Climate risk? “Urgent but manageable” industry stakeholders say


Mortgage industry stakeholders may coalesce around the notion that climate risk is a timely issue, but it's not something that greatly concerns most working in home finance — yet. Panelists speaking at AmeriCatalyst's conference "Going to Extremes" Thursday said the impact of extreme weather on the housing market has started to weigh on independent mortgage bankers, but the issue for now is "manageable."  "Five years ago when we would bring a group of lenders together, climate wasn't really a concern… but this year if you get a group of lenders together [climate risk] always comes up," said Mike Fratantoni, chief economist at the Mortgage Bankers Association. "That said, I wouldn't characterize it as a crisis. I still think it's manageable, but definitely a top concern."From a lender and servicer perspective, Don White, senior managing director and chief risk officer at PennyMac Financial, said climate change is seen as a "priceable and manageable risk." "If the insurance industry were to collapse it would become much more of a crisis for lenders...but as of right now, it seems like it's managed," he said.White added that equity investors have started inquiring as to how PennyMac is managing climate risk, but the line of questioning thus far has not been serious."We'll occasionally get a question on it. We have been taking steps to quantify and clarify this risk and they seem satisfied with that answer," the PennyMac executive said. "They don't dig deeper, they just want to know that we're paying attention." Sam Khater, chief economist at Freddie Mac, also said the impact of extreme weather events on the housing industry is an "urgent, but manageable risk.""I think of it as a nonlinear out of equilibrium phenomenon," he said. "This is why we have to get out in front of it, but I think we do have the tools to manage it, we just need to keep pushing."Not all panelists agreed. Ted Tozer, former president at Ginnie Mae, said this is "the beginning of an issue that's going to continue to get more dramatic and have implications that could be far reaching through the mortgage industry from servicers to lenders to investors…it will all come home to roost."Out of all extreme weather patterns, almost all of the six panelists, which also included former Director of the Federal Housing Finance Agency Mark Calabria, expressed worry over how drought may impact the housing market. "We need to talk a lot more about places that don't have enough water, about drought risk," said Khater. "Some of the climate research suggests this is the biggest danger because that influences productivity and fertility of the land." PennyMac's White agreed, noting the difficulty of figuring out how a drought will affect a certain area. "If we have a ten year drought in California, it's really hard to model what that's going to look like in terms of home prices and the economy in general," White said. "I'll trade the acute risk for the chronic risk any day."

Climate risk? “Urgent but manageable” industry stakeholders say2024-04-19T03:17:19+00:00

FHLBs should double financing for affordable housing, regulator says


Facing an audience of U.S. senators, a leading regulator said changes to Federal Home Loan Bank policies, particularly regarding the amount institutions need to commit to affordable housing, is in order. Leaders from the Federal Housing Finance Agency and Department of Housing and Urban Development touched on a range of concerns from property insurance to a title insurance waiver pilot on Thursday. But the current role of Federal Home Loan banks in today's housing market came up on multiple occasions during the meeting of the Senate Committee on Banking, Housing and Urban Affairs."They're serving all of the states in the United States, and they could do a better job in providing housing development and profitability, affordable housing and community development," FHFA Director Sandra Thompson said about the FHLBs. With home affordability and financial industry stability both at top of mind for consumers, bank stakeholders and the White House alike this year, the FHLB system has found itself under increased scrutiny over the past several months from policymakers and critics, who claim it is failing to meet the needs for which it was originally created. Thompson's latest comments underscore some of the views she expressed last year following an extensive review of the system.At the center of any potential policy change is an increase in the required threshold each FHLB needs to provide toward affordable housing programs. Currently, the 11 institutions making up the system are expected to allot 10% of net income toward such initiatives."They're all well capitalized, and they can well afford to provide at least another 10% to help with this housing crisis that we're having throughout this country," Thompson said. Lax oversight of FHLB member institutions also became a frequent criticism lobbed against the system after the regional bank crisis of 2023. While banks are required to demonstrate residential mortgages make up 10% of their assets in order to join an FHLB, they may adjust allocations once they become members, while continuing to take advantage of system financing, Sen. Elizabeth Warren pointed out. Before Silicon Valley Bank, Signature Bank and First Republic Bank failed last year, each increased their levels of borrowing from the Federal Home Loan Bank System by more than one-third before shutting down, the Government Accountability Office reported last week."We are going to promulgate rulemaking sometime this year to talk about membership — one, to define what the role is of membership, and to also to ask questions about what that threshold should be, because you will have a situation like the one of the three bank failures where you start out with the 10% and meet the requirement. And then the bank's business model changes and there's no ongoing checks" Thompson responded. Thompson also said the system needed to be expanded to include more community development financial institutions, or CDFIs, due to the benefits they brought to underserved and low-to-moderate income areas."One of our regulatory asks is to make sure that CDFIs have the same benefits as other small institutions like community banks, so they can continue to build and provide affordable housing in their communities," she said. While member banks are able to commit collateral, CDFIs are not able to pledge the same type, making many ineligible. "We wanted to make sure there was parity because we're talking about small institutions and small members," Thompson added.At other points during the hearing, both FHFA and HUD addressed ongoing concerns about property insurers' "outrageous" rate increases or withdrawals from markets and the risk posed to homeowners and the financing system. Both agencies said they were working with federal agencies and state authorities for possible solutions."As soon as this week, you will be hearing HUD announced some of the things that we can do. And there's a whole body of work that we'll be rolling out, including engaging with the insurance industry," said the department's Acting Secretary Adrianne Todman.The title insurance waiver pilot for selected refinances proposed by the Biden Administration also came under criticism, particularly surrounding the transparency of the announcement and its effect on affordability. Last week, Fannie Mae said it would put out a call to vendors for possible title insurance alternatives."We are still in the process of searching for a vendor to help digitize and try to figure out how they can access the title records," Director Thompson said.

