9.18.24 Fees Versus Rates; Richey May's Pat Nester on SOC Audits; Fed Decision Day

Thanks to today's podcast sponsor, Visio Lending. Visio is the nation's premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Visio is fast, simple, and dependable when it comes to financing rental properties. They believe time is money, and strive to be upfront and consistent about their qualifications. Using a simple DSCR rather than a complicated NOI calculation, there are no tax returns or personal financial statements, and their pricing is set, so you always know your rate. Learn more, including about Visio’s top-notch broker program, at https://www.visiolending.com/. 

Transcript

“Q: What does a dyslexic pirate say? A: RRRRRRA!” Humor aside, many in our industry have faced adversity, dyslexia and more, and I received this note: “Rob, I really enjoyed Robbie’s interview with Glenn Stearns Monday. Is it on the web somewhere?” Yes, right here. It is good to listen to for keeping adversity in perspective. The Consumer Finance Protection Bureau tries to lessen any adversity for borrowers, and I also received this note. “Rob, do you think that borrowers are educated in terms of looking at rates AND fees, or just rates?” I’d say just rates, but I believe that the CFPB is keenly interested in making sure that consumers are treated fairly and that lenders highlight both when doing business with potential clients. Speaking of the CFPB, there are always rumors in our biz. Do you remember when TRID was rolled out in 2015, and then the fun & enjoyment we had when TRID 2.0 was rolled out in 2017 and 2018? Well, it is rumored that the CFPB may be making another run at tweaking the model, given input from the industry. Will it be called TRID 3.0? Stay tuned… (Today’s podcast is found here and this week’s is sponsored by Visio Lending. Visio has a top-notch broker program and is the nation's premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Hear an interview with Richie May’s Pat Nester on the best ways to run internal audits and improve organizationally as a result.)

Broker business opportunity

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“As stubborn as interest rates have been, they're finally teasing a drop. (Collective sigh of relief.) So, are those refi and purchase loans going to start rolling in? That’s anyone’s guess. But we do know one thing: if business picks up, you should be the one benefiting from your hard work. Not your boss. And since you’re out there hustling to make loans happen, you’ll probably want to become your own boss the easier way. That’s where we come in. We’re Motto Mortgage and we’ve created a mortgage Brokerage-in-a-BoxSM. Yup! We boxed it. You get to build it. Best of all, our mortgage brokerage model allows you to find highly competitive rates for your borrowers while you create a business of your own. We provide professional marketing content, product mix, wholesale lender relationships, and compliance support. From. Day. One. Email us for all the franchise ownership details.”

Lender and broker software, services, and loan programs

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Compass Mortgage Finds a Better Way to Save 60-80% on verifications. “In our first year with Truv we saved 60-80% on verifications. Cost savings are both obvious and significant from day one.” (Justin Venhousen) See Truv in action.

For the second year, OptiFunder has earned a spot on the Inc. 5000 list, making it the fastest-growing private mortgage technology company in America. This year, the company funded its one millionth loan through its Warehouse Management System (WMS), a unique platform that simplifies and optimizes warehouse funding through loan sale for mortgage originators. Building on the success of its WMS and feedback from warehouse partners, OptiFunder launched Greyhound, a modern WMS for warehouse lenders. Using the same rules-engine and automation principles, Greyhound is a separate platform that simplifies client onboarding for warehouse lenders, offers robust reporting, and streamlines loan ingestion through repayment from originators. With advanced integrations, the Greyhound WMS enables warehouse lenders to scale efficiently while minimizing costs and complexity. OptiFunder is dedicated to empowering the entire mortgage industry with flexible, innovative warehouse management tools for today’s uncertain lending environment. Connect with the OptiFunder team at these upcoming events or schedule a demo to learn more.

Ready to score big this fall? Third-party mortgage loan processing company wemlo® offers the winning solution for mortgage brokers hoping to add a teammate to their roster without the payroll line item. Processors at wemlo work together in a pod set-up (one manager and two go-to processors) and hustle to be your mortgage brokerage’s superfans. Don’t just take our word for it – look at our 4.8/5-star* rating from mortgage brokers who’ve trusted wemlo to tackle their processing workload. Ready to huddle up with wemlo? Book your demo today. NMLS ID 1853218 *2023-2024 BO/LO Score: 115 responses 4.8/5.0* 

Mark your calendars for the inaugural Optimal Blue Summit client conference, taking place February 3 – 5, 2025, at the Marriott Marquis San Diego Marina. This client-exclusive event will feature panels and multi-track sessions led by leading economists, policymakers, lenders, and Optimal Blue’s team of subject matter experts. Attendees will learn about the latest AI and automation advancements in the Optimal Blue product roadmap, participate in feedback sessions to shape the future of mortgage tech, and gain exclusive access to market analysis and customer behavior trends. Don’t miss this opportunity to enhance your competitive advantage and maximize profitability in today’s dynamic market. Registration for Optimal Blue Summit is now open, and early-bird pricing is available for a limited time. Learn more and register today. 

