Ever been to Noma in Denmark? Me neither, although I did some solo bicycling there, which is so much more reliable than flying domestically this morning with the FAA’s system shut down. Apparently I have only two years to go, as the “best restaurant in the world” surprisingly announced it is closing in the winter of 2024. Cynics would say that is a publicity stunt, proponents will tell you that it is time for a change and the numbers probably don’t make sense. (Speaking of numbers, this month’s STRATMOR blog is titled, “Productivity: More Important than Ever” and discusses how important it is to manage to the numbers, and not be surprised.) The U.S. Supreme Court rejecting investor suits over Fannie Mae and Freddie Mac didn’t surprise anyone. Wells Fargo certainly surprised everyone, including its own correspondent sales team and management, in announcing it is shutting down. (More on this below.) Wells isn’t the first to shutter things, nor will it be the last based on the numbers. According to Curinos, December 2022 funded mortgage volume decreased 67% YoY and 3% MoM. In the Retail channel, funded volume was down 71% YoY and 3% MoM. Average 30-year conforming retail rates dipped slightly from November but are 319bps higher than the same month last year. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures and here is a closer look at the data.) Today’s podcast is sponsored by SimpleNexus, an nCino company and award-winning developer of mobile-first technology for the modern mortgage lender. Today’s has an interview with SimpleNexus’ Lori Brewer on the advances of APIs and native integrations.
Lender and Broker Software, Products, and Services
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Lenders: do you have everything you need to keep warm in the winter chill? A stash of cocoa in the cupboard, logs stacked by the fireplace and the right tools to keep your mortgage pipelines from freezing over. Empower®, Black Knight’s loan origination system (LOS), is built to help any size lender, everyone from big banks to community credit unions, keep their pipelines warm in the cold winter months. Streamline workflows, close loans faster and reduce costs with cutting-edge digital mortgage solutions. Empower offers a single, flexible platform that helps improve the loan process and homebuying experience for customers and loan officers alike. It supports retail, consumer-direct, home equity, correspondent, wholesale and assumption channels all under one roof. Don’t get left out in the cold: check out Empower today.
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Wells Fargo Exits Correspondent
Interestingly enough, unlike car companies (Ford, GM, Chrysler), farm machinery (Deere), light bulbs (GE), airplane manufacturers (Boeing and Airbus), residential lenders occupying the top ranks never seem to last for decades, or too long. In fact, the top 10 from 15 years ago (names like Countrywide, Chase, Wells Fargo, Fleet, SunTrust, Washington Mutual, Fleet, Nat City ring a bell?) looks nothing like today’s.
But institutions where people put their money have always been in a position to lend those funds out. Generally speaking, depository banks have many advantages over non-depository lenders, mortgage companies that are independent of any depository. Banks have a low cost of funds, a product offering that is typically better than an IMB, and a branch network that supplies borrowers.
Banks view mortgage operations as a cheap way to acquire new customers, and banks sometimes will merge based, in part, on residential lending. Recall, for example, that in mid-1998 California-based Wells Fargo was purchased by Minneapolis banking company Norwest in what was announced as a “merger of equals” in a stock deal valued at $34 billion. (The Wells Fargo name was kept by the purchaser.)
But the mighty have fallen, and the industry was surprised by Wells, who closed down its wholesale operation many years ago, announcing the shuttering of its correspondent business and the scaling back of its retail origination plans.
I received notes from across the nation, all sympathetic and constructive. “Some may forget, but Wells stepped up in 2009, 2010, 2011. At that time BofA, Citi and GMAC all shut down correspondent production. Others slowed production, like SunTrust, BB&T. Chase raised standards to slow production. Not Wells. Countrywide achieved a market share of 10 percent before failing and falling into the arms of Bank of America. (B of A was thinking it would have to take a $2 billion loss if Countrywide failed. Instead, it ruined its reputation and paid over $100 billion in fines, while key individuals paid little or nothing). While other ran home, hid, and would not help IMB's and Community Banks.
Yet Wells Fargo hung in and watched its market share balloon to over 30 percent, effectively making Wells the third Agency. Had it not been for Wells (and had Bank of America not purchased Countrywide), the secondary market would have looked much different and significantly worse. We owe a huge debt of gratitude to the Wells Fargo and the mortgage team. What was once a great franchise has tragically and brutally ended a great run. Yes, mistakes were made, but let's not forget who helped us during those times.”
Another wrote, “Wells has softened quite a bit in terms of where we are delivering loans in recent months, but it was still a force. That huge CFPB hit must have been a big driver for them.”
“Wells has always been a stand-up partner for us. Trying to get other large bank correspondent divisions to purchase loans outside ‘pure white vanilla snow’ is a painful experience, and I’m convinced others do a complete underwrite no matter your delegated status. And don’t even get me started on minimum net worth requirements. Here’s some business advice for small IMBs: stay out of high balance and jumbo markets and concentrate on ‘hitting singles and doubles’ (with plenty of USDA and VA customers).”
