Monday, July 18, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Michael Bright: Where residential mortgage-backed securities 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 residential mortgage-backed securities 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.

The post Mortgage application volume dips 1.7% led by decline in purchase mortgages appeared first on HousingWire.

Pennymac locks mortgage rates up to 90 days 

Posted: 12 Jul 2022 02:22 PM PDT

California-based Pennymac launched a product that can freeze mortgage rates as many as 90 days, in a bid to attract more borrowers to the market amid volatile rates.

Dubbed "Lock & Shop," the product, rolled out in mid-June, has two terms: the 75-day lock, which gives borrowers 45 days to shop and 30 days to close the contract; or the 90-day lock, giving customers 60 days to find a home and 30 days to complete the contract. 

The product also allows a one-time float down if rates decline. It's available for all loan types, except for jumbo. 

“As we know, the Federal Reserve has indicated they’re going to continue to raise rates, so we can lock in the loan with today’s rate for up to 90 days,” said Scott Bridges, senior managing director of direct consumer lending. “That might prevent you from either not buying the house you wanted or having to buy a lower-priced house because your payment would be higher with a higher rate.”

Pennymac’s product allows borrowers to extend their lock-in period at an updated rate if they do not find a house. Bridges said there’s no upfront fee, but the lender requires a pre-approval to ensure borrowers qualify for a mortgage loan – in this case, the lender gives 50 basis points on the closing costs.

“There’s no point doing a Lock & Shop if your purchase is going to be fairly imminent, but we are seeing it to be a very popular product for our borrowers,” Bridges said. Pennymac has locked more than 100 applications with the product since mid-June. 

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Pennymac is the latest mortgage lender to freeze rates for borrowers. In late June, fintech startup Tomo also announced a “Lock & Shop” product, allowing borrowers to lock in a mortgage rate for as many as 120 days, about twice as long as most lenders.

The product does not require a property address to guarantee a mortgage rate. Founded in 2020 by former Zillow executives Greg Schwartz and Carey Armstrong, the fintech startup focuses on the $1.6 trillion purchase mortgage sector.

“Consumers had seen so much news coverage on a threatened recession, inflation and interest rate increases that they got stuck,” Tomo’s co-founder and CEO Greg Schwartz said. “They are saying: ‘I’m afraid that if I start shopping now, by the time I find a place — because there’s still limited inventory, I still have to make multiple offers — and, by the time I find a home, I may have much less buying power.'”

Since January, mortgage rates have risen quickly due to high inflation and the Federal Reserve’s plan to tighten monetary policy. And that has put pressure on mortgage lenders with extended lock-in periods. 

When rates are surging, lenders’ capital markets teams have trouble selling loans locked at a lower rate because investors demand higher returns. That often forces lenders to sell at par or take a loss.

But Pennymac and Tomo said they can offer extended lock-in periods because their capital markets teams are hedging the transactions (so they can avoid losses when selling loans at the current mortgage rate in the secondary market in the future) and the companies have strong balance sheets.

Last summer, Tomo launched its platform after raising $70 million in seed capital and achieving “unicorn” status. In 2022, Tomo said it raised another $40 million in a Series A round led by SVB Capital, which more than doubled the company’s valuation to $640 million.

Tomo, however, is not immune to the volatility in the markets. The digital mortgage lender laid off nearly one-third of its workforce in late May. The company does not disclose its origination volume. 

Pennymac reported $490 million in cash as of March 31, according to Securities and Exchange Commission (SEC) filings.  

The company delivered a pretax net income of $234.5 million in the first quarter, essentially unchanged from the prior quarter. Pennymac expects to  lay off 207 employees in June and July following a workforce reduction filing of more than 230 employees in March.

The post Pennymac locks mortgage rates up to 90 days  appeared first on HousingWire.

Why you should attend HW Annual Oct. 3-5 in Scottsdale

Posted: 12 Jul 2022 02:01 PM PDT

Volatile mortgage rates and economic uncertainty have rocked the housing market this year, challenging mortgage lenders, real estate agents, title companies and appraisal firms to adapt quickly to changing conditions.

That's why we've designed our HW Annual event Oct. 3-5 as the "Davos of Housing," providing real, practical insight for this dynamic market from proven experts and leaders across the housing ecosystem. The All Things Housing agenda includes not only incredible content, but opportunities to share strategies, drive business and discover new technologies with others in the business.

