Fortunately, the result has been a host of innovations that together are changing the way we approach our work. This new vision turns the old paradigm on its head and offers lenders, perhaps for the first time, a more comprehensive view of what has traditionally been a very complicated and disjointed process.

These mortgage technologists refuse to rely on the same old disconnected set of independent sub-processes that have been the industry’s bedrock in the past. In their view, having an overworked mortgage loan processor struggling to pull together the required information for the lender’s closing department is inefficient and unnecessary. They don’t accept the requirement that the processor should have to jump from tab to tab or between applications to find the data they seek.

Instead, they see something different – a more holistic view of the process that puts the critical technology in the center of a vibrant ecosystem of partners and their tools. It’s a new world founded on automation and driven by advanced artificial intelligence (AI) with machine learning built in. 

Time For An Industry Sea Change

This new vision comes at just the right moment. Even as consumer demands continue to drive the mortgage industry toward a more borrower-centric model and compliance requirements push lenders deeper into automation, the more decentralized process required to keep partners and borrowers healthy has made digital not just the new normal but an absolute requirement.

One could point to significant evidence showing that the industry is ready for a change, but we suspect that every reader of this publication understands the challenges in the current environment and is even now seeking a better way to lend. Despite the many promises made by technologists and business consultants, this has not been an easy problem to solve.

It’s no surprise that most lenders still struggle with this. The COVID-19 crisis has made that abundantly clear as the technology required to meet these demands continues to fall short. Too many are still living in a paper-based world where information must be pushed into the database of record instead of pulled into it electronically.

Given the history of our industry, this comes as no surprise. Coordinating the efforts of so many third-party settlement services partners in a paper-based world was a challenge from the beginning. With so much information required to close a loan and so many partners needed to provide it, efficiency was never an easy target to hit.

However, as more of the mortgage lending process became digitized, it became easier to get information into the borrower’s file ─ but it still wasn’t always accurate nor did it always get there in a timely fashion. The entire process was still inefficient and fraught with risk.

But, things have changed.

The Digital Mortgage And Its Impact On The Industry

With the advent of electronic lending, the paper documents required to process and close a loan were transformed into data and then delivered it to the database of record automatically. Yet, it was still a disjointed process because each report received from a vendor had to be integrated into the file by the processor. And, because of the risk of human error, many mistakes occurred during the early days of paperless lending.

However, digital lending was something different – or at least it was approached differently.

With digital lending, the LOS deals directly with third party platforms electronically, building the loan file automatically by pulling all necessary information directly into the database of record. This method only requires the services of a human loan processor if an exception is encountered. 

These smarter systems feature open architectures and rely on new AI with machine learning which have changed the game entirely.

Digital lending is as much of a mind shift as it is a technological advancement, and those mortgage visionaries deserve all the credit. The systems they built and deployed fostered a greater trust among lenders and their borrowers.

Today, the process of getting loan data from a third-party service provider is significantly simpler than it was in the past. The connections between systems that once required complicated software development kits (SDKs) are now made with simple calls to software residing elsewhere on the web. The result is that the lender can receive exactly the information required to advance the lending process, often within a fraction of a second.

However, it’s not just third-party settlement services providers that are now connected seamlessly to the modern LOS. By taking a holistic view of the entire lending process, visionaries have discovered that there are also systems inside the enterprise that must be wired into a more efficient process. In fact, the LOS should sit at the center of a complete ecosystem of technologies that can exchange data seamlessly and securely with the lender’s database of record.

When this happens, the lender becomes much more efficient and that leads directly to greater profitability. Of course, this requires the right technology to empower that process. 

The Power Behind The Modern Digital Lender

Today’s leading mortgage technologists don’t look at the mortgage origination process as a single transaction, but rather as one more valuable interaction with the customer. This is especially true for credit unions, the masters of the member relationship. In that world, a 360-degree view of the customer fuels many, if not all, of the transactions between the credit union and the member.

This suggests that the ecosystem should include many more data sources than just the platforms used by the lender’s settlement services partners. Lenders must determine what sources of data will reside within their own ecosystems. How they each configure their platform will constitute part of their unique competitive positioning, in other words, their “secret sauce.”

Some of the platforms we often see connected through this ecosystem include the following:

• Core banking technologies;
• Digital banking tools;
• Borrower engagement tools;
• Risk & compliance systems;
• Imaging services;
• Data aggregation tools;
• Document management; and
• Third-party integrations.

Some have suggested that today’s modern micro-services architectures make it possible to call all of these functions from a central processing system that would not necessarily serve as the lender’s database of record. We don’t subscribe to that theory. Today, the LOS is the strong central processing unit that is tied directly to the lender’s secure database of record. It is the hub of the lender’s loan origination process and we expect it to remain so for many, many years. This is why the LOS is so important to the lender’s success.

Naturally, the more robust the ecosystem of service providers who are willing and able to deliver data to the lender’s LOS, the more efficiently the firm will be able to move the loan along. The faster the loan moves through this process, the lower the cost to originate and the more profitable the lender will be.

But, that’s not all. Borrowers and realtors both strongly prefer quick closes and the lenders that can deliver them will always be more competitive than those that cannot. More than that, the industry has begun to embrace technologies that allow for completely electronic closings where parties are geographically separated.

Never before has there been a greater need for technology that fully enables eLending, from digital document exchange to e-sign, e-closing and e-vaulting – the complete e-closing suite.

