FHFA: Solving Complications in Mortgage English Proficiency

The Federal Housing Finance Agency (FHFA) issued a Request for Input (RFI) Thursday for problems qualified Limited English Proficiency (LEP) borrowers face during the mortgage life cycle process. Per FHFA’s 2017 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions, the Enterprises must identify major challenges for LEP borrowers in accessing mortgage credit, analyzing potential solutions, and developing a multiyear plan appropriate for the Enterprises to support improved access.

FHFA looks to learn more about the procedures and tools that loan originators, servicers, and other parties in the mortgage lending process currently utilize to assist LEP borrowers through this RFI. They would like to identify the existing requirements, including laws and regulations that guide practices for interacting with LEP borrowers and to better understand the challenges in effectively serving this population.

The FHFA reported that the number of LEP individuals in the United States has significantly increased over the past few decades. According to the most recent American Community Survey, 9 percent, or 25 million individuals in the U.S. are considered LEP. Among those, 64 percent speak Spanish, 7 percent speak Chinese, 3 percent speak Vietnamese, 2 percent speak Korean, 2 percent speak Tagalog, 2 percent speak Russian. By 2060, according to the U.S. Census Bureau’s 2014 national projections, the share of the population that is foreign born will grow to 19 percent from approximately 13 percent currently. Along with that, the amount of mortgage borrowers should increase, as well.

Though the Enterprises already offer information and translated documents, primarily Spanish, on their prospective websites, the FHFA continues to hear from stakeholders that LEP negatively impacts access to credit. Qualified borrowers may avoid applying for a mortgage due to language barrier concerns. Conversely, they may rely too heavily on others that are not as familiar with the mortgage process increasing their risk of being steered into a predatory loan and in turn, having difficulty navigating possible loss mitigation options if they fail to pay their mortgage.


BofA Capital Buffer Lags Behind

Bank of America is falling behind—at least in terms of its capital ratio. According to Forbes, the bank has a common equity tier 1 (CET1) buffer of just 100 basis points, or 1 percent, at the close of Q1 2017. The bank’s target CET1 ratio is 10 percent; it came in slightly above that at 11 percent.

The remainder of the country’s biggest banks far exceeded their Q1 goals. Morgan Stanley—the best-capitalized bank in the country—had a CET1 figure of 16.6 percent at the close of Q1 2017. Its target? Just 10 percent—equating to a 660 basis point buffer.

Goldman Sachs came in at No. 2 for the biggest capital buffer with a 300 basis point differential, while Citigroup took the No. 3 spot with a 250 point buffer. Rounding out the top five were Wells Fargo (220 basis point difference) and JPMorgan Chase (190 basis point difference).

The CET1 buffers are used by the Federal Reserve to either approve or reject a bank’s capital plans as a part of its annual stress testing. The bigger the buffer, the more wiggle room a bank has to entice investors.

According to Forbes, “A larger difference between the current and target CET1 ratios gives a bank more leeway in handing out cash to investors in the form of share repurchases and dividend hikes. With the Fed slated to release the results of the current cycle of its annual stress tests next month, the sizeable capital buffers created by all banks should help most, if not all, of them announce an increase in their capital return plans.”

Though Bank of America does lag behind on its CET1, all the country’s major banks exceeded their targets in Q1, largely due to “a jump in investment banking profits,” according to Forbes.

In April, Bank of America reported a 40-percent jump in its net revenue. The bank credited the increase to expanding consumer loans and gains in both interest and noninterest income. BofA’s earnings per share increased by nearly 50 percent in the first quarter. The bank saw overall revenues rise 7 percent, to $22.2 billion.

The Fight Against Blight in Maryland

Maryland Governor Larry Hogan signed a fast-track foreclosure law which would expedite the foreclosure process with the intent to reduce community blight, following the footsteps of a similar bill in Ohio.

“Blight caused by vacant properties is a serious problem in certain Maryland communities,” said Delegate Marvin Holmes, sponsor of the house bill. “The longer properties remain vacant–the greater the chance problems will occur, including vandalism, crime and lower property values.”

This bill could be the push other states need to move forward with their own fast track foreclosure bills.

