decades

Apache is functioning normally

U.S. lenders issued a staggering $1.1 trillion in home loans between April and June, marking the biggest quarter in at least two decades, according to mortgage data firm Black Knight. The record quarter highlights the growing disparity between homeowners who are primed to take advantage of perfect conditions, and those who are simply desperate to not lose their homes.

The surge in activity was driven primarily by an unprecedented rush to refinance. With rates ticking down to historic lows, homeowners tested lenders’ capacity limits with more than 2.3 million refinancings in the quarter, the most in nearly 17 years. Seventy percent of the total loans originated by dollar value in the second quarter were refinancings, according to Black Knight’s data.

Most took advantage of 3% interest rates to lower monthly payments; cash-out lending comprised just 3 out of 10 refi originations in the second quarter, Black Knight found. 

The third quarter is shaping up to be even wilder – locks on refis that are expected to close in the third quarter are up 20% from the second quarter. 

“With market conditions as they are and given the recent delay of the 50 basis points fee on GSE refinances until December, we would expect near-record low interest rates to continue to buoy the market,” Ben Graboske, president of data and analytics for Black Knight, said in a statement. “After all, there are still nearly 18 million homeowners with good credit and at least 20% equity who stand to cut at least 0.75% off their current first lien rate by refinancing.”

And while the purchase market was down 8% largely due to coronavirus-related reasons, rate locks suggest that pent-up demand could lead to record activity in the third quarter.  

“Purchase locks in Q3 2020 have already made up for the losses of a COVID-impacted Q2 – and then some – based upon normal seasonal expectations,” said Graboske. “In fact, rate locks are suggesting that we could see Q3 purchase lending break typical seasonal trends and rise by 30-40%, which would push us to a new record high.” 

The growing inequality in America, however, is also highlighted in Black Knight’s Q2 report. Though unemployment dropped to 8.4% in August, more than 11 million jobs have disappeared since March. To compound matters, supplemental federal unemployment benefits totaling $600 a week expired in July. Markets with the biggest delinquency increases in July were in New York, New Orleans, Las Vegas, Orlando and Miami.

Loans that are more than 90 days past due – known as “serious delinquencies” – increased 450% from pre-pandemic levels, though total loans in forbearance continued to drop from a high in May.

Of the 3.9 million homeowners still in forbearance, 2.85 million have had the term of their forbearance plan extended while 1.07 million still remain in their original term, according to Black Knight. Homeowners with less equity and unfavorable credit were more than twice as likely to have entered forbearance plans.

Source: housingwire.com

Apache is functioning normally

Average U.S. mortgage rates for a 30-year fixed mortgage fell to an all-time low of 2.88% this week, the eighth time in 2020 the weekly rate has set a record in a Freddie Mac series that goes back almost five decades.

It fell from 2.99% last week, Freddie Mac said in a report on Thursday. The average 15-year rate fell to 2.44%, the lowest in almost 30 years of data, according to the mortgage financier.

Low mortgage rates help to support real estate demand by making it possible for more buyers to qualify for loans. This is because cheaper financing lowers monthly mortgage bills, which are compared to income to qualify applicants. Low rates also support price growth because buyers typically qualify for bigger mortgages.

“Mortgage rates hit another all-time low, giving potential buyers more purchasing power and strengthening demand,” said Sam Khater, Freddie Mac’s chief economist.

The problem facing buyers isn’t the rates, Khater said. It’s the dearth of homes for sale that has plagued the housing market long before coronavirus.

In June, the inventory of homes on the market fell to a four-month supply, according to the National Association of Realtors. A year ago, the number was 4.3 months.

“We expect rates to stay low and continue to propel the purchase market forward,” Khater said. “However, the main barrier to rising demand remains the lack of inventory, especially for entry-level homes.”

Mortgage rates began tumbling in March after the Federal Reserve made a pledge to buy mortgage-backed securities and Treasuries to support demand in the bond market, which is where most U.S. home loans are packaged and sold.

