Top 10 reasons why borrowers pursue a jumbo reverse mortgage

American Advisors Group has surveyed borrowers who have chosen its private-label AAG Advantage loan to determine what prompts seniors to pursue a jumbo reverse mortgage.

The results highlight the vast differences between the average reverse mortgage borrower – whose financial situation is often tenuous – and those who pursue a jumbo reverse to access the equity in a higher-value home.

AAG, which currently dominates the reverse mortgage space with 25% of market share, rebranded last year as a provider of home equity solutions and expanded beyond reverses into traditional mortgage products and real estate services.

In addition to the Federal Housing Administration’s HECM, the California-based lender offers borrowers access to up to $4 million in equity in one lump sum through its non-agency jumbo reverse mortgage.

While the loan is billed as the AAG Advantage and sold through the lender’s retail channel, it is actually the HomeSafe Standard loan offered by Finance of America Reverse. In March, the two lenders announced a partnership that would allow AAG to sell the HomeSafe under its own branding on a correspondent basis.

AAG said it has seen significant traction with the loan.

“Consumer response to the jumbo product has exceeded all of our expectations,” said an AAG spokesperson. “There seems to be a real market for reverse mortgages with affluent seniors, especially those seeking to liquidate some of their real estate wealth.”

The lender said the average borrower for its jumbo loan is 77 years old, has a credit score of 729 and owns a home valued at $1.7 million. It pinpointed the average loan amount at $665,000.

AAG explained it surveyed 250 Advantage borrowers to revealed the main reasons why seniors pursue a jumbo reverse, shedding light on how originators can better market the product. Here they are:

Top 10 reasons seniors chose a jumbo reverse mortgage:

  1. To make home modifications or repairs
  2. To buy an investment property or a vacation home
  3. To help children purchase a property
  4. To provide children with an early inheritance
  5. To create college funds for grandchildren
  6. To establish a trust fund
  7. To cover in-home care costs
  8. To have more financial liquidity
  9. To maintain their current lifestyle
  10. To pay off other debts

“Jumbo reverse mortgage loans present an opportunity for older Americans to achieve greater financial comfort and expand their wealth,” said Paul Fiore, chief retail sales and operations officer for AAG. “Products like Advantage have emerged as an optimal option for affluent homeowners who have a desire to diversify their capital and invest in other aspects of life.”

The mortgage industry isn’t ready for a foreclosure crisis created by climate change

A foreclosure crisis spurred by climate change is becoming a real threat to the mortgage industry as extreme storms and other natural disasters increasingly occur in places where borrowers might not have flood or fire insurance.

The industry is not prepared for the effects of such extreme weather and rising sea levels, according to Ed Delgado, CEO of national mortgage trade association the Five Star institute and a former executive at Freddie Mac.

“If we look at the basic foundation of what drives the mortgage market, it is the application of credit risk. What’s missing is the understanding of weather risk and where those weather events can take place,” Delgado said.

The current system is reactive and local and doesn’t include plans for the widespread effects of climate change. That could affect several major housing markets at once.

As it stands, after major natural disasters, mortgage servicers follow guidelines from Fannie Mae, Freddie Mac and the FHA, which own or insure most home loans today.

The guidelines usually involve a temporary moratorium on foreclosures, as well as loan forbearance programs, which allow borrowers to miss a few months of payments but then extend the length of the loan.

This helps borrowers who need to rebuild and may be waiting for insurance payments to repair damage. It also helps people who have lost their salaries temporarily due to a disaster. Again, these are momentary solutions to singular events.

The mortgage market is not factoring the overall risk into its loan underwriting and is not quantifying the amount of potential losses should a wide swath of borrowers walk away from damaged or destroyed homes.

“Whether it’s fires and mudslides in California, flooding in Texas, or tornadoes in the Oklahoma region,” Delgado said. “It’s going to be a problem if the banks don’t start to pay closer attention to what those weather risks are.”

