Mortgage – HousingWire

FHFA: No delay on 50 bps fee, but open to “engagement”
As fundraising environment freezes, power buyer UpEquity cuts staff
Homebuyer affordability worsens in May amid inflation, higher mortgage rates

FHFA: No delay on 50 bps fee, but open to “engagement”

Posted: 23 Jun 2022 02:08 PM PDT

The Federal Housing Finance Agency (FHFA) today reiterated its stance on a new fee on some government-backed enterprise securities.

The agency made no promise to delay the fee. Still, some stakeholders unhappy with the fee see an opportunity.

In a statement, FHFA Director Sandra Thompson said her agency was "committed to the continued strength and resilience" of the process for issuing single securities, "given the significant improvement in liquidity and stability" it has given the market. The new fee for securitizing collateral of the other enterprise, the agency said, is meant to help meet the capital requirements in the FHFA's 2020 capital rule.

Thompson also said FHFA would continue to monitor the markets for uniform mortgage-backed securities and agency-backed securities to make sure they "function as intended." The FHFA said it would also “continue regular engagement with stakeholders.”

For some stakeholders opposed to the fee, the outreach showed the FHFA is willing to listen, rather than ignore criticism at all costs.

“It is a positive first step, although there is a lot of work needed to clearly map how the activity will be destructive to UMBS," said Michael Bright, CEO of the Structured Finance Association. "I hope it means we have an opportunity to explain how this fee destroys the fungibility of assets in a futures contract.”

Since the announcement, numerous stakeholders have been vociferous about their unhappiness with the fee, which becomes effective July 1.

The Securities Industry and Financial Markets Association, a trade association that represents broker-dealers, investment banks and asset managers, condemned the new fee in a letter it sent the FHFA on Wednesday.

Members of the trade group said that both GSEs are already charging the fee on commingled securities, a spokesperson said.

Freddie Mac and Fannie Mae did not immediately respond to requests to comment.

The fee "will effectively eliminate the ability of market participants to create [the commingled securities], as it will be non-economic in nearly any conceivable scenario," wrote Christopher Killian, SIFMA managing director of securitization and credit. "This means UMBS are no longer completely fungible, and breaks a core underpinning of the market's acceptance of UMBS."

The Urban Institute today issued a report decrying the fee, authored by its researchers Laurie Goodman, co-founder of the Housing Finance Policy Institute, Jim Parrott, a former Obama administration senior advisor, and Bob Ryan, a former senior advisor at the FHFA.

The researchers wrote that under the prior system, since investors preferred Fannie Mae securities, Freddie Mac had to compensate lenders for the value difference to the tune of about $400 million each year. That reduced the profits sent to taxpayers and, they wrote, and made it more difficult to enact GSE reform, because it gave Fannie Mae a market advantage.

The UMBS “saved taxpayers hundreds of millions of dollars a year and helped pave the way for long-term reform,” the researchers wrote. But they argued the new fee would undo those gains.

"By eliminating the fungibility of the GSEs' commingled securities, investors may begin to pay more for Fannie Mae's security, again forcing Freddie Mac to pay lenders a premium to make up for the weaker investor demand for their security."

Bright, of the SFA, said that the new fee may already have damaged the trust of investors. That could have long-term ramifications for the securities that underpin the functioning of the mortgage market, he said.

“You don't want to be in a position where investors feel lied to," said Bright. "Because once they've been burnt, they have to price for the possibility of being burnt again.”

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As fundraising environment freezes, power buyer UpEquity cuts staff

Posted: 23 Jun 2022 11:23 AM PDT

Austin-based mortgage tech platform UpEquity laid off around 10% of its workforce last week, proof that the rising interest rate landscape hurts real estate technology companies, too.

Co-founded in 2019 by Tim Herman and Louis Wilson, the lender and “power buyer” allows homebuyers to make all-cash offers to compete with institutional investors. The company then receives monthly payments with interest from the homebuyers, who can avoid going through a bank to get a mortgage.

UpEquity earns a commission from brokering or selling the mortgage buyers take out to buy their homes. In states where purchase contracts can’t be assigned, UpEquity buys the home upfront and writes the mortgage after closing the deal.

