9.14.22 Treasury Yields Up; Lori Brewer and Shane Westra on Ways for Lenders to Improve ROI; CPI Spells More Fed Rate Hikes

Thanks to today's podcast sponsor, SimpleNexus, the homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, and business intelligence. To learn more about SimpleNexus, an nCino company, visit simplenexus.com. 

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With inflation likely causing the Fed to keep hiking rates aggressively (more on that in the Capital Markets section at the bottom), many people in our industry are asking how high mortgage rates can go. The talk in the bond markets today is perhaps a 100-basis point increase in the fed funds rate next week and the funds rate getting to above 4.25 percent by the first quarter of next year as a current rate around 2.5 percent and inflation around 8 percent still puts the Fed way behind the eight ball. The 10-year Treasury yield is 3.45 percent this morning and 30-year fixed mortgage rate is about 6.25 percent, making for a spread of about 280-basis points. If the 10-year Treasury gets to 4.25 percent, for example, would that put the 30-year fixed at 7 percent? Rates going higher from here doesn’t make much of a difference with mortgage refinance originations as the miniscule figures we are seeing now will remain miniscule with higher rates, but higher rates will have an impact of housing sales. With the prospect of recession on the horizon, some potential buyers have one question on their minds: Do we really want to buy a home now? Purchase business could fall further and as a reminder, those impacted by mortgage companies downsizing can post their resume for free here and employers can view them for the nominal fee of $75. Even Wells Fargo, once the 600-pound gorilla of residential finance, is no longer actively working to be the nation's largest home lender, instead shifting its focus to its consumer and wealth clients at the expense of its servicing business. (Available here, this week’s podcast is sponsored by SimpleNexus an nCino company and award-winning developer of mobile-first technology for the modern mortgage lender. Todays has an interview with Lori Brewer and Shane Westra on ways for lenders to improve ROI and efficiency in the current market.)

Employment 

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Are you a top producer who knows you’re not in the best situation, but the comfort of being busy the last two years has stopped you from making a move? “There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction,” said John F. Kennedy. It’s not uncommon for a veteran top producer to fall into the trap of comfortable inaction. “We provide our branches access to raw pricing, a low transparent corporate margin and we encourage our branches to build their own brand/branch the way they want. We provide our originators a plug and play opportunity to join an existing branch, utilize a dedicated operations team and access to some of the best coaching in the industry. It’s time to learn about the platform you’ve earned.” Contact Anjelica Nixt to schedule a confidential conversation. YOU Deserve Better!

SingleSource Property Solutions, a leading provider of residential property services supporting the U.S. housing industry, has hired Jodi Bell as Vice President of National Sales. Bell will expand the company’s efforts to help home lenders, mortgage holders and residential servicers increase efficiency and reduce costs through the optimal use of effective valuations, title and settlement services, property preservation, REO asset management, and document management services. Bell, a veteran at developing strong partnerships, will utilize SingleSource’s platforms to provide customized solutions to promote successful operations.

Vendor Services 

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OptiFunderSM has integrated the new Freddie Mac Cash Settlement Purchase Statement API with its Purchase Advice Connect product and is currently automating Purchase Advice retrieval, reconciliation, and LOS write-back for clients. Innovative lenders, including Atlantic Bay Mortgage Group, are already enjoying the benefits. “The OptiFunder integration to Freddie Mac Purchase Advice has been great! It’s made us more efficient and improved accuracy. Overall, it has been wonderful!” reports Jessica Grau, Funding Supervisor for Atlantic Bay Mortgage. Purchase Advice Connect is part of the OptiFunder Warehouse Management System (WMS), a platform that reduces funding expense with optimized warehouse allocation decisions, and automated tasks for funding through loan sale. OptiFunder clients reduce expense by $100/loan on average. Request a case study, or demo or receive a free back test of your data to see how much you can save with OptiFunder. 

Karrissa Wimberley and her four fire batons were definitely the highlight of every FSU halftime show she twirled in. Speaking of halftime highlights, midway through 2022, Sales Boomerang + Mortgage Coach’s Dave Savage and Experience.com’s Kristin Messerli interviewed 25 of the industry’s most influential LOs, mortgage executives and thought leaders to get their take on how to succeed in the current mortgage market. The 2022 Halftime Highlights Report distills those interviews into can’t-miss takeaways for busy mortgage professionals. Get your copy and light your fire today.

For MLOs looking to win or strengthen agent relationships, HomeBinder is now running live webinars to referring realtors as part of their value-add service to their mortgage lending customers/partners. Attended by individual brokerages or entire networks of agents in a geography, these webinars are a strategic opportunity to showcase the technology that is bringing value to both the agent and their client.  Click here to watch a summarized 6 minute sample. If you are interested in learning more about HomeBinder click here to schedule a demo. 

Optimal Blue is excited to bring another innovation to market to help lenders avoid basis risk and additional transaction costs. The division of Black Knight recently announced that CompassPoint, the industry’s leading risk management and loan sale platform, now includes ICE Mortgage Rate Lock Index Futures. This addition provides an expanded suite of futures to help you better manage interest rate risk with new techniques for hedging conforming loans, jumbo loans and mortgage servicing rights. These additional tools reflect Optimal Blue’s commitment to delivering leading secondary marketing functionality to support your success. Read more about this announcement in the press release. 

“As a pioneer of non-QM with over 26 years of experience, NQM is our DNA™, and it shows. IMPAC allows borrowers to tell their stories while our seasoned in-house underwriting and operations teams maintain 24-hour underwriting turn times. We understand that communication is critical when navigating brokers through the waters of Non-QM and help close loans faster by offering the ability to speak directly with our underwriters. We continue to work hard to help our brokers stay competitive: our 21 and Done™ program (details here) can save borrowers up to $500 on each loan; our Bank Statement, 1099, Asset Qualification, and Agency Plus programs offer up to 90% LTV for qualified borrowers; and we have a no minimum DSCR option for our DSCR program (subject to qualification)! Contact an Impac AE with questions, or become an approved broker today. NMLS #128231.”

With lower volumes and tighter margins, business intelligence is more important than ever. You need to know how you’re performing in real time as market conditions change on a dime. Richey May’s RM Analyze is business intelligence designed by and for mortgage industry experts. “Our platform consolidates data from every department and every piece of software you use, so you can get answers quickly. It provides just the right reporting from the C-suite to the front line, plus the functionality to build visually engaging reports on key indicators. Bonus: Our analysts have deep mortgage experience, so you don’t need to train us on your business. Get the cross-functional data, user-friendly dashboards and real-time analysis you need. Contact us today for a walk-through and custom implementation plan.”

FHFA & MIP 

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Yesterday, MBA and several industry trade organizations submitted a letter to the White House and the National Economic Council urging them to support the reduction of FHA’s mortgage insurance premium (MIP). In the letter, the groups highlighted that by lowering the MIP with a focus on FHA’s recurring “annual” premium will increase homebuyers’ purchasing power by reducing monthly payments and directly putting money into their pockets every month, giving them the opportunity to become homeowners and build generational wealth. 

Home prices have continued to show strong year-over-year increases, with the existing home sales price reaching $410,600, up 11 percent from one-year ago. New home prices have also reached record levels in 2022, climbing to $439,400. Since the beginning of this year, mortgage rates have climbed sharply and is more than 270 basis points higher than in January. The combination of higher prices and rates has put severe stress on prospective LMI and first-time homebuyers. According to the MBA’s Purchase Application Payments Index, the national median mortgage payment was $1,844 in July, up by more than $460 in just the first seven months of this year. 

The letter stated, “We recognize that any reduction of the MIP must be evaluated against the actuarial condition of the FHA’s Mutual Mortgage Insurance Fund (MMIF). Today, the MMIF capital reserve ratio stands at more than 8%, four times the statutory minimum reserve ratio. Just as important, FHA loan performance has recovered from COVID-related forbearance – FHA’s serious delinquency rate in the second quarter of 2022 at 4.64 has returned to pre-pandemic lows and stands at the lowest level since the first quarter of 2020. Against the backdrop of robust FHA capital reserves and rapidly deteriorating affordability, it is critical for the Administration to ensure low to moderate- income and first-time homebuyers are not left behind. Lowering the MIP – with a focus on FHA’s recurring ‘annual’ premium -- increases homebuyers’ purchasing power by reducing monthly payments and directly putting money into their pockets every month, giving them the opportunity to become homeowners and build generational wealth. As economic conditions continue to worsen, reducing the MIP also allows borrowers the flexibility to spend on necessary items like food, gas, education, and other monthly bills.”

Capital Markets

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Inflation isn’t just about fuel costs anymore, as price increases broaden across the economy. We learned yesterday that August CPI inflation was 8.3 percent year-over-year, down from 8.5 percent in July and 9.1 percent in June. The figure was disappointing (8.1 percent is what was expected), but more concerning was that core inflation, which removes food and energy prices to hone in on domestic inflationary pressures, increased from 5.9 percent in June and July to 6.3 percent and rose 0.3 percent month-over-month from July to 0.6 percent in August, suggesting inflationary pressures strengthened. With hourly earnings rising by much less at 5.2 percent, the standard of living for many Americans is falling. A significant contributor to inflation was rapidly rising rents, up 6.7 percent from a year ago to register the fastest growth in nearly 40 years. 

The reaction in the markets was dramatic, with the 10-year yield rising from 3.29 percent to 3.42 percent. The two-year spiked from 3.51 percent to 3.75 percent. The Fed Funds futures were already predicting a 75-basis point increase at next week's Fed meeting and are now pricing in an 18 percent chance of a 100-basis point hike. The impact of 225-basis points in rate hikes (75 in June, July, and September) hasn't even begun to be felt. The November futures are now pricing in a 75-basis point hike as well, raising the chance of a hard landing in the U.S. economy. We are conceivably talking about 400 basis points in hikes over the course of 9 months, which is comparable to the rate hikes in the early 1980s in terms of magnitude. And remember, we started the year with negative GDP growth, which means we could be looking at a major slowdown at the end of the year.

Turning to today’s calendar, mortgage applications decreased 1.2 percent from one week earlier, according to data from MBA. Activity was expected to remain subdued with mortgage rates rising to around 6 percent in the reporting period. And following yesterday’s retail inflation report, wholesale inflation is on today’s docket with the August PPI, down 0.1 percent month-over-month and up 8.7 percent year-over-year. The headline figure was expected to decline 0.3 percent month-over-month with the year-over-year rate ticking down to 8.5 percent from 9.8 percent. The NY Fed will conduct their last MBS purchase operation for the foreseeable future with paydowns in the Fed portfolio expected to be well below the $35 billion tapering cap when it purchases up to $387 million GNII 4 percent through 5 percent. We begin the day with Agency MBS prices worse .250 and the 10-year yielding 3.46 after closing yesterday at 3.42 percent.

Check out John McEnroe telling Jay Thomas' Lone Ranger Story on David Letterman. 

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2022 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)