As an example, Hurricane Harvey, which struck in August 2017, flooded close to 100,000 Houston-area homes. In Harvey’s federally declared disaster areas, 80 percent of the homes had no flood insurance, because they weren’t normally prone to flooding. Serious mortgage delinquencies on damaged homes jumped more than 200 percent, according to CoreLogic.


Houston could have seen a massive foreclosure crisis were it not for strong investor demand in the market. Houston’s economy was strong before the storm, and its housing stock was lean. After the storm, investors swarmed the market, offering troubled homeowners an easy way out, largely in cash.

Investor purchases of 10 or more properties jumped nearly 50 percent in the year following Harvey, according to Attom Data Solutions. Some were large-scale buyers, like Cerberus Capital and HomeVestors of America.

Others were smaller home flippers, like JP Patel, who was still buying properties at a crowded auction event in Houston last October. His company, Texas-based Myers, has purchased 80 Harvey-damaged properties.

“As an investor, it was kind of a perfect opportunity,” said Patel. “We literally can avoid the whole problematic nature of the foreclosure process.”

Houston dodged a crisis because it was already a hot housing market, and people still wanted to live there after the storm. But Houston should be a wake-up call to the rest of the nation, according to Delgado, specifically because the damaged homes were largely not in FEMA flood plains, and were therefore not required to have flood insurance.

“You have this tremendous urbanization, population growth. Roads that are being built in the last 10 years. Where does the water go?” Delgado asked. “And is there an underlying risk for us to examine with respect to our portfolio? And then make decisions. Should we be lending in those markets?”

Lenders today, and the federal government that backs most loans, base their risk on FEMA’s flood maps, but even top FEMA officials admit the maps don’t account for increasingly extreme weather.

“We can’t try to determine what’s going to happen in 12 months beyond, because insurance is set up for what your risk is today. And it wouldn’t meet actuarial science to charge you for a future potential,” said David Maurstad, FEMA’s deputy associate administrator for Insurance and Mitigation.

FEMA is required to update its maps every five years. Maurstad says it relies heavily on local communities reporting problems — but some don’t because they don’t want their insurance premiums to go up.

“We know that only one-third of the properties in the high-risk area have flood insurance, so we have a lot of work to do,” he said.

Jennifer and Andy Taylor, who decided to walk away from their Houston home, which was flooded in Hurricane Harvey in 2017, and sell to an investor.

In Houston, flood insurance is now far more expensive because of Harvey. Amanda LeCureux has been running foreclosure auctions for the past two decades, but last October it was the past two years that had her most concerned.

“I have a homeowner, for example, who flooded in 2016 and then promptly flooded again in 2017. And while they did have flood insurance, that flood insurance used to cost them $600 a year. The projected premium for next year is $9,000,” said LeCureux.

“And that particular homeowner was stating that, while they can afford to pay the $9,000 for flood insurance alone, they just don’t know that they’re interested in staying in that home where they’ve already flooded twice in two years and with the increase in insurance,” she added.


And that brings up another problem, said LeCureux.

“Who’s going to buy their home? Which homeowner is going to buy the home that’s been flooded two times and then will be burdened with a $9,000 flood insurance policy?”

Borrowers may simply decide to walk away from homes that they either can’t afford to rebuild or no longer want to live in. As extreme storms and weather events, including drought and wildfires, become more frequent and widespread, the potential for a climate-induced foreclosure crisis increases.

So far, according to Delgado, the mortgage industry has not caught up with the new climate reality and its increasing risk.

“I think it’s only been in the last decade that we’ve started to understand that [Hurricane] Katrina wasn’t a fluke, that there will be ongoing, massive events, weather events, taking place, exposing potentially trillions of dollars of real estate to coastal flooding and damages,” said Delgado.

“It simply can’t be ignored anymore. We’ve been given enough warning signs to take corrective action, and it’s about time you get proactive instead of waiting for these cataclysmic events to take place.”

Say goodbye to all that paperwork: Digital mortgages have arrived

If you’re a move-up buyer looking to purchase your second home, you might be pleasantly surprised by changes in one aspect of your experience: You can now apply for your mortgage completely online, rather than having to deal with all the onerous paperwork of yesteryear.

In recent years, numerous lenders have streamlined mortgage applications to allow borrowers to have more control of the process, with a lot less hassle. The speed and ease of online and app-based shopping have raised expectations for all consumer transactions, including mortgage approval. Competition is heating up in the digital mortgage arena, as big and small companies refine and expand their offerings.

“There’s a mix of lenders right now,” said Tendayi Kapfidze, chief economist at LendingTree, the nation’s leading online loan marketplace. “There are some lenders that have an almost completely digital process, and some lenders who have a partial digital process. But, ultimately, the industry as a whole, from application to underwriting and processing the application, is moving toward a digital structure.”

Click here to watch weekly episodes of our Housing Development Programme on AIT

A lot of that, he said, has to do with consumer demand. “Customers are used to doing a lot of other purchases online and doing it digitally,” Kapfidze said. “It also creates for a faster process, so typically with digital mortgages, you get a quicker closing date, which is something that is appealing to a lot of consumers.”

The other side of the equation is creating a user-friendly experience and providing guidance for potential borrowers to make sure they are comfortable with such a huge endeavor.

Sammie Jones of Hampton, Ga., has bought three homes through the long and complicated traditional process. Obtaining a mortgage this year through an online lender has made a believer in digital lending out of him.

After Jones visited his lender’s website in April, he received a call from a representative, who discussed what to expect in the mortgage process. Once Jones was prequalified to see how much he could borrow, he shopped around for a home based on his budget.

“Initially, I was supposed to get my mortgage around April, but I didn’t find any homes I was interested in,” Jones said. “If I had already had the house picked out, I probably could have gone from filling out the documentation with them to closing on the loan in less than two weeks. It was just that fast. It was actually a little frenzied fast.”

Jones decided on a ranch-style home with a basement for his family, and the loan process resumed in May.

From buying his first home 24 years ago to his fourth home this year, Jones said: “I would do digital every time. It was that profound a difference. It made the mortgage process kind of enjoyable.”

Kapfidze said the key is helping borrowers get to a point where they feel that they are well informed and making the best decision.

“We try to create a lot of educational content that helps borrowers understand the various types of mortgages that exist, the way that they can prepare to position themselves as well as possible to make sure that they are getting the appropriate mortgages for themselves, that they are getting the best deal that they can get, and that they are financially prepared for this very significant obligation that they take on when they get a mortgage,” he said.

Not everyone feels comfortable yet applying for a mortgage online.

A recent poll conducted by Branded Research of 7,200 potential new home buyers found that men are more likely than women to contact lenders online. New home buyers younger than 45 are more likely than their older counterparts to start the loan process online.

Moreover, the process has not met expectations that using algorithms to analyze a consumer’s financial picture would make a digital mortgage colorblind. A new study conducted by researchers at the University of California at Berkeley raises questions about statistical discrimination and pricing disparities.

“Our results tell us that lenders have pricing schemes that enable them to charge higher interest, and thus take higher profits from minorities, even if the pricing schemes are not intentionally aimed toward minorities,” said study co-author Adair Morse, a finance professor at the Haas School of Business at the University of California at Berkeley, which published the study. “These pricing schemes instead may target borrowers who are not able to shop around more or who choose not to shop around more. If a seller knows he or she can charge a higher price without the customer shopping around, it is good business practice to do so. But this inadvertently may cause discrimination.”

Indeed, Kapfidze points to a study by the Consumer Finacial Protection Bureau that found more than 30 percent of borrowers do not comparison-shop, and more than 75 percent apply for a mortgage with only one lender.

“In a similar way to ride-hailing services giving riders the option to shop for transportation reduced discrimination by taxi operators, we believe consumer comparison-shopping can reduce discriminatory outcomes in financial services,” Kapfidze said. “While the industry continues to make progress in combating discrimination, the best way for individual consumers to improve their chances of being approved and getting the best rates is to make the lenders compete for their business by shopping around.”

