No set path exists for any professional to enter the reverse mortgage industry. People often find themselves in the business from various other professions. It’s the case for Finance of America Companies (FOA) Chief Marketing Officer Chris Moschner.
Arriving at FOA following its acquisition of American Advisors Group (AAG) last year, Moschner already had a successful marketing career before joining the industry’s leading lender. He discusses his professional journey and what he finds “intoxicating” about the reverse mortgage business as a marketer.
Marketing beginnings
Most of Moschner’s career has been spent at what he calls “traditional” or “classic” consumer products marketing, he said in an interview with RMD. He spent most of his career at the multinational consumer goods conglomerate Procter & Gamble (P&G) in Cincinnati and continues to operate from there today.
Working for P&G gave Moschner access to marketing assignments for a lot of international and domestic brands, which offered a baseline of classic marketing principles he would take further into his career.
Over the past seven years, Moschner has worked primarily in financial services marketing with a focus on the life and annuity space, he said.
“I worked for two companies, one called Bright House Financial, where I was on the ground floor launching that brand as it spun off from MetLife,” he said. “And then I found my way over to another life insurer called Protected Life, where I was the chief marketing officer. There was nothing frankly wrong with those roles, and I was enjoying them very much, but then my phone rang about [two years] ago.”
Leaping into reverse mortgages
That phone call was from AAG, and Moschner spoke with the lender’s founder and CEO to discuss the possibility of jumping into the industry’s leading reverse mortgage lender. After a good conversation, Moschner found himself really taken with the reverse mortgage product category, he said.
“I find this category intoxicating from a marketer’s perspective,” he explained. “It’s the combination of the opportunity ahead of us that we all know, where the [demographic has trillions] in equity. You’ve got this retirement crisis, you’ve got a solution hiding in plain sight, yet massive customer inertia.”
Beyond those dynamics, Moschner sees the issues that the industry has had connecting with older borrowers as, fundamentally, a marketing problem he thinks he could affect positively for his company and the wider sector.
“It comes down to the idea that if there’s a solution that people aren’t understanding, then it’s just a matter of this idea that we either haven’t given them the right insight or tapped into the right need, used the right language or made them the right offer,” he said. “I believe we can use some of those things that I’ve learned across my career to make a positive impact not just for Finance of America, but for the category in general.”
Move to FOA
Moschner served in his role at AAG for roughly five to six months before one of the biggest moves of industry consolidation came into view: FOA’s acquisition of AAG.
While FOA and its reverse-specific subsidiary Finance of America Reverse (FAR) had been a major, leading player in the space for some time, the AAG acquisition would see them become the dominant player virtually overnight.
“I have now, since April, been leading the combined marketing entity of the two,” he said. “I’ve overseen how we’ve really brought these teams together, and [most of the past year] has really been about integration. Putting two teams together, putting our processes together, putting our technology stacks together, all of that is really how I got here.”
New opportunities, moving the needle on reverse mortgages
While being acquired by another company relatively soon into his AAG tenure was not on his “career roadmap,” Moschner sees a real opportunity to expand the business now that much of the initial dust from the acquisition has settled, he said.
“Now that we’re here, I think this is such an incredible gift,” he said. “[We’ve] brought together the power of the AAG marketing model and the performance marketing model that we have with FAR’s product portfolio, which [we plan on] expanding. I think that is going to be a ‘secret sauce,’ and now that we’re here I’m even more excited about what’s ahead.”
While AAG offered FAR’s proprietary reverse mortgages through a correspondent partnership in the past, being a single entity allows the companies to leverage the marketing muscle that AAG has built over its existence with the product catalog maintained by FAR. On top of that, with the macroeconomic environment slowly improving, Moschner’s optimism has grown, he said.
“And again, as a marketer, I believe we can impact change, and I believe we are one of the big levers that are going to really unlock this category going forward.”
The much-anticipated Consumer Price Index (CPI) was released this week. For those seeking evidence that inflation will soon be back at the Fed’s target level, it wasn’t the triumph it might have been. Even so, rates managed to move lower.
Mortgage rates and, indeed, most rates are determined by trading levels in the bond market. Bond yields/rates move higher when inflation is high, and the market has been waiting on signs of lower inflation before trading in a way that allows interest rates to move lower.
