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What We’re Watching: Your Monthly Mortgage Industry Update –March 2024

March 26, 2024  //  BY Brian Haber

In this month's update:  Read high-level takeaways from the recent ICE Experience conference; learn how first-time home buyers are doing in the current market; gain insights into the new credit score models launching in 2025; and more!

Real Estate Agent 6% Commission Eliminated

The National Association of Realtors® (NAR) will eliminate its standard 5% to 6% sales commission as part of a $418-million settlement with home sellers. The settlement resulting from the Burnett v. NAR case will likely lead to a significant drop in commissions for home sales, with the association agreeing to drop a compensation-sharing system which is the main complaint in the lawsuit. The decision to slash commissions could help bring down housing costs which have skyrocketed since the beginning of the pandemic.

Optimism was Strong at ICE Experience

Last week more than 2,000 lenders and key industry players turned out in Las Vegas for ICE Mortgage Technology’s annual ICE Experience. The overall mood at the conference was relatively optimistic, with many participants looking forward to an improvement in originations in the second half of this year and an even stronger 2025. Much of the discussion in panels and at meetings focused on the need to automate less efficient processes, find cost-effective applications for AI, and identify new outsourced options to be ready when the market returns. And to top things off, Jason Sudeikis (the star of the hit television show Ted Lasso) addressed top executives at the invite-only executive committee meeting.

Share of Fannie and Freddie Loans to First-time Buyers Reaches New High

While originations sank to a 30-year low in 2023, first-time homebuyers accounted for an all-time high of 47% of all purchase mortgages backed by the GSEs last year, according to the latest ICE Mortgage Monitor Report. Of the 4.3 million mortgages originated last year, more than 80% were purchase loans to first-time buyers, pushing this group’s share to 44% of overall agency securities issuance.

Last year’s purchase market set high hurdles for buyers with record house prices, larger down payments, rising interest rates, and elevated debt-to-income ratios. “Given record exposure to first-time homebuyers loans, it’ll be worth watching the performance of this cohort very closely moving forward, particularly for those invested in 2023 agency MBS,” said Andy Walden, VP of Enterprise Research Strategy at ICE.

According to the Mortgage Bankers Association’s MBA Purchase Applications Payment Index, the national median payment was $2,134 in January 2024, up from $2,055 in December 2023. If, as expected, rates decline in the second part of 2024, many of these loans may be in the market for refinancing.

FHFA Set to Transition to New Credit Score Models in Q4 2025

The Federal Housing Finance Agency (FHFA) recently announced that the transition to new credit score requirements will occur in Q4 2025. Next year, the GSEs will acquire single-family loans based on the FICO 10T and VantageScore 4.0 credit models, replacing the Classic FICO score that’s been in place for decades. The GSEs will also transition from a tri-merge system to a bi-merge system. The FHFA believes the new models will increase accuracy in credit scoring since they provide multiple views of credit risk for market participants and improve competition since reports from two rather than three of the national credit bureaus can be used.

Future Trigger Lead Ban

The U.S. House of Representatives now has its version of trigger-lead legislation similar to a bill previously introduced in the Senate. Known as the “Homebuyers Privacy Protection Act,” the House bill seeks to “amend the Fair Credit Reporting Act to prevent consumer reporting agencies from furnishing consumer reports under certain circumstances and for other purposes.”

According to Rep. Ritchie Torres, (D, NY), one of the authors, “Trigger leads exploit consumers’ financial inquiries, turning them into commodities, sold without consent. We must empower homebuyers, not bombard them with predatory calls.” MBA President Bob Broeksmit called for swift reconciliation between the Senate and House versions to achieve passage, allowing President Biden to sign into law.

FHA New Loss Mitigation Option

FHA has announced a new loss mitigation program called “Payment Supplement” that will offer distressed borrowers temporarily reduced monthly mortgage payments without changing their interest rate. Servicers would use funds from a “partial claim” as an interest-free second lien from HUD to help homeowners catch up on their past-due payments. The partial claim could be for up to 30% of the balance of a borrower’s loan and would be paid back when the homeowner sells the home, refinances, or otherwise terminates the mortgage. This Payment Supplement would be active for three years, after which the borrower would again be responsible for paying the full monthly payment.

Can Mortgage Insurance be Removed on FHA Loans?

One of the drawbacks of low downpayment FHA loans is that the mortgage insurance portion (MIP) can’t be removed, even as the LTV decreases. Or can it? There are several paths to cancel private mortgage insurance on Fannie Mae and Freddie Mac loans once LTVs drop below 80%. Borrowers must contact the servicer in this case, although automatic cancelation occurs when the amortization schedule reaches 78% of the original value. Unlike PMI, government MI can only be canceled if certain factors come into play. For example, MIP can be canceled if the loan’s origination date was between July 1991 and Dec 2000. If the origination date was after June 3, 2013, and the borrower made a down payment of at least 10%, the MIP can be canceled after 11 years. For any down payment of less than 10%, the borrower will pay the MIP for the life of the loan unless refinanced.

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.

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