Mortgage – HousingWire

The housing industry will soon be up in ARMs
CHLA and 41 IMBs urge the FHA to cut MI premiums
Layoffs, again: Fairway is the latest lender to trim workforce
Applications for new homes dropped 14% in April
Fannie Mae reduces projected 2022 GDP to 1.3%
Purchase mortgage rates drop to 5.25% as demand wanes
Ocwen names new CFO to navigate challenging market
CFPB report highlights outliers doing a poor job servicing

The housing industry will soon be up in ARMs

Posted: 19 May 2022 01:48 PM PDT

If there's a bet to be made on the future of the non-agency lending space, it's that the adjustable-rate mortgage (ARM) will become far more popular this year as purchase mortgages increasingly dominate a housing market pivoting to an up-rate environment.

That's the consensus forecast of a panel of non-agency industry experts who spoke at the Mortgage Bankers Association's (MBA's) Secondary and Capital Markets Conference & Expo in New York City this week.

"There was too much 30-year [fixed-rate mortgage paper] out there in the market for a while because it was just so cheap, and it was the right thing for the consumer," said Matt Tomiak, senior vice president of non-agency originations at Bayview Asset Management.

Tomiak was one of the four MBA panel members who addressed an audience of loan originators and other industry players gathered earlier this week in a sixth-floor room at the New York Marriott Marquis hotel near Times Square. The topic of the panel discussion: "What's New in Non-Agency?"

"I think we'll be seeing a lot more ARMs shortly," Tomiak added.

Another panel participant, Shelly Griffin, senior vice president of client development at non-QM lender Deephaven Mortgage, added, "When I'm talking with loan officers, I get asked about ARMs a lot. ARMs came up at almost every meeting, so it's very relevant."

Maria Luisa De Gaetano Polverosi, associate managing director at ratings agency Moody's Investor Services, said ARM mortgages are not yet showing up in significant volume in the mortgage-backed securities (MBS) private-label market "because most of the deals that we've seen so far this year are from 2021" — when low rates were feeding the refinancing boom. When ARMs do start showing up in securitization deals, however, she said Moody's is well-equipped to assess the risk of those offerings.

"One thing I have to say positive about ARMs is that we’re not really concerned about them because we have a lot of data on those, and our models are built to assess that risk," De Gaetano Polverosi added. "So, out of the many variations and new products that are going to come out of this [higher-rate] world … they [ARMs] are one that we’re not really concerned about in terms of the market’s ability to forecast the risk on this product. It's a very well-trodden path."

Beyond a movement toward ARMs in the nonagency space, it's also expected to be a solid year for non-QM lending in general as the housing industry overall seeks to expand its reach in the purchase market, according to panel members.

"We're excited to talk with you about what I think is the most pertinent topic of this conference, and that's what the next six to 12 months are going to look like in mortgages in non-agency as we shift over to more of a purchase market,"' said John Toohig, managing director of whole loan trading at Raymond James, and the moderator for the MBA panel. "Non-QM isn't the 2006 product that it once was" — during the era of subprime mortgages.

Toohig stressed that the non-QM space includes a large swath of mortgage products that require more time and expertise to underwrite, compared with a standard agency loan — particularly the low-hanging fruit of refinance loans that, until recently, drove the housing market. He described today's non-QM market as a "very large bucket."

Toohig added that the non-QM space ranges from mortgages originated based on bank-statements or asset depletion analysis to debt-service coverage ratios [DSCRs] and more. "There's a lot to unpack," he said, in terms of the guidance for the products and the underwriting involved.

"We've seen it [non-QM] grow and evolve over time," added Griffin of Deephaven, which has been lending in the non-QM space since 2012. "There's extended prime, which is just outside the prime box; nonprime for borrowers that maybe … have more credit issues in the past; and debt-service coverage ratio.

"All of those products have features, maybe bank statement, asset utilization — you name it. There's a lot of different reasons why someone falls outside the agency loans. … What we really focus on is meeting our customers where they are at."

