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 PART 2

I’ve got joining me on this show, you’re going to start seeing him come front and center a bit more, is Jack Nunnery. Jack, good to have you here as a cohost. I appreciate you being here, friend.

It’s good to be here.

This show is created by mortgage professionals. It is for mortgage professionals. We’re grateful to have you as our readers. We got a lot of feedback, all positive about how this is one of the main ways you find out all that’s going on. We get a lot of comments on all the segments. Thank you all for contacting me and I appreciate that. I needed that. I don’t know why. I need a little encouragement in that. It’s good. Our commitment is to bring you time, the information that you can read anytime and anywhere.

In out Hot Topic segment, we have someone that I enjoy as a human being. Kristin Moseley is the Vice President of Strategy and Financial Services at Experience.com. We’re going to be talking about some of the strategies top performers and loan officers share to differentiate themselves from others and their customers using experience as well as some of the characteristics of next-gen home buyers.

What we’re going to be also talking about is they announced who received awards for The Experience. Very good, Experience Awards. We’re going to be talking about that. Stay tuned to the Hot Topic segment. Kristin will be joining us and it will be so good. I’m looking forward to having her here.

First of all, check out all of the Industry Syndicate podcasters that are out there. I appreciate it when you check and give us feedback on all these shows. We’re proud to be a part of Industry Syndicate. There are many podcasts out there that you can listen to that they host, and we’re pleased to be a part of it.

Anyway, thank you to our sponsors, Mortgage Bankers Association of America, as well as Finastra, for their Fusion Mortgagebot Solution. They do a great job at helping you connect with consumers in a unique way and sharing all information in one platform with open APIs out to everyone else. That’s the big issue, is how can you connect all these desperate participants that are out there and connect them together?

Finastra got the solutions with their open APIs. Also, Lenders One and The Mortgage Collaborative. Both of these co-ops do a great job of helping lenders and vendors get to gather in a more intimate setting and do not replace the MBA. You hear me saying that all the time. You need to be a member of the MBA attending the annual conferences.

If you’re looking for a deeper connection with some of those peers in the industry that are facing or encountering some of the same issues you are, you need to become a member of Lenders One or The Mortgage Collaborative or, better yet, both of them. Also, Total Expert. I tell you, I love what these guys are doing. They turn customer insights into actionable items, increasing loyalty and driving growth for banks, lenders, credit unions, and financial institutions.

Go listen to the vision that Joe Welu laid out on March 14th when we interviewed him. Also, Knowledge Coop. Ken Perry. It’s a great learning management system, LMS, that will help you communicate with your people. Also, the Mobility MMI, Mortgage Market Intelligence, along with Modex, did a great job helping you support your recruiting process by getting to facts and not hyperbole.

Anyway, Snapdocs, digitizing the mortgage closings and creating a better experience for your closing team and, more importantly, for your borrowers. Check out Snapdocs. Read the vision that Briana Ings talked about in her interview on March 28th. Now, I love SuccessKit because they do to help us tell our story.

If you’re sharing your story, what do you do as a company, how do you help people, you’ve got to go check out what SuccessKit.io can do for you. They help you share your story in a way that is compelling and it’s told in a third party manner. Very effective. Check out some of the ones. We’ll be happy to share some of the ones we’re doing if you’re interested in our consulting firm, Transformational Mortgage Solutions, and I am pleased with the results.

Also, Lender Toolkit. When you look at all the tools that Lender Toolkit brings, all the technology they bring, the way they can help you streamline your business, I’m telling you, you’ll get excited about it as many of our clients are who are using Lender Toolkit, as well as the FormFree. Brent Chandler does a great job of innovating in new ways, and they work closely with Fannie Mae.

Check out the interview we did with Brent Chandler on February 28th. Also, SimpleNexus. We are grateful to have them as a sponsor. Read the interview we did with Lori Brewer on March 21st. Also, DW Consulting. Debbie Wemyss does a great job at helping you get your LinkedIn profile set up in a manner that will represent you fairly when people are checking out you or your company.

