Distressed Sales at 9-Year Low

2016 was a slow year for cash sales, according to a CoreLogic report. The full-year cash sales share for 2016 was 32.1 percent, 2.2 percentage points below the full-year 2016 share. This was the lowest full-year cash sales share since 2007. Cash sales reached a peak in 2011 at 46.6 percent. The cash sales share of total home sales averaged approximately 25 percent before the housing crisis, and are expected to hit this range again by mid-2019.In December 2016, cash sales share was 33.1 percent, down 1.3 percentage points year-over-year. Real-estate owned (REO) sales the largest share of cash shares in December 2016, at 61.1 percent. Short sales had the next highest cash sales share at 34.2 percent, followed by resales at 33 percent, and newly constructed homes at 16.7 percent.

New York had the largest amount of cash sales of any state in December 2016, with a cash sales share of 47.9 percent. Next highest were New Jersey (47.6 percent), Alabama (46.1 percent), Michigan (44.3 percent), and Florida (42.1 percent).

The distressed sales share for December 2016 was 7.8 percent, the lowest distressed sales share for any month since October 2007. Additionally, the full year distressed sales share was the lowest since 2007, at 8.9 percent, 2 percentage points lower than 2015. Before the housing crisis, distressed sales averaged around 2 percent, and the share is expected to reach that point again by mid-2018.

Altisource Chief Revenue Officer John Vella explains what has caused distressed sales to drop. “The decline in distressed inventory is a culmination over the past few years of better loss mitigation efforts by the servicers and improved credit quality of newly originated loans,” he said. “Although delinquency and roll rates indicate that the decline will continue, there will always be short sales and foreclosure sales—just not at the historic volumes that we witnessed five years ago. With fewer distressed sales and inventory, servicers will remain focused on early stage loss mitigation, improving the borrower experience and adhering to all the new and changing regulations.”

All states but nine recorded lower distressed sales in December 2016 compared with a year earlier. Maryland had the largest share of distressed sales at 17.9 percent in that month followed by Connecticut at 17.6 percent, Michigan (15.8 percent), and Illinois (13.6 percent). The smallest amount of distressed sales could be found in North Dakota, at 1.3 percent. North Dakota, Utah, and District of Columbia are the only states within one percent of their pre-crisis levels.

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CFPB to Re-Examine Regulation

On Tuesday, Chris D’Angelo, the associate director of the Consumer Financial Protection Bureau’s (CFPB) division of Supervision, Enforcement and Fair Lending, said at an American Bankers Association meeting in Washington that the CFPB is bureau was set to undertake a review of a host of major rules that it has put in place, including the qualified mortgage rule.D’Angelo stated that the CFPB is “embarking” on the process of reviewing rules that it has put in place as mandated under the Dodd-Frank Act.

The qualified mortgage rule, a standard set up to make sure borrowers can repay their mortgages, as well as other mortgage servicing and home lending regulations are set to come up for review. The CFPB wants to “try to see what the real-world effects on the market” these regulations have.

All rules that the CFPB mandates are to be reviewed five years after they take effect, as mandated by Dodd-Frank. This goal is to make sure that the rules set by the bureau are not putting too much burden on financial institutions and providing the benefits to consumers they were intended to provide.

Recently, the CFPB announced that it has begun review of its remittance rule, which took effect in October 2013. This rule requires institutions that provide remittance transfers originating in the U.S. to disclose their fees up front. Following this review, the bureau made changes intended to make it easier for banks and other firms to comply with these regulations.

D’Angelo said that the CFPB will be moving on to reviewing mortgage rules in the coming weeks and months. The CFPB finalized several regulations for the mortgage servicing industry and other aspects of the mortgage market in January 2013.

He also said at the American Bankers Association meeting that the CFPB is still finding problems with the mortgage servicing industry despite these rules being in place, although, according to D’Angelo these problems emanate from “the third-party service providers and the folks who develop your technology solutions.”

Although changes are expected to take place, the bureau does not want to eliminate the incentive compensation practices that banks have in place.

