Luke Tomaszewski, an appraiser doing home inspections in the aftermath of the housing bust, was traveling as much as an hour across Chicago just to snap exterior photos of bank-owned properties.
Sitting in traffic, Tomaszewski wished he could pay an Uber driver to take the photos instead.
“When we started, the idea was to obtain exterior photos as fast as possible, at a time when Uber, Lyft and marketing technology was advancing, and anyone with a smartphone could get exterior photos,” said Tomaszewski, who worked to turn his idea into ProxyPics.
The company, which employs about 17 people, was founded in 2015, and is one of those approved to provide the Freddie Mac data report for its new remote inspection program.
At $50 to $100 per inspection, according to ProxyPics, it’s certainly less expensive than sending an appraiser. It’s also simplified and scaled back. For example, in a call-out to prospective data collectors posted on its website, ProxyPics adopts gig-worker language.
“ProxyPics will notify you when photo assignments are available near your current location,” according to the website. “Work whenever it’s convenient for you, wherever you are.”
It’s a model in stark contrast to that of inspections for traditional appraisals. It may also be viewed as revolutionary for an industry in which the most significant change to the appraisal process in the past few decades was the advent of appraisal management companies as an intermediary between lenders and appraisers.
Others may view ProxyPics as the kind of disruptor responsible for creating the same gig economy it now occupies: Uber, Lyft, DoorDash, GrubHub, InstaCart. After all, it wasn’t so long ago appraisers received assignments via fax machine.
Companies such as ProxyPics stand to benefit from a major Freddie Mac policy change, which goes into effect this month. Starting in July, the government-sponsored enterprise will allow remote inspections on some refinance loans it buys.
But while desktop appraisals may save a few gas miles, and certainly will provide opportunities for a coterie of private sector companies, it’s not yet clear whether they are superior to traditional appraisals, and if they ultimately will reduce racial bias, a key GSE policy goal.
A Freddie Mac representative declined to comment for this story.
Made to order
Beginning July 17, Freddie Mac will accept some mortgages with hybrid appraisals — but the list of caveats is lengthy.
First, the option only applies to refinances. For cash-out refinances, the loan-to-value amount may not exceed 70% for a primary residence, or 60% for a second home. For other refinance transactions, the loan can be for as much as 90% of the home’s value.
Mortgages for manufactured homes, investment properties, duplexes and fourplexes are not eligible.
The property data reports Freddie Mac will ingest include some 200 distinct data points. On Freddie Mac’s property data report form, the inspector must provide data for whether there is dampness, settlement and infestation evident in the property; the condition and age of the roof; and whether the property has a washer-dryer hookup, among other required fields.
The form also requires the data collector to certify he or she has “unbiased professional conclusions,” no interest in the property and no interest or bias toward the parties involved in the transaction.
A certification lightens the legal liability of bias. But an attestation, however comprehensively phrased, can’t dissolve deep racial prejudices or make the appraiser workforce more diverse.
Fannie Mae also plans to use hybrid appraisals more often in 2022, as part of its equity plan, which is intended to “reduce costs to the borrower and reduce potential risk of bias by creating greater separation between the appraiser and borrower.”
Fannie Mae representatives said the GSE has evidence alternative appraisal approaches result in fewer instances of confirmation bias. Its appraisal modernization pilot, which used hybrid appraisals, showed an 18% point reduction in confirmation bias compared with traditional appraisals, which rely on human observations and, as such, potentially could be riddled with overt or subconscious bias. Alternative appraisals, however, rely more on objective data and an “arm’s-length” process between the appraiser and the homeowner or buyer, sometimes assisted by technology, a spokesperson for the GSE said.
Both desktop and hybrid appraisals, according to Fannie Mae, “have the benefit of reducing contact between borrowers and appraisers, thus lowering the likelihood of valuations being affected by personal or unconscious biases.”
Another benefit for the GSEs is access to the vast dataset hybrid appraisals may generate. But it’s unclear who else will have access to the data.
Given how reluctant the GSEs have been to share the appraisal data they already have, John Brenan, chief appraiser at appraisal management giant Clear Capital, sees little hope for a public repository of floor plans, for example. The GSEs have so far rebuffed demands from academics, fair housing groups, lawmakers and federal agencies to make appraisal data public.
The GSEs “collect all of this [appraisal] data, but they’ve kept it close to the vest,” Brenan said. “Something has to give. If they say, ‘Sure, we’ll make it available,’ but only 5% of companies can access it, that’s not mission accomplished.”
Think of the savings
Clear Capital’s Brenan describes his vision of a hybrid appraisal as one which can drastically reduce wait times.
“An agent does a floorplan scan when they make a listing. An offer comes in at 5 p.m. that afternoon. The seller accepts it; they go into contract. The borrower says, ‘I need a loan,’ and the bank says, ‘We want to do a desktop appraisal.’ Then they submit an order to us and the appraiser gets it the next day. The appraiser can do it all within 24 to 48 hours.”
Quicker turnaround essentially means less work per appraisal — as Brenan put it, “The amount of work that an appraiser does for a hybrid appraisal has been less.” But the reduced fee may prompt the worker to take on more jobs.
“You can see that appraisers would recognize that and say, ‘I can take a percentage of what I used to, I can do more appraisals, and the way I make money is on volume.’”
How much less, Brenan wouldn’t say. But Fannie Mae, based on 121,000 property data collection submissions in its pilot from April 2021 through March 2022, said lenders were able to shave off, on average, four days compared to traditional appraisals.
The cost savings was about $90 to consumers, although a spokesperson said pricing for appraisals is set by the market and Fannie Mae is not involved. Appraisal costs vary widely, depending on the complexity of the assignment, but could fall anywhere from $250 to upward of $500.
But while Clear Capital expects appraisers to charge less for desktop or hybrid appraisals, Brenan said the company will not reduce the fees it charges on desktop or hybrid appraisals, versus traditional appraisals.
Many appraisers remain skeptical of efforts to reduce costs in the short term through hybrid and desktop appraisals. Pushing too hard to cut costs also may dissuade appraisers from adopting alternative appraisals.
“You can’t go to an appraiser and say, ‘You’ll do 10 times more at half the price with hybrid appraisals,’” said Mike Walser, president of Incenter Appraisal Management. “Most appraisers would look at you like you have three heads.”
Walser thinks asking appraisers to lower their fees also may discourage top appraisers from adopting remote inspections. Long term, he said, the speed of a hybrid appraisal — not just savings on appraisal fees — will be a “huge industry benefit.”
The prospect of reducing appraisal costs at scale is tantalizing. It’s not discernible, however, how much of the initial savings on desktop appraisal assignments is due to modernization, and how much is the result of the current market, in which overall demand for appraisals has dropped dramatically, amid the ever-increasing cost of borrowing money.
“Since the market has softened, many appraisers are doing appraisals for a lot less, which has translated into a [cost] reduction on desktop appraisal assignments,” Brenan said.
The hybrid approach also could reduce reliance on a dwindling workforce of specialists. The appraisal backlog during the height of the refinance boom caused widespread frustration among lenders.
“The average age of an appraiser is 60 years old; there will be a wave of retirements in the next two to five years,” said Walser. “There are a little over 40,000 unique appraisers [handling] all loans in [the GSE] portals — and when that drops to 30,000, it will be really difficult.”
Sharp edges
As the cost of borrowing money rises, mortgage lenders are implementing a raft of cost-reduction measures. The mortgage industry, per the latest jobs report from the U.S. Bureau of Labor Statistics, hemorrhaged 5,000 jobs in May, Inside Mortgage Finance reported. Property data collection firms, however, are enlisting scores of independent contractors to carry out inspections for hybrid and desktop appraisals.
Of ProxyPic’s 65,000-strong panel of property data collectors, 2,000 to 3,000 are inspectors, real estate agents or appraisers — a figure Tomaszewski said he hopes to grow to 7,000 or 8,000. Clear Capital representatives said the company has a pool of 3,000 independent contractors, who are licensed real estate agents and brokers, conducting property data collection for hybrid appraisals.
Freddie Mac requires data collectors to be trained, but that training need not be in person.
