Latest credit breach exposes mortgage data for thousands of borrowers Kenneth R. Harney on Feb 8, 2019 WASHINGTON – A large breach of mortgage data that has exposed the personal financial information of tens of thousands of borrowers raises key consumer questions- What happens to all those disclosures we make after we apply for and obtain a home loan – our tax returns, Social Security numbers, credit card accounts, bank-account numbers and detailed summaries of our assets? Where does it all go after the closing? If your mortgage or servicing rights subsequently are sold and resold to other companies, what happens to all that intimate information? Does it stay securely padlocked away somewhere, far out of the reach of criminals? You would hope so, but consider this- 54,000 mortgage borrowers recently had their financial data exposed to identity thieves trolling around on the Internet. Borrowers had no hint that they were vulnerable, and many may still not know that a breach occurred. There was no lock on the online files that contained their private data. Stunningly, their information was not protected by even a simple password. It’s not known at this point whether, or how much, personal data was accessed, but the files reportedly were exposed for two weeks or more. Some borrowers could find that criminals already have used their information to establish new credit card accounts, purchase merchandise, even apply for new mortgages – creating havoc for the victims. First reported by trade publication TechCrunch, the breach involved loans originated by several companies – Wells Fargo; a unit of Citigroup; Capital One; HSBC Life Insurance; and others. The loans were acquired by investment management firm Rocktop Partners LLC, based in Arlington, Texas. Rocktop’s affiliate, Ascension Data & Analytics, hired a New York-based company, OpticsML, which allegedly made a “server configuration error” that led to the exposure of the documents, according to an email sent to me by Sandy Campbell, Ascension’s general counsel. OpticsML, meanwhile, has gone off-line. As of late last week, its phone number had been disconnected, and the contact information listed on its website was nonfunctional. In a statement for this column, a company spokesman explained that, “In an abundance of caution, we have taken down our website and servers while we conclude our investigation of the unauthorized access.” Campbell told me that Ascension is “in regular contact with law-enforcement investigators” regarding the breach and “is working with vendors” to send notification letters to affected mortgage borrowers. It will also provide “credit monitoring, call-center support and identity-restoration services at no cost.” The banks whose loan clients might have been injured made it clear in statements that they had no direct involvement in the data breach because they neither own nor service the mortgages. Nonetheless, a Citibank spokesman said it is “working to identify potentially affected customers” and has “instituted a forensic investigation.” A spokeswoman for Wells Fargo told me, “We have no indication that any Wells systems or service providers were compromised,” and the bank views the “security of our customers’ personal information” as “our priority.” Industry experts were aghast at the breach. Paul Benda, senior vice president for risk and cybersecurity at the American Bankers Association, said “banks have strict data security protocols in place … and protect their [own] data well.” So, too, should companies that acquire mortgages originated by banks and resold in the secondary market. “If you receive this loan data, well gosh darn it you need to protect it,” Benda added. Rick Hill, vice president of industry technology for the Mortgage Bankers Association, called for new “uniform federal standards” for protecting consumers’ data that would apply in instances like this. The underlying problem here is that the personal information we all supply to get a home mortgage frequently does not remain with the lender that made the loan. Mortgages routinely are pooled and sold to investors in a vast secondary market; those investors may re-sell chunks of their portfolios to other investors. After a couple of transactions, the financial data backing an individual mortgage is far removed from the bank or mortgage company that originated it. As a general rule, mortgage investors take pains to store client financial data on platforms that include significant security protections. But as this new breach illustrates, lapses can occur. What to do if you find yourself a victim? Pretty much the same things you did when Equifax got hacked- Consider taking advantage of any free credit-monitoring services you are offered, and consider freezing or locking your credit reports. -

Your FICO score is not your mortgage destiny Kenneth R. Harney on Feb 1, 2019 WASHINGTON – The higher your credit score, the lower the interest rate quote you’ll get on your mortgage, right? As a general proposition, sure. But how much of a rate benefit are you really likely to get with your super-high 800-plus FICO score compared with someone with a much lower score? You might be surprised. A new statistical review, conducted for this column by mortgage network Lending Tree – based on more than 1 million actual loan offers during 2018 – suggests that, depending on market conditions, a “good” 700 FICO score could get you nearly as attractive a rate deal as someone with an 800-plus score. Lending Tree is an online platform that allows shoppers to obtain competing offers from multiple lenders, based on credit profiles, income, down payment and other factors. Roughly 500 mortgage companies and banks participate in the network. FICO scores assess applicant risk and run from 300 to 850. High scores predict minimal risk of default; low scores, substantial risk. According to FICO’s own regular national surveys of rates posted by lenders, a high score is a key to a better rate quote. As of last week, a score of 760 and above on a $300,000 fixed-rate 30-year loan would get an average quote of 4.14 percent. The