Experts believe blockchain will create "massive efficiencies" in the real estate market.
Whether it’s automating the underwriting process or setting up a transparent appraisal system, the mortgage industry has to be praised for staying on top of technology trends to modernize home financing. That’s according to a panel of four leading mortgage tech experts who recently sat down with MPA to discuss the latest trends pushing the mortgage industry forward in terms of automation and transparency. In the latest MPA TV episode, Paval Agarwal (CEO of SunWest Mortgage Company), A.J. Poulin (chief revenue officer of The Mortgage Office), Cristy Conolly (EVP of valuation modernization at Class Valuation), and Josh Lehr (senior director of partnerships and industry technology at Total Expert) touched on one specific technology that’s showing massive potential: blockchain. When asked how they think blockchain can add value to the mortgage world and how big a role it can play, Poulin said: “I’d say that’s a down-the-road thing, but the massive potential with blockchain is tied into artificial intelligence, tied into machine learning, just tied into big data. All that stuff is very exciting, very promising early on that road. I’m not a fan of cryptocurrency, and I wasn’t six months ago either. And nobody, none of our customers, clients are saying, ‘I’d love to pay my mortgage with crypto’. Like, we haven’t heard that yet. Maybe it will. But on the blockchain front, for sure, massive, massive potential.” Agarwal, who’s also not a crypto fan, believes blockchain might be one of the world’s most significant developments. “I’ve never bought any crypto money, stayed away from that,” Agarwal said. “But I believe blockchain today is where the internet was in the early 90s and the revolution that blockchain will have to over-the-counter transactions will be as transformative as the internet had on e-commerce. Our own blockchain initiative, our own blockchain technology, simplifies the connection between buyers and sellers. The ultimate over-the-counter system is real estate, where individual buyers and sellers are connected to each other without any central authority. That is the ideal application of blockchain, and it will create massive efficiencies in the market.” Lehr is also enthusiastic about applying blockchain tech in the title process. “I’ll match the opinions on cryptocurrency a little bit. I’m not big on crypto, but it is something that I dabbled, and you have to try it out a little bit and see what it’s all about,” Lehr added. “We talk about blockchain in mortgage technology. I think the obvious answer people go to is how this can help the title process and ensure that we have that immutable record on that property and when it changes hands.” As for how this technology can bring value to the appraisal sector, Conolly said: “It’s definitely not my expertise, but I do think that the 3D scans that I talked about being collected in a repeatable, consistent fashion that is standardized down the road, could lend to being available in a blockchain capacity.”
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Experts coincide on data, although home prices still robust amid reduced profit margins for brokers and lenders.
The US housing market is heading for a recession, various sources have confirmed. The latest figures from the Mortgage Bankers Association (MBA) show that mortgage applications fell 18% year on year - the lowest level in 22 years – while refinance volume plunged 82% compared to 2021. Meanwhile, the National Association of Realtors (NAR) this week reported that existing home sales fell by 5.9% in July and by more than 20% compared to last year. Except for the dip experienced at the start of the COVID pandemic, this was the slowest sales pace in more than six years. The NAR added that the inventory of unsold existing homes rose to 1.31 million last month - the equivalent of 3.3 months at the current monthly sales pace. The data prompted NAR’s chief economist Lawrence Yun to remark: “We’re witnessing a housing recession in terms of declining home sales and home building.” Only home prices have continued to rise nationally, he added, with nearly 40% of homes still commanding the full list price. But according to home price data from John Burns Real Estate Consulting, 83% of home builders have reduced their prices in the last three months. It added that most of the 17% that had not reduced them were located in