“We know that you need those in order to manage larger organizations and how you drive your employees,” D’Angelo said.

MHA Releases Year-End Results. What’s Changed?

The housing market has made significant strides toward recovery, due in part to the efforts of the Making Home Affordable (MHA) program. The Program Performance Report Through The Fourth Quarter of 2016, some of the last results as all MHA programs ended on December 31, detail the improvements made since 2009 and the assesses the quality of certain servicers. For example, Delinquencies and foreclosures have dropped since its inception, and the oversight of servicers provided by MHA programs has brought some improvement.

Since 2009, delinquencies have dropped from 6.1 million to 2.7 million. Over 3 million homeowners were underwater as of December 31, a drop from 10.2 million in 2009. And as of December 31, foreclosures starts are at 59.7 thousand, a difference of slightly over 76 percent of 2009’s 250.6 thousand.

MHA has helped 2.8 million homeowners during its time, with a focus on five guiding principles:

  • Improving accessibility to foreclosure alternative programs for homeowners experiencing hardship
  • Providing payment relief that meets the needs of homeowners based on their hardship
  • Becoming sustainable through solutions designed to resolve delinquency and improve effectiveness long-term
  • Being transparent by ensuring that the processes are clear and understandable by all parties
  • Holding itself accountable by ensuring the appropriate level of oversight

The Home Affordable Modification Program (HAMP), launched in spring 2009, began a total of 2,511,344 trial loan modifications and 1,683,112 permanent modifications. MHA’s Q4 results note that homeowners who remain in HAMP without defaulting are less likely to default. Homeowners with HAMP permanent loan modifications were able to

Many homeowners in delinquency who were not eligible for HAMP assistance found alternative solutions. 58 percent of those not eligible obtained alternative modification or otherwise resolved their delinquency. However, 23 percent of these were referred to foreclosure.

In addition to offering programs such as HAMP, MHA has compiled data on servicers so that they may better address the needs of homeowners. The MHA Servicer Assessment results for Q4 2016 show which major servicers require improvement, and whether the needed improvement is slight, or substantial. Bank of America, JPMorgan Chase, Ocwen, Select Portfolio Servicing, and Wells Fargo were reported by MHA as only requiring minor improvement, and CitiMortgage is reported as requiring moderate improvement. However, MHA reports the need for substantial improvement at Nationstar Mortgage. MHA’s results found a 4 percent rate of income calculation errors within Nationstar mortgage, bringing the servicer’s score down.

The Hardest Hit Fund dealt with state-by-state problems in the housing crisis, rather than the nationwide programs from MHA. HHF programs interact with MHA programs and have assisted more than 292,000 homeowners as of December 31. HHF programs did not end on December 31 but have been extended through 2020.

OCC Head Stresses Collaboration in Maintaining Sound International Banking

“Collaboration” was a key word used generously in the address given by Thomas J. Curry, comptroller of the currency, to the International Bankers Annual Conference on Monday in Washington, D.C.

As various federal agencies now face drastic changes and even elimination under the new Trump administration, Curry spoke of “the necessity of maintaining certain safeguards and high standards.”

“Some will suggest easing safeguards,” he said. “A few will even suggest eliminating them. Others will remember that the worst loans are made in the best of times and urge continued vigilance to build capital and liquidity so that it is available when the tide turns.”  He said that this is a reasonable policy discussion to have domestically and internationally and is a debate as old as banking itself.

“During times like these, I think it is helpful to stress two things that remain constant in financial regulation,” he said, “the importance of international collaboration and the value of effective supervision.

He went on to say that In times of change and uncertainty, collaboration among domestic and international supervisors provides perhaps its greatest value, because it takes the best from each to create something greater than any one of them individually.

As head of the Office of the Comptroller of the Currency (OCC), Curry said that he had made collaboration a strategic priority and core value for the agency. “Collaboration is a powerful word,” he said. “For me, collaboration involves including diverse groups with different interests working together to achieve a common goal.”