One final advantage derived from this holistic approach is that with the LOS at the center of a vibrant ecosystem of data providers, the lender is in complete control of every aspect of the loan origination process including loan quality, a very important metric for overall success.

This is a huge step forward from the way the industry processed mortgage loans even a few years ago. It changes the paradigm and makes it possible for lenders, for the first time, to have a 360-degree view of their loan origination process. This is the future of lending.

Nicole Valentin-Smith is director, client management, digital lending and origination at Fiserv, Inc., a global provider of financial services technology solutions.

The post A Holistic View of the Lending Process appeared first on MortgageOrb.

“We appreciate the contributions Andy made to Waterstone Mortgage and wish him well in his future endeavors,” says Doug Gordon, president and CEO of Waterstone Bank, in a release. “Our executive team is comprised of accomplished leaders with extensive experience in the mortgage lending industry, and they will continue, as they have for many years, to guide and grow Waterstone Mortgage while we search for a new president and CEO.”

“It has been an honor and privilege to work with an exceptionally dedicated team of executives and hardworking employees,” Peach says. “Leaving Waterstone Mortgage is a difficult decision and not one that I take lightly. I will truly miss being a part of the Waterstone family and I am grateful to have had the opportunity to lead such an exceptional company.

“The company’s strong leadership, financial stability from being bank owned, innovative mortgage technology solutions, and exceptional customer service all combine together to create a great platform,” Peach adds.

Waterstone Mortgage reports that it originated more than $2.9 billion in loans in 2019.

The post Waterstone Mortgage Announces Resignation of CEO appeared first on MortgageOrb.

Year over year, contract signings fell 5.1%.

Regionally, and month over month, pending home sales increased 56.2% in the West, 44.4% in the Northeast, 43.3% in the South and 37.2% in the Midwest.

In April, contract signings plummeted about 20% compared with the previous month, due mainly to the onslaught of the coronavirus pandemic. 

“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” says Lawrence Yun, chief economist for NAR, in a statement. “This bounce-back also speaks to how the housing sector could lead the way for a broader economic recovery.

“More listings are continuously appearing as the economy reopens, helping with inventory choices,” Yun says. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

Other housing market reports shore-up the idea that a recovery is under way. New home sales and housing starts were both up in May, as well.

“The outlook has significantly improved, as new home sales are expected to be higher this year than last, and annual existing-home sales are now projected to be down by less than 10% – even after missing the spring buying season due to the pandemic lockdown,” Yun says.

NAR now expects existing-home sales to reach 4.93 million units in 2020 and new home sales to hit 690,000.

“All figures light up in 2021, with positive GDP, employment, housing starts and home sales,” Run says.

In 2021, sales are forecast to rise to 5.35 million units for existing homes and 800,000 for new homes.

The post Pending Home Sales Bounced Back in May appeared first on MortgageOrb.

As of the week ended June 21, about 4.2 million U.S. homeowners were in forbearance plans.

By investor type, Ginnie Mae loans continued to have the highest forbearance rate, at 11.83%. That’s basically flat compared with the previous week.

The share of Fannie Mae and Freddie Mac loans in forbearance decreased relative to the prior week – from 6.31% to 6.26%.

The share of other loans (e.g., portfolio and PLS loans) in forbearance increased relative to the prior week – from 9.99% to 10.07%.

“The overall share of loans in forbearance declined for the second week in a row, led by the third straight drop in GSE loans,” says Mike Fratantoni, senior vice president and chief economist for the MBA, in a statement. “Many borrowers initially received a three-month forbearance term, and as of June 21, 17 percent of loans in forbearance have now been extended, with the largest share of those being Ginnie Mae loans.

“The level of forbearance requests remains quite low as of mid-June,” Fratantoni says. “The rebound in the housing market is likely one of the factors that is providing confidence to both potential home buyers and existing homeowners during these troubled times.”

The post Share of Mortgages in Forbearance Dips Slightly appeared first on MortgageOrb.

But the COVID-19 crisis has created a whole new layer of operational complexity for AMCs – not the least of which is that their employees must now work entirely remotely. In addition, individual appraisers must strictly adhere to the CDC’s social distancing guidelines – not an easy thing when considering that, traditionally, appraisers need to enter peoples’ homes in order to do their jobs.

To learn more about how pandemic is impacting AMCs – in addition to the other operational challenges they currently face – MortgageOrb recently interviewed Garrett Mays, director, valuation and vendor management for USRES.

Q: How do you think the pandemic has changed USRES’ AMC operations?

Mays: Like so many others, our company transitioned to working remotely in early March to 95% remote workforce by mid-March with some critical support functions that could not be handled remotely remaining onsite, spacing them between common areas. We had very few people traveling to and from the office, and maintained our service levels. The procedures and disaster recovery plans that had been established were sound, and we were able to go about the business as usual. 

While this disaster was by far the largest magnitude in that it touched every sector of every community and industry, we are also not new to it. Our industry has been faced with the necessity to find solutions during crisis, and our company is no different; fire, flood, hurricanes, tornadoes, earthquakes, ice storms, and pandemics. Over the years, we have had opportunities to test our disaster recovery plan for just this type of interruption to ensure that our business had the capacity to run without interruption.

In light of the global pandemic, and the effect on our country and industry, I am pleased with the manner in which our employees handled themselves and our business. 

