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The Federal Reserve rate cuts that are now projected as soon as next month will likely only lower short-term rates.That means those who are seeking a cheaper home equity line of credit (HELOC) or an adjustable-rate mortgage (ARM) may benefit.While those who only feel comfortable in a long-term fixed-rate mortgage may see little to no relief.This all has to do with the fact that the federal funds rate, which the Fed actually controls, is a short-term rate.Conversely, they have no direct control over long-term rates, which are driven instead by underlying economic data.Can a Friendly Fed Actually Lower Mortgage Rates?Lately, we’ve seen the Trump administration make unconventional moves to create a new-look, friendlier Fed.By friendlier, I mean more accommodative than the present one, currently helmed by Chair Jerome Powell.Both President Trump and FHFA director Bill Pulte have been outspoken about ousting Powell, namely because he hasn’t cut rates as quickly as they desired.Ironically, he cited a lack of uncertainty regarding things like tariffs, which the administration themselves implemented.The most recent move to shift the dynamic of the Fed was the so-called “firing” of Fed Governor Lisa Cook for alleged mortgage fraud.She has been accused of marking two properties as her primary residence in short succession.In general, it’s easier to qualify for a mortgage on a primary residence, and mortgage rates are also lower if you’re primary home versus a second home or investment property.The removal of Powell and Cook could usher in a more accommodating Federal Reserve that is more willing to lower the federal funds rate, even if not necessarily warranted.But even if that happened, it might not translate to lower mortgage rates. As noted, the federal funds rate is a short-term, overnight rate banks charge one another when one is in need of cash.Conversely, the most common mortgage in America is the 30-year fixed, which is anything but an overnight rate.It’s a 360-month rate, though because mortgages often aren’t held to term, and are usually kept for just 10 years or so, they correlate better with 10-year Treasury bond yields.The only difference is because they’re mortgages and not guaranteed government bonds, there is a mortgage rate spread that investors require to take on prepayment and credit risk.Anyway, the point here is the Fed can only control short-term rates and most mortgages aren’t that.This means there’s zero guarantee the 30-year fixed goes lower in the event the Fed decides to lower rates aggressively.And in fact, 10-year bond yields could go up if the Fed monetary policy isn’t warranted. You need the underlying data, such as inflation and unemployment, to support a dovish Fed.Without that data, the Fed will only be able to control the short end of the curve.A New Look Fed Could Reduce Rates on ARMs and HELOCsNow let’s talk about what the Fed could impact. If it follows through on lowering the federal funds rate, HELOCs will be directly impacted.HELOCs are tied to the prime rate, which moves in lockstep with the FFR. So if the Fed cuts 25 bps, your HELOC rate goes down 0.25%.They cut 50 bps, your HELOC rate drops by 0.50%. And so on and so forth. If they do this aggressively, HELOCs might get really popular as they get cheaper.Of course, they can adjust higher as well when the Fed hikes, so if this scheme is short-lived, HELOC rates could shoot higher again.The same goes for adjustable-rate mortgages, which are tied to mortgage indexes like SOFR, which stands for Secured Overnight Financing Rate.If the Fed is cutting aggressively, rates on ARMs could become a lot more attractive as they do.At the moment, ARMs aren’t priced much lower at most lenders relative to FRMs, but that could change if this new-look Fed thing happens.By the way, if you want a cheaper ARM today, check out a local credit union as they tend to pass along bigger discounts than the banks and nonbank lenders.What’s really interesting is if the Fed goes against the grain, aka the underlying economic data, we could see a much wider gulf between short-term and long-term interest rates.A scenario where the 30-year fixed is still relatively expensive, while ARMs and HELOCs drift a lot lower.That would make them more appealing to borrowers, though it arguably introduces more risk into the financial system if more homeowners have floating rates.It’s one thing I worry about if the Fed loses its independence and objectivity. 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 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.Latest posts by Colin Robertson (see all)

