U.S. home prices rise by 4% in December

In December, home prices climbed by 4% from the previous year, according to CoreLogic’s latest Home Price Forecast.

The CoreLogic HPI projects future home price growth based on several economic variables and measures the number of owner-occupied households in each state.

According to CoreLogic’s data, home prices increased by 0.3% from November 2019 and are now projected to increase by 5.2% come December 2020.

Frank Nothaft, CoreLogic’s chief economist, said the nation’s housing affordability has worsened as a lack of inventory continues to drive home price growth.

“Moderately priced homes are in high demand and short supply, pushing up values and eroding affordability for first-time buyers,” Nothaft said. “Homes that sold for 25% or more below the local median price experienced a 5.9% price gain in 2019, compared with a 3.7% gain for homes that sold for 25% or more above the median.”

CoreLogic indicates these price gains are negatively impacting the nation’s Millennial homebuyers, who not only tend to fall into the first-time buyer category but also continue to grapple with affordability woes.

During the second quarter of 2019, CoreLogic conducted a survey measuring consumer-housing sentiment among the nation’s younger and older Millennials, aged between 21 and 29, and 30 and 38, respectively.  

The company’s findings revealed while 79% of younger Millennial renters express a desire to purchase a home in the future, many still cite affordability as a top concern.

“On a national level, home prices are on an upswing. Price growth is likely to accelerate in 2020. And while demand for homeownership has continued to increase for Millennials, particularly those in their 30s, 74% admit they have had to make significant financial sacrifices to afford a home,” Frank Martell, CoreLogic’s president and CEO said. “This could become an even bigger factor as home prices reach new heights during 2020.”

This is concerning for the demographic, considering CoreLogic’s recent MCI report revealed that 40% of the nation’s metropolitan areas had an overvalued housing market as of January.

The MCI, which details the housing values in America’s 100 largest housing markets, categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals such as disposable income and more, according to CoreLogic.

During the month, 40% of the country’s top 100 metropolitan areas were overvalued, 26% were undervalued and 41% were at market value, according to the company.

NOTE: The CoreLogic HPI is based on public record, servicing and securities real-estate databases and incorporates more than 40 years of repeat-sales transactions for analyzing home price trends.

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Here’s where the real housing affordability crisis exists

In the age of quick news cycles and social media, it can be hard to make heads or tails of housing market news.

With plenty of sources to pick and choose from, it’s easy for anyone to form a narrative that is inconsistent at best.

Logan Mohtashami
Logan Mohtashami,

Take, for example, housing pundits that report the demand for housing is strong, while these same pundits, on another day say that we are in a housing affordability crisis. The “strong demand” card is useful when they are trying to convince buyers to get into the market before it is too late, while the “affordability crisis” card is slapped down when they need an excuse for weak demand.  

In a coherent world, these two conditions cannot exist in the same time-space continuum.  But nowadays, this seems to be the norm.

What is a rational, reality seeking consumer of news to believe? Math, facts and data, as always, stand ready to come to the rescue.

When we think about housing affordability in the U.S., it is meaningless to use nominal prices without considering location, location, location and the median incomes in those locations.

Take, for example, the area of the country where I reside, Irvine, California. In this Southern California burb, the median home price in my zip code is $1,176,938.

To most of the country, this dollar amount as a median price seems insane, but here, the market still finds buyers. Folks are still buying because the area is a hotbed for high paying jobs. As Einstein would say, it’s all relative. 

The top home prices in California make many think that it is a hot housing market, but the truth is sales have gone nowhere for a decade (see below). But sales still hold up because enough people make enough money to keep buying homes at a steady rate. It helps, too, that mortgage rates keep on falling.

Jan CA home sales

In a 2014 Bloomberg interview, I surprised many by saying that if you excluded both cash buyers and those who made two to three times the median income, then 82% of the working population in California could not afford to buy a home according to the traditional affordability calculation.

Eighty-two percent is a significant scary number, but it is based on an outdated premise.

First, this standard affordability calculation is based on the requirement that the buyer makes a 20% down payment. Hardly anyone, in these higher-priced markets, still does that, unless they’re in the selected group I mentioned above.

Second, while the real median household income in California is over $75,000, this analysis does not take into consideration that many homebuyers are in duel income households earning $150,000-225,000 per year as a couple. While they may not be able to afford a $1 million-plus home, they can afford to get into the market.

An affordability crisis would be a deflationary event, but we are seeing nominal home prices still rising. This increase is still based on low mortgage rates.

When you hear about an affordability crisis in America, does this chart of purchase application (see below) look like an affordability crisis? Are college-educated Americans who are going to make $2-5 million in their life really in a crisis? 

The term crisis during this record-breaking expansion has been so abused that the Four Horsemen of the Apocalypse want their horses back.


The take-home lesson from all of this is that those homebuyers, even in the higher-priced zip codes, are doing okay, especially when one considers per capita income vs. home prices. Deputy Chief Economist at Freddie Mac Len Kiefer adds color to this point with his chart comparing home prices with per capita income.

