Category Archives: Mortgage & Real Estate

BofA CEO is totally fine with a shrinking mortgage market

CNBC’s Becky Quick and Bank of America Chairman and CEO Brian Moynihan spoke earlier this week at CNBC’s Net/Net event in New York City.

Moynihan admitted that the mortgage origination business is bad, but will it get worse?

He told Quick: “I think housing is at tails. So the prices are up. The rates are rising. None of that’s great. But we still did, I don’t know, $10.5 billion of mortgage loans this quarter. Last year we probably did 13 [billion]. So it’s not a major change.”

“The inventories are, you know, solid and down. But we got to watch it because it’ll be a leading indicator of people’s belief in their wealth if you see housing prices tip over. But they’re still fine.”

Recent data from his bank is much more optimistic.

Bank of America’s latest Homebuyer Insights Report reveals that Millennials are now prioritizing homeownership above other life milestones, including marriage and having children. To be sure, this is at odds with a recent Freddie Mac report that found renters prefer to rent.

The recently launched BofA report finds that 72% of Millennials (born 1978-1995) consider homeownership a top priority, second only to retirement (80%). Homeownership is also considered a status symbol among Millennials, with many equating it with personal (53%) and financial (45%) success.

Why the change of heart? Blame rising rents and the impact it is having on American pocketbooks.

From the survey:

  • 51% of renters believe renting long-term will be just as or less expensive than buying a home, and the other 49% believe it will be more expensive than buying.
  • 69% of renters believe their rent will increase every year or every other year, and nearly half (48%) are spending over 30% of their monthly income on rent.
  • Half (49%) of renters believe a 20% down payment is required to buy a home.
  • 43% of renters think they’ll pay private mortgage insurance if they don’t put 20% down.
  • 24% of renters believe they need to have a “perfect” credit score to be considered for a mortgage.

However, Moynihan’s quote earlier is very telling. Millennial renters may be looking to buy and putting a priority on it. But as he puts it: “we got to watch it because it’ll be a leading indicator of people’s belief in their wealth if you see housing prices tip over.”

People’s belief in their wealth is key to a vital mortgage market. Not just buying as shown above, but also in staying current.

New research from thinktank JPMorgan Chase Institute, titled Falling Behind: Bank Data on the Role of Income and Savings in Mortgage Default, finds that mortgage default closely followed a negative income shock regardless of level of home equity, income, or payment burden (as measured by total debt-to-income ratio at origination).

So, if a household’s wealth takes a hit, so does the mortgage.

“Recovering from mortgage default was associated with recovering from a negative income shock; homeowners who experienced deeper and longer duration drops in income became increasingly delinquent,” the report finds.

“Homeowners with larger financial buffers used their savings to delay mortgage default following a negative income shock. Default rates for homeowners with smaller financial buffers were higher regardless of income level or payment burden,” the report said.

Even if we lend to these renters, the JPM survey finds they are typically not able to cover the mortgage if the household experiences an income shock. Taken altogether, the CEO of BofA is correct to say we need to take things slow, here.

NOTE: Convergys Analytics conducted the online survey on behalf of Bank of America and surveyed a national sample of 2,000 adults age 18+ who currently own a home or plan to in the future. 

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CFPB requests investigation into Trump appointee’s controversial blog posts

Eric Blankenstein says he regrets the racially charged comments he blogged in his 20s, but that’s not enough to satisfy his bosses at the Consumer Financial Protection Bureau.

CFPB Acting Director Mick Mulvaney has asked an independent government watchdog to review the situation, sources told The Wall Street Journal. Mulvaney’s request was a response to numerous calls for Blankenstein’s removal from his post as policy director by a number of his colleagues, government officials and consumer groups.

Blankenstein’s troubles began last month when The Washington Post unearthed blog posts he had written in 2004 that were charged with controversial comments about racism.

Writing under an assumed name, Blankenstein questioned whether the n-word was inherently racist and claimed that the great majority of hate crimes were actually hoaxes.

In one post, Blankenstein refuted a proposal at the University of Virginia that called for harsher academic penalties for intolerant acts, calling it “racial idiocy.”

“Fine… let’s say they called him n—–,” he wrote. “Would that make them racists, or just a——-?” 

He then asserted that “hate-crime hoaxes are about three times as prevalent as actual hate crimes.”  

Blankenstein was appointed to his position by President Donald Trump and, as one of the highest-paid government employees, is responsible for supervising lenders and enforcing laws that include protecting minorities from discriminatory practices and promoting fair lending.

