Mortgage Banker January 2024

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MortgageBanker MAGAZINE

BORROWERS’ FINANCIAL FALLOUT FROM DISASTERS UNDERSTAND THE EVOLVING MSR MARKET DON’T GET WIPED OUT BY REPURCHASE DEMANDS

Gregor Schubert Faculty Economist UCLA Anderson School of Management

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REGULATORY CORNER AGENCIES ANNOUNCE DOLLAR THRESHOLDS FOR SMALLER LOAN EXEMPTION FROM APPRAISAL REQUIREMENTS The Consumer Financial Protection Bureau, the Federal Reserve Board, and the Office of the Comptroller of the Currency announced that the 2024 threshold for whether higher-priced mortgage loans are subject to special appraisal requirements will increase from $31,000 to $32,400.

The threshold amount is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W, as of June 1, 2023.

The Dodd-Frank Act added special appraisal requirements for higher-priced mortgage loans, including that creditors obtain a written appraisal based on a physical visit to the interior of the home before making a higher-priced mortgage loan. The rules implementing these requirements contain an exemption for loans of $25,000 or less, adjusted annually to reflect CPI-W increases.

The OCC, the Board, and the Bureau are finalizing amendments to the official interpretations for their regulations that implement section 129H of the Truth in Lending Act (TILA). Section 129H of TILA establishes special appraisal requirements for “higher-risk mortgages,” termed “higher-priced mortgage loans” or “HPMLs” in the agencies’ regulations. The OCC, the Board, the Bureau, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Federal Housing Finance Agency (FHFA) (collectively, the Agencies) issued joint final rules implementing these requirements, effective Jan. 18, 2014.

The Agencies’ rules exempted, among other loan types, transactions of $25,000 or less, and required that this loan amount be adjusted annually based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no annual percentage increase in the CPI-W, the OCC, the Board, and the Bureau will not adjust this exemption threshold from the prior year.

Additionally, in years following a year in which the exemption threshold was not adjusted because CPI-W decreased, the threshold is calculated by applying the annual percentage increase in the CPI-W to the dollar amount that would have resulted, after rounding, if the decreases and any subsequent increases in the CPI-W had been taken into account. Based on the CPI-W in effect as of June 1, 2023, the exemption threshold will increase from $31,000 to $32,400 effective Jan. 1, 2024.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DoddFrank Act) amended TILA to add special appraisal requirements for “higher-risk mortgages.” In January 2013, the Agencies jointly issued a final rule implementing these requirements and adopted the term “higher-priced mortgage loan” (HPML) instead of “higher-risk mortgage” (the January 2013 Final Rule).

In July 2013, the Agencies proposed additional exemptions from the January 2013 Final Rule. In December 2013, the Agencies issued a supplemental final rule with additional exemptions from the January 2013 Final Rule (the December 2013 Supplemental Final Rule). Among other exemptions, the Agencies adopted an exemption from the new HPML appraisal rules for transactions of $25,000 or less, to be adjusted annually for inflation.

The OCC’s, the Board’s, and the Bureau’s versions of the January 2013 Final Rule and December 2013 Supplemental Final Rule and corresponding official interpretations are substantively identical. The FDIC, NCUA, and FHFA adopted the Bureau’s version of the regulations under the January 2013 Final Rule and December 2013 Supplemental Final Rule.

STAFF

Vincent M. Valvo CEO, PUBLISHER, EDITOR-IN-CHIEF Beverly Bolnick ASSOCIATE PUBLISHER Christine Stuart NEWS DIRECTOR Keith Griffin SENIOR EDITOR Katie Jensen, Sarah Wolak, Erica Drzewiecki, Ryan Kingsley STAFF WRITERS Alison Valvo DIRECTOR OF STRATEGIC GROWTH Julie Carmichael PROJECT MANAGER Meghan Hogan DESIGN MANAGER Christopher Wallace, Stacy Murray GRAPHIC DESIGN MANAGERS Navindra Persaud DIRECTOR OF EVENTS William Valvo UX DESIGN DIRECTOR Andrew Berman HEAD OF CUSTOMER OUTREACH AND ENGAGEMENT Matthew Mullins, Krystina Coffey MULTIMEDIA SPECIALIST Melissa Pianin MARKETING & EVENTS ASSOCIATE Kristie Woods-Lindig ONLINE ENGAGEMENT SPECIALIST Regina Morgan ADVERTISING SALES EXECUTIVE Nicole Coughlin ADVERTISING ASSOCIATE Lydia Griffin MARKETING INTERN

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© 2024 American Business Media LLC. All rights reserved. Mortgage Banker Magazine is a trademark of American Business Media LLC. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: American Business Media LLC 88 Hopmeadow St. Simsbury, CT 06089 Phone: (860) 719-1991 info@ambizmedia.com

M ARKETS

Repurchases Can Destroy A Lender

F

THE VOLUME OF REPURCHASE DEMANDS COMES AMIDST IMPROVING CREDIT

BY ROB C H R I S M A N, C O NT RI BUTO R, MORTGAGE BANKER MAGAZINE

reddie Mac and Fannie Mae, aka the GSEs (government sponsored enterprises), became more aggressive in their levels of buybacks with lenders as we moved through 2023. Needless to say, as the year progressed and many lenders barely eked out profits, watching the GSEs earn billions every quarter was both upsetting and controversial for nearly every lender.

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Lenders feel like the GSEs are not being consistent with commitments made in recent years about materiality and options for remediation. They feared retribution if they made these points, so instead, they simply engaged with their respective GSE each month to try to get them to take back the repurchase requirement on this loan or that loan. It’s a loan-by-loan drudgery that takes staff time and adds costs to a lender’s bottom line. Even if the GSE drops the request for the buyback, the lender has still spent time and effort to rebut the request and prove it wrong.

Given the changes in loan loss reserves as the GSEs reported earnings throughout the year, Freddie and Fannie’s portfolios are stronger, but they are kicking back a noticeable increase in loans to lenders. Clearly, the GSEs have changed their sampling methodology for quality control review early in 2023 with a specific focus on nonbank originators, which drive 80% of the loans being sold to the GSEs. This more aggressive posture is because they are concerned about the potential failures of some of their customers during these tough times, and therefore, they would lose their counterparty to warranty defects on loans should they go into default.

HORRENDOUS PRICES

key contributor to earnings was reducing loan loss reserves due to higher equity and loan quality, yet they are saddling lenders, their customers, with repurchase demands.”

In October, at the MBA Annual, FHFA Director Sandra Thompson stated that the GSEs will be working to revise language in their selling guides to improve clarity and provide more consistent feedback to lenders when a repurchase request is made. She also noted that FHFA remains committed to ensuring that alternatives to repurchases are available and offered on a regular basis, including the consideration of initiatives to test and learn from various options for performing loans with defects.

