Ocwen MSR Block May Soon Be Lifted

Ocwen may be on its way to acquiring mortgage servicing rights once again, thanks to its recent settlement with the New York Department of Financial Services (NYDFS), according to Fitch Ratings. The organization has had a three-year drought in acquiring MSRs due to its pending litigation.

According to the March Consent Order with the NYDFS, Ocwen may be able to ease restrictions on its MSR acquisitions, which have been blocked since 2014.

“The March Consent Order lays out a process for the determination of whether restrictions on acquiring MSRs should be eased,” Fitch Ratings stated in a release. “While the easing of restrictions would be a positive step toward alleviating near-term margin pressures, Ocwen remains susceptible to longer-term risks associated with building a mortgage lending platform positioned for sustainable growth.”

NYDFS will conduct an on-site review of Ocwen to determine whether its MSR acquisition restrictions may be eased. According to Fitch, a number of improvements in Ocwen’s loan boarding process should work in its favor.

“The enhancements implemented include a comprehensive milestone tracker to manage key deliverable dates, a conversion balancing tool to reconcile specific statuses between Ocwen and the counterparty servicer, and over 100 additional quality control checks,” the Fitch release stated. “Ocwen also expanded its servicing transfer management quality assurance team to review onboarding activity with a primary focus on instances of possible immediate consumer impact (e.g. loss mitigation or payment processing).”

Ocwen performed a mock boarding exercise in 2016 with 2,000 previously boarded loans to verify regulatory compliance, reduce loss mitigation, and ensure timely receipt of payments. The boarded loans were tested using the organization’s new processes and reviewed across multiple auditing departments.

Ocwen’s issues with NYDFS goes back to February 2014, when the regulator suspended Ocwen’s servicing rights due to “concerns about Ocwen’s servicing portfolio growth” and issued a series of letters regarding the institution’s regulatory compliance. The two parties settled the suit in December of that year, with Ocwen paying $150 million and agreeing to the dismissal of Founder and Chairman Bill Erbey. Prior to its settlement with NYDFS, Ocwen settled a separate lawsuit with the California Department of Business Oversight in February.

Ocwen is one of the largest non-bank mortgage servicers in the country, with a servicing portfolio of total of $203.3 billion in loans. The organization was given a Stable Outlook by Fitch Ratings.

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Housing Starts Fall While Permits Rise

Despite a strong February, housing starts have fallen almost seven percent in March. According to Tuesday’s New Residential Construction report from the Census Bureau and the Department of Housing and Urban Development (HUD), housing starts dropped to a seasonally adjusted annual rate of 1.215 million, a 6.8 percent decrease from February’s 1.303 million, but many outlooks are still positive. The March housing starts rate is 9.2 percent higher year-over-year.

“Today’s Census Bureau report for March is good news for the housing market,” said First American Chief Economist Mark Fleming. “Millennial household formation is beginning to have meaningful impact on housing demand and will likely only increase. Currently, I estimate that the amount of housing supply necessary to just keep pace with demand is probably around 1.5 million housing units a year.”

Single-family starts fell six percent in March, to an annual rate of 821,000 from February’s rate of 875,000, which was the fastest monthly rate since the Great Recession.

Although sing-family starts dropped, single-family permits posted the third largest annual pace since the recession. Permits in March grew 3.6 percent to 1.26 million from February’s 1.216 million, and grew year-over-year by 17 percent. According to the report, housing completions were up in March by 3.2 percent, totaling 1.205 million, over February’s 1.168 million. This is a year-over-year increase from March 2016 by 13.4 percent.

The National Association of Homebuilders (NAHB) reports that this is much in line with Monday’s NAHB/ Wells Fargo Housing Market Index (HMI). The March HMI was unusually high, and the NAHB predicts more growth throughout the year. NAHB reports that there is a continuing demand for home construction, although builders have faced several challenges such as high regulatory costs and increasing material prices.

Regionally, the South was the best performing region, with a three percent month-over-month gain in housing starts. The Northeast showed no change, while the West dropped six percent, and the Midwest dropped 35 percent.

Read the full Census Bureau/HUD survey results here.

Bank of America Net Income Up in Q1

Bank of America overall reported $4.9 billion in net income in Q1, a 40 percent increase in net revenue driven by expanded consumer loans and gains in both net interest and noninterest income. Earnings per share also increased by 46 percent, to $.041.

