10.27.21 Primer on "Conventional" Loan Limits; Mignonne Davis on Internal Audits (Part One); So, So Much Housing Data

In order to stay competitive and differentiate in the tight market, lenders need to find efficiencies and tighten their operations leveraging systems designed by mortgage experts for mortgage experts. Richey May’s advisory services team is made up of mortgage industry experts and designed to help you find efficiencies in the pursuit of compliance and assurance so that you can continue to drive growth and increase profitability. Visit https://richeymay.com/advisory/ to learn more about how you can differentiate your business or to set up a meeting with one of Richey May’s experts. 

Transcript

While huge blocks of servicing are hitting the market, Cenlar has had better days than yesterday. (“We take seriously our regulatory obligations and we are working with the OCC to make any changes necessary to resolve their concerns.”) I could not find a dollar fine. But speaking of dollars, what does $3.25 million get you in Los Angeles? Cash or financed, a 3-bedroom house which was used in “Nightmare on Elm Street.” In terms of credit, Kris W. recommends, “Always make sure someone in the relationship has good credit. That’s why it’s called ‘significant’ other. Sign/if/I/can’t.” In terms of liquid assets, cash buyers are big competition for lenders, so it was of interest when Zillow announced that it was “pausing” in paying cash for houses. But as Stavvy’s Jeremy Potter points out, “That’s not really the story. The story is about the future of housing. Matt Levine, author of Money Stuff on Bloomberg, in making a point about buying homes on an instant, cash platform compares homes to bonds. He writes that houses are like bonds in that each is similar, as in each is a single-family home, yet each is different based on the unique characteristics of that particular home’s combination of square footage, roof, layout, etc.” I used to think that art was unique, until… New York art collective MSCHF bought a 1954 Andy Warhol drawing called Fairies for $20,000. They are now selling Fairies as well as 999 high-quality, $250 nearly indistinguishable forgeries that were made using robots to recreate the exact strokes Warhol made, and subsequently artificially aged with heat and light. (Today’s audio version of the commentary is available here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology, and other services in the mortgage industry and in banking, and features Part One of an interview with Mignonne Davis on internal audits.)

Employment & position sought

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A 12+ year veteran of the financial services and mortgage industry, with a compliance and operations background, seeks a leadership position where he can have an enterprise-wide impact. Willing to relocate, or work remotely, for a company with vision that is growth minded and innovative. The candidate has a law degree with a broad, enterprise-wide skillset and deep experience as the head of multiple departments (ops, compliance, and legal). Loves mentoring and developing those around him. Excellent communicator, writer, public speaker, can be a face of the organization outside the company, and strong voice inside it. Interested companies should send a note of interest to Chrisman LLC’s Anjelica Nixt for forwarding.

Real estate agents love CashUp™ by Evergreen. This innovative home financing program allows them to tap into an exciting cash offer formula and help their clients win against multiple offers. One agent partner recently said about the program, “We were in a multiple offer situation, and we were able to take advantage of the CashUp program. It wasn’t the highest dollar amount, but it was the offer with the least contingencies. They took our offer.” Watch the full testimonial to hear more about the benefits of the CashUp by Evergreen program. If you’re a real estate agent interested in helping your homebuyers stay ahead in competitive markets, check out the CashUp by Evergreen website for more information.

Consolidated Analytics made a strategic appointment of 30-year industry veteran Bob Hora as COO where he will assume responsibility for developing tech-enabled, optimized operations for the company.

Broker and lender products & services

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“loanDepot Wholesale has redesigned the closing process in our mello® Broker portal and we are excited to share this new functionality. Closing Connection provides an improved user experience, giving you the power to close loans faster and more efficiently. Some highlights are a closing progress bar, preview & order CDs, change and approve fees, request the desired closing date/time, view and upload outstanding conditions, and view a pre-closing package. Want to see it live and in action? Join our next mello® Broker Training on Wednesday November 3rd at 11am PT.

Monster Lead Group comes out swinging with their new automated trigger lead generation offering, Monster Triggers. Unlike the majority of competitors, Monster automates the underwriting process by allowing you to set parameters for your campaigns. By pre-screening available triggers, you position yourself to convert 3-5x more frequently. Schedule a demo to learn how to take a hands-off approach, or uncover the secret sauce on their website.

Have your loan officers created their 2022 business plan yet? Invite them to attend an upcoming StorySeller event and they’ll get templates to better organize their business as we move into a primarily purchase-driven market. The events kick off in OH, PA NJ, and NY next week, and then on to CA and WA two weeks later. “This is also a great way for loan officers to network with current and new strategic partners before year-end,” says Gibran Nicholas, CEO of Momentifi and host of the events. “Realtors who attend get free CE credit, and all attendees will walk away with their business plan for 2022.” Seating is limited, and tickets are free if you pre-register. Click here for more information or to reserve your spot.

