Mortgage – HousingWire

Flagstar to pay $3.6M over flood insurance violations
Court authorizes class action against Carrington over servicing fees
The emerging ESG market is a diamond in the rough
Purchase mortgage volume projected to clear $2.1T in ’22, ’23

Flagstar to pay $3.6M over flood insurance violations

Posted: 21 Jan 2022 01:44 PM PST

The Office of the Comptroller of the Currency (OCC) issued a consent order against Michigan-based Flagstar Bank that levies a $3.62 million civil penalty over violations of the Flood Disaster Protection Act,
the regulator said on Thursday.

The consent order states that between a three-year period – from February 2017 through February 2020 – the bank's risk assessment, internal controls, and training led to various violations. It also said that the bank had an inadequate third-party risk management program for its loan servicing.

A Flagstar Bank spokesperson declined to comment on the consent order.

According to the regulator, the bank violated the FDPA to "make, increase, extend, or renew loans" secured by properties in special flood hazard areas until after it obtained proof of adequate insurance. In addition, Flagstar violated the rules regarding timely pay for flood insurance premiums collected in escrow or to provide adequate notices to borrowers, including if a change in servicer occurred.

In the consent order, OCC stated that the bank violated the Flood Act to provide borrowers with notice of inadequate flood insurance and force place adequate insurance if not obtained by the borrower in 45 days.

Flagstar Bank originated almost $40 billion in mortgage loans from January to September 2021, an 11.4% increase year-over-year, making it the 19th-largest mortgage lender in the U.S., according to Inside Mortgage Finance. At the end of the third quarter, Flagstar also had $41.7 billion in owned mortgage servicing, a decrease of 10% compared to the same period of 2020.

In April, New York Community Bank, one of New York City's largest multifamily lenders, announced the acquisition of Flagstar Bancorp, Flagstar Bank's parent company, in an all-stock merger valued at $2.6 billion.

NYCB had essentially exited the residential mortgage banking business in 2017 after selling its origination and servicing platforms. Despite the deal, Flagstar's brand will be maintained in the Midwest. Flagstar's mortgage division will also preserve the brand. Other states will retain their current branding.

The post Flagstar to pay $3.6M over flood insurance violations appeared first on HousingWire.

Court authorizes class action against Carrington over servicing fees

Posted: 21 Jan 2022 11:02 AM PST

The United States Court of Appeals for the Fourth Circuit ruled on Wednesday that borrowers can pursue a class action lawsuit against Carrington Mortgage Services regarding the fees it applied when collecting payments online or by phone.

The plaintiffs – Ashly Alexander and Cedric Bishop – brought the case in September 2020, alleging that the mortgage servicer violated Maryland’s debt collection and consumer protection statutes by illegally charging $5 for monthly payments online or by phone.

In an unanimous decision, the Fourth Circuit stated that Carrington’s fees qualified as an amount that could only be charged if it was expressly “authorized by the agreement creating the debt or permitted by law.”

According to Hassan Zavareei, a partner at Tycko & Zavareei LLP who represents the plaintiffs, this is the first appellate court decision to address that mortgage servicers may not charge fees for payments made online or by phone.

“If we prevail in this case, Carrington will no longer be able to turn payment processing into an illegal profit center,” Zavareei said to HousingWire.

The attorney will return the case to the district court to begin the litigation.

HousingWire sent a message seeking comment to Carrington, but it was not returned.

Plaintiff Alexander took out a mortgage to purchase a property in Baltimore, Maryland, in 2005. It required all payments in “cash, check or money order” at a PO Box in Dallas, Texas, or a different place if required by the note holder. Carrington became the servicer in 2017.

The other plaintiff, Bishop, refinanced his property in Gaithersburg, Maryland, in 2010, with the contract saying payments should be made at an address in Irvine, California, or other places as the lender designated in writing. Carrington started to retain Bishop’s loan payments in 2018.

According to the lawsuit, the servicer gave borrowers the option to make payments free via mail – or online or by phone with a $5 convenience fee. Both borrowers opted to pay their bills online by pressing an “I Agree” button after reviewing terms and conditions on the company’s website. They each paid the fee at least nine times in 2018 and 2019.

In December 2020, the United States District Court of Maryland dismissed borrowers’ claims because plaintiffs have failed to allege that Carrington is a debt collector. Instead, the company is a creditor who “step into the shoes of the original mortgagee,” according to the decision.

The lower court said the borrowers’ argument that their deeds of trust did not expressly grant the servicer the right to collect such a fee does not mean such a fee is prohibited. Also, they mentioned the fact that borrowers agreed with the fee online.

However, the Fourth Circuit rejected the company’s argument that fees were permitted by law when borrowers agreed with terms and conditions on their website. In their decision, the judges wrote debt collectors should not be able to modify the terms of a contract because “consumers have no say in choosing their debt collectors, and they may well be over a barrel at that later point in time.”

The court mentioned an industry publication that found that the cost to debt collectors of accepting checks by mail was between $1 to $4, whereas online and phone transactions often cost just $0.50.

