Wednesday, February 9, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Refi interest is down 52% from last year

Posted: 09 Feb 2022 04:00 AM PST

Mortgage applications decreased 8.1% from the previous week, a response to an uptick in mortgage rates, according to the Mortgage Bankers Association (MBA) survey for the week ending Feb. 4. The seasonally adjusted refi index fell 7.3% while the purchase index dropped 9.6%.

Compared to the same week one year ago, mortgage apps overall dropped 39.6%, with a sharp decline in refi (-52%) compared to purchase (-11.4%).

The higher rate environment has already started to take its toll on production for originators. Multichannel shops NewRez, Pennymac and loanDepot have all reported lower volumes in concert with rising rates and lower interest in rate-term refi business.

According to Joel Kan, MBA's associate vice president of economic and industry forecasting, mortgage rates continued to climb "as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies."

The trade group estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) increased to 3.83% from 3.75% the week prior. For jumbo mortgage loans (greater than $647,200), rates climbed to 3.62% from 3.59% the week prior.

"With rates 87 basis points higher than the same week a year ago, refinance applications continued to decrease," Kan said in a statement.

Regarding purchases applications, both conventional (-10.2%) and FHA (-7.3%) saw proportional declines, while the average loan size again hit another record high at $446,000.

According to Kan, "activity continues to be dominated by larger loan balances, as inventory remains tight for entry-level buyers."

The survey showed that the refi share of mortgage activity decreased to 56.2% of total applications last week, from 57.3% the previous week. The VA apps rose to 10% from 9.1% in the same period.

The FHA share of total applications increased to 8% from 7.7% the prior week. Meanwhile, the adjustable-rate mortgage share of activity increased remained unchanged at 4.5% and the USDA held steady at 0.4%.   

The post Refi interest is down 52% from last year appeared first on HousingWire.

Fannie Mae cues up a $1.3B reperforming loan sale 

Posted: 08 Feb 2022 03:16 PM PST

HW+ Fannie Mae

Fannie Mae this week unveiled its 24th sale of reperforming loans since its first offering in 2016. The current deal is composed of more than 8,000 mortgages with an aggregate unpaid principal balance of $1.3 billion.

The sale of reperforming loans (RPLs) is being marketed in collaboration with Citigroup Global Markets, with bids due by March 1, 2022. The transaction involves three loan pools — with pool 1 composed of loans with about $421.2 million in unpaid principal balance; pool 2 is at $622.6 million; and pool 3, $277.2 million.

"Loans in Pools 1 thru 3 are being serviced by Mr. Cooper or Bayview Loan Servicing," Fannie's fact sheet on the deal states.

Reperforming loans are defined by Fannie Mae as mortgages that were previously delinquent but are performing again because payments have become current — with or without the use of a modification plan. Fannie Mae began selling RPL loans in October 2016 "to reduce the size of its retained mortgage portfolio," according to the agency.

"There's always an appetite for distressed packages on the secondary market," Rick Sharga, executive vice president of marketing for real-estate research firm RealtyTrac, said in a prior interview with HousingWire. "People are looking for securities where they believe the risk-reward ratio is appropriate for their taste."

Fannie Mae last year put on the market some 100,000 reperforming loans across five offerings with an aggregate unpaid principal balance of $14.5 billion, according to an analysis of the agency's records.

By comparison, over the same period in 2020, as the pandemic raged and government protections kicked in, a total of 57,235 RPLs were put on the sales block by Fannie Mae through four pool offerings that had a total unpaid principal balance of $8.7 billion — or a bit more than half of the RPL sales by loan count and $5.7 billion shy of the 2021 aggregate value mark. In 2019, prior to the pandemic, Fannie sold nearly 104,000 reperforming loans valued in total at $17.1 billion.

Fannie's fellow government-sponsored enterprise, Freddie Mac, favors securitizing RPL pools as opposed to selling the loans off its books. 

"To date, Freddie Mac has … securitized more than $73 billion of RPLs," states an October 5, 2021, press release announcing the pricing of Freddie's final RPL deal of the year — a $564 million offering backed by a pool of reperforming loans. To date, Freddie has not announced any new RPL transactions for 2022.

Over the past three years, Freddie's securitizations have trended downward, from a total of seven offerings in 2019 backed by RPL pools with an aggregate value of nearly $13 billion to some six offerings in 2020 backed by reperforming loan pools with a total value of $8.2 billion, Freddie Mac's records show. Last year, the agency sponsored five securitization deals backed by RPL pools with a combined value of some $4.3 billion. 

The post Fannie Mae cues up a $1.3B reperforming loan sale  appeared first on HousingWire.

Excelerate Capital is accelerating its growth in the non-QM market 

Posted: 08 Feb 2022 01:33 PM PST

HW+ 2022 houses

Newport Beach, California-based Excelerate Capital, a long-time non-QM lender with a growing market presence, finalized its acquisition of Castle Mortgage Corp. in early 2021 as part of a larger plan to expand its origination reach beyond California — with the goal of creating a national lending footprint. 

That plan is now in full motion and, if successful, will double the lender's origination volume this year, compared to 2021 — most of it in the non-QM space. It also will result in Excelerate nearly doubling its workforce and lead to its debut in the private-label securities market, according to Excelerate President and CEO Thomas Yoon.

"In the past, we did 97% of our production in California," Yoon said. "With the Castle acquisition and tech integration now completed, our intent is to lend nation nationwide in the non-QM market. 

"And one of our strategic plans for our growth is we’re really bolstering up our retail division in 2022."

Yoon said Excelerate is now in the process of building up a "huge team of distributor retail groups" on top of the Castle brick-and-mortar retail network, adding that Castle, at the time of its acquisition, "was more of a shell" with only a handful of employees. 

"We will be hiring retail guys that carry our flag through the Excelerate branches, but they’re not only in California," Yoon added. "The bulk of them are in different states, like Florida, Texas, Washington, Arizona and Virginia. 

"We need to have footprint outside of [California]. They'll be based at brick-and-mortar branches and going out into their communities and building customers for Realtors and affinity partners."

That effort will result in Excelerate expanding its workforce by some 300 employees, Yoon said, adding that the lender is now "geared up to really make a push in all of the states."

"We anticipate by June of this year to be right around 700 employees," he added.

The goal of that push is to expand Excelerate's overall origination volume from around $3 billion annually now to $6 billion or more in 2022, with the bulk of those originations in the non-QM space. Yoon said Excelerate's non-QM originations in 2021 were "north of $2.6 billion," and that non-QM volume is projected to expand to $5 billion for 2022.

"About 85% to 90% of our overall production is non-QM," Yoon added.

Non-QM mortgages include loans that cannot command a government, or "agency," stamp through Fannie Mae or Freddie Mac. Non-QM loans typically make use of alternative-income documentation because borrowers cannot rely on conventional payroll records or otherwise fall outside agency credit guidelines. The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners, gig workers and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies. 

