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Refinances Remain Steady With Slight Uptick In Interest Rates

The percentage of refinances remained steady at 35 percent of total loans, despite a slight uptick in interest rates according to the August Origination Insight Report from Ellie Mae. Additionally, overall closing rates climbed to 71.7 percent, the highest since January of 2017 and up from 70.6 percent in July.

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“As the summer season drew to a close, refinances held steady at 35 percent of all closed loans coupled with a slight increase in interest rates to 4.27, up from the 2017 low of 4.25 in July,” said Jonathan Corr, president and CEO of Ellie Mae.

Other statistics of note in August included:

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>>The percentage breakdown of all closed loans remained steady for the third consecutive month with conventional loans representing 64 percent of all closed loans, FHA loans representing 22 percent of all closed loans, and VA loans representing 10 percent of all closed loans.

>>While the average FICO score on all closed loans remained steady at 724 in August, average FICO scores for FHA refinances increased three points to 649. The average FICO score for conventional purchase loans decreased to 752 in August and FICO scores for VA refinances increased two points to 702, up from 700 in July.

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>>Closing time for all loans fell to 42 days in August. Time to close a refinance decreased to 41 days, down from 42 days the month prior. Time to close a purchase loan remained at 43 days in August.

The Origination Insight Report mines data from a robust sampling of approximately 80 percent of all mortgage applications that were initiated on the Encompass all-in-one mortgage management solution.

In addition to the Origination Insight Report, Ellie Mae also distributes data from its monthly Ellie Mae Millennial Tracker on the first Wednesday of each month. The Ellie Mae Millennial Tracker focuses on mortgage applications submitted by borrowers born between the years 1980 and 1999.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Unlocking The Purchase Market

Purchase loans as a percentage of lenders’ overall mortgage volume eclipsed 50 percent in April, according to the latest Origination Insight Report released by Ellie Mae. Last month’s overall purchase share of 52 percent represented a 6 percent jump from March. Here’s what happened:

According to the latest report, the average closing period for all loans rose from 44 to 45 days. Meanwhile, the overall closing rate on all loans exceeded 65 percent for the first time since reporting began in August 2011, reaching 65.2 percent.

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“An improving economy and ongoing attractive rates seem to be contributing to the rise in purchase percentage as we move full speed into the spring buying season,” said Jonathan Corr, president and CEO of Ellie Mae.

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The Origination Insight Report mines its application data from a robust sampling of approximately 66 percent of all mortgage applications that were initiated on the Encompass all-in-one mortgage management solution. Ellie Mae believes the Origination Insight Report is a strong proxy of the underwriting standards employed by lenders across the country.

Progress In Lending
The Place For Thought Leaders And Visionaries

Refi Madness

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RickShargaThe offer came in an envelope that looked like it was from a government entity, perhaps the Department of Treasury.

In bold type, the envelope told me that I qualified for a “new government program” that would save homeowners like me thousands of dollars by allowing me to finance at today’s historically low interest rates. It was “urgent” that I respond “immediately,” since the program would expire soon. All I needed to do was call a toll-free number, visit a website or fill out and mail back the enclosed form, and I would be on my way to financial freedom.

There was only one problem with this scenario: None of it was true.

As most people in the mortgage industry know, there are no new government programs aimed at saving borrowers thousands of dollars. The program so breathlessly described in the promotional mailer was, in fact, the Home Affordable Refinance Program (HARP), which hardly qualifies as “new,” since it began in March of 2009. HARP was created to allow underwater borrowers (borrowers who owe more money on their homes than their homes are worth) to refinance at current market rates, often without the added burden of mortgage insurance. The program, which has been modified to allow more borrowers to qualify, also isn’t expiring any time soon; it’s scheduled to end on December 31, 2015.

Besides the fact that the program isn’t new, or about to expire, the other problem with the offer is that I don’t meet either of the major criteria that would allow me to qualify for HARP. I have – fortunately – never been underwater on my loan, and thanks to explosive home price appreciation in California, have seen my equity increase dramatically over the past few years. My loan is not, nor has it ever been, owned by Fannie Mae or Freddie Mac. And besides all of this, my interest rate (2.85%) is below anything I could hope to get from a HARP refi, so I also wouldn’t be able to save thousands of dollars.

Most of this is information that the mortgage company could have found out about fairly easily, given the wealth of public record data available. So I’m left wondering whether they had the information and purposely sent me a misleading offer, or simply decided not to bother screening the borrowers they sent the mailing to, knowing full well that a fairly high percentage of them wouldn’t be eligible for the “new government program” they “qualified” for. Neither is a terribly attractive option, nor the kind of marketing approach that will rebuild the trust and confidence in the industry that has been lost during the housing boom and bust, and the long, bumpy post-recession recovery.

