Mortgage – HousingWire |
- Wall Street SFR firms accused of stripping equity from neighborhoods
- Opinion: FHFA language requirements may shake up compliance landscape
- Fannie Mae housing equity plan won’t expand credit box
- 8 of 10 consumers: “Economy is on the wrong track”
- Mortgage insurer Enact lines up $200M line of credit
| Wall Street SFR firms accused of stripping equity from neighborhoods Posted: 08 Jul 2022 07:44 AM PDT  Institutional players in the single-family rental (SFR) market have been expanding their reach into select American neighborhoods since the global financial crisis of 2008, but they now find themselves in an uncomfortable limelight. They are under scrutiny in Congress and accused of gentrifying minority neighborhoods and allegedly displacing large numbers of people of color — Black residents in particular. That is a major takeaway in a Congressional subcommittee report on a recent survey of the nation's five largest institutional owners and operators of SFR homes. The survey, sponsored by the Democrat-controlled U.S. House Financial Services Committee's Subcommittee on Oversight and Investigations (the subcommittee), was sent to the following companies: Invitation Homes; American Homes 4 Rent; FirstKey Homes (owned by Cerberus Capital Management); Progress Residential (owned by Pretium Partners); and Amherst Residential. As of the end of the third quarter of last year, according to the report, those five companies owned a total of 280,637 single-family rental properties. "To fund their acquisitions, companies raise billions of dollars in capital from hedge funds, pension funds, ultra-high net worth individuals, and other institutional investors, who such companies consider to be their customers," the House subcommittee's report on its survey findings state. "The ability of SFR companies to purchase homes with cash provides a competitive advantage." The financial muscle of these institutional SFR companies also is revealed in securitization deals tracked by Kroll Bond Rating Agency (KBRA). The bond-rating agency's data shows that so far this year, institutional players — including companies like Progress Residential, FirstKey Homes and Tricon Residential — have undertaken total of 11 private-label SFR securitization deals involving some $8.2 billion in corporate notes secured by a total of some 27,200 rental properties, primarily single-family dwellings. "Despite the growing appetite for SFR investments, institutional equity ownership in the overall SFR market today is still estimated at only around 2%," a market insight report from MetLife Investment Management (MIM) states. "MIM believes [however] that institutional SFR ownership is likely to grow significantly over the next decade. "MIM's analysis indicates that simply moving institutional ownership of SFR from 2% today to 10% [of the investment-property market] in the future will result in a need for over $200 billion in incremental debt financing." Today, the bulk of second homes and investment properties nationwide are still owned by smaller real estate firms and so-called "mom-and-pop" investors. Critics of the institutional SFR companies, however, point out that those national figures distort the concentrated nature of the problems created by the "Wall Street" investors. "Securitized SFR homes are heavily clustered in the Sunbelt, which comprises the Southeastern, Southwestern and Western U.S. region, and in communities that previously experienced high foreclosure rates following the 2008 financial crisis," the House subcommittee's report on its findings states. "For example, in the third quarter of 2021 alone, institutional investors bought 42.8% of homes for sale in the Atlanta metro area and 38.8% of homes in the Phoenix-Glendale-Scottsdale area." The House subcommittee punctuated its survey results by holding a public hearing recently — on Tuesday, June 28 — titled "Where have all the houses gone? Private equity, single-family rentals and America's neighborhoods." "Today’s hearing will examine troubling issues regarding the mass predatory purchasing of single-family homes by private-equity firms, including the adverse impact predatory purchasing has had on first-time homebuyers, the working class and people of color," said U.S. Rep. Al Green, D-Texas, chairman of the House subcommittee, in his opening remarks. "…These private-equity firms have the advantage of being able to purchase these homes with cash; therefore, they easily out-compete individual buyers who may require loans. This all has the troubling effect of displacing residents of color and leading to gentrification of these communities." The major findings of the House subcommittee's survey of the five leading institutional SFR companies, coupled with data from the U.S. Census Bureau's American Community Survey, are as follows:
