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

Welcome. It’s good to have you here with us. We are broadcasting from the Finastra Forum of the Americas in Austin, Texas. I’m on my cell phone doing this from my hotel room. We recorded a session. This event was supposed to be live but because of the resurgence of COVID, they decided to make it virtual.

This thing is one massive production. It’s so impressive. Kudos to Finastra for the job they’re doing at one of the most massive virtual events. That’s global. It’s pretty amazing when you work with the number one FinTech company and the resources they have and how they go about it. That’s where we’re at. It is Monday, January 24th, 2022.

This show is created by mortgage professionals for mortgage professionals. We’re so grateful to have you as our audience. Our commitment is to bring you timely information that you can read anytime and anywhere. Where you have an internet connection, you can read. You got a cellphone or a computer, you can read however you can. We’re glad that most of you have internet and you can read this.

In our Hot Topic segment, we caught up with Cathleen Schreiner Gates. She is the new CEO at SimpleNexus. I got to tell you, they were acquired by nCino, a publicly traded company and a worldwide leader in cloud banking. We’re going to know about the opportunities in this acquisition and the other acquisition that SimpleNexus made, one of which was LBA, Laurie Brewer’s Company. Laurie is a good friend. I’m very excited about the product and services she’s been creating over the years. SimpleNexus liked it so much that they bought it.

They no more completed that acquisition and then nCino came in and bought SimpleNexus. We also have her on the show. Be sure to go check that. We’re proud to be part of the Industry Syndicate. Check out IndustrySyndicate.com and all the episodes that are available and published through the Industry Syndicate. We’re pleased with our partnership with them.

I’m thrilled to have the following sponsors with us like Mortgage Bankers Association of America. I love what they do. I’ve already talked about Finastra. Their Fusion Mortgagebot Solution is a combination of the Mortgagebot POS and the Mortgagebot LOS. They do a great job of creating a path to borrower satisfaction.

If you’re an institution looking for a new LOS or POS, check out Fusion Mortgagebot on Finastra.com. We’re here again at Austin at this amazingly produced event. I got to be on with Tony Thompson. That was so much fun. Tony and I were on a panel together. I got to tell you, got to check out what NAMMBA is doing. Tony’s doing this amazingly. It’s fun to get caught up with them and t   progress they’ve made. That organization is ensuring. Everyone needs to check out what they’re doing. Get ahold of Tony Thompson.

Also, Lenders One. I’m glad to be partnered with them along with The Mortgage Collaborative. Both of these organizations do a great job of getting lenders and vendors together in a more intimate way, through which you can connect and find out what’s going on with your peers and the vendors they use. I’m impressed with that.

I got caught up with Rich Swerbinsky. Rich is a good friend. I appreciate him and his leadership at The Mortgage Collaborative. They’re having some explosive growth. As well as Lenders One. There’s a real need for these organizations but that does not mean you shouldn’t be a member of MBA. Neither one of those organizations erase your need to become a member of MBA.

Let’s also say a big thank you to Insellerate. Josh Friend over at Insellerate does a great job with helping you connect with the borrower and putting an enhanced borrow engagement and experience. Also, Knowledge Coop. Ken Perry is up at the IMB conference in Nashville. They’re doing well and having fun up at IMB.

The Mobility MMI, as well as Modex. Both of these platforms do a great job helping you connect with the best loan officers that you want to go recruit in the marketplace. Also, giving you insights into what’s going on. Who’s buying and selling? Which real estate firms are the best? Which ones are hot? Which ones are not? I make every market hot. Check out these two firms. They’re great.

Snapdocs helps lenders overcome obstacles. Adopting eMortgage technology. Snapdocs is offering eMortgage Quick Start Program. Check it out. We had Vishal Rana on the show on September 2021. Read that episode. Also, SuccessKit. I’m so impressed with what we are getting from Julian Lumpkin and the group there at SuccessKit helping you tell your story.

