Posts Tagged ‘ mortgage bankers association ’

Rising Rates Pose Greater Threat Than Initial Indications

Rising Rates Pose Greater Threat Than Initial Indications

10/22/2013 BY: TORY BARRINGER

While maintaining that tight credit conditions and rapid price gains present the greatest threats to the housing recovery, Capital Economics is ready to acknowledge that  may provide rising mortgage rates more drag than the firm’s analysts first thought.

Tracking mortgage applications (as reported by the Mortgage Bankers Association) from May through September, Capital Economics determined that refinancing activity has taken the biggest hit from the 120-basis point climb in rates with a decline of 70 percent.

While the decrease in refinance activity isn’t necessarily reflective of changes in housing market demand, the 17 percent drop in purchase applications over the same period is another story.

“[T]hat was enough to undo all of the improvement in home purchase applications that previously appeared to be underway,” property economist Paul Diggle wrote in the company’s latest US Housing Market Focus. “This has put a dent in hopes that mortgage-dependent buyers are playing a bigger role in the housing recovery.”

Tracking sales, Diggle noted numbers were up initially—an expected result as buyers rushed to avoid further hikes—and then down as the pipeline cleared. The most recent data has been more encouraging, though he says those improvements have largely been driven by investors and cash buyers, groups that are immune to higher mortgage interest rates.

As far as prices are concerned, the lag between sales and price changes makes it hard to tell what the effects have been. However, “[p]rice gains appear to be slowing anyway and, in time, the rise in mortgage interest rates may, at the margins, add to this slowdown.”

There is some good news, though. Heightened rates will raise lenders’ return on new loans, helping to fill the gap left by the decline in refinancing and potentially leading to looser credit conditions.

“The bottom line is that, three years after activity began picking up and two years into the upturn in house prices, the US housing recovery still faces a number of hurdles,” Diggle concluded. “But to our minds, tight credit conditions, an over-reliance on investment buyers and overly-rapid price gains are all potentially more serious challenges than higher mortgage interest rates.

“Nevertheless, the steady rise in rates to date, and the likelihood that rates will rise further still, is another reason to expect the pace of the U.S. housing recovery to slow from here.”

 

2013
10/23
CATEGORY
Home purchase
Housing recovery
Mortgage
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Economist Decries New QRM Proposal

Economist Decries New QRM Proposal

09/19/2013 BY: KRISTA FRANKS BROCK

While many in the industry laud the recent changes the Consumer Financial Protection Bureau made to the proposed Qualified Residential Mortgage (QRM) rule, one economist says the new proposed rule sets the stage for another housing crisis.

Robert C. Pozen, a senior fellow in economic studies at the Brookings Institution suggested shared his dire outlook in a recent article in the Wall Street Journal,expressing his concern that without the assurance of a substantial down payment or risk retention from lenders, risky lending will prevail.

“Under the proposed rules for home mortgages, most borrowers would make minimal down payments and most lenders would have no risk of loss,” Pozen said. “This is a good way to create another mortgage crisis.”

Original proposals for the QRM included a 20 percent minimum down payment requirement and a maximum loan-to-value ratio of 36 percent.

The CFPB’s new proposal, released August 28,includes no minimum down payment requirement and increases the maximum loan-to-value ratio to 43 percent.

While the Mortgage Bankers Association said the original rule “would have unduly constrained the availability of mortgage credit for many borrowers,” Pozen disagrees, drawing on the Canadian housing market for comparison.

Lenders in Canada generally require a down payment of at least 20 percent, and the nation’s homeownership rate is even higher than the U.S.‘s – 67 percent compared to our 65 percent, according to Pozen.

Loans that do not meet QRM standards require 5 percent risk retention by lenders, unless they are backed by the Federal Housing Administration or the GSEs.

“The combination of low down payments and government backing is lethal,” Pozen said, pointing out the FHA’s low 3.5 percent down payment requirement. He also noted that the GSEs require a down payment of “only” 10 percent.