As our country is slowly re-opening, and every staff member has been working remotely, from our auditors and assigning team to our client coordinators, they have adapted well. Daily activities such as staff meetings with 30-plus people have gone virtual – with the unpredictable/funny moments that go along with working remotely when one is not accustomed to doing so. 

We have learned to be flexible without wavering on our primary goal to provide the level and quality of work that our clients and vendors expect. The location of our employees may have temporarily changed, but the service and the product did not. In the coming days and weeks those same employees will do an exceptional job of transitioning back into the office as they adapt into the new “old” environment.

I have every bit of confidence in them, on their return, as I did on their departure, and I am looking forward to seeing each and every one of them. 

Q: Beyond the COVID-19 crisis, what are some of the other challenges AMCs currently face?

Mays: The AMC world changes at a very rapid pace. It can fluctuate week-to-week, month-to-month and year-to-year. There is a constant evolution based on guidelines instituted by the GSEs and local governments, which can be amended or updated at any time.

The mark, or compliance milestone, that AMCs must get to is ever-changing. Because of this, compliance is the biggest – and most important – challenge that AMCs face overall. To meet the audit requirements and state-level requirements, we must be collaborative, thoughtful, and flexible in molding our internal processes to best communicate and adapt to these changes downline and throughout our vendor and appraiser networks. 

Q: What valuation products are being used more frequently in 2020 than in years past?

Mays: Inspection products have gained momentum over the last couple of years, especially into 2020. Hybrid models that include portions of other valuation standards, such as broker price opinions (BPOs) or automated valuation models (AVMs) are particularly popular when combined with an inspection-centric document. Today’s inspection market is defined by the easy availability of data used to help manage costs and overall risk.

Additionally, the industry’s compliance protocols have increased in recent years, so we are becoming better prepared for natural disasters. Previously a more traditional disaster appraisal product or BPO would be used with just a scattered mix of inspections. Now, with a heavier data presence, sophisticated new products are available to vendors that detail the real cost of damages to a property, along with the risks associated with a natural disaster.

In the case of the pandemic, there will be a fair amount of re-inspections necessary for those properties in which appraisers had no other method to complete the appraisal than to rely on an exterior drive-by. In order to finalize the loan package, a reliable product will be needed that GSEs, non-GSEs, and private investors can depend on to reconcile against the initial reports. 

Q: What have you learned about yourself during this time? And what have you learned about your staff?

Mays: This time and distance spent working in a remote environment has reaffirmed how much I enjoy working with my team, and it has made me fully realize and value the benefits provided by in-person collaboration.

By nature, I am a people person, and group settings are where I have thrived, but this new environment has afforded me the opportunity for creative thinking about how to accomplish our same goals. I’ve seen more strategy involved because communication is limited to calls, emails, and video conferencing. Collaboration is much more intentional.

The things we have accomplished since this began, and the new processes, procedures, and ways to communicate are all processes I can and will use in the future to take our team to an even higher level. My staff has shown such resiliency and teamwork; I feel honored to work with each member of my department.   

Q: How has vendor management changed over the past 20 years?

Mays: I began my vendor management career in the early 2000’s. Vendor management was in its infancy in the servicing organizations across the country. It was not the most popular department by any means.

At the time, each department had control over its vendor networks, protocols, volume changes and performance metrics. As the years progressed, the landscape also changed. Rewarding vendors on performance ultimately had a positive impact.

The vetting process today is much more thorough and fair, given the minimal standards in my early years, when there were few encumbrances to consider. The protocols that were in place to begin a business relationship 20 years ago – a handshake, a promise and a few mailed documents – have been replaced by systems and processes to ensure transparency. Master servicing agreements, structured statement of works, IT infrastructure, security, compliance and integration requirements, and the requirement to be SOC compliant. Today, having a vendor fit the service or relational need that does not match up to your client or investor’s policy guidelines can carry security or compliance concerns.

Q: At this point in your career, what do you think has been your greatest professional achievement?

Mays: I have built and maintained some of the greatest relationships of my life over the past 20 years in this industry, and I do consider that an achievement. Our industry is very large, but also very small in that the individuals who have been around as long as I have either worked with each other at some point, or participated in the same events, etc.

Creating lasting relationships with people on every side and facet of our industry has enabled such a collaborative environment; allowing knowledge to transfer easily so we can evolve and push this industry forward. Maybe an easy fix that I have implemented is someone else’s greatest challenge and vice versa. This has been a huge component of my growth.   

Also, I have been truly blessed with a few great mentors throughout my life. They have helped shape the person that I am today inside and outside of work. As a result of that, I have been able to pay it forward in my own professional career.

A year ago, I received a call from a co-worker who I had worked with for many years. She was calling to thank me for all the support and mentoring that I’d given her throughout the years. 

Until this point, I had never looked at myself like that. I did not realize that I was having a similar impact for somebody else. And it may even be those small conversations where you can shift or help someone’s thoughts or attitude about a particular situation that make a lasting impression.

The post Garrett Mays: For AMCs, Constant Change is the Biggest Challenge appeared first on MortgageOrb.

Price growth began accelerating for affordable homes and decelerating for expensive homes shortly after the World Health Organization declared COVID-19 a pandemic on March 11. By May 31, the gap between the top and bottom price tiers’ growth rates had widened to 3.5 percentage points. This represents a reversal of the trend Redfin observed leading up to the pandemic, when the price-growth gap had narrowed to as little as 1.26 percentage points during the 12-week period ending March 22.

