Tuesday, June 14, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Compass and Redfin make cuts amid volatile market

Posted: 14 Jun 2022 01:44 PM PDT

On Tuesday, the other shoe dropped. With mortgage rates now north of 6% and the stock market officially in bear territory, two of America’s most prominent real estate brokerages instituted large-scale layoffs and halted expansion efforts.

Redfin CEO Glenn Kelman said the brokerage/listings platform made the tough decision to lay off 470 workers across several divisions, including its engineering department.

"We raised hundreds of millions of dollars so we wouldn't have to shed people after just a few months of uncertainty," he wrote in a filing to the Securities and Exchanges Commission. "But mortgage rates increased faster than at any point in history. We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive. If falling from $97 per share to $8 doesn't put a company through heck, I don't know what does."

Meanwhile, venture-backed Compass laid off 450 workers, halted expansion plans and even briefly paused trading of its stock, which had fallen from a debut price of $20.15 in April 2021, to $4.51 a share. Compass on Tuesday said that it has shut down Modus Technologies, a Seattle-based company that Compass bought in October 2020, heralding its entry point into the title and escrow space. It also plans to reduce costs by not backfilling roles and by getting out of real estate office leases.

Both Redfin and Compass are considered disruptors in the real estate industry, but neither has managed profitability. Redfin is rare in that it has salaried real estate agents as opposed to independent contractors. Its foray into iBuying has hurt its bottom line, and its business model is vulnerable to sudden shifts in the market. Compass, which lured top-performing agents with high commission splits and large signing bonuses, has struggled to contain costs.

The uptick in mortgage rates from the 3% range in January to over 6% in June and resulting drop in home sales volume has put immense pressure on virtually all real estate brokerages and mortgage lenders over the past two quarters.

It reached a tipping point this week following a worse-than-expected report on inflation on Friday and corresponding speculation about what the Federal Reserve would do this week to combat inflation. Many Fed observers expect the central bank to raise rates by 75 basis points on Wednesday. It is likely to trigger more layoffs across the real estate and mortgage industries.

Such market volatility has led to sleepless nights for real estate agents and LOs as well as buyers and sellers in recent few days.

"Interest rates are obviously rising and they are probably going to go up quite a bit again this week, so I've got buyers that are under contract now, but not closed and they are all texting me going, 'Oh no, look at this,'" Anne-Marie Wurzel, who leads a top real estate team for Mainframe Real Estate in Orlando, Florida, told RealTrends. "But I tell them that this is why the lender and I wanted them to lock in on a rate and close a couple of days early so they could keep their rate. So buyers are getting concerned."

Melissa Cohn, a veteran mortgage banker at William Raveis Mortgage, described Friday and Monday as “a bloodbath.” Industry pros are going to have to grit and bear it until stability in the market is achieved, but a return to normal will happen, she said. It’s just not exactly clear when.

“It’s nonsensical – rates don’t go up 50 basis points in three days,” she said. “This is just an overreaching concern about the Fed not being proactive enough and looking for real guidance.”

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GSEs further expand AVMs, desktop and hybrid appraisals

Posted: 14 Jun 2022 01:09 PM PDT

HW+ FHFA

The Federal Housing Finance Agency released voluminous plans last week developed by Fannie Mae and Freddie Mac to make the housing market more equitable, in part through changes to the appraisal process.

Fannie Mae and Freddie Mac's equitable housing finance plans further expand non-traditional property appraisals, which sometimes rely on property tax information, data collected by third parties, or algorithms to assess a property's value. Both GSEs argue that these approaches advance equity.

"Using automated tools to establish home values helps remove human bias, although it limits the collection and evaluation of a property's current condition," wrote Freddie Mac.

Desktop appraisals and hybrid appraisals, where an independent third-party inspects the property, both "reduce costs to the borrower and reduce potential risk of bias by creating greater separation between the appraiser and borrower," wrote Fannie Mae.

Non-traditional appraisals to the rescue

Freddie Mac research concluded in 2021 that appraisal gaps, which negatively impact Black and Latino borrowers and homeowners, exist on purchase appraisals. That was before a study spelled out the appraisal industry’s regulatory dysfunction, and before a federal task force promised to combat appraisal bias.

A follow-up study Freddie Mac conducted in May found that "even after controlling for important factors that affect house values and appraisal practices, properties in Black and Latino tracts are more likely to receive appraisal values that fall below contract prices, and this likelihood increases as the Black or Latino concentration in the neighborhood increases."

