Mortgage applications grow despite rate hike, MSR sales boom, CFPB alerts against AI bias
A weekly round-up of key events in mortgage lending & servicing
In this edition, we will do a round up of key developments of the past week.
What’s inside:
Mortgage Rates Rise to 6.43% ahead of FOMC Meeting
Mortgage Applications Rise 3.7% Despite Rate Hike
MSR Portfolio of $5.42 billion hit the market
CFPB warns of bias from AI systems
Here’s a complete low-down 👇
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Weekly Roundup
Mortgage Rates Rise to 6.43% ahead of FOMC Meeting
Mortgage rates are rising ahead of the Federal Reserve's meeting early this week, with a potential increase in the federal funds rate. The 30-year fixed mortgage rate has reached 6.43%, up from 5.10% last year. The housing market appears to be stabilizing in terms of sales and house prices, with lower mortgage rates expected throughout 2023.
The Mortgage Bankers Association (MBA) believes rates are increasing in anticipation of the Fed raising short-term rates at its May 2-3 meeting. Even though economy cooled off, it still maintained growth rate of 1.1% in Q1 - the Fed is expected to raise the funds rate and hold it at this level until the end of 2023.
In addition to this, Loan-level price adjustments (LLPAs) by the Federal Housing Finance Agency (FHFA) are also affecting mortgage rates.
These fees, based on borrowers' credit scores and down payments, are charged by Fannie Mae and Freddie Mac. Under the new rule, borrowers with scores between 680 and 780 may pay slightly more. These changes have raised concerns about the impact on middle-class homebuyers, as affordability remains a primary concern in the housing market, and in a way feedbacks into mortgage rates jacking up … Read More
Mortgage Applications Rise Despite Rate Hike
Mortgage applications increased last week despite a rise in interest rates, with both purchases and refinances growing, according to the Mortgage Bankers Association (MBA). The MBA's Market Composite Index rose by a seasonally adjusted 3.7%, but volumes were 36.8% lower compared to the same period in 2022. The 30-year fixed rate loan increased to 6.43% a week ended April 27th.
Markets expect the Fed to raise short-term rates at its next meeting, leading to higher yields and mortgage rates. The Federal Open Market Committee will meet on May 2 and 3, with many investors predicting a 25 basis point increase. In line with this expectation, the 30-year fixed jumbo mortgage rate also increased by 12 basis points to 6.4%.
Ironically, home purchase applications rose by 4.6%, but volumes were still 27.9% lower than a year ago due to high mortgage rates and low supply. Housing costs have been cooling, with Fannie Mae and Case-Shiller indexes reporting slowing price growth. In other words, while limited inventory levels is keeping values elevated, this is far from dampening application volumes.
On the contrary, the average loan sizes have taken a hit - both for purchase & refinance loans. Average purchase-loan sizes have grown by more than $40,000 since the start of the year but dropped 1.4% in the latest survey.
Refinance sizes also declined 2.2%. The MBA's Refinance Index increased 1.7% from the previous week, but was 50.9% lower year-over-year. The share of refinances relative to overall activity decreased to 26.8% from 27.6%.
Alongside the movements of the 30-year conforming loans, other fixed rates, such as FHA-backed 30-year mortgages and 15-year fixed mortgages, also increased. The hybrid 5/1 adjustable-rate mortgage fell to an average of 5.47% from 5.56%, increasing its share of total weekly volume to 6.7% from 6.3% … Read More
MSR Portfolio of $5.42 billion hit the market
Three big mortgage servicing portfolios are up for sale this week, adding to an ongoing wave of deals in the market. Incenter has one of the largest offerings with a massive $5.42 billion national package. Many billions more are reportedly in the pipeline, and at least three large banks have hinted in their recent earnings reports that they either have sold servicing or are considering doing so.
Initially, some stakeholders in the servicing market paused trading due to the banking crisis's volatility. However, brokers have reported a resumption in trading, with deals totaling over $45 billion, according to Mike Carnes, Managing Director in Mortgage Industry Advisory Corp.'s (MIAC) MSR Valuation Group. He says that the buy-side reception to the wave of sales remains strong.
Incenter's $5.42 billion portfolio comes from an unnamed seller and consists of mortgages with 31.6 months of seasoning, no delinquencies or foreclosures, and a weighted-average interest rate of 4.19%. The package of mortgage servicing rights (MSRs) is fairly evenly split between loans that government-sponsored enterprises Fannie Mae and Freddie Mac back. The average loan size is $264,890, with the largest concentration of loans based in California.
Another offering from MIAC involves a $1.9 billion package, which relates to loans either backed by Fannie Mae and Freddie Mac or government securitizations insured by Ginnie Mae.
Prestwick Mortgage Group is also offering a $188 million Fannie Mae portfolio with a New England concentration. The company is the exclusive broker for this retail loan-channel offering and is working with Mortgage Capital Trading as a strategic partner. Around 82.06% of the mortgages are on Massachusetts properties, and the package comes from an unnamed financial institution in that state. Other loans are on properties in Rhode Island and New Hampshire. The portfolio's weighted averages are: note rate, 2.98%; seasoning, 31 months; credit score, 765.75; and original loan-to-value ratio, 60.47% … Read More
CFPB warns of bias from AI systems
Four agencies, including the Consumer Financial Protection Bureau (CFPB), have issued a joint statement warning that automated systems could perpetuate bias and that companies offering these products may be responsible for any wrongdoing. The CFPB, along with the Department of Justice's Civil Rights Division, the Federal Trade Commission, and the Equal Employment Opportunity Commission, reaffirmed their commitment to ensuring that AI systems used in housing, employment, and credit are developed and used in line with federal laws.
CFPB Director Rohit Chopra emphasized that there's no exception in civil rights laws for new technologies or AI engaging in unlawful discrimination. He added that companies must take responsibility for using these tools, as unchecked AI could threaten fairness and civil rights. The agencies expressed concern that automated systems, which rely on large amounts of data, may produce biased outcomes.
The agencies also highlighted issues with non-representative datasets and the lack of transparency in how automated systems function, making it difficult to determine whether a system is fair. They aim to raise awareness, educate stakeholders, and use enforcement authorities when necessary to prevent AI from becoming a high-tech pathway to discrimination.
Previously, the CFPB warned lenders about not providing explanations for credit denials, stating that using complex algorithms is not a defense against providing accurate explanations. The bureau also plans to introduce a rule to ensure AI and automated valuation models in residential real estate have basic safeguards against discrimination … Read More
And that’s a wrap. Until next time, stay healthy & keep reading.. 😊