The Federal Housing Administration, which receives the largest share of mortgage applications among the government guarantors, is adopting the UAD 3.6 appraisal format going into place in the conforming market.The new UAD 3.6 Uniform Residential Appraisal Report is replacing traditional boilerplate forms which are currently being used, such as the Fannie Mae 1004.But heretofore, this change was limited to the conforming markets, with a limited production phase starting in September, working its way up to a planned mandatory adoption by November 2026.This move by the FHA is welcome news, said Elizabeth Green, senior vice president, valuation solutions at ServiceLink. Green is also the chair of the Property and Valuation Services Community for the Mortgage Industry Standards Maintenance Organization, which put together the new Appraisal Procurement Dataset Specification."The implementation by FHA will also mean more efficiencies in the process when transactions move from conventional to FHA and vice versa during the origination process, which in turn impacts any corresponding valuations that are already in play when the loan type changes," she said.The government-sponsored enterprises incorporated requirements that the FHA and other agencies like the Department of Veterans Affairs have into the new appraisal formal, according to Green.NMN reached out to the VA for comment regarding its plans but had not received a response by deadline. The most recent Mortgage Bankers Association Weekly Application Survey gives FHA a 19.1% market share with VA at 13.3%. USDA has the smallest share at 0.5%. Conventional applications make up two-thirds of the market, but MBA does not break those out into conforming and nonconforming.Nonconforming lenders are also expected to adopt the new URAR, but each investor has its own requirements and while many mirror the government-sponsored enterprises, they can diverge.The FHA, in information bulletin 2025-42, said its adoption of UAD 3.6 will begin in early Spring 2026. A timeline for the transition, as well as updated policies and technology specifications, will be announced later this year.The FHA said the adoption of the new appraisal format would build on its collaboration with the government-sponsored enterprises, as well as the investment by its parent agency the Department of Housing and Urban Development in the FHA Catalyst platform during President Trump's first term."The implementation of this industry-wide initiative will preserve FHA's alignment with the industry and strengthen its collateral risk management capabilities," the memo said.However, like in the conforming market's adoption of the new format, FHA lenders could find themselves running dual processes for a time as the agency will still accept appraisals using UAD 2.6 during the transition period."FHA is committed to providing stakeholders with reasonable time to develop, test, and prepare their technology solutions before mandatory adoption, recognizing that a longer timeframe is essential to accommodate required technology updates," the memo said.

A federal jury in Puerto Rico on Tuesday convicted Oluwasegun Baiyewu, 37, of Richmond, Texas, in a money-laundering conspiracy stemming from wide-ranging wire, mail and device fraud schemes that funneled illicit funds to Nigerian transnational organized crime groups through car part auctions.While the total dollar value of the schemes is relatively small, prosecutors only cited amounts under $1 million, the scheme provides helpful insights for U.S. banks and credit unions seeking to enhance their fraud and money-laundering detection capabilities.The internal workings reveal multiple points where financial institutions could identify and disrupt illicit activity, helping to make oft-cited advice from regulators and risk officers real.The Department of Justice, in announcing the conviction, emphasized its commitment to targeting the entire cybercriminal ecosystem. Brett A. Shumate, assistant attorney general, said in a press release that the department "will continue to identify and prosecute the fraudsters who design complex fraud schemes and the launderers that receive victim proceeds and make sure the crimes are profitable."Understanding the scheme: A blueprint for detectionThe convicted felons, including Oluwaseun Adelekan, Temitope Omotayo, Ifeoluwa Dudubo, Temitope Suleiman and Baiyewu, conspired to launder funds derived from various international organized fraud schemes.These included romance scams, pandemic relief unemployment insurance fraud, and business email compromise scams, which disproportionately impacted elderly or otherwise vulnerable Americans, according to U.S. prosecutors.Here's how the scheme operated:Fraud funds inflow and money mule networksCriminal groups in Nigeria often coordinate with U.S.-based money mules, according to the prosecutors. These mules open bank accounts specifically to receive fraudulently obtained funds.Scammers induced victims, such as in romance scams, to mail bulk cash and cashier's checks or wire money to accounts controlled by these mules.For example, two victims were directed to mail money to Adelekan's and Omotayo's shared Staten Island address, and wire funds to an account at Investors Bank, controlled by Adelekan under a shell company, Olad Trading.Unemployment insurance fraud involved fraudsters using stolen identifying information to falsely apply for unemployment insurance benefits. These benefits were loaded onto reloadable, prepaid debit cards, which they then used to purchase money orders.Conversion to anonymized instrumentsUpon receiving fraud funds, the initial recipients quickly withdrew the money as cash, money orders or cashier's checks. This step aimed to obscure the source of the funds and evade detection by law enforcement or banks.Kelsey Williams, Baiyewu's ex-wife, testified that Baiyewu regularly had $5,000 to $20,000 in cash on him. Williams said she once witnessed him bring home over $100,000 in