Hedging, Wholesale and Correspondent Products, 4506 vs. 8821, U/W Automation, Recapitalization Possibilities

Not all, but many, capital markets folks spent their college years rolling up their sleeves. Some not so much. When originators are asked about interest rates, some LOs may use the line in the clip above: “Oh, man. I only ride them; I don’t know what makes them work.” (The current STRATMOR blog is titled, “Relying on the Fed: How Did This Happen?”) Yesterday the Federal Reserve Open Market Committee (FOMC) grabbed the headlines, despite doing exactly what everybody expected them to do: leave rates unchanged. Inflation is still higher than the FOMC would like. Certainly, insurance costs, whether they be homeowner or car, are inflationary. It would be foolish to blame the Biden Administration, or any administration, for things like insurance costs, ships running aground in the Suez Canal, a drought in Africa, or what OPEC does. Such is life, and one needs to ask how much more government interference we need or want. In my opinion, a president consulting with, or instructing, the Fed on the appropriate level of interest rates is not the answer. (Found here, this week’s podcasts are sponsored by Essex Mortgage. Essex specializes in providing exceptional mortgage subservicing solutions tailored to meet your specific needs. Looking to capitalize on your excess servicing strip? Check out Essex’s servicing offerings today! Hear an interview with attorney Peter Idziak on the final rule that bans non-compete clauses in employment contracts, which the FTC ruled on last week.)

Lender and Broker Products, Software, and Services

Forecasting is no easy science, just ask all those people that thought the internet was a fad or, that online shopping would flop. But, after 9 straight quarters of losses, folks need to carefully evaluate the most recent forecast from the MBA. The updated projections for 2024 volume (down 9.7 percent), units (down 10 percent) AND, average loan size numbers (flat to declining) suggest that difficult times remain. Industry forecasts are rarely perfect, but they are always one of three things: too aggressive, too conservative or, just about right. According to David Hrobon at STRATMOR Group, “Lenders need a financial plan for all three scenarios now more than ever. Counterparties need assurances that profits can be achieved in this environment or, evidence and commitments that the business can be recapitalized.” Reach out to David directly if you want to discuss further. Industry consolidation marches on.

“PlainsCapital Bank National Warehouse Lending, a subsidiary of Hilltop Holdings (NYSE: HTH), focuses on relationship-driven business with long-term success. By-the-way, have you heard about our BTW Services? We are pleased to offer all customers our Broker-Dealer, Treasury Management and Warehouse Lending (BTW) services. Our Broker-Dealers can help customers hedge their origination pipelines by buying and selling TBAs, specified pools and whole loan trading. Our Treasury Management team helps customers with escrow and cash management. Finally, the Warehouse Lending team provides customers confidence to meet their loan funding needs. If you attending the MBA Secondary Conference in NY or the TMBA Annual Conference in Austin and interested in learning more about PlainsCapital Bank National Warehouse Lending please contact John White or Brent Amos.”

What can one accomplish in 90 seconds? Go ahead, we will name them with you. Make your bed. Sing the National Anthem. Recite the alphabet forward and backward. Go through an automatic car wash. Play Sudoku. Bake chocolate chip cookies on a waffle iron. Run 200 meters…well, some of us could. Most importantly, you can automate and apply underwriting conditions in 90 seconds or less with AI Underwriter. You can also schedule a demo with Lender Toolkit in less than 90 seconds. Click here to schedule – Right Now!

“Mr. Cooper recently communicated we’ve achieved a $1 Trillion Servicing Portfolio. We’re humbled and honored by this accomplishment as our focus is to provide an industry-leading customer experience. By reaching this milestone, we’re incredibly appreciative of each client who trusts Mr. Cooper as a partner. With this, our team is even more energized to connect with YOU at MBA’s National Secondary Conference. We’re excited to communicate our continued focus to provide robust and innovative solutions to the marketplace. Our commitment lies in tailoring product and program solutions to fit diverse business models. From liquidity solutions to subservicing, we’re dedicated to meeting your needs. Our Correspondent/Co-issue programs offer competitive advantages, amplifying profitability through flexible delivery strategies. Home affordability is another focus. As FHA experts, we offer accessibility options to affordable housing. With ongoing technology investments and pricing enhancements, we’re dedicated to better serving you. Let’s connect in New York! Contact us!”

