What you missed in MountainView’s MSR webinar
Escrow custodial account earnings have a significant impact on mortgage servicing right (MSR) asset values, and – in contradiction to what many holders of the asset might think – mortgages of borrowers with low credit scores aren’t prepaying slower than loans to borrowers with higher credit scores.
Those were two of the topics presented last week in the MSR Asset Monthly Snapshot, a webinar hosted by MountainView Financial Solutions, a Situs company. The recurring webinar covers the interest rate environment, MSR risk management, MSR pricing levels and MSR market activity for the previous month.
In the Aug. 8 webinar, Mark Garland, managing director of analytics and head of MSR valuation at MountainView, took a detailed look at the impact of escrow earnings on the value of servicing for newly originated mortgages. Garland explained that this analysis is part of his team’s ongoing effort to review the price adjusters for new production and analyze each adjuster in isolation.
“I think most people on the phone know there’s considerable value in float rates today,” said Garland in the webinar. “I think we’ve talked many times in the past that that’s where we’re seeing the appreciation in the asset.”
Float interest rates are the ongoing income received from money held in escrow custodial accounts over periods of time. A borrower’s money held in escrow is for payment of taxes and insurance, the “T&I” portion of monthly mortgage payments.
Garland’s presentation on the topic showed how the impact of float earnings on MSR values can vary by state, how there’s wide variability in the modeling of float earnings, and how holders of the MSR asset should reconcile the value of their float earnings to the industry to keep their modeling accurate.
While still discussing MSR pricing levels, Garland shifted to prepayment speeds and sought to dispel a bit of an industry myth: that low-credit-score borrowers prepay slower than higher-credit-score borrowers.
“At MountainView, we’re constantly thinking about low-FICO product, because we spend a great deal of time thinking about credit,” said Garland. “To be absolutely honest with you, I think our first thought was that this product, by its very nature, should probably prepay a little slower than general product. We’re about to prove with our own numbers that this is not true.”
Garland presented analyses showing very little prepayment rate variance across different credit score bands for both conventional and government mortgages at different interest rates.
The webinar presentation is available for online viewing. MountainView’s next MSR Asset Monthly Snapshot webinar will be held within the first 10 days of September.
Pricey housing markets in the West are cooling off most quickly
Western states experienced the sharpest decline for existing-home sales in the second quarter, a sign that rising prices, higher mortgage rates and, to a limited extent, the new tax law are weighing on pricier markets.
Existing-home sales in the western region, including California, Washington and Arizona, declined 4.1% in the second quarter compared with the first quarter, according to data released last week by the National Association of Realtors.
Sales in the Northeast were unchanged from the first quarter, while sales in the more affordable Midwest and South rose 1.6% and declined 2.7%, respectively.
Rising home prices and interest rates are worsening affordability and damping home sales across the country. But the West, which has seen a particularly sharp run-up in prices in this six-year housing rebound, is bearing the brunt of the slowdown.
Read more: Wall Street Journal
Fannie Mae reaches out to borrowers in wildfire zones
The numerous California communities hit hard by recent desolating — and spreading — wildfires can get at least a semblance of relief from Fannie Mae in the form of mortgage assistance, the GSE reminded borrowers in a statement.
Under the GSE’s guidelines for single-family mortgages, homeowners affected by the record-breaking blazes qualify to stop paying their monthly mortgage for up to 12 months. During that payment pause, the homeowners will not rack up any late fees and delinquencies will not be reported to the credit bureaus.
As for mortgage servicers, they have the go-ahead to suspend or trim a homeowner’s payments immediately for up to 90 days without any contact with the homeowner, if the servicer thinks the owner has been affected by a disaster, Fannie Mae explains.
Read more: DS News
High foreclosures and higher education
A recent study published in Demography, a bimonthly scientific journal from the Population Association of America, analyzed the potential impact of families with children seeking higher education on the rate of foreclosures. Researchers Jacob Faber of New York University and Peter Rich of Cornell University analyzed annual college data alongside foreclosure rates from 2005 to 2011 from 305 commuting zones in the United States. Covering 84.8 percent of the population, their findings showed a strong favor toward the correlation between a higher rate of families sending their children to college predicting a higher rate of foreclosures within the same year.
While these findings do not claim to suggest that a family’s decision to send their child or children to college was as consequential on the housing or labor market in causing the housing recession, the report does claim to show a direct contribution.
“The findings expose a heretofore unexplored role that higher education costs may have had on household financial risk and resultant foreclosures,” the report said. “This research also suggests that educational expenses may explain why some families with children were more likely to experience foreclosure during the Great Recession than childless households. While the foreclosure literature has focused on subprime lending, unemployment, and house prices as the primary sources of financial overextension, there has been little attention devoted to the cost of college, despite evidence that college is a source of financial stress. Our findings do not suggest that households’ decisions to send children to college were as consequential as housing or labor market dynamics in shaping the Great Recession, but it remains important to understand all contributors to the crisis, especially because the penalties of foreclosure can be substantial and lasting.”
Read more: DS News
Quicken launches proprietary reverse mortgage alternative to HECM
Quicken Loans subsidiary One Reverse Mortgage is rolling out a private-label alternative to the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) that offers higher loan limits and more flexible underwriting terms.
The product is called the Home Equity Loan Optimizer and is already available in the lender’s consumer-direct channel and will soon be available to mortgage brokers. The loan was designed to fill the void where the FHA’s product has fallen short of what some borrowers are looking for, said Gregg Smith, president and CEO of One Reverse Mortgage.
“We’ve been exclusively a HECM shop, but we’ve been working on our own version,” he said in an interview.
Customers have been divided as to whether they want to discuss loans over the phone or face-to-face, so One Reverse Mortgage will be offering the product through both channels to meet the needs of the two different types of clients, Smith said.
Read more: National Mortgage News
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