The ultimate desktop appraisal FAQ?

Desktop appraisal... the very name is an artifact -- highlighting the distance the real estate tech/proptech sector needs to close on the innovation front.  The related matter of appraisal modernization is a real and pressing concern, even beyond the Biden Administration's a task force to develop the Property Appaisal and Valuation Equity Plan (PAVE).  The average age of appraisers is 50, a cohort that is 63.6% male who also happen to make over 50% more than female counterparts.  Such disparities make it hard to defend when stories of disparate outcomes crop up -- like how "Wells Fargo Rejected Half its Black Applicants in Mortgage Refinancing Boom."

But I digress, for desktop appraisals, or as I call it "collective intelligence (human/machine) real estate valuations" can drive more transparent, objective appraisals.  As you can readily conclude from my preferred term, I'm no branding expert, so for now, here's the "ultimate desktop appraisal FAQ"

First Community Bank of Tennessee buys mortgage lender

$814mm First Community Bank of Tennessee buys A Mortgage Boutique. One side made a very smart decision - not sure which... 

Causes and implication of the pandemic increase in house prices

Harvard Joint Center for Housing Studies fellow Don Layton's excellent summary of the state of play in pandemic-era US residential housing. Key point, don't expect a replay of the Great Recession with its Ownership Society hangover from binging via loose lending standards and the use of “house as piggy bank” which led to a foreclosure crisis and 1-in-4 homes being underwater. We will surely face headwinds in the days ahead, but gross pattern-matching will not provide the right insights.

Highest annual appreciation of Purchase-Only FHFA API since 2004-5

FHFA House Price Index (HPI) Monthly Report: “The 12-month gain of 10.2% in October is the highest annual appreciation observed since the 2004- 2005 period. Extremely low mortgage rates and a limited supply of homes for sale continue to propel price gains. The data do not yet reflect renewals of some local and state COVID-19 restrictions.”

This index is derived from data on mortgages conforming to Fannie Mae and Freddie Mac limits.

Mortgage originations "on pace for best year ever"

While we are ending 2020 with mortgage originations “on pace for best year ever” (https://lnkd.in/grd-epN) turbocharged by refinance volume, should we be concerned by the increasing disparity in Fannie Mae home purchase sentiment between those who already are homeowners and those renters looking to get into home ownership? The latter category have been harder hit by the economic ravages associated with pandemic and have been sitting on the sidelines during this housing value bull market. 

Door #1: The HPSI disparity between cohorts must converge for a long term sustainable purchase mortgage market, or

Door #2: We have nice single family rental unit for you...

Data is the oil... residential real estate edition

"In recent years, as finance has computerised and algorithms have come to dominate markets, data has evolved from being a byproduct of transactions to 'the lifeblood of finance'" (quote by Audrey Costabile Blater PhD of Aite Group)

Buried in nearly every piece on this matter is mention of the Ellie Mae purchase by Intercontinental Exchange which may seem a bit dissonant, but residential mortgages provide some of the richest and most sizable, long duration data sets around, one that's barely being leveraged when compared to adjacent financial sectors, and generally at a remove. This may be attributable to the cloistered nature of the US mortgage market, a $10Tr+ cul-de-sac in the financial markets.

But, don't fret. The Black Fleet of exogenous disruption is at the mouth of this sector's Edo Bay.

The myth of GSE release

“(FHFA) Director Calabria seems more interested in crippling the GSEs operationally than making a release from government control truly possible.”

Christopher Whalen may be indulging in a bit of psycho-analysis, but if you take Grover Norquist’s quip about getting government “to the size where we can drown it in the bathtub,” and substitute the object of affection with Fannie Mae/Freddie Mac, you’re likely close to the good director’s world view.

Disparate outcomes of loan deferral/forbearance programs

The Wall Street Journal highlights the disparate outcome of loan deferral programs set out by the Cares Act, which have been "of greater benefit to homeowners and college graduates, many of whom entered the recession in relatively good financial shape. Lower-income workers, who are more likely to rent and to not have a college degree, saw less benefit."

In a fractal turn within mortgages, one sees a marked divergence in impact, with the Federal Housing Administration and U.S. Department of Veterans Affairs loans having 2.6x higher rate of forbearance than the generally better credit Fannie Mae and Freddie Mac loans. (Source: Black Knight McDash Analytics)

US mortgage refinance heatmap

 From Leonard Kiefer... Heatmap showing how mortgage refinances are bringing the heat.

Overheated? Maybe not. The market hasn’t been this robust since 2012-13 with six intervening years of robust HPI growth. Also the peaks this time around are measurably lower than that last refi tsunami. In both instances, sizable portions of homeowners remain on the sidelines, due to underwater (in equity) last time, employment distress this time. 

WSJ: Fannie, Freddie overseer looks to end Federal control before Trump leaves

Federal Home Finance Agency head Mark Calabria, the reg­u­la­tor who over­sees Fannie Mae and Freddie Mac is push­ing to speed up the mort­gage gi­ants’ exit from 12 years of gov­ern­ment conservatorship, but has yet to reach an agreement with U.S. Department of the Treasury Secretary Steven Mnuchin. Two major considerations: (1) concern about any action that would inject uncertainty in the government’s backing of the firms which have helped drive the record low mortgage rates of late and (2) potential write down of the government’s $220B+ of senior preferred shares in the two firms which would disincent any private investor interest.

“Inequality compounds in exactly the same way as interest..."