Tomiak quipped that loan officers are smart, and if given the choice between doing six streamline refinance mortgages or spending three days on one DCSR mortgage, they will, of course, focus on the higher payoff achieved with the refinance loans. As the market pivots away from the streamline refinances because of the dulling effect of higher mortgage rates, however, and moves toward purchase-mortgage products, the supply of non-QM loan products will naturally begin to expand to meet the increased borrower demand, he explained.

"We're moving toward them [non-QM products] more aggressively at Bayview," Tomiak added. "…Even with higher rates, moving into a mortgage loan is still a better choice than renting, and [many borrowers] have not been able to qualify, mainly because the industry has not been able to serve them," due to the huge demand for other loan products that are popular in a low-rate climate — like streamline refinance mortgages.

"But I think it's going to be a very good year for expanded [non-QM] products," Tomiak said. "… It's going to take time, and it's going to take learning, but I think the right firms and the right loan officers are going to have a very nice year, with consumers getting houses."

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CHLA and 41 IMBs urge the FHA to cut MI premiums

Posted: 19 May 2022 01:35 PM PDT

The Community Home Lenders Association (CHLA) sent a letter, signed by 41 independent mortgage banks, to the Federal Housing Administration (FHA) on Wednesday urging the administration to cut mortgage insurance premiums.

The letter, which includes signatures from South Carolina-based Movement Mortgage, Cherry Creek Mortgage, Texas-based Thrive Mortgage and Draper & Kramer Mortgage, advised the FHA to get rid of its life of loan policy and reduce the annual premiums by 30 basis points to .55%.

A spokesperson for the Department of Housing and Urban Development (HUD) said in a statement that the administration is continuing to monitor seriously delinquent loans in its portfolio as it weighs premium pricing, and that to date, they have been "pleased."

"We are seeing positive trends that indicate the effectiveness of the options we have implemented," the HUD spokesperson said. "We have taken the time in the first part of the current calendar year to evaluate outcomes for delinquent borrowers as a component of our review of current mortgage insurance premium pricing. We will continue to be judicious about if, when, and how we consider changes to FHA's mortgage insurance premiums."

The CHLA letter explained that the FHA should end its life of loan premium policy because it overcharges FHA borrowers, resulting in many borrowers refinancing out of the FHA program.

According to the trade group, since the life of loan policy went into effect in 2013, FHA’s retention of refinanced loans has plummeted. FHA’s retention rate of refinanced loans was over 50% when life of loan began and is now below 14%, the letter said.

The letter also said that FHA's net worth is at record levels of over 8%, more than four times its statutory requirement and that FHA's mission to rebuild its fund has "long been accomplished."

Only by cutting premiums will the administration be able to carry out its objectives of improving racial equity and increasing homeownership, the trade group said.

The last premium reduction took place in 2015, when the Obama administration, buoyed by an improving economy, slashed the premiums from 1.35% to .85%.

The CHLA said that the premium reduction seven years ago was a "huge success" and that home purchases grew by 27% the year after premiums were cut.

But not everyone is on board.

The U.S. Mortgage Insurers, a trade group that represents mortgage insurance companies, published a statement on their website Wednesday calling for the FHA to do the opposite.

“The FHA should not reduce its mortgage insurance premiums at this time,” the USMI wrote in bold letters on its website.

The USMI said that lowering premiums will have negative consequences of further increasing demand with minimal housing supply. The trade group also said that there is too much economic uncertainty.

The conversation about premiums comes to a head following Julia Gordon’s confirmation to run the FHA last week. Industry stakeholders and fair housing advocates have predicted that after an FHA commissioner is confirmed, the HUD will move to cut premiums.

Gordon has supported a premium reduction in the past.

In 2015, Gordon, at the time a senior director at the liberal think tank Center for American Progress, testified before the Subcommittee on Housing and Insurance where she said that the cut in mortgage premiums implemented by the Obama administration would "help [ensure] that FHA continues to be available to the underserved borrowers that most need it."

She said during her testimony that this "recalibration" would help to spur a steady supply of first-time homebuyers who could then become move-up homebuyers.

