Mortgage – HousingWire

Nonbanks quick to implement 2022 conforming loan limits
Fannie Mae revs up its credit-risk transfer machinery
Housing inventory has never been lower
Mortgage rates remain flat as Omicron fears spread
Shoring up the mortgage underwriter shortfall
Better.com lays off LOs, secures $750M cash injection

Nonbanks quick to implement 2022 conforming loan limits

Posted: 02 Dec 2021 11:17 AM PST

On Tuesday, the Federal Housing Finance Agency revealed the much-anticipated conforming loan limits for 2022, with the baseline number jumping by 18% to $647,200. It’s the largest-ever annual increase in the size of loans eligible to be bought by Fannie Mae and Freddie Mac.

The figure, which is determined by a formula set by Congress, didn’t catch many nonbanks too off-guard. Back in October, a handful of nonbanks — PennyMac, Homepoint, United Wholesale Mortgage, and Rocket Mortgage — announced that they would all be upping their conforming loan limit to $625,000 for a one-unit property.

Though the FHFA's announced limits are 3% higher than the number that nonbanks were apparently coalescing around, several nonbank lenders moved swiftly to implement the new limits.

On Wednesday, a day after the agency's announcement, Homepoint, Guaranteed Rate and UWM all announced that the new limits were in effect.

A spokesperson from UWM noted that the wholesale lender is honoring the new higher-than-expected limits and that any UWM loans currently in the pipeline that are not locked can be adjusted based on the new loan limits.

Homepoint similarly stated that it would accept "conventional loan registrations and rate locks within the 2022 loan limits."

Although the baseline was higher than many lenders expected, it follows a year of incredible home price growth.

According to the FHFA, single-family home prices in the third quarter jumped by 18.5% year-over-year across the nation. This marks the largest increase to the agency's house price index, which tracks the average increase in home values, since the metric was introduced in 2008.

In high-cost areas, the FHFA increased the ceiling loan limit for one-unit properties to $970,800, up from $822,375 in 2021.

Meanwhile, for Alaska, Hawaii, Guam and the U.S. Virgin Islands, the baseline loan limit will also be $970,800 for one-unit properties.

The calculation used to determine the conforming loan limit is based on a formula established by the Housing and Economic Recovery Act (HERA), which in 2008 set the baseline loan limit to $417,000.

The regulation mandated that the baseline could rise only after home prices returned to pre-recession levels, which happened in 2016, resulting in the FHFA increasing the conforming loan limits for the first time in a decade.

For high-cost areas, defined as areas where 115% of the local median home value exceeds the baseline conforming loan limit, HERA dictates that the maximum loan limit is 150% of the baseline loan limit.

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Fannie Mae revs up its credit-risk transfer machinery

Posted: 02 Dec 2021 09:58 AM PST

Fannie Mae is once again back in the credit-risk transfer market with a $984 million note offering through its Connecticut Avenue Securities real estate mortgage investment conduit, or REMIC.

The recent offering, CAS Series 2021-R02, was slated to close this week and involves transferring loan-portfolio risk to private investors via a $984 million note offering backed by a reference pool of some 125,000 single-family mortgage loans valued at $35 billion. Fannie plans to bring one more CRT note offering to market this year.

“Our latest deal [CAS Series 2021-R02] was met with high demand from a deep base of investors,” said Devang Doshi, senior vice president of single-family capital markets at Fannie Mae. “Subject to market conditions, we look forward to returning to market [in December] with our final deal of the year, CAS 2021-R03.”

The recent $984 million note offering is Fannie's second CRT transaction so far this year. In October, the agency made a $1.2 billion CRT note offering, CAS Series 2021-R01, backed by a reference pool of 246,836 single-family mortgages valued at $72 billion.

Prior to restarting CRT offerings this year, the agency had backed away from the market for a time — with its prior CRT transaction closing in March 2020.