“Spending so much time at home during quarantine has made a lot of people realize that it might be time to stop renting a cramped apartment in the city and time to start owning their first single-family home,” said Pam Henderson, a Redfin agent in Dallas. “With mortgage rates at record lows and remote work on the rise, some renters are having an epiphany: They could buy a lower-priced home in the suburbs for close to what they’re paying in rent.”

In Newark, N.J., the most affordable third of homes saw prices surge 14.7% year over year to a median of $211,281 during the 12 weeks ending May 31 – the largest increase out of the 50 most populous U.S. metropolitan areas.

Philadelphia and Detroit followed closely, with prices jumping 13.6% and 13.3%, respectively.

The only metros that saw prices in the most affordable bucket decline were San Jose (-2.4% to $777,500) and San Francisco (-2.1% to $952,125) – markets where the “affordable” tier is already so expensive that prices don’t have much room to grow.

The jump in prices of affordable homes is tied to a shortage in the number of affordable homes on the market – an issue that has plagued house hunters since 2012 and is showing no signs of letting up.

The gap between the supply of affordable and expensive homes widened further as the coronavirus pandemic worsened. Nationwide, there was a weekly average of about 322,000 homes for sale in the bottom price tier during the 12 weeks ending May 31, down from 332,000 in February. By comparison, there was a weekly average of about 586,000 homes on the market in the top price tier, up from 556,000 three months earlier – in line with expected seasonal growth.

To view the full report, click here.

The post Redfin: Prices of Most-Affordable Homes Jump Five Percent appeared first on MortgageOrb.

An unprecedented virus spread has driven U.S. unemployment to depression levels. Mortgage security and whole loan sales have exploded, and the credit markets are now supported by Federal Reserve purchases.

The best benchmark for mortgage loss prediction today is the 2004-2013 period, during which, albeit at a much slower pace, residential foreclosures went from a trickle to the highest level on record. The challenge today is to adjust history in order to evaluate mortgage assets in an environment where the pace of economic change is rapid.

The Great Recession Mortgage Loss Story

Residential mortgage losses were very low to nonexistent in the early years of the 21st Century, as depicted by the 2004 non-agency prime 30-year fixed-rate graph below. Only about one in 100 loans defaulted in this “prime” 2004 book year. The economy was strong and underwriting standards required larger down payments and higher credit scores. The 2004 book FICO scores averaged 725 and loan-to-value ratios averaged 72%.

The vast majority of loans were fully documented and full appraisals required. Prime securities required very little credit support to achieve high AAA bond concentrations of 95-97% of the total securities in a transaction. Even mezzanine bonds were sold at low yields as mortgage loss expectation was extremely low. However, mortgage originators and security dealers were expanding their offerings and transactions, known as “Alternate A” and “subprime,” due in part to the lower origination volumes prior to the refinance wave of 2004.

Appendix B contains a number of historical data sets including 30-year mortgage interest rates since 2000. Early originations of Alt A and subprime loans had low LTVs as higher down payments were required to offset lower FICOs and easier borrower documentation.

The 2004-2005 Alt A book had average LTVs of 75%, FICO scores were 723, and most loans were owner occupied. Loss levels remained lower as cumulative losses for the 2004 Alt A production year were only 3-5% of total originations. The primary and secondary markets for mortgage securities exploded. As did derivatives of those securitizations such as collateralized mortgage and debt obligations, the ABX subprime index and credit default swaps.

Underwriting standards remained conservative pre-2005, as mortgage originators were refinancing large volumes of loans and booking significant gains on sale. Higher margins in non-prime mortgage production profitability were at all-time highs. Home price appreciation was nearly 10% annually for a number of consecutive years. 

When the refinance boom ended, the industry went after mortgage purchase business with a vengeance. Loan standards were relaxed across all products as low down payments, lower FICO scores, streamlined documentation and appraisal were “layered” on the same loan.

Appendix A contains 2006 subprime book year statistics. The theory being that borrowers, no matter the number of derogatory loan attributes, would pay to stay in their primary residences. More investor loans were made to support the “flipping” market; however, it is unclear what the justification was for that underwriting expansion. Cumulative losses in the 2006 subprime 30-year fixed-rate origination year reached 10-15%; nearly one-in-three loans defaulted. The adjustable rate subprime books approached 50% cumulative losses with some pools having default percentages and severities of 70%. Conventional agency loans reached annual default rates of 10-14%; levels no one expected. The “stacked” underwriting experiment ended very badly as housing prices declined rapidly; borrowers lost their homes and security investors, mortgage insurers, and federal mortgage agencies went bankrupt. The non-agency market is still not what it was and agency loans are purchased by entities still in receivership.

A Virus Triggers Economic Chaos and Mortgage Market Concerns

In March 2020 the U.S. economy essentially shut down, as most of the world’s businesses closed and citizens “locked down” to reduce the spread of the coronavirus. A terrible event that in two short months resulted in the following:

• More than 350,000 worldwide deaths; more than 100,000 in the U.S.;
• Asset liquidation and bankruptcies from highly leveraged and low margin businesses;
• U.S. unemployment rates approaching 20%;
• Unprecedented worldwide monetary and fiscal support to combat frozen credit markets, job losses and a shutdown in consumer purchases; and
• Mortgage deferment programs for borrowers unable to make payments. 

A recent snapshot of economic results shows the quick deterioration. Of note is the significant decline in retail sales (in this case represented by an annual change in a retail index) and large increase in unemployment.

