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It’s looking more likely that there will be a government shutdown beginning October 1st, which begs the question, what happens to mortgage rates?Do they go up even more, do they fall, or do they do nothing at all?At first glance, you might think that they’d rise because of the uncertainty involved with a shutdown.After all, if no one is quite sure of the outcome, or duration, banks and lenders might price their rates defensively.That way they don’t get burned if rates shoot higher. But history seems to tell a different story.Bond Yields Tend to Fall During Government ShutdownsAs a quick refresher, mortgage rates track 10-year bond yields pretty consistently. So if the 10-year yield falls, long-term 30-year fixed rates often fall as well.Conversely, if 10-year yields rise, which they have quite a bit lately, mortgage rates also increase.The 10-year yield began 2022 at around 1.80 and is around 4.60 today. Since that time, the 30-year fixed has climbed from roughly 3% to 7.5%.So there’s a pretty strong correlation between the two, though the spread between them has widened over the past couple years as well.Since mortgage bonds are inherently riskier than government bonds, there’s a premium, or spread that must be paid to investors.You used to be able to price the 30-year fixed mortgage at about 170 basis points above the 10-year yield. Today it might be closer to 275 bps or even more.Anyway, the 10-year yield seems to fall during government shutdowns because of the old flight to safety.And here’s what Morgan Stanley had to say on the matter: “On average, during shutdowns since 1976, the 10-year Treasury yield has fallen 0.59% while its price has ticked up, suggesting that investors favor the safe-haven asset during these periods of uncertainty.”In other words, if the 10-year yield falls during the shutdown, 30-year mortgage rates should also drift lower.How much lower is another question, but if they continue to track the 10-year yields, a .50 drop in Treasuries might result in a .25% drop in mortgage rates.Did Mortgage Rates Fall During Prior Government Shutdowns?Now let’s look at some data to see if mortgage rates actually fall when the government shuts down.The most recent government shutdown took place from December 21st, 2018 until January 25th, 2019.It was the longest shutdown in history, lasting 34 days. There was one in early 2018, but it only lasted two days.I did a little research using Freddie Mac mortgage rate data and found that the 30-year fixed averaged 4.62% during the week ending December 20th, 2018.And it averaged 4.46% during the week ending January 31st, 2019.Of course, the shutdown drama started earlier in the month of December 2018 when the 30-year fixed was priced closer to 4.75%.So if we factor all that in, you might be looking at a 30-basis point improvement in mortgage rates.Prior to that shutdown was the one that occurred on September 30th, 2013 and lasted 16 days.The 30-year fixed averaged 4.32% during the week ending September 26th, 2013, and fell to 4.28% during the week ending October 17th, 2013.Not much movement there, but it did continue to drift lower in following weeks and ended October at 4.10%.You then need to go all the way back to December 15th, 1995 to get another shutdown, which took place under President Clinton.It lasted 21 days, ending during the first week of 1996. During that time, the 30-year fixed fell from around 7.15% to 7.02%, per Freddie Mac.Prior to these shutdowns, most only lasted a few days and thus probably didn’t have much of an impact, at least directly.All in all, mortgage rates did improve each time, though not necessarily by a huge margin. Still, any .125% or .25% improvement in pricing is welcomed right now.A Lack of Data Makes It a Guessing GameIf the government does in fact shut down this coming week, it’ll mean that certain data reports won’t get released.This means we won’t see the Employment Situation, scheduled for next Friday, nor will we see CPI report the following week.There are many other reports that also won’t be released between this time and beyond, depending on how long the shutdown goes on.As such, we’ll all be flying in the dark in terms of knowing the state of the economy. And the direction of inflation, which has been top of mind lately.The good news is the Fed’s preferred inflation gauge, the personal consumption expenditures price index (PCE), already came out.And it was weaker than expected. Prior to that report, we were getting some signs that the economy was still running too hot.So the timing might work here in terms of higher bond prices and lower yields, which in turn would drive mortgage rates down too.After all, our last piece of information was that inflation and consumer spending rose less than expected, which is good for rates.Read more: How the Government Shutdown Affects Various Types of Mortgages

Artificial intelligence could help lenders navigate secondary market underwriting guidelines, but only if it is in line with the latest guidance from regulators.Developments like the Consumer Financial Protection Bureau's recent directive on artificial intelligence and denials do signal renewed regulatory scrutiny in this area, Frank Poiesz, business strategy director, Dark Matter, told attendees at Digital Mortgage 2023 this week.Regulators "are very concerned and are going to track closely how credit decisions are made," Poiesz said.CFPB guidance on chatbots, in addition to the directive on denials, have made vendors cautious, and "that's why I feel that we're kind of at a point where we've got to watch how we use AI as an industry," he said while speaking on a conference panel about its role in underwriting. Leah Price, an independent fintech advisor, left, discussed the role of AI in underwriting with Dark Matter Business Strategy Director Frank Poiesz and NMN Reporter Maria Volkova at the National Mortgage News Digital Mortgage Conference on September 26 at the Wynn Resort in Las Vegas. Photo credit: Jacob Kepler But while this may make the industry move a little more deliberately when it comes to development and use of the technology, it hasn't stopped progress altogether."There are a ton of applications we're working on that include helping the people that have to understand the seller guides," said Poeisz, referring to rules government-related loan buyers set for lenders. "That knowledge to users is certainly a good application of generative AI."Other underwriting-related technologies that are moving forward with some regulatory scrutiny include digital bank and rent data that can serve as an alternative way to qualify borrowers who lack traditional credit histories.Oversight agencies are very protective of the use of this consumer-permissioned data. Stakeholders participating in the Federal Housing Finance Agency's TechSprint discussions in July told the agency they see a utility model as one potential long-term outcome.There is room to move within the rules in this area, Lucky Sandhu, president and CEO of Reliance Financial, told conference attendees while speaking on a panel about alternative credit's potential to grow loan pipelines."Regulators will work with you as long as you understand the foundation and fundamentals very, very strongly, especially when it comes to understanding credit defaults and credit risk," Sandhu said.Alternative credit's potential reach is sizable, said David Battany, executive vice president, capital markets, Guild Mortgage, citing Consumer Financial Protection Bureau data indicating over 50 million adults have insufficient or no traditional credit history.While alternative credit has long existed, it's been unwieldy to use, with few people willing to go through a process, he noted. But digital advances in consumer-permissioned bank and rent data at government-sponsored enterprises Fannie Mae and Freddie Mac are improving access."The GSEs have really taken the lead on this. Also the private market —  the non QM market  — has really innovated in a lot of areas," Battany said. Digital tax-transcript data in particular has been used to qualify self-employed borrowers for the latter product.While conforming lenders are able underwrite self-employed borrowers, the loans have restrictions. That ends up pushing many into non-qualified mortgage products where lenders have less assurance of compliance with the Consumer Financial Protection Bureau's ability-to-repay rules.While the enterprises have offered lenders limited relief from representation and warranty risk when digital data validates information on loans submitted for sale in some cases, Fannie has warned whether the information is ATR compliant is a separate question.And the number of alternative credit borrowers making it through into the GSE market has been limited, according to both Battany and another panelist, Patrick Tadie, executive vice president, global capital markets, structured finance, at Wilmington TrustOne hurdle to the use of alternative credit data by the private credit market is that the rating agencies that have a hand in secondary market pricing consider it to be limited given the small amount of loans originated and their performance track record."We still need more data," said Tadie, noting that the view the rating agencies have of it makes originating loans for sale into this market relatively more costly.Wilmington's parent company, TD Bank, does have a private loan product based on alternative credit that it holds in portfolio rather than selling to the secondary market. But its reach is limited, Tadie said, noting that underwriting requires a lot of compensating factors."It's incredibly conservative," he said.

 WASHINGTON — As Congress hurdles toward yet another government shutdown, bankers might experience more collateral damage than they have in the past. Typically, government shutdowns leave financial institutions, sans those that largely serve government employees, alone. Fat Bear Week will likely not be so fortunate. Government shutdowns have almost become part of business-as-usual on Capitol Hill, a symptom of deepening partisan divides that make even must-pass legislation — like funding the federal government — difficult. Most on Wall Street assume that political gridlock in Washington will get cleared up eventually, and financial regulatory agencies tend to be funded outside of the Congressional appropriations process, and continue to function normally. But a key program expiring this year — combined with deeply-entrenched lawmakers on both sides of the aisle — could cause more economic pain than prior shutdowns. The government shutdown could happen as soon as Sunday. Here's what bankers should know about the state of Washington and its effect on the financial industry. 

Mortgage delinquency rates ticked higher in July compared with the previous month, and given that hurricane season picks up in late summer and early fall, that could drive them higher through 2024, CoreLogic said.Approximately 2.7% of outstanding mortgages were 30 days or more late on their payment or in foreclosure. This was up from 2.6% in June but down from 3% for July 2022.The home equity gains of recent years are likely going to keep borrowers who moved into the later stages of the delinquency timeline from entering the foreclosure process, said Molly Boesel, principal economist for CoreLogic.That equity opens various options for these borrowers, including the opportunity to sell the property for more than what is owed."And while home equity gains have slowed from their former rapid pace, CoreLogic projects that home price growth will pick up over the next year," Boesel pointed out. "Borrowers should continue to build equity over the coming months, even if at a more moderate rate."Earlier, CoreLogic reported home prices grew 2.5% in July on an annual basis, following two consecutive months of 1.6% gains."Nevertheless, the projection of prolonged higher mortgage rates has dampened price forecasts over the next year, particularly in less-affordable markets," CoreLogic Chief Economist Selma Hepp said at the time.First American Financial recently released its new home price index, which has data through August. Prices rose 0.7% between July and August on an unadjusted basis and by 5.6% from August 2022.Further bearing out how higher values impact foreclosures, all buckets were unchanged on a year-over-year basis except for the seriously delinquent category — 90 days or more late on the scheduled payment or already in the process. Its share declined by 0.3 percentage points from July 2022 to 1%, the CoreLogic data said.When it comes to hurricanes, events like last year's Ian, show the effect on delinquency rates. Jobs are on hold either short-term or for longer periods and these borrowers are eligible for forbearances. Delinquencies in Florida increased by 8,700 units for December 2022 because of Ian, Black Knight reported.

As home affordability decreased, sellers reduced asking prices more frequently this September, with the pace coming in above typical seasonal patterns.Approximately 6.5% of homes on the market saw asking prices reduced during the four-week period ending Sept. 27, according to new research from Redfin. The rate corresponds to approximately one in 15 properties on the market and represents an increase from 5.8% a month earlier. That is a sharp rise from what has been reported in past years over the same time frame, the real estate brokerage said.The uptick in price cuts comes as low inventory and rising interest rates take a bite out of affordability, according to several recent reports. Conditions contributing to the current state of the market appear set to continue leaving their mark on affordability over the next several months, leading analysts said at this week's Digital Mortgage conference in Las Vegas. Redfin found the median sales price rose 3.1% year-over-year, coming in at $372,500, even with "relatively low" demand. A recent rise in the volume of new listings, also atypical for the time of year, is giving home shoppers more leverage. "Buyers are using things like inspection negotiations and high insurance premiums to back out of deals," said Heather Kruayai, a Redfin agent in Jacksonville, Florida, in a press release. "They're holding a lot of the cards; today's sellers need to concede on some details to close the deal."The latest affordability data from the Mortgage Bankers Association offers few signs of improvement for aspiring homeowners. In its monthly purchase-applications payment index released this week, the trade group reported the average monthly amount applied for by new home buyers increasing by a fraction to $2,170 in August, from $2,162 in both June and July. The current figure is higher by 18% compared to the mean level of a year ago — $1,839.  "Prospective homebuyers' budgets continue to be impacted by the combination of high home prices and mortgage rates that remain higher than 7%," said Edward Seiler, MBA's associate vice president, housing economics, and executive director, Research Institute for Housing America.The latest PAPI report does not factor in September's surge in mortgage rates, with the 30-year conforming average landing at 7.41% at the end of last week among MBA members — the highest point since late 2000. Similarly, Freddie Mac reported a consistent rise in the 30-year rate throughout September after a pullback in August.Within individual segments, borrowers of Federal Housing Administration-backed mortgages saw their average payment hit a record of $1,901, jumping 2.5% from $1,854 in July and 29.4% from $1,469 in August 2022.But even with the overall PAPI increase, conventional-loan borrowers saw a fall in the mean to $2,187 from $2,197 between July and August. But the number was still well above $1,901 a year ago.The MBA's national payments index for new purchase applications inched up 0.4% to a reading of 175.4 in August compared to 174.7 a month earlier. An increase in the number reflects declining affordability. Strong income earnings of over 4% over the past 12 months helped offset the steep climb upward in payment amounts. The states showing the smallest degree of affordability were concentrated in the Western U.S., according to the MBA. Idaho led the country with a PAPI score of 269.6, followed by Nevada and Arizona at 265.7 and 238.6. 

Synovus Financial expects to post a charge-off of $23 million on a 10.75% participation in a $218.5 million syndicated credit. The Columbus, Georgia, company is just one of several banks that have warned of credit issues in the third quarter. Credit quality proved pristine through the pandemic's aftermath and into this year. Soured loans were rare, and losses held below historical averages for most of this decade.That is changing. Loan charge-offs are beginning to accumulate. More losses are expected, bringing the health of loan portfolios into focus just ahead of third-quarter earnings season in October."Across the board, the potential for loan delinquencies is the No. 1 concern," said Tim Scholten, founder and president of the community bank and credit union consultancy Visible Progress. "More challenging credit times are ahead."The U.S. economy continued to grow this year — gross domestic product expanded at a 2.4% clip in the second quarter — but elevated inflation and higher interest rates now loom large, Scholten said.The Federal Reserve boosted rates 11 times since early 2022 to combat inflation, reaching a 40-year high last year. The campaign has begun to work but borrowing costs have surged in the meantime. This has hampered commercial real estate borrowers, and office property owners in particular, given remote work trends and its enduring impact on urban centers.In fact, notable signs of weakness emerged in the second quarter of this year, when net CRE loan charge-offs among U.S. banks increased four-fold from a year earlier to $1.17 billion, according to S&P Global Market Intelligence. The firm said increased default levels motivated dozens of banks to scale back their exposures to CRE, most notably by offloading office loans.During the third quarter, several banks pre-announced expected charge-offs with their coming earnings reports. This list, which spans community banks to major regional lenders, included the $13 billion-asset OceanFirst Financial in Red Bank, New Jersey, the $36.2 billion-asset Hancock Whitney in Gulfport, Mississippi, and the $61 billion-asset Synovus Financial in Columbus, Georgia.Synovus expects to post a charge-off of $23 million on a 10.75% participation in a $218.5 million syndicated credit. It previously disclosed the sale of a $1.3 billion medical office CRE loan portfolio that implied an accompanying net loss and a coming charge-off, noted D.A. Davidson analyst Kevin Fitzsimmons.Taking an industrywide look, Fitzsimmons said that charge-off levels remain low ahead of earnings season. But this "likely isn't sustainable," he said.The concern now is that CRE woes will worsen and could spread to other loan types, given that everything from retail outlets to apartment buildings have historically depended on the traffic generated by workers flowing in and out of office towers in major cities from San Francisco to Denver to New York. About 40% of bankers surveyed by S&P in the second quarter said they expected CRE credit quality to deteriorate over the ensuing 12 months, up from 26% in a first quarter poll.The American Bankers Association's latest quarterly Credit Conditions Index, released this week, fell 2.8 points to a reading of 4.5. Anything below 50 indicates expected deterioration among bank economists, whose input is used to calculate readings. The latest figure reflects consensus among bank economists that credit market conditions will further weaken over the next two quarters and perhaps further out, the ABA said in a report.Economists "are forecasting weak growth in household spending and business investment over the next four quarters before a modest pickup in the second half of next year," said ABA Chief Economist Sayee Srinivasan.  A Piper Sandler survey of investors, released this week, found that their biggest concerns for the bank group are credit quality (44%) and, relatedly, higher interest rates (38%). The firm's head of research, Mark Fitzgibbon, said charge-offs are bound to increase through this year and into early 2024. He said the severity of loan losses depends largely on the direction of the economy and interest rates.If Fed policymakers can fully tame inflation and stop raising rates, the economy may be able to avoid a recession, or at least a steep downturn. But if full-blown malaise settles in, he said, credit quality could worsen substantially."There's going to be some pain in the system," Fitzgibbon said. "There's going to be more credit losses and challenges."

Federal Reserve Bank of Chicago President Austan Goolsbee said policymakers shouldn't place too much weight on the traditional economic idea that steep job losses are needed to quell inflation, which he said could lead officials to raise interest rates too high.This traditionalist view, Goolsbee said, "misses key features of our recent inflationary experience and that, in today's environment, believing too strongly in the inevitability of a large trade-off between inflation and unemployment comes with the serious risk of a near-term policy error." The comments were prepared for delivery Thursday at the Peterson Institute for International Economics in Washington.  Austan Goolsbee is the president of the Federal Reserve Bank of ChicagoDavid Paul Morris/Photographer: David Paul Morris/ In speech titled "The 2023 Economy: Not Your Grandpa's Monetary Policy Moment," Goolsbee argued that historic economic relationships, like that between unemployment and inflation — with prices typically rising when jobs were plentiful — may not be the best guideposts today given how different the post-Covid inflationary period has been.Goolsbee said policymakers should instead focus on how different components of core inflation are decelerating — with cooling still needed especially in housing inflation — as well as monitor productivity growth, not obsess too much on near-term real wages and keep an eye on inflation expectations.Avoid recession"The unwinding of supply shocks, the composition of demand returning to more stable patterns, and Fed credibility are central to why I think it might be possible today to reduce inflation while avoiding a deep recession," he said.Fed officials are trying to carefully calibrate policy now following aggressive action last year to bring down 40-year-high inflation. While prices have cooled, they remain far from the Fed's 2% target. The U.S. central bank left rates unchanged at their meeting last week, but 12 of the 19 officials forecast one more rate increase for this year. An update to the Fed's preferred inflation gauge, the personal consumption expenditures index, is due out Friday, with the median estimate of economists forecasting prices rose 3.5% in August, an acceleration from July.Goolsbee, a voter on policy this year, didn't say whether he favors another increase or not, though he called progress so far on inflation "really excellent.""I haven't decided what I'm going to do at the next one but at this kind of progress I feel comfortable with what I've said before: We're moving to a period where the question is not how much more is the rate going to go up — it becomes how long are we going to keep it here," Goolsbee said in a question-and-answer session following the speech.He echoed comments made earlier this week that a soft landing — where inflation fully eases without causing a recession — is possible, but risks remain. He cited higher oil prices, a slowdown in the Chinese economy, the autoworkers' strike and a potential government shutdown as shocks that could impact the economy.Goolsbee ended his speech by saying central bankers would be wise to stick to a key piece of advice from his Texas rancher grandfather: "Work 'til it's dark and pray for rain." Speaking on Fox Business in a later interview, Goolsbee said he thinks Fed Chair Jerome Powell "is going to be remembered as a fabulous Fed president." "If we pull this off, if we could get inflation down this much without having a deep recession, I think they're going to name elementary schools P.S. 2023 FOMC — this is an opportunity, not a guarantee," Goolsbee said. 

Delinquency rates on consumer loans last month hit their highest level since the spring of 2020, a potential sign that inflation and rising interest rates are taking a toll on household finances. Banks are keeping a close watch on delinquency rates, spending trends and credit originations to determine the health of the most powerful driver of the U.S. economy. Consumer spending accounts for about 70% of the country's economic output, and banks and other businesses are eager to find out whether consumer spending will help the U.S. economy avoid a recession in 2024.The share of consumer loans between 30 and 59 days past due rose 0.84% in August, up from 0.65% in August 2022, according to data from VantageScore. About 0.29% of loans were between 60 and 89 days past due in August, up from 0.21% a year ago. And 0.13% of consumer loans were between 90 and 119 days past due, up from 0.09% the previous year.  The delinquency rate for each of the three past-due timeframes was higher in August than any month since April 2020."People are relying on their credit more and in some cases are having trouble meeting their obligations," said Jeff Richardson, senior vice president at VantageScore Solutions, the consumer credit scoring company behind VantageScore.The combination of inflation and rising interest rates over the past 18 months has made it more difficult for Americans to stay on top of their loan payments. When the costs of goods and services rise, consumers often face higher monthly debt payments, and they may have to choose between necessities and debt payments.Credit cards and auto loans saw the largest jump in delinquency rates between August 2022 and August 2023, according to the VantageScore data. Because the interest rate paid on cards is tied to short-term interest rates, those monthly payments can rise more quickly than consumers had anticipated."Your monthly obligation, because of the rate increases, is much harder to meet now than it was 13 or 15 months ago," Richardson said.Still, consumers as a whole are proving resilient, according to bank executives.Consumer spending will likely help the U.S. avoid a recession in 2024, Bank of America CEO Brian Moynihan said this week. Spending by consumers at the $3.1 trillion-asset bank is up 4.8% this year, he said, but that growth is declining.Credit card utilization increased just 0.1% between July and August, according to VantageScore data, a potential indicator that consumers are wary about the prospect of taking on more debt. Originations for personal loans, auto loans and mortgages also fell in August, thanks to lenders' tighter standards and slowing demand growth for consumer loans. Only credit card originations increased in August.Economic growth is expected to slow to 1.3% in 2024, down from 2.3% in 2023, according to a forecast released Wednesday by S&P Global. Lower consumer spending on nonessential items is expected to drive much of that decline, analysts said."The increase in subprime auto loan and credit card delinquencies suggests consumer discretionary spending will soon weaken," S&P analysts wrote. "Moreover, student loan payments restart next month at a time when excess household savings have been largely depleted."Pandemic-era payment pauses and grace periods helped keep past-due rates on consumer loans low during the pandemic. Many U.S. consumers used stimulus funds and unemployment payments to stay up-to-date on debt payments and add to their savings accounts.But much of those excess savings have since been spent, and consumers drove their credit card balances up by double-digit percentages in 2022. The high rate of spending continued for much of 2023 before slowing in recent months.For banks, that means a cooling of consumer lending this year. Consumer loan growth at U.S. commercial banks was 5.6% in August, down from 12.3% a year ago, according to data from the Federal Reserve.Consumers are set to further "tighten their purse strings" in 2024, S&P analysts wrote.

With the acquisition of Black Knight, ICE Mortgage Technology has increased its "total addressable market" by $4 billion through cross selling opportunities.But that is not just limited to wider distribution of the data and analytics products that Black Knight was known for. ICE sees opportunities for the loan origination and mortgage servicing platforms to expand their reach as well, said Ben Jackson, Intercontinental Exchange president and chairman of ICE Mortgage Technology.Jackson joined other Intercontinental Exchange executives on a conference call to wrap up the Black Knight purchase. However little mention was made of the moves needed to drive the deal to the finish line.For Jackson, the opportunity "is cross-selling Encompass into roughly 40 of the over 100 MSP servicing customers that do not use our loan origination system. This represents roughly 15% to 20% of total annual loan origination volume."Not addressed was whether any of those customers had been users of Empower, the Black Knight loan origination system sold to Dark Matter, a business funded by Constellation Software.Dark Matter declined to comment. A request for comment from Intercontinental Exchange had not yet been returned.But the vertical expansion was just as troubling to some deal opponents as the concentration in the LOS and in product and pricing engines whose resolutions allowed the merger to close. On the other side, is the opportunity to cross sell MSP "into roughly half of the top 150 Encompass customers that do not use MSP today, representing roughly 10% to 15% of first lien servicing market share," Jackson continued.During the call, Jackson took the opportunity to bring up again the expanded relationship with JPMorgan Chase. The bank is implementing ICE Mortgage's data and document automation platform.Chase is one of Black Knight's largest servicing customers, "and they are the top five global bank that we are implementing on Encompass on both their retail and correspondent channels, replacing in-house legacy infrastructure," said Jackson."This is a perfect example of a large client bringing together a complete front to back experience for their clients through one trusted platform provider and is a model we plan to replicate with many more customers," he continued.One of the few pieces of the transaction Jackson did address was the Optimal Blue PPE, formerly owned by Black Knight, which acquired it in July 2020..Jackson referred to the "long-standing relationship" between Optimal Blue and the companies that are now part of ICE."Importantly, Optimal Blue is still fully available to ICE's customers with ICE continuing to capture value through an existing revenue share arrangement for existing and new customers," he said.A 10-year commercial agreement has been entered into that codifies and extends the two-decade long relationship. But given the PPE portion of the Federal Trade Commission complaint, it is no surprise and was probably mandated that the internal engine in Encompass will receive management's attention."In parallel, we plan to maintain and invest in our own product and pricing engine, further strengthening the mortgage ecosystem by providing additional options and greater efficiencies to lenders, servicers and partners, ultimately, lowering acquisition costs for lenders and enabling those savings to be passed to the consumer," said Jackson.When it comes to expense savings, Intercontinental Exchange expects to find $200 million in synergies by the fifth year after the transaction, said Warren Gardiner, its chief financial officer."It is worth noting that following the close we have already identified approximately $40 million of annualized savings, giving us increased comfort and our ability to achieve our $200 million target," Gardiner said.

Avoiding a temporary stoppage of non-essential federal work — the fourth such shutdown in the last 10 years — would require members of Congress to pass legislation for Biden to sign into law by midnight on Sept. 30 or approve a continuing resolution that would allow the government to remain operating in full.Bloomberg Creative Photos/Bloomberg Creative Credit unions catering to federal workers are preparing to reestablish emergency relief programs as the deadline to avoid a government shutdown fast approaches.Republican and Democratic officials in the U.S. Senate and House of Representatives continue to further conflicting funding plans for the 2024 fiscal year, remaining deadlocked on cuts to discretionary spending limits as well as key issues such as border security with Mexico and aid to Ukraine amid the ongoing war with Russia. President Biden and House Speaker Kevin McCarthy, R-Calif., worked to pass a bipartisan agreement earlier this year that suspends the debt limit until 2025 and features spending constraints."Our work is far from finished, but this agreement is a critical step forward and a reminder of what's possible when we act in the best interests of our country," Biden said in a press release in June.Avoiding a temporary stoppage of non-essential federal work — the fourth such shutdown in the last 10 years — would require members of Congress to pass legislation for Biden to sign into law by midnight on Sept. 30 or approve a continuing resolution that would allow the government to remain operating in full.In response to the looming possibility that the Senate and the House fail to gain any ground, credit unions' leaders are re-establishing tailored aid services for families enduring the loss of work.Executives with the $35.5 billion-asset Pentagon Federal Credit Union in McLean, Virginia, will offer qualifying members who receive their paycheck directly into a PenFed checking account access to funding through a no-interest loan equal to their net pay, up to $6,000. Other programs include modified payment plans for home loans and a low-interest personal loan for those whose pay isn't deposited directly into a PenFed checking account.Similarly, the $165.3 billion-asset Navy Federal Credit Union in Vienna, Virginia, will offer furloughed members paycheck advance funding and other special services.Industry experts at the helm of smaller institutions are looking to bring back programs they've used in the past. Greg Keller, president and chief executive of Federal Employees Credit Union in Birmingham, Alabama, began reviewing the programs his credit union offered during the December 2018 shutdown to determine how he could adapt them to best meet the needs of affected members."Last time a shutdown happened, people started calling with concerns like, 'What am I gonna do' and, 'How am I gonna make my payments,' so people will be ringing the phones off the hook once again to find out what they want to do," Keller said. The credit union has roughly 1,800 members employed by federal agencies ranging from the Social Security Administration and the United States Postal Office to the Federal Bureau of Investigation. Keller explained that the $18.4 million-asset Federal Employees will allow current eligible members to skip payments on their outstanding loans for the duration of the closure and apply for an emergency $1,000 loan featuring zero interest and a six-month repayment time frame."Some government employees, just like employees [in other industries], struggle paycheck to paycheck to afford their basic essentials," Keller said.Many credit union and bank leaders have experienced past government shutdowns, but the record-breaking closure that started under former President Trump's administration in December 2018 and lasted for 34 days created new challenges to overcome.Approval rates for mortgage applications were slowed due to the lack of income verification documents from the Internal Revenue Service, the Federal Housing Administration pulled back on helping institutions underwrite loans, submissions to the Small Business Administration piled up, and more.Industry advocates with the Credit Union National Association are encouraging members to be proactive by reaching out to their institutions and determining what programs may or may not be available to them.Jason Stverak, deputy chief advocacy officer for federal government affairs at CUNA, underscored that the impasse between the two legislative bodies will most likely lead to a shutdown, but that leaders should remain optimistic about representatives "passing the necessary legislation to keep the government open and keep the lights on," he said."While things may look dire at this time, there could be agreements at any moment and they could work at legislative lightning speed, so to speak," Stevrak said.

Recently, a friend of mine with an adjustable-rate mortgage told me his rate was due to adjust significantly higher.His current loan, a 7/1 ARM, has an interest rate of 3.25%, but that’s only good for the first 84 months.After that, the loan becomes annually adjustable, and the rate is determined by the index and margin.In case you haven’t noticed, 30-year fixed mortgage rates have skyrocketed over the past 18 months, from around 3% to 7.5% today.At the same time, mortgage indexes have also surged from near-zero to over 5%, meaning the loan will adjust much higher if kept long enough.First Look at Your Paperwork and Check the CapsWhen you took out your adjustable-rate mortgage (ARM) or any home loan for that matter, you were given a Closing Disclosure (CD).It lists all the crucial details of your loan, including the interest rate, loan amount, monthly payment, loan type, and whether or not it can adjust.If it’s an ARM, it will indicate that the monthly payment can increase after closing. It will also detail when it can increase and by how much.There will be a section on page 4 called the “Adjustable Interest Rate (AIR) Table” that provides additional information.This is probably the first place you should look if you’re unsure of when your ARM is set to adjust, and how much it might rise when it does.You’ll also find the mortgage index it’s tied to, along with the margin. Together, these two items make up your fully-indexed rate once the loan becomes adjustable.Let’s Check Out at an Example of an ARM Resetting HigherIn the AIR Table pictured above, we have a 5/1 ARM with an initial interest rate of 3.5%.The first adjustment comes after 60 months, meaning the borrower gets to enjoy a low rate of 3.5% for sixty months.While that sounds like a long time, it can creep up on you faster than you may realize.After those five years are up, assuming you still hold the mortgage, it becomes adjustable beginning in month 61.The new rate will be whatever the index is + a 2.25 margin. This CD used the old LIBOR index, which has since been replaced with the Secured Overnight Financing Rate (SOFR).At last glance, the 12-month SOFR is priced around 5.5%, which combined with 2.25 would result in a rate of 7.75%.That’s quite the jump from 3.5%. However, there are caps in place to prevent such a massive payment shock.If we look closely at the AIR Table, we’ll see that the First Change is limited to 2%. This means the rate can only rise to 5.5% in year six.That’s quite the difference compared to a fully-indexed rate of 7.75%.And each subsequent increase, such as in year seven, can only be another 2%. So for year seven, the max rate would be capped at 7.5%.There is also a lifetime cap of 8.5%, meaning no matter what the index does, the rate can’t exceed that level.Given mortgage rates are already close to those levels, the argument could be made to just keep the original loan, especially when the rate is 5.5%.The hope is rates improve from these levels at some point within the year and a refinance becomes more attractive.There’s no guarantee, but there isn’t a ton of downside if the worst your rate will be is 8.5%.Not All Loan Caps Are Created EqualBut not all caps are created equal. The example above is from a conforming loan with relatively friendly adjustments.My friend’s caps, which are tied to a jumbo home loan, allow the rate to adjust to the ceiling at the first adjustment.So there isn’t a gradual step up in rates like there is on the example above. This means the mortgage rate can go straight to the fully-indexed rate, which is the margin + index.If we assume a margin of 2.25 and an index of 5.5%, that’s 7.5% right off the bat, unlike the lower 5.5% in the prior example.In this case, a mortgage refinance might make sense, even if the rate is relatively similar. After all, you can get into a fixed-rate mortgage at those prices.Or pay a discount point and get a rate even lower, hopefully.And if you’re concerned mortgage rates could go even higher, you’d be protected from additional payment shock.At the same time, you could still make the argument of taking the 7.5% if refinance rates aren’t much better and hope for improvements in the future.But you’d have to look at the ceiling rate, which in his case is in the 9% range.To summarize, take a good look at your disclosures so you know all the details of your adjustable-rate mortgage long before it is scheduled to adjust.That way you can avoid any unnecessary surprises and plan accordingly, ideally before mortgage rates double.

LAS VEGAS - With mortgage rates headed to 8%, the current housing slump is unlikely to reverse course until 2025, due to the Federal Reserve's continued ratcheting up of interest rates, mortgage experts said at a conference in Las Vegas. Analysts continue to warn about overcapacity in the industry with too many lenders and employees to support current origination volumes. Federal Reserve Chair Jerome Powell signaled last week that interest rates need to stay higher for longer to tame inflation and that it could raise interest rates once more this year. The Fed's policies have hit potential homebuyers the hardest as mortgage rates approach their highest levels in 23 years, analysts said."If the Fed keeps rates where they are today, then I think you're going to easily see 8% mortgages because the survivors in the mortgage market — once we get rid of another 50% of capacity — are going to want to make money and that's how they're going to do it," said Christopher Whalen, chairman of Whalen Global Advisors, on Tuesday at the National Mortgage News Digital Mortgage conference in Las Vegas.Whalen was joined by Mark Calabria, a senior advisor at the Cato Institute and the former director of the Federal Housing Finance Agency, in a debate about current public policy and its effect on the mortgage market.Calabria said the main obstacle to buying a home is finding a house that is affordable. He  questioned the Biden administration's public policy approach, which is focused primarily on providing access to credit to low and moderate-income communities at a time when mortgage rates are above 7% and home prices are still rising due to a lack of inventory."There's just too much tension in Washington where the sense is that we're going to make the mortgage market and mortgage policy the answer to all these other unrelated things which are real — there are very real social injustices we should fix —  but the mortgage market is not the solution for all of them," Calabria said. "I worry that mortgage policy is bearing the weight of trying to fix a number of things that really have very little to do with the mortgage markets."Calabria, the author of "Shelter from the Storm: How a COVID mortgage meltdown was averted," described how he resisted repeated calls for a bailout of mortgage servicers early in the pandemic. The Federal Reserve had stepped in with a broad array of actions including lowering interest rates, sparking a massive refinance boom in 2020 and 2021. Calabria then applied an adverse market fee to refinances but exempted lower-income borrowers. Julian Hebron, founder of the Basis Point, a consulting firm, and veteran mortgage executive, questioned whether the FHFA should be setting pricing in the mortgage market and asked whether it's "appropriate for GSEs to raise fees to build capital to prepare for downturns."Calabria said the government-sponsored enterprises should be charging so-called g-fees for guaranteeing the timely payment of principal and interest on mortgage-backed securities because doing so covers projected credit losses from borrower defaults over the life of a loan. "Ultimately, I don't think the regulator should be driving prices," Calabria said.He also said Fannie Mae and Freddie Mac will remain in conservatorship for the foreseeable future but also envisions a way out of government control — by having the GSEs raise fees."If you're a CEO of one of these companies, it sucks being micromanaged, and I know that as somebody who micromanaged the CEOs," he said. "If I was the CEO of one of these companies and I had the freedom to do it, I would jack up G-fees so I can build capital and get out two or three years earlier than I would otherwise. Because again, it sucks being in  conservatorship for these companies, at least at the top."Calabria took office in 2019 and sought to end government control over Fannie Mae and Freddie Mac, which guarantee 70% of the roughly $12 trillion U.S. mortgage market. Though Calabria was confirmed by the Senate to a five-year term, he was fired in 2021 by President Biden following a Supreme Court ruling. Biden named Sandra Thompson as Calabria's successor. Whalen laid the blame for the current high interest rate environment squarely on the Fed and its actions in dropping rates in response to the pandemic. Roughly 90% of homeowners currently are locked in to mortgage rates below 6% and many are paying less than 4% on loans that were refinanced when the Fed held interest rates near zero. As a result, homeowners are not selling their properties, resulting in record-low inventory and a general gumming up of the mortgage market in a high-rate environment.  "The trouble is that the Fed's actions through COVID distortéd the market so much that lenders are losing 200 to 250 basis points on every loan they make," said Whalen. "Even though the agencies and the FHA subsidize the cost of mortgages, that's really what they do, it's not about getting a mortgage, it's about how much does it cost every month, which goes across every product in America." Many forecasts that are well-founded in data have been upended by major events, such as COVID or a bank failure. Whalen said that the only way mortgage rates could get down to 6% or 6.5% in the near-term is if there is another bank failure. "If we see another surprise in the banking market, the Fed is going to be forced to back off," said Whalen, adding that he is concerned that interest rates are making asset prices go down. "If we see another failure, they are going to probably have to turn to the Treasury for support or tax the industry to raise cash because there won't be three or four buyers out in the room."

With mortgage rates this week hitting their highest level since 2000, the full extent of the Federal Open Market Committee's latest short-term rate pronouncement on the mortgage market can now be determined. Several trackers put mortgage rates at two-decade peaks.But this might be the high point, as a confluence of factors around credit, oil prices and a government shutdown could end up acting as a drag on the economy and rates.Yesterday's Mortgage Bankers Association Weekly Application Survey release only covered rate movements through last Friday. In that two-day period, the various fixed rates it tracks were at 20-year highs.However, today's Freddie Mac Primary Mortgage Market Survey put the 30-year fixed rate loan at 7.31% for the week of Sept. 28, up 12 basis points from 7.19% seven days earlier.This is the highest for the PMMS since Dec. 15, 2000, when the 30-year FRM was 7.42%.For the same week last year, the 30-year FRM averaged 6.7%.The 15-year FRM increased by 18 basis points to 6.72 for this week from 6.54%. One year ago it averaged 5.96%."However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory," Sam Khater, Freddie Mac chief economist, said in a press release. "These headwinds are causing both buyers and sellers to hold out for better circumstances."Zillow's own rate tracker increased 23 basis points as of Thursday morning to 7.35% from the prior week's average of 7.12%.At the same time, the Optimal Blue (recently acquired by Constellation Software) rate tracker from its product and pricing engine reported the 30-year conforming FRM averaged 7.425% on Sept. 27, the last date data is available for. For Sept. 20, the average was 23 basis points lower at 7.222%."Mortgage rates…continued to climb this week as investors adjusted their expectations about the strength and resilience of the U.S. economy," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans in a statement from Wednesday night. "The most recent GDP estimates show an uptick in economic growth from the previous quarter and new data on business investment confirms equipment spending rebounded in August."It's not just investors' views over inflation driving movements in the 10-year Treasury yield but also expected economic growth."Stronger than anticipated economic activity is pushing real yields and nominal yields higher," said Divounguy. "However, the impacts of tighter credit conditions, rising oil prices, student loan repayments and the risk of a prolonged government shutdown are all expected to cool the labor market further and temper economic activity in the coming months."

Fannie Mae is taking its homebuyer education program to the next level to create a Spanish-language version of the coursework to meet the needs of a group that is concerned over language barriers in the process.HomeView en Español, a Spanish-language digital consumer education platform, is available 24/7 with information about financial literacy and homeownership. Latino consumers can go through this course on their own or work with a trusted advisor.Nearly one-quarter of Hispanic-Americans surveyed by Maxwell said language was an impediment when looking for a home to buy. It is one of the biggest reasons why these consumers consider abandoning their search.Other obstacles this demographic faces include the lack of affordable housing supply to buy, higher incidences of insufficient credit among consumers and higher relative up-front housing costs."We want to help people get into and stay in their homes for a long time," Fannie Mae CEO Priscilla Almodovar said in a press release. "Down payment assistance and homeownership education can help the Latino community and achieve both goals."Since March 1, all loans sold to Fannie Mae and Freddie Mac are required to include the Supplemental Consumer Information Form, so the enterprises can measure the share of customers with limited English proficiency. The form is available in six languages, including Spanish.The original HomeView program was launched in 2022 and over 340,000 people have completed this course.Fannie Mae cited Urban Institute data that 70% of net-new homeowners between 2020 and 2040 will be Hispanic.This new course includes Spanish-language education with content tailored to help Latino consumers effectively build and manage their credit.It is free and can be accessed by desktop, mobile and tablet. HomeView en Español is interactive and includes short quizzes and audio clips to help users retain the material.Besides the education program, Fannie Mae expanded access to its special purpose credit program. This pilot can provide down payment assistance to eligible first-time home buyers living in majority-Latino communities in Atlanta, Baltimore, Chicago, Detroit, Memphis, and Philadelphia. The government-sponsored enterprise plans to bring this to additional cities with large Latino populations early next year."The housing challenges faced by Latinos are real — but they are not insurmountable," Almodovar said. "With innovative thinking and committed partners, it is possible to expand housing opportunities in ways that are sustainable and responsible — both for the housing system and for homeowners."Fannie Mae added that it will be making additional enhancements to the original HomeView program in 2024.

A gauge of pending U.S. previously owned home sales fell in August to the lowest level since April 2020, evidence of a resale market throttled by higher mortgage rates.The National Association of Realtors' index of contract signings tumbled 7.1% to 71.8 from July, the group reported Thursday. The decline was larger than all estimates in a Bloomberg survey of economists."Some would-be home buyers are taking a pause and readjusting their expectations," Lawrence Yun, NAR's chief economist, said in a statement. "It's clear that increased housing inventory and better interest rates are essential to revive the housing market."Compared with a year earlier, pending home sales were down nearly 19% on an unadjusted basis.Mortgage rates, which surged to an almost 23-year high last week, continue to thwart demand. That, combined with still-high prices and limited inventory, is contributing to one of the most unaffordable housing markets ever.Higher borrowing costs are also dissuading homeowners from listing their properties, keeping prices elevated. Homeowners who locked in lower mortgage rates in recent years are hesitant to move.The pending-home sales report is a leading indicator of existing-home sales given houses typically go under contract a month or two before they're sold.All regions saw declines in August. Contract signings in the South fell to the lowest level since 2010, while the West posted the weakest reading in data back to 2001.—      With assistance from Chris Middleton.

Mortgage rates hit a 20-year high this past week as Treasury yields surged in the aftermath of last week's Federal Open Market Committee meeting.In turn, application volume sank by a seasonally adjusted 1.3% with purchase submissions down 2% for the week ended Sept. 22 from the prior seven-day period, according to the Mortgage Bankers Association's Weekly Application Survey.The 10-year Treasury yield has remained elevated since the Federal Open Market Committee meeting last week, especially due to investors' reaction to a widely held belief that rates will stay higher for longer."Overall applications declined, as both prospective homebuyers and homeowners continue to feel the impact of these elevated rates," said Joel Kan, the MBA's deputy chief economist, in a press release.The average rate for 30-year conforming mortgages ($726,200 or below) was 7.41%, the highest since December 2000, and a 10-basis-point gain from the prior week."The purchase market, which is still facing limited for-sale inventory and eroded purchasing power, saw applications down over the week and 27% behind last year's pace," Kan pointed out. "Refinance activity was down over 20% from last year and accounted for approximately one third of applications."In the previous week of Sept. 15, when conforming mortgages rose to 7.31%, application volume actually increased by 5.4%.When the results are taken together with this week's survey, it looks like higher rates have had a limited effect on new submissions. If this situation continues, that is likely to change."While the weekly decline in applications was relatively small, the cumulative effect remains strong as purchase demand faces the deepest deficits versus the same week pre-pandemic levels that we've seen, outside of the holidays last year," said Andy Walden, ICE Mortgage Technology's (formerly Black Knight)  vice president of enterprise research.The MBA has only been tracking jumbo rates since January 2011. The average rate for this week of 7.34% is an all-time for the series. It was 2 basis points higher than the previous week.Federal Housing Administration-insured mortgages reached their highest average rate since March 2002, at 7.16%, a gain of 8 basis points from seven days earlier.Finally, the 15-year FRM reached 6.73%, an 11 basis point rise and the highest since July 2001.Adjustable rate mortgages were not immune to higher coupons, at 6.47%, compared with 6.42% one week prior. Meanwhile the share of ARM applications during the time frame rose to 7.5% from 7.2%..The refinance index was down 1% compared with the prior week and 21% lower than the same period last year. However, the share of these loans grew to 31.9% from 31.6% the previous week.Melissa Cohn, regional vice president of William Raveis Mortgage, found it "interesting" that the refi share is now nearly one-third of all applications even with rates rising."Those who are taking mortgages today are doing so with the intention of refinancing when rates drop in the next 12 to 24 months," Cohn said.ICE's data pointed out the penalty refinance borrowers are taking in the current market."Through August, nine out of every 10 refis already involved the borrower raising their first lien rate, to the tune of plus 2.34 points on average, in order to access equity," Walden pointed out. "Though the refi market is still facing near record low volumes, there remains a base level of cash-out activity that we expect will continue."By product type, FHA share fell to 14.1% from 14.2% and Veterans Affairs to 10.9% from 11%. But the U.S. Department of Agriculture picked up some share, at 0.5% from 0.4%.

Brian Moynihan, Chairman and CEO of Bank of America, spoke during an Economic Club of New York event on Wednesday. "Consumers are worried about what's happening next," he said.Michael Nagle/Bloomberg The U.S. economy is expected to continue tightening over the next year, but a recession is likely to be averted thanks to resilient consumer spending, Bank of America CEO Brian Moynihan said Wednesday.At a lunch event hosted by the Economic Club of New York, Moynihan offered mixed commentary on the U.S. consumer outlook, which has long been a lynchpin of the economy.He said that consumer spending is up 4.8% so far this year, but he noted that the pace of growth is weakening. Consumer spending in September is up 4.5% from the same period last year, Moynihan said."What you're seeing is a slowdown," he said, referring to growing pessimism since the beginning of the year. "Consumers are worried about what's happening next."Moynihan's projection of a so-called soft landing, rather than a recession, echoed the most recent prediction by the American Bankers Association's Economic Advisory Committee.Earlier this month, the committee forecast that the U.S. economy will grow at a rate of less than 1% through the end of the second quarter of 2024. The economists on the committee noted that robust consumer spending has helped boost the U.S. economy during what has otherwise been a volatile year.Moynihan said that BofA's strategists are projecting the U.S. economy "slows down, troughs and starts coming back up" by the end of next year.Even though many consumers continue to maintain safe cash balances, and consumer deposit accounts are "still up significantly," tighter consumer spending is impacting the prospects of businesses, he said.And "lower-median" income consumers at BofA are starting to show negative cash flows, according to Moynihan.He noted the impact that high inflation has had on consumers, as the prices of food and gasoline have risen. He also pointed to the effects of the Federal Reserve's interest-rate hikes, which have resulted in higher borrowing costs.The consumers showing the most signs of stress are typically younger account holders, Moynihan said. At the same time, as interest rates have risen, higher-end transactional deposits have migrated to investment accounts, he said.In July, BofA reported that its average deposit balances totaled $1.9 trillion in the second quarter, which was down 7% from the same period last year.Moynihan also said Wednesday that the real estate sector faces mounting signs of stress, including housing shortages that have pushed up rental prices in many U.S. cities, as well as office buildings that have struggled to fill vacancies following changes in workplace culture during the COVID-19 pandemic.However, multi-family residential housing "is still very strong," Moynihan said.

The Department of Justice wednesday announced a settlement and consent order with Washington Trust, a Rhode Island-based community bank, over redlining violations. The company, which is the oldest community bank in the country, allegedly failed to seek or approve loans in minority neighborhoods between 2016 and 2021. Bloomberg News WASHINGTON — The Department of Justice announced a $9 million settlement and consent order Wednesday with the Westerly, R.I.-based Washington Trust Company to resolve allegations of race-based lending discrimination and redlining in the Ocean State.The DOJ said that from at least 2016 to 2021, Washington Trust engaged in practices that systematically denied lending services to Black and Hispanic neighborhoods in Rhode Island."Despite expansion across the state of Rhode Island, Washington Trust has never opened a branch in a majority-Black and Hispanic neighborhood," the DOJ's release noted. "Compared to Washington Trust, over the same six-year period, other banks received nearly four times as many loan applications each year in majority-Black and Hispanic neighborhoods in Rhode Island [and] even when Washington Trust generated loan applications from [these areas], the applicants themselves were disproportionately white."Redlining is an illegal practice in which financial institutions refuse or avoid lending to people because of their race or national origin. The complaint also alleged that Washington Trust relied on mortgage loan officers based only in majority-white areas as their main source of lending applications. The DOJ said the bank failed to take any steps to compensate for its lack of presence in black and hispanic areas.Washington Trust — founded in 1800 — is the oldest community bank in the nation and had $7.0 billion in assets as of June 30, 2023. The firm is owned by a publicly-owned holding company, Washington Trust Bancorp, Inc.As part of the settlement, Washington Trust agreed to a consent order — subject to court approval — which would require the bank to invest $7 million in a "loan subsidy fund" aimed at increasing majority-Black and Hispanic neighborhood residents' access to housing loans, $1 million in increasing those residents access to mortgage credit and another $1 million on outreach to these neighborhoods.The bank will also be forced under the consent order to establish two new branches in majority-Black and Hispanic Rhode Island neighborhoods, deploy two mortgage loan officers in these neighborhoods and hire a Director of Community Lending to supervise ongoing efforts to lend to black and hispanic neighborhoods.Even as the Department of Justice noted the bank refrained from taking legal action to contest the agency's findings, Washington Trust denied the allegations in a release Wednesday. "We believe we have been fully compliant with the letter and spirit of fair lending laws, and the agreement will further strengthen our focus on an area that has always been important to us," stated Edward O. "Ned" Handy III, Washington Trust Chairman and Chief Executive Officer. "Rhode Island has been home to Washington Trust for 223 years and our neighbors count on us to provide affordable loan opportunities no matter where they live."Nearly all the population growth in Rhode Island in recent decades has been driven by minority groups. According to the 2020 census, there are 180,000 Latinos or Hispanics in Rhode Island, up more than 50,000 from 2010, whereas the percentage of white Rhode Islanders has dropped to 71% from 2010, when they comprised 81% of the state. A study by PolicyLink and the University of Southern California's Program for Environmental and Regional Equity estimated that by 2040, 41 percent of Rhode Islanders will be people of color.The crackdown on fair lending comes as part of the DOJ's Combating Redlining Initiative launched in October 2021. Since then, the department says it has secured $98 million in settlements used to rectify lending discrimination across the country."This settlement should send a strong message to banks regarding the Justice Department's firm commitment to combat modern-day redlining and ensure that all lenders are providing equal access to home loan opportunities to communities of color," said Assistant Attorney General Kristen Clarke of the Justice Department's Civil Rights Division.