Percapita income vs prices

In comparison, during the housing bubble years, home prices did outpace per capita income. 

We “fixed” that problem by offering exotic loans that largely sidestepped financial qualifications. We all know how that worked out. 

The difference today is that we no longer have the types of loans that feed a credit bubble, so price gains in housing are limited in most areas of the country. Real home price gains went negative last year in America on a year over year basis, unlike the real home price gains we saw from 2002-2005. 

Jan real home price gains

The barbell-shaped economy and the housing affordability crisis

In terms of homeownership, high priced areas typically have a “barbell-shaped” economy, with a large number of wealthier homeowners on one side and a large number of less affluent renters on the other.

The affordability crisis is not the cost of homeownership by rather the cost of renting.

We hear a lot about the need to build more lower-priced starter homes to assist those on the homeownership side of the barbell,  but the real need is for less expensive rental units to accommodate the folks on the rental side of the barbell.  

When is the last time you heard about booming construction in low-cost rentals anywhere in America? The demand is undoubtedly present, so where is the supply?

I am 44 years old, and I don’t remember seeing anything like that in the communities I am familiar with. Developers apparently don’t see this market as profitable. Added to this, NIMBYism and zoning create an additional barrier that prevents these developments from happening in many communities. 

So here is a novel idea: Let’s stop making up stories that promote the so-called needs of the haves and start acknowledging the real problems we have amongst our neighbors on the other side of the economic barbell.  

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Coronavirus likely to quash U.S. home sales to Chinese buyers

Coronavirus - Impact on Chinese buyers

The coronavirus epidemic that has China on near-lockdown likely will quash U.S. home sales to Chinese buyers, the No. 1 foreign purchasers of American property for the last seven years.

“Everything coming out of China is on hold, and that would include, for the most part, Chinese nationals buying U.S. real estate,” said Jonathan Miller, president of Miller Samuel.

Buyers from China accounted for $13.4 billion of residential real estate sales in the U.S. in 2019, with more than a third of those purchases occurring in California, according to the National Association of Realtors. Canada was No. 2, at $8 billion, and India was No. 3, at $6.9 billion. Both of those nationalities favored Florida over California.

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Los Angeles is now the least affordable housing market

For the past two years, the least affordable housing market has been San Francisco, with a median home price of $908,750.

The National Association of Realtors said that California, in general, is the least affordable place to live in the U.S., citing high home prices.

Now, the National Association of Home Builders and Wells Fargo Housing Opportunity Index has given the title of least affordable housing market to Los Angeles. In Los Angeles-Long Beach-Glendale, California, only 11.3% of homes sold during the fourth quarter of 2019 were affordable to families earning the area’s median income of $73,100.

“Growing household formations, ongoing job creation and rising wage growth are fueling housing demand,” said NAHB Chief Economist Robert Dietz. “But a record-low resale inventory, coupled with underbuilding as builders deal with supply-side constraints, continue to put upward pressure on home prices even as interest rates remain at low levels.”

Because of this, Zillow says that home shoppers are leaving Los Angeles for cheaper metros, the most popular being Las Vegas.

San Francisco-Redwood City-South San Francisco fell to No. 2 on the least affordable list, after being the nation’s least affordable housing market for the previous eight quarters. Anaheim-Santa Ana-Irvine; San Diego-Carlsbad; and San Jose-Sunnyvale-Santa Clara are other major California metros that remain unaffordable.

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There haven’t been this few homes on the market since 2013

In the first month of the year, the nation’s home-sale prices increased by 6.7% from 2019 levels, coming in at a median of $306,400, according to Redfin.

Of the 85 largest housing markets Redfin tracks, only three saw a year-over-year decline in the median sale price in January, including San Jose, California; Baton Rouge, Lousiana; and Greenville, South Carolina, which dropped 4.3%, 4.1%, and 1.4%, respectively.

During the month, home sales increased by 6.7% year over year, marking the sixth consecutive month of increases.

Despite this gain, sales were still down 1.1% from December on a seasonally adjusted basis and homes spent two fewer days on the market than they did in 2018.

Redfin attributes this decline to the nation’s lack of housing inventory, which is causing a crunch in housing markets across the country, even in the nation’s most expensive coastal cities.

In January, the active listings of homes for sale fell 11.4% year over year, marking the biggest drop since March 2013 and the sixth consecutive month of declines.

Not only were there fewer homes available for sale than any time since January 2013 but also none of the 85 largest metros tracked by Redfin posted a year-over-year increase in the count of seasonally adjusted active listings of homes for sale, according to the company.

This has led to an uptick in bidding wars, which is significantly benefiting American home sellers.

 “Typically, we don’t see this many buyers in January, but with mortgage rates at a 3-year low, there are plenty of early-birds hoping to secure a home and lock in an affordable mortgage payment,” said Redfin chief economist Daryl Fairweather. “Home sellers, on the other hand, see that the market is clearly heating up and have no reason to rush to list their homes or to make price cuts in order to secure a sale.”

