Before the internet, everything worked fine without it, right? Just ask the members, whether they be depositors or borrowers, of credit union Patelco, the scene of the latest (known) hack attack. Yes, it is a good reminder for companies to continue to beef up their computer systems, and have a plan in place should something happen. It is also a reminder for anyone with their money in a bank or credit union to have some of their money at a different institution. The news isn’t much better for lenders in general: According to Curinos, June 2024 funded mortgage volume decreased 13 percent year-over-year and decreased 5 percent month-over-month. The average 30-year conforming retail funded rate in June 2024 was 7.11, 1bps higher than May 2024 and 66bps higher than the same month last year. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. We drill into this data further here. (Today’s podcast is found here and this week’s is sponsored by Bundle, the attorney-prepared legal documents company that is dedicated to the real estate, mortgage, and title industries. Fuel your operations and execution of documents from deeds to subordinations to assignments, and everything you need for any order, in one bundled price; receive 20 percent off using the code “Chrisman” at checkout. Hear an interview with realtor Clint Jordan on the latest NAR Settlement effects from a realtor’s perspective and ways he is working with loan originators to be more efficient together.)
Fed Purchase Primer
Remember when the Fed was gobbling Treasury and mortgage-backed securities? That has, of course, ended, but the Federal Reserve Open Market Committee’s activities, however, should also be of interest to every lender, its originators and borrower clients. Rates were low during the pandemic, in part, due to this constant buying. Both Treasury and mortgage rates are higher now than three years ago… is that entirely the Fed’s doing?
First, a short history lesson. The Federal Reserve has not always purchased billions of dollars of securities as it was doing in 2020 and 2021. Between mid-2007 and early 2015, it purchased approximately $3.7 trillion of Treasury and mortgage-backed securities (MBS). Purchases quieted down between mid-2017 and mid-2019, and then picked back up. The Federal Reserve owns about $2.4 trillion in Agency fixed-income securities. There’s about $12 trillion outstanding, which means the Fed is holding about 20 percent of total MBS outstanding…the proverbial 800-pound gorilla in the MBS marketplace.
Everyone knew that the Fed’s purchases (though announced well in advance), that drive up security prices and drive down rates, at some point would taper off and stop entirely as they have, depending on economic conditions. It is important for MLOs to remember that one of the purposes of the Central Bank of the U.S. is to increase the stability of our financial system. Sudden moves have the opposite impact. When the Federal Reserve began reducing its billions of daily and monthly bond purchases, thus driving up long-term rates and cutting origination volumes, lenders struggled to replace this income (when interest rates rise, banks holding the fixed portion of the contract lose money on a mark-to-market basis. In essence, a bank is receiving a lower rate than what the market is offering).
The Federal Reserve was purchasing $40 billion in mortgage bonds and $80 billion in Treasury securities each month to augment a near-zero short-term interest-rate target range. No more, and the portfolio is “running off” as borrowers refinance or sell their homes and pay off the debt.
Investors and economists watch any speeches or policy statements from the Federal Reserve for any indication that recent data, including faster-than-expected inflation and slower job growth, will change easy-money policies. Remember that many economists expected the Federal Reserve to begin lifting the target range for the federal funds rate in 2023 and to begin tapering long-term asset purchases in the first half of 2022, which is indeed what happened.
Capital Markets
Ahead of today’s June payrolls report, markets received several labor market indicators on Wednesday. There was a below-consensus ADP Employment Change report for June (150k) and a larger-than-expected increase in weekly jobless claims (+4k to 238k). Separately, Fed minutes showed officials are looking for additional evidence that inflation is cooling before cutting rates and were divided on how long to keep rates elevated. Domestic data has, of late, pointed toward a slowing economy, reinforcing the case for a rate cut. Growth and unemployment forecasts were unchanged.
Following yesterday’s break, markets return today with the release of June payrolls. Payrolls increased 206k, slightly better than expected but with a dramatic back-month revision 111k, with the unemployment rate at 4.1 percent, and average hourly earnings were +.3 percent for the month and +3.9 percent year-over-year. The only other point of interest on today’s economic calendar is New York Fed President Williams delivering remarks. After the employment data, if anyone is around to care, we begin Friday with Agency MBS prices improved from Wednesday’s close by about .250, the 10-year yielding 4.29 after closing Wednesday at 4.36 percent, and the 2-year at 4.63.
Jobs
“Kind Lending is seeking experienced Wholesale Account Executives in the mortgage lending industry. We are one of the fastest-growing mortgage lenders in the country, committed to building a positive and collaborative team that prioritizes people and aims to bring happiness to our valued broker partners and their borrowers. Our team believes that kindness is crucial and places great importance on providing clients with a positive experience. Check out this brief message from our Chief Production Officer of TPO by visiting here. Join the #kindmovement and grow your business by taking advantage of Kind’s expanded product offerings and best-in-class operational experience. Don’t wait! Contact Delfino Aguilar or (619) 726-0377 to kickstart your career path to kindness!”
“Mega Capital continues to expand across the country by adding AEs along with operation staff to support the growth of the organization. In recent months we have rolled out our new broker platform mPOWERs to help with ease of use for the broker. We have added improvements to our non-QM platform with MGenius getting an upgrade to help assist brokers with their NON-QM needs. On top of our great rates for conventional and government loas, we continue to improve our NON-QM offerings. 3-month bank statement program, Assets utilization, and a refi with essentially a mortgage only rating needed. Our latest offering is our MVP program- $3M Loan amounts, FICO down to 660, 40 yr. I/O’s, transferred appraisals accepted, P&L with no bank statements required, 1099 program No tax return needed and the list goes on. Please contact your local AE or Mega Capital at 818 657 2600 to partner with us. Always looking for great talent to join the team. We are always looking to add sales talent, all AE’s especially those with the NON QM background, please reach out to Ed Darrow at 818 657 2600 x340.”
A 49-state licensed mortgage lender with a large servicing portfolio and strong capital base is seeking to expand its retail footprint by partnering with large production teams or regional mortgage banks interested in a capital partnership. The goal of the relationship is to leverage back-office mortgage functions (e.g., secondary, technology, compliance, operations, and licensing) to provide you with long-term production growth opportunities. By partnering with us, you can utilize our mature systems to add loan officers and scale your operations across the U.S. If you are a strong retail loan origination team feeling constrained by layers of management, or an independent mortgage lender looking for new options for your team, we offer a compelling alternative to standard “branch” offerings. Confidential and serious inquiries can email Anjelica Nixt.
A very well capitalized, mid-sized IMB servicing 100 percent of its loans in-house without a sub-servicer, headquartered in a Rocky Mountain State, is looking to acquire smaller retail IMBs who would prefer to focus on production and at the same time gain operational efficiencies. Understanding that every company has a very unique culture, the IMB is willing to allow these IMBs to operate with a large degree of autonomy, allow you to keep your trade name, and treat you as your own company. Geography is not an issue. We believe that a larger company forcing their culture upon the company being acquired never works over the long term. The vision is for this IMB to hit $5 billion in annual volume with likeminded people, and it has no desire to grow beyond that volume as the President “wants to be big enough to be a player, yet small enough to keep our soul.” Confidential inquiries should be sent to Chrisman LLC’s Anjelica Nixt for forwarding.
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