June 6: Random vendor news; letters on housing economics & pent up demand

In response to my real estate agent quote, “No family wants to push an elevator button to go home,” when talking about families looking to move out of the city, thank you to Ken S. who sent this article about nationwide relocations during the pandemic. And the upswing in activity isn’t confined to lower price points. Realtor Chet Gohd who pointed out that in the Oakland/Berkeley market, near San Francisco, for a variety of reasons there have already been more transactions in 2020 north of $4 million, with plenty of active listings, than in any other entire year!

Thoughts on housing economics

So what is going on in the housing market, with state economies reopening? Is there pent up demand? Josh Stech, CEO of Sundae, wrote, “There is absolutely pent up demand. Recent purchase applications were up 6.7% year over year, which shows that people were waiting for shelter-in-place to be lifted. The demand is driven by the shortage of homes on the market that preceded the pandemic. With the coronavirus as a backdrop, people are still not comfortable listing their homes and having buyers walk their property. The demand-supply imbalance is contributing evidence. Low interest rates are increasing demand as well. On top of that, while people were sheltering in place, they were spending a lot of time thinking about remodeling and whether their current house meets all of their family needs.

“A National Association of Realtors survey showed that 34% of consumers were delaying buying a house or pausing house search due to job concerns. We expect many of these people will come back as states begin to re-open. There are still plenty of buyers out there who can obtain financing, and low mortgage rates are helping them afford higher prices. Sentiment has shifted, however, and many buyers are looking for a deal which may slow transactions.

 

“Assuming the average American has not been impacted by COVID, they will take advantage of the opportunity to buy or refinance. Fannie Mae is anticipating a 51% jump in refi’s from 2019. The Federal Reserve is determined to do whatever it takes to keep the economy afloat, so interest rates are not likely to go up any time soon, and may in fact go lower. Those who can refinance because their financial situation has not been impacted are refinancing right now. Lenders have implemented more checks along the way like multiple employment verifications, but people with good FICO scores and incomes are taking advantage of the opportunity.”

Josh addressed the number of people entering into forbearance agreements. “The number of people who entered into forbearance agreements is in line with what the rest of the economy is doing. The majority of job losses have come among mid- and lower income earning industries. Ginnie Mae’s loan portfolio shows the highest percentage of loans in forbearance (11.6% as of May 17th compared to 6.36% for Fannie and Freddie). Ginnie Mae’s mission is to increase access to credit for first-time homeowners, as well as low and moderate-income borrowers. Those homeowners are experiencing more distress. The decline in employment and income is hitting FHA and VA borrowers hard. With that said, forbearance requests seem to be declining week over week, which is a good sign.

“People usually refinance to lower their monthly payments or to cash out. With 30-year fixed mortgage rates hovering around 3%, anyone whose rate is 4% or higher, who has a job, a conforming loan, and good credit should consider refinancing given prices might go down and refinancing might be harder once the supply/demand equilibrium is restored.  This is true whether it’s to lower monthly payments or to ensure they have money put aside because HELOCs and equity lines are more expensive or if they anticipate needing cash.  General market consensus is that the rates will stay low for the next 12 to 18 months thanks to the Fed’s commitment to stabilize the economy no matter what it takes. Once the stimulus ends, rates are likely to go up.”

Evolve Mortgage Services CEO Paul Anselmo has a warning, however. “The Mortgage Bankers Association reported that an estimated 4.2 million mortgages were in forbearance as of May 17. With the Federal Housing Financing Agency having recently indicated that no lump sum will be required by Fannie Mae and Freddie Mac borrowers at the end of forbearance, many of these mortgages will need to be modified. But skyrocketing credit card forbearances signal trouble ahead. Because payment deferrals, stimulus checks and unemployment compensation are not going to be enough (in addition to delays in the PPP programs) many on the edge will not easily recover even when returning to full employment. Mortgage servicers will need to identify which borrowers are viable candidates for loan modifications well ahead of the end of forbearance by performing portfolio analytics for predictive modeling now. With such preparation, servicers will be able to focus on this group early on. Once servicers have identified borrowers who are likely to qualify for a modification, Evolve has both those analytics and eModification capabilities.

Vendor news

A hummingbird’s wings beat about 70 times every second. That is almost as many times as a loan processor touches a loan file. Actually, STRATMOR’s studies show that processors, on average, manage 26 loan files in their pipelines at any given time. Lenders everywhere are trying to reduce friction, and vendors are often involved. Let’s take a random look at what vendors are up to these days, as they do much more than make up news words for products that wreak havoc on spell checking.

eMortgages and eClosings have become an important tool for lenders to ensure that their operations continue, even in times of a health crisis. Recognizing this fact at the outset, Secure Insight has spent the past few months collecting and verifying the special licenses and credentials of thousands of settlement professionals nationwide to display in its risk profile reports. Secure Insight’s analysts have developed a matrix of state by state rules and regulations defining when, where and how remote notarization and e-notarization may occur legally to guide the development of this new aspect of their database features. Secure Insight President, Andrew Liput, commented “When you include this new data with the fact that they have added more than 3000 new profile records from throughout the country just this year, you get a picture of the value of integrating with the mortgage industry’s largest and best database to manage closing and wire fraud.”

Lenders are certainly embracing eClosing technology. For example, Fairway Independent Mortgage Corporation offers Fairway ExpressClose as a virtual closing solution for consumers.

