Wong added that Schachterle’s role as the senior liaison with FHLBank San Francisco’s member institutions “has never been more essential” as the bank continues to develop products, services, and tools to “support and preserve local community lending.” Most recently, Schachterle served as sales director of warehouse lending at Arizona-based Western Alliance Bank. Before that, she … [Read more…]
Non-QM, Marketing, Processing, Verification Tools; Warehouse Primer; Fed Day
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Non-QM, Marketing, Processing, Verification Tools; Warehouse Primer; Fed Day
By: Rob Chrisman
Wed, Jun 14 2023, 10:49 AM
Don’t forget to put your flag out today for Flag Day. To warehouse banks, a “red flag” is a client who loses money for months on end, or for several quarters, and with good reason: counterparty risk has increased. (Below: a quick opinion of the current warehouse bank situation.) But back to the flag thing… Did you know that there are 986,000 U.S. flags in Manhattan? You didn’t? Me neither, and I just made up that statistic. The U.S. Census Bureau doesn’t make things up, and it reported that New York City continued to exhibit the largest numeric decline of any U.S. city, losing 123,104 people from 2021 to 2022. But this was nearly 60 percent less than its 2020-2021 population loss of 305,465. Declines also slowed in other large cities that had experienced significant population losses, including Boston, Chicago, Los Angeles, Philadelphia, Portland, and San Jose. Fort Worth, Phoenix, and San Antonio were the largest gainers. Do you have the products and branches to help those moving? (Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, the homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence. Today’s has an interview with SimpleNexus’ Ben Miller on why mobile matters to the modern mortgage movement.)
Broker and Lender Services and Software
“Are you thinking of using Artificial Intelligence? The adoption of AI is easily the game-changer that mortgage servicing needs as margins are compressed, resources restricted, and the cost to service increases yearly. However, the real question is, are you ready to implement AI into your operations? Read our blog “How to Prepare For and Measure the Effectiveness of AI in Your Servicing Operations?” and explore what steps you need to take to gain the most benefit. Step number one is the implementation of workflow automation. CLARIFIRE® is positioned to help mortgage servicers deliver workflow automation that captures the best aspects of operational efficiencies through process standardization and AI to optimize the results. Find out more about the steps to prepare for AI’s benefits. Prepare your organization with CLARIFIRE, truly BRIGHTER AUTOMATION®.”
We have always heard about the need to be an “advisor” in the mortgage space. In this different market, now is an ideal time to revisit this for yourself and your team. Take 90 seconds and watch this great message from renowned industry speaker, author, and trainer Todd Duncan as he reminds us about the “why” behind this, while giving a nod to our good friends at Mortgage Market Guide, Tabrasa, and Bill Bodnar. You can learn more about Mortgage Market Guide here and reach out to Bill for special team, group and enterprise pricing for MMG. There has been a lot of sales atrophy in our space. You may wish to take a look at Todd Duncan’s High Trust Sales Academy coming later this year.
More than 77 million consumers have thin or “invisible” credit files*, yet many may have the income and employment status that otherwise makes them qualified loan applicants*. (*Equifax Data & Analytics, 2022) The Work Number is the largest commercial repository for consolidated income and employment data. With access to 618 million records, The Work Number INSTANTLY returns records, updated each pay cycle, provided directly by employers and payroll providers, so there’s no need to collect an applicant’s private banking credentials, potentially exposing them and yourself to risk. Lenders and brokers have a choice: access The Work Number directly from Equifax or through our pre-built integrations with over 60 Point of Sale (POS) and Loan Origination Systems (LOS). Gathering all of the necessary information about potential borrowers through your LOS or POS is quick and efficient and can eliminate the need to swivel back and forth between systems, juggling multiple logins. Learn more.
“Tired of playing shuffle with your business? At wemlo®, we know variety isn’t always the spice of life, especially when it comes to providing an outstanding borrower experience. You work hard to consistently deliver a positive lending experience to help generate word-of-mouth business. We also want to help earn you more referral business. That’s why transparent communication and customer care are some of wemlo’s top priorities. Our processors work directly with the borrower and lender to seamlessly track everything down, so you don’t get bogged down with admin tasks. Trust us, we’re in the business of keeping customers happy – just look at our 4.7/5-star rating from borrowers. Ready to work with third-party processors that keep consistency at the heart of every borrower transaction? Learn more about wemlo’s reliable processors today. NMLS ID 1853218. *Q1 2023 Borrower Score: 45 responses 4.7/5.0.”
In 2022, NFM Lending launched its influencer division, which supported by Black Knight’s Surefire CRM℠ and Mortgage Marketing Engine, has been a runaway success. Using Surefire Power Video, NFM can send video outreach to followers, clients, and referral partners on influencers’ behalf at scale. With Power Video, NFM was able to close nearly 50 deals worth approximately $15 million in a single month, with over 4,600 leads converted over subsequent months. The Surefire Power Call feature has also been an incredible ROI generator for NFM, resulting in nearly 4,000 deals and around $1.3 billion in closed loan volume in 2022. Want to learn more about how NFM is generating thousands of leads without spending a dime on advertising? Download the full case study.
TPO Products for Brokers and Correspondents
“Logan Finance has done it again. We exceeded our previous Non-QM funding record by over 50 percent in May and we’ll beat that record again in June. We want to extend a warm Thank You to all our clients who have entrusted us with their Non-QM business. We know we can only do this with great people. As part of our strategy to hire the best people in the industry, we have doubled our Non-QM AEs through the first half of 2023. Our rapid expansion, combined with a complete suite of Non-QM products and premier service, is a testament to the Great Experience Logan delivers. Speaking of products, check out our self-employed borrower solutions including 1099, Bank Statement, and P&L. Learn more about these Non-QM loan solutions, and let us show you the different ways We Work Hard to Make Non-QM Easy™. Call Todd Lautzenheiser at 317-721-9941 or visit us to learn why they call Logan The Agency of Non-Agency™.”
Verus Mortgage Capital just announced it is now offering a Closed End Second Lien Mortgage Program that allows borrowers to access their home equity for a variety of financial needs without impacting the interest rate on their first mortgage. This product features a fixed interest rate, a maximum loan amount of $500,000, a maximum CLTV of 80 percent, a minimum credit score of 700, standard income documentation (two years), and occupancy – primary residence. Verus offers a broad range of non-QM programs that help lenders generate new sources of ongoing business. As the industry’s indisputable non-QM leader, it has the experience, liquidity and financial resources originators need to successfully navigate the current environment. For more information or to set up a meeting, contact Jeff Schaefer, EVP – National Sales (202-534-1821).
Warehouse News
As a reminder, and an immense simplification, warehouse banks, or some would term funding facilities, loan money to independent mortgage banks, who don’t have cash from deposits to fund loans like credit unions and banks, to make loans. When those loans are sold to investors, the warehouse line is paid off, ready to fund more loans. Obviously the contractual and financial relationship is very sturdy.
But many lenders are in violation of their warehouse agreements: They aren’t making any money. Although loans on a warehouse line are collateral and have priority in the event of an IMB going under, banks don’t like counterparties that are losing money. There are some who believe others will follow Comerica’s lead of exiting warehouse lending for that reason. Some banks may “look down” on warehouse lending as it is not a big piece of banking revenue (i.e., low margin) compared to the risk of a lender going under or a wire that goes astray through faulty cyber policies. Liquidity for some banks with warehouse facilities is often a concern, as is warehouse competitors reducing lending rates and bettering terms to be competitive.
If there is good news for well-run IMBs, it’s that rates staying elevated will cause further consolidation or exits from the business.
Choosing which warehouse bank to use to fund a given loan is not easy, and many IMBs have turned to Optifunder for help in making that decision. (No, this isn’t an ad.) If you’d like to have some fun, ask about bond loans sitting on warehouse lines for months, waiting to be purchased, or what happens if the rate a lender is paying on their warehouse line is greater than the note rate of the mortgage that was funded on it, as sometimes happens. Any questions about warehouse banks, what they charge, what their restrictions are, etc., should be addressed to a lender’s CFO or capital markets group.
Capital Markets
Inflation calmed down in May to post the smallest headline advance since March 2021, and further deceleration looks likely in the coming months. Per the consumer price index, May inflation came in lower than expected, increasing a modest 0.1 percent month-over-month and 4.0 percent year-over-year in May (from 4.9 percent year-over-year in April). Shelter (+0.8 percent) and used cars and trucks were the big contributing factors, but signs that used car prices and rents are coming down or stabilizing are also contributing to the slowdown in prices. Yet it is still a far cry from the Fed’s 2 percent inflation target. Excluding food and energy, the core CPI rose a much stronger 0.4 percent.
