David Stevens

Apache is functioning normally

You’d think that someone so heavily involved in the mortgage world would have a family full of homeowners, but that’s not the case with David Stevens.

Despite being the president and CEO of the Mortgage Bankers Association (MBA), and formerly the FHA Commissioner, his 27-year old daughter still rents her place, per Businessweek.

Sara Stevens is reportedly well aware of the favorable situation in housing at the moment, what with the near-record low mortgage rates, the increasing rents, and the ability to grow wealth through home equity.

But that’s not enough for her and fiancé to give up their 765-square-foot one bedroom apartment in Arlington, Virginia, which runs at a hefty $2,195 a month.

Sure, they’ve got some student loan debt, like most Millennials their age, but pops has already pledged to help her with the down payment if need be.

And with combined income of nearly $108,000, the couple could most likely afford to purchase a fairly nice home or condo, even with home prices in the D.C. area pretty steep.

The apparent issue is that they’re currently in a central location, close to a subway stop and within walking distance to popular bars and restaurants.

If they decide to buy, they’d likely need to forego those perks for a longer commute and a home/condo that isn’t as nice as their current digs.

Is She Like Any Other Person, or Is Dad Telling Her to Hold Off?

On the one hand, it appears as if Sara Stevens has seen a lot of ugly stuff during the latest housing boom and bust, which would clearly make her a lot more cautious about purchasing a property.

Ditto anyone else thnking about getting into real estate today.

She apparently had family go through “tough situations” with bad mortgages that her father tried to sort out over the past few years.

But at the same time you have to wonder if she’s just like any other young adult, wanting to live in an urban center and enjoy the relatively stress-free life renting affords.

Because at the end of the day, it’s a lot easier to rent than own a home. You don’t really have to worry about the place. You make your rent payment each month and if something goes wrong, you call the landlord. It’s their problem, not yours.

The downside to renting is that you miss out on potential home price appreciation, and forced savings via home equity building, but with what has gone on over the past decade, that’s no longer a guarantee.

Interestingly, Sara’s dad purchased a home in Denver back in 1984 at the age of 27 when 30-year fixed mortgage rates stood at 13.9%. Today, they’re closer to 4%, yet Sara is holding off.  Does dad know something we don’t know, or is it purely her decision?

Now of course everyone has their own reason for buying or renting, but it does kind of speak volumes about the very strange housing market these days.

Interest rates are ridiculously low, home prices are still well off recent record highs, and rents are climbing, yet everyone seems really cautious about diving in.

But maybe that’s a good thing, because the moment everyone gets euphoric about housing again, we’re in big trouble.  So I, for one, welcome the uncertainty.

Source: thetruthaboutmortgage.com

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I am going to be controversial here. The GSEs have become more aggressive in their levels of buybacks with lenders. I say this without the benefit of the specific data, and I would love to see some from Fannie Mae and Freddie Mac, or the FHFA, but in the absence of that, I have interviewed a wide variety of lenders, all IMBs, and the feedback is consistent.

Lenders are mad. They feel like the GSEs are not being consistent with commitments made in recent years about materiality and options for remediation. And they fear retribution if they make these points, so instead they simply engage with their respective GSE each month to try to get them to take back the repurchase requirement on this loan or that loan. It’s a loan-by-loan drudgery that takes staff time and adds costs to a lender’s bottom line.

At a time when the customers of Fannie Mae and Freddie Mac are losing money, or barely breaking even, the GSEs are having a heyday. As was reported last week in Inside Mortgage Finance for example, “Freddie Mac racked up $2.94 billion in net income in the second quarter, up 41.0% from the first quarter and 20.0% from the same period last year. This marks the enterprise’s fourth consecutive quarter of increasing profits, which reached their highest level since the first quarter of 2022.”

When considering the buyback frustration, it is unsettling when it is stated in the earnings press coverage that, “The resulting increase in homeowner equity allowed Freddie to release $537 million in loss reserves in 2Q23. That’s compared to a $395 million provision for credit losses in the prior quarter and a $307 million provision a year ago.” In other words, the portfolio is stronger but they are kicking back more loans to lenders — more than has been seen in many years.

In speaking to lenders, the feedback was consistent. They believe that both GSEs changed their sampling methodology for quality control review earlier this year with specific focus on nonbank originators. Why would the GSEs focus on IMBs? It’s rumored that this more aggressive posture is because they are concerned about potential failures of some of their customers during these tough times and therefore they would lose their counterparty to warranty defects on loans should they go to default.

Banks, in their view, are less risky and therefore the need to force buybacks on them is less. In fact, it is rumored that some banks are given options to simply indemnify defective loans found in the QC process, where for nonbanks the only option is repurchase.

If true, the unfairness of this entire scheme is disconcerting. The GSEs are posting ever-increasing profits in the billions of dollars while their customers are struggling to make it through this higher-rate environment. That environment was driven entirely by actions of the federal government by first overstimulating the economy during the COVID crisis and then correcting for it, or perhaps over-correcting, in the current time frame.

What’s even more incredible is that approximately 80% of loans being sold to the GSEs, which are driving their massive profit surge, is coming from the IMB community. But by their own actions the GSEs are only contributing to the financial burden that these companies face.

Nonbanks that try to re-sell the repurchased loans are faced with massive discounted pricing as the loans are not only “scratch and dent” but most are at far discounted rates compared to today’s market. This is like a king in a castle robbing the farmers who toil the soil to bring them food and taxes. At face value, it appears aggressive.

