Apr. 14: MLO jobs; risk reduction products; marketing, workflow tools; JP’s earnings, and the MBA’s take on 2020’s profits

“I wear a stethoscope so that in a medical emergency I can teach people a valuable lesson about assumptions.” People shouldn’t assume that all offices are made equal. People in our biz shouldn’t assume that “all lenders are the same.” Jim Cameron from the STRATMOR Group has noticed a difference between depository banks and independent mortgage banks. Namely, banks are not only awash in cash, which will help them with HELOCs and other portfolio products, but appear to have larger pipelines heading into this slowdown in volume/reduction in margin. IMB’s mindsets are on cutting overtime, watching expenses. One CEO even told me about a small “RIF” (reduction in force) for his company in the coming weeks. Even though the pandemic is still in the headlines, 2020 performance is in the rearview mirror, which may turn out to be the arguably the best year ever for residential lenders. The MBA tells us that its survey showed profits of $4,200 per loan; lots more below. Speaking of performance, the audio version of today’s commentary is available here and is sponsored by FBX, an Informa Financial Intelligence business, helping lenders understand their competitive price position and lending performance metrics. Today’s features and interview with Brandonn Dukes on margin changes and the cyclicality of mortgage earnings.

Jobs, transitions, & promotions

Retail lender The Mortgage Firm announces the recent promotion of Xiomara Abadias to the role of Director of Diversity and Inclusion. Over the past two years in her role as Branch Manager, Xiomara has successfully focused her team’s efforts on assisting underserved communities with achieving their dream of homeownership. In this new role. she will champion and drive efforts to develop and promote The Mortgage Firm’s Diversity and Inclusion mission by providing strategic leadership and solutions to enhance recruitment and promotion of traditionally underrepresented mortgage professionals and optimize diverse talent by leading organization wide strategic initiatives. For more information about opportunities at The Mortgage Firm, licensed in 22 states, contact Mickey Schilling, Director of Strategic Growth.

Cardinal Financial is thrilled to announce the addition of industry powerhouses Cindy Brown and Jim Hopkins as Divisional Senior Vice Presidents for Retail Production. Throughout their extensive careers, these seasoned sales leaders have guided their respective departments to tremendous success. Now they’ll bring their leadership and experience to help Cardinal continue to grow. “Bigger, better, stronger, faster. That’s why I came to Cardinal,” Jim said. “Cardinal’s custom-built home loan technology, Octane, provides a competitive advantage that is truly unmatched elsewhere.” Similarly, Cindy said Cardinal’s products and superior technology were why she made the move. “Cindy and Jim are trailblazers. Their extensive sales and management experience will significantly expedite our strategic growth plans not only for their divisions but also across our company,” said Brad Hoke, SVP, Business Development & Strategy. To find out how Cardinal can help you grow your business, contact Brad or 214-755-4838.

Guardian Mortgage is pleased to announce the promotion of Luke Baker to Mortgage Sales Manager, Spokane. Luke joined the Guardian team in October 2018 with the Spokane team, and immediately dug in to pursue growth opportunities and enhance Guardian’s reach into the Spokane community. Luke brings an extensive track record of successfully driving profitable production while emphasizing exemplary customer service to the position. Luke gravitated toward mentoring his co-workers without being called up and demonstrated to those around him that if you are committed to learning and to providing an excellent customer experience, you can build your career at Guardian from the ground up. With the desire to continue on the coaching path and build a team, Luke will work with Matt Penny (Mortgage Branch Manager) to continue the growth and development of the outstanding Spokane team.

Freedom Mortgage Corporation’s RoundPoint Mortgage, a national originations, servicing, and subservicing mortgage company, has new leadership team, including Patrick McEnerney as CEO, Joseph Gormley as chief administrative officer, and Scott Bristol as EVP of retail lending.

Lender & broker products

The Cares Act, one year later: 5 key takeaways for servicers. As the CARES Act enters year two and the economy reopens, mortgage servicers are both well-positioned and under lots of regulatory pressure for smart customer care. To help navigate, Sagent’s head of compliance Matt Tully lays out the 5 takeaways from year one of CARES and where we go from here. “As 2021 continues and COVID-driven forbearances mature, technology will again play a critical role in helping servicers and their borrowers navigate what comes next,” says Tully.  Read more here, and ping Matt directly with questions.

A “Title Wave…Are your loan closings getting lost in the swell of refinances? Many title companies are barely able to service their large clients, let alone smaller ones. Vantage Point Title’s White Glove teams address the needs of smaller lenders by considering each loan and each individual customer’s workflow. Lenders are taking advantage of our document retrieval service that helps with internet challenged borrowers or borrowers who are slow in responding by providing a representative that will collect documents on the lenders behalf and forward the information via scan with hard copies to follow. Interested? Please contact John Contreras & Nelson Genteel.

