ISM Outshines NFP, But Neither Ended Up Leaving a Mark
By:
Matthew Graham
Fri, Jan 5 2024, 5:17 PM
ISM Outshines NFP, But Neither Ended Up Leaving a Mark
It has happened before, but it’s not common: those Fridays where bonds move in one direction in response to the jobs report only to move even more in the opposite direction after the ISM Non-Manufacturing Index. Considering that both moves were ultimately erased today, we don’t feel too compelled to overanalyze, but ISM definitely had the upper hand. Chalk that up to the jobs report being not as strong as the headline might suggest and to ISM’s employment component being staggeringly weaker. Bonds escaped with minimal damage–especially MBS as they don’t have to worry about an auction cycle like Treasuries next week.
Nonfarm Payrolls
216k vs 170k f’cast, 173k prev
Unemployment Rate
3.7% vs 3.8% f’cast
Participation rate
down 0.3% (implies higher unemployment)
ISM Services PMI
50.6 vs 52.6 f’cast, 52.7 prev
ISM Services Employment
lowest since July 2020
ISM Service Prices
57.4 vs 58.3 prev
08:57 AM
Weaker overnight with additional selling after jobs report. Some resilience now. MBS back to pre-NFP levels, down a quarter point on the day. 10yr up only 5bps at 4.055 after being as high as 4.10
10:11 AM
More gains after ISM data. 10yr down 4.5bps at 3.959. MBS up 1 tick (0.03).
12:35 PM
post-ISM rally fading. 10yr up 3.2bps at 4.036 and MBS down nearly an eighth of a point.
02:14 PM
Holding ground now, slightly better than the early PM swoon. MBS down only 2 ticks (.06) and 10yr up 2.3bps at 4.027.
05:13 PM
MBS outperform into the close, ultimately hitting unchanged levels as Treasuries ticked up 4.7bps to 4.051. Apprehension over next week’s auction cycle? Curve steepening favoring shorter durations? Either way we’ll take it.
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When assessing December’s Home Equity Conversion Mortgage (HECM) volume data for December 2023, Reverse Market Insight (RMI) used a choice word as the title for its commentary: “thud.”
Amid an already challenging operating environment observed throughout 2023, both HECM endorsement volume and HECM-backed Securities (HMBS) issuance closed out the year on a low note, with both metrics falling lower from the month before, according to data from RMI and New View Advisors.
Endorsement volume falls slightly
While not a pronounced drop, HECM endorsements fell 3% to end the month with 2,190 loans, but that general drop came with a few notable exceptions according to RMI. Geographically, four of the ten tracked regions outperformed figures from the prior month, while four of the top 10 lenders also posted modest gains in the final month of the year.
One of the top 10 lenders that posted gains, however, was Open Mortgage. In its commentary, RMI speculated that this could be due to the company aiming to close out its pipeline of reverse mortgage loans in process following the announcement of the reverse mortgage division’s closure in November, as first reported by RMD.
All things considered, the drop observed last month was not a big surprise, according to Jon McCue, director of client relations at RMI.
“Honestly, the endorsement numbers for December were not all that surprising given the dip in case number assignments we saw in September and October,” he said. “The obvious culprit is still rates. Not only have [HECM-to-HECM] refinances more or less dried up, but it remains difficult to qualify new borrowers as well. When November and December case numbers are published, we’ll have a better idea of what to expect for Q1 2024. Beyond that will depend on what happens to rates.”
How industry consolidation could shape the business
Likely to have a big impact on industry performance metrics in 2024 is all the exits and consolidations we have observed throughout 2023: not only did Open Mortgage exit the business, but Finance of America Reverse (FAR) acquired former industry leader American Advisors Group (AAG), while Guild Mortgage acquired Cherry Creek Mortgage placing both companies in the top 10 in the final months of the year.
“Any time we see exits and consolidations we tend to see a dip in industry production for a time,” McCue said. “In the case of large institutions such as Bank of America, Wells Fargo, and MetLife, we never regained their lost volume. This is a different situation.”
For instance, the AAG brand still remains despite the FAR acquisition, but the exit of Open Mortgage and the ongoing ripples caused by Reverse Mortgage Funding (RMF)’s bankruptcy will likely impact the business more notably, he explained.
