Unpacking the top housing regulations to watch at HW Annual on Oct. 4

Unpacking the top housing regulations to watch at HW Annual on Oct. 4
The current administration has been in office for over a year and a half, and with that tenure, a lot of the new housing officials have had time to create and announce their core initiatives. To help bring you the latest regulatory and government updates that you need to be aware of, we’re excited to include the Regulatory Super Session at HousingWire Annual on Oct. 4. This super session will provide the insights you need to know when it comes to what’s happening in the government and in housing regulations.

Angel Hernandez, vice president of industry and regulatory affairs at Stavvy, is moderating the panel and will tap into his background in housing policy and regulation to ask the questions you need to know to strategically drive your business forward. For background, Hernandez oversees Stavvy’s public policy engagement and strategic industry partnerships, and joined the company from the Housing Policy Council, where he served as the vice president of Capital Markets Policy. He also served as the director of MBS Programs and Strategic Planning at Ginnie Mae.

Hernandez will be joined by by Faith Schwartz, the CEO and founder of Housing Finance Strategies, a strategic advisory firm that serves banks, mortgage companies, nonprofits and fintech companies. She also is a member of the Consumer Financial Protection Bureau’s advisory board for 2022 and 2023. With vast experience in housing policy, tech modernization, regulatory issues, and more, Schwartz has a lot of insight and knowledge to share with attendees.

Additionally, we have Julienne Joseph, deputy assistant secretary, office of Single Family Housing at the Federal Housing Administration, joining the panel. As deputy assistant secretary, she oversees the FHA’s insurance-in-force portfolio of more than 7.3 million loans with an unpaid principal balance of more than $1.2 trillion, along with managing all aspects of FHA’s single-family housing operations.

This session could not come at a better time given the heightened focus on housing regulations in mortgage and real estate and the Federal Reserve’s interest rate hikes. It is the round-up on the government news you’ve missed! Attendees will get the latest information on fair housing and appraisal bias, plus the latest initiatives and innovations by the regulators.

HW Annual will be held in Scottsdale, Arizona this year and feature housing leaders from all corners of the industry, including real estate, mortgage and closings. Hear from today’s top leaders and enjoy networking events with like-minded professionals. After the Regulatory Super Session, stick around for other panels like, “The Future of Title.” Join us at HW Annual for the content, connections and technology you need to win in this environment. Register for the event here
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Rocket Mortgage’s profits drop dramatically in Q2 2022

Rocket Mortgage’s profits drop dramatically in Q2 2022
Rocket Companies, the parent of America’s top mortgage lender Rocket Mortgage, reported a $60 million profit in the second quarter, down dramatically from $1 billion just the previous quarter. Company executives attributed the sharp decline to a stronger than expected drop in purchase business.

The stunning decline in profitability suggests Rocket has much work to do in a tough market as higher mortgage rates wipe out refinancing opportunities and even depress purchase deals. To boot, its strategy to add new products and services hasn’t been enough to offset the decline in origination volume. 

Jay Farner, vice chairman and CEO of Rocket Companies, said the company introduced new lending programs, forged new mortgage partnerships, launched the solar business and expanded the brand to Canada during the quarter. “These moves provide us immediate opportunities today, and a tremendous runway for growth and expansion well into the future,” he said. 

In the short term, however, Rocket, like every one of its peers, is navigating one of the most challenging mortgage markets in memory. Rocket originated $34.5 billion in mortgages in the second quarter, at the low end of the company’s guidance, and a big drop from the $53.8 billion in volume it notched in the first quarter. The gain-on-sale margin also fell to 2.92% in the second quarter from 3.01% in the first quarter.

A year ago, when refinancings were plentiful, Rocket originated $83.7 billion in volume, numbers no rival could come close to approaching.

“The purchase market was more muted than we expected in the second quarter, impacted by affordability and inventory challenges,” Farner said in a call Thursday with investors and analysts. 

Though Rocket generated $1.4 billion in revenue in the second quarter, that was down from $2.671 billion in the prior quarter.

By channel, Rocket reported $19.53 billion in originations through its direct-to-consumer channel and $13.58 billion through its TPO channel, its conduit to mortgage brokers and historically a stronger source of purchase business. (The company doesn’t break out purchase business versus refinancings in its earnings reports.)

Executives said volume is going to continue to plummet in the next quarter. The company forecasts closed loan volume in the third quarter between $23 billion and $28 billion, with gain-on-sale margins between 2.50% and 2.80%.

Rocket is heavily focused on managing costs, executives said. Total expenses dropped from $1.6 billion a year ago to $1.3 billion in the second quarter of 2022.

CFO Julie Booth told analysts that Rocket’s “core business will continue to face headwinds” in the third quarter, when the company expects to cut at least $50 million in costs, for example, through renegotiations with vendors and other contracts. 

The company’s strategy is to add products and services as new sources of revenue. Rocket now offers home equity and loans to clients who want to install solar panels. According to executives, the idea is to keep these loans on the balance sheet for a short period, selling them in the secondary market. 

