Wednesday, July 13, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Manufactured housing’s trek toward acceptance

Posted: 13 Jul 2022 12:55 PM PDT

In policymakers' hunt for a scalable, quick solution to the affordability crisis, one model has attracted more attention of late: manufactured housing.

Manufactured housing received a prominent shoutout in the Biden administration's affordable housing plan, which touted the potential role Freddie Mac could play in that market.

Now the government-sponsored enterprises are each weighing whether to finance the most deeply affordable segment of the manufactured housing market. Freddie Mac has a plan — pending its regulator's approval — to roll out a test program to provide liquidity for loans on manufactured homes titled as personal property. Fannie Mae also is considering whether to provide liquidity to the segment.

But the manufactured market faces hurdles it must clear before it can be viably viewed as a sustainable source of affordable housing. Homes titled separately from the land on which they sit are depreciating assets, meaning it’s riskier to finance them. Loans on manufactured homes often have shorter terms and higher rates than single-family homes. And those borrowers rarely refinance their loans — allowing the refinance boom, which gave site-built homeowners to chance to grow equity, to largely pass by manufactured homeowners.

Proponents of manufactured housing say the industry has made great strides in the past several decades. They argue the federal government, by providing GSE financing, can help smooth over some of the remaining rough patches, and encourage a more equitable market.

In a recent report, researchers at the Urban Institute argued for the viability of manufactured homes as an affordable housing solution. In it, Karan Kaul and Daniel Pang estimated during the next decade, improvements to credit availability for manufactured homes could result in 700,000 more homes.

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HousingWire discussed changes to the asset class with Kaul and Pang, as well as what obstacles remain before manufactured housing can become an avenue for sustainable affordable housing.

This interview has been edited for length and clarity.

Georgia Kromrei: You write, "Chattel loans are secured by only the structure, which depreciates in value over time and exposes lenders to increased risk." What's the solution for depreciation? Is there a solution?

Karan Kaul: You're not going to be able to change the fact that a personal property loan is secured by a depreciating asset. That's inherent to chattel financing.

But I try to draw a parallel to auto financing. A car is a depreciating asset, but you can get a car for a lot less expensive financing than a chattel loan. The question you have to ask is, 'What's the difference between a chattel loan on personal property and an auto loan made on a car for a depreciating asset?'

The other issue with chattel financing is it's largely a non-agency market — Fannie and Freddie do not offer chattel financing.

Chattel financing is largely fully private, the interest rates tend to be higher, it's a niche product. It's a small market, so if you were to talk to the largest mortgage lenders in the country and say, 'Hey, why don't you get into this market?' They'd say the volume is just not there.

All of those factors combined translate to higher rates for borrowers to get loans.

Final thought — last year, when rates were at record lows, something like 60-65% of homeowners with site built mortgages refinanced their mortgage.

For people who lived in manufactured homes, that figure was 40% or so. For homeowners who had chattel financing, it was less than 10%. It was a once-in-a-generation opportunity to refinance your mortgage, and homeowners with chattel financing were not able to take that opportunity. That tells you something is broken in government.

GK: Manufactured housing was initially developed for migrant farm workers, and later used in disaster recovery. How has manufactured housing changed since then? In your view, when did manufactured housing cross the threshold to become a viable source of affordable housing?

KK: A few things have changed, [including] the quality of manufactured homes that are being shipped out in the past decade, compared to those shipped two decades ago.

The American Housing Survey, every two years, surveys issues facing site-built and manufactured homes — like rat infestations, plumbing issues.

You can see that for homes built in the 70s and 80s, there's a big quality differential. A high percentage of those manufactured homes experience those problems. As you observe numbers and trends over time, we find the incidents of the issues in manufactured housing have come down substantially over the years. They are still slightly more likely [than site-built homes] to have these issues, but the quality gap between them is much narrower.

That tells you something profound — that previous generations did not look at manufactured housing as a viable alternative, partly because of quality and partly because of stigma. But the data clearly show the quality has improved substantially to where it's very comparable to site-built homes. And beyond just quality, [new manufactured homes] are virtually non-distinguishable from site-built homes.

The second thing that has changed is the economics of buying a manufactured home relative to a site-built home. They've always been cheaper, but the differential was much less than it is today. For a buyer 10 years ago, yes, a site-built home was more expensive [than a manufactured home], but you could still afford a site-built home. With the differential becoming so big, that really improves the relative affordability of manufactured homes.

(The median loan amount for a chattel-financed manufactured home is $59,000, compared with $237,000 for a loan on a site-built home, according to 2021 figures from the Consumer Financial Protection Bureau.)

