Mar. 23: Thoughts on risk & reps & warrants & profits, ; Fannie’s rate forecast for the year; Saturday Spotlight: New Story Lending

Today I head to Louisville, Kentucky on United Airlines, in steerage. (In the event of a crash, look for my carcass in Row 23.) The 10 name-brand airlines have nearly 100 percent of the market, though no one airline has more than 18 percent. Whether you’re a residential lender or a vendor, having a 53 percent market share sounds really good. (Unless you treat your counterparties poorly, of course, then what’s the point?) I bring up this percentage because mortgages are only part of life, and despite a crowded space, 61-year-old Chips Ahoy! has a rare majority share of the market, owning 53 percent of the chocolate chip cookie business in America and earning $1 billion a year. If you were a lender or vendor with a 53 percent market share, would you change the way you priced or processed or sold loans? Perhaps. After experimenting with 60 recipes across 5,000 hours of development in the kitchen, not to mention what can only be a staggering amount of market research, publicly-held Mondelēz will roll out a new recipe of the Chips Ahoy! brand of cookies with higher cocoa levels and more vanilla extract. Stay tuned! (And yes, I have some in my freezer.) You’re correct: none of this has anything to do with home loans… but tweaking a winning recipe and business model in order to increase business or profits does!

Saturday Spotlight: New Story Lending



“Breaking Barriers to 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).


New Story Lending was founded in 2022 as a full-service independent mortgage bank to provide the American Dream of homeownership to every consumer willing to work towards it, no matter their circumstances. The name New Story Lending resulted from the challenges both cofounders, Shane Miller, and Juan Rodas, experienced in their childhoods, and their belief that anyone, regardless of circumstance, could create their own new story around the dream of homeownership. New Story Lending has grown rapidly. To date, New Story is agency approved, licensed in 17 states, and plans on becoming licensed in most all states in the country.


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


One of New Story’s core values is Giving Back. Employees are encouraged to volunteer, most specifically in the local communities in which each resides.

Both CEOs take this value seriously and lead by example. Juan donates much of his time and resources to Shriners Hospital for Children. Born with a hand deformity, Juan believes in the Shriners mission because of how much the organization assisted him as a child and will never forget how Shriners supported him. The reinforcement Juan and his family received from Shriners changed his life. The son of a single mother, Shane’s family’s income was below the poverty line. He has a passion for community advocacy and local churches because of the impact and assistance afforded to his family as a child. Shane supports many local charities but desires those focusing on financial literacy and assistance to single and misplaced parents. Check out their biographies on the website


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.  


We believe in a “team” culture, one that values openness, support, transparency, and accessibility. This creates synergy, autonomy, and clarity among our group, which organically advocates for an environment of cohesion and collaboration. Because we recognize the needs of our team and authentically appreciate our employees and their contributions, our focus is thoroughly performance-based, regardless of where one sits, which grants maximum flexibility for remote or in-office work. Through our frequent sales, operations, companywide calls, “water cooler” channel and team-building events, we sustain our culture and maximize clarity and dissemination of information.


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


We are minority and veteran owned with a distinct focus on affordable housing and community advocacy, which is a large reason we received our Freddie Mac approval in record timing, along with completion of our HUD test cases in 90 days. This is a testament to the volume of affordable housing we complete. Additionally, we have our own proprietary New Story Heroes $911 lender credit provided to all veterans (active and reserve), first responders, teachers, and medical professionals.


Fun fact about your company.


New Story takes pride in leaving egos at the door. We are sincerely mission driven and customer focused. Therefore, it is naturally fitting that we are a leadership dyad with two CEOs. It is rare for companies to have two chiefs, but we believe in breaking barriers. Having co-CEOs significantly reduces layers of management, promotes access and collaboration through active leadership, and advocates leadership with two CEOs proficient in all areas of the mortgage process. The co-CEO model is complementary and allows us to achieve, together, much more than we could alone.

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


Housing, IMBs, jobs, and regulations: rejiggering the system


Last Saturday’s Commentary noted that President Joe Biden has floated plans to address the country’s affordable housing issues, including new tax breaks for first-time homebuyers and “starter home” sellers. “If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting,” he said. Biden has proposed a “mortgage relief credit” of $5,000 per year for two years for middle-class, first-time homebuyers, which would be equivalent to lowering the mortgage interest rate for a median-price home by 1.5 percentage points for two years, according to an outline released by the White House on Thursday.

The continuing perspective of this conversation prompted a note from Jeremy Potter, Founder of Next Belt Strategies LLC. (Next Belt Strategies is an advisory firm working with several startups, mortgage companies, and tech platforms trying to solve housing’s biggest challenges.)

“Rob, I’m glad you put some of the LinkedIn conversation in your commentary because I think it’s a good way to get more visibility for these issues. Also, LinkedIn is a public forum so it’s a good use of what people are thinking and saying. In this week’s commentary, the LinkedIn content sparked some questions about the size and scope of our expectations in this industry.

“Seems like we continue to frame almost all our conversations and innovation from the perspective of ‘what does this mean for mortgage lenders?’ or ‘what about mortgage loan officers?’ Makes sense, we’re all human and its human nature to approach the world from your own perspective. Yet, sometimes it is as if we make the same mistake, we’re accusing the policymakers and politicians of making: only thinking about the issue from one point of view.

“Isn’t the real tension here that the current demand for residential mortgage-backed securities (RMBS) is essentially satisfied with the available options? It feels really odd to me to suggest that somehow policymakers are making it difficult for IMBs to ‘make a profit putting together hard loans.’ The reality is our industry’s ‘customer’ is not homeowners. It’s RMBS investors. If demand for RMBS is happy with ‘these loans’ and will not consider other profiles (i.e., net new first-time homebuyers). There are a variety of options (shared equity, home equity investment, and manufactured housing, being a couple that jump to mind) that could produce more homeowners or offer more flexibility for existing homeowners. Investors do not want those loans. If jumbo is trading below 101, those products are unlikely to trade at all. We do not have an ecosystem incentivized to safely unlock those opportunities via securitization or otherwise.

“Future first-time homebuyers only matter insomuch as the President (and IMBs) would like to help them. But without funding from private markets or Congress, the President has proven to be fairly unable to do so. Without a true strategy in Congress, the only thing that will ever matter is keeping the existing investor base comfortable for safe RMBS and avoid taking any incremental credit risk. As a matter of fact, it might not even be higher risk, but it is new, so the lack of data and familiarity is enough.

“I feared, a little, that writing into the Commentary might turn into a Jerry Maguire-esque moment where I wake up in the morning and no one wants to talk to me anymore. Unlike Jerry Maguire my position is not ‘we just need to make less money’ but rather a challenge to say, ‘are we being intellectually honest?’ The ability to survive is not the smartest or even the strongest company, it’s the company most responsive to change. A lot of what’s being offered lately has been around the edges rather than fundamental change for the future. For instance, why do we focus on LLPAs as a potential solution for making more loans? Sure, that’s helpful, but it’s still marginal here and there. Fannie and Freddie waive LLPAs for their 3 percent down programs, but the industry still struggles to identify and qualify net new homeowners (i.e., those that would not have otherwise qualified anyway).

“As a result, IMBs are threatened but it is not because the FED won’t subsidize rates by buying more. It is because there is not an appetite for the product we specialize in right now. Since private capital has not taken a meaningful role in the liquidity described above and Fannie & Freddie are essentially the same under UMBS, IMBs are caught in a cyclical business where few, if any, differentiators exist. One comment I read was that IMBs are a meaningful piece of the economy and the GDP. My question would be, ‘What if that was not true?’ For the sake of innovation, let’s ask a really hard question: ‘If half the IMBs went away, there would be some disruption among personnel moving around, but ultimately (today) wouldn’t all the same loans would find a home?’ The same number of loans would be securitized.

“The FED subsidizing IMBs by continuing to buy is one way but as we’ve experienced in the last year, it’s not a true solution. The true solution is 1) Create additional solutions for homebuyers and homeowners that capture more of the housing experience through vertical integration. Proactive data where renters actually work with mortgage company month over month or quarter over quarter to become approved. 2) Adding more cross-functional visibility for referral partners – view only dashboard for agents. 3) Partner with referral sources to capture home data that is submitted with the purchase contract (title, floor plan, etc.). 4) Make servicing actually meaningful so buyers and sellers actually consider the relationship valuable. Data, home equity analysis.

