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Subservicer, Non-Agency Products; World Debt Increasing; Primer on “Duration” and Mortgage Pricing

January 16,2019
by admin

Time has a way of slipping by. For example, I’ve really been meaning to transfer a bunch of Lotus 1-2-3 and Quattro Pro spreadsheets I have off of some floppy disks and onto my laptop but never seem to get around to it. Speaking of time passing, Moody’s send out a warning that if the partial US government shutdown (PUGS) continues it could create problems for the U.S. bond market. Entities that depend upon federal money for revenues or paying debts could experience “liquidity strains.” As we know the lack of liquidity will take a company, or person, down to their knees faster than anything. Yet nothing is certain but death and taxes, and the IRS plans to recall thousands of workers now on furlough because of the PUGS.

Lender Products and Services

Wrapping up a record-breaking 2018, Angel Oak Mortgage Solutions is looking to continue its extraordinary growth in the correspondent channel. If you’re attending the MBA’s Independent Mortgage Banker’s Conference in San Francisco later this month, there couldn’t be a better time to speak with the leader in Non-Agency about becoming a correspondent lender. Simply contact Sean Marr to schedule a meeting. Also, make sure to see Steven Schwalb speak on non-QM on Wednesday January 30th at 3:30. Non-Agency lenders aren’t all the same – experience the Angel Oak difference.

Do you use Dovenmuehle, Cenlar or LoanCare as your subservicer? Richey May & Co., a public accounting firm recognized as the leader in providing audit, tax, and compliance services within the industry, is planning its 2019 subservicer oversight review program to assist companies with their monitoring and oversight responsibilities. Richey May’s program and subsequent 120+ page report provides value beyond the basic compliance requirements, including face-to-face interviews with all key department heads to observe their processes and challenges, a comprehensive review of business continuity and IT assessments to ensure client and consumer information remains secure, and a summary of the subservicer’s notable accomplishments and strategic initiatives for the future. The optional loan level testing provides succinct and valuable insight into how your personal portfolio is being serviced, potentially uncovering unobserved information and assisting in the client-subservicer relationship. To learn more or to participate in the 2019 oversight program, please contact Kevin Lohry.

What’s the mortgage version of “having your cake and eating it too”? Well, thanks to United Wholesale Mortgage, it means having access to superb service, technology, partnership tools…AND price! UWM has dropped its rates across the board — for conventional, government and jumbo — giving the nation’s No. 1 wholesale lender unequaled pricing in the country, to go along with everything else that makes it the most popular wholesale lender among mortgage brokers. UWM has removed all state adjustments and all Loan Level Pricing Adjustments (LLPA) overlays as well. Now, not only will mortgage brokers enjoy the fastest and easiest experience by working with UWM, they’ll also get their customers unmatched best rates. To learn more, visit

Sharing this one final time! Download the free eBook, “2019 Mortgage Lending Resolutions.” 2019 is setting up to be a year filled with challenges and no game plan on how to combat, will most likely leave you sitting on the sidelines. Still, winning is possible, but only if you are agile enough to embrace change and lean into the winds of market challenges to find the opportunity within. This eBook gives you a plan and focus areas to attack this upcoming year. A great quick read for all mortgage leaders and their teams, Download Your Free Copy Here.

Capital Markets

Interest rates are a function of bond pricing, which is, in turn, a function of supply and demand. (There is little reason to originate a loan, or issue debt, if there is no demand: No one wants to buy it, own it in their portfolio, or service it.) On the supply side of things, there is concern. Countries around the world have now amassed the highest level of debt in history at nearly $250 trillion. That level is about 3x the amount of 20 years ago. By country, the U.S., China, EU and Japan have 67% of the global household debt, 75% of corporate debt and almost 80% of government debt. Countries with the highest public debt to GDP are: Japan (238%), Greece (182%), Barbados (157%), Lebanon (147%) and Italy (132%). The US is about 105%. Looking at households, consumer debt is higher than ever as it is expected to hit $4 trillion in 2019 along with $10.3 trillion in mortgages reached in the end of Q3 2018. Experian tells us that consumers, on average, owed $6,826 on their credit cards as of September, up 1.9% from a year before and up 11% from 2011.

I am often asked why lower mortgage rates move differently than higher mortgage rates. (“Rates dropped, but 5% mortgages barely budged. Is my capital markets guy keeping all the profit?” The answer lies in the duration and convexity of the yield curve. Let’s focus on the duration component for today, a.k.a., the length of time in years in which a mortgage is expected to pay off.

Duration influences pricing in life, whether that be on bonds or on how long a car is expected to last. Assuming a stable rate environment, if someone buying loans for their portfolio has a loan that they expect will pay off in six months versus six years, the loan paying off in six years is more valuable as that is a longer stream of interest payments the company can collect. Virtually all of the loans originated prior to 2018 were made below current mortgage rates, which conceptually means people are currently less likely to refinance into higher monthly payments.

For those holding mortgages in their portfolio, the portfolio value falls when rates fall, as a larger chunk of those loans are expected to refinance and be paid off. Exposure to interest rates along various points of the yield curve matters especially when the curve is changing shape. Although most residential mortgages have fairly long maturities (amortized for 15 or 30 years), their effective duration, or sensitivity to interest rates, appears at various points along the yield curve since the average life is historically closer to 6-8 years. This curve-wide interest rate risk is unique in mortgages and is driven primarily by the borrower’s option to prepay their loan.

