Where is mortgage money going to come from?

David Goldsmith

All Powerful Moderator
Staff member

Private-label MBS market facing strong headwinds​

Rate volatility and Fed policy proving to be a drag on nonagency mortgage-backed securities issuance

The pace of mortgage-backed securities (MBS) issuance in the nonagency market slowed considerably in July and August as rising interest rates and Federal Reserve MBS-purchase policy have combined to dampen the momentum exhibited in the private-label space in 2021 and over the first half of this year.
In July and August of this year, there was a total of 25 residential mortgage-backed securities (RMBS) deals secured by mortgage pools valued at $8.3 billion, according to nonagency RMBS offerings, both prime and nonprime, tracked by the Kroll Bond Rating Agency (KBRA). That’s less than half the volume of private-label securitizations tracked by KBRA over the same two-month period in 2021, when there was a total of 44 RMBS transactions backed by loan pools valued at $19.4 billion.
The nonagency share of the MBS market just prior to the housing market crash some 15 years ago exceeded 50% — with the balance being MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae, or agency issuance. By 2012, in the wake of the global financial crisis, private-label MBS market share had shrunk to 1.83%.

The nonagency share of the market has been rising slowly since then, reaching 4.32% in 2021, according to recent analysis by the Urban Institute’s Housing Finance Policy Center. Last year “was the largest year of nonagency securitization since 2008,” the Urban Institute’s report continues.
That trend accelerated over the first half of this year, with the nonagency share reaching 6.52%. The frenetic pace of growth in nonagency issuance has since slowed, however, due to a variety of market pressures — chief among them the contraction of mortgage originations in the face of fast-rising interest rates.
“In August 2021, the 30-year fixed-rate mortgage rate stood at approximately 2.75%,” a recent KBRA report on the nonagency RMBS market states. “Less than one year later, in June 2022, the rate reached 5.8% ….
“In late July 2022, mortgage application rates had fallen for the fourth consecutive week, pushing the MBS mortgage application to its lowest level since February 2000.”
Despite these headwinds, year to date through August of this year, overall issuance volume in the nonagency MBS space is still up slightly over the same period in 2021.
KBRA’s data, based on the deals it tracks, shows a total of 141 RMBS offerings came to market through August of this year backed by mortgage pools valued at $63.1 billion. That compares to 135 RMBS offerings backed by loans valued at $57.1 billion over the same period in 2021.
Declining mortgage originations in the face of rising rates is not the only impediment to nonagency MBS issuance going forward, however. The Federal Reserve’s pullback from the MBS-purchase market — as it pursues a policy of quantitative tightening to fight inflation — also is creating pricing pressures for MBS issuers, compounding pressures sparked by volatile rates.
The [Federal Open Market Committee] intends to reduce the Federal Reserve’s securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested …,” the Board of Governors of the Federal Reserve said in a recent statement explaining its policy.
The Fed capped monthly MBS runoff of its $2.7 trillion MBS portfolio over the past three months at $17.5 billion. That cap doubled starting in September, meaning the central bank going forward will now allow up to $35 billion per month in MBS to roll off its balance sheet as the securities mature.
“The additional MBS supply the central bank will allow to roll off from its portfolio and hit the market this month [September] is estimated between $20 and $25 billion,” states an analysis by financial advisory firm Mortgage Capital Trading. “This [rate of runoff] will necessitate private investors to absorb about $250 billion in additional supply per year over the next decade.
“Mortgage spreads widened toward the end of August [an indicator of an increased perception of risk] as a result of investors beginning to take the Fed seriously. Should the Fed decide to speed up the process and begin to actively sell mortgages off its balance sheet (again, not likely), it will be the [MBS] production coupons from the past few years that will bear the brunt of it.”
The Fed’s pullback from the MBS market and the additional MBS supply now available for sale, primarily agency MBS, creates pricing pressures for MBS issuers generally. In addition, in a rising rate environment such as the one we are experiencing, MBS pricing is subject to something known as “negative convexity” — which is the tendency for MBS prices to decrease at an increasing rate as interest rates rise.
The 30-year fixed mortgage rate averaged 5.89% this week, up from 5.66% the prior week, according to the most recent Freddie Mac Primary Mortgage Market Survey (PMMS).
“Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation,” said Freddie Mac Chief Economist Sam Khater, reacting to the release of this week’s PMMS survey results.
Interest rate stability offers the best environment for MBS performance. That stability, so far this year, has been elusive.
KBRA’s RMBS report notes that hard times in the mortgage industry, such as the existing environment, will require mortgage originators to adapt or face the prospect of failure.
“Industry headlines have trumpeted layoffs at large bank originators like JPMorgan Chase, Flagstar, and Wells Fargo, as well as many more nonbanks,” the KBRA report states. “Some companies have shut down entirely, such as Sprout Mortgage, or filed for bankruptcy protection, as is the case for First Guaranty Mortgage Corporation.
“As has been the case over the past 30 years, lenders will continue to fail for various reasons, particularly in challenging economic environments and when they are dependent on external funding.”
Still, unlike the lax underwriting environment that accompanied the housing-industry crash earlier in the century, KBRA said the mortgages that are being originated today are vastly superior in credit quality overall, which bodes well long-term for the health of the mortgage-securitization market as well — once some market stability is achieved and investor confidence is bolstered.
“Originators’ legal and reputational liabilities have increased, as have pre-securitization loan-quality verification procedures,” the KBRA report stresses. “In KBRA’s view, while lender failures will continue, the RMBS market has many features that reduce the correlation between lender failure and future loan performance.”
 

David Goldsmith

All Powerful Moderator
Staff member
Homeowners switching to more risky home equity loans as mortgage rates rise.

CalculatedRisk Newsletter



Mortgage Equity Withdrawal Still Strong in Q2​

Homeowners now relying on Home Equity lines to extract equity​


CalculatedRisk by Bill McBride
Sep 12
21



Refinance activity declined sharply this year as mortgage rates increased, and I was expecting MEW to also decline in Q2 as fewer homeowners used cash-out refinancing. However, homeowners have switched to using home equity loans (2nd loans) to extract equity from their homes. From Black Knight:
While withdrawals via cash-out refinances fell by 30% from Q1, preliminary data from the Black Knight home equity database suggests home equity lending was up nearly 30% quarter over quarter, the largest volume in nearly 12 years


Quarterly Increase in Mortgage Debt

Here is the quarterly increase in mortgage debt from the Federal Reserve’s Financial Accounts of the United States - Z.1 (sometimes called the Flow of Funds report) released on Friday. In the mid ‘00s, there was a large increase in mortgage debt associated with the housing bubble.



In Q2 2022, mortgage debt increased $263 billion, the most since 2006. Note the almost 7 years of declining mortgage debt as distressed sales (foreclosures and short sales) wiped out a significant amount of debt.

However, some of this debt is being used to increase the housing stock (purchase new homes), so this isn’t all Mortgage Equity Withdrawal (MEW).

Mortgage Debt as a Percent of GDP

The second graph shows household real estate assets and mortgage debt as a percent of GDP. Note this graph was impacted by the sharp decline in Q2 2020 GDP.



Mortgage debt is up $1.46 trillion from the peak during the housing bubble, but, as a percent of GDP is at 48.9% - up slightly from Q1 - and down from a peak of 73.3% of GDP during the housing bust. This means most homeowners have large equity cushions in their home, and some MEW is not a concern.

Calculated Risk Estimate of MEW

The following data is calculated from the Fed's Flow of Funds data and the BEA supplemental data on single family structure investment. This is an aggregate number and is a combination of homeowners extracting equity - hence the name "MEW" - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

For Q2 2022, the Net Equity Extraction was $169 billion, or 3.65% of Disposable Personal Income (DPI). The last year has shown a sharp increase in equity extraction compared to recent years, but the level is nothing like the amount of equity extraction during the housing bubble as a percent of DPI. During the housing bubble we saw several quarters with MEW above 8% of DPI.



This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method. MEW was negative for a number of years but has picked up again following the onset of the pandemic.

The bottom line is, despite the recent increase in MEW, it is far less as a percent of disposable personal income than during the bubble, and most homeowners have substantial equity. However, the “Home ATM” is still open with homeowners now relying on Home Equity lines to extract equity.
 

