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In an otherwise bad period for originations, home purchase mortgages made to first-time home buyers made up more than half of the agency securitization issuances — those from Fannie Mae, Freddie Mac and Ginnie Mae — last year, according to Intercontinental Exchange.This is the highest share in the 10 years that ICE and predecessor organization Black Knight has tracked this data, the March Mortgage Monitor said."Looking back, last year's market was dominated by purchase lending, with loans to buy homes making up 82% of a historically low number of originations," said Andy Waldon, ICE vice president of enterprise research strategy, in a press release. "While it remains a tough market for prospective purchasers, our eMBS agency securities database revealed that first-time homebuyers actually made up 55% of all agency purchase mortgages last year."Only two periods since 1995 have had fewer than 1 million first-lien loans originated — the first and last quarters of 2023, he said.A separate report from Attom Data Solutions, which is broader in scope because it includes home equity lending, found 1.35 million units produced for one-to-four family residential properties. That was down compared with 1.56 million units in the third quarter and 1.61 million units in the fourth quarter of 2022."Multiple powerful forces continued to conspire against the mortgage industry during the fourth quarter, slicing back huge portions of their business," said Rob Barber, Attom's CEO, in its press release.With interest rates flat for much of the first quarter, Barber saw some of the same signs that appeared during the peak buying season in 2022, with increases in purchase, refinance and home equity line of credit lending."But the fourth-quarter numbers revealed continued gloomy times for lenders, no matter how you sliced the pie," Barber said.The first-time home buyer market cut through that gloom, but that large share also has some concerns of its own, Walden said.First-time buyers made up 39% of all government-sponsored enterprise deals in 2023, 12 percentage points higher than any other vintage in the past decade."The market in which these folks purchased their first home was one of record house prices, ballooning down payments, rising rates and elevated [debt-to-income ratios]," said Walden. "Given record exposure to first-time home buyer loans, it'll be worth watching the performance of this cohort very closely moving forward, particularly for those invested in 2023 agency MBS."Ginnie Mae MBS issuances involving first-time home buyers had a 52% share, which ICE said was also a record.Overall, three-quarters of total 2024 volume is likely to be from purchases, but Walden pointed to a 19% increase in refinance activity in January as a positive sign.According to Optimal Blue (sold by Black Knight as a condition of its acquisition by ICE), January saw a 30% increase in cash-out refi rate locks and a 20% rise for their rate and term cousins. But that was still a small share of the market, just 17%, the Optimal Blue data reported."We noted last month that if industry rate projections hold firm, we could see a mini surge of refi activity around the 2023 vintage by the end of 2024," Walden said. "Even the relatively slight rate pullbacks of December and January spurred a growing number of homeowners to refinance."But servicers are doing a poor job of recapturing those refinancing borrowers, he continued, stating that they kept just one of every five such customers in Q4 2024, a 17-year low.Nonbank servicers did a better job, with a retention rate of 27%, while banks retained only one in 10, ICE said."Providing an exemplary servicing experience is critical to reversing this trend, as is effectively identifying and engaging with customers likely to refinance," Walden said. "When they have the opportunity to serve that customer, lenders need to be sure the front-end of the process is smooth as well."ICE's own data found the time from when the borrower locks the rate to when the loan closed reached a four-and-one-half year low in January."In addition to enhancing the consumer experience, that also reduces hedging timelines," Walden said. "Those dynamics are tied tightly to the rate environment and can turn on a dime. Should rates fall, and the market shifts more heavily to refis, hedging times could increase as well — raising associated hedge duration risk."