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Layoffs, again: Fairway is the latest lender to trim workforce

Posted: 19 May 2022 01:34 PM PDT

Madison-based Fairway Independent Mortgage Corp. appears to be the latest mortgage lender to cut jobs due to the challenging origination market, showing that surging mortgage rates and home prices are now affecting companies with a high share of purchase loans in their portfolios.

Fairway staff across the country received phone calls last week from their supervisors announcing they were part of a round of layoffs, a dozen former employees told HousingWire over the last few days. However, no WARN Notices were found in the states where these employees work.

A spokesperson for Fairway would not provide any comment, including any comment on whether there were layoffs or the number of employees involved. According to its website, Fairway employs more than 9,000 team members, including more than 2,800 producers and over 750 branch and satellite locations in the U.S.

Six months ago, Fairway was in a more comfortable position than its rivals: purchase loans accounted for almost 62% of the company’s total origination in 2021, the highest share among the top 12 lenders in the U.S, according to Inside Mortgage Finance.

At that point, lenders focused on originating refinance loans, such as Better.com and Interfirst, announced workforce reductions as interest rates started to increase – higher rates usually reduce borrowers’ incentives to refi their mortgage.

But this year, Fairway started to feel the consequences of mortgage rates at 5.25% and surging house prices. According to the Mortgage Bankers Association (MBA), these two factors are weighing on purchase loans as some buyers put the American dream of homeownership on standby.

Consequently, Fairway’s origination volume reached $12.6 billion from January to March, down 24% quarter over quarter and 33.5% year over- year. Still, according to the IMF data, the company was the 12th-largest mortgage lender in the country in the first quarter of 2022.

Workforce reduction

Fairway’s workforce reduction included the wholesale and retail channels, from analyst to senior positions such as underwriting, training, and information technology. The layoffs included professionals with more than two years working for the company as well as some that started there less than four months ago.

The lender offered a two-week severance payment for some employees but no career transition support. Most of the employees reported the company locked up their computers on the same day they received the phone call.

“I was given a call in the morning by my supervisor who said: ‘I’m sorry, but you are included in a list of layoffs. And it has nothing to do with your performance. It is strictly a financial decision’,” said a former employee who prefers not to be identified.

Another former employee who prefers anonymity added: “We received about three hours’ notice before our computers were locked up.”

The former employees created a group on LinkedIn to share their experiences and are organizing Zoom meetings every morning to support each other during the transition in their careers. HousingWire attended one meeting on Wednesday, when 10 professionals participated.

“Our goal is to help people increase their network of connections, review their resumes, practice their interview techniques, and give emotional support,” said a former employee who joined the group.

Founded in 1996 by Steve Jacobson, Fairway has its corporate headquarters in Madison and a large office in the Dallas area – the latest is where the technology team, strongly affected by the workforce reduction, is located.

However, over the last couple of years, the company hired people from anywhere in the country for remote work, according to the former employees. Some of the laid-off professionals had never been to a physical corporate office, they told HousingWire. They are from states such as Arizona, California and Florida.

Fairway received attention in March 2021 when United Wholesale Mortgage (UWM), the top wholesale lender in the nation, announced that it would no longer partner with brokers working with Rocket Mortgage or Fairway, which has divided the broker community into two camps.

In a highly competitive market, lenders are cutting costs, mainly via layoffs. California-based Owning Corp., a direct-to-consumer lender acquired by Guaranteed Rate in February 2021, cut 108 jobs in three rounds from February to April. And it intends to add another 81 layoffs to the list. Other lenders also have reduced staff, such as Interfirst, Mr. Cooper, Union Home Mortgage, Flagstar, Wells Fargo and Better. Rocket has not laid off workers but has offered a voluntary buyout to some of its staff.

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Applications for new homes dropped 14% in April

Posted: 19 May 2022 11:46 AM PDT

Skyrocketing mortgage rates and a slowdown in new home constructions led to a drop in home purchases in April. Mortgage applications for new home purchases dropped 10.6% in April from the same period last year, according to the Mortgage Bankers Association builder application survey. Compared with last month, applications dropped by 14%.