Since the end of September, yield curve flattening has been driven primarily by 10-year treasuries sliding lower relative to shorter-maturity benchmarks like the 2-year. Higher coupons, like 30-year 4.5s and 5.5s, tend to trade to a shorter duration as the coupons can see faster prepayment speeds when rates drop versus 3.5s or 4.0s.

It is also no secret the Fed is continuing and will continue to exit the mortgage market as they reduce their mortgage holdings and allow the balance sheet to run off. The issue with this is it will continue to deteriorate the mortgage universe’s quality of collateral. Analysts will point out that for over 8 years the Fed has been a garbage disposal of sorts as the worst of the worst pools were delivered to them, meaning high WAC, fast paying, poorly serviced pools ended up on their balance sheet. This greatly improved the tradability of the mortgage market which helped to elevate prices of rapidly-prepaying loans while the Fed was buying.

Now that the Fed has scaled back purchases, anything that is in existence currently in the market or that will be created in the future will have to go somewhere else. This will ultimately create demand for high quality pools. The end result on the rate sheet is that you will see markets not paying large premiums for higher rates if they think the loan will pay off and exit their portfolio in six months.

JPMorgan Chase is preparing to issue a prime non-agency MBS deal where the majority of the loans backing the security are mortgages eligible for sale to the government-sponsored enterprises. Kroll Bond Rating Agency notes, “The JPMMT 2019-1 mortgage pool is composed of 1,707 first-lien mortgage loans with an aggregate principal balance of $978,118,609… The underlying collateral consists entirely of fully-amortizing, fixed-rate mortgages, characterized by substantial borrower equity in each mortgaged property, as evidenced by the WA original LTV of 68.4% and WA original CLTV of 69.4%. The weighted average original credit score is 761, which is within the prime mortgage range. Conforming jumbos account for 67.0 percent of the collateral. The loans come from Chase (42%), Quicken (19%), United Shore Financial Services (UWM – 13%). Roughly 45% of the loans came through the retail channel and 30% were sourced through third-party mortgage brokers, the rest through correspondents, DTC, etc.

Looking at yesterday’s bond market, yesterday volatility picked up slightly but in general it was another quiet day as the U.S. 10-year closed yielding 2.73%. The Federal Reserve’s January Beige Book noted that eight out of twelve districts reported modest to moderate growth, but increased volatility in financial markets, rising short-term rates, falling energy prices, and trade/political uncertainty caused lower optimism for future expectations. Our bonds often move on international news, and we heard about record repurchase reserves liquidity injection overnight from the People’s Bank of China, and British Prime Minister Theresa May surviving a confidence vote by a margin of 19 votes, though it remains unclear how she will proceed with regards to Brexit. Greek Prime Minister Alexis Tsipras is expected to face a confidence vote later today. And Bank of France President Francois Villeroy de Galhau acknowledged that the ongoing yellow vest protest have had a significant short-term impact on the economy but added that measures taken in response should add up to 20 basis points to GDP growth in 2019. Finally, the Bank of Japan will reportedly cut its inflation forecast at its policy meeting on January 23 due to lower oil prices.

Today we’ve had weekly jobless claims (expected to increase, they were -7k to 213k) and the Philadelphia Fed Manufacturing Survey (higher at “17” as expected). Housing starts and permits, which were also scheduled for release, have been postponed due to the partial government shutdown. We will also hear remarks from one Fed speaker, Governor Quarles.We begin today with the 10-year yielding 2.73% and Agency MBS prices little changed versus last night’s close.

Jobs and Personnel Moves

Sierra Pacific Mortgage is looking for talented additions to its teams across the nation. Don’t miss the opportunity to work for a company that has been around for more than 30 years and continues to experience growth, prioritizes its culture and employees while offering hands-on support from the leadership team! Management is looking for talented and motivated loan originators throughout the US. Contact Sierra Pacific about all the opportunities they have. If you have the vision and the drive, Sierra will provide the support and tools you need to take your career to a whole new level. Send your resume to to learn more. In case you didn’t know, Sierra Pacific Mortgage offers renovation loans, diverse jumbo products, a powerful technology suite and excellent marketing services to set you apart.

For the 3rd year in a row Caliber Home Loans, Inc. has been recognized by Victory Media as a Military Friendly® Brand. Caliber has also been honored as a Military Friendly® Employer 2019. Both designations measureContact Jeremy DeRosa or visit”

Prime Choice Funding, Inc. is a national leader in mortgage lending and is reaching out to current Branch Managers and LOs. Tired of margin compression? Losing out on deals because of pricing? Is your employer getting rich off your loans by juicing up their margin to make up for a slowdown in production? Let us help! We offer great LO compensation while allowing you to price competitively. Don’t worry, we have all the bells and whistles you need for marketing support, loan processing, and more. While many in the mortgage industry are struggling, we are experiencing exponential growth and are expanding nationwide. We provide loan officers with competitive compensation, top-tier fulfillment, and paid marketing that drives business growth. If you’re interested in joining our team visit to apply. For more information contact Kevin McKay (714-263-1601).”