Ginnie Mae is directing all issuers to report cybersecurity incidents promptly when they occur and noted that it's more broadly reviewing its protocols in this area.The government mortgage-backed securities guarantor said in an all-participants memorandum that it needs incidents reported within 48 hours and has specific instructions for subservicers, who must report when a concern affects one or more of their clients. Ginnie has set up an email for notification at Ginnie_Mae_Cybersecurity_Incident@hud.gov. Issuers must provide the time and date of the concern, a summary based on the most current information known and a designated point of contact prepared for follow-up inquiries."Prompt and clear communication is critical to managing cybersecurity events as they unfold. This new requirement is an important step in further enhancing our cybersecurity framework to meet current and future needs," said Ginnie Mae President Alanna McCargo in a press release.Ginnie is particularly concerned about incidents that have "the potential to directly or indirectly impact that issuer's ability to meet its obligations under the terms of the guaranty agreement."It defines a cybersecurity incident as "any unauthorized access to, or use, disclosure, alternation, transfer, or destruction of confidential information or nonpublic personal information."Ginnie has previously issued some ad hoc notifications about incidents, such as one issued late last year noting that a cyberattack at Mr. Cooper and a related temporary system shutdown affected some loan-pool factor calculations.Multiple servicers have been bedeviled by cyberattacks and nonbanks in particular are facing growing responsibility to report larger ones under Federal Trade Commission rules set to go into effect on April 27. The FTC's rule will require notification within 30 days of awareness of a breach if unauthorized parties gain access to unencrypted data from 500 or more people.Some mortgage companies have been pushing back against the degree of public disclosure of these incidents in court after facing a wave of cybersecurity-related litigation. Recently, Bayview Asset Management and some of its servicing subsidiaries challenged some plaintiffs' disclosures in such a lawsuit on the basis that it contained information the two parties had agreed earlier would be protected and confidential.Other mortgage-related companies that recently have reported cybersecurity incidents and faced litigations include Fidelity National Financial, Loandepot, Keybank and Flagstar (the latter of which is now owned by New York Community Bank.)Ginnie Mae guarantees payments to MBS investors from mortgages in collateral pools, which other government agencies such as the Federal Housing Administration or the Department of Veterans Affairs provide some backing for at the loan levels. The FHA and Ginnie are both arms of the Department of Housing and Urban Development.The VA has been working to improve its general cybersecurity since information from 46,000 people accessing its systems for healthcare-related reasons was exposed in a cyberattack back in 2020. That incident led to the Strengthening VA Cybersecurity Act of 2022.The Government Accountability Office has issued a series of cybersecurity recommendations to the VA in recent years that the department has made some progress on implementing, according to a report last year.

While in service industries like mortgage lending a lot of attention is paid to providing a strong customer experience, many of this year's Best Mortgage Companies to Work for put an emphasis on employee engagement.That is important especially after issues around profitability and capacity resulted in massive consolidation during 2023 and to this day.Those conditions contributed to just 33 companies appearing on this year's listing, as opposed to 48 for 2023.READ ALSO: Best Mortgage Companies to Work For 2023 This ranking is a partnership between National Mortgage News and the Best Companies Group, which conducts extensive employee surveys and reviews employer reports on benefits and policies. The employee survey covers eight topics: leadership and planning; corporate culture and communications; role satisfaction; work environment; relationship with supervisor; training, development and resources; pay and benefits; and overall engagement. Once the survey data is analyzed, the companies get a score that decides their ranking. The overall score is calculated using the employee survey (weighed at 75%) and the employer questionnaire (25%). To qualify for consideration, organizations with 25 or more employees need a minimum response rate of 40% while companies with 25 or fewer employees need 80%.SEE ALSO: Best Mortgage Companies to Work For 2022The survey addressed several topics, including overall engagement the staff had with the management of the companies that employed them. The positive response rate to the statement, "I am willing to give extra effort to help this organization succeed" was 97% for lenders of all sizes that made the list.But that was down from 98% in 2023. The overall engagement score of 93% was a 3 percentage point decline from the prior year. Yet in speaking with several companies on the list, as well as reviewing some survey responses from the lenders themselves, engagement is what helped them to power through what many consider to be an all-time bad year for home lending.SEE ALSO: Best Mortgage Companies to Work For 2021