GK: One attractive quality of securities backed by manufactured home loans is the low prepayment risk. But if the GSEs were to enter the market, borrowers would have more opportunities to refinance. So do they then become less attractive for investors?

KK: There's always a middle ground to be had. Investors want to invest in a security that has slower prepayment rates. 

But the difference is so big. (Kaul and Pang found the refinance share of originations in the site-built market in 2021 was 61%, compared with 43% for manufactured home mortgages and just 7.5% for chattel loans.)

I'm not saying you could do chattel financing at the same rate as site-built, but you could do something in between the two.

More importantly, you could offer a 30-year product. You have this issue of, yes, it's affordable, but then the financing costs are much higher, the repayment term is much smaller, compared to a loan on a site-built property. Both of those argue for a larger role of the federal government.

GK: The federal government's role in the single-family market has not just been about housing people, but creating a vehicle for intergenerational wealth. Can manufactured housing be a vehicle for building intergenerational wealth?

KK: This is data that's not in our report, but the median price of a manufactured home over time has increased. This is not something [that is] common knowledge. Manufactured homes have increased by 25%, 27% year-over-year. If you purchased a manufactured home for $100,000 a year ago, and have chattel financing, it's probably worth $125,000 today.

There certainly is the potential, compared to just renting. So, the point here is yes, there's certainly a wealth-building aspect to manufactured homes. Yes, it's always going to be less if you don't own the land, but it's still a lot better than renting. If you also own the land you have the same wealth building opportunity as site-built homes.

Daniel Pang: One thing we've found is that manufactured housing is an opportunity for Black and Hispanic renters to enter homeownership. The current landscape of those who reside in manufactured housing right now tends to be a white, rural population.

GK: The typical arrangement that comes to mind is someone putting a manufactured home on land owned by a family member. How dominant is that model? Are renters without those sort of connections disadvantaged as they look to enter the market?

DP: It is certainly not dominant, but it is meaningful enough. As we look at ways in which manufactured housing can play a bigger role in the context of supply crisis — it's good if you can put your manufactured home on land owned by a family member or friend, but you can't rely on that certainty.

You have to have opportunities available for people perhaps who are moving to a new city and looking for a home close to a job opportunity. We'd be better served if manufactured housing infrastructure moved in that direction, versus putting the manufactured home on land that is owned by a family member or friend.

Solutions need to be more standardized, there is a need for a national mortgage finance system for manufactured housing that does not depend on what kind of connection a borrower has.

The post Manufactured housing’s trek toward acceptance appeared first on HousingWire.

Michael Bright: Where RMBS can take sustainable investing

Posted: 13 Jul 2022 10:52 AM PDT

ESG investing — that is "environmental, social and governance" money management — goes by many monikers. Some call it "sustainable investing," others "impact investing." The United Nations, which coined the term two decades ago in the wake of the Enron and Exxon Valdez scandals, sometimes refers to it as "inclusive investing." All these phrases imply that capitalism can consider factors outside of quarterly earnings when making investment decisions.

Others are less sanguine about the movement. Unfettered free market advocates view it as misguided. Elon Musk has used his Twitter megaphone to call ESG "the devil incarnate." Recently, the Financial Times, while pointing out that the term "ESG" was mentioned in almost 20% of corporate earnings calls last year, simultaneously said ESG's ambiguity has set it up for a "reckoning."

Rhetoric aside, here are some facts

The Securities and Exchange Commission has begun the process of developing mandated disclosure regimes for funds that consider ESG factors in their marketing material. Millennial and Gen Z investors have been voting with their wallets, demanding that ESG-like items are incorporated into investment decisions. The market has seen a major increase in corporate board focus on the issue, as well as investment funds offering ESG products.

Consider how much the estimates of dollar-based ESG assets range — from tens of trillions to nearly a hundred trillion — depending on the source. This massive variation demonstrates the current market's inability to successfully quantify (or even define) what exactly we mean by those three magic letters.

Where is ESG investing going next?

What does ESG's growth and current ubiquity mean for residential MBS markets?

When thinking about ESG in RMBS, right now there are three considerations that can help the mortgage market properly capitalize on the momentum behind the ESG movement. If done responsibly, ESG and RMBS should coexist in a positive, self-reinforcing, meaningful way, and one that establishes the residential mortgage market as a best practices leader in the movement overall.