the Eastern US. The drop in homebuilder sentiment is another issue affecting the housing market. Data from the National Association of Home Builders (NAHB) shows the buyer traffic number has fallen to the lowest level since 2014. This follows eight consecutive months of declines for single family homebuilder confidence. Robert Dietz, NAHB’s chief economist, said he expected single-family housing starts this year to post their first decline in more than a decade, a consequence of higher mortgage rates, and ongoing higher construction costs. He also agreed that the housing market was in recession. Homebuilder stocks are also down, with builders Lennar, Toll Brothers, KB Home and D.R. Horton (the largest builder in the US by volume) all reporting negative numbers. Odeta Kushi, First American’s deputy chief economist, said home sales were “likely to further fall”, while her colleague, chief economist Mark Fleming, said prices were still going strong, but “less so than three months ago”. Robert Shiller, economics professor at Yale University, added his weight to the debate by saying this week that the housing market “is headed for trouble”. He said that “things look almost as bad as the 2007/09 recession” but was quick to add that it “would not be as catastrophic”. Significantly, although home prices have maintained their overall upward pace, Shiller noted that prices might also be heading for a decline and that negative equity was a possibility. “That’s when people have an incentive to default,” he told CNBC. The latest figures from real estate data curator, ATTOM, also show that foreclosure activity is on the rise. A total of 270,470 residential properties were in the process of foreclosure in Q3, up 4.4% from the second quarter of 2022, and up 25.5% from the third quarter of 2021. From the point of view of brokers and lenders, they are also facing additional costs and reduced profit margins. According to the latest data from the MBA, independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $82 on each loan they originated in Q2, down from a reported gain of $223 per loan during the previous quarter this year. It found that average production volume was down $103 million in the second quarter compared to Q1, and that total production revenue (fee income, net secondary marketing income and warehouse spread) dropped by 335bps in the second quarter. On a per-loan basis, production revenues decreased slightly to $10,855 per loan during the same period, down from $10,861 per loan in the first quarter. Marina Walsh, MBA’s VP of industry analysis, said the average pre-tax net production income per loan had reached its lowest level since the fourth quarter of 2018. “Combining both production and servicing operations, only 57% of the companies in our report were profitable. Pulling out a profit in these difficult conditions is no easy feat,” she said. Mortgage Professional America reached out to brokers to gauge the mood in the sector. Dean Rathbun, senior vice president at California-based United American Mortgage, said: “We have definitely seen a slowdown, not only in actual closings but in general inquires and activity. While that has been the case from the beginning of July to last week, we have seen an uptick in calls this week which is good news. I am not sure if that is due to rates lowering a bit, or people coming back from vacations and focusing on housing.” He said the market had been “eerily quiet in July”, adding that while employees were still busy, the company “can certainly handle much more”. Whitney Bulbrook, president of Carolina Ventures Mortgage, based in Chapel Hill, North Carolina, about 30 miles from Raleigh, which is considered one of the country’s top locations for homebuyers, according to recent surveys, said she had noticed a slowdown in mid-June, coinciding with rates reaching almost 6%. “With the significant uptick in rates, we are in a purchase market predominantly. Compared to 2020 and 2021, we are closing fewer refinance transactions.” However, she added: “Now with rates in the fours, we’re seeing an uptick in mortgage applications. I reviewed my August 2021 purchase closings for comparison and it’s identical to this August in terms of units. “North Carolina continues to see a tremendous amount of growth. I am not seeing a slowdown in home prices or homebuyer interest. We are still in multiple offer situations for most clients.” Automation less urgent with collapse of refinance market.
