Senate Democrats demand answers and additional information from the bank's CEO
Senate Banking Committee chairman Sherrod Brown and other lawmakers have urged regulators to investigate Wells Fargo’s alleged discriminatory mortgage practices during the pandemic. A Bloomberg report revealed that, among major lenders in the US, Wells Fargo had the lowest application-approval rate for Black homeowners in 2020. The bank approved only 47% of refi applications from Black applicants compared to 72% of those from White applicants. In a letter addressed to Wells Fargo CEO Charles Scharf, US senators Elizabeth Warren and Ron Wyden demanded the bank provide data and additional information regarding its mortgage refinancing practices and its “potentially illegal discrimination against Black homeowners.” In particular, Wells Fargo was asked to produce all data and algorithms used to evaluate refinance applications from Jan. 1, 2010, to Dec. 31, 2021. The senators also requested the following information and records by March 28:
A Wells Fargo spokesperson denied any wrongdoing in response to the letter, saying that the bank’s internal review of its 2020 lending decisions determined the discrepancy was due to other factors such as credit scores. Paul Turner, the Wells Fargo spokesman, told Bloomberg that they “will continue to work closely with our regulators and other stakeholders on our shared goal of decreasing the homeownership gap for Black and other diverse communities.” The CFPB, on Wednesday, announced making changes to its supervisory operations. The bureau said it will scrutinize discriminatory conduct that violates fair lending laws and closely examine financial institutions’ decision-making in advertising, pricing, and other areas. “When a person is denied access to a bank account because of their religion or race, this is unambiguously unfair,” CFPB director Rohit Chopra said in a statement. “We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”
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Benchmark rate rises above 4% for the first time in nearly three years.
The 30-year mortgage rate climbed above the 4% mark shortly after the Federal Reserve approved its first interest rate hike in more than three years. Freddie Mac reported that the 30-year fixed-rate mortgage averaged 4.16% for the week ending March 17, a significant jump from 3.85% a week ago. At this time last year, the benchmark rate was only 3.09%. “The 30-year fixed-rate mortgage exceeded 4% for the first time since May of 2019,” said Sam Khater, chief economist at Freddie Mac. “The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year.” The 15-year fixed-rate mortgage is now 30 basis points higher than a week ago, up to 3.39%. The five-year Treasury-indexed hybrid adjustable-rate mortgage jumped from 2.97% to 3.19%. The spike in mortgage rates has already started to hamper mortgage application activity. According to data from the Mortgage Bankers Association, overall mortgage apps dropped 1.2% week over week, with refinance activity declining by 3% and purchase applications edging down by 1%. “While home purchase demand has moderated, it remains competitive due to low existing inventory, suggesting high house price pressures will continue during the spring home buying season,” Khater said. It will attempt to raise borrowing costs.
The Federal Reserve on Wednesday will launch one of the most difficult tasks a central bank can attempt: Raise borrowing costs enough to slow growth and tame high inflation, but not so much as to topple the economy into recession. With a war raging in Europe and price increases at a four-decade high, Fed Chair Jerome Powell will seek to engineer a “soft landing”: A gradual slowdown in economic activity that helps curb surging prices, while keeping the job market and economy expanding. Yet many economists worry that with the price of gas and commodities spiking, the additional burden of higher interest rates could choke off growth entirely. “You’ve got to be both lucky and good” to avoid causing a downturn, said Alan Blinder, a Princeton University economist who served as vice chair of the Fed from 1994 to 1996, when the central bank was widely seen as achieving a soft landing. As a first step, the Fed is set to raise borrowing rates several times this year, beginning this week with a quarter-point increase in its benchmark short-term rate. Policymakers will also discuss when and how fast to shrink the Fed’s $9 trillion in bond holdings, a step that would also have the effect of tightening credit for consumers and businesses. Such moves mark a sharp turn away from the Fed’s ultra-low-rate policies, which it enacted when the pandemic recession erupted two years ago. By pinning its key rate near zero for two years and buying trillions in bonds, the Fed has kept borrowing costs at historically low levels and helped boost stock prices. The Fed, by