Years ago, the MBA, lenders, and other groups reached terms with the GSEs and FHFA about the rep and warrant challenges. It was agreed that lenders that intentionally commit fraud or misrepresentation should not be spared. It added that “fat finger” defects, mistakes that seem to happen over and over again regardless of intent, would also not be forgiven. Even violations of materiality, meaning the loan would never have been made if these defects had been disclosed, might cause repurchase.

But there was also an acceptance of what the lender knew or could have known at time of origination. There were alternatives to repurchase for less egregious defects other than repurchase. But all of this seems to have been forgotten.

Lenders tell me they are seeing repurchase demands for appraisal errors, for miscalculation of income (usually self-employed or variable income over time) and more. But whatever the reason there is one common reality: The volume of repurchase demands is up and this is adding financial stress and increasing counterparty risk to the GSEs at a time when their earnings say that credit risk is declining, in fact it was the key contributor to Q2 earnings.

Jaret Seiberg of TD Cowen released a report this week that leads with, “Housing: could Washington trigger a mortgage credit crunch?” Never was there a more timely report from Seiberg. His opening statement says it all, “Our worry is that Washington policy changes could contribute to a mortgage credit crunch in the coming years as banks face capital challenges and a tougher economic environment, while the government appears unlikely to take key steps to ensure non-banks will remain key providers of mortgage credit.”

In his report he calls for expansion of Federal Home Loan Bank (FHLB) access for IMBs, which would improve their liquidity.

The irony here is extraordinary. The GSEs, with the assumed support of FHFA, is increasing risk to their IMB customers by implementing what appears to be a far more non-negotiable buyback policy while at the same time reaping massive profits in the billions — billions — from these same customers.

The irony continues in that a key contributor to earnings was reducing loan loss reserves due to higher equity and loan quality, yet they are saddling lenders — their customers — with repurchase demands.

Finally, as Seiberg points out, the GSEs and FHFA may be unintentionally piling onto the credit contraction that may get worse due to the list of items in his report combined with the lack of solutions such as FHLB membership modifications.

I come at this issue with the benefit of having run the single family business at Freddie Mac, being on the President’s Housing Team during the Great Recession where we looked at GSE policies that could help or hurt the market, and as the former CEO of the MBA.

I have interviewed a large number of customers of the GSEs who want to remain nameless as they fear retribution from these critically important companies. And while I am certain that groups like the MBA and others are approaching this with the usual decorum that helps them succeed on key policy issues, I think there is a time when voices of dissent are critically needed.

We are literally squeezing the life out of many institutions who are needed to keep the housing market functioning. More importantly perhaps, the trust deficit between this power duopoly of Fannie Mae and Freddie Mac, each reaping billions in profits in a market where almost all others are struggling, is only widening. Saddling the IMBs with ever-increasing financial risk, unless the defects are intentional, material, or repeated consistently, appears to violate the integrity of all the great work done between industry and the GSEs years ago.

This is at least a time to consider the implications and fairness here. I would hope these companies and their regulator listen to the voices of concern.

David Stevens has held various positions in real estate finance, including serving as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, assistant secretary of Housing and FHA Commissioner, and CEO of the Mortgage Bankers Association.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Dave Stevens at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]

Source: housingwire.com

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Correspondent Programs; STRATMOR and Customer Service; Credit Products and News; Training and Webinars

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By:
Rob Chrisman

Thu, Jul 20 2023, 10:16 AM

Ever see the movie “Cocoon”? Is there an X-rated version? Seven of the 10 fastest-growing metro areas over the past year are in Florida. The Census Bureau tells us there was population growth for about two-thirds of U.S. metro areas during this time, but The Villages, Florida, had the greatest percent increase at 7.5 percent. (Yes, as in the “STD Capital of America” Villages!) The metro area of Myrtle Beach-Conway-North Myrtle Beach, South Carolina-North Carolina came in second and saw population climb by 5.0 percent. The metro area of Dallas experienced the largest numerical population increase, seeing its population climb by 170,396 or by 2.2 percent from July 1, 2021, to July 1, 2022. The metro area of Houma, Louisiana, had the greatest percent decline over this time range, and two other metro areas in Louisiana were among the 10 fastest-shrinking metros. (Today’s podcast can be found here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. To experience how Richey May can help you transform your mortgage business, visit richeymay.com. Hear an interview with NAR’s Jessica Lautz on the latest inflation figures and the Fed’s calculus moving forward.)

TPO Channel Products

Now is the time to become an approved Newrez Correspondent partner. A partnership with Newrez Correspondent provides access to an extensive product menu, delegated/non-delegated underwriting, multiple delivery methods, and professional experience needed to ensure success in an ever-changing market. With exciting enhancements such as the recently added Bulk AOT and soon to be released Appraisal Alternatives, there is no better time than now to become a Newrez Partner. Every week new lenders are joining the Newrez family of nearly 1000 approved correspondent clients, and are enjoying the many benefits of partnering with a top Correspondent Investor when efficiency, cost reduction, and profitability are critical. Newrez Correspondent understands the importance of personalized service and strives to exceed our client’s expectations at every turn. Contact us today to schedule a meeting at the Western Secondary Conference August 21st to 23rd for an in-person discussion on how a Newrez Correspondent Partnership can optimize your business.

Planet Home Lending’s Correspondent division is built on an unwavering commitment to Correspondent lending and the belief that strong partnerships are the cornerstone of success. Our continually refined product lineup ensures you have the right products to build volume in any market cycle. Go beyond government and conventional loans and move into profitable niche products, like renovation, manufactured homes, and buydowns. Get in touch with Planet’s SVP Correspondent Sales Jim Loving (414-270-0027) to learn more or click here to download the latest version of our Product Highlights flyer, then put Planet to work for you!