Join the best Brand in the business! BrandMortgage is fully independent and lending in AL, DC, FL, GA, MD, MS, NC, SC, TN and VA. Brand is in search of seasoned and emergent loan officers across our entire footprint. Brand offers a digital loan platform with the full array of Fannie, Freddie and government lending products, and an extensive offering of portfolio programs including jumbo, super jumbo, construction perm, non-warrantable condo and bank statement programs, all in-house. “BrandMortgage has a foundation of integrity, innovation and teamwork with a collaborative, results-driven approach, enabling originators to deliver exceptional service and successfully grow their business. To learn more about joining the Best Brand in Mortgage, contact Gabe Santiago, Corporate Recruiter (678.226.7585).”

Known for his insight on regulation and compliance, congrats to Matt Tully with his new role, joining Sagent Lending Technologies’ executive team as VP of Agency Affairs and Compliance: here’s the link.

And congrats to Gina McLeod who comes to Union Bank as a VP, Account Executive covering San Diego, Temecula, Desert cities and parts of Nevada and Arizona.

Will New FHFA Head Follow his Instincts or Bow to Reality?

January 16,2019
by admin

“The most important question in housing policy heading into the new year has nothing to do with interest rates, housing supply, or home sales,” Urban Institute (UI) non-resident fellow Jim Parrott says. “It’s what kind of director of the Federal Housing Finance Agency (FHFA) Mark Calabria will be.”

Calabria has been named to replace Melvin Watt as director of the agency that regulates the Federal home Loan Banks and the GSEs Fannie Mae and Freddie Mac. FHFA has also been conservator of the GSEs since 2008. Parrott says the agency has “an enormous hand in who in this country can get a mortgage and on what terms.” He adds, “And in Mark Calabria, the Trump administration has nominated one of Fannie and Freddie’s greatest skeptics, raising the prospect that they, and the market that depends on them, could undergo dramatic change.” He pulls out his crystal ball to speculate for UI on what those changes might be.

The conventional wisdom behind the existence of entities like the GSEs is that bundling mortgages into securities that bear no credit risk and attract hundreds of billions of dollars in annual investment expands access to long-term, fixed-rate loans. But Calabria, Parrott says, dismisses this reasoning out of hand; contending that neither securitization nor the 30-year fixed-rate mortgage is worth the trouble. Securitization facilitates an originate-to-sell model that creates too much risk and the 30-year FRM creates unhealthy distortions of the market. Why, Calabria has written, keep them at all?

This question takes on new import as he becomes a policymaker, but Parrott suggests his approach might change as he confronts a practical reality; these institutions are too embedded in our system to be easily removed. That he will come into office in a softening economy and as a presidential election likely to focus on that economy is revving up means “we should expect him to move more incrementally than dramatically, focusing on ways to reduce the centrality of Fannie and Freddie in the system rather than eliminate them altogether.”

It isn’t that Calabria would reverse course, Parrott says his views are to deeply and genuinely held to expect that, but he will be likely to proceed more cautiously than his writings would suggest. He will probably follow a course of shrinking the GSEs’ footprint and reducing taxpayer risk within it.

There are four methods through which he could reduce the footprint; rolling back loan limits, raising prices, tinkering with loan products and/or the credit box. But a combination would be needed to reduce the footprint without pushing lending and taxpayer risk to FHA or out of the market completely. Parrott says to expect he will focus on incremental measures that allow measuring the market’s response.

For example, Calabria could increase pricing for loans with balances above a certain limit, giving the jumbo market a chance to lend in a larger loan balance space without totally eliminating larger GSE loans. If demand is higher or lower than expected the pricing threshold could be moved up or down accordingly.

The prospective director could also focus on markets he is comfortable disrupting like investor properties or cash-out refinancing, shrinking the GSE footprint without upending the owner-occupied purchase market. If this works, FHFA could gain confidence it could move into comparable purchase markets without too much disruption.

One way to reduce taxpayer risk within the government’s footprint would be to ensure the GSEs are off-loading most of their credit risk not just in good times but through the entire economic cycle. Today’s business model is to offload risk through a combination of private mortgage insurance and pool-level credit risk transfers. Parrott says the latter is dominated by nimble investors who can move quickly and en masse to other investments as the economics shift. Calabria is likely to try to deepen involvement by investors that will remain in the market further into the cycle. This could mean requiring Fannie and Freddie to secure deeper loan-level insurance or expanding the use of pool-level structures that attract institution-based capital.

Also expect him to position the GSEs, or what might ultimately replace them, with much higher capital standards. The current FHFA regime has already proposed this but Calabria is likely to consider something like a buffer for systemically important financial institutions or a so-called countercyclical buffer.

The GSEs’ capital levels are limited by their Treasury contracts, but the above standards would be a benchmark for whatever follows the conservatorship and would play a critical role in the ultimate balance struck between taxpayer protection and the cost of credit. Even in conservatorship, as capital standards flow through to pricing decisions, any increases will lead to higher prices, especially for higher risk loans. This will also help to shrink the GSE footprint.

In short, Parrott says, the new director is likely to proceed, albeit more cautiously than he might like, down the path he has spent his career mapping out. This will result in a mortgage market in which Fannie and Freddie play a smaller and smaller role.

As to how the markets will react, Parrott says he expects banks will step in with some portfolio lending. But will investors and private labor securities issuers resolve their issues to pick up the rest??

