Dec. 20: Subservicer oversight, automated marketing, hedging, non-Agency, QC tools; credit companies feeling the squeeze

Takeover and M&A rumors continue to swirl, and smarter companies are merely hiring production staff away from lenders rather than pay the baggage that may be associated with the target while some are selling servicing to help strategically or with cash flow. The MBA reports that our biz originated $4.1 trillion in 2020 and $4.4 trillion in 2021. 2022 is down from those numbers, and 2023 is expected to be $1.5-$2ish trillion, depending on who you ask, certainly less than half of 2021. It impacts everyone, but certainly with credit fees shooting up, credit reporting agencies (CRAs) are feeling the pressure and are being scrutinized by every lender. (See below for a full write up.) Want something else to worry about? Forgetting CRA feels and expensive mortgage leakage for a moment, how about the oil spill in Kansas that isn’t necessarily in the national press but will take years to clean up and cost billions? The Keystone pipeline has dumped an estimated 588,000 gallons of oil into Mill Creek in Washington County, Kansas, stemming from an issue with the pipeline first observed on December 7. The type of oil that spilled was tar sands oil, known as diluted bitumen, is thick and especially difficult to clean up. Keystone has had at least 23 leaks in its history. (Today’s podcast 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.)

Lender and broker software, products & services


ACES Quality Management’s Q2 2022 Industry Trends Report Reveals Critical Defect Rates Rose 6%! ACES Quality Management released its quarterly Mortgage QC Trends Report covering the second quarter (Q2) of 2022. The report provides an analysis of post-closing quality control data derived from the ACES’s software. There are notable findings from the report. The overall critical defect rate increased 6% over Q1 2022, ending the quarter at 2.05%. Loan Documentation defects increased significantly with Closing Documentation errors comprising the vast majority. Appraisal defects continued trending downward for the second straight quarter. Although FHA share increased slightly in Q2 2022, defects declined significantly in this category over the previous quarter. Conversely, VA and USDA defects increased remarkably despite only modest gains in review share, with VA defects more than doubling from the previous quarter. Read the Report.

“Today more than ever, mortgage bankers need partners they can rely on that can provide them with the solutions they need to compete and succeed: Lakeview Correspondent is that partner. The Bayview Non-Agency Product SuiteBank Statement, DSCR, and Prime Jumbo ARM’s programs provide lenders with the products they need to compete and succeed now and into 2023. Reach out to one of our Regional Business Development professionals today to find out more and set your team up for success! Lakeview Correspondent still has spots available for our December Trainings, click here to register.”

Leaders at Luminate Home Loans knew they needed to provide their teams with a seamless digital platform that could unite their data, sales productivity, and marketing automation. When their previous provider wasn’t delivering the functionality they needed, Luminate turned to Total Expert to provide its team with a single platform that could consolidate data from multiple sources and increase customer engagement across the entire lending process. “What sold us on Total Expert were all the efficiencies and cross-sell opportunities we could generate because of its Journey logic and ability to integrate with leading technology partners like Optimal Blue, SimpleNexus, and Mortgage Cadence,” said Lindsay Winterquist, Brand Architecture Manager for Luminate Home Loans. Read more about their success with Total Expert.

“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” (Steve Jobs) Optimal Blue, a division of Black Knight, recently unveiled a bold new system that offers capital markets participants this exact type of priceless simplicity. The CompassEdge℠ hedging and loan trading platform rethinks complex workflows by prioritizing ease-of-use. Intuitive dashboard navigation allows users to analyze and manage risk position, run best execution, and commit loans in as few as six clicks, as well as instantly analyze internal and peer group performance. And behind all this user-facing simplicity sits the industry’s most powerful analytics, enabling secondary marketing departments to deliver more revenue, minimize costs, automate reporting and optimize results. Contact Optimal Blue to learn more about the first-of-its-kind CompassEdge hedging and trading platform.

