Where should we start the week? How about how predictions and forecasts are nearly worthless when they’re out of date one week later? How about with an old-fashioned run on a bank, eliminating any talk of another Fed rate increase. People wonder, “Where do I bank? Is it big enough? Is there enough regulation?” Lenders are making sure that their warehouse funding is not only from one bank, since nothing will shut down a faster than lack of liquidity and inability to fund loans. With the demise of Silicon Valley Bank and Signature Bank (below, see government announcement from yesterday), here’s a great graphic of how we ended up with just four megabanks in the USA. And how did regulators not see a huge bank failure coming? Regulation is in the news, not only in banking but also in loan officer compensation. The Consumer Financial Protection Bureau is requesting the public’s input on the economic impact of the mortgage loan originator rules on small mortgage companies. (More below.) Residential lenders are watching rates help them: Curinos tells us February 2023 funded mortgage volume decreased 62% YoY and 4% MoM. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures and drills into this data further here.) (Today’s podcast can be found here and this week 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. Hear an interview with RentSpree’s Michael Lucarelli on the impact of homebuilder sentiment on the rental market and correlations with the purchase market.

Broker and Lender Products, Software, and Services

Change is the only constant in life, and the mortgage industry is certainly a testament to this fact. If you’re heading to Plano for the ACUMA FOCALpoint workshops in a few weeks, be sure to attend a panel discussion focused specifically on industry changes that impact credit unions. “The Industry, It Is a-Changin’” workshop will be held on March 21 at 1:15 p.m. CT. Optimal Blue’s Mark Teteris, CMB, will be leading a distinguished panel in this discussion to share decades of industry expertise, and to shed light on the current and future lending environment. Attendees will gain insight on important trends to watch, growth opportunities and potential threats. Don’t miss this timely and informative session while you’re in Plano!

It’s not quite St. Patty’s Day yet, but Computershare Loan Services (CLS) found the pot of gold… Without relying on luck. CLS was honored with a GOLD Freddie Mac Servicer Honors and Rewards Program (SHARP)SM Award for its superior servicing portfolio performance, outstanding customer service to borrowers, and positive efforts to cure delinquencies. Being recognized as best in your peer group is no accident. CLS has brought together the industry’s best talent to protect client revenue and improve performance for even the most complex prime and default servicing portfolios. Contact CLS today and put its unmatched 20-year reputation and unique subservicing expertise to work.

Free webinar: Mortgage experts debate 2023’s market: Are There Signs of Recovery? Industry headlines herald the beginning of mortgage market recovery in 2023, predicting lower rates, higher volume, and the return of borrower activity, but is that confidence warranted? As we plan for the Spring selling season, let’s take an honest look at what lies ahead by digging into lead market indicators and boots-on-the-ground insight from industry veterans. In this free webinar co-hosted by Maxwell and TMC, New American Funding’s Tony Blodgett and Maxwell’s Bryan Traeger and Amy Jo Plummer will offer actionable tips to help lenders best predict 2023’s trajectory, shape strategy around leading indicators and available data, and see past hype-based headlines to ready their businesses for stabilization and recovery. Click here to save your seat at this webinar taking place Tuesday, 3/14 at 3:00 p.m. ET/12:00 p.m. PT.

“Advancial Federal Credit Union Jumbo Cash Out! Advancial Federal Credit Union (NMLS# 469500 an Equal Housing Lender) offers jumbo cash out mortgages up to $5,000,000 with no title seasoning and no cap on the amount of cash in hand. FICOs scores to 600 considered. Lending in all 50 states and DC with only one appraisal required! All other unique programs may be combined with jumbo cash out including: Asset depletion using cash out proceeds, non-warrantable condos, condotels, non-warrantable co-ops, investment properties, vacation homes, homes on acreage and hobby farms, mixed use, no credit profile borrowers, foreign nationals and more! Call us today with your unique scenario. Rush closings provided – we save loans! Visit us, call 888-876-2328 or email us.”

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“As the mortgage landscape continues to evolve and change, Citizens Wholesale remains a strong pillar supporting the Wholesale broker community as we have for more than 27 years. Citizens is committed to delivering a best-in-class experience, from origination all the way through to the servicing of borrowers’ loans. Your dedicated Account Executive has the expertise to help unlock potential opportunities, whether its recent changes to the Fannie Mae/Freddie Mac LLPA schedules, helping you take advantage of pricing adjustment waivers or understanding your options with mortgage insurance: We are here to help find solutions as your partner. Contact your Citizens Account Executive or reach out to learn more.”

“Fair Lending is top of mind in mortgage compliance circles these days…and with good reason, given regulators’ more intensive focus on ensuring fairness and equity in all aspects of mortgage lending. When it comes to Fair Lending, we often forget one of the key tenets of compliance: Trust, but verify. We trust that our team is doing the right thing, but don’t have a comprehensive internal process for assessing Fair Lending compliance in an objective and analytical manner. Partnering with Mortgage Quality Management & Research (MQMR) for a fair lending risk assessment can provide a more neutral, objective, and holistic understanding of risk. Download MQMR’s newest white paper, “You’ve Got the Trust. Now It’s Time to Verify. 5 Steps to Ensuring Fair Lending Compliance” to learn more about the regulatory context of Fair Lending. Curious about Fair Servicing? Contact us to learn more.

The Government Addresses Bank Failures

California’s Silicon Valley Bank, New York’s Signature Bank… Generally speaking, bad news drives interest rates, including mortgages, down. A bank failure of any size, and especially one as large as this, spooks investors who immediately engage in a “flight to quality” which means moving assets to the least amount of risk. Fears of a broader fallout across the banking sector deepened as SVB Financial Group (SIVB.O) on Friday became the largest bank to fail since the 2008 financial crisis.

This morning the Federal Deposit Insurance Corporation named former Fannie Mae head Tim Mayopoulos as the chief executive officer of Silicon Valley Bank.

Taking a step back, soon before the FDIC stepped in, 40-year-old SVB was forced to sell most of its available-for-sales securities at a loss to offset a drop in customer deposits. It announced a $2.25 billion capital raise to offset the situation, but it was too little too late. Silicon Valley Bank was a lender to some of the technology sector’s biggest companies. Customer deposits tripled from 2018 to 2021 when interest rates were low and tech startups were cash-rich. But when rates soared in 2022, the VC market slowed to a crawl as did deposit activity at SVB. Things were made worse when the bank invested what funds it did receive in bonds that would later lose value as rates climbed.

DividendStocks.com writes, “In the end, it was SVB’s decision to invest a high portion of customer deposits in bonds and mortgage-backed securities (MBS) that quickly deteriorated in value. Things reached a boiling point after the bank suffered a nearly $2 billion loss from selling securities and turned to the capital markets for help.”

“The Federal Deposit Insurance Corporation (FDIC) today transferred all deposits—both insured and uninsured—and substantially all assets of the former Silicon Valley Bank of Santa Clara, California, to a newly created, full-service FDIC-operated ‘bridge bank’ in an action designed to protect all depositors of Silicon Valley Bank…Depositors will have full access to their money beginning this morning…”

Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg took a swing at things. “Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

“… Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

“Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

“Finally, the Federal Reserve Board will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

LO Comp: CFPB’s Mandatory Review

“The mortgage loan originator rules, part of the Truth in Lending Act’s Regulation Z, protect homebuyers from anti-competitive practices, like double-dealing or steering activities, that lead consumers into more expensive loans.

“The Consumer Financial Protection Bureau is requesting the public’s input on the economic impact of the mortgage loan originator rules on small mortgage companies. We may use the feedback we receive to inform potential changes to the rules. We regularly conduct 10-year reviews of rules that have, or will have, a significant economic impact on small businesses. The mortgage loan originator rules are due for this standard review process.”

Capital Markets

Mortgage-backed securities and U.S. Treasuries ended a volatile week last week with strong price gains after action was marred by growing uncertainty over SVB Financial's future, and a concern that the bank's share price collapse could be indicative of a bigger issue in the banking system. The newfound concern overshadowed the release of the February jobs report.

Aside from that, last week’s headlines were initially dominated by Fed Chair Powell’s testimony to congress as well as labor market data. Interest moved higher after his comments suggested that the ultimate level of the fed funds rate could potentially be higher than previously anticipated and that faster tightening may be warranted. This shifted the probability of a 50 basis points hike at the upcoming FOMC meeting above the probability for another 25 basis points hike.

These comments were a departure from his comments in January when we stated that the disinflationary process had begun. Friday’s payroll data showed the US economy added 311k jobs in February, well above expectations of 200k. The unemployment rate increased from 3.43 to 3.57 percent. Additionally, the Job Opening and Labor Turnover Survey indicated the number of available jobs fell by 410k to 10.824 million and the number of voluntary quits also declined. The Fed will need to see more signs of a cooling labor market before shifting focus away from aggressively fighting inflation.

This week ahead is expected to see more drama over the collapse of SVB Financial Group and the implications for the banking sector and venture capital ecosystem. Economic releases will also dominate the conversation about stocks this week with the next Federal Reserve meeting rapidly approaching.

The headliner will be the consumer price index report for February with a slight moderation in the year-over-year inflation rate expected to 5.6 percent. Meanwhile, producer prices are forecast to decelerate to a 0.3 percent month-over-month gain from 0.7 percent in January. This week is also packed with other market moving potential data points which could swing the Fed’s view on the following week’s FOMC decision, such as retail sales as well as business inventories, Fed surveys, industrial production / capacity utilization, leading indicators and Michigan sentiment. The week kicks off with a quiet start, however, with the February Employment Trends Index due out later this morning. With no economic releases of note so far, we begin the week with the 2-year yielding 4.14 percent, Agency MBS prices better by .5-.75 versus Friday, and the 10-year yielding 3.48 after closing last week at 3.70 percent.

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