David Goldsmith

All Powerful Moderator
Staff member
https://amp.mortgagenewsdaily.com/article/6320da121913baa4f366c26

Rates Jump a Quarter Point Instantly After Key Inflation Report; Now Back to 14-Year Highs​

Rates Jump a Quarter Point Instantly After Key Inflation Report; Now Back to 14-Year Highs

Mortgage rates were already in the vicinity of the highest levels in 14 years. With large day-to-day swings being extremely common these days, we were only ever one bad day away from making it back to those highs. Today was one of those days!
The culprit was at least well known and well understood, both before and after it had its impact on rates. This morning brought the scheduled release of August's Consumer Price Index (CPI), a key inflation report that has proven to have more power than any other inflation metric when it comes to creating volatility in rates.
In other words, we already knew that rates would be headed higher if today's inflation data came out higher than expected, and that's exactly what happened. In fact, the actual number beat forecasts by much more than the normal gap between reality and forecasts. It's common to see a deviation of 0.1-0.2%, but today's was 0.3%.
Bonds dislike inflation for a variety of reasons. There are broad, practical reasons involving the impact inflation has on bondholders' returns, but there are also timely, tactical reasons. The latter is a reference to next week's Fed announcement. The Fed's job is to fight inflation and one of the ways it does that is to hike its policy rate.
See Rates from Lenders in Your Area
The Fed Funds Rate isn't the same as a mortgage rate, but higher Fed Funds Rate expectations tend to push mortgage rates higher. Bottom line: markets now expect the Fed to discuss an even bigger rate hike next week and the bond market is pricing in that possibility today.
The average mortgage lender is back up into the lower 6's for conventional 30yr fixed loans. Quotes vary widely depending on the scenario and the presence of upfront costs and discount points. It continues to be the case that many loans require more upfront cost than is historically normal due to the current landscape of mortgage bond pricing.



© 2022 - Mortgage News Daily
 

David Goldsmith

All Powerful Moderator
Staff member

The Fed Stopped Buying MBS Today.​

The purpose of MBS purchases was to repress mortgage rates and inflate home prices. That process has already started to reverse.

A date for history: Today, September 15, the Fed stopped buying mortgage-backed securities altogether. It had been tapering its purchases since late last year. Since June, when the phase-in of QT started, it still purchased MBS to replace some of the pass-through principal payments from mortgage payoffs and mortgage payments that reduced the balance of its MBS faster than the cap of $17.5 billion. The idea was to keep the run-off of MBS within the cap of $17.5 billion in June, July, and August. But this circus is finally over.
On today’s release of scheduled purchases, which is published every two weeks on Thursday by the New York Fed, there were zero MBS purchases scheduled:
US-Fed-Balance-sheet-2022-09-15-MBS-schedule.png

The Fed’s final trade in MBS.​

Yesterday, September 14, the Fed conducted its final purchase of MBS. The Fed bought $387 million in MBS in the To Be Announced (TBA) market, which is a minuscule amount by the Fed’s standards. It went out with a whimper, so to speak.

This is a screenshot of the trade that the New York Fed posted on its website. I underlined the operation date (Sep 14) and the settlement date (Oct 20):
US-Fed-Balance-sheet-2022-09-15-MBS-trade.png

Trades in the TBA market settle after one to three months. As you can see in the image of the trade info above, this particular trade will settle on October 20.
The Fed books these trades when they settle. So, it will book this trade on October 20, which is a Thursday. Its weekly balance sheets are always as of Wednesday evening, and are published on Thursday. This trade will show up on the next balance sheet after October 20, which is the balance sheet to be released on October 27.
So halleluiah, the balance sheet on October 27 will show the final purchases of MBS. And then it’s over.

A trickle of trades haven’t settled yet.​

The MBS that were purchased over the past two months will still trickle into the weekly balance sheet until October 27.
This includes a batch of MBS trades that the Fed conducted on July 25 and that settled on September 14, and that showed up on today’s balance sheet. Here is one of the trades that settled yesterday and was included today:
US-Fed-Balance-sheet-2022-09-15-MBS-trade-settlement.png

In total, $9.2 billion in MBS trades showed up on the balance sheet today. It is these trades, when they settle, that cause the balance of MBS to rise in the jagged manner.
MBS come off the balance sheet mostly through pass-through principal payments. When the underlying mortgages are paid off because a home is sold or a mortgage is refinanced, or when regular mortgage payments are made, the principal portion is forwarded by the mortgage servicer (such as your bank) to the entity that securitized the mortgage (such as Fannie Mae), which then forwards those principal payments to the holders of the MBS (such as the Fed).
The book value of the MBS shrinks with each pass-through principal payment. This reduces the amount of MBS on the Fed’s balance sheet.
These pass-through principal payments are uneven and unpredictable, and do not match the purchases in the TBA market. So the MBS balances form this jagged line of increases when TBA purchases settle, and the decreases when the pass-through-principal payments come off.
The upticks are the purchases from one to three months ago, when the Fed was still phasing in QT and was still purchasing MBS to replace pass-through principal payments. The downticks are the pass-through principal payments. Sometimes both coincide, and the net moves are smaller:
US-Fed-Balance-sheet-2022-09-15-mbs-.png

The last time the Fed did QT Nov 2017 – Feb 2020.

During the last episode of QT, the Fed shed MBS from November 2017 through February 2020. The chart below shows this phase of the MBS reduction. During the phase-in, it took about three months before the first declines became recognizable. QT back then was much slower, and the phase in was much longer, than in the current era of QT.
Note how the upticks essentially vanished as the Fed bought fewer or no MBS to maintain the cap of the runoff, and the line smoothened out on the way down:
US-Fed-Balance-sheet-2022-09-15-MBS-QT_2017_2020.png

Going to zero?

Going forward, after October 27, 2022, after the last MBS purchases have shown up, the upticks will disappear, and the line will smoothen as it heads down. But this time, the decline will be steeper and faster.
The Fed has said many times over the years that it wants to get rid of its MBS entirely, and that it wants only Treasury securities as assets. So if everything goes according to plan, the MBS balances will go to zero. And this might require that the Fed starts selling MBS outright later in the process to supplement the pass-through principal payments. The Fed has already put this option on the table.
The entire episode of MBS on the Fed’s balance sheet started in late 2008, when the Fed for the first time started buying MBS as part of QE-1. By the peak in April, 2022, the Fed had $2.74 trillion in MBS on its balance sheet.
The purpose of MBS purchases was to repress mortgage rates and inflate home prices. That process has already started to reverse.
US-Fed-Balance-sheet-2022-09-15-MBS-long.png
 

David Goldsmith

All Powerful Moderator
Staff member
‘Some companies are closing their doors, others are shutting down divisions’: Rocket CEO outlines plans to navigate the dramatic decline in mortgages

Rocket, which owns Rocket Mortgage, Rocket Money and more, is planning to diversify its approach to reach more consumers in the face of weak demand.

The mortgage industry is struggling with higher rates and a sharp drop in buyer demand. Rocket RKT says it’s got a plan to turn things around.

There’s turmoil in the sector. Volume of originations and refinances has plunged. The Market Composite Index, a measure of mortgage application volume, fell to 255 in the week ending Sept. 9. A year ago, the index stood at 707.9.

Buyers — and sellers too — are hesitant. And that’s pushed lenders to take steep cuts.

“The way this business works is that sometimes, too much capacity is put into the system, and that’s exactly what happened in 2020 and 2021,” Jay Farner, CEO of Rocket Companies, a Detroit-based group that is one of the nation’s largest mortgage lenders, told MarketWatch.

“It can be painful … some companies are closing their doors, others are shutting down divisions of their companies. Others are doing layoffs,” Farner added. “Unfortunately, that’s part of the process — that capacity comes out.”

But Rocket is trying to hold steady amid the storm. It’s pushing deeper into its recent acquisition of a personal-finance app; it’s competing hard among its peers to win over customers; it’s trying to improve efficiency.

“All of those things will give us the opportunity to increase conversion and grow market share,” Farner said.

Rocket, which owns companies like Rocket Mortgage, Rocket Money, Rocket Solar, and more, went public during the pandemic in early August 2020 on the New York Stock Exchange. It raised $1.8 billion, offering $18 a share to interested investors. (It even became a meme stock at one point.)

But after two years of stellar performance, alongside the rest of the sector, the company is recuperating from damages sustained from a storm caused by higher rates and falling buyer demand. The stock was trading below $8 a share on Monday.

Rates are up from 3.16% this time last year, to 6.02% in mid-September, according to a weekly survey by Freddie Mac. The massive drop in sales and the sector more broadly has led to some experts calling it a “housing recession.”

Many lenders are laying off staff, from banks like Citi C to JPMorgan Chase JPM
and startups like Better. Some smaller outfits have even shut down fully, like Reali, a real-estate tech startup, and Sprout Mortgage. Plano-based First Guaranty Mortgage Corp filed for Chapter 11 bankruptcy.