As an example of collaboration, he cited that since 1989, bank supervisors from member countries of the Financial Action Task Force (FATF) have been collaborating in the fight against terrorism and money laundering. “By monitoring international progress in implementing effective safeguards against money laundering and terrorist financing, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system as a whole from misuse,” he said.

He also said that the OCC’s work in the FATF is complemented by its representation on the Anti-Money Laundering Expert Group (AMLEG) of the Basel Committee on Banking Supervision.

“Our AMLEG membership enables us to collaborate with other bank supervisors from around the globe in the interpretation and implementation of the FATF standards in our respective jurisdictions,” he said. “This collaboration promotes consistency in supervisory expectations across the many jurisdictions in which our banks operate and their customers do business.”

In closing, Curry said he wanted to leave a reminder that the fundamentals of banking remain the same: strong capital, ample liquidity, controlled leverage, and limited concentrations. “These are lessons we remember during a crisis, but sometimes forget during extended periods of good times,” he said. “The safeguards implemented since the crisis of 2008 restored confidence in the system by focusing on these basic principles of sound banking.”

He said that as a result, banks are growing in the United States, and have returned to profitability. “At the same time, they are better equipped to weather a downturn than at any time in my professional memory,” he explained. “And that’s a good thing, because as professional risk managers and bankers, we know that sooner or later that downturn will come. When it does, the work we have done since 2008 will soften the blow. We must not forget the lessons of the past crisis. There is exceptional value in strong supervision, value that regrettably sometimes only becomes clear in its absence. We cannot let our guard down.

Low Down Payment Programs Attracting Millennials

Down Payment Resource reports that in January, 65 percent of first-time home buyers only put down a zero to six percent down payment, a decrease from 66 percent in December. Among all buyers whose transactions closed in January, 62 percent of those who obtained a mortgage made a down payment of less than 20 percent, the same percentage as in December.

However, the percentage increased for other types of loans. According to Ellie Mae Origination Insights Report, average down payments for January included (1) all loans, LTV 78 percent, 22 percent average down payment; (2) FHA Purchases, LTV 96 percent, 4 percent average down payment; (3) Conventional Purchase, LTV 80 percent, 20 percent average down payment; and (4) VA purchase, LTV 98 percent, 2 percent average down payment.

There are some new programs targeted to homebuyers who do not have adequate money for down payments on a home. Overlooked and disadvantaged communities may also soon benefit from these funds. “Last year, more homes were sold in America than any year since 2006. Yet the housing recovery is bypassing dozens of communities and millions of Americans,” according to the Down Payment Resource, a service that tracks approximately 2,400 homebuyer programs.

By giving buyers an incentive to choose a home in languishing neighborhoods, these programs are catalysts for change, according to Rob Chrane, CEO, Down Payment Resource. “New owners invest in their communities, stimulating growth and community revival. Down payment assistance can leverage a minor investment into turning communities around and putting young families on a path to homeownership.”

Funds for down payments are available through federal programs like the Treasury Department’s Capital Magnet Fund and TARP’s Hardest Hit Fund that may be able to help. In addition, state housing finance agencies are launching new down payment assistance programs to bring the housing recovery to overlooked urban and rural neighborhoods.

In addition, innovative state and local housing finance agencies are the key to turning federal initiatives into local opportunities that improve lives and build communities. The Wisconsin Housing and Economic Development Authority and the Tennessee Housing Development Agency are just two of a number of agencies pioneering the targeted application of down payment assistance to communities and neighborhoods that need it the most.

“The idea here is that neighborhood stabilization requires more than investment; it requires the presence of an invested home owner. This encourages people to buy and to stay and to help build up these neighborhoods,” said Ralph M. Perrey, executive director, Tennessee Housing Development Agency.

Among commercial lenders, Wells Fargo has expanded its credit criteria to offer more first-time and low-to moderate income buyers the chance to qualify for a loan, according to an article in Builder Magazine. Under the program, credit history includes nontraditional sources such as tuition, rent, or utility bill payments. Borrowers need a minimum credit score of 620 to qualify. Wells launched its yourFirstMortgage program in May 2016, which offers fixed-rate mortgages for a down payment of as little as 3 percent. The yourFirstMortgage program does not have an income limit and is not restricted to first-time buyers.

It seems that the long-awaited influx of millennial home buyers is beginning. Ellie Mae reported that mortgages to millennial borrowers for new home purchases continued their ascent in January, accounting for 84 percent of closed loans. FHA loans remained attractive among Millennials, representing 35 percent of all loans closed in January. “It is not surprising to see Millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score requirements than conventional loans,” said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae. “Across the board, we’re continuing to see strong interest in homeownership from this younger generation.”

Freddie Mac Prices First WLS of 2017

Freddie Mac Monday announced the pricing of its fifth Freddie Mac Whole Loan Securities transaction. The offering was worth roughly $640 million in guaranteed senior and non-guaranteed subordinate actual loss securities, according to Freddie.

According to Freddie, its Whole Loan Securities (WLS) Trust will issue approximately $602 million in guaranteed senior certificates and approximately $38 million in unguaranteed subordinate certificates. The collateral backing the certificates are 1,227 fixed-rate super-conforming loans.

Barclays Capital Inc. and Bank of America Merrill Lynch are co-lead managers and joint bookrunners. WLS 2017-SC01 is expected to settle later this month.

The transaction was made possible through credit risk transfers, or CRTs. Freddie stated that it has shifted some of its credit risk from the underlying super-conforming mortgages to subordinate investors. To date, the company has issued approximately $2.4 billion in whole loan securities.

Whole loan securities are risk transfer securitizations backed by single-family mortgages purchased by Freddie Mac. Principal and interest payments on the underlying mortgage loans provide the funds for payment of certain expenses of the whole loan securitization trust and for distributions of principal and interest to investors.

“We are pleased with the interest in our first WLS transaction of 2017, the largest WLS deal to date,” said Mike Reynolds, VP of Freddie Mac Credit Risk Transfer. “Our work to educate investors about this asset class is ongoing and we look forward to continued strong investor interest in WLS.”

Though the CFPB Faces Major Reform, Few Know What it is

The Consumer Financial Protection Bureau (CFPB) is facing reform from the current administration, even though very few people seem to really know that it does. In February, President trump signed an executive order which could re-evaluation of Dodd-Frank, including the CFPB, as noted in a Consumer Reports post. However, CreditCards.com found in a survey that the average American is barely aware of the CFPB’s role, as 81 percent of respondents to CreditCards.com’s telephone survey stated that they did not know enough about the bureau to have an opinion on it.

Of the 17 percent who did have an opinion, the majority do in fact favor the bureau. Republicans favor the consumer watchdog two to one, and Democrats favor it four to one, reports CreditCards.com. Despite the positive, though spotty, public opinion, the CFPB is still in danger, as the current administration is an expensive and out-of-control entity in the eyes of Congress.

The idea of policing and regulating otherwise private institutions is at odds with the current Republican administration, and its current battle has brought the otherwise lesser-known Bureau into the mainstream. Republicans are calling Obama-appointed Director of the CFPB Richard Cordray to be replaced and to take the control of the Bureau finances away from the reserve and place it in the hands of Congress.

The CFPB was brought further into the public eye when New Jersey-based PHH Corp brought the Bureau to court over claims of abuse of power. The case, as previously reported by DS News, sees New Jersey-based lender PHH Corp. trying to overturn a $109 million penalty issued by the CFPB in June 2015 over alleged violations of the Real Estate Settlement Procedures Act. The case has challenged the constitutionality of the CFPB for the first time.

The 27 million consumers which the CFPB has collected refunds for would inevitably miss the bureau should it be dissolved. Without naming the Bureau, CreditCards.com asked respondents in its survey if it would support a federal agency which protected consumers from unfair and deceptive conduct, and 80 percent answered yes, the same number Democrats as Republicans.