“An economics professor was walking with a student when the student looked down and said, ‘Look! A $50 bill!’ The professor explained, ‘That can’t be true. If it were a $50 bill someone would have already picked it up.’” Sometimes reality doesn’t match theory, nor does it match hopes. Originators and lenders hoping that rates cuts by the Federal Reserve would help mortgage rates have been disappointed, and that environment may continue. A series of economic data on the labor market and inflation sparked a major rethinking of Federal Reserve interest rate cuts, and comments from several central bank policymakers hinting that the rate easing cycle might be done for now, which meant that traders currently see only two rate cuts this year. The U.S. labor market is doing just fine: We’ve seen a better-than-expected job openings reading for November 2024 and a significantly stronger-than-anticipated nonfarm payrolls report for December 2024. Add that to the minutes of the Fed's December 2024 monetary policy committee meeting which confirmed that committee participants believed they were "at or near the point at which it would be appropriate to slow the pace of policy easing" and now the “experts” think rates will be here for a while. Lenders are focusing on things they can control! (Today’s podcast can be found here and this week’s is sponsored by Calque. White-labeled buy-before-you-sell solutions powered by Calque help you increase purchase volume and increase realtor business by helping them differentiate with a better process. With coverage in the 48 contiguous states, what are you waiting for? Hear an interview with Polunsky Beitel Green’s Tye McWhorter on last week’s Fed shake-up resulting from Governor Barr's Resignation: who President Trump's next Fed nomination will be and what it means for mortgage professionals.)

Lender and Broker Services, Software, and Products

“2025 Lending Compliance Outlook! No financial institution is immune from fair lending enforcement. Over the past few months banks, credit unions, mortgage companies have all paid millions of dollars to settle accusations of redlining and other fair lending violations. What steps should your financial institution take to guard against redlining? What impact will 1071 implementation have? Find out as we dig into lending compliance in 2025 with big-picture insights and practical tips covering topics like hot-button regulatory issues in lending compliance, preparing your lending compliance management program for 2025, what to look for in HMDA and 1071 data, and best practices for staffing, marketing, pricing, products, processing and underwriting. Click here to register for our upcoming webinar on Thursday, January 30th at 1PM CST.”

NEW EBOOK: Tailored to Your Needs: How to Choose the Right Mortgage POS for Your Unique Business Challenges. Are you confident your POS will deliver in 2025? If you have free technology that falls short or a pricey option that fails to integrate with your systems, it's time to explore new options. Maxwell created its latest eBook to simplify your mortgage POS search. In this eBLogaook, you’ll learn the 5 non-negotiable boxes your POS should check, why customization is vital (and how to achieve it cost effectively), and examples of how lenders have seen real results by finding the right POS partner. By the end of this read, you and your team will know exactly how to pursue POS technology to solve your unique business challenges. Click here to download Tailored to Your Needs: How to Choose the Right Mortgage POS for Your Unique Business Challenges.

MGIC’s 2025 employment & other income analysis calculator is ready to download. This editable worksheet assists with calculating base and variable income and grossing up non-taxable income. Download now!

In the competitive mortgage market, keeping your organization top of mind with both current clients and potential borrowers is essential to capturing their business when they’re ready to take the next step in their homeownership journey. ICE Mortgage Technology recently unpacked the components of a winning customer acquisition strategy in a new blog. Read the blog here to dive into the key mortgage marketing disciplines designed to help lenders create impactful marketing plans that deliver real traction and measurable ROI.

Newfi Correspondent is one to watch! Today Newfi released its new Delegated Plus product suite product suite including Non-QM Full Doc, Bank Statement, and Alt Doc programs, positioning Newfi as a dominant Non-QM price leader in the correspondent lending space. As an affiliate of Apollo, one of the world’s largest asset management firms, Newfi demonstrates a serious appetite for Non-Agency originations powered by a strong and reliable takeout partner. Contact Newfi’s EVP, Sales John Wise if you’re interested in comparing pricing or learning more about this massive opportunity to power your Non-QM production in 2025.

Primer on Borrowers and Disasters

Lenders, vendors, and servicers, as well as the nation and world, are watching the fires in Los Angeles County. Some are reacting. For example, Fairway Independent’s Fairway Foundation has set up a link for monetary donations that go, “Right to the people” per CEO Steve Jacobson. Disasters always trigger a set of policies and procedures among lenders and servicers to protect consumers, lenders, and servicers.

The fires, driven by strong winds, are horrific and continue to be a changing situation in terms of lost lives (up to 24) and damaged buildings. We can’t put a price tag on lost lives, but people across the nation are asking themselves, “What would we take with us in an evacuation? Do we have enough insurance? What would happen to our financial situation? What about our mortgage”

Natural disasters lead to declines in credit scores. Those with lower credit scores before the disaster tend to be most impacted. Disasters also cause more people to fall into debt collection, and the amount of debt tends to increase. Natural disasters increase mortgage delinquency and foreclosures, especially for residents of low-income and minority neighborhoods who are more likely to fall into mortgage delinquency or face foreclosure.

Homeowners insurance is the first line of defense against property damage resulting from a natural disaster or severe weather. Most policies cover damage from fires, hurricanes, tornadoes, snow, and deep freezes, but do not cover damage from earthquakes and floods; these are most often covered by separate policies. The FEMA National Risk Index is an excellent resource to examine natural hazard risk and vulnerability at a county level.

Support and recovery funds disbursed after major natural disasters come from a variety of public and private sources, the largest usually being delivered through the Federal Emergency Management Agency (FEMA) Disaster Relief Fund (DRF), which is taxpayer funded. FEMA is also responsible for coordinating federal disaster relief, which can include responses from over a dozen federal agencies alongside state and local authorities.

