Is our housing system a dumpster fire?” (I don’t think so; we have hundreds of thousands helping millions every year although F&F would be better off if all their profits didn’t go straight to the government.) And now the CFPB is allowing housing counseling agencies that offer advice and assistance to struggling home buyers to receive fees from mortgage lenders. And how ‘bout those credit unions, notching another difference between them and other financial institutions (especially those lenders that sell loans to banks or any Agency under federal regulation). NCUA released interim guidance allowing federally insured credit unions to service hemp businesses. Remember that hemp is no longer a controlled substance at the federal level although it may not be produced lawfully under federal law, beyond a 2014 pilot program, until the USDA promulgates regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill. Buckley reminds companies that, “The guidance emphasizes that lending to lawfully operating hemp-related businesses is permissible, but that the lending must be done in accordance with NCUA’s regulations for lending, and appropriate underwriting standards must be considered.”

Lender Services and Products

Finance of America Mortgage is pleased to announce the Two-X Flex Product Suite. Flex Bank Statements and Flex 1-Year are now available! Flex Bank Statements is a Non-QM product allowing borrowers to qualify on 12- or 24-month’s business or personal bank statements, own up to 3 businesses, and use co-borrower wage earner income. Flex 1-Year allows wage earners and self-employed borrowers to qualify based on 1 year of income documentation, including rental and commission income. With our 3 new credit classes, Elite, VIP and Insider, Finance of America Mortgage gives you more options for borrowers even if they have less than perfect credit. Two-X Flex Product Suite is available to Finance of America Mortgage’s Retail, Direct and Wholesale business channels. Please visit FOAmortgage.com or FAMwholesale.com to learn more.

U.S. Bank, Freddie Mac and MGIC are joining forces to deliver an educational morning for Correspondent lenders in Bellevue, WA. Join this exclusive event on Wednesday, October 9, featuring collaboration by industry leaders to discover “Options for Today’s Homebuyers.” Presentations will include, “How Today’s Economy Impacts First -Time Homebuyers; How to Help Today’s Homebuyers: Jumbo/Portfolio Advantages, High LTV Jumbos, Extended Locks for New Construction, RSU Income and Other Products, and How to Use Technology to Streamline Your Process and Improve Your Homebuyer’s Experience.” Find out how you can help more first-time homebuyers get closer to move-in day. Correspondent Lenders in the Bellevue, WA area can register to attend here.

Floify’s recently released co-brandable landing pages, mortgage calculators, and lead capture forms have become wildly popular among tech-savvy loan originators. These powerful new marketing features, which are included with all of Floify’s fixed-pricing plans, are helping lenders nurture their valuable referral partner relationships and become more profitable than ever. Now, every lender who uses the Floify point-of-sale system to automate their origination process can implement these powerful landing pages in minutes. Once enabled, lenders can easily customize the look and feel of their pages, ensuring mutual clients receive a familiar and comfortable homebuying experience from start to finish. For lenders looking to improve their marketing and referral-partner relationships, Floify’s co-brandable landing pages are the perfect complement to an all-digital lending solution. Check out how these exciting new features can take your lending to the next level – request a live demo of Floify.

Channel Primer

Explaining the residential lending business to someone outside of the biz can be a challenge. But it has always puzzled me, at sales conferences, why retail LOs don’t know anything about the correspondent or wholesale division of their own company, despite the correspondent channel often accounting for more than 50% of the volume, other than griping, “We buy loans from competitors of our branches?” And their eyes grow wide when a retail LO learns that a top correspondent rep can do more than a billion of volume in one month versus their good month of $3 million. (There are different pay scales, of course.) Yes, of the most confusing parts of the mortgage process can be figuring out all the different kinds of lenders that deal in home loans and refinancing. There are three main channels: retail (which tends to include direct-to-consumer or call centers), wholesale, and correspondent. But what sets each apart from one another?

