Lykken on Lending

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!

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Weekly Updates with Alice, Allen, Matt, Les, and Rob

It’s May 23rd, 2022. It’s Monday. We’re so glad to have you joining us. This show is created by mortgage professionals for mortgage professionals. We’re so grateful to have you as a reader and to join us. Our commitment to you is to bring you timely information in an audio format you can read anytime and anywhere. I’m excited about the Hot Topic segment. For those of you reading in the first half of the show, be sure to stay tuned as we have Andria Lightfoot at Selene Kellam joining us from Thrive Mortgage. Andria is from SimpleNexus.

After we pre-recorded this conversation, I went into the house and told my wife, “I enjoy podcasting so much.” When you could get to pre-recorded interview like we did that you’re going to know in the Hot Topic segment, you’ll understand why. It was dynamic. There’s so much information, yet it was such a fun group. These two ladies are amazing. You’re going to enjoy this interview.

We’re thrilled to be a part of the Industry Syndicate. Check out all the episodes at IndustrySyndicate.com. Also, we’re thrilled to have the Mortgage Bankers Association of America as a sponsor, as well as Finastra with their Fusion Mortgagebot POS. It personalizes the application path based on power-specific information loan type and much more. Check out the interview we did with Troy Anderson on April 18th, 2022.

We’re also thrilled to have two of the top coops as sponsors, Lenders One, as well as The Mortgage Collaborative. They do a great job of helping lenders and vendors connect in a meaningful way, providing more content about what’s going on in each other operations. Imagine getting together with someone and you’re wanting to know what’s the competition doing, how are they going about this? It’s a sharing of best practices of so many things about these two coops. I encourage you to get to know them.

Also, Total Expert. It turns customer insights into actions that increase loyalty and drive growth for banks, lenders, credit unions, independent financial institutions and IMBs. I’m going to be speaking at the Accelerate ‘22 Conference in Nashville. Josh Lehr and I are going to be sharing in a breakout session on how to recruit and attract top talent. We had Josh on the show but a lot of the comments that came in from that show were integrated into that session.

Also, Knowledge Coop. Check out their learning management system. As well as Mobility MMI and Modex. They do a great job at helping you recruit top Los. As well as Snapdocs. It’s working backward from the future where every closing is flawless and provides an amazing customer experience. Check out Snapdocs, as well as SuccessKit. They do a great job with prospect stories, results and case studies. They tell your story well is what I’m trying to say.

Also, Lender Toolkit and FormFree. I’m pleased to have both of these companies as sponsors. As well as SimpleNexus. They do an awesome job and some of the things that the leadership that they’re bringing to the industry are excellent. We have on the show Andria Lightfoot, which I’m excited to have with us from SimpleNexus. DW Consulting works with you on your LinkedIn profile.

It’s good to have you all here with us. Thank you to Rob, Les, Alice, Allen, Matt and Jack for their contribution each and every week. Let’s talk a little bit about some of what’s going on in the markets and the MBA. We’ve got the MBA Mortgage Minute with Adam DeSanctis. Without further ado, here’s the MBA Mortgage Minute.

Welcome to the Mortgage Minute, the latest news from the Mortgage Bankers Association. The Biden administration published an action plan with recommendations and believes will help close the housing supply gap over the next five years. The recommendations address land use and zoning, new financing for housing production, improvements to existing financing, preservation of single-family homes and high material costs and low labor supply.

The persistent low supply of available housing throughout the country has led to rapid levels of home price appreciation and intense competition among potential home buyers, which further adds to the challenges faced by first-time and low to moderate-income home buyers. The MBA and other industry stakeholders will be reviewing the action plan and identifying ways in which further collaboration between industry and governance stakeholders can encourage meaningful housing construction, preservation and rehabilitation. That’s it. Thank you for reading.

Thank you, Adam. Thank you, MBA, for all that you’re doing to help our industry. We’re very grateful for that. Let’s get over to Les Parker with the TM Spotlight and the macro view of the markets.

Money, money, money must be funny in Central Bank World. Despite the effort of large Central Banks to dethrone the US dollar, it remains king of the hill. It is the currency for most financial transactions but when it falters, watch out. Look for hints of gold with higher prices. The value of the dollar makes the poor poorer and the rich richer. Expect Central Banks to continue to fail in their efforts. However, Janet Yellen and Central Bankers still dream about it. All the things they can do, it’s dollars little money. It’s a rich man’s world. These views are my own. Learn the Rich Banks World at TMSpotlight.com.