STRATMOR and Customer Service

Lenders have struggled for years trying to build customer-centric cultures. According to data from STRATMOR Group’s MortgageCX program (more than one million borrower surveys and counting), the number one frustration in the pursuit of Customer Experience (CX) excellence is the transition from collecting customer feedback to creating internal behavioral change. In his July Customer Experience Tip, MortgageCX Director Mike Seminari shares four motivational strategies for lenders that can help drive the change needed. For inspiration on motivation, read, “Motivate Your Mortgage Team to CX Excellence.”

Credit Products and News

Attention Mortgage Lenders: Empower Millennial and Gen Z Homebuyers! Download The Ultimate Credit Scoring Playbook, your go-to resource for conquering unique buyer pool challenges with Millennial and Gen Z homebuyers. Gain comprehensive insights, strategies, and expert tips to guide these tech-savvy generations to their dream homes and establish yourself as a trusted advisor by mastering credit score management. Understand market conditions, interest rates, regulations, and preferences that will affect these generations in their homebuying journeys. Shape your success in the mortgage industry and drive unprecedented growth. Don’t miss out on this opportunity to elevate your expertise. Download The Ultimate Credit Scoring Playbook for Millennials and Gen Z eBook for free now! Follow Birchwood Credit Services to gain access to a plethora of industry-related news and informative content that will aid you in closing loans at lightning speed!

Lenders are keenly aware of the 3 Ds of lending: divorce, death, and da money. This is an answer to the 5 Cs of lending, and credit is very important to lenders. Evaluating a borrower’s credit is always important, especially with the ATR (ability to repay) requirements. Anyone who is thinking we’re heading for foreclosures shooting higher had better take a look at the equity that current homeowners have, and the credit quality of the current crop of borrowers.

Huh? Now SoFi will “underwrite” your loan for you?

VantageScore Solutions was launched in 2006 and is owned by America’s three national credit reporting companies (CRCs) – Equifax, Experian, and TransUnion.

Lenders are still talking about Equifax’s shift last year where it eliminated order options in October, resulting in the need for double orders, and then raising prices on Jan 1st for those double orders. So most will say that competition is good, and the Transunion Truework news last month on income and employment verification is being watched to see how it plays out.

I bring all of this up because yesterday Experian® announced consumers can now choose to share information directly from their employers’ payroll service through Experian Verify™ when applying for credit, including mortgages, auto loans and personal loans. “The enhancement introduces Experian’s automated income and employment verification waterfall and helps lenders easily leverage both instant and permissioned technology with consumer consent to verify income and employment for over 85% of the U.S. workforce… A multi-step approach is needed to help reduce dependencies on complex and costly manual verification processes. Lenders who use a multi-step approach can keep consumers engaged while verifying income and employment information faster and more efficiently.”

Training and Events Next Week

Keep a finger on the pulse of borrower demand and incentive with Black Knight’s complimentary Mortgage Monitor webinar, which provides insights into the mortgage market you can’t get anywhere else. Our experts analyze the most current information from Black Knight’s vast mortgage, housing, and property data assets to deliver a clear view of the market. We also include the latest rate lock data, so we’re able to dig deep into origination trends and provide information that can help you market and allocate resources more effectively. Register now.

Do you have questions about CDFIs? Are you wondering how CDFI’s QM exception and FHLB access work? Falcon Capital Advisors is hosting a webinar with its CDFI experts to share an overview of these primarily non-bank entities and how recent changes in CDFI rules could advantage lenders who are seeking to serve minority borrowers, deeper credit FHA borrowers, participate in state HFA programs and lower their own costs of capital for all of those loans. Register for the webinar on 7/27/2023 at 2pm EST using this link. For more information on Falcon’s CDFI advisory services drop an email.

On Thursday, July 27th at 2pm ET Tabrasa’s Bill Bodnar will be hosting a webinar entitled “Reading the Markets – The Back Nine”. With half the year (or round) over, join Bill for a fast-paced presentation on what Mortgage Market Guide is seeing in the back half of 2023 for the economy, Fed, rates, housing and more.

In Hawai’i, join MBAH for an exciting event on July 26th, 8:30 – 10:30am at Dave & Buster’s Honolulu, Pa’ina Hale, 2nd Floor. Bring together the top real estate experts to share best practices for today’s market.

PRMG’s non-QM Investor Solution product which provides an option for Debt Service Coverage Ratio (DSCR) and No Ratio qualifying on investment properties, Wednesday, July 26.

Angel Oak Mortgage Solutions Part 2 of 2, A Non-QM Webinar on Bank Statement Loans, is all about Angel Oak Mortgage Solutions innovative Bank Statement Program aimed specifically for self-employed borrowers. This webinar on Wednesday, July 26th, 1:00 PM EST | 10:00 AM PST, will take a deep dive into program details, highlight how they determine income and discuss how to market to these borrowers.

Addressing Appraisal Bias and Explore potential solutions to mitigate appraisal bias. California MBA’s Mortgage Quality and Compliance Committee new webinar on July 27th at 11 AM PST. Join and discuss appraisal bias and investigate potential solutions to combat it.

There are many unique characteristics and benefits of the reverse mortgage program that are often misunderstood by potential senior prospects. Join Plaza Home Mortgage® for a free webinar, Thursday, July 27 | 11:00 AM PT / 2:00 PM ET, designed to help you “organize” loan benefits, risks, and loan figures in a way that will help borrowers better understand how a reverse mortgage loan works, and what it means for the future equity and ownership of the borrower’s home.

