[PULSE] Does the mortgage industry view foreclosure as a last resort?

This is the second installment of three-piece blog series from former Consumer Financial Protection Bureau Director Richard Cordray. The series challenges the industry on how it should think about foreclosures. Go here for the first piece.

Markets are shaped by the forces of supply and demand, buying and selling, and how they come into some sort of balance. Markets that operate properly tend toward a discernable equilibrium that is predictable and sustainable. But many things can disturb this equilibrium. We might say, paradoxically, that market forces are fragile in being liable to disturbances, but once disturbed they have a powerful tendency to recover an eventual balance.

Richard Cordray
Guest Author

But economic markets differ in the mechanisms that restore them to equilibrium after any notable disturbance. Some markets experience greater frictions that slow their recovery. In the pure models of academic economists, prices immediately (or at least quickly) adjust to achieve balance among buyers and sellers, the mathematics take their own course, and equilibrium is restored as the natural and seemingly inevitable state of the market.

As the Great Recession showed, however, that does not happen in any serious dislocation of the housing market. When a borrower falls behind on the mortgage, there is one ultimate method for collecting on the unpaid debt: foreclosure.

For as long as the borrower stays in the home without making the required payments, in violation of the mortgage contract, the loan-holder does not have the benefit of the bargain it has made. Not until the collateral — the home — is recovered can the loan-holder try to make itself whole by selling the home to someone else. That requires ousting the homeowner and getting back the legal title to the residence.

So, foreclosure is a legal process, subject to the frictions created by legal procedures. In this market, equilibrium is not produced by simply adjusting prices among buyers and sellers, which is a purely economic process. Instead, it is produced by a non-economic process involving courts, judges, laws, rules, attorneys, evidence, proof, and even appeals. All these processes are reasonably complex, and they take time to sort out.

Even in normal conditions, therefore, foreclosure is a cumbersome solution to the problem of the defaulting borrower. It can produce vacant and abandoned properties, because as soon as the residents receive notice that the house will be going into foreclosure, they face uncertainty about when they will be ousted, which prompts many to vacate the premises before getting thrown out.

Even with nobody in the home, it takes time to secure a court ruling and ultimately a sheriff’s sale. During this period, the property may be deteriorating, and its value is diminishing accordingly. In a normal economic cycle, therefore, this method of resolving the situation can be sub-optimal, but it works adequately if properties can be managed and the legal system can bear the workload.

But when the housing and mortgage markets collapsed on a greater scale a decade ago, the foreclosure process did not work at all as intended. The sheer number of defaulting borrowers led to a legal pileup. In some states, it took years to process the volume of cases. Even those states that allow foreclosures to proceed outside of the courts (about half of them) experienced delays in their legal processes. The costs of foreclosures rose with the extended time frames, and the problem of many vacant and abandoned properties producing permanent damage to untended structures reduced housing values even further.

Any concentration of foreclosures also produces another externality, by driving down property values in surrounding areas. A half-dozen foreclosures can drag down the whole neighborhood — even for those current on their mortgages with sensible terms — damaging their finances as well.

This creates a spiral of instability, with underwater mortgages impeding the sale of homes and refinancing of loans, causing even more economic hardship. Short sales became an improvised means to make the best of some bad situations. But many communities languished in these ways during the Great Recession.

One lesson we learned from the last crisis, therefore, is that in hard times it is especially important to view foreclosure as a last resort. As the ultimate collection tool, it is easily blunted. If properties get tangled for years in prolonged legal disputes, the drawbacks of foreclosure proceedings become magnified, which greatly hinders recovery of the underlying value of the collateral — and economic recovery overall.

The CARES Act reflects this shift in thinking by offering streamlined mortgage forbearance on all government-backed mortgages (almost two-thirds of the market) to anyone suffering hardship from the COVID crisis. Other loan-holders are being urged to do the same. But to succeed, this new approach must be executed effectively. So, we need to think further about how the dynamics of mortgage servicing can affect our conscious nationwide effort to minimize foreclosures.

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Source: HousingWire Magazine

Dime Community taps insider as its new president

Stu Lubow, who succeeded Kenneth Mahon, gained more responsibilities. Mahon remains Dime’s CEO.
Source: American Banker

Mark Cuban, banker Jill Castilla create site to streamline PPP

The pair created a website that will help borrowers in the Paycheck Protection Program apply for loan forgiveness.
Source: American Banker

[PULSE] Beware the housing confidence indices

One of the distinctive features of modern economies is constant measurement. 

A consequence of many interrelated factors, constant measurement is very much a product of capitalism. 

