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Edward DeMarco, acting director of the Federal Housing Finance Agency, told the Senate Banking Committee April 18 that Congress must act in order to bring private capital back into the housing market, a move he has been urging for years, National Mortgage News reported.
Fannie Mae and Freddie Mac cannot complete the transitions needed to encourage more private investment in the mortgage market until Congress makes a concrete plan, DeMarco told lawmakers.
“I think that with a $10 trillion single-family mortgage market, the government doesn't belong at zero or at 10. It belongs somewhere in between,” DeMarco told lawmakers, National Mortgage News reported. He further said he believed that the government could and should play a role in setting standards, rules and transparency guidelines, which would go a long way toward facilitating an effective role for private capital in funding and bearing the credit risk in the mortgage market.
DeMarco also thanked lawmakers for stopping the use of agency guarantee fees to offset government spending in unrelated areas. “By indicating that the Congress of the United States has agreed it does not want to use Fannie and Freddie to be funding part of the government, it then removes that as an issue or a barrier to actually doing something to bring these conservatorships to an end and rebuild the housing finance system. I think the markets would take that very seriously,” he said, National Mortgage News reported.
He also advised against having the U.S. Department of the Treasury sell off preferred shares of the government-sponsored enterprises. “I think it would certainly generate confusion and questions in the mortgage market about the role that private capital would have in the future if there was a thought that there was some sort of reconstituting Fannie and Freddie as they have been, with the charters they had,” he said, National Mortgage News reported.
In response to committee questions about the role that community banks would play in the mortgage market with the FHFA’s new single securitization platform, DeMarco said the agency is working to get data standards and electronic reporting standards in place that would work with the whole market. He said an industry standard would make it easier for a community bank to acquire technology from a vendor and be able to put it in their institution — even a very small institution.
Even as DeMarco testified, rumors have surfaced that he likely will be replaced as acting director, a role he has held since 2009. DeMarco repeatedly has resisted Obama administration efforts to institute principal reduction programs at the GSEs, National Mortgage News reported. Top candidates for replacing DeMarco are said to be Rep. Mel Watt, D-N.C., and economist Mark Zandi.
The Financial Crimes Enforcement Network noted that the volume of suspicious activity reports related to foreclosure rescue scams almost doubled between 2011 and 2012, HousingWire reported April 15. There were 2,800 such allegations in 2011 and 4,400 last year.
However, reports of possible mortgage fraud have declined between 2011 and 2012, but such fraud remains a concern. In 2012, there were 69,000 allegations of mortgage fraud, a 25 percent decline from 2011 when 92,000 allegations were reported.
Speaking April 15 at the Mortgage Bankers Association Fraud Issues Conference in Hollywood, Fla., Jennifer Shasky Calvery, FinCEN director, said that the decline in mortgage fraud reports should not be interpreted as improvement across the board, HousingWire reported. She told the conference that even though mortgage fraud suspicious activity reports have declined in the last two years, scams are on the rise.
“Our analysis reflects that this could be partly a function of scammers finding opportunity in the distressed part of the mortgage market, as opposed to new loan origination,” Shasky Calvery said, HousingWire reported. “And it may also be the result of increased awareness of foreclosure rescue scams, given the focus on this issue during the past several years.”
In October 2012, the Financial Fraud Enforcement Task Force released results of a year-long initiative to bring scammers to justice. The task force, led by the Federal Bureau of Investigation, charged 530 criminal defendants — 172 of them were executives. HousingWire reported that investigated cases involved 73,000 homeowners with total losses of $1 billion.
FinCEN forms were updated to allow those filing suspicious activity reports to specify types of activity, such as reverse mortgage issues, loan modification scams and appraisal fraud. Many of the reports have been initiated by financial institutions.
Controversy continues to surround the shuttered independent foreclosure review process, which the Government Accountability Office reported was doomed by a lack of consistency and transparency, HousingWire reported April 17. Federal regulators ended the reviews in January after reaching a settlement with banks for $8.5 billion.
The independent foreclosure review process was designed to identify and compensate borrowers injured by robo-signing and other foreclosure processing issues. Some affected borrowers already have received checks as a result of the controversial settlement.