HW Annual will feature a keynote from Ryan Serhant, founder and CEO of SERHANT real estate brokerage, which leverages media, education, entertainment, tech and marketing to sell luxury real estate. After just one year from its launch in 2020, the brokerage became the most followed real estate brand in the world.

The event will include an update on the housing economy, a regulatory super session, panels on the future of title, reaching homebuyers in a purchase market, what's next for appraisal and more.

Featured speakers include Spencer Rascoff, co-founder and former CEO of Zillow, HousingWire Lead Analyst Logan Mohtashami, Haley Parker of Fairway, Josh Hartley of Fathom Holdings, and many more. HW Annual kicks off with a Marketing Leaders Success Summit and also includes a Women of influence forum.

In addition, we've built in time to engage with peers, innovators and power players who can help move your business forward. The event's resort location at the Fairmont Scottsdale Princess provides award-winning bars and restaurants, along with pools, palm trees and fire pits for easy mingling. The Scottsdale area is also one of the world's top golf destinations, with close proximity to 200 golf courses, including the TPC Scottsdale Stadium Course and Champions Course, located right next to the property.

The market shift this year will be a watershed for the housing industry. Join us at HW Annual for the content, connections and technology you need to win in this environment. Register here.

The post Why you should attend HW Annual Oct. 3-5 in Scottsdale appeared first on HousingWire.

Mortgage credit availability falls 0.3% in June

Posted: 12 Jul 2022 12:31 PM PDT

Lenders continued to tighten credit standards in June as higher mortgage rates slowed refinance and purchase activity.

The monthly Mortgage Credit Availability Index (MCAI) fell by 0.3% in June, 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. 

Credit availability was mixed by loan type. The conventional MCAI rose 1.2% while the government MCAI dipped by 1.7%. Of the component indices of the conventional MCAI, the jumbo MCAI increased by 1.4% and the conforming MCAI climbed by 0.6%. 

"Mortgage credit availability decreased slightly in June, as significantly higher mortgage rates compared to a year ago slowed refinance and purchase activity and impacted the overall mortgage credit landscape," said Joel Kan, associate vice president of economic and industry forecasting at the MBA. 

Purchase mortgage rates, measured by the Freddie Mac PMMS Index, were at 5.3% last week. While rates are on a downward trend due to concerns about a potential recession, they remain well above last year’s 2.9% 30-year purchase rate. 

Borrowers’ demand for mortgage loans fell last week driven by a 7.7% decline in refi applications and a 4.3% dip in purchase applications from the previous week, according to the MBA.

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Although there was reduced supply of lower credit score and high loan-to-value (LTV) rate-term refinance programs, the decline was offset by increased offerings for conventional adjustable rate mortgage (ARM) and high balance loans, Kan said.

In a market with a shortage of inventory and soaring rates, an increasing number of homebuyers have been opting for ARMs this year, which carry lower rates for an initial period of fixed interest and amortize over a 30-year term. Application volume for ARMs hit a 14-year high in May, making up nearly 11% of all mortgage applications. Last week, it consisted of 9.5% of all mortgage applications. 

"With higher rates and elevated home prices, more prospective buyers are applying for ARMs, but activity remains below historical averages," Kan said. 

The post Mortgage credit availability falls 0.3% in June appeared first on HousingWire.

VA official talks future of partial claims, revamping agency’s reputation

Posted: 12 Jul 2022 11:56 AM PDT

In a few months, the loss mitigation measures that have kept close to 100,000 veterans from foreclosure during COVID-19 will end. Decisions of policymakers at the Department of Veterans Affairs will determine what happens to those borrowers.

The VA also faces challenges unrelated to the pandemic. The cost of credit for its borrowers is set by Congress, not the department. The perception of VA loans as risky and logistically complicated — even if an outdated view — continues to impact the competitiveness of the borrowers it serves.

But the VA is hoping to change that.

John Bell, deputy director at the VA, said the agency has made strides in recent years to get loans processed and out the door in a timely manner.

HousingWire sat down with Bell to learn about how the VA is working to revamp the image of the loans it offers, how it plans to modernize its appraisal processes, how it coordinates with other agencies, and whether its COVID-19 partial claim program will get an extension.

Editor's note: This interview has been edited for length and clarity. 

A photo of John Bell, Deputy Director at the VA
Photo credit: Department of Veterans Affairs

Maria Volkova: There are some negative perceptions that the VA product is more cumbersome to deal with and riskier than a conventional loan. How is the VA addressing this?

