The story of the week for mortgage rates continues to be the substantial drop seen on Tuesday in response to the Consumer Price Index (CPI). But that story is a bit less epic and exciting after today’s Retail Sales data.
Retail Sales was the only other economic report this week that was remotely as important to rates as CPI. Thankfully, it’s not AS important or we might be seeing a bigger bounce today.
As it stands, Retail Sales beat forecasts by 0.2%–a margin that could be considered too large to be inconsequential and too small to be highly significant. For the bond market, it was worth unwinding about half of yesterday’s improvement, but mortgage-specific bonds fared a bit better than US Treasuries.
The average mortgage lender moved up less than an eighth of a percent and remains closer to the bottom of this week’s range.
Between now and the first full week of December, there are no other economic reports or scheduled events with the same potential energy as those seen over the last 2 days. That doesn’t mean rates can’t move higher or lower–only that such movement would not be easy to line up with specific times on specific days.
Gone are the days of the zero-down mortgage. At least for the typical home buyer.
Instead, the 2023 Profile of Home Buyers and Sellers from the National Association of Realtors (NAR) revealed that down payments haven’t been higher in decades.
This, despite the widespread availability of low-down and zero-down home loan options.
As for why, it could be because inventory remains low, which has kept competition lively in spite of much higher mortgage rates.
Another reason might be those high interest rates themselves, which make it less attractive to take out a large loan.
Median Down Payments Highest Since 1997 for First-Time Home Buyers
Per the NAR report, the typical down payment for a first-time home buyer was 8%, which might not sound like a lot.
But it is the highest figure since 1997, when it stood at 9%. If you look at the chart above, you’ll notice it dipped pretty close to zero in those bad years back in 2005-2006.
At that time, creative financing and lax underwriting (aka no underwriting at all) allowed home buyers to purchase a property with nothing down.
While that may have been risky on its own, they could also use stated income to qualify for the loan.
And they could choose a super toxic loan type, such as the now forgotten option ARM, or qualify via an interest-only payment.
That may explain why we experienced the worst mortgage crisis in recent history, followed by the nastiest housing market crash in generations.
So certainly some good news there, with down payments on the rise despite unaffordable conditions.
To that end, home buyers could be opting to put more down to get a more favorable mortgage rate, and/or to avoid mortgage insurance (PMI) and unnecessary pricing adjustments.
Back when mortgage rates were hovering around 3%, it made sense to put down as little as possible and enjoy the low fixed-rate financing for the next 30 years. Not so much today.
Another reason home buyers might be putting more money down is due to competition. While the housing market has certainly cooled this year, there is still a dearth of supply.
This means if and when something decent pops up on the market, there may still be multiple bids.
And those who are able to muster a larger down payment will generally be favored by the seller.
The one worrisome thing was how first-time buyers were securing their down payments recently.
They’ve had to increase “reliance on financial assets this year,” including the sale of stocks or bonds (11%), a 401k or pension (9%), an IRA (2%) or the sale of cryptocurrency (2%).
Always a bit questionable if selling retirement assets to purchase a home.
Typical Down Payment for Repeat Home Buyers Up to 19%
Meanwhile, the typical repeat buyer came in with a 19% down payment, which is the highest number since 2005 when it was 21%.
Down payments for repeat buyers also tanked prior to the early 2000s housing crisis because underwriting was so loose at the time.
There was really no reason to come in with a large down payment at the time given the wide availability of flexible loan products, and the notion that home prices would just keep on rising.
This explains why homeowners at the time also favored negative amortization and interest only home loans.
They all assumed (or were told) that the home would simply appreciate 10% in a year or two and they could refinance over and over again to better terms.
Today, it’s more in line with levels prior to that fast and loose era, and appears to be steadily climbing.
This could also have to do with a large number of all-cash home buyers, such as Boomers who are eschewing the 7% mortgage rates on offer.
But it is somewhat interesting that the median number was 19% and not higher.
After all, a 20% down payment on a home comes with the most perks, like lower mortgage rates and no private mortgage insurance requirement. But I digress.
Note that all the figures from the survey only apply to buyers of primary residences, and do not include investment properties or vacation homes.
How Much Do You Need to Put Down on a Home These Days?
As noted, low and no-down mortgages still exist, though they are typically reserved for select applicants, such as VA loans for veterans and USDA loans for rural home buyers.
However, you can still get a 3% down mortgage via Fannie Mae or Freddie Mac, which virtually every lender offers.
There are also FHA loans, which require a slightly higher 3.5% down payment, but lower credit score requirements.
On top of this, there are countless homebuyer assistance programs, including silent second mortgages that can cover the down payment and closing costs.
In other words, there is no shortage of affordable loan options today.
But there is an advantage to putting more down, such as eliminating the need for mortgage insurance and having a smaller outstanding loan balance.
With mortgage rates so high at the moment, the less you finance the better.
This could also make it easier to apply for a rate and term refinance if and when rates do fall, thanks to a lower LTV ratio.
