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A federal judge has partially granted Cenlar's motion to dismiss allegations of Real Estate Settlement Procedures Act violations in a loan modification case that highlights what courts may view as priorities in formal borrower communications.Judge Edmund Sargus Jr. in the Southern District of Ohio's Eastern Division allowed the portion of the claims that center on a document known as notice of error to move forward, but dismissed other claims related to a request for information in the case, O'Keeffe v. Cenlar. The case centers on a dispute plaintiffs say arose after one of them asked for a correction on a name spelling in a modification agreement, which was reportedly recorded without an adjustment to billing.Plaintiffs allege they then received a new, corrected mod that the servicer said it revised because the earlier one was not as intended. They refused to sign the new modification because they found a $90,000 difference in it unacceptable.During the dispute, plaintiffs sent out both a request for information and a notice of error.The NOE notified the company that plaintiffs considered the refusal to accept payments under the terms of the recorded modification as an error. It also notified Cenlar that they considered the interest, fees and charges they received based on billing under the original terms of the loan to be errors.The RFI requested "call logs, recordings service notes and records of communications between Cenlar and plaintiffs" in addition to "all documents from January 2021 to the present" related to the issues at hand."Plaintiffs' sole damages arising from Cenlar's allegedly inadequate RFI response appear to be the costs incurred in preparing and transmitting the QWR — costs which this court has found insufficiently concrete," Sargus said in an opinion and order filed last week, which JD Supra reported on earlier.However, the judge said he did see alleged damages as potentially "arising from the NOE."The content of the servicer's response to the NOE played a role in his conclusion, according to the court document.Sargus said NOE responses are supposed to contain either a correction or "a reasonable investigation" that ends with "a written notification that includes a statement that the servicer has determined that no error occurred," reasons for that determination and how borrowers can obtain supporting documentation.So "the mere fact that Cenlar would have concluded that no enforceable loan modification existed after conducting a reasonable investigation does not absolve them of the responsibility of conducting a reasonable investigation and explaining their belief," he said.The case is part of a broader body of law that servicers and attorneys are reviewing to update compliance parameters for handling the qualified written requests under RESPA.Another recent legal development exemplifying the broader body of litigation centered on responses to formal borrower communications is a case involving Specialized Loan Servicing and allegations made by a former couple, Michael and Renita Russell.The dispute involves a loan that dates back to a period when loose, securitized mortgage underwriting was common and a housing crash complicated distressed mortgage servicing. However, plaintiffs allege it wasn't until 2019 that SLS "erroneously added $276,582.70 as 'prior deferred principal'" to it."The 'prior deferred principal' should not have been added since that sum was already included in the modified unpaid principal balance," they said in court documents, noting that it brought their debt to an unmanageable level of $946,239.60 in excess of the value of their home.Their amended complaint filed in January in California's Superior Court alleges that although the servicer filed a 72-page response to their qualified written request about the issue, the documentation was "in violation of RESPA in that SLS provided no information to account for the significant increase."The plaintiffs eventually applied and received approval for a short sale. Their home sold for $793,918.78 and the amount was applied to their higher stated debt obligation, but they allege "the actual debt obligation at the time of the short sale was about $600,000," and it should have returned funds to them.SLS does not comment on legal proceedings, according to an emailed statement from a spokesperson at Computershare, its parent company.The servicer did file a cross complaint in February, alleging that "plaintiffs' financial mismanagement was the predominant, if not sole, cause of plaintiffs' default on the loan, inability to reinstate the loan, sale of the property and any damages." It also attempts to divide the couple's interests based on their separation.In turn, the plaintiffs have filed a demurrer to the cross complaint.The demurrer alleges that "SLS continues to argue that plaintiffs' claims are for wrongful foreclosure and therefore the plaintiffs could afford the subject real property is at issue" but that information is incorrect given that the home was sold instead in a short sale.In addition, plaintiffs asserted that "at all times relevant herein, Michael and Renita were a married couple acting jointly to protect community property that was held by Michael and Renita as joint tenants," further alleging that "the cross complaint is frivolous, for the sole purpose of delay."No further action in that case was anticipated until June at the time of this writing.