"When they do a credit-risk transfer transaction, it’s taking risk from that huge bucket [the reference loan pool] and selling off most of the credit-risk pieces," said Roelof Slump, managing director of U.S. RMBS at Fitch Ratings. "Fannie Mae had taken a brief hiatus until recently reengaging in this (CRT) market.

"We’ve been quite active on the Freddie Mac side and expect to rate Fannie Mae's Connecticut Avenue Securities Trust Series 2021-R02 credit-risk transfer securitization closing in early December.”

Through a CRT transaction, private investors participate with government-sponsored enterprises (GSEs) Fannie and Freddie in sharing a portion of the mortgage credit risk in the reference loan pools retained by the GSEs. Investors receive principal and interest payments on the CRT notes they purchase, but if credit losses exceed a predefined threshold per the security issued, then investors are responsible for absorbing the losses exceeding that mark.

The CAS 2021-R02 offering represents Fannie Mae’s 43^rd CAS transaction since the first offering in October 2013. Collectively those CRT deals involved some $49 billion in notes issued against single-family mortgage loan pools valued at $1.6 trillion. Freddie Mac also brought its first CRT deal to market in 2013 and since then "has cumulatively transferred approximately $81 billion in credit risk on approximately $2.5 trillion in mortgages," a Freddie Mac press release from Nov. 15 states.

Fannie Mae and Freddie Mac's efforts on the CRT front were bolstered recently by proposed changes to their capital-reserve rules that are being advanced by the Federal Housing Finance Agency (FHFA), which oversees the GSEs. The pending changes were lauded by at least one industry group, the Housing Policy Council (HPC), which represents many of the nation's leading mortgage originators and servicers.

Ed DeMarco, president of the HPC, recently wrote a letter to the general counsel of FHFA indicating support for the agency's proposed regulatory-capital rule changes, which include reducing the risk-weight assigned to any retained CRT exposure from 10% to 5%. HPC and other stakeholders argued that the Trump-era rule's leverage buffer was excessive compared to bank regulators.

That modification of the capital-retention risk weight for CRT exposure, along with other adjustments to the capital-reserve requirements, "would make CRT transactions somewhat more economic" and "expand the risk-reducing and competitive benefits of CRT transactions," DeMarco's letter to FHFA's general counsel states.

"CRT transactions lessen the systemic risk posed by the enterprises (GSEs) by reducing the concentration of that risk on the enterprises' balance sheets and the volatility inherent in the credit performance of the enterprises' guarantee business," DeMarco wrote in the letter.

"The Housing Policy Council will continue to be an advocate for broad housing-finance reform," DeMarco said in a prior interview with HousingWire. "And that includes continuing to develop the credit-risk transfer market.

"What FHFA has done the last couple months, signaling a renewed interest in seeing the CRT market develop, that’s really important, and we’re going to continue to promote that."

The serious delinquency rate for Fannie Mae has been in the 2% range throughout the pandemic.

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Housing inventory has never been lower

Posted: 02 Dec 2021 09:36 AM PST

It’s official – housing inventory in America is at a crisis level. The number of active listings hit an all-time low during the week ending November 28, according to a Redfin report published on Wednesday.

During the four week period ending November 28, the number of active listings was a 23% decrease compared to the same time period in 2020 and a 42% drop compared to 2019. The number of new listings was also down compared to 2020, dropping 4%, but it was 12% higher than the number of new listing during the same time period in 2019.

"The number of homes for sale typically declines another 15% in December," Daryl Fairweather, Redfin chief economist said in a statement. "That means that by the end of the year, there will likely be 100,000 fewer homes for sale than there were in February when housing supply last hit rock bottom. I think more new listings will hit the market in the new year, but there will also be a long line of buyers who are queuing up right now."

Despite the seasonal changes going on outside, demand remains strong. During the same four week period 45% of homes that went under contract had an accepted offer within the first two weeks, up from 39% in 2020. But perhaps even more impressively, 33% of homes had an accepted offer within one week, up from 27% a year prior. Overall, the median number of days a sold home sat on the market during this period was 25, as compared to 31 days in 2020 and 46 days in 2019.