This particular offer came from a small, relatively new non-bank lender, obviously looking to gain market share however it could. But sadly, more established entities aren’t exactly doing the kind of marketing their mothers would be proud of either.

Case in point: my mortgage servicer, a long-established provider, part of a very large, well-regarded, publicly-traded company, also sent me a letter encouraging me to refinance my loan shortly after I received the faux HARP offer.

This letter encouraged me to refinance my adjustable rate mortgage (ARM) into a new 20-year fixed rate loan since “interest rates are rising.” The letter went on to say that in the case of my particular loan, my rates could go as high as 11.38% over the life of the loan, and that by refinancing into a loan with a 4.48% APR, I could save over $2,000 a month, or almost $25,000 a year. If true, that would work out to almost $500,000 in savings over the life of the loan.

Unfortunately, most of this wasn’t true either.

While it’s true that my interest rates could, eventually, go as high as 11.38%, there’s an annual cap of two points, and my annual adjustment sets the interest rate on my loan at LIBOR plus 2. So my interest rate for the past year has been 2.85%. Based on today’s LIBOR rate of about 1.10%, my rate would go up to about 3.1% at the next reset period – a far cry from 11.38%, and still more than a point better than the 4.48% APR offered by my servicer. In fact, even if interest rates began to go up steadily (something virtually no one is predicting), it would take five years of consecutive max-level interest rate increases to get me to the 11.38% threshold.

But it gets worse.

In order to estimate my “savings,” the servicer did the calculations based on the maximum 11.38% APR and the amount I owe on the loan today. That, frankly, is an impossible combination: There’s no way my loan can reset to the highest possible rates in less than five years; and there’s no way that I won’t have paid down a significant amount of the principal balance on my loan over that period of time.

Here’s how far off the calculations are: If my APR goes up to 3.1% in 2015, my payments will still be over $600 per month lower than the refi offer; if the APR goes up by the maximum two points in 2016, my payments will still be almost $200 per month lower than the refi offer. If the rates go up again by two points in 2017, the refi offer – finally – would be a better deal, saving me about $350 per month – but nowhere near the $2,000 a month “savings” I was promised. Assuming that the APR continues to go up by two points a year, and assuming that I’d be paying off exactly the same amount of principal balance every year, my loan payments would peak in 2019, but still be $800 less per month than in the horror story scenario presented to me by my loan servicer.

We all understand that this is largely an academic exercise – I’ll obviously refinance at some point when interest rates start to increase significantly enough for it to make economic sense for me to do so. But now there’s virtually no chance that I’ll refinance with my servicer’s company, because I’m left to contemplate these horribly unattractive possibilities:

>> The servicer was purposely misrepresenting the terms of my loan and presenting me with false information

>> The servicer didn’t understand the terms of my loan, or how the reset periods worked, and accidentally presented me with inaccurate information

>> The servicer is just really, really bad at math, and was hoping that I wouldn’t notice

None of these inspires me with great confidence, nor do they encourage me to do further business with this servicer. So neither of these companies will get my refinance business when the time comes.

But more troubling to me is the prospect of what’s happening when other borrowers – people who haven’t spent years inside the industry, or who don’t understand the fine print in their loan documents – receive offers like this. And what these types of offers do to the reputation of the industry in general.

How many borrowers responded to similarly-worded “new government program” offers only to be disappointed? How many blindly followed the advice of their lender or servicer to refinance their ARM now, since “interest rates are rising” only to pay hundreds or thousands of dollars that they didn’t need to – and shouldn’t have been tricked into paying? How much damage are rogue players causing to the reputation of the majority of lenders and servicers who try to – and want to – do what’s right for their customers?

Many people in the industry, with some justification, would like to be able to turn the page on the boom/bust/meltdown saga, and move on to the next chapter of the market’s recovery, unencumbered by needless legislative restrictions and strangling regulatory constraints. But trust, once broken, is difficult to recover. Especially when the behavior that caused the breakdown in trust looks like it might be coming back.

About The Author

[author_bio]

Rick Sharga is Executive Vice President at Carrington Mortgage Holdings, LLC. One of the country’s most frequently-quoted sources on foreclosure, mortgage and real estate trends, Rick has appeared on NBC Nightly News, CNN, CBS, ABC World News, CNBC, FOX and NPR. Rick has briefed government organizations such as the Federal Reserve and Senate Banking Committee and corporations like JPMorgan Chase, Citibank and Deutsche Bank on foreclosure trends, and done foreclosure training for leading real estate organizations such as Re/Max, Prudential and Keller Williams.

