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The Federal Reserve announced June 19 that it would continue its policy of quantitative easing but noted that it may ease up on its bond buying activities later this year, USA Today reported.
The Fed’s two-day policy-making meeting resulted in the agency’s decision to continue its monthly purchase of $85 billion in Treasury bonds and mortgage-backed securities in an effort to hold down long-term interest rates.
However, Fed Chairman Ben Bernanke said that if the labor market and the economy in general continued to improve, the Fed would taper off on bond purchases later this year, continue reductions into 2014 and then stop them completely by mid-year 2014. These plans would be put into action only if the unemployment rate drops to 7 percent; it now stands at 7.6 percent, USA Today reported.
The Fed anticipates a faster decline in the jobless rate, expecting it to fall to 7.2 to 7.3 percent by year’s end and to 6.5 to 6.8 by the end of 2014.
Bernanke stressed that this strategy is entirely dependent on continued economic and labor market improvements, and should either of those falter, the Fed would stop scaling back bond purchases and possibly even increase them.
The Fed has said it will keep short-term interest rates near zero at least until unemployment dropped to 6.5 percent and the inflation outlook remained below 2.5 percent. However, the first rate hike could happen as soon as 2014 rather than 2015, USA Today reported. Fourteen of the 19 Fed governors and bank presidents who participated in the policy meeting reportedly don’t expect a rate increase until 2015.
The Fed anticipates lower inflation, projecting a rate of around 1.2 to 1.3 percent this year. That’s a decrease from the regulatory agency’s March forecast of 1.5 to 1.6 percent, and it could indicate that the Fed would extend quantitative easing.
Kansas City Fed Chief Esther George warned that the Fed’s “easy money” policies could drive up inflation and lead to financial imbalances. However, several economists told USA Today that they feel federal spending cuts and tax increases would slow the economy and job growth in the coming months, preventing the Fed from reducing bond purchases this fall.
The markets have been in flux since Bernanke announced the Fed might start backing off stimulus efforts. Stocks tumbled while Treasury yields rose.
Richard Cordray, director of the Consumer Financial Protection Bureau, refuted claims that new mortgage rules would significantly raise the cost of issuing mortgages and decrease credit availability, as many lenders have feared, National Mortgage News reported June 19.
In a speech at the Exchequer Club in Washington, D.C., Cordray said that the ability-to-repay rule and the creation of “qualified mortgages” would not hamper the industry even though banks have claimed lenders won’t want to make loans that don’t fit the QM rule.
“I think there has been more hubbub around these requirements than is perhaps justified,” Cordray said, National Mortgage News reported. He said that lender fears are “vague,” adding that the average cost for a non-QM loan is estimated to be less than 10 basis points higher than a qualified mortgage.
Cordray also said the idea that a significant portion of the current market would not be defined as qualified mortgages was incorrect. He reiterated figures from Mark Zandi, chief economist with Moody’s Analytics, who said that around $20 billion of the $1.25 trillion mortgage market would fall outside the QM definition. He noted that the QM rule would cover more than 98 percent of the current market.
However, Cordray conceded that the rule could cause a break in the secondary mortgage market but noted that it’s too early to say for certain, National Mortgage News reported.
During his talk, Cordray justified the CFPB’s extensive data gathering on the mortgage market over the last decade, noting, "Someone, someday will be in my position five to 10 years down the road and they'll be more surefooted about policy decisions that we've had to make based on the mortgage data,” National Mortgage News reported.
Cordray defended his position as sole director of the CFPB given that many Republicans have been arguing for a commission instead of a directorship. He said the sole directorship structure gives the agency “nimbleness in going forward and moving the agency,” National Mortgage News reported.
In addition, Cordray addressed disparate impact, which occurs when a lender engages in unintentional discrimination because a rule or standard leads a certain class of lenders to suffer adverse impacts. Banks have argued that the QM rule could lead to unintentional discrimination.
