Apr. 4: Letters & updates on working from home, our industry, the economy; alcohol & trucking skyrocketing; lock policy shifts

Whoever said that one person can’t change the world never ate an undercooked bat. If you want to make the gods laugh, tell them your plans. What kind of plans did you have for your company or business as 2020 began, seemingly four years ago? It’s been a long year during the last month, even during the last week. One week non-QM got smashed, the next week it was servicing values, and last week it was the jumbo market as investors, and in turn lenders, fled the jumbo market for various reasons. What else is going on out there? Current issues include servicing advances & values, keeping staff informed in a remote environment, getting loans funded and sold, 3rd party dependencies, margin calls, eClosings, and operation staffing/service levels. Other than that, it’s pretty quiet out there!

Home, and working from there

I received this note from Paul Viguerie, National Business Development Manager at Altisource. “Did you know Disney’s Rapunzel, who was quarantined for 18 years was born in… Corona!” (Altisource, by the way, is hosting a one-day virtual summit on how Covid-19 is impacting the mortgage industry in originations, servicing, vendor management, and government affairs on May 6.)

The coronavirus pandemic has been catastrophic for house cleaners and nannies. Several people I know, who have folks like this in their lives, are continuing to pay cleaners or give their gardeners more work. They figure sharing part of the money they’re saving on not commuting to work every day should be shared with someone who was, and will be in the future, involved with their family.

In Ohio, Lt. Governor Husted announced that the Governor’s Office of Workforce Transformation has developed a website specifically geared toward matching essential businesses with Ohioans who are able and willing to work as an essential employee during the COVID-19 crisis.

Major banks are dealing with logistical challenges of having employees work from home or at backup sites amid the coronavirus outbreak. SIFMA has been working with the industry for about two months on preparedness for disruption and has been testing the industry’s resilience to shocks for years, and the association is confident firms can maintain smooth operations, say senior management.

The Financial Industry Regulatory Authority will temporarily waive certain rules to let traders work from home, and firms might need to implement alternative supervision to accommodate. SIFMA has been working with FINRA and other regulators to develop best practices for firms having to rely on remote staff. “The goal is to keep markets operating in a fair and orderly fashion: That’s the goal of the regulatory perspective and industry perspective and to do it in a way that meets the rule sets.”

CIO and information and mortgage technology consultant Kris Van Beever (who firmly believes every password must be at least 13 characters) sent over a piece from the Harvard Business Review on our new acronym: WFH. “… work-from-home environments. As we adapt to this new normal, we wanted to let you know that HBR will continue to publish daily articles to help you make sense of leading and working through this time. All of our coverage can be found on this dedicated page. You can also download your free copy of our new ebook Coronavirus and Business, which can help you lead your employees through this unprecedented crisis.

“Here are a few key resources you may find useful to help you run more effective meetings, manage employees, stay motivated, and more: HBR Guide to Making Every Meeting Matter Ebook + Tools. The HBR Guide to Making Every Meeting Matter + Tools will equip you with the checklists, templates, and scripts you need to transform your meetings into productive conversations that lead to action in the days and weeks ahead. Can You Hear Me? How to Connect with People in a Virtual World. Communication expert Nick Morgan outlines five big problems with communication in the virtual world (lack of feedback, lack of empathy, lack of control, lack of emotion, and lack of connection and commitment) sharply highlighting what is lost in our shift to a more virtual world. And he provides a clear path forward for helping us connect better with others.

Resilience (HBR Emotional Intelligence Series). This book reveals the key traits of those who emerge stronger from challenges and helps you train your brain to withstand the stresses of daily life. HBR Guide to Managing Stress at Work. Stress is a serious problem that impacts not only your mental and physical health, but also your loved ones and your organization. So what can you do to address it? HBR Guide to Motivating People Ebook + Tools. Staying engaged and enthusiastic while offsite challenges even the strongest virtual employees. This ebook and tools will help you keep your people motivated and satisfied, so they can be as productive offsite as onsite. HBR’s 10 Must Reads on Managing People (2 Volume Collection). Here are enduring ideas and practical advice to help you maximize your employees’ performance. Peter F. Drucker on Management Essentials. The ideas and themes of this easy-to-read guide are eminently practical and resonate profoundly with the challenges managers face today. Harvard ManageMentor Premium Collection. Harvard ManageMentor Premium Collection includes 41 continuously updated topics, each with practical advice and downloadable tools for dealing with specific management issues.

