Home prices are still up year-over-year in all 50 states and the nation's 100 largest markets, slowing is noticeable nationwide, and combined with recent interest rate reductions, is helping to improve the overall affordability outlook, according to the “Mortgage Monitor Report” from Black Knight Inc.

"At the end of December, home prices at the national level had fallen 0.3 percent from November for their fourth consecutive monthly decline," said Ben Graboske, president of Black Knight's Data & Analytics division. "As a result, the average home has lost more than $2,400 in value since the summer of 2018. And while home prices are still up on an annual basis, the slowdown continues nationwide and, importantly, is not being driven by seasonal effects.”

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December marked the 10th straight month of slowing annual home price appreciation, falling from a high of 6.8 percent annual growth in February to 4.6 percent at year-end.
Nonetheless, annual growth is still outpacing the 25-year average of 3.9 percent--although the gap is closing quickly. Also, it's yet to be seen what impact the recent pullback in interest rates might have on the national home price growth rate.

"There is good news in these numbers for prospective homebuyers, though. Combined with the average 30-year fixed rate declining by more than half a point over the last three months, housing is now the most affordable it's been since early in the 2018 homebuying season. It currently requires 22.2 percent of median income to purchase the average home with a 20 percent down payment on a 30-year fixed-rate loan. That's down from a post-recession high of 23.4 percent just a few months ago.”

According to Black Knight, the recent decline in rates has translated into a more than 6 percent increase in a homebuyer's purchase power--while keeping monthly payments the same--or a decrease of $62 a month in principal and interest on the average home bought with 20 percent down.

While this is all welcome news for consumers heading into the spring homebuying season, it remains to be seen whether recent rate declines and easing affordability will be enough to halt the deceleration in home price growth.

Deceleration in home price appreciation is seen most acutely on the West Coast, particularly Washington State, and even more so in California, which has seen its annual rate of appreciation fall from over 10 percent in February 2018 to just 3 percent as of the end of 2018.

The slowdown has been most apparent in San Jose, Seattle and San Francisco, which have gone from being ranked first, third and fourth by annual home price appreciation, respectively, to all three being in the bottom 25 percent of markets within the past 10 months.

After seeing annual home price appreciation rates above 20 percent in 2017, prices in San Jose are now nearly flat from where they were one year ago. Home prices in San Francisco are up just 1.9 percent, while in Seattle home prices are up 3.1 percent from one year ago, whereas both metro areas had until recently been experiencing double-digit growth.

Angel Oak Mortgage Solutions has offered non-qualified mortgage loans to brokers and correspondents since 2013.

Its strategy is to offer loan programs to borrowers who can’t meet the agencies’ financing guidelines—but who are worthy borrowers, based on Angel Oak’s manual underwriting and risk analysis. The company works with third-party originators in 40 states and is the largest non-qualified mortgage lender in the U.S. The lender originated $2.2 billion in loans in 2018, more than double the $1 billion Angel Oak originated in 2017.

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[caption id="attachment_10816" align="alignleft" width="186"] Tom Hutchens[/caption]

The Mortgage Leader spoke with Tom Hutchens, executive vice president of production at Angel Oak, on why the volume of non-QM originations has increased, what he thinks is the most misunderstood aspect of these loans and the reasons for their stellar performance.

TML: Why is it that at a time when the mortgage market is contracting, non-QM loans are expanding?

Hutchens: There is growing awareness in the marketplace of these loans. There are borrowers that don’t fit the agency and government boxes. It’s means that originators can expand their product offerings. That’s why we’ve worked to increase awareness of the non-QM market and have had an education campaign. We have 100 account executives, knocking on doors, talking to loan originators, and making them aware of the product.

TML: What do you think is the most misunderstood aspect of non-qualified mortgages?

Hutchens: That non-qualified mortgages doesn’t mean non-qualified borrowers. They don’t qualify for an agency loan, but they are very qualified borrowers. They have had a bad credit event, were out of work, or in some cases had medical bills they had to pay and that set them back. Agencies want the borrower to wait seven years from the credit event. With a non-QM loan, borrowers will qualify as soon as their record justifies extending a loan to them.

TML: Has non-QM opened doors with influencers?

Hutchens: Yes. Realtors, for instance, are aware of the product and understand that it means more deals will close. They want to expand their business, and non-QM is a way for them to do that. They get excited about the opportunity non-QM offers.

TML: Could you give us a sense of how these loans have performed?

Hutchens: There is five years of production history and non-QM loans perform better than Federal Housing Finance Authority loans. Fitch rated the actual underwriting performance of 11,000 non-QM loans--and only eight had gone into foreclosure. As originators become more aware of the performance, the desire to participate has grown.

TML: Why have the loans performed so well?

Hutchens: Performance has been good because the real estate market has performed well. In addition, we manually underwrite every loan, so we are able to analyze risk, and make good decisions. Automated underwriting systems, in contrast, don’t always provide a complete picture of the borrower. Angel Oak retains the loans for servicing and securitization, and we are required to own a percentage of the securities. We have to have skin in the game.

Residential Home Funding Corp., a correspondent mortgage banker based out of New Jersey, will deploy the Total Expert Marketing Operating System, with the objective of enabling loan officers to personalize the customer experience.

Residential Home producers will have access to a suite of fully customizable content and campaigns to increase engagement and deepen relationships with customers, prospects and partners.

“The Total Expert MOS provides our loan officers with the functionality they need to deploy relevant, consistent messaging to their contacts and expand their co-marketing efforts from one centralized platform,” said Georganne Benvenuti, marketing director at Residential Home Funding Corp. “We were looking for an updated solution to meet the evolving needs of consumers and offer them a simplified and personalized customer experience.”

The loan officers at Residential Home Funding Corp. will access consumer data and intelligent automation within the Total Expert MOS to stay in front of borrowers and co-marketing partners. Producers can leverage pre-built content or create their own to meet the unique needs of their audiences.

“At Total Expert, we strive to enhance the customer journey and combine tech and personal touch to humanize complex financial transactions again,” said Sue Woodard, chief customer officer at Total Expert. “We are proud to partner with Residential Home Funding Corp. to empower their loan officers to deliver the best lending experience possible and grow with them as consumer expectations continue to evolve.“