade much, you won’t have to pay very much in capital gains taxes. Still, there is a small amount of trading every year, as most indexes are re-evaluated on an annual basis.
That’s it for now. In the future, I’ll talk a bit about market capitalization (big cap vs. mid-cap vs. small cap) and why it’s important to know the difference. I’ll also talk about what index funds I own and why I own them.
Thanks to Vintek for allowing me to repost this information.
Well that didn’t take very long. Just a week into 2015 and HUD is planning to lower mortgage insurance premiums on FHA loans.
In case you missed it, this was one of my 10 predictions for mortgage and real estate in 2015. I just didn’t expect it to come this soon. I’m still taking the ornaments off the tree…
Technically, the news isn’t official yet, but every major media outlet is reporting it thanks to “people with direct knowledge” of the initiative.
For the record, the FHA has been raising mortgage insurance premiums for years now to shore up capital reserves after losing its shirt on high-risk loans during the mortgage crisis.
It’s still not fully healed, but this move seems to be the direct result of pressure from politicians and industry trade groups to make FHA loans more affordable.
After all, some 375,000 prospective home buyers might be shut out at the moment.
FHA Annual Premiums Dropping to 0.85%
Update: Pictured above is the new annual mortgage insurance structure, as outlined by HUD. Notice that the premiums for 15-year loans are unchanged. It will go into effect on January 26th, 2015.
If you already have an active FHA Case Number, the FHA will temporarily approve cancellations within 30 days of the effective date of mortgagee letter (2015-01).
Also note that this change does not apply to streamline refinances of FHA loans that were endorsed on or before May 31, 2009.
What we know so far is that the annual MIP on FHA loans currently set at 1.35% will drop a half percentage point to 0.85%.
By the way, it’s not 1.35% for all borrowers, and that’s where some of the uncertainty in this change lies.
Only FHA borrowers with LTV ratios above 95% and loan terms greater than 15 years are currently paying 1.35% in annual mortgage insurance premiums.
Borrowers with higher loan amounts are paying as much as 1.55%, while borrowers with 15-year fixed loans are paying as little as 0.45%.
That being said, I don’t think the .50% reduction in MIP will apply to all FHA borrowers. My guess is that it only applies to those borrowing more than 95% of a home’s value.
More details are supposed to be revealed during a speech by President Obama in Phoenix tomorrow.
In the meantime, prospective FHA borrowers can anticipate saving a little bit of money each month thanks to the lower premiums.
On a $250,000 loan, the monthly MIP fee at 1.35% is currently $281.25. If the fee drops to 0.85%, the monthly MIP would be only $177. That’s an annual savings of $1,250.
It might not seem like a lot, but every little bit helps. And the lower fees could even make qualifying easier with strict DTI ratios now in place.
The lower fees also mean the FHA will be able to compete with conventional lending, which has become a lot more popular thanks to all those premium increases in recent years.
The FHA was at great risk of losing even more market share thanks to a recent policy change at Fannie and Freddie to allow 97 LTV lending again.
So perhaps this is a defensive move to maintain market share at the FHA. The bad news is that the annual mortgage insurance premiums will still remain in place for the life of the loan.
This was perhaps the worst change in recent history, and the lower premiums won’t change that. Yes, the fee reduction will lead to a lower monthly mortgage payment, but it won’t change the fact that FHA borrowers pay it for 30 years in many cases.
I’ll provide updates once the official news is released tomorrow. Overall this is great for borrowers who need FHA financing, especially with mortgage rates so low at the moment.
Update: The announcement is now official, though it’s still unclear if premiums at levels other than 1.35% will be lowered as well. And if so, by how much. We now know…and it’s pictured above.
90 percent of the real estate professionals reading this report will understand that the leveraging of property technology (PropTech) to research, buy, sell and manage real estate, is the future. This report is to help the other 10 percent and to validate what most industry professionals already know.
The PropTech 101
Before diving into the deep end of PropTech investing, it’s important
to define what this new wave of PropTech incorporates. Advancements in the way
real estate professionals process data are not new, you see. However, the
breaking technologies that have powered up almost all business are set to take off toward a new paradigm. Artificial
intelligence (AI), Big Data analytics, Virtual Reality, and Augmented Reality, and more advanced forms of computer-aided
design (CAD) are the main areas of the innovative shift. 20 years ago such
technologies were considered science fiction, but today PropTech startups are
addressing everything from fixing a tenant’s leaking faucet to industry
insights and more. Make no mistake, PropTech is not only here, but it’s also
becoming as indispensable as the telephone. If you are among the 10 percent, who think your real estate related
business can operate without these new technologies, imagine running your store
with no phone.