MBA estimates that about 701,000 new homes were sold in April at a seasonally adjusted annual rate, marking a decline for five consecutive months. It was the slowest sales pace since May 2020. On an unadjusted basis, MBA estimates that there were 65,000 new home sales in April 2022, a decrease of 12.2% from 74,000 new home sales in March.

"New home purchase activity declined on a monthly and annual basis in April, as the spike in mortgage rates cooled demand, and homebuilders continued to grapple with rising costs, supply-chain issues, and extended completion timelines," said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement.

Purchase mortgage rates this week averaged 5.25%, way above last year’s 30-year-fixed rate of 3%, according to the latest Freddie Mac PMMS.

"With the supply of existing homes on the market still at extremely low levels, the new home market is an important source of housing supply. However, the pace of construction has slowed in recent months," Kan added.

Homebuilders constructed about 1.23 million houses in April, down 5.1% from March and 8.6% from April 2021, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Single-family home constructions saw a 4.9% month-over-month decrease to 1 million and multifamily house completions were down 6.6% from March to 281,000.

The average loan size rose to a new survey high of $436,576. Over half of the applications were for loan amounts greater than $400,000, the MBA said.

Conventional loans accounted for 76.7% of loan applications. Federal Housing Administration (FHA) loans composed 13.1%, Veterans Affairs (VA) loans took up 10.1% of total applications and Rural Housing Service (RHS) and United States Department of Agriculture (USDA) loans consisted of 0.2%.

The survey tracks application volume from mortgage subsidiaries of homebuilders across the country. Using this data, MBA provides an early estimate of new home sales volumes at the national, state and metro level.

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Fannie Mae reduces projected 2022 GDP to 1.3%

Posted: 19 May 2022 10:13 AM PDT

A combination of persistent inflation, rising interest rates and a slowdown in global economic growth forced Fannie Mae to reduce this year’s GDP growth rate.

Fannie Mae’s Economic and Strategic Research (ESR) Group dropped its projected 2022 real GDP to 1.3%, 0.8 percentage points lower than its previous forecast. It sees the second quarter of growth rebounding to 1.6%, despite the economy contracting 1.4% in the first quarter.

Fannie Mae said the economy is slowing faster than previously expected as markets adjust to the Federal Reserve's tightening monetary policy and are unlikely to result in a "soft landing."

"Uncertainty continues to weigh heavily on markets, with geopolitical risks rising as the Russian war on Ukraine extends into its third month," said Doug Duncan, senior vice president and chief economist at Fannie Mae, in a statement. "The impact to prices of expected reductions in agricultural production, as well as continued increases in house prices, suggest to us a difficult path for the Fed to return inflation to its two-percent target rate in a timely manner – and, of course, in the absence of an economic downturn."

While its expectations of the economy having a modest recession in the second half of 2023 remain unchanged, Fannie Mae said the constrained consumer spending power amid elevated inflation and a rapidly rising rate environment carries the risk of a contraction happening sooner.

Fannie expects a slowdown in homesales for the second and third quarters of 2022, followed by a softening in construction activity and a large deceleration in home price growth.

Homebuilders completed about 1.23 million houses in April, down 5.1% from March and 8.6% from April 2021, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Single-family home completions saw a 4.9% month-over-month decrease to 1 million and multifamily completions were down 6.6% from March to 281,000.

Purchase and refinance originations also are expected to decline, spurred by the uptick in mortgage rates. With only 1.4% of mortgages predicted to have a 50-plus-basis point incentive to refinance, Fannie Mae expects a majority of refinance activity will be of the cash-out variety.

"Historically, rapid and substantial rises in mortgage rates have had the effect of slowing activity, which we reflect in our forecast," Duncan said. "Not only is the worsening affordability of homes a problem for potential entry-level homebuyers, but current homeowners are less likely to trade in their existing lower-rate mortgages and list their homes for sale, both of which will likely weigh on sales."

Purchase mortgage rates this week averaged 5.25%, while the 30-year fixed-rate purchase rates were at 3% this time a year ago, according to Freddie Mac PMMS. With rates at a higher level, mortgage applications declined 11% this week, compared to the prior week: Refi applications were down 9.5% and purchase apps decreased 12%, according to the Mortgage Bankers Association (MBA).