Fed Chair Powell has mentioned goods, housing, and services ex-housing are the three main components driving up inflation. Goods issues were driven by supply chain problems in the early days of COVID, but the latest ISM reports confirm that inventory issues are no longer a problem and commodity price inflation is largely over. Home prices peaked in June of last year and are down about 5 percent on average across the country from their mid-2022 peaks, and rents for new leases (which lag home prices by about 21 months on average) are flatlining. The inflationary contributions of the housing component should continue to fade in the second half of 2023. And wage inflation continues to work its way lower, making it less of a concern for the economy despite robust hiring. May marked the first time in two years that wage growth outpaced consumer price inflation, and it’s been said that Fed officials are rethinking their view that wage gains are fueling inflation.
Although inflation continues to ease, inflation expectations rose during May and we’re seeing sentiment change amongst consumers and businesses. Consumer confidence slipped in May, reflecting worries about increased volatility and uncertainty in the labor market as buying plans dry up. Recent consumer credit reports show more reliance on the use of credit cards to maintain spending activity. The NFIB Small Business Optimism Index ticked up slightly in May, beating expectations of a decline. However, that bump in optimism was the first improvement in three months and came on the back of a 10-year low as owners are becoming more pessimistic about future growth and re-evaluate hiring and capital spending plans. Fortunately, for six straight months, more U.S. small businesses have been raising wages than prices, suggesting small businesses have returned to the pre-pandemic status quo of trying to find ways to avoid passing on higher labor costs to consumers.
Today brings the latest FOMC decision with the Statement and updated Summary of Economic Projections followed by Chair Powell’s press conference. The inflation data from yesterday should lock in a pause in rate hikes, though central bank officials will likely remain adamant that inflation remains far too high and that, even once they pause, they are likely to keep rates “higher for longer.” Before the Fed, however, the MBS market took note that after mortgage rates declined for the second straight week, mortgage applications increased 7.2 percent from one week earlier. We’ve also received May producer prices. Expectations for the PPI were for a 0.1 percent decline month-over-month in the headline resulting in a 1.5 percent year-over-year increase, and they came in at -.3 percent and +1.1 percent year over year. We begin the day with Agency MBS prices better by about .125 and the 10-year yielding 3.80 after closing yesterday at 3.84 percent. The 2-year? 4.62.
Employment
A marketing leader seeking next career home! Are you ready to take your marketing to the next level? Or do you want to breathe some fresh air into your marketing department? Then you’ll want to hear about this executive-level marketing professional. This person is upbeat, optimistic, has grown marketing teams from scratch, and has successfully driven annual loan volume increases by 78 percent! This professional has 18 years’ marketing expertise, over 10 years in leadership, and has extensive experience in the mortgage industry supporting branches and loan officers. With hands-on experience implementing the latest MarTech platforms such as Total Expert, Salesforce, Experience.com, HomeBot, BombBomb, MBS Highway, Adwerx, Mortgage Coach, MonitorBase, HubSpot, and more, you’ll see immediate lift that will elevate your company. If you’re looking for a new VP, CMO, or marketing director, send a confidential inquiry to Anjelica Nixt to learn more. Interested in remote opportunities only.
“SWBC Mortgage believes in exceptional service, and it starts at the top. Our leadership team cares about the employees and deeply values having direct communication with the field. The success of our loan originators is priority #1, and we strive to provide an unsurpassed level of support that will help grow their business to remarkable heights! We have big goals and are looking for those who can help us reach them. We combine innovation with personal interaction, empowering our loan officers to serve the communities where they live and lend. To learn more about how our unique setup helps maintain LO compensation and pricing, contact James Clark, Director of Strategic Growth, at James Clark or visit us here.”
“Yeah, you could keep hustling to grow someone else’s empire. Or you could use all your hard work to grow your own. But wait, how will you find the time to focus on expanding revenue while handling the day-to-day of a business owner? That’s where Motto Mortgage comes in. We’re a mortgage brokerage franchise, which means we’ve put an entire business together for you. We provide professional marketing content, product mix, wholesale lender relationships, compliance support, and more. From. Day. One. So let us do most of the heavy lifting. You have better things to do. Email us for all the details.”
Evergreen Home Loans™ created the Evergreen Cares Foundation with a mission to positively impact lives and help improve the communities they serve by encouraging and supporting their associates’ compassion for giving. This year, the Foundation partnered with Make-A-Wish® Alaska and Washington to sponsor two wishes for qualifying children, and the first of those wishes was granted for Coleman, who has battled bilateral retinoblastoma, a rare eye cancer. Coleman wished to go to Seattle Mariners Spring Training. He enjoyed a few wonderful days where he not only watched the team practice but was also able to spend time with them on and off the field, truly becoming an honorary Mariner. Giving back through meaningful causes like this connects to the company’s vision of changing the world one relationship at a time. Are you a loan officer that shares the same vision? View job opportunities on the Evergreen careers page.
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[Editor’s note: Originally published on Go PropTech.]
First of all, it’s essential to understand the meaning of the term SPAC. SPAC is an abbreviation for a Special Purpose Acquisition Company. SPACs are publicly traded companies, and the purpose of their creation is to facilitate acquisitions and mergers with existing companies.
Although SPACs made an entry into the financial industry just a few years ago, there has been a meteoric rise in the SPAC investment vehicle. Among the primary reasons for this trend is that PropTech companies drive higher efficiencies in the real estate business, reduce friction, improve asset returns, and create greater transparency.
SPACs, also known as blank-check companies, are booming. According to a CNBC report, in 2020, 248 new SPACs were listed. That represents a four-fold increase, more than the 59 new companies created in 2019. In 2021, there are already 189 new SPACs that have been created to date. These figures reflect the growing popularity of SPACs.
Without any doubt, proptech startups are ideally positioned to be introduced to public markets. For many startups, the popularization of SPACs represents a unique opportunity to go public. In fact, in the last year, investors have invested over 83 billion dollars in blank-check companies.
PropTech startups including Fifth Wall, Soft Bank, and CBRE recently formed SPACs. SPACs raise money from investors, and once the company goes public, sponsors have to secure a merger within 24 months. Otherwise, the investors get their money back.
SPACs are already on the rise, but sponsors can take advantage of deals in this crowded marketplace. Moreover, in an environment with multiple SPACs, it isn’t easy to find merger partners at a reasonable price.
How SPACs Are Different from IPOs
SPACs have become popular in current market conditions for two reasons. The first is that they offer a quick path to public markets. The second is that they provide early access to retail investors. With SPACs, investors can expect higher returns without any significant downside. As a result, esteemed investors like Lance West, Scott Seligman, Brett White, and Howard Lutnick have recently opted to sponsor SPAC IPOs.
In today’s world, innovative technologies have disrupted the economic landscape in finance, real estate, healthcare, and genomics. If you’re looking for a secure way to find the returns you would typically only see in venture investment, SPACs might be a good option as they offer a lucrative ROI while limiting investor risk.
The innovative institutional structure of SPACs have allowed many forward-thinking companies to gain access to new streams of capital, with Aperture Acquisition Corp, BOA Acquisition Corp, CBRE Acquisition Holdings, and C&W Acquisition Corp all recently announcing SPAC IPOs.
Reasons Why PropTech SPACs Are On the Rise?
Undoubtedly, SPACs have gone mainstream, but people outside the investment community still don’t know much about them. SPACs are a perfect alternative to a traditional IPO, and they offer a viable alternative to private equity firms. Here are five reasons why SPACs are on the rise:
1. Access to Capital
Proptech startups can get access to capital without the debt service costs, covenant inherent in debt capital, and amortization. Moreover, SPACs provide permanent capital that helps management to focus on long-term value creation. It’s a different approach to private equity firms because you don’t have to contend with the risk of loss.
The real-estate market is capital intensive, and there is a win-win situation for both companies and SPAC sponsors.If the volume of SPACs increase as expected, investors will soon target smaller companies. This will afford advantages for shareholders because it will create options for greater liquidity.
2. Public Listing
Another reason why PropTech SPACs are on the rise is that they provide an easy path to public listing without pricing and market risks. Public equity companies offer non-cash currency for financing acquisitions and attractive compensation packages to employees.
