Mar. 26: U.S. population on the move; The Fed, MBS, and “tappable” equity; Agency CRT deals; Saturday Spotlight: TitleClose
People are on the move, and lenders and MLOs are paying attention. Hawai’i saw a net outflow: The Census Bureau put Hawaii’s population in July 2021 at 1,455,271. That’s a decline of .7 percent, or 10,358 people, from the year before. The pandemic intensified population trends of migration to the South and West, as well as a slowdown in growth in the biggest cities in the U.S. Of course The Onion has its take on why people are leaving California for Texas. Lenders and loan officers follow population trends. For example, if 10,000 people a day are turning 62, how about a reverse mortgage division? Do you know which state gained the most residents last year? Texas had the largest gain, increasing by 310k while New York had the largest annual and cumulative numeric population decline, decreasing by 319k. With that decrease to 19.8 million residents, New York removed itself from the group of three remaining states with populations above 20 million in 2021: California (39.2 million), Texas (29.5 million) and Florida (21.8 million). 20 states and the District of Columbia lost residents via net domestic migration. Largest domestic migration losses were in California (-367k), New York (-352k) and Illinois (-122k).
Saturday Spotlight: TitleClose, real estate fees and services you need
In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth).
Founded in 2016 by industry professionals with state-of-the-art technology designed specifically for TRID compliancy, TitleClose offers lenders title and closing fees, nationwide, for your Loan Estimate and Closing Disclosures. We support all title underwriter premiums, any title agent or closing attorney, and maintain both buyers and sellers’ fees, all through a variety of loan operating systems.
Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.
What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?
We encourage our team to participate in ongoing training and webinars. We are sponsors and attend, as a team, leading industry conventions, including this month’s ICE Experience and next month’s MBA Technology Solutions Expo, held in Las Vegas.
Our staff Is also encouraged to be empowered, to have access to the Information they need, across all departments, so they can best serve our customers without the need to transfer decisioning to other areas, or even escalate to managers. They are encouraged to make decisions and Implement… The worst thing that can happen Is lack of action, not too much action.
Tell us how your company maintains its culture in a work-from-home environment, or how you plan on bringing employees back into the office, if applicable.
Our founder implemented a work from home solution in all of her current or former companies, starting in 2010. And the key has been to develop work from home, but with a focus on customer service. This means we monitor our activity both individually and as a group – overall user experience reporting is also some of our key metrics. At the end of the day, if you don’t value your customers and their experience, it doesn’t matter how great your technology is – if just so happens our technology is great too!
TitleClose was designed for a work-from-home structure and was fortunate to have no interruption in customer service over the last two years. Video meetings were part of our culture from day one. Our cross-department empowerment and access gives us the ability to see our overall customer experiences, not just a portion of the relationship.
Things you are most proud of that don’t have to do with sales.
Somewhat unique to a SAAS technology company, we are 100% women-owned and 80% woman led. We are also the only fee quote service company that lists our title agents and notaries by attributes. If a company is veteran-owned, women-owned, minority owned, bilingual…, allowing our customers to support the groups close to their heart.
Fun fact about TitleClose
We have worked very hard to automate our business to such a degree that we are able to give everyone two weeks of extra vacation at the end of the year. We keep an eye on things of course, with automated alerts, but find It Important to allow out staff to spend extra time with their families.
Is there anything else you’d like to share along these lines?
Our flexibility is allowing our newest sales executive, Kimberly Kosanovich, and her husband to live their dream, at least geographically. When they relocated permanently to Florida this year, Kimberly was able to transition from being a real estate attorney in Boston and apply her industry expertise to our team here at TitleClose. She now can live in Florida but also escape back to Boston for a few months in the summer. Work / life balance is actually implemented at TitleClose.
(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
People in our industry touch every aspect of society, both here in the United States but also around the world. Mark Weber writes, “In my LinkedIn network is a guy from Germany, Markos Kern. Check out his videos. (Go to LinkedIn, search for Mark Weber Markos Kern.) There are 10 million people that have fled Ukraine according to the UN. He is transporting refugees bringing supplies to/from the border helping people find temporary housing. He told me that most want to stay close to home thinking they can return in a couple weeks. He’s thinking as time goes by, many may realize they need to start over. Markos says they have passports. Perhaps through your vast subscriber network we can help bring people to the USA if/when the time comes.”
