Aug. 16: LO jobs; DPA, non-QM products; spec pool primer; deficits, debt, the yield curve, & mortgage rates

Some international rates have gone through 0 percent and are now negative. The low rates and high volumes have caused lenders to focus less on long-term planning and more on closing loans. Who can blame them? How would U.S. mortgage rates near 0 percent impact the future refi market for lenders? Here’s a piece worth a skim on why mortgage rates probably won’t hit 0%: “Mortgage Rates: Thinking the Unthinkable.” The yield on the 10-year Treasury note has fallen below the two-year yield for the first time since the financial crisis, causing a sell-off in the stock market. The 30-year yield is at an all-time low. An inverted yield curve has preceded every recession since 1950 by seven to 24 months. But former Federal Reserve Chair Janet Yellen says the latest inversion of the yield curve might be a less reliable indicator of an impending recession. “…There are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.” Lots more discussion in the capital markets section below.


This summer, 170 team members traveled to the all-inclusive Paradisus Resort in Cabo San Lucas for Gateway First Bank’s 2019 Presidents Club Trip. The group included mortgage originators and mortgage center managers who qualified based on production levels. In Cabo, attendees participated in activities such as fishing, riding ATVs, golfing and even a sandcastle competition. Gateway CEO Stephen Curry gave a state of the company presentation, recapping the year, discussing key growth initiatives and new products launching soon. Another day, attendees collected donations and stuffed 100 backpacks with supplies for Casa Hogar, a nonprofit helping children in need. Jayson Stirrup from Casa Hogar spoke, shared a video about the nonprofit’s mission and introduced attendees to some of the children they support. Gateway is one of the ten largest banks in Oklahoma and offers a full suite of banking services. If you want to bring your bright future to Gateway, contact Kimber Wilkins or visit

Lender products & services

Southeast lender Mortgage Investors Group is spending less time getting the books done and more time analyzing and leveraging its financial data since their move to Loan Vision. With a reduction of over 20% in the time taken to close the month, Eric Nielsen, Accounting and Finance Director said “Now, the statements are finalized earlier, and we have the time to really dig in and provide in-depth, analytical, decision-making information to the executives.” Read more about these changes in the case study here, then contact Carl Wooloff to schedule a live demo.

Stop Losing Money in 2019! With the mortgage industry becoming increasingly difficult to survive let alone thrive, companies are in search of new marketing strategies to compete in this new era of credit. The Decision Science team at BBM has created an advanced suite of propensity data models that help professional origination marketers identify homeowners who are actively in the market for FHA, VA, Jumbo and Non-Agency loan options. Our average loan amount for active FHA/VA and Non-Agency applications exceed $350K and gross top line revenue of nearly $15,000. If you’re marketing is not reaching these levels of performance than let BBM show you how a targeted marketing strategy focused on propensity modeling and targeted revenue opportunity can change the trajectory of your company. For more information about BBM Marketing Services and about becoming an approved origination partner; please contact Bill Senteno and visit

Part 5 in a series on DPA: Earlier this year, HUD issued Mortgagee Letter 2019-06 that restricted the use of DPA by governmental entities like states, cities, or tribal governments. The letter purported to make several changes to existing law, and the upshot was trouble. As the NCSHA rightly pointed out, the HUD decree caused several state HFAs to suspend their programs. Issued without notice and comment, HUD’s letter also stranded many would-be borrowers right in the middle of the home buying process. Convinced the letter had been issued in violation of proper procedure, CBC Mortgage Agency sued in federal court, securing a preliminary injunction while the case is heard. On August 13, 2019, Mortgagee Letter 2019-12 was issued, rescinding HUD’s prior letter. CBC Mortgage Agency welcomes this latest HUD notice and hopes this signals the beginning of a constructive dialogue on the merits of responsible DPA.

Ever wished you could frequently compare your operational, production, compensation and secondary market performance against lenders of a similar type, channel and annual volume? At The Mortgage Collaborative (TMC), where lender wishes come true, members can compare their performance against that of their peers each month using TMC Benchmark Powered by LBA Ware. Offered as a free benefit to lender members, the online platform provides participating lenders with monthly competitive analysis insights that aren’t quite like anything else in the market. Read the case study to learn more about TMC’s Benchmark 2.0.

Capital markets

One way investors will look to protect their mortgage-backed security portfolios as rates drop is by buying specified pools, e.g., bonds created using borrower characteristics such as credit scores, loan size or geographic distribution, designed to provide more certainty on when the underlying mortgages will be paid off. Specified pools are in contrast to buying “to-be-announced” or TBA mortgages, where investors know only a few characteristics like the coupon rate until such a time as the actual bonds are delivered by the seller.

Mortgage traders must accurately predict the speed at which the underlying home loans will be paid off in order to assign proper value, as prepayments hurt investors that paid more than 100 cents on the dollar for mortgage bonds by returning their principal back sooner than expected and at par, cutting into returns.

Bondholders that already own specified pools comprised of loans with low loan balances have benefited from the rate rally, as those pools are designed to protect from early prepayments. The prices that investors are willing to pay (“pay-ups”) for 30-year 4 percent and 4.5 percent low loan balance specified pools, which historically have seen relatively slow prepayments, have risen meaningfully higher, coupled with robust REIT and bank demand. And here the specified pools designed to protect against higher prepayment speeds can have yet another advantage, as they typically have longer duration than similar coupon TBA.

The recent widening in the federal budget deficit and persistently low yields on U.S. Treasury securities have led some observers to ask whether the United States can run large budget deficits indefinitely with minimal consequences? At the crux of the debate is why yields on Treasury securities have remained low in the face of bigger deficits and whether that is for cyclical or structural reasons. Remember, budget deficits do not influence interest rates in isolation, as upward pressure on interest rates from budget deficits can, for periods of time, be outweighed by growth/inflation dynamics, dovish monetary policy, robust demand for the asset class and light issuance volumes from other countries.