The cure? According to Freddie Mac's equitable housing finance plan, it could be the expansion of automated valuation models.

Using its automated valuation models "leads to relatively lower racial gaps," Freddie Mac said.

Freddie Mac currently uses that technology to speed appraisals on some purchase transactions, but only those with loan to value ratios up to 80%, but that excludes most Black and Latino borrowers. Starting in 2023, Freddie Mac said it will look at expanding the use of its automated collateral evaluation for mortgages with loan to value ratios greater than 80% through a targeted lending program.

But researchers at the Urban Institute recently found that automated valuation models, while they "represent the promise of greater efficiency and lower costs for the mortgage industry," perform differently in majority-Black neighborhoods. 

The researchers write that, "even with data improvement and artificial intelligence, we still find evidence that the percentage magnitude of AVM error is greater in majority-Black neighborhoods. This indicates that we cannot reject the role historic discrimination has played in the evaluation of home values."

A Freddie Mac spokesperson said that the GSE and its regulator conduct routine fair lending analyses to ensure the automated system fully complies with fair lending laws, including a review to ensure that no factor is a proxy for protected classes.

"We are constantly refining our system, and we frequently bring in new technologies to improve our capabilities," a Freddie Mac spokesperson said.

Automated valuation would largely benefit lenders via more efficient originations and borrowers potentially through reduced costs and a shorter wait time from application to approval, Freddie Mac said. Freddie Mac would also benefit, "via an understanding of the valuation method and the ability to deploy it consistently throughout the organization," a company spokesperson said.

Asked about the implications of the Urban Institute findings, a Fannie Mae spokeswoman emphasized that its equity plan focuses on the expansion of desktop and hybrid appraisals, which was not the focus of that research.

Fannie Mae also included efforts to "modernize" appraisals in its equity plans. The GSE will modify its selling guide to allow for desktop as an appraisal option, after its large-scale experiment with that option as a result of the COVID-19 pandemic. In March, Fannie Mae said it would start offering desktop appraisals for some loans.

But its equity plan also looks to increase use of hybrid appraisals — those where the property inspection is done by an independent third party.

"Both options reduce costs to the borrower and reduce potential risk of bias by creating greater separation between the appraiser and borrower," the Fannie Mae plan read.

Introducing a third party to the transaction to conduct the inspection in order to reduce costs and eliminate bias does not sit well with some industry stakeholders. Appraisers have, in the past, fretted over liability and data reliability. Other stakeholders wonder how cost reductions would impact them.

Peter Christensen, principal at Christensen Law firm, which advises on legal and regulatory matters concerning valuation, believes that third-party data collection will both reduce costs and the potential for bias.

Those performing property data collection do not command the hourly rates that certified appraisers do. Using a third party is "moving that labor to essentially the lowest common denominator," Christensen said.

As for its mitigating effect on bias, separating the analysis from the data collection can counter biases. A property data collector may well have unconscious biases unleashed by a photo of a Black family on the wall. But the data collector would not include his analysis or a photo of the family portrait in the report for the appraiser, said Christensen, who has written contracts for property data collectors.

Still, there are some kinks to work out of third-party property data collection, which Christensen described as the "Wild West."

"Appraisers until this point don't get very good fair housing training, but while it's not perfect, far from, USPAP does make a reference to fair housing law," said Christensen. "But for all the weaknesses amongst appraisers, who is training the average property data collector on this stuff? Fair housing, are you kidding me?"

My data, my research

Both of the GSEs have plans to conduct research to better understand bias. Neither indicate they will give outside researchers the ability to replicate that research, however.

Fannie Mae said it would use its database of roughly 54 million appraisals to analyze undervaluation that could indicate bias. Fannie Mae said it would share those research results via an external industry memo, and then a research paper for industry stakeholders sometime in the first half of 2022.

Among the 21 proposed research projects proposed in Freddie Mac's equitable housing finance plan is an appraisal gap analysis that Freddie Mac said would help it understand "if, how and why" automated valuation might be part of the solution to the appraisal gap.

That research, however, will be conducted by Freddie Mac researchers. No outside researchers will be checking Freddie Mac's analysis to test the conclusions it reaches. It's a limitation that has irked academics and researchers who have long sought access to appraisal data from both the government sponsored enterprises.

