Regulatory Compliance

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HousingWire Editor in Chief Sarah Wheeler sat down with Nicolas Guillen, co-founder of BaseCap Analytics, to talk about data, AI and the problems we still need to solve.

Sarah Wheeler: Your background includes experiences in banking and capital markets, including working at Morgan Stanley as a credit risk manager. How do you leverage those experiences at BaseCap?

Nicolas Guillen: I met my co founder, Steve Smith, at Morgan Stanley during the financial crisis. And we spent a lot of late nights monitoring data to analyze it and then figure out: How do we prevent what will cause the next financial crisis? We did a very critical analysis. We testified at the Federal Reserve with the analysis we did to help other banks do the same type of analysis. But to get to the point where data was fit for purpose, it took a really long time. So we decided to start a software company that took the frameworks that we used and enhance data and validate data quicker.

We started working with financial institutions, just given our background. But we built the platform so that it could help validate data in any industry — we’re looking at use cases in the airline industry for example. But our first clients have all been either financial institutions or some type of mortgage company, whether it’s an investor, a servicer, or an originator — we validate mortgage data throughout the life of the loan.

SW: What are the major challenges that companies have with their data?

NG: The biggest challenge every company has is that the amount of data that’s created now is greater than all of the data created in history. And it’s because every single person is creating data. We’ve thought of data quality as business quality — it is critical for businesses to have good, accurate data to be able to make faster decisions.

In the 90s, I think the priority was to warehouse data, just have data sit somewhere. In the 2000s, the priority was making data accessible and having “big data,” if you will. But in the past five to 10 years, the priority is no longer just having access to data. Everyone’s using data, but it’s how you use it. And there have been a lot of AI companies coming out with models that help come up with insights from your data. But the pipes need to be really clean and the data needs to be completely accurate before attempting to use any type of data since business-critical business decisions will rely on this data.

That’s why at BaseCap we’re so proud of guaranteeing that data is accurate and fit for purpose before it’s used by the organizations.

SW: There are tons of people out there talking about data, there are less people who address using data to really impact your business.

NG: Yes, in fact, when we speak to clients, one of our strengths is that we relate to the pain that they’re experiencing. Business people are the ones feeling the pain, and they rely on their technology teams to be able to fix any type of data problems. Since there are so many philosophies behind treating data and managing data, we will always sit on top of databases, but which specific databases we need to sit on depends on the client. We see the data and technology teams as our partners internally and the business people as the major beneficiaries of our offering.

SW: All this data represents a lot of opportunity for mortgage companies, but also poses a lot of risk.

NG: Yes. Our first use case was heavily reliant on regulatory data — credit risk data that went out to the Federal Reserve and the OCC, and so our target was always governance, compliance, and making sure that banks are using accurate data for this type of critical analysis. As a business strategy, we’ve always targeted organizations that are heavily regulated, because data has become such a critical component of their compliance and ongoing operations. Our background empowered us to create a tool that’s built with that compliance and governance framework in mind.

SW: How is BaseCap utilizing AI?

NG: We are using generative AI to enhance the policies we use to find anomalies in data. It’s a critical part of the expansion we’re planning into new industries, which is going to be incredibly efficient because of the use of AI. The way we create all the policies to check on the accuracy of data for banks, has relied on expertise from industry experts and team members. Having the power of generative AI sourcing expertise for other industries with the proper guardrails, of course, is going to enable us to have a much leaner operation to scale.

SW: When you look five to 10 years out, what will be the next set of problems to solve?

NG: It’s hard to tell, but some of the discussions that we had at NAHREP‘s L’Attitude event involved understanding new platforms and new things being offered. And within those, we have blockchain, we have signature technology, we have background checks, credit checks that are done a lot more seamlessly nowadays. And all these things are huge innovations for the mortgage industry. And every industry is going through similar types of innovations.

But for us to be able to really see all of these come together, there needs to be a seamless and efficient integration. The orchestration of all these platforms is going to be what drives the actual change in how things are done.

SW: You mentioned NAHREP and L’Attitude, where you were part of the Matchup pitch competition last year, and they became one of your investors. What has that investment meant to BaseCap?

NG: L’Attitude has a set of partners that are incredibly influential, not only in the mortgage industry, but in tech and politics and in business. The former CEO of United Airlines is a partner. We have a team that’s incredibly involved. Gary Acosta, the co-founder and CEO of NAHREP and a partner at L’ATTITUDE Ventures, meets with us on a weekly basis to discuss sales pipeline and makes introductions from his industry network. And we have expertise sessions with finance experts and sales experts that help support our operation. It’s exactly what we were looking at in an investor: having that involvement and alignment that’s not limited to capital but that also adds day-to-day value to our operations.

