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Waterstone Mortgage reported a second consecutive quarter of profitability, although management at its parent company cautioned about the macro environment still affecting the industry.For the second quarter, Waterstone Financial's mortgage segment had net income of $1.3 million, building on first quarter profits of $298,000. Waterstone Mortgage lost $1.2 million during the second quarter of 2023, part of a streak of six consecutive periods of net losses.Gross gain on sale of 393 basis points was 17 basis points lower than the first quarter but a 20 basis point improvement over the year prior."The results this quarter reflect our continued efforts over the past year to improve efficiencies at the mortgage banking segment," said William Bruss, Waterstone Financial CEO, in a press release. "While our results have improved, we continue to face many challenges within the segment, as the mortgage banking industry continues to face unknown variables driven by consumer demand, affordable inventory and interest rates."The Wauwatosa, Wisconsin-based bank, unlike its big bank counterparts, reported increased volume year-over-year. But Waterstone also had lower quarter-to-quarter growth at approximately 31%.Origination volume during the period was the best for Waterstone Mortgage since the third quarter of 2022, when it produced just shy of $730 million.During the quarter, Waterstone sold mortgage servicing rights with unpaid principal balance of $233.1 million and a book value of $2 million for $2.1 million resulting in a gain on sale of $152,000. It did not sell any MSRs in the year ago quarter.Volume of $634.1 million topped the first quarter's $485.1 million and $623.3 million one year prior.While purchases made up 92.7% of volume, the share of refinancings doubled on a year-over-year basis, to 7.3% from 3.6%.The increase in refi activity is in line with recent reports from Optimal Blue that found the share of locks for both the cash-out and rate and term versions rose 11% and 39% respectively in June.The Mortgage Bankers Association attributed June's loosening of credit to the addition of cash-out products.Waterstone Financial is the parent company of WaterStone Bank SSB and the mortgage company is a subsidiary of the bank.In the second quarter Waterstone Financial had net income of $5.7 million, up from $4 million in the prior period but down from $6.2 million a year ago."The community banking segment continues to deal with margin pressure, as short-term funding rates remain elevated due to the restrictive monetary policy of the Federal Reserve," Bruss said. "Throughout this challenging period, we have maintained a robust share repurchase program that continues to return strong value to shareholders through repurchase activity that is accretive to book value." 

First Foundation will work on building out its presence in Florida and Texas, where it moved its headquarters in 2021 from Irvine, California. First Foundation, a commercial real estate-heavy bank that got rocked in the market earlier this year, has started to regain some confidence from investors.The Dallas-based bank's management announced plans Thursday to go on offense as part of a strategy overhaul. The revised strategy involves reducing the bank's massive concentration in multifamily loans, increasing its allowance for credit losses, beefing up commercial and industrial lending, and expanding in parts of Texas and Florida.First Foundation's makeover follows an unexpected $228 million capital infusion led by Fortress Investment Group, which was announced earlier this month.While the investment will dilute shareholders' equity, First Foundation's stock price has rebounded since the raise was disclosed on July 3, after falling nearly 50% since January. Shares are now trading about 25% down year-to-date, at $7.11. CEO Scott Kavanaugh said on the bank's second-quarter earnings call Thursday that the new money was brought on to help boost growth. He emphasized that the capital raise wasn't prompted by regulatory concerns, even though First Foundation is well above a key regulatory threshold that gauges banks' concentration in commercial real estate lending."I am incredibly proud of what we built at First Foundation over the course of the last 17 years," Kavanaugh said. "Much like our clients, we have evolved and have grown into the next chapter of the company's life."First Foundation is turning the page after rapidly beefing up its exposure to multifamily housing in the early pandemic days to more than half of its loan book. It then watched the values of those fixed-rate loans dive after interest rates started rapidly climbing in 2022. Kavanaugh estimated that the Fortress-led investment will help lift First Foundation's profitability over the next few years to twice what it would've been organically. The bank is now shooting for a 10% to 12% return on tangible common equity and a 0.9% to 1% return on average assets by the end of 2026. Its return on tangible common equity and return on average assets were 1.3% and .09%, respectively, in the second quarter of 2024.As part of its near-term plans, the $13.7 billion-asset bank will designate about 20% of its existing multifamily loans as held for sale, which could lead to losses as buyers look to buy those assets at a discount.Chief Operating Officer Christopher Naghibi said First Foundation will "put in the time and work" to ensure the best possible price for those assets, which total more than $1 billion. He pointed to a relationship with Freddie Mac and also raised the possibility of private-party sales.First Foundation is the latest bank to announce plans to reduce its involvement in real estate lending as regulatory scrutiny has increased.By the end of 2025, the bank is aiming to bring its commercial real estate exposure down below 400% of its total capital.According to its latest call report, First Foundation's real estate loans were more than 600% of its total capital, as of March 31, 2024. Regulators give more scrutiny to banks with concentrations above 300%.As part of First Foundation's strategy to diversify, the bank will focus on increasing C&I loans, Naghibi said. Although the C&I book currently accounts for less than 30% of the bank's $10 billion loan portfolio, it's made up nearly 90% of First Foundation's loan fundings so far this year."While historically, multifamily originations outpaced C&I lending, First Foundation has been deeply steeped in C&I lending dating back to the bank's inception," Naghibi said. "A more robust C&I team was built out nearly 10 years ago in order to help balance out the concentration risk in the underlying loan portfolio.""First Foundation is not a real estate lender growing into the C&I business," he added. "C&I lending has been a long-standing and important part of the underlying franchise value."First Foundation also plans to push harder in current markets where it has limited business, such as North Texas and Southwest Florida. The bank moved its headquarters to Dallas in 2021 from Southern California, where it did most of its business, and it acquired a small bank in Naples, Florida, shortly thereafter. But those two markets, together, only make up 11% of First Foundation's loan portfolio."We really have not had much of a chance to really expand into the markets," Kavanaugh said. "We immediately found ourselves having to get into a defensive mode. … But we really believe that Texas and Florida [are] endless with [their] abilities to be able to grow."First Foundation will also initiate a detailed review of its allowance for credit losses methodology to align with those of peers. The bank doesn't believe it has credit losses on the horizon, but it must prepare for "unprecedented" interest rate risk in the market, Naghibi said.In the second quarter, First Foundation reported net income of $3.1 million, up from a $793,000 bottom line in the first quarter, as deposit cost pressures let up, and the bank reduced its provision for credit losses.