A special thank you to Les, Alice, Allen, Matt, and Jack for their contributions each and every episode. We did not get something from Rob this episode. A lot is going on at the MBA. I’m going to encourage you to get signed up with a Mortgage Action Alliance app so you can have your voice heard on the Hill. They are very busy trying to get our voice heard and heard well and accurately, and that’s what the Mortgage Action Alliance and the MBA does well. Let’s get over Les Parker’s segment on a macro view of the markets. Les, what have you got for us?

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I enjoyed that segment that Les produced with Gary. More volatility ahead. I tell you, we’ve had enough of it. We got it going on now in a big way. If you want to receive Les’s this newsletter, get the paid version for free by going to TMSpotlight.com. Subscribe to the paid version and put in the word Power for PowerSeller. Let’s get over Matt Graham. Rates right now.

Highest rates since either the middle of 2009 or late 2008, depending on whom you ask. Unpleasant environment for originators in terms of the change from where we were to where we are. Naturally, the default comes back to that as well. Rates are still low in the bigger picture. The glass household folks can focus on that and those who want to freak out can do based on the fact that it’s the sharpest rate rise since the ’80s.

Rates right now are the highest since either the middle of 2009 or late 2008, depending on whom you ask, an unpleasant environment for originators in terms of the change from where we were to where we are. Click To Tweet

Even the 1994 crowd has been officially outdone. Now, what’s going on to cause all this? It’s the same stuff. It’s the big picture adjustment to the very abrupt shift in the Fed policy outlook that began in earnest in January, but has accelerated at times, and then had to deal with a major curve ball from the Ukraine war and the commodity price spike that perhaps hasn’t filtered through to inflation reports yet.

Something remains to be seen on that front. As far as last week was concerned, it ended up being, at first, yet another attempt or chance for the bond market to consolidate and push back. The previous week was fairly flat, even though yields were higher than the week before that. Monday and Tuesday started off on a strong note and bond markets took solace in the potential global growth slowdown courtesy of the COVID situation in China, which did prompt some conversation about the inflation impact with supply-driven inflation being affected by lockdowns in China.

Growth outlook superseded that, at least for the first few days, and it was helped along by early month-end buying. We didn’t have to debate it for too terribly long because, shortly thereafter, yields began to rise and then rose in grander fashion on Friday. As traders got in position for this week’s main event, which would be the Fed on Wednesday afternoon.

Before we get to that quick data recap, mixed bag, but the data didn’t help MBS or didn’t help the bond market very much. Durable goods were overlooked early in the week, and even if they weren’t overlooked, the core CapEx, the non-defense excluding aircraft number, which some people would consider to be “core durable good,” was 1.0% versus 0.5% forecast. Negative implications there.

Some ongoing sources of concern and home prices still rising 20% year over year with a faster month-over-month price increase despite higher rates in February. We’ll see what happens in March, but it does take many months for any effect that we’re going to see from rising rates to filter through to home prices. The bigger impact on prices will likely be cyclical as opposed to rate based. I digress. We’re here for markets.

New home sales are right in line with the forecast. They fell month over month, but that was only after a nice upward revision of the previous month. Mortgage applications are doing unsurprising things with the refi apps being near historic lows. Purchase apps holding fairly steady in the bigger picture, but much lower compared to most of the last two years.

GDP was in negative territory, but a lot of people were quick to point out that had almost everything to do with exports, imports, government spending, and inventories, whereas the actual economic driver pieces of GDP were stronger. That contributed to a reversal after the GDP data and a weak treasury auction process.

Not ultra-week, but lackluster, and a ramp-up in expectations for corporate bond issuance. Post yields are higher by the end of the week. PCE inflation didn’t help, either. Core PCE was a 10th of point lower year over year. That was great. Headline PCE was four-tenths of a percent higher month over month. That includes impacts from fuel and food, and that’s not what the bond market wants to see. It’s going to be inflation that dictates the evolution of the Fed policy shift, which is at the core of the big picture rates. Now, as I said, all eyes are on the Fed. What do we know they’re going to do?

