Mark Calabria

Apache is functioning normally

Let me be contrarian: Get ready, because mortgage rates are going to rise in 2021. Now before you respond, just read the rest as to why.

The Mortgage Bankers Association in its most recent forecast sees two things that stand out. First, 2020 will prove itself to be the second biggest mortgage year in history. Topping $3 trillion will put it only behind 2003 in single family mortgage production history.

Second, the MBA joined the GSEs and other economists who forecast a significant drop in mortgage production in 2021, with most estimating declines in the range of $700 – $800 billion year over year.

Some will try to argue, “but wait, Powell said the Federal Reserve would keep rates low for the foreseeable future! You must be wrong.” There is a difference here. Yes, the Fed will likely keep short rates low, but mortgage rates and some longer-term Treasuries likely won’t enjoy the same ride.

Here are the reasons why upward pressure on mortgage rates could stall the refinance wave and cut overall national originations volume in 2021:

1. The Fed: The Federal reserve is the single biggest buyer of agency mortgage backed securities (MBS) in the world. According to the Urban Institute, “In March the Fed bought $292.2 billion in agency MBS, and April clocked in at $295.1 billion, the largest two months of mortgage purchases ever; and well over 100 percent of gross issuance for each of those two months. After the market stabilized, the Fed slowed its purchases to around $100 billion per month in May, June and July. Fed purchases in July were $104.6 billion, 35 percent of monthly issuance, still sizable from a historical perspective.”

The question is what happens after a covid vaccine and a normalization of economic activity which is expected next year. The Fed is already being very careful not to commit to MBS purchases after the end of this year, a lack of commitment very different to their clear stance on fed funds. If the fed continues to slow or stop, something which is inevitable, the supply imbalance will force rates higher as MBS prices drop in search buyers to take up the excess.

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2. The Debt: The national debt is now at 100% of GDP, the highest level since WWII. Per

CBO’s September paper, “By the end of 2020, federal debt held by the public is projected to equal 98% of GDP. The projected budget deficits would boost federal debt to 104% of GDP in 2021, to 107% of GDP (the highest amount in the nation’s history) in 2023, and to 195% of GDP by 2050.”

The CBO’s projections for the U.S. deficits looking forward and the mounting debt load threaten the nation’s ability to do many things, as the majority of spending will be to mandatory expenditures that include interest on the growing debt load. Inflationary pressure will result from the need to finance these deficits through new issuance of treasuries, thus putting upward pressure across the stack of interest rates, a far different outcome than what the Fed may do to keep short rates low.

3. The GSE Capital Rule: The FHFA just closed off the comment window on the proposed capital rule for Fannie and Freddie. This rule is a critical component to FHFA’s plan to release the GSEs from conservatorship. The proposed rule is considered onerous by many with the consensus view stating in comment letters that rates would rise between 20-30 bps. Former Freddie Mac CEO Don Layton, former Arch MI CEO Andrew Reppert, and Fannie Mae each stated the same in their comment letters.

4. The Adverse Market Fee: This arbitrary add-on for most refinance mortgages from the GSEs of 50 bps equates to roughly an increase in rate of .125. This goes into effect on Dec. 1 of this year.

5. Release from Conservatorship: FHFA Director Calabria is working feverishly to release Fannie and Freddie from conservatorship and moving at a pace to lock in as much of this as possible quickly given the risk of an administration change. There have been outcries from MBS investors, including some of the largest buyers.

As reported, in a letter to Mark Calabria, director of the Federal Housing Finance Agency, PIMCO said freeing the companies by executive fiat would be interpreted by investors as an end to the government’s guarantee of the MBS. “That would boost mortgage rates and force some investors to sell the bonds,” the PIMCO executives said. Investors would demand a higher return for the increased risk. “Mortgage rates will increase, homeownership will likely suffer and the national mortgage rate will no longer exist,” the executives wrote.