UPDATED FRAMEWORK In a press statement sent after Director Thompson’s remarks, MBA President Bob Broeksmit said, “The MBA has advocated strongly for FHFA to address the GSEs’ increased incidence of loan repurchase requests, especially for performing loans and those with relatively minor issues underwritten during the pandemic. We share FHFA and the GSEs’ goal of high-quality underwriting and will continue to work with them to ensure the rep and warranty framework is being applied in a balanced way and that there are appropriate alternatives that lead to outcomes short of a repurchase request. FHFA’s policy change to provide rep and warrant relief for performing seasoned loans that have successfully exited COVID-19 forbearance plans is a longstanding recommendation that we are pleased to see implemented.”

The updated framework went into effect on Oct. 31, 2023. The MBA said it will continue to call on FHFA and the GSEs to improve the quality control and repurchase process to ensure the rep and warranty framework is being applied in a fair and balanced way.

The industry hopes that is the case, as the repurchases contributed to a very difficult environment, complete with high rates, low volumes, low margins, and losing money. The GSEs, arguably, are literally squeezing the life out of many institutions that are needed to keep the housing market functioning.

More importantly, perhaps, the trust deficit between this power duopoly of Fannie Mae and Freddie Mac, each reaping billions in profits in a market where almost all others are struggling, is only widening.

Saddling the IMBs with ever-increasing financial risk, unless the defects are intentional, material, or repeated consistently, appears to violate the purpose of Freddie Mac and Fannie Mae: to help promote the stability of the mortgage market.

ROB CHRISMAN

Freddie and Fannie’s portfolios are stronger, but they are kicking back a noticeable increase in loans to lenders.

Banks, in their view, are less risky, and therefore, the need to force buybacks on them is less. In fact, it is rumored that some banks are given options to simply indemnify defective loans found in the QC process, whereas for nonbanks the only option is repurchase versus nonbanks that must re-sell the repurchased loans. The prices in the secondary markets are horrendous, as the loans are not only “scratch and dent,” but most are at far discounted rates compared to today’s market. Investors would rather earn 7.5% than 3% and thus discount the 3% note to earn the equivalent of 7.5%.

Throughout 2023, repurchase demands have come from appraisal errors, miscalculation of income (usually self-employed or variable income over time), the borrower buying a large appliance or vehicle days before funding, and more. The volume of repurchase demands added financial stress and increased counterparty risk to the GSEs at a time when their earnings say that credit risk is declining. In fact, it was the key contributor to Q2 earnings.

Analysts wonder if policy changes from Washington could contribute to a mortgage credit crunch in the coming years as banks face capital challenges, and a tougher economic environment, while the government appears unlikely to take key steps to ensure nonbanks will remain key providers of mortgage credit. Dave Stevens with Mountain Lake Consulting points out that “The GSEs, with the assumed support of FHFA, is increasing risk to their IMB customers by implementing what appears to be a far more non-negotiable buyback policy while at the same time reaping massive profits in the billions from these same customers. The irony continues in that a

MORTGAGE BANKER MAGAZINE | JANUARY 2024 5

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T EC HNOLOGY

THE ROAD TO

Success In 2024 A LOAN SERVICER’S PERSPECTIVES ON THE YEAR AHEAD

A

BY E R I C S E A B ROOK , S PEC I AL TO MORTGAGE BANKER MAGAZINE

s mortgage rates remain high and property values experience year-overyear growth of 6.7%, according to Fannie Mae’s Economic & Strategic Research (ESR) Group, a look ahead to when the mortgage industry may trend in 2024 is clouded with continued uncertainty and heightened economic concern. The lack of affordable housing inventory is reaching a crisis level as more Americans remain in their homes to preserve the rock-bottom rates secured during the height of the pandemic, and a decrease in multi-family construction causes inflated rental rates to remain high for the foreseeable future.

With a growing national malaise seemingly invading every form of media, it may be hard to see the silver lining among the clouds. Yet, when we look at 2024 through the eyes of mortgage servicing, there is hope on the horizon, particularly as the industry continues to embrace technology to advance the servicing experience.

A SERVICER’S PERSPECTIVE Mortgage servicing will continue to evolve with the market, as it has always done, to meet demand.

However, where many servicers were reactive in the wake of the 2008 economic challenges, servicers of today are proactive in assessing the needs of the industry to provide stable, long-term solutions that support clients’ portfolio goals both now and into the future through a broad suite of products, services, and some of the best talent in the business. Regardless of market fluctuations, technology will continue to play an ever-increasing role in mortgage servicing and be a significant focus for how servicers can attract and retain clients.

Investments made now to improve operational efficiencies pay dividends in customer satisfaction and performance. However, no matter the economic climate or the technologies implemented, at the end of the day, servicing is about relationships.

Servicers are here to provide the best experience and outcomes to our clients and their homeowners

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throughout their mortgage journey.

Advancements in technology should never be at the expense of service.

Artificial intelligence (AI) and machine learning (ML) have the potential to be transformative for mortgage servicing, and the industry is no stranger to adopting the newest technologies to manage portfolio performance. Today, lenders are using AI and ML in a variety of ways, including: • Loan Processing: AI automates data entry, document processing, and other loan processing tasks and reduces the risk of errors.

• Credit Risk Assessments: Lenders can use Al algorithms to analyze large volumes of credit data instantly and make informed mortgage loan decisions.

• Customer Experience: With AI and ML, lenders can utilize massive data sets to understand their customers and provide personalized experiences.

• Compliance: AI and ML allow lenders to ensure that routine processes are automated and

completed in accordance with industry requirements.

In mortgage servicing, more servicers are using AI and ML to develop analytical tools to give lenders a real-time view of the risk and performance of their portfolio by converging data points into a single source of truth from which to glean insights. MSR owners can use these on-demand analytics to make fast, data-driven decisions about buying or selling loans and much more.

USING TECH TO IMPROVE THE CUSTOMER EXPERIENCE One of the most effective implementations of technology in streamlining operations is through solutions that eliminate the need for “stare and compare” processes. For example, servicers have implemented optical character recognition (OCR) to read loan origination documents and source pertinent data to construct loan boarding files. This eliminates the need to manually board loans (someone manually reviewing each document), thus allowing for the elimination of traditional stare and compare data integrity reviews by moving to an exception-based processing of OCRidentified mismatches.

Servicers have also implemented technology to take over control of letter creation, changes, and composition from print vendors.

This technology offers a higher level of compliance oversight and faster turnaround times to fulfill letter template updates. Final composed PDFs are then provided to print

“Artificial intelligence (AI) and machine learning (ML) have the potential to be transformative for mortgage servicing.” > Eric Seabrook, LoanCare

vendors for printing and mailing.

Servicers are also finding success in using technology and automation to help lenders maintain better control and transparency over their servicing experience. Some of the most impactful solutions that keep the customer experience top of mind are: • Analytics: Provides lenders with insights into their loan portfolio, including identifying loans that may be in trouble of becoming delinquent or loans that may be eligible for a refinance opportunity. These tools allow lenders to quickly recall loans that need extra attention.

• Document Tracking: Enables lenders to track documents and address any issues that have been identified.

MORTGAGE BANKER MAGAZINE | JANUARY 2024 9

• Account: Based MarketingAllows lenders to tailor their messaging, content, and offers to homeowners and strengthen customer engagement throughout the mortgage servicing journey.