Source: housingwire.com

Apache is functioning normally

Apache is functioning normally

For example, bank regulators in July released a plan to increase capital requirements for residential mortgages, the Basel III Endgame rules. Redwood executives are positioning the company to acquire mortgage loans in the market, mainly jumbos, with the expectation that banks will have a reduced appetite. 

Abate doesn’t think “banks are going to necessarily exit the mortgage market,” but they will “be heavily disincentivized from growing mortgage portfolios.” Ultimately, “the real shift is going to be all those jumbos that were going to banks will come back out, hopefully to non-banks like us.”

Another opportunity is in the home equity space. Redwood launched in September its in-house home equity investment (HEI) origination platform called Aspire. Through Aspire, Redwood plans to directly originate HEIs by leveraging the company’s nationwide correspondent network of loan officers and establishing direct-to-consumer origination channels, the company said. 

“The interesting thing about HEIs is instead of a homeowner taking out equity in the form of cash and paying a mortgage on it, there is no monthly payment within HEI,” Abate said. “The way the investor gets paid is that you share in the upside of the home.” 

Abate explained the impacts of the Basel III Endgame rules on the market, the rationale behind the home equity investment product, and more about Redwood strategies in an interview with HousingWire from a company’s office in New York last week. 

This interview has been condensed and edited for clarity.

Flávia Nunes: How has Redwood strategically positioned itself in the residential mortgage space amid all of these potential regulatory changes?

Christopher Abate: Redwood is almost a 30-year-old company. The company was originally built to serve banks and others with the thought that there was no private sector [to invest in mortgage assets], only Fannie Mae and Freddie Mac. We would partner with banks to buy their loans and securitize them so the banks could recycle their capital. We don’t originate residential mortgages. We don’t service them. We’re very similar to the GSEs. We modeled the business to serve that role in the private sector. The mortgage market has changed over the decades. We’ve seen a few cycles. We’ve got the Great Financial Crisis, the Covid-19 pandemic, and now we’ve had a lot of interest rate volatility. Along the way, there have been many regulatory changes that have impacted the market; the CFPB has been created, and there’s the Dodd-Frank Act. Then there are the Basel rules, the regulatory capital rules for banks. And that’s what’s really in play today. 

We’ve positioned the company, from a strategic perspective, with the thought that banks will be heavily disincentivized from growing mortgage portfolios as an earning asset class. The banks are not going to necessarily exit the mortgage market because the mortgage asset is the biggest that a client takes out, and you want to be there for all the cross-selling in all the other consumer products. Banks will always serve their best clients. But viewing the mortgage portfolio as an investment class, that’s where the posture will shift because the capital required to hold against it [residential mortgages] is going to go up. And just based on the rapidly rising rate of deposits, just given where interest rates are at, the net interest income that they earn is getting squeezed. Banks move slowly. This will be an evolutionary shift, not an overnight shift. 

Nunes: As you noted, bank regulators released a plan to increase capital requirements for mortgages through the Basel III Endgame rules. Can we expect changes to what was proposed?

Abate: Yes, it will change. In particular, some of the sliding scale capital charges are based on things like LTV [loan-to-value]; there’s a fair likelihood that that changes because of the way it disproportionately impacts first-time homebuyers and underserved communities. But the rule is not going away. Bank regulators are paid to keep things safe. And the idea that regulators are going to allow banks to continue to do what a First Republic or Silicon Valley Bank did, I don’t see that in the cards. 

We saw significant changes after the Great Financial Crisis, which was more of a credit crisis. We saw banks getting out of risky credit mortgages like option ARMs and some subprime lending happening back then. There will be changes. Banks will not wait for the rule to be finalized to start implementing it. There will be some evolution to the rule itself. But the thrust of the rule is that it’s going to be more expensive for banks to hold mortgages.

Nunes: If banks won’t wait for the Basel III Endgame to be finalized, how are they anticipating the rules?

Abate: A year ago, banks were very happy to hold mortgages, deposit rates were sticky, and the cost of deposits was still very low. Now, all of them are looking for a capital partner, at least an option to have liquidity. The tone has changed dramatically amongst bank executives. Some banks move more slowly than others.

I like to remind people that independent mortgage banks live and die by liquidity. They care about the basis point. Banks don’t operate that close to the ground. Things take longer to develop, but the relationships are also typically stickier. Once you forge a strong partnership with a bank partner, the likelihood of them shopping for that liquidity is much less than an independent mortgage bank that is trying to optimize every dollar.

Nunes: In your recent 2Q 2023 earnings report, you mentioned acquiring three bulk pools of loans from depositories, primarily with seasoned underlying loans at attractive discounts. How is the secondary market now for these trades in terms of volumes and prices?

Abate: I certainly expect RMBS volumes to go up significantly over time. It’s not something that happens overnight. We’ve been active. We just completed a deal in August. I would expect us to continue using securitization. 