Regardless, it’s good to see down payments rising as home prices become more expensive.
This contrasts the bubble years back in 2004-2006 when homeowners put less and less down as property values increased. It didn’t turn out well.
You’ve heard it before, especially if you regularly read or listen to The Best Interest:
Stocks are volatile in the short run and rewarding in the long run
Bonds are less volatile (good) but less rewarding (bad)
It’s a perfect example of investing’s golden relationship between risk and reward.
The two charts we’ll look at today wonderfully present stock and bond behavior. First, let’s baseline ourselves in bonds.
The chart below shows bond data (the Bloomberg U.S. Aggregate bond index) from 1976 through 2022. The gray bars show full calendar year returns in the bond index. The red dots, however, show the largest intra-year decline (“peak to trough”) each year. For example, let’s look at 1997. The bond index finished the year up 10%. But the index was down 2% from its previous high at one point during the year.
Most years have had single-digit returns – the average is +6.6%. And the average intra-year decline has been (-3.4%). 2022 is quite the outlier.
For what it’s worth, this data set syncs up pretty closely with the last ~40 years of declining interest rates (see below). Asrates fall,the values of existing bonds increase. When rates rise, the values of existing bonds decrease (see 2022). Multiple decades of steady interest rate declines (e.g. 1980 to 2021) lead to multiple decades of positive bond returns. The future might not be so steady.
Stock data looks much choppier than bond data. The chart below again shows annual returns (in gray bars) against intra-year draw downs (red dots), but this time for the S&P 500 stock index.
The average annual return is +8.6%. But the average intra-year decline is (-14.3%)!
**Important note – JP Morgan does not include dividends in this chart, which I think is a mistake. Including those dividends, the average annual return is more like ~11% during this period, while the intra-year decline would remain the same.
A year like 2003 serves as a perfect example. Down (-14%) at one point during the year. That feels pretty bad. Yet, at year-end, the S&P was up +26%. Amazing!
Stocks provided significantly better returns than bonds over this period. In total, stocks returned ~6500% (65x), whereas bonds returned ~2000% (20x). A triple-up win for stocks.
But at what cost? Stocks saw an average of (-14.3%) annual drawdowns. That’s roughly the same as bonds’ worst year (-15%).
And stocks had 5 unique annual drawdowns of 30% or more. To put that in dollar terms, 30% of a $500K stock allocation is $150,000. Imagine, once per decade, watching $500K become $350K?!
Granted, investors would be utterly unharmed if they followed conventional wisdom and stayed the course. But that’s much harder done than said. As we’ve discussed countless times, it’s one thing to say, “Stay the course when you’re down $150,000”…and it’s another thing to actually do it.
Our brains hate hanging on for dear life, so we’re tempted to cut bait and “sell to survive.” Literally. Selling our wounded stock position so our mental health can survive. It’s logical human behavior. And terrible investor behavior.
So like a broken record player, we revolve back around to topics like diversification, goals-based investing, etc. Today’s data show why most investors should own stocks and bonds(and possibly other uncorrelated assets). Some assets to grow (even if volatile), and other assets to provide stable near-term spending.
That brings us to the final chart: the same presentation as before, but now for a 60% stock, 40% bond portfolio (through 2022). And, in this chart, JP Morgan does assume dividends in the stock portion of the portfolio.
This 60/40 data shows an average annual return of +9.9%, and an average drawdown of (-7.7%). Solid returns and not too much pain along the way. Maybe there’s something to this diversification after all?
I hope your drawdowns are small, swift, and occur only when you’re not paying attention. But don’t bet your portfolio on it!
Thank you for reading! If you enjoyed this article, join 7000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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It was a great run for mortgage rates over the last 2 weeks with a sharp decline last week followed by very respectable ground-holding in the present week.
But things got less respectable today. Bonds (which underlie day to day rate momentum) began the day in only moderately weaker territory before tanking hard in the afternoon. Said tankage was the result of an appallingly weak 30yr Treasury auction.
We discussed Treasury auction implications a bit yesterday, but the gist is that a bad Treasury auction is bad for rates. It’s that simple and today’s Treasury auction was very bad. There’s nothing too dramatic underlying the bad showing. If anything, it’s just confirmation that rates have managed to come a long way (lower) very quickly and that it’s time for them to cool off and consolidate before the next move.
Anything can happen on any given day, but the “next move” stands the best chance of getting some guidance after next week’s Consumer Price Index (CPI) on Tuesday morning. This is a key inflation report that has been responsible for some of the biggest moves we’ve seen in rates in the past 2 years.
As for today, the average mortgage lender was only moderately higher in the morning, but most lenders made mid-day adjustments that left them sharply higher compared to yesterday afternoon.
This is a sponsored partnership with The Entrust Group. Having more options for your retirement savings is always nice. And that’s where self-directed IRAs (SDIRAs) come in. These tax-advantaged accounts allow you to invest in real estate, small businesses, private equity, gold, oil, and more. An SDIRA differs significantly from an IRA or a 401k…
This is a sponsored partnership with The Entrust Group.