If you’re a loan officer, you’re a company and you want to get one of your customers to come on and talk about what a great experience to stay ahead by working with you, get ahold of Julian at SuccessKit. It’s amazing. Also, Lender ToolKit. We’re very pleased to have them on. We have several new sponsors coming on. We can’t wait to talk about them. We’re getting the contract signed. A list of sponsors continues to grow and we’re very grateful.

I’m also so grateful that we have Alice, Allen, Matt, Rob, Les and Jack contribute to this show each and every week. Normally, we’d head out to Rob Van Raaphorst but Rob did not get a segment in because he’s at the IMB conference. Let’s get over to Les Parker with TM Spotlight and a macro view of the market. Les?

All that selling got bonds down has pipelines churning all around. The bond bears rule but related markets point to a continuation of the sharp correction. Learn to freak when the markets freak out. If mortgages can live without massive liquidity from central banks and live with COVID, then lenders and borrowers will find a new value, that is rates rise. If they cannot, then rates fall. The only certainty is uncertainty. Be a proactive hedger. They dance when the world freaks out. Sit ahead and find a floor. These views are my own. Freak at TMSpotlight.com.

I appreciate his contributions each and every week. He and Gary Catrambone partner up and do a great job of producing that segment. Jack and I were having a conference call on Friday to talk about this segment. Les distills down so much and talks about so much in such a short amount of time. You’ve got to get TMSpotlight.com to understand Les’ music parodies as humor and all the information and wisdom that comes through from it.

Check out TMSpotlight.com and sign up for that newsletter. You can use the word POWER for PowerSeller to be able to get that paid version for free. We’ve got Matt Graham here. It’s good to have Matt on the phone each and every week giving us an update. Check out MBSLive.net. I am such a fan of this product, the screens and the information come across. Let’s know about it directly from Matt Graham, Founder and CEO of MBSLive.net. Matt, it’s so good to hear you.

Freak out. Les nailed it. Especially, there was a fantastically bad start to the week for the bond market on top of what has already been a fantastically bad January 2022. We’ve had a chance to talk about it on a few occasions. We had foreign accounts dog-piling on some bed speeches that came out and join the chorus of the general notion that the Fed is going to remove bond-buying accommodation more quickly than previously expected.

What we’re talking about specifically is not tapering because that is already in the work. That’s done as of March 2022. We’re talking about balance sheet normalization. If you recall, this was not as visible back in 2018 but this is when the feds started to let their reinvestments roll off the balance sheet so they capped the amount that they would reinvest each month.

That began to shrink the balance sheet. It wasn’t too long before the market freaked out enough for them to change tack a bit. Rates have been high for long enough and it seems like the economy is pouting enough about that but we are going to level off policy. The next move after that was a rate cut and then the 2019 trade war dovetailing to COVID. Here we are with more stimulus.

We knew the Fed would be pulling away that stimulus whenever it made sense to do so. Arguably, it made sense to pull it away earlier than now. Some are concerned that it’s a policy error and that the Fed is behind the curve so much that they’re going to precipitate the next downturn. That’s possible. If you’re looking at where the economy is and how much the Fed is buying in terms of MBS and treasuries, it hasn’t made sense for them to be as big of buyers as they have been.

Market Updates: If you’re looking at where the economy is right now and how much the Fed is buying in terms of MBS and treasuries, it hasn’t made sense for them to be as big of buyers as they have been.

If you could look at the landscape of the economy in the market and you had to pick a Fed funds rate and a level of bond buying that the Fed should be doing, you would not pick 0% and tens of billions of dollars every month. You’d probably pick no bond buying and a policy rate that is high enough to maybe slow down inflation.

Here’s a caveat there. The Fed will be the first to admit that the policy rate is not the ideal tool to control the kind of inflation we’re having. Nonetheless, they might as well do what they can until such time inflation comes down. It will come down later in 2022 simply due to base effects. That’s another conversation for another time at any rate.

The Fed policy shifted driving rates quickly higher at the startup and then we began to correct in the same pattern that we saw in the previous week. This is a normal pattern when the market is adjusting to a shift in Fed policy. The only question is, has the ship been priced in enough? We might be seeing some clues as to that.

This correction over the last few days is a little bit better developed than the last one. I do think it is a consolidation. I don’t think that we’re looking at the market changing course on the rising rate environment in 2022. If rates needed an excuse to go a bit lower, they had it when S&P futures were down more than 4% about. They didn’t take that.

Tenure-year yields hit the floor and slid sideways at 1.7 plus. If they want a justification, they could have gone under that 1.71 pivot point. It’s a little bit easier to say it looks like rates are finding their range ahead of the Fed on Wednesday. That indeed is the big event. Wednesday afternoon, 2:00 PM Eastern Time, Fed announcement. Powell press conference, as always, half an hour after that.

Will the Fed hike rates at those meetings? No. Zero chance of that. Will the Fed announce a faster tapering process than is already in the work? No. Zero chance of that. They have no incentive to increase the speed of the taper. It’s going to be over in March 2022. Even if they did increase the speed, it’s not as if they’re going to move the rate hike forward from March 2022.

Another question that I’ve gotten from multiple people. Is the Fed going to hike rates by 50 basis points in March? No. Zero chance of that. It’s not in their playbook. I say zero but it’s one of these 95% confidence interval things. You never know for sure but because of all of these questions, you can expect reporters to either ask them verbatim directly or at least ask questions that draw that information out of Powell.

Markets are interested to get a commitment on the pace of rate hikes, the possibility or impossibility of a 50 hike in March 2022. I’m sure he is going to push back on that pretty quickly. The biggest piece of info will be any sense of timing of balance sheet normalization. If he says, “We’re going to start hiking in March 2022. It’s pretty much a done deal. We’re going to start normalizing the balance sheet in June 2022.”

That’s going to be worth more bond market weakness and specifically more MBS weakness because the mortgage side of the market relies a bit more on the Fed bond buying program than the treasury. It’s easier for treasuries to sign a bid without the Fed than mortgages in other words. That has been reflected in MBS’s underperformance.

It is something that could continue if the Fed stays the course of its normalization rhetoric that began at the beginning of January 2022. Will the Fed acknowledge that this reaction to their policy shift is damaging to markets? They’ll acknowledge it but I’m not sure if it has gone far enough for them to be concerned about yet.

We need to remember that if stocks had remained on the trajectory that they were on before the pandemic, they would still be significantly lower than they are. In the grand scheme of things, the correction we’ve seen, A) It’s not quite big enough to concern the Fed. B) The Fed can point to 2013 and 2014 as evidence that tapering and pulling away from bond-buying programs doesn’t single-handedly tank to market.

Market Updates: We need to remember that if stocks had remained on the trajectory that they were on before the pandemic, they would still be lower than they are right now.

Stocks didn’t care too much at all in 2013. I don’t think that people should place too high of hope on the Fed pushing back on their recent policy shift just because stocks have sold off so much and rates have risen a fairly nominal amount given the circumstances. Nice couple of days but we’ll wait and see what the next momentum phase will be. It will be based largely on what the Fed has to say on Wednesday, probably.

We shall see. You don’t have these screens in front of you? I need to bring that up. I will bring it up on my iPad so I have that up and running. It’s a great tool. You have created some great technology that you could have on a screen behind you as I do in my office. Have it on your iPad or mobile device and be able to keep up with all the stuff that’s happening.

Matt, thank you so much. I appreciate you being here. You signed up for the extended trial period without a credit card by putting in LOL, Lykken On Lending, in the signup code. Before you leave, Matt, let’s get Mr. Nunnery on here. Jack, you’re retired but you watch the market. Will you ever not watch the markets even though you’re supposedly retired?

Like a hungry hawk, I watch the market. I agree with Matt that the correction that we’re seeing across all the major equity markets, NASDAQ, S&P, if it closes in and around where it’s at. We’ll check the block on the correction. It hasn’t been significant enough to deter the hawkish rhetoric coming out of the Fed. You’re going to see the Fed largely ignore the correction in the equities market and continue with the rhetoric that they’ve been espousing. While there are a lot of folks out there smarting over the loss in their 401(k) and the Dow is down over 1,000 or it was when I checked it, it’s not a sufficient enough correction to cause any significant concern at the Fed over their approach to curbing inflation.