Following President Biden's announcement over the weekend that he will not be seeking reelection, all eyes have turned to Vice President Kamala Harris as she gathers support from the Democratic Party. The vice president has a long history in the public sphere, having served as the district attorney of San Francisco, the California state attorney general, and a senator before coming to the White House.  Throughout her two-decade career in politics, Harris' name has been attached to efforts intended to increase the supply of affordable housing, address the racial wealth gap, and combat mortgage fraud. These initiatives, and how she has interacted with mortgage entities in the past as attorney general, can offer insight into her potential agenda if elected to higher office.The platform for her 2020 presidential campaign included the pursuit of racial equality, with a pledge to establish a $100 billion program to help Black families and individuals buy homes. While she lost the 2020 race, some of her ideas made their way into policies during the Biden administration.In May, Harris announced $5.5 billion in new funding to boost affordable housing supply and expand rental assistance through HUD.The White House also recently drew some criticism from the mortgage industry after the Biden-Harris Housing Plan proposed imposing an annual 5% cap on rent increases on landlords while also facilitating the construction of two million affordable homes on repurposed public land. If passed, it would be in place for the remainder of 2024 and the following two years. Prior to her stint at the White House, Harris' time in California was marked by long-term problems with housing affordability and low inventory. Californians were hit hardest by foreclosures during the 2008 financial crisis as many borrowers in the state had pay-option adjustable-rate mortgages that went underwater. In 2019, then a senator, Harris introduced a companion bill to House Financial Services Committee Chairwoman Maxine Waters' Housing is Infrastructure Act, which seeks to alleviate the public housing capital backlog and improve living conditions for low-income households. Waters said the legislation will ensure affordable housing is part of broader infrastructure investments. The House bill was referred to the Subcommittee on the Constitution, Civil Rights, and Civil Liberties in Nov. 2022 and no action has been taken since. "Too many Americans are fighting tooth and nail to keep a roof over their heads as our nation continues to face a housing affordability and homelessness crisis," Harris said in a 2019 joint press release. "It will take a comprehensive and serious investment to confront this issue head on, and the Housing is Infrastructure Act is our best chance to get it done." While Harris was not very active on banking policy issues as a senator, she did oppose the 2018 regulatory relief law that allows mid-sized banks to forgo certain ability-to-pay requirements in residential mortgage loans. The bill passed in the Senate despite her vote and was signed into law by former President Trump.During her term as attorney general, from 2011 to 2017, she supervised California's litigation over bank mortgage policies and held out in multistate settlement negotiations to force banks to raise their offers for homeowner relief. "Kamala comes from the school of thought that government must save Wall Street from itself," Eleni Kounalakis, the Democratic lieutenant governor of California and an early backer of Harris's presidential campaign, told National Mortgage News in 2020. "I know she values competition and entrepreneurship, and I know she will also hold big corporations accountable."In one case, Harris negotiated for California to receive a larger portion of the $25 billion National Mortgage Settlement with five servicers over their use of "robo-signing" on foreclosure documents. After talks with Bank of America Corp., Citigroup Inc. and other lenders, initial offers of less than $5 billion grew to $20 billion in relief for homeowners in addition to $410 million that went to the state on behalf of big pension funds for misrepresentation in the sale of mortgage-backed securities. Some argued that California should not have received that much benefit from the National Mortgage Settlement, as it left many homeowners with little relief in other affected states like Ohio, which received less than 1% of the fund. She also created a task force in California aimed at cracking down on industry scams, called the Mortgage Fraud Strike Force. The 25-person task force, made up of 17 lawyers and eight special investigators from the Department of Justice, pursues cases of alleged deceptive lending practices, foreclosure scams and corporate fraud. Harris faced much criticism, however, for deciding not to pursue a civil enforcement action against OneWest bank for illegal foreclosure practices during her office's investigation in 2012 and 2013. OneWest was run by Steven Mnuchin, who at the time was the CEO and founder of Dune Capital, before he sold the bank to CIT Group in 2015. Mnuchin later served as Secretary of Treasury during the Trump administration. Harris was then the only Democratic senate candidate in 2016 to receive a contribution from Mnuchin, a Keefe, Bruyette & Woods report on her candidacy noted. Regarding not pursuing OneWest, Harris reportedly told The Hill, "It was a decision my office made."After stepping aside, Biden firmly endorsed Harris. She's also received endorsements from over half of the pledged delegates she needs to secure the nomination, according to The Associated Press. The vice president said she seeks to "earn and win" the Democratic nomination. If the party selects her, Harris will still need to choose a running mate and boost a campaign for her candidacy with less than 100 days left in the race. The vice president received $81 million in donations in the first 24 hours since her announcement to run, setting a historic record, according to the Associated Press. Before announcing her run, Harris had agreed to a debate with the GOP vice presidential nominee JD Vance to take place on either July 23 or Aug. 13 on CBS News. 

