Mortgage Credit Availability at Highest Level since 2016

Posted on July 21, 2017 by Laura Lam

lending 1

Credit availability remained historically tight in the first quarter of 2017, but increased slightly from the previous quarter to the highest level since 2016.  The Housing Credit Availability Index (HCAI)  from the Housing Finance Policy Center shows mortgage credit availability increased to 5.4 in the first quarter. This is up from 5.2 in the fourth quarter.  However the chart, which uses data from eMBS, CoreLogic, HMDA, IMF and the Urban Institute, shows this is still extremely tight compared to historical standards.

The HCAI measures the percentage of home purchase loans that are likely to default, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.

Credit availability at Fannie Mae and Freddie Mac remains at the highest level since its low in 2011. However, both the government channel and portfolio and private-label securities channel continued to stay close to or at the record low for the amount of default risk taken. The government FVR channel includes the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture Rural Development programs.

ECredit riskarlier this summer, Fannie Mae raised its debt-to-income ratio requirement to further expand mortgage lending.  A new survey from Fannie Mae shows lenders are suddenly ready to begin loosening credit this year as mortgage demand weakens.  The chart shows that while the government-sponsored enterprises are increasing the risk they take on, it is still low by historic measures.

The Urban institute pointed out there is still plenty of space to expand the credit box. If the current default risk doubled across all channels, risk would remain within the standard 12.5% seen in the 2001 to 2003 mortgage market.

Source:  Housing Wire

Homes Prices and Competition Hit Record High

Posted on July 19, 2017 by Laura Lam

redfin home salesThe U.S. housing market continued to accelerate in June, with both the median prices and speed of home sales hitting all-time highs, according to a recent Redfin report.  Nationwide, the median sales price rose 7.3% year-to-year to $298,000 in June, the highest price on record since the firm began tracking in 2010. Homes typically sold within 36 days of when they were listed, marking the fastest pace in 7 years, according to Redfin.

The tightening of the housing market reflects the imbalance between a long-standing inventory shortage and surging demand.  “Month after month, new records are set for the pace at which homes are going under contract. Demand continues to swell while supply troughs,” said Nela Richardson, chief economist at Redfin.

Other major findings from the Redfin report include:

  • Home sales increased 1.9% year-over-year to 308,800; 10 out of 89 metro areas saw double-digit increase in sales
  • Nationwide, new listings fell 2.7% from a month ago
  • Listings stayed on the market for an average 36 days, 6 days shorter than a year ago
  • Denver, Portland and Seattle were the fastest-moving markets – typical homes entered into contract in just 7 days
  • More than a quarter of homes across the country sold above asking price. The most competitive market was San Jose, California, where 73.7% of homes sold above list price, followed by 70.6% in San Francisco
  • Fort Lauderdale, Florida, had the nation’s highest price growth, rising 15.6% year-over-year to $260,000

In June, the number of homes available for sale dropped 10.7% to 786,000, with new listings at 352,500, matching the volume of last year but falling 2.7% from May. At the current rate of consumption, this translates into a 2.5-month inventory, the lowest supply on record since 2010.  Generally, 6 months of supply represents a market balanced between buyers and sellers, according to Redfin. Anything less favors sellers, anything more favors buyers.

Meanwhile, buyers bid competitively for limited housing stocks. More than 82,140 homes, or about 26.6% of all homes sold in June, fetched higher sales price than asking, according to Redfin.

Source:  Redfin/Mansion Global

Reputation Survey: Regional Banks Rise to the Top

Posted on July 18, 2017 by Laura Lam

bank ratings 2017 smallThe 2017 survey revealed that the banking industry overall extended its multi-year reputation recovery among U.S. consumers, achieving a reputation score that qualified as “strong” (above 70 on a 100-point scale) for the first time since the Survey of Bank Reputations began in 2011.

Better delivery of products and services has helped, as has looser lending practices. But the biggest influence has been banks’ behavior.  Simply put, banks are acting more responsibly with customers – no longer processing transactions in a way that will more quickly trigger overdrafts, for example. They also are making their community activities more prominent. And these efforts are paying off in higher reputation scores.

Of the 39 banks evaluated in this year’s survey, more than 50% received “excellent” marks from their existing customers, up from just under a third of the banks in the 2016 survey. Perhaps more tellingly, over 30% received “strong” ratings from non-customers, versus zero in last year’s survey.

Stephen Hahn-Griffiths, an executive vice president at the Reputation Institute, said that while providing quality products and services is obviously important, it’s a company’s governance – or how it conducts business – that can make or break a reputation these days.

Whatever the reason, banking now has moved ahead of some other industries that had it beat last year, including the health care and energy sectors. Banking also moved ahead of the broader finance industry, which scored a 69.  Across the 17 industries the Reputation Institute tracks, consumer goods had the strongest reputation, with a score of 76.5, and energy the weakest, with a score of 59.7.

bank ratingsWithin the banking industry, the regionals are faring particularly well: 8 of the 10 highest-scoring banks in the overall ranking have less than $50 billion of assets. The survey rates banks in seven categories: products and services, innovation, leadership, workplace, performance, citizenship and governance.

Which categories most heavily influence people’s perceptions of banks can shift from one year to the next, and the 3 categories that proved to be the top reputation drivers this year are governance, followed by products and services, then innovation.  “The number one thing people are looking for in terms of reputation of a bank is ethical behavior,” said Hahn-Griffiths.  A strong reputation can pay off in myriad ways, influencing people’s willingness to buy products from, invest in and even work for a company, according to the Reputation Institute’s research.

Source: American Banker

Underwater Mortgages Doing Swimmingly, at 11-Year Low

Posted on July 17, 2017 by Laura Lam

black knight underwaterThe number of underwater mortgage borrowers has fallen to below 2 million for the first time since 2006.  According to the recent mortgage report from Black Knight Financial, there is a 16% decline in underwater borrowers in the first quarter of 2017 with 350,000 borrowers regaining equity.

“The steady upward trajectory of home prices continues to improve the equity positions of many homeowners,” said Black Knight Data & Analytics Executive Vice President Ben Graboske. “Over the past year, we’ve seen a 35% decline in the total underwater population. As of today, there are 1.8 million underwater borrowers remaining, the first time this population has fallen below 2 million since 2006.”

Graboske says there is disparity in the figures though and it’s not just geographical but also in the demographics of borrowers.  “Nearly half of all borrowers who remain underwater own homes in the lowest 20% of prices in their respective markets. While the nation as a whole now has a negative equity rate of just 3.6%, among owners in that lowest price tier, it’s over 8%,” he said.

“These lowest-price-tier properties are more than twice as likely to be underwater as those in the next price tier up, and 6.5 times more likely to be underwater than those living in the top 20% of the market,” added Graboske.

The rebound into equity in the last year means that the number of homeowners with equity is the largest it’s ever been, more than 40 million. The tappable equity is centered in the largest metros with almost 40% of in California alone.

Source:  Black Knight Financial/Mortgage Professional America

A Decade of Mobile Banking

Posted on July 14, 2017 by Laura Lam

iphoneOn June 29, 2017, the iPhone turned 10 years old. Since the first iPhone was released in 2007, Apple has sold some 1.2 Billion phones and notched up more than $740 Billion in sales – making it the best-selling tech gadget in history.  Two-thirds of Apple’s $216 Billion in sales in 2016 came from the iPhone.  American Banker takes a look at some of the ways it, along with the boom in smartphones overall, has shaped banking in the U.S. over the last decade.

  • It gave rise to app culture and fintech.
  • The ability to deposit a check by taking a photo of it was likely the reason you downloaded your app in the first place.
  • Personal financial management tools have been around for a while but smartphones made managing money in real time much more accessible by putting bank balances in their hands.
  • It changed how consumers access cash. That started with the ability to find a nearby ATM through geolocation.  Now, it’s getting cash through a code generated via mobile.
  • The need to make things easy and simple because of the size of a smartphone screen has reshaped banks’ approach to digital products. Websites are less cluttered and designers are always on the hunt to remove a click.  Bank websites look a lot more like their mobile app these days.
  • ApplePay and mobile payments overall have not lived up to the hype … yet.
  • The convenience of unlocking your phone with your thumb of fingerprint has made us more comfortable with biometrics.
  • Authentication tactics, like the front-facing camera, live video chart, geolocation, and other security devices, have presented new and largely untapped ways of verifying customers.
  • The designers of Siri and other chatbots are now building chatbots for financial services
  • Smartphones have birth to the idea of competing with everyone on “experience.”
  • The cost of smartphones are so expensive that some banks have found a niche lending opportunity to finance them.
Source: American Banker

Average Credit Score Hits All-Time High

Posted on July 13, 2017 by Laura Lam

americans-average-credit-score-700Americans are seeing higher credit scores than ever as the average national FICO score reached an all-time high, hitting 700 for the first time ever.  FICO scores range from 300 to 850.  Average credit scores bottomed out at 686 during the housing crisis after a sharp increase in foreclosures. They have steadily ticked higher since then, according to FICO vice president for scores and analytics Ethan Dornhelm.

