Thursday, May 26, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Freddie Mac automates pre-closing income verification

Posted: 26 May 2022 12:57 PM PDT

Freddie Mac will now automatically verify borrower employment 10 days ahead of closing, which it says is more efficient than obtaining that information through oral or written verification. The option will be available starting June 1.

To verify the borrower's employment, Freddie Mac's asset and income modeler will draw data from bank accounts for direct deposit, with the borrower's approval, or from payroll data provided by third-party service providers.

It's the latest move from the government sponsored enterprise that seeks to streamline the closing process. In February, it announced it would automate assessing a prospective homebuyer's direct deposit income.

The automated processes are part of Freddie Mac's asset and income modeler which functions within its automated underwriting system. The platform, introduced in 2016, automates parts of the manual process of assessing a borrower's assets and income.

Freddie Mac started using tax return data to automate the income calculation process in 2019. At the time, Freddie Mac said the capability would free underwriters from doing busy work and allowed them to "focus on the big-picture credit profile of a borrower."

AIM also extracts pertinent tax data, automating at least part of the arduous process of assessing self-employed borrowers' income.

Freddie Mac says that top-performing lenders are more likely to automate the underwriting process, and doing so helps them close loans more effectively. A 2020 study by the GSE found that the top quartile of lenders, based on their closing cycle time, are more likely to build their processes around automated offerings.

Across the board, lenders who originate mortgages with "digital offerings" were able to shave nine to 10 days off their time to close, on average, the study found.

The post Freddie Mac automates pre-closing income verification appeared first on HousingWire.

Florida-based LO accused of falsifying documents

Posted: 26 May 2022 10:40 AM PDT

A Florida-based loan officer faces more than 30 years in federal prison if convicted on charges alleging she falsified divorce papers and child support payment information to help unqualified borrowers secure a loan, according to a Department of Justice indictment.  

Evelisse Hernandez is charged with four counts of bank fraud and four counts of aggravated identity theft. Each count of bank fraud carries a potential sentence of as many as 30 years in prison and each count of aggravated identity theft carries a mandatory consecutive two year sentence.

She could also be ordered to pay $130,000 in restitution.

A spokesperson from Department of Housing and Urban Development’s Office of Inspector General said that the loans funded were FHA-insured loans. “The amount listed at $130,000 is the amount of loss to HUD,” the HUD OIG spokesperson said.

The DOJ alleges Hernandez falsified borrower's income by inflating monthly child support payments on mortgage loan applications. Her place of work was not disclosed.

The indictment also accuses the loan officer of creating fictious divorce papers showing her clients were entitled to receive monthly child support payments. In reality, borrowers did not have children or had never been married, according to the DOJ.

To make the divorce papers believable, the loan officer allegedly forged signatures of judges from the Circuit Court of the Ninth District of Florida on the fabricated final judgements of dissolution of marriage papers.

Hernandez is also accused of creating bogus Florida Department of Revenue statements showing her clients were receiving monthly child support payments, according to the indictment. She allegedly created phony prepaid debit card statements designed to serve as records of the borrowers withdrawing the monthly child support payments.

The DOJ contends the loan officer would then submit loan applications with the phony supporting documents to her company’s underwriting department. Based on Hernandez's alleged misrepresentations, the financial institution approved and funded the mortgage loans, the government claims. It was not immediately clear how many loans the mortgage company funded.

The investigation was spearheaded by the Federal Housing Finance Agency, the HUD’s Office of Inspector General and the Florida Office of Financial Regulation.

The post Florida-based LO accused of falsifying documents appeared first on HousingWire.

Purchase mortgage rates average 5.10% continuing two-week slide

Posted: 26 May 2022 07:04 AM PDT

Purchase mortgage rates this week averaged 5.10% continuing a decline from last week amid a housing market slowdown, according to the latest Freddie Mac PMMS. 

A year ago at this time, 30-year fixed rate purchase rates were at  2.95%. The government-sponsored enterprise index accounts solely for purchase mortgages reported by lenders during the past three days.

"Mortgage rates decreased for the second week in a row due to multiple headwinds that the economy is facing,” said Sam Khater, Freddie Mac's chief economist. "Despite the recent moderation in rates, the housing market has clearly slowed, and the deceleration is spreading to other segments of the economy, such as consumer spending on durable goods."

Another index shows rates at a higher mark. Black Knight's Optimal Blue OBMMI pricing engine, which includes some refinancing data — but excludes cash-out refis to avoid skewing averages, measured the 30-year conforming mortgage rate at 5.32% Wednesday, down from 5.50% the previous week. 

The 30-year fixed-rate jumbo was at 4.90% Wednesday, also down from 5.01% the week prior, according to the Black Knight index. 

This week, mortgage application volume dropped 1.2% from the past week: refi applications declined 4% and purchase apps remained the same, according to the MBA. The MBA found the adjustable-rate mortgage share dipped to 9.4% of total applications.