They’re going to hike 50 basis points. Some people have murmured about 75 BPs. That probably won’t happen, maybe a less than 5% chance. Call it a 0% chance in the real world. The bigger question for the Fed and for what we see has to do with balance sheet normalization. This refers to the Fed letting its reinvestments in treasuries and MBS roll off the balance sheet by introducing caps as to how much repayment needs to come into their balance sheet before they would pass through any additional repayment.

They’re talking about a $35 billion cap in MBS. If they instituted that cap, or by the time they’re at that cap, there would effectively be no more MBS reinvestment unless we entered some sort of refi boom that caused repayments to go up quickly. The question is how fast they will phase in those caps, and that is the big question going into the Fed if they were to come right out of the gate with $35 billion. This was a bit ambiguous reading to Fed Vice Chair Brainard. At one point, I felt she was saying they could start with $5 billion, but if you read the minutes, it seems $ 35 billion might be the plateau.

If it is indeed the plateau, and if the Fed says, “We’re going to take at least three months to get there,” that could be a net positive for bond markets. If the Fed comes out and says, “We’re starting at $35 billion and then we’re going to ramp it up to ensure there are no balance sheet reinvestments,” then that would probably have some more pain in store for the bond market.

Either way, we’ll find out at 2:00 on Wednesday afternoon. The rest of this week’s typically important. Economic data is probably a bit more muted as a result, especially because we know the labor market’s firing on all cylinders. Otherwise, we’d say, “It’s NFP week and we’re going to watch the jobs report.”

In fact, not domestic economic data at all. As far as the runner-up in terms of importance, probably looking at the Bank of England announcement on Thursday morning. It’s a Wednesday afternoon type of week, and we’ll see a lot more about whether things are accelerating or reversing course after that. As I have said for weeks on end that we need clarity on how the Fed is going to approach balance sheet normalization before the bond market even has a chance of stabilizing. The supporting actor, there would be inflation data needed to help confirm their narrative, but it’d be a great first step just to get clarity on the table and we’ll have it on Wednesday. That’s all I got, Dave.

Jack, come on. I’d love to get your commentary.

Sure. David,

I see you bringing Les’s comment, combining it with what Matt said, and then Matt, your thoughts on all this. This is interesting.

Matt’s comments were very timely and very on point. This is going to be all about the Fed. 50 basis points. Let’s price into the market. Don’t take your eye off the ball and the ball is the fit. The next three months are going to show the hawkishness of the Fed. Fifty basis points in May. There is chatter in the market, 75 basis points possibly for June, and then another 50 basis points following in July. When you look at that, David, we could be in a new target range of 200 to 225 basis points for the Fed funds rate when we exit July. We’re going to see volatility here at the beginning of the summer.

 

The one question that I have to wrestle with is the impact to the markets, to rates on the Fed scaling down the balance sheet. Back in 2017 and 2018, we saw the Fed reel backend the balance sheet, basically looking at a clip of about $50 billion a month. Based upon Brainard’s comments, some of the hawkish comments by Powell, we could be looking at 2X on that, or almost 2X at $95 billion a month. Matt, do you have any thoughts about if the Fed moves at that rate to shrink the balance sheet? What are things we need to be looking for in the marketplace as potential impact from that quick drawdown on the balance sheet?

Fortunately, that is what the market has been doing for the past several months, pricing in this new reality. As we saw in 2017 and especially 2018, there is potentially a of extra pain to be felt. This time around, they’ve been clear enough, at least recently, about how quickly things could unwind and about how they’re going to be moving faster to normalize the balance sheet. I think the market has probably done a much better job of getting ahead of where it wants to be in terms of spread widening. MBS is 120 BPs over a 5 and 10-year treasury blend right now, which you don’t need to know what that means if you’re a reader or doesn’t know what it means. It just means that 120 BPs.

The higher that number goes, the worse it is for mortgage performance versus treasury performance. We were down in the 60 BPs range. Sixty BPs of spread widening would generally, over time, mean that a top-tier mortgage rate could rise 60 additional basis points on top of whatever the 5 and 10-year treasury yield rise would suggest.