Right now, we’re in this hybrid phase where loans that are getting securitized are partially seasoned loans, and some of the loans have gone down in value–the lower coupon mortgages. The banks have been slowly selling some of those, and Wall Street dealers have quite a bit in inventory. We’re still seeing a lot of that aged collateral coming out through securitization. Issuers like Redwood have been combining current coupon mortgages. We saw this last year in the private sector securitization market, where we had all of this aged inventory. It was hard to get investors to focus on the collateral because there was so much sitting in inventory that they could price it wherever they wanted to. The pricing now is probably the best it’s been in a year, maybe two years. So, the market is finally starting to cross back into more current coupon on-the-run production, which is what we’re focused on.

We’ve completed well over 100 residential securitizations, close to 140 If we factor CoreVest. There’s been years we’ve done 12-15 securitizations. There’s been years where we’ve done none or one. So, we very much want to get volume going again to the extent we could be in the market with certainly a deal a quarter, but if not two or three, that would feel the base to me.

Nunes: In terms of products, what the current landscape brings in terms of opportunities? 

Abate: Right now, the biggest opportunity, ironically, is in the regular prime jumbo market because that was the product banks were most focused on. And they weren’t wrong to focus on it from a credit standpoint because when the banks got through the Great Financial Crisis, all the big regulatory shifts were to get them out of taking risky mortgages on the balance sheet. Then, they started taking less risky mortgages, which are jumbos. The real shift is going to be all those jumbos that were going to banks will come back out, hopefully to non-banks like us. 

Nunes: Redwood also launched a home equity platform. What is the strategy here? 

Abate: When you look at prime rates in the high single digits and add a credit spread to that, even for the most well-qualified borrowers, you are looking at a 10% to 12% interest rate on a second mortgage. For a well-qualified borrower, 750 FICO or above, and a low-LTV first mortgage, you might be comfortable paying 10% to 12%. But that’s the best-case scenario. For everybody else, unlocking that equity is even more expensive. We’re seeing that for the traditional second mortgage products, there’s way more investor demand than consumer demand.

We’ve rolled out the traditional products and a newer product called home equity investment [HEI] options. The interesting thing about HEIs is instead of a homeowner taking out equity in the form of cash and paying a mortgage on it, there is no monthly payment within HEI. The way the investor gets paid is that you share in the upside of the home, so the home price appreciation. There are a lot of use cases for HEI over traditional products. If you think about somebody with a lot of student debt or lower FICO, they’re going to qualify for a very expensive second mortgage. So, this is a good option. It doesn’t add to their monthly payment obligation. You can do what you want with the cash, just like with a home equity line of credit, but not having the payment. It’s a bridge until the second mortgage is cheaper.

Nunes: To invest in this product, investors must believe home prices will keep rising, right?

Abate: There are a couple of things investors care about. You have to believe in a HPA [home price appreciation] story. But one way we mitigate that is we strike the price of the home at a discount to its current appraised value. So that, even if the home is sold next week, the investor will make money. If you believe that interest rates are nearing the top, as far as the Fed’s rate hike cycle, HPA should start to realign. If rates are going down, HPAs are going up. Investors are starting to get comfortable with this huge move in rates, hopefully, this fall is gonna pause. 

Then, ultimately, the investors want to understand if we give you $100,000 with this HEI, when do they get their money back? Because it’s a 30-year product. And that’s where we’ve designed the product, which is unique to Redwood, that creates strong incentives for the homeowner to refi.

Nunes: How did you get the property at a discount? 

Abate: The product is for people in their homes that are not moving out. There isn’t an actual transaction on the property. It’s somebody that wants to stay in their home. And if it’s a $1 million home, and we offer you $150,000 HEI, we might strike that HEI at $900,000. Let’s say it’s a $1 million home, and for purposes of coming up with the investor return, we’re going to call it a home at $850,000. Even if they sold the home at a $50,000 loss, the investor would still generate a return, and that’s what gets investor capital into the asset class. But what the homeowner gets is all of the proceeds, the cash and no monthly payments

The investors are institutional investors, well-known institutions, firms, pension funds, and life companies; they’re all just to varying degrees focused on HEI now. And the big reason is that nobody’s been able to tap this massive home equity opportunity. We are going to give it a try. 

Nunes: Residential mortgages are just one facet of the business. What are your plans for commercial real estate, which has had a challenging year?

Abate: What we do here in New York is our business-purpose lending platform. We realized a number of years ago that investors are becoming a much bigger participant in the real estate markets. Serving them and providing bridge loans to investors who want to flip homes or provide turned-out financing for investors who want to rent homes, that’s an entire other residential business that we run under the flag of CoreVest. In residential, we’ve more or less stuck to our knitting of non-agency. We’ve had opportunities to enter the agency space in the past and participated in certain instances, but mostly, what we do is non-agency. 

