Everyone is aging, right? “I finally did it! I bought a new pair of shoes with memory foam insoles. No more forgetting why I walked into the kitchen!” People change, populations change, and loan officers must adapt. economists have revised 2020 growth prospects higher and revised down recession probabilities, many economic indicators are positive: consumer spending and confidence is high, unemployment remains low, and inflation is tame. Not only must every lender pay attention to overhead costs, what competitors are doing, customer service trends, and guideline changes from investors, but they must also pay attention to population shifts, forecasts, and business opportunities. For example, more international trade will expand rental and for-sale housing demand in markets dependent on exports or imports. With that in mind, let’s take a look at some general changes in the U.S. that will impact lenders below.
Lender Products and Services
Episode 003 of “Clear to Close” podcast was just released and introduces an insightful debate about the future of the loan officer in this age of digital transformation. The episode features Homebot CEO, Ernie Graham, and challenges what the responsibility and focus of a loan officer should be in an industry in flux. Highly recommend for all lending managers and teams. Download and subscribe from your favorite podcast platform: Apple, Spotify, Google Play, Soundcloud, or listen in your browser here.
Nations Direct Mortgage is continuing to expand its Non-QM suite and will be showcasing its new 1099 product this Thursday, January 23rd. "I couldn't be more excited about this new product and the Non-QM opportunities in 2020. Our alternative lending solutions have provided first time homebuyers purchasing power in the residential market. The rollout of the IRS 1099 product will be a great complement to the simplified 12-month bank statement product. Our Non-QM full and alternative documentation products have generated tremendous buzz in the broker community," says Managing Director / Specialty Lending, Martin Warren. "Our expansive proprietary products, coupled with our DirectQual AUS and dedicated Non-QM Help Team, have solidified NDM as a Non-QM leader by providing industry-leading execution for the wholesale brokers." Join Nations Direct for a quick 30-minute webinar showcasing the 1099 product as well as a demo of their AUS, DirectQual. Click here to register.
Yesterday I shared some interesting year-end compensation data from LBA Ware. The CliffsNotes version is that despite increased industry focus on cost reduction, base commission for LOs was effectively unchanged from 2018 to 2019. Until lenders are ready to cut commission costs directly, their best bet may be to reduce the indirect costs of managing compensation. These costs can run especially high at IMBs, some of which have almost as many comp plans as employees. Mann Mortgage was facing that challenge, with hundreds of employees submitting manual bonus forms every other week. Then Mann implemented LBA Ware’s CompenSafe, allowing employees to stay focused on their work and saving the back office 2 days every pay period in processing time. If you’ll be in New Orleans for MBA IMB, book a meeting with Lori Brewer to see how CompenSafe will help you reduce the indirect costs of compensation.
SimpleNexus writes that lenders who deploy its digital mortgage platform see an enthusiastic 70% adoption among LOs. And how is that? In the words of one customer, “SimpleNexus makes it easy,” helping the Texas-based lender gain a reputation for turning pre-qual letters around on a dime — which can mean the difference between winning or losing out on a customer’s dream home in the hot Lone Star market. To learn more about boosting production with tech LOs love to use, join SimpleNexus at its second annual SimpleNexus User Group (SNUG), which takes place February 9-12 at the Snowbird Ski Resort just outside Salt Lake City — one of the snowiest resorts in America, for those into winter sports.
Demographic News for Lenders
Thriving in a flat, purchase-driven market isn’t easy, yet that’s where we’re headed in 2020. After a surge in activity in 2019, the MBA Forecast for 2020 anticipates refinance originations will slow this year, decreasing by 24.5 percent, with purchase originations expected to increase by a modest 1.6 percent. As purchase business returns to dominance in the lender loan mix, referral business becomes a key factor of revenue growth. In his January MortgageSAT Tip, MortgageSAT Director Mike Seminari suggests three steps lenders can take to survive and thrive in 2020 by creating a delightful purchasing experience for borrowers. Don’t miss “Prepare to Thrive in a Purchase-Driven Market.”
The Wall Street Journal tells us that Baby Boomers are set to sell 21 million homes over the next 10 years but not in any places that millennials want. Watch for “For Sale” signs to pop up in planned developments throughout Arizona, Florida and South Carolina. Jeremy Potters asks what will happen next. “Will these relatively affordable homes sit vacant because buyers are not moving to these communities? Will Generation X age into these communities out of choice or necessity? Or will some innovative tech company or large employer find a way to make these places “cool”? Imagine Sun City, Arizona becomes the remote employee haven for Amazon/Google/Facebook/Apple.
“Suddenly, instead of being a retirement community, the company subsidizes or funds housing, activities, amenities and the bars/restaurants follow. Tech money in a low-cost but comfortable community. Working from home but surrounded by other ambitious, interesting people. The future of housing is constrained not by supply but by our imagination, courage and investment. The right approach from home buyers (or organizations) that understand could fundamentally open up options and opportunities for employees and communities alike. The answer is not labeling a generation of consumers or a broad swatch of places as eligible or ineligible for homeownership but strategic (and long-term) investment in making more opportunities a reality.”
At the other end of the population spectrum, there have actually been many medium sized cities experiencing population growth as of late. Ten incorporated places exceeded the 50,000-population mark in 2018, per the U.S. Census Bureau: seven in the South, two in the West, and one in the Midwest. The cities and towns creeping above 50,000 residents were Madison, AL, Maricopa, AZ, Bentonville, AR, Newark, OH, Stillwater, OK, Smyrna, TN, Leander, TX, Little Elm, TX, Wylie, TX, and Lacey, WA. Additionally, three cities crossed the 100,000-population mark in 2018: Vacaville, CA, San Angelo, TX, and Kenosha, WI.
Speaking of the 50k population mark, did you know that only 4.0 percent (775) of all U.S. cities had a population of 50,000 or more in 2018, per the U.S. Census Bureau? But those 775 cities contained nearly 39 percent of the U.S. population! On the other hand, around 76 percent (14,768) had fewer than 5,000 people. That’s a lot of real estate agents, and competitive services, helping people buy and sell properties. Polls I’ve seen indicate that for real estate agents their past book of business is their primary source of new business. Most agents tend to work with 5-8 lenders, and I seem to remember reading somewhere that 20% of them do 80% of the business. That must be the 20% who focus on the critical nature of the “customer experience” where expectations are more than met, the agent is available and responsive.
We are indeed shifting. The U.S. Census Bureau tells us that in 2018, 10 percent of people (about 32.4 million) in the United States moved. The South experienced a net population gain while California had the most domestic “outmovers,” with 661k, beating Texas (467k) and New York (452k). Movers to and from the South made up the largest domestic migration flows at the regional level as the South continued a pattern of net population gains from domestic migration exhibited since 1981. Many especially large flows at the state and county levels were in the South or in the West, with some of the largest state- and county-level flows to or from Florida, California or Arizona. Florida received the most movers from other states, and Los Angeles County had the highest number of people moving out, but also the highest number moving in. Florida also had the most domestic “inmovers,” with 566k, beating Texas (524k) and California (523k).
On Friday Treasuries, and with them MBS, pulled back in a steepening fashion to close last week, largely on the back of the strongest print in housing starts since before the financial crisis. The largest homebuilding region, the South, saw an impressive 11.3 percent increase in single-family starts. That was not only a positive growth indicator, but means more potential supply coming online. Separately, industrial production declined in December when it was expected to increase. Manufacturing output increased despite a large drop in the output of motor vehicles and parts.
Some of Friday’s market movement was attributable to the U.S. Treasury announcing 20-year bonds late Thursday as the government tries to reduce deficits that are expected to eclipse the $1 trillion mark each year this decade. The new bond will be available within six months, and comes after a lengthy study of the market's demand for longer maturities.
Dallas Fed chief Robert Kaplan closed Fed remarks last week, referring to the Fed’s Treasury purchases as a “derivative” of quantitative easing, a remark that potentially clashes with Fed Chair Jerome Powell’s description of its program of bill-buying. That the Fed’s actions are designed to ensure the proper transmission of the current stance of monetary policy, not ease conditions beyond that, is more quantitative “normaling” than quantitative easing (QE). But it seems that investors have settled on it being QE, and are attributing the exuberance of the stock markets to precisely that.
This holiday-shortened week is relatively light on the data as well as Fed appearances with the Fed in its blackout period. After bond and equity markets were closed for Martin Luther King Jr. Day yesterday, today’s economic calendar is already underway with the Philadelphia Fed non-manufacturing index (“23.5”). Later this morning brings Redbook same store sales for the week ending January 18. Aside from the BoJ monetary policy decision and President Trump speaking at the World Economic Forum in Davos, the Desk will conduct a GNII FedTrade operation targeting up to $383 million 2.5 percent ($129 million) and 3 percent ($254 million).
Tomorrow’s calendar isn’t much busier, and includes the January FHFA Housing Price Index, December Existing Home Sales, and a Bank of Canada monetary policy decision. The ECB and Norges Bank will be out with their decisions on Thursday, the same day the Desk will conduct a FedTrade operation targeting up to $1.07 billion Class C and A. Thursday also brings December Leading Indicators before the week closes Friday with no notable data on the schedule. We begin today with Agency MBS prices better by a few ticks and the 10-year yielding 1.79 percent (after closing Friday at 1.84 percent).
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