He said that lender concerns over disparate impact were overrated. “If you're doing solid, responsible lending and you’re mindful of the fact that there are fair-lending concerns around it, I don't know that you need to change what you've been doing,” Cordray said, National Mortgage News reported.
A June 19 report from Moody’s Analytics advocates for winding down government-sponsored enterprises Fannie Mae and Freddie Mac and moving their securitization activities into a new platform overseen by an agency similar to the Federal Deposit Insurance Corporation.
The report called for a hybrid system where mortgage-backed securities would be insured by private firms that would not have the backing of the federal government yet would be subject to government regulation in a fashion similar to banks and other depository institutions.
The proposal called for three types of firms — mortgage originators and servicers, issuers of MBS and MBS insurers. MBS would be insured privately with neither explicit nor implicit federal government backing yet would remain subject to federal regulation. MBS insurers would purchase catastrophic secondary insurance from the government, and, in exchange, the government would ensure investors are paid if an MBS goes insolvent, but the MBS insurers themselves would be allowed to fail.
Should the federal government adopt a hybrid system, it would ensure that it only backed high-quality loans and received a premium for doing so while also ensuring that private capital stands first in line to take losses, which would protect American taxpayers. However, such a system would result in higher mortgage interest rates, the report noted.
Today, nine out of 10 new mortgage loans still are backed by Fannie, Freddie and Ginnie Mae, leading the government to take on credit risk for the securities issued by the three entities.
The report maintained that this new system should be overseen by a new federal agency known as the Federal Mortgage Insurance Corporation, and that the current Federal Housing Finance Agency would fall under the aegis of that agency. The FMIC would determine which MBS are eligible for the government guarantee, set mortgage standards and ensure that appropriate private capital was at risk ahead of the government backstop.
This latest report did not offer Fannie and Freddie a role in the new housing system. Rather, their investment portfolios would be wound down, their securitization activities put into the new platform and their guarantee functions sold to private insurers. All remaining assets would be sold to offset taxpayer bailout costs.
The report indicated that a new hybrid system would keep mortgage products available to qualified borrowers in all market conditions while the government guarantee would allow homeowners to continue to have access to long-term, fixed-rate mortgage products.
The report concluded, “Decisions made about the future of the mortgage finance system will affect U.S. homeowners and the broader economy for decades. Success will depend on striking the appropriate balance between the benefits of the private market and the backstop of the federal government. Finding the right balance will result in a stronger housing market, a more stable financial system and a healthier economy.”
Read Moody’s full report.
Early defaults and claims on loans insured by the Federal Housing Administration dropped to their lowest level in 14 years, National Mortgage News reported June 18.
Fewer than 1 percent of the loans originated from June 2011 through May 2013 were delinquent by 90 days or more.
Brian Chappelle, founding partner at consultant Potomac Partners, told National Mortgage News that the latest data reflects the higher credit quality of FHA loans. He noted that the average credit score on an FHA loan has been about 700 since 2010.
National Mortgage News reported that FHA’s early default and claim rate peaked at 5 percent in December 2009. In June 2011, the rate dropped below 2 percent for the first time in the 14-year history of FHA’s Neighborhood Watch system, which is a program that allows FHA to monitor lenders and programs.
As of May 31, the FHA reported that 23,000 of the 1.8 million loans originated during the last two years were in default or claim status. National Mortgage News also reported that the overall delinquency rate on FHA-insured loans fell to 8.45 percent in May.
Former Bank of America employees have alleged that the lender routinely stalled applications for the Home Affordable Modification Program and intentionally misinformed borrowers about the status of loan application documents already on file, HousingWire reported June 17.
The allegations were reported in an ongoing lawsuit against Bank of America in federal court in Washington state.
Former bank employees also claimed that employees were asked to choose appropriate reasons for denying loan modification applications to justify HAMP denials to the U.S. Department of the Treasury, and that the bank further asked employees to delay HAMP applications so as to steer troubled borrowers toward alternate solutions that would be more profitable for Bank of America, HousingWire reported.
