2020's biggest moments for the mortgage market

December 31, 2020 12:00 PM

With origination volume highs and moratorium-driven foreclosure lows, 2020 was a year of extremes in the world of mortgage. Below we explore some of the biggest stories of the year that stand to change the lending landscape as we head into 2021.

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The first signs of upheaval: Fed cut rates in early March

The Federal Open Market Committee’s 50-basis-point rate cut, aimed at offsetting risks related to the onset of the coronavirus pandemic, caused the Dow Jones Industrial Average to fall more than 900 points in early March. Investors flocked to Treasurys and for the first time in history the 10-year yield broke below 1%. Market watchers correctly predicted that the 30-year fixed rate mortgage would drop below 3%.

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CARES Act is passed in late March, offering homeowners a lifeline and sending servicers scrambling

With the Coronavirus Aid, Relief and Economic Security Act, which passed in late March, Congress enacted a host of emergency measures that many sectors within mortgage are grappling with today. While the legislation called for servicers to grant forbearance to borrowers with certain government-related loans who claimed coronavirus-related hardships in their ability to pay, the companies were also obligated to advance principle and interest payments to investors for up to four months of non-payments. The GSEs would also purchase loans that were coronavirus-related forbearance as a part of CARES Act measures.

Moratoriums on foreclosures and evictions offered some relief to homeowners and tenants. Some called for the government to do something to protect nonbank lenders but as of the end of 2020, that hasn’t come to pass.

Kim White

As lockdowns began, some slammed the brakes on certain types of lending

As social distancing orders were rolled out in New York and other hotspots in mid-March, Flagstar Bank temporarily stopped offering non-QM loans. Impac Mortgage suspended all activity for two weeks in March (and subsequently took a bit of a hit on 2Q earnings). While Impac resumed some lending after that period, it didn’t return to third-party and non-QM originations until 3Q. And in April, both Chase and Wells Fargo temporarily stopped offering home equity loans.

By May, Fannie Mae predicted highest refinancing volume in nearly a decade

The GSE and other entities rightly predicted that the industry was headed for huge volumes in refinancing activity, given the steadily dropping 30-year fixed-rate mortgage interest rate. At the time, Fannie Mae’s chief economist, Doug Duncan, predicted $1.53 trillion in refinance originations for 2020. By December, he upped that estimate to $1.803 trillion.

Social distancing delays spring selling season, but does it ever bounce back

Once agents and brokers adjusted to socially distant closings, remote appraisals and increased use of remote online notarization, home sales began to pick up. With demand driven by lower and lower 30-year fixed rates and inventory shrinking, bidding wars proliferated by the summer, with some buyers waiving contingencies to make their offers more competitive.

Sign "BLACK LIVES MATTER" amongst others at the Police Violence march for George Floyd

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Housing equity issues come to the fore as social justice protests break out across the country

After George Floyd died at the hands of Minneapolis police, protests erupted across the country, prompting a reckoning across corporate America on a host of racial equity issues. In the home finance space, organizations like the National Association of Real Estate Brokers, which was founded as a civil rights advocacy organization for African American real estate professionals and consumers, called for action to reduce the gap in homeownership among Black, Indigenous and People of Color.

For its part, the Mortgage Bankers Association’s new chair, Susan Stewart, said the organization would be focusing on financial education initiatives and would potentially lobby for legislative measures to increase BIPOC homeownership.

A number of promotions in the industry were also at least partially intended to reflect a shift towards better representation. Fannie Mae created a new C-suite role, chief administrative officer, for vice president and head of multifamily, Jeff Hayward. The MBA also named Wells Fargo’s new head of home lending, Kristy Fercho, as its 2020 vice chair.

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Supreme Court strikes down CFPB leadership structure in June

In a split 5-4 decision written by Chief Justice John Roberts, the high court found that the CFPB’s structure vests too much power in the hands of one person, and that the president has broad authority to appoint and remove agency heads. Because of this ruling, many believe the Biden administration will be quick to replace CFPB head Kathy Kraninger shortly after inauguration.

Many also thought at the time that the ruling would have implications for a separate case challenging the leadership structure of the FHFA, but comments from the justices in December indicate that they will not invalidate the FHFA’s structure.

FHFA announces refi fee in August, angering lenders

On Aug. 13, the FHFA declared that an “adverse market fee” of 0.5% would be tacked on to refinance originations starting on Sept. 1, which caused a panic among lenders fretting over having to eat the cost of the fee for loans already in their pipelines. After pushback, the FHFA pushed the implementation date to Dec. 1.

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Rocket launches IPO in August, kicking off a spree of lenders going public

With interest rates dropping lower and lower, originations — particularly refinances — were booming by the time Rocket shares hit the stock market on Aug. 6.

