Florida Carries Southern Region in Domestic Migration

Homeowners are flocking to Florida according to Clear Capital’s June 2017 HDI Market Report. The report provides insights into market trends and other leading indices for the real estate market at the national and local levels. Nationally, quarter-over-quarter home price growth slowed slightly from 0.9 percent to 0.8 percent, but Clear Capital said this aggregate measure is disguising a growing regional divide.

The West region continues to pace the nation with 1.2 percent quarter-over-quarter growth due to high levels of growth in the Pacific Northwest, the Sacramento Valley, and Arizona. San Jose has started to see accelerated growth, entering the top 15 metros with 1.3 percent quarter-over-quarter growth, despite an only 3.7 percent growth since last year. Nine of the top 15 metros are currently in the West region.

Though the Northeast currently does not have any metros in the top 15 and is the only region to experience a significant increase in distressed saturation, it isn’t far behind the West. They showed an uptick in quarter-over-quarter growth from last month from 0.9 percent to 1 percent.

Growth in the South has begun to slow down, despite the summer selling season. Quarter-over-quarter gains are down from 0.8 percent last month to 0.6 percent in June. Memphis was the worst performing market in terms of quarter-over-quarter growth last month, but is showing better signs this month jumping into the top 15 with 1.5 percent quarter-over-quarter growth and 9.1 percent year-over-year growth. Though the Florida markets like Jacksonville, Orlando, and Tampa experienced a boost in domestic migration, contributing to double digit year-over-year home price growth, the South region’s growth was stalled by Virginia Beach, Baltimore, Houston, New Orleans, Louisville, and Birmingham, all of which have grown by less than 0.6 percent quarter-over-quarter.

The Midwest, who has been the slowest growing in the region, continues its slow pace with quarter-over-quarter growth slowing from 0.6 percent to 0.5 percent last month. However, Chicago has jumped into the top three metros in terms of quarter-over-quarter growth at 1.7 percent. Despite having a declining population in 2016 and 20 percent distressed saturation, it is one of only seven metros to achieve double-digit year-over-year growth. Cincinnati is showing warning signs of slowing with distressed saturation increasing from 14.5 percent to 17.6 percent in the last month.

U.S. v. Shapiro: When is a Lie OK?

fraud-twoFormer trader at Nomura Securities International Inc., Ross Shapiro, is the highest ranking of three ex-Nomura traders that are on trial for not only hiding the amount of profit they received in the selling of residential mortgage-backed bonds, but teaching others how to do it as well. In a report this week by Bloomberg writers Chris Dolnetsch and Matt Scully, they discussed the interesting question the jury is being asked: when is a lie is considered deceiving and when is it not?

Shapiro along with Michael Gramins and Tyler Peters falsified purchase information in order to manipulate the money manager to pay a higher price for the bond, sub sequentially putting more money in their pockets. According to Bloomberg, the complex securities don’t change hands very often and when they do, specialized traders haggle over prices in order to determine the yields that investors will earn on the bonds. Unfortunately for everyday investors, few of them are knowledgeable enough to understand the connection between the prices paid for directly or indirectly owned bonds and the resulting investment returns.

The jury on the trial recently listened to the testimony from one of those affected by the case. Aadil Abbas, Hartford Investment Management Co. Portfolio Manager, said he lied to clients during negotiations and was trained to use the tactics by the defendants.

Joshua Klein, who is representing Shapiro, told jurors the market is “riddled with deception” and that deceit is come across so often in the profession that it was a non-issue.

“If you take away the lies and put aside the misrepresentation and just ask each witness that testified, ‘Did you want these bonds?’ they still would say yes, Klein said. “They still think it was in the interest of their investors.”

The government says traders are guilty when they intentionally misrepresent the acquisition or sales price of a bond during negotiations. Assistant U.S. Attorney Liam Brennan told jurors, “To say that these are sharp business practices, and everyone engaged in them, is not just an affront to everyone in the securities industry, it’s an affront to everyone in every industry that has ever tried to be an honest dealer.”

Fannie Mae Nets Nearly $3 Billion in Reperforming Loan Sale

Fannie Mae, in working with Citigroup Global Markets, announced on Tuesday that they have sold 13,500 loans with a cumulative unpaid principle balance (UPB) of $2.99 billion in their third reperforming loan sale.

The collection of loans were divided into three groups and sold off to a single bidder: DLJ Mortgage Capital, Inc (Credit Suisse).

The first and largest pool of loans was comprised of 5,179 loans with a total UPB of $1,147,189,914. Their average loan size is $221,508.00 and highest weighted loan rate of the three groups at 4.45 percent. The weighted average broker’s price opinion (BPO) loan-to-value ratio is 94.9 percent, the second riskiest acquisition of the three.

