The first half of the Lykken on Lending program will feature our Weekly Updates….to read more info about our regulars and weekly updates, go to our website!
Weekly Updates With Alice, Allen, Matt, Les, And Rob
It is Monday, January 10th, 2022. We’re so excited to have you joining us. I’ve got Jack Nunnery as my cohost. Jack, it’s good to have you on the show with me. This show is created by mortgage professionals. It is for mortgage professionals. We’re so grateful to have you as our reader. Our commitment is to bring you timely information that you can read anytime, anywhere. We’re excited to have you here. We’re bringing you some timely information we want to talk about. The Hot Topic segment is one that I’m excited to provide to you.
Julian Lumpkin, who is the Founder and CEO of SuccessKit will be in the program. He’s going to give us some ideas about how to increase your sales and close more effectively with people that are considering using you. We’re going to talk about referrals and the power of referrals. Be sure to go read the Hot Topic because Julian’s going to be sharing some great information with you. Let’s say thank you to IndustrySyndicate.com for them publishing our episodes. Check out IndustrySyndicate.com for all the shows that are available on that site.
A special thank you to Mortgage Bankers Association of America for their sponsorship and our partnership with them. Check out the Mortgage Action Alliance. Also, Finastra‘s Fusion Mortgagebot Solution. Experience the power of a fully integrated approach to mortgage lending. It simplifies the borrower experience and streamlines the process for employees. Anything we could do.
I had a great interview with Karen Jenkins on October 4th, 2021. Go back and read that. She has a good roadmap. They open up and talk about their roadmap and what they’re developing. Also, their approach to development. It was an interesting interview. I encourage you to go back and read that. Also, Lenders One and The Mortgage Collaborative. Both of these are coops that bring both the mortgage originator and the vendors together. That’s valuable.
Probably one of the most valuable things is how they get the lenders talking. It does not erase the vastness of the MBA. You should be a member there. These are two coops where more of our clients are members of them. They get so much more because it’s up close and more intimate. They’re getting a chance to speak to their peers of the same size. They’re looking at what are the solutions that are working for them. Check out both Lenders One and The Mortgage Collaborative.
I want to say a big thank you to Josh at Insellerate. Josh Friend does a great job with his technology helping connect borrowers. Also, Knowledge Coop, which connects you as a lender to the borrowers in a very effective way. Check it out. Go onto our sponsorship page. Listen to what Josh has recorded there. Any of his past shows. The last one we had him on was June 21st, 2021. Josh was in there talking about it. It has a great information episode. Our show is to be informational and you’ll find them to be so.
We’re working with Ken Perry of Knowledge Coop to get him on. They’re a great provider of a learning management system which you’ll find very exciting. He’s got a new release coming up and I heard about it. I was on a conference call with him. He’s got some exciting stuff that’s coming up. It’s going to be the industry standard. I’m barely convinced. Check out Knowledge Coop.
As well as Mobility MMI and Modex. These two sponsors do a great job of connecting you with loan originators and candidates in helping you recruit them. Also, Snapdocs. You got to check out their eVault solution. It makes it so simple to get started in eNotes. It’s so easy to help you transact across multiple partners that are using the system. Check it out.
Read the interview we did with Vishal Rana on September 13th, 2021. We’ve got one of our newer sponsors, Lender ToolKit. Brent Emler, we had him on November 29th, 2021. We also have SuccessKit who is on with us in the Hot Topic segment, Julie Lumpkin. Finally, I want to say a special thank you to our regulars, Jack Nunnery, Rob, Les, Alice, Allen and Matt. Thank you for your contributions. Let’s get over to the MBA Mortgage Minute with Rob Van Raaphorst and know what he’s got for us. Rob?
Welcome to the Mortgage Minute and the latest news from the Mortgage Bankers Association. FHFA announced that it has directed the GSEs to increase upfront fees for high-balance conforming and second-home loans. The fee increases are intended to ensure the GSEs better achieve their mission of facilitating equitable and sustainable access to home ownership while improving their regulatory capital position over time.
To minimize market and pipeline disruption, the new fees will go into effect for loan deliveries and acquisitions beginning April 1st, 2022. Be sure to register for MBA’s IMB Conference happening January 24th through the 27th, 2022 in Nashville, Tennessee. To register, go to MBA.org/Conferences. That’s it. Thanks for joining me.
