• Louis Baca

July Market Update

MORTGAGE DELINQUENCY ON THE RISE Mortgage delinquency continues to climb as the county fights to contain the spread of COVID-19. In May, delinquencies came in at 7.76%, or 4.12 million home loans that were at least 30 days overdue (Black Knight). That is up from 6.45% in April. At the tail end of June, forbearances were up to 4.68 million; 8.7% of all mortgages.

Mississippi had the worst delinquency rate, at 12.73%, according to the report. Louisiana was next, at 11.79%, followed by New York at 11.28%, New Jersey at 11.03% and Florida at 10.52%.  The states with the lowest delinquency rates were Idaho at 4.4%, Washington at 4.91%, South Dakota at 5.02%, Oregon at 5.12%, and Montana at 5.13%.  Serious delinquencies, which means people who are 90 days past due but not yet in foreclosure, have increased by more than 50% over the past two months to 631,000, Black Knight said. 

Broken Out by Investor Type:  ·      Fannie & Freddie: 6.9% ·      FHA: 14.7% ·      VA: 7.5% ·      Private (Jumbo, Non-QM, etc): 9.6% -       Data Provided: Black Knight Through the month of August, loans backed by FHA, Fannie Mae, and Freddie Mac cannot be foreclosed on due to a moratorium on foreclosures per the CARES Act. If that moratorium is not extended, foreclosure rates will likely spike. LOW RATES FOR THE FORESEEABLE FUTURE  In June, Fed Chairman Jerome Powell stated that the Fed was committed “to do whatever we can for as long as it takes” to make sure that the economy will survive the current pandemic. “We’re not even thinking about thinking about raising rates,” stated Powell. A very aggressive stance from the Fed Chair.  The Fed has committed to purchasing at least $80 billion in Treasurys and $40 billion in mortgage-backed securities, per month. The Fed has already purchased nearly $2 trillion in Treasurys and mortgage-backed securities since the outbreak of COVID-19. The Fed cut short term rates to near zero in March and stated they will likely stay there into 2022.

DACA AND HOUSING COMES TO A HEAD In testimony to Congress this month, HUD Secretary Ben Carson stated that he supported DACA recipient’s ability to be eligible for home financing through the Federal Housing Administration (HUD).

Carson initially denied in his testimony that DACA recipients had been banned from getting FHA loans after President Donald Trump was sworn into office in 2017, then backpedaled.  Carson’s comments on so-called Dreamers, as DACA recipients are known, came four days after HUD records and internal communications released as part of a Freedom of Information Act confirmed HUD changed its policy to deny FHA loans for DACA recipients even as top officials told Congress the opposite.

 Carson’s response also comes a year after an underling, HUD Assistant Secretary for Congressional and Intergovernmental Relations Len Wolfson, sent a letter to Rep. Pete Aguilar (D-CA) stating Dreamers were not eligible for FHA mortgages.

On Monday, over three dozen members of the Senate and House of Representatives sent a letter to the HUD Office of Inspector General asking for an investigation. The letter charged that top HUD officials “knowingly misrepresented to Congress the implementation and enforcement of this new policy.”

 “HUD made a choice to exclude DACA recipients from FHA loans by defining lawful residency in a different way, in a manner to exclude them, which is made clear in the FOIA documents,” Menendez said. “So HUD did change the rules because before a DACA recipient not only was eligible but also received an FHA mortgage if they were a responsible borrower and now they cannot.”

On Thursday, June 18th, the Supreme Court ruled that the Trump administration improperly terminated the DACA program, a landmark decision allowing nearly 700,000 immigrants to live and work in the United States without fear of deportation. DEBT TO INCOME NO LONGER A FACTOR Back in January of 2020, Kathy Kraninger, the Director of the CFPB, proposed to Congress that the QM Rule (Qualified Mortgage Rule) should eliminate the debt to income (DTI) requirement. In layman’s terms, no longer require borrowers to stay under a debt to income percentage threshold to qualify for a home loan covered by Fannie Mae, Freddie Mac, or Ginnie Mae; now capped at 43%. The Rule was put in place after the 2008 Great Recession, caused by the mortgage industry, and lax underwriting guidelines, including those that verified the borrower's income and ability to repay the borrowed debt, i.e. mortgage.

