Doug Duncan and the housing market’s supply conundrum

Doug Duncan and the housing market’s supply conundrum

The housing market is no stranger to supply constraints.

A toxic combination of wildly inflated lumber prices, a lack of new and existing homes, and the sheer number of borrowers willing to pay tens of thousands of dollars over ask on homes they’ve never seen in person, has created a pandemic-driven problem that the industry can’t quite shake.

But according to Doug Duncan, chief economist at Fannie Mae, it’s not going to be just one of these factors that brings the market back to some semblance of normalcy. It’s going to take all of them.

In an economic outlook panel at HousingWire’s Engage.marketing event on Thursday, Duncan explained that in the 2007 to 2009 downturn, the industry went from building 2.2 million units to 600,000, and stayed around that level for three years. In doing so, he noted, three-quarters of the supply chain simply wasn’t produced.

“It doesn’t just reappear,” Duncan said.

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Juneteenth holiday sparks chaos for lenders, LOs

Juneteenth holiday sparks chaos for lenders, LOs
This article first appeared in the June 18th newsletter Lending Life. Sign up here to receive each weekday.

On Thursday, President Joe Biden signed a bill into law, declaring June 19th, or Juneteenth, a federal holiday. Biden’s order commemorates the date the last enslaved African-Americans were informed that they were free. Wonderful news, right? Wrong.

Reached Friday, many mortgage industry professionals were doing damage control — delaying closings, pushing back notices and modifying loans. Others had already left for the beach.

“It’s a complete nightmare,” said one lender. “I’m almost afraid to talk about it. The feds are putting their own regulatory agencies in such a bind. They won’t be able to enforce anything around this, and then I’m sure the [Consumer Finance Protection Bureau] is going to come in and say something. Can you imagine them issuing fines for violations? It’s a nice idea but the execution was horrific.”

Loan officers across the country initially panicked — “Will there even be wire services?” — although it looks like most financial systems are still operating. The stock market exchanges are still open, as are banks, for the most part. The U.S. Postal Service is still running, and the Federal Reserve isn’t on Juneteenth holiday, either.

Early this morning, the Federal Deposit Insurance Corporation fired off a missive to lenders, instructing them to use their own best judgment in deciding whether to remain open.

Some loan officers, however, decided to preemptively delay some closings, just in case regulators decide this is the perfect opportunity to crack down on compliance missteps. No one wants any additional attention from the newly-invigorated CFPB.

“We had a closing scheduled for Monday, and Thursday afternoon I had to spring it on everybody that they made it a federal holiday, so we pushed it back,” said a Louisiana-based loan officer. “As soon as I saw the email I said, ‘Well, I’m not going to wait for the verdict, because that means you can’t count Saturday. I’m just going to push it.’”

One Orlando, Florida-based loan officer said she doesn’t mind the new Juneteenth holiday, but it did impact closings for several loans. If closings are delayed, the loan officer said, it could impact the rate lock, the agreement that allows the borrower to lock an interest rate in for a period of time.

Curiously, rate locks don’t depend on business days, but calendar days, so they could lapse as a result of the Juneteenth federal holiday.

It’s “a little messy,” the Orlando loan officer said. “I have closings scheduled on Monday, but because there’s a federal holiday that squeezed in, I have to close on Tuesday, and the rate might have expired. For those running a massive amount of business, it’s a huge problem. It came out of nowhere,” she said.

Another immediate question for loan officers is how to count the right of rescission in light of the Juneteenth holiday. The right of rescission allows refinance, HELOC, or home equity loan borrowers, to walk away within three days of closing.

The rule has been around since the 1968 Truth in Lending Act. When a borrower signs a loan, the clock starts ticking. Normally, however, a new federal holiday is not enacted in less than 72 hours.

What about rescission periods for loans that were signed on Wednesday or Thursday, before the law went into effect? The FDIC’s note to lenders is not very reassuring.

Reads the compliance note: “Whether it will affect the rescission period for loans closed earlier this week (before the signing of the law) is uncertain.”

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Accurate property condition data is more important than ever – Here’s why

Accurate property condition data is more important than ever – Here’s why
The waning pandemic in the U.S. is opening substantial opportunities across many housing sub-markets. All of these markets benefit from an accurate understanding of valuation and property characteristics, but the data sources that power them leave out a crucial component: property condition. HousingWire recently spoke with Raj Dosaj, head of real estate at CAPE Analytics, about how CAPE Analytics is providing this data and working with investors to grow their business.

HousingWire: Why, in today’s market, is property condition data more important than ever?