“My solution for supply would not be ‘less regulation’ as the post seemed to be claiming. It’s fairly simple: jobs that create houses. Stimulus in the form of job creation. The jobs give Americans income, which can be taxed. The jobs result in an asset which, once it’s affixed and/or occupied, can be taxed. The result of the asset is typically consumerism. New home buyers are good consumers: pets, paint, and pizza. If you are a small business owner, you get more customers. If you believe in social programs, this generates more revenue, 2-3x, for every dollar spent on jobs. Whether you are on the left or the right, there’s something here for everyone.” Thank you, Jeremy!

It is important to understand who’s responsible, who has the risk


FHFA Director Sandra Thompson issued a Statement on the recently approved title acceptance pilot that will waive the requirement for lender’s title insurance or a legal opinion on certain low-risk refinance transactions where there is confidence that the property is free and clear of any prior lien or encumbrance. The title acceptance pilot will make it possible to test whether allowing lenders to sell these refinance loans is a responsible approach to reducing the closing costs incurred by existing homeowners.

The news prompted well known retired industry vet Peter Diliberti to send, “Given all the discussion on repurchases, do you think everyone understands that this pilot does not appear to free the lender from the representation that the title is free and clear it just allows them to take the risk? While I agree this is often a low-risk proposition, it is not risk free and there will be losses. I just hope that the IMBs understand and prepare for this should it ever come to full use across the industry. There are low probability events with high loss given default.

“Risk transfer, and reps and warrants, are important topics for the industry to wrestle with regularly. My personal view is that some really do not appreciate or monitor the risk they take in many places and when the default event happens, they are quick to cry foul and look for someone to absorb the loss.

“Mortgage finance at the end of the day is closed loop and when the music stops all losses need to find an owner (the GSEs and liquidity providers do not own all the losses) we forget about the responsibility we have as originators/servicers to perfectly abide by the reps and warrants. Just because the market is small, and the costs are high, does not mean the risks go away. I would not be willing to ignore the rep on clear title and lien position on refinances if I could not precisely measure and monitor my exposure.

“The goal coming out of the crisis was to better define the rules of the road so everyone could understand when risk effectively transfers and how to measure and monitor it effectively. I hope everyone understands that as an originator you have the choice to not get a lenders policy, but it does not absolve you of the responsibility for selling a loan to the investor with a clear title.” Thank you, Peter!

Don’t hold your breath waiting for lower mortgage rates


Fannie Mae threw a dose of realism our way. “The increase in mortgage rates in February has driven a modest downgrade to expectations for total home sales and mortgage originations in 2024, according to the March 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.

The ESR Group now expects the 30-year fixed mortgage rate to end the year at 6.4 percent, up from the 5.9 percent predicted in last month’s forecast. Strong headline jobs numbers and hotter-than-expected inflation data had led financial markets to price in a less aggressive rate-cutting path by the Federal Reserve, and while the ESR Group notes that labor market indicators are mixed and disinflation will likely resume, it also believes that recent data are unlikely to provide the Fed with the ‘greater confidence’ it needs to begin easing monetary policy in the near term.

“Still, the ESR Group expects existing home sales will trend upwards in 2024 due in part to increased activity by households likely needing to move due to life events, and who are thus less sensitive to the interest rate lock-in effect. The ESR Group cited the recent trend upward in new home listings, as well as comparative strength in the latest reading of the ‘good time to sell’ component of the Fannie Mae Home Purchase Sentiment Index®, as evidence that housing market activity is likely to continue its gradual thaw in the months and quarters ahead.

“’The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,’ said Doug Duncan, the renowned Fannie Mae SVP and Chief Economist. ‘Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast, as markets continue to evolve their expectations of future monetary policy. Still, while we don’t expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023, even if mortgage rates remain elevated.’”

Instead of the usual humor, here’s some trivia given my time in Kentucky for several days. The name “KY”, as in KY Jelly, was not named because it comes from Kentucky. It stands for “K-Yest, ” which was the original name given to the product by its creators in 1904. It was first patented in 1904 as a surgical lubricant. After that, well, here you go.

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Rob Chrisman