During Fannie Mae’s hybrid appraisal pilot, the company required data collectors to be bonded or insured, background checked, vetted and professionally trained by the property data collection vendor, and be a member of an eligible labor force, which includes real estate agents, appraiser trainees and insurance inspectors, a spokesperson said.
Both ProxyPics and Clear Capital provide virtual training for their property data collectors. Clear Capital verifies the license number furnished by property data collectors, so that, for example, data collection candidates can’t submit their driver’s license number and claim it is a mortgage origination license.
ProxyPics has technology to ensure data collectors are actually taking pictures of the subject property. Using a geofence, its mobile app will shut down if the collector tries taking a picture outside the property’s geographic area. It also uses satellite imagery to make sure the floor plan checks out.
But Tomaszewski said there are limits to the company’s capabilities. For example, it’s not feasible to scrutinize every property data collector to ensure he or she does not have a financial interest in a property, or a bias toward one of the parties in a transaction.
Still, property data collectors must attest that they do not stand to benefit from the transaction, Tomaszewski stressed. But he said, ultimately, “If you want to commit fraud, you will.”
Many in the mortgage industry are still getting comfortable with the March introduction of desktop appraisals. Now, as both GSEs move toward another alternative appraisal model, it remains to be seen whether appraisers will embrace it.
“Let’s knock off some of the sharp edges,” Walser said. “Take the next six months with a big grain of salt.”
The post The hybrid appraisal is here. Who benefits? appeared first on HousingWire.
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The hybrid appraisal is here. Who benefits?
Luke Tomaszewski, an appraiser doing home inspections in the aftermath of the housing bust, was traveling as much as an hour across Chicago just to snap exterior photos of bank-owned properties.
Sitting in traffic, Tomaszewski wished he could pay an Uber driver to take the photos instead.
“When we started, the idea was to obtain exterior photos as fast as possible, at a time when Uber, Lyft and marketing technology was advancing, and anyone with a smartphone could get exterior photos,” said Tomaszewski, who worked to turn his idea into ProxyPics.
The company, which employs about 17 people, was founded in 2015, and is one of those approved to provide the Freddie Mac data report for its new remote inspection program.
At $50 to $100 per inspection, according to ProxyPics, it’s certainly less expensive than sending an appraiser. It’s also simplified and scaled back. For example, in a call-out to prospective data collectors posted on its website, ProxyPics adopts gig-worker language.
“ProxyPics will notify you when photo assignments are available near your current location,” according to the website. “Work whenever it’s convenient for you, wherever you are.”
It’s a model in stark contrast to that of inspections for traditional appraisals. It may also be viewed as revolutionary for an industry in which the most significant change to the appraisal process in the past few decades was the advent of appraisal management companies as an intermediary between lenders and appraisers.
Others may view ProxyPics as the kind of disruptor responsible for creating the same gig economy it now occupies: Uber, Lyft, DoorDash, GrubHub, InstaCart. After all, it wasn’t so long ago appraisers received assignments via fax machine.
Companies such as ProxyPics stand to benefit from a major Freddie Mac policy change, which goes into effect this month. Starting in July, the government-sponsored enterprise will allow remote inspections on some refinance loans it buys.
But while desktop appraisals may save a few gas miles, and certainly will provide opportunities for a coterie of private sector companies, it’s not yet clear whether they are superior to traditional appraisals, and if they ultimately will reduce racial bias, a key GSE policy goal.
A Freddie Mac representative declined to comment for this story.
Made to order
Beginning July 17, Freddie Mac will accept some mortgages with hybrid appraisals — but the list of caveats is lengthy.
First, the option only applies to refinances. For cash-out refinances, the loan-to-value amount may not exceed 70% for a primary residence, or 60% for a second home. For other refinance transactions, the loan can be for as much as 90% of the home’s value.
Mortgages for manufactured homes, investment properties, duplexes and fourplexes are not eligible.
The property data reports Freddie Mac will ingest include some 200 distinct data points. On Freddie Mac’s property data report form, the inspector must provide data for whether there is dampness, settlement and infestation evident in the property; the condition and age of the roof; and whether the property has a washer-dryer hookup, among other required fields.
The form also requires the data collector to certify he or she has “unbiased professional conclusions,” no interest in the property and no interest or bias toward the parties involved in the transaction.
A certification lightens the legal liability of bias. But an attestation, however comprehensively phrased, can’t dissolve deep racial prejudices or make the appraiser workforce more diverse.
Fannie Mae also plans to use hybrid appraisals more often in 2022, as part of its equity plan, which is intended to “reduce costs to the borrower and reduce potential risk of bias by creating greater separation between the appraiser and borrower.”
Fannie Mae representatives said the GSE has evidence alternative appraisal approaches result in fewer instances of confirmation bias. Its appraisal modernization pilot, which used hybrid appraisals, showed an 18% point reduction in confirmation bias compared with traditional appraisals, which rely on human observations and, as such, potentially could be riddled with overt or subconscious bias. Alternative appraisals, however, rely more on objective data and an “arm’s-length” process between the appraiser and the homeowner or buyer, sometimes assisted by technology, a spokesperson for the GSE said.
Both desktop and hybrid appraisals, according to Fannie Mae, “have the benefit of reducing contact between borrowers and appraisers, thus lowering the likelihood of valuations being affected by personal or unconscious biases.”
Another benefit for the GSEs is access to the vast dataset hybrid appraisals may generate. But it’s unclear who else will have access to the data.
Given how reluctant the GSEs have been to share the appraisal data they already have, John Brenan, chief appraiser at appraisal management giant Clear Capital, sees little hope for a public repository of floor plans, for example. The GSEs have so far rebuffed demands from academics, fair housing groups, lawmakers and federal agencies to make appraisal data public.
The GSEs “collect all of this [appraisal] data, but they’ve kept it close to the vest,” Brenan said. “Something has to give. If they say, ‘Sure, we’ll make it available,’ but only 5% of companies can access it, that’s not mission accomplished.”
Think of the savings
Clear Capital’s Brenan describes his vision of a hybrid appraisal as one which can drastically reduce wait times.
“An agent does a floorplan scan when they make a listing. An offer comes in at 5 p.m. that afternoon. The seller accepts it; they go into contract. The borrower says, ‘I need a loan,’ and the bank says, ‘We want to do a desktop appraisal.’ Then they submit an order to us and the appraiser gets it the next day. The appraiser can do it all within 24 to 48 hours.”
Quicker turnaround essentially means less work per appraisal — as Brenan put it, “The amount of work that an appraiser does for a hybrid appraisal has been less.” But the reduced fee may prompt the worker to take on more jobs.
“You can see that appraisers would recognize that and say, ‘I can take a percentage of what I used to, I can do more appraisals, and the way I make money is on volume.’”
How much less, Brenan wouldn’t say. But Fannie Mae, based on 121,000 property data collection submissions in its pilot from April 2021 through March 2022, said lenders were able to shave off, on average, four days compared to traditional appraisals.
The cost savings was about $90 to consumers, although a spokesperson said pricing for appraisals is set by the market and Fannie Mae is not involved. Appraisal costs vary widely, depending on the complexity of the assignment, but could fall anywhere from $250 to upward of $500.
But while Clear Capital expects appraisers to charge less for desktop or hybrid appraisals, Brenan said the company will not reduce the fees it charges on desktop or hybrid appraisals, versus traditional appraisals.
Many appraisers remain skeptical of efforts to reduce costs in the short term through hybrid and desktop appraisals. Pushing too hard to cut costs also may dissuade appraisers from adopting alternative appraisals.
“You can’t go to an appraiser and say, ‘You’ll do 10 times more at half the price with hybrid appraisals,’” said Mike Walser, president of Incenter Appraisal Management. “Most appraisers would look at you like you have three heads.”
Walser thinks asking appraisers to lower their fees also may discourage top appraisers from adopting remote inspections. Long term, he said, the speed of a hybrid appraisal — not just savings on appraisal fees — will be a “huge industry benefit.”
The prospect of reducing appraisal costs at scale is tantalizing. It’s not discernible, however, how much of the initial savings on desktop appraisal assignments is due to modernization, and how much is the result of the current market, in which overall demand for appraisals has dropped dramatically, amid the ever-increasing cost of borrowing money.