Lawrance Evans, GAO director of financial markets and community investment, told lawmakers that the agency would undertake additional reviews into the process that federal regulators used to arrive at a settlement given that there is no data showing exactly how many homeowners were affected by the foreclosure scandal, HousingWire reported.
Debby Goldberg, special project director at the National Fair Housing Alliance, told HousingWire that her organization has concerns about how servicers are credited for providing “soft-dollar” foreclosure assistance, such as loan modifications, short sales and deficiency waivers. She noted that a significant $5.7 billion of total settlement amount falls into this category.
“Our greatest concern is that, unlike the national mortgage settlement, the independent foreclosure review settlement bases the amount of credit the servicer receives on the unpaid principal balance of the loan, rather than the amount of assistance provided to the borrower,” Goldberg said, HousingWire reported.
She explained that if a servicer forgave $50,000 of principal on a $500,000 loan, it would receive soft-dollar credit in the amount of $500,000. Goldberg noted that this process incentivizes servicers to only focus on higher-priced residences with larger unpaid principal balances.
The economy is showing modest-to-moderate growth in all 12 Federal Reserve districts, according to the Fed’s March Beige Book released April 17. The report noted that residential and commercial real estate has shown marked improvement since early February.
Districts that showed the most improvement in residential real estate activity included Cleveland, Chicago, Dallas, Kansas City, Minneapolis, Richmond and San Francisco. In New York, both housing and apartment markets showed improvement.
The Beige Book also noted that home sales were on the rise in most districts, and in some districts, such as Boston, growth would have been even stronger if it wasn’t hampered by low inventory. Home sales were strong in Atlanta and Dallas, and in Richmond, low inventory pushed contracts above listing prices. Both Boston and New York reported an increase in multiple bids on properties.
Low inventory and strong sales also bumped up housing prices in Atlanta, Dallas, Kansas City, Minneapolis and San Francisco.
Home construction also picked up in most Fed districts, although Richmond reported that reduced supplies of building materials slowed activity. Philadelphia noted a decline in residential construction but indicated home sales grew modestly.
Multifamily construction was up in many areas, including Boston, Chicago and San Francisco. In New York, apartment rents rose substantially in the first part of the year due to increased demand and low inventory. High apartment demand also was reported in Cleveland, Dallas and San Francisco.
The Beige Book noted that loan demand increased in New York, Dallas and San Francisco, while loan pricing remained very competitive in Atlanta, Chicago, Cleveland, Dallas, Richmond and San Francisco.
Read the March Beige Book.
Community banks believe that new mortgage rules proposed under the Dodd-Frank Act and Basel III requirements will negatively impact lending because many financial institutions would be unwilling to make home loans unless they were classified as “qualified mortgages,” National Mortgage News reported April 17.
Additionally, the banking industry said that it feels that the Consumer Financial Protection Bureau’s definition of a “qualified mortgage” is too strict.
Community bankers raised these concerns during testimony before a House Financial Services subcommittee April 16.
“We have a concern that the box is becoming too small for people to fit into, and the risks are becoming so high to be outside that box from our standpoint that depending on how this all comes out, we'll have to make a decision about whether to stay in the mortgage lending business,” Ken Burgess, chairman of First Bancshares of Texas, told the subcommittee, National Mortgage News reported.
Preston Pinkett III, president and chief executive of City National Bank of New Jersey, told lawmakers, “It becomes more [like a] factory, as opposed to a customized consumer product. The challenge of all the regulations that dictate what the products look like is that they also dictate what the customer looks like, and that leads to less flexibility,” National Mortgage News reported.
Prime QM loans have a safe harbor from litigation should borrowers default while other loans could be challenged given that the CFPB’s new regulations require lenders to ensure that borrowers have the ability to repay loans.
While some bankers said they still were considering whether it was feasible to lend outside the QM rule, Burgess told lawmakers his bank had already decided it would not make loans outside the rule. “In our mind, we make about 1,000 loans or so a year, and to have that much unmeasured risk that we cannot evaluate for the ongoing life of the loan, that's just not something we think we can do,” he said, National Mortgage News reported.
Bankers also told lawmakers that the tighter credit standards could decrease their ability to make loans under the Community Reinvestment Act, which provides for lending to less creditworthy borrowers.
