Do you think non-QM is going to “save your bacon?” After a non-exhaustive survey, it appears that non-QM, aka non-Agency, aka expanded credit, is running at about 3% of overall residential volume. If we do $1.5 trillion this year, my HP-12C tells me 3% equates to $45 billion. Let’s round up and say that’s $4 billion a month (a billion a week across the industry) across over 1,000 lenders (another guess of how many offer it). That averages out to $4 million per lender per month, but less for non-depository lenders when you factor out what credit unions and big banks are putting in their portfolios. Yes, averages are misleading, and yes, more and more lenders are offering the option to their MLOs, but still… For perspective, and yes, “expanded credit” is a subjective term, but I seem to recall it accounting for about 30% of production in 2006. For some companies, however, this channel has indeed been a life-saver.
Disaster Updates
Most lenders and investors have their disaster policies kick in based on FEMA’s declarations of disaster areas. California’s fires have burned nearly 250,000 acres; for comparison Rhode Island is 777,000 acres. Unlike flood insurance, which is only required for borrowers in flood zones, all borrowers are required to have hazard insurance, which typically covers fire damage, including wildfires. In the capital markets, Representation & Warranties (R&Ws) in residential mortgage-backed securities (RMBS) typically cover the presence of hazard insurance and damage to the property occurring prior to the securitization closing date.
Kroll Bond Rating Agency reminds us that, “Homeowners in disaster areas may benefit from FEMA’s Individuals and Households Program (IHP), a federal financial assistance program designed to provide money and services to homeowners for damages not covered by insurance. Such assistance may include temporary housing, repairs, replacement, or other needs. Homeowners are generally eligible for such assistance as long as their homes are located in areas designated for IHP by the President.”
As of 11/5/2018, with DR-4400, FEMA provided an Incident Period End Date of 10/23/2018, for Georgia counties affected by Hurricane Michael during the period of 10/9/2018 to 10/23/2018.
Freddie Mac published a reminder article of its disaster relief policies in wake of the California wildfires. Freddie Mac's relief options are available to borrowers located in a presidentially-declared Major Disaster Areas where federal assistance programs are available to affected individuals.
Fannie Mae issued a reminder for those impacted by the California wildfires of the options available for mortgage assistance. Under Fannie Mae’s guidelines for single-family mortgages:
Homeowners impacted by the California wildfires are eligible to stop making mortgage payments for up to 12 months, during which time they: will not incur late fees during this temporary payment break, will not have delinquencies reported to the credit bureaus. Servicers are authorized to suspend or reduce a homeowner's mortgage payments immediately for up to 90 days without any contact with the homeowner if the servicer believes the homeowner has been affected by a disaster. Payment forbearance of up to 12 months is available in many circumstances. Servicers must suspend foreclosure and other legal proceedings if the servicer believes the homeowner has been impacted by a disaster.
In response to California wildfires, sellers must follow Wells Fargo Funding’s disaster policy for all properties located in zip codes it has determined were impacted. The Wells Fargo Funding identified list is currently a reduced subset of the FEMA declared counties.
In response to the California wildfires, loanDepot Wholesale let brokers know that, “Due to lack of containment and large amounts of evacuations, the following temporary steps are being put in place to mitigate risk: fundings have been suspended for properties in mandatory evacuation zones for all actively burning fires - currently Butte, Los Angeles, and Ventura counties. All impacted counties will require an internal escalation review to determine current containment percentage, evacuation status, and property distance from current burn zone prior to drawing loan documents. Upon completion of internal escalation review, all impacted files will be conditioned appropriately (to include but not limited to photos of property and disaster affidavit).
Mortgage Solutions Financial posted announcement 26-18C regarding the California wildfires.
Pacific Union Financial continues monitoring the impact of Hurricane Florence and the resulting damage and flooding currently affecting North and South Carolina. Any properties located within areas identified by the Federal Emergency Management Agency (FEMA) offering private assistance will require confirmation, per its published guidelines, that the subject property has not been affected by the hurricane. This confirmation includes borrower written certification of the condition of the property prior to clear to close by Pacific Union. The counties of Chatham, Durham and Guilford had been added to the North Carolina disaster declaration.