The Consumer Financial Protection Bureau issued a report Wednesday that found that homebuyers are paying more for their mortgage payments amid the higher interest rate environment, and that more borrowers are paying higher upfront costs in the form of points and fees to lower their interest rate. The Consumer Financial Protection Bureau said that higher interest rates have wreaked havoc on the mortgage market causing monthly payments to skyrocket for new homebuyers while lenders denied more applicants from getting home loans due to insufficient income.In a report Wednesday, the CFPB said that home buyers paid more in costs and fees to take out a mortgage largely because more than half of all new borrowers are paying upfront fees, or discount points, to lower their mortgage rate. The report was based on 2022 data and does not reflect the even higher mortgage rates that are prevalent today. The CFPB is keeping a close eye on cash-out refinances, which plummeted last year to 2.2 million, a 73% drop from a year earlier. The CFPB said it is reexamining whether to change mortgage servicing standards largely because cash-out refinances can increase the risk of foreclosure."The CFPB will be devoting more attention to ensure that borrowers can sufficiently navigate alternatives to foreclosure when faced with financial distress," CFPB Director Rohit Chopra said in a statement. "We are currently exploring some amendments to mortgage servicing standards. We will also continue to look for ways that the refinancing process can be simpler for borrowers, which will be particularly important if the rate environment becomes less restrictive."With mortgage rates headed toward 8% and the Federal Reserve showing no signs of reducing  interest rates in its fight against inflation, trends in the mortgage market show no signs of changing and are more likely to worsen as rates rise.  Last year, borrowers paid an average of $2,045 for a conventional conforming 30-year fixed-rate mortgage, a 46% jump from $1,400 in 2021. The increase was driven almost entirely by the rise in mortgage rates, the CFPB said in its 71-page mortgage market activity report. The median total cost to purchase a home rose 22% to $5,954 last year, the largest annual increase since the CFPB first began collecting more information in 2018 under the Home Mortgage Disclosure Act. The median cost to refinance jumped nearly 49% to $4,979 in 2022. The bureau also found a very large increase in costs and fees paid by borrowers when taking out a mortgage because more homebuyers are paying down their mortgage rate. Slightly more than 50% of borrowers paid a median of $2,370 in discount points last year, the highest percentage since the bureau began collecting data on points and fees.In addition, the CFPB found that even though refinancing activity plummeted, a larger share of refinances in 2022 went to Black and Hispanic borrowers, borrowers of low- or moderate-income, and those taking out loans secured with properties in low- or moderate-income neighborhoods. Refinancing allows a borrower to tap the equity in their home. Homeowners may be finding it difficult to move and are using the proceeds from cash-out refinances for renovations and repairs, the CFPB said. Home equity lines of credit were the only form of refinancing to increase from 2021. Though  independent mortgage lenders dominate the cash-out refinancing market, banks offered the majority of the 1.27 million home-equity lines of credit last year. HELOCs tend to have lower interest rates, monthly payments, and foreclosure risks than cash-out refinances, the CFPB said.Overall the bureau also found that Black and Hispanic borrowers fared worse when it comes to loan approvals, loan sizes, and fees though some disparities shrank or even disappeared for loans backed by the Federal Housing Administration. Black and Hispanic borrowers were denied loans at higher rates due to higher average debt-to-income ratios, the report found. They typically received smaller loans, were charged higher interest rates and  paid more in upfront fees than white and Asian borrowers. The median interest rate last year for Black and Hispanic borrowers was above 5%, while the median rate was below 5% for white and Asian borrowers, the CFPB said.

The latest surge in long-term interest rates to the highest levels in 16 years adds to a lengthening list of headwinds threatening to blow the U.S. economy off a soft-landing course.The increase in borrowing costs puts a nascent recovery in the housing market at risk and raises the hurdle for companies seeking to fund investment. It's also sent shudders through U.S. equities, trimming some of the wealth gains investors have enjoyed so far this year.The rise in rates — 10-year Treasury yields are up over a percentage point since mid-May — is one of a series of shocks buffeting what's been a surprisingly resilient U.S. economy. Autoworkers are on strike, the government is on the verge of a shutdown and student loan payments are resuming after a pandemic pause. Oil prices are rising, growth in Europe is stagnating and China is struggling with a property market breakdown."It's becoming a series of unfortunate events," said Diane Swonk, the chief economist at KPMG LLP. "The soft landing is being jeopardized."While Swonk expects the U.S. to avoid a recessionary hard landing, she sees the expansion rate slowing sharply in the fourth quarter to a 1% annualized rate from some 4% in the current quarter, with risks to that forecast to the downside.For Federal Reserve policymakers, however, the rise in yields may not be such a problem, and could even prove helpful. The move in the bond market hasn't been accompanied by an increase in inflation expectations — something that would threaten to entrench outsize price increases.That suggests the move could take some of the steam out of an economy that Fed officials have feared was running too hot. The latest leg-up in yields has come after the central bank delivered a more hawkish message than many investors expected last week even as it kept interest rates unchanged."If bond yields are moving higher, there's even less need for the Fed to have to tighten further," said Wrightson ICAP LLC chief economist Lou Crandall.'Downside risk'Not everyone is so sanguine.MacroPolicy Perspectives LLC founder Julia Coronado said the rise in long-term rates will hurt demand for housing and autos. And it will squeeze smaller and regional banks by further devaluing their holdings of loans and bonds that bear low rates."It's a downside risk," said Coronado, a former Fed economist. "It's going to be a headwind for the economy to absorb."The yield on the 10-year Treasury note reached 4.56% Tuesday afternoon in New York, the highest since October 2007.What may be even more relevant for the economy is the yield on Treasury inflation protected securities. Yields on 10-year TIPS, known as real yields, are now approaching the inflation rate derived from comparing that yield with the yield on regular 10-year Treasuries.When the bond market's real yield is above the expected inflation rate, that's an indication higher borrowing costs will have more bite — because it suggests borrowers' revenues won't be keeping pace.Part of the climb in long-term yields is due to rising concern about large U.S. budget deficits in the future, and the relative absence of buyers that used to be big purchasers of Treasuries, former Fed Governor Kevin Warsh said in a webinar last week.The Fed, for its part, is steadily reducing its holdings of U.S. government debt. That all may be pushing up the so-called term premium on long-term Treasuries, auguring a higher cost of capital for years to come.The run-up in rates is already having some impact.With higher mortgage rates continuing to push many prospective buyers out of the market, U.S. homebuilder sentiment slumped to a five-month low this month. Home-purchase mortgage applications are hovering near the lowest readings in decades in Mortgage Bankers Association data.Tolerance fadesConsumer confidence slipped for the second straight month, with some respondents in the Conference Board survey voicing concern about higher rates.Given all the headwinds hitting the economy, there's not that much more it can take without running the risk of tipping into a recession, according to Moody's Analytics chief economist Mark Zandi."I think the economy can digest 4.5% 10-year Treasury yields, but anything over 5% for more than a few months will be tough to bear," he said. 

Over the past year or so, home equity lines of credit (HELOCs) have become a lot more popular.As a quick refresher, HELOCs are typically taken out as second mortgages in order to tap equity.Importantly, this means the first mortgage is left intact, so the borrower gets to keep their low rate while also gaining access to cash in their property.If we consider that most existing homeowners have 30-year fixed-rate mortgages with interest rates below 4%, this approach begins to make a lot of sense.The question is how do you compare HELOC rates? Is it the same as comparing mortgage rates? Not quite, though there are some similarities.Why Are HELOCs Gaining in Popularity?As noted, HELOCs (and home equity loans for that matter) have become increasingly popular in recent years.Volume of home equity lines of credit and closed-end home equity loans surged 50% in 2022 compared to two years earlier, according to the MBA’s Home Equity Lending Study.It’s no surprise given the trajectory of mortgage rates, which hovered around 3% at the start of 2022, and are now closer to 7.5%.Yes, you read that right. The 30-year fixed has more than doubled in less than two years, and might keep increasing (hopefully not).At the same time, homeowners are sitting on a ton of equity because home prices have surged since before the pandemic and beyond.This has created an odd situation where homeowners are equity rich, but not interested in tapping that equity if it means disturbing their low-rate first mortgage.Per Freddie Mac, nearly two-thirds of homeowners have a mortgage rate below 4%, and most of those loans are 30-year fixed loans.Simply put, the vast majority have no interest in refinancing, even if they need cash. Instead, they are likely going to turn to a second mortgage, such as a HELOC or home equity loan (HEL).After all, if they were to refinance those loans to tap their home equity, they’d lose their ultra-low rate in the process.How to Compare HELOC RatesSo we know HELOCs are a lot more prevalent today, and for good reason (you want to keep your low mortgage rate!).But how does one go about comparing HELOC rates? Well, it’s a bit different than comparing regular old mortgage rates.The reason is HELOCs are variable-rate loans that are tied to the prime rate, while most first mortgages are fixed-rate loans that never adjust.The prime rate, which is the same for every American, combined with a margin, determines your HELOC rate.The margin, like a regular mortgage rate, can vary by bank/lender and can be higher or lower based on your loan’s attributes.Simply put, it’s the markup on top of the prime rate that is used by all banks and lenders, and is really the only differentiating factor to consider other than HELOC fees.The prime rate is currently a whopping 8.50%. Each time the Federal Reserve increases their fed funds rate, the prime rate moves in lockstep.Since early 2022, the Fed has increased the fed funds rate 11 times, and this has pushed the prime rate up 11 times as well, from 3.25% to 8.50% today.Now we need to factor in the margin, which is the piece you need to keep an eye on when comparing HELOC rates.Because everyone’s HELOC rate is subject to prime plus or minus a margin, you’ll want to shop for the lowest margin possible.Remember, the margin + prime rate = your HELOC rate. So the lower the margin, the lower your HELOC rate.This is basically what you’re going to compare from one HELOC lender to the next, as the prime rate will be no different.Tip: HELOCs also typically have a floor rate and ceiling rate that they will never go below/above.The Typical Mortgage Pricing Adjustments Apply to HELOCs TooSo now we know HELOC shopping is all about paying attention to the margin. But how do lenders come up with the margin?Well, the bank/lender will look at the loan’s attributes, just like they would on a first mortgage.This means considering the borrower’s FICO score, loan-to-value ratio (LTV), in this case the combined LTV, or CLTV, since it’s a second mortgage.The occupancy type, such as primary residence, second home, or investment. And the property type, such as a single-family home, condo, or a triplex.All of these are risk factors, just as they are on a first mortgage. The lower the risk, the lower the margin. And vice versa.An additional factor for HELOCs is the line amount, which often can result in a discount if the line amount is larger as opposed to smaller.For example, you might see a lower margin if the line amount is above $150,000, and a higher one is the line is say $25,000 to $50,000.It’s All About the HELOC Margin!MarginPrime RateHELOC RateBank A1%8.5%9.5%Bank B2%8.5%10.5%Bank C0.25%8.5%8.75%Bank D-1.01%8.5%7.49%Once the risk attributes are factored in, we have to consider the company’s spread, or profit margin on top of that.They may charge a higher or lower base margin than another company for the same exact loan.For example, once you input all of your loan attributes, Bank A may say your rate is prime plus 2%, while Bank B says it’s prime plus 1%.If we take today’s prime rate of 8.5%, that’d be a HELOC quote of 10.5% versus 9.5%.Obviously, you’d want the 9.5%. Also keep in mind that as prime changes, your rate will go up/down accordingly.So if prime goes down .50%, those rates would drop to 10% and 9%, respectively.In other words, that margin is stuck with you for the life of the loan.Ultimately, you just want to hunt down the lowest HELOC margin, since that’s all you can control.Again, you need to compare margins from these different lenders since the prime rate will always be the same.As a real-world example, I recently saw a company advertising a HELOC with a margin ranging from prime +1.55% (currently 10.05% APR) to prime + 7.50% (currently 16.00% APR). That’s quite a range.Another bank was advertising prime plus a margin between 0.25% – 1.375%, while another was offering prime minus 1.01%. Yes, below prime.These margins can be higher or lower depending on their risk appetite and hunger for HELOCs.Also Consider HELOC Fees and Closing CostsThe HELOC’s margin aside, one final thing to consider is any fees and closing costs.Often times, fees are pretty limited on HELOCs, though it can depend on the bank/lender in question.This means there’s probably not a HELOC origination fee, though you might see costs for title insurance or an appraisal, depending on the loan amount.You might also be charged an annual fee or an early closure fee, or potentially charged for recouped closing costs if you close your loan within a few years (early termination fee).Lastly, pay attention to the minimum draw amount, which is the amount you must take out upon funding the loan.This can result in additional interest charges if you don’t actually need the money, but rather are opening the HELOC simply as a rainy day fund.But in the end, margin is probably the biggest pricing factor and one you should keep the closest watch on.And like a regular mortgage, those with excellent credit will be afforded the lowest rates on their HELOC too. But be sure to shop around as you would your first mortgage!Read more: The Top HELOC Lenders in the Nation(photo: Jorge Franganillo)

Senator Bob Menendez, D-N.J., arrives in the capitol with Senate Banking Committee ranking member Tim Scott, R-S.C. Menendez's indictment on federal bribery charges may complicate committee efforts to pass a standalone flood insurance bill in this Congress, but other legislative priorities will likely be unaffected.Bloomberg News WASHINGTON — The indictment of Sen. Bob Menendez, D-N.J., is an unwelcome wrinkle in the debate to renew flood insurance, and could hold up the work of the Senate Banking Committee in other areas, experts said. Menendez, who was indicted on charges that he took bribes from New Jersey businessmen, including a former community bank executive, remains the No. 3 Democratic lawmaker on the Senate Banking Committee. He has, per Senate Democratic rules, stepped down as chairman of the Foreign Relations Committee. Several Democratic senators have called for him to resign from the Senate, including Senate Banking Committee Chairman Sherrod Brown, D-Ohio, who said that Menendez has "broken the public trust." Sen. John Fetterman, D-Pa., also on the Senate Banking Committee, was the first senator to call for the resignation, saying that Menendez "cannot continue to wield influence over national policy, especially given the serious and specific nature of the allegations." Along with Brown and Fetterman, the Democratic lawmakers on the Senate Banking Committee calling for Menendez to resign include Jon Tester of Montana, Elizabeth Warren of Massachusetts and Raphael Warnock of Georgia. A central part of the Menendez indictment is his relationship with a former banker, Fred Daibes, who at the time he allegedly made gifts to Menendez faced federal bank fraud charges that could have come with a decade-long prison sentence. Daibes founded and was formerly CEO and chairman of the $414 million-asset Mariner's Bank in Edgewater, New Jersey, which was bought by nearby Spencer Savings Bank in 2021 for an undisclosed cash payout.To remove Menendez from the Senate Banking Committee, he would likely need to resign from Congress entirely. Senate committee assignments are fixed, and require unanimous consent to change. "Senator Menendez continuing to stay in the Senate but being functionally crippled could complicate Chairman Brown's ability to move legislation and nominations through the committee," said Aaron Klein, a senior fellow in Economic Studies at the Brookings Institution. One of the major concerns with Menendez's continued presence in the Senate is a pending flood insurance program, whose funding runs out Sept. 30. The extension for that program is tied to the spending bill, which looks increasingly stuck and likely to lead to a government shutdown next week."The problem is the extension is tied to the spending bill, which is stuck," said Jaret Seiberg, an analyst at TD Cowen Washington Research Group, in a note. "Push now is for separate legislation, though there is no clear path forward for it." Menendez was meant to chair a subcommittee hearing Wednesday on "The State of Flood Insurance in America" in his capacity of chairman of the subcommittee on Securities, Insurance, and Investment. That hearing, after the indictment was made public, was postponed indefinitely. "Flood insurance is a complicated issue politically and substantively," Klein said. "Geography of key members plays a major role. New Jersey is a coastal state, recently impacted by [Superstorm] Sandy. Passing legislation, whether reforming the program or keeping it going as is, requires time, effort, and political skill. Having a key member impaired will hurt the process." At least on cannabis banking, experts don't anticipate Menendez's legal troubles to play a significant role. Don Murphy, a longtime cannabis lobbyist, said that he expects Menendez to vote for the SAFER Banking Act, which is up for a markup in the Senate Banking Committee on Wednesday, by proxy. Menendez is a co-sponsor of the legislation, but the bill already has a large number of Democratic and Republican co-sponsors and support in the Senate, he said. Even if Menendez were to step down, Murphy said that it's unlikely that the New Jersey governor would appoint a replacement senator that disagrees with Menendez's stance on marijuana legalization and banking.

New York Attorney General Letitia James sued Trump, his real estate company and his two adult sons in September 2022, accusing them of inflating the value of Trump's biggest assets from 2011 to 2021 to get better terms from banks and insurers. Sean Rayford/Photographer: Sean Rayford/Getty A New York judge ruled Donald Trump is liable for fraud for exaggerating his net worth by billions of dollars a year on financial records submitted to banks and insurers, a major victory for the state's attorney general before a high-stakes civil trial over remaining claims in the case.The ruling Tuesday by Justice Arthur Engoron in Manhattan resolves the state's biggest claim against the former president and narrows a trial set to start as soon as Oct. 2. The bench trial will now focus on allegations including falsifying business records and issuing false financial statements, as well as the state's demand for $250 million in restitution.New York Attorney General Letitia James sued Trump, his real estate company and his two adult sons in September 2022, accusing them of inflating the value of Trump's biggest assets from 2011 to 2021 to get better terms from banks and insurers. It's one of six cases against Trump — including four criminal prosecutions — that are heading to trial as he seeks to return to the White House in the 2024 election.Trump, who claims James's lawsuit is politically motivated, is likely to appeal the ruling. He's also making a last-ditch effort to delay the trial by arguing to a New York appeals court that Engoron failed to narrow the case after an appellate panel ruled some the state's claims might be too old.James, a Democrat, argued a trial on her fraud claim wasn't necessary because the evidence that Trump violated New York's Executive Law was overwhelming. The attorney general said in court filings that her team gathered proof that Trump inflated his net worth annually by as much as $3.6 billion by exaggerating the market value of properties including his Mar-a-Lago estate in Florida.Trump argued against the state's motion for so-called summary judgment, saying the annual statements of financial condition that he gave to banks and insurers had "powerful disclaimers" saying they should do their own valuations. He has also argued that James didn't have a right to sue because the banks and insurers didn't suffer any financial losses.The case is New York v. Trump, 452564/2022, New York State Supreme Court (Manhattan).

Frost Bank, long absent from the mortgage industry, is back in the biz and rolling out a zero down home loan for its customers.The Texas-based depository, which also just became the new sponsor of the San Antonio Spurs arena, calls their new offering the “Progress Mortgage.”It is intended to help both low- and moderate-income borrowers realize the dream of homeownership.Aside from not needing a down payment, private mortgage insurance also isn’t required, and you can receive up to $4,000 in closing costs.Read on to learn more about this product and their companion home equity loan.Progress Mortgage Offers 100% Financing on a Home PurchaseAfter sitting out of the mortgage industry for more than 20 years, Frost Bank has relaunched its home loan business in the state of Texas.While the bank is 155 years old, they exited the mortgage space in the early 2000s before getting back into the biz earlier this year.Some may think that’s unusual, given the tough housing market conditions (and high mortgage rates), but that hasn’t stopped them.And they’re coming to market with some pretty aggressive options to help home buyers land a property despite mounting affordability woes.Their so-called “Progress Mortgage” offers 100% financing, meaning home buyers don’t need a down payment to qualify.On top of that, private mortgage insurance (PMI) also isn’t required, despite the lack of a down payment.Typically it’s compulsory if you have a loan-to-value ratio (LTV) above 80%. Not the case here.To make the deal even sweeter, they’re also throwing in lender credits valued at up to $4,000 to offset any borrower closing costs.This means a home buyer in the state of Texas may need little to nothing out of pocket to close their loan.The one caveat is that the borrower must make no more than 80% of area median income (AMI), as defined by the Federal Financial Institution Examination Council.You can look up AMIs by metropolitan statistical area here. As an example, the estimated AMI in Austin, Texas for 2023 is $122,300.So the most you could earn would be $97,840 to qualify under the 80% AMI rule.Another perk is that the program has no minimum or maximum loan amount as long as you qualify otherwise.In terms of loan choice, at the moment it appears to be limited to a 30-year fixed-rate mortgage.However, Frost Bank also offers a variety of other loan programs, including jumbo loans, 15-year fixed mortgages, and adjustable-rate mortgages such as the 10/6 and 7/6 ARM.Frost Bank Also Just Launched a Home Equity LoanTo complement their Progress first mortgage, Frost Bank has also launched the “Progress Home Equity Loan.”This second mortgage is also reserved for borrowers making 80% or less area median income.And it doesn’t come with any application fees, annual fees, or prepayment penalties.The Progress Home Equity Loan is available in terms of 7, 10, 15, 20, 25 and 30 years, and the company says in most cases there will not be closing costs.Additionally, there is no maximum loan amount, though the max LTV ratio is 80%.But given how much home equity many existing homeowners are sitting on, this could still provide for a sizable loan amount at a low LTV.What really stood out to me were the advertised rates, which are apparently intended for families on a budget.On their website, they’re displaying APRs as low as 3.99%, which compares to APRs closer to the 7-8% range for their standard home equity loan offering.So assuming these numbers are accurate, there might be substantial savings for those with limited incomes in the state of Texas who want to tap their equity.Frost Bank is a subsidiary of Cullen/Frost Bankers, Inc., a publicly traded company under the symbol (NYSE: CFR).They are one of the largest banks in Texas and one of the 50 largest U.S. banks by asset size. At last glance, there are about 190 branch locations in the Lone Star State.My understanding is these loan programs are only available to customers in the state of Texas.

Florida has overtaken New York to become the second most-valuable U.S. housing market, according to a new study by Zillow.The total value of U.S. housing rose more than $2.6 trillion in the past year, Zillow said, defying predictions that higher borrowing costs would lead to a prolonged slump. Low levels of supply, enhanced by the lock-in effect — which has left current mortgage borrowers reluctant to give up their low-cost loans — have pushed nationwide prices to a new high.The gains haven't been evenly spread across the country. In California, which contains about one-fifth of the U.S. housing market, prices have declined since June 2022. But in Florida, the value of residential property has risen $160 billion in that period — pushing the Sunshine State ahead of New York in the national rankings."Despite the presence of higher mortgage rates, which deterred some home shoppers and kept many existing homeowners on the sidelines, enough buyers remained to keep the market moving," wrote Orphe Divounguy, a senior economist at Zillow.The real estate boom in Florida means that Miami has surged up the rankings to become the fifth-largest metropolitan housing market — climbing from the ninth spot in May 2021, and overtaking the nation's capital Washington DC among others.Miami home values are up more than 80% since the start of the pandemic, and so are properties in Tampa and Jacksonville, while Orlando has seen an increase of more than 70%. Substantial population growth in the state is one reason why Florida prices have climbed so fast, according to Zillow.

Mr. Cooper wants ACI Payments to further pay up for its servicing mistake two years ago which impacted borrowers' bank accounts for a combined $2.3 billion. The Greater Dallas-area servicer, under its Nationstar Mortgage name, is suing the vendor in a Texas federal court for unspecified damages. The subsidiary of ACI Worldwide in June paid a $25 million fine to the Consumer Financial Protection Bureau for illegally charging borrowers in April 2021. Contractors for ACI caused the incident that month when they used Nationstar's confidential customer information in quality assurance testing, which inadvertently triggered mortgage payment withdrawals at borrower's banks. Depositories in the process charged 100 customers overdraft or insufficient fund fees, and froze the accounts of others. "ACI's use of Nationstar's confidential information in the Incident and leading up to the Incident was not a purpose contemplated by the Speedpay Agreement," wrote attorneys for Mr. Cooper, referencing the firms' vendor agreement with ACI's predecessor. A representative for Mr. Cooper declined to comment on the lawsuit Monday but said the servicer had since severed ties with ACI. A spokesperson for ACI Monday referred to the company's June statement regarding the CFPB fine, in which the firm admitted no wrongdoing. The technology provider earlier this year also established a $5 million settlement fund to quell seven class action lawsuits stemming from the 2021 charge. Insurers will fund "substantially all" of the settlement payments and attorney's fees, ACI said in a Securities and Exchange Commission 10-Q filing at the end of the second quarter. No customer funds nor personal information was compromised in the lapse, according to ACI. Mr. Cooper in its recent complaint emphasized the shame that followed the incident, suggesting nationwide headlines damaged the servicer's reputation and upset customers. The business itself has battled 10 federal class action lawsuits and two individual state claims. It also incurred expenses in attorney's fees, payments to customers, notice distribution, and increased compliance and call center labor. ACI in June blamed the error on Speedway, noting the incident occurred shortly after ACI assumed management of Speedway's legacy data environment. The company purchased Speedway in 2019, just short of two years before the incident. The servicer's lawsuit was initiated ahead of an Oct. 31 statute of limitations to file a claim against ACI. It's suing the vendor for 11 counts including breach of contract, gross negligence and trade secrets violations. A summons for ACI was issued Friday in the U.S. District Court for the Northern District of Texas in Dallas. 

Inertia and empathy among lenders hoping they can weather their way through the current slowdown will result in prolonged instability for the mortgage industry, according to a new report from Stratmor Group. Many companies in the mortgage industry still have more employees than necessary given current origination volumes. Companies are still overly reliant on past processes, which don't reflect the market of today, and cannot maintain current staffing levels if they hope to see profitability, the report said."We've seen multiple companies with staffing way out of balance, not because they chose that but because they refused to make a decision," said Garth Graham, senior partner at the advisory firm, in the report. At its annual meeting in the third quarter of 2022, the MBA estimated that the mortgage industry would need to shed between 25% to 30% of its staff at that time. While 2023 has seen scores of mergers, layoff announcements have largely leveled off as the year progressed, with mortgage-related hiring at nonbanks even seeing an increase earlier this year at the start of spring buying season before falling in the summer.  Graham noted that many of the executives Stratmor spoke to cited empathy toward employees behind maintaining their staffing levels. "While this may be a wonderful reflection of the compassion and respect that lives within our industry, the need to reduce costs and related staff remains clear," he said. With some housing experts not expecting business to improve until early 2025 at the earliest, lenders may not have the resources to survive that long. In its research, Stratmor found only 14% of mortgage executives it spoke to believed they were currently profitable each month, with over half responding they were not making money. In the second quarter, lenders were still reporting an average loss of $534 per origination, the Mortgage Bankers Association found in its own surveys. While it marked the fifth straight nonprofitable quarter, it was an improvement from figures at the end of 2022 but still a sign of some of the "inertia" among mortgage leaders, Graham said."We've written in the past about the decision mortgage business owners are facing: invest for growth, maintain, sell the business or shut it down. The problem is too many lenders are avoiding this crucial decision." In addition to reducing labor, Stratmor also pointed to vendor consolidation, reduced facilities expenses and cutbacks in marketing as strategies many of its clients were taking. But Graham emphasized that while decision making was difficult, inaction would likely even be riskier. "Hope is not a strategy," he said. 

When interest rates are elevated and there is a housing inventory drought, origination shops need to adapt and run a slim, well-oiled operation to survive.What might be holding some lenders back from running a profitable business is the model they implement. Specifically, some industry stakeholders warn about the profit and loss model – if it is run incorrectly.Bill Dallas, industry veteran and former president of Finance of America, has pointed out that lenders most hurt by the low-origination environment have one similarity: net branches, a.k.a. the P&L model."It's very bloated, very fat, and that's killing them all,"said Dallas, in an interview with National Mortgage News. "They have a manager and they have office space. That part of the business is really what's killing retail."Though opinions differ as to whether this model is the main culprit for the troubles facing mortgage lenders at the moment, there does seem to be a consensus that poorly run and trained P&L branches can be a point of weakness in a lenders' operations.There are two predominant models used by mortgage companies, the P&L model and the corporate model. About 40% of mortgage lenders implement the P&L model, while the other 60% have the corporate model, according to a report published by Stratmor Group in June 2021.Examples of companies with the P&L model include American Pacific Mortgage, CrossCountry Mortgage and Fairway Independent Mortgage. A notable lender with a corporate model is Guild Mortgage.The difference between the two models is the way a branch manager gets paid, but also the level of attrition, according to Jim Cameron, senior partner at consulting firm Stratmor. The P&L model is similar to that of a franchise business. There is a "fixed revenue credit and then you subtract the actual expenses of the branch, including commissions, processor salaries and then fees that are paid to the corporate parent and then if there's anything left over the residual amount gets paid to the branch manager," said Cameron. The turnover rate is also slightly higher.A corporate model is "more of a straightforward situation" where branch managers get paid on the combination of a base salary, commission on loans they originate and a sliver of the loans originated by their loan officers.The distinctions between the two models attract very different mortgage professionals, industry stakeholders say, with branch managers who run P&L branches often being categorized as risk takers – because branch expenses are directly tied to their compensation – who have greater business acumen."The P&L branch model companies and branch managers tend to be more entrepreneurial and they are willing to be paid on that residual bottom line," said Cameron. "It's almost as if it's a mini mortgage company."The argument for P&LProponents of the P&L model argue that if structured properly, it is beneficial for the loan officer, the branch manager and for a mortgage shop as a whole. For one, branch managers can decide how they want to run their own business."You have to run a profitable branch, but you have more authority to run your business, your branch your way," said Steve Reich, former division president at GO Mortgage. "If you run a corporate branch, the corporate office is probably telling you that you can afford one loan officer, one processor, etc., but in a P&L model maybe you want three loan officers instead and you can do that, but you have to figure out a way to function within the threshold of your revenue and expenses."A manager from CrossCountry Mortgage, who asked to speak anonymously due to company policy, also added that if branches are profitable and run correctly, mortgage lenders, a.k.a. the "mothership," can relax and take a comfortable cut from a branch's profits."You don't have to manage the day-to-day if you're running good branches and they're profitable," they said. "The branches make money and they get to run their own business, while using the mothership for all the back office support. The mothership in turn makes money, services the loans and sells the closed loans, so it can be a win-win situation."According to Mike Farr, division director at APM, some retail companies have lost focus of their priorities and instead have created bloat for themselves by investing into "presidents clubs with all the widgets and all the tools." In his experience, if run correctly, the P&L model can refocus a company back to the loan officer."I want to remember who is making all the money here and that is the originator, so we are all about the loan officer," he said. "They are entrusting us with a percentage of their revenue so that we properly invest that revenue into things that help them get more loans, better products, service and technology."The education and transparency problemThe main issue plaguing P&L models is a lack of education and support from the "mothership," those who manage this type of business say. Without ongoing efforts on the part of a mortgage lender to communicate and train its franchisees, trouble can brew. A recent example of alleged P&L mismanagement are grievances lodged against Hometown Lenders by its former branch managers. They claim Hometown stopped being transparent in its business practices and ceased footing bills such as rent and utilities.Transparency between a mortgage shop and its P&L branches can be a struggle for some lenders, Reich said."A branch might get a random fee every month that's labeled as corporate allocation and it ranges from $500 to $2000 and it varies from month- to- month," Reich posed as an example. "If you're running a P&L and you don't know what your expenses are, it's really hard to run, so there has to be transparency and clarity around that between the lender and a branch. I think coaching from the top to help the manager run their P&L can result in a win-win for everyone."Some branch managers are often plucked from top producer positions and only know how to originate loans, not run a business, which can also contribute to problems, said Farr."They take a top producer, make them a manager of a P&L and expect them to know how to run it and that's unfair and that's what's made our mortgage industry financially sloppy," he added. The APM director noted that he trains his P&L branch managers on a monthly basis to make sure that his employees are confident in what they are doing."It's my job to train these branch managers on how to run a business and for them to understand that there are multiple levers that can be twisted in order to get the outcomes you want, whether it be margin increases or decreases, whether it be expenses, tools, loan officers participating in some of the overhead and tools that they work with," Farr said. "So we allow these people to truly be entrepreneurs and run their own business, but not on their own."According to the manager from CrossCountry, if P&L branches are not managed properly and these branches are "bleeding profusely" that ultimately has an impact on the lender, especially if "the branch leaves or when the branch manager bails, the mortgage shop is left holding the bag regardless.""Somebody at corporate has to be paying attention to the financials of these branches to make sure they aren't signing long leases and are keeping their headcount in check," they said. "A lot of these companies fired their middle management that used to watch this and some of these branches can be bleeding and nobody is there to help stop it until it is too late."Weak points do exist in running a P&L model, the executive from CrossCountry added, and "if it's not managed properly, it can get you into the hole quickly."

Credit ratings were cut on the highest number of commercial mortgage-backed securities in "recent memory" last week, according to strategists at Bank of America Corp.The tally of downgrades last week hit 121 tranches from 40 deals, according to the bank. Many were tied to Fitch Ratings' ongoing review of the CMBS bond market as the ratings company downgraded or warned of underperforming offices, retail locations and hospitality properties or portfolios. So far in September, BofA has spotted 188 bond downgrades and just 15 upgrades.The CMBS sector could also be pressured by the National Association of Insurance Commissioners (NAIC) annual risk-based capital review, according to BofA. The consortium of state regulators sets standards for the insurance industry, influencing what some insurance companies buy."Although in practice many insurers manage to multiples of their RBC requirements, CMBS bondholders across investor types still regard changes in NAIC designation categories with caution," BofA strategists Alan Todd and Henry Brooks wrote in a Sept. 22 client note. The designations "can potentially result in insurance company selling in the event the re-classification results in too significant of a required increase."Further, the increase in pace and severity of bond downgrades may cause this year's review to be somewhat more punitive than last, according to Todd and Brooks. Investors should remain up-in-credit for the time being and should take a "judicious approach" to due diligence on any mezzanine credit.

Using its collaboration with the income-verification fintech Argyle, Georgia United Credit Union is combating fraud attempts, false documents and other crimes during the loan-underwriting process. Andrew Woodman is enlisting more advanced technology to protect Georgia United Credit Union from the growing threat of consumer loan fraud, which he says has changed the nature of lending. "I've been doing this long enough to remember when we used to actually have our team members pick up the phone and do [income] verifications ourselves verbally, and as soon as those procedures and technology transitioned, the expenses to use the services that are out there began to significantly rise as well," said Woodman, who has spent seven years at the $2 billion-asset credit union and became senior vice president of mortgage lending and loan trading in March. Georgia United, based in Duluth, formed a partnership early in the year with the fintech Argyle, which offers a platform to verify the incomes of loan applicants. Credit union leaders hope the service will ease the strain on underwriting staff and streamline document-gathering — all while ensuring borrowers are who they say they are and make as much money as they claim.Members applying for funding are prompted to sign into their payroll provider's portal, which grants the lender real-time access to pay stubs, W-2s and other wage documentation through Argyle's integrations.Georgia United is one of many financial institutions that have hired fintech firms in recent years to get more efficient, modern tools for vetting borrowers. Instances of falsified income documentation and other forms during the application process have only increased in recent years, as shifting consumer sentiment in the wake of the banking crisis saw many pull their deposits. These openings have left financial institutions needing capital vulnerable to scammers targeting areas ranging from mortgage payoffs to wire and title fraud.The task is tough, even with high-tech help. A survey of roughly 200 banking leaders conducted earlier this year by Arizent, which publishes American Banker and National Mortgage News, found that 94% of respondents who work for institutions on the forefront of digital banking said identifying and warding off fraud and cybersecurity threats were the No. 1 challenge in digital banking."The fluctuating demand of our market has really challenged lenders to seek out automation solutions that will help them better adapt to industry volatility," said Becca Seward, director of product for the New York-based document automation platform Ocrolus.Woodman explained how Georgia United has grown into a full-service mortgage lender in the state by working with purchasers such as Fannie Mae and Freddie Mac while offering members loan products through the U.S. departments of Veterans Affairs and Agriculture as well as other sources.With the credit union's recent opening of a loan-production office in northwest Georgia, leaders hope to "be more proactive and identify areas where the credit union is able to grow and expand" further, Woodman said. "We do find a pretty wide range of the economic spectrum throughout what our field of membership really is. ... So for us, it's finding the right product and means to go about verifying those individuals that cover all walks of life," Woodman said.For products like Argyle's, industry experts say periodic reviews of internal procedures and workloads are necessary for minimizing errors during originations.Research released earlier this month by the Denver-based Aces Quality Management found that the income/employment underwriting category accounted for 31.5% of all observed critical defects in the first quarter. The findings were based on post-closing quality-control file reviews conducted by the firm.Nick Volpe, executive vice president of key accounts for Aces, said that institutions wary of these vulnerabilities need to improve communication between loan officers and back-office staff to identify common problems. "It's not like staff are intentionally saying that they don't care about risk, because we don't find that to be honest," Volpe said. "People care, but when you're pulled in 100 different directions and not thinking 24 months ahead of time when you're currently in a kind of war zone of [changing market conditions]," errors are bound to happen.As originators continue adopting new technology, safeguarding against fraud remains tantamount, said John Hardesty, general manager of the mortgage division for Argyle."There's so much tech out there readily available, and lenders need to protect themselves by putting the right tools in place to get the right information," he said. "At the highest level, as we've evolved the technology, it opens the door for more fraud."

If you think home prices are too expensive, you wouldn’t be the only one.A new analysis from First American revealed that housing affordability is the lowest it has been in more than three decades.In other words, it hasn’t been this expensive to purchase a home since the 20th century.The title and settlement company’s Real House Price Index (RHPI) determines house-buying power using median household income, mortgage rates, and home prices.And they found that real house prices, adjusted for these factors, were up nearly 17 percent year-over-year in July.Blame Higher Mortgage Rates and Home Prices for a Lack of AffordabilityAs for why housing affordability continues to erode, it’s a combination of factors.The first and most obvious issue is markedly higher mortgage rates, with the 30-year fixed mortgage now priced above 7%, assuming discount points aren’t paid.Per Freddie Mac, rates on this most-popular loan program are up about 1% from year-ago levels. First American pegs the annual change at a higher 1.4 percentage point increase.And if we zoom out a bit more, this key interest rate was in the 3% range to start out 2022.So interest rates alone have wreaked havoc on housing affordability and home buying power.Just consider a loan amount of $400,000 at a 3% rate versus 7% rate. We’re talking about a monthly principal and interest payment of $1,686 vs. $2,661.That’s nearly $1,000 based on the interest rate increase alone. Then you have to factor in higher property taxes, higher insurance premiums, and so on thanks to a higher purchase price.Yes, despite higher interest rates, nominal home prices have also risen year-over-year.While people logically think there’s an inverse relationship with home prices and mortgage rates, this isn’t always true.Per First American, nominal home prices (not adjusted for inflation) were also up 4% year-over-year.This means a prospective home buyer faces both a higher purchase price and a significantly higher mortgage rate.And though household income increased 3.7% since July 2022, it wasn’t enough to offset the higher costs associated with the jump in rates and rising nominal home prices.Real Home Prices Are Now Above the 2006 PeakIf you recall the year 2006, you might remember that home prices peaked and then began to fall.Back then, unsustainable home price gains were fueled by exotic financing.Many home loans were underwritten via stated income or no documentation at all, while the products offered may have been option ARMs and other adjustable-rate mortgages.Additionally, the typical down payment was at or close to zero, while the loan-to-value (LTV) ratio was often 100% when it involved a mortgage refinance.In other words, home prices were too high, borrowers had little to no skin in the game, and many weren’t even qualified to be homeowners.Without the widespread use of loose underwriting, home prices would not have been able to continue rising as high as they did.As we know, the housing bubble burst set off the Great Recession, leading to double-digit home declines and scores of short sales and foreclosures.Today, unadjusted home prices are 53.7% above those during the peak in 2006, while real prices are 0.7% higher than that housing boom peak.While this might be reason to worry, consider the new mortgage rules that were born out of that crisis.The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) essentially outlawed much of what I just mentioned.Borrowers today must be fully qualified when taking out a mortgage, and the vast majority are going with a 30-year fixed-rate mortgage.Gone are the days of stated income underwriting and negative amortization. That makes the current situation more of an affordability crisis than a housing bubble.It is driven more by a lack of supply than it is loose financing, with not enough inventory to meet demand.Housing Is Overvalued Nationally, But Some Markets Remain AffordableAs noted, the July 2023 Real House Price Index (RHPI) increased about 17% from a year ago.This meant the median sale price was roughly $345,000, while the median house-buying power was just $337,000.Since house-buying power is below the median price, it means housing is overvalued. In an ideal world, it should be at or below the median.However, that applies to the national median price of real estate. Only 24 of the 50 top markets tracked by First American are overvalued by this measure.Granted, it has worsened over time, as only 15 markets were considered overvalued last July.At the moment, San Jose, California is the most overvalued metro, with the median sale price nearly $1,440,000 and consumer house-buying power just $700,000.San Francisco and Los Angeles were also quite overvalued by this measure, though to a lesser degree.Meanwhile, some undervalued markets still exist, if you can believe it. The metros of Detroit, Philadelphia, and Cleveland are undervalued by roughly $126,000.How Do We Fix the Unaffordable Housing Market?We know home prices are out of reach for many, but how do we fix it? Well, the Real House Price Index (RHPI) takes into account home prices, mortgage rates, and incomes.So if you want housing to be more affordable, you need relief via those three elements.This means either mortgage rates need to fall, home prices have to come down, or incomes must increase.Or you get some combination of the three, such as a 1% drop in mortgage rates and a pullback in prices, which boosts affordability.The problem at the moment is mortgage rates might be higher for longer, and home prices are pretty sticky due to a major lack of inventory (why are there no homes for sale?).Incomes also don’t look to be increasing by a material amount, making it difficult for prospective buyers to get in the door.One exception is new home sales, which have relied heavily on temporary and permanent mortgage rate buydowns to tackle the financing piece.But there are only so many new homes for sale, and such sales only typically account for 10% of the overall market.This explains the current housing market dynamic. Ultimately, there aren’t many existing homes on the market, not a ton of demand, and not a lot of sales.And until something changes, this will likely be the status quo.Read more: Why are home prices so high right now?

Bond investors face the crucial decision of just how much risk to take in Treasuries with 10-year yields at the highest in more than a decade and the Federal Reserve signaling it's almost done raising rates.While individuals are piling into cash, for many portfolio managers the debate now is about how far to go in the other direction. Two-year yields above 5% haven't been this lofty since 2006, while 10-year yields eclipsed 4.5% on Friday for the first time since 2007.For Ed Al-Hussainy at Columbia Threadneedle, the sweet spot now is in the shorter-dated notes, which would likely perform well in the event the Fed pivots to rate cuts within a couple years. That maturity also avoids the added risk of longer tenors, which have delivered the most pain to bond investors in 2023 as yields surged broadly amid a resilient economy and swelling Treasury issuance."Unless you think the Fed's going to be on hold for two years," yields above 5% "present pretty good value," said Al-Hussainy, a global rates strategist. "The longer end is where you get hurt the most." To extend further out, he said, "you have to have a stronger view that the labor market is going to crack." That scenario might lead investors to bet on a recession, spurring a Treasuries rally and fueling outsize gains in longer maturities, a function of their greater sensitivity to changes in interest rates.With the job market proving robust, that looks unlikely to happen this year, Al-Hussainy said. "You can be very patient before stretching your neck out to get duration in the Treasury market," he said.Yields rose across the curve this week after the Fed kept rates unchanged, while penciling in one more hike this year and indicating it anticipates keeping borrowing costs elevated well into 2024 to tame inflation. It's an outlook that means even short maturities may not be out of the woods.What Bloomberg Strategists Say..."The resounding selloff in front-end Treasuries we have seen in this cycle isn't done yet, with yields likely to reach the highest in more than two decades should the Federal Reserve follow the path of its latest dot plot."- Ven Ram, Markets Live strategistFor the full note, click hereTreasuries are down 1.2% this year through Thursday, and are on track for an unprecedented third straight annual loss, Bloomberg index data show. Intermediate maturities are roughly flat on the year, while longer-dated debt has lost 6.6%.ING Financial Markets LLC this week said it sees the risk of a further selloff that drives 10-year yields to 5%.For now, the front end appears to have the most appeal. Since the end of July, US government bond mutual funds and ETFs targeting maturities of four years and less have seen around $10.3 billion of inflows, according to EPFR Global data through Sept. 20. Middle maturities have attracted $3.25 billion, and funds covering beyond six years have lured $5.5 billion.Bulls' CaseFor some bond bulls, longer maturities are still the place to be, despite the risk of additional losses. This camp has argued all year that rising borrowing costs are bound to derail growth. Jack McIntyre at Brandywine Global Investment Management said he expects the 4.5% area should hold for the 10-year, given recent weakness in equities and rising oil prices."Meaningfully lower equity valuations would go a long way to tightening financial conditions for asset owners, whereas higher energy prices are tightening financial conditions for lower income earners," said the senior portfolio manager.He's overweight duration in emerging markets and Treasuries and is watching for evidence that the economy and inflation pressures will cool further.It may all be a question of time horizon. For those with lengthier investment mandates, longer-dated Treasuries are at levels that mean "your starting point for future returns is pretty attractive," said Michael Cudzil, a portfolio manager at Pacific Investment Management Co. U.S. fiscal deficits and the Fed's move to shrink its balance sheet complicate that long-term view. It's a backdrop that's prompted investors to demand a higher risk premium on longer-dated debt, helping steepen the curve from historically inverted levels. "We are in this environment where it's hard to envision we are going to go back to the level of long-term rates we had in the last decade," said Jay Barry, head of US government-bond strategy at JPMorgan Chase & Co. The upshot, he said, is "a steeper yield curve with long-term rates that just remain elevated even if the market finally gets comfortable with the Fed going on hold."

CrossCountry Mortgage's CEO sold his lavish waterfront mansion in Fort Lauderdale for $30 million.Ronald Leonhardt Jr. was able to pocket a $7 million profit on the property, which he bought in 2021 for $23 million, according to Redfin. The house located in Harbor Beach was officially sold Sept. 19.Previously, the mortgage magnate tried selling the property in July 2021, two months after it was purchased, and then once more in March 2022. The Wall Street Journal first reported the sale.Chad Carroll, real estate agent at Compass, was the listing agent of the property.The CrossCountry CEO previously flipped two other properties in South Florida. In 2021, Leonhardt sold a pair of waterfront Hibiscus Island homes for $27 million, per previous reporting from The Real Deal.Leonhardt launched CrossCountry in 2003 after having worked several years as a loan officer and broker. The company is licensed in all 50 states and has over 600 branches across the country.The company founder also owns several restaurants and brew pubs.CrossCountry ranks as the third top retail lender in the country with $36 billion in lending volume in 2022, as stated in the Scotsman Guide. The mortgage company ranked 7th among all lenders in 2022 after finishing 10th place the year prior.

Boaz Weinstein would offer Sculptor Capital Management Inc. clients the chance to join his investment in the money manager under the same terms as his billionaire backers, according to people familiar with the plan. The Saba Capital Management founder and his co-investors view the plan as a sweetener for clients, who must give their approval in order for Weinstein's bid for Sculptor to go through. His fellow bidders include billionaires Bill Ackman, Marc Lasry and Jeff Yass. Sculptor said it prefers a deal with Rithm Capital Corp. even though the Weinstein-led bid, at $12.76 a share, is $1.61 higher than the one from the once-obscure real estate investment trust. Sculptor shareholders will vote on the Rithm offer when it's put to them later this year. Under a Weinstein offer, more than half the Sculptor clients — as measured by fees paid — in the $8.5 billion hedge fund must agree to the deal under the terms of Weinstein's bid. If that bar isn't met, the Weinstein-led group would have the right to walk away.While Rithm said it would retain Sculptor's leadership team, the Weinstein bid would demote Chief Investment Officer Jimmy Levin to be just one member of the office of the CIO — if he decided to stay, according to a regulatory filing. Other members would include Weinstein and two other unidentified people with no relation to Sculptor or the bidders. Sculptor said in a filing "a number of clients" already raised concerns about potential for changes to the investment team. The firm hasn't set an exact date for the shareholder vote.A spokesperson for Sculptor didn't immediately respond to a request for comment. 

Mortgage performance improvement could be reaching an inflection point as continued slowing in the annual pace of change might mean delinquency rates are near cycle lows, Black Knight said.August's rate of 3.17% was 4 basis points lower than July's 3.21%, but this was higher than 2.79% one year ago.But that current delinquency rate is still a full percentage point lower than the average for August between 2015 and 2019, the Black Knight first look report noted.Black Knight noted concern that the year-over-year improvement in August was just 0.77% — but in January 2022, it was over 43%.This slowing "suggests delinquency rates may be nearing cycle lows," Black Knight noted in its press release.While serious delinquencies are on the decline, those less than 89 days late have picked up. In August, this group had 1.236 million units that hadn't made a payment, versus 1.232 million units in July. The 30-day and 60-day buckets grew by about 2,000 homes each.Serious delinquencies, those more than 90 days since a payment had been made, totaled 448,000 units in August; in July, it was 468,000 units. This is the lowest since June 2006, Black Knight pointed out.Including foreclosures, 1.899 million properties were not current on their mortgage in August, compared with 1.919 million in July.But this was up from 1.674 million for August 2022. The number of loans in active foreclosure, 215,000, was the lowest since March 2022, when the pandemic moratoria expired. Foreclosure starts on the other hand, increased over 21% from July to 31,900 homes.Future loan performance is tough to predict because of unprecedented government economic policy intervention, Fannie Mae Chief Economist Doug Duncan said. In the past, a correlation has been made between mortgage delinquencies and unemployment.The most recent Bureau of Labor Statistics data found the United States added 187,000 jobs in August as compared with a downwardly revised 157,000 the previous month.Employment is one of the factors the Federal Open Market Committee is using to determine whether or not to raise short-term rates.The top three states in terms of delinquencies are all on the Gulf Coast. Mississippi had the highest percentage in August at 7.58%, with Louisiana at 7.08% and Alabama at 5.31%.They are also the top states for serious delinquencies, with Mississippi at 2.12%; Louisiana, 1.7%; and Alabama, 1.43%.Prepayment speeds, a regular feature in this Black Knight report, increased slightly, to 53 basis points in August from 50 in July.

