Why is breakfast in bed “luxurious” but breakfast, lunch, and dinner in bed is labeled “depression?” That’s something to consider. Today there’s so much to consider, I don’t know where to start! It’s a real mix of good news and bad news. First, for anyone estimating where 2022 conforming loan limits will be, yesterday the FHFA House Price Index was +1.4 percent in July and is up 19.2 percent from last year. So that will give you a decent estimate. Whether or not you believe that the climate is changing, manmade or natural, if it impacts investor thinking, it impacts borrower pricing & perceived risk, and it impacts you. Sellers of homes, and investors in loans, don’t like uncertainty. “The National Flood Insurance Program is already deep in debt. The program is currently more than $20 billion underwater, and research from The Pew Charitable Trusts, a public policy nonprofit, found that about 1 percent of the properties enrolled in the program are responsible for 25 to 30 percent of the claims.” For some good news, since the Fed is in the news, despite the headlines, not all politics is polarizing. Remember Dodd Frank? It turns out that D. Chris Dodd and D. Barney Frank both like Republican Federal Reserve Chairman Jay Powell, appointed by R. Donald Trump. Today’s audio version of the commentary is available here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology, and other services in the mortgage industry and in banking.

Lender and Correspondent Services and Products

There’s a reason mortgage servicers of all sizes choose the Black Knight MSP® servicing system. With unmatched scalability, 24/7 support, and a track record of on-time, quality implementations, it’s no surprise MSP is gaining momentum across the mid-market, including nine servicers recently signed with portfolios of under 20,000 loans. In fact, 42% of MSP clients service fewer than 50,000 loans. Customer-focused experiences are at the core of all Black Knight solutions, which are developed on a foundation of more than 50 years of industry experience. Today, all consumers expect convenient, digital capabilities that enable them to manage their loans anytime, anywhere. Learn how Black Knight puts innovative digital software within reach for every size of servicer, from hundreds of loans to hundreds of thousands.

Viva Las Vegas! Stearns Wholesale is gearing up for the upcoming 2021 NAMB National Conference next month with exciting tradeshow and breakout sessions all weekend long. They will be joined by hundreds of others in Las Vegas, NV from October 9-11 for three days packed with hands-on instruction, networking, and refreshing fun with a Headshot Booth, Magicians, and more at the Stearns Wholesale spot located in Caesar’s Palace across from registration. To register for the upcoming NAMB conference, click here. If you’d like to partner with Stearns or learn more about their events and sessions at NAMB, click here to be contacted.

Bring your customers home with a leading Correspondent and Housing Finance Agency lender who is redefining the mortgage lending experience. U.S. Bank is a committed partner you can trust to provide ethical and innovative solutions for your future growth. For the seventh consecutive year, U.S. Bank has been named one of the World’s Most Ethical Companies by the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business. As proud sponsor of the 2021 Mortgage Bankers Association annual conference (MBA Annual21), we look forward to connecting with you. Contact your U.S. Bank Correspondent Account Executive today to schedule time to meet in San Diego.

With roughly 1.6 million homeowners soon to exit forbearance programs, it’s never been more important for subservicers to make sure customers understand all of the available post-forbearance options, which ones they qualify for, and most importantly, which one is right for them. Since the beginning of COVID-19, TMS has consistently set standards for customer care, communicating proactively and sympathetically with homeowners, all in a language that customers understand, not one riddled with industry jargon. It’s why TMS has kept forbearances and delinquencies below MBA averages. And it’s why, in 2020, they achieved 99% customer satisfaction — their highest mark yet. Pandemic forbearances are ending. To prevent them from turning into foreclosures, you need a subservicing partner who cares. Partner with TMS today.

American Pacific Mortgage (APM) has announced that its Fall Symposium will be held in person November 3–4 at the Arizona Grand Resort in Phoenix, AZ. This year’s lineup of speakers includes Barry Habib, Dr. Amy Cuddy, Economist Elliot Eisenberg, and APM’s leadership. Attendees will also have the opportunity to attend four breakout sessions specific to what’s next for your business, your influence, your strategies, and your growth. This event is a great way to explore all that APM has to offer, experience APM’s unmatched company culture, and get an inside look at what it’s like to be an employee-owner of one of the fastest-growing privately held mortgage lenders in the country. To learn more about this event, click here. And if you’d like to be a guest at APM’s Fall Symposium, contact Dustin Block.