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Purchase mortgage rates drop to 5.25% as demand wanes

Posted: 19 May 2022 06:42 AM PDT

Purchase mortgage rates this week averaged 5.25%, down five basis points from a week ago, as some individuals put the American homeownership dream on standby due to higher rates and surging home prices, according to the latest Freddie Mac PMMS.

This time a year ago, the 30-year fixed-rate purchase rates were at 3%, the report shows. The government-sponsored enterprise (GSE) index accounts for just purchase mortgages reported by lenders during the past three days.

Economic uncertainty is causing mortgage rate volatility, according to Sam Khater, Freddie Mac's chief economist.

"As a result, purchase demand is waning, and homebuilder sentiment has dropped to the lowest level in nearly two years," Khater said. "Builders are also dealing with rising costs, meaning this posture is likely to continue."

Another index shows rates at a higher mark. The Black Knight's Optimal Blue OBMMI, which includes some refinancing data — but excludes cash-out refis to avoid skewing averages, as they typically have loan-level price adjustments — measured the 30-year conforming mortgage rate at 5.509% Wednesday, down from 5.512% a week prior.

Meanwhile, the 30-year fixed-rate jumbo was at 5.013% Wednesday, up from 5.006% the previous week, according to the Black Knight index.

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With rates at a higher level, mortgage applications declined 11% this week, compared to the prior week: Refi applications were down 9.5% and purchase apps decreased 12%, the Mortgage Bankers Association (MBA) reported Wednesday.

"General uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search," Joel Kan, associate vice president of economic and industry forecasting at MBA, said in a statement.

The MBA data show far fewer home sales and mortgage originations in 2022 than a year ago. Total originations are expected to be at $2.5 trillion this year, compared to $3.9 trillion last year. Meanwhile, the MBA expects 5.934 million home sales in 2022, compared to 6.127 million in 2021.

Mortgage rates are following the Federal Reserve's (Fed) inflation-fighting monetary policy. The central bank raised the interest rate by a half percentage point May 4 and announced a plan to reduce the $9 trillion asset portfolio, which ballooned during the pandemic. The Fed repeatedly has signaled it would raise rates six times this year with several more hikes planned in 2023.

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.43% with an average of 0.9 point, down from 4.48% the week prior. The 15-year fixed-rate mortgage averaged 2.29% last year.

The 5-year ARM averaged 4.08% with buyers on average paying for 0.2 point, up from last week's average of 3.98%. The product averaged 2.59% a year ago.

The higher rate landscape is provoking lenders to cut costs, mainly via layoffs. California-based Owning Corp., a direct-to-consumer lender acquired by Guaranteed Rate in February 2021, cut 108 jobs in three rounds from February to April. And it intends to add another 81 layoffs to the list.

Other lenders also have reduced staff, such as Interfirst, Mr. Cooper, Union Home Mortgage, Flagstar, Wells Fargo and Better. Rocket has not laid off workers but has offered a voluntary buyout to some of its staff.

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Ocwen names new CFO to navigate challenging market

Posted: 18 May 2022 03:16 PM PDT

Nonbank mortgage lender and servicer Ocwen Financial Corp. announced on Wednesday that Sean O'Neil is joining the company as executive vice president and chief financial officer. O'Neil will start at Ocwen on June 13 to lead the firm's global finance organization amid a challenging mortgage origination market.

Before landing at Ocwen, the executive served as the CFO for Bayview Asset Management for six years. Prior to that, he held positions at Wells Fargo, Eastern Community Bank and Wachovia's Wealth Management Group.

According to Glen Messina, president and CEO of Ocwen, O’Neil has a track record of driving profitable growth, optimizing liquidity and strategic planning. "That will be instrumental as we continue to navigate a challenging mortgage originations market."

O'Neil is replacing June Campbell, who leaves the company to pursue opportunities outside of Ocwen. She arrived in March 2019, in the early stages of the Ocwen-PHH merger and integration.