Another issue is the $3.8 billion cross-subsidy, a significant portion of which generated by the GSEs through pooling those loans most likely to be lost to the private market: lower-credit-risk borrowers with large loan balances, investor properties, and the like. How might the loss of these loans affect pricing for higher-credit-risk borrowers?

Calabria has expressed a consistent interest through the years in supporting affordable housing but has also expressed skepticism about current policies to increase assess and affordability. He argues they do more to drive up the price of a home than to improve access to homeownership. So which policies does he change and how?

The final question is what is the GSE endgame? Does Calabria put Freddie and Fannie on a path for re-privatization, put them into receivership, or wait for Congress to act?

Parrott, is owner of Falling Creek Advisors which advises bank and nonbank lenders on housing finance issues and helps smaller lenders sell loans into the secondary market. He was a senior advisor on housing at the National Economic Council during the Obama Administration and counsel to the Secretary of Housing and Urban Development.

Purchase Mortgage Applications Reach 8 Year High

January 16,2019
by admin

January 11 ended the first full business week in a while and mortgage activity responded accordingly. The Mortgage Bankers Association (MBA) reported a strong rebound when, despite a government shutdown, business returned more or less to normal.

MBA’s Market Composite Index, a measure of mortgage loan application volume, increased 13.5 percent on a seasonally adjusted basis from the week ended January 4, reaching its highest level since last February. On an unadjusted basis, the Index was up 45 percent.

Purchase mortgage applications moved higher for the sixth time in the last eight weeks, resuming the upward trajectory that was interrupted by the Christmas holidays. That index was up 9 percent on a seasonally adjusted basis to its highest level since April 2010. The unadjusted Purchase Index rose 43 percent compared with the previous week and was 11 percent higher than the same week one year ago.

The Refinance Index increased 19 percent from the previous week to its highest level since March 2018. The refinance share of mortgage activity increased to its highest level in a year, 46.8 percent of total applications, from 45.8 percent the previous week.

Refi Index vs 30yr Fixed

Purchase Index vs 30yr Fixed

In commenting on the improved activity, Mike Fratantoni, MBA Senior Vice President and Chief Economist said, “Uncertainty regarding the government shutdown, slowing global growth, Brexit, a more patient Fed, and a volatile stock market continued to keep rates from increasing. The spring homebuying season is almost upon us, and if rates stay lower, inventory continues to grow, and the job market maintains its strength, we do expect to see a solid spring market. The 11 percent gain in purchase volume compared to last year is a promising sign.

Added Fratantoni, “Borrowers with larger loans tend to be more responsive to a given drop in mortgage rates, and we are seeing that so far in 2019. Furthermore, borrowers with jumbo loans are also more apt to take adjustable-rate mortgages as opposed to fixed-rate loans. Thus, it is not surprising to see the ARM share at its highest level since 2014. These borrowers may also feel more confident taking an adjustable-rate mortgage given the expectation of a more patient Fed.”

The average size of loans overall increased by slightly less than $10,000 to $328,100. Purchase loans ticked up from $300,300 to $306,100, and refinance loans averaged $353,100, a survey high.

Applications for FHA-backed mortgages accounted for 10.9 percent of the total, up from 10.3 percent the previous week and the VA share decreased to 10.4 percent from 11.6 percent. Applications for USDA loans declined from 0.6 percent to 0.5 percent.

Rates were mixed. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or under the new conforming loan limit of $484,350 was unchanged at 4.74 percent. Points decreased to 0.45 from 0.47 and the effective rate declined.

The average contract interest rate for 30-year jumbo FRM, loans with balances greater than the conforming limit, ticked up 1 basis point to 4.53 percent. Points rose to 0.31 from 0.28 and the effective rate moved higher.

FHA-backed 30-year FRM had an average contract rate of 4.76 percent compared to 4.70 percent the prior week. Points increased to 0.52 from 0.47 and the effective rate also increased.

Fifteen-year FRM had an average rate of 4.13 percent, its lowest since April, down from 4.16 percent. Points increased to 0.45 from 0.35, leaving the effective rate unchanged.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 4.08 percent from 4.05 percent,with points unchanged at 0.32. The effective rate increased from last week. The adjustable-rate mortgage (ARM) share of activity increased to its highest level since October 2014, 9.2 percent of total applications compared to 8.4 percent the previous week.

MBA’s Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.

Millionaires Cash-Out Too; Big Refis for Big Homes

January 16,2019
by admin

Somewhere in this country there are 230 homes with mortgage balances between $10 and $20 million dollars. According to a post written by Arthur Jobe in the CoreLogic Insights blog, 75 percent of them were originated since 2013, and 180 represent refinances. Those refinances were largely originated since 2013 as well.

These homes are unlikely to be in your neighborhood (or ours) although you would have the best shot if you live in California, home to 55 percent of the super jumbo refinances. Seventeen percent are located in Florida, and smaller percentages (4 to 6 percent) in Massachusetts, Connecticut, New York, and Texas.

Of course, even zillionaires like to save money, and adjustable rate mortgages (ARMs) are particularly popular for loans of this magnitude due to their lower initial rates. Roughly 76 percent of borrowers refinancing ARM loans opted to go with another ARM, and 31 percent of those refinancing fixed-rate loans switched to an ARM. The median initial interest rate was 3.25 percent, and most borrowers will see the adjustable period begin by the third quarter of 2024. CoreLogic’s data shows that half of those refinancing into ARMs decreased their interest rate by an average of 70 basis points.

