Anyone claiming that stocks and bonds always move in opposite directions were again proved wrong Friday when both bonds and stocks sold off. Treasury rates are back to late-June levels, which really aren’t that bad in a historical context. Most seem to blame the European Central Bank (ECB) which didn’t announce fresh stimulus measures, leading to thinking that the foreign central banks are reaching the limits of their easing policies. Members of the Federal Open Market Committee have been out talking about rate increases sooner than later – and certainly they’re not talking about lowering rates. As Janet Yellen herself said, the case for raising (short term) rates had strengthened in recent months. The markets, however, still think the odds of a Fed Funds increase is less than 30%. More below.

In the last few days a couple companies well-versed in residential lending have been in the press, and some would argue not favorably. On Thursday Caliber Funding, with its 5,000 employees, made the front page of the NYT Business Day section with a story by Matthew Goldstein and the headline, "Subprime Loans Make a Comeback for Some Investors." No one in the industry disputes the place that certain loans occupy in the spectrum, but the public's opinion is still negative. Speaking of Loan Star Funds, the article notes that Caliber is "one of the few financial firms to report a significant percentage increase this year in the dollar value of subprime mortgages it is managing and servicing for homeowners...Caliber is also one of the few lenders beginning to issue mortgages to borrowers with less than perfect credit and to issue bonds backed by those loans..."

In his article Mr. Goldstein notes that "Caliber is now of the fastest growing mortgage finance firms in the country. Caliber is the 10^th largest mortgage servicer (at $93 billion), or bill collector, out of 30 major firms nationwide" and now has $17 billion of subprime loans in its servicing portfolio.

Caliber, however, in an e-mail to Goldstein stated that Caliber's origination activity does not include any subprime products, and that its Fresh Start program is a "non-conforming product that Caliber offers to underserved borrowers" and that it makes up less than 1 percent of all annual production and is not considered subprime.

And then we have Wells Fargo which is watching its critics repelling down the walls. Although the current turmoil is not directly related to mortgages, some are calling for its CEO to resign, and for class action lawsuits for the thousands of impacted consumers despite, per the article, the individual damages working out to $25 each. Saturday's WSJ points out that Wells' image "as a solid, Main Street lender that avoided the excesses of the financial crisis and other missteps on Wall Street" is in danger. The article mentioned that the bank is in "damage control mode." Also attracting attention is that the Bank neither admitted or denied the allegations.

Do you want to be a new customer of Wells Fargo if older customers suffered Wells employees, "often chasing sales goals and bonuses, created fake accounts for customers, invented personal identification numbers and moved funds between accounts without authorization?" Cross-selling mortgage customers will probably slow, and Wells' "6 products per household" could be in jeopardy.

Wells has about $1.75 trillion in assets, and compliance is a huge cost. What about for smaller banks? A KPMG survey of 100 executives at banks with assets between $1B and $20B finds the percentage of total operating costs driven by regulatory compliance requirements are 11% to 20% (47%), 5% to 10% (40%), 21% to 30% (8%), and less than 5% (5%).

Are the costs of compliance driving lender mergers and acquisitions? Depends who you ask. In this case I asked Jeff Babcock, Senior Partner at the STRATMOR Group. "Given the degree of origination marketplace euphoria and lenders' splendid financial performance, why has mortgage company M&A activity accelerated during 2016?  More specifically, why is the ownership of midsize independent mortgage banks more proactive in exploring their company's sale options than they were in say 2015?  It's not driven out a fear of compliance nor concerns about competitive viability.

"STRATMOR's experience is that the current driving motivation is age of the selling shareholders (owner/operators) and their resulting personal exit strategies coupled with strong investor demand for distributed Retail and Consumer Direct origination platforms.  Most lenders, in fact, are receiving frequent unsolicited inquiries which confirms the message that it's a true "sellers' market." 

"In STRATMOR's current pipeline of sell-side representations (existing client engagements and high probability prospective sellers), age of some or all of the owner/operators is the primary motivational factor in every single situation. At least for the current M&A market --- in which the average age of owner/operators is in their late 50's to mid-60's --- we conclude that considerations surrounding age trump all other potential seller motivations."

Jeff's input wrapped up with, "Once an aging owner/operator makes their decision to become a committed seller, there are several predominant factors by which they qualify and assess potential buyers. Because of earn-outs and often a genuine concern for the well-being of long-term employees after a sale, the following factors receive the most focus: cultural compatibility and personal chemistry, likelihood that the buyer's value proposition will retain the sales force, buyer's reputation, upfront premium amount, and the probability of achieving the Earn Out. These are followed by access to an expanded product menu - especially portfolio jumbos, potential financial pick-ups from leveraging acquisition synergies, benefits associated with greater production scale, and the avoidance of market overlap with the buyer's sales force."

As noted in the first paragraph, folks are buzzing about rates. They are still fine, but not as fine as where they've been most of the summer. The move Friday was viewed as a continued reaction to ECB President Draghi's comment on Thursday morning that the governing council had not discussed an extension of asset purchases beyond March 2017. Long-dated government bonds have offered little to no fundamental value for some time and Fed fund futures are simply not showing a much greater chance of a rate hike than they did early in the week. Still, "don't fight the Fed" as traders say, and Fed Presidents from around the nation are talking about an increase to overnight Fed Funds.

