12 mortgage power players to watch in 2019

Hugh Frater, Fannie Mae and David Brickman, Freddie Mac

What they do: Interim CEO of Fannie Mae; President of Freddie Mac

What to watch for in 2019: The CEOs of both GSEs announced in mid-2018 their impending departure from their respective posts. Brickman was promoted to president of Freddie Mac in September, and is an internal candidate forsucceeding Donald Layton when he leaves in the second half of 2019. Frater is the interim CEO at Fannie Mae, taking over for Tim Mayopoulos, who stepped down in late October.

The Trump administration has hinted at finally taking steps toward GSE reform, potentially removing Fannie and Freddie from conservatorship. But it appears there won’t be much progress until the new director of the Federal Housing Finance Agency is appointed.

Why it matters: The challenges facing whoever takes over Fannie and Freddie will be very different than what Mayopoulos and Layton inherited in 2012. While both GSEs remain under federal conservatorship, they are in a much stronger financial position. Still, there is considerable uncertainty about their future, and the oversight structure constrains the CEOs from shaping the GSEs’ destinies.

Robert Broeksmit, Mortgage Bankers Association

What he does: President and CEO of the Mortgage Bankers Association

What to watch for in 2019: “Bob” Broeksmit took over as president and CEO of the MBA in August, succeeding David Stevens. Can he keep the positive momentum of his predecessor going amid significant industry shifts? How will the trade group pivot its lobbying with a divided Congress? Will he ever join Twitter?

Why it matters: The MBA’s political action committee raised a record $2.1 million during the 2016-2018 election cycle, including $1.2 million in 2018 alone. That may prove valuable as the industry is bracing for considerable consolidation amid tight margins and low volume, which may pose challenges for the MBA’s membership, fundraising and lobbying efforts.

Kristy Fercho, Flagstar

What she does: President of mortgage at Flagstar Bank

What to watch for in 2019: Fercho came aboard Flagstar as executive vice president and president of mortgage in 2017. In June, Flagstar bought 52 branches of Wells Fargo in an effort to grow their retail mortgage presence and reduce their reliance on third-party originations. In August, the Fed lifted its regulatory order, freeing it for more activity and corporate functionality.

Why it matters: Origination volume is expected to continue facing difficulties. Seeing how Flagstar will navigate the market and handle its mortgage business will be interesting. Flagstar’s been issuing their own RMBS deals and will have more freedom in 2019.

Bruce Gross, Laura Escobar and Tom Fischer, Lennar Financial Services

What they do: CEO of Lennar Financial Services; President of Eagle Home Mortgage; President of North American Title Group

What to watch for in 2019: The lender market is condensing. Will Lennar look to make any more acquisitions to offset its shrinking mortgage margins?

Why it matters: The Lennar Financial Services umbrella provides everything for the homebuying process including title, mortgage and closing services. One-stop shops are becoming the trend as more mortgage companies face problems making profit.

Erin Lantz, Zillow

What she does: Head of Mortgage at Zillow

What to watch for in 2019: Lantz plays a critical role in directing strategy and execution. How will she help traverse the mortgage part of the business through the dark housing outlook for 2019?

Why it matters: Zillow Group transformed itself into a digital brand conglomerate of renting, buying, selling, financing, home improvement and data.

Brian Montgomery, FHA

What he does: Commissioner of the Federal Housing Administration

What to watch for in 2019: The FHA is expected to take steps to streamline FHA servicing requirements to align with industry practices. Montgomery has also said the FHA is considering extending the multifamily risk-sharing program.

What’s less certain is whether the FHA will heed industry calls to cut its mortgage insurance premium. Also unclear is how long Montgomery will serve as the acting No. 2 at the Department of Housing and Urban Development.

Why it matters: The GSEs’ 3% down payment loan programs have created new competition for first-time homebuyers, particularly given the high cost of FHA mortgage insurance. The multifamily risk-sharing program supports affordable housing development and allows state housing finance agencies to underwrite multifamily loans. HUD shares the effort of increasing the affordable housing supply, as well as aiding homelessness, enforcing fair housing laws, and disaster response.

Michael Nierenberg, New Residential

What he does: Board Chairman and CEO of New Residential

What to watch for in 2019: Under Nierenberg’s leadership, New Residential has become one of the most aggressive investors of mortgage-servicing rights. As themarket for MSRs becomes more active, look for the real estate investment trust to make opportunistic plays to build its portfolio — particularly given its recent $433 million stock offering.

Why it matters: Nonbank mortgage servicers must gear up to meet new secondary market requirements and make some tough decisions about whether to buy, sell or hold MSRs as they head into 2019.

Eric Schuppenhauer, Citizens Bank

What he does: President of Home Mortgage, Citizens Bank

What to watch for in 2019: After acquiring Franklin American Mortgage, Citizens Bank extended its base of customers and loan growth while boosting its earnings.

Why it matters: With the nonbank market share of mortgages rising, Citizens appears poised to make a contrarian play among bank mortgage lenders and expand its loan offerings.

Eric Stoddard, Wells Fargo Funding

What he does: Executive Vice President at Wells Fargo Funding

What to watch for in 2019: Stoddard oversees Wells Fargo’s massive correspondent mortgage channel, the largest aggregator of closed loans originated primarily by independent mortgage banks. Wells Fargo’s recent move to start acquiring electronic notes from its correspondents could be a watershed moment for the electronic mortgage movement.
What’s more, Wells Fargo’s correspondent channel may become an increasingly important aspect of its overall mortgage strategy, given the bank’s plans toseverely reduce its workforce over the next three years.

Why it matters: Small and midsize lenders often cite investor acceptance as one of the biggest impediments to e-mortgage adoption. With the largest correspondent aggregator — not to mention both GSEs — all buying e-notes, that obstacle is becoming increasingly less severe.

Source:

How Does the Mortgage Market Work?

If you’re in the market to purchase or refinance a home,you’re probably being exposed to a whole range of information the average person doesn’t think about on a routine basis. You’re looking at mortgage rates, but how are they set anyway? What is it exactly that mortgage investors like Fannie Mae, Freddie Mac and the VA do? Finally, after your loan closes, what the heck is mortgage servicing?

