Month: August 2023

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Teresa Bryce Bazemore, President and CEO of the Federal Home Loan Bank of San Francisco, announced her intention to retire after her current contract expires in 2024. The Home Loan Bank of San Francisco came under heightened scrutiny for issuing advances to Silicon Valley Bank and Silvergate Bank before they went defunct earlier this year.

Alex Lowy

Teresa Bryce Bazemore, who held a front-row seat during the bank liquidity crisis this year as president and CEO of the Federal Home Loan Bank of San Francisco, plans to retire when her term expires in 2024, citing personal reasons. 

The San Francisco bank’s board chose not to renew Bazemore’s contract after she asked to retire in 2025, though her contract expires in 2024. The board instead initiated a search for a new CEO, said Simone Lagomarsino, the board’s chairman, who also is president and CEO at Luther Burbank Savings. 

Bazemore “indicated that, due to personal and other considerations, she would like to retire in March 2025,” Lagomarsino said in a press release. “As a result, and in consultation with Teresa, the board has decided to move forward with a search to identify a new CEO who will deliver long-term continuity and engaged leadership.”  

The decision followed “extensive deliberation and discussion” about the Home Loan bank’s long-term goals, including “the implementation and integration of strategic changes that may arise from the ‘FHLBank System at 100’ review currently being conducted by the Federal Housing Finance Agency,” Lagomarsino said in the release. “The board recognized the critical importance of a CEO who would be engaged for the next several years to lead the organization forward and implement a vision and strategy to align with the outcome of the FHFA’s review.”  

The San Francisco Home Loan Bank played a central role in the bank liquidity crisis in March, when it served as lender of next-to-last-resort to Silicon Valley Bank, which was taken over by the Federal Deposit Insurance Corp. and ultimately sold to First Citizens BancShares in Raleigh, N.C. Other major borrowers of the San Francisco Home Loan bank this year included San Francisco-based First Republic Bank, which was sold to JPMorgan Chase in May, and Silvergate Bank of La Jolla, Calif., which self-liquidated in March.

Last year, Bazemore earned $2.4 million, which included a base salary of $910,000 and other incentive compensation. When she joined the San Francisco Home Loan bank in 2021, she received a $100,000 signing bonus. Her employment agreement provides for 12 months of severance pay, equal to her base salary, plus other awards, according to the Home Loan banks’ combined financial report for 2022. 

Last year, the Federal Housing Finance Agency that oversees that Home Loan bank system, launched a holistic review of the government-sponsored enterprise, its first in 90 years. Critics have questioned the system’s hybrid public-private business model and whether the banks are engaged in the primary mission of supporting housing. FHFA Director Sandra Thompson is set to issue a report with policy and congressional recommendations sometime later this year. 

Separately, Fitch Ratings on Thursday downgraded certain ratings of the Federal Home Loan banks of Atlanta and Des Moines citing the “high and growing general government debt burden,” of the U.S. government. The ratings actions followed the downgrade of the U.S. to ‘AA+,’ from ‘AAA.’

The Home Loan banks are bank cooperatives that provide low-cost funding to 6,500 members including banks, insurance companies and credit unions. Created in 1932 to bolster housing during the Depression, the system incentivizes banks to buy mortgage-backed securities and agency bonds that can be pledged as collateral in exchange for liquidity.

Source: nationalmortgagenews.com

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In an effort to make homeownership more accessible, seeing that down payment is often the biggest hurdle, Fannie Mae and Freddie Mac have announced that they will now allow loan-to-value ratios as high as 97%.

Only 3% Down Needed to Qualify for a Mortgage

  • Fannie Mae and Freddie now only require 3% down payment
  • Which is slightly lower than the 5% minimum they used to require
  • More importantly it means conventional home loan financing
  • Requires a smaller down payment than government options like the FHA (3.5% minimum)

In other words, prospective home buyers can put down just 3% instead of the previous 5% down payment requirement that was in place for conforming mortgage loans. This should make it a little bit easier to qualify for a mortgage without going through the FHA.

Additionally, if you already have a mortgage that is owned by Fannie Mae or Freddie Mac, you’ll be able to get a rate and term refinance up to 97%, as opposed to just 95%, assuming you don’t qualify for HARP.

These new guidelines should make conventional loans a lot more popular than FHA loans, the latter of which require 3.5% down and come with very costly insurance premiums.

However, there are a few caveats to ensure loose lending doesn’t return just several years after the worst housing crisis in recent memory.

For one, both programs require the subject property to be owner-occupied. So investment properties and second homes won’t be eligible. But condos, co-ops, and PUDs are just fine.

Additionally, you can only get a fixed-rate mortgage via these new 97% LTV loan programs and the mortgage term is limited to 30 years. Shorter-term fixed mortgages are also permitted.