Compression socks can be uncomfortable, but they’re helpful in certain medical situations. Margin compression, on the other hand, has no redeeming qualities! In fact, it’s increasingly becoming one of mortgage lenders’ biggest concerns. Sure, the record-breaking volume of loans during the past year has masked the problem, but shrinking margins are still a big issue. Here are some ways you can combat margin compression. This is brought to you by Triserv, a 50-state AMC that has client-specific, dedicated teams on both coasts offering high-touch, personalized service. To find out more, contact Triserv Appraisal Management Solutions at learnmore@triservllc.com.

Sprout Mortgage is launching a new program to help brokers build business. Sprout’s “BROKER AdvantEDGE” is a series of operational improvements to help brokers enhance the borrower experience and expand their business.  The program will continue to evolve throughout 2021 and beyond. The first phase of BROKER AdvantEDGE is available now and streamlines fee management. Using the new fee management feature of BROKER AdvantEDGE, brokers can gain increased accuracy by controlling data input, immediately access compliance results prior to loan submission, fill out fewer forms and worksheets, and preview loan estimates before submitting loans for disclosure. You can access Sprout’s loan programs through many widely used mortgage product and pricing engines including Optimal Blue, Loan Sifter, EPPS LoanNEX and Mortech.  Full details are available to mortgage professionals through the Sprout Client Portal, while Sprout’s easy-to-use iQualifi app provides scenario eligibility and pricing. For more information, visit https://www.sproutwholesale.com/ or call 844-664-6100.

How does JFQ Lending continue to grow and scale? With better direct mail marketing from Monster Lead Group. John Kresevic, JFQ’s president, said, “Somebody can charge me half as much as you guys do, but I can’t get beyond the level of your results. For me, service means a hell of a lot and the results speak for themselves.” If you want consistent phone calls and predictable results from your direct mail, regardless of the market, then schedule 20 minutes to talk with Monster.

Products to lower risk

Stop sitting through boring CE! Get the training that MLOs like you have dubbed “Better than most sitcoms” and “The best continuing education course for loan originators, PERIOD!” The Knowledge Coop uses video-based training with a 2021 game show twist to make compliance fun, while providing content that’s informative and timely. Never sit through 8 hours of Power Point slides and walls of text ever again. Led by Ken Perry and featuring an all-star team of mortgage compliance fanatics, this is the training you won’t want to miss. Sign up to get yours now here! (NMLS Provider ID: #1400023) Bonus Tip: For those ready to get started in mortgage loan origination, the Knowledge Coop also offers 20-hour Federal and State pre-licensure education!

Many states are increasing the level of scrutiny around cybersecurity, data security, and the protection of consumer information. Recently, a lender received a Consent Order and faced a large fine because the company had failed to disclose a cybersecurity breach incident in a timely manner. More states, such as Virginia, have come forward with their own versions of the California Consumer Privacy Act (CCPA). In today’s environment, many organizations are subject to a number of regulatory compliance, contractual, and legal requirements related to cybersecurity. Richey May provides a variety of assessment services focused on identifying critical areas of risk and helping you prevent one of these incidents from happening. Learn more here or contact us at info@richeymay.com.

Natural disasters can be devastating financially and create hardships for borrowers and lenders alike. Now, there’s a solution that can help lenders mitigate losses, close with confidence, and communicate proactively with their borrowers. Black Knight’s Early Warning Suite, available with the Actionable Intelligence PlatformSM (AIPSM), defines an event or a pre-FEMA-declared disaster at the property address level, so lenders can postpone closing on a loan until further review has been conducted and that information relayed to borrowers. The suite can define boundaries of a disaster event as it moves or expands from day-to-day and helps lenders stay ahead of federal data, thus saving time, costs, and headaches. And for lenders using Black Knight’s Empower®, the disaster data is seamlessly written into the LOS daily, so everyone working on that loan has access to the same information in a timely and efficient manner. Learn more about the Early Warning Suite today.

Performance: 2020 the best year ever?

The Big Banks have begun rolling out their 2021 1st quarter earnings today. JPM Chase announced its earnings, with strong volumes offset by reduced gain-on-sale profitability. 1st quarter mortgage production income was down slightly Q/Q as the contraction in gain-on-sale (GOS) margins more than offset the increase in volumes. Origination volumes increased +21% ($39.3 billion) Q/Q. The increase at JPM came more from the correspondent channel (+29% Q/Q) though retail volumes also rose (+14% Q/Q).

The GOS margin fell -54 bp Q/Q to 193 bp, likely driven by market factors as primary/secondary spreads narrowed meaningfully during the quarter. The MSR valuation was up +38% Q/Q, well above our expectations.