cash, raising her suspicions.Baiyewu would buy money orders in batches of two or three from multiple places before delivering them to online auto auctions.Structuring transactions to evade reportingIn a notable incident, a Navy Federal Credit Union representative observed Baiyewu attempting to deposit $12,735 in cash. When informed that a currency transaction report would be filed, Baiyewu immediately cancelled the deposit and left the bank.This behavior, a clear red flag of structuring, aimed to avoid reporting requirements and detection. Financial institutions should flag such instances where customers reverse transactions upon learning about reporting obligations.Trade-based money laundering through vehicle exportThe core money laundering method involved purchasing salvaged vehicles from online auction sites, often vehicle auctioneer Copart, using fraud proceeds, and then shipping these vehicles to Nigeria.Baiyewu, through his companies Shipopo Autos and Shipopo LLC, played a central role as a money broker and exporter. He would receive requests from Nigerian customers, often in Nigerian naira (due to Nigeria's restrictive dollarization policies), convert the naira to U.S. dollars, and then make payments to Copart or arrange for others to do so.Baiyewu hand-delivered at least 31 money orders, totaling $30,088, to Copart car yards on five separate occasions in 2020. These structured payments went to the Copart account titled Emperor Auto Advantage, controlled by Blossom Eghaghe, a Nigerian individual.Concealment and deceptionBaiyewu lied to his ex-wife about his employment, claiming to be an engineer. He later admitted he made money buying and selling cars from auction sites, and records showed he did not report substantial income in 2019 despite supporting his family.Conspirators often used encrypted communication apps like WhatsApp to coordinate their efforts, making it more challenging for law enforcement to access message content.Transnational organized crimeThe scheme involved Nigerian transnational organized crime groups. These groups have a "strong and constant need to move funds generated through these schemes back to perpetrators in Nigeria," according to prosecutors.They often must move these funds in Nigerian naira rather than U.S. dollars, and this demand for converting U.S. dollars into Nigerian naira created a black market for currency and financial instruments.For financial institutions, understanding these specific methods — from the use of money mules and shell companies to structured cash deposits and trade-based money laundering through vehicle exports — is crucial for developing more effective detection and prevention strategies.

Mr. Cooper's $25 charge to borrowers for expedited payoff quote statements passes legal muster, a federal judge ruled.U.S. District Judge Barbara Jacobs Rothstein last week granted summary judgment in favor of the lender and servicer in the consumer lawsuit that drew the attention of federal regulators. Plaintiffs have argued for over a year that the fee, which Mr. Cooper discloses on its website, violates state and federal consumer protection laws.The outcome was first reported by Law360.In an 11-page order, Rothstein wrote the fee doesn't break laws related to debt collection because the specific charge "is not a communication related to collecting a debt."The judge at the same time denied as moot expert testimony from subjects including a Mr. Cooper executive. The sides were given three weeks to discuss the remainder of the case, although it's unclear if the three named plaintiffs will file an appeal. An attorney for plaintiffs declined to comment Wednesday, while neither opposing counsel nor a spokesperson for Mr. Cooper responded to requests for comment. Why did borrowers sue Mr. Cooper?Consumers filed the lawsuit in Washington last April, alleging the "junk fee" ran afoul of the Fair Debt Collection Practices Act. They claimed the expedited payoff quote statements, which give borrowers a disclosure faster than TILA's seven-day requirement, are processed "in a matter of seconds" and cost Nationstar "pennies" compared to the $25 fee. The Consumer Financial Protection Bureau weighed in last August, filing a short amicus brief suggesting Mr. Cooper was violating the FDCPA by charging a fee customers weren't previously aware of. The new-look regulator however in May withdrew its guidance on the subject, and Rothstein allowed the bureau to withdraw its argument in the case.Mr. Cooper throughout the pleadings asserted the expedited delivery of a payoff statement was an additional service contracted outside of the mortgage loan. It also reminded the court it provides the statements for free within the statutorily allowed time frame. Plaintiffs last year also attempted to add Freddie Mac to the case, for purportedly turning a blind eye to the illicit fee. Counsel for the government-sponsored enterprise said it requires servicers to comply with applicable laws, and Rothstein quickly dismissed Freddie Mac from the lawsuit.The lawsuit is one of several so-called "pay-to-pay" disputes involving mortgage servicers in federal courts. Others, including a complaint against Newrez for charges to borrowers making payments via phone, and another against Roundpoint Mortgage Servicing for dubious late fees, remain pending.