The 2023 CMLA Convention is back in Vail on August 2-4 at The Hythe. Register today and join us for compelling speaker sessions, ample networking opportunities, and the annual golf tournament. Please find this year’s agenda below – it has been reimagined to provide increased value for our attendees and sponsors, as well as a better event flow. Come and celebrate CMLA and the mortgage industry’s resilience.

FAMP! Florida Association of Mortgage Professionals 2023 Annual Convention & Trade show, “A Grand Affair”, is August 2-5, 2023, at Signia by Hilton Orlando Bonnet Creek. For Over 60 years, this is the annual event that attracts Florida’s top mortgage professionals, and this year is no different. Exhibitors from all over the country will be exhibiting current mortgage products and industry tools for all originators. Do not miss this opportunity to network with mortgage brokers and lenders from across Florida and the United States.

MBA Education is bringing the best-in-class training to Seattle, WA., August 8-11. Begin advancing your career by enrolling in the School of Mortgage Banking I: An Introduction to the Real Estate Finance Industry provides a foundation in residential loan production, underwriting, secondary marketing, regulatory compliance, warehousing and servicing.

In Michigan, the MMLA Annual Lending Conference is 8/9-8/11 is in Mt. Pleasant. “Our event brings attendees from all of the state and country to hear our nationally renowned speakers give expert advice on how you can grow your business even in these challenging times!

“What do David Stevens, CMB, Mitch Kider, and Rob Chrisman all have in common? They’ll be at NAMMBA CONNECT 23, September 14 – 16 at the JW Marriott Bonnet Creek in Orlando, FL as the opening session. NAMMBA CONNECT 23 is the largest conference in the mortgage and real estate industry focused on connecting lenders to the multicultural marketplace. This year has been a tough year for our industry. That’s why we are providing 100 complimentary conference registrations in addition to the first night’s room stay for any Sales, Operations, Marketing or HR Executive who would like to attend the conference. This is our way of giving back to the industry. This offer is on a first come, first serve basis. To reserve your space click here. To see the agenda click here.

Capital Markets

Of course, anyone can sue anyone, right? But capital markets folks took note of this article on how Go Mortgage is suing its former capital markets director for corporate sabotage!

But back to rates! With signs that central banks around the globe are making progress in their fight against inflation, global bond yields have fallen as of late, and Treasury yields across the curve rallied once again yesterday on the heels of the UK CPI cooling more than expected. That move was also aided by the release of a below-consensus Housing Starts report for June that fell 8 percent on both a month-over-month and year-over-year basis (actual 1.434 million, expected 1.475 million, prior 1.559 million). Building Permits were not much better (actual 1.440 million, expected 1.472 million, prior 1.496 million). The drop was broad-based, with both single-family and multi-family production pulling back during the month. This month’s numbers showed a striking shift away from multi-family towards single-family.

The lack of housing inventory continues to help the homebuilder community despite higher mortgage rates. Signs continue to point to a clearing of previous backlogs caused by material and labor shortages, and demand remains sufficient given the ongoing lack of existing homes available for sale. Accordingly, builders are cutting back on sales incentives with just 22 percent reporting that they cut pricing in July, down from 25 percent in June and 27 percent in May. The number of multi-family units under construction is at record levels, while single family units under construction are in the middle of its historical range.

Today’s economic calendar is under way with weekly jobless claims (228k, lower than expected; 1.754 million continuing claims) and Philadelphia Fed manufacturing (-13.5, little changed from last month’s -13.7). Later: leading indicators and existing home sales, both for June, and month-end supply consisting of 2-, 5- and 7-year notes and $24 billion 2-year FRNs, a Treasury auction of $17 billion 10-year TIPS, and Freddie Mac’s Primary Mortgage Markets Survey. We begin the day with Agency MBS prices worse .125-.250, the 10-year yielding 3.79 after closing yesterday at 3.74 percent, and the 2-year is 4.84: the 2-10 yield curve inversion is as steep as ever.

Employment and Transitions

“Foundation Mortgage Corporation, a Full-service wholesale Lender based in Miami Beach, FL, is one of the fastest growing NonQM Lenders in the industry. Foundation is currently accepting applications for experienced, NonQM Account Executives to join our team. (AZ, CA, TX, CO, WA, FL). We are also proud to announce the addition of Ann DiCola, Senior Account Executive. Ann is an industry veteran joining Foundation after 12 years with Axos Bank. Reach out to Dean Ayres, Senior Vice President- Sales to learn more about how Foundation Mortgage can help you build your NonQM business.”

Are you interested in changing our industry for the better? Do you have what it takes to join the top-rated client service team in mortgage technology? Apply to become MCT’s Senior Capital Markets Technology Advisor. While many technology providers are cutting staff and reducing service levels, MCT is continuing to invest in making sure clients succeed. Led by Paul Yarbrough since its formation in 2019, MCT’s Client Success Group (CSG) has revolutionized the client experience by providing fast and effective onboarding, intimate support levels, and deep subject-matter expertise. Through a combination of firsthand capital markets experience, active listening to client feedback, and direct engagement in the technology development process, the CSG is finding new efficiencies and improving execution for mortgage lenders. If you have the drive and experience to match this team at the senior level, apply to join MCT in pushing the secondary market forward.

California’s Summit Funding, Inc., a privately held nationwide mortgage banker and servicer, announced it has expanded its East Coast footprint by hiring three divisional leaders based in North Carolina: Deran Pennington, Chris Shelton, and Matt Schoolfield. They bring more than half a century of experience recruiting and building highly successful mortgage sales teams.

