MReport June 2018

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42 | TH E M R EP O RT SERVICING THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Rental Payment History vs. Mortgage Delinquency Risk Report shows rental payment history likely to be predictive of mortgage loan performance. R ental payment history is indicative of future mortgage loan perfor- mance and should be considered when individuals ap- ply for mortgage loans, accord- ing to new research from the Urban Institute, funded by the National Fair Housing Alliance. "Access to mortgage credit remains overly tight in part because we are not measuring the credit risk of renters appropriately," research- ers Laurie Goodman and Jun Zhu wrote on the Urban Wire blog. Currently, missed rental pay- ments are taken into account by credit bureaus, while on-time pay- ments are disregarded. Examining Fannie Mae- and Freddie Mac- backed mortgage loans issued between 1999 and 2016, Goodman and Zhu observed that, across all loans, the chance of serious de- linquency rises precipitously with the number of missed payments over a two-year period. Loans that have not missed a single payment in two years have just a 0.25 percent chance of becoming 90 or more days past due, or seriously delinquent, in the following three years. After one missed payment, the loan has a 4.36 percent chance of becom- ing seriously delinquent within three years. After three missed payments, the loan's chance of be- coming seriously delinquent in the next three years is 47.81 percent. Demonstrating a steady rental payment history might then help determine an individual's likelihood of becoming delinquent. However, the researchers noted that "renters are, on average, less affluent than homeowners, have lower credit scores, and put down less toward the purchase of their first home." The researchers accounted for these factors by breaking loan payment history down by FICO scores and loan-to-value ratios. Borrowers with FICO scores greater than 750 and no missed payments within the past two years had 0.13 percent chance of falling into serious delinquency over the next three years, while borrowers whose FICO scores were on the low end—less than 700—and who had no missed payments in the past two years demonstrated a 1.03 percent chance of becoming seriously delinquent. Differences in loan-to-value (LTV) ratios also translated to dif- ferences in default likelihood. With no missed payments in the past two years, borrowers with LTVs greater than 95 had a 0.53 percent chance of serious delinquency, while those with LTVs less than 80 had a 0.22 percent chance. Combining low FICO scores and high LTVs, borrowers still fared well with a clean payment history. Those with FICO scores below 700 and LTVs of 80 to 95 had a 1.14 percent chance of becoming seriously delinquent, barring any missed payments in the past two years. The Urban Institute also exam- ined monthly housing expenses for renters and owners, finding they were comparable at similar income levels, excluding those earning under $20,000 and those earning over $120,000. "Adding rental pay history, via bank statements, to the qualifica- tion process would make assess- ing renters' credit risk easier and expand access to homeownership among a significant portion of the nation's population," Goodman and Zhu wrote. LOCAL EDITION U.S. Bank Home Mortgage Awarded 2017 STAR The company was recognized in two performing categories for the second consecutive year. MINNESOTA // Fannie Mae has awarded U.S. Bank Home Mortgage with a 2017 Servicer Total Achievement and Rewards (STAR) recognition in two categories: General Servicing and Solution Delivery. This is the second consecutive year that Fannie Mae has recognized the bank's mortgage servicing divi- sion as a STAR Performer in both categories. U.S. Bank received high marks for loan administration, cus- tomer service, collec- tions, loss mitigation operations, retention, and liquidation. "U.S. Bank is proud to be recognized as a STAR recipient for the second year in a row. We take pride in knowing that our customers see us as a trusted partner in their mortgage financing decisions," said David B. Little, EVP of Consumer and Mortgage Servicing. "We are dedicated to providing excellent customer service that enables homeowners to manage their investment worry-free." The STAR Program is a performance management and recogni- tion program based on a consistently applied framework to clearly define industry standards and leading practices. The program seeks to align servicer performance with Fannie Mae's goals, provide a consistent methodology for measuring servicer performance, reduce Fannie Mae's credit losses by setting targets/expectations, understand and communicate leading practices across the servicing community, and identify and recognize the highest performing servicers. The Fannie Mae STAR Program supports the industry by establishing a transparent and formal framework to recognize the agency's servic- ing partners for their competency, capacity, and overall performance Minneapolis-based U.S. Bancorp is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. The company operates 3,067 banking offices in 25 states and 4,771 ATMs and provides a comprehensive line of banking, investment, mortgage, trust, and payment services prod- ucts to consumers, businesses, and institutions. "We are dedicated to providing excellent customer service that enables homeowners to manage their investment worry-free." —David B. Little, EVP of Consumer and Mortgage Servicing, U.S. Bank Home Mortgage

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