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Mortgage applications come in higher for second week

June 19th, 2024|

Mortgage application activity increased for the second week in a row, inching up thanks to elevated purchase demand. The Mortgage Bankers Association's Market Composite Index, a measure of loan application volume based on surveys of the trade group's members, rose a seasonally adjusted 0.9% for the weekly period ending June 14. Borrowing activity decelerated, though, from the prior week's 15.6% surge. On a year-over-year basis, the index came in flat, with growth of 0.3%. The lowest interest rates in over two months helped nudge volumes to a weekly gain. The conforming 30-year fixed rate among MBA lenders fell 8 basis points to 6.94% from 7.02%. Balances below the conforming amount make them eligible for sale to the government-sponsored enterprises.  Meanwhile, points used to help buy down the 30-year rate edged down to 0.61 from 0.65 for 80% loan-to-value ratio applications. The downward rate trend came the same week as inflation data and the latest Federal Open Market Committee meeting both pointed to possible relief for borrowers later this year. Post-meeting sentiment likely helped bring some buyers to the borrowing table, with the seasonally adjusted Purchase Index increasing 1.6% from the previous weekly survey. Activity slowed, though, from the 8.6% jump reported seven days earlier. "Purchase applications increased a small amount for the week, led by applications for conventional loans," said Mike Fratantoni, MBA senior vice president and chief economist, in a press release. Despite higher levels for purchases two weeks in a row, the number of applications declined 11.8% from a year ago, "but MBA is forecasting a pickup in home sales for the remainder of the year as more inventory is hitting the market," Fratantoni said.Lenders and sellers would welcome the activity, but recent signs of a pick-up in housing supply has, as of yet, not resulted in sustained sales growth or lower prices across the country. In May, the housing market saw one of the slowest months for sales in the past decade, according to Redfin. Data at the real estate brokerage showed only two other months with fewer sales.  "Sales are sluggish because high home buying costs are making both house hunters and prospective sellers skittish," said Redfin senior economist Elijah de la Campa. "And with so few homes for sale, buyers in some markets are getting into bidding wars, which is helping push home prices to record highs."The trends mean some homes are currently sitting on the market for weeks longer than they were just a year or two ago. The median length of time properties stayed on the market in May was 32 days, Redfin said. While purchase applications squeezed out a gain last week, the MBA's Refinance Index slipped 0.4%, coming off a 28.4% leap seven days earlier. But refinance application volumes were still 30% higher from a year ago, when a majority of homeowners held loans with interest rates below levels at the time. The share of refinances relative to overall activity was unchanged at 35.2%. Adjustable-rate mortgages for purchases and refinances garnered 6% of all applications, dropping from 6.3% the previous week. Borrowers typically show less interest in ARMs when fixed rates fall..While federally sponsored lending helped drive activity a week earlier, applications flattened in the latest survey. The seasonally adjusted Government Index ticked up 0.1%, while overall share declined.Federal Housing Administration-guaranteed mortgages saw a smaller share 12.7% of activity compared to the previous week's 13.1%. But applications backed by the Department of Veterans Affairs nabbed 14.8%, up from 14.7%, while loans coming through the U.S. Department of Agriculture made up the same 0.4% slice from the week prior. Average mortgage rates dropped across all categories tracked by the MBA. The 30-year fixed-rate jumbo mortgage averaged 7.12%, dclining from 7.18% a week earlier. Points used for 80% LTV-ratio loans fell to 0.48 from 0.54. The 30-year contract fixed rate for an FHA-backed mortgage averaged 6.79% compared to 6.87% in the previous survey. Points edged up to 0.93 from 0.92.The average fixed  rate for 15-year loans came in at 6.47%, 13 basis points below its previous mark of 6.6%. Borrowers used 0.6 worth of points compared to 0.55 seven days prior.At the same time, the 5/1 adjustable-rate mortgage, which begins with a fixed 60-month term, took an 18 basis point fall from the previous survey period to 6.27% from 6.45%. Points came in at 0.96, rising from 0.81. 

FHA seeks to increase lender liability for third-party fraud

June 18th, 2024|

The Federal Housing Administration is looking to update the defect taxonomy it uses to assess loan quality with a stricter stance on material misrepresentations and fraud by third-party originators.Currently, loans that the FHA insures which have these issues can either be categorized as Tier 4 severity issues that lenders "did not know and could not have known" about, or Tier 1 concerns that funders "knew or should have known about." The FHA has been determining whether an issue fits into the latter category based on whether one of its employees was involved or whether there were red flags in the loan file that should have been caught in underwriting.Under the drafted change, sponsored TPOs connected with evidence of fraud or material misrepresentation also will be included in the Tier 1 category regardless of whether or not there were specific red flags. FHA will seek life-of-loan indemnification from lenders in this instance.The FHA will accept feedback on the draft policy with implications for lenders who buy closed loans from correspondents or source them via brokers through June 24. It plans to publish a final mortgagee letter thereafter.Mortgage and housing groups contacted by this publication didn't immediately voice a concern about the potential update to the defect taxonomy and were generally still reviewing it at press time."The CHLA is supportive of what this provision would do, which is hold lenders responsible for fraud and misrepresentation with respect to third-party originators," said Scott Olson, executive director of the Community Home Lenders of America, sharing his initial impressions of it.Although there was some initial skepticism of the defect taxonomy's limits when it was introduced in 2015, the industry has generally found it helpful to have a framework for how the FHA views loan defects that can occur at origination and lead to performance issues later.In addition to establishing an origination defect taxonomy, the Department of Housing and Development agency has proposed setting up a similar framework for servicing.

