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The IRS says it heard the objections raised by small-business lenders to its plan to block access to loan applicants' income and other tax-related data. "We ... are assessing our ability to provide return information when necessary while keeping taxpayer information confidential and protected from disclosure," the agency says.Al Drago/Bloomberg For banks, credit unions and other small-business lenders, this is an IRS-related story with a happy ending — kind of.Responding to a determined lobbying campaign by a broad consortium of financial services trade groups, the U.S. tax-collection agency has agreed to suspend a policy change that would have blocked small-business lenders from accessing borrowers' income data through its Income Verification Express Service."We acknowledge the concerns raised and are assessing our ability to provide return information when necessary while keeping taxpayer information confidential and protected from disclosure," the IRS wrote in a March 6 policy update statement. "Although IRS announced the policy change on January 2, 2024, we are suspending that change as we seek input from you and other stakeholders on possible changes and impacts to the program."Scott Stewart, CEO of the Innovative Lending Platform Association, acknowledged that the IRS could revert to its original policy stance after its review. At the same time, even a temporary respite represents a major achievement, Stewart said. "Federal agencies don't do this," Stewart said in an interview. "To get a federal agency of any kind, let alone the IRS, [to acknowledge  a misstep] is really exceptionally rare. I don't know if I've ever seen a reversal like this. The IRS deserves credit for realizing this policy requires further review."The Innovative Lending Platform Association was one of 11 financial services industry trade groups, including the Independent Community Bankers of America, American Bankers Association, America's Credit Unions and the Mortgage Bankers Association, that endorsed a Jan. 24 comment letter opposing the IVES policy change. IVES is the platform that lets taxpayers give third parties — like lenders — permission to see tax return or wage information.Under the IRS' original concept, it would have delivered tax data only to lenders making mortgages. In all other instances, the agency would have delivered the data directly to individual taxpayers to protect their privacy. Lenders value the ability to obtain tax returns from the IRS as a critical tool in underwriting and preventing fraud. They were concerned the policy change would add complexity, time and cost to applications while at the same time making it easier for bad actors to game the system.  "You could see how fraudsters might just digitally alter their tax returns and they could send it off to the lender," Stewart said. "I hope they're going to move toward [opening] the system in an [application programming interface] fashion so that everyone can get access and overall lower the cost of credit and capital for small businesses, consumers, people looking for insurance — everybody."An application programming interface, or API, is software code that allows a website, application or program to more easily share information with other websites, applications or programs. In their announcement last week, IRS officials "said they were suspending the decision indefinitely," Ryan Metcalf, head of public affairs for Funding Circle US, said in an interview. "I'm not concerned it's coming back. It seems like the IRS has backed off. … This is a huge win for American consumers and small businesses."It's far from game over, though. "It's good news [the IRS] has returned to the status quo," Metcalf said. "We still have issues to resolve. We still have to work out how we resolve the authentication issue, can we have private API access to log in, can we expand the data in the transcript — all of those things we're still seeking are outstanding."Beyond access to tax data, lenders and borrowers want the IRS to make it easier to use IVES. Currently, borrowers have to create IRS accounts and verify their identities with the agency before they can request that a transcript be delivered to a lender. That route is time-consuming and redundant, since the lenders themselves are required to verify identity under know-your-customer requirements, Metcalf said."The [optimal] outcome is we want a borrower to be able to submit a [transcript request] to the lender, the lender hands that to the IRS and we get the tax return in real time," Metcalf said. "Or, if the lender has an account with the IRS already, they should just be able to log in to that account in our application. That's the API access. … That's what we want. We want that optionality of either/or."Bipartisan legislation introduced in the House of Representatives in May 2023 would address the authentication issue by enabling taxpayers to designate a financial institution or other service provider to receive tax data. The bill, introduced by North Carolina Republican Patrick McHenry, chairman of the House Financial Services Committee; California Democratic Rep. Jimmy Panetta; and Colorado Democratic Rep. Brittany Petterson, is currently under consideration by the Ways and Means Committee. Funding Circle backs the legislation as it is currently written and is hoping to strengthen its language in the wake of the IRS' action. "We're getting ready to update that bill to address additional issues. … We would probably add on to it to make sure the IRS doesn't revisit this policy decision," Metcalf said.  The IRS didn't respond to a request for comment at deadline. Stewart attributed the IRS' initial policy restricting IVES access to a desire to protect taxpayer information. "Their duty is paramount," Stewart said, but he was quick to add that allowing API interface with IVES could be accomplished without compromising data integrity. "We don't think creating this API is going to do anything to endanger the taxpayer, as long as you have them making the request directly through the lender or the insurance company or the bank."