Don’t Run For The Hills

Challenging times are ahead. The Mortgage Bankers Association (MBA) lowered its forecast for mortgage originations in 2014 by $57 billion to $1.12 trillion for the year, based on declining mortgage application activity and increasing interest rates.

“Despite an economic outlook of steady growth and a recovering job market, mortgage applications have been decreasing – likely due to a combination of rising rates and regulatory implementation, specifically the new Qualified Mortgage Rule,” said Mike Fratantoni, Chief Economist for MBA. “As a result, we have lowered our expectations for both purchase and refinance originations in the first half of 2014. Purchase originations are now expected to be $677 billion for 2014, compared to $711 billion forecast previously. Compared to 2013, purchase originations are expected to increase by 3.8 percent.”

Refinance originations were revised lower as well and are now expected to be $440 billion in 2014, compared to $463 billion estimated previously. The updated refinance total is around 60 percent lower than 2013 refinance originations.

I know this news was not welcomed. Fewer originations is nothing to cheer about. However, as is my way, I see the good in all of this. First, the need for mortgage lending isn’t going away. People are always going to want to buy houses. The fact is the mortgage industry is needed and is an essential part of the economy. So take comfort in the fact that you are doing needed work.

Second, good lenders shouldn’t worry. If you offer a top-notch process that offers the borrower a good experience you will be ahead of the game. You want to be as close to the borrower as possible. The days of loan officers being glorified order takers are over. Loan officers have to be trusted advisors that cultivate relationships.

So, don’t run for the hills just yet, know that you are doing essential work and get to know every borrower possible.

About The Author

[author_bio]

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Originations Are Falling

The Mortgage Bankers Association (MBA) lowered its forecast for mortgage originations in 2014 by $57 billion to $1.12 trillion for the year, based on declining mortgage application activity and increasing interest rates.

“Despite an economic outlook of steady growth and a recovering job market, mortgage applications have been decreasing – likely due to a combination of rising rates and regulatory implementation, specifically the new Qualified Mortgage Rule,” said Mike Fratantoni, Chief Economist for MBA. “As a result, we have lowered our expectations for both purchase and refinance originations in the first half of 2014. Purchase originations are now expected to be $677 billion for 2014, compared to $711 billion forecast previously. Compared to 2013, purchase originations are expected to increase by 3.8 percent.”

Refinance originations were revised lower as well and are now expected to be $440 billion in 2014, compared to $463 billion estimated previously. The updated refinance total is around 60 percent lower than 2013 refinance originations.

Progress In Lending
The Place For Thought Leaders And Visionaries

My Mortgage Experience, Part 2

A few columns back I wrote that my wife and I were in the home stretch of refinancing our mortgage through the HARP program after several years of being told we weren’t eligible. Well, I’m happy to report that we closed on the loan a couple of weeks ago and now will be able to pay off our mortgage in half the time we would have been able to do under our old loan, saving tens of thousands of dollars in the process.

Unfortunately, we could have saved a whole lot more if we had been able to refi a few years ago, when HARP was first rolled out. If only I knew then what I know now.

In that earlier column, I noted that “one of the reasons we had trouble knowing if we were eligible for HARP was because it was difficult to know for sure if Fannie or Freddie owned the loan in the first place. You can use Fannie or Freddie’s website to check, but unless your address matches up exactly with theirs, you won’t get an accurate answer.”

It turns out I didn’t know the half of it. I had no idea just what a big mess an incorrect address really is and what lengths you have to go through to fix it.

While calling Sports Illustrated or Ducks Unlimited to correct your address takes one telephone call to a customer service rep, Fannie Mae requires a full “support team” to do this. And this “support team” meets all of once a month.

If you live in a condominium, like I do, or a co-op with a unit or apartment number, you’re much more likely to run into this predicament. And that can “wreak havoc in terms of refinancing or purchasing a home,” said Paul Anastos, president of Mortgage Master Inc. in Walpole, MA, where I got my refi. “It was a pretty big deal getting it changed so we could even do it.”

“Something as simple as a condo being listed as Unit 512 rather than #512 can result in the system identifying this as a loan that is ineligible for HARP,” says Patrick Ruffner, branch manager for Guaranteed Rate in Chicago. “While an instance like that is an easy one to correct by updating the file internally with the lender refinancing the loan, there are instances that are more difficult to solve.” Like mine, apparently.

“The biggest problem is these updates are processed once a month at the end of the month,” Ruffner says. “The borrower is stuck in limbo until Fannie/Freddie have updated their systems. Therefore, the borrower will be unable to move forward with their refinance until this has been corrected. Depending on when the current servicer asks the agencies to update the address, this can take weeks up to months to be corrected.”

