June 10: Agencies and ARM indices; vendor news; compliance topics; borrower shopping & credit scores; interest rate thoughts

People move, populations shift. Baby Boomers favor Las Vegas and Tampa while Millennials prefer Austin, Texas. The question is, do you have the products to offer them or the branches to cover them? Bank of America Institute’s new analysis finds pandemic migration trends continue with faster population into Sun Belt cities. As of the first quarter, despite affordability issues, cities that saw an influx during the pandemic are still growing faster than other cities in recent quarters. This trend includes Austin, Texas, which saw the largest inflow of residents at +5% during 2020 to 2021 and +1.5% over the past four quarters. Both millennials and baby boomers are leaving larger cities like New York, San Francisco, and San Jose, California, the analysis notes. All three saw the biggest outflow of people during the early years of the pandemic, and the decline continues to be the highest among major metros in 2023. As one would expect, rental prices are strong in these cities with positive resident inflow, helping LOs in making the “rent versus buy” discussion.

Credit: borrowers can shop around


Remember the “Five Cs of Lending”? Capacity, Capital, Collateral, Conditions, and Character. “Credit” is not one of them, but it is part of the equation, and I received this note from a veteran LO. “Remember when the CFPB told prospective buyers to shop around and get the best deal? Those buyers contacted multiple lenders, which all pulled credit. The end result was the prospective buyer’s credit score dropped, and no matter where they went, they had a higher rate due to credit score. Personally, I do not pull credit unless I know I will proceed with a loan as I won’t take the chance of damaging someone’s score for no reason. Most lenders, particularly banks, do not care.”

(Editor’s note: Trigger lead selling aside, there is a period of time that the borrower has to shop around, where multiple inquiries won’t impact their score. Check with your favorite credit institution, but I believe that Equifax and Transunion are 45 days, Experian is 14, as is VantageScore.)

Of course, the industry is intrigued, for lack of a better term, that the FHFA announced a credit score model update. In case you weren’t aware, the Federal Housing Finance Agency (FHFA) announced the validation and approval of both the FICO® Score 10 T and VantageScore® 4.0 credit score models for use by Fannie Mae and Freddie Mac. After a multiyear transition period, lenders will be required to deliver loans with both scores when available. This is all being implemented in phases.

Interest rates: like the weather…



The Federal Open Market Committee (FOMC) has raised rates several times. This week it will meet again, with the usual conjecture about whether it will leave rates alone or raise them again.

Earlier in its rate-raising cycle Fed officials (specifically the presidents of the various Fed districts) hinted that their aggressive hikes of rates may begin to slow. But the sizes of the rate hikes were no surprise to the market.

The real focus was on any future guidance provided by the Fed. One of the major takeaways at each of the meetings was Fed Chair Powell saying that the time to slow rates may come as “soon as the next meeting.” However, Powell has also said that the central bank has “some ways to go” and suggesting that the terminal interest rate may be higher than envisioned at the time of previous meetings.

Investors always struggle to determine exactly what this means for future rates hikes and whether this week, or any future meetings, will bring an increase of 25 basis points, or perhaps nothing. The Fed is data dependent, and always has been, so future economic releases are probably going to dictate the path of hikes. The Fed seems to be concerned that there is an imbalance in the labor market, which has been very strong, the rate of inflation stubbornly high despite the escalation in rates, and some segments of the economy which have indeed slowed. Stay tuned for this week!

Capital markets vet Brent Nyitray thinks, “Overall, the groundwork is being laid for lower rates going forward. The Fed Funds futures still see a 70% chance for a pause in June. Student loan repayments will resume in August, which will crimp consumption. The Eurozone economy is officially in a technical recession, and the ISM data shows US manufacturing is contracting and the services economy is slowing. Increased capital requirements for banks will push long-term rates down, at least at the margin. Notwithstanding the jobs report last week, the evidence is pointing towards a cooling labor market. The volatility in the bond market (measured by the MOVE Index) is falling again, which should help MBS spreads. While it is hard to be optimistic in the mortgage space right now, the second half of 2023 should be better than the first.”

Compliance topics of note


Jonathan Foxx of Lenders compliance group recently wrote on the compliance implications of overcharging late fees in loan servicing. Overcharging late fees is assessing late fees in excess of the amounts allowed by their loan agreements. It is an unfair acts or practices violation. Specifically, where loan agreements included a maximum permitted late fee amount, the servicers failed to input these late fee caps into their systems. The servicers charged the maximum allowable late fees under the relevant state laws, which frequently exceeded the specific caps in the loan agreements. This happened because the systems did not reflect the maximum late fee amounts permitted by their loan agreements.

