Lykken on Lending

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.

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Weekly Updates from Adam, Les, Matt, Alice, and Allen

It is Monday, July 25th, 2022. We’re excited to have you here, Jack Nunnery. Jack, how are you doing?

It’s a good day, David.

Jack and I are excited to be here with you along with all of our regulars. This show is created by Mortgage Professionals. It is for mortgage professionals. We’re so grateful to have you. Our commitment is to bring you timely information that you can use anytime and anywhere. If you’re tuning in to this show, make sure you subscribe to Apple Tunes. You’ll get additional advantages for doing so. If you’re on Android, you can do so over Google Play. We shifted over from Block Talk Radio and we’re still recording via Block Talk Radio. We’re doing a number of upgrades. We’re very excited about where we’re at and where we’re going, so stay tuned. You can always go to Lykken On Lending website. Everything is posted there.

When you look at what’s going on in the world, there are so many factors. There’s a book that I just read. It’s called Unoffendable by Brant Hansen. It’s probably one of the most interesting books. Sometimes, with all that’s going on, it is so good. It’s a timely book. If you’ve not read the book, Unoffendable, you need to grab it. Brant Hansen is a brilliant writer. I love how he talks about this in this time and season in the marketplace and all that’s going on. It’s a great book to have read and digested.

While we’re introducing the Hot Topic segment, it doesn’t mean you’re going to be offended because I’ve heard this gentleman speak. He’s outstanding. His name is Mike Haedrich, the Senior Production Manager at Finastra. We’re going to be talking about digital workflow and what it requires you to do to align with a single solution, and how easy it is to support electronic signatures and other things in there. Workflow is one of my favorite processes. Alice is into workflow as well. It’s good to have you here with us, everybody. You’re going to want to stay for the Hot Topic segment a little bit later on.

I want to say a special thank you to our sponsors. Finastra Fusion Mortgagebot Solution does a great job of setting custom decision parameters to help streamline the approval process while keeping your lending team compliant and efficient. We’re going to be talking about that along with digital workflow specifically. Also, FormFree does a great job with its account check. It supports Fannie Mae’s positive ranking history assessment. Check out the episode we did with Christy Moss on June 20th, 2022. Also, Lender ToolKit. I had Brent Emler and Michael Whitbeck on the show on July 11th. That was interesting about what’s going on with underwriting.

Also, Snapdocs helps lenders overcome obstacles. Adopt the eMortgage technology. Snapdocs is now offering the eMortgage Quick Start program. Be sure to check that out on their website. Total Expert does a great job working with you on your marketing, CRM, sales compliance, and all the things. They have some of the most comprehensive solutions in place for helping you through the customer life cycle and managing it. I encourage you to check out Total Expert. They are the best in class in the industry.

Also, SimpleNexus. We’re hearing more and more people leaving Blend and moving over to SimpleNexus and I wonder why. It’s because it’s a lot cheaper. Check out SimpleNexus at SimpleNexus.com. I want to say very special thank you to the Mortgage Bankers Association of America, Lenders One, the Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MMI, Modex, the Mortgage Advisor Tools, and DW Consulting. Finally, a special thank you goes to our regulars, Adam DeSanctis of the MBA, Les Parker, Matt Graham with the market update, Alice Alvey, Allen, as well as Jack, my cohost. Let’s get over and hear what the MBA has for us on the MBA Mortgage Minute.

I’m Adam DeSanctis. Welcome to the Mortgage Minute, the latest news from the Mortgage Bankers Association. The House Committee on Veterans Affairs Advanced HR 7735, The Improving the VA Home Loan Benefit Act of 2022. The measure would require the VA to review appraisal certification requirements, encourage hybrid appraisals and the usage of emerging technologies, and revisit policies on property inspection waivers, minimum property requirements, and comparable sales.

