Welcome to May 6th, the anniversary of the first tequila hangover. (Yes, for those of you who wrote, I know that May 5 is not Mexican Independence Day, which is in September.) Much of Northern Mexico is arid, and in the U.S. the Southwest encompasses some of the country’s most arid territory with annual precipitation of less than eight inches per year. Yet it has always been one of the fastest growing regions in the U.S. Arizona, California, Nevada, New Mexico, and Texas: For every decade between 1950 and 2010, the growth rate of the Desert Southwest was at least twice as great as that for the United States as a whole. And in three of those periods, the growth rate in the region was at least triple the U.S. growth rate, and in fact, in each of those decades, the growth rate of the Desert Southwest exceeded 40 percent. Four counties were among the five most populous in both 1950 and 2016: Maricopa (Phoenix) & Pima (Tucson), and in California Riverside & San Bernardino.

Lender Products and Services

As our entire industry heads toward digital adoption, eNotes have become a very important part of the digital mortgage process. In fact, MERS member institutions registered almost 19,000 eNotes during the first three months of 2019 versus 17,000 eNotes for all of 2018. If you’d like to learn how they can expand your business, then join Tom Gillis, TMS SVP of Correspondent Sales, and MERS for an informative webinar, “Implementing eNotes: A How-To Conversation with TMS and MERSCORP Holdings” on May 8 at 2 pm EST.

Simplify your underwriting process with Loan Product Advisor® asset and income modeler (AIM). Through the expertise of third-party service providers, AIM automates the manual processes of assessing borrower assets and income. AIM reduces the burden of traditional documentation, speeds up the loan origination process and helps you close loans faster. Freddie Mac is working hard to bring you solutions that create efficiencies for your business and improve the borrower experience - giving you a competitive edge. These capabilities are available now. Gain greater efficiency in your underwriting processes with AIM- get The Freddie EdgeSM.

From traditional lenders with online lending processes to fintech companies popping up virtually every day, technology is fast becoming commonplace — even when it comes to compliance. Strategic Compliance Partners (SCP), a leader in mortgage compliance management, has a proven track record of helping lenders stay CFPB-compliant with technology-driven solutions that save time, money and headaches, including SCP’s compliance platform ASTRO, ShareDiligence Vendor Management and SocialEyes for Lenders. How can technology help you stay compliant? Call us today at 646.418.6635 to discuss which technology solution is right for you.

The MBA Secondary is just two weeks away and NewRez Correspondent is ready to meet you in the big apple! Lisa Schreiber, SVP Correspondent Division, is excited to share how lenders can expand their capacity with speed and ease through NewRez! “I look forward to meeting with both existing and potential clients to share exciting developments in our product line-up, technology partnerships and process enhancements. We have a lot of things happening in Non-QM, LoanNEX product & pricing, and more to announce coming soon!” says Schreiber. Send Lisa a note to set up an appointment today.

“Hey Loan Officers! Ability to Repay is a HOT topic these days! Are you having Ability to Repay challenges with underwriting? Well, did you know that The Rule Tool outlines the CFPB Ability to Repay guidance for 134 rules? Yes, you read that right! In addition to this, The Rule Tool hosts jumbo QM guidelines for major investors. And if you can’t find the answers you need in the app’s database, The Rule Tool’s knowledge experts are just a click away, ready to help. With this handy tool, built with YOU in mind, you can navigate all this and more like the savvy Loan Officer you are! Stop wasting your time by hunting down all the guidelines and answers yourself and sign up with The Rule Tool today! Visit our page to learn more today!”

“’At Thrive Mortgage, we like to say the ‘V’ in Thrive stands for ‘Vested’,’ stated Erin Dee, Chief Strategy Officer. ‘To us, this means that we go to great lengths to invest in the resources, technology, and skills of our people.’ Last year, Dee managed the release of Thrive’s groundbreaking Intelligent Mortgage Platform in partnership with CloudVirga. Known as iThrive, the Texas-based lender is now set to implement its third phase of the platform full-force by the end of Q2. ‘iThrive provides a vastly superior client experience through simplicity and convenience,’ Dee continued. ‘By the time the Loan Officer first accesses the file, the tasks of pulling credit, verifying assets, and documentation uploads have already been completed. Running AUS is one-click to return dual results from both DU and LPA.’ To learn more about available opportunities to join our team, please visit us. Mortgage Lending is what we do, but it’s not the sole determinant of who we are. Community is the best descriptor of our people.”

Capital Markets

Banks and credit unions are perfectly happy to sit on their jumbo loans, and not spend the money or hassle securitizing them. What about loans with high DTIs or on non-warrantable condos? It was a busy 1Q for non-qualified mortgages (non-QM) securitization, with roughly $5.7 billion in UPB of non-QM securitized in 1Q19, the most active quarter in the market since the first transaction was priced in 2015. That brings cumulative securitized non-QM volume to over $19 billion over the last four years.

Mortgage REITs have grown their presence in non-QM over the last year. Four REITs have sponsored non-QM securitizations, including NRZ, STWD, EFC and RWT (about 29% of Redwood's Choice collateral was non-QM through mid-2018). Other companies like WMC and MFA are each currently carrying over $1 billion of non-QM loans on balance sheet, currently financed mostly with repo. JP Morgan announced the offering of its inaugural non-QM transaction (CHASE 2019-ATR1), consisting of 542 loans carrying mostly fixed rates, with aggregate UPB of $440.5M, average FICO of 772, and an LTV of 72%. The coupon on the loans of only 4.6% is noticeably lower than the average for other non-QM deals. The loans in the pool satisfy guidelines under the ability to repay (ATR) rule but were coded as non-QM due primarily to the use of tax transcripts in lieu of signed tax returns.

Originators know that Non-QM loans are loans that don't meet the CFPB's definition of a qualified mortgage, which include the borrower having a debt-to-income ratio below 43%, as well as the loan being fully amortizing and not having any interest-only, negative amortization, or balloon features, among other criteria. Non-QM loans are not subprime loans. In fact, the LTV of most non-QM are around 70%, and FICO scores are usually above 700. However, the note rate to borrowers around 6.5% for the deals completed to date is typically higher than it is for QM, partially in order to compensate lenders for higher underwriting costs and fewer legal protections in the case of default.

Some believe that FHA loans, mostly destined for Ginnie Mae securities, are “the new subprime” while others value the program as an integral part of the residential lending landscape. In March 2019 the Federal Reserve Bank of New York (NY Fed) Open Market Trading Desk began a process to streamline the administration of some of the Ginnie Mae-issued mortgage-backed securities held in the System Open Market Account through a service offered by Ginnie Mae called CUSIP aggregation. This consolidates existing agency MBS with similar characteristics into larger pass-through securities and was previously been used by the New York Fed to consolidate existing Fannie Mae and Freddie Mac MBS holdings.

A good thing for lenders and in turn borrowers, the Ginnie Mae CUSIP aggregation process will further reduce the number of individual agency MBS CUSIPs held by the Federal Reserve, and the administrative costs and operational complexity associated with managing the MBS portfolio. The SOMA currently holds approximately 37,000 individual agency MBS CUSIPs, which will be reduced to about 29,000. The payments on the underlying agency MBS flow through to the aggregated CUSIPs, keeping the aggregation process from affecting the size or characteristics of the SOMA portfolio. The New York Fed will publish detailed data on all settled SOMA agency MBS holdings on its public website on a weekly basis including a listing of the individual agency MBS CUSIPs underlying each aggregated CUSIP, and Ginnie Mae provides information about aggregated CUSIPs on its public website.

In the last year or so, higher coupon GNMAs (composed primarily of FHA & VA loans), have seen increased scrutiny against churning by VA servicers. As GNMA began to crack down on why speeds on higher coupon multi pools spiked so quickly, the Task Force set out to ensure proper standards were being followed when veterans were refinanced into a new loan. As a result, a variety of new regulations, including a minimum age limit, a net tangible benefit test, and consequences of being removed from the multi issuer pools (such as Freedom and New Day VA loans) if the churning activity were not addressed led to significant improvement in the prepay projections for the new production pools. Investors felt more confident in predicting prepays for higher coupons, resulting in outperformance, especially for the G2 4.5s and 5s which had had severe spikes in speeds past the 6th months.

Rates are down even more this morning, but U.S. Treasuries ended last week on a slight rally responding to U.S. employment data that showed the usual better than expected headline payroll growth but a weaker than expected increase in average hourly earnings. We also saw the ISM Non-Manufacturing Index for April at the lowest level of expansion for the index since August 2017. Internationally, Eurozone's April CPI and Core CPI beat expectations; U.K.'s April Services PMI increased; and local elections in the U.K. produced big losses for Conservatives and Labour while Liberal Democrats gained the most seats.

This week's economic calendar, which sees monetary policy decisions from Australia and New Zealand, in addition to further U.S. / China trade discussions, kicked off with Chicago Fed President Evans. Later this morning, Philadelphia's Harker will deliver remarks on economic outlook, while the only domestic release of the day sees the Employment Trends Index for April out at 10:00am.

Tomorrow, things pick back up with March JOLTS (Job Openings) and March Consumer Credit before Wednesday brings the usual Weekly MBA mortgage application data. Thursday is the busiest day of the week with weekly Jobless Claims, April PPI, March Trade Balance, and March Wholesale Inventories. The week closes on Friday with April CPI and core CPI. Due to trade issues with China potentially slowing our economy we begin today with Agency MBS prices better .125-.250 and the 10-year yielding 2.49%.

Employment and Transitions

Nations Lending Corporation, a privately-owned mortgage lender headquartered in Independence, Ohio, has announced the edition of Don Riggs, Area Sales Manager headquartered out of Denver, Colorado.  “We are very excited to bring Don onboard, and expect big things from him,” said Corey Caster, Nations Lending’s EVP of National Production.  “Don is a proven leader, and we’re eager to have him contribute to our growth in the Mountain Region.” Riggs has nearly two decades in the mortgage business, and prior to joining Nations Lending, Riggs was an Area Manager for Envoy Mortgage, overseeing branches in Colorado, Kansas, and Arizona. Nations Lending is a well-established, Agency/Government Servicer, licensed in 47 states.  We are proud to service 100% of the Agency loans we originate. For more information and opportunity on how to join our growing organization, please visit the company's website, or contact Corey Caster.

Fairway Independent Mortgage Corporation welcomes its newest Area Production Manager to the Sacramento California market. Michael Pankow, with more than 18 years of experience in mortgage retail banking, will work alongside Greg Sandler and other members of the leadership team to co-lead and grow existing and new branches within their footprint.

Michael’s experience at both the street and corporate levels, will facilitate and accelerate Fairway Mortgage Corporations goal to be the number one retail mortgage banker in Sacramento and the Central Valley. Michael Pankow stated, “I am incredibly happy and excited to be working with and supporting such a great group of people here in Sacramento market.”

Fairway Independent Mortgage Corporation is the fourth largest Independent Mortgage Banker in the country and is actively looking for loan officers and branch managers who share a passion for lending and their communities.

As a reminder, mortgage industry analyst, author and investment banker Christopher Whalen is now a Senior Advisor at J.V.B. Financial Group in New York, a unit of Cohen & Company (NYSE:COHN), continuing to focus on MSRs and M&A transactions with respect to banks and non-banks in the mortgage finance sector and remaining Chairman of Whalen Global Advisors. JVB Financial provides mortgage originators with innovative alternative funding solutions to finance their mortgage pipelines: Wet Funding, Construction Lending, Jumbo and Non-QM Pipeline Financing as well as Whole Loan Trading capabilities and J.V.B. has a full-service loan and securities Repo program.