Manish Valecha, head of client solutions at Angel Oak Capital, part of Angel Oak Companies, said the non-QM market "as a percentage of the overall market is about 10% to 12% in a normalized environment" — adding that was the size of the non-QM market in the early 2000s, prior to the global financial crisis. 

"That implies a market size [today] somewhere between $175 billion to maybe $200 billion," he said. "… We just see the market overall growing, especially as the mortgage industry grapples with a slowdown in agency refinancing volume. We see more folks turning their attention to the non-QM space, and we see volumes growing."

A tally of private-label transactions in 2021 compiled by Kroll Bond Rating Agency shows that the value of non-prime securitizations in 2021 exceeded $27 billion based on aggregate loan-pool volume. A non-prime mortgage is essentially the same as a non-QM loan.

In addition, at least 25 private-label transactions collateralized by more than 27,000 mortgages valued at $14.3 billion hit the market in January of this year, based on an analysis of the flurry of bond-rating reports published over the month. The offerings were evenly divided among the major private-label buckets, with non-QM accounting for nine deals valued at more than $4 billion.

"If you look at it from an origination standpoint, think about all the loan officers that were able to just refi their current pipeline, with interest rates at 3% [or lower]," Yoon explained. "It was kind of a no brainer, just low-hanging fruit. 

"Well, if you go to any originator and say, 'Hey, 63% of your refi business is going to die this year,' and let’s say 70% to 80% of their production was refi, how are they going to make a real living? They have to start learning how to adapt to their environment, and non-QM happens to be one of those [adaptations]."

For Excelerate, another adaptation is to find ways to build liquidity for its expanding non-QM loan pipeline. To that end, Yoon said the lender is now working to develop a private-label transaction conduit, potentially by forming some type of joint venture with a private equity fund — with the goal of pursuing up to two private-label securitization offerings in 2022. 

"I can't explain the actual mechanism yet … but we are looking at potential joint ventures," Yoon said. "I’ve been in talks with several really big [private-equity] funds, and we’re trying to figure out a way that we can do it together in one form or another.

"I’m hopeful to do at least two deals this year and probably pursue a securitization of $250 million to $300 million for each."

Yoon added that for Excelerate, as one of the early adopters of non-QM lending, it's important to remain at the forefront of the industry "and to educate our industry on how to do non-QM well."

"There will be some challenges [for the industry] in how to navigate the waters, so I think that’s going to be really important," he said. "The growth is going to happen, regardless. I think the pain points of entry for a lender to do it well will be a little bit more difficult than for agency [Fannie and Freddie] lending because of the manual [underwriting] nature of the [non-QM] sector."

Key to the industry' success on the non-QM front, according to Yoon, is training the next generation of mortgage-industry professionals. 

"One of the ways we’ve approached it is we launched what we call the Excelerate Academy," Yoon said.  "We're taking new people in the industry — college grads and people that we think have potential — and we’ve created a whole curriculum in our company that we are using to build the operations force of tomorrow."

The post Excelerate Capital is accelerating its growth in the non-QM market  appeared first on HousingWire.

Like it or not, desktop appraisals are here to stay

Posted: 08 Feb 2022 10:06 AM PST

HW+ home appraisal

Desktop appraisals arrived in March of 2020, allowing the housing market to keep humming while many stayed indoors to prevent the spread of COVID-19.

Allowing appraisals without a walk-through was one of several flexibilities the Federal Housing Finance Agency allowed in light of the pandemic. Use of desktop or exterior-only appraisals peaked in April 2020, reaching a share as high as 17% in some places. By the end of 2020, FHFA signaled publicly it was considering hybrid appraisals on a permanent basis, following proposals from both Fannie Mae and Freddie Mac.

In a December 2020 request for information, FHFA highlighted potential benefits of desktop appraisals, including assisting training of new appraiser trainees, and alleviating appraiser shortages in rural and high-volume areas. It also pointed out potential pitfalls of a non-traditional approach.

There were risks, FHFA wrote, because a "uniform regulatory framework does not exist at both the state and federal levels that holds non-appraisers accountable for their work on appraisals." A recent federally commissioned report further detailed the appraisal industry's dysfunctional regulatory regime.

But any risks appear to have been resolved. In October 2021, FHFA Acting Director Sandra Thompson announced to a crowd of mortgage industry professionals that desktop appraisals would become permanent, starting early in 2022. In January, Fannie Mae said it would start accepting desktop appraisals, where an appraiser need not perform a walk-through, for some agency-backed loans after March 19.

The option is limited to purchase transactions, secured by a one-unit principal residence with a loan-to-value ratio of no more than 90%. Loans for second homes, investment properties, cash-out refinances, construction loans, multi-unit properties, renovation loans, condos, co-ops or manufactured homes are not eligible. Any loan application flagged as ineligible by Fannie Mae's automated underwriting system will have to use a traditional appraisal.

A Fannie Mae spokesperson said that appraisal modernization and digitization, and specifically the launch of desktop appraisals, can offer different career opportunities for a new generation of appraisers. Appraisers could earn more by doing more appraisal reports, the spokesperson said, spend less time and money traveling to appointments, and could more easily work from home, assisted by remote data collection.

The new policy is welcomed by lenders, who often view appraisals as a "pain point" and have sought to reduce turn-times. But there is at least some skepticism of desktop appraisals from appraisers themselves.

D. Scott Murphy, CEO of D.S. Murphy and Associates Real Estate Appraisers and Consultants, raised concerns about bearing the liability for an appraisal, but relying on second-hand information. Desktop appraisals, he said, still hold the appraiser responsible for getting the correct information.

"The only difference is that the appraiser is not required to visit the property," Murphy said. "That is completely different from doing a traditional desktop appraisal which is done on an abbreviated form with all kinds of exceptions and clauses to protect the appraiser when he has to make certain assumptions."

Although appraisers can do desktop appraisals from a remote location, they must have accurate floor plan data. Where they get a reliable floor plan sketch is somewhat of a gray area, however. Few listings — only about one in 10, according to Ken Dicks, director of appraisal compliance and initiatives at Reggora — include that data.

The need for accurate floor plan data could indirectly spur the appraisal industry to replenish its dwindling ranks, by giving something for appraiser trainees to do. Trainees could collect the data, and be paid for providing a useful service. Since trainees are not allowed to do appraisals without the supervision of a licensed appraiser, appraisers have little incentive to take them on.

But relying on other sources for the data needed to conduct a desktop appraisal, the listing agent, for example, could be risky. Listing agents have a clear motivation to provide information that might pad an appraisal.

"If the Realtor says there are hardwood floors throughout, and the appraiser puts that in the appraisal report and it's not the case, that's a problem," Dicks said.

Some have also touted he cost benefits that desktop appraisals could bring.