Over the last two years –when mortgage rates were minuscule and refi opportunities were abundant – UpEquity was able to raise over $70 million from investors. The company had forecast $1 billion in originations for 2022.

The sharp spike in mortgage rates – up about 3 points since January – changed those projections.

“Our purchase volume is strong, but our refinance volume has evaporated. We’re not growing at the pace with which we hired for or projected,” Herman said.

The company is now projecting to originate $500 million worth of loans this year, all purchases.

UpEquity is also affected by the uncertainty of the fundraising environment for the next 18-24 months, according to the executive. “The fundraising environment has frozen,” he said. “It’s really important to us that our fate isn’t in the hands of the fundraising market.”

In October, the company raised $50 million in a Series B funding round led by the venture capital firm S3 Ventures. Other investors included Next Coast Ventures, BP Capital Management, Alumni Ventures, Gaingels, Launchpad Capital, and Early Light Ventures.

“The way that we think about it is that we have more than two years of runway remaining, given our current burn rate and the cash on the balance sheet,” Herman told HousingWire.

To manage its cash position, the company laid off nine employees last week, from a total of 93, in its operations department, including processing, closing and training.

The company paid one month of severance and 1.5 months of health benefits, a former employee who requested anonymity told HousingWire.

Herman said the cash UpEquity raised in the Series B round has been invested in the company’s technology. UpEquity claims it takes 17 days, on average, to close a deal, while the average in the industry is closer to 50 days.

Also, the company says it helps homebuyers make an all-cash offer that’s four times more likely to be accepted than traditional mortgages.

The post As fundraising environment freezes, power buyer UpEquity cuts staff appeared first on HousingWire.

Homebuyer affordability worsens in May amid inflation, higher mortgage rates

Posted: 23 Jun 2022 10:28 AM PDT

Homebuyer affordability decreased slightly in May, as new mortgages took up a larger share of a the average person’s income while rates trended higher. High inflation and rising mortgage rates won’t lessen the burden on new home buyers in the coming months.

The national median payment applied for by applicants rose to $1,897 last month from April’s $1,889, according to the Mortgage Bankers Association (MBA). The national median mortgage payment for conventional loans was $1,960, down slightly from April’s $1,967, but significantly higher than a year ago, when it was $1,394 in May 2021. Federal Housing Administration (FHA) loan payments rose to $1,430 in May from the previous month’s $1,374.

"The ongoing affordability hit of higher home prices and fast-rising mortgage rates led to a slowdown in purchase applications in May,” said Edward Seiler, MBA's associate vice president for housing economics and executive director at the Research Institute for Housing America, according to a statement.

“While the median principal and interest payment only increased $8 from April, a typical borrower is paying $514 more through the first five months of 2022 – a jump of 37.1%,” he said.

The average purchase mortgage rate rose to 5.27% in early May, according to Freddie Mac PMMS, a 13-year high until it surpassed the 6% level in June.

Citing inflationary pressures and mortgage rates above 5%, Seiler said the MBA expects sales of new and existing homes to fall below 2021 levels. The agency expects some 5.76 million existing homes to sell in 2022, well below the previous year’s sale of 6.13 million existing homes. New home sales are forecast to remain slightly more stable, with the sale of 769,000 new houses projected, down from 771,000 new houses sold last year.

The purchase applications payment index (PAPI), which measures how new monthly mortgage payments vary relative to income, rose 0.4% to 163.4 in May from 162.8 in April. An increase in MBA's PAPI, indicative of worsening borrower affordability conditions, means the mortgage payment to income ratio is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings.

Black and white households’ homebuyer affordability dropped at the steepest rate at 0.7 points. The index for Black households rose to 166.6 and climbed to 164.3 for white households in May from April.

Borrowers in Idaho are facing the greatest affordability challenges with a PAPI index coming in at 253, followed by Nevada (249.7), Arizona (233.5) and Utah (210.9).

Meanwhile, borrower affordability conditions were best in Washington D.C. (99.7), with Alaska (102.6), Connecticut (111.2) and West Virginia (113) trailing behind.

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Thursday, June 23, 2022