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Mortgage companies selling loans to two government-sponsored enterprises will need a specific process for appraisal appeals under new changes announced by the Federal Housing Finance Agency. These lenders also will have more options related to title protection requirements.In a flurry of new guidance announced Wednesday, both Fannie Mae and Freddie Mac added rules lenders will need to follow when consumers want them to take a second look at their valuations. In addition, Freddie expanded its allowable lender title-insurance alternatives.Such changes at these entities - which accounted for over half the mortgage-related securities issued domestically during the first quarter - are in line with related Biden administration efforts to reform the appraisal process and lower housing costs for borrowers."Consistent standards for lenders and appraisers, coupled with a well-understood process for consumers to challenge appraisal findings, will help ensure that consumers are treated fairly," FHFA Director Sandra Thompson said in a press release."These updates represent a powerful tool in combating racial bias in property appraisals and promoting valuation accuracy," she added.The Federal Housing Administration, which contributes loans in Ginnie Mae securitizations, also announced on Wednesday that it has moved forward with a version of previously proposed steps to strengthen its process around reconsidering valuations.Under the GSE valuation review rules, lenders will have to have a process with documentation and disclosures for when a borrower is concerned an appraisal is "unsupported," deficient due to appraisal requirements that are "unacceptable" or based on "discriminatory practices."Both Fannie and Freddie said the documentation could be used to track these reviews in the future. Rules for these reconsiderations of value will go into effect for applications dated on or after Aug. 29.Freddie's expanded title insurance options, in contrast, are effective immediately and extend their use both in terms of new jurisdictions and loan types. Refinances and purchase loans are eligible.The enterprise previously allowed lender title-insurance alternatives only in areas where they were "commonly acceptable," like Ohio and Kentucky, but it's removing that restrictive language and extending the option to 49 states and Washington, D.C. (Iowa has unique requirements.)In addition, Freddie is allowing the use of attorney opinion of title letters to loans collateralized by condominiums and those with deed restrictions, such as properties that are part of a homeowners association.While broader use of options like attorney opinion letters has gotten pushback from the insurance industry, saying they're insufficient given the risk, efforts to explore this are moving forward due to the potential to save borrowers hundreds of dollars upfront per loan.Use of AOLs as an alternative to title insurance at Freddie will be an option, not a requirement, for lenders. Freddie has been accepting them on a limited basis for many years.The Community Home Lenders of America, which has been supportive of efforts to expand AOL use, said it welcomed Freddie's move to increase the use of the letters in conjunction with condo financing in particular."CHLA applauds Freddie Mac for allowing the use of AOLs as an alternative to title insurance as well as aligning their practices more closely with Fannie Mae," Scott Olson, executive director of the group, said in a statement released Wednesday.The GSE title requirements pertain to lender protection against lien conflicts, not the coverage consumers voluntarily get, but the latter could benefit because lenders are expected to pass the savings on to borrowers in a market where affordability is a key hurdle to getting financing."Such alternatives hold great promise in reducing mortgage closing costs and increasing affordability opportunities for low- to moderate-income, and first-time homebuyers," Olson said.Freddie's evaluation of the AOLs suggests they can be substantially similar to title insurance in some instances and it noted that stronger counterparty and professional liability coverage requirements for providers of the letters have been added in its expansion of the letters' use.A reduction in closing costs has been a priority in GSE plans aimed at reducing racial inequities in housing for the last few years. The most recent version of these goals were announced Monday.In another selling guide announcement related to such initiatives, Fannie and Freddie said they'd be working collaboratively on programs around a newly defined first-generation homebuyer loan.Borrowers using the subject property as their primary residence will be eligible, provided they haven't had a partial or full ownership interest in another piece of real estate in the last three years preceding the note date, and meet one of three other requirements.One such qualification is that the borrower has a parent with no ownership interest in another property for the three years preceding the note date. Alternatively, the borrower may have become emancipated from their parents or aged out of foster care.Other changes at Fannie include making loans backed by cooperative properties eligible for an electronic registry that's broadly used in the industry. Fannie's is also expanding its shared equity policy related to manufactured homes in community land trust properties.Freddie also is updating a requirement related to the inclusion of trended data in credit reports submitted through Loan Product Advisor starting Aug. 4. New Freddie rules for large deposit sources start with settlement dates as of Sept. 30, limiting them to money from borrower incomes, funds from a source with no interest in the transaction and certain assets. Disaster relief, lottery win or court settlement funds may be eligible.