“It is the other players such as the production lost from RMF, what will be lost from Open, and even smaller companies who are moving on that we’ll feel for a short time until others move into the space again,” he said.
Securities issuance falls further
HMBS issuance in December totaled $457 million, a figure “substantially off” from the November total of $561 million, according to publicly available Ginnie Mae data and private sources compiled by New View Advisors. A total of 79 HMBS pools were issued in December, which — not including March 2023’s total — is the lowest HMBS issuance figure since 2014, the firm explained.
HMBS issuance in 2023 came out to $6.5 billion in total, less than half of the record-breaking figure of nearly $14 billion seen in 2022. But New View has been warning for virtually the entirety of 2023 that the year’s issuance levels would not come close to those record-breaking levels.
“December production reflects applications and originations from 2-3 months prior when the expected rate was at or near its highs,” said Michael McCully, partner at New View Advisors. “We don’t expect January to be much different.”
Despite what New View calls a substantial drop, the total issuance figure for the year was largely in line with what the firm had been expecting, he told RMD.
“[The figure is] in line with expectations,” McCully said. “HMBS issuance and HECM endorsements were both cut in half from 2022 to 2023.”
Looking ahead
If the rate environment is kinder than what had been seen for much of last year, there are signs of encouragement, McCully said.
“Expect origination volume to increase if the 10-year treasury stays below 4% and home values remain stable,” McCully said. “The increased maximum claim amount [i.e. the HECM limit] for 2024 should help volume, too.”
New View also noted that 25 of the issued pools in December featured “aggregate pool size [of] less than $1 million,” according to its commentary. “Issuers are taking advantage of Ginnie Mae’s provision to issue pools as small as $250,000. This represents $15.6 million of [unpaid principal balance (UPB)] that may not otherwise have been issued in December.”
A Ginnie Mae policy issued in September 2023 allows for the securitization of multiple participations related to a particular HECM in any one issuance month, which could also help the program, New View said.
Homebuyers looking to escape the hustle and bustle of city life may long for a quieter life in the country. But anytime you’re considering making a major lifestyle change, finances can become an issue.
If this sounds like you, you may be able to qualify for a USDA loan. This government-sponsored loan program focuses on houses located in designated rural and suburban areas.
What is a USDA home loan?
A USDA home loan is a type of mortgage for eligible rural and suburban homebuyers. It’s offered by the United States Department of Agriculture. USDA loans are issued through the USDA Rural Development Guaranteed Housing Loan Program.
One of the biggest draws of the Rural Development program is that it doesn’t require any down payment. So, you can purchase your own home with a minimal amount of cash.
If you think this sounds like a good opportunity, you may be right. Keep reading to find out the benefits of applying for a USDA loan.
What are the different types of USDA loans?
The USDA offers three main mortgage programs for people who want to buy or repair a single-family home in a rural area:
USDA Direct Loans: Also known as Section 502 direct loans, these loans are issued to qualifying low-income borrowers with interest rates as low as 1% with certain subsidies and no down payment is typically required.
USDA Guaranteed Loans: Also known as the Section 502 Guaranteed Loan Program, these loans are issued by USDA-approved lenders and offer 100% financing, low interest rates, and minimal down payments to eligible buyers.
USDA Home Improvement Loans: Also known as the Section 504 Home Repair program, these loans are given to qualified homeowners to repair, improve, or modernize their homes. They’re also given to low-income elderly homeowners to remove health and safety hazards. The home improvement loan is up to $$40,000 and grants are also available up to $10,000. Additionally, loans and grants can now be combined for up to $50,000 in assistance.
USDA Streamline Refinance: Those with an existing USDA loan may be able to take advantage of lower rates with a USDA refinance loan. For those who qualify, the USDA streamline refinance is an attractive option as it does not require a home appraisal or income documentation. However, to be eligible, you must already have a USDA loan.
How much can I borrow with a USDA loan?
The majority of loans offered by the U.S. Department of Agriculture (USDA) do not feature loan limits. Direct Loans are the only type of USDA loans with specific limits, but they are a small portion of all USDA loans. Therefore, it is unlikely that you will find any limits on your USDA loan.