There is a Ukraine Relief Take Out Fundraiser (“Join us in helping to feed those in need”). World Central Kitchen is feeding families in Ukraine and its neighboring countries where millions of people have been forced from their homes. This Monday, March 28th, many restaurants will support this organization by donating 100 percent of the proceeds from all Take Out Orders and corresponding tips received on that day.
The Federal Reserve, MBS, and “tappable equity”
The Federal Reserve has been in the financial news’ headlines for years now. Last year it dramatically picked up the pace of its mortgage bond purchases through the Federal Reserve Bank of New York. But that didn’t mean it was loading up its balance sheet. Despite buying nearly $30 billion of mortgage bonds since late May during 2021, the rapid pace of prepayment of Fannie Mae bond pools since July means the Fed is actually decreasing its mortgage bond holdings, in line with the eventual goal of completely shedding its MBS holdings. As rates fell in the last few years, the pace of refinances has increased, meaning the Fed has had to become more creative in maintaining an orderly fashion of its portfolio rundown.
The Fed started buying mortgage bonds issued by U.S. housing agencies Freddie Mac, Fannie Mae, and Ginnie Mae to help shore up the economy in the wake of the 2007-2008 housing market crash. The initial focus after the crisis was to put a floor under the depreciation of housing values by increasing demand for those securities, but the long-term plan was always for the Fed to reduce its mortgage holdings. The Fed also wanted to help increase the flow of credit through lower benchmark rates, which can often then mean lower mortgage rates, improved U.S. household balance sheets and increased consumption,
For a while the Fed was letting some $20 billion in mortgages runoff its portfolio each month, with proceeds going to purchase Treasury debt. Anything above that $20 billion was reinvested back into mortgage bonds, to manage an orderly exit of the Fed’s massive holdings. At one point the Fed started buying around $60 billion a month of short-dated Treasury bills to help stoke the U.S. economy and to alleviate ongoing stress in the overnight lending market, or repo market. Fed Chair Powell stressed that this would be a temporary, shorter-term mission, not another round of full-blown quantitative easing. The Fed reinvesting in the mortgage market has gone a long way toward alleviating the stress in MBS markets, helping reduce rates to homeowners and would-be homeowners.
But now outright purchase have come to a halt, and the Fed is raising rates to slow economic growth and hopefully dampen inflation. Toward end of December we saw home price growth begin to slow, with the Black Knight Home Price Index showing deceleration in the rate of annual appreciation in each of the past three months. Its daily home sales tracking data showed that median sales price growth among SFRs slowed to 11 percent year-over-year.
Despite the deceleration, appreciation remains robust as supply shortages continue to put upward pressure on prices The average home value increased 0.6 percent in October, which was the smallest increase in 10 months, but still nearly three times the 10-year average rate for the month. The market currently faces a 54 percent deficit in properties for sale compared with 2017-2019 averages. If meaningful inflow isn’t seen from the post-forbearance population, it could signal a longer-term recovery for inventory levels across the country, which could mean elevated home price growth rates as tightening affordability butts up against a continued shortage of supply. It now takes 22.4 percent of the median household income to make the monthly mortgage payment on a median-priced home, up from 18.1 percent at the beginning of 2021.
That same price growth has also been adding to American mortgage holders’ already record levels of tappable equity: the amount available for homeowners to access while retaining at least 20 percent equity in their homes. Tappable equity surged $254 billion in Q3 2021 alone to reach a new record-high aggregate total of $9.4 trillion. The aggregate total of $9.4 trillion is up 32 percent from the same time last year and is nearly 90 percent higher than the pre-Great Recession peak in 2006. As prices have surged over the past 18 months, the average mortgage-holder’s equity stake has risen by $53k. That works out to nearly $178k available in tappable equity to the average homeowner with a mortgage before hitting a maximum combined loan-to-value ratio of 80 percent.
And indeed, borrowers pulled equity from their homes via cash-out refis in Q3 at the highest rate in more than 14 years. Before going too far down the “using your home as an ATM” road, there are some important points to consider. The more than $70 billion in equity tapped via cash-out refis in Q3 is equivalent to just 0.8 percent of available equity entering the quarter, less than a third of the rate at which people were pulling cash out of their homes at the peak of such activity in 2005. Underwriting standards are much stronger today as well, with the average credit scores of cash-out refinance borrowers more than 50 points higher than during that period, and resulting LTVs are much lower. In fact, the average borrower’s mortgage debt is now just 45.2 percent of their home’s value – the lowest total market leverage we’ve ever recorded, going back to at least the turn of the century.