Rocket and its non-bank peers have a sizable share of the market, at about two-thirds of mortgages, Inside Mortgage Finance said.

Unlike traditional banks, customers can’t open checking or savings accounts at a non-bank lender. And unlike banks that fund loans with their own customers’ deposits, non-banks borrow money from capital markets to offer mortgages to borrowers.

When rates went back up to 2008 levels, these non-bank lenders were stuck. Mortgage demand is down by nearly 30% from the same time last year.

“The monthly mortgage payment has increased about 60% compared to a year ago,” Nadia Evangelou, senior economist and director of forecasting at the NAR, said in a statement.

For the buyer, affordability has seriously worsened. Back in April 2021 when rates were at 3%, the annual income needed to buy a home at median price at $340,700 was $79,600, researchers at the Harvard Joint Center for Housing Studies said on Friday.

In July 2022, with a rate of 5.41%, and that median price rising to $403,800, the annual income needed for someone to afford a home would be $115,000.

The massive drop in sales and the sector more broadly has led to some experts calling it a ‘housing recession.’

Consequently, buyers are fleeing the market. And Rocket hasn’t been spared: In April and August, the company trimmed its workforce in response to the drop in business.

In the second quarter, the company reported total revenue of $1.4 billion, down from $2.7 billion in the first quarter. Net income was $60 million in the second quarter, down from $1 billion in the first quarter.

For Rocket RKT , the heat is on grab a bigger piece of the pie, Farner said.

“You got a market that was about $4 trillion in mortgages. And now you’re gonna have a market that’s going to be $2 trillion or so, give or take,” he said.

It may have shrunk, but “that’s still a huge market,” Farner added. And he’s looking to increase market share.

Rocket’s market share is about 6.4% currently, Inside Mortgage Finance said, which is the largest among all banks and non-banks, as of the first quarter of this year.

“2020, 2021 were the highest volume years ever,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, told MarketWatch. “During the pandemic, lenders really struggled to hire to fill their openings … we were hearing about seven figure sign-on bonuses for high producing officers.”

In April and August, Rocket trimmed its workforce in response to the drop in mortgage business.

A mortgage advisory firm, Stratmor Group, said one lender referred to them as “monster signing bonuses.”

But after rates went up and business dried up, capacity needed to be reduced “to right-size the whole industry,” Fratantoni added.

With the Federal Reserve set to hike rates further, which is likely to push mortgage rates even higher and pressure the business, mortgage companies have been embarking on efforts to be more competitive and entice buyers.

Last Friday, Rocket announced its ‘Inflation Buster’ program, which offers to shave off one percentage point off a buyer’s mortgage for the first year of their loan.

In other words, if a buyer takes out a 6% mortgage, Rocket is offering 5% for a year. That saves a buyer who’s taking out a 30-year mortgage at 5.75% for a $400,000 home nearly $3,000 in that first year.

It also took over mortgage originations from Santander Bank SAN , as the company exited the U.S. mortgage market. Rocket recently spent $1.3 billion on. the acquisition of Truebill, a personal-finance app.

The acquisition of Truebill, now rebranded as Rocket Money, is another move to try to deepen its connection with customers, the CEO said, and offer more targeted products, without excessive paperwork.

Rocket Money has access to consumers’ credit information, with their permission, which makes monitoring financial health a lot easier, he said. “Updating the data will allow us to get to a place where we can have them mortgage ready at any moment in time,” Farner said.

There will be stiff competition for those who do wish to take out a mortgage, experts say. And there are still a lot of cuts to come, based on Fratantoni’s estimations. Now that refinancing has dropped off, with rates more than double what they were a year ago, margins are shrinking for lenders, he said.

Expect employment in the mortgage industry to drop by 20% to 30%, Frantantoni added. As of the second quarter, lenders had only trimmed 2% to 10% of their workforce.

Others say the drop in activity was something of a wake up call for the industry. “The economy hasn’t fallen apart,” Melissa Cohn, regional vice president at William Raveis Mortgage, told MarketWatch. “It’s just that the mortgage business was too big.”
 

David Goldsmith

All Powerful Moderator
Staff member
https://amp-mortgagenewsdaily-com.c...ewsdaily.com/article/6333379386261187e534118f

Yes, Mortgage Rates Are Now Over 7%, But It's Complicated​

Yes, Mortgage Rates Are Now Over 7%, But It's Complicated

It's no mystery that mortgage rates have been moving relentlessly higher in 2022. But how high is high? That will depend on a number of factors, including:
  • The date and time of day of the quote (things change quickly)
  • The lender in question (different lenders have slightly different pricing and can have vastly different quoting practices)
  • The specifics of the scenario (loan-to-value ratio, loan purpose, credit score, etc)
  • The presence of "points" and other upfront costs in the rate quote.
For our purposes today, we're mainly focused on the presence of points and, to a lesser extent, the variations between lenders. As always, any rate you see in a major rate index or survey will assume essentially no "hits" (no upward adjustments to the rate or the upfront costs due to the particulars of your scenario).
The same is true of our daily rate tracking, which is now over 7%. But it's important to note that you may or may not actually see a rate quote of over 7%. To truly understand why, you'd need a basic understanding of how mortgage-backed securities (MBS) translate to mortgage rates (there's a primer for that).
See Rates from Lenders in Your Area
If you don't click the primer, here's an attempt to distill a tome into a paragraph: MBS are bonds comprised of multiple mortgages. They're offered in 0.5% increments called coupons. Each coupon is like a bucket that can contain a certain range of mortgage rates with +1.125% being the upper limit.
In other words, an MBS coupon of 6.0 would be required for a mortgage rate of 7.125 (6.0 MBS coupon +1.125%). A 5.5 MBS coupon could not facilitate rates any higher than 6.625% (5.5 + 1.125).
The problem is that 6.0 MBS coupons only existed in the history books up until last week. Even then, it takes a tremendous amount of time and market stability for new coupons to be liquid (i.e. to have plenty of buyers and sellers, thus making the true price very apparent at any given moment).
Mortgage lenders rely on MBS prices as the key ingredient in determining rates. But the liquidity problems mean lenders can't know exactly how to price rate quotes near 7% (because the MBS price that determines what they can offer is a moving target). Not only that, but MBS prices in general are not offering "premium." That's an amount above and beyond the principal balance of a loan that an investor pays in exchange for earning more interest over time. When rates are stable, premium allows lenders to cover many of the upfront costs that mortgage borrowers are presently surprised to be encountering.
That brings us to the bottom line on 7% not necessarily being 7%. Most rate quotes and most major rate indices include upfront "points" or other cost assumptions (and in larger amounts than normal). The presence of points means you could definitely still get 6.625% today. You'd just be paying more for it upfront.
In fact, for some lenders, that's your best bet because you'd actually be paying MORE for a higher rate! Yes, this seems crazy, but again, rates are based on MBS prices, and if investors are paying more for a 6.625% mortgage than 7.125%, the former will be a better deal. This isn't the case at every lender because different lenders "guess" at the moving target of those higher coupon MBS (the stuff that isn't liquid yet, thus making true price discovery a guessing game).
The presence of points in mortgage rate quotes is problematic--especially in the last 6-9 months as the value of a point exploded from 0.25% in rate to 0.5-.75% in rate depending on the day and the lender. A rate quote of 6.625% with 1 point is conveyed as "6.625%" in headlines, but that extra point represents extra interest expense the same way a higher rate would. There are different ways to translate points to rate, but based on the average value of a point at the average lender, a "no point" rate would be over 7% today.
 

David Goldsmith

All Powerful Moderator
Staff member

Housing Market Update: Typical Homebuyer’s Mortgage Payment Up 15% Since Mid-August​


Sellers should adjust their price to stay competitive as mortgage rates approach 7%.​

The typical homebuyer’s monthly mortgage payment has climbed $337 (15%) over the past six weeks to a new high of $2,547. The extreme volatility and recent surge in mortgage rates has caused many potential homebuyers to delay or cancel their plans to purchase a home altogether. Pending sales dropped to their lowest level since January, and the share of homes sold above list price fell to its lowest level in over two years.
Homeowners are increasingly reluctant to enter the market as mortgage rates approach 7%. Even though new listings are down to their lowest level since February, months of supply (active listings divided by closed sales—the lower the level, the stronger the seller’s market) has been growing quickly, reaching three months for the first time since July 2020. This means that more homes are lingering on the market because they are undesirable and/or overpriced, so it’s no surprise that the share of home sellers dropping their price reached its highest level on record, at least since 2015 when Redfin began tracking this data.
“It’s imperative for home sellers to react quickly and aggressively as the market turns,” said Senior Vice President of Real Estate Operations Jason Aleem. “This means adjusting your pricing immediately if you want to be competitive and attract offers from a smaller pool of qualified homebuyers. If your home isn’t the ‘belle of the ball’ in your neighborhood, you’re going to need to cut the price to sell it.”
“It’s important to remember that much of the housing market data and neighborhood comparables being reported are based on home purchases that were agreed to a month or more ago when mortgage rates were a point and a half lower,” said Redfin Deputy Chief Economist Taylor Marr. “Sellers should anticipate that buyers are unwilling or unable to pay a price similar to what their neighbor’s home sold for a month ago, and buyers should connect with their lenders to find ways to mitigate the impact of rising rates. This could include paying upfront to lock in a rate, switching to an ARM and tightening your budget so you don’t end up with a monthly mortgage payment that’s a stretch to afford in the months to come.”

Leading indicators of homebuying activity:​

  • For the week ending September 29, 30-year mortgage rates rose to 6.7%, their highest level since July 2007.
  • Fewer people searched for “homes for sale” on Google. Searches during the week ending September 24 were down 33% from a year earlier.
  • The seasonally adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents—was down 13% year over year and fell below the level at the same time in 2020.
  • Touring activity as of September 25 was down 18% from the start of the year, compared to an 8% increase at the same time last year, according to home tour technology company ShowingTime.
  • Mortgage purchase applications were down 0.4% week over week, seasonally adjusted, and were down 29% from a year earlier during the week ending September 23.

Key housing market takeaways for 400+ U.S. metro areas:​

Unless otherwise noted, the data in this report covers the four-week period ending September 25. Redfin’s housing market data goes back through 2012.

Data based on homes listed and/or sold during the period:​

  • The median home sale price was $369,250, up 7% year over year. Prices have climbed 1% since the beginning of the month, after 11 weeks of declines.
  • Home sale prices in San Francisco fell 4% year over year. Neighboring Oakland, CA, where prices fell 0.5% and New Orleans (-11%) were the only other metro areas that saw year-over-year median-sale-price declines.
  • The median asking price of newly listed homes increased 10% year over year to $384,750.
  • The monthly mortgage payment on the median asking price home climbed to a record high of $2,547 at the current 6.7% mortgage rate, up 50% from $1,698 a year earlier, when mortgage rates were 3.01% and up from a recent low of $2,210 during the four-week period ending August 14.
  • Pending home sales were down 21% year over year, the largest decline since May 2020.
  • New listings of homes for sale were down 14% from a year earlier.
  • Active listings (the number of homes listed for sale at any point during the period) fell 0.8% from the prior four-week period. On a year-over-year basis, they rose 6%.
  • Months of supply—a measure of the balance between supply and demand, calculated by dividing the number of active listings by closed sales—increased to 3.0 months, the highest level since July 2020.
  • 35% of homes that went under contract had an accepted offer within the first two weeks on the market, little changed from the prior four-week period but down from 40% a year earlier.
  • 24% of homes that went under contract had an accepted offer within one week of hitting the market, little changed from the prior four-week period but down from 28% a year earlier.
  • Homes that sold were on the market for a median of 31 days, up a full week from 24 days a year earlier and the record low of 17 days set in May and early June.
  • 32% of homes sold above list price, down from 46% a year earlier and the lowest level since February 2021.
  • On average, a record high 7.6% of homes for sale each week had a price drop, up from 3.8% a year earlier.
  • The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, fell to 99.2% from 100.8% a year earlier. This was the lowest level since February 2021.
Refer to our metrics definition page for explanations of all the metrics used in this report.
Median Sale Price

Median Asking Price

Median Mortgage Payment

Pending Sales

New Listings

Active Listings

Months of Supply

Off-Market in 2 Weeks

Off-Market in 1 Week

Days on Market

Sold Above List

Price Drops

Sale-to-List

Redfin Homebuyer Demand Index
 

David Goldsmith

All Powerful Moderator
Staff member

Mortgage rates could continue rise to 8.5%: NAR​

Inflation could push rates beyond 7% threshold, economist Lawrence Yun forecast​

Mortgage rates could climb another 1.5 percentage points, according to a leading economist.
National Association of Realtors chief economist Lawrence Yun predicted that interest rates could be on their way to 8.5 percent if they pass a threshold of 7 percent, according to Bloomberg. Yun based his forecast on key levels of resistance borrowing costs will face after a key inflation indicator hit a 40-year high.

After creeping toward 6 percent in recent months, the average rate for a 30-year fixed mortgage this week were just over 6.9 percent — a 20-year high — when Yun presented his findings at the National Association of Real Estate Investors in Atlanta.
“Today’s inflation rate report is going to test that 7 percent level,” Yun said in the presentation. “Once it’s broken, the next level of resistance is 8.5 percent, which would be another big shock to the housing market.”

Resistance refers to levels on a chart that analysts believe may cause the increase of an index price or interest rate to stall or reverse, which Yun compared it to a battlefront of two armies.
“Once one army makes a breakthrough, there’s a huge advance,” he said.
While interest rate hikes don’t always translate into higher mortgage rates, they generally follow the same trend, and there’s evidence that higher rates are quashing demand after a robust 2021.

Mortgage applications fell 14.2 percent the final week of September, according to a Mortgage Bankers Association weekly survey. The figure marked the slowest pace for mortgage applications since 1997, though some of that was due to a precipitous drop in applications in Florida following Hurricane Ian.
 

David Goldsmith

All Powerful Moderator
Staff member

Mortgage Giant Rocket Plunges Back to Earth, Hit by Rising Rates​

America’s largest home lender harnessed a generation of low rates to refinance millions of mortgages. Its effort to switch focus is a challenge.​

The mortgage industry turned from feast to famine faster than America’s largest home lender anticipated.
Rocket Mortgage harnessed a generation of low rates to refinance millions of homeowners. Last year, it racked up more than double the refi volume of any other lender, accounting for more than $1 of every $10 lent out during a boom for the mortgage industry.
Now the Federal Reserve’s efforts to fight inflation have sent mortgage rates soaring. And refinancing, the driver of Rocket’s business, no longer makes sense for many homeowners.
With mortgage rates now above 7%, just 133,000 U.S. homeowners can save money by refinancing at today’s rates, down from a peak of over 19 million in late 2020, according to Black Knight Inc., BKI 1.04%increase; green up pointing triangle a mortgage technology and data provider. Refinancing accounted for some 82% of the total dollar volume of Rocket’s loans last year, according to Inside Mortgage Finance, an industry research firm.

Rocket has switched its focus, selling mortgages on new purchases and pitching customers on refinancing packages that allow them to pull cash out of their homes. It is also trying to get smaller—shrinking its ranks through a mix of buyouts and attrition, rather than the layoffs that have become commonplace at its competitors.
The effort is challenging. Rocket’s loan volume is on pace to decline by more than half this year. Earnings at Rocket’s parent company, Rocket Cos., were down by more than two-thirds in the first six months of 2022. Analysts expect it to post its first loss as a publicly traded company when it reports third-quarter results on Thursday, according to FactSet. The share price closed Friday at $6.71, down 52% this year, which is almost three times the S&P 500’s decline. Its market value is around $13.2 billion.
For many mortgage bankers, the backbone of Rocket’s workforce, a taxing job has turned into an intolerable one, according to interviews with dozens of current and former employees.

Getting potential customers to trade a 3% mortgage for a 6% one is like “pushing rocks up hills,” said Colin Wyzgoski, who quit a job as a banker in August after taking time off because of work stress.
The employee complaints have spilled over to TikTok and Reddit, which has thousands of messages on the topic. Rocket executives said the complaints are coming from a few vocal bankers, particularly those struggling in an era of higher rates when companies are competing for more limited business.
“When the fish are jumping in the boat, the job is one thing,” Rocket Mortgage Chief Executive Bob Walters said. “When you’re competing with a lot of other people, it’s a different thing.”

How the company and its peers adjust to this new reality will be an early test of corporate America’s ability to withstand the Fed-induced economic slowdown. Mortgage companies that built businesses around low rates are among the first to get hit.
Unlike traditional banks, mortgage companies like Rocket, founded in 1985, are lean operations that rely on issuing loans and quickly turning them into bonds to sell to investors. When the financial crisis of 2008 led to sweeping regulations on banks, mortgage companies moved in to grab market share.
The pandemic ushered in record low rates, and mortgage lenders staffed up to meet the moment. Nonbanks made more than two-thirds of the $8.5 trillion in mortgages issued in 2020 and 2021, the highest share in records going back to 2005, according to Inside Mortgage Finance.

