Nov. 12: Thoughts on how to train a real estate agent, and loan level price adjustments’ impact on lending; Saturday Spotlight: Flagstar
If you think that the ups and downs of this business give you the willies, try reading about things that make nearly everyone squeamish. I know that this is a mortgage commentary, but here’s something very unusual for you to pass along to your doctor friends: Denmark’s brain collection with nearly 10,000 brains in a basement. Almost as odd as working in the servicing department with 10,000 loan files, right? But while we’re kind of on heath related issues, have you noticed the number of walls of locked plexiglass increasing at your pharmacy, despite sales dropping 5 to 25 percent when one of those locked plastic cases go up in front of a product? Shoplifting. And the number of chain pharmacies in the United States declined by 6 percent from 2017 to 2021, and this year may be worse given giants like CVS announcing large store closures citing shoplifting as a major factor. So residential lending is not the only business undergoing changes out there. Let’s dig into what’s up out there.
Saturday Spotlight: Flagstar
“Every type of residential mortgage can be warehoused with Flagstar”
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).
As the 2nd-largest warehouse lender in the U.S. and one of the nation’s largest mortgage lenders, Flagstar is a big bank. And while the pending merger with New York Community Bank increases our balance sheet to nearly $90 billion, that does not lessen our commitment to relationships. We believe in keeping things personal. Here, relationships matter. Follow-through matters. We listen to clients, create solutions, and try exceptionally hard to put them first. That combination of personal attention and leading-edge expertise really works for our clients.
Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.
We believe that a business driven by our core values is more than just good business. It’s good for our clients, communities, employees, and shareholders. That belief manifests itself in our commitment to volunteerism. In 2021 alone, our employees volunteered 5,726 hours with 303 different organizations, ranging from financial literacy workshops to distributing food and sprucing up neighborhoods. And employees serve on scores of nonprofit boards.
We’re also proud to have created the Flagstar Foundation, which supports charitable causes and provides grants to nonprofit organizations in our footprint. Since its founding in 2017, the foundation has provided over 530 grants totaling over $8 million to nonprofits.
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?
Flagstar knows a company is only as strong as its employees, so we promote and nurture their development at every turn. One example of this is Mentoring Circles, which pair coaches with employees to further their personal and professional development.
We also offer training programs, including eLearning opportunities and management development courses. Our Star Academy has 10 courses ranging from Skyrocketing Your Career, to Presentation Skills to the Basics of Mortgage Lending.
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.
For us, employee productivity, collaboration, and satisfaction are paramount. So, we operate a hybrid work model that gives employees the flexibility to work how and where they choose, depending on the current needs of the business unit. We find flexibility helps attract top talent and keep current employees happy and motivated.
Things you are most proud of that don’t have to do with sales.
Flagstar’s commitment to diversity, equity, and inclusion isn’t just talk. It runs deep - we walk the talk. Our Employee Resource Groups are a great example. These are employee-led groups that work to advance Flagstar Bank’s commitment to DEI by enabling leadership and networking opportunities, helping employees build successful careers, and promoting community involvement. It’s why Flagstar was named a Noteworthy Company For Diversity the last three years and a 2022 Top Mortgage Employer For Women in Mortgage Women Magazine.
(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
Adding value by training real estate agents
With all the discussions around home prices, interest rates and affordability, everyone trying to find new solutions when in many cases, the variety and availability of existing tools may be the key for many. Or do things involve some clever strategy? I received this note from retired underwriter and risk manager Alicia Gray.
“One cause of home prices being ‘slashed’ is because that is the only tool that Realtors know how to use. That and seller paid closing costs. We all know those are great tools and serve some buyers well, but I got into a conversation with the Realtor with whom I listed a house that I’m selling as an executor of an estate. On the day before the scheduled open house, I told him I wanted him to be aware of all the tools I was open to that he could use to hook a potential buyer: 1) closing cost assistance for someone that could come up with down payment but could use some relief at the closing table, or; 2) $5,000 landscape allowance at closing (backyard missing grass near patio due to large trees and fence on one side near end of economic life and replacement is $2,300), or; 3) up to 3 discount points to help buyer get a reduced interest rate.
