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Homebuilder sentiment drops to five-month low on higher rates

Plus: Housing starts drop to lowest since 2020 while permits rise

Good morning. This is Mortgage Nuggets, the newsletter that brings you the good, the bad, and the ugly of the mortgage industry - without the fluff.

Disclaimer: Average mortgage rates as of Sep 19, 2023. © MND's Daily Rate Index.

1. CFPB issues guidance on credit decisions that use AI

The Consumer Financial Protection Bureau (CFPB) has issued guidelines for lenders using artificial intelligence (AI) or “other complex models” in credit decisions.

The guidance describes how lenders must use specific and accurate reasons when taking adverse actions against consumers,” the CFPB said in the announcement. “This means that creditors cannot simply use CFPB sample adverse action forms and checklists if they do not reflect the actual reason for the denial of credit or a change of credit conditions.”

This move seeks to enhance transparency in an era of growing AI-based credit underwriting and to guard against unlawful discrimination. "Creditors must specifically explain their denial reasons. No exemption exists for AI," stated CFPB Director Rohit Chopra.

The guidance underlines the necessity of clear explanations, especially as lenders utilize vast datasets, potentially leading to puzzling credit denials for consumers. LINK

2. Extra nuggets

🏡 The rental market is softening so fast in some pockets of the country that landlords have no choice but to offer concessions. (Fortune)

⬇️ The MBA says loans in forbearance continue their descent, decreasing by 6 basis points from 0.39% in July 2023 to 0.33% as of Aug. 31. (MBA)

🏛️ According to Fannie Mae, the US housing market is on course for its most significant sales slowdown since 2011. (Business Insider)

3. RE/MAX settles broker fee suits for $55 million

Re/Max Holdings has agreed to pay $55 million to resolve two class action lawsuits challenging a rule that requires home sellers to pay broker fees for both the buyer and seller, which they say could lead to inflated costs.

The real-estate brokerage disclosed the settlement in a securities filing on Monday, saying it has also agreed to make "certain changes to its business practices," though the filing didn't provide further details.

Re/Max said the settlement is not an admission of liability or a concession of the validity of any claims in the litigation, and that it continues to deny the suits' allegations.

4. Housing starts drop to lowest since 2020 while permits rise

New US home construction dropped in August to the lowest level since June 2020, highlighting the toll of declining housing affordability.

Residential starts decreased 11.3% last month to a 1.28 million annualized rate, according to government data released Tuesday. The drop was largely driven by a sharp decline in multifamily construction.

Applications to build, a proxy for future construction, picked up to 1.54 million. That’s the most in nearly a year. Permits to build one-family homes accelerated to the fastest pace since May 2022, indicating optimism about future demand.

5. Homebuilder sentiment drops to five-month low on higher rates

US homebuilder sentiment fell to a five-month low in September as higher mortgage rates continued to push many prospective buyers out of the market.

The National Association of Home Builders/Wells Fargo gauge declined 5 points to 45 after sliding 6 points a month earlier. That marked the largest back-to-back decrease in nearly a year.

“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” NAHB Chief Economist Robert Dietz said in a statement.

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