While the future of the GSEs is unknown, any losses they bear in their current state are absorbed by taxpayers.

The same is true for the FHA, which currently does not meet its statutory minimum loss reserves due to significant losses in recent years.

“In short, if the U.S. wants to promote homeownership, it should learn from past mistakes,” Pozen said.

2013
09/20
CATEGORY
Homeowners
Mortgage
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Exec Advises Laid-Off Loan Officers to Look to Specialty Servicing

Exec Advises Laid-Off Loan Officers to Look to Specialty Servicing

08/27/2013 BY: KRISTA FRANKS BROCK

As mortgage rates climb and the refinance boom comes to a close, the origination sector is in flux.

Last week, mortgage applications declined 8 percent, according to the Mortgage Bankers Association’s Weekly Mortgage Application Survey, while the average interest rate for a fixed-rate, 30-year mortgage rose from 4.56 percent to 4.68 percent.

Also evidence of declining refinance volumes, Ellie Mae reported last month that purchase originations outpaced refinances for the first time since Ellie Mae began recording origination data about two years ago.

With declining volumes, the industry cannot support the number of loan officers it has had on staff of late, and many originations shops are shedding employees. Wells Fargo, for example, is reportedly cutting 2,300 production jobs.

However, this glum news may have a silver lining, according to at least one industry executive.

“There’s a huge opportunity for former loan originators taking their existing skill set and industry knowledge and applying them in specialty servicing,” Patrick Norton,SVP of Fay Servicing, based in Chicago, told DS News.

“There’s enormous opportunity, and I don’t think it’s going to fade away in the near future,” Norton said.

Loan officers already have a broad and deep understanding of the mortgage industry. They are used to working with customers with challenging credit profiles, and they are adept at relationship-building, according to Norton.

These skills “translate very nicely to a career in specialty servicing,” Norton said.

In fact, Fay Servicing is expanding, and the company “targets exclusively former loan originators,” according to Norton.

Unlike refinancing, which experienced a recent boom and is now on the decline, Norton says specialty servicing will not likely see a decline any time soon.

Even after the industry works through the current backlog of delinquent and troubled loans, specialty servicers will remain an integral part of the industry, according to Norton.

The biggest adjustment for loan officers transitioning to servicing is the “distinct regulatory environment,” according to Norton. Fay Servicing offers new employees transitioning from the originations sector a two-week course to familiarize them with industry regulations and best practices.

2013
08/28
CATEGORY
Mortgage
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Industry Questions Legality of California City’s Eminent Domain Plan

Industry Questions Legality of California City’s Eminent Domain Plan

07/31/2013 BY: KRISTA FRANKS BROCK

The city of Richmond, California, announced an unconventional plan to ward off foreclosures among underwater homeowners, instantly sparking debate and criticism throughout the mortgage industry. In fact, several industry groups have called into question the constitutionality of the plan and have voiced concerns for its long-term consequences.

“After years of waiting on the banks to offer up a more comprehensive fix or the federal government, we’re stepping into the void to make it happen ourselves,” Richmond Mayor Gayle McLaughlin told the San Francisco Chronicle Tuesday.

The plan, which “is fraught with negative economic consequences for the community,” according to the Association of Mortgage Investors (AMI), is for the city to obtain the mortgage loans of underwater properties and help homeowners refinance at their homes’ current value.

The Mortgage Bankers Association president and CEO, David H. Stevens, boils the plan down to “a short-term solution for a few underwater borrowers that will have severe negative long-term costs for every homeowner in the city.”

Richmond will rely on Mortgage Resolution Partners to carry out the refinances.

The city sent 32 banks letters requesting to purchase more than 600 underwater mortgages, according to reports. If the banks do not agree to sell the mortgages, the city plans to seize them under its right to eminent domain.

This use of eminent domain is unprecedented. Generally, eminent domain is employed by cities to obtain land for development projects.

