There are all kinds of things that I don’t, or didn’t, know. For example, the other day I learned that when dogs lap water, they’re actually scooping up water with the back of their tongue, which is curled like an elephant’s trunk. Now I’ve learned that the term “master bedroom” is being abolished and changed to “bedroom 1” or “primary bedroom” and “autism” is “neurally diverse.” Mary Poppins has a racist scene? Really? Smart builders like Lennar continue to “take advantage” of COVID and the shutdown and are training displaced restaurant and retail workers in construction. Anything to alleviate the construction labor shortage, right? Rates are great, and refinancing possibilities abound, but Black Knight tells us that mortgage delinquencies increased another 20% in May to hit their highest level since 2011. Total borrowers more than 30 days late surged to 4.3 million in May after a record jump to 3.4 million in April, and more than 8% of all US mortgages were either past due or in foreclosure, the report showed. Yup, Americans are skipping millions of loan payments due to the coronavirus.  In high-cost areas, jobless benefits aren’t enough to help debt-laden borrowers pay down their bills.

Lender Services and Products

Monitored Marketplace: It appears HUD is considering regulating the benefits to, and geographical operating areas of, governmental entities providing DPA, like CBC Mortgage Agency. But Miki Adams, vice-president of CBC, which operates the Chenoa Fund program, says there is a better way: a monitored marketplace that tracks the pricing and performance of loans by individual governmental DPA providers, something HUD doesn’t currently do but easily could. This would allow HUD to establish performance standards for DPA loans and ensure there is a competitive market so that borrowers get the lowest costs and a variety of products. After collecting sufficient data, HUD could use the pricing and performance statistics to support rulemaking. But “HUD intends to do just the opposite: regulate without supporting data, creating onerous requirements for government DPA programs,” Adams says. “That will inevitably produce fewer options and less benefit to borrowers.” Read about the Monitored Marketplace here.

Free eBook from Maxwell: It has been increasingly difficult for lenders, particularly small to midsize lenders, to adequately staff to handle volume when business is booming without taking a hit when things go bust. Outsourcing can be a low-risk, high-reward solution for moderate-sized lenders who are growing too quickly to manage all their loan production in-house. Digital mortgage leader, Maxwell, has put together an incredibly helpful eBook, “Outsourced Fulfillment: Benefits, Myths, & Opportunities”. A great read for any moderate sized lender looking to better manage scale, growth, and opportunities for their business. No form required, free download.

CFPB and Non-QM Loans

The long awaited proposed (proposed only at this point) changes in the QM versus non-QM dividing line came out yesterday. The Consumer Finance Protection Bureau issued two notices of proposed rulemaking (NPRMs) to amend the ATR-QM Rule. “The first NPRM would extend the sunset date for a temporary category of qualified mortgages sometimes referred to as the temporary GSE qualified mortgage category or as the GSE Patch. The second NPRM would amend the definition of a permanent category of qualified mortgages sometimes referred to as the general qualified mortgage category.”

(If you just want to see the changes, here you go.)

Non-QM lenders and investors are especially interested in the proposal to replace the DTI limit with a price-based approach. The Bureau suggests replacing the existing 43% DTI ratio threshold in favor of a loan pricing threshold based on the difference between a loan's annual percentage rate (APR) and the average prime offer rate (APOR) at the time the rate is set for a comparable transaction. Why? Because it preliminarily concludes that a loan's price, as measured by comparing a loan's annual percentage rate to the average prime offer rate for a comparable transaction, is a stronger indicator and more holistic and flexible measure of a consumer's ability to repay than DTI alone. 

So for eligibility for QM status under the general QM definition, the Bureau is proposing a price threshold for most loans as well as higher price thresholds for smaller loans, which is particularly important for manufactured housing and for minority consumers. The NPRM also proposes that lenders take into account a consumer's income, debt, and DTI ratio or residual income and verify the consumer's income and debts.

Comments on the changes to the general QM definition rulemaking are due 60 days after publication in the Federal register. Comments on extension of the Patch are due 30 days after publication in the Federal Register. 