The Consumer Price Index (CPI) is the biggest name in monthly inflation reports. It’s caused big reactions in rates many times over the past few years. In recent months, it’s been showing more and more promise regarding a return to inflation levels that would allow for significantly lower rates.
But CPI has given false hope before, so traders are wary. This week’s report definitely stopped short of providing resounding confirmation that inflation is defeated. That said, it didn’t send any signals that were too troubling either.
With that in mind, it’s not too surprising that rates actually didn’t move much in response to CPI. If anything, the initial impulse was toward slightly higher rates. It wasn’t until the following day’s Producer Price Index (PPI) that bond traders saw better evidence of calmer inflation. Both CPI and PPI have been moving lower, but PPI is now all the way back down to target levels.
The following chart shows how 10yr Treasury yields (which tend to correlation with mortgage rate movement) were reacting throughout the week:
Note the initially bad reaction to CPI. There was a recovery that same afternoon for a variety of potential reasons. At least one of those reasons had to do with speculation that the Fed is still on track to deliver a series of rate cuts this year in addition to making rate-friendly changes to the way it’s managing its bond portfolio. Fed policy expectations are even easier to see when we look at actual Fed Funds Rate expectations which are now at the lowest levels since July.
Mortgage rates don’t correlate perfectly with Fed Funds Rate expectations (one reason we often advise that a Fed rate cut/hike doesn’t mean a mortgage rate cut/hike). As such, they’re not back below the recent lows, but they definitely haven’t moved much higher. This week’s gentle descent means we’re continuing to hold a vast majority of the improvement seen in Nov/Dec.
Looking ahead, while next week doesn’t have any economic data on the same level as CPI, Wednesday’s Retail Sales report can definitely move the needle. It’s expected to improve slightly to 0.4% month over month after hitting 0.3% last time.
Beyond the data, we’ll hear from several Fed speakers and there’s been some speculation that Waller’s appearance at the Brookings Institute will bring some important concepts regarding the precursors for friendlier rate policy in 2024. That will happen on Tuesday, which is the first business day of the week next week due to the Martin Luther King Jr. holiday.
While not as much of a factor for interest rates, we’ll also get updates on several key housing metrics including new home construction, builder confidence, and Existing Home Sales.
The verdict is in — the old way of doing business is over. Join us at Inman Connect New York Jan. 23-25, when together we’ll conquer today’s market challenges and prepare for tomorrow’s opportunities. Defy the market and bet big on your future.
A surprising jump in a key inflation gauge means 2024 rate cuts that Federal Reserve policymakers telegraphed in December are more likely to happen later rather than sooner, which could keep mortgage rates from declining further until after the spring homebuying season.
The Bureau of Labor Statistics reported Thursday that rising rents and energy costs helped push the Consumer Price Index (CPI) up 3.4 percent in December from a year ago, compared to 3.1 percent annual growth in November.
It was the first time the key inflation index has moved in the wrong direction — away from the Fed’s goal of 2 percent — since September. Core CPI, which excludes volatile food and energy prices, was up 3.9 percent in December from a year ago, an improvement from 4.0 percent annual growth in November.
Diane Swonk
“Today’s data confirms our view that the Fed will cut much less aggressively than many in financial markets hope,” KPMG Chief Economist Diane Swonk said in a thread on the social media platform X. “They are seeking a soft landing. That is a tough needle to thread. Soft landings are not the same as no landing scenarios.”
Swonk said KPMG is holding to the firm’s previous forecast that the Fed will approve four rate cuts this year and that it won’t start bringing rates down until June.
Economists polled by Reuters before the latest inflation data was released also expected 10-year Treasury yields to stay about where they are until June, which would mean mortgage rates would probably remain little changed through the spring homebuying season.
Consumer price index
The CPI hit 9 percent in June 2022, after pandemic-fueled supply chain issues and Fed easing sent prices for food, gasoline and other goods soaring. To slow the economy, Fed policymakers raised interest rates 11 times between March 2022 and July 2023, bringing the federal funds rate to a 22-year high of between 5.25 percent to 5.50 percent.
The interest rate hikes — along with “quantitative tightening,” in which the Fed is expected to pull $1 trillion in support from bond markets this year — helped bring the CPI down to 3 percent in June. But inflation has proven stubborn, and further gains have been elusive.
