May 5: Letters from readers on margins, AE comp, broker biz, underwriter-LO relationship, immigrants

The year, as usual, is sailing by, and the competitive landscape continues to change in residential lending. This week wrapped up trips to North Carolina and Florida for me, and I was reminded how the industry has lots of unsung, talented people helping their clients, doing the right thing. An interesting tidbit from a compliance veteran who noted that, in this time of shrinking margins, smaller lenders are moving from delegated to non-delegated status, shifting costs. And risk. Stay tuned… So what else is going on?

Maria Vergara, President of NAHREP Consulting Services, reminded me that, “Contrary to popular belief, Cinco de Mayo is not Mexico’s Independence Day. (Mexican independence is celebrated Sept.16.) Cinco de Mayo commemorates the Mexican army’s unlikely victory over the French forces of Napoleon III on May 5, 1862, at the Battle of Puebla. Really, it’s a day that celebrates the Mexican spirit of overcoming great odds. Of course, not all Hispanics in the U.S. are of Mexican decent, however of the 58 million U.S. Latinos, Mexicans do represent the largest segment. Today, 17 percent of the U.S. population is Latino (from many nationalities), it’s the fastest growing minority segment and the biggest driver of new household formations and net homeownership growth rates. So, go ahead and sip that Margarita this weekend but also give some serious thought to what your company is doing about this huge market opportunity.”

Teacher: “Do you know what my favorite nation is?” Student: “Yes, I do. Explanation.”

Recently this commentary has published news on recent developments on multi-language mortgage documents, along with comments on Saturday, as usual. And valuable comments keep coming, and we are reminded that home lending encompasses many things.

Bilal Parviz notes, “I read your commentary daily and hold its content in high regard. Some of it is opinion, of course, and everyone has a right to express theirs. I couldn’t resist replying to the comments, ‘I find it a mystery why the people we have welcomed to our country now don’t seem to really want to be an American. Speaking and understanding the language is ESSENTIAL to fitting into a culture and a society. Expecting that society to bend and facilitate your ‘differences’, in my opinion, is selfish and self-defeating. Which, of course, make you someone who then needs assistance and support of the social systems that support the disadvantaged. Just the opinion of an old grumpy curmudgeon.’

“I agree with the sentiment that immigrants should try to assimilate to the new culture with an open mind otherwise it defeats the purpose of immigration. I am an immigrant myself and try to learn and absorb American culture. I find the inherent bias of the ‘old grumpy curmudgeon’ a little disturbing. English was the language of most of the early settlers, yes. But the world is changing. Spanish, Hindi, Mandarin are languages spoken by large populations in the world. Europe and England are no longer the world influencers they were half a century ago. America is nobody’s ‘our’ country. The writer did not welcome anyone to ‘his’ country.

“Current first-generation immigrants work hard every day, we have to build our social networks from scratch and learn new skills to make ends meet. To top things off, we must live through these ridiculous biases that someone who’s only claim to fame is that he was born here did us some favor. We have every right to influence and mold this market to our tastes and preferences. It is a land of immigrants and every wave of immigrants has as much right on America as the previous generations. The only people who can rightfully call this their country by any legal or philosophical definition, would be what are called Native Americans.”

Bryan Y. sent, “I must respond to the comments regarding immigrants ‘refusing’ to learn English, which I found both cruel and willfully uniformed. There is a vast difference between the 19th century wave of European immigrants and today’s refugees. Those historical immigrants were primarily motivated by economic concerns; they wanted more materially comfortable lives for their children, and they spent months or years saving money to achieve that dream. Many of today’s immigrants are fleeing persecution from their own governments, or from insurgencies that threaten to kill them if they stay where they are. Somalis, Eritreans, Ethiopians, Afghans, Syrians, Libyans, Kurds, Hondurans, Salvadorians, and Haitians, as well as earlier waves of Laotians, Vietnamese, and Cambodians, came here not because they wanted to be parasites on our social services, but because they didn’t want to die. And in many cases, these places became terrible places as a direct result of US military interventions in their countries.

“I would love to find out if our commentator has ever been dumped in a foreign country, working sixty or seventy hours a week at one or more woefully low-paying jobs, and then gone to ESL classes at night so he could properly integrate with his host country? I would also ask him who put the roof on his house, or mows his yard, or does any other dirty jobs around his house. Did he make sure they weren’t new immigrants? Did he insist on paying double or triple the cost for natural born citizen labor? Let him volunteer his time teaching English to these people. Let him work in a refugee center. Let him discover himself that these are not leeches, and that they have more pressing concerns than learning a new language so that their hospital doesn’t have to hire a translator to help them sign forms. We learn compassion very quickly once we get out of our gated communities and away from our Fox News bubbles, and seeing who these immigrants really are.”

And this from JC Jimenez. “Rob, I read your daily report and find it very useful. I was surprised that you published something that I think has some very insensitive comments. I am talking about the gentleman whose great grandparents came from Germany. I find it very lucky for him that he met his ancestors and he can testify with certainty that they understood English, so they could understand a doctor if they needed an explanation for some treatment. I would also like to add that I have never met a family that has come here from ANY country whose children are not English native speakers. They may be bilingual, but the second generation is ALWAYS full native English speaker.