John Bell: We have been trying to get the word out about improvements to our program and trying to get this message to the right people at the right time. Our borrowers are the cream of the crop. They've got 722 credit scores, they've got 40% debt ratios, they've got average reserves in the bank of $54,000. These are great borrowers, and they need to be given a chance.

We have done a lot of work reducing the time that it takes for certificates of eligibility to be issued. When I started 12 years ago, the average time was 20 business days. That is now 48 hours for 92% of all our requests. We've also done a lot of work in appraisals and trying to reduce the time that it takes not only to assign an appraisal to an appraiser, but also the time an appraisal is delivered to us.

MV: How is the VA educating stakeholders in the industry about improvements made to the program?

JB: We just approved a brand new training department for VA. We now will have our first training group that will be intensely focused on just spreading the word, getting information out to lenders, veterans and real estate agents. We're really excited about building this training team out and hiring a contractor to help us put together the materials.

MV: VA's appraisal process is criticized for being lengthy and costly. Legislation is making its way through the Senate that will modernize appraisals, in part by allowing desktop appraisals. How will this benefit borrowers? Is this a positive development for the VA?

JB: We are thinking about how to best serve the industry in providing desktop appraisals. But remember, we are still a high LTV program and lenders own 75% of the risk in that delegated authority that we've given them. Even if we have a desktop program, that doesn't necessarily mean that a lender wants to use the desktop program, because there is a lot of risk.

It’s really about putting options out there and then letting lenders determine what best suits their needs as well as keeping the veteran competitive. I would love to broad stroke say, ‘Hey, you have this ability,’ but unfortunately it really must be thought out. Procedural information comes out very soon on what we can and can't do, so that's even before any legislative changes that would come out this year.

There are also things that we can do right now at the VA without legislative help. Last year the Assisted Appraisal Processing Program launched. The program allows appraisers to utilize any tools or resources at their disposal to put together an appraisal and to sign off and certify a house’s value. Our problem is getting appraisers and lenders to want to use it. Right now, we only have a 14% usage rate. We're trying to find out why that is.

MV: Approximately 200,000 VA and FHA borrowers are currently in forbearance. What is the VA doing to help veteran’s whose financial wherewithal continues to be impacted by the pandemic?

JB: There are a little less than 100,000 veterans that are still in forbearance or some type of modification mitigation program. We have the partial claim program that sunsets in October, but we also have other tools that veterans can utilize such as COVID refund modifications and loan deferment. These options are available through July of 2023.

MV: Stakeholders in the mortgage industry have been calling for the VA to extend the deadline for the partial claim program and possibly make it a permanent fixture. Why is the VA moving to sunset the partial claim program in October?

JB: Just because the partial claim program is sun setting on October 28, that’s not the end of the story. We are working on other permanent options for our veteran borrowers.

This was a regulation that we put together in six months that normally would take three years. Whenever you do things like that, there are things you miss. There are things you wish you had done differently. As we have gone through this program over the past six, eight months, we’ve seen some of those holes and where we could have done things a little bit better to tie some loose ends together. That would make it easier for servicers, easier for veterans and easier for our staff to be able to maneuver.

We’re currently trying to solve what we should permanently do. You’ll see this from us shortly.

MV: In recent years the Consumer Financial Protection Bureau and the VA have cracked down on deceptive ads targeting veteran borrowers. Why do you think that veteran borrowers have been targeted by these types of campaigns and what is the VA doing to educate borrowers about these types of schemes?

JB: A lot of it had to do with our interest rate reduction refinance loan. It’s a rate and term loan where you’re just signing your name, there’s no appraisal, they’re not underwritten. So they really were easy pickings because you didn’t have to go through that approval.

We have a lot of veterans that work for our program and a lot of veterans that have utilized the program that are getting those same marketing materials. As we receive those marketing materials ourselves, we are [spreading the word to veterans and lenders].

We partnered and we continue to partner with the CFPB to try to crack down and monitor those those type of ads. And it’s not just for the interest rate refi program, it’s also for cash-out refinances. It wasn’t just a one time thing, every month we’re having discussions and sending [the CFPB] materials that we see in the industry.

MV: Certain legislation is in part funded by increasing the cost of credit for VA borrowers. What is the decision process behind adding funding fees to legislation, which inevitably impacts veteran borrowers?

JB: We have zero input when it comes to the funding fee and we basically do what Congress requires us to do. They set the funding fee rates, they set the length of the funding fee they set, who is responsible, or who is required to pay. And then we follow whatever that guidance is.

