The residential lending industry continues to evolve. Lenders are coming and going, moving in and out of business channels. (The latest example being Union Bank, as UBOC is rumored to be in the process of reducing its overall approved broker client base and focusing on deposit relationships). And lenders still report full pipelines but cautiousness in hiring Ops staff. Winter is coming. How many loans do processors process in a month? Or underwriters underwrite? Are there economies of scale at big banks versus independent mortgage banks Here’s a write-up on some stats. Loan officers know that the customer is king, and that there are other measures besides DTI that determine a sound borrower. Goldman Sachs and other major banks are experimenting with alternative metrics to decide whether to loan to a customer. Instead of relying on financial history, lenders are using metrics such as shopping habits and whether phone bills are paid on time. Even magazine subscriptions!

Lender Products and Services

Citibank, N.A. continues to innovate as it looks to serve its expanding Correspondent customer base. Effective September 1, all Mandatory trades have the benefit of a 2-way pair off feature. Citi’s 2-Way Pair Off Program allows customers to be reimbursed the change in the value of their commitment in the event the market is lower (in price) at time of pair off. “Given TBA margining practices, Citi’s 2-Way Pair Off Program can be another tool in your tool belt to help manage your margin call risk. This feature will be available for all trades including bid tape and AOT.  Learn more about this and other programs Citi has to offer by contacting our National Client Services Team at 800-967-2205 or for new seller consideration complete our Prospective Mortgage Correspondent Questionnaire.”

Wouldn’t it be great if you brought servicing under your own roof so you could control the customer experience? We get it. We’ve all asked ourselves this question. Things like this always sound good, but as this TMS CAREspondent blog puts it, it’s always better if you don’t own the boat, but have a friend who owns the boat and takes you out on it. No muss, no fuss. Learn how bringing servicing under your own roof can be quite the unexpected headache, along with the answer you’re actually looking for when it comes to achieving the best customer experience. 

Matic, provider of homeowners insurance tools for mortgage lenders, has launched two new solutions to round out its suite of originator products: Insurance Estimator and LOTools.

Insurance Estimator is a first-of-its-kind product that provides lenders an automated way to predict HOI for Loan Estimates, mortgage & affordability calculators, and other financial tools at the earliest points in the loan life cycle. LOTools is an out-of-the box solution (no setup required) that lets individual loan officers and their teams obtain instant HOI quotes by entering just five data points. LO Tools returns real quotes from one of Matic's 26 carriers in under 60 seconds for use on Loan Estimates, and LO's can choose to connect their borrower to Matic to finalize the policy. Email Shelly Madick with inquiries about these new solutions or about Matic’s LOS and POS modules, which are revolutionizing HOI for today’s lenders.

LoanScorecard has more than doubled its non-QM client base in 2019, and its customer list reads like the ‘who’s who of non-QM lenders.’ The advanced technology is powering the eligibility portals used by leading wholesalers and providing operational efficiencies for their correspondent channel by delivering automated underwriting findings reports for non-QM and non-agency loans with the same ease and instant decisioning found in the agency AUS platforms. So whether you’re already in the space or looking to enter the non-QM market, learn how LoanScorecard can enhance broker and lender connectivity and confidence, and increase underwriting accuracy and efficiency. Contact LoanScorecard’s Director of Business Development Raj Parekh for more information.

Capital Markets

For MLOs who locked their borrowers at the lows, I continue to be asked about why extending a rate lock, if even for a few days for something beyond the control of the borrower, costs money. A good answer came a while back from James Hedvall, Director of Capital Markets of Mann Mortgage. “The cost to extend a best efforts lock reflects the cost incurred by Secondary Marketing to move the corresponding hedge to reflect the new closing date. It’s an easier concept to understand if you acknowledge the inequity of hedging a mortgage pipeline: best efforts locks, which may or may not close, are given for FREE to Loan Officers, then hedged with mandatory security instruments. When a lock extension is granted, the hedge needs to reflect the change in delivery dates.

“For example, when a loan comes in with a 45-day lock, your hedge model will pull from your LOS the estimated closing date, to best execute that loan for delivery into the secondary markets. In the process it determines what month security needs to be sold to off-set the 45+ days of interest rate exposure that loan will incur. If that 45-day lock was taken out September 1st, with an October 15th estimated funding, a November security would probably be sold as the hedge instrument; a ‘only 7 days’ extension might just mean that loan now best executes into a December commitment, meaning you now must buy-back your November coverage, and sell a December security to match the new closing date. This ‘roll,’ from a front month security, to a back month has a transactional cost. Much of the fee charged to extend a loan with your secondary group reflects this cost.” Thanks James!

It was just a couple weeks ago that slowing global growth, the inverted yield curve, and U.S./China trade tensions were driving talk of an upcoming recession. Since that time, we have seen economic data come in above market expectations and the U.S. 10-year Treasury rise 41 bps since reaching a low of 1.46%. The consumer has shrugged off much of the negative economic talk as August retail sales rose 0.4 percent and July’s gain was revised upwards to 0.8 percent.  While not quite as strong as the second quarter, these numbers have lifted analysts’ expectations for third quarter GDP. Meanwhile, core consumer price increases have warmed, increasing to a 2.4% annualized rate in August and pushing the 3-month annualized rate to a 13-year high. The rise in core goods suggests that producers are passing through tariff costs to the consumer. Despite the warming inflation picture, solid consumer spending and a stock market near a record high, a Fed rate cut was widely expected this week. Fed president Powell has recently stated that there is no playbook for the current market conditions and seems to be content with giving the Fed room to maneuver as the global economic outlook remains uncertain.

