First American: Pandemic worsens housing supply shortage

The April 2020 First American Financial (FAF) Potential Home Sales Model report shows the housing supply dropped to the lowest level since August 2012, as more homeowners were reluctant to list their homes for sale amid the pandemic.

Potential existing-home sales decreased 5.1% month-over-month to a 4.68 million seasonally adjusted annualized rate (SAAR). The decrease is 39.4% higher than the market potential low point reached in February 1993. Year-over-year, the market potential existing-home sales decreased 12.6%, a loss of 672,230 (SAAR).

Credit tightening remained the largest drag on housing market potential for the second month in a row, said chief economist Mark Fleming. Shelter-in-place orders, the surge in unemployment, and declining consumer confidence “chilled a promising spring-buying season for the housing market.” Currently, potential existing-home sales is 2.05 million (SAAR), or 30.4% below the pre-recession peak of market potential, which occurred in March 2004.

“Lenders tightened their lending criteria to account for the greater likelihood of forbearance and delinquency,” he said. Same as a month ago, tightening credit had the largest year-over-year negative impact (831,310 potential home sales) on potential home sales.

Rising tenure length also had a strong impact, reducing the potential for existing-home sales by nearly 350,000 sales, said Fleming, as potential sellers continue to keep their homes off the market.

The average length of time someone lives in their home reached record levels in April, to just exceeding 12 years, according to DataTree by First American, leading to fewer homes listed for sale.

“Existing homeowners are hesitant to list their homes for sale in uncertain economic times,” while some others are concerned about the potential health risks, Fleming explained. As a result, existing-home listings fell by 44% year-over-year, since this year April is not one of the typical busiest months for existing-home sales.

Despite the pandemic, showing activity rebounded in May along with mortgage applications for home purchases, up for four consecutive weeks, and only 10% lower than one year ago, said Fleming. “Last month at this time, they were down 35% relative to the same week one year ago.”

Fleming credits historically low mortgage rates and new technology that allows buyers to house-hunt remotely, for lifting the housing market from April’s low point. Despite strict credit standards and rising tenure length headwinds, he added, “the housing market is showing early signs of resilience amid the pandemic.”

Teachers Credit Union builds digital banking framework

Teachers Credit Union (TCU) has adopted Xtensifi’s Constellation Digital Platform to structure its digital capabilities and include all the new features members will need when they migrate to Constellation.

TCU engaged with Xtensifi, a business strategy consulting and development fintech for banks, credit unions and other financial companies, to conduct an integration framework assessment. Next, the company said, it built a digital operations strategy and roadmap, and finally, created the credit union’s digital platform.

Xtensifi developed features that are critical for TCU members, including key interfaces to the credit union’s key functions, such as account opening, rewards and overdraft management features, mortgage lending systems, card management and controls.

“Digital transformation involves more than simply putting things on the roadmap,” said Dan Rousseve, Chief Information Officer at TCU, it is changing how we work, innovate and evolve.

“Xtensifi helped us create structure around our thought process, organizing the creation of a logical approach to moving forward with front-end user interfaces, integration efforts, and engaging with partners” to bring key functionality to market, he added.

TCU is a perfect example of a credit union “meaningfully investing to improve its digital capabilities and competencies,” so it can fulfill its mission, said Brandon Kunz, EVP & General Manager of Xtensifi. 

With more than $3 billion in assets, 54 branches throughout the state of Indiana and Southwest Michigan, and more than 300,000 members, TCU is Indiana’s largest credit union. The member owned financial cooperative has been offering financial services such as mortgages, credit cards, investments and insurance since 1931.  

Report: Insurance companies endure pandemic stress testing

Initial stress testing to gauge the preliminary impact of the COVID-19 pandemic on insurance companies’ financial strength found that most, including mortgage insurers, have capital levels that provide “an adequate buffer against a potential shock to their balance sheets,” according to Global credit rating agency AM Best, which specializes in the insurance industry.

The sensitivity to the pandemic was greater for life and health insurers “with high asset and mortality risks,” followed by “insurers with material exposures to mortgage loans,” companies with smaller capital bases, and high-risk countries, the AM Best special report notes.

The “Stress Testing Rated Companies for COVID-19” report focused on the impact of the pandemic on underwriting and assets, using data from approximately 1,400 rating units worldwide.

Overall results showed that the median Best’s Capital Adequacy Ratio (BCAR) score at VaR 99.6 of the rated insurers declined to 43% from an estimated yearend 2019 BCAR of 49%. (VaR represents the Value-at-Risk applied to the risks that are typically the most material to an insurer.)

The slight decline demonstrated “the resilience of the insurance industry,” the report notes. Furthermore, property/casualty insurers in the United States and Canada performed better than life/annuity and health insurers.

“Insurers are likely to see a significant hit to earnings in 2020, rather than a material decline in risk-adjusted capitalization,” said Mahesh Mistry, senior director, AM Best Rating Services. “Reputational risk in certain markets may also be a problem, as any legal disputes become more visible to consumers, policyholders, regulators and legislators.”

The unprecedented impact of COVID-19 on the industry and its effect on global economic volatility imply that companies that have performed well on AM Best’s stress test, may face credit rating pressure “if conditions deteriorate beyond the prescribed scenarios.”

For example, the stress test did not take into account a scenario where insurance holders void their contracts, Mistry said. 

Additional unpredictable factors include, “a second wave of mortality losses arising from a resurgence of the pandemic,” significant increases in claims due to business interruption, rulings on contract clauses, litigation, and government decisions. A deterioration of financial markets also can result “in material investment losses or write downs of assets,” according to the report. 

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