Daily Mortgage News & Commentary

Jan. 9: Letters from readers on IPOs (next up, HomePoint?), taxes, non-QM; Saturday Spotlight: Homespire Mortgage

This one is making the rounds out there. “Due to travel restrictions this year, the United States had to organize coups at home.” Yes, many of us are staying close to home, and working there as well. But I don’t understand it. No matter how much I drink hot cocoa, play on my phone, refresh my email, look up things online, go to the kitchen for snacks, message my friends, scroll through the news, and play with the dog and cats, I still can’t get anything done! But lenders are getting plenty done. According to FBX | Informa Financial Intelligence, December 2020 mortgage rate-lock volume was up 123% YoY and 2% MoM across all channels, while funded volume increased 58% YoY and 7% MoM. In the Retail channel, lock volume increased 123% YoY and 2% MoM, while funded volume was up 73% YoY and 7% MoM. FBX sources a statistically significant data set directly from lenders to produce these benchmark figures.

Saturday Company Spotlight: Homespire Mortgage

Describe your company (when was it founded and why, what it does, geographic range, recent growth and plans for near-term future growth).

At Homespire Mortgage, we live for those high-five moments: when we’ve helped our homebuyers responsibly and affordably finance their dream of homeownership. That’s what drives us and we’re never complacent. We’ve built a nationally recognized mortgage company known for its unrivalled borrower experience and renowned for its efforts to transform the communities where we live and work.

Why purple? It says everything about who we are – breaking the mold, creating new and vibrant energy that cannot be ignored. Fusing innovative mortgage and marketing technology with the power of the human spirit, we’ve created a mortgage experience that borrower’s trust, Realtors® recommend and employees take pride in.

Founded in 2000 by our President, Michael Rappaport, and headquartered in Gaithersburg, Maryland, Homespire Mortgage operates 27 branches and is licensed across 39 states. Funding over $2.4 billion in 2020 and projected to exceed $4 billion in sales in 2021, Homespire Mortgage is recognized on Inc. 5000’s List of America’s Fastest-Growing Companies, and continues its steady climb year after year, adding new territories and personnel across key markets country-wide.

 

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.

  

One home, one neighborhood, one community at a time. Our “Inspired to Impact” company-wide initiative creates meaningful change in the neighborhoods where we live and work. Every Homespire employee receives one full day of paid volunteer time each year, to support the organizations they’re most passionate about. We call it ‘impact hours’ and our volunteers give their time and talents to the organizations that matter most to them.

Our charitable contributions over the years have supported meaningful causes and organizations including MBA Opens Doors Foundation, Feeding America, St. Jude’s Children’s Research Hospital, Children’s National Hospital, Fisher House Foundation, Our Minds Matter, The Children’s Inn at NIH, The Chesapeake Bay Foundation, and the Maryland Food Bank.

Tell us how your company maintains its culture in the office, or in a work-from-home environment if applicable.

Creating a seriously fun company culture goes beyond the typical perks like bonuses and happy hours. In a year where we’re distanced from our friends and colleagues, supporting one another is more important than ever. We’ll do anything to put a smile on our employees’ faces, even if it means turning them into bobble heads to show our appreciation.

 

This year, we opened the play book on virtual events and staff appreciation. From virtual game nights, virtual happy hours, and pizza parties to carrying on our holiday tradition with a week of Zoom-In-To-Win giveaways, we’re keeping our teams united and our company culture thriving.

 

Things you are most proud of that don’t have to do with sales.

Our winning culture at Homespire! To win in the marketplace, you first need to win in the workplace and that’s exactly what we’ve done. In the past three years alone, we’ve brought home several awesome workplace awards that say everything about who we are. Winner of the “Best Mortgage Companies to Work for” by National Mortgage News in 2019, 2020, and 2021 and “Top Workplaces in the USA” for 2021, we’ve created a culture at Homespire that’s far from corporate. We’re family and our achievements are a testament to our greatest strength of all, our people. We stand together and take care of one another working across boundaries to help our company win. That’s the Homespire way!