Mortgage rates are following the Federal Reserve's (Fed) inflation-fighting monetary policy. Minutes from the Fed’s meeting earlier this month released Wednesday showed policymakers emphasized the need to quickly raise interest rates to bring consumer prices closer to the Fed’s 2% goal. 

The central bank raised the interest rate by a half percentage point May 4 and announced a plan to reduce its $9 trillion asset portfolio. The Fed also has repeatedly signaled it will raise rates six times in 2022, and likely several more in 2023.

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.31% with an average of 0.8 point, down from last week's 4.43%. The 15-year fixed-rate mortgage averaged 2.27%

The 5-year ARM averaged 4.20% with buyers on average paying for 0.3 point, up from 4.08% the week prior. The product averaged 2.59% a year ago. 

Economists forecast the tightening monetary policy will reduce originations in 2022 and 2023. The MBA expects loan origination volume to drop more than 35% to about $2.5 trillion this year, from last year's $4 billion. Meanwhile, the MBA expects 5.93 million home sales in 2022, compared to 6.12 million in 2021. 

The post Purchase mortgage rates average 5.10% continuing two-week slide appeared first on HousingWire.

Keller Mortgage eliminates some operations positions

Posted: 25 May 2022 02:38 PM PDT

Keller Mortgage, part of the kwx holding company, laid off operations positions in a conference call on Monday May 23, according to more than a dozen employees. Pink slips will arrive for affected employees on May 27 and no later than June 1.

The layoffs included closing managers, underwriter managers, processors, post closers, funders, and pipeline management positions who were in the retail channel, employees that were notified of their layoffs told HousingWire.

"A bunch of us were given a 30-minute heads up for a mandatory meeting via zoom or via conference call," said an employee who requested anonymity.

Employees who were affected by the latest workforce reduction were those working remotely and in the Ohio headquarters including professionals with less than three years of experience to more than 20 years in the mortgage industry.

"After the restructuring, only 10 pods (teams) were left from about 48 to 50 pods," said another employee who preferred not to be identified. Each pod has about 15 employees consisting of loan officers, processors, closers, underwriters, supervisors, and funders, according to multiple employees. HousingWire was not able to verify the number of people who were part of the layoffs.

“In light of current market conditions, we have restructured the operations and support groups within our Keller Mortgage business,” Darryl Frost, spokesperson at Keller Williams, told HousingWire, without providing details on the workforce reduction, including the number of employees affected. “We remain committed to assisting our impacted employees and to growing our mortgage offerings over the long term.”

Best Practices from Strong Mortgage Partnerships

The purpose of this white paper is to address some of the real-world pressing concerns we all face in the lending ecosystem. We will focus on bringing together best practices from strong collaborators who partner to serve our communities, provide innovative solutions, adapt to windfall volumes on the fly and help to build a better industry long-term.

Presented by: DataVerify

Loan officers, who are 100% commission based at Keller Mortgage, were not part of the layoffs, according to multiple employees. "There is no cost for the company to keep them. The affected people were those on a salary," said a supervisor who prefers anonymity. 

No Worker Adjustment and Retraining Notification (WARN) notices were found in the states where employees worked. In May 2021, Keller Mortgage reached 1,000 employees, doubling its size of 530 employees since June 2020, according to a Keller Mortgage talent acquisition specialist on LinkedIn.

The Mortgage Bankers Association expects loan origination volume to drop more than 35% to about $2.5 trillion this year. Lenders are directly hit by the changing housing market, which was the reason given for the restructuring, multiple employees told HousingWire. 

"About two weeks ago, all the underwriters were given an income calculation test of about 10 questions," said an employee who spoke anonymously. "Rumor email was going around saying they were going to fire the ones who didn't pass the test. But the director of underwriting reassured underwriters that they were assessing what kind of training was needed."

Following a call on Monday that didn't allow employees to ask questions, the firm sent an email that night notifying them that they would be receiving a "personal separation agreement on May 27 but no later than June 1," addressed by the Keller Mortgage HR team in an internal company email obtained by HousingWire. 

The Ohio-based lender offered a four-week severance payment, a payout of unused paid time off of up to 80 hours, and benefits through the end of the month. No overtime is permitted between May 23 and May 27. 

Keller Mortgage, the lending arm of what it calls "the nation's largest real estate franchisor by agent count," laid off 150 employees with junior roles in October 2021. Keller Mortgage, like other lenders, staffed up to handle the refi boom in 2020 but faced challenges as interest rates started rising and refi business dried up. 

About 66.7% of the $4.16 billion originated by Keller Mortgage in 2021 was from purchase transactions, according to Home Mortgage Disclosure Act data by iEmergent. In 2020, the lender originated $5.63 billion with 69% of the volume being purchase loans.

With the mortgage industry expected to shrink more than 35% this year from 2021, lenders are adjusting to the market by cutting costs, including laying off employees.