Having more options for your retirement savings is always nice.
And that’s where self-directed IRAs (SDIRAs) come in. These tax-advantaged accounts allow you to invest in real estate, small businesses, private equity, gold, oil, and more. An SDIRA differs significantly from an IRA or a 401k from a brokerage, where your options are limited to traditional assets like stocks, bonds, and mutual funds.
SDIRAs do give you more choices, but there is more work needed from you as they are a tad more complicated.
Key Takeaways
Self-directed IRAs can diversify your portfolio with different kinds of alternative assets.
SDIRAs can be set up as traditional or Roth IRAs.
There are cons to having an SDIRA, such as possible scams and the need for increased due diligence on the part of the account holder.
What is a Self-Directed IRA? – Complete Guide
So, what is a self-directed IRA?
A self-directed IRA (SDIRA) is simply an IRA in the eyes of the IRS.
But there is a big difference.
The most significant change with using an SDIRA is that you can invest in assets that are different from a standard retirement account (such as real estate, gold, bitcoin, and more – otherwise known as “alternative assets”), AND you can still use the same tax benefits as any other IRA.
Every investment and transaction is made on your request – not at the discretion of a financial institution.
Why have I never heard of a self-directed IRA?
Okay, so until recently, I had yet to hear of a self-directed IRA. You may not have either.
This is because SDIRAs are less common than the typical IRA you might already have. There are many different options for building your retirement portfolio out there, and this one requires more work on your end, so it’s less commonly used.
But, SDIRAs do have a wide range of potential. They are helpful for investors who want to diversify their retirement portfolio with assets beyond the usual stocks and bonds. In particular, they are an excellent option for investors with expertise in a specific area, like real estate or startups. They allow investors to use their existing retirement funds to invest in these types of assets to better take advantage of their own experiences.
How is a self-directed IRA different from a regular IRA?
The main difference between a self-directed IRA and one that is not self-directed is the different investment options available. SDIRAs can invest in alternative assets such as real estate, private businesses, precious metals, etc. However, standard IRAs are limited to stocks, bonds, and mutual funds.
If you’re looking to diversify your assets, then this may be a retirement account that could be great for you.
Types of self-directed IRAs
With SDIRAs, you can still receive the same tax benefits as an IRA holding publicly traded assets.
There are two main categories of self-directed accounts: traditional and Roth. Both have tax advantages, but they differ in how your contributions and withdrawals are taxed.
Traditional self-directed IRA – Your contributions are made with pre-tax dollars, which could lower your taxable income. There are also no income limits on contributions. When withdrawing the funds at retirement, you pay taxes on the distributions.
Roth self-directed IRA – Your contributions are made with after-tax dollars, so they don’t reduce your taxable income. All qualified withdrawals at retirement will be tax-free, including any gains your investments have made.
It’s essential to evaluate your financial situation and goals when choosing the type of SDIRA that’s best for you. There are also income and contribution limits to remember, mainly as these are updated annually.
How does a self-directed IRA work?
To invest with a self-directed IRA, you’ll have to open an account with a financial institution offering SDIRAs, often called a custodian, administrator, or recordkeeper.
After that, you can transfer or rollover money from an existing IRA or 401(k) into your SDIRA and look for an asset to invest in. You’ll be in charge of all asset decisions (this means that it’s your job to do as much research as you can), as well as ongoing account management.
It’s crucial to remember: per IRS rules, the custodian you choose does not help you to make investment choices. There are also other rules and regulations you must follow (you can read more about this at Self-Directed IRA Rules), such as avoiding prohibited transactions and staying within the annual contribution limits.
What Can You Invest In With A Self-Directed IRA?
A self-directed IRA lets you invest in various assets compared to regular IRAs.
Common investment choices
With a self-directed IRA, you can invest in assets such as:
Real estate – This could be rental properties, hotels, parking garages, or even empty land.
Precious metals – You can invest in physical gold, silver, platinum, and palladium.
Private equity – This includes investing in private companies not listed on public stock exchanges, including small businesses and start-ups.
Cryptocurrencies – Some self-directed IRAs allow investing in digital currencies like Bitcoin and Ethereum.
Commodities – You can invest in oil, gas, sustainable energy, and more.
Prohibited investments in self-directed IRAs
While there are many new things that you can invest in with an SDIRA that you may not normally do, there are some that are not allowed. Here are some examples of investments that are not allowed:
Collectibles – You cannot invest in antiques, artwork, and stamps.
Life insurance
S Corporations
Explore over 90 alternative assets you can invest in with a self-directed IRA (and learn more about the ones you can’t) here!
Understanding a Self-Directed IRA (SDIRA)
Here are some essential things to think about when it comes to self-directed IRAs:
Due diligence
Due diligence means doing careful research and checking everything thoroughly before making an important decision. Since you are responsible for all the investment choices, you’ll want to do your homework beforehand to make sure you know all the facts and risks involved.
