The first half of the Lykken on Lending program will feature our Weekly Updates: we’ve got Adam DeSanctis with his MBA Mortgage Minute, and then Les Parker’s TMSpotlight, a macroeconomic perspective on the economy with a music parody. That leads to Matt Graham of MBS Live providing you a rate & market update, followed by Alice Alvey of Union Home providing a regulatory & legislative update, then we wrap up the first half of the program with Allen Pollack giving us a Tech Report of the latest technology impacting our industry.
Weekly Updates from Adam, Les, Matt, Alice, And Allen
It is July 18th, 2022, Monday. This show is created by mortgage professionals and for mortgage professionals, real estate professionals, and technology people inside of the mortgage industry. We’re so grateful to have you as our reader. Our commitment is to bring you timely information that you can read anytime, anywhere.
I want to say a special thank you to our sponsors, Finastra Fusion Mortgagebot Solution. It is a great technology. I encourage you to check them out. We’re going to have them on an upcoming episode and also FormFree. Their Autocheck can be used to satisfy Freddie Mac’s re-verification of employment. Check out the interview we did with Christy Moss on June 20th, 2022. Also, Lender Toolkit, I had lunch with Brent Emler in San Diego, and some of the things that they’re working on are exciting. Brent and Michael were on the show. It’s very interesting and good stuff. You’ll want to learn more about that.
Snapdocs‘ eVault solution makes it so simple to get started with eNotes, and it’s so easy to transact across many partners, and doing so will quickly become a default for your closings. Also, check out the interview we did with Briana Ings on March 28th, 2022. We also have Total Expert, the best in class when it comes to CRMs out there. It’s a purpose-built CRM. It’s phenomenal stuff. I encourage you to be sure to check it out. Go over there and tune in to the interview I did with Josh Lehr that had to do with recruiting and how you use the CRM tool out there for that very thing.
We have SimpleNexus as well. We had Shane Westra on June 27th, 2022, talking about some of the initiatives that SimpleNexus has going on. We’re going to have them back on again soon. It’s very exciting stuff. Also, a special thank you goes out to the Mortgage Bankers Association of America, Lenders One, The Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MMI, Modex, Mortgage Advisor Tools, as well as DW Consulting for LinkedIn profiles. Special thank you goes to Adam, Les, Matt, Alice, Allen, and Jack, my co-host for each one of our episodes. Let’s get over to what Adam DeSanctis has from the MBA with our MBA Mortgage Minute.
The news from the Mortgage Bankers Association. MBA submitted a statement for the record ahead of a House subcommittee hearing on the Community Reinvestment Act. The statement for the record highlighted our support for modernizing CRA evaluations, including ensuring banks get full CRA credit for the entire array of mortgage banking activities they provide.
MBA also expects opposition to extending CRA requirements to IMBs. Emphasizing that IMBS already serves a large percentage of minority and low and moderate-income borrowers, they do not accept deposits and receive the direct federal benefits received by CRA-covered banks. Congress is likely to continue pressuring the banking agencies to finalize the CRA rule in the coming months. MBA will continue monitoring the congressional debate while gathering the necessary member feedback to submit a comment letter on behalf of the entire real estate finance industry. Now, that’s it for this week. Thank you for reading.Congress is likely to continue pressuring the banking agencies to finalize the CRA rule. Click To Tweet
Readers, we’re starting a new format. Many of you give us feedback every time we do the round table discussion, so we’re going to be creating a little bit of a round table discussion around each one of the segments, getting feedback and thoughts on the various things that we’re reporting on. Alice, starting off with your thoughts on the CRM. This is crazy. We got enough regulations I have to be dealing with. Do we need this, especially, when we do so much already to help with CRA?
It’s great. We’ve talked a little bit about it in the past. We want to make sure IMBs are not looped into the CRA piece that’s being discussed right now. It looks like they won’t be, but would it be something that they add in the future? The good news so far is that MBAs working on making sure IMBs are not included. For the banks, it’s a good thing too to revamp it. They’re in favor of making sure that all the remote banking that is going on they’re getting proper credit.
Jack, your thoughts?
Adam said something that was very interesting. He first said that the MBA took a position in front of the subcommittee. He made a comment that banks should get credit for the entire array of mortgage banking activity. What struck me there, coming from a warehouse lending background is that banks don’t necessarily pick up a lot of benefits from a CRA perspective for providing liquidity in the LMI markets. I thought we tried to and got a little bit lagniappe because we were able to show the benefits of providing liquidity to the LMI markets. It was a very interesting comment by Adam that triggered that thought when he said the entire array of mortgage banking activities conducted by banks.