Although fourth quarter mortgage originations were flat year-over-year, nonbank lenders that could provide products through multiple means were able to grow their business during that tough period, a Morningstar DBRS recap found."In addition to affordability challenges, seasonality and competition also impacted volumes and pricing," the report from Shaima Ahmadi, assistant vice president, North American financial institution ratings, said. "However, on an individual company basis, those with omnichannel organization models continued to grow originations in [the fourth quarter] as they were able to capture a higher share of the market versus those with less diverse channels and refi heavy models."The top mortgage lenders benefited by undertaking business restructuring and making strategic shifts in order to capture more purchase business, Ahmadi said.A shift underway that might not be going well is taking place at Finance of America, which had been at one point a multi-channel forward lender. After several previous strategy shifts, the company elected to focus on reverse mortgages. As part of that strategy, it bought American Advisors Group, which helped to drive FOA to a 40% market share in that segment."Despite market share gains, when excluding forward organizations in 4Q22, FOA's reverse mortgage origination volume was down a significant 56% YoY in 4Q23," Ahmadi pointed out."Meanwhile, Rithm Capital Corp. has made a number of acquisitions of mortgage servicing and alternative asset management businesses over recent years as part of the company's strategic shift to become a real estate asset manager. Companies also continue to diversify their basket of mortgage loan offerings with added complementary services."The Mortgage Bankers Association's fourth quarter industry profitability survey found that independent mortgage bankers and bank mortgage subsidiaries, both public and privately held, lost an average of $2,109 on every loan produced.Furthermore, servicing was a net financial loss for the group of $24 per loan, while operating income for this function, which excludes amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses, and gains/losses on bulk sales, was $108 per loan.Mortgage servicing rights proved to be a double-edge sword in the fourth quarter. Companies reported fair-value losses on their MSR portfolios — a requirement of mark-to-market accounting that is tied to potential prepayments — but servicing fee income was up.The publicly traded nonbank lenders tracked in the Morningstar DBRS report had a 6% increase year-over-year in their portfolios. But that ranged from a 14% gain at Mr. Cooper, which was active in the bulk purchase market, to declines of 5% at Rocket and 4% at United Wholesale Mortgage; UWM has been a strategic seller of servicing rights as part of its risk management strategy, executives noted on its fourth quarter earnings call.FOA actually had a larger percentage increase at 38%, but that was primarily reverse servicing picked up in the AAG deal, and among the nine companies listed, it has by far the smallest portfolio.Even though its portfolio is now smaller, Rocket bought MSRs originated with high rates for the potential refinancing opportunity."Given where mortgage rates currently are, borrowers have little incentive to refinance," Ahmadi said. "However, some companies indicated that they expect a meaningful rebound in refinance activity when rates fall below 6%." While the MBA thinks rates will sink under that mark, Fannie Mae's latest forecast calls for them to just get to that level by the end of next year.For the group losses narrowed as improved gain on sales margins were partially offset by lower origination volume.Gross gain on sales margins, inclusive of fee income, net secondary marketing income and warehouse spread, was 334 basis points in the fourth quarter, up from 329 basis points three months prior, the MBA survey reported."We would expect margins to remain under pressure in 1Q given the negative impact seasonality typically has on both 4Q and 1Q," Bose George, an analyst with Keefe, Bruyette & Woods said in an April 1 note on the survey. "Industry profitability is likely to be flat to down in 1Q as volumes should once again be low due to the seasonality associated with the quarter and the elevated average mortgage rate."Several public companies also reported major one-off expenses, including Pennymac Financial Services, which recorded $158.4 million in expenses from an arbitration ruling in favor of Black Knight (now part of Intercontinental Exchange) over mortgage servicing technology including allegations of breach of contract and misappropriation of trade secrets.Meanwhile, Mr. Cooper's November 2023 cybersecurity incident hit its results to the tune of $27 million.Ahmadi also noted that the nonbanks had higher leverage ratios year-over-year for the fourth quarter, as debt levels increased slightly but was primarily caused by financial losses eroding company equity."During [the fourth quarter], nonbank mortgage companies were active in the high yield market, raising unsecured funding, which was partially used to pay down upcoming maturities in 2025, which we view positively for their credit profiles," Ahmadi said. "Indeed, unsecured debt issuances increase nonbank mortgage companies' financial flexibility by decreasing balance sheet encumbrance."Both Rocket and Pennymac Mortgage Trust were able to reduce their leverage ratios. But FOA's debt-to-equity ratio increased to 97.8x compared with 49.7x one year prior, while Ocwen's was at 27.2x, versus 22.9x over the same period.