Servicers also provide data-driven communications, which lenders can use throughout the onboarding process. With these communications, lenders can explain exactly what’s happening with customers’ loans, check on the status of clients’ accounts, and answer frequently asked questions. Most importantly, they can lay the foundation for positive engagement with a new customer even before a bulk loan transfer is completed.

PRIVACY AND SECURITY IN A DATA-DRIVEN ENVIRONMENT As more servicers lean into technology and automation to carry out tasks, securing sensitive borrower information cannot be understated.

Borrowers’ trust relies on servicers being 100% transparent with the measures they employ to ensure data.

Many servicers have adopted an “allin-one” solution with data integrity

in mind, where customers have full access to every facet of the loan servicing journey in one seamless platform.

Such platforms provide organizations with transparency across all their departments. For example, an organization can use servicing platforms to store and secure a wide range of interconnected data, thereby eliminating data silos.

Moreover, the organization can view and analyze its operational, financial, reputational, and fraud risks in real time and mitigate those risks immediately.

Additionally, lenders can use these tools to track their customers’ loans and how regulatory changes impact them. This helps lenders find ways to reduce risk and ensure their customers can get the most value from their loans.

CONCLUSION The future of mortgage servicing relies on blending cuttingedge technology and

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a personal touch. As the industry moves forward, leveraging automation, AI and data analytics will undeniably enhance efficiency, accuracy, and cost-effectiveness in processing and managing loans.

However, the intrinsic value of human interaction, empathy, and personalized service must be considered, particularly in addressing complex issues and fostering trust with clients.

The companies that thrive in this evolving landscape will skillfully find the balance, ensuring that while technology streamlines and secures operations, the human touch remains at the core of customer engagement and satisfaction.

Doing so will pave the way for a more resilient, responsive, and customer-centric mortgage servicing industry, ready to meet the challenges and opportunities of the future head-on.

Eric Seabrook

Eric Seabrook is vice president of business development, LoanCare.

WHERE IDEAS GO HEAD TO HEAD

VALVO VS BERMAN NEW EPISODES W E E K LY

E X C L U S I V E LY O N

WATC H N O W @WatchNMP

MORTGAGE BANKER MAGAZINE | JANUARY 2024 11

Climate crisis

h s t i h

Brace for impact as finances face

BY E RICA D RZE WIECK I , STAFF WRI T ER, MORTGAGE BANKER MAGAZINE

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home

e the heat!

ANALYSI S AND DATA

M

ortgage bankers, loan officers, lenders, and the like might consider expanding business onto Mars because Earth’s climate is a-changin’ and housing finance is affected.

When the U.S. government’s Financial Stability Oversight Council found that regulators, investors, business leaders, and policymakers around the globe were privy to the threat climate change poses to economies and financial systems, the Federal Housing Finance Authority (FHFA) mobilized on all fronts.

Eight working groups got down to business in early 2022 and staff say their work will not be over until Fannie Mae, Freddie Mac, and the Federal Home Loan Banks have the tools to accomplish their housing finance missions.

What does that mean for those who work in the mortgage industry? Stay tuned.

THE WORK The steering committee’s data and research working group is charged with identifying the implications of climate risk on the regulated entities’ portfolios, on borrower mortgage performance, and on house prices. The governance working group is establishing standards for the integration of climate risk into the overall corporate governance of the regulated entities, making sure that there’s adequate attention paid to climate issues at the senior management level but also at the board level. The reporting and disclosures group has been working to enhance the transparency and accountability of the entities’ reporting on climaterelated issues. The consumer protection group is focused on the potential impacts to socially and financially vulnerable communities.

“We’ve got a number of projects going on,” Dan Coates, deputy director of FHFA’s Division of Research and Statistics and chairman of the FHFA Climate Change and Environmental, Social and Governance (ESG) Steering Committee, says. “One is a review of the climate literature as it relates to housing finance and finance more generally, but especially housing markets. Another one is an evaluation of the enterprises’ exposure to natural hazard risk. We’re doing a study to look at how mortgage performance varies across different borrower demographics after a disaster. And we’ve got a fourth study going on to look at the actual effects of natural disasters on house prices.

FHFA is also considering different types of disasters’ impact to borrowers in different locations. Do they default more? Do they move? Do they stay put and rebuild? Do home prices suffer discounts and are these permanent or just temporary?

The literature review was recently completed.

MORTGAGE BANKER MAGAZINE | JANUARY 2024 13

n o i l l i $617 b

d weather an . .S U r jo a 022. ost of m n 2018 to 2 The total c e e w t e b s r aste climate dis

“Our review finds agreement across the literature that climate risks are at least partially capitalized in housing values and influence lending and consumer behavior,” its conclusion reads, going on to project that disadvantaged groups, including minorities and borrowers of less creditworthiness will bear a disproportionate amount of the climate risk burden.

Policymakers will need to focus on potential impacts to residential real estate and mortgage markets as they navigate the global shift to a lowcarbon economy, officials went on to say.

The FHFA is working alongside the Consumer Financial Protection Bureau (CFPB) to develop a flood risk survey to determine when and how borrowers decide to purchase flood insurance.

Over half of all U.S. counties face heightened exposure to flooding, wildfires and extreme heat in addition to other climate hazards, according to the U.S. Treasury report entitled,

the Impact of Climate Change on American Household Finances.

The total cost of major U.S. weather and climate disasters between 2018 to 2022 exceeded $617 billion, a record figure, the report indicated.

For all of these reasons and more, the FHFA’s 2023 Fall Economic Summit focused on climate risks to vulnerable communities. A decision was made to make this a yearly event.

“Of the two sessions we have, one in the spring, one in the fall, the fall one will always be devoted to climate issues,” Coates says. “I think that speaks to the directors’ recognition of climate change as a priority for this agency.”

A HUMAN ISSUE If global warming and all its impacts keep anyone up at night, it’s Coates.

Part of his job is to ensure the agency’s climate change working groups move forward and report to the steering committee on their progress.

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“The shared goal of all the working groups is to ensure that our regulated entities continue to achieve their broader missions in housing finance in a safe and sound manner and that they integrate climate risks into their day-to-day decision-making,” Coates says. “It doesn’t matter whether you’re a government worker like myself, whether you’re a mortgage broker, whether you’re a lender or a servicer, a member of Congress or a member of the press. We all are confronted with these realities. We all have to adapt.”

Several aspects of this global occurrence have entered the partisan dialogue of elected officials, but Coates will be the first to say that climate change is a human issue.

“We’re not in the political sector.

Some of us are lifelong bureaucrats.

But we all have a shared interest here, and that is to make sure that we can adapt to the change in the climate.”

The FHFA does not employ climate experts, gleaning its data from sources such as the National Oceanic

and Atmospheric Administration (NOAA).

“None of us at FHFA is a climate scientist,” Coates says. “We are analysts, economists…we have a whole host of specialties, but we’re not climate scientists.”

According to the NOAA, the world’s annual temperature has increased at an average rate of 0.08°C (0.14°F) per decade since 1880 and over twice that rate (0.18°C / 0.32°F) since 1981. Scientists say this global warming has led to a quickly-escalating amount of natural disasters. The 1980s saw an average of 3.3 events occurring annually around the globe which resulted in one billion dollars or more in damages and costs. Since 2018, that average - adjusted for inflation - has exceeded 18 events.