Rob, thanks for the update. I appreciate it. The partnership we have with them is so valued. Check out Mortgage Action Alliance. This is one of those apps you can download from the app store and you can have your voice heard. Check out how you can read the latest legislative initiatives but check out what the MBA is saying and what they’re lobbying for on our behalf and you can add your word to it. Let’s get over to Les Parker with TM Spotlight and a macro view of the market. Les?
It’s where it ends. The curves all Bears from Yellen’s Friend. Bears win. Janet Yellen’s central planning tendencies pushes on demand and allowed supply issues to fester. Presto Inflation entered Jay Powell and the hawkish Fed turned the short-end bearish back in September. The long end tried to determine if inflation rises faster and stays longer than the economy sinks and lives in recession. The verdict’s in. Hot inflation and supply problems will stick around longer than it takes the economy to falter. Jay says, “Hello, high rates. We love you. Come enjoy the joyride.” Discover the joyride at TMSpotlight.com.
We enjoyed the joyride along with some great music parodies that give us an update on the markets. It’s good to have them. I appreciate the job they do. Good job, Les. I appreciate it very much. Matt Graham, Founder and CEO of MBS Live. You can sign up for it, be sure to. I encourage you to do so. We love it. We’ve introduced you to Matt and your services go, “This is cool,” other than us not liking what you’re telling us.
It continues to be a don’t kill the messenger as far as my market updates are concerned. The last time was particularly abrupt as far as the bond selling goes. It was more than a little bit confusing at times. Some subtleties weren’t immediately apparent unless you stopped and went back and looked at when the selling came across. Let’s break down everything that I’m saying here.
First off, the big pieces of news were the Fed Minutes which Les alluded to and the jobs report on Friday. We did see big sales after both of those events. I’ll talk about why in a moment. Incidentally, the biggest selling of the week took place when we didn’t have any significant data, news headlines or events.
We did talk about new year trading and the fact that at least half of the time, we see a big move on the first trading day of the New Year. Rarely is it tied to anything specific. It’s the way the ball bounces and the way traders are trading. For whatever reason, the positional considerations flow into the market for a new trading year, a new week or a new month.
New weeks and months can bring their trading positions anyway even if you add a new year into the mix. Especially during the new year when Japan and London are coming back online after two straight days off for holidays. It can add momentum if all of the traders coming back into the market are on one side of the trade. That momentum can be bigger than it otherwise would be because it’s still not a perfectly liquid environment. There are still not as many as there are before the holidays.
If there was a stealth takeaway, it could be this thing we talked about last time with the omicron surge, paradoxically being bad for the bond market. If so many people are getting it, things may be very bad in the short-term from a public health standpoint. We’ll see that jury’s out on that and I don’t have an opinion on that. The thing that market participants are considering creates a faster move toward endemic status for the pandemic. That’s something that would be bad for bonds because it would be good for the economy, good for the recovery and for life getting back to normal.
If that is incorrect, then it brings up another implication, which is that supply chain issues would continue to cause inflation and then inflation is bad for bonds. Either way, if you don’t have the Fed support and you have the expectation of a rising rate environment on the part of the Fed, then you don’t have anything to hang your hat on as far as keeping rates low.
Either the pandemic is going away and rates go higher or the pandemic isn’t going away and inflation goes higher. Omicron narrative for the bond market. The Fed did something very unhelpful. They did it three weeks previously in the meeting that proceeded with the last policy announcement. We got the minutes for that meeting on Wednesday.
To understand how the Fed hurt the market, we need to talk quickly about how important past precedent is for financial markets and understand the Fed’s line of thinking. The Fed doesn’t like the surprise market. The markets don’t like to be surprised by the Fed. One thing that seems very basic and odd that it would be this important is the idea of past precedent.The Fed doesn't like the surprise market. The markets don't like to be surprised by the Fed. Click To Tweet
The playbook is the order of events for the Fed or their order of operations as to how they normalize monetary policy. We have this place in the playbook that we have observed from the last and only time that the Fed has been tasked with normalizing its balance sheet and backing away from QE. That was the whole process that was incepted in the taper tantrum in 2013.
