New Reps & Warrants From Fannie and Freddie; Millennial Trends

Who says that financial reporters don't have a sense of humor? I caught this recent headline about a story on Alcoa Aluminum splitting into mining and metal groups: "Alcoa: thinking outside the baux." Get it? Aluminum comes from bauxite... Okay, back to mortgages and an industry filled with people trying to help their borrowers but mired down in not making innocent mistakes. Today I am in Des Moines to speak to a Federal Home Loan Bank group, but yesterday found me in Dallas with TIB- The Independent BankersBank - and its annual conference of community banks. The mood was good, and yes, originators just want to help their borrowers. Let's hope "no good deed goes unpunished" won't apply.

Fannie Mae and Freddie Mac announced updates to their respective representation & warranty frameworks that provide significant additional transparency and protections for lenders in resolving loan-level origination defects without repurchases. These announcements are the product of months of dialogue between the GSEs, FHFA, and MBA's Rep & Warrant Reform working group.

Axia has chosen the cloud-based Alight Mortgage Lending application. Quin Brown, Chief Financial Officer, of Axia Home Loans stated "We are extremely excited to partner with Alight as it will provide access to their innovative and dynamic system to further establish Axia as a leader in the mortgage industry."

PCLender has entered into a partnership with Optimal Blue allowing PCLender to enhance Optimal Blue integration to streamline cloud-based solutions through its LOS, With a 99.99+% accuracy rate and the largest library of investors, Optimal Blue's flagship product eligibility and pricing engine, Optimal Blue Banker, connects with more than 1,500 financial institutions and currently touches nearly one-in-four mortgages in the United States. The integration with PCLender supports all of Optimal Blue's feature-rich services including, consumer engagement, pricing, secondary marketing, data and analytics, and compliance.

Mid America Mortgage, Inc. will utilize DocMagic's  SaaS-based compliance and mortgage loan document engine together with the on-premise solutions of DocMagic's recently acquired eSignSystems patented eSigning, eNotary, eVaulting, eRegistration and eRetention solutions. This is the first time since the acquisition of eSignSystems in October, 2014 that the combination of technologies will be jointly utilized to facilitate a complete eClosing and validate DocMagic's eMortgage model. More information can be found on Mid American Mortgage, eSignSystems and docmagic. 

How long will everyone take to realize that Millennials - per our Census Bureau those born between 1982 and 2000 - are in no hurry to marry, have kids, or save up enough money and then finance a house? It will happen eventually. Still it doesn't stop the fascination with their every move but the ones that I talk to aren't too excited about constantly being under the microscope.

I don't exactly know who the Council of Economic Advisers actually advises, but it released some research that should help real estate agents and lenders. Its research found that the top life goals millennials say are the most important to them are: children better off (about 90% vs. same for Gen X), time for recreation (79% vs. 70% for Gen X), contribution to society (68% vs. 60% for Gen X), finding new ways to experience things (67% vs. 60% of Gen X) and living close to friends and family (50% vs. 40% of Gen X).

Brian Koss, EVP of Mortgage Network, one of the largest independent lenders in the northeast, writes, "After all the talk about Millennials, they showed a strong interest in homeownership this past spring-but it doesn't seem it will last. The fact that many Millennials are less motivated by money than they are by job satisfaction is having an effect on loan qualification rates. More importantly, prices on both coasts have risen so quickly that only the very high income earners in this age bracket have shown a willingness to chase them--the rest don't believe it's worth it. As a result, I think we'll see a slowdown in the market this fall that will fuel another wave of consolidation, similar to what we saw over the past year."

Freddie Mac weighed in with its theories and observations. Once the recession ended and unemployment, which had especially impacted Millennials, returned to normal levels, that age group was expected to increase the homeownership rate.  Instead, even as a larger chunk of that generation - roughly those born between the early 1980s and early 2000s -  enter the age when preceding generations became homebuyers, the homeownership rate overall has continued the steady decline that began in 2004 and the rate for those under age 35 has fallen from 44 percent to 35 percent. Pick a theory. Some analysts argue that the reduced employment opportunities at what should have been the start of their careers delayed and perhaps permanently reduced their career development and wealth building while others attribute it instead to the generation's different attitudes towards marriage, family, and renting than their predecessors.

While the home ownership rate has been declining for all age groups, the rate among Millennials is particularly low. Student debt tripled over the past 10 years, reaching $1.2 trillion in the fourth quarter of 2014. Aggregate student debt expanded for all age groups, however the balances are concentrated among those under 30 years old and those between 30 and 39 years old. Anyone thinking that this has nothing to do with any trends is mistaken: experts argue over the degree to which their student debt influences credit and psychological decisions - one can't just dismiss it.

Before the crisis, homeownership rates of 27-to-30-year-olds with student loans (evidence of at least some college education) were 2 to 3 percent higher than homeownership rates of those with no student loans. That gap began to close during the recession and reversed in 2011. By 2014 the homeownership rate of borrowers was about one percentage point lower than the rate of non-borrowers.

And developers are certainly happy catering to the trophy generation of Millennials. It is not plowing new ground to buy neglected apartment buildings in promising neighborhoods, renovate, raise rents, and fill them with young professionals. But developers take extra care to provide touches it can market specifically to the perceived whims of millennial tenants.

