Industry gives mixed reviews of FHFA’s Final Capital Rule

Industry gives mixed reviews of FHFA’s Final Capital Rule
The mortgage industry is responding with mixed reviews to the Federal Housing Finance Agency‘s Final Capital Rule for mortgage giants Fannie Mae and Freddie Mac, which it released on Wednesday.

The final rule mandates that the GSEs maintain tier 1 capital in excess of 4% to avoid restrictions on capital distributions and discretionary bonuses. According to the FHFA, the increase in required capital is due in part to the increase in the enterprises’ adjusted total assets to $6.6 trillion.

Mike Calabria, FHFA director, said the organization is confident that the Final Capital Rule puts Fannie Mae and Freddie Mac on a path toward a sound financial footing, and is another milestone necessary for responsibly ending the conservatorships.

On Thursday, Mortgage Bankers Association President and CEO Bob Broeksmit said the MBA appreciates the time and effort given to reviewing comments from industry stakeholders and regulatory agencies prior to its finalization, but is disappointed in several aspects of the rule.

“Despite the concerns we expressed that the high levels of required capital in the proposed rule would adversely impact the cost and availability of credit for consumers, the final rule actually increases the total capital requirement for the GSEs,” said Broeksmit.

“While FHFA took modest steps to recognize the value of credit risk transfers, these steps appear to be more than offset by other changes that increase the risk-based capital requirements relative to FHFA’s earlier proposal. We also remain concerned that the high leverage ratio requirements will be binding more frequently than is appropriate and will further contribute to negative impacts on consumers,” Broeksmit said.

“Given that this rule will affect both the cost and availability of mortgage credit for borrowers, we believe FHFA should conduct a quantitative impact study to determine the full impact of the rule. QIS reports have been critical to properly calibrating other major capital rules undertaken by the banking agencies and should be a part of this process, given the impact on the $11 trillion housing finance market,” Broeksmit continued.

The National Association of Federally-Insured Credit Unions applauded Calabria’s commitment to “building a robust regulatory capital framework” for the GSEs as the FHFA attempts to reform the housing finance system.

And Fannie Mae CEO Hugh Frater agreed. According to Frater, FHFA’s capital rule is an important step in ensuring the housing finance system can serve the needs of homeowners, renters, and the broader mortgage market for generations to come.

“The new capital standards set the stage for a responsible end to the conservatorship and a future recapitalization of Fannie Mae,” Frater said.

Investment firm Compass Point Research and Trading pointed out several parts of the Final Capital Rule that will have the most consequential results.

For example, using data from Q2 2020, Compass said the GSEs would need to hold $283.4 billion in capital compared to $262.7 billion under the proposed rule released earlier this year. According to Compass, the $20.7B increase from the proposal to final rule is due to the risk floors being increased from 15% to 20%, changes to the single-family grids and multipliers, and the home price countercyclical trigger.

As far as how the rule affects GSE conservatorship, Compass said finalizing the rule is a positive step toward eventually amending the Preferred Stock Purchase Agreement (PSPA).

A spokesperson for the FHFA told American Banker on Wednesday, “The next step, according to senior FHFA officials, is for the FHFA and the Treasury Department to amend the preferred stock purchase agreements, which lay out the government’s ownership in Fannie and Freddie.”

On the flip side, Compass said while the final rule provides a modicum of CRT relief, that benefit is likely offset by more cumbersome single-family risk grids/multipliers and an increase in the risk weight floor.

“In the simplest terms, the considerable capital requirements will negatively impact the earnings return profile of the GSEs, which in turn could make raising equity capital more difficult,” Compass said in a release. “For a typical business facing this headwind, raising prices would be a viable option.

“The GSEs, however, are not normal businesses and raising G-Fees is politically unpalatable and therefore incredibly difficult. Any curtailment of mortgage credit availability via pricing changes will be met with opposition from the mortgage industry, Congressional Democrats, and the incoming administration,” Compass said.