Construction at the Toll Brothers Borello Ranch Estates housing community in Morgan Hill, Calif., in June. Housing supply is increasingly important to voters, but the issue has yet to break out as an important topic on the campaign trail.Bloomberg News For the first time in a generation, housing could play a significant role in a presidential election, but the leading candidates have yet to stake out clear positions on the issue.Housing affordability registered as the fourth most important issue for voters in a University of Michigan-Financial Times poll conducted in the spring, putting it ahead of traditional linchpin topics such as tax policy or unemployment.While housing affordability and supply have crept into the national discourse before — namely during the post-World War II population boom and during the Civil Rights Movement of the 1960s — such instances are few and far between, said Brian Connelly, a business law professor at the University of Michigan who specializes in real estate, land use and zoning."I was not alive in the 60s, but housing has not been an issue that has taken on this level of importance in my lifetime," Connelly said.Driving this fixation are record low sales volumes, a rapid increase in rents and a surge in homelessness in some of the nation's biggest cities. Some voters are concerned about their own housing situation, but others worry about family or friends, or the implications for racial inequality. The issue is top-of-mind for many voters, but especially younger ones who feel locked out of what has historically been the single greatest source of generational wealth. While some of the biggest housing market hurdles are local land use laws and permitting practices, experts like Lee Ohanian, head of the University of California at Los Angeles' Ettinger Family Program in Macroeconomic Research, are surprised federal politicians have not been more vocal about their strategies for alleviating these pressure points."Zoning and other regulations that affect housing are largely at the state and local level, but the federal government can incentivize state and local governments to make regulatory changes," Ohanian said. "From that standpoint, I'm surprised we haven't seen more."Former President Donald Trump, the Republican nominee, has espoused what some believe to be contradictory opinions on the matter. In a recent interview with Bloomberg, he said the key to solving the housing crisis was easing zoning restrictions, but his actions in office indicated a preference for leaving such decisions to local officials.Trump's signature housing achievement was ending the Obama-era changes to the Affirmatively Further Fair Housing provision of the Fair Housing Act, which attached greater reporting and planning requirements to Housing and Urban Development funds. The 2015 change called for municipalities to take more direct action to address segregation and was seen as incentivizing zoning changes to allow for affordable housing development. Trump said ending it preserved the "Suburban Lifestyle Dream.""I don't think he has a huge identity on housing, aside from that particular action, which suggested that he might be more favorable to local control of planning and zoning and giving local communities more power to approve new housing," Connelly said.Along with promoting deregulation at all levels of government, the other pillar of the Trump housing agenda is bringing down inflation, thereby allowing for interest rates to fall and making mortgages more affordable. Though skeptics question whether the former president's broader economic plan — including tax cuts, higher tariffs on trade and a crackdown on immigration — will impact the inflation picture.Meanwhile, Vice President Kamala Harris, who became the presumptive Democratic nominee after President Joe Biden bowed out of the race earlier this week, has said little about housing affordability since moving to the top of her party's ticket. She also has no direct track record on the matter. Mark Zandi, chief economist at Moody's Analytics, said he expects Harris will largely maintain the housing policies of the Biden administration, which have emphasized expanding the supply of housing through tax credits and other incentives. He added that her prosecutorial work as California's attorney general — which included extracting a $18 billion settlement from large banks over mortgage-related misconduct — could make her better versed in the nuances of housing than the current president."She's roughly going to stick to the script the Biden campaign was laying out," Zandi said. "The way she frames things may be different, what she emphasizes could be different, but I don't think President Biden was too comfortable with the details from a lot of the housing proposals that were put forward, so she might bring a more personal understanding of the issues."But taking up Biden's approach to housing cuts both ways. The administration has been blamed for creating the conditions that led to the dramatic jump in housing prices in recent years. Also, recent proposals like the call for a 5% national cap on rent increases for properties owned by corporate landlords — which Harris endorsed — have been roundly criticized, even by affordability advocates."We are in the middle of a significant housing supply crisis, and any initiative that creates disincentives to expand the supply of rental housing — particularly affordable rental housing — is going to have an impact on rents," said David Dworkin, president and CEO of the National Housing Conference. "The plan claims that new construction will be exempted, but it does not take into account the chilling impact that this will have on decisions on whether to pursue new projects."Neither the Trump nor Harris campaign responded to requests for comments about their housing objectives this week.Still, even though the candidates have said little about the topic, both parties have incorporated housing into their respective platforms. The Democrats' approach leans more heavily on supply-side subsidies and Republicans tout a more market-based approach, but many ideas, such as opening up federally controlled lands for housing development, supporting first-time buyers and rolling back certain regulations, have gained traction on both sides of the aisle.  