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Jobs, rates and insurance influence Freddie's 2025 outlook
Freddie Mac's latest economic forecast, while noting the policy uncertainty in the market right now, still calls for the Federal Reserve to keep to its "implied rate cut path" in 2025.Its outlook was informed by what Freddie Mac defined as the top three trends in the housing market in 2024: jobs, rates and insurance.While its November forecast did not take the election results into account, back then Freddie Mac felt economic conditions would keep the Fed on course for rate cuts going forward.Mortgage rates are expected to decline gradually during the year which will boost home sales slightly over 2024, the December outlook notes. Unlike other forecasters, Freddie Mac does not provide detailed numbers in its outlook.It also calls for home price appreciation to continue to moderate."This modest growth in house prices, and the increase in home sales should support the purchase market in 2025," a blog post from the Freddie Mac economics team led by Sam Khater said. "We also expect refinance volumes to increase mainly based on declining mortgage rates."As for those three underlying trends for 2024 impacting next year's market, first was the resilient labor market. "Job openings and hiring rates stabilized compared to the post-pandemic recovery," the post said. "As of November 2024, 1.98 million jobs were added to the economy, equating to 165,000 jobs per month."Next is the interest rate volatility for the full year, as the markets dealt with uncertainty around when the Fed would embark on a rate reduction program as well as the elections.Since the Fed made its first cut in September, mortgage rates have climbed, ending November at 6.81%, Freddie Mac pointed out.The 30-year fixed did decline in late November and early December, but for the week of Dec. 19 rose 12 basis points to 6.72%.Even as Freddie Mac expects rates to "very gradually" decline next year, other forecasters, including Fannie Mae, say movements will continue on their wild ride in 2025.The third and final theme for 2024 was the rising costs of homeowners insurance.An average borrower paid an annual homeowners insurance premium of $1,761 as of August. This was 13.6% higher than they did in 2023 and 61.8% higher than in 2018.Lower income property owners are more affected by the increased cost of homeowners insurance compared with moderate- and high-income borrowers.Low-income borrowers spent 3.4% of their monthly income on premiums, as of August. This compared with 1.7% for the average borrower."The impact of high interest rates and home prices affecting the principal and interest payments is much larger than the net impact of insurance cost, but it is still a significant burden on marginal borrowers trying to get into the housing market as well as homeowners with fixed incomes," Freddie Mac said.
LO's class action seeks unpaid OT wages from PNC Bank
A former PNC Bank loan officer is suing the bank for wage claims for damages allegedly exceeding $5 million. Alla Gurevich filed the class action lawsuit last week in a New Jersey federal court, accusing the Pittsburgh-based lender of violating state wage laws. The short filing does not include many details, but seeks to certify a class of at least 50 LOs who worked for PNC in New Jersey from 2019 to the present.Neither PNC Bank nor attorneys for the parties responded to requests for comment Tuesday. The lawsuit is similar to numerous unpaid wage claims against mortgage lenders, with other complaints also seeking reimbursement for work-related expenses. While lenders have batted some cases away, other companies have moved to settle. Some of those suits also remain pending in state courts.Lenders in those lawsuits often argue plaintiffs are exempt from overtime pay under the Fair Labor Standards Act and state labor laws. Gurevich's lawsuit only said class members were entitled to New Jersey wage law protections.Gurevich worked at PNC between 2018 and 2020, according to the filing. She was paid a fixed salary of $3,000 per month, plus commissions for originations. Like other proposed class members, the former LO said she often worked over 40 hours per week.The employees "regularly did not record all hours worked because of a common policy and practice by defendant of discouraging the recording of all hours worked," the lawsuit said.A summons to PNC Bank was issued Monday. The company is one of the larger mortgage lenders in the banking space, recording over $19 billion in origination volume last year according to Home Mortgage Disclosure Act data. It is also a major home equity line of credit lender, accounting for 5.1% of all such volume in the industry in 2023.
Why mortgage performance's slow deterioration has nuance
Suspensions and arrears on mainstream mortgages hit relatively high levels for the year, which suggests alignment in the two indicators, but a new working paper indicates they have two different drivers.The Mortgage Bankers Association reported Monday afternoon that forbearance rose for the sixth consecutive month in November to 0.5%, while a separate report showed Freddie Mac delinquencies manifest a similar trend during the same period, rising to a year-high of 0.56%. Both of these add to the list of historically healthy loan-performance indicators showing slow, consistent deterioration, but a Federal Housing Finance Agency study released the same day points to evidence that the drivers of delinquencies and payment suspension do differ."Underwriting characteristics at origination, such as credit scores or debt-to-income ratios, are by themselves insufficient predictors of forbearance participation," according to the FHFA working paper."Instead, we argue realized changes in economic circumstances, along with subjective expectations about needing help, morality about prioritizing one's self interests, financial literacy, and perceived economic uncertainty, are central to take-up," the paper's authors added.The findings in the paper by Justin Contat, William Doerner, Michael Seiler and Scott Weiner draw in part on the large forbearance datasets that became available due to its widespread use during the pandemic. All four are members of the FHFA's economic team.While the MBA found pandemic hardships have diminished as a forbearance driver, accounting for only 2.8% of outstandings in November, the paper also examined 2022 data reflecting areas with high flood risk. Disaster risk drove nearly half of outstanding forbearance last month.The FHFA economists also examined borrowers with credit hardships and no forbearance in their study.Death, divorce or disability generally accounted for the remaining half of recent forbearance that the MBA studied.Underwriting has been contracting in response to slow deterioration in delinquencies as reflected in Freddie Mac's data. MBA's Mortgage Credit Availability Index fell in November to a level that marked the closest its been to a benchmark level of 100 since April 2023.The MCAI's benchmark level of 100 reflects credit conditions in 2012.The FHFA paper examined statistics from the National Mortgage Database, which reflects origination and ongoing performance numbers from a representative sample of closed-end, first-lien loans. It also draws on data from the American Survey of Mortgage Borrowers.The agency and the Consumer Financial Protection Bureau jointly surveyed borrowers for the ASMB between 2020 and 2024, with distribution conducted on a targeted basis to groups relevant to the analysis involved, first focusing on COVID-19 and then flood areas later.New or more widespread methods of addressing borrowers in distress like forbearance proliferated during the pandemic, with some of this adopted for more long-term use in a manner that improved loan performance by some measures but also complicated its analysis.Loss mitigation will continue to evolve with a Republican-dominated administration and Congress next year, particularly in the Federal Housing Administration insured market prone to first-time buyer and financial concerns.Associations representing mortgage bankers, depositories and servicers last week called for streamlined FHA loss mit in line with a proposal to update the agency's handbook. The groups also seek an extension of the existing procedure into early 2026 to ease implementation.
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