Oct. 8: Notes on Ginnie’s proposed eligibility rule, the Fed & mortgage rates; U.S debt at $31 trillion; Saturday Spotlight: Equity Resources

Inflation does not appear to be stopping, and there is little the Federal Reserve can do about… foreign events and Mother Nature. We already have a butter shortage driving up prices. In the recent past we had the Ever Given cargo ship, a trivia question for decades. On March 23, 2021, the colossal ship, owned by Japan-based Shoei Kisen Kaisha Ltd., made waves in the news and online when it was trapped in Egypt’s Suez Canal, one of the world’s busiest trade routes, adding more pressure to the already strained supply chain during the pandemic. Skip ahead to today. The water level of the Mississippi is abnormally low owing to a lack of rain in the Midwest and the Plains states, and it’s jeopardizing the most important conduit for agriculture in the country. The river is closed near Stack Island, Mississippi, which has led to a backup of 117 vessels and 2,048 barges. About 92 percent of American agricultural exports come from the Mississippi river basin, traveling on barges. Those barges are massive: Each carries 1,750 tons of dry cargo, enough to fill 70 trucks, and a tow hauling 15 barges can move 900,000 bushels of grain. The low river level is sending prices up to ship, and the timing could not be worse.


Saturday Spotlight: EQUITY RESOURCES


“A Mortgage Company that thinks and acts like a Service Company.”

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)


Equity Resources is a privately (family) owned mortgage banking company that will proudly be celebrating our 30th anniversary in 2023. We are headquartered in central Ohio, and we are currently licensed in 19 states along the east coast and mid-west region. We are an agency direct lender and offer a full suite of loan programs as well as a B2B channel that offers support to credit unions and community banks with our loan programs (including FHA, VA, and Construction Lending.) We continue to add new and relevant lending programs for our loan officers. Equity Resources has enjoyed dramatic growth over the past decade, and we are actively looking for career-minded loan officers to join our award-winning team!

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why

Our Core Purpose is to ‘improve the lives of families’ which flows over into our community in many ways. Equity Resources is committed to giving back and we are huge supporters of Honor Flight, the American Red Cross through our blood drives, and the Humane Society through charitable money and volunteers. Every year we have fun events within the company to collect money for our local Coats for Kids and Toys for Tots drives. All of our team members are encouraged to volunteer with the charities and causes that are most important to them.

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? 

Equity Resources strives to provide a defined career path for our team members. We consistently offer cross-training opportunities as well as internal informational meetings and webinars. We strongly support a team that freely shares ideas for improvement, “What-if’s” and we have launched new programs from these incredible ideas.

Things you are most proud of that don’t have to do with sales

So much time is spent at work, it’s important to love what you do and who you do it with. We’re also a true family company with siblings, spouses, and parents/children working together within the company. All back to school supply lists are fulfilled by the company for employee’s children in K-12. A laptop computer is given to any employee’s child who attends college. Our core purpose to improve the lives of families, which begins with taking care of our team members and their families.


We do holidays right! We believe in hard work, but also in having FUN! Competition is fierce for the Annual Ugly Sweater Contest trophy. At Halloween, every year we give out 800-1,000 Hershey bars (full size!), a ball and a candy to every child at Safe Trick or Treat on the square. The President of our company insists every child must have a ball to play with!

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

Brother, can you spare a dime?


When rates were low, homeowners weren’t the only ones refinancing their debt. Federal and state governments took advantage of lower rates, as did corporations. Lenders are obviously in tune with individual and family debt. On a bigger scale, America’s national debt has topped $31T for the first time, according to the latest figures from the Treasury Department. The record amount of red ink and gloomy fiscal milestone are adding to worries about the economic health of the country, which is grappling with red-hot inflation and a higher interest rate environment. Other factors like an aging population, elevated healthcare and defense costs, and a tax system that doesn’t bring in enough revenue to cover spending are also worrying as the federal government kicks the can down the road.

Seeking Alpha writes, “’So many of the concerns we’ve had about our growing debt path are starting to show themselves as we both grow our debt and grow our rates of interest,’ said Michael Peterson, CEO of the Peterson Foundation, which promotes deficit reduction. ‘Too many people were complacent about our debt path in part because rates were so low.’

“Long gone are the days of austerity conversations, the Tea Party movements or the balanced budget talk that made some political brownie points. Instead, many of the discussions today have shifted to whether the passing of more mega spending bills would be a net positive or negative for the overall economy. In fact, the U.S. has returned to the record debt-to-GDP ratio last seen in the aftermath of World War II, leaving the nation with a debt burden so large that it would need to spend an amount larger than the entire annual economy in order to pay it off (the debt-to-GDP percentage totaled 121% in Q2).

“There’s no magic number or level for when a government’s debt begins to hurt its economy, but conventional thought said that as long as interest rates stayed low, the country could handle a much heavier debt load than was once thought possible (and even use those conditions to remain competitive on the international stage). However, the federal debt cannot grow faster than the economy indefinitely, especially as higher rates make servicing the debt more costly. Both the prior and current White House administrations have contended that trillions were needed to be spent fighting the COVID pandemic and a recession, but only time will if that just postponed the inevitable.”

The Fed’s impact on mortgage securities (MBS)


The question often comes up, “Is there empirical data to show what happens to mortgage-backed securities on the day when the Fed raises the discount rate? My borrowers sometimes ask me about the link, if there is one. My gut says MBS rates go down (or MBS prices go up).”

I turned to a capital markets vet for a quick answer. “When one looks at a chart of the comparison between Fed Funds and the U.S. Treasury 10yr yield, which is the best yield to yield comparison for this purpose, one can see the increase in rates has moved faster than FF from 2016-19, when the market started to smell economic weakening and 10-yr and mortgage rates fell. The same can be seen when looking at a chart that compares overnight Fed Funds to Bank Rate’s 30yr conventional survey.