However, futures markets tracked by the CME FedWatch tool show investors on Thursday afternoon were still pricing in a 69 percent chance that the Fed will start cutting rates in March, up from 43 percent on Dec 11. Futures markets are pricing better than even odds that the Fed will make six or more rate cuts in 2024, or twice as many as Fed policymakers indicated in their most recent summary of economic projections.
That’s also the thinking at Pantheon Macroeconomics, which is forecasting that 10-year Treasury yields, a barometer for mortgage rates, will fall from 4 percent to 3.5 percent by the end of June and to 3.25 percent by the end of the year.
Ian Shepherdson
“These numbers don’t change the big picture,” Pantheon Chief Economist Ian Shepherdson said in a note to clients Thursday. “Core goods prices are flat or falling, rent gains are slowing but remain elevated, and core services inflation is still sticky. Note, though, that the Fed cares more about the core PCE than the core CPI, and the two numbers often diverge month-to-month.”
The Fed’s other inflation gauge: Core PCE
The Bureau of Economic Analysis reported on Dec. 22 that the core personal consumption expenditures (PCE) price index, which excludes food and energy prices, fell to 3.2 percent in November, down from 3.4 percent in October. With the exception of January, core PCE trended in the right direction every month last year.
“Wait for the core PCE before rushing to inflation judgment,” Shepherdson said of the numbers for December, which are set to be released Jan. 26.
While economists at Fannie Mae and the Mortgage Bankers Association still expect the U.S. will experience a mild recession in 2024, hopes are growing that the Fed will be able to achieve a soft landing. Even a soft landing will cause some pain, Swonk warned.
“In a soft landing, profit margins, especially among mid and smaller firms which are more exposed to rate hikes and the repricing of debt, are squeezed,” Swonk said. “Higher interest rates and the push back to price hikes prompts cost cutting and a scaling back of hiring plans.”
The silver lining is that the Fed now appears to be just as concerned about the risks of keeping rates elevated as it does about inflation.
At the Fed’s last meeting, “Powell made clear he was willing to avert a full-blown recession in 2024 given the progress made on cooling inflation,” Swonk said. “That is a major shift from where we were a year ago.”
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.
Traditionally, one third of all homes get a price cut before they sell and when demand gets weaker, this percentage increases, which we saw in 2022 when prices were falling in the second half of the year. However, as home sales stabilized in 2023, so did this data line. While the percentage of price cuts is still much higher than 2021 levels, this explains why prices were stable in the second half of 2023 versus the second half of 2022.
Now that mortgage rates have fallen and as we start the brand new year, we need to focus on this data line more. I believe we should get more sellers in 2024 than in 2023, but that doesn’t necessarily mean home prices will fall.
Price cut percentages
As you can see in the chart below, if we continue the current seasonal trend, we are going to surpass the price-cut percentage lows of 2023 by this spring. This is why following the housing market tracker tied to the 10-year yield, mortgage rates, and purchase application data will be as critical as last year to tell you what’s going on in the housing market. That way you don’t need to wait for stale sales data. If mortgage rates increase or supply grows faster than expected, this data line is critical to telling the truth.
Here are the year-over-year price-cut percentages from the first week of the year:
2024 32.8%
2023 36.5%
2022 22.6%
It’s 2024! Time to get this party started!
Of course, my main wish during the crazy COVID-19 period was to try to get total active listings back to pre-COVID-19 levels, which was a functioning marketplace with more choices. It’s been challenging as only a few parts of the U.S. have returned to pre-COVID-19 levels. However, one key for 2024 is finding the seasonal bottom in housing inventory sooner rather than later. We want to see active inventory bottom out in January and February — not March and April.
Weekly housing inventory data
Here is a look at the first week of the year:
Weekly inventory change (Dec. 29-Jan. 5): Inventory fell from 513,240 to 499,143
Same week last year (Dec. 30-Jan. 6): Inventory fell from 490,809 to 471,349
The inventory bottom for 2022 was 240,194
The inventory peak for 2023 is 569,898
For context, active listings for this week in 2015 were 959,028
New listings data
This is the year we should all be rooting for new listings data to grow. Last year, It was great to see that new listing data didn’t take a new dive lower no matter how high mortgage rates got. While working from the lowest levels, 2024 should show year-over-year growth: I’d like to see new listings data get back to 2021 and 2022 levels. Both these years were the lowest new listing levels before rates rose, so it’s not asking for much. I talked about this on CNBC a few months ago.
