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The average credit score for financing taken out to purchase homes soared in March, according to Optimal Blue's latest report on rate-locked loans."We're witnessing the highest average homebuyer credit scores in years," said Brennan O'Connell, director of data solutions at Optimal Blue, in a press release.Although the typical borrower had a 737 FICO score, representing the highest point since Optimal Blue started its dataset in 2018, homebuyer mortgages were up 17% during the month, when rates fell 15 basis points to 6.74% on average. That provided a 19% lift to a small number of rate-and-term refinances in addition to potentially playing a role in boosting purchases. Cash-out refinancing also increased during the month, but by a lower 11%.The high average FICO for purchase borrowers during March indicated homebuyers with lower scores were waiting for more affordable market conditions, O'Connell said. It also suggests there are still many qualified people with strong credit histories actively buying homes.The trend illustrates one of the upsides of what overall are strong employment numbers in the United States."It is encouraging to see a strong pool of qualified buyers still actively pursuing homeownership," O'Connell said. "This trend underscores the resilience of the market and the adaptability of consumers in navigating the current economic landscape."Even in the Federal Housing Administration-insured market, where borrowers are more likely to have less-than-perfect credit, scores have been near their highs for the dataset at 677 in February and 676 in March, according to Optimal Blue. Scores for both loans the Department of Veterans Affairs guaranteed and conforming loans were at their highest since 2021 in March.

Federal Reserve Bank of Dallas President Lorie Logan said it's too soon to consider cutting interest rates, citing recent high inflation readings and signs that borrowing costs may not be holding back the economy as much as previously thought.Logan, whose remarks are closely watched by investors given her prior role managing the central bank's asset portfolio at the New York Fed, said she's increasingly concerned that inflation progress could stall out. "In light of these risks, I believe it's much too soon to think about cutting interest rates," the Dallas chief said Friday in prepared remarks for an event at Duke University. "I will need to see more of the uncertainty resolved about which economic path we're on."Fed officials "should remain prepared to respond appropriately if inflation stops falling," she added.Fed Governor Michelle Bowman also expressed her concern about potential upside risks to inflation on Friday. She continues to expect price pressures will cool further with interest rates held at current levels, but reiterated that it's "still not yet" time to lower borrowing costs. Logan's remarks suggest she is among a sizable contingent of policymakers who expect two or fewer rate cuts in 2024. She spoke hours after government data showed U.S. payrolls rose in March by the most in nearly a year and the unemployment rate declined."There's no urgency right now," Logan said in a question-and-answer session with Duke professor and former Fed board senior adviser Ellen Meade following her speech. "We have time to wait and to see the incoming data and see how financial conditions are evolving."Moving SidewaysFed officials left interest rates unchanged in a range of 5.25% to 5.5%, a more than two-decade high, at their March meeting. Most policymakers have said they want to see more data to be confident that inflation is sustainably returning to their 2% goal."To be clear, the key risk is not that inflation might rise — though monetary policymakers must always remain on guard against that outcome — but rather that inflation will stall out and fail to follow the forecast path all the way back to 2% in a timely way," Logan said.Prices rose faster than hoped in January and February, increasing concern among some officials that progress on inflation is petering out. While the median of 19 policymakers still penciled in three rate cuts for this year in economic estimates released following the Fed's meeting last month, nine participants saw two or fewer reductions.Atlanta Fed President Raphael Bostic said Wednesday he expects just one rate cut this year in the fourth quarter, and Minneapolis Fed President Neel Kashkari said it may not be necessary to lower borrowing costs if inflation stops cooling and the economy remains robust."If we continue to see inflation moving sideways, then that would make me question whether we needed to do those rate cuts at all," Kashkari said Thursday.Neutral RateBeyond the inflation data, Logan said she's concerned that monetary policy may not be holding back the economy as much as most forecasts assume. That could mean the so-called neutral rate of interest — one that neither slows nor stimulates the economy — is higher."Economic and financial evidence is accumulating that the long-run neutral rate has likely moved up," she said.Bowman also flagged that it's "quite possible" the neutral rate will be higher than before the pandemic."If that is the case, fewer rate cuts will eventually be appropriate to return our monetary policy stance to a neutral level," Bowman said. Uncertainties in measuring things like the neutral rate and other economic developments, including a surge in immigration that's likely contributing the country's output, mean it's more useful to focus on inflation data right now than jobs figures, Logan added.Payrolls swelled by 303,000 in March, topping all estimates, government data showed Friday. The unemployment rate edged lower to 3.8%, wages grew at a solid clip, and workforce participation rose, underscoring the enduring strength of the labor market. Balance SheetLogan also repeated that it may be appropriate for the central bank to soon start slowing down the pace at which it lets assets mature off its balance sheet. Policymakers discussed the potential slowdown at their March meeting and some Fed watchers expect that process to begin in the coming months.Logan said the Fed would likely lower the cap for how much in Treasury securities it rolls off the balance sheet every month, while leaving the cap for mortgage-backed securities unchanged. "I don't think we should really move the mortgage cap because keeping it there sends that signal that we are headed toward a primarily Treasury portfolio," Logan said. "So my sense is that what we're talking about is reducing the Treasury cap and slowing the pace of the Treasury runoff."

Left to right: Matt Kingsborough, Andy Insua, Doug Long Meriden, Connecticut-based Planet Home Lending boosted sales operations with recent hires of Doug Long, Matt Kingsborough and Andy Insua. The company appointed mortgage veteran Long to senior vice president, divisional sales manager, a role in which he will be responsible for growing retail market share. Long recently served as a Southeast divisional president at Union Home Mortgage and Amerifirst. Previously, he was president of national lending at Prospect Mortgage and a co-founder and CEO of Pinnacle Financial.Planet Home also added Kingsborough and Insua as regional sales managers to drive expansion in the Western and Southeastern U.S., respectively. Kingsborough most recently held the role of multistate regional area manager for Homebridge Financial and served in a similar position at Prospect. Insua's mortgage career includes leadership roles at Fifth Third Bank and later, Amerifirst, where he spearheaded efforts to reach Hispanic home buyers. 

The share of mortgage borrowers paying discount points doubled from 2021 through 2023, with the increase larger among consumers with lower credit scores, a Consumer Financial Protection Bureau study of quarterly Home Mortgage Disclosure Act data found.This study comes out weeks after the Bureau published a blog complaining about so-called junk fees in the mortgage originations process."Higher interest rates on mortgages have led borrowers to pay upfront fees to lower their interest payments," said CFPB Director Rohit Chopra, in a press release. "The heavy use of 'discount points' suggests that many borrowers are uncertain about their ability to refinance in the future."In that March 8 blog, the CFPB pointed to the rising cost of discount points. "These points may not always save borrowers money, however, and may indeed add to borrowers' costs. The CFPB is continuing to monitor market trends in this area," that post.But there's a difference between the two concepts, said Scott Olson, executive director of the Community Home Lenders of America, which has been supportive of the CFPB taking on junk fees."Discount points are not 'junk fees.' They are explicitly permitted under Dodd-Frank, and as [Chopra] himself states: 'Higher interest rates on mortgages have led borrowers to pay upfront fees to lower their interest payments,'" Olson said.They can be of tremendous value for the borrower, as the trade-off is that they get a lower mortgage rate and lower payments, especially if they hold on to the loan for a long-time, he said."Use of discount fees did increase in the last few years, but that was primarily due to market factors as mortgage rates skyrocketed," Olson noted.Permanent rate buydowns might not make economic sense for the borrower as the difference in savings between those that pay discount points and those that don't is very small, a January report from Freddie Mac said. The CFPB post on discount points referred to this research, adding it did not fully control for borrower and loan attributes.The Bureau's analysis does not include temporary buydowns, nor does it distinguish between points paid by the buyer versus those that are covered by a third party, a CFPB spokesperson said in an emailed response.It recognizes that the calculus changes based on whether the discount points are paid by a seller or builder, the CFPB spokesperson said. "In those cases, the question becomes whether the discount points are more advantageous than other types of concessions, all of which adds further complexity to the decision."The CFPB report is also missing data on the availability of loans without discount points for consumers, said Marty Green, a principal at the law firm of Polunsky Beitel Green."One major consequence of the volatile rate environment over the past two years was that lenders were, at times, not offering an undiscounted