Three servicers in a data breach lawsuit are seeking to block a filing from plaintiffs the firms say shares too many confidential details about the incident. Bayview Asset Management and its servicing subsidiaries filed their objection February 28 in federal court, the latest turn in a case centering on a data breach. Dozens of plaintiffs want to enforce a bevy of cybersecurity measures at the firms, while also receiving damages, for the hack in late 2021, which compromised the sensitive data of over 5 million consumers. A judge in December gutted all but one of their claims.A proposed amended complaint, filed by plaintiffs in January, reveals more details around the cyber attack and Bayview's response. Impacted consumers suggest Bayview failed to follow industry-standard data security precautions. The 225-page filing features numerous redacted portions of information gleaned from confidential discovery, text hinting at details not usually disclosed in similar lawsuits across the industry. "The proposed amended complaint is replete with unnecessary and out-of-context quotes from dozens of confidential documents and, thus, violates the protective order," wrote attorneys for Bayview, referencing an earlier agreement to keep sensitive information out of public view.The servicers are Community Loan Servicing, Lakeview Loan Servicing and Pingora Loan Servicing. A representative for Bayview and lawyers for both sides didn't respond to requests for comment on March 1. Bayview is accused of failing to encrypt personally identifiable information; neglecting to delete it after it was no longer needed; the information stored it in a vulnerable, internet-accessible environment, according to plaintiffs. The firm also allegedly failed to test its systems for Cobalt Strike, a cybersecurity tool used by both professionals and bad actors and by the purported Bayview perpetrator.The proposed filing continually references discovery documents, with paragraphs beginning to discuss the company's internal cybersecurity discussions and protocols before redacted text follows. "Internal documents reveal a classic instance of "group think" and organizational inertia," the proposed complaint states.Other public case filings from the past few months offer more clues into the incident, in which a hacker was reportedly in the servicers' systems for 41 days uninterrupted. A witness, in one deposition excerpt, confirmed to an attorney the "root cause" of the attack stemmed from an employee clicking a link in a work-related search result. A different witness in the same public excerpt said the perpetrator was never clearly identified. Other documents identify the cybersecurity businesses Bayview worked with over the course of the incident. The Mutlistate Mortgage Committee, made up of state mortgage regulators, requested post-breach reports from cybersecurity companies Mandiant and Protiviti, another filing states.Bayview's latest motion also asks a federal judge to reject plaintiffs' attempt to add five more affected customers and additional claims to the lawsuit after agreed-upon deadlines to do so. Counsel for Bayview say a new breach of contract claim, which alludes to alleged data security agreements in mortgage servicing rights deals, is unfounded."Plaintiffs' allegation that these complex, multi-million dollar transactions are accomplished through 'standard agreements' is not remotely plausible," they wrote. The sides are meanwhile arguing in opposing motions over a subpoena for a third party technology firm which worked with Bayview through the incident. A jury trial date in the case has not been scheduled; a judge last year canceled the previous July 2024 schedule.The Bayview case offers one of the more detailed looks into post-breach litigation amid a spate of class action complaints against mortgage firms reeling from major attacks. Lawsuits against KeyBank and Flagstar Bank over their respective incidents remain pending. Other legal action has been filed recently against firms disclosing attacks in the past few months including Loandepot, Mr. Cooper and Fidelity National Financial.

