CFPB: Cash flow should be used with credit reports

👋 Good morning. Today we look at Fannie Mae’s profits, the lock-in effect, new CFPB research, and a sign that banks are still tightening credit. All in 640 words, 3 minutes.

1. Fannie Mae reports $5B in profits

Fannie Mae reported $5 billion in profits in the second quarter of 2023, up $1.22 billion from the first quarter. The increase in net income was primarily driven by a $1.4 billion shift from provision for credit losses to benefit for credit losses.

Fannie Mae’s net interest income also increased by $249 million in the second quarter of 2023 when compared with the first quarter. This was attributed to the growth in income from the company’s other investments portfolio and an increase in amortization income.

In Q2, the GSE acquired approximately 227,000 single-family purchase loans, of which more than 45% were for first-time homebuyers, and approximately 54,000 single-family refinance loans during the period. It also financed approximately 139,000 units of multifamily rental housing, a significant majority of which were affordable to households earning at or below 120% of area median income. LINK

2. Owners with a rate above 5% are nearly twice as likely to sell

Homeowners are nearly twice as willing to sell if their mortgage rate is 5% or higher, but just one in five mortgaged homes meet that criteria, according to Zillow’s latest survey on mortgage rates and housing inventory. Here are more key takeaways from Zillow’s survey:

• 90% of mortgage holders reported having a rate less than 6%

• 80% reported a rate of less than 5%

• 33% reported a rate of less than 3%

Even so, nearly a quarter of homeowners are considering selling their home in the next three years, or currently have their home listed for sale. This is significantly higher than the 15% of homeowners who said the same one year ago. That suggests inventory could be on the rise soon.

Of course, mortgage rates aren’t the only factor that influences one’s decision to move. About two-thirds said they’re looking to upgrade to a nicer home, while 45% cited a growing family.

3. Catch up quick

💻 FHA releases proposed update of 'face-to-face' servicing requirements. (FHA)

💰 Mr. Cooper acquires Home Point Capital, moving the company a lot closer to its goal of becoming a $1 trillion servicer. (BusinessWire)

🚀 Rocket has appointed fintech executive Varun Krishna, 41, as its new CEO. (DetroitNews)

💸 Stavvy, a fintech specializing in digital and remote collaboration for lending and real estate companies, acquired Brace, a digital mortgage servicing platform. (Stavvy)

4. Fed: U.S. banks have tightened credit further

According to the Fed’s quarterly senior loan officer opinion survey (SLOOS), many banks have tightened their lending standards for residential real estate loans and HELOCs in Q2. This shift occurred amid the collapse of regional banks and a cascade of interest rate hikes by the Federal Reserve to tame inflation.

The survey showed that a 20%-plus net share of banks reported having tightened standards, on non-qualified-mortgage (QM) jumbo residential loans (21.6%), QM jumbo loans (21.4%), and HELOCs (25%).

A moderate net share of banks tightened standards on non-QM non-jumbo (18.3%), subprime (16.7%), and QM non-jumbo, non-government-sponsored enterprise (non-GSE) eligible loans (12.5%). In contrast, only modest net shares of banks reported tightening standards on GSE-eligible (5.4%) and government loans (7.5%).

5. CFPB: Cash flow should be used with credit reports

The CFPB suggests a new approach for assessing a person's loan repayment ability: using cash flow data instead of relying solely on credit reports.

CFPB researchers argue that this method, which includes analysis of inflows, outflows, and balances in checking and savings accounts, may better indicate how loan applicants manage their current financial obligations.

Preliminary findings show that three cash flow indicators (high savings, regular savings without overdrafts, and timely bill payments) are predictive of low delinquency risk, even for individuals with similar credit scores. LINK

☀️ See you on Friday!

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