The COVID-19 pandemic has exposed numerous faults in the reporting of mortgage modifications, with “numerous cases of underreported or entirely omitted modification behavior” – the kind of reporting errors that led to problems in the aftermath of the 2008 financial crisis, according to a consumer lending data-analytics firm.
dv01, which provides loan-level consumer lending analytics for the mortgage industry, recently issued a white paper detailing what it called an “outdated reporting structure for mortgages.” “Throughout the pandemic, we have observed significant irregularities and inconsistencies in reporting across multiple parties involved in the process,” dv01 said. “Despite nearly four months of reporting cycles, there are numerous cases of underreported or entirely omitted modification behavior. Data report quality varies across deals and even between reporting parties within a single deal.” The study found that common misreporting included instances where no modifications were reported but loan balances increased month over month, as well as discrepancies in the total number of modified loans reported between multiple servicers. The firm also highlighted a deal by “a prominent non-QM issuer” in which it was able to identify 233 loan modifications, while the master servicer reported only 74 and the trustee reported only 41. “It was these types of reporting errors that created information asymmetries during the [2008 Global Financial Crisis], which led to an increase in price volatility when previously reported numbers were later corrected,” dv01 said. The firm compared the traditional mortgage space to the world of online lending, where it said misreporting errors are less common. “In online lending, issuers predominantly service loans in-house and servicing is dedicated solely to the issuer’s loans,” dvo1 said. “As a relatively new asset class, the online lending sector, by its nature, is technology driven – reporting documentation and communication is fully digital – and the data has less intermediaries. “… The relationships and chain of reporting is very different in the mortgage world,” the firm said. “Issuers and servicers are entirely different entities, so the relationships are not always clearly aligned in terms of investor transparency. Furthermore, servicers are tasked with loan portfolios from a multitude of issuers and loan types, from agencies to non-QM to RPL. Issuers therefore have less ability to direct servicing reporting standards. Additionally, there can be multiple servicers per securitization, each with a different approach to reporting and capturing modifications.” Because there are so many links in these communication chains, there are more opportunities for error, dv01 said. “To date, we have not observed these communication chains yield cleansed, validated, consistent, and standardized reporting for investors and stakeholders,” the firm said. “Even more concerning, most of these entities have been reporting or underreporting modifications for over a decade because they were so prominent in non-agency securitizations after the GFC.” The firm pushed for a more streamlined mortgage-modification reporting system. “The current mortgage reporting architecture is fragmented, outdated, and inefficient, and COVID-19 is further exposing the faulty reporting system,” dv01 said. “In order for investors to gain confidence in the health of the mortgage market and the broader economy, the industry needs a more modern and innovative approach to how we report modifications. To accomplish this, we need alignment, advocacy, and accountability across all industry participants, and an entity overseeing and coordinating these efforts in every securitization.”
0 Comments
On Saturday, Donald Trump signed four executive orders intended to provide unemployed Americans with some semblance of COVID-19 assistance after negotiations between Republicans and Democrats around the parameters of a new relief bill collapsed on Friday.
