Nonbank online lenders, especially smaller ones, are concerned about the high cost of originating a loan. In a new study published by the Deloitte Center for Financial Services and Lendit Fintech, 77 percent of the nonbank respondents said the cost of funding is among their top three concerns. Thirty-eight percent listed it as their first concern. Deloitte noted the nonbank fintech market landscape is made up of a few large players and many small ones. In fact, the majority of survey participants ...

Although a number of large banks have recently shown more interest in the secondary market for mortgage servicing rights, there is no sign that the migration toward nonbanks is ending. A new Inside The GSEs analysis of mortgage-backed securities data shows that independent mortgage bankers increased their holdings of Fannie Mae and Freddie Mac MSR by 2.0 percent from the first to the second quarter of 2018. Depository institutions recorded an 0.5 percent decline in GSE servicing rights over the same period. Most of the bank shrinkage came from the four institutions with over $1 trillion in total assets. Although Wells Fargo, JPMorgan Chase, Bank of America and Citigroup still held a whopping...

A federal court held this week that the single-director structure of the Federal Housing Finance Agency, headed by Director Mel Watt, violates the constitution. The ruling in Collins v. FHFA was handed down in Texas by a three judge-panel for the U.S. Court of Appeals for the Fifth Circuit. It represents the most recent major ruling in a number of Fannie Mae and Freddie Mac shareholder cases filed against the federal government. “We found, after an in-depth examination, that the FHFA is excessively insulated from executive branch influence and is, therefore, structured in violation of the Constitution,” the judges state in their 83-page ruling. And although Congress can create an independent agency, the court determined that elected officials cannot insulate...

Fannie Mae’s new mortgage insurance pilot announced last week is troubling to mortgage insurers who continue to question the GSEs’ blurring of lines between primary and secondary markets. Fannie’s Enterprise-Paid Mortgage Insurance program is billed as just a way to give lenders another option for obtaining mortgage insurance for high loan-to-value loans. Under the pilot, Fannie will arrange primary MI coverage for existing private MIs or a panel of affiliated reinsurers. Fannie said the new option allows the GSE to streamline the operational requirements of participating lenders, increase the certainty of coverage and better manage Fannie’s counterparty risk. Fannie officials explained that they expect traditional mortgage insurance to be the primary cover for loans with LTVs over 80 percent.

The Milken Institute said the GSEs’ duty-to-serve policy is more complicated than other affordable housing reform issues because it forces the secondary market to boost lending in the primary market and assumes those private firms are underperforming. The conservative think tank published a paper this week authored by Michael Stegman and Phillip Swagel on the role of duty-to-serve in which it examined the policy and its potential impact on the mortgage market. While DTS currently encompasses manufactured housing, rural housing and affordable housing preservation, Milken said housing finance reform debates have centered on creating a DTS that includes areas beyond those three targets.

There was some discussion as to whether credit scores serve as a good mechanism to achieve cross subsidization as well as a need for better data to manage risks, during an Urban Institute panel discussion last week focused on subsidies and GSE pricing. Credit scores aren’t a good tool to achieve cross-subsidization, according to Andrew Rippert, CEO of Global Mortgage Group at Arch Capital. He said the goal should be to serve low- and moderate-income borrowers, not necessarily to subsidize people who make a lot of money but have bad credit scores and don’t manage their credit. “Our belief is that we can do a lot better if we were very explicit about the risk in the system with regards to FICO scores,” Rippert said.

The GSEs are picking winners, not helping to level the playing field and they are blurring the lines between primary and secondary market activities, according to panelists expressing concern over the mortgage giants’ growing market share. As Fannie Mae and Freddie Mac continue to introduce and test pilot programs, the industry questions why the GSEs appear to be expanding their activities instead of shrinking them. During a panel sponsored by the American Enterprise Institute late last week, six participants from several think tanks and the mortgage industry discussed some of the alleged...

The deadline for comments on the Federal Housing Finance Agency’s proposed capital rule for Fannie Mae and Freddie Mac does not close until next month and so far, there have been about 25 official written comments registered and various opinions floated around Washington. Michael Stegman, senior fellow at the Milken Institute, said he was encouraged by FHFA’s proposed capital rule for the GSEs and Ed DeMarco, president of the Financial Services Roundtable Housing Policy Center, said the proposal should compel everyone to think about the implications. “This rule is much too important and far too complex to be digested and commented on in 60-days,” he said. “A critical question in evaluating this...

Analysts speculate that the new capital requirements expected for private mortgage insurers will be higher than current standards. Reinsurer capital requirements under Fannie Mae’s new Enterprise-Paid Mortgage Insurance pilot may be an indicator of upcoming private mortgage insurance eligibility requirements (PMIERs), according to analysts with Keefe, Bruyette & Woods. KBW said with PMIERs expected to be finalized around the time the EPMI starts, it’s possible that reinsuer capital standards could be similar to PMIERs 2.0. “If the capital requirements for reinsurers end up being the same as PMIERs 2.0, we estimate the capital requirements for the MIs would be roughly 10 percent higher than under PMIIERs 1.0,” said KBW.

Mnuchin Wants GSE Reform in Next Congress. Treasury Secretary Steven Mnuchin is worried about Fannie Mae and Freddie Mac expanding their already large role in the mortgage market and said he’s not against taking administrative action absent a legislative solution for reforming the mortgage giants.During the secretary’s annual testimony to the House Financial Services Committee late last week, Mnuchin reiterated his position in wanting lawmakers to reform the GSEs and said he expects that to happen in the next Congress. “This is something that I am determined, in the next Congress, should be a major focus of ours, hopefully on...