For the USDA Direct Loan program in 2024, the loan limit is 766,550 in most parts of the country. However, in more expensive high-cost areas, the loan limits are higher.
4 Benefits of a USDA Loan
Listed below are the four biggest advantages of taking out a USDA loan.
1. No down payment
For many people, the thought of scraping together a down payment is the most significant barrier to buying a home. But with a USDA loan, there’s no down payment required. In comparison, you’ll need a 3.5% down payment for FHA loans and a minimum 5% down payment for conventional loans.
2. Low private mortgage insurance (PMI)
Anyone who buys a home with no down payment must purchase private mortgage insurance (PMI). The costs vary, but PMI generally costs between 0.5% to 1.0% of the total loan amount.
With the USDA mortgage program, you still have to purchase PMI, but the rates are lower than they are with a conventional loan.
3. Low credit requirements
USDA loans also come with more flexible credit requirements than what other lenders look for. If your credit score is at least 640, your application should be approved pretty quickly. And the program is available for borrowers that are short on credit history.
4. Finance your closing costs
When you buy a home, the lender charges closing costs for issuing the loan. The closing costs usually fall between 2% and 5% of the total loan amount. So if you buy a $200,000 home, you can expect to pay at least $4,000 in closing costs.
When you take out a USDA loan, you can roll your closing costs into the loan financing. This means you can finance your closing costs instead of paying them out of pocket.
How do you qualify for a USDA loan?
Taking out a USDA loan doesn’t mean you have to move to the middle of nowhere. There are a wide variety of properties eligible for purchase through the USDA loan program.
While you won’t find any homes located in a major metropolitan area, you may be able to find some in certain suburban areas. But, of course, the most extensive selection is available in rural areas since the purpose of the program is to strengthen these communities.
To find out if a home you’re interested in qualifies, simply input the address into the USDA website. The USDA does have strict requirements the home must meet to be eligible for the program, which we’ll discuss in more detail below.
See also: First-Time Home Buyer Grants and Programs
USDA Loan Requirements
If you can’t qualify for a conventional loan, you may be eligible for either a USDA guaranteed loan or a USDA direct loan. Here is an overview of the borrower requirements for USDA home loan programs:
You must be a U.S. citizen, non-citizen national, or qualified alien.
The home must be located in an eligible location.
You must be purchasing the home as your primary residence.
The loan must be taken out through a USDA-approved lender.
You must be able to meet the minimum credit requirements.
Income limits
USDA loan programs are designed to help low to middle-income families, so borrowers must meet certain income limitations. To qualify, your household income cannot exceed 115% of the median income in your area.
The income requirements for USDA loans are determined by county, so you can check the USDA’s website to determine the requirements in your area. You can also work with a USDA-approved lender to determine your eligibility.
Property Eligibility
The U.S. Department of Agriculture also puts certain restrictions on the type of property you can buy with a USDA loan. Here are the types of properties that are eligible for a USDA mortgage loan:
Single-family homes
New construction homes
Townhomes and approved condos
Planned Unit Developments
Approved modular homes
What credit score do you need for a USDA loan?
If you’re applying for a guaranteed USDA loan, there are a few basic credit requirements you’ll need to meet. The USDA doesn’t set a minimum credit score requirement, but your application will get processed much faster if your credit score is at least 640.
A credit score below 640 doesn’t automatically rule you out, but your application will go through stricter underwriting guidelines. This is to ensure you can handle the monthly payments.
And you’re less likely to be approved if you have any collections on your credit report in the past 12 months. However, you may be granted an exception if you can prove that your credit was damaged because of a medical issue or something outside your control.
And finally, a USDA loan may be a viable option for you if you’re still in the process of building your credit scores. Your application may be approved even if you have a limited credit history if you can supply other credit references, like utility payments or rent payments.
USDA Income Limits
Income limits are set on all USDA loans to ensure the USDA loan program benefits low to middle-income families. These income restrictions are determined by various factors, including the median income for your local city or county. You can check your income eligibility to find out if you qualify.
The size of your family also helps determine your eligibility. If you have a large family, then it’s expected you’ll need a more substantial income to live on, and you’ll receive more leeway.
There are also different tiers of eligibility, depending on the type of USDA loan you’re taking out. For example, USDA guaranteed loans call for a moderate income, whereas USDA direct loans require applicants to fall in the low-income category.