Mortgage application volume declined for the second week in a row, as a small rise in rates put a damper on refinance activity, the Mortgage Bankers Association said.The Market Composite Index decreased by 1.4% on a seasonally adjusted basis for the period ended Aug. 15. The refinance component was down by 3%, although versus the same week in 2024, it was 23% higher.Purchase volume on a seasonally adjusted basis was 2% higher compared with the week of Aug. 8; unadjusted it was a scant 0.1% lower week-to-week but 25% higher than one year ago.The conforming 30-year fixed-rate mortgage averaged 6.69% for the period, a 1 basis point gain over the prior week.How rates affected this week's mortgage volume"While this was not a significant increase, it was enough to cause a pullback in refinance applications," said Joel Kan, the MBA's vice president and deputy chief economist. "Purchase applications had their strongest week in over a month, and the average loan size increased to its highest level in two months at $433,400."The refi share fell to 45.3% from 46.1% for the previous week. Adjustable-rate mortgages also had a drop in share, to 8.4% from 8.6%. The MBA reduced its origination forecast for the year by approximately $6 billion."Prospective buyers appear to be less sensitive to rates at these levels and are more active, bolstered by more inventory and cooling home-price growth in many parts of the country," Kan said.Sellers exiting the housing market could impact supplyBut Redfin is reporting the market lost 14,000 sellers between May and July, the first drop off in two-years.Still the market has approximately 519,000 more sellers than buyers. Redfin estimated July's market had 1.43 million buyers and 1.95 million sellers. On the buyer side, this is the lowest on record aside from the start of the pandemic.Redfin economists have a different view than the MBA when it comes to how the current interest rate environment is affecting borrowers, especially when it comes to affordability."Homebuyers are spooked by high home prices, high mortgage rates and economic uncertainty, and now sellers are spooked because buyers are spooked," said Redfin Senior Economist Asad Khan, in a press release. "Some sellers are delisting their homes or choosing not to list at all after seeing other houses sit on the market for weeks or months, only to fetch less than the asking price."Still, it is the most buyer-friendly market since the 2008 housing crisis, when supply rose because of foreclosures and demand was weak due to the upheaval, Khan said.Market shares and rates for other types of mortgagesThe Federal Housing Administration-insured application share remained unchanged at 19.1%, even as rates for these loans fell by 4 basis points week-to-week, to 6.35% from 6.39%.Veterans Affairs activity dropped to 13.3% from 13.4%. U.S. Department of Agriculture mortgage applications declined to 0.5% from 0.6%.Jumbo mortgage rates were 3 basis points higher, rising to 6.67% from 6.64%. The 15-year FRM had the largest increase among the rates being tracked by MBA, to 6.03% from 5.96%.The contract rate for the 5/1 ARM averaged 5.94% for the week, down from 6.01% seven days prior.