Last quarter, the average pre-tax production loss was 20 basis points. As Brian Hale, CEO of Mortgage Advisory Partners, recently said, “Now four basis points could be the difference between lenders making their warehouse covenants.” Lenders are facing a tough market, but Mortgage Coach has got some great plays to share. Numerous case studies from top-10 lenders prove that mortgage advisors who use the Mortgage Coach Total Cost Analysis see a net revenue increase of nine basis points per loan. 2023 can be great again. Ready to rally? Contact Mortgage Coach today.

The pandemic has ushered in years of volatility. The ways we live, work, learn, and play have undergone tremendous change. As a result, many organizations have struggled to maintain stability. TMS Subservicing is an exception. From continuing to set new highs for their customer satisfaction rating (99% in 2022), to empowering their customers to be self-sufficient homeowners (84% using self-service options), to reaching an all-time high of 83% Net Promoter Score, TMS continues to Grow Happiness for its clients and customers. In an industry in flux, TMS remains the steady hand by exceeding industry benchmarks and setting new standards. And unlike a lot of other subservicers, they have the receipts to prove it. In their new blog, read about all things TMS in 2022: in the news, on the web, on awards podiums, and in customers’ hearts.

Making an impact with social media can be daunting. To succeed, you’ll need to narrow your scope. Ask, where are the people I’d like to help hanging out online? Emphasis is on help. Your clients and prospects need information from you about changes in the market and tips about getting mortgages. Your Realtors need steady advice on what’s going on in the industry. Position yourself as a thought leader. By and large, you’ll find people who need what you have on Facebook and LinkedIn. Then, as in Marketing 101, you need enough frequency and ongoing regularity when posting. At Usherpa, we know social media can become a full-time job. Which is why Usherpa has automated 100% of the writing of compelling content and posting regularly for you. Usherpa is designed to help you create social media impact automatically. Check it out here. Download 3 Tips for Social Media Success.

Add staff or outsource seamlessly. Nobody needs the headache of adding or reducing head count in response to market ups and downs, especially when kicking off a new year. Protect your firm from the downside of lower volume and thinner margins with Richey May’s Advisory services. As a nationally recognized leader in the mortgage industry, we can provide staff augmentation and outsourced services as business dictates. Tap our consulting services to figure out the best ways to become more profitable and size up cash flows, including your servicing models. Lean on our subservicer oversight team to make sure your servicers are hitting their marks. We can design our services to fit your needs, acting as your outside finance team or working with existing staff to get important projects done. Reach out or visit us to learn more about how we can lighten the load.

Primer on credit reporting agencies (CRAs)


With the huge drop in volume, every aspect of our business is being hit, including the credit side. Smaller companies are likely to be acquired by the larger companies, cutting management and sales staff much like smaller mortgage companies. Just like lenders, CRAs need a certain mass to be profitable, especially given the large credit and verification cost increases for 2023. Mortgage bankers can turn into brokers to cut costs, not something vendors can do.

Remember that in late November the industry was given an early Christmas “present” by Fair Isaac and the three credit bureaus: the vast majority of the mortgage lending industry will most likely incur a massive mortgage credit report price increase for 2023. With per-loan costs over $11,000 already, this sure won’t help. And I continue to receive questions about it as lenders do their due diligence on companies “in the credit space.”

Some CRAs serve other credit-sensitive industries, but many focus on residential mortgage banking, and those have probably seen their volumes and profits drop by 50% or more. In the move to save on per-loan costs, lenders are comparing product, price, and service. And in this environment where volume is down more than 50 percent, like lenders, not every CRA or credit-provider will survive.

The public knows about Fair Isaac (and its FICO score) which has quite the dominant role in credit scores, but there are three main consumer-facing credit bureaus in the United States: Experian, TransUnion, and Equifax. Each bureau holds and organizes consumer credit information in a slightly different way. Plus, some lenders or companies report to just one or two bureaus, while others report to all three.

