News on Critical Defects; Two Harbors' Purchase; Capital Markets Update
Huh? Nearly half of borrowers don’t rate shop? Freddie Mac tells us that this is indeed the case (although every LO and broker I know would disagree). And if they did, they could save some bucks: between $1,000 and $2,000 over the life of the loan, and $2,000 - $4,000 when the borrower obtains 5 competing quotes. Speaking of consumers, how ‘bout the CFPB issuing a final rule (2018 TILA-RESPA Rule) addressing when a Closing Disclosure may be used to reset tolerances under the TILA-RESPA Integrated Disclosure Rule!? (You can access the final rule on the Bureau’s website.)
REIT Changes
In the lending world, “CYS” doesn’t stand for California Youth Symphony. It is the name of a real estate investment trust, and its shares shot up about 10% yesterday after it was announced that CYS said it agreed to be acquired by fellow REIT Two Harbors Investment Corp. TWO’s shares, on the other hand, slumped. The deal is expected to close in the 3rd quarter. Analysts much smarter than I am believe the lower expenses resulting from the deal are a positive for TWO shareholders. It's a good sale by CYS as the business was “broken and could not achieve scale.”
Why should any residential lender care? Because it could impact the price TWO will pay for servicing, and impact borrower’s rate sheet pricing, and/or impact the demand for agency MBS. Many of my readers have sold their servicing to Two Harbors. One of the main risks of investing in a mortgage REIT is an unexpected or rapid increase in interest rates. Agency REITs typically perform poorly when interest rates are rising and the yield curve is flattening. Everyone, and their brother, expects rates to move higher, and an unexpected increase in interest rates could have a material negative impact on the net interest margin (NIM) and on the value of the securities held by the agency mortgage REITs, which could result in lower dividend payments and a lower book value.
Don’t forget prepayment risk and liquidity risk. Agency mortgage REITs usually depend upon the difference between the yield on their assets (agency mortgage-backed securities: MBS) and their liabilities (generally short-term repurchase agreements) used to fund the assets to produce earnings. Variance from anticipated prepayments could cause the average life of their assets to shorten (or increase) and the company to increase (or decrease) premium amortization on their assets, which generally results in a lower net interest margin (NIM) or duration extension. This variance in the average life of assets may result in a varying NIM or book value. And while the agency MBS market is one of the largest and most liquid markets, there is some uncertainty over the exact future of Fannie & Freddie, which are now being operated under government conservatorship. Changes to their structure, including their size, charter, and market sponsorship could have a material impact on the trading and liquidity of agency MBS. The agency REITs rely partly upon the liquidity and government guarantee of agency MBS to finance their portfolios.
Events and Training
Join top originators around the country at the June 19-20 LO Workshop in Philadelphia, PA. This unique, hands-on workshop is designed to arm LOs with skills to generate business in our rapidly changing industry – especially as rates continue to climb. Participants will learn trade secrets from four top originators and walk away with an actionable business plan to help increase production. The Workshop is exclusively available to LOs at companies that are members of Lenders One, and past attendees have called it, “advice from people who have figured it out...a must to improve business and life.” Register by Tuesday, May 1, for early bird pricing of $299. Contact Lauren Ketchum for more information or details on joining Lenders One.
Do your LOs know the best scripts to win business in today’s market? SCRIPT-a-PALOOZA is a FREE webinar on Wednesday May 2nd, 9 am PST, featuring a dozen of the top LOs sharing their best scripts they use with their clients and to get Realtor partners. Brought to you by Mortgage Coach.
Plaza offers home loan options for Condos with its FHA, VA and Conventional program. Join its May 2nd webinar to learn options.
Franklin American Wholesale published its May Wholesale “Customer Training Calendar”. “Mortgage Fraud”, “Best Practices in Loan Processing”, “Formula for Success – Importance of Customer Relationship Management”, “Advanced Self-Employed Borrower”, and “Optimizing LinkedIn” among others. Click here: Franklin American Mortgage Wholesale Customer Training Calendar.