To some degree, the bipartisan nature of concerns about the housing issue — as well as the solutions needed to address it — make it ill-suited for the adversarial politics of a presidential showdown. Zandi also noted that while the issues of housing affordability are broadly recognized, the views on how the issue should be handled can differ widely within parties and between politically aligned voters. "There are a lot of cross currents — what's good for somebody isn't always good for someone else. Higher house prices are good for people who own, but if you're a first-time home buyer they can lock you out," he said. "You've got constituencies on either side that complicate the conversation."Some housing advocates would be happy to see the topic of affordability stay out of the political crosshairs. Edward Pinto, senior fellow and co-director of the AEI Housing Center at the conservative-leaning American Enterprise Institute, said federal involvement in the housing sector tends to create more harm than good."When the federal government tends to get involved in this stuff, it doesn't end well. The federal government is really good at inducing demand, but it's much much harder to grow supply," Pinto said. "Whatever needs to be done is likely going to be done by the private sector, not government subsidies."Others believe it is only a matter of time before the matter surfaces in the presidential campaigns, noting that the string of recent events have made it hard to concentrate on issues of substance."Cost of living is a campaign issue for Republicans, and obviously it's not just gas or groceries. Housing is a really big component of cost of living," said Mark Calabria, the director of the Federal Housing Finance Agency under Trump. "So, I certainly expect it to be talked about."Janneke Ratcliffe, vice president of the Urban Institute's Housing Finance Policy Center, said she is already pleased with the level of discourse about housing policy, even if it has yet to make into a presidential stump speech."I'm actually quite excited about the degree of attention that is being paid to the housing affordability crisis in the national debate," Ratcliffe said. "Could we talk even more? Absolutely. Can we continue to look for the multitude of solutions that are needed here, and bring forward proposals? Absolutely. But, the most important thing is that the issue has been raised and has made it to that level — really, for the first time in decades."

I got active on Twitter over the past year and change and to my surprise (not sure why it’s surprising really), encountered lots of housing bears on the platform.Many were/still are convinced that the next housing crash is right around the corner.The reasons vary, whether it’s an Airbnbust, a high share of investor purchases, high mortgage rates, a lack of affordability, low home sales volume, rising inventory, etc. etc.And the reasons seem to change as each year goes on, all without a housing crash…So, now that we’re halfway through 2024, the obvious next question is will the housing market crash in 2025? Next year’s got to be the year, right?But First, What Is a Housing Crash?The phrase “housing crash” is a subjective one, with no real clear definition agreed to by all.For some, it’s 2008 all over again. Cascading home price declines nationwide, millions of mortgage defaults, short sales, foreclosures, and so on.For others, it might just be a sizable decline in home prices. But how much? And where?Are we talking about national home prices or regional prices? A certain metro, state, or the nation at large?Personally, I don’t think it’s a crash simply because home prices go down. Though it is a pretty uncommon occurrence to see nominal (non-inflation adjusted) prices fall.Over the past few years, we’ve already experienced so-called home price corrections, where prices fell by 10%.In 2022, we were apparently in a housing correction, defined as a drop in price of 10% or more, but not more than 20%. Ostensibly, this means a drop of 20%+ is something much worse, perhaps a true housing crash.But you have to look at the associated damage. If home prices fall 20% and there aren’t many distressed sales, is it still a crash?Some might argue that there’s simply no other outcome if prices fall that much. And maybe they’d be right. The point is a crash needs to have major consequences.If Homeowner Joe sells his home for $500,000 instead of $600,000, it’s not necessarily a disaster if he bought it for $300,000 a few years earlier.He’s not happy about it, obviously, but it’s not a problem if he can still sell via traditional channels and even bank a tidy profit.Of course, this means others who had to sell wouldn’t be so lucky, since their purchase price would likely be higher.Still, this hinges on a major decline in prices, which historically is uncommon outside of the Global Financial Crisis (GFC).Stop Comparing Now to 2008One thing I see a lot is housing bears comparing today to 2008. It seems to be the go-to move in the doomer playbook.I get it, it’s the most recent example and thus feels the most relevant. But if you weren’t there, and didn’t live it, you simply can’t understand it.And if you weren’t, it’s hard to distinguish that time from now. But if you were, it’s clear as day.There are myriad differences, even though they’re quick to mock those who say “this time is different.”I could go on all day about it, but it’s best to focus on some main points.At the moment, housing affordability is poor thanks to a combination of high home prices and equally high mortgage rates, as seen in the chart above from ICE.Despite a big rise in prices over the past decade, the high mortgage rates have done little to slow down the party.Yes, the rate of home price appreciation has slowed, but given the fact that mortgage rates rose from sub-3% to 8% in less than two years, you’d