Guild Mortgage reported a $93.1 million net loss in the fourth quarter, pushing its full-year financials into the red. But company heads think the mortgage lender's growth strategy will pay off in the long run.The San Diego-based company experienced an overall net loss of $39.1 million in 2023, a notable dip from the $328.6 million net profit reported in 2022. A higher interest rate environment and tight housing inventory contributed to Guild's results, company representatives said. Despite a rocky origination climate, the mortgage lender finished off 2023 with four acquisitions under its belt, which the company hopes will allow it "to create meaningful value for stockholders over time.""We continue to grow our market share," said Terry Schmidt, Guild's CEO, during the company's earnings call Tuesday. "We prioritize being integrated members of the communities we serve and the foundation of our approach is our relationship based loan sourcing strategy in being able to provide our customers with innovative products that serve their needs.""While we anticipate the current headwinds will continue much of 2024, we are encouraged by our market share growth, and disciplined approach should deliver results when sentiment improved, and the rate environment eases," she added.The company's net revenue for the fourth quarter was $93.1 million, down from $257.3 million the prior quarter. At years end, Guild's revenue was $700 million, a notable dip from the $1.2 billion reported the year prior, its earnings show.Origination activity fell in 2023, with the mortgage lender disclosing it originated $15 billion worth of loans, down from the $19.1 billion in 2022. The final three months of the year saw $3.5 billion in originations, while the first two months of 2024 resulted in $2.2 billion worth of originations.The company's servicing segment incurred a net loss of $72.1 million in the fourth quarter, down from a net income of $84 million the prior quarter, earnings show. Fair value adjustments had a negative impact on the company's MSRs, executives said during the company's earnings call. The unpaid principal balance of the lender's servicing portfolio grew by 2% from the prior quarter to $85.0 billion as of Dec. 31, 2023. At year end, Guild's servicing portfolio grew by 8% compared to $78.9 billion a year prior."On the servicing side, we're solid, our cash flows are really solid," Schmidt added. "I know we had an impairment this past quarter, but in reality our prepayments continue to go down, so we feel like from the cash flow perspective, the value of servicing is very strong. We feel that  having origination and servicing still works well for us." The company head added the number of loan originators at the mortgage shop has ballooned by 34% since November 2022, illustrating "success at growing and retaining our sales team and positioning them to take full advantage of the next cycle in the housing market." Since its acquisition of Academy Mortgage, Guild has almost 3,000 sponsored loan officers on board, according to the Nationwide Mortgage Licensing System. The integration of Academy loan originators will have a short-term earnings impact, executives forecasted.Apart from taking on Academy, the lender was on a buying spree last year, acquiring First Centennial Mortgage, reverse mortgage lender Cherry Creek Mortgage and Legacy Mortgage. And Schmidt hinted that more M&A activity might be in the company's future."There's still some excess capacity in our industry…there's owners that are looking for another home with a company that's a little bit larger," she said. "And same thing with loan originators, they're looking for stability and a company that's growing and investing in their future, so we feel like there's still opportunity out there and our strategy's working."