FHLBs should double financing for affordable housing, regulator says2024-04-19T02:16:14+00:00

Non-QM delinquencies rise, but losses remain subdued


The delinquency rates for securitized non-qualified mortgages are on the rise as these loans continue to season but they remain within an acceptable range, according to Morningstar DBRS.Meanwhile, new issuances had their best quarter since the second quarter of 2022 as primary-to-secondary market spreads tightened even though mortgage rates increased.As of March 25, the delinquency rate for non-QM MBS was 5.09%, up from 4.88% one month ago, 4.81% at the end of last year and 3.75% for the first quarter of 2023."Non-QM RMBS structures across the sector held relatively secure as virtually all outstanding transactions continued to pass their deal performance tests," said the report, whose lead author was Mark Fontanilla, senior vice president. "Meanwhile, collateral losses at the deal level remained modest, which helped improve credit enhancements, albeit at a slower pace than when speeds were much higher in 2022."This compares with a total RMBS delinquency rate of 1.52%, a slight drop from the prior month's 1.55% but up from 1.47% from the end of 2023 and 1.42% over the previous 12 months.Prime credit RMBS had an 89 basis point delinquency rate in March, up by 6 basis points from February, 7 basis points versus December and 4 basis points from March 2023.Meanwhile, on a month-to-month basis, the late payment rate for government-sponsored enterprise credit risk transfer deals was 4 basis points lower at 1.49% and mortgage insurance-linked notes was 5 basis points lower at 1.24%."Accumulated net losses across non-QM pools, which are still subdued as a tight housing market and resilient economic backdrop continue to support mortgage credit performance overall," the report noted.An unemployment rate of under 3.8% was below historic norms. Inflation, while still hotter than the Federal Reserve likes, held at between 3.8% and 3.9%.The 30-year fixed rate mortgage remained in the 6.6% to 6.9% range for most of the period, which allowed consumers to get used to that environment, the report said.Prepayment speeds have gotten slightly faster on non-QM deals, but are still slow relative to past activity.For the March period, the one-month constant prepayment rate was 8.9%, compared with 7% from the December statements."Prepayment speeds in the other major RMBS segments were either slower or only slightly faster versus non-QM in [the first quarter]," the report said. "For comparison, benchmark GSE CRT reference pools and prime credit collateral pools in aggregate still remained in the area of 3% to 4% CPR, while non-QM in aggregate finished Q1 at nearly 9% CPR."When it comes to new securitizations, pricing volume of $8.8 billion for the first quarter was up 30% from the previous three months. It was also the most prolific quarter since the $9.6 billion produced in the second quarter of 2022, Morningstar DBRS said, citing Finsight.com data."Despite Treasury rates edging up since December, non-QM RMBS spreads were on a general tightening trend, helping keep deal execution costs less volatile and more contained than in Q4 2023," the report said.