That’s a lot to cover, but we’ll break things down. Let’s jump in with a look at mortgage rates.

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How Are Mortgage Rates Determined?

When shopping around for mortgage rates, there’s probably a temptation to think lenders set these things pretty arbitrarily. However, there are actually two big facets to determining the interest rate on a mortgage: market conditions and your personal financial profile.

How Base Interest Rates Are Set in the Market

There are a few different market factors that affect interest rates for mortgages. In addition to the day-to-day activities of mortgage bond traders, the Federal Reserve also plays a role. Let’s dig into that first.

The Role of the Federal Reserve

In its original mandate from Congress, the Federal Reserve was set up to be the central bank of the United States. This means it has a variety of responsibilities, including overseeing banks as a whole and setting certain financial policy regulations. But perhaps the most important role it plays from a consumer perspective is in the setting of short-term interest rates.

When the Fed’s Open Market Committee (FOMC) meets to determine what this benchmark interest rate should be at any given time, they have a couple of key goals:

The Fed has a bit of a balancing act here because those goals sometimes run in competition with each other. To achieve the highest possible rate of employment, you might choose to keep interest rates low, because cheaper borrowing can stimulate businesses to invest. This can lead to more hiring as well as more money spent on goods and services, which can have a knock-on effect and help still more businesses prosper.

However, if the cost of borrowing funds is too low, this also tends to mean that the money you have saved in the past is worth less than if higher borrowing costs made funds scarcer. If your money isn’t worth as much, prices can go up quickly, as you need to part with more money to get the same amount. Pretty soon you end up paying $15 for a loaf of bread.

It should be noted that a little bit of inflation can be a good thing, since the threat of rising prices can encourage people to buy now rather than wait for some undetermined date in the future, stimulating economic activity. But it’s important for the Fed to keep a thumb on the scale. Recently, the target goal has been 2% inflation per year.

The Fed must do its best to maintain an equilibrium between these two factors when it sets the benchmark short-term interest rate, which is the rate at which federally insured banks can borrow money each night. The range of short-term interest rates currently sits between 2.25-25%.

Although the most immediate impact may be felt in the rates for short-term lending – credit cards, personal and auto loans – longer-term payoffs like mortgages do tend to correlate with these short-term rates. Depending on market factors, which we discuss below, the base interest rate for a mortgage might run between 2% – 3% higher than short-term rates.

Bond Trading and Mortgage Rates

When the practice of lending money for people to buy homes first started, a bank would look at the qualifications of the borrower and, if they made a loan, hold on to it until the loan was paid off, potentially 20 or 30 years down the line.

While some banks still do this today, the advent of the mortgage-backed security (MBS) has changed things up a bit. Let’s look at a brief overview of how the process works.

After your loan closes, it’s packaged up with other mortgages that have similar characteristics to your loan. As an example, a single MBS might have 100 conventional loans with credit scores above 680 and down payments of between 15% – 20% on primary properties.

The investor – most often an institution, but it could be an individual – has the opportunity to buy this at a rate of return dictated by the market. Those rates of return are what’s important in determining mortgage rates.

The advantage of this system for the mortgage originators whom you previously worked with to close your loan is that they can receive cash from a mortgage investor who backs the bond and packages it as an MBS, giving them the capital to make more loans without having to wait for payments to come in over the full course of the term.

The stock and bond markets have a tendency to operate with a push-pull effect. Stocks are considered riskier because they are fed by corporate earnings results and, more often than not, by speculation on what a company will or won’t do well off into the future. They’re somewhat more speculative, but they can offer a higher rate of return in exchange for the increased risk.

Bonds, on the other hand, could be for anything from local municipal projects to large-scale government operations to mortgage bonds – the last of which are paid into each month when homeowners make their payments. Since the borrowing that underlies bonds tends to be for essential goods and services, this is considered a much safer investment in stocks, because people will pay off the necessities.

This is where the push-pull comes in. When stocks are going up and people are feeling good about the state of business and the economy, they pour more money into equities and take it out of bonds. Because MBS are traded on the bond market, mortgage rates tend to rise, as the rate of return on bonds needs to be higher in order to attract investors. On the other hand, if people are uncertain about the future at home or abroad, the money goes back into the safety of the bond market, which can have the effect of lowering mortgage rates.

In addition to setting monetary policy, the Fed has in recent years played a role here as well. As part of an economic stimulus package instituted after the 2008 financial crisis and now being wound down, the Federal Reserve holds more than$1.6 trillion in MBS and has been the market’s largest buyer. The intention was to keep mortgage rates lower while the economy gained steam. Although this is being rolled back, it’s a card the Fed can choose to play in a time of crisis.

If all things were equal, the movement of the bond market in one direction or another on a particular day would determine your mortgage rate. However, your personal financial profile is taken into account as well. Let’s get into that next.

Your Personal Interest Rate

Your personal interest rate is dependent on a variety of factors. We’ll cover the major ones in detail here, but you can check out this post on getting the best possible mortgage rate for more detail.

An important thing to remember about mortgage rates is that in addition to market factors, they’re also determined in part by the level of perceived risk. If you’re considered a lower risk, you’ll get a better rate than someone with higher risk factors.

Among the metrics lenders use to revalue your qualifications are your credit, the size of your down payment and the type of property you’re buying or refinancing.

On top of these, we’ll also discuss how closing costs can affect your rate.

Understanding Risk Factors

The first important factor in determining your interest rate is your credit. The thing you often think about when you think of credit is a FICO® score, and that is certainly a major factor, but you may also want to keep an eye on a few other items.

Of particular relevance to your interest rate is whether you have negative items, such as a bankruptcy, on your credit report. If the negative item is too new, you can end up with a higher interest rate even if you do qualify, due to fewer programs being offered and the higher risk for the lender or mortgage investor.

In addition to credit, another huge element is the size of your down payment or the amount of equity you have in the home you’re financing. A higher down payment means less risk for the lender or mortgage investor, enabling them to give you a lower rate.

The final big risk factor affecting your interest rate is the type of property you’re buying. All other things being equal, your rate will be lower for a primary property than it would be for a second home or investment property. The rationale here is that if you run into financial trouble, you’re more likely to make the payment on your primary property first.

