Mar. 25: Servicing, non-QM, underwriting products; why rates are this low, and impact on refi population

Sometimes you’re stuck in the middle. (Thanks to Myrtle for that one.) Right now, it seems, rates are done being stuck in the middle and have edged back down leading to refi hopes by lenders. “Hope,” however, is not a business strategy. For the first time since 2007, the 10-year US Treasury yield has fallen below the three-month Treasury yield, causing an inverted yield curve, which warns of an impending recession. Be careful what you wish for as the news sent stocks tumbling worldwide. Bose George with KBW points out that the refi “incentive” is “modest” and most pronounced for borrowers with note rates at 4.5%+ who have loans originated within the last year: about $550 billion, or around 15% of the GSE 30-year fixed-rate universe. Not all of these loans are likely to be responsive at current rates (cost, loan size, and so on) but it gives folks something to talk about. But drop 50 basis points further? Dust off those rolodexes! More on what is moving rates in the capital markets section below.

Jobs & transitions

Are you a retail loan originator, retail branch manager, direct lender or banker? Tired of losing clients and the up and downs at your retail shop?  Have you considered making the move from retail to independent? can help. We are your single, no-cost source for the information, support and tools you need to become an independent mortgage broker. We can help you take the next steps toward opening your own mortgage broker shop or help match you with an independent mortgage broker in your area. Call us for a free, confidential consultation and continued support throughout the process at 800.229.6342 or learn more at

Congrats to Greg Musso, a longtime leader in the Mortgage and Lending community, who has formed MMC, My Mortgage Consultants, as Managing Director. (Contact Greg at 760.534.8656.)

And congratulations to 10-year AMC vet Frank Novak whom ACT Appraisal has hired as its new Coordinator/Account Executive. “Frank has already increased ACT order volume since coming on board late December due to his ‘can do’ attitude and his customer service skills, held in high regard in this industry.”

Lender products & services

Unlock opportunity in a growing market with Loan Product Advisor® asset and income modeler (AIM) for self-employed borrowers. AIM for self-employed is Freddie Mac’s solution to automate the manual lender process of assessing borrower income using tax return data. It’s also the industry’s only AUS-integrated self-employed borrower income calculation solution. AIM for self-employed makes it easier to do more business, close loans faster and get immediate income rep and warranty relief related to certain borrower employment income. Freddie Mac has teamed up with third-party service provider, LoanBeam®, in leveraging their expertise and powerful optical character recognition (OCR) technology to supply qualifying income for any applicant. Freddie Mac’s broad release of AIM for self-employed on March 6 is the next step in their journey to provide innovative technologies that can help lenders turn more borrowers into homeowners. AIM for self-employed borrowers and get YOUR edge.

M&T Bank now offers 203K Standard, 203K Limited, and FNMA Homestyle renovation loans through its national wholesale department which partners with brokers in the following states: Arizona, Connecticut, Colorado, Washington D.C., Delaware, Idaho, Kentucky, Maryland, Massachusetts, Maine, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming. M&T Bank is one of the country’s top 20 full-service commercial banks. Its national wholesale mortgage division is headquartered in Portland, Oregon.

Big news for brokers! Originators can add value by coming up with solutions that work for their customers. Plaza Home Mortgage‘s  Solutions Non-QM program gives clients more to work with: Loan amounts from $100,000-$2,500,000, plus flexible income documentation including 12- and 24-month full doc or 12- and 24-month personal or business bank statements, full doc DTIs up to 50%, interest-only options, new lower reserve requirements, expanded eligibility for all doc types and easier to use guideline matrices. Plaza will even review and calculate the bank statement monthly income before the loan is submitted. Plaza is here for you to provide the solution for your customers’ problems. For more information, contact us.

