Saturday, July 23, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Warehouse lenders stung by FGMC’s bankruptcy

Posted: 21 Jul 2022 12:09 PM PDT

Recent pleadings filed in the bankruptcy case of First Guaranty Mortgage Corp. (FGMC) show the lender left its warehouse lenders holding the bag for a mound of debt. 

FGMC and its affiliate, Maverick II Holdings LLC, on June 30 filed to reorganize under Chapter 11 bankruptcy protection. Pleadings filed in the case — now pending in U.S. Bankruptcy Court in Delaware — show the lender owes more than $400 million to four warehouse lenders, which include Customers Bank, Flagstar Bank, Texas Capital Bank and J.V.B. Financial Group LLC. 

"With respect to nonagency loans and non-QM loans, warehouse lenders will finance between 90% and 95% of the original principal amount of the loan, which requires [FGMC] to use working capital to fund the remaining portion of the principal balance of the mortgage loans," states a declaration filed with the court by FGMC CEO Aaron Samples. "As of the petition date [June 30], the debtors [FGMC and affiliates] estimate that they collectively owe the warehouse lenders approximately $418 million."

Samples reveals in his declaration that FGMC was hemorrhaging cash just prior to filing for bankruptcy protection — posting a $23.3 million after-tax loss over the four months ending April 30. He also contends in his court pleadings that the amounts advanced under the warehouse lines are secured by "mortgage loans, cash and related collateral."

"Obligations to Customers Bank are further secured by a cash reserve account and related collateral," Samples court pleadings add. "Further, a portion of [FGMC's] obligations to Customers Bank, not to exceed $25 million, is subject to a full recourse guarantee…."

FGMC also owes $18.4 million to a bridge lender that is described in court filings as “an indirect subsidiary of a private investment firm managed by Pacific Investment Management Co. (PIMCO)” — which is a large investment management firm that in 2015 purchased a stake in FMGC. That debt is listed as secured debt.

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In addition, FGMC in court pleadings indicates that it has about $37 million in unsecured debt, "including trade debt and payables, amounts owed to former and current employees, and a $25 million fully-drawn line of credit with Customers Bank."

Customers Bank, in a motion filed with the bankruptcy court, explains that it is party to "two financing arrangements" with FGMC. One is the warehouse line — set up to facilitate FGMC's funding of mortgage loans. The other is a separate "revolving credit facility" provided to FGMC for "working capital." 

Although Sample's declaration lists the fully-drawn $25 million line of credit as unsecured debt, Customers Bank's pleadings allege that both the warehouse and the working-capital lines of credit are secured by collateral.

Another warehouse lender, Flagstar Bank, also alleges in pleadings filed with the bankruptcy court that FGMC owes it a tidy sum on a secured warehouse line with the bank.

"As of the petition date, there were approximately 161 pledged mortgage loans originated, funded or acquired, in whole or in part, by FGMC through advances under the Flagstar loan agreement," a bankruptcy court filing by Flagstar states. “Approximately $50 million remains outstanding under the Flagstar loan agreement [the warehouse line of credit], exclusive of interest, fees and other costs, including curtailment charges that continue to accrue."

Both Flagstar and Customers Bank also have filed motions with the bankruptcy court objecting to parts of a recent FGMC motion. Those pleadings, among other requests, seek court approval for FGMC to obtain post-bankruptcy warehouse financing (called debtor-in-possession, or DIP, financing).

The rub, however, is that FMGC is asking the court to give the provider of that DIP financing "super-priority [status] ahead of all other creditors, including pre-petition secured creditors," such as Flagstar and Customers Bank, court pleadings filed by Customers Bank allege.

A hearing on the matter has been set for July 28 in U.S. Bankruptcy Court for the District of Delaware in Wilmington, according to the bankruptcy court docket for the case.

In a related matter, a lawsuit that seeks class-action status has been filed by former FGMC employees against the lender. The litigation seeks backpay and other relief on behalf of former FGMC employees who were laid off by the lender without notice in late June, in alleged violation of the federal WARN Act.

"Plaintiffs [employees] were terminated along with approximately 470 similarly situated employees as part of … mass layoffs or plant closings ordered by [FGMC leadership] on June 24, 2022," state pleading filed in late June in U.S. Bankruptcy Court for the District of Delaware. "[FGMC] failed to give [employees] … at least 60 days' advance notice of their terminations, as required by the WARN Act."

The post Warehouse lenders stung by FGMC's bankruptcy appeared first on HousingWire.

Purchase mortgage rates rise ahead of Federal Reserve meeting

Posted: 21 Jul 2022 07:00 AM PDT

Purchase mortgage rates increased for the second consecutive week but at a slower pace as the market chewed on the latest U.S. inflation data, the expectation of a tightening Federal Reserve's monetary policy, and its economic impacts.  