New clients can be attracted via Rocket Money, the new name for the app Truebill acquired in December for $1.275 billion, which surpassed 2 million paying premium members. 

New clients are also coming through new partnerships. In July, Rocket Mortgage signed an agreement to originate mortgages for Santander clients, a bank that announced in February to stop originating mortgages in the U.S but still has 2.2 million customers with other products and services.

In another deal, Rocket will enable regional banks and credit unions to offer mortgages through Q2, a banking platform leader that provides digital banking applications to over 500 financial institutions.  
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Fannie Mae to accept lender-funded down payment assistance

Fannie Mae to accept lender-funded down payment assistance
Fannie Mae will now buy mortgage loans with lender-funded grants, including down payment assistance, closing costs or financial reserves.

The change could give nonbank lenders a way to guard against redlining accusations.

The government-sponsored enterprise will start accepting such loans immediately. According to Fannie Mae’s guidance, “The lender must have a documented program that provides grants for low- to moderate-income borrowers, community development, equitable housing initiatives, or similar initiatives.”

Lender special purpose credit programs — tailored to benefit underserved groups — would fit the bill. There are, however, a number of additional caveats for a mortgage loan with a lender-funded grant to be eligible for sale to Fannie Mae.

The borrower must make a 3% contribution from other sources of funding. The loan must be secured by a principal residence. The loan must also be underwritten under Fannie Mae’s HomeReady program, which is geared toward low-income borrowers, and gives lenders a break on up-front fees if the borrower has a high loan to value ratio and a credit score over 680.

Why any lender would create a downpayment assistance fund with its own money — rather than that of a state housing finance agency or other source — is not clear from Fannie Mae’s guidance.

Fannie Mae did not respond to a request to comment.

For banks, there is a potential incentive for making targeted programs. They could get credit toward passing their community reinvestment act exams, depending on the outcome of that statute’s major rewrite.

Nonbanks, however, are not subject to the law.

GSE incentives could encourage nonbank lenders to create special purpose credit programs. But there is another, potentially more urgent motivator: Creating special purpose credit programs might help nonbank lenders avoid being labeled a redliner.

“A nonbank would do it in order to stave off accusations of redlining,” said David Stevens, CEO of Mountain Lake Consulting. “For some larger IMBs it may make sense to establish a [down payment assistance] fund to show their proactive effort in this error. A stitch in time saves nine, as my mom used to say.”

Regulators have communicated that they are now looking at nonbank mortgage lenders to assess whether they are redlining. That’s despite a February report by the Urban Institute which found that nonbanks made a greater share of their owner-occupant home purchase mortgage loans to borrowers of color than banks.

But the redlining accusations from regulators are now much more than empty threats.

The Consumer Financial Protection Bureau and the Department of Justice recently settled with nonbank mortgage lender Trident Mortgage, a subsidiary of Berkshire Hathaway HomeServices, for $24 million. That marked the second-largest redlining settlement in DOJ history.

There may be more to come. Sources told HousingWire that there are a significant number of pending redlining cases at the DOJ, and at least some of them target nonbank lenders. Daniella Casseres, a partner at Mitchell Sandler, said her firm is representing lenders in several redlining cases.
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Real estate brokerage Radius unveils mortgage-lending arm

Real estate brokerage Radius unveils mortgage-lending arm
Tech-focused real estate brokerage Radius, flush with $14 million in venture capital raised this past April, has launched a mortgage lending arm in California that it plans to roll out to additional markets sometime next year.

The new venture, a mortgage brokerage operation, is focused on the California market to start, where Radius already has a strong presence. The firm, based in San Francisco, plans to refine and demonstrate “proof of concept” for the new mortgage brokerage through the first quarter of 2023, according to Sam Kasle, Radius’ chief revenue officer, before expanding to additional states. 

Kasle also confirmed that Radius has its eyes on eventually launching a mortgage banking unit, which would allow the firm to underwrite and offer its own loan products as well as keep more of the profits in-house. Mortgage brokerages, by contrast, serve as intermediaries between lenders and borrowers and work with multiple lenders, or mortgage banks, and are typically paid by the lenders after loans close.

“We work with eight or nine different lenders to make sure that we have a full product suite to provide to the end buyer [homebuyer via the new mortgage brokerage], whether they’re looking for jumbo loans or VA [Veterans Affairs] loans or bridge loans,” Kasle said. “We work with a number of different lenders, including the top ones like UWM [United Wholesale Mortgage] and loanDepot, but we also work with some boutique lenders to make sure that we have a full suite [of loan products] to meet our buyers’ [agents’ and their customers’] needs across the board.”

Radius is setting up the infrastructure and testing the viability of its new mortgage brokerage arm in California first, including the workflows, product flows, marketing and the general playbook. Kasle said “when the sun comes back out” on the now-dour economy, hopefully sometime in 2023, then Radius “will be prepped to take advantage of that.” 

Kasle added that “it’s a pretty good bet” that the next states that will be the focus of the mortgage brokerage’s future expansion are Florida, Texas and Washington, “which are very attractive markets.”