A handful of companies sold their stock in initial public offerings. Rocket, which went public in 2020, closed $351 billion in mortgages last year, up from $12 billion in 2008.
Rocket scoured every corner of the internet to dig up sales leads. A website called LowerMyBills, which Rocket bought in 2017, posted hundreds of Facebook ads referencing what it called a mortgage stimulus program, mostly between April and August 2021, data from Meta Platforms Inc., Facebook’s parent company, show. “You will be shocked when you see how much that you can save,” one of the ads said.
The company gave employees a call script for leads from the ads. “We have Government and Non-Government programs we will look at today for you, I can definitely help you with all of that,” it reads.

The government never directed stimulus payments to homeowners. Some of the ads were taken down for violating Facebook’s policies on misinformation, according to Meta.
A Rocket spokesman said, “LowerMyBills ran ads on Facebook that referred to the fact that during the period of 2020-2021, the Federal Reserve was pumping significant liquidity into the mortgage market, which drastically reduced mortgage rates, benefiting millions of Americans.”
After rising interest rates made straightforward refis unappealing, Rocket encouraged customers to pull cash out of their homes. The pandemic housing boom had driven up home values, giving owners more equity.
Some borrowers use the money to pay off debt that carries a higher interest rate than a mortgage. Refinancing can lower the monthly payment, but it can mean giving up a low rate and extending the loan term, potentially increasing the total interest cost. It is also backed by the house, and homeowners who miss payments risk losing their properties.

In August, 96% of the shrinking pool of refis were used to pull cash out, compared with 54% a year earlier, according to Black Knight.
On a Thursday in September, Leena Boji, a veteran banker at the company, worked the phones at the Detroit headquarters. She spoke with one potential client about a cash-out refi.
She toggled between application questions and mortgage-pricing tools as she collected information about the borrower. “If a loan doesn’t make financial sense, I will be the first to tell you,” she said into her headset. This homeowner would be giving up a rate below 4% for one just above 5%, but would pull out some cash to use for a rainy-day fund and to pay off debt with double-digit interest rates.
The monthly mortgage payment would still go down by more than $100 a month because the homeowner was extending the term of the loan by almost 10 years. “Let’s put you in a place where you’re comfortable each month,” Ms. Boji said.

Low rates made these loans a no-brainer for cash-strapped homeowners, but the calculation is more complicated now. Customers might save only a few dollars a month in exchange for a much higher rate, current and former bankers said. Others might only get a small amount of cash that barely exceeds closing costs.Former Rocket banker Colin Wyzgoski quit his job in August.
Mr. Wyzgoski, the former banker, said he was instructed to look through potential clients’ financial records and find student loans or medical bills that he could push them to consolidate into their mortgage through a cash-out refi. He said he was told to tell clients that a higher interest rate was fine because they could refinance again when rates fall.
“It’s a common ARP,” he said, referring to a sales tactic known internally as “acknowledge, respond, pivot.”
State and federal regulations require homeowners to benefit from refinancing, but they provide flexibility in determining what is beneficial. Bankers said Rocket’s internal loan software would flag any loans that don’t comply.

Rocket’s average cash-out customer receives $45,000 and cuts their monthly payment by over $100, a spokesman said.
Mr. Walters, Rocket’s CEO, said it is up to the customers to decide what is right for their own finances.
“If you came along and said, ‘I need $15,000 and I’m going to incur $3,000 in fees to get that,’ is that a good loan or a bad loan? Somebody on a spreadsheet might say that doesn’t make any sense,” he said. “But what does that $15,000 of liquidity mean for that person?”
Rocket has tried to muscle into the market for mortgages used to purchase a home, which have held up better than refis. The company signed a partnership in August to offer loans to customers of Santander Bank. In September it rolled out a new “inflation buster” loan with a lower rate for the first year.

Rocket has fallen in the middle of the top 10 rankings for such mortgages the past few years, according to Inside Mortgage Finance. One big stumbling block: Its bankers lack relationships with the real-estate agents who drive much of the business to lenders.
Katie Glover, a former Rocket banker, spent a few months last year writing mortgages on a team meant to cultivate relationships with real-estate agents. She said many preferred to work with local lenders they knew, and tended to only send clients to Rocket who couldn’t qualify elsewhere. Her team was disbanded, she said.
D’Ann Melnick, a real-estate agent in the Washington, D.C., area, said she steers her clients away from Rocket because they often end up lost in the company’s system without a single point of contact.

“They don’t have a relationship with their clients. They don’t have a relationship” with real-estate agents, she said.
A Rocket spokesman said that the company continues to build relationships with real-estate professionals, and that more than 100,000 agents are using its 2-year-old service that allows them to check on the status of clients’ loans and get contact information for team members.
A more immediate concern for Rocket is cutting costs. To handle the influx of business in 2020 and 2021, nonbank mortgage lenders increased their head counts by more than a third to almost 300,000 between the end of 2019 and June 2021, according to the Bureau of Labor Statistics. As the market cooled over the following 14 months, they trimmed more than 30,000 people from their ranks.
Better.com, a once-highflying upstart, laid off hundreds of workers via video chat last December. First Guaranty Mortgage Corp. cut almost 80% of its workforce as it filed for bankruptcy in June.

Rocket has offered buyout packages to some employees but hasn’t laid off bankers. Instead, executives believe poor performers will get the hint and leave.
“You’re really finding out who are the most skilled folks right now,” said Mr. Walters, the CEO.

Commission checks that ballooned during the pandemic have deflated this year, bankers said. A Rocket spokesman said average total compensation for bankers who had been at the company at least a year was almost $200,000 in the 12 months through September 2021. It fell to $157,000 in the 12 months that followed.
In March, one executive emailed a note of encouragement to bankers, along with an image of one refinance banker’s recent paycheck. The banker had made over $50,000 in February from 44 loans. “You are surrounded by success,” the memo said. “FIRE UP and GRAB IT!”
This spring, the company asked many bankers to add a weekend day to each workweek in which they weren’t on pace to meet at least 70% of their goal.

In August, a manager sent a note out to his team under the subject line “Urgency!” “We are not in a world or market where we can withdraw because we get a no today,” the email said.
Several employees said they took medical leave due to the stress. Family members became concerned about their well-being. The sound of a phone ringing came to trigger dread, a couple employees said.
Mike Malloy, Rocket’s human-resources chief, said internal surveys show employee engagement is high and has barely budged since the market shifted, but the firm has made some changes in response to feedback.

The average banker works five to seven hours less a week this year than last year, through a combination of scheduling changes and bankers deciding to work less overtime, said Mr. Malloy, whose title is chief amazement officer.
The company lifted hourly pay for new bankers and per-loan commissions for seasoned bankers. Sales goals have been lowered, in many cases multiple times.
Many bankers still aren’t meeting the lower sales goals, according to current and former bankers. Rankings for one group showed that just over a fifth of bankers hit their goals in August, and roughly a third did in September.
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When Amanda Womack started at Rocket in early 2021, she got dozens of leads a day. When rates went up, they dwindled to a handful.
Many of those were dead ends. Some of the people she called didn’t even own homes. They frequently cursed or threatened her.
She began working six days a week to try to keep up with her goals.
“When it’s good, they encourage you to come in to make even more sales,” she said of working at Rocket. “When it’s bad, they encourage you to come in because you’re not making money for the company.”
She quit Rocket in July, determined to leave before the deteriorating market forced her out. She took a salaried job in wine-and-spirits sales.
 

David Goldsmith

All Powerful Moderator
Staff member

Mortgage Rates Are High Because Nobody Is Buying Mortgages​

Banks went on a mortgage-bond buying spree last year, but now they are stepping back from the market​

Bank of America Corp. gobbled up hundreds of billions of dollars of mortgage bonds during the height of the pandemic. But with rates rising, its buying spree has ended.
Banks have stepped back from buying mortgage bonds. So has the Federal Reserve, the largest investor in that market. Foreign buyers and money managers are curtailing purchases too, analysts say.

The lack of buyers has helped push mortgage rates to their highest level in 20 years. The average 30-year fixed mortgage rate topped 7% recently, further cooling a housing market that was red hot just a few months ago.
When lenders extend mortgages to people buying homes or refinancing, they don’t usually hold on to the loans. Instead, they pool them into bonds that get sold to investors, often with a guarantee from a government-controlled entity that investors will get repaid.

Today, a shrunken pool of buyers are demanding a higher yield to own mortgage bonds. That is driving up the rates on the mortgages inside those bonds at a faster pace than their benchmark, Treasury yields. The gap between them was recently the biggest since the 1980s, according to the Urban Institute.

