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**Where in the World is Non-QM? A Mortgage Media Discussion with Robert Senko of ACC Mortgage** Jul 28, 2020
Show notes

The shocks that hit the credit markets in mid-March had already caused disruptions to the non-QM segment – these were however compounded when the last two of the large investors Angel Oak and Citadel also bowed out.

Many lenders not only stopped new loans, but also had to pull loans from the pipeline. However, not all lenders have abandoned the non-QM space. Mortgage Media recently spoke with Robert Senko, the President of ACC Mortgage based in suburban Maryland, survivor who continues to lend in what is a very challenging environment .

Senko discussed how this crisis is different because investor appetite seized up in a different way than in the 2008 crisis. Because ACC has been in the Non-QM business with its investor relationships for so long, and due to its size and expertise, it was able to retain the confidence of its investors in a challenging environment.

“It’s not always bigger is more stable. Big trees fall hard,” Senko told Mortgage Media. “So where we were smaller, we could adjust much quicker after March 20 to change our corporate structure and staffing models, but continue to sell and trade. And we had, knock on wood, some excellent trading partners that didn’t pull out of the market. They may have shrunk their box a little bit, but we continue to be able to sell loans to them.”

*Robert Senko has more than 20 years of experience in the realm of real estate and financial services.* Mr. Senko entered the mortgage industry as a junior loan officer in 1993 when applications where handwritten and fax machines where a novelty. Since that time he led one of the first successful efforts to use mortgage-backed securities in non-prime space. He went on to sell the first company he founded to a publicly traded institution. He founded ACC Mortgage, Inc. in 1999, a multi-service platform offering traditional Fannie Mae, Freddie Mac, FHA and VA products and proprietary portfolio products. ACC Mortgage has grown year over year and also has servicing platform for both performing and non-performing loans.

Listen to Suresh Ramakrishnan’s interview with Robert Senko below.

The post Where in the World is Non-QM? A Mortgage Media Discussion with Robert Senko of ACC Mortgage appeared first on Mortgage Media.

**African American Homeownership Challenges Subject of Upcoming Webinar** May 13, 2020
Show notes

Efforts are being made to increase homeownership among African American families by an organization called the UHOUSI Initiative, a group led by prominent African American faith-based and civil rights leaders aiming to increase responsible homeownership.

Sponsored by Chenoa Fund, UHOUSI Initiative is hosting a webinar on May 21 called **COVID-19 – What to Do About Housing**?

Richard Ferguson,
Chenoa Fund President

Richard Ferguson, President of Chenoa Fund, said he hopes the webinar will help African American families as they experience homeownership challenges as it relates to COVID-19.

“In addition to the items that would one would expect as it relates to COVID-19, we’re also going to be talking about the challenges that African-Americans have with regards to obtaining home ownership. What are the main limiting factors? Whether it’s lack of down payment, whether it’s credit issues. And how, they as a community, might be able to overcome some of those,” Ferguson told Mortgage Media. “In addition to that, we’re going to be talking about the COVID-19-related issues, such as, what to do if you’re a homeowner now and you lose your job, what does forbearance mean? How could you obtain it? If you’re a renter, what rights do you have in terms of your rent payments and that thing. We’re going to be offering practical advice to the African-American community in terms of whatever housing situation they’re currently in, how they could be able to sustain that.

**About the UHOUSI Initiative**

UHOUSI Initiative was founded originally by Bishop Harry Jackson, as you mentioned, a faith- based leader who is also on President Trump’s evangelical council. He saw the lack of home ownership in the African-American community as probably the greatest civil rights issue of our time, with African-American home ownership being somewhere in the 40s versus white American home ownership in the 70s. And that wealth disparity that’s created by that as being like I said, one of the greatest issues of our time. And so, as we were conversing and talking in Washington, D.C., at one point, he was really passionate about trying to initiate a program in order to help African-Americans increase the rates of home ownership.

That was the Genesis of where Chenoa Fund came in and sponsored his efforts, created a program for him and be able to take out to his congregants. Since then, he’s teamed up with some additional civil rights leaders, such as Dr. Alvita King, and they are taking this initiative, if you will, nationally. Throughout their faith-based community and through other African-American gatherings in order to try to preach the message of the importance of home ownership.

Bishop Jackson and Dr. King are going to be presenting when you have a Webinar coming up on May 21. The Webinar is called COVID-19, What To Do About Housing. Can you tell us a little bit about what’s going to be covered?

In addition to the items that would one would expect as it relates to COVID-19, we’re also going to be talking about the challenges that African-Americans have with regards to obtaining home ownership. What are the main limiting factors? Whether it’s lack of down payment, whether it’s credit issues. And how, they as a community, might be able to overcome some of those. In addition to that, we’re going to be talking about the COVID-19-related issues, such as, what to do if you’re a homeowner now and you lose your job, what does forbearance mean? How could you obtain it? If you’re a renter, what rights do you have in terms of your rent payments and that thing. So we’re going to be offering practical advice to the African-American community in terms of whatever housing situation they’re currently in, how they could be able to sustain that.

**How do you get the word out?**

A couple of methods. We’ve created some recordings that will be distributed throughout the various churches. Bishop Jackson is also part of this evangelical council, as I mentioned, and is being disseminated out through several different churches and invitations are going out in that manner. Obviously, we’re using social media and traditional advertising to get the word out to the African-American community to be able to join us in this event.

The gap in home ownership rate between black and white families in the United States is bigger today than it was in the ’60s when it was legal to refuse to sell someone a home because of the color of their skin. In 1960, there was a 27 percent gap between black home ownership and white home ownership. But data from 2017 shows the gap even wider, at 30 percent. One of those reasons was efforts after the financial crisis in 2008, there was some predatory practices that caused a larger disparity in the impact on African-American home owners and home buyers. How do you see COVID-19 and the current pandemic and the current situation, what are the concerns for black home buyers now?