You may recall MBA Vice Chairman Mark Jones testified in May before the House Veterans Affairs subcommittee on Economic Opportunity in support of this legislation, highlighting the fact that the reforms included in HR 7735 will direct the VA to revisit existing program requirements to make VA appraisals more readily available and less cumbersome for buyers and lenders. MBA is pushing committee leaders to seek a full-house floor vote on HR 7735 as quickly as possible. That’s it for this episode. Thank you for tuning in.

Thank you, Adam DeSanctis, from the MBA. Be sure to sign up for the Mortgage Action Alliance app. Also, the hotels are going fast for the National Mortgage Banking Conference. It is amazing how quickly this is selling out. It was actually Kathy Thomas on my team who works with me and is a consultant. She was saying, “Dave, you got to go get your hotel room.” Go get registered.

The hotel rooms are going fast and you will want to get signed up and not miss this. It’s going to be a what the heck is going on this year? Where is this going? A lot is yet to unfold between now and the conference. They are always relevant but this one is probably going to be more so than any other. Let’s get over to Les Parker with his TMSpotlight and a macro view of the markets. What do you have for us, Les?

TMSpotlight sound bites is brought to you by PowerSeller, making hedging easy. Don’t want to close their trade. Pipes don’t want to fall away, plus they want low rates and they don’t want to miss a thing. Russia is agreeing to lift its blockade in the Black Sea, releases grain shipments, and add certainty to food prices. Bulls like it. China reckons with its first overseas debt crisis, a mountain of non-performing loans. Happy US bulls.

The ECB rate increase puts pressure on European sovereign debt while it claims it can avoid fragmentation by transferring wealth from savers to borrowers so it will force bond parity where there is none. Are you keeping up with political turmoil and economic uncertainty abounding in Europe and China, so why not buy US bonds and mortgages? You don’t want to miss a thing. These views are my own. See things others miss at TMSpotlight.com.

I was reading Les Parker’s TMSpotlight over the weekend. His analysis is so timely. How he draws things together is really good. You need to sign up for this newsletter. You can do it by going to TMSpotlight.com. You can subscribe to the paid version for free by putting in the word POWER for PowerSeller. There you go. Check it out. Matt Graham, it’s good to have you here with us. I can’t wait to get Jack’s commentary on all of this. Let’s get in and get an update on what’s happening as we speak as the stomach turns to Matt Graham, Founder and CEO of MBSLive.net.

The stomach turned in a pretty good way at the end of last week. It is a slow start, a typical summertime bond market volume situation, but then a big rally at the end of the week. Let’s talk about it. Some of the data didn’t have an impact, although it was relevant to housing and mortgage markets and the general association of home builders. Confidence is quite low. Prospective traffic is very low. Everything is falling off a cliff when it comes to that data. Construction data didn’t fall nearly as much. It came in at $1.559 million versus the $1.58 million forecast. It’s not a huge drop.

For the application data on Wednesday, there were a lot of headlines about a 22-year low in mortgage application volume. That’s a disconcerting headline and it’s also a true headline, but it’s important to understand that we were gradually on pace to hit that eventually this 2022 as things contracted. It was just a linear drop that has continued to happen in purchase apps that got us there. Refi apps have historically leveled off at a lower boundary. They might go a little bit lower, but they’ve been on life support ever since rates spiked.

Mortgage Market Updates: There were a lot of headlines about a 22-year low in mortgage application volume and that’s a disconcerting headline and it’s also a true headline, but it’s important to understand that we were gradually on pace to hit that eventually this year as things contracted.

Existing home sales back in the 2015-ish zone is another big drop. The drop in sales is having a positive impact on inventory. It’s still historically low, but now, for the first time, since before the pandemic, it is up in year-over-year terms. I thought that was interesting. Thursday brought the biggest to-do of the week with the European Central Bank announcement, which Les alluded to. They hiked by 50 bits instead of 25, but they also unveiled the TPI or the Transmission Protection Instrument.

That was the redistribution thing that Les mentioned, where certain countries in the Eurozone have their credit spreads versus the core blowout for whatever reason. I think everybody assumes it would be due to the political turmoil in Italy right now. It would give the ECB the ability to step in and buy Italian bonds to keep the spreads depressed or compressed or more stable. Euro will yield closer to German and French yields.

