Mar. 12: Rate lock volumes; Inverted yield curve? Agency deals; Saturday Spotlight: ICE Mortgage Technology

 At the CMBA dinner last night here in Chattanooga, the table talk certainly included the price of gasoline. But inflation is everywhere, and now it really hurts: Five fewer Doritos per bag due to rising costs?! In a more serious vein, Curinos quantified what every lock desk is seeing: February 2022 mortgage rate-lock volume was down 41% YoY and 8% MoM across all channels, while funded volume decreased 43% YoY and 11% MoM. In the retail channel, lock volume decreased 41% YoY and 8% MoM, while funded volume was down 41% YoY and 11% MoM. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures; Dig further into this data here. Lenders have definitely shifted from 2020-2021’s “hiring everyone” to “not paying overtime” to “not replacing exiting employees” into grouping employees into tiers and cutting staff. Metric continue to be monitored. For example, in a recent STRATMOR Ops workshop, respondents noted that 25 incoming applications per processor per month was about average, giving them a pipeline of 35-40 of loans at any given time. Above that led to adding processing staff or hiring more LOs; below that led to consolidation or reallocating processors elsewhere. Managing has certainly become more difficult in 2022.

Saturday Spotlight: ICE Mortgage Technology

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ICE Mortgage Technology: Automating the Dream of Homeownership

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).

In 2020, Ellie Mae, Simplifile®, and MERS® became ICE Mortgage Technology™, an essential business segment of ICE. Together, we’re transforming the entire mortgage process from consumer engagement through loan registration by combining data, technology, and unparalleled expertise to automate the dream of homeownership. We’re leading the mortgage lending industry in designing, building, and operating digital networks that connect people to opportunity. And with a network that reaches almost every mortgage in the U.S. and provides the most expansive data and ecosystem available, we’re helping lenders visualize the market in near real time.

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

Leaving our communities better than we found them is one of the pillars of our corporate values. ICE Mortgage Technology encourages employees to take paid time off on a quarterly basis to make individual contributions to their communities. In addition, in every city, state, and country where ICE Mortgage Technology has offices, our Employee Resource Groups (ERGs) participate in philanthropic endeavors and grassroots efforts that benefit the local community.

 

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?

Our Learning and Development team produces several opportunities throughout the year for teammates to strengthen their skillsets through access to relevant content, webinars, and live training. Our ongoing Mentor Program creates a path for people to get from where they are now, to where they want to go. We focus on recognizing and promoting talent from within, and make sure every employee feels valued in a meaningful and inclusive way.

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. 

ICE Mortgage Technology has made staying connected and giving visibility to each and every team member a top priority while working remotely. The result has been a sense of real cohesiveness and comradery, even while working from home, and we’ve achieved the best productivity growth in our history. As we’ve returned to the office, our focus has been on ensuring that the time we spend together is collaborative and productive.

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

At ICE Mortgage Technology, we’re proud of all that we’ve accomplished as we work towards revolutionizing the mortgage process, and supporting people on their journey to achieving homeownership. Purchasing a new home is one of the biggest financial decisions most people will ever make, and we have a big responsibility to help people secure a home efficiently, quickly, and with the best experience possible, and that is what drives us each day.

Fun fact about ICE Mortgage Technology.

ICE Mortgage Technology is owned by the same company who owns the New York Stock Exchange.

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

Economic chatter

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MLOs wonder how much the Federal Reserve’s Open Market Committee will hike the overnight Fed Funds and Discount rates. Contrary to what many people seem to believe, the Fed doesn’t have a magic wand to bring down inflation quickly and painlessly. It can’t unclog the ports, procure more semiconductors, change oil prices that have skyrocketed due to Russia’s attack, or persuade millions of Americans who have dropped out of the labor force during the pandemic to return to work. Its tools (interest-rate changes plus purchases and sales of financial assets) can directly affect credit conditions in the economy, but these changes affect prices and wages only indirectly, and do so gradually over a considerable time period.

What the Fed does have the capacity to do fairly quickly, if it gets things wrong, is crash the housing market, the stock market, and the economy. Powell and his colleagues remain in an unenviable position. And the task they are facing has been made harder by Russia.

Do you remember a time when adjustable-rate mortgage rates were higher than 30-year fixed rates? That may happen. Typically, long-term bonds have higher yields than short-term bonds, and the yield curve slopes upward to the right. An inverted yield curve is where long-term debt instruments, like 30-year fixed-rate mortgages, have lower yields than short-term debt instruments of the same credit quality. Like adjustable-rate mortgages.

It is not necessarily a good situation. Investor preferences of liquidity and expectations of future interest rates shape the yield curve, and an inverted yield curve is a strong indicator of an impending recession. Because of the reliability of yield curve inversions as a leading indicator, they tend to receive significant attention in the financial press. And few MLOs really want a recession.

