Everyone is looking to increase production and cut expenses. MI companies, for example, are re-focusing on their highlighting their value proposition while evaluating their cost structure: what good does it do to have personnel calling on branches when many loan officers work from home and rarely go into the office? For lenders, the MBA’s calculations for the cost to produce a loan in the 4th quarter will be out in mid-March. But it is worth remembering that its last study showed the cost in the third quarter was $7,217 for non-depository lenders, down from the all-time peak of $9,300 in the first quarter of last year. Costs tend to be lower in the middle part of the country versus the coasts for several reasons, including the cost of land and building. Here in Charlotte there is a decent amount of building going on, and many loan officers pay close attention to residential construction trends in their area, and what builders are thinking for 2020. (Will “Hipsterurbia” be added to Webster’s Dictionary?)

Lender Products and Services

“INCOME+ is the income determination solution that saves 40 FTE minutes per file, is available within Encompass, and streamlines borrower income calculations.  This is the income solution for your 20-day closing.  Service 1st has engineered Income+ as an easy lift: straight forward to implement and easy to understand via a single page report. Additionally, as a Service 1st offering, there are multiple S1 class-leading credit and verification solutions to wrap around Income+ for a comprehensive lending solution. Service 1st is offering Rob Chrisman readers an unlimited and free 5-day trial for Income+. The program ends April 30, 2020, so hurry! Visit SRV1st.com/promoQ120 for details.”

Is it time to make a change? Invest in your future with a company that is investing in theirs. In 2020, Stearns Wholesale Lending continues to invest in broker tools, content marketing systems, operation automations, loyalty bonuses, and a comprehensive product suite. In order to add value to internal and external customers, leadership is and actively engaged with the experts in the field to define unique solutions. If you are the expert in your market, click HERE to be contacted by Stearns.

While refinancing activity dominated 2019, what happens when this surge is over? For lenders in 2020, the greatest origination opportunity is ahead and its genesis is found in the current housing crisis. Join Land Gorilla and MGIC on February 26 for a webinar, Life After Refi: The Construction and Renovation Lending Opportunity. Learn why it will be necessary to pivot from refinances into the big business of construction and renovation lending. We will cover the essential role of mortgage insurance including important upcoming policy updates and provide key best practices in marketing, prequalifying, closing, and post-closing construction and renovation loans. Reserve your seat.

Sourcepoint, a leading provider of products and services to the US mortgage industry, recently announced the launch of its Servicing Solutions suite, designed to deliver servicers tangible results including reduced operating expense, enhanced borrower experience and retention rates and the ability to drive digital transformation across the servicing lifecycle. Equipped with the most comprehensive set of servicing and collection licenses in the mortgage BPM industry and backed by a 3,500+ global workforce, Sourcepoint’s solution suite encompasses Loan Boarding and Administration through Lien Release and Omnichannel Contact Centers for customer service support. Schedule time to meet with Sourcepoint at the MBA Servicing Solutions Conference. Not attending the conference? Contact them directly.

You and your borrowers deserve industry-leading technology, backed by the best people. How do you get it? At MBA Servicing Solutions 2020, make sure you stop by the Discovery Stage at 1pm on February 24 to catch TMS’s live demo of SIME, servicing technology made easy. Or email them at subservicing@themoneysource.com to schedule a private demo today.

“Attention all Marketers: BombBomb and Usherpa, two great Colorado companies, are now integrated. As the ONLY integration in the industry with compliance review built in, the power of personal video is now insanely simple and worry free. What makes it unique? Usherpa consulted with all the stakeholders before calling the integration finished. We talked to CEOs, Marketing Directors, and of course LOs, and then to compliance folks, who worried that making it easy for LOs to send personalized videos to everyone in their database might run up against some compliance issues, so we customized a compliance review system as a safeguard. This way every stakeholder can rest easy knowing that any BombBomb video going out from their LOs meets compliance standards to a tee! Curious? Ask them more — paul@usherpa.com.”