Nunes: You mentioned banks, but what are the business opportunities with IMBs?

Abate: We’ve had a great long-term relationship with the IMBs. The IMBs have a big opportunity to pick up some [market] share. Since the Great Financial Crisis, most of our business has been with the IMBs. We have a network of between 150 to 200 [partners], predominantly non-banks that we will buy mortgages from. We expect that to rebalance in the next few years. But the IMBs are also a big opportunity to take clients from the banks.

Nunes: And what are the plans for servicing mortgage rights? 

Abate: Servicing will continue to move out of the banks. That’s another big opportunity that we’ll focus on. We don’t plan to operate as a servicer, but we might own servicing rights. What we’ve done typically is when we own servicing rights, we will subservice. We want to hire somebody with a call center. And we’ll pay them a monthly fee. But when you balance out the revenue potential with the servicing asset, with the cost of service, there are still good opportunities. There’s a lot of competition for servicing. For some mortgage REITs, that’s their primary asset class, just not for us.

Nunes: Can you shed some light on your partnership with Oaktree and Riverbend?

Abate: Both of those are related to the business-purpose lender space. Oaktree is a great example of us expanding our capital partnerships into the private credit sector. Redwood is a publicly traded company, and historically, when we needed to raise money, we would do a common stock offering or a public market deal. When rates started going up, things got pretty ugly for the mortgage REIT space and the public markets. We and all other mortgage REITs started trading at discounts. Raising money in that environment hasn’t been overly attractive. So, building partnerships with private credit firms like Oaktree to focus on specific asset classes is a big part of what we want to do. One aspect that’s attractive to us is we can earn asset management fees.

The Oaktree model is something that we want to replicate on the residential side as the jumbo opportunity picks up. We’ve been in discussions with other private credit investors and institutional investors who see the same opportunity as in jumbo and non-QM.  

Nunes: With a reported cash and cash equivalents of $357 million as of June 2023, can we anticipate any M&A activities, especially considering the challenges faced by many lenders in the industry?

Abate: M&A activity has picked up in the space and based on our track record, we are a logical call. Part of our strategy is: to be active in M&A, you have to be active. It’s not efficient to call on at eight, seven different firms. You start with the ones that have shown interest in actually transacting. We have seen some opportunities, and nothing I can share in this interview, but it’s safe to say we’ve been active in M&As and we’ll continue to focus on that as part of our growth strategy.

We haven’t been open to it [acquiring a lender]. For many years, we’ve wanted to keep the business sort of regulator-light. The best way to do that is not to directly face consumers with products. We’re comfortable originating to investors, that’s what CoreWest does. But investors are sophisticated business-run ventures and not homeowners who may or may not be sophisticated in the financial markets. We have tended to not originate, but I think where we’re at as a company is from a strategic standpoint, we’d be much more open to it through M&A.

Nunes: What do you expect for the macro landscape in the coming year?

Abate: There’s such a vast shortage of supply of homes in many parts of the country, which is supporting home prices. The Fed consciously inflated home prices, particularly during the COVID years. These high asset values prevented normal credit losses you might see through a cycle. The combination of QE-fueled asset prices with an economy that hasn’t dropped off too much has created a strong housing market. 

But credit in residential housing should perform immensely better than many facets of the commercial real estate market. There’s so much vacancy in these central business districts. These buildings are valued based on cash flows– not like a residential home, which is an appraisal. If it’s 50% full, it’s worth half as much. From a credit standpoint, certain facets of the commercial real estate sector will have a rough road ahead.

I’m probably supposed to say this, but I feel better about my sector. The technical supporting housing will continue to be strong. The big challenge with residential today is just transaction activity. If you own a home with a 3% mortgage, you don’t want to sell it. If your home suits your needs, the prospect of doubling your monthly payment to move is very unappealing. The real challenge in residential has been a lot of capacity to make loans, but there’s not much demand. If rates do stabilize, that will change quickly. When the market thought in January that rates were stabilizing, we saw a pickup in loan activity, and then they started going up again; we’ll see what happens this fall. 

 Nunes: Do you see a crisis on the commercial side of the market? If so, how could it impact the residential side?

Abate: It’s hard to say. The only real obvious driver for a crisis is what could be a permanent impairment of occupancy in these commercial office buildings. The way that can affect our markets is there’s a trickle-down effect. If the buildings aren’t full, the restaurants aren’t full, the delis aren’t full, the subways are not full, and the hotels aren’t full because people aren’t traveling to see people in the office. That could have an effect on the economy in general, which would impact housing indirectly. As far as the economy goes, the airports seem more full than ever, and hotels seem to be doing fine. Overall, [the problem] is probably mostly office. But if it keeps getting worse, it certainly could have downstream effects.

Source: housingwire.com

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Ready or not, artificial intelligence seems poised to play a larger role in the home lending industry, but companies are trying to create their AI strategies in what are largely uncharted regulatory waters.   