“Vacant and abandoned properties are a community crisis of national proportion,” said Five Star President and CEO Ed Delgado. “The bills introduced in Ohio and Maryland provide other states the needed incentive to make progress towards ensuring that these magnets for crime and drugs will be quickly rehabilitated and promote the safety and stability of neighborhoods across the nation.”

Robert Klein, Founder and Chairman of Community Blight Solutions, has been a leading advocate of the bill. We spoke with Klein on the impact of this bill in the fight against community blight in states and communities across the country.

“It’s very significant,” said Klein. “Both the Ohio bill and the Maryland bill passed unanimously, not many bills pass unanimously. This bill was debated quite a bit by the Maryland legislators, and they all came to the conclusion that having a property vacant and abandoned for two years is the wrong thing for community blight. So now we’re seeing a number other states looking at it closely and considering it, like New York, Illinois and Pennsylvania.”

What Klein notes is the more proactive approach states are taking toward the problem of community blight.

“I feel like we’re finally reaching a stage where the industry and communities and states are looking at the whole community blight and properties sitting out there with a more proactive approach,” said Klein. “Everything has been reactive, the property has already been vandalized, the property has already caused community blight. I think this fast track of vacant and abandoned properties is the first step in being a proactive approach, to not allow the property to become a community blight.”

Falling Inventory Stock is Troubling

The falling inventory has many industry professionals worried, especially as demand picks up. Inventory had fallen seven percent in March, according to the National Association of Realtors, a trend that continued into April.
“The inventory is reaching historic lows. It’s never declined faster than it did last month. It’s freaking us out—it’s affecting our business; it’s limiting our sales,” said Redfin CEO Glenn Kelman, on CNBC. “We’re going to be fine in terms of market share, but I think the overall industry for the first time is seeing sales volume really limited by the inventory crunch.”
Data from Redfin shows that homes in April sold the fastest since 2010, and sold 10 days faster than a year previously. Many homes, one in four, sold above their list price. Kelman puts the blame partially on an unwillingness to sell, as many homeonwers choose to rent out their home to keep their mortgage instead.
“It’s a new landlord nation where everybody is renting out their basement. When somebody moves up they don’t sell their old place, they rent it out to somebody else, and it’s because they want to keep that 30-year mortgage for 30 years, and it’s because they can easily find somebody on Airbnb who will take the place,” Kelman said.
Additionally, home prices have continued to rise, though Kelman states that “it’s not a bubble.” According to CNBC, Kelman blames the inventory problem on a lack of construction, as homebuilders are building 18 percent fewer homes than the 25-year average. “Cranes fill the sky in every town, but they’re building office buildings,” he said. Kelman noted that employment may be rising, but the lack of homes does not fall in line with this trend
According to Kelman, homebuilders are opting to build apartment complexes instead of single family homes, citing tight credit keeping buyers off the market. “There is so much demand in terms of rent that it doesn’t make sense to build properties for sale.”

Servicers Suffer from Disparate Tech

Today’s mortgage servicers are suffering from overly disparate technology solutions, and those disconnected systems are holding businesses back, according to a recent report by OrangeGrid.
The report, titled “Rethinking Your Mortgage Servicing Ecosystem – Responding to Increasing Risks and Costs,” claims that the typical technological tools used by a mortgage servicer are out of date, antiquated, and holding businesses back. This is largely because tech solutions in today’s post-crisis, highly-regulated industry are product-specific, which creates a “complex ecosystem made up of siloed disparate systems.”
“These disparate systems created fractured inefficient processes adding to operational expense and risks since users are no forced to work in multiple systems to complete their work, often times re-keying important information between systems,” OrangeGrid reported. “While the introduction of these applications provided a solution to a targeted problem, they created another issue with the lack of transparency and cohesiveness in servicing a residential loan.”
Out-of-sync technologies also make it hard to serve the millennial homebuyer, who expects a more seamless, digitized solution when purchasing a home.
“The legacy systems in use today do not translate to a modern workforce or the growing class of consumers entering into the mortgage market that expects a completely difference experience than what is largely available,” OrangeGrid reported.
The solution, according to OrangeGrid, isn’t migrating to an all-encompassing one-stop-shop system. Instead, the report proposes “an overlay platform,” which can “sit above the overall system architecture, creating a single truth of process” and offer a “shared status across a chain of events that can deliver an improved user experience, provide greater transparency to loan information across all supporting systems, and can provide solutions for existing gaps in the overall process.”
This type of solution will “bridge data gaps,” according to OrangeGrid, and provide “incremental productivity lift without risk of crippling ability to conduct business as usual.” Additionally, it will provide lenders a technological move that’s not too intimidating to take on.
“Lenders pause when deciding whether to consolidate legacy solutions and migrate to new technology,” OrangeGrid reported. “They see (often after experiencing such trauma before) work, distraction, and cost. By selecting a flexible and configurable software solution, bundled with implementation and operational support by business process practitioners, risks are greatly minimized, cost is controlled, and process mistakes or new business changes will be easy to fix.”