Dan Gilbert, chairman of Quicken Loans, the nation’s largest retail mortgage lender and an early adopter of digital mortgages, said he is skeptical of the study’s conclusions about algorithmic lending, including research that found financial technology companies offering mortgages online charge creditworthy minorities higher interest rates than white applicants.

“FinTech lenders like us are never in front of our clients,” Gilbert said. “We have no clue of applicants’ race or ethnicity unless they tell us. Over a third of our clients do not tell us this information, which is their right. But then we can’t and don’t make the visual observation because we’re not face to face.”

A silver lining in the report is that online lenders do not discriminate in application rejections, instead catering to those discriminated by face-to-face lenders.

Despite digital mortgages’ potential to save time and money, Thomas Hahn, 24, an apartment dweller in West Bloomfield, Mich., is not keen on starting a mortgage process online. He said he would rather talk to a loan officer face to face.

“I definitely think that for the first time buying a home, I would prefer to sit down with somebody, because I handle things visually,” he said. “If you’re not familiar with something, it really helps having a professional walk you through it.”

Hahn said he thinks home buyers might overlook important details in an online mortgage origination.

“A person guiding you through the loan process can point you to the things that really matter and sort out the fluff,” he said.

In 2015, Quicken Loans launched Rocket Mortgage as an online-only mortgage process. Quicken Loans chief executive Jay Farner said that although technology has automated the loan process, human interaction remains a robust feature of transactions.

“We try to take the best of both worlds, not only the technology that has been developed, but also the human touch that we’ve been doing for 34 years,” he said. “A lot of people try to do one or the other, and what we’ve done is both: leveraged technology when it makes sense, and applied that human touch when that’s needed, as well.”

Now another paperwork-heavy aspect of home buying is moving to the Internet — the closing or settlement. Technology is automating the day when all involved parties gather around a table to make the transaction official by signing stacks of paper.

Digital brokerage Redfin and online notary platform Notarize have teamed up to let customers close a property purchase entirely online.

In November, Redfin real estate agent Art Cisneros and a California couple who were moving to Austin, were involved in the brokerage’s first digital closing.

“Traditionally, we close at title companies here in Texas and sign the documentation at the title company,” Cisneros said.

“For our clients who were in California at the time, the closing seemed pretty seamless. This was a situation where they could handle the closing from home before heading off to work,” Cisneros said. “It took about 30 minutes. They were just happy with the convenience of it all.”


Average mortgage rates hold steady as housing outlook improves

Mortgage rates remained flat after dropping for six consecutive weeks as negative economic news was balanced with a more positive outlook on housing, according to Freddie Mac.

30-Year FRM15-Year FRM5/1-Year ARM
Average Rates4.45%3.88%3.87%
Fees & Points0.40.40.3

The federal government shutdown is likely to keep rates moving sideways in the next few weeks, a Zillow economist added.

Click here to watch weekly episodes of our Housing Development Programme on AIT

“Weaker manufacturing data and a more dovish tone from the Federal Reserve left mortgage rates unchanged relative to last week,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “However, interest rate-sensitive sectors of the economy — such as consumer mortgage demand and homebuilder construction sentiment — are on the mend, which indicates that lower interest rates are beginning to have a positive impact on some segments of the economy.”

The 30-year fixed-rate mortgage averaged 4.45% for the week ending Jan. 17,unchanged from last week. A year ago at this time, the 30-year fixed-rate mortgage averaged 4.04%.

The 15-year fixed-rate mortgage this week averaged 3.88%, down from last week when it averaged 3.89%. A year ago at this time, the 15-year fixed-rate mortgage averaged 3.49%.

Rates hold steady

The five-year Treasury-indexed hybrid adjustable-rate mortgage adjustable-rate mortgage averaged 3.87% with an average 0.3 point, up from last week when it averaged 3.83%. A year ago at this time, the five-year ARM averaged 3.46%.