Net interest income increased 5 percent to $11.1 billion, “reflecting benefits from higher interest rates, as well as growth in loans and deposits,” the report stated. Noninterest income increased nine percent to $11.2 billion, driven by higher sales and trading results and record Q1 investment banking fees

Consumer banking was a major boost to the bank’s Q1 earnings. Loans were up $18 billion while deposits were up $64 billion. Brokerage assets increased 21 percent and total credit/debit card spending was up 5 percent. Q1 included $1.4 billion in annual retirement-eligible incentive costs and seasonally elevated payroll tax compared to $1.2 billion in Q1 of 2016.

Average loan balances in business segments rose $44 billion (6 percent) to $819 billion. Total average deposit balances increased by five percent to $1.26 trillion. Nonperforming loans decreased $433 billion from Q4, driven primarily by consumer NPL sales.

One of the few decreases in Q1, compared to a year ago, was in total mortgage production. The bank saw total mortgage production of $15.5 billion in Q1, down about $900 million compared to last year. Average loans and leases were down 20 percent overall. Residential mortgages comprised $69 billion in Q1, down from $87 billion a year ago.

The bank reported record revenue of $5 billion in global banking in the quarter. Global banking loans increased $11 billion. In global wealth management, total client balances increased $119 billion to nearly $2.6 trillion and loans were up $9 billion.

All in all, this helped Bank of America end the first quarter with a seven percent revenue rise to $22.2 billion. At the same time, despite “higher revenue-related compensation expenses,” total expense was flat at $14.8 billion, the report stated. Q1 included $1.4 billion in annual retirement-eligible incentive costs and seasonally elevated payroll tax, compared to $1.2 billion a year ago.

Provision for credit losses declined 16 percent to $835 million.

GSEs Expand Credit Box, Take More Lending Risk

mortgage-appWhile interest rates may be rising, there is one facet of lending that might still please homebuyers: Credit availability is high—at least with GSEs. According to the latest Housing Credit Availability Index, mortgage credit availability from GSEs Fannie Mae and Freddie Mac is at its highest level since 2011.

Between Q2 2011 and Q4 2016, the GSE market expanded the credit box and increased its total risk taken by 63 percent. According to the Housing Finance Policy Center, which releases the quarterly Index, this means the Enterprises “are willing to tolerate more defaults and are taking more risks, making it easier to get a loan.”

Portfolio and private-label securities, as well as FVR government lending—including the Federal Housing Administration, Department of Veterans Affairs, and Department of Agriculture Rural Development Program—did not take on more risk in Q4 2016, as the GSEs did. Instead, these channels “continued to stay close to or at the record low on the amount of default risk taken.”

Between Q3 2016 and Q4 2016, risk in the government lending channel declined to 9.8 percent—almost reaching its all-time low of 9.6 percent (reached in Q3 of 2013.)

“The GSE market has expanded the credit box for borrowers more effectively than the FVR government channel has in recent years,” the Index stated.

Risk in the portfolio and private-label securities market has dropped significantly since the housing bubble burst; the channel’s total default risk for Q4 2016 was just 2.2 percent—in 2006, it was well above 20 percent.

But despite the difference among lending channels, overall mortgage credit availability remained stable for Q4 of 2016. Still, the Index stated, there is room across the board to continue expanding credit availability.

“Significant space remains to safely expand the credit box,” the Index stated. “If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.”

The Housing Finance Policy Center will release its next Housing Credit Availability Index in July.

Mortgage Defaults Climb Slightly

Default Notice BHAccording to the March 2017 Consumer Credit Default Indices released by S&P Dow Jones Indices and Experian, mortgage default rates are up one basis point from February to .75 percent, a one-year high.

Additionally, the bank card default is up nine basis points to 3.31 percent, and the auto loan default rate is one percent, a five-basis point decrease. The 3.31 percent national bank card default rate is a 45-month high.

Year-over-year, the mortgage default rate dropped from .77 percent, while the bank card default rate increased year over year.

“The continuing low consumer credit default rate reflects recent strong job growth and a favorable economy,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The economy is also supporting consumers’ positive outlook and strong sentiment about the economy and their financial condition. Data from the Federal Reserve shows that consumer credit continues to expand at more than 6% per year, the highest pace since 2007-2008. Other Federal Reserve data indicate that household net worth in 2015 and 2016 rose 2.3% each year.