Throughout January, the share of homes that sold above list price increased 1.1 percentage point year over year, coming in at 18.7% compared to 17.6% a year earlier.

“Buyers are getting pretty upset about the lack of inventory,” said Seattle Redfin agent Pauline Corbett. “There’s a growing sense of desperation as bidding wars stretch out their home searches.”

The image below highlights the share of homes sold above listing price in January:

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It’s time to go beyond POS technology

Technology has come a long way in the mortgage industry over the past few years, but one expert says it’s time for lenders to move beyond tech that is front-facing.

Shane Erskine, OneTrust Home Loans president and 2019 HousingWire Rising Star, explained that it will take more than point of sale technology for lenders to remain profitable in a tight market.

As a Rising Star, Erskine became a leader at a very young age. His accomplishments continue to drive the housing industry forward.

The secret to becoming a Rising Star?

“Work hard and be humble,” Erskine said. “Take constructive criticism and use this to improve yourself and your company. Promote teamwork.”

Erskine sat down with HousingWire to discuss how lenders can make sure they come out on top as the market tightens and profits dip.

HousingWire: As someone who went through the housing crisis before, what is your advice for the best approach lenders should take in an increased consolidation market?

Shane Erskine: Stay focused on your business plan, there will be a lot of distractions and noise that can consume you if you let it. If you are successful, have a tight grip on your financials and stay focused on your plan you will weather the storm.

HW: How can lenders remain profitable even as the refi boom dies down?

SE: Profitability is always important, make sure that you understand every line item in your P&L, this will allow you to make proper business decisions to keep your company profitable. Know what is making you money and what is costing you money. Cross-train your staff and leverage technology to produce cost-effective results.

HW: How big of a role do you think technology plays in determining who will come out on top?

SE: Technology in the mortgage space has come a long way and is very important for the industry. A lot of companies are focused on the technology that focuses more on the front end of the origination process, point of sale. This software is great and creates a positive experience for borrowers, but there is a lot out there for the production side as well to assist with compliance, processing, closing and post-closing. This software, from what we have seen, saves costs and can improve quality.

HousingWire’s nominations are now open for our 2020 Rising Stars. But they won’t stay open long – nominations close on February 21, 2020. So nominate your Rising Star today, we want to get to know them!

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Move over, Phoenix: Spokane sees an increase in out-of-town homebuyers

Cities across the U.S. continue to see a rise in housing costs, leaving homeowners and homebuyers to flock to cheaper, more affordable metros.

According to a new report from Redfin, there are four cities that are attracting the most out-of-town buyers, Spokane; Charlotte, North Carolina; Orlando, Florida and Las Vegas.

While Phoenix may be the iBuyer’s dream and a popular metro to move to, it turns out the town with the biggest increase in out-of-town homebuyers is Spokane, Washington.

Currently the most competitive housing market in the country, Spokane saw an increase in home sales of 37% from the fourth quarter of 2018 to Q4 2019, compared to only 5% growth in home supply.

“Tons of people are moving in from the coasts because Spokane is more affordable and less crowded,” said Redfin market manager Michelle Kendrick. “Spokane has all of the basics you would want in a city, but at a great price. It feels like we are in a construction boom. A lot of the new construction is happening on the outskirts of the city, which contributes to our version of traffic.”

“To people from out of town the traffic is nothing, but if you have lived here a long time you do notice it. Job growth has also been a draw for out-of-towners. We have a new Amazon distribution center, the airport is expanding, and the medical industry is big and growing.”

Homebuilding is inexpensive in Spokane, due to the low price of land, Redfin said. In Seattle, land comprises 42% of the value of homes. However in Spokane, land comprises only 23% of the value of homes.

Las Vegas home sales are also growing quickly, at a pace of 15.7% year over year, with 47% of potential homebuyers coming from outside the metro.

“Las Vegas is a pretty competitive market, and I see both new homes and existing homes receiving multiple offers,” said Redfin agent Carol Vandenberg. “I see plenty of buyers from Los Angeles. They are used to the sunshine and the two cities are so connected.”

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President’s Day: Vendor mania

Did you hear about the population in Ireland? It’s Dublin! In the United States over a quarter of the nation’s population lived in just three states in 2019: California, Texas and Florida. And half of the nation’s population is concentrated in the 10 largest states:  California, Texas, Florida, New York, Pennsylvania, Illinois, Ohio, Georgia, North Carolina and Michigan. Coincidentally, this is the same top 10 as in Census 2010. Drops in natural increase and net international migration have resulted in a gradual slowdown of the nation’s population growth this past decade, according to U.S. Census Bureau population estimates. Growth of the U.S. population has slowed every year since 2015. Since April 2010, the population increased at an average annual growth of 0.66 percent, compared to an average of .97 percent in the decade prior.