The timeline roughly was December 13th. The taper was officially announced. It wasn’t until December 2015 that they began to hike rates. It wasn’t until September 2017 that they officially announced the balance sheet would start moving lower and runoff. That’s where they capped their reinvestments and let it naturally move lower without needing to sell bonds.
That was the order of operations and that was a timeline that the market understood. The average market participant already knew that it was going to be a faster timeline this time around due to the nature of the pandemic and the fact that it wasn’t an organic recession that caused the Fed to jump in with quantitative easing.
In the minutes, it was essentially revealed that that process is not only going to be accelerated but drastically so. Over the next two days, a couple of Fed speakers confirmed that. All of a sudden, between the Fed accelerating the tapering process at the last meeting, the minutes contain this talk about balance sheet runoff happening much sooner after the first rate hike.
We’re looking at a rate hike that’s probably going to happen in March 2022. Balance sheet runoff could be announced as early as June 2022. The average respondent to a few surveys I’ve been in thinks it’s not going to be any later. Four times faster or more than the previous playbook would suggest. That balance sheet runoff is a big deal.
After the Fed tapers, the bond market still has a fair amount of buying demand guaranteed from those reinvestments. As those reinvestments start to run off, all of a sudden, you’re taking the biggest guaranteed buyer in the bond market out of the picture. That is bad for rates and bond valuations. It is probably the biggest reason for the sustained selling.
We are maybe seeing some support here with tenure yields in the 1.8 range. 1.77 has certainly been an important level but to whatever extent the economy remains on track or Omicron looks better than Delta as far as its public health impact, these things continue to be concerned as far as a sustained rising rate environment. At some point, technical will kick in. Value buying will kick in and will be oversold enough for there to be a nice little counterattack but it’s not the kind of thing we want to bet on until we see it materialized. As far as data, CPI, probably the people that are watching the most is expected to come in at 0.9 last time.
The periodic inflation updates are going to continue to be important but I would urge everyone to remember that since inflation is measured year over year. Even if prices simply hold steady at these new super high levels for whatever you’re measuring, whether it’s a jar of peanut butter or a used car, the inflation is going to come down even if prices hold steady because it’s measured in year-over-year terms.Inflation will come down even if prices hold steady because it's measured in year-over-year terms. Click To Tweet
The very last thing is MBS coupons. I’ve been getting a lot of questions about this on MBS Live, like which coupon do we have. We do have a primer on that. You type in the word coupon in the search. Use a little magnifying glass so you can find it pretty easily. It talks about the fact that if you remember nothing else, remember that any given mortgage rate can be slotted into an MBS coupon. You take the MBS coupon and add a quarter of a percent. That’s the minimum mortgage rate that can go into that coupon. Add 1.125%, which is the maximum rate. If we’re at 3.625 minus 3.375, that would be going into a 3.0 MBS coupon. If you’re over 2.75, you can’t get into the 2.5 coupons.
We are looking at a 3.0 coupon, whereas we were looking at a 2.5 coupon for a long time. Many of the loans that are being originated can still get into a 2.5. By the time you get to 3.75, you can no longer use the 2.5. 3.0 is much more nimble. In that sense, much more versatile. It’s not winning any records in terms of production but it is the place that we’re watching. Until and unless we see a rally that takes us back to levels that we saw. We always update that on the fly as needed on MBS Live.
I love the commentary that goes on here. Don’t like some of the screens the way it was spiking. It’s also been brutal to watch. It goes to this whole point. Jack, I love to get your commentary on this as we talk about this. The volatility that we’re going to talk about, Les Parker talked about this. I was on a conference call with Les and doing what Les does talking about that. I was saying, “Les, did I dream this? Did you say we could see the tenure under 1% again in 2022?”
In my head, I had 200 probably basis points, trading and rating. He goes, “I’m in a 1.68 trading range in 2022 but a lot more volatility than we had in 2021.” What you do a great job of is talking about where the markets are at and how people are talking about and responding. That’s the value of MBSLive.net. That’s what you do extraordinarily well. I always like your insights because you got a real good pulse on what’s happening out there. Any thoughts about what kind of range we got?
I do like to talk about the range of possibilities. I don’t like to predict that we’ll be on one side or the other at any given time. One thing I always like to come back to is this. The late 1970s and early 1980s were an aberrant time for inflation and rates, which was a one-time spike of levels we’re never going to see again. To be worried about 5%, 6% and 7% tenure yield is the old guy thinking and not relevant. Ever since then, we’ve been asymptotically approaching a zero lower bound, where zero isn’t actually zero but something maybe 1% to 3%. I’ve been saying 1% to 3% is going to be our long-term sideways range for ten years. That’s still probably pretty fair.
Did we get under 1% in 2020? Yeah, but we all know why and can agree that that is not the kind of situation that’s hopefully going to be recurring in the future. Is 1% possible in 2022? Totally. I don’t see a strong case for that. It would involve some drastic turn-in probably would have to be COVID or some kind of world war perhaps.
We’re thinking about this inflation narrative. That’s what makes it tough. If inflation had calmed down as the Fed expected earlier in the pandemic, it would be a lot easier to make a case for 1%. We would need to see it get to be less of a concern for that to be attainable. On the other hand, how bad could things get. Is 3% realistic for 2022? It feels like a bit of a stretch.
I like to look at fractals. The patterns repeat with clockwork regularity or in ways that are like, “It did end up doing that.” The pandemic was one of those where it mirrored the drop in yields that occurred in the initial financial crisis but I digress. The point is that wind yields were rising at their fastest clip in the past decade. If we rose at a similar pace over this 2 to 3-year period, it would put the top of this range around 2.4% in tenure yield. That feels like a middle-of-the-road target for a rising rate environment. If ingredients remain in place to continue upward pressure on rates, 2.4 would be where things would start stalling out or have a nice little bounce.
With how fast things were climbing, I was thinking, “We may get there sooner than we want.” This was not sustainable. What goes up must come down. It is a little bit but I got to give you a bedtime, Matt and go to Jack. Jack, did you hear him refer to an old guy thinking?
That’s an article I wrote. I wrote an article that said, “Worrying about high inflation is the old guy thinking.” I have to harken back to that.
Jack, you and I are the old guys on this show. Comment on that, Mr. Nunnery.
First of all, Matt, that fits me perfectly. I’ve been worrying about inflation. You slung the hammer and hit that nail right on the head, if that’s old guy thinking then.
It’s not inflation. It’s worrying about 6%, 7% and 8% inflation.
Not 16%, 17% or 18% like we saw back in the late ’70s and the very first part of the ’80s.
Matt, you answered the question that I had and that is, do you think that we’re going to see the first rate hike in March 2022 coming out of the Fed? What’s your handicap on that being the first-rate hike that we see in ‘22?
As far as the information we have and if there aren’t any major changes in the trajectory of how things have been going, it’s at least an 80% chance, if not more that it would be in March 2022.
When we talk about 2022, throughout, some of the potential drivers could take the pin down or cause to pin the rally. He mentioned that war word. 2022 is going to be a bump-up year. What do we got? We got inflation. We got Ukraine and Taiwan. We’ve got elections in 2022. This could be a very volatile gear depending on how the geopolitical front plays out across the globe, how elections transpire here statewide and then mix in inflation and COVID. You’ve got a recipe for volatility depending on what materializes does apply.
We hope that Russia and China are all talking in terms of starting those wars. If they’re not, then that’s a feather in the cap for low rates, even though the motivation isn’t something we would root for. Matt Graham, I love what you do. I get so many compliments since you joined the show and the detail you have. I encourage people to sign up for this. You could get the extended trial without a credit card, which is sometimes required but it doesn’t require for LOL. Put the code in there.
Matt, you did a great job. I do appreciate you. It’s nice that we have someone on the show reminding Jack and me how old we are. You do a great job. I appreciate it very much. Go back to work. Quit messing with the markets. Get this thing turned around, keep it going down. We blame you for everything, good and bad. That’s the job you have. Have a great rest of your day. I’m grateful to have you here.
Alice Alvey could not join us. She’s got something going on. I talked to her earlier. She said hello to all of our readers. She brings us so much great content. I do want to talk about something and get Jack on this. We are talking about two words. The W word is War. Matt was talking about that. The C word is COVID.
We’re looking for the US Supreme Court to rule on whether or not they’re going to uphold the Biden administration vaccine mandate and OSHA enforcing it to companies. I’ve been doing more calling informally, calling around. Certainly not an official survey but we’re hearing more people saying, “David, it’s not going to affect us because almost all of our employees work from home anyway.” That’s a carve-out for this. Jack, I love to get your thoughts.
The Supreme Court heard arguments on Friday. It’s going to be a closed call. It’s leaning towards a 5-4 or 6-3 decision to uphold the stay. We’ll see how that plays out. OSHA doesn’t start letting fines until February 9th, 2022 and up to $14,000 current. There’s still time for the Supreme Court to deliberate. Based upon what I’ve been reading, it looks like a 5-4 or 6-3 vote to uphold the stay of walking the implementation of the OSHA vaccine mandate being that it is an overreach of Federal authority.
I’m on the other side of that coin. Reading the Reuters, which is one of the most recent ones, conservative US court justices question. There’s more of a leaning against the Biden administration. That’s what Reuters approved. A couple of others came out with that. It’ll be real interesting. I’m certainly hoping that it gets cast down or overturned so that they do not support it.
I don’t know the unattended consequences of upholding that to put that on companies. There are so many people. There’s such a volatile charged issue that you’re going to find a lot of people saying, “Forget it, I’m not going to stay here. Find another company that’ll let me work from home.” That’s certainly a trend that is very popular amongst the operational people. It’s harder to hire an underwriter if you’re saying, “You got to come into the office.” More of them are saying, “No. If you want me to work for you, I got to work from home.” It’s going to be interesting.
It was Les or Matt who was talking about the latest job report. It was supposed to come in at about 400,000. It came in at 199. That was a surprise. Another surprise was unemployment fell from 4.2 to 3.9. We’re in an extremely tight labor market. To disrupt countless thousands of employees with the OSHA vaccine mandate could further exacerbate what is already a tight labor market.
It could and we shall see. It’s going to be coming out sometime. We should be hearing something. Let’s see what happens. Thanks, Jack. I appreciate your thoughts on that. Let’s get over to Allen Pollack, who’s joining us with the tech update. Allen, how are you doing?
Mr. Lykken, what’s happening?
I’m doing well. I’m excited to hear what you got going on in the tech update. A lot is going on. Mergers and Acquisitions in the tech space are taking front and center. There are a couple of more M&A that’ll be announced. I’m a part of a mastermind group. I’m hearing about their pending announcements. There is a lot to talk about.
I don’t have anything to report on M&A but there are a lot of deals that didn’t complete in ’21 or there were too many deals to complete in ’21. Lots of great things are still to happen in ’22. It is just on that topic, David. I’m going to keep this segment because we’re running a little over. The market update was fantastic. I’m willing to give up a little time there.
I appreciate that.
It’s hard to get into the market if you’re a brand-new tech company. If you’re starting your garage or you’re based in Silicon Valley, it doesn’t matter. This is an industry where you need to know people. You need to understand the technology, lingo and dataset. It’s not easy to get into. For the folks that have gotten in or have been able to get some initial seed money or sponsorship, they were part of a small lab. If you remember, Flagstar had a full-on tech lab going on.It's hard to get into the market if you're a brand-new tech company. Click To Tweet
If you happen to be able to get into one of those, you’re getting acquired. These smaller entities and vendors got great ideas but acquisitions will continue to happen. It makes them have more meat. It makes them more powerful as far as what they can offer to you as a lender or as a bank. We’ll continue to see more of that.
You’ve got some of the big folks out there that are taking a big grab at owning as much as they can, especially as the newer technology that we haven’t even been able to put our hands on yet. It’s still coming our way. Blockchain and the consolidation of the process are interesting. It’s funny you bring this up, David, because a couple of the points in my segment read into this.
I do want to very quickly announce that the CES, Consumer Electronics Show, ended in Las Vegas. There were fewer people than normal. Every year, after CES, I bring up a couple of cool things. There was nothing fantastic. It was a lot of electric cars and concepts. If you google it, the most widely cool thing that anyone says is out there is a monitor called the Odyssey Ark. Instead of a monitor being curved horizontally from left to right, it’s heavily curved vertically from top to bottom. It’s strange looking. I don’t know but it’s out there. Honestly, I didn’t see anything. There’s not a lot on TV or the internet. There was not a splash here for CES. I’ve got one of these monitors.
If you have one, we’d love to hear your feedback because it took me a couple of months to get used to it. They say that it’s great because you don’t have to turn your head to get the crank but you do. You can’t just move your eyes left or right. What’s tricky about going horizontal is you wind up putting too much stuff on the screen. You can’t get anything done. It’s like paralysis. You’re better off taking your iPad to a coffee shop and drinking a coffee and getting your work done.
David, since I’ve got a mini platform for a second, I’m trying to buy a home. If we could stop these home prices from rising. Matt, if you have any control over the market. Speaking of home prices, we’re in this very unique place. We’ve got the big job retirement era. I forgot what it’s been labeled but a lot of people are leaving their job to open up mobile dog grooming locations and things like that.
They’re looking for a change. We’ve heard about Zillow and the iBuyer program. They canceled the entire platform where they turned it off. 2 out of every 10 homes that are flipped by the iBuyer model wound up with investors in large institutions. It’s squeezing out new buyers. It was due to bad technology. The reason why is it’s a little bit out of the game but the bad technology made a horrible valuation.
They incorrectly valued the market, the properties, the locations and everything about them. It’s about 100,000 properties they had. A good majority of those properties due to that technology and the bad valuation models had never even hit the market. They’re being sold to large private institutional folks. There’s some interesting thing going on there.
If you want to check it out, it’s probably going to continue to make some news here and there as they look to sell the rest of that portfolio off and go from there. Fraud is huge. NDXT is reporting that fraud costs mortgage lenders more than any other segment, which is crazy. In 2021, in addition to LexisNexis, they looked at the true cost of fraud and mortgage and it rose from 6.7% to almost 10%. Every dollar costs mortgage lender $4 at a minimum. That’s huge.
You’ve got to think about your data policies and security policies. Getting back to what we were talking about which has to do with fraud and what happens at a data breach and all those different things, I’ll save the bigger piece because it’s more descriptive for next time. In the first 24 hours of a data incident, you have to isolate the location of that data breach, stop additional loss and interview all the people that were involved.
I didn’t share that one last time. The first two were a recap. Whoever was involved in that data breach, once you’ve identified it, you must interview them and save all your data, information and records. Next time, we’ll get through the whole segment of data breaching. Hopefully, the market won’t be moving too much. Other than that, it’s a great week. Thanks, everyone, for reading. I’m looking forward to the Hot Topic.
I appreciate it. I’m looking forward to it as well. Allen Pollack can be reached at [email protected]. Allen is available. He loves hearing from you. Be sure to get ahold of him and share your ideas and what you’re seeing out there. Allen, thank you so much. That wraps up this first part of the show, which is an update and all that goes on in the mortgage market. We try to bring you current information. Spend a little more time on the market because it’s critical. As you look at where’s this thing going and what’s happening, that was worth the investment.
That wraps up the weekly mortgage update. In the next episode, we’ve got Whitney Nelson of Brilliant People joining us. We’re going to be talking more about personality profiles. How do we work effectively within a company? How do we interact with people more effectively? I just met Whitney Nelson. We share a passion for culture within companies. I’m excited to share that interview with you.
I want to say a special thank you to our sponsors. Finastra, Lenders One, Insellerate, Mobility MMI, Modex, The MBA, Knowledge Coop, The Mortgage Collaborative, Snapdocs, SuccessKit and Lenders ToolKit. I’m so grateful to have all of these as sponsors. We appreciate you being here. I look forward to having you back here. Have a great time. Thank you.
- Mortgage Bankers Association of America
- Mortgage Action Alliance
- Karen Jenkins – Previous Episode
- Knowledge Coop
- June 21st, 2021 – Previous Episode
- Mobility MMI
- Vishal Rana – Previous Episode
- Lender ToolKit
- Brent Emler – Previous Episode
- [email protected]
- Brilliant People