Legalities and regulations
You should be aware of the legalities and regulations surrounding SDIRAs. As mentioned before, certain transactions, such as investing in life insurance or collectibles, may be prohibited. There are also separate IRS deadlines for some types of assets.
In addition to the prohibited transactions listed above, it’s also essential to remember that the IRS has strict regulations concerning who can materially benefit from or transact with the SDIRA – known as “disqualified persons.” These are people like your spouse and children. For example, if you purchase a rental property, you (and your family) cannot use it for a family vacation.
Fees and expenses
SDIRAs have fees for recordkeeping and making transactions. Knowing the costs can impact how much money you make from your investments and may change your decisions.
Contribution limits and rules
Like IRAs from a bank or brokerage, SDIRAs have annual contribution limits. Be mindful of the limitations and make sure that your contributions follow the rules set by the IRS.
Withdrawal rules and penalties
You should be aware of the self-directed IRA withdrawal rules and penalties. Early withdrawals made before the age of 59.5 years may be subject to a 10% penalty and additional taxes. Additionally, if the funds are tax-deferred, you must also pay income taxes on the distributed amount.
Pros and cons of a self-directed IRA
Advantages of self-directed IRA:
Diversification – You can invest in real estate, private equity, precious metals, and other alternative assets.
Tax benefits – SDIRAs have the same tax advantages as regular IRAs. You can enjoy tax benefits based on the type of IRA (traditional or Roth) you choose.
Potential for higher returns – With a self-directed IRA, you can go after investments that might earn you more money than the usual choices. This could mean your retirement savings grow faster in the long run.
Disadvantages of self-directed IRA:
Can be more complex – Managing an SDIRA can be a more complicated process due to having more responsibility in choosing suitable investments and having to do more research. There is also less transparency surrounding alternative assets than those traded on the public market.
Higher risk – There may be higher risks, such as illiquidity, lack of regulatory oversight, and market volatility. There are also more scams in the SDIRA world because the investments differ and don’t have as much oversight.
Fees and expenses – SDIRAs often have higher fees, such as custodial, transaction, and recordkeeping fees.
How to Open a Self-Directed IRA
Setting up a self-directed IRA requires a bit more work than opening one through a bank or brokerage.
Here are some steps:
Find an SDIRA provider. Often referred to as an administrator or custodian, this entity is a financial institution that handles alternative investments and fulfills IRS-mandated recordkeeping requirements associated with your self-directed IRA.
Ensure they can hold the asset you want to invest in. For example, not all SDIRA custodians allow single-member LLCs or cryptocurrencies.
Choose between a traditional or Roth SDIRA
Create your account and pay your account establishment fee
Fund your SDIRA via a transfer, rollover, or contribution
Note: Having an experienced financial advisor can be super helpful in handling your SDIRA, as they can give you expert advice on what you should do.
The Entrust Group Review
Want to open a self-directed IRA? A popular administrator option is The Entrust Group, which has been in the business for over 40 years, with over 45,000 investors and $4 billion in assets under custody.
Opening an account with The Entrust Group makes the process easy, and you can choose your funding type, including rolling over an old 401(k), transferring an existing IRA, or making a new contribution.
Keep in mind that there are increased fees associated with an SDIRA. But, The Entrust Group is open about their fee structure, which you can find on their website here. Some of their fees include:
Account establishment fee – This one-time fee covers the cost of opening an account.
Annual recordkeeping fee – This is the fee that covers IRS reporting, recordkeeping, and admin.
Purchase and sale of asset fees – This one-time fee covers the paperwork required to execute the purchase or sale of an asset.
Transaction fees – These fees are charged for transactions.
The Entrust Group has a quick calculator that you can play around with to see what your fees are. I spent some time with it to better understand the different fees; for example, if I have one asset valued at $45,000, my one-time setup fee would be around $50, and my recordkeeping fee would be $199. If I have two assets with a total value of $100,000, then my set up fee is $50, plus the recordkeeping fees of $374. However, any undirected cash in your account isn’t subject to recordkeeping fees; so you won’t be subject to these when you’re between investments.
In summary, The Entrust Group is a reputable and experienced provider of self-directed IRA services, giving you the power to invest in many different alternative assets. If you want to diversify your investment portfolio simply, The Entrust Group may be a choice for your self-directed IRA.
Download their free Self-Directed IRAs: The Basics Guide to learn how you can take control of your financial future with an SDIRA with The Entrust Group.
Frequently Asked Questions About Self-Directed IRAs
Below are answers to common questions about self-directed IRAs.
What are the risks of a self-directed IRA?
Some risks of self-directed IRAs include the potential for fraud, and higher fees, and it may be a little more challenging to manage your alternative investments because there are more rules. And you are entirely in control of your account – so it requires more of a time investment. Also, self-directed IRAs require a custodian, and fees for these services can be higher than with a regular IRA.
Do you pay taxes on a self-directed IRA?
