Processing, Correspondent, Valuation Tools; CPI! The CFPB Proposes What? Figure Streamlining HELOCs and More
Florida became a state in 1845. Sixteen years later, kites were used in the American Civil War to deliver letters, news, and newspapers. Now we have… the internet. Here in Sarasota, at the MBA Florida Conference, yesterday’s CFPB proposal turned heads. A “rule” would remove medical bills from most credit reports, “increase privacy protections, help to increase credit scores and loan approvals, prevent debt collectors from using the credit reporting system to coerce people to pay, stop credit reporting companies from sharing medical debts with lenders and prohibits lenders from making lending decisions based on medical information.” “Just because little Timmy can’t hit a baseball doesn’t mean they need to narrow the plate to make throwing strikes harder,” said one person. “Do we need more people bidding up starter homes?” asked another. “Let’s leave off mortgage payments, or late payments, from credit reports,” said sarcastically said another. Click on the link above to comment and stay tuned! (Today’s podcast is found here, and this week’s are sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, cybersecurity, technology, and other services to the mortgage industry. Hear an interview with Zavvie’s Maya Velazquez on cash offers and buy-before-you-sell modern bridge solutions to empower buyers.)
Software, Products, and Services for Lenders and Brokers
Fewer new mortgages are being originated than in years past as homeowners are reluctant to give up record-low interest rates to finance a new property at rates north of 6 percent. Now, lenders are turning to special loan products to earn borrowers’ business. From ARMs to buydowns, SCRA loans and more, servicers need to make sure their teams are ready to handle these special loans. Read ICE’s new blog to learn why special loan products are rising in popularity, and to see how the ICE Mortgage Technology Professional Services experts can help bring your team up to speed.
The Non-QM Town Hall is back bringing you a deep dive into the market dynamics of Non-QM, sharing secondary market updates, providing insights for seasoned Non-QM professionals, and exploring strategies for newcomers. This Town Hall format fosters an interactive dialogue with our featured Non-QM leaders. The first session is Thursday, June 20 with the State of Non-QM, followed by two sessions aimed at Non-QM’s primary audiences: Business Owners in July and Real Estate Investors in August. Guided by our panel of experts (Aaron Samples, Chief Revenue Officer of Logan Finance Corporation, Tom Davis, Chief Sales Officer of Deephaven Mortgage, and Tom Hutchens, Executive Vice President of Production for Angel Oak Mortgage Solutions) it is moderated by Andrew Berman, Head of Outreach and Engagement at American Business Media. Expect engaging discussions on finding Non-QM borrowers, understanding their needs, and leveraging Non-QM loans to grow your business, backed by the wealth of knowledge and experience of our panelists. Sign up here.
The GSEs and FHA recently issued updates to their selling guides and appraisal requirements, outlining changes for lenders and appraisers concerning ROVs. These requirements have an implementation deadline, making it imperative for lenders and appraisers to fully comprehend the changes ahead. To help with this, Class Valuation is hosting a webinar on Friday, June 28, titled “Navigating New Reconsideration of Value (ROV) Requirements for Lenders.” Expert panelists will provide a clear and actionable guide to understanding what changes need to be made and how to make them. You will learn the impact of the new ROV guidelines on lenders, how the borrower-initiated ROV process works, and your responsibilities as a lender under the new guidelines. Register here.
“In today’s competitive marketplace, Citizens stands out with a culture of unparalleled service and a commitment to personal relationships. These characteristics have always been the hallmark of our correspondent channel. Citizens Correspondent Lending remains committed to our community of nationwide lenders and we very excited for the remainder of 2024 and beyond! We are investing in our future with a vision to be able to do more for our valued partners than ever before, including a new strategic partnership with ICE Mortgage Technology and a transition to the Encompass platform. We also continue to expand our presence and add new partners in all markets. We offer a full suite of execution and delivery options, including Bulk Mandatory, AOT, Delegated Best-Efforts and Non-Delegated Best-Efforts, all Backed by the strength and security of one of the country’s oldest and largest financial institutions. Our team of experienced Regional Account Managers and best-in-class Operations and Underwriting colleagues are ready to partner with you today! Find a Senior Regional Account Manager near you at correspondent.citizensbank.com.”
Want to soak up some sun instead of being stuck in the office this summer? Make sure your pipeline keeps churning with wemlo® processing support. Processors at wemlo, who support a variety of loan products and lenders, hustle behind the scenes so your business never skips a beat. Plus, lining up wemlo processing support is a breeze. Simply book a 1:1 call, set up your profile, go over the processing agreement, meet your pod (1 manager and 2 processors), and start submitting loans. Ready to trade office hours for beach hours? Enjoy peace of mind knowing your business is in good hands: book your wemlo demo today.
Figure Attracting Attention
Figure Technology Solutions has launched Figure Connect, a “first-of-its-kind blockchain-based multi-seller, multi-buyer marketplace of private credit loans.” With Figure’s HELOC product, consumers can get approved for a loan in as few as 5 minutes, with funding in as little as five days. “With Figure Connect, originators can receive forward commitments from buyers, lock active bids, control loan pricing to balance profitability and volume, and deliver pools of loans into those commitments. This functionality is facilitated with common, standardized sale terms and documentation. Figure Connect is designed to drive efficiencies for loan buyers and sellers and reduce an often months-long settlement process into days.”
