4.28.23 Economic Projections; News From FHFA; U.S. Economy Slowing

LoanCare has been successfully navigating clients and homeowners through market change for 40 years. The mortgage subservicer is known for delivering superior customer experience through personalization and convenience. Its award-winning portfolio management tool, LoanCare Analytics™, was built to support MSR investors with a focus on customer engagement, liquidity, and credit risk. LoanCare is part of Fidelity National Financial, a Fortune 500 company and leading provider of services to real estate and mortgage industries.

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“Rob, earlier this week you posted some ‘units funded’ information from the MBA showing a dramatic decline from a few years ago... Dollar-wise, certainly we’re nowhere near the $4+ trillion funded in 2021. What are some of the other MBA thoughts about 2023 and beyond?” Wise economists will tell you, “If you’re going to put a number on it, don’t put a date on it, and if you’re going to put a date on it, don’t put a number on it.” That said, for total originations of 1-4 unit mortgages, the MBA expects 2022 to clock in at $2.2 trillion, 2023 at $1.8 trillion, and then move higher in 2024 to $2.3 trillion. The MBA also is predicting that mortgage debt outstanding (1-4 family) will be somewhat steady at $13.4-$13.8 trillion, especially given all those 30-year fixed rate mortgages at less than 3.5 percent, but for 30-year interest rates to drop to near 5.50 percent range by year end as the U.S. economy slows somewhat, and unemployment moves toward 5 percent. (Today’s podcast can be found here and is sponsored by LoanCare, a Fidelity National Financial (NYSE: FNF) division and award-winning developer of the most sophisticated mortgage servicing portfolio management tool, LoanCare Analytics, built to support MSR investors with a focus on customer engagement, liquidity, and credit risk.)

Lender and broker products, services, and software

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“Agility 360 recently announced the addition of David Mulkay as Director of Operations - Advisory Practice to further support our attorney firm clients. His experience coupled with Agility 360’s unique engagement methodology and goal-oriented project management approach will further enhance our ability to deliver analytical, operational, and strategic support for servicing and default clients. Agility 360 provides flexible and versatile consulting services, custom-built to meet client’s operational objectives, and increase market share, optimize quality, reduce cost and/or minimize risk. To learn more about Agility 360’s advisory services, contact Annabeth Kline to set up a meeting today. Or, if you’re headed to the TMBA Annual Conference in San Antonio next week, stop by to meet our team and let’s talk about how we can help grow your business. You’ll quickly learn why Agility has become a trusted resource partner across the industry!”

According to the CFPB, 75 percent of borrowers only apply with one lender. Why let your competition capture that business when you and your loan officers could be the #1 go-to-resource in your market? Momentifi launched its personally branded Spring/Summer 2023 Homebuyer Education Content in English and Spanish to help loan officers and mortgage companies attract clients and educate them about today's housing market. The content package includes 150 personally branded articles. Loan officers post the articles daily to social media with the click of a button or use as scripts to record short videos that they post up on their social media sites. Each article is simple to understand with a clear call to action, making it super easy for prospects and referral partners to contact you. Momentifi also offers an enterprise-level plan for banks and mortgage companies who want a company-wide content license. Click here to learn more or subscribe.

“Lender Price's pricing engine has gained the trust of the largest banks, credit unions and lenders in the industry. Our platform provides enterprise functionality for lenders of all sizes and channels, while providing a security grade that has been widely accepted and trusted. Our Loan Level Price Adjustment feature allows lenders to make micro-adjustments at the product level based on specific product attributes, streamlining the process of introducing and managing loan products. Secondary teams can optimize margins, pricing strategies and streamline operations from one spot with our Multidimensional Rules Management System and our Pipeline Monitoring tool promptly alerts lenders of any pricing changes, minimizing risk associated with sudden price fluctuations or unwarranted modifications to the loan file that can affect any gain on sale. Not to mention, we continue getting new customers up and running fast! Start a conversation today or meet with us at MBA Secondary in New York.”

Happy National Superhero Day from Orion Lending! Captain America said it best: “I’m here with you until the end of the line!” Orion Lending, one of the top funding Down Payment Assistance program lenders in the nation, has improved its Boost DPA product for both FHA and USDA. 100 percent financing! Now featuring a 15 YR fixed second with an optional permanent rate buydown on the 2nd to match the 1st lien rate, FICO scores down to 580, eligibility for 3–4-unit properties, manual underwrites, and previous home ownership allowed! Orion Lending offers industry leading STAR portal technology for quick and easy processing and seasoned Underwriters to get your loan to the finish line FAST! Ready to make Orion Lending your Partner for Purchases? Click here to get approved! Orion is your home for DPA’s… It’s time to hyperspeed your business with Orion!