In regard to the cyclical side, a dovish turn by the Fed and falling growth/inflation expectations have dragged on yields, overwhelming the upward pressure from more government debt issuance. Other major foreign economies have seen net sovereign bond issuance fall recently due to both fiscal consolidation and to quantitative easing programs by foreign central banks. Analysis that attempts to control for these factors suggests that deficits still exert upward pressure on yields, all else equal.

On the structural side, the U.S. enjoys many built-in advantages that make financing large deficits easier, such as the U.S. dollar being the world’s reserve currency, the U.S. economy is the largest in the world and Treasury bills, notes and bonds are the gold standard for liquid, safe assets. Perpetually low interest rates are probably not enough to solve all of the United States’ fiscal challenges. If interest rates were to hold at roughly today’s levels, the federal government’s debt-to-GDP ratio would likely keep rising. Finally, if interest rates ever did jump meaningfully, policymakers would need to roll over a very large and growing stock of debt at higher rates, creating even more debt, squeezing even harder on revenue resources and potentially exerting a drag on private capital formation. In our view, it is not that deficits no longer matter, but rather that just because favorable circumstances for large-scale debt issuance exist today does not mean that one can assume they will exist forever.

The U.S. economy has been expanding for the last decade, but many questions centering around sustainability have arisen recently, namely surrounding the rising level of U.S. debt. The combined debt of the household, business, government and financial sectors in the United States totaled $4.3 trillion in 1980, but now is nearly $70 trillion. Each sector, with the exception of the financial sector, has more debt today than it did in 2009, including the outstanding debt of the federal government over $10 trillion higher today than it was ten years ago.

While the large increase in debt is a potential cause for concern, remember the size of the U.S. economy was less than $3 trillion in 1980 (nominal GDP today exceeds $21 trillion). The correct way to think about outstanding debt in an economy is to measure it as a percent of GDP, good news considering that the overall debt-to-GDP ratio of the U.S. economy has receded to less than 330 percent at present from 370 percent ten years ago.

But the ratio today is more than twice as high as it was four decades ago., including the debt-to-GDP ratio of the federal government ballooning to nearly 87 percent today from 27 percent in 1980, bas every sector has experienced an increase in its respective ratio over this period. Although debt in the U.S. economy today is higher, in both absolute terms and relative to GDP than it was a few decades ago. The question for investors is, “How sustainable is the build-up of debt that has occurred in the American economy over the past few decades?”

The financial markets had plenty of news which resulted in volatile day-to-day movements. Last week began with the Chinese Yuan passing the symbolic 7.00 per dollar rate for the first time in over ten years as retaliation for new tariffs imposed on Chinese consumer goods. Investors moved out of equities an into fixed assets, however most of the lost ground was regained by week’s end. The new round of tariffs is primarily on consumer goods which had been spared thus far such as electronics, toys and clothing and is expected to be felt by consumers at the register. If enacted, the 10 percent tariff is expected to add 0.1 percentage point to the official year-over-year consumer inflation rate in the Consumer Price Index. The trade escalation could put more pressure on the Fed to provide more accommodation potentially as soon as their September meeting.

And everyone is blathering on about how the treasury curve inverted for the first time since 2007. An inverted curve happens when yields on the short end of the curve are higher than the longer dated treasury securities. An inverted treasury curve hints at a looming recession. But many argue that, in hindsight, the Fed raised rates too much in 2018 thinking that the tax cut would do better for the economy than it actually did. Typically, an upward sloping yield curve rewards investors for the longer-term risk of buying treasury securities. In the inverse, however, investors are willing to take less yield over the long term while buying the bonds for a safe haven of positive yield. The yield on the 30yr treasury hit an all-time record low while the price on the securities rallied. The Fed cut rates in early July and are tasked with the tough decision of further cutting rates as the textbook would suggest a recession is coming. But many doubt it.

In terms of the bond market yesterday, U.S. Treasuries pulled back a bit more on Thursday, including the 10-year closing -5 bps to 1.53 percent as the curve steepened amid the release of a mostly better than expected slate of U.S. economic data. That included an Empire Manufacturing Survey for August, Q2 productivity, and Philadelphia Fed Index for August that all exceeded expectations, though it wasn’t enough to keep the 30-year from hitting an all-time low of 1.98 percent, though international news wasn’t as cheery. One European Central Bank policymaker was quoted as saying the ECB will unveil new stimulus measures, including “substantial and sufficient” bond purchases at its September 12 meeting, Chinese officials vowed to retaliate for the latest round of tariffs on Chinese imports into the U.S. (as China’s July housing prices missed expectations) and Labor’s Jeremy Corbyn is reportedly trying to rally other parties to support a no-confidence motion against British Prime Minister Boris Johnson. Interestingly enough, all that actually had little effect on mortgage rates.

Today’s light calendar has July housing starts and building permits and both the latest Michigan consumer sentiment reading, and the release of the Q2 Quarterly Services by the Census Bureau. Before these numbers we begin the day with agency MBS prices worse .125 and the 10-year yielding 1.54%.

A handful of witticisms:

I thought growing older would take longer.

Respect your elder.; They graduated from school without the internet. (I was taught to respect my elders, but there are fewer every year.)

I’ve decided I’m not old. I’m 25 plus shipping and handling.

Why do I have to press “1” for English? Did the United States move?

Patience: What you have when there are too many witnesses.

Visit 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, “Mortgage Rates: Thinking the Unthinkable.” If you have both the time and 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. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to Copyright 2019 Chrisman LLC. All rights reserved. Occasional paid job 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