Are Home Equity Loans Staged for a Comeback?

Posted on November 15, 2017 by Laura Lam

HELOCS not usedThere has been a hint of optimism for home equity lending among bankers this earnings season, but attitudes remain mixed a decade after the housing market crash began.  While home equity lines of credit provided a lift to some bank consumer portfolios, a number of other banks said their home equity businesses had fallen and added little about their future.

Industry observers say bankers should take the long view. Home equity lines of credit especially are poised to grow now that home values have been rising for a number of years during the economic recovery.  “If you think about the consumer credit portfolio, it’s for so many years been sitting idle,” said Christine Pratt, a senior analyst with Aite Group. “You have a consumer sentiment that is very positive about spending and borrowing right now, and you have housing prices rising.”

Last week the credit bureau TransUnion said it anticipates 11.4 million Americans will take out home equity lines of credit between 2017 and 2022, more than double the 5.4 million Americans who took out home equity lines between 2011 and 2016.  TransUnion currently projects 1.4 million for 2017, representing a well of untapped opportunity.

“Since 2009, there’s really been a supply shortage. A lot of lenders got out of the HELOC business or curtailed that activity there,” said TransUnion’s Joe Mellman.  “We’re already starting to see more and more lenders are coming back into the market or scaling up their operations.”

While an overall HELOC bump is likely still a few years away, lenders will need to speed up the origination process to compete in this space. Mellman predicted that traditional lenders would look to innovations in the fintech space to expedite HELOC originations.

However, Pratt issued a note of caution to lenders working to speed up the HELOC origination process. As the speed to closing increases, so does the risk of fraud – particularly fraud perpetrated by family members who have the same name as the homeowner.

Source:  National Mortgage News

Housing Affordability Still Strong Despite Price Increases

Posted on November 14, 2017 by Laura Lam

Black Knight Chart 2Home prices continue to increase, yet affordability actually improved since July, according to the latest Mortgage Monitor report from Black Knight.  As of September, the average homeowner needed 21.4% of their median income to purchase a home. This is actually down from July’s post-recession peak of 21.7% and low by historical standards.  For comparison, an average 24.2% of the median income was required to purchase a home from 1995 to 1999. That increased to 26.2% in the years before the housing boom from 2000 to 2003.

Interest rates declined about 40 basis points over the past 6 months, offering the opportunity for potential savings, but these would-be savings continue to be offset by the growing rates of home price appreciation across most of the nation.  However, according to Ben Graboske, Black Knight executive vice president of data and analytics, “when viewing the market through a longer-term lens, affordability across most of the country still remains favorable to long-term benchmarks.”

Home prices increased 6.24% from last year in August, however home price growth may have tapered off.  Currently, 47 out of the 50 states hold payment-to-income ratios below their 1995 to 2003 averages. The exceptions are Hawaii, California, Oregon and Washington D.C.

While optimistic scenarios showed most states will remain below their long-term benchmarks even as home prices continue to rise, more pessimistic scenarios show that if the 30-year mortgage rates rise significantly, several states could surpass their historical norms by this time next year.

“In looking at the affordability landscape across the country, we certainly see varying levels of affordability in each market compared to their own long-term benchmarks,” Graboske said. “But, by and large, the overall theme is that affordability in most areas, while tightening, remains favorable to long-term norms.”

Other experts agree housing is affordable by historical standards. First American Financial Corp.’s latest Real House Price Index found real home prices decreased 0.4% from the previous month, and are now 38.4% below their housing boom peak in July 2006.  The Urban Institute recently released a report that showed overall, housing in the U.S. remains very much in the affordable range, however certain markets could be close to a housing bubble.  The National Association of Realtors forecast that existing home sales will increase 3.7% in 2018 suggests housing will remain affordable into next year.

Source:  Housing Wire/National Mortgage News

Will Regulation Solve Cybersecurity Problems?