“Since the market has softened, many appraisers are doing appraisals for a lot less, which has translated into a [cost] reduction on desktop appraisal assignments,” Brenan said.
The hybrid approach also could reduce reliance on a dwindling workforce of specialists. The appraisal backlog during the height of the refinance boom caused widespread frustration among lenders.
“The average age of an appraiser is 60 years old; there will be a wave of retirements in the next two to five years,” said Walser. “There are a little over 40,000 unique appraisers [handling] all loans in [the GSE] portals — and when that drops to 30,000, it will be really difficult.”
Sharp edges
As the cost of borrowing money rises, mortgage lenders are implementing a raft of cost-reduction measures. The mortgage industry, per the latest jobs report from the U.S. Bureau of Labor Statistics, hemorrhaged 5,000 jobs in May, Inside Mortgage Finance reported. Property data collection firms, however, are enlisting scores of independent contractors to carry out inspections for hybrid and desktop appraisals.
Of ProxyPic’s 65,000-strong panel of property data collectors, 2,000 to 3,000 are inspectors, real estate agents or appraisers — a figure Tomaszewski said he hopes to grow to 7,000 or 8,000. Clear Capital representatives said the company has a pool of 3,000 independent contractors, who are licensed real estate agents and brokers, conducting property data collection for hybrid appraisals.
Freddie Mac requires data collectors to be trained, but that training need not be in person.
During Fannie Mae’s hybrid appraisal pilot, the company required data collectors to be bonded or insured, background checked, vetted and professionally trained by the property data collection vendor, and be a member of an eligible labor force, which includes real estate agents, appraiser trainees and insurance inspectors, a spokesperson said.
Both ProxyPics and Clear Capital provide virtual training for their property data collectors. Clear Capital verifies the license number furnished by property data collectors, so that, for example, data collection candidates can’t submit their driver’s license number and claim it is a mortgage origination license.
ProxyPics has technology to ensure data collectors are actually taking pictures of the subject property. Using a geofence, its mobile app will shut down if the collector tries taking a picture outside the property’s geographic area. It also uses satellite imagery to make sure the floor plan checks out.
But Tomaszewski said there are limits to the company’s capabilities. For example, it’s not feasible to scrutinize every property data collector to ensure he or she does not have a financial interest in a property, or a bias toward one of the parties in a transaction.
Still, property data collectors must attest that they do not stand to benefit from the transaction, Tomaszewski stressed. But he said, ultimately, “If you want to commit fraud, you will.”
Many in the mortgage industry are still getting comfortable with the March introduction of desktop appraisals. Now, as both GSEs move toward another alternative appraisal model, it remains to be seen whether appraisers will embrace it.
“Let’s knock off some of the sharp edges,” Walser said. “Take the next six months with a big grain of salt.”
The post The hybrid appraisal is here. Who benefits? appeared first on HousingWire.
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As the mortgage market went haywire, rate locks fell by 11%
Just how bad was the mortgage market in June, when rates climbed north of 6%? Rate locks fell across all loan types last month, and were down 11% overall from May, according to Black Knight.
The company’s monthly mortgage originations report also revealed that 82% of locks in June were purchases, the lowest share of refis since the company began tracking data in 2018.
June’s data represents how interest rate-dependent the originations market has become, said Scott Happ, president of Optimal Blue, a division of Black Knight.
“With 30-year rates hovering below 6% – still historically low – we’ve seen the rate/term refi market dwindle to next to nothing, with increasing downward pressure on cash-out activity,” said Happ. “Eventually, equilibrium will return but as of June, the market seems to be having trouble adjusting to a rate environment anywhere above the historically low levels reached during the pandemic.”
Cash-out refinance volume fell 13% from May, while rate-term refis fell 9% and purchase loans fell 11%. Purchase rate lock volume is down nearly 16% from June 2021. But a closer look reveals even more troubling news on the purchase front.
“However, when we look at purchase lock counts to exclude the impact of soaring home values on volume, we see the number of purchase mortgages is off some 21% from last year’s levels,” Happ said.
Mortgage rates, as measured by Black Knight’s Optimal Blue OBMMI pricing engine, jumped past 6% in mid-June before pulling back to finish the month at 5.79%, a jump of 44 basis points from May.
Government loan products gained market share as the Federal Housing Administration (FHA) and Veterans Affairs (VA) lock activity continued to increase at the expense of agency volumes, a trend likely reflected in another decline in the average loan amount from $351,000 to $359,000.
Average credit scores rose to 723 in June while cash-out refinance scores fell to 693, the lowest since Optimal Blue began tracking the data in 2013.
Black Knight’s monthly market monitor reports provide origination metrics for the U.S. and the top 20 metropolitan statistical areas (MSA) by share of total origination volume.
The New York-Newark-New Jersey MSA had the highest rate lock volume at 4.5% in June. The Washington-Arlington-Alexandria area had the second-highest lock volume rate (3.8%) trailed by the Los Angeles-Long Beach-Anaheim (3.5%) area.
The post As the mortgage market went haywire, rate locks fell by 11% appeared first on HousingWire.
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What To Do When an Appraisal Comes Back Low?
This week’s question comes from Mantas on the Real Estate Rookie Facebook Group. Mantas is asking: My buddy placed an offer substantially above asking price and the seller, before accepting the offer, asked my friend if he would pay the difference if the appraisal came in lower than the offer. Anyone encountered this situation and what would be the best response if any?
Ah, the classic appraisal gap/appraisal contingency. During hot housing markets (like we’ve been experiencing over the past two years), these types of offers have become more and more common. A seller wants to be sure that they can get the sales price they want and the buyer often has to pay the price to cover the appraisal difference. But what are some ways to get around this if your appraisal comes back low?
If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Ashley:
This is Real Estate Rookie Episode 198.
Ashley:
My name is Ashley Kehr, and I’m here with my co-host Tony Robinson.
Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, information, and answers to your questions to help you kickstart your real estate investing journey. And today we’ve got a really cool question coming in from the Real Estate Rookie Facebook group, and if you guys are not in the Real estate Rookie Facebook group, make sure you join. It is honestly one of the most active, the most engaged Facebook groups that I’ve seen for real estate investing.
Tony:
Today’s question comes from Montes Receivus, so Montes, hopefully I said your last name the right way, but Monte’s question is, “So my friend just encountered this situation I’ve never heard of before. My buddy placed an offer substantially above asking price, and the seller, before accepting the offer, asked my friend if he would be willing to pay the difference if the appraisal came in lower than the offer price. Very ballsy question. Has anyone encountered the situation before, and what would be the best response, if any?” So Ash, what are your thoughts on this?
Ashley:
Yeah, so an appraisal, it’s so tricky, and Tony, I’ve heard you mention this before about how it’s more of an art than a science, and I think that’s such a great advice because you can’t say for sure exactly what a property is going to appraise for even if you look at the comps or you look at what income it is bringing in. So this buddy, what they’re saying could happen, it definitely could happen where there could be a difference in the appraisal. So a couple things I do are do as much research as you can ahead of time as to try your best to estimate what the actual appraisal is going to be. So one thing I do is pull up the comps. I use Prop Stream. You can go to your county GIS mapping system and look at properties. You can also just go to a MLS listing website like Realtor or Zillow and pull up the comps from there. And then go ahead and look at what are some differences between those comps, too. Maybe one property has a garage, one doesn’t, kind of take those into your measurements there.
Ashley:
Then when you meet the appraiser, bring all the information you have. So if there was a new roof put on, there was upgrades done to the property, bring that with you. Maybe if you own property down the road, or you know somebody who does, and they had an appraisal done, and it works in your favor, bring a copy of that appraisal. So it goes both ways. Some appraisers will take as much information as you can give them and say, “Oh wow, thank you. This is going to make my job so much easier.” Some will be like, “Nope. No thanks. I don’t want to even look at it.” But might as well be prepared if it’s somebody that’s going to take the information that you want. As far as the appraisal coming back lower than you want it to, I don’t personally have any experience, and that’s why I’m going to turn it over to Tony. So my little tips were just to help you get prepared for the appraisal, and now Tony’s going to actually help you with what happens when the appraisal does not come back how you want it.
