In this month’s update: learn more about continuing ramifications from the NAR settlement; the challenge of untangling the “regulatory knot, according to the MBA;” a new policy that lets mortgage borrowers dispute appraisals; an important eNote update; the Supreme Court ruling in favor of the CFPB; and growing interest in home equity investments.
News From MBA Secondary
Mortgage bankers gathered last week in New York City for the MBA Secondary Conference. In his keynote, Mortgage Banker Association (MBA) President and CEO Bob Broeksmit addressed the “regulatory knot” that is harming the industry and undermining consumer confidence.
“As the regulatory knot tightens, consumer trust in the mortgage industry falls. Take the alleged junk fees. The Consumer Financial Protection Bureau (CFPB) is telling consumers that lenders are out to get them. In fact, lenders are following the law. Ditto the regulations that raise costs while limiting options. They give the impression that the mortgage industry is sticking it to consumers,” he said. “These regulatory knots exist because no one can untangle them. There are so many agencies issuing so many rules, that the buck doesn’t stop anywhere.”
Broeksmit's proposal for untangling the knot: a new National Housing Policy Director who would supervise all housing policies from any agency. This person would prevent agencies from making more knots and begin to loosen them, Broeksmit said.
Broeksmit sat down later with CFPB Director Rohit Chopra, where Chopra pushed back on the mortgage industry’s criticism of his stance toward “junk fees” across the banking industry. Chopra responded that “a junk fee isn’t just what’s hidden.” In the CFPB’s opinion, it also covers what is not subject to competition, or if it applies to services nobody wants.
HUD & FHA Announce New Appraisal Bias Protections
The U.S. Department of Housing & Urban Development (HUD) and the Federal Housing Administration (FHA) introduced a new policy earlier this month that will enable mortgage borrowers to request a re-assessment of the appraised value of their property if they believe that the appraisal was inaccurate or biased.
Until this move, there has never been a standardized policy for mortgage loan-related Reconsideration of Value (ROV) requests after an appraisal has been submitted. Government-Sponsored Enterprises (GSEs) also have similar policies. The new policy applies to all FHA single-family forward and reverse mortgage programs. Also included in the new ROV policies are allowances that the borrower, or requestor, can submit up to five additional properties for consideration.
Ginnie Mae eNote Update
Starting in June, Ginnie Mae will begin allowing eNotes and traditional paper notes to be securitized in the same pools. Since Ginnie Mae began its Digital Collateral program in 2021, it has issued more than $38 billion in eNotes. The announcement comes as lenders are continuing to look for ways to cut costs, as eNotes cost less to originate than paper notes.
Supreme Court Rules in Favor of CFPB
In a 7-2 decision, the Supreme Court ruled that the CFPB’s funding was constitutional. The CFPB stated: “This ruling upholds the fact that the CFPB’s funding structure is not novel or unusual but in fact an essential part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole. As we have done since our inception, the CFPB will continue carrying out the vital consumer protection work Congress charged us to perform for the American people.”
While some trade groups challenged the agency’s funding through the Federal Reserve rather than annual appropriations by Congress, the MBA was relieved that the Supreme Court avoided a ruling that would have disrupted the housing and mortgage markets and harmed the economy and consumers.
“While we frequently disagree with the Bureau on how they interpret or enforce particular rules, a decision that would have invalidated the Bureau’s previous rules could have had severe consequences for single-family and multifamily mortgage markets.”
Rates Ease in May
Mortgage rates are still high as the U.S. approaches its busiest homebuying season, but they are decreasing week-over-week. The Consumer Price Index, which measures inflation, came out on May 14 and showed that inflation slowed down in April after rising faster than expected for several months, according to data from the Labor Department on May 15.
The Consumer Price Index increased by 0.3% from March to April and by 3.6% from a year ago, matching what economists predicted. This seemed to calm bond traders who quickly started lowering rates. Lenders reduced their average top-tier conventional 30-year fixed rate to 6.99% from 7.11% on May 14.
NAR Settlement Could Increase Dual-Licensed Agents
During the MBA’s Advocacy Conference in March, MBA President and CEO Bob Broeksmit floated the idea that the recent NAR settlement (which changes the commission structure for real estate agents) may result in more dual-licensed agents.
“There will be market reactions to the settlement, and it will create openings for other business models where we want the buyer represented, but the seller may not want to pay the 3% for a buyer’s agent,” he said. “One of those models could be that you, as lenders, license your loan officers as real estate agents and offer the buying agent service for less than 3% fixed fee.”
His words have been echoed by mortgage executives and advisors who have pointed out that dual employment will create more opportunities for loan officers and real estate agents going forward. Some loan officers argue that it could threaten the relationship with their current real estate agent partners since a big percentage of leads today come from agents. Fannie Mae, Freddie Mac, and the FHFA allow dual licensing, although it has been a sensitive issue in the past.
Homebuyers’ Agreements
In other NAR-related news, the proposed NAR settlement outlines the requirement that buyers have written agreements with agents before showing potential homebuyers any homes. This presents a tough situation as buyers might not want to sign an agreement like this so early in the home-buying process.
In response, Zillow created the "Touring Agreement" which basically allows the agent to show the buyer homes for seven days, stating that the buyer doesn’t have to pay any fees. The agreement also states that if the buyer plans to retain the agent there will be a separate agreement that will cover those services.
New Home Equity Option Is Getting Attention
Home Equity Investments (HEI), also known as a Shared Equity Agreement, are a flexible alternative to HELs, HELOCs, and down payment assistance programs that are gaining traction among U.S. homeowners and potential buyers.
Shared Equity Agreements are when an investment company pays a homeowner or a buyer a cash amount based on the current or future value of their home. Sometimes, it helps people buy homes by giving them money for a down payment and getting a share of the home’s future value. This is not like home equity loans or HELOCs where the homeowner borrows money and interest based on the value of their home.
The key difference with HEIs is that it’s not a loan — there are no monthly payments — but when the home is sold at the end of the term (usually 10 to 30 years) the investment company receives its share of the home’s appreciated value along with the original investment. This can be a benefit to the homeowner if the need for cash is immediate and they are not able to handle additional monthly payments. We’re seeing several wholesale companies begin to offer these alternative loan programs to offset the lower refinance volume due to higher rates.
Lenders and investors considering these options might want to use advanced AVMs, like our Procision™ AVM, to reduce risk.
It’s A Good Time to Sell…But to Whom?
Fannie Mae’s Home Purchase Sentiment Index for April found that consumers are continuing to adjust to the higher interest rate and home price environment. The research shows that 67% of consumers indicated that it’s a good time to sell a home, while 20% said it’s a good time to buy a home. These two indicators are up 10% and 3%, respectively, since the end of 2023 despite mortgage rates having moved steadily upward. The share of respondents who expect mortgage rates to go down over the next 12 months fell to 26%.
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.