December 2016 - Getting Serious About Diversity

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12 | TH E M R EP O RT MONTH IN REVIEW CFPB Warns Lenders; Servicers Turn the Corner Financially From a warning issued by the Consumer Financial Protection Bureau to a big improvement in the homeownership rate, to a profitable third quarter for non- bank servicers, there was no shortage of industry news in the last four weeks. Check out some of the month's biggest headlines. 1 The Consumer Financial Protection Bureau (CFPB) issued a letter of warning to 44 mortgage lenders and brokers that they may be in violation of the Home Mortgage Disclosure Act (HMDA). The CFPB identified the 44 companies by reviewing available bank and non-bank mortgage data. The warning letters noted that companies that meet certain requirements are subject to HMDA oversight, which means they are required to collect and report data on mortgage lending. In the letter, the Bureau encouraged the companies to review their practices to ensure they are complying with the law, and if they are not, to advise whether they have taken or will take steps to become compliant. 2 According to the U.S. Census Bureau's Q3 2016 Homeownership and Vacancy Survey, Q3's homeownership rate was reported at 63.5 percent, which represented an increase of 60 basis points from Q2's rate of 62.9 percent, which was the lowest recorded homeownership rate since the Census Bureau began tracking the data in 1965. Some headwinds in the market persist, according to Trulia Chief Economist Ralph McLaughlin: Prices and rents have outpaced incomes, credit standards are higher, and a large share of young households are still living with their parents. 3 China Oceanwide Holdings Group Co., Ltd., and Genworth Financial, Inc., announced they have entered into a definitive agreement, under which China Oceanwide will acquire all of Genworth's outstanding shares for $2.7 billion ($5.43 per share) in an all-cash transaction. China Oceanwide's acquisition of Genworth will be completed through Asia Pacific Global Co. Ltd., which is one of China's Oceanwide investment platforms. The transaction was approved by the Board of Directors of both companies and is subject to approval from Genworth's stockholders as well as other closing conditions, such as regulatory approvals. The transaction is expected to close sometime in mid-2017. 4 The Office of the Comptroller of the Currency (OCC) is weighing the issue of whether or not to grant a national bank charter to fintechs that conduct banking activities. Comptroller Thomas Curry delivered a public address in London in November on "The Banking Revolution: Innovation, Regulation, and Consumer Choice," one of several public speeches he made this year in which he acknowledged the exploding popularity of fintechs, the competition those firms are giving banks, and the importance of responsible innovation. In October, the OCC announced the creation of an Office of Innovation, which will be dedicated to responsible innovation in the financial industry. The Office of Innovation will begin operations sometime during the first quarter of 2017. 5 The American Mortgage Diversity Council (AMDC), an independent organization comprised of industry leaders and advocates focused on shaping the diversity agenda for the mortgage industry, has launched its mortgage industry Diversity & Inclusion Directory. The directory is a collection of company profiles that are minority-, women-, veteran-, disabled-, or LGBT- owned or operated, or diverse in other areas. The directory gives companies one central location to search diverse vendors locally or nationally for the services they need in many different categories, including legal, property preservation, valuations, title, loss mitigation, and more. 6 Freddie Mac's economic forecast predicted that the $2 trillion in total originations expected this year could dip to about $1.7 trillion in 2017. Part of that is due to a cool-off in refinance originations activity. Freddie Mac predicted a steep decline in this sector— by some 41 percent, a fall from $1 trillion in refinance activity to about $600 billion. The expected declines also owe to unpredictable interest rate moves from the Federal Reserve and the ripple effect of a post-Brexit world economy. The GSE also predicted that total home sales will feel a drag, with an uptick in new single-family housing construction lifting that count only slightly higher to 6.16 million, marginally better than the 6.04 million reported in 2016. 7 Fannie Mae has, for the last three years, transferred a substantial portion of credit risk to mortgage insurance affiliates. But until now, all of those transactions have been of the back-end variety. In late October, Fannie Mae announced that it has secured commitments for its first-ever front-end Credit Insurance Risk Transfer (CIRT) transaction to be executed with affiliates of mortgage insurance companies. When the transaction is complete, it will be the first CIRT transaction Fannie Mae has done on a "flow" basis, which means the transfer occurred before Fannie Mae acquired the covered loans, also known as a front-end transaction. The insurance coverage becomes effective upon Fannie Mae's acquisitions of the loans. 8 STRATMOR's Appraisal Process and Turn Times Survey for October 2016 found that appraisal fees and turn times have indeed increased over the last year—but not because of TRID. The survey, which featured responses from 56 unique lenders during a one-month period from August 16 to September 16, 2016, found that appraisal turn times in the post-TRID originating world had increased substantially—by 5.74 days for purchase loans and by 6.28 days for refinance loans. Those numbers calculated to increases of 79 percent and 81 percent, respectively, from pre- TRID turn times. Many of the lenders surveyed did not attribute the increases to TRID, however. Instead, they cited a sharp increase in origination volumes from Q2 to Q3 as well as a lack of qualified appraisers. 9 The Urban Institute's Monthly Chartbook for October 2016 reported that the share of VA-backed mortgage originations has risen sharply in recent years while the FHA's share has declined during the same period. In 2009, the VA's share of agency-backed loans was just 17 percent (approximately $75 billion out of $450 billion), while FHA-insured mortgages comprised $360 billion out of the remaining $375 billion (about 80 percent of the total share). By 2015, FHA's share had shrunk to 57 percent ($260 billion). Meanwhile, VA's share had more than doubled from 17 percent to 39 percent (approximately $155 billion). 10 Ginnie Mae's share of agency mortgage-backed securities rose from 25 percent in 2013 up to 32 percent as of September 2016, surpassing Freddie Mac's share of MBS issuance back in June. The main drivers of Ginnie Mae's ris- ing share of MBS issuance were FHA refinance activity, the reduction in FHA's insurance premium (by 50 basis points in January 2015) and increased volumes of VA-backed originations, ac- cording to the Urban Institute's Monthly Chartbook for October 201. The trend of rising VA share and falling FHA share has two important implications for the mortgage market, Urban Institute re- ported. The first is, VA mortgages tend to refinance at much faster rates than FHA mortgages. The second important implication for the market, according to Urban Institute, is that the trend underscores the need to more strictly regulate non-bank lenders.

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