Mortgage investors are faced with determining the potential for loan loss in the fastest economic decline in modern history. The “science” is knowledge taken from the Great Recession of 10 years ago, while the “art” is how to adjust that history based on recent economic turbulence.

The number one question is: What does 20% unemployment adjusted for some recovery mean for mortgage defaults?

To start, let’s select a data series such as the 6-2006 to 2-2009 period, where we had both housing appreciation and depreciation. That dataset shows some remarkable correlation between the annual change in retail sales, unemployment and housing values. When housing was going strong, retail sales were growing and unemployment (already pretty low) was the same or declining; when housing took a downturn, the change in retail sales was negative (on a normally ever increasing index) and unemployment was increasing.

Nationally, home prices went down approximately 35%. Doing a simple fit of changes in retail sales (CHRS) and the change in unemployment (CHUN) we get a projection of housing price appreciation (HPA). The 30-year mortgage rate, believe it or not, isn’t predictive of home purchase activity (but rather refinance activity) as interest rates are slower to react to a struggling economy. The 30-year mortgage interest rate data supports this notion.

How do we use this very simplistic housing market projector when retail sales and unemployment are already well outside the bounds of our model’s worst cases?

We project large recoveries. Getting half lost jobs back gets us to Great Recession levels of unemployment of 10-12% – a historical period associated with housing price declines of 35%. Yes, there are other considerations, such as, residential building supply was higher in the Great Recession, and investor speculation today is not what it was then. The important point is we need a significant recovery to get back to troubling times.

So we should, at a minimum, make the Great Recession our worst case scenario (as a case can be made for higher housing depreciation).

Another scenario may be a rebound to high single-digit unemployment and a period of flat retail sales.

Last, we get back to 3-4% unemployment and retail sales are up 8-10% annually.

Approximating, that makes three cases for housing down 35%, down 17.5%, and no change. Our “baselines” determined from historical default rates and loss severities, now we can adjust those baselines for differences in loan characteristics as needed.

Different LTV ratios, FICO scores, documentation styles, loan purposes, and occupancies can significantly impact loss expectation. FICO and LTV ratios show the highest variance in mortgage losses. The 2006 30-year fixed rate subprime bar graphs reflect the poor performance of lower FICO scores and down payments.

Appendix A, model development, is a summary of the loan loss estimation techniques used.

A takeaway from the appendix is pool loss estimation is pretty accurate, however, individual loan loss prediction, better data science or not, is unreliable.

A regression fitted to the population of loss loans from the 2006 subprime book can be used to forecast pools (even if they are not subprime in current mortgage world parlance) altered by attributes that differ from history. For example, many LTV- FICO-balance-occupancy combinations may show similar 25% historical default expectation, but changing one or more of the variables can result in considerable estimate variance.

Loans backing securities originated in the past few years have underwriting standards superior to those of the Great Recession and, hence, better loan loss expectancy. An analysis of non-QM transaction DRMT 2017-2A adjusts loss projections by different underlying loan characteristics.

Example: Analysis of Non-QM DRMT 2017-2A

DRMT 2017-2A has not incurred any losses to date. In 2020, paying loans have quickly declined from 81% to 67% of the pool. The security has 224 loans, $78 million in current balances, 70% are adjustable rate loans and 30% are fixed rate. A high-level summary of other key DRMT 2017-2A statistics are as follows:

The calculation of loan losses for the worst case scenario utilized the following assumptions: 

1) Baseline cumulative losses for the ARM portfolio and fixed rate portfolios of are 39% and 20%, respectively.

2) Long-term prepayment speeds of 20% for ARMS and 10% for fixed rate.

3) Adjustments to loss curves due to overall better portfolio characteristics for a decrease in cumulative losses to 36% for ARMS and 18% for fixed-rate loans.

4) Three servicer advance payment scenarios of 80%, 40%, and 10%. The mortgage market received a “gotcha” when regulators forgot to cover payment advances for mortgage servicers when mortgage deferment programs were launched. Questionable strategy as housing is a consumers’ number one expense. Regulators fixed the mistake on the agency side but non-agency buyers need to quantify liquidity pressures on loan servicers.

5) Two foreclosures to REO timelines of 24 months and 42 months are used. Foreclosures will take longer with judicial state processes, stressed servicer operations, and pro-borrower public sentiment extending timelines.

Five bonds in the transaction A1, M1, B1, B2, and B3 are evaluated. Just like in 2004-2009 investors will have to adjust their risk taking thinking as mortgage losses will change opinions on bonds considered “bullet proof” even in the case of higher credit enhanced transactions such as DRMT 2017-2A.

The collateral and bond evaluation of DRMT 2017-2A uses combinations of three loss scenarios, three advance scenarios, and two foreclosure timelines. The A1 has considerable credit support (but don’t be surprised when AAA spreads widen on higher loss expectancy) and the B2 and B3 bonds expire (from losses) in all scenarios. The M1 and B1 bonds are the focus. The M1 bond has losses only in our worst case scenario. The B1 bond is a complete loss in the worst case, has no losses if a pre virus loss expectation materializes, and varying degrees of loss in our “middle” case.

Losses are likely to be considerably higher in relation to current market expectation. For those who understand loss expectation versus credit enhancement, opportunity will surface when market sentiment “flips” and yields are attractive even in the highest realistic loss scenarios.

Will This Time Be Different for Mortgage Losses?

