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MBA Economist: Mortgage industry still has bright spots amid mixed economic and housing outlook

MBA Economist: Mortgage industry still has bright spots amid mixed economic and housing outlook

“I think there is a high and growing risk of a recession in 2020. You know, put it at odds of something like 1 in 3.”

Mike Fratantoni, Chief Economist and Senior Vice President of Research and Industry Technology for the Mortgage Bankers Association (MBA), delivered those words last week in a webinar hosted by MountainView Financial Solutions, a Situs company. Fratantoni shared an outlook in a broad to narrow scope that covered economic conditions, the housing market and the residential mortgage industry, and in each of those three areas he provided a mix of good and bad news.

5 financial industry stories to watch — part 1

5 financial industry stories to watch — part 1

FinTech advancements, digital banking and lending, AI and machine learning are all the buzz in financial services and will likely remain a highlight for 2019 discussions. However, analysts across Situs companies are looking at asset behavior, balance sheet risk and economic indicators that impact the foundation of the financial services industry. Here are five areas our analysts and advisors are watching in 2019:

AI in financial services: Monster or champion?

AI in financial services: Monster or champion?

“It is true, we shall be monsters, cut off from all the world; but on that account, we shall be more attached to one and other.”

— Mary Shelley, author of “Frankenstein, or The Modern Prometheus”

Reflecting on the current state of Artificial Intelligence (AI), one might say that in writing the novel “Frankenstein,” Mary Shelley unknowingly touched upon the fears and contradictions facing humans in the 21st century. Humans, in our desire to advance, are pushing the boundaries of innovation by creating intelligent thinking machines that could (in a worst-case scenario) become self-serving and fall out of the control of its creators.

Fewer homeowners paid off mortgages early during past 12 months

Fewer homeowners paid off mortgages early during past 12 months

Residential mortgage prepayment rates dropped in 48 states and the District of Columbia between the 12-month period that ended July 31 and the 12-month period that ended October 31. Nationwide, the average 12-month prepayment rate fell from 10.8% to 10.2% – a decline of 60 basis points (bps) – between the ends of the two periods.

In the shift to more sophisticated models, financial institutions should rethink governance

In the shift to more sophisticated models, financial institutions should rethink governance

For small and large institutions alike, financial models are growing more complex. Business leaders at financial institutions are more frequently relying on financial models to make informed and strategic business decisions, ranging from pricing and launching new products, to managing capital and setting reasonable internal risk thresholds.

MSR portfolio hedging left asset values unchanged in Q3

MSR portfolio hedging left asset values unchanged in Q3

Risk management activities for 14 of the largest holders of residential mortgage servicing rights (MSR) held asset values flat for the third quarter of 2018, according to the MSR Industry Report released last week by MountainView Financial Solutions, a Situs company. The largest gain among the 14 companies was 3.6% and the largest loss was -5.6%.

Three myths in financial services risk management

Three myths in financial services risk management

When it comes to financial services risk management, many financial institutions seem to have risk management nailed down, from system implementation through processes and governance. However, when analysts at MountainView Financial Solutions, a Situs company, dive deep into risk management discussions with industry partners, we find that even the most well-organized and well-staffed institutions require regular self-evaluation to determine whether their approach to risk management is both tactical and strategic. While many of the challenges we see are unique to a specific risk function, often such challenges are a byproduct of broader risk management myths that cause financial institutions to make costly errors. Here are three key myths to avoid when developing your risk management approach:

MBA conference session spotlights MSR valuation best practices

MBA conference session spotlights MSR valuation best practices

With the rewards of investing in the residential mortgage servicing rights (MSR) asset come significant accounting and management challenges. Many of those challenges are based on how frequently the asset can change in value and the overall opaqueness of what’s causing the change in value.

What's Different About Today's Rising Rate Environment?

What's Different About Today's Rising Rate Environment?

It is easy to generalize what rising interest rates mean to a financial institution’s risk management plan, but the current rising rate environment is somewhat different and has a few unique features that may alter risk management decisions for banks and credit unions.

Blind spots are the biggest risk in financial modeling

Blind spots are the biggest risk in financial modeling

What happens if right after you finalize your financial models and get ready to make critical pricing or balance sheet decisions, your head of risk modeling leaves your institution with little notice, and to your dismay, little documentation? While your former model developer was brilliant, your institution is now left with a range of financial models that may or may not be accurate or effective.

Don’t let your CECL road map turn into a CECL roadblock

Don’t let your CECL road map turn into a CECL roadblock

Jeff Prelle, Head of Risk Modeling at MountainView, a Situs company, served as conference chair at the CECL 2018 Congress Conference.

When it comes to Current Expected Credit Loss (CECL) planning, modeling and implementation, the consensus among financial institutions is that there is no consensus, because no two financial institutions are alike. At Situs, we often reinforce the importance of taking a strategic approach to CECL modeling and implementation. After all, CECL’s tentacles touch a wide range of functions within a financial institution, from model and credit risk to accounting and information technology (IT). But when it comes to achieving CECL milestones and tactics, what will work for one bank, credit union or lender may not work for another.

Ginnie liquidity initiative discussion added to MSR webinar today

Ginnie liquidity initiative discussion added to MSR webinar today

An official with Ginnie Mae recently announced a new initiative that seeks to address concerns about the liquidity of nonbank issuers in Ginnie’s single-family mortgage-backed securities (MBS) program.

New e-book series discusses evolution of liquidity risk management strategy

New e-book series discusses evolution of liquidity risk management strategy

As we approach 2019, banks and credit unions are focusing on liquidity, which has recently become a key focus of regulators who have highlighted a reduction in liquid assets at banking institutions. Since the 2008 financial crisis, banks and regulators have taken significant steps to monitor liquidity risk, but new liquidity concerns have emerged, and financial institutions need to ask themselves whether they can defend their liquidity risk management strategy to regulators.

Periodic validations of MSR valuation models can create an advantage

Periodic validations of MSR valuation models can create an advantage

While depository institutions are required to have their residential mortgage servicing rights (MSR) valuation models validated, other businesses don’t face the same regulatory requirements and are potentially missing out on the benefits of periodic validations.

What’s really at stake with your institution’s CECL data?

What’s really at stake with your institution’s CECL data?

Since the Current Expected Credit Loss (CECL) standards were finalized in June 2016, one major area of concern among bank and credit union CECL teams and their CFOs has been that the new set of loan loss calculations will require extremely granular and high-quality data.

What drives trade success for whole loans in the secondary market?

What drives trade success for whole loans in the secondary market?

There is a transparent market for newly originated residential mortgages conforming to the guidelines set by Fannie Mae, Freddie Mac, Ginnie Mae and loan aggregators. There is also a very active but much less transparent secondary market for loans that didn’t meet those guidelines and for seasoned loans that are performing, re-performing or non-performing.

Community banks face rise of liquidity risk, FDIC warns

Community banks face rise of liquidity risk, FDIC warns

In 2017, the FDIC released a paper, Community Bank Liquidity Risk: Trends and Observations from Recent Examinations, which outlines key challenges facing community banks and attempts to raise awareness on liquidity issues facing banks. Now, in 2018, a growing number of banks face funding gaps, creating a renewed interest in the FDIC’s paper.