The announcement prompted attorney Brian Levy to write, “The CFPB just came out with its proposal to extend the patch until the first to occur of either (i) GSE exit from Conservatorship or (ii) implementation of the just proposed new QM rule that defines QM based on the price of the loan instead of 43% DTI. For my comments on this proposal, see my Musings from Leap Day 2020. “Consumer groups seem to admit that 43% DTI isn’t very predictive of affordability, but they (and conforming loan MBS securitizers) want to use pricing alone as the QM determinant for ability to repay. That makes no sense in that the price of the loan tells you nothing about the borrower’s ability to repay it.”

What is the scope of the change? Bose George with KBW scribed, “The QM Patch had allowed the GSEs to underwrite mortgages with DTIs greater than 43%, and we estimate that these loans account for roughly 15% of GSE mortgage volume. The proposed rule should ensure that a large percentage of high-DTI loans remain in the QM category, which allows the GSEs to continue guaranteeing them. We see this as positive for the mortgage industry as a whole, and especially for the mortgage insurers… We estimate that loans with DTIs over 43% accounted for up to 25% of new insurance written (NIW) for some mortgage insurers in 2019.”

President and CEO Bob Broeksmit, CMB, weighed in. “MBA appreciates the CFPB’s proposed changes to the QM Rule and extension of the GSE Patch. As proposed, the regulatory changes would seek to ensure creditworthy borrowers have access to sustainable mortgage credit without disruption to the overall mortgage market. MBA looks forward to reviewing and commenting on both rules, and we will continue to work with policymakers and all other stakeholders to ensure borrowers are both protected and have access to credit throughout the mortgage lending process.”

CoreLogic’s Pete Carroll opined, “The CFPB’s ATR/QM proposed rulemaking has significant bearing on the balance between homeowner ability to sustain their mortgage payments and broad access to affordable mortgage credit. The ATR/QM blog series from CoreLogic seeks to provide policymakers and industry stakeholders alike with evidence-based insights to consider as they deliberate on the important policy questions raised by the proposal, including market sizing, loan performance, underwriting factors, credit availability, and more.”

Capital Markets

Data over the last week has showed improving economic conditions coming off record lows observed during March and April. Retails sales rebounded in May due in part to an increase in auto sales but were still 8.3 percent below January’s peak. Housing starts increased modestly in May as delayed multi-family projects resumed. Single-family starts were little changed for the month although single-family permits jumped over 14 percent. Builder confidence has also increased, signaling stronger construction numbers in the coming months. Industrial production in the US is beginning to restart after significant declines in March and April. One of the most watched numbers as of late, initial unemployment claims, declined for the eleventh straight week for the week ending June 13 although the rate of decline has weakened. The positive news over the last week has been welcomed by financial markets. But there is an underlying concern as some areas of the country are seeing an increase in new Covid-19 cases. Large month-over-month improvements are nice, but the year-over-year data show there is still a long way to go before the economy is back to where it once was.

For those who enjoy steady mortgage rates, the last couple weeks have been a welcome respite from prior months. U.S. Treasuries ended Monday on a mixed note, and by mixed note I mean with either unchanged yields for shorter durations or 1 bp off of opening levels for longer maturities. Why? Limited data and headlines, though there is always news to go around. Existing home sales declined 9.7 percent month-over-month in May, missing expectations as the reading marked the third straight month of a decline in sales. Total sales were down 26.6 percent year-over-year and are now at the lowest level since 2010. On the bright side, closed sales in May reflect most contract signings completed in March and April, so coming months should feature stronger sales activity.

Investors in mortgage-backed securities are worried about U.S. home-loan delinquencies spelled out in the first paragraph. The number of borrowers more than 30 days late ballooned to 4.3 million, up 723,000 from April, according to Black Knight. That means more than 8 percent of all mortgages are now past due or in foreclosure. Mississippi had the highest rate, followed by Louisiana, New York, New Jersey, and Florida. Separately, the Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance decreased for the first time since the survey’s inception in March, from 8.55 percent of servicers’ portfolio volume in the prior week to 8.48 percent as of June 14, 2020. According to MBA’s estimate, 4.2 million homeowners are now in forbearance plan, down from almost 4.3 million homeowners the prior week.