The oversight agency for two government-sponsored enterprises greenlighted plans for industry giant Rocket Cos. to buy megaservicer Mr. Cooper, but only under certain conditions.Fannie Mae and Freddie Mac's regulator will require the new combined company to have "appropriate financial and operating safeguards." Their regulator specifically is requiring them to each maintain "strict counterparty risk concentration limits at 20%."The pronouncement reinforces an absolute ceiling for the size of seller-servicers working with the two GSEs that have been in government conservatorships since 2008. The two enterprises buy, back and securitize a high percentage of the loans made in the United States."No market participant should have greater than 20% of Fannie or Freddie's servicing market in order to ensure the safety and soundness of the mortgage market and the overall economy," U.S. Federal Housing said in a press release. The companies' pro forma combined market share of owned servicing in the Fannie/Freddie market is around 13%, according to a report that Keefe, Bruyette & Woods released late Tuesday. When subservicing is included, the percentage could be closer to 20% or more."This suggests that while there is room for the combined entity to grow owned servicing, there might need to be an offset through reduced subservicing," Bose George and Frank Labetti, analysts at KBW, said in the report."Given the more modest profitability of subservicing, we expect no discernible earnings impact relative to our estimates," they added.FHFA had not immediately responded to an inquiry related to whether the 20% requirement would include subservicing at deadline.Fannie and Freddie's seller servicers generally must adhere to several counterparty requirements, some of which are coordinated with those of Ginnie Mae, a government corporation that guarantees many of the mortgage securitizations outside the GSE market.Ginnie Mae also has shown concern with counterparty risk from time-to-time, notably flagging high concentrations of subservicers in 2016 and making an effort to expand the number of counterparties it had in this area.Fannie and Freddie's regulator, which was formerly known as the Federal Housing Finance Agency prior to a rebranding, may be particularly careful about managing their risks now given that President Trump has hinted at plans for a new public listing of their shares.Rocket announced plans to buy Mr. Cooper in an all-stock deal valued at $9.4 billion back in March. The acquirer also completed the acquisition of Redfin, a real estate brokerage, for $1.75 billion in July."We are pleased to have cleared FHFA's review in our pending acquisition of Mr. Cooper, which we expect to close in the fourth quarter," a Rocket Cos. spokesperson said in a statement emailed Wednesday morning.

President Donald Trump's unprecedented and escalating attack on the Federal Reserve runs the risk of backfiring by hitting financial markets and the economy with higher long-term borrowing costs.For weeks, he has lambasted Chair Jerome Powell for not slashing interest rates deeply to stimulate the economy and — as Trump sees it — lower the government's debt bills.He's already nominated the head of his Council of Economic Advisers to the central bank's board and is now seeking to oust Governor Lisa Cook, setting the stage for a legal battle over the institution's political autonomy.Yet for all the Fed's power over short-term interest rates, it's the 10-year Treasury yield — set in real-time by traders around the world — that largely determines what Americans pay for trillions of dollars of mortgages, business loans and other debts.And even as Powell signals he's ready to start easing monetary policy as soon as next month, those rates have been stubbornly high for other reasons: Tariffs are threatening to worsen still-elevated inflation; the budget deficit is poised to keep flooding the market with new Treasuries; and Trump's tax cuts may even deliver a jolt of stimulus next year.Throw in fears that a Fed loyal to the president could cut rates too far, too fast — jeopardizing the central bank's inflation-fighting credibility in the process — and long-term rates could wind up even higher than they are now, squeezing the economy and potentially roiling other markets."The combination of weaker US payroll growth and the White House baiting of the Fed, both institutional and personal, is starting to create real issues for investors in US Treasuries," said David Roberts, head of fixed income at Nedgroup Investments, who expects long-term rates to rise even if short-term ones fall. "Inflation is running way above the Fed's target. Much cheaper money now would likely stoke a boom, a weaker US dollar, and materially higher inflation."The pressure on long-term interest rates isn't unique to the US. They've been propped up in the UK, France and other countries by investors' worries about the same combination of high government debt loads and increasingly unpredictable politics. But the crosscurrents of Trump's return to the White House have posed their own challenges.During last year's presidential campaign, when investors started betting on his victory, 10-year Treasury yields rose sharply even as the Fed started pulling its benchmark overnight rate back from a more than two-decade high. That's because investors were anticipating that the Republican's tax-cut and deregulation agenda would add fuel to what was, at the time, a surprisingly resilient economy.  