Residential: Periodic validations of MSR valuation models can create an advantage

Periodic validations of MSR valuation models can create an advantage

While depository institutions are required to have their residential mortgage servicing rights (MSR) valuation models validated, other businesses don’t face the same regulatory requirements and are potentially missing out on the benefits of periodic validations.

That’s the opinion of Raymond Wong, a vice president of analytics on the model validation team at MountainView Financial Solutions, a Situs company. Wong specializes in validations of MSR valuation models and mortgage pipeline models. He is a guest presenter in MountainView’s MSR Asset Monthly Snapshot webinar on November 6.

“The ultimate benefit of this exercise is that decision makers, who may not be direct model users, can move forward with the confidence that there is modeling integrity,” said Wong. “Decision makers will know whether their modeling process is in line with fair value assumptions, and they are also kept informed on the weaknesses of their assumptions.”

MountainView’s recurring webinars discuss interest rates, MSR risk management, MSR pricing levels and MSR market activity for the most recent month. The webinar is attended by the full spectrum of MSR market participants, including professionals at some of the largest holders of the MSR asset.

In his portion of the webinar, Wong will share brief case studies that highlight the benefits MSR valuation model users and their business unit decision makers received from the information MountainView discovered in recent validation projects. The examples will show material departures from both ordinary and best practices and the potential impact on MSR modeling.

“There is a danger when modeling integrity is taken for granted,” said Wong. “That can easily happen over time, all while portfolio composition and risk factors are changing. Accurate modeling on an ongoing basis can then come down to the devil being in the details, and periodic reviews – not just one and done – can provide ongoing confidence.”

Wong will also briefly discuss the importance of procedural documentation and data for regulatory-type audits of model use.

If your organization is a holder of the MSR asset, register now for this webinar and be added to the invitation list for MountainView’s MSR Asset Monthly Snapshot webinar series. If you cannot attend the Nov. 6 webinar because of a calendar conflict, register anyway and you’ll receive the slides and recording after the webinar.

Housing is tanking in the Northeast. Guess why.

Sales of new single-family houses were down 13.2 percent in September from a year earlier, the Census Bureau reported last Wednesday. That’s a lot — the biggest year-over-year percentage decline since April 2011, when the housing bust was still busting.

It is also within the margin of error. The Census Bureau doesn’t go out and count every home sold. It takes a sample, and it estimates that there is a 90 percent likelihood that actual home sales nationwide in September were somewhere between 26.8 percent lower than a year before and 0.4 percent higher. The midpoint of that range is 13.2 percent.

There was one region of the country, though, where home sales were definitely down by a lot. That would be the Northeast, where new home sales fell year over year at a rate somewhere between 31.2 percent and 71.4 percent (midpoint: 51.3 percent).

Why might this have happened? Nationwide, rising interest rates would seem to be the obvious culprit for any decline in home sales. The average 30-year fixed mortgage rate was 4.85 percent as of October 18, up from 3.88 percent a year before and higher than it’s been since 2011, according to Freddie Mac.

“High mortgage rates are preventing consumers from making quick decisions on home purchases,” National Association of Realtors chief economist Lawrence Yun said in reporting a 4.1 percent year-over-year drop in existing home sales last week.

But there’s this other thing that’s weighing on the Northeastern housing market: the provision in the Tax Cuts and Jobs Act passed by Congress and signed into law by President Donald Trump in December that restricts deductions for state and local taxes (aka SALT) to $10,000 a year. Some homeowners in states with (1) high housing prices and (2) high property tax rates will see much bigger tax bills as a result. Those homeowners happen to be concentrated in the Northeast. According to the Tax Foundation, the states with the biggest per-capita property tax bills are, in descending order, New Jersey, New Hampshire, Connecticut, New York and Vermont.

Read more: Bloomberg

Multifamily and commercial mortgage lending hits record high

High property values and low mortgage rates pushed commercial and multifamily originations beyond their projected totals in 2017 to a new market peak, according to the Mortgage Bankers Association (MBA).

Overall, commercial and multifamily loans totaled $530 billion in 2017, breaking the previous record of nearly $508 billion from 2007. While the record wasn’t a surprise, it overshot estimates by $15 billion.

Multifamily lending drove the total by reaching a new high itself. It jumped 6% year-over-year, rising to $285 billion in 2017 from $269.2 billion in 2016, despite the number of loans dropping to 44,623 from 46,575.

“The multifamily lending market in 2017 benefited from improving fundamentals, rising property values and low interest rates,” Jamie Woodwell, the MBA’s vice president of commercial real estate research, said in a press release.

Read more: National Mortgage News

Mortgage credit still in a post-crisis funk? The data begs to differ

In all of the recent 10-year commemorations of the financial crisis, a common theme has emerged among analysts and commentators: Mortgage credit is just too tight.

Lenders point to the effects of regulation that they say is overburdening lenders and leading to some borrowers losing out on homeownership. Others say the memory of mortgage lenders done in by easy-credit policies during the boom is still vivid, leading to today’s lenders remaining cautious.

But an actual assessment of mortgage credit availability is more complicated. The conventional wisdom that the crisis and ensuing regulations have kept mortgage credit out of reach for the vast majority of borrowers is not backed up by the data.

“There are loans for almost every borrower in the marketplace if they want one,” said Christy Bunce, the chief operating officer at New American Funding, a lender based in Tustin, CA.

Read more: American Banker

The sharp decline in housing stocks on higher rates is way overdone, top analyst says

The sharp decline in housing stocks has been driven by investor fear that higher interest rates would “put the kibosh” on the real estate market, top housing analyst from Evercore ISI Stephen Kim told CNBC last week.

The strong economy was “an enemy within” because although it benefited housing companies, it also drove rates up, Kim said on “Power Lunch.” “Over the summer, you actually began to see a slowdown brought on by the rates and so people said, ‘Uh oh, here we go, it’s basically over,'” Kim explained.

Reflecting that concern, the Philadelphia Stock Exchange Housing Sector Index, which tracks several housing-related stocks, has dropped nearly 30 percent this year.

However, Kim thinks the housing sell-off at this point is way overdone.

While the higher end of the market “has actually started to show some signs of weakening,” the lower end remains strong, he said, arguing stock valuations in the sector “look very attractive.”

Read more: CNBC

Realtors say Proposition 5 would ‘unlock the housing market,’ freeing up more inventory. Experts don’t agree

In a state with a persistent housing shortage, some believe older homeowners could provide some relief.

After all, Californians 55 and older own more than half of all owner-occupied homes. According to the California Association of Realtors, many want out of their large single-family houses but instead are “locked” in, unable or unwilling to pay the sharply higher property taxes that would accompany a new purchase, as dictated by the rules established 40 years ago under Proposition 13.

As a solution, the Realtors are pitching Proposition 5, which would let seniors move and carry their low property tax payments to any home, anywhere in the state, as many times as they like. The trade group, which has raised $13 million to support the measure, promises it will “unlock the housing market” and free up much needed inventory for young families.

“The utilization of the housing stock, it’s not necessarily efficient,” economist Jordan Levine of the Realtors group said. “You have a lot of folks in homes that don’t necessarily work for them.”

But, according to multiple outside housing experts, the measure is unlikely to unlock much of anything. Some data indicate that California seniors actually move more frequently than those elsewhere. And experts said it’s not clear a significant number of seniors, many of whom are wealthy, are ready to move only if they could keep their low property taxes.

Read more: Los Angeles Times

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