We can expect lots of PropTech startups to go public much earlier than expected in 2021. By doing so, they will have a significant impact on the venture capital world.
3. No Unexpected Liabilities
SPACs haven’t conducted any material business and therefore have a clean balance sheet. Moreover, shareholders don’t face any liability even after the deal is closed.
According to some, they are the best way to make a company public, and many companies are turning to blank check models instead of the traditional IPO process. Many sponsors have raised their money by investing in SPACs. The main reason is that there are minimal, unexpected liabilities.
Moreover, companies can go public even during periods of higher volatility and market instability. SPACs offer significant downside protection. Therefore, there is always an opportunity to raise capital by using common shares instead of preferred shares.
If the investors don’t like the proposed acquisition of a SPAC, they can exercise redemption at any time. To many investors, SPAC offerings are preferable to an IPO.
4. Sponsor Expertise
Sponsor teams of SPACs are professional and experienced. They provide investors confidence and guidance throughout the SPAC process. A SPAC sponsor can be beneficial for improving the skills of the existing management team. When companies invest in SPACs, they don’t only raise money, but they also get a chance to train their key employees. The existing management team can learn new skills from sponsors and work more efficiently.
As SPACs have experts as operating executives, investors tend to favor teams working with SPACs. When companies invest in a SPAC business, they can get the help of these seasoned executives.
5. Flexible Control and Ownership
SPACs don’t necessarily replace the existing management team. That means a target company can undergo the entire SPAC process without changing ownership. Some investors feel that after investing in SPACs, they will lose control and ownership of the company, but that’s not the case. Instead, when a private company goes public, the control and ownership of the company can remain the same.
Due to the technological advancements in Real Estate, investors are taking more interest in PropTech SPACs. With multiple acquisitions and mergers in the PropTech space, the SPAC process in this sector is abundant.
Although it’s just the fifth month of 2021, we have seen a clear divide between those who have adopted PropTech trends and those left behind. SPACs have created a massive opportunity for investors in 2021. The benefits of SPACs have forced many industries, including real estate, to get involved.
According to The Real Deal, a large number of real estate players are focusing on Proptech due to the increasing amount of money flowing into blank check firms. Real estate tech companies that ignore these trends will likely miss an exciting opportunity. PropTech is a rapidly evolving field, and when used in conjunction with the SPAC business process, there is a winning combination worthy of exploration.
Investing in forest land suitable for producing lumber can provide you income, diversification, inflation protection and more. Timber investing requires careful study of the industry, market and individual parcels, and it’s generally a long-term play, with years required to realize a profit. Timberland is also highly illiquid, so you might need a year or more to turn your asset into cash should you need it. Talk to a financial advisor to learn how investing in timber and other real assets can help you achieve your long-term objectives.
Timber Investment Basics
Investing in timber involves owning land that’s used to grow trees that can be processed into lumber. Timber, which is considered a real asset, is vital to the production of paper, utility poles and furniture, as well as the construction of homes and other buildings.
Timber sales are infrequent, as it can take decades for trees to grow large enough to be harvested. In fact, you may only make a handful of timber sales in your life as a timberland investor. Timber investors can generate income more regularly by selling seeds or renting land for livestock to graze on. Timberland can also be used for recreation.
More than 500 million acres of commercial timberland exist in the United States, according to the United States Department of Agriculture. An acre of timberland can cost from $1,500 to $2,000, with prices varying by location, road access and the type and maturity of trees. The value of timber also varies by tree variety, size and quality. According to TimberUpdate.com, which tracks prices and trends in the timber industry, prices can range from about $5 per ton for low-quality small trees to as much as nearly $50 per ton for mature, straight trees that can be sawn into knot-free boards for decorative uses.
Pros and Cons of Timber Investing
Timberland has a number of features that make it attractive to investors. These include:
Income from selling timber to sawmills
Inflation protection similar to other commodities
Diversification and risk management from owning an asset not correlated to stocks, bonds and other asset classes
Favorable capital gains tax treatment for most income
Appreciation as trees grow into more mature specimens that command higher prices
Sustainability, since trees generally benefit the environment
Owning timberland can also give you the opportunity to personally enjoy an investment. A section of timberland can even provide a site for building a second home or even a primary residence.
But owning timberland also may involve some or all of the following limits and risks:
Long time frames waiting for trees to be mature enough to harvest
Unpredictable prices when you sell trees due to commodity cycles
Time, money and attention required to plant and tend trees and maintain the property
Risk of fires, floods, hurricanes and other natural disasters
Low liquidity compared to most other investments can also be an issue. It can easily take a year or more to sell a parcel of timberland and turn your investment into cash.
Investing in Timber ETFs
Rather than directly buying timberland yourself, you can buy shares of exchange-traded funds (ETFs) focused on timber. These specialized ETFs invest in shares of companies that own or lease timberland and harvest the trees for lumber or other forest products. Buying shares of timber-focused ETFs allows you to get asset diversification, inflation protection and other timber investment benefits without the challenge and illiquidity of owning and managing the timberland yourself. You will also get additional diversification within the asset class because these ETFs own shares of a number of timber-related companies, reducing your exposure to weather, fire and other risks.
Timber ETFs include the iShares Global Timber & Forestry ETF and the Invesco MSCI Global Timber ETF.
Bottom Line
Timberland investments offer a way to diversify your portfolio with real assets that can produce both income and capital gains. But buying and owning timberland requires an in-depth knowledge of the industry and significant time and attention. Timberland is also a long-term play, often requiring years or decades to generate a profit.
Investing Tips
A financial advisor can help you evaluate alternative approaches to achieving diversification, inflation protection and other benefits of owning timberland. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors in your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s Investment Return & Growth Calculator takes a lot of the guesswork out of forecasting how your investment will perform over time. Enter the amount of your initial investment, the timing and amount of any additional contributions, your anticipated rate of return and the number of years you plan to let the investment grow. The calculator will give you an estimate of how much your portfolio will be worth, assuming all those factors play out as planned.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
Dallas-based Comerica Bank has decided to “organically exit” the mortgage banker finance business following the tumult in the banking industry that threatened the nation’s top warehouse lenders.
The process of exiting the space, which is expected to be largely complete by year-end, is a “strategic action” to enhance Comerica’s core business focus, according to a bank’s presentation during a Morgan Stanley conference on Tuesday.
However, the recent banking crisis that resulted in the failure of Silicon Valley Bank,Signature Bank and others also added some risk to warehouse lenders, mainly those with a higher share of uninsured deposits and relatively lower level of capitalization.
Representatives at Comerica referred to the presentation when asked about the bank’s decision and its implications. Inside Mortgage Finance (IMF) first reported on the topic.
Per the presentation, exiting the mortgage banker finance business smooths seasonality and cyclicality in the loan portfolio, improves capital efficiency and enhances the stability of the bank’s liquidity.
The bank expects to improve its loan-to-deposit ratio by 150 basis points by the end of 2023. It forecasts the ratio to be in the “mid 80s” by the end of this year.
Warehouse lending, one of the sources of liquidity to independent mortgage bankers (IMBs), usually has good yields and short term, according to industry experts. These loans are also highly secured and collateralized.
But they are not immune to systemic industry shocks.
In March,Moody’s Investor Servicelisted Comerica among the nation’s top warehouse lenders for potential rating downgrades. In April, the agency downgraded the bank’s rating to Baa1 from A3.
According to Moody’s Investor Service, Comerica’s share of deposits above the Federal Deposit Insurance Corporation (FDIC) ‘s threshold was material, which made the “bank’s funding profile more sensitive to rapid and large withdrawals from depositors.”
“In addition, if it were to face higher-than-anticipated deposit outflows, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS securities, which as of 31 December 2022 represented a sizeable 38.5% of its common equity tier 1 capital [or CET1, a key regulatory capital measure].”
A spokesperson for Comerica told HousingWire that any correlation between Comerica and the impacted banks regarding deposits was an “apples-to-oranges comparison.”
“Comerica has a more diverse, stable and ‘sticky’ deposit base and we remain well capitalized and highly liquid,” the spokesperson said.
According to IMF, Comerica was the 14th largest warehouse lender nationally based on market share in the first quarter of 2023. The bank had $1.7 billion in commitments, 35% down year over year.
I referenced in my last opinion piece in Housing Wire that the Urban Institute publishes a “monthly chart book” that is packed full of relevant data. This recent publication paints a clear picture as to why any Realtor or homebuilder should always include a nonbank lender in their referrals.