Back in 2008, we actually started to see that home ownership rate for the African-American community almost tip 50 percent. In fact, I think we finally broke the 50 percent barrier, but because of the predatory lending, like you mentioned, we saw that backtrack quite significantly, back down to the low 40s again. And so, Secretary Carson has talked about this as well, is that for some reason we don’t really understand why entirely the science behind it, but this disease seems to be affecting minority communities of color more than, say whites. Why is that? Maybe because there are more denser housing, we just don’t know. And so, the effects of this pandemic could have a debilitating effect on the efforts of African-Americans to be able to get into home ownership.

We already know that on average, African-Americans have one-tenth the net worth of white families. And so, as they use precious reserves or savings that they may have due to job losses, in order to put food on the table, it’s going to affect them even more when it comes time to either find to buy a home or helping family members to be able to buy a home. Because whatever resources they might have had, will have been used in order to sustain life. And so, we’re really concerned about that effect. That’s one of the things that UHOUSI Initiative is trying to do is help African-Americans understand that there are resources specifically the Chenoa Fund Down Payment Assistance Program, that can help them be able to achieve home ownership. Even if they lack down payment, we can help them get the cash that they need in order to purchase a home with little-to-no money down.

**What Chenoa Fund is doing?**

Chenoa Fund is a government sponsored down payment assistance program. It was originally created by the Cedar Band Of Paiutes, which is an Indian tribe out of the state of Utah. And it’s designed to provide the three and a half percent down payment that is required on an FHA loan. So if you’re a borrower and you lack the down payment, as long as you’ve got good income, and you’ve got a credit score that’s above 620, you can qualify to be able to purchase a home. We will provide that down payment for you. So we will work with lenders around the country who work with the consumers in that we’ll provide the down payment, as well as that first mortgage for them.

And the down payment is in two main distinct forms. One is you can get a down payment that is forgivable, so that if you make your first mortgage payments on time for three years, you can get the entire down payment forgiven and you don’t make any payments on it in the meantime. The other form of down payment is where you actually will make a principal and interest payment on that second mortgage. You’ll make that for about a 10 year period in exchange for paying back the down payment, we actually will give a much lower interest rate on that first mortgage. So as a consumer, you have two choices. You can say, “I want to get that down payment for free, but I might take a little bit higher interest rate,” or, “I can get a normal market first mortgage interest rate, but I have to pay back that down payment over a period of time.”

**Learn more about the USHOUSI Initiative, and sign up for the webinar here.**

The post African American Homeownership Challenges Subject of Upcoming Webinar appeared first on Mortgage Media.

**Two Daves: Glacial Technology Adoption in the Mortgage Industry** May 13, 2020
Show notes

This week, David Matthews and David Lykken look at Glacial Technology Adoption in the Mortgage Industry.

Here’s a “roadmap to their rambling conversation”, as Dave One called it (you can guess which is One and which is Two).

Almost 20 years to come up with data standards to facilitate closings. Why?

State laws and regional customs stymy “one size fits all”

Property law and financial regulations prevent roadblocks to innovation

No motivation to improve the process (If it isn’t broken, why fix it?)

Fragmented industry with a series of segmented suppliers

Proprietary nature of mega players

It’s not the technology

Digital adoptees and digital natives have been ready for better customer experiences for years

Mobile technology and BYOD have been well established in real estate and banking for similar time frames

Mortgage has always been a big data iceberg with enormous potential for customer mining

Individual processes have been automated but never connected

Industry has relied on better and cheaper manual processes (e.g. outsourcing, workflow, etc.)

Conclusions

Uninspired management

Allocation of investment capital to capital markets management

Lack of a strategic vision and roadmap

The post Two Daves: Glacial Technology Adoption in the Mortgage Industry appeared first on Mortgage Media.

**Chris Whalen on How to Limit the Damage to the System** Apr 28, 2020
Show notes

Chris Whalen doesn’t hold back when analyzing the government’s actions during this pandemic. Whalen, an investment banker and author and Chairman of Whalen Global Advisors, talked with Mortgage Media’s Eric Souza about a number of the issues facing the residential lending market.

Here are some of Whalen’s comments from their conversation. You can listen to the full interview here.

**On the FHFA’s response**

We can only really react to their announcements. There have been a couple of things. First and foremost, they indicated that they were only going to make servicers – banks or non-banks – advance four-months’ worth of missed principal and interest payments on mortgages that have gone into forbearance under the CARES Act. The legislation that Congress passed essentially told all Americans that they could skip their mortgage payment. This really was just supposed to be focused on government-insured mortgages, but it has, in fact, become a general announcement of the jubilee for all debtors in America. And you’ve had regulators strong-arming private lenders to provide forbearance as well, even though it’s not legally mandated. Ultimately, the bond holders in auto loans and such, things like that … will pay for it.

It’s been quite an undertaking. This is probably the biggest unfunded-mandate ever passed by the Congress. And the FHFA, I think, which is now led by a conservative friend of mine, Mark Calabria, was somewhat blindsided by this.

… FHFA essentially came out after a lot of yelling and screaming and said, “All right. Fine. You only have to advance four months of forbearance on these loans.” But we’re not quite sure what happens after four months. We’re not sure, for example, if we’re going to be reimbursed.

That was the big announcement out of FHFA. We appreciate the clarity that says that Fannie Mae and Freddie Mac will essentially take over advancing after four months. But I think that it’s going to be a long process, working with the FHFA and with Fannie Mae and Freddie Mac. And I think it causes people in the industry a lot of uncertainty and unease, because we’ve seen this movie before. We’ve seen the GSEs step away from the market. We’ve seen the private mortgage insurers back away from their responsibilities. And I think for both investors and lenders, there’s a lot of questions today about the conventional market, and whether we should be originating product in the conventional market.