The year-over-year data is meaningless late in the year or very early: we need to get back to 2021 and 2022 levels during the spring period entering the summer. Hopefully, this will occur in 2024.
Mortgage rates and the 10-year yield
In my 2024 forecast, the 10-year yield range is between 4.25%-3.21%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass,” will be tested. This 10-year yield range means mortgage rates between 7.25%-5.75%. If the spreads get better, mortgage rates can be lower than this.
Last week was jobs week, and some of the data was good, while some showed softness. Starting from Tuesday, mortgage rates starting didn’t move too much even though the bond market had some wild swings.
However, from the previous week, we went from mortgage rates of 6.61% to a high of 6.76%. Right now, I am watching for 3.80% on the 10-year yield, and if the economic data gets better and the Federal Reserve makes another mistake by getting too hawkish, 4.40% on the upside. However, one big positive now is that the spreads are improving. We have the CPI inflation report coming up this week, so that should be a market mover. Always remember, the Fed presidents can say something hawkish and mess things up daily.
Purchase application data
I will keep this very short and sweet: we never care about the last two weeks of the year with purchase applications because nothing happens during Christmas and New Year’s Eve. Traditionally don’t track the first week of the year either, but for the tracker purposes, starting next week, I will.
The truth is that mortgage demand has collapsed, and it has a tough time growing with rates above 6%. With that said, last year, we had 23 positive and 24 negative prints, and two flat prints for the year. Before Christmas came, we had an excellent six-week positive growth trend as mortgage rates fell almost 1.5% from 8%.
Purchase apps are seasonal; we focus on the second week of January to the first week of May. Traditionally, volumes always fall after May, so we will get a good idea of how the year will look soon. Remember, context is vital we are working from the lowest levels ever, so it doesn’t take much to move the needle higher, but we want to see real growth, not a low-level bounce. A sub-6% mortgage rate with duration should do the trick, but we aren’t there yet. So, for now, we will be very mindful of the weekly data.
The week ahead
We have two inflation reports coming out this week: The all-important CPI report on Thursday and the PPI report on Friday. The growth rate of inflation has cooled down enough to stop the rate hike cycle and now we want to see rate cuts. The one good thing about the CPI report is that the most significant component of CPI, shelter inflation, hasn’t had its big move lower yet. Also, it’s impossible to have core CPI accelerate higher without shelter inflation taking off again since it’s 44.4% of the index.
In the world of retail and fashion, home was 2023’s biggest loser.
Apparel firms faced some stress too, but the category managed to avoid the bankruptcy boom that hammered the home sector. In the U.S., the year saw the bankruptcy filings of women’s lifestyle brand Soft Surroundings in September and the April Chapter 11 petition by David’s Bridal, marking its second brush with bankruptcy following its November 2018 filing. Footwear firm Rockport Co. filed on June 14 for its second tour of bankruptcy proceedings, while Shoe City’s parent company ESCO Ltd. filed earlier in the year. Overseas, there was also the Scotch and Soda bankruptcy in March in the Netherlands, followed one month later by the Dutch filing of fashion brand Sandwich.
And just this month, mall operator Pennsylvania Real Estate Investment Trust, better known as PREIT, found itself in bankruptcy proceedings for the second time in three years. The mall REIT expects to exit bankruptcy early next year, after which it will find itself under the ownership of its lenders.
Other retail bankruptcies include Party City, long a fixture on credit ratings watch lists, which filed in January. The party favor firm exited bankruptcy in October, but its bankruptcy also saw the closure of 35 big-box locations. And Christmas Tree Shops, once owned by Bed Bath & Beyond, ended up in bankruptcy court when its parent Handil Holdings filed for Chapter 11 protection in May. The company closed down operations in August, and shuttered 72 doors in the process.
But it’s been the troubled home furnishings category that has endured the most distress this year. That comes as little surprise, particularly after the home furnishings boom during COVID when people were sheltering in place. The return to offices, even in hybrid work environments, curtailed additional spending for refurbishing home workspaces. And the home sector was further hit by rising supply chain costs post-COVID, much of which was due to higher expenses connected to moving big pieces of furniture, both in imports and in shipments to customers.