“Certainly the GSEs have smart researchers," said Michael Neal, a former Fannie Mae official who is now a researcher at the Urban Institute. "But democratizing the data they have available would benefit policy development.”

Both Fannie Mae and Freddie Mac also have plans to ramp up their quality control systems, following a FHFA blog that, while light on specifics, found at least some instances of references to protected classes in appraisal reports.

Fannie Mae will implement a "new awareness flag data point" that will activate when internal data indicate a possible undervaluation, triggering a targeted quality control review by the second quarter of 2022.

Freddie Mac also wants to use technology to better detect undervaluations or the use of "biased words or phrases," such as "pride of ownership," or "crime ridden." It hopes to deploy the capability to detect undervaluations this year, and detect the use of biased language by 2023.

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Fannie Mae picks winner of first nonperforming-loan sale of 2022

Posted: 14 Jun 2022 10:22 AM PDT

Fannie Mae has chosen the winning bidder for its inaugural nonperforming loan sale of 2022, a deal involving 3,223 loans with an unpaid principal balance of $477.2 million that was divided into two separate pools.

The top bidder is MCLP Asset Co., which is registered as a debt-collection agency with the city of New York's Department of Consumer Affairs and lists its address as being a Manhattan property that also is home to Goldman Sachs' headquarters — 200 West Street in Manhattan. Fannie Mae identifies MCLP as being affiliated with Goldman Sachs in its announcement of the deal.

The nonperforming loans involved in the deal, dubbed FNMA 2022-NPL1, were divided into two pools, with MCLP the winning bidder for both pools. Pool 1 consisted of 1,635 loans valued at $250.3 million, with an average loan size of $153,097 and an average mortgage note rate of 4.62%. Pool 2 includes 1,588 loans valued at $226.9 million, with an average loan size of $142,888 and an average note rate of $4.86%.

BofA Securities Inc. and First Financial Network Inc. acting as advisors for the deal. The transaction, which represents Fannie Mae's first nonperforming loans sale this year, is slated to close July 27. The deal is the nineteenth sale of nonperforming loans since the inaugural sale in 2015.

Terms of the sale were not disclosed. The cover bids, which represent the second highest bid per pool, however, were 94.59% of the unpaid principal balance (UPB) for Pool 1 and 101.59% of UPB for Pool 2.

A third nonperforming loan pool that is part of the package is still scheduled to be auctioned off, with bids due on June 21. That pool, dubbed the Community Impact Pool (CIP) includes 120 loans with a UPB of $36.3 million.

"CIPs are typically smaller pools of loans that are geographically focused and marketed to encourage participation by nonprofit organizations, minority- and women-owned businesses and smaller investors," Fannie Mae state in its original announcement of the nonperforming loan sale. In this case, the CIP is composed of loans made in the New York area.

The sales of nonperforming mortgages are intended to reduce the number of seriously delinquent loans owned by Fannie Mae with the goal of helping to stabilize neighborhoods and to also meet the portfolio-reduction targets established under Fannie's senior preferred stock purchase agreement with the U.S. Treasury.

"All purchasers [of the nonperforming loans] are required to honor any approved or in-process loss-mitigation efforts at the time of sale, including forbearance arrangements and loan modifications," Fannie Mae states in its announcement of the loan sale. "In addition, purchasers must offer delinquent borrowers a waterfall of loss mitigation options, including loan modifications, which may include principal forgiveness, prior to initiating foreclosure on any loan."

In a related development, earlier this month Fannie Mae unveiled its third reperforming loan sale of the year, an offering of some 10,000 loans valued at $1.57 billion.

The offering, dubbed FNMA 2022-RPL3, represents the agency's 26th sale of reperforming loans since the inaugural offering in October 2016, which involved a pool of 3,600 reperforming loans valued at about $806 million. A reperforming loan is a mortgage that has been or is currently delinquent but has been reperforming for a period of time.

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Fannie Mae introduces Refinance Application-Level Index

Posted: 14 Jun 2022 10:09 AM PDT

Fannie Mae aims to track refinance activity and refinance application trends through its newly launched Refinance Application-Level Index (RALI).

The RALI, which sources data from Fannie Mae’s Desktop Underwriter to show the past week’s refinance application trends and prepayment projections, will publish each Tuesday at 10 a.m. EST, according to Fannie Mae.

Fannie Mae’s new index provides two measures: volume of unpaid principal balance in dollars and a loan count.