To support fair lending practices and non-discrimination in property valuations, federal regulators recently announced new automated valuation model (AVM) quality control standards that will go into effect in October 2025. While this seems like a long time away, now is the time to prepare. ICE’s suite of AVMs, AVM Waterfalls and digital valuation solutions already support the new quality control standards. Attend a complimentary webinar, New developments in AVMs, on September 24 at 2 p.m. ET to learn how ICE can help you plan ahead to address and adhere to the new standards by the implementation deadline.

Correspondent products

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Verus Mortgage Capital wants to ensure lenders end 2024 strong by offering borrowers more flexibility with loan programs such as its Home Equity Lines of Credit. Consider this: The average mortgage-holding homeowner’s equity stake is worth approximately $300,000. At the same time, Americans’ total credit card balance was $1.142 trillion in Q2 2024, according to the Federal Reserve Bank of New York. That’s up from $1.115 trillion in Q1. Additionally, the MBA predicts over the next two years, the industry will see greater demand for debt consolidation, directly translating into more home equity lending. Verus stands ready to help mortgage professionals by offering a solution that leverages a home’s equity to address these financial challenges. Partner with the leading non-agency correspondent investor to offer more products and end the year in a position of strength. Going to the MBA Annual? Contact Jeff Schaefer, EVP – National Sales at 202-534-1821 to set up a meeting.

“Will you be attending the Annual MBA next month? Citi Correspondent Lending is eager to meet with current/prospective clients to discuss how we can help take your business to new heights! We recently introduced our Special Purpose Credit Program (SPCP), which can be utilized to help support the home financing needs of borrowers with subject properties in designated Majority-Minority census tracts within select markets. SPCP offers four loan plan options using existing products/programs, including our proprietary HomeRun product. With features that include closing cost assistance and premium pricing, the SPCP opens the door to new opportunities for borrowers when it comes to creating affordability and is a must have for your lending toolkit. Schedule time to meet with us at the MBA or complete our Prospective Correspondent Questionnaire. We’d welcome the opportunity to discuss Citi Correspondent Lending’s entire product/program suite and how we can help your business thrive.”

Acquisitions and mergers aren’t going away

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Mergers and acquisitions continue, the latest being Synergy One buying Mann Mortgage with the usual company-wide meeting. (Rumor has it Mann will start funding loans under the Synergy name come October 1.)

We got an update from Garth Graham at STRATMOR related to trends in the mortgage industry. The big question I had was whether the imminent change in rates would change the trajectory of deal being done in mortgage. Today, he let me know today that there has been a few more transactions in the past few weeks, plus there are several more in the pipeline. The trick is that the lower rates don’t necessarily impact everyone equally, so companies may not get the benefit they expected who were counting on a big bump from lower rates… Maybe a bump that is the difference between staying the course and selling out. 

As Garth said, “Refinances don’t necessarily spread like peanut butter”: not equal for all originators. His recent article explains why. The question is if the recent uptick in IMB profit overall ($693 per loan on average in Q2) among originators continues in Q3 and Q4. That may be as hard to predict as the Presidential election. Stay tuned.

STRATMOR on comp levels: who’s making what in the hut

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“Loan officers, whether at an IMB (Independent Mortgage Bank), credit union, bank, or broker shop, are paid primarily on basis points with the majority being on a tiered schedule, sometimes with a base salary. The rampant use of signing bonuses has subsided from 2022, but they’re still being paid by a few large, well-known lenders. Signing bonuses have their own set of problems for both sides, and they are certainly not as enticing as they sound given the claw back periods and “invisible handcuffs.” Throughout 2022 and 2023 many originators found that the “grass is not greener” and stories of litigation overcompensation were plentiful.”