Retail lenders are exactly what they sound like: Lenders who issue mortgages directly to individual consumers. They may either lend their own money (via deposits for banks) or use a warehouse line with the intent of either placing the loan in portfolio or selling it into the secondary market. They work directly with a homeowner and usually underwrite their product in-house, with no need for a middleman or broker. Retail lenders often service the loans they originate, or sell the servicing directly. Retail lenders may include national, regional, and community banks and credit unions of all sizes. And they are responsible for the “reps and warrants,” and the financial burden of a loan goes bad.

Wholesale lenders are similar to retail lenders in that they originate and sometimes service loans, and also sell them on the secondary market, but they do not deal directly with consumers. Rather, they offer their products & pricing to third parties such as mortgage brokers, credit unions, other banks, etc. Usually, wholesale lenders work directly with mortgage brokers by providing them with loan programs the broker can resell, or offer, directly to borrowers, and those brokers submit loan applications to the wholesale lender for approval and funding.

A wholesale mortgage lender is distinct because it works primarily with independent mortgage brokers, who are client-facing, working on the retail end with borrowers, handling all correspondence, while simultaneously working with the wholesale mortgage lender to carry out processing, underwriting, and loan funding. The borrower never actually interacts with the wholesale mortgage lender, only the broker does. In wholesale, the wholesale lender is the one that is making the loan and whose name typically appears on loan documents. The third party - bank, credit union, or mortgage broker is, in most cases, simply acting as an agent in return for a fee. Mortgage brokers make up most of the customer base for the wholesale lenders. And since the wholesale investor does the underwriting, draws the docs, and so on, they bear the financial responsibility if the loan goes bad, not the broker. Think United Wholesale, Freedom, Quicken, loanDepot, Caliber…

Lastly, correspondent lenders make loans using other lenders’ loan programs, but can underwrite in-house and fund them, typically using warehouse lines, in their own name, then sell them off to larger mortgage lenders, who in turn service or sell them on the secondary market. Correspondents usually have an array of products, and act as an undisclosed extension for those larger lenders (e.g., a correspondent mortgage lender may resell PennyMac products under their own name to borrowers). Whereas some types of lenders are distinguished by the process leading up to the loan, correspondent lenders are defined by what happens after the loan is originated.

Correspondent lenders work with investors who purchase mortgages that meet certain criteria, and earn their money by collecting a point or two (fee?) when the mortgage is issued, since immediately selling the loan usually guarantees they'll make money and no longer carry the risk for a default. The buyer of the loan, however, whether it Freddie or Fannie, Wells Fargo, Chase, AmeriHome, and so on, may decline the loan if it turns out not to meet certain standards. In which case the correspondent must either find another investor or carry the loan itself. In the past ten years – the correspondent lender has been the fastest growing channel in mortgage lending.

(Along those lines, correspondent investors such as Wells, Chase, AmeriHome, PennyMac, etc., will purchase loans (the asset and the servicing rights) from lenders of all sizes, if the lender goes through the approval process and if the loan meets the criteria for that investor. Remember that Fannie and Freddie do not service loans, but will buy the asset. F&F will purchase loans from any lender that is approved, and the loan passes through DU or LP, with the servicing rights either being retained by the lender or sold separately. And the correspondent investor will hold the lender from whom they’ve purchased the loan accountable for reps and warrants, as often the lender is the one doing the underwriting and funding the loan.)

Hopefully the basics clear up some confusion regarding the three basic channels. There are dozens of nuances regarding business models, approvals, compensation, legal liability, underwriting, servicing, customer support, and marketing. And the same lender may retain servicing, broker some loans out, and sell some to a correspondent investor. But with thousands of retail lenders, hundreds of wholesalers, and roughly 100 correspondent investors around the nation, it’s good to have an idea about what channels your company is in, and why.

Capital Markets

Why did rates go up Tuesday? The 10-year closed +8 bps to 1.70 percent, its highest level in a month despite an intraday low of 1.43 percent just last Tuesday, as U.S. Treasuries started the week with back to back days of selling. The European Central Bank may announce a delayed resumption of asset purchases based upon further weakness in the eurozone, though a disagreement among policymakers may prevent the announcement of aggressive easing measures tomorrow. And Fed Chairman Powell downplayed talk last week of America and the world heading for a recession, despite September’s mixed jobs report giving the Fed more ammunition to cut interest rates this month. Additionally, the day's $38 billion 3-year note auction didn’t receive much demand with treasuries crowded out by a surge in spread product issuance, as the high yield trailed the when-issued yield by 0.3 bps while the bid-to-cover ratio was below average.