Source: housingwire.com

Apache is functioning normally

Achieving the dream of homeownership takes on a unique flavor when set against the backdrop of the Sunshine State – Florida. Whether you’re drawn to the enchanting coastal allure of Miami Beach condos or the serene suburban vibes of Tampa, FL, houses, navigating the path to owning a piece of Florida paradise comes with its own set of considerations. From the annual dance of hurricane season to the nuances of local architecture and environmental factors, being well-informed through an indispensable home inspection is paramount before buying a home. 

Across Florida’s diverse regions, seasoned home inspectors have encountered an array of challenges that potential homebuyers should be aware of. In this Redfin article, we delve into six things to look out for when buying a home in Florida.

1. Regularly assess for mold

“For more than three decades, we’ve been serving the entirety of Florida. Our specialization lies in thorough mold assessments. Given the yearly exposure to hurricanes in our region, homes often experience significant water intrusion and damage from these storms. Unfortunately, some of these issues remain hidden until much later,” shares Inspection Services of Florida LLC.

“We collaborate closely with numerous customers who encounter respiratory problems. In such cases, we conduct assessments to determine if mold is the underlying cause. As a result of the history of hurricanes, we frequently uncover storm-related damage that was either left unaddressed or concealed, often due to house flipping.

Prior hurricanes have taught us a valuable lesson: comprehensive mold inspections are vital before purchasing a home. This step ensures transparency and helps safeguard your investment for the long term.”

Courtesy of Inspection Services of Florida LLC

2. Pest intrusion

“On one of my home inspections I observed a hole in an exterior stucco-covered foam trim board. As I continued my inspection I noticed a Woodpecker flying around the area. So I decided to remove myself a distance away to see what the bird was doing. It only took a few minutes when I saw a Woodpecker land at the entrance of the hole in the trim board. I realized what was happening, the Woodpeckers using its bill to find insects. In this case the material that the Woodpecker was pecking on was easy to penetrate and so it continued to burrow out an entrance into the trim material,” says RTS Inspections.

“Exterior grade cement coated (stucco) foam molding is made of Styrofoam or Polystyrene Foam, which can be fabricated into many different shapes. This product is used nationally in many climates. Foam is easy to cut into and shape as needed. Stucco covered foam trim is very beneficial as a source of insulation and as a decorative element around exterior surfaces of a home, like around windows and doors.

As with all structures, there is always a concern for potential animal intrusion. Animals are very good at finding ways to get into areas to build nests. Rodents for instance will jump off tree branches that are too close to the building and land on roofs. Once they land they search for gaps and holes to enter into.

When inspecting a home it is crucial to look for possible entry points around the house and report on those areas. The next step for the inspector is to observe areas inside the house that might be impacted by those entry points. In the case of this Woodpecker, the damages were limited to just the exterior trim board. In other cases, I have seen gaps in soffits and eaves where animals have penetrated and entered into attics. In the case of animal or pest infestation, a licensed pest removal contractor is recommended.”

Courtesy of RTS Inspections 

3. Storm impact

“Whether factual or mere folklore, the moniker ‘Lightning Capital of the World’ is a label frequently associated with Florida,” shares Sherlock Home Inspections. “Given the prevalence of storms in the region, it’s a nickname that holds some truth. However, with these climatic conditions comes a distinctive set of challenges, particularly in the realm of electrical systems. 

Take a close look at the copper wires shown below. While discoloration might typically arise due to oxidation, the distinct blue hue of these wires stems from a surge triggered by a lightning storm. Upon more comprehensive inspection, a host of additional issues were brought to light—underscoring the importance of addressing electrical concerns with precision and vigilance in a region renowned for its electrical intensity.

Courtesy of Sherlock Home Inspections

In a state prone to high winds and intense rainfall, addressing roof problems promptly is imperative. Florida’s climatic conditions make it imperative to identify and rectify roofing issues as soon as they arise. It’s crucial to recognize that even minor roof concerns can rapidly snowball into significant complications. Given this reality, securing the services of a knowledgeable Home Inspector becomes paramount. A seasoned professional who understands the intricacies of roofing systems can detect potential red flags, ensuring that minor hitches are nipped in the bud before they evolve into major complications. With the right expertise at your side, you can confidently navigate the challenges of maintaining a secure and resilient roof in Florida’s ever-changing weather landscape.”

