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

Consumer Delinquencies on the Rise

Posted on July 06, 2017 by Laura Lam

consumer delinquencies 7-2017Delinquencies in both open- and closed-end loans rose in the first quarter of 2017, according to the ABA Consumer Credit Delinquency Bulletin released today.  The rise in closed-end delinquencies was driven by an uptick in late payments on auto loans, the report noted. The composite ratio, which tracks delinquencies in the closed-end installment loan categories, rose 5 basis points to 1.56% of all accounts, but remained well below the 15-year average of 2.17%.

Delinquencies in indirect auto loans rose 8 basis points to 1.83% of all accounts, while direct auto lending delinquencies increased by 9 points to 1.03% of all accounts. Both remained well beneath 15-year averages, however.

In the home-related category lines tracked, home equity line of credit delinquencies and home equity loan delinquencies rose to 1.11% and 2.59%, respectively. Property improvement loan delinquencies held steady at 0.98% of all accounts. Meanwhile, bank card delinquencies rose 5 basis points to 2.74% of all accounts.

“Eight years into the economic recovery, it was inevitable that we’d start to see delinquencies edge up from their extremely low levels,” said ABA chief economist James Chessen. “Even in a strong economy with good job growth, there are always people living paycheck to paycheck. Any small bump in the road can be enough to cause them to miss a payment or two on their loan. The good news is that most consumers have been careful to manage their debt levels to ensure they can withstand those small setbacks and meet their obligations.”

Source: ABA Banking Journal

Banks: Are There Too Many Cybersecurity Alerts?

Posted on June 27, 2017 by Laura Lam

alert overloadSecurity alert overload, a source of frustration for bank security departments for some time, appears to have careened out of control.  A survey of bank security chiefs by the research firm Ovum documents how high the daily volume of messages about possible security incidents has grown.  Over a third (37%) of banks, it turns out, receive more than 200,000 security alerts a day.

“It’s too much for humans to cope with, even at banks with the largest security teams. Adding more operators isn’t the solution, the problem needs to be solved through automation,” said Rich Baich, chief information security officer at Wells Fargo.  According to Baich, volumes of alerts will continue to climb until organizations implement the appropriate technology and overlay them with operational innovations that allow the organization to rapidly sift through the mountains of data to find the actionable alerts.

Raj Samani, chief technology officer of the security software firm McAfee, also sees these volumes as unmanageable.  “There’s no way any organization can do the necessary analysis on 200,000 events a day,” he said.  “Even if we take it back a touch, 61% of organizations receive in excess of 100,000 events a day. It’s far too much to deal with in a practical fashion.”

The surveyed bank security executives seem to agree: 35% said the ability to monitor and report security threats is their top security operational pain point. Further down the list are the worries of dealing with resource constraints, obtaining a skilled workforce, managing security workload and managing security threats of new technology such as cloud and mobile.

The survey also asked the security heads how many security tools they’re using. More than a third (36%) said they are using between 51 and 100. This is another challenge to managing security, though the respondents noted that having multiple, disparate security systems improves their overall security posture.  “The challenge is that most organizations are running more than 25 tools,” Samani said.  The disparate nature of the many security software packages banks use is the weakest link in bank security, he added.  Interoperability between security software programs would help.

But Baich noted that such security tech complexity is unavoidable.  “As organizations move from maturing their cybersecurity program from a static program to one that is proactive and preemptive, that requires a greater portfolio of tools,” he said. “To meet the growing demand of the complex threat environment, organizations need to stay current with the latest solutions and often become system integrators, synergizing disparate technologies to work together to solve the toughest problems.”

Source:  American Banker

Delinquencies Down in May; Some States Fare Better Than Others

Posted on June 26, 2017 by Laura Lam

black knight May 2017

Delinquencies and foreclosure rates dropped in May, partially reversing the sudden increase in April, according to Black Knight Financial Services’ First Look report.  After rising 13% in April, the largest monthly increase since November 2008, delinquencies saw a partial reversal in May with a drop of 7%.

The inventory of loans that are either seriously delinquent, 90 days or more past due or in active foreclosure continued to improve, hitting a 10-year low in May. The number of loans in foreclosure hit 421,000 in May, a drop of 12,000 loans from April and 153,000 loans from last year.  Prepayments jumped 23% month-over-month, usually a good indicator of refinance activity, reached their highest point so far in 2017.

However, foreclosure starts increased slightly by 55,800 loans, up 5.7% from April – but this is the second-lowest number of monthly starts since 2005.  Here are the five states with the lowest percentage of non-current loans, the combined foreclosures and delinquencies as a percentage of active loans in the state:

  • Colorado: 2.12%
  • North Dakota: 2.26%
  • Minnesota: 2.51%
  • Idaho: 2.69%
  • Oregon: 2.7%

These are the states where homeowners struggle the most to keep up with their mortgage payment and hold the highest non-current percentage:

  • Maine: 6.6%
  • West Virginia: 6.83%
  • Alabama: 7.13%
  • Louisiana: 8.68%
  • Mississippi: 10.16%
Source: Black Knight Financial Services/Housing Wire