Tony:
Yeah. And Ashley, all fantastic points. I appreciate you sharing that with the listeners, and Montes, to kind of go back to your initial question as well, it actually isn’t that crazy for a seller to ask that of a buyer. So it is common that if there’s kind of this bidding war situation going on, that the purchase price exceeds what the property will appraise for, and there’s a name for that. It’s called the appraisal gap. And we saw a lot of this happening over the last 12 months as the market went bonkers, and there was multiple offers, multiple bidding, people bidding on the same property. You saw a lot where the properties were getting placed under contract for a price that was potentially significantly higher than what the property would appraise for. So in a market like this, Montes, it is common. It’s not that crazy the seller to ask that from the seller.
Tony:
And a lot of buyers, when they’re submitting offers in a competitive market, they’ll even include in their initial offer what appraisal gap they feel that they’d be willing to, they’d be willing to go up to, but say that you feel that the appraisal just came in low, right? Not necessarily that you went way over what it was valued at. If you feel that it came in low, you can challenge an appraisal. Okay? We have you successfully challenged a few appraisals, and what we were able to point out was some discrepancies in the report that the appraiser put together. So for example, one that we just did, the appraiser had the square footage off by, I think, almost 200 square feet, right? And that makes a difference in what the value of the property is. The comps that the appraiser chose, we found other more similar properties, better comps, and the same mile radius that the appraiser used that he just overlooked for whatever reason.
Tony:
So find holes in the appraiser’s report that you can point to say, “Hey, here’s an inconsistency here. Or here’s an inconsistency here. Or here’s a better appraisal comp here, or here is some information that was incorrect.” And if you can push back, sometimes the appraiser will admit and make those changes, other times I’ve had it to where you can actually get a second appraisal ordered, and then if all else fails, maybe it’s just about finding a different lender, right? If the lender isn’t willing to jump through those hoops to help you fight that appraisal, you can always go out, find a different lender, they’ll be able to reorder another appraiser. They’ll be able to order another appraisal from another appraiser which will help you hopefully get a better opinion of the value of the property. So that’s what we’ve done in the past to help us get around some of these appraisal gaps that we’ve seen. But all else fails, you might, Montes, your friend might just have to come out of pocket to actually cover the difference between the purchase price and the appraisal price.
Ashley:
Yeah. And I think the thing to take away from this episode is to at least try to dispute that appraisal if that does happen, where there is that gap, the difference. Do what you can to try to get a new appraisal or have the appraiser re-look at his configuration and what he computed as the appraised value.
Ashley:
Well, thank you guys so much for joining us for this episode of Real Estate Rookie. You guys can send us a DM on Instagram or leave a message in the Real Estate Rookie Facebook group. And if you guys are enjoying the show, please leave us a five star review on your favorite podcast platform.
Ashley:
I’m Ashley at Wealth from Rentals and he’s Tony at Tony J. Robinson. Thank you guys so much for listening.
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What does another good job report mean for a recession?
What does it mean to get a positive job report with all the talk about a recession, which ramped up starting in January 2022? Let’s look at the U.S. jobs and economic numbers as five of my six recession red flags are up today.
The June data shows that we added another 372,000 jobs as we get closer to the employment numbers before COVID-19. We did have 74,000 negative revisions to the previous reports, however, the internals of this jobs report is the most interesting aspect. Let’s take a look together.
From the Bureau of Labor Statistics: Total nonfarm payroll employment rose by 372,000 in June, and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in professional and business services, leisure and hospitality, and health care.
The unemployment rate for men and women ages 20 and over is 3.3%.
A tighter labor market is a good thing; this means people with less educational backgrounds can get employed as we have many jobs that don’t require a college education. The unemployment rate did tick up for those with less than a high school diploma in this report.
Here is a breakdown of the unemployment rate and educational attainment for those 25 years and older:
—Less than a high school diploma: 5.8%.
—High school graduate and no college: 3.6%
—Some college or associate degree: 3.1%
—Bachelor’s degree and higher: 2.1%
During a job recovery, the data line I love to track is the employment-to-population data for the prime-age workforce, ages 25-54. That’s the proper working-age workforce. The employment-to-population percentage did fall in this report. It’s currently at 79.8% and the pre-COVID-19 level was 80.5%. This is something I am keeping an eye on for the future. As an analyst, the rate of change of a trend is always crucial.
As the COVID-19 recovery got more robust, the internal labor market dynamics have been very positive for a while now, as we had a lot of job openings that needed to be filled. In fact, over a year ago, when we had a jobs report that missed estimates, I stressed early in this recovery that job openings would get to 10 million, which nobody, not even the people who work at the BLS, thought was possible.
Today, job openings are at 11.254 million, and this data line also had a noticeable decline. Remember, the rate of change is usually essential if it becomes a trend.
Total jobs data
Even though I retired my America is Back Recovery model on Dec. 9, 2020, I knew getting all the jobs back that were lost to COVID-19 would take some time. Even though the recovery was the fastest ever, getting all the labor back from a global pandemic and having an aging society wasn’t as fast as some had hoped. However, I was confident we should get it all job back by September of 2022.
—Feb 2020: 152,553,000 jobs
—July 2022: 151,980,000 jobs
That leaves us with just 573,000 jobs left to make up over the next three months, which means we need to average adding 191,000 jobs per month. And the unemployment rate currently stands at 3.6%.
Looking at the jobs data and which sector added jobs in March, construction and manufacturing jobs came in positively, and we only lost jobs in the government.
Job openings in construction and manufacturing have picked up recently. Even though manufacturing job openings did slip in the last job openings data, it is still historically high. However, keep an eye out for the rate of change in labor data.
Recession red flag watch
Where are we in the economic cycle? Five of my six recession red flags are up, so until they are all up, I don’t use the word recession.
Let’s review them in order, as my model is based on an economic progression model, which isn’t the most exciting way to look at economics. However, economics done right should be boring. Here are the recession red flags:
1. The unemployment rate hits 4%. This is a progression red flag, meaning the economic expansion is more mature.
2. The Federal Reserve starts to raise rates. Another progression red flag; expansion is more mature.
3. The inverted yield curve. This is more of a market-driven bond yield red flag. I had been on an inverted yield curve watch since Thanksgiving of 2021. This is when the two-year yield and 10-year yield slap high fives and say hi to each other. It’s another progression red flag, the more mature stage of the economy.
4. Find the overheating economic sector where demand can’t be sustained. Once that demand comes back to normal, people will be laid off. We see this in the durable goods data. A few companies are laying people off or putting into place a hiring freeze.
5. New home sales, housing starts, and permits fall into a recession. Once mortgage rates rise, the new home sales sector does get hit harder than the existing home sales market. The homebuilder confidence index is falling noticeably, and while we never had the housing build-up in credit and sales that we saw in 2005, the builders will slow housing production down with higher rates. I raised my fifth recession red flag in the month of June.
Builders Confidence Index:
The final recession red flag!
6. Leading economic index declines 4-6 months before a recession. Historically, the Leading Economic Index fades into every recession outside a one-time huge economic shock like COVID-19. So far, it’s been declining for two months, slowly. However, you can connect the dots on this in the future months if you know the components of this index.
As the economic cycle matures, we must look at the economy differently. I believe progression economic models are more valuable than screaming the word recession. I am a big believer in the rate-of-change data: even if the data looks solid historically, we need to be mindful of inflection points in each economic cycle. This is why since the summer of 2020 I talked about how the housing market can change once the 10-year yield breaks over 1.94%, meaning 4% plus mortgage rates.
Once all six recession red flags are up, my talking points will be different, but hopefully, this economic model is easy for you to understand: math, facts, and data. Never forget, you always want to be the detective, not the troll.
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Ex-workers sue Sprout Mortgage over unpaid salaries
Just two days after it abruptly shut down its operations, non-QM lender Sprout Mortgage became the target of a class-action-seeking lawsuit.
Two former employees are suing the Long Island-based Sprout, its affiliated company Recovco Mortgage Management LLC and chief executive officer Michael Strauss, alleging they laid off around 100 employees at the New York office on Wednesday without giving legally required written notice and failed to pay their paychecks due the following day.