After jumping 20 basis points last week to 5.50%, purchase mortgage rates increased this week to 5.54%, according to the latest PMMS survey from Freddie Mac. The index compile rates reported by lenders during the past three days.   

"The housing market remains sluggish as mortgage rates inch up for a second consecutive week," said Sam Khater, Freddie Mac's chief economist. "Consumer concerns about rising rates, inflation and a potential recession are manifesting in softening demand. As a result of these factors, we expect house price appreciation to moderate noticeably." 

Mortgage rates tend to align with the 10-year U.S Treasury yield, which increased 13 basis points in one week to 3.15% Wednesday. The federal funds rate doesn't directly dictate mortgage rates, but it does steer market activity to create higher rates and reduce demand.

The 10-year benchmark reflects that, in June, the consumer price index rose 9.1% on a year-over-year basis, far above Wall Street's estimate of 8.8% and the fastest pace since November 1981. 

Wall Street observers believe the Federal Reserve will increase rates by 75 or 100 basis points later this month to reduce inflation, generating concerns that a recession is just around the bend. 

How auction buyer data foreshadows housing market shifts

The retail housing market data, released by Redfin at the end of June, shows the median asking price for newly listed homes for sale in the four weeks ending June 26 dropped 1.5% from an all-time high in the previous month even while a record share of all homes for sale saw price drops.  

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Weakening economic outlook, high inflation and affordability challenges have taken a toll on buyer demand. 

According to the Mortgage Bankers Association (MBA), the market composite index, a measure of mortgage loan application volume, declined 6.3% for the week ending July 15. The refinance index dipped 4% from the previous week, and the purchase index decreased 7%.

On HousingWire's Mortgage Rates Center, Black Knight’s pricing engine Optimal Blue had 30-year conforming rates at 5.789% on Wednesday, slightly up to 5.782% the previous week. 

Meanwhile, the 30-year fixed-rate jumbo was at 5.245% Wednesday, down from 5.322% the previous week. The Optimal Blue index includes some refinancing data — but excludes cash-out refis to avoid skewing averages.

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.75% with an average of 0.8 point, up from last week's 4.67%. The 15-year fixed-rate mortgage averaged 2.12% a year ago. 

The 5-year ARM averaged 4.31% this week, down from 4.35% the previous week. The product averaged 2.49% a year ago. 

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In a bad mortgage market, these are areas of opportunity for lenders

Posted: 21 Jul 2022 06:41 AM PDT

Home listings grew, credit scores improved and tappable home equity increased in the second quarter of 2022 from the first quarter. Those the three areas represent an opportunity for lenders grappling with a deeply challenging mortgage market, Sales Boomerang said in its second quarter mortgage opportunities report.

Sales Boomerang reviewed data from more than 170 residential mortgage lenders that use its platform to monitor millions of customer and prospect records. The mortgage tech firm then calculated and compared the aggregate frequency with which those contact records triggered loan-opportunity, prescriptive-scenario and risk-and-retention alerts during the first and second quarters of 2022.

“New home listings and cash-out alerts both trended upward in the second quarter, making purchase and home-equity products smart areas of investment for lenders as they prioritize assignment of limited resources," said Mike Spotten, executive vice president of product at Sales Boomerang. 

Of the total monitored contacts, about 1.44% of contacts were new listing alerts, up 69% from the first quarter. More than 4% of monitored contacts were credit improvement alerts, an increase of more than 130% from the previous quarter. 

The significant quarter-over-quarter increase illustrates that Americans' overall financial status was improved by pandemic-related fiscal measures, including government stimulus payments, tax credits and student loan moratoriums, the report said. 

Meanwhile, the second quarter saw a decline in mortgage inquiry alerts, rate alerts, and rate-and-term alerts, a predictable result at a time when interest rates are discouraging rate shopping and refinances.

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 about the ways lenders can capitalize on these trends by revving up their home equity solutions.

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The mortgage inquiry alert was down 28.6% from the first quarter and rate alert dipped 40%. Rate-and-term alerts also fell 49% in the second quarter from the previous quarter. 

As a result of rising interest rates, the value of mortgage servicing rights continues to grow. The report added: lenders must carefully weigh the pros and cons and potential balance sheet impacts of retaining versus selling mortgage servicing rights. 

Last week, mortgage application volume reached the lowest level since 2000 due to a weakening economic outlook, high inflation and affordability challenges, the Mortgage Bankers Association (MBA) said. 

According to MBA, the overall mortgage production in the U.S. is expected to drop more than 40% this year from 2021. Of the $2.4 trillion origination volume expected in 2022, only $730 billion, about 30% of the total origination, are projected to account for refis.

