June 17: Thoughts on pulling credit; interest rates; compliance issues facing lenders; Saturday Spotlight: Lender Price

A daily reminder of inflation is the price of food, whether in the supermarket or in a restaurant. White or brown, eggs are the same inside. (Here’s a fun, relatively short video on what eggs go through to reach your supermarket.) Earlier this year eggs were the poster child of inflation. No more: Egg prices fell 14 percent in May month over month, which was one of the main contributors to the slowing of the rate of food inflation down to 0.2 percent for the month. The decline in egg prices is derived from the slowing of the outbreak of avian influenza that killed millions of egg-laying hens and is the biggest single month-over-month drop in the price of eggs since Truman was president. But orange juice prices are skyrocketing. Technology adds to the cost of vehicles, but improves them, right? In the first implementation of ChatGPT in vehicles, Microsoft is partnering with German automaker Mercedes-Benz to test the AI software in its cars. The optional beta program for U.S. customers will start today for over 900K vehicles. Enough with non-mortgage stuff: on with the show!

Saturday Spotlight: Lender Price

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“The most flexible pricing engine on the market.”

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).

Since 2015, we have been providing lenders with modern and proven technology, including Natural Language Processing to create custom rules and automated processes much faster than many other competing solutions. Built on top of a Microservices Architecture to ensure pricing stability with zero downtime, our pricing engine (PPE) comes standard with innovative features such as granular margin management, LLPAs and eligibility rules, multi-dimensional rules management tools, pipeline monitoring capabilities, lock desk automation, custom notifications rules, compliance checks, and much more, all with full mobile functionality. Our Marketplace solution gives lenders access to one of the largest wholesale broker communities in the mortgage industry and our newest enhancement, Base Price Solution (BPS), helps capital markets and secondary teams automate their base pricing, rapidly improving accuracy and price optimization strategy while greatly reducing the need for manual spreadsheets.

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

While Lender Price extends its support to numerous national organizations, our primary emphasis lies in giving back to our local communities. We strongly encourage our employees to actively seek out organizations that align with their interests and enable them to make a tangible difference in their local communities.

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes, training, or in-house training. How does the company help people develop?

We provide access to several different learning opportunities to help employees develop new skills and enhance their professional growth. Since we started the company, we have sent many employees to tradeshows, sales seminars, and national events to help enhance their personal and industry knowledge. We also hold weekly product training sessions and virtual meetings for our staff to ensure they are updated on our latest products and enhancements.

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.

Lender Price continuously embraces remote work, providing the necessary resources to help our employees stay productive from home. Utilizing various digital communication tools such as video conferencing, instant messaging platforms, and project management software, our focus is on facilitating regular interaction among our staff. We look to hold fun events including virtual happy hours, game nights, and online team challenges. Our culture is about inclusivity, keeping employees informed, and celebrating individual and team achievements.

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

Striving to help our customers become more efficient and profitable, our mission is to provide lenders of all sizes with scalable technology to help them stay competitive. We are extremely proud of equipping the lending community with solutions that drive innovation while providing an enhanced experience for our users and their borrowers. Our technology has been recognized by many industry publications and won numerous awards over the years, but we are most proud of providing our valued clients with trusted and proven technology that is helping them win more business during a challenging market.

Is there anything else along these lines that you’d like to share?

Prior to starting the company, the founders of Lender Price had extensive knowledge and expertise in the mortgage industry, including backgrounds in mortgage banking, technology, and data analytics. They saw an opportunity to leverage technology to simplify and automate various processes involved in mortgage lending, such as pricing, underwriting, and loan origination. With this vision in mind, Lender Price set out to develop a comprehensive digital platform that Lender Price has gained recognition and established partnerships with various mortgage industry stakeholders.

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

Credit: a hot topic as costs & protecting clients have increased

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This year we’ve seen the sleepy backwater of credit, and its reporting, grab the headlines as costs have gone up and companies are trying to reign LOs in from running soft and hard pulls willy nilly.

Last Saturday’s Commentary note about credit, and the length of time for a “grace period” where pulls don’t mount up and negatively impact credit while the borrower shops elicited this note from Steve Emory. “Credit pulls are more nuanced than most think. Many buyers get pre-approved, and these days don’t buy for 90+ days due to inventory shortages or offers not accepted. Credit reports are valid for 120 days and expire before the closing date on the accepted offer. We re-pull credit.