Witnesses called to testify before the subcommittee in the hearing held last week were vocal in their concerns over the growing influence of Wall Street-backed SFR companies. "Just over a decade ago, no single landlord owned more than 1,000 homes," said Jim Baker, executive director of the Private Equity Shareholder Project, one of five witnesses who testified before the subcommittee on June 28. "Now the top five [institutional SFR players] … together own or operate almost 300,000." Shad Bogany, a real estate broker with Better Homes and Gardens Real Estate in Houston, said these institutional SFR buyers are targeting minority communities because historically such neighborhoods are undervalued and have lower-priced homes. This practice, he claimed, "drives up the prices for [existing] residents," making "the dream of homeownership for the population unachievable." "Homebuyers are having to compete with investors that are paying in cash over the list price, resulting in an increase in investor purchases," Bogany said. "Investors are creating a generation of renters who will miss out on the benefits of homeownership and the ability to create wealth and stabilize communities. "By increasing the percentage of renters in the black community, the institutional investors are creating a modern-day sharecropping colony," Bogany added. "It reminds me of my ancestors' history over 100 years ago, when you lived on the land, you have a place to stay, but all your hard work and money goes to benefit someone else." Another witness at the subcommittee hearing, Sophia Lopez, deputy campaign director of housing at the Action Center on Race and the Economy (ACRE), which describes its mission as organizing at the intersection of race and Wall Street accountability, said the large institutional SFR companies have "five core practices." They are, she explained: 1.) imposing large rent increases; 2.) adding large fee increases; 3.) failing to do adequate maintenance; 4.) employing aggressive eviction practices; and 5.) making use of convoluted ownership structures that "leave tenants unsure who really owns their home and to whom to appeal when problems arise." Elora Lee Raymond, an assistant professor at the Georgia Institute of Technology, who also testified at the subcommittee hearing, said her research shows that neighborhoods in Atlanta where institutional SFR buyers were active "lost 166 more Black residents than adjacent neighborhoods." "These purchases led to long-term gentrification of Black communities out of Atlanta," she added. "…In a recent study of Tampa, Miami and Atlanta, my co-authors and I found that institutional investors bought one in six of all single-family rentals last summer. In Atlanta alone, institutional investors bought over half of the single-family rentals and 17% of all single-family homes." David Howard, executive director National Rental Home Council (NRHC), a nonprofit trade association representing the SFR industry, contends institutional SFR companies are playing a positive role in the nation’s housing market. In a statement provided to the subcommittee, he said: "There is not one state in the country where NRHC member companies own more than 1% of the housing, and in 23 states NRHC large member companies don't own any properties at all. Even in metropolitan areas where NRHC member companies own higher numbers of properties, they still account for only a small share of the overall housing and rental housing: just over 1.5% of the housing in Atlanta, 2% in Charlotte, 1.3% in Houston, and 0.5% in Kansas City." Howard said there is a greater need for quality, affordably priced housing in the United States today than there has been in decades, “and single-family rental home providers are an important part of the solution.” In the statement provided to the subcommittee, Howard cited a study by Harvard's Joint Center for Housing Studies in April 2022. He claimed the study showed that large institutions (entities owning 1,000 or more properties) are not concentrating their portfolios or property acquisitions in minority communities. However, the study concluded that rates of rental housing ownership by corporate entities vary considerably at both the metropolitan and neighborhood level “and are consistently higher in neighborhoods with larger shares of Black residents.” On the same day as the hearing last week, June 28, Progress Residential issued a press release highlighting the positive impact of its SFR purchases and upgrades on local economies across the country. "As members of the very communities we serve, a hallmark of our company culture is making a positive local impact," said Adolfo Villagomez, chief executive officer of Progress Residential. "Over the last decade, Progress Residential has been a significant economic driver in each of our markets, and we look forward to continuing to build on our efforts for many years to come." Among the positives highlighted by Progress Residential:
Jenny Schuetz, a fellow at the Brookings Institute and another witness who testified at the House subcommittee hearing, stressed that "rentals are an important part of the housing ecosystem." "Homeownership is not the preferred choice for all Americans or at all points in any person’s life," she said. "Having a diverse set of tenure choices and structure types in diverse neighborhoods is important for economic opportunity." She suggested that Congress can improve the wellbeing of renters and homebuyers alike through "four channels."
