Mar. 28: Letters on staying safe & sane while working from home, appraisals, and being bullish on IMBs

What a long year this week has been from talk of Federal prisoners being released to home confinement to sports fans morning the loss of the Globetrotter’s Curly Neal at age 77. “Work from home” edicts in India and the Philippines have raised cybersecurity concerns with lenders who have off-shored vital lending functions. Servicers are overwhelmed with forbearance calls from borrowers, and each one must be answered and the borrower educated. Servicers are hiring, remotely, people those from the travel industry – great phone skills. And now training virtually. Zoom has zoomed ahead of WebEx and GoToMeeting. What happened to Skype? Investors continue to not necessarily eliminate products altogether, but instead shift program requirements or adjust pricing hits.

The industry is dealing with a huge drop in the purchase market this year, impacting the expectations for 2020’s lender volume. “Nail salons closed. Lash salons closed. Hair salons closed. Tanning salons closed. Waxing salons closed. It’s about to get ugly out there…” It already is, although there is a bit of good news. The CFPB suspended quarterly HMDA reporting. And exams are being re-scheduled to not take away attention being paid to consumers. And supposedly the CFPB will take into account good faith efforts, or, put another way, lenders working their best to help consumers should not be worried about technical mistakes. (These pronouncements are not legally binding to the CFPB, but indicate where the Bureau stands.)

Appraisal Chatter

Changes in the mortgage business are happening hour by hour. Let’s start with a letter from Kenn Bartley that echoes thoughts that I’ve heard elsewhere regarding appraisals. “I was reading your commentary today about appraiser protocol to enter homes. Good idea. Here’s another one. I have a handful of very low LTV refinance loans (37.2%-61%) in my pipeline that did not get a DU or LP property inspection waiver. I was really surprised since, at that low LTV, any lender would want that loan on their books.

“So keeping in mind appraiser health protection concerns, not to mention how loosening PIW guides would help loans flow through lender processing, Fannie and Freddie should temporarily accept 60-65% of documented tax assessed value under PIW guidelines regardless of the automated findings. I’m sure there are holes in this, but given the circumstances, it would be a lift for appraisers, LOs, processors, underwriters, and most importantly the health of homeowners and appraisers.”

Sometimes appraisal policies are based on state. Kim Perotti, co-president of AXIS AMC, sent, “As part of our leadership with clients and appraisers, we have been closely tracking health orders. Until Thursday we believed that all of them exempted vendors of financial services who in turn have been exempted as essential. Therefore, we have been able to continue full appraisals in most areas. Vermont, however, has issued a new decree which might cascade. Real estate sales and brokerage firms must suspend in-person operations under the Vermont Governor’s Executive Order. Real estate functions that can be conducted online, by phone or email can continue. And as previously directed by the Governor, employees should be working remotely. Property appraisals, inspections, title services and other activities that require in-person business are not permitted during the term of the Executive Order. As a result, we are unable to complete full appraisals in Vermont until this order has been lifted. We will be reaching out individually to those of you with orders currently in process to determine what options you may have for a desktop solution.

Independent Mortgage Banks

And there’s this note from industry vet James Johnson. “Rob, I just changed out of my Grumpy Old Man Costume. I want to share my Bull Case for IMBs, not my usual MO. Historically, most of the money made by IMBs has come in refi markets, and I visualize this huge refi boom lasting all of 2020 and most or all of 2021. Purchase business will be down for the next 3-4 months before it bounces back. Even after that, the real opportunity right now is refis. But a mine field to get there with a pot of gold on the other side. Many dangerous and scary issues in front of companies today. Rule #1 is Cash, Capital, Liquidity. Rule #2, same as Rule #1.

“The way I see this, the Fed has two main goals in their MBS purchases right now. The first one is to restore liquidity to that market and have a return to somewhat normal trading. But I also think that they would like to see the industry REFINANCE THE WORLD. These stimulus checks of $1200 to individuals will cost the Government around $200-250 billion, and they may need to do that again every 4-6 weeks while the economy is shut down. Quite expensive to say the least.

“But what if we can refinance everybody at rates between 3.50% and 3.0%, or even less? That would have a smaller immediate impact, but a way larger impact over time. This is really free money for consumers, and it won’t cost the Government anything. I think the Fed will continue buying MBS until they restore liquidity to that market and bring MBS yields down to their desired level. In a sense, that is the easy part. But getting borrower rates as low as they want is pretty much out of their control.

“I see this back and forth cycle of lower rates, too much volume, lenders overwhelmed, margins expand, volume slows, margins come down, volume overwhelms, and we do it all over again. Margins should stay relatively wide if it plays out like this. So, a slow play path down to rates under 3.50%. The floor? Maybe 2.75%, which I know sounds crazy, but I think something like that is what the Fed would like to see. Rule #3, don’t fight the Fed. That would save borrowers $200-300-400, or more, per month, free cash for them. If this slow play back and forth market happens it would be pretty much a perfect scenario for IMBs.