“While a buyer may get the same score for a few weeks while shopping, what happens when the credit is re-pulled after 90 days when they buy? They have 3, 4, 5+ inquiries within a few months, rather than just 1. With LLPA in 20-point increments, it can make a sizable difference, and in the borrower’s mortgage insurance as well, on the re-pull with ‘too many recent inquiries’.

“Then with “real tri-merge” credit reports costing $70-$100+ these days when running multiple different AUS engines, some are doing soft pulls, and/or one CRA to pre-approve to save costs (especially as few charge for credit at preapproval). Soft pulls may get them a score, or one CRA a single score, but those scores are not locked in for 120 days like a tri-merge that you can close with. They’re more of a good hint than any reality.

“The real score used for pricing/AUS is done sometimes months later when they buy a home. Washington requires a full AUS approval to issue a pre-approval, so I hope WA licensees are pulling tri-merges at full cost. Then I’ve seen a few that re-shop again after they get an accepted offer, getting multiple credit inquiries again. I don’t think any of this serves the buyers well as they don’t expect consequences for every action. There’s no free lunch.” Thank you, Steve!

Last Saturday’s Commentary mentioned the “Five Cs of Lending”: Capacity, Capital, Collateral, Conditions, and Character. The note prompted Santa Clara, CA’s Cyrus Ghazvini to report, “It’s the 6 c’s! These 6 c’s are inscribed in my heart as with any other 20+ year MLO. #1: Capacity (DTI of borrowers/sponsors, DSCR for rentals), #2 Commitment (LTV, down payment, equity), #3 Collateral (SFR vs Condo vs Mfg Housing vs Log Cabin, #units, #acreage, etc.), #4 Character (Credit Report, not just scores, credit depth, # tradelines, etc.), #5 Capital/Cash (Pre and Post close liquid reserves), and #6 Citizenship (Citizen vs GC vs Perm Res vs Non Perm res vs Undocumented -ITIN).

“Regarding the credit pulls, they are part of the biz. I always push to get the borrower to pay for it up front. If they don’t, invariably they are in bed with another lender and are just using me to keep the other guy honest.” Thank you, Cyrus.

What’s ahead? Bank economists expect credit conditions to soften over the remainder of the year due to the economic headwinds faced by consumers and businesses, according to the American Bankers Association’s latest Credit Conditions Index released yesterday.

 

Mortgage credit decreased in May, three months running, according to the MBA’s Mortgage Credit Availability Index. The MBA’s Joel Kan pointed out that “With this decline in availability, the MCAI is now at its lowest level since January 2013.” Lenders know that the current jumbo market (some depositories assessing the impact of recent deposit outflows and reduce their appetite for jumbo loans), and higher LTV and lower credit score loans aren’t in favor. “In a market where a significant share of demand is expected to come from first-time homebuyers, the depressed supply of government credit is particularly significant.”

What’s ahead in processing loans? As the industry moves in stages from a tri-merge to bi-merge process, there are bound to be developments. For example, veteran mortgage biz reporter Brad Finkelstein reports that, “Credit scores similar whether from two or three bureaus S&P finds.” Stay tuned!

Interest rates: like the weather…

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Analysts and investors and the press have been talking about a recession seemingly for years. One “predictor” of a recession is an inverted yield curve, since it is usually unusual as it reflects bond investors’ expectations for a decline in longer-term interest rates, typically associated with recessions. The Treasury yield-curve inversion deepened after the Federal Reserve indicated it could raise interest rates another half-percentage point this year. The spread between the two- and 10-year Treasury bonds widened to 93 basis points following the Fed’s meeting. “The Fed runs the risk of solving one policy error of being too easy for too long with another policy error as they ignore the growing credit contraction and persistent losses from higher rates,” said MUFG head of US macro strategy George Goncalves. “The catch-22 is that for them to ease, something now has to break, or the economy has to crack.”

No one owns a crystal ball, but ABA’s latest Credit Conditions Index anticipates that lenders are preparing for weakening economic growth and increasing financial challenges for consumers and businesses as the year progresses. ABA Chief Economist Sayee Srinivasan observed, “At the same time, bank economists expect inflation to continue to ease, reducing the need for additional Fed rate hikes, and that underlying strength in the labor market will provide a buffer for consumers and businesses.”