Before I open myself up to attacks here, I am using macro data from Urban Institute and there are certainly some banks who serve a broader swath of the market. But let’s start with the basics as to who really is expanding credit access in the market.
When looking at the nonbank share of all loans broken down by investor (Fannie, Freddie, and Ginnie Mae) the glaring data point that stands out is that nonbanks do well over 80% of all loans being made today. More importantly, when it comes to the Ginnie Mae programs, banks contribute only 7% of all the mortgages by the FHA, VA, and USDA. Seven percent is a glaring figure, especially when you look at the dynamics shaping the housing market.
The reason why this stands out is that the distribution of loans in the Ginnie Mae programs has the highest concentration of first-time homebuyers and the largest percentage of minorities. In the FHA program alone, 46.3% of all loans are to Hispanic and Black borrowers and with over 80% of all FHA’s purchase transactions going to first-time homebuyers, the fact that banks only do 7% of these loans is extraordinary.
Why does this all matter? Because the key regulators in Washington spend a lot of their time ingratiating themselves to the banking industry and lamenting about nonbanks. As Chris Whalen articulated in his recent op-ed, “Consumer Financial Protection Bureau head Rohit Chopra said in May that ‘a major disruption or failure of a large mortgage servicer really gives me a nightmare.’ He made these intemperate comments during CBA Live 2023, a conference hosted by the Consumer Bankers Association.”
The fact that regulators spend time “biting the hand that feeds them,” my reference to the fact that it is the nonbanks providing support for the constituency that this administration should care about and certainly not the audience at a CBA conference, is pretty alarming.
As Whalen goes on to highlight, “Chopra’s focus is political rather than on any real threat. But of course, progressive solutions require problems. Three large and mismanaged depositories failed in the first quarter of 2023, yet progressive partisans like Chopra, Treasury Secretary Janet Yellen, and Federal Housing Finance Agency head Sandra Thompson ignore the public record and continue to fret about nonexistent risk of contagion from mortgage servicers.”
I have taken a lot of negative feedback from many who are connected to the current administration about my criticism of things like LLPA fee changes. But in a similar context as Whalen, I am tiring of the politics of an administration and its regulators who focus their time on trying to reign in the independent mortgage banks (IMBs) — the very set of institutions that are responsible for ensuring that access to credit remains for American families who might otherwise be shut out of the market.
One might ask, why do IMBs do so much better here in advancing credit availability? I think it comes down to a core principal: IMBs only do mortgages. Unlike banks, they don’t do auto loans, credit cards, student loans, business lending, lines of credit and more. Banks don’t need to expand their mortgage lending businesses. In fact, the trend has been to retreat from mortgages, not embrace this segment further.
Just look at the data. When it comes to credit (FICO) scores, IMBs are significantly more aggressive. And since credit scores are lower for first-time homebuyers and trend lower in most minority segments, the IMBs naturally prevail as the best option for the homebuyer.
Or look at this data on DTI (debt to income ratio). The spread between median bank DTIs versus nonbanks in the Ginnie Mae program is significant and, frankly, will affect those on the margin of access to homeownership in a significant way.
The fact that banks are only 7% of all Ginnie Mae lending is not by accident. The reality is that they have systematically walked away from any element of mortgage lending that seems to be of greater risk. It’s frankly why companies like Wells Fargo today are a shadow of the mega-market dominators that they once were.
Whalen perhaps said it best stating, “More than any real-world problem posed by IMBs, it is the government in all of its manifestations that poses a significant risk to the world of mortgage finance and the housing sector more generally. Washington regulatory agencies seek to stifle the markets, limit liquidity and impose additional capital rules, strictures that must inevitably reduce economic growth and access to affordable housing.”
We have a labyrinth of federal regulators who failed to see how the significant rise in banks’ cost of funds, driven by the actions of the Federal Reserve, might push some banks into negative basis territory. This scenario, where they were paying depositors more than they were earning on their unhedged assets, put them out of business. And the regulators missed all of this. In all of their angst and speech-making about the risks of nonbanks, they simply overlooked three of the most expensive failures in banking history.
As I write this, I know that I too was once part of the arrogance of an administration that lectured and directed more than it listened at times. But today we face too many risks. Whalen clearly articulates how the GSEs are being directed down a path that will only decrease their relevance over time if left unchecked.
But perhaps the core message here is this: If I were a Realtor or homebuilder, I would make sure that my potential buyers, especially my first-time homebuyers, were in conversation with an IMB (or mortgage broker). If that simple step isn’t being done, then the access to credit challenges will likely only loom larger.
Remember, IMBs are not risk taking entities. They pass through the credit risk into government-backed lending institutions and they get paid a fee to service the loans for these government entities. We need regulators to stop speechmaking at banking conferences about risk here and instead applaud the critical role these companies perform.
More importantly, regulators should spend more time bolstering forms of liquidity to these entities. There are solutions that can help.
But really, the more time they spend politicizing the nonbank story, we risk more bank failures, which are truly the greater risk in the sector. Let’s applaud the IMBs for keeping the doors to homeownership open. And let’s demand that our regulators stop using political platforms to distort others’ views while not focusing on their primary responsibilities.
Accountability will only exist when stakeholders demand it.
David Stevens has held various positions in real estate finance, including serving as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, assistant secretary of Housing and FHA Commissioner, and CEO of the Mortgage Bankers Association.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story: Dave Stevens at [email protected]
To contact the editor responsible for this story: Sarah Wheeler at [email protected]
Real estate brokerage Compass has launched a unique new offering known as “Compass Bridge Loan Services” that solves the buy before you sell conundrum.
Many existing homeowners buy replacement properties when selling their current ones, but it can be tricky to time a sale and purchase concurrently.
Aside from mortgage lending issues, like coming up with a down payment and balancing two monthly mortgage payments, there’s also the other buyer/seller to worry about.
This can be especially challenging in a hot market where all-cash offers are the norm, or if competition makes things like contingencies hard to draw into the contract.
To alleviate these pressures, Compass has joined forced with two large mortgage lenders, Freedom Mortgage and Better, to help their home sellers get a bridge loan.
How Compass Bridge Loan Services Works
Sign listing agreement with a Compass real estate agent
Apply for a bridge loan with any bank, including their preferred lenders
Use funds to purchase replacement property and move in when you want
Sell old property and use proceeds to pay off the bridge loan
First, the home seller signs an exclusive contract with a Compass real estate agent to sell their existing home.
Next, they apply for a bridge loan with the bank of their choice, including Compass’ vetted lenders Freedom Mortgage and Better.
Those two lenders can apparently get the job done fast, as time is often of the essence in situations like these.
For the record, Better isn’t available to customers in MA, NH, VA, and VT, but Freedom Mortgage is available nationwide.
Anyway, once approved for the bridge loan, the home seller can move into their new home using the proceeds for down payment or to simply make monthly housing payments.
To sweeten the deal, Compass agents can “front” the first six months of bridge loan payments to keep liquidity a non-issue for the cash-constrained homeowner.
Sell with Compass Concierge to Fetch a Higher Price
The company also offers a no upfront cost renovation service known as Compass Concierge
Property is prepped and renovated before being listed to get top dollar
And to ensure a quick sale without languishing on the market
Seller only pays for renovations at closing once home sells
In the meantime, a Compass real estate will work to sell the homeowner’s former property.
This may also include Compass Concierge, which is very similar to Curbio in that you can renovate your home before listing and pay the repair costs at closing.
Like Curbio, they’ll recommend what should be done to get the property up to snuff, including new floors, deep cleaning, roof repairs, bathroom and kitchen improvements, painting, and more.
The changes are aimed at improving the property value and making it sell quicker, which could reduce the time you’ve got that bridge loan open.
Speaking of, interest rates on bridge loans are notoriously higher than traditional loans because they’re only intended to be kept for a short period of time.
As such, you won’t want to keep it very long in order to protect your hard-earned money, so this type of service only works for someone looking to make a quick transaction.
The question you need to ask is if the cost outweighs the benefit – it may turn out to be cheaper to sell contingently without the bridge loan.
So be sure to do the math and run some scenarios to ensure you’re going down the right path.
Of course, there are intangibles to consider as well, like missing out on your dream house if the sellers aren’t interested in waiting around for your old home to sell.
From Compass’ perspective, it appears they’re looking to compete with all the disruptors entering the real estate space, including iBuyers like Opendoor, RedfinNow, and Zillow Offers.