“There's a continual friction between safety and soundness regulation and then the need to make loans in underserved markets,” Charles Kim, executive vice president and chief financial officer at Commerce Bancshares, told lawmakers. “In fact, the QM rule probably makes it harder to make loans in underserved markets,” he said, National Mortgage News reported.
Community bankers also said they believe that small financial institutions should be exempt from the proposed Basel III regulations or at least be given a simplified version of the capital and liquidity requirements given that the rules were written for world banks, not small players.
Citigroup originated $18 billion in single-family mortgages in the first quarter of 2013, the most in five quarters, but it has no plans to be a big participant in the origination market, National Mortgage News reported April 15.
John Gerspach, the bank’s chief financial officer, told investors and analysts that the lender primarily is focused on offering mortgages to its retail bank customers.
“We are not looking to significantly grow share in mortgages, other than our existing retail banking base,” Gerspach told National Mortgage News.
First quarter originations were up 26 percent from a year ago, but down from $21 billion in the fourth quarter of 2011.
“Mortgage banking volumes remained strong, although margins declined versus the prior year period,” Citigroup said in its first quarter earnings news release, National Mortgage News reported.
The bank’s third-party servicing portfolio dropped to $175.8 billion in the first quarter, down 11 percent from a year prior.
Citigroup continued liquidating assets from Citi Holdings, which had $149 billion in assets including $86 billion in residential first and second mortgages at the end of the first quarter.
“Since the first quarter of 2011, we have reduced the North American mortgage loans in Citi Holdings by 28 percent — driven by $18 billion in pay-downs, $8 billion in asset sales and $8 billion in net losses,” Gerspach told National Mortgage News.
The bank sold $2.8 billion in loans in the first quarter, including $1.8 billion in delinquent mortgages and $1.8 billion in existing loans; a sizeable number of the current loans are modified and once again performing.
“While we are of course encouraged by the sale of these re-performing mortgages, it is still unclear whether buyers will have an appetite for additional sales. We will continue to test the markets,” Gerspach told National Mortgage News.
The increased use of short sales drove foreclosure rates to near all-time lows and slowed the decline of loss severities for residential mortgage-backed securities, according to data from ratings agency Fitch Ratings, HousingWire reported April 15.
Fitch’s Loss Severity Index for the first quarter of 2013 improved to 64.2 percent from 67.5 percent from the first quarter of 2012. The index measures the percentage of loans that are seriously delinquent (90 or more days late) among private-label securitized loans.
“Along with home price improvements, the increased use of short sale liquidations is now helping to reverse the trend of rising mortgage loss severities,” Sean Nelson, a director at Fitch, told HousingWire.
According to the index, short sales generally resulted in higher recoveries on distressed loans because mortgage servicers allowed borrowers to sell their properties for less than the mortgage amount rather than forcing banks to sell the homes as foreclosures. Fitch projects the recent positive loss severity trends would continue through 2013.
“Timelines to liquidation are much shorter compared to the full foreclosure process and the sale avoids the stigma of being a banked-owned property,” Nelson said, HousingWire reported.
Fitch reported that while short-sale rates declined in the first quarter, they still accounted for more than half of all resolutions and remained the most common resolution for nonperforming loans.
The average timeframe for loans settled through short sales was approximately 12 months shorter than those liquidated through real-estate owned properties. Severities on short-sale liquidations averaged 10 to 15 percent lower than REO properties, HousingWire reported.
“The increased average timelines for loans remaining in the foreclosure process may also reflect some adverse selection of properties not resolved through short sales,” Fitch noted, HousingWire reported.
Home finance balances written off during the first quarter of 2013 hit a five-year low, totaling $43.3 billion, down nearly 23 percent from a year earlier, according to the March National Consumer Credit Trends Report released April 16 by credit reporting agency Equifax.
The report found that the year-over-year change in home finance write-offs nationwide from March 2012 to March 2013 included a drop in revolving home equity credit lines, which were down 44.1 percent. Additionally, home equity installment was down 32.9 percent and first mortgages saw a 17.6 percent drop.
“Overall home finance balances decreased to $8.38 trillion in March 2013 from $8.64 trillion the same time a year ago,” Amy Crews Cutts, chief economist for Equifax, said in a news release accompanying the report.
