8.30.23 Credit Update; Voxtur Analytics' Stacy Mestayer on Attorney Opinion Letters; Home Prices

Thanks again to this week’s sponsor Black Knight. Black Knight is an award-winning software, data and analytics company that drives innovation in the mortgage and real-estate industries, and the capital and secondary markets. The company’s Data & Analytics division provides comprehensive property and mortgage data, as well as market-leading analytics. Learn more at www.blackknightinc.com/climaterisk.

Transcript

Studies have shown that women who have large backsides live much longer than the men who comment on them. Studies also show that there are three basic groups of people in the United States: homeowners with 3 percent mortgages who don’t want to move, wannabe homeowners who don’t want 8 percent mortgages, and renters who don’t care. A growing number will tell you that the actions of the Federal Reserve have had a huge impact creating those groups, and creating the hiring/firing roller coaster that our industry is on. Although there are exceptions, many lenders have gone, or are quickly heading, back to 2018 or 2019 staffing levels and there’s little use in not being aggressive from a bottom-line perspective, unfortunately. Anyone displaced can post their resume for free here, where potential employers can view them for several months for only $75. (Today’s podcast can be found here and this week’s is sponsored by Black Knight. Black Knight is an award-winning software, data and analytics company that drives innovation in the mortgage and real-estate industries, and the capital and secondary markets. Listen to an interview with Voxtur Analytics’ Stacy Mestayer on Attorney Opinion Letters, title insurance alternatives, and title waivers.)

Jobs: capital markets staff available

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My background is in the secondary side of our biz. As they say, once in capital markets, always in capital markets. Secondary marketing and capital markets skills are unique, and good ones are hard to find. If you have a need for someone in CM or secondary, or lock desk management, let me know and I will pass your note along to a few very qualified individuals who are searching for a home, whether with a lender, vendor, investment banker, or hedging company. These candidates who have many years of experience are interested in full-time positions or part-time consulting.

Lender and broker software and services

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Borrower-centric & lead mining products

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Millennial homebuyers do not want to call you. That’s it, that’s the whole message today. Give them QuickQual by LenderLogix... immediate answers and on demand pre-qual letters within guardrails set by the loan officer.

The more products you offer, the more clients you can support, especially in this market where higher rates have watered down homebuying demand quite a bit. Knowing that, The Loan Store is one of the best partners a wholesale loan originator can have, considering its diverse range of products. Plus, if you didn’t know, many of the top former Account Executives and Operations personnel from Homepoint are at The Loan Store, providing loan originators with familiar faces who are among the most knowledgeable, capable and empowered professionals in the entire mortgage industry. It’s impressive to see TLS offering Agency, Non-QM, Jumbo, and HELOC, as well as their exclusive offerings: Investor Hard Money loans and the Buy Before You Sell product. Tons of options to choose from at The Loan Store, allowing you to cast a wider net in your community. More options enable more customers, which leads to more money. Get signed up with The Loan Store at TheLoanStore.com.

Naked and Afraid “legend” Matt Wright is famous for thriving in punishing environments where other survivalists languish. What sets him apart are exceptional primitive bow-hunting skills that keep him nourished even when game is scarce. Much like survivalists in the African bush, only mortgage advisors who master their tools can thrive in today’s harsh market. TrustEngine’s Mortgage Coach enables mortgage advisors to earn homebuyers’ trust with Total Cost Analysis presentations that model and compare the costs and wealth-building benefits of various mortgage strategies over time. Watch this free strategy session with lending legend Jeremy Forcier to see how he uses Mortgage Coach to win borrower business and Realtor referrals when interest rates are over 6 percent. Or schedule a demo of Mortgage Coach today.

Exclusive data: These borrowers are taking 7 percent rates head-on and creating their own paths to homeownership. Wondering how to fill your pipeline when loan volume is scarce? New data from Maxwell gives lenders an eye-opening look into home buyer groups growing their share in today’s marketplace despite challenges. Did you know, for instance, that the share of 18 to 24-year-old borrowers has increased by 18 percent year-over-year? Now is the time to cater to these rising home buyers. For exclusive data and actionable takeaways, click here to download Maxwell’s Q2 Mortgage Lending Report. 

Credit world: pay attention

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Loan originators everywhere say that the deals have become harder, given affordability issues, “easy” refis long gone, borrowers with little or no credit, interest rates, short contract times, affordability, quality standards, borrower’s variable income, and borrowers having multiple jobs or quitting before the loan funds. Processors and underwriters say that LOs are not doing their homework in submitting files. The list goes on.

A report by the Consumer Financial Protection Bureau (CFPB) revealed that 11 percent of Americans have a "thin or stale" score file, and therefore it's impossible to generate a current, valid credit score for them. Another 11 percent are considered to be "credit invisible," meaning that they don't have a credit file with any of the three major credit bureaus. That's a total of 22 percent of the adult population of the United States, around 50 million, that doesn't have a credit score at all. As an investor or a lender, and one of these adults wants to buy a home, even with meager inventory of “for sale” homes, do you have a product for them?

The credit industry and reporting are in a state of flux. Earlier this year the price of running credit shot up, causing a scramble at every lender trying to figure out the most cost-effective way to evaluate borrowers. Fannie Mae and Freddie Mac set forth a proposed implementation timeline for their credit score and reports initiative, tri-merge to bi-merge. As always, check with your credit provider or the Agency itself for schedules, but this should be reliable:

2Q 2023- Industry feedback kickoff. 3Q 2023- Publish Uniform Loan Delivery Dataset (ULDD) specifications to support the updates. 4Q 2023- Publish Classic FICO historical data to support change in credit score calculation ("tri-merge" to "bi-merge"). 1Q 2024- Implement credit report requirements update ("tri-merge" to "bi-merge"). 3Q 2024- Lenders deliver FICO Score 10 T and VantageScore 4.0 credit scores in addition to Classic FICO credit scores. Enterprises update MBS/CRT disclosures to include FICO Score 10 T and VantageScore 4.0. 1Q 2025- Publish FICO Score 10 T and VantageScore 4.0 historical data to support credit score model updates.