Population change at the national level does not necessarily reflect what is happening in states and regions. Growth is not evenly distributed across the United States, and factors contributing to population growth or decline vary across geographies. Population gains in the South, now the most populous region of the U.S., were mostly due to natural increase and domestic migration (the movement of people from one area to another within the nation). During the same period, the population declined in the Northeast due to net domestic migration, which offset gains from net international migration and natural increase.

Vendor news from around the biz

I imagine that it would be impossible to find a lender that does not use an outside vendor for some function. Whether it is a title company, insurance company, LOS, hedging system, subservicer, there is a vendor out there that performs some function. And it is very hard to keep track of who is doing what, and if the particular function performed by one vendor “talks to” a function performed by someone else. Lenders hope that the use of some of these services helps them alleviate some of the “accordion type” adding/subtracting of staff during prosperous or lean times.

Let’s take a random walk through who is doing what, acquiring, or partnering with each other or lenders out there. And some of this may have been repeated from previous commentaries but it is good to have a sense, over time, of who is doing what.

The big news last week was First American’s announced acquisition of Docutech. First American Financial Corporation (NYSE: FAF) is known for its title insurance, settlement services and risk solutions for real estate transactions, and Docutech is known as being a provider of document, eClose and fulfillment technology for the mortgage industry. Docutech is “a respected industry leader that leverages technology to help financial institutions quickly and accurately provide regulatory-compliant loan documents for mortgage and home equity lending. The company’s innovative solutions are widely used by lenders across the U.S. and have contributed to the industry’s evolution toward a digital real estate closing experience. Docutech’s management team, including President and CEO Amy Brandt, will continue to lead the company’s operations. (BofA Securities acted as financial advisor to First American and Raymond James acted as financial advisor to Docutech.)

Docutech, a provider of document, eSign, eClose and print fulfillment technology, announced that Quicken Loans has gone live with Docutech’s ConformX™ dynamic document engine. This integration will allow Quicken Loans to more simply generate mortgage documents, helping enhance the lending process. Read the article for details.

The integration between Docutech’s ConformX and Solex Platforms and MortgageFlex System’s MortgageFlexONE LOS Platform? Once live, the integration will enable lenders utilizing MortgageFlexONE to generate loan documents through Docutech’s ConformX™ dynamic document engine and enable relevant documents for eDelivery, eSign, and eClose through Docutech’s Solex™ platform.

If you like QC you should check out the quarterly ACES Risk Management report: ARMCO Mortgage QC Trends Report. Even comments made a couple years ago ring true. “Critical defects in 2018 reflect the market’s rising interest rates and continued escalation of property values,” said Nick Volpe, chief strategy officer for ARMCO. “Fewer highly qualified borrowers transact mortgages when rates increase, which fills the market with more marginal borrowers who tend to require more documentation. It makes sense that defects related to loan package documentation more than doubled from 2017 to 2018.”

In response to an appraisal industry reliant on legacy technology and manual workflows, Reggora has built a modern appraisal technology platform that brings mortgage lenders and appraisal vendors onto a single core platform. Reggora recently announced that it has raised $10 million in Series A funding, led by Spark Capital. Spark also led the company’s $3 million seed round in January 2019. Existing investors, including Boston Seed Capital, also participated in the round. With the funding, Reggora will focus on adding to its engineering, sales, and operations teams, expanding its nationwide presence, and continuing to innovate in the real estate valuation space. In the past several months, Reggora’s co-founders were recognized as two of Boston’s top entrepreneurs and profiled in Forbes’ 30 Under 30 annual edition.

Calyx Software announced new enhancements to Zip Point-of-Sale Platform. New features make this software more interactive for borrowers and adaptable for home equity products. Enhancements include the ability for borrowers to upload documents and an interactive Borrower Dashboard to provide more visibility into the loan process. The new version also includes borrower questions to support HELOC origination, as well as refinance and home equity options for second homes and investor properties. The update also gives borrowers access to their loan officer’s contact information by clicking the Help icon in the Zip Interview Portal.

Calyx announced the launch of Calyx Wholesaler MarketPlace with seven of the nation’s premier wholesale lenders. Calyx Wholesaler MarketPlace enables mortgage brokers to connect with wholesale lenders via a single portal. Seven industry-leading lenders are currently in production. This week, Caliber Home Loans joined Quicken Loans, Freedom Mortgage, Stearns Lending, Plaza Home Mortgage, Sierra Pacific Mortgage, and Cardinal Financial Company in accepting loan submissions through this wholesale network. Additional lenders are in the process of integration with launches coming soon. Calyx Wholesaler MarketPlace is integrated with Calyx Point®, the dominant LOS of choice among mortgage brokers. It is also a key feature of NAMB All-In, the cloud-based platform made available for free to National Association of Mortgage Brokers (NAMB) members.