It's the return of the California Mortgage Expo -- LA edition, being held Thursday, May 17th, in Anaheim (with a bonus 8-hour NMLS class there on Friday, May 18th). This is your chance to come as our guest!* All you have to do is click this link to register, follow the registration prompts, and enter the code CAFREE (then be sure to click the "apply" button to actually apply the code!)
Registration is open for Arch MI’s May webinar sessions: Analyzing Appraisals for Single-Family Residences (Identifying the Key Areas of the Uniform Residential Appraisal Report), Conquer the Components (Understanding the Aspects of a Loan File), Loan Processing
(Using the 1003 as a Roadmap), Master the Mystery (Navigating and Evaluating Personal Tax Returns), Mortgage Fraud (Everything Old is New Again), Negotiate the Numbers (The Basics of Business Tax Returns and Self-Employed Borrowers), Negotiate the Numbers Applied (Case Study: Sole Proprietorship), Negotiate the Numbers Applied (Case Study: Partnership, S Corporation, Corporation), and Seizing Market Share in a Purchase Market
We’ve got the MBA’s Secondary in Manhattan fast approaching.
Join this year's Multifamily Executive Conference, taking place September 17-19 at the Bellagio in Las Vegas, to get a head start on how to both perform at excellence levels today, and to transform as the ones who'll seize the moment to reimagine an exciting, life-altering future for multifamily community design, investment, development and management. Register before May 4th to receive the exclusive insider rate of $899.
Capital Markets
Before Bill Cosby was grabbing headlines rhetoric over the potential trade war with China was making the news, but increases in imports prices would likely be seen as transitory by the Fed. Its main focus, when it comes to inflation, is consumer prices. The price strength over the last year as well as the indications of higher input prices for labor and raw materials is likely to influence their policy decisions. So…Inflation? Not a huge concern.
Wall Street traders will tell you, “Don’t fight the Fed.” Eric Rosengren, president of the Federal Reserve Bank of Boston, says the Fed may need to introduce more rate rises in addition to its current plan for three this year and three more in 2019. Rosengren argues that inflation will heat up faster than anticipated.
The 10-year closed below the 3% threshold (is 3.00% an artificial important level anyway?) and the 2s-10s spread narrowed 3bps ahead of today’s advance estimate of first quarter GDP, expected in at 2.1%. The Atlanta Fed GDPNow model expects a reading of 2.0%, a long way from the 5.4% it projected in early February. Yesterday’s durable goods report showed that business spending was soft, evidenced by a 0.1% decline in orders of nondefense capital goods excluding aircraft. Shipments of those goods, which factor into GDP forecasts, were down 0.7% after increasing 1.0% in February. And the initial claims report will feed concerns about a tightening in labor supply and a potential pickup in wage-based inflation pressure as a result.
Further aiding the nominal outperformance of MBS was the plunge in volume following general yawn to the European Central Bank's decision, which saw the same statement as the March meeting with ECB head Draghi's press conference providing little fireworks as he recognized the recent pullback in growth while expressing confidence in underlying trends.
Looking at today, we’ve already had the latest decision from the Bank of Japan where no changes were announced. In the Good Ol’ USA today’s calendar kicked off with the first look at Q1 GDP. With expectations for a 2.1% increase (down from 2.9% in Q4) with final sales rising just 1.1% vs. 3.4% previously, it came in at +2.3%. The core PCE deflator is seen holding steady at 1.9% but was only +1.1%. The Q1 Employment Cost Index was seen increasing to 0.8% vs. 0.6% previously: +.8%. The University of Michigan Consumer Sentiment Index for April will be released just after April Chicago PMI at 9:45 ET.
Next week has a heavy calendar, including PCE, the latest Fed decision, the May refunding announcement and April payrolls. We start Friday with the 10-year’s yield at 2.98% and agency MBS prices little changed versus Thursday’s close.