For those in the mortgage industry, it doesn’t take all of these things to result in the forecasted 700-800 billion drop next year. Frankly just the slowing of MBS purchases and the implementation of the capital rule alone would do it. In fact, MBA’s forecast of the volume decline assumes only the slightest increase in mortgage rates, remaining in the low 3% range next year. In my conversations with economists, the view is that we will end the year with a good first quarter in 2021 simply based on year end overflow.

The second quarter may start off well, but the general sense is that by the third and fourth quarters the market will reflect the impact of coupon burn out and any of these events above beginning to take shape. One thing for certain is that the Fed does not like being in this deep, we saw that following QE activities during the Great Recession.

As MBA’s Fratantoni states in his recent Housing Wire article, “2020 has been a banner year for mortgage originators and the millions of households who have benefitted from record-low rates through refinancing. The industry will enjoy this boom for a while longer, but our expectation is that the refi wave is cresting.”

“Make hay while the sun shines” is an old expression. The sun is clearly shining on our industry this year. But it’s important for mortgage banking executives to not misread the statements of Chairman Powell as a commitment to anything more than short rates. The rally you are experiencing this year is due to interventions in the market due to a pandemic recession. Normalization will take out buyers, eliminate the supply “short,” and inflation will ultimately do its thing on rates just enough to cut the market by 25%-30% in 2021 and a bit more in 2022.

Planning ahead for that environment is critically important as market contractions will reduce spreads as well as volume. Thinking about the appropriate right sizing and forward-looking market strategies now will separate the winners from the rest.

Source: housingwire.com

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A bank capital proposal issued by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency has many in the housing policy community concerned that revised risk weights for bank-held mortgages could further erode banks’ market share in residential mortgages.

Bloomberg News

Many components of the capital rules that federal regulators proposed last month last month have elicited questions and concerns from in and around the banking sector, but none more than the treatment of single-family mortgages.

Trade groups representing banks and various parts of the mortgage industry have come out against the rules, as have housing affordability advocates. These groups say the impact of the proposed rule changes would be felt by the housing sector more so than the banks themselves.

“In the housing sector, which has just been in a sort of boxing ring getting punched, one after another, and getting exhausted from all that’s coming at them, this one is pretty incredible,” said David Stevens, a long-time mortgage executive who now heads Mountain Lake Consulting in Virginia. “We thought the current Basel rule made sense, but this one’s going to have downstream effects that are going to be very broad in the housing system.”

The change is expected to have at least a moderate impact on banks’ willingness to originate. While banks have been steadily ceding market share to independent mortgage banks and other nonbank lenders since the subprime mortgage crisis, they still play a key role in the so-called jumbo mortgage market, which consists of loans too large to be securitized and sold to the government sponsored enterprises Fannie Mae and Freddie Mac.

“The big, traditional mortgage lending banks have largely exited the field and that’s been going on for some time. This is the next nail in the coffin,” said Edward Pinto, director of the AEI Housing Center at the American Enterprise Institute. “This nail will make it harder for banks to compete with Fannie and Freddie, generally, and then take the one market they’ve had left to themselves, the jumbo market, and make it harder to originate because of the capital requirements.”

Some policy experts say the bigger impacts could come from the second-order effects of the regulation. In particular, they point to the treatment of mortgage servicing assets — the salable right to collect fees for providing day-to-day services to mortgages — as a change that could crimp the flow of credit throughout the housing finance sector and lead to higher costs being passed along to individual households.

“With potential borrowers already facing record high interest rates, steep home prices, and supply-chain issues, increased fees and scarcity of bank lenders could be another brick in the wall stopping Americans from obtaining meaningful homeownership and wealth creation,” said Andy Duane, a lawyer with mortgage-focused law firm Polunsky Beitel Green.

The proposal, put forth by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller on the Currency, notes that the rule change could result in second-order effects on other banks, but it largely focuses on benefits that large banks could enjoy relative to smaller banks as a result of the new rules. It notes that such risks are offset by a requirement that banks adhere to both the new framework and the existing one, to ensure they do not see their regulatory capital levels dip below that of the standardized approach. 

Still, the regulators are aware that the change could have unintended consequences on the mortgage industry and housing attainability. Because of this, their proposal includes several questions about the subject. 