Though Fannie Mae and Freddie Mac are very similar, there are some differences between the two programs that I’ve highlighted below, most importantly the implementation date.

So if you were struggling to come up with a down payment, you might now be able to qualify for a mortgage thanks to these new programs. Take a look to see if you’re eligible and then contact banks/brokers to see if they’re available.

Most lenders that work with Fannie and Freddie will add these loan programs to their suite of offerings.

Fannie Mae’s 97% LTV Offering

Fannie Mae actually has two separate 97% LTV home loan programs available, one open to everyone and one only for borrowers in low-income census tracts or income-restricted in all other tracts.

The income-restricted program is known as “HomeReady” and comes with cheaper mortgage insurance coverage along with lower loan level pricing adjustments (LLPAs).

Those lower LLPAs mean borrowers can obtain lower mortgage interest rates, an important benefit for those with affordability concerns.

The LLPAs are waived for borrowers with LTVs above 80% and credit scores equal to or greater than 680, and capped at 1.50% for borrowers with attributes outside those parameters.

It also allows cash-on-hand as an eligible source of funds, but requires at least one borrower to take an online homeownership education course.

Here are the other rules that apply to both programs:

– Available on 1-unit principal residences only
– Maximum loan-to-value ratio 97%
– Down payment can come from gift, grant, or Community Second
– No minimum borrower contribution necessary
– Reserves may be gifted
– Only fixed-rate mortgages with terms up to 30 years are eligible
– No high-balance loans or adjustable-rate mortgages
– Manufactured housing not permitted
– Mortgage insurance is required
– Minimum 620 FICO score
– Must be underwritten through DU
– Available now

For the standard Fannie Mae 97% LTV program, there are no income limits and no discounts in the way of mortgage insurance or LLPAs.

And at least one borrower must be a first-time homeowner (no ownership interest in last 3 years). However, no pre-purchase home buyer counseling is required.

Freddie Mac’s Home Possible Advantage

– Available for low- and moderate-income borrowers
– Both first-time buyers and other borrowers with limited down payment savings can qualify
– First-time home buyers must participate in homeowner education program
– Maximum loan-to-value ratio 97%
– Loan options include 15, 20, and 30-year fixed mortgages
– Can be used to purchase a single-unit, primary residence
– Minimum 620 FICO score
– Manufactured housing not permitted
– Income limits vary by area (no limit in underserved areas)
– Lender-paid mortgage insurance permitted
– No reserves required
– Available March 23rd, 2015

For the record, there are already individual lenders offering loans with as little as 3% down that aren’t backed by Fannie or Freddie.  Examples include TD Bank’s Right Step program and various loan programs via credit unions nationwide.

However, the Fannie/Freddie guideline change will allow such loans to become widely available to many more borrowers.

(photo: Anna & Michal)

Source: thetruthaboutmortgage.com

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Mortgage Rates Near 23 Year Highs. Is There Any Hope?

Interest rates of all types have been under immense pressure since the beginning of 2022.  This resulted in the the highest mortgage rates in more than 2 decades in November of the same year.  A decent recovery followed, leading the average 30yr rate from the mid 7’s back to 6% by January, but rates have been grinding higher in a volatile pattern ever since then. 

As of today, many lenders are back in line with the high rates briefly seen at the beginning of last month.  Those rates are only a hair lower than those seen at the November 2022 peak.  

We’re fond of framing a mortgage rate index in the proper context.  It is a number that is best used to measure day over day changes relative to to points of reference in the past.  In other words, it’s less important that our index is at 7.2% today and more important that it’s only 0.1 lower than the 7.3% seen in Nov 2022.  Similarly, Freddie Mac’s weekly mark of 6.9 is getting close to its 7.08 level from 2022.  

Nonetheless, many mortgage lenders are definitely forced to be quoting rates in the mid 7’s right now.  Our 7.2% index represents a “top tier” scenario.  It means most lenders are at 7.25% since few originate loans at rates that don’t fall on .125% increments.  If the credit score is a bit lower, or if it’s a condo, or an investment property, or….  you could quickly be seeing something closer to 8%.

Many loan quotes still exist in the mid to upper 6’s because many companies are quoting rates with upfront discount points.  A discount point (1% of the loan balance) is still good for at least a 0.375% reduction in rate at most lenders.  Just be aware that 7.25% with no points is the exact same deal as 6.875% with one point.  Personal preference will dictate whether a borrower would rather pay now or pay more over time. 

Is there any hope for relief?  There’s always hope.  The only question is one of timing.  Timing will depend on economic data and inflation, among other things.  Part of today’s rate spike could indeed be due to anxiety over tomorrow’s big jobs report.  If it’s as strong as some of the other recent data, rates could continue higher.  But if it shows cracks in the labor market, it could mark a much needed turning point.