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

The Mortgage Bankers Association (MBA) this week submitted a letter to the Financial Stability Oversight Council (FSOC) in the U.S. Department of the Treasury urging several additional considerations in its plans to classify more non-bank entities as systemically important financial institutions (SIFIs).

One of the points made in the letter, submitted by MBA President Bob Broeksmit, is that a SIFI designation on a nonbank entity could cause material harm to that company attempting to compete in the marketplace.

“In proceeding with a non-bank SIFI designation, FSOC should conduct a deep and thorough analysis, including weighing the cost and benefit of such designation to the U.S. financial system as a whole and the likelihood the financial company in question will experience material financial distress as a result of the designation,” the letter said.

If FSOC is concerned about the core banking activities taking place outside the purview of prudential bank regulation, FSOC’s should “reconsider the regulatory environment” that has caused more traditional depository institutions from competing in the marketplace such nonbanks are attempting to do business in, Broeksmit said.

“As a general matter, FSOC should consider less costly alternatives to designation of a non-bank financial entity – especially where such an entity is already subject to regulation by an FSOC-constituent member and the perceived risk to financial stability associated with that entity can be, or perhaps already has been, adequately addressed through targeted programmatic changes by that regulator,” he said.

FSOC should also consider the potential costs and benefits of designating nonbanks as SIFIs, since the current proposal “eliminates any evaluation of the costs and benefits of non-bank designation and dispenses with assessing the likelihood that a firm would experience material financial distress,” Broeksmit said.

Additionally, since many “core traditional” banking activities are now operating outside of regulatory purview, MBA urges FSOC to “consider and address whether existing regulations are driving core banking activities outside the regulatory perimeter,” the letter said.

“With respect to residential mortgage lending, banks’ share of origination and servicing volume has consistently declined during the fifteen years following the global financial crisis,” Broeksmit said. “Some of the decline may reflect a re-assessment of the economic returns available in mortgage lending and a shifting of resources into business lines that have better prospects.”

But based on conversations with MBA’s bank members, it also reflects “regulations specific to banks which reduce the returns on capital from mortgage lending,” Broeksmit said.

This has led to non-bank servicers becoming more prevalent in the servicing market, leading to increased scrutiny from FHFA and Ginnie Mae.

“This example highlights what is the critical question: if bank regulations are so punitive that they discourage banks from effectively competing in markets for core banking services,  shouldn’t FSOC first re-examine the regulatory regime that caused this change?,” the letter said.

Last November, Biden administration officials began a push that would target nonbanks with increased regulatory scrutiny. In an op-ed published by HousingWire, former FHA Commissioner David Stevens said that increased regulation of IMBs was not needed.

“The fact is that the invaluable role that IMBs play is deserving of a counterattack to push back against the ‘throwing the baby out with the bath water’ mentality that could be overtaking Washington,” Stevens wrote in November 2022. “The Mortgage Bankers Association authored a valuable piece on IMBs that should be required reading for all policymakers as they consider trying to fix something that is simply not broken.”

FSOC announced a proposal for tightening regulation of nonbanks in April.

Source: housingwire.com

Apache is functioning normally

Homebuyers watching mortgage rates should buckle up—but they probably won’t enjoy this ride.

Mortgage interest rates were above 7% for the past two weeks—much to the dismay of many cash-strapped buyers. They averaged 7.09% on Tuesday before falling to 6.96% on Wednesday for 30-year fixed-rate loans, according to Mortgage News Daily.

“Within the last 30 days, we’ve seen everything from low 6% to low 7%,” says Jason Lerner, producing area manager at George Mason Mortgage in Towson, MD. “That’s exceptionally volatile.”

It has, in fact, been a wild ride. Mortgage interest rates have been up, down, and then up again as investors try to guess the Federal Reserve’s next move. The Fed has been steadily hiking its own short-term rate to bring down inflation by cooling the economy.

When the Fed raises its own rates, mortgage rates have often followed. And Fed officials have indicated another rate increase—or two—is likely this year.

The results of the Fed’s actions have been mixed. Inflation has tumbled down to 3% annually in June. That bit of good news caused mortgage rates to fall below 7% on Wednesday. But while that’s a big improvement from when inflation was running at 9.1% during the peak in June 2022, it’s still higher than the Fed’s 2% goal. Other data, such as recent employment reports, shows the economy is still stronger than the Fed would prefer.

When a report comes out that shows employers are still looking for workers, consumers are still spending, or inflation remains high, investors worry the Fed will raise rates. So mortgage rates rise in anticipation of another Fed increase.

“We should expect a lot of bumping around,” says David Stevens, CEO of Mountain Lake Consulting, which provides consulting services to the mortgage industry. He’s also the former CEO of the Mortgage Bankers Association. “Whatever the economic news is, we see rates swing.”

Higher rates have made it more challenging for buyers to afford homes and incentivized many would-be sellers to stay put instead, worsening the housing shortage.

Even when mortgage rates do come down below 7%, buyers shouldn’t expect they will fall down to the record lows experienced during the COVID-19 pandemic.

“One can never truly predict the future, but I don’t see mortgage rates returning back to the 3% range in the remainder of my lifetime,” Lawrence Yun, chief economist of the National Association of Realtors®, told CNBC.

Where will mortgage rates go next?

Real estate experts don’t expect mortgage rates to remain this high forever.

By year’s end, Realtor.com® expects rates to be around 6.1%. Stevens believes rates will be back in the mid-5% to 6% range by the first few months of next year.

Once the Fed wrangles inflation down to its target, it should stop raising rates. The Fed is walking a tightrope trying to cool the economy without causing additional bank failures or pushing the nation into a recession. If the economy slumps too much, the Fed will likely cut rates to stimulate it. That should bring mortgage rates down as well.