Raj Dosaj: Whether you’re an individual looking for a new home or an institution trying to finance, lend to, or buy a large volume of homes, the pace of this housing market requires having as much information as possible, as early in the decision-making process as possible. That includes details about property condition, which can significantly impact property value.

Unfortunately, the days of getting up-to-date property condition information from an appraisal are over. Due to the rise of new technology solutions and the pandemic, 40% of mortgages are now completed with appraisal waivers. Appraisal turn times continue to suffer, with consumers and lenders bearing the brunt of the impact. All of this means that property condition data is no longer updated as frequently.

We are now at a point where computer vision neural networks, like those employed by CAPE Analytics, can “visually” interpret the difference between a good condition home and a bad condition home, instantly, and translate that into objective data for a valuation algorithm to ingest.

Not only can this technology be deployed on the property in question, but it can be deployed on all of the comparable homes and, in fact, the entire surrounding neighborhood. Each home can now be compared on a level playing field with proper price adjustments factored in—and it can be done instantly for any home across the country.

But there are other reasons why a computed assessment of condition is actually preferable to an appraisal. Recent stories have shined a light on the subjective nature of humans rendering value on a home. This is perhaps the greatest limitation and risk of appraisals.

Imagine if credit rating agencies revealed that at the end of their score-generating process, a human was the ultimate arbiter of an individual’s credit! That is what is happening to decide the value of the single most valuable asset many people will own in their lifetime.

HW: What are some challenges facing investors as they pertain to valuation and property characteristics?

RD: The combination of an economy waking up from the pandemic, historically low interest rates, and a dramatic shift in acceptance of remote work has the real estate market running on hyperdrive. Homes in hot markets are receiving all cash offers the first day they hit the market, with iBuyers and SFR investors expanding both their footprint and the types of properties they are targeting.

To date, many institutional buyers have relied on in-person visits to determine property condition. However, these visits take time and, like appraisals, are subjective. They are also costly and hard to perform at the scale iBuyers and SFR investors are now operating, purchasing thousands of properties per month.

Loan investors, on the other hand, rely on broker price opinions (BPOs), which are even more problematic. BPO inspections are done by real estate agents from the street, often never leaving their cars when they snap their photos and make arbitrary notes. The limited field of view means a high probability of missing structural issues and the haphazard note-taking leads to a lack of structured, objective data that can inform a decision.

Bulk loan traders looking at pools with thousands of mortgages cannot afford to miss the properties that will negatively impact their bottom-line returns. In fact, internal studies at CAPE show that drive-by BPOs miss upwards of 60% of exterior condition issues, primarily with the roof and the backyard. And those missed condition issues can significantly impact marketability and rehab costs—we’ve found that homes with severe roof condition are tied to 250% higher overall rehab costs for a property.

So, we have a situation where institutional buyers have to make fast decisions on many properties, but only have access to poor quality data that can take days to generate. What we’re seeing now is a desire for technology solutions that can solve these challenges.

HW: How is CAPE Analytics working with investors to solve these issues?

RD: CAPE is becoming the “eyes” of both real estate and loan investors.  As previously mentioned, iBuyers and SFR investors are competing on both speed-to-purchase and the accuracy of their bid price on properties. While they spend a tremendous amount of time pulling multiple data sources together into their home pricing engines, they are still missing property condition information, and often do not discover these issues until they send someone on-site to the property.

This leads to disgruntled homeowners and real estate agents who had expected a smooth selling process—not to mention increased acquisition costs for the investor. With property condition information available instantly, investors can make faster and better pricing decisions upfront.

For those managing a portfolio of properties, CAPE’s geospatial property analytics serve as an effective tool for asset management teams, because the property information we provide is up-to-date and available at scale. This can be helpful both in terms of managing collateral risk and in order to determine and precisely target necessary capital expenditures for property maintenance and rehabilitation.

Loan investors are faced with a similar issue as they are bidding on a pool of seasoned loans with limited information, while relying on BPOs. When it comes to BPOs, CAPE’s ability to convert geospatial imagery into actionable, structured data has shown a massive lift on the detection of return-killing property condition issues. 

HW: How can investors use this data to grow their businesses?

RD: Real estate investors, like iBuyers and SFR investors, can use CAPE property intelligence to expand to markets more quickly and efficiently, without requiring the same workforce for real estate acquisition and property management. Access to property characteristics and condition upfront allows them to set more accurate pricing for both off-market and on-market acquisitions. Lastly, investors can make better decisions around optimal neighborhoods for investment, based on changing conditions and recent trends.