ECB President Lagarde said that they were prepared to “go big” on TPI bonds rallied in response, especially European bonds, which generally led US yields lower throughout the week. That was bolstered by exceptionally weak economic data at home and abroad. That began with the Fed numbers on Thursday, which was very low. They’re looking like they did in great financial crisis-type numbers. The PMI data came out in Europe and the US the following day. It’s the first contraction signaled by the Eurozone PMI since 2013. If you don’t count March 2020, and I don’t, US PMI on the services side was very weak, 47.0 versus the 52.6 forecasts. They dropped from 52.7.

Those are the numbers that you see during and before the recession. All that weak economic data helped you offset the 50 basis point hike from ECB. It also helped bring buyers into the market in general. Fed rate hike expectations ebbed noticeably. We got all the way back to the levels that we saw before the big CPI inflation bit earlier this month. Heading into this week, the big to-do will be the Fed on Wednesday. Before then, not a whole lot is going on. We do get home prices and new home sales tomorrow, as well as consumer confidence, but there’s a lot more market movement potential following the Fed.

They are expected to hike 75 bits this week as opposed to 100, which was a majority consensus at the time. I mean at one time. Now we’re back to 75 largely for economic reasons and also because a couple of Fed speakers came out and said, “We’re not looking at 100. You guys are getting ahead of yourselves.” After the Fed, GDP on Thursday morning was one of the only times we pay attention to it because it’s the first rating we’ll get for Q2. We then have PCE inflation on Friday as well as consumer sentiment.

Consumer inflation expectations at 10:00 AM are a part of the sentiment number. All in all, bonds are doing well, pushing the lower boundary of their sideways trading range. That could be a technical sign that we’re going to see more resistance, but it will depend on the data and the Fed. It’s definitely a lot better than what we were doing in mid-June.

Very good stuff. Jack Nunnery, let’s get your thoughts in on all of this between Les Parker and Matt Graham. Jump in commentary, please.

David, first of all, you’re never too old to learn. In the last couple of episodes, I’ve been focused on the ‘22 GDP, basically saying two consecutive quarters of negative GDB growth meets the technical definition of a recession. One of our audience wrote in and said, “No, Jack, it’s the Business Cycle Dating Committee that officially declares a recession in the United States.” Our audience was right. They always use these opportunities to do some research and get a better understanding of what’s happening here.

The National Bureau of Economic Research, NBER, is a conglomeration or a bureau of approximately 1,700 economists affiliated with the NBER. Inside NBER, they have the Business Cycle Dating Committee. There are eight economists that sit on that committee. The official declaration of a recession comes from these eight committee members of the Business Cycle Dating Committee.

What I found out was that from the event to the declaration, it averages a little over eleven months before the declaration of recession happened. The shortest was four months back in 2020. There was a lot of interesting reading that this committee uses a definition or a framework that says a broad impact for a number of months. 2020 was the exception to the rule. They felt the impact of COVID was so severe and so broad that it only took one-quarter of negative GDP results, and then four months later, they declared the event to be a recession. I just wanted to clear that up for our audience. If it runs true to form, we won’t know we’re in a recession until sometime in June 2023.

It’s a rearview mirror of the official declaration. This committee, Matt, how familiar are you with this? Jack and I were talking about this before we got on the show and before you joined. It’s fascinating.

I’m not super familiar. I also recently learned within the past couple of years that it is indeed not the consecutive quarters of negative growth but instead, it’s the NBER that decides that. That’s interesting, but I guess I don’t care because it’s going to be the balance of other economic data that is more relevant anyway.

One of the reasons that markets don’t tend to respond to GDP news releases very much is because there’s so much other data that is better and more timely than the stuff that goes into GDP that we can get a better sense there. Ultimately, whether or not we label something as a recession doesn’t change its essential character. It is what it is, for better or worse. We get a sense of what it is based on the other economic data on sentiments. The average viewpoint of the average American consumer, whatever we call it, is just a label ultimately.