MAXEX has completed a strategic integration with Ellie Mae Encompass Investor Connect™. MAXEX connects bank and non-bank mortgage lenders to market-leading investors, including Wall Street dealers, money center banks, and the largest U.S. real estate investment trusts (REITs). To date, more than 120 lenders and investors have embraced MAXEX’s one counterparty, one contract, one digital exchange model to achieve faster, more efficient liquidity. This new integration further increases speed and efficiency by enabling seamless document transfer within Encompass. Now, Originators can deliver data and documents directly to MAXEX without ever leaving Encompass. MAXEX and Ellie Mae will host an open webinar on March 11, 2020 at 11 a.m. Pacific Time to demonstrate this new functionality.

Sign up with Ellie Mae to receive resources, get the latest updates, educational resources, and expert guidance on the new URLA. Join its “I Love URLA” community and stay on track for a seamless transition.

Mortgage document preparation vendor International Document Services, Inc. (IDS), announced that it has redesigned the audit worksheet feature in its flagship document preparation platform idsDoc. Now, the audit worksheet dynamically displays vital loan information, including a record of audits and tests conducted, in a single, easy-to-read document, providing investors and auditors with a full understanding of the loan file.

Seaside National Bank based in Orlando, Fla., and BSI Financial Services will be providing loan servicing and QA automation through its Asset360 technology. This advanced analytics and reporting technology will provide daily quality assurance reporting on 100 percent of the loans in Seaside’s portfolio. BSI ASSET360 reviews each loan using more than 600 business rules developed in collaboration with clients, investors and regulators. Loan exceptions are immediately reported to servicing teams for research and remediation. According to company officials, the technology has demonstrated cost savings and loan quality assurance improvements that have yielded significant reductions in error rates in loan boarding and in borrower and regulatory complaints.

Churchill Mortgage will work with Infosys to re-engineer its processes driving a complete digital transformation within mortgage lending. With the new partnership, the mortgage lender will enable borrowers to interact with them in the way they desire, but without compromising the values and trust Churchill is known for. Ultimately, this will position Churchill to serve more people and compete with the largest lenders and fintechs by leveraging the most modern technology available today, such as AI and robotics, propelling them into the future. Churchill is also investing heavily in its people, which will in turn provide greater opportunity for growth and innovation.

The recent partnership between LoanLogics and Virpack will increase the speed and accuracy of document recognition, data extraction, and file review while reducing the cost of creating and ensuring loan quality. By leveraging an integration between LoanLogics IDEA™ and VirPack’s virtual document management and automated workflow platform, the companies remain at the forefront of providing market leading solutions that increase the speed and accuracy of document recognition, data extraction, and file review; and reduce the cost of creating and ensuring loan quality. The potential results are higher profit margins for lenders on the front end of the loan.

Download the Free EBOOK from Notarize… the official guide on remote online notarization.

OpenClose announced that it is has scheduled a May release for the official rollout of its anticipated digital mortgage point-of-sale (POS) solution, ConsumerAssist™ Digital POS. This new integrated solution is a unique offering that combines a proven and mature 100 percent browser-based end-to-end LOS and PPE with new state-of-the-art dynamic digital mortgage POS technology. Lenders can now automate and organize numerous tasks that would normally be performed in the back-office via the LOS and push them closer to borrowers earlier in the origination process. As a result, workflow efficiencies increase, the lending process is sped up, costs are reduced, and new business is captured at a higher rate and lower cost.

Lender Price has completed an integration of its Product Pricing & Eligibility (PPE) Engine with LendingTree providing mortgage lenders the ability to synchronize their loan pricing in real-time with one of the nation’s leading online marketplace for financial services. Lender Price’s PPE technology is designed to process large amounts of pricing data and produce instantaneous responses. The PPE generates accurate loan eligibility and pricing decisions in an extremely rapid manner, allowing users to “shape” loan scenarios in a continuous manner and view the resulting changes immediately on screen. By combining Lender Price’s advanced technology with LendingTree’s established online marketplace, borrowers and lenders benefit from a partnership that delivers fast and accurate mortgage quotes.

Lender Price announced the addition of American Financial Resources Inc. (AFR) loan products to its pricing engine library. The Lender Price Product Pricing and Eligibility (PPE) engine generates extremely rapid and accurate decisions of loan eligibility and pricing for a wide array of use cases. The Marketplace version of the Lender Price PPE is targeted at mortgage brokers and provides a convenient method for comparing pricing between multiple wholesale lenders. Lender Price partnered with the National Association of Mortgage Brokers (NAMB) to provide the Marketplace PPE to all NAMB members at no cost. By combining Lender Price technology and the more than 6,000 members of NAMB, wholesale lenders such as AFR gain access to a highly coveted group of mortgage professionals. The partnership with AFR expands the number of participating Marketplace PPE lenders to 19, creating more opportunities for both lenders and mortgage brokers.

