Feb. 19: Notes on simple cyber security, housing after a disaster, 3-D construction, prepayment speeds; Saturday Spotlight: Sun West
This morning’s commentary is brought to you from a McDonald’s in Toledo, Ohio. (There’s no housing inventory here, either.) There are all kinds of things going on out there! Cutbacks? Sure, some actual news, plenty of rumors. For an example of a rumor, try, “Another round of layoffs may be ahead for Better.com as soon as March 1, according to Blind. User activity on Blind from verified Better.com professionals has increased in the last two days, and one of the most discussed topics among these users is the rumored upcoming layoffs… The vice president, finance left this week, the head of the real estate division resigned this week, has taken steps to reduce U.S. headcount in favor of workers in India.” Meanwhile, high inflation, strong consumer spending, and a Fed that’s expected to raise rates multiple times this year is shaking up things in the housing market. The 30-year fixed-rate mortgage averaged 3.92% in the week ending Feb. 17, higher than 2.81% a year ago, according to the Freddie Mac Primary Mortgage Survey. Throw in low inventories, elevated property prices, and the Fed ceasing its purchases of MBS, and “FOMO” (fear of missing out) bidding wars and it’s a tough situation, especially for affordability. Refinancing applications have fallen to their lowest level since mid-2019. July 2019 (with rising rates negating many of those benefits). Homebuyers are now faced with a choice of paying more for borrowing costs, or finding a less-expensive home, which also isn’t easy, given that the median sales price of an existing home soared 17% over the past year. Rising mortgage rates could further discourage homebuilders from building new houses, while many may be hesitant to trade up for a bigger residence, leaving first-time buyers with even less potential inventory.
Saturday Spotlight: Sun West Mortgage
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).
Sun West Mortgage Company has been in business since 1980 with the sole focus of client satisfaction. Over that time we have continued to streamline our technology, whether on the origination front or servicing, to deliver low rates, cost savings and great service. We are a HUD approved mortgagee (FHA & HECM), VA LAPP approved, USDA, Fannie Mae and Freddie Mac approved Seller/Servicer and Ginnie Mae Issuer. We are also a leader in NON-QM, HMBS securitization and residential and commercial MBS.
Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.
Sun West’s philanthropy outreach has funded programs at UCLA, orphanages in Puerto Rico, and provided tens of thousands of face shields to first responders across the U.S. Our most recent program has been with The Autism Community in Action (TACA). By partnering with TACA, Sun West aims to fund necessary social and educational services, and has helped provide funding to over 75,000 families affected by autism.
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?
Sun West grew from a handful to thousands of team members by realizing at our founding that every opinion and corrective suggestion matters. We encourage transparent dialogue and solution-driven ideas throughout our company. Never forget a home is the largest and most important purchase an individual makes. We need a happy productive home within Sun West to guarantee a stress-free experience to our clients purchasing their home.
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.
A modern-day mortgage company is really a technology company within a financial wrapper. We have always invested in and developed our own technology. Our approach has been to find the best talent regardless of physical location. Though the transition to a work from home environment was hard for many organizations, that was commonplace for us before the pandemic.
A great example of this core philosophy is our recent fintech launch, Celligence. Celligence is based on what we call Empathetic Technology. It is a user interface that intelligently adapts to the individuals situation and state of mind. How? It deciphers how you feel by interpreting actions such as keystrokes, tone, fluctuations in speed and stresses of word pronunciation. The system dynamically alters your user interface and speed at which alerts, or communications are delivered. The result is a truly connected, personalized interaction with your online home purchase or refinance.
Things you are most proud of that don’t have to do with sales.
We are most proud of the fact that we are allowed to participate in someone’s home purchase or refinance experience. Think about it, the culmination for many people’s success is their home. The safety of knowing they and/or their loved ones have a place of their own. An asset that can be passed down for generations. We are grateful we are allowed to participate in that. Great companies have purpose and we never forget we are allowed or maybe a better way to say it is ‘get invited’ to make life better for our community by helping families obtain home ownership.
Fun fact about Sun West
Taco Tuesday with taco trucks was a standing tradition for years. During the pandemic we changed that and now we host interactive games and trivia contests with random prizes to lift everyone’s spirits.