Speaking from Trump National Golf Club in Bedminster, New Jersey, the President said the four actions “mean bigger pay checks for working families as we race to produce a vaccine,” but there is little indication that Trump’s orders will have an immediate impact on at-risk renters or homeowners – if they are enacted at all. The controversy around the constitutionality of the orders is both real and glaringly obvious. Congress, despite its baked-in flaws and woefully childish bi-partisanship, has the final say over federal budget matters. The President cannot spend the country’s money by fiat, and an attempt to do so could lead to court challenges and slow the delivery of what little actual aid exists in his four directives. The good news: Anyone paying off a student loan will welcome the extended relief Trump provided them. Their loan payments can be deferred until the end of the year. The bad: Anyone else looking for a lifeline in the new measures, particularly unemployed renters and homeowners, are unlikely to feel any more secure now than they did last week. Concrete help for renters: None Trump’s “Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters and Homeowners” is an assistance bill in name only. Looking at the text of the order, there are plenty of details around the health risks of homelessness and the CARES Act’s provisions for helping renters and homeowners (and, of course, multiple references to China’s role in the coronavirus crisis). “Accordingly,” the order reads, “my Administration, to the extent reasonably necessary to prevent the further spread of COVID-19, will take all lawful measures to prevent residential evictions and foreclosures resulting from financial hardships caused by COVID-19.” And yet, the order contains no actual strategy for keeping Americans in their homes. There is no extension of the federal moratorium on evictions, which the FHFA had already extended until August 31. Instead, the order says the Secretary of Health and Human Services and the Director of CDC “shall consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19 from one State or possession into any other State or possession.” Unemployment is still historically high, so those measures are obviously necessary. Tasking two department heads with allocating resources to discovering a known fact is like asking the heads of NASA to work together to determine whether or not there are still clouds in the sky. Sure, they can do it, but why would they need to? The order also asks the Secretary of the Treasury and the Secretary of Housing and Urban Development to “identify any and all available Federal funds to provide temporary financial assistance to renters and homeowners who, as a result of the financial hardships caused by COVID-19, are struggling to meet their monthly rental or mortgage obligations.” There is no directive to distribute these funds, only an urging to “identify” them. What’s to be done with them once they’re identified? The order goes on to say that the HUD Secretary shall “take action” to promote “the ability of renters and homeowners to avoid eviction or foreclosure resulting from financial hardships caused by COVID-19”, and that that action “may include encouraging and providing assistance to public housing authorities, affordable housing owners, landlords, and recipients of Federal grant funds in minimizing evictions and foreclosures,” but that’s as far as it goes. There are no dollar amounts or dates anywhere in Trump’s order that would give renters or homeowners a sense of security going forward. “While it has the illusion of saying, ‘We’re going to have a moratorium on evictions,’ it says ‘I’m going to ask the folks in charge if that’s feasible,’” House Speaker Nancy Pelosi told Fox News Sunday. Payroll tax deferral: Help now, hell later? Another of Trump’s orders calls for the deferral of payroll tax collections for workers earning under $100,000 a year, which could provide short-term relief for Americans who are actually working, but it’s hard to see how such a measure would help anyone collecting unemployment insurance. Granting a payroll tax holiday will have far-reaching implications. First, because the payroll tax takes money from workers' pay checks to pay for programs like Social Security and Medicare, both programs will see a drastic decrease in funding, if only until the end of the year. Workers who avoid paying the payroll tax will still be called on to pay it once the deferral period ends. "This fake tax cut would also be a big shock to workers who thought they were getting a tax cut when it was only a delay," Democratic Senator Ron Wyden told the Associated Press. "These workers would be hit with much bigger payments down the road." Expanded unemployment: Unlikely in this form The $600 per week unemployment insurance payments that helped keep millions of unemployed Americans fed and in their homes expired on August 1. How to revive the program has been one of the central sticking points in negotiations between Republicans and Democrats. Trump’s final executive order calls for $400 weekly payments, but with two sizeable if’s attached. First, states hoping to access the assistance will need to kick in 25 percent of the cost. That is a tall order considering the sad state most state coffers are in after providing almost six months of financial support to their residents. Ten states have already borrowed almost $20 billion from the Treasury Department to cover their share of UI payments. New York Governor Andrew Cuomo estimated on Sunday that Trump’s proposal may cost the state $4 billion. “The concept of saying to states, you pay 25 percent of the insurance, is just laughable,” Cuomo said. “It’s just an impossibility.” Any state that lacks the funds to contribute or is otherwise reluctant to participate in the program will receive nothing. The money in question would not be delivered through states’ unemployment insurance programs, which means those states hoping to make use of it will be required to create and implement a new system for distributing the additional aid, a process that could take months. "This is a brand-new program,” said the National Employment Law Project’s Michelle Evermore in comments to CNN, “it's an assistance program for lost wages, it requires the creation of an entirely new administrative system. The states that don't get the program set up as quickly as other states aren't going to get any