According to the suit, one former bank customer service representative was “instructed to inform every homeowner who called in that their file was under review — even when the computer system showed that the file had not been accessed in months or when the homeowner had already been rejected for a loan modification,” HousingWire reported. The former employee further testified that the bank ignored completed loan modifications and showed loans as delinquent in the computer system although a HAMP modification had been completed.
A former Bank of America case management team manager testified that it was a common tactic to advise borrowers that their loan applications still were under review in an effort to delay the process long enough for the bank to offer alternative solutions to the borrower — solutions that would be more profitable to the bank but less advantageous to the borrower.
“The unfortunate truth is that many and possibly most of these people were entitled to a HAMP loan modification, but had little choice but to accept a more expensive and less favorable in-house modification,” the former employee alleged, HousingWire reported.
The former case management team manager also claimed that Bank of America would hold a “blitz” twice a month to encourage teams to clear out backlogs of HAMP applications by denying those with financial documents older than 60 days. “During a blitz, a single team would decline between 600 and 1,500 modification files at a time for no reason other than that the documents were more than 60 days old,” ” the former employee testified, HousingWire reported.
Bank of America has denied the allegations, noting in a recent statement, “Bank of America has successfully completed more modifications for our customers in need of assistance than any other servicer under the Home Affordable Modification Program,” HousingWire reported.
Four of the nation’s biggest mortgage servicers failed to fully comply with new mortgage standards and each will face fines if they do not correct the problems, according to a report from Joseph Smith, the monitor for the $25 billion settlement between banks and state and federal regulators, USA Today reported June 19.
Under the February 2012 deal with 49 states and federal agencies, banks are required to implement new servicing rules and stricter oversight of foreclosure processing, provide some consumers cash payments and promise mortgage relief to help borrowers.
The National Mortgage Settlement report examined Bank of America, JP Morgan Chase, CitiGroup, Wells Fargo and ResCap Partners (formerly Ally/GMAC). Only ResCap Partners passed the review, USA Today reported.
Smith’s report, his first major account of how banks are complying with 304 servicing standards meant to protect consumers, revealed that Bank of America and Wells Fargo failed in two areas — loan modification and document collection. Citi failed in timelines for collecting documents on short sales and loan modifications. Chase failed in loan-modification decisions.
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, told USA Today that the banks have improved their performance in accordance with the new mortgage servicing standards. For example, they no longer sign off on foreclosure paperwork with little or no review of documents nor do they charge distressed borrowers a fee to process loan modification requests.
However, Donovan noted that the banks repeatedly failed to send notices and communicate decisions to borrowers in a timely fashion. In May, New York Attorney General Eric Schneiderman threatened to sue both Bank of America and Wells Fargo for these same servicing deficiencies.
Smith reported that between October 2012 and March 31, 2013, his office received nearly 60,000 borrower complaints about servicing. Of those, 19,000 were related to the banks’ failure to provide the required single point of contact for distressed borrowers with servicers being difficult to reach or completely unresponsive, USA Today reported.
JP Morgan Chase and Wells Fargo reported that they have corrected their issues; Bank of America and Citi said they are working on them.
If servicers fail to correct problems, they could face up to $5 million in fines for each continuing problem, USA Today reported.
A new Chicago city ordinance will reshape tenants’ rights by requiring parties who acquire a residential rental property through foreclosure or a deed in lieu of foreclosure to provide qualified tenants the option to renew the lease or take relocation assistance, HousingWire reported June 18.
The ordinance will become effective Sept. 2 — 90 days from the date it was passed by Chicago’s City Council. It will apply to all foreclosed rental property, which is considered a building containing one or more dwelling units used as rental units, including single-family homes.
The ordinance also includes “a dwelling unit that is used as a rental unit and subject to the Illinois Condominium Property Act or the Illinois Common Interest Community Association Act if the legal or equitable interests in the building or unit were terminated by foreclosure under Illinois' Mortgage Foreclosure Law or if at least one owner of the rental units were occupied when the mortgagee became the owner,” HousingWire reported.
