Feb. 6: Letters on lender expectations for 2016, appraisers, trended credit data, TARP update, and ATR

I received this note from my young cousin Scott – apparently a fan of both football and the Census Bureau. “It’s ironic that the Super Bowl is being hosted at the 49ers stadium because as a 49ers fan, I can honestly say, with great vernacular, they stink. It’s also ironic that it is in the Bay Area because it is almost impossible for an actual Bay Area resident to even find a ticket. But, life goes on, I won’t be boycotting watching the Super Bowl because my team stinks, and to celebrate Super Bowl fever being in full effect here are some interesting facts the Census Bureau has compiled about the demographics of the host metropolitan area, and the areas of Denver Broncos and Carolina Panthers and how they have changed in the last 50 years. Since 1967 the US population has risen 125 million people (from 197 million to 322 million people). The population of Santa Clara (the city the Super Bowl is actually in) has gone from 86,000 in 1970 to 122,000 in 2014.


“Since the first Super Bowl in 1967, the median price of a new single family home has gone from $22,700 to $282,800. Since 1967 the price of a gallon of gas has gone from 33 cents to $1.86 in 2016 – on a side note, this isn’t a good time to look at gas averages because it would look much more drastic if you go back a few months and the average was in the $3 range – that makes people feel old. The Census Bureau ‘addresses’ the price difference of a first class stamp, but my friends mockingly ask, ‘What is this mysterious stamp you speak of? What is a post office and mailed letter?’ You’ve actually gained 8 years of life without doing anything! The life expectancy in 1967 was 70.5 years and it is now 78.8 years. What you do with those extra 8 years is up to you. The estimated population of the Denver-Aurora-Lakewood, Colo., metro area on July 1, 2014, was 2,754,258, the estimated population of the Charlotte-Concord-Gastonia, N.C.-S.C., metro area on July 1, 2014, was 2,380,314.


Scott wraps up with, “Official prediction: Panthers win 35-17. Side prediction: Broncos win. I can’t lose!”


On to the mortgage environment. Over at STRATMOR Senior Partner Matt Lind reported some of the results of a recent STRATMOR PeerViews survey that addressed lender expectations for 2016 origination volume and profit margins both for the mortgage industry and their own mortgage operations. The survey also asked lenders what longer-term concerns kept them up at night.


Of the large number of bank and independent lenders that participated in the survey, a noticeable percentage of lenders expect industry volume to be down — a result that is directionally in-line with the market decline predicted by the Agencies and the MBA. However, the results indicate a striking difference between lenders outlook for the mortgage industry and their own firm. Banks are even more bearish, as over 70% of respondents predict lower volumes, while 40% of independents expect lower volume.


So, the independents, which have long been more focused on the purchase market, appear to be less worried about a market where purchase is expected to increase, and refinance is expected to wane. Now, the scary part: while over half of lender respondents think volume will drop for the industry, only 35% predict that their own volume will! Something’s gotta give.


When it comes to industry profit margins, a significant majority of lenders (75% of those surveyed) predicted that fully loaded production margins across all channels would be down, citing increased compliance and other back office costs, scale diseconomies and more aggressive pricing in the face of lower origination volumes and a typically more competitive purchase market. When it came to their own company, however, these pessimistic results were flipped with only 25% of lenders predicting that their margins would be up.

“For years, we’ve observed that lenders are typically much more optimistic about their own prospects than they are for the industry as a whole,” said Dr. Matt. “But as we all know, in the end, not everyone can be above average.” Dr. Lind wryly noted that “this latter point was a point we could all agree upon.”


Survey results also showed that both banks and independents 2016 growth strategies for their retail production platform are focused on adding/acquiring new branches and LOs in both existing and new markets. No surprises here, noted Dr. Lind. But independents are much further along in implementing such strategies. Banks tend to be in the ‘planning’ or ‘under consideration’ stages as regards such growth strategies whereas independents already have such strategies in place or are in the process of implementation. It seems clear that bank-owned or affiliated mortgage lenders face more cumbersome internal decision processes than do independent lenders.


A striking survey result was the extent to which both banks and independents are placing a high priority on using advanced data base/social media marketing tools to generate high quality leads and lead management tools to more effectively handle such leads. The objective here is to improve lead-to-application and pull-through ratios thereby improving both LO and back office productivity. In a slower growth market, with no rising tide to lift all boats, “Lenders will need to steal share from their competitors,” said Dr. Lind. While productive back office processes remain important, “We believe that the competitive landscape is tilting in favor of marketing and POS prowess,” added Garth Graham, Senior Partner in charge of STRATMOR’s Sales and Marketing Strategy advisory services.


This emerging trend to develop front-end capabilities is in line with the number one long-term concern (83%) cited by lenders: namely, the slow growth outlook for the mortgage industry and where individual company growth will come from.


For those of you who are interested in more detail, the full Peer Views 2016 Outlook & Go-Forward Strategies survey results can be purchased at http://www.cvent.com/d/bfq9mc.