Romi Mahajan
Guest Author

However, in the American economy today, we have gone far beyond simple measurement that’s connected to the main levers of economic planning and growth. 

This is why most indices should be understood to be very thin slices or a larger and often internally contradictory reality. Not to pick on anyone specifically, but take for instance the NAHB/Wells Fargo Housing Marketing Index (HMI) that is based on monthly surveys of NAHB members and “is designed to take the pulse of the single-family housing market.”

It is too difficult in this short article to get into the details of the methodology or to examine the historical numbers. But it is worth looking at the recent measurements:

While the numbers were incrementally moving lower in the first three months of the year, after hitting a “local maximum” in December 2019, it crashed in April 2020 only to recover partially in May 2020. 

We all know the reason for the crash: the COVID-19 pandemic. But we should be clear – the reason doesn’t matter. 

What does matter is that the “confidence” that was measured (and invested in) in the months and years preceding this precipitous crash was unfounded. The excess investments, decisions and prognostications made based on this false confidence were inefficient, unscientific and likely economically damaging. 

The point here is not to suggest that this particular index is worse than others, but that these indices don’t just reflect sentiment. Through their very measurement and marketing, they encourage actions and lead to large investment decisions.

As with the stock market and with oil prices, this confidence index does not inspire confidence when you apply even the slightest pressure to it. Indices like this are not prophetic, other than in the minor self-fulfilling prophecies they create. 

While we cannot abandon measurement, we also should not have a theological view of economics or measurement. We need to have the discipline to understand that data offers us a partial snapshot into a temporal reality and does not offer a preview of the future. 

What we need to do, as a partial corrective to the current approach, is to assemble a group of sociologists, mathematicians, data mavens, AI engineers, policy experts and working people to develop flexible frameworks that are “aware” of their own fissures and shortcomings. 

We can’t afford to continuously double-down based on limited data or to “put it all on red” just because we feel “confident.” 

We owe it to the industry and to the population of the country to approach this with more humility, a quality too often foreign to our anointed economists.

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Source: HousingWire Magazine

U.S. Bancorp could step up branch closings post-COVID

Customers’ increased use of digital channels during the pandemic could compel the Minneapolis company to rethink its branch strategy, CEO Andy Cecere said.
Source: American Banker

Amazon among companies helping apartment platform SmartRent raise $60 million

SmartRent, a smart home automation platform for property managers and renters, already featured some of the biggest names in multifamily real estate among its backers, but the company got a big boost last year when Amazon invested in the company.

And now, all of those companies, Amazon included, have invested even more money in SmartRent, aiming to continue the company’s growth.

SmartRent announced Wednesday that it raised $60 million in its Series C funding round. According to the company, the funding round was led by Spark Capital with participation from Fifth Wall, Energy Impact Partners, the Amazon Alexa Fund, Bain Capital Ventures and RET Ventures.

This is Amazon’s second investment in SmartRent through the Amazon Alexa Fund, an Amazon venture capital arm that invests in companies that use voice and other technology, as well as new contributions to the science behind those technologies.

Beyond Amazon, several of the investors in SmartRent’s latest funding round are big names too.

RET Ventures is an early stage venture capital firm that is backed by AimcoBoardwalkEssex Property TrustMAAUDRStarwood Capital GroupCortland and GID. The firm first invested in SmartRent in 2018.

Fifth Wall is a venture capital firm backed by real estate titans like CBRELennarD.R. Horton, PulteGroupHinesEquity ResidentialPrologisMacerichHost Hotels and Lowe’s Home Improvement.

As for why these big names are investing in SmartRent, the company’s offerings have taken on an even greater importance in a COVID-19 world.

SmartRent offers a range of connected devices designed to help multifamily property owners, managers and residents utilize smart home features. SmartRent’s solutions allow landlords to lower their expenses and provides a new way to monitor and protect their units through sensors that detect water leaks, smoke, fire or carbon monoxide.

Beyond that, SmartRent enables landlords more control over vacant units, through remote access control to all doors, fully digitized locks that don’t need to be rekeyed every time someone new moves in, and helps to reduce utility consumption via remote access.

And in the current climate, features like those are becoming more important than ever.

“With COVID-19 ushering in an era where digital, contactless experiences are required to address the needs of multifamily property owners/operators and their residents, real estate companies are turning to smart home and smart access technologies to meet the new reality,” SmartRent said in a release. “The explosive growth of package shipping, product and food delivery, combined with the need for self-guided tours and contactless entry, is driving demand for SmartRent.”