What Freddie Mac and Fannie Mae do in the secondary markets have a direct impact on the rates offered to borrowers in the primary markets. Let’s take a random look at some deals with a focus on Credit Risk Transfers (CRT).
Issuance of credit-risk transfer deals by Fannie Mae and Freddie Mac declined by 9.7% in 2021, despite Freddie Mac increasing its issuance and Fannie Mae returning to the market in the fourth quarter after a long break. An Inside MBS & ABS analysis calculated that the GSEs combined issued $6.82 billion of CRT notes during 4Q21 — that’s more than triple the third-quarter issuance and the biggest quarter since the first three months of 2020.
Freddie Mac announced that its Credit Risk Transfer (CRT) program reported year-to-date CRT issuance of $14.5 billion, protecting $585.5 billion in unpaid principal balance of single-family mortgages. In the third quarter, CRT issuance of $4.6 billion provided credit protection on $166.6 billion of single-family mortgages. The issuances included STACR (Structured Agency Credit Risk), ACIS (Agency Credit Insurance Structure), subordination and certain lender risk sharing transactions. Through its flagship offerings alone, Freddie Mac issued approximately $13.5 billion across seven STACR and nine ACIS transactions in the first three quarters. Among the notable transactions in the third quarter was ACIS 2021-SAP7. At $1.2 billion, it was Freddie Mac’s largest-ever (re)insurance deal. Since the first CRT transaction in 2013, Freddie Mac’s Single-Family CRT program has cumulatively transferred approximately $81 billion in credit risk on approximately $2.5 trillion in mortgages through STACR, ACIS, certain senior subordination securitization structures and certain lender risk sharing transactions.
There was a different offering of credit risk transfer securities backed by Tax-Exempt Loans (TELs) made by state or local housing agencies and secured by affordable rental housing. The company has priced nine ML Certificate offerings and recently did its third ML-Deal with the sustainability bonds moniker. The company guaranteed approximately $301 million in fixed- rate ML Certificates (ML-09 Certificates) that are supported by a pool of fixed-rate TELs. The proceeds will be used to finance multifamily properties that (a) finance affordable housing to low-to-moderate-income families, (b) may have features, or are located in areas, that further economic opportunity for residents and (c) may include certain environmental impact features.
Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2022-R03, an approximately $1.2 billion note offering that represents Fannie Mae’s third CAS REMIC® transaction of the year. CAS is Fannie Mae’s benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. The reference pool for CAS Series 2022-R03 consists of approximately 150,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $44 billion. The reference pool includes collateral with loan-to-value ratios of 60.01 percent to 80.00 percent, which were acquired between March 2021 and April 2021. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With the completion of this transaction, Fannie Mae will have brought 47 CAS deals to market, issued over $54 billion in notes, and transferred a portion of the credit risk to private investors on just under $1.8 trillion in single-family mortgage loans, measured at the time of the transaction. In addition to our flagship CAS program, Fannie Mae continues to transfer mortgage credit risk through its Credit Insurance Risk Transfer (CIRT) reinsurance program. Subject to market conditions, Fannie will return to market in early April with CAS 2022-R04, another low-LTV transaction.
Going back to last summer, Freddie Mac announced it sold via auction 1,139 delinquent residential first lien mortgage loans with a balance of approximately $185 million from its mortgage-related investments portfolio. On average, it has been 105 months since the loans in the pool first became 4 months delinquent. To date, Freddie Mac has sold $9 billion of NPLs and securitized approximately $74 billion of RPLs consisting of $30 billion via fully guaranteed PCs, $32 billion via Seasoned Credit Risk Transfer (SCRT) senior/sub securitizations, and almost $12 billion via Seasoned Loans Structured Transaction (SLST) offerings. Requirements guiding the servicing of these transactions are focused on improving borrower outcomes and stabilizing communities. Here is additional information about Freddie Mac’s seasoned loan offerings.
Warning: tissues required. Yes, I’ve run this video before, and will probably run it again. But if you’re on the fence about volunteering at a Human Society…
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Lenders Continue to Pivot” about how lenders and MLOs continue to shift to a purchase-centric focus. The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).
(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2022 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)