SLK Global Solutions has achieved a new benchmark of success with its latest offering, LoanAccel™, an origination support solution that helps underwriters provide conditional approvals within hours. LoanAccel works with the lender’s current loan origination system (LOS), expediting he underwriter’s conditional approval process by making sure a decision-ready loan file is submitted to underwriting in less than 48 hours. The LoanAccel team supports requirement gathering for the lender and the lender’s automated underwriting system, making sure that a lender’s most critical resource, the underwriter, can approve loans in fewer than two touches on average, regardless of loan application types. In addition, LoanAccel enables loan processors to only work on conditionally approved files, freeing them from many tedious administrative activities and improving the employee experience.

Capital markets

Bond markets are closed. Come back tomorrow.

A man was driving along the California coast when he saw a police car in his rearview mirror, signaling for him to pull over. He promptly pulled off the road. When the officer reached his window, he politely asked, “Is there a problem, Officer?”

“No problem at all. I just observed your safe driving and am pleased to award you $5,000 as part of our Safe Driver Award campaign. Congratulations! Now what do you think you’re going to do with the money?”

The driver thought for a minute and said, “Well, I guess I’ll finally go get my driver’s license.”

The lady sitting in the passenger seat said to the policeman, “Oh, don’t pay attention to him- he’s a smarty pants when he’s drunk and stoned.”

The guy from the back seat said, “You guys with your big mouths! I told you we wouldn’t make it very far in a stolen car!”

At that moment, there was a knock from the trunk and a muffled voice said, “Are we over the border yet?”

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, “How Epidemics Impact Lending” If you have the inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2020 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)


Feb. 15: Letters on warehouse lending, non-bank lenders; Fannie’s results & capital markets activities

It is important to keep things in perspective. A loan officer will grouse about a price of a non-QM loan being .250 worse than a competitor’s. But Australia’s bush fires burned an estimated 72,000 square miles, the size of South Dakota, killing at least 34 people and an estimated one billion animals. (The photos of the animals were horrific.) The death toll of the coronavirus hit 1,400 with over 60,000 cases around the globe.

That noted, I receive plenty of emails, and received this letter of admonition this week. “Rob, you should stick to mortgage news. I know that others worry about politics, that our justice system is subject to presidential influence, or that the environment may be changing [editor’s note: near 70 degrees in Antarctica?]. Your readers should remember that rates are great, pipelines are full, and companies are off to a great start of the year. Those are the things that matter.”

And there you have it, although so much of what happens in the world, and the people in it, touches our business. On to mortgage topics.

Regarding the question of whether or not all warehouse lenders require audited financials, I received this note from David Frase, the President of Mortgage Warehouse Lending at Simmons Bank. “Simmons Bank is a $20 billion publicly-traded financial institution who does not require audited financials from its warehouse clients. We do not buy loans from our clients nor is our pricing out of market. When our collateral is underwritten by a valid, approved takeout investor prior to funding, we believe the risk of incorrect financial statements is sufficiently mitigated. But this is not a ‘state asset’ program, either. The cash portion of any balance sheet must be supported by bank or brokerage statements at application and annual renewal. If our client decides they want to underwrite their own files, audited financials and more liquidity will be required. I have been a warehouse lender working happily in this ‘non-del’ market for 28 years and I pray some will attest that I am reputable. This rapidly growing segment of the market is not for everyone. It requires patience, a careful hand at the tiller, and really strong people to execute the strategy.”

Concerning general business conditions I was emailed this note from West Virginia. “Rob, we talk constantly about where to invest our time and money. As a small Independent Mortgage company, we cannot afford to make financial mistakes. My personal opinion is that we have to invest in technology and support staff (part-time, full-time, task specific), not more loan officers. Sure, we have to grow, but over the last 20 years, I literally grew my competition after I created a Top 10 Unit Team for Wells Fargo in the early 2000s. Everyone becomes a rocket scientist with success; so, interestingly, I’ve been waiting for the opportunity of a changing landscape to evolve and adapt, because I’m confident the old way of doing things and business plans are not going to succeed and neither will my competition (my old policies and procedures won’t work as well.

“And they can’t copy what I am doing, because I’m not sharing it. Stealth mode to everyone except my Clients. 1:1 marketing). Maybe my (Ego) thinking is wrong, but maybe not. That is the fun of our industry – to try and see. An important point I want to make also, is that we just need our ‘share’ of the market. My standard and quality of life has improved by not carrying a large team. The tricky part of our industry is that it is a volume-based business so, at a certain point, more is needed, but we are finding technology the great equalizer.


“I think you will enjoy the email I just sent out this morning to my Realtors: Did you realize that Realtor.com isn’t owned by NAR? Whaaat!? The real estate listing website is operated by News Corporation, a subsidiary of Move, Inc. I had for years just assumed the National Association of Realtors (NAR) owned it. The site launched as the Realtor Information Network in 1995, serving as a closed network for members of the NAR. It relaunched in 1996 as a public website displaying property listings. Since then, Realtor.com claims to have become the largest website in the United States for real estate listings, and in 2016 was valued at $2.5 billion by Morgan Stanley. So, NAR and Realtors do not own their own website. (Dramatic Pause) Why would NAR abdicate control of their most important assets – listings and its Realtor base? NAR is literally paying someone for the information they provided to them for free. It’s the same trick banks did with ATM machines, you have the privilege to be a bank teller in order to get your own money out, while being charge $3.00 for said privilege.