Plaintiffs Nathaniel Agudelo and Helen Owens – both closing disclosure specialists who worked for Sprout from the fourth quarter of 2020 through July 6, 2022 – filed the lawsuit on their behalf and others in the same situation in the Eastern District of New York U.S. District Court on Friday.
A spokesperson for the company and Strauss did not immediately respond to a request for comment.
HousingWire reported on Wednesday that Shea Pallante, the president of Sprout, informed more than 300 workers across the company of the shutdown in a conference call at 4:30 pm on Wednesday. A deal for financing fell through and Strauss made the decision to pull the plug on Wednesday, sources said.
According to former employees, they were quickly locked out of their systems after news of the layoff. Pallante said employees would receive benefits through the end of the month, but the company did not offer severance payments, and, as of Friday around 1 p.m., Sprout failed to pay their last paychecks.
The class-action-seeking lawsuit seeks to recover alleged unpaid minimum wages and withheld regular salaries owed to employees.
Plaintiffs believe that Strauss instructed other individuals not to issue the paychecks due on Thursday, covering the period from June 16 to June 30. They say they don’t have information about the payment covering July 1 to July 6, due on July 22.
The plaintiffs also want compensation for damages caused by the company’s failure to provide 60 days’ notice under the WARN Act and 90 days’ notice under the NY WARN Act.
Sprout is the second major non-QM lender to shut down operations recently. First Guaranty Mortgage Corp. (FGMC) and its affiliate Maverick II Holdings filed for Chapter 11 bankruptcy protection in late June after suddenly cutting hundreds of jobs.
Three former employees are suing the lender and financial backer, Pacific Investment Management Company (PIMCO), alleging they were discriminated against on the basis of their gender and then retaliated against for complaining.
Former employees of Sprout said loans in the pipeline are still pending, and it’s highly doubtful they will be funded. At least one employee even has their own personal mortgage in the Sprout pipeline and has not received an update on the loan’s status, former workers told HousingWire.
One former capital markets staffer, who requested anonymity, said Sprout had been dealing with liquidity and funding problems for months. Unlike some of its peers, Sprout wasn’t backed by a major asset management firm, and it was particularly vulnerable to a lack of liquidity from investors. It couldn’t handle the widening spreads and began taking losses on loans originated in the beginning of the year, he said.
What happens to the loans on hand is unclear – various former employees said Sprout had been doing north of $350 million in loans a month.
“They’re not going to be able to make much money selling these loans,” said one industry capital markets veteran who did not work at Sprout. “They can hold it and wait for the market to recover. And warehouses are probably making a margin call based on the mark down of those loans.”
James Kleimann contributed reporting.
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HW+ Member Spotlight: Rogers Healy
This week’s HW+ member spotlight features Rogers Healy, Owner and CEO, at Rogers Healy and Associates.
Below, Healy answers questions about the housing industry:
HousingWire: What is your current favorite HW+ article and why?
Rogers Healy: This is my favorite article because it accurately outlines how the housing market is not the only factor in a recession. It seems people believe that the entire economy revolves around the housing market, when there are many other key factors such as job growth. I also loved this article because I am excited to see the job market recover from the pandemic. We are currently hiring at The Rogers Healy Companies for all sorts of leadership positions!
HousingWire: When do you feel success in your job?
Rogers Healy: I give the gift of confidence. I work every day to foster the growth of everyone from new real estate agents to young professionals in all sectors of business. I feel like I have struck gold when somebody discovers their potential and learns how to accurately maximize it. When I inspire others to work hard, it makes me so proud when they realize what is possible for them to achieve.
Maintaining motivation and encouragement is my absolute favorite way to influence and help others. In my opinion, helping people reach independence and milestones is the ultimate form of personal success. Whether it be closing the sale of their first home, representing their first buyer, or presenting a captivating marketing pitch, it is my job to encourage them every step of the way.
It’s my mission to be the best leader I can be, so everyone around me gets to find the best version of themself. Being the best version of yourself leads to discovering your talents. Fostering growth is so important to both me individually and the culture of The Rogers Healy Companies. It’s a true joy leading the next generation of leaders, and watching their futures unfold.
HousingWire: What is the best piece of advice you’ve ever received?
Rogers Healy: Oscar Wilde once said, “Be Yourself – Everyone Else Is Taken.” This quote resonated with me at a very young age when my grandmother gave me this piece of advice. I still think of it all the time, and continuously spread the wisdom by telling it to others.
I learned that if you are not being yourself, you are only hurting yourself. There is no harm in being goofy, but there is harm in being too reserved. Giving the world the most authentic version of yourself will help you build the confidence that you need to succeed. In most situations, including mine, not everyone is going to like you. With success comes trials and tribulations.
In my experience, there is always going to be somebody that wants to tear down your success. It is important to not value your self worth based on other people’s opinions. I believe that you must give the world your truest version of yourself in order to make the biggest impact on both the world and your potential.
HousingWire: If you could change or implement one piece of housing regulation, what would it be and why?
Rogers Healy: I wish there was a universal MLS. I wish people would have the ability to study markets outside of their little sub market and become more familiar with different trends and architectural styles. This would also allow agents to operate in other neighborhoods and cities.
I believe being able to expand outside of your city would allow real estate agents to better serve their clients. Especially with today’s market experiencing such low inventory, I believe this could be really beneficial. Real estate agents would have the opportunity to not only operate in other cities and suburbs, but also learn more about places they are unfamiliar with.
Certain architectural styles are specific to certain neighborhoods. Say a client is considering several different cities and suburbs, in most cases their realtor will only be able to operate in one and have to refer them to someone else if they’d like to make an offer on a property outside of their designated MLS system.
HousingWire: What do you think will be the big themes for the housing market in 2022?
Rogers Healy:
Many millennials fled to the big cities after college graduation, and it’s time to come home and settle down. They are ready to move into homes where they can start a family, create equity, and be closer to their parents.
Nearly 10,000 Baby Boomers are turning 65 years old everyday. Which in turn means retirement, downsizing, moving to a condo in the Bahamas – whatever it may be. Millennials now have the opportunity to purchase these generational homes and ditch their leases.
Many parents of the millennial generation see rental prices rising and want to lend a helping hand to their beloved children for them to own property, much like they did back in the day. 25% of homebuyers ages 23-31 received down payment help from their family, considering it an investment gift.
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Opinion: FHFA language requirements may shake up compliance landscape
Recently, the Federal Housing Finance Agency (FHFA) announced that mortgage lenders will be required to include in loan packets the Supplemental Consumer Information Form (SCIF), which registers a borrower’s language preference, in order for those loans to be eligible for sale to Freddie Mac or Fannie Mae.
While the requirement may seem fairly innocuous, it’s likely the first of several new requirements lenders will need to consider when working with borrowers of Limited English Proficiency (LEP) in the future. While the concept of providing resources for LEP consumers is not novel; the requirement of those resources and the specification as to which resources must be provided, as a matter of law, will likely demand a substantial adjustment by lenders and servicers.
The current state of LEP compliance
LEP individuals are defined by the Office of Economic Impact and Diversity as “individuals who do not speak English as their primary language and who have a limited ability to read, speak, write, or understand English. These individuals may be entitled language assistance with respect to a particular type of service, benefit, or encounter.”
Until recently, mortgage lenders’ obligations to LEP borrowers were primarily governed at the federal level by The Equal Opportunity Act (ECOA) and the Unfair, Deceptive and Abusive Acts and Practices (UDAP) provisions of the Dodd-Frank Act. However, guidelines and requirements for the provision of specific resources were minimal.
In 2016, it emerged that the FHFA was planning to require a language preference question on the redesigned Fannie Mae and Freddie Mac Uniform Residential Loan Application (URLA). While the matter drew brief interest industry-wide, the plan was eventually nixed by the Trump Administration.
With the change of Federal administrations in 2021, it didn’t take long for the Consumer Financial Protection Bureau (CFPB) to signal that it would prefer to see more LEP services made available, particularly in the mortgage servicing and lending sectors. Accordingly, in January, 2021, the CFPB issued guiding principles for servicing LEP customers and guidelines for implementing those principles and developing compliance management solutions.