Loandepot sank deeper into the red in the final quarter of 2023 but said greater servicing income and better gain-on-sale margins mitigated the impact of fewer originations.The lender and servicer posted a $59.7 million net loss in the fourth quarter, down 71% quarterly, it said Tuesday. The recent performance was significantly better however than the $157.7 million net loss Loandepot had over the fourth quarter in 2022. Pull-through weighted lock volume of $4.4 billion between October and December was 22% less than the prior quarter. Its gain-on-sale margin ticked up to 296 basis points, rising from 221 bps at the same time last year."Our higher gain-on-sale margin was primarily due to an increase in volume and profit margins of our HELOC product and wider profit margins on conforming and (Federal Housing Administration) production," said David Hayes, the firm's chief financial officer. The GOS number was partially offset by a seasonally larger proportional contribution from Loandepot's joint venture channel with Realtors and builders, he added. The recent quarter bumped the annual PTW GOS figure to 275 bps for 2023, compared to 194 bps in 2022.Concerning home loan activity, the lender reported $21.5 billion in lock volume for the year against $45 billion in 2022.Meanwhile a quarterly servicing income bump, from $120.9 million ending September to $132.4 million ending December, was aided by slower prepayments, Hayes said. Loandepot exited the year with a $235.5 million net loss, 61% better than its 2022 performance. That was helped by the lender's efforts in its Vision 2025 cost-cutting plan; it shaved $693 million in expenses last year. The company will continue to improve on its $1.25 billion in expenses recorded by year's end, as executives Tuesday announced another plan to slash expenses by another $120 million.The firm's adjusted annual loss was $142.2 million; its quarterly adjusted figure was flat with a $26.6 million loss in the fourth quarter. It posted $974 million in net revenue for 2023, down 22% from 2022. A recent hack exposing the data of nearly 17 million customers will cost the lender between $12 million to $17 million this quarter. Executives declined to take analyst questions on the topic, but Chief Risk Officer Joe Grassi spoke briefly on his company's incident response."We did regain our ability to operate fairly quickly and did a good job of hanging on to our pipeline and pulling through the loans that we had," he said. Those data breach expenses will dampen gains the firm anticipates in fewer marketing expenses and less restructuring costs to begin the year. Loandepot's borrowing power remained steady at $1.94 billion in warehouse and other lines of credit. It also counted $661 million in cash and cash equivalents moving forward. Its large servicing portfolio has an unpaid principal balance of $145 billion. The business is projecting volume between $3.5 billion and $5.5 billion this quarter and PTW GOS between 275 and 300 bps. President and CEO Frank Martell told analysts his organization continuing to downsize is poised to handle an expected volume increase this year. He referenced melloNow, the lender's automated underwriting engine it released in December which it says can deliver loan approvals in minutes rather than hours or days. "A lot of what we've done the last two years is really invest in fundamental systems and automation," said Martell. "So we feel pretty good about our ability to leverage those and drive the benefits of productivity operating leverage as the market does rebound."

San Francisco is making it easier to turn empty office buildings into homes, a move aimed at easing the city's housing crunch and reviving its struggling downtown.Voters approved Proposition C, which offers a tax break for developers to convert up to 5 million square feet of commercial space by 2030, according to a tally of results from last week's election. Mayor London Breed, who championed the proposal, said it will help the city meet a state mandate to create tens of thousands of new homes and to diversify the downtown. The measure comes as the tech sector, a key to San Francisco's economy, has scaled back its presence and workforce since the pandemic. Major companies, such as Meta Platforms Inc. and Salesforce Inc., have reduced their real estate footprint, allowing employees to work from home or relocate. San Francisco's commercial vacancy hit a record 36% as of December and it's expected to tick up further this year, according to an analysis by CBRE Group Inc.Breed said the initiative would help transform the city's downtown from a 9-to-5 business district to an around-the-clock mixed-use neighborhood. A shopper inside the Westfield San Francisco Centre shopping mall on June 13. Photographer: David Paul Morris/BloombergDavid Paul Morris/Bloomberg "San Francisco's downtown is undergoing a period of change — and there is a tremendous opportunity to attract investment and excitement in the future of what downtown can be," she said in a statement.This month's announcement of Macy's Inc.'s plan to close its flagship Union Square store — part of the company's broader national downsizing — marked another significant departure from the city's retail landscape. Breed has been a vocal advocate of finding innovative uses of spaces, even suggesting last year that a soccer stadium could replace the downtown Westfield San Francisco Centre mall, after its owners gave up the property.San Francisco stands out for its potential to convert office buildings to housing, compared with other cities, because of the buildings' shape and size, ceiling height and proximity to public transit, proponents say. In a report, the San Francisco Bay Area Planning and Urban Research Association said 40% of the downtown buildings evaluated by architecture and design firm Gensler would be suitable for conversion. In North America as a whole, only 20% of the buildings Gensler assessed scored high for conversion.However, San Francisco's stringent planning and building codes, along with high construction costs, pose significant hurdles to such projects, rendering many of them financially unfeasible.   Still, technical challenges abound in converting offices to homes and skeptics argue that the potential is overblown. According to a separate analysis by Moody's Investors Service, conversions to multifamily housing are only viable in 13% of San Francisco offices. Further complicating the matter, a report by the offices of the San Francisco controller and economic-analysis unit cautions that increased office-to-residential conversions could lead to job losses and hurt the local economy. The study's 20-year forecast suggests that converting every 100,000 square feet of office space into housing could eliminate 155 jobs and lower the city's GDP by $49 million."Most of the job losses would be concentrated in office-using industries, which are major contributors to the city's GDP, while gains would be recorded in construction, government, and local-serving industries," according to the report.To date, only a handful of office-to-housing conversions have materialized in the city, including a three-story building in the Tenderloin district that was recently transformed into 56 apartment units. One project to transform San Francisco's historic Warfield Building has recently been approved, with construction slated to begin early this year.