Ever-tightening housing inventory and steady demand has resulted in median home sale prices hitting a new all-time up of $360,375, just two weeks after hitting another all-time high. This marks a 14% year-over-year increase and a 31% increase from 2019. In addition, 43% of homes sold during this period , sold over list price, with the average sale-to-list price ratio coming in at 100.5%.

Experts believe that beside low housing inventory, steady mortgage rates may also be fueling the continued strong levels of demand.

"Headlines and new restrictions related to the omicron variant of the coronavirus might fuel some uncertainty and volatility in the economy," Fairweather said in a statement. "In the short term, global interest rates, including mortgage rates, could fall. In this extremely tight housing market, we would quickly see a proportional increase in competition and home prices."

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Mortgage rates remain flat as Omicron fears spread

Posted: 02 Dec 2021 06:50 AM PST

Mortgage rates increased one basis point to 3.11% in the week ending Dec. 2, ignoring the volatility in the financial markets caused by the Omicron Covid variant, according to the latest Freddie Mac PMMS mortgage report.

A year ago at this time, the average 30-year fixed-rate loan averaged just 2.71%, according to the report published on Thursday. Mortgage rates are in a historical low level, but the expectation is that they will increase in the coming months due to higher interest rates.

Sam Khater, Freddie Mac's chief economist, said in a statement that the consistency of rates, in the face of changes in the economy, is primarily due to the evolution of the pandemic, which lingers and continues to pose uncertainty. "This low mortgage rate environment offers favorable conditions for refinancing," he added.

The survey focuses on conventional, conforming, and fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit.

Economists at Freddie Mac said the 15-year fixed-rate mortgage averaged 2.39% last week, down from 2.42% the week prior. However, it's higher than it was a year ago, at 2.26%. Meanwhile, the five-year ARM increased to 2.49%, up two basis points from last week. A year ago, 5-year ARMs averaged 2.86%.

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Mortgage rates tend to move in concert with the 10-year Treasury yield, which reached 1.43% on Dec. 1, down from 1.54% a week before.

The year-over-year increase in rates is impacting mortgage applications. The latest Mortgage Bankers Association (MBA) survey published on Wednesday showed a 7.2% decline for the week ending Nov. 26, in comparison to the previous week.

Compared to a year ago, the overall market composite index dipped 29.6% on a seasonally adjusted basis. "Over the past three weeks, rates are up 15 basis points, and refinance activity has declined over 18%," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a statement.

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Shoring up the mortgage underwriter shortfall

Posted: 02 Dec 2021 03:00 AM PST

The mortgage industry is contending with a loan-underwriter shortage that has acted like a governor on an engine — slowing the pace of a fast-growing private-label securitization market.

The shortage stems from the imbalance created by the robust demand for underwriters in the private-label market set against the relatively stagnant supply of available underwriters — who also are in high demand in the booming mortgage-origination sector.

The imbalance has been particularly acute for third-party due diligence (TPR) firms that employ underwriters to review and assess the quality of loan pools used as collateral in private-label securitization deals.

Executives with TPR firms and the bond-rating agencies that make use of their due-diligence reviews agree the problem is a big challenge. It is complex, with multiple, varied causes. They also point out that it is, in large measure, a byproduct of a healthy, expanding mortgage industry marked by a resurgent residential mortgage-backed securities (RMBS) market.

Despite the challenge, these industry executives remain resolute in their efforts to find a fix, largely because the long-term growth of the housing industry depends on it. To that end, they offer some possible, if imperfect, solutions that may help to address the underwriter shortage in the months and years ahead to ensure a smoother-functioning, more efficient private-label market.

One solution advanced is to simply develop and recruit more underwriters for the private-label market. To that end, John Levonick, CEO of Canopy, a startup TPR firm, said his company is "looking to establish employment conduits by working with local universities." He also said his firm is working to "modularize" its approach to due-diligence reviews in the private-label space.

