|Will the Banks Ever Return to Mortgage Lending?
Last week Bloomberg spotted a notable change in Bank of America’s classification of mortgage revenue in its first-quarter revenue statement. Bloomberg reported, “The revenue line that once regularly topped $1 billion a quarter is now so small that the company…lumped it into ‘all other income’ from its consumer bank.”
Justin Burch, Managing Director at The Collingwood Group, said, “While it may seem like a simple change in revenue recording, the mortgage industry has had a front row seat to witness the transformation of mortgage banking income from once being considered a profit center for traditional large banks and depository institutions, to now only being recognized as “other income.”
In recent years, banks have ceded more and more market share to nonbank mortgage lenders. Last year, nonbanks originated roughly 60% of all single-family mortgages. Despite a slight dip in February 2018, the nonbank origination share of Federal Housing Administration (FHA), Department of Veterans Affairs (VA), Fannie Mae and Freddie Mac loans has risen steadily since 2013. According to an Urban Institute report from February 2018, nonbanks accounted for approximately 76% of Ginnie Mae (FHA and VA) securitizations. The nonbank origination share of Fannie Mae and Freddie Mac securitizations was 50% and 52% respectively.
Burch said, “The persistent trend towards nonbank originators has many asking, will banks ever view mortgage lending as a profit center again or will it simply be viewed as an accommodation to retail banking customers?”
Recent reporting from the Wall Street Journal finds that banks are returning to mortgage and auto lending, but in a new way. The Wall Street Journal reported that bank loans to nonbank financial firms “increased six-fold” from 2010 to 2017 and that “they are now one of the largest categories of bank loans to companies.”
As credit access concerns, inventory shortages and interest rate hikes put pressure on the housing market, the role of banks in mortgage lending will continue to evolve. One area that could see an increase in bank participation is FHA lending. Nonbanks currently dominate FHA lending, originating more than 80% of all loans. “As a result of heightened regulatory risk, many large banks have fled from FHA programs in recent years,” said Burch. “This certainty remains an area of opportunity for both banks and nonbanks, but requires a larger industry conversation on how to remove existing regulatory barriers and thus attract more participation going forward.”
Spring’s 2018 Real Estate Market Is A Good News-Bad News Story
The spring 2018 real estate market is a good news-bad news story. A recently released report from Arch Capital MI points to affordability slipping, inventory declining while interest rates and housing prices rise. Key findings from the Arch Capital MI’s Housing and Mortgage Market Review Spring 2018 Report predict this year to be one of the worst for housing affordability with a current decline of 5%.
According to the report, the size of the monthly mortgage payment needed to buy a home rose nearly 5% over the past three months. The picture gets bleaker towards year end with affordability possibly decreasing an additional 10%-15%.
Arch also looks to a 17 percent increase in monthly mortgage payments for cities, including Tampa, FL; Riverside, CA; Chicago; and Washington, D.C.
The result is not only do millennials have fewer housing options, but baby boomers looking to downsize also have limited options.
The good news is that it’s a great time for sellers. Also, with home prices continuing to rise it remains a strong economy.
Read more: Forbes
House Bill Seeks to Limit Punitive Effect of CFPB Guidance Process
Rep. Sean Duffy, R-Wis., has introduced legislation designed to make the Consumer Financial Protection Bureau’s guidance process more transparent.
The bill, co-sponsored by Rep. Ed Perlmutter, D-Colo., would require the CFPB director to issue “guidance” that “is necessary or appropriate to enable the bureau to carry out federal consumer financial law, including facilitating compliance with such law.” It also prohibits penalizing institutions that rely in good faith on guidance from the bureau.
“I’m proud to sponsor bipartisan legislation to bring predictability and transparency to the CFPB’s rule-making process,” Duffy said in a press release last week. “The CFPB should focus on its mission to actually protect consumers rather than play ‘gotcha’ with ambiguous and surprising guidance for mortgage lenders.”
Read more: American Banker
Housing Optimism Resilient to Storms
The share of U.S. residents who view housing as a good investment is on the rise, having increased consistently over the past five years; and the view is largely unimpacted by recent natural disasters, according to the Survey of Consumer Expectations Housing Survey conducted by the Federal Reserve Bank of New York.
“The 2018 SCE Housing Survey results mainly paint a picture of steady and perhaps even growing household optimism about the housing market,” researchers wrote on Liberty Street Economics, the New York Fed’s blog.
The percentage of people who believe housing is a “somewhat good” or “very good” investment rose more than four percentage points over the past year. Nearly 65 percent of people now share this view, according to the Fed’s study conducted in February. This compares to about 60 percent a year ago and 56 percent five years ago.
Read more: DS News
Hot Las Vegas Housing Market Picking Up, but Nowhere Near 2000s
Cassie Catania-Hsu was a UNLV student during the real estate bubble and, like so many others in town, decided to sell houses. She was just 21, but how hard could it be?
Not very. She’d pick up buyers at the airport, drive them around to find houses and drop them back off the same day to fly out. She made so much money that she paid her tuition and bought a $400,000 house.
Homebuilder Robb Beville merely had to open his doors to sell houses back then. He even hired a security guard to keep order at a sales office, after two buyers fought over their spot in line and someone called the cops.
Today, Las Vegas’ housing market is gaining speed. Prices are rising at one of the fastest rates nationally, and builders are selling the most homes in years.
But by almost any measure, the market remains a long way from the peaks of the bubble years last decade. And given how wild things got and how badly it all ended, no one seems to be rooting for a rapid return.
Read more: Las Vegas Review Journal
Existing-Home Sales Beat Headwinds, Score Small Gains
Existing-home sales seemed to have reclaimed their footing, posting their second consecutive gain after two straight months of declines. The National Association of Realtors® (NAR) said March sales of single-family homes, townhomes, condos and co-ops rose 1.1 percent compared to February, putting sales at a seasonally adjusted annual rate of 5.60 million units.
The March pace built on a 3.0 percent increase in February, but sales are still down 1.2 percent compared to March 2017. Sales in February were at an annual rate of 5.54 million.
Analysts polled by Econoday had expected existing home sales in the 5.39 million to 5.80 million range. The consensus was 5.51 million units.
Single-family homes sales were up 0.6 percent to an annual rate of 4.99 million units from 4,96 million in February, putting those sales 1.0 percent behind the pace a year earlier. Existing condo and co-op sales were the star performers, jumping 5.2 percent to a 610,000 pace. Shortages has especially plagued condo sales in recent months, and they remain 3.2 percent below the 5.04 million sales posted a year ago.
Read more: Mortgage News Daily
Why Do Underwater Homeowners Keep Paying the Mortgage?
Despite the enormous gains in the housing market, and the rapid surge in home prices in recent years, nearly 2 million people still owe more on their mortgage than their home is worth.
Throughout much of the housing downturn a decade ago, the plight of underwater borrowers sparked fierce debates. Many industry participants fretted about homeowners making “strategic defaults” — calculating that it would be smarter to cut their losses and walk away from the home, leaving an empty house and a broken promise to pay.
While there’s lots of evidence that most homeowners who defaulted did so because they had no other choice, the issue is still controversial.
Still, a survey published by the New York Fed this week sheds some light on how homeowners think about their mortgage payments when they’re underwater — or at least how they say they think about it.
The survey, the housing component of the massive Survey of Consumer Expectations, asked underwater owners: “Have you considered no longer making your monthly payments on loans against your home?” Nearly 87% said “no, absolutely not.” Another 6% said “yes, considered but did not stop.” No one admitted, “yes, actually did stop.”
Read more: MarketWatch
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