“Leveraging the power of the Provenance Blockchain, a distributed, proof-of-stake blockchain, Figure Connect is designed to drive efficiencies for loan buyers and sellers and reduce an often months-long settlement process into days. Figure Connect helps disintermediate the loan delivery process, standardizing key characteristics of loan pools and sale terms, and creating greater price certainty ahead of the initial loan origination. Ultimately, Figure believes this engenders market liquidity by adding certainty of funding to loan originators and collateral composition to loan buyers.”
“Figure Connect marks another transformative step towards creating the first highly liquid private capital marketplace for loans, as we now offer unique certainty of funding to loan originators and standardization to loan buyers,” said Michael Tannenbaum, CEO of Figure. Figure Connect’s initial partners include The Loan Store, Movement Mortgage, Bayview Asset Management, and Saluda Grade. The Figure Connect marketplace is now available to all other participants in Figure’s lending ecosystem. (Those interested can email partners@figure.com.)
Figure stated, “Today’s private consumer credit capital markets don’t work. Take non-QM mortgage as an example. Every lender has their own unique origination standards. Lenders negotiate one-off loan purchase agreements (LPAs) with buyers, where no two LPAs are the same. Once a lender delivers their contractual obligation of loans, they hope the buyer either re-ups for more loans or a new buyer takes their place, with yet another new and different LPA. The resulting loan pools are bespoke, non-homogenous, and illiquid. The only path to liquidity is frequently pledging loans into the capital markets for securitization.
“Periodically, but with consistency, capital markets shut down. When this happens, not only do buyers not re-up on new LPAs, they often stop buying outright, even with outstanding commitments to do so. How do they do this when there is a contract in place to buy? They delay wires, reject delivered loans or, as in 2008, they say, ‘sue me.’
“Lenders can’t turn off loan origination… Doing so kills their business. To manage inevitable capital market shutdowns and keep the loans flowing, lenders need to hold excess equity on their balance sheet. Limiting production negatively impacts consumers. Non-QM mortgages came to the market with great fanfare, offering flexibility a conforming mortgage couldn’t, but represented just 2 percent of 2023 mortgage production. The lack of a persistent and deep capital market ultimately puts a limit on origination and results in restrictive terms and higher rates for consumers.
“Contrast this to the government sponsored entity (GSE) conforming mortgage market (e.g., Fannie Mae and Freddie Mac). The same non-QM lender that needs to throttle monthly production due to the volatile capital markets and their own equity constraints can originate an unlimited amount of Fannie Mae and Freddie Mac loans, as the bid is always there. The GSEs standardize production. Fannie Mae uses Decision Underwriter and Freddie Mac uses Loan Prospector to standardize underwriting. There are single seller agreements for each GSE - not bespoke LPAs. They support a to-be-announced (TBA) security market. TBAs allow lenders to sell forward production, locking in prices and liquidity. The GSE mortgage TBA market is the second largest market in the world (behind only U.S. Treasuries) and trades $200B+ a day. And the GSEs guarantee the cash flows of their pass-through securities. While government backing was always implicit, it became explicit when the GSEs went into conservatorship. Investors only take first order rate risk when buying Fannie Mae and Freddie Mac paper (with second order credit exposure to the guarantor).
“Figure believes that the fundamentals of mortgage underwriting (credit, income, and property) can all be captured electronically without any humans. Figure built a loan origination system (LOS) and capital market to do this. And to ensure the immutability of the data and our adherence to process, Figure put the loans and all of the underlying data on a public blockchain, Provenance Blockchain. Figure secured warehouse lending in 2018, did the first securitization of its loans in 2020, and in 2023 did the first AAA-rated securitization of its loans. Removing humans from the origination process and using immutable technology allowed Figure to dramatically reduce the TPR process, saving significant dollars on warehouse pledging, trades, and securitizations.
“Figure has a B2B2C model for third parties to use Figure’s automated LOS. Since launch, Figure and its current 90+ third party partners have originated over $10 billion in HELOCs. Because of the automation of the underwriting, all the loans are the same irrespective of the lender. Figure’s LOS brought GSE-like AAA-rated homogeneity, transparency, and certainty to the market.
“Figure recently facilitated a milestone transaction: the first loan sale on the ‘Figure Connect’ marketplace, with multiple buyers and sellers using a common LPA and leveraging Figure’s LOS for standardized origination. The launch of Figure Connect, which connects originators directly with buyers for loan sales using common documentation, reps and warranties, was years in the making: Figure built a partner lender network on its common LOS, and convince loan buyers that (1) their unique differences across LPAs did not result in any performance improvement and a common LPA would work and (2) Figure Connect was their best opportunity to source collateral. Figure had to prove we could achieve a highly competitive AAA-rated securitization takeout for a fully automated underwriting process.