Compliance topics of note

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The Federal Trade Commission has provided its annual report to the CFPB on its enforcement and related activities in 2022 regarding the Truth in Lending Act (TILA), Consumer Leasing Act (CLA), and Electronic Fund Transfer Act (EFTA), and several other acronyms that I can’t think of.

The Federal Reserve Board, FDIC, and OCC issued final guidance on managing risks with third-party relationships. Weiner Brodsky Kider points out that, “The guidance emphasizes that all activities, whether performed internally or with a third party, are required to operate in a safe and sound manner and in compliance with applicable laws and regulations. A banking organization’s use of third parties does not diminish its responsibility to meet these requirements. Accordingly, the guidance states that banking organizations must establish management practices to effectively manage the risks arising from its activities, including from third-party relationships, in order to operate in a safe and sound manner. The guidance notes that sound third-party risk management takes into account the level of risk, complexity, and size of the banking organization, as well as the nature of the specific third-party relationship.”

Those are at the government level. But what are lenders focused on? MQMR recently released a Compliance Hot Topic on appraisal text scanning and why should a mortgage lender be aware of and concerned with it. Mortgage lenders should be aware of the types of terms and terminology that may undermine the credibility of an appraisal and train their underwriters or other appraisal review staff accordingly. Appraisal text scanning is a process of scanning or reviewing appraisal reports for words or phrases specifically related to race, ethnicity, and/or religion that demonstrate appraisal bias or, at the very least, undermine the credibility of an appraisal by implying that demographics influenced the outcome of the appraisal (whether or not the appraiser intentionally factored race, gender, or other protected class information into the valuation).

Jonathan Foxx of Lenders Compliance Group recently wrote on the elements of the safe harbor to avoid steering violations. He says that although originators know the anti-steering disclosure and anti-steering requirements, many do not realize that there is a legal safe harbor. A transaction does not violate the steering prohibition if the consumer is presented with loan options that meet the conditions regarding the presentation of loan options. This applies to each type of transaction in which the consumer expressed an interest. These three criteria relate to the meaning of each type of transaction are 1. A loan has an annual percentage rate that cannot increase after consummation; 2. A loan has an annual percentage rate that may increase after consummation; or 3. A loan is a reverse mortgage transaction.

MQMR recently wrote a Compliance Hot Topic on Fannie Mae’s new loan selection recommendations for a mortgage lender’s risk based monthly Pre-Funding Quality Control (QC) selections. Fannie Mae recently enhanced its pre-funding quality control requirements via March 1, 2023, updates (D1-2-01, Lender Pre-funding Quality Control Review Process), which introduced new recommendations for a lender’s monthly pre-funding QC loan selection criteria.

Fannie Mae requires that Pre-Funding QC reviews target areas that the lender identifies as having a higher potential for errors, misrepresentation, or fraud. Fannie Mae sets forth the following targeted areas for a lender’s consideration in this regard. Loans with characteristics or circumstances related to errors or defects identified in prior pre-funding and post-closing review results, loans with complex income calculations (for example, rental income, self-employed, and short history of receipt of income), loans requiring the use of non-standard processing or underwriting guidelines (for example, delayed financing, multiple financed properties, assets used as income, or manual reserve calculations), loans secured by properties located in areas with high delinquency rates or areas experiencing rapid increases or decreases in property values, and a long list of other attributes that are suggestions from Fannie Mae and not an exclusive list.

Jonathan Foxx, Ph.D., MBA, Chairman & Managing Director of Lenders Compliance Group recently wrote on the meaning of “material interference” in UDAAP. Interference takes numerous forms, including buried disclosures, physical or digital interference, overshadowing, and various other means of manipulating a consumer’s understanding. As to other means of material interference aimed at manipulating a consumer’s understanding, there are many ways. Amongst them are excluding important (i.e., material) terms. Certain transaction terms are so consequential that if they are not conveyed to a consumer prominently, clearly, and unambiguously, it may be reasonable to presume that the entity has engaged in acts or omissions that materially interfere with a consumer’s ability to understand. That information includes, but is not limited to, pricing or costs, limitations on the consumer’s ability to use or benefit from the product or service, and contractually specified consequences of default.

Why do dogs tilt their head? This video explains this behavior and six other curious conducts of canines… Why should you talk to your dog in a higher pitch? (Thank you to Myrtle C. for this one.)

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. STRATMOR’s current blog is titled, “Compensation: Ever Changing.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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Rob Chrisman