At the recent MBA conference, plenty of discussion focused on non-QM lending. But plenty “off the record” discussions among execs mentioned changing LO comp and waiting for competitors to fail. Correspondent investors and warehouse banks all maintain a watch list of mortgage companies who are losing money and appeared to be ready to cut off those customers who cannot restore profitability in the 2nd and/or 3rd quarters of 2018. The STRATMOR Group weighed in on profitability below.

Profits and Volume

Volume is one thing, but is your company making money? If “yes,” then good. Did it make money in the last quarter of 2017 and the first quarter of 2018? If the answer is “yes” again, that’s superb since it seems nearly every other residential lender lost money in those two quarters, made some in April, and May is looking good. For any company not making money, well, how long do you want to watch your capital erode?

Jeff Babcock, Senior Partner with the STRATMOR Group, writes, “In our continuing search to identify success factors among the high performing midsize Independent mortgage companies, we analyzed the MBA and STRATMOR Peer Group Roundtables (‘PGR’) findings for the year 2017. We looked for common characteristics among the nine most profitable lenders out of the 39 participating midsize Independent lenders. There were a handful of metrics which stood out among these elite performers. Some were expected, some were a surprise. For example, 65% of production volume was concentrated in their three largest markets (the obverse of a scattered origination footprint); originated 10 percentage points higher Government lending (43% share); Loan Officer turnover was 10 percentage points below average; fulfillment productivity was 25% better; app to close average time at 42 days was 10% faster and they reported a moderately higher portion of Expense Management Branches. As a result, these lenders generated 57 bps greater revenues while expenses were only 27 bps higher, so their Production Net Income margin was double the PGR average for this lender segment.

“Equally interesting was the factors which showed no correlation to profitability: relative production scale, average loan balance, sales productivity, Jumbo loan share, pull-through ratios, production support and corporate allocated expenses, loan loss reserve and FICO scores.

“Our takeaway: financial success in mortgage banking is the cumulative effect of Management executing many elements of their business model a bit above average, not a blockbuster differentiation strategy.” Thanks Jeff!

Credit News

The changing “credit box” is an interesting topic. Will expanding it help lenders that have been losing money? Or could mistakes end up costing them more than their net worth? Are we seeing “credit excesses” which tend to characterize a deteriorating market environment?

It seems that the industry is focused on regulatory costs, and that regulatory costs and uncertainties have combined to increase average credit scores, which is shutting many creditworthy borrowers out of the market because their loan circumstances don't "fit inside the box." The private label MBS market is still a shadow of its pre-crisis self, which means that these loans must be retained on a bank's or REITs balance sheet. This arguably limits the available credit. But the most puzzling aspect is that a lot of lenders want to get into the non-QM business but the demand for non-QM credit has been disappointingly small. People are ramping up the non-QM product, but the loans just haven't been there yet. “Yet” could be the key word.

I received a note from Graham Williams, CEO at Fair Market Capital which has partnered with Capital One to offer a program to lenders. “Our private equity partners are making these high advance rates possible. One interesting use of the increased cash is the ability to pay loan officers when loans close instead of a couple of week later. One of our applicants feels this is a hiring advantage in this market. Capital One is now offering to fund up to 104.25% of qualified mortgage banks’ loans held for sale. ‘Cash Advantaged’ facilities from Capital One are available exclusively from Fair Market Capital whose participation in the facilities make the higher advance rates possible. A ‘Cash Advantaged’ facility can significantly improve the mortgage banks’ cash position. Increased access to cash is vital at a time when the industry is seeing overcapacity and reduced margins.”

Effective May 7th, ResMac B2B is allowing a minimum FICO of 580 for all FHA and VA 30-year Conforming loans. This is applicable to wholesale files, no Streamlines or IRRLS’s with DU Approve/Eligible finding only.

Non-QM loans help self-employed, retired, investors, and those with a one-time credit event who deserve a mortgage qualify for a home. Angel Oak offers programs like Bank Statement, Asset Qualifier, and Investment Cash Flow loan products providing options for borrowers based on their circumstances.

theLender offers FHA loans for borrowers with no credit scores. Contact Sara McDonnell for details.

Citadel’s CSC Jumbo loan products is now featuring loan amounts up to $5 million with no government high balance restrictions.

Plaza announce the rollout of its new Elite Jumbo Non-QM and Elite Plus Jumbo Non-QM programs. These two new programs will have all the features of Plaza’s existing Elite and Elite Plus Jumbo programs, with the addition of non-QM features, and “will give your Jumbo Full Doc non-QM borrowers more options for qualifying and improved pricing compared to its Solutions program.”

ACC Mortgage is offering NIVA Investor product 3/1 and 7/1 Arm. Contact Kelly Brown.

HomeXpress updated its CoreX product guidelines which includes interest only to 85% LTV and Alt doc up to 90%.

AmeriHome announced the expansion of its Core Jumbo program. Changes include wider guidelines for second home and investment property DTIs, soft markets, rate and term refinances of previously listed properties, and sale of subject property within 90-180 days. Greater flexibility is available for depth of credit, W-2 transcripts, employment and asset documentation, document signature and date requirements and TRID signature requirements. Some stricter, or more defined guidelines also are implemented such as a new second appraisal and minimum borrower contribution requirements.

Capital Markets

Rates were back up yesterday, though the pullback in the market does not mean that the Italian, or euro, political situation is solved. The latest reports suggest that a snap election may be avoided as President Sergio Mattarella is reportedly considering a M5S-Lega government that would also include Paolo Savona serving in capacity other than finance minister.

But here in the States the Federal Reserve’s April Beige Book was released, which described the economy as expanding moderately. The report acknowledged the presence of higher manufacturing activity, but consumer spending was classified as “soft.” The Beige Book also noted the presence of higher costs of basic materials.

This morning we’ve had figures for May jobs cuts from Challenger, Gray & Christmas (31,517), April Personal Income & Outlays report (+.3%, +.6%), and weekly jobless claims (221k). Chicago PMI for May is expected to rise to 58.5 from 57.6 when it is released, and we’ll also have the Pending Home Sales Index for April. This afternoon, the NY Fed will report MBS purchases for the week ending May 30 (expected to total $2.2 billion net compared with $2.0 billion in the previous week) and we also have three Fed speakers: St. Louis' Bullard, Fed Governor Brainard, and Dallas' Kaplan. We start the last day of May with the 10-year yielding 2.85% and agency MBS prices nearly unchanged versus Wednesday’s close.

Products

SICD/Conversion Allies today announced a breakthrough in the consumer direct business channel. SICD/Conversion Allies will build your company a Consumer Direct Business Channel. “We will provide training, best in class lead flow, ongoing support, and Loan Officer Coaching. CEO Richard Spano explains that the need for banks and mortgage companies to be part of the digital mortgage space is essential to their competitiveness in the marketplace. Spano says, ‘We provide live call transfers, as well as exclusive data leads that just outperform the competition period.’ For companies that already have a consumer direct division this lead flow is available in amounts of 25-1000 per day based on their needs.” To get started with exclusive lead flow, or to find out more about building a consumer direct portal contact Rick Spano (610-608-9947).

On May 10th, national lender Caliber Home Loans, Inc. was a Gold Sponsor of MILITARYSPOUSE® magazine’s annual Military Spouse of the Year® (MSOY) award held in Washington, D.C. Caliber’s support of military spouses is best described by SVP, National Director of Military Lending, Bryan Bergjans: “It's important for Caliber to support military spouses, as they didn't take an oath to serve our nation. Instead, they made a commitment to honor and support the person they love, who did take that oath. Military spouses serve our country by taking care of the home front, enabling service members to perform their duties and ensure mission readiness.” Bergjans and Caliber Loan Consultants present at real estate agent events across the country to create awareness of the unique needs of military home buyers – as well as the role the military spouse plays in the home buying process.

ACES Risk Management, the leading provider of enterprise financial risk mitigation software solutions, has announced several product enhancements that improve the mortgage quality control process for lenders and servicers using its auditing platform. The two principal enhancements of this upgrade include identification of exception root causes and expanded auto-response capabilities for ACES Intelligent Questionnaires. These functions use automation to significantly reduce the number of skilled labor hours it takes to achieve quality goals and identify areas that would benefit from proactive corrective actions. “Automation and analytics will play increasingly greater roles in the mortgage QC process, and as with this upgrade, ARMCO will be leading the way in bringing these advances to the mortgage industry,” said Phil McCall, president of ARMCO. “Our clients rely on us to assure the highest quality through the greatest process efficiency. Our regular enhancements reinforce our dedication to reducing risk in the mortgage process by leveraging technology.”

Employment, Business Opportunities, and Promotions

Quicken Loans, America’s largest mortgage lender, is seeking an experienced Hedge Desk Trader at its main office in downtown Detroit, MI. “In this role, you will be one of a team of Traders responsible for hedging our multi-billion-dollar pipeline of rate locks and closed loans. You’ll efficiently calculate our daily at-risk position, reconcile differences between actual and forecasted results, and execute our hedge strategy using MBS forwards and options. You’ll investigate trading opportunities to reduce the cost of hedging the mortgage pipeline and increase secondary gains without incurring additional risk. Finally, you will build, test, and place into production advanced financial models and tools to improve our hedge strategy, performance, and reporting. Please use this link here to review this outstanding opportunity.”

Want to add $30 million + of existing business to your monthly TPO volume?  An experienced wholesale sales team with footprint in CA, NV, TX, UT, CO, TX, OR, WA is looking to join a well-capitalized, well-established, customer service-oriented Wholesale Mortgage Banker. Must be Fannie, Freddie, and GNMA approved, and offer Jumbo and non-QM products. please e-mail me with your contact information to forward to the team to start discussions.

“BankSouth Mortgage was named Lender of the Year in Atlanta Agent magazine’s 2018 Agents’ Choice Awards. ‘We are so honored to be chosen as Lender of the Year, and we are proud to be part of the Atlanta real estate community! As a local lender, we are thankful for the opportunity to serve our borrowers, agents and builders each and every day,’ said CEO Kim Nelson of the accolade. Atlanta Agent magazine is one of Atlanta’s leading sources of local news and information for residential real estate professionals. The full awards, selected by Atlanta agents, developers and builders, can be seen in their May 7 issue. If you are looking for a new home for your production business, we are seeking to hire experienced mortgage bankers. Email us to learn more!”

Congrats to David McLeod who has joined Calyx Software as National Sales Manager to lead the company’s sales team, as well as develop and implement effective sales strategies for Calyx’s product line, including its flagship loan origination system, Point®/PointCentral®. He will report to Bob Dougherty, Vice President of Business Development.

And Home Point Financial Corporation has added Joe Griffin and Lynn Collins as Correspondent Institutions Managers. Joe will represent the Institutions Group in Kentucky, Tennessee, North Carolina and South Carolina while Lynn will manage the East Texas and Louisiana region.