Fannie and Freddie

First, a note of clarification that I kindly received from Fannie’s Lyle Radke, Director of Collateral Policy on Fannie Mae's Appraiser Independence Requirements ("AIR"). “AIR is not exclusive to Fannie Mae; it was developed jointly by Fannie Mae, Freddie Mac, and our regulator, the Federal Housing Finance Administration. Fannie Mae and Freddie Mac operate independently in determining how we enforce the AIR, while we are both accountable to FHFA. As you noted, Fannie Mae has cited some sellers related to AIR compliance with broker assignments to appraisers, and we would like to remind all of our lender partners of their obligation to comply with AIR.”

There is no doubt that groundwork is being laid to remove F&F from conservatorship. More on that below. Politicians themselves have been somewhat mum on the subject although Michael Bloomberg has called on Congress to gradually merge Fannie and Freddie into a single, fully government-owned mortgage guarantor, “to ensure that taxpayers are fully compensated for the risks they are assuming – and that lower- income households are well served.” Good luck with merging them as that needs Congressional approval. Isaac Boltansky suggests that the future of Fannie Mae and Freddie Mac will be determined administratively, which many agree with.

The Federal Housing Finance Agency (FHFA) announced Houlihan Lokey Capital as an advisor to help design a plan to end the U.S. government's control of Fannie Mae and Freddie Mac, a significant milestone towards ending the conservatorships. To come up with a roadmap for the possible privatization of the GSEs, Houlihan Lokey will examine various aspects of such a move, including business and capital structures, market impacts and time and options for the GSEs to raise capital.

To remind everyone, conservatorship began more than a decade ago during the global credit crisis, and this past September, the FHFA and Treasury Department allowed the GSEs to retain their profits in an effort to raise their capital buffer. Analysts have estimated the two GSEs would need to raise a combined more than $100 billion in capital against their current books of business. Under this arrangement, Fannie is permitted to keep its retained earnings until it reaches $25 billion, while Freddie has a limit set at $20 billion. The FHFA will pay Houlihan Lokey $9 million in the first year of the contract, with the options to extend the work for another 4-1/2 years with the contact not going above $45 million. After this announcement, the next major milestone for FHFA is the re-proposal of the capital rule, which will happen sometime in 2020.

Housing reform and CFPB regulations may be headed for a conflict if what is called the "GSE or QM patch" is not renewed when it expires in 2021. The CFPB discourages loans with debt to income ratios above 43%, but also permits GSE backed loans to fall under the QM umbrella, even though they permit DTIs up to 50%. Up to a third of GSE loans fall in the 43-50% DTI range, which could become non-QM loans once the patch expires. Will the GSEs replace the DTI rule with a 150-basis point cap over APOR to determine eligibility under QM? Incorporate reserves or payment history? Stay tuned to May when the CFPB is expected to put out new guidelines for comment.

VantageScore Solutions is the developer of the VantageScore credit scoring model. It is a joint venture of Equifax, Experian, and Transunion. Despite early proposed opposition, in August of 2019 the FHFA said it would allow F&F to consider VantageScore. And of course investors, large and small, will follow what Freddie and Fannie say.

Fannie Mae’s Announcement SVC 2020-01 updates information applicable to revisions to the foreclosure milestone schedule, elimination of prorated foreclosure fee requirements and clarification regarding delinquency exception reporting.

Fannie Mae’s list of approved mortgage insurance forms for each mortgage insurance provider is being updated to include the state-required variation endorsements. Read the Selling Notice for details.

US Bank issued Seller Guide Update SEL-2020-009. This update includes information on Its new Correspondent closed loan documentation checklists, VA Cash Out Updates and a reminder regarding assets used for Repayment (Asset Dissipation Underwriting). Additionally, Its SEL-2020-008 covers upcoming changes to Freddie Mac’s HFA Advantage.

Do the servicing calling requirements differ among investors for delinquent loans? Yes. According to FNMA and FHLMC, Servicers must initiate outbound contact attempts with each newly delinquent borrower no later than the 36th day of delinquency. Servicers must continue contact attempts every fifth day until quality right party contact is achieved through one of the following outcomes: the borrower has provided a promise to pay the delinquent amount by a specified date (not to exceed 30 days); when the borrower adheres to any loss mitigation agreement made with the Servicer; when the borrower indicates that he or she is not interested in a workout option; the borrower enters into a relief or workout option with the Servicer; the Complete Borrower Response Package is received in accordance with the requirements; or the delinquency is resolved. After the 210th day of delinquency Servicers are authorized to continue outbound contact attempts at their discretion.