But there is another layer of non-consumer facing credit companies, a set of companies that lenders use to collect the data and offer verification like (alphabetically) Advantage Credit, American Reporting Co (ARC), Birchwood Credit Services, Certified Credit, CIC Credit, CoreLogic’s Credco, Credit Plus (Xactus), Credit Technologies, DataVerify, Factual Data (part of the CBC family of companies that also includes DataVerify), Informative Research, Lenders One, MeridianLink, Partners Credit, Settlement One, and Xactus (which owns several credit-related firms). (Partners and Advantage Credit merged last year so they are one company but operate independently.)

But don’t my word for the list, as I imagine that I’ve forgotten a few. Here are the links to most of them (CRAs + a few resellers) listed in Fannie’s website or Freddie Mac’s website. It is important to note that price is only one component of any decision making, and customer service and product can be equally as important! Questions should be directed to your vendor, especially with the upcoming price changes impacting most of the industry.

Meanwhile, investor-specific changes must be watched. For example, Pennymac issued 22-82: Conventional Credit Fee Cap.

Capital markets: rates move higher on Japan’s moves


The effect of the BOJ’s decision to allow Japan’s 10-year bond yield to rise to 0.50% (up from 0.25%) rippled around global bond markets overnight. Rates rose in the U.S. yesterday to open the week despite general growth concerns continuing to reverberate through the capital markets over the prospect of higher rates for longer as central banks try to rein in high inflation. Economic data released yesterday was limited to the NAHB Housing Market Index, which fell for the 12th consecutive month to the lowest point since mid-2012 (with the exception of the pandemic period in the spring of 2020). High inflation and high mortgage rates are causing builders to struggle with keeping housing affordable for home buyers.

Last week’s inflation data showed that consumer inflation increased 0.1 percent during November and 7.1 percent for the previous twelve months. Both of these figures were lower than expected. While a significant factor was falling gasoline prices, food prices rose at their slowest pace in twelve months. Core prices, which exclude food and energy, increased by 0.2 percent in November, lower than market expectations. This report solidified that inflation is finally heading in the direction the Fed wants, however it is nowhere near a level that would cause the Fed to stop monetary tightening as there is still a long way to go.

Mortgage rates in America have fallen for five straight weeks, and the U.S. economy has shown signs of slowing with retail sales and manufacturing dropping last month. Retail sales fell 0.6 percent in November, lower than expectations and a sign that the slowdown in goods spending is firmly in place and spending is being shifted to services. On a year-over-year basis they rose 6.5 percent. These numbers are not adjusted for inflation, so if you consider the aforementioned 7.1 percent CPI print, retail sales in real terms are more or less down on a year-over-year basis. The broad-based decline reflecting the strain of inflation doesn’t bode well for this year’s holiday shopping season. The slowdown has been especially pronounced at stores where goods are commonly purchased with financing such as vehicles and furniture.

Today sees another light economic calendar domestically, though we have already received housing starts and building permits for November. Both were expected to decline 1.8 percent to 1.4 million and 1.485 million, respectively. We’ve also received Philly Fed non-manufacturing PMIs for December. We begin the day with Agency MBS prices worse a solid .250 and the 10-year yielding 3.67 after closing yesterday at 3.58 percent as the attention has shifted to the monetary policy of Japan and its implications in the world fighting inflation with higher rates.

(Yes, this is a woman’s joke; I am merely passing it along.)

Looking in the mall for a cotton nightgown, I tried my luck in a store known for its hot lingerie. To my delight, however, I found just what I was looking for.

Waiting in the line to pay, I noticed a young woman behind me holding the same nightgown. This confirmed what I suspected all along, that, despite being over 50, I still have a very “with it” attitude.

“I see we have the same taste,” I said proudly to the 20-something behind me.

“Yes,” she replied. “I’m getting this for my grandmother for Christmas.”

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Rob Chrisman