People are usually surprised to learn there are more boating licenses issued in Wyoming then in Hawai’i. Arizona and flooding? CoreLogic research finds 23% of residential and commercial properties in the US are at a “High” or “Moderate” risk of flooding, but are outside of designated special flood hazard areas, based on its proprietary analysis. The top 5 states with the greatest percentage in this grouping of the total properties analyzed are: AZ (68%), FL (54%), LA (49%), ND (40%), and NM (37%). Meanwhile, states at the other end of the spectrum with the lowest percentage in this grouping are: DC (4%), TN (9%), PA (10%), MO (10%) and NC (11%).

The Mortgage Loan Officer (MLO) Environment, Productivity, and Signing Bonuses

On February 6, the OCC published a notice and request for comment in the Federal Register concerning its information collection entitled, “Registration of Mortgage Loan Originators.” The OCC retains enforcement authority under the SAFE Act for financial institutions (including federal branches of foreign banks) with total assets of $10 billion or less. Comments on the notice must be received by April 9.

Here’s a tip for every broker and loan officer: spend the time to watch this video titled, “Rejection Therapy” by Jia Jiang. His goal was, on the way to be a top salesperson, to be rejected for 100 straight days.

KS sent, “Rob, here’s a short video put out by a company paying 275 basis points. I personally don’t know anyone who would rise to that bait, given that marketing scheme, but it is out there. Are we just in a waiting game to outlast our competitors? Are you seeing pure irrationality out there?”

Recently the Financial Times carried a story: 45,000 people could lose their jobs in the residential lending industry due to a drop in business? Some think so. Alistair Gray reported that, “Thousands of jobs in the US mortgage sector have been put at risk as lenders prepare for the weakest year for refinancings since the turn of the century. The drop in demand comes as interest rates rise and threaten to squeeze a sector that employs an estimated 450,000 people across the country at banks and specialist lenders. The Mortgage Bankers Association predicts refinancing volumes will come in at about $425 billion this year, the lowest level since 2000 and down almost 60 per cent from 2016. Guy Cecala, chief executive of Inside Mortgage Finance, said a decline of about 15 to 20 percent in overall mortgage originations could equate to a headcount reduction across the industry of about 10 per cent…While rising demand for new mortgages should pick up some of the slack, Mr. Cecala doubts that will offset the refinancing decline. ‘If refis drop significantly, like 30 or 40 per cent, there’s no way home purchases can replace that drop.”

In my talks with CEOs and owners, I continue to hear tales of bonuses and guarantees. Will the big lenders continue to grow market share at the expense of smaller rivals? No doubt. I am no longer hearing about the “Lower margins or lower volumes, pick one scenario.” I am hearing that both volumes and margins are down. And smaller companies, though usually nimble, are often poorly equipped to handle smaller margins, and some are having trouble expressing their value proposition to potential hires. I was on the phone recently with the CEO of a large, fund-sponsored player in the correspondent space. "Getting killed" was his comment.

Stories of lenders exiting the business or cutting back are everywhere. Bank of the Ozarks, US Bank’s wholesale group, First California Mortgage, First Community Mortgage, big bank sales forces being gutted by ex-employees, the stories go on and on. Pressures mean competitors are “reducing margins to earn more business.” Capital One is cutting 1,100 jobs as it stops selling new mortgages, citing a “challenging rate environment” and “highly competitive” market. Venture capital funds and private equity investors probably won’t be pleased with their returns on residential lenders, and we can expect plenty of transition in 2018.

I was speaking to the CEO of a well-known privately held lender last week who told me that the hiring competition of LOs of any shape or size is a big problem for his company. Guarantees of $4-8k per month for 4-12 months is taking place. Loan officers are hearing about the profit margin squeeze, but most lender’s leadership is hesitant about passing that down to LOs in this environment, despite corporate margin compression.

Lenders are stuck. The first reaction is to try and “pay up” for volume and reduce margins – not a long-term solution. Compass Point LLC points out that, “The top 40% of loan officers originate 82% of industry loans and become the target in these phases. The next phase, in our opinion, will be for consolidation in the mid-to-small lender market that are unable to originate volume to be sustainable. We expect a combination of these, mostly private, players closing their doors or selling to larger providers with access to capital.” Of course, vendors will suffer from further consolidation in the business. Vendors whose clientele are the small-to-mid-size lenders could see their potential client base diminish.

Fun times ahead? That remains to be seen…

Capital Markets

Bond traders are looking to the Federal Reserve for indications of how it intends to deal with the current spike in bond yields and volatility, with the installation of Jerome Powell as its new chairman adding to the uncertainty. Federal Reserve Bank of New York President William Dudley says the recent upheavals have no implications for long-term economic policy, but one market researcher says, "e really haven't heard from Powell and it would help if he made some soothing comments."

Those looking for a less volatile end to the week for U.S. markets were disappointed Friday, as equities continued their gyrations and the bond market also saw increased volatility, with the 10-year Treasury bond yield up to 2.84 during the day. The FN30 basis closed wider versus the swap curve, as much as 11bps steeper in the case of 2s/30s, and 2s/10s steepened as prices pulled back with spread sensitive buyers adding positions. The Fed also provided some early support when they purchased $829mn GNII 3% through 4% with a 13.6% hit rate, though GNIIs continued to struggle, particularly 4% following Thursday's strong performance on the back of the GNMA announcement.

Last week’s volatility should not materially impede U.S. economic momentum in the near term, though many see it as a case for ongoing central bank monetary policy normalization this year and next, which will put upward pressure on bond yields. Market corrections are a normal part of investing, as is volatility, and many members of the Fed took time to remind us last week’s market action are “healthy."

Turning to today, the calendar is light with just T-bill supply and the January budget statement. Treasury will announce the auction size for Tuesday's 1-month T-bill auction, followed by the $48bn 3- and $42bn 6-month auctions. The Fed will take a break from their buying schedule but resume tomorrow with a Class A operation, $1.305bn 3.5% and 4%, along with a new two-week FedTrade schedule and four-week MBS reinvestment estimate. Tuesday, we have the NFIB Small Business Optimism number – not a big market mover.

But things heat up Wednesday with the MBA’s survey of last week’s apps, the Consumer Price Index (CPI), and Retail Sales. On the 15th we can look forward to the Producer Price Index (PPI), Jobless Claims, Empire Manufacturing, Philly Fed survey, Industrial Production and Capacity Utilization, and the NAHB Housing Market Index. The week wraps up with import prices, and the Housing Starts and Building Permits duo. Friday begins Chinese New Year (The Year of The Dog). The week starts with rates higher, again: the 10-year is up to 2.88% and agency MBS prices are worse .125 versus Friday night.

Employment and Products

In wholesale job news, “Millennials are moving up! Residential lending is certainly starting to see some new faces in its top ranks. Coming off their most recent successful venture where Cory Tona, Aaron Iverson, and Tom Dinan founded a wholesale channel that funded over $8 billion in just four years, now they are back at it again with ‘theLender.’ They are now able to implement some extremely unconventional strategies that the mortgage business has yet to see. Cory Tona says, ‘We are extremely excited for this opportunity that not many young mortgage professionals are fortunate enough to have in their careers. Our competition is putting far too little attention as to why top talent continues to leave them. People want to move up the ranks and if you don’t truly harness that, they will leave. We are going to change that!’ theLender is quickly growing and have very attractive offers for true rockstars in all positions. They will rattle the stagnate mortgage industry once again and looking for anyone that shares a similar vision.” Please contact team@thelender.com for more information.

Freedom Mortgage Correspondent Lending is dedicated to helping its clients grow in the Renovation Lending space. Part three of their Renovation Lending webinar series will take place on Thursday, February 22nd. The series is another step in furthering their commitment to client education. With over 70% of homeowners making a renovation to their home within the first year, according to Zillow, these loans have become increasingly popular. Looking to learn more about how you can offer a flexible Renovation Lending platform? Visit https://freedomcorrespondent.com/renovation/, or call 800-459-4850 x6807. Freedom Mortgage Corporation, NMLS: 2767. If you're ready to enjoy the Freedom of a relationship-driven partner, find out how Freedom Correspondent Lending is your investor of choice.

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Carrington Mortgage Services has added Bank Statements for the Self-Employed borrower to its Non-Prime Loan programs to validate income. 24 months of bank statements can be used, either personal or business to validate a borrower’s income. Bank statements may be used in the place of tax documentation for self-employed borrowers. Carrington’s Non-Prime loans include credit scores to 500, loan amounts up to $1.5 million with Jumbo financing, no MI required, expanded ratios, and borrowers with recent housing events on their credit may qualify. Available on primary, secondary and investment properties. Fixed and ARM programs available. Carrington began its journey to serve the underserved market four years ago by expanding guidelines and manually underwriting government loan programs for credit challenged borrowers. Today, mortgage brokers and their partners can further expand their support for the underserved borrower with these Non-Prime programs. To learn more visit www.CarringtonWholesale.com for more information or call 866-705-9506 to speak with an AE.