Posted on November 13, 2017 by Laura Lam

cybersecurity 3Cybersecurity was a main topic at a recent New York banking conference.  According to Arthur Lindo, senior associate director of the Fed’s division of supervision and regulation, more rules may not be the best answer to protecting the financial system.  “I don’t think the solution to the cybersecurity problem rests in regulation,” said Lindo.  “We’re going to try a more flexible approach.”

The Fed and other regulators issued a notice of proposed rulemaking on cyber risk management standards last year, which is typically followed by a prospective rule. After the industry and others involved in computer security discouraged regulators from creating a standard, they decided not to proceed, Lindo said.

Lindo’s comments come weeks after Equifax Inc. announced a massive consumer data breach that led to the theft of personal information of more than 145 million people. Lawmakers including Idaho Republican Mike Crapo, head of the Senate Banking Committee, have asked the Fed and other regulators whether they need more authority to help ensure credit bureaus adequately protect consumers’ information in the wake of the attack.

There are already lots of rules and regulations that banks and other financial institutions have to follow when it comes to cybersecurity. Several lenders and trade groups collected all U.S. and global guidance documents, regulatory requirements and recent proposals on cybersecurity into a “financial sector profile,” said JPMorgan Chase & Co.’s Kevin Gronberg.  It ended up being a 2,000-line spreadsheet showing a lot of overlap between rules and demands from different regulators, Gronberg said.

“We tried to put it all into a common language, so we can reply with the same answer when we get the same questions from different regulators,” said Gronberg, vice president of global cyber partnerships.

Source:  Bloomberg

Millennials are saving more for retirement

Posted on November 10, 2017 by Laura Lam

millennials retirementIn the race to save for retirement, one group is doing surprisingly well: millennial parents.  That’s according to a new NerdWallet survey, which found that 38% of millennial parents (ages 18-34) save more than 15% of their income for retirement. All told, millennial parents reported a median retirement savings rate of 10% of income, compared with 8% for Generation X parents (ages 35-54) and just 5% for baby boomer parents (ages 55+).

Given the picture typically painted of this age group, you might be shouting “fake news” right now. There’s one caveat: The results include only those currently saving for retirement; some in all age groups aren’t. But according to the survey, that cohort is surprisingly small among younger adults: Only 7% of millennial parents — and 15% of millennials overall — say they’re not saving for retirement at all.  How are the savers pulling it off, especially given the high cost of raising children?

They’re making sacrifices

  • Putting money aside often means giving things up.  According to the NerdWallet data, 76% of millennial parents have sacrificed something in order to do so.
  • 43% say they’ve cut back on dining out in order to save for retirement.
  • Of those saving for retirement, millennial parents and millennials overall are skipping trips in roughly equal numbers: 42% and 37%, respectively.

They’re saving more when they can

  • Millennial parents report that they’ve increased their savings rates after major life changes.
  • More than 50% say they’ve done so after landing a higher-paying job, 39% after getting married and 24% after their children entered school.
  • Other common opportunities to save more money might come after you’ve gotten a bonus or windfall, paid off a debt or cut monthly expenses such as your cable bill or insurance premium.

They’re making retirement a priority

  • Saving for retirement in your early 30s is no easy task when retirement is at least three decades away.
  • While the media tells us that this generation doesn’t save for retirement because they can’t deal with delayed gratification, 61% of millennial parents said that retirement is one of their top long-term savings priorities.
Source:  NerdWallet  

FHA Loan Delinquency Rate Flattens

Posted on November 09, 2017 by Laura Lam

FHA Loan delinquenciesClosed-end loans continue to return to normal levels as overall consumer delinquencies remained steady and serious delinquency rates remained near the 10-year low.  However Federal Housing Administration loans delinquency rates seem to be slowing down.  FHA loans, popular among first-time home buyers with affordability constraints, have made steady improvements this year but may be reaching a plateau.

Loans 90-days delinquent, in foreclosure or involved in bankruptcies remained stable at 4.31% in August. The seasonally adjusted estimate was 5.2% a year ago.  Even though delinquencies have been improving, FHA loans continue to make up a large percentage of the distressed loans in the larger market, according to Altisource Portfolio Solutions.