Closing Costs and Your Rate

Another thing that can impact your rate is the closing cost associated with your loan. Let’s briefly go over a few examples.

Prepaid interest or mortgage discount points are a way to buy down your interest rate. One point is equal to 1% of the loan amount. Whether it makes sense to buy points involves doing a little bit of math.

Let’s say you’re buying a $200,000 home and paying for two points will save you $50 on your monthly payment. Since the cost of the points would be $4,000 (200,000*0.02), you divide this number by 50 in order to get the break-even point: 80 months. In other words, if you plan on staying in the house for more than 6 years and 8 months, it can make sense to buy the points, because you’ll save money over time. Otherwise, you shouldn’t buy the points, or you should buy fewer points.

On the other hand, if you want to keep closing costs down, you can opt to take a credit from your lender to roll the losing costs into the loan  in exchange for a slightly higher rate.

Finally, if you make a down payment of less than 20%, you’ll likely have to pay for mortgage insurance or an equivalent. The exception to this is VA loans, which have a one-time upfront funding fee that can be rolled into the loan if desired.

With conventional loans, you have the option of making the mortgage insurance payment on a monthly basis or having the lender pay for the policy upfront and taking a slightly higher interest rate compared to loans without lender-paid mortgage insurance (LPMI). However, there is also something called single-pay mortgage insurance. With this option, you can pay for part or all of your mortgage insurance policy upfront to get a lower rate while still avoiding a monthly mortgage insurance payment.

Understanding Mortgage Investors

Now that we understand how rates work, let’s take a quick look at some of the other aspects of the mortgage market.

As mentioned above, the mortgage investor plays an important role in providing cash flow in the mortgage market, but who are they and what do they really do?

Who Are the Mortgage Investors?

In some cases, the bank that originated your loan is also the investor in that mortgage, but this has become less and less common in recent years. Most loans nowadays are sold to one of five major mortgage investors:

  • Fannie Mae
  • Freddie Mac
  • Federal Housing Administration (FHA)
  • S. Department of Agriculture (USDA)
  • Department of Veterans Affairs (VA)

Fannie Mae and Freddie Mac provide what are referred to as conventional or agency loans and are government-sponsored entities (GSEs). The last three are loan options offered by the federal government and really roll up to one investor, Ginnie Mae.

Each investor has strict standards regarding which loans they’ll buy, and that helps determine what loan type you qualify for.

What Do Mortgage Investors Do?

Mortgage investors buy mortgage loans and then provide insurance. Essentially, they allow bond market investors to buy the loans with the confidence that even if several people in a pool of 100 or 1,000 loans default, the regular investor in the bond market won’t lose their shirt.

In exchange for this insurance, these initial investors act as the middleman between the originators and the bond market at large. They package the loans up into an MBS and mark up the price a bit for a profit. There is also sometimes a difference in the appetites for certain types of loans, which can account for differences in interest rates between FHA and conventional loans of the same term, for example.

What Happens When Your Loan Is Sold?

Because mortgage investors buy your loan from originators, it’s likely you’ll receive a notification that your loan has been sold to an investor within a month or two after your closing. However, that doesn’t necessarily mean your relationship with your lender is ending.

After closing, you then enter the servicing phase of your loan transaction until the house is sold, refinanced or otherwise paid off. In addition to collecting your monthly principal and interest payments, the servicer will also collect monthly for your property taxes and homeowner’s insurance, if you have an escrow account, as well as for your mortgage insurance, if applicable. If you run into financial trouble and need payment assistance, you would also contact your servicer then.

While some lenders sell the servicing rights to their loans, Quicken Loans is proud to service 99% of the loans it originates. We’re your lender for life and will stay with you from application until you make your last payment.

Challenges mount for mortgage lenders as shutdown persists

WASHINGTON — Although the partial government shutdown has not yet been long enough to significantly hamper the mortgage market, lenders and borrowers may already be feeling the strain.

The Federal Housing Administration has continued to process government-backed loans during the shutdown, but with the mortgage insurance agency operating with just a fraction of its work force, industry watchers expect a backlog in FHA endorsements that could extend beyond when the government reopens.

And while the FHA is endorsing loans, it has halted assisting financial institutions in underwriting them. This may not affect larger lenders that use the agency’s automated underwriting system, but smaller institutions may temporarily need to adjust their underwriting process or wait for the FHA to be back at full speed.

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Meanwhile, the processing of both government-insured and conventional loans is likely being affected by reduced operations at the Internal Revenue Service. Some lenders may be wary of closing loans without IRS documentation known as Form 4506-T, which provides official income verification and tax return transcripts. The form is unavailable with the government partially closed.

“It makes lending more difficult, especially in light of we are in the post-bubble-crash era where the income documentation is more thoroughly reviewed,” said Lawrence Yun, the chief economist at the National Association of Realtors.

The FHA is under the umbrella of the Department of Housing and Urban Development, one of nine cabinet-level agencies currently without funding. Official details on how the shutdown, which began Dec. 22, has affected the housing market are unavailable. But HUD has warned of an increasingly negative impact on homebuyers and the market as a whole with each day that the shutdown continues.

“A protracted shutdown could see a decline in home sales, reversing the trend toward a strengthening market that we’ve been experiencing,” the department wrote in its contingency plan for a possible lapse in appropriations for 2018. (HUD’s website has not been updated since the shutdown began.)

In HUD’s Office of Housing, which includes FHA, there are 2,386 employees. Yet only 103 employees of those employees are working during the shutdown, and up to 300 employees on any given day can be called to work on projects that are exempted from the shutdown on an intermittent basis.

Although most industry professionals believe that the impact to the housing market thus far has been limited, they said lenders and borrowers may be feeling an effect, particularly prospective home buyers with government jobs.

“Buying a home is a major expenditure, so people need to be assured that their job is secured and that the long-term direction of the economy is moving in the right direction,” said Yun. “The broader consumer will just sense that there is more uncertainty related to the economic activity going into the future, and if that is the case, that can hold back the consumer-buyer confidence about home buying.”