Since Trump has taken office, though, the Fed has been on hold as his unpredictable trade war upends the economic outlook, spooks foreign investors and threatens to push up consumer prices. When Trump's April tariff rollout unleashed one of the worst bond selloffs in recent decades, sending yields surging, Trump paused them, saying the markets were "getting a little bit yippy, a little bit afraid."He has since reimposed the import levies and his trade policy has continued to remain in flux. At the same time, his tax-cut bill is set to add more than $3 trillion to the deficit over the next decade, which will add to the stockpile of debt unless his tariffs are kept in place by future presidents and wind up providing enough revenue to offset the cost. "The US has to issue a tremendous amount of debt in order to fund its deficit," said Michael Arone, chief investment strategist at State Street Investment Management. He said that overhang is adding to concerns about growth and inflation. "As a result, I would expect that long rates will remain higher and more volatile than the market expects."While Treasury Secretary Scott Bessent has said the administration's cost-cutting and pro-growth policies would eventually pull down the 10-year yield — which he has held up as a key benchmark of success — that hasn't happened yet. While shorter-term yields have dropped on anticipation of another round of Fed cuts, the 10-year's rose as high as 4.31% Tuesday before settling around 4.26%, roughly where it was at the time of Trump's election in November. The 30-year yield moved up to 4.94%.That marked a relatively muted response to Trump's announcement that he was firing Cook from the Fed over unproven allegations of mortgage fraud, a move that Cook has vowed to fight in court. The Fed said it will abide by the outcome of the case.US 10-year yields edged up one basis point to 4.27% in European trading Wednesday. Those on 30-year bonds held at 4.92%. The Treasury will sell $70 billion of new five-year debt later. An offering of new two-year notes drew strong demand on Tuesday. Some of the market's response reflects expectations that the courts will protect the Fed's independence. Priya Misra, a portfolio manager at JPMorgan Investment Management, pointed to the "institutional safeguards that protect and jealously guard" the Fed from political pressure. Even Cook's replacement, she said, would unlikely alter the Fed's near-term trajectory. Moreover, with job growth slowing and Powell now telegraphing that another round of rate cuts may start as soon as next month, traders are already pricing in five quarter-point reductions through the end of next year. Powell, a Trump appointee whose term as chair ends in May, has also said he wouldn't step down from his role and has sought to insulate the central bank from politics.Yet, a mounting effort by Trump to reshape the Fed would almost certainly keep bond markets on edge — and long-term debt yields elevated.Markets have grown accustomed to the Fed's autonomy, with recent presidents going out of their way not to be seen as influencing the central bank's policy. Its insulation from electoral politics hasn't been an issue for investors since the early 1970s, when the Nixon administration sought to keep rates low by pressuring then-Fed Chair Arthur Burns. That has served as a cautionary tale ever since, given the subsequent surge of inflation that many blamed on the central bank for caving to the president."The unspoken Fed mandate is don't be Arthur Burns," said Steve Sosnick, chief strategist at Interactive Brokers. "You don't bow to political pressure."

Adobe Stock After spending years as a wildcard on banks' balance sheets, commercial real estate loans are again getting boring.Banks with concentrations in CRE have had to tiptoe through quarter after quarter as those portfolios sputtered under pressure from the Covid-19 pandemic and the economic environment. But now analysts and bankers are less concerned about the once-feared doom that CRE could reap upon financial institutions.Stephen Lynch, vice president of the financial institutions group at Moody's Ratings, said that in 2023 and 2024, fear about banks' exposures to CRE was a hot topic, but those conversations have largely quieted down."I wouldn't want to say we're out of the woods yet, but I think the feverish concern of these mass defaults and mass major losses geographically across the U.S., independent of region, is taken off the table," Lynch said. "Now it's more about cleaning up properties that aren't capitalized correctly or are not stabilized to current conditions."The so-called extend-and-pretend strategy — where lenders work with borrowers by modifying loans to avoid taking losses, at least until macroeconomic pressures lighten up — seems to have worked for the most part, said John Toohig, head of whole loan trading at Raymond James.Commercial real estate deals are picking back up, according to data from the CRE analytics firm MSCI Real Assets, which reported that transaction volumes were up 13% in the first half of 2025 from the same period last year. Valuations seem to be, if not surging, stable.  