Kristen Simplicio, another partner from Tycko & Zavareei LLP representing the plaintiffs, said the case involves only Maryland borrowers. Still, others are pending nationwide against Carrington (one in federal court in California, currently on appeal before the Ninth Circuit Court of Appeals) and other mortgage servicers.

“We believe there are hundreds of thousands of borrowers trapped in arrangements with different loan servicers across the country, and who are forced to pay unlawful fees when they pay their mortgages over the internet or by phone.”

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The emerging ESG market is a diamond in the rough

Posted: 21 Jan 2022 10:38 AM PST

When the terms "green" or "ESG" are broached in polite company, eyes have a tendency to roll. It’s natural for the mind to wander toward a parade of green branding campaigns that may be aspirational in messaging but rarely result in measurable climate-friendly or socially sustainable solutions in practice.

Still, hidden among all that greenwashed coal may be a framework or two for manufacturing diamonds, according to some experts working to develop those investment standards. ESG securities such as bonds are backed by collateral, like mortgages, that can be defined as meeting environmentally sustainable, socially responsible, or good governance criteria.

Digital mortgage platform MAXEX, backed by investment from financial-services giant JPMorgan, sees a bright future in the ESG market. The platform currently offers two ESG mortgage programs — one focused on green home loans, called MAXEX Sustainable; and the second, MAXEX Opportunity, serves minority, women and veteran-owned mortgage lenders and is focused on the socially responsible part of ESG.

"MAXEX has been at the forefront of creating standardized ESG-compliant loan programs with investors paying up as much as 50 basis points for these loans," states a market-update report published by MAXEX this past December. "Originator interest in the Opportunity and Sustainable programs helped ESG loans make up 26% of loan volume traded through the exchange in November.

"As the programs continue to gain traction and more ESG buyers are added to the platform, it is likely we will see the first true ESG-compliant RMBS issuance happen in 2022."

A Bloomberg Intelligence report published last year states that global ESG assets are expected to exceed $53 trillion by 2025, representing more than a third of all projected assets under management. On the agency front, Fannie Mae recently announced that its green multifamily mortgage-backed securities (MBS) issuance has topped $100 million, and its single-family green MBS program, launched in April 2020, has already reached $600 million in issuance.

Freddie Mac also recently announced that its single-family green bond program has issued some $600 million in mortgage-backed securities since it was launched in April of last year. In addition, issuance through the agency's multifamily green bond program exceeds $4.5 billion.

Still, concerns that the agencies' green bond programs suffer from doses of "greenwashing" have surfaced in news reports.

The nonprofit publication G rist, which focuses on environmental coverage, in a report published this past summer found that in terms of energy use "about a fifth of the buildings enrolled [in Fannie's multifamily green program] from 2016 through 2019 performed worse than the median U.S. building, even after fulfilling program requirements." Part of that poor performance is due to the substandard energy-use conditions of many of the properties to begin with, the report explains, so even large gains in energy-use efficiencies won't catch the properties up to the median scores.

The U.S. Securities and Exchange Commission also has its eye on the ESG market. Last year, it stood up a "Climate and ESG Task Force" in its enforcement division to better police the emerging ESG market.

"Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC's mission," said Acting Deputy Director of Enforcement Kelly Gibson, who heads the task force. "This task force brings together a broad array of experience and expertise, which will allow us to better police the market, pursue misconduct, and protect investors."

Roelof Slump, managing director of U.S. RMBS at New York-based Fitch Ratings, said investors are very interested in ESG bonds, adding if "they're paying up for something," that will create interest on the issuer and originator side.

"The general experience has been that if you’re able to successfully identify ESG tied to your loans, tied to your bonds, that does generate increased investor focus," Slump explained. "Investors are very interested in ESG, so some are eagerly reaching out to rating agencies to better understand what are the various ways of thinking about ESG, and some investors are further along than others."

The lack of standardization in what constitutes an ESG loan or bond, however, is still an issue in the U.S., Slump added. "That's been an obstacle," he said. "But it's still very early on here. Europe is much further along on these things."

Over time, tested frameworks, the market and credible regulation might lead us to more diamonds than coal in the ESG investing world. And some of that pilot work is already underway in the private-label residential mortgage-backed securities (RMBS) market.

Robert McDonough, director of ESG and regulatory initiatives at Angel Oak Capital Advisors, part of non-QM lender Angel Oak Cos., said that the company's borrowers are largely self-employed individuals who can't get access to housing-finance programs through mainstream channels, such as banks, credit unions or traditional mortgage companies.

"If you’re a self-employed individual, if you’re a sole proprietor, if you’re in the gig economy, if you’re an entrepreneur, it’s really hard to get a bank loan," McDonough said. "And so that’s where non-QM lending comes into play."

Angel Oak, he added, wants to hold itself out to the marketplace as having a sustainable business model that is helping underserved borrowers and having a positive social impact in the process.