4. Termites

“Florida is susceptible to termite problems due to its warm and humid climate, which creates a conducive environment for these pests to thrive. Termite swarms are a common occurrence in Florida during the warm and humid months. These swarms are often a sign of an established colony nearby, and they can be quite alarming to homeowners,” warns Next Step Inspections.

“The two most common termites are:

Subterranean: These are the most common and destructive type of termites in Florida. They build their colonies underground and create mud tubes to access wood above ground. They can cause significant damage to structures if left unchecked.

Drywood Termites: These termites infest dry wood and do not require contact with soil. They can be found in furniture, wooden beams, and other wooden structures. Their infestations can be hard to detect until significant damage has occurred.

We have found that if the wooden structures go untreated for long periods of time and these insects invade the wood, severe damage can impact the integrity and the structure. We have seen areas that are unsafe to walk in the attic due to significant termite damage. In cases where the damage is detrimental, a structural engineer or building contractor will review the damages to recommend the proper repair. 

Dealing with termites in Florida often requires professional pest control services. Regular inspections by experienced technicians can help detect infestations early and implement effective treatment plans. We recommend having a Wood Destroying Organism (WDO) Inspection when you are considering the purchase of a property. This inspection can help identify other issues the home inspector may not be qualified to include in their report.”

5. Polybutylene piping

“Polybutylene piping stands as a nightmare for both property owners and the insurance industry at large. As a solution for home re-piping, polybutylene piping emerged on the scene. It offered flexibility, ease of use, and cost-effectiveness during its time. While it had been in use since the 1970s, its popularity soared in the 1980s and 1990s. However, it was eventually discontinued in the mid to late 1990s due to its susceptibility to leaks,” informs Orlando’s Best Home Inspection. “The chlorine present in municipal water systems caused joints and piping to fail. Typically, the interior of the tube is gray or black, while the exterior can range in blue, black, or gray. The lettering ‘PB’ may also be visible, which is the clearest giveaway.

Presently, many homes still feature polybutylene piping, prompting insurance companies to mandate replacement with approved alternatives like PEX, CPVC, or copper piping.

In our practice, we thoroughly assess this issue during both our standard Orlando home inspection and our Orlando 4-point inspection. We frequently encounter cases where partial re-piping work has been carried out on visible portions of the supply system, only to find original polybutylene piping remaining in less accessible areas such as the attic. Correcting this problem is costly and presents a major obstacle in obtaining home insurance.”

6. Stucco cracks and waterproofing

“Most homes in SouthWest Florida feature exterior walls made of concrete block with stucco finishing. It’s common for stucco to develop hairline cracks over time. These cracks are generally not a structural concern as long as they are too narrow to fit a penny. If a penny can fit, it raises some cause for concern,” suggests Golden Rule Home Inspections.

“When cracks in the stucco follow the block pattern, it indicates excessive settlement in the foundation. Again, if these cracks are wide enough to accommodate a penny, they warrant attention.

The waterproofing of SouthWest Florida’s concrete block and stucco homes relies on painting the stucco. If a crack appears in the stucco, the waterproofing becomes compromised, potentially leading to water intrusion and subsequent mold growth. To address this, it’s recommended to repair the crack by applying a small amount of Mor-Flexx caulking or an equivalent product. After applying, gently rub it in with a sponge or foam paint brush to blend it into the wall’s finish, followed by painting the wall. Mor-Flexx boasts a mortar-like appearance that stretches like rubber, retaining its elasticity over the years.”

Courtesy Golden Rule Home Inspections

7. Insurance challenges and regional concerns 

“I think the biggest issue in Florida right now is insurance companies leaving the state. They have become very particular about roofs. Even though most asphalt shingle roofs last more than 20 years, they do not like roofs past 15 years old. Even in very good condition. This due to the losses coming from hurricanes in the recent past,” says Pillar To Post Home Inspectors.

