3.31.22 Marty Green on Fed Actions; Further Yield Curve Inversions

We would like to thank Verity Global Solutions for its sponsorship. Verity is a labor and automation solution provider. Mortgage lenders outsource workflows to Verity’s offshore team or utilize Verity’s robotic process automation technology, also known as RPA, to achieve fastest time to close and lowest cost of production. Verity’s solutions span the entire spectrum of the mortgage lifecycle all the way from origination through servicing and title. Verity also provides mortgage accounting, Encompass support and automated QC services. Contact Verity to learn about a recent case study on how a major lender saved $2mm with Verity’s artificial intelligence, RPA solutions.

Transcript

Want an old home? How ‘bout Betty White’s digs in Carmel, California? Want a new home? Fugget about it, per this report on newly constructed houses. Even if rates were 1.5 percent and investors (and regulators) were interested in stated loans, there’s little inventory to buy. But mortgage rates aren’t 1.5 percent, and are heading the other way, and tomorrow our attention will be on the employment data. We have seen that demand for labor, as measured by job openings, has fully recovered, but employers report finding it increasingly difficult to find the workers they need. More than four million workers still remain officially classified as unemployed compared to before the pandemic started last year. The disconnect between unemployment and the supply of labor comes down to several factors (e.g., health concerns, childcare issues, and enhanced unemployment benefits) that have slowed the return to work and made it hard for employers to hire. There are long term issues such as the mismatch between skills and industries that should continue to weigh on the labor supply. At some point, the pickup in activity will cause many workers to return to the labor force. Until then, increased demand for labor is likely to add to wage pressures. (Today’s audio version of the commentary is available here. This week’s is sponsored by Verity Global Solutions, an expert labor and automation solution provider that performs all non-customer-facing functions, from origination through servicing.) A worthwhile interview with Marty Green on how the Fed has been contributing to the recent sell-off and its plans moving forward. Marty Green is a principal with Texas mortgage law firm, Polunsky Beitel Green, and one of the mortgage industry’s top legal authorities regarding the Fed’s latest meeting or other mortgage or residential real estate industry trends.)

Employment

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Sprout Mortgage, one of the nation’s largest non-QM originators, is proud to announce two promotions to senior sales positions. Dean Ayres was promoted to be the Western Regional Vice President and Scott Wood was named Western Regional Manager. Both are based in Irvine, CA. "Sprout is growing by providing non-QM solutions that help many customers. This growth is credited to our passionate team, so we are thrilled to highlight and reward our top talent," said Sprout Mortgage President, Shea Pallante. “Dean and Scott are prime examples of Sprout’s entrepreneurial culture and spirit. They are each well-deserving of broader responsibilities.” If you are awesome and seeking a growth opportunity, reach out to Jessica Fieramosca, SVP of Recruitment, at 657-888-9878, to chat about fresh career possibilities.

Last week at the TMC Conference in Miami, FL, Tay Toliver, Director of Community Advancement at Thrive Mortgage, spoke with industry colleagues about a unique initiative we call Thrive4Home. First launched by Thrive in 2019, this initiative is based on the concept that every prospective homeowner deserves a chance. Toliver defined the process stating it’s not about “If” clients will qualify for a mortgage, but “When.” “This initiative is transforming the landscape of homeownership. Most consumers don’t even know what questions they need ask, especially in underserved communities! We educate them, help them develop a plan, and provide the accountability to see it through.” Since its inception, 96% of the consumers who graduated were credit-approved to purchase a home. Donielle Geiser, VP Operations, added “When you apply Thrive4Home to other great initiatives like ‘Positive Rent History’, it is so heart-warming to see borrowers’ reactions when they successfully realize their dreams!”

On your mark, get set, GO! Embrace Home Loans just launched its first-ever “Hero’s Ride Home Sweepstakes,” in which veterans, military servicemembers and their families can enter to win $25,000 among other exciting prizes. The grand prize winner will be announced in June by none other than NASCAR Cup Series Champion Kurt Busch, driver of the #45 Toyota Camry TRD for 23XI Racing, who is working with Embrace to amplify the company's support of the military. “This is another great opportunity to give back to our heroes and help them reintegrate into civilian life,” Busch said. “I can't wait to announce the grand prize winner of this very special event.” A longtime supporter of U.S. military service members, Embrace offers a host of VA loans and home financing options for veterans and their families. Thinking about joining a winning team? Contact Steve Adamo at Embrace here.

“As the industry’s leading Private Mortgage Lender, Acra Lending has the widest Non-QM program offerings like our 3, 12 & 24-Month Bank Statement, Investor Cash Flow, Business Purpose, ITIN, and Foreign National programs. In addition, we have launched our Fix & Flip and Multi-Family programs. Our investment in technology and training provides the foundation for our team to achieve success! With Acra’s continued growth we are looking to bring in additional talent from Account Executives, IT Professionals and more. Come build your career with a company that is committed to helping you achieve success and growth. Visit joinacralending.com or email us at careers@acralending.com to apply today.”

Lender & broker software and services

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Some of the longest-lasting products on the market today are not even used as originally intended. When Bank of England first signed on with Sales Boomerang, its goal was to re-engage prospects previously turned down due to credit issues. But soon Bank of England was using Sales Boomerang alerts to decrease EPOs, because, as Todd Worthington so eloquently put it, “An EPO is like getting kicked in the nuts and punched in the face. Not only are we losing business (and paying a penalty), but our competitor is also gaining business at our expense.” Bank of England’s expanded use of Sales Boomerang alerts accounted for 9% of total applications and 16% of total funded loan volume in 2020. Download the free case study to find out more about how Sales Boomerang helped Bank of England bring in more than $2 million per month in additional bottom-line revenue.

Lenders and Servicers, are you truly engaged with your customers? Introducing MortgageFlex Engage, the Digital solution suite that supports the borrower for all lending and servicing needs. Customers and Loan Officers in one platform for origination using ENGAGEConsumer and ENGAGELoanOfficer. Instantly create any new type of mortgage, chattel, HELOC or consumer loan directly from ENGAGEServicing by moving the serving data directly into ENGAGEConsumer with single sign on and over 30% of the application is already completed. Need to get the LO involved? ENGAGELoanOfficer can instantly notify them and shadow the consumer in the loan and even select the screens to show the borrower per loan. Did I mention the borrower side is bilingual? All dynamically built on our modern MortgageFlexONE Origination and Servicing system. To learn more about ENGAGE please contact SVP, John McCrea or meet with us at the MBA Tech Conference in Las Vegas.

With a record high purchase market, brokers need to have technology at their disposal that can get them in front of more potential borrowers, speed up their origination process and increase productivity. Digital loan origination technology like Calyx’s Zenly® enables brokers to address and overcome these challenges. Zenly is cost-effective, intuitive solution specifically designed for busy brokers to help build better customer relationships, grow their business, and decrease time to close. With Zenly, originators have an integrated, mobile-friendly point of sale to capture more leads at their disposal. Contact is today to see how you can benefit from an intuitive origination experience!

Floods, disasters, and insurance

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A new report from the Inspector General of the Department of Housing and Urban Development estimates that at least 31,500 FHA loans “serviced” during calendar year 2020 were located in flood zones but did not have the “required flood insurance coverage.”

Congress must periodically renew the NFIP's statutory authority to operate. On March 11, 2022, the president signed legislation passed by Congress that extends the National Flood Insurance Program's (NFIP's) authorization to Sept. 30, 2022.

But LendingTree’s Quotewizard tells us that, “Tomorrow, on Friday, April 1, FEMA is changing flood insurance for thousands of people in every state. Our team of analysts found that under FEMA’s new rules, nearly 80% of policyholders will see a price increase of as much as $100 a month. A full breakdown of what this means for flood insurance in each state is available here. 77% of policyholders will see a price increase. 23% of policyholders will see a price decrease. 4% of policyholders will pay an extra $20 or more each month. 6% of policyholders will save $60 or more a month.”

The Securities and Exchange Commission (SEC) announced new rules for regulated public companies regarding disclosures relating to climate change and climate-related risks. These proposed disclosure requirements would have to include both climate-related risk management as well as specifics about greenhouse gas emissions from the registrant-company’s activities.

The SEC also wants companies to publicize how climate change impacts them.

FHA Implements System Enhancements for the Electronic Submission of Flood Insurance Data.

In recent months disasters continue to impact the way lenders and investors do business.

AmeriHome required disaster inspections for the 12 Tennessee Counties granted IA. Read the disaster announcement in AmeriHome Correspondent 20220108-CL.

Mortgage Solutions Financial posted Announcement 05-22C regarding Tennessee disaster information updates.