A vacation rental sign in the rubble of a damaged home after Hurricane Idalia made landfall in Horseshoe Beach, Florida, US, on Wednesday, Aug. 30, 2023. Christian Monterrosa/Bloomberg Federal inaction on a looming flood insurance deadline could further disrupt the nation's ailing housing market.Mortgage lending in some regions could come to a halt if Capitol Hill fails to reauthorize the National Flood Insurance Program set to expire Sept. 30. That threat comes atop soaring home insurance premiums due to environmental disasters and broader economic conditions. "If we don't take on those larger questions, then insurance companies will be the ones left in charge of land use and housing policy through their rate and underwriting decisions," said Douglas Heller, director of insurance at the Consumer Federation of America, in a U.S. Senate committee hearing earlier this month.Property insurance premiums have risen 40% faster than inflation since 2017, and homeowners paid $125 billion to the industry last year, Heller said. Floridians by far pay the highest average premiums, at around $6,000. Some homeowner premiums among the 4.7 million NFIP policies have soared following a new Risk Rating 2.0 methodology. Ten states have sued the government over the changes. New mortgages would halt if the NFIP isn't reauthorized, Sen. John Kennedy, a Republican from Louisiana, said. When the program lapsed for a month in 2010, the market lost around 1,400 residential home sale closings per day, according to the National Association of Realtors. The Mortgage Bankers Association in a letter also urged senators to renew the program. Lawmakers during the hearing didn't suggest an NFIP renewal was imminent, nor did they discuss interest in reform. "I think the consensus is everybody believes they're just going to redo it for a year," said Tony Turner, senior vice president at New Orleans-based Gulf Coast Bank and Trust. "It's just kicking the can down the road."The average annual NFIP premium was $935 in the fourth quarter, up 22% year-over-year. Previously unavailable private flood coverage has buoyed protection. Experts meanwhile say many homeowners underestimate their need for flood coverage.Insurers blamed exits from California and Florida on greater flood, fire and hurricane threats and their expenses multiplied by inflation. Homeowners insurers also have their own policies, and reinsurance firms have hiked their premiums up 35% in the first half of this year, according to expert testimony in the Senate."Everybody just thinks it's climate change," said Craig Eagleson, president and chief revenue officer of Incenter Insurance Solutions. "The natural disasters are a piece of it, but it's the inflationary and the regulatory issues."Eagleson's firm provides embedded insurance to real estate businesses, allowing consumers to access coverage options as they seek a mortgage. He recalled a $9,000 premium for a $3 million house on Florida's Atlantic Coast two years ago compared to a $74,000 policy on a $3.4 million home north of Miami six weeks ago. Sunshine State insurers have also paid a whopping $51 billion in legal fees in the past decade, 71% of which has gone to attorney's fees, experts said. Florida lawmakers recently passed tort reforms for the troubled market.In California, over a dozen providers have either stopped writing new coverage or quashed renewals for reasons including unique regulation. Proposition 103 allows a state agency to review insurance rate hikes, a system that has stymied some proposed fee raises for up to two years, experts said. Regulators there last week also announced a plan to allow insurers to price in climate risks, although the agreement between the state and insurers may result in more elevated premiums. Homeowners are also missing more bills because of insurer restrictions around payment plan flexibility, said Lauren Menuey, managing director of Goosehead Insurance. Companies are also not renewing policies in the case of missed payments. The industry last year posted a slight underwriting loss, paying out $1.02 for every $1 premium it received, said Jerry Theodorou, policy director of finance, insurance and trade at the R Street Institute. The industry, however, offset the underwriting loss with investment income delivering a 4% positive return. Loan officers and shoppers aren't always aware of the insurance headwinds either, Turner said. First-time homebuyers are often surprised when they look at premiums, he said, and mortgage lenders have lost applicants once consumers realize the costs. Experts also suggested upgrading residential properties to mitigate coverage costs. Lawmakers didn't speak further on the possibility of providing additional federal insurance aid. Officials from the 10 states suing the government over the NFIP's Risk Rating 2.0 testified before a federal court last week, describing the widespread impact of higher flood premiums. Real estate disruption could lead to lower tax revenue, which in turn could dampen flood prevention and mitigation efforts, witnesses said."The loser in this situation is the customer, it's the homeowner," Menuey said.

The Federal Home Loan Bank System made minor procedural errors in its response to depository failures earlier this year, but the bigger concern is that the crisis points to risks that bear out the need for reform, according to a watchdog report issued Friday.The report from Federal Housing Finance Agency Inspector General Brian Tomney's office  didn't make any recommendations. However, it does note that the FHFA's Division of Federal Home Loan Bank Regulation has a pledge to review related concerns."The collapses drew scrutiny … into the FHLBanks' member credit risk management practices and, more broadly, into the system's role in lending to troubled members," the report from Kyle Roberts, deputy inspector general for evaluations, noted.Even before the crisis, the FHFA had identified a need for reform of the system, but its focus shifted after the bank failures. The FHLBanks advance funds that are secured with a super lien against collateral like home loans or related assets, and did so heavily during the crisis.In terms of the system's short-term response to the bank collapses, one criticism in the inspector general's report was that, "In certain instances, examiners did not describe primary worksteps in their pre-examination analysis memoranda, as required."However, other documentation contained some of the missing information.In a separate report also released Friday, the inspector general office identified turnover at the government-sponsored enterprises as a risk, noting "intense competition for skill sets such as information technology, which are core to the regulated entities' mission."As an example, the watchdog flagged the fact that "FHFA found that an attrition rate of almost 18% at one FHLBank contributed to errors in its operations."Fannie Mae's overall attrition rate reached as high as 9% in the last two years and at one point the equivalent number for technology positions reached 12%, according to annual report data cited by FHFA-OIG. Both Fannie and Freddie have also had notable turnover in multifamily.The report also noted that one FHLBank has experienced regional wage pressure in its area, and a pandemic-related shift to remote work boosted attrition at one of the regulated entities.It's unclear whether the limited return to the office has reversed the latter trend to any degree, but the report did note that one enterprise, Fannie Mae, recorded a decline in turnover in 2022 following increases the previous two years.Senior executive positions across all of the FHFA regulated entities, not just Fannie and Freddie but the FHLB System as well, have had turnover issues. In the first half of 2022, 19 officers left Fannie and Freddie had a dozen vacancies, according to the inspector general's report. Fannie has succession plans for 52 senior positions. Freddie has them for 68.Recently Freddie CEO Michael DeVito announced that he plans to retire next year. So did Teresa Bryce Bazemore, president and CEO at the Federal Home Loan Bank of San Francisco.Overall, the enterprises said their attrition rates are in line with those of their peers in the financial services sector and the IG acknowledged that their struggles with them in part have stemmed from broader market conditions.

Enjoy complimentary access to top ideas and insights — selected by our editors. First Republic Bank failed in April and was placed into the receivership with the Federal Deposit Insurance Corp. The FDIC then sold all of the bank's deposits and virtually all of its assets to JPMorgan Chase.Lauren Justice/Bloomberg JPMorgan Chase has closed 14 former First Republic Bank branches in California, completing its initial plans to trim the failed bank's branch network after taking over in May.The offices were closed last week, according to the Office of the Comptroller of the Currency's weekly bulletin of bank branch closings and openings. Half of the locations were in San Francisco County. The remaining ones were spread across six other counties in California.Earlier this year, JPMorgan said that it planned to close 21 First Republic branches by the end of the year. All of those closures have now been completed, according to a source familiar with the matter.The shutdowns represent one-quarter of the 84 branches that First Republic operated on April 30, when it was closed by the California Department of Financial Protection and Innovation and placed into receivership with the Federal Deposit Insurance Corp.The next day, JPMorgan, which is the largest U.S. bank by asset size, acquired all of First Republic's deposits and virtually all of its $229.1 billion of assets. The deal was struck one week after First Republic disclosed that it had lost $100 billion of deposits in the weeks following the abrupt failures of Silicon Valley Bank and Signature Bank in March.JPMorgan has said that folding in First Republic gives it access to a mostly affluent client base, and allows it to expand its wealth management business. The deal is expected to add about $500 million in earnings every year, according to JPMorgan.The 21 branches selected for closure had "relatively low transaction volumes and are generally within a short drive from another First Republic office," JPMorgan said in a statement earlier this year. The 63 remaining First Republic offices will be rebranded as Chase Bank branches.But more branch closures are expected to follow.Over time, the remaining First Republic branches will either stay open because they're in better locations than nearby Chase branches, or they will be closed due to their proximity to an existing Chase office, Jennifer Piepszak, co-CEO of consumer and community banking, said during JPMorgan's investor day in May. Some other branches may get converted into "private client centers," she said.Shortly before First Republic was taken into receivership, the San Francisco-based bank had said that it planned to cut as much as 25% of its workforce due to an extreme squeeze on profitability. Then in May, JPMorgan notified 1,000 First Republic workers that they would not be offered employment following the acquisition. First Republic was the second largest bank to fail in U.S. history, based on assets. It was one of several regional banks that drew intense scrutiny after the failures of SVB on March 10 and Signature on March 12. Both banks experienced massive deposit runs.In mid-March, JPMorgan and 10 other big banks pledged $30 billion of deposits to try to stabilize First Republic's balance sheet after the exodus of deposits. Despite the infusion, deposits continued to exit the company. By the end of April, there were few options left to save it.

Federal Reserve Gov. Lisa Cook said artificial intelligence could be a boon to the U.S. labor market if workers, employers and policymakers are adequately prepared.Ting Shen/Bloomberg Federal Reserve Board Gov. Lisa Cook said artificial intelligence technology is poised to be a boon to innovation, productivity and even the labor market, but it will also come with new ethical obligations.Cook delivered a keynote address Friday morning at the National Bureau of Economic Research's Economics of Artificial Intelligence Conference in Toronto. During her remarks, which were broadly supportive of the technology, she said humans would still be accountable for actions they take based on AI recommendations. "AI makes predictions, but AI does not make choices," she said. "Ultimately, human beings are still in control."Cook also stressed the importance of ensuring transparency and accountability around AI-generated decisions."Importantly, in the policy arena — as well as health care, consumer finance, insurance, and many others — decisionmakers have legal and ethical duties to be deliberate about the effects their choices have on affected groups," she said. "In this context, an AI black-box with no insight into the decision-making process is of limited value."Cook added that she looks at AI-generated forecasts with a "skeptical eye" if they are not accompanied by an explanation of what drives them. She said this is especially important when someone is impacted by a decision and wants to appeal it."I am particularly interested in seeing progress on 'explainable AI,'" she said. "Which may help bridge the divide between the technical sphere and the user."Bank regulators have been monitoring the advancement of AI and its potential implications for the banking sector for years, but have only recently begun issuing guidance around the subject, with a focus on its potential to discriminate against certain types of borrowers. In July, Fed Vice Chair for Supervision Michael Barr warned that the technology could "perpetuate or even amplify" bias in the mortgage lending sector.Consumer Financial Protection Bureau Director Rohit Chopra has been the administration's most ardent skeptic of AI in financial underwriting. Last year he warned firms to be wary of decisions generated by black-box algorithms, noting that they are still responsible for acting upon such recommendations. "The law gives every applicant the right to a specific explanation if their application for credit was denied, and that right is not diminished simply because a company uses a complex algorithm that it doesn't understand," he said.During her remarks, Cook — an economist by training — said further advancements in AI could be beneficial to the Fed's dual mandate of maximum employment and stable pricing."When firms deploy technologies that make workers more productive, they create the conditions for greater wage growth consistent with stable prices," she said. "And the labor market adjustment that follows as the economy adapts to technical change can affect maximum employment."Cook brushed off concerns that proliferation of generative AI — software that can generate unique content based on natural language prompts — will lead to widespread disruption of the labor market. She noted that, historically, whenever new technological advancements render certain types of work obsolete, it also creates new types of work and brings efficiency to existing ones. "While some observers might warn that means fewer such workers, it is more likely we will need more of them," she said. "After all, when knowledge workers can accomplish more in an hour, firms have an incentive to use more of them, not fewer."Cook sees the potential for AI to increase the demand for workers in the science, technology, engineering and mathematics, or STEM, fields as well as heightened demand for certain "social skills" as well. But, she noted, the ultimate impact of AI on the economy will depend largely on how well the labor market prepares for the change."The benefit of AI to society as a whole will depend on the adaptability of workers' skills, how well they are retrained or redeployed, and how policymakers choose to support the groups that are hardest hit by these changes," she said.

Beginning Oct. 1, the federal insurer of government-backed mortgages will permit issuers to offer securitizations on multiple participations — or borrower drawdowns on available equity —  per HECM per month. Current rules allow for only one securitization per loan in any monthly period based off a single participation.The move is expected to reduce liquidity pressures on issuers of HECM mortgage-backed securities and ensure the loan program remains viable and sustainable, according to Ginnie Mae. The present policy meant issuers would need to wait as long as a month between the time of a HECM participation and securitization, requiring them to rely on various financing vehicles or their own capital to fund the reverse-mortgage disbursements to borrowers. Under the new regulations, the loans can be securitized and pooled as soon as they are ready. "Our goal is to improve Issuer liquidity and strengthen this important program for America's seniors," said Ginnie Mae President Alanna McCargo in a press release. "Ginnie Mae's HMBS program changes will enable Issuers continuous access to capital market sources of funding to securitize HMBS participations throughout the month," she said. HECMs are offered through the Federal Housing Administration and provide older homeowners access to their accrued equity. Liquidity risks related to HECM and similar reverse-loan programs came under heightened scrutiny at the beginning of this year following the November 2022 bankruptcy of Reverse Mortgage Funding, previously one of the leading originators of the product. Following RMF's shutdown, Urban Institute issued a report this year pointing to some of the flaws in the design of the HECM program that helped lead to RMF's failure and could put others in the industry at risk. Once new regulations are introduced in October, issuers will be bound by additional requirements when it comes to pooling more than a single participation from a HECM. Each securitized participation must be in sequential order and only one per HECM will be permitted in a securitization pool. Prior pools including other participations on the loan must also be issued before a new securitization can be issued. Additional pooled participations coming from disbursements occurring after the first of the month will owe interest for the entire 30-day period to security holders as well.The failure of Reverse Mortgage Funding initially led Ginnie Mae to seize and take over the company's servicing in late 2022. Earlier this year, the agency, which is an arm of the Department of Housing and Urban Development, also updated requirements for securitized HMBS pools, reducing the minimum size to $250,000 from $1 million. Ginnie Mae cited risks posed by the current level of interest rates and economic pressures as reasons behind the move.

California's insurance commissioner announced a new regulatory plan backed by the industry that would allow insurers to factor future climate risks into their pricing and require them to offer more coverage in fire-prone areas.  The announcement on Thursday, bolstered by an executive order from Governor Gavin Newsom, came after several major insurers, including State Farm General Insurance Co. and Allstate Corp., said they would stop issuing new homeowner policies or renewing existing ones in a state that has been ravaged by wildfires in recent years. The insurers argued that California's current rules, which limit their ability to use predictive models and curb rate increases, made it too costly to cover homes.The new agreement reached with insurers could result in higher premiums for homeowners across the state, adding another challenge in one of the country's most expensive real estate markets."Making insurance more available is becoming critical for our entire economy — with the climate crisis coupled with historic inflation, we are truly living in unprecedented times," Insurance Commissioner Ricardo Lara said at a briefing. "It is clear we cannot keep going down the same road without any action or change."The new regulations, which haven't been formally proposed, would give insurers more flexibility to use forward-looking data on climate change, instead of relying on historical data, subject to the approval of the commissioner. As part of the plan, insurers agreed to write at least 85% of their statewide market share in areas designated as high-risk by the state, Lara said.The deal is the result of months of negotiations. Insurance companies said California's consumer-friendly regulations didn't reflect the rising damages from wildfires and surging costs to rebuild homes. Consumer advocates have accused the industry of seeking to sidestep a cumbersome regulatory process in search of unnecessary rate hikes.State Senator Bill Dodd, a Democrat who represents parts of fire-scarred Napa County and sits on the Senate Insurance Committee, said California needs to ensure homeowner policies are available even if costs increase around the state."There are people that are nowhere near the wildfire danger that aren't being renewed," said Dodd. "This helps stabilize the entire market."The shrinking insurance market has forced many California homeowners in areas that are threatened by wildfires to go without property insurance. Others have switched to the FAIR Plan, a state-mandated insurer of last resort that saw enrollments grow 70% between 2019 and 2022.The American Property Casualty Insurance Association, a trade group representing home, auto and business insurers, said in a statement that it looked forward to working with Lara and other stakeholders on "meaningful reforms" to ensure consumer access to coverage."Everyone understands that California's insurance market is in a spiraling crisis that requires immediate policy solutions to protect consumer access to the coverage they need," said Denni Ritter, a vice president at the association.Lara's proposal doesn't require legislative action but still faces a lengthy rulemaking process and a series of workshops where the state will discuss climate-risk modeling. The insurance commissioner hopes to complete the regulatory process by December 2024, a spokesperson for his office said.Jamie Court, president of the advocacy group Consumer Watchdog, said the group will scrutinize the drafting of the regulations."It's bound to drive up premiums," said Court. "This is going to be a bonanza for the insurance companies if we're not careful."

Mortgage manufacturing quality continued to improve during the first quarter, a bright spot in an industry that tolerates a certain level of misrepresentations at times of tight margins and low volume.The critical defect rate was 1.78% in the first quarter, down from 1.84% in the fourth quarter and an all-time high of 2.47% in the third quarter of 2022, according to post-closing quality control file reviews conducted by Aces Quality Management. For the same period last year, the defect rate was 1.93%. The reviews use Fannie Mae's defect taxonomy to categorize errors."While the drop in origination volume has challenged the industry, it has also enabled underwriting and QC teams to be more diligent with each loan file, resulting in higher loan quality," Nick Volpe, executive vice president, said in a press release. "The continued decline in the overall critical defect rate on the heels of last year's historic high indicates lenders have not let the desire for volume override the need to reduce errors and mitigate risk."While a manufacturing defect is not necessarily a sign of mortgage fraud, it means the lender likely cut corners and it could be a red flag for malfeasance.Manufacturing defects can also lead to a repurchase demand from Fannie Mae or Freddie Mac, which have been on the upswing in recent months.In the first quarter, total volume of $333 billion was down from $409 billion in the fourth quarter and $708 billion on a year-over-year basis, according to the Mortgage Bankers Association.Lenders took a pre-tax, per-loan net loss of $1,972 in the first quarter, an improvement over the fourth quarter's record $2,812 per-loan loss, MBA data cited by Aces found. That further declined to $534 pre-tax per-loan in the second quarter, helped by a reduction in expenses to $11.044 for each origination."We expect this [defect] data to continue to improve in the coming quarters," said Aces CEO Trevor Gauthier. "Making strategic investments in tech and optimizing operations — especially in [quality control] — can have a significant impact on protecting existing revenue amidst challenging market conditions."Most of the mortgage industry layoffs have been carried out and that should help quality, the Aces report noted, adding "the industry is now clearly in the space where the strong are trying to eat the weak."Another consideration for the future regarding defect rates is new prefunding and post-closing procedures that went into effect on Sept. 1 from Fannie Mae."With the recent changes to Fannie Mae's prefunding QC reviews and post-closing QC cycle times, time will tell in the following quarters how diligent lenders have been in maintaining loan quality and investor requirements," Volpe commented.Defects related to income and employment data remained by far the single largest finding by Aces, at 31.5% in the first quarter. But that is an improvement from 36.9% in the fourth quarter.Assets were the next most common finding, at 16.5%, but that is also better than the 18.1% of these defects found in the fourth quarter.Borrower and mortgage eligibility related defects also showed a marked reduction in occurances, to 8.7% from 14.1% in the fourth quarter, when it was the third most cited finding.On the other hand, legal and regulatory compliance rose to No. 3 most cited defect in the first quarter, to 12.6% from 5.4%.Loan documentation defects increased to a rate of 10.2% from 9.4%; liabilities to 7.9% from 6.7%; and credit to 5.5% from 4%.Defect rates also tend to be higher in a purchase market, as misrepresentations are made in order to get the buyer into the house. On the other hand, when refinancings are need driven, defects can be higher for those loans as well.The Aces data showed that purpose-related defect rates were in line with the share of files reviews. Approximately 83.1% of the files looked at were purchases, and the share of all loans with a defect was 82.4%.By product type, Federal Housing Administration-insured loans had an outsized defect rate, 33%, versus the percentage of files reviewed, 20.4%. It is also true to a lesser extent for Veterans Affairs-guaranteed mortgages, 13.2% and 12.3% respectively.

First, a big thank you to Department of Housing and Urban Development Secretary Marcia Fudge and her colleagues at the Federal Housing Administration for removing the stigma of FHA rejects. Back in April, we noted in this column that the procedure of flagging loans that previously had been denied was unfair and even discriminatory."Let's say you were denied credit by a government issuer, a bank or credit union that has higher credit overlays than the FHA minimum requirement," we wrote. "That lender must file a call report documenting the credit decline. Congratulations, you are now an 'FHA reject' and may never qualify for a government mortgage."  Kudos to former MBA CEO Dave Stevens and others in the mortgage community for pushing this long overdue change. But there is more good news. Federal Housing Finance Agency Director Sandra Thompson seems to be putting another bad idea to rest, in this case changing how mortgage lenders use credit score when underwriting a mortgage.  For some time now, we've been hoping that FHFA would eventually realize that changing the use of credit scores in consumer lending is a big, big undertaking that far exceeds the agency's authority. Even if you are soaring through the clouds propelled by progressive pixie dust, using two credit scores to underwrite a loan is impossible.Ian Katz of Capital Alpha Partners in Washington notes that Thompson had always said that there would be a multi-year implementation phase, but now FHFA seems to be slowing the process even further."There have been a lot of questions about how the switch from three credit reports to two would work, and it seems the short answer is that the FHFA isn't sure yet and wants more time to figure it out," Katz wrote in a client note. Katz continued: "We don't know when the study and work will finish, and the FHFA didn't offer any estimates. But we wouldn't be surprised if this remains unresolved by the end of the current presidential term."Meanwhile, FDIC Chairman Martin Gruenberg made comments to the Exchequer Club this week about the deliberations of the Financial Stability Oversight Counsel regarding nonbank risk. The good news is that Chairman Gruenberg's remarks focused first and foremost on hedge funds, money market and other entities, with mortgage finance last. Hedge funds and other high leveraged vehicles are where the true risk resides in the world of finance. The exposures Chairman Gruenberg referred to with respect to highly leveraged funds is concentrated in large prime broker banks such as JPMorgan, Goldman Sachs, Morgan Stanley and Citibank, and other nonbank finance companies and fintechs.  The major dealer banks on Wall Street have derivatives portfolios that are orders of magnitude bigger than their balance sheets or capital. Morgan Stanley, for example, has gross derivatives exposures equal to more than 3,000% of total assets.Most of the derivative exposures of these banks are from interest rate swaps, a crucial market which mortgage bankers and other counterparties use to hedge risk. As Chairman Gruenberg notes, the FSOC is most concerned about the use of derivatives to speculate on interest rate movements in the Treasury market."Nonbank financial institutions were major contributors to the financial instability that led to the Global Financial Crisis of 2008," Gruenberg noted, ignoring the public record. "According to the findings of the U.S. Financial Crisis Inquiry Commission, certain nonbanks contributed significantly to the crisis because they were allowed to freely operate in the capital markets with insufficient regulation, no transparency requirements, and no limits to their reliance on leverage."In fact, market-funded banks and near-banks such as Citibank, Countrywide, Washington Mutual, Lehman Brothers, Wachovia and Bear Stearns were responsible for the 2008 crisis. Citibank's "mortgage power" product in the late 1980s, for example, was actually the first subprime, no-doc mortgage loan offered in the U.S.The government-sponsored enterprises, Fannie Mae and Freddie Mac, were the primary buyers of these subprime loans originated by Wall Street's largest banks.  Yet bank regulators in the Basel nations ignore the public record and instead point the finger of blame for 2008 at nonbanks? Chairman Gruenberg spent part of his talk at the Exchequer Club repeating the tired rhetoric about "risk" from mortgage lenders and servicers. He also parroted the inaccurate statements by Ginnie Mae officials about MSR price "volatility," which is completely wrong. Ginnie Mae has never published any data to support their frequently cited concerns about MSRs. In fact, MSRs are the single most solid capital asset that banks and nonbanks can hold in a rising interest rate environment. In coming months, nonbank firms that hold MSRs will thrive while commercial banks holding commercial real estate loans, for example, will be annihilated thanks to the Fed's interest rate hikes.The FSOC met on Friday to consider the "proposed analytic framework for financial stability risk identification, assessment, and response and the council's proposed guidance on non-bank financial company determinations."  But you can be sure nobody on the FSOC will discuss the primary source of volatility in the U.S. credit markets, namely the $33 trillion federal debt."The FSOC Hedge Fund Working Group found that hedge funds were among the three largest sellers of Treasury securities by category in March 2020 along with foreign institutions and open–end mutual funds," Gruenberg noted. "And that they materially contributed to the Treasury market disruption during this period." Nonsense. The biggest threat to banks, nonbanks and all U.S. citizens is not the speculative gyrations of hedge funds in the Treasury market or the minute movements in the valuation of MSRs. No, the single largest risk to the U.S. economy is the federal debt and the inflation and market volatility that it creates.The inability of the U.S. government to manage its affairs and eliminate fiscal deficits is the single largest source of risk to the financial system. The grotesque derivatives exposures of U.S. banks shown above are a direct byproduct of the federal debt. Investors selling Treasuries are simply trying to navigate in a market dominated by the U.S. government. Nonbank risk is immaterial in comparison to the existential risk created by the U.S. Treasury. Until the Congress eliminates the federal deficit, all of the ministerial puffery from the FSOC about risk, real and imagined, just adds to the political dissonance of Washington.  If Chairman Gruenberg and Treasury Secretary and FSOC Chair Janet Yellen really want to see the source of risk from leverage in the financial markets, they should simply look into the mirror.

Today was a rough day for mortgage rates as the market digested the Fed’s latest outlook, which confirmed its inflation fight is far from over.While they didn’t raise their own fed funds rate yesterday, they did leave the door open for another hike in the future, assuming economic data warrants it.Their overall stance actually didn’t change, but their so-called “dot plot” revealed that more of the Federal Reserve’s policymakers expect another rate hike this year.Granted, it appears only one more quarter percent (0.25%) hike is in the cards at this juncture.So while we might be going higher, it might only be a tiny bit higher. And after that, there may be more certainty for mortgage rates.Higher Mortgage Rates for Longer, However…After the Fed’s announcement, everyone seemed to adopt a simple takeaway: “higher for longer.”In other words, most don’t expect the Fed to pivot and begin loosening monetary policy anytime soon.There had been some hope that we were at the terminal rate, where the Fed stops hiking. But maybe not just yet.As it stands, the Fed has raised their own fed funds rate 11 times since early 2022, and mortgage rates have risen along with those hikes.While the Fed doesn’t control mortgage rates, its policy decisions can affect the direction of long-term interest rates, such as those tied to 30-year fixed mortgages.Simply put, they don’t set the rate on your 30-year fixed, but what they say or do can push rates higher or lower.Of course, their decisions are rooted in economic data, so it’s really the economy that’s dictating the direction of mortgage rates.Anyway, some market watchers were hopeful the Fed was done hiking rates prior to the announcement yesterday.And again, while they did hold rates steady, the dot plot indicated one more hike could be in the cards before the end of the year.The Dot Plot Got WorseThese individual estimates from the dot plot also moved higher for 2024 and 2025, meaning rates may have to stay where they’re at for a bit longer than expected.However, what does higher actually mean? Does it mean one more 0.25% rate hike from the Fed, but nothing beyond that.And how does that translate to mortgage rates? On the one hand, it’s another rate hike, but mortgage rates only take cues from the Fed’s monetary policy.If the Fed follows through with one more hike, but also signals that it’s done hiking, mortgage rates could breathe a sigh of relief.Continue to Watch the Economic Data, Not the Fed AnnouncementsWhile the initial reaction to the Fed’s latest forecast was not good news for mortgage rates, or the stock market for that matter, it’ll be interesting to see what transpires once the dust settles.Economic data had been mostly improving recently, in the sense that inflation was trending lower, which is the Fed’s primary objective.But there were some hiccups recently, including lower-than-expected jobless claims, pointing to more economic resiliency.However, if weaker economic data continues to come down the pipe, the Fed will be less inclined to raise its own rate and perhaps provide more clarity on future policy.In that sense, not much has really changed here. The Fed is still data-dependent as it has always been.Instead of watching Jerome Powell’s pressers, you may want to continue looking at the data that comes in, whether it’s the CPI report or jobs report. This is more important than looking at the dot plot.Assuming the data continues to show a cooler economy, interest rates may not rise much more, and could simply linger at these higher levels.But until we see consecutive reports showing a real drop in inflation, it’s going to be more of the same.More Certainty from the Fed Could Keep Mortgage Rates in CheckLastly, we’ve got very wide mortgage spreads, which is the difference between the 10-year Treasury yield and the 30-year fixed.It’s been close to 300 basis points for a while now, nearly double the long-run average of 170 bps.If the Fed is able to provide more clarity on their policy by year-end, it might allow this spread to narrow. And that could offset any additional upward pressure on mortgage rates.It’s somewhat bittersweet, but it could prevent the 30-year fixed from going even higher, say to 8%.With the 10-year yield around 4.50 and the spread currently about 300 bps, 30-year fixed rates are hovering around 7.5%.If that spread can come down to say 250 bps, you might get a mortgage rate back in the 6s, or at least offset any additional increases.Tip: The prime rate, which is tied to HELOCs, moves in lockstep with the fed funds rate. So those with open-ended second mortgages have seen their rates go up each time the Fed raised its own rate.

Problem mortgages owned by life insurance companies increased 77% since 2019, with a significant portion of those being residential mortgages, a report from AM Best found.Still, distressed loans no matter the property type make up a mere $4.5 billion of the $691.2 billion of the total portfolio currently owned by life companies.Last year, these companies had $639.8 billion, well above the $363.3 billion portfolio in 2013.Over the past 10 years because of the low interest rate environment, life companies increased their exposure to mortgages because commercial real estate, the bulk of their portfolio, offered better returns than investment grade bonds, which wasn't the case in 2013.Mortgages are 13.5% of their invested assets as of 2022, up from 10% in 2013."Shifting allocations to mortgage loans helped mitigate the spread tightening between liabilities and assets," said David Lopes, senior industry research analyst, in a press release.That is now being affected by various multiple economic issues, the report said. The rapid rise in mortgage rates since last spring, for example, makes borrowing more expensive.Loans secured by office properties are on a downswing, as this property type was affected by the pandemic further driving the growth of work from home arrangements."The share of office properties in mortgage portfolios continues to decline and accounted for only 11% of newly issued mortgages in each of the last two years, less than half the level in 2018," said Jason Hopper, associate director. "The industry's mortgage portfolio allocation to office properties dropped to 21% in 2022, from over 26% in 2018."Macroeconomic pressures have led to problems with debt service coverage ratios, a key commercial performance metric, the Best report noted. But helping performance is that many of these have loan-to-value ratios under 70%."Still, the performance of insurers' commercial mortgage loan holdings has historically been favorable due to disciplined underwriting, and low LTVs provide more room to withstand fluctuations in values," the report said.The total commercial portion of the mortgage portfolio increased to $605.5 billion in 2022, up from $570.1 billion a year earlier.Across all investor types, commercial and multifamily mortgage debt outstanding grew by $37.7 billion for the three months ended June 30, the Mortgage Bankers Association just reported.In a separate MBA report on loan performance, property types with stable cash flows have different prospects than those like offices which are reporting declines in income.Instead, life companies are investing more in multifamily properties, which now account for 32% of their mortgage holdings.Back in 2018, multifamily and office were nearly equal in share of life company portfolios, at 26.4% and 26.3% respectively, Best's data showed.Retail, another problematic commercial property type, now accounts for 16.7% of life insurer portfolios, down from 22.1% in 2018.Meanwhile, residential mortgages, just 8.5% of life company investments, are 77% of all of the problem mortgages. By dollar amount, residential mortgages ended last year at $58.8 billion, up from $44.1 billion in 2021. Almost all of the exposure, 97%, is held by 20 companies.Those residential mortgages have replaced some commercial investments over the past decade. In 2013, this category was just $5.8 billion or 1.6% of the mortgages life companies owned.

Equifax announced a new product integration with a British software firm that should lead to expedited underwriting of mortgage borrowers working at small- and medium-sized businesses, it said. The Atlanta-based data provider's digital income and employment verification tool, The Work Number, which provides the data to lenders and underwriters, is now available to companies using the payroll-service platform offered by Iris Software Group. The partnership brings the digital capabilities of The Work Number to Iris' client base of small and medium-sized businesses, allowing them to instantly deliver the employment history and salary of borrowers. Along with faster verification, the information can be transmitted outside traditional business hours, Equifax said. "This integration with Iris Payroll Relief software further demonstrates our commitment to bringing the benefits of The Work Number to employers of all sizes and their employees," according to Joe Muchnick, senior vice president of employer services and talent solutions at Equifax Workforce Solutions, in a press release.Mortgage borrowers often cite the time it takes to close a loan as one of the primary pain points in the borrowing process, with data verification proving to be among the most cumbersome aspects. During the home lending boom of 2022, it took 49 days to process a refinance according to the Federal Housing Finance Agency. "Iris is one of the U.K.'s largest private software companies, and as they rapidly expand into the Americas we are proud to help them meet the needs of their U.S. customers," Muchnick added.According to the Small Business Administration, enterprises of 500 employees or less account for approximately 46% of the private-sector workforce, with human resource functions often handled by the proprietors themselves. The addition of The Work Number could speed up the underwriting process for as many as 1 million U.S. borrowers, Equifax said. Its tool currently includes data from 2.8 million employers."By integrating this powerful tool, we are empowering our clients to assist their clients in purchasing their first home, starting a new job or buying a car," said Jim Dunham, president and general manager of Iris Americas. The Work Number is already available on Iris' platform at no additional cost. The agreement between Equifax and Iris comes at the same time that Floify, the point-of-sale systems provider, announced its own new integration with technology platform Informative Research, as the two businesses unveil an employment and income verification waterfall process. The technology will provide lenders on Floify's platform with the ability to request multiple reports in a streamlined process as needed and eliminate the steps involved in obtaining them individually. Lenders also will be able to specify the report providers in the order they wish based on their own needs and cost preferences. "This unique technology will help our clients reduce costs, which is especially important today as verification-related fees increased significantly in the past three years," said Sofia Rossato, president and general manager of Floify. 

A growing number of industry groups are calling on the Federal Housing Finance Agency to rethink proposed amendments that would expand suspension criteria for counterparties.Opposition to the proposal, which could affect companies selling loans to or servicing mortgages for two large government-related players, largely centers on the inclusion of certain forms of civil misconduct as suspension criteria.The FHFA has said the criteria would only be applied to certain "covered misconduct" such as "fraud or embezzlement, etc.," but some trade organizations are concerned it could be extended to relatively small infractions."Overall, the expansion of this program ... could have major impacts on sellers and servicers, exposing them to suspension risk for relatively minor regulatory or legal settlements,"  the Mortgage Bankers Association and two other groups said in response to a request for comment.The scope of the expansion would extend not only to blatant violations but unintentional mistakes, MBA, the American Bankers Association and a group of community financial institutions said in their comment letter."Civil fraud, for instance, can be proved by demonstrating a negligent misrepresentation rather than intentional deceit," said the trio, which also includes the Independent Community Bankers of America.The FHFA says in its proposal that "counterparties determined to have committed certain forms of misconduct in the context of civil enforcement actions may pose a significant risk to the regulated entities," but the trade groups said they're unclear on what the specific concerns are.The three groups called for better enforcement of current standards around criminal charges, like the ones former MBA chairman Ron McCord was suspended for, as an alternative way to manage counterparty risk.That might help FHFA with a backlog of suspended counterparty referrals, they said.The backlog dates back to at least 2017, according to the agency's watchdog. In the FHFA inspector general's last follow-up report on these concerns (from 2021), it found improvement but indicated more needed to be done to eradicate it.(The agency's general counsel "disagreed with certain conclusions" in the 2021 report and indicated that valid roadblocks stood in the way of meeting the deadline in some cases.)In contrast to MBA/ABA/ICBA letter and others from industry trade groups, some individual commenters and at least one from a consumer advocacy organization indicated they were supportive of the expanding the scope of counterparty suspensions.The FHFA is part of a Biden administration interagency policy council focused on renter protections, and increasing the scope of suspended counterparty criteria could help in that regard, the Americans for Financial Reform Fund and National Housing Law Project said."This is especially important for tenants living in multifamily properties with federally backed mortgages," the fund and NHLP wrote in a comment letter. "Tenants on the private rental market have very few existing tools to hold landlords accountable for violations of their rights."While these two entities generally liked the proposal, even they suggested that more specifics related to what type of civil actions the expansion would encompass would improve it."FHFA should strengthen the proposed rule by adding examples of the types of misconduct and sanctions that would give rise to suspension," the fund and the housing law project said in their letter.

When you take out a mortgage, whether it’s a refinance or a home purchase, you may come across the phrase “cash to close.”Virtually all mortgages require some financial contribution from the borrower to fund the loan.It might be down payment funds, it might be lender fees, or it might be prepaid charges like property taxes and homeowners insurance.There’s a good chance it’ll be a combination of these things, which will need to be paid at closing via a verified account.Let’s talk more about the meaning of cash to close, how it’s calculated, and how it’s paid.Cash to Close on a Home Loan Is More Than Just Closing CostsIf you look at your paperwork, you should see a list of closing costs associated with your home loan.You can see estimates of these costs on both your initial Loan Estimate (LE) and also on your Closing Disclosure (CD).And when it’s about time to close your loan, on the settlement statement prepared by your escrow officer or real estate attorney.On these documents, you should see things like the loan origination fee, underwriting and processing fees, and other lender fees.Additionally, there will likely be a charge for an appraisal, along with a charge for title insurance, homeowners insurance, and escrow services.Under that escrow/title umbrella, more fees will be listed, such as courier fees, wire fees, notary fees, loan tie in fees, settlement fees, and on, and on.There will also be recording fees and transfer taxes, along with prepaid items such as X number of months of taxes or insurance.That’s the closing cost piece, which includes both lender fees (if applicable), and third-party fees, such as the insurance, appraisal, title/escrow.Pretty straightforward, but we also have to consider the down payment, any deposit such as earnest money, and any seller or lender credits.Then some math needs to be done to figure out the final amount due, which is, drumroll, the cash to close.Fortunately, there’s a section on the LE and CD called “Calculating Cash to Close,” which breaks it all down for you.How to Calculate Cash to Close: An ExampleIt’s probably easier to look at an example rather than keep talking about it. So check out the screenshot above, taken from a Closing Disclosure.As you can see, it lists total closing costs, down payment funds, deposits, and credits.In this example, the purchase price is $852,500 and the home buyer is putting down 20% to avoid mortgage insurance and get a better mortgage rate.They’ve got $12,432.26 in closing costs, of which $435 was paid out-of-pocket before closing for an appraisal.The borrower made a $25,875 earnest money deposit for 3% of the purchase price as well, which was originally $862,500 before a slight price reduction.They didn’t finance any closing costs, nor did they receive any funds via the transaction.But they did get a seller credit of $7,500 and a $4,372.88 rebate from their real estate agent.So to tally it up, we have $182,932.26 in total costs, and $38,182.88 in credits.That means the borrower still owes $144,749.38, which is the remaining balance after their deposit and various credits.It covers the remaining down payment and remaining closing costs, and is typically wired to escrow at closing.What About Cash to the Borrower?Now let’s look at a cash out refinance. In this case, there is cash going to the borrower at closing because they’re tapping their home equity.So instead of sending money to the lender, the bank is sending money to the borrower.In this example, the borrower also took advantage of a lender credit, which offset nearly all of their closing costs.Their loan payoff on their existing mortgage was $618,070 and the new loan amount was $780,000.That would send $161,930 to the borrower, but once we subtract the $297 in remaining closing costs, it’s $161,633.Sending the Cash to Close: Some Things to RememberWhen it comes time to send your cash to close funds, you’ll likely do so via wire, or possibly a cashier’s check.Either way, the funds must come from a sourced account that was verified during the underwriting process.For example, a bank account you verified earlier on by connecting it in the digital application or uploading monthly statements.This way they know the money is actually coming your own funds, and not some other unverified source.If it does come from a non-sourced account, it could delay your loan closing and cause a lot of headaches.Remember, such funds should also be seasoned for at least two months prior as well, meaning in the account and untouched for 60+ days.Again, this ensures the funds are your own and not someone else’s, or worse, a loan, which you deposited into your own account.If you have questions about what is owed, it’s always helpful to speak directly with the settlement officer, who can go over everything with you line by line.That way you know exactly what you owe, why you owe it, and most importantly, where exactly to send it.To summarize, there are a lot of costs associated with a home loan, many of which you won’t be aware of until you go through the process yourself.This is why it’s imperative to get a robust mortgage pre-approval and set aside funds well before beginning your home search.

While Federal Reserve Chairman Jerome Powell on Wednesday commented on the role past rate increases had on the housing market, observers looking into their crystal ball following yesterday's meeting are not clear about the future.It doesn't help that the 10-year Treasury yield used in pricing 30-year fixed rate mortgages rose to a 52-week high on Thursday morning at 4.49%, topping the previous peak of 4.37% at Tuesday's close.That earlier run-up was in anticipation of the Federal Open Market Committee doing exactly what it did: not raising short-term rates.Freddie Mac's Primary Mortgage Market Survey found the 30-year fixed-rate mortgage increased by 1 basis point to 7.19% as of Sept. 21 from the prior week. It is 90 basis points higher than the 6.29% reported for the same week in 2022.Next week's survey results are likely to bake in reactions to the pause, given the short time frame between the FOMC meeting and the Freddie Mac release.The 15-year FRM rose 3 basis points to 6.54% from 6.51% the week earlier and 5.44% a year ago.Sam Khater, Freddie Mac chief economist, alluded to rates remaining above 7% for the sixth week in a row even with the Fed pause."Given these high rates, housing demand is cooling off and now homebuilders are feeling the effect," Khater said in a press release. "Builder sentiment declined for the first time in several months and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply."The 30-year FRM as tracked by Zillow rose 9 basis points on Thursday morning from the previous day to 7.13%. Seven days ago, this rate was at 6.94%.This increase is a result of "investors [coming] to grips with the possibility of the path to 2% core inflation potentially taking longer than previously expected," Orphe Divounguy, senior macroeconomist at Zillow Home Loans said in a Wednesday night statement.Mortgage rates are likely to stay elevated as investors react to FOMC members' expectations that it could take longer than projected for core inflation to return to target levels.As for the future direction of mortgage rates, "the impacts of tighter credit conditions, rising oil prices and student loan repayments are all expected to cool the labor market further and lower economic activity in the coming months," Divounguy commented. "A large slowdown in consumer spending and an uptick in the unemployment rate would pull longer term yields and mortgage rates lower."The decision to pause in September means "mortgage rates are likely to bounce around a bit as the markets digest upcoming economic data," said Melissa Cohn, regional vice president at William Raveis Mortgage, in a statement."If the data reveals that inflation remains elevated and employment is still growing, then mortgage rates are likely to move up and we can look for what we hope to be the last rate hike of this cycle," she continuedMost believe the FOMC will raise short-term rates at least one more time this year, noted Mike Fratantoni, chief economist at the Mortgage Bankers Association."We expect that inflation will continue to drop closer to the Fed's target, the job market will continue to slow, and that mortgage rates should begin to reflect that the Fed's moves in 2024 will be cuts — not further increases," Fratantoni said in a statement. "This should provide some relief in terms of better affordability for potential homebuyers."However, FOMC members changed their views from the June meeting and are now expecting to make fewer cuts in short-term rates during 2024, he said.Inventory is the biggest hang-up for the housing market right now even as builders are affected by the latest surge in mortgage rates."Permits for single-family homes provide a positive outlook for the pace of construction in the year ahead," Fratantoni said. "If mortgage rates trend down in 2024 as we anticipate, the combination of more homes for sale and somewhat lower rates should support stronger purchase volume."

Sales of previously owned U.S. homes declined in August to the lowest since the start of the year, restrained by limited inventory and historically high mortgage rates. Contract closings decreased 0.7% from a month earlier to a 4.04 million annualized pace, National Association of Realtors data showed Thursday. The median estimate in a Bloomberg survey of economists called for a pace of 4.1 million.Sales were down 15.4% from a year earlier on an unadjusted basis.Borrowing costs are now hovering around the highest levels in decades, discouraging existing homeowners — many who previously locked in lower mortgage rates — from moving. The combination of high financing costs, diminished inventory and elevated prices has created one of the least affordable housing markets on record. The number of homes for sale edged lower to 1.1 million, the smallest August inventory in data back to 1999. At the current sales pace, it would take 3.3 months to sell all the properties on the market. Realtors see anything below five months of supply as indicative of a tight market.The median selling price rose 3.9% from a year earlier to $407,100, one of the highest readings on record. Since August 2019, prices are up 46%, according to Lawrence Yun, NAR's chief economist."Supply needs to essentially double to moderate home price gains," Yun said in a statement. "Mortgage rate changes will have a big impact over the short run, while job gains will have a steady, positive impact over the long run."A separate report out Thursday showcased the resilience of the labor market. Applications for unemployment benefits dropped to the lowest level since January, and they're now within striking distance of the lowest level in more than half a century.The NAR's report showed 72% of homes sold were on the market for less than a month. Properties remained on the market for 20 days on average in August, unchanged from July. Existing-home sales account for the majority of U.S. housing and are calculated when a contract closes. Data on new-home sales, which make up the remainder and based on contract signings, are due next week.

I think it is hard to say, but I have to forecast because it's my job. I would watch for the point in time when the peak first-time homebuyer age of the millennials passes. It depends on what numbers people use, but it looks to us like it's maybe three years from now.There have been famous papers by well-known economists that have predicted the collapse of the housing market, to their detriment, because it never happened, so I'm not going to predict a collapse. People thought 10 years ago that millennials would not want to own homes because they saw the damage from foreclosures during the Great Recession. But when we surveyed in June of 2010, 90% of them eventually wanted to own a home. This is in my view, a long-standing permanent impulse of people in the United States. So I don't foresee any collapse of the housing market.But demographics do suggest a change in the balance between supply and demand, which would slow the pace of price appreciation. Also there are periodic price declines on a regional basis. Right now you're seeing some big declines on the West Coast in some of what were previously the hottest markets, but on average across the country prices have risen. Migration has definitely shifted from the West Coast to the Southeast as people have been moving.So I would say it's more likely to be a rebalancing of supply and demand that would kind of flatten the market out or return it to a more normal pace of appreciation.Supply also is a case of the baby boomers aging. While their aspiration is to age in place, at some point infirmity sets in, and some of them have to start exiting their existing homes. So the question is, does the supply on the market become greater as a result of that?We have surveyed people 60 years of age and older that own homes, to ask them what is your life gameplan. People are always talking about reverse mortgages, but they hate reverse mortgages. 

Commercial and multifamily mortgage debt outstanding increased on a quarter-to-quarter basis even as new originations have tanked from a year ago, the Mortgage Bankers Association reported.Holders of these loans — banks and thrifts; life insurance companies; government agencies; and securities investors — reported their portfolios grew by $37.7 billion or 0.8% for the three months ended June 30."Commercial and multifamily mortgage originations are down by more than half from a year ago, and this lack of new demand means that fewer loans are being paid off," said Jamie Woodwell, head of commercial real estate research, in a press release. "This in turn is helping to maintain, and in some cases even grow, the amount of credit outstanding."Total commercial debt outstanding ended the second quarter at $4.6 trillion, up from $4.57 trillion on March 31 and $4.38 trillion on June 30, 2022.The multifamily share is $2.03 trillion, up from $2 trillion in the first quarter and $1.9 trillion one year ago.Most of those increases came from the GSEs, which saw their portfolios add $13.4 billion on a quarter-to-quarter basis, slightly more than half of the sector's increase. Banks and thrifts added $7.4 billion while life insurers added $4.3 billion.An earlier MBA report noted that even though the second quarter posted 23% higher volume in commercial and multifamily mortgages versus the first quarter, it was still 53% lower compared with the period ended June 30, 2022.At the same time, commercial mortgage delinquency rates are on the rise as certain sectors, particularly lodging, retail and office remain under stress originally driven by the pandemic.Those loans are more likely to slip into foreclosure as they are unable to refinance before or at term end unless investors agree to some sort of workout plan.For the full year, the MBA is now expecting $504 billion of new originations (including current loans that reach their term and refinance), down from $816 billion in 2022. Multifamily only volume should come in at $299 billion, compared with $480 billion one year prior.