A qualified tenant, who would be given protection under the rule, is defined as a tenant who lives in a rental on the day the property became foreclosed upon, with a “bona fide rental agreement” to live in the rental unit as a primary residence. In order to be a bona fide rental agreement, it must be the result of an arm’s length transaction, provide rent near market value and not be between a parent or a spouse.
The requirements also demand that the owner offer the qualified tenant a one-time relocation assistance payment of $10,600 or offer the option to renew or extend the lease. Under the ordinance, if a tenant opts to renew the lease, the renewed agreement cannot exceed 102 percent of the current rental rate for a minimum of 12 months.
The Protecting Tenants at Foreclosure Act of 2009 provides protection for tenants in residential foreclosed properties. Scheduled to expire in 2012, the act was extended through the end of 2014 by the Dodd-Frank Act. The PTFA permits laws at the state and local level to “give other additional protections for tenants.” However, it does not address the National Bank Act or the Home Owners Loan Act and could also be vulnerable to potential constitutional challenges.
Nationwide, 167,680 distressed properties sat vacant through May, accounting for 20 percent of all foreclosures, according to the U.S. Foreclosure Market Report released June 19 by analytics firm RealtyTrac.
The report found that in addition to the vacated properties, more than 650,000 homes in the foreclosure process have not been vacated by the homeowner, but likely will end up as short sales, foreclosure auction sales or bank-owned sales, bringing the total foreclosure-related inventory on RealtyTrac to nearly 1.4 million.
Efforts to prevent unnecessary foreclosures and mitigate their impact on home values have resulted in a foreclosure process that takes an average of 477 days nationwide and more than two years in some states, which is holding many of these must-sell properties off the market, according to Daren Blomquist, vice president at RealtyTrac.
Blomquist said that if the distressed inventory was to hit the market all at once, it would have little impact on home prices.
“Even if all these homes flooded the market simultaneously they would likely not cause the once-feared double dip in prices given supply constraints from non-distressed sellers and stronger demand,” Blomquist said in a news release accompanying the report.
The report revealed that states with long foreclosure timelines — particularly Florida and New York — contained higher numbers of vacant foreclosures, with Florida counting 55,503 vacant foreclosures and New York dealing with 9,173. Illinois also ranked high with 17,672 vacant foreclosures, followed by Ohio with 9,723 vacant foreclosures.
States where the percentage of owner-vacated foreclosures was above the national average of 20 percent included Indiana (32 percent), Nevada (28 percent), Oregon (28 percent), Washington (27 percent) and Georgia (27 percent).
Among the five servicers involved in the national mortgage settlement, Bank of America and GMAC had the highest percentage of owner-vacated foreclosures (23 percent) followed by Chase (21 percent) and Wells Fargo and Citi tied at 20 percent.
See the full RealtyTrac report.
Move-up buyers now outnumber first-time buyers when it comes to total nationwide home sales, as first-time buyers continue to be hindered by tight credit and competition from real estate investors, according to economists at Wells Fargo Securities, National Mortgage News reported June 18.
Prior to the housing crash, first-time buyers represented 50 percent of the nation’s total home sales, but now make up only 29 percent, Anika Khan, WFS senior economist, told National Mortgage News.
In 1999, about a third of first-time buyers under the age of 40 had credit scores below 620 and about 25 percent had scores between 620 and 680, according to WFS, National Mortgage News reported.
Today, mortgage originations for borrowers with credit scores between 620 and 680 are down about 90 percent, while originations below 620 are almost non-existent, Khan told National Mortgage News.
Mortgage underwriting continues to be tight and first-time buyers have to compete with investors who are buying bank-owned properties and lower-priced homes. However, more lenders are increasing their mortgage originations.
“We have seen demand pickup across the country and lenders today are in a better to position to lend than a year ago,” Mark Vitner, WFS senior economist, told National Mortgage News.
Vitner said recent increases in mortgage rates would not deter home buyers, even if rates rise to 4.25 percent to 4.75 percent over the next several quarters.