“Banks stepping back, the Fed stepping back, foreign investors stepping back—that has widened the spread that mortgages trade at versus Treasurys, which directly translates to the borrower’s mortgage rate,” said Nick Maciunas, a research analyst at JPMorgan Chase & Co.
Last year, an abundance of buyers for mortgage bonds helped hold mortgage rates at near record lows.
The biggest buyer was the Fed itself, which purchased swaths of the bond markets to stimulate the economy during the pandemic. Its holdings of mortgage-backed securities roughly doubled from before the pandemic to $2.7 trillion.

But the Fed moved away from its easy-money policies this year. It wound down mortgage bond purchases and began to shrink its holdings. The central bank hasn’t bought in the past couple months.

For banks, mortgage bonds were a low-risk place to store cash as Covid-19 spread, when they collected trillions of dollars in deposits that needed a home. Americans socked away stimulus checks and cut back on spending, and companies put hoards of cash in bank accounts. At the same time, people and businesses cut back on borrowing.
Bank of America CEO Brian Moynihan laid out the math in a July 2021 call with analysts. Deposits, he said, exceeded $1.9 trillion, while loans were at about $900 billion. “That difference has got to be put to work,” he said.
The 10 banks that own the most mortgage-backed securities increased their holdings by almost $219 billion last year, according to JPMorgan data.
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For a while, Bank of America was by far the largest bank buyer. Around the end of 2020 and beginning of 2021, the bank was adding to its mortgage-bond portfolio at almost as fast a clip as the Fed.
By the end of 2021, it had amassed a $979 billion bond portfolio, up from $470 billion at the end of 2019. That included some $622 billion of mortgage-backed securities, $554 billion of which it said it would hold to maturity and $68 billion that it classified as available for sale.

Higher rates arrived this year and scrambled the economics of buying. Banks’ deposits have leveled off and in some cases declined. Loans are growing again. Some banks are also opting to hold mortgages, instead of mortgage bonds, on their books.
The 10 largest bank owners of mortgage bonds trimmed their holdings by $133 billion during the first nine months of 2022, including about $53 billion during the third quarter, according to JPMorgan. Much of that decline is from maturing bonds that aren’t reinvested in new ones.
The mortgage bonds have also fallen sharply in price as rates have risen. Bank of America expects to hold most of its existing mortgage bonds to maturity, which would mean it wouldn’t take losses on these investments due to falling prices. But if it did sell now, it would have losses of nearly $100 billion.
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Mr. Moynihan has said the bank didn’t make a bet on interest rates when it bought mortgage bonds. It was simply investing deposits as they came in.
“We’re not timing the market or betting,” he said in July 2021. “We just sort of deploy it when we’re sure it’s really going to be there.”

 

David Goldsmith

All Powerful Moderator
Staff member

Fannie Mae Shakes Up the Co-op and Condo Lending Game​

Fannie Mae, the federally backed mortgage giant, has changed its lending rules.
“In the past, Fannie Mae bought apartment loans based on a building’s financial health,” says Jerry Niemeier, an authority in co-op lending. Then came the deadly Florida condo collapse. “Now Fannie Mae is asking lenders to essentially certify that there are no significant deferred maintenance issues or unsafe conditions in the building. And if repairs are needed, they have to demonstrate that boards have the ability to pay for them.”
Lenders will now place the burden of proof on co-op and condo boards to show that repairs have been made or are planned — and funded — before they will issue mortgages to potential apartment buyers.
To this end, co-ops and condos are being put under the microscope. Fannie Mae has expanded the form it requires lenders to submit to boards and their property managers before deciding to finance a purchase in their building, which now includes detailed questions about the building’s inspection history and its action plan to remedy deficiencies — and even asks for copies of board-meeting minutes.
While lenders are reviewing balance sheets and cash-flow statements as usual, they’re now giving extra scrutiny to reserve funds and special assessments. “Typically, assessments are discussed and voted on in the minutes, which accountants always read,” says Darren Newman, the managing partner at the accounting firm Newman Newman & Kaufman. “If there is an assessment, we obtain the shareholder notice letter that describes what it’s for and how it’s being implemented.”

All of that information is included in the financial statement — specifically, in the footnotes, where accountants are required to disclose anything that potentially affects the building’s financials, including plans for future major repairs and how they will be financed. And lenders are reading the fine print closely.
“They’re looking at the reason for the assessment, the size and repayment terms, and documentation to support it’s not going to negatively impact the financial stability of the cooperative or condominium,” says Mitchell Unger, a partner and the controller at the Lovett Group, a property management company. “But lenders are also tying in the footnotes with regard to any capital improvements that are being made. If the improvements are related to any substantial safety repairs or rehabilitation of the building and the lender sees that the assessment is not supporting all of these repairs, they will turn down the loan request.”
The upshot: the rules change by Fannie Mae is making it harder for people to buy into co-ops and condos. Under the new guidelines, condominiums must keep 10% of their operating budget in their reserve fund, but that’s no guarantee that lenders will come through. “We’re seeing many more properties in New York where lenders are denying loans, easily 200 or so a month,” says Orest Tomaselli, the president of project review at CondoTek, a technology and information company that works with condo lenders.
And the new rules are here to stay. “These new rules aren’t going away,” says Niemeier, adding that Fannie Mae — along with the other federally backed mortgage giant, the Federal Home Loan Mortgage Corp., or Freddie Mac, which implemented the same rules in February — may further tighten the reins. “There could be more changes, and things could get even more strict as they try to correct any deficiencies or confusion in the new guidelines.”
 

David Goldsmith

All Powerful Moderator
Staff member

Foreclosures Rising, But Stall for the Holidays​

Foreclosure activity nationwide is up 57%, and completions of foreclosure went up 98% in November compared to November 2021, when filings were just starting to increase in the aftermath of COVID-related moratoriums, according to ATTOM, curators of real estate data.
Foreclosure initiations are not as plentiful as they were this time in 2019, before the pandemic-related bans were implemented.
"Foreclosure starts in November nearly doubled from last year's numbers, but are still just above 80% of pre-pandemic levels," according to Rick Sharga, EVP of Market Intelligence at ATTOM.
He predicts that “we may continue to see below-normal foreclosure activity, since unemployment rates are still very low, and mortgage delinquency rates are lower than historical averages."
Foreclosure filings, affecting a total 30,677 U.S. residential properties in November (that is one in every 4,580 housing units) are down 5% from October.
Sharga says the U.S. may be at or near the peak level for foreclosure activity for 2022.
"While foreclosure starts and foreclosure completions both increased compared to last year's artificially low levels, they declined from last month, and lenders often put a moratorium on foreclosures during the holiday season," he explained.
By state, Illinois, Delaware, and New Jersey reported the highest overall foreclosure activity in November. By city, Cleveland, Ohio; Chicago; Riverside, California; and Philadelphia experienced the most.
As for completed foreclosures or REOs, lenders repossessed 3,770 U.S. properties in November. That is down 9% from last month but up 64% from last year.
Illinois, New York, Pennsylvania, Michigan, and Ohio reported the most completed foreclosure/bank repossessions in November. Major cities with the most completed foreclosures were Chicago, New York City, Philadelphia, Detroit, and Houston.
As for foreclosure starts, nationwide, lenders initiated the foreclosure process on 20,686 U.S. properties in November, down 5% from last month but up 98% from a year ago.
California, Texas, and Florida reported the most foreclosure initiations in the nation. Cities with the most starts included New York City, Chicago, Houston, Miami, and Los Angeles.
 