"Due diligence normally requires a single person to have credit, income, collateral and compliance expertise," Levonick explained. "Our approach … has been to hire people that have individual skill sets but not necessarily the comprehensive skill set that most firms look for.

"[We have] the agility from a technology perspective to permit multiple people to work on a loan file, to segment it and break it out."

Roelof Slump, managing director of U.S. RMBS for the bond-rating agency Fitch Ratings, said that adopting a modular, or segmented, approach to conducting due diligence reviews is a strategy that is gaining some traction among TPR firms. (It's already common among mortgage originators.)

"[The] approach is to bifurcate the [loan] file and say this area's going to handle this aspect, and this other group is going to handle the other aspect, in order to best parse it," he explained. "You focus the expertise and enable faster decision-making.

"Ultimately, however, you still need someone to look at the whole loan [process] to ensure it makes sense."

On another front, natural market forces could come into play and help to rebalance the demand for underwriters, freeing more of them up for the private-label market.

"We would anticipate that headed into 2022 some of the pressures are going to unwind a little bit," said Michael Franco, CEO of SitusAMC, a major TPR firm operating in the private-label space. "I think everybody's expecting there to be lower origination volume in 2022 and 2023 than there was in 2020 and 2021."

John Toohig, managing director of whole loan trading at Raymond James, adds that "if rates go up, like several economists are predicting, that could be a headwind" for mortgage originations, particularly refinancing.

If that happens as predicted, it might open the door for more underwriters to move away from mortgage originations and to the securitization side of the business, according to Chris Guidici, managing director of business development at Wipro Opus Risk Solutions.

"Perhaps we can look at that as an opportunity to create a soft-landing spot for some of those individuals," Guidici said. "We'll still have to train them to do secondary market due-diligence versus what origination underwriting is, but it is certainly a benefit If that happens."

Bill Shuey, director of securitization operations at Wipro Opus, added, however, that even in an environment dominated by purchase loans, "I think we're going to be pretty steady as far as volume and being busy."

A big question for the private-label market next year that will affect underwriting, he said, is "what will the [mortgage] products look like, [and] what will people try to do in that purchase environment?"

Another strategy for dealing with the market uncertainty ahead is to invest more in automation and technology, which also would involve a shift in the private-label market toward more standardization and big data.

"Some of them [the TPR firms] may have better technology, which may mean the work is more efficient, and they can handle more loans per reviewer," Slump said. "And it remains to be seen how well that plays out over time."

For Joseph Mayhew, chief credit officer at TPR firm Evolve Mortgage Services, technology does offer an achievable solution to the underwriter shortage. In particular, he said the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have had a lot of successes on the technology front and consequently have a lot to offer the private-label market.

"A lot of folks who do private-label business tend not to be big fans of the agency [GSE] world, but I do think if you can’t beat them, join them," Mayhew said. "There’s a lot of good ideas to be had in what the agencies have done.

"They've automated the appraisal-review process; they’ve automated closing data; they’ve automated delivery data, and they have AUS [an automated underwriting system]. … I think we have to subscribe to technology in a big way."

Mayhew is not alone in seeing the potential in adopting for the private-label market some of the technology successes that the GSEs have pioneered. Ed DeMarco, president of the Housing Policy Council and acting director of the Federal Housing Finance Agency from 2009 to 2014, said it is long past time for Congress to pursue housing-finance reform that clearly defines the lines between the GSEs and the private-label market.

"Greater clarity on those parameters going forward would create more clarity for mortgage market participants, so they can better invest and build out infrastructure," he said. "It also would define how the [GSE] tools that are in the marketplace today get to be leverage by private markets.

"The securitization platform, disclosure rules, data definitions … there's a whole range of potential tools that have been developed [by the GSEs] that have the potential to benefit or to be leveraged by the private-label market."

Putting too much faith in technology to replace humans in the private-label space, however, is not without some risk as well, according to Toohig, of Raymond James. Toohig said underwriting and conducting due diligence is not so much a science as it is an art that still requires a high degree of human touch.

"As we move more toward big data, and we move toward automation, and we move away from the human element … all in the spirit of efficiency due to a lack of personnel, well, I'd watch that quite closely," he warned.

This is the final story in our three-part series that explores the repercussions of a shortage of underwriters in the mortgage industry. Part I can be read here and part II here. Share your thoughts by emailing Senior Mortgage Reporter Bill Conroy at bconroy@housingwire.com.

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Better.com lays off LOs, secures $750M cash injection

Posted: 01 Dec 2021 02:28 PM PST

HW+ vishal garg — Better.com founder and CEO Vishal Garg

Digital mortgage lender Better.com is laying off 9% of its workforce ahead of a $750 million cash injection from financial backer SoftBank Group. Company officials say the moves will allow refi-heavy Better to increase its strength in a mortgage market that is increasingly becoming purchase-focused.

The layoffs were announced by the New York-based company on Tuesday.

Company sources told HousingWire that refi-focused, salaried loan officers made up the majority of the hundreds of employees who received pink slips. Better’s loan officers do not receive commissions.

Following the layoffs, the company expects to have close to 9,000 employees at the end of the year, a source said.

Better confirmed the layoffs, but wouldn’t discuss them on the record.

The company plans to automate some of its refi processes and is now focused on purchase operations, one company official, who requested anonymity, said.

In November, Better disclosed to the Securities and Exchange Commission that it projected it would lose between $85 million and $100 million in the third quarter, and that losses would likely widen in the fourth quarter. In the second quarter the digital mortgage lender also reported a net loss of $86 million.

Like many of its nonbank rivals, Better, which plans to go public via a SPAC merger, has forecasted an overall slowdown as demand for refinancings dries up and purchase business is constrained by historically low inventory.

Better said in its S-4 that it expects its gain-on-sale margin to compress during the fourth quarter of 2021, "due in part to competitive price in a market where volumes are expected to contract."

In conjunction with the layoffs, Better's SPAC partner, blank-check firm Aurora Acquisition Corp. and venture capital company SoftBank announced an amendment to an earlier financing agreement and will dole out $750 million of a total $1.5 billion in committed funding to Better—immediately.

The remaining $750 million will be distributed to the company in the form of a convertible note at Better's option within 45 days after the closing of Better's merger with Aurora, the company said in a statement.

The company noted that the $750 million bridge financing will push Better's balance sheet to over $1 billion of cash and cash equivalents.

In a statement, Kevin Ryan, chief financial officer at Better, told HousingWire that "a fortress balance sheet and a reduced and focused workforce together set us up to play offense going into a radically evolving homeownership market."

Furthermore, Vishal Garg, CEO of Better, said in a statement that the COVID bump that helped “sustain legacy players” in the industry over the past 18 months “is fading and we expect a large number of our competitors to scale back their automation and vertical integration efforts.”

“This is exactly the time for us to lean in and accelerate our customer-focused product innovation, and grow our B2B business, which we believe provides us with greater defensibility in a tougher mortgage market,” he added. “The incremental $750 million of capital in the form of a commitment to fund a convertible note, on top of the $750 million of cash coming immediately to the balance sheet, will help us to do exactly that."

Better.com planned to make its public debut in the fourth quarter of 2021, however, a source with direct knowledge of Better’s plans to go public said it would be virtually impossible at this point.

"The S-4 hasn't been declared effective and once it is, you're probably four weeks at least until the vote and closing," the source said. "All in, this is probably better from Better's point of view (more cash to the balance sheet) but will be interesting to see the terms of the convertible notes that may be issued after closing."

The filing noted that the fluctuations in interest rates – which affect refis more than purchase business – and a recent reorganization of Better's sales and operations teams has put pressure on the company's net income and will continue to do so for the foreseeable next quarter, as the company attempts to find footing in a purchase market.

Meanwhile, Chicago-based Interfirst Mortgage, another refi-heavy shop whose inexperienced LOs also do not receive commissions, also announced layoffs. Of the 77 employees that will be laid off, 49 of them are loan officers.

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Friday, December 3, 2021