PropTech Investment Barometer
The latest Global PropTech Confidence Index published by New York VC
firm MetaProp reveals the robustness of the investor segment. The report also
frames the overall maturity of the startup ecosystem from data gleaned from
over 500 investors across 1,600 startups. The twice-per-year index also shows
that 60% of PropTech investors surveyed plan to invest even more in 2019. With
2018 seeing the most investment ever, this vote of confidence is a significant
litmus test. Even with a mixed bag of geo-policy and economic factors weighing
on investors, confidence in the segment still runs very high. There are several
reasons for this including the quality of investment pitches VC receive. The
“maturity” of innovation is reflective of the overall quality advancements
innovators are creating. Take so-called “smart buildings,” as a for instance.
In a report for Forbes, real estate innovator, and entrepreneur,
Angelica Krystle Donati predicted coming investments in segments aligned with
“direct synergies on the concept of “smart cities,” such as AI, IoT, cybersecurity, mobility, and e-commerce.” Her
prediction is in line with the more than one-third of major investors who feel
smart building tech will take off. The PropTech innovations are like a snowball
set to roll over and snatch up anything in their path. The investment landscape
mirrors what happened in the mid-2000s with internet technologies and phones.
Maturing Globally
Then there is the revelation that PropTech sector is maturing. This
is best illustrated by the fact there is a sharp division in winners and losers
in the space. Just as was the case in the Web 2.0 era, the cream of innovation
and value is rising to the top, while the rest end up in what became known as
“the dead pool” of technology startups. The best become profitable, and the
useless, underfunded, or ill-planned startups end up bankrupt. In such a
metamorphosis we can expect these big winners to make the next logical step –
to become international companies.
News from Italian proptech startup Casavo is a subtle indicator that
PropTech winners will scale globally. The with the goal of decreasing the time
it takes to sell a property just snagged a €7 million Series A round from
Berlin-based Project A Ventures, Picus Capital, 360 Capital Partners, Kervis
Asset Management, Boost Heroes, alongside Marco Pescarmona and Rancilio Cube.
At its core, Casava creates a simplified transaction process leveraging the Instant Buyer
(iBuyer) model in combination with an s automated valuation engine. The
valuation/offer process is greatly streamlined, with the seller receiving a
full cash payment with a month. Casavo’s
automated valuation engine factors in 70 plus variables to provide the seller
with a fair market value for their property – and a buy offer is presented.
There are many other examples.
Now, let’s say the
Casavo model takes off across Europe. This will create a lot of competition,
and things like the negative aspects of the iBuyer model will squeeze Casava
and other early adopters. What will fill the value void? This is the big
question. You see, the downside of iBuyer models are the losses suffered
on account of commissions and discounts built in. The quick and easy sale is at
the expense of the seller and not the agents or intermediaries. Here’s where
the competition comes in, a competition that will be won by big players like
Zillow and the other U.S. players. The end of the story will be innovators like
Casavo innovating and finding an exit runway with a huge profit, or failing to
innovate and going bankrupt.
Invest in Collaboration
Modernizing the transaction process technologies like AI, AR, CAD,
and VR are allowing potential buyers to visualize without even visiting the
property. The homebuyer can even us CAD and VR alongside Big Data analytics to
check demographics, tax incentives, neighborhood statistics, and local
amenities without ever leaving their reclining living room chair. Agents can
use intelligent machines and big data to streamline
much of the traditional transaction process further, and even match
investors to a property type, etc. The list of potential PropTech uses is as
long as the list of tasks agents, buyers, and sellers have in front of them. At
the end of the day, PropTech relieves many pain points encountered by both real
estate professionals and potential buyers – and investors know this. That’s why
the investing trend is the barometer for PropTech adaptors.
Finally, this report from KPMG in 2017
reveals how real estate professionals can integrate PropTech and bride the gap
between the “built” and the digital environment. The research confirms that Big
Data and analytics will reap the biggest rewards for adopters, but the IoT that
will power smart buildings comes in second, followed by AI innovations. Those
surveyed also validate that streamlined process and improved decision making
are at the top of the list of benefits real estate businesses will receive from
these innovative technologies. What most striking about this 2017 study is the
fact that collaborative PropTech ventures are the key to success in adaptation.
What this means is, “build your own” solutions will no longer work, not even
for the huge players like Zillow. In the end, a collaboration between real
estate and technology players will be the future. Almost half of the leading
real estate decision makers surveyed by said they would collaborate with a new
or existing supplier of PropTech.
Phil Butler is a former engineer, contractor, and telecommunications professional who is editor of several influential online media outlets including part owner of Pamil Visions with wife Mihaela. Phil began his digital ramblings via several of the world’s most noted tech blogs, at the advent of blogging as a form of journalistic license. Phil is currently top interviewer, and journalist at Realty Biz News.