Wholesale, TPO, Verification, Appraisal Products; What are Lenders Doing About Rising Credit Costs?

Yesterday, a clown held the door open for me. It was such a nice jester. On the flip side, it’s not nice being taken advantage of and lenders are feeling Thunderstruck about, as this Commentary has mentioned several times, credit costs being jacked (more below). On the inflation theme and a little more mainstream, for me and plenty of people who read this Commentary every day, is the egg price fixing that has been occurring. (Remember when prices were way up around Easter?) Although inflation has been slowing, we don’t need this stuff. And the price of the twelve gifts described in the classic song “The 12 Days of Christmas” is at a record high of $46,730, according to PNC’s 2023 Christmas Price Index. At the other end of the cost spectrum, how’d you like to live like Martha Stewart (for a night) for $11.23? Rent her place! (Today’s podcast can be found here, and this week’s is sponsored by MCT. MCT’s technology and know-how continues to revolutionize how mortgage assets are priced, locked, protected, valued, and exchanged — offering clients the tools to perform under any market condition.)

Lender and Broker Products and Services

Exciting news in the real estate appraisal world! Class Valuation has just strengthened its market presence through the strategic acquisition of Valuation Connect. In a game-changing move, Class Valuation is set to elevate its position as a market leader by joining forces with the dynamic Valuation Connect. This union of industry powerhouses signifies a commitment to innovation and excellence in real estate appraisal solutions. Class Valuation CEO John Fraas expresses enthusiasm, stating, “Combining forces is going to be a win-win for all stakeholders.” The collaboration promises operational efficiency, enhanced service offerings, and cutting-edge appraisal technology. Integrating seamlessly with Class Valuation’s culture, Valuation Connect brings a centralized retail presence and technology that aligns perfectly with the vision of both companies. This strategic acquisition reinforces Class Valuation’s commitment to providing efficient, intentional products and services to mortgage lenders with the combined entity offering expanded resources, enhanced technology, and a broader range of modernization products. Read the full announcement here.

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“In this market, hustle is everything. You can’t afford to waste a single deal, or a single minute. That’s why ReadyPrice has launched Shop, Lock, Deliver. It’s an innovative platform designed to help independent mortgage brokers and their lenders save time and money. Now you can shop competitive loan offerings from multiple lenders, get rate lock guarantees in real time, receive underwriting findings, and deliver the borrower’s complete loan file to lenders. all on a single platform, at no cost to brokers. It’s already helping brokers around the country thrive and compete in the toughest market. Multiple lenders. One platform. Zero b.s. Come check us out today.”

Revolution Mortgage estimates that they can save up to $20,000 in cost on verifications with TRUV over competitors. Femi Ayi, EVP Operations shares how he estimates he is saving 80 percent on his verification costs with Truv in this recorded event. “Let’s talk about our documentation costs and those giant monopolies that are out there and laughing at customers and increasing prices because they have a particular monopoly. You want to lower your manufacturing costs. Contact TRUV today to discuss how we can help you with your income, employment, insurance, and asset verifications.

Wholesale and Correspondent Programs

“At Luxury Mortgage Corp.®, we believe in the power of giving, especially during this festive time of year. To express our gratitude and spread the holiday joy, we are offering a 25-bps reduction in interest rates for borrowers in low-to-moderate income (“LMI”) communities. This special incentive may apply to a purchase or refinance of a primary residence in an LMI census tract. We invite you to join us in spreading the holiday joy and extending the benefits of our incentive to your valued LMI borrowers. Let’s work together to make this holiday season rewarding for both you and the communities we serve. For further details on our LMI Incentive, please click here.”

“Transform Your Dream Home into Reality with AFR’s VA One-Time Close Program! Building a Veteran’s dream home just got easier! With AFR’s innovative VA One-Time Close program, experience the ultimate convenience of combining construction, lot purchase, and permanent mortgage into a single loan. Say goodbye to the hassle of re-qualification and second appraisals. Why AFR? Our seamless process allows for a single closing, which means less paperwork and lower costs. Enjoy the peace of mind, knowing your loan approval stands firm throughout the construction phase with no re-qualification needed. And even better, it’s Realtor Friendly, allowing commissions to be paid in full at closing, ensuring your agents are motivated and supported. We offer this program to wholesale and correspondent clients (non-delegated). The AFR team is here to help you maximize your profits and help your business grow! New to AFR? Partner Today! Visit www.afrwholesale.com, email sales@afrwholesale.com, or dial 1-800-375-6071.”