Lowering the rate wasn’t the only reason these borrowers refinanced, rate/term refinances accounted for only 16 percent of the loans. Forty-seven percent qualified as cash out. The third purpose, consolidation, was behind 21 percent of the refinances. The cash out amounts tended to be large; on average the refinance loans were $6.6 million larger than the mortgages they replaced. That average jumped to $8.3 million last year.

Where the borrower chose a fixed-rate, they tended to also chose a 15-year term. CoreLogic said three large banks accounted for the loans made to about half of the borrowers.

Of course, if you have to ask, you can’t afford it, but the P&I on a $15 million 15-year mortgage at 3.25 percent is $105,390.

MBS Day Ahead: This Morning’s Retail Sales Report is Emblematic of The Bond Market’s Issue

January 15,2019
by admin

There will be no Retail Sales report this morning due to the government shutdown. This provides a perfect example of the issue the bond market is currently facing.

It begins with the state of flux in the economy and in monetary policy. Now more than ever, arguably, the Fed is on the lookout for clues in economic data. They need to know whether it makes any sense to keep hiking rates or if there are some indications that things could be slowing down.

To be fair, the Fed has already shared anecdotes about growth concerns, but then something like the last NFP report comes along and compels the Fed to keep rate hikes on the table.

Fed policy aside, market participants would also like a read on how the economy is doing, considering the uncharted territory in which we continue to operate (i.e. longest expansion with the highest-ever stock prices, corporate debt, fiscal deficits, etc. all following the largest recession in history and the largest monetary intervention, all while the world’s other biggest central banks do the same). So yeah… the stakes are high.

Yet here we are without Retail Sales this morning due to the government shutdown. It’s not necessarily enough to paralyze the market, but it has certainly been enough to prevent any grand aspirations with respect to range breakouts and momentum shifts.

I’ll continue to repeat this until it happens: a shutdown resolution is a big risk for bonds. At this point, we have to assume that the shutdown is acting as a drag on stocks due to the economic growth implications that even the White House admits. The news may suggest there’s no end in sight, but the end will simply show up precipitously, oftentimes before you have a chance to find out an end was ever in sight. That can mean you wake up one of these mornings to significantly higher rates and kick yourself for not being more cautious.

On the other hand, a shutdown resolution could bring temporary pain for bonds that then gives way to an even deeper rally. This scenario, however, would depend on the economic data exhibiting a cohesive, negative shift. We can’t observe such shifts without the likes of Retail Sales and several other reports that have gone dark.

Builder Confidence Buoyed by Lower Rates

January 15,2019
by admin

After falling an aggregate of 12 points in November and December the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) appears to have stabilized. The HMI, a measure of home builders’ confidence in the market for newly constructed homes, gained 2 points in January, rising to 58. This one 1-point higher than analysts polled by Econoday had predicted.

“The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment,” said NAHB Chairman Randy Noel. “Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months.”

The HMI is derived from a monthly survey that NAHB has been conducting for 30 years among its builders who specialize in new residential construction. The survey asks builders for their perceptions of current single-family home sales and their expectations for the next six months as “good,” “fair” or “poor.” Builders are also asked to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The component measuring current sales conditions rose 2 points to 63, while builder expectations for the next six months increased 3 points to 64. The index charting buyer traffic, which consistently lags the others edged up one point to 44.

“Builders need to continue to manage rising construction costs to keep home prices affordable, particularly for young buyers at the entry-level of the market,” said NAHB Chief Economist Robert Dietz. “Lower interest rates that peaked around 5 percent in mid-November and have since fallen to just below 4.5 percent will help the housing market continue to grow at a modest clip as we enter the new year.”

Regional results are presented as three-month moving averages. The Northeast’s moving average fell 5 points to 45; the Midwest and South both declined by 3 points to 52 and 62, respectively; and the West registered a 1-point drop to 67.

The December report on residential construction (construction permits, housing starts, and unit completions) will not be issued tomorrow because of the partial government shutdown. NAHB estimates that the data would show that single-family starts ended the year totaling 876,000 units, which would mark a 3 percent gain over the 2017 total of 848,900. However, the slowdown in sales during the fourth quarter of 2018 has left new home inventories elevated in some markets.

Manufactured Home and Capital Markets Products; Radian Expands; Big Banks’ Mortgage Volumes

January 15,2019
by admin

As pricing battles rage in the wholesale channel, there has been plenty of news of layoffs in residential lending over the last six months industry-wide, due to reasons like becoming more efficient, lower volumes, or fewer delinquencies, the most recent being BB&T and Mr. Cooper (page 7). What would actually be newsworthy is if a well-known company had no change or layoffs in the last six months! You can bet land use has changed over the decades, and I received this question: “Rob, I have to give a presentation to a bunch of real estate agents. Have you seen anything on how land is used across the nation?” This is the last good piece I saw: Here you go.