“A score of 700 is considered “very good credit.” Consumers will likely qualify for the credit they want at favorable terms,” Dornhelm said.  “On the other hand, credit card balances and delinquencies are also steadily creeping higher.  That is something we will be monitoring,” he added.

A new report from the Urban Institute showed the average FICO score for originations dropped in April as lenders eased lending standards for refinances. For purchases, however, the standards remained tight.  But while credit standards remain tight for now, a new Fannie Mae survey shows the majority of lenders expect to loosen credit within the next few months.

As credit loosens, two major changes could make getting a mortgage easier for millions of Americans and continue boosting FICO scores.  The first change to take effect is the nation’s three major credit rating agencies – Equifax, TransUnion and Experian – will drop tax liens and civil judgements from consumers’ profiles if the information isn’t complete.  Additionally, Fannie Mae raised its debt-to-income level in order to further expand mortgage lending.

Source:  CNBC/Housing Wire

Mortgage Risk Hits Highest Level in 2 Years

Posted on July 12, 2017 by Laura Lam

first amer 1The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications increased in May to levels not seen since 2015, according to First American Financial Corp.  The frequency of defects, fraud and misrepresentations increased 2.5% in May, according to the Application Defect Index. This is an increase of 13.7% from the year before.

“The Loan Application Defect Index is now reaching levels of risk not seen since 2015,” First American Chief Economist Mark Fleming said. “While risk is growing in both purchase and refinance transactions, it is important to recognize that loan application defect, fraud and misrepresentation risk remains below the peak reached in 2013.”

The Defect Index reflects estimated mortgage loan defect rates over time, by geography and by loan type. It’s available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, as well as state and market comparisons of mortgage loan defect levels.

first amer 2The Defect Index rose for both purchase and refinance transactions. Defects in refinance transactions increased 3% from last month and 9.7% from last year. Defects in purchase transactions increased 1.1% monthly and 11.1% from last year.

“Given the heat wave gripping many parts of the country, this month I am highlighting the loan application defect risk ‘heat wave’ frying several markets in the South, according to the Loan Application Defect Index,” Fleming said. “These hot spots for loan defect risk are getting hotter, as the risk in these markets is increasing significantly.”

“The defect risk in each market has increased by a minimum of at least 10% in the past year,” he said. “Southern markets are experiencing some of the strongest growth in housing demand, as people seek the lower cost of living compared to northeastern and western markets. Where there’s smoking demand, the flames of defect risk typically follow.”

Source: First American Financial/Housing Wire

Home Affordability Hits Lowest Level in a Decade

Posted on July 11, 2017 by Laura Lam

affordability 2017Affordability dropped in the second quarter, sinking to its lowest level since 2008, according to the Q2 2017 U.S. Home Affordability Index by ATTOM Data Solutions.  The median national home price came in at $253,000 in the second quarter, hitting a 9-year low in affordability at the lowest level since the third quarter of 2008, the report shows. This is up 7.7% from last year, the largest annual increase since the first quarter of 2014.

As home prices increased, the average weekly wage nationwide dropped to $1,067 in the fourth quarter, down 1.4% from last year. This represents the largest annual decrease since the fourth quarter in 2011.

ATTOM’s national home affordability index came in at 100 in the second quarter, the lowest index level since it stood at 86 in 2008.  About 45%, about 210 out of 464 counties analyzed for the index, were less affordable than their historic norms in the second quarter. This represents the highest share of markets historically less affordable since the fourth quarter of 2009.

“While home price appreciation in the second quarter accelerated to the fastest pace in more than three years, wage growth turned negative, posting the biggest year-over-year decrease in 5 years in Q4 2016 – the most recent average weekly wage data available,” ATTOM Senior Vice President Daren Blomquist said.

“That combination of accelerating home price growth and slowing wage growth, along with mortgage interest rates that are up nearly 50 basis points from a year ago, eroded home affordability nationwide to the lowest level in nearly nine years, and pushed the highest share of markets beyond the threshold of normal affordability in nearly 8 years,” Blomquist said.