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Sandra Thompson tight-lipped on credit score changes, ending GSE conservatorships

Posted: 20 Jul 2022 02:09 PM PDT

Federal Housing Finance Agency Director Sandra Thompson is keeping her views on whether Fannie Mae and Freddie Mac should exit conservatorship and a decision on credit scoring models close to the vest.

"Ending conservatorships is not a quick action to undertake," Thompson said in testimony Wednesday before the House Financial Services Committee. "There are capital targets that have to be met, other policy issues that have to be decided by other stakeholders — the U.S. Treasury, some with the Federal Reserve, and others.

"It's not an easy or immediate process. We will do our best to make sure that when they do exit, they are in a good position financially and operationally."

Thompson has previously said that Congress should figure out whether to end the now nearly 14-year conservatorship. But some argue the Housing and Economic Recovery Act of 2008 allows the FHFA to take action without Congress, and manage the GSEs under a utility model.

And although it has not stretched as far as GSE conservatorship, the FHFA's review of alternative credit scoring models is now in its seventh year. Lawmakers asked Thompson when they could expect a final decision on whether the GSEs will update the credit scoring models they use.

Thompson did not budge on that topic, either, although she emphasized how costly it would be to make any changes to the credit scoring model the GSEs use.

What opportunities do lenders miss out on by not focusing on credit

HousingWire recently spoke to Mike Darne, Vice President of Marketing for CreditXpert, who said focusing first on the borrower’s credit holds the key to winning business that other lenders won't even see.

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"We have not made a decision on the credit score model. Most mortgage participants have used the FICO classic model for the last 20 years," said Thompson. "Updating the credit score model is a decision we take very seriously, because it will have significant operational and cost impacts even if we move from one credit score [model] to a new credit score [model], so we want to be very thoughtful."

Democratic Rep. David Scott, of Georgia, asked Thompson what the FHFA was doing to address "inaccurate" and "distorted" appraisals of some manufactured homes.

Thompson said the issue with appraisals was brought to her attention while touring manufactured homes at a recent festival on the National Mall. Thompson said she would work with the GSEs to "see what flexibilities there might be in that particular situation."

During the nearly five-hour hearing, Thompson also took the opportunity to again request that lawmakers give the FHFA the same oversight of enterprise third-parties that bank regulators have of bank service providers. Doing so would give it "parity with other financial regulators," Thompson said.

"We believe persons and entities that provide services to our regulated entities, if there's an issue that could impact safety and soundness of Fannie and Freddie, we want to have the authority to go in and take a look at the problem," Thompson said.

FHFA has repeatedly asked Congress to give it the authority to examine third-party service providers. Thompson said that when she arrived at FHFA from the Federal Deposit Insurance Corporation, she was "surprised" that the FHFA didn't have the same authority that agency has under the Bank Service Company Act.

That law subjects bank service providers to regulation and examination "to the same extent as if such services were being performed by the depository institution itself on its own premises." It also mandates that banks promptly notify their regulator of new service provider agreements.

Among other updates for lawmakers, Thompson said that the holistic pricing review she promised in October 2021 would be "a priority for the enterprises for this year."

"We have asked Fannie Mae and Freddie Mac to undertake a holistic pricing review, which would include loan level price adjustments, delivery fees and guarantee fees," said Thompson. "We're going to look at the submissions and take into consideration the impact pricing has on all different segments, including communities of color."

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Ex-Sprout employees: no paychecks, no severance and now, no health insurance  

Posted: 20 Jul 2022 08:32 AM PDT

When non-QM lender Sprout Mortgage abruptly shut down on July 6, more than 300 workers expected their last paychecks to be delivered the following day as scheduled. They also expected Sprout to offer severance packages to cushion the blow. 

Instead, paychecks weren’t delivered to employees, and severance wasn’t offered, former employees said. There’s more grim news, too. 

A week after shutting down, Sprout cut off health insurance retroactive to May 1, despite collecting insurance premiums from employees’ paychecks, according to multiple former employees and documents reviewed by HousingWire.

Some former employees, without a job and at risk of having to pay tens of thousands of dollars in medical bills, filed complaints with the New York State Attorney General’s office. 

The Long Island-based lender, headed by industry veteran Michael Strauss, shut down suddenly after a deal for funding fell through, sources told HousingWire. Sprout, like many lenders, had been hemorrhaging money after a sharp rise in mortgage rates saddled it with tens of millions of dollars in loans it couldn't sell to investors in the secondary market at par.

“Sprout collected money from our paychecks to pay the health insurance premiums in May and June, but we were told we don’t have the coverage for this period,” said a former employee who requested anonymity. 

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He added: “When you have a family of four and the insurance company tells you might have to pay back everything because you didn’t have coverage at the time of services, it’s a huge deal.”

