I received this question from a well-known lender in Texas. “Rob, our company views loan processors as the unsung heroes of lending. We’re evaluating how ours are paid. Any thoughts?” The STRATMOR Group does quite an industry survey, and its recent data shows that the overwhelming majority are paid some incentive, and that their base salary is about ¾ of their total comp. The incentives are either a per loan payout, the achievement of certain objectives, or miscellaneous company-specific items.
Yes, rates have moved up. Is that a surprise to anyone? Shouldn’t be. Are you hoping tariffs hurt our economy and push rates back down? Don’t hold your breath. So, what should we know about why rates are doing what they’re doing? Any reason for rates to fall? Not really.
Last week (9/10-9/14) economic data showed year-over-year inflation, strong business optimism and labor markets, but soft retail sales. PPI for August was down 0.1 percent for the month, however was up 2.8 percent over the previous twelve months due mostly to rising oil prices. The year-over-year gain is below the recent high in June of 3.4 percent. CPI was up 0.2 percent in August and 2.7 percent over the last year also due mostly to increased energy costs. The National Federation of Independent Business reported their Small Business Optimism Index at 108.8 in August, a record high for the 45-year history of the index. The JOLTS report showed that hiring remains robust and quits are still high. “High quits” are a sign of confidence in the job market from laborers. Initial jobless claims continue to slide to very low levels at 204,000. The loan negative from the week was in retail sales which disappointed with a 0.1 percent gain in August after posting a 0.7 percent gain in July.
Going back a little farther, economic indicators remain positive and point to continued growth in the third quarter. The trade tensions with China remain at the forefront of the news, but to date there has been little evidence of a negative effect from the tariffs. Should things continue to escalate one would expect more measurable impacts to flow through to the data. July’s payrolls posted another month of gains and May and June were revised upward while the unemployment rate eased to 3.9 percent. Average hourly earnings were up 2.7 percent on a yearly basis, however the Consumer Price Index increased 2.8 percent over the previous twelve months ending in June so most workers are not seeing real increases in incomes. The trade gap widened by $3.2 billion in June as exports eased and imports of goods increased by $1.4 billion. Auto sales eased in July to a 16.8 million rate from 17.2 million in June and are expected to continue to decline over the next year. We all know that the FOMC kept the Fed Funds target even after its last meeting and recent data has not altered markets expectations for an increase after the September meeting.
Economists believe that the economy is heading towards a “positive output gap.” An output gap is a signal that the economy is not operating at maximum efficiency and a positive output gap indicates excessively high demand which, in turn, spurs inflation as labor costs as well as the prices for goods increase as a response to increased demand. The Employment Cost Index reported that compensation costs for civilian workers increased 2.8 percent on a year-over-year basis in June, the largest annual increase since 2008. The ISM Manufacturing index remains in expansion territory with at a level of 58.1, however comments from the respondents highlighted concerns about the current trade environment. Payrolls data continues to be positive and the broad U-6 measure of unemployment, which counts those currently working part-time for economic reasons as well as those marginally attached to the workforce, reached its lowest level since 2001. All this is to say that the data hasn’t given the markets any reason to suspect that the Fed will increase or decrease its pace of interest rate increases as we move through the rest of the year.
The US economy accelerates and decelerates and rarely runs at the same steady consistent pace for prolonged periods. Many think that the current pace of job growth, which has driven the recent economic acceleration, is unlikely to be maintained through 2019 as there are currently more job openings than unemployed workers. Higher interest rates and labor shortages may eventually constrain the economy as business will have to spend more to keep expanding production. The Federal Reserve will likely need to slow the pace of rate hikes next year as it reaches the peak fed funds rate for this expansion.
Trading of US Treasury securities is shifting to direct-streaming venues from electronic platforms to avoid minimum spread sizes and high platform fees. The alternative venues represent only about 10% of the market, but experts say the shift is gathering momentum.
As I mentioned yesterday, a tariff will be imposed on $200 billion worth of imports from China, starting September 24. The tariff will begin at 10.0% but will increase to 25.0% on January 1. Chinese officials have already indicated plans to retaliate, which is expected to trigger the imposition of a tariff on another $267 billion worth of imports from China. That news was enough to shoot the U.S. 10-year up to 3.05% as of yesterday’s close. Interestingly, the U.S. Treasury sold four-week bills at a yield above 2.000% for the first time in a decade. Finally, on the international front, Japanese officials are expected to offer measures to reduce Japan's trade surplus with the United States to avoid tariffs on auto exports.
Looking at today, we have already had last week’s read on residential applications (up for the first time in a month, +1.6%, refis +3.7%). Markets will soon digest the Q2 current account deficit (shrank to $101.5 billion) along with August housing start (+9.2% - strong, mostly due to multifamily action) and building permits (falling 5.7% - disappointing). Rates are a shade better than last night’s close with the 10-year yielding 3.05% and agency MBS prices a couple ticks better.
Lender Products and Services
Calling out to all credit unions: LendingQB will be at the ACUMA Annual Conference next week in Las Vegas talking about digital mortgages and how understanding member satisfaction with their new integration to STRATMOR’s MortgageSAT drives up mortgage volumes and cross-selling opportunities. LendingQB will also discuss how their integration to MeridianLink's LoansPQ consumer lending LOS (LendingQB is a business unit of MeridianLink) offers banks and credit unions a bundled solution for all their member and customer financial needs, including vehicle, credit card, home equity and 1st mortgage lending. Contact Linn Cook, Director of Sales and Marketing at firstname.lastname@example.org to learn more.
A Fannie Mae and Freddie Mac Seller/Servicer and Ginnie Mae issuer, approved in 46 states, 11 MORTGAGE offers a full line of products which include VA, Co-Ops, Non-QM, CalHFA, Jumbo, to name a few. 11 MORTGAGE is taking mortgage brokers/bankers experience to a whole new level! No agency Overlays… NONE! 4hours CTC to Docs... GUARANTEED! 11 minutes funding turn time…NO JOKE! We also manage our own appraisal panels (no AMCs). We are looking for champion AEs ready to accelerate their growth. We offer: wide open territories, wholesale and emerging banker channels, direct access to assigned underwriters, after hours rate lock protection, aggressive compensation, and much more… If you want to double your production and your territory with an exclusive organization that provides the industry’s best customer service contact 11 MORTGAGE EVP of wholesale’s Thomas Michel. Sales managers with successful teams are also encouraged to reach out.
Floify’s industry-leading digital point-of-sale solution continues to make HUGE waves in the mortgage world – especially after the recent release of its game-changing, interview-style 1003 loan application and brandable landing pages. With these latest enhancements, and more on the way, Floify is poised to make LOs who use the platform to run their mortgage operation more profitable and productive than ever. Just ask Calum Ross, Canada’s $2.5 Billion Dollar Man and avid Floify user, who recently said, “I signed up for Floify in 2015. In the last two years, I’ve averaged over $165 million in personal production and never emailed a client for documentation. The $50 monthly subscription cost contributed to my revenue of over $100,000 per month.” Now, what are you waiting for? To experience the ROI-generating power of Floify for yourself, request a demo today!
Non-QM will again be a hot topic at MBA Annual in October. While conventional lending faces the headwinds of higher rates and lower margins, non-QM continues to move ahead at full sail. The opportunity to serve millions of creditworthy borrowers who don’t fit traditional credit guidelines is an opportunity today’s growth-minded lenders don’t want to miss. Verus Mortgage Capital is a correspondent investor committed to helping lenders grow their businesses with responsible non-QM lending. Now’s the time to learn how non-QM can help expand your business. Email Jeff Schaefertoday or schedule a meeting with him at MBA Annual.
Congratulations to HomeStreet Bank, one of the largest community banks in the West, for claiming the No. 1 market share for purchase-loan volume in the Puget Sound (Greater Seattle area), Napa (CA), Vancouver (WA), Spokane (WA) and Kennewick (WA) for July, according to publicly recorded data. This is just one of many accomplishments, including being rated in Scotsman Guide as the 13th largest retail mortgage lender nationally in 2017, and recently being named by Fortune as one of the fastest-growing companies. The national recognition is especially impressive given the Bank’s smaller footprint in the western states. HomeStreet’s product diversity, credit expertise and get-it-done philosophy is what enables loan officers to diversely serve markets in Washington, California, Oregon, Idaho, Hawaii, and bordering states. Almost a century of mortgage lending expertise coupled with a culture that is fiercely committed to serving customer needs creates an enriching space for loan officers and those they serve. HomeStreet has growth opportunities for originators drawn to this culture. If you’d like to hear more about how you and your customers would benefit from HomeStreet’s platform, contact Natalie Overturf, SVP Retail Production.
Movement Mortgage continues to expand its digital mortgage toolbox, this week announcing EasySign, a new capability empowering borrowers to sign most loan documentation electronically before closing from the convenience of home on a tablet, laptop or desktop computer. As borrowers demand a high-touch, high-tech digital mortgage experience, Movement is committed to developing more tools and resources that improve the borrower and agent experience, boost LO productivity and create a simpler, smarter, faster mortgage process. Learn more about a career at Movement at https://movementlo.com/.
American Advisors Group (AAG) (NMLS# 9392), the #1 reverse mortgage lender, recently announced its conversion to a holistic sales model allowing AAG Mortgage Planning Professionals (MPPs) to offer both traditional and reverse mortgage loans. Under this new product suite, AAG MPPs can present senior homeowners in their local market with a wide range of options, making AAG a one-stop solution. “There is no other U.S. company solely focused on helping seniors broadly utilize their home equity to improve their financial outcomes in retirement,” said AAG CEO Reza Jahangiri. AAG is moving from a monoline product company, selling only reverse mortgage loans, to a home equity solutions business offering a full suite of products and services, putting AAG in a “category of one.” Are you interested in bringing this diverse portfolio of products to your local market? Would you like to join AAG’s category of one? Join the team at AAG!
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