“Mortgage rates were flat this week, standing pat near their lowest levels since spring 2018 despite signs of market weakness and ongoing uncertainty at home and abroad,” Aaron Terrazas, Zillow’s senior economist, said in a press release. “As the U.S. government shutdown entered its fourth week, markets have had to navigate a period of heightened economic uncertainty without the usual insights that government data typically provide. More than ever, financial markets must decipher private-sector and international data to gauge the temperature of the U.S. economy. Rates slipped earlier this week on disappointing Chinese trade figures as well as a significant decline in factory output in the Eurozone.”

As investors feared a global slowdown, they put money into the U.S. bond market which kept mortgage rates down, Terrazas said. But any outlook going forward is clouded by the federal government shutdown.

“Inflation pressure in the U.S. remains subdued, even with historically low unemployment, which could put expected Federal Reserve rate hikes on ice in 2019. Monetary policymakers have been very clear that they will be closely watching incoming economic data in making interest rate decisions, but with several of these data releases on hold until the federal government reopens, it has become particularly difficult to set expectations. Until the announcement of a government re-opening, higher volatility but a net sideways trend in rates is likely to continue,” he said.

Source: Glenn McCullom


How long do Nigerians have to wait for affordable mortgage?

Edward Okon is a middle-aged man who left higher school 26 years ago at the age of 24. Okon’s immediate plans on leaving school were to work for six years and marry at the age of 30. Thereafter, he would start processes leading to owning a home he would call his home before his 40th birthday.

That was a long term plan because he reasoned that the only easy, simple and convenient way for him to own a home from his not-too-big salary was to take a mortgage loan and pay back by installments.

Because of its low-interest rate and long repayment period of 6 percent and 20-30 years respectively, Okon decided for the National Housing Fund (NHF). He approached one of the primary mortgage banks (PMBs) to subscribe for the fund. His experience there was anything but cheering.

After subscribing and contributing for one year instead of the statutory six months requirement, Okon’s long trek to obtaining a loan via his contribution began. His PMB made impossible demands from him, leading to his anger and decision to suspend his application for the elusive loan.

That was how Okon’s faith in his country’s mortgage system almost died and his dream of owning a home through mortgage was deferred.

Though, through frugal living and co-operatives, Okon has been able to build his housing, a modest three bedroom bungalow in a Lagos suburb, his interest and hope in the Nigerian mortgage system came alive again when the Federal Government, in another round of intervention, set up the Nigerian mortgage refinance company (NMRC) in 2014.

NMRC was launched into the Nigerian mortgage market as a secondary mortgage institution aimed to raise liquidity in the mortgage system and drag down the interest rate on mortgage loan to an upper single digit or a spread of double digits. Its operation was also expected to catalyze the development and delivery of affordable housing to Nigerians within the low-income bracket.

It is a private sector-driven company with the public purpose of developing the primary and secondary mortgage markets by raising long‐term funds from the domestic capital market as well as foreign markets for providing accessible and affordable housing in Nigeria.

The company whose mandate is mainly to increase liquidity in the mortgage system by refinancing mortgages originated by the primary mortgage banks (PMBs) came on a very high pedestal of providing cheap and long term funds, reducing interest rate to single digit, increasing the country’s housing stock by 720,000 annually, and creating 300,000 indirect jobs.

To Okon and many other Nigerians, particularly the mortgage operators, this was a new dawn because the company would issue long term bonds in the capital market as efficiently as possible and channel the proceeds to refinance member-institutions at a competitive rate, bringing to an end, or reducing to the barest minimum, the huddles posed to mortgage lending to real estate.

True to this expectation, NMRC has visited the capital market from where it raised N8 billion with which it has refinanced mortgages originated by six mortgage institutions including Stanbic IBTC, Imperial Homes, Sterling Bank, Sun Trust Mortgage Bank, Trustbond Mortgage Bank, and Homebase Mortgage Bank which got N1.8 billion, N1.7 billion, N1.6 billion, N1.3 billion, N700 million and N500 million respectively.

It has gone back to the market and raised more capital. By the end of last December, the company announced to the world that it has raised N18 billion from the market.