Fed Funds don't determine mortgage rates, but psychology and supply & demand do. This week we're looking at $35 to $40 billion in corporate supply expected to price this week with the Treasury auctioning $44 billion in 3- and reopened 10-year notes this afternoon before Tuesday's reopened bond auction. One can expect the NY Fed to buy its usual $1-2 billion of agency MBS every day, which certainly helps the "demand side of the equation."

In terms of scheduled economic news this week we have a bushel full! We have the auctions today: $40 billion 3-month T-bills and $36 billion 6-month T-bills, and $24 billion 3-year notes and $20 billion reopened 10-year note auctions which are both scheduled to be held at 1:00pm. Tomorrow is a $12 billion 30-year auction.

Wednesday we'll have the MBA's Mortgage Index, and August's Export Prices ex-ag. and Import Prices ex-oil. Thursday is the usual Initial Jobless Claims, but also August Retail Sales, August Producer Price Index, September Philadelphia Fed, Q2 Current Account Balance, September Empire Manufacturing, and August Industrial Production & Capacity Utilization. As if that wasn't enough, we end the week with August's Consumer Price Index and the September Michigan Sentiment numbers.

For LOs who didn't lock their borrowers earlier in the week, Friday the 10-year note worsened .5 in price to close at a yield of 1.67% but the 5-year T-note and agency MBS prices worsened between .125-.250. This morning, after having the weekend to think about it and seeing what happened in overseas markets, we're at 1.69% on the 10-year and agency MBS prices are worse/down around .125.

The events and training opportunities continue on into September and October.

American Pacific Mortgage Chairman, Kurt Reisig, announced the theme for the Fall Symposium 2016. Click here to view the short video where Kurt shares the theme for this year's Symposium, and why you should be there. "You do not want to miss this! This is our largest sales rally in APM history! Come join us at the San Diego Convention Center on October 10th and 11th for a wonderful event! We are American Pacific Mortgage - a Top 10 mortgage banker in the Western United States. AT APM, we are 100% focused on making our Branch Managers and Originators look good by providing the best resources and culture in the industry.  If you are interested in finding out more about American Pacific Mortgage and how we can make you look good, please contact Peter Schwartz."

On September 14^th, join MBA St Louis and NAPMW for an exciting educational meeting to make sense of Recent Public Policy Developments that Impact Our Housing Market. 

The invitation for this joint breakfast with presenter Matt Tully from Essent Guaranty can be viewed here.

Why 10.0? On September 14^th, Fannie Mae covers not only the 10.0 changes, but also the reasons behind the changes.  Register now by logging into your "My TMBA" profile. Click on the "Events" link (top right), select the event and register.

FHA has a free, pre-recorded webinar that will provide users with important tips related to the Electronic Appraisal Delivery (EAD) Portal, based on the most frequently asked questions (FAQs) received by the FHA Resource Center since mortgagee onboarding began.

MBA's Summit on Diversity and Inclusion 2016, taking place November 16-17 in Washington, DC. To further the conference theme of increasing home ownership in America, hear from the luncheon speaker Franklin Codel, EVP/Head of Home Lending at Wells Fargo Home Mortgage.

What are the critical actions and legal issues that a lender should consider when entering into a forbearance agreement? Forbearance Agreement fundamentals are key and Lorman has the answers with OnDemand webinars available.

Jobs and Announcements

In company news & hiring, "History is being made! Last week, Axia Home Loans became an independent mortgage banking firm 100% owned by its employees. Axia's new Employee Stock Ownership Plan (ESOP) marks the next step in a continued effort to create an innovative and forward-thinking culture. Gellert Dornay, President and CEO, has been working diligently over the last year to establish the foundation upon which this new shift in ownership was built. 'Studies show that employee-owned companies experience increased employee satisfaction, retention and productivity gains,' Dornay said, adding, 'an ESOP rewards employees who contribute to the company's success by allowing them to share in the company's future increase in value.' Be a part of a company that invests heavily in its employees, clients, partners and communities. Click here if you are interested in learning more about becoming an Owner.

In wholesale news, "Plaza Home Mortgage, Inc. is expanding and increasing its sales force once again in Utah and Washington state. We are excited to announce new career opportunities for multiple Outside AE positions in the Western Washington and Utah market. AEs will benefit from local market expertise and underwriting from our Northwest Regional office. Plaza is a FNMA/FHLMC and GNMA seller servicer with a diverse product offering including Reverse and Renovation. There is plenty of opportunity for growth along with a highly competitive compensation plan. If you're interested in additional information, please contact John Forsythe, Regional Manager (206-499-1551). Plaza is an EEOC employer and follows all federal, state, and local laws relating to fair employment."

"Due to unprecedented growth at Embrace Home Loans we have tremendous opportunities for mortgage sales professionals with a background in either direct/retail or affinity lending. Embrace is the place retail sales professionals can expect to thrive both personally and professionally through our values based culture, respect and understanding of the challenges facing today's loan officers, a full catalogue of products and competitive compensation/benefits packages. Licensed in 47 states plus DC, Embrace ranks in the top 25 private mortgage lenders and top 25 FHA originators in America. For 10 straight years Embrace has achieved a 98% Customer Service Rating and is 7 times recognized by Fortune, as a Top 25 Mid-size Companies to Work for in America. If you are interested in working with a supportive, driven and productive company contact Jeff McGuiness, Chief Sales Officer at, or click here."