And at this point, banks have had time to steadily set aside reserves for any losses that they may eventually take."There still will be some losers," Toohig said. "We do still see a lot of extensions, and we do still see some loans that candidly should be charged off, but they've been able to continue to modify and push out. Barring no shock, barring no tariff tantrum or war or something, it does appear like we're on the other side."There are still challenges, but many of them are idiosyncratic across individual properties. Other troubles are tied to specific geographic regions and asset classes. "What you're going to have now is we're probably going to bump along the ground, as far as losses go," Lynch said "It's going to be lumpy. It's going to be property-specific."Office properties have been a source of woe for banks, as the pandemic fueled work-from-home policies, which triggered a mass exodus from city centers. Multifamily loans also showed signs of stress, but for different reasons. As interest rates rapidly rose in 2022 and 2023, deposit costs began to outpace the yield on fixed-rate apartment building loans that were originated when rates were still at rock bottom. Additionally, in some regions where there was a surge in construction of multifamily properties, demand for housing couldn't keep up, leaving some properties under-leased.Eagle Bancorp, a small bank just outside of Washington D.C., took a $70 million loss in the second quarter due to troubled office loans. Some of the pain came as the $10 billion-asset bank learned more information about the valuation of office properties in the D.C.-Maryland-Virginia region following government spending cuts by the Trump administration and its Department of Government Efficiency. More than one-third of Eagle's $965 million office loan portfolio is in troubled status.And in New York City, community banks with large exposures to rent-regulated real estate are running stress tests on their loan books, as the upcoming mayoral election could mean drastically different housing policies that put pressure on lenders.But in the Sun Belt and across certain metropolitan areas, the oversupply of multifamily properties is starting to work itself out, Mustafa said. According to CBRE research, the overall multifamily vacancy rate fell to 4.1% in the second quarter, its lowest level since 2022.Christopher Wolfe, managing director of U.S. banks at Fitch Ratings, said there's been some "natural healing" in the office sector. He pointed to return-to-office policies that have helped shore up demand for space in office buildings. While the asset class is still seeing some deterioration across the U.S., the pace of decline has cooled, and some regions are outperforming the country.Plus, a CBRE survey of its professionals reports that most respondents believe capitalization rates — which estimate investment properties' rates of return — peaked in the first half of the year, meaning that risk is expected to decrease from this point, as buildings' operating incomes comprise a smaller percentage of their valuations. The report didn't discuss the factors that led to the expectation that cap rates will decrease.Another factor in the ebbing tide of real estate fear is a newfound sense of certainty — as recent deals and loan originations provide more clarity about valuations.Five of the largest real estate firms — CBRE, JLL, Cushman & Wakefield, Colliers, and Newmark — increased their financial guidance for 2025 after logging some of their strongest earnings in years, boosted by leasing activity and property sales.The added clarity on valuations can help lenders bulk up or bring down their total reserves, as they can better determine specific credit factors, such as loan-to-value ratios and debt service coverage ratios."If we rolled the clock back a year, or more, there was a lot of uncertainty." Wolfe said. "You didn't see a lot of activity and transactions. And what you did see was big valuation drops, especially on office properties."A year and a half ago, Flagstar Financial shares tumbled after the Long Island bank slashed its dividend and announced an unexpected $552 million provision for credit losses, primarily tied to office loans. The then-$98 billion-asset bank eventually had to be rescued with a $1.1 billion capital infusion, which brought along a fresh management team.But the last 18 months have made a big difference; Flagstar is now projecting profitability by year-end.Zions Bancorp. saw its classified commercial real estate loans decrease by $196 million in the second quarter, due to improved leasing and cash flow on multifamily and industrial properties. The bank also lowered its overall provision for credit losses by $1 million — its first decrease in three years — based on "reduced emphasis on certain portfolio specific risks such as commercial real estate and changes in portfolio mix," Zions Chief Financial Officer Ryan Richards said on the bank's earnings call last month.Adam Mustafa, president and CEO of the consulting and analytics firm Invictus Group, said that while he thinks most banks are pretty well-reserved for CRE losses, the sector hasn't provided a windfall, either. As property valuations hold steady, CRE has been "on pause" for his firm's clients, which are banks that mostly range from $1 billion to $20 billion of assets, he said. "We have not seen a significant increase in commercial real estate pricing through our clients, at least," Mustafa said. "We haven't seen a decrease either. It's really been kind of flat, almost across the board."

President Trump's attempt to fire Federal Reserve Governor Lisa Cook over mortgage fraud allegations has been called part of a larger crackdown, which suggests there could be value in looking at potential changes it points to for lenders.Housing regulator Bill Pulte has claimed alleged fraud findings like Cook's are not political, in contrast to other views, and he has said they'll have broader application, potentially changing the historical nature of the government-sponsored enterprises' occupancy status oversight.What follows are a few ways the influential government-sponsored enterprises Pulte oversees may be treating this type of misrepresentation differently in the future. (Pulte's agency had not immediately responded to inquiries about this article at deadline.)Faster comparisons of loan files through automationWith artificial intelligence technology, a government-sponsored enterprise can do what used to be two months of manual investigation on loan files in seconds, according to a joint press conference Fannie Mae held with Trump ally Peter Thiel's Palantir earlier this year.It's unclear whether Palantir, which has said it's only working with Fannie to start, played a role in bringing the occupancy fraud allegations against Cook, which involve multiple loans, one of which Pulte has said was used as Federal Housing Loan Bank collateral. The evolution of AI makes it easier to compare data from two different loans made at different times to a single borrower.Also, Fannie and Freddie have been amassing digitized loan information that they've been referencing to validate data and streamline the mortgage process in various ways, such as allowing appraisal waivers on loans with sufficient property valuation records.While there are some privacy restrictions on certain mortgage data, the GSEs' information is largely considered part of the public record.A higher priority on occupancy fraud vs. other typesOccupancy fraud is considered a felony and does harm mortgage companies and investors because it results in underpricing for a loan's risk.However, a finding of it on a single loan historically has gotten prioritized behind schemes defrauding multiple people at a greater cost. One sign the incidence of occupancy fraud findings has been ramping up more quickly than other types of misrepresentation exists, but it does have a caveat, according to a recent Cotality study."The number of owner-occupied properties listed for rent within the last 180 days increased to 50%, the largest quarter-over-quarter increase; however, other indicators point to stabilized occupancy risk," the company said in its report.Any type of fraud can raise the risk a lender who sells a loan to the GSEs has to repurchase it and increased incidence of this could be a concern for the industry.A shift away from inspector general involvement?The inspector general's office for Pulte's agency has often had a hand in publicizing fraud concerns affecting that entity and the GSEs, and generally only after more decisive court findings.Although the fact the IG's office doesn't seem involved in the most recent allegations may be explained by the fact it lacks a permanent chief, current circumstances do seem to indicate the watchdog will be less involved and the GSEs' oversight agency itself will be more aggressive.

New American Funding announced the launch of an insurance affiliate, which will offer homeownership coverage, alongside a range of other protections.In a deal with insurance distribution firm The Baldwin Group, New American will sell primary property coverage in addition to products to guard homeowners against flood and wind damage. The affiliate, named NAF Insurance Services, will also make available auto, boat, pet, life and disability coverage. The addition of the new business comes as homeowners grapple with challenging levels of affordability, with high housing costs compounded by fast-rising property taxes and insurance rates. NAF will partner with over 50 different carriers across all 50 states to help customers seeking cost savings, it said.  "Rising insurance rates are challenging for many families, but they shouldn't have to settle for less protection or higher costs," said Jeff Kvalevog, chief strategy officer for New American Funding, in a press release. "With the support of The Baldwin Group, NAF Insurance Services is designed to simplify the client experience and help customers find coverage they can trust without added stress," he added. In addition to his C-suite role with the Tustin, California-based lender, Kvalevog will also serve as president of the new insurance affiliate.  NAF Insurance will work closely with the New American mortgage team, designating a dedicated representative to assist clients of each lending officer, branch and sales region. Spanish-speaking insurance advisors will also be available to provide services when needed.The effect of rising insurance costsNew American's new business launch comes as the rising cost of insurance premiums emerge as a possible barrier to the homeownership goals of many potential buyers. In the three-year stretch between 2021 and 2024, the annual cost of homeowners' coverage accelerated by 24% across the country when compared against the previous 36 months, according to the Consumer Federation of America.CFA also determined homeowners in one-third of U.S. ZIP codes saw premiums spike by more than 30%. In a separate study released earlier this year, mortgage fintech Maxwell found a majority of homeowners would consider selling their current properties if insurance costs continued accelerating at the current pace. Close to half were also concerned about their ability to keep up with monthly housing payments at the rate insurance and property taxes were rising. Helping drive the precipitous increase of homeowners insurance is the decision of some of the largest carriers to cease doing business in disaster-prone areas in recent years that left few affordable options available to residents. As home lending has slowed since the pandemic-era housing boom, some mortgage companies have also leaned into other business segments — including insurance — as a source of new revenue. New American joins Rate, which in 2024 expanded the scope of its long-standing insurance business to extend coverage beyond property protection through a digital marketplace.