I received this note from “TeeGee.” As you think about New Year’s resolutions, here’s one we should all make together: resolve to insist that decades begin with the year ending in the numeral 1 and finish with a 0. For a decade to begin, we must start with the year ending with 1 (2021) and finish with 10, or so far as chronology is concerned, a year ending in 0 (2030). For example, January 1, 2001, opened the 21st century and the start of the new millennium, just as the year 1 A.D. marked the beginning of the Christian era. Of course, many of us will remember the wild celebrations that were touched off at midnight on December 31, 1999. But was that a year too soon? Yes! That fact was known even to comedian Jerry Seinfeld. And if at the stroke of midnight on December 31st, you think you’ll be celebrating the start of a new decade, guess again. As was the case 20 years ago, you’ll be one year early, for the new decade will actually start in the year 2021.”
Pay attention to the IRS
Sandra James, CEO of Private Eyes and 4506-Transcripts.com, sent, “The IRS reviews its Income Verification Express Service (IVES) user fee and will adjust the amount based on the cost of the program in addition to any changes in legislation. On July 1, the President signed the Taxpayer First Act of 2019 (the Act) (P.L. 116-25) into law. Section 2201 of the Act requires the IRS to “implement a program to ensure that any qualified disclosure (1) is fully automated and accomplished through the internet; and (2) is accomplished in as close to real time as is practicable.” In addition, the Secretary shall assess and collect a fee to cover the cost of the program requirements outlined in Section 2201. Once the automated program is fully implemented at a date to be determined it will replace our manual faxing process and deliver transcripts results in close to real time.
“The user fee per (IVES) transcript request will increase from $2.00 to $5.00 effective March 1, 2020. Per Section 2201 of the Act, the increased user fee will apply to a ‘qualified disclosure,’ which means a disclosure under section 6103(c) of the Internal Revenue Code of 1986 of returns or return information by the Secretary to a person seeking to verify the income or creditworthiness of a taxpayer who is a borrower in the process of a loan application. We will be sending separate instructions to our clients on how to process transcript requests falling outside the definition of a ‘qualified disclosure’ so that you will be billed the correct user fee.
“The IVES invoices dated April 5, 2020, for all March 2020 IVES transcript requests will reflect a charge of $5.00 per transcript, as will future invoices. Transcript requests processed through February 29, 2020, will be billed at the current $2.00 per transcript rate. Transcript adjustments for requests processed through February 29, 2020, will be adjusted at the $2.00 per transcript rate. Transcript adjustments for requests processed after February 29, 2020, will be adjusted at the $5.00 per transcript rate for qualified disclosures and the $2.00 per transcript rate for non-qualified disclosures.” Thank you, Sandra!
M&A, All the Way!
Thinking about merging with or acquiring another company? STRATMOR’s Jeff Babcock has some observations which should be of interest to anyone monitoring the current business climate for mortgage banking entities.
“Given that Merger and Acquisition activity in the mortgage banking sector has clearly accelerated over the last 18 months, why have there been no actual mergers, and could mortgage company mergers be more strategically attractive (than a company sale) and operationally feasible for a select number of independent lenders? STRATMOR believes so.
“While there are several developments which have combined to stimulate transaction activity, resulting in a material narrowing of the bid-ask spread, virtually all of the transactions have followed a similar pattern. That is, a buyer acquires the assets or the stock of the selling lender and typically consolidates some or all of the production and corporate support functions into the buyer’s organization which is the surviving entity.
“We have learned that a traditional company sale is not the right solution for many entrepreneurial owners. The distinct properties which define a merger include reasonably similar production scale, comparable company valuations and the willingness of the respective owners to check their egos at the door. Since there is probably no such thing as a true ‘merger of equals,’ the theme here is to approximate a marriage where equality rather than dominance is the intention of both parties. The strategic objective of a merger is to create a mortgage bank with greater critical mass of origination volume, stronger balance sheet, competitive differentiation, perhaps production channel diversification and functional efficiency. These lofty objectives can only be achieved by carefully crafting a strategic plan wherein the go-forward organization is structured and positioned to capture the highest performing elements of each lender’s platform.”
(In the next edition of this message, Jeff will dig into the elements required to make a merger successful.)
Industry outlooks for 2020
I’ve received some thoughts on the year ahead. Bill Neville, 25-year vet and CEO of regtech provider LoanLogics doesn’t believe that 2020 will be the year paper “bites the dust” but says that the end is in sight. “Over the past two years, machine learning has proven wildly successful at accelerating the time it takes lenders to process loan file documents and extract data from them. By using technology to do the heavy lifting, data is being captured more quickly, accurately validated, and used to power other rules-based automation to reduce costs. The impact to audit review productivity has been dramatic, doubling and even tripling loans per person per day depending on audit type.
“I think that investors will start to see the difference. Getting at that data and then using it in an actionable way is the trick. When you combine data analytics with tons of high-quality data, investors have more insights to work with. This allows them to understand where there are quality issues and proactively work with sellers to reduce them, which is going to streamline the process immensely. I am sure that removing every piece paper from the 400 to 500 pages of documents in a single loan isn’t going to change overnight. But we’re off to a great start.”
In the non-QM space, Greenbox Loans’ founder and President Raymond Eshaghian wrote, “The sky’s the limit. I think that the non-QM market will continue expanding next year to keep up with growing borrower demand. It’s wrong to think of non-QM products as an emergency-only option when an agency loan won’t work. More lenders are starting to realize how many borrowers can benefit from non-QM options, especially self-employed borrowers, who make up three out of every 10 working Americans. Real estate investors, prime borrowers with high DTIs and non-prime and near-prime borrowers with credit issues all make great candidates for non-QM loans as well. It is not known how much impact ending to the QM patch may have on the market, but non-QM growth will occur regardless. We’ll see more non-QM second loans as home values continue to rise, too. When you add up all the different types of non-QM borrowers, the potential for originators to grow volume with alternative financing is tremendous.”
Where is residential real estate heading next year? The Mortgage Bankers Association reported total volume of mortgage loan originations in 2019 will hit approximately $2.06 trillion and mortgage rates to remain at or below 4 percent for 2020. Last week, Black Knight reported refinance lending nearly doubling over the past three quarters of 2019, up 132 percent annually in the third quarter. Cash-out refinances jumped 24 percent since the last quarter of 2018 and made up 52 percent of all refinances. Meantime, homeowners withdrew a collective $36 billion in home equity, the highest amount in nearly 12 years. New home sales in 2019 reached nearly 7.4 million in October, according to the U.S. Census Bureau and the National Association of Realtors reports 2019 existing home sales at more than 53.2 million as of October.
Pat Stone, Chairman and CEO of Williston Financial Group, said that for the most part, 2020 looks to be a continuation of 2019: low mortgage rates and limited supply. He expects purchase activity to see a small increase as extended employment and increased growth in salary and wages results in sustained-to-slightly increased demand and a decline in refinance activity, but still meaningful with the year probably seeing 75 percent to 90 percent as much activity as witnessed in 2019. “The biggest issue will continue to be the lack of starter homes for first-time buyers. That problem will not be corrected for the foreseeable future and will be compounded as more retirees seek to downsize as opposed to moving into retirement communities.
“Two issues that could adversely impact the housing market in 2020 are a recession caused by a continuation of the trade war, or the possibility of a decline in consumer confidence because of overall economic conditions or disruptions in the political process. The recession will become a problem should tariffs impact trade through the first quarter. The Midwest is suffering from the impact of tariffs on agribusiness. Government assistance to the Midwest has mitigated the problem to date but can’t continue at present levels. Historically, elections have not impacted housing activity to a great deal, but should the impeachment process, coupled with the election cycle, cause a drop in consumer confidence, housing will be impacted negatively.”
What about mortgage servicing? Say what you want about changes in the climate, there is no denying that record incidents of wildfire and hurricanes have reached historic catastrophic levels for the past three consecutive years and 2019 was no exception. In July, CoreLogic reported mortgage defaults from wildfires hit critical highs for the first three months with Sonoma and Butte counties reporting 50 percent and 70 percent increases in defaults, respectively. And the J.D. Power 2019 U.S. Primary Mortgage Servicer Satisfaction Study released in August said, “Focus on efficiency and cost controls comes at the expense of customer experience.” So, as mortgage servicers grapple with the likes of disaster recovery, and try to simultaneously innovate, carve out dollars to meet user experience demands, and use strategic foresight on how to build trust, the challenges begin to escalate.
Jane Mason, CEO of Clarifire, wrote, “The industry settled into newly imposed guidelines, revamped disaster programs, and increased focus on the experience of the impacted borrower in 2019. While predictive tools are more readily available to help servicers prepare to a certain extent, the real secret to preparedness is becoming more efficient overall. This means servicers need to continue, or start, efforts to incorporate disaster recovery processes into existing efforts to automate, or digitize, and innovate default servicing. Managing disaster relief fluctuations is entirely too complex to be handled as a one-off process tracked by spreadsheets.
“Mortgage servicers will need to carry over automation to the overall borrower experience in 2020. AI is taking process automation to new heights and continues to expand servicer access to data, leveraging for decisioning capabilities in workflow and business rules. While there’s an obvious cost to strategically incorporate AI into servicing rules and decisioning, the future gain in efficiency readily offsets the expense. AI for servicers can significantly reduce response timeframes and costs, as well as improve accuracy and efficiency. Of course, appropriately implementing AI, understanding the core algorithms and requisite documentation, enables organizations to aptly meet auditing needs.”
Here are 10 micro-steps (part 3 of 3) in a handful of areas of life. Each can serve as the foundation for continuing to make more changes in your life.
8) Block time on your calendar to manage your email. Refocusing after being interrupted takes time, so setting aside time for email can help you avoid constant inbox distractions.
9) Set aside a specific time (even 5 minutes) each day or week dedicated to worry time. Write down or reflect on your worries and concerns. Don’t set any expectations about solving your worries or generating solutions, though you might find that solutions come naturally once you start reflecting.
10) Declare an end to the day, even if you haven’t completed your to-do list. Effectively prioritizing means being comfortable with incompletions. Once you’ve handled the day’s essential priorities, recognize that in any interesting job it’s almost impossible to do all you could have done in any one day.
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, “Politics do Indeed Impact Interest Rates and Borrowers” 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. 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 www.robchrisman.com. 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.)