These companies will buy your house and even let you trade it in for a new one, completely removing the typical obstacles associated with buying and selling homes at the same time.
Compass has already rolled out the bridge loan service in select markets nationwide and early feedback has apparently been “overwhelmingly positive.”
The Federal Home Loan Bank of San Francisco has named a longtime mortgage banker, Jennifer Schachterle, as senior vice president of sales and business development.
She will oversee the bank’s relationships with its nearly 330 member financial institutions in three states — Arizona, California and Nevada.
Schachterle had been sales director of warehouse lending at Western Alliance Bank in Phoenix. Before that, she had worked at Dallas-based Comerica Bank as a senior vice president of warehouse lending. Schachterle also had been a director of counterparty risk at PennyMac Loan Services.
The San Francisco Home Loan Bank declined to say whom Schachterle replaced, citing privacy concerns.
Both the $71 billion-asset Western Alliance and $92 billion-asset Comerica are big borrowers and shareholders of the Home Loan Bank System.
“Ever more important today are regional banks and community-based lending institutions that are at a critical inflection point in today’s financial environment,” Tony Wong, executive vice president and chief banking officer at the San Francisco Home Loan Bank, said in a press release.
The recent bank liquidity crisis has hit the San Francisco Home Loan Bank hard with the sale in May of San Francisco-based First Republic Bank to JPMorgan Chase, the failure in March of Silicon Valley Bank and the self-liquidation of Silvergate Bank of La Jolla, Calif.
Membership in the San Francisco Home Loan Bank also has declined due to acquisitions. BMO Financial Group recently finalized its $16.3 billion purchase of Bank of the West, which had been based in San Francisco. Regulators also recently approved U.S. Bancorp’s purchase of MUFG Union Bank of California.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
If you have been trading for a while, then there is a good chance that you have made some trading mistakes along the way.
Unfortunately, it is part of learning how to trade.
After all, trading is a skill that takes time to learn.
Trading mistakes are part of the learning process. I know that sucks to hear, but it is the truth.
The outcome goal is to learn from those trading mistakes.
Then, you can realize what you did wrong so you do not repeat those same mistakes.
However, more than not, it is more common to repeat the same mistake over and over again.
If you are ready to recognize trading errors and learn how to overcome them, then keep digging in. Take notes and adjust your trading plan accordingly.
We will cover emotional trading mistakes, technical trading errors, and option trading mistakes.
What Are Trading Mistakes?
Trading mistakes are errors made by traders when you enter trades, either to purchase stocks or options.
More than likely, you will see the same type of trading error happening over and over again.
Trading mistakes are very common, but they do not have to lead to complete panic.
In order to minimize the chances of making a costly mistake, traders should adhere to their trading strategy. Additionally, traders should always trade with a clear head and stay disciplined.
There are plenty of trading mistakes you can avoid by being smart and adjusting your trading plan where needed.
Why Understanding Trading Mistakes Is Important for Long-term Success
Trading mistakes are the result of traders taking losing trades, which can result in poor overall performance.
Mistakes that occur during trading often include not paying attention to the market, not understanding risk, not having a well-thought out trading strategy, and being bad at managing the trade.
Whatever the reason, trading errors occur and it is how we react to them that matters.
Long-term success in trading is not a goal that can be accomplished overnight.
Achieving long-term success with active trading requires patience, discipline, and practice.
It is easy to get caught up in day-to-day successes and forget to commit to a long-term plan. As traders, it is important to be able to recognize our mistakes so that we can learn from them and move forward.
Top 5 Trading Mistakes
As you will see, we compiled a long list of trading mistakes. Each trader will see some of those trading errors in themselves. Some are small trading mistakes while others are detrimental.
First, we are going to focus on the top five trading mistakes first. This will make or break your success as a trader.
The following are five common trading mistakes that traders make and how to avoid them.
#1 – No Trading Plan
Trading without a plan means you enter a trade without knowing your next step.
No trading plan means that traders are not able to set clear goals, establish risk-reward ratios, and avoid common pitfalls that can occur during a trade. This makes it difficult for traders to know when they should be buying, selling, or holding.
Trading without a plan is risky because it can lead to losses that are much higher than they need to be.
When starting out in trading, it is important to remember that we can only focus on what we can control. This means that we should not worry about things we cannot change, such as the past or the behavior of other traders. Instead, we should form a trading plan and stick to it so that we can succeed in the long run.
Creating your trading plan will happen with many revisions. The goal of the trading plan is to set your overall strategy for trading.
Also, you need to have a specific trading strategy for each trade you enter.
Avoid by: Spending time to develop a trading plan. Revise as needed. Stick to it.
#2 – Risk Management Plan is Missing
A risk management plan is essential for traders and it should be included in any trading plan.
Without a risk management plan, traders are more likely to make emotional decisions that can lead to costly mistakes. For many traders, this is the hardest thing for them to manage.
It is possible to create a risk management plan as your overall trading plan.
In your risk management plan, you must decide (in advance) how much money you are willing to lose based on the amount of profit you perceive to make. For instance, you are willing to risk $300 in order to make $1000.
Many day traders focus on a 2:1 reward-to-risk ratio. Personally, I look for stronger reward-to-risk ratios greater than 3:1.
Avoid by: Understand how risk is a part of making a profit. Set your risk tolerance and do not deviate from it.
#3 – Not Keeping a Trading Journal
One of the most important aspects of successful trading is keeping a journal.
This not only helps you keep track of your trades and performance, but it can also help you remember what worked and what did not. Journaling is so helpful and such an overlooked task.
Your trading journal is the perfect place to take notes, keep track of your wins and losses, and record market movements so that you can learn from past mistakes.
At the end of every trading session, you should take some time to analyze your trades.
What went well?
What didn’t go well?
Why did you make that particular trade?
What was your entry strategy?
What was your exit strategy?
Where was the overall market momentum?
Did you control your emotions?
What grade would you give yourself?
This analysis is important so that you can learn from your mistakes and improve your trading skills. Stay motivated to continue learning about trading and keep more profit.
Avoid by: Start journaling. Spend time after exiting a trade and the market day to understand what happen and why you did a certain trade.
#4 – Watching Too Many Stocks
Watching too many stocks can lead to a decrease in returns and overall confusion on what is happening with your watchlist.
As a result, it is important to be selective.
The same can be said of stock scanners. If you are watching too many variables and possibilities, you can quickly become overwhelmed.
When you develop your trading plan, you need to decide how you find stocks.
Personally, I prefer to focus on a handful of stocks and a few key metrics. Then, watch them closely and trade accordingly.
As a new trader, I would pick about 5-10 stocks to analyze.
Avoid by: Revise your watchlist to half what you are currently watching.
#5 – Actually Exiting Trade as Planned
Above we talked about creating a trading plan and having a trading strategy for each trade taken.
But, the trading mistake happens when you do not exit the trade as planned.
This could be because of “hopemium” that the stock price will recover and you will get back your loss.
Our “hopemium” is that the stock price keeps rising and you will make more money.
Either one can be damaging to your trading account.
You created a plan. As a disciplined trader, you must follow your plan either to maximize your current profit or protect your risk against further losses.
Avoid by: Exiting at your set targets. Period.
12 Typical Emotional Trading Errors
Trading is 80% mental and 20% execution. Okay, I am not sure that there is an official study to back it up. But, I do know as a trader that emotions play heavily into your overall profit.
The typical emotional trading errors that traders make when they are in a trade are overconfidence, jumping into trades before the proper analysis is completed, and inability to take losses.
This is where most of the trading mistakes are made.
When first starting out in trading, it is easy to get caught up in the prospect of making a lot of money quickly. However, most traders find that trading is not easy to do and make common emotional trading errors.
Let’s dig into these emotional mistakes first and then we will follow up on the technical trading mistakes.
1. Letting emotions impair decision making
Emotions are an important part of decision-making, but it can be dangerous to allow them to influence our decisions. We should also take into account that emotions can often lead us astray.
It is clear that emotional trading can lead to bad decision making and, ultimately, financial losses.
When investors let their emotions take over, they are not thinking logically and may make impulsive decisions. For example, they may sell stocks when the market is down in order to avoid further losses, even though the stock may rebound soon after.
In order to be successful traders, it is important to stay calm and rational when making decisions.
Overcome by: Stick to your trading plan and take emotion out of the equation.
2. Unrealistic Profit Expectations
You go into every single trade expecting a home run! Enough money to achieve your dreams overnight!
