Industry News, Technology update
Thursday, August 10, 2017
North Carolina has been at the forefront of eMortgage and eClosing transactions, and Thursday saw the state at the center of another milestone.
The state’s first eMortgage purchase transaction was completed Thursday, with North State Bank; Brady & Kosofsky, PA; DocMagic; Simplifile and World Wide Notary working together to close the deal. The entire process took 46 minutes.
The loan was originated by North State Bank, and closed by the Matthews, N.C.- based law firm of Brady & Kosofsky, the company said in an exclusive announcement to October Research, LLC. Technology used in the transaction was supplied by DocMagic, Inc., World Wide Notary, LLC., Ramquest, LLC and USPROSERV, LLC, while eRecording was provided by Simplifile.
“The closing itself represented the future of the industry,” partner Jaime Kosofsky said.
The closing came in conjunction with a special event hosted by the North Carolina Department of Secretary of State. The event introduced a newly formed North Carolina Electronic Mortgage Closing Advisory Committee, and four of those members participated in the closing Thursday.
The buyer and seller each executed the closing instruments and financing documents with a biometric signature pad, Kosofky said, which helps protect parties from fraud and forgery. The use of electronic signature and notary technology, coupled with the robust legal framework provided by North Carolina state law, makes it possible for lenders to make safe loans within the guidelines of the new TRID guidelines.
The homebuyer was at the Keller Williams office in Mooresville, N.C., and the eSigning agent – who is an eNotary – was present, along with the real estate broker. The closing attorney, who was at the Matthews office 45 miles south, was present via video to preside over the transaction. The register of deeds office is 55 miles away from the Matthews office in Statesville, N.C.
The seller signed the closing materials via signature last week before leaving town.
Among the principal individuals involved in the transaction were:
Ken Sykes, Kelly Arrington and Jamie Harrington from North State Bank. Harrington was the loan officer, and she completed her second eMortgage transaction Thursday.
Jeff Bode of Mid America Mortgage, whose company acted as the investor for the purchase.
Mona Mohajerani, who acted as the closing attorney, and Brady & Kosofsky Executive Operations Director Esther Fernandes, along with eSigning agent Patricia Paxton.
Secretary of State Elaine Marshall and Director, Electronic Notarization and Notary Enforcement Ozie Stallworth, who founded the eClosing pilot program in North Carolina.
Jason Streit, president at World Wide Notary, along with the rest of the technology providers involved.
Technology
Thursday, August 10, 2017
Since the start of the second quarter, CSC has added 61 counties in 25 states to its eRecording network, the company announced.
“By partnering with CSC, these counties and their clients will now enjoy the benefits of award-winning service from an industry pioneer,” CSC Sales Director Kevin Kinderman said in a release. “We provide a total recording solution through our eRecording network and our national paper recording services. We’re looking forward to making our county and submitter partners’ lives easier.”
The new counties are in Arkansas, Florida, Idaho, Illinois, Indiana, Georgia, Kansas, Louisiana, Michigan, Minnesota, Nebraska, New Hampshire, Nevada, New Mexico, New York, North Carolina, Oklahoma, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Virginia, Wisconsin and Wyoming.
On June 7th, the OCC added bulletin 29 to third-party relationships to clarify the way lenders should interact with third party vendors, to us, that means how lenders deal title and closing providers.
.
As a part of the lengthy bulletin, it stated the lender is responsible for ongoing monitoring.
Ongoing Monitoring
Ongoing monitoring for the duration of the third-party relationship is an essential component of the bank’s risk management process. More comprehensive monitoring is necessary when the third-party relationship involves critical activities. Senior management should periodically assess existing third-party relationships to determine whether the nature of the activity performed now constitutes a critical activity.
After entering into a contract with a third party, bank management should dedicate sufficient staff with the necessary expertise, authority, and accountability to oversee and monitor the third party commensurate with the level of risk and complexity of the relationship. Regular on site visits may be useful to understand fully the third party’s operations and ongoing ability to meet contract requirements. Management should ensure that bank employees that directly manage third-party relationships monitor the third party’s activities and performance. A bank should pay particular attention to the quality and sustainability of the third party’s controls, and its ability to meet service-level agreements, performance metrics and other contractual terms, and to comply with legal and regulatory requirements.