IDS has enhanced eSign tools for state-specific document functionality in its flagship document preparation platform idsDoc. The addition of this functionality enables IDS clients to automatically access state-specific documents that are electronically fillable, where allowed by law. The IDS library of state-required documents is a collection of expansive regulatory research and is maintained and updated regularly by the IDS Compliance Department. In addition, the department maintains the “IDS State Disclosure Matrix,” a reference document which lists the state-specific documents available in idsDoc and notes the default parameters used to determine when specific documents should be included in a loan package. Clients can have all disclosure documents electronically signed in the eSign Room with a unique login and secure email link for each document signer.

HSBC Bank USA, N.A., (HSBC), part of the HSBC Group, one of the world’s largest banking and financial services organizations, announced it has partnered with RateReset to license its platform, KNOCK KNOCK. The platform, branded “EasyReset” for HSBC, allows the bank to reset existing Adjustable Rate Mortgage (ARM) loans with the click of a button.

Traditionally used by mortgage loan borrowers to compliantly eSign initial mortgage loan document disclosures and closing documents, DocMagic has modified its eSign platform, making it document agnostic. This version can easily handle the execution of important documents such as contracts, NDAs, LOIs and virtually any other agreement, to be electronically signed and legally binding. As an act of goodwill, DocMagic is providing this eSign technology for free in order to help organizations increase productivity, efficiency, and compliance among work-from-home employees during COVID-19 stay-at-home orders as well as after they are lifted.

Calyx announced its new, cloud-based origination platform, Zenly, that can be purchased and operational in 15 minutes. The easy-to-use system efficiently handles all of the steps needed to complete a full mortgage application and deliver it, with the accompanying documentation, to a wholesale lender. Zenly also includes seamless loan submission to Fannie Mae’s Desktop Originator (DO) Through DO, sponsored mortgage brokers have access to the automated underwriting system, Desktop Underwriter® (DU). Using Zenly’s built-in, mobile-friendly borrower point-of-sale, an originator can import loan application data, pull credit, and automatically collect and verify borrower assets.

Cloudvirga secured strategic investments from original investors to expand its retail lender platform to wholesale lenders and their brokers.

Asurity’s RiskExec Suite is being enhanced with the release of a new Fair Servicing module, initially covering analytics for Forbearances and Loan Modifications.

ACES Risk Management (ARMCO) announced the launch of QC NOW, a web series covering current regulatory and operational changes related to quality control, compliance and risk for independent mortgage lenders, banks and credit unions. Upcoming topics for the web series include: How to Ensure Data Integrity with HMDA Reviews, Mortgage QC Industry Trends – Future Outlook, QC Reporting Essentials, and State of Servicing QC.

In MISMO news, the Industry Loan Application Dataset (iLAD), the modernized dataset for exchanging loan application data, has been updated to “Candidate Recommendation” status. This means it has been thoroughly reviewed by a wide range of organizations and industry participants and is available for use. The release of iLAD (v2.0.1) incorporates recent updates to the drafted specification (v2.0) following a 30-day public comment period announced in March 2020. MISMO has incorporated changes to iLAD that had been previously made to its source files, which include the Uniform Residential Loan Application (URLA) dataset, Version 1.8; Desktop Underwriter AUS Request dataset, Version 1.8.1; and Loan Product Advisor AUS Request dataset, Version 5.0.06. The release and use of MISMO standards and other resources, including iLAD, are governed by the MISMO Intellectual Property Rights (IPR) Policy.

Wipro Gallagher Solutions launched NetOxygen v7.0, the latest version of its NetOxygen loan origination solution platform. NetOxygen v7.0 significantly simplifies every touchpoint in the loan process, making it the most intuitive and responsive version to date. With this release, WGS continues its ongoing efforts to fuel the lender of the future through intuitive technology. NetOxygen v7.0 enhances roadmap features to improve the customer experience, increase efficiencies and reduce cycle time and overall origination costs. A webinar will be held on June 10, 2020 at 11 a.m. CT, to showcase the key features of NetOxygen v7.0. Click here to register.

A recent Press Release announced that National MI has integrated with PMI Rate Pro.

SimpleNexus has advanced the release of its Closing Portal to help lenders meet urgent consumer demand for mobile mortgage closing solutions. Lenders can securely collaborate with settlement service providers for streamlined closing package delivery and will pave the way for hybrid mortgage closings.

Covius’ credit reporting platform, Funding Suite® is now integrated into Blend providing customers with a range of credit services for origination and quality control, including credit scores, rescoring, merged reports and supplemental lien and judgment reports. These services can be integrated directly into the lender’s front-end consumer portals or accessed by loan officers and processors. Funding Suite lets users select preferred credit repositories and upgrade to a three-vendor report without having to re-pull a consumer’s file. In addition,

Covius’ platform provides detailed cost accounting, business intelligence dashboards and real-time status updates on open orders and interactive maps on credit order locations.

a la mode’s new tool, PropertyAssist, is designed to help appraisers safely and easily get information from homeowners directly into their WorkFile, without entering the property (interior pictures, etc.) and it’s free to current users.

Pavaso launched Essential Notary™, a Remote Ink-Signed Notarization (RIN) solution that allows a signer and notary in different locations to complete the signing and notarization of real estate closing documents on paper. Unlike Remote Online Notarization (RON), electronic signatures and notarizations are not used; printed documents are provided to the signer(s) for wet ink signatures to be applied. Documents are signed in view of the webcam, while the notary witnesses the signing of each document requiring a signature. The platform can also capture, via webcam, the assembly and sealed packaging of the wet-signed documents for delivery to the notary, where necessary. For more information about Essential Notary, visit pavaso.com/essential-notary

Rocket Mortgage partnered with Titlesource & Pavaso to ensure that anyone within that 80% can select their preferred method of closing.