Lenders are filing additional workforce reduction notices following their initial layoff announcements. Pennymac will lay off an additional 207 employees in June and July after it issued pink slips to more than 230 employees in May. After Interfirst eliminated more than 350 non-commissioned loan officers in November 2021, the firm laid off 140 additional employees in May. 

The post Keller Mortgage eliminates some operations positions appeared first on HousingWire.

Sandra Thompson confirmed as FHFA director

Posted: 25 May 2022 12:22 PM PDT

The Federal Housing Finance Agency (FHFA), which oversees the bulk of the mortgage market, now has a U.S. Senate-confirmed director: Sandra Thompson.

The Senate today confirmed Thompson’s nomination to head the FHFA by a 49 to 46 vote. Thompson, a longtime regulator, has been leading the agency on a temporary basis for nearly a year. Before Biden appointed her acting director of FHFA in June 2021, Thompson led the housing mission and goals division. She previously was the supervision chief at the Federal Deposit Insurance Corporation.

Biden nominated Thompson for the permanent job in December, after she had already been on the job for nearly six months, putting to rest rumors of an alternative candidate.

In a statement, Thompson said she was honored to be nominated by Biden and confirmed by the Senate. "I appreciate the support I received, and I look forward to continuing to work with Congress and other stakeholders as I fulfill my new role," she said.

During her time as head of FHFA, Thompson has taken a different approach than her predecessor, Mark Calabria, who often was at odds with the mortgage industry. Within weeks, Thompson reversed an unpopular adverse market fee on most refinances.

Thompson also has taken a number of actions to address the racial homeownership gap and fulfill the government sponsored enterprises' statutory duty to serve underserved mortgage markets.

In August 2021, the FHFA entered into a fair lending data sharing agreement with the Department of Housing and Urban Development and made on-time rental payment history a part of Fannie Mae's underwriting process. The FHFA also set new affordability goals for Fannie Mae and Freddie Mac, establishing target loan purchases in minority and low-income Census tracts.

But along with measures to promote affordability — which is not always aligned with business interests — Thompson's FHFA also made changes that industry stakeholders cheered. In September 2021, the U.S. Treasury and the FHFA agreed to suspend GSE caps for higher-risk loans, and loans on investor and second homes.

In January, FHFA raised fees on high-balance and loans for second homes. Mortgage industry stakeholders saw the fees as the first step of a holistic review of GSE loan-level pricing, which Thompson has said is on her list of priorities. Affordable housing advocates have argued for using revenue from high-balance and investor loans to subsidize more affordable lending.

The cuts to fees on affordable loans have not yet materialized. The Mortgage Bankers Association has since argued that the fees on high-balance loans and second home loans may deter lenders from making those loans.

The FHFA rejected the first draft of Fannie Mae and Freddie Mac's plans to serve the manufactured housing and rural markets and preserve affordable housing.

That, and other actions from Thompson, led David Stevens, a former Federal Housing Administration commissioner, to opine Thompson “has a legacy in mind.” He believes it may be harnessing the GSEs’ resources to better serve first-time homebuyers and borrowers of color.

That will be more difficult for the GSEs, however, if HUD reduces the FHA mortgage insurance premiums, as many expect it will. Lowering the premiums would make FHA financing more attractive for mission borrowers, and by comparison, risk-based GSE loan pricing less attractive.

"The [GSEs] may not be competing with FHA, but they have to at least acknowledge that they have to work harder to not lose too much ground to them, or they will come under scrutiny from Congress and others,” Stevens said.

But Thompson also has made clear equitable access to affordable and sustainable housing must not come at the expense of safety and soundness. Industry stakeholders, including the MBA, have welcomed that approach.

The CEOs of both Fannie Mae and Freddie Mac also expressed support for their newly confirmed boss.

Fannie Mae interim CEO Dave Benson said the GSE has a strong and collaborative relationship with its conservator. "We look forward to building on this relationship under the leadership of Director Thompson with a continued focus on our mission to advance equitable and sustainable access to homeownership and quality affordable rental housing across America," Benson said.

Freddie Mac CEO Michael DeVito also congratulated Thompson on her confirmation. "We applaud her commitment to our mission and look forward to continuing our very collaborative working relationship," DeVito said.

On Wednesday, Bob Broeksmit, CEO of the MBA, praised Thompson’s ability to balance safety and soundness with issues of equity.

Thompson “has repeatedly demonstrated leadership, expertise, and a strong commitment to sound risk management principles while safely expanding access to mortgage credit and creating equitable and sustainable housing solutions for homeowners and renters,” Broeksmit said.

Some mortgage industry insiders expect some more controversial policy moves from the FHFA after the conclusion of the confirmation process, which has become more difficult in recent years.

There are a number of matters before the FHFA, including a conclusion to its years-long process to determine whether the GSEs can use alternative credit scoring models and whether the GSEs can sustainably back loans made on deeply affordable manufactured housing.

The FHFA also has not yet released the equitable housing finance plans that it required the GSEs to submit by the end of 2021.