Non-QM delinquencies rise, but losses remain subdued2024-04-18T19:17:03+00:00

Ginnie Mae wants more details on mortgage defaults


Broad modernization efforts at Ginnie Mae will include expanded reporting on steps taken to help distressed mortgage borrowers, the agency announced Wednesday.In addition to collecting more details about payment difficulties and foreclosure prevention, the government mortgage-bond guarantor also will retire some supplemental forbearance reporting from the pandemic, according to a Ginnie Mae press release and related documentation.The move is in line with the Department of Housing and Urban Development agency's goal to keep a better eye on delinquent loans that can put pressure on nonbank counterparties' finances."These data will allow us to better evaluate the liquidity strains in the market," said Sam Valverde, Ginnie's principal executive vice president, in the release announcing additional payment-default status reporting.The new PDS reporting will be a requirement not only for issuers of the securities Ginnie guarantees, but also the vendors responsible for their servicing platforms. Subservicers working with Ginnie Mae issuers also will be subject to the upcoming mandate.Ginnie has had a longstanding focus on monitoring nonbanks' liquidity, which has grown as these financial institutions have come to represent a greater share of its issuer base. The agency has more broadly increased some reporting for nondepository financial institutions in response, including a new "short form" that some executives of nonbank mortgage-backed securities issuers will have to fill out.While single-family mortgage delinquencies have been relatively low recently, they tend to be higher in the loans that Ginnie guarantees the securitizations of and that other government agencies like the Federal Housing Administration and Department of Veterans Affairs back at the loan level.VA delinquencies in particular have been in the spotlight recently as the expiration of a pandemic-related program in October 2022 has reportedly exposed tens of thousands of veterans to foreclosure risk that might have been avoided when that assistance was available.The VA has called for voluntary foreclosure moratorium through at least the end of May, when a successor program will first become available. VA servicers have several months after that to implement it, and the department has asked them to continue to offer foreclosure relief while they do.Both the department's new program and another one the FHA implemented are aimed at helping borrowers whose access to more traditional loan modification programs has been stymied by the fact current market rates are higher than their loan costs at origination, and officials want to see these used.Other recent developments that have called for particularly close scrutiny of nonbanks' financial strength include an origination crunch that has strained many lenders' profitability, and the bankruptcy of a player in the specialized reverse-mortgage market that forced Ginnie to step in and pick up the pieces.Nonbank mortgage companies have asked Ginnie to help alleviate the pressure on them by potentially changing some of its rules for loan pooling and advancing missed borrower payments that add to the strain. The government agency has taken some steps toward doing this but issuers say more are needed.Testing in line with Ginnie Mae's new payment-default status requirement will be during the current second-quarter period, and the reporting is slated to become mandatory in December, after November's federal election.

Ginnie Mae wants more details on mortgage defaults2024-04-18T18:16:56+00:00

Mortgage rates hit a five-month high


Mortgage rates were back over 7% for the first time since December, as inflation is still spooking bond market investors, Freddie Mac found.The 30-year fixed rate mortgage was 7.1% on April 18, the highest level since Nov. 30, 2023, when it was at 7.22%. This was a 22 basis point gain over the prior week's 6.88%. For the same week last year, the rate was 6.39%.For much of the past week, the benchmark 10-year Treasury yield, one of the mechanisms used to price mortgage loans, was over the 4.6% level and at one point on April 16, was very close to 4.7%. Meanwhile the spread between the yield and the 30-year FRM remains elevated.The 15-year FRM recorded a 23 basis point week-to-week increase, to 6.39% from 6.16%, whereas one year ago, it was 5.76%.This is likely not the peak for the current cycle with divergent views on whether this is holding back the housing market."As rates trend higher, potential homebuyers are deciding whether to buy before rates rise even more or hold off in hopes of decreases later in the year," said Sam Khater, Freddie Mac's chief economist, in a press release. "Last week, purchase applications rose modestly, but it remains unclear how many homebuyers can withstand increasing rates in the future."Purchase application volume was 5% higher week-to-week on a seasonally adjusted basis, the Mortgage Bankers Association reported on Wednesday."Despite mortgage rates being at highs last seen in December, mortgage applications have increased for two consecutive weeks," MBA President and CEO Bob Broeksmit said in a Thursday morning statement. "Recent economic data shows that the economy and job market remain strong, which is likely to keep mortgage rates at these elevated levels for the near future."Another source, LenderPrice, as posted on the National Mortgage News website, had the 30-year FRM at 7.281% at 11:40 a.m. on April 18, versus 7.067% one week prior. Redfin said the average daily mortgage rate for the past week topped 7.4% but buyers are still touring homes despite that increase. Its Homebuyer Demand Index, a measure of tours given by its agents, was at the highest level in seven months.Some are looking to buy now because of worries that mortgage rates could go even higher, while others have reportedly grown accustomed to the current environment and pushed down their budget accordingly, Chen Zhao, Redfin's economic research lead, said in a press release.