I look at the Wednesday Fed meeting and say, “Don’t look for any change to be discussed by the Fed.” It is what it is. The thing that’s got me a little nervous is the potential impact of some of the global possibilities that we’ve talked about in the past. Ukraine is weighing in on the equity markets. I was reading an article. China flew 39 military planes into Taiwanese airspace. I don’t expect the Chinese to make any move until after the Olympics but keep an eye on the global side of things. There is a lot of unrest in that arena.

Matt, that’s probably one of the reasons why people need to have your service because when there are any rumors or anything and things start deteriorating, your screens bring that up. You talk about everything on there so eloquently with the commentary that you have and the pieces that you publish each and every week. Matt, do you want to add anything to that?

Briefly, because I know we’ve taken quite a bit of time, the geopolitical events are a bit of a wild card. There’s a wide spectrum of how they could play out and how that would impact the bond market. While we can’t know how that’s going to go ahead of time, we do know that in 2014 when Russia invaded Ukraine that it was a complete non-event for the bond market.

I’m not saying it’s going to be a non-event this time but I’m saying there are ways that that stuff can happen where it is a non-event. They can leave your average market watcher wondering, “Why didn’t Russia invading Ukraine help bonds more?” If the US gets involved in a major way, it could change things. The other thing to keep in mind there with Taiwan is that that’s the ground zero for the chip shortage.

A disruptive military campaign going on in Taiwan could have implications on inflation because 70% of the world’s semiconductors come out of Taiwan. There’s a little counterpoint to consider when we’re talking about the reason that rates need to go higher. It’s inflation-related and that could have a countervailing impact as it were.

Matt, Jack, thank you so much. Les Parker is listening in. Thank you all for helping us sort through the markets. Excellent job. I love your service. Get signed up for MBSLive.net using the LOL code. Go ahead and sign up. Get your credit card, I’ll pay for it. It’s worth every dollar dime of it. Let’s move over to Alice Alvey. She’s CMB Vice President of Education and Training in Union Home Mortgage. She’s got a legislative update. Alice, it’s good to have you here with us. I know you are also going to give us a little bit of some things that we would’ve otherwise might have heard from Rob Van Raaphorst. What do you get for us?

If you read that news link, you’ll see that Rob is providing here a synopsis of that advocacy piece that goes in the news link on Monday. One of the main things that everyone’s been waiting for is when are Fannie Mae and Freddie Mac going to be implementing the desktop appraisal option that they talked about at the MBA conference.

Fannie Mae has produced a detailed announcement on the requirements for this. It’s going to begin with DU runs on March 19th, 2022. They’ve got the complete release notes to illustrate the boundaries for this. It’s not going to be for investment properties and second homes but they do have a list of transactions. It’ll be for purchase transactions, single family and LTVs of 90% or less.

It’s a pretty predictable bucket that they chose for being able to offer a desktop appraisal. We look forward to that. Freddie Mac’s announcement was a little shorter. They said they would be making the messaging changes on March 6th, 2022 for their LLPA feedback messages. We’re still waiting for their details. Based on what you see in the feedback messages and their short announcements so far, they’ll most likely align. It won’t be playing one against the other in that particular case. It’s an area they don’t want to be different in because neither one of them wants to be adversely selected for the appraisal process.

That’s the big news we’ve all been waiting for. We’ve got a little bit of a window here before it goes into effect. I don’t recommend holding off on anything hoping that your borrower gets a reduced appraisal format. As you’ve heard with the market conditions, we’re taking every deal we can to get those in the door. One of the interesting things that came up as a part of this is also on January 20th, 2022. Fannie Mae introduced a research piece called Appraising the Appraisal.