Managing director Bose George, at Keefe, Bruyette & Woods (KBW), agreed with Compass that the increase in capital relief for CRT transactions was a positive product of the rule, but some flaws in the final rule may prove more difficult for the GSEs in the long run.

George estimates that run-rate earnings for the two GSEs is around $20 billion annualized, so building required capital through retained earnings would be challenging given the long timeline. He also noted that this level of required capital makes the process of recapitalization more challenging since it would be difficult to generate an attractive ROE without raising guarantee fees.

“George believes that the new administration would be very opposed to higher guarantee fees as a mechanism to increase earnings and attract capital, since this would translate to higher mortgage rates for borrowers. While Mark Calabria’s term goes until 2024, the Supreme Court will be hearing a case that challenges the constitutionality of the structure of the FHFA,” a KBW release said.

The Center for Responsible Lending worries that those who will experience the greatest impact from the rule will be lower-wealth families and families of color.

“The FHFA’s new capital rule places the burden of future catastrophic risk on the backs of these hardworking families and will unnecessarily raise the cost of mortgages for all borrowers, resulting in limited credit availability,” said CRL Executive Vice President Nikitra Bailey. “The rule pushes homeownership farther away from families of color long denied mortgage credit access.”
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Companies with MISMO RON certificate double in three months

Companies with MISMO RON certificate double in three months
Digital notary platform NotaryCam announced on Wednesday it has been awarded the Remote Online Notarization (RON) Compliance Certification through the Mortgage Industry Standard Maintenance Organization (MISMO) – making it the eighth company to receive the specialized certification.

Originally introduced in April, the MISMO RON compliance certification was designed to assure RON tech providers meet a universal set of standards including credential analysis, borrower identification, capturing and maintaining a recording of the notary process electronically, audio and video requirements, record storage and audit trails.

NotaryCam Founder Rick Triola said the company recognized the need for industry-wide RON standards and that NotaryCam has been a long-time MISMO supporter and collaborator in the development of those standards to promote consistency across mortgage industry practices and state regulations.

“As RON transactions become more commonplace in the mortgage industry, NotaryCam is proud to have earned its MISMO RON Software Compliance Certification, which serves as a signal to all industry participants that they can confidently rely on the NotaryCam platform to securely and compliantly execute mortgage closings remotely,” Triola said.

Prior to NotaryCam’s announcement, eNotaryLog received RON compliance certification on May 27, followed by Notarize on July 2. The third company granted the compliance designation was digital signature servicer Signix and then later Pavaso on Aug. 24.

How 2020 continues to impact mortgage closings

HousingWire spoke with Altisource Vice President of Product Ben Hall about the increased adoption of RON and how Altisource supports lenders looking to move to full eClosings.

Presented by: Altisource

At the time of Pavaso’s announcement, Docutech, Heracles Holding and Nexsys were in the process of receiving the certification, which Heracles Holding and Nexsys have since done – as well as real estate tech company Snpadocs.

According to MISMO, Docutech is still currently in the process of receiving the certification.

Since Pavaso’s announcement, and the addition of NotaryCam, the number of MISMO certified RON providers have now doubled in only three months.

States began taking it upon themselves to procure their own policies for RON after what was promised to be a blanket policy in the SECURE Notarization Act  failed to make any headway in Congress following its introduction in March.

While some states, like California, have put up more of a battle against the technology, support from the industry has been loud and clear. A panel of experts at the Mortgage Bankers Association annual conference in October said uniformity in approach is going to be critical to RON’s adoption.

In its most recent earnings report, Zillow revealed more than 60% of its Zillow Offers customers closed on their home through RON. This increase in tech usage is now driving up the company’s earnings, and with this acceleration, Zillow CEO Rich Barton said RON is going to be here to stay even after the pandemic subsides.

A new study by ClosingCorp also revealed borrowers who completed purchase and refinance transactions during COVID-19 were very pleased with their experience – 95% reporting their closings were efficient and 90% expressing satisfaction overall, most of which involved eSigning and remote closings.