“Inequality compounds in exactly the same way as interest — small, nearly negligible differences accrue into significant gaps over time.”

Morgan Stanley estimates that the lack of access to homeownership has cost nearly 800,000 jobs, $400 billion in tax revenue and nearly five million from owning homes. This comes at the heels of a recent MIT Golub Center for Finance and Policy research showing that African American homeowners on average pay $67,320 more for their houses over their lifetimes because they pay slightly higher mortgage rates, mortgage insurance premiums, and property taxes on a monthly basis, which, if eliminated, would reduce the $130,000 black-white gap in liquid savings at retirement would by half.

Regional differences in housing affordability deterioration

Two charts from a recent National Association of Realtors report neatly summarize the differing affordability picture between regions.

WSJ: Where Trump and Biden Stand on Mortgage Finance

Figuring our what to do with Fannie Mae and Freddie Mac "remains the largest single piece of unfinished business from the 2008 financial crisis." Both are under Federal Housing Finance Agency conservatorship, recipients of about $200 billion in government bailout to prevent failure during the mortgage crisis at the time. Since then, the two agencies have sent back over $300 billion in the form of dividends to the U.S. Department of the Treasury. #housing #mortgage #housingmarket #realestate #homeownership

Forbearance: A rather miniscule "jump," but wait, there's more...

 

That “jump” works out to be a 0.6% blip. 

More importantly for those paying attention...

1. While the overall rate is 6.8%, over 11% of FHA and VA loans are in forbearance. The Fannie and Freddie contingent is now under 5%.
2. Over 3 out of 4 loans in active forbearance had their terms extended at some point since March.

A good portion of homeowners initially choosing forbearance had continued to pay on time and subsequently exited after their initial, mainly 3-month, terms had expired. Those remaining really do need the plans.

More details from Black Knight

Regional differences in the financing of new home sales

The National Association of Home Builders analysis of the 2019 U.S. Census Bureau Survey of Construction data shows that the share of non-conventional (i.e., Fannie Mae and Freddie Mac mortgages) financing for new home sales accounted for 35%, up from 29% in 2018.

Eye-opening is the level of significant regional differences. Of particular note, nearly one in ten new homes in New England were purchased with cash. Given the level of mortgage rates, why is this cohort of home purchasers resorting to cash (or equivalent)?  Is this an indication of a product-market mismatch? 

OCC: Seven national banks servicing over a million seriously delinquent loans?

The 2Q20 Office of the Comptroller of the Currency mortgage metrics report show that among the seven national banks with large servicing books, over 1 million loans (or 6.8% ) were seriously delinquent, a 4.7x increase from the quarter before. 

Some points for added context...

• Reason for concern: The banks (Bank of America, Citi, HSBC, Chase, PNC, U.S. Bank and Wells Fargo) have limited exposure to FHA/VA mortgages which, as a group, have seen more distress than the Freddie or Fannie mortgages that predominate their books.
• Reason for hope: There is no mention of loans in forbearance programs. Recent research by dv01 highlighted material reporting discrepancies in privately securitized pools. Could there be an overlap between loans in serious delinquency and those in forbearance?

UWM to go public

United Wholesale Mortgage to go public through a SPAC, merging with the Gores Holdings IV Inc. affiliate of The Gores Group. The combination will operate under the United name listed on the NASDAQ under the UWMC ticker. The transaction is valued at $16.1B or 9.5x the estimated 2021 Adjusted Net Income of $1.7B.

WSJ: Wall Street landlords ready for the millions of house-rich, cash-poor, in-distress

What to do when homeowner equity on mortgage properties head towards $10 trillion yet over 9% of homeowners are either in forbearance plans or delinquent, meaning they have no good way of extracting that excess equity? Single family rental outfits like Invitation Homes, American Homes 4 Rent and EasyKnock are bringing to market sale-leaseback products that can help these homeowners as their forbearances start ending early next year. If these options take off, mortgage servicers may see less loss mitigation challenges, but may also lose out on these customers who claw their way back yet are sufficiently impaired that they’re essentially stuck in their mortgages.

Banks retreat again from residential servicing

Chris Whalen delves into why bank servicing of residential mortgages have fallen in 2020 even as origination volume is set to increase by 40% year-over-year.

1. Nonbank lenders have been taking the lion’s share of the volume expansion, most notably in refinance activity, which is set to roughly double year-over-year.
2. A “handful of hyper-efficient lenders” have become quite quite good at recapturing the refinance activity, which stems the pressing leak in the servicing portfolio during these refi waves.

Observations...

1. Those institutions with leading recapture capabilities are increasingly able to articulate a platform-driven value proposition (see Rocket Mortgage)
2. The share of servicing done by nonbanks lender will likely continue to grow, may have long-term systemic implications since these shops are borrowing short term to hold long term without the permanent government support accorded to banks

Mortgages boom amidst Coronavirus-driven economic gloom

$1.1 trillion in mortgages were issued in the first quarter of the pandemic era (2Q20). To put in perspective, the entirety of 2020 saw $2.5 trillion in originations. Refinances were up 200% while purchase mortgages were down 8% from the year earlier.

But it’s not all good news... “This boom in mort­gage orig­i­na­tions isn’t nec­es­sar­ily go­ing to be that awe­some for the broader econ­omy,” said Ralph B McLaughlin, chief econ­omist at Haus.com a home-fi­nance startup. “There is less of a mul­ti­plier ef­fect in the econ­omy when some­body refinances ver­sus buy­ing a house.”