That’s how much damage has been done far. It takes us back to levels from late 2013. If things got bad, that number could go up from 1.6% to 1.8%. That’s probably a hard limit. Even Les said in his segment that the spread could be tightening. I do think that any bond market stability in terms of let’s say ten-year yields go, hypothetically, they go up to 3.25% and then top out and don’t go any higher, MBS should be tightening from that point on.

The clarity from the Fed to help them tighten as well. They’re comparatively higher yielding investments, all of that’s predicated on inflation, stabilizing and falling as it would do. Even if it stabilizes, it will fall because it’s a year-over-year number ultimately. Let’s just say monthly inflation would need to stabilize around 0.2%, somewhere around there, and then spreads would be tightening. I’m not sure if I evaded your question or answered it or made up a different question to answer.

I think the answer was relevant to our readers, Matt.

What I’m saying is it’d be hard for the Fed to surprise the mortgage market too terribly much in a way that causes spreads to blow out more than they already have. We do have a fairly hawkish option on the table and spelled out in relatively specific detail in the Fed Minutes. If that $35 billion, again, is an initial number for MBS, that’ll be a bit bumpy. If it’s an eventual number and the Fed says, “We’re going to phase this in over 5 months, $7 billion a month,” that would be groovy. People love that. Spreads should tighten right away.

It'll be hard for the Fed to surprise the mortgage market too terribly much in a way that causes spreads to blow out more than they already have. Click To Tweet

I certainly agree that, painful as it has been over the last several months, the Fed has been very transparent in its messaging to the market. None of this should come as a surprise to the market, and it should be relatively priced at this point. Our hats off to the Fed for not sneaking up on the markets, and we’ll see how this all plays out over the next 90 days.

It’ll be interesting, Matt. Thanks so much for your report each episode. I encourage readers, we have many of our readers already signed up for your service, Matt, and they just love it. I get a lot of feedback on it. One of the benefits of reading this is getting introduced to Matt’s service and then they’ve come to enjoy your commentary.

They love me giving you a bad time about your EOR-type personality and your approach. They go, “Thank God, in markets like this, he is calmly telling us what’s going on out there.” Folks, if you’re not signed up already, go ahead and sign up at MBSLive.net. You can also use the signup code for an extended trial without the need of a credit card at that website if you just put in LOL for Lykken on Lending. Great job, Matt. I appreciate you much.

Thank you, Dave.

Let’s get over to Alice Alvey. She’s here with the legislative update. Alice, good to have you here. Alice Master CMB, Vice President of Education and Training at Union Home Mortgage. Good to have you here. Always glad to have you, Alice. What you got going on?

Thank you. That discussion that you all had was worth listening to again. I thought it was great. Great background and detail. Les is right, let’s hang on. We’ve got a lot more of a ride to go here. It was a great insight, as you said, to calm down about the markets. From my perspective, one of the things that’s nice about what’s going on here is Congress doesn’t seem to be paying attention to us from a regulatory standpoint.

The agencies are focused on servicing this type of market. How are borrowers being treated? The forbearances are unwinding. They’re watching that closely, leaving their eyes off of the origination side at this point for us. The good news in all of this is we don’t have major legislation or regulatory changes piling on top of us.

 

Since we didn’t get a chance to hear from MBA earlier, I’d like to point out to folks that in the MBA news link, their chart of the week was from their diversity, equity, and inclusion survey, and I thought this was a great chart. They started this survey.

The first results came in and showed that 82% of the respondents did have a DEI committee and 76% of them tracked the statistics for women and people of color. Seventy-one percent have a formal and articulated DEI initiative. What was interesting is 0% rated the level of transparency with sharing DEI data as high. It is an area where lenders are keeping certain things close to the vest.

What gets measured, gets managed, and what gets managed, we can improve upon. I do encourage lenders to go check this out. There is a place that you can click on in the newsletter you can sign up to be a part of the survey. The more lenders we can get involved in this, the better the data. Even if you’re a lender who’s not participating, that’s helpful.

If only the lenders who have a DEI program are participating, the data are always going to get skewed. We would love to see all of those out there. Go check out the MBA news link and click on that and participate in this. Even if you’re saying, “I don’t know if I’m getting started yet this year, but I plan to get started next year,” that would be great data.