Several industry groups have actually called the plan unconstitutional. “Both federal and California law clearly show that this scheme is illegal,” stated the American Securitization Forum Tuesday.

The AMI, along with the MBA and the Securities Industry and Financial Markets Association pointed out that mortgages are tied to pension funds for teachers, firefighters, and other middle-class Americans across the country.

Seizing these loans would not only damage Americans counting on these investments for their retirement, but it would also have a damaging impact on the future of the mortgage market.

“The practical effect of this proposal will be that individual investors, who put their money into pension funds and other investment vehicles, making mortgage money available to homebuyers, will see their assets and savings arbitrarily, and we believe unconstitutionally, taken,” said Judd Gregg, SIFMA CEO and former senator from New Hampshire.

“This will not help expand mortgage credit availability in this country,” Gregg added.

On its website, the MBA says it “agrees wholeheartedly with the Federal Housing Finance Agency (FHFA) that ‘utilizing eminent domain in this way could undermine and have a chilling effect on the extension of credit.’”

In a public statement released Tuesday, AMI also called into question Mortgage Resolutions Partners’ integrity. “Mortgage Resolution Partners (MRP) is not Robin Hood,”AMI said.

MRP’s “business model depends on persuading local governments to use the blunt instrument of eminent domain to take money away from the investments of seniors, unions, and others in the mortgage market, give that money to MRP, and, as a result, lower property values across communities as rates on new mortgages go up.”

MRP has undertaken a similar role in North Las Vegas, Nevada, where a lawsuit is now under way regarding the legality of using eminent domain to seize mortgages.

2013
08/01
CATEGORY
Foreclosures
Homeowners
Mortgage
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Senators Introduce Bill to Replace GSEs in 5 Years

Senators Introduce Bill to Replace GSEs in 5 Years

06/25/2013 BY: TORY BARRINGER

A bipartisan group of senators introduced on Tuesday legislation to replace Fannie Mae and Freddie Mac with a newly created agency.

Citing the overwhelming presence of the GSEs in today’s mortgage marketplace, Sens. Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) unveiled a new piece of legislation designed to wind down the enterprises and rebuild the private mortgage sector.

Also involved in the unveiling were Sens. Mike Johanns (R-Nebraska), Jon Tester (D-Montana), Dean Heller (R-Nevada), Heidi Heitkamp (D-North Dakota), Jerry Morgan (R-Kansas), and Kay Hagan (D-North Carolina), all members of the Senate Banking Committee.

The legislation would dissolve Fannie Mae and Freddie Mac within five years of passage and transfer appropriate utility duties and functions to a “different, modernized and streamlined agency.” The transfer would be done with a fiduciary duty to maximize returns to the taxpayer as the GSEs’ assets are sold off.

In addition, the new bill requires private market participants to hold 10 percent of the first loss of any mortgage-backed security (MBS) that purchases a government reinsurance wrap.

It also sets up an infrastructure for splitting up credit investors—who are willing to take on the risk of loss—from rate investors, thus keeping mortgage rates competitive while mitigating the risk of loss to taxpayers.

Another proposed transitional step is to eliminate the enterprises’ affordable housing goals, replacing them with “more transparent and accountable” counseling and rental assistance programs.

“Our new access fund—paid for not by taxpayers but through a small assessment on only those loans that go through the government platform—is dedicated to the sustainability of homeownership and to providing decent rental opportunities, while making it very clear where the money goes and putting in place strict criminal penalties against misuse,” the senators explained in an op-ed published on Politico.

Finally, the bill would establish a new corporation—mutually owned by small banks and credit unions—created to protect local banks and credit unions from being “gobbled up by the mega banks as soon as Fannie and Freddie are dissolved,” thus ensuring direct access to the secondary market for institutions of all sizes.

Initial reactions to the proposed legislation have been positive so far, with Mortgage Bankers Association chairman Debra Still calling it a “significant milestone” in the development of a long-term plan for the role of government in the mortgage market.

“Some might say this goes too far, others not far enough. But regardless of where your political sensibilities are, you cannot think the current system works,” the opinion piece reads. “As memory of the crisis fades, the GSEs will again entrench themselves deeper and deeper into our system of housing finance. Soon, the path of least resistance will be to simply reconstitute Fannie and Freddie as they were. That would be totally irresponsible.”

 

2013
06/26
CATEGORY
Mortgage
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Fed Report: Housing Market in Texas Poised for Growth

Fed Report: Housing Market in Texas Poised for Growth

06/17/2013 BY: ESTHER CHO

The steady influx of out-of-state transplants, along with stronger than average employment growth, should keep the housing and apartment sectors in Texas strong, a report from the Dallas Federal Reserve concluded.

Using data from the Census Bureau, the report authors D’Ann Petersen and Christina Daly pointed out that Texas is the No. 1 state for domestic in-migration. From July 2011 to July 2012, the Long Star state saw a net 140,888 new arrivals when excluding births or international migration.
Dallas, Austin, and Houston attracted nearly 38,000 new transplants in 2012, putting them among the top five for new arrivals.

With the added newcomers into the state, apartment demand strengthened, with occupancy rates above 90 percent in major Texas markets, according to the report. The newly created demand also led to more rental construction, with multifamily buildings rebounding above prerecession levels, the report noted.

Though, the recovery for the single-family market is not moving forward as strongly as the apartment sector due to factors such as the impact of the housing crisis, tight credit conditions, elevated unemployment rates, as well as uncertainty about the overall economic recovery, the report stated.

After assessing data from Multiple Listing Services and the National Association of Realtors, the report found existing-home sales in Texas and in major metro areas rose by more than 33 percent since early 2011.

In addition, anecdotal evidence from the Dallas Fed’s industry contacts revealed homes are receiving multiple offers, which in turn is driving up prices.

In fact, Texas is one of 10 states where prices have topped their prerecession high, falling just behind North Dakota’s lead.

As of the end of the first quarter of 2013, home prices in the state are now 7 percent above the prerecession peak recorded in the last quarter of 2007, while on a national level, prices remain 13.8 percent below their 2007 peak, the report stated. On the other hand, a hard-hit state such as Nevada is still 50 percent below its previous high.

Texas home prices also face less of a threat from shadow inventory and underwater homes, according to the report. Citing data from the Mortgage Bankers Association, the report found 1.5 percent of Texas homes are in foreclosures compared to the national average of 3.6 percent in the first quarter of this year. The share of seriously delinquent mortgages, or loans past 90 days or more, is also below the national average at 3.8 percent compared to 6.6 percent nationwide.

Meanwhile, 11.4 percent of mortgages are in foreclosure in Florida and more than 15 percent are seriously delinquent.

At the same time, inventory in the state is low. If inventory drops below a supply of 6.5 months, historically, prices tend to rise, the report stated. In April 2013, supply in Austin fell to 2.6 months and was down to 2.7 months in Dallas, while national inventory stood at 5.1 months, according to the report.

Although Texas, with its abundance of land and fewer building restrictions, is generally able to build more quickly to meet demand. As new supply gets added to the market, price increases are expected to ease.

While the Texas market is forecast to expand, the Dallas Fed report warned housing demand in the state could be negatively impacted by broader national issues such as the budget debate and potential tax reform.

 

2013
06/18
CATEGORY
Home Prices
Housing Market
Mortgage
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NAHB Expresses Need for Some Federal Support in Housing Finance

NAHB Expresses Need for Some Federal Support in Housing Finance

03/27/2013 BY: KRISTA FRANKS BROCK

The National Association of Home Builders expressed its support for a housing finance system that phases out Fannie Mae and Freddie Mac but maintains a degree of federal support.