The second group of loans had 5,096 in it, and a total UPB of $1,120,135,737. This pool also has the highest BPO loan-to-value ratio at 112.65 percent. Median loan size was $219,808.86 and the weighted average note rate was 4.43 percent.

The smallest pool, at 3,254 loans valued at $731,116,035. Houses in this group had an average loan size of $224,682.25, and the lowest weighted note rate of 3.86 percent. This final group also had the lowest BPO, sitting at 93.19 percent.

Fannie Mae expects to close on the bid of this sale July 21, and originally announced the winner of this bid back on May 10. The lender first started selling reperforming loans on October 11, 2016 to investors, nonprofits, and public sector organizations to try to reduce inventory in its retained mortgage portfolio. Fannie Mae is required by the Senior Preferred Stock Purchase Agreement with the U.S. Treasury to meet portfolio reduction targets.

FOMC: Economy Strong Enough to Raise Interest Rates

Federal Reserve farThe Federal Open Market Committee voted Wednesday to raise interest rates for the second time this year to 1-1.25 percent, a move that was widely expected amongst economists and industry professionals and described as “prudent” by FOMC Board of Governors Chair Janet Yellen.

Back in March, they voted to increase the rate a modest quarter of a point to maintain the Fed’s goal of maximum employment and market stability.

The FOMC is of the opinion that waiting too long to scale back accommodations could potentially cause a rapid increase in rates, which could disrupt the market and send the economy into another recession. June’s rate increase reflects this continued belief, and follows Janet Yellen’s comments from March that, “we continue to expect that the ongoing strength of the economy will warrant gradual increases in the federal funds rate to achieve and maintain our objectives.”

It is currently unclear how the hike in interest rates will affect mortgage rates. On Tuesday, Mark Fleming, Chief Economist at First American, stated he didn’t foresee mortgage interest climbing much—if at all—because rates are more closely tied to a 10-year Treasury bond, something that is not really affected by short term rate hikes made by the Fed.

Tom Millon, President and CEO of Capital Markets Cooperative, also believes the Fed’s decision will fail to impact mortgage rates. “Since [the] Fed’s move was expected, fixed mortgage rates already reflect the higher Fed funds rate. Origination volumes and profits are not at post-Brexit-refi-boom levels, however we are enjoying a solid spring purchase market, and the Fed’s move will not derail that.”

Conversely, Brad Walker, CEO of Income&, thinks it could have a short term effect on mortgage rates.

“We expect to see an increase in mortgage rates in the short term, just as we did with the two previous increases. However, current housing demand and its effect on housing prices can diminish or exacerbate this rise in mortgage rates.”

Rick Sharga, EVP of Tex-X, agrees. “There’s some legitimate concern that if the Fed’s action triggers increased mortgage interest rates, affordability could become a more significant concern.”

What is clear, according to Curt Long, Chief Economist of the National Association of Federally-Insured Credit Unions (NAFCU), is that the Fed’s choice to increase rates is a good sign for the future.

“The actions taken by the Fed reflect confidence in the labor market and a perception that global risks have declined in the first six months of the year,” he said. “Nevertheless, the outlook for the second half is uncertain. Inflation has slowed recently and the debt ceiling debate poses political risk. But with the Fed stating its intentions to start reducing the size of the balance sheet this year, it is offering a clear vote of confidence for the economy.”

In Wednesday’s press conference, and in the previously released addendum to the Policy Normalization Principles and Plans, Yellen confirmed that “changing the target range for the federal funds rate is its primary means of adjusting the stance of monetary policy.” As such, NAFCU is reporting that one more quarter-point rate hike is due in 2017, three are expected for 2018, and three to four are expected in 2019, although the FOMC made it very clear that they are constantly amending their stance as the economy changes, so nothing is set in stone.

The FOMC is scheduled to meet again July 25-26. 

Fannie Mae Sheds 3,400 Delinquent Loans in NPL Sale

After nearly a month of marketing, Fannie Mae, in conjunction with Wells Fargo Securities and The Williams Capital Group, has sold 3,418 loans with a cumulative unpaid principle balance (UPB) of $581 million in a continued effort to reduce the number of delinquent loans in its portfolio. This is the companies 10th nonperforming loan sale.

The entirety of the loans were divided into three groups and sold off to three different bidders: MTGLQ Investors, LP (Goldman Sachs), Igloo Series III (Balbec Capital Group LP), and Rushmore Loan Management Group LLC.

Goldman Sachs acquired 808 of the loans with a total UPB of $127,716,108.  They have an average loan size of $158,064, and the longest mean delinquency of the three groups at 38 months. The weighted average broker’s price opinion loan-to-value ratio is 86.84 percent, making this group the second riskiest acquisition.