Lender Products and Services

Manufactured home lending has been a challenge for lenders. Chattel lending is only being done by a handful of lenders today. Freddie Mac and Fannie Mae may have found a solution with their initiative to expand efforts in the affordable housing market. Freddie Mac and Fannie Mae are not the only ones expanding efforts MortgageFlex Systems has released a new customized version of its LOS, MortgageFlexONE for manufactured home lenders. The LOS is released with new integrations with NADA, Lereta (AFR) for tax certification, and Datacomp for appraisal. Other features include the ability to add retailers to the system and finance fees in the loan amount. The manufactured home LOS gives lenders a completely digital environment with a consumer portal built into the platform. MortgageFlex currently has one manufactured home lender live and more are implementing. They are helping others make manufactured home lending efficient.

SimpleNexus is hosting its inaugural User Group Conference Feb 10-12, 2018 at Utah’s picturesque Snowbird Ski Resort. This conference provides a great opportunity for mortgage executives to learn from industry leaders on how to stay profitable in a down market. Conference sessions will cover topics including ‘Competing with Online Lenders,’ ‘Using Technology to Recruit/Retain Top LO Talent,’ ‘Mastering Referral Partner Opportunities,’ and more. Attendees cap off the conference experience with a free ski excursion at Snowbird Resort. Rob Chrisman readers can receive a $150 registration discount by using the code CHRISMAN at checkout. Additional conference info can be found at SimpleNexus User Group 2019. If you are a mortgage executive wanting to thrive and succeed despite tough market conditions, you should seriously consider the SimpleNexus platform. With 20,000+ loan officers and 15 of the Top 25 retail lenders using SimpleNexus, the company is the industry leader in digital mortgage solution technology.

“Stop losing money in 2019! With the mortgage industry becoming increasingly difficult to survive let alone thrive, companies are in search of new marketing strategies to compete in this new era of credit. The Decision Science team at BBM has created an advanced suite of propensity data models that help professional origination marketers identify homeowners who are actively in the market for FHA, VA, Jumbo and Non-Agency loan options. Our average loan amount for active FHA/VA and Non-Agency applications exceed $350K and gross top line revenue of nearly $15,000. If you’re marketing is not reaching these levels of performance than let BBM show you how a targeted marketing strategy focused on propensity modeling and targeted revenue opportunity can change the trajectory of your company. For more information about BBM Marketing Services and about becoming an approved origination partner; please contact Bill Senteno.”

Mr. Cooper was extremely pleased to close out a banner year in 2018 by announcing the launch of eNotes and Hybrid AOT offerings. “Over the year, we executed and delivered on our Strategic Road Map which included the availability of No FICO, Manufactured Homes and Modified Construction to Perm Loan Notes and an expanded Co-issue program to include FNMA Servicing Marketplace. Looking to 2019, we will complete the acquisition of Pacific Union in early Q1, expanding our product and program suite to include Non-Delegated Authority, Jumbo, Non-QM, and have already released an enhanced credit box which allows FICOs to 500 on Government loans. Soon to follow is the release of Temporary Buydowns. We are excited about the coming year and the strong solutions and capabilities we are able to offer to our clients. Mr. Cooper is a premier Correspondent and Co-Issue investor and the largest non-bank servicer with a servicing portfolio of ~ $500B.”

Caliber Home Loans, Inc. would like to thank its brokers who partnered with its wholesale lending channel in 2018. The #2 wholesale lender in the country (according to IMF) had a record-breaking month last October for non-Agency volume, which was due in part to the launch of Caliber Elite Access in June. In 2019 Caliber Wholesale plans to leverage the strength of its product portfolio to provide its broker partners with government, conventional, and jumbo options – as well as the suite of non-Agency loans. The Wholesale channel will continue to focus on supporting brokers’ purchase volume, which as of December is 80% of Caliber’s wholesale business. After an exciting year of launching a mobile app, breaking sales records, and introducing new products, Caliber Wholesale and its SVP John Gibson have a lot to offer their broker partners in 2019.

Capital Markets

One of the difficulties of implementing new technology is integrating it with current software and business processes. While future time savings through technology is an obvious benefit, set up can be a real challenge. Choosing a company that will consistently be there to support you during and after implementation is the key to success. As an example, new technology like the Bid Auction Manager (BAM) from MCT introduces the ability to significantly improve processing speed of an organization’s best execution loan sales. The software includes rapid market-adjusted pricing, commitment data write-back to avoid data entry errors, and security enhancements such as borrower address geocoding, all from a dedicated team of capital markets experts. Whenever you’re considering new technology: schedule a demo, think about the amount of time saved, the difficulty of implementation, and ongoing support offered to help inform your decision.

Looking at the economy, halfway through January, by most accounts, US economic conditions remain favorable for continued expansion although many believe the world economies are tired. Economic data, including labor data, paint the picture of a robust market with increasing jobs, wages, low unemployment and subdued inflation. So naturally, there is plenty of concern about how a downturn is just around the corner. While there continues to be plenty of positive data, it is mostly backwards looking and in some cases the lag is more than one month behind.

Interest rates may move higher if China/U.S. issues are resolved, and when the shutdown ends. Some housing markets are underperforming in the wake of affordability and supply concerns. Overseas, growth in China and Europe eased at the end of 2018 and that easing is expected to continue into the beginning of 2019. Should input costs and corporate balance sheets come under pressure due to uncertain trade policies, price increases will ultimately have to be passed through to end consumers adding to inflationary and interest rate pressures. Higher rates and wages will also impact corporate profits, which when weak, are a catalyst for restructuring and layoffs. Add to this contentious political climate which continues to provide markets with plenty of uncertainty.