Multiple public companies wrote down mortgage servicing rights in the fourth quarter of 2023,raising the question of how much the previously red-hot MSR market cooled then and what conditions are like now.Ocwen Financial, Rithm Capital and United Wholesale Mortgage recorded reductions in MSR valuations, citing lower long-term rates that followed the Federal Reserve's December signaling that it was done tightening monetary policy. That shift may provide an offsetting boost to mortgagees with lending operations in the long run.Determining whether the servicing market overall has gotten hotter or cooler as a result of this change depends, to an extent, on how low the rates on the loans involved are."Towards the end of the year, we saw rates moving down, and MSRs needed to be written down and there are different approaches to that, depending on each situation," said Tom Piercy, president of national business enterprise development at Incenter.But with prevailing mortgage rates still higher than many older loans outstanding, investors don't have much worry that those borrowers will prepay. MSRs from more recent loans were the ones that generally had valuations written down."For the mortgages with the higher interest rates, obviously the investors are going to be concerned that those loans will be refinanced and the MSR will disappear or refinance," said Mike Nedzbala, a partner at law firm Hunton Andrews Kurth.By contrast, the pricing on bulk packages of MSRs for older loans is being driven by something else. "Where valuations do fluctuate on that portion of the MSR asset is all tied to escrow balances," Piercy said, referring to money lenders often hold for distribution to what are generally increasing housing-related obligations like property taxes and insurance on borrowers' behalf.Escrow-based valuations in this market have generally been strong. But borrowers with Federal Housing Administration-insured loans, for which escrows are common and the borrowers tend to be first-time buyers with lower incomes, may be under pressure. "The value of the escrows has improved tremendously over the last two years, because of where short-term rates have moved, but with that comes some potential risks around the increases in taxes and insurance rates that will be tied into those escrow payments," he said.Overall, though, MSR valuations are still looking pretty good this year, in part due to an uptick in buying interest that tends to occur in the first quarter, according to Piercy. "We're seeing an extremely robust, strong market, which is also very typical and cyclical. The first quarter of any year typically starts out hot, because we've got new budgets in place from a buy side, and people want to deploy that capital," he said.There's also a lot of selling interest in selling MSRs on the part of lenders who have struggled with profitability so trading is active, said David Lykken, an industry veteran, leadership coach and podcaster who works for consultancy Transformational Mortgage Solutions."People are trying to get as much liquidity as they can for their balance sheet as this market continues to struggle. So a lot of servicing is being transferred," he said. Some buyers are valuing servicing more highly than others due to advances in their recapture capabilities, designed to ensure that if borrowers refinance, they still remain in the existing portfolio. "Those servicers who are successful in recapture, or have a partner who is, are looking at this differently," Piercy said.As the low rates of the pandemic years fade, more of the market will have higher rates.Though servicing buyers use a variety of metrics to evaluate portfolios, Nedzbala said they have been increasingly focused on retention numbers, which overall are typically low. "I'm definitely seeing in connection with the purchase and sale of MSRs where the purchaser has a recapture partner that it works with or they're working something out with the seller," he said.When asked about the degree to which non-solicitation agreements are adhered to currently, Nedzbala said it's generally something a mortgage company wouldn't want to risk if they're interested in continuing to sell MSRs."I think as the market has matured, sellers realize that they're not going to be able to sell MSRs if they're going to have a reputation," Nedzbala said.Both flow and bulk deals have been in the market, but sales of servicing rights from newly originated loans in government-related markets are growing at a faster rate, he said."It used to be that people just would wait to aggregate loans and do them on a bulk deal. But now these originators want their capital as soon as possible, so there is incentive for them to participate in these programs," Nedzbala said.Piercy said in a recent interview that prices for flow deals have been historically strong but lower than at the market's recent peak while bulk deals still sometimes price at relatively high levels.Anecdotally, higher prices tend to be paid for stronger counterparties and representations and warranties, Nedzbala said. Whether servicing is easily deliverable to the buyer's system could make a small difference in price.Depositories are still buying but mindful of regulatory constraints, with more of the smaller banks selling for various reasons. Meanwhile, the number of nonbank buyers has been growing.Generally, the market and rates seem to be at a place where both MSR buyers, sellers, lenders and servicers all see potential upsides and generally have been able to agree on prices."It's a better interest rate environment," Nedzbala said.