Tough market conditions have continued to weigh on lenders, as a result, rightsizing and consolidation have continued.Both Rocket Mortgage and Academy Mortgage, the latter of which will soon to be acquired by Guild Mortgage, revealed headcount reductions recently. Rocket Mortgage, one of the biggest retail lenders in the nation, saw its workforce shrink by about 20%, or 3,800 employees, from 2022 to the end of 2023, the company revealed in a filing with the Securities and Exchange Commission on Feb. 29.As of December 2023, the Detroit-based lender had close to 14,700 team members based in the U.S. and Canada, down from 18,500 team members at the end of 2022 and 26,000 employees in 2021. A spokeswoman for the lender pointed to a challenging market in 2023 as the reason for the headcount drop."In order to right-size our business to fit the current market, we offered a voluntary career transition program to select groups within the organization, providing significant cash incentives, extended healthcare and other support to those who chose to participate," Rocket's spokeswoman added. In July 2023, Rocket offered voluntary buyouts to an undisclosed number of employees; it also rightsized its marketing department half a year prior.Most recently, the lender announced it is closing its Rocket Pro Originate business, which sponsors real estate agents and other financial services professionals to help customers obtain mortgages. The announcement follows Rocket's fourth quarter earnings report, in which it posted a $233 million net loss, but an adjusted net loss of $6 million. The lender and servicer said its prowess in artificial intelligence is giving it an edge in origination efficiency. Academy, which will be integrated as a division of Guild by the end of March, let go of 250 employees, a WARN notice filed in Utah Feb. 28 shows. The layoff will go into effect March 15 and will most likely impact employees in operations.In an earlier interview, CEO of Guild Terry Schmidt, said the acquisition would bring over a little more than 800 loan officers and related sales, fulfillment and support staff."We really want to make sure that they keep their origination platform together and all of the loan officers that have local processing, funding and underwriting that support them," Schmidt said. "There's some redundancies in certain positions, it's pretty standard, but you know, although everybody in the organization is important, those final decisions really are more on the Academy side as far as how the redundancies and how that's handled."

Loan Factory is being accused of violating state privacy laws by using images of loan officers not affiliated with the company on its website. By doing so, the mortgage brokerage created the illusion that certain brokers were part of the organization, which drove traffic to Loan Factory's page and resulted in business, the suit filed in California said.The proposed class action, filed by Derek Daniel Bobadilla, a mortgage broker, accuses Loan Factory of including his name, photograph, likeness and personal information in its "Find a Loan Officer" page. This created an "unfair and fraudulent" impression that Bobadilla was associated with the organization, when in reality he was not, the lawsuit said. Bobadilla argues that he did not give consent for his image to be used on Loan Factory's website. He wants any monies the defendant earned through this exploitative practice to be divided between him and potential class members, the suit states.Loan Factory's CEO Thuan Nguyen responded Friday he was unaware of the litigation.The plaintiff claims he discovered his profile in the summer of 2023 "despite Plaintiff and the Class Members having no relationship with Loan Factory, and that individuals attempting to search for Plaintiff or Class Members on the internet would be automatically directed to Loan Factory's website."Additionally, the suit claims the defendant utilized search engine optimization and advertising, which directed a Google search of Bobadilla's name to Loan Factory's website."Loan Factory has injured Plaintiff and the Class by taking intellectual property without compensation, by unlawfully profiting from its exploitation of personal information via a scheme involving fraud and trickery—holding out the Plaintiff's and the Class' names, images, likenesses, and personal information as though such individuals were affiliated with Loan Factory," the suit said.The mortgage broker is asking the court to certify his proposed class action and issue injunctive relief preventing Loan Factory from continuing to operate its website without appropriate safeguards.As of March 1, the "Find a Loan Officer" page seems to only display Loan Factory- affiliated brokers.Per its website, Loan Factory, licensed in 48 states, claims to have closed almost $12 billion worth of loans. Its founder and CEO, Nguyen, was the top originator of 2022, cranking out a little over $2.4 billion in volume, according to National Mortgage News' Top Producers Survey.

