Gosh, what should we talk about today? If there’s a “winner” with the coronavirus, it is dogs. They are experiencing unprecedented levels of people being home with them! Temporary state & county government shutdowns wreaking havoc on recording deeds for funded loans (can you say, “gap insurance”?)? Companies doing what they can to have employees work from home, or help them? (For example, in a step toward a positive boost, Fairway Independent’s Wellness Program is offering every employee a Cybex ARC Trainer to be delivered to their homes!) Trump warring with Jerome Powell? Reports of nonagency platforms seeing a jump in interest as sellers seek liquidity? Nearly every lender now offering free 90-day locks? Starbucks eliminating seating? The CDC recommending events with 50 people or more be cancelled or postponed for 8 weeks? The economic ramifications of bars and restaurants everywhere closing? The Federal Reserve cutting overnight Fed Funds to near 0 percent and planning to buy $200 billion of Agency MBS, causing stocks, especially bank stocks, and rates to plummet this morning? (Don’t forget the primer on what moves mortgage rates.) And what’s with hoarding toilet paper?

Lender Products and Services

Galton Funding has updated its guidelines effective March 9. Galton continues to enhance its industry leading Non-Agency product offerings. Galton’s latest update focuses on its innovative Streamlined SL1 program which allows lenders to originate Non-Agency loans with the ease of an agency underwrite by utilizing Fannie Mae DU findings for income, assets and reserves. In addition to already accepting a DU cert for loans up to $3MM, purchase, rate/term and cash out LTV’s to 95%, aggressive LTVs for Investor properties, and 30- and 40-year Interest Only options, Galton now allows DTI’s to 50%, co-ops and 2-4 unit condos as acceptable property types. Galton also removed certain overlays to better align SL1 with Fannie Mae requirements. The SL1 program has been a huge success since its rollout, and these enhancements make it easier than ever for originators to do non-Agency loans with Galton. Visit http://galtonfunding.com/contact-us and contact one of Galton’s Business Develop Managers to learn how you can grow your volumes with the help of Galton Funding products.

Mortech, a Zillow Group business, hosted a webinar last month discussing the opportunities for mortgage growth along with a demo of its portfolio retention platform. Built on pre-mover data from Zillow, Mortech Protection identifies addresses within a lender's database that are very likely to list for sale, of which 1 in 4 homes will list in the next 90 days. Lenders can use Mortech Protection to proactively target their outreach marketing to those home sellers who are in need of a new mortgage with the right message, at the right time. With the majority of buyers contacting only one lender before obtaining a mortgage, being informed earlier in the home selling process will better align you to be the first lender to reach out to home sellers when they need financing for a new home. To learn more, view a recording of the webinar here.

Are you ready for VA IRRRL and purchase opportunities in this market? Considering VA mortgage lending for the first time? Join Freedom Mortgage Wholesale for one of our live webinar primers on VA mortgage products and origination processes. Plus, learn more about the recently enacted Blue Water Navy Vietnam Veterans Act of 2019, which has provided new mortgage benefits for jumbo borrowers, active duty Purple Heart recipients, and more. Freedom Mortgage is a leading VA lender and our Wholesale Channel’s No Down Payment VA Jumbo program enables eligible jumbo borrowers to exceed published FHFA county loan limits without a down payment requirement! No jumbo overlays or loan limits! Sign up for a VA Mortgage Product & Process Primer 3/16 or 3/20.

Path, the enterprise-level, cloud-based LOS designed from the ground up for financial institutions of all shapes and sizes is now offering new software versions to match your organization’s size and complexities. Need your LOS preconfigured with standard settings for a quick and simple implementation? You got it! Need a more customized solution specific to your organization and its needs? No problem! With Path, you have options. Contact Michele Warren to learn more.

News from Wholesale

Wholesalers, correspondent investors, and the Agencies are keeping an eye on prepayment speeds and churning, especially if a broker or lender makes money on the same borrower twice in a certain period, like 6 or 12 months. Is it an example of a handful of brokers or MLOs impacting the prepayment speeds, and reputation, of everyone? Possibly.