The Biden Administration title waiver pilot turns Fannie Mae and Freddie Mac into "de facto primary market title insurer[s]," something they do not have expertise in, officials at the American Land Title Association said in a Tuesday press briefing.Despite the Administration's stated aim of improving affordable housing opportunities for those in need of such assistance, this pilot's focus on a specific set of refinance transactions does not accomplish that, the group argued. The pilot was announced prior to the State of the Union address last Thursday. The next day, the Consumer Financial Protection Bureau took its own shot at so-called junk fees in the mortgage process."It doesn't meaningfully reduce costs for homebuyers, particularly first-time homebuyers or lower and moderate income families," said Chris Morton, ALTA's senior vice president of public affairs and chief advocacy officer. "It will be targeted to higher wealth homeowners with substantial equity in their homes."Diane Tomb, ALTA's chief executive, put it in blunt terms, saying that the last time Fannie Mae engaged in such activities outside of its charter mission, it caused the Great Financial Crisis."It's a hollow attempt by the White House to placate Americans' current economic frustrations," said Tomb, who later added that "this pilot is simply a bad idea; it's bad politics, bad process, and bad policy."In its fact sheet announcing the title waiver program, the White House said the pilot "would save thousands of homeowners up to $1500, and an average of $750, and the lower upfront fees will unlock substantial savings for homeowners as mortgage rates continue to fall and more homeowners are able to refinance."Meanwhile, as part of its broader commentary on closing cost charges, the CFPB said consumers have no control over the cost of the lender's portion of the title insurance policy. "Title insurance is meant to protect against someone else laying claim to a borrower's property," the March 8 blog posting said. "A lender's title insurance policy protects only the lender against these possible claims, not the borrower."Morton expressed dismay that the administration was "being opportunistic in dismissing and undermining an industry that provides protection to consumers" given ALTA's work to fight money laundering and wire fraud in the real estate transaction process, for which it was cited by the government for its partnership, he said.Furthermore, the pilot "also makes an absolute mockery of the FHFA's new products and activities rule finalized last year, which outlines the need for a public comment and fully transparent and open process if a new activity by the GSEs is introduced, which in this case, this clearly is," Morton declared.The pilot also plays into misconceptions about what title insurance does, added Steve Gottheim, ALTA's general counsel. The White House's fact sheet noted that title insurers pay 3% to 5% of premiums back in claims, versus 70% for other forms of insurance.Approximately 70 cents of every dollar paid for a title insurance policy covers expenses associated with record searches on the property, as well as rectifying post-closing problems. That work is why the title claims rate is so low, Gottheim continued.Furthermore, it is a myth that title insurance was not needed on a refinance, Gottheim said, pointing to risks like homeowner association fees and their superpriority lien or fraud, which  could arise between the time the home was purchased and the owner seeks a new loan.When asked about analysts' reports stating the pilot would have limited applicability, Tomb responded a home is most Americans' largest asset, and if the government does something like this, what else are they going to do it to? "That's really our concern from a public policy standpoint," she said.What lessons is the government going to learn from "cherry-picking the best transactions possible, the easiest ones, the ones with the least likely title problems and use that to justify other things that they want to do in a politicized environment?" Gottheim asked rhetorically.At the end of the day, "Fannie Mae is not regulated to do title insurance," Tomb said. "They're not capitalized for this. So there's a lot more risk than people really understand."