Looking back at last year, the Mortgage Bankers Association’s (MBA) Annual Mortgage Bankers Performance Report informed our industry that “independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $4,202 on each loan they originated in 2020, up from $1,470 per loan in 2019.”

The renowned Marina Walsh, MBA’s Vice President of Industry Analysis, observed, “A surge in housing and mortgage demand, record-low mortgage rates, and widening credit spreads translated into soaring net production profits that reached their highest levels since the inception of MBA’s annual report in 2008.” The driver of production profitability in 2020 was production revenue, led by strong secondary marketing gains. Historically, production expenses drop when volume increases, but per-loan production expenses went up in 2020, as companies offered signing bonuses, incentives, overtime, and other compensation to address capacity constraints and meet mortgage demand. Furthermore, rising loan balances meant hefty sales commissions, often earned based on a percentage of the loan amount.

“On the servicing side of the business, heavy prepayments, combined with elevated default and forbearance activity, contributed to a loss of servicing income. Valuation markdowns on mortgage servicing rights and servicing amortization resulted in heavy hits to the overall servicing bottom line, especially for those servicers that did not hedge their MSRs,” said Ms. Walsh.

“In early 2021, we are already seeing declines in pipeline volume, particularly refinance volume, as mortgage rates have risen in the first quarter. Also, secondary marketing income has dropped from last year’s highs, as credit spreads have tightened. Mortgage companies that can adjust quickly to changing market conditions and are able to harness still robust purchase demand are best poised for a successful 2021.”

If you like numbers, here you go! Average production volume was $4.5 billion (16,198 loans) per company in 2020, up from $2.7 billion (10,411 loans) per company in 2019. On a repeater company basis, average production volume was $4.4 billion (15,669 loans) in 2020, up from $2.5 billion (9,430 loans) in 2019. For the mortgage industry as whole, MBA estimates production volume at $3.83 trillion in 2020, the highest annual volume ever reported, up from $2.25 trillion in 2019.

If your mind thinks in basis points, the average production profit (net production income) was 157 basis points in 2020, compared to 58 basis points in 2019 and also the long-term average. In the first half of 2020, net production income averaged 131 basis points, then rose to 174 basis points in the second half of 2020.

The refinancing share of total originations (by dollar volume) increased to 55 percent in 2020 from 34 percent in 2019. For the mortgage industry as a whole, MBA estimates the refinancing share last year increased to 63 percent from 46 percent in 2019.

Total production revenues (fee income, net secondary marking income and warehouse spread) were 434 basis points in 2020, up from 356 bps in 2019. On a per-loan basis, production revenues were $11,780 per loan in 2020, up from $9,004 per loan in 2019.

Total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) increased to $7,578 per loan in 2020, up from $7,535 in 2019. And personnel expenses averaged $5,272 per loan in 2020, up from $5,094 per loan in 2019.

Capital markets

As economist Elliot Eisenberg points out, “Stay alert but don’t panic when the CPI starts to jump. Bottlenecks and pent-up demand are short-run phenomena.” U.S. consumer prices jumped in March by the most in almost nine years with higher prices in almost all categories. On a year-over-year basis, the total inflation rate was up 2.6 percent as the end of lockdowns triggered a rebound in travel and commuting. Core inflation is still sitting below a 2.0 percent annual rate, however, which caused investors to speculate that the acceleration in consumer prices was not fast enough to slow the effect of massive pandemic bailouts or warrant any imminent policy changes by the Fed.

The Desk of the NY Fed, responsible for carrying out the Fed’s open market policy, released a new two-week purchase schedule along with the mid-April to mid-May purchase estimate of $131.5 billion, consisting of paydowns of $91.5 billion in the Fed’s portfolio in addition to the $40 billion monthly SOMA increase. The new schedule, which covers April 14 – 27, totals $59.8 billion maximum, and includes more three-operation days than the prior schedule but no changes in coupons. Today’s schedule sees two operations totaling up to $5.33 billion across 30-year 2 percent and 2.5 percent.

Today’s economic calendar is already underway. Mortgage applications decreased 3.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 9. During the reporting period, Treasury yields fell, and mortgage rates did as well (30-year rates 3.125-3.25 percent). We’ve also had March import/export prices (+1.2 and +2.1 percent, respectively). The rest of the day revolves around the Fed, with five Fed speakers scheduled including Chair Powell. We begin 4-14 with Agency MBS prices worse/down a few ticks and the 10-year yielding 1.63 after closing yesterday at 1.62 percent.

For a slight change of pace halfway through the official work week, here’s a little optical illusion for kids of all ages.

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, “Hiring: New Tactics for a New Day.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed 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 2021 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.)

Rob Chrisman