The report revealed that the total balance of severely delinquent mortgages in March was $350 billion, a 51 percent drop from its peak in March 2010 when it reached $714 billion. Of severely delinquent balances, the report showed that 73 percent are tied to credit lines opened from 2005 through 2007.
The report also showed that transition rates for balances moving from current to delinquent reached five-year lows in March.
Balances in foreclosure totaled $445 billion in March, a decline of more than 25 percent from a year ago when foreclosure balances totaled $595 billion.
New credit originated in January 2013 totaled $6.2 billion, a 20 percent increase from a year earlier when new credit totaled $5.1 billion — the strongest start to a calendar year since 2009, Equifax reported.
Mortgages for commercial and multifamily units totaled $244.2 billion in 2012, according to the Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation released April 17 by the Mortgage Bankers Association, MBA NewsLink reported.
The reported dollar volume of commercial and multifamily mortgages closed in 2012 was 33 percent higher than in 2011, the survey revealed. The dollar volume of closed loans jumped 15 percent among repeat participants in the survey.
The survey found that mortgages originated for Fannie Mae, Freddie Mac and the Federal Housing Administration represented the leading investor group, closing $77.6 billion in loans last year.
Commercial banks and savings institutions posted the second-highest loan volume with $56.9 billion, followed by life insurance companies and pension funds; commercial mortgage-backed securities issuers; real estate investment trusts, mortgage REITs and investment funds; and credit companies and specialty finance firms. The survey revealed that multifamily properties ranked highest in origination volume for property types with $103.2 billion, followed by retail properties, office buildings, industrial, hotel/motel and health care facilities. “The commercial and multifamily mortgage market saw solid growth during 2012,” Jamie Woodwell, vice president of commercial real estate research for MBA told MBA NewsLink. “The multifamily market continued to be a major driver of activity, and nearly every investor group increased their activity from the year before. With a continuation of low interest rates and improving property markets, originations are on track for continued growth this year.”
Fixed mortgage rates fell for the third consecutive week amid studies showing decreased consumer spending, Freddie Mac reported April 18 in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate fell 0.02 percent since last week to 3.41 percent (down from 3.90 percent a year ago). The 15-year fixed-rate dropped 0.01 percentage points to 2.64 percent (down from 3.21 percent a year ago).
The one-year adjustable-rate mortgage increased 0.01 percentage points, however, to 2.61 percent (down from 2.81 percent a year ago). The five-year Treasury-indexed decreased 0.02 percent to 2.60 percent (down from 2.785 percent a year ago).
“Mortgage rates nudged lower this week as consumer spending showed signs of weakness,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a news release. “Retail sales contracted for the second time in three months, falling 0.4 percent in March. In addition, the University of Michigan reported their Consumer Sentiment Index dropped 6.3 points in April to settle at 72.3, its lowest level since July. The April reading snapped a streak of three consecutive gains,” he said.
View Freddie Mac’s weekly Primary Mortgage Market Survey.
The Appraisal Institute’s National Nominating Committee is scheduled to interview four candidates for AI’s 2014 vice president during its May 1 meeting in Chicago. The committee is expected to nominate one or more of those individuals to the Board of Directors at the Board’s May 2-3 meeting in Chicago.
The candidates are Terry O. Bernhardt, JD, SRA; Richard J. Murray, SRA; J. Scott Robinson, MAI, SRA; and Kern G. Slucter, MS, MAI, SRA.
AI individuals may view the candidate questionnaires (log-in and password required) and provide input by April 26. Emails may be sent to Sara Stephens, chair, 2013 National Nominating Committee, email@example.com, with a copy to Darlene Grass, director, governance, firstname.lastname@example.org. Hard copy letters also may be submitted and also must be received by April 26. Letters can be mailed to Sara Stephens, c/o Darlene Grass, Appraisal Institute, 200 W. Madison St., Ste. 1500, Chicago, IL 60606.
The Appraisal Institute bylaws, Article X Part C, say in part: “ (A)dditional nomination(s) for Vice President or any other vacant Officer position(s) not filled by automatic succession may be received from the Board of Directors, provided a written petition signed by at least twenty percent (20%) of the directors is delivered in writing to the Chief Executive Officer no later than forty-five (45) days after the Nominating Committee’s submission of its nomination(s) to the Board.” The election is scheduled to be held during the July 26-27 Board of Directors meeting in Indianapolis.