Agency deals

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Lenders and originators continually see Fannie and Freddie’s work in the primary markets through DU, LP, guidance in processing, and so on. But their transactions in the capital markets drive rate sheet pricing, so let’s take a quick look at who’s doing what. Freddie Mac has been busy pricing K-Deals. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds.

Freddie Mac priced a new $907 million offering of Structured Pass-Through K Certificates (K-745 Certificates), which are backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 7-year terms. Pricing for the deal is as follows. Class A1 ($56.9 million) has a weighted average life of 4.56 years, a spread of S+1 bps, a 0.836 percent coupon, a yield of 0.825 percent, and a $99.9987 price. Class A-2 ($703.8 million) has a weighted average life of 6.89 years, a spread of S+10 bps, a 1.66 percent coupon, a yield of 1.19 percent, and a $102.9954 price. Class A-M ($146.9 million) has a weighted average life of 6.93 years, a spread of S+16 bps, a 1.26 percent coupon, a yield of 1.25 percent, and a $99.9965 price.

Freddie Mac priced a $724 million offering of Structured Pass-Through K Certificates (K-HG3 Certificates), backed by a multifamily mortgage loan with one fixed rate component and two floating rate components. The transaction collateral is part of Freddie Mac’s single-asset, single borrower (SASB) execution. The SASB execution transfers first loss credit risk on either one or multiple properties owned or controlled by a single sponsorship group. K-HG3 pricing for the offered classes is as follows. Class AFX-1 ($33.0 million) has a weighted average life of 5.48 years, a spread of S+5 bps, a 1.26 percent coupon, a 1.253 percent yield, and a $99.9970 price. Class AFX-2 ($401.6 million) has a weighted average life of 6.93 years, a spread of S+13 bps, a 1.81 percent coupon, a 1.489 percent yield, and a $101.9984 price. Class A-FL ($289.7 million) has a weighted average life of 6.82 years, a spread of the 30-day SOFR average + 19 bps (coupon is the same), a 0.24 percent yield, and a $100.00 price.

 

Freddie Mac priced a new $754 million offering of Structured Pass-Through K Certificates (K-F127 Certificates), which includes a class of floating rate bonds indexed to the Secured Overnight Financing Rate (SOFR). The K-F127 Certificates are backed by floating-rate multifamily mortgages with 7-year terms, which are SOFR-based.

 

Freddie Mac priced a new $232 million offering of Multifamily Structured Credit Risk (MSCR, pronounced M-SCORE) Notes, Series 2021-MN2 on July 21. The program is designed to reduce Freddie Mac’s exposure to mortgage credit risk and bolster the company’s mission of supporting affordable and quality rental housing. MSCR transactions transfer to private investors a portion of the credit risk on two categories of eligible multifamily mortgage loans: loans that back certain fully guaranteed securities issued by Freddie Mac through its participation certificate securitization program (PC Loans); and loans that are originated in connection with Freddie Mac’s multifamily targeted affordable housing tax-exempt bond credit enhancement program (BCE Loans).

Freddie Mac announced pricing of the $382 million SB89 offering, a multifamily mortgage-backed securitization backed by small balance loans underwritten by Freddie Mac and issued by a third-party trust. Freddie Mac Small Balance Loans generally range from $1 million to $7.5 million and are generally backed by properties with five or more units. This is the eighth SB Certificate transaction in 2021. Pricing for the deal is as follows. Class A-5H ($76.9 million) has a weighted average life of 4.12 years, a spread of 5 bps, a 0.94 percent coupon, a yield of 0.808 percent, and a $100.4746 price. Class A-7F ($96.4 million) has a weighted average life of 5.48 years, a spread of 9 bps, a 1.15 percent coupon, a yield of 1.05 percent, and a $100.4732 price. Class A-10F ($119.9 million) has a weighted average life of 7.20 years, a spread of 22 bps, a 1.45 percent coupon, a yield of 1.37 percent, and a $100.4492 price. Class A-10H ($89.7 million) has a weighted average life of 7.26 years, a spread of 37 bps, a 1.61 percent coupon, a yield of 1.53 percent, and a $100.4771 price.

 

Freddie Mac announced pricing of a Seasoned Loans Structured Transaction Trust (SLST) offering of 2021—a securitization of approximately $772 million including both guaranteed senior and non-guaranteed subordinate securities backed by a pool of seasoned re-performing loans (RPLs). The SLST program is a fundamental part of Freddie Mac’s seasoned loan offerings which reduce less-liquid assets in its mortgage-related investments portfolio and shed credit and market risk via economically reasonable transactions. Freddie Mac SLST Series 2021-2 includes approximately $687 million in guaranteed senior certificates and approximately $85 million in non-guaranteed subordinate certificates. The underlying collateral backing the certificates consists of 5,139 fixed-, adjustable-, and step-rate seasoned RPLs, the majority of which were previously modified to assist borrowers. Additional information about the company’s seasoned loan offerings can be found here.