Experts have long pitched customer-focused automation to help boost efficiency and save money. That scenario doesn’t necessarily work today, however, after the collapse of mortgage refinancing, rising interest rates and an industry downturn, according to New American Funding CEO Rick Arvielo. He argued the market turn drove many veteran homebuyers out of the market – the customers clamoring for automation. Millennials buyers remain, and they need much more in-person home buying attention than expected. “The millennials, which make up the bulk of first-time homebuyers – they need more help in making the homebuyer decision,” Arvielo said. “Statistically, they’re just as likely to engage a professional real estate agent and a professional loan agent to consummate their purchase target than they ever were.” With that in mind, he said, automation makes more sense for customers who don’t need a lot of assistance. Arvielo and his wife, company president Patty Arvielo, launched New American Funding about 20 years ago. The independent residential mortgage lender employs around 4,100 people. New American Funding maintains 154 branches and 10 call centers, and is licensed to do business in 49 states. The company recently scored top in customer satisfaction for mortgage servicing for the first time in J.D. Power’s 2022 US Mortgage Servicer Satisfaction Study. The mortgage downturn is forcing drastic cutbacks and outright closures in some cases, but Arvielo said that New American Funding has been resilient compared to many other rivals. While some have had staff reductions north of 50%, New American Funding has reduced its numbers by about 14%, Arvielo said, and the California-based company continues to selectively hire. “We’re pretty proud of that,” Arvielo said. “As you look at the larger players out there, we’ll probably be [faring] better than most in terms of how we’ve had to right-size in this current cycle.” The goal, he said, has been to minimize the pain for affected employees. “When you’re right-sizing to downsize, it can be a little painful,” he said. “You have to part ways with people you love …. You just have to be responsible stewards of the business.” Tech early on New American Funding has built its own technology and marketing early on, with a goal of serving the customer. “Our goal is to keep customers for life,” Arvielo said. “In order to do that you need to continually improve your deliverables and your efficiency, and that’s all to tech and marketing.” Put another way, New American Funding focuses on staying relevant and Arvielo said that keeping (preferably proprietary) technology current is one way to make that happen. “We want to stay relevant and that requires that you invest in your technologies,” Arvielo said. “We’ve been developing our own tech for the 20 years that we’ve been in business.” New American Funding’s technology focus involves three areas. The company maintains a proprietary CRM system that handles origination, accounting and deal flow from various vendors the company acquires leads from. It also relies on what Arvielo describes as “real estate partner technology,” as well as mobile apps for loan officers so they can be effective on the go. In addition, New America developed a consumer app that lets a customer come in and fill out an “intelligent application” that grows as he or she answer questions, similar to processes at Rocket Mortgage and elsewhere. New American Funding is now working on improving and updating each leg of technology, so they work more synergistically together. “We feel like real estate isn’t disrupting, it’s evolving, and you and the consumer just demand a different experience,” Arvielo said. “That will only grow in the future. We all have to bring to bear our various tech, to be a little more cohesive with them so we can create an ecosystem from solicitation to origination and procurement of the loan and then servicing the loan at the end.” Plans call for updating or replacing older technology, with a focus on making systems more modular and dependent on APIs. Ongoing enhancements also will bring newer technology to the table. “We’re like everybody else starting to dabble in AI and those types of tools to really provide clarity to us at the corporate level,” Arvielo explained. “If you want to know who loan officers are doing business with [and] where should we focus our time … we’re trying to implement some technologies in the call center that will covertly monitor interactions and look for buzzwords that might indicate that the borrower is frustrated or not otherwise happy so we can bring in resources to hopefully accommodate whatever those concerns are.” Useful automation Arvielo said automation of referral activity and the marketing of servicing to customers can be a very useful thing. The goal, he added, would be to address questions that customers may not even have asked yet to better suit their future needs. Satisfied customers in that context will talk about their experience, he said, and “that’s going to lead to more business.” Automation isn’t the priority that it once was, however. When refinancing's were at their peak, automation helped banks and mortgage lenders handle more loans. In that context, he said, it was useful because the bulk of customers had already been through the loan process and didn’t need much attention. “Efficiency allows you to get more loans done quicker and if you’re efficient, you can offer a lower rate because you’re costly,” Arvielo said. Today, with the collapse of the refinance market, customers that remain – mostly first-time buyers and millennials – need much more attention from live people. In that dynamic, New American Funding is piecing together marketing information that is timely and makes sense to them, he said. Arvielo said automation grabs headlines but hasn’t always been affective. Better.com is one example he cited, noting the company had to lay off substantial amounts of people when the market turned, even with the automation and efficiencies the company has baked in. Now, he said, the mortgage industry is a buyer’s market, and buyers right now want human interaction. “We’re finding in a lot of cases, we’ll start a consumer in the call center and they’ll go ‘I’d really like to talk to somebody in my local market because I want to sit across the table from them,’” Arvielo said. “Luckily, we’ve got both.” It’s one thing for builder confidence to be low, and quite another for it to be underwater. Yet that’s the way the National Association of Home Builders (NAHB) categorizes current conditions amid rising rates and affordability challenges.