“Rates will never go back to where they were to the peak of the COVID pandemic, which was in the 2% to 3% range,” says Stevens. “But they will normalize.”

Lower mortgage rates could lead to more homes for sale

Lower mortgage rates could help ease the housing shortage—and high home prices.

Right now, many homeowners are reluctant to sell. Most sellers are also buyers who don’t want to give up their ultralow mortgage rates to take out another mortgage with a rate that’s likely more than double what they have now. Many are waiting for rates to come down, at least to the 5% range, before listing their properties.

“Existing homeowners with a very low mortgage rate [have] very little incentive to decide to sell,” says Danielle Hale, chief economist of Realtor.com. The result? “There’s nothing to buy, it’s expensive to buy what’s available to buy.”

So when a move-in ready home in a desirable area is listed at a good price, it’s a bit of a unicorn in today’s market. Hordes of buyers typically descend, and that fierce competition bids up the price of the home.

“With an increase in mortgage rates, you’d expect a drop in property values,” says Roland Weedon, CEO of Essex Mortgage. Essex does business in 40 states, working primarily with first-time buyers and renters. “But because there’s such a shortage of inventory, that hasn’t happened.”

Mortgage lender Lerner is seeing borrowers stretch their “comfort levels” with higher mortgage payments to make homeownership work.

He’s also seeing buyers offer lower down payments. They’re using the rest of the money that would have gone toward their home to pay down other debt, so they have more money available for monthly mortgage payments.

“The fact that we’re back at this point again could be a drag on the housing market in the months ahead,” says Hale. “We do expect mortgage rates will eventually decline. It’s going to take some more progress on inflation.”

What determines mortgage rates

While rates are influenced by the Fed’s rates, and often move in the same direction, they’re more tied to what’s happening in the bond market.

After a mortgage is made, lenders will typically bundle it up with other loans into a mortgage-backed security, aka mortgage bonds. Then those are sold to investors on what’s called the secondary mortgage market. This gets the mortgage off of a lender’s books, freeing up more money to make new loans.

If investors believe the Fed is likely to keep hiking rates, they’re often reluctant to purchase mortgage bonds. One reason is they assume that the borrowers of those mortgages are likely to refinance those loans once rates fall again. There are also more mortgage bonds on the market for investors to choose from as a result of the bank failures. The FDIC is selling the portfolios of Silicon Valley Bank and Signature Bank. This makes these bonds less valuable.

As mortgage rates are the inverse of bond prices, when bond prices are down, mortgage rates go up.

“Going forward, we can expect rates to continue paying a tremendous amount of attention to incoming economic data,” says Matthew Graham, chief operating officer at Mortgage News Daily. “Traders are on the edge of their seats, waiting for evidence that the economy and inflation are finally cooling off in a meaningful way. … When it happens, we should see a reasonably swift move back toward more livable rates.”

Source: realtor.com

Apache is functioning normally

The FHA has taken a number steps to address risk and strengthen its balance sheet, including requiring larger down payments and higher mortgage insurance premiums.

The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25 percent to “build up capital reserves and bring back private lending.”

The FHA will also request legislative authority to increase the maximum annual MIP so it can shift some of the cost, as annual premiums are paid over time, proving to be less of a barrier for prospective buyers.

New FHA borrowers will also be required to come in with a 10 percent down payment if their Fico score is below 580; those with scores of 580 and above can still qualify for the 3.5 percent minimum payment.

In other words, if you have terrible credit, you can still get a mortgage with just 3.5 percent down.

Finally, the FHA will reduce allowable seller concessions from six percent to three percent, in line with industry standards.

The current level essentially exposes the FHA to excess risk by creating incentives to inflate appraised values.

The proposed changes will go into effect in either spring or summer, giving lenders time to speed applications through the system under the current rules.

The FHA said it will continue to increase enforcement on FHA mortgage lenders, while publicly reporting lender performance rankings.

“When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history,” said Commissioner David Stevens, in a statement.

Check out this chart from the FHA’s 2009 fiscal year detailing Fico score distribution (it doesn’t look like the new down payment requirement will have any impact, given very few borrowers have scores below 620, let alone 580):

(top photo: davidreece)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

This week, the Joint Center For Housing Studies at Harvard University released this year’s “State of the Nation’s Housing.” The report is damning for those who are trying to expand opportunities for homeownership and presents an incredible challenge for policymakers, stating, “As the cost of homeownership rises, the prospect dims for eliminating racial homeownership gaps.”

The report highlights how the lack of affordable housing supply combined with high interest rates are pricing out those on the margin, especially focusing on minorities.

The impact as highlighted in the report is stark, stating that in the past year, “millions of renters were priced out of homeownership.”

Consider this: When looking at new units being built for housing, from single-family detached, condo, 2-4, 5-20, 20+, and manufactured housing, the new supply of housing being created today is a shadow of years past. In fact, the current state of new units being created has never been this low looking all the way back to the early 1930s.

This is truly disgraceful for a nation that recognizes the value of homeownership. So far we are learning that talk is cheap, but the real work is much harder.

Vice President Kamala Harris gave a speech in Maryland in February about the importance of homeownership in which she shared her own story about growing up. “For most of my childhood, our family rented. And then there was this one afternoon where my mother — our mother — called my sister Maya and me in. We were in high school at the time. And she called us into the kitchen, and she showed us this photograph. And it was a picture of a one-story, dark grey house with a shingled roof and a beautiful lawn. And mommy, which is what we called her, was telling us that after her years of saving, she was ready to become a homeowner,” said the vice president.

