Non-QM, Seconds, Warehouse, Efficiency Products; Primer on CRAs, Bureaus, and Data Analytics

“A fine is a tax for doing wrong. A tax is a fine for doing well.” April 15th is in a week, the traditional date when taxes are due. Time flies. Do you realize that we have seven more months until the election? Seven more months of headlines and gaffes, posturing, missteps, and election trivia (like no Republican has been elected to the White House by a majority of Americans since 1988). I’m glad residential lending continues to motor along, albeit at a very moderate pace. Politics can determine the regulatory environment, and this Wednesday’s L1 “Mortgage Matters: The Weekly Roundup at 11AM PT has Kathy Kraninger, former director of the CFPB from 2018 to 2021, now CEO of the Florida Bankers Association. (Found here after 8:30AM ET, this week’s podcasts are sponsored by PHH Mortgage. From subservicing to correspondent lending, MSR/co-issue transactions, portfolio retention, reverse mortgages, and commercial servicing, PHH has solutions for the entire mortgage lifecycle. Hear an interview with Figure Technology Solutions Jackie Frommer on disrupting the industry by leveraging proprietary technology and a deep partnership network.)

Lender and Broker Products, Software, and Services

A few hours from now, for the first time in nearly seven years, a total solar eclipse will cross the continental United States. Though the time between eclipses varies (it’ll be 2044 before the next one visits the contiguous 48 states) science assures us the choreography of our sun and moon is both cyclical and predictable. If only mortgage interest rates were as reliable! This week on Dark Matter Technologies’ ‘The Spotlight’ podcast, The Mortgage Collaborative President Melissa Langdale shares highlights from her co-op’s recent conference, including ways lenders are leveraging technology to make their processes and workforces more adaptable to our cyclical (but often unpredictable) market. Take 20 minutes and listen to the episode today!

Take your accounting department from “Cost Center” to Revenue Generator” with Loan Vision & LV-PAM. Loan Vision customers report a 10% reduction in loan fallout, 30%+ decrease in days to close the books, and 20%+ reduction in accounting headcount. Interested in learning how Loan Vision can reduce internal costs and help you gain a competitive edge? Contact Carl Wooloff to schedule a call today.

Free eBook: How to Lower Costs, Boost Profitability, and Surge Ahead of the Competition in 2024. Looking to improve your strategy as Q2 begins? By upleveling your plan, you can reduce fixed costs, improve your bottom line, and set the groundwork to win market share as volume begins to improve. Want to learn how? We spoke to senior members of the Maxwell team, each with decades of industry experience, and the result is our new eBook: an actionable guide that will teach you the likely path for rates and volume in 2024, strategies to bulk up your pipeline, why reevaluating your cost structure is vital to achieving profitability, and more. Get your free copy today to inform your 2024 planning: Click here to download Make More Out of ‘24: How to Win Market Share as Your Competition Lags.

TPO and Correspondent Products

“Arc Home is excited to be part of the MBA Secondary Conference in New York this May, and we’re extending an invitation for you to meet with us. Learn about our Buy to Your Guide program; tailored for flexible lending solutions that align to your guidelines. Also, get an exclusive look at SPARC 2.0, our newly launched client portal that enhances efficiency through intuitive navigation and real-time updates. As a bonus, enjoy complimentary professional headshots during your visit! Availability for meetings on May 20th and 21st is limited, so secure your spot now and ensure you’re part of this essential gathering for advancing your lending capabilities with Arc Home. If you can’t make it but still want to explore what Arc Home offers, connect with Todd Lautzenheiser, our VP of Correspondent Sales.”

