Here’s a letter that, as a lender, you probably don’t want to receive from the CFPB. Remember that the CFPB runs HMDA now, and fired this shot across the bow to 44 lenders. “The letters say that recipients should review their practices to ensure they comply with all relevant laws. The companies are encouraged to respond to the Bureau to advise if they have taken, or will take, steps to ensure compliance with the law.” (I was unable to pull up the actual letter – must be my computer.)
Jobs for qualified candidates in residential lending continue. Military Direct Mortgage is a fast-growing VA lender looking for experienced loan officers for their direct to consumer call center in Connecticut and call center coming soon to Southwestern part of Florida. Salary and commission plus an excellent benefit program are available. “We operate solely to offer mortgage loans and refinance options to Veterans and active-duty military members and their families.” Please send questions or resumes to Patti White.
In terms of products, FormFree’s founder and CEO Brent Chandler writes, “Rep and warrant relief for automated income and asset verification through The Work Number and AccountChek is a signal to the industry that the paper-based era of mortgage lending is coming to an end. Mortgage technology has finally evolved to the point that lenders can base their decisions on direct-access data – untouched by human hands – and be relatively protected against buyback requests by doing so. This announcement is the culmination of an extensive pilot with Fannie Mae, and to be the first announced preferred provider for automated asset verification is simply phenomenal.”
And on the recruiting side of things Jim Boghos, President of Boghos Search Group, writes, “Loan Originator chief concerns today continue to center on the lack of operational capacity. Lenders who truly offer better service have a tremendous window of opportunity for retail growth in today’s market. The war for processors and underwriters is as intense as I have ever seen it. The capacity issues are plaguing service levels and therefore keeps the door wide open for nimbler service-oriented companies to move into new markets and capture proven people and market share.” If you would like to schedule time with him to discuss your recruitment and growth strategy, contact him at 407-790-7500 ext. 100.
What have recent 3rd quarter earnings announcements from those feisty private mortgage insurance companies told us about industry trends?
MGIC Investment Corp. beat some estimates due to lower incurred losses driven by positive reserve development and higher net premiums earned. NIW (new insurance written) was strong at $14.2 billion vs. $12.4 billion a year ago, and book value increased to $7.48 from $7.37 in 2Q. Net premiums earned was $237 million with what looks to be an average premium margin of 53 basis points. MGIC’s single premium percentage fell to 18% from 21% in 2Q. Incurred losses were $60.9 million, up from $46.6 million last quarter and down from $76.5 million in 3Q15. Paid claims fell to $161 million from $172 million in 2Q16. Management expects to generate NIW of $46 billion in 2016, and IIF (insurance in force) is expected to grow by 4-5% this year, vs. previous expectations of 5% growth. Management noted that it has not seen any signs of market share shifts given ACGL’s acquisition of UG, but expects opportunities to arise once the deal closes. The company noted its market share for 3Q was 17-18%.
Radian Group Inc. did well also and saw higher net premiums earned, partially offset by a higher loss provision, than analysts were expecting. The higher net premiums earned were because of NIW and IIF both ahead of forecasts. In terms of credit (mortgage insurance), the loss ratio came in at 23.6%, paid claims came in at $83 million, and the loss reserve fell to $822 million from $848 million. Net premiums earned of $238 million, NIW was $15.7 billion (up from $12.9 billion in 2Q and up from $11.2 billion Y/Y), and single premium rose to 27% from 26% in 2Q. It appears that Radian’s average premium margin was also about 53 basis points. Premium revenue was stronger than anticipated, driven by a benefit from accelerated single premium revenue recognition, while losses incurred were weaker due to a smaller benefit from reserve adjustments. Most notably, new insurance written was up 40% year over year, better than 15% growth for MTG, and driving acceleration in the pace of insurance-in-force expansion.
Yesterday the commentary discussed collateral and appraisals, and reminded readers about the Five C’s of Credit: capacity, capital, collateral, conditions and character. Let’s see what’s going on with capacity with a slight twist – do borrowers have the equity?
LOs know that when it comes to financing residential real estate, no two transactions are the same. For that matter, no two borrowers are the same. This is especially true when it comes to financing properties with less than 20 percent equity or less than 20 percent down payment.
For many years, having less than 20 percent equity in a property meant that the borrowers were forced to encounter less than desirable financing options. For a long period, the only viable financing options for such scenarios were loans with a mandatory mortgage insurance premium.
During the past year or so, more financing options are becoming available for such scenarios as Fannie and Freddie have joined the FHA in offering low down payment 97% LTV programs. But they aren’t catching on. It should be noted, however, that mortgage insurance premiums are now more favorable, less expensive and in some instances, even tax deductible. Nonetheless, it is encouraging to see that other options are now available in the current market place.
Now, borrowers with less than the 20 percent equity mark can finance properties with a second loan in lieu of mortgage insurance. What may make this option more appealing is that the second loan can now be structured as a standard 30-year fixed rate mortgage. A financing option such as this is more appealing to some borrowers. In many such instances, both the first and second loans in place can both be a standard fixed rate mortgage with the monthly payments of both loans going toward principal and interest with the mortgage interest paid on both loans being tax deductible in many scenarios.
There are differences between the old 100% CLTV programs of 10-20 years ago. But financing with two fixed-rate loans such as this offers the appeal of being in a more traditional type of financing structure without having a mortgage insurance premium in place. The second loan can be paid down or off without penalty as finances permit. Combined 30-year fixed financing such as this can be used for primary and secondary homes alike and is available to most property types. Processors and LOs know that some scenarios with less than 20 percent equity may be better suited for financing with mortgage insurance and vice versa.