funding because it will run out.” There was support for Trump’s executive orders, but only where one would most expect to find it. "Democrats have sabotaged backroom talks with absurd demands that would not help working people, I support President Trump exploring his options to get unemployment benefits and other relief to the people who need them the most," Senate Majority Leader Mitch McConnell said in a statement Saturday. Trump’s presidential rival, Joe Biden, described the president’s actions as "half-baked." "This is no art of the deal," Biden said in a statement. "This is not presidential leadership. These orders are not real solutions. They are just another cynical ploy designed to deflect responsibility. Some measures do far more harm than good." Despite early predictions of an impending doom, the housing market has so far eschewed the dampener that the coronavirus pandemic has slammed onto other sectors of the U.S. economy. But with key federal policies lapsing without renewals, infection numbers growing and the economic downturn drawing out, real estate may soon see its fortunes reversed, says Jarred Kessler, CEO of proptech company EasyKnock. The Covid-triggered crisis has thus far unfolded in a manner opposite of what is conventional in a recession, says Kessler who spent years working on Wall Street for banks such as Morgan Stanley and Goldman Sachs before founding EasyKnock, which offers sale-leaseback options to homeowners. This peculiarity largely rests with the federal government’s early actions to prop the economy, passing the $2 trillion CARES Act in late March, just when the virus began to course through the country. “Usually, when you have a crisis or a recession, what happens is that you initially have people whose household solvency goes down,” Kessler says. “What happened during Covid is household solvency went up because the government almost bridged people's payroll through the Paycheck Protection Program, the $1,200 stimulus checks and the federal unemployment benefits of $600 a week.” Intended to stabilize the larger economy, these measures also helped the housing market by providing Covid-impacted tenants and homeowners the funds to keep paying their rent and mortgages. In some cases, they also plumped the savings of home shoppers, who have flocked to the market amid record-low mortgage rates. At the same time, the tight supply of homes for sale has kept boosting prices, increasing sellers’ equity. The stopgap policies in the CARES Act, however, have created “a false sense of confidence for consumers and the government,” Kessler says. “You're going to see a shift to the other extreme where you're going to see real panic in the market.” With Congress and the White House still negotiating – and disagreeing – over the terms of the next relief package, several of the key policies credited with buoying the housing market have already expired, including the enhanced jobless benefits of $600 a week, the federal eviction moratorium as well as the one-time stimulus payment. Here is what Kessler anticipates. An increase in homeowners selling their houses out of necessityWhile it has remained below its annual level since the start of the pandemic, inventory will likely rise as the economic pains of the health crisis start to unfold in full. More policy provisions are soon to run out, while the federal government appears paralyzed along party lines. “The market’s going down,” Kessler says. “If people don't have a choice, they're going to put their house on the market and then another person and another person, and then eventually it hits an inflection point, where people realize that they don't have that sense of confidence and they need to move fast. That just creates a self-fulfilling prophecy.” Moreover, some experts have already expressed concern about the possibility of spiking foreclosures once mortgage forbearance expires. “A third of the country has no mortgage and half the country has a loan-to-value ratio of 50% or less,” Kessler says. “You have all these people who have built up equity in their house, and that actually can help them buy time or bridge their situation. But because of the credit crisis, lending standards are become tougher. Banks are getting out of the HELOC business and tightening their standards. You're going to see an increasing amount of people that are asset-rich and cash-constrained.” Cities with high taxes are to suffer the most“If you're in a state that has high taxes, you might not have a choice anymore,” Kessler says. “You might have to move someplace that has low taxes. In some places that are high-tax states like New York, California and Illinois – it's not a political statement, but a lot of blue states – you're going to see a shift. Then, in a lot of cities crime is going up. People over decades have been moving to the cities because they felt safer. And now, you're going to see a shift going the other way again. “Some areas are going to take some real pain. Unfortunately, my home city of New York is going to be one of them in my opinion.” Another lockdown will do more damage than helpAs a number of states have walked back aspects of their reopening plans, some public figures have floated the idea of a second national lockdown. Earlier this week, Neel Kashkari, president of the Minneapolis Federal Reserve Bank, said on CBS’ “Face the Nation” that the government should enact another, month-long shutdown, adding “that's the only way we're really going to have a real robust economic recovery.” Kessler disagrees. “Kashkari said a lockdown would actually be helpful to the economy, taking the short-term pain would actually be better for the long term,” Kessler says. “By dragging this out and this approach of fragmented lockdowns to help save the economy, it’s making it worse.” The government should be proactive, not reactive“The government should create tax incentives and holidays and focus on landlords and mortgage companies,” Kessler says. “Because if they are subsidized, they're not putting pressure on people being evicted. Otherwise, the homeless issue and the eviction rates are going to be really bad. But if you start with the landlords and lenders and you create a government program to help them access liquidity, ultimately that will filter down to the consumers.” Without more federal aid for workers, experts are expecting the largest disruption to the housing market since the Depression.