Credit Cost Increases

The cost of credit is going up, as this Commentary has mentioned many times, but, in a free market economy, what are you going to do about it? Run fewer, or different types of, credit reports? Have the borrower pay up front? Renegotiate bulk deals or the per unit credit report cost? Soft credit reports issued by the three bureaus will now cost as much as hard pulls. I decided to ask a few experts about what lenders are doing in terms of changing policies and procedures to adapt to the changes.

Justin Demola, CMB from Lenders One, said, “Lenders are definitely starting to change their processes related to credit report ordering with the significant price increases for credit reports we have seen the past few years. Earlier this year, our credit customers implemented soft pulls to reduce costs while protecting their pipeline from trigger leads.

“But with the price increases coming in January, the cost of the soft pull will be the just about the same as a hard pull which totally changes the cost containment strategy leading more and more lenders to charge borrowers up front for their credit report which is allowable under TRID. We are currently having conversations with our customers around optimizing the credit and verification products/services they use to offset some of the 2024 price increases the industry is seeing across all these products.” Thank you, Justin!

Michael Crockett, Chief Data Officer from Xactus said, “We have started to see some lenders adjust their workflows to recapture credit costs earlier in the process and we expect that trend to continue.

“The fact is, once again, the cost of credit is increasing. And when you add on top of that the impeding FHFA changes (moving to a bi-merge credit report which will initially require three credit scores) it is going to get even more expensive. It will be extremely difficult for lenders to continue to absorb all of these increasing costs upfront.

“We’re suggesting to our lender clients that they reassess their general workflows and adjust milestones which may include charging an application fee or working with consumers to subsidize these costs so they can recoup fees earlier in the process. Another benefit of consumers having skin in the game at the outset of the process is that it could reduce the risk of triggers and loans falling out of lenders’ pipelines since applicants will not want to pay fees multiple times. I expect we’ll see our lender customers test different approaches with the end goal being to stay financially viable by sharing this growing and significant monetary burden with consumers.” Thank you, Michael!

Yes, Fair Isaac (FICO) is ending the 2023 tier-based pricing structure and will raise the cost of mortgage credit scores for all lenders in the new year. Mortgage lenders in FICO’s third tier, the largest group, are expected to see an additional increase of about 25 to 40 percent in 2024.

This announcement from FICO is making the rounds: “After careful consideration of the feedback from lenders and other stakeholders in the mortgage market, FICO is moving away from a tier-based pricing structure to one where FICO collects the same per score wholesale price for all lenders in mortgage originations. The revised wholesale pricing aligns with an approach generally desired by the market, and more closely reflects the considerable value FICO scores bring to the mortgage origination process.”

National Mortgage News states that, “The cost for a single borrower tri-merge credit report issued by the three bureaus will be close to $50. A two-person tri-merge will increase to about $100. This will have the same impact on soft credit reports – currently in the $10 range – pushing costs for a single tri-merge soft-pull to about $50 next year.” Dave Stevens wrote, “It’s ironic… mortgage bankers are all losing money. Yet the vendors who feed off of their loans are all making money and raising prices.”

How has FICO’s stock been doing? “Fair Isaac Corporation (NYSE:FICO) had a solid 3rd quarter, stock price-wise. FICO is a leader in predictive analytics and decision management software and is also the provider of FICO credit scores. FICO reported a beat-and-raise quarter, with meaningful outperformance on revenue, EBITDA margins and EPS relative to consensus estimates. The Scores business delivered double-digit year-over-year revenue growth reflecting benefits from strong price realization, particularly in the mortgage segment. In addition, the Software business demonstrated significant progress with its platform strategy.”

In support of the Credit Score and Credit Reports Initiative, FHFA will host a series of stakeholder forums. The initial topics will focus on the historical credit score files and the timing/sequencing of key project milestones. To register for any of the sessions outlined below and to stay up to date on future discussions, send your name, affiliation and contact information to CreditScores@fhfa.gov. The next is Tuesday, December 12, 3–4 p.m. ET: Sequencing of Project Milestones (cont’d).

Capital Markets

On June 3, 2024, Fannie Mae will discontinue posting the 30- and 15-year Required Net Yield (RNY) and retire the Historical Daily RNY website. Fannie Mae has suggested using this time to develop alternative processes as needed. View the fact sheet for more details.