Mortgage rates hit a five-month high2024-04-18T17:18:23+00:00

Existing-home sales decline as rates keep buyers sidelined


Sales of previously-owned homes in the U.S. fell in March from a one-year high, underscoring the lingering impact of high mortgage rates and elevated prices. Contract closings decreased 4.3% from a month earlier to a 4.19 million annualized rate, according to National Association of Realtors data released Thursday. The pace was in line with the median estimate of economists surveyed by Bloomberg."Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves," NAR Chief Economist Lawrence Yun said in a statement. Homes in Hercules, California, US, on Wednesday, Aug. 16, 2023. The US 30-year mortgage rate rose to 7.16% last week, matching the highest since 2001 and crimping both sales and refinancing activity.David Paul Morris/Bloomberg , hindering recent momentum in the housing market. Purchases of new houses have also cooled as prospective buyers move to the sidelines until financing costs ease. Other housing data this week showed builder optimism leveled off and construction starts decreased. Mortgage rates remain more than twice as high as at the end of 2021, and Federal Reserve Chair Jerome Powell on Tuesday said the Fed is prepared to keep rates higher for longer than previously expected in order to reduce inflation. The inventory of previously-owned homes for sale increased 14.4% in March from the same month last year to 1.11 million. While inventory is still historically low, it's been creeping up as some homeowners feel they can't delay moving any longer. At the current sales pace, selling all the properties on the market would take 3.2 months, compared with a 2.7-month supply in March of last year. Realtors see anything below five months of supply as indicative of a tight market.Sales PriceThe median selling price increased 4.8% from a year ago to $393,500, the highest for any March on record."More inventory is always welcomed in the current environment," Yun said. "It's a great time to list with ongoing multiple offers on mid-priced properties and, overall, home prices continuing to rise."Some 60% of the homes sold were on the market for less than a month, and 29% sold above the list price, Yun said on a call with reporters.The NAR's report also showed properties remained on the market for 33 days on average in March, down from 38 a month earlier. Existing-home sales account for the majority of U.S. housing and are calculated when a contract closes.

Existing-home sales decline as rates keep buyers sidelined2024-04-18T15:16:58+00:00

Figure launches AI-powered customer service chatbot


Figure Technology Solutions is pushing to better its customer service through the roll out of an AI-powered chatbot that will support staff and partners originating HELOC loans, it announced Thursday.The machine learning-powered bot will streamline the HELOC application and origination process by providing Figure's staff with sample responses to commonly asked questions. In theory, this should shorten response times to customers, freeing the hands of staff "to focus on resolving more complex inquiries," Figure said.After-hours, the bot can guide users through initial inquiries. The around-the-clock support from the tool will improve the accessibility of Figure's loan origination platform, the company claims.Figure has been experimenting with the chatbot since February and during that time the company has been "able to absorb an increase in monthly chats by nearly 30%," it said.In the near future, the company is eyeing enhancements to its tool with a goal of it "offering better context saving, customer verification, and chat history carry-forward.""The mortgage lending space is still highly manual, and there remains a pressing need for automation within the industry," said Ruben Padron, chief data officer at Figure Technology Solutions, in a written statement Thursday. "Through the development of highly efficient customer solutions like the AI chatbot, we believe Figure is positioning itself at the forefront of the tech revolution within the mortgage space.""By investing in our generative AI portfolio to bolster our proprietary tech-enabled platform, we are excited to continue to drive efficiency across the broader mortgage and lending ecosystem and maximize value for our customers and partners," Padron's statement in a press release said.The new tool's launch comes on the heels of other momentous developments for FTS, an umbrella company for Figure Lending LLC, including a call for lenders to use its DART system, a lien and eNote registry service, and the company's impetus to go public.In mid-March, Figure Technologies announced it would be spinning off Figure Lending under FTS, a precursor to taking its lending arm public.A week later, the company submitted a "draft registration statement on Form S-1 with the U.S. Securities and Exchange Commission, relating to the proposed initial public offering of its equity securities." This form is required for registering companies that want to be listed on a national exchange.Companies tapped to take FTS public include Goldman Sachs Group Inc., JPMorgan Chase & Co. and Jefferies Financial Group Inc, a Bloomberg report pointed out. Valuation of the company will likely range between $2 billion to $3 billion.Figure's AI-driven chatbot product places them in the ranks with other lenders, such as Beeline and Rocket Mortgage, which are also experimenting with in-house AI technologies.

Figure launches AI-powered customer service chatbot2024-04-18T13:18:00+00:00

How Does Mortgage Refinancing Work?