Stable Income
Finally, you must have a stable monthly income to be eligible for a USDA loan. Usually, you need to show a history of stable employment for at least 24 months.
If you have questions about your eligibility, you can contact a mortgage lender that specializes in USDA loans. Just be sure to ask so you don’t waste your time working with a lender who doesn’t understand the nuances of USDA loans.
Real estate agents that work in a rural area may also be able to point you in the right direction, since they’re likely to have more experience with clients utilizing these programs.
Are there any other eligibility requirements?
This article is mainly focused on the USDA’s requirements, but keep in mind, the USDA isn’t lending you any money. Each lender can apply its own requirements as long as they meet the USDA’s basic guidelines. Your lender will want a complete financial picture, as well as your credit history and current employment status.
And one of the guidelines surrounds PITI, which stands for principal, interest, taxes, and insurance. Each of these things are combined to form your total monthly mortgage payment.
This amount can’t be more than 29% of your pre-tax monthly income. So if you make $3,000 per month, your total monthly payment would have to be less than $900.
Debt-to-Income Ratio
Another common requirement is known as your debt-to-income ratio. This is when the lender looks at compares your income to your total monthly debt payments. Ideally, your debt-to-income ratio shouldn’t be higher than 41%.
So if your income is $3,000 per month, your total monthly debt payments should be less than $1,230. And remember, your mortgage will be included in the total debt payments. But you may qualify for a higher debt ratio if your credit score is higher than 680.
Bottom Line
With a USDA mortgage, you can purchase your dream home without having to save up for a down payment. However, not everyone will qualify for this program.
If you’re interested in taking out a USDA loan, you should start by finding out if you meet the income restrictions in your county. And you might consider working with an experienced USDA lender to find out if you’re a suitable candidate for the program.
USDA Loan FAQs
How does a USDA loan work?
USDA loans provide low-interest home mortgages to qualified borrowers. These loans are issued by the United States Department of Agriculture, and are designed to help eligible borrowers purchase homes in rural areas and some suburban areas.
To qualify for a USDA loan, borrowers must typically meet certain income and credit requirements, as well as have a debt-to-income ratio that is lower than the national average. Once approved, the loan is typically issued in the form of a 30-year fixed-rate mortgage, with the interest rate set by the USDA. Borrowers can then use the funds to purchase a home and make mortgage payments over time.
What’s the difference between FHA, VA, and USDA Loans?
FHA loans are mortgage loans insured by the Federal Housing Administration that are available to homebuyers with less-than-perfect credit and relatively low down payments.
VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs that are available to qualifying veterans and military members with competitive terms and no down payment.
USDA loans are mortgage loans offered by the U.S. Department of Agriculture that are available to low-income borrowers in rural areas.
All three loan types require mortgage insurance, but the payment requirements vary.
What is the interest rate on USDA loans?
The interest rate on a USDA loan varies depending on the type of loan, the lender, the borrower’s credit score and other factors. Generally, USDA loan interest rates range from 1.00% to 4.00%.
The current interest rate for Single Family Housing Direct home loans is 3.75%. This fixed rate is based on current market rates at loan approval or loan closing, whichever is lower.
If payment assistance is applied, the interest rate can be as low as 1%. The payback period can be up to 33 years, or 38 years for very low-income applicants who can’t afford the 33-year loan term.
What are the fees associated with a USDA loan?
The upfront guarantee fee is 1% of the amount of the loan, and this fee must be paid at closing. This fee is non-refundable and is not included in the loan amount.
In addition to the upfront fee, there is an annual fee, which ranges from 0.35% to 0.50%. This fee is calculated as a percentage of the loan amount and is generally due each year.
USDA home loans also have other typical closing costs associated with them, such as appraisal fees, title fees, and recording fees.
NAR chief economist Lawrence Yun said that while immediate contract activity has not increased, there is a growing interest among potential buyers. “Although declining mortgage rates did not induce more homebuyers to submit formal contracts in November, it has sparked a surge in interest, as evidenced by a higher number of lockbox openings,” Yun said … [Read more…]
Total mortgage production is expected to fall 16 percent to $1.96 trillion this year, down from an estimated $2.34 trillion in 2007, the Mortgage Bankers Association reported today.