Despites structural constraints in the housing market, Federal Reserve Chair Jerome Powell says the central bank anticipates "measured housing services inflation" to decline in the months ahead.Bloomberg WASHINGTON — Federal Reserve Chair Jerome Powell acknowledged that the so-called "lock-in" effect has contributed to stagnation in the mortgage lending market and the nation's broader housing woes, but he said he doesn't regret the central bank's monetary policy moves that played a major role in the problem.By some estimates, more than 90% of homeowners have locked in mortgage rates below 6%, with many paying less than 4% on loans made while the Fed held interest rates near zero. The disparity between those rates and current market rates, currently north of 7%, is discouraging some homeowners from selling their properties out of a fear of taking on a more expensive mortgage to purchase their next home. Powell said that dynamic is "one of the explanations for what's happening broadly in the [housing] market," but it likely would not make the Federal Open Market Committee think twice about bringing interest rates to their lower bound again, should economic conditions warrant such a move."Would that play a role in our decision-making … in a future loosening cycle about whether we would cut rates? No, I don't think it would," Powell said. "I think we'd be looking at what, fundamentally, what rates does the economy need. And you know, in an emergency like the pandemic or the global financial crisis, you have to cut rates to the point, you have to do what you can to support the economy. So, I wouldn't think that that would be a reason for us not to do that."Powell's comments came during a press conference following Wednesday's FOMC meeting. He also noted that housing supply is "structurally constrained," creating long-term affordability issues for purchasers and renters alike. Still, Powell said he expects to see positive developments in housing inflation as new asking rents are conveyed into leases. "In terms of where inflation is going in the near term … a lot of it is leases that are running off and then being resigned or released at a level that's not that much higher," he said. "A year ago it would have been much higher than a year before. … As those leases are rolling over, we're seeing what we expect, which is measured housing services inflation coming down."Powell also addressed a recent rise in credit card balances — which surpassed $1 trillion last month — and consumer debt loads. He noted that rapid price inflation often causes lower-income households to rely more heavily on borrowing to cover day-to-day needs, but he said recent trends have not been a particular cause for concern."Measures of distress among consumers were at historic lows until quite recently, during the pandemic. They're now moving back up to normal," Powell said. "We're watching that carefully, but these readings are not at a troublingly high level."During the meeting, the FOMC voted to hold the target range for the federal funds rate steady at between 5.25% and 5.5%, continuing a pattern of alternating between 25 basis point hikes and pauses that dates back to May.The decision  to hold rates steady follows a string of largely positive economic data reports in recent months, which show labor conditions normalizing and the cost of goods and services increasing less sharply than they did last year."Looking ahead, we're in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate," Powell said.The FOMC's quarterly summary of economic projections — which surveys the Federal Reserve Board's seven governors and the presidents of the 12 regional reserve banks — shows that participants anticipate no more than one rate hike to come from the two remaining meetings this year. Seven participants said the target range has already reached its terminal level for the year, while 12 said another hike was in order. This is a slight uptick from the June summary of economic projections in which just nine participants called for another rate hike this year — though this month's survey featured one more voting member than June's, with the addition of Gov. Adriana Kugler to the board earlier this month.Most of the officials surveyed project at least one rate cut next year, with 13 saying the midpoint of the appropriate target range will be 5.125% or lower. Four expect the target range to maintain its current  5.375% midpoint. Only one participant called for a significantly higher midpoint for next year, forecasting a mid-point of 6.125%."These projections, of course, are not a committee decision or plan. If the economy does not evolve as projected, the path of policy will adjust as appropriate to foster our maximum employment and price stability goals," Powell said. "We will continue to make our decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook of economic activity and as well as the balance of risks."Overall, expectations around the federal funds rate for 2025 and 2026 were slightly higher for this quarter's report than last quarter's, indicating a belief that rates will need to remain higher for longer. "The decrease in the number of cuts in 2024 is one of the more telling changes this month," said Vanguard Senior Economist Andrew Patterson in an analyst note. "It means, combined with the increase in growth expectations and cut in unemployment rate for that year, that the Fed is increasingly confident that they can pull off a soft landing and that the economy can withstand higher rates for longer."

"The experience with nonbank financial institutions through these two crises underscores the financial stability risks they can pose, the resulting claim they have on public support, and the urgent need to give careful consideration to how to address those risks," said Gruenberg.Drew Angerer/Bloomberg WASHINGTON — Federal Deposit Insurance Corp. Chairman Martin Gruenberg said Wednesday he would like to see the Financial Stability Oversight Council consider applying tailored enhanced prudential standards and enhanced reporting requirements to particular nonbanks' like open-ended mutual funds, hedge funds and nonbank lenders.In a speech delivered to the Exchequer Club, Gruenberg also noted that such firms — not well understood by regulators — would need to report more information so the agencies could better understand the role they play and the risks they pose. "Consideration should be given to the development of a more tailored process that reduces undue financial system risk while applying prudential regulation and resolution planning requirements that are fit for purpose in the context of a particular nonbank financial institution's risks," he said. "The FSOC, the Office of Financial Research and individual FSOC agencies should work together to establish a reporting framework to ensure that the FSOC has appropriate information to assess the financial stability risks of nonbanks and the activities in which they engage, and to ensure that public reporting is sufficient for market participants to appropriately understand the counterparty risks associated with individual nonbank financial institutions."The Financial Stability Board — made up of national financial authorities and international standard-setting bodies — defines nonbank financial institutions as any financial firms that are not central banks, licensed nominal banks, or public financial institutions like the World Bank. Under the Dodd-Frank act, the FSOC — a council chaired by the heads of the federal financial regulators created after the 2008 financial crisis — is authorized to deem nonbank firms systemically risky and subject them to Federal reserve supervision and enhanced prudential standards.Gruenberg said he believed nonbanks' insufficient regulation, opacity and lack of limits to their reliance on leverage contributed to worsening both the Global Financial Crisis and the COVID-19 economic emergency. In both cases the Federal Reserve ultimately utilized its power to provide emergency lending facilities to such firms to stave off systemic contagion."The experience with nonbank financial institutions through these two crises underscores the financial stability risks they can pose, the resulting claim they have on public support, and the urgent need to give careful consideration to how to address those risks," he said.Gruenberg said one group of firms that particularly concerns him, open-ended mutual funds, including mutual funds and money-market funds which play important roles in the provision of credit to the U.S. economy, contributed to market stress in March 2020 because they often have a mismatch in liquidity. Open-end funds typically invest in longer term, higher yielding instruments, while investors can redeem shares in short order, incentivizing investors to secure "first mover advantage" and pull funds quickly in times of stress.The FDIC Chairman also expressed concerns about hedge funds — highly leveraged investment vehicles that often rely on short–term funding. He said this business model makes them vulnerable to market shocks and, because they are highly interconnected with traditional banks, especially risky in times of stress.Gruenberg also highlighted his concerns that nonbanks are increasingly offering bank-like services, such as mortgage finance, business lending, and consumer finance. He noted that the lack of transparency in these markets can make it challenging to assess risks even as nonbank companies have seen their market share in these markets grow. Nonbank companies have witnessed their market share of U.S. mortgage financing increase nearly five-fold over a decade, with nonbanks currently managing over 55 percent of U.S. mortgages — a significant rise from just 11 percent in 2011."If a nonbank financial institution conducting these activities is sufficiently large or otherwise serves critical functions, systemic risk issues could be implicated," he said. "It is important that the FSOC has renewed its efforts to review the risks in these sectors and to consider whether our current regulatory authority is sufficient to address them."Gruenberg also fired back against bank industry criticisms of the federal banking agencies recently issued proposal applying Basel III endgame standards requiring large banks to retain more capital to protect against losses. Many in the banking industry have criticized the proposal, arguing it would reduce lending and cause those activities to migrate out of the highly regulated banking system. Gruenberg noted that adequate banking regulation and attention to the risks of nonbank are not mutually exclusive."The obvious response to that is there should be appropriately strong capital requirements for those activities in the banks, complemented by greater transparency, stronger oversight and appropriate prudential requirements for nonbanks," he said. "That would be the most effective and balanced way to enhance the stability of the entire financial system."

As interest rates have become more unpredictable, the shifts in financing expenses have had a number of ripple effects, causing mortgage lenders to seek out strategies for controlling the associated costs.In one example of the effect of the shift, the inversion in the Treasury yield curve that has persisted for over a year - with long-term interest rates dropping below short-term rates - has limited the supply of certain loans. As a result, many lenders are trying to mitigate the impact of funding for mortgage pipelines, in some cases by hedging against rate-related losses. Below, various players in the market offer perspectives on how rate swings are affecting them and offer their advice for combating the headwinds. Funding mismatches are affecting the loan mixThe inversion in the yield curve has curtailed the supply of 10- and 20-year home loans, said Walt Schmidt, senior vice president and manager of the mortgage strategies group at FHN Financial."There's been virtually no origination of alternative 10- and 20-year products recently because with the inverted yield curve it doesn't make sense to take out a 20-year loan at a rate perhaps higher than a 30-year loan," he said.That has frustrated certain buyers in the secondary markets."There are some investors that like these loans because of their convexity benefits, especially relative to 30-year products, but they can't find them," Schmidt said. "It's kind of an acute problem right now for some asset managers."Also, while the banking crisis made it clear having longer-term assets with lower returns than shorter ones can be a problem for depositories, it should be noted that it's an issue for nonbanks too.Players in this space fund pipelines of 30-year loans with shorter-term financing, said David Stevens, CEO of Mountain Lakes Consulting."We're seeing a lot of anomalies adding pressure to the market," said Stevens. "Long rates are lower than short rates and that, without question, impacts lenders with warehouse lines."Bringing pipeline risk management back into focus   With funding costs higher and margins thin, many in the industry are turning to hedging to minimize potential rate-related losses.The principal benefit to hedging an origination pipeline is the economics, explained Mark Teteris, director, solutions specialists, at Optimal Blue, which brought back "by popular demand" its Hedging 101 webinar on Sept. 14.In an industry where originators are dealing with making loans at a financial loss, if they feel they are producing enough volume, switching from best efforts in the secondary market to mandatory delivery can increase the gain-on-sale proceeds by between 20 basis points to 50 basis points; in early September it was about 45 basis points, Teteris said.But using mandatory delivery, "one of the things that you incur is the interest rate risk while you're in the process of manufacturing the loan," Teteris said. "You would want to hedge in order to mitigate or offset that interest rate risk."An inverted yield curve doesn't make it any more or less important for a lender to hedge. Nor does it affect how the hedge is carried out.But "from a modeling perspective, when you have an inverted yield curve, those dynamics can impact your hedge analytics," he said. "You do need to account for that."For example, originators need to measure the impact of the value of the float that they're receiving relative to mortgage servicing rights valuation. That's a significant component of the overall value of the loans in a lender's pipeline, Teteris said."That also impacts the MSR valuation in terms of the retain or release decisions that lenders have to make as they're looking to sell their loans into the secondary market," Teteris said. "It's important that you build that into your models."Lenders have to pay attention to what's happening with the yield curve and model for it as they work their system, Teteris said.Currently the most popular risk-management instrument is the to-be-announced mortgage-backed security of a similar duration to what is being hedged. These don't change because of the yield curve. However, "the model analytics themselves do need to account for the interest column or the slope that's associated with the valuation of the servicing rights," Teteris explained. "You need to make sure that you are accounting for those changes in the yield curve, and that your model remains attuned to what's happening in the interest rate environment overall."Hedging is not a one-size-fits-all activity. "Every company is going to have different dynamics in terms of what their pipeline consists of in terms of loan types, loan attributes and they need to account for all of that in their hedge modeling," Teteris said.If all works well, companies should not lose money on their hedge; nor is it a profit center either."Hedging is designed, by its very nature, to be a revenue neutral activity," Teteris said. "If you manage it properly, that's the result that you should and will obtain and then you will benefit from the best effort to mandatory spread premium."How hedging works in practice at one companyDuring a second quarter earnings call, William Greenberg, Two Harbors Investment's president and CEO, took a few minutes to explain the real estate investment trust's hedging strategy for its mortgage-backed securities portfolio with the inverted yield curve environment.No matter if the curve is sloping upward or downward, Two Harbors is looking to "extract the spread between the asset yield and the equivalent duration risk-free instruments," Greenberg said. "We do believe that the shape of the yield curve can have what I will call second- or third-order effects in the performance of mortgage backed securities."Most entities, especially banks, like an upward sloping curve because it results in more cash flow and allows investors to take on more duration risk.MBS should perform better in such an environment, but that is hard to predict. Also, it is not really related to mechanics of hedging."If you look at really what are you trying to hedge — the cash flows you're trying to preserve and the yields you're trying to lock in — assuming you know the duration, that is independent of whether the curve is upward sloping or downward sloping," Greenberg said.By hedging with financial instruments such as interest rate swaps, Two Harbors is looking to transform the funding from a short-term maturity to a longer-term maturity, eliminating the duration risk."When we're talking about an inverted yield curve, it's more illustrative to talk about the hedges as hedging the funding rates rather than hedging the duration gap for the asset, but they're two totally equivalent pictures," Greenberg noted.That leaves the investor exposed purely to the spread between the yield on the asset and the yield on the risk free instrument with the equivalent maturity."That's what you're exposed to and could go up or down and your mark-to-market [on your balance sheet] will depend on those things," said Greenberg.The hedge involves converting a fixed-rate asset into a floating rate one. The coupon on the floating rate asset is indexed to Secured Overnight Financing Rate plus a spread."What you really end up earning is SOFR plus a spread when you hedge if it all works properly," Greenberg noted.

The Federal Reserve left its benchmark interest rate unchanged while signaling borrowing costs will likely stay higher for longer after one more hike this year.The central bank's policy-setting Federal Open Market Committee, in a post-meeting statement published Wednesday in Washington, repeated language saying officials will determine the "extent of additional policy firming that may be appropriate."The FOMC held its target range for the federal funds rate at 5.25% to 5.5%, while updated quarterly projections showed 12 of 19 officials favored another rate hike in 2023, underscoring a desire to ensure inflation continues to decelerate.Fed officials also see less easing next year, according to the new projections, reflecting renewed strength in the economy and labor market.They now expect it will be appropriate to reduce the federal funds rate to 5.1% by the end of 2024, according to their median estimate, up from 4.6% when projections were last updated in June. They see the rate falling thereafter to 3.9% at the end of 2025, and 2.9% at the end of 2026.Yields on two-year U.S. government bonds rose after the decision, while the dollar pared declines against major peers and the S&P 500 index of stocks erased earlier gains. After a historically rapid tightening that took the federal funds rate from nearly zero in March 2022 to above 5% in May of this year, the central bank has in recent months pivoted to a slower pace of increases.The new tack seeks to let incoming data determine the peak level for interest rates as inflation decelerates toward the 2% target. The Fed's preferred index of prices, excluding food and energy, rose 4.2% in the 12 months through July.Officials also continued to project inflation would fall below 3% next year, and see it returning to 2% in 2026. They expect economic growth to slow in 2024 to 1.5% after an upwardly revised 2.1% pace in 2023.The higher-for-longer projection for interest rates in part reflects a more sanguine view on the path for unemployment. Policymakers now see the jobless rate rising to 4.1% in 2024, compared with 4.5% in the June projection round.Resilient EconomyData published since the Fed's last meeting at the end of July have generally shown the labor market and consumer spending remain resilient despite the rise in rates, while core inflation has continued to decelerate.Still, there are plenty of headwinds policymakers must consider. Oil prices have surged by about 30% since June, while a resumption of student-loan payments next month will take more discretionary spending power out of consumers' hands.A possible government shutdown at the end of this month is also looming over the outlook and threatens to deprive policymakers of key data on employment and prices produced by federal agencies heading into the next Fed meeting Oct. 31-Nov. 1."We will assess our progress based on the totality of the data and the evolving outlook and risks," Powell said in Aug. 25 remarks in Jackson Hole, Wyoming. "We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data."

Rep. Andy Barr, R-Ky., wrote to the Federal Reserve asking for economic cost-benefit analysis of the Basel III endgame proposal. House Financial Services Committee Republicans continued to press the Federal Reserve for data related to its Basel III endgame proposal, part of lawmakers' attempts to undermine the central bank as it pursues the rulemaking that would raise capital requirements for large banks. In a hearing Tuesday, Rep. Andy Barr, R-Ky., chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, repeated calls for the Fed, along with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, to release cost-benefit analysis related to the Basel III endgame proposal. Barr said that the regulators have not properly considered how the proposal would impact financial markets and the economy. "That requires analysis, which the federal banking regulators in their hurriedness have not done," Barr said. "Will liquidity in Treasury markets dry up because of the tangled web of proposals? Will first-time homebuyers be shut out of the dream of homeownership? Will the car and truck buyers find they can no longer afford personal transportation because auto credit is too costly for most and not available for many?The most recent hearing follows a similar one by the same subcommittee, in which Republicans started to build a case for a potential legal challenge to the Basel III proposal from U.S. banking regulators. Last week, banking trade groups sent a letter to regulators,  accusing the agencies of using nonpublic data for the proposal, which they said violates the standards of the Administrative Procedure Act. Barr, at the most recent hearing, continued to make claims about the validity of the rulemaking considering the Administrative Procedure Act, which could further set up Republicans to challenge the rule, especially should the party gain control of both chambers in the 2024 elections. "Neither Congress, nor the industry being regulated, nor the American people, including consumers, families, small businesses, farmers and ranchers, and municipalities, know what to expect from the incredibly complex, interconnected, and hazy web of what has been proposed," Barr said. "The risks of working hastily without analytical support are high and systemic. The process of rolling out the under-analyzed Basel-related capital proposal shows clear violations of the Administrative Procedures Act, thereby running counter to the law." Rep. Bill Foster, D-Ill, ranking member of the subcommittee, joined Barr in a letter to regulators originally requesting the data around the Basel III endgame proposal. "I believe that having access to the data and assumptions and methodology would allow for a more informed discussion across the board here," Foster said. "But I think we also have to recognize that bank capital requirements and regulation is never going to be an exact science. You can reasonably model the costs of any increase or decrease in bank capital requirements or other things, the costs of compliance of increased stress testing, and so on." Foster has consistently struck a softer tone than Barr in criticizing the Fed for the Basel III endgame proposal, and swayed during the most recent hearing into defending the Biden administration bank regulators. "The long list of objections we just heard, those could have been lifted almost verbatim from all the objections to the increased capital requirements that were part of Dodd Frank," Foster said. "[Republicans] were talking about how this would certainly drive the banking offshore and disadvantage US banks and cause them to be non profitable. In fact, kind of the reverse has happened. It's been a very good decade for US banks, especially the largest ones." 

Past Ginnie Mae president Ted Tozer has argued that the FHA should lower or completely eliminate its current 3.5% down payment requirement.He discussed the controversial take during a Community Home Lenders of America Roundtable in Washington, D.C. earlier this week, per Inside Mortgage Finance.This isn’t the first time he’s floated the idea of turning the FHA home loan program into a zero-down-payment program.In the past while arguing this same position, he noted that the Bush administration even proposed such a change all the way back in 2004.The question is does this invite more risk at a time when home prices and mortgage rates are already out of reach for most?Most FHA Loan Borrowers Need a Minimum 3.5% Down PaymentAt the moment, FHA loan borrowers need to scrounge up 3.5% of the purchase price when buying a home, assuming they have a 580 FICO score.Those with scores between 500 and 579 need at least a 10% down payment.While this is seemingly a pretty low bar, it still acts as a roadblock for many prospective home buyers, especially low-income borrowers with little savings.According to a semi-recent Federal Reserve study, the average American household had about $42,000 in savings.But if you break it down by age, those under 35 only had $11,250 and those 35 to 44 only about $28,000.A home purchase, even with a small down payment, could easily wipe out these accrued savings. And remember that these numbers are an average.Many households have much less, which is why they’re probably still renting if their desire is to own.Tozer has argued that after accounting for rent, taxes, food, utilities, and other necessities, prospective first-time home buyers have little left to save for a down payment.The FHA Minimum Down Payment Was Increased in 2009If you recall, the FHA Modernization Act of 2008 resulted in the FHA minimum down payment rising from 3% to 3.5%.It also banned seller-funded down payment assistance, which correlated with much higher default rates on FHA loans.Ironically, these types of loans resulted in a near-$5 billion loss for the FHA and put the entire program at risk.Around that time, some lawmakers argued for even higher down payment requirements, such as a minimum of 5% down. That didn’t happen.Back then, the big argument was about having skin in the game, as those with little invested had no problem walking away from an underwater mortgage.That’s why the timing of this idea is a bit of a head-scratcher, with home prices at/near all-time highs and mortgage rates more than double their early 2022 levels.While it isn’t quite 2006 all over again, there has been a lot of speculation in the housing market and prices are certainly not cheap.The saving grace is that most homeowners hold boring old 30-year fixed-rate mortgages at ultra-low rates this time around.And zero down loans are generally few and far between, other than homebuyer assistance offered by some state housing finance agencies (HFAs).What’s the Argument for a 0% FHA Loan Today?At the moment, you need a minimum 3.5% down payment to obtain an FHA loan, slightly more than the minimum 3% required on conventional loans.Interestingly, you used to need 5% down to get a conventional loan before they introduced 97% LTV offerings in 2014.This 3.5% is also significantly higher than what’s required for other government-backed home loans.Tozer pointed out that both VA loans and USDA loans don’t require a down payment (100% financing OK!).The thing is those loans are reserved for members of the military or those buying in rural areas, respectively. Conversely, FHA loans are much more widely available.Regardless, he argues that underwriting should focus on a borrower’s credit history as opposed to the down payment.But if we recall from the prior mortgage crisis, credit scores got a big share of the blame for the sharp rise in defaults.So relying on credit score alone might not be the best policy either. While defaults certainly rise as credit scores fall, a holistic approach is best when formulating underwriting standards.This means looking at layered risk, such as credit score, down payment, DTI ratio, employment history, and more.The Skin in the Game Is the Cost to RelocateAs for skin in the game at zero down payment, Tozer said the skin is the cost to move.In other words, once low- and moderate-income homeowners move in, it would cost them way too much to relocate.And this is apparently what would keep them there. While that might be true, would they continue making payments?Tozer’s proposal is unlikely to materialize as it would require Congress to act at a time when housing supply is already dismal and affordability historically low.However, there is other proposed legislation that would offer 100% financing to first responders who need a mortgage, via the HELPER Act of 2023.In the meantime, other options already exist to get an FHA loan with zero down.As noted, many state HFAs have programs that offer deferred-payment junior loans that cover the down payment and even the closing costs.There are also private lenders that offer FHA with zero down, such as the Movement Boost from Movement Mortgage, which relies on a repayable second mortgage.So options already exist without the need for an across-the-board elimination of the FHA’s down payment requirement.

Even as rates for the 30-year fixed product increased last week, likely in anticipation of today's Federal Open Market Committee announcement, mortgage application volume also pushed higher, the Mortgage Bankers Association said.In fact, the 10-year Treasury yield — used to help price mortgages — closed at a 52-week high on Sept. 19, the first day of the FOMC meeting, at 4.37%. On Sept. 15, the last day in the MBA's Weekly Application Survey period, the yield closed at 4.32%, up 7 basis points from the prior week.Most observers are expecting the FOMC not to raise short-term rates today, the second meeting out of the last three with no action. In July, it elected to hike rates 25 basis points."The totality of this year's active policymaking has meant homeowners — and the housing industry more broadly — will feel an acute squeeze from any continued aggressiveness," said Dan Burnett, head of investor product at Hometap Equity Partners, in a statement. "Following illusory hints this summer of a dovish tack for the rest of the year, we now must confront the impacts of an oscillatory policy instead, including where the neutral rate may land and just how much demand destruction might result in the meantime."Inflation in most of the categories covered in last week's Consumer Price Index report was essentially flat, noted Ksenia Potapov, an economist at First American."Inflation is still high but shows signs of moderating," Potapov said in a statement. "September is a good time for the Fed to take a wait-and-see stance, leaving the option of one more rate hike, data dependent, by the end of the year."This past week ended Sept. 15, however, demand was actually higher, as measured by the MBA's Market Composite Index. On an adjusted basis, application volume increased by 5.4% from the prior week. That week's activity included an adjustment for Labor Day.The purchase index increased 2% seasonally adjusted over the prior period. Unadjusted it was 12% higher compared with the previous week but 26% lower than the same time one year ago."Mortgage applications increased last week, despite the 30-year fixed mortgage rate edging back up to 7.31% — its highest level in four weeks," said Joel Kan, MBA deputy chief economist, in a press release.Even with the higher rates, refinance application volume also increased, up 13% week-over-week. But this was down 29% from the same period in 2022. The share of these applications submitted rose to 31.6% of total volume from 29.1% the previous week.Another counter-intuitive stat was seen in the share of adjustable rate mortgage applications, which fell to 7.2% of total applications from 7.5%. Higher rates normally lead to more interest in ARMs from consumers.And in fact, the one ARM rate tracked by the MBA, for the 5/1 product, was down 17 basis points from the prior week, to 6.42% from 6.59%.The 7.31% rate for the conforming 30-year FRM that Kan spoke about was 4 basis points higher than 7.27% for the prior week.The 30-year jumbo mortgage averaged 7.32%, up from 7.25%, and the average rate for the Federal Housing Administration-insured loan increased 4 basis points to 7.08% from 7.04%.The FHA share was unchanged at 14.2%, while for Veterans Affairs-guaranteed loans, it declined to 11% from 11.3%.For the 15-year FRM, the average rate fell 10 basis points to 6.62%.Going forward, mortgage rates are likely to remain above 7%, Doug Duncan, Fannie Mae chief economist, said in an economic forecast released on Sept. 19."We expect that total housing market activity will remain at a low level into 2024 as the Federal Reserve continues to hold the line on interest rates against inflation," Duncan said in a press release.In its Sept. 18 forecast, the Mortgage Bankers Association said the 30-year FRM will average 7% in the third quarter, but that will fall to 6.3% by the end of this year.It will continue to trend downward for the next five quarters, reaching 5.4% by year-end 2024.The organization is now forecasting $1.68 trillion in originations this year, down from $1.71 trillion in August, but the outlooks for 2024 and 2025 remained unchanged at $2.05 trillion and $2.36 trillion respectively.Purchase expectations are approximately $13 billion lower versus August, while for refis, they are $12 billion less.

In a market where mortgage rates have skyrocketed over 7%, one company is betting that assumable mortgages – which allow a buyer to take over a seller's home loan – are the product of the moment. Through the assumable mortgage, buyers can purchase a home with a mortgage as low as 2%, which could cut monthly expenses by about half. Roam, which connects homeowners with an assumable mortgage to buyers, helps to coordinate a mortgage assumption "making it transparent and simple for sellers and their agents," Raunaq Singh, CEO of Roam said. "There's a huge affordability benefit here for buyers because if you think about it compared to every other home this would be something they could afford because it comes with a 2% mortgage not a 7% mortgage," he said.Government loans backed by the Federal Housing Administration, Department of Veterans Affairs and the Department of Agriculture are eligible for an assumption, but conventional loans are not. Raunaq Singh, CEO of RoamRayon Richards/Rayon Richards The company, which recently secured a $1.25 million seed round, would not reveal how many transactions have been thus far facilitated byway of their platform. Singh says that when more consumers are educated about the product demand will follow."The biggest issue right now is that people just don't know this is an opportunity they're eligible for," he said. "We want every American and every homeowner to know this is a benefit that they can pursue and so as more folks get to know about the opportunity and customers are educated, we will see that the volume in this type of transaction takes off."Roam predicts that about 30% of all mortgage originations in 2021 are eligible for a mortgage assumption and have rates below 4%, which is the loan pool that the company is trying to tap.The company claims that it will manage the operational details of an assumptions process and "will keep buyers and sellers updated on the status of their mortgage assumption with an easily accessible dashboard and timely communications." It is uncertain what cut Roam takes for its services.The company's platform is currently available in Georgia, Arizona, Colorado, Texas and Florida.

From left, Zeenat Sidi, president of digital products and services at loanDepot Inc., Dominick Marchetti, chief technology officer at Guaranteed Rate, and Rhett Damon, head of brokerage operations and industry relations, speak Tuesday, Sept. 13, at the Digital Mortgage 2022 conference in Las Vegas, Nevada.

At last glance, 30-year fixed mortgage rates were sitting above 7%. Despite this, there are virtually no homes for sale.One would assume that after such a massive interest rate spike, demand would flounder and supply would flood the market.Yet here we are, looking at a housing market that has barely any for-sale inventory available.And when you remove the new home inventory (from home builders) from the equation, it’s even worse.Let’s explore what’s going on and what it might take to see listings return to the market.Why There Are No Homes for Sale Right Now?The housing market is highly unusual at the moment, and has been for quite some time.In fact, since the pandemic it’s never really been normal. The housing market came to a halt in early 2020 as the world stopped, but then took off like a rocket.If you recall, the 30-year fixed spent the entire second half of 2020 in the sub-3% range, fueling voracious demand from buyers.And as Zillow pointed out, the age demographics had already lined up nicely for a surge of demand anyway.Around that time, some 45 million Americans were expected to hit the typical first-time home buyer age of 34.When you combined the demographics, the record low mortgage rates, a pandemic (which allowed for increased mobility), and already limited inventory, it didn’t take much to create a frenzy.At the same time, you had existing homeowners buying up second homes on the cheap, due to those low rates and generous underwriting guidelines.And let’s not forget investors, who were taking advantage of the very accommodative interest rate environment and the insatiable demand from buyers.The rise of Airbnb and short-term rentals (STRs) coincided with this low-rate environment, potentially taking additional inventory off the market.This quickly depleted supply, which was already trending down thanks to a lack of new home building after the prior mortgage crisis.Home builders got burned in the early 2000s as foreclosures and short sales spiked and prices plummeted. And their excess supply sat on the market.As a result, they developed cold feet and didn’t build enough in subsequent years to keep up with the growing housing needs of Americans.Collectively, all of these events led to the massive housing supply shortage.Low Mortgage Rates Got Buyers in the Door, But Will They Ever Leave?Low supply aside, another unique issue affecting housing supply is a concept known as mortgage rate lock-in.In short, there’s an argument that today’s homeowners have such low mortgage rates that they won’t sell. Or can’t sell.Either they don’t want to give up their low mortgage rate simply because it’s so cheap. Or they are unable to afford a home purchase at today’s rates and prices.Simply put, most can’t trade in a 3% rate for a 7% rate and purchase a home that’s probably more expensive than theirs was a few years earlier.And this isn’t some tiny subset of the population. Per Freddie Mac, nearly two-thirds of all mortgages have an interest rate below 4%.And nearly a quarter have a mortgage rate below 3%. How on earth will these folks sell and buy a replacement home if prices haven’t come down, but have in fact risen?The answer is most will not budge, and will continue to enjoy their low, fixed-rate mortgage for many years to come.This further explains why inventory is so tight and not really improving, despite the Fed’s attack on housing demand via 11 rate hikes.[Why are home prices not dropping?]Housing Supply Is at an All-Time LowRedfin reported that the total number of homes for sale hit a record low in August.Active listings were down 1.1% month-over-month on a seasonally adjusted basis, and a whopping 20.8% year-over-year.That’s the biggest annual decrease since June 2021. However, new listings have ticked higher the past two months on a seasonally adjusted basis.In August, new listings increased 0.8% from a month earlier after increasing the month before that.But due to nearly a year’s worth of monthly declines prior to that, new listings were still off a big 14.4% year-over-year.This meant months of supply stood at just two months, well below the 4-5 months usually considered healthy.Redfin Economics Research Lead Chen Zhao noted that “new listings have likely bottomed out,” arguing that those who are locked in by low rates have already decided not to sell.That leaves those who must sell their property, due to stuff like divorce or a change in work-from-home policy.Interestingly, even some WFH homeowners are moving back closer to work, but keeping their homes because they can rent them out.Because homeowners got in so cheap, it’s not out of the question to keep the old house and go rent or buy another property.All of this has created a huge dearth of existing home supply, but there is one winner out there.Home Builders Are Gaining a Ton of Market ShareWhile existing homes, also known as previously-owned or used homes, are hard to come by, newly-built homes are somewhat plentiful.In fact, newly built single-family homes for sale were up 4.5% year-over-year in June, per Redfin, while existing homes for sale were down 18%.And roughly one-third of homes for sale were new builds, up markedly from prior years and well above the norm that might be closer to 10%.Astonishingly, new homes accounted for more than half (52%) of single-family homes for sale in El Paso, Texas.Similar market share could be seen in Omaha (46%), Raleigh (42.1%), Oklahoma City (39%), and Boise (38%).Meanwhile, the National Association of Realtors (NAR) predicts that new home sales will increase 12.3% this year, and 13.9% in 2024.As for why home builders are seeing a big increase in market share, it’s mostly due to a lack of competition from existing home sellers.In short, they’re the only game in town, and they don’t need to worry about finding a replacement property if they sell (like existing homeowners)Additionally, they’re able to tack on huge incentives such as rate buydowns, including temporary and permanent ones, along with lender credits.This allows them to sell at higher prices but make the monthly payment more palatable for the buyer.Perhaps more importantly, it allows buyers to still qualify for a mortgage at today’s sky-high prices.When Will More Homes Hit the Market?For now, this new reality is expected to be the status quo. After all, those with so-called golden handcuffs have 30-year fixed-rate mortgages.That means they can continue to take advantage of their dirt-cheap mortgage for the next few decades.This includes second home owners and investors, who got in cheap when prices were much lower and mortgage rates were also on sale.Meanwhile, the home builders don’t seem to be going nuts with supply, and even if they ramped up production, it wouldn’t satisfy the market.Remember, existing home sales typically account for around 85-90% of sales, so builders won’t come close to satisfying demand.The only real way we get a big influx of supply is via distress, sadly. That could be the result of a bad recession with mass unemployment.And it could be triggered by the 11 Fed rate hikes already in the books, coupled with a lack of new stimulus and the resumption of things like student loan payments.Compounding that is sticky inflation, which has made everything more expensive and is quickly depleting the savings accounts of Americans.But even then, you could argue that a mass loan modification program would be unveiled to at least keep owner-occupied households in their properties.Considering how cheap their housing payments are, assuming they’ve got a low fixed-rate mortgage, it’d be hard to find them a cheaper alternative, even if renting.In the early 2000s this wasn’t the case because the typical homeowner held a toxic mortgage, such as an option ARM or an interest-only loan. And many weren’t even properly qualified to begin with.Read more: Today’s Housing Market Risk Factors: Is Real Estate in Trouble?

Three major players in the U.S. secondary mortgage market have recently taken more steps toward appealing to investors who are looking for environmental, social and governance bonds.Government-sponsored enterprises Fannie Mae and Freddie Mac added disclosures for certain repooled securitizations on Monday. That move followed close on the heels of Ginnie Mae's introduction of a social label and framework for traditional single-family bonds last week.The initiatives may create more of an impetus for mortgage lenders to extend credit to underserved populations like low-income, first-time or minority homebuyers, or those in regions that have housing challenges, such as an area that's been through a natural disaster.The GSEs assign social bond labels based on scores that measure the extent to which mortgages address homeownership hurdles like the aforementioned. Ginnie bases its label on similar criteria.The latest move by the government-sponsored enterprises specifically adds disclosures for mortgage-backed securities repooled in investments known as Megas at Fannie, Giants (Freddie) or Supers (containing uniform MBS.)Monthly reports on Supers, Giants and Megas issued since Jan. 1, 2010 will include social disclosures starting with publication as of Dec. 6. The revision of Ginnie's prospectuses for traditional single-family MBS will be effective starting Oct. 1.Ginnie's framework emphasizes not only mortgages that help targeted populations or advance affordable housing, but also green homes.Freddie and Fannie also have an ESG focus that goes beyond social bonds.Their past efforts also have extended beyond social impacts, and to loans with five or more units as well as those secured by one to four. Examples include sustainability bonds at Freddie Mac, and Fannie Mae's green securities secured by energy-efficient housing.

Consumer Financial Protection Bureau Director Rohit Chopra said that creditors "must be able to specifically explain their reasons for denial," decrying some lenders' overreliance on artificial intelligence to make credit underwriting decisions.Bloomberg News The Consumer Financial Protection Bureau warned lenders of the requirement to provide specific and accurate reasons when denying credit to a consumer, reiterating the agency's skepticism of artificial intelligence and advanced algorithms in underwriting decisions. On Tuesday, the CFPB issued guidance on the use of artificial intelligence in underwriting and the explanations given to consumers who are denied credit. The bureau said that creditors are relying inappropriately on a checklist of reasons provided by the CFPB in sample forms. The bureau said that creditors instead must provide specific reasons and details to explain why a consumer is denied credit or why a credit limit was changed. "Creditors must be able to specifically explain their reasons for denial. There is no special exemption for artificial intelligence," CFPB Director Rohit Chopra said in a press release. "Technology marketed as artificial intelligence is expanding the data used for lending decisions, and also growing the list of potential reasons for why credit is denied."The agency also warned lenders against using data harvested from consumer surveillance or data that is not typically found in a consumer's credit file or credit application. The bureau said that consumers can be harmed by the use of surveillance data given that "some of these data may not intuitively relate to the likelihood that a consumer will repay a loan." Under the Equal Credit Opportunity Act, a landmark 1974 anti-discrimination statute, a creditor is required to provide an applicant with a reason for denying, revoking or changing the terms of an existing extension of credit. The explanation is known as an adverse action notice. Credit applicants and borrowers receive adverse action notices when credit is denied, an existing account gets terminated or an account's terms are changed. The notices discourage discrimination, and help applicants and borrowers understand the reasons behind a creditors' decisions, the CFPB said. The CFPB said that a lender is not in compliance with ECOA if the reasons given to the consumer are "overly broad, vague, or otherwise fail to inform the applicant of the specific and principal reasons for an adverse action." The guidance serves as a warning to lenders that are using sample CFPB forms and a CFPB checklist of reasons for denying credit. The bureau said that creditors that select inaccurate reasons on a checklist are not in compliance with the law. The CFPB's guidance states that the specific reasons disclosed as to why a consumer is denied credit, or if there is a change in circumstances, must "relate to and accurately describe the factors actually considered or scored by a creditor." Such "specificity" is necessary to ensure a consumer understands the explanation and the lender does not obfuscate the principal reasons for the change, the bureau said.As an example, the CFPB said that if a creditor decides to lower the limit on a consumer's credit line based on behavioral spending data, the creditor would need to provide more details about the specific negative behaviors that led to the reduction beyond checking a general reason such as the consumer's "purchasing history."Last year the CFPB issued an advisory opinion that further clarified that lenders are required to provide the adverse action notices to borrowers with existing credit, to explain if an unfavorable decision was made against a borrower. At the time, the CFPB did not provide an analysis of how lenders that use complex algorithms can find ways to meet the adverse action requirements in ECOA. The current guidance attempts to bridge that gap.The CFPB has taken a variety of regulatory actions related to AI in recent years, including telling landlords to notify prospective tenants when they are denied housing, and issuing a proposed rule with other federal agencies on automated valuation models. The bureau is working to ensure that black-box AI models do not lead to what it calls digital redlining in the mortgage market.

One interesting aspect of the home loan process is the sheer number of individuals you’ll work with along the way.You don’t just speak to a salesperson and call it a day. Lots of people are involved in what is a very complex transaction.Aside from salespeople, there are loan underwriters, processors, appraisers, escrow officers, real estate attorneys, and more.Let’s discuss the roles these people hold to help you better understand what it takes to get a mortgage.Remember, you’re asking to borrow a large sum of money, so it’s going to take time and energy (and lots of people) to get to the finish line.The Sales Rep/Loan Officer/Mortgage BrokerThe first step in the home loan process typically involves a sales person, which can be a banker at your local branch or credit union, a loan officer, or a mortgage broker.If we’re talking about a purchase, this may come before/during your home search or after you’ve found your property with the assistance of a real estate agent.If it’s a mortgage refinance, you’d simply jump right to this step to rework the details of your existing home loan if you wanted a rate and term refinance or a cash out refi.You might be referred to an individual/company, or you might do your own discovery to find a suitable partner. Either way, always look beyond the referral you were given.Your real estate agent might know a great lender, but you your own research as well.It’s important to gather multiple quotes from different companies to ensure you get the best deal.Now, this individual will be your main point of contact during the loan process, and perhaps most importantly, will provide you with pricing.Bankers and loan officers work at the retail level, while mortgage brokers offer wholesale rates from their lender partners.You can read more about the differences (banks vs. brokers) but either way they’ll likely be the person you speak with most.Aside from providing pricing, these individuals can help get you pre-qualified or pre-approved for a mortgage, discuss different loan scenarios, and guide you on loan choice.If you have mortgage questions, they should be able to provide answers and give you guidance.They may make certain recommendations, such as down payment amount, loan type, or provide an opinion about paying discount points or when to lock your rate.This individual will be with you from start to finish, but doesn’t work alone. They’ve got an entire team to help you close your loan in a timely fashion.FYI, you may also come across a “mortgage planner,” which is an individual who may assist a busy senior loan officer.They can communicate loan status, provide follow-up, collect conditions, and perform other tasks if the LO is unavailable or simply needs a hand.The Loan ProcessorOnce you’ve spoken to a sales representative (or LO/broker) and have decided to move forward, you’ll be in put in touch with a loan processor.The main goal of the processor is to put together a clean loan file that can be submitted to the underwriting department.This means collecting key documents, ensuring there are no red flags, double-checking everything, and making any necessary corrections.The processor may also reach out after the loan is approved to collect additional documents to satisfy any outstanding conditions.They will also provide updates to the loan officer or broker, who will then keep you in the loop about where you’re at in the process.The processor essentially acts as a liaison between the underwriter and sales rep/LO/broker.This ensures things move along smoothly and any hiccups can be resolved quickly without delay.The Loan UnderwriterThe loan underwriter probably holds the most important role in the home loan process.They decide if the mortgage is approved, declined, or potentially suspended pending further explanation.It’s for this reason that the loan processor only sends the loan package to the underwriter once everything has been thoroughly checked.You only get one chance to make a first impression, so it’s imperative to get it right. Otherwise you could face delays or simply get flat out denied.Aside from approving the loan, the underwriter will also provide a list of conditions needed to close the loan.Most mortgage approvals are conditional, meaning you might need to furnish additional information or documentation to obtain your final approval.Once these documents are provided, whether it’s another bank statement or letter of explanation, the underwriter will clear the outstanding conditions and move the loan to the funding department.The Home AppraiserWhile your loan is being reviewed by the underwriter, an appraisal will be ordered to determine the value of the underlying property.Remember, aside from determining your ability to repay the loan, the bank also needs to ensure the collateral for the loan is valued properly.This individual will visit the property to assess its condition, take photographs, and determine recent sales comparisons.They will formulate a valuation based on the property details, such as number of bedrooms and bathrooms, square footage, amenities, location, lot size, condition, and so on.The value they come up with, known as the appraised value, is used as the basis for the loan-to-value ratio.Generally, the goal is for the appraiser to support the purchase price of the property or the value declared for a refinance.If the value is lower, the details of the loan may need to be reworked, such as a higher down payment.For certain types of loans, such as FHA loans and VA loans, the home appraiser will also ensure that certain Minimum Property Requirements (MPRs) are met.This ensures the property is safe for the occupants, that there are adequate living conditions, and no major hazards, such as lead paint or termites.The Home InspectorIf we’re discussing a home purchase, you’ll want to get an inspection done. And you’ll want to do it ASAP while any contingencies are still in place.While a home inspection typically isn’t required, they’re generally a good idea.Aside from finding out what’s potentially wrong with the property, you can ask for credits from the seller if the inspector finds any significant issues.As the name suggests, a home inspector will come out to the property and assess the condition of the structure itself, the foundation, the interior, the roof, the electrical, HVAC, and more.Some may also inspect the pool and spa, if one exists, though you could be charged extra.They’ll make notes as they survey the property and issue a formal report afterwards. This can be used to negotiate with the seller if anything material comes up.The Notary PublicOnce it’s time to sign your loan documents, you’ll need to make an appointment with a notary public.This individual serves “as an impartial witness” when signing important documents, such as those related to a home purchase or mortgage loan.Your settlement agent should organize a time to meet with this individual to conduct your signing.The notary may come to your home or meet you somewhere else to review and sign documents.The main job of the notary is to verify the identity of the signer and ensure they are willing to sign the documents “without duress or intimidation.”This requires you to furnish identification, such as a driver’s license, during the signing appointment.The Escrow OfficerAnother very important individual in the transaction is the escrow officer, a third-party who facilitates the loan closing and collects/disburses funds to the appropriate parties.Some of their key roles include preparing final statements for the buyer, such as cash required to close, and determining costs such as property taxes, insurance, prepaid interest, and loan payoffs.The escrow officer will send you a settlement statement that lists all the fees and closing costs associated with your loan, along with any lender credits and loan payoffs and funds required.They will also liaise with a title company and forward necessary documents for loan recording.Importantly, they’ll provide wiring instructions to all parties, including the buyer, so you know where to send funds (cash to close).If you have questions about things like prepaid items, mortgage impounds, and loan payoffs, they can be particularly helpful.The Title AgentTo ensure the property is free of any liens, encumbrances, or defects, a title insurance policy is usually required in order to take out a mortgage.A title agent is the individual who conducts a title search, orders a preliminary title report, and eventually issues title insurance on the subject property. This makes them a licensed insurance agentThey are also in charge of recording the deed and loan documents with the county once the loan has funded.You might hear the words title and escrow used interchangeably, but title has to do with property ownership/lien history, while escrow is about the calculation, collection, and disbursement of funds.However, they may perform other settlement tasks beyond just title depending on the state where they’re located.The Loan Closer/FunderIf you’ve made it this far, it means the loan is almost funded. But there’s still work to be done.The loan closer/funder has to review the file to ensure everything is accurate and complete, and if not, address and fix any errors or outstanding issues.They must ensure all prior to funding (PTF) conditions are satisfied and work with the settlement agent to prepare funding figures and timing of disbursement.This includes the review of signed closing documents and items like hazard insurance and the preliminary title report.And if everything looks good, request the wire instructions from escrow after a thorough review.The Real Estate AttorneyNote that in certain states, a real estate attorney could be required to prepare certain documents and/or to conduct the loan closing.This individual may order and certify a title report, review loan documents, and advise you if necessary.Beyond that, they can ensure the interests of all parties are protected, and handle any legal issues or disputes that may come up.One last thing. You may find that there is some overlap with a title company and escrow company, as the former can also provide escrow and notary services as well.So depending on where you live, you could have one company or individual handle several tasks.As you can see, there are quite a few people involved in the funding of a home loan, which explains why they take a month or longer to close.Once you know more about each person’s role, it should be easier to navigate the home loan process and make better sense of it all.And perhaps adjust your expectations that there isn’t a same-day mortgage and likely won’t be for the foreseeable future.(photo: Michael Coghlan)

Title insurance premiums written increased on a sequential period basis in the second quarter, but they were down 37% from one year ago as mortgage originations continued to decline, the American Land Title Association found.High mortgage interest rates, combined with high home prices have contributed to what some housing economists feel is a sector-specific recession.In the second quarter, originators produced $463 billion, the latest data from the Mortgage Bankers Association estimated. This was up from $333 billion in the first quarter, but down from $696 billion in the second quarter of 2022.As a result, title insurance premium volume ended the period at $3.91 billion, compared with $3.37 billion three months prior and $6.21 billion a year ago, ALTA said.Because of the lower volume, operating income was down 48.5% from the prior year period. Meanwhile, in the first six months of 2023, title insurers paid $331.8 million in claims, up from $277.2 million for the same time frame last year.However, ALTA said title companies are still working from a strong financial position, with total assets of $11.6 billion, a statutory surplus at $5.2 billion and statutory reserves of $5.9 billion.The analysts at Fitch Ratings had a slightly different view regarding the financial end of the business."Broader macroeconomic headwinds continue to pressure top-line revenues for the title insurance industry," said the report from Gerald Glombicki and Douglas Baker. Those include the aforementioned higher rates and elevated home prices."Fitch Ratings expects these pressures will persist over the next 12 to 18 months, and refinance volumes are expected to remain severely depressed," the report issued Sept. 5 said. "Purchase order volumes are expected to remain pressured, but will likely rebound somewhat in 2024 as underlying housing demand remains strong."The aggregate operating margin at the four largest holding companies (which control 82% of the market) increased 3% quarter-to-quarter and should continue to improve throughout the rest of the year, Fitch said.By individual underwriter, the five most prolific companies and six of the top seven belong to those four holding companies.First American Title Insurance had a 22.3% market share in the second quarter, compared with 23% in the first quarter and 21.4% for the same period last year.Second was Old Republic National Title Insurance at 14.8%, down from 15.5% in the prior quarter and 14.9% one year ago.Fidelity National Financial owns the next two underwriters on the list. Fidelity National Title Insurance had a 14.1% share, with Chicago Title Insurance at 13.7%. Both were higher than the first quarter at 12.7% and 12.4% respectively.Another FNF subsidiary, Commonwealth Land Title Insurance, had a 3.5% share in the second quarter, up from 3.3% three months prior.Ranked fifth was Stewart Title Guaranty, whose 8.4% share was down from 9.6% in the first quarter and 8.8% for the second quarter of 2022.Westcor Land Title Insurance, whose share at one time approached that of the large underwriters, continued to shrink, down to 3.6% for the second quarter. In the first quarter it was 3.6% and one year ago it was 4.2%.Doma ended the second quarter with a 2% market share, ranked 10th. But during the period, and into the third quarter, the company began selling its retail production offices as it shifts its business model in an effort to become profitable.

Servicing platform Haven is naming Figure Technologies leader Daniel Wallace to be its next CEO, tapping the industry veteran who has been heavily involved in blockchain efforts. The Brooklyn-based Haven allows customers to pay their mortgage bills and purchase other home services on a same platform, potentially giving real estate players more retention and recapture opportunities. The company covers 1.4 million loans and works with firms including LoanCare. "With 85% of outstanding mortgages having a rate below 5%, and application volumes at a 30 year low, engaging with existing borrowers is more important than ever," said Wallace in a press release Tuesday. "Haven enables all stakeholders to remain connected with their borrowers, throughout the life of their loan."Jonathan Chao, Haven's co-founder and CEO, will move to a chief product officer role this month.Companies using Haven's platform don't have to pay a large upfront fee but rather share some of the revenue the service generates. Haven says its efforts help investors in mortgage servicing rights by increasing recaptures, and it also collects propensity data without large fixed costs. The service can be white-labeled, and Haven as of last year counted six unnamed servicer partners and five homeowners and life insurance partners. The fintech founded in 2020 has raised $13.5 million since its inception, including an $8 million Series A funding round last November. Dan Wallace at the Digital Mortgage Conference in 2022. Wallace was Figure's general manager of lending. He helped the company become the largest non-bank originator of home equity line of credit loans, with over $6.5 billion in volume from over 100,000 borrowers and partnerships with major lenders.The new CEO also previously led FirstKey Mortgage and servicer Capitol Crossing, and is a former managing director at Lehman Brothers.Figure has been a pioneer in the blockchain space, completing an eNote mortgage sale to an asset management firm last March. The business, founded by SoFi Technologies founder Michael Cagney in 2018, also created a digital lien and eNote registry and aided the development of the Provenance Blockchain marketplace.That firm also has plans to go public, although it recently dropped plans to pursue a national bank charter. A merger with Homebridge Financial also fell through. Figure however has continued to grow, completing its first HELOC securitization in April.

