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Defending mortgages; Home flipping & VR; Eviction prediction 😬

By August 31, 2021 No Comments

Racial bias in mortgage lending? An argument against negative coverage

Press reports are repeatedly citing instances where discrimination impacted minority home purchases, with a popular thread being the blacks have whites pose for them in order to avoid bad appraisals.

But here’s the latest attack. This article in The Markup is titled: “The Secret Bias Hidden in Mortgage-Approval Algorithms.”

Independent mortgage analyst Christopher Whalen gave his thoughts on the recent controversy brought out by a recent, syndicated article on racial bias from The Markup, published by ABC News, AP,  Market Watch and more, which drew a great deal of attention from trade groups, policy makers and housing advocates.  

“The only problem with the article by Emmanuel Martinez and Lauren Kirchner is that it’s completely wrong,” writes Whalen.

“First, the authors did not even include FHA/VA/USDA loans in their “research” into systematic discrimination. “The Markup has found that lenders in 2019 were more likely to deny home loans to people of color than to white people with similar financial characteristics,” the publication proclai ms,” Whalen writes. “But, wait, aren't GSE loans for rich people with plus +720 FICO scores? FHA is where low-income households access mortgage credit. Double duh.”

Whalen goes on to suggest that a lack of knowledge about mortgages is what leads to this kind of coverage.

Whalen believes that the reason that people of color are frequently denied conventional home loans has to do with the income levels and FICO scores of the applicants, not some deliberate conspiracy by lenders. 

“When conventional loans to lower income, lower FICO score borrowers come up for sale into the secondary market, the execution suffers because of these attributes,” Whalen concludes. “But since progressives have no idea about mortgage lending, credit or markets, don’t even try to explain this little nuance to them.”

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Home flippers turn to Virtual Reality to sell more homes

The pandemic bolstered already popular concepts like online shopping. But it also showed how more fringe applications could have mainstream use. 

We now know an entire workforce can function remotely, for example, though the risk to companies is that there are downstream costs to that convenience. 

A similar risk is increasingly being taken by online real-estate platforms using computerized algorithms to automate a nearly $2 trillion industry with just about 1% online penetration today. (WSJ paywall.)

The concept of using Virtual Reality technology to flip homes was initially met with skepticism. 

On top of the financial risk of holding a fortune in inventory on the balance sheet, there was the open question of whether consumers would trust such a process with their most valuable possessions. When Zillow announced it was going big on iBuying in 2019, roughly 90% of home buyers and sellers were still using an agent.

After pausing their operations in the spring of last year, iBuyers have been on a buying spree, enabled by increasingly virtual capabilities, according to the WSJ. 

Offerpad, whose merger with a special-purpose acquisition company is expected to close this quarter, bought over 2,000 homes in the second quarter. 

Zillow said its home purchases more than doubled on a sequential basis in the second quarter, and Redfin said it bought 40% more homes in the second quarter than it did in all of 2020. 

Trumping them all, market leader Opendoor said it purchased more than 8,500 homes in the second quarter and ended the period with contracts to acquire 8,158 more, representing $3 billion in value.

“It is so confident in this technology that it no longer has to see a home live — even virtually — before it will spend hundreds of thousands of dollars on it,” states the article by Laura Forman in the WSJ. 

“On Tuesday, the company said it is offering homeowners to whom it has made preliminary offers the option to send over photos and videos of their home, avoiding even a virtual live walk-through. It is a process the company boasts could be done in about 10 minutes of consumers’ time,” Forman reports.

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Goldmans Sachs’ eviction prediction is nearly one million displaced households.


That’s a lot of households.

Furthermore, Goldman Sachs estimates that between 2.5 million and 3.5 million households are significantly behind on rent, owing a combined $12 billion to $17 billion to landlords.

And if Congress doesn't implement a new eviction ban, three-quarters of a million American households could be evicted later this year, according to new research.

Those renters appeared to be safe from eviction until at least October until the Supreme Court last week struck down the Biden administration's ban on evictions, indicating that further action must come from Congress, according to CNN

At the same time, most state-level restrictions on evictions are scheduled to expire over the next month, which the Goldman Sachs analysts noted in the Sunday night report.

“The end of the eviction moratorium is likely to result in a sharp and rapid increase in eviction rates in coming months unless Emergency Rental Assistance funding is distributed at a much faster pace or Congress addresses the issue,” the report said.

The process of recovering back rent through the emergency rental assistance program has been “disappointingly slow,” Goldman Sachs analysts wrote. Even though the US Treasury Department has dispersed $25 billion to state and local governments — and has another $20 billion available — just $4.5 billion has been distributed, according to the report.

The Census Bureau estimated last week that about 1.3 million people are very likely to get evicted in the next two months. That same report estimated that more than 2.2 million people applied for rental assistance through state or local governments and either did not hear back or were denied.

“The strength of the housing and rental market suggests landlords will try to evict tenants who are delinquent on rent unless they obtain federal assistance,” Goldman Sachs analysts wrote.

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