Yes, you do pay taxes on a self-directed IRA, but as with a regular IRA, the matter of “when” depends on what type of account you have. With a self-directed traditional IRA, your contributions may be tax-deferred, and you will pay taxes on withdrawals during retirement. Comparatively, a self-directed Roth IRA holder contributes after-tax dollars and can make tax-free qualified withdrawals.
Is a self-directed IRA better than a 401k?
It depends on your financial goals and investment preferences. A self-directed IRA can give you more control over your investments, while a 401(k) has limited investment options but may include employer-matching contributions.
How do self-directed IRA fees work?
Self-directed IRAs typically have higher fees than traditional IRAs due to the increased administrative costs associated with alternative assets. Some of the fees you may come across with SDIRAs include set-up fees, annual maintenance fees, and transaction fees.
Can I invest in real estate with a Self-Directed Roth IRA?
Yes, you can invest in real estate with a Self-Directed Roth IRA. You can also learn more about this at Self Directed IRA for Real Estate: Benefits, Risks, & Next Steps.
Are Self-Directed IRAs a Good Idea? – Summary
I hope you enjoyed this self-directed IRA guide.
While it is great that you have more options in what you can invest in, SDIRAs do require a little more work on your end.
But, if you’re looking to invest in different kinds of assets than just stocks and bonds, then SDIRAs are worth considering.
Are you interested in opening a self-directed IRA? Visit The Entrust Group to schedule a consultation with one of their experienced IRA experts.
After last Friday’s jobs report, there wasn’t anything on the event calendar that demanded obvious attention until next week’s CPI. The Treasury auction cycle was the thing that traders/analysts talked about because that’s the only thing that was remotely worth talking about. To be fair, there was obviously a pop after the 30yr auction, but it was a stunningly bad auction. Moreover, it was traded back out by the next morning (today). Bonds drifted sideways to slightly weaker on Friday for no particular reason and we’re not interested in trying to fabricate any reasons in light of the entire week’s trading range remaining inside a single day’s trading range from last Friday.
Consumer Sentiment
60.4 vs 63.7 f’cast, 63.8 prev
1yr inflation expectations
4.4 vs 4.2 prev
5yr inflation expectations
3.2 vs 3.0 prev
10:52 AM
Slightly stronger overnight but giving up some gains early. 10yr still down 3.4bps at 4.598. MBS up 2 ticks (0.06).
12:01 PM
Weaker into the PM hours. MBS down 1 tick (0.03) on the day and a quarter point from highs. 10yr down 2 bps at 4.612
01:22 PM
New lows for MBS, but distorted by illiquidity. 6.0 coupons showing more than a quarter point of losses, but probably less than an eighth after factoring out the wide bid/ask. 10yr up to unchanged levels on the day at 4.63.
04:16 PM
MBS bounced back from illiquidity, heading out with 6.0s down only 2 ticks (.06). 10yr yields have been boring by comparison: down 3.5bps currently at 4.736.
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Lender Credit, HELOC, PPE, AI Tools; Wholesale and Correspondent News; Millennial Refi Interview
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Lender Credit, HELOC, PPE, AI Tools; Wholesale and Correspondent News; Millennial Refi Interview
By: Rob Chrisman
Fri, Nov 10 2023, 11:47 AM
My cat Myrtle is enthralled with Artificial Intelligence (AI). Okay, I made that up. She’s only interested to the extent that it impacts the supply of Icelandic Sea Trout into her bowl. AI is a hot topic these days, and in fact today’s Mortgage Collaborative’s “Rundown” at noon PT, 3PM ET, features David Karandish, the CEO of Capacity, discussing that and other trends in mortgage tech. A trend continuing to rifle through the ranks is mergers and/or acquisitions as a handful of well-known residential lending companies crisscross the country in search of small institutions that fit their business models and are ready for a change. Sometimes discretion is the better part of valor in terms of staying in business: Unfortunately, yet another trend is a lack of profitability, especially among small and mid-sized lenders who have gone through their 2020/2021 savings and sold their servicing. Lastly, volume trends aren’t good either: According to Curinos, October 2023 funded mortgage volume decreased 19 percent YoY and 5 percent MoM. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. We drill into this data further here.) Today’s podcast can be found here, and this week is sponsored by nCino makers of the nCino Mortgage Suite. With three products tailored to the needs of the modern mortgage lender, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics unite the people, systems, and stages of the mortgage process. Hear an interview with Millennial homebuyer Megan Sinclair on her lender choices behind her third time financing a residence.
Lender and Broker Software, Products, and Services
They’re back! Foreclosures are fast approaching their previous levels. Today’s market has changed significantly and doesn’t favor struggling homeowners. With trending interest rates well above those experienced over the past several years, relief for borrowers facing default will be significantly strained. Before thinking foreclosures are not an immediate concern, read Clarifire’s recent blog, “Foreclosures are Back!” to understand what’s happening, why this environment is different, and what servicers can do to stave off disruption. It’s time to experience the capabilities needed to manage borrower impact and your cost to service with CLARIFIRE®, truly BRIGHTER AUTOMATION®, delivering a better approach, better results, and better software, today!
