Lock Policy, Sales Goals, Automation, Temp Buydown Products; Capital Markets Bonus Primer

Forget about layoffs, salary cuts, revenue problems. There’s extra leftover candy in the lunchroom! Uh… do we still have lunchrooms? I hope so. And Thanksgiving will be here before you know it, and with it, pumpkin pie. (Yes, I know that this is a mortgage commentary, but even pumpkins have their share of regulation and controversy.) Pumpkin is a variety of squash belonging to the “Cucurbitaceae,” or gourd family which also includes melons and cucumbers. The FDA allows for sweet squash blends to be sold under the label of “pumpkin.” Libby’s, for one, uses 100% Dickinson pumpkins in its Libby’s solid pack pumpkin, not squash. Although pumpkins and squash are very closely related, Libby’s denied that it ever used a “blend” of various squashes in its popular canned pumpkin. “But the ‘Libby’s Select’ strain of Pumpkin is a variety of squash belonging to the cucurbitaceae. “The ‘Libby’s Select’ strain of Dickinson is our own, developed over decades by our own agricultural people.” (Today’s podcast is available here and this week’s Sponsored by Candor Technology. Home of the One Touch Underwrite, supporting lenders from Point of Sale to Post Close QC, to reduce repurchase risk, increase underwriter productivity by 400 percent, and decrease turn-times by 10 days. Today’s features an interview with Polunsky Beitel Green's Marty Green on the Fed’s calculations and path of policy moving forward.)

Lender and Broker Services and Products

Operational efficiency brings advantage in any cycle. OptiFunder’s Warehouse Management System is proven to reduce warehouse expense and automates tasks for funding through loan sale. The platform is expanding; it’s new automated shipping module reduces dwell time to boost savings. Lori LaRocca, VP Capital Markets & Post Closing for Eustis Mortgage states, "OptiFunder’s Shipping Module has increased our Post Closing efficiency by eliminating the need for multiple internal reports and by giving us the ability to consolidate our collateral shipping process. Not only is OptiFunder’s system amazing, but the support staff is equally amazing. Thank you for the partnership!" OptiFunder offers free back tests to quantify savings. Connect with Carmel York at MBA Accounting and Finance for more info or a demo. Optifunder.com | LinkedIn

Former Ellie Mae CEO and mortgage industry visionary Jonathan Corr has joined the board of directors at Polly. The addition is announced as the company continues to experience record growth and adoption across the mortgage capital markets vertical. “I truly believe that for any company to thrive, it must intimately understand the customer. If you can leverage that understanding to mitigate pain… and further, make them successful by solving that pain, you will grow as a business,” explained Corr. “This is a core component of Polly’s vision, which is why I am so excited to join the team. Polly is fundamentally transforming mortgage processes and addressing problems in a forward-thinking way – all driven by intuitive software and a unique cloud-native approach.” Read the press release in full, here.

“Symmetry Lending provides loan officers fast solutions using the structured financing power of the Symmetry Piggyback HELOC. Our Piggyback HELOC delivers a Jumbo splitter or Jumbo rescue with industry-leading turn times. We also offer Stand-Alone and Post-Close HELOCs to help lenders create customers for life! Discover Symmetry’s Credit & Income Guide and Pricing Guide or call your Area Manager!”

Northpointe Bank Correspondent Lending recently enhanced it’s temporary buydown programs to include both FHA and VA loans with new lock commitments on or after October 7, 2022. This allows eligible borrowers to pay a reduced loan payment and interest rate within the first one or two years of the loan. With Northpointe’s temporary buydown program, the interest rate is bought down from funds collected upfront, allowing the borrower to ease into the full home loan payment over time. The buydown funds can be provided by the borrower, seller, or other interested party, such as a builder, and is eligible for purchase and rate/term refinance of primary residences and second homes. Available in all 50 states and the District of Columbia, Northpointe Bank provides tailored solutions to maximize your profitability and help grow your business. View program details for more information or email us.

The right intelligent automation solution can lower your costs to originate, a very real benefit when volumes are down. It can help your operation run more efficiently, more cost-effectively and more flexibly. The Mortgage Automation Suite, brought to you by Richey May Automate and Zoral Group, provides the solution and support you need to be more flexible in response to market cycles. Along with cost efficiencies and stability, it can also improve accuracy and reduce repurchases. Learn more about how the Mortgage Automation Suite can help your business during difficult cycles.

Need help getting your business plan for 2023 to the finish line? Join XINNIX’s Lead Instructor, Jack “Bullseye” Kauffman, at 9 AM ET on November 16, as he presents “Your 2023 Roadmap to Success” – a free live online class packed with valuable tips on how a well-crafted business plan can help you set goals and strategies to drive your bottom line forward in 2023! Reserve your seat today. Also, in honor of Veterans Day on November 11, and to thank those men and women now in the mortgage industry who have so bravely served our country, XINNIX is increasing its year-round discount for U.S. Military Veterans to 25% throughout the entire month of November. Valid on all Performance Programs. Schedule a call with a XINNIX Account Executive today to learn more.

Capital Markets Bonuses?

I’ve been in capital markets and hedging pipelines for a long time. Anyone who’s been in this business for a long time has seen expansions and contractions, rates go up and rates go down, layoffs and hiring. People still need a roof over their heads, regardless of rates, and someone has to be around to do $2 trillion in home loans (as estimated by the MBA) next year. And a good capital markets staff is critical in finding the right investors for those loans. They should be comped based on company goals, not secondary marketing managers trying to “swing for the fences” for profits.

