11.27.24 Borrower Psychology; Socotra Capital's Chris Baumann on Hard Money Lending; Housing Data Overload

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“Rob, my borrowers would be really happy with rates well below 7 percent. When will we get there?” A wise economist with the MBA once told me, “If you’re going to give a number, don’t give a date. If you’re going to give a date, don’t give a number.” Probably early next year. If I could predict rates precisely, I’d be writing this from a sleepy village on a beach in Mexico. Depending on where the home is, maybe the focus should be more on obtaining homeowner’s insurance at a reasonable level. Everyone is talking about how delinquencies are following mounting insurance costs! Per HomeLight, nearly half (46 percent) of the people out there say that buyers and sellers are hoping for interest rates to drop to between 5.75 percent to 6.00 percent before they make a move. Homeowners are borrowing nearly 50 percent of their equity for three main reasons: Debt consolidation (88 percent), home renovations (79 percent), and purchasing another property (55 percent). However, homeowners have tapped into equity for some far-fetched reasons, too: loan officers reported clients using their equity to buy a helicopter, cosmetic surgeries, and fund food truck, bouncy house, and sheep herd fire abatement businesses, respectively. Writing a daily Commentary pales in comparison. (Today’s podcast can be found here and this week’s are sponsored by Truework. By connecting every verification method into one platform, Truework helps lenders eliminate process disruptions, maintain a competitive borrower experience, and reduce the fiscal impact of verifying income. Hear an interview with Socotra Capital’s Chris Baumann on Hard Money Lending 101.)

Jobs available

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In the Northwest and California, Banner Bank is searching for Mortgage Loan Officers looking for a diverse product group to create lasting client, Realtor and builder relationships. At Banner you have Portfolio lending, Construction to Perm financing, Fannie, Freddie, FHA, VA, and USDA along with equity products for HELOC, bridge financing and Lot Loans to serve your clients. Banner has opportunities for lenders looking for local decision looking to build or build onto their career with support for homebuyer education, CRA lending (state bond and Portfolio) as well as access to internal and external DPA to add value to your eligible clients and make more loans possible. Banner is the right fit for an established team, or the individual looking to grow their business and take the next step in their career. Please send resumes to Aaron Miller.

One of the fastest growing Non-QM lenders in the country, Champions Funding, is immediately hiring for roles in nearly all departments. They are searching for top talent in these open positions: Marketing Specialist, Underwriting Manager, in-house Funder (AZ), and experienced Account Executives nationwide. If you have experience with Non-QM, are a high performer in your field, desire to make a huge impact, and want to align with a company committed to its team, reach out to Angela Castillo, SVP Talent Acquisition for a confidential conversation.

Lender and broker software, services, and products

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Black Friday Week 2 for 1 deal! Join us on 12/11 for a live webinar showcasing Halcyon’s cutting-edge Tax Wallet solution and get a preview of Byte’s all-new browser-based LOS platform for free. See how lenders can streamline their IRS verification process without leaving the Byte platform. If you’re looking for a faster, more efficient and cost-effective income transcript solution or looking for a powerful, yet affordable LOS platform that gives you total control over your loan process, you don’t want to miss this webinar. Register today!

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Freddie and Fannie are like sharks: always moving forward

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Home prices rose 4.3% YOY in the third quarter of 2024, according to the FHFA House Price Index. "U.S. house price growth slowed in the third quarter, continuing a trend that started in the fourth quarter of the previous year," said Dr. Anju Vajja, Deputy Director for FHFA’s Division of Research and Statistics. "While house prices continued to increase because housing demand outpaced the locked-in housing supply, elevated house prices and mortgage rates likely contributed to the slowdown in price growth."

The Federal Housing Finance Agency (FHFA) announced the conforming loan limit values (CLLs) for mortgages acquired by Fannie Mae and Freddie Mac (the Enterprises) in 2025. In most of the United States, the 2025 CLL value for one-unit properties will be $806,500, an increase of $39,950 (or 5.2 percent) from 2024. 

The news was quickly greeted by industry old timers who snipped, “I got into this business when loans amounts were ___ (fill in the blank).”

Freddie Mac jumped on it. “In line with today’s Federal Housing Finance Agency (FHFA) announcement, we’re increasing our maximum baseline conforming loan limits and high-cost area loan limit values on January 1, 2025. For a 1-unit property in most areas in the United States, the 2025 maximum baseline conforming loan limit value will be $806,500. The maximum loan limit value for a super conforming mortgage secured by a 1-unit property will be $1,209,750. The Single-Family Seller/Servicer Guide (Guide) will be updated in a December Guide Bulletin to reflect the 2025 loan limit values.”

Not to be outdone, Fannie spread the word. “Loan limits in 2025 are increasing. The new loan limit for most of the country will be $806,500v(a 5.21% increase over the 2024 limit) and is effective for whole loans delivered to Fannie Mae and loans in MBS pools with issue dates on or after Jan. 1, 2025.”

Pennymac Correspondent Group came in with the change and posted a new announcement: 24-123: Conventional Loan Limit Increase for 2025. (Announcement details can also be found on www.corr.pennymac.com.)

Kind Lending upped as well to the updated 2025 Conforming Loan Limit: $806,500 ($1,209,750 in Alaska and Hawaii). “This is your chance to expand your offerings with the latest in loan program flexibility and innovation first with Kind Lending.”

Besides the conforming loan limit change, there are other things going on. MBA’s President and CEO Bob Broeksmit, CMB, released a statement regarding the Federal Housing Finance Agency's (FHFA) announcement of the 2025 multifamily lending purchase caps for Fannie Mae and Freddie Mac (the GSEs).

FHFA enabled Fannie Mae and Freddie Mac to expand support for rental housing, view the posting for more information.