A Fannie Mae spokesperson said desktop appraisals "could help make the appraisal process more efficient in a safe and sound manner and have the potential to reduce costs and time for homebuyers, homeowners, and appraisers."

Lenders, the spokesperson added, are keen to "understand how to operationalize desktop appraisals because they appreciate the process efficiencies and potential cost savings for borrowers."

But Sean Pyle, president of appraisal management company Valutrust Solutions, says he's already dealing with pressure from lenders who are expecting desktop appraisals to reduce their costs, too.

"My counsel to clients I speak with is, 'Don't think about this in any other terms than potential time savings,’" Pyle said. "Don't try to wrap cost savings into this."

There's an assumption, he said, that because appraisers could produce an appraisal more quickly, it should be cheaper. But appraisers, not lenders, assume the liability for producing a complete report.

"There's still some battle scars from 2006 to 2009 where appraisers were made to be the scapegoats," Pyle said. "But it wasn't an appraiser deciding to loan 125% of a home's value for a 3/1 adjustable rate mortgage. The lenders may not like the appraisal process, but they aren't the ones taking on the risk."

Appraisers are also likely to balk at another pay cut. In the years after the great recession, appraisal management companies proliferated, which ate into appraisers' compensation.

Lisa Rice, CEO of the National Fair Housing Alliance, has observed in many sectors of the mortgage industry that cutting costs can also come at the expense of quality. Oversight, in those cases, becomes extremely important.

"Every time you're paying someone on the ground less, what does that mean about the quality? That lets you know that you really have to be on your p's and q's to make sure the quality is there," said Rice.

For now, however, industry observers are taking a wait-and-see approach with desktop appraisals. Kroll Bond Ratings Agency, in a January 2022 pre-sale report, said they gave a "broad valuation haircut" to all loan pools with appraisal waivers.

Jack Kahan, senior managing director for residential mortgage-backed securities at Kroll, explained they performed the haircut because "there is no third-party value provided to KBRA to substantiate the lender value."

For loans with desktop appraisals, however, Kahan explained there is no discount, although he said that for loans with desktop appraisals or appraisal waivers, it's possible that could change "in either direction for either product" as they evaluate performance over time and gather more data.

"For loans with desktop appraisals, since they are performed by licensed appraisers, follow appraiser independence requirements, among other reasons, we generally do not haircut values."

The post Like it or not, desktop appraisals are here to stay appeared first on HousingWire.

NewRez origination profits decline 43% in Q4

Posted: 08 Feb 2022 09:17 AM PST

With Caliber Home Loans and Genesis Capital LLC in the fold, real estate investment trust New Residential Investment Corp. reported $160.4 million in net income in the fourth quarter, a 10% increase from the prior quarter.

In a period largely defined by integration and transition at NRIC, gain-on-sale margins for the mortgage business actually increased in Q4. That’s despite origination volume beginning to slow, as it has for most originators.

In total, NRIC funded $38.1 billion mortgages in the fourth quarter, the first quarter with fully combined reporting between Caliber and its mortgage arm NewRez. The filings show that in the third quarter, Caliber originated $19.8 billion in mortgages and NewRez funded $25.5 billion, for a total of $45.3 billion. But in the fourth quarter, Caliber funded $16.7 billion and NewRez funded $21.5 billion in mortgages.

That drop in volume resulted in reduced profit for NewRez’s originations business to $101.5 million in the fourth quarter, down 42.8% quarter-over-quarter, according to the earnings report.

Origination volume for the full year reached $178 billion, which makes NewRez the fourth-largest nonbank originator in the country. And there are reasons to be optimistic – it has begun to reduce costs, has managed a 51% purchase mix in the fourth quarter, restructured retail leadership by redistributing territories, and has growth opportunities in wholesale and direct-to-consumer.

Overall, NewRez reported that its total gain-on-sale margin improved from 1.61% in the third quarter to 1.65% in the fourth quarter. In 2020, the gain-on-sale margin reached 2.04%. In its fourth quarter earnings presentation, the company said that increased rates impacted margins and production volumes during the period. 

Michael Nierenberg, chairman and CEO, said in a statement the company “will continue to prioritize reducing expenses and achieving synergies across all of our operating businesses.”

Since the acquisition of Caliber Home Loans in August for $1.675 billion, the company has laid off 386 employees, about 3% of its mortgage business’ total workforce. In 2021, the integration of Caliber Home Loans guaranteed $90 million of run-rate cost “synergies,” including personnel reductions, reduced cost of funds and consolidation of vendors. 

Regarding the servicing business, the REIT’s portfolio increased in the fourth quarter, growing to $483 billion in UPB, up 1.5% quarter-over-quarter. The segment pre-tax income was $127.5 million, up from $15 million in the third quarter.

Nierenberg said the company is well-positioned to benefit from the high-rate environment given the extensive portfolio of MSRs. The company’s MSR portfolio totaled $629 billion in December, compared to $635 billion in September. NRIC is the largest nonbank mortgage servicer in the country

In the first quarter of 2022, the company estimates it will originate between $25 billion and $30 billion in mortgages. The servicing portfolio will be between $490 billion to $500 billion. 

Regarding its overall mix of mortgage and financial services,­ NRIC posted a net income of $705.5 million in 2021, compared to a loss of $1.46 billion in the previous year.

The company highlighted the acquisition of Genesis Capital LLC, a fix-and-flip lender, from Goldman Sachs. New Residential’s results for the fourth quarter and full year include the financials of Genesis beginning on December 20, 2021. The transaction included a $1.5 billion portfolio of 100% performing business purpose loans, NRIC said in its earnings presentation. 

The post NewRez origination profits decline 43% in Q4 appeared first on HousingWire.

NewRez lays off 386 following Caliber acquisition

Posted: 08 Feb 2022 06:53 AM PST

Powerhouse lender and servicer New Residential Investment Corp. has reduced hundreds of job positions in its mortgage division, less than a year after acquiring the multichannel lender Caliber Home Loans.

In total, NewRez LLC, the publicly traded company’s mortgage arm, is laying off 386 employees, about 3% of the division’s workforce, a company spokesperson confirmed Tuesday.

"As we continue to create synergies between companies, we are creating a structure to streamline business channels and create long-term growth," the NewRez spokesperson wrote in an email to HousingWire.

News of the layoffs comes just weeks after Sanjiv Das stepped down as CEO of Caliber Home Loans. Citing sources, HousingWire reported in late January that Das’ resignation was always expected following the acquisition.

NewRez agreed to acquire Caliber in a deal valued at $1.675 billion in April and closed the deal in August. The deal came together after the previous owner, private equity firm Lone Star Funds, failed to take Caliber public due to instability in the market. NewRez was also considering an IPO of its mortgage division after a difficult 2020.