Trade In Your Old Home Loan for a New OneFundamental mortgage Q&A: “How does mortgage refinancing work?”When you refinance a mortgage, you trade in your old home loan for a new one in order to get a lower interest rate, cash out of your home, and/or to switch loan programs.In the process, you’ll also wind up with a new mortgage term, and possibly even a new loan balance if you elect to tap into your home equity.You may choose to obtain this new mortgage from the same bank (or loan servicer) that held your old loan, or you may refinance your home loan with an entirely different lender. That choice is up to you.It’s certainly worth your while to shop around if you’re thinking about refinancing your mortgage, as your current lender may not offer the best deal.I’ve seen first-hand lenders try to talk their existing customers out of a refinance simply because there wasn’t an incentive for them. So be careful when dealing with your current lender/servicer.Anyway, the bank or mortgage lender that funds your new mortgage pays off your old loan balance with the proceeds from the new loan, thus the term refinancing. You are basically redoing your loan.In a nutshell, most borrowers choose to refinance their mortgage either to take advantage of lower interest rates or to access equity they’ve accrued in their home.Two Main Types of Mortgage RefinancingAs noted, a mortgage refinance is essentially a trade-in of your existing home loan for a new one. You are under no obligation to keep your loan for the full term or anywhere near it. Don’t like your mortgage? Simply refi it and get a new one, simple as that. And by simple, I mean qualifying for a mortgage again and going through a very similar process to that of obtaining a home purchase loan.You can check out my article about the mortgage refinance process to see how it works, step-by-step.It’ll take about a month to six weeks and will feel very much like it did when you purchased a home with a mortgage.You’ll typically need to provide income, asset, and employment information to the new lender. And they will pull your credit report to determine creditworthiness, along with ordering an appraisal (if necessary).Now assuming you move forward, there are two main types of refinancing options; rate and term and cash-out (click the links to get in-depth explanations of both or continue on reading here).Rate and Term RefinancingLoan amount stays the sameBut the interest rate is typically reducedAnd/or the loan product is changedSuch as going from an ARM to a fixed-rate mortgageOr from a 30-year fixed to a 15-year fixed loanOr FHA to conventionalYou obtain a new interest rate and loan term (even a fresh 30 years if wanted)Let’s start with the most basic type of mortgage refinance, the rate and term refinance.If you don’t want any cash out, you’ll simply be looking to lower your interest rate and possibly adjust the term (duration) of your existing loan.This type of transaction is also known as a limited cash-out refinance or a no cash-out refinance.The takeaway is that your loan amount stays basically the same, but your financing terms change.Let’s look at an example:Original mortgage: $300,000 loan balance, 30-year fixed @ 6.50%New mortgage: $270,000 loan amount, 15-year fixed @ 4.50%Simply put, a rate and term refinance is the act of trading in your old mortgage(s) for a new shiny one without raising the loan amount.As noted, the motivation to do this is typically to lower your interest rate and possibly shorten the term in order to save on interest.Or to change products, such as moving from an adjustable-rate mortgage to a more secure fixed-rate mortgage.In my example above, the refinance results in a shorter-term mortgage and a substantially lower interest rate. Two birds, one stone.And the loan amount is smaller because you may have taken out the original loan seven years ago. So we need to account for principal pay down between the date of origination and the time of refinance.In any case, thanks to the lower rate and shorter loan term, it will be paid off faster than scheduled and with far less interest.  Magic.Here’s a more in-depth example with monthly payments included:Original loan amount: $300,000 (outstanding balance $270,000 after seven years) Existing mortgage rate: 6.5% 30-year fixed Existing mortgage payment: $1,896.20 New mortgage rate: 4.5% 15-year fixed New mortgage payment: $2,065.48In this scenario, your new loan amount will be whatever the loan was paid down to prior to the refinance. In this case it was originally $300,000, but paid down to $270,000 over seven years.You’ll also notice that your interest rate drops two percentage points and your mortgage term is reduced from 30 years to 15 years (you could go with another 30-year loan term if you chose).As a result of the refinance, your monthly mortgage payment increases nearly $170.While this may seem like bad news, it’ll mean much less will be paid in interest over the shorter term and the mortgage will be paid off a lot quicker. We’re talking 22 years instead of 30.If the timing is right, it might be possible to shorten your loan term and reduce your monthly payment!Consider