In Europe, Germany's Finance Minister presented a draft 2020 budget that does not call for increased debt issuance, Italy's Prime Minister survived his confidence vote in the Senate after winning yesterday's vote in the Chamber of Deputies, and after Parliament blocked a no deal-Brexit and a snap election as part of a growing list of defeats for UK prime minister Johnson, he promised to work for a deal with the European Union. In China, inflation figures for August showed the largest decrease in producer prices in two years while consumer prices grew more than expected due to surging pork prices.

The summary of yesterday’s Senate Banking hearing on the administration’s housing and GSE reform plan? Don’t look for legislation, look for the Trump administration to act alone where it can. The plan calls for an end to the profit sweep with a third-party capital raise of around $100 billion before the GSEs are released from conservatorship. The plan would also like to have the GSEs pay a fee for an explicit guarantee as well as having any unfair advantages like the expiring QM patch removed to facilitate further competition. Democrats say the plan will limit mortgage availability and increase costs for lower income borrowers, likely leaving the administration to have the final say in what to do and how to protect all stakeholders.

The MBA reported that mortgage applications for last week increased 2.0 percent from one week earlier after being down 3.1 percent previously. And this morning we’ve had the August Producer Price Index numbers: +.1% and core +.3% versus expectations of both being +.1%. Later this morning we have July Wholesale Inventories, and reopening results of a $24 billion 10-year Treasury note auction. We begin the day with agency MBS prices better .125-.250 and the 10-year yielding 1.73%.

Jobs

“Spruce, a digital title & closing startup with national reach that was recently named to the 2019 HousingWire Tech100, is looking for experienced and driven Sales Executives to join our fast-growing team. Our platform enables fast, frictionless, and transparent real estate transactions - and we’re seeking creative self-starters, who have sales experience in the mortgage or title industries, to introduce our innovative services to more lenders. If you have a track-record of success in institutional-level sales to mortgage lenders and you thrive in a dynamic entrepreneurial environment, send your resume to sales@spruce.co. The role can be based out of our NYC or Dallas offices, or remote. For a detailed job description visit the Spruce careers page.”

String Real Estate Information Services, the #1 title process optimization firm in the country, is seeking experienced Account Managers in 7 US cities: Tampa, St. Petersburg, Washington DC, Des Moines, Denver, New York and Southfield (MI). For the right candidate, we will consider other cities. The Account Managers will report directly to the President of String and will play an integral role in String's continued growth. The Account Manager role will be the primary client interface focused on helping clients improve margins, optimize workflows and creating a shared roadmap for success.  For a detailed job description and to apply visit the String careers page or send your resume to Prashant Kothari.

“Looking for a Rocking and Roiling good time at the upcoming NAMB National in Las Vegas? Plan to join mortgage technology CEOs and industry leaders for a panel discussion entitled, “Mortgage Technology – Right Here, Right Now!” on September 14 at 10am in the Julius Ballroom (sponsored by Freedom Mortgage). This session will cover the current and near future state of origination technology featuring Dawar Alimi, CEO, LenderPrice, Brent Chandler, CEO, FormFree, Ben Wu, Executive Director, Calyx Technology, Wes Yuan, CEO, Lending Pad / WEI Technology and Allen Middleman, SVP, Freedom Mortgage Corporation. Freedom Mortgage Wholesale is Growing – Join the Best! Freedom Mortgage Wholesale maintains its status as the best in business by seeking out the top talent in the industry. We are hiring Closers, Underwriting Specialists and Account Executives at our Fishers, IN, Altamonte Springs, FL and Phoenix, AZ locations as well as ‘remotely’. Visit Job Openings to learn more.”