Source: mortgagenewsdaily.com

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Companies using artificial intelligence in cybersecurity respond to data breaches faster and save over $1 million in incident responses compared to firms that don’t use AI, IBM reports.

Hacks cost financial firms on average $5.9 million in 2023, according to the tech giant’s new Cost of a Data Breach Report. The average global cost of a data breach was $4.45 million, an all-time high and slight increase from last year’s $4.35 million mark. 

The research, conducted by the Ponemon Institute and analyzed by IBM, polled 553 organizations worldwide which suffered cyber attacks between March 2022 and March 2023. It’s unclear if any of the 67 U.S. companies surveyed were real estate organizations. The industry however was hammered with attacks over the same period. 

Cybersecurity utilizing AI saved firms on average $1.76 million in incident responses compared to businesses that didn’t, the report found. The tech-savvy firms also contained breaches 108 days sooner than their non-AI counterparts.

“Examples include the use of AI, machine learning, automation and orchestration to augment or replace human intervention in detection and investigation of threats as well as the response and containment process,” the report said. 

Only 28% of firms surveyed said they extensively use AI and automation security tools in cybersecurity, while 40% rely solely on manual inputs. Although the mortgage industry has slowly embraced tech solutions, an Arizent survey last year found lenders lagging behind their financial services peers in deploying AI and machine learning in cybersecurity. 

Lenders, servicers and other real estate players have suffered attacks impacting as little as a few hundred customers to millions of consumers in the past two years. While some firms have yet to acknowledge widely-reported attacks, others are facing class-action lawsuits from borrowers whose personally identifiable information was compromised. 

Mortgage firms have been quick to identify hacks, discovering them typically within days, according to public disclosures. In a more severe lapse, a servicer in late 2021 didn’t identify a breach for 41 days before investigating. Those known response times are far quicker than IBM’s reported average of 204 days for companies to identify a breach and 73 days to contain it. 

Among the average damages for firms worldwide were lost business costs, which respondents put at an average of $1.3 million per firm in 2023. Those expenses include lost customers and revenue, and the cost of acquiring new clients. Audits, investigations and crisis management totalled on average $1.58 million. 

Notification costs to consumers, regulators and other third parties averaged $370,000, according to the report. The 37% of businesses surveyed that didn’t notify law enforcement of attacks paid on average $470,000 more than those who did. 

The overall costs don’t include ransoms paid. The FBI warns victims not to pay hackers to further enable them.

Ransomware accounted for nearly 25% of all attacks, followed by phishing at 16% and compromised access credentials at 15%, the report found. Only a third of breaches were identified by a firm’s own security team or tools, a lapse that could add an additional $1 million to a data breach. 

The report highlights the benefits of firms which use a managed security service provider, a vendor that provides around-the-clock monitoring. Companies using a security partner cut breach lifecycles by 21%. 

Mortgage companies in the past year have also been forced to reconcile soaring cybersecurity and cyber insurance costs with fading revenues. In the past three months alone, lenders have grappled with a ransomware gang, suffered wide-ranging cyber attacks and paid a seven-figure settlement to resolve the fallout of a data breach. 

Source: nationalmortgagenews.com

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The average mortgage rate for a 30-year fixed loan rose 5 basis points last week to 3.02%, marking the first time since July that the industry has seen rates break above 3%, according to Freddie Mac’s Primary Mortgage Market Survey.

Since reaching a low point in January, mortgage rates have risen by more than 30 basis points as the economy works to recover, and according to Sam Khater, Freddie Mac’s chief economist, the impact on purchase demand has been noticeable.

“While purchase activity remains high, it has cooled off over the last few weeks and is currently on par with early March, prior to the pandemic,” Khater said. “However, the rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks, and we expect a strong spring sales season.”

After an arctic storm left purchase applications sluggish, mortgage activity bounced back last week almost immediately despite rising rates.

“The housing market is entering the busy spring buying season with strong demand,” Joel Kan, the Mortgage Bankers Association’s associate vice president of economic and industry forecasting, said. “Purchase applications increased, with a rise in government applications – likely first-time buyers – pulling down the average loan size for the first time in six weeks.”

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Throughout the pandemic-induced recession, now a year old, the Federal Reserve has stated that the housing market has been one of the only persistent bright spots. However, much of that strength has piggybacked on the industry’s historically low interest rates, and left some economists worried that the rapid rise in Treasury yields in the last several weeks risk choking off that activity.

The 10-year U.S. Treasury note, a heavy-hitter in the swing of mortgage rates, has risen by half a percentage point since January, now teetering near 1.4%.

