Bank BBVA faces huge mortgage penalty

¡Ay caramba! According to Bloomberg, the EU’s Court of Justice is expected to decide today on whether some Spanish banks will be ordered to repay potentially tens of billions of euros to their clients. Their fate is essentially hanging on this question: were the banks sufficiently transparent with customers about why they were sold mortgages with interest rates based on that country’s central bank index rather than the more widely used Euribor, which often resulted in thousands of euros in extra costs?

One of the banks is BBVA, which is a pretty big mortgage lender here in the good ol’ U.S. of A. The bank has gone to extensive marketing lengths to create its own identity but remains closely aligned to operations with its home office in Spain. BBVA stands for Banco Bilbao Vizcaya Argentaria SA (say that five times, fast) and is headquartered in the Basque region in the north. Mix that with current affairs and the scandals surrounding international bank-lending indices such as LIBOR (which the Fed is trying, unsuccessfully, to ditch in favor of its own index), and it seems BBVA is caught in the middle of a major mortgage maelstrom back home.

The problem with these lending rates is that they were open to market manipulation that may have caused homeowners to pay inflated mortgages.

The verdict may even be applied retroactively, meaning banks could be on the hook for tens of billions of dollars, even if the mortgages were already paid off. Did we say “¡Ay caramba!” already? So while the US is looking to replace its overnight lending system, away from an international rate to a new, domestic rate, this ruling could provide a huge cautionary tale on imperfect lending solutions. 

JP Morgan Chase diverts staff before mortgage boom

According to Bloomberg (paywall article), JP Morgan Chase is diverting scores of Home Equity LOs into the purchase/refi departments as the big lender prepares for a major spring homebuying extravaganza.

“The bank told home-equity staff on Thursday that half of the team would be transferred to mortgages to keep up with demand, according to an internal memo seen by Bloomberg,” writes Micelle Davis. “Dozens of workers will be transferred, a person familiar with the matter said.”

It’s a sign of the times. According to Bloomberg, HELOC demand is dropping rapidly. Low mortgage rates, due in part to Coronavirus scares, are expected to stay low, making cash-out refis way more popular a choice for homeowners.

“For JPMorgan, the decision to shift existing staff may help it avoid having to rapidly cut jobs if demand weakens,” the article states. “For workers, the shift will mean having to undergo new training. Lenders have historically hired and fired mortgage staff as a way to handle the cycles of the business.”

Black Knight: Refis are taking off

No wonder JP Morgan is staffing up its refi division. According to the latest numbers from Black Knight, it makes sense. That’s because after hitting an 18-year low in Q4 2018, refinance lending rose 250% year-over-year to hit a 6.5-year high in Q4 2019.

“Lenders and servicers should take note – there are currently 44.7 million homeowners with equity available to tap via cash-out refinance or HELOC, with the average homeowner having $119K in equity,” said Black Knight Data & Analytics President Ben Graboske. “At $6.2 trillion, total tappable equity – the amount available to homeowners with mortgages to borrow against while still retaining at least 20% equity in their homes – hit its highest year-end total on record.” 

Lenders, we don’t have to tell you this, but today’s homeowners are fickle. Despite the surge in refinance activity, mortgage servicers have struggled to recapture the business of refinancing borrowers, with just one in five borrowers remaining with their servicer post-refinance, Black Knight notes. Retention rates among cash-out refinance lending was even worse, with just 17% of cash-out borrower business being retained, the data notes.

Seventeen percent, huh? Hmm, smells like opportunity to us…

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