Do you know Of Halcyon? Essentially originators “replace” the 4506 with the 8821, ordering direct from the IRS via Halycon API. This reduces the fees from $40 to $10 per file. No extra charges for two borrowers, for repulls, or post-closing verification. The data comes back within the same day, whereas transcripts can take a couple weeks: Truly better, cheaper, faster. And now, Freddie just accepted for 8821 for tax transcripts, so it’s like reps and warrants. Fannie has previously accepted it.

Correspondent Community Lending Program

“Chase Correspondent Lending continues to invest in the Community Lending Program (CLP) we launched in 2022. We invite our clients, as well as prospective clients, to join us for a webinar on Thursday, May 9 at 2:00 ET where we’ll share tips and best practices, recent enhancements and what frequent users of the program have discovered. RSVP here. CLP is an incentive-based product created to help underserved customers by increasing homeownership in designated census tracts. Click here to see what our Agency, Best Efforts, Non-Delegated program offers. We also look forward to seeing many of our clients at the MBA Secondary and TMBA Conferences the week of May 20. If you are interested in learning more about the Community Lending Program or are interested in exploring a relationship with Chase Correspondent Lending, please contact Karen Russell, our Relationship Development Manager. You can also visit us at www.chaseb2b.com.”

Capital Markets

We go back to looking at data, of course! But first, a few words from our sponsors…

Navigating the complexities of mortgage pipeline hedging requires a deep understanding of crucial financial concepts. MCT’s new whitepaper, Duration and Convexity in Mortgage Pipeline Hedging, authored by Ben Itkin, Managing Director and Head of Sales at MCT, provides a comprehensive guide to mastering these principles. Using mathematical examples, the whitepaper explains key concepts related to duration, convexity, and the interplay between various market dynamics. Mr. Itkin then shows how these principles may help secondary market professionals reduce their hedge transactional costs by leveraging a cross-hedging strategy. Other topics include understanding convexity in relation to duration and explaining the difference between hedging with TBAs or treasuries. Download the whitepaper today or join MCT’s newsletter to receive MCT’s most recent educational content.

Success doesn’t eclipse personal service at Vice Capital Markets. It fuels it. Having traded more than $1 trillion since the company’s founding hasn’t prevented the Vice Capital team from picking up the phone and guiding clients through complex, challenging situations, as First Merchants Bank realized firsthand when Vice not only helped it integrate its mortgage pipelines following its merger with Level One Bank, migrate to shared instances of critical tech platforms AND transition from best efforts to mandatory execution. As First Merchant’s Secondary Market Manager Eric Brennan recalls, “[Vice] literally held our hands throughout the whole process… From start to finish, they could not have made it easier on us to go through such a hard process and helped me look like a rockstar.” To learn more, read the case study or schedule some time with Vice Capital President Troy Baars at MBA Secondary.

The rate and price that borrowers see is a combination of several factors, most notably mortgage-backed security prices and servicing values. Yes, collecting that monthly payment, and possibly financing it, has value. MCT writes, “Mortgage rates managed to end the month of April with an increase of about fifty-two (52) basis points, while float income rates have increased by an average of thirty (30) basis points since the end of March. MSR portfolio holders should expect a moderate value recovery in the range of two to six (2-6) basis points from the end of March. However, those increases will vary depending on portfolio vintages and other portfolio characteristics such as Agency and GNMA mix. The downrate risk and its potential impact on MSR values will persist as we navigate through 2024.”