I understand the frustration. We just don’t have a say in that.

The post VA official talks future of partial claims, revamping agency’s reputation appeared first on HousingWire.

The hybrid appraisal is here. Who benefits?

Posted: 12 Jul 2022 10:23 AM PDT

HW-appraiser-clipboard

Luke Tomaszewski, an appraiser doing home inspections in the aftermath of the housing bust, was traveling as much as an hour across Chicago just to snap exterior photos of bank-owned properties.

Sitting in traffic, Tomaszewski wished he could pay an Uber driver to take the photos instead.

"When we started, the idea was to obtain exterior photos as fast as possible, at a time when Uber, Lyft and mobile technology was advancing, and anyone with a smartphone could get exterior photos," said Tomaszewski, who worked to turn his idea into ProxyPics.

The company, which employs about 17 people, was founded in 2015, and is one of those approved to provide the Freddie Mac data report for its new remote inspection program.

At a cost to ProxyPics of $50 to $100 per inspection, it’s certainly cheaper than sending an appraiser. It's also simplified and scaled back. For example, in a call-out to prospective data collectors posted on its website, ProxyPics adopts gig-worker language.

"ProxyPics will notify you when photo assignments are available near your current location," according to the website. "Work whenever it's convenient for you, wherever you are."

It's a model in stark contrast to that of inspections for traditional appraisals. It may also be viewed as revolutionary for an industry in which the most significant change to the appraisal process in the past few decades was the advent of appraisal management companies as an intermediary between lenders and appraisers. 

Others may view ProxyPics as the kind of disruptor responsible for creating the same gig economy it now occupies: Uber, Lyft, DoorDash, GrubHub, InstaCart. After all, it wasn't so long ago appraisers received assignments via fax machine.

Companies such as ProxyPics stand to benefit from a major Freddie Mac policy change, which goes into effect this month. Starting in July, the government-sponsored enterprise will allow remote inspections on some refinance loans it buys.

But while desktop appraisals may save a few gas miles, and certainly will provide opportunities for a coterie of private sector companies, it's not yet clear whether they are superior to traditional appraisals, and if they ultimately will reduce racial bias, a key GSE policy goal.

A Freddie Mac representative declined to comment for this story.

Made to order

Beginning July 17, Freddie Mac will accept some mortgages with hybrid appraisals — but the list of caveats is lengthy.

First, the option only applies to refinances. For cash-out refinances, the loan-to-value amount may not exceed 70% for a primary residence, or 60% for a second home. For other refinance transactions, the loan can be for as much as 90% of the home's value.

Mortgages for manufactured homes, investment properties, duplexes and fourplexes are not eligible.

The property data reports Freddie Mac will ingest include some 200 distinct data points. On Freddie Mac's property data report form, the inspector must provide data for whether there is dampness, settlement and infestation evident in the property; the condition and age of the roof; and whether the property has a washer-dryer hookup, among other required fields.

The form also requires the data collector to certify he or she has "unbiased professional conclusions," no interest in the property and no interest or bias toward the parties involved in the transaction.

A certification lightens the legal liability of bias. But an attestation, however comprehensively phrased, can't dissolve deep racial prejudices or make the appraiser workforce more diverse.

Fannie Mae also plans to use hybrid appraisals more often in 2022, as part of its equity plan, which is intended to "reduce costs to the borrower and reduce potential risk of bias by creating greater separation between the appraiser and borrower." 

Fannie Mae representatives said the GSE has evidence alternative appraisal approaches result in fewer instances of confirmation bias. Its appraisal modernization pilot, which used hybrid appraisals, showed an 18% point reduction in confirmation bias compared with traditional appraisals, which rely on human observations and, as such, potentially could be riddled with overt or subconscious bias. Alternative appraisals, however, rely more on objective data and an "arm's-length" process between the appraiser and the homeowner or buyer, sometimes assisted by technology, a spokesperson for the GSE said.

Both desktop and hybrid appraisals, according to Fannie Mae, "have the benefit of reducing contact between borrowers and appraisers, thus lowering the likelihood of valuations being affected by personal or unconscious biases."

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Another benefit for the GSEs is access to the vast dataset hybrid appraisals may generate. But it's unclear who else will have access to the data.

Given how reluctant the GSEs have been to share the appraisal data they already have, John Brenan, chief appraiser at appraisal management giant Clear Capital, sees little hope for a public repository of floor plans, for example. The GSEs have so far rebuffed demands from academics, fair housing groups, lawmakers and federal agencies to make appraisal data public.