This declining affordability doesn’t look like it will reverse anytime soon, one expert pointed out.  “Unfortunately, I do not expect see any substantial growth in the number of homes going on the market through the balance of 2017 and this will continue to erode affordability as buyers compete for the few homes that are available to them,” said Matthew Gardner, Windermere Real Estate chief economist.

Source:  Housing Wire/ATTOM

CMBS Delinquency Rate Jumps to 5-Year High

Posted on July 10, 2017 by Laura Lam

Trepp June DQ RateTrepp, a leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets, released its June 2017 U.S. CMBS Delinquency Report.  The commercial mortgage-backed securities (CMBS) delinquency rate climbed by its highest amount in more than 5 years.  The delinquency rate for U.S. commercial real estate loans in CMBS is now 5.75%, an increase of 28 basis points from May. The jump in June’s reading is the highest rate increase measured since March 2012. The June 2017 rate is now 115 basis points higher than the year-ago level.

“After months of marginal increases, the ‘wall of maturities’ finally took a meaningful toll on the CMBS delinquency rate,” said Manus Clancy, Senior Managing Director at Trepp. “June’s climb is well below the rate increases regularly seen in 2010, but the reading should still be anticipated to move somewhat higher through the rest of the summer as pre-crisis loans reach their maturity dates.”

About $2.4 billion in loans became newly delinquent in June, which put 58 basis points of upward pressure on the delinquency rate. About two-thirds of that $2.4 billion came from loans that reached their balloon date and did not pay off.

Delinquency readings for all 5 major property types increased last month. June’s largest increase belonged to the multifamily sector, as that rate shot up 110 basis points to 3.92%. As a result, the multifamily segment is no longer the best performing major property type. The office delinquency rate jumped 21 basis points last month to 7.46%. Industrial delinquencies spiked 20 basis points to 7.57%.

Source:  Trepp

Digital Banks Take the Lead in Customer Satisfaction

Posted on July 07, 2017 by Laura Lam

direct bank surveyConventional wisdom once would have said consumers prefer a traditional bank with branches and humans while digital “direct” banks (those without branches) were only for rate chasers.  But the tide has apparently turned.  Consumers now rate their satisfaction with direct banks higher than traditional banks, according to a study released by J.D. Power. Direct banks scored on average 865 out of 1,000 in the consumer survey while traditional bank users scored their institutions at 824 on average.

Scott Lippert, vice president/bank senior strategy officer at USAA, sees this as a side effect of society’s overall shift toward digital.  “We see our members’ expectations increasingly being set by companies that are really leading the way outside the banking industry, like Amazon,” he said.

Direct bank customers are also more likely to recommend their banks: 76% of direct bank customers say they’d recommend it to others, while 55% of traditional retail bank customers say they’d recommend theirs.

Direct banking customers skew younger. The average age is 47, versus 53 for traditional bank customers. They are more educated: 67% have a college degree, compared with 54% of traditional bank customers. And they are wealthier – 65% are affluent or mass affluent, far higher than the 47% of traditional bank customers.

They are digitally savvy and crave additional functionality. Direct bank customers who were offered more than 5 features on their direct bank’s website or mobile app were significantly more satisfied than those whose sites and apps had fewer than 5 features.  “Given that there isn’t a branch connection for consumers, there’s so much focus on digital, the features and range of services on digital will take on greater importance,” said Bob Neuhaus, financial services consultant at J.D. Power. “It’s a bank in your pocket.”

But direct banks need to make sure they live up to expectations. At 19%, direct bank users are far more likely to switch banks than the 6% of traditional retail bank customers who said they would.  Users are price sensitive – they come to a direct bank because they’re attracted to the low fees and high interest rates, Neuhaus said. When someone else offers them a better rate, they may take off. Direct bank customers also tend to have a simpler, easier-to-move relationship with their direct banks.

Traditional banks should take note and step up their digital offerings.  One point that traditional banks need to pay close attention to is the satisfaction of the one-third of traditional retail bank customers who never visit a branch. That group gave their bank an average score of 797, and is likely a prime target for direct banks. “As the direct banking model matures, largely fueled by the mobile experience, this is a threat and opportunity to traditional banks,” Neuhaus pointed out.

Source:  American Banker