Freddie Mac announced pricing of the first Seasoned Loans Structured Transaction Trust offering of 2021. The securitization includes both guaranteed senior and non-guaranteed subordinate securities backed by a pool of seasoned re-performing loans and is approximately $809 million. Freddie Mac SLST Series 2021-1 includes approximately $744 million in guaranteed senior certificates and approximately $65 million in non-guaranteed subordinate certificates. The right to purchase the subordinate certificates was awarded on May 17 via an auction. The underlying collateral backing the certificates consists of 8,927 fixed-, adjustable-, and step-rate, seasoned re-performing loans, the majority of which were previously modified to assist borrowers. The Seasoned Loans Structured Transaction Trust program is a fundamental part of Freddie Mac’s seasoned loan offerings which reduce less-liquid assets in its mortgage-related investments portfolio and shed credit and market risk via economically reasonable transactions.

Freddie Mac priced a new $1 billion offering of Structured Pass-Through Certificates K Certificates (K-129 Certificates), which were backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 10-year terms. Pricing for the transaction is as follows: Class A-1 had $151.25 million of principal, a weighted average life of 7.49 years, a spread of S+9 bps, a 1.34 percent coupon, a yield of 1.334 percent, and a $99.9936 price. Class A-2 had $782.87 million of principal, a weighted average life of 9.74 years, a spread of S+10 bps, a 1.91 percent coupon, a yield of 1.647 percent, and a $102.9919 price. Class A-M had $122.84 million of principal, a weighted average life of 9.94 years, a spread of S+15 bps, a 1.65 percent coupon, a yield of 1.64 percent, and a $99.9995 price.

The $1.2 billion K-125 was backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 10-year terms. Class A-1 ($116m) had a weighted average life of 6.80 years, a spread of S+11 bps, a 1.101 percent coupon, a yield of 1.09 percent and an even par price while Class A-2 ($986m) had a weighted average life of 9.85 years, a spread of S+18 bps, a coupon of 1.846 percent, a 1.51 percent yield and a $102.9938 price.

 

The $286 million K-J33 Certificates were backed by underlying collateral consisting of supplemental multifamily mortgages. Class A-1 ($92m) had a weighted average life of 3.37 years, a spread of S+6, a coupon and yield of 0.44 percent and a $99.68 price. Class A-2 ($194m) had a weighted average life of 6.96 years, a spread of S+24 bps, a coupon of 1.57 percent, a 1.26 percent yield and a $101.9999 price.

There was a $1 billion K-Deal (K-741), which was backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 7-year terms. Class A-1 ($26m) had a weighted average life of 4.21 years, a spread of S+4 bps, a coupon of 0.602. percent, a 0.5935 percent yield and a $99.9980 price. Class A-2 ($914m) had a weighted average life of 6.73 years, a spread of S+11 bps, a coupon of 1.603 percent, a 1.1269 percent yield and a $102.9951 price. Class A-M ($107m) had a weighted average life of 6.81 years, a spread of S+16 bps, a coupon of 1.199 percent, a 1.1269 percent yield and a $102.9951 price.

K-126 was another K-deal over $1 billion, this time at $1.2 billion and backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 10-year terms. Class A-1 ($98m) had a weighted average life of 6.99 years, a spread of S+6 bps, a coupon of 1.14 percent, a 1.31 percent yield and a $99.9978 price. Class A-2 ($960m) had a weighted average life of 9.79 years, a spread of S+18 bps, a coupon of 2.07 percent, a 1.73 percent yield and a $102.9966 price. Class A-M ($159m) had a weighted average life of 9.85 years, a spread of S+23 bps, a coupon of 1.79 percent, a 1.78 percent yield and a $99.9926 price. If you can believe it, K-127 was actually larger at 1.4 billion.

Two brothers were fishing out in the ocean. They lost their oars and were wondering what they would do. One of them grabbed a bottle that was floating by. He opened it and a Genie came out.

The Genie offered to give them one wish.

After thinking about it, one of the brothers exclaimed, “Turn the sea into Guinness!” 

The Genie, after getting over his surprise, said, “Granted” and then vanished.

After a few minutes, the other brother exclaimed: You Idiot! Now we have to piddle in the boat”.

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, “Lenders Continue to Pivot” about how lenders and MLOs continue to shift 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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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is 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 2022 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.)