One responsive team with the synergies to get business done. That’s Western Alliance Bank + AmeriHome Mortgage. In our ever-changing industry, the right efficiencies and expertise can make the most of an independent mortgage banking business. We invite you to learn more about the combination of traditional warehouse lending, correspondent lending solutions, and deposit accounts and cash management technologies from Western Alliance Bank’s Specialized Mortgage Services team and AmeriHome Mortgage, the nation’s largest bank-owned correspondent investor.* Our seasoned team provides responsive, white-glove service to build a suite of solutions to help you achieve your goals. Innovative options include diverse loan products, treasury management solutions and other offerings, all backed by modern, purpose-built infrastructure and advanced data and analytics capabilities. Contact bankers Mark Short, Nicole Avey, Jim Karr, Elizabeth Mix and Nick Richards, Treasury Management specialist Chris Martin or the AmeriHome Sales Team. Western Alliance Bank, Member FDIC. *According to Inside Mortgage Finance, 3/1/2024.

LoanStream wants you to Spring into More Business with their April Specials on Prime, Non-QM and Closed End Seconds now through April 30th, 2024. Includes 25 BPS Price Improvement on FHA/VA loans 620+ FICO (excludes DPA and CalHFA) on Prime, 25 BPS Price Improvement on all Non-QM loans (excludes Select) and 25 BPS Price Improvement on all Closed-End Seconds. Restrictions apply so contact your LoanStream Account Executive to learn more. Specials are valid for loans locked 4/1/2024 through 4/30/2024. Offers subject to change at any time; terms and conditions apply.

Credit: Strong Like Bull, But You Should Know the Players

Optimal Blue released its March 2024 Originations Market Monitor report, which revealed the average homebuyer credit score has reached 737, an all-time high since the company began tracking this data in January 2018. In February and March 2024, average FHA borrower credit scores reached 676 and 675, also all-time highs since tracking began in January 2018. Those highly qualified purchase applicants and the traditional spring home buying season have driven a 17 percent increase in purchase rate lock volumes month-over-month, even in the face of increasing home sale prices and a 6.74 percent 30-year benchmark rate.

Rate/term refi activity rose 19 percent and cash out refi activity rose 11 percent, aided by improving rates. The average loan amount rose by $8,000 to $367.3k and the average home purchase price increased $9,700 to $463.8k. Despite strong month-over-month gains, March purchase lock counts were down 24 percent from the same period in 2023, at least partially due to the Easter holiday weekend falling in March this year and April last year.

One issue that seems to be lingering, however, is when lenders address the rising cost of credit. It is important to know the difference between a CRA, a credit bureau, and a data analytics firm. And in this situation, CRA stands for “Credit reporting agency” not “Community Reinvestment Act.” (Experian, Equifax, and TransUnion are credit bureaus; CRAs include several smaller companies.)

FICO, originally Fair, Isaac and Company, is a data analytics company based in Bozeman, Montana, focused on credit scoring services. It was founded by Bill Fair and Earl Isaac in 1956. FICO is the commonly used name of the company and is a division of Fair Isaac.

Will Lansing, the Chief Executive Officer of FICO, writes, “At $3.50 per score, FICO royalties constitute only 15 percent of the cost of a $70 tri-merge credit report and 2/10ths of one percent of mortgage closing costs… Despite the value the FICO Score provides, it is important to note that FICO has neither the access to the necessary credit data nor the means of distribution to provide Scores directly to end users (e.g., lenders). Instead, FICO licenses its proprietary credit scoring models to the three CRAs. Accordingly, it is ultimately the CRA, not FICO, that sets the price the resellers and end users pay for the FICO Score.”

Certainly, the credit bureaus (Experian, Equifax, and TransUnion) should be allowed to earn a profit for their services, just as credit reporting agencies (CRAs) should be able to earn a profit. Remember that credit bureaus are different from credit-scoring companies, such as VantageScore and FICO.

“With average closing costs of approximately $6,000 per mortgage, FICO’s royalties remain an exceedingly small percentage (approximately two tenths of one percent or less) of a consumer’s closing costs and are therefore not an impediment to home ownership.”

Capital Markets

What happens to all of those FHA & VA loans that are originated? Ginnie Mae’s mortgage-backed securities (MBS) portfolio outstanding grew to $2.56 trillion in March, including $32.4 billion of total MBS issuance, leading to $12.5 billion of net growth. March’s new MBS issuance supports the financing of more than 101,000 households, including more than 45,000 first-time homebuyers. Approximately 68 percent of the March MBS issuance reflects new mortgages that support home purchases because refinance activity remained low due to higher interest rates.

The March issuance includes $31.5 billion of Ginnie Mae II MBS and $883 million of Ginnie Mae I MBS, including $793 million in loans for multifamily housing. For the 2024 calendar year to date, Ginnie Mae has supported the pooling and securitization of more than 137,000 first-time homebuyer loans.

A blowout U.S. jobs report on Friday, in which nonfarm payrolls grew by 303k in March, convinced investors that the strength of the labor market suggests the FOMC can continue to wait for further improvement on the inflation front before easing policy. That labor market has grown for 39 straight months and total job creation is now 5.8 million above where it was during the pre-COVID peak four years ago. The unemployment rate edged lower to 3.8 percent, wages grew at a solid clip and workforce participation rose. The next move from the Fed is still expected to be to lower rates, but there is little sense of urgency.

This is a commentary for residential lenders, but stocks do enter into the equation occasionally. The benchmark S&P 500 posted its worst weekly performance of the year on Friday, registering only its fourth overall negative week of 2024. The decline was primarily driven by strong economic data on the labor market, which increased bets that the Fed will be in no hurry to cut interest rates. Accordingly, the only people who were disappointed in Friday’s report were those looking for relief from Fed rate cuts, but investors should recognize the resilient labor market as a good thing for American workers and the economy at large.

As traders trimmed bets on the Fed lowering rates in June, yields on most bonds rose to their highest closing levels of the year. Investors are also keeping a close eye on the unfolding situation in the Middle East, with Tensions ratcheting up between Iran and Israel. Attention now turns to this week’s CPI inflation report, which will be a key indication of whether the pickup in inflation at the start of the year was a function of early-year noise or if inflation’s journey back to the Fed’s target has been drawn out.

Although it would take a series of major surprises to prompt the Federal Reserve to do anything, the Consumer Price Index for March will be the headline this week, though other releases of note include the NFIB Small Business Optimism Index, Wholesale Inventories, PPI, Import/Export Prices, and University of Michigan Consumer Sentiment. With nothing of note in today’s economic calendar, we begin the week with Agency MBS prices worse a solid .250, the 10-year yielding 4.45 after closing Friday at 4.38 percent, and the 2-year is up to 4.77 as the odds of a Fed cut at the next meeting continue to ebb.

Employment

“Nations Direct Mortgage is excited to announce the addition of two well respected, seasoned sales executives to assist with our strategic growth plans within the Third-Party Origination sector. Brandon Bauch has joined us as our new Regional Sales Manager, South! He was pivotal in the growth and success of top ten lender, Franklin American’s TPO Division as a Divisional Sales Manager for over 15 years. He is a proud member of NAMB and involved in multiple State mortgage Banking and Broker Associations. His leadership, expertise and vast industry network will fulfil Nations Direct’s aggressive growth plans in the South Central and Southeast Regions of the United States. Travis Dyson has joined NDM as our new Regional Sales Manager, West Region! He brings to NDM over 20 years of successful mortgage experience and a wide industry network. Travis was a successful, longstanding sales executive for Flagstar Bank’s TPO Division in the Northwest US Region. With his expertise and commitment, Dyson remains at the forefront of industry trends as a Certified Mortgage Banker (CMB®). He will be responsible for the overall growth of the West Region.”

“It’s 1999: Californication and Slim Shady dominate the charts, the iconic films Fight Club and The Matrix are released, Serena Williams wins her first Grand Slam to kick off an outrageous career and with inspiring greatness being born all around Seth Fass founds East Coast Capital. Celebrating its 25th anniversary, East Coast Capital has scored incredible victories for clients to achieve their homeownership goals. Once a small broker, NY-Based East Coast Capital is now a licensed bank across the nation, approved with Fannie, Freddie, and FHA and also specializes in underwriting non-QM loans. Committed to providing homeowners access to capital and supporting loan officers with a diverse range of products and common-sense approach to underwriting, the movies and songs may have fallen off the playlist and Serena has retired from the courts, but born among the best, East Coast Capital still remains! Ready to Join? Email us.”