The OCC expects the bank’s ongoing monitoring of third-party relationships to cover the due diligence activities discussed earlier. Because both the level and types of risks may change over the lifetime of third-party relationships, a bank should ensure that its ongoing monitoring adapts accordingly. This monitoring may result in changes to the frequency and types of required reports from the third party, including service-level agreement performance reports, audit reports, and control testing results. In addition to ongoing review of third-party reports, some key areas of consideration for ongoing monitoring may include assessing changes to the third party’s
• business strategy (including acquisitions, divestitures, joint ventures) and reputation (including litigation) that may pose conflicting interests and impact its ability to meet contractual obligations and service-level agreements.
• compliance with legal and regulatory requirements.
• financial condition.
• insurance coverage.
• key personnel and ability to retain essential knowledge in support of the activities.
• ability to effectively manage risk by identifying and addressing issues before they are cited in audit reports.
• process for adjusting policies, procedures, and controls in response to changing threats and new vulnerabilities and material breaches or other serious incidents.
• information technology used or the management of information systems.
• ability to respond to and recover from service disruptions or degradations and meet business resilience expectations.
• reliance on, exposure to, or performance of subcontractors; location of subcontractors; and the ongoing monitoring and control testing of subcontractors.
• agreements with other entities that may pose a conflict of interest or introduce reputation, operational, or other risks to the bank.
• ability to maintain the confidentiality and integrity of the bank’s information and systems.
• volume, nature, and trends of consumer complaints, in particular those that indicate compliance or risk management problems.
• ability to appropriately remediate customer complaints.
Bank employees who directly manage third-party relationships should escalate to senior management significant issues or concerns arising from ongoing monitoring, such as an increase in risk, material weaknesses and repeat audit findings, deterioration in financial condition, security breaches, data loss, service or system interruptions, or compliance lapses. Additionally, management should ensure that the bank’s controls to manage risks from third-party relationships are tested regularly, particularly where critical activities are involved. Based on the results of the ongoing monitoring and internal control testing, management should respond to issues when identified including escalating significant issues to the board.
CFPB Orders Prospect Mortgage to Pay $3.5 Million Fine for Illegal Kickback Scheme
Real Estate Brokers and Mortgage Servicer also Ordered to Pay $495,000
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today took action against Prospect Mortgage, LLC, a major mortgage lender, for paying illegal kickbacks for mortgage business referrals. The CFPB also took action against two real estate brokers and a mortgage servicer that took illegal kickbacks from Prospect. Under the terms of the action announced today, Prospect will pay a $3.5 million civil penalty for its illegal conduct, and the real estate brokers and servicer will pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties.
“Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals,” said CFPB Director Richard Cordray. “We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”
Prospect Mortgage, LLC, headquartered in Sherman Oaks, Calif., is one of the largest independent retail mortgage lenders in the United States, with nearly 100 branches nationwide. RGC Services, Inc., (doing business as ReMax Gold Coast), based in Ventura, Calif., and Willamette Legacy, LLC, (doing business as Keller Williams Mid-Willamette), based in Corvallis, Ore., are two of more than 100 real estate brokers with which Prospect had improper arrangements. Planet Home Lending, LLC is a mortgage servicer headquartered in Meriden, Conn., that referred consumers to Prospect Mortgage and accepted fees in return.
The CFPB is responsible for enforcing the Real Estate Settlement Procedures Act, which was enacted in 1974 as a response to abuses in the real estate settlement process. A primary purpose of the law is to eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services. The law covers any service provided in connection with a real estate settlement, such as title insurance, appraisals, inspections, and loan origination.
Prospect Mortgage offers a range of mortgages to consumers, including conventional, FHA, and VA loans. From at least 2011 through 2016, Prospect Mortgage used a variety of schemes to pay kickbacks for referrals of mortgage business in violation of the Real Estate Settlement Procedures Act. For example, Prospect established marketing services agreements with companies, which were framed as payments for advertising or promotional services, but in this case actually served to disguise payments for referrals. Specifically, the CFPB found that Prospect Mortgage:
Under the consent order issued today, Prospect will pay $3.5 million to the CFPB’s Civil Penalty Fund for its illegal kickback schemes. The company is prohibited from future violations of the Real Estate Settlement Procedures Act, will not pay for referrals, and will not enter into any agreements with settlement service providers to endorse the use of their services.
The consent order filed against Prospect Mortgage is available at:http://files.consumerfinance.gov/f/documents/201701_cfpb_ProspectMortgage-consent-order.pdf
ReMax Gold Coast and Keller Williams Mid-Willamette are real estate brokers that work with consumers seeking to buy or sell real estate. Brokers or agents often make recommendations to their clients for various services, such as mortgage lending, title insurance, or home inspectors. Among other things, the Real Estate Settlement Procedures Act prohibits brokers and agents from exploiting consumers’ reliance on these recommendations by accepting payments or kickbacks in return for referrals to particular service providers.
The CFPB’s investigation found that ReMax Gold Coast and Keller Williams Mid-Willamette accepted illegal payment for referrals. Both companies were among more than 100 brokers who had marketing services agreements, lead agreements, and desk-license agreements with Prospect, which were, in whole or in part, vehicles to obtain illegal payments for referrals.
Under the consent orders filed today, both companies are prohibited from violating the Real Estate Settlement Procedures Act, will not pay or accept payment for referrals, and will not enter into any agreements with settlement service providers to endorse the use of their services. ReMax Gold Coast will pay $50,000 in civil money penalties, and Keller Williams Mid-Willamette will pay $145,000 in disgorgement and $35,000 in penalties.
The consent order filed against ReMax Gold Coast is available at:http://files.consumerfinance.gov/f/documents/201701_cfpb_RGCServices-consent-order.pdf
The consent order filed against Keller Williams Mid-Willamette is available at:http://files.consumerfinance.gov/f/documents/201701_cfpb_Willamette-Legacy-consent-order.pdf
In 2012, Planet Home Lending signed a contract with Prospect Mortgage that facilitated the payment of illegal referral fees. The company’s practices violated the Real Estate Settlement Procedures Act and the Fair Credit Reporting Act. Specifically, the CFPB found that Planet Home Lending:
Under the consent order filed against Planet Home Lending, the company will directly pay harmed consumers a total of $265,000 in redress. The company is also prohibited from violating the Fair Credit Reporting Act and the Real Estate Settlement Procedures Act, will not pay or accept payment for referrals, and will not enter into any agreements with settlement service providers to endorse the use of their services.
The consent order filed against Planet Home Lending is available at:http://files.consumerfinance.gov/f/documents/201701_cfpb_PlanetHomeLending-consent-order.pdf
The latest CFPB Complaint Report for Mortgages shows that, by far, the largest number of complaints filed with the CFPB were with the Credit Reporting Agencies – Equifax, TransUnion and Experian, having 3,897 complaints nationwide on credit reports in January. Mortgage complaint leaders were Wells Fargo, Bank of America and JP Morgan Chase. To read the latest full mortgage report: click here for CFPB Complaint Report.
The Consumer Financial Protection Bureau (CFPB) is the first federal agency solely focused on
consumer financial protection,1 and consumer complaints are an integral part of that work. The
CFPB helps connect consumers with financial companies to make their voices heard. When
consumers submit a complaint, they work with companies to get the consumer a response,
generally within 15 days. They also publish basic information about complaints in our public
Consumer Complaint Database to empower consumers, inform consumer advocates, and improve the functioning of the marketplace.
WASHINGTON (January 24, 2017) — Existing-home sales closed out 2016 as the best year in a decade, even as sales declined in December as the result of ongoing affordability tensions and historically low supply levels, according to the National Association of Realtors®.
Total existing-home sales 1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, finished 2016 at 5.45 million sales and surpassed 2015 (5.25 million) as the highest since 2006 (6.48 million).
In December, existing sales decreased 2.8 percent to a seasonally adjusted annual rate of 5.49 million in December from an upwardly revised 5.65 million in November. With last month’s slide, sales are only 0.7 percent higher than a year ago.
Lawrence Yun, NAR chief economist, says the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note. “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” he said. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.”
Added Yun, “While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.”
The median existing-home price 2 for all housing types in December was $232,200, up 4.0 percent from December 2015 ($223,200). December’s price increase marks the 58thconsecutive month of year-over-year gains.
Total housing inventory 3 at the end of December dropped 10.8 percent to 1.65 million existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than a year ago (1.76 million), has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015).
“Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction,” said Yun. “Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production.”
According to Freddie Mac, the average commitment rate(link is external) for a 30-year, conventional, fixed-rate mortgage surged in December to 4.20 percent from 3.77 percent in November. December’s average commitment rate was the highest rate since April 2014 (4.32 percent).
First-time buyers were 32 percent of sales in December, which is unchanged both from November and a year ago. First-time buyers also represented 32 percent of sales in all of 2016. NAR’s 2016 Profile of Home Buyers and Sellers — released in late 2016 4 — revealed that the annual share of first-time buyers was 35 percent.
“Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it’s not getting any easier to be a first-time buyer,” said Yun. “It’ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”
On the topic of first-time- and moderate-income buyers, NAR President William E. Brown, a Realtor® from Alamo, California, says Realtors® look forward to working with the Federal Housing Administration to express why it is necessary to follow through with the previously announced decision to reduce the cost of mortgage insurance. By cutting annual premiums from 0.85 percent to 0.60 percent, an FHA-insured mortgage becomes a more viable and affordable option for these buyers.
“Without the premium reduction, we estimate that roughly 750,000 to 850,000 homebuyers will face higher costs and between 30,000 and 40,000 would-be buyers will be prevented from entering the market,” he said.
Properties typically stayed on the market for 52 days in December, up from 43 days in November but down from a year ago (58 days). Short sales were on the market the longest at a median of 97 days in December, while foreclosures sold in 53 days and non-distressed homes took 50 days. Thirty-seven percent of homes sold in December were on the market for less than a month.
Inventory data from Realtor.com® reveals that the metropolitan statistical areas where listings stayed on the market the shortest amount of time in December were San Jose-Sunnyvale-Santa Clara, Calif., 49 days; San Francisco-Oakland-Hayward, Calif., and Nashville-Davidson-Murfreesboro-Franklin, Tenn., 50 days; and Billings, Mont., and Hanford-Corcoran, Calif., both at 51 days.
All-cash sales were 21 percent of transactions in December, unchanged from November and down from 24 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in December, up from 12 percent in November and unchanged from a year ago. Fifty-nine percent of investors paid in cash in December.
Distressed sales 5 — foreclosures and short sales — rose to 7 percent in December, up from 6 percent in November but down from 8 percent a year ago. Five percent of December sales were foreclosures and 2 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in December (17 percent in November), while short sales were discounted 10 percent (16 percent in November).
Single-family home sales declined 1.8 percent to a seasonally adjusted annual rate of 4.88 million in December from 4.97 million in November, but are still 1.5 percent above the 4.81 million pace a year ago. The median existing single-family home price was $233,500 in December, up 3.8 percent from December 2015.
Existing condominium and co-op sales dropped 10.3 percent to a seasonally adjusted annual rate of 610,000 units in December, and are now 4.7 percent below a year ago. The median existing condo price was $221,600 in December, which is 5.5 percent above a year ago.
December existing-home sales in the Northeast slid 6.2 percent to an annual rate of 760,000, but are still 2.7 percent above a year ago. The median price in the Northeast was $245,900, which is 3.8 percent below December 2015.
In the Midwest, existing-home sales decreased 3.8 percent to an annual rate of 1.28 million in December, but are still 2.4 percent above a year ago. The median price in the Midwest was $178,400, up 4.6 percent from a year ago.
Existing-home sales in the South in December were at an annual rate of 2.25 million (unchanged from November), and are 0.4 percent above December 2015. The median price in the South was $207,600, up 6.5 percent from a year ago.
Existing-home sales in the West fell 4.8 percent to an annual rate of 1.20 million in December, and are now 1.6 percent below a year ago. The median price in the West was $341,000, up 6.0 percent from December 2015.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
Excellent Article in The Atlantic today on the CFPB
After a spate of recent activity which has included introducing long-awaited regulations for payday lenders and prepaid cards and a nearly $200 million fraud settlement from Wells Fargo, the Consumer Financial Protection Bureau must now face a new challenge—more oversight.
On Tuesday, a Washington, D.C. circuit court found the structure of the CFPB to be unconstitutional. More specifically, the court took issue with the inability for other arms of the government to review or rebuke the Bureau’s judgements or actions and the unilateral power imbued in the CFPB’s director—currently Richard Corday.
The judgement states:
The Director enjoys significantly more unilateral power than any single member of any other independent agency. By “unilateral power,” we mean power that is not checked by the President or by other colleagues. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.
The court then goes on to proclaim that the director of the CFPB is given more power and autonomy than the speaker of the house, senate majority leader, or even a Supreme Court justice.
Sounds like alphabet soup with all the acronyms, but Fannie Mae and Freddie Mac have published the new, redesigned Uniform Residential Loan Application forms. So the long-standing 1004 Loan Application that we all know (and often had signed at closing) will soon be history. The press release reads:
WASHINGTON, DC – Fannie Mae (FNMA/OTC) and Freddie Mac today announced the publication of the redesigned Uniform Residential Loan Application (URLA), the standardized form used by borrowers to apply for a mortgage loan. This is the first substantial revision made to the form in more than 20 years and the changes will allow lenders to deliver an easier, more consumer-friendly loan application experience. The redesigned URLA form includes a reorganized layout, simplified terminology, and new data fields that capture necessary information in an easy-to-read format. Additionally, the GSEs worked together to create a common corresponding dataset, called the Uniform Loan Application Dataset (ULAD) to ensure consistency of data delivery.
“The redesigned URLA is the result of extensive collaboration with industry stakeholders,” said Andrew Bon Salle, Executive Vice President, Single-Family Business, Fannie Mae. “We are proud to be a part of this effort that enables lenders to better serve their customers by providing ease and clarity to borrowers during the loan origination process.”
The documents are being published now, in an effort to provide the industry with ample time to become familiarized with the URLA and ULAD updates and plan necessary changes to their systems. Lenders may begin using the redesigned URLA on January 1, 2018. A timeline for required use of the redesigned URLA and ULAD will be established at a later date.
Revisions made to the URLA form and corresponding ULAD include:
The GSEs collaborated closely with lenders, technology solution providers, mortgage insurers, trade associations, housing advocates, borrower groups, and other government agencies (CFPB, FHA, VA, and USDA-RD), throughout the URLA project from the initial requirements gathering, reviews of the form revisions, and contributions to the data. For the first time, the GSEs conducted extensive consumer and lender usability testing across the U.S. to gather their feedback on the URLA designs. The designs were updated based on the responses gathered and were used in subsequent usability testing and industry outreach.
Today’s announcement is part of the Uniform Mortgage Data Program (UMDP), a larger joint initiative undertaken by the GSEs, under FHFA direction, to standardize single-family mortgage data in the U.S.
To learn more about the redesigned, consumer-friendly URLA and corresponding dataset – ULAD visit – https://fanniemae.com/singlefamily/uniform-residential-loan-application.
|
press release 8/14/2016 |
The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased 11 basis points to a seasonally adjusted rate of 4.66 percent of all loans outstanding at the end of the second quarter of 2016. This was the lowest level since the second quarter of 2006. The delinquency rate was 64 basis points lower than one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.
The percentage of loans on which foreclosure actions were started during the second quarter was 0.32 percent, a decrease of three basis points from the previous quarter, and down eight basis points from one year ago. This foreclosure starts rate was at its lowest level since the second quarter of 2000.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 1.64 percent, down 10 basis points from the previous quarter and 45 basis points lower than one year ago. The foreclosure inventory rate was at its lowest level since the second quarter of 2007.
The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 3.11 percent, a decrease of 18 basis points from previous quarter, and a decrease of 84 basis points from last year. The serious delinquency rate was at its lowest level since the third quarter of 2007.
Marina Walsh, MBA’s Vice President of Industry Analysis, offered the following commentary on the survey:
“Mortgage performance improved again in the second quarter primarily because of the combination of lower unemployment, strong job growth, and a continued nationwide housing market recovery. The mortgage delinquency rate tracks closely with the nation’s improving unemployment rate. In the second quarter of 2016, the mortgage delinquency rate was 4.66 percent, while the unemployment rate was 4.87 percent. By comparison, at its peak in the first quarter of 2010, the delinquency rate was 10.06 percent and the unemployment rate stood at 9.83 percent.
“In addition, the delinquency rate of 4.66 percent for the second quarter of 2016 was lower than the historical average of 5.36 percent for the time period 1979 to the present. Among the various loan types, the delinquency rate improved for conventional loans as well as FHA loans. The FHA delinquency rate dropped to 8.46 percent, its lowest level since 2000.
“The percentage of new foreclosures initiated in the second quarter was 0.32, the lowest rate since 2000, and 13 basis points below the historical average of 0.45 percent. FHA loans saw a 15 basis point drop in the percentage of new foreclosures, which pushed the rate down to 0.48 percent, its lowest level since 1993.
“Continuing a downward trend that began in the second quarter of 2012, the foreclosure inventory rate fell again to 1.64 percent in the second quarter of 2016. The FHA foreclosure inventory rate dropped 26 basis points from the previous quarter to 2.15 percent, its lowest level since 2001.
“Of the 50 states and Washington, DC, 47 states either had no change or saw declines in the foreclosure inventory rate in the second quarter of 2016. New Jersey and New York had the highest percentage of loans in foreclosure, at 5.97 and 4.48, respectively. Florida’s percentage of loans in foreclosure dropped to 2.72, a significant improvement over 2011, when it was the state with the nation’s highest percentage of loans in foreclosure at 14.49 percent. California’s percentage of loans in foreclosure was 0.66, the eighth lowest among all states in the nation.”
Press Release 7/31/2016
First American Financial Corporation, a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released theFirst American Loan Application Defect Index for June 2016, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications. The Defect Index reflects estimated mortgage loan defect rates over time, by geography and by loan type. It’s available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, as well as state and market comparisons of mortgage loan defect levels.
“The Defect Index has fallen 5.3 percent over the last three months, and this trend shows no sign of abating. The index has been reaching new lows this year, continuing its long-term trend. Since its inception, the Defect Index has been consistently trending lower, apart from the increases in risk in 2013 and early 2015,” said Mark Fleming, chief economist at First American.
“There are two factors driving the long-term decline in the Defect Index, the impact of improvements to the systems and production standards mitigating risk throughout the lending industry, and the continued strength of refinance application activity due to low mortgage rates. According to the MBA, refinance activity is up slightly on a year-over-year basis. The average rate for a 30-year, fixed rate mortgage was 3.57 percent, compared to 3.6 percent in May,” said Fleming. “Our research finds that refinance applications are inherently less risky than purchase applications, so defect and fraud risk declines as refinance applications become a larger share of the overall mix of loan applications.”
The Defect Index for refinance transactions declined 3.2 percent month-over-month, and is 15.5 percent lower than a year ago. The Defect Index for purchase transactions declined 1.2 percent month-over-month, and is down 11.1 percent compared to a year ago. Since defect risk for both purchase and refinance transactions peaked in late 2013, defect risk on refinance transactions continues to decline much more than defect risk for purchase transactions, declining 40.0 percent as compared to 23.7 percent for purchase transactions.
“We expect the declining loan application defect risk trend to continue into July, as the impacts of ‘Brexit’ and global uncertainty keep rates low, triggering an increase in the volume of lower risk refinance loan applications,” said Fleming.
June 2016 State Highlights
June 2016 Local Market Highlights
Where in the Application is the Defect Risk?
“In the post-crisis housing finance landscape, the attention paid to the borrower’s ability-to-pay and emphasis on issuing loans that have a reasonable and sustainable mortgage payment has increased. In other words – income matters,” said Fleming. “Within the Loan Application Defect Risk Index, we also measure specific risk categories, including defect, misrepresentation and fraud risk associated with the reporting and documentation of income in a mortgage loan application.”
“If the income is being inaccurately measured or misrepresented intentionally in the loan application, the borrower’s true ability-to-pay and the sustainability of the mortgage are incorrectly measured. Interestingly, the trend in income-related defect risk offers some good news. The risk related to income is down 3 percent over the last three months and more than 10 percent in the last year,” said Fleming. “This beneficial decline in income-related defect and misrepresentation risk is a benefit of the technological and process investments made by the lending industry to meet compliance and regulatory requirements. The result is better measurement at the loan application level of the borrower’s ability-to-pay and more accurate identification of sustainable mortgages.
“Income-related misrepresentation and fraud risk is declining, as loan underwriting standards have become more disciplined and as the lending industry have made compliance and regulatory driven investments,” said Fleming. “We continue to improve our ability to accurately project a borrower’s ability-to-pay and the sustainability of a mortgage — a benefit to consumers and lenders alike.”
Next Release
The next release of the First American Loan Application Defect Index will be posted the week of August 22, 2016.
Methodology
The methodology statement for the First American Loan Application Defect Index is available athttp://www.firstam.com/economics/defect-index.
Disclaimer
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2016 by First American. Information from this page may be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $5.2 billion in 2015, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016, First American was recognized by Fortune®magazine as one of the 100 best companies to work for in America. More information about the company can be found atwww.firstam.com.
Latest Comments