the Loan Term When RefinancingFor those who don’t want a mortgage hanging over their head for 30 years, the use of a rate and term refinance illustrated above can be a good strategy.Especially since the big difference in interest rate barely increases the monthly payment.But you don’t need to reduce your loan term to take advantage of a rate and term refinance.You can simply refinance from one 30-year fixed into another 30-year fixed, or from an adjustable-rate mortgage into a fixed mortgage to avoid an upcoming rate adjustment.Some lenders will also let you keep your existing term, so if you’re three years into a 30-year fixed, you can get a new mortgage with a 27-year term. You don’t skip a beat, but your payment drops.If you go with another 30-year loan term, the refinance will generally serve to lower monthly payments, which is also a common reason to refinance a mortgage.Many homeowners will refinance so they can pay less each month if they’re short on funds, or wish to put their money to work elsewhere, such as in another, higher-yielding investment.So there are plenty of options here – just be sure you’re actually saving money by refinancing, as the closing costs can eclipse the savings if you’re not careful.A Mortgage Refinance Isn’t Always About the Interest RateAs you can see, reasons for carrying out this type of refinancing are plentiful.While securing a lower interest rate may be the most common, there can be other motivations.They include moving out of an adjustable-rate mortgage into a fixed-rate mortgage (or vice versa), going from an FHA loan to a conventional loan, or consolidating multiple loans into one.And in our example above, to reduce the loan term as well (if desired) in order to pay down the loan faster.See many more reasons to refinance your mortgage, some you may have never thought of.In recent years, a large number of homeowners went the rate and term refi route to take advantage of the unprecedented record low mortgage rates available.Many were able to refinance into shorter-term loans like the 15-year fixed mortgage without seeing much of a monthly payment increase (or even a decrease) thanks to the sizable interest rate improvement.Obviously, it has to make sense as you won’t be getting any cash in your pocket (directly) for doing it, but you will pay closing costs and other fees that must be considered.So be sure to find your break-even point before deciding to refinance your existing mortgage rate.  This is essentially when the upfront refinancing costs are “recouped” via the lower monthly mortgage payments.If you don’t plan on staying in the home/mortgage for the long-haul, you could be throwing away money by refinancing, even if the interest rate is significantly lower.[How quickly can I refinance?]Cash-Out RefinancingThe loan amount is increased as a result of home equity being tappedThe funds can be used for any purpose you wish once the loan closesMay also result in a lower interest rate and/or product changeBut monthly payment could increase thanks to the larger loan amountYou may also choose a new loan term (e.g. 15 or 30 years)Original mortgage: $300,000 loan balance, 30-year fixed @6.25%New mortgage: $350,000 loan amount, 30-year fixed @4.75%Now let’s discuss a cash-out refinance, which involves exchanging your existing home loan for a larger mortgage in order to get cold hard cash.This type of refinancing allows homeowners to tap into their home equity, assuming they have some, which is the value of the property less any existing mortgage balances.Let’s pretend the borrower from my example has a home that is now worth $437,500, thanks to healthy home price appreciation over the years.If their outstanding loan balance was $300,000, they could pull out an additional $50,000 and stay below that all-important 80% loan-to-value (LTV) threshold.The cash out amount is simply added to the existing loan balance of $300,000, giving them a new loan balance of $350,000.What’s really cool is the mortgage payment would actually go down by about $25 in the process because of the large improvement in interest rates.So even though the borrower took on more debt via the refinance, they’d actually save money each month relative to their old loan payment.Now a more in-depth example:Loan amount: $200,000 Existing mortgage rate: 6.5% 30-year fixed Existing mortgage payment: $1,264.14 Cash out amount: $50,000 New loan amount: $250,000 New mortgage rate: 4.25% 30-year fixed New mortgage payment: $ 1,229.85In this scenario, you’d refinance from a 30-year fixed into another 30-year fixed, but you’d lower your mortgage rate significantly and get $50,000 cash in your pocket (less closing costs).At the same time, your monthly mortgage payment would actually fall $35 because your former interest rate was so high relative to current mortgage rates.While this all sounds like good news, you’ll be stuck with a larger mortgage balance and a fresh 30-year term on your mortgage.You basically restart the clock on your mortgage and are back to square one.Cash Out Will Typically Slow Loan RepaymentIf you’re looking to pay off your mortgage in full some day soon, the