“We want to ensure that the proposal does not unduly affect mortgage lending, including mortgages to underserved borrowers,” Fed Vice Chair for Supervision Michael Barr said while introducing the proposal in an open meeting last month. He added that housing affordability was one of “several areas that I will pay close attention to and encourage thoughtful comments.”

However, the proposal dismissed the idea that the new risk weights on residential mortgages would have a material impact on bank lending in that space. Citing various policy papers, academic studies and regulatory reports, the agencies assert that the risk-weight changes would lead banks adjusting their portfolios “only by a few percentage points.”

Stevens — who served as an assistant secretary in the Department of Housing and Urban Development in the Obama administration, a commissioner for the Federal Housing Administration and president of the Mortgage Bankers Association — said he is not convinced regulators have done sufficient analysis to rule out the type of sweeping, negative implications that he and others fear. He noted that the 1,087-page proposal includes fewer than 20 pages of economic analysis.

“I just don’t think they’ve thought through the downstream effects and the lack of analysis, in terms of actual financial estimates of the implications, is really concerning,” He said. “This will be a really big change, and that’s why you see everybody up in arms and the trade groups aligned against this proposal.”

Like other components of the bank regulators’ Basel III endgame proposal, the components related to mortgages would create standardized capital rules for large banks and do away with the ability for large institutions to use internal models. It also extends these requirements to all banks with more than $100 billion of assets, rather than only the largest, global systemically important banks.

The key provision in the package of proposed rules is the use of loan-to-value, or LTV, ratios to determine risk-weights for residential mortgage exposure. 

The change could allow banks to hold less capital against lower LTV mortgages, though there is some skepticism about much of a reduction in capital that change will ultimately entail, especially for GSIBs that previously relied on internal models, said Pete Mills, senior vice president of residential policy for the Mortgage Bankers Association. 

“Those risk weights aren’t published, so we don’t know what they are, but they are probably lower than 50% for low-LTV products,” Mills said. 

The Basel Committee’s latest regulatory accord, which was finalized in December 2017, envisions LTV ratios as a means of assigning risk weights. But Mills said many in the mortgage banking space were caught off guard by how much further U.S. regulators went beyond their global counterparts. The joint proposal from the Fed, FDIC and OCC calls for a 20 percentage point increase across all LTV bands, meaning while mortgages with LTVs below 50% are assigned a 20% risk-weight under the Basel rule, the U.S. proposal calls for a 40% risk-weight. Similarly, where the Basel framework maxes out at a 70% risk-weight for mortgages with LTVs of 100% or more, the U.S. version has a top weight of 90%.

Under the current rules, most mortgages in the U.S. are assigned a 50% risk weight, so loans with LTVs between 61% and 80% would see their capital treatment stay the same, and any mortgages with LTVs of 60% or lower would see a lower capital requirement. Loans with an LTV of 80% or higher, meanwhile, would likely see a higher capital requirement.

“For GSIBs, that’s probably an increase in capital throughout the LTV rank,” Mills said. “For the rest, it’s a higher risk weight for higher-LTV mortgages and maybe slightly lower in other bands, but, in aggregate, that’s not good for the mortgage market. It’s a higher risk weighting for most mortgages.”

Approximately 25% of first-lien mortgages held by large banks began with an LTV of 80% or higher, according to data compiled by the Federal Reserve Bank of Philadelphia. Roughly 10% have an LTV of 90% or higher, while half were 70% or lower. 

Mark Calabria, former head of the Federal Housing Finance Agency, said he is not surprised by the proposed treatment of mortgages, calling it a “natural evolution” of where regulators have been moving. He added that some elements of the proposal resemble changes he oversaw at Fannie Mae and Freddie Mac in 2020. 

Calabria said mortgage risk is an issue in the financial system in need of regulatory reform, but he questions the methods being considered by bank regulators.

“I worry that they’re making the problem in the system worse by driving this risk off the balance sheets of depositories, which is probably actually where it should be in the first place,” he said. “I’m not opposed to them tinkering in this space they just need to be more holistic about it.”