The working world

Lenders without strong leadership are in a pickle. CEOs and owners, especially those who were around in 2008, are asking their staffs to do some tough things besides making sure their pipelines are clean and that they’re not hedging loans that won’t fund. Top CEOs are explaining risk versus reward, examining what big lenders are doing, deciding what is prudent. After all, the changes being made now are not because they’re not hungry. Changes being made now are with an eye on survival.

Mortgage lenders have a lot of worries on their plates. Attorney Brian Levy discussed the coming repurchase battles unless the GSEs and industry address in advance recourse risk from use of forbearance and virus related job and income losses.

I received this note from Karen Deis. “It’s a possibility that the way you conduct your mortgage business could change so radically that you may have to change the way YOU do business. So, I asked 38 loan officers what they wish they would have done differently when they had to make a change and wrote a free e-book titled, ‘I Wish Someone Would Have Told Me Sooner’ where 38 high-producing loan officers shared their stories, their wisdom and their regrets.  By the way, did I mention it’s free?

Regina Lowrie, president & CEO of Dytrix, a provider of financial transaction security technology, wrote, “What does COVID-19 have to do with wire fraud? More than you might think, and I believe real estate wire fraud could get worse during the pandemic. The stress our industry is under right now is overwhelming. With historically low interest rates, lenders are inundated with volume at a time when they are working with remote teams and having trouble getting appraisals and validating employment. As lenders try to close loans by the end of the month and before rates expire, it’s much more likely their guards will be down when it comes to validating wire transfers between lenders, closing agents and consumers. Email wire fraud is already one the fastest growing cybercrimes in the U.S. with more than $26 billion in losses from compromised business emails since 2016, according to FBI stats. We’re trying to get the word out, but few lenders are equipped to manage the risk of wire fraud before closing, and many are putting off efforts to mitigate that risk. The cost of putting your company at risk is greater than ever before.”

Rob, are you seeing retail lenders shift their lock policies to not locking refinances until the loan moves through processing? Like until the appraisal is in, or the loan is approved? Or differentiating the ability to lock a refi versus a purchase?”

Yes, I am. But it is very, very specific to the lender. No lender wants to be bogged down with a flood of refinances that aren’t going to close if rates creep higher. No one wants to spend money on loans that don’t fund, that your warehouse won’t bank, or an investor won’t purchase. What kind of operational capacity do you have? Are you mostly a “government shop” that does primarily purchase loans? What are competitors doing in your region? What kind of commitment can you receive from your borrowers?

Of course it is in every LOs DNA to lock loans. They should understand the expenses incurred after locking a loan. Paying for processing and underwriting and then not having the loan fund is not a long-term recipe for success. And to take these resources away from purchase business is not good. I’ve heard of lenders training LOs to be able to convince a borrower to pay for an appraisal before locking. Borrower education! I’ve heard of lenders not locking until a Conditional Approval is received, or is approved, or instituting a lock fee comparable to an appraisal fee ($500) if a PIW is involved. And the pricing must match the risk and the market price.

How much communication between production and operations exists? What’s the point of MLOs offering 15-day pricing if the company doesn’t have the capacity, given manpower or regulatory requirements for rescission? No one wants disappointed borrowers, but are MLOs doing their best in bringing in complete applications? I have heard of lenders raising requirements for submitting a refinance file. And rate sheet & market volatility are causing enough angst and can sometimes vaporize a floating pipeline. Offering the best rates to purchases and refinances that are ready to close is something I’m hearing many lenders do, and adding more margin to lock periods farther out.

I am hearing from many lenders that have a full pipeline of loans that are ready to close and just waiting on rate. Lenders have already spent money on processing, appraisals, underwriting, credit reports, etc., and they are all just waiting for rate sheets to rally. Any lender that can encourage employees to help reduce corporate risk, create more operational efficiency, and deliver good product to investors should succeed.

