Servicing, Accounting, TPO Products; What Every Lender and Servicer Should Know About Catastrophes
As many from the conference fly home, there was a lot of information flying around the conference this week. (Check out the climate and catastrophe notes below). My son Robbie and I had the pleasure of sitting with the co-founders of nonprofit CapitalW Collective, Amy Creason, Pat Peters, and Leslie Winick, while in New York this week for the MBA Secondary. They're on a mission to create a more inclusive and dynamic mortgage capital market through the Collective, looking to engage with everyone in our industry. But all is not peachy. The CFPB is very interested in more details on the rising costs associated with obtaining credit reports, per Director Chopra. “In many cases, a handful of firms have cornered the market, allowing those companies to levy a tax on every mortgage application or transaction in the country… The result is that mortgage lenders can evaluate fewer applicants, and homeowners end up eating higher costs, typically at closing.” No one wants to hear the term “price gouging” regarding their product, but credit folks heard it. (Found here, this week’s podcasts are Sponsored by Truv. Truv lets applicants verify income, employment, assets, insurance, and switch direct deposits. Unlock the power of open finance, with Truv. Today’s features an interview with new Figure Technology Solutions CEO Michael Tannenbaum on the evolution of the HELOC and 2nd Lien space in mortgage.)
Lender and Broker Software, Products, and Services
Industry Update: Usherpa, the original mortgage enterprise CRM technology, has enhanced its strategic partnership with MortgageFlex, one of the industry’s original mortgage technology developers and creator of the MortgageFlexONE LOS. Usherpa’s SmartCRM is the exclusive marketing automation and Relationship Engagement Platform to be connected to MortgageFlex Loan Origination System (LOS). MortgageFlex offers the industry’s only cloud-native unified technology platform for both origination and servicing. When combined with Usherpa’s sophisticated Relationship Engagement Platform, the partnership is a perfect pairing that wins lenders more business. Read the official press release here.
If you’re having trouble finding the time to venture to your local government office and research the legal description of a subject property, you’re in luck. We discovered that First American Data & Analytics offers access to this critical information from the comfort of your office or living room. Accessing its Rapid Legal & Vesting Report gives you quick access to the legal description of a subject property’s last full value transfer and the vesting information from the most recent deed. This means you get access to the subject property’s address, grantor/grantee, deed type, recorded date, and the legal property description. All you need is an internet connection and a web browser to get started, saving you valuable time and expediting answers. Get a sample of the report and experience it for yourself.
ICYMI: Optimal Blue announced its “Optimize Your Advantage” campaign, and those who spent time in New York at MBA Secondary this week got to experience it firsthand. In a news release, the technology and data company described the campaign as an initiative to highlight the value and innovation that Optimal Blue clients receive. “Through Optimal Blue’s position as the housing industry’s only end-to-end capital markets platform, lenders and other market participants have greater control of their profit margins, giving them distinct advantages, regardless of market conditions,” the company said. Optimal Blue is known for its comprehensive capital markets technology and open-network approach to partner integrations. With expertise built over more than 20 years, the company helps lenders optimize their advantage from pricing accuracy to margin protection, and every step in between. Read more about the campaign in the news release.
Elphi’s cutting-edge loan origination system (LOS) transforms the lending industry, demonstrated by its success with Lima One Capital, the nation’s premier private lender for real estate investors. By integrating all loan origination activities into one automated system, Elphi helped Lima One reduce processing cycle times by over 10 days per loan and save thousands of hours annually. The platform’s configurable, rules-engine-driven architecture and extensive API capabilities provide seamless integration with third-party services and in-house systems. This transformation enhances the borrower experience and allows lenders like Lima One to deliver superior service while confidently scaling their operations. Discover how Elphi can transform your lending operations. Read more in the full case study, and click here to contact us.
TPO Go Poised for Growth Following Wholesale Lending Focus! National mortgage wholesaler, Third Party Origination Go (TPO Go), is poised for growth and expansion following a decision from its parent company to dedicate its full commitment toward the wholesale lending business. Phil DeFronzo, TPO Go President shared, “TPO Go stands for industry-leading solutions and exceptional service for our broker partners, and this approach has contributed to significant growth over the last several years. As we continue through 2024, we are sharpening our focus and dedicating our corporate resources to the wholesale channel. We're on track to finish the year strong and positioned to be a top tier wholesale lender by the close of 2025.” TPO Go offers a wide variety of loan programs, including loans from Fannie, Freddie, and Ginnie, as well as niche renovation and HFA programs. Brokers also benefit from USDA, VA, TPO GO 100/Chenoa and a proprietary first-time homebuyer program for their borrowers.