Private insurance companies play a role in the financial recovery from disasters through the claims process. Nonprofit organizations provide immediate aid through food, shelter, and first aid, and can provide some long-term financial support as well.

The immediate loss of property and disruption of work can lead to longer-term negatives like declining credit scores and a higher risk of foreclosure. A homeowner who takes out a loan to pay for their house has to eventually pay their mortgage back but there are laws as well as servicer policies that can give most homeowners time to get back on their feet after a disaster destroys their house, or if they experience a serious financial setback.

The first step for homeowners with a mortgage is to contact their mortgage servicer and inform them of their inability to pay and discuss options such as forbearance (which allows the borrower to pause payments due to a hardship; it does not excuse the payments). Financial relief for mortgage borrowers is based on loan size; ask your lender or servicer about your loan. For example, in most areas of Los Angeles, and the nation, the conforming loan limit accommodates most loans, so there is federal backing. Or many loans were through FHA or VA, and the homeowner should be aware of the FHA or VA guidelines.

Mortgage forbearance durations vary. Loans backed by Fannie Mae or Freddie Mac can be in forbearance for up to six months initially, with extensions granted thereafter. Larger, or jumbo, also known as nonconforming loans, are subject to the policies of the companies that service their loan or hold their note for the particular state where the property is. Any borrower wishing to defer their mortgage payments should immediately consult with the loan servicer, since their policies will dictate the process. Most loan servicers or lenders will tend to take an approach of working things out.

In California, the scene of the latest disaster, the state has specific laws on loan servicing, but lenders are not legally mandated to offer forbearance or a loan modification. California’s Homeowner Bill of Rights requires loan servicers to try to contact homeowners at least 30 days before starting a foreclosure process, to discuss options to avoid foreclosure and provides some protections to homeowners affected by the wildfires. Under the law, the loan servicer has to provide foreclosure-prevention alternatives such as loan modification or forbearance, refinancing, selling the property, or a “deed in lieu of foreclosure” where a property owner transfers the property back to the lender.

The Mortgage Firm and the Department of Justice: $1.75 Million

Last week tongues were wagging about the U.S. Department of Justice and The Mortgage Firm having different interpretations of what happened regarding federal accusations that the Florida mortgage company engaged in redlining from Miami to Fort Lauderdale to the Palm Beaches. The Mortgage Firm and the DOJ have agreed on a consent order that still needs to be approved by a court but in the view of the U.S. Assistant Attorney General Kristen Clarke, “By denying predominantly Black and Hispanic neighborhoods in the greater Miami area access to credit, The Mortgage Firm violated the law, denied communities equal access to credit and exacerbated the racial wealth gap. This settlement will provide impacted communities in Miami with expanded access to homeownership and makes clear that no matter the type of financial institution (bank, credit union or mortgage company) the department is committed to rooting out redlining across the country.”

Capital Markets

Last week closed with the December payrolls report showing strong employment growth, with non-farm payrolls rising by 256k, well above expectations. The unemployment rate dropped to 4.1 percent, aligning with the Federal Reserve's goal of a balanced labor market, while wage growth of 3.9 percent is in line with long-term inflation targets, considering productivity gains. However, the underlying job creation figures reveal that much of the reported increase is due to statistical adjustments rather than actual job gains, with only about 500k out of the 2.2 million jobs added over the past year being "real." This discrepancy explains why the job market feels weaker than the numbers suggest, especially for jobseekers. However, the report led to a more hawkish stance in fed funds futures, with markets now expecting a slim chance of multiple rate cuts this year.

Meanwhile, mortgage rates continued to rise for the fourth consecutive week, driven by concerns about persistent inflation and potential impacts from President Trump's economic policies. As if it needs repeating, the increased borrowing costs and high home prices are dampening demand from homebuyers. On the consumer front, U.S. debt levels saw a notable decline in November, with total credit falling by $7.5 billion, largely driven by a significant drop in credit-card balances. This suggests that consumers are becoming more cautious with debt. Despite this, rising energy prices could push short-term inflation expectations higher, though consumer sentiment appears to have improved, potentially influenced by positive political developments.

This week marks the start of the first earnings season of the year, with major banks reporting results for the final quarter of 2024 (starting with JP Morgan, Citigroup, Wells Fargo and Goldman Sachs on Wednesday and Morgan Stanley and Bank of America on Thursday). Though the reports are backwards looking, investors will be closely scrutinizing these reports for insights into the health of financial markets, the U.S. consumer, and potential outlooks for 2025, especially with Trump’s impending inauguration. Key topics to watch as these earnings are reported include the Fed's rate-cut plans, which are expected to slow, potentially putting pressure on stocks and consumers, as well as concerns about tariff-related volatility affecting IPOs. On the positive side, there’s optimism around deregulation, especially following the expected departure of Fed Vice Chair Michael Barr (listen to today’s podcast for an interview on the subject), which could impact proposals on bank capital requirements.

There are some key data points this week, including PPI tomorrow, CPI on Wednesday, and retail sales on Thursday. Other data of interest includes Fed surveys, import prices, business inventories, housing data and industrial production/capacity utilization, ahead of the long weekend. Treasury supply consists of just T-bills and several Fed speakers are scheduled ahead of the next week's blackout period ahead of the January 28/29 FOMC meeting, while the Beige Book will be released on Wednesday. For MBS, Class B and C 48-hours are on Tuesday and Thursday, respectively.

Today’s calendar gets under way later this morning with the Employment Trends Index for December. The only other data point is the December budget statement, with the prior fiscal year’s deficit coming in at $129 billion. With MLK Day a week away, we begin the week with Agency MBS prices unchanged from Friday evening, the 2-year yielding 4.40, and the 10-year yielding 4.77 after closing last week at 4.78 percent (up 18-basis points for the week).