“Insurance inspections need to be done on top of getting a thorough home inspection. 4-Point (Roofs, Plumbing, Electrical, and HVAC) Inspections are expected on homes 20 years old or older. Getting a Wind Mitigation Inspection, which is determining the home’s wind resistance, can save a lot of money on insurance costs.

Another thing I think is very regional to the state is mold testing. With the humidity in Florida, this is a common concern. Especially in homes that have been vacant, and the air conditioner is not turned on or set at 78 degrees or higher.”

Source: redfin.com

Apache is functioning normally

In a hawkish tone, Jerome Powell said that Federal Reserve (Fed) officials are prepared to raise the federal funds rate further and hold it at high levels until they are confident that inflation is moving sustainably down to the 2% target. And that’s unclear at this point.

There are some sources of pressure on U.S. prices — among them is the housing market, Powell said Friday morning during an economic policy symposium in Jackson Hole, Wyoming. 

“So far this year, GDP [gross domestic product] growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust,” Powell said. 

“In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up. Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.”

Powell said that the effects of monetary policy became apparent soon after liftoff in the housing sector. Mortgage rates doubled in 2022, causing housing starts and sales to fall and house price growth to plummet. 

In fact, mortgage rates kept an upward trend in 2023, following the Fed’s moves to combat persistent inflation. On Friday, the 30-year fixed mortgage rate was 7.37% at Mortgage News Daily, the highest in over two decades. Economists see rates potentially reaching the 8% level. 

Regarding the housing services inflation, Powell said it lagged the monetary tightening. According to him, the main concern here is rents, which have only begun to slow down. “We will continue to watch the market rent data closely for a signal of the upside and downside risks to housing services inflation,” he said. 

Other components of inflation show different trends.

Core goods inflation has fallen sharply due to tighter monetary policy and the slow unwinding of supply and demand dislocations. Less sensitive to the Fed moves, nonhousing services, which account for over half of the core PCE and include items such as health care and transportation, have moved sideways since liftoff, Powell said. 

The labor market continues to rebalance, with improved supply and moderated demand. This rebalancing has eased wage pressures. The Fed expects the trend to continue, but evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response, Powell said. 

Committed to the 2% target 

The core PCE inflation index, closely watched by the Fed officials, peaked at 5.4% on a 12-month basis in February 2022 and declined gradually to 4.3% in July 2023. 

The lower monthly readings in June and July of 2023 were welcome but only “the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said.

“We can’t yet know the extent to which these lower readings will continue or where underlying inflation will settle over coming quarters. Twelve-month core inflation is still elevated, and there is substantial further ground to cover to get back to price stability.”

The Fed, however, remains committed to the 2% inflation target, Powell said. It’s challenging to know when such a stance has been achieved in real-time, he remarked. 

Despite Powell seeing the current rate as restrictive to the economy, he can’t identify with certainty the neutral rate of interest – the rate at which monetary policy is neither stimulating nor restricting economic growth – which brings uncertainty about how high rates should be. In addition, it’s not clear the duration of the lags with which rate hikes affect economic activity and inflation. 

“As is often the case, we are navigating by the stars under cloudy skies,” Powell said. “We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”  

Source: housingwire.com

Apache is functioning normally

Shares of Better Home & Finance Holding collapsed during its debut on Nasdaq Thursday. The digital lender went public after merging with the special purpose acquisition company (SPAC) Aurora Acquisition Corp. the prior day.

Better’s class A common stock, listed under the ticker “BETR,” declined to $1.15 at the closing on Thursday. They were down 93.4% from the previous close of $17.45 when the SPAC was still trading on the stock exchange.

It took two years for Better to go public. According to Bloomberg News, the digital lender is among the 10 worst-performing companies that merged with SPACs this year.

Why did it perform so poorly on day one? 

The deal with Aurora was announced in May 2021, when historically low-interest rates boosted a SPAC mania in the U.S. and created a refi boom for mortgage lenders like Better. At that time, the company was valued by its investors at $7.7 billion.

