Rent Trends Helping Lenders; Surprising New Fraud Issue; Pent-Up Demand

News

This month for me includes Texas (a few times), Maryland, Northern California, and Colorado (a few times). It can be cold out there! So far the mood seems to be good, with some purchase-focused originators not displeased with rates whatsoever. (At least we don’t work for Sears. It is closing 150 stores and selling its Craftsman tool brand.) But speaking of states, California legislative leaders announced they’ve enlisted a lawyer who knows a little something about federal government to help fend off “potential challenges” from the incoming Trump administration. Former U.S. Attorney General Eric Holder will lead a team of lawyers from Covington Burling in California’s fight against potential Republican attacks on the state’s policies.

In fraud news…  What’s this? An
attorney involved in a fraud scheme?
 Once again bad news makes
the press
versus all the good work being done in residential lending. And then
the Department of Justice put out word about a former newspaper publisher,
mortgage broker, title agent and other individuals being charged federally for
their participation in a
$10 million mortgage fraud scheme
.

Speaking
of fraud, here’s a new one: home buyers claim they’ll be
renting out the home even though they actually intend to occupy it as their
home. Apparently by doing so fraudsters can then claim
“expected” rental income
 in satisfying the mortgage application debt/income requirement.

While we’re talking about
rent, and trends in rent that help lenders…

The National Rental Home
Council
published a new report that establishes
recommended best practices for defining, calculating and reporting key
financial and operational disclosure metrics for the single-family rental
industry. This report will help public and private markets better understand
the single-family rental industry’s performance and valuation measures and
improve the consistency and transparency of information across the industry.
The resulting document provides “best practices” for calculating and reporting
portfolio, leasing, income and asset value metrics, with a non-binding
recommendation that industry participants adopt these best practices to
facilitate consistency and comparability across companies throughout the
sector. This report is the second released by the NRHC in collaboration with
Green Street Advisors’ Advisory and Consulting Group. An in-depth
primer
 on the SFR industry was released in June 2016.

The rent and homeownership
trends began several months ago, and remains near historic lows. The Q3 2016
homeownership rate rose 0.6 percentage points to 63.5 percent (non-seasonally
adjusted), per data from the U.S. Census Bureau’s Housing Vacancy Survey. The
number of owner households grew by 922,000, while the number of renter
households fell by 606,000. It was the largest quarter-over-quarter increase in the number of
owner households since Q3 2001, and the number of owner households is now at
its highest level since Q4 2010.

An encouraging quarterly
uptick in the homeownership rate in Q3, and a close examination of its core
driving factors, suggests the decade-long streak of annual homeownership
declines may be on the cusp of reversing.

Household growth in Q3 was
driven by newly minted homeowner households. In the quarter, the number of
owner households grew by 922,000 while the number of renter households fell by
606,000.
It was the largest quarter-over-quarter increase in the number of owner
households since Q3 2001, and the number of owner households is now at its
highest level since Q4 2010. Compared to a year ago, however, renters are still driving household formation:
The number of renter households was up by 628,000 (1.5 percent) since Q3 2015,
while the number of owner households was up 561,000 (0.8 percent).

Astute LOs will point out that
Hispanics were the only racial/ethnic group to experience an increase in
homeownership in Q3 compared to last year. The Hispanic homeownership rate rose
0.9 percentage points compared to Q3 2015 (to 47 percent); the homeownership
rate for non-Hispanic whites was flat at 71.9 percent. The homeownership rate
fell 1.1 percentage points and 0.4 percentage points year-over-year for African
Americans and Asians, respectively (to 47 percent for blacks and 53.3 percent
for Asians).

Across major regions, the
homeownership rate continued to fall in the pricy, booming and
supply-constrained West
, falling 0.5 percentage points year-over-year in Q3 to
58.2 percent in Q3. Homeownership is also down year-over-year in the South,
standing at 65 percent at the end of Q3, down 0.4 percentage point from last
year. The homeownership rate was stable year-over-year in the Northeast, at
60.8 percent, and up 0.5 percentage point in the Midwest (68.6 percent).

Where are they going to live?
Some forecasts suggest that the
suburbs are in, but as we know low mortgage rates have gone away.
  Various
real estate entities have weighed in with their prognostications for the 2017
housing market. Most observers expect home sales and prices to moderate in the
coming year. They say suburbs will make a comeback while the days of low mortgage
rates are over. Of course, much depends on the actions of the new
administration. And if there are any properties for sale. 

Home
prices are shrugging off the surge in mortgage rates – for now.
  Home
prices leapt in November, a sign that the jump in mortgage rates hasn’t yet
hobbled the housing market. The massive mortgage rates move started after the
election, so its true impact on demand won’t be clear until December or later.

For one CoreLogic thinks that home
price growth will slow in 2017.
  In
November, home prices increased 7.1% YoY. The index was also 1.1% higher than
October’s revised figure. Looking ahead, forecasts suggest that prices will
only rise 4.7% YoY in November 2017, a reflection of the impact rising interest
rates will have on the housing market.

Going back a bit, the trend is
obvious. The MBA’s Chart of the Week for October 23rd highlights mortgage
originations history and forecast. The MBA is predicting that home purchase
originations will increase
next year as the US housing market picks up even
more based upon steady demand and expansions in inventory. In 2016, it’s
anticipated that purchase mortgage originations will reach $905 billion, which
would be a ten percent increase from 2015. The expected rise in rates may
result in a one-third decline in refinance originations, for a total volume of
$415 billion for 2016. On net, mortgage originations will decline to $1.32
trillion next year from $.145 trillion in 2015. The MBA is already predicating
mortgage purchase originations for 2017 at $978 billion and refinance
originations of $331 billion, for a total of $1.31 trillion.