expect a lot worse.It’s just that there’s really no correlation between home prices and mortgage rates. They can go up together, down together, or move in opposite directions.Now, proponents of a housing crash often point to buying conditions right now. It’s a horrible time to buy a house from a payment-to-income perspective. I don’t necessarily disagree (it’s very expensive).But that completely ignores the existing homeowner pool. And by doing so, it’s a totally different thesis.You can say it’s a bad time to buy but that the average homeowner is in great shape. These statements can coexist, even though everyone wants you to take one side or the other.Look at the Entire Homeowner UniverseTo put this perspective, consider the many millions of existing homeowners coupled with prospective home buyers.Your average homeowner today has a 30-year fixed-rate mortgage set somewhere between 2-4%.In addition, most purchased their properties prior to 2022, when home prices were a lot lower.So your typical homeowner has a rock-bottom interest rate and a relatively small loan amount, collectively a very attractive monthly payment.To make matters even better for the foundation of the housing market, which is existing homeowners, most have very low loan-to-value ratios (LTVs).They’ve also got boring old 30-year fixed-rate loans, not option ARMs or some other crazy loan program that wasn’t sustainable, as we found out quickly in 2008.These homeowners also haven’t tapped their equity nearly as much as homeowners did in the early 2000s, despite home equity being at record high levels (see above).This is partially because banks and mortgage lenders are a lot stricter today. And partially because of mortgage rate lock-in. They don’t want to give up their low mortgage rate.In other words, the low mortgage rate not only makes their payment cheap, it also deters taking on more debt! And more of each payment pays down principal. So these loans (and their borrowers) become less and less risky.Some have turned to home equity loans and HELOCs, but again, these loans are much more restrictive, typically maxing out at 80% combined loan-to-value (CLTV).In 2006, your typical homeowner did a cash-out refinance to 100% CLTV (no equity left!) while new home buyers were coming in with zero down payment as home prices hit record highs.Take a moment to think about that. If that’s not bad enough, consider the mortgage underwriting at that time. Stated income, no doc, you name it.So you had virtually all homeowners fully levered along with a complete lack of sound underwriting.Slumping Home Sales in the Face of Poor Affordability Is Actually HealthyThat brings us to home sales, which have slumped since the high mortgage rates took hold. This is normal because reduced affordability leads to fewer transactions.The worry is when this happens supply could outpace demand, resulting in home price declines.Instead, we’ve seen low demand meet low supply in most metros, resulting in rising home prices, albeit at a slower clip.While housing bears might argue that falling volume signals a crash, it’s really just evidence that it’s hard to afford a home today.And the same shenanigans seen in the early 2000s to stretch into a home you can’t afford don’t fly anymore. You actually need to be properly qualified for a mortgage in 2024!If lenders had the same risk tolerance they had back in 2006, the home sales would keep flowing in spite of 7-8% mortgage rates. And prices would move ever higher.That spike in home sales in the early 2000s, seen in the chart above from Trading Economics, shouldn’t have happened. Fortunately, it’s not happening now.At the same time, existing homeowners would be pulling cash out in droves, adding even more risk to an already risky housing market.Instead, sales have slowed and prices have moderated in many markets. Meanwhile, existing owners are sitting tight and paying down their boring 30-year fixed mortgages.And with any luck, we’ll see more balance between buyers and sellers in the housing market in 2025 and beyond.More for-sale inventory at prices people can afford, without a crash due to toxic financing like what we saw in the prior cycle. Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.Latest posts by Colin Robertson (see all)

In a joint statement, the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of the Comptroller of the Currency warned that end users could "reasonably" mistake certain "nonbank third parties" for FDIC-insured banks.Bloomberg WASHINGTON — Federal banking regulators issued a joint warning Thursday on — and a request for information about —  the potential risks of bank-fintech partnerships.The joint statement — issued by the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of the Comptroller of the Currency — warned banks of risks associated with relying on third parties, particularly for deposit-related services."A bank's use of third parties to perform certain activities does not diminish its responsibility to comply with all applicable laws and regulations," the statement notes.The joint statement notes that banks sometimes "rely on one or multiple third parties to maintain the deposit and transaction system of record," "process payments," "perform regulatory compliance functions," "perform customer service," and more.The regulators suggested that banks thoroughly vet third-party partners for reliability and establish clear contracts that lay out the roles and responsibilities of each party. They also suggested that banks conduct ongoing monitoring of the management information systems used by third parties and have contingency plans handy in case of operational disruptions.While the statement provides a roadmap for how banks could manage risks, it does not alter existing regulations or supervisory expectations. The statement noted that relying on third parties to manage crucial operations — including deposits — can generally weaken banks' oversight over such functions and hinder their ability to monitor risk.Fragmented record-keeping across third parties could muddy banks' understanding of