Mortgage Professional America interviewed NAHB’s chief economist, Robert Dietz (pictured), to learn more about the current situation in the housing industry. This week, the NAHB released its monthly assessment labeling confidence among builders as now being underwater after protracted challenges. “We’ve seen eight straight months now of declines for single family homebuilder confidence,” Dietz said. “We do a 100-point scale and this was the first month in the cycle basically since the COVID spring of 2020 where the index dipped below a break-even level of 50. I think the combination of those eight months of declines, and the buyer traffic number falling to its lowest level since 2014 is all an indication we expect single-family housing starts this year to post their first decline in about 11 years – a first annual drop since 2011. Of course, this is all due to at least a decade low in terms of affordability which is a consequence of higher mortgage rates, and ongoing higher construction costs.” While many argue whether the economy is in a recession, the NAHB has labeled the housing market, at least, to be enduring such a cycle. “We labeled it a housing recession, and it is the broad swath of housing market indicators that are showing weakness,” Dietz said. “In addition to expecting single-family starts to post a decline this year, existing homes are going to decline this year. It’s a lot of different factors that have built up. If we zero in on the construction cost side, building material costs have posted 15% to 20% year-over-year gains.” Then there’s those pesky supply-chain issues: “In terms of cost growth, it’s getting longer for materials to arrive and all that has resulted in a smaller amount of housing supply that was available during a market period where demand was super charged due to historically low interest rates that pushed up pricing,” Dietz said. “New home pricing was up almost 40% since the start of COVID and then you combine that with now tighter monetary policy which is yielding higher interest rates and there’s a huge number of buyers who have been priced out of the marketplace.” He said it was cyclical: “The one sort of counterintuitive thing we’re dealing with is that the weakness we’ve seen in the housing market is short term; it’s a cyclical fact connected to the interest rate cycle. The long-term trend, which is a persistent housing deficit which we think is one million homes – that continues. It’s the mismatch with the amount of building that’s taken place over the last decade and current population need.” But make no mistake – this is no Great Recession redux, the economist noted: “If we’re thinking about the long-term trends, we probably underbuilt housing by about one million homes between 2010 and 2020 period,” Dietz said. “The cyclical downturn that we are facing right now is not as severe as what the industry faced in the Great Recession because that was a housing downturn, a financial crisis and an economic recession combined into one. You had very significant price declines, and a lot of loose mortgage underwriting that resulted in foreclosures and also resulted in a lot of bankruptcies and homebuilders going out of business. We don’t expect that this time. This is going to be a weakening of single-family starts in the short run. Some local markets will see some price decline as affordability conditions try to adjust to the new normal in terms of the interest rate pattern.” Given the cyclical nature of such downturns, Dietz offered a glimmer of hope: “The other thing to keep in mind is we’re always looking through in the medium-term and long-term that housing often is the first sector that will weaken as interest rates go up, but it’s also the first sector that will rebound. Ultimately, when the rate of inflation comes down, the Fed can end its tightening cycle, interest rates may fall back a bit, and that will drive demand for housing up – and housing will lead any kind of economic recovery.” Many would-be homebuyers have all but given up on the dream of homeownership given current conditions that have eroded affordability. But this too shall pass, Dietz suggested while urging those unable to buy homes now to keep saving for a down payment once the market improves. “The adjustment process that occurs in markets will result in some people pausing their home buying activities,” Dietz said. “As I’ve said, at some point the Fed will begin to ease some of the interest rate tightening it’s doing right now in order to slow the economy to bring inflation down. Now when does that happen? I think we would be looking at late 2023, early 2024 as the time period where you might see some easing occur because the Fed has accomplished its soft landing or brought on a recession in 2023. “When that happens, interest rates will come down, the buyer pool actively looking to buy a home will go up. And we know in terms of demographic potential that those buyers are there. If you think of the millennials, for example - leading age of 42, a lot of them in their mid- to early 30s, and that’s prime home buying period. The cyclical weakness brought about by increased interest rates will continue through this year, likely into 2023. By the time we get to the second half of next year, we could see the markets back on the road to recovery.” So hang in there, would-be homebuyers. Keep saving up for a down payment, for this too shall pass. This week's drop reverses increases in previous weeks.