FHA product makes up about 17% of new originations but one-third of the distressed loans in the market, Altisource’s analysis of FHA and Black Knight data shows.

While the FHA share of distressed loans is up, compared to the crisis the amount of distressed FHA product remains low, noted James Harp, director of real estate auction services at the company.  “I think the volumes have come down significantly,” he said. “It no longer makes sense for servicers to maintain large staffs.”  As a result, “a single vendor is becoming really appealing to servicers who previously wanted to diversify their vendor base,” Harp said.

More than 70% of mortgage servicing professionals surveyed predict that the volume of loans that the FHA and the Department of Veterans Affairs insure at their organizations will increase in the next 12 to 24 months, according to the Altisource study.

Source:  National Mortgage News

Storm Damage: Auto Lenders Brace for Losses

Posted on November 08, 2017 by Laura Lam

used car prices stormU.S. auto lenders are starting to tally the financial damage from late-summer hurricanes that destroyed an estimated 500,000 to one million vehicles.  So far, the impact on lenders has been relatively small, since many of them are offering forbearance to car owners who are struggling to rebuild their lives. Moreover, the biggest U.S. auto lenders have less than 10% market share, so hurricane-related losses will be spread widely across the sector, hitting credit unions and the financing arms of automakers in addition to banks.

Still, the industry’s eventual losses seem likely to run into the hundreds of millions of dollars across Texas, Florida and Puerto Rico. During the quarter, major auto lenders such as Ally Financial and Wells Fargo significantly boosted their loan-loss reserves in anticipation of higher default rates.

The costs to specific banks hinge largely on their geographic footprint. Wells Fargo has significant exposure in Puerto Rico, where damage estimates are emerging more slowly than they did in Texas and Florida. A Wells Fargo subsidiary, Reliable Auto, is the largest vehicle financing companies on the storm-ravaged island.  Wells said during its third-quarter earnings call that it built its reserves by $450 million to plan for hurricane-related losses.

Ally, which is one of the nation’s largest auto lenders, set aside $48 million during the third quarter because of the hurricanes.  “We would expect higher chargeoffs over the coming few quarters due to the localized impact of the hurricanes,” said Ally CEO Jeffrey Brown.  Ally also insures the vehicle inventories held by auto dealers. The company said that it absorbed an additional $19 million in losses in that business, but that some dealers did not file claims because they were able to move vehicles from potential flood areas to higher ground.

Because auto lending is so fragmented, the impact of credit losses on any single institution “should be relatively manageable,” stated Michael Taiano, an analyst at Fitch Ratings.  Analysts at Standard & Poor’s said they expect the hurricanes to have a bigger impact on subprime auto lenders than on firms that focus on more creditworthy borrowers. Borrowers with better credit scores tend to have more equity in their cars.

For the entire auto lending sector, there is a silver lining to the hurricanes. Used-car prices, which determine the value of lenders’ collateral, are expected to rise as hundreds of thousands of Americans who lost their cars shop for replacements.

Source:  American Banker

Are Some Cities Close to a Housing Bubble?

Posted on November 07, 2017 by Laura Lam

Urban Institute housing bubble 2According to a recent report released by the Urban Institute, with home prices on the rise, some cities are inching closer to a housing bubble.  The Urban Institute explained that in order to determine if the U.S. is in a housing bubble, knowing the reason for the price growth is critical.

In order to determine the reason for the price growth, Urban Institute utilized its housing affordability index.  Overall, housing in the U.S. remains very much in the affordable range. The median household can afford a house that is $70,000 more expensive than the median home price today. In 2006, the median household could only afford a mortgage that was $22,000 more expensive than the median home price.  First American Financial Corp.’s latest Real House Price Index found that real home prices are now 38.4% below their housing boom peak in July 2006.