For the week ending June 10, the dollar volume of refinance applications rose 17.9% from the previous week. RALI dollar volume was down 69.5% compared to the same week last year. RALI’s loan count climbed 16.2% week over week. Compared with the same week last year, the loan count is down 68.6%. 

“Forecasting refinance originations and prepayments has become more challenging in the past two years, as the observed relationship between refinance incentive and prepayments has evolved,” said Devang Doshi, Fannie Mae’s senior vice president of single-family capital markets.

“The RALI has been a strong leading indicator for prepayment activities, and we believe the additional transparency it brings industry participants will improve prepayment modeling performance.”

The mortgage industry is coming off a refi boom in which conventional 30-year fixed mortgage rates hovered around 3%. But as rates spiked, breaking the 5% mark in April, it left fewer people with an incentive to refinance. Last week, purchase mortgage rates jumped to 5.23% after falling marginally for three consecutive weeks. 

Another tool to track refinance activity is the Mortgage Bankers Association's weekly Market Composite Index (MCI), which measures mortgage application volume. The MCI dropped 6.5% for the week ending June 3, partially due to the decline in refinance applications. The refinance index dropped 6% from the previous week and was 75% lower than the same week a year ago. 

While rates were lower than four weeks ago, it wasn't low enough to spur refinancing activity, said Joel Kan, MBA's associate vice president of economic and industry forecasting.

Originations of refi loans fell 15% to $424 billion in the first quarter, according to the Federal Reserve Bank of New York‘s quarterly report on consumer debt and credit. Compared to the first quarter of 2021, refi loan originations are down 40%. 

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Mortgage delinquency rates trended down in March

Posted: 14 Jun 2022 08:20 AM PDT

Mortgage delinquency rates in March fell below the 3% mark, reaching another historic low as a strong labor market and income growth drove down the number of property owners who are late on their mortgage payments. 

About 2.7% of all mortgages in the U.S. were delinquent in March, dropping 2.2 percentage points from the 4.9% posted in March 2021, according to CoreLogic‘s latest loan performance report. 

Other contributing factors to the decline were rising home prices and the resulting equity gains providing alternative options to those who may be coming out of forbearance or facing foreclosures, said CoreLogic’s report. 

U.S. employers posted a record 11.5 million job openings and 6.7 million were newly hired in March, according to the Bureau of Labor Statistics. The unemployment rate of 3.6% in May remained unchanged for the third month in a row. The rate is the lowest since February 2020. 

"The share of borrowers in any stage of delinquency was at an all-time low in the first quarter of 2022," said Molly Boesel, principal economist at CoreLogic. 

While the share of borrowers in any stage of delinquency was at an all-time low in the first quarter of 2022, Boesel expects distressed sales to rise over the coming year. 

"More than one-third of delinquent mortgages remain six months or more past due on their payments,” she said. “While we may see an uptick in distressed sales over the coming year, historic home equity gains should keep these sales from reaching elevated levels."

The serious mortgage delinquency rate, defined as being 90 days or more past due including loans and forbearance, was the highest among the five stages of delinquency at 1.4% in March, down from March 2021's rate of 3.5%.

All 50 states posted annual declines in their overall mortgage delinquency rate. Louisiana had the highest rate of 5.1% in March, dropping 3 percentage points from March 2021. Mississippi followed with a mortgage delinquency rate of 4.8% and New York trailed with 4.3% in March this year.

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Fannie Mae transfers more risk to insurers with sixth CIRT deal 

Posted: 13 Jun 2022 02:56 PM PDT

Fannie Mae has executed its sixth Credit Insurance Risk Transfer (CIRT) deal of 2022, providing up to $725 million in mortgage-risk coverage as part of the agency's ongoing effort to share risk with private-sector insurers.

CIRT 2022-6 involves a covered loan pool composed of 63,000 single-family mortgages with a total unpaid principal balance of about $19.3 billion. The loans in the pool are fixed-rate mortgages with primarily 30-year terms and loan-to-value ratios ranging from 60.01% to 80% that were acquired by the agency between August and September 2021, according to Fannie's statement announcing the deal.

With CIRT 2022-6, effective as of May 1, Fannie Mae will retain risk for the first 55 basis points of loss on the $19.3 billion loan pool. If that $106.3 billion retention layer is exhausted, then the 24 insurers and reinsurers that are party to the transaction will cover the next 375 basis points of loss on the pool, up to a maximum of $725 million.

