Category Archives: Mortgage & Real Estate

TransUnion: December rate hike prevented 1 million Americans from paying their mortgage

A new analysis from TransUnion found that 10.6 million Americans could struggle to absorb their increased monthly payments after the Federal Reserve Board raised interest rates in December, however further examination showed only 1 million struggled with being delinquent after the rate hike.

TransUnion’s study identified 63 million consumers who carried debts where the minimum monthly payments was tied to the market interest rate, and would be effected by rate hikes. Using its CreditVision aggregate excess payment algorithm, TransUnion found that 10.6 million consumers were at an elevated risk of not being able to absorb the 0.25% rate hike. 

The average change in monthly payments was an increase of $18 after the December rate hike, according to TransUnion. Despite the low amount, it created a challenge for 1 million consumers who were delinquent in their mortgage payment by the end of March.

“When we announced our capacity to absorb a rate increase metric last May we said that it was a conservative measure of risk, in that it did not account for contributions to savings or investments that could be reallocated to cover debt service increases,” said Ezra Becker, TransUnion senior vice president of research and consulting. “We described our metric as an upper bound on the number of consumers who would struggle with a rate increase.”

“We’re pleased to see that only 10% of those consumers we had considered at elevated risk of payment shock from a rate increase exhibited delinquency over the study period,” Becker said. “Most consumers appeared able to reallocate their available cash, or make small changes to their spending habits, to effectively absorb the December rate increase.”

Back in September, TransUnion released a study that showed the rate hike could cause a payment shock for 9 million borrowers.

TransUnion’s control group was made up of 44 million consumers which held no variable-rate credit products, and therefore were not vulnerable to interest rate increases. About 13% of consumers in the control group fell into delinquency by the end of March, a higher delinquency rate than the rest of the test group.

“It was really surprising to us that the control group exhibited greater delinquency rates than those vulnerable to a rate increase in our study,” Becker said. “There are clearly some interesting dynamics at play here that we don’t yet fully understand, but this initial study does seem to indicate that the 0.25% interest rate increase in December did not drive any material delinquency in the immediate term for consumers.”

However, TransUnion cautioned consumers and lenders, saying while this study showed only 1 million consumers were impacted in the first quarter, it did not examine long-term impacts of a rate hike. For example, many consumers could be dipping into their savings accounts to meet the new obligations, and could eventually exhaust that source of funds. 

“It is important for both lenders and consumers alike to be cognizant that a rising-rate environment presents a different dynamic than a steady-state or falling-rate environment,” said Heather Battison, TransUnion vice president of consumer communications. “For lenders, a rising-rate environment does present the risk of default due to payment shock.”

“For borrowers, there is now a need to recognize and plan for the fact that rising rates may cause their monthly payment obligations to increase,” Battison said. “The key for both parties is awareness and planning.”

“Above all else, consumers should keep in mind the foundational principles of credit health, which are especially crucial when working to build credit,” he said. “It’s imperative to make the minimum payment due, on time, on all of your bills.”

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Louisiana asks FTC to pause regulatory action while state repeals controversial appraisal laws

The state of Louisiana may have taken action to directly respond to the Federal Trade Commission’s claim that the regulatory body that oversees property appraisals in the state stifled price competition by requiring appraisal management companies to follow the state’s established polices for the fees that AMCs pay to appraisers, but that doesn’t mean that the FTC is ready to drop the case entirely.

Recently, Louisiana Gov. John Bel Edwards issued an executive order that will lead to the law that dictated how AMCs pay appraisers being repealed.

That was followed shortly by the Louisiana Real Estate Appraisers Board issuing a resolution stating that it planned to repeal the controversial law and develop a new method to ensure that AMCs pay appraisers “reasonable and customary” fees, as they are required to do under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In light of those actions, the Louisiana Real Estate Appraisers Board is now asking the FTC to stay its action against the regulatory body and allow the state to fully implement its new policies.

As HousingWire reported earlier this week, LREAB’s resolution states that the rule on how AMCs pay appraisers will be repealed and replaced.

The rule in question is the state’s AMC Law, also called Rule 31101.

Rule 31101 stipulates that AMCs must compensate appraisers at a rate determined by one of three methods:

  • An AMC may use a survey of fees recently paid by lenders in the relevant geographic area
  • An AMC may use a fee schedule established by the Board
  • An AMC may identify recently paid fees and adjust this base rate using six specified factors: the type of property; the scope of work; the time in which the appraisal must be performed; the appraiser’s qualifications; the appraiser’s experience and professional record; and the appraiser’s work quality

In its complaint, the FTC said that Rule 31101 “unlawfully restrains competition on its face by prohibiting AMCs from arriving at an appraisal fee through the operation of the free market.”

The LREAB resolution calls for the “repeal and replacement” of Rule 31101.

After issuing that resolution, the LREAB asked the FTC to pause its proceedings for 120 days so the state can put its new policies into place.

“These State acts substantially change the factual and legal basis of this proceeding, by confirming state action immunity with respect to any current and prospective actions of the Board, and addressing the retroactive and prospective relief sought in the Complaint,” the LREAB said in its request to the FTC.

“Respondent therefore requests a 120-day stay to give the State time to implement the Governor’s and Board’s directives, and allow the parties time to consider the impact of these new requirements on this proceeding,” the request continues.

According to the LREAB, the stay will “conserve resources, avoid unnecessary burdens on the parties and third parties, and promote the public interest in enforcement of Louisiana law.”

The LREAB states that the Edwards’ executive order alone “fundamentally alters the factual and legal underpinnings of this proceeding.”

Additional action by the state and the LREAB will “further reshape the landscape” on which the FTC’s complaint is based.

The LREAB adds that by granting the stay, the FTC will be “allowing Louisiana to continue to maintain the integrity of its residential appraisal market, as envisioned by the Dodd-Frank Act.”

Without the stay, official state functions “would be impeded or delayed to the detriment of the public interest in a sound residential real estate appraisal market,” the LREAB said.

HousingWire contacted the FTC for comment on this issue, but as of publication, has not received a response. This article will be updated should the FTC respond.

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Former Ginnie Mae president Ted Tozer joining PennyMac Financial Services board

Ted Tozer stepped down as president of Ginnie Mae in January after serving seven years, and while the agency has still not found a permanent replacement, Tozer has found a new position.

PennyMac Financial Services, a mortgage lender and servicer, announced Wednesday that Tozer is joining the company’s board of directors, effective Aug. 1, 2017.

Prior to joining Ginnie Mae, Tozer spent more than 30 years in the financial services industry.

Earlier in his career, Tozer served as senior vice president of capital markets at National City Mortgage Company. He also served as a member of the National Lender Advisory Boards of Fannie Mae and Freddie Mac, and as chairman of the Capital Markets Committee of the Mortgage Bankers Association.

“I am thrilled that Ted Tozer has been elected to our Board of Directors,” PennyMac Financial Services Executive Chairman Stanford Kurland said. “Ted is a veteran of the mortgage banking industry who brings a wealth of experience and a deep understanding of all aspects of housing finance in America. On behalf of my fellow directors, I enthusiastically welcome his arrival.”

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