To get there, first, Residential Mortgage-Backed Security (RMBS) issuers, investors, and rating agencies should avoid trying to boil the ocean. The E, S and G components are all very different, and at times unwieldy. Sometimes these factors are in outright tension with one another. Is affordable housing construction that requires trees to be torn down a social good, or not? Care needs to be taken so that the market doesn't bite off more than it can chew.

The RMBS market should break ESG factors down and analyze them one at a time. Environmental (E) metrics are currently the most advanced. RMBS issuers and investors analyze not only environment hazard risks, like homes being in flood or wildfire zones, but also collateral features that have a positive environmental impact like solar panels. Data like the percentage of loans in a pool with LEED or Energy Star certifications, for example, are also good places to continue building a market.

The residential MBS market can also build from some of the infrastructure that already exists for the "S" – social – component of ESG. Ginnie MBS, for example, could be included in funds that focus on social impact, as they typically pool mortgages to borrowers with little credit history or needing down payment assistance. Same with "first-time homebuyer" flagged mortgages.

Where the market can get a bit more forward leaning would be with ideas such as a first-generation homebuyer flag, a measure of the proximity of affordable housing to public transportation, or whether new affordable housing will help a community meet its suggested/required affordable housing level.

Other ideas include more disclosure to investors around borrowers who received down payment assistance or are below a certain Area Median Income (AMI). These are all data elements that could be collected at origination and passed along to investors, and they fit nicely within the scope of how the market already operates today. The market should begin requesting these types of data flags from issuers and begin collecting and disseminating the needed data to ESG-focused investors.

Market participants must remember that, as fiduciaries, asset managers must tether all decisions to returns unless an investment mandate specifies otherwise. Certainly, ESG factors that analyze the sustainability of an asset do impact the fundamental value of securities. But for mortgages, the market can also be looking at ways to enhance pricing on MBS that offer both ESG components and improved, or at least more predictable, yield. Think, for example, of the reduced convexity of low balance loans.

Building out disclosure around low balance pools – reporting on whether they constitute underserved markets, low-to-moderate income (LMI) borrowers, neighborhoods that had historically been redlined, etc. – while also showing that the reduced refinance elasticity benefits investors and lowers rates to borrowers is a perfect place for RMBS to grab hold of already established practices and enhance them with ESG investing in mind. For a market already sophisticated in taking borrower factors into account for prepayment speeds and credit risk, looking at places where more details about homeowners can help both convexity risk and enhance underserved access to credit is an obvious win.

Next, RMBS market participants must understand that disclosures are going to be the key to success. The RMBS industry needs to work together to develop ESG disclosures that are as consistent and transparent as possible. One thing the recent raids at Deutsche Bank or fines against BNY demonstrate is that authorities are actively policing any accusations of "greenwashing," ensuring ESG claims don't get ahead of reality (see my previous comment on the market's failure to consistently measure ESG assets). Sound data disclosure standards are the solution.

ESG investing means a lot of things to a lot of people. Maybe it's the way eight billion people can share a planet and enjoy equitable and sustainable long-term growth. Maybe some of it is too amorphous to last. But considering how investments impact our world in the long-term is a very worthwhile goal, and one that many RMBS investors are seeking.

For the RMBS market to embrace the opportunity in front of it, building from what we already do well and staying laser-focused on transparency and data disclosure are the most important ingredients right now.

The post Michael Bright: Where RMBS can take sustainable investing appeared first on HousingWire.

PLS deals backed by jumbo loans plummeted in June

Posted: 13 Jul 2022 09:44 AM PDT

June was a rough month for jumbo-mortgage securitizations, with only two private-label offerings — together valued at roughly $821 million — brought to market.

The two jumbo-loan deals to make it out of the gate last month were issued by Rocket Mortgage and J.P. Morgan Chase via the Rocket Mortgage Trust and J.P. Morgan Mortgage Trust conduits. The Rocket prime jumbo deal was backed by mortgages valued at $337.9 million and the J.P. Morgan deal was collateralized by jumbo mortgages valued at $483.4 million.

Ahead of its June offering, Rocket already had sponsored three prime jumbo securitizations this year, backed by mortgages valued around $1.9 billion. The most recent of the three was in April, with the previous two in January and February, according to deals tracked by Kroll Bond Rating Agency (KBRA). Through June of this year, then, Rocket has sponsored a total of four private-label securitizations secured by prime jumbo loans valued at slightly north of $2.2 billion.

J.P. Morgan has been far more active this year, with nine prime-jumbo offerings through the end of June valued at $7.8 billion — two involving high loan-to-value prime jumbo-loan pools. But like Rocket, the lender has seen its private-label securitization activity fall off sharply in the past few months, with only one prime jumbo deal offered in May and one in June. 

