11.21.24 Elon Musk and Mortgages; CoreLogic's Terri Davis on Customer Retention; Geopolitics Versus Treasury Auctions

Thanks to today's podcast sponsor, PHH Mortgage. For over 35 years, PHH Mortgage has provided industry-leading mortgage services. They are one of the largest servicers of residential mortgages in the United States and offer a variety of solutions for the entire mortgage lifecycle. If you are looking for a Correspondent Lending partner or an experienced, award-winning Subservicer who can manage your forward and reverse, residential and commercial, and performing and non-performing loans look no further than PHH. Learn more at business.phhmortgage.com.

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This morning I head from Columbia, MO (“COMO”… big thumb’s up for Sophia’s Italian) to Kansas City for the KC MBA luncheon. I have seen very few Teslas on the road. “Bill Gates and Elon Musk should team-up and make a medicine to treat erectile dysfunction, and name it ElonGates.” Love him or hate him (Tesla has the highest fatal accident rate of all auto brands), Elon Musk may indeed impact residential lending in the United States, and not in terms of Federal workers being able to qualify for a loan. The position of Secretary of Treasury, normally confirmed by the Senate, has yet to be decided, but it is hard to find stories about the selection process by President-elect Trump without finding Musk involved. Stay tuned! (Today’s podcast can be found here and this week’s is sponsored by PHH Mortgage. If you are looking for a Correspondent Lending partner or an experienced, award-winning subservicer who can manage your forward and reverse, residential and commercial, and performing and non-performing loans look no further than PHH. Hear an interview with CoreLogic’s Terri Davis on how customer retention technology is helping mortgage professionals to help grow their business and retain their current client base.)

Lender and broker software, services, and products

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Now more than ever, mortgage lenders are investing in technology to drive efficiency across their business and deliver experiences that create customers for life. In this episode of the Fintech Hunting podcast, technology and industry experts dive into what you should be prioritizing in your product and pricing strategies. Tune in now to discover best practices for selecting the right PPE solution, tips for a successful implementation and how ICE is leveraging automation to help clients scale effectively.

How did Gateway Correspondent Lending find new sellers and enhance buyer efficiency using MCT Marketplace? In MCT’s recent case study, Tom Bradley, Trader and Senior Correspondent Product & Pricing Analyst at Gateway Correspondent Lending, describes how tools within MCT Marketplace, like AutoBid and AutoShadow, have improved efficiency and profitability. “It used to take me 10 minutes to submit a bid, now it only takes 10 seconds. I hit the button to review and can be done in 10 seconds. This makes it so much easier to confirm bids with the automation of the system,” Mr. Bradley explains. Discover how MCT Marketplace eliminated manual processes and streamlined operations with a fully automated workflow at Gateway Correspondent Lending in MCT’s new case study.

Everyone wants to collect upfront fees from borrowers, but nobody's got a good process for it. Except for Fee Chaser! Borrower gets a text. Borrower pays the fee on their device. Everyone gets a receipt. And because it's integrated with Encompass® by ICE Mortgage Technology™, everything flows back into the eFolder. Everyone's happy, especially your compliance department. Check it out today.

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“Newrez Correspondent thanks our customers and industry partners for spending time with us at the MBA Conference in Denver. It was very exciting discussing the strides made in 2024 and how we can grow together in 2025. For those who aren’t signed up with Newrez Correspondent, it’s time to align with one of the Top Industry Correspondent Lenders, according to Scotsman Guide® 2024 rankings, to help you achieve your financial goals next year. We’re excited that we now allow “soft pull” credit reports on non-credit qualifying FHA Streamlines and VA IRRRL loans, and soon, the FHA 203(h) Mortgage Insurance for Disaster Victims to help those in need. Also released is the USDA and HUD Section 184 Indian Home Loan Guarantee funding for the next fiscal year, and in the near future, an upgrade to our FTHB escrow waiver process. Again, if you aren’t aligned with Newrez Correspondent, #TheTimeisNow”

Non-Agency, jumbo, non-QM newsbytes

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Conventional conforming (i.e., Freddie Mac & Fannie Mae) and “government” products (i.e., FHA, VA, USDA) account for the vast majority of residential business. But non-Agency products like non-QM, jumbo, or bond business has been steadily increasing as originators don’t want to turn away business so are more open to alternative products. Who’s doing what?