David Goldsmith

All Powerful Moderator
Staff member

Eight Percent of Newly Mortgaged Homes Underwater​


Up to 8% of 2022 mortgaged homes purchases are now underwater while FHA loans are showing early signs of increasing defaults were the two major points of Black Knight’s latest Home Price Index as home prices decreased in October 2022 by 0.43% seen since prices peaked this June.
Annualized appreciation slowed to a rate of 9.3% from September’s 10.7%, the seventh consecutive month of cooling.
New listings were down in October 2022 by 19%, or 94,000 units, below historical averages.
Of all homes purchased with a mortgage in 2022, 8% are now at least marginally underwater and nearly 40% have less than 10% equity stakes in their home, a situation most concentrated among FHA/VA loans. The negative equity rates among all mortgaged properties remain extremely low by historical standards at 0.84%.
More than 25% of FHA/VA loan purchases have dipped into negative equity, with 80% having less than 10% equity.
Also, early-payment defaults, otherwise known as loans that become delinquent within six months of origination, home been rising among FHA borrowers over rates seen in the past
"We've now seen four consecutive months of home price pullbacks at the national level," said Ben Graboske, Black Knight’s Data and Analytics President. "But after a couple of significant drops earlier in the summer, the pace of cooling has slowed considerably, with October's non-seasonally adjusted drop of just 0.43% the smallest decline yet.”
“Though seemingly counterintuitive, the much higher rate environment may be limiting the pace of price corrections due to its dampening effect on inventory inflow and subsequent gridlock in home sale activity. While the median home price is now 3.2% off its June peak—down 1.5% on a seasonally adjusted basis—in a world of interest rates 6.5% and higher, affordability remains perilously close to a 35-year low.”
“Add in the effects of typical seasonality and one might expect a far steeper correction in prices than we have endured so far, but the never-ending inventory shortage has served to counterbalance these other factors. Indeed, the volume of new for-sale listings in October was 19% below the 2017-2019 pre-pandemic average,” Graboske continued. “This marks the largest deficit in six years outside of March and April 2020 when much of the country was in lockdown—with the overall market still more than half a million listings short of what we'd consider 'normal' by historical measures.”
“Though the home price correction has slowed, it has still exposed a meaningful pocket of equity risk. Make no mistake: negative equity rates continue to run far below historical averages, but a clear bifurcation of risk has emerged between mortgaged homes purchased relatively recently versus those bought early in or before the pandemic. Risk among earlier purchases is essentially nonexistent given the large equity cushions these mortgage holders are sitting on.”
“More recent homebuyers don’t fare as well. Of the 450K underwater borrowers at the end of Q3, the mortgages of nearly 60% had been originated in the first nine months of 2022—and these were overwhelmingly purchase loans. All in, 8% of purchase mortgages originated thus far in 2022 are now marginally underwater, with another 20% in low equity positions,” Graboske concluded. “Among FHA purchase mortgage holders specifically, more than 25% have slipped underwater and more than three-quarters have less than 10% equity. This is an illustrative and, unfortunately, potentially vulnerable cohort that we will continue to keep a close eye on in the months ahead.”
 

David Goldsmith

All Powerful Moderator
Staff member

Mortgage rates drop after CPI report, but the housing market is far from out of the woods​

  • The rate on the popular 30-year fixed-rate mortgage fell to 6.28%, but that's still dramatically higher than where it was a year ago.
  • The decline came after a lower-than-expected reading of the November's consumer price index, or CPI, a widely watched measure of inflation.
  • "There have been a handful of pieces of relatively good news for the housing market lately, but we're far from out of the woods," said one economist.
A prospective home buyer, left, is shown a home by a real estate agent in Coral Gables, Florida.
Getty Images
The average rate on the 30-year fixed mortgage dropped to 6.28% Tuesday, according to Mortgage News Daily. It is now at the lowest level since mid-September.
The decline came after a lower-than-expected reading of the November's consumer price index, a widely watched measure of inflation. The report sent investors rushing into U.S. Treasury bonds, causing yields to drop. Mortgage rates follow loosely the yield on the 10-year Treasury.

"The second consecutive month of reassuring CPI data continues to build a case that inflation has turned a corner, but rates will be careful about reading too much into that potential shift given the volatility of the data in recent months," said Matthew Graham, chief operating officer at Mortgage News Daily. "The bond market will also want to see what the Fed does with this info in tomorrow's updated Fed rate forecasts in the dot plot."
Mortgage rates began rising at the start of this year and accelerated in the spring and summer, with the 30-year fixed going from around 3% to well over 7% by the end of October. That sent the housing market into an early deep freeze. Sales of existing homes have fallen for nine straight months and were down 24% in October year-over-year, according to the latest read from the National Association of Realtors.
But rates then fell sharply in November, after the CPI report for October indicated that inflation was cooling. The rate ended November at 6.63%. Some suggested, albeit cautiously, that the drop in rates might be bringing buyers back to the market.
"There are some very very modest green shoots over the last few weeks, as rates have come down, but I am not ready to get sucked back into the conversation we had in August when we felt better," Doug Yearley, CEO of luxury homebuilder Toll Brothers, said on the company's quarterly earnings call with analysts last week. Yearly was referring to a very brief rate drop in August.
Redfin reported homebuyer demand "has started ticking up" in November. It's demand index, which measures requests for home tours and other homebuying services from Redfin agents, was up 1.5% from a month earlier but down 20% from a year earlier during the four weeks ending Nov. 27.

"There have been a handful of pieces of relatively good news for the housing market lately, but we're far from out of the woods," said Redfin deputy chief economist Taylor Marr. "Key indicators of homebuying demand will likely be teetering on a knife's edge with every data release that comes out related to the Fed's path to eventually bringing rates down."
All that optimism, however, did not translate into higher mortgage rate locks for homebuyers, which are generally an indicator of future home sales. Those rate locks fell 22% in November, compared with October, and were down 48% year-over-year, according to mortgage tech and data firm Black Knight.
"It's still extremely unaffordable even with rates coming down, even with prices coming down in each of the last four months. We're still less affordable than we were at the peak of the market in 2006, and you're seeing that play out in the rate lock numbers," said Andrew Walden, vice president of enterprise research strategy at Black Knight.
Walden points to inventory still being about 40% shy of where it should be, while the homebuilders continue to pull back and potential sellers stay on the sidelines. Even as prices weaken and rates come down, he said both are still substantially higher than they should be compared with incomes to make housing affordable by historical standards. And none of those are going to move that much any time in the near future.
"As we move throughout 2023 you're going to see prices continue to soften, you're going to see incomes hopefully continue to grow and eat up some of that gap, and I think likely we are going to see rates come down from where they are today, but it's going to take an extended period of time to get there," said Walden.
 

David Goldsmith

All Powerful Moderator
Staff member
I think this argument doesn't see the forest for the trees. It's not aggregate equity which matters. Each homeowner makes an individual decision. It doesn't matter if half the market has 100% equity. If half of the last 10% into the market have negative equity (and the median down payment in the US was 12% in 2021) you have a potential default rate of 5% just from my that. At the peak of the Foreclosure Crisis the foreclosure rate was only 2%. https://www.thebalancemoney.com/ave...e Down Payments,Association of Realtors (NAR).


Why This Housing Downturn Isn’t Like the Last One​

A postcrisis mortgage-market makeover and an overhaul of the financial system make a repeat of 2008 unlikely​


The pandemic housing boom is over. The bust will look nothing like the last one.
Before the financial crisis of 2008, lenders barely bothered to verify mortgage applicants’ income. Today they demand reams of evidence that borrowers can afford their loans.

Banks once held big pools of shoddy mortgages with little consequence. Now such exotic debt securities hardly exist, and banks would find them too costly to hold anyway.
Underwater mortgages have given way to hefty cushions of home equity, particularly after a run-up in prices over the past two years.

A 28% decline in U.S. home prices between 2006 and 2009 sent the value of some 11 million homes below their mortgage balances, triggering widespread defaults, a near-collapse of the financial system and a deep recession. Home prices would have to fall between 40% and 45% from their peak to put the same proportion of mortgaged homes underwater today, according to a CoreLogic analysis.
Value of U.S. single-family housing market


Note: Single-family data includes one- to four-family homes with mortgages. Home equity is calculated from value of household and nonfinancial business sector.

September 2008
Federal government takes control of Fannie Mae and Freddie Mac, beginning a transformation of the mortgage giants, which now stand behind much of the mortgage market.
July 2010
The Dodd-Frank Wall Street Reform and Consumer Protection Act, a sweeping overhaul of the financial system, is signed into law.
February 2012
Federal and state governments reach a settlement with big banks for billions of dollars over wrongful foreclosures, one of a series of penalties exacted on banks after the crisis.
January 2014
One piece of Dodd-Frank, a rule guiding lending standards to make sure borrowers can repay their mortgages, goes into effect.
March 2020
Many homeowners who struggle to pay mortgages because of Covid-19 are granted relief, building on improvements to foreclosure-avoidance programs after the last financial crisis.
Mortgage rates have just about doubled since the start of the year, sapping demand and prompting some economists to pencil in year-over-year national price declines in 2023.
Yet the redesign of the nation’s lending apparatus and overhaul of the financial system meant to insulate it better from economic shocks make a repeat of 2008 exceedingly unlikely, according to policy makers and bankers.
“I think one of the reasons people don’t appreciate the reforms is that they were built brick by brick,” said Tim Mayopoulos, who oversaw the mortgage company Fannie Mae in the wake of the crisis and is now an executive at the mortgage-technology firm Blend Labs Inc.