(For more information on having the charitable, employee improvement-centric side of your firm featured, contact Chrisman LLC’s Anjelica Nixt.)
I received this note about licensing. “How are these lenders balancing the state branch licensing requirements with the MLO flexibility to work from home? Different states have different stances, but various lenders are giving employees, including MLOs, the option to work from home or in the office globally. Are they licensing each MLOs home as a ‘branch’ if they choose the WFH option? Or are they accepting a certain degree of risk for potential scrutiny from their state regulators?”
I asked Ken Perry with the Knowledge Coop. “Ok, so many companies are doing it with no consideration of licensing, cyber security, and even international trade laws. Remote work is a cool concept, but I would hope anybody who is allowing for it has analyzed every tax and mortgage law out there!”
Simple security tips
I saw Frank Abagnale speak at a conference. (“Catch Me if You Can” movie with Leonardo D.) For the last few decades he has run a security firm which was originally set up for check and paperwork fraud, but now looks at bank fraud, identity theft, and phishing. There are hundreds of suggestions of varying complexity, but I wrote down some a couple interesting tidbits for dummies like me that you should know. MLOs can add value by passing them along to their clients.
1. If you ever sell a computer, printer, or copier, remove the hard drive. Remove it before it trades hands. The hard drive will have every document that has passed through it, obviously including tax information that you don’t want circulating. 2. If you ever buy a shredder, there are three types that all cost the same. Buy a “micro cut” shredder; the others spit out paper that can be pieced together quickly. 3. Every incident of successful fraud (and he emphasized the word “every”) involves two things: typically an immediate request for money or an explicit request for private information. Beware.
4. There is only one pen that is 100 percent secure, and can’t be altered, chemically treated, whatever: The black Uni Ball 207 Gel. Staples, Walmart, Amazon. And 5., probably the most important, freeze your credit. Immediately. It doesn’t cost you a penny. Especially you since you aren’t going to be buying a car or financing a house in the near future.
To freeze your credit (and keep those passwords!): https://www.equifax.com/personal/credit-report-services/credit-freeze/, https://www.experian.com/blogs/ask-experian/credit-education/preventing-fraud/security-freeze/, and https://www.transunion.com/credit-freeze.
And I received this suggestion from a few folks. “In addition to the annual credit report site, it is really important for LOs to recommend clients go to www.optoutprescreen.com. That is the site where you can click a button and remove the ability for the 3 bureaus to sell your information for 5 years OR you can sign a form and permanently remove your information. This is the reason when an LO pulls someone’s credit they start to get calls and offers from other lenders. You might even ask if you can do it on their behalf before pulling credit to eliminate the vultures from circling.”
Disasters: who’s immune?
This Commentary recently noted how hard it was to re-build homes after a disaster. From Colorado, Aaron N. recently wrote, “The note on Colorado hits home. Just 3 days before that fire we were evacuated from our home – the 2nd time in a month – due to wildfires. I don’t live in some back country community. The city for my address reads ‘Littleton.’ A Google search will show you how far ‘out there’ we live. It does make me wonder what will happen to our market. With less than 1000 homes on the market in the 6 county Denver Metro Area, folks in the Superior / Lafayette area who lost a home are now being told to expect as much as 4 years for rebuilding efforts. Obviously, that means that they will move elsewhere to already constrained inventories, and with an average price of the homes lost around $750k, these displaced homeowners are not necessarily looking at basic homes.
“Beyond that, what about the homeowners that were planning on living in their home for the next decade? They probably refinanced in the last 2 years at rates below 3%. Now they have to fight for homes at inflated values in a rising rate environment. Something I doubt insurance is going to give 2 hoots about. It is clear to see the impact from natural disasters will continue to bear heavier weight on the markets in which the occur. Whether it is just on inventory and pricing or simply getting a refrigerator.”
“There are other concerns that are unfolding that will change the way the market is viewed in Denver. ‘Do we have enough insurance?’ A tough question to ask after the loss of a home. ‘Do we have to rebuild here?’ Many insurance companies are requiring the home be rebuilt in that exact spot. With the loss of all landscape (trees, bushes, etc.) that comes with a mature community, is it really the same after the loss occurs? Even if you are allowed to build elsewhere… are there lots available?
“There are seriously tough questions that arise after massive disasters that until now I had not regarded. If what we know is true that we will continue to see a rise in these types of issues then the market will continue to struggle. We have less than 1,000 homes on the market and we lost 1,000 homes in 24 hours. If that math isn’t startling then I am not sure what would make you wince.”
Innovation in home building
Dan Kern with Virginia Housing sent over, “Thanks for shedding light on the 3-D printing home trend in the U.S. in your recent commentary. Virginia Housing (the Housing Finance Agency for the Commonwealth of Virginia) has been working diligently with Virginia Tech University and Habitat for Humanity in Virginia to bring those same structures to the Commonwealth. Just like the East Coast/West Coast rap battles of the 1990’s, we would love to claim that we were the ‘first’ to have a 3-D structure as a primary residence! The 3-D home in Williamsburg, VA closed in December of last year while the story about the family in Tempe, AZ mentions a closing date sometime this month.
“Richmond was on track to close before the Williamsburg structure, but contractor delays have pushed that completion date to April/May of this year. Either way, there is a lot of innovation coming to the homebuilding industry and we hope to eventually be able to capitalize on this efficiency to increase housing affordability.”
Prepayments drive rate sheet pricing
Every originator should know about the factors influencing rates to their borrowers. One of those is how fast, or slow, residential loans in any given pool are paying off early, usually through refinancing and measured through CPR (conditional prepayment rate, or an estimate of the percentage of a loan pool’s principal that is likely to be paid off prematurely). KBW Managing Director, Bose George, discussed how January CPRs Finally Fall Back Below Pre-COVID Levels. “During the month of January, prepayment speeds decreased 21% as the Agency 30Y fixed-rate MBS fell to 14.8 CPR from 18.7. This was more than the decline in the business day count (-5%). Primary-secondary spreads have normalized to late 2019 levels, so it is likely that further increases in Treasury yields will at least partially drive higher primary mortgage rates, although primary-secondary spreads could fall below normal, given mortgage industry overcapacity and aggressive market share goals from recent public entrants. With mortgage rates just above 3.5%, we estimate that roughly 16% of mortgages have a rate incentive to refinance down from 25% last month.
“Signs of burnout: we expect prepayment speeds to decline throughout 2022. Since August, mortgage rates have increased nearly 80 bp and currently sit at 3.55%. The consensus view on the Street seems to be that yields will continue to march higher; with the primary-secondary spread at normalized levels, it is likely that mortgage rates will follow treasury yields higher. The declining M/M rate of change on eligible higher coupon mortgages to refinance suggests, to us, that burnout is occurring in the market.
“The current environment remains challenging for mortgage originators and mortgage investors. In April 2021, we moved to the sidelines on the mortgage originators given our expectations for falling volumes and declining gain-on-sale margins. In June 2021, we downgraded the Agency mREITs given the tightness of agency MBS spreads at that time.”
There was a Scottish painter named Smokey Macgregor who was very interested in making a penny where he could, so he often thinned down his paint to make it go a wee bit further.
As it happened, he got away with this for some time, but eventually the Baptist Church decided to do a big restoration job on the outside of one of their biggest buildings.
Smokey put in a bid, and, because his price was so low, he got the job. So he set about erecting the scaffolding and setting up the planks, and buying the paint and, yes, I am sorry to say, thinning it down with turpentine.
Well, Smokey was up on the scaffolding, painting away, the job nearly completed, when suddenly there was a horrendous clap of thunder, the sky opened, and the rain poured down washing the thinned paint from all over the church and knocking Smokey clear off the scaffold to land on the lawn among the gravestones, surrounded by telltale puddles of the thinned and useless paint.
Smokey was no fool. He knew this was a judgment from the Almighty, so he got down on his knees and cried, “Oh, God, oh God, forgive me! What should I do?”
And from the thunder, a mighty voice spoke:
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, “What’s Next” about how lenders and MLOs are shifting to a purchase-centric focus. The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).
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