New U.S. home construction dropped in August to the lowest level since June 2020, highlighting the toll of declining housing affordability.Residential starts decreased 11.3% last month to a 1.28 million annualized rate, according to government data released Tuesday. The drop was largely driven by a sharp decline in multifamily construction.Applications to build, a proxy for future construction, picked up to 1.54 million. That's the most in nearly a year. Permits to build one-family homes accelerated to the fastest pace since May 2022, indicating optimism about future demand.The recent pickup in mortgage rates has helped drive housing affordability to record lows, suppressing demand. Mortgage applications for home purchases are now at levels not seen since the mid-1990s, and it's not clear when borrowing costs will subside.With homeownership out of reach for even more Americans, builder sentiment has soured to a five-month low. That said, with existing-home inventory still extremely limited, there's opportunity for builders to capture more prospective buyers.Multifamily construction plunged to the lowest level since the onset of the pandemic, while applications for those projects increased by nearly 16%, the most in over a year.On a regional basis, housing starts slumped in all regions but the Northeast, with the West experiencing the sharpest decline. That was probably tied to Hurricane Hilary, which battered California last month, Oxford Economics said in a note. Data on both existing- and new-home sales due later this month will provide further clues about the outlook for the US housing market.

RE/MAX will make changes to its business practices as part of a pending eight-figure settlement to end legal challenges to its broker commission fees.The real estate player will put $55 million into a settlement fund to end its involvement in two class action suits, it said Monday in a Securities and Exchange Commission filing. The complaints accuse Realtor firms of violating antitrust laws in requiring home sellers to pay broker fees for both the buyer and seller, which they say could lead to inflated costs.The business in a statement Monday denied the allegations and said it settled in the interest of its agents and franchisees to avoid the risks and costs with prolonged litigation. The company didn't elaborate on its rule changes, and details are unlikely to be made public until federal judges in separate districts approve the agreements.The settlement comes after co-defendant Anywhere Real Estate, parent of Coldwell Banker and Century21, agreed earlier this month to an $83.5 million settlement in both lawsuits. Remaining defendants including HomeServices of America, Keller Williams Realty and the National Association of Realtors, are scheduled to go to trial Oct. 16 in Missouri federal court. Monday's update is the latest win for consumers in a long-running battle over broker commission rules. Consumers in a series of lawsuits have argued for "decoupling" in which buyer and seller pay broker shares separately, ideally leading to negotiations for lower fees. A multiple listing service two months ago paid a $3 million settlement to similar complainants in Massachusetts. The Department of Justice reached a settlement in 2020 with NAR to update its business practices but feds pulled out of that deal in 2021 to further investigate. NAR meanwhile has argued the commission rates are optional and that their rates are negotiable. HomeServices in a self-funded study also suggested a major change in the commission rules would make mortgages less affordable and suppress homeownership among lower-income borrowers.It's unclear how RE/MAX's settlement will be split among the two federal cases it's facing in Illinois and Missouri. The settlement amount won't have a material effect on the firm's business, it said, and will incur the expense by Sept. 30. It will pay out the agreement in three separate installments related to each case's formal approval by a judge. 

While mortgage rates of more than 7% continue to pressure homebuilding stocks, the recent slump in the group's performance is largely driven by normal seasonality, according to Citi.Lennar Corp.'s third-quarter results last Thursday provided investors a first formal read on builder performance in August and early September. Despite reporting strong quarterly metrics, the company's forward guidance disappointed, prompting a selloff among peers and pointing to moderating pricing and slowing sales volume.Homebuilder shares underperformed the broader market last week for a second week in a row, plunging 4.3% versus the S&P 500 Index's 0.2% dip. "Recent softness in housing activity and seasonality in share prices (the end of the 'spring selling season trade') suggests some investors may tune out until the end of the year," analysts led by Anthony Pettinari wrote in a note to clients Monday. "We estimate half or more of the recent softness in volumes and pricing is driven by normal seasonality."Historically, housing activity in terms of sales tend to peak in June, flatten out in the summer and decline more sharply in the fall. Home price appreciation follows a similar pattern. On average since 1970, new home sales volumes decline 7% month-over-month in September and 13% quarter-over-quarter in the final months of the year, according to the analysts. Over the past 25 years, homebuilding stock returns are the highest leading up to the spring quarters, outperforming the S&P 500 in 16 of the past 25 years, followed by a decline in June through the end of the year.Up until recently shares of builders have been on a tear, rallying 55% through its mid-July peak as the group benefited from slowing sales and high mortgage rates that kept many homeowners from selling, therefore limiting supply amid strong demand.But as summer comes to an end this week things are starting to turn. Homebuilder sentiment unexpectedly dropped to a five-month low in September as higher rates push prospective buyers out of the market and lead more builders to offer buyers incentives."In the absence of other positive catalysts, the group may see more muted investor interest in later months (September - December), with some profit-taking and reassessment of positions ahead of 2024," wrote Pettinari.Nonetheless, investors will have the opportunity to further assess how homebuilders are faring as KB Home reports its third-quarter results after the closing bell on Wednesday.

The combination of elevated mortgage rates and low housing inventory is making homeownership more unaffordable for borrowers.Housing costs grew to an average of $2,632 during the four weeks ending Sept. 10, up from $2,605 the prior reporting period, according to a recent Redfin report. As a result, buyers have opted to sit on the sidelines instead of purchasing a home, pushing pending sales downwards. The brokerage's data shows that sales during this time period declined across all the 50 metros it tracks. A separate report from the Mortgage Bankers Association shows that as of Sept. 8, mortgage loan volume was down a seasonally adjusted 0.8%, marking the "lowest level since 1996."Despite elevated interest rates, which have hovered above 7% for four weeks, prices for properties have also increased due to low inventory.The median sale price grew by more than 3% to $376,250, per the brokerage's analysis. Properties in Miami, Newark, New Jersey and Anaheim, California saw the most notable spikes in prices, while Austin, Texas, Fort Worth, Texas and Phoenix saw the largest declines.The brokerage predicts that the Federal Reserve, in its battle to wrangle inflation, is "highly unlikely" to push interest rates upwards in late September, however a rate hike in November or December is imminent. If that's the case, mortgage rates will remain high through the end of the year further dampening buyer demand and the bottom line for most originators.The challenging buying landscape is also impacting demand for second homes. Per another survey published by the brokerage, mortgage-rate locks for second homes dropped by 47% from pre-pandemic levels in August, compared to a 33% decline for primary homes. Meanwhile, mortgage-rate locks for second homes is down 19% year-over-year, bigger than the 14% annual decline for primary homes.  Borrowers no longer find second properties appealing because of home prices, uncertain economy, lack of new listings, return-to-work mandates and the long-term rental market cooling, Redfin's report said.

While the U.S. economy at large has yet to reach downturn status, commentary from First American Financial said the housing market has been in its own recession since May, and it is actually a double-dip recession.The title insurer's housing recession indicator model is based on the National Bureau of Economic Research Business Cycle Dating Committee's determination of downturns based on eight economic indicators.Based on that methodology, the U.S housing market entered into recessionary status in May, declared Mark Fleming, First American's chief economist.It was also in recession between May and November 2022, but exited when mortgage rates declined after topping 7% last fall and the new home sales market recovered, he found."The resurgence in mortgage rates, constrained affordability, a slowing pace of sales, fewer residential housing jobs and less residential housing investment returned the housing market to recession," Fleming said in a press release for First American's Potential Home Sales Model report for August.The banner year for home sales was 2021, with a fall-off in 2022 that has continued into 2023, noted Selma Hepp, chief economist at CoreLogic in an interview.This is because of the rapid rise in mortgage rates along with inventory issues, she said, agreeing with Fleming.A recent Fitch Ratings report that noted over 80% of U.S. metro areas had home prices that were overvalued compared to sustainable norms.The last double-dip housing recession was during the Great Financial Crisis, Fleming pointed out, with the pause taking place between July and November 2009, when mortgage rates fell to 4.7% from 5.5%."The GFC double-dip and the current double-dip highlights the sensitivity of the housing market to mortgage rate volatility," Fleming said. "Sales, affordability, residential construction and the real estate-related labor market are all sensitive to mortgage rate trends."Hepp remarked on the vast difference in the size of the inventory in the current housing market compared to that of the Great Recession."Coming into the Great Recession, there were some 4 million existing homes available for sale," said Hepp. "And now we have less than a million homes."Furthermore, while prices are still at near-peak levels, before the 2009 recession, values hit their highs in 2006. That translates into more equity for current owners.Plus, in 2009 unemployment grew, whereas currently, the labor market is resilient and actually helping what's happening in housing, Hepp said.That makes certain comparisons between the two eras difficult."So it's a crisis, but due to a different sort of set of circumstances," Hepp said.The First American model determined existing sales would run at a 5.34 million seasonally annualized rate in August, a 0.2% decrease from July.Compared with August 2022, the market potential was 191,000 SAAR units lower, a decline of 3.4%."Existing-home sales will have a tough time gaining real momentum in a limited inventory environment where most homeowners are rate-locked into their homes," said Fleming. "A higher mortgage rate environment resulting in limited sales helps to explain why the housing market has slipped back into a housing recession."Industry forecasters are expecting mortgage rates to moderate later this year, especially if the Federal Open Market Committee ends the current tightening program and investors have more certainty. A U.S. economic recession will also result in mortgage rates, which have been above 7% for five consecutive weeks. First American expects rates to remain elevated for the rest of the year, between 6.5% and 7.5%, Odeta Kushi, deputy chief economist, said in a recent report.General expectations are that the FOMC will not raise rates at its meeting on Tuesday and Wednesday, although future hikes are not off the table. After pausing in June, the FOMC pushed short-term rates 25 basis points higher at its last meeting in July.Mortgage rate stability is the key to the immediate future of housing, Fleming said."Until mortgage rates come down, I think we're going to be in a sort of a stalemate for the housing market," added Hepp. "Because lower mortgage rates will also unlock that inventory."

PennyMac Mortgage Investment Trust on Monday announced that it's planning a public offering of notes that could be used for purposes that include investments in servicing rights and the paydown of a relatively near-term obligation.The new notes would be due 2028 and also may fund the purchases of credit risk transfers or other mortgage securities. Correspondent purchases of agency-eligible loans also could be funded. Debt set for possible reduction includes some 5.5% exchangeable notes due next year.The rate and other terms of the new notes — which PMT will offer with Piper Sandler, Janney Montgomery Scott and Ladenburg Thalman as joint book-running managers — will be set at the time of pricing. Alliance Global Partners and William Blair & Co. will be co-managers.The offering comes at a time when nonbank investments and financing have been watched closely due to uncertainties associated with interest rates and bank regulation.It also arrives following PMT's decision to cancel the floating rate portion of a recent preferred stock issue because it was pegged to Libor, a now-defunct rate. Some preferred stock investors disapproved of the move, and say they'll be wary of future securities offerings because of it.But the new note offering gave the real estate investment trust's stock a lift above $13 from just below that level the previous trading day.The REIT's sister company, PennyMac Financial Services, also had seen some improvement in the trading price of its shares at deadline Monday morning. Its stock had risen to about $69. Its shares were just below $69 the previous trading day.More restrictive proposed rules for bank capital that could drive depositories further away from mortgages may create opportunities in correspondent and mortgage servicing rights for the REIT, company leadership recently stated.Executives from the real estate investment trust affiliate of the Pennymac entity speaking at the Barclays Financial Services Conference last week said there has been some depository withdrawal but it's been limited."We're seeing certain banks slow down their pace of activity in correspondent," said David Spector, chairman and CEO at PennyMac Mortgage Investment Trust.There are early indications of some mild market share gains, said Spector."On the correspondent side, we're starting to see some perceived share growth," he said. "We'll find out when the numbers finally come out in October but we're seeing some good activity there, both the government and conventional side."Servicing sales in general have been slower than expected, said Spector."It's not happening at the pace that we thought it would at the beginning of the year," he said. "We've seen some large packages come out of some banks. We're seeing some conventional MSRs come out of very small originators, but not as much as we thought would take place."Meanwhile, the fact that loan performance has been bearing up to date bodes relatively well for credit-risk transfer securities, Spector said."Overall, that investment and the delinquencies that we're seeing there are really at very low levels," he said.

U.S. homebuilder sentiment fell to a five-month low in September as higher mortgage rates continued to push many prospective buyers out of the market.The National Association of Home Builders/Wells Fargo gauge declined 5 points to 45 after sliding 6 points a month earlier. That marked the largest back-to-back decrease in nearly a year. The September reading was below all estimates in a Bloomberg survey of economistsWhile builder sentiment had been rising this year through July amid limited resale inventory, mortgage rates above 7% risk choking off demand for new homes. Borrowing costs may remain elevated as Federal Reserve officials have indicated they will keep their benchmark rate high for the foreseeable future.  "High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower," NAHB Chief Economist Robert Dietz said in a statement.Many builders have been resorting to incentives in an effort to lure buyers. Nearly a third of respondents said they lowered prices to bolster sales, the largest share since the end of 2022, according to NAHB. The share of builders offering all types of buyer incentives rose to a four-month high.All indexes tracked by NAHB posted declines in September. Both current and expected sales measures fell to multi-month lows. A gauge of prospective buyer traffic dropped to the lowest since February.

Houses were overvalued in 82% of U.S. metropolitan statistical areas in the first quarter, but that is actually down from 88% for the prior period, a Fitch Ratings analysis found.Almost half, 49%, were overvalued by 10% or more, according to Fitch's Sustainable House Price model, which has been temporarily revised to account for current market dynamics.In the fourth quarter, 52% of MSAs were overvalued by 10% or more.Still, nationwide, overvaluation is starting to flatten out, said Sean Park, a director at Fitch. In the first quarter, on a population-weighted average basis, home prices were overvalued by 7.6%."But the ongoing rebound in quarter-over-quarter home prices is expected to lead to only a continued moderation in overvaluation," Park said.High prices are affecting younger generations who are thinking about the possibility of home ownership, a Redfin study previously discussed.However, data from later in 2023 presents a mixed bag as to whether valuations are likely to soften. The CoreLogic Home Price Index rose 2.5% annually in July, after two consecutive months of 1.6% gains. It increased by 0.4% compared with June."Annual home price growth regained momentum in July, which mostly reflects strong appreciation from earlier this year," said Selma Hepp, CoreLogic chief economist in a press release. "Nevertheless, the projection of prolonged higher mortgage rates has dampened price forecasts over the next year, particularly in less-affordable markets."According to the Fitch data, properties in only two of the 50 largest MSAs were undervalued in the first quarter: Detroit and Las Vegas. Another 11 markets were described as having sustainable prices.Nationwide, 33 MSAs are undervalued, while in 80 more, homes have sustainable valuations.But 82 are overvalued by 5% to 9%, 90 between 10% and 14%, 55 between 15% and 19%, 34 between 20% and 24% and 7 between 25% and 29%.

Enjoy complimentary access to top ideas and insights — selected by our editors. OceanFirst headquarters in New Jersey. In a regulatory filing, OceanFirst stated that the troubled Manhattan office loan amounts to about 17% of the company's $130 million portfolio of central business district office loans. OceanFirst Financial Corp. in Red Bank, New Jersey, said it expects to report increased third-quarter charge-offs linked to its participation in a loan secured by a Manhattan office building. The $13.6 billion-asset OceanFirst stated Thursday in a current events filing with the Securities and Exchange Commission that loan losses connected to the Manhattan office credit would total between 45% and 50% of its $17 million total exposure. For the second quarter, the company reported $123,000 of charge-offs. OceantFirst's announcement came just a day after First Horizon Corp. in Memphis, Tennessee, and the Greenville, South Carolina-based United Community Banks revealed they would report substantial third-quarter charge-offs tied to their participation in a $218.5 million loan to an oil distribution company. The $13.6 billion-asset UCBI expects to write off about $19 million, while First Horizon's losses could total $70 million. Office loans are emerging as a particular area of concern for banks, regulators and investors. The Federal Deposit Insurance Corp. underscored concerns about the office market in its most recent risk review, while several banks have moved to increase reserves or curtail lending to the sector.  In its 8-K filing, OceanFirst stated the Manhattan office loan amounts to about 17% of the company's $130 million portfolio of central business district office loans. OceanFirst  added it is "continually evaluating" them and "currently is not aware of other material losses within this portfolio." David Bishop, who covers OceanFirst for Hovde, characterized the charge-off as "more a specific borrower related issue rather than a systemic issue with the overall CRE portfolio." Janney Montgomery Scott Analyst Chris Marinac reached a similar conclusion noting Friday in a research note that OceanFirst's overall ratio of criticized loans to loans, at 1.18%, is lower than most peers.Marinac reiterated his "buy" rating on OceanFirst. Bishop rated the company's shares at "outperform." OceanFirst shares were trading at $16.09 Friday afternoon, down 1.44%.

Home purchases across the U.S. are getting canceled at the highest rate in almost a year as rising borrowing costs weigh on buyers. Nearly 60,000 deals to purchase homes fell through in August, according to a report released Friday by Redfin Corp. That's equal to roughly 16% of homes that went under contract last month, the biggest share of cancellations since October.More buyers and sellers scrapped deals last month as mortgage rates topped 7% for the first time since November. The average for a 30-year, fixed loan has hovered above that point for the past five weeks, data from Freddie Mac show."I've seen more homebuyers cancel deals in the last six months than I've seen at any point during my 24 years of working in real estate," Jaime Moore, a Redfin agent, said in the report. "They're getting cold feet."Despite sluggish sales, prices have continued to rise because buyers in the market are competing for a limited number of homes, Redfin said. The median price climbed 3% in August from a year earlier to $420,846."As long as rates remain high, homeowners will be reluctant to sell," said Chen Zhao, Redfin economics research lead. "That lack of homes for sale will keep prices high because it means buyers are duking it out for a limited supply of houses."

Even though the Empower LOS was the second most-used origination platform in the mortgage business, it was commonly seen as taking a back seat to its former corporate parent's servicing technology.A rebranding to the name Dark Matter Technologies under its new ownership could change that. "We are now abundantly and solely focused on mortgage origination technology, and our clients specifically will see a difference there," said Sean Dugan, chief revenue officer. "As a lighter organization under Constellation ownership, we're going to be able to design and deliver in a more nimble way."This transaction closed on Sept. 15, 10 days after Intercontinental Exchange completed its acquisition of Black Knight.Constellation's purchase was contingent on the Federal Trade Commission dropping its opposition to the ICE deal, which it did in early August. ICE and Black Knight agreed to their deal in May 2022. The Empower sale was entered into in March in order to drive regulatory approval for the merger between two market giants.But ICE, Black Knight and the Federal Trade Commission did not officially come together on their agreement until Aug. 25.All along, "we're very optimistic, we got assurances from our counsel to indicate that this was going to eventually close," said Bonnie Wilhelm, chief operating officer of the Perseus Operating Group at Constellation. "We just weren't sure when that was going to happen."Constellation first met with the Dark Matter team in February and is now excited they can officially work together, Wilhelm added.The branding came about because management was looking for something that was more edgy.  "Dark matter is the ubiquitous piece that helps the universe evolve, the constellations evolve [in a reference to the company's new ownership], and it's really the backbone of the universe," said Rich Gagliano, CEO of Dark Matter. "We view ourselves as the backbone of our originators and our clients" to help them create efficiencies and drive down costs.Before the transaction, Gagliano was president of Black Knight Origination Technologies.Empower will remain the name of the LOS, Gagliano said, noting it is in its 25th year in the marketplace.Management has had preliminary discussions with clients prior to closing but these were limited because of certain regulatory guidelines."Next week we'll be reaching out to our clients and talking in a little more detail," Gagliano said. "The Constellation team has been great with spending time with our clients and I think they've gotten really comfortable with them."Dark Matter will be reaching out via phone calls and emails in the coming days, Dugan added.Most, if not all users will stay on the Empower system now that the deal is done."I think our clients really appreciate what we've done and all that we brought to the market," said Gagliano. "We expect our clients to stick with us and all indications are they're excited about Constellation and they're excited that this leadership team is staying together."Constellation aims to have its businesses keep their customers forever as it is a long-term owner, said Scott Smith, the co-president of the Romulus Portfolio, Perseus Operating Group."We've worked with Rich and his team, understanding how they're investing and what they're doing so their customers stick around forever with Dark Matter," said Smith. That is a core philosophy across the 800 acquisitions and over 100 verticals that Constellation is in.Constellation also owns Mortgage Builder (acquired from Altisource Portfolio Solutions in April 2019) and ReverseVision, purchased in February 2022, and those will remain separate businesses run independently from Dark Matter, said Smith.Among the other businesses included in the sale to Dark Matter is the artificial intelligence initiative, Aiva, that Black Knight acquired in 2018. The Exchange Service Network also is now a part of Dark Matter.However, the Optimal Blue product and pricing engine, which was also acquired by Constellation as part of the divestitures that enabled the ICE-Black Knight deal to go through, will be a separate business.

Small-balance loans often fall to the bottom of the stack, as they are deemed less profitable by mortgage lenders. But a white paper by the Mortgage Bankers Association shows that originating this type of loan is more nuanced, especially during a market downturn. Per the trade group's analysis, conducted with data gathered from its annual performance report and a collaboration with STRATMOR Group throughout 2021 and 2022, production costs, which typically run higher for small loan balance loans, can actually fall during a purchase market. This may be a silver lining for the government's ongoing push to encourage more small-dollar lending, which can be a key in helping more Americans achieve homeownership, particularly in suburban and rural areas, where small balance mortgage lending is more prevalent. The one outcome that holds true in both a refinance-dominant environment and in a purchase-dense one is that production revenue per loan usually increases as loan balances get larger, MBA's report said. Hence why mortgage companies often prefer loans that are larger.However, the cost to produce a loan with smaller balances (averaging less than $269,255) starts to vary in a purchase market. In an origination cycle that is less fruitful, such as one seen in 2022, mortgage shops with low loan balances tended to have the lowest production costs, which minimizes net produced losses.On the other hand, lenders with the highest loan balances of over $560,000 had the highest costs and experienced the largest net production losses, MBA's research shows.Findings from MBA and STRATMOR's Peer Group Roundtable data shows that through mortgage cycles, lenders with the highest loan balances seem to experience the "highest highs for net production profits in a strong market, but the lowest lows in weaker markets."In 2021, a year which saw strong origination volume, total production revenues grew, with the highest loan balance group in the trade group's analysis generating $16,078 in revenues per loan, or 339 basis points, while the lowest balance group generated $9,733 per loan, or 411 basis points, according to MBA's white paper.Meanwhile, an analysis of 2022 data revealed that there was no clear "winner" for net profits, as lenders lost on average $1,745 per loan. Interestingly, the group with the highest loan balances actually performed the worst, and production profits generally got progressively worse as average loan balances rose. MBA's research also touches upon the correlation between servicing profits and loan size.By relying on its annual performance report, the trade group found that servicers with the highest loan balances "experienced the highest highs for net servicing financial income in 2022 when there was low prepayment activity, but the lowest lows in 2020 when there was high prepayment activity." Once MSR-related items were removed and there was a focus more so on operating revenue and costs, servicing revenue per loan increased as loan balances increased.The research comes after the discourse around small-dollar loans has started to resonate more, with several housing agencies launching pilots and programs to help incentivize lenders to originate more of these types of loans. In late-October, the Department of Housing and Urban Development announced it is mulling the possibility of giving mortgage lenders and servicers financial incentives to address cost differences that hurt the availability of small loans.The MBA has recommended for HUD to create an internal fund dedicated to issuing grants to offset the upfront cost of originating small-balance mortgage for lenders.

A leading advocacy group for retirees is predicting an above-average boost to Social Security next year — but it still may not be enough to keep up with inflation.The cost-of-living adjustment (COLA) for the program in 2024 will likely be 3.2%, according to The Senior Citizens League, a nonprofit seniors group in Alexandria, Virginia. That's more than the average COLA of the past 20 years, which has been 2.6%. But with prices rising at 3.7% year-on-year, according to the U.S. Bureau of Labor Statistics, some experts say seniors have little to celebrate."They're not going to sneeze at it," said Mary Johnson, a Social Security policy analyst at The Senior Citizens League. "This is a higher than average COLA, and they're going to be internally breathing a sigh of relief. But they're still going to be disappointed that … the actual amount of their increase is not going to be enough to maybe even pay the oil bill."The Social Security Administration will announce the official 2024 COLA in mid-October. Since 1975, the New Deal-era program has been adjusting benefits to keep pace with inflation — or attempting to do so — every year.In 2023, the COLA was unusually high: 8.7%, the largest adjustment since 1981. And yet as prices continued to rise — and remained elevated from the previous, higher inflation of 2022 — many retirees still found themselves falling behind."From what we are hearing from people … the dollar amount of their increases really doesn't go that far," Johnson said. "Things like rent, housing, medical costs, repairs — all of these have remained higher than they were a year ago."In addition to that lingering elevation, the past two months have seen inflation tick back up after a year of decline. The Consumer Price Index increased year-on-year by 3.7% in August, up from 3.2% in July and 3% in June.And in terms of the individual expenses seniors have to budget for, the numbers are often higher. Food prices, for example, rose by 4.3% in August, housing costs rose by 7.3% and medical care commodities rose by 4.5%.Read more: Smaller Social Security COLA to tighten vise on retiree budgetsAgainst all these costs, Social Security offers an important lifeline. This year, 49.4 million retired workers rely on the program, receiving a total of $90.8 billion in benefits, according to the Social Security Administration.And unlike other sources of income — such as retirement plans or annuities — Social Security is automatically adjusted, however imperfectly, for inflation. Many financial advisors see that as a significant advantage."The 3.2% COLA doesn't seem all that impressive on a year to year basis, but it is incredibly valuable," said Eric Amzalag, owner of Peak Financial Planning in Woodland Hills, California. "Household portfolio income is never guaranteed to be inflation-protected, because individuals are not in control of markets. Some years the market's up, some years the market's down."Even wealth managers with more affluent clients say Social Security is an important piece of the retirement puzzle — not because it provides substantial income by itself, but because it protects other funds from being disbursed too soon."Social Security becomes a vital source of reliable, consistent and inflation-adjusted income that my clients use to reduce the withdrawal demand on their savings," said Erik Nero, founder of First Step Wealth Planning in Saratoga Springs, New York. "Clients aren't going to book a vacation with the increase on their Social Security benefits, but the increase will help offset the rise in energy prices in their budget."What impact would a 3.2% COLA have? The Senior Citizens League calculates that the average benefit for a retiree is $1,790, so the new adjustment would add another $57.30 to each monthly check.Whether that's a lot or a little depends on one's budget. In 2023, according to the league's research, 37% of retirees spent between $1,000 and $2,000 per month, and 8% spent even less than that. For those seniors, an additional $57 could be significant.Read more: Retirees say Social Security COLA is no match for inflationHowever, another social program may eat into that cash before seniors can spend it. For those already collecting Social Security, Medicare Part B premiums are automatically deducted from their benefits. The dollar amount of those premiums for 2024 has not been announced yet, but Medicare's Board of Trustees has predicted that they'll increase next year from $164.90 to $174.80."Usually that deduction alone can consume most or all the cost-of-living adjustment," Johnson said.The upshot of all this is that the COLA is an important feature of Social Security benefits — especially in times of high inflation — but it does little to address the fact that those benefits are so limited to begin with."Social Security is one of the only forms of retirement income we have that's adjusted for inflation," Johnson said. "But it's not fail-safe, and people are still falling behind."

A proposed set of higher risk weights for mortgage-related assets at banks could broadly compound current strains on home affordability and conflict with other policies and rulemaking promoting it, critics testified at a congressional hearing Thursday.The new rules not only increase portfolio lending expenditures for low down payment loans, but aspects like a possible change affecting servicing rights also add costs for lenders and the market at large, said Bob Broeksmit, president and CEO, Mortgage Bankers Association.The rights and associated work of handling loan payments are a key cost for the mortgage industry at large and if depositories further withdraw from investments in them, costs for nonbank lenders already struggling to profit due to higher rates could rise, he said."The mortgage servicing value is an integral part of how every mortgage is priced, not just mortgages made by these banks," Broeksmit said at a House Financial Services subcommittee hearing. The subcommittee involved is focused on financial institutions and monetary policy.Mortgage servicing rights already have a relatively high risk weighting under current bank capital rules that discourage holding them in amounts above 25% of Tier One common equity. The proposal would lower the cap to 10% of common stock or other assets in that category.Broeksmit also reiterated his past criticisms of moving from a risk-weighting of 50% for most home mortgages outside the income-producing sector, to a proposed step-up of percentages in that category by loan-to-value ratio that's in excess of global Basel III rules."If these increased capital requirements go into effect, banks will make fewer mortgage loans or they will raise the price," said Broeksmit.He also doubled-down on his previously stated concerns about the fact that the new requirements don't account for the additional protection private mortgage insurance can provide to loans with lower down payments.Others testifying said the capital rules could put a strain on mortgages that have balloon payments due in a higher rate market."In a time of historic inflation, the fastest increase in interest rates in modern history, and a growing likelihood of the credit crunch, now is not the time to raise capital levels," said Committee Chair Rep. Andy Barr, R.-Ky. "Such action threatens to further constrain credit availability and put already-sensitive sectors such as commercial real estate in further peril."The new capital rules also could be a constraint on lines of credit used both by businesses and consumers, Broeksmit said."If I understand this voluminous proposal correctly, banks would be required to hold capital on the maximum amount that could be drawn rather than the amount that is outstanding. That could have a really chilling effect on … small business credit and also home equity lines of credit where consumers take that out and use it as they need it," he said.Other speakers and some Democratic members of Congress debated the assertion that the rule would hurt access to financing."We strongly disagree that new capital requirements will undermine credit availability," said Alexa Philo, senior policy analyst, Americans for Financial Reform, after Rep. Ayanna Pressley, D.-Mass, asked whether the new rules could protect the availability of lending in a downturn.There's a significant body of research that has found that domestic financial institutions with higher reserves provided more financing than those with lower capital levels, Philo said."Well capitalized, large U.S. banks had higher loan originations and liquidity," she said.

Scarce supply of existing single-family homes pushed originations for new constructions higher on an annual basis for the seventh month in a row, the Mortgage Bankers Association said.Purchase loans for newly built homes leaped 20.6% in August compared to one year earlier and 4% month-over-month on an unadjusted basis, according to the MBA's builder application survey. While still a substantial upswing, the latest figures are down from a 35.5% annual surge in July, but headed up from that period's 0.2% monthly uptick.  "There was strong purchase demand in August for newly constructed homes, as existing for-sale inventory remains low with most homeowners locked into lower mortgage rates and unwilling to give those rates up in this higher rate market," said Joel Kan, MBA vice president and deputy chief economist, in a press release. Despite interest-rate and other affordability challenges, many aspiring buyers have continued their search for housing this year, looking to the new-home market for opportunities. The upward trend of mortgage applications for new homes contrasts sharply with purchase-loan volumes in the existing-home market, which has consistently posted annual double-digit percentage-point decreases throughout 2023, according to MBA's weekly surveys.Recent data from Redfin estimated over 30% of total listings on the market in the second quarter were newly built units. The pickup in new business has led to a turnaround for homebuilders this year after a challenging 2022, although many are also likely to offer concessions.  The MBA estimated new single-family home sales ran at a seasonally adjusted annual rate of 702,000 in August, the strongest pace in three months, Kan said. The number was up 3.7% from 677,000 in July and 0.4% from 699,000 a year ago.Approximately 59,000 new homes were sold during the month, up from 56,000 in July. Average loan size for purchases rose to $398,092, compared to $397,148 one month prior.First-time buyers are driving much of the momentum behind the recent upturn in sales, Kan said. "The FHA share of applications dipped slightly in August but remains close to survey highs, indicating that a larger share of first-time homebuyers is supporting the new home sales market." Loans guaranteed by the Federal Housing Administration nabbed a 23.8% share, just off 24.2% recorded in July, which was the highest portion in over three years. New-home applications in the conventional market made up 65.8%, up from 65.3%. Meanwhile, applications guaranteed by the Department of Veterans Affairs garnered a 10.2% share, the same as in July. Loans sponsored the  U.S. Department of Agriculture's Rural Housing Service made up 0.2% of originations, inching down from 0.3%.

How fast is fast enough? Ask Guaranteed Rate, which just launched “5 Minute Approval” for mortgage applications.This new “innovation” from the Chicago-based mortgage lender allows borrowers to get approved for a home loan in just five minutes.Interestingly, it comes not long after their Same Day Mortgage, which apparently wasn’t quick enough for some.It might also be a sign of the times, with mortgage application volume at its lowest levels since the 1990s.As the name suggests, customers can get approved for a home loan in as little as five minutes and possibly close in just 10 days.How Does This New 5 Minute Mortgage Approval Work?Those who are in a really big rush to get a mortgage can now take advantage of Guaranteed Rate’s so-called 5 Minute Approval.As noted, the company only just launched Same Day Mortgage back in March, but apparently they had their sights set on faster.And faster is exactly what this is. How it works appears relatively simple.You visit their website, access the secure portal, sign the initial application package, then upload any requested documents.This can apparently be done without any human interaction as well, and is about three minutes faster than Rocket Mortgage’s 8-minute full approval launched back in 2015.To date, Guaranteed Rate has “successfully approved” more than 100 loans within 5 minutes via their pilot program.It’s unclear how much is needed from the borrower as they didn’t provide the details, but that obviously seems lightning fast.Also not totally clear if this is a full loan approval or a more basic mortgage pre-approval.Simply visiting a website and filling out a form can easily take five minutes, so my assumption is they aren’t asking for much here. It’s unclear if credit is pulled, but I’d guess at least a soft pull is required.If document upload is needed, that would likely take several minutes to track down from other websites.Perhaps they allow applicants to link bank accounts, pay stubs, and other key information to speed up this process.Either way, only a cookie-cutter vanilla loan scenario is going to get a mortgage approval in as little as five minutes.This means a W-2 borrower with good credit and nothing out of the ordinary. And perhaps really fast fingers and a fiber internet connection to make it through the application in record time.Jokes aside, it’s available for both home purchases and mortgage refinances, assuming you’re the impatient type. Okay, I guess one more joke.Guaranteed Rate President and CEO Victor Ciardelli notes that you can even be touring a house and generate the insanely fast approval while you’re walking around.Is Speed Still Necessary in Today’s Cooler Housing Market?While it feels like a distant memory, there used to be a waiting list to refinance a mortgage at certain banks.And many loans took two months or longer to close, due to unprecedented demand related to record low mortgage rates.Several years ago, just getting an underwriting decision could take a couple weeks.Not so today, with mortgage application volume down to 1996 levels, per the latest report from the Mortgage Bankers Association (MBA).But despite depressed levels of demand, there are still bidding wars and multiple offers on many home sales because inventory is also rock-bottom.At last glance, months’ supply was hovering around three months, which is well below a healthy market at 4-5 months of supply or more.So it’s not just low demand, it’s also a story of very limited supply.Guaranteed Rate cited Zillow data that found 48% of homes for sale still receive three or more offers.This means it can still pay to have a mortgage approval in-hand if and when you tour a property.Of course, a same day approval vs. five minute approval might just be splitting hairs.Perhaps more importantly, Guaranteed Rate says applicants can close on their home loan in as little as 10 days.Getting to the finish line that quickly seems a lot more valuable than rushing through an approval at the start.Read more: Guaranteed Rate’s OneDown Offers a 1% Mortgage and $1,000 Toward Lender Fees(photo: Steve Austin)

Representative Bill Foster, D-Ill., said during a House Financial Services Committee hearing Thursday that while regulators should disclose more details about how they reached the decisions they did regarding the Basel III endgame capital proposal, regulators are caught in a no-win situation. "If you adopt standardized but complex things, then people say it's too long, it's too complex."Al Drago/Bloomberg WASHINGTON — Banking trade groups continued their onslaught of criticism of federal regulators' plan to increase capital requirements on banks with at least $100 billion of assets, and seem to have found allies in that criticism in Republican lawmakers on the House Financial Services Committee. Rep. Andy Barr, R-Ky., chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, criticized regulators for not releasing an economic analysis of the Basel III endgame proposal, echoing industry complaints. "I suspect that many lawyers are salivating at the arbitrary and capricious nature of this rulemaking," he said. "It was proposed with no meaningful public input or quantitative … cost-benefit analysis." Barr's comments follow a Tuesday letter from several top banking and financial industry groups — including the Bank Policy Institute and Mortgage Bankers Association, whose leaders testified at the House hearing — asking the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency to issue a new proposal. The letter accused the agencies of using nonpublic data for the proposal, which violates the standards of the Administrative Procedure Act. At the hearing, Andrew Olmem, a partner at Mayer Brown, outlined part of the rationale that bank groups or Republicans could use to challenge the Basel III endgame proposal under the Administrative Procedure Act. "Just to be clear, these aren't just technical process problems," Olmen said. "These are statutory violations." He said that the Administrative Procedure Act is meant to make sure that agencies have a rulemaking process that allows public engagement, and that an agency can't "decide on its whim to take a particular action." "It has to be reasoned and informed," Olmen said. Republicans have some support from across the aisle, although Democratic lawmakers largely defended the proposal and the regulators' rulemaking process. In July, the ranking member of the committee, Rep. Bill Foster, D-Ill., joined Rep. Andy Barr in a letter to the Fed Vice Chair for Supervision Michael Barr on asking that the Fed provide any cost-benefit analysis, including supporting data, for its rulemaking related to capital rules. Foster repeated his request for more visibility and information on the rulemaking process during the hearing. "The details are important since they will undoubtedly have effects on the lending activity, market behavior and internal operations both of the large U.S. banks which will be directly impacted and the other players in the economy who will have to adapt to a new equilibrium," he said. "Because of that complexity, it's important that the public have maximum visibility into both the rules themselves and to the quantitative consideration that led to the final choices made." However, Foster stopped short of explicitly mentioning the Administrative Procedure Act, and criticized Republican complaints about the rulemaking process by saying that regulators have three imperfect options for designing proposals and rules. "You can just allow the banks to just use their in-house, homebrew models which are obviously open to gaming," he said. "If you suggest standardization but [with] simple rules, then the objection you get is this is a one-size fits all that doesn't really reflect the idiosyncrasies of our particular bank. And then if you adopt standardized but complex things then people say it's too long, it's too complex." 

Even with the uptick in inflation, most observers are expecting the Federal Open Market Committee not to raise short-term rates at its next meeting. But that doesn't mean mortgage rates this week were immune to the report.The Consumer Price Index rose 0.6% on a seasonally adjusted basis in August, compared with a 0.2% increase in July. Unadjusted, the index was up 3.7% on an annual basis, the Bureau of Labor Statistics said.If this report was a weather forecast, the outlook for the home lending business would be partly cloudy, said Marty Green, principal at mortgage law firm Polunsky Beitel Green, in a statement."I don't think it alters the Fed's path at its next meeting, where they will talk tough but leave rates unchanged," Green said. "However, their path at the November and December meetings is still unclear, as they telegraphed the possibility of another rate increase in 2023."This report will not change investors' minds about the mortgage rate environment, he said.They are elevated based on expectations that rates will be falling next year. "So there is an increased likelihood that mortgages originated today will not stay on the books for very long," Green said. "Accordingly, investors require a premium to make the investment."The Freddie Mac Primary Mortgage Market Survey noted the average for the 30-year fixed rate loan increased for the first time in three weeks to 7.18%, from 7.12% one week ago. A year ago, it was at 6.02%.But the average for the 15-year FRM was down 1 basis point to 6.51%. It was at 5.21% for the same week last year.Rates "remain anchored" above 7%, said Sam Khater, Freddie Mac chief economist, in a press release."The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated," he continued.However, Zillow, which tracks rates based on offers made through its website, reported the 30-year FRM at 6.94% on Thursday morning, down three basis points from Wednesday and 7 basis points from last week's average of 7.01%.Orphe Divounguy, senior macroeconomist at Zillow Home Loans, said the decline reflects investor expectations of slower consumer activity and weaker economic growth in the future."The August uptick in inflation — a key driver of Treasury yields and the mortgage rates they influence — was mostly due to supply factors that pushed energy prices higher," Divounguy said in a Wednesday night statement. "However, declining wage inflation coupled with continued strength in employment growth are bringing demand and supply into better balance, putting the U.S. economy on a more sustainable growth path."Most investors are still expecting the U.S. economy to enter into a recession. In that case, mortgage rates should go down. However, consumer spending is moderating, not crashing, and productivity is on the rise."This will likely push longer term Treasury yields higher, preventing any further declines in mortgage rates," Divounguy said.Right now things are moving sideways, as at noon on Thursday, the 10-year Treasury yield was at 4.28%, up just 3 basis points from Wednesday's close, 2 basis points higher than at the end of the day on Sept. 7 and down 1 basis point from Sept. 6 close.

Amazon.com Inc. is making its first foray into support for home ownership, putting up $40 million through nonprofit partners to create affordable housing. The move comes after the e-commerce giant has provided some $1.7 billion to create or preserve affordable rental units as part of a $2 billion initiative launched two years ago. The homeownership program announced Wednesday will back projects near the company's two headquarters sites in Seattle and Arlington, Virginia, as well as Nashville, a hub for Amazon's logistics group. The National Housing Trust, a nonprofit, will use Amazon's cash to acquire or build affordable homes in partnership with local organizations. The company anticipates the cash going to fund community land trusts, which hold onto the underlying land, but sell the structures to defray some of the cost associated with buying a house, as well as down payment assistance. "Traditionally in the United States, homeownership has been the path to generational wealth creation," said Senthil Sankaran, managing principal of Amazon's Housing Equity Fund and a former official with the Washington, D.C., Housing Authority. "We wanted to use this pilot program to understand where there might be opportunities to expand access to homeownership for folks that may be shut out from the benefits of homeownership." Amazon committed in 2021 to investing $2 billion in below-market loans and grants to support affordable apartment units, adding its sum to the more than $5 billion fellow technology giants had earmarked to help solve a housing crisis in and around their West Coast headquarters cities. The companies have funded a variety of approaches, from low-cost loans to nonprofits to partnerships with government entities or state affordable housing funds. Amazon's effort is centered on people who make too much to qualify for most government assistance, but are unable to keep up with rising housing costs.Would-be homebuyers in the last year have had to contend with rising interest rates that can put mortgage loans out of reach. U.S. housing affordability in July was at a record low going back to 1989, the National Association of Realtors said last week.Amazon's original fund, which was launched with a goal of creating or supporting the preservation of 20,000 housing units by 2025, is nearing the end of its initial outlay. Sankaran said it was premature to say whether Amazon would reinvest the sum in perpetuity, or whether the scale of the new homeownership program would be expanded in the future. Amazon, thus far, said it has helped build or preserve more than 14,000 rental units to date."We're going to have some additional announcements coming forward," Sankaran said. "Right now, I'm very focused on meeting the goals." 

Three federal agencies released a joint report Tuesday calling on companies to brace themselves against dangers presented by AI-generated media, particularly deepfakes, that increasingly threaten to undermine trust in and authenticity of various forms of digital media.The FBI, National Security Agency, and Cybersecurity and Infrastructure Security Agency released the 18-page information sheet, which overviews how deepfakes can impact organizations, the emerging trends in these threats, and extensive recommendations for resisting deepfakes."Deepfakes are a particularly concerning type of synthetic media that utilizes artificial intelligence/machine learning (AI/ML) to create believable and highly realistic media," reads the information sheet. Abusive techniques that leverage this tech "threaten an organization's brand, impersonate leaders and financial officers," and can "enable access to an organization's networks, communications and sensitive information."The information sheet forecasted that "phishing using deepfakes" (impersonation schemes that involve synthetic video and or audio) will eventually become "an even harder challenge than it is today," and the agencies advised companies to "proactively prepare to identify and counter it."Deepfakes get their name from deep learning, which is a class of machine learning algorithms that uses multiple layers of neural networks to extract progressively higher-level features from data.For example, in a deep learning algorithm trained to recognize language, one layer might parse basic parts of speech (verbs, nouns, adjectives, etc.) while the next layer might parse basic sentence structures. Progressively deeper layers might parse more complex linguistic features and context, like idioms or sentiments.Just as large language models have recently begun to display mastery of high-order features of language — for example, how to follow written instructions — models designed to generate photos have also gained in their capabilities, with OpenAI's DALL•E and Stability AI's Stable Diffusion the most popular examples. Video and audio generation has also gained, according to Rijul Gupta, CEO and co-founder of AI communications company DeepMedia."Deepfakes have gotten more sophisticated — not to mention easier to create — over the years," Gupta said. "Today, a hacker can manipulate a person's voice using just seconds of audio."The FBI, NSA and CISA highlighted two examples in their joint report of unknown malicious actors deploying deepfakes in May as part of a phishing campaign. In one case, a product line manager was contacted over WhatsApp and invited to a call with a sender claiming to be the CEO of the same company."The voice sounded like the CEO and the image and background used likely matched an existing image from several years before and the home background belonging to the CEO," the agencies reported.A similar scheme also involved a CEO impersonator conducting video calls with an employee over both WhatsApp and Microsoft Teams, then switching to text because the connection was poor. In this case, the employee caught on and terminated communication. The agencies said the same, unnamed executive had been impersonated via text message on other occasions.Although cybercriminals have deployed deepfakes to defraud organizations for financial gain, there are "limited indications of significant use of synthetic media techniques by malicious state-sponsored actors," according to the agencies.However, "the increasing availability and efficiency of synthetic media techniques available to less capable malicious cyber actors indicate these types of techniques will likely increase in frequency and sophistication," the agencies said.Deepfakes that mimic a person's voice and face have advanced for many of the same reasons that large language models have recently become so capable, according to the federal agencies' information sheet — "advances in computational power" and technology such as deep learning have made it easier not just to create fake multimedia, "but also less expensive to mass produce," the document said.These advances offer defensive capabilities, as well, according to Yinglian Xie, CEO and co-founder of fraud prevention firm DataVisor, enabling companies to build models that recognize subtle but certain signs of deepfakes."By training these systems with real-world examples of deepfake attacks, their ability to recognize and counter such threats will improve significantly over time," Xie said.Beyond deploying deepfake detection technologies, the federal agencies that issued the Tuesday report had many additional recommendations for companies looking to protect themselves against deepfakes. These include recording and making copies of suspicious media, using reverse image searches, and examining content metadata.The agencies also listed more advanced examinations that companies can conduct on suspicious media. These include physics-based examinations (borrowing from Hany Farid, a professor at UC Berkeley who specializes in detecting digitally manipulated images) and content-based examinations, which can be done with numerous free and open source tools, many of which are cataloged by the Antispoofing Wiki project.

Most of the substantial percentage of homeowners that have done or are planning renovations will primarily use savings or current cash flow, instead of debt, to fund their activities, LendingTree found.Looking backward, 68% of the almost 2,200 homeowners participating in the LendingTree survey performed in May, did some sort of home improvement project in the prior 12 months. On a forward basis, 62% are looking to start some form of renovation in the next 12 months.Even though cash is being used to pay for most of these projects, it is not coming from pandemic-related savings, said Jacob Channel, senior economist at LendingTree. If anything, the personal savings rate has not only dipped from that period, it is now below that of the year leading up to the pandemic.Furthermore, "the most popular projects that people undertake according to our survey aren't always super expensive," Channel said. For example, homeowners can paint a room, do some landscaping, or even make changes to a bathroom for less than $1,000, especially if they elect to do the work themselves."In a nutshell, even if they're not swimming in pandemic-related savings, people probably aren't relying on financing to pay for home improvement projects because their projects aren't prohibitively expensive," Channel said. "And, as a result, paying cash for them is both easier and more cost-effective than getting a loan would be."High mortgage rates and few homes for sale are contributing to the decision to take on these projects. Approximately two in 10 said they do not like some aspect of their existing property but they are unable to buy a new one.It is not just first lien mortgages that are affected by rising rates, but both closed- and open-end home equity products also have become more expensive.Just 21% of owners indicated they are fixing up their home in preparation for a sale.Meanwhile 36% are doing repairs to help deal with the normal aging process of their property.A July report from the Joint Center for Housing Studies of Harvard University expected a softening in home renovation through the second quarter of 2024, but that could be offset by an increase of property owners fixing up their house to meet changing needs.Baby boomers, the generation most likely to sell in order to downsize, had the smaller shares of those that did a project, at 54%, or plan to do one, 53%, according to LendingTree.On the other hand, millennials had the highest share of respondents that did a project in the prior 12 months, at 78%, and 72% of that group were planning one going forward.Putting in solar panels is the most expensive project, but even for that, various forms of secured and unsecured debt trail savings and current cash flow as the source of funding."If you have the money to pay for something outright, even if that thing is expensive, you might be incentivized to do so because it'll be cheaper in the long run and won't involve the hassle of getting a loan," Channel said when asked about solar installation.This kind of renovation is one that appeals to homeowners whose incomes skew toward the higher end of the spectrum."If a project is more popular among higher-income individuals, then the share of people who pay for that project with cash might be higher than the share of people who pay cash for a less expensive project that's more common among people with middle/lower incomes," Channel added.In the past 12 months, a started or completed solar panel project cost the homeowner an average of $11,536. Respondents planning to do this work expect to pay $10,843.For those that already did the work, 27% used savings and 24% tapped cash flow. A closed-end home equity loan was the third choice, at 18%, with its cousin, the home equity line of credit used in 5% of the cases.On the unsecured side, 13% used credit cards, and 12% took out a personal loan.The results are similar for those planning to install solar panels, with 25% each saying they will use savings or cash flow. Home equity loans will be used in 17%, while HELOCs will be used in 7%.Personal loans will be applied for in 14% of the solar projects and 12% will use their credit cards.Meanwhile, in good news for servicers, if survey respondents were faced with an emergency home-related expense of $5,000, 53% said they have savings on hand to cover it. Respondents were allowed to select more than one response.Just under one-quarter, 24%, said they could pull from their existing cash-flow to help defray costs, while a similar share would use their credit card.Getting a personal loan would be the choice of 14%, while borrowing from a family member was cited by 13%. Closed-end home equity loans would be used by 10% and HELOCs by 7%.A small but significant portion, 6% said they would delay or not pay for the emergency expense at all, while 3% said they would use some other undefined method.