Freddie Mac Multifamily announced a new CUSIP registration capability to better align its ML-Deal offerings for both commercial mortgage-backed securities and municipal bond investors, increasing liquidity across both markets and advancing Freddie Mac’s mission. The new CUSIP registration capability will allow investors to choose their preferred CUSIP identifier, Mortgage or Municipal, at deal settlement and subsequently exchange their certificates between either of the two CUSIPs through a Freddie Mac approved Broker Dealer. This feature will start with ML-27 and is anticipated to be available for all future ML Deals. ML-27 is expected to go to market the week of December 9th with an issuance size of approximately $250 million and be designated as Sustainability Bonds.

Freddie Mac’s Multifamily’s loan purchase cap for 2025 will be $73 billion. The cap is set by the FHFA largely based on projections for the size of the multifamily debt origination market. Freddie Mac also was informed FHFA’s criteria for mission-driven business has not changed from 2024.

During the weekend of Jan. 11, 2025, Fannie Mae will implement Desktop Underwriter® (DU®) Version 12.0. The release delivers an enhanced risk assessment by incorporating the latest market conditions and loan performance data. Updates include new opportunities to evaluate borrowers with limited or no credit and the ability to qualify more borrowers via positive rent payment history and cash flow assessment.

Fannie Mae’s Uniform Appraisal Dataset (UAD) and Forms Redesign team has published a new training, The Industry’s Guide to the New URAR, featuring the dynamic appraisal report and updated dataset. In 2025, a course offering continuing education credits will be available for appraisers from appraiser education providers.

Pennymac updated Conventional LLPAs effective for all Best Efforts Commitments taken on or after Monday, November 25, 2024 removing the ‘Loan Balance Adjustments’ LLPA grid from the ‘Conv LLPAs’ tab. View Pennymac Announcement 24-122.

Pennymac posted Announcement 24-120: Reminder: Deadline for HomeReady & Home Possible Temporary Down Payment Assistance Program.

Capital markets: the U.S. economy is certainly not ailing

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Everybody and their brother, including the Federal Open Market Committee (FOMC) watches the data. Recently this has pointed toward a more accommodative monetary policy. While the Fed maintains its commitment to price stability, indications of cooling inflation have led to speculation about potential rate cuts in the coming months and into 2025. Mind you, despite campaign rhetoric, inflation isn’t bad: Current data shows signs of stabilization, with the Consumer Price Index (CPI) down from previous highs. But Fed officials remain cautious.

But we all know that a big part of our economy is based on the labor market. The latest job market reports reveal mixed signals. While initial jobless claims fell to 213,000, beating expectations, continuing claims surged to 1.908 million, a three-year high. This dichotomy hints at underlying employment instabilities and potential impacts on consumer spending, adding complexity to the economic outlook. Economics is never cut and dried, right?

The trading day yesterday began with market unease as President-elect Trump announced his intention to impose significant tariffs: 25 percent on imports from Canada and Mexico and 10 percent on imports from China. His justification tied these actions to curbing illegal drug inflows and migration, intensifying fears of trade disruptions and price hikes. These announcements had immediate market repercussions, with losses across the Treasury curve as investors grappled with the potential economic fallout.

Treasuries faced further selling pressure throughout the day due to disappointing economic data. October’s New Home Sales plunged by 17.3 percent month-over-month to 610k units, well below the expected 718k. This marked a 9.4 percent year-over-year decline, attributed to rising mortgage rates following the Federal Reserve's September rate cut and the lingering effects of hurricanes, particularly in the South. The FHFA Housing Price Index for September indicated a 0.7 percent monthly rise, reflecting a slowing yet sustained increase in home prices amid constrained housing supply.

Despite these challenges, industry participants remain cautiously optimistic. The National Association of Home Builders' (NAHB) housing market index suggested potential recovery in coming months, driven by builder incentives and scarce resale supply. However, the elevated cost of borrowing could limit the extent of any rebound. Consumer Confidence for November rose modestly but fell short of market expectations. The U.S. Treasury conducted a robust $70 billion auction of 5-year notes, following a similarly strong 2-year note sale on Monday. The auction reassured a steady demand for Treasuries, even as overall yields adjusted higher.

The release of the Federal Open Market Committee (FOMC) meeting minutes provided additional insights into policymakers' outlook, revealing growing uncertainty about the economic trajectory, emphasizing data dependency in monetary policy decisions. Many participants highlighted the volatility of recent economic indicators and the importance of assessing underlying trends. While the minutes reiterated a willingness to consider further rate cuts if conditions warrant, they stopped short of signaling an imminent shift in the reaction function. Overarching concerns about trade policy, housing market constraints, and inflation dynamics continued to weigh on the outlook.

MBA mortgage applications (+6.3 percent week-over-week for the week ending November 15) kicked off today’s busy economic calendar. For those counting, this is three consecutive weeks of rising mortgage applications. We’ve also already received the second look at Q3 GDP (unchanged at +2.8 percent from the original +2.8 percent), PCE (3.5 percent, core +2.1 percent) and durable goods orders, weekly jobless claims (213k, still strong; continuing 1.907 million) and advanced indicators for October. Later today brings pending home sales for October, Treasury auctions that will be headlined by $44 billion 7-year notes, and Freddie Mac’s Primary Mortgage Market Survey. After the volley of news Agency MBS prices are better by about .125-.250 versus Tuesday’s levels, the 2-year is yielding 4.19, and the 10-year is yielding 4.24 after closing yesterday at 4.30 percent.

Some folks, for Thanksgiving, will serve yams with marshmallows on top. Every wonder where those marshmallows come from? Here you go; definitely suitable for the kids.

At the other end of the spectrum, we all have something to be thankful for. (Warning: more than one tissue may be required.)

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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