While some have already found ways to take advantage of generative AI tools on the back end of the home buying process, the arrival of ChatGPT shined an even brighter spotlight on potential opportunities and dangers in artificial intelligence, which many expect to propel technology development in the mortgage industry.

But while real estate companies have taken advantage of generative AI chatbots as plugins to their own home-search platforms, few mortgage lenders and servicers have joined the bandwagon by using ChatGPT-like tools in a consumer-facing capacity amid concerns of noncompliance. In a regulatory environment that currently provides few clear-cut rules but frequent warnings about possible enforcement, companies designing AI-enabled communication find themselves in a situation comparable to building an airplane while trying to fly it.

The potential risk within generative AI corresponds directly to the quality and quantity of data contained within it, experts agree. A key challenge for developers lies in ensuring available data  is sufficiently rich enough to provide accurate responses from the AI.

Inherent bias in some data models represents “a real danger” and could result in discriminatory practices and violations of fair lending, according to Jennifer Smith, principal at mortgage advisory firm Stratmor Group.

“The black box of those algorithms can be very difficult to understand. There’s very little transparency of what is this being built on as it’s learning through,” she said.

“Regulators are very much wanting to force lenders to understand what’s going on inside those systems. And that’s darn near impossible.”    

One home finance company striking up a conversation on AI chatbots is Providence, Rhode Island-based Beeline. In July, the company, whose products range from traditional refinances to investment-property loans, launched what it claims is the first AI-powered mortgage chatbot, called Bob. 

Rather than drawing on the same sources of data ChatGPT taps into, Bob attempts to form answers based on what is within its own “brain,” which is continually tested to ensure accuracy, said Jay Stockwell, Beeline’s co-founder and chief marketing officer, who helped develop the proprietary platform. Much of the original data and answers fed to Bob’s brain came from analysis of over 70,000 previous messages that came through an older Beeline chatbot.

“We took that big body of messages and then we did a cluster analysis based on what are the clusters of questions that people ask, because a lot of people ask more or less the same question but just in different ways,” he said. 

“We just went at it for months to provide really rich, clear answers to those exact questions.” But Bob is constantly learning, Stockwell added. 

“We review it every day. We go through and then we improve the brain, and run the same questions again and continually optimize this.” 

Among other safeguards Beeline has introduced to try to ensure the safety and accuracy of its AI are deployment of multiple AI models, including a constitutional version, to regularly check on its responses. Beeline also will not allow Bob to collect personal client data that could result in discriminatory bias and can “turn it dumb” when necessary, according to Stockwell. 

“Bob doesn’t know the name, doesn’t know their email, doesn’t know the location, doesn’t know any of that. And then if we ever kicked them into a quote, that’s removed out of the AI system.” 

Removing potential bias triggers is key because just as a lender would be held accountable when human personnel errs, the same will hold true if a chatbot does, Smith said. 

“The regulators have been very clear that a violation is a violation, whether it’s a chatbot or a live person, and that’s where it becomes very difficult,” she said. 

Other guardrails placed around Bob are similarly no different to what certain human employees would require. “What would that person be held to, thinking of it as an unlicensed non-loan originator position?” said Jess Kennedy, another Beeline co-founder as well as its chief operating officer.    

“All the things that you would train a human on, we said — hey, let’s make sure Bob doesn’t do any of these things either.”

For instance, Bob, as well as any type of chatbot, is prohibited from doling out anything resembling financial or legal advice, a rule that will likely always be in place, according to Alec Hanson, chief marketing officer at loanDepot.

“There’s going to be some clear lines in the sand because it’s not a licensed entity. And in lending, you need to be licensed to do certain activities and that clearly isn’t,” he said.

But even with consumer safeguards in place, responses AI generate still hold the risk of unintentionally misguiding clients through the omission of some options.

“The problem is sometimes we have datasets —  you’re not going to fit into the majority of them if you are oftentimes a low-to-moderate income minority borrower. And so you’ve got to be very careful,” Smith said. 

Whereas lenders have made dedicated efforts in the past two years to open up homeownership opportunities to underserved communities, the AI black box may not hold the information about various affordability programs a human agent knows, Smith added.

“If your algorithm has been built upon datasets that have an inherent bias in them, you may end up having that same chatbot steer a prospective borrower to a product that’s not good for them,” Smith said. “It might steer them toward a subprime product when they are actually very eligible for a conventional product, especially if you’re including special purpose credit programs or down payment assistance programs.”

AI chatbots are also still not close to the point, nor intended or allowed by regulators, to be a full replacement for human interaction, developers say. “For today, it’s a very reactive system,” Hanson said. “It doesn’t necessarily ask you the right questions.”