outstanding obligations and delay depositors' access to funds. The agencies also highlighted concerns about outsourcing compliance functions and the risk of noncompliance with consumer-protection obligations.In addition, the statement cited the potential that unclear third-party relationships could mislead consumers about the extent to which their funds are covered by FDIC deposit insurance, which generally does not apply to nonbanks. "Some nonbank third parties could be reasonably mistaken for an insured depository institution by end users, particularly when they refer to FDIC deposit insurance in marketing and other public-facing materials," the statement noted."End users may not be aware that access to their funds may depend on the third party and that deposit insurance does not protect against losses resulting from the failure of the third party."Regulators have been working to better understand bank-fintech partnerships particularly in the wake of middleware provider Synapse Financial's bankruptcy in April. That situation  left tens of millions of dollars in consumer deposits frozen. It has also led to more  regulatory scrutiny of banks in similar partnerships. The Federal Reserve in June issued a cease-and-desist order against Synapse partner Evolve Bank related to gaps in its anti-money-laundering, risk management and consumer protection programs.Just weeks ago, FDIC board members Jonathan McKernan and Rohit Chopra, who is also director of the Consumer Financial Protection Bureau, suggested that regulators consider issuing more specific third-party risk guidance.Thursday's release provides some guidance for banks but tracks closely with existing agency policies. The banking agencies are also seeking information from the public and interested parties regarding the risks involved in bank-fintech partnerships.Fed Governor Michelle Bowman said Thursday that she approves of the effort to collect information, given the risks that third-party relationships can pose to consumers and the financial system."We have seen that these relationships can pose significant risks to banks and their customers, including retail deposit customers who reasonably expect that their deposits will be insured and that their banking services provider will comply with all applicable laws, including consumer protection laws," she said in prepared remarks. "It is important for the agencies to fully understand the range of practices and different bank-fintech arrangements in the industry before issuing further guidance."But Bowman, a former banker, also said that she generally remains skeptical of any effort to impose new regulations on banks in connection with these partnerships. "I remain concerned about both the risk of pushing out innovation from the regulated banking system and the sheer volume of new guidance and rules for banks of all sizes," she said. "My hope is that this RFI and the process that follows will not lead to duplicative or contradictory guidance, or unnecessarily restrict innovation in the banking system."

A group of 14 state attorneys general, led by Tennessee, are calling on the Federal Housing Finance Agency to end the Fannie Mae title insurance waiver pilot."The affordable housing crisis demands meaningful bipartisan solutions, not shortsighted regulatory overreach," said Tennessee Attorney General Jonathan Skrmetti, who penned the letter that joined by his counterparts in Alabama, Arkansas, Georgia, Indiana, Kansas, Louisiana, Mississippi, New Hampshire, Oklahoma, South Carolina, South Dakota, Texas, and Virginia."FHFA has received the letter and will respond directly," a statement from the agency said.The controversial pilot was first brought up last year but canceled in August 2023 following widespread opposition.But the Biden Administration as part of its efforts to reduce housing costs, revived the program as part of its State of the Union speech."We respectfully call on the Agency to halt this misguided effort because the proposed program fails to address the core issue of housing affordability, harms homeowners and small businesses, and improperly expands Fannie Mae's authority," the AGs' letter said.They join others who have spoken out against the pilot, including members of both parties in Congress.The American Land Title Association has also come out against the pilot, declaring it would turn the government-sponsored enterprises into the de facto title insurers.But the industry opposition is not universal, with Doma, an underwriter in the process of being acquired by Title Resource Group, expressing support; Doma is working with Fannie Mae on another title pilot.While the Mortgage Bankers Association also opposes the pilot, the Community Home Lenders of America is in favor.Fannie Mae made a request for proposal from interested parties for this pilot, with a deadline of July 26."The pilot program also opens homeowners up to potential fraud and abuse. Home title fraud is not an academic risk," the Tennessee AG letter said. "While title theft is not common, tens of thousands of people have been victimized by deed scams, and even the most famous private home in America is not immune to attempted fraud," referring to a recent attempt contesting ownership of Elvis Presley's Graceland estate.When it comes to deed theft, New York Attorney General Letitia James has been active in this area, successfully leading an effort to criminalize this activity in her home state."Title insurance is a state-regulated industry, and homeowners will be better served if it stays that way," the Tennessee letter said.This proposal is not meaningful nor is it a bipartisan solution and should be ended, the letter concluded."An attorney general's role is to enforce state consumer protection laws, and we at ALTA share the concerns raised by the 14 state attorneys general about the pilot program's lack of transparency, the shift of title risk from state-regulated title insurance companies to Fannie Mae, and the impact on local economies," said CEO Diane Tomb in a press release. "We applaud their call to terminate the pilot program."