HousingWire reviewed multiple former employees’ paychecks – for May 6, May 23, June 7 and June 22 – to confirm they paid health insurance premiums.  

Health insurance provider Empire Blue Cross Blue Shield spokesperson Alessandra Simkin confirmed that the contract terminated on May 1, 2022. Simkin declined to say when Sprout asked to terminate the contract or provide any additional details.  

“I called Empire Blue Cross Blue Shield and they said they received an email from Sprout on July 12 saying that the benefits would be discontinued retroactively to May 1,” another former employee told HousingWire. 

She added: “That’s when I felt it went above business practices and more of a Ponzi scheme. The decision to close the business is one thing, but going ahead and actively ending their medical benefits for two months is horrible. It’s a blatant disregard for people.”

A spokesperson for Sprout did not immediately respond to a request for comment. Strauss, who sources said has holed up with about a dozen workers since the closure, couldn't be reached for comment.  

A longtime fixture in the mortgage industry, Strauss has been accused of improper shutdowns before. In 2009, he paid $2.5 million to the Securities and Exchange Commission to settle charges of accounting fraud and concealing deteriorating finances at American Home Mortgage Investment Corp. as the subprime crisis struck in 2007.

Strauss and other senior executives "did not just occupy a front row seat to the mortgage meltdown — they were part of the show,” Robert Khuzami, the then-director of the SEC’s Division of Enforcement, said in 2009. “As the housing market imploded, these executives kept secret that the company’s holdings were collapsing like a house of cards.”

Strauss was banned from serving as an officer or director of a public company for five years. He founded Sprout in 2015.

Two weeks after the shutdown, former workers at Sprout are still seeking answers. To date, they say they haven't received specific, actionable information on how to get paid or cover health care costs.

“We understand that you may have concerns regarding pay and insurance coverage. Sprout is committed to working on a solution to address these issues and, hopefully, alleviate the concerns,” Rebecca Yoselowitz, who leads human resources for Sprout, wrote in a July 13 email to select former employees. 

Some former employees said they now are stuck with as much as $50,000 in bills for medical exams, doctors’ appointments, prescriptions and surgeries.

“I called Empire Blue Cross Blue Shield and they said there will be an audit done, and the claims will be overturned: it means I will be responsible for the entire amount because the insurance is no longer effective for the period,” a third former employee said. 

Multiple former employees told HousingWire they filed complaints with the New York Attorney General's Office. A spokesperson for the office told HousingWire that the AG's office is "looking into" the claims.

The closure of Sprout was swift and unexpected, even though it came on the heels of another non-QM lender – First Guaranty Mortgage Corporation – also closing. On the afternoon of July 6, Sprout president Shea Pallante told more than 300 workers in a conference call that the company was closing that day. Employees were quickly locked out of their systems, several sources said. 

Two days after it abruptly shut down its operations, the company became the target of a class-action-seeking lawsuit. Two former employees are suing Sprout, its affiliated company Recovco Mortgage Management LLC, and Strauss, alleging they laid off around 100 employees at the New York office without giving legally required written notice and failed to pay their paychecks due the following day.

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Thursday, July 21, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Mortgage applications dipped 6% continuing 3-week decline

Posted: 20 Jul 2022 04:02 AM PDT

Weakening economic outlook, high inflation and affordability challenges took a toll on buyer demand, leading to a drop in both purchase and refi applications last week, according to the Mortgage Bankers Association (MBA).

The market composite index, a measure of mortgage loan application volume, declined 6.3% for the week ending July 15, the MBA said. The refinance index dipped 4% from the previous week, falling to a 22-year low, and the purchase index decreased 7%.

"Mortgage applications declined for the third week in a row, reaching the lowest level since 2000," Joel Kan, associate vice president of economic and industry forecasting at MBA. "The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs."

New U.S. home building activity fell 2% to a seasonally adjusted annual rate of 1.56 million units in June, marking a nine-month low since September 2021, according to the U.S. Department of Commerce. Permits for future homebuilding fell 0.6%, to a rate of 1.69 million units, also the lowest since September. 

While the refinance share of all mortgage activity slightly increased from 30.8% the previous week to 31.4% of total applications, the refi index was 80% lower than the same week a year ago.

"With most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet," Kan said.

Mortgage rates have been volatile in recent weeks, following the Federal Reserve's interest rate hike of 75 basis points last month. After falling 40 bps two weeks ago to 5.30%, purchase mortgage rates climbed back last week to 5.5%, according to the latest Freddie Mac PMMS. A year ago at this time, 30-year fixed-rate purchase rates were at 2.88%.  

The trade group estimates the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) rose to 5.82%, from the previous week's 5.74%. Jumbo mortgage loans (greater than $647,200) also increased to 5.31% from 5.25%. 