After the implementation of the QM Rule under the Dodd-Frank Act, a “patch” was issued that would allow the DTI cap to exceed 43% if the loan was approved through Fannie Mae’s automated underwriting engine Desktop Underwriter or Freddie Mac’s Loan Prospector. That patch is set to expire in January of 2021. The CFPB is now pushing to allow the “patch” to expire in 2021, and replace it with a price-based approach, vs a debt to the income cap.

“The GSE patch’s expiration will facilitate a more transparent, level playing field that ultimately benefits consumers through promoting more vigorous competition in mortgage markets,” Kraninger said. “The bureau is proposing to replace the patch with a price-based approach to QM loans to preserve consumer access to mortgage loans while also making sure consumers have the ability to repay them. The bureau is committed to ensuring a smooth and orderly mortgage market throughout its consideration of these issues and any resulting transition away from the GSE Patch.”

The National Association of Realtors and much of the mortgage industry are in support of the CFPB’s proposal, as it will likely allow more borrowers to qualify, now that the ability to repay requirements will be diluted. HOME SALES LOWEST IN NEARLY A DECADE  In May, existing home sales posted the weakest numbers in nearly a decade. Sales of existing homes fell 9.7% and are now at a nine-year low. Yet, the median home price increased by 2.3% to $278,200.  

Based on an early look at May’s contract signings, known as pending sales, last month likely was the bottom for home sales, said NAR’s Chief Economist Lawrence Yun. “I am very confident this will be the cyclical low point,” Yun said. “Just looking at the housing sector itself, it looks to be a V-shaped recovery. For the rest of the economy, it may not be a V-shape.”

Home sales are still holding up surprisingly well during a recession, compounded by a pandemic.

SUPREME COURT RULES CFPB AND FHFA UNCONSTITUTIONAL On Monday, June 29th, the Supreme Court ruled that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional. The Court ruled that the Director of the CFPB can be fired “at will” by the President. Prior to the ruling, the Director of the CFPB could only be terminated if found negligent, per Dodd-Frank regulation.  

The Supreme Court’s ruling also makes the structure of the Federal Housing Finance Agency (FHFA) unconstitutional. The President now also can fire, “at will,” the Director of the agency that oversees Fannie Mae and Freddie Mac. 

Due to the ruling, if Trump is not re-elected, the Democratic President could fire the current Trump appointed Director, Mark Calabria, who is actively trying to end the conservatorship of Fannie Mae and Freddie Mac. With the Supreme Court ruling and a Biden win, Fannie and Freddie may stay alive as Government Sponsored Enterprises (GSEs). If the administration changes, the President could also fire the Director of the CFPB, and replace the current Director with someone who would enforce existing regulation. LENDER REPURCHASES SOAR Mortgage lenders and/or servicers were required to repurchase $223.9 million in defective loans sold to the GSEs in the first quarter of 2020. That was a 21.3% increase over the prior quarter. Caliber Home Loans held the top spot in repurchased loans. – IMF News NEW HOME SALES RESILIENT TO COVID-19 Despite a national shut down and prevalent “stay-at-home” orders, new home sales surged 16.6% in May. Demand for new homes remains exceptionally high due to historic low-interest rates and low inventory.

PENDING HOME SALES POST RECORD IN MAY Pending homes sales post record in May, up 44.3%. Pent up demand due to COVID-19, or a very resilient market? A great month in May for real estate. June’s numbers will likely be a better indicator of just how resilient the real estate market is. US DEBT US debt now exceeds $26 Trillion. GENEVA FINANCIAL, LLC NOW LICENSED IN 43 STATES  Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Washington D.C.

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