“Since inception to date, Fannie Mae has acquired approximately $19.9 billion of insurance coverage on $675.9 billion of single-family loans through the CIRT program," Fannie Mae states in the announcement of the latest CIRT deal. 

Through the CIRT transaction, a portion of the credit risk on mortgages backed by Fannie Mae is shifted to insurers in the private sector. The agency pays monthly premiums in exchange for insurance coverage on a portion of the designated reference loan pools.

CIRT offerings 1, 2, 3, 4 and 5 — executed this year — each work similarly to CIRT 6 by transferring hundreds of millions of dollars of mortgage credit risk to the private sector. 

In total the six CIRT deals so far this year, after Fannie's retention layer is tapped, provide insurance for potential losses on the covered loan pools up to a maximum of some $4.9 billion. The covered mortgage loan pools in the six transactions include a total of some 459,000 mortgage loans valued at $139.3 billion — based on a tally of the announced CIRT deals.

In comments made at a recent Mortgage Bankers Association convention in New York, Sandra Thompson, the newly confirmed director of the Federal Housing Finance Agency (FHFA), made clear that credit-risk transfer transactions, including through the CIRT program, will be a critically important part of the GSEs strategy under her oversight.

"I wanted to make sure that we got our capital treatment for CRT right, so we issued, or we re-proposed … aspects of the [overall] capital rule," Thompson said at the MBA event. "We made a change [recently finalized], and now the capital rule for the enterprises has favorable treatment of CRT, which we think is the right way to go because Fannie Mae and Freddie Mac are the largest owners of credit risk."

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Patti Cook to resign as FoA’s CEO, citing health concerns

Posted: 13 Jun 2022 02:30 PM PDT

Multichannel lender Finance of America (FoA) Monday announced Patti Cook will step down from her role as chief executive officer June 30, in anticipation of her retirement due to an existing medical condition. 

The board of directors appointed Graham Fleming, FoA's president since October 2020, as interim CEO, responsible for the company's forward, reverse, commercial and home improvement lending segments, as well as lender services. Before joining the company in December 2013, Fleming served as president of Icon Residential Lenders and chief financial officer of AMRESCO Residential Mortgage.

Cook, a HousingWire 2021 Woman of Influence, joined FoA in March 2016 and was named its CEO in October of 2020. She informed the company of her intention to retire in February, which was meant to take effect after the appointment of her successor.

The search for a new CEO is in progress, but an “ongoing medical treatment” pushed Cook to inform the board of directors she’s stepping down.

"After careful consideration of the impact of ongoing medical treatment, I have decided that the best course of action is for me to devote my energy to staying healthy," Cook said, according to a statement. 

Cook will serve as a senior consultant to the company through Dec. 31, for which the executive will receive a consulting fee of $25,000 per month, according to a document filed with the Securities and Exchange Commission (SEC). 

She also will receive “separation pay” totaling $1,375,000 under a mutual release of claims. The document says her agreement has customary confidentiality, cooperation, non-competition, non-solicitation and non-disparagement provisions. 

Cook also was granted 1,307,195 restricted stock units in June 2021, as part of incentive plans and award agreements with the company, but 653,599 units will not be vested as of her retirement. In addition, the executive was granted the right to receive as many as 136,800 shares of Class A common stock. 

According to Inside Mortgage Finance, Cook is leaving the leadership team of the 32nd largest mortgage lender in the U.S. During her tenure as CEO, the company made its debut on the New York Stock Exchange in April 2021, after merging with the blank-check company Replay Acquisition Corp.

Like many competitors, FoA's traditional mortgage business has been affected by higher mortgage rates. The company originated $5.1 billion from January to March, down 26% quarter over quarter and 39% year over year. FoA cut almost 600 jobs between March 2021 and March 2022.

Amid larger changes to the Texas-based nonbank lender's C-Suite and business lines, veteran mortgage executive Bill Dallas left his position as president of Finance of America Mortgage in March. Dallas, a seasoned entrepreneur, joined FoA Mortgage four years ago after selling one of his companies to Finance of America Companies, the Blackstone Group-controlled parent company.  

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Non-QM players still doing PLS deals despite rate volatility

Posted: 13 Jun 2022 01:59 PM PDT

HW+ mortgage rates desk

Non-QM lender Angel Oak Cos., through its mortgage-backed securities conduit Angel Mortgage Trust, is out with its fourth private-label securities offering of 2022, even as rate volatility in the market continues to throw sand in the market's gears.