The findings of this are very interesting and something worth coaching and talking to the underwriters on your team, those who are doing collateral reviews and making sure this is talked about at your company and you’re doing everything to make sure we’re mitigating this. One of the top findings was that Black borrowers refinancing their homes on average received a slightly lower appraised value relative to automated valuation models.

Homes owned by White borrowers were more frequently overvalued than homes owned by Black borrowers. Six states, including Georgia, Louisiana, South Carolina, North Carolina, Mississippi and Alabama accounted for nearly 50% of the overvalued homes of White owners in majority Black neighborhoods.

The goal here is to make sure that we achieve accurate and unbiased appraisal, we keep trying to level-set research this and we get to the bottom of what are the areas we can make sure that we’re improving it. I encourage everyone to go read this analysis. It was done on 1.8 million appraisals that were completed in 2019 and 2020. It’s worth the read for everyone. That’s my report, David. Thank you.

An important read. Tony Thompson of the National Association of Mortgage Bankers of America, whom I did a panel with here, was talking about some of this as a new update. It is important, especially when you see what’s going on with CFPB. They’re more interested in taking more actions against mortgage bankers. It’s this kind of thing that creates such a strong narrative for them to do so. Alice, this is interesting and something we got to pay attention to. Thank you so much, Alice, for bringing this up. You do such a good job.

Several people call me and said, “Is Alice still consulting? We love her. She’s amazing.” I go, “No. Union Home saw the value and they match her up. She is there permanently.” You can get your consulting of Alice by reading the show. Go back to the website if you want to read all of Alice’s updates or any one of the Hot Topics. Catch up with all that she has reported on here on the show. Alice, thank you so much. I appreciate it. Another great update. Let’s move over to Allen Pollack. It’s good to have him here with the tech update. Allen Pollack, how are you doing?

I’m doing great and you? It sounds like you’re doing great.

I am good. You would be geeking out here at this Finastra Forum. There’s never been a new piece of equipment I haven’t liked that I want to go buy. I’ve been geeking out here. The stuff they’ve got and the production company that’s in here producing this is such over the top. It’s pretty fun. What do you get on the tech update?

There’s so much stuff. I always look at the internet for funny and interesting things. This one had me laugh. It’s funny messages that people have socially posted on the internet. This one came from someone who said, “If I die while lifting weight, add more weight and then call 911.” Let’s talk about some fun stuff. I mentioned this company a few times. I like this company. It’s called Capacity.

They closed $38 million in a series fee, surpassing $62 million in total capital rates. They’re saying that the money is going to be allocated to support new team members. They’re looking to enhance product capabilities and ultimately optimize their support automation platform. Get this, David. Support automation, think mortgage, is the next big thing in helping businesses do their best work. They’re building an AI-powered platform to meet all of that.

The help desk automation market is the best part and mortgage is so much a part of this. It’s expected to be more than $17 billion by 2024. What’s great about this is there’s an opportunity in mortgage technology. We’ve talked about this also with other folks but chatbots go wrong sometimes. I want to talk about one quick thing with chatbots. If you’re going down the chatbot road and google it, there are tech platforms out there.

Here’s a funny interaction. The chatbot says, “Hi. May I help you today?” The person says, “Hi. Are you able to take refillable water bottles into the venue?” The chatbot says, “We don’t have any events at the moment. Can I help you with anything else?” The person says, “Can I take water bottles in?” The chatbot says, “Sorry. We don’t take any requests right now. How else can I be of assistance?” The person says in capitals, “Can I bring my reusable water bottle?” The chatbot says, “We don’t allow dogs on the premises. What else can I help you with?” The person says, “This is useless.”

These interactions happen every day. If you’re going to put something in place to do nothing but help, 24 hours a day customer service, get the name of a loan officer. Direct someone to the link of your mortgage application. Whatever it is, you’ve got to script out the stories and think about how to handle what’s called alternative questions or keywords so that you have a default flow that doesn’t push somebody away.

Market Updates: You want to script out your chatbot to handle alternative questions or keywords so that you have a default flow that doesn’t push somebody away.