The March 2023 banking crisis will be remembered for three major bank failures, the demise of a fourth bank tied to cryptocurrency and more than $35.5 billion in losses to the Federal Deposit Insurance Corp. Yet one entity that came under scrutiny for lending billions to failed banks last year also reaped billions in profits from the regional bank crisis, a dichotomy that has critics up in arms. The Federal Home Loan Bank System earned $6.7 billion at year-end, a 111% jump from a year earlier. The system also paid out a record $3.4 billion in dividends to its members, more than double the $1.4 billion paid in 2022.Critics are pointing to the system's combined operating highlights, released last month, to raise fresh concerns about whether the Home Loan banks are providing a public benefit that is commensurate with the profits paid to members. "Numbers don't lie," said Sharon Cornelissen, director of housing for the Consumer Federation of America, who chairs the nonprofit Coalition for FHLB Reform, a group of academics, housing advocates, regulators and Home Loan bank alumni seeking to reform the 91-year-old system. "The numbers show that the Home Loan banks continue to prioritize the profitability of their members over their mission of promoting affordable housing."Each of the 11 regional Home Loan banks is required by statute to give 10% of earnings to affordable housing, an assessment that comes to $752 million for 2024. The banks expect to contribute roughly $1 billion toward its Affordable Housing Program and voluntary programs in 2024, a spokesman said. The amount paid to affordable housing rises and falls based on the system's profitability."Dividends are reflective not only of the extent to which members rely on the liquidity we provide, which expands and contracts based on member needs; they represent a return on investment that our members pour back into housing finance and other financial services for their local communities," Ryan Donovan, president and CEO of the Council of Federal Home Loan Banks, said in a statement.The collapses of Silicon Valley Bank, Signature Bank, First Republic Bank and Silvergate Bank called into question the dual role of the Home Loan banks in providing liquidity to their members while also supporting housing. The Federal Housing Finance Agency, the system's regulator, was already conducting a 100-year review of the system when the deposit run on Silicon Valley Bank sparked a liquidity crisis that spread last March across the entire banking system.Many experts are waiting for the FHFA to make its next move toward reforms by releasing an expected rule that would define the system's mission, which has become the subject of much debate. In November, the FHFA released a report with 50 recommendations for reform. FHFA Director Sandra Thompson has said that maintaining the status quo "is not acceptable."Dividends have received renewed focus after the Yale School of Management's Program on Financial Stability released a report in January that recommended redirecting the system's dividends toward housing and away from what its researchers called "subsidized borrowing" for banks. Steven Kelly, an associate director of research at Yale's Program on Financial Stability, said the Home Loan banks' dividend practices should be better aligned with the system's housing goals. The Home Loan banks have a unique structure of both membership and activity-based stock. Members are required to hold nominal amounts of stock but when a bank member taps the system for advances, the loan is used to purchase additional stock, typically 4% to 5% of the loan amount. "The dividends reward process would be an easy prong to refocus on affordable housing," Kelly said. In the past year, the Federal Home Loan Bank of New York raised its dividend to 9.75%, the highest among the 11 banks, followed by Federal Home Loan Bank of Topeka at 9.5%. The Topeka bank garnered attention recently after lending $21 million to Heartland Tri-State Bank, in Elkhart, Kansas, whose former CEO Shan Hanes was indicted for allegedly embezzling funds last year to buy cryptocurrency. Heartland, which failed in July 2023, provides yet another example of troubled banks tapping the system prior to collapsing. "Most [Home Loan banks] pay a much higher dividend on activity stock because they want to encourage members to borrow more," said Peter Knight, a former director of government relations for nearly 20 years at the Federal Home Loan Bank of Pittsburgh, who is also a member of the Coalition for FHLB Reform. There is little public data on the interest rates the Home Loan banks charge and whether the rates on advances are comparable to — or cheaper than — borrowing from the Federal Reserve's discount window, which has become an issue in the larger debate about reforming the system. Knight noted that in February, the Federal Home Loan Bank of Chicago touted its higher dividends for helping its members lower their borrowing costs.  "The net benefit of the higher dividend received on Class B1 activity stock has the effect of lowering your borrowing costs from us," the Chicago bank said in a press release. "This benefit is estimated to be a 14.9 bps interest rate reduction."The Home Loan banks are a government-sponsored enterprise whose debt receives an implicit government guarantee. Some critics say that more of the system's profits should go toward its housing mission because the banks receive cheap funding from the implied guarantee that the government would step in in the event of a default. "The FHLBs are getting this advantage by being able to issue debt that is treated as government debt, and then go out and do risky things with it," said Kelly. "To transform something that's risky, namely lending to banks on the asset side, into something that's risk-free, namely government-backed liabilities on the liability side, is a significant advantage."The system says that any effort to change dividends would have an impact on the ability of community banks to tap the system's low-cost funding to make payroll, smooth out earnings and stay in business. "Without these dividends — which is the only return on the capital paid in by our members — many local community lenders would not be able to provide mortgages and small-business loans in thousands of communities across the country," Donovan said.

