HOUSINGNEWS REPORT
THE RETURN OF RISK: SUBPRIME SNEAKING BACK
WHERE HOMEBUYERS ARE THE MOST SHARING CO-BUYER SHARE OF Q1 2018 HOME SALES 6.1% 48.3%
A SAMPLING OF NONPRIME FLAVORS • Embrace Home Loans says for some borrowers “maybe your income doesn’t quite fit the traditional nine- to-five paycheck. We won’t hold that against you. After all, home loans aren’t one-size-fits-all.” It offers the Beyond mortgage for “self-employed borrowers who show business cash flow on bank statements for qualifying income instead of what is reported on tax returns.” As much as $2 million is available, credit scores below 700 will be considered, private mortgage insurance is not required, and Embrace says it may be open to applicants with “some history of bankruptcy” as well as those who have had “a prior foreclosure, modification, short sale, or deed in lieu.” Embrace also says it will consider financing for non- warrantable condos in projects with a high concentration of commercial units. • Wells Fargo has the fixed-rate yourFirstMortgage program for those with credit scores down to 620. Borrowers can purchase a single-family prime residence with as little as 3 percent down. Maximum loan amounts are consistent with Fannie Mae and Freddie Mac loan limits. The Wells Fargo loan is a QM product, fully eligible for sale to a GSE and backed with private mortgage insurance. Borrowers can earn up to $750 toward closing by completing a homebuyer education course. The program requires full documentation — such things as pay stubs, W-2s, tax returns, etc.
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disappearing. Between November 2017 and June 2018 rates increased roughly 0.75 percent to the highest levels seen in seven years. “Mortgage rates so far in 2018 have had the most sustained increase to start the year in over 40 years,” said Sam Khater, Freddie Mac’s chief economist. “Through May, rates have risen in 15 out of the first 21 weeks (71 percent), which is the highest share since Freddie Mac began tracking this data for a full year in 1972.” These are big moves in a short period. Lawrence Yun, NAR’s chief economist, says the market loses 35,000 sales with each 0.1 percent rate increase. And, sure enough, May existing sales were down 3.0 percent when compared with a year earlier. Less financing demand combined with fixed costs mean smaller lender profits — and maybe no profits. The Mortgage Bankers Association
(MBA) reported that in the first quarter, lenders had a net loss of $118 per loan. “In the first quarter of 2018, falling volume drove net production profitability into the red for only the second time since the inception of our report in the third quarter of 2008,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “While production revenues per loan actually increased in the first quarter, we also reached a study-high for total production expenses at $8,957 per loan, as volume dropped.” Given the dizzying decline in profits — and with the threat of more declines in 2018 — what are lenders to do? In such an environment nonprime and near-prime have begun to slowly emerge as mortgage financing’s new frontier, not as a replacement for traditional origination activity but as an addition to the product lines now available, a new market.
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JULY 2018 | ATTOM DATA SOLUTIONS
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