The recent offering, AOMT 2022-4, involves a pool of 407 mortgages valued at $217.2 million and includes primarily non-QM loans along with some mortgages backed by investment properties. To date, including three prior private-label securities (PLS) offering completed this year, Angel Oak has securitized loan pools valued in total at $1.73 billion, bond-rating reports show. 

Since its first securitization deal in 2015 through 2021, Angel Oak completed a total of 29 non-QM PLS offerings valued at more than $10 billion, according to the company. 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.

Year to date through early June, overall, there have been a total of 54 non-QM PLS offerings backed by loans valued in total at $21.9 billion, representing nearly half of all PLS deals by loan volume over that period, according to deals tracked by Kroll Bond Rating Agency. That compares to 34 non-QM deals involving near prime, nonprime and investment property-backed deals valued in total at $9.3 billion over the same period in 2021.

All those non-QM securitization deals are occurring this year in a volatile interest-rate environment that has been less than favorable for both the PLS and agency secondary markets. The baseline rate for a conforming 30-year mortgage jumped to 5.78% on Monday June 13, up from 5.45% last week, as fear sweeps the markets due to rising inflation, which reached 8.6% in May — a four-decade high. 

"Bond pricing is worse this morning as Treasury yields moved higher in early trading," Mortgage Capital Trading (MCT) reported in its June 13 morning market wrap-up report. "The U.S. 10 -year Treasury yield is currently at 3.244%. Friday's inflation data reignited fears that central banks will have to use aggressive monetary policy tightening."

The fast-rising rate environment has made it far more difficult for lenders like Angel Oak and others to execute PLS deals. It also is causing heartburn in another liquidity channel for lenders — the whole-loan trading market. That leaves mortgage originators between a rock and hard place when it comes to keeping liquidity channels flowing smoothly.

"There’s no question [loans] are being sold at discounts," said John Toohig, managing director of whole loan trading at Raymond James in Memphis.

Part of the problem with the spike in mortgage rates is that mortgage prepayment speeds (normally via refinancing] for lower-rate loans decrease rapidly, creating loan-supply issues in the market along with shrinking demand for mortgages — with much of that downward pressure being sparked by current Federal Reserve monetary policy.

"The Fed has created demand destruction by increasing rates, and there is an argument it has also created supply destruction [for the PLS and loan-trading markets] because there are millions of people locked into low rates," explains Robbie Chrisman, head of content at MCT, in a recent market analysis report. "At current lending rates, 99% of American homeowners have no incentive to refinance their mortgages. … One year ago, about 66% of the universe had incentive to refinance."

KBRA projects that 2022 will still be a record year for post-global financial crisis PLS issuance, with expected securitization volume of prime, nonprime (including non-QM) and credit-risk transfer offerings totaling $131 billion. Much of that volume, however, is front-loaded.

"KBRA expects Q2 2022 to close at approximately $38 billion, and Q3 to decrease further to $29 billion across the prime, non-prime, and credit-risk transfer segments because of rising interest rates and an unfavorable spread environment for issuers," KBRA states in a recent forecast report. "… To date, issuance spreads [have] widened rapidly for all sectors as supply and demand volatility hit nearly all-time highs."

Still, even in this volatile market, mortgage demand exists, even if at a diminished level. And, as the numbers from KBRA indicate, about half of that demand — for loans securitized in the PLS market so far this year — is now being addressed by non-QM lenders.

It's important to note that rates in the non-QM space are typically set about 1.5 percentage points above agency loan rates, according to Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, part of non-QM-driven Angel Oak Cos.

"So, you’ve got agency loans where the performance is guaranteed by the government, but with our loans [non-QM], there is no guarantee, so private capital is looking for a spread in order to finance these loans and securitize them," Hutchens explained in an interview. "If you look at where agency rates have gone, it’s very safe assumption to say non-QM rates are 150 basis points higher than that."

As rates rise nearly week-over-week now, however, the securitization of lower-rate loans made earlier in the cycle becomes harder to execute at desired margins for most issuers because the goalposts have essentially been moved. 

"Nobody really knows where this [rate volatility] is going to stop because there’s so many factors that that make up rates," Hutchens said. "So, it’s hard to predict levels of origination, but I still think we’re at a really good space [in non-QM lending]. 

"The interest in securitization and investing in this space is still very strong. The hiccup that we’ve seen isn't a credit issue. No one’s concerned about the quality of non-QM loans — it's just that the rate environment has been so crazy."