But Better’s debut came at a low point in the mortgage market, with mortgage rates at their highest levels in more than two decades and historically low levels of home sales. That puts heavy pressure on its business. In addition, the SPAC mania has dried up amid increasing regulation. 

Since the deal announcement, Better’s employment count nosedived to 950 workers in June 2023 from 11,000 employees in 2020. Better dealt with the bad press after Vishal Garg, Better’s founder and CEO, laid off employees via Zoom in December 2020. 

The company posted a loss of $89.9 million in the first quarter of 2023; a far cry from the $500 million in income it realized in 2020, when most mortgage lenders posted historic profits. 

Still, Garg managed to keep SoftBank and Novator Capital committed to investing in the company. The deal with Aurora will unlock $565 million of fresh capital for an unprofitable business.

The capital infusion includes a $528 million convertible note from affiliates of SoftBank and additional common equity from funds affiliated with NaMa Capital (formerly Novator Capital). 

According to SEC filings, on August 21, the parties agreed that SoftBank’s purchase of $650 million in Better’s convertible promissory notes would be reduced by any amount received from the trust account of Aurora at closing and any amount of the $100 million commitment by Novator. The agreement reduced SoftBank’s maximum commitment to $550 million.

In an interview with HousingWire, Garg said the company has shifted its strategy ahead of its IPO—Better plans to be a mortgage marketplace that sells its technology platform to other companies. 

“Our overall model has changed from being a one-stop-shop, where we do everything in-house, to being a one-stop-shop where we do the things in-house that we’re the best at,” Garg said in an interview. “For things like homeowner’s insurance, title insurance, and realtors, we’ve now just become a marketplace. We match the consumer to the product with a partner capable of delivering the best product to them.”

Since 95% of Aurora shareholders redeemed their shares, there was a small amount of publicly available shares, which contributed to the volatility on Thursday, Reuters reported.

Source: housingwire.com

Apache is functioning normally

U.S. new-home sales rose in July to the highest level in over a year as homebuilders continue to benefit from limited supply in the resale market.

Purchases of new single-family homes increased 4.4% to an annualized 714,000 pace after downward revisions to prior months, government data showed Wednesday. The median estimate in a Bloomberg survey of economists called for a 703,000 pace.

With mortgage rates at the highest level in more than two decades, most homeowners are unwilling to move, keeping inventory on the resale market extremely limited. That’s encouraged prospective buyers to seek out new construction, and builders are also throwing in more incentives.

However, the recent pickup in mortgage rates is weighing on homebuilder sentiment and already translating into weaker demand. A report earlier Wednesday showed mortgage rates rose to 7.31% last week, the highest level since late 2000. That took a gauge of home-purchase applications down to the lowest level since 1995.

At the same time, a combination of tight supply and high costs continues to weigh on affordability. The median sales price of a new home climbed to $436,700 from a year earlier, according to the Commerce Department’s report. That’s well above pre-pandemic levels.

The number of homes sold in July and awaiting the start of construction — a measure of backlogs — declined to lowest level this year.

The data showed there were 437,000 homes for sale as of the end of last month. That represents 7.3 months of supply at the current sales rate, matching the lowest since early 2022.

Sales rose in the Midwest and West to the highest level since early last year, while they fell in the Northeast and South.

New-home sales are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close. Those sales fell to the lowest since the start of the year in July as inventory remained restrained, hurting affordability.

The new-homes data are volatile. The report showed 90% confidence that the change in sales ranged from a 8.4% decline to a 17.2% gain.

Source: nationalmortgagenews.com

Apache is functioning normally

Home loan applications slowed for a fifth straight week, with interest rates and a sluggish housing market pushing purchase activity to its lowest mark since the mid-1990s, the Mortgage Bankers Association said.

The MBA’s Market Composite Index, a measure of weekly application activity based on surveys of the trade group’s members, continued its recent downward descent, falling another 4.2% for the period ending Aug. 18. The two previous weekly surveys reported more muted drops of 0.8% and 3.1%. Compared to the same week in 2022, volumes were 31.6% lower. 