Refinance application activity has now shed 80% from its pandemic high due to rising mortgage rates and the negative impact of inflation. For the week ending August 12, 2022, the dollar volume of refinance applications fell 6% from the previous week, Fannie Mae’s Refinance Application-Level Index (RALI) revealed. Year over year, RALI dollar volume was down by 75.4%, and its four-week average dipped by 0.1%. “Refinance application activity decreased last week, reversing recent increases,” said Fannie Mae chief economist Doug Duncan. “As mortgage rates moved higher this year, refinance activity has decreased and is now down by over 80% from its peak level during the refinance boom in the third quarter of 2020.” However, refinance dollar volume was up by 34.4% compared to the refi slowdown in the fourth quarter of 2018. The RALI count registered a 5.1% week-over-week drop and was down 74.3% compared to the same week a year ago. According to Joel Kan, AVP of economic and industry forecasting at the Mortgage Bankers Association, home loan applications remained “held down by rapidly drying up demand, as high mortgage rates, challenging affordability, and a gloomier outlook of the economy kept buyers on the sidelines.” “However, if home price growth slows more significantly and mortgage rates move lower, we might see some purchase activity return later in the year,” Kan said. Residential housing construction declines to new low.
Housing starts posted a sharp drop in July, with builders reporting weakening demand as housing affordability continues to decline. The Census Bureau reported Tuesday that privately-owned housing starts in July tumbled to a seasonally adjusted annual rate of 1.45 million units – down 9.6% from June (1.70 million) but 1.1% above the July 2021 rate (1.57 million). “The combination of high-interest rates and high pricing has limited the affordability of many homebuyers because homes that would have been within their price range only months ago may now be out of reach,” said Kelly Mangold, principal at RCLCO Real Estate Consulting. “Despite these challenges, the housing market continues to be undersupplied, which should alleviate concerns of any type of market crash – and there is starting to be evidence that pricing may be adjusting somewhat in light of market conditions.” Within the 1.45 million starts figure, single-family starts plunged to the lowest reading since June 2020, down 10.1% to a 916,000 annualized rate and down 2.1% on a year-to-date basis. The multifamily sector, which includes apartment buildings and condos, decreased 8.6% to an annualized 530,000 pace. Jerry Konter, chairman of the National Association of Home Builders (NAHB), noted that the decline in single-family starts was due to the housing slowdown against the backdrop of elevated mortgage rates, supply chain disruptions, and high construction costs. “A housing recession is underway with builder sentiment falling for eight consecutive months while the pace of single-family home building has declined for the last five months,” said NAHB chief economist Robert Dietz. “However, multifamily construction remains very strong given the solid demand for rental housing. The number of multifamily 5+ units currently under construction is up 24.8% year-over-year.” Multifamily permits rose 2.8% month over month to a seasonally adjusted pace of 746,000, while single-family permits dropped 4.3% to 928,000 in July. Overall, permits were down 1.3% to 1.67. Holden Lewis, home and mortgage expert at NerdWallet, added: “Home builders are responding to the affordability crisis by constructing more apartments and condominiums and fewer houses. In July, there was a 26.2% surge year-over-year in the number of permits for residential buildings with five or more units, while permits for single-family houses fell 11.7% over the same period. “A similar dynamic was evident when looking at the number of dwellings for which builders began construction: a 17.4% increase in buildings with five or more units and an 18.5% drop in starts for single-family houses. The good news may see price and rent pressures ease when these buildings are completed. The less-good news is that this will take a year or more.” “Looking ahead, housing starts are likely to continue to be impacted by interest rates, though there is still the growing demand by households who would like to buy – and who may be adjusting to the new market conditions – because, in reality, interest rates are still low when compared to longer-term historical levels,” Mangold said. MBA and Optimal Blue provide more details.