If I had to choose between an unprecedented economic decline and a large recovery or a slow economic deterioration that “peaks,” I would choose the latter. I believe we are, no matter the recovery scenario and rationalization of bad economic conditions, going to have lasting damage from one in five people being unemployed.

Will this time be different for mortgage losses? The strongest case suggests we will see economic deterioration consistent with the Great Recession or at best our bounce back will be insufficient to stop considerably higher residential mortgage loan losses.

Mortgage underwriting never stooped to the lows of the past, so that’s a positive. Generally, the “layering” of higher loss loan attributes (like high LTVs and low FICOs and reduced documentation) is not absent today, but better. Yield spreads on securitized mortgage product are tight, in my view, like other markets pricing in quick recovery from massive stimulus (even if there isn’t enough or quick enough money creation to cure all market and economic ills).

The opportunity to purchase bonds pricing-in harsher loss expectancy will happen but for now caution is advised.

Nick Krsnich is managing member of JMN Investment Management.

The post Mortgage Losses Due to COVID-19 a Major Investor Concern appeared first on MortgageOrb.

The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments – including mortgage, property taxes and insurance – on a median-priced home, assuming a 3% down payment and a 28% maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics.

Compared to historical levels, 200 of the 406 counties analyzed in the second quarter are now more affordable, up from 126 of the same group of counties in the second quarter of 2019. The gains have come as higher wages, along with cheaper mortgage costs resulting from declining interest rates, outweigh ongoing price increases that commonly have exceeded 5% in the current quarter. 

Despite the improved buying conditions, major costs on median-priced homes remain unaffordable to average wage earners in 74% of counties included in the second-quarter 2020 analysis. That means major homeownership costs would consume more than 28% of average wages from county to county.

“The latest affordability numbers reveal a win-win situation for sellers as well as buyers,” says Todd Teta, chief product officer with ATTOM Data Solutions. “Prices are rising again around the country during the current home-buying season, despite worries that the economic impact of the coronavirus pandemic would halt the nine-year run-up in home values.

“But a combination of wage gains and declining mortgage rates are helping to override the increases and make homes more affordable in large swaths of the United States,” he adds. “Virus pandemic concerns are still quite valid and may show up in the coming months, which could hurt prices as well as affordability. That remains a significant potential cloud hanging over the market. But as of now, things are looking up for people on both sides of the buying equation.”

For more insights from ATTOM’s new report, click here.

The post ATTOM: For the Average Buyer, Homes Are More Affordable Today appeared first on MortgageOrb.

A year ago at this time, the 30-year fixed-rate mortgage averaged 3.73 percent.

The 15-year fixed-rate mortgage averaged 2.59 percent with an average 0.8 point, up slightly from last week, when it averaged 2.58 percent. A year ago at this time, the 15-year fixed-rate mortgage averaged 3.16 percent. 

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.08 percent with an average 0.5 point, down slightly from last week, when it averaged 3.09 percent. A year ago at this time, the five-year ARM averaged 3.39 percent.

“After the Great Recession, it took more than 10 years for purchase demand to rebound to pre-recession levels. But in this crisis, it took less than 10 weeks,” says Sam Khater, Freddie Mac’s chief economist.

“The rebound in purchase demand partly reflects deferred sales, as well as continued interest from prospective buyers looking to take advantage of the low mortgage rate environment,” Khater adds.

Photo: Sam Khater

The post Mortgage Rates Sit Flat to End June appeared first on MortgageOrb.

The rating agency says “Acceptable” TPR firms show “proficiency in due diligence and have adequate processes and controls in place.” Fitch has also noted that third-party due diligence is a key consideration in its RMBS rating process.

With the latest designation by Fitch, Evolve is now an “Acceptable” TPR provider for all five major rating agencies, including DBRS Morningstar, Kroll Bond Rating Agency, Moody’s Investors Service and S&P Global Ratings.

Evolve’s management team and staff focus on loan-level due diligence reviews to identify credit, compliance and valuation risk. The firm’s underwriting platform is integrated with advanced technology to provide comprehensive due diligence on a variety of loan types, including non-QM, jumbo, business purpose and agency loans, among others.

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The platform enhancements strengthen the way mortgage brokers and bank loan officers can reconnect, contact and engage existing mortgage client relationships. Based on market research and customer feedback, the company has expanded its platform to accelerate provider growth by addressing key challenges in the industry. 

Despite a slowdown in purchase mortgages due to the COVID-19 pandemic, the market is experiencing a high level of activity, as current mortgage holders look to refinance and take advantage of all-time low rates.

“The surge in refinancing emphasizes the importance of relationships with past clients; however, the mortgage industry is inundated with transactions that are counterintuitive to customer loyalty, with a staggering 92 percent of consumers originating their next mortgage or refinancing with a competitor,” says Stikkum Managing Partner Jeff Londres.

The revised platform features an expanded Stikkum RECONNECT solution that provides full visibility into and awareness of past customer activity while enabling personalized and timely outbound messages through an enhanced retention alert response communication engine. Also, Stikkum CONTACT is a new module that uses a blend of two-way messaging, AI-powered technology and a dedicated service team to turn leads into conversations. Additionally, the newly added Stikkum ENGAGE feature is an automated customer marketing system that allows mortgage providers to continuously communicate news and services with their client database to facilitate awareness and stay top-of-mind.

Photo: Jeff Londres

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The median sales price of a new home sold in May was $317,900. The average sales price was $368,800.

