All posts by synergy

Latest Developments on VA Loan Appraisals

The U.S. House of Representatives has passed HR 7735, Improving Access to the VA Home Loan Benefit Act of 2022, a measure that would direct the U.S. Department of Veterans Affairs (VA) to update their regulations on appraisals. They would be required to consider when an appraisal is not necessary, and when a desktop appraisal should be utilized.

Introduced by Rep. Mike Bost of Illinois, HR 7735 would enhance VA’s home loan program by streamlining the home buying process for veterans and their families. HR 7735 would ease the home buying process by allowing the nation’s veterans to use the same modern purchaser tools that non-veteran buyers already use.

The VA home loan program has afforded millions of servicemembers, veterans, and their families the opportunity to become homeowners, a benefit that has empowered U.S. veterans with the resources they need to purchase, retain, and adapt homes at a competitive interest rate, and helps to ease the transition from active duty to civilian life. While VA’s home loan program has historically performed well and assisted many nationwide in achieving homeownership, it has not kept pace with today’s homebuying practices in certain ways. Veterans using a VA home loan are required to have an in-person appraisal performed by a VA-approved appraiser prior to purchasing their home. However, there are often lengthy wait times for the relatively few VA-approved appraisers to become available to perform these appraisals, resulting in in veterans being forced to wait longer to complete the homebuying process, and move into their new home.

“The bill will encourage important reforms to the agency’s requirements regarding when an appraisal is necessary, how appraisals are conducted, and who is eligible to conduct an appraisal,” said Bob Broeksmit, CMB, President and CEO of the Mortgage Bankers Association (MBA). “This legislation is an important first step towards broad modernization of VA appraisal processes and could make veterans’ home purchase offers more viable in today’s competitive housing market.”

Now that HR 7735 has passed the house, its companion bill in the Senate, S4208, the Improving Access to the VA Home Loan Act of 2022, introduced in May 2022 by Sen. Dan Sullivan of Alaska awaits passage.

“VA home loans have given millions of veterans and their families the opportunity to purchase a home,” said Rep. Bost. “Yet, on average, veterans wait longer and pay more during the closing process due to VA’s out-of-date appraisal requirements. That’s why I am introducing the Improving Access to the VA Home Loan Act of 2022 with my friend, Senator Sullivan. This bill will make sure that veterans are not unfairly disadvantaged during the home buying process and allow for a modern, digital appraisal process, which will get them into their new home faster.”


Mortgage Rates Are Headed in Which Direction Now ?

Things Are About to Get Even More Interesting For Rates

It’s certainly already been an interesting year for financial markets–especially for housing and interest rates. But most of what’s happened over the past 8 months could be thought of as the more predictable phase of the post-pandemic market cycle. It’s what happens next that’ll be more interesting.

How could anyone say that the last 8 months have been predictable when rates have risen at the fastest pace in decades to the highest levels in more than 14 years? It’s true, the pace and the outright levels defied most predictions. But the predictable phenomenon was more of a general truth that we knew we’d contend with in late 2021. Here it is in a nutshell:

The Fed shifted gears on bond buying in late 2021, announcing a gradual wind-down of new bond purchases to be followed by a series of rate hikes. This shift from the Fed was always likely to coincide with rising rates and lower stock prices. The only uncertainty was the size, speed, and staying power of the shift as the Fed attempted to strike a balance between combatting inflation without crippling the economy.

See Rates from Lenders in Your Area

June’s reading of the Consumer Price Index (CPI, a key government inflation report) was the only major curve ball of the year–generally thought to be a byproduct of the Ukraine War’s effect on commodities prices.  It made for a rapid reassessment of the Fed’s rate hike outlook as seen in the chart below.

The blue line is the market’s expectation of the Fed Funds Rate after the September meeting.  Note the big leap in June.  To be fair, July’s inflation report caused another jump, but it fell back quickly to the previous 2.875% range and has been there ever since.  

Longer term rate expectations (for the December meeting as well as next June’s meeting) have had more ebbs and flows due to the shift in the economic outlook.  Weaker economy = lower long-term rates, all other things being equal.  These longer-term expectations share more similarities with longer-term rates like those for mortgages.

Rates recovered nicely in July as markets feared recession, but rebounded sharply in August as data suggested a much more resilient economy.  This was especially true of the jobs report in early August as well as the ISM Purchasing Managers Indices (PMIs) which are like more timely, more highly regarded versions of GDP broken out by manufacturing and non-manufacturing sectors.  

PMI data has been responsible for several noticeable jumps toward higher rates over the past month.  The same was true this week when the non-manufacturing (or simply “services”) version came out on Tuesday morning. The services PMI was expected to move DOWN to 55.1, but instead moved UP to 56.9, effectively keeping it in “strong” historical territory whereas the market thought it was trending back down to the “moderate” level.