 

Due to the limited IRS activity, borrowers working in gig-economy jobs or who own small businesses will have an especially difficult time processing a home loan during the shutdown, since they must often jump through additional hoops to verify income.

“Self-employed borrowers have more complicated tax returns where you might want to see the full transcript to make sure the tax return you’re looking at is one that’s actually filed with the IRS,” said Pete Mills, a senior vice president at the Mortgage Bankers Association. “The more complicated the tax return, the more likely you’re going to want to see the transcript.”

But some lenders might be more inclined to forgo an IRS transcript in the short term or postpone verifications until the government reopens, said Brian Chappelle, a partner at Potomac Partners and former FHA official.

“I think lenders are pretty comfortable that from all the other documentation that they got from the borrower on their income and their credit and all the other things, that they don’t feel that’s much of a risk to close a conventional loan without the 4506 in light of the other documentation,” he said.

Although if the shutdown stretches on and lenders are forced to rely on supplemental income verification for more borrowers, some could change course, said Mills.

“I think in the last week of the year over the holidays, the impact is relatively muted, but now we’re in January and if this persists and the backlog continues, I do think the willingness to take that extra measure of risk will start to perhaps dissipate a little bit,” he said.

Lenders that originate FHA loans but sell them to a third party may also have trouble selling a loan without the IRS documentation.

“In many cases the aggregators want to see not only the signed form, but the actual transcripts themselves, and they’re not being processed so those loans get delayed,” said Mills.

Although the FHA can endorse new single-family loans during the shutdown, many of the agency’s employees are furloughed and spread thin, which industry professionals say will create a backlog of loans waiting to be processed when the government reopens.

“One has to sense that the longer the shutdown, the existing people that are working there are stretched and hence they cannot handle all the backlog that might be accumulating,” said Yun.

But Mills said unless the shutdown continues for a longer-than-expected period of time, the impact will be marginal.

“There will be a backlog but I don’t think it will be dramatic, but if we go on for a month, that could get significant,” he said.

Chappelle said the FHA’s automated underwriting system does give the HUD agency an advantage over other government mortgage lending programs affected by the shutdown, such as the one run through the U.S. Department of Agriculture.

“Since now lenders process and underwrite the loans themselves and can obtain electronic endorsement themselves, everything is done without any HUD involvement,” he said.

And because borrowers can still obtain loans backed by Fannie Mae, Freddie Mac and the Department of Veterans Affairs— which is fully funded during the partial shutdown — the overall effect on the housing market could be negligible, said Chappelle.

The market is further helped by the seasonal pattern of home sales, which are considerably lower in January compared to the rest of the year.

Lenders who think outside the box stand to win marketshare in in today’s market.

“There will be some backlog as well as some little initial rush of activity once the shutdown finishes but the actual number of homes sales that will be delayed, I think those will be very miniscule of a number,” said Yun.

For now, observers remain cautiously optimistic that the shutdown will not last so long as to have dramatic consequences for the mortgage sector.

“It’d have to go on for a protracted period of time to have any effect,” said Chappelle.

Source: Hannah Lang

What You Must Know About The Benefits Of Mortgage Refinancing

Mortgage refinancing is a strategy that helps homeowners meet their goals. This could mean refinancing to a lower interest rate or refinancing to a different mortgage term. Refinancing a home is a big financial decision and one that shouldn’t be made without doing due diligence.

Mortgage refinancing can provide a number of benefits. These will vary from borrower to borrower, depending on what they’re looking to achieve. But a refinance will generally provide one or more of the following:

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A better mortgage rate

This may be the most common reason for refinancing. If mortgage rates have fallen since you took out the loan, you can often save money by refinancing, you mortgage into a new home loan at current rates. Or perhaps your credit situation has improved, so you’re eligible for a lower rate.

Lower monthly payments

With a lower interest rate, you can get lower monthly payments as well, particularly if your refinanced mortgage has the same payoff date as your old home loan. You can also lower your monthly mortgage payments by extending your payoff date past what it currently is, so you’re paying less in principle each month.

More predictable costs

If you currently have an ARM (adjustable-rate mortgage), you may choose to refinance to a fixed-rate loan to lock in your rate for the remainder of your mortgage. That way, you don’t have to worry about your monthly payments increasing if rates should rise.

Shorten your term

Many borrowers start out with a 30-year home loan, then refinance to a 15-year fixed-rate mortgage after a few years. This allows them to pay the mortgage off faster and save a lot of money in interest over the life of the loan. Mortgage rates on 15-year loans are also significantly lower than on 30-year mortgages, so you may be able to shorten your term without a big increase in your monthly mortgage payment.

Borrow money

With a cash-out refinance, you can borrow against your home equity to obtain funds for any purpose. You receive a check at closing, the amount of which is added onto the mortgage principle you owe. Since mortgage rates tend to be lower than other types of debt and tax-deductible as well, it can be a very cost-efficient way to borrow.

Consolidate debts

You can use a cash-out refinance to pay off other debts to save money on interest and reduce your total monthly payments. Mortgage rates are usually lower than the interest rates paid on credit cards and other unsecured debt, so you save on interest payments.

Mortgages can also be repaid over longer terms than most other types of debt, up to 30 years, so you can reduce your monthly payments against debt principle, if that’s your goal.

Interest paid on mortgages and home equity loans is also tax-deductible, up to certain limits, whereas interest paid on other debts usually is not. Couples can deduct the interest paid on up to $100,000 obtained through a cash-out refinance for debt consolidation; for single persons the limit is $50,000.

Combine two mortgages into one

You can also combine a second mortgage or HELOC (home equity line of credit) into a single primary mortgage at a lower rate. This is like a cash-out refinance, but because you’re using it to pay off secondary mortgages, you’re not reducing your home equity, other than for any closing costs you might roll into the loan. You also get the convenience of a single monthly payment, instead of two or more.

Cancel mortgage insurance

If you have lender-paid mortgage insurance, you can refinance once you reach 20 percent equity to eliminate the premium that’s built into your interest rate. The same also applies to certain FHA home loans that require mortgage insurance for the life of the loan.