Blackstone global head of real estate Jon Gray, speaking at Bloomberg Markets Most Influential Summit, says housing-construction deficit helps U.S. apartments. And the company is planning to take the home-rental business public. And recently homebuilder Lennar reported earnings that topped estimates. Deliveries were up 16%, while orders were up 20%. Average selling prices were 350k, up 8.9%. Incentives were down to 5.6% from 5.8%. Stuart Miller, CEO characterized the market this way: "...The new home and rental markets continued to have significant pent-up demand, which positions us well for years to come. This demand is driven primarily by a large production deficit built up over the last several years, an increasing millennial population, reasonable affordability levels and high-rental occupancy rates."

Accenture published a report focusing on Millennials' dependency on technology to support their day-to-day lives and in order to reach this market lenders will need to connect with them through robust technology and tools. Many Millennials expect technology and substantial lender involvement to help them through the home buying process. In order to engage Millennials and gain their loyalty lenders should educate them about the benefits of buying a home upfront and offer courses on financial topics. Lenders should also maintain a web portal where borrowers can apply quickly, provide calculators and offer mobile capture technologies to allow borrowers to upload documentation to their loan file.

Mortgage Master recently released a Millennials infographic saying that Millennials are expected to spend about $2 trillion on home purchases in the next five years and 93 percent of them want to own a home in the near future. Some interesting statistics about this cohort is that 52 percent rank a successful marriage as their top priority, followed by being a good parent (30 percent), helping others in need (21 percent) and owning their own home (20 percent). The majority of Millennials (94 percent) begin searching for a home online, 45 percent of Millennials don't know if they could qualify for a mortgage if they applied for one, 66 percent are unaware of what closing costs are and 54 percent say student debt is their biggest obstacle in saving for a home.

So will 2015 be the year for Millennials to turn the housing industry around? Millennials are expected to take the lead in the housing market and help drive home buying in the future. Most Millennials are currently renting which allows for more flexibility and less financial hurdles, such as a down payment requirement. Unfortunately as the rental market picks up, rent prices are on the rise and are forecasted to rise about 3.5 percent annually, making it more difficult for Millennials to save for a down payment, creating a cyclical affordability problem. The tightening in credit and underwriting standards have also helped make it difficult for Millennials to qualify.

Millennials are also not as motivated to own a home right away unlike their older counterparts, as many Millennials are delaying marriage and having children to focus on career and educational goals instead of homeownership. However, as the Millennial generation matures, more are looking towards homeownership as 65 percent of first-time homebuyers are expected to be part of the millennial generation. In order to keep up with the demand, lenders are going to have to mold their business towards Millennials, which involves deploying technology to allow these young adults to complete their mortgage process online. Millennials often prefer more online interaction rather than in-person communication and almost half of consumers now prefer email as their preferred method of communication. Click here to read more.

Switching to the bond market, on Wednesday rates continued to do not much of anything - which is a good thing given that the tidal wave of changes continues to wash over our industry. Fixed-income security prices dipped slightly, nudging rates slightly higher. Although the MBA's application numbers don't move rates (it is the other way around) the figures caught the press' attention by surging over 25% last week - my guess is that most of it happened on Friday. (Remember, however, the big dip taken the week before!) And the $21 billion 10-year Treasury auction was met with the second-highest indirect bid in history - an indicator of demand.

Today we've had Initial Jobless Claims for the week ending 10/03 (-13k from a revised 276k the prior week); later are the FOMC Minutes from the 9/17 meeting where rates were left unchanged, and a $13 billion 30-year bond auction. Predicting mortgage rate sheets we saw a 2.06% close on the 10-year and this morning we're pretty much unchanged on that and on agency MBS prices.

Jobs and Announcements

Congratulations to The Money Source for becoming a true national Lender! "The Money Source just added the state of Hawai'i who said, 'Aloha' to the rapidly growing correspondent lender, making them officially licensed to lend and service mortgages in all 50 states. The Money Source has been making a name for itself in the correspondent arena by focusing on a technology driven service model, maintaining an average turn time of eight days to purchase - from delivery to PA - and management has recently opened their own in-house servicing division in Connecticut in order to ensure superior customer satisfaction. Our core purpose is quite simple: Grow Happiness. We believe that by investing in the needs of our sellers, employees, and homeowners we can create an environment that fosters growth, achievement, and most importantly happiness." To find out more about how you can deliver your FHA, VA, USDA, and Conventional loans to The Money Source, visit www.themoneysource.com or contact EVP of Correspondent Lending Jeff Vanderluit (720.284.7782).

"Do you have what it takes to be a part of a winning team? If so, ResMac, a Boca Raton based national mortgage lender, is looking for strong wholesale and non-delegated correspondent AEs, and remote underwriters in various markets. We have sales positions available in Illinois, Texas, New England, North Carolina, South Carolina, Georgia and California.  Underwriters nationwide, let your 5+ years of experience in FHA, VA and/or USDA be utilized to the fullest potential by joining ResMac.  Interested candidates should respond in confidence to Careers@resmac. com."

And for a slightly different product angle, Greenbox Loans is aggressively expanding nationwide with its "cutting edge menu of Non-QM and Specialty products. We are bringing common sense products to borrowers who are just outside of the underwriting guideline box but are well qualified. Greenbox Loans is looking for a special breed of wholesale and retail sales people - sales people who realize that knowing products and being able to share that knowledge to help council our customers is an art form that is sometimes lost with automated approvals and phone interviews. Yes we believe in the old time customer service mantra mixed with our cutting edge technology. We are looking for Producing Wholesale Regional managers and A/E's along with Producing Retail Branch managers and LOs nationwide. Send resumes to National Sales Director Harvey Goldberg (888.377.0900).