**Whether or not we should be originating product in conventional market**

I think there’s a lot of risk … the thing about government lending, even though it’s more difficult and it certainly requires you to follow the FHA rules very closely in terms of reimbursement and getting properties resolved in the event of foreclosure … at least you know what the cost is going to be.

With the GSE market, you don’t know. If you go back and look at 2008/2009, what happened was the GSEs tried to force the lenders to repurchase a lot of mortgages that should have been covered either by their guarantee or by the private mortgage insurers.

When you see the operational risk looking at you, it kind of gives you pause. The government market, you follow the rules, you do all the steps properly, you get reimbursed. If you look at the posture of the FHFA and compare that to the GSE market, it’s rather striking, the difference.

**How private market is being strong-armed**

Essentially, regulators in states like California and New York are telling private lenders that they have to offer forbearance. I’ll give you a great example. Ally, auto lender. It’s a bank. And they have been forced to offer 120 days of forbearance on auto loans. Those are not government-insured mortgages. There’s no legal mandate here. But the regulators have made it very clear to a number of lenders that if they don’t play ball, they’re going to be penalized. They’re going to be punished later on through the supervisory process.

We had this breakdown in the rule of law. Which is really … a big concern for people in the mortgage market. Because that’s what we do – we convey property from one person to another. We provide credit so people can buy real estate. And if you’re not going to follow the rules, if you’re going to just say, “Well, this is a difficult time. We’re going to force everybody to take money out of the pockets,” I think overall you’re going to hurt the market.

You can see that in rental properties and commercial real estate today. In general terms, we’re going to be okay. But I really worry about commercial, multi-family. This time around I think there was even more speculative juice in those sectors than there was in resi.

I think that across the board you will see severe impacts in terms of credit. I live in New York City, so if you look at what’s going on here you’ve had literally hundreds of thousands of people leave the city because they have lost their employment. You’ve had many, many young people, in particular, go home to live with Mom and Dad and they’re not paying the rent. I don’t think that’s going to change in the near term. The high-end real estate market in New York, which was already soft, is going to soften a lot more. And I think you’re going to see high levels of loan defaults for bank and non-bank lenders in this space, simply because economics have changed so quickly. If you looked at where we were in February … I wrote a piece for National Mortgage News about how the banks were coming back. And indeed, they were. They were attracted by the spreads and they were starting to do more securitization after nine years of declining volumes from banks in the securitization market. Well, they’re gone now. The big banks have pretty much pulled the plug on correspondent and wholesale. And this week, if you really looked, it’s only the large non-banks who are still buying correspondent. Isn’t that interesting?

**Points he wants addressed from director FHFA Director Mark Calabria**

The thing that saddens me as a conservative and as somebody who’s watched Mark Calabria’s career for a long time, is I don’t want to see him fail. I don’t want to see someone of his prominence essentially run into a brick wall, which is what’s happened.

I think the obvious thing for the GSEs to have done would be to say to the industry, “Look, this COVID-19 forbearance is something none of us anticipated. We’re going to provide the advancing on these loans. We’re not going to default them. We’re not going to ask you to buy them out of the pool,” which is good. That’s what they should have done. And then director Calabria could have had the two GSEs go to the Fed with the advances and the Fed would have liquified them. They’re triple A credits, they’re in conservatorship, so it’s relatively easy for them to do that.

I think director Calabria rightly says, “Look, they have no money. They have no capital. And I am currently in conservatorship. I’m supposed to be protecting them and reducing their footprint.” But I think he’s forgotten that the GSEs exist to provide liquidity to the market, particularly when the markets are in extremis and when things are bad. That’s why we created Fannie Mae in the first place. But unfortunately, I think there’s a conflict now between the public mission of the GSEs and the fact that we still have some people who think that they’re shareholders of these kind of sort of private, kind of sort of national corporations. The mistake that was made many years ago by the Johnson Administration during the Vietnam War was to pretend to privatize them. The Treasury never “loosed dominion” over the GSEs, to paraphrase Supreme Court Justice Louis Brandeis. The supposed IPO of the GSEs decades ago was “a fraud on its face.”

And so, now instead of jumping into this market, providing liquidity and protecting their asset … the GSEs have stepped back … remember the GSEs, they own these loans. And even though the servicer, who typically sells loans into the GSE market servicing-retained, are the servicers of the loans, the GSEs control the asset. The GSEs own those loans and they are the issuer of the securities. So, this is their asset. And unlike a Ginnie Mae issuer, these guys are really responsible for taking care of these assets. So, I wish that director Calabria would listen to the professionals at Fannie and Freddie. They know what they’re doing. They have protocols for dealing with this stuff. And the reality is that they should advance. They should reimburse their servicers on the forbearance stuff, so that we can get ready for the real battle. And the real battle is going to be defaults.

**What needs to be done to stop defaults?**

I don’t know that there is much we can do. My gut tells me after I watch bank earnings that the banks are expecting a very, very large credit default event across many different asset classes; not just residential. This is so different from 2008 when we basically had market liquidity problems that were caused by private label mortgages and securities and derivatives, right? This time, it looks more like the mid-1930s where you have broad dislocation in many industries, you have large-scale unemployment. And I think that we have to be prepared for a wave of defaults in one to fours which could be significantly higher than 2008/2009.

The banks, if you use their assets as a benchmark, the maximum charge off on one-to-fours was 2.47%. I think it could easily go up to four or five percent, so that’s twice 2008. And the banks own the best paper, remember. The jumbo market is actually tied to private label for bank jumbos. Then you think conventionals, which peaked around five, six percent defaults in 08/09. Could be higher than that. Could be getting close to double digits. And then government loans may go to double digits; high teens, low 20s.