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FHFA watchdog has a plan for the next 4 years

Posted: 13 Jun 2022 01:13 PM PDT

The watchdog tasked with oversight of the Federal Housing Finance Agency (FHFA) laid out its strategic priorities for the next four years.

Federal Housing Finance Agency Office of Inspector General will carry out oversight to make sure FHFA ensures the safety and soundness of the entities it regulates and is an effective conservator of Fannie Mae and Freddie Mac. It will also deter and detect fraud, waste and abuse, and increase the "integrity awareness" of FHFA employees, which it said it will accomplish, in part, by disseminating a brochure to them.

The inspector general also wants to improve the feedback loop between FHFA leadership, Congress and other stakeholders, and recruit a "diverse, highly skilled, high performing, inclusive workforce."

In the three months since the Senate confirmed Brian Tomney as inspector general, the office he leads has announced a number of investigations, including into FHFA's public accountability and how its regulated entities follow up on tenant protections.

Three days after Tomney assumed his role, the watchdog found FHFA fell short of its goal of "public transparency" because its 2020 report to Congress was much lighter on details of the Enterprises' progress toward scorecard goals than the previous year. Although that is a shortcoming pertaining to the previous administration, current FHFA leadership has not established an alternative reporting procedure. In March, the inspector general said FHFA had promised to develop reporting plans but had not yet made a determination on whether to resume publishing scorecard progress reports.

Also in March, the inspector general assessed how Freddie Mac monitors compliance with tenant protections that the CARES Act and Freddie Mac’s own programs require. It found the GSE does not monitor for those protections, and Freddie Mac and FHFA both said Freddie Mac does not have the authority or ability to directly enforce those protections.

Biden administration recommends proactive cybersecurity measures

The Cybersecurity and Infrastructure Security Agency (CISA) and the Biden Administration have issued a "Shields Up" warning to U.S. businesses regarding the increased threat of cyberattacks related to Russia's invasion of Ukraine earlier this year.

Presented by: FundingShield

In November, in its 2022 annual plan , the inspector general said it would audit FHFA's initiatives in response to Biden's 2021 racial equity edict, and whether the initiatives were achieving their purpose. The previous inspector general, Phyllis Fong, who was acting inspector general from the end of July 2021 to March, proposed that investigation.

Tomney, who led internal investigations at Capital One prior to taking the FHFA watchdog job, pledged at the time to not be a "paper tiger." The previous Senate-confirmed FHFA inspector general, Laura Wertheimer, resigned after she was investigated for abusing her authority.

While an inspector general can issue recommendations and public reports and investigate whistleblower complaints, it does not have the power to compel the agency it oversees to take actions.

The inspector general made that point in a foreword to the nearly 50 recommendations it issued, going back as far as 2013, which, as of June 1, it closed without FHFA taking any action.

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Opinion: Are lenders dropping the ball on homebuyer assistance?

Posted: 13 Jun 2022 12:44 PM PDT

Buying a home is stressful in any market. Now, with inventory levels at historic lows and median home prices at historic highs, the purchase climate has become a Thunderdome. Nearly one in four recent homebuyers scheduled extra therapy sessions to cope with the stress, according to a recent Realtor.com survey. Homebuyers are also seeking information about another possible source of relief: homebuyer assistance programs.

From Multiple Listing Services (MLS) to consumer-facing giants like Zillow, Realtor.com and Redfin, the real estate industry is raising awareness about homebuyer assistance programs through agent education and self-service tools that help consumers find programs they qualify for.

While real estate professionals are perfectly positioned to introduce homebuyer assistance as a concept, home financing is not their schtick. So, they have taken what I like to call the "ask you doctor" approach, where they advise homebuyers to ask their "doctors" (a.k.a. their lenders) if homebuyer assistance is right for them. With hundreds of thousands of people engaging with online homebuyer assistance tools per day, it is time for lenders to get up to speed on these programs to help clients determine if homebuyer assistance is right for them.

Is winning offers with homebuyer assistance even feasible today?

An unfortunate, though common, misconception among lenders is that purchasing a home with homebuyer assistance is not feasible in the current competitive market. In fact, well over half a million people purchased homes with the help of these programs in the last year.