Caliber was a heavy-hitter across multiple origination channels, with $80 billion in originations and $153 billion in servicing in 2020. Caliber was best known for its distributed retail footprint and its fair amount of business in correspondent and wholesale channels. 

When he announced the deal last year, Michael Nierenberg, head of New Residential Investment Corp., said that Caliber would add customer-retention capabilities (it had a 54% recapture rate in 2020), a network of talented underwriters and back-office staff, plus a relevant servicing book.

According to Inside Mortgage Finance, NewRez/Caliber had 3.7% of market share in 2021, putting the company as the sixth-largest mortgage originator by volume in America. Before the acquisition, the company was ranked the 16th-largest lender.

Gain-on-sale margins have narrowed significantly for mortgage originators in the last two quarters, and numerous other lenders have also begun to lay off workers and streamline operations.

The post NewRez lays off 386 following Caliber acquisition appeared first on HousingWire.

When borrowers ‘ghost’ their servicers

Posted: 08 Feb 2022 03:00 AM PST

HW+ Feb magazine

Larry Goldstone is tired of being ghosted. He is used to it by now, but the problem has only gotten worse since the beginning of the COVID-19 pandemic. Goldstone has tried contact via phone calls and emails consistently. If necessary, he even knocks on doors — without success.

He has talked openly about it but is still trying to understand the reasons and potential solutions. Goldstone's case is not related to the world of bad Tinder dates, where the colloquial term "ghosting" is popularly used when someone cuts off contact without warning or explanation. Goldstone is an executive at a mortgage servicer company trying to reach out to homeowners.

"We know who the borrowers are. We service their loans. We have their email addresses. We have their phone numbers. We know where they live. But we're having a hard time reaching out to them," he said during a panel at the annual Residential Mortgage Servicing Rights Forum held in New York City in October.

Servicers, lenders and investors dealt with a tsunami of 7.7 million forbearance programs throughout the COVID-19 pandemic, reaching 1.5% of the U.S. population. Most homeowners who stopped their mortgage payments have successfully arranged a graceful exit from forbearance. In general, servicing executives are relieved not to have to re-live another foreclosure crisis. But there will be some fallout. And for the hardest cases, the biggest problem for servicers right now is simply establishing communication with them.

Over the course of three months, HousingWire interviewed about a dozen servicers, housing counselors, academics and lawyers to drill down on how big the ghosting problem is, why it happens, and what the consequences could be for both borrower and servicer.

An army of door-knockers

Goldstone, who is president of Capital Markets & Lending at BSI Financial Services, estimates that between 20% to 25% of borrowers in BSI's servicing portfolio have been non-communicative, he told HousingWire. Consequently, they built an additional foreclosure and loss mitigation capability, added staff and rethought processes to contact borrowers.

The company serves a $50 billion loan portfolio. Investment firms that purchase mortgage loans in default also face the same challenge. Bill Bymel, managing director at Spurs Capital, an investment manager specializing in distressed mortgages, said that about 15% of the overall portfolio during the pandemic contained non-communicative borrowers, up 50% compared to the same pool of borrowers pre-COVID.

One reason homeowners have not responded to the company was the foreclosure moratorium that went into effect in March 2020.

"Without any enforcement action on the foreclosure side, it has opened up a new level of borrowers' belief that they can just kick the can down the road and ignore the problem," Bymel said.

According to Bymel, the situation began to change as a key Dec. 31 deadline neared, the date by which the Consumer Financial Protection Bureau (CFPB) rules stipulate that servicers redouble their efforts to work with borrowers to prevent avoidable foreclosures. Borrowers started to reach out knowing that foreclosure processes would soon resume, said Bymel.

Another Bymel business, First Lien Capital, a mortgage and real estate investment platform, is increasing the number of workers who knock on doors and negotiate with homeowners due to the lack of communication via phone or email.

"We would normally have about 150 people nationwide, and we are probably going to have about 200 people knocking on doors looking for solutions," Bymel said.

The reasons for the lack of communication between borrowers and servicers are numerous. Ellie Pepper, deputy director at the National Housing Resource Center (NHRC), an advocate for the nonprofit housing counseling industry, said the past still looms large for many borrowers. Some are especially haunted by the Great Recession between 2008 and 2011.

"Borrowers had different interactions with their servicers, and some ended up not really trusting their servicers," she said. "Servicers are under different rules and are trying to be more open to interacting with borrowers in a better way. But the bottom line is that homeowners are scarred."

Besides fear and lack of trust, Pepper said it may sometimes be difficult for homeowners to understand mortgage terms, particularly if English is not their native language, so they avoid contacting their servicers. To Dana Dillard, principal advisor at Housing Finance Strategies and a 25-year mortgage industry veteran, the ghosting problem happens, among other reasons, because homeowners deny the reality or feel overwhelmed with their debts — especially if they lost a relative or friend due to COVID-19 or are unemployed for a while.

Jackie Boies, senior director in partner relations at credit counseling consultancy firm Money Management International, said that people fear talking with their mortgage servicers because they have never had to speak to them before in many cases.

"When the pandemic hit, and they put their loan into forbearance, it was quite easy. Most servicers allow you to go online and just sign up for a plan. And now to exit it, if you are not somebody who is just returning and paying it all in full, it is a little scary."

The latest Black Knight data show that there were still about 1 million active forbearance plans in October. Among over 6 million borrowers who exited the plans, 76% performed or paid off their debt. Another 7% were in loss mitigation plans, 3% were delinquent and less than 1% were in foreclosure — the three categories accounted for 854,000 homeowners in aggregate.

"That's what you're seeing: a huge drop in forbearances as people are being forced off, but some borrowers are not responding to their servicers," said Matthew Tully, vice president of agency affairs and compliance at servicing SaaS Sagent. Tully said that homeowners are "putting their heads in the sand," not realizing that the foreclosure moratorium went away, and servicers can begin foreclosure operations throughout the country.

The situation is more delicate for servicers focused on loans with Ginnie Mae guarantees. In this case, the share of borrowers in loss mitigation plans, delinquent or foreclosure increased to 16% in September (or 411,000 homeowners), according to Black Knight data shared with HousingWire.

For example, with Federal Housing Administration (FHA) loans, 1.5 million homeowners became delinquent and entered forbearance between March 2020 and November 2021, the end of the fiscal year. In November, 387,488 homeowners were still in forbearance, and 79% of them were seriously delinquent.

The FHA has a total portfolio of 660,000 seriously delinquent loans. According to mortgage analytics firm Recursion Companies, Freedom Mortgage had the highest number of COVID-related forbearance plans for Ginnie Mae loans, with 41,204 in total in October. The company said the share of borrowers ghosting them is a minority, but declined to provide a figure.

"When customers are behind on their mortgage, they are concerned, and they don't know exactly what to do," said David Sheeler, executive vice president of correspondent lending and servicing finance at Freedom Mortgage. "We certainly have had some challenges. But I think, for the most part, being very proactive in sharing the message around what's available to customers [after forbearance] has helped."

Servicers are looking for different ways to connect with borrowers. Pepper, from the NHRC, mentioned that they are working with the U.S. Department of Housing and Urban Development approved housing counseling agencies to do more effective outreach to some of the harder-to-reach borrowers.

Dillard, from Housing Finance Strategies, recommended that servicers work with nonprofit organizations, community leaders and other trusted partners in areas where the problem is more evident.

"We're going to have a small pocket of customers who still need our help [after forbearance plans expire]," she said. "I do think it's a small share of them, but it's challenging, and it is time-consuming for servicers."

Consequences

Ghosting doesn't bring many practical consequences in the dating world. Ghostees and ghosters can move on with their lives after interrupting romantic texts and sweet dates. In complete silence, they deal with their own internalized emotional conflicts.

It is not that simple when the relationship is between mortgage servicers and borrowers. Failures in communicating and finding a solution for a mortgage loan in default can lead, in the worst-case scenario, to foreclosure. That is exactly what millions of forbearance plans and a federal moratorium were designed to avoid during the pandemic.

But in 2022 these safeguards are not in place anymore, forcing companies and homeowners to face the problem. A caveat: A backlog of foreclosures from the last two years will make the process longer and more expensive.

During the pandemic, the CARES Act banned foreclosures for 16 months — from March 2020 through July 2021 — to protect homeowners experiencing financial hardship. Also, servicers were not allowed to execute a foreclosure-related eviction until September 2021.

The rules were only applied for federally backed mortgages, about 75% of all mortgages. But to simplify their operations, servicers voluntarily offered the safeguard for all borrowers, not only those who had loans guaranteed by government agencies, such as Fannie Mae and Freddie Mac. These agencies also took additional steps to limit mortgage defaults and foreclosures, expanding repayment options through December 2021.

Who’s afraid of the CFPB?

After the federal foreclosure moratorium expired in July, the Consumer Financial Protection Bureau (CFPB) launched rules limiting foreclosures through Dec. 31. Servicers had to give borrowers a meaningful opportunity to pursue affordable loss mitigation options quickly and without exhaustive paperwork.

One of the options was a deferral: resuming regular payments but moving missed bills to the end of the mortgage. Another possibility consisted of changing rates, principal balance or length of the mortgage via a loan modifi cation. In addition, homeowners could sell their homes if they had sufficient equity.

But according to the CFPB, foreclosures could start for borrowers who were more than 120 days behind on their mortgage before March 1, 2020, more than 120 days behind and had not responded for 90 days (the ghosting cases), or evaluated for all mitigation options without success.

Servicers, afraid of CFPB enforcement actions, were resistant to start new foreclosures until the rules expired, according to industry executives and lawyers. The moratorium kept new monthly foreclosures cases artificially low at 7,132, on average, between March 2020 and July 2021, down from 28,877 before the pandemic, according to a report from ATTOM Data Solutions.

But new cases increased when the federal moratorium ended, from 6,572 in July to 10,471 in November, the latest data available. Still, monthly foreclosures were half the pre-pandemic levels.

"We anticipate seeing an uptick in foreclosure activity in the first quarter, partly because the CFPB rules will have expired, partly because there is always an uptick after the holidays," Rick Sharga, executive vice president at RealtyTrac, said to HousingWire.

He follows, "We expect to see another uptick, probably late summer, as servicers will have gone through all of the loss mitigation options with borrowers who have been delinquent and not been able to get back on track. But we don't expect to see normal levels of foreclosure activity until late in the year."

Sharga's worst-case scenario predicts foreclosures at 1.5% of total loans in the next 12 to 18 months, which would change if another recession happened. To compare, according to the Mortgage Bankers Association (MBA) data, new foreclosure cases were at 0.8% of total loans before the pandemic, after achieving almost 5% during the Great Recession.

Federal laws aren't the only ones servicers have to contend with. States also launched new rules to prevent foreclosures during the pandemic. The National Consumer Law Center (NCLC) identified executive declarations and court orders in 34 states as of April 2021. Some states have imposed a moratorium after the federal safeguard ended in July.

In Oregon, the deadline was Dec. 31, 2021. New York banned residential and commercial foreclosures until Jan. 15, 2022. According to Geoff Walsh, staff attorney at the National Consumer Law Center (NCLC), some states hadn't reacted to the pandemic and created more restrictions to foreclosures, such as Oregon and New York, because they hadn't seen new cases — as servicers were afraid of the CFPB rules.

"Each state has the authority to implement laws for servicers to review borrowers' situations before foreclosure, and I expect states to strengthen their laws," Walsh said. Foreclosure rules change according to where the borrower lives.

For example, Alabama, California and Texas are administrative foreclosure states, which means the process will take less time because it does not need to go through a judicial process. In this group, states with the shortest average foreclosure timelines in the third quarter of 2021 were Montana (94 days) and Wyoming (102 days), according to ATTOM.

Judicial states such as Florida, New Jersey and Connecticut require a court decision, which means that the process can take years. The ATTOM data shows that the judicial states with the most extended average foreclosure timelines were Kansas (1,901 days) and New York (1,659 days).

Due to the COVID-19 pandemic, foreclosure processes have become longer. Properties foreclosed across the country were in the process an average of 924 days in the third quarter of 2021, up from 830 in the same period of 2020.

"We already know that government staff were low, to begin with. A lot of people left work and didn't come back during COVID. Now we're going to need more staff to deal with the backlog of foreclosures coming down the pipe," Bymel, at Spurs Capital, said.

Bymel expects a timeline extension between 12 and 18 months in states with judicial foreclosures. Because the timeline is longer, Bymel said the cost of a foreclosure process will increase for servicers and investors.

"I usually figure a cost between 4% to 5% of the loan balance per year to property taxes, insurance, legal, servicer, inspections, in the judicial states, and between 2% and 3% in administrative states." Sharga, from RealtyTrac, said that he expects that states will bring retired judges back to handle foreclosures, as happened during the Great Recession.

"But, coming out of a pandemic, the general feeling is to do everything you can to protect the homeowner from losing a house because a lot of these people probably wouldn't be losing a house except for the pandemic. So, I don't expect to see a lot of activity in courts or in the legal system to accelerate the foreclosure process."

This article was first featured in the February HousingWire Magazine issue. To read the full issue, go here.

The post When borrowers 'ghost' their servicers appeared first on HousingWire.

Home-equity investment pioneer Unison taps the secondary market

Posted: 07 Feb 2022 01:19 PM PST

2022 Home equity
San Francisco-based fintech firm Unison plans several securitization deals to market in 2022, with private label offerings backed by home-equity assets.

San Francisco-based fintech company Unison recently completed a $443 million private-label offering backed by an emerging class of home-equity assets in which investors and the homeowners share in both the upside and downside of a property's value over time.

Unison expects to bring three additional securitization deals to market in 2022, according to a company executive. The company, through its fintech platform, offers homeowners the opportunity to tap their home equity without taking out a loan — via Unison's shared home-equity product called a residential equity agreement (REA).

Unison, launched in 2004, joins another California-based fintech competitor, Point, in pursuing efforts to tap the secondary market to create more liquidity for the financing of shared home-equity contracts. This past fall, Point partnered with Redwood Trust to complete what they described as a first-of-its-kind $146 million securitization deal backed by contracts that are similar to REAs. 

Bo Stern, head of portfolio strategy and risk for Mill Valley, California-based Redwood Trust, described the Point securitization deal at the time as involving "a new asset class that allows both consumers and investors to access one of the biggest markets in the world" — specifically, the massive homeowners' equity market.

"Home prices have been increasing rapidly over the past year, creating a record $24 trillion of wealth," Unison said in announcing its new securitization transaction, which closed in late December 2021. "… This transaction offers the opportunity for investors to access residential real estate equity and increases liquidity for homeowners across the country looking to monetize the equity in one of their most valuable assets — their homes."

The joint underwriters for the Unison securitization deal, conducted through the conduit Unison 2021-1, were Nomura Securities and Barclays Capital. Matthew O'Hara, head of portfolio management and research at Unison Investment Management, which is under the Unison umbrella, confirmed that three additional securitization deals are in the works for this year.

"They probably won't be as big as the current one," O'Hara said, "but … assuming home prices continue to appreciate as they have been historically, then the [securitization] deal side will have to grow commensurately."

Unison, through an REA contract, advances the homeowner a portion of the equity in the property in exchange for a lien position and a share of the home's future appreciation. Unison also shares some of the downside if the property loses value over the course of the contract.

Unison, through its recently announced offering, Unison 2021-1, is securitizing existing REA assets it originated and are now held in an investment fund managed by the company. O'Hara said Unison is currently in discussions with a couple of bond-rating firms to help determine the best framework for rating future REA securitizations — with the goal of having a rating-agency review Unison's third REI securitization planned for this year.

"Mortgages have existed for 2,000 years, and there's even a reference to them in Roman writings," O'Hara said. "So, the idea of a mortgage is well understood and it's a huge multitrillion dollar market.

"We [the shared home-equity industry] are not a multi-trillion market. We're smaller and, as a result, they [rating agencies] have to understand what the [REI] contracts are, and how putting them into a pool, chopping them up and selling it in bonds behaves on top of those contracts."

The total value of homes Unison has invested in across some 200 metro areas exceeds $5 billion, according to its website, and those assets continue to grow. The company currently has some 8,500 residential equity agreements in place, according to O'Hara, and that number is projected to approach 12,000 by year's end. 

The total asset value of Unison's REA assets now stands at $1.3 billion, according to the company, up from $165 million as of the first quarter of 2018 — with the annualized net return on REA assets under management since 2010 averaging 16.3%, according to the company.

"So, I'm responsible for Unison Investment Management, which is part of Unison, and what we do is we raise money from institutional investors primarily," O'Hara said. "That’s where the money comes from to fund them, [the REAs]."

As part of a Unison's REA product, the company will invest up to 17.5% of a home's value after a 2.5% risk-adjustment haircut on the value of the property. The company and homeowner then share in any appreciation, or depreciation, of the home's value over the course of the contract. 

The homeowner has up to 30 years to pay off the initial investment, plus Unison's appreciation cut, through a sale or refinancing of the home — or through a contract buyout after three-year lock-in period. As part of the REA, Unison's share of the home's appreciation can range from 20% to 70%, depending on size of the equity investment advanced.

"We're sitting in an equity position side by side with the homeowner," O'Hara said. "So, if the price goes up, the homeowner benefits, and we benefit as well. 

"If the price goes down, the homeowners are losing some of their equity, but we are also losing equity in our position at the same time."

Although each has slight variations, Unison's REAs are similar to shared home-equity contracts offered through other companies competing in the space, including fintech Point, which describes its product as a home-equity investment contract, or HEI.

The Redwood/Point HEI-backed securitization deal, which closed in late September 2021, involved issuing $146 million in securities through a conduit dubbed Point Securitization Trust 2021-1. 

"We expect to be back in the market sometime next year," Redwood's Stern said in 2021 at the time the deal was announced. "Since this [HEI securitization] deal was the first of its kind, we are still determining the next deal size and frequency of future securitizations. The decision will be contingent on many factors, including market conditions, origination outlook, etc." 

Like the Redwood/Point offering, the bondholders in the Unison deal will get paid a monthly coupon from the cash flow generated by contract pay-offs. O'Hara said the Unison securitization deal assumes an annualized REI contract turnover rate of 12% to 15%.

"If payments come in earlier or there's a higher HPA [home price appreciation] that will be used to pay down the bonds ahead of the expected call dates," O'Hara said.

As for Redwood, officials there declined to discuss at this time whether the company is pursuing any HEI-backed securitization deals for 2022. "Redwood has an earnings release on Wednesday (February 9) and won't be able to comment," a company spokesperson said. 

O'Hara added that in the case of Unison, the securitization market is an optimal way for the company to decrease its cost of financing while also creating more liquidity, with the goal of lowering REI costs for homeowners.

"Obviously, we want to be able to finance our positions less expensively," O'Hara said "The goal here, however, is not to make it cheaper for us to maximize the return. Rather, it's to lower the cost of financing [and thereby] lower the cost to homeowners over time, so more people will find it attractive to do an REA contract. 

"The investors will still get a return similar to what they’re getting today, but homeowners get a better deal, so it's cheaper for them. And everybody's happy."

The post Home-equity investment pioneer Unison taps the secondary market appeared first on HousingWire.

Santander to begin laying off mortgage employees

Posted: 07 Feb 2022 10:14 AM PST

Pink slips will start arriving for Santander Bank's employees working in the mortgage and home equity businesses following the bank’s announcement to stop originating such loans in the United States.

In Pennsylvania, the company announced 53 permanent layoffs with effective date on April 8, according to a Worker Adjustment Retraining Notification (WARN) sent to the state's Department of Labor and Industry.

This appears to be just the beginning.

HousingWire has learned that the bank’s exit from the residential mortgage business in the U.S. will result in layoffs of more employees, which a source with knowledge of the decision said would not exceed 5% of the bank’s workforce in the U.S.

According to its website, Santander U.S. has 17,200 employees serving 5.2 million customers in the U.S. Santander Bank, NA., the retail and commercial businesses, has around 9,000 employees.

Santander Bank, which has long been a bit player in the residential mortgage space, announced on Wednesday it will stop originating residential mortgage and home equity in the U.S. The bank will consider applications through its EZApply portal until Feb. 11. The decision will not impact the commercial mortgage business.