Indecomm Global Services announced the launch of the retail version of its IncomeGenius® income calculation automation software. IncomeGenius® Retail is now available for mortgage brokers and small and mid-size lenders who wish to utilize automation income calculations for their clients, yet do not need the full, flagship subscription. With the process of calculating income simplified and automated, this can be used at the start of the loan process by mortgage loan originators and processors to obtain accurate income which improves the borrower experience.

Global DMS has integrated its eTrac valuation management platform with ProxyPics’s mobile app facilitating the delivery of photographs of a subject property when access to the property is unavailable. The entire process is automated, secure, protects against fraud, and requires no additional work or oversight from those using eTrac. It’s also simple for homeowners, who utilize the ProxyPics mobile app to easily take the required photos, answer pre-set questions about the quality, condition, and unique characteristics of their home, and submit the information back to eTrac.

A wife talks to her husband with a sweet voice, “You look great in that dim light. You look just like Brad Pitt.”

Lifting his eyebrows, the husband asks, “And how do you know Brad Pitt?”

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, “Reducing Friction”, focused on operations changes. 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.

Rob

(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed 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 2020 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.)

 

Here’s evidence of V-shaped recovery

Purchase applications were up 18% compared to the same time last year and up 6% from a week ago. This gives us two back-to-back weeks of positive year-over-year prints for purchase applications in the final weeks of the typical housing market heat months.

It’s not a coincidence that the “V-shaped” recovery in purchase applications (first graph) is mimicked by the inverted “V-shaped” recovery of the St. Louis Stress Index (second graph). This indicates a return to a much more calm financial market.

image009
64 Stress Index

The St. Louis Financial Stress Index, in case you are not familiar, is calculated from the weekly averages of seven interest rates, six yield spreads and five other bond and stock indices. The goal is to provide an overall financial stress metric for the stock and bond markets.

This index going to zero or below is one of the five metrics that I identified as reliable indicators that the American economy was emerging from the AD stage (after the disease) to AB stage (America is back).

Logan Mohtashami
Logan Mohtashami
Columnist

The stress index is designed so that under normal financial conditions it is zero. It goes positive when the markets are contracting and negative when the markets are acting much better.

On Friday, May 29, the stress index went negative for the first time since Feb 21, 2020. The latter date was just days before the U.S. reported the first COVID-19 related death. As we can see below, this index had a massive spike during the Great Recession as well and then came back to below zero.

64 Stress Index MAX

When the stress index goes below zero and stays there for some time, we will know that the economy is in recovery mode and we can expect other indicators to improve like jobless claims in time.

Today’s job’s report showed a gain of 2.5 million jobs, and the 10-year yield jumped to 0.94% on that data. 

Both the increase in purchase applications and the fall of stress index are good for the housing market. But, if the economy reopens successfully without any virus rebound news, we may have already seen the lowest lows in mortgage rates. 

One of the other five things we need to see en route to recovery is the 10-year yield go above 1%. This means the economy is doing better and we really want to create a new range between 1.33%-1.6%.

Currently, at 0.9% we are still far from those levels. But recently, the 10-year yield has shown some signs of life of wanting to go higher.

We still have a lot of high-risk variables, such as an increase in new cases that might put our hospitals at risk, unnecessary lack of financial support by the U.S. government, more bad China trade war or retaliation headlines and even a pullback in the stock market can drive money into bonds. So we still have many pitfalls.

But if I am right, and we are going into the recovery stage, the next two things we should see over the next six months is the 10-year yield going above 1% and jobless claims stopping its horrific rise.

Here’s the 10-year yield as of the close on June 4:

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All in all, the good news is that purchase application data is positive year over year, the St. Louis Financial Stress Index is below zero and today’s positive print in the jobs report.  

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Eric Simon, the Broke Agent, to speak at engage.marketing

The HW+ community is supposed to be a place of support and collaboration, so I am going to start with some honesty here. This article started out with this… 

And I am really hoping I am not alone! Surprisingly, the word “meme” isn’t that new at all and dates back to evolutionary biologist Richard Dawkins’ 1976 book “The Selfish Gene.” However, the way we use “meme” today is drastically different from the word he originally coined. 

The new definition according to Merriam-Webster, which was unveiled in 2015, is “an amusing or interesting item (such as a captioned picture or video) or genre of items that is spread widely online especially through social media.”

Fast forward to today and memes are an everyday part of our lives. They capture how we’re feeling, what’s happening around us and do what comedy does best – bring people together over laughter. 

Given that Google search listed above, we’re excited to have Eric Simon, better known by his social media handle The Broke Agent, join us as our featured guest for HousingWire’s virtual happy hour after we wrap up day one of the engage.marketing summit. 

Simon is the founder and CEO of The Broke Agent, which is a media brand focused on the entertainment of real estate professionals. 

Pause for laughs (these are pulled from @TheBrokeAgent Instagram account). 

Simon started his comedic journey at The Laugh Factory comedy club, working in marketing. But, like many people, his path eventually had to pivot, and he became a licensed real estate agent.  

As he sat at empty open houses, he craved a comedic outlet to unleash his inner monologue that came with the experiences, and The Broke Agent was born.  

From how to connect with your audience to understanding how to stay on top of social media trends in a fast-changing environment, this happy hour Q&A at engage.marketing should finally help you answer those fun but awkward questions. For example, do you need to get a tik tok?

We’re clearly still learning this meme world. So grab a glass and join us from some laughs!

Register here for engage.marketing on June 11-12.

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People movers: Realtor.com, ServiceLink and WFG Lender Services

Realtor.com has promoted its Senior Vice President of Product, Rachel Morley, to chief product officer.

With over two decades of experience in the industry, Morley held multiple positions at REA Group, which operates property websites domestically and throughout Asia, including Australia’s leading property website.

Morley also co-founded Cogent, a product development agency that works with start-ups and technology companies in Melbourne to create new products, including one that is now a critical part of the fight against COVID-19 in Australia.

“Since joining realtor.com, Rachel has proven herself as a leader, a visionary and an integral part of our product team,” said David Doctorow, CEO of Move, the operator of realtor.com. “We’re extremely excited to have Rachel lead our product strategy moving forward, continuing to evolve our consumer experience and advance realtor.com’s mission to make buying, selling and living in homes easier and more rewarding for everyone.”

Yvette Gilmore has been appointed to ServiceLink’s leadership team as its senior vice president of servicing product strategy.

Gilmore has over 20 years of experience leading servicer relationship and performance management efforts for leading Fortune 500 financial service organizations.

Before joining ServiceLink, Gilmore was at Freddie Mac for over a decade, where she held several leadership positions and most recently served as vice president of servicer relationship and performance management. Before joining Freddie Mac, she led the loss mitigation departments at IndyMac and Washington Mutual.

“ServiceLink prides itself on attracting the very best talent to provide our clients with world-class technology, products and services,” said Miriam Moore, default services division president for ServiceLink. “Yvette’s deep industry knowledge, experience, customer relationships and passion for innovation and process efficiencies will be an invaluable resource as we continue to deliver new innovative products and services to our customers.”

WFG Lender Services has announced that Jodi Bell has joined the company as vice president of national business development for the company’s Lender Services organization, expanding the company’s presence in and commitment to the mortgage lending market.

In her prior role as national sales executive for the past eight years, Bell oversaw the recruitment of new clients by designing more effective sales strategies to promote the company’s products and services. Prior to her role as national sales executive, Bell worked as vice president of business development for a San Diego-based national law firm.

“Jodi is a great fit for WFG,” said Dan Bailey, senior vice president at WFG Lender Services, in announcing the appointment. “She is known throughout the industry for her commitment to both customer service and having an operational understanding of the products and services she sells. It’s a way of ensuring she articulates specific benefits for each customer as a trusted resource.”

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Mortgage forbearances fall for the first time

The number of mortgages in forbearance declined this week for the first time since the start of the COVID-19 pandemic, Black Knight said in a report on Friday.

The number dropped to 4.73 million from 4.76 million in the prior week, the mortgage data firm said. Measured as a share of all mortgages, forbearances dropped to 8.9% from 9% in the prior week, according to the Black Knight data.

It was the first weekly decline since the CARES Act was enacted at the end of March. The CARES Act mandated that Americans with government-backed loans who were economically impacted by COVID-19 be provided with the option to suspend mortgage payments for up to 12 months.

“After rising sharply in April and then leveling off toward the end of May, the number of American homeowners in forbearance plans has now decreased for the first time since the crisis began,” said Black Knight CEO Anthony Jabbour.

About 7.1% of mortgages backed by Fannie Mae and Freddie Mac are now in forbearance, the report said. That’s 2 million mortgages with an unpaid principal balance of $420 billion.

About 12% of home loans back by the Federal Housing Administration and the Veterans Administration have suspended payments, Black Knight said. That’s 1.5 million home loans with an unpaid principal balance of $255 billion, the report said.

In addition, there are 1.3 million private-market mortgages in forbearance, representing a 9.6% share, Black Knight said. Private-market mortgages aren’t backed by a government agency or a GSE. They could be jumbo mortgages held by banks or home loans packaged into private-label bonds. The unpaid principal balance for those mortgages is $369 billion.

This week’s decline in the total volume of mortgages in forbearance will shift the attention of servicers.

“The decline is driving a shift in servicer focus from forbearance pipeline growth to forbearance pipeline management,” Black Knight said.

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Putting words into action: California brokerage cuts ties with Facebook over values

Independent California brokerage, Ashby & Graff Real Estate, pressed pause on its five-figure Facebook ad budget in January 2019. Recently, Ashby & Graff got rid of its Facebook business page entirely.

The brokerage released a statement on Monday in response to the death of George Floyd, mentioning “The inequity in housing is but a sliver of the injustices facing minorities in our country, but it is emblematic of the long-lasting impact of programs that were specifically designed to keep a group of people enslaved.”

Ashby & Graff’s CEO John Graff told HousingWire that the principles Facebook had didn’t apply to his company’s values.

“It was really years worth of actions by the social media company that forced us into this position of considering how we’re participating in such a problematic platform,” Graff said. “So, we ultimately decided in January 2019 to stop advertising there completely.”

“Just after more bad stuff recently [came] from Facebook, we just deleted all of our pages,” Graff continued.

Graff noted that he wanted to ensure the company’s actions align with values as responsible corporate citizens, especially given the real estate industry’s historical role in carrying out racist housing policies.

Graff continued to say that his move wasn’t based on politics.

“I don’t think that demanding the truth about the holocaust is political,” Graff said. “I don’t think that demanding black lives be treated with the same respect as white lives is political. I don’t think that insisting that publishers treat facts as facts is political. These are just things that we hope to be self-evident. I don’t think it’s taking a political stand, I think it’s just standing up for what should be basic human values.”

More leaders in the real estate industry need to speak out, Graff said, and particularly white leaders.

“Speak out on this,” Graff said. “We can’t leave it to the few black people who are in the real estate industry to make statements. We have to take that burden off of them and talk to fellow white people about this issue. Especially like I mentioned before, given the real estate industry’s ties to upholding racist housing policies and the lingering effects of those housing policies, it’s really, really important that leaders in this industry not just put out statements, but talk about concrete steps that they’re going to take to change the tone and direction of this conversation.”

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CFPB and CSBS issue statement on mortgage forbearance warning servicers on borrower guidance

The Consumer Financial Protection Bureau and Conference of State Bank Supervisors have issued a joint statement regarding forbearance as it relates to the CARES Act.

The three-page statement defines protections for borrowers with federally backed mortgages. Under the terms of the guidance, servicers must grant forbearance after receiving a request from a borrower citing financial hardship caused by the COVID–19 emergency.

While servicers cannot request information supporting the need for forbearance, the new joint statement declared they could “work with the borrower to better understand the borrower’s situation so long as (i) borrowers are not misled about the requirements of, or dissuaded from proceeding with, a CARES Act forbearance if they have a COVID-related hardship and (ii) any information obtained from the borrower has no bearing on the servicer’s provision of a CARES Act forbearance.” 

The forbearance period can last as long as two consecutive 180-day periods, and the statement advised servicers that they could “grant forbearance in separate, shorter increments than the 180-day period with borrower consent, but must extend those shorter periods unless agreed by the borrower with no further borrower attestation required.” 

Servicers cannot make the determination that a borrower meeting the conditions for a CARES Act forbearance is ineligible to receive this assistance, nor can servicers limit the amount of the forbearance that is given – even if the borrower is in delinquency.

The joint statement also warned servicers about enacting additional interest, fees or penalties “beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract.”

Servicers were also warned against steering borrowers away from forbearance requests.

“Examiners will evaluate communications between borrowers and their servicers, including the servicer’s communication of repayment options for legal compliance or resulting consumer harm,” the statement said. “A servicer that offers very limited repayment options when others are reasonably available could depending on the facts and circumstances, be at risk of legal violation or causing consumer harm.”

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Appeals court throws out $706 million jury verdict against Amrock, orders new trial

A $706 million jury verdict against Amrock in 2018 was tossed out on Wednesday by a Texas appeals court after it ruled the jury considered invalid legal theories.

The Fourth Court of Appeals in San Antonio ordered a new trial and said it wouldn’t decide on other arguments made during the appeal by HouseCanary, a real estate tech firm, and Amrock, formerly named Title Source.

“In light of our disposition of these issues, we need not consider the parties’ remaining arguments,” Justice Beth Watkins wrote in the decision.

Amrock, owned by Rock Holdings which also owns Quicken Loans, had contracted in 2015 with HouseCanary to develop an automated valuation model application for appraisers to use in the field. Amrock sued for breach of contract and developed its own software after it claimed HouseCanary failed to deliver the application.

HouseCanary countersued, claiming Amrock had stolen its intellectual property, formulas, algorithms, models, analytics, and collected a “critical mass” of HouseCanary’s proprietary data to use in its own application.

HouseCanary can retry its claims, the appeals court said. The court agreed with the jury that Amrock failed to prove its claim that HouseCanary didn’t deliver a working app, and said that part of the case can’t be retried.

Almost half of the court’s 26-page decision reviewed the trial evidence detailing Amrock’s alleged misconduct, before setting it aside to order a new trial based on errors in instructing the jury.

“The court’s ruling on technical objections to the jury charge does not undermine the strength of the evidence underlying our contract or tort claims,” HouseCanary said in a statement. “If one is needed, we welcome a new trial.”

Amrock’s attorney said she is looking forward to a new trial, as well.

“Amrock will be vindicated and a new jury will conclude that Amrock was never given, and never used, any of HouseCanary’s purported trade secrets,” said Catherine Stone of Langley & Banack, Amrock’s chief appellate litigator.

The jury’s 2018 award of $706 million in actual and punitive damages had grown to $740 million with the addition of interest and attorneys’ fees.

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[PULSE] Mortgage servicers are getting the short end of the stick under the CARES Act

Many of you have read about the power of the president to invoke the Defense Production Act to acquire products or direct the activities of suppliers based on a finding that it is necessary for the federal government to intrude into the commercial market for national security reasons. When the federal government uses this authority to acquire, or direct the production of, supplies (such as ventilators, N95 masks, and pharmaceuticals in the COVID-19 pandemic context), it uses contracts and negotiates, on an expedited basis, prices and terms.

In other words, the president can force a seller to disrupt its other customers’ orders to fill a government order as a priority. But the power is not absolute. It must pay for the products it procures on a priority basis. The federal government does not have to pay a premium, and the supplier may not seek to charge unjustifiably higher prices, but the federal government must negotiate the price and terms for the purchased products or supplies.

Laurence Platt
Guest Author

Mortgage servicers perhaps would fare better if their services were subjected to the Defense Production Act in order to address the global pandemic’s adverse impact on residential mortgage borrowers. At least then, servicers could seek to negotiate fair and timely compensation and reimbursement of advances in connection with their necessary role in implementing the Congressional mandate to provide forbearance for up to one year to residential mortgage borrowers with “federally backed mortgage loans.”

This term is defined in the Act to include residential mortgage loans purchased by Fannie Mae and Freddie Mac, as well as residential mortgage loans insured or guaranteed by the FHA, VA or the USDA’s Rural Housing Service. Instead, mortgage servicers are required to shoulder the short-term financial burden of the natural consequences of providing forbearance to such residential mortgage borrowers without, in the views of many, the benefit of just compensation from the federal government.

Let’s accept as a given the public policy rationale justifying the broad grant of forbearance to struggling borrowers in an economy pummeled by the effects of the pandemic with increasing levels of unemployment not seen since the 1930s. Some might quibble with or balk at the specifics — who should get a forbearance? For how long? Should the borrower be required to prove hardship in making mortgage payments due to COVID-19? How are forborne payments repaid? — all relevant questions that are being debated.