His comments were criticized by his colleagues in an agency-wide email, with one writing that the posts and her past experiences with Blankenstein have led her to “call into question Eric’s ability and intent” to carry out his duties to enforce fair lending.

Sens. Sherrod Brown, D-Ohio, and Elizabeth Warren, D-Mass., also openly called for his termination.

“Eric Blankenstein has done everything he can to keep the CFPB from doing its job, gutting the Office of Fair Lending and failing to file a single anti-discrimination lawsuit since he arrived at the agency in December,” Warren said in a statement. “Now we know why – Blankenstein must be fired.”

In an effort to quell the backlash, Blankenstein penned a letter to the agency expressing regret for his “poor judgment” and word choice.

“Do I regret some of the things I wrote when I was 25 – relatively fresh out of college and not yet even thinking about applying to law school – that I wouldn’t write today? Absolutely,” Blankenstein wrote. “I recognize that many of you had a visceral, negative reaction to reading what I wrote in some of my old blog posts. I did too.”

But apparently, that was not enough to undo the damage. A number of consumer groups have taken to social media to demand Mulvaney fire Blankenstein.

On Thursday, Mulvaney said the situation is “an internal management and employee issue” and declined to do into further detail, according to the WSJ.  

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Lennar subsidiary Eagle Home Mortgage fined $13.2 million for FHA lending violations

Despite recent statements from the Department of Housing and Urban Development and the Federal Housing Administration suggesting a lighter tone when it comes to using the False Claims Act to go after FHA lenders, it appears the False Claims Act ain’t dead yet.

The Department of Justice announced Friday that it reached a $13.2 million settlement with Universal American Mortgage Company to resolve allegations that the lender violated the False Claims Act by falsely certifying that it complied with FHA lending standards.

Universal American Mortgage Company is the mortgage subsidiary of Lennar and does business as Eagle Home Mortgage.

The settlement doesn’t come a shock, considering that Lennar disclosed earlier this year that it was facing a DOJ inquiry into its subsidiary’s FHA lending activities.

The settlement means that Lennar’s mortgage company becomes the latest in a long string of companies including Wells FargoFreedom MortgagePHH, and many other lenders that were fined by the government for underwriting mortgages that did not meet FHA standards.

Under the Obama administration, lenders of various sizes, including some of the nation’s largest, agreed to pay out billions of dollars in settlements under the guise of the False Claims Act.

But the Trump administration has signaled a different way of doing things, giving some indication that the government may abandon the use of the False Claims Act in FHA lending cases altogether.

But, earlier this week, FHA Commissioner Brian Montgomery told the crowd at the Mortgage Bankers Association 2018 Annual Conference in Washington, D.C. that the administration still plans to go after “bad actors” in FHA lending.

And now, it’s Eagle Home Mortgage in the DOJ crosshairs.

As with many of the other lenders, Eagle Home acted as a “direct endorsement lender” in the FHA insurance program. As a direct endorsement lender, the lender has the authority to originate, underwrite and endorse mortgages for FHA insurance without prior approval from the FHA.

Under the direct endorsement lender program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.

The DOJ alleged that between Jan. 1, 2006, and Dec. 31, 2011, Eagle Home knowingly submitted loans for FHA insurance that did not qualify. The DOJ also alleged that the mortgage company “improperly incentivized underwriters and knowingly failed to perform quality control reviews,” which violated HUD rules and contributed to Eagle Home’s submission of defective loans.

“Mortgage lenders may not ignore material FHA requirements designed to reduce the risk that borrowers will be unable to afford their homes and federal funds will be wasted,” said Assistant Attorney General Joseph Hunt for the Department of Justice’s Civil Division. “We will hold accountable entities that knowingly fail to follow important federal program requirements.”

And now, Eagle Home will pay $13.2 million to settle the DOJ’s charges, an amount far smaller than many other False Claims Act settlements in recent years.

In other False Claims Act settlements, the government imposed triple damages (called “trebling”), but it’s unclear if that took place in this case, although lessening the level of damages has been something that’s been discussed via the Trump administration’s approach to FHA enforcement.

Regardless, Eagle Home is settling and moving on.

“In a quest for profits, mortgage companies have ignored important lending standards,” said U.S. Attorney Annette Hayes for the Western District of Washington.  “Not only does this harm the borrowers leaving them over their heads in debt and underwater on their mortgages, it harms taxpayers because the mortgages are backed by government insurance. This settlement should serve as a warning to other lenders to diligently follow the rules.”

When asked about the settlement, a Lennar spokesperson said simply: “The settlement was previously reserved for and will not impact future earnings.”

[Update: This article has been updated with a statement from Lennar.]

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