Apr. 23: Letters on irrational pricing, fraud warning; IMBs & servicing; one of my favorite jokes; Saturday Spotlight: Xactus

As bulk packages of mortgage servicing rights continue to hit the market (primarily from lenders who’ve held servicing but now need some cash/liquidity), let’s shift our gaze to… Wordle? Fans of the game know that there are over 158,000 five-letter words in the English language which, at 365 puzzles a year, yields 432 years of fun. What isn’t fun is people leaving their jobs. Feeling underpaid is obviously a major reason why people leave them. But what about feeling the exact opposite way? Turns out that can have a similar effect, at least in the legal business. As Law.com’s Dan Roe reports, some partners, having raked in plenty of money in recent years and facing a potential return to the office, are deciding to reduce their commitment to the firm or quit the profession altogether before “retirement age.” California legal recruiter Larry Watanabe said law firm partners are reconsidering their careers after years of exceptional partner profits. “A lot of partners are going to end up retiring because they never envisioned earning this kind of money early in their career,” Watanabe told Roe. “They’ve told me that point-blank, it wasn’t long ago that $1 million was a reasonable level of income. That’s a starter today. People’s drive and motivation to continue practicing is going to change a lot because their wealth has increased so much.” Are there parallels to lending?

Saturday Spotlight: Xactus 



In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth)

Xactus is a leading verification innovator for the mortgage industry. It’s the amalgamation of six companies including CIS Credit Solutions, Avantus, Universal Credit Services, SharperLending, DataFacts Lending Solutions, and Credit Plus. We serve 6,500+ clients with 12 operations centers, digitally integrating a 360° approach to verification across their workflows, resulting in a modern mortgage experience that delivers greater speed, reliability, and accuracy.


Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why


We give employees the freedom to choose how to volunteer their time and resources. Xactus and our team members support numerous causes, including the American Cancer Society, Habitat for Humanity, and Relay for Life. For example, Shelley Leonard, Xactus president, is on the board of the MaliVai Washington Youth Foundation (MWYF), a youth development program in Jacksonville, Florida that promotes academic achievement and positive life skills.


What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?   


All employees are required to train with the CDIA, NAPBS, and the NCRA before they can gather and deliver consumer background information. Our product specialists go through extensive FCRA-certified training too. Additionally, we regularly send employees to personal/professional development programs and conferences.


Tell us how your company maintains its culture in a work-from-home environment, or how you plan on bringing employees back into the office, if applicable.

Xactus has a mix of employees who work remotely and, in our offices, and we’ve leveraged technology to ensure our staff stays connected. We also use communication tools like our monthly employee newsletter and town halls to foster an open dialogue. Additionally, we maintain our close-knit culture by bringing team members together for holiday gatherings, award presentations, Employee Appreciation Day, and personal/professional celebrations.

Things you are most proud of that don’t have to do with sales  


We are most proud of our passion for customer service excellence. It’s what drives us to go to work each day. We’re also proud of our deep subject matter expertise in credit and verifications. Additionally, we’re proud to have many long-term employees who’ve been with us for 25-30 years.


Fun fact about Xactus

Our new name, Xactus, is a made-up word that speaks to our focus on being precise and accurate. It’s inspired by the word “exact” which represents our commitment to data precision and accuracy. Our bold, new corporate color, purple, pairs well with our bold name and suggests technology and innovation.

Is there anything else you’d like to share along these lines?

We want to partner with other companies throughout the industry to innovate. We believe the time is now to create a modern mortgage experience that will benefit both consumers and lenders – one that will enable lenders to close more loans more quickly.

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

Irrational pricing?


Whenever the “market” has a sudden change, companies often either act irrationally or price with little economic sense. This week I received this email from a COO of a mid-sized lender.

“We all know the mortgage industry has its ups and downs and it was very sad to read about our colleagues at better.com over the months. I know they are not the only organization going through these layoffs at the current time but one has to wonder, when will some of these companies focus on the basics?