4Q 2025- Incorporate credit score model updates into mortgage processes.

Freddie Mac sent, “As you may know, Loan Product Advisor® (LPASM) does not currently require submission of trended data with reissued credit files. As a reminder, beginning in Q4 2023 LPA will begin requiring trended data on all reissued credit files. [This has since been reportedly pushed out to Jan 2024.] As a result, we ask that you begin to work with the credit repositories to ensure all necessary subscriber codes have trended data enabled. After Q4, credit files that do not contain trended data will be unable to be reissued to LPA.

There’s a lot of talk about hard pulls and soft pulls, and L1’s Senior Director Kris Willoughby weighed in. “Lenders should always check with their vendor management and credit departments for specifics, but, in general, using a prequal soft pull in LP will only be allowed for a short period of time. Check with Fannie, but for most lenders the Agency requires trended data to run a loan through DU so you either have to use a trended data soft-pull (eliminates the trigger leads so is a better option, but also more expensive) or a full tri-merge. They should also check with Freddie, but in general Freddie has not been requiring trended data for LP findings but that is going to change very soon so any opportunity for lenders to save some money on soft pulls (vs. prequals) may be short-lived.”

Of course, investors and lenders react accordingly. For example, the content of Citi Correspondent Lending Bulletin 2023-07 includes credit policy updates applicable to Debt Payoff,  Qualifying Rate: 7 and 10 Year ARMs, DU Validation Services Clarification: SSV Validation Pilot, 2023 MFI Limits - Citibank Assessment Areas Updates, Visa and EAD Updates & Clarifications, Non-Occupant Borrower, Authorized User Tradelines: Credit History and Updated Photo Requirements for Appraisals.

Did you know that Americans collectively owe more than $13.4 trillion in home loans, more than any other kind of consumer debt. (Credit card debt is $1 trillion.) Before applying for a mortgage, it’s crucial for prospective borrowers to get their finances in order. One of the most important qualifiers (though not the only one) for a mortgage, and for getting the best program options and terms, is having a good credit score. The average national FICO credit score is actually over 700.

Several months ago SoFi published an article on what is a good credit score to buy a house. So, how good of a credit score do your clients need to buy a house? Generally, credit scores above 800 are considered exceptional, those between 740 and 799 are very good, and those between 670 and 739 are good. Anything below 669 is seen as either “fair” or “very poor.”

The credit score borrowers need to qualify for a mortgage can vary depending on the loan program, lender, and other criteria. We all know, but the public needs to be told, the higher one’s credit score, the more choices they will likely have when it comes to loan programs and qualifying. SoFi suggests that for a standard FHA loan using traditional credit, borrowers will likely need a credit score of at least 500 with a minimum of 10 percent down, or at least 580 for the minimum down payment of 3.5 percent. Some lenders may impose “credit overlays” and that require a higher credit score such as 620 for FHA loan eligibility. A borrower’s credit profile plays a big role in determining what type of house they can own. Homeownership may be something they have dreamed of for much of their adult life and making sure your borrowers have a good credit score can help them afford the house they want.

Capital markets: second-tier data worth discussing

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The U.S. Government’s Bureau of Labor Statistics produces the Job Openings and Labor Turnover Survey (JOLTS), which in turn informs us of job openings, hires, and separations. I bring this up since we received some fresh evidence yesterday that labor demand is slowing down as the Federal Reserve aims for an economic soft landing. Job openings fell dramatically by 338,000 in July, according to the JOLTS report. That brings the seasonally adjusted level to 8.8 million (a decline from the downwardly revised 9.2 million openings in June and the lowest level since February 2021) and on a year-over-year basis, openings are down 2.5 million. Job openings fell in professional and business services, health care and social services and government.

The Fed pays close attention to the JOLTs number, and this is a sign that the Fed's tightening regime is finally gaining some traction in the labor market. Fed Chair Powell suggested last week that, should the labor market continue to loosen, inflation will continue its downward path.

How do you feel about things? Consumer confidence fell dramatically in August, according to the Conference Board, erasing back-to-back increases in June and July. The index sits at a higher level than one year ago, though there’s a sizable gap between what consumers feel about their current situation and how they perceive the future. Receding optimism about the labor market negatively affected consumers' view of the present situation and outlook.

On the housing front, U.S. house prices rose 3.0 percent between the second quarters of 2022 and 2023, according to the FHFA House Price Index. House prices were up 1.7 percent compared to the first quarter of 2023 amid low inventories. House prices rose in all states quarter-over-quarter. FHFA reported prices rising 0.3 percent month-over-month in June after increasing 0.7 percent in May. That contradicts the S&P Case-Shiller Home Price Index, which fell 1.2 percent year-over-year in June after decreasing 1.7 percent in May.

Today’s economic calendar kicked off with mortgage applications increasing 2.3 percent from one week earlier, according to data from MBA. We’ve also received ADP employment for August (177k), the second look at Q2 GDP (+2.1 percent), price index +2.0 percent with the Core PCE Deflator, and advanced indicators for July in the form of wholesale and retail inventories. Later this morning brings pending home sales for July. We begin the day with Agency MBS prices a few ticks (32nds) better than Tuesday evening and the 10-year yielding 4.12 after closing yesterday at 4.12 percent; the 2-year yield is down to 4.87.

Murphy’s Law says that "Anything that can go wrong, will go wrong."

Cole’s Law is thinly sliced cabbage.

Keep them straight!