Household Debt Reaches Recession-Level Highs

On Wednesday, the New York Federal Reserve released its Q1 report on household debt and credit. According to the report, total household debt totaled $12.73 trillion in Q1 2017. This means that household debt has finally surpassed its $12.68 trillion peak reached during the recession in 2008. This is a $149 billion quarterly increase.
“Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today. This record debt level is neither a reason to celebrate nor a cause for alarm. But it does provide an opportune moment to consider debt performance,” said Donghoon Lee, Research Officer at the New York Fed. “While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types. Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.”
Mortgage debt proved to be the highest increasing debt factor, going up went up by $147 billion quarterly and $258 billion annually. Total mortgage debt as of Q1 2017 was $8.63 trillion. Home equity line of credit decreased by $17 billion quarterly and $29 billion year-over-year, totaling $456 billion as of Q1.
The New York Fed found that mortgage balances increased again while originations declined and median credit scores of borrowers for new mortgages increased, reflecting tightening underwriting. Mortgage delinquencies worsened slightly, and the Fed noted that foreclosure notations increased but the Fed noted that they remained low by historical standards.
Additionally, other types of debt saw similar increases in Q1 2017, notably student loan debt, which grew by $34 billion in Q1, totaling $1.34 trillion. The fed also notes that student loan delinquencies have remained high, currently sitting at 11.2 percent, the highest delinquency rate of any of other debt type covered by the Fed.

Hensarling Pushes Through Financial CHOICE Act


The House Financial Services Committee voted to advance H.R. 10, or the Financial CHOICE Act, to a full House vote on Thursday. The CHOICE Act, which was proposed by Rep. Jeb Hensarling (R-Texas) as a replacement for the Dodd-Frank Wall Street Reform and Consumer Protection Act. Today’s vote followed party lines, with the final vote coming down to 34 to 26.

The Financial CHOICE Act would allow banks to opt out of many rules set by Dodd-Frank as long as they maintain a sufficient level of capital. Detractors of the bill, including Ranking Committee member Maxine Waters (D-California). Waters called the Act “an invitation for another Great Recession or worse” during this week’s markup.

“This is one of the worst bills I’ve seen in my time in Congress,” Waters said.

Waters called the CHOICE Act the “Wrong Choice Act,” a sentiment mirrored by other Representatives such as Carolyn Maloney (D-New York), who called the bill “deeply disturbing.” Lauren Saunders, Associate Director of the National Consumer Law Center, agrees, saying “this bad bill is the wrong choice for consumers, including veterans, workers, and elders.”

But Hensarling rebutted, saying Dodd-Frank has been giving Wall Street a leg up all along.

Dodd-Frank was a mistake, according to Hensarling, and Wall Street and Washington must be held accountable. The Financial CHOICE Act “ends taxpayer-funded bank bailouts, and unleashes America’s economic potential,” said Hensarling. “We want economic opportunity for all, bailouts for none. We want real consumer protections that will give you more choices. Our solution grows the economy from Main Street up, creates more opportunities for working families to get ahead, and levels the playing field with no more Wall Street bailouts.”

“Under Dodd-Frank,” he said, “consumers are paying more and getting less. Wall Street banks have been some of the biggest beneficiaries of Dodd-Frank regulation.”

Today’s Financial Services Committee’s open session can be viewed here. The list of markups the the Financial CHOICE Act can be found here.