Non-QM Products; Wells Settlement; More Decent Economic News

When I was a young teen one of my summer jobs was working for a successful contractor in Cupertino, California at about $5 an hour. Comp has gone up significantly, as have all costs, and any originators working with builders should look at this graphic of where the money goes in building a home. While I am yammering about builders, the President issued an executive order on workforce development that will establish the National Council for the American Worker. “NAHB will help do it part to invest in the future workforce by pledging to train 50,000 new workers over the next five years for a career in the construction trades.” Speaking of builders, it turns out even they don’t quite know how to calculate the price per square foot of what they’re building! (Measure to the inside of the wall, or the outside dimensions? Semi-finished basement?)

Settlement and Legal Matters

Billion here, billion there, pretty soon it adds up. I don’t track how much lenders, banks, rating agencies, and investment banks have paid in fines over the last ten years, but yesterday was a chunk. Wells Fargo has agreed to pay a $2.09 billion fine for issuing mortgage loans it knew contained incorrect income information, the Justice Department announced Wednesday. “The bank pointed out that the Justice Department has previously reached settlement agreements with other banks over similar issues, and that "importantly, there were no claims that individual customers were harmed because of the alleged conduct."

A federal judge in Philadelphia sentenced George Barnard to five years after he pleaded guilty to multiple fraud counts. The U.S. attorney's office says Barnard used the money from the scheme to buy yachts, luxury cars and beach homes. In addition to his prison term, Barnard was ordered to pay $12.7 million in restitution and to forfeit $4.2 million in illegal proceeds. Barnard was one of two owners of Capital Financial Mortgage Corporation. Between 2005 and 2013 he defrauded banks by using money he borrowed for his personal use instead of funding loans for borrowers or paying off borrowers' existing mortgages.

Although not directly mortgage-related, plenty of mortgage folks fly, and may be interested to learn that TSA agents and security screeners can’t be sued for false arrests, abuse, or assault, according to a ruling from a federal appeals court in Pellegrino v. the United States of America Transportation Security Administration, reports travel news and advice site The Points Guy.

According to the US Court of Appeals for the Third Circuit, TSA officials have sovereign immunity while working in their official functions as screeners and security agents under the Federal Tort Claims Act. While that law ordinarily doesn’t cover law enforcement officers, the court ruled in a 2-1 decision that TSA agents aren’t considered law enforcement and therefore are covered under the law.

Per the court’s decision, TSA searches are considered “administrative searches,” and as Circuit Judge Cheryl Ann Krause notes in the decision, “Congress to date has limited the proviso to ‘investigative or law enforcement officers,’” which the TSA searches wouldn’t fall under. According to Judge Krause, it would be up to Congress to enact legislation that could hold TSA agents accountable. But as the law stands now, it seems that there’s very little that individuals wronged by the TSA can do to have their problems addressed.

Capital Markets

Despite the Fed’s increases in short-term rates, the U.S. economy continues to move forward, an example is the recent measure of Gross Domestic Product. Last week’s GDP print didn’t really move markets that much as it came in at 4.1 percent, about as expected. The data included new methodologies as well as new data sources and a base year change from 2009 to 2012. The revisions mean a restatement of previous years’ growth and from 2012 to the first quarter of 2018; the economy grew at a 2.3% average annual pace - in line with what has been previously reported.

Likewise, growth since 2007 was improved from a 1.4 percent annual average to 1.5 percent. The savings rate from 2016 through 2017 was restated at 6.2 percent versus a previously reported 4.2 percent. Finally, the Bureau of Economic Analysis sought to improve their reporting of Q1 GDP since the recession due to evidence that the seasonality adjustment was artificially understating first quarter performance. As a result, most of the Q1 over the past few years were revised higher. Overall, while some of the individual numbers have changed with this year’s revision, the narrative of the last 10 years remains intact.  

The yield on 10-year Treasuries closed at 3 percent for the first time since June after the Federal Reserve held borrowing costs steady while signaling its intention to raise rates amid robust economic growth, as expected. The hawkish language used sets the stage for a rate hike in September. That news came separately from reports that President Trump is planning to increase tariffs on $200 billion worth of Chinese imports from 10.0 percent to 25.0 percent. Elsewhere internationally, central banks in the U.K. and Brazil are still to meet this week. The Bank of England is expected to hike even amid Brexit issues, while Brazil’s central bank is seen standing pat, and the RBI increased its repurchase rate by 25 basis points to 6.50% while the reverse repurchase rate was increased by 25 basis points to 6.25%. This was the second consecutive rate hike, matching expectations. The biggest piece of news remaining this week is the U.S. jobs report is on Friday, which is predicted to show a healthy labor market, with 190,000 new jobs.

Looking back at yesterday’s economic releases, the ADP Employment Report easily beat +175k expectations, registering at +219k. The ISM Manufacturing Index dipped below expectations in July but is still running at a healthy clip. Total construction spending declined in June, but an upward revision to spending in May mitigated most of the headline disappointment for June, which implies the June downturn is not as bad as it appears.