The statement further offered lenders and servicers guidance for mitigating ECOA, UDAAP and other legal risks. It touched on matters of what lenders may consider in determining whether or not non-English language services are required, as well as what factors financial institutions might consider in determining which products or services to offer in other languages.
Growing momentum at the state and federal levels
The purpose of the SCIF is to collect information about a borrower’s language preference as well as any homebuyer education or housing counseling the borrower received, so lenders can better understand borrower needs during the home buying process. Lenders must incorporate these changes and reporting requirements for loans with application dates on or after March 1, 2023 in order for the loans to qualify for sale to the GSEs.
With the requirement of the SCIF, FHFA has moved beyond guidance on LEP and into increased, tangible requirements. And while the law currently is limited to loans deemed saleable to the GSEs (a significant category in and of itself), developments at the state and federal level suggest more could be coming soon.
While a number of states have had LEP requirements for mortgage lenders and servicers in existence for some time, many are stricter than those at the federal level. And more states are adopting new requirements. For example, a Nevada law (Assembly Bill No. 359) which became effective in late 2021 requires that any person, who in the course of business, advertises and negotiates certain transactions in a language other than English must provide a translation of the contract or agreement that results from the advertising and negotiations.
The translation must include every term and condition of the contract or agreement. It’s not far-fetched to imagine that federal legislation or rule making could mimic or even build upon such language.
More LEP activity
The trend toward increased LEP requirements has reached the court system as well. A 2021 settlement between a large nationwide mortgage servicer and 48 state attorneys general regarding improper servicing allegations required the servicer to improve its practices regarding LEP borrowers. Among other consequences, the servicer was required to provide translation services and accept hardship letters and state and federal government forms in languages other than English.
The movement toward increased LEP requirements, in addition to the CFPB statement and FHFA mandate, has now come to the U.S. Congress as well, where H.R. 3009 would, if becoming law, create stricter LEP requirements including a standard language preference form; the requirement that servicers and lenders provide oral interpretation services and translated documents for identified LEP borrowers, and more.
The practical case for delivering LEP resources
The legislative and regulatory trend toward increased LEP requirements is only likely to increase — especially as the number of LEP borrowers in the marketplace is almost certain to grow. While it remains to be seen what additional LEP requirements are on the horizon for lenders and servicers, it should not be overlooked that, as the general American demographic changes, so too will the market for homebuyers.
The U.S. Census Bureau advises that almost 20% of the U.S. population today uses languages other than English in their homes. As far back as 2017, approximately 9% of the U.S. population would have been considered LEP borrowers — and the number is only rising.
American Latinos will comprise up to 70% of new homeowners within 20 years. The reality, by the numbers, is that more and more potential homebuyers will not be proficient with English as they attempt to navigate an already-complex home-buying process. It only stands to reason, then, that providing LEP resources will not just be a question of compliance, but a question of adequately serving the market — and succeeding — as well.
George Baker is the founder and CEO of Talk’uments.
Josh Weinberg is a partner with Talk’uments and president of Firstline Compliance, LLC.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the authors of this story:
George Baker at gbaker@talkuments.com
Josh Weinberg at josh@firstlinecompliance.com
To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com
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Wall Street SFR firms accused of stripping equity from neighborhoods
Institutional players in the single-family rental (SFR) market have been expanding their reach into select American neighborhoods since the global financial crisis of 2008, but they now find themselves in an uncomfortable limelight.
They are under scrutiny in Congress and accused of gentrifying minority neighborhoods and allegedly displacing large numbers of people of color — Black residents in particular.
That is a major takeaway in a Congressional subcommittee report on a recent survey of the nation’s five largest institutional owners and operators of SFR homes. The survey, sponsored by the Democrat-controlled U.S. House Financial Services Committee’s Subcommittee on Oversight and Investigations (the subcommittee), was sent to the following companies: Invitation Homes; American Homes 4 Rent; FirstKey Homes (owned by Cerberus Capital Management); Progress Residential (owned by Pretium Partners); and Amherst Residential.
As of the end of the third quarter of last year, according to the report, those five companies owned a total of 280,637 single-family rental properties.
“To fund their acquisitions, companies raise billions of dollars in capital from hedge funds, pension funds, ultra-high net worth individuals, and other institutional investors, who such companies consider to be their customers,” the House subcommittee’s report on its survey findings state. “The ability of SFR companies to purchase homes with cash provides a competitive advantage.”
The financial muscle of these institutional SFR companies also is revealed in securitization deals tracked by Kroll Bond Rating Agency (KBRA). The bond-rating agency’s data shows that so far this year, institutional players — including companies like Progress Residential, FirstKey Homes and Tricon Residential — have undertaken total of 11 private-label SFR securitization deals involving some $8.2 billion in corporate notes secured by a total of some 27,200 rental properties, primarily single-family dwellings.
“Despite the growing appetite for SFR investments, institutional equity ownership in the overall SFR market today is still estimated at only around 2%,” a market insight report from MetLife Investment Management (MIM) states. “MIM believes [however] that institutional SFR ownership is likely to grow significantly over the next decade.
“MIM’s analysis indicates that simply moving institutional ownership of SFR from 2% today to 10% [of the investment-property market] in the future will result in a need for over $200 billion in incremental debt financing.”
Today, the bulk of second homes and investment properties nationwide are still owned by smaller real estate firms and so-called “mom-and-pop” investors. Critics of the institutional SFR companies, however, point out that those national figures distort the concentrated nature of the problems created by the “Wall Street” investors.
“Securitized SFR homes are heavily clustered in the Sunbelt, which comprises the Southeastern, Southwestern and Western U.S. region, and in communities that previously experienced high foreclosure rates following the 2008 financial crisis,” the House subcommittee’s report on its findings states. “For example, in the third quarter of 2021 alone, institutional investors bought 42.8% of homes for sale in the Atlanta metro area and 38.8% of homes in the Phoenix-Glendale-Scottsdale area.”
The House subcommittee punctuated its survey results by holding a public hearing recently — on Tuesday, June 28 — titled “Where have all the houses gone? Private equity, single-family rentals and America’s neighborhoods.”
“Today’s hearing will examine troubling issues regarding the mass predatory purchasing of single-family homes by private-equity firms, including the adverse impact predatory purchasing has had on first-time homebuyers, the working class and people of color,” said U.S. Rep. Al Green, D-Texas, chairman of the House subcommittee, in his opening remarks. “…These private-equity firms have the advantage of being able to purchase these homes with cash; therefore, they easily out-compete individual buyers who may require loans. This all has the troubling effect of displacing residents of color and leading to gentrification of these communities.”
The major findings of the House subcommittee’s survey of the five leading institutional SFR companies, coupled with data from the U.S. Census Bureau’s American Community Survey, are as follows:
Witnesses called to testify before the subcommittee in the hearing held last week were vocal in their concerns over the growing influence of Wall Street-backed SFR companies.
“Just over a decade ago, no single landlord owned more than 1,000 homes,” said Jim Baker, executive director of the Private Equity Shareholder Project, one of five witnesses who testified before the subcommittee on June 28. “Now the top five [institutional SFR players] … together own or operate almost 300,000.”
Shad Bogany, a real estate broker with Better Homes and Gardens Real Estate in Houston, said these institutional SFR buyers are targeting minority communities because historically such neighborhoods are undervalued and have lower-priced homes. This practice, he claimed, “drives up the prices for [existing] residents,” making “the dream of homeownership for the population unachievable.”
“Homebuyers are having to compete with investors that are paying in cash over the list price, resulting in an increase in investor purchases,” Bogany said. “Investors are creating a generation of renters who will miss out on the benefits of homeownership and the ability to create wealth and stabilize communities.
“By increasing the percentage of renters in the black community, the institutional investors are creating a modern-day sharecropping colony,” Bogany added. “It reminds me of my ancestors’ history over 100 years ago, when you lived on the land, you have a place to stay, but all your hard work and money goes to benefit someone else.”
Another witness at the subcommittee hearing, Sophia Lopez, deputy campaign director of housing at the Action Center on Race and the Economy (ACRE), which describes its mission as organizing at the intersection of race and Wall Street accountability, said the large institutional SFR companies have “five core practices.”