That’s all just a fancy way of saying that, despite GDP numbers being in negative territory, and despite aggressive Fed rate hikes, other economic indicators suggest the economy continues to expand.  The PMI data helped push US rates higher at a faster pace than overseas rates as US traders returned from the 3-day weekend, but European rates took the lead on Thursday after the European Central Bank hiked rates and warned about upside risks to the inflation outlook.

While US economic data is certainly responsible for a good amount of upward pressure in rates recently, Europe and European Central Bank policies have been adding fuel to the fire.  This can be seen in the faster rise in EU bond yields. Incidentally, the initial jump in the blue line (US 10yr) in early August coincided with several strong economic reports in the US: ISM PMIs and the Jobs Report.

Long story short, rates have topped out twice and the market knows what it looks like to see high rates in conjunction with a strong economy.  The bigger question is the extent to which inflation is calming down.  After all, inflation is the reason the Fed continues to say it’s willing to attempt to restrain economic activity via rate hikes.  Looking at the year-over-year chart, it looks like we have a long way to go for the Fed to get core inflation back down to its target.

But year-over-year data is just that.  It includes the past 12 months–many of which contribute a massive amount to a total that will inevitably be much smaller even if the economy simply maintains the current monthly pace of inflation.  In fact, core inflation only needs to move down 0.1% in the next report to put year-over-year numbers on pace to hit the target range.  Once the Fed is reasonably sure that’s happening, it can begin to consider a friendlier shift in the monetary policy that has recently put so much upward pressure on rates.

And that brings us to why things are about to get interesting.  Summer is unofficially over.  School is back in session.  Traders are back at their desks.  And next week brings the next installment of the CPI data.  6 short business days later, we’ll get the next Fed policy announcement as well as an updated rate hike projection from each Fed member.

All of the above is made all the more interesting due to the fact that the Fed–by its own admission–has no idea how much it will hike rates in 2 weeks, and that it will only be able to decide after it sees economic data.  Given that CPI is by far and away the most relevant piece of economic data between now and then AND that the Fed has a policy of abstaining from public comment starting 11 days before a meeting (aka today was the last day of Fed comments until 9/21), the market’s reaction to next Tuesday’s CPI data could be tremendously interesting indeed. 


Mortgage Compliance – What You Need to Know About Redlining

Fair Lending compliance is a hot button issue, making it critically important that your institution has a clear sense of its fair lending risk exposure.

From the Office of the Comptroller of the Currency’s (OCC) supervisory priorities and speeches from officials at the National Credit Union Administration (NCUA) to the Consumer Financial Protection Bureau’s (CFPB) advisory on the Equal Credit Opportunity Act (ECOA) and the Justice Department’s fair lending initiative, all eyes are on fair lending.

While Fair Lending compliance can be complex, having a clearer sense of your risk exposure can make it simpler.

Uncovering fair lending risk to build a stronger fair lending program

The first thing to remember is that Fair Lending covers every stage of the crediting process — from marketing all the way to servicing.

Second, Fair Lending applies to all loans — not just HMDA loans.

And third, regardless of whether staff is officially responsible for compliance efforts, they are still responsible for supporting Fair Lending efforts and complying with Fair Lending laws and regulations.

Here are the seven primary Fair Lending risks.

Compliance Management Program Risk

Is your Fair Lending Compliance Management Program (CMP) able to effectively manage and mitigate your Fair Lending risk? The strength of your CMP needs to be commensurate with the inherent risk profile of your institution.

Redlining Risk

Redlining continues to be a major regulatory hot topic. But do you know your Redlining risk? In today’s regulatory environment, you need to.

Marketing Risk

Fair Lending extends to marketing. Financial institutions need to ensure they are marketing their services equally to similarly situated individuals. One question to consider as you assess your marketing risk is: Are we receiving applications consistent with our market demographics?

Steering Risk

As you assess steering risk, you will be looking to determine if similarly situated individuals are treated similarly. Any evaluation of steering risk will benefit from the insight provided by Fair Lending data analysis. One question to consider: Are we directing certain applicants to particular products? By analyzing your data, you’ll be able to identify any disparities.

Underwriting Risk

Underwriting risk is key area of Fair Lending risk. When analyzing your data, pay attention to the number and rate of originations and denials. As you assess your risk, look for any vague or subjective underwriting criteria or other potential for discretion in the process.

Pricing Risk

Are all similarly situated applicants receiving similar pricing? If not, you may have pricing risk exposure. As you analyze your data, you’ll be looking for incidence of rate spread, and disparities in the pricing charged. 

Servicing Risk

Consumer complaints are common during servicing, and consumer complaints can trigger regulatory attention. In analyzing your servicing risk, ensure that similarly situated individuals are being treated consistently. You’ll also want to pay attention to any disparities in loss mitigation servicing options, decision processing times, and collections processes. And be advised — even if your bank outsources servicing, you are still responsible for that third party vendor’s Fair Lending compliance.

Fair Lending is a top priority for regulators and regulatory scrutiny of Fair Lending will heighten. 

Are you aware of the Fair Lending risk in your financial institution?


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