Switching gears to one originator’s thoughts on the appraisal process, Guy Keith observes, “This whole AMC deal has always irritated me. The fact that we need to order an appraisal from the AMC (or in the case of a mortgage broker, the wholesale lender orders it), they bid it out to several appraisers and whoever bids lowest and/or can turn it around fastest gets the deal. The appraisal is done, the AMC reviews it (supposedly) and then we receive the report. Often the report is such a piece of cr$p that our U/W calls out a desk or field review, which the borrower also has to pay for, in order to get it right. Oh, and we can’t contact the appraiser to talk to them to see what idiocy is going through their heads!


“As was stated by others, being given an appraiser who does not know the area, has no clue on neighborhood differences, uses non-comparable comps, gets room/bath counts wrong, can’t see that smoke detectors/CO-2 sensors ARE installed (they are hanging on the damn walls for crying out loud), and many other issues, is very frustrating. Then it takes 7 to 10 days to have the report returned, at which point more things must be corrected by the appraiser (which takes even more time). Oh, and if I want to have the borrower pay an additional $150, then I can get a rush to receive it in 2 days. So pay the regular price and get it in 7 to 10 days or pay an extra $150 to get it in two days. Does anyone else see an issue with this model?


“I think this whole AMC deal is another example of the government getting their noses in the middle of something and only making it worse. I have yet to see anything mandated by the government (federal, state or local) be advantageous to a borrower. All it does is slow things down and cost more money. No matter how good the idea sounds, the implementation ALWAYS makes it more difficult to do our jobs and help our borrowers. I would hate to be a mortgage broker these days with all the various ways the different wholesalers set up the different parts of the process. You have different AMCs and other processes, and different disclosure methods and time frames. It has to drive them crazy!”


Recently this commentary had a story on trended credit data. (“Fannie Mae’s October 2015 announcement regarding their planned use of trended credit data beginning in 2016: Fannie Announcement on Trended Data.”) Barrett Burns, President and CEO of VantageScore Solutions, LLC, writes, “Trended data is a break-through for better risk management so this benefits the underwriting process behind the wall; now the GSEs need allow originators to use updated, post-recession credit scoring models that feed loans to the automated underwriting channel. And your readers may be aware that there are independently managed joint ventures of the national credit bureaus.”


“Rob, whatever happened to TARP?” Ah yes, it (the Troubled Asset Relief Program) has certainly shrunk from the headlines. But it is still out there for some companies, especially in terms of reputation of having received, or not received, a bailout. Remember all the political drama surrounding the Treasury’s actions? It was one of the measures put in place in order to help with the credit crisis, and actions included a bailout for both bank and automotive companies. It provides a decent yardstick to measure how far the economy has come.


First, keep in mind that Congress authorized $700 billion for TARP in late 2008 but only $430.7 billion was ultimately disbursed. Of that, the Treasury sent $245 billion to banks, $80 billion to the auto industry, $68 billion to American International Group (AIG – current owner of MI company UG), $46 billion to programs focused on helping consumers avoid foreclosure, and $27 billion to restart our credit markets.


How is everyone doing paying it back seven years later? The banks have delivered $275 billion to the Treasury vs. $245 billion taken: a “bonus” of $30 billion or more than 12% above what was originally borrowed! The auto industry isn’t doing so well in spite of auto sales doing darned well. Of the $80 billion it has given back $71 billion, $9 billion less than what was borrowed (about 89%). The AIG portion from the Treasury was $68 billion versus $73 billion returned so far. The $5 billion is about 7% above the original amount.


But the Treasury actually had to write off some amounts under TARP. Banks were $5 billion or about 2.1% of the total borrowed; AIG was $13.5 billion or almost 20%; and the auto industry (pretty much GM, Chrysler, and GM/Ally) was almost 21%. Looking closer at the auto industry, GM borrowed $49.5B and the Treasury wrote off $11.2B (22.5%). Banks, many of whom employ LOs, can take solace in the fact that the facts show banks repaid in full with interest, while some in the auto industry still owe a lot to get back to zero, as does specialty insurance company AIG.


Last for this week I received this note regarding asset quality. “Hi Rob – I was reading your commentary and although I know much of the non-QM products have been either jumbo or related to credit I think there is a growing focus on products for self-employed, retirees (outside of reverse) and options for those that don’t fit in the agency box that still document,  and focus on ATR (ability to repay). I think 2016 will be the year we educate ourselves so that we can best serve the borrower that has been undeserved while producing quality assets. I don’t think the term ‘subprime’ accurately reflects this segment.  I’ve joined Sprout Mortgage to build out this platform where we’ll focus on educating the borrower, LO, and lenders, and building tools to assist the process.”



Men’s Help Line

Hello, “You have reached the ‘Men’s Help Line’, my name is Rich. How can I help you?”

“Hi Rich, I really need your advice on a serious problem. I have suspected for some time now that my wife has been cheating on me. You know, just the usual signs: The phone rings and when I answer, the caller hangs up. Plus, she goes out with ‘the girls’ a lot. I usually try to stay awake to look out for her when she comes home, but I always fall asleep.

“Anyway, last night about midnight, I woke up and she was not home. So, I hid in the garage, behind my boat and waited for her.

“When she came home, she got out of someone’s car, buttoning her blouse, and then she took her panties out of her purse and slipped them on.

“It was at that moment, while crouched behind the boat, that I noticed a hairline crack in the outboard motor mounting bracket.

“Is that something I can weld, or do I need to replace the whole bracket?”





(Copyright 2016 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