Under HUD guidelines, Servicers must initiate outbound contact attempts with each newly delinquent borrower by the 17-20th day of delinquency and continue contact attempts at a minimum of two times per week until either contact is established, or the Servicer has determined through an occupancy inspection that the mortgaged property is vacant or abandoned. Additionally, the Servicer is expected to determine whether the borrower is occupying the property, ascertain the reason for the delinquency, and inform the borrower about the availability of loss mitigation options promptly after contact.

Capital Markets

We are starting to see the effects of the coronavirus and the prolonged production shutdown at Boeing in the data. Industrial production declined 0.3 percent in January for the fourth time in five months with aerospace output falling 7.4 percent. Over the previous twelve months, industrial production is down 0.8 percent. Consumer sales increased 0.3 percent in January, outpacing the 0.1 percent change in the Consumer Price Index. In January, the energy sub-index fell by 0.7 percent due to weak global oil demand as a result of the coronavirus. The resulting decline in oil prices should also flow through to next month's retail sales report in the form of lower gasoline prices. Unemployment claims continue to remain low and have even reversed their end of year upward trend during the first few weeks of the year. December's Job Openings and Labor Turnover Survey showed a marked 4.6 percent drop in the job openings rate.

Last week closed quietly for rates ahead of the three-day weekend, though Treasuries rallied slightly across the curve as investors continued to seek the safe haven that is the U.S. Government, markets received weak Q4 GDP data out of the eurozone, and worries surrounding the coronavirus festered.

U.S. Treasuries rallied across the curve to open the trading week yesterday, pressuring yields on longer tenors toward their lowest levels of the year; the 10-year closed the day -3 bps to 1.56 percent. The cash session began on a firmly higher note after a revenue warning from Apple, a sharp contraction in Japan's Q4 GDP, and a weak open from the stock market. The warning from Apple was due to predicted disruptions from the coronavirus. The number of reported coronavirus cases in China is now over 72,000 with deaths nearing 1,900, more than twice as many as SARS.

China’s strict quarantine likely bought the rest of the world several weeks to prepare for the coronavirus, according to the World Health Organization. We know this virus is much more transmissible than SARS or MERS, but not nearly as lethal. We don’t know if it’s quite as transmissible as the flu, though it certainly can kill people. Markets seem less spooked of late, but since China and the U.S. are bickering over transparency, no one seems to know just how bad things are. One thing is certain, its dampening economic effects continue to spread far beyond quarantined areas. Federal Reserve chair Powell told Congress that he was monitoring the fallout from the outbreak “closely.” It’s still too early to know exactly the extent of the damage the coronavirus will do to the global economy, but as Apple just reminded the world, the disruption will be substantial. It seems inevitable that the crisis will eventually kick off a wave of monetary and fiscal easing.

Back to the MBS market. February prepayments showed FN30s, GNIIs and FN15s speeds slowed between 2 percent and 3 percent on average from January, higher coupons slowing the most, with a near 10 percent decline in day-count partially offset by increased refinancing activity. Month-to-date gross issuance stands at $115.4 billion and is estimated to total $139 billion for the month, which would be the lowest since July and would be below the $159.5 billion to $170.7 billion range that has persisted since August 2019 through January 2020.

Today’s busy economic calendar is already underway with the Weekly MBA Mortgage Index for the week ending February 14 decreasing 6.4 percent from one week prior. We’ve also had January PPI (+.5%), Core PPI (+.5%), both stronger than expected, January Housing Starts (1.567 million annualized) and Building Permits (1.551 million annualized), both rock solid! Up shortly will be Redbook same store sales for the week ending February 15. Later today brings the minutes from the January 28/29 FOMC meeting and a laundry list of Fed presidents speaking, Atlanta’s Bostic, Cleveland’s Mester, Minneapolis’ Kashkari, Dallas’ Kaplan, and Richmond Fed President Barkin. With all those releases out of the way, we begin today with Agency MBS prices unchanged and the 10-year yielding 1.57 percent.