“Real estate transactions continue to close during the COVID-19 pandemic because of advancements in digital mortgage technology, including the increased adoption of remote online notarization as a safe and convenient option,” said Mike Fratantoni, president of MISMO and Mortgage Bankers Association chief economist and senior vice president of research and industry technology.

As for MISMO, changes are underway at the executive level with a Nov. 10 announcement that Seth Appleton will take over as its new president starting Dec. 1. Appleton currently serves as the assistant secretary, policy development and research, for the U.S. Department of Housing and Urban Development and as the principal executive vice president of Ginnie Mae.
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DOJ sues NAR for alleged antitrust violations

DOJ sues NAR for alleged antitrust violations
The Department of Justice (DOJ) filed a lawsuit against the National Association of Realtors (NAR) on Thursday, alleging a series of violations of antitrust law, including commission arrangements and consumer disclosure requirements.

NAR has adopted a “series of rules, policies, and practices governing, among other things, the publication and marketing of real estate, real estate broker commissions, as well as real estate broker access to lockboxes, that have been widely adopted by NAR’s members resulting in a lessening of competition among real estate brokers to the detriment of American home buyers,” the DOJ said in a news release on Thursday.

The federal government alleged that the Chicago-based trade organization violated the Sherman Act and “restrained” free trade by:

“prohibiting NAR-affiliated multiple-listing services (“MLSs”) from disclosing to prospective buyers the amount of commission that the buyer broker will earn if the buyer purchases a home listed on the MLS;allowing buyer brokers to misrepresent to buyers that a buyer broker’s services are free;enabling buyer brokers to filter MLS listings based on the level of buyer broker commissions offered and to exclude homes with lower commissions from consideration by potential home buyers; and limiting access to the lockboxes that provide licensed brokers with physical access to a home that is for sale to only brokers who are members of a NAR-affiliated MLS.“

Because the practices have been widely adopted by NAR-affiliated MLS networks, they are “therefore, agreements among competing real estate brokers each of which reduce price competition among brokers and lead to lower quality service for American home buyers and sellers,” the complaint alleged.

“Buying a home is one of life’s biggest and most important financial decisions,” said Assistant Attorney General Makan Delrahim in a statement. “Home buyers and sellers should be aware of all the broker fees they are paying. Today’s settlement prevents traditional brokers from impeding competition — including by internet-based methods of home buying and selling — by providing greater transparency to consumers about broker fees. This will increase price competition among brokers and lead to better quality of services for American home buyers and sellers.”

A spokesperson for the realtor trade organization, which boasts 1.4 million members and operates in all 50 states, said its rules and policies “have long sought to ensure fair and competitive real estate markets.

“In response to questions from the U.S. Department of Justice, we have been working to explain our rules. We have reached an agreement that fully resolves the questions raised by the DOJ about the MLS system and commissions,” spokesperson Mantill Williams said in a statement to HousingWire. “Most of the changes seek to more explicitly state what is already the spirit and intent of NAR’s Code of Ethics and MLS Policies regarding providing information about commissions and MLS participation.”

Williams said that while NAR disagrees with the DOJ’s characterization of rules and policies, and admitted no liability or wrongdoing, “we have agreed to make certain changes to the Code of Ethics and MLS Policies while we remain focused on supporting our members as they preserve, protect and advance the American dream of homeownership.”

NAR likely won’t have been caught entirely by surprise by the lawsuit. The trade organization has been fighting multiple antitrust lawsuits in recent years, including over buyer-broker commissions and pocket listings.

NAR also reached an agreement in 2008 with the DOJ to stop blocking web listings.

Stay tuned for updates on this breaking news story.
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How will California’s Proposition 19 impact property taxes?

How will California’s Proposition 19 impact property taxes?
A slim majority of California residents voted in favor of Proposition 19 on Election Day, green-lighting a motion that gives new property tax breaks to older homeowners while increasing property taxes for those inheriting their parents’ or grandparents’ properties.

The latter is a big deal for the roughly 650,000 Californians who, since 2010, have received a tax break allowing them to maintain their relatives’ low property taxes when they inherit the home. Now, heirs will pay market value in taxes.

On the flip side, the measure may also free up much-needed inventory in the state, as it protects senior homeowners who want to sell their current home and downsize, but have been afraid of much higher taxes. As reported by the Mercury News, Prop 19 also provides some tax benefits to severely disabled residents and homeowners who have had their property ruined by a natural disaster or other catastrophe.

The measure, which was supported by the California Association of Realtors (to the tune of $35.7 million), the National Association of Realtors and California Professional Firefighters, will add up to $2 billion annually to California’s coffers, per data gathered by, a pro-Prop 19 website. 

“Prop 19 will deliver needed funding for cities, counties, and school districts when they need it most,” according to the site. “It will generate hundreds of millions in annual revenue for fire protection, affordable housing, homeless programs, safe drinking water, and other local services and dedicated revenue for fire districts in rural and urban communities to fix inequities that threaten life-saving response times to wildfires and medical emergencies.”

How a cloud-based tax platform benefits mortgage servicers

CoreLogic’s DigitalTax Platform provides customers with a unified and consistent view of property tax data across the mortgage ecosystem.

Presented by: CoreLogic

What does the passage of Prop 19 mean for the general housing market in one of the nation’s more expensive states to live in? Although the state itself will experience a windfall, blue collar workers looking to remain in state may find it increasingly unaffordable.  

“We’re definitely going to see property taxes rise,” said Nick Solis, a Realtor with One80 Reality and current director of Political Activities Fund for the California Association of Realtors. “California is one of those places where blue collar workers usually pass down homes to kids and other family members. Those homes are now going to be taxed at a much higher rate. Proposition 13 in California put a yearly cap on how much property taxes could be raised, so it’s never really caught up. When Proposition 19 kicks in, those property taxes are going to go up substantially.”

A large portion of Solis’s clientele, he said, were already getting into homes by the “skin of their teeth,” and with property taxes expected to now go up, a different demographic of homebuyers will be looking to purchase. 

“I’m not worried about selling homes – we’re not going to see a drop off in primary occupants in residential areas,” he said. “Research shows this will open up more inventory. But we’re going to see a different demographic. We were already seeing a major push of people who were blue collar, that could afford a home in places like the Bay area, they are moving into the central valley or other affordable places because they just feel too uncomfortable living in their current homes. Now taxes are going to be even higher.”

Monique Bryher, a broker-associate and realtor in California. pointed out that, with the higher property taxes, keeping homes as rental properties may become unprofitable. 

“Estate-planning attorneys are going to be very busy, as this new law may cause many people to decide to sell properties that they intended to pass on to their heirs,” she said. 

Millennials and other young generations are sure to be affected as well, Solis said. For one, college-aged kids in California may choose to leave the state and not return, a change in past years where the state was a hotbed for younger homeowners. Now, those same adults are looking for the most affordable place to live following college – even if it means leaving the state altogether.

“It’s a game-changer,” Bryher said. “Both in terms of properties being sold that would have been passed on through a family trust, or by the beneficiaries who decide they either can’t afford to pay property taxes based on a current assessed value, or just don’t want to pay the higher property taxes. The state’s going to make a lot of money.”

Higher property taxes or not, California will always have appeal.

“People are always going to want to live in California, but I can see life getting more expensive here a lot faster than I expected,” Solis said. 
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The housing market is hot, but not in a bubble

The housing market is hot, but not in a bubble
Existing home sales came in at a whopping 6,850,000, beating estimates with the highest print since 2006. Days on market fell from 36 days to 21 days on a year-over-year basis. Cash buyers remain at a historically high level of 19%, the same as last year, while sales grew 26.6% year over year. We have done a lot running around with the existing home sales data to be up just 2.4% year to date. 