In the first quarter, Ocwen reported a $58 million profit, a significant improvement over the $2 million loss in the fourth quarter of 2021. And year over year it increased its profits by a factor of six compared to the $8.5 million in net income reported in the first quarter of 2021. The fair value gains on the company mortgage servicing rights (MSRs) of $56 million more than offset a pre-tax loss in forward originations.

In light of decreasing forward origination, Ocwen is also boosting its reverse originations, with its subsidiary PHH Mortgage Corp. completing the acquisition of Reverse Mortgage Solutions in October.

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Earlier this month, a U.S. Court of Appeals ruled that most complaints in the Consumer Financial Protection Bureau's attempt to revive a mortgage servicing misconduct lawsuit against Ocwen are barred because of a 2014 consent order.

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CFPB report highlights outliers doing a poor job servicing

Posted: 18 May 2022 12:18 PM PDT

The Consumer Financial Protection Bureau (CFPB) published a report this week looking at how servicers fared in the second half of 2021. The report said that on average, servicers improved their call metrics, but that some servicers continue to lag behind in assisting borrowers.

According to the report, which examined data provided from 16 undisclosed servicers, call metrics, including the average time it took for servicers to answer and abandonment rates, varied greatly from servicer to servicer.

From May 2021 to December 2021, servicers reported that the average speed to answer a borrower’s call after it entered the servicers’ interactive voice response system was 2.95 minutes.

However, some servicers struggled to answer calls in anywhere near that time. One undisclosed servicer saw their time to answer spike to 18.3 minutes in September 2021, while another servicer saw their average time to answer spike to 25 minutes in December 2021.

The average abandonment rate during this seven-month period was well below 10%, the report said. Though, again, there were outliers. The government watchdog said that servicers that reported spikes in answering times saw corresponding spikes in abandonment rates.

Per the report, the same servicer that saw a large spike in answering calls in September 2021 saw abandonment rates exceeding 22% that month. Meanwhile, four undisclosed servicers in December 2021 reported large abandonment rate spikes ranging from 16% to 40%.

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Rohit Chopra, director of the CFPB, said that he is seeing improvement among servicers, but that there is room for growth.

“Servicers have done a much better job than they did 15 years ago,” said Chopra, speaking at the Mortgage Bankers Association‘s annual secondary markets conference in New York. “[In the report] we do find that there are some servicers that are really lagging behind their peers and we need to make sure that they are being responsive to homeowners.”

The report found that close to 330,000 homeowners with delinquent loans exited forbearance at the end of last year with no loss mitigation solution in place. Of that sum, 274,000 were federally backed loans.

The government watchdog said that the data shows "progress" but that borrowers exiting forbearance without a loss mitigation in place face a heightened risk of foreclosure. The report stressed that servicers should prioritize borrower outreach.

Overall, from May 2021 to December 2021, servicers reported that the rate of loans exiting forbearance with a status of foreclosure has been relatively low. A mere 11,386 loans had a status of foreclosure during the seven-month period, while 322 loans had an exit status of a short sale.

Of the 8 million borrowers that opted for forbearance, close to 90% have exited, the report stated. And as of March 2022, only 743,000 borrowers remained in active forbearance plans.

The CFPB noted another pain point: servicers struggled to provide information about limited English proficiency borrowers. Servicers could not provide data about the total number of LEP borrowers in their servicing portfolio, the number of LEP borrowers who were delinquent, nor their exit status after forbearance.

From the limited data provided, there seems to be a trend of delinquent LEP borrowers exiting forbearance without a loss mitigation option in place, the CFPB said. This could point to challenges in obtaining in-language information about how to access loss mitigation options, the report noted.

The bureau urged servicers to collect data about a borrower’s language preference to provide improved service to LEP consumers.

The watchdog reiterated in the report that it is prioritizing oversight of mortgage servicers “with special attention to servicers' management of forbearance exits and the loss mitigation process.”

It's at least the sixth time the CFPB has issued a similar warning to servicers as they navigate the end of forbearance and loss mitigation. However, it's not clear if any enforcement actions have resulted from the promise of increased scrutiny.

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Friday, May 20, 2022