“This would mark the first time since 2000 that total mortgage originations fall below $2 trillion,” the report noted.
The report said total loan origination is expected to fall another four percent to $1.88 trillion in 2009.
The MBA reported that residential purchase mortgage originations will drop by roughly 18 percent in 2008 to $955 billion from an estimated $1.16 trillion last year.
And said that because of tighter underwriting guidelines and falling home prices, refinance originations will decline about 14 percent to $1.01 trillion in 2008 from a projected $1.17 trillion in 2007, and fall a further 13 percent to $883 billion in 2009.
Regarding housing data, the report said total existing home sales for the year will decline by about 13 percent from 2007 to 4.94 million units, but should rise by about four percent in 2009.
Median home prices for new and existing homes are also expected to fall by about two percent this year, but rise between one and two percent in 2009.
The MBA’s Chief Economist Doug Duncan addressed recent capital worries rocking banks, mortgage lenders, and government financiers Fannie and Freddie, but noted that a further credit downturn was unlikely.
“The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital. Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans on their balance sheets because the markets for securitized products are essentially closed,” said Duncan.
“Fortunately, the banking system entered the current credit crunch well capitalized, so the danger of a sharp and widespread contraction of credit availability does not seem imminent. The recovery period in financial markets may take longer this time than it has in past financial crises, but a turn for the better still appears to be a good bet later in the year.”
Duncan added that he believes the fed funds rate will be cut at the Federal Open Market Committee meeting later this month, and expects the Fed to focus less on inflationary worries to address concerns about a recession.
He also noted that mortgage rates should continue to remain relatively low, but move slightly higher into 2009.
“The 30-year fixed-rate mortgage yield should trend up only modestly higher over the second half of the year, reaching 6.2 percent by the fourth quarter and edging up just slightly through 2009. Thus, interest rates will still be quite low by historical standards,” said Duncan.
Friday is off to a mixed start with the jobs report doing some damage and the ISM Services data undoing that damage. Things are pretty much that simple, so we won’t belabor the point.
Is the ISM Services data really accounting for more movement and volume than the mighty jobs report? In a word, yes, but there are some reasons. First off, we might refer to today’s jobs report as somewhat mixed. Indeed, it was higher than expected at a headline level, but previous months were revised lower. Indeed, the unemployment rate remained at 3.7%, but the participation rate fell by 0.3%, effectively implying a net increase to 4.0%. In short, the jobs report wasn’t big news today, and in the chart above, you can see the bond market already reversing the trade completely by the time ISM hit.
ISM data was more meaningful. In several ways, it was the weakest report in a few years, but mostly in terms of the employment component. This got the market’s attention more than anything, but it hasn’t proven to be a lasting source of inspiration for bond bulls.
The seniors who are often the parents of Generation X and Generation Y (millennials) could become a pronounced expense for their kids in the coming years, but adult children also want to see their parents successfully age in place.
This is according to a commentary from Sarita Mohanty, president and CEO of elder financial advocacy organization The SCAN Foundation in a commentary published by Fortune.
There will be 16 million “middle-income” seniors in the U.S. by 2033, Mohanty said, citing a 2022 study from the National Opinion Research Center (NORC) at the University of Chicago.
“As NORC’s research summary explains: ‘Many will struggle to pay for the health, personal care, and housing services they need. […] Even with home equity, nearly 40% will not be able to afford assisted living,’” she cited.
These kinds of expenses have only become more burdensome over time, Mohanty said.
“In 2002, adults over 65 spent $48,000 (adjusted for inflation) a year on average, according to data from the Bureau of Labor Statistics,” she wrote. “Today, the average is $58,000, a more than 20% increase. The average rent and medical costs for those in assisted living currently stand at $65,000 a year.”
The far and away preference for both U.S. seniors and their children is for the seniors to age in place in their own homes, Mohanty said. Citing a survey from Today’s Homeowner, 89% of Americans at or over the age of 55 want to remain in their homes.
But a late 2023 survey by CNBC found that nearly 60% of Americans feel they are not on track to retire comfortably, Mohanty pointed out, and that lack of assurance in their own retirement security means the younger generations are often unprepared to assume any support position for their parents.