The opportunity to live in their own home was a life-changing event.

The time for speech-making and haphazard pricing policies from the government lending sources needs to stop. This problem is so severe, and getting worse, that it demands presidential focus, policy leadership, and agency coordination if we are ever really going to change this retreat from opportunity that we are seeing today.

There is a desperate need to provide executive leadership and focus on housing in America today and time is running out. But we have a model for this. In 2009, when I was in the Obama administration, the “Housing Team” was formed. It consisted of “principals” and “deputies.”

The principals were all cabinet-level direct reports to the president. They included people like Larry Summers (NEC Director), Shaun Donovan (HUD Secretary), Tim Geithner (Treasury Secretary), and Austan Goolsbee (CEA), and so many others. And meetings would often be complemented with the addition of the OMB director, the chief of staff to the president, and a variety of senior staff members.

The deputies reported to the Principals and included the assistant secretaries of the respective agencies that were relevant at the time and other senior staff. I was part of this group, but it included many key government leaders today, including Michael Barr, now vice chair of the Federal Reserve for supervision, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, Jim Parrott of the Urban Institute, and so many others.

The deputies met several times per week, especially a core group of us, to discuss efforts to resolve the housing crisis that threatened the nation at that time. I remember times when a few of us would get a call from Secretary Geithner’s office that he wanted to meet. We would drop whatever we were doing and head to Treasury to discuss the current concern or issue.

Preparation of policy to determine what and how to present recommendations to the president took a great deal of time and focus. And all of this was about housing and mortgage policy. And we executed — we implemented.

My point? In the Obama administration, housing issues were a top executive priority all the way up to the president of the United States. Issues were not decided upon randomly or independently. We worked hard to decide on the best way to address housing and mortgage challenges in a macro, multi-agency environment.

Rather than what appears to be a somewhat arbitrary and likely less effective set of policy moves as we are seeing today this administration should provide the level of focus in a similar way that the housing team operated during the Obama administration.

This year’s study from Harvard is an almost indictment to the state of housing policy and its effectiveness. And yet the problems facing this nation are clear and include:

1.  Setting the priority for this nation with urgency that housing is a bedrock for family security and inter-generational wealth-building in this nation that has been eroding with the wealth gap only widening and with the low housing supply and lack of implementable policy ideas to move the dial.

2.  The need to rebuild neighborhoods to support new homeownership opportunities, particularly in urban centers such as those that exist in the “Rust Belt” inner cities.

3.  Meaningful solutions to improve affordability with creative financing vehicles to include concepts such as equity sharing, scalable down payment assistance, and interest rate subsidies (buy-downs) to make payments affordable.

4.  Making affordable housing supply a priority and transitioning from talking points in speeches to executable plans that actually build units at a record pace.

5.  A national focus on financial literacy training for young people, especially those living in underserved communities to prepare them for a future of homeownership.

This lack of effectiveness of policy today is not intentional. But I strongly recommend that this administration embrace some key business leaders to join them in this effort. While we have some great policy leaders who have hovered inside the beltway of Washington D.C. for decades recommending housing policy to political leadership, it was always clear to me during my time working in D.C. that having an administration that also recruited those who understood the industry and how it operated versus only having those who had thoughtful ideas about creating change for consumers was critically important.

Between skill sets and executive focus from the top, this administration is ignoring an ever-widening dearth of opportunity for those that do not have access to homeownership today. Focus, priority, skill sets: the administration needs to show that it is serious about housing – the challenges today are as large and looming as this nation has seen in decades. This is a real crisis and the JCHS at Harvard just made this crystal clear.

David Stevens has held various positions in real estate finance, including serving as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, assistant secretary of Housing and FHA Commissioner, and CEO of the Mortgage Bankers Association.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Dave Stevens at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]

Source: housingwire.com

Apache is functioning normally

Both Wells Fargo and Bank of America, the top two residential mortgage lenders in the nation, have raised minimum credit score requirements on FHA loans, according to Bloomberg.

The pair raised the minimum Fico score to 640 from 620 on FHA-insured loans they buy from other mortgage lenders.

Per Fico, there are roughly 6.3 million Americans that have credit scores between 620 and 640, or about 3.7 percent of the population.

As a result, correspondent lenders like Quicken, which is a top ten mortgage lender, have stopped making many of their FHA loans.

And FHA commissioner David Stevens told Bloomberg the move would exclude as many as 15 percent of FHA borrowers, who often have no other place to turn for home loan financing.

However, Wells Fargo will continue to offer FHA loans with Fico scores as low as 600 via its own loan officers.

And Bank of America still offers FHA loans to its direct customers with Fico scores as low as 620 for purchase money mortgages, though they now require 640 for refinance applications.

Chase, the third largest lender in the nation, had already raised its credit score requirements on FHA loans a while back.

Credit Quality Improves on FHA Loans

But credit quality has improved immensely at the FHA, largely because more creditworthy borrowers have turned to the agency for financing.

And the FHA recently imposed a minimum credit score of 500, while also requiring that borrowers have at least a 580 credit score to qualify for the flagship 3.5 percent down payment program.

At the end of the third quarter, just 3.8 percent of FHA loans had scores below 620 or no credit score, compared to 50.4 percent as of the end of 2008.

Nearly 40 percent of home purchase mortgages and nine percent of refinances were insured by the FHA during the nine-month period ending June 30.

Update: A reader informed me that Wells Fargo will still buy FHA loans with Fico scores as low as 620 if they come from correspondents and mortgage bankers.