“We’re dealing with an increasing frequency and severity of natural disasters. And that doesn’t leave a lot of time to worry about the politics of it,” Coates says. “Regardless of whether you call it global warming or climate change, or whether you think the cause is humans or something else, that’s not our area of focus.

Our area of focus is making sure that our regulated entities can keep doing what they’re doing and remain safe and sound so that they can continue to achieve their housing finance mission, which makes homes and affordable rental properties available to populations all around the country.”

It’s up to the FHFA to present the facts, projected impacts and recommendations, but the agency was created by Congress and elected officials ultimately dictate policy changes.

“We’re also considering different types of disasters and the borrowers within those areas. Do they default more?

Do they move?

Do they stay put and rebuild?”

TAKING ACTION

AWARENESS In the front-facing view of this issue is insurance, as premium increases in some parts of the country have surged by 300 or 400% with more coverage limitations. This is due to the uptick in claims in recent years, as hurricanes and wildfires have led to widespread damage in Florida, California and other border states.

“Certain companies have pulled out of various states in terms of offering policies, and that is a direct threat to the affordability of home

ownership in those states,” Coates points out. “When you think about sustainable home ownership, that means not only getting people into homes that can afford those homes upon making their first payment and over the life of the loan, but it also encompasses the threats to the affordability of that home.”

When the structural integrity of a house fails, for example, its owner can incur additional costs and may have difficulty making mortgage payments.

The results of a Consumer Flood Risk Awareness and Insurance Study conducted by Fannie Mae in 2022 indicated that familiarity with FEMA’s National Flood Insurance Program is low. About 67% of respondents said insurance should be mandatory for properties in highrisk areas.

Increasing awareness and educating the public are priorities of staff as they prepare to address climate impacts with property owners, borrowers and mortgage professionals.

“We’re trying to take these foundational steps, build awareness and knowledge that will help us determine what steps we need to take in the years ahead. Climate change and the effects of climate change are upon us…I think it’s in all of our self-interest to care about these issues so we can make better decisions about where we live, what type of features the home has, whether it be resiliency or efficiency features. We have to adapt to the environment we’re presented with, and there are plenty of things that we all can do to adapt.”

> Dan Coates, deputy director of FHFA’s Division of Research and Statistics

The FHFA currently does not have a timeline for when changes to the enterprises will be instituted or what those changes will entail.

“Fannie and Freddie account for about two-thirds of the mortgage market, so when we ask them to make a change, we have to understand that we’re affecting the entirety or a good chunk of the mortgage market,” Coates says.

“That can be for good, or if we’re not careful, there can be unintended consequences, not just on your MORTGAGE BANKER MAGAZINE | JANUARY 2024 15

ability to get a mortgage, but even on the value of your home. So we’re studying all of those things that are foundational in setting the scene for making policy decisions related to climate.”

One of the lenders setting itself up to handle atmospheric-related risky business is Planet Home Lending in Meriden, Conn.

“We’ve had a bunch of initiatives here recently and over time as an organization that we focus on - what we can do to help our customers, help our environment; the overall view of everything we do centers into this, it’s really our overarching perspective of what we’re after,” Planet Home Lending Senior Vice President of Enterprise and Credit Risk Chris Joles says.

The company offers a variety of home renovation programs to help borrowers reduce their hazard risk and improve access to homeowners’ insurance. In many cases investing in a home’s longevity can reduce premiums and improve coverage, two factors that contribute to a consumer’s overall ability to afford their mortgage.

“We want our customers to be safe and secure in their homes, and that includes better protection from natural disasters,” says Joles, who encourages anyone who works in the mortgage space to examine the FHFA’s recently published literature review.

“It’s a great starting point for companies to evaluate and understand the issues,” he says. “It really puts all the risks that we face as an industry into perspective.”

Planet is preparing its own loan officers to handle the unique consumer needs expected to arise as climate change impacts become more pervasive.

“I think that the best thing we can do internally is just to continue to make sure that our loan officers, our operations staff, everyone - are all aware of ways to uniquely use the products that we’ve set up to take care of and help customers with these types of problems,” Joles says.

“I don’t think that insurance alone is going to be able to solve this problem completely anymore. That’s where we can fill in for borrowers to help bring 16 MORTGAGE BANKER MAGAZINE | JANUARY 2024

“We want our customers to be safe and secure in their homes, and that includes better protection from natural disasters”

> Chris Joles

Senior Vice President of Enterprise and Credit Risk, Planet Home Lending

this huge investment they have up to wherever they need it to be.”

Servicers and appraisers are also entering this space. Mortgage analytics firm RiskSpan has collaborated with Verisk to create a first-of-its-kind solution for measuring and mitigating the risks of climate change to the housing finance industry.

“What we’re finding is that people want to go through and strengthen their houses to make sure that they’re ready for some of the items that can occur with these climate risks,” Joles says. “There are products out there for energy efficient upgrades and products that allow you to do renovation-related upgrades that are managed closely and tightly.

All of our agency partners allow us to go down that path and help our borrowers and customers have some additional oversight and a true partner as they work through those items. Utilizing the funds from a construction-type opportunity allows us to help that borrower make that replacement and lower their risk, to not only have something that’s ready for the weather but also have the actual insurance at a cheaper cost.”

An aging roof, for example, can raise an insurance premium significantly and even be a reason a borrower is denied coverage.

“Coverage is not only getting more expensive, it often has many more exclusions,” Joles points out. “Because insurance is a stateregulated entity, some of these insurance funds at the state levels are starting to be challenged as well.

We want to make sure to engage and get the feedback of a lot of different folks to understand what’s going on. The insurance exclusions, the limitations, that to me is really the biggest implication that I see. I think it’s gonna have a major, major impact that will most likely move this issue into the political sphere.”

The Mortgage Bankers Association, the agencies and the regulators are all watching these proceedings carefully, and the issue is receiving more attention every single day.

Planet’s programs help fund the modernization of aging homes, but the lender’s outreach extends outside of the mortgage sphere as

“There are products out there for energy efficient upgrades and products that allow you to do renovation-related upgrades that are managed closely and tightly ...”

well. Monetary and volunteer support of environmental organizations continues, and the nonprofit National Forest Foundation and food insecurity organization The Farmlink Project are two beneficiaries.

“As a company we just happen to intersect with climate change because we consider what we can do to improve the planet, help our customers, and contribute to community efforts,” Joles explains.

Planet Home Lending released its first-ever Environmental, Social and

Governance (ESG) report in 2022, outlining the scope of its efforts.

While consumers aren’t necessarily asking their mortgage team about climate change at this point in time, lenders can expect it to come up in dealings more frequently.

“We wanted to be accountable and transparent with our customers, the agencies and our business partners,” Joles says. “We’re thrilled to be able to put that out to the industry and be one of the leaders down that path. Making sure that our consumers are protected,

making sure that our investors are protected, is our priority.”

LOs and the mortgage companies that employ them are encouraged by government regulators and others to participate in ongoing workshops and panel discussions about the changing climate and housing finance.

After all, the success of any mortgage professional is contingent on loan volume and performance, which have everything to do with the ability of borrowers to afford homes.

MORTGAGE BANKER MAGAZINE | JANUARY 2024 17

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COVER STORY

Plotting For Profits On The Home-Price Highway

Long-standing worker migration patterns prove a strong predictor of future housing demand

BY RYA N K I NG S L E Y, STAFF WRI T ER, MORTGAGE BANKER MAGAZINE

rom boom to bust and bust to boom, the climbs and crashes of the national housing market run like a city skyline across a graph charting 50 years of change in U.S. home prices. If the skyline were that of San Francisco, the Transamerica Pyramid might be 2006; some low-rise condo and apartment buildings, 2011; the Salesforce Tower, 2022.

Despite an abundance of historical data, predicting the future of home prices or housing demand tends to be any economist’s best guess. With mortgage rates between 7-8% and job markets slowing due to the Federal Reserve’s quantitative tightening, November housing data shows mortgage demand as measured by application volume has dropped to its lowest level since the mid-1990s. And yet, home prices remain near historic highs due to persistent inventory shortages and strong residential investment: in the third quarter of 2023, U.S. homes sold for a median price tag of $431,000, according to data from the Federal Reserve Bank of St. Louis. National Association of Realtors data show that home prices rose in 82% of the 221 metro markets the trade group tracked in the third quarter; 11% registered double-

F

22 MORTGAGE BANKER MAGAZINE | JANUARY 2024

digit price hikes, up from 5% in the second quarter.

Year over year, single-family home prices rose 4.9% in September, per CoreLogic’s monthly Home Price Index (HPI) report.

Borrowers, however, prove much more predictable – especially when rising home prices and wage shocks force them to migrate from major metros to regional housing markets. New research from one economist reverse engineering historical home price trends reveals how long-standing worker migration patterns link large, job-creating “superstar cities” to smaller and more affordable “second-tier cities.” In fact, between 1990 and 2017, workers fleeing surging housing costs in any major job center relocated to roughly the same target cities year after year.

THE HOME-PRICE HIGHWAY

T

here’s a more elaborate model for this,” explains Gregor Schubert, a faculty economist at UCLA’s Anderson School of Management, “but the intuition is that migration ultimately works as an escape valve or arbitrage mechanism for spatial differences.” In the working paper, House Price Contagion and U.S. City Migration Networks, Schubert models how large, job-creating superstar cities reliably feed residents (à la borrowers) to the same smaller, second-tier cities

“

“Lenders could do well by expanding into areas of the country that are not as correlated with the overall cycle or are uncorrelated with particular geographies that they already have exposure to.” > Gregor Schubert, Faculty Economist UCLA Anderson School of Management

MORTGAGE BANKER MAGAZINE | JANUARY 2024 23

“What if you notice that this certain ethnicity is really making this big move into this area? Why wouldn’t we cater to that by recruiting loan officers that speak that same language?” > Kortney Lane-Schafers Regional Director of Growth Mobility Market Intelligence

24 MORTGAGE BANKER MAGAZINE | JANUARY 2024

when the superstar cities experience wage shocks or surges in housing costs.

Because a rising tide lifts all boats, housing booms predictably followed in the smaller markets forced to float the rafts of new residents. In other words: when surging home prices, disruptions to the labor market, or even public health crises like the Covid-19 pandemic prompt migration from superstar cities like Los Angeles, San Francisco, Boston, or New York, smaller markets with strong, long-standing connections to those cities regularly experience home price escalation. Historically, cities with five- or six-digit populations especially struggle to absorb even a modest amount of migration in-flows.

Kortney Lane-Schafers, regional director of growth at Mobility Market Intelligence, a data solutions provider for the real estate industry, says worker migration patterns prove particularly helpful when combined with other borrower information, such as income level, ethnicity, field of employment, or past purchase history. Framing increased worker migration through fields of employment, for example, can help lenders and loan officers forecast where mortgage demand might rise or fall as certain industries expand or contract.

Taking origin city into account, past purchase history can help to highlight the amenities that make certain secondtier cities more attractive to workers of a certain income level, ethnicity, or political bent. “What if you notice,” she posits, “that this certain ethnicity is really making this big move into this area? Why wouldn’t we cater to that by recruiting loan officers that speak that same language?” Complementing that borrower-level recruitment strategy, loan officers might offer homeownership education classes targeting that growing demographic, building bridges that lead to future business.

These connected markets have existed for decades and will endure, though evolve, into the future because worker migration networks function as a circulatory system for the broader housing market. Worker migrants act

like red blood cells, fueling national and regional housing cycles by transporting mortgage demand, or oxygen, throughout the country. “Without worker mobility,” Schubert says, “the spread in house price growth across cities in response to wage shocks would be 65-70% larger.” Patterns in worker migration cut the key for unlocking future business by creating an origination overlay for anticipating rises in mortgage demand, home prices, and residential construction years before they happen, even far from major job markets.

With housing affordability at historic lows and long-held fears of a recession lingering for 2024, any significant rise in unemployment or home prices could spark an increase in worker migration,

Median Home Price Growth in Meridian, ID > A ’BURB IN THE BOISE METRO AREA 2014: $219,900 2019: $336,900 2023: $511,500

thus mortgage demand, thus home prices, between connected markets. Informing business strategies ranging from lead generation and customer management to risk exposure and hiring, Schubert’s research underscores how mortgage companies can court borrowers in connected markets by anticipating, literally, their borrowers’ next moves.

ORIGIN INFORMS DESTINATION

I

n 1990, Boise, Idaho, had a population of 135,000 and sat a day’s drive from the nearest major job market, be it

Seattle or San Francisco. Three decades later, the former enclave for Basque immigrants from north-central Spain and long-time home of Micron Technologies, a global leader in semiconductor manufacturing, still sits a day’s drive from the nearest major job market but has added 100,000 residents – a 76% increase – and become one of the country’s fastest appreciating regional housing markets.

For the most part, Schubert does not speculate on why certain workers from certain superstar cities migrate to the same second-tier cities year after year.

The fact is: they do, and will continue to, no matter the historical or future causes. About 80% of the migration links Schubert modelled between origin and destination cities stayed the same over a 10-year period. Instead, the presence of long-standing links between connected markets shows that a worker’s origin city, not their reason for fleeing it, proves a stronger determinant of a worker’s destination city.

Workers fleeing cities in coastal California, for example, must search relatively far away to find an affordable alternative. “If you’re just moving within 50 to 100 miles, everything around you is equally expensive. Your ability to move to somewhere more affordable is limited by the network of cities around you,” Schubert says. However, workers fleeing South Boston’s surging prices can find more, less-expensive cities in the surrounding area – cities like Worcester, Mass., Hartford, Conn., Manchester, N.H., or Providence, R.I. “That’s the function of this network of cities around you and how affordable they are relative to where you’re coming from,” he explains.

That network of cities has a network of real estate agents, too, Lane-Schafers says. In addition to targeting subsets of borrowers, an individual loan officer who is active in L.A., say, could target active real estate agents in Boise, Las Vegas, or Phoenix, three second-tier cities with strong migration links to L.A. Even better, she says, if the loan officer and real estate agent have closed deals together before.