“Something has to give,” she said. “If you’re in the sandwich generation – Gen X and older millennials – and want to share in the responsibility for their parents’ retirement, you should begin by thinking of your parents’ retirement plans in the context of your own.”
In December, the U.S. Department of Housing and Urban Development (HUD) announced a $40 million notice of funding opportunity to connect seniors in affordable housing with resources that could help them age in place.
The reverse mortgage industry often describes its product as a vehicle that can help older Americans remain in their homes since a core requirement of any reverse mortgage is for the borrower to remain in the property as their primary residence.
A CrossMod home is a new classification of a HUD-code manufactured home and has the affordability of a traditional manufactured home while being energy efficient. The Making Paradise Home Initiative was announced by Guild Mortgage in January 2023 in partnership with Clayton Homes, Golden West Homes of Chico and Redline Installation, aiming to help educate … [Read more…]
After cutting nearly 25 percent of its workforce yesterday, IndyMac released a memo in an effort to confirm its overall stability and pledge its commitment to the wholesale lending channel.
“This is obviously the most tumultuous time that the mortgage industry has ever faced,” said Frank Sillman, Chief Executive Officer, in a memo to IndyMac customers.
“We’re seeing the very largest global financial companies taking billions of dollars of losses in each of the last two quarters, and the largest independent mortgage company in our industry has just accepted a bailout by one of the largest banks in the country.”
Sillman went on to explain that IndyMac had made the right move to convert from a REIT to a federally chartered bank after the liquidity crisis in 1998, and said it was well capitalized to weather the current mortgage crisis.
“Today, virtually 100% of our assets and liabilities are contained within IndyMac Bank. As a bank, we have strong and stable funding sources … FHLB advances and federally insured deposits … which have allowed us to build up a “war chest” of more than $6 billion in liquidity,” he explained.
“In addition, we continue to maintain strong capital levels. As previously reported, as of September 30, 2007 (the date of our most recent financial statements), IndyMac Bank had $2.5 billion in regulatory capital, and our capital ratios exceeded the “well capitalized” criteria outlined in the capital regulations.”
He also worked to dispel any rumors that the Pasadena-based mortgage lender may be slowly shuttering its wholesale lending division.
“As we have stated consistently through this crisis, IndyMac is very committed to the Wholesale business, he said.
“Wholesale has been IndyMac’s biggest and most profitable business unit over the years, and it’s our goal to return that business to profitability in March. That’s why we’ve had to take the steps we’ve taken, so we can right size our wholesale model for the new realities of the market.”
Regarding the wholesale operations centers that were shut down yesterday, Sillman said the bank reviewed volume trends by region, and determined that consolidation wouldn’t compromise its ability to serve customers in the areas affected.
“While many national banks are heading out of the Wholesale business, IndyMac remains strongly committed to it.”
Shares of IndyMac were up 31 cents, or 6.90%, to $4.80 in early afternoon trading on Wall Street.
Verification, Lien Release Products; Relying on Interest Rate Predictions? STRATMOR Outlook
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Verification, Lien Release Products; Relying on Interest Rate Predictions? STRATMOR Outlook
By: Rob Chrisman
Thu, Jan 4 2024, 11:00 AM
“My dad always said to me, ‘Work until your bank account looks like a phone number’ so I did. Account balance: $9.11.” You can work harder, or you can work smarter. (I have severe doubts about the validity of this clip; it gave me the willies watching it.) Swimming is certainly a competitive sport. Do you have competitors? Most businesses do. Which is a reason that hotels offer free ice, thanks to a hotel chain that began in Memphis, TN. If the Mortgage Bankers Association is right, and volume does pick up some in 2024, that doesn’t mean the competition to do that business is going to go away. Numbers game. 5 calls, 25 a week, one closed loan $4k, two loans $8k. At these rates, less competition. If rates come down, competition for inventory just increases. (Today’s podcast can be found here, and this week’s is sponsored by the STRATMOR Group, the data-driven mortgage advisory. At STRATMOR, insights and knowledge are applied to guide mortgage clients to make sound strategic decisions and take actions that improve their success. Hear an interview with the STRATMOR Group’s Garth Graham on if industry forecasts for a better market should lead to industry optimism.)