AmeriHome Mortgage posted the following Hurricane Florence update: on 10/26, with DR-4393, FEMA granted federal disaster aid with individual assistance to 3 additional North Carolina counties to include Chatham, Durham and Guilford affected by Hurricane Florence during the period of 9/7/2018 to 9/29/2018.
Mortgage Solutions Financial posted a revised announcement regarding the Hurricane Michael- Disaster Alert.
Capital Markets: Signs of Nervousness
Loan officers should know that the same economic forces move stocks and bonds. Sometimes they move together, sometimes not. As October drew to a close, economic data remained mostly positive but there were some signs of weakness. Real GDP increased at a 3.5 percent annualize rate according to the advance estimate for the third quarter. This follows a 4.2 percent increase in the second quarter. Consumer spending continues its strong contribution to GDP, but business fixed investment fell to +0.8 percent growth after posting two strong quarters following the tax bill. Residential investment decline for the third straight quarter as real estate markets begin to cool. Trade was another negative factor this quarter, subtracting 1.8 percentage points from real GDP growth.
Other data out at the end of the month showed durable goods orders increasing by 0.8 percent in September, following a 4.6 percent increase in August. Initial unemployment claims were at 215,000 and remain exceptionally low. New home sales fell 5.5 percent in September to their weakest monthly rate since March 2016. With the overall economy and labor markets still strong, the expectation remains that the Federal Reserve will increase the fed funds rate another 25 basis points in December.
Yesterday the U.S. 10-year closed yielding 3.05% as Treasuries were mixed on no major news. The biggest headlines came internationally, as reports are the European Commission will respond to Italy's refusal to alter its fiscal targets for 2019, likely announcing that an excessive deficit procedure will be opened against Italy. Housing starts for October fell just short of expectations, but nothing major. Building permits just barely beat 1.26 million expectations, though there was little strength in single-unit permits or starts.
We have a robust calendar today ahead of the Thanksgiving holiday tomorrow, with some typical Thursday releases moved up a day: mortgage applications for last week (unchanged from the week before, with refis running at about 39% of activity), October Durable Goods Orders (expected to fall, and they were indeed -4.4%, ex-transportation +.1%), and weekly jobless claims (forecast to rise, and did to 224k). October Existing Home Sales, October Leading Indicators, and final November Michigan sentiment are all due for 10AM ET release. Wednesday begins with rates little changed versus last night: Agency MBS prices are unchanged and the 10-year is yielding 3.06%.
Lender Services and Products
Amidst rising interest rates and declining origination volume, lenders must cast a wider net for customers, a growing number of which are self-employed. To capitalize on this trend, lenders need a simpler, faster way to underwrite mortgages for Americans who are their own bosses. To this end, Freddie Mac has integrated fintech vendor LoanBeam’s technology with Loan Product Advisor®, our automated underwriting system, to introduce the first and only integrated self-employment income solution for the market. LoanBeam’s software uses optical character recognition technology to extract and digest a borrower’s tax returns and other financials, and then calculate a total income figure that aligns with Freddie Mac’s guidelines. This integration offers lenders several advantages, including an automated review of the accuracy of qualifying income, eliminating the need to chase down unnecessary documents that support residual/excess income and certainty that the income calculation is eligible for representation and warranty relief. Learn more.
FundingShield reported an estimated $75 million per day in wire and closing fraud exposure. This would equate to exposure of ~$20 Billion in 2018. Wire fraud and cyber threats such as phishing, injection and business email compromise events spike during the holiday season when fraudsters take advantage of staff being on vacation, increased consumer transactions, increased remote access by staff and more back up teams supporting production and operations. Couple this with the expansion of digital lending processes, widespread use of wireless networks that may not be encrypted and properly secured, email server threats to known and new third-party relationships of lenders, closing and settlement companies and law firms and the risk is more prevalent. Jerry Halbrook, former President of Black Knight Inc. Origination Technology and Business Intelligence Divisions and Fundingshield Advisory Board member shared "Unknown parties to the transaction as well as known and trusted vendors are being exposed to these risks hence a proactive transaction level monitoring system is needed" Contact info@fundingshield.com to create a user centric risk and control strategy to get ahead of wire and cyber fraud attempts that go beyond a vendor vetting with active defenses at the loan level that save your firm on operational and risk cost.