The Supreme Court may soon defang bank regulators — especially the CFPB

June 18th, 2024|

An upcoming Supreme Court decision has big implications for various federal agencies, but especially for the 13-year-old Consumer Financial Protection Bureau.Bloomberg In its 13-year history, the Consumer Financial Protection Bureau has survived two major Supreme Court challenges, either of which could have defanged the agency.A 2020 ruling reduced the CFPB's independence, but it stopped short of finding that the agency was unconstitutional. And last month, the high court handed the bureau a key victory by upholding its funding mechanism.But the CFPB is not out of the woods. A forthcoming Supreme Court decision, which is expected to be released within the next few weeks, could take a major bite out of the agency's rulemaking powers.The pending decision will determine how much deference the courts give to regulators in interpreting the laws that give them the power to write rules. It has big implications for not just the CFPB — and U.S. banking regulation more generally — but for federal agencies that oversee a broad range of industries. Experts say the stakes of a ruling that curtails regulatory power, which is widely seen as the likeliest outcome, are particularly large for the CFPB. The consumer bureau has a reputation as being more aggressive than some other federal agencies. During the Biden administration, companies have not been shy about suing to challenge its regulations."It puts consumer protection in real jeopardy," said Susan Weinstock, CEO of the Consumer Federation of America, a consumer advocacy group. "We'll have judges making these decisions, and they could end up being not based on facts, and not based on what's happening in the marketplace."Industry lawyers have a different view of the CFPB's work — they generally believe that the agency has shown a tendency to reach beyond its statutory authority — but they agree that the consumer bureau will be a particularly ripe target for corporate litigants if the Supreme Court reins in regulators' power."It would not be a good situation, to put it mildly, for the CFPB," said Alan Kaplinsky, senior counsel at Ballard Spahr.At stake in a pair of cases currently pending before the high court is the future of a legal doctrine known as Chevron deference, which got its name from a landmark Supreme Court decision in 1984.The key tenet of the 40-year-old decision is that when there is ambiguity about the meaning of federal laws, judges should give deference to agencies' interpretations. If that deference goes away, the courts will have greater latitude to overturn the agencies' rules.The CFPB, which is the brainchild of Sen. Elizabeth Warren, D-Mass., has been a political lightning rod since it was established during the Obama administration. But so far, when CFPB rules have been invalidated, it has not typically happened through the courts. A 2017 agency rule barring companies from including mandatory arbitration clauses in consumer contracts was overturned through a congressional resolution, as was a CFPB bulletin related to discrimination in auto lending.In 2019, a proposed regulation on payday lending was scaled back by the agency itself after then-President Donald Trump appointed Kathleen Kraninger as CFPB director.Since Rohit Chopra took the agency's reins in 2021, industry groups have shown greater willingness to challenge the CFPB's regulations in court. And while those litigants suffered a setback in May, when the Supreme Court upheld the CFPB's funding mechanism, they would get a boost from a ruling that undermines Chevron deference."It decreases the likelihood of success of the CFPB with respect to all of these regulations that have already been challenged in court," Kaplinsky said.For example, industry groups have sued the CFPB over a regulation that would cap late fees on credit cards at $8. There is also a lawsuit — in which the CFPB is currently appealing a ruling that favored the plaintiffs — over the agency's assertion that regardless of the lender's intent, discrimination on the basis of age, race or sex violates the federal prohibition on unfair, deceptive or abusive acts and practices.A third pending lawsuit challenges a CFPB rule that would require banks and credit unions to report data about small-business loan applicants.Chris Willis, an attorney at Troutman Pepper, pointed to the CFPB's interpretation of the word "applicant" under the Equal Credit Opportunity Act as another area of potential vulnerability if Chevron deference goes away.The 50-year-old anti-discrimination law offers protections to prospective applicants, in addition to people who have already applied for a loan, according to the CFPB's regulations. But the agency's interpretation is at issue in an enforcement case against a mortgage lender called Townstone Financial."In a world where Chevron is no longer, an interpretation like that, that the industry may not agree with, could become subject to successful challenge in court," Willis said.Future CFPB regulations, too, would be on shakier ground in a scenario in which the courts give less deference to federal agencies.In January, the consumer agency proposed capping overdraft fees for larger banks at $14. Also in the agency's pipeline: regulations aimed at accelerating the rise of open banking in the United States.The financial services industry could benefit in certain situations from a Supreme Court ruling that limits or overturns Chevron deference, Willis said. He pointed to situations where regulators have used expansive interpretations of federal laws to write regulations that industry actors oppose.But he also noted that the demise of Chevron deference could have downsides for companies that rely on the clarity and specificity that various regulations provide.Trial lawyers could bring legal challenges against regulations from federal regulators that can make it harder to sue banks.And state attorneys general, some of whom have long sparred with federal banking regulators over the reach of state laws, could bring suits challenging so-called preemption guidance that has generally drawn support from the industry. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have both issued interpretations regarding preemption."It's impossible to say, as a blanket rule, that the industry is in favor of Chevron being overturned," Kaplinsky said. "I would say just the opposite — that in general, the industry likes certainty, and things that have been well established in the law."One example of that perspective was on display last year in a brief that the Mortgage Bankers Association filed with the Supreme Court, describing the potential ramifications of a hypothetical court decision invalidating mortgage-related rules."​​Lenders, servicers, and consumers have operated by the CFPB's guideposts for more than ten years, and without those rules substantial uncertainty would arise as to how to undertake mortgage transactions in accordance with federal law," the trade group wrote.Daniel Wolff, a partner at the law firm Crowell & Moring, said that Chevron deference has always had policy implications that cut in opposite directions. He thinks that some observers have exaggerated the likely impact of the legal doctrine's demise. Still, he predicted that in a post-Chevron world, regulators that stray from their central duties will be more likely to get their wings clipped."Agencies will just have to hew closer to their core mission," Wolff said.

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