Do you need instant access to loan programs and pricing that’s easy to use? Then you need Sprout Mortgage’s iQualifi. During our next Scenario Station Webinar, we will review iQualifi: your go-to program & pricing engine for Sprout Mortgage non-QM, jumbo, and agency loans. Get acquainted with a tool designed especially for originators that provides scenario-based pricing and instant email summaries. Learn more during the Scenario Station Webinar by Sprout Mortgage on Wednesday, November 3rd at 9:00 am PT. Register now!  Remember to submit your unique loan scenario on the registration page. Sprout is committed to providing product education and marketing assistance to help you grow. Loan Scenario Desk, complimentary bank statement analysis, condo review service, and complimentary marketing tools via The Sprout Marketing Store mean you can serve more borrowers in less time and with less effort. Loan amounts up to $10 million. Register today.

Web-Based Presentations Earn More. For better or worse, market value always fluctuates. Your proposals and presentation’s value shouldn’t. This is not the time for loan officers to waste hours dragging, dropping, linking, and sending mediocre presentations. It’s time to streamline your processes while creating content that converts. Build presentations that solidify your position in the market. Digideck is the preferred presentation platform for Mortgage Buyers who want to earn 20% more with better branding, build presentations 10x faster, and enhance engagement with prospects throughout the sales cycle. Whether it’s virtual selling enabled by Digidecks in-app video conferencing, or real-time notifications when your audience is active in your materials, loan officers that modernize their outreach with Digideck are doing more, in less time. Perfect your message in stunning presentations that boost engagement, and experience the Digideck difference today. Your first custom presentation is waiting for you.

TPO loan products

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Stearns Wholesale continues to develop and enhance its products to help brokers compete in the marketplace and win business. With the recent launch of Preferred Investment AUS, Stearns is giving its clients more options with compelling price points that can’t be beat! Check out Stearns Preferred Investment AUS on your own rate sheet today and see for yourself how this game-changing product compares favorably against the agencies. Take advantage of Preferred Investment pricing to compete and gain an edge for you and your clients. If you’d like to partner with Stearns or learn more, click here to be contacted.

Deephaven, a leading provider of Non-Agency/Non-QM mortgages, has revamped its Foreign National program, offering mortgages and refinances to residential property investors who are not US citizens. No U.S. credit score is required to apply for a loan. Instead, the program uses a DSCR formula (Debt Service Credit Ratio) to determine if the property's cash flow adequately covers the monthly debt service; with loan amounts up to $1.5 Million and LTV's up to 75% on purchases (and up to 70% LTV's for a cash-out refinance). First-time investors are also welcome. The Foreign National program requires 12 months of reserves to be held in a US FDIC insured bank, can be used for condos, non-warrantable condos, and planned unit developments (PUDs) 2–4-unit multi-families. If you have any questions or would like to know more about Deephaven's Foreign National program, contact us at info@deephavenmortgage.com or visit deephavenmortgage.com.

Today is National Black Cat Day. Just as black cats have a reputation of being omens of bad luck, lenders are often equally wary of borrowers that utilize down payment assistance (DPA) to help finance their home purchase. However, studies have found DPA and default risk are unrelated, which should put these fears to rest. For LOs looking to help their borrowers realize the dream of homeownership, Mid America Mortgage offers its DPA program through both its wholesale and retail channels. This unique program is available to first-time and repeat homebuyers with no income restrictions, allowing all borrowers to take advantage of today’s low rates. Homebuyers can borrow up to 6% of the loan amount to cover the down payment and/or closing costs as a second mortgage with no interest or payments, which is forgivable after 5 years. To learn more, contact Michael Cooksey (retail) or Christopher Hartman (wholesale).

Capital markets

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On this day in 1904, the New York City subway system opened. It’s not the oldest subway system in the U.S., but New York’s quickly became the largest system in the nation. Speaking of large systems, the mortgage-backed security market is much larger than most people realize. Chris Bennett of Vice Capital Markets addressed that misconception as well as a few others regarding tapering in this astute commentary released last week.

Mortgage rates have moved higher and are “treading water,” and there isn’t a lot of sympathy for free extensions. The Fed’s Beige Book indicated that among the 12 Federal Reserve districts economic activity remained strong in August and September and the forward outlook is positive despite the supply chain headwinds facing many industries. Those headwinds led to a decline in industrial production during September. Despite the decline, industrial production is operating at near pre-COVID levels, a sign that consumer demand remains strong.