rate to applicants," Green said in an email.The analysis also does not consider changes that the government-sponsored enterprises made to the loan level pricing adjustments matrix last year."LLPAs are often passed on to borrowers through points, so it's only natural to see a greater percentage of borrowers receiving a loan with discount points included," said Green. "The percentage of borrowers paying discount points will necessarily increase when (a) fewer loan products are offering par rates and (b) the GSEs increase the use of LLPAs to cover additional loan products/borrowers."The Bureau's study looks at quarterly HMDA data from the first quarter of 2019 through the third quarter of last year.For purchases, 60.7% of mortgage borrowers paid discount points in September 2023, versus 30.5% in January 2021 and 29.5% in January 2019. Over the same time frame, cash-out refinancers had an 87.4% share, from 61.2% and 61.7% respectively, and rate-and-term refinance customers paid discount points 57.5% of the time versus 36.4% and 41.2%.For the first nine months of last year, 88.5% of cash-out mortgages had a rate buydown, versus 58.7% of purchase and 56.2% of rate-and-term refis.The CFPB surmises in the report that cash-out borrowers could be using some of the equity they are removing from the property in the new loan to not only do the buydown, but also to pay more for discount points. Other borrowers need to come out of pocket to pay for the buydown.Yet the increase in the use of discount points for both permanent and temporary rate buydowns (as those typically provided by homebuilders) is a natural consequence of the increase in mortgage rates over the past two years.In November 2023, anecdotal evidence showed 30-year fixed rate mortgages originated above 8%. Rates have since backed down somewhat but are still relatively high at 6.82%, Freddie Mac's April 4 Primary Mortgage Market Survey reported."It is not surprising at all that more borrowers used discount points in recent years given that mortgage rates are significantly higher than in 2019," a statement from a Mortgage Bankers Association spokesperson said. "There was little incentive to pay discount points when mortgage rates were as low as 3% in 2021 versus the steep rise to over 7% last year."The MBA has pushed back against the CFPB over its junk fees claims, pointing to the consumer information requirements established under the RESPA-TILA Integrated Disclosures rules.A look at the CFPB complaint database found a number of consumer submissions over the payment of discount points, including how and when this information was disclosed."Lenders' advertisements and initial price quotes to consumers often include discount points in the fine print, which can make their interest rates appear more competitive," an online CFPB post accompanying the study said. "Although discount points and annual percentage rate are disclosed in advertisements and later in the Loan Estimate and Closing Disclosure, consumers who don't understand the mechanics of discount points could mistakenly believe a lender's interest rate is a better deal than it is."Increased use of discount points likely contributed to the rise in total loan costs, CFPB said. The median total loan costs for home purchase loans jumped by 21.8% between 2021 and 2022, while the median total loan costs for refinance loans increased by 49.3%.By loan type, about 65% of Federal Housing Administration borrowers paid discount points, versus 62% for Department of Veterans Affairs program users and 57% of those eligible for conventional loans.FHA borrowers in particular have lower credit scores and four out of every five mortgages it insured are for first-time home buyers.CFPB theorized that eligibility issues, especially when it came to the debt-to-income ratio, make it likely these borrowers would buydown the rate to lower their payments.

With the addition of the self-service portal, DCU was able to boost lending from roughly $1 billion in mortgage loans when talks began in 2019, to $1.6 billion in 2023.petzshadow - stock.adobe.com When Jason Sorochinsky began transforming the Marlborough, Massachusetts-based Digital Federal Credit Union's mortgage origination process in 2019, he knew that always offering the lowest rates wasn't feasible. But with the help of several fintech partnerships, he was able to bring the process to members using an online portal and boost volume by 60%."Our value proposition really came down to one sentence, which is, we want to be known for speed and service using digital tools and technology," said Sorochinsky, who is head of mortgage lending for the $12.1 billion-asset DCU.Learn more about digital mortgagesConsumer loan demand has been stifled since the Federal Reserve started raising interest rates in early 2022, and has remained down even as rates have been constant since the middle of last year. Credit unions seeking to boost loan portfolios have increasingly turned to outside help for identifying untapped markets and selling participations to other institutions. DCU officially launched the self-service mortgage portal in 2022 after spending a year piloting the platform to fine tune the processes. The digital lending platform, built by the New Jersey software firm Blue Sage Solutions, capitalizes on the credit union's "consumer direct" model by allowing potential borrowers to apply for mortgages and home equity loans and refinance existing loans, without the need for a staff member.After selecting which of the three products they want to apply for, and inputting property details like zip code, anticipated down payment and estimated purchase price, consumers can see the maximum amount they could bid on a property and choose which rates and terms best fit their needs. This phase also allows members to electronically verify their income, employment and other owned assets to support their eligibility. During the application process, borrowers concerned about market volatility can lock in their rate using OptimalBlue's rate lock API, for 15 to 90 days. Next, DCU will use Blue Sage's integration with the mortgage fintech Optimal Blue's product and pricing engine to order credit reports, validate loan pricing, run the file through Fannie Mae and Freddie Mac and conduct other calculations. A secondary API connection with the information services firm ClosingCorp provides added support by calculating application and appraisal fees as well as generating disclosure agreements for the member to sign.Members will receive emails or text messages prompting them to proceed to the next steps in DCU's mortgage portal and sign the necessary forms after the initial application is submitted. Once the fees are paid, orders are put in for standard items including title insurance, appraisals and flood certificates, then a second round of confirmation documents are sent back to the applicant for signing.After signing all the necessary forms, the file is submitted to the underwriting department for further processing — which DCU says can be done in as little as 30 minutes and without the need for a credit union representative. Two-way communication with a DCU mortgage lending officer, processor or closer via a chat function, as well as informational videos, are available to help the member address any issues."It doesn't matter what the forces are, recession or high rates or low inventory, we're able to still be successful because we're focusing on speed and service using digital tools and technology," Sorochinsky said. With the addition of the self-service portal, DCU was able to boost lending from roughly $1 billion in mortgage loans when talks began in 2019, to $1.6 billion in 2023. 1/5 During the initial application process, members are prompted to input property details like zip code, anticipated down payment and estimated purchase price to determine the maximum amount they could bid on a property. (Digital Federal Credit Union) 2/5 Members can view the status of their loan application and view other details such as loan amount, interest rate and estimated monthly payment. (Digital Federal Credit Union) 3/5 Within the rate lock section, supported by Optimal Blue, consumers can select from a variety of lock terms and price points to suit their needs. (Digital Federal Credit Union) 4/5 Members struggling to navigate the portal or the application process can chat in real time with a DCU representative. (Digital Federal Credit Union) 5/5 Applicants can digitally sign necessary disclosures and other documents, while also electronically verifying their income and employment. (Digital Federal Credit Union) DCU is among a host of other institutions that have added new technologies in the hopes of furthering membership growth and increasing loan volume.The $18.5 billion-asset Alliant Credit Union in Chicago, for example, was able to grow core membership by 22% and boost deposits by more than $500 million in a six-month period with the help of the New York-based account opening fintech MANTL's deposit origination system. The Providence, Rhode Island-based Beeline Loans launched an artificial intelligence-powered chatbot to assist during the application process. While the forecasted rate cuts from the Fed have yet to be realized, and home values continue to rise, borrowers have remained on the fence towards new purchase or refinancing opportunities. Brief respites from the market have occurred, as mortgage rates decreased slightly towards the end of March.Debra Shultz, vice president of mortgage lending at CrossCountry Mortgage, said that activity should pick up over the next two years as the signaled rate decreases will give way to lower mortgage rates — spurring current borrowers to refinance for a more favorable level."Today, borrowers understand that real estate is a great investment [as] it gives them the freedom to create the home of their dreams, take advantage of tax advantages and build wealth over time," Shultz said. "The opportunity to refinance their loan into a lower rate in the next 1-2 years is a reality."Experts with Cornerstone Advisors and Datos Insights underscored the importance of proper due diligence when vetting both third-party firms and the products they bring to the table, but equally highlighted the value of exploring new technology."This sounds like a no-brainer but despite having system capabilities, many underwriters still manually pull credit and calculate ratios manually," said Eric Weikart, partner at Cornerstone Advisors. "Sometimes, this is due to system setup issues but many times it's because they have always done it that way and they aren't willing to change."Automation is an important characteristic for underwriting programs to be truly effective, but only with "comprehensive risk assessment, regulatory compliance and clear guidelines" also put in place, said Stewart Watterson, strategic advisor for Datos Insights. As consumer expectations for what the banking experience should entail continue their evolutionary arc, institutions will continue adapting the next generations of technology to meet those needs."Compared to 20 or 30 years ago, borrowers have a much higher expectation of speed to approval and closing along with desire to have a tech enabled process supported by knowledgeable, professional loan officers and operations personnel," said Christy Soukhamneut, chief lending officer for the $4 billion-asset University Federal Credit Union in Austin. "We are actively implementing mortgage technology that is user friendly and intuitive so that our sales teams can focus on the member and referral partner experience."