“The multi-buyer, multi-seller common LPA paradigm sets the foundation for a permanent capital vehicle that can buy loans from the marketplace, package those loans into an ‘guaranteed’ pass through and sell to investors. Figure is working with capital partners to stand up this vehicle to facilitate a TBA market for lenders and investors, and we are also working with sell-side banks that can make markets in both the TBA and the pass-throughs. This ecosystem will leverage Figure’s LOS for homogeneity, efficiency and ratings and Figure Connect for liquidity. The goal is to deliver a market first by year end 2024: an “always on” liquid GSE-like market for non-GSE credit.
“Without blockchain, Figure could not stand up and sustain this new capital market ecosystem. Blockchain displaces trust with truth. The ability to capture data electronically and store that data in an immutable ledger dramatically reduces the need for TPR. Remit and loan performance can be shown real time. The certainty of data reduces the guarantor cost of credit support. And with loans, pass-through securities, remit data and the guarantor’s capital all recorded on public blockchain, we can swap the opaqueness that took down the mortgage guarantors in 2008 with real-time, shared transparency that should keep access to capital open, when needed.
“And blockchain facilitates frictionless markets. Figure uses the Digital Asset Registry (DART) to record loan ownership on blockchain. Unlike the Mortgage Electronic Registry System (MERS), DART ‘listens’ for transactions, updating the registry as transactions occur. Unlike MERS in 2008, the record of ownership is never out of date. Figure uses Figure Market’s ATS for the trading of pass through and TBA securities, allowing for 24x7x365 bilateral transactions with instant settlement.
“Freddie Mac’s recent interest in the second lien space has prompted many to question how the GSEs might impact Figure’s business. However, given the automation and lower costs that Figure has brought to the ecosystem, the right question is actually when will Figure impact the mass market mortgage business today dominated by the GSEs.
“The Figure HELOC process lowers costs by 80 percent. With its meaningful investment in artificial intelligence, this cost advantage will only grow. Figure’s modern loan settlement and payment infrastructure ensures loan investors get paid with significantly greater speed and accuracy vs. the status quo.
“We see Figure Connect’s value in ALL lending markets - not just HELOC. The Figure LOS that our partners use today not only originates HELOCs, it is designed to originate everything from auto to first lien mortgage loans using the same automated processes. We believe Figure Connect benefits from economies of scale and diversification of credit, while lenders capture a much lower origination cost coupled with certainty in takeout. This combination makes every market, including conforming loans, open to change.”
Capital Markets
Bond prices finally rose yesterday after two days of losses following last Friday's release of a stronger-than-expected jobs report for May. Yesterday’s bond market action was helped by a strong $39 billion 10-year note sale, which met much better demand than note sales over the past couple of weeks. It was a large chunk of this week's Treasury debt issuance, totaling $127 billion.
But most of this week’s market movement hinges on today, with the June Federal Open Market Committee meeting (no change expected, but pay attention to the dot plot) and the Consumer Price Index release (the annualized headline reading was expected to remain static at 3.4 percent, while the annualized core reading was expected to cool by a tenth of a percent to 3.5 percent). Hope amongst investors today is that CPI data supports the case for the Fed to cut rates this year. We did learn yesterday that the NFIB Small Business Optimism Index posted another modest gain in May, reaching the highest level this year, although it remains below its 50-year average.
Today’s risk-filled calendar kicked off with mortgage applications from MBA increasing 15.6 percent from one week earlier, a big jump. We’ve also received all-important May consumer prices. CPI increased .2 percent month-over-month and the core, ex-food & energy, was +.2 as well, +3.4 percent year-over-year versus 0.3 percent and 3.4 percent previously with the core up () versus. 0.3 percent and 3.6 percent in April. Real weekly earnings () when they were seen increasing 0.2 percent month-over-month after falling 0.4 percent in the prior reading.
Now that the CPI data has been released, attention will turn to the conclusion of the FOMC meeting this afternoon, with the Fed's interest rate decision and Fed Chair Powell’s follow-up press conference. The Fed is anticipated to maintain its current forward guidance, weighing the potential need for further rate hikes to control inflation against the belief that existing rates are adequate to continue reducing inflation. After CPI, Agency MBS prices are better by roughly .5 and the 10-year yielding 4.27 after closing Tuesday at 4.40 percent; the 2-year is down to 4.69.
Employment
Midwest growth and expansion opportunity! A strong, stable IMB with 35 years of lending experience is looking to expand its national footprint in the Midwest through an acquisition or a partnership with production teams or a regional bank. The IMB is licensed in 48 states with a stable capital base and is looking to partner/acquire loan production teams that are looking for the support they need to survive and thrive. They are looking for strong leaders that can see a vision for growth and opportunity to growth the Midwest into a region of strength. If you are a strong retail loan origination team or regional bank looking for stability and an amazing growth opportunity, please reach out to Chrisman LLC’s Anjelica Nixt to forward your confidential inquiry.
Incenter Lender Services announced the promotion of Shelley Duffy to EVP, National Sales, “Responsible for all aspects of Incenter’s expanding Enterprise Business Development team as the company innovates new solutions to strengthen clients’ competitive advantage.” Congratulations! “Ms. Duffy’s priority is empowering her team to match prospects and clients with the right outsourced or technology-based services depending on their needs.”