Home buyers saw some affordability relief last month, with new monthly payments decreasing close to levels last seen in mid 2023, according to the Mortgage Bankers Association.  The median payment on new purchase mortgages dropped 2.4% to $2,167 in June compared to $2,219 one month prior. The latest decline puts the number nearly on par with last summer, when it landed at $2,162 for both June and July. The monthly payment trended downward again after consistently rising enroute to a 2024 high in April. It currently sits at its lowest point since December."Home buyer affordability conditions improved for the second straight month as declining mortgage rates continue to increase purchasing power and entice some borrowers back into the housing market," said Edward Seiler, MBA's associate vice president, housing economics, and executive director of Research Institute for Housing America, in a press release. The average 30-year interest rate dropped by more than 30 basis points from early May to late June, according to Freddie Mac's weekly measure. Despite the ongoing descent, monthly payments this summer are still running higher on a recent historical basis due to continued price growth. Rates also still stand more than two times higher from where they began in early 2022. During that year, the median mortgage payment ranged from approximately $1,500 to $2,000, MBA's data showed.Affordability is gradually improving this summer for reasons other than rates. The MBA's Purchase Applications Payment Index registered a similar 2.4% decrease from May, but fell 3.6% year over year. While the median monthly payment remained close to summer 2023 levels, wage growth increased, leading to greater affordability. The trade group's PAPI tracks affordability based on a payment-to-income ratio that factors in loan balances, rates and wages, with a lower reading indicative of increased affordability. June's PAPI score came in at 170.9, down from 175 in May and 177.2 a year earlier. "The median loan application amount fell to $320,512 in June, indicating that home-price growth is moderating, which should boost additional activity," Seiler noted.Affordability showed improvement across demographics and borrowing types, but buyers of new single-family homes saw the median monthly payment decline by only a fraction to $2,510 from $2,522 month to month. Meanwhile, borrowers of Federal Housing Administration-sponsored loans often used by first-time buyers saw the median fall 0.9% from May to $1,907 from $1,924. The latest payment amount is still higher than the median of $1,854 in June 2023. Conventional mortgage borrowers saw more relief with their payment amount down 2.1% on a monthly basis to $2,180. One month earlier, the number clocked in at $2,226. The conventional median payment is also below $2,205 reported a year ago.PAPI readings also decreased from May to June for Black, Hispanic and white households almost equally from 2.3% to 2.4% to marks of 171.4, 159.5 and 172.6.The Western U.S., again tops the list when it comes to challenging affordability levels. The states with the highest PAPI scores last month were found mostly west of the Rockies, led by Nevada, Idaho and Arizona, which had readings of 259.4, 253.4 and 229.7, respectively. On the other end, the states with the most affordability were Louisiana at 122.9, West Virginia with a score of 124.2 and New York at 124.8.

Mortgage rates moved up slightly last week, in anticipation of news regarding economic growth and inflation on Thursday morning. When those reports did come out, they drove down the yield on the benchmark 10-year Treasury used to price loans.The 30-year fixed rate mortgage averaged 6.78% on July 25, compared with 6.77% one week earlier but lower than the 6.81% for the same time in 2023, the Freddie Mac Primary Mortgage Market Survey reported.Meanwhile, the 15-year FRM averaged 6.07%, up from last week at 6.05% but lower than a year ago at 6.11%."Mortgage rates essentially remained flat from last week but have decreased nearly half a percent from their peak earlier this year," said Sam Khater, Freddie Mac's chief economist, in a press release. "Despite these lower rates, buyers continue to pause, as reflected in tumbling new and existing home sales data."Lender Price product and pricing engine data posted on the National Mortgage News website put the 30-year fixed at 6.868% as of 11 a.m., up from 6.85% a week ago.On Zillow's rate tracker, the 30-year FRM at 11 a.m. on Thursday was at 6.43%, 6 basis points lower than Wednesday and equal to last week's average rate.Rates had ticked up earlier this week in anticipation of reports on inflation and economic growth, a Wednesday evening statement from Orphe Divounguy, senior economist at Zillow Home Loans."Fed fund futures currently indicate traders are pricing in three rate cuts before the end of the year," Divounguy said. "But accelerating economic growth, higher-than-anticipated inflation readings, and fewer rate cuts could drive Treasury yields higher."Even though the 10-year Treasury yield was up 2 basis points from the July 18 close, at 4.22% at 11 a.m. on Thursday morning, it was 7 basis points lower than the previous day.The change was likely a result of the U.S. gross domestic product report for the second quarter, showing growth of 2.8%, double that of the period ended March 31.This report is consistent with other recent news and that should provide enough confidence for the Federal Open Market Committee to cut short-term rates in September, Mike Fratantoni, chief economist at the Mortgage Bankers Association, said in a statement.Fratantoni's expectations have been for two rate cuts this year, with the first to take place at the September meeting. No economists surveyed by Wolters Kluwer expect the Fed to act at the July meeting next week."Weaker net exports reflect a global economy that continues to operate in a lower gear as well as a stronger dollar," Fratantoni said. "While top line growth is above the pace needed to keep the unemployment rate from rising further, the components do suggest the economy may slow from here."But the Personal Consumption Expenditures index, the Fed's preferred measure of inflation, rose 2.9% in the quarter, versus the expected 2.7%, said Emma Wall, head of investment analysis and research, at U.K.