Flagstar Bank paid a $1 million bitcoin ransom in late 2021 to access and delete a swath of sensitive customer data hackers had compromised weeks earlier, court documents say. A professional ransomware negotiator helped Flagstar leaders make the payment to the perpetrators on Dec. 31, 2021, according to a deposition of the firm's chief information officer taken in January. That data breach, one of three the company has suffered in recent years, impacted over 1.5 million clients. A federal judge last May consolidated multiple class action complaints over the breach from consumers.The decision to pay was made by then-CEO Alessandro DiNello along with Flagstar's cyber insurance provider, the negotiator and legal counsel, Flagstar CIO Jennifer Charters told attorneys. Charters, when asked by a lawyer if she agreed with the decision to pay, said it depends on the situation. "It certainly does not help to incent threat actors by paying them money to stop, I guess, harassing you," said Charters in the deposition. "On the other hand, depending on the situation that anyone is in … I guess I'll say they want to protect information and it could be worth the cost to protect that data and information."Federal law enforcement recommends companies don't pay ransoms because, in addition to incentivizing criminals, such payments don't guarantee data recovery. While other mortgage firms have faced ransomware demands, it's unclear if they paid hackers.Neither Flagstar nor attorneys for either party responded to requests for comment Monday. The December 2021 incident came 11 months after 1.4 million Flagstar clients had their personally identifiable information ensnared in a cyberattack exploiting a file transfer software. Another 837,390 bank customers were exposed last June in a breach involving a separate file transfer software. It's unclear how many of the company's mortgage customers were involved in each incident. Filings in the Angus v. Flagstar case, the one in which Charters was deposed, say anonymous criminals infiltrated Flagstar's network on November 22, 2021, using stolen log-in credentials from a contractor. Within the following three weeks, hackers began to exfiltrate customer PII and deployed ransomware on Dec. 13. The criminals sent a ransom note via fax, and a separate email to DiNello, according to Charters' deposition. Once Flagstar negotiated the ransom payment, the response team including the third-party negotiator reached a server provided by the hackers via remote desktop access to delete the stolen Flagstar data.Plaintiffs, in countering Flagstar's motion to dismiss the complaint, wrote in a March 6 motion that it's unclear whether the exfiltrated PII was definitively deleted. "Flagstar has offered no competent evidence establishing what data was stolen and when, who stole it, and what those actors might have done with it during, and for months following, the breach," wrote attorneys for plaintiffs. Affected customers also take aim at Flagstar's post-breach monitoring of the dark web for evidence their personal information was shared. Risk advisory firm Kroll, which isn't a named defendant, didn't begin monitoring the dark web until October 2022, 10 months after the breach occurred, according to Charters' deposition. A separate expert also conducted a search on the dark web for a plaintiff's data on behalf of Flagstar, for two weeks in late 2022, and plaintiff attorneys paint his analysis as limited in scope. The identity of the culprit is also not disclosed in plaintiffs' motions, nor made clear in either public deposition excerpt.Plaintiffs are seeking class certification, unspecified damages over $5 million and to enforce numerous cybersecurity measures at the bank. No hearing nor deadline is scheduled for the case. In 2022, Flagstar came under the ownership of New York Community Bancorp, the publicly traded business facing prolonged turmoil following a poor fourth quarter earnings. DiNello has since been elevated to CEO, executive chairman and president of NYCB.

Freddie Mac has made some progress with the fee-based repurchase alternative pilot it announced last year and is anticipating it will have some measurable results within the next several months."We expect by the end of second quarter 2024/early third-quarter 2024, we'll have a good amount of feedback and early indicators to see if the pilot is doing what we expect," said Sonu Mittal, head of single-family acquisitions for the government-related mortgage investor.The qualitative goal that results will be measured against whether the program Freddie is testing "is helping us continue to improve manufacturing quality and reduce the waste in the system," Mittal said.Pilot results could help determine whether the approach could be applied not only more broadly at Freddie but at larger competitor Fannie Mae at a time when their regulator seeks to harmonize how they handle representations and warranties on loans.Loan buybacks the two government-sponsored enterprises require of mortgage companies in order to remedy certain defects have long been a point of tension, particularly when instances are high and expansive as they were following the recent pandemic housing boom.In addition to Freddie's test, both GSEs have taken other steps to reduce the strain on their loan sellers while defending the need to engage in a process that remedies for loan flaws. Mortgage Bankers Association considers the pilot to be the closest to industry requests.Around 14 mortgage companies of varying sizes have agreed to test the sliding-scale fees based on the non-acceptable quality rate for performing loans, according to reports from the Mortgage Bankers Association's MBA Newslink that Mittal