However, Logan Mohtashami, HousingWire’s lead analyst, sees this as push in the right direction.

“Last year I talked about how the 10-year yield should stay at a range between 1.33% and 1.60% in 2021,” Mohtashami said. “If we couldn’t do this, something terrible happened with the vaccination process. After we closed above 1.33%, the yield rocketed toward 1.60%; we are in a range between these two levels right now. We are no longer in a recession; this is where the 10-year yield should be.”

Source: housingwire.com

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There’s something rotten in the state of the bond market.  After the early July CPI-driven rally seemed to put a ceiling on the range, there have been several somewhat enigmatic episodes of selling without the sort of obvious motivations that normally line up with big moves.  In other words, it wasn’t like a big piece of econ data came out this week to crush the bond market.

Nonetheless, bonds are getting crushed.  Analysts are forced to speculate about broad considerations that are hard to measure in the short term.  These include things like the supply/demand considerations surrounding the Treasury refunding announcement, ratings downgrades, and a delayed reaction to Japan’s yield curve control tweaks. 

The other broad consideration is that the market had the opportunity to embark on another hopium binge after CPI but instead chose to believe that the Fed really won’t be cutting rates for a long long time.  At the very least, traders waited for Powell to indicate whether CPI made a difference, but the answer was unsurprisingly:

POWELL: JUNE CPI WELCOME BUT ONLY ONE REPORT, ONE MONTH’S DATA
POWELL: WILL BE LOOKING TO SEE IF SIGNAL FROM JUNE CPI IS REPLICATED

Markets didn’t have a chance to do too much with the press conference before being forced to digest the stronger jobless claims and GDP data the following morning.  Then it was month-end. 

Bonds have undergone several “repricings” over the past few years as traders have come to terms with a shift in the prevailing beliefs about how things can play out.  The last two weeks are arguably one such instance.  Tomorrow’s jobs report could decide whether the repricing event if full blown or just a close call. 

Source: mortgagenewsdaily.com

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US economy added fewer new jobs than expected last month.

The US non-farm payroll rose by 187,000 in July, data just released shows, below forecasts of an increase of 200,000.

June’s NFP has been revised down too, from +209,000 to +185,000, while May’s has been cut by 25,000, from +306,000 to +281,000, meaning fewer jobs were created in the spring than we thought.

The U.S. Bureau of Labor Statistics has also reported that the unemployment rate fell to 3.5%, down from 3.6% in June.

They add:

Job gains occurred in health care, social assistance, financial activities, and wholesale trade.

Economists are hopeful that the US economy is on track for a soft landing, after US employers added 187,000 jobs in July, less than expected.

July’s jobs report is a sign that the labor market is cooling after a series of interest rate hikes by the Federal Reserve have driven rates to their highest level in 22 years.

July’s gains were just 2,000 more than the jobs added in June. The BLS revised June’s job gain down to 185,000, a cut of 24,000 jobs. It also cut May’s jobs number. Together, June and July represent the two weakest monthly gains in two and a half years.

Here’s the full story:

US economy adds 187,000 July jobs in sign labor market is coolingRead more

In the UK, there are fears the economy is caught in a ‘low growth trap’, after the Bank of England cut its GDP forecasts yesterday and hiked interest rates to a 15-year high.

UK car sales have risen for 12 months in a row….but rising interest rates have been blamed for another fall in housebuilding.

Shipping giant AP Møller-Maersk has warned of a longer and deeper contraction of global trade than previously expected.

Inflationary pressures in the food sector are on the rise, with the UN reporting that global food commodity prices rose in July.

Revolut is shutting down its crypto trading operations in the US amid a regulatory crackdown.

a crackdown on crypto exchanges, by the Securities and Exchange Commission (SEC), which has accused industry giant Binance of a range of securities violations, including mishandling customer funds and misleading investors and regulators, and alleged Coinbase of skirting SEC rules by letting users trade crypto tokens that were actually unregistered securities.

Revolut said users will be blocked from buying cryptocurrencies from 2 September, and that access would be fully disabled by 3 October, meaning customers will no longer be able to buy, sell, or hold any cryptocurrencies after that date.

Revolut said in a statement:

“This decision has not been taken lightly, and we understand the disappointment this may cause. This suspension does not affect Revolut users outside of the US in any way, and impacts less than 1% of Revolut’s crypto customers globally.”

A spokesperson stressed that the decision would not affect customers in any other markets, including the UK, where Revolut has been registered as a crypto asset provider since September 2022.

The company – which has been waiting more than two years for a decision on its UK banking licence – said it would not disclose how much of its revenues rely on crypto services, but said in 2021 that they made up around 15-20% of its revenues.

https://t.co/87Kh5YO8U4

— Bloomberg Economics (@economics) August 4, 2023