Credit Underwriting Changes; Exec Comments on Margins and Volume; Ally's Offer

Lenders cutting margins in a diminishing mortgage marketplace. You bet. Does one lender want 100% market share? Perhaps. Here’s the latest example: Ally Home announced their Price Match Guarantee to give consumers peace of mind that they’re getting the best rate possible (see here for full release). "...If a consumer finds a better price at another lender, all they have to do is let their Ally Home loan advisor know..." What about the cost to produce a loan? For more information on the interaction between margins & volumes, see the "Capital markets" section below.

Changes in credit underwriting and guidelines

If you have bad credit, will a lender give you a home loan? Sure, someone, somewhere. What are Realtors telling their clients? Mortgage lenders check your credit score to gauge how good you'll be at paying them back, too, and a low credit score can work against you.

About $372 billion in first-lien mortgage were originated in the first quarter of 2017, a decline of 9% from the first quarter of 2016. This marks the lower point since the fourth quarter of 2014. Refinance originations dropped 20%, or more if you watch the MBA app numbers, from last year, making up a smaller share in lending and pulling total lending originations downward.

Black Knight explained this drop in refi originations was led by borrowers with high credit scores, and that borrowers will lower credit scores saw less fluctuation. "Refinance lending among higher-credit-score borrowers, who have largely driven the refinance market these past several years, saw a quarterly decline of 50%," said Ben Graboske, Black Knight Data & Analytics executive vice president. "As we've seen in the past, these borrowers tend to strike quickly and often when interest rate incentives are present, but tend to hold back when the conditions are less favorable." At the other end of the credit spectrum, lower credit borrowers, those with credit scores below 700, only saw refinance volumes decrease by 24%.

The Mortgage Credit Certificate, or MCC program, is maybe "the most widely available mortgage assistance program in today's marketplace yet it's unfortunately perhaps the least used." Shawn Sidhu penned this primer on the program.

Citi Correspondent Lending has issued its July 21st bulletin. General policy updates include: Desktop Underwriter - Version 10.1, 97% LTV Option: Credit Score Change, Delegated Underwriting: Ineligible Transactions, Condo Project Updates and Bankruptcy Documentation.

Wells Fargo has aligned the maximum debt-to-income (DTI) requirement for the Correspondent Credit Underwrite (CCU) loans with its standard Non-Conforming requirements for loans beginning on or after July 13th. Loans sold to Wells Fargo Funding should be underwritten to the Wells Fargo Funding Standard Non-Conforming guidelines in the Wells Fargo Funding Seller Guide and Correspondent Credit Underwrite Non-Conforming Guidelines. Where policy is not stated, Sellers should refer to Section 825 of the Wells Fargo Funding Seller Guide. A Wells Fargo Funding approval is required for Sellers who wish to participate in the Correspondent Credit Underwrite ("CCU") program.

Effective immediately, NewLeaf must pull an independent Credit Report for all applicants in to re-issue credit through GUS. It must ensure that an additional Credit Report fee(s) of $25 (individual) / $50 (joint) is disclosed properly to the Borrower(s). The Borrower(s) must be charged the lesser of the disclosed amount of $25 (individual) / $50 (joint) or the actual cost of the Credit Report, payable to NewLeaf Wholesale.

With the CRA's implementation of a public record data standard effective in July 2017, MFW has contacted its Credit Reporting Agency to determine how they will be adjusting to this change, and what they can do to assure the additional searches MWF may require (to verify outstanding judgements/liens) are in fact available should that option be incorporated.  MWF is actively reviewing these options and will be updating policies accordingly once this review is complete.

To improve transparency and to help clients better understand how a borrower's credit is reviewed during the manual underwriting process, Sun West has updated its manual underwriting guidelines specifically for the review of a borrower's credit. The updated guidelines include additional information on how various risk factors associated with a borrower's credit are analyzed during a manual underwriting review. To access the updated guidelines, click here.

Effective July 17th, FCM has posted new guideline updates.

With the release of Fannie Mae 10.1 after the weekend of July 29th, on the HomeReady product, DU will no longer require additional compensating factors for DTI >45% and ≤50%.  With this change, Pacific Union is removing the overlay limiting the DTI to 45% and will allow up to 50% with DU approval. The maximum DTI ratio will be updated as follows: available in FLOW/Quick Pricer on August 1, 2017. Also, noteworthy, although DU will provide a message regarding disputed tradelines, Pacific Union Financial requires a DU Approve/Eligible recommendation.  Manual underwriting is not allowed.

Capital markets

A capital markets exec weighed in on the current lock volumes and profitability. "The most recent MBA Mortgage Applications numbers printed had refinance applications down 31% from the third week in July a year ago - which, unless you have tapped into a magic well full of purchase applications, you are going to be feeling the hit. Capital markets folks have been forced to face the age-old dilemma: volume or profit?