The Federal Housing Administration‘s (FHA) share of total applications rose to 12.4% from the previous week's 11.7%. The United States Department of Agriculture‘s (USDA) share also increased to 0.6% from the week prior's 0.5%. Meanwhile, the Veterans Affairs‘ (VA) share of total applications fell to 10.6% from 11.2%.

The share of adjustable-rate mortgages (ARM) applications also declined, accounting for 9.5%. According to the MBA, the average interest rate for a 5/1 ARM decreased to 4.6% from 4.71% a week prior. 

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

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HUD’s small-dollar mortgage plan still hazy

Posted: 19 Jul 2022 03:08 PM PDT

The Department of Housing and Urban Development said it is “looking very hard” at how to make it easier to finance small-dollar mortgages, but has yet to spell out how it will accomplish that goal.

In April, HUD signaled it would take on the issue. But a senior HUD official in mid-July stated the obstacles to providing small-dollar mortgages, instead of giving solutions.

“It’s hard to get lenders to make small mortgages, because quite honestly the economics of the whole business depends on percentages,” the HUD official said.

HUD did not respond to a request seeking clarity on their plan to boost small-dollar mortgages.

Industry practitioners have some ideas for how HUD might make financing such loans more feasible.

Small-dollar mortgages, typically with balances less than $200,000, are hard to find. Lenders avoid them, because originating a small-balance loan is as expensive as a larger loan, but the compensation, which is about 1% of the loan balance, is lower.

Michael Loftin, CEO of Homewise, whose work revolves around sustainable homeownership, suggested HUD take a cue from the government-sponsored enterprises. Fannie Mae and Freddie Mac, although they rarely back small-dollar loans, subsidize lenders for originating them.

"Freddie Mac and Fannie Mae give [lenders] a little bump on their origination fee to encourage small-dollar lending," said Loftin. "It's an acknowledgement that you're making less on a small-dollar loan."

He added that non-traditional lenders, such as Community Development Financial Institutions (CDFI’s) and credit unions, should be key players in any plan by the federal government to make small-dollar mortgage loans more accessible.

"There are CDFI's and credit unions that want to do this work, but maybe they need an operating subsidy or cheaper capital to make this work," said Loftin. "Having a product alone will not address the problem — you still don't have people doing the work on the ground."

Loftin also suggested a subsidy for real estate agents, because "they can't make a living selling $40,000 homes.”

A recent report from researchers at The Pew Charitable Trusts underscored the challenges of small-balance mortgage lending. The report found that fixed mortgage origination costs lead lenders to “focus on higher-balance loans.” Small mortgages are less profitable, because lender compensation is commission-based, but they come with the same regulatory and compliance risks, the researchers wrote.

Tara Roche, who co-authored the report, said that making small-dollar loans more accessible would help curb buyers’ reliance on riskier and costlier alternative financing.

Instead of mortgages, borrowers looking to finance more modest properties turn to land contracts, seller-financed mortgages, lease-purchase agreements, and personal property loans. That financing is often more expensive and lacks the consumer protections that come with mortgages, Roche said.

“In some arrangements, the deed or the title to the property isn’t handed over until much later in the transaction, sometimes not until final payment is made,” Roche said. Those borrowers “have the responsibilities of homeownership but not all of the benefits.”

The use of alternative financing is also not equitably distributed. Hispanic borrowers are almost twice as likely to use alternative financing than any other race or ethnicity, Pew researchers found.

Roche said that small-dollar lending is an overlooked area for mortgage lending, but that it has a lot of potential. Although it’s not yet clear how HUD will tackle the issue, Roche said she is encouraged that HUD is focused on the problem.

“In order to really get at the challenges in the smaller mortgage space, whether that’s lenders’ difficulty originating these profitably or the ability for buyers to access them, it’s going to take a multi-pronged effort,” said Roche. “HUD even identifying this as challenge is an important step.”

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Higher mortgage rates, economic uncertainty behind declining home purchase applications

Posted: 19 Jul 2022 01:50 PM PDT

New home purchase applications dropped 12% year over year in June due to higher mortgage rates and economic uncertainty, according to the builder application survey from the Mortgage Bankers Association (MBA). Month over month, application volume dipped by 10%. 

New residential construction and permitting activity weakened from March through May, which reduced the number of homes available for home buyers, according to survey results.

MBA estimates about 620,000 new single-family homes were sold in June at a seasonally adjusted annual rate, marking a 15% drop, or more than 100,000 homes, compared to May. 

"Higher mortgage rates and heightened economic uncertainty cooled borrower demand in June, leading to new-home purchase applications declining to the lowest level since April 2020," said Joel Kan, associate vice president of economic and industry forecasting at the MBA.

Mortgage rates have been volatile in recent weeks, following the Federal Reserve‘s interest rate hike of 75 basis points last month. After falling 40 bps two weeks ago to 5.30%, purchase mortgage rates climbed back last week to 5.5%, according to the latest Freddie Mac PMMS.