But the forbearance provisions under the CARES Act are now law, and the federal agencies whose loans qualify as “federally backed mortgage loans” have announced ever-evolving guidance to implement these statutory provisions and fill out the details. Moreover, the recently House-passed HEROES Act would extend this right to forbearance beyond federally backed mortgage loans to virtually all residential mortgage loans.

But the residential housing finance system is a complicated ecosystem that relies on the synchronization of several moving parts. The Congressional grant of forbearance does not occur in a vacuum — a  statutory deferral of regularly scheduled mortgage payments has ripple effects throughout the mortgage ecosystem.

In a private whole loan environment, the failure of a borrower to make a regularly scheduled mortgage payment generally means that the owner of the loan does not receive the missed payment, regardless of the reason. But in an agency mortgage-backed securities environment, the securities holder receives an amount equal to the fractional interest in the missed payment regardless of whether federal law excuses the borrower from making the payment.

Why? Because in the case of mortgage-backed securities guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac, mortgage servicers are required under their servicing agreements to advance the originally scheduled, regular monthly payments of principal and interest (or just interest in the case of Freddie Mac) to the securities holders, even though, as a result of the CARES Act, those payments can be forborne for up to one year and are no longer due and payable in accordance with the terms of the original loan documents.

If the servicers do not meet this advance obligation, the agency guarantee is triggered; the actual beneficial owner of the loan through its interest in a related mortgage-backed security receives its money either way.

This means that holding the proverbial bag — or at least initially bearing the economic risk of a borrower’s forbearance — is either the mortgage servicer advancing the forborne payments or the agency that steps in under its guarantee if the mortgage servicer does not meet its contractual advance obligation.

For the mortgage servicer, this economic risk is not necessarily a pure credit risk of loss, but rather more of a timing or liquidity risk; eventually the servicer will be repaid its advances, by subsequent mortgagor payments, mortgage insurance, or guaranty proceeds or reimbursement by the applicable agency investor.

Nevertheless, the mortgage servicer initially has to fund the advances and then wait and wait for the reimbursement. In a COVID-19 pandemic environment, this liquidity risk likely strains the resources of most non-bank mortgage servicers, not because they lack financial strength, but because the parties did not realistically contemplate the impacts of required forbearance for the significant number of loans impacted by the global pandemic in allocating the risks in the servicing agreements.

At least the mortgage servicers are getting paid for their services in connection with the wide-scale provision of forbearance and its aftermath. Well, not exactly. As we detail below, in fact servicers are not paid a servicing fee during the forbearance period and, depending on the investor, may not get paid at all. 

Below we provide more detail on servicing advance requirements and servicer compensation in the context of forbearance required to be provided under the CARES Act.

OBLIGATION TO ADVANCE

There are four major economic issues raised by this advance obligation.

  1. For how long is the servicer required to make principal and interest or just interest advances?
  2. When and how does the servicer get reimbursed for these advances?
  3. Is the servicer reimbursed for its cost of funds in making these advances?
  4. How does the servicer fund the advances?

Thankfully, the Federal Housing Finance Administration, the conservator of Fannie Mae and Freddie Mac, announced that servicers would have to advance principal and interest, in the case of Fannie Mae, and interest, in the case of Freddie Mac, for only four months of a forbearance, even though the forbearance could last for up to a year under the CARES Act. Four months is better than a year, but it still involves a lot of money as forbearance rates scale upwards towards the double digits.

But keep in mind that the servicer has no beneficial interest in the forborne loans on which it is advancing. It merely is a contract service provider where, for a fee (except as noted below), it administers the collection and remittance of mortgage loan payments and the enforcement of the mortgage loan documents. Ginnie Mae requires advances for so long as the forborne loan remains in the related pool, although the servicer may purchase the loan out of the pool (which also takes money) after 90 days and must repurchase a loan to be modified.

The Fannie Mae Servicing Guide and the Freddie Mac Seller-Servicer Guide address when and how the applicable agency reimburses the servicer for its four-months of principal and interest or just interest advances, although this information is hard, if not impossible, to find. As an interim or temporary measure, it appears that a servicer can reimburse itself for such advances from excess custodial funds due to full principal prepayments, but if there is insufficient excess the servicer has to come up with its own funds and wait for reimbursement.

It is likely that Fannie Mae will replicate its reimbursement policy for P&I advances for loans in forbearance in the same way that it handles delinquent loans following “reclassification” — namely, at the end of the four-month advancing period, as a credit against pool remittances.

On the other hand, although it is not clear in the Freddie Mac Seller-Servicer Guide, we understand that Freddie Mac does not reimburse interest advances until after a loan is worked out (including upon entering into a deferral plan) or liquidated, regardless of whether the advance obligation has ceased at 120 days, also as a credit against pool remittances.

Ginnie Mae does not reimburse the servicer for advances. Instead, reimbursement comes through mortgage insurance/guaranty claim proceeds subject to certain deductions outlined in the applicable regulations and, in the case of VA and the USDA’s RHS, the possibility of a permanent principal write down to align the claims payment with the fair market value of the mortgaged property. Claims are conditioned on foreclosure of the mortgaged property, although FHA has a process for earlier payments for “partial claims,” as does the RHS for “mortgage recovery advances.”

Fannie Mae, Freddie Mac, and Ginnie Mae do not reimburse a mortgage servicer for its cost of funds when making principal and interest advances. Maybe servicers are reimbursed indirectly by getting the float benefit on the funds in the custodial accounts, but there is no specific reimbursement for the actual cost of funds borne by mortgage servicers to make principal and interest advances.