The second group of 681 loans were sold to Balbec Capital Group LP. This is the smallest pool of loans with a total UPB of $115,802,447 and the lowest average delinquency of 28 months. Balbec Capital Group also secured the pool with the lowest weighted average broker’s price opinion loan-to-value ratio at 81.03 percent. Loans averaged about $170,048 each.

The largest pool went to Rushmore Loan Management Group, at 1,929 loans valued at $337,667,876. Houses in this group had a mean delinquency of 30 months, and averaged $175,048 per loan. Rushmore Loan Management Group also took on the highest risk of the three bidders, as group three has a broker’s price opinion loan-to-ratio value of 88.02 percent.

Fannie Mae expects to close on the bids of these sales on July 26. The company is also expecting a small sum of $34.47 million from the sale of its seventh and eighth Community Impact Pools to be delivered on June 14.

Subprime Mortgages Moving From Rearview

mortgage-app-fiveJust as we’re looking at peeling back regulations like Dodd-Frank with last weeks CHOICE Act vote, a recent op-ed asked the provoking question “Does anyone remember how to make a subprime mortgage?” Of course, those in the mortgage industry remember well. Though they have dwindled in recent years, due to many blaming the 2008 crash in part on the mortgages, thoughts of honing in on an untapped market are gaining popularity again. The Wall Street Journal (WSJ) reported 25-year-old FundLoans Account Executive Brandon Boyd is teaching mortgage brokers how to get back into it.

Before the crisis, most brokers worked for banks and independent lenders, some faking loan applications and steering their borrowers into debt they could not handle. Now that technology like Quicken Loan’s Rocket Mortgage has come into play, consumers are getting an alternative to the traditional broker.

On the other hand, lenders have reported borrowers, such as those with good credit scores who likely are self-employed and fail to have proper documentation, are an untapped market. Leaving loan decisions to typical “prime loan” specifications through automation could mean losing a good borrower. If Boyd is successful in recruiting brokers, WSJ reports that the market potential for both types of loans could reach $200 billion annually.

“Small and midsize independent lenders want the brokers back. Nonbank lenders that typically cater to riskier borrowers say they need brokers to fan out across the country and arrange mortgages to people with lower credit scores, or who can’t prove their income through a typical tax return,” WSJ reported.

Though the popularity of subprime mortgages would bring more borrowers to the market, some worry it will increase the chance of loan defaults.

NMSA Sets Sights on Solving Vacant and Abandoned Property Issues

Jim TaylorThe National Mortgage Servicing Association (NMSA) announced the appointment of Jim Taylor, SVP of Property Preservation with Wells Fargo Home Mortgage Asset Management, to lead the organization’s effort to mitigate the threat that vacant and abandoned properties pose to homeowners and communities.

Taylor, a 30-year industry veteran, leads asset management and preservation of Wells Fargo’s residential servicing portfolio while caring for the interests of the communities it serves. He earned his M.S. in Management from Purdue University concurrently with an MBA from Ecole Superieure de Commerce de Rouen, and a B.S. from the University of Washington.

Taylor’s first order of business will be partnering with his peers and regulatory agencies to develop a comprehensive national definition for what constitutes a vacant and abandoned property and honing a strategy for the harmonization of procedure for their treatment.

“The concerns presented by the proliferation of vacant and abandoned residential properties are, at their core, consumer protection issues,” said Five Star Institute President and CEO Ed Delgado. “These properties can potentially have a devastating effect on surrounding communities because they often become magnets for vandalism, squatting, and violent crime. In extreme cases, these properties have even led to the tragic loss of life. Jim is the perfect leader for this effort. The depth of his knowledge on the issues surrounding vacant and abandoned properties is matched only by his passion to ensure that these properties are no longer a threat to the communities that our industry serves.”

With a membership comprising nearly 80 percent of the mortgage servicing market, the NMSA is a nonpartisan organization driven by top-level executive representation from the nation’s leading mortgage servicing organizations for the purpose of effecting progress and change on the key challenges that face the mortgage servicing industry. By bringing together decision making executives from across the nation, the NMSA drives the agenda on shaping the American housing industry for the benefit of homeowners.

“There are many opportunities for servicers, investors, and communities to find common ground for the disposition of property that becomes vacant and abandoned when our customer is facing such financial hardship,” said Taylor. “Reducing the complexity in servicing these loans, and then using the best practices to get the property secured in the right time are critical to reducing adverse impact to our customers, the communities, and the investors. NMSA’s leadership and engagement with a broad range of stakeholders also provide a unique opportunity to find common ground and reach a consensus on the most effective resolution for these properties.”