Are you ready to take your lending operations to the next level? Join the live event on November 16th @ 2pm EST where we unravel the secrets to optimizing your processes, systems, and resources to achieve unparalleled productivity and cost-effectiveness. You’ll even learn how to save up 80 percent on several of your operations costs through specific automation and optimization strategies. Join industry leaders Taylor Stork, CMB of Developer’s Mortgage, Josh Friend, CEO of Insellerate, and Kirill Klokov, CEO of TRUV. They are ready to share proven strategies to ensure your operations and borrower interactions are optimized for success. Join now!
What’s better than the holidays? Never answering the same question twice. Give yourself (and your team) the gift of Capacity, so in 2024 you can spend less time struggling through the origination process and more time closing loans. Support internal teams, current borrowers, and prospects with secure integrations to over 150 systems, including Encompass and Total Expert. Capacity is designed to streamline lending as your personal assistant. On your behalf, it can read GSE guidelines, retrieve loan information, and assist current and prospective borrowers. Turn a costly, repetitive process into an affordable, scalable one. All you have to do? Ask Capacity. Don’t know where to start? Whether you’re an AI newbie or ready to join the mortgage AI revolution, we’re here to help. Reach out today to ask us about our AI Assessments, or book a demo.
In this market, hustle is everything. You can’t afford to waste a single deal, or a single minute. That’s why ReadyPrice has launched Shop, Lock, Deliver, an innovative platform designed to help independent mortgage brokers and their lenders save time and money. Now you can shop competitive loan offerings from multiple lenders, get rate lock guarantees in real time, receive underwriting findings, and deliver the borrower’s complete loan file to lenders, all on a single platform, at no cost to brokers. It’s already helping brokers around the country thrive and compete in the toughest market. Multiple lenders. One platform. Zero b.s. Come check us out today.
TPO Products for Brokers and Correspondents
Loan officers! You’ve likely heard that The Loan Store pays a whopping 200 bps per HELOC…but do you know HOW to sell a HELOC? You’re in luck: TLS is hosting the second of its 7-part HELOC Mastermind Series next week. This series features Loan Officers sharing their tips/experiences on how they’re using HELOCs to stay in front of clients and generate additional income. Next live event is Thursday, Nov. 16 at 1 p.m. EST. Register here to attend!
Do you need new affordable mortgage solutions in the communities you serve? Rocket Pro TPO’s Purchase Plus program offers first-time homebuyers in many low-income communities $5,250 in lender credits to use toward down payments and closing costs. The program is available in six metro areas: Atlanta, Baltimore, Chicago, Detroit, Memphis, and Philadelphia. Additionally, the introduction of ONE+ by Rocket Mortgage provides an incredible opportunity for Rocket Pro TPO partners and real estate professionals. With this product, eligible clients provide 1 percent toward the down payment and the other 2 percent down payment requirement is covered… Plus clients are not responsible for paying the mortgage insurance! Interested in learning more about a Broker or Non-Delegated Correspondent partnership? Contact Rocket Pro TPO to learn more.
Wholesaler and Correspondent News
As a quick aside, in news for any originator, Down Payment Resource is highlighting 61 down payment assistance (DPA) programs offering up to $120,000 in funds for Veterans and service members. In addition to these programs, Veterans and service members are also eligible for the other 2,256 DPA programs available nationwide.
Overall, the big are getting bigger, often at the expense of smaller companies. Inside Mortgage Finance reports that the top 25 mortgage producers in the second quarter generated $231.95 billion, a 33.2 percent sequential increase. In the second quarter “United Wholesale Mortgage reclaimed the top ranking, which it had lost by a narrow margin to PennyMac in the first quarter, with $31.85 billion in second-quarter production.” In terms of purchase biz, AmeriHome Mortgage and Guaranteed Rate were both up more than 50 percent from the first quarter. Chase nearly doubled its purchase-loan originations after assimilating First Republic Bank into its operations.
Reports show that Cenlar FSB, and Dovenmuehle ruled the roost in terms of subservicing, with $860 billion and $508 billion, respectively.
United Wholesale Mortgage came out with its third quarter results: Revenue of $677.1 million, with originations of $29.72 billion. (The 4th quarter production estimates run from $19-26 billion, which would put 2023 production at $103 to $110 billion range.)
Nations Direct Mortgage has just lowered its NonQM 2nd underwriting fee from $1499 to $995! In addition, Nations Direct Mortgage is pleased to announce their Veterans Special for the month of November! Honoring those who served with a $500 credit at closing on all VA loans submitted in November.
With Amendment No. 7 to DR-4724, issued on 10/13/2023, FEMA provided an Incident Period End Date of 9/30/2023, for a Hawaii county affected by wildfires and high winds from 8/8/2023 to 9/30/2023. See AmeriHome Mortgage announcement 20231006-CL for inspection requirements.