The White House issued a policy directive Tuesday that will require the U.S. intelligence community to share more cybersecurity threat information with banks and other companies and create a regularly updated list of systemically important entities that are particularly important for national stability reasons to protect from cyberattacks.Among the other impacts of the national security memorandum, the directive reaffirms the Cybersecurity and Infrastructure Security Agency (CISA) is the national leader on efforts to secure the nation's critical infrastructure, which includes the financial services sector, and gives the U.S. Department of Treasury influence over which banks receive the new designation of "systemically important."The new designation is different from similar ones issued by other regulatory bodies — for example, the Financial Stability Board's "systemically important financial institutions" designation. Banking sector trade groups expressed support for how the designation will be implemented."These changes will better align risk designations to avoid duplication and ensure they are tailored to the risks facing financial institutions today," said Paul Benda, executive vice president of risk, fraud and cybersecurity for the American Bankers Association.The list of systemically important entities has been under development since March 2023, when CISA established an office to start creating it. The policy directive issued Tuesday establishes a clear mandate to create and maintain the list, which the order also states will not be available to the public.On the whole, Benda said the association "welcomes the administration's National Security Memorandum, which incorporates feedback from the financial services industry," saying that it "builds on the successful public-private sector collaboration for cybersecurity and critical infrastructure."The Bank Policy Institute (BPI), a policy advocacy group representing large financial institutions, also "strongly supports" the policy directive and commended the administration of President Joe Biden "for its ongoing commitment to strong public-private partnerships," according to Heather Hogsett, a senior vice president for the institute.The policy directive "will also support the financial sector by enhancing collaboration with national security agencies to ensure the intelligence community collects, analyzes and disseminates timely information on threats to critical infrastructure to support national-level systemic risk mitigation," Hogsett said.The U.S. intelligence community — which includes the FBI, CIA, National Security Agency, and other agencies — has long provided cybersecurity threat information to companies and trade groups across the U.S. But the Tuesday directive specifically orders the Director of National Intelligence to prioritize issuing intelligence reports and analysis on threats to critical infrastructure "at the lowest possible classification level, consistent with the protection of sources and methods, such as through the robust use of tearlines," which are excerpts of intelligence reports.Using the "lowest possible classification level" will mean that more banks can get access to classified information if they have a security clearance obtained through the Department of Homeland Security's private sector security clearance program. Typically only government employees and government contractors can obtain security clearances, but under the program, critical infrastructure owners and operators can apply for "secret" level security clearances.Bank owners and operators could get a variety of information from these intelligence-sharing efforts. In alerts and advisories about software vulnerabilities and ransomware attacks, government agencies often include IP addresses, attack vectors, file fingerprints, and other so-called indicators of compromise to help companies detect and ward off cyber threats. They may also highlight the strategies threat actors use to trick victims into sharing passwords or other information.The directive, which replaces a similar 2013 policy directive, will also help clear up the roles and responsibilities of federal agencies including CISA, Treasury, and the prudential regulators, according to a spokesperson for BPI. In particular, it reaffirms Treasury will remain the primary cybersecurity point of contact for banks and that the Department of Homeland Security (the parent agency of CISA) will lead the government-wide effort to secure U.S. critical infrastructure.Clearing up these roles, ensuring the intelligence community adequately shares cybersecurity intelligence with banks and other companies, and aligning regulatory definitions of which companies are "systemically important" — it all comes in the service of fighting back against state actors that target American critical infrastructure and tolerate or enable malicious activity conducted by non-state actors, according to Caitlin Durkovich, deputy assistant to the president and deputy homeland security advisor for resilience and response."The policy is particularly relevant today, given continued disruptive ransomware attacks, cyberattacks on U.S. water systems by our adversaries, and the frequent and repeated testimony of the FBI Director and other senior administration officials who have sounded the alarm about the ways our critical infrastructure is being targeted by our adversaries," Durkovich told reporters Tuesday."Resilience, particularly for our most sensitive assets and systems, is the cornerstone of homeland defense and security," Durkovich she added.