Surging interest rates, again, provided consumers with limited buying opportunities and a lack of incentive to sell or refinance, with the 30-year fixed average also landing at a decades-long high among MBA lenders, according to Joel Kan, vice president and deputy chief economist of the organization.
“Treasury yields continued to spike last week as markets grappled with illiquidity and concerns that the resilient economy will keep inflation stubbornly high. This spike pushed mortgage rates higher last week,” Kan said in a press release.

The contract average for the 30-year conforming fixed-rate mortgage with balances below $726,200 in most areas leaped another 15 basis points week-over-week to finish at 7.31% — the highest since late 2000. A week earlier, the average sat at 7.16%. Borrowers also used 0.78 points on average, up from 0.68 seven days earlier, for 80% loan-to-value ratio loans.

The contract 30-year fixed rate for jumbo mortgages with balances above conforming amounts also accelerated to an average of 7.27% compared to 7.11% in the prior survey. Meanwhile, points increased to 0.84 from 0.55.

The spike in rates drove home-purchase application numbers to their lowest point since April 1995, “as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power,” Kan said. The seasonally adjusted Purchase Index fell 5% from seven days earlier. Activity came in 30% below levels from a year ago. 

“Low housing supply is also keeping home prices high in many markets, adding to the affordability hurdles buyers are facing,” Kan added. 

Recent research from Zillow found rates would need to drop to 5% before many current homeowners would be willing to put their homes up for sale. While the homebuilding industry is seeing some benefits from fewer sales of existing homes, the rate of building is not creating enough supply quickly enough to substantially lower prices.  

The MBA’s Refinance Index also dropped 2.8% from the prior week, with activity coming in 34.9% lower from the same week of 2022. But refinances took a 29.5% share relative to the total number, up from 28.6% seven days earlier due to the larger fall in purchases.

The slowdown in purchase mortgages also hit government-sponsored loan volumes after a recent uptick in some applications guaranteed by federal agencies. But although the seasonally adjusted Government Index slipped downward last week, the share of federally guaranteed mortgage applications picked up. 

Loans backed by the Federal Housing Administration garnered a 14.3% share compared to 13.8% in the prior survey. Department of Veterans Affairs-sponsored applications accounted for 11.6%, edging down from 11.8% a week earlier. Mortgage applications coming through the U.S. Department of Agriculture took a 0.5% share, up from 0.4%.

With recent interest rate movements taking a larger bite out of what home buyers might be able to afford in August, purchase loan sizes fell last week. The average purchase-application amount saw a 2.2% drop to $407,700, its lowest mark since early January. One week earlier, the mean size came in at $417,200.

Average refinance amounts grew, though, by 1% to $254,500 from $251,900. The overall average for all applications stood at $362,600, 2% lower from $369,600 seven days earlier. 

Consumer interest in adjustable-rate mortgages grew last week, though. “Some homebuyers are looking to lower their monthly payments by accepting some interest-rate risk after the initial fixed period,” Kan said.

“The ARM share of applications increased to 7.6%, the highest level in five months, and the number of ARM applications picked up by 4% last week,” he said. 

With rates today more than twice as high compared to the mortgage boom of two years ago, ARM activity has grabbed a noticeably larger share of application volume over the past 24 months. In late August 2021, ARMs accounted for just 3.1% of all applications, with the percentage doubling by the same point in 2022 and remaining above 6% for most of the ensuing year.

The hefty increases in mortgage rates among MBA lenders were not limited to the conforming and jumbo markets either. Two weeks after hitting a high last seen in 2002, the average contract rate of the 30-year FHA-backed mortgage accelerated to 7.09%, passing that peak after it had retreated to 6.93% in the last survey. Points also increased to 1.2 from 1.17.

The fixed contract average for the 15-year mortgage surged 15 basis points to 6.72% from 6.57% a week earlier. As they did for all other fixed loans, points increased, rising to 1.06 from 0.94 for 80% LTV loans.

