Lykken on Lending

The first half of the Lykken on Lending program will feature our Weekly Updates. Go to our website to read more about our regulars and weekly updates!

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Weekly Updates With Alice, Allen, Matt, Les, And Rob

It is Monday, February 28th, 2022, the last day of February. We are about ready to put that in the review mirror. We are going to start in March. What a crazy time it is with what is going on in Ukraine. I can’t wait to get Matt Graham on here and get talk to you about that. I also listened to Les Parker’s soundbite that he put into us. Great content we got coming to you.

This show is created by mortgage professionals. It is for mortgage professionals, realtors, builders, and anyone else that wants to read. We got some consumers reading from time to time, graduate students, people in finance, and colleges. We picked up a good listing group within certain universities through a compliment. I love to hear from you and thank you so much to many of you that have contacted me to let me know.

“A professor turned me onto your show. It is good. I appreciate it.” The reason we do that is that our commitment is to bring you timely information in a blog format that you can read anytime and anywhere. Talk about a timely hot topic segment with Brent Chandler, Founder, and CEO of FormFree, and Kevin Kauffman, Vice President of Client and Partner Delivery at Freddie Mac.

We are going to be talking about Freddie Mac’s recent announcement of a capability that allows mortgage lenders to access home buyer income using direct deposit data and FormFree is a Freddie Mac partner. We are here all about that and how they are working together, how that came about. Freddie Mac is a major leader and the others as we refer to them sometimes the evil twins, Fannie Mae, they are the leader but here comes along a guy like Brent Chandler, Mr. Innovative. “I got this idea.”

I love his energy and his positive outlook. We are going to have both Kevin and Brent on in the show. You are going to enjoy this interview. I’m looking forward to sharing it with you and having you be a part of it. It is going to be great. Text me with questions as we are doing this. Text them at (512) 632-2900. I will be sure to put them on and in front of them as best I can.

Let’s get over and say thank you to some folks with that we are partnered with Industry Syndicate. Check out all the shows at IndustrySyndicate.com. They do a great job of promoting my show. Special thank you to the MBA, Mortgage Bankers Association of America. Be sure to get signed up for the Mortgage Action Alliance Application to have your voice heard, and support what they are doing on the hill. They are a powerful voice for us. We are not the biggest group in the world. The realtors association has a much larger voice so do the builders. We need to make sure that we support the efforts of the Mortgage Bankers Association of America and what they are doing. The MBA does a great job.

How can you do it? Whether you are a member or not, you can download the Mortgage Action Alliance App and have your voice heard because when you agree with something they are saying and you post it, it will go out to all the various representatives and senators where you are located. It is a great tool and functionality there.

Also, Finastra Fusion Mortgagebot Solution. We are grateful for their sponsorship. They are a market leader in providing point-of-sale origination platforms. I’m going to be with them. I’m speaking and moderating for Finastra at the IDCA down in San Antonio. We will be down there doing a session with all the community bankers flying into San Antonio. For those of you reading, I’m going to be there. I look forward to seeing you come up. Sure to introduce yourself. I love to hear from you.

Lenders One does a great job along with The Mortgage Collaborative. Both of these co-ops do a great job of communicating with vendor members and lender members. They get everyone to communicate better. It doesn’t replace the MBA, but both these organizations do a great job of helping bring small and more intimate groups together to talk about your business. We got the Ledgers One Conference coming up. It is out at the Winter Conference in JW Marriott and Phoenix. I look forward to seeing many of you there. The Mortgage Collaborative has its TMC days in Miami at the Fountain Blue which is going to be from March 19th through the 22nd,2022. Both these co-ops do a great job and these conferences, be sure to get out to them.

One of our newer sponsors, Total Expert. It is great to have them. Their leading fintech software company delivers purpose-built CRM. I love that purpose-built. Imagine that. It brings about greater customer engagement and helps many. They got a new platform that they are going to be announcing on our show. It is exciting the Total Expert platform unified data marketing, sales, and compliance solutions to provide a cohesive experience throughout and across the customer lifecycle. I’m Looking forward to having them on again as guests. We got them scheduled for March 28th, 2022 as a guest on the show.

Knowledge Coop does a great job helping you with our learning management system. Go to TryTheCoop.com to find out about what is being released on April 1st, 2022. Mobility MMI and Modex. Both of these tools give you access to data that is rich when it comes to recruiting. Both these companies do a great job at giving you intelligence and where to go, what markets open up to, and who to recruit in those markets.

Snapdocs is an eVault solution that will help you simplify eNotes and transact across many partners. They are also doing so much when it comes to eClosing and pushing the whole eAgenda forward. Checking them out. We interviewed Vishal Rana here and we did it back in September 2021. They are still getting a lot of downloads.

Success to Julian Lumpkin at SuccessKit, helps you tell your story through testimonials. Nothing is more powerful than another voice communicating about what you do and have done well for others. Check it out. We interviewed Julian on January 10th, 2022. I encourage you to check that out. Lender Toolkit, my friend Brent Emler was there as well as PennyMac and DW Consulting. We are grateful for them. Special thank you goes out to Rob, Les, Alice Allen, Matt, and Jack Nunnery for their contributions to the show each and every week. Let’s look get moving on with the report from MBA Mortgage Minute. Rob, what do you got for us?

Welcome to the Mortgage Minute and the latest news from the Mortgage Bankers Association. FHFA released a long-awaited re-proposal of updates to the capital liquidity and net worth requirements for servicers of loans backed by the GSEs. These requirements primarily would apply to IMB servicers with certain additional requirements placed on large IMB servicers i.e. those with servicing portfolios greater than $50 billion.

Comments on the proposal are due on April 25th, 2022. FHFA noted that it expects to finalize the updated requirements in the second quarter with most elements taking effect on December 31st, 2022. MBA will further analyze the proposal and develop comments that reflect the vital role IMB servicers play in the market. That’s it for now. Thanks for joining me.

Check out the MBA’s Mortgage Action Alliance app. I encourage you to do that. Let’s get over to Les Parker and the TM Spotlight to see what he has for us.

Since no one counted on NATO to welcome Ukraine, the markets expect a negotiated settlement. Russia will get a presence in Ukraine and no NATO. The market ignores Putin’s stance. Provided cyber warfare does not break out. The oil bond and equity markets anticipate no significant economic damage to the Ukrainian David and Goliath skirmish. The ten years trap below 210 with wild intraday moves and a bias towards lower rates.

Be sure to sign up for the TM Spotlight newsletter. You can do TMSpotlight.com. You could subscribe to the paid version by putting in the word POWER for PowerSeller. Matt Graham is here and you can sign up for MBSLive.net for the extended trial period by putting in LOL for Lykken on Lending. Matt, it is good to have you here.

There are a few things going on in the market, an interesting move in bonds here and there. Maybe a little bit bigger than it has been. It has been ridiculous. Ever since CPI and Bullard’s comments several weeks and the day after that when the Ukraine headlines intensified and it has been nonstop. Back-and-forth volatility, a lot of confusion, and questions about why things are happening the way they are. In general, it is fairly logical in the sense that we have a major geopolitical conflict and the bond market responding to that in a logical way. The bigger questions come into play when we talk about what is going to happen next, what are the ifs and then, and what lasting impact this could have in financial markets.

Geopolitical Conflict: We have a major geopolitical conflict, and the bond market responds logically.

On that note, my analysis, take, or opinion would continue to be what it was before this flared up, which is that in the big picture, longer-term unless something more catastrophic happens, this is temporary volatility for the bond market. If sanctions get onerous enough and the EU and the US fully pull the trigger on banning Russia from SWIFT and they have already banned certain central bank transactions, it is hard to keep up with everything that’s going on with all of the sanctions and responses from the international community.

The proof is in the pudding. What happens to the Russian economy and its interactions with the global economy afterward? Most trades are hit by global GDP. As a result, that is generally bond market positive and inflation negative. There is an inflation component because of oil and that was one of the first yaba that we discussed on this show. There has been a response in oil but it hasn’t been scary.

Oil was higher and it is still elevated from $95 to $99 a barrel, but it hasn’t been skyrocketing. Given the fact that a lot of the highness or level of that price is accounting for a lot of uncertainty with this conflict, if it were to be over, that price would come down. It seems like the average opinion among people who know more about energy than I do would seem to suggest to puts upward pressure on oil prices.

It is not great for inflation. Inflation is not great for bonds. The bond market is pricing in more market-based inflation and that is derived from treasury inflation-protected securities yield minus ten years treasury yield. That number is higher than it has been in several months and that had interestingly been fairly low relative to the past few months and in recent weeks.

Surprisingly, when things like CPI were moving the market so much in any event, a lot left to play out. There are several different outcomes here. We don’t know which one we are going to get necessarily, but whichever one we get, it is going to have a big effect on how much the geopolitical situation is going to matter. Let’s hope we get one that doesn’t help rates too much because those are ugly for the world.

How much are they helping rates? Not as much as we might hope, but they have put a ceiling in and a little bit more improvement. Mortgage lenders have been hesitant because of the spread situation and the uncertainty. We don’t like to have big volatile moves accounting for gains. It is not a comfortable thing to base rate sheets on. Beyond that, MBS spreads are blown way out since the Fed started talking about more aggressive normalization.

The other component of that is yield flattening. Two-year treasury yields become more like 10 and 30-year yields due to Fed rate hike expectations and if we consider that rates above 4% are ripe or refinancing in the event that rates fall below 4% by any reasonable amount in the next several years. That means MBS durations the average lifespan of a mortgage-backed security is much shorter now than it was when rates were lower and when those loans were being originated in the upper-2% to mid-3% range.

Faster speeds, shorter duration and match that up against the treasury market where the shorter-duration treasuries are doing much worse than longer-duration treasuries. That gives us another reason for MBS’s underperformance. To circle back to volatility, MBS doesn’t like volatility. They will gradually narrow to their best spreads if the bond market is stable. When the bond market is going crazy, it is another complicating factor and that is why on several occasions, we didn’t see rates. It has improved very much even though ten-year treasury yields had dropped quite a bit. It is looking a bit better. If the Ukraine situation comes to some amenable conclusion or at least a shifting of the gears, who knows how much of these gains will remain?

In economic data, a quick reminder, we do a PAL testimony on Wednesday and Thursday. This is scheduled for semi-annual congressional testimony. House on Wednesday, and Senate on Thursday, 10:00 AM Eastern time. Those can be market movers. He will clarify probably the 50 basis point hike stuff that is completely out the window. Not that it was ever a huge likelihood in my mind, but the market for a few hours thought it was.

On the jobs report Friday, we talked about that maybe not being as much of a market mover before it made a big difference. I wouldn’t rule out the jobs report as a market mover even if it is because traders are used to making big moves on jobs day and that is going to do it. We are watching technical levels. We are going to see if the market gives us an indication that it is game on. Even if it is game on, we have to worry or wonder that it could be game off if things changed on the geopolitical stage.

Jack, let’s jump you in here.

I do have a question for Matt. David, we could spend the rest of the day unpacking the conflict in Ukraine, but Matt, the one thing that I haven’t been able to get my arms around is the SWIFT sanctions. It seems like NATO and the United States have been obscure with what sanctions have been imposed. Banks haven’t been named, the banks that were included in the SWIFT sanctions. This does not close commerce off. We got oil flowing into the United States. Russia and Ukraine constitute 29% of the world’s grain exports. Ukraine is not exporting grain because their ports are closed, but have you been able to unravel which Russian banks are involved in the current version of the SWIFT sanctions and what that means to global commerce or at least commerce traded by Russia

I wish I knew anything about any of that because the swift sanctions have been obscure and even making sense of exactly what the implications would be are tough for somebody that isn’t in the international clearing. That is a realm that few people are experts in and even fewer that are talking about it on TV or online.

What we do know is that SWIFT is the PayPal of the world and there is no Venmo in that world. It would greatly decrease the ability for companies that bank with different banks to exchange money securely with one another for any number of transactions. It is not that there aren’t work rounds, it is that this is such a ubiquitous system that cutting off access. Commerce takes a hit and we haven’t seen any huge consequences of that so far.

As far as I understand, we have some “targeted” SWIFT sanctions but nothing completely blocks the entire country or every bank in Russia. Sanctions are more onerous than they had been in 2014. Russian currency is showing that. It is striking to consider that the ruble was around 30 rubles to the dollar during the 2014 Ukraine situation. After those sanctions, it doubled to about 60 rubles and it was as high as 100 rubles and I think it is around 90 rubles. It is devalued threefold in the past several years. It is a crazy move and 30% of that was in the past weeks. That has complications. Russia is a big component of the global economy, not a huge per capita component, but it is a big place.

Geopolitical Conflict: Russia is a big component of the global economy, not a huge per capita component, but it’s a big place.

There is a lot of talk going on about oil. That’s a huge problem for Europe. Not as much for the US. We don’t import a lot. The US is the number one petroleum producer and thankfully. In Germany, there is a sticky situation there and we saw an inflation pop in German inflation expectations when this whole thing started. That is something to keep an eye on since Germany is the EU when it comes to markets since it is such a big part of the Euro economy.

You always bring such a good perspective. Great question Jack.

I have been reading and digging. I haven’t been able to get any clarity on it. You reinforced the fact that I did miss something in my research.

I was looking at that too. My wife was asking more about SWIFT banking. I got it because we wire money back and forth overseas and we got that familiar with it. The inner workings, what this means, the complications it brings, and how the implications in interest rates are not a direct correlation. It is not obvious. Thanks, Matt. I appreciate you so much for being here. Let’s get over to Alice Alvey, CMB Vice President of Education Training at Union Home Mortgage with the legislative update. What you got Alice?

I found Matt’s information intriguing for those of us who don’t live it every day and don’t have the depth of knowledge that Jack and Matt do. Thank you Matt for expounding upon that question in a way that helps make a few more things make sense. Thank you for that. I’m going to keep it short because I know we got some great guests coming up and also because congress has been closed. There are not a lot of new things going on.

What was interesting is we had Mitch Kitter on the show. I value Mitch’s insights and opinions. We have the Wiener Brodsky Kider newsletter that comes in. It is one of the many things that I read. One of the things that came up was a topic that we used to talk about all the time, David, and that was vendor management. Do you remember when all of that came out? We had to spend so much time because lenders were trying to understand how much detail do I need to go into with each of my vendors.

I encourage you to check it out. FTC gave final approval to a settlement with a mortgage industry data analytics firm concerning the company’s use of a third party to process sensitive information. In this complaint, the FTC alleges that the company failed to name a comprehensive information security program as required by the Gramm-Leach-Bliley Act, which impacts all of us. Independent mortgage, bankers, brokers, lenders, you name it. We all have to make sure we are keeping information secure. This was interesting because it went into that the company hired a vendor to perform text recognition scanning on mortgage documents and somewhere in there was a gap in who had access to information and how the servers were being managed.

It is a case worth looking at because the way it is itemized in the attachment in the actual final approval from the FTC gives you a roadmap as to how detailed information you should be digging into when you approve your third-party vendors. It goes through many layers. It is not the vendors I’m using but the vendors I’m using also using vendors. We have 2 or 3 layers of vendors that we are all working with.

It was a good reminder, a topic that needs to get brought to the surface periodically. This case was a good reminder that everybody needs to make sure they are taking a look at their processes and that they would be able to document and live up to this type of scrutiny. Last but not least, Dave, desktop appraisals are a week away from Freddie Mac. On March 6, 2022, we are looking forward to seeing our LPAs with some indication of when we may be able to get some desktop appraisals approved. We are looking forward to that. That is it for now, Dave. Back to you.

Thank you so much, Alice. Appreciate it very much. Great job. Desktop appraisals are an exciting thing. I tell everyone to go out and read the interview that we did with Allan Weiss. It was on February 8th, 2022, that we published the Allan Weiss episode. It was a special episode and I encourage you to go check that out. It was one that Jack and I did. Jack, you attest to it. It was one of those exciting interviews.

There is a lot of innovation there. Allen Pollack couldn’t join us. He is in a client meeting. We wish you well, Allen. I always love his updates, but we are going to move right on. This wraps up the weekly update. Next episode we got Chris Zingo from Finastra, the largest fintech company in the world. We have had the privileged to have him as one of our anchor sponsors for many years. We are thrilled to have them there.

We are going to be talking with Chris about what he is seeing going on. I’m joining the Finastra team down in San Antonio for the Independent Community Bankers Association, ICBA’s Lending Conference. For those of you reading, we will look forward to seeing you there. We are grateful for Finastra and looking forward to hearing Chris’ comments next episode.

Special thank you to all of our sponsors, Finastra, Lenders One, Mobility MMI, Modex, the MBA, Knowledge Coop, The Mortgage Cooperative, Snapdoc, SuccessKit, Lender Toolkit, PennyMac, Total Expert, and FormFree. We are grateful for you, FormFree, and all the innovation you are bringing to our industry. Have a great week everybody. I look forward to seeing you back here next episode.

 Important Links

• FormFree
• Freddie Mac
• IndustrySyndicate.com
• MBA
• Mortgage Action Alliance Application
• Finastra Fusion Mortgagebot Solution
• Lenders One
• The Mortgage Collaborative
• Total Expert
• TryTheCoop.com
• Mobility MMI
• Modex
• Snapdocs
• Vishal Rana – Past Episode – 9-13-2021 Why Digital Transformation needs great Customer Success teams
• SuccessKit
• Lender Toolkit
• PennyMac
• DW Consulting
• FHFA
• TM Spotlight
• PowerSeller
• MBSLive.net
• Union Home Mortgage
• Wiener Brodsky Kider
• Allan Weiss – Past Episode – 02-08-2022 SPECIAL EPISODE: The Great Migration Driving Markets And Transactions With Allan Weiss
• Independent Community Bankers Association