Possibly refinancing a first or obtaining a second, given appreciating markets, isn’t new. Let’s go back to the end of 2015 when Black Knight released its Mortgage Monitor report, analyzing data through November 2015. Highlights of the report included that there were currently 5.2 million borrowers who could qualify and benefit from refinancing, which was down from 7 million in April 2015 when rates were less than 3.7 percent. Of these 5.2 million borrowers, almost 2.4 million could save $200 or more each month and 1.9 million could save anywhere from $100-$200 per month. Rates are close to the same as the end of 2015, but if rates rise by half a percent, then 2.1 million borrowers would no longer benefit from a refinance and 3.1 million borrowers would also be out if rates increase by 1 percent.
At that time Black Knight told us that the amount of equity that homeowners could tap into is $4.2 trillion, up $600 billion over the last year, and about 37 million borrowers have an average of $112,000 in equity. And most markets have appreciated since then! Most of the equity (38 percent) that is accessible is in California alone and 51 percent of “tappable” equity is tied to first lien mortgages with rates below 4 percent. But lenders also know that plenty of those loans have loan level price adjustments that make the actual pricing worse than current rates, lessening the appeal of refinancing, thus investors have not seen a huge wave of refinancing of them.
What about the flip side – a lack of capacity and LTV available to refinance? Negative equity is when homeowners with a mortgage owed more than their homes were worth. Zillow’s negative equity report found that nationally, 12.7% of homeowners fell into this category, which is significantly better than the high of 31.4% in Q1 2012. Chicago is the new leader, replacing Las Vegas in the large housing market with the highest rate of negative equity at 20.3%. The Bay Area has the lowest rates of negative equity among large markets. San Jose and San Francisco are the only two large metros with negative equity below 5%.
The percentage of homeowners in negative equity has been on a steady decline, driven by a consistent recovery in home values. As negative equity overall continues to fall, the epicenter of underwater homeowners in the U.S. has shifted from the notoriously hard-hit – but quick to recover – Southwest and Southeast, to the long-suffering and sluggish rust belt states and even New Jersey. The shift is reflective of a housing market that has evolved from one driven by largely temporary factors caused by the massive housing boom and bust, to one driven by more fundamental, traditional factors like job growth, supply and demand.”
And what about those that want to buy bank-owned properties? Altisource Portfolio Solutions S.A. (NASDAQ: ASPS), a leading provider of real estate, mortgage and technology services, polled 100 mortgage servicing professionals in attendance at the recent Five Star Conference and Expo in Dallas, the nation’s largest gathering of mortgage servicing professionals. The poll finds that participants are optimistic that continued low interest rates will encourage home buying (44 percent) and new financing options from lenders will broaden the buyer pool (39 percent).
The survey indicates that respondents believe offering more financing options to home buyers for auction properties (38 percent) will be a factor in attracting a more consumer-based audience, followed by over a third of respondents (34 percent) who say education about the auction market and the use of real estate agents to promote auction properties (34 percent) will be needed to attract consumer interest in purchasing REO homes. Furthermore, 28 percent of respondents view having access to more robust market data and insights as the most important aspect to make the greatest impact in the REO market.
“The bank-owned real estate sector was largely untapped by individual home buyers until recently,” said John A. Vella, chief revenue officer of Altisource. “Today, individual buyers can benefit from smart financing options like rehab financing, otherwise known as a FHA 203(k) loan, which bundles the home purchase price and renovation costs into a single mortgage. This is a huge step in the right direction because it can help buyers purchase affordable properties from the REO market, especially at a time when inventory is low and housing prices are continuing to climb.”
Yes, rates have slowly been moving higher. This week’s move, taking the 10-year back up to yields we last saw in late May, has been attributed to solid economic news out of the United Kingdom (were all those Brexit fears misplaced?), continued decent news out of the United States, and the increasing odds of a Fed increase in short-term rates way off in December. Fortunately, the NY Fed is continuing to buy agency MBS to the tune of about $2 billion a day using money from early pay-offs. By the end of the day yesterday the 10-year had worsened .5 in price, to close at a yield of 1.84%, and agency MBS prices worsened .125-.250 depending on security and coupon.
For thrills and chills today we’ve already had the first look at Q3 GDP (+2.9%, higher than expected) and the Q3 Employment Cost Index (+.6%). Coming up is a 2nd tier number: The University of Michigan Sentiment Index for October which is expected to increase slightly. After the first volley of strong numbers the 10-year is yielding 1.87% with agency MBS prices worse .125.
(Thanks to GB for this one; warning – Rated PG I guess.)
A guy goes to the supermarket and notices an attractive woman waving at him. She says hello. He’s rather taken aback because he can’t place where he knows her from.
So he asks, “Do you know me?”
To which she replies, “I think you’re the father of one of my kids.”
Now his mind travels back to the only time he has ever been unfaithful to his wife and says, “Are you the stripper from the bachelor party that I made love to on the pool table with all my buddies watching while your partner whipped my back with wet celery???”
She looks into his eyes and says calmly, “No, I’m your son’s teacher.”
If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “How Consumers Influence Interest Rates.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)
- Dec. 31: Rates, the Fed, world economies, affordability, and the shutdown – all tied together - December 31, 2018
- Dec. 29: FEMA reverses flood ruling; cybersecurity notes; observations on general housing trends - December 29, 2018
- Dec. 28: Doc automation product; FHA & VA changes around our biz; Agency deals continue to share risk - December 28, 2018