Although they have done so in the past, neither Fannie Mae nor Freddie Mac provides servicing advance facilities to enable servicers to fund required advances. Nor has the Federal Reserve Board or Department of Treasury provided a mortgage servicing advance facility or guaranteed a private servicing advance facility.

Compare this to Ginnie Mae, which in March announced its “Pass-Through Assistance Program.” Under PTAP, Ginnie Mae provides short-term advance facility, as a last resort, to help servicers make advances resulting from the forbearance required under the CARES Act. But servicers that avail themselves of this option must execute a Supervisory Agreement as a condition to obtaining a PTAP line and must pay interest on the advances.

SERVICING COMPENSATION

Fannie Mae, Freddie Mac, and Ginnie Mae each provides for the payment of a servicing fee for servicing each pooled mortgage. The fee is based on, and payable only from, the interest portion of each monthly installment of principal and interest actually collected by the servicer on the mortgage. If no payment is collected from the borrower, then no servicing fee is payable to the servicer. If a loan subsequently reinstates, including through a modification, the servicing fee is once again payable on subsequent monthly payments.

But Fannie Mae does not ever pay the accrued but unpaid servicing fee during the forbearance period (or during a subsequent delinquency). Fannie Mae, I understand, is considering whether and how it may pay this accrued but unpaid fee. I have heard third hand that it may pay such accrued fees in the case of a payment deferral.

This is in contrast to Freddie Mac. In the case of a modification, the accrued but unpaid servicing fee is payable at the time of modification either as a credit against pool remittances or as a credit for reconciliation on the modification. I understand this to be true but cannot find a source for this in the Freddie Mac Seller-Servicer Guide. I have heard informally that Freddie Mac intends to treat servicing fees accrued during the forbearance period in the same way, and yet such credits could take up to a year to be realized by the servicer based on the borrower’s right to forbearance under the CARES Act.

Both Fannie Mae and Freddie Mac have publicly announced plans to pay a one-time, $500 incentive fee to a servicer upon entering into a payment deferral plan with the borrower and the borrower’s resumption of regularly scheduled monthly payments.

Ginnie Mae does not pay or cause to be paid accrued servicing fees. For FHA-insured loans, the servicer can reimburse itself from partial claims proceeds if the borrower qualifies for that option.  Neither the VA nor RHS presently has a partial claims process specific to forborne loans subject to the CARES Act, though both are considering. If the loan (regardless of type) reinstates and is eligible for re-pooling into a new Ginnie Mae MBS, the servicer indirectly can recover the accrued but unpaid servicing fees from MBS sales proceeds.

CONCLUSION

Given the economic pressure on servicers of “federally backed mortgage loans” subject to the CARES Act’s forbearance provision, some might argue that Congress and the federal agencies indirectly have deputized private mortgage servicers as if they were public resources to mute the impact of COVID-19 on residential mortgage borrowers.

Unlike government workers or government contractors, however, they are not getting paid for their services. OK, maybe the analogy to the Defense Production Act is imperfect. On one hand, like the Defense Production Act, the federal government essentially has used federal law, albeit a statute instead of an executive order, to marshal the resources of mortgage servicers to implement the forbearance provisions of the CARES Act and its natural consequences to address a national emergency. Yet, unlike the Defense Production Act, the federal government is not negotiating with the mortgage servicing industry to compensate it fairly for the increased costs to the servicers resulting from providing forbearance and its aftermath.

Mortgage servicers are getting the short end of the stick under the CARES Act. Unlike the decade-old financial crisis, it cannot be argued that the mortgage industry created the problem underlying the need for borrower relief. Rather, Congress unilaterally altered the original mortgage loan terms without requiring a borrower to demonstrate that the borrower needs the relief.

At their own cost, servicers have to fund advances of regularly scheduled payments of principal and interest or just interest to agency securities holders, unless there is sufficient excess custodial funds to fund on a temporary basis. They have to make these advances for four months of forbearances in the case of Fannie Mae and Freddie Mac, and even longer in the case of Ginnie Mae unless they utilize Ginnie Mae’s early pool buy-out options. They do not get reimbursed on a real time basis, having to wait for months to be repaid. And all the while, they are not being paid a servicing fee for the privilege. At the same time, servicers are subject to a constant barrage of criticism from virtually all corners that they are not providing enough staff and resources (for free) to help borrowers through their financial hardships.

Again, there is nothing really new about much of this servicing compensation paradigm. The difference is the scale of the obligation and the magnitude of the economic effects on the servicer as a result of federal statutory mandate to provide forbearance to borrowers for up to a year.

It is unlikely that any mortgage servicer thought it was signing up for these economic obligations and risks when it became an approved participant in the Ginnie Mae, Fannie Mae, and Freddie Mac single-family home loan programs as a mere service provider. Mortgage servicers are essential businesses in the effort to protect borrowers from the financial hardship due to COVID-19. The problem is that, in many ways, they are doing it on their own nickel. Where is the fairness in that?

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The mortgage industry’s united effort to combat COVID-19

From the frontlines to front porches, the mortgage industry has quickly found ways to support those impacted by the COVID-19 pandemic. 

The devastating consequences of the virus reached many parts of the housing industry, and most notably, the ability to call a place home, as the record number of job losses and forbearance requests show people’s fight to be able to stay in their houses.

One of the few things that nearly all people in our industry can agree on is that everyone is working toward the same mission – supporting the American dream.

COVID-19 efforts

But to continue to support that dream, everyone has to unite together in the fight against the global pandemic. Here are only a handful of the many initiatives that the industry has introduced to help aid the relief efforts. 

EasyKnock

Proptech platform EasyKnock announced it established a nonprofit to aid struggling homeowners stay in their homes, as the recent economic disruptions caused by COVID-19 have the potential to significantly displace families.