The proposal also notes that the new treatment of residential mortgages is aimed at preventing large banks from having an unfair advantage over smaller competitors.

“Without the adjustment relative to Basel III risk weights in this proposal, marginal funding costs on residential real estate and retail credit exposures for many large banking organizations could have been substantially lower than for smaller organizations not subject to the proposal,” the document notes. “Though the larger organizations would have still been subject to higher overall capital requirements, the lower marginal funding costs could have created a competitive disadvantage for smaller firms.”

Yet, while regulators say the proposed rules promote a level playing field, some see it giving an unfair advantage to government-backed lenders. 

Pinto sees the proposal as a continuation of a decades-long trend of federal regulators putting private lenders at a disadvantage to the governmental and quasi-governmental entities. He noted that if securities from Fannie and Freddie and loans backed by the FHA and Department of Veterans Affairs, which tend to have very high LTVs, are not given the same capital treatment as private-label mortgages, the net result will be the government playing an even larger role in the mortgage market that it already plays.

Pinto said despite these government programs targeting improved affordability, their provision of easy credit only drives up the cost of housing even further. He added that he hopes regulators reverse course on their treatment of mortgages in their final rule. 

“They should just back off on this entirely. It’s inappropriate,” Pinto said. “They need to look at the overall impact they’re having on the mortgage market, and the housing and the finance market, and the role of the federal government, and the fact that the federal government is getting larger and larger in its role, which is inappropriate.”

The other concern is a lower cap on mortgage servicing assets that can be reflected in a bank’s regulatory capital. The proposal would see the cap changed from 25% of Common Equity Tier 1 capital to 10%. 

Mills said the capital charge for mortgage servicing rights is already “punitive” at a risk weight of 250%. By lowering the cap, he said, banks will be forced to hold an additional dollar of capital for every dollar of exposure beyond that cap. He noted that regulators had raised the cap to 25% five years ago for banks with between $100 billion and $250 billion of assets to provide some relief to large regional banks interested in that market. 

If the cap is lowered, Mills said banks will be inclined to shed assets and shy away from mortgage servicing assets. Such moves would force pricing on servicing rights broadly, a trend that would ultimately lead to higher costs for borrowers.

“MSRs are going to be sold into a less liquid, less deep market, and there are consumer impacts here because MSR premiums are embedded in every mortgage note interest rate,” Mills said. “If MSR values are impacted by this significantly, that rolls downhill through the system. An opportunistic buyer might be able to buy rights at a depressed value, but that depressed value flows through to the consumer in the form of a higher interest rate.”

The proposal will be open to public comment through the end of November, after which regulators will review the input and incorporate elements of it into a final rule. Between the questions raised in the proposal, the acknowledgement by Fed and FDIC officials that the changes could hurt housing affordability, and the strong negative response to the proposal, there is optimism that the ultimate treatment of residential mortgages will be less impactful.

“Nobody seems to be pushing for this, and nobody other than the Fed seems to like it,” Calabria said. “If I was a betting man, it’s hard for me to believe that this is finalized the way it is now in terms of mortgages.”

Source: nationalmortgagenews.com

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Apache is functioning normally

Fannie Mae is sharing more credit risk with the private sector, completing two offerings  consisting of single-family pools totaling 81,000 mortgages with a combined unpaid balance of $26.6 billion.

The government-sponsored enterprise transferred $789 million of mortgage credit risk to 21 private insurers and reinsurers, according to a press release Thursday. The pools are the sixth and seventh such transactions this year, adding to the $25.2 billion of insurance coverage the GSE has acquired through its Credit Insurance Risk Transfer program.

The deal was brokered by professional services firm Aon PLC and sub-brokered by a new partner, Protecdiv, a minority business enterprise that is an insurance and reinsurance broker. 

“We hope their participation will help draw more diverse-led firms into this space,” said Rob Schaefer, vice president of Capital Markets at Fannie Mae. 

The first pool, CIRT 2023-6, covers 30,000 single-family mortgages with a combined outstanding UPB of $9.65 billion. The mortgages have loan-to-value ratios between 60.01% and 80%. Fannie said it would retain risk for the first 130 basis points of loss on the pool. After the $125 million loss would be absorbed, 20 reinsurers will cover the next 405 basis points of loss up to $391 million. 