Some are taking action. For example, United Wholesale, who is right on top of its data, noticed a small number of brokers who had prepayment speeds 3x-5x the rest of its broker base. Allen Beydoun, EVP, UWM Sales, informed this group that they will be held to a temporary 12-month Early Payoff Provision. UWM feels that this small group of brokers is hurting the prepayment speed story for all brokers, and decided to take a stand against it. I am sure that others will follow suit. UWM will reevaluate this group of brokers in a few months to see if they are more in line with the cohort. And to the best of my knowledge UWM didn't cut anyone off, nor worsen their pricing.

“Your account has been flagged for participating in refinancing practices that are having a negative impact on the entire wholesale market. As such, UWM will be implementing a 12-month EPO policy for all loans closed in your name from March 12, 2019, forward. From March 12, 2019, forward, all loans refinanced by you within 12 months of the funding date will require a full EPO. EPO will be required whether you refinance through UWM or not. UWM will reevaluate your refinance speeds on August 1, 2020, and January 1, 2021, and consider removing or revising this policy. Please understand that we must do what we feel is best for consumers and the mortgage industry as a whole.” Makes sense to me.

NewRez LLC announced the formal launch of a joint venture mortgage company recently added to its network of partners. NewRez and Shelter Mortgage Company, L.L.C., the NewRez business division focused on JV lending, have partnered in this venture with Landed, Inc. ("Landed"), offering down payment support and homebuyer education programs geared towards helping teachers and school employees afford to buy homes.

As a “March Special,” Mountain West Wholesale is offering free appraisals on FHA and VA purchases through the month of March. This special is applicable on select FHA and VA Standard Loans. This offer is available on new submissions, purchase transactions only, with a minimum 680 FICO or higher. Loans must be submitted between March 1st and March 31st. (Recall that MWF issued Bulletin 20W-012 regarding its discontinuing of some Jumbo R and RC ARM Programs effective February 18. These products will no longer be available for new registrations or locks due to discontinuation of the program by the investor. All locks currently in the pipeline will be honored.)

Capital Markets

Yes, yesterday the Federal Open Market Committee cut overnight rates to near zero. Though economic data has been overshadowed by general fear and paranoia recently, it is still important to discuss the actual health of the economy that these economic releases provide. The preliminary March reading for the University of Michigan's Index of Consumer Sentiment dropped slightly beyond expectations on Friday, and consumer spending activity should follow as sentiment has been shaken by the spread of the coronavirus and the sharp decline in stock prices. The data suggests that additional declines in confidence are still likely to occur as the spread of the virus continues to accelerate. The initial response to this pandemic, however, has not generated the type of economic panic among consumers that was present in the run-up to the Great Recession in 2008. Certainly inflation is missing.

In addition to liquidity challenges, lenders have been messaging me about how last week brought basis challenges, prices lagging well behind the screens, and struggles for option desks. You aren’t alone out there. In my opinion, these are extraordinary, uncharted times, and standard spreads should eventually return. Yes, there are plenty of intra-day price changes, and the uncertainty is certainly driving bonds and MBS. Companies are running scared of EPOs, brokers have been put on warning about churning, and servicers who thought their servicing was worth a point are preparing to write it down to zero because the loan is probably in a different lender’s refinance pipeline. It is a case of why any investor who paid above par for a security that is likely going to prepay would be jumping to do it again. There is no way the industry can refinance $10 trillion to $15 trillion in the next three months, so margins have been widened accordingly. And yes, there are a lot of rumors about the major wholesalers who seem to want to pay up for servicing really hurting in the near future.

Yesterday the Fed announced buying an additional $200 billion in MBS. But last week U.S. mortgage rates have risen to the highest level in months despite recent Federal Reserve interest rate cuts. Mortgage rates are higher because of logjam in the $10 trillion market for mortgage-backed securities (MBS), where most US home loans are bundled. The rush to refinance has flooded the market with MBS. However, as the coronavirus has spread, banks and brokers that act as intermediaries in the market have struggled to sell the bonds. They also have little appetite for adding more of them to their balance sheets. As a result, the difference between yields on mortgage-backed securities and those on 10-year Treasuries has doubled since a month ago to 1.5 percentage points, the widest spread since 2009, during the financial crisis.

It’s a problem if the Fed’s rate reduction moves, and policies in general, don’t lead to lower mortgage rates. If broker-dealers and investors stop buying, mortgage rates are going to go higher. Hopefully some of the pressure is relieved by using the its balance sheet to buy agency securities and create capacity until the market stabilizes.

Looking back at last week, however, Treasuries and MBS pulled back as stocks rebounded from their worst day in over 30 years due to talk of fiscal stimulus and the New York Fed continuing with its repurchase operation. At that point the Federal Reserve said it would make vast sums of short-term loans available on Wall Street and purchase Treasury securities in a coronavirus-related response aimed at preventing poor trading conditions from creating a sharper economic contraction. The Fed also opened the door to a resumption of bond-buying stimulus known as quantitative easing (QE), announced yesterday.

Markets also digested a spate of central bank news: the Bank of Japan (BoJ) conducted an unscheduled repurchase operation, Norges Bank cut rates by 50 bps, and the PBOC announced the lowering of its required reserve ratio for some banks starting today. The result was the U.S. 10-year Treasury yield closed Friday +13 bps to 0.98 percent. After the close, President Trump declared a state of national emergency to deal with coronavirus, stating he would waive interest on student loans until further notice and will be purchasing oil to fill up the Strategic Petroleum Reserve. A coronavirus relief bill has been passed by the House; Senate vote uncertain.

This week’s economic calendar is heavy on data for February, which will give some initial clues about how the coronavirus is impacting the economy. Today sees a very light calendar, with the Empire State Manufacturing for March already out (at -21.5, ugly). Regarding MBS, the Treasury will conduct a Class B FedTrade operation targeting up to $137 million 2 percent ($103 million) and 2.5 percent ($34 million). Tomorrow’s economic calendar includes Retail Sales for February, Industrial Production and Capacity Utilization for February and Business Inventories for January. The middle of the week brings Housing Starts and Building Permits for February as well as a FOMC meeting, before Thursday delivers the usual claims figures as well as the Philadelphia Fed Index for March, and central bank decisions from the BoJ, SNB, and Norges Bank. The week closes with the sole release of Existing Home Sales for February. We begin today with Agency MBS prices better 1-2 whole points and the 10-year yielding .77 percent.

Employment

The Compliance Group, Inc. is continuing to expand its operations, and is seeking Compliance Professionals to join its outstanding Compliance Team. These positions will provide support and guidance to clients, handle compliance-related projects, review new and existing regulations for impact to lending industry, perform regulatory and state audits, Internal Audits, Anti-Money Laundering Audits, and other various audits, review compliance audit results, conduct training of internal staff, as well as draft and maintain regulatory policies and procedures. Must be able to manage multiple priorities and assignments and ensure projects are completed timely. At least five years of compliance experience is preferred. Prefer seven to ten years mortgage lending experience. Candidates holding a CRCM is a plus! Job location: Carlsbad, CA or remote. Some travel is required. Excellent verbal, written and communication skills required. Package includes competitive salary and benefits. Please send resumes to Janet Twombly.

American Pacific Mortgage (APM) is excited for another record year and invites you to be part of it. We just recently added over 30 new branches in AL, CA, FL, IL, IN, MO, NV, TN, TX, WI and are just getting going. Want to know why these branches are joining APM? It’s due to our Culture, that we’ve spent decades developing.  As a company built by originators, we aim to serve…YOU. We pride ourselves on operating from a place of abundance and arming you for success. This includes APM’s incomparable mortgage technology stack, ease of doing business, and a variety of innovative programs and resources to grow your production. Now is the time to check out American Pacific Mortgage at JoinAPM.com. To learn how we can make 2020 your best year ever contact Dustin Block (303-378-3166) or email Dustin Block for a confidential conversation.