As of the end of the month, there were about 318,000 new homes available for sale – about a 5.6-month supply at the current sales rate.

Meanwhile, home prices continue to rise, according to the FHFA’s home price index.

The post Despite Pandemic, New Home Sales Jumped in May appeared first on MortgageOrb.

However, on an unadjusted basis, purchase applications were up 18% compared with a year ago.

Applications for refinances decreased 12% compared with the previous week – however, they were 76% higher compared with a year ago.

As a result, total volume decreased 8.7% on a seasonally adjusted basis compared with one week earlier.

On an unadjusted basis, total volume decreased 9% compared with the previous week.

“Mortgage applications decreased nine percent last week, with both refinance and purchase activity falling despite the 30-year fixed rate mortgage staying at 3.30 percent – the record low in MBA’s survey,” says Joel Kan, associate vice president of economic and industry forecasting, in a statement. “Refinance applications dropped to their lowest level in three weeks, but the index remained 76 percent higher than a year ago. Despite the decline last week, MBA still anticipates refinance originations to increase to $1.35 trillion in 2020 – the highest level since 2012.

“Even with high unemployment and economic uncertainty, the purchase market is strong,” Kan says. “Activity has climbed above year-ago levels for five straight weeks and was 18 percent higher than a year ago last week. One factor that may potentially crimp growth in the months ahead is that the release of pent-up demand from earlier this spring is clashing with the tight supply of new and existing homes on the market. Additional housing inventory is needed to give buyers more options and to keep home prices from rising too fast.”

The refinance share of mortgage activity decreased to 61.3% of total applications, down from 63.2% the previous week.

The adjustable-rate mortgage (ARM) share of activity increased to 3.1% of total applications.

The average rate for a 30-year, fixed-rate mortgage remained unchanged at 3.30%.

The post Mortgage Applications Fell Last Week, But Purchase Activity Remains Strong appeared first on MortgageOrb.

TMS focuses on assisting lenders with executive leadership coaching and consulting services that streamline processes, boost loan volume, improve the bottom line, optimize operational performance, ensure customer satisfaction, and execute efficiency assessments from origination through servicing. The firm also provides c-level coaching and business strategies that ultimately create a more collaborative, cohesive, and consistent corporate culture.

“This partnership was a natural fit given our respective firms’ vast range of capabilities and far-reaching relationship capital within the mortgage industry,” says David Lykken, president, founder and chief transformation officer at TMS. “We partnered because both of our firms observed an increasing void in the marketplace which our combined services could easily fulfill and deliver high-impact results.”

SL3 complements TMS’ services by providing financial services-based companies a cost-effective alternative to incurring the expense of employing in-house resources that extend sales, business development, and other topline generating activities. In addition, SL3 offers management team guidance, marketing assistance, technology support, executive search placement and M&A strategies.

“Both of our firms possess deep mortgage domain experience and are armed with a war chest of capabilities and strategies that we can offer mortgage entities,” says Bill Wooten, co-founder and principal at SL3. “Forming a strategic alliance with TMS made a great deal of sense, given our combined experience and breadth of subject matter expertise in the mortgage space. We’re excited about the value and ROI we can deliver for mutual clients.”

TMS focuses on clients that include banks, credit unions, independent mortgage bankers, as well as companies providing financing/solutions/services to mortgage lenders. SL3 caters to technology vendors, start-ups, service providers and lenders.

The post TMS, SL3 Join Forces to Aid Lenders and Service Providers appeared first on MortgageOrb.

Hudson brings 22 years of mortgage experience and leadership to MFS’ wholesale division. He serves on the Mortgage Bankers Association’s Community Mortgage Banking Project Committee, and he is also co-chair of the IMB Network. Hudson previously served as the government affairs chair for NAMB, where he testified to the House Financial Services Committee on the impact of Dodd-Frank.

“We are excited about the growth alignment between MFS and that of the third-party originator channel,” says Brad Sullivan, CEO of MFS. “I know that John’s vision for wholesale lending will come to fruition as he pushes for new ways to better serve mortgage brokers and their local communities.”

Photo: John H. P. Hudson

The post MFS Names New Head of Wholesale Lending appeared first on MortgageOrb.

House prices rose 5.5 percent from April 2019 to April 2020. The previously reported 0.1 percent increase for March 2020 remains unchanged.

For the nine census divisions, seasonally adjusted monthly house price changes from March 2020 to April 2020 ranged from -0.5 percent in the South Atlantic division to +0.8 percent in the West South Central division. The 12-month changes were all positive, ranging from +5.0 percent in the Middle Atlantic division to +6.8 percent in the Mountain division.

“U.S. house prices posted another positive monthly increase in April,” says Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA. “Regionally, results varied. Two of the usually stronger growth areas, the Mountain and Pacific divisions, were flat over the month but other divisions continued to experience strong price appreciation even with all of the COVID-19 challenges. Both the New England and South Atlantic regions saw monthly decreases in prices, but all divisions posted positive year over year growth of at least 5 percent.

“The number of transactions used to estimate the HPI were slightly down from March to April but were still a robust sample. We expect the normal spring bump in sales was pushed off by the COVID-19 shutdowns and may extend into the summer months as states reopen and real estate sales pick back up.”

The post FHFA House Price Index Up 0.2 Percent in April appeared first on MortgageOrb.

As of the end of the month about 7.76% of all mortgages were 30 days or more past due.