As we enter December, let’s be thankful for what happened last month. Bets on central bank cuts led bond yields to fall by about half a percentage point across the board in November. The overarching narrative was a domestic economy that is beginning to slow from the Fed’s 525 basis points of rate increases this tightening cycle. But when will the Fed begin to cut rates? Fed Chair Powell speaks today and is expected to push back against expectations of deep rate cuts in 2024. Fed funds futures are implying 125 basis points of easing by this time next year.

We learned yesterday that personal incomes rose 0.2 percent in October, as expected, though a notable decrease from the large increases reported in August and September. Personal Consumption Expenditures (PCE) also fell, from 0.7 percent to 0.2 percent, in line with expectations. The PCE Price Index, the Fed’s preferred measure of inflation, was flat in October and below expectations, placing the annual increase at 3 percent. The core rate rose 0.2 percent in October and 3.5 percent annually, as expected. Separately, pending home sales decreased last month, down 1.5 percent from September. Month over month, contract signings intensified in the Northeast but diminished in the Midwest, South and West. Pending home sales dropped in all four U.S. regions compared to one year ago.

This commentary is mostly focused on residential lending and residential real estate, and what impacts them. But the commercial real estate sector is on everyone’s “radar screens” in terms of red flags. Commercial real estate conditions continue to soften. Outside of the retail market, vacancy rates ticked up for the other major property types during Q3-2023. In the meantime, rent growth slowed across the board. That noted, one major takeaway from Q3 is that, aside from the hard-hit office market, demand for commercial real estate continues to hold up surprisingly well.

Today’s highlight is likely to be the aforementioned remarks from Chair Powell (and other Fed speakers) with the Fed heading into their blackout period ahead of the December 12/13 FOMC meeting. Vice Chair for Supervision Barr, Chicago President Goolsbee, and Governor Bowman are also scheduled to deliver remarks. Actual economic data scheduled for release begins later this morning and includes final November S&P Global manufacturing PMI, ISM manufacturing PMI for November, and October construction spending. We begin Friday with Agency MBS prices unchanged from Thursday evening and the 10-year yielding 4.35 after closing yesterday at 4.35 percent.

Employment

Winter is coming! Is your Wholesale lender going to survive the winter? Do you need access to better products? A well-capitalized and profitable lender is looking to acquire successful Wholesale sales teams or entire platforms. The lender has a wide national footprint and a large servicing portfolio with substantial access to capital. They are an approved Fannie Mae, Freddie Mac, and Ginnie Mae direct seller/servicer. This lender has been providing industry-leading service to their wholesale and correspondent partners for decades and are continuing their aggressive growth strategy. To learn more about the opportunity, please contact Anjelica Nixt. All inquiries will be kept confidential.

Attention Loan Officers: Take your career to the next level with best-in-class Operations, Underwriting, Support and more. Find out how at the next virtual Fairway Day on Wednesday, December 6 at 3pm ET. Join Steve Jacobson, Founder & CEO and David “Laz” Lazowski, President, Retail Sales East and others from the Executive Team and the Street. Registration link: https://bit.ly/40cDPKG. Participation is 100 percent anonymous.

In the dynamic housing market, Evergreen Home Loans stands out with its customer-focused service and personalized solutions. Understanding each borrower’s unique needs, they offer expert guidance for individual financial situations and goals. Evergreen’s innovative programs, like the StepUp and CashUp Suite, cater to a range of clients, from first-time buyers to seasoned investors. These programs ensure seamless transitions and competitive bidding for home purchases. Committed to community enrichment, Evergreen recognizes the importance of home financing as a key life milestone. As market trends shift, Evergreen adapts, leading the industry with customer satisfaction and flexible solutions. Evergreen Home Loans is ideal for those seeking expert, personalized, and community-oriented home financing services. It’s also a place where careers in loan services can thrive, in an environment that values expertise, innovation, and community connection. Visit Evergreen careers for a full list of openings.

“Looking for a new Account Executive position? Our industry is changing. Company stability is essential for Account Executives to thrive. Professional relationship management skills + expert level loan knowledge + extensive, varied mortgage experience are attributes of the best Account Executives. Are you the best? We are financially stable and looking for the best. Confidentially contact Anjelica Nixt to discuss the opportunities; privacy will be respected.”

Cornerstone Home Lending, a division of Cornerstone Capital Bank announced that Neil Merritt has joined Cornerstone as its new SVP of Product Strategy & Development where he will “identify and introduce innovative mortgage loan products and new loan investor opportunities, thereby enhancing the depth and breadth of Cornerstone’s offerings to provide even greater value to clients, loan originators, and business partners.”