5.24.23 Closing Remarks from Secondary; FHFA Director Thompson on LLPA; Black Knight's Frank Poiesz on AI and Regulators

Thank you to Black Knight. From point-of-sale through post-closing, the company’s trusted loan origination system, Empower, as well as its integrated, end-to-end origination solutions deliver unmatched capabilities, functionality and support to increase processing efficiencies and lower operational costs for lenders, as well as improve the homebuying experience for borrowers.

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As the MBA’s Secondary Conference in New York wraps up, and jokes are made about who actually paid for Fannie’s reception (informally titled “The Repurchase Reception,” many pointed to Fannie’s $3.8 billion income in the first quarter versus the losses seen by public and private lenders), the informal discussion topics reflect questions and trends around our industry. How are lenders handling the 67 percent expected decline in units since 2021? One way is closing: Texas’ Colonial announced its shuttering. The historic spread of mortgage rates to Treasury rates of similar maturities runs 1.70-1.80 percent, but it is now about 3.00 percent. Without the Fed and depository banks being buyers, will insurance companies, pension funds, and money managers soak up the MBS being sold? Or will there be supply uncertainty, even with industry production volume less than half of what it was a few years ago? And even if mortgage rates did drop, there is a continued lack of inventory available of houses available for sale and multiple bids and many price points as pre-quals stack up on every originator’s desk. (Today’s podcast can be found here and this week’s is sponsored by Black Knight. From point-of-sale through post-closing, the company’s trusted loan origination system, Empower, as well as its integrated, end-to-end origination solutions deliver unmatched capabilities, functionality, and support to increase processing efficiencies and lower operational costs for lenders, as well as improve the homebuying experience for borrowers. Listen to an interview with Black Knight’s Frank Poiesz on AI and regulators: What do lenders need to know about the April 25 Joint Statement on AI from CFPB, DOJ, FTC and EEOC?)

Originator jobs and transitions

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“Looking for a huge signing bonus? How about an awesome President’s Club? If this sounds like you …please don’t bother calling us. Canopy Mortgage is a better business model that provides Mortgage Loan Officers with ultimate control, unmatched pricing and a proprietary Loan Origination System that promotes highly efficient loan processes and faster closings! Oh yeah, did we say corporate takes less of your deals? Finally, you can give your clients better pricing AND you can make more on your deals. Canopy Mortgage created a sustainable mortgage business model that’s good for everyone, who knew!? Reach out to Josh Neumarker at Canopy Mortgage for more information 888-696-9076.”

Are you a loan officer or mortgage banker frustrated with the constraints of retail lending? Tired of competing against lower rates, fees and closing costs? Then now’s the time to take control of your pipeline and career by making the switch to wholesale lending as an independent mortgage broker. Whether you’re looking to open your own brokerage or join a team as a loan officer, you can get up and running without missing a beat with support from the team at BeAMortgageBroker.com. You have nothing to lose and only clients, greater flexibility, and compensation to gain.

U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, announced that Christina Brown will serve as VP and Senior Counsel for the association. Brendan Kihn is being promoted to VP of Government Relations.

Lender and broker products, software, and services

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There may only be a few weeks left of spring, but it’s never too late to do some deep cleaning within your servicing operations. With the CFPB’s recent crackdown on “junk fees,” it’s time to do a thorough review of your servicing portfolio to help avoid non-compliance for good. Four of the servicing fees the CFPB has in its sights are late fees, unnecessary property inspection visits, PMI overcharges and COVID-related charges. When applied improperly, these types of fees pose a serious risk to servicers, from revenue consequences to retention impacts. Learn how you can safeguard against “junk fees” to protect your business and reputation in Black Knight’s blog post.

New eBook: The Lender’s Guide to Mitigating Risk, Recouping Revenue & Improving Outcomes with QC and Due Diligence. Are you actively deriving tangible business value from QC and due diligence? Even if these aspects of your business are doing a good enough job at preparing loans for the secondary market, you may still be leaving money on the table by failing to employ an above-and-beyond QC and due diligence service that contributes to your bottom line. Maxwell’s new eBook dives into essential considerations to help you streamline your process while driving better profitability, turn times, and cost savings. Plus, learn how to prepare your QC and due diligence for trends in today’s market, such as adverse action, non-performing loans (NPLs), and mortgage servicing rights (MSR), along with easily actionable ways to save time, money, and effort within QC and due diligence. Click here to download Maxwell’s free eBook “QC & Due Diligence: The Lender’s Guide to Mitigating Risk, Recouping Revenue & Improving Outcomes.”

April 15th was the day that significantly altered the appraisal game for many borrowers, loan officers, and Realtors®. Fannie Mae’s Modernization Initiative is ushering in many changes, including further removing agents and borrowers from the appraisal process and creating a greater risk of undervaluation. How will the modernization initiative impact your business, borrowers, and realtor clients? Watch this video from R3 AMC and discover the changes that have been made to the appraisal process, why you must communicate regularly with your borrowers and agents, important tips for borrowers, and what the future of appraisals looks like. R3 AMC’s Concierge Services are designed to help mitigate risk and prevent agents from asserting, “The appraiser never came to the property.” To learn more about how R3’s Concierge Services can help protect your business, email Brent Jones, CEO/Chief Appraiser, or call him at 800-791-6817.

The End of an Era: Servicing Post-Pandemic. Now that the COVID-19 emergency declaration has come to an end, servicers are adapting fast and furiously to Investor and Insurer changes and their impact on consumers, systems, and processes. In our May Conversations About QC on-demand video, Faith Schwartz, Founder & CEO of Housing Finance Strategies and QC Ally’s Chief Innovation Officer, Kristin Broadley, discuss why it is key to establish proactive and robust QC/QA governance and monitoring to ensure all the systems and processes put in place are working as intended. Come away with a better understanding of why taking a risk-based approach can protect you in the long run. Watch Now.

Lenders that support down payment assistance (DPA) are in high demand as a multitude of market conditions put a strain on affordability. To help more lenders win business by supporting consumers with DPA, the Mortgage Bankers Association is hosting the webinar Profit & Succeed with DPA on June 8 at 2 pm EDT. Best practice approaches to DPA lending will be shared by panelists Mark Hasson of Lennar Mortgage, Kate McDougall of Lake Michigan Credit Union and Down Payment Resource’s Veronica Khandelwal and Sean Moss. Registration is free for MBA members! Register now to turn up the heat with DPA programs this summer.

Curious what the journey to the top looks like for the #1 originator in America? Looking for new strategies to attract new borrowers and retain customers for life? Tune into the Expert Insights podcast as Total Expert’s Joe Welu speaks with leaders such as Shant Banosian, Shashank Shekhar, Sue Woodard, Dan Catinella, Clayton Collins, and more. Standing out, and winning, as a lender looks different today than before. Listen in to gather innovation strategies you can put into action to drive growth in your organization.

Agency news, straight from the source

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Sandra Thompson, director of the Federal Housing Finance Agency (FHFA, overseer of Freddie and Fannie), defended the agency’s recent adjustments to pricing at a hearing by the House Financial Services Committee. “The pricing grids in effect prior to these updates had not been updated in many years and were not fully reflective of the capital framework with which the enterprises are required to comply.” Conventional loan-level price adjustments FHFA took affect May 1. Thompson stressed that the changes were driven by the enterprise regulatory capital framework from the prior administration. Thompson said FHFA updated the GSEs’ pricing framework to both help creditworthy first-time homebuyers limited by income and wealth and to enhance safety and soundness at the GSEs by better aligning upfront fees with the risk exposures and the capital required to be held against the exposures.

Under the direction of the Federal Housing Finance Agency (FHFA), Freddie Mac has issued Single-Family Seller/Servicer Guide (Guide) Bulletin 2023-12 to announce the rescission of the Debt-to-Income Ratio > 40% credit fee that was intended to be effective for mortgages with settlement dates on or after August 1, 2023. All other changes announced in Bulletin 2023-1 remain unchanged.

In response to FHFA’s May 10 announcement, Fannie Mae issued Lender Letter LL-2023-06, Rescission of Loan-level Price Adjustments Based on DTI Ratio, to rescind the debt-to-income ratio LLPA attribute that was scheduled to apply to loans purchased on and after Aug. 1, 2023.

Meanwhile, Freddie and Fannie continue with their changes. Freddie Mac added paystub analysis to its automated income assessment tool. The feature will help lenders calculate income more quickly, more precisely and expand access to credit

Fannie Mae Announcement SEL-2023-04: Selling Guide Updates for the month of May revises the requirements for loans with shared equity or shared appreciation provisions; clarifies eligibility requirements for subordinate liens; and allows alternative documentation for IRS Form 4868 as evidence the borrower has filed an extension for the prior year’s tax returns.

Freddie Mac Single-Family Seller/Servicer Guide (Guide) Bulletin 2023-11 includes updates addressing the payment of past-due federal taxes under an installment agreement, Requirements for the exclusion of waived real estate taxes from the calculation of the borrower’s housing expense ratio, Settlement Date requirements for loans sold through the flow channel, Excluding the cost of unplanned buydowns from the calculation of total financing concessions.

With LL-2022-05, Fannie Mae issued SFC 873 Reminder. On July 1, Fannie Mae will retire special feature code (SFC) 873 and loans delivered with SFC 873 on and after this date will no longer be accepted. Removal of the SFC will be required to complete the purchase or securitization.

Freddie Mac announced the go-live date for its new Best Efforts execution options in Loan Selling Advisor®. Find out how to maximize your execution by adding these new cash-specified payups to your Cash Rate Sheet and Cash Contract options in Loan Selling Advisor® and the Selling application programming interfaces (APIs), beginning June 5.

June is National Homeownership Month. Stay updated with the latest Loan Product Advisor® (LPASM) enhancements you need to create more opportunities for qualified borrowers dreaming of homeownership. View Freddie Mac’s Insights and discover what’s coming to LPA in June.

In addition to the fallback information on Freddie Mac legacy LIBOR-indexed securities currently posted to Freddie Mac's Reference Rates Transition webpage, it has posted that information to the LIBOR Replacement Index Communication solution using The Depository Trust & Clearing Corporation’s (DTCC) Legal Notice System (LENS). Freddie Mac securities will transition from LIBOR to replacement indices based on the Secured Overnight Funding Rate (SOFR), beginning on July 1, 2023.

A recent Freddie Mac study, Digital Innovation Drives Loan Quality, showed how using Freddie Mac technology solutions can help you reduce defects, position loans as a more attractive purchase option and increase the likelihood loans perform better over time. One of those technology solutions is Loan Product Advisor® asset and income modeler (AIM). You might know AIM does this by automating your assessment of a borrower’s income, assets, and employment. But did you know that taking advantage of that automation could help you save time? Here’s 5 ways you can use AIM to clear to close faster and get more time back in your day.

Fannie Mae’s Servicing Guide SVC-2023-03, provides information updates for the month of May including the introduction and clarification requirements for servicing mortgage loans subject to resale restrictions or shared equity provisions; automates the Non-Routine Litigation form (Form 20) and requires electronic submission; and provides an updated agreement for refinancing an eNote in New York.

Capital markets

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Whalen Global Advisor LLC sent out, “Readers ask if the banking crisis of 2023 ended last month. The short answer is no. There are banks that are insolvent and need to be closed, but the FDIC has run out of cash and, more important, ready buyers of failed banks. The market volatility that the Fed has injected into the banking system, first with QE and now by ending this irresponsible policy, makes it virtually impossible to value bank equity today." Meanwhile, the Federal Reserve is increasingly grappling with a critical question: How much should they weigh the adverse impact of its interest-rate hikes on banks against the goal of containing the fastest price increases in decades? Even if the government doesn't raise the debt ceiling, the chance of the US missing payments on its debt is remote. The government can always prioritize interest and principal over other spending.

The yield-curve inversion for 2- and 10-year Treasurys continued for the 222nd consecutive trading day Monday, marking the longest inversion since 1980. Inversion is typically seen as a harbinger for an economic downturn. Economic downturns are typically evidenced by lower rates, but… Rates sold off for the sixth straight day yesterday on the continued impasse out of Washington over the debt ceiling. Fed remarks were highlighted by Minneapolis President Kashkari saying that rates may need to be kept at a higher level if inflation remains high.

On the data front, new home sales rose 4.1 percent to a 683k annual rate in April, the second consecutive monthly uptick according to the Census Bureau. However, this followed a downward revision to March by 27k and the months’ supply of homes for sale fell three-tenths to 7.6. The lack of existing homes for sale will continue to push prospective buyers toward new homes.

Today’s calendar kicked off with mortgage applications from the MBA for the week ending May 19. As borrowers remain sensitive to higher rates, mortgage applications decreased 4.6 percent from one week earlier. Later today brings a Treasury auction of $22 billion reopened 2-year FRNs and $43 billion 5-year notes, remarks from Fed Governor Waller, and the Minutes of the May 2/3 FOMC meeting. We begin the day with Agency MBS prices roughly unchanged from Tuesday night, the 10-year yielding 3.68 after closing yesterday at 3.70 percent, and the 2-year at 4.28.

Just once, I want a username and password prompt to say, "Close enough."

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