Broker and Lender Programs and Software
Servicers know how much work it takes to release a lien once a mortgage has been paid off. That’s why they’re turning to the new Automated Lien ReleaseSM (ALR) capability in the ICE MSP® servicing system to help lighten the load at the end of a loan. ALR combines document creation and automated workflows to streamline the lien release process. It helps with eSigning and eRecording where available (and prints the release package for wet sign where it’s not) to help servicers cut through the delays and release liens faster. Read the press release to see how you can start releasing fully paid liens in days instead of weeks.
Truv is now an approved third-party service provider supporting Freddie Mac Loan Product Advisor® asset and income modeler (AIM) Revolution Mortgage estimates that they can save up to $20,000 in cost on verifications with TRUV over competitors. “Let’s talk about our documentation costs and those giant monopolies that are out there and laughing at customers and increasing prices because they have a particular monopoly. You want to lower your manufacturing costs” said Femi Ayi, EVP Operations. Contact TRUV today to discuss how we can help you with your income, employment, insurance, and asset verifications. Come join us!
Be Wary of Relying on Interest Rate Predictions
I am asked all the time, “Hey Rob, where do you think rates will be in six months?” My answer, after I say that I can’t even predict where I’m going to have lunch tomorrow, is always the same, “Higher, or lower, or possibly the same.” Or sure, one can have a prediction until a ship becomes stuck in the Suez Canal, a ship is attacked in the Red Sea, or a pandemic occurs. A recent STRATMOR blog is titled, “Interest Rates are Like the Weather? Or Like Signs of the Zodiac?”
The interest rate markets have a way of humbling almost all the ‘experts’ and the very first thing you learn in Secondary Marketing is that you shouldn’t take a view on where rates are headed because half the time, you’re wrong anyway. In Q4 of 2022 the arm-chair prognosticators were predicting that we’d see rates come down by the end of 2023. After reaching a peak in October, Treasury rates did come down to where they were at the beginning of 2023. But mortgage rates were well into the 7 percent range.
The Federal Reserve, in its attempts to control inflation and cool a very strong economy, raised fed funds several times in 2023. Throughout the year, however, we heard, inside the world of mortgage banking, opinions expressed that rates will not only come down, but when to expect this to happen. Based upon what data, one should ask, are their views speculative, biased, or just hopeful?
I would challenge these prognosticators as to the reasons why mortgage rates are positioned to fall. What leads them to predict that? I’m sure some opinions are based on fundamentals: Fed raises rates to control inflation, money is taken out of the economy, the economy cools, Fed cuts rates, and mortgages come down to some predicted level. A lot of the predictions I see are not rooted in actuality, but rather rooted in exuberance for mortgage banking.
In the summer of 2023, little of the macro data even hinted at a reduction of short-term interest rates. Inflation, which has been grinding lower, was a tad north of 4 percent with the Federal Reserve’s target set at 2 percent. Economists have modeled that unemployment would need to reach as high as 7 percent in order for inflation to come down to 2 percent… Not a pretty picture. Remember, when an economy ‘slows’ jobs are not created, historically they’re lost.
The Fed was relatively “hawkish” in its monetary policy for the remainder of 2023 until the end. Anyone predicting where interest rates will be in the future would need to start by predicting where the Federal Funds rate NEEDS to be in order to see inflation that’s appealing to the Fed, and then ultimately, HOW LONG rates needs to remain there; when is it warranted to reduce borrowing rates under recessionary fears? These are two almost impossible questions to answer since the number of variables that you need to get right, coupled with unpredictable world events, play such a strong role in forecasting interest rates.
A year from now, rates will either be higher, lower or the same. So, focus on your products and services!
Capital Markets
Ever wondered how to hedge a mortgage pipeline? Hedging one’s mortgage pipeline typically produces the greatest return over long-term macroeconomic cycles, which is why it is considered an essential step in the growth of a mortgage lender. In MCT’s whitepaper, Mortgage Pipeline Hedging 101, their experts explain what hedging is and why it is a valuable strategy for maximizing profitability in the secondary market. The whitepaper also reviews information on moving to mandatory loan sales, the strategy of hedging, the benefits of hedging, and how to determine if you are ready. Download the whitepaper or join MCT’s newsletter for upcoming releases.