The post Sandra Thompson confirmed as FHFA director appeared first on HousingWire.

Lakeview Loan Servicing confronts wave of lawsuits after data breach

Posted: 25 May 2022 12:16 PM PDT

HW+ home appraisal

One of the largest loan-servicing companies in the nation, Lakeview Loan Servicing LLC, is facing at least a dozen civil lawsuits, all seeking class-action status, in the wake of a major cyberattack that compromised the personal data of the mortgage borrowers the company serves. 

That data breach, revealed by Lakeview in mid-March, targeted the personal information of some 2.5 million borrowers, including their Social Security numbers.

The pending lawsuits, 11 of which have been consolidated into a single master case in federal court in Miami, seek unspecified monetary damages, including attorney's fees and court costs. Other relief sought includes an order requiring Lakeview to protect, via encryption, all data collected in accordance with federal and state laws. 

Although the class-action pleadings so far list no specific dollar amount as part of damages sought, the end result for Lakeview could be very expensive. 

Past litigation filed against financial companies victimized by similar cybercrimes has resulted in settlements ranging from $120 million to $700 million — including penalties from regulators; class-action monetary settlements; and identity theft provisions and insurance for affected class members. 

The pending litigation against Lakeview points out that the data breach took place from Oct. 27, 2021, to Dec. 7, 2021, but Lakeview did not figure out what data had been compromised until Jan. 7, 2022 — in the wake of retaining an investigation team to identify the data accessed.

"Then LLS [Lakeview Loan Servicing] sat on the information for over a month — failing to disseminate data-breach consumer notifications until March 18, 2022," a lawsuit filed by Andrew Guarino of Massachusetts alleges.

Another lawsuit, filed by Texas resident Stephenie Stone, claims the data compromised includes "names, addresses, loan numbers, and Social Security numbers."

"[Lakeview] sent templates of the notice of data breach letter to state attorneys general," Stone's litigation alleges. "Specifically, [Lakeview] sent a template of the notice of data breach letter to the Maine Attorney General and identified that approximately 2,537,261 individuals … had their PII [personally identifiable information] accessed, exfiltrated [withdrawn surreptitiously], and/or compromised on the data breach.

"The Texas Attorney General's Office notes the data breach was published to its website on March 21, 2022, and affected 255,762 Texans."

Both Guarino's and Stone's cases have been consolidated in federal court in Florida, along with nine other class-action cases filed so far — with the South Carolina case still pending separately. The litigation claims Lakeview should have better protected its customers' data, given the known threat from cybercriminals.

"Over 62% of the 164 million sensitive records exposed in data breaches in 2019 were exposed in … 108 breaches in the banking/credit/financial sector," the Guarino litigation states. "The 108 … financial sector data breaches reported in 2019 exposed 100,621,770 sensitive records, compared to 2018 in which only 1,778,658 sensitive records were exposed in financial-sector breaches. 

"… Social Security numbers, for example, are among the worst kind of personal information to have stolen because they may be put to a variety of fraudulent uses and are difficult for an individual to change."

Another lawsuit that is now part of the consolidated case in Florida federal court, filed by California resident Jennifer Morrill, states that personally identifiable information is a high-value commodity in the criminal world, "as evidenced by prices they will pay through the dark web."

"Numerous sources cite dark web pricing for stolen identity credentials," Merrill alleges in her litigation. "For example, personal information can be sold at a price ranging from $40 to $200, and bank details have a price range of $50 to $200. 

"Experian reports that a stolen credit or debit card number can sell for $5 to $110 on the dark web. Criminals can also purchase access to entire company data breaches from $900 to $4,500." 

Attorneys for Lakeview did not respond to a request for comment. Lakeview pleadings so far have centered on procedural moves over adding attorneys and to consolidate the pending cases, and similar cases yet to be filed, into master case in U.S. District Court in Miami. 

Lakeview, based in Coral Gables, Florida, is part of the Bayview Companies and a subsidiary of Bayview MSR Opportunity Master Fund LP. It also is an affiliate of Bayview Asset Management, a certified minority-owned and private equity firm with hedge fund holdings.

As of May, Lakeview ranked nationally as the fifth largest servicer of agency-backed loans (Fannie Mae, Freddie Mac and Ginnie Mae). The company controls 4.6% of all agency loans being serviced — with a $374.8 billion portfolio based on the total unpaid-principal loan balance, according to a recent report from mortgage-data analytics firm Recursion. Overall, according to its website, Lakeview claims to be the fourth-largest mortgage loan servicer in the country,

Past settlements in data-breach cases involving compromised personal and/or business information include Capital One, $190 million for members of the class, in addition to $80 million to settle claims by regulators; Morgan Stanley, $120 million, including civil penalties paid to regulators; and Equifax, $700 million to settle claims by consumers and regulators.  

The dozen federal civil lawsuits filed in reaction to the Lakeview data breach to date, each of which make similar claims and seek similar damages, accuse Lakeview of negligence, breach of contract and fiduciary duty, unjust enrichment as well as violations of state consumer privacy and unfair business practices laws. 

All but one case is already filed in U.S. District Court in Miami, with the outlier filed in U.S. District Court in South Carolina in Spartanburg. In that case, there is a pending motion filed by Lakeview to consolidate the case with the master case now pending in federal court in Miami or otherwise stay the case pending the outcome of the master case.

Since the federal judge in Florida ordered the cases to be consolidated in U.S. District Court in Miami, an additional two lawsuits have been folded into the original nine cases, with the potential for future cases filed around the country to be consolidated with the master case as well. All the cases so far are seeking class-action certification, including the case in South Carolina not yet part of the consolidated action.

"Particularly in cases involving class actions, the court has broad discretion to transfer and consolidate cases that involve the same questions of law and fact," said Stephan Rogers, a partner with Rogers & Elliott PLLC., a San Antonio, Texas-based law firm specializing in civil litigation, civil appeals and real estate law. "Here, the Florida court is consolidating the cases filed there for purposes of pre-trial proceedings — primarily discovery and pre-trial motions. 

"With respect to the South Carolina motion to transfer, if the plaintiffs do not oppose the motion, it will be granted. If the motion is opposed, it will be up to the court to decide whether to transfer venue to Florida 'for the convenience of parties and witnesses, in the interest of justice,' in accordance with the change of venue statute."

Absent a quick settlement, the Lakeview case, including appeals, could take years to play out, however. 

The Capital One litigation, which centered on a 2019 data hack that affected 98 million U.S. residents and compromised some 140,000 Social Security numbers and 80,000 bank account numbers, took more than two years to settle. The Equifax data-breach occurred in 2017, affecting 147 million people, including compromising Social Security numbers. An appeal in that case was finally resolved in the summer of 2021, upholding the class-action settlement.

The problem of cybercrime is not going away anytime soon, cybersecurity experts stress. If measured as a country, the cost of cybercrime globally would represent the third-largest nation on earth, behind the U.S. and China, according to Marianne Bailey, a partner at cybersecurity firm Guidehouse and former deputy national manager for national security systems at the National Security Agency, better known as the NSA.

“In 2021 there were predicted damages of $6 trillion in U.S. dollars globally.” Bailey said during a panel discussion on cybercrime at a recent Mortgage Bankers Association (MBA) convention in New York.

“Global cybercrime costs are expected to grow by 15% per year over the next five years reaching $10.5 trillion in U.S. dollars annually by 2025," Bailey added. "We’re in this huge digital ecosystem. We’re becoming more and more digitally connected, with everything that we’re doing in life, and so all that stuff is up for grabs by cybercriminals.”

Bailey said cybercrime is still perpetrated by lone wolves, but increasingly it's the domain of organized crime and nation-state backed cybercriminals — and she singled out Russia as one of those nation states.

"People don’t realize that there has been a low-level cyber war for decades," she said. "So, they’re getting into everything. They’re very, very sophisticated."

Jason Doshi, CEO and co-founder Paymints.io, which provides a digital payment platform for real estate transactions, also was part of the panel at the recent MBA convention. He said loan-servicing companies are a target-rich environment for cybercriminals.

"They have sensitive client information. They have the credit profiles. They have banking information because they are collecting payments," Doshi said. "They are a huge target."

Doshi added that as loan servicing becomes "more and more digital," it becomes "more vulnerable" to cyberattacks. 

"I was speaking with someone from one of the largest servicers in the country, and they’re saying [only] 8% of their clients are actually still requesting paper statements," Doshi said. "So, they don’t even want a paper statement in the mall anymore. It’s all digital."

The post Lakeview Loan Servicing confronts wave of lawsuits after data breach appeared first on HousingWire.

VA removes pre-approval process for some loans

Posted: 25 May 2022 11:52 AM PDT

The Department of Veterans Affairs last week announced it is streamlining the loan approval process for borrowers with a VA-appointed fiduciary and for veteran borrowers who apply for a joint loan.

Effective immediately, lenders no longer must send such loan applications to the VA for guaranty approval prior to closing, which should speed up the loan closing process.

The VA also has done away with the requirement of individual, case-by-case reviews on the loans, which had been an additional, laborious step. VA representatives told lenders the change will eliminate “delays and additional administration burdens that can be associated with the historical process.”

Going forward, the department intends to rely on post-audit oversight to maintain program integrity.

The VA did not immediately respond to requests for comment.

The agency formerly required a pre-closing review of certain loan application packages, such as those from borrowers unable to manage their financial affairs and cases in which a loan included more than one veteran using entitlement.

Loan closings could not proceed until the VA issued its approval, which resulted in a drawn-out process.

While the VA said it hopes to “improve the veteran experience” by modernizing its outdated procedures, some loans will still require pre-approval before closing. They include: joint loans to a veteran and a non-spouse, or non-veteran; loans to purchase manufactured homes not affixed to land; and loans not secured by a first lien.