“I was taught early on in economics that if you can sell something at $100 and it costs you $120 to manufacture it, you are not going to become profitable by increasing your volume. The only way you get profitable is to sell it at more than it costs you to manufacture it.

“Every day I hear my Loan Officers complain about our pricing and how they cannot compete against a better.com or the myriad of other companies arguably being irrational with their pricing. My secondary team keeps on telling me that there is no way we can price at those levels as we will lose money, and we have no idea how they make money at that pricing.

So if my experienced secondary person tells me there is no way they can make money at those levels, how do they think they can make money?

“Unfortunately I believe the reckless behavior of some of these companies and their hedge fund managers are causing more trouble for the industry than we truly understand and what is happening at better.com is only the beginning until we can get to some sensible level of pricing and stop the ‘kamikaze pricing’ in the industry. Yes, the market is smaller than last year, refinances have dried up but there is still enough business for most of us if we are sensible.”

Discussing this note, Rich Swerbinsky, President and COO of The Mortgage Collaborative, writes, “This is well said, and lenders should realize that the mortgage industry is unique from other industries. Margins and volumes are incredibly cyclical. Our members have seen that refis more profitable than purchase loans, and that’s what has fed the industry for the last two years. Residential lending has no college feeder system. There are many sole proprietorships, or 2-3 owner companies, with owners that profited nicely from refis. And overall the industry had very little regulation until 2008, and have since had to beef up compliance and the costs associated with it. We’re in an industry that can be insanely profitable or completely non-profitable. And, accordingly, the expectations of the sound business practices written above, being regularly applied, is naïve.”

IMBs, liquidity, and the TBA market


Scott Olsen with the Community Home Lenders Association wrote, “The implications are significant for how many smaller GSE seller servicers there will be in the market, particularly if this new 2% liquidity on new TBA hedged loans in the pipeline is adopted. CHLA is pushing back on applying a liquidity requirement for IMBs that don’t service or have minimal servicing… There is no apparent rationale for such firms because liquidity needs are clearly tied to the need to make servicing advances.

“And for smaller servicers, there are other reasons why we are pushing back (outlined on page 3 of our letter). Instead the letter asks for actions to increase liquidity, such as setting up a FHLB program to funnel advances to IMB seller/servicers through their warehouse lenders: an issue our members consider very important.

Housing as an economic indicator


Investors interested in housing and mortgage stocks received some news this week. Residential home construction unexpectedly rose in March to the highest level seen since 2006, hitting an annualized rate of 1.79 million new homes. That also seems poised to rise, as applications to build hit 1.87 million, which is a proxy for future construction. New house construction in single-family dwellings hit 1.2 million, well above pre-pandemic levels, and multifamily starts hit 593,000. This is likely a sign that builders who have held off to wait for lower prices on materials are beginning to start work on their backlogs.

Demand for homes is strong, with many properties for sale going for well above asking price. But with a hawkish Fed and the Treasury yields jumping, the 30-year fixed-rate mortgage just topped 5% for the first time in a decade.

“Rising rates are starting to show up in housing data,” Schwab’s Kathy Jones tweeted. That could further dent demand, although “housing starts have historically been unresponsive to changes in mortgage rates in a supply-constrained environment, likely because homebuilders are able to continue building with little fear that homes will sit vacant after completion,” Goldman Sachs said.

The NAHB Housing Market Index fell to a seven-month low of 77 for April. “The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” NAHB Chief Economist Robert Dietz said.

Redfin reported last week that home sales fell 4% in March as buying costs shot up. “We expect the combination of surging mortgage rates and record-high home prices to cause more homebuyers to drop out of the market,” Redfin chief economist Daryl Fairweather said. “Unfortunately, homeowners are turning their back on the market too. Instead of being motivated to list before prices weaken, potential home sellers may be choosing to wait-out the impending market cooldown.”

The “inexorable rise in back end rates is having a meaningful impact on interest rate sensitive areas of the economy and market, like housing,” Morgan Stanley equity strategist Mike Wilson said.