That’s the truth. Good report. I want to make sure you sign up for Les’s newsletter. The TM Spotlight can be subscribed to for free in the signup area, put in the word PowerSeller and you’ll get paid version for free. Very good, Les. Thank you. I appreciate it. Matt’s here with us, the Founder and CEO of MBS Live. I love this service in the system because of the live-up to the nanosecond updates on a screen that you’re carrying on your pocket your iPad, on your computer screen or wherever you’re at. Matt, you do such a great job. It’s good to have you. You got some improvement here, although it looks like it’s deteriorating a bit.

In general, it has been good and there are caveats for that. It has been the best two weeks for bonds in general since the start of the pandemic. The cost for that was twofold. One is the fact that it required us to hit ten-year yields of 3.2% back on May 9th, 2022, setting a high bar and creating some momentum coming back in the other direction after being arguably oversold, depending on whom you asked. Another caveat is the fact that it required a fairly substantial selloff in the stock market and there’s no telling how big the rally would’ve been, if not for that.

Mortgage Market Updates: It required a fairly substantial selloff in the stock market and there’s no telling how big the rally would’ve been if not for that.

We can probably say that any weakness in the stock market or impulse rally in the bond market is a bit of extra emphasis if we have hit super high yields or the highest yields in a long. That was also the case on the last two bounces and we didn’t have anything as substantial. More conversation from Fed speakers that are talking in a more moderate tone. They’re not saying risks are going away but we’ve heard more of this talk about we’re going to do a couple of more 50 bps rate hikes and maybe a 25 or 2 and then reassess. There were also some reminders but they continued to happen throughout the week after that.

The Fed leveled off its balance sheet normalization efforts after a while and reminded the readers at home that they weren’t going to continue letting their balance sheet shrink until it got to zero. There is an end game there that is above $1 trillion or maybe as high as $2 trillion depending on how things go. As far as specifics, retail sales hurt the bond market early in the week. That was on Tuesday. The headline came out as expected at 0.9% versus 0.9% but the previous month was revised up from 0.5% to 1.4% and the control reading, which strips out some of the more volatile components was also higher than expected.

Bonds sold off a little bit in reaction to that but then the rest of the week was fairly strong and mostly due to the stock market. Stocks take over on Wednesday morning. That was their big day of selling. We even got help from data on Thursday with the Philly Fed Index coming out. That’s one of these Regional Fed Business Surveys capture sentiment and it is seen as a fairly decent cross-section of the broader economy. Here’s the most interesting statistic from that. The six-month outlook in that survey, which is a component of it, was the lowest since 2008. Those are always the type of headlines or newswires that grab attention because we all remember 2008 and that wasn’t that great of a time.

There was an anemic balance in stocks on Thursday but then more selling on Friday and the bond market largely followed that selling but here was the first sign of weakness in the bond market or perhaps caution or hesitation in the bond market’s desire to move toward lower yields. When stocks moved lower on Friday, they made fairly significant new lows versus the previous trading session. However, bond yields did not. They continued to mine the same floor that they had in the previous session, which was around 2.78% if you ask ten-year yield.

We’re seeing stocks and bonds follow each other in this highly correlated pattern and then there’s a divergence, where one of them is tearing to a floor while the other is making lower floors. We would read a bit of hesitation into the one that is holding that same flat floor. In this case, that would be a bond. It’s hard to say if bonds would be holding that floor if stocks were falling again but stocks are not falling. They’re rallying up over 1.5% in S&P futures and bonds are following that move, moving back up toward higher yields, reinforcing a floor of around 2.83% in ten-year treasury yields. That’s a floor that I’m watching, one of several. It’s a great one to start.

Coming up, we have durable goods on Wednesday. Normally a big report but not over the past few years. GDP on Thursday. This is a revision to the initial reading so not as much of a market mover. The big one would be PCE, Personal Consumption Expenditures on Friday and that is 1 of our 2 main inflation indices. As a constant reminder, it is all about inflation. This also goes back to the hesitation to break below the floor in bond yield and our conversation talking about the fact that it is going to take time for inflation data to come in and support the notion that inflation is indeed leveling off and turning around.

We also have a lot of ongoing uncertainty about the fallout from commodity price spikes after the Ukraine war began. Atlanta Fed’s Bostic said something similar that the effect of the Ukraine war has not been felt yet and that upward price pressure for industrial inputs is to still come and that it is also a big additional source of uncertainty for the Fed. It echoes what we said and the fact that we need to not count chickens before they’ve passed in terms of inflation turning around.

These inflation reports are increasingly important and it’s going to be as close to impossible as you can say when it comes to the future of the market movement. For bonds to make big juicy gains without getting to see how these inflation reports are coming in over the next month, 2 or 3 but still 2.85% and a ten-year yield. It’s a lot better than 3.2% where we were. We have some sideways momentum as opposed to relentless disappointing upward momentum. I’ll take it. It’s a shift in the right direction, even if it’s not a glorious ship back towards substantially lower rates. That’s all I got, Dave.

You start looking at things in the broader picture. You go, “There’s lots of unsettled things.” Parker talked about this in his update. Where are gold prices now compared on the spectrum?

I don’t even know. It looks like $1,847 or $1,848.

I sold my gold at the wrong price. Jack, did you get all of this?

The golds are off of their highs from earlier in 2022. It’s trading up but it peaked around $2,000 earlier in 2022. If you sold your gold, it’s always good to take profit off the table. Looking back, the National Association of Home Builder Housing Market Index levels dropped 8 points from 77% in April 2022 to 69% in May 2022. That and in of itself isn’t big news since the rising interest rates have put a bit of a damper on the purchase market.

I thought what was interesting was that the Housing Market Index gets broken down geographically into four sub-in indexes, the Northeast, Midwest, South and West. Keep in mind that the overall index level fell eight points in the West. It fell eleven points in the Midwest. In the South, it only fell six points. Interestingly enough, in the Northeast, it was up.

The National Association Home Builder Housing Market Index is down by region. We saw a popup in the Northeast. Also, in that index present sales fell 8 points, future sales fell 10 points and traffic fell 9 points. There’s certainly softening in the Home Builder Index sentiment with regards to both traffic, which helps drive future sales. I take that with a grain of salt. It’s a potential weakening in the purchase market as a result of interest rates moving up. It’s always nice to see the ten-year bond rallying.

I’d like to get your thoughts, Matt and Jack as well on the strength. The overall fundamentals are solid for a purchase market. Even though we’re seeing interest rates rising, we may have slowed things down. I just don’t see it. Is there anything out there that we should be concerned about that affects the purchase market more than a slight dropping back? Matt.

I’m not a housing economist but as far as reasons to be concerned in any sort of 2008 cents, I certainly haven’t seen anything like that in the region, depending on the size of the home too. We have a lot of reports on MBS Live and they’ve grown more varied. It was universally multiple offers over the asking price. There’s a lot of that going on. In the places where it is going on, people have noted instead of 30 offers that are over the asking price, we only have 10 to 15. Some other people have noted that they’re seeing more price drops than normal but even after those price drops are occurring, that would still account for solid year-over-year home price growth.

We all know and agree that 20% a year isn’t sustainable and nor would we want it to be. What’s happening is a good thing in terms of prices moving to a flatter growth trajectory. Whether or not they dip in certain cases, I don’t have a strong opinion. They could and could do it in a way that’s not threatening relative to past precedent due to the level of supply and demand out there. I keep an eye on the local real estate market here in the Northwest and I have been shocked at how light the inventory situation has been throughout the spring home-buying season and into the summer.

Mortgage Market Updates: What’s happening right now is a good thing in terms of prices moving to a flatter growth trajectory.

Unless you want stuff like these new vertical, small lot new construction type homes. That’s the majority of the new inventory that I’m seeing in my square footage range that I’m keeping an eye out for. With those homes, I’m not a huge fan. The stuff that is going to motivate some people to move isn’t hitting the market. That’s the supply-demand situation more than anything. It’s the X factor. It has been since the start of the pandemic and it continues to be. It’s not like we have an overabundance of supply.

I see us continue to be overall fundamentally strong. Jack, last thoughts on this topic?

What concerns me in the purchase market is a theme that we talk about frequently and that is affordability. With the year-over-year increases in housing evaluation, many people are being priced out of the market. I was reading an article about new home construction and so much of the new home construction. With the cost of materials and labor shortage and wages, it’s coming in at $400, $500 or, $600 a square foot. When you just put that in context with a lot of the government inertia to address the affordability issue, there seems to be such a disconnect.

What’s being built is costing so much more and existing sales because of the run-up and evaluation. It concerns me that first-time home buyers, low to mod income buyers, have to choose from with regard to housing inventory, which I agree with Matt, is already constrained. The pressure on that lower-end housing makes it very difficult for the LMI borrower to get into a home.

It’s a great report, Matt. I appreciate you as always. I encourage you to check out Matt’s service if you haven’t already done so. You can get an extended free trial if you put in LOL and the signup code. No credit card is required. Most of our readers have signed up for the service. We continue to get great reports. Matt, the service you provide thrilled our partnership. Thanks for being here. Alice Alvey is not here and she just let us know. She said hello to everybody but we do have Allen Pollack here with our tech update.

David, thanks for the fantastic introduction. I was listening to the comments and feedback, especially what you said, Jack. I’ve been for six months or more trying to buy a house in North Florida in an area that I’m in, which when I moved here in 2013 was $500,000 is $1.5 million in 2022. For every house I’ve bid on, I have been overbid. I have waived everything appraisal, home inspection and a guaranteed 30-day close. I still was the lowest of eight bids. There are some drops in property values. There’s still some construction going on.

I may have been reading the same thing you were reading, Jack. Construction materials are causing an effect, one of the many things causing an effect on prices. Some values are dropping but the only ones I see dropping are the ones in which they were overbidding. It’s like the candy left at the candy store. The box was open and someone eventually still went to buy it because they want some candy. Some of these homes need some work and the folks that had them listed whatever they wanted. That’s where we’re seeing drops.

Homes that are in great shape, went through recent remodels or are in prime locations don’t last 24 hours on the market. They’re gone instantly. It’s an interesting landscape and there’s tons of information to read online. Technology does play a big part in it. I do know that agencies and other folks are lobbying against the agencies and the government about what we do on the side of appraisals. We’ve talked about that briefly. I’m more on the engineering side so I can’t say where the market’s going to go. I’ll leave that to the smarter guys. David, let’s talk about some cool things.

Some people do have money and one of them is SiriusXM. They paid $150 million for a Conan O’Brien Podcast called Team COCO. It’s called Conan O’Brien Needs a Friend. It was launched in 2018. Get this. He has sixteen million monthly downloads. Conan O’Brien looks like life after the TV has done well for him, his show and the folks that are on it. Netflix mini-series called WeWork is about the mortgage industry. Are we back to work? Are we not back to work? The tech guys can be remote.

Technology doesn’t need to be in a physical office. The team camaraderie of engineers, QA leads and technical managers and the ability for them to meet every day and review is missing and difficult but there’s less of a need for these folks to be in an office. The question is we work back. That Netflix mini-series, some of us have seen and some of us have not. Co-work and WeWork are on the rise apparently in quarter one of 2022.

WeWork jumped up 67%. It may not be WeWork that gets the revenue in the volume but companies are considering corporate centers and converting them into call centers where you want to bring folks into the office. You’re renting that space or adjusting it on your individual team’s balance sheet or P&L, the time or the people that are using those offices. I’ve heard some rumors about things going that way but I also read a little bit online.

I don’t know where we are in the mortgage industry. I know face-to-face meetings. I’ve been at a number of them in 2022 and they have all been so unbelievably productive. Everybody leaves those meetings saying, “Being face-to-face is so different from being virtual all the time.” Maybe it’s not for everybody anymore. I mentioned that but the WeWork theme is coming back.

At the TMC Winter Conference, they did a good political-style debate on this. It was never going back to work, immediately going back to work and a hybrid. It was interesting to hear the different points for each one of those. That was a fascinating discussion. It’s going to come down to what leadership wants and what people want. It’s interesting to all the folks who want to stay at home. The younger crowd are wanting to get into socialization at work and it’s a big part of it. It’s such an important thing for transferring knowledge and training.

Many companies started hiring people all over the country geographically so it’s harder to bring people to an office. Some companies didn’t allow for that based on certain job roles. For the WeWork concept, many companies have lots of real estate’s to be able to turn them into white rooms for banking and mortgage and offer a certain solution to friends of friends. Who knows? I’ll be interested to see months from now where we’re at with getting back to work. Let’s talk about some industry stuff.

Fiserv has a product called Brand New: Their Digital Mortgage Center. It’s based on their Mortgage Director platform, which is their mortgage lending solution. If you remember from years back, they acquired PCLender, which became Mortgage Director. They created this digital mortgage center, which it’s their new digital point of sale platform partnered or in collaboration with BeSmartee.

If you want to read more, you can check it out online but it talks about how you can originate from anywhere and they did it in partnership with BeSmartee. Sounds like whatever solutions they have, they’re either working on or they are going down the path of allowing their customers to work with many of the other platforms in the industry, which is probably a great move.

We haven’t talked about Volly in some time but they partnered with Progressive Insurance, giving home buyers the ability to shop the home insurance process in the transaction. If you remember, Ben Madick, a friend of ours from going way back, was a TechCrunch winner many years ago for offering insurance during the process. Some others have followed suit and it looks like Volly and Progressive did a deal. If you work with them, check it out.

Moving on, let’s talk about Overcoming the Challenges Still Facing Digital Closings. This was a good article in HousingWire. You can check it out online. What they say is, “During the pandemic, we were forced to go down the wrong path.” However, RON didn’t take off as we expected it to at this point. There are other solutions out there but the technology still hasn’t caught up.

Mortgage Market Updates: There are other solutions out there, but technology still hasn’t completely caught up.

1 year or 2 years out of the pandemic, wherever you put your line in the sand to start counting from, we should have been further than we are. This article talks about there are other hybrid options but also called IPENS, which is In Person Electronic Notarization, being able to sign on a tablet and having the notary digitally accept or digitally acknowledge that they were the notary on that transaction.

More is to come here, there are a lot of folks doing a lot of great things here but we’re not there. It’s still taking longer with the way things are. We’re closing loans in the same amount of time. Some are doing it sooner but if you were to average it all together, we are way further out than we’d like to be. I did want to mention that we talked briefly about mortgage fraud and I saw this online, which is funny.

This one was in the Chrisman report or it was in Next Mortgage events, their newsletter. It says, “Overall, mortgage industry fraud has increased during the past 1 to 3 years, where consumer fraud accounting for about 2/3s of all lender and service fraud losses over the last 12 months.” It means someone didn’t break in and get in the middle of your mortgage transaction.

It means that consumer fraud in general has affected the mortgage lending process. That’s everything that has to do with being tricked, losing your information, having bad passwords and so forth. During this time, as you have borrowers that are coming through your process and they’re nervous, you could still have the best technology ever but that’s not going to stop mortgage fraud.

Make sure you’re out in front and you’re sharing and helping your consumers and your members to get through that process. Next time, we’re going to talk about and get back to some of the things that we should be focusing on in 2022. It’s important for the financial institutions that are listening to this show, open banking and how that’s going to take off. We hear people talk about Omnichannel Lending and Single Experience Lending.

I always look forward to your report. Good job. I appreciate it. If you want to give suggestions or feedback, email Allen at [email protected]. We appreciate all of our readers, however, they may be more interested in the quality of the type of people we reach than the quantity. We’re reaching the right influencers. It’s very good. We’re pleased to have all of our sponsors be a part of that. I’m very excited about it, Allen. I appreciate you being here. Thank you.

That wraps up our weekly mortgage updates. I want to say a special thank you to our sponsors, Finastra, Lenders One, Mobility MMI, Modex, MBA, Knowledge Coop, The Mortgage Collaborative, Snapdocs, SuccessKit, Lenders Toolkit, Total Expert, FormFree and SimpleNexus. It is such a joy to have them as sponsors and you as a reader. Some of you have contacted me saying that we’re not seeing you updating the show. We have made changes to whom we’re feeding out. There have been some hiccups along the way. I apologize if you’re not seeing it on your favorite feed.

We’re in the process of fixing that. We’re excited to have this on even more platforms where more people can read this. Next time, we’re going to have John David Mann and his wife Ana on the show. I’m excited about that interview. It’s Memorial Day. We’ll be looking forward to having you read this amazing interview that I did with them. Also, we’re going to be talking about the Go-Giver series and specifically the latest book they published. I’ll let you know about it and tease it up with that. Have a great time. I look forward to having you back here in the next episode.

 Important Links

• Thrive Mortgage
• SimpleNexus
• IndustrySyndicate.com
• Mortgage Bankers Association of America
• Finastra
• Troy Anderson – Past Episode
• The Mortgage Collaborative
• Total Expert
• Josh Lehr – Past Episode
• Knowledge Coop
• Mobility MMI
• Modex
• Snapdocs
• SuccessKit
• Lender Toolkit
• FormFree
• DW Consulting
• TMSpotlight.com
• MBS Live
• SiriusXM
• Conan O’Brien Needs a Friend
• Fiserv
• BeSmartee
• Volly
• Progressive Insurance
• Overcoming the Challenges Still Facing Digital Closings – article
• [email protected]