“Using expressions like ‘people who don’t want to be American’ does not reflect the real experience of immigration today or in the past. Maybe, it would be helpful if we all looked at facts rather than become ‘disturbed’ by small issues not related to assimilation or admiration for our great country.”

Notes from the trenches

Sure, rates are trending up, sure, margins are being squeezed, monthly production bars are being raised for loan officers, competing on credit guidelines, companies are trimming unprofitable units – girding their loins for the remainder of 2018.

“Rob, what about the comp for AEs in the field calling on brokers? I am still hearing that the comp for an experienced rep calling on established brokers earns 10-15bps for standard A paper products. I am also hearing that some are paying up to 20bps for low fico Govie and non-prime.” I am hearing the same thing.

Alan Jacobs sent, “As a DE/SAR/LAPP underwriter, I decided to post a bit of advice for a loan officers to make the process smoother and more collaborative. I thought your readers might be interested in “Some thoughts from an Underwriter to the Loan officer.” “On initial submission, generally, the first thing the Underwriter looks for is notes from the LO explaining the files strengths or weaknesses. Your notation of any quirks, anomalies, or recent changes is not only informative, but builds a symbiotic relationship of trust in the joint ownership of the file as well as reinforcing the team concept. Be proactive, get out in front of potential problems, issues, or compensating factors to be considered, so that the Underwriter doesn’t have to ‘discover’ potential red flags, which then leads to a deeper scrutinization of the entire file and conditions that may have been avoided or minimized.

“Communicate directly with your Underwriter on any questions, clarifications or concerns. Believe me, one phone conversation trumps 10 emails. Email is more documentary and does not typically accomplish what old-fashioned, one on one human interaction does. Plus, it allows each side to interject their personality and connect. Before calling the Underwriter, be sure you have done your research on the subject to be discussed, that way you can reference it to the Underwriter, which further demonstrates your professionalism and commitment. You then can document the conversation with a one short email, restating the discussion and the mutual understanding that was reached. Happy originating, and on behalf of all underwriters, we truly do appreciate your business, keep them coming!”

I received this note from a grizzled residential lending vet. “The reduction of margins is a race to the bottom. Many are pricing of specific loans, most commonly jumbo and high balance conforming, to cover commissions and overhead. This strategy is a short-term solution, but well capitalized mortgage bankers will use this to capture market share, retain and attract talent and force others to follow the same or change direction (sell, merge, or close). Some banks are rolling out more portfolio products to replace lost volume, buying the market with aggressively priced intermediate ARMs. I wonder how long will this last. Someone said 90 days and I think much longer.”

Andy Harris takes a pro-broker stance. “History definitely repeats itself. If everyone remembers, rates have not been this high according to Freddie Mac since around January of 2014 (around 4 years ago). During that time, I recall many retail lenders expanding off the back of a pretty good year in 2013. Shortly after they retracted and most reflected a loss for the first quarter of 2014.

“Overhead (fixed) must be monitored and I see several new retail branches just ‘now’ entering our marketplace. Their margins are too high, industry too saturated, and timing is poor. I understand about the ‘culture’ and ‘can do’ attitude, but wholesale is where investment needs to be. Sure, they may profit – but why build a channel that is being exposed for the SRP margin and snake oil it is?

“Lenders (via wholesale) can control better margin, avoid fixed overhead, be more nimble, and partner with those that dominate the market on pricing and speed (in a purchase market- experience matters). Mortgage brokers are the future and by far best for the consumer and originator. Let’s see what happens and if originators finally get educated versus steered and influenced by special interests. These new ‘branches’ may break off the tree. Certainly, the time for mortgage brokers was always… but if mortgage bankers are not paying attention they better start doing so now.”

About QM and non-QM products, LOs branching into non-QM loans, and the lack of inventory for borrowers to buy, from the Rocky Mountain area Aaron dispatched, “In regard to the section Non-QM products, I wonder if anyone has done studies on historical data for use of sub-prime products in correlation to inventory. You had noted that many LOs don’t want a reputation of excessively high rates which is absolutely accurate, but with all compensation being equal most LOs are going to fare better with clients that have a high acceptance rate on contracts. Our lender letters have an interest rate on them – and in the Denver market a seasoned agent would take one look at an 8% rate and their ‘spider senses’ would be tingling. With multiple offers on nearly every property under $600,000, it might be hard for an LO to justify learning new guidelines on these Non-QM loans knowing that getting a client under contract could be tough.

“It seems to me that if we had a glut of inventory these products would have a much higher use. Just before the crash in 2007, Denver had inventory around 24,000 homes. Now we have 4,000. Until the inventory changes for homes the use of the Non-QM products will struggle. That isn’t to say there isn’t a ‘need’ for these products, but rather these loan types carry negative connotations in the market place that is exacerbated by our markets housing inventory.”

Most people don’t know that in 1912, Hellmann’s mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery in Vera Cruz, Mexico, which was to have been the next port of call for the great ship after its stop in New York. This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was lost forever.

The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great that they declared a National Day of Mourning, which they still observe to this day.

The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.

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Rob Chrisman