Mortgage – HousingWire

Home equity skyrocketed during the first quarter of 2022
Fannie Mae to sell $1.6B reperforming loan pool
Non-QM lender Excelerate Capital flexing its wings in a new normal market
Mortgage credit availability falls 0.9% led by shrinking refis
Purchase mortgage rates jump to 5.23% Freddie Mac PMMS shows

Home equity skyrocketed during the first quarter of 2022

Posted: 09 Jun 2022 11:43 AM PDT

A recently published CoreLogic report found homeowners with mortgages in the first quarter of 2022 saw their equity grow by 32.2% year-over-year.

According to the data vendor, the collective equity gain was $3.8 trillion in the first quarter, or an average gain of $63,600 per borrower. CoreLogic said homeowners with mortgages account for roughly 60% of properties in the nation.

Patrick Dodd, CEO of CoreLogic, said home equity grew in tandem with home prices, which were up by 20% in March, compared to a year earlier.

"This has led to the largest one-year gain in average home equity wealth for owners and is expected to spur a record amount of home-improvement spending this year," Dodd said in a statement.

But $63,000 was just the average gain. Per the quarterly report, published this week, homeowners in California, Hawaii and Washington saw their equity increase by more than $100,000 in the first quarter of 2022 compared to the prior year.

The upward trajectory of home prices meant some 62,000 homeowners regained home equity compared with the previous quarter, according to CoreLogic. In another report published last month, CoreLogic said the explosive pace of home price appreciation will reverse course and will cool to single digits by March of next year.

CoreLogic also found only 2% of homeowners with a mortgage "remained underwater” in the first quarter of 2022. The data vendor labels underwater mortgages as those with negative equity, in which a borrower owes more on their mortgage than their home is currently worth.

From the fourth quarter of 2021 to the first quarter of 2022, the total number of homes with negative equity dropped by 5.3% to 1.1 million homes, according to the report.

Year-over-year, the number of underwater mortgages dropped by 23%, or close to 300,000 properties. In the first quarter of 2021, 1.4 million homes — or 2.6% of all mortgage properties — were in negative equity, CoreLogic found.

The data vendor predicts borrowers with minimum equity gains around 5% are "most likely to move out of or into negative equity as prices change."

If home prices increase by 5%, close to 130,000 homes would regain equity. However, if home prices plummet by 5%, 167,000 properties will would move into “underwater” territory,” according to the CoreLogic report.

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Fannie Mae to sell $1.6B reperforming loan pool

Posted: 09 Jun 2022 08:56 AM PDT

Fannie Mae has unveiled its third reperforming loan sale of the year, an offering of nearly 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.

Fannie Mae will attempt to sell reperforming loans to investors, nonprofits and public-sector organizations, according to a program description on the agency's website.

"Fannie Mae’s sales of non-performing loans … are intended to reduce the number of seriously-delinquent loans that Fannie Mae owns, to help stabilize neighborhoods and to help meet the portfolio reduction targets required under [Fannie Mae's] senior preferred stock purchase agreement with the United States Treasury," the program description states.

The Federal Housing Finance Agency oversees Fannie Mae and its sister government-sponsored enterprise (GSE) Freddie Mac, which have been in conservatorship since 2008 in the wake of the global financial crisis of that era. The two GSEs, or agencies, buy loans from lenders, pool them and issue mortgage-backed securities that are sold to investors and guaranteed for a fee by Fannie and Freddie.

Bids for the FNA 2022-RPL3 reperforming loan offering are due by July 7. Buyers are required to offer loss mitigation options to borrowers who re-default within five years of the closing of the sale of the reperforming-loan portfolio. "All purchasers 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's announcement of the deal states.

Freddie Mac updates risk mitigation requirements for the industry due to elevated cybersecurity threats

According to a Q4 analysis by MISMO-certified wire and prevention fintech FundingShield, 42% of loans reviewed by the fintech firm had at least one risk finding, and of those loans, an average of 2.1 risk findings existed per transaction.

Presented by: FundingShield

The two early reperforming loans sales this year included an offering in February of 8,050 loans valued at $1.3 billion (FMNA 2022-RPL1) and a second deal (FMNA 2022-RPL2) in April of 7,600 reperforming loans valued at $1.49 billion.

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Non-QM lender Excelerate Capital flexing its wings in a new normal market

Posted: 09 Jun 2022 08:21 AM PDT

Interest rates jumped by more than 2 percentage points over the first quarter of 2021. That bolt-like spike in rates put many mortgage lenders into crisis mode.

Lenders saw the value of agency loans made at lower rates — in the 3% range — in 2021 and early January 2022 drop precipitously over the course of the first quarter. That negatively affected liquidity options in both the loan-trading and securitization markets as higher-rate loans [above 5%] subsequently hit the market. The same rate-spike dynamics hit non-QM lenders as well, with rates for those loans rising a couple points over the period as well, to the 6% to 7% range.

"Loans that before would move at 102 or 103 [above par] all of a sudden were on sale at 99 in January, and that was a really hot trade," said John Toohig, managing director of whole loan trading at Raymond James in Memphis. "And then in February 99 [the trading price] became 96, and that was still a hot trade.

"Then came March, and rates kind of kept going, and that caught everyone kind of flatfooted. We started to see a pretty precipitous drop [in loan prices for lower-rate notes] down to 90 or 91 [below par].

"… It’s exceedingly unusual to see that deep of a discount on fully performing, relatively young loans," Toohig added.

Thomas Yoon, president and CEO of non-QM lender Excelerate Capital, added that the housing industry in late 2021 and early 2022 was at the tail end of a historic refinancing boom.

"And when the margins compressed and did so quickly [because of the spike in interest rates], everyone had to react immediately," he said. "That caused industry layoffs and rightsizing, downsizing, whatever you want to call it.

"That always happens after a refi boom. But the kind of the unique piece of it this time was that interest rates have never risen as quickly as they went up in such a short period of time."

The good news, according to both Toohig and Yoon, is that in the second quarter of 2022, so far, the extreme rate volatility has abated. Both agree the industry is not completely out of the woods, given interest rates are still much higher than in 2021 and may inch up further in the months ahead as the Federal Reserve continues to fight inflation by raising its benchmark interest rate and shrinking its portfolio of mortgage-backed securities.

Still, a good portion of the lower-rate mortgage paper has worked its way through the system and is being replaced by higher-rate mortgage loans. "The hope is we can put a whole bunch of 5.5% or 5.25% current rate coupons [into the system] so we can get back to [a new normal]," Toohig said.

"There is still a lot of that paper out there. We saw $2 billion of it [trade] last week alone [in late May]," he added. "So, we haven’t completely cleared the deck, but we made a pretty good bite into that In Q1."

Yoon said he does not anticipate that rates will move upward rapidly going forward like they did over the first quarter of the year because the Fed's aggressive interest-rate policy and other economic headwinds are "already backed into the market now."

"And everyone is more keen to the idea that market volatility and higher rates are here to stay for the remainder of this year, so everyone’s everyone is likely prepped better to handle the circumstances in the event that the rates move rapidly," he added. "We’re a non-QM platform that happens to have all of our agency tickets, but you know, 85% to 90% of our production is non-QM. We’re in an environment where we’re looking to expand and grow, even in the midst of the cycle that we’re in now.

"Non-QM is a counter cyclical product. So, when rates are rising, and the market is compressing, non-QM becomes a more vogue product," Yoon added.

Non-QM lenders are dealing primarily with purchase loans that require far more intensive underwriting than agency loans and, once funded, must be moved off the balance sheet quickly in many cases to maintain liquidity. That is typically accomplished through whole loan sales or private label securitizations along with hedging — such as the use of third-party forward contracts that allow for bulk loan sales at a future date at a predetermined rate.

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

Yoon said the Q1 rate crisis did force Excelerate to furlough some of its staff, "less than 5%," but he added that most of those furloughed have since returned to work. The company currently employs about 450, he added.

"We did a small rightsizing, probably less than 5% [of our staff], and most of them were furloughed," Yoon said. "We have since brought back the bulk of those employees, and we’re currently in expansion mode.

"We've added several senior leadership managers to our company, and we’re looking to continue the [growth] strategy [being pursued] before the market went nuts on us the first quarter."

Part of that growth includes Excelerate's plan to complete its inaugural private-label securities transaction by year's end.

"We were expecting to do our first securitization, but instead of doing it in the third quarter, it will likely be in the fourth quarter," Yoon said. "Also, instead of doing two [this year], we will likely only do one, simply because the first-quarter volatility really forced us to push back some of our game plan.

"But in terms of us doing our own securitizations, that hasn’t changed. We’re actively engaged in doing so. Outside of tweaking timelines, our overall vision and outlook hasn’t changed for this year."

Yoon said Excelerate also is investing in technology to ensure the lender is on the front end of the innovation-adoption bell curve. Among the plans is an effort to develop an automated underwriting app for non-QM loans, he said. The initial version of the program is expected to launch later this year, Yoon added, and it will function more like a loan-pricing and qualification app — showing users who supply basic application information what loan programs they qualify for and at what rates.

"But every phase launch [or new iteration of the app] that we do thereafter will integrate more and more of our AI [artificial intelligence] tech behind it," Yoon said. "Ultimately it will become a front-end underwriting platform for our proprietary non-QM loans.

"As the non-QM business starts to commoditize more, and get more progressive and advanced, my hope is that our company will be at the forefront of that."

Yoon added that the new app also will "be built on the backside as blockchain-capable." He said blockchain technology makes it possible to create smart contracts that can't be forged and "technically don't require a title or escrow to validate, which means blockchain can serve as a platform where "you have seller and buyer go into contract through … a smart contract that is stored in the blockchain, and that would potentially be a game changer that could be done with a real estate purchase contract or … notes [securities]."

Blockchain technology links transaction records instantly in an encrypted data chain reproduced across a network of distributed computers, creating a transparent yet indelible and authenticated cyber record, or ledger, that can be accessed securely by authorized parties. Yoon said full industry adoption of the technology is still years away, but it has the potential to transform the mortgage-lending world.

Even though Excelerate's Yoon sees a brighter future ahead for the mortgage market, particularly for non-QM lenders, that doesn't mean the new normal is the same as the old normal. A recent forecast report for the private-label securitization market reflects that reality.

"We continue to expect 2022 will close as a record [post-global financial crisis] issuance year, with almost $131 billon in aggregate [prime, non-prime and credit-risk transfer] issuance," Kroll Bond Rating Agency states in a market-forecast report released last month. "… 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.

"… Similar themes could continue through 2023, causing prime issuance to be negatively impacted further. The non-prime [including non-QM] sector's expected issuance is projected to increase moderately in 2023 as [rate] spreads normalize after rising precipitously [in early 2022]."

In April, as the rate crisis was cresting, Yoon told HousingWire that he was confident non-QM origination volume at Excelerate would still exceed the lender's 2021 mark of $2.6 billion and would likely "be north of $4 billion." As of early June, Yoon said he was still certain production this year will eclipse the 2021 mark, but he has tempered his optimism a bit on the upside, indicating that Excelerate's non-QM production in 2022 "will exceed $2.6 billion but likely [will be] under $4 billion."

That's still growth, however.

"There's no question [lower-rate loans are still] being sold at discounts. That’s firmly true," Toohig added. "But I think we've largely worked through that problem."

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Mortgage credit availability falls 0.9% led by shrinking refis

Posted: 09 Jun 2022 08:17 AM PDT

Mortgage credit availability dipped for three consecutive months, largely due to shrinking refinance loans, according to the monthly Mortgage Credit Availability Index, (MCAI) which fell by 0.9% to 120 in May, the lowest level since July 2021, according to the Mortgage Bankers Association.

A decline of the index, benchmarked to 100 in March 2012, indicates lending standards are tightening while an increase suggests loosening credit.

"The index remains more than 30 percent below pre-pandemic levels, as credit tightening has occurred in recent months around refinance loan programs," said Joel Kan, associate vice president of economic and industry forecasting at MBA.

Credit tightening was most notable in the government and jumbo segments, Kan added.

Both the Conventional MCAI, which does not include loans backed by the government, decreased 0.4% and the Government MCAI, which examines FHA, VA, and USDA loan programs, dropped 1.3%

Of the component indices of the Conventional MCAI, the Jumbo MCAI fell by 1.1% and the Conforming MCAI rose by 1%.

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"The decrease in government credit was driven mainly by a reduction in streamline refinance programs, as mortgage rates increased sharply through May, slowing refinance activity. Jumbo credit availability, which was starting to see a more meaningful recovery from 2020s pullback, declined after three months of expansion," Kan said.

The drop in mortgage credit availability follows a free fall of refinance applications driven by rising mortgage rates — 5.23% as of June 9 — measured by Freddie Mac. While purchase mortgage rates fell for three consecutive weeks after hitting 5.3% in the second week of May, they recently rebounded, according to the Freddie Mac PMMS, and remained high enough to still suppress refinance activity.

MBAs index for refinance applications dropped 6% for the week ending June 3 from the previous week. Compared to the same week a year ago, the index was 75% lower.

Weakness in both refinance and purchase applications drove down mortgage application volume last week. MBAs Market Composite Index dropped 6.5%, marking the lowest level in 22 years.

The persistently low housing inventory and the jump in mortgage rates during the past two months are putting pressure on the purchase market, Kan said, regarding the drop in mortgage application volume this week.

"These worsening affordability challenges have been particularly hard on prospective first-time buyers,” he said.

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Purchase mortgage rates jump to 5.23% Freddie Mac PMMS shows

Posted: 09 Jun 2022 06:51 AM PDT

After falling for three consecutive weeks, purchase mortgage rates jumped 14 basis points, reflecting the expectation that the Federal Reserve (The Fed) will maintain its tightening monetary policy to fight inflationary pressures.

According to the latest Freddie Mac PMMS, purchase mortgage rates this week averaged 5.23%, compared to 5.09% the week prior. A year ago at this time, 30-year fixed rate purchase rates were at 2.96%.

The government-sponsored enterprise index accounts solely for purchase mortgages reported by lenders during the past three days.

"After little movement the last few weeks, mortgage rates rose again on the back of increased economic activity and incoming inflation data," said Sam Khater, Freddie Mac's chief economist.

Another index also showed higher rates this week.

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 5.5% Wednesday, up from 5.42% the previous week.

Creating a path to success in today's purchase market

Meeting the needs of a new generation of homebuyers while managing the ebbs and flows of a volatile housing market is a major endeavor for any mortgage lender. So, what should lenders be doing to thrive in the face of a post-pandemic housing market rife with new hurdles?

Presented by: Calyx

The 30-year fixed-rate jumbo was at 5.05% Wednesday, also up from 4.97% the week prior, according to the Black Knight index.

Higher rates are reducing borrowers' demand for mortgage loans. This week, mortgage application volume dropped 6.5% from the past week to the lowest level in 22 years: Refi applications declined 6% and purchase apps decreased 7%, according to the MBA.

The housing market is incredibly rate-sensitive, consequently, demand again is pulling back, according to Khater.

"The material decline in purchase activity, combined with the rising supply of homes for sale, will cause a deceleration in price growth to more normal levels, providing some relief for buyers still interested in purchasing a home," he said.

Overall, mortgage rates are following the Fed’s inflation-fighting monetary policy. Minutes from the Fed's meeting earlier this month 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 on May 4 and unveiled a plan to reduce its $9 trillion asset portfolio. The Fed also has repeatedly signaled it will continue to raise rates in 2022 and into 2023.

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.38% with an average of 0.8 point, up from last week's 4.32%. The 15-year fixed-rate mortgage averaged 2.23% a year ago.

The 5-year ARM averaged 4.12%, with buyers on average paying for 0.3 point, up from 4.04% the week prior. The product averaged 2.55% a year ago.

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

Fitch Ratings, however, in a May 31 report said the pace of falling mortgage originations has surpassed its expectations and it is likely to fall short of the industry forecasts by MBA and Fannie Mae.

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Thursday, June 9, 2022