July 2016 - Lessons Learned

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 11 MONTH IN REVIEW Lawsuits Get Settled, Equity Rises, & Credit Unions See Growth It was a busy month in mortgage, with news coming from major lenders, agencies, GSEs, and research firms. Check out some of the headlines you might have missed along the way. 1 The Federal Deposit Insurance Corporation (FDIC) settled claims with eight financial firms for misrepre- senting the quality of their residential mortgage-backed securities to five failed FDIC banks. The settlements in- cluded ones with Barclays Capital Inc., BNP Paribas Securities Corporation, Credit Suisse Securities (USA) LL, Deutsche Bank Securities Inc., Edward D. Jones & Co., Goldman, Sachs & Co., Royal Bank of Scotland Securities Inc., and UBS Securities LLC. 2 Bank of America's Homebuyer Insights Report revealed that first- time buyers, for the most part, want to skip starter homes and go straight to purchasing a property that will better fit their long-term needs. That's even true if it requires waiting longer to buy and saving more money. The report also found that first-time buyers are generally hesitant to purchase a home for one of three reasons: they can't yet afford the type of home they want, they still have debts to pay off, or they don't yet need a home. 3 The Consumer Financial Protection Bureau announced it will implement new rules related to TRID in an effort to enhance compli- ance and clarify some of the rule's more complicated requirements. Some of these changes will take effect January 2017, while others are scheduled for January 2018. 4 Fannie Mae reported a net in- come of $1.1 billion for Q1 of 2016 and a positive net worth of $2.1 billion at the end of the March. This comes on the heels of Freddie Mac's Q1 report, which showed a net loss of $354 mil- lion and an after-tax fair value loss of $1.4 billion for the first quarter. 5 CoreLogic's Equity Report found that many homeowners with negative equity are on the way to turning that around. In fact, in the first quarter of 2016, 268,000 homeowners regained equity on their properties, bringing the total amount of positive- equity mortgaged homes up to 92 percent. Eight percent of all mortgage properties—or 4 million homes—were under water in the first quarter. 6 According to Moody's Investors Service, jumbo residential mortgage-backed securities are on the up and up. Low delinquencies, a significant credit enhancement build- up, voluntary prepayments, and the high-credit quality of remaining loans all contributed to the uptick. 7 The Pew Research Center recently revealed interesting data on the millennial sector. For the first time in 130 years, the 18-to-34 demo- graphic is actually more likely to live at their parents' home than with a spouse or partner in their own household. This change in lifestyle and priority is likely a big reason millennials aren't flocking to the homebuying market. 8 The National Credit Union Administration found that credit union loan growth is on the rise, jump- ing 10.7 percent from Q1 2015 to Q1 2016. Total loans at federally insured credit unions are now totaling $799.5 billion, and federally insured shares at credit unions are up to $991.7 billion. 9 First Mortgage Corporation and its six senior executives agreed to pay $12.7 million to settle fraud charges brought on by the Securities and Exchange Commission (SEC). The SEC alleged that FMC pulled perform- ing loans out of Ginnie Mae residential mortgage-backed securities by falsely claiming they were delinquent, and then selling them at a profit into a newly issued RMBS instead. 10 Freddie Mac and Fannie Mae announced a decrease in their standard mortgage modification rate, which will drop from 3.75 percent to 3.6525 percent as of May. This is a full percentage point lower than when the rate was established in January 2012. 11 The U.S. Treasury released a white paper examining the online lending marketplace. According to its findings, online loan origination could reach $90 billion by the year 2020. The Treasury also released a series of suggestions to both the government and private sector lenders to help promote the growth of such online lending practices. 12 The Urban Institute's Housing Finance Policy Center's recent- ly released credit availability index found that thanks to a riskier lending marketplace, credit availability is on the rise. The index rose from a 4.9 to a 5.6 in Q4 of 2015. The Institute's Chartbook showed that mean and median FICO scores for new mort- gagees have also risen, about 40 and 42 points respectively. 13 Freddie Mac recently reported that it has already exceeded its 2016 goal for reducing its mortgage-re- lated investments portfolio. As of April, the portfolio had contracted at an annual rate of 22.4 percent, leaving the aggregate unpaid principal balance at $333.5 billion by the end of the month. This is nearly $6 billion lower than the 2016 cap, set at $339.3 billion. 14 WellsFargo is following in Bank of America's footsteps and offering new, low-down payment loan program called yourFirst. It will offer down payments as low as 3 percent on fixed-rate mortgages and will expand lending criteria, offer homebuyer incen- tives and more. 15 The House of Representatives passed the SAFE Transitional Licensing Act, which will make it easier for mortgage professionals to transition from a federally-insured institution to a nonbank lender. Introduced by Rep. Steve Stivers (R-Ohio), it would give loan officers a 120-day grace period to complete testing and background checks for their state license.

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