While housing supply might be increasing, home prices still rose at an unsustainable pace in over 90% of markets during the third quarter last year, according to a new report from Fitch Ratings.On average, home prices were overvalued by 11.1% across the country, increasing from 9.4% three months earlier. Over 91% of metropolitan areas in the U.S. could be considered overvalued at the end of September, up from 88% in the second quarter, Fitch's sustainable home price report said. Rising property values are the primary factor resulting in any unsustainable pace of growth, as other economic signs showed greater stability. The ratings agency examines changes in the Corelogic Case-Shiller home price index against a backdrop of data, including rent, employment, mortgage rates, income and household growth in determining the sustainability of housing markets.The increase in the share of overpriced markets occurred, even as supply showed hints of slowly returning. But inventory still has not come close to meeting demand that would quickly swing the affordability needle.  A recent uptick in new home listings "suggests a slow move toward a more fluid market, yet the supply of homes for sale remains tight, indicating the market is unfreezing at a gradual pace," wrote report authors Iris Xie and Sean Park. Interest rates still higher than recent norms are also an obstacle in the path toward greater affordability.Among the total set of overvalued markets, 58% exceeded Fitch's benchmark by 10% or more. Winston-Salem, North Carolina; Memphis, Tennessee, and McAllen, Texas, were deemed the most overvalued metropolitan areas in the country. Narrowed to the 50 largest cities, Memphis topped the list, followed by Buffalo, New York; Milwaukee and Indianapolis, all of which were overvalued by at least 20%.On the other end, Fitch found only six cities with sustainable price increases: Cleveland, Denver, Los Angeles, Dallas-Fort Worth, Miami and Detroit. Measuring home prices by state, South Carolina, where values grew 6.6%, was the lone jurisdiction overvalued by more than 20%. Colorado, North Dakota, Michigan and Louisiana were considered sustainable. Fitch forecasts home price appreciation to slow nationally to under 3% this year, after rising 5.5% by the end of 2023. "This forecast is based on the interplay between multiple factors, such as affordability challenges and a tight supply of homes, with the latter the more dominant factor in sustaining positive home price growth," the report said. At the same time, real estate brokerage Redfin observed the largest annual surge of new listings coming to market in the first weeks of 2024. Volumes, though, are coming off of low 2023 numbers, and greater inventory has garnered interest but not immediately turned into sales, as some buyers take a wait-and-see approach.Elsewhere in Fitch's analysis, research found a consistent unemployment rate and payroll growth leading to a rise in consumer confidence. The jobs data should support housing demand, Xie and Park said. Fannie Mae's recent measure of home purchase sentiment also points to likely buyer interest.  The report also showed the share of income needed for a monthly mortgage payment versus rent prices narrowing thanks to recent downward moves in mortgage rates. Should it continue, the trend could lead to "a more balanced dynamic between renting and buying."