Matt, I was reading a bunch of comments from economists that were not on this Business Cycle Dating Committee. It was intriguing to see how mean they can get. There was one economist that called the committee incestuous. He said that fundamental issues that should be a part of the conversation on our economic system are excluded as if they don’t exist. You have a community of old White graduates from the famed elite institution, and what they think important is important. If you think differently, you’re out of the club. Even economists can sling a little mud.

Interesting stuff. Jack, I love how you’re doing your research on all this and adding extra color to it. It’s good stuff. I look at this from the standpoint of where rates are at and it’s cyclic. I keep going back to all our loan officers or anyone origination tuning in to this. What are you listening to? When rates fell to these levels, what did we have going into activities? It was a rampant amount of activity. I know rates fell below that. We had a lot of refinances and we’re having an understandable reaction to this.

I think it’s important that those that are focused on, listening to, and staying focused on the purchase side of the market purchases are off because of the rise in interest rates. I’ll be back to this. What are you focused on, folks? What are you thinking about? What can’t happen, or what could happen? Get positive. Start thinking of opportunities that are out there. Matt, give your last word on this, then Jack, and then we’ll get over to Alice Alvey. Matt, what are your thoughts?

You just prompted me for mine. As far as what can happen and where we’ve been with the rates, the average viewpoint tends to be a little bit late to the party. I wouldn’t say necessarily that it’s time to start thinking about how much lower rates are going to go, but it definitely seems that they’ve topped out for 2022. We talked about this before, but keep in mind that even the betting markets and Fed fund’s futures are already seeing the Fed funds rate falling by mid-2023 from wherever it gets by the end of 2022.

It could be the shortest amount of time that it has taken for us to this dip. We could have a pretty significant bounce at the bottom that puts us back in a good place as far as pricing side bounce, whichever way you’re looking at price or rates. Jack, your thoughts?

Matt just answered the question I was going to ask him. That is, what are the Fed funds or future market looking like? When does the prognosticator see a potential drop in the Fed funds rate? Matt just pegged that date into mid-2023.

That was encouraging. That’s good stuff. That wraps up the information about what’s going on in the market. Let’s get over to Alice Alvey. She is a CMB Vice President of Education and Training at Union Home Mortgage. I’m grateful for her to give us the legislative update. Did you have a good weekend, Alice?

I did. Thanks, Dave. It was great. The Mortgage Bankers Association report that you heard earlier teed up HR 7735. They talked a little bit about the bill for VA.  I wanted to stretch out a little bit on this one since it’s so important. I don’t think a lot of people recall or know in the first place that VA doesn’t have the same flexibility as Fannie and Freddy to go in and make changes to things like what appraisals they accept. This is all done through the legislative process. They’re following the VA handbook, which is set up by the Veterans Act.

Anything to change that has to run through Congress. It was great that Mark Jones was out there testifying on behalf of the industry and of veterans. That’s a key winning point. The bill HR 7735 is all about nudging VA but also giving them the way to do that in order to say that this is a legislative requirement that would allow them to make these changes to actually change how appraisers get certified.

For those of you who don’t do a lot of VA, they have their own panel of VA appraisers who are all on the edge of retirement, or I should say most of them. It’s how we make sure we can service this aspect of a VA loan if this is going to be so tight, and we’re also losing appraisers. It’s taking a look at the Minimum Property Requirements or the MPR and also making sure that they take a look at how desktop appraisals could possibly be used, and even appraisal waivers in the world of VA lending.

This is an important piece of legislation that will take the voice of the industry to go out there and talk to your regulators. I haven’t seen this come across Mortgage Action Alliance yet because it’s not up for a vote and it’s not a technically proposed rule yet. It’s just a House bill. We need the Senate to get on board and we’ve got to get this one through. It would be a big win for VA loans. I wanted to get your thoughts here and see if anybody had any questions, but that’s my main topic for this episode. It’s great to have a bill that’s meaningful and short, three pages, but it’s going to get done a lot of things.

Mortgage Market Updates: In the world of VA lending, this is a really important piece of legislation that will take the voice of the industry to go out there and talk to your regulators.

Jack, what are your thoughts on this?

I’m amazed that there’s a three-page House resolution or House building.

This would be a big win for the mortgage industry. At this point, we need every tool we can to get as much volume going through the door. Beyond that, what’s going on for the veterans? The more we could do to help our veterans get into home ownership, I’m for it. What’s the bill number again?

It’s 7735. For those of you who don’t remember the bill process, this is now being presented. It’s got a long way to go through committee and get a companion bill out of the Senate to be able to have it move forward. This is the type of thing that should get bipartisan support. It’s a matter of making sure it rises up to the top and giving it enough. For those of you who are hoping you can go out and originate these next week, that’s not happening. It will take a while. Let’s see what we can do to move it along.

What class was it that we took when we were kids in high school and it talks about the journey of a bill? You see the character of a bill and how it gets introduced, then how it goes back. It was interesting. As soon as you started talking about this, I started thinking, how many iterations of this are going to happen? Hopefully, not much. Good job, Alice. I appreciate it so much.

You’re welcome.

Normally, we’d head over to Allen Pollack with a tech update, but Allen is in a meeting right now. Since we do not have the benefit of having Allen here with us, this means this wraps up the regular mortgage update. We also heard from one of our audience, David. He was talking about when it is officially a recession. He sends some information over. I appreciate you being an audience and your feedback as always. Many of you have written. Hopefully, we are hitting the topics you like.

I want to give a little bit of a shout-out and congratulations to FormFree. Christy Moss texted me. She said, “David, you hear the announcement?” Guild Mortgage introduces a complete low-rate program powered by FormFree to provide a more inclusive path to homeownership for borrowers with no credit score. That’s pretty cool stuff that they’re doing there. Check out the press release. Kudos and congratulations to both Guild and FormFree on another exciting partnership.

Remember, we are going to be changing up the format in which we do these for all these shows. The Hot Topic segments will now be pre-recorded. We’ll be doing those as separate topics. Check out all the episodes we’re doing. If you’re wondering what the update is, be sure to go to our website, Lykken On Lending. We’ve got so many things we can speak about. These are interesting times. Many people are interested in different aspects. We would love to hear from you. Be sure to send me an email or a text message. I look forward to hearing from you. We’re doing our best to plan for our program.

We’re looking more and more at leadership in these particular times. We’d love to get your thoughts on leadership, especially the components of leadership that are so critical that are working for you at your company and what you wish was working better. Either way, we’d love to have you and your feedback in and on the show. Thank you so much for being here, everybody.

I want to say a special thank you to our sponsors. Finastra is at the top of the list. We’re so grateful for their Fusion Mortgagebot Solution, as well as FormFree. We talked about what they’re doing right now. There are many exciting things, as well as the Lender Toolkit, Snapdocs, Total Expert, SimpleNexus, the Mortgage Banker’s Association of America, Lenders One, the Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MMI, Modex, the Mortgage Advisor Tools, and DW Consulting. It’s so good to have you with us. Have a great week. I look forward to having you back here.

Important Links

• Jack Nunnery – LinkedIn
• Unoffendable
• Finastra
• FormFree
• Christy Moss – Past Episode
• Lender ToolKit
• Brent Emler and Michael Whitbeck – Past Episode
• Snapdocs
• Total Expert
• SimpleNexus.com
• Mortgage Bankers Association of America
• Lenders One
• Mortgage Collaborative Success Kit
• Knowledge Coop
• Mobility MMI
• Mortgage Advisor Tools 
• DW Consulting
• Adam DeSanctis – LinkedIn
• Mortgage Action Alliance
• PowerSeller
• Les Parker – LinkedIn
• TMSpotlight.com
• Matt Graham – LinkedIn
• MBSLive.net
• Alice Alvey – LinkedIn
• Union Home Mortgage
• Allen Pollack – LinkedIn
• Guild Mortgage