This morning traders are looking at England where the increase in interest rates by the Bank of England, although expected, is a significant moment as it is the first time the Bank of England has raised interest rates above 0.5 in nearly a decade. This is in large part down to the rate of inflation far outstripping interest rates in the UK, even with today's increase. In simple terms this means that if your savings earn 0.75% interest they are being eaten into by the effects of inflation.

Job layoffs from Challenger, Gray & Christmas kicked off today’s calendar to no effect. Weekly jobless claims: +1k to 218k. At 10AM ET, June factory orders are expected to increase 0.8% MoM and 0.5% ex-transportation. Finally, At 2PM the NY Fed will report MBS purchases for the week ending August 1 which are expected to total $1.218bn net. We start Thursday in the U.S. with the 10-year yielding 2.98% and agency MBS prices a few ticks up/better versus Wednesday’s close.

Lender Products and Services

“Does your pricing seem a little bit too high? Are you losing deals over rates? Is your ability to earn money limited by your company's high pricing? If you answered yes to any of these, chances are your company has too much padding or extra margin built into their rates, costing you money, deals, and possibly even referral relationships! Even worse, some companies build even more padding into your rates when their business slows down to keep their ‘high-profit appetite’ fed. Now there's a way to see 'behind the curtain' to make sure you’re getting the best deal possible. Check out this "Pricing Lie Detector" - a free tool that shows you in 10 seconds how much money you may be leaving on the table due to over-inflated rate sheets from your company.” (Note: I have not verified the accuracy of this recruiting product.)

How can artificial intelligence help realtors and loan officers build authentic relationships? Thanks to a new partnership, marketing and CRM company Usherpa and borrower intelligence service Sales Boomerang can show you how. Together, these two powerhouse services can work in tandem to help users connect with leads at the right time, so they can close more deals with less effort. Register today for a new webinar coming August 8 and receive actionable advice on how to leverage AI to connect with your clients and prospects.

New Penn Financial’s SmartSelf product is part of the proprietary non-QM SMART series, comprised of four distinct product offerings to meet the diverse needs of specific borrowers. SmartSelf is a product designed for self-employed borrowers to document income with bank statements for loan amounts up to $3 Million or financing up to 90% LTV with no tax transcripts or tax returns required. Use 12 or 24-month bank statements or asset depletion to qualify with a minimum 620 FICO. SmartSelf Plus available for borrowers with 2-4 years derogatory credit for loan amounts up to $1.5M with 85% LTV. Call your rep for more information or go to www.gonewpenn.com.

Caliber Home Loans, Inc. Correspondent Lending is poised to be the top renovation investor in the industry. Caliber understands the challenges lenders face in originating and executing renovation production. Our Renovation Lending Professionals and dedicated operations team provide lenders the guidance and support they need through every step of the renovation loan process, which gives them confidence that they’re executing efficiently, effectively and compliantly. Beyond Caliber’s execution model, its team of Renovation Lending Professionals can provide lenders with sales and marketing support to help them capitalize on the significant incremental opportunities that renovation financing can provide — not only in the purchase market, but in the renovation refinance market as well. Even in markets with limited inventory, Caliber’s overall renovation offering can help lenders provide borrowers and Realtors with more options in terms of properties to consider which will help close more transactions. Contact your Caliber Correspondent Sales Executive for more information.

Employment

Congratulations to a good friend of this commentary and industry veteran, Allen Friedman, who is entering his 10th year at iServe Residential Lending overseeing Western U.S. sales.  There is not a better testament to any individual or company when you see that type of longevity, especially in this industry. Here’s to his next 10 and iServe’s continued growth!

Here is something a little off the beaten path for someone good at sales but is a little weary of mortgages. Due to continued growth, Inheritance Funding Company, Inc. is looking to hire an additional Funding Officer for its San Francisco Financial District home office. Inheritance Funding Company, Inc. (IFC) has provided heirs waiting for their inheritance distribution with capital advances for nearly 25 years. "With nearly $200M advanced to heirs in all 50 states, IFC is the oldest and largest purveyor of inheritance advances in the country. With continued growth in this lucrative sector, IFC is looking to hire the right talent to catch up with increased demand. Inheritance/Probate experience is neither expected nor required though some understanding of legal process is a plus. The right candidate will showcase a blend of sales expertise, analytical reasoning, and strong client communication skills. Competitive base salary and uncapped incentive pay for strong performers." Send all resumes and inquiries to Eric Holdsworth, VP of Marketing.

Are you a creative marketing professional with a solid track record of management along with a passion to help Loan Officers grow their originations? A large regional $4B mortgage bank located in the Southwest is looking for their next superstar Vice President of Marketing. The ideal candidate will have 7 to 10 years of solid marketing management experience, mortgage industry preferred, strong marketing through branding background along with a strong background in evaluating and implementing state of the art marketing technology and digital platforms. The ideal candidate will have experience managing an advertising budget of over $6.5 million that drives results and will be able to build strong internal and external communication plans and ensure their timely execution. If you are ready to work for a dynamic and growth-minded mortgage lender and lead a team of 20 +talented marketing professionals, please send your confidential resumes to me for forwarding.