“If it is within the last week of the month, they may push this correction to the following month, thus delaying the process further. This leads to a borrower that is unable to lock in a rate and move forward with the refinance until it has been updated in the relevant system. In a time when interest rates are volatile and every day could result in an increase of those rates, this can put the borrower’s savings in peril.”

“There definitely isn’t a sense of urgency,” said Anastos. “They make it much more difficult than they need to.”

Fannie Mae told me repeatedly that it didn’t own my loan, although my mortgage servicer insisted (correctly) that it did. I put every variation of my address I could think of into Fannie’s search engine and repeatedly came up with nothing. I even called Fannie by phone and spoke to a human being who told me they didn’t own the loan. It turns out that the address Fannie had for me wasn’t even close to the one the Post Office or my servicer recognizes.

(This, of course, begs the question: If Fannie Mae didn’t own my loan, where had my servicer been sending my principal and interest payments to every month for the past seven years?)

I called and emailed Fannie Mae at least four times to get a response for this column but never got one. For its part, Freddie Mac says it can make a “post-funded data correction,” as it’s called, in six to eight days, at any time of the month, provided the servicer has the proper documentation.

As Ruffner notes, a simple problem like this costs real money. I’d been trying to refi through HARP ever since it was first introduced in 2009. So I’ve been paying about twice the market rate for my loan over the past four years, which I assume cost me in the tens of thousands of dollars in extra interest.

Anastos brought up another point, which should make Fannie and Freddie and their lender partners stand up and take notice.

“A dishonest person could have tried to make a case that they shouldn’t have to repay the mortgage,” he said. Indeed, many borrowers faced with foreclosure tried that tactic, and some were successful.

I’m too honest a person to have attempted that. But I was sure angry enough to think about it.

Isn’t it reassuring to know that the same government that can’t fix a simple thing like your address now wants to fix your health insurance?

About The Author

[author_bio]

George Yacik has been a financial writer for more than 30 years. After working 12 years at The Bond Buyer and American Banker as a reporter and editor, he joined SMR Research Corp. as a vice president, where he was the lead research analyst and project leader for SMR's studies on residential mortgages and home equity lending. Since 2008 he has been writing for a variety of mortgage-related and financial publications. George is based in Stratford, CT, and can be reached at gyacik@yahoo.com.

How Are Rising Rates Impacting The Market Thus Far?

*How Are Rising Rates Impacting The Market Thus Far?*
**New Data Emerges**

rates-rising***There’s been a lot of talk that rising interest rates are going to slow refinance activity, but is that really what’s happening? Some say that we’re in for a prolonged purchase market starting next year. Is that an accurate assumption? New data from Ellie Mae sheds some light on these predictions.

****According to the latest Ellie Mae Origination Insight Report, “in June, the mix of refinance-to-purchase loans continued to rebalance as higher rates made refinancing less attractive and the prospect of higher home prices and potentially higher interest rates may have brought more buyers to the closing table,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “Closed purchase loans accounted for 49% of the volume in June 2013, the highest level since we began tracking in August 2011.

****The Ellie Mae Origination Insight Report provides monthly data and insights from a sampling of closed loan applications that flow through Ellie Mae’s Encompass360 mortgage management software and Ellie Mae Network. The characteristics of closed and denied loans presented in this report are averages.

****In 2012, the total volume of mortgages that ran through Ellie Mae’s Encompass360 mortgage management software was approximately three million loan applications, or 20% of all U.S. mortgage originations.

****The Origination Insight Report mines its application data from a sampling of approximately 44% of all mortgage applications that were initiated on the Encompass origination platform. Given the size of this sample and Ellie Mae’s market share, the company believes the Origination Insight Report is a strong proxy of the underwriting standards that are being employed by lenders across the country.

****What other findings could be seen in the latest report? “The average interest rate on a 30-year loan rose to 3.918% in June 2013, the highest point since June 2012 when it was 3.992%,” Corr noted. “The transition from a refinance to a purchase market may also be why we saw a growth in adjustable rate mortgages in June 2013, hitting 4% for the first time since May 2012. This may be a sign that some buyers are trying to stretch their budget as both home prices and interest rates tick up.”

****Finally, Corr noted, “HARP-related refinancing activity continued to cool with conventional refinances at 95%-plus LTV dropping from 9.40% in May 2013 to 8.00% in June 2013.”

Progress In Lending
The Place For Thought Leaders And Visionaries

More Of The Same

*More Of The Same*
**New Data**

shutterstock_74047042***Drawing on data from the May Origination Insight Report, the company’s president and COO Jonathan Corr, believes, “On a month-over-month basis, the market in May mirrored April, and credit quality, as measured by FICO, LTV and DTI, continued its slow loosening that started in January 2013. The refinance-to-purchase mix stayed at 58% vs. 42%.”