They are, she explained: 1.) imposing large rent increases; 2.) adding large fee increases; 3.) failing to do adequate maintenance; 4.) employing aggressive eviction practices; and 5.) making use of convoluted ownership structures that “leave tenants unsure who really owns their home and to whom to appeal when problems arise.”
Elora Lee Raymond, an assistant professor at the Georgia Institute of Technology, who also testified at the subcommittee hearing, said her research shows that neighborhoods in Atlanta where institutional SFR buyers were active “lost 166 more Black residents than adjacent neighborhoods.”
“These purchases led to long-term gentrification of Black communities out of Atlanta,” she added. “…In a recent study of Tampa, Miami and Atlanta, my co-authors and I found that institutional investors bought one in six of all single-family rentals last summer. In Atlanta alone, institutional investors bought over half of the single-family rentals and 17% of all single-family homes.”
David Howard, executive director National Rental Home Council (NRHC), a nonprofit trade association representing the SFR industry, contends institutional SFR companies are playing a positive role in the nation’s housing market. In a statement provided to the subcommittee, he said: “There is not one state in the country where NRHC member companies own more than 1% of the housing, and in 23 states NRHC large member companies don’t own any properties at all. Even in metropolitan areas where NRHC member companies own higher numbers of properties, they still account for only a small share of the overall housing and rental housing: just over 1.5% of the housing in Atlanta, 2% in Charlotte, 1.3% in Houston, and 0.5% in Kansas City.”
Howard said there is a greater need for quality, affordably priced housing in the United States today than there has been in decades, “and single-family rental home providers are an important part of the solution.”
In the statement provided to the subcommittee, Howard cited a study by Harvard’s Joint Center for Housing Studies in April 2022. He claimed the study showed that large institutions (entities owning 1,000 or more properties) are not concentrating their portfolios or property acquisitions in minority communities. However, the study concluded that rates of rental housing ownership by corporate entities vary considerably at both the metropolitan and neighborhood level “and are consistently higher in neighborhoods with larger shares of Black residents.”
On the same day as the hearing last week, June 28, Progress Residential issued a press release highlighting the positive impact of its SFR purchases and upgrades on local economies across the country.
“As members of the very communities we serve, a hallmark of our company culture is making a positive local impact,” said Adolfo Villagomez, chief executive officer of Progress Residential. “Over the last decade, Progress Residential has been a significant economic driver in each of our markets, and we look forward to continuing to build on our efforts for many years to come.”
Among the positives highlighted by Progress Residential:
Jenny Schuetz, a fellow at the Brookings Institute and another witness who testified at the House subcommittee hearing, stressed that “rentals are an important part of the housing ecosystem.”
“Homeownership is not the preferred choice for all Americans or at all points in any person’s life,” she said. “Having a diverse set of tenure choices and structure types in diverse neighborhoods is important for economic opportunity.”
She suggested that Congress can improve the wellbeing of renters and homebuyers alike through “four channels.”
“There are no silver bullets to make housing cheaper and more abundant overnight,” Schuetz stressed. “Helping renters and homebuyers will require sustained and coordinated policy efforts from federal, state and local governments.”
The House subcommittee’s report on its survey findings, however, raises the concern that absent some adjustment of course soon, the impact of the Wall Street investors on Main Street housing could well be the permanent displacement of many of the nation’s most vulnerable families, particularly in communities of color.
“The survey data shows that the average income of these five [institutional SFR] companies’ tenants increased by 9% between 2018 and 2021,” the House subcommittee’s report states. “On the surface, this may seem like existing tenants grew their income during that time-frame.
“However, this shift may instead signal turnover of lower-income tenants and a restriction of the companies’ renter-eligibility criteria. A tightening of the tenant credit box would make these five companies’ single-family rental homes less accessible to tenants with lower incomes and further limit affordable housing options for the U.S.’s lowest-income families.”
Lopez of ACRE is blunt in her assessment of the problem, and the solution.
“Make no mistake about it: These companies engage in equity stripping,” she said, referring to institutional players in the SFR market. “…These companies make the wealth gap worse because they buy homes in communities [including predominately Latino or Black neighborhoods] … and transfer [that wealth] to shareholders.
“That’s the exact same thing that happened during the foreclosure crisis [that marked the 2008 housing-market collapse]. We need to do everything that we can to make sure that that wealth stays local and continues to support [the local] community.”
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Opinion: ICE’s Joe Tyrrell on the Black Knight acquisition
In May, we announced our intention to acquire Black Knight. Since the announcement, we have heard from a number of lenders and partners about their excitement over our ability to accelerate the digital journey of our industry, our ability to invest in the modernization of the MSP servicing platform, and the open technology approach we bring to the deal.
We have also received questions from across the industry about the news as well as requests for details on the value that would be created for lenders and consumers through this acquisition. The following are a few of the more frequently asked questions, along with details regarding our intentions.
What do you believe will be the biggest impact for the industry with the acquisition of Black Knight?
In terms of the biggest impacts that this acquisition will have on the industry, I would highlight a few areas. First, it will be the openness and choice that lenders will have, as we at ICE have consistently demonstrated our commitment over the past 20 years to access and transparency in the mortgage industry, which we plan to extend to the Black Knight business.
We are investing in the modernization of MSP, in order to make it easier for lenders and servicers to access their data, interact with APIs and better enable partners to integrate with the Black Knight technology. In addition, we will drive greater integration across all the solutions, to improve the lender’s experience and eliminate unnecessary friction.
Also, we are accelerating our delivery of automation with a focus on cost reduction for the lender, which we expect will ultimately lower the cost of a mortgage for the consumer. We see big opportunities to reduce the cost of origination and the cost of servicing by leveraging increased automation throughout the life of the loan.
It is also important to remember that Black Knight was being approached by a number of entities to acquire them, including private equity firms, as indicated in recent public filings. If ICE was not acquiring Black Knight, they would have been acquired by someone else, who may not be fully committed to serving lenders long-term, or to making investments that enable greater access to data and open networks, but instead focus on a series of immediate changes with a short-term perspective.
ICE, on the other hand, has extensive experience in the mortgage industry, we have publicly stated our intention to invest significantly in a number of the Black Knight solutions, including MSP and Empower, and we are committed for the long-term in serving this industry and lenders specifically.
What was the motivation for ICE to want to do this deal?
Every year we are asked by our clients if we will provide servicing technology, because many lenders experience the inefficiencies when trying to onboard loans from a loan origination system into a servicing system. These lenders are having to manually key in data, they experience the adverse impact to homebuyers when interim payments are incorrectly applied, or find challenges when proof of homeowners insurance isn’t properly carried over into the servicing system, as well as several other points of friction.
Lenders also appreciate how we operate our solutions as open platforms and open networks and are anxious to have that same experience with their servicing system. This deal gives us the opportunity to address all these lender requests and make their experience significantly better.
In addition, we have heard directly from lenders about the desire to create a life-long customer engagement experience. For many lenders, after the loan is funded, they lose connection to those homebuyers. Lenders see opportunities to proactively engage consumers, throughout the entire lifecycle of the mortgage, to help these households improve their cash flow through refinances that target elimination of risk adjustments that may have been made at the time of origination.
Also, as we integrate our underwriting automation capabilities and our consumer engagement tools with both the servicing technology and the MLS solutions offered by Black Knight, we can enable lenders to provide households with the unique experience of being able to conduct searches for their next home based on those that they are fully qualified to buy.
There are so many different numbers when it comes to “market share” when industry participants are discussing this deal. What are the real numbers of the deal related to market share for ICE?
This acquisition is not about market share, it is about solving real problems in the industry related to accelerating the availability of automation, better integrations, improving the homebuyer’s experience and providing greater access to data while lowering lender costs by taking advantage of technology to eliminate manual processes.
Just as important to note is that all mortgage technology companies face robust competition in the marketplace, across all products. ICE faces numerous competitive threats from several well-established incumbent firms and newly established and well-backed entrants, who can and do take accounts away from both ICE and Black Knight.
The combination of ICE and Black Knight changes nothing. In fact, using consensus estimates of 6,500 total lenders in the U.S., Black Knight provides LOS services to fewer than 2% of those lenders. This competition means we must continue to innovate and deliver value to our customers, all at a competitive price point.