The VA also expects to overhaul its procedure on appraisals following the mid-May introduction of legislation in the Senate aimed at streamlining the appraisal process for VA loans.

The legislation would remove a stipulation requiring all VA appraisals to be performed in-house. The Department of Veteran Affairs subsequently would allow desktop appraisals, and in some circumstances, waive the appraisal requirement altogether.

If passed, the legislation introduced by Sen. Dan Sullivan of Alaska and Congressman Mike Bost of Illinois, would address a long-standing gripe that VA appraisal requirements are both lengthy and costly.

The post VA removes pre-approval process for some loans appeared first on HousingWire.

GSEs still shun the low end of manufactured housing

Posted: 25 May 2022 11:47 AM PDT

HW+ kudis

The most affordable manufactured homes are financed with private loans with higher interest rates, shorter terms and fewer consumer protections than mortgage loans.

The homes financed by these loans come without land, like a car, and the homeowner typically rents the land beneath their home. The home itself is a depreciating asset, which makes it difficult for manufactured homeowners to build equity or intergenerational wealth. The loans, called chattel, are rarely refinanced.

That means the 17.5 million Americans who live in homes financed with chattel — about 42% of the manufactured housing market — don't enjoy the consumer protections that long-established legislative bulwarks afford those with a traditional mortgage.

But the government sponsored enterprises may now be on the cusp of entering the chattel market.

The GSEs, which back mortgages on traditional site-built homes, currently do not provide financing for chattel. That's despite being ordered by Congress, in the aftermath of the Great Recession, to specifically serve manufactured housing.

The enterprises thus far have shunned the affordable end of the market. Instead, they have opted to finance manufactured homes that more closely resemble site-built homes, are titled as real property and cost much more. Both Fannie Mae and Freddie Mac also have backed commercial loans on mobile home communities. Freddie Mac has sought to educate borrowers on options to convert chattel financing to real property.

"Instead of serving the market as it is, they're essentially trying to change the market to something it isn't by favoring real estate loans," said Mark Weiss, CEO of the Manufactured Housing Association for Regulatory Reform, which represents manufactured housing lenders and builders.

Freddie Mac aims to purchase 1,500 to 2,500 chattel loans by 2024, though it does not yet have a product for it. Fannie Mae is considering the matter with its regulator, the Federal Housing Finance Agency.

Freddie Mac's goal to finance chattel loans also received a prominent shout-out in the Biden administration's national affordable housing plan. To observers, it's a clear indication of momentum building for the GSE to finance chattel, for which affordable housing advocates continue to argue.

Proponents of government-backed chattel loans say the sector is not as risky as it has been in the past.

Manufactured homes are no more vulnerable than site-built homes in extreme weather events, industry groups claim. Manufactured housing lenders say the sector has reformed its past risky underwriting practices. A subprime crisis afflicted the sector long before it appeared in the wider mortgage market. Faulty loans on mobile homes led to the downfall of the nation's largest manufactured home lender in 2002, ensnaring Fannie Mae on its way down, an episode both GSEs remember well.

The GSEs have not yet explained how they would provide liquidity for loans made on a depreciating asset. Also up in the air is whether they would shape the market to fulfill their charter, or act as a passive secondary market participant. The chattel market is still highly concentrated, with the top five manufactured housing lenders accounting for nearly three quarters of chattel originations, the Consumer Financial Protection Bureau found.

Despite potential risks, manufactured homes as a source of affordable housing backed by the government is tantalizing.

Aside from renting, it's often the only available option for many borrowers who can't afford to buy the now median $375,000 home. The median chattel loan amount is $59,000, according to the CFPB, versus $237,000 for a site-built loan.

But it's not clear manufactured homes financed by chattel loans can be an engine for long-term wealth building, as conventional mortgage financing is.

“The public policy purpose behind promoting homeownership is to create an avenue for long-term wealth building. There's also a public policy interest in ensuring people have safe and affordable housing," said Ed DeMarco, former acting director of the FHFA. "Chattel can be one form of providing safe and affordable housing. But it doesn't mean that [type of] housing is going to be a path for wealth creation."

A little bit jumbled

Fannie Mae has good reason to be cautious about manufactured housing. It's been burned before.

Years before subprime took hold in mortgage, risky underwriting wreaked havoc on manufactured housing. Now-defunct Green Tree Financial Corp. made loans hand-over-fist in the 1990s, with loose credit requirements on depreciating mobile homes. It was able to conceal the faulty loans for years through creative accounting, however, and sold itself to Conseco for $6 billion in 1998.

But when home prices depreciated, it flamed out, and its parent Conseco filed for bankruptcy protection in 2002. At the time, 70% of Fannie Mae's $9 billion manufactured housing portfolio were Green Tree loans bought by Conseco.