For the 108 million people who live in a rental home or apartment, Aug. 1 was a grim milestone. It marked the first time rent was due after much of the nation’s economic response to the coronavirus had expired. The lapse of expanded unemployment benefits and federal, state and local eviction moratoriums is forcing lawmakers to figure out how to extend those protections. It has also left experts resorting to natural disaster metaphors (“avalanche,” “tsunami”) to describe the scale of potential evictions. Unlike the U.S. economy, which was enjoying the longest expansion on record, housing — specifically rental housing — was troubled before the virus hit, with problems going back decades. A little under four million evictions are filed each year, one in four tenant households spends about half its pretax income on rent, and each night some 200,000 people sleep in their cars, on streets or under bridges. Those were the statistics in good times. Now, with unemployment above 10 percent and projected to stay there through at least next year, tens of millions of households could be at risk of eviction in the coming months. Even if only a fraction of those evictions actually take place, it would still be several times the current pace and the biggest disruption in rental housing in decades. Whatever the final tally, it is increasingly clear that if the Great Recession was personified by empty subdivisions and foreclosed homeowners, the enduring symbol of coronavirus, with its disproportionate impact on hourly workers, is likely to be a laid-off tenant struggling to keep an overcrowded apartment. “The United States is on the brink of an eviction crisis of unprecedented magnitude,” said Emily A. Benfer, a professor at Wake Forest University School of Law. That is, of course, a projection — and so far, government efforts to hold back a wave of displacement have been effective. About two-thirds of the workers eligible for extended unemployment protections could make more than they did when they were employed, allowing tens of millions of tenants to shelter in place while paying their monthly bills. Renters who didn’t receive unemployment pay were largely covered by the various eviction moratoriums that, while not relieving their debts, had at least granted them a reprieve. The federal moratorium alone, passed as part of the CARES Act in March, covered between 28.1 percent and 45.6 percent of rental units. On Friday, after talks between the Trump administration and Democrats effectively stalled, President Trump threatened to bypass Congress to extend the moratorium. The moratoriums were supposed to be emergency measures to give tenants some relief until the virus subsided and the economy returned to health. Except that didn’t happen. The virus continues to surge around the country, and parents are unsure when schools will reopen. Each week more than a million laid-off employees continue to file for unemployment insurance, while temporary layoffs are becoming permanent job losses. Landlords hold that the most extreme predictions of evictions are overblown. For starters, the limited data available suggests that most tenants have stayed current on their bills. Also, property owners, facing rising vacancies and falling rents, are increasingly working out rent cuts and extended payment plans. Still, put all the numbers together, and it becomes clear that renters were struggling before the pandemic, they’ve been hit harder by the virus and job losses, and the rental market is likely to be more challenging even after the economy recovers. Ebbets Field, a housing complex in Brooklyn. Eviction moratoriums have protected people who might not have received other government benefits. An apartment building in Oakland, Calif. Expanded unemployment benefits have helped millions of people stay current on their bills. The pandemic response had problems, but mostly succeeded.In the wake of the pandemic, 43 states and Washington, D.C., enacted some kind of eviction moratorium, according to Ms. Benfer. On top of that were various local measures, along with the federal eviction moratorium, which covered subsidized housing and rental properties with loans backed by Fannie Mae and Freddie Mac. While these measures were of varying length and strength — and many, including the federal ban, had little to no enforcement mechanism — together the patchwork served to halt or slow evictions for a majority of renters. Only seven states — Arkansas, Georgia, Missouri, Ohio, Oklahoma, South Dakota and Wyoming — never issued a statewide stay on evictions, and even in those states, the federal rules should have protected at least a third of renter households. Just as important as those protections were the federal unemployment and stimulus payments. After all, most renters do not have eviction problems if they stay current on their bills, and with help from the $1,200 stimulus payments and $600 in extended unemployment that came with the CARES Act, many of them have. That help is ending, and renters are slipping off the cliff.Benjamin Schenk, a San Diego landlord who operates 30 units in two buildings, is one of the many property owners who have been surprised by the high number of tenants paying their rent in the early months of the pandemic. In March he was talking with his lenders about how he might restructure his loans in anticipation of nonpayments, only to make it to August with payment rates close to 100 percent, which he attributes to the CARES Act. But people are now falling behind. Though it will take until mid-month to get a true sense of how bad August will be, several tenants who lost their jobs stopped paying rent in the first few days. “The aid that folks are relying on has dried up and not a lot of places are hiring,” Mr. Schenk said. While there’s no comprehensive data on rent payments, a weekly tracker from the National Multifamily Housing Council that covers about 11 million units has started slipping. In the Census Bureau’s most recent Pulse Survey, for the week of July 16 to 21, just under one in five renters said they were unable to pay July’s rent on time, while one in three were unsure they could make August payments. The threat to small landlords is also a threat to tenants. About 40 percent of the nation’s 48.2 million rental units are owned by “mom-and-pop” operators who tend to have a limited financial cushion. Since much of the nation's affordable housing consists of small apartment buildings and single-family homes if these smaller landlords go under many of their units could be “lost.” Some would become owner-occupied housing. Others will get acquired by larger investors who plan renovations and rent increases — compounding a longstanding affordable housing shortage. Evictions have piled up and are now resuming.Evictions, meted out by local courts, are difficult to tally nationwide. For now, new filings are depressed compared with historical averages, according to a survey of a dozen cities by Princeton University’s Eviction Lab. But they have resumed around the country, and are likely to grow. There is a difference between an eviction filing, which is the start of a legal process, and an actual eviction, in which a tenant is removed. According to Eviction Lab, there were 3.7 million such filings in 2016, about one million of which led to an eviction — a figure that undercounts displacement. So even if there are only a million formal evictions a year, the number of people who are displaced is probably several times that, and likely to grow.Many tenants leave after a threat of eviction or the first sign of a filing. Others leave after a landlord turns off utilities or changes the locks. Even for tenants who are never taken from their home by a sheriff, behind every filing is severe stress and tattered credit that makes it harder to find a new place. Beyond that is the uncountable number of families whose rent was raised beyond their means and who left before missing a payment. While homelessness would almost certainly increase with a spike in evictions, this doesn’t necessarily mean shelters will fill up or encampments will pop up on every street. Tenants, in particular, families, often exhaust every available option — living in weekly hotels and illegal garages, staying with friends or piling in with multiple roommates — before they end up in the shelter system or the streets. Steve Noggle, 43, was evicted from his apartment in Annville, Pa., this week. He received just five weeks of extended unemployment benefits even though he lost his restaurant job four months ago. He has been sleeping on his sister’s couch since Monday. “I don’t like having to be here, it’s a burden on everybody, especially because I can’t contribute anything financially,” he said. “I’m just hoping I can get a job as soon as possible." For the fourth straight month, nearly one in three Americans missed their housing payments – but the situation could be at least temporarily alleviated through another stimulus package, according to a new study from Apartment List.