Created by Jarred Kessler, CEO of EasyKnock, the company stated that its new nonprofit, The Stay Mission, was introduced to help families at risk of losing their homes due to evictions or foreclosure filings. Looking at the long-term impact of coronavirus, The Stay Mission’s goal is to help the millions of Americans that could be out of work or underemployed.

“We’re living in unprecedented times,” Kessler said. “Due to this pandemic, more and more Americans are behind on their mortgage or rent payments and struggling to keep a roof over their heads. Through the launch of our nonprofit, we hope to do our part to ease the burden on American homeowners.”

For this year alone, The Stay Mission plans to donate $100,000 to charity partners and also has a larger goal of donating $1 million over the course of 5 years. The nonprofit plans to partner with four to five organizations that align with its goals 

Veterans United Home Loans

Sending support to the same people it serves, Veterans United Home Loans launched #HereForOurHeroes, an initiative that offers people a way to share encouraging messages to those working on the frontlines. These frontline workers include National Guardsmen, first responders, healthcare workers and other military personnel who are helping in the COVID-19 relief efforts.

Personalized messages that were submitted online were printed on postcards and sent with Operation Gratitude care packages. To financially support Operation Gratitude, the VA lender also pledged $250,000 for care packages shipments to 50,000 military COVID-19 frontline responders. 

Operation Gratitude is a nonprofit that is dedicated to forging strong bonds between Americans and their military and first responder heroes through volunteer service projects, acts of gratitude, and meaningful engagements in communities nationwide. According to the nonprofit, every year they send more than 300,000 individually addressed care packages to soldiers, sailors, airmen, marines and coast guardsmen deployed overseas, to their children left behind, and to first responders, new recruits, veterans, wounded heroes and their caregivers. 

“Since 1636, Guardsman have stood at the ready assisting citizens across the United States,” said retired Chief Master Sgt. Denise Jelinski-Hall, 3rd Senior Enlisted Advisor National Guard Bureau. “Today, they stand again on the frontlines in the fight against the COVID-19 pandemic. Receiving a letter of gratitude shows Guardsmen how much they’re valued and appreciated.”

Spc. Tamisha Isidore, a native of Pointe à la Hache with the 1st Battalion, 141st Field Artillery Regiment, reads a letter as a part of her Operation Gratitude bag, New Orleans, Louisiana, April 28, 2020. More than 1,200 bags, containing comfort items, have been packed and sent to 25 sites around the state for troops who have been away from home for nearly six weeks to slow the spread of COVID-19and provide relief those in need. (U.S. Army National Guard photo by Staff Sgt. Josiah Pugh)

Ellie Mae 

Like many other companies, Ellie Mae was forced to pivot its annual conference, Ellie Mae Experience, adjusting to a new, virtual way of conducting conferences and networking opportunities. However, while the company had to redesign its plans for the conference, it didn’t abandon the various initiatives that it created to give back during the in-person event. It simply adjusted how it would look. 

The first initiative wasn’t COVID-19 focused, but it would’ve brought many smiles to those who attended, lightening the mood as the virus surely would have been at the forefront of every conversation. 

For its event, Ellie Mae partnered with Pawsome, an organization that was going to bring in therapy dogs for all the attendees. Not only did Ellie Mae remain committed to its financial donation to the organization, but it also donated all of the pet gear, such as leashes, dog bowls and dog beds intended for attendees to a local humane society.

On top of bringing in therapy dogs, Ellie Mae not only delivered on its original plans to help frontline workers, but it created additional ways to give back. Based in California, the first state to declare a stay-at-home order, Ellie Mae found new ways to give back to the community, using its platform and the conference to unite people together in the cause.

The company was prepared for 3,000 to 4,000 people to all be together in one place, meaning they had a surplus of resources like hand sanitizers and masks that are extremely important during a pandemic. Since all the supplies were shipped to the company’s headquarters in Pleasanton, Calif., it gave them the opportunity to reach out to their community and find the places that really needed supplies. 

Those masks were also not the only masks that Ellie Mae had on hand. Since they have two very large office buildings on their campus, as a normal precaution, they have a supply of masks in the event that there could be a fire. 

Given the shortage of masks available for frontline workers, the company assessed their internal supplies for the exact number they would need for when they return to take care of their employees, but everything else they donated to one of the hardest hit areas in the Bay Area, Santa Clara, giving their supplies to a hospital in the epicenter of the city’s coronavirus fight. 

Looking at Ellie Mae’s redesigned Virtual Experience 2020 conference, they even found ways to include additional relief efforts at the virtual conference and after. 

After reading stories every day about first-line responders who don’t have enough personal protection equipment to get by, Ellie Mae said it would donate $10 for every person that attends Virtual Experience to GetUsPPE.org. The organization’s mission is to help communities get personal protective equipment to healthcare providers on the frontlines of the COVID-19 pandemic.

Then after the conference, Ellie Mae said it would stay true to its commitment to Operation Gratitude, the nonprofit organization whose mission is to connect Americans and their military and first responder heroes. Once the company is back in the office, they’re going to make sure that they make good on that promise, creating the welcome packets and donating them to Operation Gratitude.

“A cornerstone of who Ellie Mae is and how we were founded was with a very philanthropic culture,” Ellie Mae Chief Operating Officer Joe Tyrrell said. “Every year we’re doing something through our Ellie Cares initiative, whether it’s helping military families or Habitat for Humanity. 

Commenting on the company’s decision to donate to frontline works, Tyrrell said that it’s true to who they are as a company. 

“Anything we can do to give back to the people that are really making big sacrifices during this time, we’re going to try,” he said. 

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