Monthly Archives: December 2018

Buyback Risks Are Shifting – Mortgage Compliance

Virtually every step in the mortgage process has been impacted by new and evolving regulations, with hefty fines imposed for noncompliance. The sheer breadth of loan quality problems continues to adversely affect manufacturing productivity and production costs.

We can all surely remember when lenders were simply doing post-close audits on loan samples as required by the government-sponsored enterprises. Then TRID came along, putting any lender that produced an inaccurate disclosure at risk, followed by the new Home Mortgage Disclosure Act requirements — and things got even tougher.

But the demands for loan quality aren’t just coming from regulators and the GSEs. Your secondary market partners and investors don’t want to be left holding the bag if the loans you create have quality issues. Gone are the days of “ship and hope.” When investors buy loans, there’s a huge liability attached. Investor scrutiny has increased so much, in fact, that investor requirements can seem as strict as regulators’. This has heightened the quality mandate and placed more emphasis on post-closing, shipping and delivery.

Whether you realize it or not, the game has changed. The slow accumulation of new requirements and mandates created by the GSEs, TRID, HMDA, investors — as well as the onset of other risks such as False Claims Act charges and class action lawsuits — have pushed the stakes so high that conventional approaches to loan quality do not apply. That means lenders can no longer ensure loan quality by looking backwards, through post-close sampled audits or any other method. They need to address loan quality issues where they happen — in production.

Loan quality is now a loan-by-loan event that is best performed as loans are created, not after the fact. The regtech market is taking off because lenders are realizing they need to tackle loan quality issues as they happen, from the very point they begin gathering information to create a loan file. Regtech enables lenders to electronically view, validate and verify all the loan data and documentation as it’s introduced, lowering risk and saving money by increasing both processor and underwriter productivity.

The bottom line is that lenders just don’t have the luxury of going back in time to fix bad loans after they’ve already closed. Nor can they simply hope that their loan origination systems or staff caught every problem. Today’s loans must be done right the first time. The game has changed, and lenders need to play it differently before it’s too late.

Source :ttps://www.nationalmortgagenews.com/opinion/mortgage-compliance-is-about-more-than-keeping-regulators-happy

Housing Market Outlook – Theory 2

Economic growth is expected to slow in 2019 leading to stabilized home sales and mortgage rates, according to Fannie Mae‘s economic and strategic research group.

A widening trade deficit and moderation of business investment growth have Fannie Mae’s team predicting that full-year gross domestic product growth (GDP) will slow to a 2.3 percent increase — down from this year’s projected 3.1 percent increase.

Consumer spending will continue to be the largest driver of growth, but in the third quarter of 2018 business investment growth slowed significantly. It could be even further impacted by higher tariffs, uncertainty around trade deals and rising interest rates.

“We expect full-year 2018 economic growth to come in at 3.1 percent — an expansion high — before slowing markedly to 2.3 percent in 2019 and 1.6 percent in 2020,” Doug Duncan, Fannie Mae’s chief economist said in a statement. “Fading fiscal policy, worsening net exports, and moderating business investment all contribute to our projection that GDP growth will begin to slow in 2019.”

Purchase mortgage originations are expected to climb in 2019, but a substantial decline in refinanced mortgages is expected, which should overall result in a small drop in total origination volume, the research team said. Stabilizing mortgage rates — along with expected strong job growth — should give more prospective homeowners a chance to adjust to the new rates, the report states.

“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market,” Duncan said.

Source: https://www.inman.com/2018/12/14/housing-market-expected-to-stabilize-in-2019-fannie-mae/

Housing Market Outlook – Theory 1

The housing market over the last five years have been marked by a shortage of homes for sale and ever-rising prices. This dynamic has been especially prevalent in coastal markets like New York, San Francisco, and Los Angeles, which tend to be expensive anyway.

Expectations were that this was going to continue, but in 2018, the market started to cool. This past summer—usually a busy season for homebuying—was suppose to be “the most competitive housing market in recorded history,” according to one realtor, with prospective buyers engaging in bidding wars over the few houses that were for sale.

That didn’t pan out, suggesting that home prices have finally risen beyond what people can actually pay; wages have risen at a much slower clip than home prices. The housing market follows the old economic principle of price being a function of supply and demand, and demand is strong with the economy doing well and older millennials finally entering stages of life that lead to buying a home.

Coming out of the summer on the West Coast, homes that were expected to spark bidding wars instead lingered on the market, leading to huge spikes in inventory for sale. San Francisco, San Jose, and Denver—some of the hottest markets over the last five years—were among the cities that saw the biggest inventory jumps.

This fall, those same markets saw median listings prices drop considerably. It’s important to distinguish the difference between a listings price and a sale price, because listings prices can still be bid up, but usually listings prices are leading indicator as to where home prices are headed.

If that holds true, 2019 could see West Coast home prices drop, which other than a few exceptions like 2008 rarely happens.

Speaking of the 2008 housing collapse, one might naturally be alarmed by the prospect of a housing slowdown, given the financial calamity that occurred as a result of the last housing slowdown. But conditions today are almost the complete inverse of conditions in 2008.

For example, most of the ills of the housing market leading up to 2008 were marked by lending practices that ranged from irresponsible to downright reckless. Ill-advised mortgages were spread through the entire global financial system via complex financial instruments, and when defaults started to rise, the system collapsed. But lending today is incredibly strict, so strict in fact that some in the industry believe the lessons of 2008 were over-learned.

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There was also a housing surplus in the years prior to 2008. Regional home building companies had recently consolidated to form large national builders, which pumped out houses at dizzying pace. When the housing bust happened, the surplus of housing made price drops worse. But as mentioned, today there’s a housing shortage, even with the recent jumps in homes for sale. This means any type of slowdown would have a hard floor as far as home prices go.

It’s also possible that instead of home prices dropping, the pace at which they go up merely slows down or even flat lines. The overall strength of the economy remains strong, despite the recent stock market selloff. Unemployment remains remarkably low, and the U.S. is still gaining jobs. Wages continue to rise. The general conditions for the housing market to do well remain, even if a few high-priced markets went up a little too fast. Stay tuned.

Source: https://www.curbed.com/2018/12/21/18148570/housing-market-predictions-2019

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