same loan for a borrower with a subprime score of 620 would get a 5.73 percent average quote, a significant 1.2 percentage-point differential. Lending Tree researchers examined a huge number of actual offers made to homebuyers – 2018′s entire volume conducted over the platform, batched by FICO scores and down-payment levels. What emerged is intriguing. Though scores and down payments are indeed crucial risk components that factor into a lender’s offer, market conditions and competition also can affect the size of rate benefits to lower-FICO borrowers compared with high-FICO borrowers. In actual application situations, lenders who want to increase their loan business to homebuyers may dig deeper into the credit pool and offer relatively more attractive rate deals to people whose scores are not pristine. For example, borrowers making 5 percent down payments with subpar scores in the 670-679 range received offers on Lending Tree averaging 5.2 percent last year. Yet borrowers with super scores well above 800 making the same 5 percent down payment got offers averaging 4.78 percent, a differential of just 0.42 percentage points. Similar patterns of small spreads were found in rate quotes between high scorers and low scorers at down-payment levels of 20 and 25 percent. Lending Tree’s chief economist, Tendayi Kapfidze, told me this was likely the result of a challenging market for lenders in 2018 as demand for refinancings withered and home purchase applications became a prime focus. “More intensive competition” for that business opened the doors for lower rate quotes to borrowers whose credit profiles would normally have been charged more, he said. The current market shift – lenders willing to take on slightly more risk with lower-scoring borrowers – is borne out by new data from mortgage software giant Ellie Mae. In its latest study of rates, scores, down payments and other loan terms, researchers found that in December of last year, fully two-thirds – 66.1 percent – of homebuyers insured by the Federal Housing Administration (FHA) had FICO scores below 700. A remarkable 5.1 percent of these had deep subprime scores between 500 and 599, indicating exceptionally high risk of future default. At the other end of the scale, just 1.9 percent had FICO scores of 800 or above. To be fair, FHA traditionally has served homebuyers with lower scores than those in the conventional market served by Fannie Mae and Freddie Mac. But the agency has been slightly more lenient recently on scores and debt-to-income ratios. Fannie and Freddie also have been open to a wider swath of buyers than many home shoppers might assume. According to Ellie Mae’s December report, more than 1 percent of conventional purchase-loan borrowers had deep subprime FICO scores between 500 and 599. More than one in six loans – 17.7 percent – had scores below 700. In both FHA and conventional loans, borrowers with low scores may have had “mitigating factors” in their applications that reduced risk, such as high bank reserves or exceptional employment stability. Bottom line here- Your FICO score is not necessarily your mortgage destiny. Shop the market aggressively, and you’re likely to find a wider range of rates available to you than you imagined.

Housing market shows signs of hope Kenneth R. Harney on Jan 25, 2019 WASHINGTON – If you’ve been distracted by the federal shutdown, political dysfunction, stock-market volatility and reports of rising mortgage rates, it wouldn’t be surprising if you concluded- No way is this a good time to even think about buying a house or putting one on the market. Things are too crazy. Nobody’s paying attention to real estate anyway. But take another look. Some of the real-estate fundamentals have been changing for the better. Take mortgages. They’ve gotten cheaper. As of last week, you could readily find conventional rates averaging 3.87 percent for five-year adjustable-rate home loans, or conventional 30-year loans at fixed rates of 4.45 percent, according to investor Freddie Mac. That compares with late last year, when they were at 5 percent or higher, depending on an applicant’s credit profile. Sure, rates are slightly higher than they were a year ago, when the 30-year fixed rate averaged 4.2 percent. And yes, when you take out a five-year adjustable loan, your payments are fixed for the first 60 months and then are subject to adjustments – up or down – once a year. So you take on future rate risk in exchange for a super low rate the first five years. But combined with other recent trends – growing inventories of homes available for sale, slower price inflation and even modest price reductions – the decline in mortgage rates should be encouraging for anyone seriously in the market for a home. And even for heads-up owners looking to sell. Consider- – New mortgage applications of home buyers nationwide during the week ending Jan. 11 soared to their highest level since 2010 – and were 9 percent higher than they were the week before, according to the Mortgage Bankers Association. Clearly the word is out among buyers who learned about the rate declines- They’ve been rushing to nail down financing at a brisker pace than is typical for this time of year. – Inventories of unsold houses are growing significantly in many local markets. That’s of huge importance, because a key propellant pushing prices higher in recent years has been the relative scarcity of listings. With fewer homes to choose from, especially at the median and entry-cost levels, buyers in hot markets have competed with one another to push prices beyond affordability. The latest National Housing Report issued by brokerage firm RE/MAX, which covers 53 major metropolitan areas, found that inventories grew by 4.6 percent in December, the third consecutive month of increases. – Home builders clearly have gotten the message and are lowering their prices in many areas. According to a survey last week by Zillow, the online realty data site, 25.1 percent of newly built homes saw their prices cut during the last quarter of 2018. In the Washington D.C. market, nearly 23 percent of new homes