But it remains to be seen by Okon and his brothers and sisters what purpose this refinancing function has served Nigerians, four years after. The effect of the refinancing of the six mortgage institutions is yet to be felt in the housing sector as there is no news anywhere of any mortgage loan applicant, especially NHF contributors, that have been given loans to buy, build or renovate houses as a result of this.

The second capital raise by the company raised expectations that more mortgage institutions, especially the PMBs, will be refinanced and more mortgage applicants will be able to access mortgage to buy or build their homes.

Click here to watch weekly episodes of our Housing Development Programme on AIT

Officials of the company assured that when they raised another capital, it would come at a lower interest rate and PMBs will be able to access the funds at a lower interest rate, if not at single digit, at least, at lower double-digit.

However, Femi Johnson, MD/CEO, Homebase Mortgage, explained in an interview that it took the company this long to return to the capital market because the Securities and Exchange Commission (SEC) requires it to have expended about 70 percent of the earlier capital before returning to raise more capital.

The high-interest rate has been the bane of mortgage access for home ownership in Nigeria as many mortgage applicants and home seekers cannot afford the commercial interest rate of between 20 percent and 25 percent charged on mortgage loans with very short repayment period.

The role NMRC is expected to play in this direction is to provide liquidity for the mortgage market and, consistent with its mandate to promote wider spread of home ownership, accessibility, and affordability, the company has come with some initiatives that have also failed to show impact.

The ‘Housing/Mortgage Market Information Portal (MMIP)’ is one of such initiatives aimed to enable it to gather data for intelligence and profiling of federal, states civil servants and informal sectors (off-takers) for affordable housing.

Another initiative is the Mortgage Market System (MMS) which is a transformational change that integrates the entire housing market, covering construction finance, primary and secondary mortgage. The system which is available to all players in the housing industry has the benefit of removing duplications of effort in gathering data and documents; improving the turnaround time, reducing the cycle time of transactions and helping in making homes more affordable.

But, affordable housing is made possible more by an affordable mortgage which is not available at the moment. And Okon wants to know how long he has wait to see and access an affordable mortgage.

Source:  Chuka Uroko


Mortgage rates drop below 4.5%. Homeowners scramble to refinance

Lowest rates in 9 months

There is a quiet refinance boom brewing, as mortgage rates sink to 9-month lows.

Not since April 2018 have rates been this low.

Freddie Mac, in its weekly mortgage rates survey, reported that the average 30-year mortgage rate hit 4.45%, sinking below the psychologically important 4.5% mark.

What’s more, rates have come down from highs near 5% seen as recently as November.

That drop represents a savings of $90 per month on a $300,000 mortgage.

Consumers a flocking to refinance. No one knows how long this good fortune can last.

Refinance applications surge 35% on low rates

The Mortgage Bankers Association (MBA) probably had to check numbers twice when they saw the results of this week’s mortgage applications index.

The data showed that refinance applications spiked 35% in one week.

Falling rates snuck up on the American consumer. While everyone was enjoying the holidays, mortgage rates fell precipitously starting the week before Thanksgiving.

Rates continued dropping through Christmas and New Year’s Day until, on January 10, they hit levels not seen since last spring.

Joel Kan, the associate VP of economic industry forecasting for MBA, said, “Mortgage rates fell across the board last week and applications rebounded sharply, after what was a slower than usual holiday period.”

Now, it appears, consumers are hearing about low rates and finally acting.

Those who have been priced out of a refinance or home purchase are finding out that a new mortgage finally makes sense.

15-year fixed and 5-year ARMs drop into the 3s

The 30-year fixed rate gets all the attention, but other types of mortgages should be making headlines, too.

Rates for 15-year fixed and 5-year ARM loans are now in the 3s according to Freddie Mac.

  • 15-year fixed: 3.89%
  • 5-year ARM: 3.83%

These alternatives to the 30-year give homeowners the opportunity to secure pre-2018 rates — before rates started spiking in earnest.

For instance, someone buying a home may have found they could no longer afford monthly payments at today’s 30-year fixed rate.