According to the company, SmartRent saw 600% growth in the number of connected units last year.

Amazon and the other companies investing in SmartRent see that potential too.

“We see the potential for multifamily residential to be one of the next growth opportunities for smart home technology,” said Paul Bernard, director for the Alexa Fund.

“Since becoming an investor in the Series B, we have been impressed with the SmartRent team’s approach to bringing smart home automation tools to renters, property owners and managers through a solution that easily integrates with existing property management workflows,” Bernard said. “Further, we share a common view on the role of contactless solutions such as Alexa-enabled devices in the smart apartment of the future and look forward to continuing to support them on the execution of their vision.”

And the company isn’t expecting to slow down any time soon.

“This round of funding will enable our next phase of growth as we expand our portfolio to ensure more homes can benefit from a seamless smart home experience,” said Lucas Haldeman, CEO and co-founder of SmartRent.

“The tailwinds of e-commerce, food and grocery delivery, and the broader digital economy were already significant entering 2020, resulting in widespread demand for hardware-agnostic smart home and access technology platforms like SmartRent,” said Will Reed, general partner at Spark Capital.

“That demand has only accelerated as property owners and operators look for ways to make property tours contactless and handle deliveries in a seamless manner,” Reed added. “We’re thrilled to partner with Lucas and the entire SmartRent team as they continue to help an entire segment of the economy digitally transform their operations and resident experiences.”

Beyond the capital raise, SmartRent also announced that it hired Darian Hong as the company’s new chief financial officer, and CJ Edmonds as chief revenue officer.

“With this latest funding round and new executive hires, we will continue to evolve our offerings to support the multifamily and housing industry amid a challenging economic period and an increasingly digital society,” Haldeman added.

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Source: HousingWire Magazine

Lenders need to hire now to scale for the refi volume opportunity

HousingWire spoke with Solidifi President Loren Cooke about what lenders can do to thrive in a disrupted and fast-growing market.

HousingWire: While COVID-19 has dampened the spring purchase market, refinances are set to surge as a result of historically low rates. What challenges are lenders facing right now as they work to capture this market opportunity?

Loren Cooke: The reality is, the spring market actually started a little bit early this year and it looked like it was going to be a strong spring purchase market. But on top of that, the 10-year treasury yield dropped, rates followed and we saw that lenders had overflowing demand and their pipelines were at capacity. That was near the first week of March.

And then COVID hit. Lenders were already at capacity, challenged because of the surge, and many weren’t ready.

Like most companies, they had to move quickly to implement work from home strategies but being an essential service, they also had to adapt and find new ways of keeping some of their physical locations open, changing their processes to adopt physical distancing recommendations from world health organizations on top of respecting state/local orders – which seemed to be changing almost daily.

The challenges were really twofold: dealing with a flood of demand, coupled with a major disruption to existing operations, which is a monumental task – especially for lenders with a national presence.

On the other side of this, the opportunity is absolutely massive for this market. With rates set to stay at these low levels, we estimate that it will take the industry another two to three years to cycle through this refinance opportunity.

I think the biggest challenge right now for lenders is how are they are able to scale their operations to capture this long-term opportunity and grow market share, or in certain cases, protect their existing market share.

HW: How have you seen lenders and their partners adjust their workflows to incorporate more remote work and social distancing requirements?

LC: One thing I know about our industry and this market is that it is resilient. Everyone has had to adjust, but the reality is that what we do is an essential service and so the work still needs to get done.

Solidifi has created Safe Space Appraisals and Safe Space Closings, providing guidelines on how to protect the appraisers and notaries on our networks, as well as lenders and homeowners. These guidelines are aligned with guidance provided by the WHO and CDC as well as state and local authorities.

With Solidifi Safe Space Appraisals, appraisers wear personal protective equipment, and they ask homeowners to open the doors, turn on all the lights and clear access to all spaces in the home to limit surface contact. They also physically distance during the inspection by asking homeowners to wait outside and they eliminate any face-to-face interviews with property contacts.

With our Solidifi Safe Space Closings, notaries pick a secure, neutral space for the closing, like a porch or driveway, so they can verify IDs and exchange documents while maintaining physical distance. It also means notaries don’t share pens or shake hands during appointments.

By adopting these measures, Solidifi hasn’t really skipped a beat during this pandemic. We have provided our clients with a level of assurance that we’re doing everything we can to keep customers safe.

There was no playbook for this pandemic – for anyone. I think it has tested our mettle, and all things considered, we’ve clearly demonstrated our resilience and ability to adapt.