This is why we provide our customers with the option of selecting multi-year agreements, with built-in price protections. Most of our customers select four or five year terms, meaning that pricing cannot be arbitrarily changed for the duration of the contract, which is why so many of our lenders opt for longer terms. I believe that Black Knight contracts are similarly structured.
The bottom line is that our lenders know that they have multiple options and that ICE has to fight to keep its customers every day, which means our competitive focus and our incentive to innovate in the mortgage technology space are here to stay. However, for those who don’t work and live in the competitive mortgage space every day, we know that we need to help them understand all the competitive dynamics that exist, not only today, but also all of those on the horizon, from new entrants.
We look forward to working closely with regulators, and other interested parties, to help them fully understand this market and all the choice that lenders maintain.
With so much uncertainty in the industry, why do this acquisition now?
I have been in this industry for over 25 years, and other than the difficulties that we all experienced between 2007 through 2009, I would say that it feels that right now we are entering a period of greater uncertainty than in recent memory. Lenders and service providers are laying off staff, while preparing for an environment of continued increases in interest rates and lower housing supply.
But at ICE, with this acquisition, we are investing significantly in the industry, because we believe that homeownership should be possible for every U.S. household. We take a long-term view of the markets that we serve, and we understand that modernization requires investment, expertise and enabling clients and partners to participate in the journey.
Unlike a financial acquirer, who may be more focused on cutting Black Knight costs and maximizing the prices they charge to their customers, we are acquiring Black Knight with the intention of investing over $200 million into modernization of MSP and Empower, creating greater access to data, providing more transparency, and by opening the platforms more broadly by delivering APIs to accelerate innovation through enabling partners and lenders to have a greater role in delivering automation.
We are doing all of this by leveraging our significant expertise in making data available to market participants and modernizing markets around the world, as we have done for the New York Stock Exchange and other exchanges that we operate across the globe.
Do you feel this deal will hurt competition or spur innovation?
We have stated publicly that we intend to continue to offer all current Black Knight products, so there will continue to be the same choice that is available to lenders today. When it comes to innovation, we don’t believe that full automation of the industry can be done by any one single company. That is why we have embraced the ability to help new entrants come into the market and to be able to help distribute their innovations to our clients.
ICE is usually the first company that most start-ups approach to create awareness of their offerings and get help distributing their products. In the last 12 months alone, we have integrated and introduced 67 new partner solutions to our clients, with many of those coming from new start-ups. We do not have any exclusive relationships with these companies, as they partner with many LOS companies.
We also invite all industry providers to participate in our user conference and show their solutions directly to our customers. ICE operates open networks, and we provide access to our APIs, so both lenders and partners can foster and introduce innovation. We intend to extend this approach to all the Black Knight solutions as well, which will open even more access to MSP, Empower, Optimal Blue and all the other current offerings.
New innovation actually comes from better integrations, so by creating even more openness within the Black Knight products, we will make it easier for other systems to integrate them more tightly, just as we have done at ICE.
ICE Mortgage Technology (and formerly Ellie Mae) has talked a lot about automating everything automatable in the mortgage industry. Does anything change in your automation mission if ICE acquires a loan servicing system?
It doesn’t change our automation mission at ICE, but what it does allow, is our ability to accelerate the delivery of value to lenders and homebuyers. Not only is the mortgage process still heavily analog, but it is also highly fragmented, especially from a homebuyer’s perspective. If I am purchasing a home, I have one experience when I am shopping for a mortgage, I have another experience when I apply, then another when I am submitting required documents and then still another once my loan is funded and I am making payments or checking my balance.
Homebuyers are often having to go through this entire process by interacting with multiple systems and interfaces, as opposed to having one consistent experience from start to finish. We see an opportunity for creating a single consumer experience, where a lender can provide every home buyer step and action through an intuitive single consumer engagement solution.
What happens with employees for Black Knight and ICE Mortgage Technology?
We intend to continue to make all Black Knight solutions available in the market, which means we need to have the people who know how to run and continue to innovate those solutions. What is most exciting about bringing the teams together is the depth of mortgage experience that both companies have.
What level of investment is ICE looking to make in the mortgage space moving forward?
We are focused on innovation that improves the homebuyer experience, lowers the cost of origination and advances the analog to digital evolution in the mortgage industry. In addition to continuing the ongoing investments in all the products and services that both ICE and Black Knight make available today, we are committing more than $200 million dollars to accomplish the modernization and openness that I mentioned relative to some of the Black Knight solutions.
Beyond that, we are also increasing our investments in our full suite of underwriting automation tools which we call our Analyzers. We are also creating the ability for the industry to store RON videos in MERS and associate it with a MIN number, as we continue our investment in the eClose space.
Why would a lender be concerned about this deal and why do you think they should be excited?
Any time that there is any sort of change, there will always be some who will be unsure of what that change will mean for them. I would point those folks to a few important facts. First, ICE has a deep and extensive experience of adding value to lenders when we acquire and integrate new solutions.
We leverage a third-party firm to independently calculate the return on investment for lenders when they take advantage of our integrated acquisitions. That ROI for lenders has increased from $570 to over $1,400, per loan, over the course of the last few years and that ROI represents a direct impact to lowering the lenders cost of origination. Lenders should have incentives to pass these cost savings to home buyers as they try and compete to originate more loans.
We see an opportunity to grow this ROI even more for lenders through our acquisition of Black Knight, further lowering their cost of origination. We also intend to provide servicers with greater access to their data in MSP and to enable lenders, partners and servicers to build upon all of the platforms that we will offer, through robust APIs. We are excited to enable lenders and servicers with these capabilities. As a former lender myself, there is a lot to be excited about.
Joe Tyrrell is President of ICE Mortgage Technology.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Joe Tyrrell at sara.holtz@ice.com
To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com
The post Opinion: ICE’s Joe Tyrrell on the Black Knight acquisition appeared first on HousingWire.
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Purchase mortgage rates fall 40 bps amid recession fears
Purchase mortgage rates this week continued their recent downward trend, dropping 40 basis points to 5.30%, according to the latest Freddie Mac PMMS Index.
A year ago at this time, 30-year fixed rate purchase rates were at 2.90%. The PMMS, a government-sponsored enterprise index, accounts solely for purchase mortgages reported by lenders during the past three days.
“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise,” Sam Khater, chief economist at Freddie Mac, said in a statement.
Another index showed the 30-year conforming rates also declined from last week.
Black Knight’s Optimal Blue OBMMI pricing engine, which includes some refinancing data — but excludes cash-out refis to avoid skewing averages – measured the 30-year conforming rate at 5.68% Wednesday, down from last week’s 5.89%. Meanwhile, the 30-year fixed-rate jumbo was at 5.10% Wednesday, down from 5.42% from the previous week.
Mortgage rates tend to move in concert with the 10-year U.S. Treasury yield, which fell to 2.93% Wednesday, down from 3.10% a week before. The federal funds rate doesn’t directly dictate mortgage rates, but it does steer market activity to create higher rates and reduce demand.
Following the Federal Reserve’s interest rate hike of 75 basis points on June 15, mortgage rates climbed for two weeks, but started to decline last week, as expected by mortgage industry economists.
Mike Fratantoni, Mortgage Bankers Association’s (MBA) chief economist and senior vice president of research and industry technology, told HousingWire that after the Fed’s meeting in June and the removal of some of the market’s uncertainty over the path of rising rates, that rates would settle back to something closer to 5.5%.
Despite the decline in rates, borrowers’ demand for mortgage loans fell this week – mortgage application volume declined 5.4%, according to the MBA. Refi apps decreased 7.7% from the previous week and purchase application were down 4.3% from a week earlier.
Khater said that while the drop in rates provides “minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown.”
According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.45% with an average of 0.8 point, down from last week’s 4.83%. The 15-year fixed-rate mortgage averaged 2.20% a year ago.
The 5-year ARM averaged 4.19% this week, down from 4.50% the previous week. The product averaged 2.52% a year ago.
The post Purchase mortgage rates fall 40 bps amid recession fears appeared first on HousingWire.
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