Remove a person from a mortgage

There are times, usually after a divorce, when someone who originally signed onto a mortgage is no longer to be held financially responsible for the loan. The only way to get them off the mortgage is by refinancing. This can also be used to remove the name of a co-signer whose support is no longer necessary and wishes to be freed of liability.

 

USA: Mortgage applications decline in light of government shutdown

Despite mortgage rates continuing their two month downslide, applications decreased 9.8% from two weeks ago due to market uncertainty, according to the Mortgage Bankers Association.

The MBA’s Weekly Mortgage Applications Survey for the week ending Dec. 28 found that the refinance index decreased 12% from two weeks earlier.

The refinance share of mortgage activity also decreased with the overall volume, falling to 42.7% of total applications from 43.6%.

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The seasonally adjusted purchase index decreased 8% from two weeks prior, while the unadjusted purchase index decreased 46% and was 6% lower than the same time in 2017.

“Mortgage applications fell over the past two weeks — even as the 30-year fixed-rate mortgage decreased to 4.84%, its lowest since September 2018. Investors continued to show a preference for safer U.S. Treasuries, as concerns over U.S. and global economic growth, along with uncertainty over the current government shutdown, drove rates lower,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said in a press release.

Adjustable-rate loan activity held at 7.6% of total applications, while the share of Federal Housing Administration-guaranteed loans increased to 10% from 9.7% the week prior.

The share of applications for Veterans Affairs-guaranteed loans rose to 11% from 10.1% and the U.S. Department of Agriculture/Rural Development share decreased to 0.6% from 0.7% a week ago.

“Even with lower borrowing costs, both purchase and refinance applications decreased over the two-week holiday period, as both conventional and government applications dropped. Part of the decline in mortgage applications was possibly because of the government shutdown, as concerns over delays in FHA application processing times likely contributed to the weakness in activity,” Kan said.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased 2 basis points to 4.84%. For 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100), the average contract rate jumped to 4.72% from 4.59%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased 5 basis points to 4.86%. For 15-year fixed-rate mortgages, the average decreased 6 basis points to 4.25%. The average contract interest rate for 5/1 ARMs decreased 7 basis points to 4.16%.

How NMRC is Building Strong Pillars For Nigeria’s Mortgage Market

The key elements for the growth of a national mortgage finance market are gradually taking shape. Major housing industry players including mortgage banks, financing institutions, and developers are working together in a more structured fashion.

The country’s mortgage market, which has for several decades, depended on bank deposits now raises longer-term funds from the Capital Market to make mortgages of up to 20 years possible and the regulatory framework for conducting mortgage transactions is being strengthened to reduce investment risk. Also, technology is now playing a central role in streamlining and integrating mortgage transaction processes.

This creates a pool of reliable industry data that will support strategic policy formulation to drive housing development. Overall, in terms in market depth, liquidity and structure, availability and affordability of residential mortgages, it is evident that the housing and mortgage industry has recorded significant progress in the last three years.

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This turnaround is thanks in large part to the strategic interventions of the Nigeria Mortgage Refinance Company (NMRC), a private sector-driven mortgage facility that started operations in 2015 with the mandate to develop the country’s primary and secondary markets.

To put things in perspective, consider the state of the industry before the NMRC was established in 2013 as a component of the Nigeria Housing Finance Programme – a program initiated by the Federal Ministry of Finance in collaboration with the Central Bank of Nigeria (CBN), Federal Ministry of Lands, Housing & Urban Development (FMLHUD) and the World Bank/IFC. The country’s 60-year old mortgage industry was in a dire state: loose and without financial depth.

A combination of liquidity shortages, systemic and structural challenges made the growth of the sector difficult. Mortgage loans were hard to access. Even when available, they were provided at premium interest rates of upwards of 28 percent per annum. Payback periods were short with the longest being around five years.

The lack of a robust secondary mortgage market with access to long-term finance and a pro-active institution to implement structural reforms stunted growth and created an inefficient system where players in the sector operated as disparate entities. The result is the often-quoted huge housing deficit of over 17 million units, which the World Bank estimates would cost about N59.5trillion to bridge.

Tapping Long-Term Mortgage Finance

In the past four years, NMRC has in pursuit of its mandate to break down barriers that hinder affordable housing delivery taken several impactful actions to reset the country’s housing market on the path of sustainable growth and impact. The most notable feat is successfully linking the mortgage market to the capital market and deepening liquidity in the system. In the past two years, NMRC has issued bonds and raised a total of N19 billion from the capital market to refinance mortgage loans that are provided by mortgage and commercial banks that it partners with: N8 billion in July 2015 and N11 billion in June 2018. To date, NMRC has refinanced mortgages to the tune of N18 billion.

What is innovative about the NMRC is the catalytic way it deploys its funds through mortgage and commercial banks that give housing loans. NMRC uses the long-term funds that it raises from its bond issues to purchase loans that mortgage and commercial banks give to working Nigerians. The implication is that, instead of waiting to recoup the loans through monthly payments over periods that may range from ten to 15 years, NMRC ensures they get the full value of the loans after six months. NMRC’s capacity to make this quick liquidity conversion has boosted the financial standing of its partner mortgage banks, empowering them to process even more mortgages to other potential homeowners.

The current management of NMRC, under the leadership of Mr. Kehinde Ogundimu, plans to increase the frequency and size of the company’s bond issuance program in order to rev up refinancing activities for greater impact going forward. To achieve this, the new management at the last Annual General Meeting (AGM) in August 2018 secured shareholders’ approval to triple its bond issuance program from N140 billion to N440billion. This expansion inspires hope for greater liquidity for providing more housing loans in 2019 and beyond.

Driving Standards
NMRC has also led efforts to promote the creation of a strong legal framework and standards to support the activities of key players in the mortgage market. This includes the development of uniform underwriting standards for both the formal and informal sectors of the economy. The standards set clear industry guidelines that mortgage banks are expected to comply with in originating and processing mortgages that can be refinanced by NMRC. They serve the strategic purpose of creating a strong system for mitigating risks associated with mortgage financing. Currently, all NMRC’s participating mortgage and commercial banks used these standards to process mortgage applications. The adoption of these standards by the banks and the strict application has helped NMRC to achieve zero default rate on the loans that it has refinanced so far.

NMRC has also developed a model mortgage foreclosure law for adoption by state governments. The Kaduna State government last year made history as the first state to adopt the law. The law is critical to creating legal mortgages across the country and ensuring the timely resolution of disputes. It is also necessary as a strong legal basis that empowers mortgage institutions to recover the balance of loans from defaulting borrowers by forcing the sale of the asset used as the collateral for the loan.
Fixing Structural Gaps

NMRC has also done a remarkable job of leveraging the power of technology to close structural market gaps and introduce efficiencies in the operations of the country’s mortgage market.

At the heart of this focus is the Mortgage Market System (MMS) which is currently in use by all key players use for their mortgage transactions. The system links important aspects of the housing value chain from construction finance to primary mortgage origination and administration to secondary market refinancing. The successful adoption of this system by all key stakeholders in the housing finance market is helping to forge integration of business systems and processes as well as enhance efficiency and transaction turnaround times.

Partnerships
NMRC is also building strategic partnerships with key stakeholders to push the frontiers of affordable home ownership across the country. First is the collaboration with the Kaduna state government which amongst other things would help deliver the State’s Millennium City Project. The project is projected to deliver 20,000 houses to civil servants and some private sector consumers at single digit interest rates.

The second example is the strategic partnership with the Ogun State Government to deliver quality and affordable houses to public servants in the state. Key parties to the agreement include the Ogun State Property Investment Corporation (OPIC) and Imperial Homes, TrustBond and Homebase mortgage banks. The three mortgage lenders committed an initial N4.5billion to the deal that would boost the capacity of OPIC to develop more properties for uptake by civil servants while NMRC will provide refinancing for the mortgages that would be provided.

Another good example is NMRC’s affordable housing partnership with Echostone Housing System, a United States-based global leader in smart housing solutions to provide innovative housing technology solutions to improve cost-effective housing delivery and increase housing stock in the country. The first phase includes support of EchoStone’s plan to deliver 750,000 housing units within a 10-year period across key states in Nigeria.

All these developments are exciting and hold great promise for the industry. A robust housing finance market is essential to achieving the country’s drive to provide affordable housing for the working population. NMRC has done a commendable job in collaboration with key industry stakeholders such as the Central Bank of Nigeria (CBN), Mortgage Bankers’ Association of Nigeria (MBAN), the Nigerian Deposit Insurance Corporation (NDIC) amongst others. Sustaining the momentum of reform and market development activities is critical.
– Isaac is a housing industry professional based in Abuja

2019: HOUSING DEVELOPMENT ADVOCACY NETWORK SETS AGENDA FOR NMRC

Bridging Nigeria’s huge housing deficit requires a multi-faceted approach by all the players in the housing industry,

In the face of these challenges and given that housing and mortgage finance is a key component, it has become imperative to restructure mortgage refinancing to drive the needed reforms and strategies that will expand the availability of social and affordable mortgage and housing services to Nigerians.

Industry experts and practitioners believe that a new chapter in the annals of the country’s mortgage and housing sector was created when the Nigerian Mortgage Refinancing Company (NMRC) was unveiled in 2013 under the Nigeria Housing Finance Programme.

The establishment of the NMRC is the first time a co-owned institution is operating with a public-private governance structure.

As a private sector-led mortgage refinance institution, the project represents the first effective collaboration in the financial sector between the public sector – the States, the Ministries of Land, Justice, and Finance, the regulators, CBN, SEC, and the private sector – with financial institutions, being at centre of housing development and mortgage growth.

The basis for a mortgage refinance company, as a secondary market institution is to provide long term funds to mortgage lenders, and act as a mortgage liquidity facility. Ideally, a liquidity facility would be a stand-alone institution with its long-term operational future in the private sector.

Preferably, and in line with global prudential standards such liquidity facilities have financial institutions investors separate from the end users of the liquidity service for refinancing their mortgage backed assets.

Again the Nigerian experiment bucks this trend as the investors are also the customers of the institution (a clear case of conflict of interest should be resolved urgently).

Mortgage liquidity facilities fulfill a dual role of providing direct funding, by buying mortgages (often with recourse), or lending on the basis of mortgages being assigned.

The second role is to provide a liquidity backstop to lenders. This facilitates a much greater level of maturity transformation and enables lenders to better leverage their deposit base for on-lending as mortgage loans. NMRC must be differentiated from an Asset Management Company, beyond increasing shareholders return, its primary aim must be mortgage refinancing. This approach should be in line with its core mandate of promoting affordable home ownership in the country.

NMRC must be focused and avoid distractions that can negatively impact government programmes in the housing sector. The institution must continue to drive laudable initiatives to deepen the market.

The NMRC from its charter, mission and vision is fundamentally expected to be built around development financing, and high-level macro-economic impact investing, as against operating like an asset management company. It must be able to provide long-term liquidity to financial institutions extending mortgages in Nigeria as well as invest equity into long-term initiatives that also provides social return on equity and not only commercial rate financial returns. Its model is expected to provide the capital market with a transparent and effective way of funding developmental and impact-driven initiatives while mitigating the long-term and short-term liquidity risk of investing in the mortgage and housing market.

As an institution with ample public sector support (backed by Government guarantee, Ministry of Finance and Sovereign Wealth Fund Investments), the Federal Government other Stakeholders must ensure it makes it mandatory for NMRC to become fully responsible to the goals and aspirations of all stakeholders particularly the public and not just the equity investors and investment partners.

NMRC by acting as a central refinancing platform, should be able to act as a force for standardization in the market. NMRC has made attempts to set the criteria for the types of loans it will refinance, including standardised documentation, risk characteristics, etc. Standardizing market practices allows for greater transparency and the creation of market information systems. It is important to note that the maturity of any loan that is structured with collateral in the form of a mortgage can be refinanced and should be refinanced to drive down the cost of financing generally.

This would be a particularly useful function for many Nigerian banks that are not capital constrained and are also relatively liquid, but just lack long-term funds to carry out mortgage creation and Housing development. Ideally, the liquidity facility would fund itself by issuing standard bonds of various tenors, depending on transactions and market conditions.

If it is structured to drive market growth and impact, NMRC as a liquidity facility will function as an intermediate step on the path to a full secondary mortgage market and as an essential tool for delivering policy objectives such as the promotion of affordable housing or the promotion of local currency lending to the housing and mortgage sectors, spearheading legal and other structures required for mortgage lending as part of its investment in the financial services sector.

The opportunity presented in a re-structured mortgage refinance market can be exploited if all Government agencies (State and Federal) and Private Sector (Financial Institutions and Construction Companies, etc.) act responsibly. What this means, for example, is that: all households wishing to either, develop their existing home, or acquire a home of their own, must be granted access to credit and other opportunities to homeownership without any doubt, this must be as natural as the right to a passport.

Land registries with the support and collaboration of NMRC and other stakeholders in the States must provide access to title rights at a low cost and within a few months rather than the current practice of waiting for years. Construction companies, artisans, suppliers of building materials, have to start building homes of real value and not of speculative value. This means that the quality and cost of homes should be easy to assess without huge costs to the borrower. In the rare cases of default, the financial and mortgage institutions must be able to repossess, fairly and quickly. For this to be possible, the legal justice system for mortgages must be developed to work professionally.

Furthermore, NMRC would help reinvigorate the housing and construction sector, help increase liquidity in the housing sector, provide secondary market for mortgages and increase the number of people able to purchase or build homes at an affordable price in the country.

The company should also help to create more than 200, 000 mortgages in at affordable interest rates within the shortest possible timeframe in partnership with the Federal Mortgage Bank and other institutions. The NMRC as a systems enabler is supposed to help promote the developmental aspirations of the Federal Mortgage Bank and also assist the FMBN to standardize its operations.

 


The NMRC using its position as developmental and impact institution should be able to encourage financial institutions in the country to offer mortgages and be willing to refinance loans tied to construction, residential land purchase and housing development and not just create temporary overdraft loans.

NMRC must engage and encourage financial sector regulators and authorities to bring down interest rates to a single-digit level, to enable low income earners access mortgage and Housing development loans. Also, individuals and organisations should be encouraged to come together to form housing cooperatives, as part of efforts to boost housing delivery with support and guidance from NMRC. A thorough reform of the mortgage refinance sector must be speedily carried out to specifically address challenges in delivering affordable housing in the country.

The Nigeria Mortgage Refinance Company has refinanced mortgage loans totaling N18bn as at December 2018. The company confirmed the amount in a statement issued in Abuja. NMRC is a Central Bank of Nigeria licensed mortgage liquidity facility with the core mandate of developing the primary and secondary mortgage markets by raising long-term funds from the capital market, thereby promoting affordable home ownership in Nigeria. NMRC was incorporated on 24th June 2013 and obtained its final license to operate as a non-deposit taking financial institution from the CBN on 18th February 2015.

The statement said that the refinancing of the N18bn housing loan was in line with the company’s mandate to promote affordable home ownership in the country.
This, it added is being achieved by leveraging funding from the capital market to deepen liquidity in the primary and secondary mortgage markets.
It said the company refinances mortgage loan portfolios of its member primary mortgage lending and commercial banks that comply with its uniform underwriting standards. The statement said the deployment of the N18bn to refinance mortgage loan portfolios of member lending institutions has helped to boost liquidity in the Nigerian housing market, thus enabling mortgage lenders to provide more housing loans and encouraging long-term mortgage loan creation.
The Managing Director/Chief Executive Officer of NMRC, Mr. Kehinde Ogundimu in the statement said that the company is working hard to further boost its refinancing operations.

Source: Festus Adebayo

Freddie Mac: Mortgage rates end 2018 on a good note

After retreating for two consecutive months, mortgage rates will end the year lower, according to the latest Freddie Mac Primary Mortgage Market Survey.

According to the survey, the 30-year fixed-rate mortgage fell from 4.62% last week, averaging 4.55% for the week ending Dec. 27, 2018. Notably, this is an increase from last year’s rate of 3.99%.

Freddie Mac Chief Economist Sam Khater said rates continued their two-month slide and are currently hovering around the same level as the early summer, which was before the deterioration in home sales.

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“The negative headlines around the financial markets are concerning but the economy remains healthy, so the drop in mortgage rates should stem or even reverse the slide in home sales that occurred during the second half of 2018.”

Freddie Mac - Dec 27

The 15-year FRM averaged 4.01% this week, falling from last week’s average of 4.07%. This time last year, the 15-year FRM was 3.44%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4%, slightly up from 3.98% the week before. The rate is still higher than this time in 2017 when it averaged 3.47%.

Source: housingwire.com

what a viable mortgage industry means to an economy

Most developing economies, including Africa’s biggest economy, aspires to have a viable mortgage industry in the understanding that it means so much for the growth of their economy. In the advanced economies of the world, the industry has made and continues to make significant contribution to economic development.

In Nigeria, the story is different. The industry is still struggling to find its feet and this why mortgage finance as a percentage of Gross Domestic Product (GDP) is as low as 0.5 percent which is several steps behind other economies including Mexico, Malaysia and South Africa where mortgage contributions to GDP are as high as 10 percent, 25 percent and 29 percent respectively.

However, notwithstanding the industry’s low contribution to GDP coupled with the economic challenges arising from low oil revenue, industry operators are saying that mortgage has all the potential to stimulate the economy when all the obstacles inhibiting its growth are removed.

The relative newness of the mortgage industry, lack of understanding of its dynamics and operational models by many Nigerians, and poor appreciation of the need and the ultimate benefits of keeping money in a mortgage bank are some of the militating factors.

But an economy like Nigeria’s can benefit a lot from a flourishing mortgage industry as it will help in directing the economy in the desired direction. As part of efforts at stimulating the economy, government can make the necessary investment aimed to grow the industry. Enabling policies should also be put in place, leading to reducing high interest rate in order to encourage more people to embrace mortgage loans.

On account of the identified obstacles, many primary mortgage Banks (PMBs) are going through very difficult times, such that some are not able to meet loan applications from home seekers.