Reduce loan fallout by up to 10 percent with Loan Vision and LV-PAM. Loan Vision customers also report a 20 percent reduction in accounting headcount and a 30 percent decrease in days to close the books. Interested in learning how Loan Vision can take your accounting department from Cost Center to Revenue Generator? Schedule a call now!
“Dara by Sagent, and end-to-end platform, a single source of truth. Sagent is relentlessly focused on delivering innovation to our industry that will serve multiple purposes to help alleviate the needs and challenges that servicers are looking for, one being the ability to offer homeowners self-service opportunities where information is received and addressed in real time. Sagent CTO Uday Devalla sat down with Brian Vieaux of FinLocker during a Fintech Fridays podcast discussing their newest platform, Dara by Sagent, sharing relevant context about the product and its six components (Core, Consumer, Default, Data, Movement, AI). Read the blog recap here and listen to the podcast when you get chance, then hit their team with your questions.”
Catastrophe Versus Climate Change
Yesterday I attended a session on Catastrophe and Climate Risk Modeling. It is something that every lender and servicer should be aware of, since it will, if it hasn’t already, impact the pricing of loans and servicing across the nation. As a quick aside, there is a difference between climate and catastrophes when it comes to evaluating the risk. Modeling the financial impact of climate change is relatively new whereas catastrophe modeling began being developed in 1992.
Investors, loan servicers, insurance companies and others are looking at this subject in terms of “what may happen” versus “what has happened.” Climate change can drive longer term changes versus the instant damage that can occur in a catastrophe. Over history insurance companies have tended to focus on modeling catastrophes. And every homeowner, and LO, has seen insurance rates increase, if policies can even be set in place. Insurance companies have continued to be ahead of lenders and servicers in evaluating risk over time (one can think of insurance like a 1-year ARM that re-adjusts based on changes in interest rates every year) as they monetize perils. They can react more quickly.
Insurance premiums, like mortgage rates, are a combination of many factors, not the least of which are the probability of an event, assessing the risk on a given asset, the risk of damage, and the cost of repairs. For example, the Lahaina fire in Hawai’i was not anticipated in terms of the combination of factors: non-native species combined with high winds combined with old wooden structures built very close to one another. And now, where will the labor and materials come from to rebuild, and does the community want to rebuild what was there in terms of no regard for zoning? The wildfires in California in recent years have eliminated 25,000 structures… how do insurance companies model that? Or do they just stop issuing policies?
Have building codes kept pace with climate or catastrophe risk? In coastal areas, have barriers been built? What are flood control measures like? In fire-prone areas, how have forest management techniques changed, if at all? Do zoning regulations incorporate disasters of any sort… What is density like? Many major U.S. cities are located in coastal areas... People are going to live and establish communities where they want to be.
On the good news front, seven new insurance carriers have been added in Florida! With that, a given amount of risk is being spread out over more companies, lowering the per-company potential cost. But is insurance available and affordable for Florida residents? (And don’t look to the CFPB for help… that bureau does not regulate insurance matters directly.)
Lenders and services should be analyzing how risk will be calculated and reported. How is the industry valuing the impact, potential or actual, of climate change or catastrophes? What is the strain on borrowers, and what are the potential changes in loan-to-value or overall debt service amounts? How do servicers model risk and pass this quantitative information onto MSR (mortgage servicing rights) values? How is this information being reported, if at all, to the parties involved, and how is this information being used?
The questions continue. How will borrowers with different types of loans react? Will delinquencies and defaults vary based on Agency, non-QM, bond loans, and so on? As noted above, people are where they are for a reason. But different states have different hazard zones that insurance companies have developed less tolerance for ignoring.
Companies servicing mortgages, although there are economies of scale, have seen the cost of servicing going higher. If a disaster occurs, is the cost of servicing a loan greater than the income earned by servicing that loan? If so, there is a negative net present value: how do you value servicing when income is less than the expenses?
The catastrophe models used by insurance companies and loan servicers must be dynamic. How are yours, if you have them, updated? The scope of a given disaster is rarely priced into the value of a pool of loans, or even one loan. In California, for example, the lack of supply is masking the potential climate price hit. (Put another way, what buyers want to live in areas prone to earthquakes or forest fires, yet prices do not reflect it.)
If all this is making your head ache, it should. Servicers are probably not calculating MSR values based on state and area code and flood zone and zip code. But in the future, there is no reason not to, as the data exists. The amount of capital that needs to be held by banks, credit unions, and other servicers will matter even more given the climate risk to the assets. One can expect Freddie Mac, Fannie Mae, and investors to focus on this, as no servicer wants to buy assets from geographic areas or property types that were “bid back” by others.