In Pennymac Announcement 24-119, Pennymac reminded lenders of the requirements for properties located within a Coastal Barrier Resource System (CBRS) or Otherwise Protected Areas (OPA).

A&D Mortgage, a leading name in the mortgage industry announced the launch of LEADer, its proprietary free CRM tool designed for its Approved Partners. This innovative platform is set to transform how mortgage professionals manage client relationships and streamline operations to help them grow their pipelines. Key features of LEADer include Client Management, Task and Calendar Management, Lead Generation, Automated Communications, Single Sign-On (SSO), User-Friendly Interface, Customization, Secure and Compliant.

PHH Mortgage issued a reminder that an Undisclosed Debt Monitoring report, also known as a gap credit report, is required on all non-Agency loans.

KDM Financials’ Small Business Program, the 504 Loan. The 504 Loan Program* offers long-term, fixed rate financing for major fixed assets to help grow your business and create jobs.

KDM Financial, in conjunction with a CDC loan, can offer loan amounts up to $10 million. Highly qualified borrowers may be eligible for a 504* blended rate program with CLTVs of up to 90%. *For additional information on eligibility criteria and loan application requirements contact us or visit the SBA website directly at www.sba.gov/funding-programs/loans/504-loans.

“A SoFi mortgage is guaranteed to close on time. We help you stay Zen in your home buying journey by erasing one of the biggest anxieties there is for home buyers, closing on time.

Plus, we back up our on-time close guarantee with $10K.* With SoFi, you also receive: Down payments as little as 3% to 5% down. ‡ A rock-solid pre-approval. ¹ A simple online application, or one-on-one help if you'd like. So, get your candles and yoga mats ready, your personalized rate is just a few clicks away.”

Of course, there is no use producing non-Agency loans if there is no demand by investors or portfolios for them. Two companies started marketing non-agency mortgage-backed securities recently, per Inside Mortgage Finance. “An affiliate of Angelo Gordon has a $359.7 million issuance with mortgages that were eligible for sale to the government-sponsored enterprises. And Lone Star Funds is offering the first expanded-credit MBS of the month, a $217.7 million security with loans for investment properties.”

IMF went on to say, “JPMorgan Chase is preparing to issue a prime non-agency mortgage-backed security with loans originated by CrossCountry Mortgage. Chase typically aggregates loans from various lenders for its MBS issuance, while the pending deal is stocked solely with mortgages from CrossCountry. CrossCountry has a separate MBS issuance partnership with Hildene Capital Management, though that’s focused on expanded-credit mortgages. The planned issuance from Chase is sized at $383.4 million. It’s largely stocked with prime jumbos, along with a 14.8% share of mortgages that were eligible for sale to the government-sponsored enterprises. Servicing for loans in the MBS is set to transfer to JPMorgan Chase Bank.”

Class? I don’t have any, but…

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But there are other examples of “class.” Often in the capital markets section we discuss Class A, B, and C MBS (mortgage-backed securities) since activity in the capital markets often appears in the primary markets. For example, if a loan is extended, and the hedge has to be shifted a month, there is usually a cost, and that cost is either paid for by the lender, the originator, or the borrower.

As Robbie Chrisman reminded me, in the case of “classes,” they refer to the monthly settlement schedules that are designated for certain pools of MBS in the To-Be-Announced (TBA) market. These securities are used to hedge pipelines; think of them as a “bucket” waiting to be filled with actual loans.

These classifications help manage the timing of MBS settlements, with each "Class" grouping MBS pools that will settle in a different week of the month. Put another way, if you are a broker-dealer, or a money manager dealing with hundreds of millions of MBS settling on a certain date, days truly matter given the daily interest costs.