“The larger IMBs are having some real struggles. I am not sure exactly what is going on, but I think it may go back to their huge MSR portfolios, which are continuing to slide in value. There is not much of a market for MSRs today, with some servicing valued at zero. Many of these portfolios are financed (50-70% of original value). If you go through the math, you quickly conclude that a lot of the equity in that trade could be greatly reduced or wiped out. Most likely the capital position of the larger IMBs is in the process of declining by some amount. Also a good portion of their cash might be going to meet margin calls on their MSR financing. I think they could end up being a less powerful force for some period of time, so the IMBs with limited MSR exposure could have an opportunity to take market share.

“On the surface, this all seems great. Huge and long-lasting refi boom and restrictions on some big players. But to increase market share IMBs need operations capacity and funding capacity. It remains to be seen to what extent WH lenders will or can grant line increases. Remember that they have some exposure to the MSR financing as well. Their clients want to leverage up while the rest of the finance world is trying to de-leverage. In addition there are concerns that IMBs will stretch themselves too thin in this race for market share. Maybe the slow play becomes an even slower play due to capital and funding capacity constraints. Personally, I think that is fine and will extend the duration of this refi cycle.

“So, I see a HUGE boom, a really nice slow play track, and a fantastic opportunity that will last for the next 18-24 months. It is hard to see what will take rates higher in 2020 and maybe 2021 as well. It will take the industry that long to process and close this huge stack of loans. Really, a once in a lifetime opportunity. Not to be a party pooper, but when this refi cycle is over, I think things will fall off a cliff. it will be worse than 2018 and last longer. But for the immediate future, I see the best of times if you can get through the next 30-60 days of market chaos.” Thank you, James. (If you would be interested in reaching out to James, he is at

Tips on Working from Home

Now nearly the entire industry working from home or remotely, and this is making the rounds. “I am reminded that as the world, our country and our communities continue to digest the impact of COVID-19, it can feel overwhelming. I know disruption is happening in all parts of life and navigating the circumstances is incredibly difficult. Even in normal times, we’re asked to play several roles simultaneously. At home, we are needed by parents, grandparents, spouses, siblings, children and friends. At work, we are needed by our team, our peers and our leaders. Most people have come to accept that life is about tradeoffs.

“But what happens when we’re thrown into a situation where there doesn’t seem to be anything to actually ‘trade off?’ School closed for your children? Office closed for you? No problem! Just work from home and home school your children. While you’re at it, please make sure to keep everyone you care about healthy and happy. I know it is so much harder than that!

“Each of us are currently being asked to wear more ‘hats’ than ever before…and it’s hard. I encourage all of us to focus on what we can control and to never lose sight on prioritizing our health and the health of our families.

Given the current challenges, it is good to think about senior management expectations as we go through this unprecedented time together. Expect there to be interruptions. Embrace the interruptions. Laugh about them. Show empathy if others are interrupted. I know I am going to get interrupted. I expect everyone to be understanding of this and to embrace dogs barking in the background or kids trying to jump on a conference call. Who knows, maybe the kids will have some great ideas!

“I expect everyone to be flexible when possible. Some parts of our business have more flexibility than others. If a little flexibility is feasible for your party of the business and helps you meet your needs at home, talk to your manager. Managers, be open to this. We have to do things that are acceptable to run the business, but let’s try to be as flexible as possible while still meeting our business needs.

“I expect you will open your refrigerator at least 17 times more per day than usual. I’m hoping I’m not the only one with this quirk, but I often find myself killing a few minutes between meetings by walking through the kitchen and opening the refrigerator; each time I open the fridge, I have this great sense of anticipation that magically there will be different and better food than the last time I checked. I still haven’t given up hope that this trick will work at some point.

“I expect people to feel a little disconnected. I miss everyone already! Use video to connect. Send a picture of the craziness at your home to your team. Send a joke to your boss. Get your work done and try to have fun while you’re doing it. If you’re feeling disconnected, others are, too. Reach out and see how their day is going.

“I expect A+ effort but not always A+ results. One of the most frustrating things about life is when you put in A+ effort and aren’t rewarded with A+ results. If life were fair effort would equal results. Unfortunately, this isn’t always the case. In today’s environment, we are all juggling too many priorities and are asked to do too much. Do what you can but don’t be too hard on yourself when things don’t go exactly as planned. We are all human. We are all going to make mistakes. It’s okay.


“Finally, I expect everyone to know that we are all in this together. When one of our team members needs help, let’s do what we can to lend our support. When we need help, let’s not be shy to ask. Our industry has great teams filled with great people who are all committed to supporting one another and our clients.”

During this “shelter in place” I went to Walmart to buy a bag of food for my dog.

Already in line, a woman behind me asked me if I had a dog.

I thought to myself, “Really?” If you know me you know my sarcasm.

So on impulse I told her no, that I didn’t have a dog, that I was starting the dog food diet again, and that I probably shouldn’t because I ended up in the hospital the last time, but 15 pounds less! I told her that it was the perfect diet and that all you had to do is carry the kibbles in your pocket and eat one or two every time you feel hungry (I have to mention that practically everyone in line was interested in my story).

Frightened, the woman asks me if I ended up in the hospital because the dog food had poisoned me.

I answered, “Of course not! I was admitted because I bent down to smell the butt of a bulldog and I was hit by a truck.”

I thought the man behind her was going to have a heart attack…he was laughing so hard!

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Rob Chrisman