“That was where I lost him. A 2/1 buydown, he asked? Not really, I replied, that is another tool and one that is more costly than I want to pay and because it’s just temporary, it doesn’t help the buyer to qualify for more house. I explained that I was talking about discount points that allow the buyer to get a lower permanent rate so they can qualify for more house, the same payment they qualified for 6 months ago. He still didn’t get it. He started talking about reducing the price by $15k (9 days after listing). I explained how that would only reduce the buyer’s down payment by $1500 – $3000 and monthly payment by $15. I showed him the math using points to reduce the rate which could save up to $130/month with a .50% reduction to the interest rate.
“He said he would talk to the loan officers he uses and later sent me a lender’s product flyer for a 2/1 buydown with the comment, ‘This is the product one lender is offering and it would cost about $12k and that the two loan officers he spoke to said that was the only rate discount available.’ I couldn’t stop laughing.
“After I collected myself, I said yeah, that is a different tool and every lender offers that, every one of them, EVERY one. I told him that loan officers know what discount points are because they show up on every lender’s rate sheet every day with a range of rates shown and a cost for every interest rate less than par. Later, after he got his hands on a rate sheet and sent it to me, he asked, ‘Is this what you were talking about?’
“I was finally able to get him to see that 3 points would get the buyer a 5/8 discount and an interest rate of 7.125 instead of 7.75 and $116 difference in monthly payment, but he really didn’t see the significance.
“The moral of this story is that mortgage people need to be helping their real estate agents to understand all the tools available to help get buyers into houses, how each one works and what situation each one is best for. Slashing prices is one tool, but it is the least effective tool because there is limited benefit to the buyer while the seller, agent, and loan officer take less income for the lower sale price.
“Realtors with 25 years or less experience have never been in a rate environment like we are in now and those that don’t learn new tools to get contracts closed will not be able to make a living. For the past 10 years all they had to do was show homes and write up a contract and before that, there was a subprime boom and everyone could close on a deal whether they were really qualified or not, followed by a housing crash where qualified buyers could get into homes cheaply. It’s a new ballgame and the real estate team doesn’t have much depth on its bench right now.” Thank you, Alicia!
Don’t discount the importance of loan level price adjustments
Interest rates go up and down every day and grab the headlines. But lenders and borrowers know that overlays and pricing hits also impact rates. Chris Maloney from BOKF did another bang-up job in researching the recent loan level price adjustment impact.
“Late last week Fannie Mae released a lender letter outlining changes to the loan-level pricing adjustments (LLPA) grid and the waiving of them completely for specific borrowers and affordability products. The necessity to pay LLPA for those getting HomeReady style loans, first-time buyers with income below certain thresholds, and ‘Duty to Serve’ lending programs (such as MH Advantage) will no longer burden such borrowers. Also of interest is the change announced to cash-out refinancing loan LLPAs, in another example of the FHFA’s use of better credit borrowers to ‘cross subsidize’ other peoples’ mortgages.
“Cash-out refinancing is of particular interest as that is the main driver now of refinancing-sourced issuance in aggregate. What effect on issuance and speeds might these changes have? Looking at UMBS 30-year, the total year-to-date gross issuance has been $930.6 billion, of which $227.5 billion is from cash-out refinancing. However, the monthly total of cash-out refinancing origination has fallen off a cliff of late, from $43.6 billion in January to just $7 billion in October.