“You’re Stronger with Cenlar Subservicing. The U.S. housing market has been anything but predictable in the last few years. Cenlar is prepared for the volatility of this environment and is committed to helping you succeed. As both a bank and a subservicer, Cenlar is uniquely positioned to assist you as the mortgage landscape shifts. We can offer you the benefit of economies of scale, create customized mortgage servicing solutions, provide an outstanding homeowner experience, and manage regulatory compliance so that you can always focus your efforts on growing your business and staying competitive in the marketplace. Let’s discuss how Cenlar can meet the mortgage servicing needs of your organization. Call 1-888-SUBSERV (782-7378) or visit us here. We want to be your trusted partner, each and every day.”

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, contact Brent Jones, CEO/Chief Appraiser (800-791-6817).

Are you seizing every opportunity in today’s market? Rocket Pro TPO recently hosted its Pro Performance Sales training webinar for their broker partners and discussed when to consider, and how to position, new FHA benefits vs. conventional and a primer on VA. FHA’s MIP reductions have created new opportunities to review scenarios and save in comparison to conventional – what many buyers are looking for in today’s market! Take advantage of powerful trainings backed by nearly 40 years of mortgage experience and partner with Rocket Pro TPO today! Also, open to the entire broker community, on Monday (5/8) at 2pm ET is their next IGNITE Live, hosted by EVP, Mike Fawaz. Get ready to learn about the Rocket Pro TPO’s product enhancements, tools, and pricing advantages you need to win more business! Register for IGNITE Live today!

Imagine buying groceries and being asked to mail a check or write down your credit card number to complete your transaction... Chances are, you’d walk away, right? So, if this is the experience, you’re giving your borrowers today when requesting payment for upfront fees, you may be losing business you could otherwise keep. Match the payment experience your borrowers expect with Fee Chaser by LenderLogix. Your loan officers click a button in Encompass®, borrowers get a text message and complete the payment on their device, and receipts are automatically emailed and uploaded to the eFolder. If the borrower forgets to pay, Fee Chaser will follow up. Regardless of the type of fees you’re collecting, Fee Chaser can handle it. Head over to the LenderLogix website and see what a pay-by-text solution can look like for your team.

STRATMOR on technology

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FHFA and loan level price adjustments in the press

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As a reminder, the Federal Housing Finance Agency (FHFA) was established by the Housing and Economic Recovery Act of 2008 (HERA) and is responsible for the effective supervision, regulation, and housing mission oversight of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac). F&F were formed and doing business for many years prior to that, and existed as quasi-government Agencies giving securities filled with conforming conventional loans an “implied” government guarantee.

If you wish to see a numerical comparison of the changes taking effect on May 1, Todd Phenneger with the Catalyst Lending Team at Luminate Home Loans created a spreadsheet that can be found here under LLPA changes. Thank you, Todd.

The FHFA changes will be discussed today in the next edition of The Mortgage Collaborative’s Rundown with Tom Gallucci, me, and co-hosted by veteran broker and originator Brian Benjamin. We’ll be covering challenges and questions facing loan officers for 30 minutes starting at 3PM ET in “The Rundown”!

Given the press, and the changes, FHFA Director Sandra L. Thompson issued a statement on conventional conforming loan pricing. “Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less. The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment… Recently, there has been increased focus on changes made by the Federal Housing Finance Agency (FHFA) to the pricing framework of Fannie Mae and Freddie Mac (the Enterprises). Unfortunately, much of what has been reported invokes a fundamental misunderstanding about the fees charged by the Enterprises, and why they were updated.

“To be clear, the series of steps taken by FHFA to update the Enterprises’ pricing framework will bolster safety and soundness, better ensure the Enterprises fulfill their statutory missions, and more accurately align pricing with the expected financial performance and risks of the underlying loans.

“FHFA is first and foremost a safety and soundness regulator, and the Enterprises were chartered by Congress with a mission to provide liquidity, stability, and affordability by facilitating responsible access to mortgage credit through their activities in the secondary market. To achieve this mission, the Enterprises charge fees to compensate them for guaranteeing borrowers’ mortgage payments, which in turn attracts investors across the globe to provide liquidity for the U.S. mortgage market and, ultimately, reduces interest rates for homeowners.

