In this month’s update: learn more about the finalized new AVM rule; new legislation from the CFPB regarding consumer credit reports and borrowers about to go into foreclosure; affordability updates; new consumer research on debt levels and knowledge of the mortgage process; and home insurance trends.
New Fannie Mae Survey Reveals Knowledge Gaps in the Mortgage Process
In 2015, 2018, and then again in 2023, Fannie Mae conducted a consumer survey that looked at knowledge gaps in the mortgage process. According to the most recent Mortgage Understanding Study, consumers continue to face significant challenges in understanding and navigating the mortgage process.
The survey highlighted persistent knowledge gaps about how to qualify for a mortgage and a significant lack of confidence in the mortgage process. Thirty-two percent of respondents either didn’t know or significantly overestimated the minimum credit score required for a typical mortgage, and almost 90% overstated or were unaware of the minimum down payment required. These knowledge gaps may contribute to the low confidence levels among consumers regarding the mortgage process. According to the survey, only 19% thought now was a good time to buy a home.
Americans' Debt Reaches All-Time High
A new study found that American households’ debt has reached an all-time high. The study looked at the growth of mortgage, auto, credit card, and student loans since 2003 and found that total household debt grew by almost 82% in the past 20 years. Mortgage debt is 18% higher than at the peak of the 2008 mortgage crisis. It has been rising steadily since a low point in 2015 but grew minimally between 2023 and 2024. Mortgages remain the main debt source for American households, representing three-quarters of the total, or 74%.
Regulators Green Light Final AVM Rule
The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), Consumer Financial Protection Bureau (CFPB), the Federal Reserve and the National Credit Union Administration have officially finalized a rule that requires mortgage originators and secondary-market issuers to impose quality standards for their Automated Valuation Models (AVMs)“to maintain policies, practices, procedures, and control systems to ensure that automated valuation models used in these transactions adhere to quality control standards designed to:
(a) Ensure a high level of confidence in the estimates produced;
(b) Protect against the manipulation of data;
(c) Avoid conflicts of interest;
(d) Require random sample testing and reviews; and
(e) Comply with applicable nondiscrimination laws.”
Our Procision™ AVM suite was designed to comply with current AVM guidelines and to anticipate the new rule.
Affordability Crunch
In May, housing affordability reached its second lowest level in over three decades, according to First American Chief Economist, Mark Fleming. On a year-over-year basis, housing affordability declined by nearly 9%. Two factors drove the sharp annualized drop in affordability—a 5.9% annual increase in nominal home prices, according to the First American Home Price Index, and a .6 percentage point increase in the 30-year, fixed mortgage rate compared with last year. The housing market continues to suffer from an imbalance between housing supply and demand which puts upward pressure on prices. While affordability is likely to remain constrained for the remainder of 2024, mortgage rates are expected to come down in the Fall which would be welcome news for potential homebuyers.
Two-thirds of U.S. Homes are Underinsured
As homeowners’ insurance premiums continue to rise across the country many homeowners aren’t increasing their coverage levels to reflect high home value, and a significant number are dropping their insurance entirely. A recent homeowners insurance analysis found that two-thirds of homeowners have insurance policies that do not reflect current reconstruction costs or home improvements. Additionally, because of the rising costs of premiums, nearly 6 million U.S. homeowners do not have property insurance at all, with Mississippi being the state with the most uninsured homeowners.
CFPB Legislation Update
Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued a Notice of Proposed Rulemaking related to the mortgage servicing rules in Regulation X. The proposal, if finalized, would require mortgage servicers to focus on helping borrowers avoid foreclosure when they ask for help. In response to the proposed rule, the American Bankers Association and the Mortgage Bankers Association issued the following joint statement: “The Bureau’s proposal represents a substantial overhaul of the current framework, and we hope they will take into careful consideration the recommendations and feedback from our members who are serving millions of borrowers every day. We look forward to reviewing the specific details of the proposal – including the items pertaining to Limited English Proficiency – to ensure any updated framework is operationally feasible and does not negatively affect consumers.”
In June the Bureau proposed a rule that would remove medical bills from consumer credit reports which would help increase credit scores and loan approvals as well as prevent debt collectors from using the credit reporting system to coerce people to pay. Research conducted by the CFPB revealed that medical debt is not a good indicator of whether a person will repay a loan. Medical bills make up more than $88 billion of reported debt on credit reports.
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.