The SPDR Homebuilders ETF (XHB) is down nearly 30% year to date and off 15% from its near-term peak in mid-March. The S&P 500 (SP500) (SPY) is down about 8% year to date. The sector is also vulnerable to the risk of the Fed orchestrating a hard landing with its rate hike, possibly leading to a recession. But Citi says that a replay of 2008 isn’t in the cards. “We believe the housing risk is much less severe than occurred during the Great Financial Crisis since credit quality is healthy, home equity levels are high, and there is higher structural demand.”

Vendor chatter


Seroka, a branding, digital and strategic communications agency specializing in the mortgage industry, announced that its marketing team has received certification in Black Knight’s end-to-end Social Media Management solutions. This certification allows Seroka to offer social media marketing assistance to its lenders utilizing the tool. The Social Media Management platform leverages intuitive social media capabilities that make lending teams more efficient, while simultaneously protecting those lending organizations against the growing compliance risks of social media usage in the mortgage industry. The suite enables lenders to sign up and access social media content that they can easily customize with personalized information or an entire schedule of pre-approved social media marketing posts. Additionally, Seroka will consult with lenders, offering social media enhancement strategies that are based on its analyses of various reports provided by the platform that detail social media growth analytics.

Andrew Liput, CEO of Secure Insight warns, “When business is down, fraud rises. Lenders are seven-times more likely to experience a fraud loss when there is a downturn in the market such as the one we are experiencing now. While lenders are struggling to generate more business, criminals are looking for ways to steal their assets. In this period of uncertainty even one fraud loss can cripple a lender’s cash flow and jeopardize their warehouse and investor relationships. Now is not the time to be less diligent but more vigilant. Watch your originations, especially brokered loans. Don’t turn off fraud protections services, turn them up.” Thank you, Andrew.

Recently, I was diagnosed with A.A.A.D.D.: Age Activated Attention Deficit Disorder. This is how it manifests: I decide to water my garden. As I turn on the hose in the driveway, I look over at my car and decide it needs washing.
As I start toward the garage to get a sponge, I notice mail on the porch table that I brought up from the mailbox earlier. I decide to go through the mail before I wash the car.
I lay my car keys on the table, put the junk mail in the waste basket under the table, and notice that the basket is full. So, I decide to put the bills back on the table and take out the trash first.
But then I think, since I’m going to be near the mailbox when I take out the trash anyway, I may as well pay the bills first. I take my check book off the table, and see that there is only one check left.
My extra checks are in my desk in the study, so I go inside the house to my desk where I find the can of Coke I’d been drinking. I’m going to look for my checks, but first I need to push the Coke aside so that I don’t accidentally knock it over.
The Coke is getting warm and I decide to put it in the fridge to keep it cold. As I head toward the kitchen with the Coke, a vase of flowers on the counter catches my eye… They need water.
I put the Coke on the counter and discover my reading glasses that I’ve been searching for all morning. I decide I better put them back on my desk, but first I’m going to water the flowers.

I set the glasses back down on the counter, fill a container with water and suddenly spot the TV remote someone left it on the kitchen table.
I realize that tonight when we go to watch TV, I’ll be looking for the remote, but I won’t remember that it’s on the kitchen table, so I decide to put it back in the den where it belongs, but first I’ll water the flowers. I pour some water in the flowers, but quite a bit of it spills on the floor.

So, I set the remote back on the table, get some towels and wipe up the spill.
Then, I head down the hall trying to remember what I was planning to do.

At the end of the day: The car isn’t washed. The bills aren’t paid. There is a warm can of Coke sitting on the counter. The flowers don’t have enough water. There is still only 1 check in my check book. I can’t find the remote. I can’t find my glasses. And I don’t remember what I did with the car keys. Then, when I try to figure out why nothing got done today, I’m really baffled because I know I was busy all darn day. And I’m really tired. I realize this is a serious problem,
and I’ll try to get some help for it, but first I’ll check my e-mail…

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, “A Primer on the Federal Reserve and Mortgage Rates.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).


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Rob Chrisman