Home equity and tappable equity declined in the third quarter because the value of home prices declined in some of the most expensive housing markets in the U.S. Tappable equity is the amount available for homeowners to borrow against before hitting a maximum 80 percent combined loan-to-value ratio.

“After seeing a significant slowdown in its growth from the first to second quarters of 2018, the amount of tappable equity fell by $140 billion in Q3 2018,” said Ben Graboske, executive vice president of Black Knight’s the data and analytics division of Black Knight. “That is the first decline we’ve seen since the housing recovery began, and its cause can be traced directly to softening home prices in some of the nation’s most expensive – and equity- rich – markets. Indeed, tappable equity fell in 60 of the 100 largest markets, including 12 of the top 15.”

Three markets in California alone, San Jose, San Francisco and Los Angeles, accounted for 55 percent of the total net decline, according to the Mortgage Monitor Report from Black Knight.  If Seattle is included, then four markets represented two-thirds of the net reduction in tappable equity. All were areas where home price growth has far outpaced the national average in recent years, but in which prices fell in Q3 2018 – from as little as one percent in Los Angeles, to 4.6 percent in San Jose.

“Of course, there is still $9.8 trillion in total home equity in the market, some $5.9 trillion of which is tappable. That’s $571 billion more than in Q3 2017, and tappable equity remains near an all-time high. It’s also important to remember that third quarters are relatively flat as far as home prices are concerned, and that tappable equity is up on an annual basis in 98 percent of major metro areas,” said Graboske.

An analysis of listings on mortgaged properties suggests that homeowners are reluctant to put their current homes on the market due to ‘rate lock’ or ‘affordability lock’ may still be holding down available inventory by about six percent. Constraining the supply of available homes, however, might be countering what might otherwise be greater downward pressure on home prices.

Other results from the quarterly equity data showed that just 1.8 percent of homeowners remain underwater, owing more on their mortgages than their homes are worth. For those with equity, the average homeowner with a mortgage has $191,000 in equity in his or her home. Among those with tappable equity, the average amount available to borrow against is $136,000. Over 50 million homeowners with mortgages have some amount of equity in their home, 43.6 million of which have tappable equity, a decline of around 272,000 from this time last year.

Two law firms have filed a class action lawsuit on behalf of borrowers who were wrongfully denied a mortgage modification under the federal Home Affordable Modification Program due to an alleged software error by Wells Fargo. The Gibbs Law Group and Paul LLP allege in the lawsuit that Wells Fargo failed to implement and maintain its internal software and protocols to correctly determine whether a mortgage modification was required under HAMP regulations.

The lawsuit, Case 3:18-cv-07354, was filed in United States District Court for the Northern District of California on Dec. 5, 2018, contends the amount involved exceeds $5 million. It alleges that Wells Fargo knew of the error in 2015 but failed to disclose it for nearly three years. As a result, “approximately 625 customers,” were “incorrectly denied a loan modification.”

In November 2018, Wells Fargo announced that it had understated the number of affected borrowers and that it was actually 40% more; now Wells Fargo claims a total of 874 were incorrectly denied loan modifications by the software error, though they were entitled to one under the federal Home Affordable Modification Program, according to the court filing.

At least 545 mortgage borrowers lost their homes through foreclosures because of Wells Fargo’s software error. The lawsuit seeks remedies for the harm Wells Fargo caused borrowers who were erroneously denied a mortgage modification. Due to deteriorating financial markets in the fall of 2008, the Home Affordable Mortgage Program was created to “minimize foreclosures” and funded with $50 billion.

Wells Fargo chose to participate in the HAMP program and received $6.4 billion in HAMP funds. In exchange for which, it agreed to abide by all “guidelines and procedures issued by the Treasury with respect to [HAMP]” and “any supplemental documentation … issued by the Treasury,” including “Supplemental Directives,” according to the court filing.

New Penn Financial LLC will operate under the name NewRez as of 2019.

New Residential said the name change and decision to rebrand are indicative of New Penn’s close alignment with its parent company and deliver value to customers and strategic partnerships. New Residential acquired New Penn, a national lender known for innovative technology, in July.

“NewRez combines the strength and experience of the New Penn and New Residential brands under one umbrella, and we look forward to the benefits we will collectively bring to borrowers through our wholesale, correspondent lending, direct-to-consumer, and joint venture/retail business channels,” said Kevin Harrigan, president and CEO of New Penn.

Since the acquisition, New Penn has had access to more capital and corporate backing from New Residential to grow and to expand New Penn’s product innovation capabilities.

The company has continued to develop flexible loan products such as the SMART Series line, which create more opportunities for qualified borrowers to purchase or refinance homes. During the year New Penn has also invested significantly in technology designed to streamline the loan approval process and improve the overall customer experience.

Flagstar Completes Acquisition

Flagstar Bank  has acquired 52 branches of Wells Fargo Bank in four Midwest states, including approximately $2 billion in deposits, along with certain related assets. The acquisition of these branches had been already been announced.

"We are excited to welcome the customers and employees of the 52 Wells Fargo Bank branches who joined the Flagstar family over the weekend," said Alessandro DiNello, president and chief executive officer of Flagstar Bancorp. "We are eager to bring Flagstar's brand of custom-crafted banking solutions to our new customers—all delivered by our new team of talented bankers. They share our tradition of superior customer service and commitment to the community."

Chub Reports $225M Loss Due to California Fires

Chubb Ltd. has reported preliminary net loss estimates in the fourth quarter of 2018 attributable to the California wildfires of approximately $225 million pre-tax, or $195 million after tax. These estimates do not include losses from Hurricane Michael or other weather events occurring across the globe in the quarter.

Chubb believes its estimated losses from Hurricane Michael are at the upper end of the range of $150 million to $250 million pre-tax that was previously disclosed. These estimates are net of reinsurance, include reinstatement premiums and comprise losses generated from the company's commercial and personal property and casualty insurance businesses as well as its reinsurance operations.

Beall to Retire

Patrick Beall, group president of Stewart Information Services Corp., will retire from the company on Dec. 31, 2018.  He has served in a variety of leadership roles over a career that spanned over 33 years with Stewart Title. Tara Smith, executive vice president and agency services senior director, will be promoted and named group president for agency services. Smith has been with Stewart since 2013 as a senior member of the executive team. She will take the helm in January.