“If we look at where the LLPA grid changes will have the most effect on cash-out refinancing, they will negatively impact the borrowers with higher credit and higher LTV the most, while benefiting those with lower credit scores and higher LTV the most. For example, all LTV buckets for borrowers below a 620 credit score (you may only take equity out of a home up to 80 LTV) will see a 75 to 100 basis point decline under the new grid, while those with FICO scores between 620 and 659 and LTV between 75 and 80 will see them drop between 50 and 100 basis points. In contrast, those with a credit score above 740 and LTV between 75 and 80 will see their LLPA increase by 100 basis points.
“As things stand now, the issuance of cash-out refinance sourced mortgages for the population of borrowers who will be granted more favorable LLPA under the new matrix is immaterial and shrinking rapidly. Of the $227.5 billion in UMBS 30-year cash-out sourced issuance year-to-date, just $3.3 billion, or about 1.4%, come from that population of borrowers. Last month they barely fogged the mirror, seeing gross issuance of just $80.6 million, or about 1.2% of the total cash-out refinance sourced issuance.
“And that is not about to change. At the moment, for UMBS 30-year borrowers with credit scores under 620, only $14.5 million out of $7.8 billion, or 0.2% of them, have refinance incentive. For those borrowers with FICO scores between 620 and 659 and LTV between 75 and 80, no home owners in that $6.1 billion strong population currently have any incentive, according to data from Bloomberg Collateral Performance Research. So this LLPA change, for the moment, will be unlikely to help or hinder those who are targeted to benefit (or be penalized) by the change, as cash-out refinancing, and refinancing in general, are rapidly shrinking.” Thank you, Chris!
Although things have been somewhat quiet lately, the “deals” done by Freddie Mac, Fannie Mae, and others help determine the rates that borrowers see. These securitizations “test the waters” for demand for mortgages with an implied government backing, especially given how strong F&F’s market share is in residential lending. Let’s play catch up and take a random look at some past Fannie deals to see what investors are interested in.
Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2022-R06, an approximately $754 million note offering that represents Fannie Mae’s sixth CAS REMIC transaction of the year. CAS is Fannie Mae’s benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. The reference pool for CAS Series 2022-R06 consists of approximately 83,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $25.0 billion. The reference pool includes collateral with loan-to-value ratios of 60.01 percent to 80.00 percent, which were acquired between June 2021 and July 2021. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With the completion of this transaction, Fannie Mae will have brought 50 CAS deals to market, issued nearly $57 billion in notes, and transferred a portion of the credit risk to private investors on over $1.8 trillion in single-family mortgage loans, measured at the time of the transaction. To promote transparency and to help credit investors evaluate our securities and the CAS program, Fannie Mae provides ongoing, robust disclosure data, as well as access to news, resources, and analytics through its credit risk transfer webpages.
Fannie Mae began marketing its twenty-sixth sale of reperforming loans as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio. The sale consists of approximately 9,980 loans, having an unpaid principal balance of approximately $1.57 billion, and is available for purchase by qualified bidders. This sale of reperforming loans is being marketed in collaboration with Citigroup Global Markets, Inc. Bids are due on July 7, 2022. Reperforming loans are loans that have been or are currently delinquent but have reperformed for a period of time. Interested bidders can register for ongoing announcements, training, and other information here. Fannie Mae will also post information about specific pools available for purchase on that page.
Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2022-R08, an approximately $626 million note offering that represents Fannie Mae’s eighth CAS REMIC transaction of the year. CAS is Fannie Mae’s benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. The reference pool for CAS Series 2022-R08 consists of approximately 68,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $20.4 billion. With the completion of this transaction, Fannie Mae will have brought 52 CAS deals to market, issued over $58 billion in notes, and transferred a portion of the credit risk to private investors on over $1.9 trillion in single-family mortgage loans, measured at the time of the transaction. To promote transparency and to help credit investors evaluate securities and the CAS program, Fannie Mae provides ongoing, robust disclosure data, as well as access to news, resources, and analytics through its credit risk transfer webpages.
If you get to thinking’ you’re a person of some influence, try ordering’ somebody else’s dog around.
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