Lending solutions provider Data Facts is offering a complimentary webinar with special presenter David Luna. The “Challenges and Opportunities Mortgage Pros Will See in 2019” webinar will be held on Wednesday, March 27 at 11am CDT. Industry expert David Luna will talk about the mortgage industry forecasts and explore expectations the industry faces in 2019 and beyond.  Register now to attend! “Data Facts is a trusted partner you can rely on for lead gen products, credit reports, fraud products, tax return and social security verifications, flood certs, an appraisal ordering platform, and more. Talk with a live person and take advantage of personalized support for your business. Data Facts offers a variety of seamless LOS integrations (Encompass, Calyx, Byte, etc.) and a 100% US based customer support team. Its products and processes increase efficiencies and decrease cost-per-loan, which help lenders close more loans, faster and easier.”

The Caliber Home Loans, Inc., Portfolio Lending suite was designed to provide responsible lending options for homebuyers who don’t meet agency guidelines. Eligible borrowers can take advantage of higher DTI requirements and no MI through all of our CPL products. Borrowers that can demonstrate the ability to repay may be able to use Asset Utilization to establish qualified income for DTI requirements. Caliber has long been regarded as the pioneer in post-crises, non-Agency lending and was the first lender to reintroduce non-Agency products back into the mortgage space. Visit Caliber online for more information.

The Option-Adjusted Spread (OAS) model is frequently used for valuing MSRs. But did you know the OAS model limits the number of variables that cause the MSR value to change? MCT’s latest whitepaper entitled “Servicing Insights Vol. 8 – The Aggregated Structural Equations (ASE) Model”, discusses the limitations of OAS and how MCT’s ASE model is more effective by taking into account the relationships between economic and financial variables. Learn more about the comparison between the ASE and OAS models in MCT’s latest whitepaper. Variables used in determining the value of your portfolio will also be used in the sale of your servicing asset. Register for Navigating the Waters of MSR Sales webinar on April 4th at 10AM PT as Industry veterans Phil Laren of MCT and George Christo of The Prestwick Group discuss MSR sales, how to evaluate bids you receive, and tips for negotiating a contract.

Capital markets

So why have rates drifted back down? The slow economy in Europe is helping, and this country isn’t surging. In this country, the Fed’s decision to leave the Fed Fund Target range unchanged between 2.25 percent to 2.5 percent was widely expected by the financial markets. It was, however, the Fed’s comments on economic conditions that were slightly more cautious and reaffirming of its wait and see policy stance that caused Treasury yields to fall. While neither the statement nor the comments after confirmed the Fed believes it has reached a neutral policy rate, the updated “dot plot” shows that most members think there will be no further rate increase this year, however a small number of members still feel one hike is likely. The financial markets were only pricing in a slight probability of a rate hike by the end of the year prior to the statement and following its release the view shifted to a 60% likelihood of a rate decrease in 2019. While economic conditions have certainly moderated during the quarter, the data remains positive albeit at a slower pace.

So Treasury yields, and in turn mortgage rates, fell after the FOMC released its policy statement and data showing that most members expect no rate hikes for the year. The economic assessment in the statement was less positive than January’s and in line with the recent slower growth we’ve seen in the data. Once again, the Fed downgraded its estimate of GDP for the year, this time from +2.3 percent to +2.1 percent. Leading economic indicators improved in February 0.2 percent spurred on by the rally in stock prices. Unemployment claims declined to a very low 216,000 for the week ending March 16th. The National Association of Realtors reported that sales of existing homes increased 11% in February as inventory fell from 3.9 to 3.5 months’ worth. (The gain was attributed to the recent decline in mortgage rates, higher consumer confidence, and rising incomes.) Sale prices are up 3.6 percent from one year ago to a median of $249,500 and homes remained on the market for an average of 44 days.

