8.2.24 NAR Settlement Latest; Zilker Media's Nichole Williamson on Bank Branding; Payrolls Down Rates Down

Thank you to Optimal Blue. Optimal Blue bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. 

Transcript

Remember when Intel was “the cat’s meow” in the IT and chip world? Intel is laying off 15,000 to save $10 billion in costs. Big numbers… Sometimes you… feel like a number. Let’s look at some round numbers. If our industry does $1.5 trillion in business in 2024, that is an average of $6 billion in originations per day. If we do $1 trillion industry-wide, that is still $4 billion per day. What percent of that $4-6 billion a day is your company doing? There’s a lot of business out there! Numbers… The combined net worth of the Agencies (Fannie & Freddie) is north of $120 billion, yet the industry is once again dealing with an increase in the cost of doing business with Fannie Mae. (More below.) Numbers can make or break a company, or a family. Fractional home ownership appears to be in vogue, given prices. With mortgage rates elevated, home prices continuing higher since the start of the pandemic, and vacations expensive, the solution might be buying 1/6 of a house. (Today’s podcast is found here and this week’s is sponsored by Optimal Blue. Optimal Blue bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. Hear an interview with Zilker Media’s Nichole Williamson on developing branding and marketing for banks to bring their communications into the modern landscape.)

Platform partners wanted

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St. Louis-based DAS Acquisition Co., LLC, which does business as top nationwide lender USA Mortgage, and Phoenix, Arizona-based Realty Executives have entered into a joint venture relationship that will open loan offices in early fall in St. Louis and Kansas City under the brand name, Mortgages by Experts. The companies envision expanding the brand nationwide. The creation of Mortgages by Experts was facilitated by DAS Acquisition’s joint venture company, DAS Partnerships. Patrick van den Bossche, REI president, commented: “After thorough vetting, we believe we have selected the best partners in the industry. This is a unique and holistic strategy to bring USA Mortgage solutions to our sales executives and their clients.” “Patrick and his team have created an entrepreneurial platform that is a perfect match for our model at USA Mortgage. We’re looking forward to expanding this relationship in the future,” said Ron Mueller, president of USA Mortgage. For more, visit MortgagesByExperts.com

Lender and broker software, products, and services

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The value of your Agency pipeline just fell?

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Fannie announced its second quarter 2024 results: $4.5 billion net income for the second quarter of 2024, with net worth reaching $86.5 billion as of June 30, 2024. Net income increased $164 million in the second quarter of 2024 compared with the first quarter of 2024, primarily driven by increases in net interest income and benefit for credit losses.

As always, questions should be addressed to your Agency rep, but some lenders may have received something like, “Due to continued pressure on our return, Fannie Mae increased guarantees by 1bp across products.” It is rumored that lenders, and therefore their clients, may also see a deterioration of 5bps in adjustments on Fannie’s “pricing waterfall” excluding Housing Goals and NOO segments.

It is rumored that this g-fee increase is not lender specific but is across Fannie Mae’s entire lender base. In other words, a flood or ebb tide raises or lowers all boats, so any lender’s competitive place in the marketplace is not impacted.

But wait, there’s rumored to be more impacting lenders (and therefore borrowers)! The jungle drums are saying that Fannie Mae will be implementing a 2bps increase in guarantee fees across all products for September issue pools. One can imagine that there will likely be additional attribute pricing changes effective for September deliveries (i.e. the pricing waterfall adjustments).

Fannie already worsened prices for July and August settlements (Freddie has made moves as well, both up and down), resulting in a hit to every lender’s locked pipelines. There is no way for a lender to hedge against a loss on their pipeline based on investor moves (think back to non-QM investors in the spring and early summer of 2020). Build in extra margin? Not in this competitive environment.

For anyone working with real estate agents

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The “NAR Settlement” is continuing to impact the real estate transaction market, and therefore, indirectly, lenders. Ed Groshans with Compass Point Research and Trading put out a fine piece, summing things up and worth a read for any LO wanting to provide value to their real estate agent clients.

“On August 17, the National Association of Realtors (NAR) settlement changes will go into effect and offers of buyer broker compensation will no longer be permitted on NAR’s multiple listing service (MLS). NAR stated that offers on compensation on listing brokers’ websites are permitted under the settlement. Some brokers have implemented policy changes and will no longer offer buyer broker compensation. These policy changes are being implemented after NAR President Kevin Sears met with DOJ Assistant Attorney General Jonathon Kanter. Sears told NAR members “that the DOJ is keeping “a close eye” on the industry.

“Decoupling is happening ahead of the NAR settlement changes. Our estimate is buyer-broker commissions will compress to 1.0-1.5% due to commission decoupling.”

Mr. Groshan went on. “California Association of Realtors (CAR) removed offers of compensation. On July 9, CAR announced that it was releasing “several new and revised forms as part of its semi-annual standard forms update;” however, the URL indicates the announcement is related to the NAR settlement. CAR noted numerous changes were made to its forms but specifically highlighted the removal of the listing broker’s offer of compensation from the forms. CAR stated, ‘As part of our analysis of what is needed at this moment and, more significantly, what we anticipate will become important in the near future, we have made the decision to remove the listing broker’s offer of compensation from these forms. CAR published a summary of changes, which included the Broker Compensation Advisory or Form BCA.” Read up on how brokers can get paid in a transaction, and how payments to listing brokers do not get shared with buyer’s brokers.

“On June 20th, before NAR met with DOJ, Jack Gately Real Estate changed its policy and ended offering co-operating agency to agency commissioners. Lamacchia Companies CEO Anthony Lamacchia recently posted a video and said his firm will not accept compensation from other brokers but will accept it from sellers. He also said Lamacchia Companies implemented a change to stop offering buyer broker compensation for its listings. He said the buyer broker will get compensated directly from the buyer, from the buyer through a closing credit offered by the seller, or by including the compensation as part of the offer.