The average loan size dropped to $426,966 in June from May’s $430,855, MBA said. 

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Conventional loans accounted for 73.7% of loan applications. Federal Housing Administration (FHA) loans made up 15%, Veterans Affairs (VA) loans were 10.7% of total applications and Rural Housing Service (RHS) and United States Department of Agriculture (USDA) loans contributed 0.5%. 

The survey tracks application volume from mortgage subsidiaries of homebuilders across the country. Using this data, MBA provides an early estimate of new home sales volumes at the national, state and metro level. 

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FHFA opens fintech office and seeks feedback on mortgage fintech

Posted: 19 Jul 2022 12:35 PM PDT

Fannie Mae and Freddie Mac's regulator imagines a future where, perhaps through artificial intelligence and machine learning, errors in mortgages are identified in real time before a loan is closed.

Automating compliance could make eligibility, as well as pricing and pooling decisions, and verify and validate that information.

But that scenario is a long way off. Although investors have poured an increasing amount of money into fintechs — $1.7 billion in 2021, up from $0.4 billion five years ago, per the Federal Housing Finance Agency — closing a mortgage loan has since gotten more expensive, not less.

The FHFA this week launched a new Office of Financial Technology, which it said will be the main point of contact for fintech matters.

At the same time, the agency is seeking feedback on how to incorporate technological advancements into the mortgage lifecycle. Through a request for information, the FHFA said it would like to better understand the "potential innovations throughout the mortgage lifecycle and related processes, risks, and opportunities."

The FHFA asked the public to help it identify “barriers” to implementing fintech in the housing finance ecosystem. It also emphasized the importance of balancing housing equity with technological innovation.

How mortgage lenders are qualifying the value of fintech solutions

HousingWire recently spoke with Sue Woodard, senior advisor to Total Expert, about the ways lenders can measure the effectiveness of their fintech solutions and what they can do to keep pace with the digital mortgage revolution.

Presented by: Total Expert

The FHFA said it was following in the footsteps of other financial regulators by establishing its own fintech office. Agencies with existing fintech offices include the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.

The broadly used term "fintech" encompasses digital innovation in many parts of the mortgage finance ecosystem, the FHFA wrote. The agency offered three narrower categories for fintech as it relates to mortgage finance: "mortgage tech," which includes digital processes applied to mortgage origination, underwriting, servicing and investment; researching, transacting and managing real estate, or "prop tech," and regulation and compliance, also known as "regtech."

The agency said it is interested in the role of fintech in the "ecosystem" of residential mortgages, its role in the secondary mortgage market, the risks of using fintech and its application to compliance and regulatory activities.

In terms of risks, the FHFA highlighted a number of examples that it is taking into account. Those include inadequate regulation of the fintech sector, cybersecurity vulnerabilities due to "complex, poorly understood, or poorly managed innovations," consumer privacy threats, fair lending violations, and legal, compliance and reputational risk.

The agency also raised the possibility that algorithms may have differential and negative impacts on minorities or underserved markets, and that fintech platforms could "erode the accumulated wealth of individuals and firms" that participate in them.

There is much in the mortgage process that fintechs might improve, but so far, the FHFA wrote, it has not made producing mortgages less costly. Full production costs per loan totaled almost $9,500 in the fourth quarter of 2021, up from a little over $7,500 five years earlier.

The time it takes to close a mortgage loan is still lengthy — on average, 46 days from application to closing. During that time, the average prospective borrower has 30 interactions with sales representatives, the regulator wrote.

Those costs, and the timeline to close a loan, are not equitably distributed, according to the FHFA.

"Underserved populations are often most cost and time-burdened due to historical and ongoing structural and systemic barriers," the agency wrote.

But the agency is optimistic that fintech innovation can eventually make mortgage processes more equitable, as well as more efficient.

Although the efficiencies and savings haven't yet materialized, FHFA cited research from McKinsey and Company claiming that a "reengineered, digitalized mortgage origination process could reduce costs by 10%, reduce timelines by 15 to 40%, and reduce interactions with borrowers by 15% to 40%."

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loanDepot sues CrossCountry for “poaching” high-performing LOs in New York

Posted: 19 Jul 2022 10:49 AM PDT

Anthony Hsieh
Anthony Hsieh, founder and CEO of loandepot

Even in a downturn, the loan officer recruiting wars remain fierce. Beleaguered nonbank lender loanDepot is suing rival lender CrossCountry for allegedly dozens of poaching high-performing loan officers from its New York branches. They’re at least the third lender to sue CrossCountry for poaching over the last two years.