Recent data showing higher-than-desired inflation means it will take more time for the Fed to gain confidence that price pressures are sustainably easing. That was the main message coming out of Jay Powell’s FOMC presser on Wednesday, where he dismissed talk of stagflation after the central bank maintained its key interest rate at 5.25-5.50 percent for the sixth consecutive meeting. The FOMC also decided to ease quantitative tightening by slowing the pace of its balance sheet runoff, pushing Treasury yields lower: “dovish” yet expressing confidence that long-term inflation expectations are anchored.

As was widely expected, the FOMC voted unanimously to keep interest rates unchanged for the sixth consecutive meeting yesterday. The Fed stated, “there has been a lack of further progress toward the Committee’s 2 percent inflation objective,” implying they will remain on hold until economic data confirms inflation is decreasing. Despite no change in the overnight rate target, the statement did confirm an expected change concerning a tapering of the speed with which Treasury securities will roll off the Fed’s balance sheet. It will decrease to $25 billion maximum per month beginning in June from $60 billion previously. The FOMC did not change the ongoing passive roll-off of its MBS holdings but did note that any prepayments beyond the continuing $35 billion cap would be reinvested in Treasuries. During his press conference, Fed Chairman Powell acknowledged that a rate hike this year is unlikely.

There were several economic releases of note yesterday. Total construction spending declined 0.2 percent in March, the second drop in three months. Residential spending weakened in March with pullbacks across both single-family and multifamily segments. Nonresidential spending eked out a 0.2 percent gain, fueled by spending on the public side, particularly for infrastructure projects. The April ISM Manufacturing Index indicated a return to contraction for the manufacturing sector after last month posted the first expansionary figure since September. Ahead of tomorrow’s payrolls report, the ADP Employment Change report pointed to the addition of 192k nonfarm payrolls in April while the March increase was revised up to 208,000 from 184,000.

Today’s economic calendar sees more labor market indicators ahead of tomorrow’s jobs report. The calendar began with job cuts from Challenger, Gray & Christmas for April. U.S.-based employers announced 64,789 cuts in April, a 28 percent decrease from the 90,309 cuts announced one month prior. It is down 3.3 percent from the 66,995 cuts announced in the same month in 2023. We’ve also had weekly jobless claims (208k, lighter than expected), the March trade deficit, and the first look at Q1 productivity and unit labor costs. Later today brings March factory orders and Freddie Mac’s Primary Mortgage Market Survey. After this news we begin the day with Agency MBS prices roughly unchanged from Wednesday’s close, the 10-year yielding 4.59 after closing yesterday at 4.60 percent, and the 2-year at 4.94.

Employment

Newfi Correspondent, a national Non-QM and Second Lien Mortgage Banker, is excited to announce that Todd Lautzenheiser was appointed as Senior Vice President of Correspondent Sales! He will lead a group of talented VP, Correspondent Account Executives that also joined the Newfi team including Alex Clark, Bill Parnell, Joe Matteo, Marty Yocum, Michael Milich, and Zeenat Zonte. This growth exemplifies Newfi’s ongoing commitment to and leadership in the Non-Agency space. Reach out to Todd Lautzenheiser or John Wise to connect with our team or schedule a meeting for the MBA Secondary.

“eRESI Mortgage is excited to announce that industry veteran Derek Lewis is joining our business development team in the Midwest. We are proud of the depth of our bench; there’s no better team in the business for long-term relationships and knowledge of our industry! Planning a trip to the Big Apple in May? We’ll be there too to discuss your business objectives, growth, and goals and explore how our industry-leading pricing, white-glove service, and years of knowledge in the investor and correspondent space can benefit you. Join eRESI Mortgage in New York during the MBA Secondary & Capital Markets Conference, May 19-22. Reach out to your eRESI representative or email us today for more details. We can’t wait to see you there!”

Fairway Independent Mortgage is hosting a confidential Virtual Fairway Day today, May 2, at 2 PM CT. “Want to know what makes Fairway the best mortgage company to work for? Now’s your chance! Join us and learn everything you need to know about Fairway’s products, platforms, training and coaching directly from Fairway CEO, Steve Jacobson, President of Retail Sales East, David Lazowski and other executives​.”