Turning to interest rates, what’s that you say? Markets have gotten ahead of the Fed again? Gasp! Yes, markets aren’t looking all that cheerful in the new year. I don’t put much opinion in here, but I’d say it’s because of investors’ own doing. The added potential for interest rates to stay high for some time is forcing investors to continue to unwind optimistic trades placed in late 2023. The Federal Reserve’s policy makers poured water on predictions of early 2024 interest rate cuts, revealed the minutes from the most recent Federal Open Market Committee meeting, with several voting members seeing the potential for the fed funds rate range to stay at a peak level for longer than the market expects.
Policymakers did acknowledge that we are probably at the peak of rates and that projections show cuts by year-end. Richmond Fed President Barkin cautioned that the potential for more rate hikes remains alive, called a soft landing “increasingly conceivable but in no way inevitable,” and added that any decision on a March cut is a “long way away.” Staff projections point to rate cuts by the end of 2024, but officials do not seem to be supportive of a series of cuts at this time.
The minutes from the Federal Open Market Committee meeting hinted at hard landing concerns amongst board members while recognizing that they could “face a tradeoff between its dual-mandate goals in the period ahead.” Fortunately, there were more indications of optimism about inflation, which is supported by the latest jobs data showing cooling.
U.S. job openings fell in November to 8.79 million in November, the lowest level since early 2021 as fewer workers voluntarily quit and the number of hires fell. People who voluntarily left their jobs as a share of total employment fell to the lowest point since September 2020, signifying that Americans are feeling less confident in their ability to find new jobs or better paying jobs in the current market.
Separately, we also learned yesterday that the December ISM Manufacturing PMI indicated an ongoing contraction in the manufacturing sector, but at a slower pace than the previous month. December marked the 14th straight month the PMI reading has been in contractionary territory. The report was not devoid of good market news, as the Prices Index reflected a further easing of inflation pressures.
Today’s calendar sees some early labor market indicators ahead of tomorrow’s payrolls report. Markets have already received December job cuts from Challenger, Gray & Christmas (34,817 cuts in December, down 24 percent from the 45,510 cuts announced in November) as well as ADP employment for November (164k, higher than expected), and initial (202k, down from 218k) and continued (1.855 million) jobless claims. Later today brings the final December S&P Global services PMI, Treasury announcing the details of next week’s mini-Refunding (consisting of $52 billion 3-year notes, $37 billion reopened 10-year notes, and $21 billion 30-year bonds), and Freddie Mac’s Primary Mortgage Market Survey. We begin the day with Agency MBS prices worse .125-.250, the 10-year yielding 3.98 after closing yesterday at 3.91 percent, and the 2-year at 4.36 after a spate of employment data.
Employment
It’s a new year and Merchants Bank, is off and running, continuing to leverage its diversified business model to grow market share and assist Merchant’s lending partners. Merchants Bank’s Correspondent channel, offering Non-Delegated and Delegated options, recently hired Liberty Tribe as Sales Executive to help grow TX and the Mid South Region. Liberty along with Dan Hastings, CMB, AMP cover the Mid-South (TX, LA, AR, MO, OK, KS). In addition, Merchants is expanding its Financial Institutions channel by adding a Mini-Correspondent offering to their TPO Wholesale platform. If you are interested in learning more, contact Rob Wilson. On the Retail front, Merchants Bank continues to grow there as well and if you are looking for stability, support and products, they want to hear from you. Contact Ron Berry for more information. Their LO centric platform along with the strength and balance sheet of the bank allows them to expand market share in their regional markets.
Planet Home Lending’s new Vice President, Construction Sales Melony Harpe is paving the way for Planet MLOs to increase their construction loan volume in 2024. Interested in building your construction business? Join Planet and you’ll have support for calls with builders, resolving construction issues, and educating stakeholders. “I want MLOs and retail branches to feel confident and supported in their construction lending efforts,” Harpe said. “My role is to give MLOs the tools and resources needed to navigate the complexities of construction lending and expand their connections with builders.” To lay the foundation for a better 2024, contact VP of Talent Peter Briggs or 949-202-8213; all inquiries will be held in strict confidence.
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