**Forbearance Numbers**

We already have some pretty stunning data coming from the lenders directly and also from people like Black Knight. Hopefully, the requests for forbearance are going to start to go down but I’m not sure that’s the case. I think a lot of people paid their mortgages last month because the payment was already in process. They did it. This month, I think you’ve seen a lot more people looking for assistance. And my sense is that households that look for forbearance, that need to ask for it, are going to have a very high propensity to default later on. Let’s say half of them default and half of them cure. That’s a lot of work for the industry.

The industry, if they are being reimbursed properly, will actually make money on this. The servicers, the high-touch servicers who will typically take the flow from the banks are mostly non-banks. These firms will deal with the problem mortgages, they’ll do quite well on it. And obviously, they have to finance all of this but that’s very doable. The banks, too, by the way, are fine. The banks have more capital than they know what to do with. They don’t need to suspend dividends. That’s silly. They’ve already stopped share repurchases, which is worth $120 billion dollars this year for the top 25 banks in terms of capital retention. That’s enough to fund your credit build in terms of reserves, right? So, the system can handle it. It’s okay. It’s just that the human cost is what bothers me.

It’s the dislocation of people and small businesses and communities that is going to go on for months and months. And that worries me because that’s where you get credit events and I also think it ends up making the economy bad for years to come. This economic recovery is going to be an “L.” Because we’ve wiped out a lot of the services sector and it just won’t come back that fast. Think about it in your community. How many small businesses around where you live are going to reopen when they take the controls off in two weeks? This is a much closer parallel to the mid-1930s in historical terms, not 2008.

**What we should be focusing on**

The key thing is to stop fretting about servicers, generally, and non-banks, in particular. And remember that these are asset-managers. These guys work for the note holder. So ultimately, in private markets, that’s an investor. Pretty clear. And the investors are going to pay. If you miss four payments on your car, the investors are pretty much going to have to just take a loss.

In the government market, these loans are all ultimately guaranteed by the GSEs or Uncle Sam and we’re going to work through it, so that’s not the problem. The problem is how do we try and limit the damage to the system so that we don’t destroy a lot of wealth needlessly and we don’t create long-term unemployment, long-term dislocation in communities? That, to me, is the most important thing.

The industry can handle this. They have to staff up. They have to borrow a lot of money. But that’s what they do. I think the banks, after the initial shock of building reserves, are going to relax a little bit. They’ve certainly tightened in recent days. But I think it’s important for the Fed and the treasury to realize that benevolence gets you a lot more bang for the buck than being miserable. And when Harry Reid is sitting there talking about having states go into bankruptcy he’s missing the point. We don’t want to have the deflation of the 1930s again. We want to try and cut that curve so that we can catch as many businesses as possible and get them going again.

Look at New York City. Look at any major metro area. Just about all of the hospitality industry is flat on its back and this provides a lot of employment to people. The show business here in New York. Forget it. Broadway? It’s done. So, we have to try and figure out how we can move forward as a society and how we can help people who, through no fault of their own, are suddenly right back where a lot of Americans were in 1935. They had lost all their wealth, they had no work and they were standing in a soup line. And we don’t need to see that again.

I think first and foremost, the Fed and the treasury have to jawbone the banks a little bit, make sure that they’re not going to pull back. The greatest damage done by the FHFA and director Calabria in the past several weeks was his incredible comments to the media where he was talking about having non-bank servicers fail and he was going to move the servicing somewhere else. And that consumers would be better off. I couldn’t even believe that this was a conservative saying these things. It was like I was listening to Bernie Sanders. And yet, I think that there’s hostility still towards banks, towards mortgage lenders, going back to the financial crisis. And we really need to put this aside. We need to get everybody pulling together and that means that the banks have to support companies that are solvent. They have to support people who have collateral that’s guaranteed by the United States. There’s no reason why these assets can’t be financed and there’s no reason why we can’t fix all of the forbearance on all of these loans. It’s very doable.

*Check out Chris Whalen’s website The Institutional Risk Analyst, and follow him on Twitter.*

The post Chris Whalen on How to Limit the Damage to the System appeared first on Mortgage Media.