The GSEs "collect all of this [appraisal] data, but they've kept it close to the vest," Brenan said. "Something has to give. If they say, 'Sure, we'll make it available,' but only 5% of companies can access it, that's not mission accomplished."

Think of the savings

Clear Capital's Brenan describes his vision of a hybrid appraisal as one which can drastically reduce wait times.

"An agent does a floorplan scan when they make a listing. An offer comes in at 5 p.m. that afternoon. The seller accepts it; they go into contract. The borrower says, 'I need a loan,' and the bank says, 'We want to do a desktop appraisal.' Then they submit an order to us and the appraiser gets it the next day. The appraiser can do it all within 24 to 48 hours."

Quicker turnaround essentially means less work per appraisal — as Brenan put it, "The amount of work that an appraiser does for a hybrid appraisal has been less." But the reduced fee may prompt the worker to take on more jobs.

"You can see that appraisers would recognize that and say, 'I can take a percentage of what I used to, I can do more appraisals, and the way I make money is on volume.'"

How much less, Brenan wouldn't say. But Fannie Mae, based on 121,000 property data collection submissions in its pilot from April 2021 through March 2022, said lenders were able to shave off, on average, four days compared to traditional appraisals.

The cost savings was about $90 to consumers, although a spokesperson said pricing for appraisals is set by the market and Fannie Mae is not involved. Appraisal costs vary widely, depending on the complexity of the assignment, but could fall anywhere from $250 to upward of $500.

But while Clear Capital expects appraisers to charge less for desktop or hybrid appraisals, Brenan said the company will not reduce the fees it charges on desktop or hybrid appraisals, versus traditional appraisals.

Many appraisers remain skeptical of efforts to reduce costs in the short term through hybrid and desktop appraisals. Pushing too hard to cut costs also may dissuade appraisers from adopting alternative appraisals.

"You can't go to an appraiser and say, 'You'll do 10 times more at half the price with hybrid appraisals,'” said Mike Walser, president of Incenter Appraisal Management. "Most appraisers would look at you like you have three heads."

Walser thinks asking appraisers to lower their fees also may discourage top appraisers from adopting remote inspections. Long term, he said, the speed of a hybrid appraisal — not just savings on appraisal fees — will be a "huge industry benefit."

The prospect of reducing appraisal costs at scale is tantalizing. It's not discernible, however, how much of the initial savings on desktop appraisal assignments is due to modernization, and how much is the result of the current market, in which overall demand for appraisals has dropped dramatically, amid the ever-increasing cost of borrowing money.

"Since the market has softened, many appraisers are doing appraisals for a lot less, which has translated into a [cost] reduction on desktop appraisal assignments," Brenan said.

The hybrid approach also could reduce reliance on a dwindling workforce of specialists. The appraisal backlog during the height of the refinance boom caused widespread frustration among lenders.

"The average age of an appraiser is 60 years old; there will be a wave of retirements in the next two to five years," said Walser. "There are a little over 40,000 unique appraisers [handling] all loans in [the GSE] portals — and when that drops to 30,000, it will be really difficult."

Sharp edges

As the cost of borrowing money rises, mortgage lenders are implementing a raft of cost-reduction measures. The mortgage industry, per the latest jobs report from the U.S. Bureau of Labor Statistics, hemorrhaged 5,000 jobs in May, Inside Mortgage Finance reported. Property data collection firms, however, are enlisting scores of independent contractors to carry out inspections for hybrid and desktop appraisals.

Of ProxyPic's 65,000-strong panel of property data collectors, 2,000 to 3,000 are inspectors, real estate agents or appraisers — a figure Tomaszewski said he hopes to grow to 7,000 or 8,000. Clear Capital representatives said the company has a pool of 3,000 independent contractors, who are licensed real estate agents and brokers, conducting property data collection for hybrid appraisals.

Freddie Mac requires data collectors to be trained, but that training need not be in person. 

During Fannie Mae's hybrid appraisal pilot, the company required data collectors to be bonded or insured, background checked, vetted and professionally trained by the property data collection vendor, and be a member of an eligible labor force, which includes real estate agents, appraiser trainees and insurance inspectors, a spokesperson said.

Both ProxyPics and Clear Capital provide virtual training for their property data collectors. Clear Capital verifies the license number furnished by property data collectors, so that, for example, data collection candidates can't submit their driver's license number and claim it is a mortgage origination license.

ProxyPics has technology to ensure data collectors are actually taking pictures of the subject property. Using a geofence, its mobile app will shut down if the collector tries taking a picture outside the property's geographic area. It also uses satellite imagery to make sure the floor plan checks out.

But Tomaszewski said there are limits to the company's capabilities. For example, it's not feasible to scrutinize every property data collector to ensure he or she does not have a financial interest in a property, or a bias toward one of the parties in a transaction.

Still, property data collectors must attest that they do not stand to benefit from the transaction, Tomaszewski stressed. But he said, ultimately, "If you want to commit fraud, you will."

Many in the mortgage industry are still getting comfortable with the March introduction of desktop appraisals. Now, as both GSEs move toward another alternative appraisal model, it remains to be seen whether appraisers will embrace it.

"Let's knock off some of the sharp edges," Walser said. "Take the next six months with a big grain of salt."

Editor’s note: This story has been updated to clarify the fee per inspection ProxyPics pays.

The post The hybrid appraisal is here. Who benefits? appeared first on HousingWire.

Shared-equity fintech Unison expands Midwest operations

Posted: 12 Jul 2022 09:59 AM PDT

San Francisco-based Unison is extending its reach in the heartland by expanding its shared-equity loan program to homeowners in Nebraska.

The move follows the opening of an office in Omaha earlier this year and reaching the milestone as of June 30 of having in force $6.1 billion in equity-sharing agreements with some 9,000 homeowners across 29 states and the District of Columbia.

“With our recent office expansion to Nebraska, this was the next logical step for us,” said Unison founder and CEO Thomas Sponholtz. “Due to the current market conditions, many consumers are seeking affordable housing options, and we are thrilled we can now offer greater origination capabilities in Nebraska. 

"With this announcement, we are expanding the number of consumers we can partner with to offer an option that doesn't require interest or monthly payments."

Unison currently operates in states bordering Nebraska to the south, including Kansas and Missouri and Colorado. Its operations also extend to the three West Coast states; the Southwest, other than Texas; and most states east of the Mississippi River. It does not yet have operations in most deep South states, other than Florida, nor in most of the Midwest states west of the Mississippi River, other than Minnesota and Missouri — and now Nebraska.

Earlier this year, Unison also completed a $443 million private-label offering backed by shared home-equity loans — with plans to pursue future securitizations as well. The company, through its fintech platform, offers homeowners the opportunity to tap their home equity without taking out a loan — via Unison's shared home-equity product called a residential equity agreement (REA).

Prioritizing home equity solutions in a rising rate environment

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

Presented by: ServiceLink

"Home prices have been increasing rapidly over the past year, creating a record $24 trillion of wealth," Unison said in announcing the securitization transaction. "… This transaction offers the opportunity for investors to access residential real estate equity and increases liquidity for homeowners across the country looking to monetize the equity in one of their most valuable assets — their homes."

Unison, through an REA contract, advances the homeowner a portion of the equity in the property in exchange for a lien position and a share of the home's future appreciation. Unison also shares some of the downside if the property loses value over the course of the contract. 

"Our presence in Nebraska has continued to grow since our office opening earlier this year," added Unison President Ryan Downs, who is leading the Omaha office. "We are seeing greater interest in our solution and are thrilled to have boots on the ground where we can service our clients in person and remotely as well as tap Nebraska's financial services and technology talent pool."

As part of a Unison's REA product, the company will invest up to 17.5% of a home's value after a 2.5% risk-adjustment haircut on the value of the property. The company and homeowner then share in any appreciation, or depreciation, of the home's value over the course of the contract. 

The homeowner has up to 30 years to pay off the initial investment, plus Unison's appreciation cut, through a sale or refinancing of the home — or through a contract buyout after three-year lock-in period. As part of the REA, Unison's share of the home's appreciation can range from 20% to 70%, depending on size of the equity investment advanced. 

"We're sitting in an equity position side by side with the homeowner," said Matthew O'Hara, head of portfolio management and research at Unison Investment Management, which is under the Unison umbrella. "So, if the price goes up, the homeowner benefits, and we benefit as well. 

"If the price goes down, the homeowners are losing some of their equity, but we are also losing equity in our position at the same time." 

O'Hara added that Unison's move into the private-label securitization market supports the company's expansion efforts because it is an optimal way to decrease its cost of financing while also creating more liquidity for originating shared home-equity contracts — with the goal of lowering REI costs for homeowners. 

The post Shared-equity fintech Unison expands Midwest operations appeared first on HousingWire.
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