First American Chief Economist Mark Fleming explains that as mortgage rates rise, affordability will continue to decline for those seeking to achieve the goal of homeownership.  “While affordability is lower than a year ago, it remains high by historic standards,” he said.  “Only three states and the District of Columbia are less affordable today than they were in January 2000.”

Urban Institutehousing bubbleThe areas that could possible cause concern include Hawaii, which is up 8.1% from January 2000, California which increased 5.7%, and Alaska, where home prices are up 4.6%. The District of Columbia is up 3.6% from that same time period.

The Urban Institute saw similar results when it measured the top 37 largest metropolitan statistical areas to find which, if any, could be areas of concern for a real estate bubble using data from CoreLogic, the U.S. Census Bureau, the U.S. Bureau of Labor Statistics and Freddie Mac. Urban Institute’s researchers looked at the area’s real increase in home prices since their lowest point and the institute’s affordability measure.

The company added the rankings together and re-ranked the MSAs most likely to be in a bubble, calling it the “bubble watch” rank. The top 10 MSAs are ranked high on both home price growth and lack of affordability measures. But further down the list, the rank could be driven by one measure or the other.

Six metros stood out above the rest: the San Francisco area and the San Jose area tied for the top ranking in the institute’s bubble watch. The Miami area and Oakland, California areas tied for third place, and the Portland and Seattle areas tied for fifth place.

Source:  Urban Institute/Housing Wire

CMBS Delinquency Rates, Loan Prices Trend Lower

Posted on November 06, 2017 by Laura Lam

trepp cmbs October 2Trepp, LLC, a leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets, released its October 2017 U.S. CMBS Delinquency Report last week.

The Trepp CMBS Delinquency Rate fell again in September, as more previously delinquent loans continue to be resolved. The delinquency rate for U.S. commercial real estate loans in CMBS is now 5.21%, a drop of 19 basis points from September. For the first time in 2017, the year-to-date level is lower than the final 2016 delinquency reading.

“For the past few months, we’ve been saying that further declines in the Delinquency Rate could be expected,” said Manus Clancy, Senior Managing Director at Trepp. “That certainly rang true in October, as more loans find refinancing or resolution ahead of their balloon dates. With the wave of maturities almost at its end, decreases in the overall reading should continue for the next few months.”

Delinquency readings for all 5 major property types fell in October, and no sector’s rate fell more than that of the hotel segment. The lodging delinquency rate dropped 42 basis points to 3.42% last month. The month’s second-largest decrease belonged to the industrial sector, as its delinquency reading shed 31 basis points to 6.24%. The office delinquency rate slid 18 basis points to 6.92% in October.

Only $660 million in CMBS loans became newly delinquent last month, the lowest monthly total in more than 3 years. Thanks to a nearly identical volume of loans which were cured in October, the upward pressure from those new delinquencies was nullified. Additionally, roughly $750 million in previously delinquent debt was resolved last month.

Source:  Trepp

Daylight Saving Time: Facts and Figures

Posted on November 03, 2017 by Laura Lam

daylight savingSunday, November 5, 2017, marks the end of Daylight Saving Time – a twice-a-year occurrence that we collectively partake in, changing our clocks forward an hour in the spring and back an hour in the fall. But why do we do this? What purpose does it serve? Is it really for the farmers?  You might be surprised how many misconceptions there are surrounding this longstanding practice.

Who came up with changing the clocks? The idea to change the clocks to save daylight was first proposed by English architect William Willett in 1907 when he published The Waste of Daylight. It is believed that Willett’s idea arose from an epiphany he had that “the sun shines upon the land for several hours each day while we are asleep, and is rapidly nearing the horizon, having already passed its western limit, when we reach home after the workday is over.”  He proposed the idea to Parliament in 1908, but it was ultimately disregarded.

Who first proposed the idea of saving daylight? Benjamin Franklin proposed the notion of making better use of the day’s light while visiting in Paris in 1784. Believing sunlight was being squandered during the day, he wrote a letter to the editors of the Journal of Paris calling for a tax on every Parisian whose windows were shuttered after sunrise to “encourage the economy of using sunshine instead of candles,” according to Michael Downing, author of Spring Forward: The Annual Madness of Daylight Saving Time.

