With this downward move in rates lenders across the nation are girding their loins for margin calls from broker/dealers on mortgage-backed security positions. (What’s a margin call? Answer in the capital markets section.) And everyone’s stock investments are being pummeled – let’s hope someone thought to move those monies for future down payments from potential borrowers to cash instead of keeping them in stocks. Speaking of things that many don’t think about, as highways switch to electronic toll payment systems, the number of toll collectors are dwindling. That’s okay unless a) you have a problem in Lane 2, or b) you’re a kid and your parent is a toll collector. The Port Authority of New York and New Jersey employed 450 toll collectors in 1997 and now only has 158; the Jersey Turnpike and Garden State Parkway are down to 884 collectors from 1,680 in the 1990s. The New York Thruway will soon transition to entirely automated tolling. 2,900 miles away in San Francisco the Golden Gate Bridge has no toll takers.

Lender Products and Services

PCF Wholesale is excited to announce the addition of Tom Hoppe as its Vice President of Sales. “Tom has been not only a great leader in Sales but a proven salesperson. A good leader sets a great example by being an example,” says Keith McKay, CEO. “Tom understands the vast needs of the Broker community and will help our organization deliver the best-in-class products, from Agency, to Non-QM and Jumbo. The Mortgage Broker is back, better than ever and we are here to add even more value to our partners.” PCF Wholesale was built for Mortgage Brokers with a Broker’s mindset and is fully dedicated to becoming a predominant figure in the wholesale space. Please contact your AE for more info about our products or contact PCF Wholesale directly at marketing@pcfwholesale.com if you want to get an AE assigned to your company. 

The current rate environment has created a ton of business. With that comes challenges at every level of production with strains on time and capacity. Many Originators can barely keep their head above water. If this is you, or if you want to be more productive and not work crazy hours, Todd Duncan has just released his FREE E-Course: 6 Essential Steps to Achieving Time Mastery to help you create MASSIVE efficiency and productivity in your business. In this course, Todd reveals the six lessons employed by his top-producing students that personally fund in excess of 25 loans monthly. This course includes the #1 Lesson in Productivity, the Power of an Hour, How to Say No to Distractions and Maximize Your Time Block, and much more! Act now and say hello to more productive and less stressful days! Click here to access Todd Duncan's FREE E-Course TODAY!

ATTENTION EXECUTIVES: XINNIX will host a live Leadership Lessons webinar, The Engagement Dilemma: An Executive Wake Up Call on Wednesday, August 21 at 2:00 PM. Studies show that more than three quarters of today’s employees are not engaged in their workplace. They’re non-productive, apathetic toward their work, team, manager, and organization, and they don’t feel that they have a strong incentive to give their best effort in their job. Here’s the good news: the majority of employees are actually ready to fully engage. They’re just waiting for the opportunity to do so. In this webinar, XINNIX CEO and Founder Casey Cunningham will speak to top executives from four of the nation’s leading mortgage companies about the strategies and best practices they have put into place to engage their workforce and how this culture shift has transformed the way they do business. Register today!

Capital Markets

With the recent move down in rates that have LOs buying Silver Oak instead of Boone’s Farm, many broker/dealers have been sending margin calls to lenders who have their pipelines hedged with mortgage backed securities. But what is a margin call and why this is happening? A margin call is a demand by a broker/dealer that a lender deposit further cash or cash equivalents to cover possible losses. When trading stocks, this usually means that one or more of the securities held in the margin account has decreased in value below a certain point, requiring additional cash or liquidated positions to maintain a minimum margin. When hedging MBS, margin calls are more of a down payment on a potential loss.

Let's take a look at a simple example for mortgage backed securities that shows how the recent decline in rates is affecting hedged pipelines. Let's say $1 million of loans were locked in for 45 days at 4 percent last month. They were originally priced at 100.00. A hedge is placed against these by selling an $800k 3.5 percent security at 101.00. But rates then drop and the MBS bond market rallies a point to where the prevailing interest rate is now 3.5 percent. These 4 percent borrowers may take their loans elsewhere at a lower rate, resulting in fallout from a lender's pipeline. The $1 million in loans has increased in value, however, and are now worth 101.00, and the hedge for $800k now has a market value of 102.00. So, if the lender pairs out of/buys the hedge back, the lender will lose 1 point (sold at 101.00, potentially bought back at 102.00). This potential loss is what the margin calls are for. In this case, the MBS securities have increased in value, and an originator’s “mark-to-market” figures have changed as a result.