Yup, as anticipated, the Federal Reserve announced yesterday that it will cut the fed funds rate range by 25 basis points to 1.75-2.00 percent. In addition, the Fed voted to lower the interest rate paid on excess reserves (IOER) to 1.80 percent, or 20 basis points below the top of the range for the fed funds rate, which should help balance the fed funds market’s recent volatility. The tone of the policy announcement was mostly positive. The Fed noted that labor market conditions remain strong, overall economic activity is increasing and household spending has been rising at a strong pace. On the downside, business fixed investment and exports have weakened. Inflation continues to run below the Fed's near-2-percent symmetrical target.

The FOMC voted 7-3 in favor of the decision, with St. Louis Fed President Bullard, voting for a 50-bps cut. Meanwhile, Boston Fed President Rosengren and Kansas City Fed President George, voted in favor of keeping the fed funds rate range unchanged. The Fed's dot plot showed that seven out of 17 Fed officials expect that another rate cut will be made in 2019, though the median projection does not point to any more rate cuts in 2019 or 2020. Remember, the dot plot does not show where the chairman is on the plot, nor does it show who is a voting member of the FOMC and who is not.

The economic projections released by the Fed were little changed from June, with data showing a slight increase in the median forecast for real GDP growth (Q4/Q4) in 2019, from 2.1 percent in June, to 2.2 percent yesterday. The year-end unemployment rate forecast for 2019 also edged up, from 3.6 percent in June, to 3.7 percent. Core inflation expectations for year-end 2019 remained the same as in June, at a 1.8 percent increase.

During his press conference, Chairman Powell downplayed the recent strain on the repo market, indicating that the Fed will use its toolkit to keep overnight rates in the expected range. Fed Chairman Powell did acknowledge that "organic balance sheet growth" may be resumed earlier than anticipated. Under relentless public pressure from President Donald Trump, who alternatively pleads with, admonishes or insults him, Fed Chair Jerome Powell said “moderate” policy moves such as Wednesday’s interest rate cut should be sufficient to sustain the U.S. expansion. Right on cue, President Trump released a Tweet criticizing the Fed's move as inadequate.

The curve flattened as a result, including the 10-year closing -3 bps to 1.79 percent (the 2-year rate was UNCH), impressive considering the Fed actually cut the more market relevant rates (RRP and IOER) by 30 bps to 1.70 percent and 1.80 percent, respectively, versus 25 bps in the fed funds corridor, which should also support general collateral rates (which more closely tracks IOER) with the RRP now paying even less than funds.

MBA SVP and fabled Chief Economist Dr. Mike Fratantoni weighed in, saying “Although the financial markets fully anticipated today’s Federal Reserve decision to lower their target for the Fed Funds rate, the level of uncertainty in respect to the global and domestic economy and future monetary policy has been quite high. This is why there’s been a wild swing in mortgage rates over the past month. Yesterday’s news does little to reduce uncertainty. The trade war with China, and now conflict in the Middle East, certainly add to the overall uneasiness. While it is not surprising that FOMC voters cannot agree on the outlook for monetary policy, as indicated by the three dissenting votes today, the disagreement itself also adds to the uncertainty. Looking ahead, we expect that the recent refinance wave from homeowners, spurred by the drop in mortgage rates in August, will tail off as the year progresses. For the purchase market, significantly lower mortgage rates compared to last year, coupled with a still strong job market, should continue to support homebuyer demand.”

Let’s turn to today. Chair Powell in his press conference sought to downplay this week’s liquidity squeeze, of a kind not seen since the Great Recession, though others haven’t been so sanguine, as a third round of repurchases is planned for today. Following yesterday’s Fed events, today brings several central bank decisions, the BoJ, SNB and Norges Bank. A busy U.S. calendar today includes Weekly Initial Claims, Continuing Claims, Q2 Current Account Balance, and the September Philadelphia Fed Survey, before August Existing Home Sales and August Leading Indicators. In between the two Treasury auctions today, the NY Fed will purchase up to $481 million GNII 3 percent ($358 million) and 3.5 percent ($123 million). Gotta catch a plane, so don’t have a read yet on rates.

Jobs

ClearEdge Lending continues to grow at a rapid pace in the Northwest with a new full-service branch office in Walnut Creek, CA. The company is looking for experienced Account Executives to join its team who will continue to help expand the company’s Non-QM presence. ClearEdge’s aggressive rates& products, technology, and 20+ years of Non-QM expertise aids the originator at the point-of-sale by focusing on simplicity and speed. As both the lender and end investor, this enables ClearEdge to make quick credit decisions and provide brokers with excellent team support. Those interested in taking their career to the next level and grow in an exciting market with ClearEdge Lending should email Rouvaun Walker, VP of Sales. He is seeking AE’s in Northern California, Oregon, Washington, Utah and Colorado.

“Summer 2019 at Caliber Home Loans, Inc. has been one for the record books! We’ve broken our own sales records not once, but TWICE. We had an amazing month in July, funding over $6 billion, and in August we broke our own record by funding $7 billion overall. Such strong mid-year performance can be attributed to proprietary technology, streamlined operations and talented producers. Caliber is a modern mortgage lender that’s breaking its own sales records and providing products for today’s borrowers. We have no plans of slowing down and are excited to carry this strong momentum to the end of the year and beyond. We’re stronger than ever and we want you to join us. To learn more, visit our website or email SVP of Recruiting, Jeremy DeRosa.”