As always, U.S. economic data remains mixed as labor markets remain strong despite slowing growth both domestically and overseas. Recall that Nonfarm Payrolls disappointed for February with only 20,000 new jobs, but unemployment remains low and wages continue to increase. Hourly earnings were up 3.4 percent over the previous twelve months and productivity increased at a 1.9 percent annual rate. New unemployment claims were at 223,000 for the week ending March 2 with no surprises in that data series. Housing starts jumped 18.6 percent in January, but like December’s report the standard error was +-26.6 percent so the data remains statistically insignificant. Permits showed a more modest gain for the month. New home sales remain soft and the months’ supply increased to 6.6 months’ worth in December. Last week’s Federal Reserve’s policy meeting, as expected, left the Fed Funds rate unchanged, thereby marking the “pause” that has been anticipated since officials began mentioning the need for patience in monetary policy changes. Focus shifted to the discussion around the Fed’s plan for balance sheet reduction.

So yes, the headline nonfarm payrolls may have disappointed some with only 20,000 new jobs created in February, but unemployment now sits officially at 3.8 percent. The U-6 unemployment rate, which includes all marginally attached workers as well as those working part-time for economic reasons dropped from 8.1 percent to 7.3 percent; its lowest level since March 2001. Hourly earnings were up 3.4 percent year-over-year, the largest increase of the current expansion. Recent data from the Institute of Supply Management shows a growing divide between the manufacturing and service sectors of the economy. While the ISM non-manufacturing survey showed a rebound for February, the manufacturing survey fell to its lowest level in the last twelve months as slowing international growth and no trade deal with China are taking their toll. Last week we also found out that the U.S. trade deficit jump to $59.8 billion, the largest it’s been in the last ten years. Exports declined 1.9 percent and imports increased 2.1 percent. The widening trade gap is expected to be a drag on fourth quarter GPD when the next revision is released.

Moving to bond market activity, U.S. Treasuries took another dive to end last week at levels not seen since last year, including the 10-year closing -8bps to 2.46% as recessionary indicators drove the rally. The drop in Treasuries hasn’t been mirrored at drastically in mortgage rates but make no mistake that rates have been trending downward over the last week. Disappointing data from Europe helped drive the rally, including Eurozone, French, and German March flash manufacturing all failing to meet expectations as they posted declines from February readings. At the intersection of politics and economics, Friday saw two notable headlines. President Trump indicated he will nominate Stephen Moore to the Federal Reserve’s Board of Governors. And EU leaders offered to delay the Brexit withdrawal date until May 22 if British lawmakers approve Prime Minister Theresa May’s deal next week, though a delay until April 12 will be allowed in the event of a failure to compromise on the part of Parliament.

This week brings us to the month- and quarter-end, which includes a lot of economic news. The Chicago Fed’s National Activity Index for February was Monday’s first piece of data this morning (still weak at “-.29”). Ahead are the Dallas Fed Manufacturing Business Index for March and a speech by Boston Fed President Rosengren. Things pick back up tomorrow with the January S&P Case-Shiller Home Price Index, February Housing Starts and Building Permits, January FHFA Housing Price Index, and March Consumer Confidence. Wednesday brings the usual Weekly MBA Mortgage Index, January Trade Balance, and Q4 Current Account Balance. Thursday? Weekly claims, Q4 GDP (old news), and February Pending Home Sales. The week closes with January Personal Spending, January Core PCE Price Index, February Personal Income and Spending, February PCE figures, February New Home Sales, and Final March Michigan Sentiment Index. We also have seven Fed presidents slates to speak throughout the week. Today begins with agency MBS prices worse a few ticks versus Friday’s close and the 10-year yielding 2.45%.

Philosophy Of Ambiguity, Idiosyncrasies of English (part 1 of 4)
1. Don’t sweat the little things and don’t pet the sweaty things.

2. One Tequila, two Tequila, three Tequila, floor.

3. Atheism is a non-prophet organization.

4. If man evolved from monkeys and apes, why do we still have monkeys and apes?

5. The main reason Santa is so jolly is because he knows where all the bad girls live.

6. I went into the bookstore and asked the saleswoman, “Where’s the self-help section?” and she said if she told me, it would defeat the purpose.

7. What if there were no hypothetical questions?

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to Copyright 2019 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman