Mortgage – HousingWire

Alternate equity companies see a lot of potential in senior citizens
HW+ Member Spotlight: Mark Jones
Fannie Mae & Freddie Mac earnings drop in Q3
LendingLife: New General QM Rule up in the air

Alternate equity companies see a lot of potential in senior citizens

Posted: 29 Oct 2021 01:55 PM PDT

The resurgence of alternative home equity tapping companies in the past few years has been of interest to the reverse mortgage industry due to the potential that business has to compete for seniors' business. Whether discussing arrangements like sale leasebacks or shared equity investments, such products could serve as an alternative to a debt-based option for those looking to unlock a portion of their home's equity and gain access to additional cash flow.

To gauge how that business is performing particularly among seniors after the COVID-19 coronavirus pandemic, Reverse Mortgage Daily reached out to leaders at three companies: Point, QuantmRE (which both offer shared equity investment products) and EasyKnock (which offers a sale leaseback). While the average customer age of these leading alternative equity tapping companies has remained stable over the past 18 months since the onset of the pandemic, all of the companies see both heightened awareness from the senior demographic, as well as interest in catering to them.

Seniors' response to alternative equity tapping since COVID-19 onset

At each of the three companies RMD spoke to, most agree that interest in their alternative products has increased universally, as opposed to an increase among one single demographic.

"Over the past 18 months, we have seen a significant increase in inquiries from all homeowners, including inquiries from seniors who now realize there are alternative non-debt financial tools available to them," said Matthew Sullivan, founder and CEO of QuantmRE. "These Home Equity Agreements allow them to access their increased home equity without monthly payments or taking on additional debt."

At Point, CEO Eoin Matthews notes that the company is on track for a year of explosive growth in 2021 which is due in no small part to seniors' interest in the company's offerings.

Eoin Matthews, CBO and co-founder of Point

"Demand for Point's Home Equity Investment (HEI) has grown immensely over the past 12 months, and seniors are a big part of that," Carr said. "This has been particularly true in 2021 where we’re on track for 400% growth since the start of the year."

For EasyKnock, the company declined to share specifics regarding a demographic breakdown, but instead reported that its sale leaseback offerings are of particular interest to seniors when compared to other equity tapping options. This is according to EasyKnock CMO Jeff Carr.

"They really love the product, have the flexibility to stay but enjoy life is paramount," Carr told RMD. "For seniors, our product can be especially meaningful. More often than not, we're helping them unlock the ability to stay in the home that they know and love, where they've invested their time and money, where they've raised their kids, where they're comfortable."

In terms of the awareness that seniors demonstrate of these alternative options, both QuantmRE and EasyKnock describe that the increased interest in their offerings is up uniformly across multiple demographics, since these products do not come with an age restriction, though QuantmRE notes that it has seen additional applications from seniors. However in the case of Point, the overwhelming majority of customers that it serves are at or near the reverse mortgage demographic, according to Matthews.

"Over 65% of Point's customer base consists of seniors and older adults (50+) so there’s certainly strong uptake with older homeowners," he explained. "As seniors explore equity release solutions, HEIs are increasingly an attractive option, especially for those seniors looking to retain a low-cost first mortgage or those outside the Home Equity Conversion Mortgage (HECM) box."

While seniors are more likely to be approved for a reverse mortgage when compared to more traditional equity tapping options according to recent Urban Institute research, Matthew Sullivan of QuantmRE notes that over 8 million homeowners were declined a home mortgage in 2020, and that an average FICO credit score among most borrowers of 760 may increase the difficulty of qualifying for mortgage financing.

"Home Equity Agreements may assist homeowners with sufficient equity to become eligible for a reverse mortgage if they have been previously rejected due to credit score issues," Sullivan said.

As pandemic relief programs end, seniors may seek more alternatives

As both the federal government and those at the state, county and local levels begin to phase out certain relief programs designed to assist homeowners with financial hardships created by the pandemic, the availability of equity tapping options outside of the debt-based mortgage realm is something that these companies all feel varying degrees of anticipation for.

"With many pandemic aid programs coming to an end, homeowners who have not yet financially recovered from the impact of the pandemic are looking for solutions," Matthews said. "Whether it’s pandemic-related or not, we’re seeing a lot more homeowners come to us having been referred by family or friends, and having reviewed the HEI product extensively online."

Similar trends are observed at QuantmRE, according to Sullivan.

"We have found that more people have responded to our advertisements and marketing and are willing to learn more about Home Equity Agreements as their other options have become limited," he said. "As the pandemic has forced more people to get accustomed to doing their research online, we have seen a greater response to our online advertising and podcasts."

Part of that new motivation may stem from higher home prices now compared with the pandemic's onset, he said.

"Homeowners appear more motivated to take advantage of the increased equity in their homes since the start of the pandemic and are attracted to the prospect of being able to receive a cash lump sum without any corresponding monthly payments. As a result, we believe the take-up of Home Equity Agreements across all demographics is at historic highs."

The future of seniors and alternative equity tapping

While the reverse mortgage industry continues to explore ways it can innovate in terms of product development and consumer education to bring greater awareness for reverse mortgage products to American seniors, alternative equity tapping companies appear poised to increase focus on seniors as a tool for potential growth.

"76% percent of households aged 50 and over own their homes. Thanks to home appreciation and years of mortgage principal paydown, these homeowners have significant equity," Matthews said, citing data from Harvard University's Joint Center of Housing Studies describing a median of $115,000 in equity for households age 50 and over, and a median of $143,500 for households age 65 and over.

For EasyKnock's sale leaseback offerings, seniors remain a powerful demographic for potential growth, Carr said.

"As our senior population grows and more and more are looking to age in place, EasyKnock is an attractive option enabling them to convert equity to cash while remaining in the comfort of their homes," he said. "Every homeowner searching for a solution is important to us, but we certainly recognize that our product can be particularly helpful among the senior population. Making sure we're aptly serving the needs of seniors is a constant priority."

Similarly at QuantmRE, seniors will be a major focus of the company's business in the future, Sullivan said.

"The senior demographic has and will be a significant part of the company's future," he explained. "Usually the senior demographic indicates a higher equity ownership compared to other age groups, but […] this is changing. As the level of education among seniors increases (as a result of direct marketing or via trusted third parties such as financial intermediaries) we expect to see an increasing uptake of Home Equity Agreements from seniors."

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HW+ Member Spotlight: Mark Jones

Posted: 29 Oct 2021 10:26 AM PDT

This week’s HW+ spotlight features Mark Jones, co-founder and CEO at Amerifirst Home Mortgage. Jones was also recently installed as vice chairman of the Mortgage Bankers Association for the 2022 membership year.

Launching the company as an independent community lender in 1983, Jones has grown Amerifirst Home Mortgage to more than 80 full-service locations and 900 personnel nationwide. He has also served on the Board of Directors of the MBA and currently serves as chair of MBA's Audit and Finance Committee.

Below, Jones answers questions about the industry:

HousingWire: To start off, what is your current favorite HW+ article?

Mark Jones: My favorite HW+ article was this year's edition of Rising Stars. My son Matt is featured in it for his work on Capitol Hill, and I'm so proud to see him carving his own niche in the housing world. Proud father moment!

HousingWire: What is the biggest learning opportunity you’ve ever had?

Mark Jones: The 2008 financial crisis. In the lead up to the crash, we could tell that something wasn't quite right. As such, we were one of the few lenders in the country that refused to offer subprime loans. At the time, that decision cost us loan officers left and right as they departed for firms that would let them originate anything they wanted. It was rough. In the end, however, after the crash happened and the dust settled, we were one of the only shops left standing. That's when we made our separating move, picked up the pieces from companies that had collapsed, and began our ascent toward where we're at today, with 1,000 employees operating in twenty states.

The learning from that era: when you are committed to doing business the right way, doing right by the consumer, and following a strong ethical compass, you will survive through the market cycle and succeed in this business. Our company has been through six major market cycles now, and that remains true to this day.

HousingWire: What do you think will be the big themes for the housing market in 2022?

Mark Jones: In the mortgage market, margin compression will be the story of the year. An industry that is now built to originate $5 trillion will be chasing after only $3 trillion. As the economy recovers from the pandemic, interest rates are marching north, and refinance volume is going to dry up. All of this is going to mean a far more competitive environment and added stress, especially on firms that are focused on refinance business that only know how to compete on interest rate and/or don't have adequate liquidity and reserves.

The other theme is housing affordability. In most markets in America today, homebuilders can't profitably construct starter homes that are affordable for most first-time homebuyers. Fortunately, we are seeing a newfound willingness by the Biden Administration to lean in aggressively on this issue and provide some much-needed help.

HousingWire: If you could change or implement one piece of housing regulation, what would it be and why?

Mark Jones: FHA needs to slash its Mortgage Insurance Premium (MIP) and end life-of-loan insurance coverage. This is a huge tool the federal government can use to stimulate access to homeownership in underserved communities, and as we speak, FHA is priced way out of the market while sitting on top of capital reserves that vastly exceed what is required by statute and even what most banks would be required to hold.

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Fannie Mae & Freddie Mac earnings drop in Q3

Posted: 29 Oct 2021 09:14 AM PDT

Fannie Mae and Freddie Mac both saw net earnings trend down in the third quarter as interest rates rose and industry loan production waned.

In its earnings call on Friday, Fannie Mae reported net earnings of $4.84 billion, a 32% decline from the prior quarter. Freddie Mac meanwhile earned $2.9 billion, a 21% fall from the second quarter.

Still, executives at the government sponsored entities stressed that the third quarter was among the best in their respective histories.