Housing Data From Past Pandemics Offer Hope for Recovery Apr 23, 2020

Show notes

A recent report authored by Rick Sharga using data from First American DataTree examined how housing has fared and recovered from past pandemics, and finds signs for optimism in recovery. Sharga, the founder of consulting firm CJ Patrick Company, talked about the report, and how housing has performed better than the overall economy. The only exception to that rule in the past 50 years, Sharga said, was the Great Recession. “And the reason for that is that it was housing that took us into the recession. In just about every other case, what we’ve seen is housing has helped lead us out. And that’s something we can hang on to as hopeful as we get through the COVID-19 pandemic.” Listen to Sharga’s conversation with Mortgage Media’s Eric Souza here, and read the lightly-edited Q&A below. They covered a variety of topics, including servicers’ flexibility to adapt; forbearance volumes; the hit to the renters’ market; and his predictions for how the market will be impacted long-term. MM: How has the housing market fared during prior pandemics or economic shocks, and what about recovering from previous recessions? Rick Sharga: The good news is that the housing market has proven to be extraordinarily resilient when it comes to pandemics, recessions, economic shocks. We took a look in the report at pandemics since 2000. That included things like SARS and the swine flu. And the good news, for anybody who was in the housing market or the mortgage industry, is that while we did see transactional volume dip a little bit during the peak periods of those pandemics, home prices remained steady. In most cases, it actually went up during the course of the downturns, and continued to grow after the pandemics. So housing, in general, has performed better than the overall economy. Better than the stock market. And in fact, the only exception to that rule in the past 50 years is the last recession, the Great Recession. And the reason for that is that it was housing that took us into the recession. In just about every other case, what we’ve seen is housing has helped lead us out. And that’s something we can hang on to as hopeful as we get through the COVID-19 pandemic. MM: How different is this pandemic from the prior ones, talking about SARS and Swine Flu?And can we expect the market to recover the way that it has in the past, considering that this has been so much larger in scope? Rick Sharga: Well, to a certain extent, we’re in uncharted territory here. We’ve not seen a global pandemic that has been this infectious, that has sickened so many people and killed so many people, really, going all the way back to the Spanish flu. And unfortunately, housing data going that far back is kind of sparse, so it’s hard to compare. We also haven’t seen anything that’s caused this kind of global economic shutdown and governments have reacted as strongly as they have to try and contain the spread of the virus, flatten the curve, as the saying goes. The closest proxy we could find recently was probably the terrorist attacks on 9/11. And then subsequent concerns about things like anthrax poisoning. So we did see the economy then, take a pretty major hit and pretty much stop for a period of time. And during that period of time, we did see home transactions slow down, understandably, in the months of September and October. But after that, they took off like a rocket, and it looked like pent up demand was really driving the market. We also saw a period coming through that recession where home prices went up 20 of the next 21 months. So again, even that kind of economic shock, admittedly probably not as widespread as this one, admittedly not something that really affected the global economy like this one has, we saw housing recover, again, much more quickly than the overall economy. So again, another reason for hope as we go through this pandemic and hope for the best for the housing market as it recovers. One thing probably worth noting, we’ve seen some other countries, some other regions that have preceded us in terms of the coronavirus and economic shutdowns. And what we’ve begun to see, is those markets, places like China and Hong Kong, after a dramatic drop off in sales transactions for housing, have begun to recover. And they’ve begun to recover as early as two-to-three weeks after the end of the pandemic was declared. While that doesn’t suggest necessarily we’re going to see a V-shape recovery, it does suggest what I’d call – and I’ve seen a couple of other analysts refer to – as sort of a checkmark-shaped recovery, where the drop off was pretty significant and sudden, and you do start to see a pretty healthy rebound, but not quite at the same pace that it dropped off. So again, good news tempered a little bit by reality. We’re not sure exactly where this goes, because we haven’t had one like it, but again, some cause for hope going forward. MM: I understand that you think the market was much better positioned for recovery this time than it was entering the Great Recession back in 2008. Can you help explain that? Rick Sharga: The fact of the matter is that the housing market was off to a really good start in 2020 before it got sick. It was probably one of the earliest entities to catch the coronavirus. So we had a pretty good January and February. The beginning of March, sales were actually going very well. Prices were steady. They were rising, but not exorbitantly. Jobs were being created. Wages were going up, actually at a faster pace than home prices were going up. Interest rates were near historical lows, and even the builders seem to be coming back online. So, all of the underlying fundamentals that would predict which way a housing market is going to go, were pointing in the right direction. The only continuing weakness we had in the housing market was lack of inventory, and the builders seemed to be coming around and getting ready to address that. And then COVID-19 hit and pretty much everything stopped. If you compare that to where we were in 2008, this time, homeowners had a record level of equity. Back then, the loan to value ratios were completely out of whack. People were getting houses for just about nothing down. In some cases, there were negative amortization loans being used. The credit quality of the borrowers was uneven at best, and pretty bad in a lot of cases. So what you had were overpriced homes that were purchased by unqualified borrowers, who were sitting on loans that were going to reset – and probably reset at a rate that those borrowers couldn’t afford to pay. It was a house of cards, and it all came tumbling down. And this time, we’re not dealing with a market that’s overbuilt, we’re dealing with a market that’s underbuilt. Demand should come back and drive things forward. Again, you talk about equity, you talk about interest rates, all of those things are different this time than they were last time. MM: Talking about forbearance. Is there a fundamental difference for the mortgage industry and the market in general between the forbearance programs we’re seeing today and the delinquencies and defaults we saw during the last downturn? Rick Sharga: So one of the very heartening things about what’s happening today is that, this time, we’ve seen the government and the industry come together to try and address the problem before it becomes too widespread when it comes to financing. So the forbearance programs today are going to undoubtedly keep hundreds of thousands, if not millions of borrowers, out of default. And as anybody who’s been in the mortgage industry for more than 15 minutes can tell you, it’s much easier to work with a borrower to prevent a default, than it is to work with a borrower who’s defaulted, and then try and fix the problem after the fact. What we have now is a problem where servicers are being deluged by borrowers who are looking to get into the forbearance program, and candidly, it’s happening at