And LOs, your capital markets folks are much more considerate than the broker/dealers on Wall Street. Broker dealers don’t renegotiate. There’s no, “Let’s split the rate lock price and the current market.” And Wall Street doesn’t know about the loans in the pipeline supposedly “backing up” the trade, so they want a piece of the price difference in the form of a margin call. And they want all the price difference on settlement day. Period. Each broker dealer can establish their own threshold that triggers a margin call.

For small, thinly capitalized mortgage banks a margin call can create a cash problem. Remember, the Federal Reserve Board requires a lender always have enough money in its account to cover the maintenance margin. To see a standard Master Securities Forward Transaction Agreement (MSFTA), click this link.

Economic data continues to be both negative and positive, pointing to moderate U.S. GDP expansion for the third quarter. Nonfarm payrolls increase 164,000 in July and the unemployment rate remains low at 3.7 percent. New unemployment insurance claims were at 215,000 for the week ending July 27 and continuing claims were at 1,699,000. Manufacturing activity continues to slow with the ISM Manufacturing Index declining to 51.2, the fourth consecutive monthly decline. Keep in mind, this still indicates manufacturing is expanding, however the rate of expansion has been in decline. The international trade gap narrowed slightly in June to -$55.2 billion with both imports and exports declining. Speaking of trade, the Trump Administration announced a new round of tariffs on imports from China to go into effect on September 1. This 10 percent tariff includes consumers good which had spared from previous announcements and will likely be noticeable to shoppers. Nominal personal income ticked up 0.4 percent in June and real disposable income was up 0.3 percent. Meanwhile personal consumption increased just 0.1 percent but the personal saving rate was a stout 8.1 percent for the month. 

The good news is that rates are down and refis are booming. The bad news is that your equity-based 401k got kicked in the teeth. The inverted yield curve, which occurs when the three-month US Treasury yield is higher than the 10-year yield and which gives an early sign of recession, has offered the strongest signal since 2007. The spread widened to 32 basis points. Remember: an inverted yield curve does not cause a recession. The U.S. economy is actually doing quite well.

U.S. Treasuries rallied Monday on the back of last week's surge, including the 10-year closing -12 bps down to 1.74 percent, after the People's Bank of China allowed the yuan to weaken to its lowest level in eleven years, fueling concerns of a bigger devaluation. President Trump accused China of currency manipulation, though a governor for the PBoC denied these allegations. Additionally, China announced that the purchase of U.S. agricultural products has been suspended. The ISM Non-Manufacturing Index in July showed a continuation of the decelerating trend over the last 10 or so months, now reaching its lowest level in almost three years. As a result, the September fed funds likelihood of a rate cut before the September meeting went from around 12 percent at the open to over 60 percent by the close.

Today is light on the economic releases, but it will be interesting to see how Treasuries react in lieu of yesterday’s action. Redbook same-store sales for the week ending August 3 will be released shortly, and later this morning brings JOLTS job openings, and remarks from both Philadelphia Fed’s Harker, and St. Louis Fed President Bullard. Additionally, the RBA was out with their latest monetary policy decision, where they held rates steady at 1.00 percent. Tuesday starts with a bounce from yesterday (not a surprise) with the 10-year yielding 1.76% and agency MBS prices worse .125.

Jobs

“We're always curious to hear why our Loan Officers join us. For Boston-based loan officer Catherine Long, it was Citizens Bank's reputation in the community. ‘I've been in the mortgage business approximately 22 years, and during that time Citizens has been a player in the industry — especially with their products, rates and customers,’ explains Catherine. ‘However, I really joined because I felt Citizens catered to their clients on a more personal level and had a retail presence that was truly invested in the community, which in turn makes it easier for me to sell my business.’ We agree — thanks for sharing, Catherine! If you want to work for a company that strengthens its communities, apply at Citizens Bank today. For questions, please email Home Mortgage Recruiting.”

Recruiting producers in the mortgage space is challenging. Quality talent doesn't typically come to you. Utilizing technology that rely on candidates to respond to job postings & upload resumes, aren’t going to be all that effective. That's why leveraging the right technology can make all the difference. Model Match, an award-winning Talent Management Software (TMS) designed by Mortgage Recruiters, is for Mortgage Recruiters. Offering a full suite of solutions, the Model Match ecosystem solves the challenges of sourcing, attracting and hiring, qualified candidates. Our Market Insights Integration provides complete visibility into valuable loan production data and origination reports, helping to target candidates doing the type and amount of business best matched to your organization. Model Match brings your entire pipeline and team into one central, collaborative space helping your you and your team stay organized and on-track. Click here to see how Model Match is changing mortgage recruiting.