Federal Reserve Chairman Jerome Powell has emphasized the central bank has flexibility to be patient about when and whether to raise interest rates again. In a wide-ranging interview, Powell said it is a mistake to believe the Fed has an official forecast or plan for interest-rate increases. He also said the Fed will work to make its portfolio of bonds “substantially smaller” and expressed serious concern over the growing amount of US debt.

In the bond markets yesterday, volatility continued to drop – a good thing – and the U.S. 10-year closed Tuesday unchanged at 2.71% despite marked Brexit developments. The Brexit vote in the House of Commons in British parliament overwhelmingly reject the withdrawal bill negotiated by Prime Minister Theresa May, so it is unclear if the UK will be able to present a new Brexit proposal with just over two months left before the official withdrawal date on March 29. And European Central Bank President Mario Draghi said the economy is weaker than expected.

On the Chinese trade front, U.S. Trade Representative Robert Lighthizer said he saw little progress in last week’s talks on structural issues and intellectual property protections with representatives from China, per Senator Chuck Grassley. But markets perceive as an easing of U.S.-China trade tensions this week. That, paired with dovish commentary from the Federal Reserve, like Kansas City Fed President Esther George saying yesterday that while rates are not at a neutral level yet, they are getting close, giving the Fed the ability to be “cautious and patient,” has spurred rallies in risk assets. Still, it is a two-sided coin depending on how you look at things, and this week has brought releases showing slowing bank earnings growth, underwhelming Producer Price Index figures that should be a precursor to muted Consumer Price Inflation readings over the next few months, and negativity surrounding the ongoing partial U.S. government shutdown, all of which threaten to spook both consumers and markets.

This morning we learned that mortgage applications increased 13.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 11, hitting its highest level since last February! “Purchase applications hit their highest numbers since 2010, and refinance applications up to their highest level since last spring,” said Mike Fratantoni, MBA SVP and Chief Economist. The refinance share of mortgage activity increased to its highest level since January 2018, 46.8 percent of total applications.

The scheduled December retail sales, November business inventories, and November TIC data are postponed due to the partial government shutdown. December import / export prices were -1%/-.6%. The NAHB Housing Market Index for January will be released at 10:00am with expectations for a slight increase. The latest Fed Beige Book is due at 2PM ET, a couple hours before the lone Fed speaker of the day, Minneapolis Fed President Kashkari. Wednesday starts with rates slightly higher than Tuesday’s close: the 10-year’s yielding 2.73% and Agency MBS prices down/worse a couple ticks.


At the start of this New Year, Academy Mortgage is pleased to announce several new leaders who have recently joined the independent mortgage lender. A recognized industry name in Colorado, Justin Harris is now a Regional Sales Leader at Academy. Harris brings to the company 16 years of valuable experience, including nine years as an Area Manager for Guild Mortgage. Harris’s expertise will be a key asset in overseeing Academy’s production, market expansion, and business development in Colorado. Looking to Texas, new Branch Manager Jason Browning will utilize his 20 years of management experience to lead the company’s growth in the Dallas/Fort Worth area. In the nation’s northeastern corner, new Branch Manager Tamika Donahue, an established top producer with 19 years of experience, will lead a strong team of seasoned mortgage professionals in South Portland, Maine. If you are interested in joining the Academy team, contact Chad Melin, Vice President of National Business Development.

Every year the powerful numbers grow at PrimeLending — and 2018 was no different. We added 31 new locations across the country, welcomed 307 new producers and gained #1 market share in 14 markets and top 10 market share in 100 markets. By continuing to grow and empower our team, we were able to help serve more than 56,000 homeowners and fund over $13.7 billion while maintaining our 96% customer satisfaction rating and topping 10,000 5-star Zillow reviews. We not only positively impacted the lives of our clients and teammates, we also continued to cultivate our award-winning culture among our employees, ranking as a top workplace for finance and insurance, women, diversity and Generation X. PrimeLending was also named the 3rd Best Mortgage Company to Work For by National Mortgage News. The PrimeLending Difference is real, and you can experience it for yourself by contacting Brian Miller today. The first step is a casual conversation. The next? That’s up to you.”

M&A in the MI World

Radian Group Inc. announced that it has acquired Five Bridges Advisors, LLC, a developer of proprietary software, data analytics and predictive models leveraging artificial intelligence, machine learning and traditional econometric techniques. “Five Bridges is a thought leader in mortgage, consumer and real estate analytics and its cloud-based portal utilizes deep analytics to provide customers with valuation and risk management tools that span the entire loan lifecycle, from underwriting and origination to servicing, secondary market purchase, and securitization.

Yesterday’s 4th quarter earnings reports showed that mortgage lending at Wells Fargo, Chase and Citi plunged. Mortgage lending just keeps plunging. In the fourth quarter, mortgage originations at Citi were down 23% compared to a year ago. At Wells Fargo they were 28% lower, and at JPMorgan Chase they were down 30%. All were driven by lower net reduction revenue, lower industry volume, high competition, inventory issues (there aren’t enough houses for people to buy to sustain a healthy housing market), rising rates in the 4th quarter, and a shift in market share to nonbanks like Quicken, loanDepot, Freedom (who, along with thousands of other lenders are currently doing roughly 60% of residential biz). Some nonbank lenders, such as Fairway Independent, have actually seen an increase in locks over this period in 2018.