Lastly, there is chatter that some lenders are considering a refundable application fee, possibly in exchange for a lower rate. One benefit might be a shorter lock period with better rates. Certainly it would help employees focus on the “serious” loans.

Out in the industry & economy

Remember the wise crack, “A recession is where your neighbor is out of work. A depression is when you’re out of work.” Fortunately, there is little or no talk of a depression. We have a much stronger social safety net now versus 1929. Recall high school econ: a recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. The definition of a depression is more nebulous.

As the COVID-19 coronavirus plunges economic markets into turmoil and the economy slows, Americans are changing their spending habits and putting home-shopping on the back burner. LendingTree gauged how people are feeling about buying homes right now. Searches for “homes for sale” have fallen across all 50 metros. The average decline was 32% from each metro’s 2020 peak value. By the end of May, Tucson, Columbus, and Phoenix will likely see the largest declines in search interest— a potential drop of 89%. Austin, St. Louis and Raleigh could see a small, yet still significant, decline of 35%. If the impact of COVID-19 remains substantial over the next two months, searches could fall an average of 63% across all metros.

Chet Gohd, ex-originator and now a real estate agent in California, weighed in on the real estate market. “Here in the Bay Area, we are all over the place. In the Oakland/Berkeley market, properties can’t be shown but they are still going into contract. This is mostly as result of buyers seeing the properties prior to the showing shutdown. March pending sales are tracking well but impossible to know what April and May look like. Once the shelter in place is over, we’ll see an onslaught of listings come back on along with new ones which have been on hold. The buyers will feel more empowered and there will be deals as some sellers are psychologically beaten or need to sell now.

“Once we settle in 2-4 weeks after, we’ll see buyers and sellers tugging at each other which has been nonexistent. I know it’s what a normal, even market looks like and is the norm in most of the US, but things in the Bay Area have been overheated with sellers owning the power for a few years now. As is typical post crisis, buyers will increase their expectations resulting in being more selective and offering less than they’d have a month ago. The sellers are slower to react and will hold to their prices until things change. This is what happens here when there’s a quick shift in market psychology as opposed to one with a longer landing strip.”

Jeremy Potter writes, “As of Tuesday morning, the 50 counties with the most cases of COVID-19 accounted for more than one-third of the nation’s economic output and nearly one-third of its jobs, according to the Brookings Institute.”

Have you seen all those trucks!? While the streets may be a ghost town out there, for the trucking business it’s Thanksgiving-tier traffic on the roads. Trucking shipments to grocery stores and discount retailers were up 56 percent on average from March 15 to March 19 compared to the same week of 2019, and the average daily trucking volume was 17 percent higher than the week before Thanksgiving of 2019, which was the busiest weekend of last year.

U.S. sales of alcohol are up 55 percent in the week ending March 21, with spirits up 75 percent, wine sales up 66 percent and beer sales up 42 percent. Online sales absolutely exploded. Typically, online sales of liquor are only for simple-minded commentary writers who belong to cheap wine clubs and don’t feel like getting up because this season of Top Chef just got to the Restaurant Wars week and the stores close in an hour. But now everyone’s muscling in on it, with Nielsen reporting online alcohol sales were up 243 percent.

LIBOR to SOFR, or something else?

Ginnie Mae announced updates to Multiclass Securities Guide related to possible cessation of U.S. Dollar LIBOR Index.

The phaseout of Libor, due by the end of 2021, is slow in the US because companies hesitate to issue bonds linked to the Secured Overnight Financing Rate. “Many lenders and corporates are struggling to implement SOFR on their existing systems and may not be able to get that done by the end of 2021,” he says.

Freddie Mac published Bulletin 2020-9, which announces FHLMC’s “eligibility, underwriting and delivery requirements for SOFR-indexed ARMs [and] the availability of new ARM notes and riders specific to the SOFR ARM offering.”

Fannie Mae issued a Selling Guide update includes additional details about the Secured Overnight Financing Rate (SOFR) ARM products it will begin to accept as of Aug. 3; property tax and escrow clarifications; and other miscellaneous updates.

Imagine if that Chinese lady calling all of our cell phones was trying to warn us about the coronavirus but we couldn’t understand?

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, “Drinking from a Firehose is Not a Long Term Business Model” If you have the inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.


(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 2020 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