-based investment firm Hargreaves Lansdown. The quarterly data is included in the GDP report; the monthly PCE is due out tomorrow."While this is higher than target, it is falling and coupled with a robust economic growth figure, it lessens the pressure on the Federal Reserve to cut rates next week," Wall said. "We expect an interest rate bonanza in September with rate cuts from the Fed, European Central Bank and the Bank of England."Former New York Fed President William Dudley wrote an opinion piece for Bloomberg on Wednesday calling for the Fed to cut rates at the July meeting.In comments on the Dudley piece, Louis Navellier, an investment banker, said if he was in charge of the Fed, he would cut rates at the July and September meetings. "However, the Fed will most likely issue a dovish FOMC statement on July 31 to set up an impending key interest rates cut on Sept. 18," Navellier said. "After the November Presidential election, I expect another Fed rate cut on Nov. 7."

The centerpiece of Mr. Cooper's earnings on Thursday were the ramifications of its $1.4 billion acquisition of certain Flagstar mortgage assets, which will notably increase non-depositories' foothold in the servicing business.In explaining the primary drivers of the sale, Flagstar had cited an interest in improving its capital position in addition to regulatory pressure and concern about interest rate volatility.There have been broad expectations that the pending Basel III endgame could shift more servicing to nonbanks, and in particular those that are also equipped to handle Ginnie Mae's upcoming risk-based capital rule. Mr. Cooper has said in the past that it would be.The transaction transforms Mr. Cooper into the market's top servicer, exceeding former leader JPMorgan by roughly $100 billion, according to an analysis by BTIG."We get a major step-up in scale," said Jay Bray, chairman and CEO of Mr. Cooper Group, said in an earnings call comment on the deal, noting that the acquisition was in line with a dislocation in the market the company anticipated from regulatory pressure on banks.The company paid for the transaction with a mix of cash and funds from financing secured by servicing assets, with the capacity of the funding vehicle anticipated to grow as a result of the deal.Based on unpaid principal balance, the transaction brings a total of $356 billion of additional servicing assets to the company, according to BTIG's analysis. Subservicing accounts for the majority or $279 billion of the Flagstar assets. The remaining $77 billion are MSRs.The company aims for a 50/50 mix in subservicing and MSRs overall, although the split has been slightly more in favor of the former recently at 52% vs. 48%, President Michael Weinbach said during the earnings call.He said the company wouldn't rule out more acquisitions but said they'd likely be a "distant priority" compared to completing the onboarding process resulting from the Flagstar transaction, which has a targeted completion date in early 2025.In addition to bringing on MSRs and subservicing, Mr. Cooper also has acquired third-party origination operations. It also took on responsibility for servicing advances in the transaction. Servicing advances are amounts that must be temporarily fronted for delinquent borrowers.Overall, the company's bottom line was $208 million, up compared to the first quarter, when it earned $181 million. It was also higher relative to a year earlier, when it generated $141 million in net income. Net income for the quarter included certain one-time mark-to-market changes of $68 million Mr. Cooper's challenge will be to keep servicing costs manageable enough for the business to remain profitable at a time when interest rates could fall, potentially forcing it to lean more on what's been a tough origination market.Weinbach said the company has been fine-tuning its automation to keep its servicing efficient and in line with customer preferences, leaning heavily on chat functions it's found borrowers like to use. It's also been fine tuning interactive voice-response technology used to self-serve.A recent JD Power study on customer satisfaction showed Flagstar and Mr. Cooper's servicing scores were very similar. They respectively ranked 24th and 25th overall, with scores of 580 and 577.That study also noted signs of a potential uptick of distress could make customer service more challenging and that servicers that specialize in that area could have organically lower scores.Weinbach said in the earnings call that special servicing operations Mr. Cooper acquired earlier to prepare for the possibility of an increase in distress have been performing well.In addition to positioning its servicing operations for various market conditions, Mr. Cooper also has been preparing its origination channels, including direct-to-consumer, for recapture to minimize runoff in its servicing book.Recapture is growing in importance because while a large number of outstanding borrowers with historically low rates have limited prepayment risk, Weinbach said 18% of Mr. Cooper's borrowers now have rates above 6%. The mix is similar in assets acquired from Flagstar."We're ready if something happens on the rates side," Bray said.