But they choose a 5-year ARM rate instead and shave more than $100 per month from today’s 30-year payment.

Five-year ARMs are fixed for five years, then start adjusting based on the market. These loans are perfect for homeowners who plan to stay in their homes only 5-7 years.

Those who are impressed at today’s dropping 30-year rate will find short-term rates even more enticing.

How do I check my rate?

Mortgage rates suddenly turned low again, sparking a new interest for home buyers and refinance applicants alike.

Each applicant, though, needs a personalized rate quote. Average rates are only that — an average. Your rate might be higher or lower depending on credit score, down payment, home equity, or other factors.


Data Reveals New Mortgage Lending Declining In South Africa

Third quarter 2018 new mortgage lending data from the South Africa Reserve Bank(SARB) showed a significant deterioration in year-on-year growth in the value of new mortgage loans granted compared to the previous quarter – the rate moving strongly into negative territory.

This increasingly suggests that the mortgage market ended 2018 and started 2019 on a very weak footing, said property strategist at FNB, John Loos.

The quarterly bulletin published by the Reserve Bank showed the value of new mortgage loans granted – residential, commercial and farms – to have declined at a year-on-year rate of -15.91% in the third quarter of 2018, down from +6.08% registered in the previous quarter.

Click here to watch weekly episodes of our Housing Development Programme on AIT

The large residential mortgage sub-component slowed into negative territory in the third quarter of 2018, decelerating from +7.45% year-on-year in the second quarter, to a -3.01% decline, FNB said.

However, the second major sub-sector, ie. the commercial mortgage loans segment, appears to have become the greatest “growth drag” in the mortgage lending sector, its year-on-year growth having dropped from a positive +3.17% year-on-year in the second quarter of 2018 to a negative -32.02%.

Viewing new mortgage loans granted “by application”, ie. on existing buildings vs vacant land vs for new construction, the lender highlighted a recent slowdowns in all three applications.

Growth in mortgage loans granted for vacant land declined by -11.4% year-on-year in the third quarter.

“This category’s move into decline is probably one indication of a scaling back in the level of new building activity planned in the near term, reflective of a lack of demand growth for new space in a low growth economy, and rising vacancy rates in existing space,” said Loos.

“Also supporting our expectation that 2019 will be a very weak year for building space completions was a sharp year-on-year decline in the value of new mortgages granted for construction purposes, to the tune of -28.12%.”

New mortgage loans paid out also saw a third quarter growth deceleration, from a positive +4.38% year-on-year rate in the second quarter, to a negative -7.25% in the third quarter, beginning to follow the trend in new loans granted, FNB said.

The trend in the value of capital repayments, which would be driven significantly by loan settlement upon sale of a property, was also in the doldrums, with only slightly positive growth of +1.49% in the third quarter, said Loos.

Looking into 2019, the decline as at the third quarter of 2018 suggests that 2019 is likely starting off a low base, the weakness in new mortgage lending late last year reflecting what appears to have been a weaker economic growth year in 2018 compared to 2017.

Will new lending growth improve?

“Possibly later in the year, given that the base of which growth will comes at the end of 2018 looks to have been very low,” Loos said.

“But any year-on-year growth strengthening is expected to be mild, constrained by expectation of only limited real economic growth improvement from an estimated 0.7% in 2018 to 1.4% in 2019, growth that remains weak and not likely to meaningfully increase the demand for space.

“In addition, 2019 starts with weak business and consumer sentiment, concerns over future policy direction abundant and likely to persist until at least after the 2019 elections, and of course we go into 2019 having just had the first interest rate hike in the current cycle late in November last year.”

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.


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.

Click here to watch weekly episodes of our Housing Development Programme on AIT

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.

Click here to watch weekly episodes of Housing Development Programme on AIT

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

WP Facebook Auto Publish Powered By :
Translate »

You have successfully subscribed to our newsletter

There was an error while trying to send your request. Please try again.

Housing News will use the information you provide on this form to be in touch with you and to provide updates and marketing.