confirmed. Other actions like Fannie's revival of a discontinued defect notification, relabeled as a disclosure related to "potential" flaws, are still a step in the right direction, said Pete Mills, senior vice president of residential policy and member engagement, Mortgage Bankers Association.Fannie previously discontinued the previous version of the notification due to considerations around cost and low usage rates, but after repurchases became more common and costly, interest grew, particularly among smaller lenders. That convinced Fannie to rethink the decision."The notice provides more time, and provides time without being under the guise of repurchase demand. So that's good," Mills said. "But it does not go so far as Freddie in terms of a rethinking of the entire process. We're very interested in the outcome of the pilot and think it holds promise."While the MBA would like Fannie to consider adding a pilot like Freddie's, the GSE had no plans to pursue one at the time of this writing. Fannie does plan to review any results with the FHFA and consult its regulator about next steps.Meanwhile, the defect notice and other steps aimed at improving risk management in this area for both sides of the loan trade have contributed to a reduction in some repurchase related statistics.Repurchase volumes have been lower than their peak in 2022 but are still above immediate pre-pandemic levels, according to data the MBA analyzed from the Mortgage Bankers Financial Reporting Form, a disclosure government agencies require their counterparties to fill out.The quarterly average for the amount of repurchased or indemnified loans based on the unpaid principal balance was $849,000 when last measured, according to the MBA's recent chart of the week. That third-quarter 2023 number is down from nearly $1.43 million in 1Q22. The average share of originations repurchased in 3Q23, at 0.17%, was down from its peak of 0.29% in 4Q22.Just prior to the pandemic, the average balance of repurchased/indemnified loans rarely rose above $600,000 and 0.12% based on UPB and the percentage of originations, respectively. Closer to the period when the Great Recession occurred, repurchases were higher and reached averages above $700,000 in UPB or 0.31% of originations at times.Meanwhile, Freddie has reported near-term improvement in its numbers around defect or "non-acceptable quality" rates it attributes to collaborative work with all 1,700 of its sellers to reduce loan flaws in other ways outside of the pilot."We peaked on NAQ rate and repurchase notices issued in the first quarter of 2023. So since then, we've been on a downward trend, and now we are flattening out. If you look at where we are, it's an over 60% improvement in both NAQ rates and repurchase notices," Mittal said.If the results of Freddie's pilot are in line with early indications and expectations, it could potentially reduce lender costs for performing loan issues too, he said.In a repurchase, taking a loan back and selling it in the scratch-and-dent market for flawed loans has been costing sellers around 10% to 20% of the loan amount. So if they had a $400,000 mortgage repurchased, they might have to pay $40,000 to $80,000 for just one loan.Sliding scale fees lenders pay in Freddie's pilot based on the percentage of flawed performing loans they have overall instead would be a quarter of one basis point, or .000025%, of their portfolio value in a particular vintage if their quarterly NAQ rate for it is in the 2-5% range.So if a lender delivered $3.75 billion in loans to Freddie in a fiscal period, for example, they could end up paying $93,750 across the entire portfolio for a particular origination year. Lenders interested in the pilot should register their interest with Freddie but understand that it's unlikely to know whether there'll be an opportunity to add other sellers until later this year."We'll know more in Q3 what our path forward is," Mittal said.

A day after targeting the title insurance industry, the Biden Administration has put the rest of the real estate finance process in its crosshairs.On March 8, the Consumer Financial Protection Bureau posted a blog inviting consumers to tell it how "junk fees" in the closing process affect them.While not able to speak to the specifics of the posting, nor about any possible actions the regulator might take, the Community Home Lenders of America "is thrilled that they're jumping into this," Scott Olson, its executive director, said in an interview. "We've actually used this phrase [junk fees] ourselves a couple of years or so ago" he said in regards to click fees lenders are charged by third party vendors, which are passed on to consumers. Others in the industry had a hard time understanding where the CFPB was coming from."The CFPB's blog post is baffling and reveals little understanding of how the mortgage market works or awareness of its own regulations that provide for full fee transparency and limits on what can be charged," Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said in a lengthy statement."The fees mentioned are clearly disclosed to borrowers well before a home purchase on forms developed and prescribed by the Dodd-Frank Act and the CFPB itself," he added, referring to the TILA-RESPA Integrated Disclosures, also known as TRID. One of those disclosures, the loan estimate, is given when the borrower contacts the originator and is supposed to be used to shop.The other form – the closing disclosure presented at the end of the process – must be within certain tolerances of the data provided on the loan estimate."In 2020, the CFPB issued a report praising its own rule for improving consumers' ability to locate key information, compare