Between 2006 and 2014, about 9.3 million households went through foreclosure, gave up their home to a lender or sold in a distressed sale, according to a 2015 estimate from the National Association of Realtors. Others went through loan-modification programs aimed at reducing their monthly payments.
Ryan Vaughn was one of them.

He was laid off from his job at a home builder as the housing market slowed. He fell behind on his mortgage payments. He lost investment properties to foreclosure, and his credit score plunged. He spent over a year working with his lender to modify the terms of the mortgage on his family’s San Clemente, Calif., home.
“I’m thinking, ‘Should I even mow my lawn anymore? Because I’m probably going to get this house taken from me, too,’ ” he said.
Mr. Vaughn found his footing as the housing market recovered. He now owns and operates a swimming pool construction franchise. In 2016, he and his family of five sold their house at a profit and used the proceeds to put roughly 20% down on their current home.

That home is worth nearly double the $1.6 million he paid for it six years ago and almost triple the amount of his mortgage, according to a Zillow estimate.
“The experiences that I had during the downturn of the real-estate market created way more stress and financial burden than I was able to handle,” Mr. Vaughn said. “I just never want to put myself in that position again.”
The financial crisis ushered in a new era of borrowing prudence. Policy changes stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 helped prevent a return to the old way of doing business. Regulators did away with products that allowed lenders to make loans borrowers couldn’t afford. Adjustable-rate mortgages that once enticed stretched borrowers with low teaser rates became conservative loans for people with strong credit.
Many of the products that didn’t require income verification disappeared anyway when subprime lenders went belly-up, said Amrish Dias, who worked in sales at the now-defunct subprime mortgage company New Century Financial Corp. as the crisis was brewing.

“Everybody’s mind-set had to move from ‘OK, I don’t need your W-2s,’ to ‘I need everything,’ ” said Mr. Dias, who is now a loan officer at Cardinal Financial.

Fannie Mae and Freddie Mac, which package mortgages into bonds and sell them to investors, came under government control after failing during the crisis. Their role in the marketplace grew because the effective government guarantee on their bonds meant investors didn’t have to worry about getting burned.
Today, mortgage companies issuing Fannie or Freddie mortgages—about half of all originations—adhere to their tight underwriting guidelines. Fannie and Freddie, for their part, developed better tools for inspecting loans before they close.
“Today’s borrower is a much higher quality borrower,” said Laurie Goodman, founder of the Housing Finance Policy Center at the Urban Institute, a Washington, D.C., think tank. “And the loan is a much higher quality loan.”

Clara Ellis bought a house in Roanoke, Va., in July for $205,000. She lost a house to foreclosure about a decade ago after falling behind on payments. She isn’t worried about being in the same position again, she said, because she can comfortably afford her payments and plans to stay in the home a long time.

“I would not have bought if I didn’t feel financially secure,” she said. “I didn’t jump into this quickly, I waited a couple of years. I wanted to make sure things were going in the right direction.”
Home prices returned to record highs in the middle of the last decade, and they surged as the pandemic unleashed a housing boom over the past few years. At the end of June, total mortgage debt was 15% higher than it was at the end of 2007, but total home equity was 131% higher, according to Urban Institute data.
As of October, home prices were down 3.2% from June, erasing $1.7 trillion of home equity, according to estimates by Black Knight Inc., a mortgage-data and technology provider.

For many homeowners, that only erased a few months’ of equity gains. A 20% home-price drop would only bring prices back to where they stood in January 2021, according to Black Knight.
The people most at risk are those who bought near the peak of the housing market last year and early this year. Some high-price western U.S. markets, including San Francisco, are starting to post year-over-year price declines, according to the brokerage Redfin Corp.

Roughly 8% of loans tied to this year’s home buyers were at least a little bit underwater in September, according to Black Knight.
But many boom-time buyers made large down payments to compete in the hot market. Just 0.96% of all borrowers were underwater in October, and the share with less than 10% equity in their homes is well below prepandemic levels, according to Black Knight.
To be sure, the housing recovery was uneven. High-income households collected 71% of the growth in housing wealth between 2010 and 2020, according to a report by NAR.


Some people who lost their homes during the housing crisis became lifelong renters, and many foreclosed homes around the U.S. were bought by investors and turned into rental properties.
Vee Turnage bought her first house in 2003 in Memphis, Tenn., when she was 25.
She had been renting an apartment, and she wanted a home with a backyard for her children. The three-bedroom house cost $75,000. Ms. Turnage borrowed the full amount. She planted a rose bush and elephant ears.

Ms. Turnage lost her job in the consumer-loan department of a bank in 2008, and was unable to keep up with mortgage payments and rising home-insurance costs. In 2011, she accepted a “cash for keys” offer from her bank, avoiding a foreclosure by giving the lender the house in exchange for a few thousand dollars.
“It took me about a year to actually even ride down that street, because I was kind of heartbroken,” she said.
Ms. Turnage has rented in Memphis ever since. She hoped to buy a house in 2021, but the pandemic prompted her to keep building up her savings, instead.

 

David Goldsmith

All Powerful Moderator
Staff member

Mortgage rates rise after 6-week slide​

Cost of 30-year, fixed-rate loan hit 6.42% just before new year​

Mortgage rates notched their first weekly increase in six weeks just before the new year.
The average rate for a 30-year fixed-rate loan climbed to 6.42 percent from 6.27 percent, according to Freddie Mac data reported by Bloomberg. The figure closes out a year over which mortgage rates more than doubled, pricing out potential homebuyers and locking sellers in place.

Hiigher mortgage rates “remain a significant barrier to successfully closing transactions,” George Ratiu, head of economic research at Realtor.com, told Bloomberg.
As more buyers sit on the sidelines, homes are taking longer to sell. Inventory has risen as a result, but the population of available listings is still down from the pandemic-era housing market.

The number of properties for sale has risen 18 percent since last year, according to a recent report by Redfin, for the biggest gain since 2015. However, the brokerage reported home sales dropped 35.1 percent year-over-year in November — the largest drop since it began tracking sales in 2012.

The buyer of a median-priced home would pay about 60 percent more than last year due to higher borrowing rates, or about $2,100 a month without taxes or insurance, according to Ratiu.

Mortgage rates rose following an increase in 10-year treasury bond yields, which indicated more investors were seeking a safe store for their money. A key inflation metric showed earlier this month that consumers were paying six percent more than a year ago for goods and services.
The Federal Reserve is targeting an annual inflation rate of two percent, suggesting that its campaign to stem high prices and high wages with even higher interest rates is far from over.
 

David Goldsmith

All Powerful Moderator
Staff member

Wells Fargo puts the brakes on mortgage business​

Bank to focus on existing customers, closing correspondent lending business​


Wells Fargo, a once-dominant player in the U.S. mortgage market, has begun its significant retreat from the sector.
The bank is shifting its focus from reaching as many homeowners as possible to working with existing bank and wealth management customers, CNBC reported. The company will also continue trying to reach borrowers in minority communities.

As part of the retreat, the bank is closing its correspondent lending business that buys loans by third-party firms, which the bank cited for 42 percent of its third quarter originations.
It also plans to shrink its mortgage-servicing portfolio through asset sales. Those sales could take several quarters, as the company is the largest mortgage servicer in the country.

More layoffs are expected as part of the company’s mortgage pullback, but the timing and number of cuts weren’t reported.
Bloomberg reported Wells Fargo’s expected pullback from the mortgage market in August.
Only four years ago, Wells Fargo was the biggest lender in the country, responsible for $201.8 billion in home loans, according to Inside Mortgage Finance. At its peak, the bank was responsible for one in every three home loans in the United States. The company ranks third among mortgage lenders today, behind Rocket Mortgage and United Wholesale Mortgage.

Wells Fargo began looking at a reduction in its activities last summer, when mortgage demand shrank as rates soared on the back of the Federal Reserve interest rate hikes. Those increases are expected to ease and mortgage rates are stabilizing, but the bank already made up its mind.

In 2021, a federal oversight body fined Wells Fargo $250 million for unsafe practices regarding its mortgage lending loss mitigation program. The bank was accused of failing to comply with a 2018 order mandating it identify and reimburse customers charged improper fees by the mortgage lending arm.
The bank was also restricted from future activities until fixing ongoing problems, banned from acquiring some residential mortgage servicers and transferring borrowers out of the bank’s loan servicing arm.
A Bloomberg analysis last year revealed the bank turned down nearly half of the refinance applications submitted by Black homeowners in 2020. The company approved nearly three-quarters of those sent by white applicants in the same period.
 
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