"It was another strong quarter for the housing market and for Fannie. Our results reflect the credit quality of our guaranty book, a growing economy, strong home price growth, and low interest rates,” Hugh Frater, Fannie Mae’s CEO, said on the Friday call.

Michael DeVito, who was appointed as CEO of Freddie Mac in the spring, said that Freddie Mac had completed its "best quarter for home loan purchases since at least 2010."

Executives at Fannie Mae said Friday that home price growth was strong again in the third quarter, but not as strong as the second quarter. And mortgage rates were generally below 3% during the third quarter but eclipsed 3% in the last week of September.

“These factors contributed to our recognition of $4.8 billion in net income and $7.1 billion in net revenues for the third quarter, compared to $7.2 billion in net income and $8.4 billion in net revenues in the second quarter,” said David Benson, Fannie Mae’s president. “Although our net income was not as high as the second quarter, the third quarter was another very strong quarter for Fannie Mae.”

“Due to the growth in our book of business, we’ve seen base g-fee income increase both quarter over quarter and compared to the third quarter of 2020,” Benson said, noting that it paid $3.6 billion in g-fee income to the Treasury, a 30% increase year over year.

Single-family refinances and prepayment activity slowed compared to Q2, with net amortization dropping to $2.3 billion in Q3 from $3.7 billion in Q2.

“While refinance activity was lower compared to last quarter, it remained elevated compared to historical norms due to the continued low interest rate environment we have seen since the onset of the pandemic,” Benson said.

He further noted that Fannie’s net worth increased to $42.2 billion at the end of the third quarter and stressed that building the GSE’s net worth “continues to be critical.”

Freddie Mac, the smaller of the two, reported that net worth totaled $25.3 billion at the end of September, up from $22.4 billion at June 30.

Fannie Mae reported that it helped finance $115.4 billion of single-family home purchases in the quarter. It also acquired $180.9 billion of refinancings. Freddie Mac funded mortgages on roughly 1 million single-family homes during the third quarter, DeVito said Friday. More than 61% were refinancings.

Fannie Mae expects the pace of both home price growth and refinance volumes to decline in the upcoming quarters, “likely resulting in lower net revenues and lower credit benefits over the next year,” Benson said.

Both GSEs reported a decline in serious delinquencies.

The post Fannie Mae & Freddie Mac earnings drop in Q3 appeared first on HousingWire.

LendingLife: New General QM Rule up in the air

Posted: 29 Oct 2021 04:00 AM PDT

This post originally appeared in HousingWire’s LendingLife newsletter. LendingLife is a daily digest of the most important news and commentary edited and curated exclusively for mortgage loan originators. Join the community!

Hello, LOs!

How would you like to be questioned by Congress on Day 13 of your new job?

That's what happened to Consumer Financial Protection Bureau Director Rohit Chopra on Wednesday. Lawmakers questioned Chopra for more than two hours about his plans for the regulator.

Chopra said he has given a lot of thought to making sure that the agency is not only going after small businesses, but the largest firms. He criticized his last gig, at the Federal Trade Commission, for letting Google and Facebook "off the hook."

"I don't want to repeat that at the CFPB," he said.

One outstanding matter that many in the mortgage industry wants resolved is the future of the 2020 General QM Rule.

Asked pointedly about whether he supported the rule, Chopra answered "I don't know," and changed the subject to how the CFPB could spur refinances in the market.

Here's a brief recap: The CFPB proposed a new General QM Final Rule in 2020, after a long rulemaking process.

It did away with the 43% debt-to-income ratio limit in favor of more flexible pricing guidelines. A loan received a "conclusive presumption that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set," the CFPB said at the time. As long as the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points, the ability to repay status was secure.

The General QM Final Rule also allowed jumbo loans to get QM status, provided additional ways to verify income or assets, and expanded the category of QM to encompass seasoned loans that have mostly no defaults for three years.

But just a couple of months later, the CFPB delayed the compliance date until Oct. 1, 2022 — giving rise to speculation that their intention was not to provide additional flexibility for the market, as the regulator said at the time, but to re-open the rulemaking process.

In response to the change, some of the largest lenders swiftly introduced new jumbo QM products. But sources tell HousingWire that few lenders have the stomach to introduce new products if QM jumbo loans, the safe harbor for seasoned loans and other flexibilities are on the chopping block anyway.

Chopra's response at the Congressional hearing hardly reduced those anxieties.

LendingLife readers – do you see any problems with extending a safe harbor to some purchase loans that don't have serious defaults for three years, as this senior advisor to Chopra does? Who wins by putting off the mandatory compliance date?

Today’s Spotlight Articles:

Rohit Chopra pleads the fifth on QM rule

Private-label market filled the void created by PSPA changes

Industry and housing groups expect big things from FHFA

White paper: Can Lenders Catch Up to Consumer Demand in 2022?

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