It is part of the SMM’s job description to maximize the sales revenue from the lot of closed loans. A well-structured bonus plan does not simply give the SMM a token thank you at month or quarter end. It will truly incentivize the individual to minimize ever-present exposure and maximize revenue; refusing to leave any basis-points unaccounted for. You want to find your leaks in this era of “breakeven is a win”? Have a compensation plan that truly rewards execution and devalues inefficiencies.

While a bonus can be a “little something” to thank the individual(s) for a job well done and a prosperous month or quarter, it won't have much of an impact on exceeding goals and revenue. For a bonus plan to be of true value to all parties, it should likely be a substantial part of the compensation package, like many hedge funds analysts. With some lenders bonuses account for up to 50% of a compensation package. Management should look for ways to migrate towards a variable compensation that's aligned with productivity and revenue.

Ownership or the CEO, along with the Secondary Marketing Manager, best lay some ground rules before even thinking of a bonus structure. Typically these SMMs are managing a hedged pipeline and possibly even delivering to the agencies to build a servicing portfolio. The immediate thought often to pay a bonus based on the execution of the hedged pipeline, but there are some considerations.

Does the company have a benchmark for performance to base the bonus upon? Will you have a "high water mark" provision for the bonus? Will the bonus be applied on a cash flow or accrual basis? Should the bonus be based upon overall execution, margins and volume, or just the hedged portfolio? Does the SMM manage margins and impact overall originations? Does everyone understand (and follow) the corporate lock policies and strategies, and how they impact revenue and hedge performance? Does everyone, including management really understand the hedging gains and the possible MSRs/values of retained servicing?

Understanding any hedging gains and the implications of retaining servicing is critical. It's standard for the SMM to understand the reporting and components of hedging, trading, and pair-offs, but to management or the lender’s owner, this is often foreign territory. Capital markets heads need to fully understand the hedging model themselves, including third party performance and mark to market reports and their own data. The validity and knowledge of these reports are absolutely critical as they would ultimately be what an bonus would be based upon, or at least partially based upon.

Of course, data integrity is critical. Garbage in garbage out. SMMs could easily knowingly or unknowingly push misleading data to third party risk management/hedging firms, which will in turn lead to inaccurate benchmarks and performance levels. The key here is understanding the data from time of original lock, through execution and loan sale.

Only when all parties completely understand all of the metrics and are fully confident with their data and benchmarking should any bonus be implemented. And yes, pay cuts are happening everywhere, but at some point, we all know that will stop and bonuses will be back in vogue.

Capital Markets

PSA: Your lock policies could be costing you! Have you taken time to review and adapt them to the demands of the current market? Afterall, many lenders are facing financial stressors they haven’t seen since the 2008 housing crisis. Rising interest rates, low inventory, lack of affordability and other factors have created a chaotic lending environment. Don’t let your lock desk get caught in the crossfire. It’s never too late to refine your policies to protect profitability and mitigate risk. Learn how to approach this process by downloading Optimal Blue’s white paper, “Adapting Lock Policies in Turbulent Conditions.”

Bond yields rose again to open the week, with investors awaiting this week’s Fed rate decision and any clues on when the central bank will dial back the pace of hikes. There was another record inflation print, 10.7 percent, in the Eurozone, which sets the stage for Fed officials to enact a fourth straight rate hike to tame inflation.

What would you do if you were a voting member? The Fed meeting comes as the U.S. GDP was slightly higher than expected for the third quarter, coming in at a 2.6 percent annualized growth and ending the streak of quarterly declines from the year's first half. Net exports were a big contributor to headline growth as exports grew 14.4 percent while imports fell 6.9 percent. Residential investment plummeted 26.4 percent on an annualized basis during the quarter as real estate continues to adjust to the higher rate environment.

Housing and jobs drive our economy, and new home sales fell 10.9 percent in September and the pace of sales is now 27.4 percent less than January’s annualized pace of 831,000. Likewise, pending home sales fell 10.2 percent for the month and are 30.4 percent below the pace of one year ago. Manufacturing and services activity contracted for the second straight month in October due to weak foreign demand, the strong dollar, and the higher rate environment. Inflation remained elevated in September but came in near market expectations.

Today’s calendar contains a set of typically non-market moving economic announcements: Redbook same store sales, S&P Global manufacturing PMI, ISM manufacturing PMI, construction spending, and JOLTS job openings. Day one of the two-day FOMC meeting will begin in Washington, D.C. and is expected to conclude with a 75-basis point hike tomorrow. We begin the day with Agency MBS prices better by .250-.375 and the 10-year yielding 3.94 after closing yesterday at 4.08 percent: even if rates are trending in one direction, it doesn’t mean they can’t temporarily reverse course based on the possibility of a reversal.

Employment

Navy Federal, a top 10 direct lender with over 12 million members, is looking for a seasoned mortgage executive to head mortgage operations which includes all sales and fulfilment. This job has responsibility for a staff of over 3,000, and funds over 5,000 loans a month for NFCU members. The job can be located in Pensacola, Florida or Vienna, VA and relocation services are provided. Members are the mission, so the most important part of the job is ensuring top service for members who are buying or refinancing a home through Navy Federal. The person currently in this role has been with Navy Federal over 15 years and leading Home Lending since 2016, and Navy is looking for someone who wants that type of career opportunity. Navy is a multiple recognized best place to work for award winner from both Forbes and Fortune. For more information, please go Navy’s career site or reach out to Bret Mizer or click here.

I didn’t quite know where else to put this, but in the October 20, 2022, issue of the Federal Register (87 FR 63663), the Office of the Comptroller of the Currency, Treasury (OCC); the Board of Governors of the Federal Reserve System (FRB); and the Consumer Financial Protection Bureau (CFPB) published final rules to increase their respective Regulation Z Higher-priced mortgage loan appraisal exemption threshold by revising the official commentaries to their respective regulations.