a very difficult time for servicers because most of their staffs are scattered about working from home right now and trying to do this in a very decentralized manner. The problem we had last time was servicers were trying to track down borrowers who were hiding from them because they defaulted on their loans, and then, in a lot of cases, using antiquated tools and programs to try and resolve those issues. I think the wisdom this time is trying to get out ahead of it, give people the breathing room they need to get back on their feet financially, and I really do believe this is probably going to save millions of borrowers from going into foreclosure. Which by the way, will ultimately save the housing market, the mortgage industry, and not have the kind of awful impact housing had on the overall economy last time. MM: That’s nice to hear that kind of optimism. I’m hopeful that that’s the case. Rick Sharga: We’ve already had almost 6% of borrowers reach out for forbearance, and we’ve also had the industry and the government begin to respond appropriately. One of the dangers here – and I know you’ve covered this extensively – was that mortgage servicers were still on the hook to make payment advances, even if borrowers weren’t making their monthly mortgage payments. And recently, we’ve had both Ginne Mae come in with a credit facility that will provide emergency liquidity, and very recently, we’ve had the FHFA put programs in place that will cap a servicer’s exposure at four months for Fannie and Freddie-backed loans. So again, everybody seems to be coming together, rowing in the same direction, and hopefully they’ll keep the boat from sinking. MM: How big do you see this forbearance program getting? We’re already at 6%. Do you see it getting much larger? Rick Sharga: The folks who’ve been projecting how big the forbearance requests could get have gone as high as 25%. That strikes me as a frightening number. One of the things that I think is keeping the number from getting bigger than it is, is that, at least in my opinion, the early stages of this downturn caused by the pandemic, are probably hitting the renter market more significantly than it’s hitting the homeowner market. If you look at the industries where the job losses had been, predominantly, you’re looking at travel and tourism and hospitality, restaurants, retail. Generally speaking, you’re talking about hourly wages and relatively low-paying jobs. The homeownership rate among people in that category tends to be 50% or lower, whereas if you’re talking about white collar jobs, higher income jobs, the home ownership rate goes up around 80%. So I think the people that have been the first ones to lose their jobs are less likely to be homeowners and renters. And that’s probably keeping the forbearance numbers from getting as big as they might be. I do think we’ll see them tick up a little bit in May, assuming the shutdown continues, because that’s the next time we’ll see payments due, and people may have gone through their savings by then. But to forecast it going much north of 10 to 12% I think is starting to get probably a little bit inflated. At least I hope that’s the case. MM: What do you think of the notion that the solution to liquidity problems is to transfer servicing from small shops to larger servicers? Rick Sharga: Yeah. One of the scariest things I heard from any industry official was the notion that we would resolve the servicing liquidity dilemma by yanking servicing from small shops and sending it over to large shops. It was a real head-scratcher of a comment. And the liquidity problem, by the way, we were talking about this a minute ago, if we got to that 25% uptake on forbearance and if borrowers stayed on the program for six months, my back-of-the-envelope math says that servicers would have been on the hook for about $90 billion, which would have bankrupt that part of the industry and essentially guaranteed that nobody would be able to get a mortgage loan for quite some time. So I think we’ve moved from that. One of the comments was, we’d just move servicing from small shops to big shops. Really, really bad idea on a couple of accounts. One is that for distressed borrowers, the largest servicing shops are probably not the best equipped to handle distressed borrowers. They’re optimized to process huge, huge numbers of on-time payments very, very efficiently. And they do that extraordinarily well. The smaller shops tend to be more along the lines of special servicers who are kind of a high touch operation and much used to working in one-on-one relationships with borrowers – particularly borrowers who have trouble and need some help getting back on their feet. So to take borrowers who are now in forbearance because they’re not working and put them in a shop that doesn’t necessarily have the processes and the people in place to work with them, on its face, is kind of a bad idea. The other question it begs is which large servicers are going to be anxious to take on a huge portfolio of loans that are already in forbearance and whose borrowers are out of work? It’s kind of mind-numbing to even try and guess why a big servicer would be interested in taking on those pools, and if the answer is because the government’s asking them to do them a favor, you’d just have to ask how well that worked out for Bank of America when they took on Countrywide last time. So it doesn’t seem like the right solution, and I think this new credit facility, this new cap on exposure for servicers will probably make it that it doesn’t have to happen that way. MM: Let’s wrap it up with another question. Do you see any other long-term changes to real estate and the mortgage industry coming out of the pandemic? Rick Sharga: Well, there’s certainly some that are happening right now that I think will be temporary. We’re seeing credit tightening extraordinarily. JP Morgan Chase recently announced that for its correspondent warehouse wholesale lines, borrowers now need a minimum FICO score of 700 and a minimum down payment of 20%. That’ll wipe out most of those borrowers. We’ve seen the non-QM lending market pretty much evaporate. There’s still a few players making some loans, but not very many, and that’s because the secondary market isn’t taking on anything that looks even a smidge risky. We’re seeing the same thing in Jumbo. One of the lenders, it might’ve been Wells Fargo, announced that they were still issuing jumbo loans but only with a 10% interest rate, and if you wanted to do a refi, you needed $250,000 in liquid assets. So they basically voted themselves off the island. I do think those will be short-lived. I think once he economy gets back on its feet, you’ll see lending kind of go back to normal. The commercial market is where I think you’re going to see a lot of changes. I think the office market going forward may see really foundational changes. A lot of companies have figured out, suddenly and not on purpose, that they can be as productive or more productive with a decentralized workforce, and it will have to at least cross the CFO’s mind why they’re spending all this money for overhead if they can be just as productive. And not pay for that really, really big office. Even the structure of offices is likely to change going forward as we find out how ill-equipped these offices are to provide things like social distancing. But I think retail and hospitality in the commercial market are going to take a hit. I think there’ll be some more opportunities in multifamily after we get through the end of the pandemic because some people are going to have to rent longer than they planned while they get their finances in order. But ultimately, the market hopefully will recover as the jobs come back online. And people have a chance to get the economy into gear again. MM: Thank you, Rick, for talking about what you see happening going forward with COVID-19 based on the analysis of the data that you’ve gone through from pandemics of the past. Rick Sharg…