Activity in mortgage fraud cases edged up during the first quarter, but actions still were considered low compared to standards established since the financial crisis, Mortgage Daily reported June 17.
The national Mortgage Fraud Index hit 880 during the first quarter, up 16 percent from the fourth quarter of 2012. The index reflects prosecution activity in cases where defendants are accused of deceiving mortgage lenders and is determined by both the number of cases and the dollar amount of each case, Mortgage Daily reported. The cumulative total for all state indices equals the national index.
First-quarter activity was tracked on 125 mortgage fraud cases, which increased 19 percent from the previous quarter’s case count, but dropped 27 percent from a year ago, Mortgage Daily reported.
The dollar amount of home loans involved in first-quarter fraud activity was $1.4 billion, up $157 million from the fourth quarter of 2012. Total dollar volume dropped by $339 million when compared to a year ago.
Based on the dollar amount of mortgages involved, Pennsylvania's nearly $226 million was the highest of all states. California came in second with nearly $224 million. The top five also included Florida ($197 million), Nevada ($138 million) and New York ($100 million).
California saw the highest fraud index at the state level with 107. Florida's index came in second at 93, followed by New Jersey (67), Ohio (63) and Pennsylvania (60).
Fixed mortgage rates decreased this week after six straight weeks of increases, Freddie Mac reported June 20 in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate fell 0.05 percent since last week to 3.93 percent (up from 3.66 percent a year ago). The 15-year fixed-rate slipped 0.06 percent to 3.04 percent (up from 2.95 percent a year ago).
The one-year adjustable-rate mortgage decreased 0.01 percent to 2.57 percent (down from 2.74 percent a year ago). The five-year Treasury-indexed stayed fixed at 2.79 percent (down from 2.77 percent a year ago).
“Mortgage rates were relatively unchanged this week as market participants awaited the Federal Reserve's monetary policy announcement,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a news release. “The Fed stated that economic growth has been expanding at a moderate pace and that labor market conditions have shown further improvement, although the unemployment rate remains elevated. It noted inflation has been running below the Fed's longer-run objective as well” he said. “As a result, the Fed will continue its bond-buying program at the current pace and maintain its highly accommodative monetary policy stance.”
“The Fed also affirmed that the housing sector has strengthened further,” Nothaft continued. “For instance, single-family housing permits increased nearly 2 percentage points in May to an annualized pace of 649,000 homes, the most since May 2008. In addition, homebuilder confidence in June rose to its highest reading since March 2006.”
View Freddie Mac’s weekly Primary Mortgage Market Survey.
The Appraisal Institute announced June 26 that it was recognized by Home Innovation Research Labs as a 2013 National Green Building Standard Green Certification Partner of Excellence.
Home Innovation is a full-service research, testing and consulting firm working to improve the quality, durability, affordability and environmental performance of single- and multifamily homes and home building products.
Home Innovation recognized 46 of its NGBS Green Partners for outstanding contributions to advancing green building in their communities and commitment to voluntary, market-driven, third-party certification of high-performance homes. The 2012-13 national Partners of Excellence include 18 residential building companies, 11 program advocate organizations, 10 accredited verifiers, four elected officials and three architectural firms. The Appraisal Institute was the only valuation entity recognized.
View the complete list of Partners of Excellence.
A video addressing tax incentives for conservation easements was one of two new videos available June 24 on the Appraisal Institute’s YouTube Channel. The second video provides details on the 2013 Appraisal Institute Annual Meeting.
In the first video, Ann Marie McCarthy, MAI, a member of the Appraisal Institute’s Government Relations Committee, shared details about the federal government’s actions with regard to tax incentives for conservation easements.
In the second video, Immediate Past President Sara W. Stephens, MAI, offers new details about the 2013 Annual Meeting, which is being held July 23-25 at the Hyatt Regency in Indianapolis.
The Appraisal Institute typically posts short videos biweekly on its YouTube channel that cover topics of interest to both valuation professionals and consumers. Follow AI on its other social media channels: Facebook, Twitter, LinkedIn and the AI blog, Opinions of Value.