Servicers cause substantial injury to consumers when they impose these excessive late fees. Consumers cannot reasonably avoid injury because they do not control how servicers calculate late fees; indeed, they have no reason to anticipate that servicers would impose excessive late fees. The CFPB’s position is that charging exorbitant late fees does not benefit consumers or the competition. Consequently, examiners concluded that servicers also violated Regulation Z by issuing periodic statements that included inaccurate late payment fees, since they exceeded the amounts allowed by the loan agreements. In general, if this is your situation, you can expect the CFPB to require you to waive or refund late fee overcharges to consumers and correct the periodic statements.

Additionally, he wrote on regulatory issues that arise when charging consumers fees that should have been waived per the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act directs servicers of federally backed mortgages to grant consumers a forbearance from monthly mortgage payments if the consumer is experiencing financial hardship resulting from the COVID-19 emergency. During the time a consumer is in forbearance, no fees, penalties, or additional interest beyond scheduled amounts are to be assessed.

While the CARES Act prohibits fees, penalties, or additional interest beyond scheduled amounts during a forbearance period, consumers sometimes accrue these amounts during periods when they are not in forbearance. For instance, a servicer is permitted to charge a late fee if a consumer was delinquent in May 2020 and then entered a forbearance in June 2020. In the case of FHA loans, when consumers exit CARES Act forbearance and enter certain permanent loss mitigation options, the HUD (Department of Housing and Urban Development) requires servicers in certain circumstances to waive late charges, fees, and penalties accrued outside of forbearance periods.

The CFPB’s examiners found that servicers engage in unfair acts or practices when they fail to waive certain late charges, fees, and penalties accrued outside forbearance periods, where required by HUD, upon a consumer entering a permanent COVID-19 loss mitigation option.

This is not the first time the CFPB has cited UDAAP violations relating to charging fees to consumers during a CARES Act forbearance. The CFPB’s position is that the failure to waive the late charges, fees, and penalties constitutes a substantial injury to consumers. This injury is not reasonably avoidable by consumers because they have no reason to anticipate that their servicer would fail to follow HUD requirements, and consumers lacked reasonable means to avoid the charges. This harm outweighed any benefit to consumers or competition. You can expect the CFPB to require proof that you have improved your system controls. In addition, you’ll need to waive all improper charges and provide refunds to consumers.

Vendor news


These companies do much more than capitalize random letters in their names. Let’s take a random look at who’s doing what in the primary and secondary markets to help lenders.

Did you know there is heightened wire fraud risk during bank failures? FundingShield is closely monitoring the current banking situation and alerting clients of any closings reviewed that are higher risk. CEO, Ike Suri, stated “currently, we are tracking cyberattacks and incidents associated with Silicon Valley Bank, Signature Bank, and other vulnerable banks. We have notified our clients of exposures in particular loan closings they have, and we have already prevented $200mm+ in risky closings since Friday March 10, 2023, when news was initially reported.”

Newfi, a technology-driven multi-channel lender, has adopted Indecomm’s GeniusWorksTM, which combines Indecomm’s proprietary automation solutions with expert mortgage talent to streamline the three most cumbersome and costly middle-office functions of the mortgage origination process: setup, processing, and underwriting. Wherever manual intervention is needed, Indecomm’s experienced staff of processors and underwriters seamlessly pick up from where automation left off.

In March 2023, Fannie Mae/Freddie Mac revised the tagline and signature block of Texas Home Equity Security Instrument (Form 3044.1) (“Form 3044.1”). In addition, the Instructions to Form 3044.1 were updated to add the new Authorized Change 9. The revision to Form 3044.1’s signature block is the addition of the word “Witnesses” and two accompanying witness signature lines to the left of the Borrower signature lines. This revision is optional. Black, Mann & Graham LLP, full memorandum.

Optimal Blue’s Complimentary White Paper discusses tools and strategies you can use to navigate the complexities of pooling loans, managing requirements, and maximizing basis points. Download Optimal Blue’s Pool Solver: Bringing Time and Basis Points to the Secondary Market.

Tavant announced expanded functionality within its Touchless Lending® platform through a new partnership with PropMix, a fast-growing real estate valuation, decision support, and automation platform. PropMix’s Appraisal Digitization capabilities that convert residential appraisal PDF documents into standard MISMO XML is now integrated into Touchless Lending using PropMix’s APIs. Tavant’s customers can seamlessly process first-or second-generation appraisal PDFs with no manual interventions, resulting in “an automated loan production process that lets correspondent buyers and sellers and wholesale lenders process mortgages faster with reduced costs.”

Cornerstone Servicing, a division of Cornerstone Capital Bank, SSB, and a leading provider of mortgage servicing solutions, has launched a subservicing business designed to empower homebuyers to be smart homeowners for life and fuel sustainable growth for lenders and investors of all shapes and sizes.