Interestingly, given the constant change, historical records almost don’t matter. Hurricane or tornado patterns from 1960 don’t matter in 2024. Lenders, and borrowers, should expect more comprehensive disclosures to incorporate more granular climate and catastrophe information. And affordable housing advocates are quick to point out that there are higher costs to certain segments of the population as many are in low-lying areas. Stay tuned! (For more information on modeling risk, contact Kingsley Greenland, Director of Mortgage Risk Analytics, with Verisk.)
Dr. Elliot Eisenberg writes, “In 2013 and 2014, the number of weather/climate disasters exceeding $1 billion inflation-adjusted was 10. In 2017, the number hit 19, in 2020 it was 22, and after declining to 20 in 2021 and 18 in 2022, the number reached a record 28 in 2023. The years 2020-2023 have been four of the worst five years with 2017 also in the top five. A home insurance rate respite seems unlikely.”
Recently we’ve had the Texas Tornadoes DR-4781-TX, Oklahoma DR-4776-OK, and Iowa DR-4779-IA.
In addition to the previously declared counties, PHH Mortgage Corporation posted information regarding individual assistance declared pertaining to Iowa DR-4779 and Oklahoma DR-4776. On 5/17/2024, with DR-4781-TX FEMA declared federal disaster aid with individual assistance has been made available to seven Texas counties, Harris, Liberty, Montgomery, Polk, San Jacinto, Trinity and Walker. View AmeriHome 20240511-CL Disaster Announcement for inspection requirements.
On 5/13/2024, with Amendment No. 5 to DR-4776, FEMA declared federal disaster aid with individual assistance to Washita county Oklahoma. See AmeriHome Mortgage 20240508-CL Disaster Announcement for inspection requirements.
Capital Markets
Stop me when this sounds familiar: Another day with no domestic data, but plenty of Fed speak. Stop. The most notable remarks came from Fed Governor Waller saying that inflation is unlikely to reaccelerate. Data picks up today with the market scheduled to receive the Existing Home Sales report for April and the Minutes from the May FOMC meeting. Existing home sales are expected to have edged higher in April, to 4.20 million from 4.19 million, as listings increased. It will be difficult for existing home sales to increase much beyond that considering there simply isn't a lot of inventory for sale to begin with. The minutes of the Fed’s May Open Market Committee decision will likely show a range of opinions among FOMC members about the outlook for inflation and corresponding rate cuts.
Today’s economic calendar kicked off with Mortgage applications from MBA increasing 1.9 percent from one week earlier, the third straight week of increases. Existing home sales for April are next up and will be followed by a Treasury auction of $16 billion 20-year bonds, remarks from Chicago Fed President Goolsbee, and the aforementioned minutes of the April 30/May 1 FOMC meeting. Tech stalwart Nvidia will report earnings after the market close. We begin the day with Agency MBS prices worse about .125 versus Tuesday’s close and the 10-year yielding 4.44 after closing yesterday at 4.41 percent.
Employment
Nations Lending just notched another win. Mortgage Executive Magazine has ranked Nations as one of the top 40 mortgage companies in the country. CEO Jeremy Sopko cited the recognition as proof of the company's commitment to customer experience and industry innovation. The philosophy of Home Loans Made Human® has led to the continued success of Nations. This recent accolade comes on the heels of Scotsman Guide naming several of their originators in the top 5 percent nationally. Nations will host its Presidents Club Awards this week to celebrate many of these top producers. The event will also honor and recognize the contributions of non-producing support staff. Nations Lending President Bill Osborne summed up the spirit of the event. "It's our way to show how thankful we are to everyone that makes this company great."
“LOs: have you ever read the book, ‘Unreasonable Hospitality’? This game-changing book offers invaluable insights into how providing exceptional ‘Service’ together with the color of ‘Hospitality’ can set you apart. So, what’s the difference? Service is ‘Black & White’ the backbone of any successful loan officer's business; meeting commitment dates, streamlined processes, competitive rates, products & programs. Hospitality is the ‘Color’ making people feel great about what you're doing for them; surprising, delighting and being true champions of dreams. In the competitive world of mortgage companies, service is expected… It's the standard. But what sets top-tier LOs apart isn't just service; it's the vibrant color of hospitality that makes clients feel truly valued. At radius, we have been providing exceptional service to our loan officers for 25 years, the difference is, we prioritize ‘coloring YOU’ with unreasonable hospitality. For confidential inquiries, contact Carla Herrera.”
Wells Fargo Home Lending announced that Sandra Ho will join as head of Sales on May 28, 2024, to lead Wells Fargo’s Consumer Direct and Distributed Sales organizations. Previously, the divisions had been under separate leadership. Sandra will report to Serhat Oztop, head of Sales and Retail Transformation for Wells Fargo Home Lending.