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FHA Commissioner Montgomery, No Stranger to Crisis, on Navigating Borrowers Through the Pandemic Apr 16, 2020

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With unprecedented challenges facing the housing industry, it is somewhat of a relief that the Federal Housing Administration is led by someone with experience in navigating crises. Brian Montgomery, Assistant Secretary for Housing and Federal Housing Commissioner, is no stranger to crises. He was serving in the White House and traveling with President George Bush on September 11, 2001 and dealt with the aftermath of that tragedy. In February 2003, Montgomery was the White House point of contact for the Shuttle Columbia disaster. And then again in 2007, he was housing commissioner during the collapse of the housing market, and the Great Recession that followed. “It’s something you typically only see in a Hollywood movie, yet here we are living it,” Montgomery said in an exclusive telephone interview with Mortgage Media’s SA Ibrahim on Wednesday about the COVID-19 National Emergency. “So I guess the good news is, it seems like I’ve seen just about every calamity so far. I’m going to knock on wood after this interview ends. And in some way, I think it’s helped prepare me for what we’re doing today.” Montgomery has reprised his role as FHA Commissioner, and Assistant Secretary for Housing, but is also performing duties of the HUD Deputy Secretary, which he says “is also very much like being the chief administrative officer. A lot of that includes disaster recovery, the CIO office and mostly the administrative backbone functions here at HUD.” Montgomery and Ibrahim covered much ground during their conversation. Listen to the recording of the interview at the bottom of this article. Instead of running a full Q&A, we’ve lightly edited the interview for length. What actions has the FHA taken to help lenders to continue to originate loans in light of COVID-19? Montgomery: The good news is we continue to provide endorsements of both FHA Title 1 and Title 2, including obviously reverse mortgages. This has sort of been a rewinding of the clock. We recall during the Great Recession, FHA continued to function, pumping over a five-year period, more than $1.5 trillion of mortgage liquidity into the market when we really needed it. So again, putting an exclamation point on FHA’s counter-cyclical role. This crisis, of course, is something altogether different. Grounded in a global pandemic … So we’ve had to adapt, just as our partners out on the field have had to. We’re all working remotely. We’ve had to modify our technology, and we’ve also been able to bring online some of the technology that Congress was good enough to give us some funding for, that just very coincidentally started coming online, as a lot of the pandemic was taking hold. Recognizing that we’re all working remotely, we haven’t had the ability to do a lot of face-to-face interaction, or quite frankly, even appraisals. We’ve done some alternatives to the normal verification of employment requirements. And on the issue of appraisals, recognizing that a lot of appraisers are not permitted interior access, we’re allowing exterior desktop-only inspections for most of our purchase transactions. We’re also allowing lenders to electronically submit their condo project approval applications. But getting back to the IT for a minute … luckily a lot of that was coming online as this was taking hold. So we’ve now moved to what we call, FHA Catalyst … it’s a single cloud-based platform that allows us to move more to a data-centric architecture. And just recently on the masthead FHA Catalyst, we rolled out the new case binder electronic loan origination documents submission module, and we also brought onto the FHA Catalyst system, our claims module, which allows us to do supplemental claims electronically. So the good news is, we continue to function. Remember a lot of this was taking hold as a refinance boom was taking hold. We’re trying to make sure that we’re helping borrowers who need some help, but also trying to make sure that borrowers who were seeking a refinance or purchase, were able to close those as well. We are hearing concern about liquidity on the part of lenders; concern on the part of lenders about borrowers’ ability to pay and therefore impact on future defaults; concerns regarding home buyers, confidence being down, and therefore their willingness to buy homes even though they’re going to probably be more affordable now; and concern from the servicers about their defaults and borrower support expenses climbing during this time. So what more is the FHA doing, or willing to do, beyond the current CARES Act? Montgomery: FHA was busy before the CARES Act was implemented. And we’re certainly going to be busy implementing the requirements of the Act, and on some other fronts. The challenges today are facing all market participants. All lenders, servicers, stakeholders, the GSEs, VA, USDA, FHA. So it’s not just us, although we’re a large part of the market. As you know, we have about eight-and-a-half million active loans today. About 300,000 of those are reverse mortgages. We continue to be a robust part of the mortgage market. But relative to the CARES Act, just prior to that, we implemented a foreclosure moratorium. This is something we normally do when there’s been a large natural disaster, the size of which we can obviously look at the counties under a Presidential disaster declaration. We can immediately size up the potential hit to FHA, if you will. Obviously, as we learned with this pandemic, we had a national emergency that was then later followed by disaster declarations from the Administration, now that have gone I believe to all 50 States, and a handful of cities on their own. So the eviction and foreclosure moratorium we put into place, then the CARES Act put into place. Two six-month periods or forbearance. Now, the key thing here is it should be accessed by those who are experiencing some hardship as a result of – maybe they’ve lost their job temporarily, or maybe a change in just the family status. Maybe one of the other spouses have lost their job. So again, we want to make sure that we can give families some breathing room. They could hit the pause button if they need to and not have to worry about having a roof over their head during this pandemic. Something Secretary Carson and the President say frequently, is that we want to make sure no one loses the roof over their head as a result of this pandemic. So we continue to talk with Congress, with the White House, we have calls with other stakeholders daily, and we want to make sure that we’re doing what we can to get help to the borrowers that need it. Keeping borrowers in their home is not only important for the borrowers, but as you know, for the whole lending system. Brian, you’re very familiar with the industry receiving Ginnie’s Last Resort facility very well. What we’re hearing, though, is – are there any specific qualifications for the servicer, or all Ginnie services eligible for the program? Ginnie Mae and FHA have a pretty robust toolkit that we can deploy in times of national economic crises like the Great Recession or in natural disasters. As I mentioned, this one obviously is something altogether different. FHA has a fairly robust level of reserves right now, as does Ginnie Mae. As we saw, just in the last few weeks, the FHA lending world is dominated mostly by independent non-bank lenders who don’t typically have the capital obviously of depositories. That said, many of them – through no fault of their own because of the pandemic – were facing the possibility of liquidity challenges. And the Ginnie Mae team led by Seth Appleton, working with us, but Ginnie Mae and Michael Drayne and others, Eric Blankenstein, worked very hard to get this program, which has been used very limited, and modify it again – just as we’ve had to do with some on our traditional loss mitigation programs – and literally get this stood up