Across both the Rocket and J.P. Morgan jumbo offerings, a noticeable trend is the wide spread between current mortgage rates and the weighted average coupon (or interest rate) for the loan pools backing the securitization deals. That average coupon has been creeping up as the year moves forward for securitization deals sponsored by both lenders, according to bond-rating reports for each, but it is being outpaced by fast-rising market rates — propelled by the Federal Reserve's monetary tightening policies in its battle against inflation.

A huge volume of loans was originated at much lower interest rates last year during the height of the refi boom, and many of those loans were still winding their way through the securitization pipeline in 2022, given most loans have several months of seasoning before being securitized. That has created a distortion in execution and pricing in the secondary mortgage market.

For Rocket, according to KBRA's bond-rating reports, the average coupon on its jumbo offerings has risen from 3.02% to 3.91% between its first jumbo transaction in January to its most recent deal in June. For J.P. Morgan, according to a bond-rating report from Fitch Ratings, the average weighted coupon for the jumbo loan pools in its offerings has increased from 3.3% in April — prior comparable data was unavailable in the report — to 3.8% in its most recent offering in June.

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In both cases, the most recent coupon figures fall well short of current market rates for 30-year fixed mortgages. That pattern has escalated since the start of the year, when interest rates started to shoot up dramatically.

For the final week of June, the rate for a 30-year fixed mortgage was in the 5.7% range. Even with big drop in rates in the first week of July — the sharpest decline since 2008, to 5.3% for a 30-year fixed rate mortgage, according to Freddie Mac — the spread remains wide between the average coupons of the Rocket and J.P. Morgan jumbo offerings and current market rates.

The average contract interest rate for 30-year fixed-rate jumbo mortgages (balances greater than $647,200) is even a tad lower than the prevailing market rate of 5.3% — coming in at 5.25 percent for the week ending July 8, according to the Mortgage Bankers Association's weekly mortgage applications survey.

Digital mortgage exchange and aggregator MAXEX reported in its recently released June market update that the overall reduction in mortgage originations, "due to higher rates, increased rate volatility and widening spreads continued to impact the demand for RMBS [residential mortgage-backed securities] in June."

"Just two [jumbo-securitization] deals priced in June, compared to three in May," the MAXEX report states. "June's issuance was more than $500 million below May's numbers and more than $1.5 billion lower than April's issuance."

That slowdown in the private-label securitization volume compared with the start of the year is not isolated to prime jumbo deals, either, according to data from KBRA.

Year to date through June 2022, KBRA's deal-tracking data shows that 111 prime and nonprime securitization deals hit the market backed by loan pools valued in total at some $52.8 billion. Last year, over the same time frame, 97 PLS transactions were recorded backed by mortgage pools valued at $39.6 billion. 

Of note, however, is that the bulk of the prime and nonprime PLS deal volume in 2022 so far is from the first quarter of this year — 67 deals valued at $33.9 billion. Volume dropped off considerably in the second quarter, as rates continued to rise, to 44 deals valued at $18.9 billion, according to KBRA data, 

"The market for securitizations has all but dried up, with just two prime jumbo RMBS issuances and one agency-eligible investor issuance printing for June," MAXEX reported. "To put it into perspective, RMBS issuance in June 2022 [based on MAXEX's deal tracking] totaled less than $900 million, versus the June 2021 total of nearly $5 billion."

The post PLS deals backed by jumbo loans plummeted in June appeared first on HousingWire.

United Wholesale Mortgage mourns death of 55-year-old CFO Timothy Forrester

Posted: 13 Jul 2022 09:40 AM PDT

Timothy J. Forrester, chief financial officer at wholesale lender United Wholesale Mortgage (UWM), died Sunday, following a cancer diagnosis and monthslong illness. He was 55.

Forrester, of Bloomfield Hills, Michigan, died “following a valiant battle against cancer,” according to an online obituary by the A.J. Desmond & Sons Funeral Home. “He died surrounded by the love of family and friends across the world.”

Timothy Forrester, former CFO at UWM
Timothy Forrester

Forrester, who served as UWM’s CFO for 10 years, oversaw all financial aspects of the organization, from financial reporting to liquidity management, according to the company’s website. The executive had more than 30 years of experience including client service, auditing, accounting, financial reporting and hedging.

“Tim was an amazing CFO, leader and friend to so many,” UWM CEO Mat Ishbia wrote in a Tuesday LinkedIn post. “He made me a better CEO and helped build this company with me for the last 10 years. Tim made such a positive impact on everyone he met, and I was proud to call him a friend. He will be greatly missed.”