Many senior homeowners polled for a Fannie Mae study said they will not tap their equity in order to support their retirement income, even though they want to remain in their property.Just 15% of respondents would consider using their home's equity for additional funds during retirement, while another 43% said maybe. But 41% declared they would absolutely not use their residence for income, Fannie Mae Chief Economist Doug Duncan wrote in a post on the study published this month.The government-sponsored enterprise got responses from 1,141 homeowners aged 60 or older, with approximately two-thirds who were already retired in the survey. The majority of those still working planned to retire in the next five years.An additional group of 307 economically disadvantaged older homeowners with lower incomes, retirement assets and savings were also surveyed.Duncan previously hinted at the findings in a meeting with National Mortgage News in January, discussing a similar survey by Leaf Home and Morning Consult. That survey, along with previous research from Freddie Mac as well as others going back to 2009, indicated the majority of seniors desire to age in place, that is to live in their current property for the long-term.In the Fannie Mae study, 56% of the main sample said they would never sell, and an additional 27% are considering it. Only 17% have or definitely will sell their current property.As to using their home as a source of income, the economically disadvantaged group had a similar split among the three responses."For both groups, the top reasons for not using their home's equity included: not needing extra funds during retirement; and not wanting to owe the bank anything and/or wanting to own their home free and clear," Duncan wrote.Sixty-one percent of respondents disagreed or strongly disagreed with the statement "I don't mind having a mortgage payment during retirement." Another 23% neither agreed or disagreed.When asked about specific financing product to generate additional cash or income if needed, one-third of the respondents claimed they would sell their home, followed by 31% that would take out a small amount of equity that would be repaid, 26% would obtain a home improvement loan, while 25% would get a home equity line of credit.Just 20% said they were likely or very likely to do a cash-out refinance. Renting out a room or apartment to a family member got a 16% positive response, although doing the same thing through a service like Airbnb was seen as likely by just 7%.Reverse mortgages were not a popular option among the respondents, at 14%. But they did get a better response among the economically disadvantaged sample, with 20% stating they were likely or very likely to take out this form of loan.When asked if they have or would like an easy way to tap their home equity, 35% of the economically disadvantaged respondents gave a positive reaction, 33% disagreed and 31% were neutral.Even though the product has been in the market for several decades, many people still have misperceptions about how a reverse mortgage works, said Steve Irwin, the president of the National Reverse Mortgage Lenders Association. Furthermore, a reverse mortgage is not a tool for everybody to utilize, but in the right situation, it is a safe and effective product."What we do know is that there's over $12 trillion dollars in accumulated home equity for senior homeowners," Irwin said. "And that home equity is an absolutely critical resource and can be an integral part of any retirees' retirement funding strategy."The vast majority of reverse mortgages are insured by the Federal Housing Administration, although some private label products exist. Fannie Mae at one point in time offered a conforming version but that product was discontinued many years ago."It's important for people to understand that retirees can experience extremely volatile cash flows," Irwin said. "But leveraging home equity is going to continue to become a more and more critical component of retirement planning and financing because there could always be shocks to the streams of income that a person may have established through retirement accounts, or pensions, etc."

The growth of the federal budget deficit under President Joe Biden now threatens to "crowd out" the capital needs of the housing sector and many other private borrowers. Most Americans are surprised to learn that home prices in specific pockets around the world have been falling for more than a year. China's property market has lost more than a third of its value since COVID ended. Yet there remains a narrative about strong home price inflation for most nations. The Bank for International Settlements noted in November: "Despite their recent fall, global real residential prices remain well above their pre-Covid-19 pandemic levels (by 6% in aggregate)." BIS continues: "Compared with Q4 2019, they have increased by almost 160% in Turkey, close to 20% in the United States, and 15% in Japan. In contrast, real prices have fallen by 8% in Brazil and 7% in both India and South Africa."As the world tries to find the bottom of sagging home prices, valuations in much of the U.S. continue to rise. Markets such as San Francisco are showing price declines because of the disaster brought to that city by progressive misgovernance. Yet despite several years of higher interest rates, care of the Federal Open Market Committee, strong home price inflation remains the rule in most of the U.S. One way to display the relationship between home prices and loan defaults is the Basel I concept known as loss given default (LGD). In the case of $2.5 trillion in prime loans owned by U.S. banks, LGD for residential loans was still slightly negative in Q3 2023. The negative loss post default on bank residential loans means the proceeds of the foreclosure were sufficient to pay off the loan and actually leave a surplus. That is not normal, folks. But losses on $500 billion in bank-owned multifamily loans, by comparison, were close to 100% of the original principal balance. What's going on?  