Today’s economic calendar is already underway with the Philadelphia Fed nonmanufacturing indices for June, going from -41.4 to +7.3! Later this morning brings Redbook same store sales for the week ending June 20, preliminary June Markit Manufacturing and Services PMIs, the ever-important May new home sales, and finally, Richmond Fed Manufacturing and Services indices for June. The NY Fed will conduct two FedTrade purchase operations totaling up to $4.349 billion. With the Fed’s balance sheet is set to top $10 trillion this year, Boston Fed President Rosengren said yesterday that the Fed is a long way from raising rates and that rates on the short and long end need to be kept low. We begin the day with Agency MBS prices nearly unchanged and the 10-year yielding .72 after closing yesterday at 0.70 percent.

Employment

Sutherland, a leading Business Process Transformation and Outsourcing provider is pleased to announce a new addition to the executive team. Kevin Norris has joined the Sutherland Mortgage team as Director of Client Engagement, bringing over 20 years of experience in financial services, primarily in the mortgage sector. Kevin has spent the majority of his career working for large Fortune 500 companies including Morgan Stanley, Discover Financial Services, PHH Mortgage, and Realogy Corporation and has held various roles within these firms including running large operation centers, product and business development, e-commerce, process improvement, account management, and various other leadership management positions. In his new role at Sutherland, Kevin will lead the effort around maximizing the alignment of Sutherlands offerings to their growing client base enabling both cost reduction and revenue growth opportunities. “Kevin brings a great deal of knowledge and experience. As we continue to grow with our clients, Kevin will provide a critical role in taking our customer’s needs into action,” said Neil Armstrong, AMP of Sutherland. 

“Quality Mortgage Services is a team of QC mortgage audit professionals ready to execute mortgage QC, due diligence, and audit functions so today’s lenders and servicers have the best mortgage analysis reports possible. We are expanding our residential mortgage auditing team by adding experienced and knowledgeable quality control auditors interested in working collaboratively with peers in a remote environment allowing for more work-life balance. Ideal candidates have a minimum of 10 years’ experience in residential mortgage underwriting or auditing for quality control, be proficient with Conventional and Government underwriting guidelines, FHA Direct Endorsement – VA SAR Certifications preferred, strong understanding of compliance, and solid knowledge of the Secondary Market. If interested, please send resumes directly to Claudia Duncan or Laura Kate Davis.” 

Innovation, Efficiency, and Family are the three most common attributes new hires point to regarding their decision to join Thrive Mortgage. Case in point are the additions of industry veterans Jamal Chubb and Josh Harvith to expand Thrive’s Talent Attraction & Career Team. Asked about why he joined Thrive, Chubb responded, “This career move allows me to offer growth opportunities to Originators and Ops Professionals across the country. I am excited for my future with Thrive and the future for my family.” Harvith also explained, “The culture of excellence in our company runs very deep. Our process is world-class, but it’s our people who drive our success!” Thrive Mortgage is growing in markets across the U.S. and is looking for ‘Humble, Hungry, and Smart’ professionals who want to be a part of something special. Contact Jamal, Josh, or Chris Karageorge to inquire about open positions. We can’t wait to meet you!

Academy Mortgage achieved record-breaking volume in April and May and is on pace for another record-high volume total in June. Achieving this incredible success in an extraordinary time for the housing and lending industries is the result of a strong sales team, dedicated operations team, and the hard work of Academy’s 1,900+ team members nationwide. More good news for the independent lender: Academy was recognized by Scotsman Guide as a Top Mortgage Lender for 2019, ranking in the top 25 for Top Retail Volume and Top Overall Volume. In addition, Academy had 100 Loan Officers named as Top Originators by Scotsman Guide, which is a company best. Academy Loan Officers were also included in top producer lists by Mortgage Executive Magazine and National Mortgage News. If you’re interested in joining an award-winning company to power your Potential, contact SVP Bill Sohan.

Many LOs struggle to trust their leadership & company’s stability. Churchill Mortgage not only has a world class leadership team, but it's also an E.S.O.P! Our employees are partial owners. We're a company of leaders, focused on the success of our company & our customers. We’ve been voted a Top Workplace for 7 consecutive years! According to LinkedIn, Churchill Mortgage loan officers have an average tenure of 4.3 years compared to the industry average of 1.7 years! Also, 13% of our Loan Officers have been with us for over 7 years. “I've been in the mortgage and finance business for over 40 years, & have found it's truly a ‘people’ business where there must be a relationship of trust,” explained Churchill Mortgage president and CEO, Mike Hardwick. We’re proud of our past & confident in our future. If this type of environment and leadership mentality interests you, contact Churchill Mortgage.