The lawsuit, filed in federal court in New York last week, alleges that since February 2022 “CrossCountry improperly poached no fewer than 32 loanDepot employees from loanDepot branches in Manhattan, Brooklyn and Fishkill, New York by interfering with loanDepot’s contractual and other legal rights.” 

Employees who left for CrossCountry accounted for about 81% of the loan volume generated by loanDepot’s New York operations in the past year, the suit said.

"CrossCountry’s focus on loanDepot’s New York operations is hardly surprising" as loanDepot’s New York branches produced an average of $846 million of loans in volume annually, loanDepot said in court filings. Some employees worked at loanDepot for more than 10 years before leaving for CrossCountry, loanDepot alleged. The lawsuit said that other loanDepot employees plan to leave the lender to join CrossCountry.

loanDepot accused CrossCountry of breach of contract, violating the trade secrets act, interfering with contracts and unfair competition, among other claims.

The accusations come amid loanDepot's pledge to cut 4,800 jobs in 2022 to return to profitability. loanDepot reported a net loss of $91.3 million in the first quarter of 2022, with origination volume falling significantly due to a sharp rise in rates. 

Poaching allegedly started on Feb. 23 when Michael Secor, a loan consultant, and defendant Emeline Ramos, Secor’s production assistant, abruptly resigned. Nine loan consultants and three managers followed them over the next two weeks, the lawsuit claimed. (Secor, Ramos and 10 others were named as defendants in the lawsuit.)

Since then, CrossCountry recruited 18 additional loanDepot employees including loan consultants, managers and production assistants, loanDepot claims. 

The lawsuit claims that former employees took “valuable loanDepot trade secrets" and "proprietary customer information" when they left for CrossCountry and that Cross Country is actively using this information to capture loanDepot business and customer relationships.

loanDepot alleges Cross Country's CEO Ron Leonhardt is willing to “absorb such litigation and injunctive relief as a cost of doing (illegal) business” and even offered to pay a $50,000 bounty to anyone who is able to co-opt an entire loanDepot branch.

To help fund a strategy of “employee raiding,” CrossCountry raised $400 million in outside funding in November 2021, which Leonhardt crowed at the time that the financing positions CrossCountry for growth as it "expand our platform, geographical footprint and residential mortgage offering," the lawsuit said. 

loanDepot declined to comment citing ongoing litigation and CrossCountry didn’t respond to requests for comment. 

Guild Mortgage and Caliber Home Loans have both sued CrossCountry on similar grounds. Caliber, now a part of New Rez, said CrossCountry had snagged 80 top-producing LOs who originated $2.3 billion in business. In October 2021, Guild Mortgage sued CrossCountry for allegedly engaging in similar practices.

loanDepot also sued seven former loan officers from the Meredith-Rogers team in September for joining CrossCountry and allegedly transferring loans in the pipeline to their new employer.

The post loanDepot sues CrossCountry for “poaching” high-performing LOs in New York appeared first on HousingWire.

State of the mortgage industry half-time report

Posted: 19 Jul 2022 09:30 AM PDT

Adjusting to today's market can be dizzying after the last few years of historically low interest rates and high refinance business. However, the lenders and loan officers who will be most successful in the second half of 2022 will be those who pivot quickly, understanding both the nuances of the market and the best strategies to help solve problems for today's homeowners, homebuyers, homesellers, Realtors and financial advisors.

We interviewed more than 25 mortgage industry experts to gather the best insights, strategies, and recommendations to pivot and win in today's market. We partnered with HousingWire to release a few excerpts from the report.  

Millennials make up 44% of home purchases today. In a purchase-heavy market, understanding these consumers’ challenges and perspectives has never been more important. 

Generational nuances. As a generation, millennials have been groomed to expect the "press button, get mortgage" experience, but they are also terrified to make a wrong move with the biggest financial decision of their lives.

In a survey of over 3,000 NextGen homebuyers, we found that lack of education and distrust hit the top of their list of challenges, while a demand for personalized information was key to winning them over. 

  • Education: In the most basic financial literacy quiz, only a quarter of Millennials could answer four out of five questions correctly. And one in four NextGen homebuyers stated that their biggest challenge while buying a home was a lack of understanding. 
  • Distrust: Consumer trust has fallen across all sectors of business and government in the U.S. The 2022 Edelman Trust Barometer reported distrust is now society's default emotion. Their research shows the U.S. Trust Index has declined 10 points since 2017, and the majority of Americans do not trust the central bank. In the 2021 NextGen homebuyer research, two in three stated they did not think lenders were trustworthy or reliable. 

Blockchain and cryptocurrency. In an era of growing distrust, NextGen consumers are particularly attracted to a decentralized structure of currency and the potential for blockchain and crypto to increase the speed, safety, and ease through which they transact. 