Fannie Mae waived liens on the portfolio, in exchange for servicing fees and increased servicing oversight, and recorded a loss of $83 million on securities it held, Fannie Mae documents show.

Fannie Mae did not respond to a request for comment.

"A lot of subprime behaviors showed up in the chattel market first," said Paul Bradley, president of ROC USA, a nonprofit that helps manufactured housing communities convert to resident ownership. "This was classic fog-the-mirror underwriting and lending, invoice-fixing."

A former Fannie Mae official who observed the debacle firsthand said mortgage finance was not built to address a depreciating asset, and Fannie Mae did not understand counterparty risk well enough at the time.

"We were really good at getting things really wrong when we got them wrong," the former official said.

Fannie Mae "stepped in right before bankruptcy and wound up taking it on the chin," said Weiss, of the Manufactured Housing Association for Regulatory Reform.

"The underlying lender had significant problems and was not handling things in the proper manner," Weiss said. "But that's not the market today — it's just a completely different situation."

Although the underwriting has changed, according to Weiss and other lenders, Fannie Mae still remembers the Conseco debacle. And both of the GSEs are demonstrably cautious when it comes to supporting chattel lending.

"Our friends at Fannie and Freddie who have put boots on the ground and really decided to educate themselves on manufactured housing have been fantastic," said Cody Pearce, president of Cascade. "They believe in the product, that it's the No. 1 solution for affordable housing. But then they run up against the credit risk and pricing teams, and it seems to get a little bit jumbled."

Momentum builds

Regardless of whether the GSEs have an appetite for financing the affordable end of the manufactured housing spectrum, financing for chattel is gaining political traction.

On May 16, the Biden administration released a sweeping affordable housing plan, which specifically called out chattel loans as a vehicle for affordable housing.

The plan bluntly stated it would "Deploy new financing mechanisms to build and preserve more housing where financing gaps currently exist: manufactured housing (including with chattel loans that the majority of manufactured housing purchasers rely on)."

The Biden administration is banking on FHFA's approval of Freddie Mac financing chattel loans.

That's far from a foregone conclusion. Freddie Mac, the plan points out, first will conduct a feasibility assessment of whether it can finance chattel, and then it will seek FHFA's approval. Although the president can now remove the FHFA director at-will, giving the Biden administration much greater authority over the agency, it is still an independent regulator, not a cabinet-level agency, like the Department of Housing and Urban Development.

Freddie Mac declined to comment. An FHFA spokesperson said that "any personal property loan purchases for DTS would be subject to FHFA approval as we explore manufactured housing financing options with the Enterprises."

The FHFA also said it plans to host a public listening session sometime in the summer, focusing on financing options and consumer protections related to manufactured housing.

The Biden administration housing plan also highlighted increases to Fannie Mae and Freddie Mac's purchase targets for manufactured housing loans titled as real estate, as well as efforts by HUD to update its building code, to "modernize and expand their production lines," and help manufacturers respond to supply chain issues."

A HUD spokesperson said the Federal Housing Administration would look to increase its loan limits to align with manufactured home sales prices to increase usability of the program. The agency will continue to monitor supply chain issues and maintain flexibilities, to help continue the production of manufactured homes "which are necessary to meet the demand for this important source of affordable housing supply," the spokesperson said.

Despite the Biden administration's stated plan, the path forward for government-financed chattel lending remains uncertain. It's a frustrating dilemma for Lesli Gooch, president of the Manufactured Housing Institute. Research her organization conducted based on data from lenders — which it shared with the CFPB — contradict the idea that chattel loans are riskier than real estate loans.

The seriously delinquent rate for chattel loans in the first quarter of 2021 was just 0.38%, compared to 1.75% for manufactured home loans titled as real estate. The delinquency rate also was orders of magnitude lower than that of FHA loans, with just over one in every 100 chattel loans at least three months past due in March 2021, compared with more than one in every 10 FHA loans at the same time.

"We have data showing these loans are performing well — this is not about risk," Gooch said, of the GSEs' reluctance. "A lot has been done to get over the sticking points. At some point we have to stop doing research and move forward."

Here's an idea

Industry stakeholders have some ideas for how the GSEs could finance chattel loans without taking on too much risk. Affordable housing advocates hope the GSEs would not just provide financing, but seek to improve the market for consumers.

The GSEs already require tenant pad lease protections for manufactured housing communities for which they provide commercial loans. Could the same logic be applied to chattel loans?

Currently, the Truth in Lending Act and the Real Estate Settlement Procedures Act don't apply to chattel. Mortgages require a detailed loan estimate when a borrower applies for financing, and a lengthy disclosure at closing. Not for chattel.

Site-built homes and manufactured homes with mortgages have foreclosure protections and are covered under the CARES Act. In case of default for chattel loans, they go through repossession, a process with fewer consumer protections.

"We're seeing what they're able to do with the tenant pad lease protections initiative," said Rust. "They're driving consumer protections with their market power. Why can't they do the same thing in chattel?"