Loan investors can use CAPE early in their bidding process to set more accurate pricing on pools in order to win more bids. Investors can pay more for the high-quality pools and win them more often, or pay less for the lower quality pools that will take more effort to take through disposition. This can also enable due diligence teams to both stay lean and focus on analyzing the most challenging properties, rather than relying on bad data or random sampling.

Lastly, servicers can use CAPE information to quickly identify condition issues that could impact property values. This information can inform loss mitigation teams as they determine the best options available to borrowers.
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The housing market outsmarted the foreclosure crisis

The housing market outsmarted the foreclosure crisis

For Jason Vanslette, a lawyer who specializes in foreclosure litigation, everything came to a screeching halt on March 27, 2020. President Donald Trump had just signed the CARES Act into law, and with it, a moratorium on foreclosures and evictions had locked into place.

Vanslette, a partner at Kelley Kronenberg in Fort Lauderdale, said a veritable mountain of foreclosure litigation has piled up on his desk, unable to be processed by the Florida courts. And each and every one of those cases is pre-COVID – with underwater homeowners waiting it out. 

“The courts, especially in Florida, don’t particularly care for cases just sitting,” said Vanslette. “Either you move them or you dismiss them, because they have obligations to ensure that their dockets are moving.”

For many borrowers, the waiting game is going to be their best bet. If a foreclosure is contested, Vanslette said it can take anywhere from one to two years for the loan to make its way through the legal system due to its likelihood of ending up in a nonjury trial. If it goes uncontested, the process is closer to 90 to 120 days.

“Especially now that the dockets have been delayed and the availability of judges being so strict, we’re seeing the earliest trial dates not until 2022, and that’s for the cases that are ongoing, there’s no telling the backlog,” Vanslette said. 

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With a reinvigorated CFPB, what’s next for the NYDFS?

With a reinvigorated CFPB, what’s next for the NYDFS?

Through a stroke of lucky timing, the New York Department of Financial Services (NYDFS) had gained traction with a reorganized and strengthened consumer advocacy mission just before the COVID-19 pandemic erupted in early 2020.

Homeowners, renters, borrowers, lenders and mortgage servicers had one less thing to worry about as they absorbed the implications of pandemic-sparked forbearance rules and other regulatory shelters: realigned NYDFS operations were already in synch with the servicers that operated in the state, said Winston Berkman-Breen, director of Consumer Advocacy for the New York State Department of Financial Services.

Now, as the temporary measures ease, the transition to repairing and rebuilding likely will be smooth, said Berkman-Breen, and the department is poised to amplify communication with consumers so they, too can regain steady footing.

“There’s already a blueprint there. NYDFS expectations are the same as they have always been,” he said. “The system that already exists is capable of navigating this difficult time. There have been new elements but they’re not a dramatic change to the existing structure.”

The department has been crystal-clear that its overriding priority is to “keep customers in their homes,” said Allison J. Schoenthal, a partner with the New York City firm law firm Goodwin Proctor LLP. In a move that proved prescient, the NYDFS’ 2019 update of its standards for mortgage servicers, focused on clear and responsive communications with borrowers, both positioned the companies to better weather the COVID chaos and oriented them to ongoing change, said Schoenthal.

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Kensington Vanguard acquires Hometown Title & Escrow

Kensington Vanguard acquires Hometown Title & Escrow
Kensington Vanguard National Land Services announced the acquisition of Virginia-based Hometown Title & Escrow, which is led by industry veteran Sharon Keegan. Financial terms were not disclosed. Read on for more about the acquisition.
Source: thetitlereport.com

Radian launches digital closing service

Radian launches digital closing service
Radian Group Inc. announced the launch of titlegenius, a blockchain-enabled online portal for ordering title insurance and closing services digitally. titlegenius is offered through homegenius by Radian, a suite of digital products and services. Read on for more about the new offering.
Source: thetitlereport.com

ClosingLock names new COO

ClosingLock names new COO
ClosingLock, an online service that protects settlement companies from wire fraud, hired a 10-year sales management and SaaS sales veteran as its new chief operating officer. Read on for more.
Source: thetitlereport.com

ProperSign adds features for independent notaries

ProperSign adds features for independent notaries
ProperSign expanded its remote online notarization (RON) software to offer a subscription to notaries and loan-signing agents. Read on for more about the new features.
Source: thetitlereport.com

Westcor hires Michigan underwriting counsel

Westcor hires Michigan underwriting counsel
Westcor Land Title Insurance Co. recently hired a 25-year industry veteran as its Michigan underwriting counsel. Read on for more about the new hire.
Source: thetitlereport.com