The other item I wanted to just bring up has been watching remote online notaries. This is a big thing in the market that we want to keep advancing. I haven’t seen anything fully move yet beyond. It’s like 37 or 39 states that we have now that are all clear. I want to remind folks that ALTA has a great website on this, that you can go check out the links, videos, and everything you need to know.

Last but not least, on my concerning legislation tracker, Senate Bill 4072 was introduced at the beginning of April. Luckily, it’s got zero chance of going anywhere, but it was interesting that a senator wants to set up that states would have the power to set a maximum APR cap. That would be problematic.

We always talk about regulations at the state level. It’s when you’re driving the car down the road, you got to change your tires just before you go into that state because that state requires different tires. It’s problematic. Hopefully, we have to watch this one piece and keep it off to the side. Other than that, that’s the news, Dave.

It’s always fun to read the live comments that come in. People love reading about you, Alice, and the content of what’s going on. A lot of people agreed with you on the dialogue that Jack and Matt were interesting. There’s much attention on this. Also, you’ve raised a good point. Everyone’s valuable, especially if you’re researching a topic and you can pull out the segment. You can share it in a meeting. Many people have done that. One person wrote me, and he said, “If Alice was teaching a class, it would be the one class I would look forward to going to.” I thought that was a real compliment. Share the information. Appreciate it.

Thank you.

Let’s get over to Allen Pollack.

All this noise online about Elon Musk buying Twitter, we talked about it briefly. Obviously, the board has accepted that. All of these jokes have moved their way on the internet. The new one that I saw was funny, Elon Musk and they’re saying he’s going to buy all types of things, but this one’s the best. He said that he was going to buy all of the McDonald’s and then fix all the ice cream machines. It is known that McDonald’s ice cream machines usually don’t work.

Let’s get onto some good news. There’s a privacy problem going on. If we thought that Amazon was reading our blog, they are. Not that it needed to tell anyone that, researchers have found that Amazon’s shares data collected by Alexa with 41 major advertising partners to serve not only personalized ads on Amazon but also all over the web.

If you think about Amazon, Facebook, TikTok, Snapchat, and Twitter, everything you do is then taken, and if you shop at Walgreens, it’s combined with that data and you are profiled and you don’t even know it. In mortgage, there are a lot of boundaries as to how we can and can advertise and can we use these types of platforms.

Think about that and think about all the information. I also saw Insellerate mention on the internet that marketing and advertising, your message has to change. You cannot have the same message that you had many years ago because everything is different. The new types of borrowers that are engaging or their persona at the time, they’re engaging, how their mind is thinking is also different, and that obviously parlays into how we build our technology. The focus, obviously, David is still on the point of sale. Even though we’re focused everywhere else, we’re talking to people that are afraid or they’re happy or sad or unsure about that transaction they’re about to take.

You cannot have the same message that you had many years ago because everything is so different. Click To Tweet

Let’s move on to Fannie Mae, they’ve got a new product called HomeView, and it’s to provide a clearer path to homeownership for your borrower. It talks about everything from saving to moving into your home and helps bring them knowledge and confidence. Now, the reason I mentioned this, it’s not a tech solution. It is an actual solution that you want to be interested in because it is something that you can link on your websites, in your tech solutions, in your emails, and in the messaging and the communication with your borrowers and prospects. The ability to help subside any concerns they possibly have. Check it out. Fannie Mae, HomeView.

We talk about data. We talk about all those types of great things. Redfin and they’re not the only ones, they just had to implement an internal fair lending housing technology platform, which is a monitoring system. It was a $4 million legal sediment, by the way, and I’m going to read this verbatim. The suit focused on Redfin’s practice of setting a minimum home price in each market to define whether it will offer its services for specific properties. Redfin will continue using home price thresholds in its platform. They will now implement a system to monitor and report on the impact of these thresholds for predominantly non-White communities.

Take corrective action as needed. I don’t know if that sounds like it’s going to work or not, but we’ve talked about home lending and fair lending risks how many times. Even if we just mentioned it, they read to our blog, they would’ve known that we’d said, “You got to be using the data and you have to make adjustments to your platform. You have to understand the type of markets that you’re serving.” If you haven’t been looking at your data, you would want to. There are fantastic consulting companies, including TMS Advisors, that can help you with that. Make sure you’re looking at your fair lending risk, which is critical.