Fannie Mae on Tuesday put a $2.65 billion package of previously distressed single-family mortgages up for sale in a market where a low serious-delinquency rate continues to bode well for borrower outcomes. The offering follows just weeks after fellow government-sponsored enterprise Freddie Mac floated a $628 million portfolio of distressed loans. Both GSEs are selling non- and reperforming loans under rules updated after congressional scrutiny earlier this year, with some Democratic legislators calling for more information on investor outcomes, particularly for reperforming loans.Buyers of the 12,800 reperforming loans currently on offer through Fannie's collaborative marketing with Citigroup must maintain loss mitigation measures already in place on the mortgages involved. Loss mit also must be offered if the loans redefault within five years.The value of reperforming loans hinges largely on how well they continue to repay, and foreclosure prevention measures aggressively offered under the Biden administration even as pandemic relief has been scaled back appear to have been effective to date in that regard.The vast majority of RPLs in government-sponsored enterprises securitizations had remained current or paid off as of year-end 2022. Only 10% had other outcomes, according to a June report from the Federal Housing Finance Agency, an entity that regulates Fannie and Freddie.More specifically, 63% of securitized reperforming loans were current, 27% paid off, while the rest had late payments or ended up in the distressed housing market.The largest category of delinquent borrowers (4%) were only late by 30 days, but the next bigger percentage (3%) corresponded to those who'd not paid for more than three months and were more likely to end up losing their homes. That said, the share of RPLs where the final outcome is bank- or real-estate owned, a short or third-party sale, chargeoff, repurchase or unknown is well under 1% for all of these categories.More recent data also suggests that foreclosure outcomes generally remain scarce.Residential foreclosure filings totaled 33,952 in August, according to the latest report from Attom, a curator of real estate data. While that represented a 7% consecutive-month uptick recently, they are still down 2% compared to year-ago data that accounts for seasonal trends. Attom counts documents in the following categories as filings: lis pendens (paperwork that serves as a heads up about an upcoming legal action), real estate-owned, and notices of default, trustees or foreclosure sales.Similarly, although foreclosure starts rose 9% from July, they were 4% lower than in August of last year. Foreclosure completions were up just 1% from the previous month, and down 10% annually.Although given the remarkable strains on affordability seen recently in the housing market, some critics have concerns that lower foreclosures have limited the supply of homes with an upfront discount, alternatives not only keep people in homes, they require less expenditure."Any of these measures will cost the GSEs less than a foreclosure, thus reducing the severity of their losses," said Housing Policy Council President Ed DeMarco in congressional testimony earlier this year. DeMarco previously served as an acting director for the FHFA.Bids for the portfolio Fannie and Citigroup Global Markets are currently offering must be submitted by Oct. 5.

"New York means something different in the Midwest than it does for New Yorkers," said Tom Cangemi, the CEO of New York Community Bancorp, which is the parent company of Flagstar Bank. When New York Community Bancorp conducted a nationwide survey to determine which bank brands appeal to consumers, the Long Island-based company did not fare well. In fact, the New York Community name finished dead last.After the firm's $2.6 billion merger with Flagstar Bank in December, company executives knew that the time had come to do business under a new brand.They ultimately selected Flagstar, choosing to become less regionally specific, CEO Thomas Cangemi said in an interview."New York means something different in the Midwest than it does for New Yorkers," he said.Even before the Flagstar merger, New York Community had grown well beyond its home market in the New York City metro area. Over the last two decades, a series of acquisitions had increased its footprint to include Michigan, Ohio, Arizona, Florida and California.The banks that will be rebranded as Flagstar include Queens County Savings Bank, Garden State Community Bank and three more community banks in the New York City metro area. The list also includes Desert Community Bank in Victorville, California, and Ohio Savings Bank in Cleveland. The holding company's name, New York Community Bancorp, will remain the same.Earlier this week, the company unveiled a modernized Flagstar brand and logo that's meant to represent the nationwide expansion efforts of the combined banks, as well as the large portion of Signature Bank that New York Community purchased after the former bank's collapse in March.Before settling on the Flagstar name, New York Community executives considered entirely new brands. But those options carried uncertainty about name recognition and market penetration, Cangemi said.Flagstar Bank is a "neutral" but "patriotic" name that underscores New York Community's national expansion strategy, Cangemi said.Particularly in the Midwest — Flagstar was previously headquartered in Troy, Michigan — the Flagstar brand has a "substantial amount of affinity to the consumer," he said.Over the years, New York Community's approach of acquiring smaller banks and operating them under their original names meant that it did not have to invest in rebranding efforts, said Tim Davis, digital marketing manager at BankBound, an online marketing firm for the banking industry.But now that online banking has become customers' preferred method of doing business, and an easy way for banks to expand, rebranding is "much more of a creative growth strategy," Davis said."In some consumer segments, there's less of an emphasis on a bank's history and story, and more of an emphasis on whether their product can do the job that's needed," he said. "Does the bank present itself as competent, reliable and cutting-edge?"Cangemi said that even though some longtime customers of the legacy community banks in New York Community's portfolio might be disappointed by the rebranding, the company's people and culture are what really matter to consumers."When you think about high-touch community banking and personal client services, it's all about people," Cangemi said. "We're not changing the people. We're just changing the name behind the brand."

A new startup called “Roam” has launched a service to make assuming a mortgage painless.The company is backed by some prominent real estate figures, including Opendoor co-founder Eric Wu and former Fannie Mae CEO Tim Mayopoulos.The goal is to help more home buyers take advantage of the many low-rate mortgages in existence via a loan assumption.This includes FHA loans and VA loans, both of which are assumable by home buyers.Roam acts as a hands-on guide for buyers and sellers to ensure the process goes smoothly in exchange for a 1% fee.How Roam Makes It Easy to Assume a MortgageWhile many home loans are assumable, including all government-backed loans (FHA/VA/USDA), the process isn’t so straightforward.Roam notes that the loan assumption process is “opaque and time-consuming,” and often requires buyers to fill out forms with paper and pen and fax them to the lender or loan servicer.There’ also uncertainty for the home seller, who might not be sure if they’re still liable for the loan post-assumption.To alleviate some of these pain points and ensure the process is done correctly, Roam manages all the operational details on behalf of the buyer, seller, and real estate agents.Additionally, it makes it easier to find homes for sale that feature an assumable mortgage.Once you sign up via their website, they’ll compile a set of for-sale listings that feature an assumable, low-rate mortgage.These listings will also be tailored to fit your other criteria, such as location, home price, number of bedrooms and bathrooms, and so on.At the moment, it seems only FHA loans and VA loans are included, not USDA loans.If you come across a property you like, they will work with the lender and loan servicer to begin the loan assumption process.As noted, this includes obtaining a release of liability of the loan for the home seller, which should ease their concerns as well.Bridging the Gap Between Old Loan Amount and New Purchase PriceOne sticking point to a loan assumption is the shortfall between the sales price and the remaining loan balance.For example, the existing loan balance might be $450,000, while the new sales price is $550,000.The buyer could come in with the difference, but it’s unlikely they’ll have the funds unless they have very deep pockets.In this case, Roam has “preferred partners” that can provide additional financing, typically in the way of a second mortgage.Together, this should still provide a blended rate that is well below current market rates.If we consider a 2.5% first mortgage at 70% loan-to-value (LTV) combined with a second mortgage for an additional 10% at a rate of 8%, the blended rate is roughly 3.2%.At last glance, the 30-year fixed is priced around 7.25%, so that represents quite the discount.To that end, only mortgages with rates below 5% are included in the Roam listings.How Much Does It Cost to Use Roam for an Assumable Mortgage?While this service sounds pretty great, there is a cost to use it. At the moment, Roam is charging 1% to the home buyer via closing costs. I assume the 1% is based on the assumable loan amount.In exchange for this fee, Roam says it will “coordinate every detail on behalf of sellers, buyers, and agents,” including connecting buyers and sellers, handling paperwork, and overseeing the financing.Home sellers do not need to pay anything to take part and Roam will ensure the seller’s name is removed from the mortgage.This means sellers will not be associated with the mortgage or held liable once the process is completed.That should provide peace of mind to the seller, who might be concerned about their credit score being affected by the buyer’s subsequent mortgage payments.If it’s a VA loan that is being assumed, Roam can help find a qualified military buyer if the seller would like to free up their entitlement.This allows military homeowners to take out a new VA loan when it comes to their next home purchase.Roam may also make money from their second mortgage partners, though they are fine with home buyers using the lender of their choosing.Same goes with real estate agents. If the home seller doesn’t have a listing agent, Roam can recommend one. This may also earn the company a fee.But the company can work alongside any listing agent, loan servicer, or mortgage provider to complete the process.Is This a Good Deal?Over the past couple decades, assumable mortgages weren’t a thing because mortgage rates were constantly falling.In fact, mortgage rates hit record lows in 2021 and have since nearly tripled in just over two years.This has finally made the assumable mortgage a thing, and a potentially very powerful thing.If a home buyer is able to obtain the seller’s mortgage, possibly in the 2% range, it would be a huge feat, even with a 1% fee.For example, take a $500,000 home purchase that has a $400,000 outstanding loan balance set at 2.5%.The $400,000 loan amount would be about $1,580 per month. But let’s suppose the home buyer needs a second mortgage to bridge the gap with the new purchase price.A $50,000 second mortgage set at 8% would be another $367 per month, or about $1,950 all in.Compare that to a single new mortgage at $450,000 with an interest rate of 7%, which would be roughly $3,000.And it could be subject to mortgage insurance as well if it’s one loan at 90% LTV.The only thing you’d really need to watch out for would be an inflated purchase price if the seller believes they can charge more thanks to their assumable mortgage.But even then, the property would need to appraise and the savings could still eclipse a slightly higher price, as explained in the scenario above.

Mr. Cooper is putting itself in position to absorb some mortgage business from depositories, anticipating that they'll stage a further retreat from housing finance due to proposed tightening of bank capital rules and other negative market trends.The capital rule, which adds larger risk weightings for portfolio products with high loan-to-value ratios and mortgage servicing rights, could drive more sales of the latter, which Mr. Cooper may absorb. Banks also may look to the company to handle other housing finance operations given thin margins in the business, Vice President and President Chris Marshall said at a Barclays investor conference on Tuesday."I can see in the very near future that banks will be looking at us not just to handle their MSR but perhaps outsource all of their mortgage functions to us because, as we all know, banks really don't make any money off of mortgages, but we do," Marshall told attendees at the meeting.Regional banks, in particular, have had difficulty generating profits from servicing, he noted."Those banks don't want to pay a higher capital charge on a non-earning asset," Marshall said.The one mortgage-related asset some banks do have an appetite for are second liens, which Mr. Cooper has originated and sold to a small number of sizable depositories as part of its efforts to diversify lending, he said."We originate them on balance-sheet, we sell them to a couple of different large banks on a regular basis. We're funding them for less than 30 days generally so that at our current level is sustainable," said Marshall, noting that the company is selling the credit risk off on a flow basis.Marshall added that Mr. Cooper has been monitoring which customers the loans are appropriate for carefully."We score every customer every day, so we know the customers that may have some challenges. We know the ones that have the most equity and we know the ones where it makes more sense to do a second lien than a refi," he said.Mr. Cooper is keeping an eye on some performance concerns in other types of consumer finance but its single-family mortgage delinquencies have remained low."There will come a time when credit obviously will hit the mortgage space. It's not right now," said Marshall. Education debt, which is undergoing a transition away from pandemic-related forbearance, is expected to strain credit for some borrowers. "We are looking at that as student loan payments resume, and we are seeing a little bit of delinquency noise in credit cards and autos for our customers," said Marshall.However, mortgage delinquencies are at a record low at the company, said Chief Financial Officer Kurt Johnson."If you were to see a turn from delinquency standpoint, we certainly have the capability and capacity to handle that," Johnson said, referencing previous acquisitions of special servicers Rushmore and Community Loan Servicing.Mr. Cooper is ready for a shift in financing costs in addition to a change in the credit cycle, Johnson said, noting that the company has made some investments in streamlining its processes while also making them more user-friendly. "We expect, when and if rates do come down, that we'll be more than ready from a capacity standpoint," he said.

As rates headed higher, mortgage application volumes inched downward over Labor Day week, but buying activity saw a rebound from long-time lows, according to the Mortgage Bankers Association.The MBA's Market Composite Index, a measure of loan application volumes based off weekly surveys of trade group members, declined for the second straight week, down a seasonally adjusted 0.8% for the seven-day period ending Sept. 8. A week earlier, activity had dipped 2.9% to a 27-year low, while on a year-over-year basis, numbers were 28.6% lower. Data was adjusted last week to account for the Labor Day holiday. "Mortgage applications decreased for the seventh time in eight weeks, reaching the lowest level since 1996, said Joel Kan, MBA vice president and deputy chief economist, in a press release."Given how high rates are right now, there continues to be minimal refinance activity and a reduced incentive for homeowners to sell and buy a new home at a higher rate," he added.The average 30-year fixed rate for conforming home loans with balances above $726,200 in most markets increased 6 basis points to 7.27% from 7.21% the previous week. Borrower points, used to help bring down the amount of interest paid over time, also headed higher to 0.72 from 0.69 for 80% loan-to-value ratio loans. The weekly average was 40 basis points above where it sat in late July, Kan said.The 30-year jumbo mortgage for balances above conforming amounts, likewise, finished higher, averaging 7.25% compared to 7.21% seven days earlier. But points used came in lower at 0.72, down from 0.76 in the prior survey.After falling to its lowest point since 1995, the seasonally adjusted Purchase Index saw a 1.3% gain from the previous week, increasing in two out of the last three surveys. Volumes, though, still came in 27.5% below where it sat over the same seven-day period of 2022. "Purchase applications increased over the week despite the increase in rates, pushed higher by a 2% gain in conventional loans," Kan said.With limited inventory suppressing home buying activity for much of 2023, the recent rise in purchase application numbers coincided with greater supply hitting the market in August, according to real estate brokerage Zillow. Aspiring homeowners saw 4% more inventory compared to July, a "pleasant surprise," as the housing market typically experiences a slowdown in the late summer, Zillow said."What we didn't expect — especially considering 7-plus-percent mortgage rates — was more new listings. The inventory crunch is still far from resolved, but this was a small step in the right direction," said Jeff Tucker, Zillow senior economist.The MBA's Refinance Index, though, took a larger-sized drop of 5.4% week over week and finished 31.1% below the mark reported in the same survey a year ago. The share of refinances relative to overall activity also retreated back to 29.1% from 30%.Higher interest rates typically correspond to a rise in adjustable-rate mortgage activity, and borrowers responded to drive the seasonally adjusted ARM Index up 9.7%. The share of ARM loans versus total volume, though, remained at the same 7.5% mark compared to one week earlier in the trade group's research.The first full week of September also brought in higher average loan sizes, which increased across all categories among MBA lenders. After sliding downward for two out of the previous three weeks, average purchase amounts crawled back up 1% to $412,900 from $408,800. Mean refinance sizes reported on new applications jumped 2.6% higher to $258,800 from $252,000. The average across total volumes last week landed at $368,100, rising 1.8% from $361,700 on a weekly basis. While volumes decreased on an overall basis, the Government Index managed to nudge up a seasonally adjusted 0.9% last week, with a 3.4% rise in refinance activity driving numbers higher. The share of government-backed loans relative to total volume similarly grew as a result, with Federal Housing Administration-sponsored applications garnering 14.2% compared to 13.7% one week earlier. That uptick offset the flat pace of Department of Veterans Affairs-guaranteed activity, which remained at 11.3% and the decline to 0.4% from 0.6% in applications coming through the U.S. Department of Agriculture. Interest rates finished higher week over week across all loan types reported by the MBA, with 30-year averages all above 7%. The contract average of the 30-year FHA-backed mortgage inched up a single basis point among its members to 7.04% from 7.03%, while points increased to 0.98 from 0.95 for 80% LTV loans.At the same time, the 15-year fixed rate mortgage climbed up 6 basis points to a contract average of 6.72% from 6.66% seven days earlier. Borrower points also jumped to 1.01 from 0.86.The 5/1 adjustable-rate mortgage, which stays fixed before rising after a half-decade term, surged 26 basis points to 6.59% from 6.33%. Points came in at 1.16, a 5-basis-point increase from 1.11 one week earlier.

Michael Barr, vice chair for supervision at the Federal Reserve, said during an open meeting on the proposed Basel III endgame proposal that the central bank will "collect additional data to refine our estimates of the rule's effects." Banking trade groups have asked regulators to rescind the proposal and launched a public relations offensive against the proposal, including media buys.Bloomberg News The banking industry and its allies are ramping up their efforts to combat federal regulators' push to increase capital requirements on banks with at least $100 billion of assets.Initially opting for a passive approach focused on research papers and a website dedicated to sussing out the "price tag" of higher capital requirements, bankers and bank lobbyists are taking the fight to regulators more directly through advertising campaigns and procedural challenges."The industry appears more willing to battle the regulators on this issue than any in recent memory," Isaac Boltansky, director of policy research at BTIG, said, "which suggests that we could see litigation on the other side of the rule being finalized."On Tuesday, several top banking and financial industry groups sent a joint letter to the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency asking them to issue a new proposal for their so-called Basel III endgame package to close data disclosure gaps. The groups accuse the agencies of drawing from "non-public" data for their proposals, thus violating standards of the Administrative Procedure Act, or APA."To remedy this violation, the agencies must make available the various types of missing material — along with any and all other evidence and analyses the agencies relied on in proposing the rule — and re-propose the rule," the groups wrote. "To remain consistent with what the agencies themselves have determined to be an 'appropriate' comment period, the agencies should provide for a new 120-day comment period in the re-proposal."Representatives from the Fed and OCC declined to comment on the letter. The FDIC did not respond to an interview request on Tuesday.The letter was co-signed by the Bank Policy Institute, American Bankers Association, Financial Services Forum, Institute of International Bankers, Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce. It cites several violations of "basic legal obligations" under the APA, potentially setting the stage for a legal challenge should the proposal be enacted.Boltansky said it is unlikely that the letter will actually compel regulators to issue a new proposal, but he said it could make them think twice about finalizing the rule as is."It is difficult to envision the banking regulators pulling and reproposing, but the letter from industry groups will add even more pressure for the standard to be softened prior to finalization," he said.The letter comes less than a week after BPI, which represents banks with more than $100 billion assets, launched its "Stop Basel Endgame" advertising campaign, a nationwide push to draw attention to the risks the rules present to the banking sector, the U.S. economy and individual households. The effort includes print and radio ads in Washington, D.C. and other select markets as well as targeted online ad buys."The current Basel proposal is unacceptable, and BPI is committed to ensuring that lawmakers, regulators and the public fully understand how this proposal will affect every person and every business in this country," BPI president and CEO Greg Baer said. "The largest media campaign in the organization's history is underway, and our goal is to force regulators to justify to the public why they are imposing these costs and pushing still more economic activity into the shadow banking system."Banks themselves have gotten in on the effort to undermine recent regulatory proposals, which call for additional risk-weighted capital requirements and new resolution standards for banks between $100 billion and $250 billion of assets. On Tuesday, Goldman Sachs released a survey of small business owners in which 84% of respondents said they were "concerned that the proposal will negatively impact their ability to access capital in an already difficult market."On Monday, JPMorgan Chase CEO Jamie Dimon ripped the proposal during an on-stage appearance at Barclays' annual Global Financial Services Conference, calling it "hugely disappointing."In fiery remarks, Dimon said the proposed risk capital rules would result in U.S. banks facing more stringent regulatory obligations than their international peers, undermining the initial goal of the international standards on bank regulation. "What was the goddamn point of Basel in the first place?" he said.Dimon said the rules would likely drive certain activities — including mortgage lending and supporting leveraged lending by nonbanks — out of the banking sector entirely. He argued that, if that is the intended outcome the Fed, FDIC and OCC had in mind, they should have said so explicitly, adding that the proposal marks a low point in relations between banks and their regulators."I'm not sure it's a great thing that we have this constant battle with regulators as opposed to open thoughtful things. We used to have real conversation with regulators — there is none anymore in the United States. Like, virtually none," he said. "This stuff is just all from up top and imposed down below. And then … we simply have to take it. They're judge, jury and hangman, and that is what it is."Proponents of the potential changes say the all out push by bankers and industry groups to combat the proposal was to be expected."Wall Street's latest attack on these modest and sensible rules is as baseless as it is unsurprising," said Dennis Kelleher, head of the consumer advocacy group Better Markets. "Wall Street is going to do and say anything to try to stop any increase in capital, no matter how baseless or false."Regulators released their risk-capital proposal at the end of July along with a potential change to their global systemically important bank, or GSIB, surcharge that could have a meaningful impact on some foreign banks.Much of the 1,000-page Basel III endgame proposal is focused on justifications for the rule changes, including recent bank failures and disparate treatments of operational risks by large banks. Currently, banks are able to rely on internal models for managing these risks, which the documents notes, "include a degree of subjectivity, which can result in varying risk-based capital requirements for similar exposures."The Fed estimates the changes will lead to a 16% aggregate increase in capital requirements for the impacted banks, with the largest burden falling on GSIBs, which are set to see their capital obligations increase by 19%. Dimon, however, said the actual increase will be closer to 25% by JPMorgan's calculations, though the exact impacts of the potential changes have been a subject of debate since they were proposed. Fed Vice Chair for Supervision Michael Barr, in remarks made during a public meeting about the proposals, said the central bank intends to "collect additional data to refine our estimates of the rule's effects."The recent push by bank trade groups adds to the mounting opposition that has been building against the Fed's capital proposal for the past year. Republicans and some moderate Democrats in Washington questioned whether new rules were necessary in the months before the proposal was rolled out and, thus far, the proposal has few vocal champions on Capitol Hill.But Regulators do not need the backing of Congress to enact the rule changes, which fall within the regulatory framework codified by the Dodd-Frank Act of 2010 and modified by the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018. Kelleher said bank failures earlier this year underscore the importance of having a well capitalized banking system. He added that the rule changes would apply additional protection from the highest risk activities at the 35 biggest banks in the country."It's no different than when banks require their customers to put up a down payment when they buy a house," he said. "The homeowner then has to absorb the first 20% of losses on the house, which protects the bank from losses. The American people should be protected as well."

"It is a fundamental concern as to whether the FHFA truly understands the competitive environment that the Federal Home Loan banks operate within," writes David Loundy, a community banker and member director of the Federal Home Loan Bank of Chicago, in discussing various regulatory and economic interests that make reform of the Home Loan Bank System difficult.Andrew Harrer/Bloomberg The Federal Housing Finance Agency is engaging in its "System at 100" review of the Federal Home Loan Bank System. In the course of this review, the agency, it seems, is being forced to come to terms with some of the conflicts that other banking regulators have had to navigate with their regulated institutions for some time. Of course, navigating these conflicts poorly brings the threat of litigation and failing institutions — the same sorts of issues other banking regulators have had to manage for decades — but hey, no pressure.Traditionally, the FHFA has regulated safety and soundness; and it has looked to see that the Federal Home Loan banks properly implemented their affordable housing, community development and liquidity missions. Much of this activity was formulaic. For example, were the Home Loan banks setting aside at least 10% of net income for affordable housing? More recently, the FHFA appears to have adopted a more subjective standard by focusing on whether the banks are "doing enough" to support affordable housing. As a result, the regulation of mission is potentially in conflict with safety and soundness, which runs the risk of imperiling both. The irony is, requiring more for affordable housing can increase costs that make the Federal Home Loan banks' products more expensive than market alternatives. That means less business gets done, safety in the form of retained earnings is diminished, and there is less income generated, which is what funds the affordable housing programs. You thus have the conflict that requiring more to be done for affordable housing may produce less for affordable housing. At the extremes, the whole system could become uncompetitive. The fundamental problem is built into the nature of the regulated entities. The Federal Home Loan banks have more than one regulator, though this may come as a surprise to the FHFA. They also have other stakeholders in the form of members/shareholders and other counterparties and beneficiaries. Ultimately, the Home Loan banks are running businesses that have to offer products and services that customers want at a price they will pay with sufficient volume and profitability to pay for things such as rent and salaries and the like — and enough of a return to shareholders to motivate them to continue investing their capital in the enterprise.Any retail banker who survived the Great Recession has likely seen firsthand the conflict between stakeholders, be they regulators, shareholders or customers. The Federal Deposit Insurance Corp. has a duty to protect the insurance fund, not the bank shareholders. The bank has a duty to preserve value in the institution for its owners — which includes preventing it from failing. The Federal Reserve has a duty to protect the banking system, but that includes peoples' perceptions of it — and thus a bank failure means the Fed has fewer banks on its list of troubled banks. This may make the banking system look better, and not worse in the public eye, and thus the failure may be acceptable. State regulators have their own concerns. In some cases, these interests overlap; in some cases, they don't. But generally speaking, one set of stakeholders generally had little or no understanding of, or care for, the concerns of other stakeholders.This is a modern-day issue as well. I would posit that a chief cause of failure for Silicon Valley Bank (SVB) in March was not just bad asset/liability management, but rather interregulatory mismatches. Specifically, the banking regulator ordered SVB to sell bonds at a loss, which negatively affected SVB's capital. So SVB decided to also raise capital to replace that which it was just ordered to flush. Because SVB was publicly traded, and the loss was a materially disclosable event, the bank had to promptly file an 8-K with the Securities and Exchange Commission — which was then publicly available. The disclosure amounted to announcing: "We're raising capital (because we just lost a bunch of it)" and made the problem look particularly bad, which then triggered the run that led to the bank's collapse.The next week, the Federal Home Loan banks issued over $300 billion in short-term debt that stabilized the jittery financial markets — the emergency liquidity system worked as intended, and at a scale and speed that is truly sobering. Had SVB not been publicly traded, it might not have failed. Neither regulator was able to, or perhaps interested in, considering the other stakeholders' needs.So how does this fit in with the FHFA and its review of the Federal Home Loan Bank System? The Home Loan banks' primary regulator is the FHFA. However, the FHFA has two regulatory goals, which are somewhat in conflict. The agency regulates the banks' safety and soundness, but it also regulates their mission performance in providing liquidity, fostering affordable housing and financing livable communities. Just as is the case with retail banks and their need to balance safety with Community Reinvestment Act requirements, so too should the FHFA balance these similar goals as part of its review. However, the FHFA does not have the same experience in managing these conflicts as do many other banking regulators, as most of its experience has been overseeing a set-aside formula rather than defining "enough." The current structure has produced a form of equilibrium that has made the Home Loan banks the largest private long-term funder of affordable housing in the U.S. Changing that equilibrium and rebalancing attendant conflicts involves new regulatory skills and requires understanding changes to the business environment. It is unclear that there is sufficient understanding of these issues.For example, income from the banks could be retained to make them safer, or it could be used to support their housing and economic development mission, or it could be returned to the shareholders that contributed that capital and own the Federal Home Loan banks themselves. There are also potential conflicts between the FHFA and the SEC. Securities laws require the Federal Home Loan banks to pay attention to their owners' rights, too, as they define the rights to own and run a company.For the FHFA to become more aggressive in, say, addressing "efficiencies," short of serious safety-and-soundness concerns, there is a potential conflict with securities laws that allow a company's management to run its own business. Congress can change the rights of the Federal Home Loan banks' owners, including how much of their capital must be dedicated to support affordable housing, but direct change or coercive encouragement by the agency may well fall outside of its authority. And importantly, if the FHFA implements changes to the banks' business in ways that affect the pricing of the Federal Home Loan banks products, it is a fundamental concern as to whether the FHFA truly understands the competitive environment that the Federal Home Loan banks operate within — particularly because the FHFA supervises the operation of the Federal Home Loan banks' largest competitors in the mortgage industry through the agency's conservatorship over Fannie Mae and Freddie Mac.The failures of SVB and Signature Bank and their aftermath show the vital function the Federal Home Loan banks provide in stabilizing markets in times of stress, and the need for them to remain viable. But it is the Federal Home Loan banks' daily operations that drive their income, and thus their ability to remain a vital funder of affordable housing in the U.S.I sincerely hope the FHFA is taking time as part of its systemwide review to deeply understand both the complete regulatory environment and the competitive business environment in which the Federal Home Loan banks operate. No one wants the legacy of the agency's valuable review process to be summarized as "oops!" if itsreforms make the banks uncompetitive and thus unable to generate the income to power their statutory mission or remain viable.

The rate of distressed commercial real estate loans trended upward over the past year, according to two new industry reports, although sizable differences in performance appear when looking at markets, building types or funding sources.Researchers at Kroll Bond Rating Agency reported distressed loans within private-label commercial-backed mortgage securities climbed up to 6.8%, or $40.7 billion, by the end of August 2023, up from 4.5% at the close of second quarter 2022. The surge represents a net increase of $13.4 billion in delinquencies or specially serviced volumes among CMBS deals issued since 2010. Loans to retail businesses continued to lead all CRE sectors with a distressed rate of 9.8%, growing from 9.3% in June 2022. Office loans, meanwhile, reported a distressed rate of 8% at the end of last month, seeing the biggest leap in share as the sector continues to feel the impact of hybrid and remote-work policies. The rate just 15 months earlier came in at 2.9%, with outstanding distressed office-sector balances accelerating 59% over that time frame to $13 billion. The latest data comes as several companies, including tech giants Meta and Amazon, signaled their intentions to track employee in-office attendance after Labor Day.   At the same time, mixed-use developments, which sometimes include a sizable number of office and other licensed businesses, also saw its levels of CMBS distress at 7.5%, up from 3% in June 2022. KBRA's research includes close to $600 million of commercial collateral across its rated bond transactions issued since the Great Financial Crisis. The total comes out to approximately 13% of the $4.5 trillion CRE-debt market. Similarly, the Mortgage Bankers Association found higher levels of distressed commercial real estate nationally earlier this year, but also noted differences in delinquencies among types of properties or investors in a new commercial/multifamily report issued this week. "Not all commercial mortgage loans are facing the same pressures. Loans backed by properties, and property types with stable cash flows, are experiencing different prospects than those that may have seen declines in incomes," said Jamie Woodwell, MBA's head of commercial real estate research, in a press release.Distressed volume for all types of commercial real estate in the 20 largest markets tracked by KBRA exceeded the national average, clocking in at 7.2%, but a wide gap existed between cities. Rates ranged from a high of 22.7% in Chicago to under 1% in San Diego and Seattle, showing the effect of local market dynamics, KBRA said. Eleven of the markets recorded a deterioration in loan performance, with five seeing their rate increase by more than 5%.  Differences in local trends were also noted by the MBA. "Higher and volatile interest rates, uncertainty about property values and stresses in some property markets have increased pressure on some loans and properties," Woodwell said. CMBS loans delinquent by 30 or more days or in repossession came in at 3.82% at the end of the second quarter based on total unpaid principal balance, according to the trade group's research. The share rose from 3% in the first quarter and 2.95% a year earlier.Delinquency levels came in more muted across other funding types, according to the MBA's quarterly data, but because each investor group tracks them differently, the figures are not directly comparable from one group to another. All but one, though, saw an increase in the rate of distress.Commercial properties sourced through banks or thrifts had a 90-day delinquency rate of 0.66%, up from 0.57% three months earlier. But loans backed by life insurance portfolios saw its distressed rate for loans 60 days past due inch down to 0.14% from 0.21% at the end of the first quarter. Commercial loans at the government-sponsored enterprises also saw greater deterioration in loan performance, with the share behind by more than 60 days rising to 0.37% at Fannie Mae and 0.21% with Freddie Mac. At the end of the first quarter, numbers were at 0.35% and 0.13%."Although the uptick in delinquency rates was expected, they remain at the lower end of historical ranges," Woodwell said. Still, the latest figures come as the financial services industry closely eyes the commercial real estate sector, with worries that a high percentage of defaults might destabilize U.S. banks and the overall economy. Last week, a survey from Moody's Investors Service found some banks may not be fully aware of the risks posed by their CRE portfolios. 

Those in the mortgage business hoping that the spread between the 10-year Treasury and 30-year fixed loan are on their way to normalizing — leading to lower rates — could be waiting a while longer, First American Financial said.For quite some time, the spread has been in the area of 300 basis points, versus the 170 basis points commonly seen since the end of the Great Recession, noted Odeta Kushi, deputy chief economist, in a commentary. Some observers have defined the normal spread range as being between 150 basis points and 200 basis points.Many industry economists expect those spreads to narrow by the end of 2023, with mortgage rates coming down accordingly. The August forecast by the Mortgage Bankers Association for example, foresees a 6.2% average for the 30-year FRM by year-end, versus 6.8% in the third quarter."That expectation is rooted in the belief that cooling inflation and more certainty about the outlook for monetary policy will result in a narrowing of the spread," Kushi said. "However, some of the drivers of the widening of the mortgage rate spread will likely remain sticky, which may prevent mortgage rates from meaningfully declining."Kushi forecasts rates remaining between 6.5% and 7.5% for the rest of 2023. The average according to the Freddie Mac Primary Mortgage Survey has been over 7% for four weeks in a row and is likely not slipping back under that level in the near future.The driver of those wider spreads in place since January 2022 are risks in the secondary market component, primarily duration from the expected life of a mortgage-backed security, which has lengthened in a quickly changing rising interest-rate environment.As a result, spreads widen because MBS investors require more compensation from the interest rate to deal with higher uncertainty in their portfolio due to the longer than expected life of the underlying loan. Spreads between agency mortgage-backed securities and long-term Treasuries have been around 165 basis points lately, a report from BTIG analyst Eric Hagen noted.Forecasts regarding where they're headed next may diverge because certain factors in the composition of the current market make them less predictable. In addition, the drivers vary a bit in different parts of the secondary market."It's hard to pinpoint how much MBS spread sensitivity sits at the short end of the yield curve, considering the majority of the borrower's prepayment option is still modeled/driven off long-term interest rates," Hagen said. Private-label MBS also are subject to credit risk, something that is not a problem with conforming or government securitizations, Kushi noted.Supply and demand are also factors that play a role in how wide spreads are, as the U.S. government has ended its MBS purchase program and is no longer a buyer.So when the Federal Reserve ends this current round of economic tightening and investors have more certainty, spreads could tighten, but it may take some time."And, if the spread narrows, then mortgage rates could come down even if the benchmark 10-Year Treasury stays the same," Kushi said. "But the prepayment and duration risk will remain because so many homeowners remain rate-locked into much lower mortgage rates."How long that will be the case is difficult to tell because it's not clear when the Fed may start lowering rates again, or what the right target federal funds rate level is for the current economy," said Kushi.

I don’t think it would be much of a stretch to assume nobody likes high mortgage rates.They make it more difficult for prospective home buyers to get to the finish line, especially with lofty asking prices.And they’ve led to countless mortgage layoffs and job losses in a number of related industries.Sure, investors might earn more interest on loans with higher mortgage rates, but only if the loans are held onto to.There’s a good chance they’ll be paid off sooner rather than later, making them a little less enticing. But there is one silver lining to these stubbornly high mortgage rates.There Will Be a Mortgage Refinance Boom in the Near FutureThe longer mortgage rates remain elevated, the larger the number of high-rate home loans in existence.It’s pretty straightforward. If lenders keep doling out new loans, they’ll undoubtedly have high interest rates.If you look at the chart above from Black Knight, the average interest rate on outstanding mortgages is around 3.94%, but is inching higher as time goes on.As more high-rate mortgages are originated, this average rate will climb, thereby replenishing the very dry refinance pool.At last glance, the popular 30-year fixed mortgage is going for over 7%, up from the 2-3% range in 2021 and early 2022.Mortgage rates are now close to their 21st century highs, with the 30-year fixed reaching 8.64% in May 2000.Hopefully we don’t go that high, but anything is possible these days.Even 7% mortgage rates have caused home loan volume to drop considerably, with mortgage refinances basically nonexistent and home purchases also dropping off due to sheer unaffordability.We’ve never seen mortgage rates double in such a short span of time, and it’s clear this is taking a massive toll on the industry.It’s hurting loan officers, mortgage brokers, real estate agents, title and escrow officers, and many others.But despite this more than doubling in mortgage interest rates, there is still considerable business taking place.Mortgage Lenders Are Still Expected to Close Nearly $2 Trillion in Home Loans This YearWhile the boom years have come and gone, the Mortgage Bankers Association still forecasts $1.7 trillion in 1-4 unit residential home loan volume for 2023.That’s on top of the $2.3 trillion or so in home loan originations in 2022, for which the 30-year fixed was priced in the 6s and 7s for a decent chunk of the year.Of course, these numbers are down significantly from 2021, when mortgage lenders originated a record $4.4 trillion or so in home loans.Coming off a record year to a doubling in mortgage rates is one of the reasons it’s been so hard for those in the real estate and mortgage industry.Because business was going gangbusters right before this unprecedented mortgage rate spike, lenders were fully staffed, as were real estate brokerage houses, escrow and title companies, and so on.This sudden and violent shift meant staffing levels were going to need major adjustments. It wasn’t a slow trickle down in business, it was a rapid decline.Because of depressed sales volume, many will leave the business and not come back.But as we’ve seen time after time, there will be opportunity, especially if there are fewer players left after the dust settles.Once mortgage rates do come down, which they invariably will, trillions in home loans will be ripe for a refinance once again.It’s still not clear when this will happen, but it will happen, that much is true.Homeowners Also Stand to Benefit from Lower Mortgage Rates in the FutureWhile the industry is going through some tough times, recent home buyers are also suffering.The 30-year fixed was a screaming bargain a couple years ago, and is now a thorn in the side of homeowners.Due to supply shortages, home prices have stayed near record highs, despite a major decline in affordability.This has pushed the typical home buyer’s monthly payment up to $2,605, per Redfin, up about 20% from a year ago. It’s now hovering around an all-time high.Meanwhile, months of supply is still lingering around the 3-month range, well below the 4-5 months that represent healthy levels.So today’s home buyer still has to compete with many others, despite record high home prices and equally expensive mortgage rates.However, a time will come when mortgage rates come back down, allowing those who stick it through to see some relief.Lately, real estate agents and loan officers have been pitching the so-called date the rate, marry the house line.Simply put, the interest rate is just temporary but the home can be yours forever. And if rates go down, you can refinance your existing loan and ideally pay a lot less for it.This has yet to transpire, which hammers home the importance of being able to afford the housing payment in front of you, not some prospective future one if the stars align.But as time goes on, interest rates will come down. And those stuck with rates in the 7s will be able to snag something a lot more reasonable.So each day, as more and more 7% mortgages are funded, more opportunity is being created.

The US government has been looking at ways to offload nearly $13 billion of mortgage bonds it amassed from failed lenders Silicon Valley Bank and Signature Bank, according to people with knowledge of the transactions.The bonds are backed by long-term, low-rate loans made mainly to developers building affordable apartment buildings. They were part of a $114 billion portfolio that ended up with the Federal Deposit Insurance Corp. when it took over SVB and Signature. The FDIC hired BlackRock to help liquidate the broader portfolio, and the money manager sold most of the assets within a few months. But BlackRock didn't offload what has turned out to be the trickiest holding: about $12.7 billion of bonds tied to project loans supported by Ginnie Mae. The FDIC has discussed alternatives to slashing the prices on the bonds, including potentially repackaging the debt into new securities, the people with knowledge said. BlackRock had preliminary conversations with investors about the bonds, according to the people, who asked not to be identified discussing non-public information. But the securities proved hard to sell in part because the bonds will probably pay below-market coupons for years. The loans backing them were made before the Federal Reserve started hiking, often come with high penalties if they are refinanced in their first 10 years, and can take decades to mature. The project-loan bonds the FDIC aims to offload amount to the volume that Ginnie Mae often sells in about a year. The trouble with these bonds underscores the pain that failed banks can bring to the government, even after new lenders take them over.  "It's a very large chunk of bonds, and there are so many factors here working against the easy liquidation of these assets," said Richard Estabrook, a mortgage backed securities strategist at Oppenheimer & Co, who isn't directly involved in the sale but has looked at the bonds. "By comparison, everything else was straightforward."BlackRock declined to comment. The FDIC confirmed the bonds were not part of the BlackRock sales process and declined further comment. Clean-up crewThe FDIC has looked at restructuring the Ginnie Mae debt into more complicated instruments, according to a person with knowledge of the matter, who was not authorized to speak publicly about it. But even if such a move allowed the government to offload some of its risk, the FDIC would probably still be left holding hard-to-sell longer-term securities. The Financial Markets Advisory group, the BlackRock team that the FDIC hired, is a clean-up crew for financial crises that worked for the US government during the global financial crisis as well as during the outbreak of the pandemic in 2020. The $114 billion portfolio was the biggest the FDIC had ever found itself with in short order from failed banks. When the FDIC disposes of assets, it conducts a competitive sales process to ensure it gets as much money as it can for them. It also looks to preserve the availability and affordability of homes for people with low- and moderate- income. The $12.7 billion in assets that the FDIC would look to offload are a kind of bond backed by pools of Ginnie Mae Project Loans, or GNPLs. The loans underlying the bonds are taken out by developers from banks and other lenders, often to build or renovate apartments. The resulting homes are usually for low- or moderate-income families, and the loans carry penalties for early payment. Investors have a limited appetite for these bonds.  "You risk overwhelming the market," said Mary Beth Fisher, a fixed-income strategist at Santander. "The overall size is nearly as large as the average yearly issuance for these types of securities." 'Squeezing a balloon'The FDIC probably isn't looking to hold the assets on its books until they mature. The government agency is designed to stabilize the banking system and doesn't have a mandate to hold investments forever, said Walter Schmidt, an MBS strategist at FHN Financial. Restructuring mortgage bonds is possible, but has its shortcomings. By combining bonds together and shifting their cash flows, the FDIC can create what are essentially derivative securities that might attract investors. But the underlying pool will remain the same, so making some securities safer for money managers could result in the remainder being even riskier.  "You can't make the risk go away. All you can do is redistribute it," said Oppenheimer's Estabrook. "It's like squeezing a balloon. You can squeeze on one side, but if you do, the other side is going to fill up." 

Blend Labs is launching an artificial intelligence tool that can process mortgage application data for a loan officer and ease communication between originators and borrowers. The firm's Copilot platform can review a customer's financial profile, share pricing scenarios including closing costs, run the information through underwriting software and draft a pre-approval letter, said Nima Ghamsari, founder and head of Blend. The fintech is debuting the tool Tuesday afternoon at its customer conference, and will initially share it with clients through a waitlist. "This is truly something that is there to help them do the thing that they would like to do, which is to help the consumer, and to do a lot of the manual work," said Ghamsari. "No LO wants to be spending a bunch of time going to seven different systems to answer questions that are common. They want to focus on the hard questions."Copilot, according to a demonstration, would be one of the more powerful AI chatbots among a field of emerging products from other fintechs and mortgage lenders. A prospective homebuyer in Blend's demo asks for a pre-approval letter through Blend's platform and Copilot produces it after an audit trail including processing through, for the purpose of the demo, Fannie Mae's Desktop Underwriter.The LO can review and edit messages before they're sent to the consumer, and do the manual calculations if Copilot can't produce the desired result. Copilot also has SMS capabilities if a user wants to chat via text message, and questions only take a minute or so to process, Ghamsari said. The company, which already had a seven-year-old version of Copilot, developed the new platform in a few months given recent advancements in generative AI."The natural way that consumers and loan officers talk today is in a conversational format," said Ghamsari. "There's thousands of different ways [questions] can be asked and then an LO is smart enough to interpret that. There hasn't been a way for systems to really be able to interpret that, with this level of accuracy before."The mortgage industry, while slower than its financial services peers in adopting technology, has latched on to the new wave of chatbots like ChatGPT. Outside of a few firms' own generative AI models, LOs this summer said they've used ChatGPT to improve their web searches, write marketing copy, and aid with editing borrower correspondences. While lenders are using AI to sift through reams of data, the tech is far from replacing traditional underwriting and fulfillment, experts say. Regarding Blend's Copilot, Ghamsari emphasized there is always an LO between the consumer and the tech."We want to make sure that the answers going to the consumer are right," he said. "If you're a lender, you want to make sure from a compliance perspective that you have the appropriate level of certainty around the responses that go out."The product also deploys at a difficult time for the industry amid sky-high mortgage rates and decades-low application activity. Ghamsari said Blend's customers are using this time to prepare for the next wave of originations should rates become more amenable to borrowers. The Bay Area-based Blend is coming off a $36.7 million net loss in the second quarter, although it's been progressively shrinking its deficit. It also announced in August a layoff of 150 employees. The fintech is projecting profitability in 2024.

Sculptor Capital Management Inc. executives were accused in a lawsuit of engineering a proposed $639 million acquisition of the fund by rival Rithm Capital Corp. in a way that is unfairly blocking a higher bid. Chief Executive Officer Jimmy Levin and other directors shortchanged investors by using non-disclosure agreements tied to the deal to prevent stockholders from considering a higher offer from a group led by Boaz Weinstein that includes billionaires Bill Ackman, Marc Lasry and Jeff Yass, Sculptor investor Gilles Beauchemin said Monday in a Delaware Chancery Court lawsuit. Still, such non-disclosure pacts are common in big U.S. merger and acquisition agreements.The Sculptor board is breaching legal duties to shareholders "by continuing to block the topping bid and issuing disparaging disclosures" about the rival offer, according to the suit. The suit is the latest salvo in the battle over the future of Sculptor, which has been racked by internal dissent. Sculptor founder Dan Och and other former executives oppose the Rithm deal, arguing it isn't in shareholders' best interests. Another shareholder sued in federal court in Manhattan last week, saying the deal wasn't fair to investors.Sculptor accepted Rithm's bid of $11.15 a share in July. A board committee weighing overtures for the firm determined it was the superior bid, even though the Weinstein-led group had raised its offer to $12.76 a share.  A representative of New York-based Sculptor declined to comment Monday on Beauchemin's suit.Och tapped Levin to take over the firm, formerly known as Och-Ziff, but the two later fought over compensation and control. Och — who left in 2019 and remains one of Sculptor's biggest shareholders — has been a fierce critic of Levin's handling of the fund.The case is Gilles Beauchemin v. Marcy Engel, 2023-0921, Delaware Chancery Court (Wilmington) 

Rohit Chopra, director of the Consumer Financial Protection Bureau, decried the potential for an upcoming Supreme Court case to undermine the bureau's rules, saying at an event Monday that "any doubt about the legitimacy of the CFPB could be destabilizing."Ting Shen/Bloomberg Consumer Financial Protection Bureau director Rohit Chopra defended the agency's actions — particularly its mortgage rules — as the Supreme Court is poised to hear oral arguments in a case that could undermine the bureau's authority and undo more than a decade of rules and guidance. Speaking at an event Monday commemorating the 15th anniversary of the collapse of investment giant Lehman Brothers — an event that sparked the beginning of the 2008 mortgage crisis — Chopra said an unfavorable ruling in the case could have broad implications for financial stability.  "Any doubt about the legitimacy of the CFPB could be destabilizing," Chopra said in prepared remarks at a housing conference in Nashville.The case, CFPB v. Community Financial Services Association of America, hinges around whether the bureau's funding structure — in which its operating expenses are paid through the Federal Reserve rather than through Congressional appropriations — violates Article I of the constitution. Oral arguments are slated to be held on Oct. 3, but the legal and regulatory uncertainty will continue until the high court rules on the case sometime next spring. In his speech, Chopra said the CFPB is no stranger to court challenges, but that the case could destabilize housing markets if the bureau is found to be unconstitutional and if its mortgage rules are deemed invalid. "The case involving the CFPB has significant implications for the entire housing finance and financial regulatory system," Chopra said.The CFPB petitioned the Supreme Court to review a decision last year by a three-judge panel of the U.S. Court of Appeals for the 5th Circuit. The three judges, all appointees of former President Donald Trump, found that the bureau's funding through the Federal Reserve Board violates the Constitution's appropriations clause, which states that "no money shall be drawn from the Treasury, but in consequence of appropriations made by law."The Supreme Court case gives Republicans the best shot yet of gutting the agency and tying its funding to appropriations under a novel legal theory that the consumer watchdog is "doubly insulated" from congressional oversight.  Still, many experts think the high court under Chief Justice John Roberts is not going to second-guess how Congress funds federal agencies because doing so would invite legal challenges to the Federal Reserve Board and even far-flung agencies such as the Farm Credit Administration that has a similar structure. Moreover, no federal banking regulator is funded through annual appropriations. In his speech, Chopra cited briefs filed by the Mortgage Bankers Association and U.S. Solicitor General Elizabeth Prelogar, who is representing the CFPB in the case. The CFPB has issued more than 200 rules on an array of products, from mortgages to auto loans, credit cards to debt collectors, that could be called into question if the Supreme Court rules against the agency. "Reverting to a system without these regulations would create uncertainty for the mortgage industry and the economy," Chopra told attendees at a conference hosted by the Mortgage Collaborative. "Even putting aside the questions about existing rules, moving to a world where the future of housing finance oversight is uncertain and unknown, including the number of years we would be living under such mystery, should raise serious shared trepidations among market participants, financial markets, and consumers alike."The MBA defended the mortgage rules enacted after the financial crisis, noting that "virtually all financial transactions for residential real estate in the United States depend upon compliance with the CFPB's rules, and consumers rely on the rights and protections provided by those rules." The MBA also said, in a brief filed in the case, that without the mortgage rules, "substantial uncertainty would arise as to how to undertake mortgage transactions in accordance with federal law."Chopra also recounted how Congress "shook up the federal financial regulators," by shutting down the Office of Thrift Supervision and banning the Office of the Comptroller of the Currency from engaging in preemption of state-level consumer protections. Congress "stripped authorities from the Federal Reserve Board of Governors, the Office of the Comptroller of the Currency, and other regulators that also failed in the lead-up to the crisis," he said. "It transferred these authorities to a new agency within the Federal Reserve System, the Consumer Financial Protection Bureau.""Rather than allowing regulators to pass the buck or point fingers at one another, the CFPB would now be on the hook for examining banks and nonbanks across the mortgage industry and implementing and enforcing rules," Chopra said. "And rather than being funded by fees from its regulated entities, the CFPB would be funded by the Federal Reserve Banks, just like the Federal Reserve Board of Governors is."Both the CFPB and Federal Reserve Board are funded from assessments on the Federal Reserve Banks. Congress directed the Federal Reserve Board to transfer funds to the CFPB for its operations, with its budget capped at 12% of the Federal Reserve System's 2009 budget, adjusted for inflation. The CFPB received $642 million in funding in fiscal 2022.Though bank trade groups have stopped short of calling for the CFPB to be eliminated, they have supported legislation that would tie the bureau's funding to appropriations and restructure it from an agency run by a single director into a multiple-member commission. The Supreme Court previously ruled in 2020 that the CFPB was unconstitutional. But it kept the agency intact by striking down one provision of Dodd-Frank that said the bureau's director could only be fired "for cause," by the president, which the court said violated the separation of powers.  While some in the industry think the six conservative justices will rule against the CFPB, other experts think the court would be opening a can of worms by challenging Congress' power of the purse. Chopra said that the mortgage rules mandated by Congress have been "built into the entire fabric of the country's mortgage system," including marketing, origination, securitization, and servicing. Undoing those rules would present many problems, he said."Questions about those rules and the ability of the system to adapt to immediate and future challenges would raise significant concerns for the stability of the housing market and the financial system more broadly," Chopra said. 

Federal agencies urged mortgage companies and banks to be more vigilant in reporting compromised real estate transactions to their local financial crime units and to do so in specific ways that would increase the likelihood of an investigation.According to representatives from both the Federal Bureau of Investigation and the Secret Service during a panel discussion Monday, instances of wire fraud, home equity theft, investment scams and elderly-related fraud have ticked up, while the methods used by bad actors have become more nuanced."[The mortgage industry is a target-rich audience for fraudsters] and they are targeting title companies and real estate brokers by compromising business email accounts. We see a lot of that," said Stavros Nikolakakos, supervisory special agent at the Secret Service at the Compliance and Risk Management conference hosted by the Mortgage Bankers Association in Washington D.C. Monday. "If you don't have direct contact information of your local law enforcement, [you should definitely establish that relationship]." A way for mortgage companies to help government agencies, such as the FBI and Secret Service, catch bad actors is by being mindful in how they fill out consumer complaints including the Internet Crime Complaint Center (IC3) form, which the bureau monitors and the Suspicious Activity Report (SAR) form."For those of you that enter SARS, I would strongly encourage you to not hold back in filling out this information, put your conclusion and the amount stolen at the very top," Nikolakakos said. "When you have agents reviewing these SARS they only skim them. They cherry-pick because agents are looking for easy arrests and they're trying to find the very best cases. "Timothy Wu, Supervisory Special Agent, Financial Crimes Section, Money Laundering, Forfeiture, Bank Fraud Unit at the FBI, added that the volume of fraud complaints received can make someone's "eyes start to glaze over.""Fraud in the mortgage space is not the same as in 2008 and our fraud portfolio is much smaller," he added. "We are seeing HELOC fraud and application fraud — nothing new or ground breaking — but these practices have accelerated and gotten better."Cash attained by these criminal acts are usually transferred to Eastern Europe, West Africa or China by money mules, Nikolakakos added. Statistics published by the FBI show that business email compromise scams related to real estate set a record for dollar losses in 2022. The 2,284 complaints received last year amounted to losses totaling $446.1 million, compared with $430.5 million in 2021.Those targeted by fraudsters have about 72 hours to report the event to the government before it becomes harder to investigate.In a separate panel addressing fraud mitigation, Steve Safavi, vice president of mortgage fraud at Mr. Cooper noted that one of the best ways to prevent wire fraud is to be mindful of emails received prior to closing and the domain that is being used."As busy as you are at the end of the month, trying to get something funded it can get by," he said. "Best thing to do is for title companies to call the lender and verify the wiring instructions. Have them repeat the payoff statement to you instead of vice versa."As fraud risk has increased, companies in the financial services sector have turned to vendors to protect their transactions and infrastructure. For example, recently Tata Consultancy Services announced a partnership with FundingShield to the fintech's wire fraud prevention solutions available to the IT consulting company's clients.

As the amount of information held at mortgage companies continues to accumulate, many within home finance have found a business case for bringing more data science into the picture. By applying advanced analysis techniques and models, data scientists today are "proactively helping you find those needles in the haystack" while providing appropriate context, according to Jerry McCoy, executive vice president, performance management, of subservicer LoanCare. "We've run the models. We have this nugget of insight," said McCoy, who previously held leadership roles within technology and servicing companies, such as IBM, Nationstar, Fannie Mae and JPMorgan Chase."What we also do as part of data science is telling the story with it."LEARN ABOUT MAKING DATA ACTIONABLE AT DIGMO 2023Some companies are already on the bandwagon. In 2023 research conducted by Arizent, three out of five mortgage industry professionals said they had tried using data-science tools or applications of some form in the course of their work. For customer acquisition purposes, 36% indicated they were leveraging it aggressively, with 85% of the subset expressing satisfaction with outcomes. But there's a clear divide between depository institutions and nonbanks in their relationship to data science, with the former three times more likely to be utilizing data science than their smaller and less capitalized IMB counterparts.Still, as mortgage companies build up digital capabilities, many view data science professionals as welcome additions to their strategies, relying on their expertise to achieve greater operational efficiencies while moving them closer to a streamlined lending experience. "The possibilities are really phenomenal, both from an operational standpoint, to new solutions that can be offered to the market filling a number of the clunky gaps that exist in the mortgage lifecycle today," said Julian Grey, executive vice president of data and analytics at Black Knight.Currently, professionals using data science and modeling can be found working across mortgage-related segments, including sales, underwriting, servicing and secondary markets. The term itself covers a wide spectrum of potential uses, ranging from simple graphs to generative, large language models applying artificial intelligence, Grey said. Its potential, though, is increasing with the surge of interest in AI. "We can start allowing our clients and users to use tools like natural language processing, to use tools, like really working with interfaces that are intuitive about their needs," she said. "And we can also start doing things with complex datasets like photographs and documents."While many of the methods used have been available to some degree for decades, two landmark 21st-century events helped underscore the necessity within the home finance industry for quick processing and modeling of datasets on a wider scale: the Great Financial Crisis and the COVID-19 pandemic.The housing crisis illustrated the need for precise information, such as price indexes narrowed to specific ZIP codes or prepayment default models on the loan level. "The need for that detailed, granular information really started jettisoning the whole movement of saying 'Let's be smarter about our information,'" Grey said.The onset of COVID-19 presented a new challenge. "All the sudden there was a need in the marketplace to understand both forbearance and prepayments at a faster rate than we had done before," she added, noting the significance of Black Knight being able to produce daily updates during the height of the pandemic, which previously came out monthly.That power to quickly ingest and analyze large loads of data has become more critical to many business clients, who require quick turnarounds in their decision making, such as insurers, said Ari Gross, CEO and co-founder of True, whose platform uses artificial intelligence in processes involving data extraction and document recognition to serve lending and tax industries. "If you can't figure out certain things in minutes, you'll lose that opportunity, particularly in the mortgage insurance space," Gross said.The capability of tools now used by companies like True, who may need to examine up to thousands of pages in a loan document, has come a long way in a few years and illustrate the role science and technology play to improve processes, particularly when reading and verifying data against other sources. Where Gross once worked with companies using machines with single-core processors 20 years ago, "now we can put algorithms on those machines and run to 300 core," he said."I've got 300 processors trying to understand an 1,800-page load. You can start doing stuff you could never do before," he added. The tools are constantly learning as well, based on both employees' input and the corrections being made to their findings, leading to improved accuracy. "For example, a year ago, you could easily come up with many, many documents where there were whole sections of it we couldn't do data extraction on." Flaws ranged from excessive data "noise" to instances where a client's handwriting inadvertently made information unrecognizable to the machine. "Today, we can probably get into almost all of those, and that's in the last year," Gross said. Data science is also paying dividends for the servicing industry, allowing companies like LoanCare to study behavior based on queries coming from up to 1,000 borrower phone calls a month "We then start to understand interactions," McCoy said. "These may not seem like they're big data science aspects, but it means a great deal because you can then start to understand are there mechanisms that we could do." The analysis can lead to business practices that better serve clients and borrowers after scientists "connect the dots.""We turn that into business context. How do we then turn around and provide more information, maybe on our website?" McCoy said."Fundamental to data science is understanding probabilities of outcome. And how do those probabilities of outcomes change as things adjust?" he explained.For a company like business-purpose lender Kiavi, which works with investors that may purchase multiple properties each year, data can similarly help them identify risk in much the same manner, but down to the individual borrower level. As a business with many repeat clients, Kiavi can tap into the wealth of data on them based on past transactions."Since we're servicing the loan with information across multiple dimensions, we can identify certain patterns in the data that can indicate a potential for higher propensity to default," said Kiavi CEO Arvind Mohan, who used his training as a computer engineer in leadership roles within banking and fintech worlds, including at Barclay's. "If we identify the variables and create the right factors that indicate a higher probability of risk, then you can actually design your default and servicing pipelines in a more efficient manner to address those cases first," he said. Data science also provides greater nuanced market information for Kiavi, whose business Mohan described as "fragmented and hyperlocal in nature." But it is the type of information that might benefit residential lenders and real estate agents as they look for customers."In some sense, we're using data science like a local lender that lives with that market," Mohan said. "What we want to do is bring a much more scalable experience, but ensure that we can be as quick as a local market lender."But large amounts of information means little without quality interpretation behind it, which is where the skills of data scientists come into play the most."There's art in here, and that's the real part that most folks kind of miss a little bit," according to McCoy. "If the business doesn't know how to operationalize it and can't get their head around what it means, then it's not going to do anybody any good," he said.

Strong household spending and a resilient labor market could help the U.S. economy avoid a recession in 2024, the American Bankers Association's Economic Advisory Committee says.Jamie Kelter Davis/Bloomberg Resilient household spending and a strong labor market will likely help the U.S. economy avoid a severe recession, according to a new forecast from economists at some of the country's biggest banks.The economy is poised to grow at a rate of less than 1% through the second quarter of 2024, the American Bankers Association's Economic Advisory Committee said Monday. That is low compared with the second quarter rate of 4.1% but well above the dire predictions some economists once harbored for 2024."The odds of a soft landing have improved quite dramatically in the near term," said Simona Mocuta, chief economist at State Street Global Advisors and the chair of the ABA's committee of economic advisors.The specter of recession has weighed on banks for close to 18 months, since the Federal Reserve began its campaign of rate hikes in March 2022. The health of the U.S. economy plays a key role in the profitability of banks, so the prospect of a contraction in economic growth raised red flags for banks large and small. The likely avoidance of one of the harsher economic scenarios — a severe recession — is good news for banks, which are also contending with generally tighter profit margins and increasing competition for customers.Robust consumer spending has helped boost the U.S. economy so far in 2023, the ABA economists noted. Low unemployment and strong wage gains mean households have been able to keep up with many of their spending habits, even as inflation has persisted.Inflation is also expected to improve in the coming quarters. Big-bank economists anticipate inflation levels to continue to cool to an annualized rate of 2.2% by the second quarter of 2024, close to the central bank's target rate of 2%. Although the overall economic picture is brighter, economists warn that there are several lingering threats that could make it more difficult for the U.S. economy and banks alike to grow. The economists expect businesses to invest less capital in the short term, which could weigh on loan growth at banks. Loan growth at U.S. commercial banks increased 4.5% in the second quarter from a  year earlier, according to Federal Deposit Insurance Corp. data.About 4.4% of the labor force will be unemployed by the end of 2024, according to the economists' forecast. A higher unemployment rate could make it more difficult for laid-off workers to make loan payments, potentially boosting the level of charge-offs at banks.Credit quality reached historic lows during the pandemic, when many creditors offered grace periods and other breaks to struggling borrowers until the economy got back on track. Analysts expect asset quality to continue to deteriorate, with loan-loss increases spreading beyond the credit card and commercial real estate arenas."Investors are eager to learn how much higher net charge-offs are expected to go, especially with the student loan moratorium coming to an end," Jason Goldberg, managing director and senior equity analyst at Barclays, wrote in a recent research note.Certain elements of the ABA's advisory committee's forecast provide a strong contrast to the details issued when the last forecast was issued earlier this year, when economists believed the U.S. was on the edge of a mild recession."The tone of the conversation certainly feels much more positive today," Mocuta said.The ABA committee includes economists from some of the country's largest banks. The group meets twice a year to discuss the economic environment and issue forecasts on economic growth, inflation and the trajectory of interest rate moves.This year's committee features representatives from U.S. Bank, Wells Fargo, JPMorgan Chase, State Street, Comerica Bank, BMO, TD Bank, PNC Financial Services, Deutsche Bank, First Horizon, Regions Financial, Northern Trust, Wilmington Trust and Morgan Stanley.

The regulator overseeing Fannie Mae and Freddie Mac has introduced some new wiggle room into their deadline for modernizing credit reporting and scoring.The Federal Housing Finance Agency in announcing the next stage of the project on Monday left open-ended the date for a planned transition that will give lenders the option to use reports from two rather than three companies on loans sold.The FHFA said it now expects that "the implementation date for this bi-merge requirement will occur later than the first quarter 2024, as was initially proposed."The first quarter of 2025 remains the end-date on the timeline, but the FHFA noted in its latest update that deadlines could change in the future, confirming previous statements it's made.It also said it would offer more opportunities for public dialogue as stakeholders debate how fast the initiative should move forward. Some in the industry are urging deliberation to account for the way credit reporting and scoring is interwoven with a highly regulated mortgage process."FHFA's reformulated implementation plan is an acknowledgment of the significant operational complexities and the magnitude of this effort on the housing finance system," said Bob Broeksmit Bob Broeksmit, president and CEO of the Mortgage Bankers Association, in an emailed statement.The Community Home Lenders of America said the additional opportunities for engagement FHFA and Director Sandra Thompson extended were welcome given mortgage industry concerns about the process."CHLA commends Director Thompson for announcing public listening sessions on the transition to updated credit score models and credit report requirements for loans," the CHLA's Scott Olson said in an emailed statement. Olson is CHLA's executive director.VantageScore, one of the two entities providing the updated scores with the aim of identifying mortgage-ready borrowers that the current methodology overlooks, urged the FHFA not to delay the change that was legislatively mandated in 2018 beyond another two years. "We will assist all mortgage originators to get an immediate start using VantageScore 4.0," said Tony Hutchinson, senior vice president, industry and government relations, in an email. "Every day of delay is another day that working people who pay their bills on time are unable to get a mortgage."

The Federal Housing Administration is doing away with a requirement that's been challenging mortgage borrowers and lenders since 1990 in an apparent response to extraordinary affordability concerns and recently renewed calls for an end to the policy.Changes to FHA procedures and technology effective Monday are aimed at removing the Mortgage Credit Reject requirement, which had been a hurdle for some first-time homebuyers with lower incomes.The Department of Housing and Urban Development affiliate's revisions specifically remove a warning flag that gets temporarily assigned to borrowers after any lender offering FHA-insured loans denies them."This really benefits applicants who may have been rejected by a lender or lender's own internal policies. It should make it a lot easier to be qualified by another lender," said Peter Idziak, senior associate at mortgage law firm Polunsky Beitel Green.Lenders should no longer see or have to use the Mortgage Credit Reject screen they previously used to enter information about denials starting Monday, according to an FHA information bulletin. The FHA recently added a waiver for the requirement.One reason FHA officials likely removed the MCR indicator was because each individual lender can reject an insured loan for idiosyncratic reasons they apply on top of administration's prerequisites."This was a requirement to report even when the borrower would have met FHA requirements, but was rejected because of the lender's overlay," Idziak said.Another reason for removing the Mortgage Credit Report flag is that, while tracking denials does play a key role in the housing finance and credit analysis, other vehicles record that information in less disruptive ways. Home Mortgage Disclosure Act and credit reports will still have the data.The FHA Connection system indicator, which was associated with both the insurance case number and applicant for a six month period, had more of an impact on borrowers applying to other lenders than HMDA or credit reports because it signaled the need for reviews."It's a slowed-down process," Idziak said of the reviews required for flagged loans, which could deter the new lender. As a result of them, "you could be shut out of FHA financing, even though if you've gone to another lender first, they might have approved you," Idziak added.Another thing that may have made the change compelling has been consensus on it among groups sometimes at odds on housing policy matters."It's not just been supported by lenders, but also consumer advocates," said Idziak.Among industry voices who have recently pushed for the end to the requirement are consultant David Stevens, a former FHA commissioner and Mortgage Bankers Association CEO, and Chris Whalen, an NMN columnist and analyst who previously worked for Kroll Bond Rating Agency.Consumer groups like the National Community Reinvestment Coalition also have long pressed for more access to FHA loans, and originally even challenged the existence of overlays at one point. The runup in interest rates that's left the cost of housing relative to income the most expensive it's been since 1984 has many stakeholders in the mortgage industry taking a closer look at any policy change that could help address that challenge."Regulators have generally mentioned that affordability is a major concern so I would venture to guess that they might have looked around and said what can we do to help borrowers to help make homes affordable?" Idziak said.

Merchants Bancorp said it reached deals with two banks to sell a total of four branches in Illinois. Joining a groundswell of banks pruning their branch networks, Merchants Bancorp in Carmel, Indiana, plans to sell four branches as it sharpens its focus on mortgage lending.The $13.1 billion-asset Merchants, the parent of Merchants Bank of Indiana and Farmers-Merchants Bank of Illinois, said in a press release Friday that it lined up a pair of deals to sell the branches in Illinois.Bank of Pontiac in Pontiac, Michigan, agreed to buy Merchants branches in Paxton, Melvin and Piper City. CBI Bank & Trust in Muscatine, Iowa, inked a deal to acquire a branch in Joy.The $962 million-asset Bank of Pontiac would acquire $157 million of deposits and $22 million of loans, while the $1.2 billion-asset CBI Bank & Trust would acquire $62 million of deposits and $27 million of loans.Terms were not disclosed. The transactions are expected to close in the first quarter.The deals would allow "Merchants to focus on its core business of single and multifamily mortgage lending," Michael Petrie, chairman of Merchants, said in the statement. "The agreement strategically aligns Farmers-Merchants with institutions that share a similar business model and will provide Farmers-Merchants the ability to offer additional products to its customers."Both Bank of Pontiac and CBI Bank & Trust, like Farmers-Merchants, are deeply rooted in similar communities and share a strong commitment to serving their local markets," Petrie said. "Farmers-Merchants and its employees have played a valuable role in Merchants' success, and they will continue to thrive with their new partners."Getting ready for mortgage rates to fall – but will they?Selling these branches could set up Merchants to focus on its mortgage business, but it could be some time before housing loans take off again, given high interest rates. Sam Khater, Freddie Mac's chief economist, said mortgage rates remain elevated — about three times the level of two years ago — following a series of Federal Reserve rate hikes since early 2022. The 30-year fixed-rate mortgage averaged 7.12% last week, he said, "straining potential homebuyers."This has kept many would-be buyers on the sidelines, slowing home sales. A limited supply of housing in many markets also has curbed activity, Khater said. However, he said, current conditions are creating pent-up demand that could drive robust mortgage volumes once interest rates start to decline and more new homes get built. Given that, banks such as Merchants that specialize in home lending have reason to gear up for busier periods ahead.Branch networks continue to shrinkBroadly, banks have been downsizing branch networks for years, both to reduce costs and to focus more on digital banking. Americans increasingly managed more of their banking online over the past decade. The trend accelerated amid the pandemic.Taking into account openings and closings, U.S. banks shuttered a net 2,927 branches in 2021, according to a tally by S&P Global Market Intelligence. That lowered the U.S. branch count to about 80,950. It also set a record for net closings — and marked an increase of 38% from the rate in 2020, the previous record year, the firm's data shows. The branch total fell further last year to about 79,000.The trend was hastened by the social distancing measures enacted to combat coronavirus outbreaks. The temporary changes brought branch traffic to a standstill and drove increased adoption of digital products and services, S&P noted.

Shoppers in the Magnificent Mile shopping district in Chicago, Illinois, US, on Tuesday, Aug. 15, 2023.Jamie Kelter Davis/Bloomberg After staving off recession for longer than many thought possible, the U.S. consumer is finally about to crack, according to Bloomberg's latest Markets Live Pulse survey. More than half of 526 respondents said that personal consumption — the most important driver of economic growth — will shrink in early 2024, which would be the first quarterly decline since the onset of the pandemic. Another 21% said the reversal will happen even sooner, in the last quarter of this year, as high borrowing costs eat into household budgets while Covid-era savings run down. The finding is at odds with the optimism that's permeated U.S. equity markets for most of the summer, as cooling inflation and low unemployment bolstered hopes for a so-called soft landing. Should the economy stop growing — a scenario that's quite likely if consumer spending contracts — it could mean more downside for stocks, which have already slipped from late-July highs. "The likelihood of a soft landing, falling inflation, an end to Fed tightening, a peak in interest rates, a stable dollar, stable oil prices — all those things helped drive the market up," says Alec Young, chief investment strategist at MAPsignals. "If the market loses confidence in that scenario, then stocks are vulnerable."'It Is Not Sustainable'Right now, the US economy appears to be speeding up rather than stalling. Growth is forecast to accelerate in the third quarter on the back of a recent pickup in household spending, which jumped in July by the most in six months. To some analysts, it looks a bit like a last hurrah."The big question is: Is this strength in consumption sustainable?" says Anna Wong, Bloomberg Economics' chief U.S. economist, who expects a recession to start by year-end. "It is not sustainable, because it's driven by these one-off factors" – notably a summer splurge on blockbuster movies and concert tours.The enduring strength of the U.S. job market has propped up household spending in the face of the biggest price increases in decades. It's led some analysts to push out their expectations for a recession — or even scrap them altogether. Economists at Goldman Sachs Group Inc. expect the consumer to outperform yet again in 2024 — and keep the economy growing — amid steady job growth and pay hikes that beat inflation. 'Really Struggling'But there are plenty of headwinds looming.Researchers at the Federal Reserve Bank of San Francisco say the excess savings that have helped consumers get through the price spike will run out in the current quarter — a sentiment that three-quarters of the MLIV Pulse respondents agreed with."There's increasingly an issue where the lower end of the income and wealth spectrum is really struggling with the accumulated inflation of the last couple years," while wealthier Americans are still cushioned by savings and asset appreciation, said Thomas Simons, Jefferies' U.S. economist.In the aggregate, consumers have been able to bend under the weight of higher prices, he said. "But there will come a point where that's no longer feasible."Delinquency rates on credit cards and auto loans are rising, as households feel the financial squeeze after the Fed raised interest rates by more than 5 percentage points.And another kind of debt — student loans — is about to come due again for millions of Americans who benefited from the pandemic freeze on repayments.A majority of investors in the MLIV Pulse survey pointed to the declining availability and soaring cost of credit — mortgage rates are near two-decade highs — as the biggest obstacle for consumers in the coming months.Some three-quarters of respondents said auto or retail stocks are the most vulnerable to declining excess savings and tighter consumer credit – a concern that's not entirely priced in by the markets. While General Motors Co. and Ford Motor Co. have essentially missed out on this year's wider stock rally, Tesla Inc. more than doubled in value.'Just Taking Longer'Since the economy's fate hinges on what U.S. consumers will do next, investors are looking in all kinds of places for the answer.Asked what they consider a good leading indicator, MLIV Pulse respondents pointed to everything from the most standard measures – like retail sales or credit-card delinquencies — to airline bookings, pet adoptions, and the use of "Buy Now Pay Later" installment plans.That's perhaps because conventional guides have often proved to be unreliable amid the turbulence of the past few years."The traditional playbook for the economy and markets is challenging in this post-pandemic environment," said Keith Lerner, co-chief investment officer at Truist Wealth. "Things are just taking longer to play out."

A destroyed home in floodwater after Hurricane Ida in Pointe-Aux-Chenes, Louisiana, U.S., on Thursday, Sept. 2, 2021. The electric utility that serves New Orleans has restored power to a small section of the city after Hurricane Ida devastated the region's grid.Mark Felix/Bloomberg A little over a year ago, Peter Gardner, a Louisiana developer, completed rehabbing an apartment building with 144 units and got a surprise so ugly it made him decide to move his business out of town.When the project began, his broker estimated the annual cost of insuring it would be $75,000. But by the time Gardner finished it, the insurance cost had risen to $175,000.  He paid it, but when he went to renew the policy this past July, he got another shock. The broker now said it was $275,000. An alternative broker could only find policies over $300,000 per year.Gardner bought his first house for renovation in New Orleans in 1999 when he was still in college. Over the years, he's tackled roughly 100 projects. He currently owns about 400 apartments that he rents. He survived the downturn after Hurricane Katrina in 2005, but now the market impacts of climate change have become so inexorable that he sees no choice but to start again in another city to the north."I'm a business climate refugee, because if I can't make a profit here, I don't feel comfortable buying new projects, investing here any further."Reeling from four hurricanes in 2020 and 2021 that caused $23 billion in damage, Louisiana is undergoing an insurance calamity that is harming the state's economy and even reducing its population."There's no question we're experiencing a crisis in the insurance availability in our state," said James Donelon, commissioner for the state's Department of Insurance, who notes the crisis extends not only to property insurance for homeowners and businesses, but also to car and flood insurance, which are sold separately. "It's certainly causing some people to turn in the keys and give up their homes and to shut the doors on their businesses."Louisiana is not alone in suffering from insurance woes. Rates are going up across the nation, particularly in states like Florida and California, which have been hit hard by climate-exacerbated natural disasters. Florida has a seen a tripling of rates and some of the super rich are complaining of annual premiums topping $600,000.  But Louisiana has one of the lowest average incomes in the nation and so the rising costs there are quicker to cut to the bone.The state is among the top three in the nation which lost the greatest percent of their populations between 2021 and 2022, according to the latest census.  Many may have left because of hurricane damage. More than 8% of Louisianans told the U.S. census that they were displaced by a natural disaster last year, compared to a nationwide average of 1.6%.The root of the problem is climate change. It's made hurricanes and rain storms that plague the city both worse and more frequent.  "Climate change is driving not only direct losses but also repricing of insurance, mortgage and even utility rates," says Jesse Keenan, a professor of sustainable real estate at Tulane University.There have long been endemic issues such as crime, pollution and economic stagnation in the state, said Keenan, but now unaffordable insurance is the breaking point.Louisiana is the third most expensive state for property insurance, according to Insurify, an insurance comparison-shopping website. They estimated the average cost at $5,353 annually, or three times as much as the national average.Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2022, according to the Insurance Information Institute.Those closures sent insurance prices spiraling out of control, in both absolute terms and also in prices relative to local median incomes that are among the lowest in the nation. The average premium rose 6.7% in 2021 and then 18.5% in 2022, according to the Louisiana Department of Insurance.But even those averages hide the real pain. Coastal Louisiana, which includes roughly everyone in the third of the state south of Interstate 10, has seen property insurance increases far higher and faster, according to the commission — and that's when they can get insurance at all.Louisiana Citizens Property Insurance Corp., the state-backed insurer of last resort, went from 45,000 policies in 2020 to 130,000 currently. That's despite the fact that, by law, it charges 10% above market rate and raised rates 65% at the beginning of this year.No one is immune. In June, the New Orleans School board announced that insurance had been raised by 55% to $12.3 million. That came on top of a 50% increase a year earlier. Officials said they were looking for ways to prevent cuts to student programs, including by selling buildings, since the state was not offering additional funding.On the app NextDoor, which connects people in neighborhoods, rising home insurance rates are a constant complaint. "It's killing me to be paying nearly 10k for a basic dwelling policy," Linda Chaplain, who lives in the Lakeview neighborhood of New Orleans, wrote in August.It's not just property insurance that is spiking. Louisiana has the least affordable car insurance rates in the nation, according to a 2022 study by the Insurance Research Council.  The average policy is roughly three times the national average. And now flood insurance is creeping up as well, which is hitting people in the poorest neighborhoods particularly hard, according to a recent study by New Orleans' city officials.Flood insurance is sold separately from property insurance and it is mandatory for federally backed mortgages in severe flood zones. (More than a third of New Orleans is in such a zone). For decades, the feds had subsidized the program, but lost roughly $1.4 billion annually. So in 2021, it rolled out a new premium pricing policy, under which homes at most risk could see increases of up to 18% a year up to a maximum of $12,000.Austin Feldbaum, director of hazard mitigation for New Orleans, said within a year of the reform going into effect he began being deluged with calls from people desperate for help. They couldn't pay their flood insurance and wanted help getting grants to raise their houses on platforms, hoping it would reduce their premiums.The calls prompted him to do his own analysis of the impact federal insurance reforms had on affordability in the city. In 2020, before the reforms, 5% of the city had flood insurance costs that were more than 5% of the average household income. But he says that if all of the rate increases are allowed to go into effect, some 25% of the city will owe more than 5% of their incomes in flood insurance – and in many cases a lot more."If you look at where the costs end up, some monstrous proportion of the city would be unable to reasonably afford flood insurance," said Feldbaum. "And not by a small margin, but where it's just completely beyond the average households' ability to pay the average premium."The insurance pain is already unbearable now for the city's poorest, according to Marguerite Oestreicher, executive director of the New Orleans Area Habitat for Humanity. Habitat makes zero-interest mortgages available to low-income people who are unable to qualify for traditional loans. They currently help thousands of families in the New Orleans area, providing services from new homes to used furniture."We have been inundated with calls from families desperate for a solution," she said. She estimates they are getting about 10 calls per week for the families in their program.Patrice Mimitte is one of those homeowners urgently seeking a solution. When she got her home through the NOLA Habitat program eight years ago, her insurance payments were about $1,500 annually. Her flood coverage was about $400. Both had inched up over the years, but then last year both went through the roof.  She paid $4,000-plus for homeowners and $700 for flood. The additional cost more than doubled her mortgage payment from $580 a month when she started to over $1,200.On the phone recently, Mimitte said she had just gotten a new letter from the insurance company with next year's premiums and she was afraid to open it. It turned out her premiums will go up to $5,183 annually in October."As a single parent, the only person working in my house, I don't have any extra hands. I'm already working two jobs to try to make ends meet. At this point, I just don't know what to do."

One of the two large government-sponsored enterprises that buy and securitize a significant number of mortgages in the United States is adding requirements for borrowers with student loans.Freddie Mac on Sept. 6 directed mortgage companies to report a payment above zero for borrowers with education debt in almost all cases, including when a person's earnings are so low they qualify to make no payment.The student loan payment submitted to Freddie will be the one listed on a credit report unless that amount is zero. In that case, 0.5% of the loan balance should be used, unless there's documentation outside the credit report supporting a different payment size.The guidance appears to be part of the transition to the end of pandemic-related forbearance for education debt next month, when payments on those obligations will restart.Some lenders had already been using 0.5% as a "placeholder payment" when one wasn't recorded on the credit report during the pandemic, which could limit the impact of the change, said Daniel Jacobs, managing director, TruLoan Mortgage. Student loans with payments that adjust in line with income may be the best bet for borrowers if they still have affordability challenges when they emerge from pandemic-related forbearance and want to make progress toward reducing their debt."I'm sure we'll advise many clients to negotiate income-based payments if they don't have high earnings," Jacobs said.Some permanent changes were made recently to income-based student loans that will allow for more borrowers with that type of education debt to qualify for $0 payments, making Freddie's changes potentially pertinent to more people in that category."There won't be more people that qualify for $0 payments than during the pandemic, but certainly more in the Pay-As-You-Earn program than would have qualified before it," said Sara Parrish, president, CampusDoor, a provider of white-labeled, private student loan services.There will still be some ways to entirely exclude a student loan payment from debt-to-income calculations used as part of determinations related to a mortgage borrower's ability to repay but the circumstances will be limited, according to Freddie's new guidance.They include when the loan gets to the point where there are only 10 remaining payments (or fewer) before it is forgiven, canceled, discharged or fully repaid. Also, when the full balance of the loan that's on pause due to a deferral or forbearance will essentially be entirely written off.Borrowers must prove they have eligibility that won't change in the future for any of these aforementioned forms of relief that may absolve their responsibility for a student loan.The Biden administration has worked to maximize opportunities for student loan relief but had to back down from an ambitious forgiveness effort due to court intervention.There will be a respite from certain late fees and adverse credit reporting for roughly a year after forbearance ends that will serve as an onramp back to paying for struggling borrowers, but those who don't fulfill their obligations will amass more debt.As part of this transition, Freddie Mac also will be adding some new requirements for income-based student loans starting on Jan. 4 of next year.These pertain specifically to situations where borrowers must renew proof-of-income documentation or have to meet an upsized obligation for their student loan before the first payment on their mortgages are due.In these circumstances, lenders will have a few different options for recording payments.One is to report as a payment 0.5% of the loan balance or the current obligation, whichever is larger. Another is to put down a future upsized amount that has documentation.Lenders also may opt to record a future payment amount that will be the same or less than the current obligation if the borrower's been able to recertify income and gotten approval to pay that amount.At the time of this writing, Freddie's counterpart Fannie Mae still appeared to be allowing lenders to record a zero payment for student loans if they had additional documentation beyond the credit report.For student loans deferred or in forbearance, Fannie directs lenders to record a payment equal to 1% of the outstanding loan balance, even if it's lower than the fully-amortizing monthly obligation. They can also opt to record the latter as documented.

In a year that saw the termination of their CEO and the eventual sale of their company, over 150 former team members of Civic Financial Services were on hand to launch a new business-purpose lender two weeks ago.Los Angeles-based CV3 Financial Services, which specializes in investor lending for fix-and-flip and rental purchases, celebrated its grand opening on Aug. 31, a little more than seven months after its former parent, PacWest Bancorp, first announced a major restructuring of Civic, which included the termination of its then-CEO William Tessar. Originally founded in 2014 through a partnership between Wedgewood and one of its subsidiaries, Civic Financial was later acquired by PacWest in 2021 during the mortgage boom and has come in at or near the top of the list of National Mortgage News' best companies to work for two years running. The name of the new company represents the third incarnation of its team, according to Tessar.            "The way I think about CV3, it's our core group, version three, and there are no legacy issues. You have lessons learned and let's be clear, we will thrive again," Tessar said in an interview with National Mortgage News. "It's not a startup. It's a restart of something that was incredibly special in the marketplace and I think our customers will be the judge of that."As PacWest sought to reduce costs and improve its capital position after announcing its initial plans for Civic Financial in January, the Beverly Hills, California-based bank laid off hundreds of the lender's employees. Later, the collapse of Silicon Valley Bank spurred concerns about the stability of similar regional financial institutions, precipitating a run on PacWest deposits. In May, PacWest sold off the lender's origination assets, which included the original Civic Financial branding, website and trademarks but no loans or staff, to Roc360, before the bank itself was acquired by Banc of California in a still-pending merger. Although it debuts only a few months after the selloff of Civic Financial, the development for CV3 was laid well before the events of 2023 and went through several twists and turns, Tessar said. The company is also coming to market during one of the most challenging periods for lenders in recent history.Tessar spoke to National Mortgage News the day after CV3's launch to discuss the path taken toward creating a new company and its strategy amid today's lending headwinds.This interview has been edited for clarity and length.

As the Federal Reserve continues its quest to tame inflation, a stubborn lack of housing supply is propping up housing costs and even rental prices, complicating the central bank's calculus on when and whether to delay rate hikes or even cut lending rates. Bloomberg News Federal Reserve officials anticipate moderating housing costs driving disinflation in the months ahead, but a national shortage of homes could spoil those expectations.Last month, during his annual address in Jackson Hole, Wyo., Fed Chair Jerome Powell said the elevated housing costs captured by recent inflation readings do not reflect the central bank's true progress on curbing price growth in that sector. "The market rent slowdown has only recently begun to show through to that measure," Powell said. "The slowing growth in rents for new leases over roughly the past year can be thought of as 'in the pipeline' and will affect measured housing services inflation over the coming year."Economists agree that rent growth rates have slowed down since peaking during the pandemic years and that such a trend often takes time to show up in inflation reports, given how housing costs are measured. But some say the trajectory of where shelter costs are heading is muddied by shortages in most major markets across the country. The Fed's primary monetary policy tool — the federal funds rate — is used to influence consumer spending, to help steer demand for goods and services into alignment with their supply. For housing, which has been underbuilt since 2008 and artificially restricted with building codes and other localized rules for decades, supply is still well short of demand, KPMG chief economist Diane Swonk said. "Getting supply to meet demand in a market where supply has been so dramatically constrained — not just temporarily, but structurally for decades — is difficult," Swonk said. "We're a long way from the market being anywhere near in balance, and that's something the Fed has to watch because price is the ultimate equalizer, and prices don't come down when supply and demand are so far out of balance."The Fed's latest Beige Book, which compiles economic data from across the Federal Reserve System's regional reserve banks, stated that "nearly all districts" reported dealing with constrained for-sale housing supply. Many also noted headwinds on financing new housing construction, both for sale and for rent.While Fed officials have made no commitments about future rate hikes, recent readings on inflation data and employment figures have trended in a favorable direction and indicated that the Federal Open Market Committee, or FOMC, could soon stop raising rates.The short supply of homes not only raises questions about the movement of prices in the months ahead, but also could also create issues for the Fed when the central bank decides to stop raising interest rates and, eventually, cut them. Swonk said other monetary authorities around the world have already had to quickly reverse course on policy changes after sharp rebounds in home buying activity."It's forced other central banks to rethink and go back in and raise rates again," she said. "It's something the Fed is just concerned could be something that we have, especially given our extraordinary situation in the United States, where supply is so far below demand that it's even been below the suppressed level of demand that we have because of higher rates."Powell acknowledged this risk in his Jackson Hole speech, noting that "after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up," which "could warrant further tightening of monetary policy."Rising housing costs have consistently been among the leading drivers in overall inflation dating back to last year, even as many other price categories have stabilized. The White House Council of Economic Advisors estimates that shelter costs contributed to roughly half of overall headline inflation through the first quarter of this year, roughly double the share from June 2022.The two main national price indices, the Consumer Price Index, or CPI, and Personal Consumption Expenditure, or PCE, index — the Fed's preferred indicator — both measure housing costs by rents and rent equivalents for homeowners. In this sense, the Fed's most direct impact on housing affordability — mortgage rates — do not directly factor into the data the Federal Open Market Committee considers when setting monetary policy. David Wilcox, senior fellow at the Peterson Institute for International Economics and director of US economic research at Bloomberg Economics, said rents and home purchase prices tend to move in the same direction over time, but "economically, the mechanics of that relationship are pretty loose" and it could take years before that relationship "asserts itself," meaning rents could continue to stabilize or even fall as sale prices rise. "If you're talking about what's on the horizon for the next six months, the next year, the next 18 months, you would be well served to focus on what's going on on the rental market and set aside the purchase market," Wilcox said, referring to the housing portion of inflation indexes.Still, mortgage rates are a key component of the housing sector, which is relevant to the labor market and overall economy. Because of this, Fed officials often point to mortgages as an example of the effectiveness of their monetary policy changes. In Jackson Hole, Powell noted that mortgage rates more than doubled over the course of 2022, moving up in lockstep with each rate hike. The average rate on a new mortgage is now more than 7%, and the week ending Sept. 1 saw the lowest indexed level of mortgage application activity since December 1996, according to the Mortgage Bankers Association — a 30% drop from the same time period last year.But some say this decline in activity has less to do with diminished demand than prospective homebuyers reacting to the extremely low levels of supply."There's still a pretty good amount of competition whenever a unit comes on the market, despite rates being at over 7%," said MBA vice president and deputy chief economist Joel Kan. "Rates are high, but because of how low inventory is and the fact that we still do have pretty healthy levels of housing demand … if there's a need to buy, and the buyer has the means, they're trying to go ahead with it."Swonk said the national housing shortage is the result of a "perfect storm" of market and policy trends dating back to the subprime mortgage crisis of 2007 and 2008. Since that episode — which was triggered by risky lending activity and overbuilding in many markets — home builders and lenders have shied away from speculative developments, she said, leading to sustained underbuilding. Meanwhile, restrictive zoning laws dating back to the 1970s have made it difficult to build multifamily and even entry-level single-family homes in many areas.This limited supply was met with a surge in demand from 2020 into 2022 as the Fed slashed interest rates to their lower bound, resulting in a flurry of purchases and refinances. A report from the real estate listing website Redfin estimates that more than 90% of homeowners locked in a mortgage rate below 6% by the middle of last year, with more than 80% paying less than 5% and more than 60% below 4%.Wilcox said this has contributed to a "lock-in" effect, which disincentivizes homeowners from putting their properties on market."Current, incumbent owners are reluctant to sell," he said. "They're locked into their current residences, and that means that there's no supply on the market for purchasers to come in, and that puts a prop underneath purchase prices."For now, asking rents have largely stabilized. Over time that trend will work its way into inflation measures as more survey respondents report signing or renewing leases at prices reflecting those changes. Some economists say rental rates could even come down in some markets, which are currently experiencing an uptick in apartment construction, particularly among properties with 20 or more units, according to the U.S. Census Bureau. "Supply constraints seem to be easing," Christian Weller, an economist and senior fellow at the Center for American Progress said. "Between construction starts and completion there is a time lag, so this will take some time, but given what we see in the rental market, with new rents close to flat relative to where they were in previous months, the hope is that we are in the process of easing prices."

Rohit Chopra, director of the Consumer Financial Protection Bureau, had amended its examination manual to instruct bank examiners to look for signs of discrimination in non-lending products and services. On Friday a judge ruled that the bureau overstepped its authority with the change. Bloomberg News A federal judge has ruled that the Consumer Financial Protection Bureau overstepped its authority by adopting a sweeping anti-discrimination policy last year in a major victory for banks and the trade groups that sued the agency.In a ruling late Friday, Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas, vacated a CFPB policy that directed the agency's examiners to root out discriminatory behavior when conducting routine exams of financial institutions. The CFPB adopted the policy in March 2022 by stating that discrimination in any financial product is an "unfair" practice that can trigger liability under the federal prohibition against  "unfair, deceptive or abusive acts or practices," known as UDAAP.  The judge ruled that Congress did not give the CFPB broad authority to look for discrimination beyond those areas specified in the statute. The ruling puts a major dent into the CFPB's efforts to apply anti-discrimination principles to non-lending products such as advertising."The CFPB faces a high burden in arguing that Congress conferred a sweeping anti-discrimination authority without defining protected classes or defenses, without using the words 'discrimination' or 'disparate impact,' and while separately giving the agency authority to police 'discrimination' only in specific areas," Judge Barker wrote in a 23-page opinion. The CFPB under Director Rohit Chopra sparked an uproar last year when the agency updated its exam manual to reflect that discrimination is an "unfair" practice and announced the new policy in a press release."We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance," Chopra said last March. In response, the U.S. Chamber of Commerce and six business groups including the American Bankers Association and Consumer Bankers Association sued the bureau, arguing that the policy was a significant departure from existing anti-discrimination laws. The judge agreed. "The CFPB's claimed authority to prohibit disparate-impact discrimination is something that Congress rarely authorizes. When it does, Congress authorizes disparate-impact liability only in narrow circumstances, with limits that exist to avoid 'serious constitutional questions,'" Barker wrote. "So one would naturally expect a clear statement for Congress to authorize a version of discrimination liability that even explicit nondiscrimination statutes usually do not cover and that can raise serious constitutional questions."Rob Nichols, president and CEO of the American Bankers Association, said he was pleased with the decision because it made clear that the CFPB "exceeded its statutory authority" by updating its exam manual and announcing "an open-ended and novel power to examine banks for alleged discriminatory conduct.""This authority is nowhere to be found in the agency's mandate from Congress, as the court concluded today," Nichols said in a press release. "We strongly support the fair enforcement of nondiscrimination laws, but the Bureau's extraordinary expansion of its regulatory reach crossed the line."Congress has enacted a number of specific discrimination statutes including the Fair Housing Act that bans discrimination in housing and the Equal Credit Opportunity Act that bars discrimination against credit applicants. Non-credit products currently are not subject to ECOA. But the CFPB had sought under the new policy to look for discrimination in a wide range of noncredit financial products including checking accounts, debt collections, consumer reporting, payments and remittances.The policy directed CFPB examiners to determine if a bank or financial firm had policies in place to prevent discrimination. "Historically, one of the biggest sources of leverage that the CFPB has when they bring an enforcement action is to accuse someone of discrimination or disparate impact, which is unintentional discrimination," said Chris Willis, a partner at the law firm Troutman Pepper. "The headline risk associated with that is very large and [the CFPB] would like to have that leverage over noncredit products like deposit accounts."Supervised companies had to show that their "processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups," Barker wrote.Lindsey Johnson, president and CEO of the Consumer Bankers Association, said the CFPB has sought "to punish banks for perceived discrimination even without evidence of discriminatory intent." "We appreciate the Court's recognition that changes made by the Bureau to the UDAAP Exam Manual stand contrary to law and the intent of Congress," Johnson said in a statement. For years, banks and financial firms have fought over the federal prohibition on UDAAP — one of the strongest tools the CFPB was given by Congress through the Dodd-Frank Act. But the precise meaning of what constitutes each of those three legal prongs has been the subject of disputes. In April, the CFPB in April issued a policy statement redefining what constitutes an "abusive" act or practice, after rescinded guidance that was issued in 2020 under the Trump administration.She said the group's members "oppose discrimination in any form and strongly support fair, objective, and transparent enforcement of civil rights and fair lending laws." The other plaintiffs in the lawsuit were the Longview Chamber of Commerce, Independent Bankers Association of Texas, Texas Association of Business and Texas Bankers AssociationThe district judge first had to decide if the trade groups had standing to challenge the anti-discrimination policy. The bureau had argued that the policy was not a formal rule and that the trade groups did not have standing to contest the agency's instructions to its own examiners. The judge rejected that argument. Barker also referred in his opinion to the "major questions doctrine," which got a boost last year when the Supreme Court ruled in a landmark decision, West Virginia v. Environmental Protection Agency, that Congress did not grant the EPA authority to regulate emissions from existing power plants. "What the major questions doctrine says is that when you're going to interpret a statute in a novel way that falls outside of the expected norm, you have to look for an explicit indication of congressional intent," said Willis. A federal agency can't "just take a word in the statute and interpret it in a brand new way, particularly on something as sensitive as discrimination, where Congress has legislated in a very specific, very controlled, very limited way," said Willis. Barker, an appointee of President Trump, wrote that the "major-questions canon applies here," because the issue of discrimination against any group "is a question of major economic and political significance." He said the financial-services industry would have to spend millions of dollars per year attempting to comply with the new UDAAP policy. "The Supreme Court recognizes that sweeping grants of regulatory authority are rarely accomplished through 'vague terms' or 'subtle devices,'" Barker wrote. "Courts must 'presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies.' If that major-questions canon applies, 'something more than a merely plausible textual basis for the agency action is necessary. The agency instead must point to clear congressional authorization for the power it claims.'" 

If you peruse real estate listings on Realtor.com, you might come across a new Airbnb integration.This week, the two companies announced a collaboration that lets homeowners see how much they could fetch to rent out a room, or the entire house.It comes at a time when short-term rentals, or STRs for short, are somewhat under-fire given their immense growth.The Airbnb story also happens to coincide with a residential housing shortage, with some critics blaming STRs on the lack of supply.In any event, if you’re interested in seeing your Airbnb earnings estimates, you’ll need to add your property to Realtor’s My Home dashboard first. How to Find Your Airbnb Host Estimate on Realtor.comTo get started, you’ll need to head over to the My Home dashboard on Realtor.com and add your property if you haven’t already.This will also entail creating an account on Realtor.com if you don’t have one. It’s fairly simple and seems to only require an email and password.From there, you’ll see a variety of information pertaining to the property added, including its RealEstimate, which is the site’s take on a Zestimate.You’ll also see a tab titled “Host or rent,” which will contain your Airbnb host estimate. It provides both an entire home estimate and a room estimate.A sample of the entire home estimate can be seen in the screenshot above. The single room estimate can be seen below.It defaults to a 7 nights out of a month to give you a rough estimate of what you could earn via the Airbnb platform for renting it out for part of the month.The estimates, which are provided by Airbnb, consider factors such as the zip code and bedroom count.Airbnb reviews booking data over the past 12 months from the top 50% of similar listings (based on earnings) in the area where your home is located.Then it computes nightly earnings, which are defined as the price set by each Airbnb Host minus the Airbnb Host service fee.Note that Airbnb doesn’t subtract cleaning fees, taxes or other hosting expenses you might charge/incur when calculating the nightly estimate.At the moment, these estimates are only available for U.S. addresses and do not factor in the number of guests a listing might accommodate.And while they may strive to provide an accurate estimate, it’s just an estimate and no guarantee of what you’d actually earn.Actual earnings can depend on a variety of factors, such as availability, listing price, and demand in the area.Lastly, and here’s the biggie, the ability to host your property may also depend on local laws.In other words, it may not actually be permitted to list your property as an STR in your city.Is the Airbnbust Finally Upon Us?There have been rumblings for a while now about a so-called “Airbnbust,” the premise being that too many first-time landlords purchased homes with the express purpose of making them STRs.And now that there are so many of them, the hosts may encounter buyer’s remorse.This could be due to unforeseen problems, a lack of experience being a host, complaints from neighbors, or simply that the earnings just aren’t there.Throw in the fact that some hosts acquired multiple properties and these problems could be exponential.Of course, some hosts might be raking in the dough, depending on how cheap they got in and how much demand their property has.After all, many of these properties were purchased when 30-year fixed mortgage rates were 2-3%. And when home prices were half what they are now.So even if competition rises, or they run into issues like unexpected refunds or cancellations on the platform, they may still do just fine.But the real doomers out there think these STRs will be the first shoe to drop, setting off a panic and an eventual wider housing crash.Critics on the other side say there aren’t enough of these properties to make a major impact, but in certain vacation areas there are larger concentrations.Another issue is lack cities are beginning to ban STRs, with New York City being the latest to impose major restrictions.This week, they launched new rules that only allow sub-30 day rentals if hosts register with the city.And they “must commit to being physically present in the home for the duration of the rental, sharing living quarters with their guest.”In other words, you can only rent out a room, like a traditional Bed and Breakfast, assuming it’s for less than a month.And no more than two guests are allowed at a time, meaning larger families are effectively out of luck.Obviously, sweeping changes like this could lead to a flood of sales if a long-term rental isn’t feasible (or simply as lucrative).But it all remains to be seen. Many of those critical of Airbnb and other STR platforms such as VRBO, feel many of these properties could be going to families, instead of being rented out for a profit.Especially first-time home buyers looking to lay down roots and start a family.The STR gold rush may have also inadvertently sent home prices even further out of reach for the average person just looking to realize the American Dream.

Multifamily construction starts fell to less than half of typical recent norms during the second quarter and will likely cause rents to rise over the next two years, a report said.  New starts slowed to 30,800 in 15 core markets across the U.S., according to commercial real estate services firm Institutional Property Advisors, a division of Marcus & Millichap. The number came in 52% lower than the quarterly average of 64,200 based on the previous nine quarters dating back to early 2021. Second-quarter start volume also dropped by 62% year over year from 81,500, which represented the highest volume since 2021. The 15 markets tracked account for close to half of all total multifamily construction pipeline nationwide.The steep decline was not entirely unexpected but was exacerbated by recent developments in the financial industry, as tighter access to credit and capital contributed to the slowdown."The largest banks were generally targeting less substantial capital allocations for real estate early in 2023; likewise, many smaller banks made strategy adjustments when a handful of regional lenders failed during the spring," the authors of the report wrote.Financing for new apartment constructions encountered additional headwinds as rent growth also slowed and insurance costs headed higher. In its second-quarter commercial originations survey, the Mortgage Bankers Association found multifamily loan production overall down by 48% from a year earlier.With the pace of building leveling off, new multifamily deliveries will likely begin to decrease in early 2025 and fall even further in the second half of the year, Institutional Property Advisors said.  As a result, rent growth will likely accelerate as soon as spring 2024 and continue over the next 18 months. Three Texas markets experienced the sharpest fall off in new starts in early 2023 from the prior nine-quarter average. Houston saw a 79% decline in the second quarter to 1,100 from 5,280, while Austin recorded a 74% drop to 1,400 from 5,470. Meanwhile, Dallas-Fort Worth's numbers slid down 67% to 3,240 from 9,890."It's perhaps surprising to see that level of deceleration in the Texas markets, as the Lone StarState's key metros are still leaders for job production and apartment demand," the report said. The decrease in construction, though, likely means the three cities are poised for a surge in rent-price growth. In Dallas-Fort Worth and Houston, new apartment supply is also spread out across a wider swath, rather than concentrated in a few communities as it had been in the past.  Recent research from CoreLogic found the rate of rent-price increases nationwide had fallen back close to pre-pandemic levels earlier this summer after surging in 2022.Other markets where building starts dropped off at a greater pace than the national average during the second quarter were Philadelphia, Denver and Washington, at 66%, 62% and 57%, respectively.Among the 15 metropolitan areas covered by the report, the Raleigh-Durham market in North Carolina reported the only growth in the number of apartment dwellings breaking new ground, with volume rising almost 5% to 3,490 from an average of 3,330 during the previous nine quarters.

Freddie Mac CEO Michael DeVito will be retiring during the first quarter of 2024, after a nearly three-year tenure during which the government-sponsored enterprise built up capital but failed to get much closer to an end to conservatorship.The enterprise will conduct a search for a successor, but its statement had no further details about that quest or why DeVito decided to exit at this time."We are very saddened to hear of Michael's departure, and the board expresses its profound appreciation for his strong leadership and his many other contributions to Freddie Mac," said Sara Mathew, chairperson, in the statement. "Above all, Michael demonstrated a true passion for the company's mission and drove meaningful progress in making home possible for homebuyers and renters in communities across the nation." The Community Home Lenders of America found DeVito to be receptive to the needs of its constituency, the small and mid-sized independent mortgage banker, said Scott Olson, executive director in an interview."He and his team were responsive in listening to concerns and took them seriously," including recent issues with agency repurchases by sellers, Olson continued.In his successor, CHLA is looking for a continuation of that willingness to engage with the small and mid-sized community, said Olson.Sandra Thompson, the director of the Federal Housing Finance Agency, indicated the regulator will be a part of the process, an indication of the politicized role the job has as the 15th anniversary of Freddie Mac and Fannie Mae being placed into conservatorship was on Sept. 7.​"I will work closely with the board in identifying a successor and ensuring a smooth transition to the new leadership," a statement attributed to Thompson declared. ​​​"Michael DeVito has brought more than 30 years of experience and leadership in mortgage finance to Freddie Mac. I am grateful for his commitment and dedication which has put the company in a stronger financial position while still providing broad access to credit for all creditworthy borrowers," Thompson said.If anything, a turnover in key leadership positions has been underway both at Freddie Mac and Fannie Mae and that could be in part because of the duration of the conservatorship.Olson noted that CHLA, as well as its two predecessor organizations, have held the position that the conservatorships can be resolved through actions of the FHFA director, creating a utility model for the GSEs "that to a certain degree continues the policies and perspective that we have, but that we have some clear guidance about how they'll be operated going forward." The model needs to balance safety and soundness with meeting credit needs.Another reason for a speedy resolution is that the FHFA director's job is now filled at the will of the president following a June 2021 U.S. Supreme Court ruling. If the White House changes hands, it is likely a new FHFA head with different priorities and policies will be appointed, said Olson."It is an ongoing concern about the ability to have a long-term commitment from executives at both Fannie and Freddie in light of the fact that there doesn't seem to be any light at the end of the tunnel" for the end of the conservatorship, said Olson.DeVito's tenure started in June 2021, shortly after changes to the Preferred Stock Purchase Agreements with the U.S. Treasury ended the net worth sweep. Investors in both companies recently won a lawsuit that challenged the sweep.His success can be measured in terms of how much net worth grew from retained earnings during that time frame. At the end of the second quarter of 2021, Freddie Mac had $22.4 billion of capital that could be counted towards ending the conservatorship. As of June 30, that grew to $42 billion.Total capital requirements, as established by the Federal Housing Finance Agency and can change quarterly, were $125 billion according to a calculation from Keefe, Bruyette & Woods.As the rules are currently structured, it would take nearly 10 years for Freddie Mac (as well as Fannie Mae for that matter) to have enough capital to exit conservatorship, KBW said.Before joining Freddie Mac, DeVito was a long-time executive at Wells Fargo, who rose to interim head of the home lending business in November 2017 following Franklin Codel's firing for cause.In January 2018, DeVito was named to the position on a full-time basis. He retired from Wells Fargo in July 2020 after 23 years with the bank, and was replaced by Kristy Fercho.When DeVito took the Freddie Mac job, he replaced former Prudential Vice Chairman Mark Grier, the interim CEO since March 2021. Before DeVito, the last permanent CEO at Freddie Mac was David Brickman, who held the job for a little over two years until he resigned effective in January 2021.

It’s time to check in on the state of the housing market.At last glance, mortgage rates were still above 7%, though they did see a little bit of relief in the past week.Meanwhile, housing supply continues to be heavily constrained, keeping home prices near all-time highs in most of the country.This has proved to be a boon for home builders, as they have no competition from existing supply.But it seems the home builders, and perhaps those with 2-3% 30-year fixed mortgage rates, are the only real winners right now. Home Purchase Sentiment Has Been Flat with High Rates and High PricesFannie Mae’s latest monthly Home Purchase Sentiment Index (HPSI), which gauges the housing market’s temperature, was mostly unchanged from July.A total of six components make up the HPSI, including buying conditions, selling conditions, home price outlook, mortgage rate outlook, job loss concern, and change in household income.The percentage of respondents who said it is a good time to buy a home was unchanged at a very low 18%.Meanwhile, the percentage who said it is a bad time to buy stood at 82%. So nothing changed there.As a result, the net share of those who say it is a good time to buy remained unchanged month over month.When it came to selling a home, 66% of respondents (up from 64%) said it is a good time to unload a property. And just 34% said it’s a bad time to sell, down from 36%.As such, the net share of those who feel it’s a good time to sell increased five percentage points month-over-month from July.That all makes sense, given the fact that home prices are high so selling would be quite profitable for most.Speaking of, the average home seller sold for $200,000 more than they purchased for over the past three months.That brings us to home price expectations. Some 41% of respondents believe home prices will rise over the next 12 months, unchanged from July.Conversely, 26% say home prices will go down, up from 24% a month earlier.And 33% believe home prices will be flat, which decreased from 34% in July.Taken together, the share who said home prices will go up in the next 12 months fell two percentage points month-to-month.Again, makes sense as mortgage rates are steep at the moment and the economic outlook has gotten a bit cloudier.Just 18% Expect Mortgage Rates to Go Down Over the Next 12 MonthsSpeaking of mortgage rates, just 18% believe mortgage rates will go down in the next 12 months, up slightly from 16% in July.And 46% expect mortgage rates to go up, a sliver better than the 45% last month.The share who think mortgage rates will stay put fell from 38% to 34%.This meant the net share of those who think mortgage rates will go down over the next 12 months went up one percentage point month-to-month.That’s pretty interesting since Fannie themselves forecast a 30-year fixed at 6.2% by the third quarter of 2024.What about the state of the household finances? Well, 78% said they are not concerned about losing their job in the next 12 months, which was down from 80% a month prior.And 22% said they were concerned about a job loss, up from 20%. This aligns with recent employment reports that show fewer Americans are quitting and are instead staying put, likely due to fewer prospects.Finally, 22% said their household income is significantly higher than it was 12 months ago, up from 19%, and 12% said their household income is significantly lower, up from 10%.And 71% said their household income is roughly the same, up from 65%. This pushed the net share who said their household income is significantly higher by one percentage point.All in all, the HPSI was pretty flat month-to-month thanks to offsetting sentiment in the various categories.What Makes the Current Housing Market Unusual?In the words of Fannie Mae SVP and chief economist Doug Duncan, the housing market is “unusual.”He points to the low-level plateauing of the HPSI, which doesn’t appear likely to change anytime soon.Simply put, existing homeowners are basically stuck, whether it’s the mortgage rate lock-in effect or a lack of replacement homes.Meanwhile, many prospective buyers can’t even afford to buy a home, but prices aren’t falling because there’s limited supply.“The overall HPSI is maintaining the low-level plateau set a few months back, and we don’t see much upside to the index in the near future, barring significant improvements to home affordability, which we also don’t expect,” he said.Duncan notes that it’s “a tale of two markets,” with existing homeowners sitting pretty on their 2-3% 30-year fixed mortgages and relatively low purchase prices.And prospective home buyers stifled by high asking prices, a lack of supply, and more than a doubling in mortgage rates in about a year and a half.In short, the Fed created a group of haves and have nots, thanks to their accommodative rate policy and mortgage-backed securities (MBS) buying spree known as Quantitative Easing (QE).This has made it difficult for existing owners to buy move-up homes and free up starter home inventory for first-time home buyers.But it has benefited home builders, who are now the only game in town. Typically, existing home sales account for about 85-90% of total home sales.So it’s clear the builders won’t be able to make up for the massive shortfall, thereby keeping housing affordability low.At this point, it appears the only way we’d see a meaningful increase in housing supply would be via widespread distress, such as if there was a bad recession with lots of unemployment. It’s possible.

An $18.4 million mortgage-subsidy fund resulting from the 2022 Trident Mortgage redlining settlement is now open to eligible borrowers in three Eastern states.After a combined state and federal investigation last year found Trident — one of the largest mortgage lenders in the Philadelphia area before it ceased originations in 2020 — had regularly engaged in practices to discourage minority borrowing, the now-defunct company agreed to establish the fund under conditions of the settlement. The fund will support Black borrowers and majority-minority neighborhoods in a region that includes parts of Pennsylvania, New Jersey and Delaware. "This subsidy program will make a difference to many hundreds, possibly thousands, of families impacted by historic redlining practices in Philadelphia," said Pennsylvania Attorney General Michelle Henry in a press release. The fund, called Pathway to Prosperity, includes two different programs — HomeAssist and HomeAccess — which will provide as much as $10,000 in financial assistance per qualifying mortgage. The rollout comes after Trident conducted a study to determine the needs of majority-minority communities in the Philadelphia area. Trident is contracting with nonbank lender Prosperity Home Mortgage to administer the fund. HomeAssist will provide funding for the purchase or refinance of a primary residence located in a qualifying census tract. HomeAccess, meanwhile, is aimed at assisting current residents living in eligible neighborhoods to purchase a primary residence located in any state Prosperity is licensed. "For too long, companies have avoided offering mortgages in neighborhoods that are home to predominantly people of color, denying them equal access to mortgage credit. This is one small step toward correcting that injustice," Henry said.Per the settlement, Trident will also provide consumer financial education and engage in community development partnerships within affected communities. Prosperity will open offices in some minority neighborhoods as well. Although no longer conducting business as a home lender, Trident had agreed to continue operations to implement terms of the settlement. Both Trident and Prosperity are mortgage subsidiaries of Berkshire Hathaway-owned HomeServices of America, a consortium of companies serving real estate interests. Following a four-year investigation, Trident was fined a total of $24.4 million, which included a penalty of $4 million owed to the Consumer Financial Protection Bureau for various violations. Among the investigation's findings were derogatory language, including racial slurs, used in emails between Trident staff, and marketing campaigns that excluded minority consumers. More than half the population of Philadelphia is Black or Hispanic.Attorneys general of the three affected states participated in the investigation, along with the CFPB and the U.S. Justice Department. All voiced approval of Trident's program."The launch of this important loan subsidy fund marks a critical step in our efforts to redress Trident Mortgage Co.'s mortgage redlining practices, and to begin the process of making whole the communities that have been harmed by generations of systemic housing discrimination," said New Jersey Attorney General Matthew J. Platkin."It will take generations to truly repair that harm — but this subsidy program will make a real, tangible difference for hundreds of redlining's victims," added Delaware Attorney General Kathy Jennings. Redlining, defined as a systematic practice of underserving or discriminating against predominantly Black, Hispanic or other ethnic neighborhoods, has been prohibited since the 1960s with the enactment of the Fair Housing Act. But violations continue decades later, with multiple financial institutions this year involved in redlining lawsuits. This past spring, Pennsylvania-based Essa Bank and Trust was also fined $3 million for purported infractions in the Philadelphia area. And in January, City National Bank of Los Angeles resolved allegations against it by agreeing to pay more than $31 million, the largest redlining settlement in history. Allegations have similarly hit the likes of KeyBank and HSBC in 2023.  

FundingShield's wire fraud prevention solutions will now be available to Tata Consultancy Services' clients, thanks to a partnership announced Tuesday. The collaboration between the fintech and TCS, a global company that provides IT and consulting services to over 80 companies in the financial services sector, came to fruition because of ongoing fraud and cybersecurity concerns, said Ike Suri, CEO of FundingShield.TCS' clients will have direct access to FundingShield's risk-mitigating ecosystem, allowing them to keep their data, bank account verifications and transactions safe, a press release stated. The fintech company offers coverage against wire and title fraud, settlement risk, closing agent compliance and cyber threats. This partnership will by proxy also benefit borrowers by helping to keep their down payment  and data protected, added Suri. "If homebuyers show up to the altar robbed then they are out of money and lenders are out of money and so borrowers are forced to sue in hopes that they get their money back," he said.The prevalence of fraud in a mortgage transaction obligates companies to implement such technology to protect their clients, said Santosh Ananthakrishnan, global head of mortgage strategic initiatives at TCS, in a press release."Wire fraud prevention has become a mandatory capability as part of any mortgage solution, protecting lending institutions from multi-million dollar risks to the third-party closing, title, and settlement entities," Ananthakrishnan said.Fraud attempts grew in 2022 and are expected to continue their upward trajectory, according to a NexisLexis report published in May. Factors contributing to that forecast include economic uncertainties and the perception that small and midsize businesses are an easier target than consumers and online or mobile channel transactions.Market strains can push lenders to cut costs, which may include shrinking the workforce that combats fraud or investing less in anti-fraud technology, the report said.A separate report published by the Federal Bureau of Investigation found that business email compromise scams related to real estate set a record for dollar losses in 2022.The 2,284 complaints received last year amounted to losses totaling $446.1 million, compared with $430.5 million in 2021.

A significant portion of the millennial generation now believes they will not have the opportunity to be a homeowner, indicating that mortgage originators may need to provide more education as part of their marketing.Affordability remains the big hang-up, a Redfin survey found. But it's not just millennials that are being impacted; besides the 18% of this cohort no longer thinks they will buy a house, 12% of the up-and-coming Gen Z, one already described as the largest and most diverse to enter the housing market, believe similarly.First-time buyers already have a significant share of purchases this year, Zillow previously reported.Breaking the list of affordability-related responses down further, high home prices, which have endured even as the U.S. economy has slowed, was the most cited reason why both groups felt this way.A separate Redfin report issued on Thursday found that home prices gained 4.5% year-over-year for the four-week period ended Sept. 3.As a result, the typical monthly mortgage payment of $2,612 is $18 below the all-time high set in May."If folks can figure out a way to buy instead of rent, they will," Redfin agent Niko Voutsinas said in the home price release. "Some buyers are cutting back on other expenses to up their housing budgets because they believe home prices are only going to increase."Negative perceptions about their ability to save enough to make a down payment was cited by 46% of millennials and 33% of Gen Z. More than a third of both groups said mortgage rates are currently too high.Meanwhile paying off student loan debt will take precedence for 21% of Gen Z and 16% of millennials over the purchase of a home, the survey found.Of those survey participants that are planning to buy in the next 12 months, 36% of millennials and 41% of Gen Z members are working a second job in order to fund the down payment.A cash gift from a family member is expected to help contribute to the down payment from 23% of millennials and 28% of Gen Zers.Over 20% of both groups said they will tap into their investment portfolios by selling stock, while 15% will divest cryptocurrency."Many young people don't have a choice between renting and buying," said Daryl Fairweather, Redfin chief economist, in a press release. "They're renting their home because even though rent payments have increased, too, it's still more affordable than buying in much of the country–and renters don't need a down payment."In turn, with private mortgage insurance, consumers can get a conforming loan with only 3% down. For first-time and other buyers, various forms of down payment assistance programs are available. Yet awareness of these alternatives has been lacking among the target audience."We're very proud of the fact that we can enable people to buy a home with less than 20% down, we've been doing that for a long time," Radian Group CEO Rick Thornberry said in an interview. "But it's also something that we feel a strong corporate purpose to do, not just for the sake of volume, but to do it responsibly and sustainably from a borrower perspective."The Redfin survey was conducted in May and June; this portion of the study just concentrates on responses from 1,340 Gen Z and 1,973 millennial participants.As of the end of the second quarter, it was cheaper for households to rent versus owning both on a nationwide basis and in 27 of the top 50 U.S. markets, a First American Financial analysis found.But there's no blanket answer to this challenge."Given current dynamics, more young households may choose to rent in the near term as the cost to own, excluding house price appreciation, has unequivocally increased," a posting from First American Economist Ksenia Potapov said. "Yet, once you factor in house price appreciation, or depreciation in some markets, to the cost of homeownership, the decision to rent or buy will depend on local real estate market dynamics, which will determine if a home is likely to cost more or less in the near future."The conundrum about the housing market in general is recorded in Fannie Mae's Home Purchase Sentiment Index for August, which at 66.9 is 0.1 higher than it was in July. Compared with August 2022, the HPSI was up 4.9 points."The overall HPSI is maintaining the low-level plateau set a few months back, and we don't see much upside to the index in the near future, barring significant improvements to home affordability, which we also don't expect," Fannie Mae Chief Economist Doug Duncan said in a press release. "While renters are slightly more pessimistic than homeowners, for two years now a large majority of both groups have told us that it's a bad time to buy a home, and they've continuously cited affordability concerns as the primary reason."Only 18% of those surveyed said August was a good month to buy a home, unchanged from July. But those that called it a good time to sell increased by two percentage points to 66%.Ironically, the shares of respondents that believe rates will go up in the next year increased by 1 percentage point to 46%, while those that think they will move lower gained two percentage points to 18%.That is because fewer respondents, 34% versus 38% in July, now think rates will remain unchanged.

The Federal Deposit Insurance Corporation is suing over a dozen mortgage firms in federal courts to recoup funds over loans they brokered over 14 years ago for Washington Mutual. The agency in its complaints points to a combined 373 home loans it claims were defective for a variety of reasons, according to a National Mortgage News review of federal court records. While dollar amounts sought aren't disclosed, some alleged bad underwriting for the loans in question includes five-figure kickbacks and six-figure borrower debts.The FDIC's pursuit stems from the fallout of its takeover of WaMu in 2008 during the Great Financial Crisis. Deutsche Bank, a trustee for mortgage-backed securities including the defective WaMu loans, sued the agency in 2009 for indemnification for its securities. The sides reached a $3 billion settlement agreement in 2017, in which the FDIC issued a receivership certificate, which grants payments to Deutsche Bank as the FDIC recoups WaMu funds. The federal agency began requesting indemnification from mortgage companies in 2021 and none, according to court records, have acquiesced. "I'm really quite concerned about them taking this stance when they stand in the shoes of those banks who were really at fault, lenders at fault, not the brokers who are just giving them information they asked for," said Mukesh Advani, a Bay Area attorney representing defendant Cal Coast Financial.The FDIC sued East Bay-based Cal Coast in August over 21 mortgages the company brokered for WaMu and its subsidiary, Long Beach Mortgage Co. The FDIC declined to comment last week, while its counsel and other companies either declined to comment or didn't respond to questions. Two lenders facing such lawsuits, Guild Mortgage and Supreme Lending, have responded to the FDIC's complaints in brewing court battles. The 14 firms named in lawsuits in the past 12 months range from small operations to major players, such as Freedom Mortgage. Mortgage companies are being sued for indemnification for as few as 14 loans, in Guild's case, to as many as 72 loans from Benchmark Mortgage. The Plano, Texas-based Benchmark is scheduled to take the FDIC to trial next June, court records show.Other businesses the FDIC is suing include American Nationwide Mortgage Co.; Lennar Mortgage; The Mortgage Link; Mortgage Management Consultants; New Jersey Lenders; PNC Bank as successor to smaller firms; Primary Residential Mortgage Inc.; Pulte Mortgage and RealFi Home Funding Corp. The lawsuits are nearly uniform in length and language, describing the FDIC-WaMu receivership's losses as arising from inaccurate and/or incomplete loan applications and documentation produced by the brokers. Each company signed broker agreements with WaMu and its subsidiaries, such as Long Beach Mortgage, in 2004 and 2005, according to exhibits attached to each claim. The FDIC in each case includes an exhibit describing in brief the defects of each loan, the majority appearing to be misrepresented credit or income and debt. In the FDIC's lawsuit against Lennar, it alleges one borrower suggested a $60,000 monthly income, six times their actual earnings, while another homebuyer failed to disclose over $660,000 in mortgage debt from a previous property. Lennar last week declined to comment on pending litigation. Each lawsuit also cites a six-year limitation to file claims following the 2017 Deutsche Bank agreement, and attorneys for lenders said they anticipate more FDIC complaints against lenders. James Brody, an attorney with Irvine-based Garris Horn LLP, represents Guild and was recently retained by The Mortgage Link in its own FDIC litigation. In regards to the Guild lawsuit, Brody shared a statement this week calling the FDIC's case "extremely weak" and noted the complaint's lack of specifics around losses attributable to Guild's brokered loans. "We certainly anticipate that there will be a number of motions for summary judgment that will be filed with the Court by most if not all parties that don't decide to settle out because of their own cost/benefit considerations," he wrote. Guild anticipates filing a motion for summary judgment to dismiss the lawsuit, Brody said.

A Moody's survey of 55 banks pointed to office loans as one the riskiest property types. Office loans have been hit by the shift toward remote work at some companies.Jeenah Moon/Bloomberg Banks are facing substantial risk of losses from commercial real estate loans, according to a new Moody's survey of lenders, which found that some borrowers are already struggling and others may hit trouble when more of their loans mature.The survey's findings also suggest that some banks may not be tracking CRE borrowers' health as closely as others — since they weren't able to provide fully up-to-date metrics when asked.The lack of timeliness in some banks' disclosures was "eye-opening," said Stephen Lynch, senior credit officer at Moody's Investors Service. Up-to-date data about commercial property values and borrowers' ability to cover their interest payments is critical for spotting potential problems, Lynch said."Good underwriting can maybe compensate for subpar portfolio analytics," Lynch said, but strong analytics give banks the ability to mitigate problems early, rather than the often-costlier option of letting them bubble up.The survey drew responses from 55 banks — including large, regional and community banks — in June and July. Since banks' public disclosures are somewhat limited, Moody's asked the respondents to provide more detail about certain key metrics.Those measures include the percentage of CRE loans maturing soon; debt service coverage ratios, which show borrowers' debt obligations relative to their cash flow; and loan-to-value ratios, which quantify the amount of debt outstanding as a percentage of the property's value.Some banks provided up-to-date data, while others submitted information from the end of 2022.The Moody's survey found that U.S. banks have significant amounts of CRE loans that will mature in the next 18 months. For the median bank that responded, those loans amounted to 46% of their tangible common equity — a percentage that Moody's said was material. Some banks were substantially above that figure.Upcoming maturities may pose problems for borrowers because they'll need to refinance those loans, and they'll need to do so at much higher interest rates and with banks being more demanding in their underwriting criteria.Properties whose values have fallen sharply may get some help from providers of private capital, which can kick in additional equity to help property owners meet banks' more stringent criteria. But the amount of money available likely isn't going to "move the needle," given the large amount of loans outstanding, Moody's Lynch said.While private equity firms, hedge funds and other sources of private capital may see opportunities to jump in, they are "not going to solve every problem," said Brendan Browne, an analyst at the ratings firm S&P Global. Private money will help where companies see a chance to make significant returns, but there will also be cases "where the economics probably just don't work well enough," Browne said.Overall, banks will feel "some pain" on CRE loans — particularly banks with larger exposures to the sector, Browne said. Most of the banks that S&P rates don't have such outsized exposures, he added.The Moody's survey pointed to office and construction loans as the riskiest property types, given the shift at some companies toward remote work and the fact that properties that serve as collateral for construction loans don't earn income while those loans are outstanding.A loan may be at greater risk now if the borrower is having a tougher time paying its obligations. So Moody's asked banks about how many of their loans have debt service coverage ratios below 1, an indication that the borrower does not have adequate cash flow.The median respondent has 13.5% of its tangible common equity in CRE loans where the debt service coverage ratios are below 1, Moody's survey found.That figure was higher than Moody's expected, Lynch said.

While the number of investors selling houses at a loss has been on the rise as rates have gone up, the share has remained relatively low for the typical homeowner outside of a market like San Francisco because of the supply-driven resilience in prices.The percentage of all Golden Gate City sellers in this category, based on the difference between the purchase and sales price of the home, was 12.5%, but that's over four times the U.S. average, according to a report Wednesday from online real estate brokerage Redfin.And San Francisco, while the only market in Redfin's report generating overall seller-loss percentages in the double digits, isn't the only one experiencing relatively higher numbers in that category due to local factors like a previous runup in prices that proved to be excessive."There are markets where prices accelerated more rapidly than in other markets, so the correction has been a little more severe," said Rick Sharga, founder and CEO of consultancy CJ Patrick, noting that Boise, Idaho serves as another example of this.Redfin's study anecdotally notes at least one instance in which a local agent reported that a seller had to take a $100,000 loss because remote work at an employer in Seattle ended.On the other hand, there are some markets where virtually no sellers take a loss, like San Diego and Boston. In markets like those two, Providence, Rhode Island; Kansas City, Missouri and Fort Lauderdale, Florida, the share is around just 1%.Interestingly, while this shows there's a range of seller outcomes in the market, mortgage companies don't necessarily need to worry that a relatively higher incidence of seller loss is necessarily a sign of negative equity, even in an overheated market like Northern California."I would bet that the people who are losing money are people who are either moving somewhere more affordable, so they don't really need that equity for the next time, or it's investors,"  said Darryl Fairweather, Redfin's chief economist, when asked about this.In line with that thinking, other studies have found that even in San Francisco, the share of homeowners with mortgage balances exceeding their property values is low. That generally alleviates concerns that borrowers there could have diminished incentive to repay."Negative equity share is much lower in SF (at 0.8%) compared to national levels (at 2%)," said Selma Hepp, chief economist at CoreLogic, in an email response to an inquiry from this publication.Sizable average down payments of 20% or more drive the trend, she said."Home prices in SF were down about 10% peak-to-bottom, which leaves all of the borrowers with a 20% downpayment still above water," said Hepp.Lower loan-to-values are tough to maintain given affordability pressures on the market equity levels so lenders might have to think hard about how to balance that against what's likely to be a continued but slow decline in San Francisco home values.The latter is a concern, but not an immediately dire one as evidenced by the low level of negative equity in the market."The equity was so high to begin with it's not like there's a danger of a housing meltdown. The numbers are coming down from extremely high levels," Sharga said.To put it in perspective, consider that in the wake of a worst-case scenario like the Great Recession, the share of sellers taking losses in San Francisco peaked at around 50% and slowly fell thereafter as the market recovered, according to Fairweather.The recent increase is still notable as prior to the recent uptick the percentage hadn't been above 10% since around 2014.It'll likely remain relatively high even though the share of homes sold at a loss saw a slight decline from a level closer to 14% earlier this year. Short-term improvement in the broader housing market likely drove this, but higher rates could reverse that.And San Francisco in particular still appears to be a market that's losing residents."People want to buy in San Francisco, but the people who buy are generally going to do it for the lifestyle, not for an investment at this point," said Fairweather. "San Francisco is a place that people are leaving. It's one of our top outmigration centers."Other markets where the share of sellers is higher than a national average, which is around 3% according to Fairweather, include Detroit, (6.9%), Chicago (6.5%), New York (5.9%) and Cleveland (5.8%)."These are all places that people have been leaving even before the pandemic, but the trend really turned on during the pandemic," said Fairweather. While returns to the office might reverse some pandemic migration trends in overheated markets, areas with long-term outmigration aren't likely to turn around while rates are high, particularly if taxes are too."Detroit and Chicago also have high property taxes, and when you have high property taxes, that tends to cut into equity gains," Fairweather said.

Fans of Jordan Peele, part of the duo behind Comedy Central's popular "Key and Peele" series, are likely familiar with his impersonations of former President Barack Obama, including a video Peele made with BuzzFeed in 2018 — the one where Obama appears to use an expletive to describe then-President Donald Trump.The video employs a technology known as a deepfake — doctored media employing artificial intelligence to achieve realism. The technology has gained traction across the internet as a comedic gag. In the world of fraud, it is increasingly helping criminals trick companies into parting with their money.As the development of AI tools advances, the threat is being extended to banks. One company, Pindrop, has reviewed more than 5 billion calls to financial firms' call centers and says that it has started detecting AI-generated voices in the last year.Pindrop CEO Vijay Balasubramaniyan said that while the threat to call centers of fraudsters' using deepfakes is real, it has not been very severe so far; scammers by and large prefer to use their own voices rather than that of a computer to try to steal money from companies, according to Balasubramaniyan.But that could change as AI tools become more sophisticated and accessible. Machine-learning techniques such as generative adversarial networks have yielded faster and more accurate voice simulations, making it easier to, for example, generate convincing fakes in real time while on the phone with a call center."We anticipate that deepfake attacks will become more sophisticated and abundant in the near future because of the recent increase in good-quality commercial TTS (text to speech) tools," Balasubramaniyan said.These tools work by taking samples of people talking to create a model of their voice that captures the various characteristics that make them sound how they do. The user can then provide the software with text that gets turned into an audio file of the voice saying whatever the user wants.Fraudsters deploy voice deepfakes alongside many of the same methods used in other fraud schemes, according to Baptiste Collot, co-founder and CEO of the payment-fraud-prevention platform Trustpair. He described the calls fraudsters make to banks' call centers."The scam hinges on putting pressure on the target with time-sensitive language to create urgency and offering specific, legitimate company or employee information to gain trust," Collot said. "Often, the fraudster will impersonate a bank representative — someone with authority over the target or someone a bank regularly works with. By appearing as a reputable banking representative, the fraudsters pressure to initiate seemingly real payments."Pindrop and companies that offer related services, including Nuance, IngenID, and Veridas have methods of detecting when a voice is fake or real, even in cases where they are hearing a voice for the first time. This is because text-to-speech software often leaves artifacts in the audio — traces of data that clue in the astute observer to that the voice is computer-generated.In a video earlier this year, Pindrop demonstrated this capability using remarks that Sen. Richard Blumenthal, a Democrat representing Connecticut, made and synthesized during a hearing on regulating artificial intelligence. The senator used text-to-speech software to replicate his own voice making a statement about the risks of AI. Pindrop's video shows its software ranking Blumenthal's real voice as real and the computer-generated voice as fake.A potent tool that companies can use to fight back against voice deepfakes is the voiceprint — a fingerprint for the voice. Like deepfake technology itself, voiceprints quantify characteristics of voices that can be hard for the human ear to discriminate. Artificial intelligence models that are trained on human speech can compare a sample of speech to a voiceprint to give a score of how similar the two are — in other words, how authentic the voice sounds.Voiceprints are the same technology that allows Apple, Amazon, Google and other devices to differentiate who is speaking. On newer iPhones, the only voice that can activate Siri is the owner's, and certain Alexa devices can differentiate the voices of household members to enable personalized commands (such as "Call mom" or "Play my favorite music").These voiceprints are also a tool for fraudsters, though, who can take clips of audio from videos of a potential victim, turn that audio into a voiceprint, then train voice generation AI to mimic that voiceprint, mixing in unique cadences and intonations to give a sense of life or reality to the voice.Despite the eroding trust that companies may have in voice authentication with the advent of deepfakes, biometrics still offer a layer of security from which many banks can benefit, according to Eduardo Azanza, CEO at the identity-verification company Veridas."The convenience of biometrics outweighs the risk — customers no longer want to remember and manage dozens of passwords," Azanza said. "Because biometrics are so unique to an individual, they are less likely to be forgotten, stolen or replicated, ultimately making them the more secure option."When a bank takes a call in its call center, it is well advised to rely on multiple layers of authentication, Azanza said. Fraudsters can spoof voices, steal passwords and answer security questions, but it's harder to do all of these at once than to do just one.

Even with a 6-basis-point drop in the average for the 30-year fixed mortgage, new borrowers are still dealing with rates well above 7%, Freddie Mac said.The Freddie Mac Primary Mortgage Market Survey reported the 30-year FRM at 7.12% as of Sept. 7, versus 7.18% one week ago and 5.89% for the same period in 2022.Recent rate movements in reaction to the U.S. economy is a good news-bad news situation."The economy remains buoyant, which is encouraging for consumers," Freddie Mac Chief Economist Sam Khater said in a press release. "Though while inflation has decelerated, firmer economic data have put upward pressure on mortgage rates which, in the face of affordability challenges, are straining potential homebuyers."The 15-year FRM also declined versus the prior week, but by only 3 basis points, to 6.52. For the same week last year, the 15-year FRM was at 5.16%.Rates declined even though in the past week, the benchmark 10-year Treasury shot up from a high of 4.08% on Aug. 31 to 4.28% mid-morning on Sept. 7. A simple explanation for the divergence in movements is that it is being taken account of by the abnormally high spreads between mortgages and Treasurys.Using the Freddie Mac data, the current 284 basis point spread still has plenty of room to run before retreating to a more upper end range of 200 basis points.Meanwhile, the 30-year FRM rates as reported through Zillow's rate tracker do reflect the week-to-week gain in the 10-year Treasury. It rose 19 basis points as of Thursday morning to 7.11% from last week's average of 6.92%.Strong growth in the services sector as well as last week's inflation news caused this rise in rates."Prices and economic activity in the service sector — which comprises about three-quarters of overall GDP — increased by more than expected in August, helping to push bond yields and mortgage rates higher," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans in a Wednesday evening statement.Meanwhile, the Personal Consumption Expenditures Index, while meeting expectations, still indicated that the move into disinflation was stalling."Given constraints on labor supply, rising demand for services has been a concern for the Federal Reserve, and this week's reports will likely renew concerns that the battle to bring down inflation may not be over," Divounguy said. "As a result, traders are adjusting to the fact that monetary policy could remain in restrictive territory for much longer."While many are expecting the Federal Open Market Committee not to raise short-term rates at its next meeting, sentiment exists supporting future increases.

Boaz WeinsteinJason Alden/Photographer: Jason Alden/Bloomb Boaz Weinstein and his group of bidders revised their offer to buy Sculptor Capital Management Inc., seeking to address some of the concerns the board's special committee outlined in a proxy filing last week, according to people familiar with the matter.  While Weinstein's bid remains at $12.76 a share, it has beefed up its equity commitments, eliminated risks associated with debt financing and increased the damages it would pay if it fails to consummate the transaction, the people said. Sculptor accepted Rithm Capital Corp.'s lower bid of $11.15 a share, or about $639 million, in July. It still preferred that offer as of a filing on Aug. 30, citing a variety of concerns about the higher bid from the other group.It's unclear whether Sculptor will be swayed by the amended proposal. A spokesperson for the New York-based hedge fund firm had no immediate comment.The stock rose 1.3% to $12 in extended trading at 7:01 p.m. in New York, continuing to climb above Rithm's bid toward the rival offer from the Weinstein-led group, which Sculptor filings call Bidder J.The group, which also includes billionaires Bill Ackman, Marc Lasry and Jeff Yass, increased its offer last week by 51 cents a share. Former Sculptor Chief Executive Officer Rob Shafir, who owns 6.2% of the firm's Class A common stock, later issued a statement calling it "clearly superior" to the Rithm deal. The higher offer is also favored by Dan Och, who founded the firm previously known as Och-Ziff, and four other former executives. Sculptor, led by Chief Executive Officer Jimmy Levin, has said Bidder J's proposal is less attractive in part because of the risk that clients won't accept that buyer's choice to replace him. While Rithm plans to retain Levin, Weinstein's group has said it would oust him as chief investment officer, according to a proxy filing.Och had positioned Levin to take over the firm, and paid him handsomely, but the two later fought over compensation and control. Och, who left in 2019 and remains one of Sculptor's biggest shareholders, has been a critic of Levin's pay ever since.

Anywhere Real Estate's decision to settle two cases challenging the sales commission structure for residential agents could disrupt how home transactions are currently managed.However, while this settlement is unilateral, it does not cover any of the other defendants in the two cases involved (Moehrl and Sitzer/Burnett), particularly the National Association of Realtors.That could make it difficult to determine broader impacts, including on mortgage qualification and underwriting, of a potential shift in compensation source and amount regarding buyer real estate brokers.Under current multiple listing service rules, the listing broker must offer compensation to the buyer's representative as part of getting the property onto the system. Some have argued that making the buyer responsible for the fee would negatively affect what they are able to purchase. Published reports give Anywhere's settlement an $83.5 million value, but specifics are not yet available."The path to obtain final approval and implement the settlement is a long one, and Anywhere has taken the first important step toward a resolution that not only releases the company but also our affiliated agents and franchisees," a company spokesperson said in a statement. "We believe the settlement will remove future uncertainty with respect to the upcoming trial, potential additional claims, and legal expense, enabling Anywhere to focus on and continue delivering what's next for agents and franchisees."It could not comment any further given the ongoing legal matter and confidentiality agreements, the spokesperson said.Indications are that Anywhere would make significant changes to how it handles compensation in transactions, but the lack of details makes it difficult for an assessment of the effects of those changes, a report from Thomas McJoynt-Griffith, Ryan Tomasello and Bose George of Keefe, Bruyette & Woods stated."We believe a shift toward optional cooperative compensation is a likely consideration as part of the settlement, at a minimum," the KBW analysts said. "We note that this would technically put Anywhere's practices at odds with NAR rules, but it is also unclear whether making cooperative compensation optional will actually change industry commissions in practice."During the Trump Administration, a settlement with NAR was reached but the U.S. Justice Department reneged on the deal following the election of Pres. Biden.While settlement is always an option in cases like this, NAR's commitment to defend itself remains unchanged and its compensation rule will survive the legal challenge, a statement from Mantill Williams, its vice president of communications said."The practice of the listing broker paying the buyer broker's compensation saves sellers time and money by having so many buyer brokers participating in that local marketplace and thus creates a larger pool of buyers for sellers," Williams said. "For buyers, these marketplaces save them the burden of extra costs at closing, enable them to receive professional representation and make homeownership possible for more people."In fact, Anywhere has argued that mandatory participation in the compensation scheme by seller brokers is not required to have "a well-functioning" home sales market, added BTIG analyst Soham Bhonsie.Some MLS systems already allow for the selling broker to offer as little as $0 in commission to the buyer counterpart."Over time, sellers could decide to pay less to a buy-side agent which could lead to some comp compression (and potentially fewer showings), but the pace at which that could occur will be dictated by what brokers will allow to be charged at a local level as well," Bhonsie said. "We think most brokers will continue to mandate a minimum compensation level for their agents to do business, which could in turn delay the impact to the buy-side agent."Taken to the next logical step, fewer showings are likely to translate into a lower number of sales, which in turn could potentially drive down mortgage origination volume.The settlement of a third case was also unilateral, although it involved an MLS. At the time of the agreement in Nosalek v. MLS Property Information Network, one broker questioned whether NAR could survive the changes because of the amount of money at stake.

Both salesperson-driven referral marketing and company-provided lead generation can and do work together to successfully create business for loan officers. But which of the two is more important, especially as consumer self-service tools become common, is a matter of opinion.While both are important, referral-driven business is slightly higher on the ladder, said Jessica Peterson, a former mortgage loan officer who is now on the real estate sales side of the transaction.Even younger consumers, like Gen Zers, prefer doing online research about the people they are doing business with, she said."They want to get to know you," Peterson said. "For example, today, I have someone to meet with and she's like, 'Oh my god. I'm so excited. I did research on you and I found all this stuff...The future is more of the younger generation looking online."Will LOs or Marketing Spend Deliver More Customers In 2024? LEARN MORE AT DIGMOOn the other side of the argument, there's Gregg Harris, a mortgage broker who has created a consumer-facing product and pricing marketplace under the LenderCity brand. It has partnerships for its services with Mortech (owned by Zillow); Loansifter, itself a part of Optimal Blue, which is being sold to Constellation Software; and Lender Price."This is an idea I've had for a long time," Harris said. "So coming from a broker background, 27 years as a broker, it's very cost-prohibitive to be and there's a lot more hurdles than that to be on like NerdWallet, to be on LendingTree, on Bankrate."It is a lower-cost way for small companies to generate leads from consumer self-service activities."I feel like I am the first lead aggregator to really make this a level playing field for the brokers," said Harris, although lenders can participate on the site. It is also offering geo specific targeting, because even though technology allows originators to operate anywhere they are licensed, most consumers are more comfortable working with someone who is local to them, especially in a purchase market, he continued.It all starts with the borrower, but these tools can help drive business for all participants in the real estate food chain, not just the originator. Harris said.However, relying on referral business might be difficult in a shrinking market."One of the things I've been reading on LinkedIn lately is if you're a broker, cast a wider net," Harris said. "Don't just sit around and wait for your referral sources in your business, you've got to be on some platforms where you're visible."In reality, this dynamic could go in a number of different directions, said Ruth Vogt, branch sales manager for Fairway Independent Mortgage in Colorado Springs, Colo."I think it's an age-old issue that many loan officers have struggled with, whether they're in the broker world, the banker world or independent, I think there's always been that question of what really does drive the business?" said Vogt. "In my thought process, I don't know that it's an either-or, it's got to be a good solid combination of both, the company support as well as the loan officer driving the referral sources in."But a loan officer that relies entirely on their company providing them leads are likely not to create that personal interaction with clients and sources.Vogt compared it with getting airline tickets from a website and the only contact for questions is a chatbot, which may or not provide a proper response."The consumer is going to want to go to the person that's going to give them the personal hand holding, because of the complexity, whether it's consumer tools or mortgage lending," Vogt said.The value proposition of the loan officer is the interactions she or he has with various referral sources."It's always got to be about the relationship," said Vogt. "Because without that relationship, then you've just reduced yourself down to nothing more than dollars of a transaction."LenderLogix is a technology company offering mortgage automation software and application programming interfaces.Items like a point of sale online loan application that many companies put on their websites are seen by those firms as being done for the loan officer's benefit, to make their life easier, said Patrick O'Brien, LenderLogix CEO.In turn, the loan officer can use these tools to enhance their referral partnerships."You can see loan officers out there talking about this type of technology as improving the experience for the Realtor," O'Brien said.Lenders are competing with the Rocket Mortgages of the world. "Rocket's really done a good job of using the technology as the selling point," O'Brien said. "In order for lenders to do that, those decisions really need to be made at the corporate level."In a business where not all that long ago, relationships were created and maintained by walking into real estate offices carrying a box of donuts and a pile of rate sheets, technology can make the difference.It allows originators to provide an Amazon-like experience so they can compete against large companies like Rocket, O'Brien said.Mortgage companies are now investing in technology, a change that is overdue, said Melissa Sike, vice president of enterprise sales at Mobility Market Intelligence.Maximizing the return on investment is the priority, she said. Companies must speak with their tech vendor in order to get the most out of the system. In turn, the tech vendor must articulate the ROI its product brings to the lender. "When companies invest in tools that LOs need to succeed, LOs want to work for them, so having a best-of-breed tech stack right now, supporting that and demonstrating that, can really work into a company's successful recruiting strategy," Sike said. "If companies aren't investing in their loan officers, and they're backing off right now, somebody else is going to do that, and the loan officers are going to go somewhere else."The right technology, with company-supplied tools, can bring the loan officer-referral partnership to the next level."LOs know the value of referral partners," Sike said. "But having the necessary insights to go back to those referral partners with all of the data, knowing who else they work with, knowing what kind of deals they're involved with, what areas they're doing business in and having all that information, I think helps loan officers have a much more productive conversation and in return a more productive relationship."The data lets the loan officer go out and target the top producing real estate brokers and offices. People in the industry are looking to have these conversations with companies like MMI right now."Our customers are turning more companies into partners than they were before," Sike said. "We're seeing more collaboration and more sharing," discussing where lenders might have fat in their tech stack and maybe where resources can be reallocated.Ultimately, it is the relationships with vendors, referral sources and with customers, that are key, Vogt stated.However, "what frightens me the most about where our industry is headed is that by taking shortcuts and getting lazy, we are jeopardizing our future livelihood," Vogt said.The mortgage industry can't opt to take the easy path out. "It still has to go back to getting out there and doing the work that's been proven decade after decade on what's important and that's relationship building," Vogt declared.A campfire song she learned in Girl Scouts was about making new friends while still keeping your old ones. The new friends are silver and the other is gold."Which one is your database? Is it the silver? Or is it the gold? But for goodness sake don't forget the gold because you're so focused on the sunny silver that you overlook your database," said Vogt.

Lately, there’s been a lot of talk about a lack of affordability, even a potential housing bubble.And it comes as no surprise, given the massive shock of a near-tripling of mortgage rates over just a year and a half.The 30-year fixed could be had in the low 3s, maybe even high 2s back in early 2022, and today is closer to 7%.At the same time, home prices haven’t come down, despite a slowing rate of appreciation.Together, this has brought the housing market to its knees and pushed many prospective buyers onto the sidelines. But those who sell are still reaping massive profits. Home Buying Is the Least Affordable Since 1984Remember those 1980s mortgage rates that were in the double-digits? Well, today’s mortgage rates are nowhere close.However, due to sky-high home prices and elevated interest rates, home buying is the least affordable it has been since 1984.That’s right, it hasn’t been this bad in about 40 years, which illustrates just how challenging this housing market has become.Per Black Knight, it now requires 38.3% of the median household income to make a monthly mortgage payment on an average-priced home.Using Freddie Mac’s 7.23% average for a conforming 30-year fixed mortgage as of August 24th, the monthly principal and interest payment climbed to $2,423.And this assumes the buyer comes in with a 20% down payment, when in reality many borrowers can only muster 3-5%.To the point of it being a bubble, it would take some heavy lifting to bring affordability back to its 25-year average.We’re talking some combination of a ~27% decline in home prices, a 4%+ reduction in 30-year mortgage rates, or a whopping 60% increase in median household.Which of those three do you think are likeliest to transpire? Probably none of them barring another massive housing crash.But a combination of the first two is reasonable, whether it’s a 10% drop in home prices and a 2% drop in mortgage rates. Or some other combination.It’s unclear if wages are going to see much improvement from here on out, certainly nowhere close to 60%.For perspective, the 30-year fixed averaged about 13.2% the last time housing affordability was this bad.This tells you home price growth has far outpaced wage growth, essentially demanding low interest rates bridge the gap.Despite this, home sellers are racking up massive gains, thanks to double-digit home price appreciation over the past several years.The Few Home Sellers Out There Are Raking in Big ProfitsRedfin reported today that 97% of home sellers sold for a profit during the three months ending July 31st.And the typical property that sold went for a whopping 78.4% more than the seller paid, or $203,232.While there is a severe lack of affordability in today’s housing market, there seems to be an even bigger shortage of homes to purchase.As such, home prices remain on the up and up, allowing the few sellers out there to take in a tidy profit.The majority of sellers purchased their homes well before property values skyrocketed, making it pretty easy to snag a six-figure gain.San Jose leads the nation in median capital gain at a staggering $755,000. It’s also 108.6% higher than what the seller paid.San Francisco isn’t far behind at $625,500 and 70.5%, respectively, followed by Anaheim at $470,000 and 88.7%.Even Detroit, which ranked last in terms of dollar gains of the 50 metros analyzed saw a median $80,500 capital gain.If we consider percentage gains, Fort Lauderdale topped the list with a 122.2% cap gain, followed by San Jose and Miami.Some Home Sellers Are Losing Money, Especially in San FranciscoWhile most sellers are making out like bandits, Redfin did note that some home sellers are parting with their properties at a loss.This is especially true in San Francisco, which has struggled with falling property values and tech layoffs.San Francisco’s median home sale price fell a record 13.3% year-over-year from April 2022 to April 2023, more than triple the nationwide decline of 4.2% at that time.But as of July, prices were down just 4.3% year-over-year, somewhat closer to the national gain of 1.6%.This might explain why 12% of home sellers in San Francisco sold for a loss during the three months ending July 31st.Put another way, one of every eight homes that sold during this period went for less than what the seller paid.And the typical seller sold for about $100,000 less than what they paid, tying New York for the largest median loss in dollars.Nationwide, the typical homeowner who sold for a loss only sold for $35,538 less than what they paid.Other major metros that had a high percentage of sellers taking a loss included Detroit (6.9%), Chicago (6.5%), New York (5.9%), and Cleveland (5.8%).One Redfin Premier agent said some condos in the Bay Area are selling below 2018/2019 purchase prices because commuting into downtown San Francisco is no longer “a thing anymore.”Meanwhile, an agent in Boise said some clients will need to sell at a $100,000 loss as they move back to Seattle because work-from-home (WFH) has ended and they bought the properties recently.But the price point on such transactions is generally above $750,000, which probably isn’t your typical home in that part of Idaho.And as you can see from the chart above, very few homes are selling for below what the seller originally paid.So before we get excited about another short sale wave, as seen in the early 2000s, we may want to temper our expectations.Of course, market conditions can change fast. For example, a year ago only 0.2% of Austin homes sold at a loss versus 3% in the same period this year.Austin had the lowest share of home sales at a loss of the top 50 metros. Not so anymore.