The second pool, CIRT 2023-7, has 51,000 single-family mortgages with an unpaid principal balance of $16.9 billion and LTVs between 80.01% and 97%, according to Fannie. The GSE will retain risk for the first 155 basis points of loss, or $262 million, while 20 reinsurers will cover the next $398 million, or 235 basis points of loss.

The insurance is based on actual losses for 12.5 years, but the coverage can be reduced after a period of one year and each month thereafter depending on paydowns and serious delinquencies. Fannie can also pay a cancellation fee and opt out any time after five years. 

The GSE continues to forecast a recession in the second half of this year, but borrowers meanwhile account for delinquencies at the end of the first quarter near some of their lowest levels on record, according to the Mortgage Bankers Association. 

Fannie through the CIRT program is responsible for insurance on $850 billion of single-family loans, it said. The GSE shares its risk through CIRTs and other forms of credit-risk transfers. It passed Freddie Mac last year in single-family credit risk transfers for the first time since 2019. 

However, Freddie has a larger cumulative reference pool since its program began in 2013, totalling over $3.26 trillion for Freddie compared to over $2.98 trillion for Fannie. That is largely because Fannie Mae stopped all credit risk transfer activity between March 2020 and October 2021,  in part due to COVID-19’s disruption of the markets, but also because of a change to the government-sponsored enterprises’ capital framework by former Federal Housing Finance Agency Director Mark Calabria, which increased the risk weighting for these securities.

Source: nationalmortgagenews.com

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It’s that time again when we fret about the viability of the 30-year fixed mortgage.

This last occurred in 2014 when Dick Bove warned that the Fed’s tapering of mortgage purchases would mean curtains for the popular loan program.

Say Goodbye to the 30-Year Fixed?

It seems to happen every few years as folks start speculating about the future of Fannie Mae and Freddie Mac.

The pair have been under government control since 2008 after the mortgage crisis basically tore them to shreds.

Today, the Senate Banking Committee is going to hear from Mark Calabria, who has been nominated to become the next Federal Housing Finance Agency (FHFA) director.

Assuming he replaces current director Mel Watt, some worry the very well-liked and widely used 30-year fixed mortgage may cease to exist.

The basis for that argument is he might unwind Fannie and Freddie, which back the majority of 30-year mortgages out there.

They’re able to play “middleman” as the WSJ puts it, by linking the loans with outside investors who are willing to take on the risks associated with a three-decade long fixed-rate loan.

But if Calabria gets elected and decides that he doesn’t want the government to purchase 30-year fixed mortgages anymore, he could direct Fannie and Freddie to stop buying or backing such loans.

This could make the mortgage market a lot less liquid for home loans with 30-year fixed terms, thereby pushing them to extinction or greatly increasing their price.

If fewer investors are willing to buy them from originating lenders, they might only be offered by portfolio lenders that hold onto them until payoff or maturity.

A Shift to ARMs?

As a result, these few lenders could demand a higher interest rate in return, which could make 30-year fixed mortgages a lot less competitive.

It could also lower home prices in the process if financing got more expensive across the board.

The spread between the 30-year fixed and 5/1 ARM has ranged from just 0.27% to as much as 1.30% since Freddie Mac began tracking it in 2005.

In other words, there was a time when you could lock in an interest rate for a full three decades that was a mere quarter-percent higher than a loan with an interest rate fixed for just five years.

This really illustrates the investor appetite for long-term fixed-rate mortgages thanks to that government backing.

Nowadays, the spread is closer to a half-percent, per Freddie, though it’s possible to get a larger discount with certain lenders.

But if confirmed, and Calabria decided that the government should curtail support for the 30-year fixed, it could send associated interest rates markedly higher.

At the same time, alternative loan products like the 5/1 ARM or 7/1 ARM would probably become comparatively attractive.

The spread could really widen if lenders were no longer able to find a home for their 30-year fixed products.