Natural Disaster updates from Flagstar Bank: Tennessee Tornadoes - Flagstar Bank Memo 21119, Colorado Wildfire - Flagstar Bank Memo 22001, Kentucky Severe Storms - Flagstar Bank Memo 21170.

AmeriHome Mortgage posted FEMA’s change to the incident period date for Washington flooding from 11/5/2021, to 12/2/2021. AmeriHome Mortgage Announcement 20220110-CL – Washington disaster update.

First Community Mortgage Wholesale posted updated disaster information for Arkansas in FCM Announcement DA-21-20 and Kentucky in FCM Announcement DA-21-18.

Capital markets: rates never move in one direction constantly

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Looking for a more seamless selling experience? MCT clients using Rapid Commit are experiencing a more efficient process when it comes to bids, allowing more time and energy for other secondary market functions. MCT recently had the opportunity to sit down with John Collins, SVP of Atlantic Coast Mortgage, to talk about his experience with Rapid Commit. Mr. Collins mentions, among other things, how Rapid Commit has reduced the element of human error, mitigating the most significant risk of a manual bidding process. MCT is dedicated to creating the most technologically advanced systems in the secondary marketing industry and this case study highlights their mission. Read the full article to see how MCT facilitates a seamless experience with Rapid Commit and contact MCT with any questions or comments.

If you’re a credit union or a community bank, you may not be giving due attention to a form of interest rate risk associated with your unique type of business. Credit unions and community banks are prone to significant financial risk when issuing an interest rate lock commitment (IRLC) to a member/borrower who applies for a mortgage. Fortunately, there are IRLC risk management strategies you can implement to protect your organization. Optimal Blue Director of Solutions Specialists Mark Teteris, CMB, recently published a blog post addressing ways to protect your Day 1 rate sheet price from the volatility of the secondary mortgage market. Read Navigating the Risk of Interest Rate Lock Commitments to learn more.

Has an inverted yield curve (depicted by a graph of risk-free Treasury yields going from overnight rates to 30-year maturities) predicted ten of the last six recessions? Perhaps. But earlier this week the treasury curve flashed a warning signal as 2s-10s inverted intraday at 2.39% yield for the first time since 2019. At the close, the 2s-10s spread narrowed to ~5bps spread, the first time this year it has closed with a single digit spread. For perspective, recessions have followed 2s-10s yield curve inversion eight of the last nine times it has happened since 1959. This doesn’t guarantee there will be a recession in the next 24 months given the current strength of the economy, but the correlation is undeniable.

Hopes for de-escalation in Ukraine were dashed yesterday, leading to another rally in the bond market. There wasn’t much other headline news, though we did receive some noteworthy economic releases ahead of tomorrow’s payrolls report. The economy added 455k jobs in March, according to the ADP employment report. Growth was broad-based across sectors. Expectations are now for 155k jobs on the employment situation report as tight labor supply remains an obstacle for continued growth in consumer-facing industries. The final estimate for Q4 GDP showed a downward revision owed to lower personal consumption expenditures and exports while private inventory investment was revised higher.

Today’s calendar is already under way with job cuts from Challenger for March (21,387, up 40 percent from February but viewed as a relatively healthy churn in the job market). We’ve also received weekly jobless claims (202k versus expectations of 196k) and personal income and spending for February (+.5 and +.2 percent, respectively). The core PCE Price Index, the Fed’s preferred measure of inflation, rose .6, as expected, annualized +6.4 percent. Later this morning brings Chicago PMI from March, Freddie Mac reporting its Primary Mortgage Market Survey, and remarks from New York Fed President Williams.

The Desk will purchase up to $1.97 billion in conventional MBS. For those wondering why the Fed is still purchasing MBS despite announcing it was done, the recent Fed purchases of MBS are a reinvestment by the Fed of principal repayments and are not part of the quantitative easing, which has wound down. There should continue to be some reinvestment purchases of MBS as the Fed manages its balance sheet and makes sure that the market transitions smoothly to the Fed being much less of a market participant. For more info like that, tune in for the interview on today’s podcast. We begin Thursday with Agency MBS prices better .125-.250 and the 10-year yielding 2.32 after closing yesterday at 2.36 percent.

Yesterday’s humor, right off of a trading desk, was, “Do you know what Chris Rock found on his face the morning after the Oscar’s? Fresh Prince! (Say it out loud.)”

Thank you to Cindy E. who responded with more trade desk humor. “Well it’s a good thing Chris Rock didn’t make a joke about Alec Baldwin’s wife!”