Flagstar Unveils New Products, Tech Plans

Flagstar has unveiled some new lending products and plans some digital mortgage initiatives in 2019.

“Flagstar Last Friday rolled out some new products. A standalone HELOC for brokers and correspondents. Also, it began offering construction jumbo fixed and adjustable rate mortgage loans,” said Kristy Fercho, president of mortgage for Flagstar Bank. As for the non-QM arena, Flagstar is interested in looking at it from the firm’s risk appetite through aggregators. Currently, non-QM business is conducted through a subsidiary, OPES Advisors, and the transactions are completed through the retail division of Flagstar.

On Flagstar’s technology road map for 2019 is to develop the capability for borrowers to start a loan application at 1 a.m. in the morning, from their home, and then walk into a branch or a brokerage office and complete the application Flagstar could be the first in the mortgage industry to offer this capability—saving borrowers time, aggravation and frustration.

MBA’s Fratantoni Forecasts 4.2% Increase in Originations

The Mortgage Bankers Association projects $1.24 trillion in purchase mortgage originations in 2019--a 4.2 percent increase from 2018. MBA anticipates refinance originations will continue to trend lower next year, decreasing by 12.4 percent to $395 billion.

Overall in 2019, total mortgage originations are forecasted to decrease to $1.63 trillion from $1.64 trillion this year. In 2020, MBA is forecasting purchase originations of $1.27 trillion, and refinance originations of $410 billion, for a total of $1.68 trillion.

"The unemployment rate is at its lowest level in almost 50 years, resulting in faster wage growth and more confident homebuyers. While the Federal Reserve is expected to increase short-term rates further, 30-year mortgage rates should rise only modestly from here," said Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology. "We are seeing some deceleration in the rate of home price growth, but believe this is a healthy pause for the market, as it will allow income growth to catch up to the recent run-up in home values."

Fratantoni believes that housing demand should continue to grow over the forecast horizon, with the pace of home sales held back primarily by the constrained pace of new building. He expects that home purchase originations will increase each year from 2019-2021, and that pace should continue to increase beyond the forecast horizon, given the wave of millennial buyers beginning to hit the market.

"While the macroeconomic and housing market backdrops are, and should remain quite favorable, the mortgage industry continues to be challenged by the drop in origination volume, coupled with significant margin compression," said Fratantoni. "Lenders of all types and sizes are seeing elevated costs, coupled with intensely competitive pricing, to capture more volume. This in turn is depressing revenues."

The Fed will raise rates in December, and then three times in 2019, bringing the fed funds target to about 3 percent, projects the MBA. The 10-year Treasury rate will increase to about 3.4 percent and then level out, bringing 30-year mortgage rates to around 5.1 percent.

With the economy is running at full employment, Fratantoni expects that monthly job growth will average 120,000 in 2019, down from the monthly gains of 200,000 seen this year.

"The unemployment rate will decrease to 3.5 percent by the end of 2019, which should continue to keep housing demand at a healthy level, ultimately leading to an increase in purchase originations," said Fratantoni. MBA revised its estimate of originations for 2017 to $1.76 trillion from $1.71 trillion, reflecting the most recent data reported in the 2017 Home Mortgage Disclosure Act data release.

The Mortgage Industry Advisory Corp. has hired Dick Kazarian to serve as director of the borrower analytics group. MIAC provides pricing, risk management and accounting solutions to mortgage and financial services companies.

Kazarian has more than 20 years of experience in designing, developing, validating, and marketing quantitative models.  These include empirical behavioral models across a broad range of collateral types, pricing and risk management models, interest rate and mortgage rate propagation models, and value at risk and tail risk models. Also, Kazarian has extensive experience in model risk management, capital stress testing and regulatory relations.

Prior to joining MIAC, Kazarian held leadership positions at Citigroup, Lehman Brothers, Roosevelt Management, Shellpoint Partners and J.P. Morgan.

“He brings an exceptionally broad range of model development experience as well as an unparalleled depth of financial analytical expertise to MIAC and our clients,” said Paul Van Valkenburg, principal at MIAC. “Kazarian will lead the borrower analytics team and help clients address their asset valuation, capital and liquidity stress testing, and their CECL requirements."

The Securities and Exchange Commission today announced charges against two real estate investment funds and four executives in connection with their alleged roles in misleading investors by failing to disclose that it could not pay its distributions and was using money from a newer fund to pay distributions to investors in the older fund. Also, the SEC also charged a fifth executive for allegedly signing false SEC filings.

According to the SEC’s complaint, United Development Funding is a family of private and publicly-traded investment funds that deploys investor capital as loans to homebuilders and land developers. UDF allegedly solicited investors by advertising annualized returns of up to 9.75 percent as well as regular distributions.

According to the complaint, for almost five years, UDF did not tell investors that it lacked the monthly cashflow at times to cover investor distributions in one of its older funds, UDF III. Instead, to pay these distributions, the newer UDF IV fund loaned money to developers who had also borrowed money from UDF III. Rather than using those funds for development projects that were underwritten by UDF IV, UDF directed the developers to use the loaned money to pay down their older loans from UDF III.

In most of these cases, the developer never received the borrowed funds at all, and UDF simply transferred the money between funds so that UDF III could make the distributions to its investors. UDF III, UDF IV, and UDF executives Hollis Greenlaw, Benjamin Wissink, Theodore Etter, and Cara Obert knew or should have known that they had misled investors about the use of funds and the nature and status of loans made to developers.

The complaint also alleges that UDF III failed to appropriately impair loans in violation of GAAP, and that UDF IV did not adequately disclose the status of real property within its portfolio. Finally, the complaint alleges that David Hanson signed false and misleading SEC filings and management representation letters without taking sufficient actions to ensure the accuracy of or a sufficient basis for many of their representations.

Without admitting or denying the SEC’s allegations, Greenlaw, Wissink, Etter, and Obert agreed to pay $8.2 million in disgorgement, prejudgment interest, and civil penalties. Hanson agreed to pay a $75,000 civil penalty. The defendants consented to the entry of final judgments that order them to be permanently enjoined from violating Sections 17(a)(2) and (3) of the Securities Act of 1933, and the disclosure, books and records and internal accounting control provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder. Greenlaw and Obert consented to also be enjoined from violating the certification provisions of Exchange Act Rule 13a-14.

The SEC’s investigation was conducted by David Whipple, David Hirsch, Keith Hunter, and Keefe Bernstein, and supervised by Eric Werner of the SEC’s Fort Worth Regional Office.