Mortgage application activity has slowed more than expected to its lowest level in 22 years, as both refinance and purchase applications contracted, according to the latest data from the Mortgage Bankers Association. MBA’s Market Composite Index, which measures mortgage loan application volume, slipped 2.3% on a seasonally adjusted basis for the week ending August 12. Unadjusted, the index dropped 3% week over week. “Mortgage application activity was lower last week, with overall applications declining over 2% to their lowest level since 2000,” said Joel Kan, AVP of economic and industry forecasting at MBA. “Home purchase applications continued to be held down by rapidly drying up demand, as high mortgage rates, challenging affordability, and a gloomier outlook of the economy kept buyers on the sidelines.” The refinance index fell 5%, and the purchase index inched down by 1% from the previous week. Compared to a year ago, refinance and purchase applications were down by 82% and 18%, respectively. “However, if home price growth slows more significantly and mortgage rates move lower, we might see some purchase activity return later in the year,” Kan added. “The 30-year fixed rate stayed more than two percentage points higher than a year ago at 5.45% but was down over 50 basis points from the June 2020 high of 5.98%, providing some relief for buyers in the market. The refinance index, however, fell 5% to its lowest level since November 2000, driven by a 6% drop in conventional refinance applications.” Of total applications, the refinance share of mortgage activity decreased from 32% to 31.2% week over week. The adjustable-rate mortgage (ARM) share of activity dropped to 7% of total applications. Subsequently, mortgage originators continue to experience strong headwinds. “Although 30-year interest rates actually pulled back slightly in July, the originations market is still reacting to previous increases and continuing affordability challenges,” Optimal Blue president Scott Happ noted. Black Knight, the parent company of Optimal Blue, reported that origination activity declined for the fourth month in a row, down 14.4% in June. The slowdown was driven by a 17% drop in rate/term refinances. "Taming housing costs will ultimately require building more homes," says NAHB head
Despite the slowdown in home price growth, housing affordability issues continue to weigh on median-income earners. Housing affordability in the second quarter fell to its lowest point since the Great Recession, according to the National Association of Home Builders. The NAHB/Wells Fargo Housing Opportunity Index (HOI) showed that less than half (42.8%) of new and existing homes sold during the quarter were affordable to families earning the US median income of $90,000. This is a sharp drop from the 56.9% of homes sold in the first quarter that were affordable to median-income earners. “Rising housing costs stemming from increased interest rates, supply chain disruptions that have led to higher prices for building materials, and a persistent lack of construction workers are dramatically affecting home prices,” said NAHB chairman Jerry Konter. “Taming housing costs will ultimately require building more homes, and it will be easier to increase production in more affordable smaller and mid-sized markets that are growing in population and attracting new businesses.” The national median home price rocketed to an all-time high of $390,000 in Q2, surpassing the previous record-high of $365,000 set in Q1. Meanwhile, average mortgage rates increased by 1.47 basis points in the second quarter to 5.33%. However, recent data from Black Knight revealed that annual home price appreciation plummeted nearly two percentage points in June, marking the biggest single-month slowdown since at least the early 1970s. “For context, during the 2006 downturn, the strongest single-month slowing was 1.19% – about what we saw last month – and June topped that by 66%,” said Ben Graboske, president of Black Knight Data & Analytics. “Overall, the national price deceleration inevitably followed the softening sales, providing well-positioned prospective buyers a small measure of welcomed relief,” said NAR chief economist Lawrence Yun. “The recent dips in mortgage