To prevent user frustration from building, Beeline programs its chatbot to not provide any responses to queries it lacks answers for and also reads customer sentiment while the tool is being used. If it senses growing dissatisfaction or misunderstanding based on the language or punctuation in a message, Bob will instead send the user to a service agent.

“That was a key thing in terms of best practices,” Kennedy said. “It’s evolving so quickly, so we know the best practice, but there often hasn’t been a method to do the best practice because it’s so new. 

As chatbots develop further and become “smarter,” mortgage fintech leaders think they may possibly realign the workforce at lenders, taking over the customer service tasks which don’t demand a licensed employee.

“We’ve been big believers in how the mortgage industry itself is ripe for this type of application, where you can take tons of this raw data and have AI go through it and better organize it, clean it, model it to really enhance the human beings that we have working,” said Dan Snyder, co-founder and CEO of lending fintech Lower.

“I think you end up getting people like your customer service agents — instead of answering the same questions every day — they can move to higher-paying elevated jobs,” he said. Snyder added that his company was exploring bringing AI tools to his business, either by resurrecting old blueprints the company initially developed a few years ago or adopting new models

The next two years should be a pivotal period that will determine the full potential of AI, Snyder noted. “You’ll start to see a lot of the vendors that are launching AI into their existing product to maybe speed it up.” 

But that anticipated growth of consumer-facing AI platforms will likely occur in a still-fluid regulatory environment. Although a full set of rules might hold some lenders back, the  opportunity that lies ahead makes development today vital to future growth, Beeline’s Kennedy said. While the warnings agencies issued in the spring may not have spelled out regulatory details many would like, Beeline welcomed them, as it gave them hints at how to best proceed.

“We understand that if you’re looking to innovate, there is inherent risk because you’re on the bleeding edge of something that regulators and I mean, Congress, has yet to wrap their arms around,” Kennedy said. 

“Our goal is just to be transparent and as proactive as we possibly can be with the regulatory environment.”

Source: nationalmortgagenews.com

Apache is functioning normally

As expected, the rules target financial institutions with $100 billion or more in total assets, which was undoubtedly influenced by the recent collapses of U.S. financial institutions with assets between $100 billion and $200 billion, including Silicon Valley Bank and Signature Bank. 

Per the proposed changes, regulators expect that large holding companies’ binding common equity tier 1 capital requirement, including minimums and buffers, would increase by around 16%, compared to the 15% to 20% range mentioned earlier. Insured depository institutions would face an estimated 9% increase, including regional lenders. Community banks would not be impacted. 

The proposal would include a three-year transition period beginning July 1, 2025.

“While the proposal would not generally change the minimum required capital ratios, the amount of required capital would change due to changes to the calculation of risk-weighted assets” says the memorandum released by the regulators.  

“Staff of the agencies estimated that five large bank holding companies would have shortfalls in their common equity tier 1 capital requirement under this proposal based on year-end 2021 data,” FDIC Chairman Martin Gruenberg said in a statement. “For those large holding companies with shortfalls, the amount is estimated to be below one year of average earnings over the last seven years. This means these banking organizations would be able to achieve compliance with these revisions through earnings over a short timeframe, even while maintaining their dividends.”

The changes would boost capital requirements for large banks’ residential mortgage portfolios compared to international standards. Currently, first-lien whole loans prudently underwritten and performing to their original terms receive a 50% risk weight, while other loans receive a 100% risk weight. 

Under the draft proposal, 40% to 90% risk weights would be assigned for large banks issuing residential mortgages, depending on the loan-to-value ratio, which is 20 basis points above the international standard. For example, a 50% risk weighting would be considered for a mortgage with LTV between 60% and 80%, and a 90% would be considered for an LTV above 100%. 

Travis Hill, vice chairman at the FDIC who voted against the proposal., said risk sensitivity is a “double-edged sword.” When risk sensitivity is too little, it incentivizes risk-taking. But setting increasingly risk-sensitive standardized risk weights always involves choosing winners and losers. 

“Nonetheless, there are some areas where additional risk sensitivity is justified. For example, in the proposal, incorporating loan-to-value ratios into the risk weight treatment for residential mortgages is understandable,” Hill said in a statement. “Market participants have been analyzing mortgage credit risk for many decades, spanning numerous business cycles, yielding a great deal of data and experience demonstrating the relationship between LTV and credit risk.”

Jonathan McKernan, a member of the FDIC board of directors, said the proposal offers no “loss history or other evidence to support the sizing of the surcharge.”

According to McKernan, the purported rationale is to avoid putting smaller banks, which would not be subject to the proposal, at a competitive disadvantage to large banks. But one alternative worth exploring is to extend the modernized Basel III to all banks. It has not been explored because the Basel III requirements are generally less than today’s requirements, McKernan said. “So, in reverse engineering a significant increase in capital, we have backed ourselves into this surcharge without evidence or real rationale.”