"But conveying that message is challenging [in the ESG space] because there are a lot of concerns about greenwashing in the capital market," McDonough said. "So, we wanted to be able to align with some kind of standard that the marketplace has accepted in order for us to say we are issuing ESG bonds or issuing social bonds.

"Starting in early 2021, we developed our social-bond framework, and we calibrated that against the ICMA[International Capital Market Association] social bond principles and engaged ISS ESG [the International Shareholder Services group] to provide a second-party opinion against those principles. They validated our framework against those principles without exception."

Angel Oak, through its affiliates, both originates and securitizes non-QM loans. Last year, the company brought eight non-QM private-label deals to market valued at nearly $3 billion, according to bond-rating reports. Two of those private-label deals — the second and third securitizations valued in total at $534 million — were issued as social bonds under the company's ESG framework.

"We’re going to be alternating social bonds with what we call traditional bonds from our mortgage platform going forward," McDonough said, "[The frequency] has to do with how we originate and aggregate loans, and when we have enough appropriate loans to put into a social bond, versus a traditional loan framework,

"But we will be alternating between social bonds and traditional bonds going forward, and part of that is informed by the marketplace. …We are the only private-label non-QM non-agency RMBS issuer of social bonds to this point that we are aware of."

McDonough added that Angel Oak also is developing a new "green" loan product modeled on the energy efficient mortgage (EEM) already offered through the government-sponsored enterprises Fannie Mae and Freddie Mac. He explained that Angel Oak's planned EEM loan will allow a borrower to finance energy-efficient improvements through a single mortgage.

"Over time, these energy efficiencies save the homeowner money, and it basically lowers the borrower's debt-to-income ratio," McDonough explained. "Basically, it allows them to qualify for more mortgage because their housing expenses in the long-term are reduced."

McDonough said anyone originating EEM loans today is doing so for agency delivery. He added, however, that Angel Oak is developing a non-QM EEM program "because our aspiration is to supplement our social bonds with green bonds."

"We want to originate these green mortgages, which help to create energy efficiencies in existing or new-home purchases [or linked to refinanced loans], and then securitize those under a green bond program," McDonough said. "We want to create and hopefully be the market leader in devising an EEM program for non-QM."

McDonough stresses that Angel Oak's EEM loan program is still in the "aspirational" stage, but projects that the lender could begin originating loans through a new EEM program by the third quarter of next year, with the first ESG private-label deal backed by green EEM loans hitting the market by the end of 2022 or early 2023.

"The SEC is saying build a framework, tell us what it is and then stick to it," McDonough said in explaining his take on the future direction of the ESG market in the U.S. "[The SEC is] not going to dictate what the green standard is, or the social standard is, but they do want us [as issuers or companies] to say what it is … then prove we're adhering to that framework.

"They don’t want to create an overarching rigid regulatory framework like they have in Europe, because that’s not the way the U.S. operates."

The post The emerging ESG market is a diamond in the rough appeared first on HousingWire.

Purchase mortgage volume projected to clear $2.1T in ’22, ’23

Posted: 21 Jan 2022 10:22 AM PST

Despite the expected rise in interest rates, the single-family housing market will continue to boom in 2022, according to a report published by Freddie Mac this week.

Sam Khater, chief economist at Freddie Mac, said in a statement that the "combination of a large number of entry-level homebuyers facing a shortage of entry-level inventory of homes for sale should keep the housing market competitive."

However, Khater did note that as rates rise, there will be some moderation in housing demand, causing home price growth to temper.

Specifically, the government-sponsored enterprise forecasts that home price growth will dip from 15.9% in 2021 to 6.2% in 2022 and will cool further to just 2.5% in 2023. The report also added that home sales are projected to hit 6.9 million in 2022 and increase to 7.0 million in 2023.

Freddie anticipates that home purchase mortgage originations will increase in the next two years, spurred by demand coupled with house appreciation.

The expectation is that home purchase mortgage originations will grow from $1.9 trillion in 2021 to $2.1 trillion in 2022 and $2.2 trillion in 2023.

How lenders can turbocharge mortgage operations for today's home buyers

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On the other hand, total originations (which includes refinances) are expected to dip from $4.7 trillion in 2021 to $3.3 trillion in 2022 to $3.1 trillion in 2023, the report said.

"Refinance activity is anticipated to decrease from $2.7 trillion in 2021 to $1.2 trillion in 2022," Khater remarked.

Additionally, the report mentioned that the average 30-year fixed-rate mortgage is expected to be 3.6% in 2022 and 3.9% in 2023.

Just this week, the average 30-year-fixed rate mortgage climbed to 3.56%, rising from 3.45% the week prior, Freddie's PPMS Mortgage Survey found.

Khater said that the rate increase is in tandem with the 10-year U.S. Treasury yield rising and financial markets adjusting to anticipated changes in monetary policy that will combat inflation.

The Federal Reserve announced in December that will accelerate its tapering of bond-purchases starting in January. It is reducing the pace of its monthly purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities.

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