Solidifi hasn’t seen any material change in our network capacity throughout this pandemic. We’ve also maintained our leading performance standards and SLAs, which is gives our clients a competitive advantage in this environment.

HW: What steps can lenders take to ensure their business not only thrives in the current environment but remains poised for long-term growth?

LC: I think the most important thing lenders are thinking about today is how to add underwriting capacity. This is a long game and we’re just in the first inning.

Figuring out ways to recruit talent remotely is going to be absolutely critical, but the challenges also extend beyond recruitment – you need to onboard these new employees in this environment.

That’s going to be tough. We’re going to have to bring in new people into the industry, which is a great opportunity, but those people have to be trained. I think that’s going to be a big focus for lenders.

This also makes having a strong operations backbone supported by trusted, experienced partners even more significant.

Lenders should be looking at the downstream impact of taking on more volume and ensure that they have vendors in place who can scale with the growth of their business – without compromising on quality or customer experience.

The next few years could represent a growth cycle that, frankly, we haven’t seen in a few decades. Having strong partners who can scale will be a key component in how lenders continue to win and grow market share.

HW: How can partnering with Solidifi help lenders scale to capture market share?

LC: Solidifi is already working with the majority of the top 100 originators in the market today to help them be more competitive and grow their market share.

Our business is built for scale. We create a better engagement model for the procurement of title, settlement and valuation services by focusing on quality at the start of our process.

Simply put, we’ve focused on finding the most qualified independent professionals who can deliver the highest quality product and the best experience for the customer in a scalable format, and we’ll continue to prove that out.

We’re a very long-term focused organization, and so we’ve been adding capacity to prepare the business for the long run. It’s about hiring today to handle the volume that’s coming.

We believe the opportunity will be significant over the next few years. We’re already helping our existing clients to rapidly scale their operations today, and we’re focused on continuing to provide them with capability to capture that growth.

The post Lenders need to hire now to scale for the refi volume opportunity appeared first on HousingWire.

Source: HousingWire Magazine

Jobless claims top 40 million as pandemic layoffs hit 1 in 4 workers

Another 2.1 million Americans filed jobless claims last week, bringing the tally of jobs lost during the COVID-19 pandemic to 40 million, about one out of every four workers.

At the same time, there was a glimmer of hope: Continuing claims that measure the number of people receiving unemployment benefits declined for the first time since the start of the pandemic. The number of people receiving jobless benefits dropped by about 3.8 million to 21.1 million as some people were rehired, according to data released Thursday by the Labor Department.

“Continuing claims are particularly noisy these days due to processing lags and methodological issues, but given the magnitude of the decline, this could indicate a meaningful amount of rehiring,” Goldman Sachs economists said in a report.

The number of initial jobless claims was the lowest since the pandemic’s beginning in mid-March and marked the eighth consecutive week of declines since the all-time high of 6.9 million during the week ended March 28. During the worst week of the financial crisis, in March 2009, claims topped out at 665,000.

Three states posted large drops in continuing claims: Florida fell 76%, California fell 40% and Washington also fell 40%.

Some of the decline in ongoing claims can be attributed to states allowing businesses to reopen, often with the requirement they serve customers while maintaining social distancing, said a report from Wells Fargo economists.

And some likely is due to businesses receiving loans from the Paycheck Protection Program created by Congress in late March, the report said. The loans can be forgivable if used to either keep people on the payroll or rehire laid-off workers.

“The re-opening of the country, and likely also the PPP, appear to be driving employers and workers back together again,” the report said.

Still, 2.1 million jobless claims in a single week “remains tragically and
almost unbelievably high,” the Wells Fargo economists said.

The post Jobless claims top 40 million as pandemic layoffs hit 1 in 4 workers appeared first on HousingWire.

Source: HousingWire Magazine

Ben Lane starts a new adventure

A few months after I joined HousingWire in 2013, Ben Lane signed on as a mortgage reporter. The big news during that period was compliance with Dodd-Frank, including the Qualified Mortgage rule. A lot has changed in the industry and at HousingWire in the last six years, and on Friday, Ben is taking the next step in his career – going to work for New American Funding to help shape their content. 

Ben has been a prolific contributor to HousingWire, reporting on some of the most important events in our industry. He’s ferreted out the news wherever it has led him over this time, breaking stories about companies, individuals and government actors and winning awards in the process.

We’ll miss Ben’s reporting and his incredibly witty repartee over Slack, and we know many of you will miss him too. Before we send him off with all our good wishes, we sat down with him to talk about some of the highlights during his time here.

Sarah Wheeler: What was your very first story for HousingWire?