McKerarn said there likely will be real economic costs, such as increase in interest rates for low- and moderate-income and other historically underserved borrowers who cannot always afford a 20% down payment. It would also “perpetuate an existing capital arbitrage that drives mortgage lending out of the banking system

The Mortgage Bankers Association said the proposal would increase borrowing costs and reduce credit availability, ultimately hurting macroeconomic growth.

“Given ongoing affordable housing challenges, regulators should be taking steps that encourage banks to better support real estate finance markets,” Bob Broeksmit, president and CEO at MBA, said in a statement.”These proposed changes do precisely the opposite during a time of near record-low single-family delinquencies and pristine underwriting. This proposal also undermines several current policy objectives, from closing the racial homeownership gap to promoting competition over consolidation.” 

Broeksmit is critical to issuing a proposal without “an advance notice of proposed rulemaking and a “quantitative impact study to assess the macroeconomic and sector impacts.” 

“Experience with such significant capital changes tells us that equity markets will react immediately, and banks will respond to that pressure in real-time, long before the final rule is issued.” 

“Increasing the risk weighting on mortgages by 20% across the board over Basel III is unnecessary, unwarranted, and dramatically impacts banks’ lending to low- and moderate-income individuals, particularly in a market where home prices and mortgage rates are at historic highs,” David Dworkin, National Housing Conference president and CEO, said in a statement. “Further, the proposal ignores the significant role of mortgage insurance in mitigating losses.”

Comments on the proposal will be accepted through November 30, 2023.  

Source: housingwire.com

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

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

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

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“I think there’s been a desire to finish up Basel III,” Brian Moynihan, chair and CEO of BofA, said in a call with analysts. “From a global competitive standpoint, we’ve got to be careful here because the U.S. industry is the best industry in the world and actually does a lot of good for all the countries of the world, including the U.S. And frankly, the rules that are applied tend to be more favorable to those outside our country.”

Moynihan added: “They’ve [regulators] got to think through the downside of some of these rules, and that they could push stuff outside the industry to nonbanks that have the asset classes across the board. And nonbanks, including mortgage lending, which you referenced, half of it goes through nonbanks and those, the resilience of those institutions, is interesting to watch through cycles.”

According to Moynihan’s estimates, a 10% increase in BofA’s capital levels would prevent the bank from making about $150 billion of loans at the margin. BofA had an 11.6% CET1 ratio at the end of the second quarter of 2023, compared to the 10.4% current requirement.

Regulators have said big Wall Street banks might face a 20% average increase in overall capital requirements. Sources told Bloomberg that mortgage capital standards, which were not expected to change from the current 50% risk weight on first-lien residential mortgages, would change to 40% to 90% for large banks, with higher loan-to-value ratio loans receiving higher risk weights. 

Mortgage, home equity business 

The new rules would affect BofA’s mortgage originations, which totaled $5.9 billion during the second quarter of 2023, a 50.8% increase from $3.9 billion posted in the first quarter but still, a 59% drop from the $14.4 billion originated in the second quarter of 2022. 

BofA’s sequential production increase follows that of JPMorgan Chase and Wells Fargo, which also posted higher mortgage volumes during the second quarter. It suggests the first quarter of 2023 may have been the bottom of the current cycle, when rates surged to 7%. 

BofA also originated $2.54 billion in home equity loans in the second quarter, compared to $2.60 billion in the previous quarter and $2.53 billion in the same period last year. 

Bank of America had $228.7 billion in outstanding residential mortgages on its books through June 30, down from $229.2 billion from Q1 2023 and flat from the second quarter of 2022.

The home equity portfolio was $25.9 billion at the end of the second quarter, down from $26.5 billion from the previous quarter — and a decline from $$27.8 billion a year prior.

Bank of America’s total mortgage-backed securities reached a $30.8 billion fair value as of June 30, compared to $32.1 billion as of March 31, 2023.  

Overall, the bank posted a net income of $7.4 billion from April to June, declining 8.6% quarter over quarter and climbing 19.3% year over year.

Deposits at Bank of America were $1.87 trillion in the second quarter of 2023, down from $1.91 trillion in the previous quarter and $1.98 trillion during the same quarter in 2022. 

The consumer banking division posted a net income of $2.85 billion, a decline from the previous quarter’s $3.1 billion and the previous year’s $2.88 billion, according to its filing with the Securities and Exchange Commission (SEC).

Source: housingwire.com

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“Once data is identified, the system can then run a series of automated comparison checks or rules,” Jennifer Fortier, principal at Stratmor, said.

Automated comparison checks can help solve one of the biggest issues in mortgage banking: a lack of trust in data provided by borrowers and lenders.

“We spend a ton of time and money trying to convert proof that’s typically provided in the form of images into data we can use, then hand that all off to the next person, who does not trust the data either,” Garth Graham, senior partner at STRATMOR, said.

