Fannie, Freddie fail Dodd-Frank severe stress test

Would need nearly $100 billion bailout in economic adversity

The Federal Housing Finance Agency released the latest results of the Dodd-Frank Act stress test results for Fannie Mae and Freddie Mac.

Both of the GSEs failed the test, showing they would need a bailout in the event of a severe economic crisis.

The 2017 DFAST Severely Adverse scenario is based upon a severe global recession which is accompanied by a period of elevated stress in corporate financial and commercial real estate markets.

The stress test results showed the GSEs would require an additional combined $34.8 and $99.6 billion. While they would still need a bailout, this is an improvement from last year’s $125.8 billion.

Through the second quarter this year, Fannie Mae paid out a total $162.7 billion to the U.S. Treasury, while Freddie Mac paid out a total of $108.2 billion during that same time period.

An article from MarketWatch explains the scenario the stress tests creates:

Under the hypothetical scenario, a severe global recession with “elevated stress” in corporate financial and commercial real estate markets plays out over nine quarters from 2017 to early 2019. GDP would decline as much as 6.50%, unemployment would peak at 10%, and consumer price inflation would decline to about 1.25%.

Additionally, equity prices would decline about 50% even as volatility picks up. Home prices would fall by 25%, and commercial real estate prices by 35%.

BAILOUT, DODD-FRANK ACT STRESS TEST, FANNIE MAE, FREDDIE MAC, GSES, JVPRO

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SoFi to finally file for IPO?

CEO first teased an IPO back in 2014

Social Finance, better known as SoFi, first teased it would file for an initial public offering nearly three years ago.

But, according to an article in The Wall Street Journal by Peter Rudegeair, this never came into fruition after the online peer-to-peer lender raised $1 billion from Japanese technology giant SoftBank Group and other investors.

And then earlier this year, SoFi locked in $500 million investment led by Silver Lake, “the global leader in technology investing.” The investment brought SoFi’s total equity funding to $1.9 billion.

SoFi said it would use the funds to “accelerate its expansion into new product areas and countries outside of the United States.”

Now, three years after it first mentioned a possible IPO, SoFi CEO Mike Cagney appears to be interested in filing for an IPO again.

The article referenced a letter to investors reviewed by The Wall Street Journal. From the article:

In discussing SoFi’s search for a new finance chief to succeed Nino Fanlo, who left at the end of May, Mr. Cagney wrote that he and his colleagues “believe we can find a world-class candidate who can guide the company to an IPO in the not-so-distant future.” He added: “But I’m still not saying when.”

If SoFi did file for an IPO, it would mark the second major IPO for a housing-related company after a dry spell the last few years.

There’s been a shortage of companies choosing to go public over the last few years due to adverse market conditions. According to an article in Reuters by Lisa Lambert, “Last year IPOs in the United States fell by more than a third from 2015, and many of those 102 share offerings ended up trading below their debut price.”

Online real estate brokerage Redfin helped break this dry spell in July, when it filed for an IPO at the beginning of July and began officially trading at the end of the month.

And if Redfin is any indication for demand, the market would likely welcome SoFi into the stock market. However, while SoFi and Redfin are both housing-related companies, they do not do the same thing.

Redfin priced its initial public offering at $15 per share. Traders ate up the stock after it began trading at approximately 10 a.m. Eastern on July 28.

In early trading, Redfin’s stock (trading under the symbol “RDFN”) shot up past $20 per share, an increase of more than 35% above its initial trading price.

SoFi is now one of the largest online residential mortgage retailers, only breaking into the mortgage business about three years ago.

INITIAL PUBLIC OFFERING, IPO, SOCIAL FINANCE, SOFI, JVPRO

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Redfin: Inventory shortage now impacts luxury housing market

Luxury home price appreciation outpaces starter homes

Inventory shortages have long impacted home prices, as increased competition has pushed prices higher.

A new report from Redfin now shows this same problem has made its way into the luxury housing market.

However, the report noted that competition is not nearly as significant, with few houses selling above list price.

According to the latest luxury housing market report by Redfin, luxury home prices grew 7.5% in the second quarter of 2017 compared to last year, to an average of $1.79 million.