Very simply, the inflation injected into the U.S. economy by the Fed before and during COVID has caused a massive and, for now, permanent increase in residential home prices. The financial bubble, however, affects both residential and commercial properties alike. One reason why you see the big-percentage losses being reported on urban office properties is inflation. Yet, conversely, higher prices for prime residential homes mean lower or even no losses if a loan defaults. As the home price appreciates, the loan-to-value ratio falls. How long will U.S. home prices remain inflated? If you talk to some of the smarter operators in the U.S industry, they see the following scenario:The Fed will eventually cut short-term interest rates, relieving pressure on lenders from high warehouse funding costs. A short boom in residential lending volumes will ensue and home prices will go even higher. Then market exhaustion and new home supply will finally arrive, and home prices will correct back down near 2020 levels. At least that's how things have worked in past economic slowdowns. The big change in the forward economic equation is the burgeoning federal budget deficit, the one subject that nobody in Washington wants to discuss. Even as Congress heads for the latest debt ceiling showdown deadline, the real issue is servicing the federal debt. "How did you go bankrupt?" Ernest Hemingway asked in The Sun Also Rises. "Two ways. Gradually, then suddenly."The "lower interest rates soon" gospel has become an article of faith for struggling mortgage bankers, especially those who prefer gain-on-sale to retaining servicing assets. Firms like United Wholesale Mortgage are selling servicing assets to subsidize the purchase of new loans at prices well above the market. Rocket Mortgage likewise reported losses even as it grew market share via various incentives for borrowers.The big change for mortgage bankers, however, is that the pressure from Treasury borrowing may prevent long-term interest rates from falling. The "old" post-2008 pattern of falling short-term rates followed by a sustained bond market rally may not materialize in the future, dashing a lot of hopes for future profitability. The normalization of the yield curve is the more likely scenario. What is normal? Normal is the Fed funds rate closer to 4% than 5.5% presently, but 10-year Treasury yields could be closer to 6%. Or a spread between two-year and 10-year Treasury notes over 150bp. Note that TED was driven 1% negative during the Fed's QE madness in '20-'21. TED was 280bp in 2010. It's been almost fifteen years since the bond market had a normal yield curve, but today is anything but normal. The growth of the federal budget deficit under President Joe Biden now threatens to "crowd out" the capital needs of the housing sector and many other private borrowers. The idea of "crowding out" as an economic concept fell out of favor during the age of benevolence from 2008 through 2020. At the least, the Treasury deficit increases the cost of credit for all and adds to bond market volatility. Now with the Treasury raising close to $1 trillion per quarter to finance the government's cash needs, the situation is becoming absurd.As the remaining funds and banks parked at the Fed's Reverse Repurchase Facility flow back into T-bills and other assets, the massive movement of cash in and out the Treasury General Account will boost market volatility. As the Treasury's vast General Account grows and subsides each quarter, banks, dealers and private investors in the short-term credit markets will be dragged along. President Biden and Treasury Secretary Yellen never talk about the budget deficit. Former President Donald Trump doesn't evince any worry about budget deficits either. Only after JP Morgan Chase CEO Jamie Dimon warned of a bond market 'rebellion' against the $34 trillion national debt did Fed Chairman Jerome Powell respond, saying that it's past time for an 'adult conversation' about unsustainable fiscal policy.  Talking in public about the Federal budget deficit is not yet fashionable in Washington, but this will change. We expect the Treasury yield curve to normalize and 30-year mortgage rates to stay elevated or even track higher. Until Congress addresses the federal deficit, the tendency will be for higher long-term interest rates regardless of what the Fed does with the short end of the yield curve. "Mortgage rates are back up to nearly 7%," BTIG noted this week. "Rates have risen 30 basis points since year-end, while the 10-year Treasury yield is up 35 bps." In addition to questions about the long end of the Treasury market, banks continue to be net sellers of mortgage exposures to raise cash. Mortgage coupon spreads over the 10-year Treasury are likewise near the widest levels going back decades. Think of a mortgage market with a TED spread back out to 1-2% within a year.  Imagine a mortgage market when we assume 7 to 8% mortgage rates for years to come. With SOFR below 5% by next year, as the forward swaps suggest, at least the few surviving mortgage lenders will be making money again. Maybe United Wholesale and Rocket will start to behave like adults again. Despite hopes for lower interest rates, we may be living in a market with 7s and 8s instead of the 5% loan coupons weary mortgage bankers dream about. In this dystopian future, issuers' long-held mortgage servicing assets will thrive, but the persistent sellers of servicing will taste bitter tears. Those buy-down loans that you can't refinance will be very expensive indeed.