Ultimately, the lender packages the loan to sell to an investor, who doesn’t trust any of the data in the file, and the process starts all over again, Graham noted. 

If AI can confirm for all parties – including the lender, borrower and investor – that the data is correct, the cost to originate loans will go down, according to Graham. 

The average cost to originate a loan climbed to a record-high of $13,171 in the first quarter of 2023 due to a further drop in origination volume, according to the Mortgage Bankers Association (MBA).

Other areas where AI can be beneficial for lenders include boosting conversion rates, improving the automated underwriting process, detecting fraud and providing a personalized customer experience, the report notes.

“AI should be powerful in the near-term at handling the most mundane tasks being assigned to lower cost resources inside of lending organizations, especially for the work that follows a very predictable pattern,” Brett McCracken, senior advisor at Stratmor, said.

But when it comes to the question of when more lenders will embrace AI implementation, there are hurdles to overcome. Data quality, regulatory compliance, model bias, a lack of AI literacy and potential job displacement concerns are all barriers to adopting AI tech. 

In addition to the potential legal and ethical challenges, lenders will need to review how the workflow should be changed to fully optimize the benefit of the AI solution. Lenders will also need leadership to understand what AI can and can’t do — and have someone in the lender’s shop who understands the AI being implemented in order to monitor and manage it. 

“I think AI can eventually replace most non-borrower facing tasks on the mortgage loan. When AI can do more to simulate human thinking and intelligently assess questions that are not as easy as ‘pass or fail,’ we will have reached a tipping point into AI,” Jennifer Fortier, principal of Startmor, said.

Source: housingwire.com

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Inflation slowed more than expected in July, the result of a dip in gas and energy prices. But soaring housing costs continue to weigh heavily on family budgets. Rents and home purchase prices are up – 17% and 20% respectively – from last year. It seems as if every day there is yet another news story highlighting how so many families are suffering under crushing housing costs.

These costs make up one-third of the Consumer Price Index, meaning they account for a big part of the inflation dilemma. For a little perspective: The shelter component of the CPI increased 0.5% in July, rose 5.7% over the last year, and accounted for about 40% of the total increase in all items other than food and energy.

CPI changes also typically lag real-time changes in housing costs, so we can expect shelter to loom large in future CPI calculations even if rent growth may be slowing down, as some have suggested.

Classic supply and demand mismatch

At the root of high and rising housing costs is the severe shortage of affordable homes both for rent and sale. What we are witnessing is a classic supply-demand mismatch: there are simply not enough homes, particularly those that are affordable to low- and middle-income households. While estimates vary, most analysts agree we have underbuilt housing of all types by millions of homes over the past 20 years.

Economists are beginning to highlight the importance of increasing housing supply to help reduce inflation. As Mark Zandi, Chief Economist at Moody’s Analytics, explained to the Washington Post: “No matter what happens to pricing across most goods, inflation will remain high as long as the cost of housing continues to rise so quickly.”  In a more recent tweet, Zandi adds: “Driving [strong rent growth] is a severe shortage of affordable homes, which has been long in the making, and won’t be resolved quickly.”

Jason Thomas, former economic advisor to President George W. Bush, concurs, saying that high inflation can be attributed to the country’s “structural shortfall” when it comes to housing. He notes, “You could really see core inflation down close to target by year end were it not for shelter, were [it] not for primary rents…. When you look at the data in terms of cumulative housing starts it looks to be somewhere between one-and-a-half and 4 million short of what is regulatory compliance costs, as well as local zoning and land use requirements that Residential construction statistics from July 2022 show construction of single-family homes is the weakest since the onset of the pandemic and construction of multifamily dwellings has fallen as well.

The good news

While these facts should give us pause, the good news is there are many policy options that can be tapped now to increase housing supply and improve housing affordability.

At the local level, city governments can:

At the state level, officials can:

  • streamline the application process to obtain affordable-housing financing,
  • utilize tax incentives and other measures to spur the conversion of underutilized commercial space to housing, and
  • work with industry and academic institutions to support innovations in home construction that can reduce costs.

Federal policymakers, in turn, should:

  • expand and strengthen the Low-Income Housing Tax Credit program, a vital source of financing for affordable rental homes,
  • pass the Neighborhood Homes Investment Act, which would encourage private investment in entry-level homes for sale in distressed communities,
  • create federal incentives to help communities implement zoning reforms, and
  • strengthen efforts to preserve our existing affordable housing stock.

The affordable housing crisis is a national problem requiring a national response, one that is not limited just to Washington, DC, state capitals, or city halls. Fortunately, solutions abound – some big, some small, but all meaningful. 

Dennis C. Shea is the executive director of the J. Ronald Terwilliger Center for Housing Policy at the Bipartisan Policy Center.

Source: housingwire.com