These types of profit expectations will have you throwing your risk management plan out of the window and set you up for failure with greed, overconfidence, and impatience.
Be realistic about your expectations with trading activity.
Overcome by: Go for base hits. Small consistent wins.
3. Greed
Greed is a deep-seated need for more profit without regard to the chart or market conditions.
The common rationale is hopefully the stock will go up. Typically, you hold your position too long and end up losing some of your gains.
Greed can manifest in many different ways, and people with greed often neglect their own needs in order to attain more.
Overcome by: Set an OCO bracket to exit the trade at your specified level. Take you out of the equation.
4. Fear of Missing Out (FOMO)
You fear that you missed out on a trade, so you decide to jump in. As a result, you are risking more than you should.
This trading mistake is common, especially with online trading communities.
As a result, you may buy at the high and watch the stock reverse.
Overcome by: Realize that there will be missed opportunities. That is part of the game. There will always be another chance.
5. Fear
In many cases, fear is a reaction to why or why not we enter a trade.
For any trader, they may become frozen unable able to make a decision as their mind is wrapped in fear. At the same time, they are either missing out on potential profits or unable to exit a trade due to mounting losses.
Overcome by: This is a real emotion that you must overcome. Take the time and read resources to help you overcome being paralyzed by fear.
6. Overconfidence after a profitable trade
The overconfidence that comes with success can lead to a loss of profits.
When a trader has a winning position, they may become overconfident and make bad decisions because of the previously profitable trade.
For example, they may not take their profits off the table when there is an opportunity to do so or increase their position size when they should be taking profits. This could lead to them losing all of their winnings and more.
Overcome by: Take a break from trading for a few days or a week after a big win.
7. Entering a Trade Based on Your Gut
The process of entering a trade based on your gut is, essentially, following your “gut feeling” and buying or selling shares after the market opens. This is seen as a more risky and less profitable strategy than following a more traditional market timing approach.
Trading is all about making calculated decisions and sticking to a plan.
Trading based on your gut feeling or emotions will only lead to costly mistakes.
Overcome by: Before entering into any trade, make sure you have a solid strategy in place and know all the rules. Only then should you start trading.
8. Not reviewing trades
Not reviewing trades is a common problem for many traders. Traders who don’t review their trades tend to be more likely to make mistakes in their trading and over-trade, which can result in losses.
You will make the same mistake over and over again until you realize the root of the problem.
This is how you move from a losing average to a winning percentage.
Overcome by: Let your journal be your friend. Document everything including your emotions.
9. Following the Herd
Many people enjoy following the herd with stock trading, especially online platforms on Reddit, Discord, or Twitter.
You may decide to follow a certain group of people in order to be fed stock picks or updates.
This can be risky because there is no sound foundation to base your trade upon.
Overcome by: Trade your style and let that fit you.
10. The Danger of Over-Confidence
The “beginner’s luck” experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches.
Over-confidence is the belief that one’s abilities, knowledge, or qualities are better than average.
This over-confidence is a risk factor for certain types of mistakes and other negative outcomes as it leads to complacency, a lack of preparation, and an overestimation of one’s abilities.
Overcome by: Realize your limitations and watch for overconfidence to appear.
11. The Importance of Accepting Losses
Losses are always a part of trading life, but they can be overwhelming when they occur.
It is important to recognize that losses are in fact an inevitable part of growth and development as a trader.
Overcome by: Journal all of your losses. Look for patterns to appear. Adjust your trading strategy as appropriate.
12. Quit Your Job Too Fast
Quitting your job too fast is not a good idea, as it will force you to place trades that may not be the best set-ups.
Day trading can be a very risky venture, and it is possible to lose everything you have invested.
It is important to be aware of the risks before getting started. More importantly, do not quit your job too fast. This can lead to losses in your investments and could potentially put you in a worse financial situation than you were before.
Overcome by: Keep trading as a side hustle. Hone your trading skills and build up a reserve fund that will cover your monthly expenses. You will know when you are prepared to leave your 9-5.
Common Mistakes in Stock Trading
According to a study by the U.S. Securities and Exchange Commission, technical trading mistakes are actually fairly common among individual investors.
Mistakes in technical trading can be two-fold, either due to lack of knowledge or poor execution.
The most common mistakes are buying at the top and selling at the bottom, overtrading, and not taking the time to properly understand how trading works.
Now, let’s dig into all of the common trading mistakes I see.
1. Overtrading
Let’s start by talking about overtrading. This is a mistake that I see many people make. It is also a mistake that could have been easily prevented if you had just done your research before placing the trade.
Overtrading or placing more orders than you should do is the most common mistake.
Many new traders will simply open up their platform, look at the market, and place a trade. They are often chasing after the last couple of candles or they see an opportunity to get in “on the cheap”.
The problem with this approach is that you have no idea if this is a good trade or not. You are simply taking a shot in the dark and hoping for the best.
Overcome by: Only place the A+ setups that you like. Once you have traded so many times per day or week, stop trading.
2. Buying High and Selling Low
We all have heard the saying, “buy high and sell low.” However, too many novice traders do the complete opposite.
This trend happens with one of the emotional mistakes of FOMO; we already dived into that concept earlier.
Overcome by: Follow your trading plan on when to enter and exit the trade. Practice your strategy in a simulated account and master it.
3. Lack of Trading Knowledge
The lack of trading knowledge is a problem for many traders who are not familiar with how the stock market works. This can cause them to make mistakes when buying and selling stocks, which could result in losing a lot of money.
Just because you made a profit once on one stock does not mean that is a repeatable action.
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies involved.
Without proper training, you are likely to make costly mistakes that can cost you money. Trading courses and tutorials are available online and through other resources to help you gain this knowledge and become a successful trader.
Overcome by: Take an investing course. Spend money on your education and not your losses. Here is a review of my favorite day trading course.
4. Following Too Many Strategies
Following too many strategies is a common problem in the investing world, which can lead to poor performance and more costly mistakes.
There are a million and one different approaches on how to trade the stock market, which indicators to use, whose advice you should follow, so on and so forth.
And then, many traders try and couple the strategies together only to quickly learn they may cause more losses than profits.
One way to avoid following too many strategies is by using a set of rules to decide which strategies are appropriate for investing.
Overcome by: Develop your trading plan. Outline the investing strategies you will use. Test any new strategies in SIM first.
5. Do Your Research
The solution to this problem is simple: do your research!
Before you enter a trade, take the time to do some analysis on the asset you are looking at. Look at past price action, news events, and any other relevant information that you can find.
Understand why the market might move in your favor and be able to build a case for it. The more data points you have supporting your position, the better off you will be.
If you are able to build a strong case for why the asset will move in your favor, then you can enter with confidence. This is because if the market does not move in your favor, you will know that it isn’t because of a lack of research on your part.
When you enter with confidence, this will make it easier to hold through the inevitable volatility and price swings.
Overcome by: If you enter without knowing why something is likely to move in your favor, then you are setting yourself up for failure. Do your research.
6. Not Using Stop-Loss Orders
Stop orders come in several varieties and can limit losses due to adverse movement in a stock or the market as a whole.
Tight stop losses generally mean that losses are capped before they become sizeable. However, you may have your stop loss too tight and get stopped out before your stock has room to move.
A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered because they believe that the price trend will reverse.
Overcome by: Plan your stop loss in advance. Stick to it as it is part of an overall risk management strategy.
7. Letting Losses Grow
Active traders can be harmed by refusing to take quick action to close a losing trade.
It is important to take small losses quickly and limit your risk in order to stay profitable.
Stop losses can help you avoid larger losses.
While the stock may come back to your buy price, you have increased your risk far beyond what you planned. If your planned loss was $300 and now you are down over $500, it will take that much longer to overcome that growing loss.
Cut your losses. Review the chart. See what a better entry point may be.
Overcome by: If the stock moves past your pre-determined stop, then exit the trade. Don’t trade on hope.
8. Chasing After Performance
Many day traders are tempted to chase stocks, which is a bad reputation in the day trading world.
This happens when they see a stock that has had a large price increase and they think that it will continue to go up. In reality, this is not usually the case, and chasing stocks can lead to big losses.
What goes up must come down, right?
Overcome by: Wait for a better time to enter the trade according to your trading plan.
9. Avoiding Your Homework
It is important to do your homework. If you avoid doing your homework, then don’t expect fast results
Many new traders often do not do their homework before making any investment decisions.
This can lead to costly mistakes that can be avoided by doing some basic research. Trading is a complex process and should not be taken lightly – make sure you are fully prepared before risking your hard-earned money.