"Successful LOs are always going to be able to sell off of the rate sheet and meet target unit numbers, but newer LOs or those posting lower units are going to make or break the company's volume figures for the month - my experience has been that a rising tide raises all boats and vice versa, but your superstars on the sales staff will be able to meet their target unit goals without fail. I would assume most people reading this do not work for a Wells or Chase or Quicken, and the management team at their company is stressing how to continue to close files.

"Capital markets can always choose to raise rates to maintain target execution, but most companies have not taken the time to engage in sensitivity analysis to see how changing rates will affect their application volume. Looking at the swap curve, a .125% change in rate on an agency product is going to cost the company 30-60bps on the back end, and for a jumbo loan, that figure is going to be 40-70bps.

"If your company is doing $100m a month, and you believe to maintain volume you need to cut rates by 1/8th, you just made roughly $500k less in profit to maintain that volume. For a $100m/mo. company, a $500k monthly difference in profit is a huge deal. If you maintain profit margin and do $70m instead of your usual $100m, that $30m is probably going to be around $450k less profit, if you are making an average of 101.5 on your loans.

"As we are seeing much more rate volatility exiting Q2 and entering Q3, it is worth knowing how changing profit margin is going to impact your monthly volume, and most importantly, your bottom line. It varies company by company, but you are only doing yourself a disservice by not understanding the rate sensitivity of your client base."

Looking at the bond markets, U.S. Treasuries and agency MBS prices ended Monday with modest losses - for no other reason than rates have dropped enough in recent weeks so we'd expect a bit of a pullback. The 10-year note was confined to a near 2bp (2.24% to 2.26%) range during most of the NY trading session with the yield curve opening and remaining steeper most of the session as the bond lagged; MBS prices finished the day worse by a couple ticks.

This morning we've had the Philadelphia Fed Non-Manufacturing Survey (it dropped 10 points), and coming up are two home price indices, both for May, at 9AM ET: The FHFA home price index and the S&P Case Shiller home price index. But wait - there's more! July consumer confidence and a $26 billion 2-year note auction. We start Tuesday with the 10-year yielding 2.28% and agency MBS prices worse about .125 versus Monday's close.

Jobs and Announcements

"Western Bancorp is excited to welcome our newest team member Tony Gutierrez to the Western Bancorp's family. Tony is leading our Inside Sales as well as selected areas of California. Tony has over 30 years in the industry and a background that encompasses Operations, Underwriting, Sales and Management, so please join us in welcoming Tony to the team! Contact Tony at (916)-662-1656.

FHLBank Topeka has approved National MI as a mortgage insurer for their Participating Financial Institutions (PFIs) under the MPF Program. PFIs in Colorado, Kansas, Nebraska and Oklahoma now have the ability to utilize National MI mortgage insurance to insure their MPF loans.

A large regional lender is continuing to expand its footprint in upstate New York. "We are aggressively looking to partner with like-minded Area Managers, Branch Managers, and Loan Originators looking for a final and trustworthy home. Fannie, Freddie, and Ginnie approved and 203k specialists. Best in class technology and provide the tools and support enabling its people to exceed expectations and expand relationships. Interested candidates should send resumes to me for forwarding to the principals; please specify the opportunity.

We often hear in our industry about how stressful many borrowers find the mortgage process. There's even a stress scale that says it's more stressful than finding a new job or the death of a close friend! This can obviously have an impact on your borrower experience and ultimately your referral business. The solution that every originator can own themselves: focusing on communications. I wanted to share an ebook on the topic: "The Mortgage Communication Playbook." It summarizes why great communication is critical, what it looks like, and how to make it happen. By focusing on how you communicate with your borrowers you can relieve their anxiety, increase referrals, open up your time, and make your business grow. Download your free copy here.

Join XINNIX on Thursday, July 27 at 2:00 PM ET for their next Leadership Lessons Webinar, "How Do I Drive Business from My Referral Sources in Compliance with RESPA?" XINNIX CEO Casey Cunningham and special guest Mitch Kider from Weiner Brodsky Kider PC share the information you need to know in order to successfully navigate the critical areas of compliance. Topics will include guidelines around marketing and advertising, consent orders with the CFPB, the impact of the PHH case, and much more! Click here to register today!

The Wholesale division of Finance of America Mortgage, which was ranked #8 for wholesale lenders by volume by Scotsman Guide, is expanding its team of top producing Account Executives across the country. Expansion into new markets offers new AEs access to open territories with no account overlap or internal competition. FAM Wholesale AEs have access to a diverse suite of products including Renovation, Commercial (Fix & Flip, Investor Line of Credit) HELOC product and Non-Delegated Correspondent. FAM Wholesale offers a consistent, competitive pricing model along with customer-centric operations centers. To learn more, visit Elevate your Career  or contact Brady Shepard at 317-727-9493 or email Brady Shepard.

Congrats to Bill Berthelette who has joined Capital Mortgage Services of Texas as national director of correspondent lending where his primary focus will be expanding CMS' emerging banker program that utilizes proprietary technology and vendor synergies. (CMS is a national mortgage lender and a Ginnie, Fannie and Freddie direct seller servicer.)