"As we continue to embrace all the opportunities that AI brings, it is imperative that we continue to safeguard against the threats posed by, and to, this new technology," said Senator Mark Warner in a press release.Toya Jordan Sarno/Bloomberg Two U.S. senators have introduced legislation designed to improve the tracking and processing of security incidents embedded in artificial intelligence. The proposed bill builds on current efforts within the federal government to monitor cybersecurity vulnerabilities but addresses the unique risks of AI, such as counter-AI, or techniques that manipulate and subvert an AI system. On Wednesday, Sen. Mark R. Warren, D-Va., and Sen. Thom Tillis, R-N.C., bipartisan co-chairs of the Senate Cybersecurity Caucus, unveiled the Secure Artificial Intelligence Act of 2024. It requires tweaks to some existing programs, such as that the National Institute of Standards and Technology, or NIST, update its National Vulnerability Database, and that the Cybersecurity and Infrastructure Security Agency, or CISA, update its Common Vulnerabilities and Exposures Program or devise a new process to track voluntary reports of AI security vulnerabilities.The bill would also establish new functions, such as a public database to track voluntary reports of AI security and safety incidents and an artificial intelligence security center at the National Security Agency to boost AI research among the private sector and academics with a subsidized research test bed, and develop guidance around counter-AI techniques."As we continue to embrace all the opportunities that AI brings, it is imperative that we continue to safeguard against the threats posed by, and to, this new technology," said Warner in a press release. "Information sharing between the federal government and the private sector plays a crucial role."Several companies and organizations involved in AI spoke in support of the bill."IBM is proud to support the Secure AI Act that expands the current work of NIST, Department of Homeland Security, and the NSA and addresses safety and security incidents in AI systems," said Christopher Padilla, vice president of government and regulatory affairs for IBM, in a release. "We commend Senator Warner and Senator Tillis for building upon existing voluntary mechanisms to help harmonize efforts across the government."

The National Association of Realtors has updated its frequently asked questions page regarding its Sitzer/Burnett settlement.Among the topics covered are compensation practices for buyer representation. The update is dated April 26.This settlement does not change the ethical duties that association members owe to their clients, the FAQ said.But offers of compensation made to the buyer's real estate broker can be done off of the multiple listing service. Meanwhile, "sellers can offer buyer concessions on an MLS (for example — concessions that can be used for buyer closing costs)," according to NAR.The proposed change in how a buyer's real estate brokers are paid is a concern for mortgage lenders because of its effects on loan qualification broadly as well as for borrowers of Federal Housing Administration and Veterans Affairs products."NAR remains dedicated to promoting transparency in the marketplace and working to ensure that consumers have access to comprehensive, equitable, transparent, and reliable property information, as well as the ability to have affordable professional representation in their real estate transactions," the online posting read.The buyer's broker will be able to be compensated several ways, including a fixed commission paid by the consumer; a seller's concession; or by taking a portion of the listing broker's compensation.NAR reached an agreement with the Sitzer/Burnett plaintiffs in March; a federal court granted preliminary approval to the deal on April 24. Most recently, Homeservices of America, in a related case called Gibson versus the National Association of Realtors, reached a $250 million settlement.However, some are speculating that an April 5 U.S. Circuit Court of Appeals for the District of Columbia that overturned a lower court prohibition on allowing the Department of Justice to reopen an investigation into NAR could have the government stepping in to object to this agreement.The FAQ also responded no to a question on whether brokerages are limited to one agreement with the buyer."NAR policy does not dictate: What type of relationship the professional has with the potential buyer (e.g., agency, non-agency, subagency, transactional, customer); The term of the agreement (e.g., one day, one month, one house, one zip code); The services to be provided (e.g., ministerial acts, a certain number of showings, negotiations, presenting offers); The compensation charged (e.g., $0, X flat fee, X percent, X hourly rate)," the posting said.