The housing market is clearly hot.While we celebrate these strong numbers, keep in mind these three points:

First, expect the data to moderate, so don’t freak out when we see the rate of growth cool down. A normal trend will eventually materialize. You may be told that future moderation indicates “cracks in the housing market, but don’t buy into it.  I previously wrote that if we really saw cracks in the housing market, these are a few indicators to track and to beware of doom and gloom housing headlines.Second, if the next existing home sales report misses expectations, you may be told that this is due to a lack of inventory. Don’t listen. Remember, lower inventory tends to go with higher sales — and higher sales means folks are buying homes…therefore…I know you are following me here… there must be homes to buy.  

Navigating capacity concerns amidst record-high volumes

When it comes to common pain points lenders are seeing in the second half of 2020, handling high loan volumes continues to loom large. Here’s a scalable way to tackle it.

Presented by: Xome

Unsold inventory sits at an all-time low 2.5-month supply at the current sales pace, down from 2.7 months in September and down from the 3.9-month figure recorded in October 2019. Inventory is tight, but it’s not non-existent. Tight inventory also encourages builders to create more inventory.

Lastly, we need to keep an eye on home prices. The increase of 15.5% year over year is a concern. My biggest fear for housing in the years 2020-2024 was not that home prices would crash by 30%-50%, as our bubble-boy friends have been telling us since 2012, but that real home prices might take off, creating an affordability issue for some buyers.We have three exigent factors that could contribute to unhealthy price growth:

First, the years 2020-2024 have the best housing market demographics ever recorded in history. Second, housing tenure is currently at 10 years, double what it was from 1985 to 2007. People are staying in their homes longer. And third, mortgage rates will stay low during these five years of great demographics and long housing tenure. I expect mortgage rates to be below 5% the majority of this time unless some significant fiscal stimulus occurs when the economy is back on track after the COVID-19 crisis gets under control. 

These recent reports concur with the strong mortgage purchase application data and pending home sales data we have had since May. 

Again, expect these numbers to moderate — that is just part of the process for finding the trend — so don’t freak out. Before COVID-19, housing market data broke out for the first time in a long time. If you look back at the February data, we should have had total existing home sales of  5,710,000 -5,840,000. If we don’t hit those numbers, then COVID-19 took a little of the shine off of the demand, but this demand might just be pushed out to 2021.
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Knock’s Home Swap solution expands to North Carolina

Knock’s Home Swap solution expands to North Carolina
Homeowners in Charlotte, North Carolina and Raleigh, North Carolina can now use Knock Home Swap to purchase their new home before selling their old one. The solution is now available in 11 markets in six states.

Home Swap is offered exclusively through local real estate professionals who have been trained as Knock Certified Agents. In North Carolina, Home Swap will be offered through Better Homes & Gardens Real Estate Paracle, Wilkinson ERA Real Estate and ERA Live Moore.

“Inventory across the Carolinas remains tight, making the markets we serve extremely competitive and creating multiple offer situations,” said Eb Moore, CEO of Wilkinson ERA Real Estate and ERA Live Moore.

“The Knock Home Swap program in our Charlotte and Raleigh markets will give our agents a compelling tool that will allow them to help their clients win in multiple offer situations,” Moore said. “In addition, it will help to ease some of the stress of buying when you have a home to sell, leading to a better consumer experience overall.”

Via Home Swap, customers can take ownership of their new home while prepping and repairing their old house to sell. Knock provides consumers with a mortgage on the new home, an interest-free bridge loan to cover the down payment, coverage of mortgage payments on the old house, and up to $25,000 for home prep and repairs for the old house.

The company said it has plans to operate in 21 markets by mid-2021.

“The Home Swap is specifically designed to help those people who need to use the equity in their house to buy a new home,” said Tony Hanson, partner, Better Homes & Gardens Real Estate Paracle. “The word paracle means to come alongside, advise and counsel, and it’s more than just our name – it’s how we operate our business. By teaming with Knock, we are able to offer our customers a solution that will give them the comfort of knowing they can buy their new home before selling their old one for the highest possible price. It’s an incredible tool, especially in today’s low inventory environment.”
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