The last thing you want is frustration. Capacity is one in our industry with $38 million they took care of. Let’s talk about this, David. This is a company called Bubble. If you remember, we had some friends that did the tech crunch. They won the award, Matic Insurance. This new company released its insurance in a box offering. What they are saying is that within a few minutes, consumers can protect their home as well as their families. It’s a top-rate insurance company that is built in but it’s ultimately API driven. You can integrate it with your system wherein consumers can pick homeowner and life insurance seamlessly into each real estate transaction.

It sounds like giving consumers the ability to control options and costs upfront, adding value to what you’re advertising and ultimate value in affordability to your consumers. Think about that. Bubble is the name of that company. David, get this. We’ve got a lot of digital point-of-sale platforms out there and borrow sentiment that we have to worry about as far as their experience. We always forget about loan officers. Maybe the technology’s too complex. Maybe it’s not ready.

There’s a company out there called Staircase. They launched what they’re calling a low-code marketplace, allowing lenders to quickly build applications to automate the process. They have a first template. It’s available in what they call their marketplace. It’s pre-approval. You can customize and white label it. You can get it up and running in 30 minutes. It seems like it’s mobile-ready, meaning you can get to it on a website on a mobile device. It then generates the application flow and PDF. It can also read PDFs to collect data. They even have it set up to collect payments that can be applied towards the closing cost. Take a look at that. If you’re looking for a low-code or low-cost version, that’s an option.

I’ve got some other news. Tavant, for those of you that use them, launched their VELOX NXT. It’s an advanced version of their AI digital lending platform. Go check that out. There’s this awesome article in mortgage finance that says, “What’s tech to watch in 2022?” There are eight items. I’m going to read one. Next time, we’ll focus on another one. The one I want to start with is the increased use of automated data services. In 2022, we should expect to be looking to leverage data. Whether it’s from government data, like from land and registry information from companies, houses and real estate data we can get.

In addition to that, looking at data we already have but getting more depth into that data. Reading more into the data. As an example, if we get a credit report, why just read the credit scores? Let’s read all the properties, bring them to the consumer and say, “Can you validate if this is an investment property?” We can put it in the real estate owned so we can better qualify that person.

Let’s look at the depth of data. As you talk to your vendors and think about data, think about data you already have and data you maybe want to put on your roadmap to move forward. I’m not going to focus on any others. We got folks at the Independent Mortgage Bankers Conference. Good luck. I hope things go well there. David, I know you’re at another one. Otherwise, it’s great to have all of you as the audience.

I get a lot of feedback on your segment. People enjoy the humor that you come up with. Some of it is out there sometimes but it’s well received. Thank you. I appreciate the research you do each week to keep this segment alive and well. Good job. You can go to our website and look up all of Allen’s updates. He has a lot of stuff out there that we’ve generated through this show. I appreciate it. You’re doing a great job. I can’t wait to hear what you got next. Talk to you soon.

This wraps up this weekly mortgage update. We thank you so much for being here for this weekly mortgage update. It’s time to move into the Hot Topic. Special thank you to our sponsors, Finastra, Lenders One, Insellerate, Mobility MMI, Modex, MBA, Knowledge Coop, The Mortgage Collaborative, Snapdocs, SuccessKit and Lenders Toolkit. I’m so grateful to have all of these as sponsors. We appreciate you being here. I look forward to having you back here next time. Have a great time, everyone. Thank you.

Important Links

• Cathleen Schreiner Gates – Past Episode
• Rich Swerbinsky – Past Episode
• SimpleNexus
• nCino
• IndustrySyndicate.com
• The Mortgage Bankers Association
• Finastra
• Fusion Mortgagebot
• NAMMBA
• Lenders One
• The Mortgage Collaborative
• Insellerate
• Knowledge Coop
• Mobility MMI
• Modex
• Snapdocs
• eMortgage Quick Start Program
• Vishal Rana – Past Episode
• SuccessKit
• Lender ToolKit
• TMSpotlight.com
• MBSLive.net
• Union Home Mortgage
• Capacity
• Bubble
• Matic Insurance
• Staircase
• VELOX NXT