National MI is now integrated into Compass PPE, the Compass Analytics product, pricing, and eligibility engine. The integration with NMI’s Rate GPS risk-based pricing platform enables mutual clients to obtain immediate and accurate mortgage insurance rate quotes on loans exceeding an 80 percent loan-to-value ratio. Rate GS will also be available in Compass Analytics’ application programming interfaces (APIs). As soon as an LO runs a search for loan options through Compass PPE, the pricing engine interacts directly with the NMI platform to provide MI pricing with multiple options for lender-paid coverage, borrower-paid single premium and borrower-paid monthly premium coverage. “The integration provides many benefits to our mutual lender customers in terms of providing accurate and competitive Rate GPS risk-based pricing, saving time and streamlining the loan origination process to better serve borrowers.” The National MI integration brings real-time, risk-based MI pricing to the Compass platform, providing loan officers with the ability to advise their borrowers with side-by-side MI pricing comparisons from their MI providers.
Stop originating loans that you lose money on! The velocity of loan originations is expected to be off by 30% or more in 2019. The game has changed and so must you if you want to survive. We are no longer in the unit volume business, we are in the loan volume and revenue business. BBM Enterprise is a professional origination strategy and data driven marketing firm focused exclusively on helping direct to consumer lenders recalibrate their marketing spend towards equitable clients that will help your firm regain market share and profitability. Lenders need to adjust their marketing and operational IP to compete in this new era of credit. If you are looking to expand into profitable areas of conventional and non-agency products then BBM may be just the answer you are looking for. We specialize in modeling big data attributes for predictable and probable outcomes and customers that meet your enterprise profitability targets. Our average loan amount for active FHA/VA applications exceed $350K and a net revenue after marketing of nearly $13,000. If you’re marketing is not reaching these levels of performance than let our data experts show you how a targeted marketing strategy focused on revenue can change the trajectory of your company. For more information about BBM Marketing Services and about becoming an approved origination partner; please contact Bill Senteno and visit www.bbm.company.
Carrington Mortgage Services Launches Non-Delegated Correspondent Lending Division. Carrington Mortgage Services, LLC (CMS), one of the nation’s largest privately held non-bank lenders with over $60 billion in Servicing, announces the launch of its Non-Delegated Correspondent Lending Division to complement CMS’s full portfolio of loan origination channels which include Wholesale and Retail. “We have diligently planned and built the Correspondent Division and we’re now ready to make our presence known throughout the industry,” said Raymond Brousseau, President of CMS. “We are committed to delivering a high level of transparency and timeliness to the non-delegated correspondent lending process. We understand that it’s all about providing our sellers with the ability for further growth and profitability.” CMS’s wide program offers today’s non-delegated sellers with Fannie Mae and Freddie Mac products, FHA and VA products, and Carrington Advantage Products for underserved borrowers. To qualify, correspondent lenders should have a strong reputation of profitability in the industry. For more information on the CMS correspondent program, click here.
Who thinks the decreasing LO Compensation is the solution to market compression? [Cricket chirping] Shouldn’t there be more discussion about trimming the fat from bloated retail shops who employ too many layers of middle management at corporate? There are too many people involved in the loan process and we’re all using outdated tech layered on top of slow LOS’s like Encompass. Here’s a solution that shows how Canopy Mortgage is trimming the fat from retail, keeping LO comp intact, and creating unheard of efficiencies with proprietary tech that allowed ONE loan officer to close over 100 loans in one month. Do you believe there’s a better way to do home loans? Canopy is NOW Hiring a national base of seasoned LOs - reach out to Josh Neumarker, Director of Business Development at Canopy Mortgage - 888-696-9076.
A small Midwestern based community bank is looking for our new CEO. This role will provide leadership to all departments within the bank, including a newly formed Mortgage Banking channel. The CEO will determine and dictate the lending practices and overall health of the bank, while serving as the principal advisor to Shareholders on all issues associated with lending/growth strategies and credit risk management guidelines. Qualified candidates must have experience in dealing with state regulators, an entrepreneurial spirit and the rapid growth of a bank from a senior leadership capacity. Relocation in the first two years is not required, provided frequent travel is not an issue. Please send resumes to me for forwarding; please specify opportunity.
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