As eviction bans expire across the country, 32% of homeowners and renters failed to make their full housing payments on time, according to the study. More than 20% owed more than $1,000. “In the first week of August, 11 percent of survey respondents made a partial payment of their monthly rent or mortgage bill, while an additional 22 percent have yet to make any payment whatsoever,” study authors Igor Popov, Chris Salviati and Rob Warnock wrote. “This continues a trend that has now lasted four months; the combined rate of missed and partial first-week payments has ranged from 30 to 33 percent going back to May.” Each month so far, Apartment List found that many missed mortgage and rent payments were made whole with late payments by the end of the month. “Nevertheless, by the first week of August, 10 percent of respondents had still failed to make a full payment for July,” the authors wrote. “As a result, unpaid housing costs are piling up for many Americans, renters and homeowners alike.” The study found that 65% of homeowners with unpaid housing bills worried about facing foreclosure within the next six months, while 66% of renters in the same boat feared facing eviction within that time frame. “With the recent expiration of most federal eviction and foreclosure protections and a lapse in expanded unemployment benefits, this insecurity is sure to deepen over the coming weeks,” the authors wrote. At the beginning of August, 8% of homeowners had accumulated missed housing payments of under $1,000, while 11% owed between $1,000 and $2,000 and 13% owed more than $2,000, the study found. Meanwhile, 15% of renters owed their landlords less than $1,000, 11% owed between $1,000 and $2,000, and 5% owed more than $2,000. “These accumulating missed payments affect renters and homeowners very differently,” the study said. “Some owners can defer payments through forbearance plans or even tack payments missed due to financial hardship onto the end of their loan period. Renters lack these options and the clarity that accompanies them.” Could stimulus solve the problem? “As congress continues to debate another round of stimulus, these data serve as an important indicator of the amount of assistance required to get Americans caught up on their housing payments (and potentially save thousands of families from losing their homes),” the study authors wrote. According to the study, a stimulus check of $2,000 would be sufficient to meet the unpaid rent bills of 83% of renters who are currently behind on their payments. An additional $1,200 payment would alleviate half the nation’s outstanding housing debt. “That said, a one-time payment does little to alleviate the underlying economic crisis causing this problem, so it is likely that housing debt would again accrue as widespread unemployment continues,” the study said. As public school teachers, Tori Smith and her husband have careers that should survive the coronavirus economy, but their mortgage lender wasn’t taking any chances.
It told them that they would have to put down more money to keep the interest rate they wanted, then dialed back what it was willing to lend them. And Ms. Smith said it had checked their employment status several times during the approval process — and again a few days before the couple closed on their home in Zebulon, N.C., last month. Ms. Smith said she had never gotten a straight answer about the new requirements, but she ventured a guess. “I felt like we had to bring more just because of Covid,” she said. The economic crisis caused by the pandemic has driven interest rates to rock-bottom levels, meaning there has hardly been a better time to borrow. But with tens of million of people out of work and coronavirus infections surging in many parts of the country, qualifying for a loan — from mortgages to auto loans — has become more trying, even for well-positioned borrowers. Lenders that have set aside billion of dollars for future defaults have also tightened their standards, often requiring higher credit scores, heftier down payments and more documentation. Some, such as Wells Fargo and Chase, have temporarily eliminated home equity lines of credit, while Wells Fargo also stopped cash-out refinancing. It’s not unusual for lenders to tighten the credit reins during a downturn, but the current situation has made it especially challenging for them to get an accurate read on consumers’ financial health. Borrowers have been able to pause mortgages, halt student loan payments and delay paying their tax bills, while millions of households have received an extra $600 weekly in unemployment benefits. Those forms of government support could be masking an underlying condition. “It makes it hard for a lender to understand what the consumer’s true state of credit quality is and their ability to pay back a loan,” said Peter Maynard, senior vice president of global data and analytics at the Equifax credit bureau.Credit card companies, for example, mailed out 57 million offers to consumers in June, a historic low and down from 272 million a year earlier, according to Mintel, a research firm that has been tracking the offers since 1999. Some banks have stopped offering the types of cards that attract people who may be focused on paying down debt, such as BankAmericard, Mintel found. Credit card companies, for example, mailed out 57 million offers to consumers in June, a historic low and down from 272 million a year earlier, according to Mintel, a research firm that has been tracking the offers since 1999. Some banks have stopped offering the types of cards that attract people who may be focused on paying down debt, such as BankAmericard, Mintel found. Issuers are also being careful with cards belonging to current customers, said Mark Miller, associate director of insights for payments at Mintel. “Some dormant accounts are being closed,” he said. “So if they have a credit card sitting in a drawer, those accounts are at risk of being closed, and credit lines with a $10,000 limit may eventually be knocked down to $8,000.” For auto loans, borrowers with lower credit scores and thin credit histories face more rigorous requirements and less generous terms, including shorter loan periods. “Subprime borrowers are not getting loans as readily as they were pre-pandemic or a year ago,” said Jonathan Smoke, chief economist at Cox Automotive, referring to consumers with credit scores below 620. Interest rates for new and used vehicles remain low — below 4 percent at many banks and credit unions — but only for more qualified borrowers, said Greg McBride, chief financial analyst at BankRate.com. “Good credit and a down payment are required to get the best rates, with weaker credit increasingly sidelined — particularly for older-model used car purchases,” he said. Ford Motor said it hadn’t tightened standards on loans through its financing unit, but last month it introduced a program to make wary borrowers more comfortable. Those who buy or lease a car through Ford’s financing unit before Sept. 30 can return it within a year if they lose their jobs. Ford said it would reduce the customer’s balance by the vehicle’s book value, and then waive up to an additional $15,000. If that measure is meant to stoke demand, no such program is necessary for home buyers. For the first time in nearly half a century of tracking, 30-year fixed-rate mortgages averaged about 2.98 percent, according to Freddie Mac. The mortgage industry made $865 billion in loans during the second quarter, the highest amount since 2003, when quarterly originations twice topped $1 trillion, according to Inside Mortgage Finance, a trade publication. And that’s with lenders being picky about their customers and particular about their requirements. JPMorgan Chase, for example, will make mortgages to new customers only with credit scores of 700 or more (up from 640) and down payments of 20 percent or higher. USAA has temporarily stopped writing jumbo loans, which are mortgages that are generally too large to be backed by the federal government, among other products. Bank of America said it had also tightened its underwriting, but declined to provide details. Ms. Smith and her husband, Philip Ellis, had hoped to go through a first-time homebuyer program at Wells Fargo that would require them to put down 3 percent. They even sat through a required educational course. But two weeks before closing on their $205,000 home, their lending officer said they needed to put down 5 percent to keep their rate.A week later, Ms. Smith said, they learned their loan was for less than what they had been preapproved for — and they needed to come up with an additional $4,000. In the end, their down payment and closing costs exceeded $14,000 — about 45 percent more than they had anticipated. The couple, who had married in April, used money recovered from their canceled wedding reception. Ms. Smith said they were also lucky to have the support of their families, who fed and sheltered them so they could save every penny. But the stability of their jobs was also most likely a crucial factor. “I think our ability to secure the loan was due to us both being schoolteachers and having a contract for employment already for the following year,” she said. Wells Fargo said it hadn’t increased its credit score requirements, but it has raised down-payment minimums on certain loans not backed by the government because it had to suspend most interior appraisals of homes during the pandemic. Even under normal circumstances, there are a variety of situations in which borrowers may be asked to raise their down payment or obtain a better rate by doing so, a company spokesman said. Some lenders also want to know more about borrowers’ other possible sources of cash. When Chris Eberle, a technology executive, and his wife were locking in their jumbo mortgage for a new home in Palo Alto, Calif., their lender, a California mortgage bank, wanted to know not only how much they had in their retirement accounts but how easy it was to get at that money. "They wanted, account by account, details on the withdrawal and loan options,” Mr. Eberle said. And they, too, had to put down more than they had planned. Before the crisis, a jumbo loan could be had with 10 percent down. Mr. Eberle said they had to put down 20 percent — and found a cheaper house to make it easier. Other borrowers, including the self-employed, are being asked to provide more detailed proof of their earnings — at least when they’re getting a loan that will be backed by Fannie Mae or Freddie Mac. . “Employment and income verification for self-employed borrowers is now multiple times more detailed as it previously was,” said Ted Rood, a loan officer in St. Louis who lends nationally. Income verification is also more rigorous across the board, and Mr. Rood said he was required to do two verifications over the phone. It makes sense, he said: He had just prepared a loan for a married couple — a gym owner whose income had suffered and his wife, a speech therapist with a seemingly more stable position because she was able to work with clients remotely. “We were set to close on a Monday in early June,” said Mr. Rood, who was working at Bayshore Mortgage Funding, which is based in Timonium, Md., at the time. But when the loan processor called the wife’s employer the Friday before, the processor learned that the woman had been laid off. The lender withdrew the loan. Democratic lawmakers are demanding answers as Wells Fargo becomes embroiled in yet another scandal – this time, over putting mortgage customers in mortgage forbearance programs without their consent.
In recent weeks, there have been multiple reports that the scandal-plagued bank has placed borrowers who were not delinquent in mortgage forbearance programs without their knowledge or consent. Some borrowers said they only learned of Wells Fargo’s actions from their lawyers, rather than the bank itself. There have also been reports that the bank has made misrepresentations to bankruptcy courts about borrower’s requests for forbearance. In a letter to Wells Fargo CEO Charles Scharf, Sen. Elizabeth Warren (D-Mass.) and Sen. Brian Schatz (D-Hawaii) accused the bank of “putting consumers at risk of greater financial hardship amidst one of the worst economic downturns in our country’s history.” Warren and Schatz called the latest scandal “highly disturbing” given the bank’s recent history of illegal behavior and mistreatment of customers, “including over a dozen scandals involving the creation of millions of fake customer accounts, illegal repossession of service members’ cars, wrongful foreclosure on hundreds of homes, illegal add-on charges to customers’ accounts, and much, much more.” “This scandal-ridden history reveals a broken culture at Wells Fargo, and a bank that appears to be incapable of self-governance,” the senators wrote. “The new reports raise even more questions about the inability of Wells Fargo and its leadership team to comply with the law and the needs of its customers.” Warren and Schatz cited multiple cases in which Wells Fargo wrongly claimed that borrowers asked to put their mortgage payments on hold in forbearance plans. “These forbearance filings were based on nonexistent requests from customers,” the senators wrote. Wells Fargo has claimed that “may have misinterpreted customer intentions” in some cases. Borrowers in at least 14states who were not delinquent on their loans had their mortgages put into forbearance without their knowledge or consent, Warren and Schatz said. “These consumers were hurt in several ways by this practice: they did not receive credit for several months of payments, their credit reports may have been damaged, and they may have lost the opportunity to modify or refinance their mortgages while interest rates were at record lows,” the senators wrote. Warren and Schatz said they supported servicers taking action to help distressed borrowers, and it was not their intent to discourage the bank from helping customers if the current scandal turns out to be limited to errors in a few isolated incidents. “However, Wells Fargo’s history of taking actions without the consent of consumers is cause for serious concern that this is another systemic failure at the bank,” they wrote. “Indeed, if these reports are true, they represent one more addition to a long list of inexcusable actions by Wells Fargo at customers’ expense. The practices described in these reports are eerily similar to previous Wells Fargo scandals.” The senators demanded a response from Scharf explaining the steps Wells Fargo took to place customers in forbearance plans, and how the bank notified those customers. They also asked how many loans the bank had placed in forbearance, and if Wells Fargo had “been compensated for forbearance filings not requested by the borrower.” They also took Scharf to task for failing to clean up the bank’s scandal-ridden culture. “You were appointed nearly ten months ago after your two predecessors were dismissed for their incompetence and inability to institute meaningful reforms at the bank,” Warren and Schatz wrote. “We had hoped you would bring the needed change to Wells Fargo’s culture following years of false promises and continued scandals, and we were initially encouraged by press reports that indicate that you were undergoing an ‘intense review’ of the banks operations and meeting with executives, ‘grilling them about the ways they do business.’ But this recent reporting highlights the broken culture at the bank, and the need for Wells Fargo to remain under intense regulatory scrutiny until it is clear that the necessary changes have been made to ensure that the bank is truly committed to its consumers.” |
|