As part of its commitment to maintain the highest quality and security of its client’s data, Pennymac will begin to use Multi-Factor Authentication (MFA) technology to log into the P3 portal. In the coming days, all P3 users will receive an email to complete the pre-registration process. View the Pennymac Announcement 23-71 to review.
United Wholesale Mortgage, (UWM) announced eligibility expansion for its Investor Flex DSCR loan program by allowing borrowers to close in a Limited Liability Company (LLC). “This enhancement allows borrowers looking to expand their real estate portfolios an additional option to separate their personal properties and their investment properties while benefiting from the faster, cheaper, and easier experience of the wholesale channel. Investor Flex allows borrowers to qualify for investment properties based on perspective monthly rental income of the subject property rather than their current income. Investor Flex was later expanded in July 2023 with four additional DSCR loan options. Additional details on the Investor Flex program can be found here.”
Angel Oak Mortgage Solutions shared an innovative solution that could change the way you help your clients achieve homeownership dreams. Angel Oak non-QM Bank Statement Mortgage, tailored specifically for self-employed individuals and business owners, is now accepting Profit and Loss (P&L) statements as a valid form of income verification.
Capital Markets
Why do markets still seem to underestimate the Fed’s resolve? U.S. Federal Reserve Chair Jerome Powell said yesterday in prepared remarks that the central bank will continue to move carefully but won’t hesitate to tighten policy further to finish off inflation. Fed Governor Bowman said that she would support another rate hike in the event of stalling progress on inflation, and Atlanta Fed President Bostic said that the road to 2 percent will still include some “bumps along the way.” Conversely, Richmond Fed President Barkin said that in aggregate, we are still not seeing the full effects of policy.
Even with policymakers trying to cool expectations for rate cuts as the market underestimates their resolve on inflation, Fed funds futures are currently pricing in a less than 10 percent chance of a rate hike in December, and nearly a 20 percent chance of a rate cut at the March meeting. And that is with bond markets seemingly in a “sell any rally” position. Before Fed Chair Powell expressed doubts that policy rates were “sufficiently restrictive,” Treasury yields spiked after an auction of $24 billion in 30-year bonds met much weaker demand than sales of 3-year and 10-year notes over the past two days
On the housing front, NAR reported that single-family existing-home sales prices rose in 82 percent of measured metro areas (182 of 221 areas across the nation) in the third quarter, up from 58 percent in the previous quarter. The national median single-family existing-home price grew 2.2 percent from one year ago to $406,900, while the monthly mortgage payment on a typical, existing single-family home with a 20 percent down payment was up 19.2 percent from a year ago to $2,192. Twenty-five markets, or 11 percent of all markets, experienced double-digit annual price appreciation (up from 5 percent in the prior quarter).
Today’s economic calendar begins later this morning with preliminary November Michigan sentiment where inflation expectations will be closely scrutinized. Two Fed speakers are currently scheduled: Dallas President Logan and Atlanta President Bostic. We begin Friday with Agency MBS prices worse a few ticks (32nds) from Thursday’s close and the 10-year yielding 4.64 after closing yesterday at 4.63 percent.
Employment, Companies Wanted, and Transitions
Kind Lending is seeking a candidate for the position of Director of Non-QM. As Director, you will be responsible for spearheading the growth of our non-QM division. The ideal candidate will have a deep understanding of non-QM lending, and a proven track record of success in the industry. In this role, you will be responsible for program pricing for multiple channels, loan sales, trading, and hedging, overseeing analytics and pricing engines, as well as margin management and reporting for non-QM production. “At Kind Lending, we pride ourselves on providing our partners and customers with the best possible mortgage lending experience. As the Director of Non-QM, you will play a key role in achieving this goal. If you are a motivated and experienced professional looking for a new opportunity, we encourage you to apply today: Click here to learn more about this opportunity!
“Independent Mortgage Banker owners: If you are uncertain how you will survive this winter if rates remain higher, please call me direct to discuss a win-win opportunity. Equity Resources, Inc. is an established mortgage banking company that has been successfully in business for 30 years. We are privately owned and continue to look at growth opportunities. We offer a full marketing team and a media production team to provide best-in-class support to our loan officers and partners. Our history and culture are exceptionally important so let’s have a conversation to see if we may be a fit. We are large enough to offer exceptionally sharp pricing and products, yet we have a boutique feel where you may talk to the owner of the company at any time. We have a successful history of incorporating other companies into our model. Please contact Tom Piecenski, EVP of Sales.”
Mortgage Machine Services, an industry leader in digital origination technology to residential mortgage lenders, announced that Crystal Stanton will manage customer success and onboarding. “Crystal will onboard new Mortgage Machine customers, leveraging a success-centric approach with a commitment to white glove service to ensure a smooth experience and productive outcome.”
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While it’s possible to accuse mortgage rates of experiencing volatility over the past few days, this week was exceptionally calm compared to last week. So “everything’s relative,” and relatively speaking, that’s a win.