Deephaven Offers Two Business Expense Calculation Options. To determine a business owner’s available income for a mortgage, we can deduct their business expenses from overall revenue. Simple enough. Except the formula that works best for one borrower may not be the ideal option for another. Deephaven has two options for calculating business expenses: Option 1 - Fixed Expense Ratio: Deducting a fixed percentage of revenue - typically 50% - as business expenses. Easy & Fast. Option 2 - CPA Letter of Expenses: In some instances, an itemization of business expenses will amount to less than the standard percentage deduction, resulting in a higher net income for qualifying the loan. We use a CPA Letter detailing the borrower’s business expenses to make the calculation. If you have any questions or would like to know more about Deephaven’s Business Expense Calculation program, please contact us at info@deephavenmortgage.com.”

Monster Lead Group is leading the charge on bringing trigger lead generation to direct mail marketing. 90% of Mortgage Companies and Brokers are leaving money on the table by not optimizing their Firm Offer of Credit mailers, choosing to see them as a required nuisance rather than a built-in opportunity. To reach borrowers in their most amenable moment, Monster Lead Group utilizes trigger events, such as credit checks, to curate and serve lists of high-value clientele who are desperate for a conversation. To learn more about how you can find hot borrowers in your area, consider scheduling a short demo.

CECL: Don’t Ignore It

Current expected credit loss redefines how financial institutions set aside money in anticipation of loan losses. CECL (Current Expected Credit Losses) combines historical lifetime losses, adjustments for past and current conditions, and a reasonable and supportable forecast to determine how much capital should be provisioned to offset potential loss. A reason for this change is to avoid a repeat of the lending crisis that factored into the 2008 recession, when banks suddenly found themselves unable to cover defaults.

The big change with CECL: Expected credit losses must be calculated for the life of the loan. Although this is proactive in theory, practical implementation becomes a challenge, which is one reason why the FASB pushed back its CECL deadlines. Most bankers know the date of January 1, 2023, the date when most community financial institutions (CFIs) with assets of less than $1B must implement the current expected credit loss standard (CECL).

Public companies start date for CECL was January 1, 2020, and private companies is January 1, 2023, if calendar year end (impacts both IDIs and IMBs that are private). The MBA’s Accounting & Financial Management conference in November will feature FASB speakers as well as an accounting updates panel where they will discuss CECL implementation. Questions about CECL can be addressed to the MBA’s Fran Mordi.

Before you shrug and rely entirely on your LOS provider, lenders need to know that they will face the obstacle of developing new credit models to account for expected losses with CECL. Telling a regulator, “We relied on a vendor. What is this CECL thing, anyway?” isn’t going to cut it. Moody’s Analytics has a fine article on the basics. Small and mid-sized mortgage bankers will be impacted, although because they don’t hold loans in portfolio, it turns around very quickly. But under CECL, all lenders are impacted because it impacts AFS (available for sale) securities too. The impact on IMB may be so transient that it’s almost nonexistent.

But how do you find the best vendor to help your institution become compliant while also meeting its particular needs? Here are five important areas to explore when looking for a suitable CECL vendor: Method choices for calculating the risk, if it is easy to use, adjustability and flexibility, transparency, and support. The best CECL third-party partner is the one that works best with your business to adapt the model to your CFI’s circumstances, achieve the new accounting standard in time to meet the deadline, and maintain the system into the future. There is a CECL Solution Checklist to help as you compare potential vendors.

To borrowers, CECL may appear administrative, a minor accounting tweak that happens behind the scenes and doesn’t affect them. But by requiring more capital to offset heightened loss expectations, the lender could possibly tighten credit requirements to secure a mortgage. The new guidelines may also impact taxes in ways even the accounting industry has yet to fully understand.

PCBB found five top places where CECL calculations could go awry. The life is incorrectly calculated. (CECL requires that the full life of the loan’s expected credit losses is documented at the time of origination. This includes scheduled and unscheduled amortization. What about prepayments?) Homogeneous groups lack sufficient loss history. (Review whether your loan pools have the loss history needed for CECL calculations. How many charge-off events have these pools experienced historically? Of those, how many were for the same loan?) Lookback periods for losses are too short. (When you don’t have enough loss history for your CECL calculations, you will likely have a hard time with lookback periods as your lookback should include 2-3 economic cycles, with each economic cycle averaging 5.5 years.)

Lack of support for qualitative factors: Qualitative factors that would most likely affect your loan loss rate should be used upfront. From there, you can use assumptions based on your geographic area, loan loss rate history, and other factors to adjust the calculation, not the other way around. Then, make sure you have documentation for these assumptions and check them against other business documents, such as your strategic plan, to show a tight link between all of your assumptions on qualitative factors throughout your institution.

Lastly, the forward-looking forecast is an arbitrary adjustment. As with all stages of the reserve calculation, it is critical to use the right data from the beginning. Not deriving your forward-looking forecast from an economic outlook will lead you to a sub-optimal result.

Questions about CECL? Contact the MBA’s Fran Mordi.

Capital Markets

The 10-year Treasury yield spiked again yesterday, leading a global bond selloff that impacted mortgage rates. Much of the increase is due to concerns the U.S. will effectively be out of cash by October 18 unless the debt ceiling is lifted, which was reiterated by both Treasury Secretary Yellen and Fed Chair Powell yesterday. The world economy is also facing inflation from surging energy prices and what appears to be a slowing recovery from the pandemic that doesn’t seem to have an end in sight. Stagflation? The Conference Board's Consumer Confidence Index dropped well below expectations in September as concerns about the Delta variant continue to dampen consumer optimism. The report likely means that consumer spending will fall given that consumer confidence has fallen in consecutive months.

We received a couple home price indicators yesterday. The strength in the U.S. housing market continues to be driven largely by a reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. There is a school of thought that this demand surge represents an acceleration of purchases that would have occurred anyway over the next several years. According to the FHFA House Price Index, record appreciation rates for the U.S. continued in July with home prices rising 19.2 percent year-over-year. Separately, the Case-Shiller Index rose nearly 20 percent. Both of those likely pave the way for higher conforming loan limits next year.

Turning to today’s economic calendar, mortgage applications decreased 1.1 percent from one week earlier, according to data from MBA’s Weekly Mortgage Applications Survey for the week ending September 24. The recent lift in mortgage rates was always likely to temper activity. Later this morning brings the Pending Home Sales Index for August and remarks from several Fed speakers, including Chair Powell. We begin the day with Agency MBS prices up/better a few ticks and the 10-year yielding 1.52 from yesterday’s close of 1.53 percent.



“At Acra Lending, our focus is on being the best-in-class Non-QM lender by providing competitive mortgage lending programs and a seamless customer experience. We are looking for people to join our team who are as excited as we are to help customers achieve their goals in investing and purchasing property. We are actively looking for Valuation SpecialistsUnderwritersJunior UnderwritersLoan ProcessorsMortgage Loan OfficersClosers/Funders, Wholesale AEs, and Correspondent Lending Officers. Being able to provide industry leading programs to meet the needs of our customers is what we do best. If you or anyone you know are interested call (888) 800-7661 or apply today.”

Shelter Home Mortgage, a member of the Newrez Family of Companies, is seeking Loan Officers in the Raleigh, NC area who would be interested in doubling or tripling their volume. Shelter Home Mortgage has partnered with Mark Spain Real Estate, the third highest-producing Residential Real Estate Team in the Triangle area over the last year. Our team is looking for experienced Loan Officers who can work closely with the real estate company’s buyer’s agents to prequalify borrowers, take applications, and close loans. This will be an incredible opportunity for Loan Officers to team up with productive real estate agents and build a sustainable, purchase business. To pursue this opportunity further, click to apply or contact James Williamson, JV President or our recruiting team.

Evergreen Home Loans™ is honored to be named #4 on the Great Place to Work® and Fortune magazine, Best Workplaces for Women™ 2021 list. This is the company’s fifth year on the list and they’re recognized in the medium-size business category. At Evergreen, women leaders comprise 50% of the Executive Team and 64% of managers are women. The result is a culture of inclusivity and mentorship that makes Evergreen a great place to work for everyone. “Evergreen is a company where women have a seat at the table and are empowered to shape and influence how we do business,” said Tamra Rieger, chief operating officer for Evergreen Home Loans. “There are no limits to what you can achieve at Evergreen.” If you’re interested in working for a company that supports and grows their associates, check out the Careers Page for more information.