Freddie Mac protections for manufactured housing communities it finances already include a one-year renewable lease term, unless there is good cause to not renew, 30-day written notice for rent increases and the right to sell the manufactured home to a buyer that qualifies as a new tenant in the community.

But the GSEs could make further demands, given the right leverage. Bradley, of ROC USA, said the GSEs could provide secondary financing that requires longer loan terms, and limit rent increases for the land on which manufactured homes sit.

"If they came in with a mortgage conventional residential rate and term, they would find the industry very receptive to whatever added protections they would need to provide on that product in the community. But if they are going to just mimic what chattel lenders do — 15 to 20 year term financing, 6% to 8% to 10% interest rate — then no, the industry is not going to change one bit."

But what of the inherent risks in manufactured housing?

David Brickman, Freddie Mac's former CEO, last month posed a solution: using credit risk transfers as a mechanism to offload that risk and spur affordable housing, including manufactured housing.

"Specifically, the GSEs could work with existing lenders to develop a standardized product for manufactured housing chattel loans, including a single set of loan terms and documents, credit parameters and delivery mechanics, which would create significant value and bring helpful liquidity to an otherwise fragmented market," Brickman wrote in a piece published by the Urban Institute.

To guard against the higher risk of chattel loans, Brickman suggests the GSEs initially could require lenders or investment partners to take on risky portions of loan pools.

Having an established secondary market is a tantalizing idea for Pearce, of Cascade. But his firm is not only waiting for the GSEs.

In 2019, Cascade, which specializes in chattel loans, went to market with its first private-label securitization. It securitized another manufactured housing loan pool in 2021 of $163 million over 1,889 loans, which were mostly chattel. Fitch rated a $103.2 million notes tranche with a preliminary AAA rating.

Gooch, of the Manufactured Housing Institute, asked, "If you have lenders able to do this with PLS offering, why can't Fannie and Freddie do it?"

Pearce chalks the GSEs' reluctance up to their past experience with the manufactured housing sector's subprime crisis in the early 2000s. After that point, he said, underwriting guidelines changed and the sector was "ahead of the curve" when the single-family crisis hit.

Ultimately, after the Dodd-Frank reforms, the GSEs were able to move beyond the mortgage crisis mindset on site-built housing, Pearce said. But they have not moved beyond past blunders with affordable manufactured housing.

"The GSEs' memory of that is strong, they're passionate about it," said Pearce. "But it's not fair to hold manufactured housing accountable for such a long time for something that was repaired and changed."

The post GSEs still shun the low end of manufactured housing appeared first on HousingWire.

Mortgage apps decline 1.2% despite drop in rates

Posted: 25 May 2022 07:02 AM PDT

Despite a decline in mortgage rates last week, mortgage application volume was down 1.2% on a seasonally adjusted basis for the week ending May 20. The decline, as measured by the Mortgage Bankers Association's (MBA's) Market Composite Index, continued to be led by a drop in the refinance share of mortgage activity, which has been consistent for more than two months. 

"The 30-year fixed rate declined for the second straight week to 5.46% but remains well above what borrowers were used to over the past two years," Joel Kan, associate vice president of economic and industry forecasting at MBA said, in a statement. "Most refinance borrowers continue to remain on the sidelines as a result, and refinance applications have fallen in nine of the past 10 weeks."

Refinance share of mortgage activity dropped to 32.3% of total applications from 33% the previous week, according to the MBA, and refinance activity is down 66% compared to January 2022. 

Higher mortgage rates also impacted purchase market conditions, according to the MBA. The seasonally adjusted purchase index rose 0.2% from a week earlier, "close to lows last seen in the spring of 2020 when a significant portion of activity was put on hold due to the onset of the pandemic," said Kan. "Currently, higher rates, low inventory, and high prices are keeping prospective buyers out of the market."

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) marginally fell to 10.4% from 10.5% in the prior week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo-loan balances (greater than $647,200) also dropped slightly to 5.02% from 5.03% a year earlier. 

According to the MBA, both the adjustable-rate mortgage (ARM) share of activity dipped to 9.4% and the Veterans Affairs (VA) loans fell to 10.4% of total applications. The Federal Housing Administration (FHA) share of all applications inched up to 11.3% from 11.1% the prior week. The USDA share remained unchanged at 0.5% from the prior week. 

Prioritizing home equity solutions in a rising rate environment

The 2022 housing market has been underscored by interest rate spikes and refi decline and lenders are working hard to adjust to new borrower trends. HousingWire recently spoke with Barry Coffin, managing director of home equity title/close at ServiceLink, about the ways lenders can capitalize on these trends by revving up their home equity solutions.

Presented by: ServiceLink

The survey, conducted since 1990, covers more than 75% of the retail residential mortgage applications. 

The post Mortgage apps decline 1.2% despite drop in rates appeared first on HousingWire.
at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)

Mortgage – HousingWire

Mortgage – HousingWi...