Despite its volatility, it is clear that digital currencies are the future and not a fad. According to Jim Park, executive chairman of The Mortgage Collaborative, who has stayed at the forefront of the growing technology in real estate, 12% of first-time homebuyers used some form of crypto towards their down payment last year. 

Blockchain will create a lot more efficiency in all transactions, including real estate, said Park. For example, he explained that companies are converting real estate into NFTs and using a smart contract to close in a few days rather than weeks. They're also using the metaverse to tour homes from across the world, and there are many other applications that will likely change the way consumers purchase real estate in the future. 

"I think those are things that are going to force the industry to create more efficiency and some additional change, but also at the end of the day, it’s creating more transparency and more certainty to the consumers," said Park.

Innovations in technology. Last year, we wrote an article in HousingWire about the recent shift in technology trends, which is even more evident in today's purchase market. While mortgage technology will always improve in optimizing time and costs, the innovation today is in consumer empowerment. The best lenders are utilizing technology to put the control in the hands of the consumer through transparency, digestible information, and personalized advice. 

Dave Savage, co-founder and CEO of Mortgage Coach, recently presented at the Modern Mortgage Summit describing the history of mortgage technology over 36-years. Today, loan officers are not only having borrowers start the application with mobile devices and presenting a personalized, digital presentation, but they’re automating it with big data and predictive analytics. For millennials, this is the way they expect to be empowered through technology and mobile devices. 

The Move to hybrid. Most consumers don't care about meeting in-person anymore, but they do still care about human advice. The way to build trust and win more business with the largest segment of the purchase market is to empower them with personalized information through a hybrid experience.  The future isn't human versus machine on home values. It's when to use which, according to the CFPB Director from the MBA Secondary Conference. 

"If I’m a customer, I don’t really care if you’re a broker, a loan officer, or I’m sitting in a call center… If I need you to help me, I'm going to want some human intervention at some point in the process because it’s too important a decision for me," said veteran mortgage executive Bill Dallas.

For more trends and strategies aggregated from more than 25 of the mortgage industry's leading experts, see the full report. 

This column does not necessarily reflect the opinion of HousingWire's editorial department and its owners.

To contact the authors of this story:
Dave Savage at dsavage@mortgagecoach.com

Kristin Messerli at kmesserli@experience.com

To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com

The post State of the mortgage industry half-time report appeared first on HousingWire.

Milo reaches $10M crypto-mortgage milestone

Posted: 19 Jul 2022 09:11 AM PDT

Miami-based fintech Milo has closed $10 million in cryptocurrency mortgages since unveiling the product earlier this year, the company announced early Tuesday.

The lender's 30-year crypto mortgage is designed to make it easy for investors to use their digital holdings to acquire homes in the U.S. 

Through the crypto-lending program, Milo allows borrowers to pledge cryptocurrency through regulated custodians — crypto platforms such as Coinbase or Gemini — and thereby finance as much as 100 percent of the property purchase price, with a cap of $5 million.

"We have incredible momentum and see a fundamental need to help individuals diversify their wealth to generate real world yield through real estate," said Josip Rupena, founder and CEO of Milo. 

Milo's 30-year crypto-mortgage requires no down-payment, other than pledging the cryptocurrency as collateral, and is available at an interest rate as low as 6.95%. That rate, however, can change, according to Milo. The interest rate is reviewed annually to assess the ratio of crypto assets pledged as security to the total loan amount.

"The higher the ratio is, the lower your rate will be," according to Milo's website. The lower the ratio, of course, the higher the rate adjustment will be for the crypto-mortgage.

Milo's crypto-loan program, however, allows homebuyers to keep their cryptocurrency — Bitcoin, Ethereum and USD Coin all qualify for use as collateral — while acquiring property and potentially benefiting from price appreciation in both assets. 

"Given the current state of the market, we're extremely proud that we have not had any margin calls or negative counterparty exposure, all while continuing to originate mortgages," Rupena said. "As a licensed and regulated entity, we take our responsibility seriously to ensure our clients' crypto is safe and returned when requested."

Milo also offers a tech-enabled non-crypto mortgage product that serves U.S. and foreign nationals who want to purchase a home in the U.S., or pursue refinancing. Milo, a licensed and insured direct lender, reports some $100 million in loans have been originated through its more traditional mortgage line — with applicants hailing from more than 90 countries, according to a news release announcing Milo's crypto-mortgage milestone.

The company started rolling out its crypto-mortgage product in April of 2022 and has since added 20 employees, company representatives said, for a total of about 40 employees. Milo also has plans to soon introduce a crypto-mortgage refinancing product.

"The success of our crypto mortgage over the past few months serves as a testament to our ability to pioneer and create a unique solution for the crypto community," Rupena said. 

The post Milo reaches $10M crypto-mortgage milestone appeared first on HousingWire.
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