The report looks at home sales in more than 1,000 cities across the country and defines the luxury market as the top 5% most expensive homes sold in the city in each quarter

For comparison, the average price for non-luxury homes was $336,000, up 7% compared to a year earlier, meaning this is the first time since the fourth quarter of 2014 that luxury homes had stronger price growth than homes in the bottom 95% of the market.

“The housing shortage is now affecting the top of the housing market,” said Redfin chief economist Nela Richardson. “After five consecutive quarters of double-digit inventory growth, the number of million dollar-plus homes for sale dropped by 9.4%.”

“Yet despite the strong uptick in prices, the luxury market is not nearly as competitive as the rest of the market. Only one in 50 luxury homes sold above list price in the second quarter, compared to more than one in four homes in the bottom 95%,” said Richardson.

Breaking up the luxury market, the number of homes for sale priced at or above $1 million fell 9.4% compared to the same period last year, while the number of homes priced at or above $5 million saw a similar decline at 9.5%.

The news follows a recent trend from homebuilders. Back in May, homebuilders reportedly started to finally switch gears from the luxury market, which they focused on the past several years, to starter homes.

Nearly all major builders are making this shift as Millennials, the newest generation of homebuyers who were born from the early 1980s to mid 1990s, increase their presence in the market, according to an article by Laura Kusisto and Chris Kirkham for The Wall Street Journal.

HOME PRICE, INVENTORY SHORTAGE, LUXURY HOUSING, REDFIN, JVPRO

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Wells Fargo to pay $108 million for allegedly overcharging veterans on refis

Settles lawsuit with the federal government

It seems that Wells Fargo literally can’t go one week without facing another scandal.

Exactly one week ago, Wells Fargo revealed its latest scandal, as the bank said that it is preparing to hand out $80 million in remediation for potentially wrongfully force-placing auto insurance on as many as 570,000 customers.

That scandal came as the bank is still dealing with the fallout from its fake account scandal, which saw the bank fined $185 million for more than 5,000 of the bank’s former employees opening more than 2 million potentially unauthorized accounts to get sales bonuses.

The bank is also nearing a $142 million settlement in a class action lawsuit brought by the customers affected by the fake accounts.

And now, just seven days after disclosing the force-placed auto insurance issue, Wells Fargo announced that it agreed to pay $108 million to the federal government to settle allegations that the bank overcharged military veterans for refinance loans.

Specifically, the issue relates to a lawsuit from 2006 that claimed some Department of Veterans Affairs Interest Rate Reduction Refinance Loans originated by Wells Fargo should not have been eligible for VA guarantees due to the bank allegedly collecting unauthorized fees with the loans.

The suit was filed in 2006 and unsealed in 2011, and sought compensation for the government over claims paid by the VA after those loans defaulted.

Under the agreement, Wells Fargo denies the allegations in the lawsuit but will pay $108 million to the government to resolve the claims, the bank said in a statement issued Friday. Where exactly this penalty will be paid to, the VA or some other branch of the Federal government, is not yet clarified.

The original lawsuit claimed that some of the VA IRRRLs in questions should not have eligible for VA guarantees because of “certain fees charged to the borrowers when the loans were originated.”

Wells Fargo settled a separate class action lawsuit in the matter back in 2011. That settlement included a $10 million refund that allowed all veterans who received a VA IRRRL from Wells Fargo between Jan. 20, 2004, and Oct. 7, 2010, to receive compensation whether the borrower paid the fees in question or not.

Reports at the time stated that there were approximately 60,000 VA loans refinanced in that time period, and each household was set to receive $175.

Now, Wells Fargo will pay $108 million more to the government to put the issue behind it.

“More than six years ago, when questions about fees on (VA) refinance loans were raised, we resolved those concerns by improving our internal controls and made compensation available to VA customers who closed a refinance before that time,” Tim Sloan, Wells Fargo’s chief executive officer, said in a statement.

“Settling this longstanding lawsuit allows us to put the matter behind us and continue to focus on serving customers and rebuilding trust with our stakeholders,” Sloan added. “We are committed to serving the financial health and well-being of veterans, and we will continue to honor that commitment now and in the future.”