in a matter of a couple of weeks. It’s known as the Pass-Through Assistance Program. It’ll be available to help provide as a last resort if you will. We’ve talked to warehouse lenders. They’re tightening the belt a little. But some are still making advances available. So we just want to make sure, just speaking for FHA and Ginnie Mae, which obviously includes USDA and VA, that we wanted to be able to deploy some of the capital that we had again as a last resort to help provide some liquidity if it is needed. We’re expected for people that draw down some funds through the program. Typically the repayment is on the order of around seven months. The program will have some pre-identified termination date, although we could extend it if needed. The other thing we are hearing about is about the Pass-Through Assistance Program, which is typically used for natural disasters. In this case we’re dealing with a pandemic. How long is this coronavirus program going to run for? Is there any limit to it? Of course that’s the big unknown … how deep, how wide and how long will this pandemic go on. And the ripple effect, we’re all very familiar with. While we run a lot of scenarios, looking at all different scenarios relative to how long and how deep and wide this goes, we obviously are hopeful that it ends sooner rather than later. Because if we say one warehouse line provider puts on more and more overlays or worse, withdraws from that market, then obviously that could have a profound ripple effect through the market. So again, we wanted to stand up a liquidity facility to make sure we can fill that void if we have to. And again, we’re just speaking to Ginnie Mae and their partners right now and nothing beyond that. We deployed it last Friday. We’ve already had three servicers make requests. I would say that these are the de minimus amounts so far, but we’re following it closely and going to make sure we’ve got the capital we need to deploy. The key thing here is FHA and Ginnie Mae work very closely together. FHA has our reserves, which we could deploy later as these borrowers come out of forbearance. Hopefully because (when) this crisis is over, they’re able to resume their jobs that we can then take those arrearages and put them as a subordinate-lien, as a soft second 0% interest loan, not due and payable until the borrower refinances or sells. And we can use some of our capital to deploy for that. Then we would of course get reimbursed later when the borrower moves or refinances. So again, between the two of us, we want to make sure that we’re doing our part, but we also want to make sure though that the other stakeholders in the industry are doing what they need to be doing as well. There’s a concern that because the requests are being considered under the honor system, what can single-family servicers do to ensure that borrowers that really need the forbearance get it? The mortgage market is a bit of an ecosystem where everybody needs to do their part. Lenders, servicers, stakeholders, borrowers … But from time to time, there are events. Some of them manmade, some of them – as we’re seeing now – a natural disaster that can upset that balance. And this is why we have things like forbearance. This is why we have things like standalone partial claims. In this instance, Congress moved quickly, which was good. They wanted to help. There are a lot of people concerned out there – still are. They wanted to move quickly to do a lot of things, including putting some money in some families’ hands, and making sure they can meet their obligations. But one thing that is a little open, you’re exactly right, is what are the criteria for the forbearance? It is a bit of an honor system, but we’re hopeful that … it’s designed for people who need the help because their job has been interrupted. Their income has been interrupted. It’s not a holiday, if you will. So, there’ve been some discussions … the Hill has signaled whether there needs to be some cleanup language and a subsequent bill regarding, some criteria that we can gauge borrowers’ situations. We’ll see where that goes here in the days ahead. But again, the key thing is, we just want to make sure that families can stay in their homes, that they can get relief here for the time being, as we continue to adjust, during this difficult and certainly unique situation. Pivoting to a personal question … What was it like to get back into the government again, and what’s different this time around? I was adding it up the other day and I think in my service to four presidents now is almost 13 years. And during that time, I’ve been part of Administrations that have dealt with September the 11th and the aftermath of that, when I was serving at the White House under President Bush. And as you know was traveling with him on September the 11th and then dealing with the aftermath of that. And then later on when I switched positions in the White House, I was the White House point of contact for the Shuttle Columbia disaster. That was in February of ’03. And then of course, you know SA, the collapse of the housing market in ’07. And the Great Recession that followed. You know FHA had no role in the collapse of the market, but we had a huge role between the end of the Bush Administration and the beginning of the Obama Administration with my successor David Stevens, and helping get the mortgage market back on its feet, FHA had a huge role in that. So here we find ourselves again, history repeating itself in a scenario that very few of us know. It’s something you typically only see in a Hollywood movie. Yet here we are living it. I guess on the good news, it seems like I’ve seen just about every calamity so far. I’m going to knock on wood after this interview ends. And in some way, I think it’s helped prepare me for what we’re doing today. There are some similarities in what FHA and Ginnie Mae are doing now as they did in ’08 and ’09, but the circumstances are altogether different. That crisis was built under a shaky housing market. Thankfully here we had a very strong economy. We had a very strong housing market, which hopefully can soften the blow somewhat. But like all crises and all calamities, this one too shall end. And we’re all hopeful that that’s sooner rather than later. But the Administration, working with governors and certainly for our part, working with all our stakeholders. We speak to FHFA every day and we speak to CFPB three times a week, and directors Calabria and Kraninger and I have a weekly call for 30, 45 minutes every Monday to compare notes. I think all of us working closely together, once we’re able to get on the other side of this crisis, we’ll be ready to go. And again, Joe Gormley and his team in single-family housing have done a tremendous job cranking out Mortgagee Letters. I don’t like to say we’re cutting corners, but we’re definitely blunting the edges of some of our normal processes. It’s been a trying time, and our staff has worked heroically to get a lot of these mortgagee letters out. We appreciate the feedback and input we’ve been getting from the industry. They’ve been working very hard. And I think once all this is behind us, we can continue that collaboration going forward. Hopefully with probably another refinance boom. Is there anything else you want to add to our discussion before we end? I didn’t talk about the rental market and the FHA multifamily programs that are subsidized and the work we do in communities across America with our Community Development Block Grant and the great work we do in our Public and Indian Housing office. All of HUD is focused – laser focused – on getting help out there, regardless of which population, including the homeless. While I’m speaking to just FHA, I want your listeners to know that every segment of the market that we serve is getting an equal amount of focus and attention. The post FHA Commissioner Montgomery, No Stranger to Crisis, on Navigating Borrowers Through the Pandemic appeared first on Mortgage Media.

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