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 March 28th, 2022. It’s good to have you here with us. This show is created by mortgage professionals for mortgage professionals. We’re so grateful to have you here as a reader. Our commitment is to bring you timely information that you can read anytime, anywhere. I was in the Fontainebleau North South Beach outside of the war zone. There’s some gunfire going on. We had a reception in South Beach, guns blazing and police all over. It’s crazy what goes on in these spring break crowds.
We were at the Fontainebleau. You can only imagine what that looked like with a whole bunch of spring breaks and convention goers all mixed in together. That was interesting but it’s good to be back with you. We had a great conference at TMC. We’re excited to be back again. Some of the time of the information we have for you is we’ve got Snapdocs presented.
We have Briana Ings, who is the Vice President of Product Development. She will be talking about a new product they’re releasing specifically in the context of how important it is to increase operational efficiencies. In light of this current environment, we find ourselves with shrinky margins, rising interest rates and less business. We are looking forward to having Briana come on and talk with our audience in the Hot Topic segment. Jack and I met up with her. We were encouraged by her view of the markets and you’ll want to pay attention to this episode as you can discover new ways to operate more officially.
I want to say a special thank you to our sponsors, the Mortgage Bankers Association of America. Be sure to check out Mike Fratantoni‘s financial review. We got to get him back on talking about what’s going on with interest rates. A substantially greater increase than anyone saw happening that’s going on. We also want to say a special thank you to Finastra’s Fusion Mortgagebot Solution. They have a great product and a LOS. They have point-of-sale technology. I encourage you to check out the episode with Karen Jenkins talking about where that product is going as long as the more recent one Chris Zingo was on March 7th.
Special thank you to Lenders One. That last conference we were at in Phoenix was amazing. As well as The Mortgage Collaborative. Thank you for your sponsorship. They did a great job. Richard Swerbinsky did an awesome job running this. There was one particular thing that was fascinating that they did. They had a mock presidential debate. It was three individuals speaking up there. One was for getting back into the office. The other one was against getting back in the office. The third one was a hybrid model. We had so much fun with that. It was a fun debate but it was interesting. I wish you could have been there and checked out because we are going to have them on the episode. We’ll let you know when that is. Be sure to check that out.
Also, I want to say thank you to Total Expert. I had a chance to sit in several sessions where Total Expert was presenting what they have built and what they’re doing with their purpose-built CRM and the customer engagement platform is nothing less than amazing. You’re able to start tracking what’s going on with borrowers that you have not funded loans for, that you have leads on and looking at certain aspects of their credit, for example, and when they’re ready to go.
They have a credit monitoring feature. They turned on Joe Welu on March 14th, 2022. I talked a little bit about that. Go back and read that episode. Also, Knowledge Coop is launching its new version of the coop on April 1st, 2022. We’re going to have Ken Perry talk about that. As well as Mobility MMI and Modex. Both of these companies do a great job of helping you recruit the right officers and loan originators and bring them in with the confidence of what they’ve represented is true. Check out both of these. If you have any questions on how to use any of them, give me a call. I have got so many new ideas about how to use these two powerful tools when it comes to recruiting.
As well as SuccessKit, if you want to increase your closing reigns, you can do so by introducing social proof. I love this concept of real social proof. This is where you get people talking positively through case studies and talking and giving references to your business. You need to check this out. If you’re an LO, you should use this. I don’t care if you’re a big company. You should be using this. Check out SuccessKit.io.
Also, Lender Toolkit does a great job. As well as FormFree. I’m thrilled to have FormFree with us and then DW Consulting, Debbie Wemyss. We’re so excited to have all our sponsors and a big thank you. Go to our sponsor page on our website so you can see all that is going on there. Thank you so much. A special thank you to Alice, Allen, Rob, Les, Matt and Jack. I’m glad to have you here. Let’s get over to the MBA Mortgage Minute with Rob Van Raaphorst. Rob?
Welcome to the Mortgage Minute and the latest news from the Mortgage Bankers Association. President Biden’s interagency PAVE Task Force, which stands for Property Appraisal and Valuations Equity, published its action plan to address bias in residential property appraisals. The recommendations in the action plan cover a wide range of areas, including oversight of the appraisal industry, reconsideration of value processes, barriers to entry for new appraisers, data collection and analysis and consumer education.
MBA issued a press statement welcoming the report and emphasizing MBA’s commitment to working with the policymakers and other stakeholders, including appraisers, to develop solutions that ensure borrowers receive a fair and accurate estimate of the value of their homes. MBA also urges the agencies to ensure robust notice and common opportunities in the implementation process to ensure stakeholder concerns are addressed. Be sure to check out MBA’s Technology Solutions and Expo Conference on April 11th through the 14th, 2022 in Las Vegas, Nevada. That’s it. Thanks for joining me.
Good job, Rob. I appreciate that word. Thank you. Let’s get over to Les Parker, who does an excellent job along with Gary Catrambone, bringing you the TM Spotlight and a macro view of the market. Les?
“Say oil good looking what it’s got cooking. How’s about cooking up to 120?” Oil’s hot. It shows no sign of relenting in its bullish position. The May crude oil is ready to heat up to 120. The oil pressure drops when it cools to 107. It reached 114, the Bearish Rule in the tenure but 255 remains a significant barrier in its yield. The Fed wants to douse the flames of inflation, which lifts the dollar. A hot dollar cools oil without it. Oil hits 120. “How’s about cooking up to 120?” These views are my own. Figure out what’s cooking at TMSpotlight.com.
That’s a funny song I tackle every time I see that. “What you got cooking? Cooking up something with me.” TMSpotlight.com, check it out. You can subscribe for free by putting in the word POWER, where you are prompted for a code. Get the paid version for free. Not a bad deal. It’s great content. I read Les’ commentary first thing each and every day. It’s great material. Les, I read it. I don’t always understand it but I’m getting better at it. It’s great stuff.
Matt Graham is here. I understand everything Matt says because he speaks as only Matt Graham can. Matt Graham’s personality is wonderful. Matt, we were talking before we went live. Thank God you’re the calm voice in there. Some of your subscribers said that. Matt was giving us bad news but we were doing it in such a way that he calmed our fears. Don’t jump off buildings after reading your report.
I’m not calm. The voice might be but a lot crazy is going on in the mortgage market, financial market and all the rest of it. If somebody’s going to speak calmly about it, in my position, it’s probably only because they’re super tired and worn out from having to pay attention and the back-and-forth headaches that are being thrown by the market and having to explain why things are happening the way they’re happening.
There is a lot of confusion out there and surprise, which honestly, I find the surprise surprising because we knew that rates would be going higher. We didn’t know they’d be going higher quite this quickly. After the Fed changed the attack several times, starting in September, then again in November and then most notably in January, the writing has been on the wall since then. It was only the Ukraine War that caused bonds to reconsider their fairly relentless.
By bond, I should clarify, we’re talking about Fed rate hike expectations, fund on futures the short end of the yield curve. That stuff doesn’t normally have a super direct implication for mortgage rates. Let’s put it this way. The Fed fund’s rate doesn’t have a direct implication for mortgage rates but when expectations are rising as quickly as they have, then that has an impact on rates across the curve. The Ukraine situation has been tremendously interesting, confusing and complicated because it caused the market for a short time to downgrade its expectations about where the Fed funds rate was going.The Fed fund's rate doesn't directly affect mortgage rates. But when expectations are rising as quickly as they have, it impacts rates across the curve. Click To Tweet
To quantify that before the Ukraine situation, the Fed funds futures contract for January 2023, which effectively measures through 2022, has been a Fed funds rate between 1.5 and 1.75. It’s soft an entire two rate hike off the outlook due to the onset of the Ukraine War that fell to the 1.0 to 1.25 bucket. In the time since then, right around the very beginning of March, it has risen up and above 25. I’m looking at my chart here and counting. That’s 1, 2, 3, 4, 5 and additional 25-bit rate hikes that have been priced at the pace of less than a month. It’s brutally fast.
We had another brutally fast increase like that occur in the previous months leading up to the Ukraine War. It is this tremendous about-face in the market’s understanding of where short-term rates are going to go. At the same time, they’re coping with the Feds, saying, “We’re also going to be normalizing the balance sheet a lot sooner than we did in the past. I know we talked to you guys two weeks ago but now so that you know, we’re probably going to do it even faster than we told you last time. Even though you thought we were going to do it maybe in September and then we told you maybe June, we think we might go ahead and start that normalization thing in May, the very next meeting.” That’s how we began the current week with Fed Chair, Powell.
Not pushing back in any way on the market’s little freak-out but instead saying, “You are right to be freaking out. That’s what we want you to do. We want the market to be moving higher and rate and higher rate expectations in advance of what we do.” That means our monetary policy transmission is having the desired effect. It means that when we start making these changes, it’s not going to be as tumultuous for the market. In the meantime, it has caused the fastest spike in mortgage rates that we have seen arguably in any of our lifetimes.
There’s a little bit of a toss-up between 2022 and 1994. That is a stunning turn of events. Any person with gray or white hair who operated in the mortgage market in the ’90s could laugh at the youth and say, “You guys don’t know anything about fast rate spikes. Back in my day in 1994, we had the fastest race spike ever.” That’s no longer the case. We’re on pace to beat ’94 if things continue. We’ve crushed 2013 and 2016 through 2018 timeframe.
We even matched the very short-term rate spike on a single week in June 2013 during the Apex, the Taper Tantrum, where rates rose an entire half a point in one week even. Even I didn’t think that was going to go down as of Wednesday of last week because things looked hopeful but then they changed course and continued to weaken through the end of the week. The final tally, by my count, was 53 bits in 2013 in a single week and 49 bits in a single week last week. You slice it. We’re not pricing out mortgage rates down to 10%. We’re going to 18% increases or decreases but in this case, increases. That’s a 50-basis point hike to any consumer’s rate quote, which is insane.
It’s been fast and big. Everybody’s question is, “How big is it going to get before it stops getting so big?” That is a great question. One thing for every reader to keep in mind is how behind the times all of the major forecasts from Fannie and Freddie have been because of their methodologies. If you’re not watching rates on an hour-to-hour basis, then you’re not up to speed on that. If you have a rate sheet in front of you, you know that the rate that’s most likely to be quoted to a consumer for an average 30-year fixed day is right around 5%.
That’s pretty funny because there are still articles coming out with forecasts calling for rates to go as high as 4.5%. You got to laugh at that point. I keep telling my audience, “The higher we go, the faster we go and the closer we are to the top.” That seems pretty trite and not very informative but it’s a thing. It does speak to the momentum factor in the market and the fact that the bond market and mortgage rates are always going to do as much as they can to price, they can know about the future. The rate spike that we’ve seen so far is related directly to the change in rate hike expectations that we’ve seen so far.
If those expectations don’t continue to ramp up, then rates won’t continue to ramp up. It would require expectations to deteriorate further for rates to spike and that could come from additional inflation pressure or a Fed that sees fit to be less friendly in terms of policy normalization. Nobody wants to predict the future after how wrong everybody has been. We’ve probably done a majority of the heavy lifting of this rate bike cycle, knock on wood. Whether that means rates are going to bounce or go a little bit higher before they bounce, I don’t know.
I’m getting some questions in. Ask Matt, “Are we at the ceiling? Does he have any feel for where that’s at?” None of us do is the answer to that. I can answer on your behalf. I know you will. You don’t project where interest rates are going. You reported where things are at. It’s crazy times.
We thought 2.4 as being in 10-year yields. 2.4 is one of the ceiling targets that 2022 might bring and we’ve already passed that. We’re right around that. You could still say 2.4 might be the ceiling if we experienced a lot of support here. Something closer to 2.75 is what people like me have adjusted up to in terms of the next zone of support. It’s all guesswork. We’ve done a majority of the heavy lifting of this rate spike cycle. We’ve lost enough ground that we should increasingly see support as long as inflation doesn’t deteriorate unexpectedly.
We’re expecting inflations to remain problematic but it would have to get significantly more so for the pace of the rate spike so far in 2022 to be duplicated in the coming months. By the time the Fed is normalizing continues its rate hikes and especially if it’s going to have to do a few 50 basis point rate hikes to adhere to current expectations at least two of the meetings in 2022. Once that starts happening, then those are the blowoff tops that tend to coincide with the market turning around. The higher we go, the sooner we’re going to turn around. Are we at the top? Probably not. Could we be? Maybe.
We’re near the top. Everyone would agree that we’re near the top of this. If this thing goes beyond breakthrough and goes through another resistance level, I don’t know what to say but I don’t anticipate that in some of the things I’m reading down. Jack, you did an awesome job hosting while I was gone. I appreciate it so much. Thank you. What are your thoughts on 2.75?
First of all, David, I pale in your shadow so I strive to be as articulate and fluid as you are and I’ve got a ways to go. Since Matt in both the gray hair analogy of 1994, this reminds me of an old commercial fact during that time. It’s when we had cassette tapes. Remember what a cassette tape was? There was a commercial out there by Maxell. It had a guy sitting in a chair listening to a Maxell cassette tape with a speaker right in front of him and his hair was blown straight back.
If you don’t remember that commercial, look it up. It’s very appropriate for the times that we’re in. Matt, you were talking about the Fed and contemplating a 50 basis point rate hike on the Fed funds rate. The Fed took some criticism on the last rate hike too little too late. Matt, do you think in the next rate hike we’re going to see 50 basis points?
Something would have to change significantly for us not to see 50 basis points if for no other reason than the fact that the market has opened the door for the Fed to do that without any repercussion. Anytime the market is pricing in a rate hike with 100% certainty, the Fed might as well take it because there’s no downside in terms of economic shock at that point.Anytime the market is pricing in a rate hike with a hundred percent certainty, the Fed might as well take it because there's no downside in terms of economic shock. Click To Tweet
The market’s priced in a 50-basis point rate hike at the next FOMC.
At the next two now.
Candidly, we always talk about the CPI here on the show. The CPI doesn’t factor in the energy cost. From my chair, I look at CPI and say, “That’s understating the impact on the consumer because the consumer has to pay for oil at the gas pump.” I look to see consumer sentiment continue to decline as long as we see oil. Les Parker’s comments march to 120, let’s hope not. The ultimate thread that I pull from all of this is affordability.
We will see challenges to affordability in the housing market, assuming nothing changes until the end of 2022. We’re over 5% in the 30-year fixed rate. I was talking to an originator. They’re at 5% and 8%. This moves on any further from that. There’s a lot to say that it could. When do we start seeing what was already going to be a contracting origination market as a result of refis being shut down? When do purchases begin to feel the drag on their numbers as a result of the affordability?
It’s interesting when you look at all the dynamics and we got to move on because we can spend the whole episode right here on this topic because it’s such an important thing what’s happening out there. Matt, we’ve always said correction happens suddenly. It is happening in spades. That’s why people need a service like yours. I love the way your screens are organized. I love the data. I love how I can access it when I’m traveling, as I have for the last few weeks on my mobile device, iPad and iPhone. It is a great service.
Readers, many of you have already signed up and taken advantage of the extended trial period without a credit card and many of you have signed up and have told me how much you love this service. I encourage those of you that have not or if you’re new to reading the blog, to our audience continues to grow. I encourage you to check out MBSLive.net and when you get to the signup code LOL for an extended time. It’s good to have you here, Matt. Thank you. I appreciate it. Let’s get on and get over to Alice Alvey. Alice, it’s so good to have you here. You’re going to be talking about a topic that is not a popular topic but one that needs to be talked about and it’s fraud. Alice, how are you doing?
I am well, Dave. I can’t help but continue to add one point to the discussion that was going on and that is the actual appraised values and the appreciation rate of housing. It’s dramatically different compared to 1994. People are saying, “Far we headed back to those low volumes.” I don’t know about your areas but I’ve noticed a lot of for-sale signs popping up. People’s homes are selling fast with multiple offers. I get it.
When you look at FIFA’s house price index, it is striking. I have never seen it like this in all my years so this is one of my favorite websites to teach people about. Even if you’re a regular homeowner, you go to House Price Index. You can google that at Federal Housing Finance Agency, FHSA House Price Index. You can see that almost the entire country has appreciation rates. Their number is 8%, which is crazy. It’s never looked like that before. There are always hot spots and low spots but to see this much of the country in the green is startling.
Hopefully, that plays well with people going, “I want to get some equity out. I want to refi or it’s time to sell my home.” Maybe we can get some dominoes moving as a result of where housing prices are. It’s housing stock related but it seems to me that maybe people will get their feet out of the mud and start to try to move. Check that out. There’s a positive bright spot in all of this to help us keep our markets moving. Back to mortgage fraud, we do have a report coming in from different agencies and what sparked my interest in this was the Mortgage Bankers Association cited if it was settled.
I thought we hadn’t talked about mortgage fraud in a while. The Financial Crimes Enforcement Network has a proposed rule out there that you can all comment on to set up a pilot for entities to share information. This has been around a while since they needed to kick this off but the comment period is open until March 28th, 2022 to make sure that, as lenders, we get a chance to share information on any of the suspicious activity reports.
When you read these schemes and check out all the fraud schemes, you can see that people do figure out a way to play lenders against each other and bounce from one lender to the next to get their schemes across. The more we talk to each other, hopefully, we can stop some of these in the beginning. One of the things I wanted to share brought to mind a story of a gentleman whom I knew years ago.
A friend reached out and said, “Alice, you’ve got to have him come and speak at one of your events. He’s still in prison for mortgage title fraud. He wanted to come and share his story.” We had to go through all the red tape in the prison system. He had been permitted to go out and speak once before so we weren’t the first time but it was a very strange setup at the hotel. The dogs came in and checked everything out. We saw the SWAT car pull up.
He came out in his orange suit with handcuffs on his wrists and feet. He got escorted in and it was very impactful. He talked about ahead of time how much he wanted to come and speak to the people he had defrauded. This was in the State of Ohio. Ohio has a tax as a result of his title fraud that occurred back in the ’90s. He was very open and honest about he wasn’t that guy ahead of hitting a wall and financially needing to figure out how he was going to make payroll.
He said he still remembered the smell in the room, the smell of the paper and the pen the day he first signed a check for personal use out of the title company escrow fund, as most of the escrow money is supposed to go to pay off the loans for the transactions that closed. It isn’t necessarily a person who is ahead of time in scheming and planning. They’re certainly those.
They’re also the people that, under times of stress, cross the line, are what we talked about and do something that becomes a snowball rolling downhill. Every week he would be, “This next week, if I do this many closings, I can go ahead and make up for it.” The interest in warehouse lines and all that made it out of control and went the wrong way. That’s a little story. It’s not always the person you suspect. We have lots of systems in place to make sure. A heads up for everybody to have your fraud alerts on in the markets.
It’s such a timely report, Alice, because when business slows down, when does that happen? If we’ve got a tremendous amount of volume of business going on in the industry, we don’t see it as much. There’s always something level of fraud going on by the idiots out there that are doing that. They think they’re smarter than the system. It shows up at times like this. What a timely reminder. I’m going to go back to housing affordability. What was interesting was we headed to the TMC conference. We had Jerry Howard, who’s the president’s CEO of the National Association of Home Builders. Get this. Fifty percent of the cost of a home in California is regulatory.
In other words, the regulatory environment is so ugly in California that to be able to build a home, the cost to build that home is 50% higher as a result of the regulations. It was one of the most interesting interviews that we had at the conference. He wants us all to jump in and comment on this is somewhere between an average of 30% to 40%, which still seems so high. We’re going through it here. We’re doing a remodel of our home and a pretty extensive one, adding some square footage and the price that used to we could get in our little community.
I live in a real small town called Marble Falls, Texas and we were able to get a building permit in one week. It’s 30 days and they want to review this and that. It is going on and it’s hitting across the country. We’re going to try to get Jerry on the show so that we can talk more about this. It’s one of those things where we’ve got to have our voices heard to make a difference in these communities and it does make a difference when you do speak up.
Alice, thank you so much for the good report and your extra commentary about what’s going on in the markets. I always love your perspective and so does our audience. Thank you, Alice. I appreciate it. Allen Pollack isn’t with us. He called in before the show says, “I’m in a meeting. I can’t make it.” We miss you, Allen. I appreciate you so much. Without further ado, we’ll wrap up this part of the episode and get right into the Hot Topic segment. That wraps up our weekly mortgage update.
Next time, we have Jack Konyk joining us of Wiener Brodsky Kider. Jack and Brian Montgomery did a presentation at the Lenders One event in Phoenix. The comments that were made there, I said, “I’ve got to get both these guys on the show.” We’re working on it. We got Jack starting and teased that conversation a little bit.
Jack said, “If the CFPB were to be running the highway department, your speed limit signs would read something like this, ‘To find out what we think is the appropriate speed for this highway, check our website for recent enforcement action. From that, you should be able to draw a conclusion about what we think is the right speed limit for this highway.’ How ridiculous would that be?”
There’s not a great amount of guidance. This environment is one of the most action prone that we’ve ever seen and it was paramount to what we’re doing as far as litigation. We’re seeing a lot of it happening. There’s a lot of concern that’s going to be kicking up and then you have the fraud factor that Alice mentioned. It opens the door for us.
You will not want to miss Jack Konyk on the show. I want to say a special thank you as we exit to our sponsors again. Thank you to Finastra, MBA, Lenders One, Mobility MMI, Modex, Knowledge Coop, The Mortgage Collaborative, Snapdocs, SuccessKit, Lender Toolkit, Total Expert and FormFree. It’s good to have you with us, everybody. Have a great time. I look forward to having you back here next time.
- Mortgage Bankers Association of America
- Mike Fratantoni – Past Episode
- Finastra’s Fusion Mortgagebot Solution
- Karen Jenkins – Past Episode
- Chris Zingo – Past Episode
- Lenders One
- The Mortgage Collaborative
- Total Expert
- Joe Welu – Past Episode
- Ken Perry – Past Episode
- Mobility MMI
- Lender Toolkit
- DW Consulting
- National Association of Home Builders
- Wiener Brodsky Kider