****To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the February 2013 applications) to calculate an overall closing rate of 53.5% in May 2013, up slightly from 53.2% in April 2013.

****“The average interest rate on a 30-year loan was 3.747 in May, down from 3.808 in April. An interest rate dip often prompts borrowers and lenders to lock in their refinance rates and close,” Corr noted. “While this probably factored into the steady pull-through rate in May, it didn’t affect days to close, which registered their lowest point this year (44 days in May).”

****The report draws its data and insights from a robust sampling of the significant volume of loan applications—more than 20% of all originations in the United States—that flow through Ellie Mae’s Encompass360 LOS and the Ellie Mae Network.

****“For the past few months, we’ve noted a gradual decline in high-LTV refinances that are most likely HARP-related,” said Corr. “In May, for the first time this year, HARP-related refinancing activity fell below 10% to 9.4%.”

Progress In Lending
The Place For Thought Leaders And Visionaries

The 4 Percent Rule

*The 4 Percent Solution*
**By Lew Sichelman**

LewS***“Toss people a lifeline,” the Senator from Oregon said the other day in a talk about the millions of folks who are still trapped in mortgages with high interest rates, “and good things will happen.” Toward that end, Jeff Merkley, the son of a millright and the first in his family to attend college, would create what he calls the Rebuilding American Homeownership Trust to purchase underwater mortgages.

****The trust would be housed within any of several agencies – the Federal Housing Administration, perhaps, or the Federal Reserve Board, or maybe the Federal Home Loan Bank System. But it wouldn’t be permanent. Rather, the trust would stop buying loans after three years and eventually go out of business as the loans in its portfolio are either sold to investors or paid off by borrowers.

****As the Oregon Democrat spelled it out, owners who owe more on their homes than their places are worth would sell their loans to the trust. And in turn, they would get another loan from the trust, one that better meets their financial circumstances.

****The three choices: A 15-year, 4 percent mortgage, which would rebuild equity at a faster clip; a 30-year, 5 percent loan with lower monthly payments than the first option, and a two-part financing package that includes a first mortgage at 95 percent of the home’s current value and a soft second that would not have to be repaid for five years. As long as borrowers are up-to-date on their current mortgages and meet basic underwriting standards, the choice would be theirs.

****The Trust would pay for itself from an approximate 2 percent spread between the cost of its funds and the interest rates it charges. The proceeds, plus insurance and risk transfer fees, would cover the cost of administration and defaults – and possibly even generate a profit for the federal coffers.

****Merkley says his proposal to restore home ownership – he calls it the “4 Percent Refinancing Option” – would strengthen communities where foreclosures are rampant by stabilizing house prices, and it would improve the construction sector and all sectors tied to the housing market. But most of all, the greater spending power given back to underwater borrowers would help improve the overall economy.

****“No program is without risk,” says Merkley, a member of the all important Senate Banking Committee, “but there is also great risk on the current course, with millions of families trapped in high-interest loans, barely making ends meet, and generating high levels of defaults with adverse impacts for families, communities and the economy.”

****The Senator is so convinced that his plan would work that he has produced a detailed booklet about it, and suggests that one or more states could lead the way by testing it out immediately with unused money from the federal Hardest Hit Fund. Another strategy might be for a state or two to use funds from the national mortgage settlement negotiated by the state attorneys general.

****Whatever way our political leaders choose to fund the program, Merkley says his proposal “has a high probability of not only breaking even, but of generating a profit” for U.S. taxpayers.

****The Oregon Democrat points out that the government stepped in during the financial meltdown, and it helped restore the domestic auto industry. Now, he says, its time to help struggling families whose assets are tied up in houses that have plummeted in value.

****Merkley realizes his plan is a bold one, but he cites President Franklin Roosevelt, who said in 1932: “The country demands bold, persistent experimentation.”

****While some might say the risk of launching a program such as the one this lawmaker proposes is too great, he counters that there also is great risk in doing nothing. “That, too, is a choice,” Merkley says. “A choice that would judge acceptable the current high rate of foreclosures, the stagnation in home prices, the collapse of the construction industry, and the damage all this is doing to out families and our communities.”

Lew Sichelman has been covering the housing and mortgage markets for more years then he cares to remember, starting as real estate editor at the long defunct Washington Daily News and Washington Star newspapers and finishing with a three-decade stint with National Mortgage News. His weekly column, The Housing Scene, is syndicated to newspapers throughout the country.