It’s our Holiday Edition. Grab a glass of eggnog, warm up by the fireplace, and get the latest news happening in the Mortgage Industry including updates on interest rates, FHFA buyback policies, and GSE updates.
Mortgage Interest Rates: Still High, Gradually Coming Down
At the conclusion of its November meeting, the Federal Reserve left the federal funds target range unchanged at 5.25% to 5.5% for the second meeting in a row.
This news didn’t stop mortgage rates from gradually declining this past month. The average 30-year fixed rate moved below 7.5% for the top-scenario borrower, and some lenders quoted rates in the high 6% range with discount points. These lower rates will make it easier for loan officers to advise potential homeowners to take the slightly higher rate today and refinance later for little-to-no cost.
Even as mortgage interest rates shift slightly downward, home prices will likely remain elevated. In the medium- to long-term, supply and demand constraints will put pressure on prices – continuing a very competitive and aggressive market that we’ve seen for the last several years.
Court Strikes Down Real Estate Commissions
A U.S. district court in Missouri found that the National Association of Realtors (NAR) and two large brokerage firms had violated antitrust laws and conspired to artificially inflate commissions paid to real estate agents. The jury ordered NAR and the brokerages to pay about $1.8 billion in damages to about 500,000 home sellers in Missouri.
This verdict could drastically change the way commissions work, depending on whether the judge in the case issues an injunction to remedy anti-competitive rules and behaviors. Interesting changes also include: listing agents and home sellers would no longer be allowed predetermined buyer-agent commission rates; listing agents would also be prohibited from sharing commissions with buyer agents; and buyer-agent commission rates would not be published on MLSs.
The final approval hearing for the settlement is expected in 2024.
FHFA Eases Buyback Policies
During the recent Mortgage Bankers Association's (MBA) Annual Convention, Federal Housing Finance Agency (FHFA) Director Sandra Thompson noted a large reduction in repurchase requests from Fannie Mae and Freddie Mac since the peak.
“We know that a key factor contributing to the severity of this issue is today’s higher interest rate environment, in which the losses associated with repurchasing low-interest rate loans can be quite steep,” Thompson said. “We have also heard the industry concerns regarding loan defects that may not rise to the materiality necessary to justify a repurchase.”
She did note that both Fannie Mae and Freddie Mac have clarified the language in their seller/service guides as well as provide feedback when a repurchase request is made. She was also quoted as saying, “We remain open to additional options that would ensure alternatives to repurchases are available and offered regularly –and work on this front remains ongoing. While many of the details remain in development, we are considering initiatives to test and learn from various options for performing loans with defects.”
As a result of this news, Freddie Mac is launching a new fee-based repurchase alternative pilot program, expected to begin in 2024, for performing loans with defects. “The pilot will use a fee-based structure that is more efficient, transparent and rewards lenders that deliver high-quality loans,” the GSE said. “Specifically, lenders will not be subject to repurchases on most performing loans and will instead be subject to a fee-based structure based on non-acceptable quality rates.”
Agency Updates
As expected, the FHFA raised the GSE conforming loan limits by 56% to $766,550. The new high-cost loan limit also increased to $1,249,825, up from $1,089,300.
Freddie Mac made updates to its rental income requirements, permitting documentation of receipt of the security deposit, plus the first month’s rental payment, in place of receipt of two month’s rental payments.
Fannie Mae will expand access to credit and provide support for affordable rental housing. With a reduced down payment requirement, more buyers can pursue their dreams of becoming property owners and enjoying the benefits of generating rental income while occupying one unit and renting out the others. The downside of the change is that it could lead to an uptick in occupancy misrepresentation, something that our FraudGuard® solution can uncover.
Fannie is also updating its selling guidelines (SEL-2023-10) that prohibit an employment offer or contract for future employment from a family member or interested party to the transaction, regardless of whether a paystub is obtained before loan delivery. Lenders are encouraged to implement this change immediately but must do so for all loans with application dates on and after Feb 1, 2024.
About This Blog:
What We’re Watching is a monthly blog of industry news curated by Brian Haber, who monitors the mortgage market for First American Data & Analytics.