Good Banks for MortgagesGreat banks for mortgages
Not a good enough excuse for banks to increase the number of state-backed mortgages.
In the last five years, business banks have been moving away from the markets for credits backed by the Federal Housing Administration and the Veterans Ministry - and there is little indication that this will change in the near future. First and foremost, this is due to the penalties that the Ministry of Justice has inflicted for mistakes in subscribing to these credits, a persistent issue for the sector.
JPMorgan Chase, which in 2014 was paying $614 million for the alleged filing of bad debts for FHA-insured and VA-guaranteed mortgages, was the most prominent departing. JPMorgan soon ended its involvement in the FHA markets, a move that was followed by a number of other banks. The number of major banking players in the FHA/VA markets has fallen to two since 2014 - Wells Fargo and Flagstar - with the bulk of the markets now made up of non-banks.
As a result, FHA credit and service markets activity has been adversely affected. In the course of 2017, the profitability of granting and serving FHA credits with the wider markets became weaker. In 2018, both banks and sovereign mortgages banks, also known as IMFs, in the construction financing and service markets will face a fast moving world.
Rising levels of indirect cost in all areas of the mortgages markets, coupled with adverse terms in the collateral lending markets, are forcing a number of credit ors and service providers to rethink their commercial strategy and leave the markets. Whilst the overall viability of the mortgages markets is challenging, the FHA/VA markets present some singular opportunities for custodians and MMBs.
The FHA, on the bright side, is paying creditors a sound return mark-up on lending money sold in Ginnie Mae bonds. FHA also allows service providers to calculate up to 44 bps per credit, approximately twice the compliant credit charges in the Fannie Mae/Freddie Mac area.
However, the costs of operating FHA/VA are higher, mainly due to the FHA's strict interpretation of it. Indeed, maintenance costs have generally trebled since 2012, making viability insecure unless the service provider does practically everything right. Quite a few sector analysts have been forecasting for some now that banks will be returning to the FHA markets - but so far little has happened to make this happen.
At the core of the matter, which still needs to be clarified, is the application of the False Claims Act by the DOJ against all mortgages providers. Since supervisors have basically been telling depositaries to refrain from making the headlines on mortgages, the prospects of a DOJ demand make the FHA/VA markets difficult for most banks.
Under the assumption that the DOJ question can be solved, which the Minister of Housing and Urban Affairs, Ben Carson, has repeatedly pledged, the major problem for business banks is the poor return on both FHA/VA assets and mortgages in general. It is more than a small irony, as a number of players believe that it is not possible for IMFs to serve efficient credit on the Ginnie Mae stock exchange to profit.
While many IMFs are in distress and the FHA urgently wants to lure custodians back into the markets, it is unlikely that banks will return to the FHA/VA credit markets in the near future.