That’s about 4.1 million mortgages – an increase of about 723,000 compared with April and an increase of about 2.4 million compared with May 2019.

Serious delinquencies also increased in May. As of the end of the month about 631,000 mortgages were seriously delinquent – or 90 days more more past due but not in foreclosure – an increase of 169,000 compared with April and an increase of 170,000 compared with May 2019.

Meanwhile, the foreclosure pre-sale inventory continued to fall. It was at 0.38%, down 5.80% compared with the previous month and down 22.7% compared with May 2019.

Foreclosure starts were also down. In May, foreclosure proceedings were started on about 5,100 homes, down about 31% compared with the previous month and down about 87% compared with a year earlier.

The monthly prepayment rate – which is impacted by refinance activity – was at 2.29%, down 1.78% compared with April but up 86% compared with May 2019.

The post Foreclosures Continued to Fall in May as Mortgage Delinquency Rate Spiked appeared first on MortgageOrb.

The CARES Act provides forbearance relief for consumers with federally backed mortgage loans. The mortgage industry has developed different options for borrowers to repay the payments that were forborne under the CARES Act. For example, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac may permit some borrowers to defer repayment of the forborne amounts until the end of the mortgage loan. The Federal Housing Administration (FHA) has a similar program. These programs require the servicer to collect only minimal information from the borrower before offering the option.

The IFR makes it clear that servicers do not violate Regulation X by offering certain COVID-19-related loss mitigation options based on an evaluation of limited application information collected from the borrower. Normally, with certain exceptions, Regulation X would require servicers to collect a complete loss mitigation application before making an offer.

The IFR specifies that the loss mitigation option must meet certain criteria to qualify for an exception from the typical requirement to collect a complete application. Among other things, the option must allow the borrower to delay paying all principal and interest payments that were forborne or became delinquent as a result of a financial hardship due, directly or indirectly, to the COVID-19 emergency. Servicers may not charge any fees to borrowers in connection with the option, and the borrower’s acceptance ends any preexisting delinquency. The exception is not limited to payments forborne under the CARES Act.

The IFR also provides servicers relief from certain requirements under Regulation X that normally would apply after a borrower submits an incomplete loss mitigation application. Once the borrower accepts an offer for an eligible program under the IFR, the servicer need not exercise reasonable diligence to obtain a complete application and need not provide the acknowledgment notice that is generally required under Regulation X when a borrower submits a loss mitigation application.

Servicers still must comply with Regulation X’s other requirements after a borrower accepts a loss mitigation offer. For example, if the borrower becomes delinquent again after accepting the offer, the servicer would have to satisfy Regulation X’s early intervention requirements. Similarly, if the servicer receives a new loss mitigation application from the borrower, the servicer would have to comply with Regulation X’s loss mitigation procedures.

Click here to read the complete IFR.

The post CFPB Issues IFR on Loss Mit Options for Recovering Homeowners appeared first on MortgageOrb.

Now, 60% of Gesa’s mortgage processes have been automated, with “digital assistants” supporting all aspects of the business, from application through closing.

“At Gesa, we are always looking to streamline our processes to serve more members, control expenses and increase revenue – all while providing the best member experience possible,” Gesa CU CEO Don Miller says. “Digital Align’s domain expertise and solutions aligned really well with our needs.”

Automation has helped keep employees focused on serving Gesa’s members rather than repetitive task work. A mortgage application might have one field missing or 25 fields missing, which took significant staff time. After Digital Align installed Gesa’s digital assistants, the assistants identify those and gather the information. Data has become more consistent, creating fewer compliance issues, and the credit union is experiencing a decrease in overtime.

“We’re handling the highest mortgage volumes ever in the history of Gesa, and we’re not adding staff,” adds Gesa CIO Raj Bandaru, who notes that the credit union increased its funding volume four-fold from January through March, even with staff working from home due to the coronavirus.

“At 125 applications, we used to be overwhelmed,” says Randy Wacker, Gesa’s vice president of mortgage lending. “Now, we’re at 300, and they’re busy, but it’s not hair-on-fire busy.”

Photo: Don Miller

The post Credit Union Finds Substantial New Efficiencies in Mortgage Process appeared first on MortgageOrb.

Of these actions, 3.7 million of the foreclosure prevention actions have helped troubled homeowners stay in their homes.

Other report highlights include the following:

Forbearance: Newly initiated forbearance plans rose to 170,533 in the first quarter, up from 6,975 in the fourth quarter of 2019. A majority of the forbearance actions occurred as a result of the GSEs’ response to COVID-19 impacts.

Loan modifications: Of the 16,773 loan modifications completed, 38% reduced borrowers’ monthly payments by more than 20%; 64% were extend-term only; and 23% were modifications with principal forbearance.

Foreclose starts and sales: 7,704 third-party and foreclosure sales were completed, down 9% compared with the fourth quarter of 2019. Foreclosure starts decreased 3% from 30,010 in the fourth quarter of 2019 to 28,978 in the first quarter of 2020.

Refinances: The refi share increased to 747,464 in the first quarter, from 728,842 in the fourth quarter of 2019.

The GSEs’ serious (90 days or more) delinquency rate decreased to 0.64% at the end of the first quarter. This compared with 3.29% for Federal Housing Administration (FHA) loans, 1.8% for Veterans Affairs (VA) loans, and 1.67% for all loan types.

The full report can be access here.

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