“Can mortgage pricing increase (rates to borrower fall) the DAY of the FF announcements, yes, but a few days later rates tend to follow the Fed, as in DON’T FIGHT THE FED…. No need to over think this for now… The fed statements have been Hawkish, when that changes, things might start to turn for the better.

“The spread between FF and yields will tighten as we move thru time and the economy slows. I think the best analogy is to chemotherapy, where we need to almost kill the patient to make him stronger, with the patient being the U.S. economy. The Fed wants stocks and real estate to slow and go lower IMHO, as RE does not double in 2 years and end well, so as an industry we need to be prepared for an extended period of weakness. The Fed mandate is INFLATION not our stocks and RE holdings.

“In my opinion the originators with large mortgage servicing rights (MSR) books are in the best position to weather the storm, IMHO, but I’ve always been and MSR “Bug” from my days of hedging it at JP Chase. The big question is how high does FF go, and I’m in the camp that they could get north of 4.5%, but the actual # will depend on CPI/PPI inflation data. If CPI starts to fall, then long term rates could start to fall, before the Fed cuts FF’s, just like in 2019, but I think that’s over a year away, but follow inflation #’s.”

Thoughts on Ginnie Mae’s eligibility rule


R.C. Whalen (“Chris”), Chairman of Whalen Global Advisors LLC, writes, “The residential lending industry is facing a disaster if this GNMA rule goes into effect. If we can’t change this GNMA rule, we’ve got ‘big trouble’ which will impact conventional loans and securities (Freddie and Fannie) too. Investors appear to be already ‘running for the door.’”

“The wild card in the equation is the proposed issuer eligibility rule from Ginnie Mae. The prospect of lower leverage and thus profits for government lenders has drawn a negative response from warehouse lenders, who rightly view the Ginnie Mae action as hurting the credit standing of independent mortgage banks. The prospective rule from Ginnie Mae has also hurt liquidity for government mortgage servicing rights (MSRs), an ominous development as the industry heads into a period of low volumes and consolidation.

“The nightmare scenario now approaching in the government loan market is that FHA loan delinquency rises into the teens and the resultant drop in cash flows from performing loans force servicers to advance cash until they reach the point of insolvency. Without the flow of profits and liquidity from new loans, government seller/servicers are basically consuming capital until the FOMC drops interest rates. And the McCargo Rule at Ginnie Mae may accelerate the outflow of cash from government seller/servicers and so make a systemic event in the government loan market more likely in 2023.

“We expect to see the firms with larger servicing portfolios perform well in this difficult environment, in part because the low prepayment rates and high cash flows from these portfolios will serve as a source of support in 2023 and beyond with volumes less than half of 2020-21 levels. But more important, the government seller servicers with proficiency in buying MSRs and recapturing prepayments will find a ready source of liquidity with the larger banks.

Like the larger independent mortgage banks (IMBs), the traditional providers of warehouse financing such as JPMorgan (JPM) and Flagstar (FBC) are seeing a thinning out of the competition as volumes fall and recent arrivals head for the exits. A number of large regional and foreign banks that jumped into warehouse and MSR lending last year are going to be leaving the sector in short order. And most significant, Wells Fargo (WFC) is exiting 1-4s in terms of correspondent lending and warehouse.

We expect to see many smaller IMBs with smaller servicing portfolios forced to sell and/or close their doors over the next 12-18 months. While some of the larger public companies in our surveillance group have debt yields in the teens and credit default swaps (CDS) spreads above 200bp, the fact is that mortgage companies generally pay double digit rates for equity capital. The application of a couple of turns of leverage to the business of making and servicing 1-4s can be quite lucrative and far lower risk than a bank or broker dealer.

“But more to the point, the IMBs that are likely to survive in the government loan market are going to be those fi rms that understand not only the value of the MSR in terms of periodic cash flow, but the more important optionality of the potential to refi nance loans in the portfolio.

“Unlike investment assets that can move with a phone call, loan servicers that own MSR have the proverbial cake and get to eat it too. They control the asset but also control the optionality of a refi nance event, which can represent several years’ worth of servicing income.”

He wrapped up with, “The firms in the government loan market that will be able to deal with a surge in loan delinquency will be those fi rms that will retain the support of the larger warehouse lender banks, even when running at a net operating loss. The banks will lend not because the IMBs have a certain amount of capital or because of the low credit risk of government assets. The large warehouse banks will lend because they understand that the value of the owned MSR, including the unrecognized value of the refi nance option, is well in excess of fair value assigned to the MSR under GAAP and is thus the most important capital asset owned by an IMB.” Thank you, Chris!

(Thank you to STRATMOR’s Kris van Beever for this one.)

An elderly Florida lady did her shopping, and upon returning to her car, found four males in the act of leaving with her vehicle.

She dropped her shopping bags and drew her handgun, proceeding to scream at the top of her voice, “I have a gun, and I know how to use it! Get out of the car!”

The four men didn’t wait for a second invitation. They got out and ran like mad.

The lady, somewhat shaken, then proceeded to load her shopping bags into the back of the car and get into the driver’s seat. She was so shaken that she could not get her key into the ignition. She tried and tried, and then it dawned on her why. A few minutes later she found her own car parked four or five spaces farther down! She loaded her bags into the car and then drove to the police station.

The sergeant to whom she told the story nearly tore himself in two with laughter. He pointed to the other end of the counter, where four pale men were reporting a carjacking by a mad, elderly woman described as white, less than five feet tall, glasses, curly white hair, about 75, and carrying a large handgun.

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. Secondary Marketing: What They Do All Day” is the current blog. The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2022 Chrisman LLC. All rights reserved. Occasional paid job & product 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