"There are no silver bullets to make housing cheaper and more abundant overnight," Schuetz stressed. "Helping renters and homebuyers will require sustained and coordinated policy efforts from federal, state and local governments." The House subcommittee's report on its survey findings, however, raises the concern that absent some adjustment of course soon, the impact of the Wall Street investors on Main Street housing could well be the permanent displacement of many of the nation's most vulnerable families, particularly in communities of color. "The survey data shows that the average income of these five [institutional SFR] companies' tenants increased by 9% between 2018 and 2021," the House subcommittee's report states. "On the surface, this may seem like existing tenants grew their income during that time-frame. "However, this shift may instead signal turnover of lower-income tenants and a restriction of the companies' renter-eligibility criteria. A tightening of the tenant credit box would make these five companies' single-family rental homes less accessible to tenants with lower incomes and further limit affordable housing options for the U.S.'s lowest-income families." Lopez of ACRE is blunt in her assessment of the problem, and the solution. "Make no mistake about it: These companies engage in equity stripping," she said, referring to institutional players in the SFR market. "…These companies make the wealth gap worse because they buy homes in communities [including predominately Latino or Black neighborhoods] … and transfer [that wealth] to shareholders. "That’s the exact same thing that happened during the foreclosure crisis [that marked the 2008 housing-market collapse]. We need to do everything that we can to make sure that that wealth stays local and continues to support [the local] community." The post Wall Street SFR firms accused of stripping equity from neighborhoods appeared first on HousingWire. |
| Opinion: FHFA language requirements may shake up compliance landscape Posted: 08 Jul 2022 07:09 AM PDT Recently, the Federal Housing Finance Agency (FHFA) announced that mortgage lenders will be required to include in loan packets the Supplemental Consumer Information Form (SCIF), which registers a borrower's language preference, in order for those loans to be eligible for sale to Freddie Mac or Fannie Mae. While the requirement may seem fairly innocuous, it’s likely the first of several new requirements lenders will need to consider when working with borrowers of Limited English Proficiency (LEP) in the future. While the concept of providing resources for LEP consumers is not novel; the requirement of those resources and the specification as to which resources must be provided, as a matter of law, will likely demand a substantial adjustment by lenders and servicers. The current state of LEP complianceLEP individuals are defined by the Office of Economic Impact and Diversity as "individuals who do not speak English as their primary language and who have a limited ability to read, speak, write, or understand English. These individuals may be entitled language assistance with respect to a particular type of service, benefit, or encounter." Until recently, mortgage lenders' obligations to LEP borrowers were primarily governed at the federal level by The Equal Opportunity Act (ECOA) and the Unfair, Deceptive and Abusive Acts and Practices (UDAP) provisions of the Dodd-Frank Act. However, guidelines and requirements for the provision of specific resources were minimal. In 2016, it emerged that the FHFA was planning to require a language preference question on the redesigned Fannie Mae and Freddie Mac Uniform Residential Loan Application (URLA). While the matter drew brief interest industry-wide, the plan was eventually nixed by the Trump Administration. With the change of Federal administrations in 2021, it didn't take long for the Consumer Financial Protection Bureau (CFPB) to signal that it would prefer to see more LEP services made available, particularly in the mortgage servicing and lending sectors. Accordingly, in January, 2021, the CFPB issued guiding principles for servicing LEP customers and guidelines for implementing those principles and developing compliance management solutions. The statement further offered lenders and servicers guidance for mitigating ECOA, UDAAP and other legal risks. It touched on matters of what lenders may consider in determining whether or not non-English language services are required, as well as what factors financial institutions might consider in determining which products or services to offer in other languages. Growing momentum at the state and federal levelsThe purpose of the SCIF is to collect information about a borrower’s language preference as well as any homebuyer education or housing counseling the borrower received, so lenders can better understand borrower needs during the home buying process. Lenders must incorporate these changes and reporting requirements for loans with application dates on or after March 1, 2023 in order for the loans to qualify for sale to the GSEs. With the requirement of the SCIF, FHFA has moved beyond guidance on LEP and into increased, tangible requirements. And while the law currently is limited to loans deemed saleable to the GSEs (a significant category in and of itself), developments at the state and federal level suggest more could be coming soon. While a number of states have had LEP requirements for mortgage lenders and servicers in existence for some time, many are stricter than those at the federal level. And more states are adopting new requirements. For example, a Nevada law (Assembly Bill No. 359) which became effective in late 2021 requires that any person, who in the course of business, advertises and negotiates certain transactions in a language other than English must provide a translation of the contract