How did World War I play a role? After hearing about the idea proposed in England, Germany became the first country to implement changing the clocks to save daylight in 1916 during World War I, believing it would save fuel while battling the Allied Powers.

When was it first implemented in the U.S.? Roughly 2 years later, after entering World War I, the U.S. enacted Daylight Saving Time into law also as a way to save fuel.

But does it actually save energy? In 2005, Congress passed the Energy Policy Act, which extended DST by a month, as a way to save energy. However, a study conducted by the U.S. Department of Energy 3 years later found that the extended daylight throughout 2005 saved only about .5% in electricity use per day and only about .3% over the year.  Also, a 2008 study by The University of California at Santa Barbara found that DST could potentially pose more energy consumption.  The report cited that Indiana spent $9 million more on energy after adopting DST, suggesting a rise in air-conditioning use in the evening.

Weren’t we told it has to do with farmers? Yes – except that’s a myth. In fact, farmers were some of the most outspoken opponents of the law in the U.S., believing that it would disrupt their farming practices, according to The Washington Post.

Are there any negative health effects with DST in the fall? Yes, there is research supporting that DST – and the shift in sleep patterns associated with it – was associated with an increase in depressive episodes and suicides during the first few weeks of changing the clocks back an hour in the fall.

Does every state participate in DST today? No. Two states – Hawaii and Arizona – do not observe DST.


1.4 Million Residential Properties Vacant in 3Q

Posted on November 02, 2017 by Laura Lam

vacant distressedNearly 1.4 residential properties were vacant at the end of the third quarter, according to ATTOM Data Solutions’ 2017 U.S. Residential Vacant Property and Zombie Foreclosure Report.  The vacant properties represent 1.58% of all residential properties, which is a 1.63% decrease in vacant properties from one year ago, the report found. However, the report also found that rate of vacant properties increased in more than half of the metropolitan area analyzed, including Chicago, New York, St. Louis, Baltimore and Phoenix.

ATTOM also found that that the number of vacant “zombie” pre-foreclosure properties – which have started the foreclosure process but have not yet been repossessed by the lender – decreased 22% from a year ago to 14,312.  “Zombie foreclosures have dwindled dramatically over the last four years as a supply-starved housing has soaked up even some of the most highly distressed properties,” said ATTOM Data Solutions Senior Vice President Daren Blomquist.

“There is evidence that the ultra-tight inventory environment in some red-hot markets is beginning to ease just a bit, with vacant property rates nudging higher in markets such as San Jose, San Francisco, Los Angeles, Boston and Denver,” Blomquist added.

The report identified the states with the highest vacancy rates as Mississippi (3%); Michigan (2.94%); Indiana (2.77%); Oklahoma (2.73%); and Alabama (2.56%).  The metropolitan areas with the highest vacancy rates were Flint, Mich. (6.89%); Youngstown, Ohio (4.49%); Beaumont-Port Arthur, Texas (3.80%); Detroit (3.77%); and Mobile, Ala. (3.77%).

According to the report, the states with the lowest vacancy rates were South Dakota (0.25%); Vermont (0.39%); New Hampshire (0.42%); North Dakota (0.69%); and Colorado (0.69%).  The metropolitan areas with the lowest vacancy rates were San Jose, Calif. (0.23%); Fort Collins, Colo. (0.24%); Lancaster, Pa. (0.26%); Manchester, N.H. (0.31%); and Provo, Utah (0.34%).

The report said the states with the most vacant “zombie” foreclosures were New York (3,528); New Jersey (2,261); Florida (1,963); Illinois (999); and Ohio (974).  Cities with the most vacant “zombie” foreclosures were New York/Newark, N.J. (3,106); Philadelphia (813), Chicago (665), Miami (571), and Tampa-St. Petersburg, Fla (477).

Source:  ATTOM Data Solutions, The Title Report