Mortgage Rates Up Slightly, But Still in Great Shape

January 15,2019
by admin

Mortgage rates rose modestly today after spending the past 2 days moving sideways. It was really yesterday’s market weakness that caused today’s move. Mortgage rates are most directly affected by the trading of mortgage-backed securities (MBS). When MBS are weaker, rates rise. MBS were weaker throughout the day yesterday, but not by quite enough for lenders to go to the trouble of revising their rate sheets for the worse. Instead, lenders simply waited until this morning to make the changes implied by the market. This delayed reaction is common when the market movement on any given day isn’t quite enough to justify lender reprices.

In the bigger picture, rates have been in a holding pattern, possibly waiting for some indication that the government shutdown will end. When such a thing happens, it likely presents a negative risk for rates–at least in the short term. After that, it will take some time for the government’s economic data to begin flowing again, and it will be that economic data that will ultimately have a bigger say with respect to interest rate momentum.

For now, rates remain in strong territory relative to the past 9 months. They’ve only been lower for a handful of days during that time, and not much lower!

Loan Originator Perspective

Bonds markets posted small selloffs today, and our pricing worsened slightly. It’s seemingly going to take more drama (of one variety or another) for rates to rally further. I’m still locking loans closing within 30 days, going case by case on those closing between 31-60 days out. –Ted Rood, Senior Originator

Today’s Most Prevalent Rates

  • 30YR FIXED – 4.5%
  • FHA/VA – 4.25%
  • 15 YEAR FIXED – 4.125%
  • 5 YEAR ARMS – 4.25%-4.625% depending on the lender

Ongoing Lock/Float Considerations

  • Headwinds that had plagued rates for most of the past 2 years are slowly dying down. The rising rate environment could flare up again, and some headwinds remain in effect, but the broader tone has taken a more optimistic shift.

  • Highest rates in more than 7 years in Oct/Nov. Lowest rates 8 months by the end of the year.

  • This is a bit of a crossroads. We may look back at Oct/Nov and see a long-term ceiling, or we may look back at early December and see a temporary correction before more pain. Either way, it’s one of the more hopeful positions we’ve been in for several years.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

MBS RECAP: Bonds Looking Reluctant to Make Bigger Moves Without Data

January 15,2019
by admin

Today would have been Retail Sales day were it not for the government shutdown. This also prevented Business Inventories from reporting (not an insignificant piece of data even if not on par with Retail Sales). Tomorrow will see the New Residential Construction numbers (housing starts and building permits) stay silent due to the shutdown.

This isn’t an environment where bond traders are eager to make big bets. That much is evident in the general sideways grind of the past week and a half. Some of the only times that we see “big bets” are in response to trading levels being coaxed out of the prevailing range by other factors.

That was the case today as 10yr Treasury yields approached their highest levels of the year. Before the ceiling could be challenged, a big trade came through the Treasury futures block trade screen showing a boatload of 2yr Treasuries being sold and a slightly smaller boatload of 10yr Treasuries being bought. That trade set the tone for the rest of the day, and it helped bonds hold their ground even though stocks moved to their highest levels in more than a month. Pressure from corporate bond issuance also made today’s resilience notable.

Mortgage Rates Unchanged Again as Markets Remain Cautious

January 15,2019
by admin

Mortgage rates were unchanged yet again today. Given that rates are based on trading levels in underlying bond markets, it’s no surprise to learn that bond investors have been hesitant to take things too far in either direction after pulling up slightly from the long-term lows achieved in early January. The same could be said for the stock market, but replace early January with late December.

For either side of the market, the biggest lingering uncertainty is the fate of the government shutdown. The extent to which a shutdown resolution would move markets remains to be seen. But at the very least, there’s a risk that a resolution would push stocks and interest rates higher in unison–at least temporarily.

From there, it would fall to actual economic data to set the tone. In that regard, bonds have a better chance of encountering good news. They simply may have to endure a temporary spike between now and then. If, on the other hand, the reestablishment of economic reports (many are currently on hold due to the shutdown) proves to be bad news for bonds, we’re looking at a solid opportunity to lock in rates that are nearly as low as they’ve been for roughly 9 months.

Loan Originator Perspective

Bonds were flat yet again today, and remain firmly anchored at current levels. Until something (Shutdown/POTUS/Brexit drama) changes, it appears we’re staying put. Since we’re near recent rate lows, I’m locking applications closing within 30 days, floating most closing further out. –Ted Rood, Senior Originator

Today’s Most Prevalent Rates

  • 30YR FIXED – 4.5%
  • FHA/VA – 4.25%
  • 15 YEAR FIXED – 4.125%
  • 5 YEAR ARMS – 4.25%-4.625% depending on the lender

Ongoing Lock/Float Considerations

  • Headwinds that had plagued rates for most of the past 2 years are slowly dying down. The rising rate environment could flare up again, and some headwinds remain in effect, but the broader tone has taken a more optimistic shift.

  • Highest rates in more than 7 years in Oct/Nov. Lowest rates 8 months by the end of the year.

  • This is a bit of a crossroads. We may look back at Oct/Nov and see a long-term ceiling, or we may look back at early December and see a temporary correction before more pain. Either way, it’s one of the more hopeful positions we’ve been in for several years.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.