A great pickup. Let’s get over and start getting updates on the markets from Les Parker with this episode’s macro view of the markets sponsored by also TMSpotlight. What you got for us, Les?
Same with light, trends come and go. It’s stuck in a mosaic of dark and light filters through sideways action then they shift up and down through the passage of time. Justifications and rationalizations abound without clarity on which trend lives or dies now. The new bull market in treasuries flirts with momentum while mortgages flounder a point away from reviving the bulls. Trends happen more or less. This piece is my own. Look up and find the trend at TMSpotlight.com.
I appreciate you guys so much. Also, be sure to sign up for Les’s TM Spotlight newsletter. Go to TMSpotlight.com to get it for free if you put in the word POWER for PowerSeller. Let’s get over Matt Graham. He is usually here with us live, but he sent in his comments. Matt is the Founder and CEO of MBS Live with us a market update. We appreciate you, Matt. Be sure to check out MBSLive.net. Let’s know what Matt has for us.
The MBS Live market update, bonds may be starting the week out in slightly weaker territory, but last week was pretty decent, pretty stable for the bond market. In fact, volatility was some of the smallest we’ve seen in weeks. That is a surprise considering the hotly anticipated CPI data that came out in the middle of last week. That is the consumer price index big-ticket inflation report. The biggest market mover from last month and seen as being a big market mover in the current month.
However, by the end of the day, miraculously and paradoxically, bonds ended the day stronger despite CPI coming in hotter than expected. The headline index was 1.3% month over month, and that is one of the highest readings on record. That was also 2/10 of 1% higher than expected. Bonds did indeed initially sell off fairly aggressively. They bounced back as traders and trade desks ramped up expectations for recession and ultimate rate cuts in 2023 due to the perceived response from the Fed.
In fact, it was the longer-term Fed funds futures, the ones that looked farther into the future, that moved toward lower rates in the middle of 2023. It’s pretty interesting stuff. The following day, Fed’s Christopher Waller and then Bullard also had comments saying that the Fed funds hike wasn’t necessarily going to be 100 BPs and that the market might be a little bit ahead of itself in seeing a 100 bps rate increase. They both said their baseline is 75. The Fed funds futures moved in a friendly direction after that as well. Bonds continued to recover a bit after that also.
By the end of the week, consumer sentiment came out in a very weak territory. More importantly, the consumer inflation expectations or the five-year timeframe fell to the lowest levels in a year. That is an important indicator. One the Fed says it is paying attention to and that helped seal the deal for the expectations for the Fed meeting next week to be 75 basis points as opposed to 100 basis points.
Although the average Fed member will tell you, both are still on the table. There isn’t a lot by way of economic data this week that will inform their decision. Most of that was last week’s data. They’ll be discussing it, and they’re probably leaning towards 75 at this point, but there still is a little bit of variability as to how things come out next week. Thus, more volatility for the bond market in terms of how it prepares for next week and also in how it reacts to next Wednesday afternoon.
One thing that comes to mind, Jack, is that we were in a conversation with Les Parker, and he was talking about the book Basic Economics: A Common Sense Guide to the Economy by Thomas Sowell. He was a conservative, and he sat in for Limbaugh. Les was encouraging us to go back and read the Basic Economics because the suggestion was that we’d lost our way. What are the basics? Jack, your thoughts start off with Basic Economics by Thomas Sowell.
First of all, I find it hard to equate the phrase common sense to what we see in the economy. What’s top of mind with me is that on July 28th, 2022, we’re going to get a quarterly GDP print. Are we going to technically enter into the recession? Right now, the Atlanta Fed GDP forecast is projecting, as of the 15th, negative 1.5% growth in the GDP in Q2. Combined with negative growth in Q1, we now meet the technical definition of a recession, but does it feel like a recession?
Employment is still down at 3.6%, 3.5%, and 3.7%. This is an interesting fact. In the last eight recessions since 1970, job growth persisted past the official onset of the recession. Don’t look for an immediate impact in the employment market because employment statistics are a lagging indicator. Sometimes they lag by months when it comes to the start of a recession until we see negative employment numbers.
I look at all of this and in my own macabre way, “Let’s get this recession going,” because oftentimes, as we move into a recession, the Fed is inclined to reverse course and start bringing lower rates back on the table. I like what Matt was saying about the Fed funds future forecast mid-2023 showing the Fed starting to back off on the Fed funds rate and begin to reverse and drop it. We, as an industry, need a little wind in our sales right now.Oftentimes in a recession, as we move into it, the Fed is inclined to reverse course and start bringing lower rates back on the table. Click To Tweet
We’re going to be getting that. Alice, what are your thoughts on this report?
Jack hit on it. It was more of an observation that he mentioned. It looks like we’ll still have some increases now. He talked about getting the recession in. As you said, Jack, a few people feel the same way. “Let’s get this recession started so we can get the Feds to move the rates down,” but mid-2023 is what my question was. Do you think it’s that far out? If I’m a loan officer, I’m hoping it’s Q4, not all the way into mid-2023. It takes so much time to get the data in and see the reaction to the rate changes that we need that much time for them to have the confidence that they could turn it around. I was trying to speak for the loan officers out there who are a little anxious.
We all want this sooner than later, but everyone I’m talking to know there’s always the seasonal downturn at the end of the year. That seasonality downturn is going to be there. We can anticipate that. It’s always something unique about President’s Day. I don’t think it’s because of the date. It’s just that amount of time, 45 days or so out from the holidays. People start opening credit cards.
They go, “I need to do this,” and it starts generating activity. “We need to buy a bigger home. What do we need to do?” That has always been marked for decades. I’ve been at this for a few decades in the mortgage industry. Without fail, it’s like one of those immutable laws. It seems like around Presidents’ Day, the world turns around and businesses will also get happy again.
It’s because of what’s going on economically, it’s going to be early 2023 or the first quarter of 2023. That is what I’m telling all my clients. I’d rather be preparing for the worst down the road and hope for something positive in a turnaround. This is going to become what’s so important about this episode’s topic that we’re going to be talking about and that is what goes into leadership right now. It’s humility and preparation.
We see so many and you guys have many good loan officers there at Union Home, but I’m sure there’s also some number within Union Home, across all of them that are getting caught up in the negativity. I heard one time someone says, “If you’re not feeling good, go to the donut shop. That’s where all the do-nothings agreed there are nothing to do.”
There’s no good grammar in that, but it’s an expression. It’s what are you listening to? That is the most important thing. For those that are recognized this, it’s a normal downturn. For every one of my clients, I’m bringing up their recent MBA slides from Michael, Frank, and Tony, thank you Michael and the MBA for giving us those about the cyclical nature. We do have dips.
We have dipped for the basin points, the probability goes for a quarter into negative territory, and then it bounces up, and we usually have some of the most wonderful rebounds out of this. I agree with you, Alice. It was a brilliant comment that you made. Let’s get this done and get it past us, and move on. When is that recovery going to happen? I hope it’s the fourth quarter. It may feel like there’s some recovery because interest rates, I believe, are going to continue to come down, and then we’ll go from there. Jack is back in. What are your last thoughts on this?
You and I talked to Les Parker a lot, and he has repeatedly told us that this bull market has been going on forever. A couple of things that have protracted from this bull market run are artificially low-interest rates and quantitative reasoning. At some point, when you stop manipulating the economy, you’re going to get a true look at where bonds and stocks are valued. We’re seeing that now. We’ll have to keep our eyes on this. Same with Alice’s, “Recession’s sooner than later. Let’s get into this. Let’s start seeing the Fed drop rate. Let’s get some originations back up on the board. We certainly need it.”At some point when you stop manipulating the economy, you're going to get the true look at where bonds are valued and stocks are valued. Click To Tweet
I was talking to my wife, and she was talking about, “What about interest rates?” When our financial future depends on the mortgage interest as much as us, she goes, “Are these higher rates going to be bad? Also, we have a daughter in the mortgage industry. Is she going to get laid off? What’s going to be happening with that?” All these questions are floating around in everyone’s head. Your comment is, “Let’s get through this,” but it comes down to leadership, which is what we’re going to be talking about in this episode.
We’re going to encourage you to check out Matt Graham’s mortgage rate updates through MBSLive.net and use LOL as the signup code so you get an extended trial period without a credit card required. Let’s hope that we get some common sense in. Maybe we all should go back and read the book Basic Economics to know what is common sense. Let’s get over to Alice. Thank you, Alice, so much for being here for the years we’ve been doing this. It’s astounding to me the success we have. A lot of people love the update that you always braid with the legislative update. What have you got for us?
Interestingly enough, it plays off of what we’ve been talking about, but I’ll start with my first bit of news and then look forward to getting you and Jack back in on the conversation on the housing aspect of the recovery. My one quick note is that last time, I talked about FHA Mortgagee Letter 22-09 changes to essentially setting up a COVID view of income and being able to adjust how we look at income calculations if the borrower had a gap in their earnings due to the COVID scenario through 2020 and 2021. As we kept talking through this, I just wanted to add some clarification. Certainly, we’re getting to a point where we won’t have the 2020 tax returns in the picture as much as we get further into 2022, but they still do come into play in some loans.
There are some positives. Take the time to look at that mortgagee letter to be able to pick up on being able to not have to average in that COVID period. You can look at earnings before COVID and after COVID and use the lower of the two in many of FHAs income categories. It’s a mortgagee letter worth reading. The application case number date is going to drive whether you can use these new rules, and that will be effective on September 5th, 2022. That’s a quick follow-up from last time’s announcement about that mortgagee letter.
The second thing, as I was thinking about people in the news, a lot was rates are the highest, they’ve been in several years. I thought, “What did we look like several years ago in housing and house price appreciation?” which is such a factor in inflation. For those who need a reminder, you can go to the Federal Housing Finance Agency house price index. Google FHFA HPI and then on the left-hand side go down to tools and click on the county heat map. If you go back to 2009, this entire country had almost no housing appreciation at that time.
I remember that.
We’re dealing with completely different sets of economic and regulatory circumstances at the time that we have now. When you look at it now, the entire map is green. There’s a modified map that shows appreciation at its lowest in the country is 6.6%. Even Nowheresville, USA is getting a 6.6% appreciation in the house price and the high-end being over 41% in some overheated markets. That map you can tell is completely overheated in housing.
If you look at the MBA news link, they had a couple of articles quoting that maybe this is working and it’s starting to cool off housing in a few markets. We’ll get some more HPI data coming up here soon, for 2022, but it’s telling to see how different the markets are back to the last time rates were high in relation to housing. I’ll turn it over to you, guys.
That’s a great point, Alice, especially when you look at it from a range of 6% to 41%, it does matter where you live. Also, these booms bust housing markets where you see the 41%, it’s going to be interesting what drives growth and moving forward. I was looking at some of the state demographics. I remember the last time I was on FOX News with Neil Cavuto. We talked about this. He said, “Dave, what are you seeing in some of the trends?” I said, “It’s interesting, Neil. That may be one of the reasons why I haven’t been invited back for a little while. It’s interesting how people are moving out of the blue states into the red states. It’s back getting into more tax-friendly.”
I was listening to Governor DeSantis in an interview with him down in Florida. If you own a business, if you’re talking to Governor DeSantis, the Governor of Texas, or different states that are tax-business friendly, there is such strong growth. These are some of the states that have some of the highest appreciation. Lots of information is available to us. I’m glad you pointed out Alice FHFA’s HPI Index in there. I’m going to go check that out. Jack, what are your thoughts?
At the risk of sounding like a broken record, because every other show I get on this soapbox about affordability. My concern is that with all the regulations we see in so many states, there was one patient that you referred to several shows ago that 40% of the price of the home these days of new construction, 50% in California is the product of regulation. What causes that is builders that have to build more expensive homes to make money.
Builders are not in this because they’re gracious and gratuitous people. They’re in it to make a return on their investments. It’s difficult to build a home for $200,000 and make enough money to make it worth the while for the builder. That’s why the new average home construction price is well over $400,000 now, and then you fold in on top of that the increase in interest rates. We have an affordability issue.
Last time, we talked about the GSCs focus on manufactured housing to be part of the answer to affordability. It comes back to stick-built housing. It’s very challenging for a builder to build a $200,000 home and make enough money when the builder could have built a $440,000 home and doubled their profit.
That’s a great point. It’s so true. We have to address first-time home ownership. Is first-time home ownership always going to be an existing home or is there a way we can manufacture that? Leave it to Elon Musk to come up with a new solution. He has invested in a company that does a new approach to modular housing. Supposedly, he has sold his huge home, at least 15,000 square feet and he’s moving into one of these mini or one of these smaller homes modularized.
If you look at it, it has every convenience you could ever want in the most modern home. It’s not one of those flimsy put together low-end modular homes. Not to suggest that modular homes are flimsy. You should take a look at what they’re doing it. It is not assembled, but it is unfolded on-site. It comes in the back of a big semi gets delivered out and then gets stretched out. It’s not assembling it. It is expanding it. The roof is folded in on top of itself. One wall folds out and it stretches out and comes back together.
It is amazing. It can be constructed and the cost of the home is under $15,000 or less. I texted it after my daughter wanted to live up in Dallas, one of the highest home appreciation areas in the market. She wants to buy a home. I’m looking at that. Alice, I look at that and the innovation of a second unit on your property that you can add.
That’s an Accessory Dwelling Unit or ADU.
It’s meeting the need for housing. It’s standing. Also,you look at what it does for the value of your home. If you got an investment, if that thing starts going up, you have an accessory dwelling unit on your property.
I went online and googled Elon Musk Modular Homes. It’s a company called Boxabl. They dropped this house. You unfold and lift up, and got a home. It would take 2 to 3 hours to get this built.
What’s that website say?
This particular model that I’m looking at is $50,000. It’s called the Casita. I’m sure they’ve got different ones. Readers, google this. It’s the most incredible thing. I’m watching these guys raise the walls, lower the ceiling, and you’re done.
You then have a home.
Here’s what you got to do. You got to bulldoze all the old dilapidated housing that’s in the cities have those things. Make sure the measurements and the size that they are fit on city lots, and there you go. You’ve got your solution for rebuilding that 100- to 80-year-old housing stock that’s sitting in a lot of the cities after World War II. That’s where we need the help too.
It says it unpacks in an hour. It’s 375 square feet. For all the readers out there, including myself, that like to watch the TV show, Tiny Home, it is a tiny home, but you’ve got tall ceilings. It’s 9-foot and 6 inches ceilings with windows and doors. It unpacks in an hour.
I saw some at a $10,000 level, but then you modularize it. You could build and design it and have several stacked together and have different configurations. Here’s the point of this. What did Sears use to sell in their catalog? Do you remember what they used to sell?
They had a house.
How gorgeous those looked? There were some Victorian homes. Jack, while you’re doing this, go google that. What the price of those homes was, Alice?
You have to do the math. The dollar then to dollar now, and it’s still affordable.
That’s the point. It got shipped out from the factory. In that one, you got a truckload of lumber being shipped with the right number of nails with the instructions of where to pound the nails. The whole house got shipped out to you or dropship on there, and many people put those up. It’s this innovation that I get excited about that we have to get into. It’s very exciting stuff.
I’m thinking about you reading, you are saying, “The mortgage industry is having trouble.” Maybe some of you ought to get into designing and creating and looking into affordable housing. This may kick off a whole new interesting thing. I love it. It’s the same guy that’s going to take us to Mars and privatize the space industry. The same individual that brought us electric cars at a mass scale and change the automotive industry. It’s very interesting stuff.
Alice, it’s good to have you with us. Thank you so much. Readers, this is the new format of the show. We come in and add commentary to it. This was rich in how we piggybacked off of what Alice was saying and moved right into the innovation topic. We’re so grateful to have you as our readers. This wraps up the weekly mortgage update. It’s so good to have you with us. It’s been such a joy to have you here with us, and we’d love your feedback on the new format that we’re working with. It’s very similar to what we have been doing, but we’re putting more commentary on this.
I want to say a special thank you again to our sponsors Finastra, FormFree, Lender Toolkit, Snapdocs, Total Experts, SimpleNexus, The Mortgage Bankers Association of America, Lenders One, The Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MMI, Modex, Mortgage Advisor Tools, and DW Consulting. Check out all our sponsors on our sponsorship page.
It’s so good to have you here with us. I look forward to having you back here next time for another episode. We’re producing more and more episodes each and every week. Stay up on them because we care about you getting the right information. We’d love to hear from you. We are so grateful to have you as our reader. Have a great week, everybody. Thank you so much for being here.
- Christy Moss – Past Episode
- Lender Toolkit
- Brent Emler – Past Episode
- Briana Ings – Past Episode
- Total Expert
- Josh Lehr – Past Episode
- Shane Westra
- Mortgage Bankers Association of America
- Lenders One
- The Mortgage Collaborative
- Knowledge Coop
- Mobility MMI
- Mortgage Advisor Tools
- DW Consulting
- Adam DeSanctis – LinkedIn
- Alice Alvey – LinkedIn
- Matt Graham -LinkedIn
- Les Parker – LinkedIn
- Basic Economics: A Common Sense Guide to the Economy
- FHFA HPI – FHFA House Price Index
- Allen Pollack – LinkedIn