Yesterday’s batch of U.S. economic data was consistent with improving consumer conditions and firming residential real estate conditions. U.S. COVID cases have moderated recently, bolstering consumer confidence and business activity. We saw the first upturn in the Conference Board's Consumer Confidence Index since June, reflecting a feeling of relief about the waning impact of the spreading Delta variant and an improvement in income and labor market prospects. New home sales increased by more than expected in September, up by 14.0 percent to an 800k unit annual rate, beating the 7.0 percent gain in existing home sales for the month. While the pace for September was still well below the peak rate for 2021 of 993k from January, concerns that a slowdown in housing activity was underway appear to have been unwarranted. Inventory of new homes available for sale tightened up to 5.7 months’ and the median selling price was up 18.7 percent over the year, which supports the narrative that new home sales are concentrated in higher-priced homes, as inflation pressures and supply constraints are curtailing the building of lower-priced homes.

That was not the only housing data point on the day. The Case-Shiller U.S. National Home Price Index increased by a very strong 19.8 percent for the year ending in August, though like new home sales prices, the month-over-month gain in the index moderated slightly. All 20 key cities had double-digit year-over-year gains. Phoenix was the strongest, up 33.3 percent in a year. Minneapolis was at the bottom of the 20-city list with a still-strong 14.0 percent year-over-year increase. According to FHFA, home Prices rose 18.5 percent year-over-year, moderating from the month prior and suggesting we may have seen the peak in annual gains for the time being. Based on that home price appreciation gain, we should see 2022 conforming loan limits around $650k when officially announced by the FHFA (historically after Thanksgiving). Next month's housing price report will be the one FHFA uses to set the new limit.

While we’re on the topic, MLOs should know that loan limits determine the approval guidelines for mortgages within the loan limit range. “Conforming,” or “conventional,” mortgages are funded by lenders and sold to either Fannie Mae or Freddie Mac (the GSEs), which then pool mortgages and create MBS and sell them to investors. Lenders approve and fund conforming loans using guidelines established by either Fannie or Freddie (there are some slight variances). If a mortgage fits the guidelines it can be purchased by the GSEs. Investors purchase MBS from either Fannie or Freddie know that their investment meets the criteria required by the issuing GSE. Loan limits are set to ensure the GSEs are facilitating financing for families that can benefit the most from lower down payment, lower interest rate mortgages.

Every year the loan limits are reviewed and adjusted according to the home values across the country. FHFA determines the loan limits with its House Price Index report which tracks the average increase in home values over the year and then adjusts the loan limit accordingly. Since the creation of the conforming mortgage products in 1980 (with an original limit of $93,750) until 2006 there had never been a year without an increase in the loan limit (save for a $150 decline in 1990). From 2006 to 2016, the limit remained at $417,000. In 2008, as a reaction to the severe decline in real estate sales and values, FHFA created the “high-balance” or “conforming jumbo” products for the GSEs, which have slightly stricter underwriting guidelines, higher loan limits, and higher costs/rates.

Limits are important because a family needing a mortgage for $600,000 can obtain a conforming mortgage at 3 percent instead of a high-balance mortgage for 3.25 percent. The family needing a mortgage for up to what is estimated to be $950,000 next year can now benefit from easier underwriting standards and possibly a lower rate from a high-balance conforming mortgage instead of a “jumbo” mortgage. Higher loan limits enable families to afford a higher priced home, or the same priced home with a smaller down payment. This also has the effect of putting upward pressure on home prices, or dampening any slowdown in prices.

Turning to today’s calendar, mortgage applications increased 0.3 percent from one week earlier, according to data from MBA’s Weekly Mortgage Applications Survey for the week ending October 22. Also out is the September advance goods trade deficit ($96.25 billion), September advance Wholesale Inventories (+1.1 percent), advance September Retail Inventories (-.2 percent), September Durable Orders (only down .4 percent), and Durable Orders ex-transportation (+.4 percent, as expected). Later today brings a Treasury auction of $61 billion 5-year notes. The Desk will purchase up to $4.9 billion of conventional MBS over two morning operations. We begin the day with Agency MBS prices better by .125 and the 10-year yielding 1.58 after closing yesterday at 1.62 percent.

BUMP… BUMP… BUMP…

Walking faster, he looks back and through the fog he makes out the image of an upright casket banging its way down the middle of the street toward him.

BUMP… BUMP… BUMP…

Terrified, the man begins to run toward his home, the casket bouncing quickly behind him.

FASTER… FASTER… BUMP… BUMP… BUMP….

He runs up to his door, fumbles with his keys, opens the door, rushes in, slams and locks the door behind him. However, the casket crashes through his door, with the lid of the casket clapping.

clappity-BUMP…clappity-BUMP… clappity-BUMP…

on his heels, as the terrified man runs.

Rushing upstairs to the bathroom, he locks himself in. His heart is pounding; his head is reeling; his breath is coming in sobbing gasps.

With a loud CRASH the casket breaks down the door.

Bumping and clapping toward him.

The man screams and reaches for something, anything…

All he can find is a box of cough drops! Desperate, he throws the cough drops at the coffin …

…and… of…course, …the coffin stops!