The 5/1 adjustable-rate mortgage also saw its average increase by 30 basis points to finish at 6.5%, compared to 6.2% seven days prior. Rates on these loans stay fixed for a half decade before adjusting to market levels. In contrast to fixed-rate mortgages, though, borrower points on the 5/1 ARM dropped to 1.03 from 1.45.

Source: nationalmortgagenews.com

Apache is functioning normally

Michael Barr, vice chair for supervision at the Federal Reserve, from left, Martin Gruenberg, chairman of the Federal Deposit Insurance Corp. and Nellie Liang, under secretary for domestic finance at Treasury, during a House Financial Services Committee hearing in March. The American Bankers Association and Bank Policy Institute called on bank regulators to delay finalizing their Community Reinvestment Act rules until the upcoming capital rules are complete and the Supreme Court rules on the constitutionality of the Consumer Financial Protection Bureau’s funding structure.

Bloomberg News

WASHINGTON — The Bank Policy Institute and the American Bankers Association penned a joint letter Tuesday urging federal bank regulators to delay finalizing the most sweeping revisions to the Community Reinvestment Act — an anti-redlining bill — in decades.

The letter, sent by BPI and ABA to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency suggested regulators should delay any final CRA rule until the agencies’ joint Basel III capital rules are finalized. They posited regulators had not considered how the new capital requirements lower the incentive for banks to engage in CRA activities like low down payment mortgages to low-income families.

“The proposed capital rules would reduce incentives to engage in mortgage lending, which is central to the CRA programs of many banks,” they said. “Many banks offer low down payment mortgages as a means of meeting the credit needs of low- and moderate-income families.”

In addition to asking regulators to pause the CRA rule to accommodate the likely reduction in mortgage lending, the letter also said that a constitutional challenge to the Consumer Financial Protection Bureau’s funding structure should give regulators pause as they move ahead with a final rule. The banking industry has previously expressed opposition to the CRA revamp on the grounds it oversteps congressional authority.

A Texas district court judge last month temporarily barred the CFPB from enforcing its 1071 rule until after the Supreme Court rules on the constitutionality of the CFPB’s funding structure sometime next year.

“The banking agencies should delay finalization of the CRA rules until a final determination is made regarding the status of the rules promulgated under Section 1071, which will affect how the agencies administer certain aspects of the CRA rules,” the banking groups said. 

While the necessity for a CRA update is widely acknowledged, the banking industry has expressed louder opposition as new Basel III endgame requirements and post-banking crisis reforms coincide with the new CRA standards.

In a comment letter in August, 2022 the Bank Policy Institute said the agencies’ joint proposed rule exceeded statutory mandate, added needless complexity and broad application and was overly punitive in its application toward banks. Another major trade group, the American Bankers Association, made similar claims in an August comment letter, saying the proposal missed the mark. ABA said they were concerned that significant numbers of banks would need to invest more in their retail lending departments to pass retail lending examinations under the new rule.

The Community Reinvestment Act was passed in 1977 to bar banks from accepting deposits from lower-income communities without making commensurate levels of loans to those communities — a problem for many communities of color in the first years since explicit racial discrimination in lending was outlawed. The law requires banks to make loans to low- and moderate- income borrowers in the institution’s “assessment area,” defined as areas where the bank has its headquarters, branches or deposit-taking ATMs.

Banks are assessed for compliance at least every five years by their primary regulator. Banks are graded in three areas: lending, investment and service, weighted as 50%, 25% and 25% of the examination respectively. Banks are then assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “noncompliant” based on their performance.

If a bank is deemed to have less than a “satisfactory” rating, then it may not merge with or acquire another banking institution or modify its charter until it achieves compliance. But critics have argued that most banks receive either an outstanding or satisfactory rating, meaning that virtually no banks face the regulatory burdens that the CRA can impose.

Former Comptroller of the Currency Joseph Otting sought to reform the implementation of the CRA during the Trump administration, but community advocates argued that his reforms were too favorable to banks and would yield little additional investment in the communities that need it the most. Bank regulators issued their revised proposal last year. 
— John Heltman contributed to this report

Source: nationalmortgagenews.com