“What does this have to do with Zillow getting their New York real estate brokerage? Well, it is another example of the erosion of Realtors position in the marketplace. For years Realtors stressed the importance of how to pronounce the word, Realtor, when they should have been protecting their domain (online and offline) and Brand name in Realtor.com. iBuyers have been assaulting the real estate market without a comprehensive (now defensive) plan in place by NAR. Zillow says that they will have a licensed brokerage in every state by the end of the year to do “nontraditional” real estate. Well, that is Internet speak for “disintermediation”, which means the reduction in the use of intermediaries between producers and consumers, for example, an owner selling their home directly to a buyer without a Realtor.


“What is your Board of Realtors doing about it? What are you doing about it? Why is an Independent Mortgage Advisor sharing this information with you? Because we are all holding hands down this aisle and only a few of us are going to make it to the end. We need to adapt to the new realities and threats in our marketplace.”

Fannie Mae Activity in the capital markets & transferring risk

It is important for LOs to know that without investor interest in the product that the product the LO manufactures, the process would cease. So it is good to know that the Agencies (Fannie, in this case) is up to since they are the end buyer of the lion’s share of mortgage originations. And since F&F can now retain their earnings, knowing if they’re making money is important as well.

On February 13, Fannie Mae reported its fourth quarter and full-year 2019 financial results reflecting solid financial performance through strong business fundamentals and stable single-family and multifamily guaranty books. Fannie Mae reported 2019 net income of $14.2 billion and Q4 2019 net income of $4.4 billion. Fannie Mae’s net worth increased to $14.6 billion as of December 31, 2019, as the company continues to retain quarterly earnings and restore its capital base. Based on the current agreement with the U.S. Department of the Treasury and the Federal Housing Finance Agency (FHFA), the company may retain quarterly earnings until its net worth reaches $25 billion. Fannie Mae provided more than $650 billion in liquidity to the mortgage market in 2019 through the financing of more than 3 million home purchases, refinances, and rental units. Fannie Mae was the largest issuer of single-family mortgage-related securities in the secondary market during 2019 with an estimated market share of single-family mortgage-related securities issuances of 37 percent. Fannie Mae provided $70 billion in multifamily financing in 2019, which enabled the financing of 726,000 units of multifamily housing. More than 90 percent of the multifamily units the company financed in 2019 were affordable to families earning at or below 120 percent of the area median income, providing support for both affordable and workforce housing.


Fannie Mae also continued its ongoing capital management and risk reduction efforts in 2019. Fannie Mae made changes to its Single-Family credit risk transfer structures in 2019, increasing the company’s capital relief and reducing the company’s risk. Fannie Mae also began obtaining credit protection on single-family reference pools containing seasoned loans, increasing the percentage of the company’s book covered by credit risk transfer, reducing the company’s capital requirements, and further reducing risk. Fannie Mae also enhanced its risk transfer capabilities through the company’s first Multifamily Connecticut Avenue Securities transaction in the fourth quarter of 2019, while remaining committed to lender risk-sharing through its Delegated Underwriting and Servicing program. These and other multifamily credit enhancements through 2019 have reduced the company’s conservatorship capital requirement for credit risk on multifamily loans acquired in 2018 by more than 70 percent. Fannie Mae’s retained mortgage portfolio decreased to $153.6 billion as of December 31, 2019 from $179.2 billion as of December 31, 2018, due primarily to a decrease in the company’s loss mitigation portfolio driven by sales of reperforming loans.

Fannie Mae’s Green mortgage-backed securities (MBS) issuances, which can be backed by green certified properties or properties targeting a significant reduction in energy or water consumption, increased 13 percent to $22.8 billion in 2019, totaling $75 billion since the program’s inception in 2010.

Fannie Mae also broadened the sources of liquidity available to the market in 2019 with its Multifamily Credit Risk Transfer (MCRT) program, which mitigates credit risk by transferring a portion of its risk to reinsurers and investors and increasing the role of private capital in the multifamily market. Multifamily Affordable Housing volume rose over 20 percent to $7.2 billion, which Fannie Mae would say represents a commitment to the preservation of affordable housing for families across the country.

Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2020-R01, a $1.03 billion note offering that represents Fannie Mae’s first CAS REMIC transaction of 2020. 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 2020-R01 consists of approximately 105,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $29 billion.


CAS REMIC notes are issued by a bankruptcy-remote trust. The amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool. Fannie Mae will retain a portion of the 1M-1 ($303.1 million offered amount, 1-month LIBOR plus 80 bps, expected BBB-sf Fitch/BBB+ (sf) KBRA ratings), 1M-2 ($523.5 million offered amount, 1-month LIBOR plus 205 bps, expected Bsf Fitch/BB (sf) KBRA ratings), and 1B-1 ($206.6 million offered amount, 1-month LIBOR plus325 bps, class will not be rated) tranches in order to align its interests with investors throughout the life of the deal. Fannie Mae will retain the full 1B-2H first loss tranche.


With the completion of this transaction, Fannie Mae will have brought 39 CAS deals to market, issued $45 billion in notes, and transferred a portion of the credit risk to private investors on close to $1.5 trillion in single-family mortgage loans, measured at the time of the transaction. Fannie Mae’s single-family credit risk transfer programs have now transferred a portion of credit risk on over $2 trillion in underlying loans since 2013. Fannie Mae plans to return to market in mid-February with a high-LTV CAS deal. For more information on individual CAS transactions, visit our credit risk transfer website.

Fannie Mae priced its first Multifamily DUS REMIC in 2020 totaling $873 million under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program on January 22, 2020. FNA 2020-M1 is the first Green Fannie Mae GeMS issuance of 2020. This is the twelfth GeMS issuance backed by Green MBS collateral, which brings total Green GeMS issuance to $9.9 billion. Collateral was composed of 28 Fannie Mae Green DUS MBS primarily in Nevada (35 percent), Florida (34 percent), and New Jersey (7 percent) with a weighted average LTV of 69 percent and a weighted average debt service coverage ratio (DSCR) of 1.47x.


The structure details for the multi-tranche offering is as follows. Class A1 has original face of $91 million, a weighted average life of 6.39 years, a fixed coupon of 2.151 percent, and a 100.50 offered price. Class A2 has original face of $608 million, a weighted average life of 9.64 years, a fixed coupon of 2.444 percent, and a 101.99 offered price. Class A3 has original face of $174 million, a weighted average life of 9.68 years, a fixed coupon of 2.404 percent, and a 101.99 offered price. The deal was able to capture the recent spread tightening in the market, with the A2 tranche pricing inside of a 50-basis-point spread over swaps.


Fannie Mae’s Multifamily Green Financing Business provides financing through several different Green product offerings, encouraging apartment building owners to make energy and water savings improvements to their properties. Green MBS helps to support the reduction of utility costs for families and individual tenants, as well as the reduction of greenhouse gases through retrofits to existing, aging multifamily housing in the United States. In addition, the Fannie Mae Green Financing Business provides financing to properties holding a third-party, Fannie Mae-approved, Green Building Certification. Fannie Mae introduced the Green MBS product to the market in 2012 and has issued $74.5 billion in Green MBS and $9.9 billion in Green GeMS since the program’s inception. Read more about it here. For additional information about this transaction, please refer to the Fannie Mae GeMS REMIC Term Sheet (FNA 2020-M1) available on the Fannie Mae GeMS Archive page.

Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2020-R02, a $1.134 billion note offering that represents Fannie Mae’s second CAS REMIC transaction of 2020. 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 2020-R02 consists of approximately 111,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $29 billion. The reference pool includes one group of loans comprised of collateral with loan-to-value ratios of 80.01 percent to 97.00 percent, the majority of which were acquired from June through September 2019. 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.


Pricing for the deal is as follows. Class 2M-1 has an offered amount of $276.657 million, a pricing level of 1-month LIBOR plus 75 bps and an expected BBB-(sf) / BBB (sf) rating. Class 2M-2 has an offered amount of $567.147 million, a pricing level of 1-month LIBOR plus 200 bps, and an expected B+(sf) / BB- (sf) rating. Class 2B-1, which will not be rated, has an offered amount of $290.490 million at a pricing level of 1-month LIBOR plus 300 bps. With the completion of this transaction, Fannie Mae will have brought 40 CAS deals to market, issued $46 billion in notes, and transferred a portion of the credit risk to private investors on close to $1.5 trillion in single-family mortgage loans, measured at the time of the transaction. Fannie Mae will retain a portion of the 2M-1, 2M-2, and 2B-1 tranches in order to align its interests with investors throughout the life of the deal. Fannie Mae will retain the full 2B-2H first-loss tranche.


CAS REMIC notes are issued by a bankruptcy-remote trust. The amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool. For more information on individual CAS transactions, visit Fannie’s credit risk transfer website. Subject to market conditions, Fannie plans to return to market in late-February with the inaugural CAS Seasoned B-Tranche deal, CAS 2020-SBT1. The transaction will transfer a portion of risk previously retained by Fannie Mae on certain CAS deals issued in 2015 and 2016.

A senior citizen said to his eighty-year old buddy, “So I hear you’re getting married?”


“Do I know her?”


“This woman, is she good looking?”

“Not really.”

“Is she a good cook?”

“Nah, she can’t cook too well.”

“Does she have lots of money?”

“Nope! Poor as a church mouse.”

“Well, then, is she good in bed?”

“I don’t know.”

“Why in the world do you want to marry her then?”

“Because she can still drive!”

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, “How Epidemics Impact Lending” If you have the inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2020 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)