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HUD releases guidance on risk in using AI for advertising
The Department of Housing and Urban Development released guidance about the potential risk of noncompliance with fair housing laws and the use of artificial intelligence.Covering platforms providing targeted digital advertising as well as rental tenant screening, HUD's notices come following a presidential order last year that directed the department to address AI concerns, particularly how automated technology might enable housing discrimination. Federal officials, likewise, appear to be increasing their focus on threats of artificial intelligence and the potential harmful impact to American interests. "Housing providers, tenant screening companies, advertisers, and online platforms should be aware that the Fair Housing Act applies to tenant screening and the advertising of housing, including when artificial intelligence and algorithms are used to perform these functions." said Demetria McCain, principal deputy assistant secretary fair housing and equal opportunity, in a press release.In its guidance for housing-related ads, HUD, which oversees the Federal Housing Administration, warned of the dangers within algorithmic functions in AI tools that may lead businesses to unintentionally engage in discriminatory practices."Algorithmic delivery functions may operate to exclude protected groups from an ad's audience or to concentrate delivery to a protected group — an outcome particularly problematic for predatory products," HUD said. HUD noted a platform's reliance on algorithms may eventually lead to advertising that results in price discrimination, even when businesses make an effort to target a diverse set of consumers.Campaign outcomes may also cause AI systems to employ a discriminatory ad-delivery process based on the number and type of audience interactions it has, as well as any disparities models may have been trained on.Similarly, the creation of customized and "mirror" sets of consumers designed to match certain characteristics, such as attendees of an open house, could end up running afoul of laws when algorithms come up with the list of recipients, even when the original data did not eliminate any protected classes. Among precautions HUD advised advertising platform vendors to take are separate processes for running housing-related ads and choosing audience segments, as well as specialized interfaces. The department also recommended platforms avoid providing target-consumer choices for ad delivery that might be discriminatory. It additionally called for assessments of the data used to train AI systems and safeguards to ensure algorithms are similarly predictive across all class groups, with adjustments made as necessary. At the same time, real estate related businesses that advertise, such as agents and lenders, should "carefully consider the source, and analyze the composition, of audience datasets used for custom and mirror audience tools for housing-related ads" among different platforms when selecting which to purchase. Advertisers would benefit from monitoring the outcomes of their campaigns to identify and mitigate risk of noncompliance related to the Fair Housing Act as well.In other guidance regarding AI use in the rental market, HUD said tenant-screening services and housing providers would be better off with transparent machine-learning models in their selection process. "If a highly complex model has a discriminatory effect, the model's lack of transparency could make it hard to prove that a legally sufficient justification exists for the criteria used for a denial decision," HUD said.The guidance also arrives after several settlements and lawsuits in the past two years point to the priority that federal departments and agencies are placing on enforcement and elimination of redlining and other forms of housing discrimination. "Under this administration, HUD is committed to fully enforcing the Fair Housing Act and rooting out all forms of discrimination in housing," said Acting Secretary Adrianne Todman.
Mortgage job cuts slow for market's peak season
Estimates for mortgage employment data were stable to slightly lower in the latest Bureau of Labor Statistics data, suggesting hesitancy to cut during a period when housing activity typically picks up.The nonbank mortgage estimate for payroll numbers was 269,400 in March compared to 269,900 in February .Whether the near-plateau in job numbers mean more long-term stabilization remains to be seen and may hinge largely on how fruitful what's typically a peak period for the industry is. After one of the most challenging years for profitability since the Great Recession, mortgage bankers and brokers are still in a position where they may feel they need to cut or furlough employees to balance their books, but they don't want to lose out on new business."A lot is going to be determined depending on how this spring buying season goes," said Marina Walsh, vice president of industry analysis at the Mortgage Bankers Association.Also a key determinant will be interest rate policy, and some economists think weakness in broader employment numbers reported Friday could put more pressure on officials to lower financing costs.In those numbers, which are reported with less of a lag than those reflecting mortgage broker and banker positions, 175,000 jobs were added in April. While there also were upward revisions the past two months, that number was lower than the 242,000 for the previous 12 months."The Fed indicated earlier this week that they are in