DEPARTMENT OF VETERANS AFFAIRS, INTEREST RATE REDUCTION REFINANCE LOANS, IRRRLS, VA LOAN, WELLS FARGOWELLS FARGO ACCOUNT SCANDAL, WELLS FARGO FAKE ACCOUNTS SCANDAL, JVPRO

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Realtors beware: There"s another phishing scam out to get you

Here"s what to do if it happens to you

Realtors once again find themselves susceptible to another scam that threatens to con them into paying fines.

The National Association of Realtors warned its members of a new phishing scam that is targeting real estate professionals.

According to the association, “A broker recently received a text message claiming to be from the National Association of Realtors and accusing her of sending ‘racist texts and emails.’ The text message demanded she pay a $1,345 fine.”

Unfortunately, this isn’t the first time a scam has happened like this toward real estate agents. Earlier this year, realtors in the state of Florida were targeted and threatened with the suspension of their license as part of an elaborate scam allegedly perpetrated by a fake Realtor group.

Plus, a little over a year ago, the Federal Trade Commission and NAR issued a warning to people interested in buying a home after scammers started to pose as real estate agents, Realtors and title insurance companies to steal consumers’ closing costs.

NAR noted that for anyone who receives a similar scam text, the Federal Bureau of Investigations recommended the following steps:

• Report the incident to the FBI IC3 web site.
• If you suspect that any phone numbers or contact information were obtained due to a breach of a computer system, alert your IT department or consult an IT specialist to scan your systems and make sure that you are free from malware.
• Real estate professionals who clicked on a link the text should promptly follow up with an IT specialist to ensure that their device is free from malware.
• You can follow up with the FBI after filing the IC3 report with your local field office.

NAR, NATIONAL ASSOCIATION OF REALTORS, PHISHING SCAM, REAL ESTATE SCAM, REALTORS, JVPRO

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Fannie Mae: Home prices surpass housing boom peak

Here are the top 10 states with highest growth

Fannie Mae released its 2017 Second Quarter Credit Supplement report when it reported its earnings Thursday, which showed home prices hit an all new high, surpassing the previous 2006 peak.

Home prices increased 2.4% in the U.S. from the previous peak in the third quarter of 2006 to the second quarter of 2017.

While prices are up overall, it varies significantly from state to state. For example, North Dakota had the highest increase, seeing a growth rate of 53.7%, while on the other end of the spectrum, the growth rate in Nevada dropped 24.8% from 2006.

Home price estimates are based on purchase transactions in Fannie Mae and Freddie Mac’s acquisition and public deed data available through the end of June 2017. UPB estimates are based on data available through the end of June 2017.

In the list below, UPB percentage refers to unpaid principal balance of loans on properties in the applicable state as a percentage of unpaid principal balance of single-family conventional guaranty book of business for which Fannie Mae has access to loan-level information.

Here are the top 10 states with the highest home price growth since the third quarter of 2006:

10. Oklahoma – 17.9%

Unpaid principle balance percentage: 0.7%

9. Louisiana – 19%

Unpaid principle balance percentage: 0.9%

8. Nebraska – 21.1%

Unpaid principle balance percentage: 0.5%

7. Montana – 21.4%

Unpaid principle balance percentage: 0.3%

6. Utah – 22.4%

Unpaid principle balance percentage: 1.2%

5. South Dakota – 27.9%

Unpaid principle balance percentage: 0.2%

4. Texas – 35.5%

Unpaid principle balance percentage: 6.1%

3. Colorado – 38.5%

Unpaid principle balance percentage: 2.9%

2. Washington D.C. – 47.5%

Unpaid principle balance percentage: 0.4%

1. North Dakota – 53.7%

Unpaid principle balance percentage: 0.2%

FANNIE MAE, HOME PRICE, HOME PRICE PEAK, UNPAID PRINCIPAL BALANCE, JVPRO

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Senate to consider bill to end “FICO monopoly” at Fannie Mae and Freddie Mac

Bipartisan push continues to allow GSEs to use alternative credit scoring models

Earlier this year, a bipartisan group reintroduced a bill in the House of Representatives that would allow Fannie Mae and Freddie Mac to consider alternative credit-scoring models beyond the FICO credit score the government-sponsored enterprises currently use.

The bill, called the “Credit Score Competition Act,” enables the GSEs to consider alternative credit scoring models when determining credit worthiness.

Now, a companion bill is being introduced in the Senate as well, with the backing of Senators from both parties.

