Abraham Lincoln famously stated, “Don’t believe everything you read on the internet.” There are always rumors out there. The latest to cross my desk, given the student loan forgiveness news, is that Nancy Pelosi (very distantly related to California’s Gavin Newsom through a marriage of his aunt) is leading the charge for the Biden Administration to forgive bar tabs. Not true! But speaking of the partial student loan forgiveness, which critics say does nothing to stop the real culprit of skyrocketing college cost inflation, the credit community seems to think that we won’t see the “Settled for less than agreed” typically that is associated with Charge Off accounts, and probably won’t impact credit scores. But don’t quote me on that. What is more factual is lenders continuing to try to turn fixed costs into variable costs. And why not? The MBA tells us that total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) increased to a study-high of $10,937 per loan in the second quarter, up from $10,637 per loan in the first quarter of 2022. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,902 per loan. Personnel expenses averaged $7,371 per loan in the second quarter, up from $7,113 per loan in the first quarter. And some companies are saying, “No mas.” More below. (Available here, this week’s podcast 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 Broker Services, Software,
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Homeownership has long been a cornerstone of the American dream and the Correspondent Channel of Citibank N.A. is dedicated to helping homeowners turn dreams into reality. Over the past 6 months, we have expanded our Non-Delegated platform to provide enhanced capabilities and increased capacity to support origination growth in underserved markets. Paired with a robust set of Community Reinvestment Act (CRA) pricing incentives that can be brought point of sale through Optimal Blue and ICE’s EPPS pricing engines, Citibank N.A. continues to lean in on Correspondent, regardless of the overall market landscape. With further expansion of products and programs in flight, Citibank N.A. is looking to expand our seller base, especially for those Non-Delegated, Best-Efforts lenders with a passion to support consumers in underserved markets. Learn more about how we can support your growth by contacting our National Client Services Team at 800-967-2205 or completing the Prospective Correspondent Questionnaire.
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Going, Going, Gone…
Lenders have different channels that they can enter, or exit, depending on circumstances. Yesterday California’s Mountain West announced a decision to focus on its growing retail division, expanding in California, Oregon, Arizona, Nevada, Colorado, New Mexico, Texas, and Minnesota.
“Mountain West Financial has made the difficult decision to take a step back from Wholesale lending. We appreciate and are grateful for the partnerships forged and the opportunity to have served you and your borrowers throughout the years. Through this transition, we are committed to remaining transparent and honoring all loans in your BOLT pipeline that have been submitted. You and your clients can expect the same high level of service that you have received from Mountain West since day one, and as such, all submitted loans must be locked by Friday, August 26th, and all loans must close by September 30th.”
And the question often comes up about “IT” companies taking over residential lending or real estate transactions in general. Here, Reali admits to an “unfavorable capital-raising environment” despite Reali providing a “one-stop shop” for home buying and selling, including mortgage origination, title and escrow, and power buying. Where did that $100 million go?
Real estate startup Reali has joined the list of companies shutting down for various reasons. Based in San Francisco, the “fintech” company said it will cease operating and start laying off most of its workforce on September 9. Recall that earlier this year Reali announced plans to expand outside California and into other states by the end of 2022. But that was then, and this is now, and we have “challenging real estate and financial market conditions” and an “unfavorable capital-raising environment.”
The 6-year-old company determined the best course of action was to close. “Active real estate transactions will continue to be supported through the end of the year by a small team of employees,” Reali said in a statement, which also mentions that Reali is in talks with companies that have expressed interest in acquiring these specific parts of its business.
Reali co-founder and chairman of the board Amit Haller commented: “Reali was one of the pioneering companies to offer the ‘buy before you sell’ and ‘cash offer’ programs to homeowners. We believed deeply in benefiting the consumer foremost in every transaction. The six years Reali spent evolving the prop tech market in California helped elevate and transform the industry.” “We had an incredible six-year run delighting homeowners,” said Reali CEO Tyler Baldwin. “We want to extend our deepest gratitude to the thousands of homeowners who trusted Reali with their homeownership journeys, the Reali team, our investors, and those who rooted for us from the sidelines. It has been a pleasure to serve our communities.”
Capital Markets: Fed in Focus
We learned yesterday from Freddie Mac that U.S. mortgage rates soared to 5.55 percent last week. Rates reaching the highest levels since June. Why? “Hawkish” Fed speak has renewed the squeeze on homebuyers. Rising rates have also steepened the 2s/10s curve and widened MBS spreads.
But there was some relief yesterday as bond yields fell with traders awaiting Fed Chair Powell’s speech today for clues on how much further the Federal Reserve will pump the brakes on the economy to bring inflation back under control. Federal Reserve officials have stressed the need to keep raising interest rates even as they reserve judgment on how big of a hike to implement at the September FOMC meeting. Ahead of today's aforementioned highly anticipated speech from Fed Chairman Powell, the market yesterday received comments from several Fed officials. Kansas City Fed President George said that the fed funds rate is not at a restrictive level at this time and that the Fed could hold the rate above 4.00 percent. St. Louis Fed President Bullard said in the afternoon that rates are not high enough now and that he is targeting a fed funds rate range between 3.75 percent and 4.00 percent for the end of the year.
The NY Fed released a new purchase schedule yesterday covering the August 26 to September 14 period that totaled $4.4 billion, as expected. The schedule is expected to be the last for some time with paydowns expected to be below the $35 billion tapering cap. There are no changes to the coupons from the prior schedule for 30-year operations that cover 4 percent through 5 percent, though of the two UMBS15 operations, one will target 3.5 percent and 4 percent (like the prior schedule) with one targeting 4 percent and 4.5 percent. Current coupon production.
As noted above, today brings the much-awaited speech from Fed Chair Powell on the economic outlook before the KC Fed’s Jackson Hole Economic Policy Symposium "Reassessing Constraints on the Economy and Policy." Ahead of that we’ve already seen July personal income and spending (up 0.2 percent and 0.1 percent, respectively), the Core PCE Price Index (up 4.7 percent for the year and 0.1 percent month-over-month), Advanced economic indicators for July, and later this morning brings final August Michigan sentiment. We begin the day with Agency MBS prices down .250 and the 10-year yielding 3.06 after closing yesterday at 3.03 percent after this initial salvo of numbers.
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One of the nation’s top mortgage companies (Source: Scotsman Guide), 100% employee-owned USA Mortgage, continues to expand its national footprint and strengthen its executive team despite recent market shifts. Latest to join USA is Ryan Todd, new Chief Operating Officer. Ryan comes to USA as a highly-regarded industry executive with over 20 years’ experience. Additionally, Dani Ploch has been promoted to the newly created position of Chief Administrative Officer. Dani came on board in 2001 as an intern and has shined ever since, mirroring the success of the St. Louis, Mo.-based firm which in 2021 booked $4.8 billion in home loans, an all-time high. Taking it to the bottom line: USA’s employee-owners have seen the value of their ESOP stock soar 521% since its inception just 4 years ago. For a closer look at USA Mortgage, which employs 1,014 people at 176 locations in 49 states and the District of Columbia, click here.