The Justice Department can reopen an antitrust probe into the National Association of Realtors, an appeals court ruled Friday, rejecting a bid by the real estate trade group to enforce a 2020 settlement with the Trump administration to close the case."The fact that DOJ 'closed its investigation' does not guarantee that the investigation would stay closed forever," the U.S. Court of Appeals for the D.C. Circuit wrote in a 2-1 decision. "The words 'close' and 'reopen' are unambiguously compatible."Former President Donald Trump's administration in November 2020 reached a settlement with the group to end an antitrust investigation into its policies.RELATED: Wider real estate broker commission changes suggested by DOJ The proposed settlement included several requirements for the group — which represents more than 1.5 million agents — including boosting transparency about broker commissions and barring claims that real estate buyers don't pay for any services. The Justice Department issued a letter stating that it was closing the probe in connection with two of the group's other rules. Eight months later, President Joe Biden's administration withdrew from the settlement, which hadn't been finalized, and sought to continue the probe. The organization sued, arguing that the closing letter prevented the Justice Department from restarting its investigation. A lower court judge agreed and the Justice Department appealed.Judges Florence Y. Pan and Karen LeCraft Henderson sided with the Justice Department. Judge Justin Walker, who was appointed by Trump, dissented and said he would side with the real estate group.RELATED: NAR changes commissions rules with $418M settlementThe NAR didn't have an immediate comment. The Justice Department didn't respond to a request for comment on Friday's ruling.The industry has come under increased scrutiny in recent years, with a Missouri jury in October finding the NAR and others liable of colluding to keep commissions high in a $1.8 billion verdict. To resolve that case and others, the NAR agreed in March to a settlement that would pay sellers roughly $418 million, with the group saying it would also change some of its rules.The settlement agreement, which needs to be approved by a court, could pressure fees over time, experts have said, although the exact impact is still uncertain.

Mortgage broker jobs have risen slightly but origination hiring overall has remained under duress amid broader U.S. employment strength that has further diminished hopes for a rate cut.The estimate of broker positions rose to 86,200 in February from an upwardly revised 85,500 in January, according to the Bureau of Labor Statistics. Real-estate credit jobs slipped to 183,700 from 185,800. In total, nonbank mortgage banker and broker positions fell to 269,900 from 271,300.Overall U.S. jobs, which the BLS reports with less of a lag, increased by 303,000 in March, outpacing earlier consensus estimates for a gain of around 200,000 as unemployment dropped to 3.8% from 3.9% the previous month."Expectations for rate cuts have crashed, and the majority expect three or fewer," said Odeta Kushi, chief economist at First American, in published commentary on the job numbers, noting forecasts have come down from late-2023 predictions for as many as six or seven this year.Also, mortgage rate forecasts are being revised downward, she noted, pointing to Fannie Mae's recent increase in its year-end number to 6.4% from previous projections just below 5%.While broker jobs are less numerous than those offered by lenders, they tend to fluctuate less in a market with relatively higher rates because third-party originators have an edge in outreach to the home-purchase borrower segment that's more prominent in that environment.However, brokers can face a challenge in that lenders generally look for cost savings through third-party originations and margins can waver as a business cycle grows long in the tooth. That said, multichannel nonbanks had more favorable fourth-quarter results than their peers.The origination sector typically considers staffing up for a possible uptick in business during the spring homebuying season, so the latest job numbers and interest rate forecasts may lead to some deliberation in decisions on the extent that companies want to do that.Investment in loan production positions may be helpful this spring given what could be a peak business season during the year, but companies will have to think about how much of a return they'll get for it.Mortgage rates are currently down a little from their peak last year, which has exposed some recent borrowers to refinancing incentives even though many older ones are "locked in" because they have loans originated at record-low rates."A 6.4% mortgage rate is still lower than today's rates, so buyers sitting on the sidelines may still see a house-buying power boost by the end of the year," Kushi said.Another potential consideration for the origination side of the business in staffing decisions is the availability of affordable home inventory. The latest employment numbers are promising in that regard, according to Mike Fratantoni, chief economist at the Mortgage Bankers Association."Although the jobs gains remain concentrated in sectors like healthcare, government, and leisure and hospitality, there was also a pickup in construction hires, a position for the housing market given the lack of supply," he said in commentary published Friday.The latest BLS numbers show the construction industry added 39,000 net jobs, according to analysis done by the National Association of Realtors, which noted in commentary Friday that the strength in industry employment did have some upsides for the residential sector."More housing supply is on the way in future months. More jobs mean more potential housing demand in the future," NAR Chief Economist Lawrence Yun said in the report.

An explosive investigation and class action suit that allege United Wholesale Mortgage defrauded borrowers by billions of dollars has many in the mortgage industry concerned the story will deal a blow to their own reputations in the eyes of consumers.The report by Hunterbrook, a venture capital-backed outlet, claims UWM holds independent brokers captive and overcharges borrowers by hundreds of millions of dollars. The class action suit, filed in Michigan soon after the story's publication, accuses "corrupt UWM loyalist" brokers of breaching their fiduciary duty to home buyers. UWM denies the allegations.While some industry stakeholders think the case could lead to more regulatory scrutiny of mortgage brokers, they say that in the near-term the accusations alone will shake consumer confidence in home lenders and make borrowers reconsider working with mortgage brokers. "It was already bad enough with all of the infighting on the lending side, and when you layer on top these claims, it just doubles down on the reputational hit. It's not a good look," said Greg Sher, executive at NFM Lending. "The consequence could be that more consumers just decide that they're going to deal with their local bank."Consumer confidence was already wobbly during the Great Recession and "brokers and banks took it on the chin pretty hard once regulators came out," said Bill Dallas, former president of Finance of America and industry consultant, Thursday. The same situation may unfold this time, but solely with the TPO channel, he predicts."There was a view at the time that a retail-originated loan was of better quality than a TPO originated loan and I think these sentiments may come back," said Dallas. "This is not good for the broker channel in that way. It's an easy jump for regulators to take a closer look at it and clearly an easier jump for securitizers to say 'I don't want to deal with potential risk.'"Broker Andrew Dort, owner of Pride Lending, agrees. "Anytime you have such a high profile story, there's going to be scrutiny from regulators and that is not always a bad thing, but it also shakes the confidence of the consumer in our channel," he said."Well educated loan officers on the broker side are superior in terms of what they can offer to a client than on the other channel, but shaky faith in that could ultimately lead to consumers actually paying higher prices by sticking with say more traditional correspondent lenders," Dort added.Paul Hindman, industry veteran, sees this as "just the beginning, and if proven, will reignite a chain reaction that will be felt by the entire industry and will once again give consumers more reasons to distrust home financing companies and the people that work for them."Meanwhile, Scott Olson, executive director at Community Home Lenders of America, said the allegations are "not reflective of the overwhelming majority of IMBs" and if true, the allegations facing UWM are "troubling." While the court of public opinion and the Michigan federal court hashes out whether UWM is guilty of "systematically and intentionally corrupt[ing] the wholesale mortgage channel," some  say this will be a wake-up call for the broker community."I think the culpability really comes down on the brokers themselves, which is why I think this is going to be a reckoning for our industry," said Dort. "I don't necessarily think that fostering a culture of sending loans to a particular company is a bad thing. That's their job. But any broker who exclusively sends loans to one lender, if you're not checking the rate sheets on all of your available lenders, how do you know that you're in fact doing what's best for the consumer?"Broker Andrew Harris, president of Vantage Mortgage Brokers, echoed similar sentiments, noting it took too long for the industry to start paying attention to the fact that some brokers only do business with one wholesale lender."The outcome of this needs to be where brokers understand that they have a fiduciary duty to the consumer, and they need to respect that and not lie to the public," Harris said. "If you're out there saying you shop hundreds of lenders and you're lying, you're literally a fraud. That's not okay."The suit may result in "some clarity on what the real definition of a broker is and what everyone should and should not be doing," added Michael Kelleher, mortgage consultant."I think also the real story here is it's a reminder that brokers need to add another piece of paper to their file and every closing explaining why they chose a higher rate because there's a lot of benefits to working with different companies, it's not just rate," he added.

FDIC Chair Martin Gruenberg said the agency's new economic inclusion strategic plan will prioritize banks' efforts to build trust in the communities where they operate.Ting Shen/Bloomberg WASHINGTON — The Federal Deposit Insurance Corp. released a revised economic inclusion strategic plan Thursday, aiming to advance people's personal financial stability by encouraging lending in underserved communities.The agency's updated blueprint, which comes a decade after the first draft was released, emphasizes four opportunity areas: Creating banking relationships, saving and building credit, developing small business and affordable housing growth and encouraging bank activities in underserved communities. In what FDIC Chair Martin Gruenberg called "the biggest change" to the economic inclusion strategy, the agency will press banks to step up community development initiatives, such as affordable housing, small-business loans and investments in financial institutions that work with minorities, women and low-income populations."While the FDIC has long sought to support banks' community development efforts, the explicit connection to its economic inclusion work is new and entirely appropriate," Gruenberg said at the National Community Reinvestment Coalition's annual conference Thursday. "Stated plainly, the plan recognizes that banks are unlikely to succeed in their efforts to build trusted relationships with households if they are otherwise neglecting to make investments that strengthen the communities in which those households live and work."Jennifer Tescher, president and CEO of Financial Health Network, said the focus on specific outcomes — such as building savings, credit and wealth — is an important amendment to the economic inclusion plan. While rates of unbanked and underbanked households decreased from 28% in 2011 to 18% in 2021, per FDIC data, Tescher said financial security takes more than a bank account. "What's most notable about this new plan is the focus on outcomes," Tescher said. "I'm really pleased that the FDIC has focused this plan around these four key areas that are critical for achieving financial well-being."This new plan comes as the FDIC, the Federal Reserve and Office of the Comptroller of the Currency are embroiled in a legal battle while they attempt to roll out updated Community Reinvestment Act rules. The CRA was first passed in 1977 with the goal of deterring discriminatory bank practices by requiring banks to make investments in low- and moderate-income areas where branches operated. On Thursday, Gruenberg said the FDIC was "firmly committed to the support" of the new CRA, which he added will help ensure consumers can access needed services affordably, and encourage bank investment in community development financial institutions, minority depository institutions and women's depository institutions. As part of its revised economic inclusion plan, the FDIC will monitor its progress in driving community development through banks' investment and participation in Community Reinvestment Act-related activities. Tescher said that the FDIC's new strategy recognizes the important interplay between individual peoples' needs and community needs on financial health."In the past, the economic inclusion plan was about people, and CRA was about place," Teacher said. "Now the economic inclusion plan really combines people and place."Tescher is a member of the FDIC's advisory committee on economic inclusion, and said her involvement in the development of the agency's new strategic plan was limited to offering feedback on previous drafts and perspective for the updated version.Last fall, the FDIC's Office of the Inspector General reported that the 2019 draft of the plan was adequate, but listed 14 recommendations to improve, including more self-evaluations and bank feedback. Some of those, such as outlining a framework to assess progress and listing action plans for its goals, are clearly exhibited in the FDIC's updated draft.In his Thursday speech, Gruenberg also highlighted specific financial products that have helped "set the stage" for financial stability and reduce the amount of unbanked households. Accounts designed to limit the risk of overdraft fees weren't widely available a decade ago, Gruenberg said, but are now offered by at least 340 banks. Gruenberg added it's promising to see a rise in banks that offer small-dollar loans, which can provide a path to build good credit and offer an alternative to payday lenders and other nonbanks.At the NCRC conference, the FDIC chair added that the agency wants to work with groups that represent unbanked and underbanked folks to successfully execute the economic inclusion strategy."We recognize that the FDIC will not succeed with a go-it-alone approach," Gruenberg said. "The support of other federal, state and local agencies, of community based organizations, local leaders, bankers, educators and others, is critical."

Mortgage production defect rates in the third quarter of 2023 showed continued improvement, even as origination volume was hard to come by, the latest Aces Quality Management report found.The company's post-closing review process categorizes file errors using the Fannie Mae defect taxonomy. Defects are indicators of, but not necessarily proof of, fraud.In the third quarter, the defect rate of 1.67% was 5 basis points better than 1.72% in the second quarter and a high point of 2.47% in the third quarter of 2022.That is the lowest rate since the first quarter of 2020's 1.56%, at the very end of which, restrictions related to the Covid-19 pandemic affected all parts of American life.Lenders have gotten a better handle on quality in their loan creation processes following that spike one year ago, said Nick Volpe, Aces executive vice president, in a press release. The decline in origination volume may have worked in some manner to the advantage of originators."While fewer loans may afford lenders the opportunity to intensify their focus on quality, it's clear that maintaining high standards amidst market fluctuations remains paramount," Volpe said. "The persistence of this trend underscores the industry's adaptability and dedication to ensuring the integrity of lending practices."Issues around income and employment remain the most common defect found, at a 23.4% rate, an improvement from the second quarter's 31.25%.Income documentation problems fell to a 27% share of the category, from 47% for the prior period. But income calculation issues had a 55% share."Amidst the backdrop of fighting for every loan, one would expect the calculation subcategory to make up the majority of defects in the income/employment category – with many harder-to-qualify borrowers going through the process," the Aces report said.The company saw increases in defects related to loan documentation as well as borrower and mortgage eligibility issues.Normally, loan documentation can swing wider than other categories going between quarters. But, Aces said this quarter's shift was more pronounced, up nearly 7 percentage points to 19.15% from 12.5%.It blamed the increase on closing documentation deficiencies, followed by upfront document collection in the application processing subcategory."These types of defects are often attributed to sloppiness in the manufacturing process," Aces said.General eligibility accounted for 52% of the borrower and mortgage eligibility defects. Typically, it means cash-out refinance requirements are not being met, the property listed for sale being used to secure a refinance, an excessive debt-to-income ratio and deficiencies in general requirements for various other loan types."As more and more loans that are harder to qualify enter a lender's pipeline, it is imperative that underwriting account for nuances associated with a borrower's specific situation and chosen loan type," Aces said.The liabilities category defect rate also increased from quarter-to-quarter, to 11.35% from 8.33%. While not as prevalent, appraisal-related defect rates grew to 4.26% from 3.47%.Although Federal Housing Administration-insured mortgages made up 24.11% of the file reviews, the defect rate was 42.61%.At the other end of the spectrum, conventional loans were 59.55% of reviews but 48.7% of files with defects. Veterans Affairs-guaranteed loans were 14.22% of the quality checks but just 6.96% of the errors."Last year, the lenders that thrived were those who embraced quality control and proactively prepared for the evolving market landscape," said Trevor Gauthier, CEO at Aces. "We eagerly anticipate witnessing lenders maintain their steadfast commitment to prioritizing quality as they navigate future market dynamics."