rates will bring additional buyers to the market, especially in those places where home prices are still relatively affordable and where jobs are being added.” NAHB chief economist Robert Dietz noted that declining affordability has also pushed builder sentiment down for seven consecutive months. “NAHB is projecting a net decline for single-family construction in 2022 as the housing markets slow due to ongoing affordability issues stemming largely from supply-side challenges,” he said. “Policymakers need to focus on mending broken building material supply chains and reducing ineffective zoning and other regulatory policies to help bend the cost curve and enable builders to boost attainable housing production.” "There's not the same sense of urgency"
Once-heated homebuyer competition continues to cool nationwide as higher mortgage rates and inflation price more Americans out of the housing market. “The market is wildly different than it was a few months ago. Buyers are competing with one to two other offers instead of four to eight. Some aren’t facing competition at all,” said Alexis Malin, a Redfin real estate agent in Jacksonville, Fla. According to Redfin, 44.3% of home offers faced competition in July, down from 50.9% in June and 63.8% a year ago. The sharp drop marks the sixth-consecutive monthly decline and the lowest share on record, except April 2020, when the onset of the coronavirus brought the housing market to a near standstill. The typical home in a bidding war received 3.5 offers last month, down from 4.1 the previous month and 5.3 in July 2021. “There’s not the same sense of urgency,” Malin said. “House hunters are scheduling tours four days in advance instead of one, and they’re becoming much more selective. If a home doesn’t check all of their boxes, they’re waiting until they find one that does. Six months ago, buyers were taking any house they could get.” Properties are staying on the market longer as the supply of homes for sale increases, creating more options for buyers. As a result, some sellers are lowering their asking prices, with nearly 8% of listings experiencing a price cut each week – the highest percentage on Redfin’s record. “Buyers have also started writing offers for less than sellers’ list prices—a reversal from the height of the pandemic, when homes were going for tens of thousands of dollars over asking,” Malin said. “I haven’t written an over-asking offer in a month.” “Sellers should make sure their home is move-in ready and not overpriced,” WA Redfin agent Brynn Rea said. “They should do everything possible to make their property pristine for the masses—invest in updates and make it feel fresh. Doing little things like replacing faulty faucets or painting walls will help sell a home more quickly.” Inflation, home price growth deceleration drive uptick in mortgage default risk
The lifetime default risk of government-backed mortgages increased in the first quarter of 2022 as the housing market continued to face heightened volatility fuelled by rising interest rates. Results of the Milliman Mortgage Default Index (MMDI) revealed that the default risk for loans acquired by government-sponsored enterprises Freddie Mac and Fannie Mae rose to 2.39% in Q1 2022 from 1.90% in Q4 2021. According to Milliman, this means that 2.39% of the loans originated in Q1 are expected to become delinquent (180 days or more) over their lifetimes. Nationwide, mortgage delinquency rates in June inched up by nine basis points to 2.84% and foreclosure starts climbed by 27% to a total of 23,800, Black Knight reported. “Rising interest rates typically translate to fewer refinance loans or higher-risk refinance loans, leading to increased overall borrower risk for the GSEs,” said Jonathan Glowacki, a principal at Milliman and author of the MMDI. “Combined with inflation, we’re anticipating a slowdown in home price growth, which is what’s driving the uptick in mortgage default risk.” Originations of GSE-backed loans continued to drop from the fourth quarter of 2021 to the first quarter of 2022. Of these mortgages, refinance loans made up more than half of originations (roughly 57%), which is generally consistent with the prior quarter. |
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