The Federal Housing Finance Agency issued an expansive report last year examining the Home Loan Bank System, including scores of recommendations for how it could be made more efficient and expand housing availability. Andrew Harrer/Bloomberg WASHINGTON — Top officials with the Federal Home Loan Bank System told a conference of community bankers Wednesday that they fear the Federal Housing Finance Agency will resort to its supervisory powers to implement some of its policy goals around reforming the Home Loan Bank System.Ryan Donovan, CEO of the Council of Federal Home Loan Banks, told a group of bankers assembled at the Independent Community Bankers of America Washington Summit Wednesday morning that many of the most durable changes outlined in the report would have to be done either by Congress or through a time-consuming rulemaking process, both of which are unlikely. "You're dealing with the most dysfunctional Congress in the history of the Republic, and you have a calendar problem," Donovan said, referring to the Federal Housing Finance Agency's perspective on advancing the goals of the report. "We're here on the first day of May of a presidential election year. There is no way, if they started a rulemaking tomorrow, that they would be able to complete it before the election, and the outcome of the election is uncertain. So … it's reasonable to assume they're going to try to do as much as possible through the supervisory process to have an impact."The Federal Housing Finance Agency was not immediately available for comment.The FHFA issued an expansive report last year examining the Home Loan Bank System, including scores of recommendations for how it could be made more efficient and expand housing availability. Those recommendations include doubling the amount of Home Loan bank profits directed to affordable housing programs from 10% to 20%; more regular evaluations of whether Federal Home Loan bank borrowers are creditworthy; and requiring borrowers to have a substantial stake in housing to be eligible for advances.Kirk Malmburg, president and CEO of the Federal Home Loan Bank of Atlanta, thanked ICBA members for bringing up the importance of the Home Loan Bank System to their businesses, and reiterated that the most important potential changes to the system would have to be enacted by Congress."As FHFA is weighing in [on the future of the FHLB system], sometimes they forget: Congress set up the Federal Home Loan Bank System," Malmburg said. "Congress said what our mission is. And in our minds, Congress should be where you go back to a lot of these potential changes."Kris Williams, president and CEO of the Federal Home Loan Bank of Des Moines, said that even without any regulatory changes, the Home Loan Bank System last year contributed 50% more to affordable housing programs, or AHPs. But she said those increases shouldn't be mandated by law or regulation."We wanted to do that through voluntary programs as opposed to the regulatory-driven ones," Williams said. "Why? Because, has anybody done an AHP application? They can be a little bit difficult, right? There's a lot of paperwork. Even our down payment programs that help first time homebuyers can be a little arduous at times. So, you know, we wanted to do it through voluntary programs, ones that we knew [were] needed in the district."The Federal Home Loan Bank System has come under increasing scrutiny in recent years, with critics arguing the taxpayer subsidy to the Home Loan banks enables its members — including, but not limited to, banks — to obtain low-cost liquidity easily but provides too little in public benefits in return. Those criticisms became more pronounced following the failures of Silicon Valley Bank, Signature Bank and First Republic last year, with some critics noting that those entities were among the biggest borrowers from the Federal Home Loan banks ahead of their downfalls, potentially raising losses that would ultimately be borne by the Federal Deposit Insurance Corp.Winthrop Watson, president and CEO of the Federal Home Loan Bank of Pittsburgh, said too little attention is given to the role the Home Loan banks played in ensuring that many more banks didn't also fail at the same time as Silicon Valley Bank and Signature Bank last March. Enhanced liquidity enabled banks to withstand rapid redemptions of deposits at a time when customers were concerned about a full-blown banking crisis, he said."We made a huge impact and probably saved a number of banks from failing on that same day," Watson said. "If you wanted to figure out how to have a very efficient and robust liquidity structure, you might design the Home Loan Bank System as they are today, to be able to provide exactly that."

An office building in Washington, DC.Andrew Harrer/Bloomberg (Bloomberg) --As delinquencies on multifamily mortgages pile up, lenders who had bundled those borrowings into securitizations known as commercial real estate collateralized loan obligations are racing to stave off trouble. To keep the share of bad loans from spiking too high — a development that would cut the issuers off from the fees they collect on the CRE CLOs — they've been furiously buying them back. The lenders acquired $520 million of delinquent credit in the first quarter, a 210% increase on the same period last year, according to estimates by JPMorgan Chase.It's the latest sign of strain among the $79 billion of loans packaged into CRE CLOs, a market which grew in prominence in recent years as Wall Street financed syndicators who bought up apartment complexes with the intention of renovating them and boosting rents. When interest rates surged, many borrowers whose floating-rate loans were bundled into the securitizations were caught off guard and began falling behind on their payments.To buy the defaulted loans, some lenders have been borrowing the money from banks and other third parties using what are known as warehouse lines, a type of revolving credit facility. It's surprising they haven't had more trouble accessing that debt given how quickly loans seemed to be deteriorating in quality heading into this year, said JPMorgan strategist Chong Sin."The reason these managers are engaged in buyouts is to limit delinquencies," he said. "The wild card here is, how long will financing costs remain low enough for them to do that?"One reason they have is that risk premiums, or spreads, on commercial real estate loans have tightened materially since last November. As a result, even with a more hawkish tone on the path of rates, the all-in cost of financing is still lower than where it was late last year. Still, there's no guarantee it will remain that way."If the outlook for the Fed shifts materially to hikes or no rate cuts for a while, that might lead to a sharp increase in delinquencies, which can stifle issuers' ability to buy out loans," said Anuj Jain, a strategist at Barclays Plc, who expects buyouts to continue as distress increases in the sector.Market SurgeCRE CLO issuance surged to $45 billion in 2021, a 137% increase from two years earlier, when buyers of apartment blocks sought to profit from the wave of workers moving to the Sun Belt from big cities. Three-year loans would give them time to complete upgrades and refinance, the thinking went.Fast forward to today and the debt underpinning many of the bonds is coming due for repayment at a time when there's less appetite for real estate lending, insurance costs have skyrocketed and monetary policy remains tight. Hedges against borrowing cost increases are also expiring and cost significantly more to purchase now.Those blows helped increase multifamily assets classed as distressed to almost $10 billion at the end of March, a 33% rise since the end of September, according to data compiled by MSCI Real Assets. "There was so much capital flowing into that space to real estate operators and developers, and that led to a lot of reckless lending," said Vik Uppal, chief executive officer at commercial real estate lender Mavik Capital Management., who avoided the space.The pain is now filtering through to the CRE CLO market. The distress rate for loans that were bundled into these bonds rose past 10% at the end of March, according to CRED iQ, compared with 1.7% in July last year. The firm defines distress as any loan that's been moved to a special servicer or is 30 days or more delinquent. Some other data providers prefer to wait until payments are 60 days or more overdue before using that classification.Short SellersThe outlook for the sector has caused short sellers, who borrow stock and sell it with the intention of buying it back at a lower price, to target lenders who used CRE CLOs. That's because the issuers own the equity portion of the securities, so take the first losses when loans sour.Short interest in Arbor Realty Trust stood above 37% on Monday, the highest level on record, according to data compiled by S&P Global Market Intelligence. "The multifamily CRE CLO market was not prepared for rate volatility," said Fraser Perring, the founder of Viceroy Research, which is betting against Arbor. "The result is significant distress." Arbor Realty declined to comment. Reached by phone on Tuesday, billionaire Leon Cooperman said that Arbor founder Ivan Kaufman has been "a good steward of my capital" and had correctly seen the need to position the company defensively more than a year ago.CRE CLOs appealed to some investors because the issuers tend to have more skin in the game than issuers of commercial mortgage-backed securities. Critics argue the products contain loans of lower quality than you'd find in a CMBS, where loans are typically fixed rate so are, in theory at least, less exposed to interest rate hikes."These vehicles are a way for borrowers that need speculative financing that they often can't get from elsewhere," said Andrew Park, an analyst at nonprofit group Americans for Financial Reform. "CRE CLOs package the reject loans from CMBS."

A historically high share of first-time buyer loans bolstered Freddie Mac's purchases in the challenging initial quarter of the year compared to the same period in 2023, but its volume and earnings came in lower than in the final three months of last year.Freddie's results contrasted competitor Fannie Mae's, which showed the latter's loan volume hit a multi-decade low during the quarter. However, Fannie still eked out an earnings gain on both the quarter and the year due to guarantee fee increases and other offsetting business strengths.Freddie, which is the smaller of the two influential government-sponsored enterprises, earned $2.8 billion during the first three months of 2024, down slightly compared to $2.9 billion the previous quarter but up 39% from $2 billion a year earlier.It generated $62 billion in new single-family business activity during the quarter, compared to $73 billion the previous fiscal period and $59 billion 12 months prior.The equivalent numbers in multifamily were $9 billion in the first quarter compared to $16 billion in the final fiscal period of 2023 and just $6 billion in the initial three months of last year.Chris Lown, Freddie Mac's chief financial officer said in an earnings call on Wednesday that entry-level home purchasers accounted for the bulk of its new loan volume during the period, and a record for first-time home buyers indicates a strength the enterprise plans to build on in the future."First-time homebuyers represented 52% of new single-family home purchase loans. That's a new high for us. We are working to extend these opportunities to more borrowers," he said.Fannie Mae's entry-level purchaser share for the quarter was 45%. Fannie officials said in a call Tuesday that they're working to focus more on a particularly underserved subset of that group, first-generation buyers, as part of its version of a plan both GSEs must draw up to with the aim of reducing racial inequities.Freddie's adjustments related to credit were a little less favorable than Fannie's during the quarter. While Fannie recorded a $180 million benefit for credit losses in the period, Freddie reported a nearly equal provision for them."Our provision for credit losses was $181 million for this quarter, driven by modest credit reserve bills in both business segments, compared to a higher provision expense of $395 million for the prior year quarter, which was primarily attributable to new acquisitions in that period," Lown said. Freddie noted that while delinquency rates overall remain historically low, they have been inching up in multifamily, rising to 34 basis points from 28 the previous quarter and 13 a year earlier."This increase was primarily driven by delinquency and our floating rate loans and small business loans portfolio. Ninety-four percent of these delinquent loans had credit enhancement coverage," Lown said.Efforts are underway to improve underwriting discipline in Freddie's multifamily unit, he added."We recently announced multifamily policy and process changes, including enhanced property inspection requirements and appraisal reviews that further strengthen our underwriting due diligence and risk mitigation," said Lown.Echoing Fannie, Freddie also touted initiatives around building value for its mortgage-backed securities through features aimed at attracting buyers in the environmental, social and governance market, and closing cost aid for borrowers making 50% of the area median.

Loan application volumes fell for the second week in row, as persistently elevated interest rates put a lid on borrower interest, the Mortgage Bankers Association said.The MBA's Market Composite Index, a measure of weekly application activity based on surveys of the trade group's members, declined a seasonally adjusted 2.3% for the seven-day period ending April 26. The index continued its downward momentum after a 2.7% fall a week earlier. On a year-over-year basis, application volumes also finished 10.4% lower. "Application volume for both purchase and refinances declined over the week and remain well below last year's pace," said Mike Fratantoni, MBA senior vice president and chief economist, in a press release."Inflation remains stubbornly high, and this trend is convincing markets that rates, including mortgage rates, are going to stay higher for longer. No doubt, this is a headwind for the housing and mortgage markets," he added.The average contract 30-year fixed rate for conforming balances, which make them eligible for sale to Fannie Mae and Freddie Mac, rose for the fourth week in a row to its highest mark since last November, Fratantoni said. The average climbed up 5 basis points to 7.29% from 7.24%, while points used to buy down the rate decreased to 0.65 from 0.66 for 80% loan-to-value ratio applications.Incoming economic data has led most economists to pivot from early-year forecasts of falling rates this summer to the higher-for-longer outlook. Previous expectations of as many as six reductions in the federal funds rates in 2024 are also now falling by the wayside, as central bank officials meet this week. The Federal Open Market Committee is expected to hold the federal funds rate at current levels until at least its next meeting. Rates and high home prices helped lead the MBA's seasonally adjusted Purchase Index down 1.7% from the prior survey period. The latest application levels are also 14.5% below year-ago volumes. As rates turned up this year, home prices, similarly, continued their upward climb over the winter, according to the latest S&P CoreLogic Case-Shiller index.Meanwhile, the Refinance Index took a drop of 3.3% week over week but saw a smaller annual decline of 1%. The refinance share relative to overall volumes also pulled back to 30.2% from 30.8%.Overall volumes fell for both conventional and government lending. The Government Index pulled back a seasonally adjusted 3.8% from the previous week, while the share of federally backed activity decreased in tandem. Federal Housing Administration-sponsored applications made up 12.7% of activity compared to 12.8% in the prior survey. The share of Department of Veterans Affairs-backed mortgages declined to 11.3% from 11.7%, while applications from the U.S. Department of Agriculture accounted for the same 0.4% of volume as seven days earlier. "One notable trend is that the ARM share has reached its highest level for the year at 7.8%," Fratantoni said. Adjustable-rate mortgage volumes typically grow when fixed averages surge. But even while nabbing a larger share, total activity was flat, with the ARM Index registering an 0.3% week over week decrease.  Still, while the conforming rate increased last week, other fixed averages moved in different directions. The fixed contract rate for 30-year jumbo mortgages slid down 6 basis points to 7.39% from 7.45%. Borrowers used 0.46 in points compared to 0.56 seven days earlier. On the other hand, the contract 30-year fixed rate for FHA mortgages averaged 7.09%, jumping 8 basis points from 7.01%. Points increased to 0.98 from 0.94 for 80% LTV-ratio loans.The contract average of the 15-year fixed mortgage inched down to 6.74% from 6.75% in the prior weekly survey. Points also edged downward by 1 basis point to 0.63 from 0.64.The mean contract rate of the 5/1 ARM, which starts fixed for a 60-month term, declined to 6.6% from 6.4% week over week. Borrower points averaged 0.75 compared to 0.87 in the previous survey period.

Minority mortgage applicants suing Wells Fargo for "digital redlining" are moving to certify a class of 119,100 plaintiffs in a complaint their attorney is calling a serious civil rights matter.Parties are disputing the bank's underwriting system that allegedly wrongfully denied, or gave higher interest rates to Asian, Black and Hispanic borrowers during the refinance boom. While total damages in the suit are uncertain, loan rejections and higher rates cost the potential class billions of dollars, said Dennis S. Ellis, partner at Ellis George LLP. "It's an important case in many respects for the individual Wells Fargo customers, but it would be a landmark case for customers, to try to prevent mortgage discrimination on a large scale," the interim lead class counsel told National Mortgage News.The motion for class certification filed last week in a California federal court includes expert witness research on behalf of plaintiffs, finding Wells' underwriting system disproportionately impacted minorities. The bank is still using the system in question today, Ellis said and plaintiffs will seek an injunction to take it offline.Wells Fargo in a statement Monday evening strongly disputed the accusations of fair housing and lending violations and said it did not discriminate against any of the eight named lead plaintiffs. "Wells Fargo does not tolerate discrimination in any part of our business," the bank's statement began. "These unfounded allegations stand in stark contrast to our significant and long-term commitment to closing the minority homeownership gap."The bank did not address a question as to whether the alleged discriminatory underwriting system was still in use, but it stated that plaintiffs mischaracterized how its systems work, and that it's confident in its own reviews of its systems. Wells Fargo also said it was the largest originator of mortgages for minority customers for many years, including the 2018 to 2022 period specified by the class. Ellis in an additional filing last week said Rocket Mortgage and Loandepot were more prolific lenders to Black Americans over that time, according to a review of Home Mortgage Disclosure Act data performed by his colleagues. An attorney for Wells Fargo didn't respond to a request for comment.The system in question, according to the motion, is Wells' Enhanced Credit Scoring, which is part of its underwriting technology. The ECS assigns applicants to credit risk classes. It allegedly began showing deficiencies because of COVID forbearances and a lack of late payment reports.Average months in file, recent inquiries and major derogatories were drivers of disparities that would eventually impact specific borrowers, the motion claims. An expert witness retained by plaintiffs said the ECS model is a supervised machine learning model capable of showing "algorithmic bias."The lawsuit stems from a February 2022 complaint, in which plaintiff Christopher Williams sued the bank for denying him a prime interest rate despite being well qualified. A second lawsuit followed, shortly after a Bloomberg report revealed research finding Wells had the largest lending disparity between Whites and minorities among major lending institutions at the height of the refi boom. The lawsuit so far has included reviews of over 160,000 documents and the deposition of 42 witnesses between the parties. Plaintiffs have also accrued at least $3 million in legal expenses in hiring experts.A hearing on the class certification motion is scheduled for June 27 in a San Francisco courtroom. A jury trial is also scheduled to begin this December. The major financial institution faces other mortgage-related lawsuits, including a complaint filed last month over the fallout of the bank's prior loan modification errors. It also recently renewed its push to dismiss a separate complaint in California regarding refunds the bank issued in the past decade over wrongfully-administered rate lock extension fees. Wells Fargo announced its exit from correspondent lending and a reduction of its mortgage servicing portfolio early last year.

Mortgage operations at Rithm Capital propelled the company to a profitable start in 2024, as leaders emphasized the segment's significant role in overall business strategy in its latest earnings call. The New York-based real estate investment trust posted net income of $261.6 million, equivalent to 54 cents per share in the first quarter. The bottom line represented a turnaround from a fourth-quarter loss of $87.5 million, which had largely been driven by decreases in the fair value of mortgage servicing rights. Year-over-year, profits grew by 281% from $68.9 million in the first quarter of 2023.The mortgage originations and servicing segment at Rithm, the parent company of Newrez, brought in $311.9 million in net income during the quarter as loan production and fair value of MSRs both improved.While a mortgage-unit spinoff, which was considered almost exactly a year ago, remains on the table as the REIT pursues expansion in other lines of business, any new emerging residential home lending entity was described by CEO Michael Nierenberg as currently a "work in progress.""If you think about the power of our franchise, the earnings from our overall investment business, including the mortgage company, creates significant advantages for us to be able to make investments and other things that we may want to do that are nonmortgage related," Nierenberg said. "To give that up today, we're not sure that's the right thing, but we continue to evaluate that and work with our advisors on which way we're going to go with it."Both originations and servicing at Newrez provided some momentum to company earnings after a period of struggle for many lenders last year. While still muted, total funded production volume between January and March increased 21.3% quarter-over-quarter to $10.8 billion from $8.9 billion and improved by 54.3% from $7 billion compared to a year earlier. Both production as well as margins increased mostly thanks to the business' correspondent channel, said Newrez President Baron Silverstein. "We have strong momentum in our nonagency products, originating over $185 million of non-QM loans in the first quarter, almost back to levels we were seeing in 2022," Silverstein added. Gain on sale margins increased to 129 basis points, up from 123 in the fourth quarter. But margins shrank from 161 basis points a year earlier.Mortgage volume increased, even as the company sought to pull back from retail operations over the past several months, a retreat that has brought it into legal conflict with former loan officers and a new competitor.             Unpaid servicing balance within Newrez came out to $577.5 billion. The number includes totals from Specialized Loan Servicing, a pending acquisition from 2023 and grew by 1.7% from $568 billion at the end of 2023, and 14.6% from $504 billion 12 months prior. Total servicing revenue during the quarter was $490.8 million. Across the entire servicing portfolio at Rithm Capital, unpaid balance stood at $857 billion. Within servicing, the company anticipates current trends to bring further growth, including increased wallet share from its existing third-party customer base, as it also continues to evaluate other opportunities, Silverstein said. It should also see a boost after its acquisition of SLS closes later this year. "We continue to evaluate MSR bulk packages, but there's also other strategic acquisitions that we look at as well," Silverstein said. "Overall, the consumer also performs well with muted prepayment speeds and historically low delinquencies across it all." Rithm also touted success in some of its other subsidiaries, notably its real estate investor financing platform, Genesis Capital, following industry upheaval in 2023. "With the regional banks retreating, our Genesis business had a record quarter and they're on target to do about $3 billion in origination. When we first started the platform, I think we were around $2 billion," Nierenberg said.Rithm earnings exceeded the average consensus estimates from analysts, according to Yahoo Finance. Quarterly results led its stock to open at $11.26 on Tuesday morning after closing at $11.22 the previous day. It rose to $11.31 toward midday.