or agreement that results from the advertising and negotiations. The translation must include every term and condition of the contract or agreement. It's not far-fetched to imagine that federal legislation or rule making could mimic or even build upon such language. More LEP activityThe trend toward increased LEP requirements has reached the court system as well. A 2021 settlement between a large nationwide mortgage servicer and 48 state attorneys general regarding improper servicing allegations required the servicer to improve its practices regarding LEP borrowers. Among other consequences, the servicer was required to provide translation services and accept hardship letters and state and federal government forms in languages other than English. The movement toward increased LEP requirements, in addition to the CFPB statement and FHFA mandate, has now come to the U.S. Congress as well, where H.R. 3009 would, if becoming law, create stricter LEP requirements including a standard language preference form; the requirement that servicers and lenders provide oral interpretation services and translated documents for identified LEP borrowers, and more. The practical case for delivering LEP resourcesThe legislative and regulatory trend toward increased LEP requirements is only likely to increase — especially as the number of LEP borrowers in the marketplace is almost certain to grow. While it remains to be seen what additional LEP requirements are on the horizon for lenders and servicers, it should not be overlooked that, as the general American demographic changes, so too will the market for homebuyers. The U.S. Census Bureau advises that almost 20% of the U.S. population today uses languages other than English in their homes. As far back as 2017, approximately 9% of the U.S. population would have been considered LEP borrowers — and the number is only rising. American Latinos will comprise up to 70% of new homeowners within 20 years. The reality, by the numbers, is that more and more potential homebuyers will not be proficient with English as they attempt to navigate an already-complex home-buying process. It only stands to reason, then, that providing LEP resources will not just be a question of compliance, but a question of adequately serving the market — and succeeding — as well. George Baker is the founder and CEO of Talk'uments. Josh Weinberg is a partner with Talk’uments and president of Firstline Compliance, LLC. This column does not necessarily reflect the opinion of HousingWire's editorial department and its owners. To contact the authors of this story: The post Opinion: FHFA language requirements may shake up compliance landscape appeared first on HousingWire. |
| Fannie Mae housing equity plan won’t expand credit box Posted: 07 Jul 2022 04:38 PM PDT Can Fannie Mae's housing equity plan make a meaningful dent in the 30 percentage point racial homeownership gap without a broad review of loan pricing? Top brass at Fannie Mae, in a Thursday webinar discussing its new equitable housing finance plans, argued it can. "The list of potential obstacles across the Black housing journey — it's long," said Katrina Jones, Fannie Mae’s vice president of racial equity strategy and impact. "Our plan is a good roadmap of where we, Fannie Mae, can start to knock down those barriers." Notably, decision-makers at Fannie Mae believe they can effect change without expanding eligibility criteria. Instead, the agency will focus on better identifying mortgage-ready applicants, and helping other borrowers become mortgage-ready, said Malloy Evans, single-family senior vice president at Fannie Mae. "Importantly, neither of these two outcomes is something that translates into expanding our credit box, or compromising on safety and soundness," Evans said. One way Fannie Mae hopes to broaden its pool of mortgage-ready borrowers is through its initiative to include positive rental payment history in its underwriting. Since Fannie Mae implemented the program nearly a year ago, Evans said 2,000 loan applications became eligible for purchase which otherwise wouldn’t have before its inception. More than 40% of those borrowers are Black or Latino, he added. Another cornerstone of Fannie Mae's equity plan is the use of targeted lending programs. Fannie Mae sought feedback while its plan was in development and learned some lenders were hesitant to implement special purpose credit programs, which can target lending products based on a protected class. But many lenders remain skeptical of targeted lending programs, preventing widespread adoption. Some may be reluctant after years of perceived regulatory uncertainty, or because regulators in the past used them to settle charges of redlining. Nonetheless, Evans said Fannie Mae representatives have spoken with several lenders who have come around to developing the programs and are "executing SPCPs in the market today." Fannie Mae intends to learn from the lenders that have already implemented special purpose credit programs, Evans said. Among them are Chase Home Lending — which last year started providing grants toward down payments and closing costs in minority neighborhoods — and TD Bank, which provides grants for closing costs and expanded underwriting in certain geographic areas. LISC San Diego, a community development financial institution, launched a grant program for eligible Black first-time homebuyers, also in 2021. By the end of 2022, Fannie Mae plans to introduce three to five special purpose credit programs of its own. The forthcoming programs will focus on enhancing borrower eligibility, by potentially reducing mortgage insurance costs or loan-level price adjustments. It’s possible Fannie Mae’s programs may also provide down payment assistance or reduced appraisal and title insurance costs. Special purpose credit programs are "very well suited" to the problems Fannie Mae is trying to attack, Evans said. Targeted lending programs also figure prominently in the recently proposed overhaul of the Community Reinvestment Act. "The steps we've taken to date have not gotten to the results that we need to get to," Evans said. "So we're trying to think about things differently, understand the root cause problems, and … the targeted solutions that can help attack those things." The post Fannie Mae housing equity plan won’t expand credit box appeared first on HousingWire. |