“The agent is a customer as well, right?

We’ve all heard the proven fact that it’s easier to get existing business from an

MORTGAGE BANKER MAGAZINE | JANUARY 2024 25

existing customer than it is to have to go find brand new customers.” Placing just one pre-qualified buyer into that real estate agent’s hands can wet the pen for future dealings if and when the secondtier city starts to experience elevated rates of in-migration or home price escalation.

As far back as 1990, workers consistently migrated to Boise from L.A. and San Francisco. The approach of Y2K brought upward pressure on home prices, amplifying that trend; job creation driven by tech companies brought a steady stream of wellcompensated tech workers to those major job centers. Most residents leaving L.A. or San Francisco found new jobs and homes in local exurbs or other major job markets. But many, predictably, trucked their families and belongings up the well-worn road to Boise.

When the S&P CoreLogic CaseShiller Index was showing national average home price growth of 1.4% in 1993, it was 9.4% in Boise. In 2005, home prices jumped 14% nationally, but 24.5% in Boise. In 2021, as the pandemic accelerated worker migration from a number of superstar cities, Boise home prices rose 28.7% against a national average of 17%.

A lack of spoiler alerts may be the greatest limitation of Schubert’s study; he left his orange crayon at home and neglected to underline specific origin and destination cities poised for home price escalation or increased out-migration.

Nevertheless, the long-term impact of worker migration on Boise’s housing market underscores how nascent mortgage demand exists in regional markets with long-standing links to jobcreating superstar cities – workers found their way to Boise because they began in L.A. SHARED EXPOSURE, SHARED RISKS

T

he enduring nature of migration networks between certain U.S. cities helps to explain why the national home price boom between 2000 and 2007 still left home prices in two-thirds of U.S. counties up less than

5%. By modeling the impact on secondtier cities of home price increases in superstar cities during the pandemic (2020-2022), Schubert found that cities with the top 20% of exposure to superstar cities – as measured by the volume of in-migration from superstar cities – saw 2.8% higher annual home price growth than the group with the lowest exposure.

The takeaway is home price escalation tends to concentrate in connected markets because only a limited number of cities serve as origins or destinations for substantial numbers of migrant outflows or inflows. Cohorts of secondtier cities behave in tandem because they share exposures to the same superstar cities. Boise, Las Vegas, and Phoenix – seemingly disparate housing markets – share similar housing cycles because their housing markets are largely driven by migration out of a handful of cities in coastal California.

When it comes to market risk exposure for lenders and loan officers, “finding housing markets that are not driven by the same kinds of superstars that they’re exposed to, or that don’t have the same sort of migration network, might be a nice way of diversifying,” Schubert advises. To the extent that farflung cohorts of second-tier cities share exposure to the same shocks impacting superstar cities, comparing lending in well-connected second-tier cities against home price changes and employment conditions in superstar cities should help mortgage companies reconsider their market risk exposure. At the same time, lenders can hack historical migration networks to balance market risk with future growth.

Enhancing the accuracy with which lenders can predict escalating home prices or mortgage demand in smaller markets ought to enhance the accuracy of their “net present value,” or future profitability calculations, particularly with new branches, says Preetam Purohit, head of hedging and analytics at Embrace Home Loans.

After all, he says, new branches are but loss-making entities projected to be profitable in the future. Projected

26 MORTGAGE BANKER MAGAZINE | JANUARY 2024

home price appreciation plays a central role in determining where to open new branches or expand operations more generally.

NEAR-TERM OUTCOMES

B

ecause the number of potential outcomes increases the further one projects into the future, lenders tend to employ a probability multiplier (like 0.2%) to calculate the present value for cash flows more than five years in the future. The fact that U.S. migration networks are historical and enduring should offer lenders greater confidence in these calculations if they expand into smaller markets with strong connections to superstar cities, Purohit says. Expanding exclusively in markets with strong connections to superstar cities would amplify the accuracy of net present value calculations, granting lenders greater license to bank on future cash flows.

And yet, the inverse of Schubert’s findings is also true: smaller markets with limited or no connections to superstar cities are far less sensitive to home price escalation or wage shocks in superstar cities. Recall, home prices in two-thirds of U.S. counties appreciated less than 5% in the run-up to the Great Financial Crisis. Home prices prove more stable in less-connected markets, but generally fewer homes change hands.

The ham can be sliced even thinner, too, when taking regional and local markets into account. The West Coast acts very differently than how East Coast acts,” says Purohit. “If you see that there is home price appreciation, or significant home price appreciation that is forecasted, that increases your probability of opening up a branch there.”

However, nascent mortgage demand does exist in less-connected markets, and lenders and investors can use Schubert’s research to identify second-tier cities that may be only steps from the red carpet – the next Nashville, the next Boise, the next Tucson, the next Austin.

“Lenders could do well,” Schubert says, “by expanding into areas of the country that are not as correlated with

“Enhancing the accuracy with which lenders can predict escalating home prices or mortgage demand in smaller markets ought to enhance the accuracy of their future profitability calculations, particularly with new branches.” > Preetam Purohit

Head of Hedging and Analytics Embrace Home Loans

the overall cycle or are uncorrelated with particular geographies that they already have exposure to.” Established migration networks criss-cross national and regional housing markets constantly in flux.

Whether regional housing cycles follow or flaunt national mortgage trends, the home-price highway offers one means of predicting which regional markets are ripe for expansion – or exit. “The same way that we form more diversified portfolios of stocks, they could have more diverse portfolios of lending.”

HOUSING BOOMS FOLLOW

M

eridian, Idaho, slightly west of Boise, has bathed in the glow of Boise’s rising star for years.

But so have Caldwell, Kuna, Nampa, Middleton, and Garden City, other Idaho municipalities that have enjoyed the Boise metro’s decades-long influx of migrants and mortgage demand. This regional housing market has long served as proof of Schubert’s thesis: workers have an outsized impact on the smaller markets to which they migrate; where workers go, housing booms follow.

The ability to anticipate regional housing booms provides additional assurances for lenders’ growth strategies, particularly from the perspective of lenders’ profit margins. Beginning in the second quarter of 2022, mortgage companies have reported losses on net production income for six consecutive quarters. Mortgage companies incurred a pre-tax net loss of $1,015 on each loan they originated in the third quarter of 2023, up from $534 per loan in the second quarter.

Declining profitability on individual loans, Purohit notes, has lenders looking for fewer loans, but larger loan sizes. If a lender’s margin is 2%, she earns $5,000 on the $250,000 loan, but $10,000 on a $500,000 loan, while the origination cost remains essentially the same for each. “It’s not like 2%, 3%,” Purohit says. “It’s like, am I making 10 grand on a loan? 15 grand? 20 grand? What is my dollar amount that I’m making on every loan?” Expanding into a well-connected second-tier city carries the promise of consistent home price appreciation, meaning lenders can bank on improved profitability as the smaller

MORTGAGE BANKER MAGAZINE | JANUARY 2024 27

market matures by closing a greater percentage of loans with increasingly larger loan amounts.