“Any time mortgage bankers’ options become more limited, it is not a good thing. Where are we going to send our jumbo biz now?”
“Wells Fargo’s correspondent team was caught by surprise, and it is a shame for all the folks involved. But it has been a strong rumor for several months now, so is not a major shock. I remember in 2012 they were not just #1, but nearly the only real tier-1 buyer left. But that was ten years ago. Our December ‘win rate’ report for loans being sold showed Wells winning only a very small, shockingly low, percentage of all the loans that we put out for bid to them.”
“The news is sad for those that worked in Wells’ Correspondent Division for so many years. When others were losing their minds every time a crisis came around, Wells was one of the very few that would try to keep a level head and not just leave mortgage lenders holding the proverbial bag. It’s very hard to make any money as a correspondent buyer, and it looks like the Bank has decided there are so many attractive, and less risky, options in this environment and as a bank they’re just not interested in the channel anymore. Fortunately, many other now-seasoned players still are.”
“And so the cycle goes. It’s been a great run with those folks, that’s for sure, they have a lot of great veterans of the business. They’ve been there for the industry lots of times when no one else had the guts. The ‘slow and steady stagecoach’ rides off over the hills into the sunset.
Capital Markets: Waiting for Tomorrow’s Inflation Data
Though the main headline was Wells’ exit from the correspondent space, Treasuries and MBS pulled back yesterday, giving back all their gains from the start of the week. Fed Chairman Powell spoke about central bank independence this morning, but his comments had a limited impact on the market, which is beginning to focus on the potential debt ceiling battle in the House of Representatives. There was some buying interest in Treasuries after the completion of a strong $40 billion 3-year note sale. The results point to scant concern in the market ahead of tomorrow's release of the CPI report for December.
Small Business Optimism declined in December, according to the NFIB Small Business Optimism Index. Companies expect some sort of a recession in 2023 and are taking steps to prepare themselves for it. With sales and business conditions expected to deteriorate, owners are continuing to make business and operational changes to compensate. Despite the overall poor report, inventories are back in balance and the number of companies raising prices fell. Employers continue to plan to hire more workers.
Mortgage applications from the MBA led off today’s calendar, increasing 1.2 percent from one week earlier. The modest rebound was expected after the prior two weeks of declines around the Christmas and New Year’s holidays. Further aiding the increase in applications was a 26-basis point decline in the 10-year yield during the reporting period while 30-year mortgage rates from Bankrate and Mortgage News Daily slid 9-basis points and 34-basis points to 6.47 percent and 6.20 percent, respectively. Later today brings a $32 billion reopened 10-year Treasury note auction. (“Reopened” means the Treasury is auctioning off more of the same securities as the last auction.) We begin the day with Agency MBS prices better .125-.250 and the 10-year yielding 3.57 after closing yesterday at 3.62 percent.
Employment for Originators
Ross Mortgage Company is excited to officially announce its expansion into the Pacific Northwest market. Lead by Dave Pederson, with over thirty years of industry experience, Ross is uniquely positioned to quickly penetrate this new market thanks to a full suite of loan products, committed leadership and support staff, and most importantly rates you can win with! In a challenging market like this one, why wouldn’t you give yourself the best chance at success? Joining Ross Mortgage Company is that chance. To learn more about what makes originating with Ross different, email Dave Pederson!
Evergreen Home Loans™ is committed to helping loan officers boost their careers and thrive in any market. An industry leader in innovative home buying programs and product depth, the company recently launched a program to alleviate homebuyer fear and communicate that now is a good time to buy a home. Buyer Booster allows homebuyers to buy between December 1, 2022, through March 31, 2023, and boost their refinancing power with a $2,500 credit good until March 31, 2026. Evergreen has a suite of innovative programs, including CashUp™ by Evergreen, StepUp, and Lock-n-List, all designed to meet the demands of market challenges. Loan officers seeking a company where the human spirit meets inspired technology and innovative products should visit the Evergreen Careers page.
“As a mortgage sales professional have you ever thought, what if I could focus on only the things that actually grow my business, flipping the hourglass and spending 80% of my time on what I do best: building relationships! Or, what if I could surround myself with sales support that is truly team inspired, results driven marketing and customer obsessed headache-free process. Welcome to radius financial group! They started radius with one main focus: to offer a better value proposition than any other bank or mortgage company in the country for you, your borrowers and your referral partners. We can help you grow your business, have a better quality of life and make more money. For confidential inquires please contact Carla Herrera.”
BMO Capital Markets is in need of a capital markets person. Contact Patrick Hennessy (908-601-8675).
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