Reverse redlining in court

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“Garris Horn’s client Loan Originator Services (“LOS”) won its motion to dismiss the CFPB and DOJ’s claims of reverse redlining against the company. The CFPB and DOJ brought reverse redlining claims against LOS in federal district court in Texas as a co-defendant in its lawsuit against Colony Ridge. The CFPB and DOJ alleged that LOS, by providing back-office document and disclosure generation services for the actual lender in the case, committed reverse redlining in violation of the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act (“FHA”). Our firm, along with co-counsel, Rob Hargrove and Lisa Paulson at Davis, Gerald & Cremer, filed a motion to dismiss on behalf of LOS, in which we argued, in part, that the CFPB and DOJ’s complaint did not allege any activity by LOS that would support a claim of reverse redlining.”

Capital markets: let’s get this Fed thing over with already

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Flip a coin. The Federal Reserve is widely expected to cut interest rates today for the first time since March 2020, after raising them to the highest level in years to tame post-pandemic inflation. On the morning of the decision there’s still not much clarity about whether the cut will be 25 or 50 basis points. The hopeful argument for 50 basis points is that highly imperfect payrolls data raises the prospect that the U.S. is generating almost no jobs and that it’s time for policymakers to get moving on a series of cuts that will take us through next year. You’ll have your answer on the size this afternoon. Bond traders favor a half-point move and bonds have hit the lowest levels of the year on speculation surrounding the number of rate cuts that will be made before 2025.

The other hope is that Fed Chair Powell can emulate Alan Greenspan in pulling off a rare 1995-style soft landing and help the U.S. economy to dodge a recession. The Fed is also expected to keep the pace of the balance sheet reduction, known as quantitative tightening, steady. The Fed has (oddly) declared that inflation running around 2.5 percent (both CPI and PCE headline) to be close enough to its 2 percent target and shifted its focus to a job market. While the unemployment rate remains very low from a historic perspective (hovering just over 4 percent in the latest release), payrolls have gone from an average of +267k in the first three months of the year to just +116k over the past three months.

Ahead of today’s Federal Open Market Committee decision, yesterday we received retail sales data. Sales in August posted a slight increase of 0.1 percent for the month and saw an upward revision to July’s number. This was better than the -0.3 percent expectation. Retail sales rose 2.1 percent on a year-over-year basis, but because these numbers are not adjusted for inflation, retail sales actually fell slightly on an inflation-adjusted basis. Separately, the NAHB Housing Market Index registered a dour outlook for the fifth consecutive month, but did improve slightly from last month’s reading and the lowest level since December. Very strange considering that America is suffering from an acute shortage of single-family homes.

No investor wants to buy a loan for 103 and have it pay off six months later. A preliminary look at September prepayments was released yesterday, and speeds are expected to decrease as weaker turnover seasonals and a 4.5 percent decline in day count more than offset increased refinancing activity as mortgage rates slid. Speeds are seen slowing between 3 percent and 5 percent on average month-over-month with lower coupons slowing roughly 10 percent versus premiums flat to higher. Month-to-date issuance at $61.5 billion is running below last month’s pace and is projected to come in below $90 billion, versus $109.3 billion in August.

Kicking off today’s economic calendar, mortgage applications increased 14.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey. We’ve also received housing starts and building permits for August: +9.6 percent and +4.9 percent, respectively… buoyant! Expectations were for 1.300 million and 1.405 million, respectively, compared with 1.238 million and 1.406 million in July. The highly anticipated rate cut from the FOMC comes in the afternoon, along with the Statement and updated Summary of Economic Projections, followed by Chair Powell’s press conference. He is likely to throw a bone to those disappointed by either a 25-basis point or 50 basis point cut. The SEP could carry more weight as FOMC participants lay out the destination and timing of rate cuts over the next year. We begin Fed decision day with Agency MBS prices worse a few ticks (32nds), the 10-year yielding 3.68 after closing yesterday at 3.64 percent, and the 2-year at 3.63.

The crusty captain of the pirate ship noticed a new face and barked at him, “Get over here! What’s your name, sailor?”

“John,” the new seaman replied.

“Arrgghh! Look, I don’t know what kind of bilge water they’re teaching sailors on these islands camp these days, but I don’t call anyone by his first name,” the captain scowled. “It breeds familiarity, and that leads to a breakdown in authority. I refer to my sailors by their last names only; Smith, Jones, Baker, Jackson, whatever. And you are to refer to me as ‘Captain.’ Do I make myself clear?”

“Aye, aye, Captain!”

“Arrgghh, now that we’ve got that straight, what’s your last name?”

The seaman sighed.

“Darling. My name is John Darling, Captain.”

“Okay, John, here’s what I want you to do ….”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is titled, “Lenders and Vendors Must Pay to Play.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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