“The DOJ is prepared to investigate industry workarounds. After the NAR settlement was announced, there was some discussion of listing agencies showing offers of compensation on their website. The Vista WP Agency is advertising a product that will show offers of buyer-broker compensation in listing agency websites. Sears advised NAR members that the DOJ will be watching for ‘any potential “loopholes” or “work arounds” agents or firms are exploring to circumvent the business practice changes outlined in NAR’s settlement’ It also stated it will be closely watching any new forms published by realtor associations and MLSs. Our assessment is brokers, associations, and MLSs want to avoid legal liability and DOJ investigations. As a result, these groups are changing their compensation models and eliminating offers of compensation for buyer-brokers. Real estate broker commission decoupling is now happening.

Compass Point Research and Trading included a letter to NAR members from Kevin Sears, 2024 NAR President, regarding a recent meeting. “This meeting was a big step in our process to have meaningful dialogue with the DOJ, directly between leaders, about the issues that matter to us as REALTORS… Coming out of the meeting, there were some clear takeaways we wanted to share with you regarding areas of DOJ focus. As we all work together to prepare ahead of the August 17 practice change implementation date, please keep the following in mind. We encourage all members involved in creating new or revised forms to evaluate them for clarity and emphasis on consumer choice. The settlement empowers buyers and brokers to negotiate and mutually agree to services and compensation that work for them. REALTORS should work with consumers to ensure they fully understand the options available to them while continuing to seek fair compensation for their services. We’ve compiled tips on developing written buyer agreements here, and I encourage you to take a look.

“The DOJ raised concerns regarding industry participants using potential avenues to ‘circumvent’ the coming practice changes. To be clear: NAR opposes any attempts to circumvent the settlement. The practice changes should be implemented fully and in good faith, in the service of promoting consumer empowerment, consumer choice, and healthy competition. Answers to questions about how to approach the practice changes in detail are available in our FAQ, and we will continue to provide resources as we navigate the days ahead.

“Our recent meeting marks an important step forward in maintaining a productive relationship with the DOJ. However, we expect the DOJ to continue making inquiries into industry practices.”

Compass’ note went on. “We expect buyer broker commissions to decline. On October 24, 2023 we wrote, ‘Whether it is another DOJ lawsuit or a civil lawsuit, it is clear that decoupling broker commissions is a likely outcome.’ We discussed the effect on buyers if they were required to pay a commission of 1.0-1.5%.

“We estimate that a homebuyer would have to pay a broker $2,500 to $6,000 depending on the buyer broker commission and the home price. This would be in addition to the down payment of 5-20% and would represent an increase in cash due at closing of 5-30%. For first-time homebuyers who plan to make a down payment of 5%, the increase would represent an increase of 20-30% of the down payment for a commission of 1.0% to 1.5%. This could reduce the price a buyer can pay for a home or require them to wait before purchasing in order to save additional funds.

We reiterated our view in December 2024. We maintain our view that buyer-broker commissions will compress as the industry is beginning the process to decouple broker commissions. We expect this will result in buyer broker commissions declining to 1.0-1.5%.” A fine piece by Mr. Groshans at Compass Point Research and Trading.

Capital markets: A weak labor market driving rates lower

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Weak U.S. economic data ahead of today’s jobs report helped bonds rally to within striking distance of their lows from the start of the year: the 10-year is back below 4 percent, but when will mortgage rates follow? There was below-consensus unit labor cost growth, a byproduct of subdued demand, which the Fed monitors closely. But some analysts are saying that it is part of storm-driven numbers. Unit labor costs increased 0.5 percent over the last four quarters, which is the lowest rate since the third quarter of 2019. The ISM Manufacturing Index for July showed faster contraction than June, and it was the fourth straight month (and 20th out of 21) that economic activity in the manufacturing sector contracted.

Total construction spending declined 0.3 percent month-over-month in June following a downwardly revised 0.4 percent decline in May, continuing to lose momentum as high interest rates weigh on activity. Construction spending was soft across both the private and public sectors, residential and nonresidential categories, reflecting weaker demand patterns that are part of a softening economy. Construction activity as a whole is likely to remain weak in the near term.

Initial jobless claims for the week ending July 27 increased by 14k to 249k, the highest level since November 2021 but was attributed to Beryl. But if the trend continues, the rising level of initial claims connotes some softening in the labor market that is expected to further restrict discretionary spending. Additionally, the S&P Global U.S. Manufacturing PMI declined in July from June. And on Wall Street, the technology sector showed considerable weakness.

The first Friday of the month means the July payrolls report. Nonfarm payrolls were +114k, much lower than expected, hourly earnings were +.2 percent, slightly lower than expected, and the headline unemployment rate moved up to 4.3 percent. The only other data point today is June factory orders, due out later this morning. We begin Friday with Agency MBS prices are all over the place but better than Thursday's close by about .5, the 10-year yielding 3.80 after closing yesterday at 3.98 percent, and the 2-year down to 3.90 after the cruddy employment numbers. Okay, we’ve had enough slowing for now.

In a dark and hazy room, peering into a crystal ball, the Mystic delivered grave news:

"There's no easy way to tell you this, so I'll just be blunt. Prepare yourself to be a widow. Your husband will die a violent and horrible death this year."

Visibly shaken, Heather stared at the woman's lined face, then at the single flickering candle, then down at her hands.

She took a few deep breaths to compose herself… And to stop her mind racing. She simply had to know.

She met the Fortune Teller's gaze, steadied her voice, and asked, "And will I be acquitted?"

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is titled, “What Happened to that Mortgage?” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2024 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)