While Rocket launched a traditional IPO, many nonbanks that followed the company, chose to go public by merging with special purpose acquisition companies, a process which tends to involve less paperwork and fewer disclosures prior to launch. Check out our roundup of all of the mortgage lenders that went public, here.

MERS owner Intercontinental Exchange announces it will buy Ellie Mae

The deal to purchase Ellie Mae at a valuation of $11 billion was among the biggest acquisitions of the year in the mortgage space. Intercontinental Exchange, which is also the owner of the New York Stock Exchange and ICE Mortgage (pictured: new president of ICE Joe Tyrrell), planned to pay a combination of stock and cash to private equity firm Thoma Bravo LLC for the lending platform. Check out our roundup of the mergers and acquisitions in 2020 here.

Department of Housing and Urban Development

Andrew Harrer/Bloomberg

HUD finalizes contentious revamp of fair lending rule in September

In early September, the Department of Housing and Urban Development finalized a controversial interpretation of the Fair Housing Act's disparate impact standard — with one twist.

The original proposal allowed a defendant to rebut a plaintiff's case by citing the use of an algorithm that was “nondiscriminatory.” Because HUD received several comments citing a concern about algorithms, which some fear could make lending discrimination worse instead of better, it removed the specific reference to them as a way to rebut claims.

Some consumer and civil rights advocacy groups acknowledged that the softening of the language around algorithms was welcome, but they remained concerned about remaining language around the use of predictive analysis because it leaves the door open for the use of algorithms in the defense of fair housing and lending claims.

There was a split between larger and small lenders regarding HUD’s amended interpretation of disparate impact, with bigger players, such as the Mortgage Bankers Association and Rock Holdings’ Quicken Loans, suggesting the amendment be put on hold in light of the current national focus on racial equity issues. Smaller lenders, however, maintained that related regulation has been overly burdensome.

Many expect the incoming Biden administrationto repeal this change.

Andrew Harrer/Bloomberg

Freddie Mac prices first-ever credit risk transfer linked to SOFR

On Oct. 18, Freddie Mac announced that it had issued its first credit risk transfer deal linked to the Structured Overnight Financing Rate that is being pushed as the leading alternative to the soon-to-be discontinued Libor.

“As a member of the Alternative Reference Rates Committee, Freddie Mac has been a leader in the shift from Libor to SOFR,” said Mike Reynolds, vice president, single-family CRT, in a press release. “SOFR has multiple benefits to our CRT investors and Freddie Mac. The transaction volumes underlying SOFR are increasing across different fixed-income products, and now CRT is in that category.”

In November, regulators warned lenders against continuing to use Libor in their contracts.

Patrick T. Fallon/Bloomberg

CFPB issues a final debt collection rule in October

The Consumer Financial Protection Bureau’s new rule restricts how often collectors can call borrowers to seven calls per week but for the first time allows communications by voice mail, email and text messages.

The CFPB established rules to allow the use of technologies developed after the Fair Debt Collection Practices Act passed in 1977. Consumers can opt out of such modern communications.

The 653-page final rule included significant changes from the CFPB's May proposal, which received 14,000 public comments.

Stefani Reynolds/Bloomberg

Biden wins the election … eventually … and names his transition team’s housing experts

Following a nail-biter of an election, President-elect Joseph Biden Jr. was quick to announce the personnel that would make up his transition team. Several housing experts who worked at government-related agencies during the Obama era are on the Biden administration’s transition teams, but representation of companies currently working in the mortgage business was lacking.

The team-lead for review of the Department of Housing and Urban Development, for example, is the vice president and chief innovation officer at the Urban Institute, Erika Poethig. Poethig previously served as an acting assistant secretary for policy, development and research at HUD under the Obama administration from 2012 to 2013. At least one team member has past mortgage industry experience. Helen Kanovsky, who was the general counsel for the Mortgage Bankers Association from 2016 to 2019, is on the Treasury transition team.

Andrew Harrer/Bloomberg

FHFA issues final capital rule post-election

Issued in mid-November, the final capital rule, which is similar to a proposal unveiled in May after the agency scrapped an earlier 2018 plan, was considered a big step in freeing Fannie and Freddie from government control. While some believed that FHFA Director Mark Calabria would rush the GSEs out of conservatorship before the inauguration day in 2021, organizations like the Structured Finance Association have advised against doing so.

Michael Short/Bloomberg

CFPB finalizes its overhaul of mortgage underwriting rules in December

The Consumer Financial Protection Bureau on Dec. 10 issued two final rules revising the definition of “qualified mortgages.”

The bureau finalized one rule establishing a new general QM standard, which was unchanged from a June proposal. It adopted a pricing threshold to determine if loans can avoid liability under ability-to-repay requirements, replacing the current debt-to-income limit of 43%. The final QM rule would give lenders relief for loans capped at 150 basis points above the prime rate.

In the second final rule, the CFPB determined that a loan can earn the “seasoned” QM label if they are on the lender's balance for at least three years.