Overcome by: If you have not enrolled in an investing course, do that. Set daily goals on how to improve your trading performance that is not based on profit or loss.
10. Trading Difficult and Unclear Patterns
It is important to stick with the patterns and indicators that are clear and unmistakable so you don’t get caught up in any ambiguous or unclear trading signals.
With a little bit of research and understanding, these market patterns can become quite clear.
By forcing a chart to fit in what you want, then you are putting your trading capital at risk.
Overcome by: If you cannot read a clear chart or pattern, then quickly move to the next stock.
11. Poor Reward to Risk ratios
The most common mistake made by traders is poor risk management. This usually means taking on too much risk in relation to the potential rewards, which can lead to heavy losses if the trade goes wrong.
It is important to always have a solid plan for how much you are willing to lose on any given trade and never deviate from it.
What is the Reward to Risk ratio you look for:
1:1 Reward to Risk
2:1 Reward to Risk
3:1 Reward to Risk
Many beginner traders do not want to take on as much risk because their appetite for potential rewards may be lower. It is important for beginners to consider their trading strategies and risk management plans so that they can make the most informed decisions possible.
Risk-to-reward ratios are an important part of trading, and experienced traders are typically more open to risk in order to maximize their potential rewards. This means that they may be more likely to make high-risk, high-reward trades.
Overcome by: Stick to Risk to reward ratios that fit your trading plan.
12. Ignoring volatility
Volatility is the fear and unknown in the market.
The most important thing to remember about investing is that the stock market can be volatile.
A measure of volatility is from the VIX.
Overcome by: Decide how you will trade when the VIX is high and the news is negative.
13. Too Many Open Positions
Entering too many positions is one of the most common mistakes investors make. A portfolio should consist of a handful of top-performing investments that have proven to be good bets over time.
It is unwise to open too many positions in a short amount of time because it could lead to confusion.
This can be risky because if one or two of the positions go south, the entire portfolio can suffer. For this reason, it is important to carefully consider each position before opening it and make sure that all positions are contributing positively to the overall goal.
Overcome by: As an active trader, stick to under 5 open positions. As a long-term investor, look to build a portfolio of 25 stocks over time.
14. Buying With Too Much Margin
Most brokers offer 2:1 or 4:1 margin to cash. While this is tempting to use, it can also give you a margin call.
Margin can help you make more money by increasing your position size, but it can also exaggerate your losses.
Exaggerated gains and losses that accompany small movements in price can spell disaster for a new trader using margin excessively.
Overcome by: Use your cash only. Stay away from using margin.
15. Following Meme Stocks
These are the stocks made popular by many Reddit personal finance groups.
You have probably heard of Gamestop, Blackberry, AMC, or Bed Bath and Beyond as a meme stock.
While these stocks have risen to crazy highs, they have also fallen just as fast. Chasing the high may leave you with a big and painful loss.
Overcome by: Stick to your stock watchlist.
16. Buying Stocks With No Volume
Buying stocks with no volume is a risky idea that involves placing an order on a stock without knowing how much interest there will be in the shares. This can result in losing money if there are no buyers for the shares.
It is important to validate the price of a stock by looking at volume. The volume shows how much interest there is in a stock and can be indicative of future price movement.
When volume is low, it’s best to stay away from buying stocks as it could be a sign that the stock price is not stable.
Overcome by: Trade stocks with a volume of at least 500,000 or higher.
17. Ignoring Indicators
Indicators are things that tell us the market is going up or down. Examples of indicators would be the stock market at a particular point in time, a company’s performance with regards to earnings, the price of a product or service.
Every trader has their own set of indicators they use.
If you have outlined indicators you use in your trading, make sure to follow them regardless if it is against the way you want the stock to move.
Overcome by: Stick to your trading plan for each stock individually.
18. Trading Too Large Position Sizes
Trading too large position sizes is a risk that traders may run into when they hold positions in their portfolios for extended periods of time.
Position size is the amount of money placed on a trade, and the risk is that a trader may lose more than their capital on the trade if it does not go well.
Overcome by: Base your position size on the amount you are willing to lose. Not how much you want to make.
19. Inexperienced Day Trading
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies you are using. Without proper training, it is easy to make costly mistakes.
Too many day traders turn trading into an unnecessary risky game.
To be successful, a day trader must have a solid foundation in how to invest in stocks for beginners.
Overcome by: Practice in a simulated account and make all of your mistakes there before moving to live money.
20. Inconsistent trading size
Inconsistent trading size is when traders are unable to predict what their position size should be in order to meet the trader’s desired profit goal.
Trading size is one of the most crucial aspects of a trading strategy and should be considered carefully. Larger trade sizes come with an increased risk, so it’s important to be aware of your position size when making trades.
Overcome by: Don’t risk too much on one trade. Stick to your risk management plan.
21. Trading on numerous markets
Trading on numerous markets is when a trader invests in stocks, bonds, commodities, crypto, and other securities.
Every type of market moves differently and takes time to understand how to be profitable.
Overcome by: Find your niche and stick to it.
22. Over-leveraging
Leverage is a powerful tool that can be used to magnify gains and losses in a trade. It is important to be aware of the amount of leverage being used in order to effectively manage risk.
Brokers play an important role in protecting their customers by providing margin calls and other risk management tools.
Overcome by: If you feel over-leveraged, sell some positions before your broker gets involved.
23. Overexposing a position
Overexposure is a term used in the investment world to describe the risk that comes with exposing your position too much in the market. When you have overexposed your position, you are putting yourself at risk of losing money if the stock or security you are invested in falls in value.
You are taking on too much risk.
Overcome by: Stick to your risk management plan. Always have cash reverse on hand in case the market reverses.
24. Lack of time horizon
There are different time horizons for various types of trading strategies. It is important to think about the time horizon you are comfortable with before investing in any type of investment.
If you are a day trader, you plan to close your trades before the end of the trading session. As a swing trader, you typically hold trades for a couple of days maybe up to a month. As a long-term investor, you plan to hold your stocks for longer than a year.
Overcome by: Match the time horizon of that investment purchase with your investing goals.
25. Over-reliance on software
Although some trading software can be highly beneficial to traders, it is important not to over-rely on it.
Automated trading systems are becoming so advanced that they could revolutionize the markets. As a result, human traders need to be aware of the potential for these systems to make mistakes and use them in conjunction with their own judgment.
Overcome by: Set alerts before you want to enter or exit a trade. Then, review if the move still follows your trading strategy.
Top Options Trading Mistakes Beginner Traders Make
These options trading mistakes are specific to option trading.
Trading options is an advanced strategy. If you have losses trading stocks, wait before you start trading options.
1. Not having a Trading Plan
Every trader needs a trading plan that outlines strategies, game plans, and trade metrics.
When you are trading without a plan, you are essentially gambling and hoping for the best.
This is not a recipe for success in the world of stock trading and is especially true for options traders.
A good trading plan should include chart analysis so that you can make informed decisions about when to buy and sell stocks. If you are using HOPE instead of a trading plan, then you need to find out the right way to interpret the chart because that will give you a better idea of what is happening in the market and how likely it is that your investment will succeed.
Overcome by: Create a specific trading plan based on your option strategy.
2. Not properly Researching Option Contracts
Learning to trade options is like going to school for a whole different trade.
There are way too many technical aspects to discuss in this mistake.
Spend time learning what criteria you want from an options contract to be successful.
Overcome by: Learn how options work and practice trading options in the simulator before going live.
3. Trading without an understanding of the underlying asset
Before you start trading options, trade with stocks.
Every stock moves at its own beat. You need to learn how it moves.
Jumping into options prior to knowing the stock can cause extreme losses. Learn how the underlying asset moves first. Be successful in trading stocks before moving to options.
Overcome by: Learn to trade the stock with shares first. Then, practice in a simulator. Once familiar, then trade live with options.
4. Buying Out-of-the-Money (OTM) Call Options
Options trading is a risk-based strategy. It’s important to know which strategies are right for you and what the risks of each option type are before putting on an option trade.
One common mistake that many traders make when it comes to option trades is buying out-of-the-money (OTM) call options.
This is because OTM call options are inexpensive and have a range of around 100,000 to 1 million. To avoid this mistake, it’s important to know what the risks of buying OTM call options are and which option strategies are appropriate for you.
Overcome by: Focus on trading In-the-money (ITM) call contracts. Know your strategy.