What's more, there is an abundance of homebuyer assistance programs available to meet borrower demand. In Q1 2022, there were 2,238 active homebuyer assistance programs nationwide — a figure that includes down payment and closing cost programs, Mortgage Credit Certificates and affordable first mortgages — with at least one program available in each of 3,143 U.S. counties and 10 or more programs available in more than 2,000 U.S. counties.

There is consumer demand for homebuyer assistance. There are programs to support the demand. And, importantly, financing borrowers with homebuyer assistance is good for business.

The business case for offering homebuyer assistance

An analysis of declined loans by Down Payment Resource found that nearly a third of all turndowns could have been converted to closed loans had homebuyer assistance been used. By simply putting homebuyer assistance on the table, lenders could potentially close 30%+ more units. And better still, this low-hanging fruit can be gathered by capturing leads that lenders have already gone through great pains to get through the door.

Beyond furnishing a significant revenue opportunity, homebuyer assistance also ingratiates lenders with real estate professionals. This signals a huge opportunity for lenders in a purchase market where relationships with real estate professionals, especially buyer's agents, are king.

One of the most frequently asked questions I get from real estate professionals is, "Can you tell me which lenders offer homebuyer assistance programs?"

Inventory constraints and rising prices are making it more difficult than ever for buyer's agents to help homeshoppers move into homes they love. As a result, agents are eager to connect with lenders who not only offer homebuyer assistance, but whom they can count on to explain these programs and facilitate a smooth financing experience.

In today’s marketplace, every lender needs a superpower, and this one is in demand. What's more, financing with homebuyer assistance is a relatively uncontested market space, since so many loan originators are inhibited by their fear of the unfamiliar.

Aside from being the right thing to do, helping borrowers become homeowners with homebuyer assistance puts lenders at the nexus of a transformative financial milestone that creates loyal customers for life.

To understand why borrowers who are eligible for homebuyer assistance may be so appreciative of a lender that provides a winning financing game plan, consider their circumstances. Having recovered from the economic setbacks of the Great Recession, a large cohort of Millennial homebuyers are entering the market with solid income and a demonstrated ability to pay — only to have their dreams dashed. As housing prices surge in communities of color, many are trying to get a toehold in the door before getting priced out.

First-time and traditionally underserved homebuyers are distraught right now not because they are missing out on some abstract American dream of homeownership, but because they are losing out on their best opportunity to sustainably grow wealth.

Homeownership is the primary vehicle for wealth-building in the United States, where the average homeowner has a net worth 40 times greater than the average renter. Many homebuyers today are watching in agony as a narrow window of opportunity for financial security closes just outside their reach, maybe forever.

What to do

As housing finance professionals, we have a significant impact on fund-strapped borrowers' ability to attain homeownership, and we must strive to be informed about the affordability programs available to borrowers in our markets. Though homebuyer assistance programs are no panacea for the affordability challenges facing consumers, they are an important tool for giving qualified borrowers a boost into homes.

When homebuyers lose handfuls of bids to cash offers, it's easy for them to get discouraged. It's critical that lenders encourage them to remain persistent, because home prices and rent are only going to continue to rise.

In uber-competitive markets, winning offers for borrowers who don't have stores of cash on hand to cover appraisal gaps may require difficult conversations where expectations on neighborhood and purchase timeline need to be reset. When mortgage professionals have these talks, it's important that borrowers understand the cost of waiting. Appreciation will likely outpace borrowers' ability to save, and interest rates and inventory challenges are very unlikely to improve in the immediate years to come.

Instead of spending years saving up to increase cash on hand, lenders should help homebuyers finance with a down payment assistance program, of which there are thousands. It's a common misconception that homebuyer assistance programs are only for low-income borrowers, first-time homeowners and properties with sales price limits. In truth, there are a plethora of programs designed for people of color, veterans, community heroes such as firefighters and nurses, and more.

Borrowers in need of homebuyer assistance are no longer a niche market segment. With home prices soaring at an unprecedented pace, borrowers who would benefit from homebuyer assistance now represent a significant market segment unto themselves. Especially as refi volume evaporates and purchase volume shrinks, it is crucial that lenders offer relevant lending programs in order to capture every fundable loan.

Rob Chrane, Founder and CEO, Down Payment Resource.

This column does not necessarily reflect the opinion of HousingWire's editorial department and its owners.

To contact the author of this story:
Rob Chrane at rchrane@downpaymentresource.com

To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com

The post Opinion: Are lenders dropping the ball on homebuyer assistance? appeared first on HousingWire.
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