A UWM spokeswoman provided a company statement when asked for additional details of Forrester’s achievements.

“Tim was a friend to everyone, and he was always willing to share his knowledge and insight to make UWM and our team members better,” the spokeswoman wrote in a Wednesday morning email. “Over his 10 years at UWM, he made us laugh, he educated us and he helped to cultivate a one-of-a-kind work family.”

Before joining UWM in 2012, Forrester was a partner in the capital markets group at Deloitte & Touche for more than 18 years. 

He also was a longtime member of the Mortgage Bankers Association (MBA), serving on its finance committee, according to UWM. He was elected as a member of the MBA's Commercial Mortgage Board of Governors, serving as the lone “Big 4” representative. In 2021, Forrester was named as one of HousingWire's finance leaders.

Forrester was well-liked by his colleagues, who described him as positive and optimistic, with a tremendous sense of humor. 

"When he told the team about his diagnosis, we were devastated for him; but he remained poised with confidence and positivity," Darin Sitto, director of accounting policy at UWM, wrote in a comment under Isbia's LinkedIn post. 

"He stood up in the middle of our huddle and was certain he was going to fight like hell to beat it. That moment will live in my mind forever," said Sitto, who joined the team just 1.5 years ago. 

Brinda Jaikumar, a director of financial compliance at UWM, said Forrester was one of the "sharpest and wittiest people," yet showed "so much humility, kindness and compassion in such an effortless way." 

She added: "He was a remarkable man and he showed what positivity and strength is through the most difficult fight of his life over the last many months."

A memorial for Forrester will be held at 5:30 p.m. July 21 at A.J. Desmond & Sons Funeral Home, 32515 Woodward Ave. in Royal Oak, Michigan. 

Andrew Hubacker, senior vice president and chief accounting officer, will serve as the interim principal financial officer, according to the firm’s 8-K current report filing.

The post United Wholesale Mortgage mourns death of 55-year-old CFO Timothy Forrester appeared first on HousingWire.

Mortgage application volume dips 1.7% led by decline in purchase mortgages

Posted: 13 Jul 2022 04:09 AM PDT

Demand for mortgages declined for the second consecutive week, led by a dip in purchase mortgage applications — despite rates on a downward trend.

The market composite index, a measure of mortgage loan application volume, decreased 1.7% for the week ending July 8, according to the Mortgage Bankers Association (MBA). The refinance index rose 2% from a week earlier and the purchase index dropped 4%.

"Purchase applications for both conventional and government loans continue to be weaker due to the combination of much higher mortgage rates and the worsening economic outlook," said Joel Kan, MBA's associate vice president of economic and industry forecasting.

Freddie Mac PMMS showed purchase mortgage rates dropped 40 basis points to 5.3% last week. Rates during the previous two weeks dropped by half a percent but were still well above the 30-year purchase rate of 2.9% from the same period in 2021. 

The trade group estimates the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) remained at 5.74%, unchanged from the previous week. Jumbo mortgage loans (greater than $647,200) dipped to 5.25% from 5.28%. 

After reaching a record average purchase loan size of $460,000 in March 2022, the figure declined to $415,000 last week led by the potential moderation of home price growth and weaker purchase activity at the upper end of the market, Kan added. 

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The refi share of total applications rose to 30.8% last week, largely due to an uptick in conventional and Federal Housing Administration (FHA) refinances. The overall refi index remained 5% below the average level reported in June, according to the MBA.

"With the 30-year fixed rate 265 basis points higher than a year ago, refinance applications are expected to remain depressed," said Kan. 

In a separate projection made by the MBA in June, of the $2.4 trillion origination volume forecast for 2022, about $730 billion is expected to come from refis. About $2.3 trillion, more than 40% of the $4 trillion origination volume, came from refis in 2021. 

The FHA share of total applications decreased to 11.7% from the previous week's 12%. The United States Department of Agriculture (USDA) share also declined to 0.5% from the week prior's 0.6%. The Veterans Affairs (VA) share of total applications slightly rose to 11.2% from 11.1%.

The share of adjustable-rate mortgages (ARM) applications also rose, accounting for 9.6%. According to the MBA, the average interest rate for a 5/1 ARM increased to 4.71% from 4.62% a week prior. 

The survey, conducted weekly since 1990, covers 75% of all U.S. retail residential mortgage applications.

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Mortgage – HousingWire

Mortgage – HousingWi...