NAHB declared its support for this approach to Congress this week. “[A] federal backstop should be a fundamental element of bipartisan legislation moving forward,” said Rick Judson, NAHB chairman

The Bipartisan Policy Center Housing Commission and the Mortgage Bankers Association have also expressed support for a

housing finance system that calls for an expanded role of private capital while maintaining a level of federal support as measure of last resort.

“Multiple stakeholders have now weighed in with their proposed approaches” to housing finance reform,” Judson said. “While the details of those approaches may differ, one thing they all have in common is the need to maintain some form of federal support to the conventional mortgage market.”

NAHB supports the elimination of Fannie Mae and Freddie Mac as they stand today. Under their proposal, private capital would step in to fund conventional mortgages and contribute to a privately-funded federal mortgage-backed securities fund.

This new system would be implemented gradually rather than with any kind of immediacy in order to allow the market to adjust to the new format. The GSEs would continue to support the market until “the alternative system is fully functioning,” according to NAHB.

“As the housing market recovers and begins to add crucial strength and jobs to the national economy, it is essential that Congress ensure a stable and affordable flow of credit for home mortgages and housing construction,” Judson said.

2013
03/28
CATEGORY
Housing FInance
Mortgage
Real Estate
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Fed Governor’s Speech Addresses Costs of Mortgage Rules

Fed Governor’s Speech Addresses Costs of Mortgage Rules

03/12/2013 BY: KRISTA FRANKS BROCK

As the industry prepares to implement the Consumer Financial Protection Bureau’s (CFPB) new ability-to-repay rules, Federal Reserve Governor Elizabeth Duke warns new consumer protections may come at a cost to the industry as lower-quality-credit borrowers are precluded from the housing market.

“It will be up to policymakers to find the right balance between consumer safety and financial stability, on the one hand, and availability and cost of credit, on the other,” Duke said during a speaking engagement at the Mortgage Bankers Association’s Mid-Winter Housing Finance Conference.

Loans that do not fall under the CFPB’s qualified mortgage (QM) standards may soon pose more costs to lenders, according to Duke.

Non-QM loans are open to more potential litigation, which poses new costs to lenders. If securitized, lenders must maintain part of the risk for these loans—another potential for increased costs. Lastly, Duke pointed out “investors may be wary of investing in securities collateralized by non-QM loans because it is difficult to gauge the risks.”

Increased costs may deter lenders from making non-QM loans to lower-credit-quality buyers.

Attempting to cover these added costs by charging higher interest rates or points and fees may have a hard time doing so.

Lenders who charge higher interest rates may not hold as strong of a defense against a lawsuit alleging violation of the ability-to-repay rule, according to Duke.

Additionally, QM rules prohibit points and fees that exceed 3 percent of the loan amount, Duke points out. While conceding this stipulation does protect consumers from being “overcharged or defrauded,” the rule, Duke says leaving lenders without a way to account for the added risk and costs of lending to lower-quality borrowers may lead lenders to stop making these loans at all.

As the broader economy continues to improve, household formation will increase, according to Duke, “but if credit is hard to get, these will be rental rather than owner-occupied households.”

“And without first-time homebuyers, the move-up market will be sluggish, new and existing home sales will be more subdues, and purchase mortgage volumes will return only slowly,” Duke said.

2013
03/17
CATEGORY
Home sales
Housing FInance
Mortgage
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Report: Mortgage Banking to Stay Profitable; Refi Boom Not Over Yet

Report: Mortgage Banking to Stay Profitable; Refi Boom Not Over Yet

02/20/2013 BY: TORY BARRINGER

A new report from FBR Capital Markets asserts low rates and high demand will continue to boost profitability in the mortgage banking sector in 2013.

In a research report released Wednesday, FBR notes that average rates on outstanding mortgages hover between 4.50 percent and 5.00 percent—well above today’s historically low rates. According to the firm, this means there is a “large portion of loans with an economic incentive to refinance.”