Here’s a snapshot of the action as told by 10yr Treasury yields, which tend to be moving in the same direction as mortgage rates:
As the chart points out, Thursday’s 30yr bond auction brought this week’s only instance of excess volatility. This refers to The Treasury Department’s regularly scheduled auctions of US debt–some of the only interesting items on this week’s event calendar as far as rates were concerned.
In general, Treasuries are the tour guides for the bonds that drive mortgage rates (MBS or mortgage-backed securities). They tend to hang out closer to the tour bus while MBS go off in search of adventure, but everyone is generally moving to the same places at the same time.
In other words, a big, volatile jump in Treasury yields often suggests the same for mortgage rates. Fortunately, this particular jump wasn’t that big, and the 30yr Treasury bond is less correlated with mortgage rates than 5 or 10yr Treasuries. The result was only a modest increase in rates on Thursday and not one that erased too much of the recent improvements.
Of course we should remember that everything’s relative…
The chart above is not intended to rain on any parades, but merely to put them in context. It shows 3 previous instances of rates appearing to top out and push back against long term highs only to be persistently dragged higher. All that to say: it’s promising to see rates mostly holding last week’s improvement, but as far as long journeys go, it’s best viewed a solid first few steps.
In order to continue the journey, the bond market (which dictates rates) will need to see the same things it’s been wanting to see: lower inflation, softer economic data, and for the Federal Reserve to be seeing the same things. This week was very light with respect to data–especially inflation data–but there was an anecdotal mixed bag on Friday in the form of the Consumer Sentiment Survey.
Consumers were more downbeat overall with the sentiment index falling to 60.4 from 63.8 previously. This is LOW territory–not as low as we’ve seen recently, but nonetheless in line with some of the worse levels in more than 10 years.
In and of itself, low sentiment would be good for rates because downbeat economic data tends to suggest slower growth and lower inflation. But if inflation expectations are contributing to the pessimism, it cancels out the good news for rates. Incidentally, the same survey has an “inflation expectations” component for both 1yr and 5yr time frames. The 5yr is fairly boring, but here’s the 1yr:
Consumers aren’t crystal balls, but the Fed does consider consumer inflation expectations in its assessment of inflation. Fortunately, this isn’t the only place they look for that data and Fed Chair Powell has recently mentioned that other indicators of inflation expectations are showing much more promise. Beyond that, this data series tends to be overly-correlated with fuel prices (although there is an odd and notable divergence from that trend at the moment):
Ultimately, consumer inflation expectations are a sideshow compared to the top tier inflation data. The Consumer Price Index (CPI), for example, has proven capable of rocking the rate market more than almost any other economic report apart from the jobs report. And we won’t have to wait long for the next installment (this upcoming Tuesday).
The Fed has been clear and we should take them at their word that rates could be done moving higher if inflation and growth continue to cool, but that rates could easily move right back up if the data surprises to the upside.
Redwood Trust and home equity fintech lender Point have closed on a $139 million bond secured by 1,577 home equity investment (HEI) contracts.
The two companies issued the first-ever securitization backed entirely by HEIs in 2021, a bet that rising home-price appreciation can benefit consumers in the short-term and investors in the long-term.
Point closed on its first bond issuance rated by DBRS Morningstar on Oct. 31. One $117 million tranche of the bonds has a single-A rating while the other at $22 million has a triple-B-minus rating.
“The financing of HEIs through the development of a liquid and efficient market for rated HEI bond issuance will prove to be a pivotal moment in housing finance, one that will bolster both homeownership and overall financial health in this country,” Eddie Lim, co-founder and CEO of Point, said in a statement.
Meanwhile, Eoin Matthews, co-founder of Point, told The Wall Street Journal that the firm expects to complete several bond deals per year.
In October, Unlock Technologies, another home-equity investment firm, and Saluda Grade, a private real estate investment firm, completed the first-ever securitization rated by DBRS Morningstar.
The rating agency, which was the first to provide a rating for the asset class, published a new methodology for HEIs in July 2023. Unison, another HEI firm, is working on its first deal, too, The Wall Street Journal reported.
The rating of those securities is supposed to attract new pools of capital to the HEI asset class, such as insurance companies and money managers who are restricted to investing in rated investment-grade securities.
Redwood sees this securitization as a major milestone to provide more liquidity to the space, allowing HEI companies to assist more homebuyers. While Americans sit on approximately $32 trillion in home equity, only 50% of homeowners can tap into that wealth.
Nomura Securities International Inc. was the sole-structuring agent for the issuance.
Bonds surged lower in yield last week on a combination of economic data, Fed comments, and the Treasury issuance update. While the move definitely drew some strength from the deeply oversold bigger-picture momentum, it was nonetheless more than merely a token correction. But is it “much more?” We can’t really answer that question for a few more weeks, but we can begin to answer it by seeing how this week’s Treasury auctions are digested. Tuesday’s 3yr auction went well, but today’s 10yr auction is much more consequential.
Needless to say, if 10s were willing to react that much to the 3yr auction, a similarly strong auction result today would easily break the stalemate at 4.55%. Conversely, a weak result would would add more emphasis to the “floor” vibes.