got price cuts averaging 2.4 percent. In greater Chicago, prices were lowered on 21.3 percent of newly built homes, but they averaged only 0.2 percent. In Miami, the average price cut was 5 percent on nearly 26 percent of the newly built stock; in Boston, cuts averaged 6.2 percent. – Projections by economists suggest prices overall are likely to continue to cool this year, though not actually turn negative. Some analysts expect prices to creep upwards for much of the year but end 2019 at the lowest growth rate since 2012. That may sound ominous if you’re planning to sell and want or need to get top dollar, but think of it this way- Better to price your home realistically up front – at the listing stage – rather than have it sit unsold for an extended period or be forced to endure a series of painful cuts. The really good news here for sellers is that – with interest rates down and slowing prices – more prospective buyers should be encouraged to get off the sidelines, shop around and consider making offers. Mike Fratantoni, chief economist for the Mortgage Bankers Association, told me that he is “guardedly optimistic” and expects “to see a solid spring market.” But Fratantoni hedges his forecast with some concerns- An extended federal shutdown could become “an increasing problem” for the overall economy. Plus there’s no guarantee that lower interest rates will continue indefinitely. And of course the ongoing, bilious political situation in Washington could create some as-yet-unseen crisis, introducing “a whole different level of uncertainty.” But at the moment, there are green shoots in sight – signs of better balanced market conditions ahead.

The Nation’s Housing By Kenneth R. Harney

Your DIY project didn’t turn out quite right? You’ve got company. Kenneth R. Harney on Jan 18, 2019 WASHINGTON – Do-it-yourself projects by homeowners are a multi-billion-dollar growth area within the U.S. economy and the bread and butter of corporate giants like Lowe’s and Home Depot. And for good reason- When done right, DIYs are great, saving you money and time. They can even be fun and give you a sense of pride in what you’ve accomplished. But they can also be rolling disasters when they go off the rails. David Pekel, president and CEO of Pekel Construction and Remodeling in Wauwatosa, Wisconsin, has gotten frantic calls over the years from homeowners pleading for urgent help because their DIY job went seriously south. “We really need someone to come out to our house to save our marriage, right now!” yelled one panicked spouse whose partner had messed up a major repair. In another case, an owner inadvertently connected the plumbing from a new bathroom to the home’s sump pump discharge in the basement. Uh oh. The sump pump, designed to expel excess rain water, was now connected directly to a toilet in an upstairs room. Flush! For as long as it could before getting clogged, it pumped raw sewage into the yard, creating a stinky and unhealthy mess. Pekel, president of the 6,000-member National Association of the Remodeling Industry, better known as NARI, says Americans are constantly bombarded by messages from big box retailers, cable TV shows and You Tube videos telling us, in effect, “Get off your butt, you can do it yourself. It’s not that hard. Just follow the directions.” Inevitably, in some cases the directions turn out to be not that simple and the job itself is beyond the training or capabilities of an ordinary homeowner. Nobody advertises that cold reality. So how many DIY projects turn out to be disappointments? You can find videos and TV shows online that illustrate the perils, but now a new study of 2,000 homeowners who said they’d had problems with their DIY efforts provides some hard numbers. It also offers insights about what types of fix-ups are most popular and which ones are most likely to fail or produce poor results. Nearly two-thirds of participants in the survey said they had regrets about at least one of their projects. In a third of the cases, the job they did was botched badly enough that they had to call in a professional to re-do their own work. Sponsored by Improvenet, an online referral network for remodelers, the survey found that installing floor tiles ranks among the most popular DIY projects – 20 percent of the respondents said they had done it – but it was the number one “most regretted” project. Painting interior walls was by far the most common type of DIY (40 percent of owners had tried) but it ranked number 10 out of the 32 most regretted. Adding trees or shrubs to yards was by far the least regretted/most popular project, tried by one-fifth of the respondents and ranked next to last on the regrets scale. One of every 12 consumers (8 percent) said they actually “caused damage to my home” as the result of their work. One in 16 (6 percent) revealed that they suffered some type of bodily injury in the process. More than half (55 percent) reported that things took longer than anticipated to complete, and 50 percent found it “physically harder” than they thought it would be. Seventeen percent said they spent more money than expected. When DIY projects cost more than owners anticipated, the average overrun pushed the final expense to nearly double their original estimate. When projects took longer than estimated, the average extra time they spent was nearly a day – 22 hours. The study categorized the types of projects most likely to defy DIYers’ expectations – sort of a “special caution needed” list. Here are the projects most likely to- – Get you injured- Installing a fireplace or windows or repairing a foundation. – Cause damage to the house- Replacing a ceiling, installing a roof or repairing a foundation. – Exceed your technical expertise, thereby increasing the odds that things could go badly- Installing anything electrical, installing a backsplash or building furniture. The message here isn’t that you should avoid DIY. Rather you should take a sober look in advance at how your own technical and physical skills match up with what you have in mind. When the match doesn’t look all that favorable, call in a pro.