At worst, individual banks and lenders could decide to throw in the towel on them entirely, really driving up the price for the few willing to still deal in such products.

The fear is kind of real because during Calabria’s stint at think tank Cato Institute he indicated a willingness to lessen government support for the 30-year fixed.

For the record, long-term fixed mortgages accounted for just 1% of home loans in Spain, 2% in Korea, 10% in Canada, 19% in the Netherlands, and 22% in Japan per a 2013 study. ARMs were also dominant in the UK and Ireland.

But Calabria Has a 30-Year Fixed on His Own House

Now for the best part. Per that WSJ article, Calabria apparently has a 30-year fixed on his own residence that was purchased back in 2010.

At the time, 30-year mortgage rates ranged anywhere from 4.23% to 5.10%, per average monthly data from Freddie Mac.

Mortgage rates dropped about a full percentage point in subsequent years, and it’s unclear if he took advantage with a rate and term refinance.

Anyway, as former Obama administration housing adviser Jim Parrott aptly points out in the article, “the fact that Mr. Calabria has such a loan demonstrates its value.”

You can already read Calabria’s testimony here and there’s no mention of the word “30” or “fixed” throughout his prepared remarks.

What he does say is “that if confirmed, my role as Director of FHFA is to carry out the clear intent of Congress, not to impose my own vision.”

He mentions this after citing his “extensive record of writings in the area of mortgage finance” where at times he has “expressed strong opinions.”

It’s All Probably Just Noise

In other words, he’ll likely make it a point not to ruffle any feathers, as is the modus operandi these days for one looking to get confirmed.

So it’s probably all just another case of mindless fear mongering to think that a loan program that commands something like 90% of the home purchase market and nearly 80% of all mortgages including refinances could just disappear overnight.

Chances are that wouldn’t please a lot of people, even if the product isn’t in their best interest.

I’ve made the argument before that an adjustable-rate mortgage could save a homeowner a ton of money, especially given the relatively short tenures we see these days.

Many homeowners only stick around for 5-10 years before moving onto to another property, so why pay more for an interest rate you may not keep for anywhere close to 30 years?

(photo: Kristin Ausk)

Source: thetruthaboutmortgage.com

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It’s the first of the month, and with that comes fear and uncertainty that both homeowners and renters won’t be able to make payments due to loss of income related to the coronavirus.

While it’s not clear how bad things will get just yet, CNBC interviewed FHFA director Mark Calabria to get some preliminary numbers, which he himself called “very rough” and subject to change quickly.

Two Million Missed Mortgage Payments by May

  • 300,000 missed payments for Fannie/Freddie owned loans in April
  • 700,000 missed payments for overall market in April
  • Jumps up to 1M and 2M respectively by May
  • Expected to be worse for government loans backed by FHA/VA

He currently estimates that roughly 300,000 home loans backed by Fannie Mae and Freddie Mac could go delinquent in April, which is just over 1% of their book.

For the overall mortgage market, he said that translates to roughly 700,000 delinquent home loans.

By May, those numbers jump up to one million and a little more than two million missed payments, respectively.

He sees more stress in FHA/VA loans due to their lower credit score requirements, higher DTI ratios, and so on.

While it sounds pretty dire, Calabria was quick to point out that it only represents somewhere between 3-5% of the market, and that he’s “not seeing worst-case scenarios.”

This is counter to a comment made by MBA chief economist Mike Franantoni, who warned that if a quarter of U.S. homeowners (~12.5 million households) sought six months of mortgage forbearance, loan servicers could owe between $75 and $100 billion to investors.

Meanwhile, Mark Zandi, chief economist for Moody’s Analytics, said up to 15 million Americans could default if the lockdown goes through summer.

That would likely crush many loan servicers who lack the liquidity to face a barrage of missed payments, but the hope is it doesn’t come to that. Or the Fed steps in to help.

Calabria noted that if borrowers only miss 2-3 months of payments, most loan servicers should be OK, but if it goes beyond that time frame, a lot of firms will face liquidity problems.