Ben Lane: I have vivid memories of my first day at HousingWire and my first story. I got to the office around 9 a.m., and literally within 15 minutes of getting there, I had my first assignment. I didn’t even have a HousingWire email address yet. The former editor in chief, Jacob Gaffney, asked me for my personal email address and said, “I’m sending you a story I want you to do today.” I didn’t even have an email address yet and they wanted me to do a story already!

Needless to say, I was overwhelmed. But after some training from both Jacob and Brena Nath (then Swanson), I was able to nervously turn in my first story, a people mover about a hiring at Realogy, by noon. I’ll always remember that. In the end, I’m grateful for the way they treated me. It helped me find my footing very quickly.

SW: Do you remember your first breaking news?

BL: I don’t remember my first one, but I definitely remember my first really big one. It was Halloween 2014, and we were set for our traditional chili cook-off in the office. That morning, I got a tip from a source that PGA golfer Dustin Johnson had sued his attorney, Nat Hardwick, for allegedly stealing $3 million from him. Hardwick was the former managing partner of real estate firm Morris Hardwick Schneider and CEO of its affiliated company, LandCastle Title.

A few weeks earlier, Hardwick had resigned his positions after “substantial escrow account misappropriations” were discovered with the accounts of MHS and LandCastle. And I got a tip that Johnson was suing him. I obtained a copy of the lawsuit and went to work on the story, but the office was all abuzz over the chili cook-off and costume contest. I’ll always remember breaking that story and seeing it blow up nationally while the aroma of chili filled our office.

SW: Who surprised you when you met them in person?

BL: Ted Tozer, the former president of Ginnie Mae. I was shocked by how tall he was.

SW: What’s the biggest change you’ve seen in the industry over the past six years?

BL: The biggest change is that now it really seems that Fannie Mae and Freddie Mac are going to exit conservatorship. When I started, and for several years after that, it really seemed like they were going to be in conservatorship forever. There wasn’t any momentum or push to upset the status quo and it seemed like it was going to remain that way into perpetuity. But things are much different now. It’s such a massive 180 from where things were prior to 2017.

SW: When you and I started working for HousingWire, a good day was anything over 5,000 readers. Now our normal is around 80K and it’s not unusual to have more than 120K unique daily visitors. Does that ever freak you out?

BL: Sometimes, when you really think about how many people are reading the articles we write. But more than anything, I’m incredibly proud of how much HousingWire has been able to grow over the last few years. And I’m proud to have played a small part in helping the company grow. None of this would have happened without the hard work and dedication of all of the people at HW now and everyone who came before us.

I was able to help things along in my time, but none of this happens without the work of the editorial team, the audience development team, the sales team, the marketing team, the client success team, the sponsored content team, and the executives. I’m proud to have been their teammate over the last six years.

SW: What are some of the stories you enjoyed working on most?

BL: The stories I liked the most are the ones where I was able to do deeper dives into a particular topic, and ones where you’re able to track the development over time. The Nat Hardwick story, for example. I ended up writing more than 20 articles about that unfortunate situation in my time at HW, and as most journalists in situations like that will tell you, I know much more about this story than I was able to write. But being able to see that story all the way through was something I take pride in.

Another is the series about Nationstar rebranding to Mr. Cooper. Beyond those, any time I was able “take a walk” on something, like when I called out CNBC for how it talked about millennials or when I dissected what I consider to be one of the worst money advice columns I ever read, those were fun to write.

SW: Does New American Funding have any idea how funny you are on Slack?

BL: Well, now I’m blushing. I don’t know about funny. Mildly amusing, at best, I’d say.

SW: What will you miss most about HousingWire?

BL: HousingWire was really the place where I found myself as a professional and a journalist. The team there allowed me (and the rest of the writers) space to find ourselves, discover what we liked writing about, what interested us, and gave us all the help we needed along the way. I learned something new every day I was here, whether it was about the housing business or journalism. And I’ll always be grateful for that. What more can you ask for than a company that helps you grow and learn and progress? And what more can you ask as a journalist than a company that trusts you and supports you?

Beyond all of that, I’ll miss the people of HW. It’s a special place filled with special people. It’s been one of the great honors of my life to call HousingWire my home and I’ll never forget my time here.

The post Ben Lane starts a new adventure appeared first on HousingWire.

Source: HousingWire Magazine

Fed takes big step toward launch of Main Street Lending Program

The Federal Reserve Bank of Boston published details on the terms for lenders and borrowers to participate in the facility intended to provide coronavirus relief funds to middle-market firms.
Source: American Banker