Source: thetruthaboutmortgage.com

Apache is functioning normally

I referenced in my last opinion piece in Housing Wire that the Urban Institute publishes a “monthly chart book” that is packed full of relevant data. This recent publication paints a clear picture as to why any Realtor or homebuilder should always include a nonbank lender in their referrals.

Before I open myself up to attacks here, I am using macro data from Urban Institute and there are certainly some banks who serve a broader swath of the market. But let’s start with the basics as to who really is expanding credit access in the market.

When looking at the nonbank share of all loans broken down by investor (Fannie, Freddie, and Ginnie Mae) the glaring data point that stands out is that nonbanks do well over 80% of all loans being made today. More importantly, when it comes to the Ginnie Mae programs, banks contribute only 7% of all the mortgages by the FHA, VA, and USDA. Seven percent is a glaring figure, especially when you look at the dynamics shaping the housing market.

Source: Urban Institute

The reason why this stands out is that the distribution of loans in the Ginnie Mae programs has the highest concentration of first-time homebuyers and the largest percentage of minorities. In the FHA program alone, 46.3% of all loans are to Hispanic and Black borrowers and with over 80% of all FHA’s purchase transactions going to first-time homebuyers, the fact that banks only do 7% of these loans is extraordinary.

Why does this all matter? Because the key regulators in Washington spend a lot of their time ingratiating themselves to the banking industry and lamenting about nonbanks. As Chris Whalen articulated in his recent op-ed, “Consumer Financial Protection Bureau head Rohit Chopra said in May that ‘a major disruption or failure of a large mortgage servicer really gives me a nightmare.’ He made these intemperate comments during CBA Live 2023, a conference hosted by the Consumer Bankers Association.”

The fact that regulators spend time “biting the hand that feeds them,” my reference to the fact that it is the nonbanks providing support for the constituency that this administration should care about and certainly not the audience at a CBA conference, is pretty alarming.

As Whalen goes on to highlight, “Chopra’s focus is political rather than on any real threat. But of course, progressive solutions require problems. Three large and mismanaged depositories failed in the first quarter of 2023, yet progressive partisans like Chopra, Treasury Secretary Janet Yellen, and Federal Housing Finance Agency head Sandra Thompson ignore the public record and continue to fret about nonexistent risk of contagion from mortgage servicers.”

I have taken a lot of negative feedback from many who are connected to the current administration about my criticism of things like LLPA fee changes. But in a similar context as Whalen, I am tiring of the politics of an administration and its regulators who focus their time on trying to reign in the independent mortgage banks (IMBs) — the very set of institutions that are responsible for ensuring that access to credit remains for American families who might otherwise be shut out of the market.

One might ask, why do IMBs do so much better here in advancing credit availability? I think it comes down to a core principal: IMBs only do mortgages. Unlike banks, they don’t do auto loans, credit cards, student loans, business lending, lines of credit and more. Banks don’t need to expand their mortgage lending businesses. In fact, the trend has been to retreat from mortgages, not embrace this segment further.

Just look at the data. When it comes to credit (FICO) scores, IMBs are significantly more aggressive. And since credit scores are lower for first-time homebuyers and trend lower in most minority segments, the IMBs naturally prevail as the best option for the homebuyer.

Or look at this data on DTI (debt to income ratio). The spread between median bank DTIs versus nonbanks in the Ginnie Mae program is significant and, frankly, will affect those on the margin of access to homeownership in a significant way.

The fact that banks are only 7% of all Ginnie Mae lending is not by accident. The reality is that they have systematically walked away from any element of mortgage lending that seems to be of greater risk. It’s frankly why companies like Wells Fargo today are a shadow of the mega-market dominators that they once were.

Whalen perhaps said it best stating, “More than any real-world problem posed by IMBs, it is the government in all of its manifestations that poses a significant risk to the world of mortgage finance and the housing sector more generally.  Washington regulatory agencies seek to stifle the markets, limit liquidity and impose additional capital rules, strictures that must inevitably reduce economic growth and access to affordable housing.”

We have a labyrinth of federal regulators who failed to see how the significant rise in banks’ cost of funds, driven by the actions of the Federal Reserve, might push some banks into negative basis territory. This scenario, where they were paying depositors more than they were earning on their unhedged assets, put them out of business. And the regulators missed all of this. In all of their angst and speech-making about the risks of nonbanks, they simply overlooked three of the most expensive failures in banking history.

As I write this, I know that I too was once part of the arrogance of an administration that lectured and directed more than it listened at times. But today we face too many risks. Whalen clearly articulates how the GSEs are being directed down a path that will only decrease their relevance over time if left unchecked.

But perhaps the core message here is this: If I were a Realtor or homebuilder, I would make sure that my potential buyers, especially my first-time homebuyers, were in conversation with an IMB (or mortgage broker). If that simple step isn’t being done, then the access to credit challenges will likely only loom larger.

Remember, IMBs are not risk taking entities. They pass through the credit risk into government-backed lending institutions and they get paid a fee to service the loans for these government entities. We need regulators to stop speechmaking at banking conferences about risk here and instead applaud the critical role these companies perform.

More importantly, regulators should spend more time bolstering forms of liquidity to these entities. There are solutions that can help.

But really, the more time they spend politicizing the nonbank story, we risk more bank failures, which are truly the greater risk in the sector. Let’s applaud the IMBs for keeping the doors to homeownership open. And let’s demand that our regulators stop using political platforms to distort others’ views while not focusing on their primary responsibilities.

Accountability will only exist when stakeholders demand it.

David Stevens has held various positions in real estate finance, including serving as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, assistant secretary of Housing and FHA Commissioner, and CEO of the Mortgage Bankers Association.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Dave Stevens at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]

Source: housingwire.com