Since 1990, Meridian has quietly experienced an 11-fold (1,100%) population increase from nearly 10,000 residents in 1990 to nearly 126,000 in 2021. In 2014, the median home sale price in Meridian was $219,900. The median sale price rose to $336,990 in 2019, then $511,500 as of September 2023. Similarly dramatic home price appreciation has occurred throughout the Boise metro area. Schubert says the contagious nature of home price trends explains why worker migration can transform some formerly regional hubs into second-tier cities that experience the kind of dramatic home price escalation typically associated with major metros.

In most cases, the exchange of workers between superstar cities (say, between L.A. and San Francisco) will not dramatically alter either city’s housing market. However, places with five- or six-figure populations can struggle to absorb even a modest number of newcomers. Disruptions to local housing supply and demand permeate regional market dynamics, leading to cascading home price escalation and increased migration within the regional market as workers and families who already lived in Jacksonville, for example, quickly find themselves priced-out.

The degree to which a smaller market is connected to one or more superstar cities, however, plays a crucial role in determining whether a housing boom will occur if or when that smaller market experiences increased inmigration.

Historically, Naples, Fla., Spokane, Wash., and Boise, have received a much larger portion of domestic immigrants from superstar cities than Toledo, Kan., St. Louis, Mo., or Minneapolis, Minn., according to historical data.

Schubert’s modelling shows cities with less than 8% of in-migration from superstar cities, such as Toledo, St. Louis, and Minneapolis, experienced home price growth of less than 10%

during the pandemic. While home price fluctuation typically tracks more closely with local economic conditions such as industrial expansion or barriers to new home construction, considering exposure level in second-tier cities alongside housing shocks in connected superstar cities accounted for about 32% of the home price differences.

MIGRATION WORKS IN REVERSE, BUT …

T

he sensitivity and cyclicality of the housing market tends to make mortgage bankers highly responsive to current economic conditions, and somewhat less concerned with how the market will behave in a decade. Which is not to say that mortgage bankers pooh-pooh five-year plans, only that those plans are highly fluid.

Except for the period immediately following the Great Financial Crisis, U.S. home prices have mostly risen over the past three decades. With longheld fears of a recession lingering for 2024, the future movements of home prices and mortgage demand remain uncertain. The Fed’s inflation policies have yet to constrain employment or home prices. Schubert posits, however, migration patterns should work in reverse if home prices drop or labor conditions improve in superstar cities.

“The prediction,” he says, “would be that you see some workers from nearby cities returning to those cities as there’s a certain price at which moving back into New York becomes attractive.”

Second-tier cities near and far with migratory links to New York City would likely experience an outflow of residents and, depending on the size of the exodus, a drop in home prices and mortgage demand regionally.

The digital nature of today’s mortgage market means many lenders and loan officers can originate loans all over the country and pivot to new markets relatively quickly, Purohit points out. The permanent transition to remote work for a large portion of the labor force has fundamentally

28 MORTGAGE BANKER MAGAZINE | JANUARY 2024

altered the “where” and “why” of housing demand. Using Schubert’s research on migration patterns to locate nascent mortgage demand does not require a physical presence in wellconnected second-tier cities or regional markets.

But, Purohit acknowledges, a physical presence helps, making inorganic growth through acquisitions a viable option for mortgage companies wanting to recruit where they see increased migrant in-flows or escalating home prices. Many smaller retail shops are looking for an exit because of the current market outlook. Larger mortgage companies may find the opportunity to acquire market share in smaller emerging markets by acquiring these smaller lenders – “I mean, right now the valuations are really low” – and their production teams.

Decades-long housing supply shortages will probably prevent home prices from dropping low enough to entice significant numbers of workers to return to superstar cities once they have relocated, Schubert believes. “The supply constraints in a lot of these cities are binding enough that it is unlikely that house prices will fall substantially.”

Even if a large number of higherincome earners suddenly experienced a significant wage cut, too much pent-up demand exists from homebuyers who want to move into superstar cities, but have been unsuccessful so far.

Rather than falling home prices, macroeconomic shocks – the Covid-19 pandemic, the rise of artificial intelligence, environmental disasters – seem more likely to drive worker migration between connected cities in the future. On a national scale, the pandemic complicated Schubert’s ability to model how wage shocks and home price escalation drove worker migration inflows and outflows. Yet, the pandemic did provide additional evidence that when workers migrate, especially en masse, they follow in the footsteps of those who went (That way!) before.

Mortgage Banker Magazine is looking to recognize the 2024 Legends of Lending — the key players who have dedicated their expertise and years of experience to mortgage, and represent the industry with confidence, compassion, and pride.

Nominate yourself, or someone you know who has blazed a path and left their mark on the industry for years to come.

SUBMISSION DEADLINE: FRIDAY, MARCH 8, 2024

MORTGAGE BANKER MAGAZINE | JANUARY 2024 29

ANALYSI S AND DATA

Mortgage Insurance Industry Touts Enhancements URBAN INSTITUTE RESEARCH SHOWS PMI BENEFITS GSEs’ BOTTOM LINE

30 MORTGAGE BANKER MAGAZINE | JANUARY 2024

U

.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, released a new report detailing the enhancements undertaken over the past 15 years since the great housing market crash of 2008-2009. The trade group says the changes have heightened the ability of private MI to better support the housing finance system and serve as a source of strength in the system through all market cycles.

Resiliency is the word the PMI industry likes to associate with its efforts. It’s in the new report title, as well as being used to describe how private mortgage insurance protects the housing finance system.

The report “Private MI: A Source of Strength & Resiliency in the Housing Finance System” highlights the capital and operational standards implemented by the industry since the 2008 financial crisis, along with innovations to increase the distribution of credit risk. These developments have contributed to the emergence of a strong private MI industry that meets the needs of borrowers, actively manages mortgage credit risk, and serves as a source of reliability and resiliency in the housing finance system.

“Private MI plays a critical role in facilitating homeownership for first-time and low- and moderate-income borrowers while shielding lenders, the governmentsponsored enterprises (GSEs), and taxpayers from credit risk. The implementation of important enhancements over the past 15 years has made the private MI industry stronger and more resilient,” said Seth Appleton, president of USMI. “Not only does private MI provide stability to the housing market, but it is also very well positioned to meet borrower demand as proven by the more than 1 million Americans who relied on private MI in 2022 to purchase or refinance a home.”

More than 1 million Americans relied on private MI in 2022 to purchase or refinance a home.

MORTGAGE BANKER MAGAZINE | JANUARY 2024 31

The Urban Institutes’ 2023 “Mortgage Insurance Data at a Glance” report states that private MI “is highly effective in reducing losses to the GSEs,” as “the loss severity the GSEs experience is lower for loans with [private MI] than for those without because mortgage insurance recoveries reduce losses.”

REDUCES GSE LOSSES The Urban Institute says, “During the past 66 years, the private mortgage insurance industry has enabled homeownership for more than 38 million borrowers who lack sufficient funds for a 20% down payment on a conventional mortgage.”

According to the report, total loss severity for the 1994-2022 origination period of GSE loans without private MI was 37.6%, while loans with private MI were 26.4%, meaning loans without private MI experienced a 42.4% higher rate of loss severity when compared to the loss severity rate of loans with private MI during this time period. Further, the Urban Institute’s report also found that mortgages backed by private MI have been the most common execution for low down payment borrowers since 2018.

The Urban Institute also looked at how private mortgage insurers have become increasingly proactive in managing and distributing credit risk. In 2015, the industry expanded its credit risk transfer capabilities and issued $298.9 million in insurance-linked notes (ILNs), covering $32.4 billion of insurance in force. By 2021, the annual issuance increased to $6.3 billion, protecting $652.2 billion in mortgage loans.

Because of rapidly changing market conditions, ILN issuance dropped significantly in 2022 to $1.2 billion, protecting $41.4 billion in risk in force and $205.9 billion in mortgage loans. Since 2015, private mortgage insurers have executed 42 reinsurance deals, ceding $47.1 billion in risk on approximately $1.1 trillion of insurance in force using excess of loss (XOL) and quota share reinsurance (QSR) transactions. The bottom chart shows annual ILN volume issued by individual private mortgage insurers.

Among the enhancements to the industry in the last 15 years, USMI’s new report outlines and analyzes the following: Private Mortgage Insurer Eligibility Requirements (PMIERs) – Since the 2015 revision to PMIERs, developed in partnership with the Federal Housing Finance Agency (FHFA) and the GSEs, private

mortgage insurers now hold 69% more capital than the required regulatory threshold. USMI member companies have maintained levels significantly over the PMIERs capital requirements, and collectively hold $11 billion in excess of these requirements, representing a 169% sufficiency ratio.

New Master Policy – Implemented by USMI members on March 1, 2020, the policy increased clarity of terms and streamlined the payment of claims to ensure, in the event of borrower defaults, that private MI results in reliable and predictable payments to lenders.

Rescission Relief Principles – Introduced in 2013 and revised in 2017, the Recission Relief Principles include automatic relief after 36 timely payments, with early relief available after 12 timely payments with a full file review. It also provides private MI companies with the ability to offer increased rescission relief.

MI Credit Risk Transfer (MI-CRT) Structures – Private MI companies have transferred nearly $73.8 billion in risk on more than $3.4 trillion of insurance-inforce (IIF). Further, after introducing MI insurancelinked-note (ILN) programs beginning in 2015, private MIs have issued 56 ILN transactions, transferring nearly $22.3 billion of risk on more than $2.3 trillion of notional mortgages.

Through the MI-CRT transactions, the industry said that demonstrates that private MI companies are sophisticated experts in pricing and actively managing mortgage credit risk, ensuring quality control and acting as a “second pair of eyes” on risk, which further cements the stability private MI provides in the housing finance system.

For over 65 years, the private MI industry has served lenders, the GSEs, the U.S. government, and taxpayers as an effective and resilient form of private capital, standing as the first layer of protection against credit risk and mortgage defaults. Fifteen years after the 2008 financial crisis, the enhancements outlined above have been implemented and proven to further strengthen the industry. Since 1957, private MI has enabled affordable, low down payment homeownership for more than 38 million people. In 2022 alone, more than 1 million borrowers purchased or refinanced a loan with private MI, accounting for nearly $402 billion in mortgage volume. Nearly 62% of purchase loans with private MI went to first-time homebuyers, and more than 34% had annual incomes below $75,000.

Private MI has enabled affordable, low down payment homeownership for more than 38 million people.

32 MORTGAGE BANKER MAGAZINE | JANUARY 2024

Texas’s top gathering for mortgage pros.

FEB

20

AUSTIN, TX Austin Marriott South

Scan here to register for FREE (promo code MBMFREE) or go to: WWW.TXMORTGAGEROUNDUP.COM Complimentary registration available to NMLS-licensed active LOs and their support staff.

Show producers reserve the right to determine final eligibility.

MORTGAGE BANKER MAGAZINE | JANUARY 2024 33

MortgageBanker MAGAZINE

34 MORTGAGE BANKER MAGAZINE | JANUARY 2024

DATABANK

MORTGAGE BANKER MAGAZINE | JANUARY 2024 35

S P E C I A L A D V E R T I S I N G S E C T I O N : N O N - QM L E N DE R DIRECTORY

CO M PA NY

A REA O F FO CU S

STATES LIC ENSC ED

Multi-channel mortgage Arc Home LLC

leader with exceptional service and comprehensive mortgage solutions.

WEBSITE

AL, AK, AZ, AR, CA, CO, CT, DC, DE, FL, GA, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OH, OK,

business.archomellc.com

OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI, WY

Private Lending for Carrington Wholesale

Real Estate Investment

47 States (excluding NH, MA & ND.)

carringtonwholesale.com

Properties

Verus Mortgage Capital

Nation’s largest issuer of securitizations backed by

Continental U.S.

verusmc.com

non-QM loans.

S P E C I A L A D V E R T I S I N G S E C T I O N : PRIVATE L E N DE R DIRECTORY

CO M PA NY

A REA O F FO CU S

WEBSITE

Alpha Tech Lending

Private Lending, Non-QM

alphatechlending.com

Patch Lending

Private Lending for Real Estate Investment Properties

patchlending.com

And … Action!

NMP’s mission is to use the power of video and podcasts to compliment the written word and inform, educate, enable and empower mortgage professionals with the most relevant, up-to-date information and advances in the mortgage industry.

It is our goal to offer worthwhile information to our viewers while delivering it with the utmost professionalism.

36 MORTGAGE BANKER MAGAZINE | JANUARY 2024

S P E C I A L A D V E R T I S I N G S E C T I O N : O RI G IN ATOR TEC H DIRECTORY

CO M PA NY

A REA O F FO CU S

WEBSITE

Global DMS

Appraisal Management Software

globaldms.com

S P E C I A L A D V E R T I S I N G S E C T I O N : A PPRAISE R & AMC DIRECTORY

CO M PA NY

A REA O F FO CU S

WEBSITE

Clear Capital

National real estate valuation technology company

clearcapital.com

S P E C I A L A D V E R T I S I N G S E C T I O N : WA RE H OU SE L E N DIN G DIRECTORY

CO M PA NY

A REA O F FO CU S

FirstFunding Inc.

WEBSITE

Offers warehouse lines to correspondent lenders, community banks, credit unions, and secondary-market investors.

Independent Bank

Mortgage warehouse lines of credit, from $2 million to $150 million, and fund

of Texas

over 200 delegated and non-delegated retail originators.

firstfundingusa.com

Ifinancial.com

nmplink.com/TheInterest

nmplink.com/ThePrincipal

nmplink.com/GC

PROD UCTI ONS OF AM ERI CAN BUSI NESS ME D IA

MORTGAGE BANKER MAGAZINE | JANUARY 2024 37

Picture your dream home. Now look down. There’s a bright red line keeping you out. Join host Katie Jensen as we dive into redlining and the legacy of discrimination. You’ll hear first-hand accounts from those who’ve had to fight back to achieve their dreams. And we’ll challenge industry leaders on how to rewrite this legacy.

Listen by following the link or by subscribing wherever you get your podcasts.

Available on major podcast platforms: