1.11.24 Federal Reserve Control; Capital Markets Bonuses; Latest Consumer Price Index

Lenders can easily integrate income verification into their workflow and verify any borrower at any point during the application process with Truework Income. By connecting every verification method into one platform, Truework helps lenders eliminate process disruptions, maintain a competitive borrower experience and reduce the fiscal impact of verifying income. Banks, credit unions and wholesale lenders are using Truework because it’s the only platform making income verification as easy as clicking a button. 

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Welcome to the Christman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Christman. Topics on today's episode include what is under the Federal Reserve's control, a private MI company makes an investment, and more inflation data for us to digest. Thanks to today's podcast sponsor, TrueWork. Lenders can easily integrate income verification into their workflow and verify any borrower at any point during the application process with TrueWork income. By connecting every verification method into one platform, TrueWork helps lenders eliminate process disruptions, maintain a competitive borrower experience, and reduce the fiscal impact of verifying income. Banks, credit unions, and wholesale lenders are using TrueWork because it's the only platform making income verification, as easy as clicking a button. Our Federal Reserve doesn't control events around the world, like a ship being stuck in the Suez Canal or the current Red Sea geopolitical aggression, or China raising chip prices, or OPEC raising gasoline prices, or or or so consumer and producer prices are always a bit of a wild card. Since they influence the Federal Reserve's actions and therefore in turn mortgage rates, inflation has certainly been in the news for some years now. The Consumer Price Index, or CPI, is designed to broadly capture changes in the prices of goods and services purchased by U.S. consumers. The largest component is housing, with a weight of 45%. Next, transportation at 17%, then food and beverages at 14%, medical care at 8%, education and communication are at 6%, recreation at 5%, other goods and services at 3%, and then apparel at 2.6%. Radian Group announced today that it has made a strategic investment in FinLocker, a personal financial fitness and homeownership tool. By leveraging advanced technology, FinLocker aggregates and analyzes a consumer's financial data, offering personalized paths to mortgage eligibility and other financial transactions. Terms of the investment were not disclosed. FinLocker's customers primarily include mortgage lenders, banks, credit unions, and other financial service providers, which private label the FinLocker tool with their brand to generate and nurture leads, stay meaningfully engaged with consumers throughout their homeownership journey, streamline the mortgage loan process, and cross-sell value-added products with the goal of creating customers for life. Anyone who's been in this business for a long time has seen expansions and contractions, rates go up and rates go down, layoffs and hiring. People still need a roof over their heads regardless of rates. And someone has to be around to do $2 trillion in home loans in 2024, 2025, and beyond. A good capital market staff is critical in finding the right investors for those loans. They should be comp based on company goals, not secondary marketing managers trying to swing over the fences for profits. It is part of the secondary marketing manager's job description to maximize the sales revenue from a lot of the closed loans. A well-structured bonus plan does not simply give the secondary marketing manager a token thank you at month or quarter rent. It will truly incentivize the individual to minimize ever-present exposure and maximize revenue, refusing to leave any basis points unaccounted for. You want to find your leaks in this era of break-even is a win? Have a compensation plan that truly rewards execution and devalues inefficiencies. While the bonus can be a little something to thank the individual or individuals for a job well done and a prosperous month or quarter, it won't have much of an impact on exceeding goals and revenue. For a bonus plan to be of true value to all parties, it should likely be a substantial part of the compensation package, like many hedge fund analysts. With some lenders, bonuses account for up to 50% of a compensation package. Management should look for ways to migrate towards a variable compensation that's aligned with productivity and revenue. Ownership and or the CEO, along with the secondary marketing manager, best lay some ground rules before even thinking of a bonus structure. Typically, these secondary marketing managers manage a hedge pipeline and possibly even deliver to the agencies to build a servicing portfolio. The immediate thought is often to pay a bonus based on the execution of the hedge pipeline, but there are some considerations. Does the company have a benchmark for performance to base the bonus upon? Will you have a high watermark provision for the bonus? Will the bonus be applied on a cash flow or accrual basis? Should the bonus be based on overall execution, margins and volume, or just the hedge portfolio? Does a secondary marketing manager manage margins and impact overall originations? Does everyone understand and follow the corporate lock policies and strategies and how they impact revenue and hedge performance? Does everyone, including management, really understand the hedging gains and the possible MSRs or values of retained servicing? Understanding any hedging gains and the implications of retaining servicing is critical. It's standard for the secondary marketing manager to understand the reporting and components of hedging, trading and payoffs, but to management or the lender's owner, this is often foreign territory. Capital markets heads need to fully understand the hedging model themselves, including third-party performance and mark-to-market reports and their own data. The validity and knowledge of these reports are absolutely critical, as they would ultimately be what a bonus would be based upon, or at least partially based upon. Of course, data integrity is critical. Garbage in, garbage out. Secondary marketing managers could easily knowingly or unknowingly, push misleading data to third-party risk management, hedging firms, which will in turn lead to inaccurate benchmarks and performance levels. The key here is understanding the data from the time of original lock through execution and loan sale. Only when all parties completely understand all the metrics and are fully confident with their data and benchmarking, should any bonus be implemented. And yes, pay cuts are happening everywhere, but at some point we all know that will stop and bonuses will be back in vogue. Ahead of today's highly anticipated December CPI report, where analysts anticipated a slight increase in the annualized headline reading while core consumer prices were expected to cool slightly, the bond market experienced another decline yesterday. There was a mediocre $37 billion 10-year note reopening, which once again highlighted the large disconnect between the Fed's projected slight easing in the latter half of the year and market assumptions that the Fed will cut rates 150 basis points by year-end beginning in early March. Today brought that data highlight of the week with December CPI. Headline CPI was up 0.3% and up 3.4% year over year. Core was, as expected, up 0.3% month over month and 3.9% year over year. The markets have also received weekly jobless claims and at $202,000 with $1.8 million continuing claims. Later today brings Treasury announcing auction sizes highlighted by reopened 20-year bonds and 10-year tips before auctioning $21 billion of reopened third-year bonds. Freddy Back's primary mortgage market survey, your marks from Regiment Fed President Barkin, and the December budget deficit. We begin the day with agency MBS prices a shade worse than Wednesday's close, and the tenure yielding 4.04 after closing yesterday at 4.03% after the inflation and jobless claims data. Very little movement. Let's wrap up with a joke and some housekeeping. What's the difference between men and pigs? Pigs don't turn into men when they drink. Thanks again to today's podcast sponsor, TrueWork. Lenders can easily integrate income verification into their workflow and verify any borrower at any point during the application process with TrueWork income. By connecting every verification method into one platform, TrueWork helps lenders eliminate process disruptions, maintain a competitive borrower experience, and reduce the fiscal impact of verifying income. Banks, credit unions, and wholesale lenders are using TrueWork because it is the only platform making income verification as easy as clicking a button. If you have any questions about the podcast or sponsoring opportunities, send me an email at Robbie at RobCrisman.com. Visit RobCrisman.com for more information on our industry partners, access to archived commentaries, and how to subscribe to the daily mortgage news and commentary. To listen to or download past episodes of this podcast, search mortgage news on any platform you get your podcast from.