The Nation’s Housing By Kenneth R. Harney

Federal shutdown creating mortgage victims Kenneth R. Harney on Jan 11, 2019 WASHINGTON – When the government shuts its doors because of a funding brouhaha that pits the White House against Capitol Hill, who gets hit hardest among people needing a home mortgage? The latest version of federal breakdown made one fact painfully clear- It all depends on the type of loan you seek and where you’re located. Worst hit, of course, have been the thousands of federal employees who’ve been furloughed, gone unpaid and had no assurances about when the financial uncertainty might end. But what about others? Here’s a quick overview- If you’d been hoping to buy or refinance a house during the past couple of weeks with a conventional loan – a mortgage eligible for purchase by dominant investors Fannie Mae and Freddie Mac – your application or closing probably sailed through with few if any hitches, according to Pete Mills, a senior vice president for the Mortgage Bankers Association. Though Fannie and Freddie operate under federal government conservatorship and use federal guarantees, they are not government agencies, and they’ve conducted business as usual. To the extent that they’ve been touched by the shutdown – such as through the non-availability of tax return transcripts the IRS routinely provides lenders to verify applicants’ incomes – both companies have adopted work-arounds to keep the loans flowing. The situation has been starkly different for prospective buyers who live in the small towns and exurbs surrounding virtually all major cities. Many of them are in the process of financing homes with mortgages backed by the U.S. Department of Agriculture (USDA), which offers exceptionally attractive terms – zero-down payments and favorable interest rates. But for these borrowers, the shutdown has been a nightmare. The USDA loan program, which has provided well over 100,000 home mortgages per year recently, has been in total lock-down. Scheduled loan closings have been put on hold, and no new applications are being processed. “It breaks my heart” to see what this has been doing to small-town buyers, says one lender who specializes in USDA loans. Not only have closings been postponed indefinitely, but some buyers are facing potentially deal-killing deadlines in their purchase contracts, according to Helga James, president and owner of Barr Group Mortgage, based in Gulf Shores, Alabama. “I’m afraid that the sellers will not extend contracts, and buyers could be out money [they've spent] on inspections and appraisals and have to start the whole process over again,” James told me. Matt Leyrer, a senior loan officer with Northern Mortgage – which operates in multiple states in the Midwest as well as Connecticut, Massachusetts, Florida and California – says some USDA borrowers potentially could be left homeless from the shutdown. If their purchase contract contingency deadlines aren’t met, and they’ve already canceled their rental lease, they could forfeit their good-faith deposit and end up with no home at all. “They could lose everything,” he told me. If you applied for a Federal Housing Administration (FHA) or Veterans (VA) loan, the odds are you’ve had no major problems so far. The Department of Veterans Affairs has kept its home-loan program functioning during the shutdown. Lenders say a small percentage of VA applicants who’ve needed to obtain replacement discharge documentation required for a VA certificate of eligibility have experienced delays, but otherwise there have been no unusual holdups. FHA loan applications have seen delays because of limited staff and backlogs of cases, according to lenders, but the impact has not been significant. One source of problems that borrowers might not have anticipated during the shutdown- Some self-employed home buyers or others who are seeking a “jumbo” sized mortgage that can’t be sold to Fannie, Freddie or FHA have found themselves subject to hyper-conservative underwriting standards. Paul Skeens, president of Colonial Mortgage Group based in Waldorf, Maryland, says some big banks and investors who normally fund jumbo loans have balked at loan applications that are not pristine, such as those lacking standard IRS Form 4506-T tax transcripts or verifications of employment. This is despite the fact that Fannie and Freddie have adopted easy work-arounds to problems like these. “It can be a hassle” for borrowers with out-of-the ordinary income profiles or any sort of special situations or quirks in their applications when major sources of funding decide to avoid taking on extra underwriting risks during a federal shutdown, says Skeens. Bottom line- Shutdowns have mortgage victims – some people simply get inconvenienced, others face personal disasters. The longer the shutdown, the more widespread the likely pain.