"The office commercial real estate sector is under stress more than other parts of the sector and there's heterogeneity around the country," Barr said. "We're just looking very carefully at banks that have heavy concentrations in office commercial real estate where there are significant expected price declines."Al Drago/Bloomberg WASHINGTON — Federal Reserve Vice Chair for Supervision Michael Barr Wednesday said liquidity pressures that caused instability in the banking sector in 2023 have largely subsided, but new risks continue to concern federal regulators. In the remarks — delivered to a crowd at the National Community Reinvestment Coalition's Just Economy conference — Barr said regulators are particularly focused on certain banks that have high levels of unrealized losses on securities on their balance sheets as well as those with concentrated investments in commercial real estate. Particular kinds of CRE properties — namely offices — he said, pose more risk than others. "The office commercial real estate sector is under stress more than other parts of the sector and there's heterogeneity around the country," he said. "We're just looking very carefully at banks that have heavy concentrations in office commercial real estate where there are significant expected price declines."Regulators have sounded the alarm over the past year regarding the risks banks face as CRE property values have fallen as many workers now permanently work remotely. As to when the concerns over CRE could subside, Barr said it will likely take years given the varying times at which properties are refinanced and appraised. "Commercial real estate properties refinance at a periodic cycle. Those are not all done in one year or one month; those are being refinanced slowly over time, so over the next two to three years," he said. "We're going to see how properties deal with that refinancing in a higher interest rate environment than the extremely low interest rate environment they were operating in pre-2019."The Fed official also touched on the agency's approach to considering bank mergers, at a time when its fellow bank regulators — the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — recently updated their own merger consideration policies. Barr said while the Fed is evaluating its guidelines on approving mergers between banks, the central bank is unlikely to update its policies at this time."I think it's a pretty robust process that follows our existing guidelines in this area," he said. "We are working with the other bank agencies and the Justice Department, to see whether those should be updated. But that's work that we're thinking about on an interagency basis rather than just us doing something."Barr also spoke to interviewer Victoria Guida of Politico about the ongoing legal battle over an overhaul of implementing regulations for the 1977 Community Reinvestment Act — reforms that have been in the works for years under two administrations. Banking trade groups sued the regulators arguing, among other things, that the final rule goes beyond the scope of the statute and violates the Administrative Procedure Act. The opponents of the CRA won a procedural victory in March when a Texas judge issued an injunction against the renewed CRA, postponing enforcement of the rule until the suit is resolved. While Barr would not comment directly on the suit, he did push back on the spirit of the lawsuit, saying Congress gave regulators ample latitude to update the CRA when necessary."They wrote it in 1977 in a broad way, and they left it to the banking agencies to make sure that CRA kept working over time," he said. "It was written in such a way that it permits the bank agencies to get together periodically as we did in 1995 and now, almost three decades later in the 2023 rule, to make sure that it keeps pace with the modern world we live in."Another agency rulemaking that has elicited industry backlash is the Basel III endgame capital requirements, which would compel banks to increase the ratio of equity they use to fund themselves. Fed Chair Jerome Powell said recently — while testifying to the House Financial Services Committee in March — that he expects broad and material changes to the rule before it's finalized.  Barr dismissed any "external chatter" about the rule, and focused on the particular comments the agency is carefully considering."We take all the comments we get on these kinds of issues very seriously, we're taking these very seriously. I expect we will make adjustments to the final rule," he said. "I think it will be a good, strong rule when it's done, but we're going to make changes along the way."

The Department of Housing and Urban Development announced an upcoming sale of vacant loans secured by home equity conversion mortgages.HVLS 2024-2 will be up for bid on May 7 and comprises approximately 1,265 notes with loan balances of close to $346 million. The sale consists of due and payable residential loans secured by first-lien HECMs, where borrowers and non-borrowing spouses are now deceased, the announcement from HUD's office of asset sales said. Nonprofits, government agencies and for-profit businesses, are all eligible to bid in the sale. HUD will also consider offers from joint ventures and other partnerships between various enterprises. HUD vacant loan sales, which were first introduced in 2016, emerged as a means to help increase supply through the disposition of assets. As much as 50% of an offering is sometimes prioritized for nonprofit and government organizations in hopes of providing housing, including homeownership opportunities for residents making under 120% of area median income. Unlike prior HVLS auctions, no mention was made of designated allotment for specific buyer segments in the latest announcement.Through the first half of 2023, nonprofits have purchased 28% of all HVLS loans for sale since the program's launch, HUD said in a report late last year. Settled loan count totaled 10,280. An approximate 52% share of loans sold through HVLS come from 10 states. Florida headed the list with 13%, with  Texas in second place at 7%. California, Illinois and New York all followed at 5% each.   The latest sale comes as home affordability and inventory issues rise in the public consciousness, after President Biden made the country's housing situation a key talking point in his recent State of the Union address. The creation of more units has been a focus in the Biden Administration's housing action plan, first announced a year ago. At the end of 2020, Freddie Mac estimated the U.S. was short 3.8 million units to adequately meet demand.  HECMs, a Federal Housing Administration-backed product offered to homeowners 62 or older, allows older borrowers to tap into home equity as they age, and are assigned to HUD from prior servicers when balances reach 98% of maximum claim amounts. Rather than foreclose on homes when borrowers are deceased, the agency puts loans up for sale to avoid disposition costs and help the housing industry generate supply. Finance of America currently comes in as the country' top HECM originator with almost one-third of overall volume, according to data from Reverse Market Insight. Mutual of Omaha Mortgage comes in second with about 22% of originations. 

"Does this look like a guy who wasn't involved in aviation?" asked NEXA Mortgage's CEO Mike Kortas Tuesday, sharing a photo of him and his former partner, Mat Grella, standing next to a jet. The question was posed after a falling out between the co-founders of NEXA, one of the largest mortgage brokers by loan officer headcount. Grella was terminated from the organization and soon after he filed a suit against Kortas accusing him of misappropriating funds to purchase luxury aviation.Kortas and Grella have a 50.5 percent and 49.5 percent stake in the company, respectively, documents show. Kortas is in charge of growth, while Grella was in charge of operations at the company.Kortas claims that Grella wanted out of the firm in November because he didn't like the terms of their 2019 operating agreement. On March 26, Kortas announced during a company-wide call that Grella would no longer be a part of the organization, though he was officially terminated days prior.Soon after the termination, on March 19, Grella filed a suit in Maricopa County, Arizona. The former co-owner of NEXA claims Kortas used company funds to purchase unauthorized aircraft related purchases using Nexa funds."Grella discovered that despite his clear lack of consent to any more aircraft related expenditures, Kortas has been using Nexa funds to make secret, unauthorized aviation related purchases — including for aircraft and a down payment on a hangar lease — for himself and his own entities," the suit said. "In short, Kortas has been converting Nexa fundsto buy millions of dollars worth of planes and hangar space solely for himself and his own benefit, without any corresponding distribution being paid to Grella."Grella did not immediately respond to a request for comment.NEXA, founded in 2017, has 2,405 sponsored loan officers and is licensed to operate in 48 states, according to the Nationwide Mortgage Licensing System. It originated close to $6 billion loans in volume last year, Kortas claims.National Mortgage News interviewed Kortas about how the dissolution of the partnership is impacting the functioning of NEXA and whether he is seeking to replace Grella in the organization. This interview has been condensed and edited for clarity.