The Senate version of the “Credit Score Competition Act” is sponsored by Sens. Tim Scott, R-South Carolina, and Mark Warner, D-Virginia.

In a joint statement, Scott and Warner say that the bill will help make credit available to “ some of the 26 million ‘credit invisible’ individuals in the housing market.”

According to the Scott and Warner’s statement, the “Credit Score Competition Act” directs the Federal Housing Finance Agency to create a process that would allow alternative credit scoring models to be validated and approved by Fannie Mae and Freddie Mac when they purchase mortgages.

“Currently, the GSEs are mandated to consider a decades-old credit scoring model that does not take into account consumer data on rent, utility, and cell phone bill payments,” Scott’s office said in the statement. “This exclusion disproportionately hurts African-Americans, Latinos, and young people who are otherwise creditworthy.”

Scott also raised the issue during a Senate Finance Committee hearing this week, entitled “America’s Affordable Housing Crisis: Challenges and Solutions.”

During the hearing, Scott asked Granger MacDonald, the chairman of the National Association of Homebuilders, about the limitations of the FICO scoring model that the GSEs currently use.

MacDonald said that the FICO model the GSEs use is confusing not only to consumers, but to the industry as well.

“(Credit scoring models are) an issue that has been at the forefront of homebuilders for quite some time – probably since ’08 when the downturn in the economy came  and we were trying to find out why all of a sudden we were having so many prospective homebuyers who were losing the opportunity to purchase homes,” MacDonald said during the hearing. “And we sat down with our economics department – and we have 4 or 5 of the smartest PhD’s I’ve ever met in my life – and we said, ‘Tell us how FICO works.’ Sir, after about 30 days they came back and they couldn’t figure it out.”

MacDonald said that the GSEs need to use a system that’s “transparent” so that all consumers know how their credit score is derived.

“So you know what to do and how to improve it. How to work with it. How to work toward having good credit,” MacDonald said. “Good credit shouldn’t be an accident it should be something you work at as a goal and if you understand the rules that you’re playing by its a lot easier to play the game.”

“After growing up in a small, two-bedroom house with my grandparents, I came to understand and appreciate the independence that comes with the notion of owning a home,” Scott said in a statement.

“Homeownership is a huge part of the American Dream, and I want to help folks across the country accomplish that goal. The current credit scoring model at the center of our housing market overlooks a large swath of people that are paying their monthly bills on time and deserve an opportunity to pursue homeownership,” Scott said. “This is an opportunity to make our system more fair for everyone without lowering the bar for qualification.”

Warner said that the bill can help increase homeownership among groups that are currently being left behind.

“There are millions of Americans who pay their rent, utilities, or cell phone bills on time, yet aren’t considered ‘credit-worthy’ under federal housing finance standards because they lack access to traditional lines of credit, such as auto or student loans,” Warner said.

“These ‘credit invisible’ Americans are disproportionately young, new Americans or people of color. Our goal in introducing this legislation is to encourage Fannie Mae and Freddie Mac to consider more inclusive methodologies in determining a borrower’s creditworthiness,” Warner added. “Alternate scoring models have the potential to make homeownership a reality for more qualified borrowers who lack access to traditional forms of credit.”

Unsurprisingly, Barret Burns, the president and CEO of VantageScore Solutions, a direct competitor of FICO, welcomed Scott and Warner’s bill.

“Along with a broad coalition of housing and business advocates, we support and applaud the leadership of Senators Tim Scott and Mark Warner who today introduced the bipartisan Credit Score Competition Act in the United States Senate,” Burns said in a statement.

“No single company should have a government-sanctioned monopoly, especially when there are millions of consumers that are negatively impacted. Infusing competition into this integral area will improve fairness, transparency, and inclusiveness without compromising on standards,” Burns said. “Allowing each lender to choose the credit scoring model best for its business is in the short- and long-term best interest of the housing finance industry and the consumers they serve.”

ALTERNATIVE CREDIT SCORES, CREDIT SCORE, CREDIT SCORE COMPETITION ACT, CREDIT SCORING, FANNIE MAEFEDERAL HOUSING FINANCE AGENCY, FICO, FICO SCORE, FICO SCORES AND MORTGAGES, FREDDIE MAC, MARK WARNER, TIM SCOTT, JVPRO

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