AREAL.ai, the no-code automation platform for the title and mortgage ecosystem that makes it easy to reliably extract data from complex documents and integrate data with existing tools and workflows, announced today the release of the Closing Disclosure Balancer Automation Tool, an AI-powered solution that allows lenders and their title agency partners to easily compare and balance Closing Disclosures to remain in full compliance with the CFPB’s TRID rules.

AREAL.ai’s CD Balancer is designed to reduce the friction between industry partners with advanced software that flags every unmatching section on the Closing Disclosure, highlights any changes made and then sends the corrected data back to the various systems of record automatically. To learn more about AREAL.ai’s CD Balancer Automation Tool, please email Bill Hajjar.

Mobility Market Intelligence (MMI), a data intelligence and market insight tools for the mortgage and real estate industries, has launched its new Custom Dashboard Hub and expanded the business intelligence (BI) tools available on its platform, increasing users’ ability and ease in developing strategy, recruiting, nurturing talent, and discovering new opportunities.

Users can locate and track high-performance real estate and mortgage markets in their area and show nationwide trends. Up-to-date benchmark statistics enable LOs to quickly compare their performance to their peers nationally and locally. Users can manipulate criteria and filter data on their own from county to loan type and more.

Secondary market news drives primary market prices & policies


Ginnie Mae’s mortgage-backed securities (MBS) portfolio outstanding grew to $2.373 trillion at the end of Q1 2023, with the addition of $80 billion of MBS issuance during the period, with gross issuance ranging within $24-28 billion each month. The first quarter’s new MBS issuance supported financing of more than 281k households, including more than 126k first-time homebuyers. Roughly 70 percent of the first quarter issuance volume reflects purchase money activity, resulting from a shift in market conditions and reduced loan refinance activity due to higher interest rates. During Q1 2023, the mortgage loans pooled into Ginnie Mae MBS included over 45k households who avoided foreclosure through Ginnie’s insuring and guarantying agencies partners’ loss mitigation programs. Q1 2023 issuance includes $77.15 billion of Ginnie Mae II MBS and $3.50 billion of Ginnie Mae I MBS, including approximately $3.13 billion in loans for multifamily housing. Approximately 30 percent of these multifamily MBS properties had Green or Green/Affordable designations from FHA’s lending program.

Freddie Mac posted to its website a list of more than 34,000 Freddie Mac floating-rate securities transitioning from LIBOR to replacement indices based on the Secured Overnight Financing Rate (SOFR). The transition will begin on July 1, 2023, the day after ICE Benchmark Administration Limited has announced it will cease publication of a representative rate for all remaining tenors of USD LIBOR. The assignment of a fallback reference rate to every remaining LIBOR-indexed Freddie Mac security offers market participants added confidence that their investments will transition seamlessly to the replacement index at LIBOR’s cessation. To view the list and learn more about the LIBOR transition, please visit the Freddie Mac Reference Rates Transition webpage. The page links to the LIBOR Transition PlaybookFrequently Asked Questions and Answers about the LIBOR Transitiona table showing the Selected Replacement Index for each legacy LIBOR product, and other relevant information.

Fannie Mae reminded the market, as announced on December 22, 2022, that it will transition its legacy LIBOR loans and securities to the SOFR-indexed benchmark replacements recommended by the Federal Reserve Board. Additionally, in alignment with the Federal Reserve Board’s final rule pursuant to the Adjustable Interest Rate (LIBOR) Act and based on guidance from Fannie Mae’s Conservator, the Federal Housing Finance Agency (FHFA), Fannie Mae will not include term SOFR as a benchmark for new loans or floating-rate securities. As a result, Fannie Mae also will not take any steps to convert existing 30-day Average SOFR-indexed floating-rate loans or securities from the 30-day Average SOFR to term SOFR. The preceding sentences apply to the following products: Multifamily Adjustable-Rate Mortgages (ARMs) and related MBS, Single-Family and Multifamily Credit Risk Transfer (CRT) securities, Single-Family and Multifamily Collateralized Mortgage Obligations (CMOs), Stripped MBS (SMBS), and any other new floating rate loans or securities (excluding Single-Family ARMs and related MBS). The selected replacement index for each legacy LIBOR product can be found in the December 22 announcement. Fannie Mae will update its LIBOR Transition webpages.

Roy and Ernest went moose hunting every winter without success.

Finally, they came up with a foolproof plan. They got a very authentic female moose costume and learned the mating call of a female moose. The plan was to hide in the costume, lure the bull, then come out of the costume and shoot the bull.

They set themselves up on the edge of a clearing, donned their costume, moved into their tent, and began to give the moose love call.

Before long, their call was answered as a bull came crashing out of the forest and into the clearing.

When the bull was close enough, Roy said, “Okay, let’s get out and get him.”

After a moment that seemed like an eternity, Ernest shouted, “The zipper is stuck! What are we going to do!?”

Roy says, “Well, I’m going to start nibbling grass, but you’d better brace yourself.”

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Rob Chrisman