cash out refi probably isn’t the best move.But if you need cash for something, whether it’s for an investment or to pay off other more expensive debt, it could be a worthwhile decision.In short, cash out refinancing puts money in the pockets of homeowners, but has its drawbacks because you’re left with a larger outstanding balance to pay back as a result (and there are also the closing costs, unless it’s a no cost refi).While you wind up with cash, you typically get handed a more expensive monthly mortgage payment unless your old interest rate was super high.In our example, the monthly payment actually goes down thanks to the substantial rate drop, and the homeowner gets $50,000 to do with as they please.While that may sound great, many homeowners who serially refinanced in the early 2000s found themselves underwater on the mortgage, or owing more on their loan than the home was worth, despite buying properties on the cheap years earlier.This is why you have to practice caution and moderation. For example, a homeowner might pull cash out and refinance into an ARM, only for home prices to drop and zap their remaining equity, leaving them with no option to refinance again if and when the ARM adjusts higher.Simply put, if you pull cash out it has be paid back at some point.  And it’s not free money. You must pay interest and closing costs so make sure you have a good use for it.How Are Refinance Mortgage Rates?If your transaction is simply a rate and term refinance it should be priced similarly to that of a home purchase loanThe only difference might be slightly higher closing costs (though some banks do advertise lower rates on purchases)If you request cash out with your refinance additional pricing adjustments will likely applyThese could increase your interest rate, perhaps substantiallyNow let’s talk about refinance mortgage rates for a moment. When filling out a loan application or a lead form, you’ll be asked if it’s a purchase or a refinance. And if it’s the latter, if you want additional cash out.For most lenders, a home purchase and rate and term refinance will be treated the same in terms of interest rates.There shouldn’t be additional pricing adjustments just because it’s a refinance, though closing costs could be slightly higher.Arguably, refinances could be viewed as less risky than home purchase loans because they involve existing homeowners who are typically lowering their monthly payments or switching from an ARM to a fixed-rate loan product.Don’t expect a discount though. Just be happy there isn’t an add-on cost for it not being a purchase. And know that some big banks tend to charge more for refis.When it comes to cash-out refinances, there are typically additional pricing adjustments that increase the interest rate you will ultimately receive.This means instead of receiving a 6.25% mortgage rate, you may be stuck with a rate of 7% or higher depending on the loan scenario.If you have a low credit score, a high loan-to-value ratio (LTV), and want cash out, your mortgage rate could skyrocket, as the pricing adjustments are quite hefty with that risky combination.In addition, qualifying for a cash-out refinance will be more difficult because the larger loan amount will raise your LTV and put increased pressure on your debt-to-income ratio.In summary, be sure to do the math and plenty of shopping around to determine which type of refinance is best for you.Refinancing Your Mortgage May Not Be NecessaryIt’s not always the right move depending on your current situationAnd your future plans (if you plan on selling your home relatively soon)It can also reset the clock on your mortgage payoff and slow down repaymentSo be sure it makes sense before you spend any time or money on itDespite what the banks and lenders might be chirping about, refinancing isn’t always the winning move for everyone.In fact, it could actually cost you money if you don’t take the time to crunch the numbers and map out a plan.If you’re not sure you’ll still be in your home next year, or even just a few years from now, a refinance might not make sense financially if you don’t recoup the associated closing costs.This is especially true if you decide to pay mortgage points at closing, which can amount to thousands of dollars.Instead of borrowing more than you need, or adding years to your loan term, do the math first to determine the best move for your unique situation.My refinance calculator might be helpful in determining what makes sense depending on the scenario in question.One alternative to refinancing your existing home loan, especially if you already have a low rate, is to take out a second mortgage, often in the form of a home equity loan or home equity line of credit.This keeps the first mortgage intact if you’re happy with the associated interest rate and loan term, but gives you the power to tap into your home equity (get cash) if and when necessary.But as we saw in my example above, it’s sometimes possible to get a lower mortgage payment and cash out at the same time, which is hard to beat. Just remember to factor in the cost of the refinance.Read more: When to refinance your mortgage.