“If government pays closer attention to the PMBs by removing some of the obstacles on their way such as the drawbacks of the Land Use Act of 1978 which rests land ownership rights on the state governors, the right to easily foreclose on delinquent borrowers, ease of creating a legal mortgage and perfecting titles and the ease of falling back on one’s collateral to recover bad loan etc, the industry will surely improve tremendously”, a mortgage operator argues.

The operator, who does not want to be named, insists that until all these issues are resolved in a way that encourages the provider of capital, in this case, the mortgage bank, to give out loans, the sector will not grow as desired.

He hopes that when these obstacles are removed, the supplier effect of mortgage will allocate more funds towards the provision of home loans while home buyers will better appreciate the implication of prompt interest and capital repayments as well as ensure discipline on the part of the people.

Some finance experts argue that limiting a mortgage institution to a fixed capital base of, say N10 billion, is wrong because that amount is too meager; even N100 billion is also meager given the kind of projects they are to finance.

For this reason, the federal government needs to come in, look at what is happening in other civilized world and copy because, these days, “copying is no longer an act of deception but actually something that is done even in the civilized world”, says Okika Ekwem, a US-based realtor.

In such economies as US and UK, Ekwem says there is a secondary market for real estate financing where commercial banks or individual brokerage banks lend money to people and thereafter sell the securitized certificate to the secondary market and come back again to lend to individuals.

Mortgage industry growth that can impact the economy, according to Meckson Innocent Okoro, is possible if the Federal Mortgage Bank of Nigeria (FMBN) plays the role of a regulator while the federal government, through the CBN, should empower the PMBs.

To have a viable mortgage industry that can have significant impact on the economy, more PMBs have to be licensed such that there could be as many as 40 PMBs in each of the big cities, while each of the smaller cities could get as many as 10.

This is to discourage the concentration of these banks in urban centres and when this is done, access to housing finance will be increased. The PMBs must be positioned to champion the whole issue of affordable or social housing for the low income earners in the country.

Mortgage finance as it is today, is not particularly established as a structure and as it exists in developed economies. The culture of mortgage finance is just gradually catching on with Nigerians and mortgage is financed the same way as every other commercial financing.

It is curious that after the recapitalisation and consolidation of the PMBs, Nigerians are yet to feel the impact in the economy. As at today, the interest rate as it is cannot mobilise the industry and the situation is such that even at 10 percent, the level of income in the country cannot still support mortgage growth.

At a time in this country when the economy and the financial system were highly regulated, there was different interest rates structure for different sectors of the economy and within that period, lending to the housing sector was as low as 7-8 percent which underscored the importance attached to the sector and the government needs to look into this.

Source: Chuka Uroko

 

debt

Pay off your mortgage ASAP, experts say—here’s why

debt

Should you pay off your mortgage early? These experts say yes.

Star of ABC’s “Shark Tank” Kevin O’Leary, the bestselling author of “The Automatic Millionaire” David Bach, and the bestselling author of“Women and Money” Suze Orman all agree that you should make paying off your mortgage a priority.

Here’s why.
Suze Orman: ‘Pay off that mortgage as soon as you possibly can’

Orman recommends that you aim to be mortgage-free by the time you retire. Better yet, pay it off even earlier.

“If you’re going to buy a house, be responsible with it. And if you’re going to stay living it that house for the rest of your life, pay off that mortgage as soon as you possibly can,” she tells CNBC Make It.

Everything you owe, including your home, costs you money, and that can affect not just your bottom line but also your mental health. “Debt is bondage,” she says. “You will never, ever, ever have financial freedom if you have debt.”

Eliminating your mortgage payment is also a useful way to maximize your retirement savings, Orman says. Not only will you be able to put more away before you retire, but you’ll have one less bill to pay in your golden years.

Kevin O’Leary: A mortgage is ‘not always a good investment’

O’Leary advises you to think long and hard before taking on a mortgage at all.

“It’s not always a good investment and, in my opinion, most people in their 20s, or even 30s, have no reason to be taking on that kind of debt,” he tells CNBC Make It. “Homes don’t always gain as much value as you expect — at least not anymore, and at least not quickly.”

Kevin O’Leary: Here’s the age by which you should have your debt paid off

If you do decide to buy a home, he says to pay it off as quickly as you can. And if you already have a mortgage, O’Leary argues paying it off should take a higher financial priority than using extra cash to invest in things like stocks or bonds.

“There’s never an incentive to stay in debt,” O’Leary says. “Life is unpredictable. What happens if you’re laid off or incur unexpected expenses elsewhere? Your once-manageable mortgage is suddenly going to seem not-so-manageable.”

David Bach: Pay it off ‘early’

Bach calls “buying a home is the escalator to wealth in America. ” And, he suggests, if you want to retire early, pay off your mortgage early, too. “I can tell you, having been a financial advisor at Morgan Stanley, my clients who retired at 50 years old, the secret was: They had paid their mortgage off early,” he tells CNBC Make It.

To make that happen, Bach advises taking out a 30-year mortgage with the intention of eliminating it in 15 to 20 years. Then, increase your payments by 10 percent and let your bank know that you want the extra money applied to the principal, not the interest.

“If you keep this up, you’ll wind up paying off your 30-year mortgage in about 25 years,” he writes in “Smart Couples Finish Rich. ” “Increase your monthly payment by 20 percent, and you’ll have that mortgage retired in about 22 years.”

Even if you don’t plan to retire in your 50s, Bach says, paying off your mortgage early can save you tens or even hundreds of thousands of dollars in interest.

Don’t forget your other goals

Paying off your mortgage shouldn’t be your only financial goal. Orman notes that you should focus on your mortgage after you’ve contributed enough to your 401(k) to receive any employer match or maxed out your Roth IRA.

You should also have an emergency fund with three-to-six months’ worth of living expenses saved up. The future is unpredictable and owning your home outright isn’t worth going into debt for if something else arises.

Finally, make sure eliminating your mortgage makes sense given your lifestyle and other priorities. What level of risk are you willing to take on? What do your other assets look like? Does it make sense tax-wise? Read up on the potential drawbacks before adopting a new financial plan.

Source: Emmie Martin

 

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