“I've just checked my home insurance policy and apparently if my blanket is stolen in the middle of the night, I’m not covered.” For many home owners, taxes and insurance now cost more every month than the mortgage. Is the cost of some imported merchandise from some countries about to go up? Will anyone notice their laptop went up $300 or smartphone $200? Will the dollar’s strength or weakness impact consumers, therefore the economy, therefore lenders? As Dr. Elliot Eisenberg put it, “While Trump speaks of wanting a weak dollar, imposing tariffs will strengthen it. It’s because imposing a tariff makes foreign goods more costly and that means fewer such goods will be imported and thus fewer dollars will be converted into foreign currency. Moreover, tariffs will reduce growth abroad, especially in export-focused nations, which lowers foreign interest rates which causes investors to seek higher rates and thus hold more dollars.” (A tariff primer is below.) (Today’s podcast can be found here and is sponsored by Gallus Insights, the go-to reporting and analytics platform for mortgage lenders and servicers. Gallus makes it easy to access real-time data, create custom reports, and uncover actionable insights, all with a user-friendly design. Simplify your reporting, streamline your decisions, and drive profitability with Gallus Insights. Hear an interview with Spring EQ’s Reno Heine on the home equity lending market)
Software, Products, and Services for Lenders
Commercial lending is experiencing hyper growth due to $1.5 trillion in ballooning loans over the next 3-5 years. There is a shortage of commercial mortgage brokers, and with banks liquidity issues, a perfect storm is brewing for the secondary market that will create massive deal flow. Chris Perez, Oceanview Commercial Lending, a 25-year veteran, is offering a private, by invitation only, broker partnership program. This is a turnkey opportunity with training, unique tool set, marketing, and even Live leads daily. He is looking for 10 brokers per state to add a commercial mortgage channel while continuing to do your normal residential business. Schedule an appointment today to see if you qualify. Adding commercial opportunities to your book of business is a way to expand your current product line while substantially increasing revenue.
Gaining efficiency is impossible when your processors spend dozens of hours each month logging into loan files just to upload emailed documents. This inefficiency stems from a lackluster point-of-sale system, one that forces borrowers back to email because of its poor user experience. With LiteSpeed, built specifically for lenders on Encompass® by ICE Mortgage Technology™, you can free your processors to focus on delivering outstanding customer experiences rather than chasing documents.
Tariffs: a Primer
There is obviously no tariff on lenders (lord knows we have enough financial hurdles), but tariffs do impact the supply and demand of goods like cars, tequila, and lumber, and therefore can impact inflation. Whether the benefits will outweigh the costs remains to be seen. John D. wrote, “Just thought I’d share a counter point to the ‘tariffs are bad’ comments I keep reading. Even if the worst is true, if I must pay more so ‘Timmy’s dad can have or keep a job,’ so be it. Here is the Breitbart Business Digest’s ‘Debunking the NY Fed’s Tariff Tunnel Vision.’”
On the campaign trail this year, President-elect Donald Trump stated that "Tariffs are the greatest thing ever invented." He promised to place tariffs of up to 20% on goods from some countries. He floated the idea of a 60% tariff on imports from China. And he mentioned a 200% tariff on Chinese cars imported to the U.S. through Mexico. How could lenders be impacted, and what is a tariff, anyway?
A tariff is a tax imposed on imported goods, usually to protect local industries and raise revenue for the government. It makes foreign products more expensive, which influences what people buy. Proponents say that tariffs help U.S. workers and businesses. Critics say they negatively impact consumers and artificially support businesses that shouldn’t be solvent.
Tariffs are collected by customs authorities when imported goods enter a country, and the fee goes to the U.S. Treasury. The importer, usually a domestic company, pays the tariff to the government, and this cost is often passed on to consumers through higher prices. Tariffs are taxes on imported goods that are paid by the importers, not the exporting countries. (Know that is a two-way street: California’s top five agricultural exports to China are pistachios, almonds, wine, dairy, and oranges; any tariffs implemented by China on these good impacts farmers.)
Though many economists doubt the effectiveness of tariffs, conceptually, there are potential benefits. They make imported goods more expensive, a potential boon for U.S. businesses. They also bring in revenue for the government, via the U.S. Treasury, to use for public services and projects. As Trump has emphasized, they can be used as a bargaining chip in trade negotiations, encouraging companies to invest in the U.S. or forcing countries to lower their own tariffs or change policies. But tariffs make imported goods more expensive, which can limit product variety and availability (which typically hits lower-income consumers the hardest). Countries often respond to tariffs by imposing their own, which can lead to a trade war that damages both economies (with consumers ultimately paying the price).
Tariffs can have a distorting effect on markets: By protecting U.S. industries from competition, tariffs can make them less efficient and innovative in the long run. The U.S. government has had tariffs in place since 1789. It seems likely that the second Trump administration plans to take them to the next level. Will the consumer buy something at a higher price, or just not buy it at all?
It may be true that consumers are willing to pay more for some goods in an effort to protect jobs in the United States. Others will argue that a free market is best, and that jobs and products will “seek their own level.” Regardless, for lenders, tariffs are part of the expected economic picture for 2025 and beyond. The threat of tariffs is not the only reason why rates have gone up, but we have watched the 2-year and 10-year yields go from 4.19 and 4.28 before the election results to 4.33 and 4.58, respectively, and along with them mortgage rates which are at a 5-month high. Despite campaign rhetoric, the U.S. economy is doing well. Few expect mortgage rates to improve any time soon. Why would they?
Agency News
The federal bank regulatory agencies announced their third notice requesting comment to reduce regulatory burden. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 requires the Federal Financial Institutions Examination Council and federal bank regulatory agencies to review their regulations at least once every 10 years to identify outdated or otherwise unnecessary regulatory requirements for their supervised institutions. To facilitate this review, the agencies divided their regulations into 12 categories and are now soliciting comments on their regulations for three categories: Rules of Procedure, Safety and Soundness, and Securities. The public has 90 days from publication in the Federal Register to comment on the relevant regulations.
Check out Freddie Mac’s January 2025 Loan Product Advisor to stay informed with the latest LPA updates and enhancements. Topics include updating feedback messages, the AUS Transaction Number and more. Plus, implementation of new loan limits for 2025.
According to Announcement SEL-2024-08, in December, Fannie Mae’s Selling Guide has been updated to allow an energy report, when required for any HomeStyle® Energy mortgage, to be dated no more than 24 months before the note date; add additional exceptions to the borrower ownership requirement for a limited cash-out refinance application; encourage the use of home price indices and other market data to support overall value accuracy; clarify that for HomeStyle® Renovation Loan Agreement, both parties may execute the agreement at any time during the closing process with the agreement date matching the note date, and other miscellaneous updates.
Strengthen your risk controls to identify occupancy discrepancies. In its latest Quality Insider, Fannie Mae examines types of occupancy and how QC teams can identify red flags to root out occupancy inconsistencies and misrepresentation.
Capital Markets
Boxing Day didn’t stop bond yields from continuing their recent rise, with the 10-year note approaching 4.64 percent following a stronger-than-expected jobless claims report. However, selling pressure faded after the $44 billion 7-year note auction saw strong demand, particularly from indirect bidders. Trading volumes were light due to market closures in Europe and parts of Asia for the Boxing Day holiday. Data showed a slight decline in initial jobless claims, but continuing claims rose, signaling low layoff activity but tougher job markets for those seeking new positions.
In news of interest to the mortgage sector, Freddie Mac reported the 30-year and 15-year PMMS rates jumped 13-basis points and 8-basis points to 6.85 percent and 6.0 percent, respectively. The 30-year rate is at its highest since July and up 24-basis points year-over-year.
For anyone at work, the week closes out with a benign calendar consisting of advanced economic indicators for November. The goods trade balance deficit, expected to widen to $100.8 billion from $98.3 billion (importers historically front-load purchases to get ahead of higher tariffs expected in 2025) and wholesale inventories (expected to increase 0.2 percent month-over-month, unchanged from the prior month)… none of which moved rates. We begin the day with Agency MBS prices roughly unchanged from Thursday’s close, the 2-year at 4.32, and the 10-year yielding 4.60 after closing yesterday at 4.58 percent.
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