“A portion of their fees are ‘upfront’ fees that are based on risk characteristics of the borrowers and the loans they are obtaining. Said differently, the Enterprises engage in risk-based pricing to, among other things, better ensure their safety and soundness, protect taxpayers, and serve their mission.” (Click on the link for the full statement.)

Bob Broeksmit, President of the MBA, sent out, “FHFA Needs a Better Plan on Loan Level Pricing Fees.” An excerpt: “On March 15th, the FHFA announced that it would postpone the implementation of loan level pricing adjustment (LLPA) fees that would be based on a borrowers’ debt-to-income (DTI) ratio in Fannie Mae and Freddie Mac’s (the GSEs) single-family pricing grids until deliveries on or after August 1, 2023. The delay creates an opening for FHFA to get the policy right. The DTI-based LLPA is unworkable and should be replaced.

“FHFA says the changes to the upfront fees would make the GSEs more ‘safe and sound’ and help them continue to fulfill their mission to advance equitable and sustainable access to homeownership. Just about everyone agrees that these are worthy goals, but instituting DTI-based LLPAs is an ill-advised means to achieve them. There is a reason the revised general Qualified Mortgage (QM) definition excludes the DTI ratio: Studies demonstrate that as a stand-alone measure, DTI is not a strong indicator of a borrower’s ability to repay.”

Dave Stevens, CEO of Mountain Lake Consulting, Inc., also weighed in, his full comments here, but here’s an excerpt: “The FHFA statement says, ‘The updated fees, as was true with prior fees, generally increase as credit scores decrease.” The statement also says higher credit score borrowers are not being charged more so that lower credit score borrowers pay less. To be clear, the changes in the LLPA matrix dropped the fees by as much as 175 bps for the lowest credit scores at the highest LTV. And clearly the only increases were to higher credit score borrowers with the exception of some high credit scores borrowers with very low down payments. In all cases it was to the higher risk borrowers where the fees dropped. Yes, they are right in saying that lower credit score borrowers still pay more, but to have us believe that the risk of low credit score/high LTV borrowers warranted halving the LLPA while borrowers with mid 700 scores and 15 percent or 20 percent down payments are worse risk… c'mon.”

Capital markets: income and spending numbers

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MAXEX is doing the same thing for non-QM it has done for jumbo: increasing access to trusted liquidity by bringing standardization and efficiency to a critical high-growth market segment. Connect to multiple buyers of quality expanded credit loans including alt doc, asset depletion, interest only and DSCR. Trade with multiple buyers on a flow, forward or bulk basis via a single contract and MAXEX’s central clearinghouse. Learn more by visiting the company’s website or schedule time to meet with MAXEX at MBA Secondary.

Yes, the Federal Reserve Open Market Committee meets next week, with a possible change in overnight rates, but the economic news continues to influence thinking about the direction of U.S. interest rates.

We learned yesterday that Real GDP grew at an annualized rate of only 1.1 percent in the first quarter of the year, indicating that the economy remained in growth mode, albeit weaker than the consensus forecast and at a slower rate than the last three quarters of 2022. Strength in consumer spending continued to prop up overall growth but was offset by a significant inventory swing.

Continuing growth in the economy, coupled with a strong job market and high inflation, despite First Republic Bank concerns, will likely lead the Fed to raise the fed funds rate one more time at its next meeting, even as credit conditions tighten due to challenges and uncertainty in the banking sector. The FOMC is expected to then hold the funds rate at this higher level at least through the end of 2023. The Fed is then likely to pivot to rate cuts once they have a few months of data in hand indicating the economy may have entered a recession.

The current U.S. economic environment could be categorized as stagflation-lite (ed. note: stagflation describes economic environments experiencing simultaneously high inflation, contracting economic growth, and high unemployment), with relatively resilient employment amid persistently high price levels and weakening growth. Tighter financial conditions will act as a drag on consumer and business activity, causing the unemployment rate to rise and gradually lower inflation closer to the Fed’s 2 percent target.

Today’s month-end session sees a busy calendar that kicked off with March personal income and spending (+.3 and flat, respectively) as well as Q1 employment costs (+1.2 percent for the 1st quarter, as expected, +5 percent for the year). Later this morning brings Chicago PMI for April, final April Michigan sentiment, and more earnings from Wall Street. We begin the day with Agency MBS prices better by about .125 and the 10-year yielding 3.47 after closing yesterday at 3.53 percent. The 2-year is yielding 4.08 percent.

I'll never forget my Grandfather’s last words to me just before he died.

"Are you still holding the ladder?"