its own admission, underestimated the breadth and persistence of high inflation after the pandemic struck. Many economists say the central bank made its task riskier by waiting too long to begin raising rates. The average 30-year fixed mortgage rate, which reached a record low of 2.65% in January 2021, has jumped to 3.85% in the past three months, as Powell has signaled the Fed’s intentions and inflation has spiraled higher. By raising short-term rates, the Fed hopes to make it costlier to buy homes and cars and to boost credit card rates and borrowing costs for businesses. The resulting pullback in spending should, in turn, slow inflation, Powell told Congress two weeks ago. Strong consumer spending, fueled by stimulus checks and steady hiring and pay raises, has collided with supply shortfalls to raise inflation to 7.9%, the highest rate since 1982. “People will spend less, and what we hope to achieve is bringing the economy to a level where demand and supply are in sync,” Powell said at a Senate Banking Committee hearing. If the Fed succeeds, he said, the economy should keep growing, and unemployment, over time, should stay low - it’s now 3.8% - or fall further. “I think it’s more likely than not that we can achieve what we call a soft landing,” Powell told a House panel a day before his Senate testimony. Yet the Fed faces a dizzying array of uncertainties that will make its task particularly challenging. The economy is still working through shortages of labor and parts stemming from the disruptions of the pandemic. And now prices are rising further for oil, gas, wheat, and other commodities because of Russia’s war against Ukraine. The clearest soft landing was achieved in 1994 and 1995, when the Fed under Chairman Alan Greenspan raised its benchmark rate from 3% to 6% as the economy was rebounding after a brief recession. Inflation, which wasn’t a problem then, declined further. And unemployment leveled off at about 5.5% before resuming its decline two years later. Blinder calculates that the Fed also engineered soft landings in 1965 and 1983. But he worries that this time, the odds are stacked against the Fed and that its rate hikes may end up causing an economic setback. “It’s just so hard in this environment,” he said. “You have to have a world in which nothing comes to knock over the apple cart. And for Jay Powell and the Fed, the whole world is just apple cart after apple cart getting knocked over.” One of those apple carts is the sharp rise in gas prices since the invasion, up 65 cents to $4.33 a gallon, on average, nationwide. The increase will send inflation higher, while probably also slowing growth - two conflicting trends that are difficult for the Fed to manage simultaneously. Last week, Goldman Sachs cut its growth forecast for this year to 2.9%, down from a previous estimate of 3.1%. Others foresee growth decelerating to 2%, down from 5.7% last year. The economy’s steady expansion does provide some cushion against higher rates and more expensive gas. Consumers are spending at a healthy pace, and employers keep rapidly hiring. There are still 11.3 million job openings, far outnumbering the unemployed. In 1998, the late MIT economist Rudiger Dornbusch wrote that economic expansions didn’t die of “natural causes.” Rather, he said, “they were all murdered by the Fed over the issue of inflation.” He meant that the Fed raised rates too much out of fear of inflation and failed to achieve a soft landing. Yet many economists say that view is outdated and refers mostly to Fed policies from the 1950s through early 1980s. The Fed now operates differently. It communicates its plans more clearly with the public. And it pays closer attention to factors such as inflation expectations, which measure where consumers, businesses and investors see inflation heading. Such measures are important because if people think inflation will head higher, they will demand bigger paychecks. Companies, in turn, will raise prices further to offset their higher labor costs. Inflation expectations, particularly in the short-term, have been rising steadily, though longer-term measures suggest that people still expect inflation to return closer to the Fed’s 2% annual target over time. Emi Nakamura, an economics professor at the University of California, Berkeley, noted that in the 1970s, even as inflation soared, it was still a matter of debate among economists whether the Fed’s rate policies could truly control inflation. Yet if the Fed keeps raising rates for another year or two, as many economists expect, it could eventually lift them high enough that consumers and business reduce spending and throw the economy into reverse. Unemployment would rise and a downturn could begin. Stephen Stanley, an economist at Amherst Pierpont, suggested, though, that the Fed won’t reach that possibility until next year or later. “Let’s at least get a few rate hikes under our belt before we start worrying about that,” he said. “We have some distance to go before that becomes a realistic worry.” NAR releases new figures
American households gained a total of $8.2 trillion in housing wealth in 10 years, a new study from the National Association of Realtors has revealed. Between 2010 and 2020, high-income homeowners saw the largest share of gains among all income groups, claiming about 71% of all wealth accumulation. Middle-income households, which amassed $2.1 trillion in total housing wealth, followed at 26%. Among low-income households, home equity increased by $296 billion (4% of the housing wealth gain). “Owning a home continues to be a proven method for building long-term wealth,” said NAR chief economist Lawrence Yun. “Home values generally grow over time, so homeowners begin the wealth-building process as soon as they make a down payment and move to pay down their mortgage.” “These escalating home values were no doubt beneficial to homeowners and home sellers,” Yun added. “However, as these markets flourish, middle-income wage earners face increasingly difficult affordability issues and are regrettably being priced out of the home-buying process.” The study found that the overall homeownership rate has plummeted across all income groups since the Great Recession, with the biggest drop among the middle-income homeownership rate – down from 78.1% to 69.7%. Homeownership rates among low-income households fell by 2%, and high-income households saw a four-percentage-point drop. “Homeownership is rewarding in so many ways and can serve as a vital component in achieving financial stability,” said NAR President Leslie Rouda Smith. “Now, we must focus on increasing access to safe, affordable housing and ensuring that more people can begin to amass and pass on the gains from homeownership.” Mortgage activity increases as interest rates drop for the first time in months
A drop in mortgage rates – which is likely temporary, according to experts – has put an end to the four-week streak of declines in new mortgage applications, the Mortgage Bankers Association reported Wednesday. MBA’s Market Composite Index – a measure of home loan application volume – rose 8.5% for the week ending March 04 on a seasonally adjusted basis and was up by 10% on an unadjusted basis. Applications increased sequentially as mortgage rates fell for the first time in 12 weeks due to the Russia-Ukraine war pushing US Treasury yields lower, said Joel Kan, MBA’s associate vice president of economic and industry forecasting. Both refinance, and purchase applications jumped 9% from the previous week. The refi share of total applications dropped from 49.9% to 49.5% due to increased purchase activity. “A six-basis-point decline in the 30-year fixed-rate mortgage led to a slight rebound in total refinance activity, with a larger gain in government refinances. Looking ahead, the potential for higher inflation amid disruptions in oil and other commodity flows will likely lead to a period of volatility in rates as these effects work against each other,” said Kan. “Purchase activity also increased, as prospective buyers acted on lower rates and the early start of the spring buying season. The average loan size remained close to record highs, with higher-balance loan applications continuing to dominate growth.” It's the third time in two months officials reveal mortgage-related fraud
A New Jersey man was sentenced on Thursday to 108 months in prison for conspiring to obtain mortgage loans to finance the sale of properties to unqualified buyers and securities fraud, the US Department of Justice announced. In a prepared statement, Attorney for the US Vikas Khanna said Maurice Bethea, 54, of Newark, N.J., induced a victim into investing more than $1.2 million into real estate companies under false pretenses. Bethea previously pleaded guilty before US District Judge Susan D. Wigenton to a charge of one count each of bank fraud conspiracy and securities fraud, officials said. From May 2009 through June 2012, justice officials said, Bethea and others recruited buyers to purchase multi-unit residential properties owned by Westinghouse Redevelopment Act Inc., a company Bethea controlled. Bethea and his conspirators used false information about the buyers’ assets and income to support fraudulent mortgage loan applications to a mortgage company, according to the advisory. “They falsified the buyers’ loan application by boosting liquid assets,” according to the advisory. “Bethea and his conspirators transferred cash from Westinghouse’s and others’ accounts to the buyers’ bank accounts and falsified documents to hide the transfers.” After the loans were approved, officials continued, Bethea and his conspirators caused the return of the funds to Westinghouse. When it came time to close the transactions, officials said, Bethea and his conspirators defrauded the mortgage company by hiding that Westinghouse and others, not the buyers, provided the cash to close the transactions. Justice officials said the buyers ultimately were not able to repay the loans, which resulted in losses to several financial institutions. The US Attorneys Office for the District of New Jersey described the scheme:
It’s the second time in as many days that justice officials have announced prosecution in a mortgage fraud case. Earlier this week, Department of Justice officials revealed that Sergio Lorenzo Rodriguez of Orange County, Calif., pleaded guilty to one count of wire fraud in connection with a fraudulent foreclosure rescue scheme that took in at least $5 million in prohibited advance fees from thousands of financially distressed homeowners. In that case, justice officials described how Rodriguez, 47, and a co-conspirator, from around mid-2015 through August 2020, owned and/or managed a series of mortgage modification companies through which they perpetrated a scheme to defraud and attempt to defraud, through deceptive marketing practices, financially distressed consumers who were facing or were at imminent risk of foreclosure. And in February, an Atlanta real estate agent was charged for running multi-year mortgage and real estate commission fraud schemes. Eric Hill, 52, faces two years and six months in federal prison – to be followed by three years of supervised release – after pleading guilty to conspiracy charges. His accomplice, Robert Kelske, 54, also pleaded guilty and is scheduled to be sentenced on April 14, justice officials said. According to the US Attorney’s Office for the District of Atlanta, Hill and Kelske conspired with 12 other people to run a $21 million mortgage scam and separate scheme to defraud his employer, a national real estate developer, out of over $480,000 in real estate commissions. Desperate homeowners facing foreclosures and evictions were taken for millions
A California man has pled guilty to operating a multimillion-dollar mortgage modification fraud scheme, the US Attorney for the Southern District of New York said Tuesday. Sergio Lorenzo Rodriguez of Orange County, Calif., pled guilty to one count of wire fraud in connection with a fraudulent foreclosure rescue scheme that took in at least $5 million in prohibited advance fees from thousands of financially distressed homeowners, the Department of Justice officials said. The man pled guilty before US Magistrate Judge Sarah Netburn, according to a Press release. “As he admitted today, for years, Sergio Lorenzo Rodriguez took advantage of desperate homeowners who were facing foreclosure and eviction to collect from them, in the aggregate, millions of dollars in advance fees based on promises that Rodriguez knew he could not, or would not, keep,” US Attorney Damian Williams said. “He exploited the financial vulnerability of his victims and is now being held accountable for his crime.” According to the complaint, indictment, statements made in court and public documents, from around mid-2015 through August 2020, Rodriguez and a co-conspirator owned and/or managed a series of mortgage modification companies through which they perpetrated a scheme to defraud and attempt to defraud, through deceptive marketing practices, financially distressed consumers who were facing or were at imminent risk of foreclosure, according to the US Attorney’s Office. The companies included American Home Servicing Center; National Advocacy Center; National Advocacy Group; and Capital Home Advocacy Center. According to the US Attorney’s Office, the defendants “…tricked desperate homeowners into paying thousands of dollars each in prohibited advance fees through various misrepresentations, including falsely claiming that the homeowners had been pre-approved by their lender or servicer for a mortgage modification; misrepresenting prohibited advance fees like closing costs or other non-prohibited costs; fraudulently claiming that the companies achieved success rates of 95% or higher for mortgage modifications; and making empty promises of a no-risk money-back guarantee. As a result of their intentional misrepresentations – and misrepresentations they encouraged their subordinates to make – the defendants induced thousands of homeowners to pay, in the aggregate, millions of dollars in prohibited advance fees to the companies, including a large number of consumers who were ultimately denied mortgage modifications or who received modification offers that were less favorable than they had been led to expect at the time they paid advance fees, the US Attorney’s Office said. In February 2018, the Federal Trade Commission brought a civil lawsuit against the defendants, among others, in federal court in Santa Ana, California. That civil action resulted first in a temporary restraining order and then a permanent injunction barring the defendants from marketing and selling all debt relief products and services, the official said. As alleged in the indictment, the defendants flouted those judicial orders by having a relative create another mortgage modification company named 1st Premier Asset Solutions, which the defendants operated using aliases and some of the same deceptive practices, according to the Press release. Rodriguez, 47, of Laguna Niguel, Calif., pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison along with a maximum fine of $250,000 or twice the gross gain or loss from the offense, the US Attorney’s Office noted. According to a recent study, some parts of California are among the most at-risk housing markets vulnerable to pandemic-fueled economic damage. ATTOM, self-described as curator of the nation’s premier property database, released its fourth-quarter Special Coronavirus Report spotlighting vulnerable housing markets across the US at the county level. California figured prominently in that study. California, combined with New Jersey and Illinois, had 31 of the 50 counties most vulnerable to the potential economic impact of the pandemic – and, presumably, a vulnerability to fraudulent schemes positing solutions. The 50 most at-risk counties included seven sprinkled throughout northern, central, and southern California, the report showed. According to the ATTOM study, those seven vulnerable counties in California are Butte County (Chico), El Dorado County (east of Sacramento), Humboldt County (Eureka), and Shasta County (Redding) in the northern part of the state; as well as Kern County (Bakersfield), Madera County (outside Fresno) and Riverside County (east of Los Angeles) in the central and southern sections of the state. Refinance share of applications dipped below 50%
Mortgage application volume decreased week over week as mortgage rates jumped to a three-year high. The Mortgage Bankers Association reported Wednesday that overall mortgage applications dropped 0.7% on a seasonally adjusted basis for the week ending Feb.25. However, applications were up by 1% on an unadjusted basis from the previous week. “Mortgage rates last week reached multi-year highs, putting a damper on applications activity,” said Joel Kan, AVP of economic and industry forecasting at MBA. “The 30-year fixed-rate reached its highest level since 2019 at 4.15%, and the refinance share of applications dipped below 50%. Although there was an increase in government refinance applications, higher rates continue to push potential refinance borrowers out of the market.” MBA’s refinance index posted a 1% week-over-week gain and was 56% lower than the same week one year ago. The purchase index declined 2% from the prior week and was down by 9% from last year. “Purchase activity remained weak, but the average loan size increased again, which indicates that home-price growth remains strong, and a greater share of the activity is occurring at the higher end of the market,” Kan said. “We will continue to assess the potential impact on mortgage demand from the sharp drop in interest rates this week due to the invasion of Ukraine.” Of total applications, the refi share of mortgage activity fell to 49.9% from 50.1% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.3% of total applications. The FHA share of total applications was down one basis point to 8.6%, the VA share of total applications was up three basis points to 10.2%, and the USDA share of total applications remained unchanged at 0.4%. It is the highest amount ever disbursed to affordable housing efforts, the FHFA says
The Federal Housing Finance Agency has allotted more than a billion dollars for affordable housing programs – the largest amount ever provided to these programs from Fannie Mae and Freddie Mac. FHFA acting director Sandra Thompson said Monday that the GSEs will allocate $1.138 billion to the Housing Trust Fund and Capital Magnet Fund for the construction and preservation of affordable housing across the country. The Housing Trust Fund, overseen by the Department of Housing and Urban Development, will receive $740 million, a $29 million increase from the previous year. The funding will be disbursed to states and state-designated entities for the production or preservation of affordable housing through the acquisition, new construction, reconstruction, and/or rehabilitation of non-luxury housing. Meanwhile, the Capital Magnet Fund, overseen by the Department of the Treasury, will get $398 million, a $15 million increase from 2021. It competitively awards money to finance affordable housing activities, related economic development activities, and community service facilities. “Addressing our nation’s affordable housing crisis is critical to FHFA’s mission,” Thompson said. “Today’s announcement of record funding for additional housing production will help increase access to affordable, sustainable housing options.” |
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