(For more information on having your firm, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

Taxes in historical perspective

With the change in power in Washington DC comes some uncertainty about economics, future stimulus plans, and taxes. Thank you to Michael Dulin who reminded me, “As for taxes, corporate income taxes were 6.1 percent and 6.6 percent of all federal government receipts in 2018 and 2019 respectively, down from 32 percent in 1952. (Source OMB). Average individual income tax rates for the 96th to 99th percentile dropped from 18.2 percent in 1981 to 14.5 percent in 1984 after the Reagan tax cuts, and from 18.1 percent in 2000 to 14.6 percent in 2003 after the George W. Bush tax cut. (Source Tax Policy Center.) Huge deficits ensued after both episodes and have been only partially reversed from increases in tax rates. Since the 1970s Republican administrations have left the economy weak (to put it charitably), and follow-on Democratic administrations have done much to restore economic health.”

Non-Government Guaranteed programs

Our industry is deluged with QM (Qualified Mortgages) but some lenders and MLOs are waiting for the day that non-QM loans to become a sizeable percentage of originations. Bryan Filkey, Chief Strategy Officer at Interfirst Mortgage, wrote, “Recent changes to Regulation Z have removed Appendix Q (which was the guideline benchmarked to the Federal Housing Administration’s (FHA) underwriting standards) and removed the debt-to-income (DTI) threshold (previously 43%).

“Prior to these changes, the government-sponsored enterprises (GSEs), Fannie and Freddie, were technically not doing ‘ability-to-repay (ATR) compliant loans.’ This is why the ‘qualified mortgage (QM) patch’ was put into effect. Essentially the ‘patch’ said all GSE loans are ATR until January 2021 or until the GSEs exit conservatorship. The changes, removing Appendix Q and the 43% DTI threshold, implemented by the Consumer Financial Protection Bureau (CFPB), now guarantee GSE loans will be QM.

“As a reminder, there are really three categories of ‘QM’ loans. These include those that are QM, Non-QM or Exempt (inappropriately labeled as Non-QM by many). Exempt loans are those loans that are for a ‘business purpose’ (like buying an investment property, for example).

“The removal of Appendix Q now means that bank statement income documentation or loans that do not meet the agency Automated Underwriting System (AUS) requirements can still be considered QM loans. This could be the catalyst for revitalizing a healthy, balanced private market and reducing the taxpayer liability of having the GSEs and Ginnie Mae guarantee 8/10 loans. ‘Non-QM’ might be drying up soon, but the outlook for private lending looks rosier than ever as yesterday’s Expanded Prime “Non-QM” becomes tomorrow’s Non-conforming Jumbo or Expanded Prime ‘QM.’” Thank you, Bryan!

As a quick aside, mortgage companies were responsible for financing 42.6 percent of non-owner occupied fix-and-flip transactions during the third quarter, according to a report from ATTOM Data Solutions. As traditional agency refinances continue to overwhelm production facilities across the nation, however, fix-and-flip transactions accounted for a smaller share of activity. In response, real estate investors have pushed up average profits to $73,766 per transaction from just $61,800 a year earlier.

IPO mania?

One can already buy stock in many lenders, private MI companies, banks, REITs, even Freddie Mac and Fannie Mae. In the last several months, several lenders have either gone public, have contemplated it, or have plans to in the future. Rocket, UWM, loanDepot, Caliber, AmeriHome, Guild, SoFi, and now HomePoint jump to mind. The management of any company that goes public must weigh what it will be like to report to stockholders and the demands by analysts for information. But owners are desirous of “taking chips off the table” and monetizing some or all of their gains.

Kimberly Browne, who was recently named president of Chrysalis Holdings, a fintech investment company, writes, “Rob, we expect the flurry of public offerings for mortgage firms that took place last year will continue. Although a few home lending companies that are backed by private equity delayed their fourth-quarter public debuts as a result of election uncertainty, we expect those transactions to close this year. In addition, we anticipate that a few other public offerings in real estate finance will take place during 2021. Among these offerings will be special purpose acquisition companies, or SPACs, like the one done by United Wholesale Mortgage. SPACs have become a favored alternative investment vehicle for seasoned investors and management teams who want to avoid the increased market volatility risk of traditional IPOs.”

And another recent addition to Chrysalis, Chairman David Olson, writes, “Rob, while there have been bouts of bond market weakness this past year, mortgages have performed well. Maintaining rates and supporting the purchase of bonds that have driving mortgage rates to all-time lows has been the Fed’s explicit mission. That low-rate strategy has generated unprecedented loan originations, which has strained the balance sheets of financial institutions. Lately, however, lenders are regaining some pricing control despite the pressure.”

Predictions about the future

It seems like great residential lenders and vendors, and companies in general, are focused on helping their customers and providing solid service, products, and pricing on a daily basis but also keeping an eye on the future. And as the uncertainty surrounding politics, and therefore the economy, has cleared up somewhat, there is still plenty of conjecture about the future.

Nothing is more natural than speculation in the face of mystery. When uncertainty abounds, pundits strive to differentiate themselves from their peers. There’s little to be gained from saying what everyone else is saying, or, God forbid, suggesting that there isn’t enough information on which to base a judgement. Conversely, there can be huge rewards in taking a flyer on an extreme prognosis and turning out to be right. Being the single winner always entails more glory than sharing the prize.

This wouldn’t be the case if pundits suffered when their predictions proved wrong. There are forecasting professions where this happens, like stock analysts who err and then are more likely to be fired. But in the media mistaken forecasts tend to be quickly forgotten, so there’s little downside to being bold and wrong. This tendency is exacerbated by the demands of cable news. Relying on what we know, and what we don’t know, doesn’t grab headlines.

An expert who makes one great prediction can live off the success for a long time. We assume that the feat is repeatable. But studies have shown, time and time again, that though an expert might foretell one extreme event, doing so consistently was next to impossible. Being spectacularly right once doesn’t guarantee being right in the future. In fact people who make bold predictions tend to overestimate how likely extreme events are, so, while they may happen to hit it right once in a while, overall they’re not great forecasters. Success breeds overconfidence. And history is littered with famous people being wrong, the most recent well-known example was banking analyst Meredith Whitney who, in late 2010, predicted that cities across the U.S. were likely to default resulting in investors losing hundreds of billions of dollars.

But nothing diminishes our appetite for dramatic predictions. We don’t like uncertainty. It may be that the characteristics that make for more reasonable forecasts (acknowledging uncertainty, an awareness of the limits of one’s knowledge, and a willingness to speak in probabilistic terms rather than seeing everything in black and white) make us uncomfortable. They aren’t what we want in an “expert.” Experts who claim to be more certain are more in demand in the media, even though they are less likely to be correct. People who predict what the stock market or interest rates are going to do are seen as more credible than those who expressed uncertainty, even when the latter is just as accurate. “Fortune favors the bold.”

A woman was in bed with her lover when she heard her husband opening the front door.

“Hurry,” she cried, “Stand in the corner!”

She rubbed baby oil all over him, then dusted him with talcum powder.

“Don’t move until I tell you,” she said. “Pretend you’re a statue.”

“What’s this?” the husband inquired as he entered the room.

“Oh it’s a statue,” she replied. “The Smiths bought one and I liked it so I got one for us, too.”

No more was said, not even when they went to bed.

Around 2 AM the husband got up, went to the kitchen and returned with a sandwich and a beer.

“Here,” he said to the statue, “have this. I stood like that for two days at the Smiths and nobody offered me a damned thing.”

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, “Work Longer and Harder, or Work Smarter”.

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2021 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)