Top retail mortgage lender Quicken Loans also services about 1.8 million home loans, and CEO Jay Farner said the company’s balance sheet is “strong enough” to pay holders of bonds backed by its mortgages in the event many default.

However, most forbearance requests have apparently come from homeowners who’ve never been late, which he says as a good sign they’ll get back on track once normal employment resumes.

Additionally, he pointed out that 70-80% of calls were from homeowners not yet facing hardship, who apparently just wanted to know their options.

He did reiterate that, “If you can pay your mortgage, please do so.”

The CARES Act Allows Borrowers to Miss 6-12 Mortgage Payments

  • Homeowners with a federally-backed mortgage can request forbearance for 180 days (and an additional 180 days)
  • Applies to FHA/VA/USDA and Fannie Mae/Freddie Mac loans
  • Simply requires borrowers to request assistance from their loan servicer and say they are facing a hardship related to COVID-19
  • Lenders may not charge fees, penalties, or interest beyond what would have been due had borrower remained current

The passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows homeowners with a federally-backed residential mortgage to request forbearance for up to 180 days, or six months.

This includes FHA loans, USDA loans, VA loans, and home loans purchased or securitized by Fannie Mae or Freddie Mac.

That’s most of the mortgage market, aside from jumbo loans and portfolio loans kept on banks’ books.

It also grants them the ability to request an additional 180 days of forbearance if needed, or to cancel it at any time.

During the forbearance period, lenders may not charge fees, penalties, or interest beyond what would have been due had the borrower made all contractual payments on time and in full.

It’s still unclear what happens after the forbearance period ends. Does the loan servicer assess the borrower’s ability to get current or simply add the missed mortgage payments to the end of the loan term? Who knows.

Update: You can now get up to 15 months of mortgage forbearance.

Can Anyone Get Mortgage Forbearance Under CARES Act?

  • The CARES Act doesn’t define what a “financial hardship” is
  • Nor are loan servicers allowed to require additional documentation to grant mortgage forbearance
  • Both Calabria and Treasury Secretary Steven Mnuchin have urged homeowners to pay their mortgages if they can
  • But at the moment it appears anyone can qualify without proof of hardship

All a homeowner has to do to get mortgage forbearance is submit a request to their loan servicer that they are “experiencing a financial hardship due, directly or indirectly, to the COVID-19 national emergency,” regardless of delinquency status.

Other than that attestation from the homeowner, a loan servicer may not require additional documentation to grant mortgage payment forbearance.

This means you don’t have to prove loss of income or unemployment to qualify, something Calabria acknowledged while saying “we’re operating on the honor system.”

In other words, it should be very easy to get six to 12 months of mortgage payments put on hold with little more than a request, without the typical hoops to jump through.

While great for homeowners in need, it could be a disaster for loan servicers and the mortgage industry in general, assuming millions take part in the relief effort.

Read more: What’s the Last Day to Apply for Mortgage Forbearance Under the CARES Act?

Source: thetruthaboutmortgage.com

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Mortgage Fees (Seriously) Spurred Outrage on TikTok. Here’s Why.

Changes to fees applied to federal mortgages have led to a misconception that borrowers with low credit scores will pay less at the expense of borrowers with good credit.

Credit…Adam Maida

Published May 7, 2023Updated May 8, 2023

Mortgage fees usually induce yawns and glazed-over eyes. But when word began circulating last month that updated pricing would cost some home buyers more, it resulted in viral TikTok videos with thousands of outraged comments misinterpreting the new rules.

Many critics raised similar questions: Why were some borrowers with lower credit scores and down payments receiving improved pricing on their mortgage rates, while others with high credit scores and larger down payments were being charged more? Are responsible borrowers subsidizing riskier loans?

The changes made the rounds on cable television, even landing a spot on Tucker Carlson’s final show on Fox News, where he claimed that they were going to provide incentives for bad behavior. But much of the controversy focused on the winners and the losers of the pricing updates — and not the fact that the most creditworthy borrowers with large down payments would still pay much less. To clear up any confusion, the federal regulator behind the new pricing had to issue a statement: Sparkling credit still pays.