The originations landscape is shifting – is your business ready?

HousingWire recently spoke with Jon Gerretsen, SitusAMC Managing Director of Residential New Originations and Fulfillment Services, about the home buying boom and how lenders can gain market share and drive profitability in a white-hot purchase mortgage market.

Presented by: SitusAMC

According to the bank, it is adopting a strategy of unlocking capital to fuel growth and deliver more sustainable returns. "We continue to focus on investing in products that have scale and that leverage our core strengths," the bank said in a statement to HousingWire.  

Inside Mortgage Finance reported that Santander residential production totaled $2.7 billion in 2020, but there are no figures for 2021. In the United States, Santander Bank registered 2.3 billion euros in underlying attributable profit to the parent company in Spain in 2021, up 230% compared to the previous year.

Santander’s mortgage division is the first victim as the landscape shifts away from historic mortgage origination volumes and record rate-term refinance business.

Originations are expected to decline 33% year-over-year to $2.59 trillion in 2022, according to the Mortgage Bankers Association (MBA). The reasons are higher rates, lower volumes, and fiercer competition.

Mortgage lenders are proactively shoring up vulnerabilities and playing to strengths. LoanDepot is servicing more loans in-house, Rocket is expanding its business via acquisitions, Homepoint has reorganized its structure to contain costs, and Guaranteed Rate is focusing on profitable channels, leaving the wholesale channel.  

The post Santander to begin laying off mortgage employees appeared first on HousingWire.

The fate of HUD

Posted: 07 Feb 2022 03:00 AM PST

HW+ HUD

Few things terrify lenders more than the arrival of a manila envelope from the Department of Housing and Urban Development (HUD) containing a redlining allegation.

In recent months, HUD investigators have made redlining cases a departmental priority, according to interviews with attorneys who have reviewed the complaints, and lenders who declined to comment on the practices for fear of being associated with redlining.

Typically, a redlining allegation begins with a comparative analysis of a lender's performance in relation to its peers in low to moderate income census tracts and majority-minority neighborhoods. But HUD has adjusted its approach — it is now comparing a lender's performance in different areas against itself.

A higher rate of withdrawn applications in certain tracts compared to the larger metropolitan area could result in a redlining allegation by HUD. 

Independent mortgage banks have been "completely blindsided" by the increase in enforcement activity, said Daniella Casseres, who leads the mortgage regulatory practice group at law firm Mitchell Sander. 

Redlining "is not even on the radar of their board or senior management," she said.

Being labeled a redliner can cause lasting reputational damage because of its association with the historic definition of redlining, which federal policy supported for decades. As some independent mortgage banks have found out, a modern-day redlining allegation does not need to prove intentionality.

HUD complaints allege redlining based on disparate impact to borrowers on the basis of race or ethnicity, which is prohibited under the Fair Housing Act.

A spokesperson for HUD said the agency could not discuss investigations or strategy of fair lending enforcement, but said that fair lending is a priority of the Biden-Harris Administration and HUD. 

"HUD's work co-leading the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), as well as the number of actions taken in the first year of the administration to bolster enforcement of the Fair Housing Act demonstrates our commitment to the issue," a spokesperson said. 

Increased redlining enforcement is one piece of HUD's renewed focus on fair lending, and part of a multi-pronged approach to address the legacy of racist housing policy.

HUD said it has already taken concrete steps toward that goal. It has begun to restore HUD's discriminatory effects standard and requested a 17% budget increase for the Office of Fair Housing and Equal Opportunity for enforcement. In August, HUD Secretary Marcia Fudge signed an agreement with the Federal Housing Finance Agency to strengthen fair lending enforcement. HUD ended 40 years of ambiguity on a statute meant to spur lenders to target lending programs to benefit protected classes.

But HUD and the Federal Housing Administration have also struggled to navigate challenges posed by COVID-19 and correct long-standing deficiencies. Part of its effort to modernize its outdated technology systems, the FHA Catalyst program, hit a snag last year. FHA has had gaps in loss-mitigation oversight of servicers it approved. And although Fudge has repeatedly vowed to bring banks back to FHA, recent policy moves could drive them away.

Premium product

In California's Contra Costa County, where the median home listing price is now $749,000, a loan officer priced a loan for a potential borrower with less-than-perfect credit, who had found a listing for $650,000.

For a borrower with tarnished credit and thus unable to get conventional financing, an FHA-insured mortgage is the go-to choice.

But with a down payment of less than 10%, the borrower would have had to pay an additional $11,375 in upfront fees to FHA, due to FHA's 175 basis point mortgage insurance premium, which it charges on nearly all loans.

John Meussner, the loan originator who priced the loan, said the fees amounted to "gouging."

In addition to upfront fees, FHA charges fees for the life of the loan. For a 10% down payment, a hypothetical FHA borrower with a $650,000 base loan amount would pay an additional $568 per month in mortgage insurance premium.

The recurring monthly fee leads some borrowers to refinance out of their FHA loan, since unlike in the conventional market, there's no getting rid of it. By comparison, private mortgage insurance cancels at a 78% loan-to-value ratio.

"If FHA and HUD want to serve their purpose of assisting low-moderate income customers and increase home ownership, the best place to start would be to stop ripping off the very people they're attempting to serve," said Meussner, of Mason-McDuffie Mortgage.

The share of FHA-backed mortgages made to Black and Hispanic borrowers are more than twice that of the rest of the market, public data shows. Four in five FHA purchase mortgages went to first-time homebuyers in 2021.

FHA's mortgage insurance premium earnings helped propel the Mutual Mortgage Insurance fund's capital ratio to 8.03% in 2021, four times the statutory minimum. The estimated value of monthly insurance premiums through the life of the loan as of last year was $49 billion, according to HUD's annual report to Congress.

In light of the stellar mutual mortgage insurance fund report, some stakeholders expected FHA to reduce mortgage insurance premiums. Many have called for reductions.

The executive director of one state housing finance agency said a small reduction is "probably warranted" based on the health of the fund. But the official, who requested anonymity to speak openly about the department, also said he understands FHA's cautious approach, since FHA officials may still recall the years that followed the housing crisis, when the fund fell below the required ratio.

Lopa Kolluri, principal deputy assistant secretary of FHA, said in an interview that FHA would reassess whether to lower premiums closer to the end of the first quarter. In terms of making a decision on lowering mortgage insurance premiums, she said it depends on the share of seriously delinquent borrowers.

"We're encouraged by the serious delinquency rate decreasing, but it's too early to make predictions," said Kolluri. "We believe we'll have a better indication of performance later in the calendar of this first quarter."

But former officials and stakeholders defend FHA despite the steep fees, because it fills a need for borrowers not served by the rest of the market. Those borrowers would otherwise face steep loan-level price adjustments for conventional financing.

“The point is that [FHA] is a durable program," said Edward Golding, who led FHA from 2015 to 2017. "Yes, it could be made better, yes, you could lower prices, but it's not terribly broken and it’s not a terribly different program today than five years ago or 25 years ago.”

Building blocks, stumbling blocks

On the strength of FHA's mortgage fees and appreciating home prices, HUD's Mutual Mortgage Insurance fund is in a better financial state than ever. But in addition to answering calls to lower upfront and life-of-loan fees to borrowers, FHA has some unresolved policy questions.

In recent years, large depositories have ceased FHA lending. They've exited the space due to concerns of increased use of the False Claims Act to extract settlements, and independent mortgage banks have supplanted them. In October, speaking at an industry conference, Fudge vowed to make it easier for more financial institutions to partner with FHA and Ginnie Mae, "whether for the first time or for the first time in a long time."

"We want to bring more banks and financial institutions of all kinds and sizes back to FHA," Fudge said.

But mortgage is only one among a suite of products that large depositories offer, and is not critical to their business strategy. Thus FHA lending is not necessarily a "natural fit" for large depositories, said Golding.

"So one shouldn't be too surprised to see mortgage banks, on average very reputable companies that invest in technology and know how to deliver the product, more represented in FHA lending. Mortgage banking is not a product that large depositories immediately flock to.”

Golding said returning to FHA would help depository banks to serve a broader market and meet the needs of a more diverse set of customers.

But FHA has recently taken positions that, instead of reeling large depositories back in, industry stakeholders say are in conflict with that goal.

In December, the FHA released a draft defect taxonomy, a list of what remedies the agency may seek if it finds loan-level defects pertaining to servicing. The mortgage industry and housing advocates criticized the document as overly vague and said it would further chill the market.

After stakeholders––including the powerful trade group Mortgage Bankers Association––wrote and requested additional time to weigh in on the draft defect taxonomy, FHA extended the public comment period by a month, to Jan. 28.

Kolluri said that partnering with larger banks is crucial for narrowing the racial homeownership gap, especially because depository banks have physical branches in underserved communities.

"A number of these banks have made major commitments within communities, and we want to help them fulfill those communities," said Kolluri. "It's a really natural extension of the work they're doing as it relates to the Community Reinvestment Act, and we have heard and met with larger banks who have made significant monetary commitments in those communities."

In addition to working through industry feedback on the defect taxonomy, Kolluri said that the clarifying legal position HUD issued in December on special purpose credit programs would provide clarity for banks.

Lenders have been reluctant to create the targeted loan programs under the new guidance, in part because of concerns that designing a program could make them vulnerable to redlining claims. On Jan. 26, Secretary Fudge convened the heads of seven federal agencies — including the FHFA and the Consumer Financial Protection Bureau — to review their regulations, guidance, and examination guidelines to identify any remaining barriers for creating targeted loan programs. 

FHA has also long struggled to modernize its information technology systems, which lag far behind the relatively advanced capabilities of Fannie Mae and Freddie Mac.

Unlike the government-sponsored enterprises, FHA is bound by congressional appropriations for budget items, and it cannot use revenue from premiums to invest in itself.

"There's a massive mismatch, in that we have the largest insurance in the world sitting on the government balance sheet, with no ability to invest even a portion of its massive profits back into keeping the company current and less risky," said Dave Stevens, who was FHA commissioner during the Obama administration.

In 2017, Congress started appropriating $20 million a year specifically for FHA IT modernization, and FHA and HUD's IT management consolidated, reducing redundancies. But a HUD inspector general report found that the agency's premier IT modernization effort stalled last year.

For a time, staff vacancies and turnover were so acute, especially during the presidential transition, the report said, that the executive committee in charge of leading the FHA Catalyst program disbanded, and work on the initiative was temporarily halted.

"We found a lack of staffing capacity, implementation of effective coordination and communication practices, and effective oversight of management controls over acquisition processing," the report read.

HUD also delayed a migration planned for December 2021 — to move its single-family default monitoring to FHA Catalyst — until March 2022, when mortgagees must submit all default data to the FHA Catalyst system.

Part of the challenge of updating the IT systems is that there are often more urgent priorities, and taking resources away from immediate needs to spend them on IT modernization is difficult.

Kolluri said there are many other "critical areas" that HUD is attending to, in light of Covid, although "modernization and transformation of FHA's IT program is a high priority."

"Yes, we had some delays, absolutely," said Kolluri. "But we are on track. I feel really good about where we are with FHA Catalyst."

Political standoff

In December, seven former HUD secretaries met with Fudge to offer their support for what some colloquially call the second-most challenging job in the federal government.

When the group did the same for the previous HUD secretary, Ben Carson, the topic was a surge in homelessness. This time around, the meeting was remote, and the conversation centered on affordability, particularly for first-time homebuyers.

It was a bipartisan group of four Republicans and three Democrats, Clinton-era HUD Sec. Henry Cisneros said.

The collegial gesture was a brief hiatus from partisan politics which, in the Senate, have stalled a number of President Joe Biden's HUD nominees, including his pick for FHA commissioner, Julia Gordon.

Gordon has faced staunch opposition from Republicans on the Senate Banking Committee over past, now-deleted tweets critical of the police. Votes in January for four of five of Biden's HUD nominees, including Gordon, as well as Arthur Jemison, former CFPB Acting Director David Uejio and Solomon Greene, ended in ties.

The Senate will now have to dedicate precious floor time to debate Gordon's nomination. Making it even less convenient, sources say that it is likely that Vice President Kamala Harris would likely need to be present to break the tie.

Jenn Jones, FHA's chief of staff, told reporters in January that "government works better when you've got a full array and slate of committed, capable public servants to lead the work."

"Obviously we are still hopeful that the senate will move quickly to confirm all of our nominees that are awaiting confirmation," Jones said.

A Washington, D.C. lobbyist, who works with FHA lenders, said that while Fudge's vision for HUD is "150% aligned" with the Biden administration's push to reduce the racial homeownership gap, she needs a bold leader at FHA. There is natural tension between career officials, who weather political changes and implement policy, and political appointees, who set the agenda.

"Fudge needs a leader at FHA, because [FHA] career staff are cautious," said the lobbyist. "They don't want to alienate the bosses. That's why Julia Gordon will be instrumental."

A confirmed FHA commissioner can also "guide and temper" the approach of career officials, including in relation to enforcement matters, said Stevens. "It's important to not let long term career lawyers try to take advantage of the time when they don't have mom and dad in the room."

But a large portion of Fudge's direct reports are held up at the Senate, and Biden has yet to nominate two more outstanding assistant secretary roles at HUD. Not having a leadership team in place makes it difficult to set policy, and address even urgent matters.

"If the Secretary can't turn to someone, it's very, very difficult," said Cisneros. "Even when you see a sore thumb kind of problem."

The post The fate of HUD appeared first on HousingWire.
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