Here’s a breakdown of the three classes. Class A MBS: These are the first to settle each month, typically on the first business day. Class A includes MBS pools issued by Fannie Mae, Freddie Mac, and Ginnie Mae with 30-year fixed-rate mortgages. Due to their early settlement, they often have higher demand among investors aiming for quick settlement. Class B MBS: These settle approximately one week after Class A, often on the second or third business day of the following week. Class B primarily includes 15-year fixed-rate mortgages and certain ARM (adjustable-rate mortgage) pools, giving investors options with shorter durations. Class C MBS: These are the last to settle each month, typically two weeks after Class A, around the third or fourth business day. Class C pools often include additional ARM products and some specific-purpose MBS pools. The later settlement date can be useful for investors managing end-of-month or other timing-based strategies.

Each class allows investors to choose MBS that fit their specific timing and cash flow needs. This structured system also enables smoother trading and predictability in the TBA market, as investors know in advance when each class will settle.

Capital markets: pretty quiet out there, rate-wise

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There isn’t a whole lot to report from yesterday. Reports of Ukraine using western-made missiles to strike within Russian territory initially sparked geopolitical concerns, briefly driving a safe-haven bid in financial markets. However, the rally quickly lost momentum. Bond prices, and therefore interest rates, are determined by supply and demand: Weak demand in a $16 billion auction of 20-year Treasury bonds yesterday further dampened buying interest.

Additionally, Federal Reserve Governor Bowman stated her preference for a cautious approach to reducing interest rates, citing recent stagnation in inflation progress. The probability of a 25-basis point reduction at the December FOMC meeting now stands at nearly 50/50, down from around a 60 percent probability to open the week. Many say that the economy seems to be doing pretty well without lower rates.

Today’s calendar kicked off with weekly jobless claims (213k, slightly less than expected but there was a back-month revision higher) and Philadelphia Fed manufacturing. Later today brings existing home sales for October, leading indicators for October, Kansas City Fed manufacturing for November, Treasury announcing the front-loaded, month-end supply (consisting of $69 billion 2-, $70 billion 5- and $44 billion 7-year notes and $28 billion reopened 2-year FRNs) before auctioning $17 billion reopened 10-year TIPS, Freddie Mac’s Primary Mortgage Market Survey, and remarks from three Fed speakers. Today is also Class D 48-hours for MBS. We begin the day with Agency MBS prices roughly unchanged from Wednesday evening, the 2-year yielding 4.30, and the 10-year yielding 4.40 after closing yesterday at 4.41 percent.

Jim was walking down the street when he was accosted by a particularly dirty and shabby-looking homeless man who asked him for a couple of dollars for dinner. Jim took out his wallet, extracted ten dollars and asked, "If I give you this money, will you buy some beer with it instead?"

"No, I had to stop drinking years ago," the homeless man replied.

"Will you use it to gamble instead of buying food?" Jim asked.

"No, I don't gamble," the homeless man said. "I need everything I can get just to stay alive."

"Will you spend this on greens fees at a golf course instead of food?" Jim asked.

"Are you NUTS!" replied the homeless man. "I haven't played golf in 20 years!"

"Will you spend the money on a woman in the red-light district instead of food?" Jim asked.

"What disease would I get for ten lousy bucks?" exclaimed homeless man.

"Well," said Jim, "I'm not going to give you the money. Instead, I'm going to take you home for a terrific dinner cooked by my wife Gayle."

The homeless man was astounded. "Won't your wife be furious with you for doing that? I know I'm dirty, and I probably smell pretty disgusting."

Jim replied, "That's okay. I just want her to see what a man looks like who's given up beer, gambling, golf and sex."

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 STRATMOR blog is “A Lender’s Personal Touch Can Help After a Disaster.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2024 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman. The views and opinions in this newsletter are mine alone unless otherwise specifically stated herein.)