We talked about Mortgage Finance Gazette. There’s this great article it said what to watch in mortgage technology for 2022. I talked about the first one, which is the increased use of automation and data sources. I got a message from somebody that said everything is all about automation and data sources.

I want to talk about something on that topic. This point is in the automation and quality control area. We all talked about artificial intelligence coming into our industry and everyone looking and cracking the code on how to read 1,000 mortgage documents and take data off of them. What do you do with that data? This one person wrote me back and said, “What do you think about quality control? Is that fall into automation?” It connects with everything that was going on at MBA technology. The point I want to get across to our readers is that, and Jack, we even talked about this quality control is critical to your process.

There are technology vendors that are doing quality control at the beginning, the top of the funnel of the process. They’re trying to help operations do a better job, there’s been a lot of layoffs, and there’s been a lot of stuff that is not needed. The question is, could you have quality control, and do you have automation or are you doing what’s called swivel chair integration, meaning you’re physically swiveling from one screen or one person to the other?

OCR, extracting data, using that data, not only for analytics, which is going to be critical, and we talked about that a moment ago, but also to start doing an audit of the loan file. There are companies now, and these are the ones that everyone’s talking about, they’re doing income analysis, and these companies are validating collateral.

They’re doing a waterfall approach to call out additional integrations to bring in more data. It’s called risk-based rallying. Take that loan, assess as much data as possible and route that loan to the next person in line. Don’t send a loan that is a pure A-plus in grade to your best auditor or to your best underwriter since it’s past its inspection of all those different things.

You may want to get a cursory review of it, you want to take your best underwriter. The ones that can poke the holes and find out where they answer are starting to create their tunnels. Those are the ones that you want to have them look at those loans. Automatic quality control is also important later in the loan process.

At the point of sale, where we’re trying to use our best efforts and lower costs and increase ROI and reduce risk, we want to consider automation and quality control. Thanks to that reader that brought that up to me. That is all I will mention. One thing, David, real quick, as I end the segment. There have been a lot of layoffs and there are a lot of people looking to hire folks reach out to us. There are great positions that are available. You can reach me at [email protected] or you can reach David in his email address. Thanks, everyone.

 

It’s interesting. What was that swivel chair? What was that? Several people said.

Swivel chair integration.

Swivel chair integration. What you’re doing is spinning in your swivel chair to the multiple screens. I like that one. I appreciate it, Allen. Good job.

The more people you have in your organization, the more swiveling you can do. It was a good thing for a while.

I appreciate everybody for being here for the first part of the show. This ends the update of the Mortgage Update. We’re going to be continuing next time. Our focus is going to continue talking about marketing, what you can do to get intelligence of what’s going on, and then what you do with it. We’ve got Josh Lehr coming on with Total Expert next episode as our special guest. That wraps up the show. We are thrilled to have you as readers.

Thank you much. I want to say a special thank you to our sponsors, Finastra, Lenders One, Mobility MMI, Modex, the MBA, Knowledge Coop, The Mortgage Collaborative, Snapdocs, SuccessKit, Lender Toolkit, Total Expert, FormFree, and SimpleNexus. I look forward to having you back here next time.

 

Important Links

• Experience.com
• Industry Syndicate
• Mortgage Bankers Association
• Fusion Mortgagebot Solution
• Lenders One
• The Mortgage Collaborative
• Total Expert
• Joe Welu – Past episode
• Knowledge Coop
• Mobility MMI
• Modex
• Snapdocs
• Briana Ings – Past episode
• SuccessKit.io
• Transformational Mortgage Solutions
• Lender Toolkit
• FormFree
• Brent Chandler – Past episode
• SimpleNexus
• Lori Brewer – Past episode
• DW Consulting
• Mortgage Action Alliance app
• PowerSeller
• TMSpotlight.com
• MBSLive.net
• Union Home Mortgage
• ALTA
• [email protected]