Oct. 28: Renting vs. buying economics; FOMC primer; vendor news; servicing is important; Food courts: catch the wave

Congratulations to Taylor Swift, who either does or doesn’t read this Commentary, on becoming a billionaire. At the other end of the economic spectrum, one occupied by free Commentary writers and their felines, word reached me (through her people) that my cat Myrtle was hoping for a remodel to create a Wellness Center for her in the house. It is financially unfortunate: She missed her window in 2020 or 2021, and it’s certainly not happening in the autumn of 2023 as funds have dwindled and cutbacks occurred. (I’m already threatening her with farm-raised, dyed salmon in her bowl rather than line-caught Alaskan.) In more relevant, factual, building trends impacting our biz, unfortunately for loan originators who use the “rent versus buy” financial comparison in their sales technique, renting has become a more economical option over buying in nearly all major markets. Given mortgage rates, it is not hard to guess why.

Food courts?!


The problems in commercial real estate are well known. When I was in Mequon, Wisconsin earlier this week, we went to lunch in a food court. The pandemic resulted in a shift in where we work: people need a place to live, not necessarily a place to work for many jobs. Headlines are filled with tales of impending commercial real estate defaults. Yet… Some of the hottest commercial real estate in suburban areas now are food halls, large complexes of small restaurants with shared seating and a diverse palate of high-end offerings available. The U.S. now has at least 364 of the specialized food halls, and another 120 of them are projected to open by the end of next year, which is 10 times the 35 such food halls that were open 10 years ago. One reason for their growth is that much of the pandemic-era movement of people out of cities and into suburbs meant that large groups of people accustomed to the kind of diverse offerings you can get in big cities found the local Applebee’s lacking, and as more people work from home, too, there’s additional incentive to pop up shop in what used to be bedroom communities.

Servicing: so important to an IMB’s cash flow


When it comes right down to it, the value of an independent mortgage bank is based on the value of its servicing portfolio. (Conversely, cynics will say, the only value of an IMB without servicing is office leases, LOs who can leave at any time, and its reputation.) For those companies who opt to retain their servicing, protecting the value of the servicing is very important. Like commodity prices, or a locked mortgage pipeline, the value of MSRs can be hedged. Here’s a primer with a discussion of what servicing is, why servicing has value, what a servicer or lender is protecting, and the basics of how to hedge its value and quantity.

A primer on the Federal Reserve’s FOMC


This commentary often discusses “the Fed,” and loan officers often talk about the Fed with clients in terms of “Oh, the Fed is going to raise rates, so lock in now!” Does Fed Funds drive the economy, or does the economy drive Fed Funds? It is good to have a basic knowledge of what it is, keeping in mind that the Federal Reserve System is the central bank of the United States. Most countries around the world have their own central banks. Ours performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. We primarily care about, and what garner the most publicity, are when the Fed, “conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy,” and “promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad.”

So, what is “monetary policy? Think of it as actions undertaken by the Fed to influence the availability and cost of money and credit to help promote national economic goals by using three tools: open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee (FOMC) is responsible for open market operations.

Everyone, rightly or wrongly, focuses on the overnight federal funds rate (fed funds). The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions. But the Federal Reserve, using those three tools, influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and thus alters the federal funds rate.

And as the Fed points out, “Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services. And the “dot plot” was created to look at the odds and timing of future rate moves.

The Board of Governors meets regularly, typically every other Monday. But it is the Federal Open Market Committee (FOMC) that has everyone’s attention. The FOMC consists of twelve members: the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

The FOMC holds eight regularly scheduled meetings per year, and the next one is next week. At these meetings, “the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.”

Vendor treats


In the “old days” lenders would do everything themselves and create all the software and systems to do so. But as lending became more complicated, and the regulatory burden and specialized skill sets grew, companies that focused on certain aspects of residential and groups that helped lenders increased in importance. Let’s see who’s doing what around our biz.

MISMO® announced that it has published the Version 3.5 Property and Valuation Services (PaVS) Implementation Guide (iGuide). The Version 3.5 PaVS iGuide: highlights data model changes from Version 3.3 to Version 3.5; includes updated use cases; and concepts cross-reference to VALUATION_RESPONSE 2.6 ERRATA 1. The Property and Valuation Services Community of Practice asserts that this version of the PaVS Version 3.5 iGuide provides the work of PaVS, and documents important legacy details of how MISMO converted the elements from Valuation Response v2.6 Errata 1, as well as new elements for this business sector up through 2018 (the publication of version 3.5).

According to data from STRATMOR’s MortgageCX program, less than one in every five borrowers returns to their original lender for their next loan. The data indicates that borrowers return more at first (24 percent in the first two years) but then just 15 percent are returning by year five. The severity of the drop over time indicates that once two to three years have passed, the lender and loan officer are out-of-sight, out-of-mind. What can lenders do to ensure a greater frequency of repeat borrowers over the long term? In his latest Customer Experience Tip, STRATMOR CX Director Mike Seminari suggests three ways lenders and loan officers alike can create connections with servicing borrowers and increase retention. Check out, “Always Be One Thought Away for Your Borrowers.”

