Mar. 18: IMB costs hit $12,450 per loan; compliance news; MBA on FHFA’s DTI delay; Saturday Spotlight: Equity Resources
The bank failure news keeps generating headlines and commentary. And if you’re a bank offering warehouse lines, and an IMB client hasn’t made any consistent monthly income in recent quarters, wouldn’t that be a huge concern for the bank? Here’s the latest from attorney Brian Levy, author of the Mortgage Musings who, despite his headline, is never just Captain Obvious. Ed. #59: Bank Runs Are Bad. The roots of SVB’s failure were sowed when it invested heavily in long-term US government bonds, especially mortgage-backed securities. Bond prices have an inverse connection with interest rates, and when rates rise, bond prices fall. As a result, SVB’s bond portfolio began to lose considerable value when the Federal Reserve started raising interest rates rapidly to battle inflation. And when depositors wanted their money out of their deposits, since SVB did not have enough actual cash, it began selling some of its bonds at high losses. But depository banks aren’t the only ones with losses. What’s also bad is the latest cost per loan figures released by the MBA. Total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) increased to $12,450 per loan in the fourth quarter. (The report is detailed below.) But lenders are contending with many things, some of them good, and many companies are doing good things. Let’s jump in.
Saturday Spotlight: Equity Resources, Inc.
“A culture of integrity and quality.”
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).
Equity Resources is a privately owned mortgage banking company that was founded in 1993. We are exceptionally proud to be celebrating our 30th anniversary this year! Our dedication to our team members, our communities, and our referral partners will ensure our growth over the next 30 years. At Equity, we have a very simple business philosophy that has been our beacon for the last 30 years; that is “to improve the lives of families.” We are currently licensed in 19 states along the east coast and mid-west, and we are actively looking for career focused loan officers to join our award-winning team!
Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.
Our core purpose is to improve the lives of families. This isn’t an annual vision statement or flavor of the day that changes. This was one of the leading hallmark beliefs our founder and president, Ed Rizor, had when he started the company in 1993. We believe in giving back to our communities that we have the privilege of serving. This mindset flows naturally into our community outreach and volunteer endeavors. Our team does an outstanding job of dedicating their time to the causes they believe in. We are proud to be large supporters of Honor Flight, Toys for Tots, The American Red Cross, The Humane Society, Wounded Warriors, and numerous community outreach activities throughout all our markets.
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?
Equity Resources provides a very open and flexible path for our team members to grow in their mortgage banking career. We offer numerous training programs, webinars, and believe in cross training our team to expose them to other areas within the company. We believe in very openly sharing ideas and creative thoughts to support our team’s personal growth. Equity has an on-line library of classes that any team member may view or explore to further their knowledge base. In 2017 we launched a very creative and unique pathway for individuals wanting to build a career as a loan officer. Our LEAD program (Loan Officer Education and Development) has successfully launched the careers of several new and thriving loan officers! We now have 3 full time business coaches dedicated to this program.
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.
Our culture and values are paramount to who we are and how we chart our path to ensure our growth over the next 30 years. We offer team events (even virtual!) throughout the year to ensure we are connecting with our valuable team members. We offer a hybrid work environment where team members may work from home or utilize one of our local offices in their area. With the rapidly changing technology landscape in mortgage banking, most team members may work from anywhere and we support that.
Things you are most proud of that don’t have to do with sales.
I am so proud of what our team has accomplished over the past 30 years, but especially over the last 3 years. The term “perfect storm” has been significantly overused, but it perfectly sums up the last 3 years. We went from a global pandemic to unprecedented low interest rates, the refi boom of all time, a surge in purchase business, a slow-down in mortgage demand……a bigger slow-down in demand…..and fast forward to today. The 2 words that I would have to utilize in describing our team is resilience and passion. The tenure of our team members at Equity is truly remarkable. In our industry, many people do change jobs and companies frequently. This occurs many times for a good reason. Our average loan officer has been with Equity for 10 years. If you look at our top performing LO’s, this soars to an average tenure of 14+ years. That is unprecedented in our industry and is a large testimony of who we are.
Fun fact about EQUITY RESOURCES
Every year until the pandemic hit in 2020, we had an all-team Vision Meeting. The pandemic didn’t completely take the wind out of our sails, and we pivoted to virtual meetings through last year. This year, we all come together again live and in person in central Ohio to celebrate our successes, to celebrate one another, to toast our team and plan for the next 30 years! We are all very excited about this!
(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
This week the industry received news that the Federal Housing Finance Agency, overseer of Freddie Mac and Fannie Mae, is pushing back the requirement of some loan-level pricing hits. While generally greeted warmly by the industry, many would have preferred a different algorithm rather than merely a delay.
The Mortgage Bankers Association Pete Mills writes, “While we appreciate the delay in the DTI LLPA, we are concerned about the lack of a clear commitment to fix the real problem, which is that DTI is unworkable. The FHFA appears to be focused on providing time for compliance guidance to deal with the LLPAs. The MBA has been focused on the borrower experience. Giving lenders more time to make the systems changes needed to ensure they can provide a poor customer experience in compliant manner is not really a solution. A compliant, but still lousy, consumer experience is not what borrowers need. The FHFA should not lose sight of the customer in dealing with this issue.”
An ugly 4th quarter to end 2022 for IMBs
The Mortgage Bankers Association finished tallying up and editing the final results from the 4th quarter of 2022. (If you only like wonderful news, skip this section.)
Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $2,812 on each loan they originated in the fourth quarter of 2022, down from a reported loss of $624 per loan in the third quarter of 2022, according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report.
“’For the third consecutive quarter, the average pre-tax net production income was in the red, reaching a new survey low of 99 basis points of loss in the final three months of 2022,’ said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. ‘Fourth-quarter results were abysmal. Basis-point revenues dropped to levels not seen since the fourth quarter of 2011. Production costs reached their highest levels since the inception of MBA’s report, and production volume has now declined for eight consecutive quarters.’
“’This has been a challenging time for mortgage originators, with cost-cutting measures, including layoffs, not being enough yet to turn the tide. Even when all business lines are considered (both mortgage production and mortgage servicing) only one in four companies were profitable in the fourth quarter of 2022.’
“Walsh noted that average loan balances dropped by 4 percent, indicative of a moderation in home-price growth. Based on MBA’s latest forecast, total industry volume is expected to pick up starting in the second quarter. The 30-year fixed mortgage rate is forecast to decline as the year progresses.
The average pre-tax production loss was 99 basis points (bps) in the fourth quarter of 2022, down from an average net production loss of 20 bps in the third quarter of 2022, and down from a gain of 38 basis points one year ago. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 50 basis points.
Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 317 bps in the fourth quarter, down from 326 bps in the third quarter. On a per-loan basis, production revenues decreased to $9,637 per loan in the fourth quarter, down from $10,392 per loan in the third quarter.
The purchase share of total originations, by dollar volume, increased to a study high of 88 percent in the fourth quarter from 86 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 83 percent in the fourth quarter.
Total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) increased to a study-high of $12,450 per loan in the fourth quarter, up from $11,016 per loan in the third quarter of 2022. From the third quarter of 2008 to last quarter, loan production expenses have averaged $7,068 per loan.
Servicing net financial income for the fourth quarter (without annualizing) was at $37 per loan, down from $102 per loan in the third quarter. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses, and gains/losses on the bulk sale of MSRs, was $104 per loan in the fourth quarter, up from $95 per loan in the third quarter.
Including all business lines (both production and servicing), 25 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 46 percent in the third quarter.
Compliance is the name of the game: regulatory morsels
As a residential mortgage lender and/or broker, what are Anti-Money Laundering (AML) training requirements? MQMR recently wrote on the subject. As a quick overview, the Bank Secrecy Act (BSA), which requires mortgage lenders and brokers to maintain an AML program, indicates that persons/entities subject to the BSA must provide for on-going training of appropriate persons concerning their responsibilities under the [AML] program. A loan or finance company may satisfy this requirement with respect to its employees, agents, and brokers by directly training such persons or verifying that such persons have received training by a competent third party with respect to the products and services offered by the loan or finance company. Separately, the Multistate Mortgage Committee Examination Manual – BSA/AML Program Examination Procedures (Exam Manual) provides insight on what state regulators will consider effective AML ongoing training for employees.
MQMR also wrote about the requirement for lenders to report pre-approvals that are denied or approved, but not accepted if maintaining a preapproval program under HMDA. A preapproval program for HMDA purposes involves requests for preapprovals for home purchase loans (other than open-end lines of credit, reverse mortgages, or loans secured by multifamily dwellings) whereby, after comprehensive analyses of applicants’ creditworthiness (including verification of income, resources, etc.), the lender issues written commitments valid for designated periods of time and up to specified loan amounts. If a mortgage lender does not regularly use the procedures outlined above and instead considers pre-approval requests on an ad hoc basis, the lender would not have a HMDA preapproval program. If required to report preapprovals, a mortgage lender should use the date the lender received the pre-approval request or completed the application form as the application date. A lender should be generally consistent in which method it uses.
Impersonation is amongst the highest complaints to the Federal Trade Commission (FTC). Technically, this type of contact with the public is called “imposter calls.” The imposters run the gamut, from posing as Social Security Administration representatives to the IRS, to legitimate business entities and their affiliates. As to robocalls, which are pre-recorded messages, the FTC received 1.8 million complaints in FY 2022. The five states with the most complaints are Delaware, Ohio, Arizona, Maryland, and Virginia. Jonathan Foxx, Ph.D., MBA, Chairman & Managing Director, Lenders Compliance Group, recently wrote on how much impersonation is happening by marketers and what institutions can do to protect themselves.
Mr. Foxx also opined on the CFPB’s investigation into online lead-generating platforms. Supposedly, the customers can compare rates and products and choose a lender. The CFPB issued an Advisory Opinion on February 7th detailing the implications for companies that operate online mortgage and settlement service comparison platforms and the lenders and service providers who pay to be featured on such platforms. The CFPB is using HUD’s 1996 Policy Statement, which is focused on digital platforms that allow consumers to comparison shop for settlement services. The computer loan origination system (CLO) Policy Statement was issued back when HUD had substantive authority over RESPA before that authority was transferred to CFPB in Dodd-Frank.
(Warning: language rated R. Maybe a bit risky…)
Two priests and an atheist are hunting in the forest. The atheist aims at a rabbit, misses his shot and says “God damnit, I missed!”
The first priest says, “The Lord will strike you down for using his name in vain.”
Later, the atheist aims at a deer, misses his shot and says again, “God damnit, I missed!”
The second priest says, “The Lord will strike you down for using his name in vain.”
Later, the atheist aims at a bear, misses his shot and says again, “God damnit, I missed!”
Just then, a shot of lightning strikes the priests, killing them instantly, and a booming voice from the sky says “God damnit, I missed!”
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