Lender Products
Made Easy: Lending to the Self-Employed. Lending to a self-employed borrower—as any loan officer knows—is no simple task because you validate income based on tax returns—versus a W2. But the number of self-employed Americans is growing, and that means lenders will see higher application volume from nontraditional wage earners. To help lenders better accommodate this group, Freddie Mac is working with fintech company LoanBeam, whose highly refined optical character recognition (OCR) technology extracts and ingests data from a borrower’s tax returns at a 99.7% accuracy rate. Its software then calculates an income total and encapsulates the data into a workbook that can be customized to meet lender and GSE requirements. Freddie Mac is integrating LoanBeam’s technology with Loan Product Advisor®, Freddie Mac’s automated underwriting system. To learn more, click here.
ARMCO’s Q3 2017 Trends Report: Critical Loan Defect Rate Drops for First Time in 2017. Q3 2017 reported the first decline in the critical defect rate for 2017. The leading critical defect categories were (1) Borrower and Mortgage Eligibility, (2) Credit, and (3) Income/Employment. The percentage of purchase transactions declined in Q3 but still dominated refinance transactions, accounting for over 67% of loans reviewed within the benchmark. The industry remains in a purchase driven market. While purchase transactions continued to outpace mortgage refinance originations in Q3 2017, the data does show a slight change in direction with a 10% decrease in the percentage of purchase transactions as a share of the overall market, vs Q2 2017. View the full report
WesLend Financial is aggressively expanding its wholesale platform and is seeking highly motivated AEs in the following wide-open states: New York, New Jersey, Connecticut, Massachusetts and Pennsylvania. A mortgage banker licensed in 46 states and Washington, D.C., with aggressive pricing and extensive product offerings that go beyond the basics and includes Co-ops, Reverse Mortgage, Non-QM, FHA down to 550 and much more, top producers find a steady flow of revenues along with an aggressive comp plan. Our Account Executives experience little to no overlap and have full access to all operational personnel including our underwriters. But, it’s not just about full-service. It’s about outstanding service and support. Contact Thomas Michel, EVP of Wholesale at thomas.michel@weslend.com.
Center Street Lending is proud to announce and welcome Eli Smushkovich as its Vice President of Sales. With over 15 years of experience, Smushkovich previously held leadership positions in sales, management, and operations at CoreVest Finance, Phoenix Investment Funds, and Ten-X. He earned an MBA in Finance from Pepperdine University, Graziadio School of Business. Center Street Lending provides business-purpose loans through wholesale and retail channels for single-family and multi-family investments. Loan products include: fix and flip, fix and rent, buy and rent; buy, tear down and build; new construction, and bridge loans. The company is continuing to grow and build its national sales team and are seeking qualified mortgage origination professionals. If you are interested in joining the team, contact Eli or https://www.linkedin.com/in/elismush/.
In servicing news, congrats to Michael Wilkinson who is joining Dovenmuehle as its VP of Business Development to support continued strong growth in its subservicing program nationwide. Mike was previously employed at Stephens, Inc. in Chicago and Raymond James in St. Petersburg, FL and has extensive experience in financial services and financial software sales. Mike earned a Bachelor of Science Degree from the University of Illinois at Urbana-Champaign and an MBA from the Kellogg School of Management at Northwestern University. He and his family live in Lake Forest, IL. Dovenmuehle provides a complete, private label mortgage subservicing program for commercial banks, thrift institutions, credit unions, mortgage bankers, and state and other housing finance agencies. Please stop by Dovenmuehle’s exhibit booth at the upcoming MBA Secondary, SE Credit Union, and NAFCU Annual conferences to meet Mike in person!
Plaza Home Mortgage, Inc., announced that James Pathman and Philip Yee have joined as Chief Information Officer (CIO) and SVP, Chief Marketing Officer (CMO), respectively. As CIO, Pathman is responsible for strategic planning, oversight and continuous improvement of Plaza’s technology efforts, and oversees the project management and business continuity areas of the business. Yee is Plaza’s first CMO. In this newly created role, he is developing the company’s marketing and communications strategies, rolling out new loan programs, and growing Plaza’s brand awareness in the marketplace.
And AMC Class Appraisal announced that it named Scot Rose as the company’s new chief innovation officer. At Class, recently acquired by Narrow Gauge Capital, Rose will be focused on the advancement of appraisal, valuation product and platform innovation as well as leading the firm’s strategic vision in those areas. Congrats!