no hurry to cut rates given the persistence of higher inflation. However, today's report might give them some leeway to do so," said Joel Kan, the MBA's vice president and deputy chief economist, in an email.Adding to signs of a slowing economy was a little bit of an increase in the overall unemployment rate to 3.9%. Average hourly earnings also ran at a rate of 3.9% during the month, the slowest they've been since May 2021 and marking the third consecutive deceleration seen in this area."This slowdown in wage growth indicates there has been some cooling in hiring and will help ease some of the upward pressure on service sector inflation, which has been one of the drivers keeping overall inflation elevated," Kan said.How compelling the report is to monetary policymakers charged with interest-rate decisions may depend on the next round of inflation numbers."Inflation reports will be key to the Fed's outlook," said Odeta Kushi, deputy chief economist at First American, in an email. "But this April jobs report is important in that it can ease Fed fears of any potential overheating in the labor market."While a policy reaction to the jobs report may take time to emerge, the bond market had already reacted to it Friday morning and could have some near-term implications for housing finance."The soft jobs report may bring some immediate mortgage rate relief to the spring home buying season," she said, noting that the 10-year Treasury yield initially fell below 4.5% in an immediate response to the jobs report, "which will put some downward pressure on mortgage rates."The benchmark yield had rebounded slightly back above that level to 4.52% shortly before 10:30 a.m. Eastern, but was still lower than where it opened the day at 4.58%
Rocket returns to profitability in 1Q, claims market share gains
Rocket Cos. for the first quarter turned around losses compared to the year ago period as it reported both increased net gain on sale as well as positive net servicing income.But that gain-on-sale growth is likely short-lived as management predicted the level will return to close to where it was in the second half of last year.Yet, on the earnings call, management painted a positive picture of the current interest rate surge — earlier today, Freddie Mac reported the 30-year fixed at 7.22% — benefiting Rocket as an opportunity to take market share from its competitors, primarily banks."If rates are to stay higher for longer, and let's say it's not a $1.8 trillion market, it's something less than that, there's a view you can get to pretty easily that that actually benefits us even more given our capitalization levels, given our liquidity and some of the investments we've made over the past two years in terms of technology to increase capacity," Brian Brown, Rocket's chief financial officer said.The Detroit-based firm had first quarter GAAP net income of $290.7 million, versus a fourth quarter loss of $233 million and a first quarter 2023 loss of $411.5 million.Gain-on-sale totaled 311 basis points on closed loans of $20.2 billion. For the fourth quarter, it was 268 basis points with $17.3 billion of production, while one year ago the gain-on-sale was 239 basis points on volume of $16.9 billion.That first quarter margin benefitted from a pair of market conditions that are not likely to reoccur, Brown stated. The first was the lower interest rate environment during the period versus where they are currently."Another factor was our extremely strong execution in the securitization markets for home equity loan products," he continued. "Therefore, our expectation is that the second quarter gain on sale margins will return to levels closer to those observed in the second half of last year."Rocket executives claimed the company gained both purchase and refinance market share during the quarter, taking it "from large industry players and big banks in particular," CEO Varun Krishna declared.In dollar terms, the net gain-on-sale, which includes the fair value of mortgage servicing rights Rocket originated, was $699.2 million, versus $469.6 million one year prior.At the same time net servicing income increased to $402.3 million, compared with a loss of $31.9 million for the first quarter of 2023.The servicing line included a $56.5 million gain in the change of the fair value of its MSRs; one year ago, it had a $398.3 million loss.In March and April, Rocket acquired four portfolios with $8.2 billion of MSRs for a total consideration of $110 million. Those rights have higher coupons than what Rocket currently averages.The company sees these borrowers as a customer recapture opportunity, especially if rates go down."Despite recent market volatility, we are steadfast in our belief that there's tremendous opportunity ahead for Rocket," Krishna said.He pointed to the reduction in industry capacity — a trend Rocket was a part of — as benefitting his company, declaring, "The months to come are expected to put further pressure on smaller players already struggling with capacity and liquidity."The next factor was the decision by a number of banks to reduce their mortgage lending businesses because of "profitability challenges," as well as changing capital rules.Finally, Krishna said that the National Association of Realtors settlement regarding buyer brokers' compensation "has the opportunity to change the home value equation and to pave the way for a better experience for both buyers and sellers of homes."Rocket's balance sheet gives it the opportunity to take advantage of these trends, he claimed.
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