The new mortgage brokerage is set up as a separate operation from Radius’ real estate brokerage, Kasle stressed, “so with the corporate structure, there is a clear delineation.” The mortgage brokerage services also will be presented to agents — both part of Radius’ network and beyond — as just one option among others, Kasle explained. He added that Radius will remain in compliance with the Real Estate Settlement Procedures Act (RESPA), which governs mortgage settlement procedures and costs as well as referral fees and prohibits kickbacks.

“If we [Radius’ mortgage brokerage] are presented through one of our brokerage agents to the end user [the homebuyer], we are presented along with a number of other options to make sure that the end user is making a fully informed decision about all their opportunities,” Kasle added.

Radius is a full service, fee-based brokerage that enables real estate professionals to keep 100% of their commissions while providing agents and their teams with the services and resources needed to grow their business. The brokerage focuses on serving real estate professionals by offering them access to integrated technology, including a web-based dashboard and services that include mentorship; legal and compliance support; recruiting help; financial services; vetted business leads; customer-relationship management; and marketing resources. The goal is to build and amplify the affiliated agents’ own brands, Kasle explained.

Fee-based membership and access to Radius services is open to both agents and brokerage teams. In addition, Radius also operates an 85,000-member social network, with features that are like those of other social media platforms — including, in Radius’ case, offering real estate agents access to a robust referral-exchange network. 

Radius currently has some 300 fee-paying member agents, according to Kasle, including 34 teams, across the seven states where it is currently licensed to operate — California, Colorado, Georgia, Oregon, Texas, Florida and Washington.

Radius, along with announcing the new mortgage brokerage, also said it plans to expand its real estate brokerage operations to more states by year’s end — although it did not reveal which states are on the firm’s planning whiteboard. Kasle said Radius helped real estate professionals and their teams close some $400 million in sales in the first quarter of 2022. In addition, the company claims its social network has helped participating agents generate $25 billion in referral commissions over the last three years. 

Kasle said Radius brought in $2.2 million in 2021. Expansion will come in iterations, he said.

“First we want to prove that we can pull this off [the mortgage brokerage] in California and that it makes sense from an operational regulatory and financial basis, and also that were providing the right products and services to our clients and our clients’ clients [homebuyers],” Kasle said. “If all things go well, then we would start looking into how to keep more of the of the revenue and moving from being just a [mortgage] broker to being correspondent lender or even an originator.”

Kasle said any move toward establishing a mortgage banking operation, however, is likely two or three years down the road at this point. He added that by launching a mortgage banking operation and underwriting its own loans, Radius would be able to offer “even better, more innovative financing solutions and also keep more of the profits.”

Radius’ new mortgage brokerage arm will be headed by Michael Bardales, director of mortgage and a 20-year veteran of California lending. Silvia Grace Davis, a 17-year real estate veteran and top lending officer in the state, will serve as senior lending manager. 

Radius, funded in 2015, is backed by an impressive group of investors and is fresh off raising $14 million in Series A venture capital funding that will help propel the firm’s expansion plans. Among its investors are Trulia founder and former CEO Peter Flint; Roofstock founder and CEO Gary Beasley; former Zillow CEO and co-founder Spencer Rascoff; Crosscut Ventures, led by co-founder and Managing Director Bret Brewe; and Sierra Ventures, led by Managing Director Tim Guleri.

“We’re following the tried-and-true VC [venture capital] path,” Kasle said. That path – if successful – normally results in an eventual sale of a company or a public offering of stock.

“Our internal goals are looking to what is needed to raise a Round B [venture capital investment],” Kasle said. “But because of the current [economic] macro-environment, we have looked at everything top to bottom at the company with a fine-tooth comb and are now only leaning into what’s essential. 

“We have battened down the hatches to a certain extent, while continuing to grow, and are really setting our sights on a Round B [fundraising effort] next year.”

Kasle recognizes that Radius is going against the grain to an extent in planning a mortgage-brokerage expansion during a down-cycle in the housing market — marked by rising rates and declining mortgage originations, especially refinancing. He stressed, however, that “you don’t get to choose the weather,” referring to business operations and the current economic climate.

Radius does have a full tank of gas due to its venture capital backing and says it is positioning itself to take advantage of the market conditions — as opposed to being confined by them.

“We’re continuing to hire full-time staff, in both the [real estate] brokerage and the mortgage [arm],” Kasle said, adding that Radius currently employs about 80 people. “We’re pursuing more thoughtful growth, rather than all guns blazing at once.

“For Radius, the markets we’re focused on [for future product expansions] are in Washington, California, Florida, and in Texas. If there is a pullback [of the economy, a recession], that pullback is going to hit those areas less than then it could potentially hit others, which will give us a clear path to growing through a downturn.”

The real estate industry is “highly fractionalized,” Kasle added, so if a Radius were to achieve “10% penetration into 20 major metros,” it would easily become “a multi-billion company.”

“And the way we have set up our strategy, it can facilitate that level of growth,” he concluded.
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