terms and costs between initial disclosures and final disclosures, and compare terms and costs across mortgage offers," Broeksmit said.But in Olson's view, "transparency is not the same as competition."The CHLA has been supportive of the use of title insurance alternatives like attorney opinion letters, that could reduce costs to borrowers."We think that opening up the line of sight on some of these things is reasonable where there really is not competition," Olson said.CHLA plans to "comment vigorously" to the CFPB, he continued, adding that it has done so regarding competition and fees charges in the not-so-distant past, particularly in regards to the Intercontinental Exchange purchase of Black Knight.As far back as 2003, if not even earlier, the government has had so-called mortgage junk fees in its crosshairs. Mel Martinez, Department of Housing and Urban Development secretary under President George W. Bush, said in a speech before the National Community Reinvestment Coalition almost exactly 11 years ago that members of Congress did not understand that reform proposal would help consumers understand the mortgage process and the costs involved so they don't become "victims" of junk fees and broker abuse.The CFPB, in its recent post, took its own shot at the lender policy portion of title insurance, saying the borrower has no control or options."Instead of paying this fee themselves, lenders make borrowers pay the cost," said the blog posting authored by Julie Margetta Morgan, associate director. "The amount that borrowers pay for lender's title insurance is often much greater than the risk."The CHLA has been supportive of the use of title insurance alternatives like attorney opinion letters, that could reduce costs to borrowers."We think that opening up the line of sight on some of these things is reasonable where there really is not competition," Olson said.The American Land Title Association issued commentary on the CFPB blog."Reform of mortgage closing costs is unnecessary," the ALTA response said. "The contradictory use of the term 'junk fee' conflicts with the White House's own definition, which cites the lack of disclosure of the fee being charged."Credit reports also were specifically mentioned as a problem area in the CFPB posting, claiming the business lacks competition and choice."The CFPB has heard reports of recent costs spiking 25% to as much as 400%," the agency said. "At the same time, we estimate that nationwide credit reporting companies made over $1.3 billion annually."CFPB is also looking for consumer comment on the payment of discount points, although the posting does not distinguish between temporary and permanent rate buydowns."We are paying particular attention to the recent rise in discount points," the posting said. "A higher percentage of borrowers reported paying discount points in 2022 than any other years since this data point was first reported in 2018."The agency said 50.2% of home purchase borrowers paid some discount points in 2022, with the median dollar amount being $2,370, up from 32.1% and $1,225 one year earlier.

Consumer sentiment regarding home prices will play an important role in who Americans choose for president in 2024, according to new research from Redfin.More than half of U.S. households — 53.2% —  said their election decision will be influenced by housing affordability, the online real estate brokerage determined in a February survey. Among that group, 17.9% completely agreed that affordability would affect their choice, while 35.3% somewhat concurred.  The results point to the significant extent current housing market challenges are impacting the American public, as interest rates, rising prices and limited availability all make homeownership more difficult to achieve, said Redfin Chief Economist Daryl Fairweather."While the economy is strong on paper, a lot of families aren't feeling the benefits because they're struggling to afford the house they want or already live in. As a result, many feel stuck, unable to make their desired moves and life upgrades," she said in a press release.The Redfin-commissioned research was conducted by Qualtrics, which surveyed approximately 3,000 U.S. homeowners and renters.At the other end of the scale, though, 19.9% of survey respondents said housing affordability had no sway over their presidential election decision-making, while another 26.9% also disagreed with the view, but to a lesser degree.   But whether or not they think home prices will ultimately affect their vote, 64.2% of respondents said the lack of affordability made them feel negative about the economy, running counter to monthly reports that generally point to a strong national post-pandemic recovery.In his State of the Union remarks last week, President Biden appeared to recognize how housing challenges might tax consumers in 2024. His speech included several proposals aimed at improving affordability, including tax credits and buyer and seller incentives, as well as an announcement of a pilot to eliminate title insurance requirements for some refinances. He also reiterated plans for expanding U.S. housing supply, which would go furthest in addressing current challenges, Fairweather said. "If 2 million homes are actually built over the next several years like President Biden is proposing, that's where the rubber will meet the road in addressing housing affordability."While critical of some components of the president's proposals, the National Association of Realtors welcomed his supply goals. "The administration's increasing focus on housing production, however, signals a positive turn, as the housing shortage is the root of our affordability crisis," said NAR President Kevin Sears.