The average purchase loan size hit its highest mark since 2022, even as home lenders saw a second week with little movement in application volumes, according to the Mortgage Bankers Association.The MBA's Market Composite Index, a measure of weekly application volume based on surveys of the trade group's members, inched down a seasonally adjusted 0.6% for the seven days ending March 29. Activity dropped for the third week in a row, following a similar 0.7% decrease in the previous survey. Compared to a year ago, the index landed 10.2% lower. "Mortgage rates moved lower last week, but that did little to ignite overall mortgage application activity," said Joel Kan, MBA vice president and deputy chief economist, in a press release. The 30-year fixed rate average edged down by 2 basis points to 6.91% from 6.93% the previous week for loans with balances below the conforming limit of $766,550 in most markets. Points used to help buy down the rate also decreased to 0.59 from 0.6 for 80% loan-to-value ratio applications. "Elevated mortgage rates continued to weigh down on home buying," leaving purchase application levels little changed despite higher volumes of some government-market loans, Kan added. The seasonally adjusted Purchase Index was down 0.1% week over week, but 12.6% lower on an annual basis. Still, in a sign of how limited inventory is managing to affect home prices even amid muted activity, the average purchase-loan size hit its highest mark since April 2022, coming in at $453,000. Purchase loan sizes among MBA lenders have trended higher since late January, mirroring ongoing price gains noted by several housing industry researchers over the past week.Monthly payments accelerated to a record high earlier in March, according to recent data from Redfin, even while the online real estate brokerage has reported rising inventory levels. Data from its platform also showed a typical buyer's down payment also surging over 24% annually to almost $56,000 in February. Current interest rates "added fuel to the fire lit by surging home prices during the pandemic, creating a reality where in many places, wealthy Americans are the only ones who can afford to buy homes," said Chen Zhao, Redfin economic research lead, in a press release. Meanwhile, the MBA's Refinance Index took a 1.6% fall from the previous survey. Compared to the same seven-day period in 2023, volumes also decreased 5%. Refinances also shrank to 30.3% of overall activity from 30.8%. Despite the uptick in Federal Housing Administration-backed purchase activity, the portion of federally sponsored loan applications contracted from one week earlier. FHA-guaranteed loans overall accounted for 11.7% of activity, falling from 12%. Applications coming through the Department of Veterans Affairs managed to grow its share to 12.1% from 12%, though, and the small slice of applications from the U.S. Department of Agriculture remained at 0.5% week over week. Alongside the conforming rate, other fixed averages tracked by the MBA also fell last week, with the 30-year jumbo coming in at 7.06% compared to 7.14% seven days earlier. Borrowers used 0.57 worth of points, up from 0.38, for 80% LTV-ratio loans.The 30-year FHA-backed contract rate averaged 6.74%, sliding down by a single basis point from 6.75% from the previous survey. Points came in at 0.9, decreasing from 0.97.The mean 15-year contract average declined 11 basis points to 6.35% from 6.46% week over week. Points to buy down the rate fell to 0.56 from 0.75.The 5/1 ARM, which begins with a fixed rate before adjusting to market levels after 60 months, was the only average reported by the MBA to rise last week. The rate rose 10 basis points to 6.37% from 6.27%. Points increased to 0.68 from 0.64. With the 30-year average hovering near its previous weekly level, the adjustable-rate mortgage share garnered the same 7% of volume as in the prior survey.

(Bloomberg) -- Bond traders are piling into bearish bets, fueling a selloff in benchmark Treasury securities, as fresh evidence of robust US growth triggers a recalibration of expectations for Federal Reserve interest-rate policy.JPMorgan Chase & Co.'s latest client survey showed that outright short positions in US Treasuries rose to the most since the start of the year in the week leading up to April 1. That bearish sentiment spilled over into this week, helping to drive US 10-year yields to as high as 4.4% on Tuesday, a level not seen since November. Reports released in recent days showed strength in manufacturing and jobs, underpinning a narrative of US resilience that has been gaining momentum all year. The latest data, combined with signs of sticky inflation and gains in commodities such as oil, has caused investors to further scale back predictions for the timing and extent of central bank monetary easing and gird for a period of higher-for-longer rates. The Treasury market backdrop "is being shaped by rising growth expectations," said Ed Al-Hussainy, a rates strategist at Columbia Threadneedle Investment.It's a similar story in the Treasury futures market. As bonds slid on Monday, traders amassed new positions across most of the futures strip, indicating a proliferation of short bets, according to data from CME Group Inc. Meanwhile, in the options market, the cost of hedging to protect against a selloff in longer-term Treasuries has climbed to the highest since the end of February, data show. When it comes to Fed rate expectations, investors are now pricing in about 65 basis points of rate reductions in 2024, compared to the 75 basis points signaled by the median estimate of projections released after the Fed's March meeting. That's a switch from recent months, when traders' forecasts were more dovish than the central bank's.With the market leaning so bearish, some traders are starting to take the other side of the bet. Tuesday's activity in both Treasury options and those linked to the Secured Overnight Financing rate — which closely tracks the central bank's key policy rate — included some large bullish wagers. The trades look to target a rally in the