While some may point to recent drops in the Mortgage Bankers Association’s (MBA) Refinance Index as proof that the refinance boom is already coming to a close, FBR says otherwise.

“Instead, we argue that there are likely $1 trillion of refinances in an estimated $1.7 trillion to $2.0 trillion overall market this year, and we predict a corresponding bounce in the MBA index,” the report reads.

“Additionally, assuming rates remain around current levels, we believe that purchase volumes should rise, offsetting any weakness in the refi index,” the report continued.

FBR estimates there are between $2 trillion and $2.5 trillion in mortgages left to refinance, while current refinance capacity stands at $1.2 trillion to $1.3 trillion, leaving the market constrained. As such, rates would have to move 75 basis points or more to have a significant impact on mortgage banking profitability.

Additionally, FBR expects that despite increased origination capabilities at big players such as Bank of America and smaller firms such as Nationstar, Flagstar, and PHH Corporation, “capacity will remain constrained as larger originators, like Wells Fargo, slowly decrease their market share.”

“Accounting for market share gains almost across the board for smaller players, we estimate that the incremental capacity coming into the market will only make up for what Wells Fargo (and other large originators) is shedding,” the report says.

Given “robust purchase volumes, the pipeline of possible refinancings, and limited market capacity,” FBR expects gain-on-sale margins will remain elevated through this year, supporting ongoing profitability going forward. While there is the risk that dramatic increases in interest rates could crash gain-on-sale margins and origination volumes, the investment bank considers the probability of such an event to be “largely unlikely given today’s lackluster economic environment” and therefore did not factor the possibility into its models.

2013
02/21
CATEGORY
Mortgage
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Foreclosures Prevented with 850K Mods, 422K Short Sales in 2012

Foreclosures Prevented with 850K Mods, 422K Short Sales in 2012

02/11/2013 BY: ESTHER CHO

For all of 2012, servicers completed more than 850,000 loan modifications, while the industry also continued to push for another foreclosure alternative—short sales, according to recent data from HOPE NOW, an alliance of mortgage servicers, investors, mortgage insurers, and nonprofit counselors.

Out of the 850,034 completed mods, 661,363 were proprietary modifications, and 188,671 were through the government’s Home Affordable Modification Program (HAMP), data from HOPE NOW revealed. For all of 2011, services completed 1.05 million mods. As of 2007, the number now stands at 6.06 million modifications, of which 1.1 million mods were through HAMP.

Since 2009, the industry has seen 1.15 million short sales, with 422,605 short sales occurring in 2012 alone. In 2011, completed short sales reached 372,168.

“In the past year, there has been unprecedented work from the industry with respect to short sales as a viable mortgage solution,” said Eric Selk, executive director of HOPE NOW. “For example, many mortgage servicers have staffed our borrower events with short sale specialists in order to help train real estate agents and created intake portals specifically for the short sale process.”

The group also reported foreclosure starts and completed foreclosure sales decreased in 2012 compared to 2011. For all of 2012, foreclosure starts numbered 1.92 million, down 14.8 percent from 2.25 million in 2011. Completed foreclosure sales fell 7.3 percent to 779,220 in 2012 from 840,186 in 2011.

Loans in danger of rolling into foreclosure status decreased as well as the inventory of 60-plus delinquencies shrunk in December 2012 from 2011. At the end of 2012, 2.52 million loans were past due 60 or more days, down 9.6 percent from 2.79 million during the same time in 2011. The findings are based on data from the Mortgage Bankers Association.

On a quarterly basis, completed loan modifications increased while foreclosure starts and sales were on the decline. From Q3 to Q4 in 2012, completed mods reached 185,608, representing an 8.3 percent quarterly increase.

Foreclosure starts plunged 27.2 percent in Q4 to 363,499, down from 499,362 in Q3, while foreclosure sales were fell 3.6 percent to 188,814 in Q4.

 

2013
02/12
CATEGORY
Foreclosures
Mortgage
Short Sales
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