How Does Mortgage Refinancing Work?2024-04-17T23:17:47+00:00

FICO welcomes new mortgage clients to its 10T scoring model


Utilization of FICO's 10T credit score model is gaining additional momentum in 2024, with two different lenders signing on to use it for various purposes before broader mandated adoption arrives next year. Ohio-based national direct lender Liberty Home Mortgage is the latest company opting for the FICO 10T model, announcing it would start employing it for nonconforming originations. Liberty joins several other companies already using 10T for nonconforming loans, including Movement Mortgage and Crosscountry. In the first quarter of this year, Primis Bank, Premier Lending and Cardinal Financial, likewise, all agreed to begin use of FICO 10T for certain types of originations.Introduced in 2020, the FICO model was selected along with Vantagescore 4.0 by the Federal Housing Finance Agency as one of two score models lenders will eventually need to consider when underwriting to make them eligible for sale to government-sponsored enterprises. The use of two new models will replace the FICO Classic score, which has been a requirement for two decades.Full implementation of the FHFA plan is expected to occur by the end of 2025, although some elements of the proposal are likely to come sooner. Rather than wait for mandated changes to arrive, a small number of lenders began working with the 10T model as recently as last year for nonconforming loans sold to private investors. In February, Cardinal Financial said it would begin looking at 10T scores specifically for Department of Veterans Affairs originations, which are also not sold to Fannie Mae or Freddie Mac and don't have a specific requirement for this type of credit metric like they do. Cardinal was the first to announce it would use the model for VA loans.FICO claims the predictive analysis offered through 10T can increase originations by as much as 5%, while reducing default risk by up to 17%.The addition of Liberty Home Mortgage to the list of FICO 10T users comes a week after Planet Home Lending also said it would incorporate the model in its recapture analysis of its servicing portfolio, which contains government-backed and conventional mortgages from its distributed retail channel or correspondent division. "We're eager to tap the power of FICO Score 10T to further analyze our book of business and unlock new origination opportunities," said John Bosley, Planet Home Lending mortgage president, in a press release.  Planet Home's use of 10T also points to the growing consideration of new scores in broader contexts within the mortgage industry. In February, the Federal Home Loan Bank of San Francisco indicated it would begin accepting mortgage collateral from lenders using Vantagescore 4.0.With the most recent additions, FICO 10-T is now in use in some aspects of the business at mortgage companies with a combined cumulative origination volume of more than $100 billion, the data analytics software provider said. Those same companies service nearly $300 billion in mortgages.

FICO welcomes new mortgage clients to its 10T scoring model2024-04-17T22:17:26+00:00

CFPB makes structural changes after expanding authority over nonbanks


The Consumer Financial Protection Bureau announced Wednesday that it was eliminating its Office of Supervision, Enforcement and Fair Lending, splitting that office's responsibilities among existing offices.Bloomberg News Consumer Financial Protection Bureau Director Rohit Chopra announced that its supervision and enforcement offices will operate as separate, stand-alone divisions within the bureau.Chopra told the CFPB's staff in February that he had dissolved the Office of Supervision, Enforcement and Fair Lending and also had eliminated the associate director job that had been held by former acting CFPB Director Dave Uejio. The move was made public Tuesday as part of a procedural rule change in which the CFPB updated how the agency designates nonbanks for supervision. The upshot of the changes is that Enforcement Director Eric Halperin and Supervision Director Lorelei Salas now report directly to Chopra without the layer of another senior official in-between. "We will be transitioning the administrative structure of [the Office of Supervision, Enforcement and Fair Lending] into two separate operating units," Chopra wrote in an email to staff. He announced in February that Uejio had accepted a job at the Federal Housing Finance Agency and that his position as associate director would be eliminated. "A flatter organization structure will allow us to be more agile in our response to emerging risks and will facilitate faster decision-making," Chopra wrote in the email. "In the early days of the CFPB, there was concern that Supervision and Enforcement needed to be in a single division in order to foster robust collaboration and coordination on deploying our tools."As part of the changes, a half-dozen employees were reassigned to other positions.   David Bleicken, the CFPB's deputy associate director of the now-defunct Office of Supervision, Enforcement and Fair Lending, remains in a senior role at the bureau. Previously, the CFPB's fair lending office was stripped of its enforcement powers in 2018 under former CFPB Director Mick Mulvaney, and that unit, the Office of Fair Lending and Equal Opportunity, has been under the CFPB director's purview ever since. The CFPB has not updated its organization chart since January. Salas is still listed as acting assistant director of the Office of Supervision Examinations and assistant director of the Office of Supervision Policy. She is now director of supervision, a spokesman said.The organization changes could have an outsize impact on nonbanks that are designated as risky and, therefore, subject to supervision. Because of the elimination of the associate director job, the CFPB made changes to reflect that the new supervision director is now the "initiating official" in supervisory designation proceedings, as well as in so-called contested proceedings. The update was necessary to transfer the former associate director's supervision-related functions to the supervision director.Some experts who follow the CFPB closely said the net effect of the move is that Chopra eliminated a career civil service job, concentrating more authority in the director's office. Further, though CFPB supervisory exams are confidential, the CFPB in February publicly released the first decision in a contested proceeding against World Acceptance Corp., a large installment lender that the bureau said poses a risk to consumers. It marked the first time that the CFPB publicly disclosed its findings to supervise a nonbank after a contested administrative proceeding. The determination of supervising a nonbank now can be made by the director of supervision in a recommendation to the CFPB director without an additional senior official weighing in.  The bureau initiated its first round of supervisory designation proceedings last year after announcing in 2022 that it would actively use a dormant authority to supervise nonbanks that are not currently subject to supervisory exams. The CFPB said that entities can either consent to supervision or contest a notice. 

CFPB makes structural changes after expanding authority over nonbanks2024-04-17T22:17:32+00:00
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