Talk about pent-up demand for
housing: 40%
of young adults (ages 18-34) were living with their parents in 2015, which is a
75 year high
. “The number of adults
under age 30 has increased by 5 million over the last decade, but the number of
households for that age group grew by just 200,000 over the same period,
according to the Harvard Joint Center for Housing Studies.” Housing starts
have basically kept pace with household formation, but are unprepared if these
people suddenly decide to move out. Where are they going to find the inventory
to buy, even if they wanted to?

Sure enough, at the other end
of the aging process, housing
is not adequate for the increasingly old Boomer population.
  The baby boom generation over the
age of 65 will grow to 79 million, from 48 million, in the next 20 years. An
aging population will mean increased demand for affordable, accessible housing
over the next two decades that isn’t available in the current market.

How
about that sweet rally yesterday? Unfortunately, volatility is not the friend
of anyone in capital markets, and therefore the owners of their companies in
terms of earnings. Volatility detracts from earnings in secondary marketing…
and in the primary markets as well as LOs and borrowers regret locking in a
rate. Yesterday the 10-year T-note saw its largest one-day gain
in six months despite a strong showing from December’s ISM Services. The ADP
Employment Change was weaker than expected. Interestingly Thursday saw retail
mortgage volumes return to pre-holiday levels with Tradeweb indicating well
above average volumes. By the time the proverbial dust had settled, the 10-year
note improved .75, and the 5-year and agency MBS prices .375-.50, depending on
type and coupon.

But that was so… yesterday.
This morning we’ve already digested the November trade balance ($45.2 billion)
of little consequence, and the employment data for December: Non-farm Payrolls
+156k but with a back-month revision higher, hourly earnings +.4%, and the
unemployment rate was 4.7%. Coming up are the November Factory Orders numbers,
also typically of little consequence. In the early going we find the 10-year at 2.37% and
agency MBS prices worse .125 versus last night.

Jobs and Announcements

Turning to jobs, National MI is searching for a Sales Account Manager who will reside in New England and is responsible for promoting the sale of National MI products, services and programs to clients through a consultative selling approach via personal sales calls and email/phone contact. This individual will also assist in sourcing new business from originators, and will manage the relationships of specific clients by serving as a customer advocate, educator, and loan issue problem-solver. Experience in client relationship management and training is imperative, and strong research, process improvement, and presentation skills are required.  Headquartered in the San Francisco Bay Area, National MI is a U.S.-based, private mortgage insurer enabling low down payment borrowers to realize homeownership. For the complete job posting, see National MI’s careers page.

In DTC job news, “Come Grow with Military Direct Mortgage! Based outside of Hartford CT, Military Direct Mortgage is excited to announce that it is opening a second call center in Dallas, TX. If you are an experienced Direct to Consumer Loan Originator and want to work for a dynamic, growing company with excellent salary, benefits and unlimited commission potential.  Please send your resume to Alex Halisky, or for applicants on the East Coast send your resume to Patti White.

In San Diego job news, a full-service retail only mortgage banker is seeking experienced loan officers that want to move their business upward in 2017. Under the leadership of a producing Branch Manager that closed over 500 units and $200 million in personal production in 2017 and over 130 million in 2015 2014; let us mentor and guide you on how to grow your business using our successful model and resources. With a full staff whose expertise is second to none, let us share with you our streamlined process that allows you to consistently close in 21 days or less. We are your game changer!  Please submit confidential inquiries/resumes to me; please specify opportunity and excuse any delays in response due to travel.

Sistar Mortgage is trying to hire loan officers in 26 states and operations team members in Michigan. “Sistar’s philosophy rests directly with minimizing cost and maximizing investment. Buying a home is easy when you start with Sistar. Sistar Mortgage is licensed in 26 states. We work face-to-face with borrowers to pre-qualify you, verify the credit and property aspects of the loan, and make sure you are protected in all areas of the transaction. We can help you make sense out of your credit and offer tips on improving it. Our experienced staff has worked hard since our founding to provide loans in all 26 states, all while building a winning team of professionals who have found a BETTER WAY of working in the mortgage industry. Our constant growth and expansion is a testament of our achievement in this regard.” Contact SistarMortgage with confidential resumes or inquiries.

AmCap Mortgage, a Houston-based privately held national mortgage banker with 75 branches and licensed in 32 states, has a new chief operating officer: Michael Goldman. Previously, Mike Johnson held the titles of both COO and president. Goldman will be responsible for the day-to-day operations of AmCap Mortgage, which has about 800 employees, services its own loans and expects to fund about $3 billion in residential mortgages in 2017.

And congrats to Chad Farmer who has been promoted to CEO of Homeowners Mortgage Enterprises Inc., a full-service mortgage company serving 18 states, replacing Jim MacLeod. Most recently, Farmer was senior vice president, correspondent services sales manager for Homeowners Mortgage Enterprises.

On the flip side of the good personnel developments comes news that North Carolina’s Wyndham Capital Mortgage recently laid off 78 staff members as part of an effort to “appropriately align” the company’s operations with the current market conditions. The cuts represented 21 percent of its staff. “Wyndham Capital Mortgage, Inc. is well-positioned to continue to operate as one of the best online direct-to-consumer mortgage companies in the country.”

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