| 8 of 10 consumers: “Economy is on the wrong track” Posted: 07 Jul 2022 02:23 PM PDT Roughly eight in 10 consumers participating in a recent survey are frustrated with the housing market, inflation and the increasingly worsening economy — reflecting record-setting dissatisfaction from respondents of Fannie Mae‘s Home Purchase Sentiment Index (HPSI). The index, which tracks consumer confidence in the housing market, fell 3.4 points from May to June, dropping to 64.8 — its second-lowest reading in a decade. Compared with the same period last year, the index is down 14.9 points. "In June, a survey-record 81% of consumers reported that the economy is on the wrong track, suggesting to us, and corroborated by other recently released consumer confidence measures, that people appear to be growing increasingly frustrated with inflation and the slowing economy," said Doug Duncan, senior vice president and chief economist at Fannie Mae. Additionally, four of the index’s six components, those asking consumers whether it's a good time to buy, sell and in what direction they expect mortgage rates will move, decreased from May to June. About 21% of survey respondents also expressed job stability concerns, the highest percentage in 18 months. And approximately half of all surveyed said it would be “difficult” to get a mortgage, the greatest number since 2014. “This month's HPSI reading reflects these macroeconomic and personal financial concerns, with housing sentiment additionally diminished by the recent rapid increases in mortgage rates,” Duncan said. Mortgage rates, following the Federal Reserve‘s inflation-fighting monetary policy, averaged 5.30% this week, according to the latest Freddie Mac PMMS index. Rates have been trending downward in recent weeks, but it’s still well over the 2.90% 30-year fixed-rate purchase rates the same period a year ago. The HPSI results for June are consistent with the Fannie Mae Economic and Strategic Research Group's forecast of a slowing housing market through the rest of 2022 and 2023, Duncan added. Citing higher mortgage rates as the housing market’s “primary constraint,” the ESR Group projected total home sales to fall 13.5% to 5.96 million units in 2022. About 5.29 million homes are expected to sell in 2023. The GSE also lowered its projections of mortgage originations to $2.6 trillion in 2022 and $2.2 trillion in 2023. Regarding the overall economy, Fannie Mae raised the second quarter GDP to 2.5% for 2022 but said it will be offset by a slower growth forecast in the latter half of the year as inflation continues to eat into real incomes. The post 8 of 10 consumers: “Economy is on the wrong track” appeared first on HousingWire. |
| Mortgage insurer Enact lines up $200M line of credit Posted: 07 Jul 2022 01:22 PM PDT Enact Holdings Inc., the holding company for Enact Mortgage Insurance Co., has inked a deal with five lenders that have agreed to extend a $200 million revolving line of credit to the company. The credit facility will be used for working capital and other corporate purposes as well as for capital contributions to its insurance subsidiaries. Enact (Nasdaq: ACT), formerly known as Genworth Mortgage Insurance Corp., announced the new five-year credit facility in a filing with the U.S. Securities and Exchange Commission (SEC). The annual interest rate for borrowings against the line of credit include, at Enact's option, either a base rate or an adjusted-term SOFR (Secured Overnight Financing Rate] rate. Both borrowing options also include a margin based on the company's current credit rating — which is now 2% for the SOFR loan or 1% for the base-rate loan, according to Enact's SEC filing. "This new credit facility enhances our financial flexibility and bolsters our already strong balance sheet," said Dean Mitchell, executive vice president and chief financial officer of Enact. "We are pleased with the terms of the facility, which reflect our strong operating performance, credit profile and capital position." The revolving credit facility is not secured but is tied to certain loan covenants that restrict the ability of Enact and its subsidiaries, with some exceptions, from doing the following:
The credit agreement also requires the company to maintain minimum net worth, total adjusted capital, debt-to-capital and liquidity levels. "The Corporation may voluntarily repay outstanding loans and terminate commitments under the revolving facility at any time without premium or penalty," Enact's SEC filing states. Five banks are participating in extending the $200 million line of credit to enact. They are led by JPMorgan Chase Bank, as administrative agent and joint lead arranger and Truist Bank as joint lead arranger. The other three lenders participating in the credit facility are Goldman Sachs Bank USA, Barclays Bank PLC and Citibank. Enact recorded net income of $165 million on net premiums of $234 million for the first quarter of 2022 compared with net income of $125 million on net premiums of $253 million for the same quarter in 2021, the company reported. The mortgage insurer had $232 billion in insurance in force as of the end of the first quarter of this year, up 10% compared with $210 billion as of the end of the first quarter of 2021. The post Mortgage insurer Enact lines up $200M line of credit appeared first on HousingWire. |
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