5. Not Knowing What to Do When Assigned
When you enter into an options contract, you are essentially agreeing to buy or sell the underlying asset at a specific price on or before a certain date.
If the market moves in a way that benefits the buyer of the option (the person who contracts to buy the asset), they can choose to exercise their option and purchase the asset at the agreed-upon price. However, if the market moves in a way that benefits the seller of the option (the person who contracts to sell), then they may “assign” their contract to someone else – meaning that they no longer want to buy/sell the asset, but would like someone else to take on that responsibility.
This can be jarring if you haven’t factored it into your decision-making when trading options, so it is important to be aware of the possibility.
This is why traders need a higher trading level to sell options contracts or verticals.
Overcome by: Be okay with buying the shares if you are assigned. That is a part of your trading plan.
6. Legging Into Spreads
It is a common mistake for traders to get legged into spreads by entering positions when the market price has moved away from their position. They may have gotten caught up in the belief that they are being a “smart” trader by trying to profit from the spread.
The problem is that they are not taking into account that their cost basis must go up in order to maintain the position. If the market price of the underlying goes up, their cost basis must go up as well.
Overcome by: If you are not comfortable with this advanced strategy, then exit your options contract and place a new one.
7. Trading Illiquid Options
Trading illiquid options is a mistake because traders are taking on too much risk, with potentially disastrous consequences.
Illiquid means that the option cannot be bought or sold at the given time.
In other words, the option is not tradable. When traders trade illiquid options, they are taking a risk that their trades will not be executed because there is no liquidity in the market at that time. They have to hope that the market will become liquid again, and they can then sell their position or buy back their option at a lower price.
Overcome by: Check option volume and open interest at your strike place. Verify you have interest in moving your contract.
8. No Exit Plan
It is important to have a plan in case your trading strategy doesn’t pan out as planned.
This will give you the peace of mind that you won’t be left high and dry without an exit strategy.
With options is it more difficult to limit your risk to reward. As a result, you must decide your exit plan in advance.
Overcome by: Develop your trading strategy and include how and when you will exit the option contract.
Ready to Avoid these Trading Mistakes?
Investors are often their own worst enemy when it comes to trading.
They make emotional decisions instead of logical ones, and this leads to them making costly mistakes. Plus there are many technical errors new and seasoned traders are still making.
In order to be successful in the markets, investors must first learn to accept their losses and move on. Only then can they put that mistake behind them and focus on making profitable trades in the future.
In this post, I shared some of the more common trading mistakes that people make and how to avoid them.
Now, you have to work to avoid these trading mistakes and be profitable.
Know someone else that needs this, too? Then, please share!!
More than any time since before the Great Financial Crisis, the disconnect between Washington policy makers and the actual reality in the mortgage markets is widening. The lack of real-world knowledge and comprehension by key agency heads in the Biden Administration begs the question whether Washington is a help or a hindrance as the industry grapples with rising interest rates and mounting credit loss expenses.
For example, Consumer Financial Protection Bureau head Rohit Chopra said in May that “a major disruption or failure of a large mortgage servicer really gives me a nightmare.” He made these intemperate comments during CBA Live 2023, a conference hosted by the Consumer Bankers Association.
Like his predecessor Richard Cordray, Chopra’s focus is political rather than on any real threat. But of course, progressive solutions require problems. Three large and mismanaged depositories failed in the first quarter of 2023, yet progressive partisans like Chopra, Treasury Secretary Janet Yellen, and Federal Housing Finance Agency head Sandra Thompson ignore the public record and continue to fret about nonexistent risk of contagion from mortgage servicers. Really?
The big risk posed by mortgage servicers, of course, is to shareholders and creditors, not to consumers. Witness the abortive auction for Specialized Loan Servicing by Computershare of Australia. The offering of private label servicer Select Portfolio Servicing byCredit Suisse and now UBS AG is another example of shareholder value destruction. Homepoint was basically a liquidation from the 2021 IPO.
When progressive politicians in Washington yowl about risk in the financial markets, it is usually really about risk to the personalities in question and financing their careers. There is no appreciable risk to consumers or the taxpayer from mortgage servicers, which like Black Rock and UBS are basically asset managers working for a fee. Bureaucrats like Chopra simply raise operating costs.
More than any real world problem posed by IMBs, it is the government in all of its manifestations that poses a significant risk to the world of mortgage finance and the housing sector more generally. Washington regulatory agencies seek to stifle the markets, limit liquidity and impose additional capital rules, strictures that must inevitably reduce economic growth and access to affordable housing.
The good news, of course, is that many of the proposals from the FHFA, HUD and other agencies are effectively modified or rolled back entirely (such as the debt-to-income calculation for loan-level pricing adjustments) once the industry trades and large issuers engage.
In this case, Washington listened, but only after taking an inordinate amount of time and resources from private issuers, resources that are badly needed elsewhere. Would it be too much to ask for government agencies to vet ideas thoroughly before a public proposal?
In other cases, however, as with the risk based capital rules proposed by Ginnie Mae and the capital rules already approved for the GSEs, Washington is definitely not listening. But then again, the industry did a lousy job of pushing back on the capital rules for Fannie Mae and Freddie Mac, to our great disadvantage.
Despite the withdrawal of the LLPAs, personnel at the GSEs are still pressing issuers for “mission loans,” meaning loans to underserved and generally low-quality borrowers that are sought by the Biden Administration. Some issuers approaching the GSE cash windows have been told that they will not receive attractive pricing unless the pools include mission loans.
But sadly, there are few cases where a lender could or should advise a consumer to take out a conventional loan vs. FHA/VA. And the execution from the GSEs is hardly attractive.
The changes in GSE loan pricing and other policy changes reflect the FHFA’s focus on implementing the enterprise capital requirements put into place by Thompson, even while paying lip service to progressive goals. Garrett Hartzog, Principal of FundamentalAdvisory and Consulting notes in a comment in NMN:
“The Enterprise Regulatory Capital Framework is going to dramatically transform GSE pricing in ways the industry hasn’t begun to contemplate. Understanding the ERCF means being able to mentally reconcile increasing risk-based pricing (the DTI-based fee) and decreasing the level of risk-based pricing (the credit score/LTV matrices). What’s more, people need only read Fannie Mae and Freddie Mac’s comment letters during the rulemaking process to understand that g-fees will ultimately experience a dramatic increase as a result of the ERCF.”
If FHFA raises guarantee fees for the GSEs in line with the capital rule, then Fannie Mae and Freddie Mac will no longer be competitive for larger, high-FICO loans. But poor execution at the cash window and higher g-fees are just some of the issues facing the GSEs as defaults rise and loan put backs also increase.
A number of issuers complain about an increasing tide of loan repurchase requests coming from the GSEs, Fannie Mae and Freddie Mac. One prominent industry CEO known for his ability to “see around corners” laughs at the fuss so far and told NMN: “The GSEs are just practicing for the real push back. This is just a dress rehearsal.”
Meanwhile, the FHFA has just rolled out a new program whereby all large conventional issuers must have pre-funding quality control (QC) in place for all loans going through their systems by Labor Day. For larger correspondent shops, this could mean dozens of new hires and hundreds of thousands in new annual expenses. Apparently the QC personnel at the GSEs did not know about the change.
One angry issuer tells NMN: “If your volume is mostly FHA/VA, it does not matter to the FHFA. They want QC on all loans. If my volume is mostly delegated correspondent, it does not matter. I’m buying closed loans, but it does not matter.”
Most issuers contacted by NMN say they cannot comply with the new QC edict from FHFA. The lack of appreciation for market realities within the FHFA mirrors the situation in much of official Washington, with regulators working against the best interests of consumers and the entire private mortgage and housing industry by reducing volumes and liquidity.
Ironically, even as the FHFA is becoming the focus of increased industry concerns, Ginnie Mae President Alanna McCargo is now focused on problems faced by issuers. The new partial claim regime put in place by the FHA to help finance loss mitigation for Ginnie Mae servicers evidences this concern.
The CEO of one lender that focuses on underserved communities told NMN: “Ginnie Mae understands that they need to let us run our businesses as delinquency rates rise. Until interest rates fall and volumes improve, this is a war of attrition among lenders.”
Lenders hoping for lower rates in 2023 and that are dragging their feet on cost cutting will not survive in many cases. With the markets extending spreads on late vintage production, the MBS with 6% and 7% coupons, higher for longer seems to be the plan in residential mortgages in 2023. Hope is not a strategy.