so-called belly of the curve — around the five-year maturity area — as well as half a percentage point of Fed rate cuts by the central bank's September policy meeting.Here's a rundown of the latest positioning indicators across the rates market:Treasury Clients ShortJPMorgan client short positions rose 7 percentage points in the week leading up to April 1 to the most since Jan. 1 on an outright basis. With long positions dropping 3 percentage points on the week, the net positioning shifted to the least long since Feb. 20.Hedging Bond Selloff Gets More ExpensiveThe premium paid to hedge a selloff in Treasuries is on the rise. The cost to protect against yields rising on the long end of the curve reached the most expensive since the end of February during Tuesday's session, as reflected by the so-called put/call skew on long-bond futures. In the Treasury options market, short volatility plays remained popular last week in both five- and 10-year tenors. Tuesday's action has seen a couple of large bullish trades in the five-year tenor.  De-Leveraging ResumesThe latest CFTC data covering the week leading up to March 26 shows deleveraging continuing among asset managers and hedge funds. Leveraged net short positions in Treasury futures declined for an eighth straight week to the least amount since July. Beyond the macro rate narrative, the deleveraging may also reflect the continued unwinding of basis trade amid a less attractive backdrop for the strategy. Net long positions by asset managers also unwound for a third week in a row. SOFR Options Most ActiveOver the past week, the most active option has been in the 95.00 strike in tenors out to Dec24. Tuesday's flows have included a buyer of the Sep24 95.00/95.25/95.50 call fly, targeting roughly 50 basis points of rate cuts being priced into the September policy meeting. The popular theme last week was targeting the Fed to skip a June rate cut via expressions such as the Dec24 95.625/95.50/95.25/95.00 "broken put condor."Fed to Skip June Cut? It's the Popular Play in Options Right NowSOFR Options Heat-MapThe most populated SOFR strike out to the Dec24 tenor remains the 95.50 targeting a 4.5% yield, where a heavy amount of risk can be seen in the Jun24 calls, Sep24 calls and Dec24 puts. Other populated strikes include the 95.00, 95.25 and 94.875 levels, where both Jun24 calls and puts are highly populated. --With assistance from Michael Mackenzie.More stories like this are available on bloomberg.com

In February, home prices rose at nearly double the month-to-month pace that was the norm prior to the COVID-19 disruption. At the same time, annual growth slowed, and that trend is likely to continue for the rest of this year, CoreLogic said.The CoreLogic Home Price Index, a separate measurement than the one the company puts out in conjunction with Standard & Poor's and Case-Shiller, rose 0.7% in February from January and by 5.5% when compared with the same month last year.The annual growth rate is down from 5.8% in January, and shows that the market is finally over the impact of when price growth hit bottom in January 2023, said Selma Hepp, CoreLogic's chief economist.In January 2023, annual price growth was 8.6%, but it was the first time it was below double digits in 21 months. When compared with December 2022, prices dropped 0.2%."Nevertheless, with a 0.7% increase from January to February 2024, which is almost double the monthly increase recorded before the pandemic, spring home price gains are already off to a strong start despite continued mortgage rate volatility," Hepp commented in a press release. "That said, more inventory finally coming to market will likely translate to more options for buyers and fewer bidding wars, which typically keeps outsized price growth in check."Going forward, CoreLogic's forecast calls for prices to rise 0.4% in March from the prior month and 3.1% over the previous year.Total inventory is up 12.6% year-over-year, but net new listings fell by 4.4% in March, according to HouseCanary.During the month, 234,838 net new listings were placed on the market, while 275,260 properties went under contract. That last data point represented an increase of 3.2% compared to March 2023.The median price of all single-family listings was $441,608, up 2.5% over February and 3.2% versus March 2023. The median closed listings price of $413,998 is a month-to-month gain of 2.5% and an annual increase of 6.8%."The interest rate shock is the biggest factor responsible for sustaining inventory scarcity," said Jeremy Sicklick, HouseCanary CEO in a press release. "The continued expectation that the Federal Reserve will introduce interest rate cuts in the months ahead offers potential homeowners a sense of hope, however for now, buyers are facing a seller's market."That lack of inventory led to another record: the typical home is worth over $1 million in a stunning  550 U.S. cities. That's up by 59 compared to this time last year, Zillow found."Affordability is still a big challenge for buyers, but that hasn't stopped prices from growing," said Anushna Prakash, an economic research data scientist at Zillow, in a press release. "Buyers this spring are going to see more options to choose from, but they'll also see a lot of other buyers wandering through the same open houses."As a result of the increased competition, especially if mortgage rates decline as expected, prices are likely to continue to rise and the surge in $1 million cities will continue, Prakash said.Prices grew at a faster pace in these locations than the nation as a whole, Zillow found.However, in its monthly consumer loan performance update, Moody's noted that home purchase activity in 2024 "will likely remain quite constrained given high prices and weak home affordability, and with existing homeowners reluctant to sell and give up their low fixed-rate mortgages.But if the U.S. economy cools as expected, many homeowners may take advantage of the growth in appreciation to take cash out of their property, either through a second-lien mortgage or a home equity line of credit, the report said.

In a report last week on AI and cybersecurity, the U.S. Department of the Treasury said that, while banks tend to share plenty of information with each other for the purposes of cybersecurity and anti-money laundering, they have practiced "insufficient data sharing" in the area of fraud prevention.The dearth of banks sharing their fraud data undercuts smaller banks' efforts to train anti-fraud AI models— models that many banks hope will replace rule-based engines, deny lists and device fingerprinting in the fight to detect and prevent transaction-related crimes such as money laundering and fraud.Treasury acknowledged a general gap in the data available to financial institutions for training AI models of all kinds, but the report said the gap is "significant in the area of fraud prevention," which the report contrasted with robust cybersecurity data sharing efforts led by organizations including the Financial Services Information Sharing and Analysis Center."The accuracy of machine learning-based systems in identifying and modeling fraudulent behavioral patterns correlates directly with the scale, scope (variety of datasets) and quality of data available to firms," the report reads.The report said "most financial institutions" interviewed for the report, which was based on 42 interviews, expressed the need for better collaboration in the domain of fraud prevention, particularly as fraudsters themselves have been using AI and machine learning technologies."Sharing of fraud data would support the development of sophisticated fraud detection tools and better identification of emerging trends or risks," the report said.However, while such information sharing could improve fraud detection, it "also raises privacy concerns," the report said, as it would involve collecting and storing sensitive financial information including transaction histories and personal behaviors. Data anonymization and algorithmic transparency — i.e., helping customers understand how their data is used — could mitigate these issues, the report said.Treasury said in the report that the Financial Crimes Enforcement Network, which is a bureau of Treasury, might be well positioned to support fraud information-sharing efforts between banks, to ensure that smaller financial institutions "are benefitting from the advancements in AI technology development for countering fraud," the report said. Core providers could also play this role, according to the report.While many vendors offer smaller banks access to AI-based transaction monitoring systems, Treasury's report said internal development at banks "offers advantages in oversight and control of the development, testing, transparency, and governance of models and access to sufficient data monitoring for model risk management evaluation purposes."For the moment, the report cited efforts by two institutions that are already working to close the fraud information-sharing gap: The Bank Policy Institute and the American Bankers Association.The Bank Policy Institute, a public policy research and advocacy organization, told Congress in February that, as part of the effort to promote and enable data and intelligence sharing between institutions, the institute has established BITS, an "executive-level forum" for bankers to collaborate on policy advocacy, promote critical infrastructure resilience, strengthen cybersecurity and reduce fraud.The American Bankers Association, a trade organization and bank industry lobbying group, is set to launch an information-sharing exchange in the first half of this year, which the association says will help member banks fight fraud.As an example of how the exchange will work, in fraud cases known as business-email compromise, the platform will enable banks to alert their peers with key information about the account of the alleged fraudster, said Paul Benda, executive vice president of risk, cybersecurity and fraud at the American Bankers Association."The idea here is to allow banks to share this information amongst other banks in a near-real-time manner so they can integrate this data into their payment flows, into their risk-scoring systems, to stop that money from going out," Benda said.The association said its long-term goal is to make the exchange available to all financial institutions that are covered by Section 314(b) of the Patriot Act, which gives financial institutions the right to share information that could be used to identify transactions that might involve money laundering or terrorist funding.As for the consequences of failing to promote adequate fraud information sharing, several institutions Treasury interviewed said "there may be a risk of future consolidation towards larger institutions" if "smaller financial institutions are not supported in closing this critical gap," according to the report.

With interest rates higher for longer and economic activity slowing, analysts expect further pressure on lending profitability as well as deterioration of credit quality in community banks' first-quarter earnings due later this month.However, following recent Federal Reserve policymakers' signals that rate cuts loom this year, analysts also anticipate bankers' commentary during earnings calls will include upbeat long-term outlooks on interest income and credit stability.The Fed has not raised rates since last summer. But after pushing up its benchmark several times in 2022 and early last year, it holds near the high point of this century, keeping deposit costs elevated for banks and interest expenses high for borrowers. This has curbed loan demand and squeezed the margin between what banks earn on lending and pay out on deposits. U.S. banks' median net interest margin, a key measure of profitability, declined to 3.35% in the fourth quarter, down 2 basis points sequentially after slipping 3 basis points in the third quarter and 5 basis points in the second quarter of last year, according to data from S&P Global Market Intelligence.First-quarter results are expected to show that downward NIM pressure persisted through the early months of this year. High rates also have hampered more consumers and commercial real estate borrowers. Credit card costs spiked alongside rates, making monthly payments higher and more difficult to manage, and CRE office properties, in particular, have struggled because of enduring remote work trends in the aftermath of the pandemic.The annualized fourth-quarter net charge-off rate in the credit card segment rose 94 basis points from a year earlier to 4.15%, the highest level since this metric reached 4.38% in the second quarter of 2019, according to S&P Global. Total delinquent CRE loans stood at $25.26 billion at the close of 2023, up 79% from a year earlier.Wedbush analyst David Chiaverini said high rates "may continue to pressure negative credit migration, especially for banks with outsized exposure to CRE and consumer loans."These headwinds, in turn, are slowing down the economy.Yet, as Iron Bay Capital President Rober Bolton said, the industry overall remained profitable throughout 2023 and is expected to remain so this year. Profits also are poised to increase in the second half of 2024 and into next year should the Fed follow through on the three rate cuts that policymakers said were likely in a report after their March meeting."So it's still hard to predict when exactly the Fed will start to move, and there's still plenty of uncertainty around a slowing economy and what that means for the near term," Bolton said. "But longer term, assuming the Fed does act, margins will benefit, and I think there's good reason to be optimistic about community banks."That view is in sync with the American Bankers Association's Economic Advisory Committee outlook, released last week. The committee, composed of bank economists, expects credit conditions to soften some time this year due to a slowing economy and continued elevated borrowing costs.The committee sees economic growth around 1.7% for 2024 and 1.8% for 2025. The forecast for this year would accelerate an already slumping pace. Gross domestic product advanced at an annual rate of 3.2% in the fourth quarter, down from third-quarter growth of 4.9%, according to the U.S.  Department of Commerce.Employers collectively reported six-figure job gains every month last year — and again in January and February of this year but the rate has eased. Employers added 275,000 jobs in February, down from the 353,000 jobs created in January, according to the Labor Department.Employers added 225,000 jobs per month, on average, in 2023. The ABA economists see that slowing to 139,000 per month in 2024 and declining to just about 117,000 in 2025. The committee sees the unemployment rate reaching 4.1% by the end of 2024, up from 3.9% in February and 3.7% at the end of last year."The cumulative effect of still-high interest rates, softening demand, lower consumer savings and a mild uptick in unemployment will drive some deterioration in credit quality," said Simona Mocuta, ABA committee chair and chief economist at State Street Global Advisors.The ABA forecast anticipates bank consumer delinquency rates will increase slightly from 2.8% in 2024 to 2.9% in 2025. That would be up from an estimated 2.4% last year.But recession risks have diminished, the ABA committee said, and inflation continues to be moderate, opening the door for rate cuts beginning this summer. At a 3.2% annual rate in February, inflation was barely a third of the 2022 peak of 9.1%.The consensus view of the committee is that the Fed will begin cutting the target federal funds rate range in mid-2024, instituting three 25 basis point cuts before the end of this year. The reductions would help lower deposit costs and potentially drive stronger loan demand. With more loan volume, and lower costs to fund loan growth, banks could drive stronger net interest income and, by extension, profitability.Against that backdrop, Piper Sandler analyst Casey Orr Whitman said that, across his firm's coverage universe, loan growth slowed and funding costs rose throughout 2023, and likely did so during the first quarter. This hindered margins and, by extension, earnings per share.For the first quarter, Whitman estimated a sequential NIM decline of 3 basis points and a 7% linked-quarter decrease in core EPS for the industry"The sustained higher interest rate environment and continued economic uncertainty help drive near-term and intermediate-term softness," Whitman said.