“You still get a better rate and loan pricing if you make a higher down payment and have better credit,” said Bob Broeksmit, president and chief executive of the Mortgage Bankers Association, an industry trade group.

January, when the regulator that oversees Fannie and Freddie — the Federal Housing Finance Agency, known as the F.H.F.A. — introduced new pricing charts that lay out how fees are applied to different borrowers and loan types. But the change may have resurfaced now because the updated fees became effective for loans delivered to Fannie and Freddie on May 1. Given the time it takes to close new loans and home purchases, the new fee menus had already been incorporated into mortgages for a while.

There’s little borrowers can do to control the market forces that drove up interest rates on mortgages in the past year. They stood at 6.4 percent as of Friday, nearly twice their level at the start of last year. But your financial profile — your credit scores, the size of your down payment — also factors into how much you pay for a loan. That’s where these fees come into play.

Depending on how borrowers stack up, they will pay a separate fee on a mortgage backed by Fannie Mae and Freddie Mac.

Those fees, which are a percentage of the loan amount, are often layered on top of a borrower’s base mortgage rate; and the higher your credit score, the less you generally pay. In other words, the riskier the loan is deemed to be, the higher the fee.

Freddie Mac, can add $30 to $70 a month for every $100,000 you borrow). That means they pay more, in total, than those with down payments of 20 percent or more.

The insurance protects the lender, not the borrower — that, in turn, reduces some of the risk of borrower default to Fannie or Freddie and shifts it to the private insurer. “So those who put down less than 20 percent pose less risk,” according to a recent paper by Jim Parrott of the Urban Institute, “and should pay less in fees.”

Those nuances aren’t easily explained in short clips on social media. Instead, many critics figured that less creditworthy borrowers were getting a break at the expense of those with higher scores.

“Did you ever think in a million years that having good credit would actually punish you if you were buying or refinancing a home?” one outraged TikTok user asked.

“Guess I’ll go drop my credit score by over 100 points before I go buy my 1st home,” a commenter added.

Those sentiments — or some version of them — gained traction on cable television, social media and elsewhere. “We’re hurting the good people,” Mr. Carlson said during his segment.

Sandra Thompson, the director of the F.H.F.A, explained in a statement meant to “set the record straight” on why the agency made the changes, which began with a review of Fannie and Freddie’s pricing and programs in 2021 (it was last updated in 2015). The agency reiterated that it had recalibrated the fees on its most traditional mortgages to better reflect the risks of the loans and to strengthen its finances.

mission. And the F.H.F.A. said it made other changes to help support those goals.

At the beginning of last year, the agency said it would raise fees on loans that weren’t exactly central to that mission: It increased pricing on vacation home loans, larger mortgages (in some high-cost areas, these loans exceed $1 million), as well as on borrowers who refinanced their loans and withdrew cash from their home equity. “It is through those increases that we were able to eliminate fees for certain home buyers that are lower or moderate income,” according to F.H.F.A. officials.

Gary Acosta, a co-founder and the chief executive of the National Association of Hispanic Real Estate Professionals, said he thinks borrowers on the margins were paying an excessive amount in fees in relation to the risk they added to Fannie and Freddie’s mortgage portfolios. But he doesn’t think the price changes are meaningful enough to make a big difference.

“It is not clear that these price adjustments are going to result in more borrowers being able to participate in homeownership,” Mr. Acosta said. These borrowers may still be more likely to find better pricing through the Federal Housing Administration, he said, a government agency that insures mortgages made largely to first-time homeowners, often with small down payments and lower scores than Fannie or Freddie will permit.

Mark Calabria, a former director of the F.H.F.A. and a senior adviser at the Cato Institute, a libertarian think tank, also expects the pricing changes to have minimal effects on the broader housing and mortgage markets.

But there are practical takeaways. People living in higher-cost areas who need larger mortgages to finance their homes, for example, may be better off getting mortgages through providers that hold the loans in their own portfolios instead of selling them to Fannie or Freddie.

“It still pays for you to build your credit and to shop around,” said Mr. Calabria, “even more now.”

@tarasbernard