Argyle, a payroll connectivity platform for modern financial services, announced that mortgage lenders using Desktop Underwriter® (DU®) can choose Argyle’s Income & Employment Verification solution to get Day 1 Certainty®, the existing relief from representations and warranties on validated data, through Fannie Mae. Argyle is the first authorized report supplier to offer automated income and employment verification reports based on consumer-permissioned, direct-source data. Argyle’s integration with Fannie Mae’s DU validation service will be live at the end of this month (October 2023). As the first consumer-permissioned income and employment verifications provider to offer an authorized report, Argyle simplifies the lending process, providing accurate and reliable data to mortgage providers at a fraction of the cost.

Westlake Origination Center is turning leads into sales for mortgage companies and creating a buzz among loan officers struggling to find new clients on their own with little success. WOC creates exclusive leads using custom tailored data algorithms and verified fail-proof tactics to identify and engage with targeted clients, ensuring a steady stream of high-potential leads for businesses. Every exclusive live transfer is a potential client that is qualified and truly looking to buy a home in the LO’s specific area! With a combined 30 years in the industry, WOC’s team works closely with clients to ensure leads convert to sales. Seasoned LOs are currently at a 62 percent application rate after the initial call from a generated WOC live transfer. “Our platform is the result of years of research and development and is designed to be flexible and scalable, so it can adapt to the changing needs of our clients,” said EVP Matt Matsuda. “This has proven to be a game-changer for businesses looking to sell and succeed in today’s highly competitive marketplace.” Connect with Justin Clark at Westlake Origination Center to capture your market share.

We’ve got something special for the most innovative minds in real estate, lending, and tech. Read this engaging whitepaper from Realfinity.io that shows how to break into mortgage ancillary services. Are you looking to create a tech-powered, vertically integrated business with real asset value? Our whitepaper outlines how to establish a powerful and flexible business model for your future in real estate and lending. Act now with HomeDashboard, a tool developed by Realfinity that is designed to expand your client database and engagement and bolster your revenue. To dive deeper into these topics, schedule a meeting with Luca, one of our experts at Realfinity.io.

Gallus, the ‘New Kids on the Block’ of the mortgage industry, are revolutionizing Business Intelligence with its cutting-edge solutions. Powered by AWS and Snowflake, Gallus empowers mortgage lenders and servicers to unleash the full potential of their data. But what sets Gallus apart is its user-friendly approach: if you can use Google, you can use Gallus. Watch this quick video to see how effortlessly it works. Moreover, Gallus has just released their highly anticipated second version of the HMDA tool, now equipped with comprehensive 2022 data. Experience the unparalleled power of Gallus by scheduling a call with their Co-founder and CEO, Augie Del Rio. Discover how Gallus can transform your financial results by seamlessly turning data into actionable intelligence.

Saving pennies turns into dollars. For lenders and vendors, staring at an autumn and winter with relatively high rates, saving pennies is critical especially if it means saving jobs and many money-saving ideas are simple and right under your nose.

Mike Metz, with VIP Mortgage, and Faith Howard-Mooney, with The Mortgage Collaborative, recently led a discussion at TMC’s Nashville event on cost saving ideas. For example, are you bundling or cascading credit reports and verification providers? Are you looking at alternatives for courier and shipping vendors? Or, looking at alternatives for tax transcripts? You’d be surprised to hear how much these seemingly small things can add up. (If you want to get involved in conversations like these, contact Faith to learn how you can get involved, or about TMC’s next event in Louisville.)

The conversation continues. Lenders are still seeking ways to reduce costs in the current market environment. Lenders One helps its membership with various benefits, such as free NMLS CE Courses via OnCourse Learning. Consider the math. If you have 100 MLOs needing continuing education at an average $100 per course, you’d spend $10,000 just on CE courses. As a member, your MLOs would take NMLS CE Courses at no cost to your company! Also, with L1 Credit, an approved credit reporting agency with a full suite of credit, flood, fraud, and verification solutions, L1 can offer members pricing that is consistently less than other offerings while still providing industry-leading customer support. L1 Verifications includes the top VOE/I and VOA products in an available waterfall sequence for more savings opportunities. L1 Events? Don’t miss the Executive Roundtable in San Diego, 11/7-8, and registration is open for L1 Summit 2024 in LA, 3/3-6. Visit L1 or contact Tricia Migliazzo to learn more.

(In keeping with the ghost and cemetery theme of the humor this week…)

A lawyer had a wife and 12 children and needed to move as his rental agreement was coming to an end for the home where he lived.

When he said he had 12 children, no one would rent a home to him because they knew that the children would destroy the home.

But lawyers don’t lie.

He could not say that he had no children, he could not lie, after all, lawyers cannot and do Not lie.

So, he had an idea. He sent his wife for a walk to the cemetery with 11 children. He took the remaining one with him to see homes with the real estate agent.

He liked one of the homes and the agent asked, “How many children do you have?”

He answered, “12 children.”

The agent asked, “Where are the others?”

The lawyer answered, with a sad look, “They are in the cemetery with their mother.”

And that’s the way he was able to rent a home for his family without lying.


It is not necessary to lie, one only has to choose the right words.

Lawyers can be creative…and don’t forget: Most politicians are lawyers.

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Rob Chrisman