“Currently the debt service ratio for consumer credit – the percentage of disposable income required to service consumer credit debt – is 5.58%, up from its recent low of 4.92% in 2012 but lower than the 6.01% peak seen shortly before the financial crisis.  The higher interest rates that most analysts expect over 2017-2018 are likely to combine with continued growth in consumer credit to push the debt service ratio back towards the 6% level.”

Of the five major cities covered by the S&P/Experian Consumer Credit Default Indices (New York, Chicago, Dallas, Los Angeles, and Miami), New York and Chicago posted month-over-month increases in the Index level, while Dallas, Los Angeles, and Miami posted month-over-month decreases in defaults. All five areas except Los Angeles posted year-over-year increases.

Paper Proposes Plan for GSE Reform

Fannie-Freddie-logosThe Mortgage Bankers Association has released a proposal for GSE reform, which provides a detailed roadmap toward reform, as well as insight into the transition period and the role the secondary market would play.

Laid out in a white paper titled “GSE Reform: Creating a Sustainable, More Vibrant, Secondary Mortgage Market,” the MBA’s plan specifically calls for a number of items: injecting high levels of risk-bearing private capital into the mortgage system; reducing the system’s reliance on government support; enhancing the stability of the mortgage system through multiple guarantors; setting clear rules of conduct to protect taxpayers; introducing a new federally-backed mortgage insurance fund; enabling access for all sized lenders; and improving performance in the secondary market.

The plan also aims to “meet the needs of the full continuum of households, from families requiring the most directly subsidized, affordable rental homes to those served by the completely private jumbo single-family lending market.”

According to Rodrigo Lopez, Executive Chairman of NorthMarq Capital and Chairman of MBA, the MBA hopes to work with legislators on reforming the system.

“This paper not only lays out a detailed end state solution that will work for the residential and multifamily markets but also the transition steps to accomplish this goal,” Lopez said. “We look forward to working with Congress and the Administration to find a permanent, sustainable solution to the government’s role in housing finance that doesn’t repeat the mistakes that led to the crisis.”

No matter what happens with GSE reform, Michael C. May, Executive Managing Director at Berkeley Point Capital, said supporting the multifamily market is of the utmost importance.

“The GSEs provide crucial support to the multifamily market,” May said. “MBA’s detailed end state solution preserves this role and expands its ability to support affordable housing and workforce housing for owners and for renters.”

The MBA released another paper in January, titled “GSE Reform: Principles and Guardrails.” Today’s release is a follow-up to that.

Delinquency Rates, Foreclosures Dip to Historic Lows

The national delinquency rate has hit its lowest point in 11 years, according to the First Look report issued by Black Knight Financial Services on Friday. The rate dropped 14 percent from February to March and 11 percent over the year, hitting 3.62 percent.

The First Look report, which offers a quick glance at month-end mortgage performance stats across the nation, also showed that total non-current inventory—that is, all inventory under foreclosure or 30 or more days delinquent—also hit a historic low, dipping under 2.3 million for the first time in 11 years. Overall inventory of loans in active foreclosure dropped below 450,000, the first time it’s done so in a decade.

Prepay speeds jumped 20 percent for the month. Though prepayments are generally a good indicator of refinancing activity, according to Black Knight, any optimism about the refi market should be tempered.

“That’s a good bump,” Black Knight’s release stated, “but it comes from a multi-year low, and prepay activity was still 26 percent below last March’s.”

Foreclosure starts rose 4 percent over February to 60,300, but over the year, they actually declined 17 percent. The total foreclosure pre-sale inventory rate for March was 0.88 percent, nearly 5 percent lower than February and 29 percent lower than the same time in 2016.

There are currently 1.8 million properties that are 30 or more days past due, and about 600,000 that are 90 or more days delinquent. Delinquencies were highest in Mississippi, where 9.7 percent of properties weren’t current on their mortgages. Rounding out the top five were Louisiana (8.46 percent), Alabama (6.87 percent), New Jersey (6.64 percent), and West Virginia (6.56 percent).

Delinquency rates were lowest in Idaho (2.63 percent), Montana (2.57 percent), Minnesota (2.36 percent), North Dakota (2.09 percent), and Colorado (2.06 percent.) States to see the most improvement in delinquencies were New Jersey, Louisiana, Washington, Nebraska, and Michigan. States with the most deterioration in non-current loans were North Dakota, Hawaii, Alaska, South Dakota, and Maine.

Black Knight will release more in-depth data from March when it releases its Mortgage Monitor report on May 1.