Related Stories
Even credit experts foresaw trouble ahead in home. The home furnishings category carried the highest default risk across retail since 2021, according to data from S&P Global Market Intelligence.
And the firing salvo from Wells Fargo’s emergency motion on Dec. 30, 2022, that pushed United Furniture Industries (UFI) into an involuntary Chapter 7 after its shutdown one month earlier set the stage for the upheaval to come in 2023. UFI eventually filed a Chapter 11 petition on Jan. 6.
Home was also the big category loser due to the the mega filings of Bed, Bath & Beyond and Tuesday Morning, with the latter contributing to what seemed to be a trend in second filings, the so-called Chapter 22. Z Gallerie was the rare exception across retail sectors that landed in bankruptcy court for the third time on Oct. 16. It’s first filing was back in 2009.
There’s another reason why the home sector’s bankruptcies stood out this year. By the end of the first quarter of 2023, there were already nearly 2,000 announced store closures. That tally included 300 CVS doors and 545 Foot Locker Inc. stores by 2026, including 420 Foot Locker branded sites and 125 Champs Sports locations.
Moving to the end of 2023, total store closings are edging closer to 2,900 locations. The store closures in the home sector contributed a total of 1,228 closed retail doors in 2023. That’s over one-third of the total stores closed this year, with Bed Bath & Beyond contributing 896 to the home sector’s total.
Below is a summary of the top bankruptcies in the home sector in 2023.
Serta Simmons
Mattress maker Serta Simmons Bedding, owned by private equity firm Advent International, filed a Chapter 11 petition on Jan. 23. The filing included the company’s bed-in-a-box brand Tuft & Needle. The company owned more than $62 million to its top 10 unsecured creditors.
Serta Simmons said on June 29 that it completed its restructuring and had emerged from bankruptcy proceedings. “The Serta and Beautyrest brands in our portfolio have a deep heritage in innovation and have played meaningful roles in the lives of consumers for generations,” the company’s CEO Shelley Huff said. “With our financial restructuring behind us, we are taking steps to drive growth by getting back to our innovation roots, reinvesting in our iconic brands, and nailing the fundamentals of our business with a focus on commercial and supply chain excellence.”
During the bankruptcy process, the company reduced its funded debt to $315 million from $1.9 billion at the time of its filing. The $1.6 billion debt reduction lowered the company’s annual cash interest expense by more than $100 million.
Tuesday Morning
Tuesday Morning found itself bankrupt for the second time in three years. It filed for Chapter 11 bankruptcy protection on Feb. 14, citing “exceedingly burdensome debt.” The off-price home retailer has since liquidated operations.
Tuesday Morning’s first petition was in May 2020, which saw it close 213 of its 700 stores. The retailer emerged from bankruptcy in January 2021 with 487 locations in operation. At the time of the second filing, the retailer said it planned to shutter 265 doors. This past May, the 49-year-old retailer decided to shut down operations and join the retail graveyard.
Bed Bath & Beyond
The long-awaited Bed Bath & Beyond bankruptcy finally occurred on April 23, eight months after speculation about its finances had suggested that a collapse was forthcoming.
One month before the bankruptcy, Bed Bath & Beyond closed 416 stores in the U.S., including some Buybuy Baby doors and it shut down its 45-store Harmon’s Beauty business. It also closed its Canadian stores, resulting in a loss of 1,400 retail jobs. When it shut down operations in June, the retail sector lost another 360 Bed Bath & Beyond stores and 120 Buybuy Baby locations.
The Bed Bath & Beyond intellectual property (IP) assets were sold to Overstock.com, best known for its liquidator origins selling excess or closeout inventory, for $21.5 million. Overstock in August rebranded itself as Bed Bath & Beyond. And the Buybuy Baby IP assets were sold to one of its suppliers, Dream on Me Industries Inc., for $15.5 million. Dream on Me subsequently acquired 11 of the Buybuy Baby store leases for $1.17 million, and reopened those locations on Nov. 18. The Harmon IP asset was acquired by investor Jonah Raskas for a reported $300,000. His initial plans are to open five Harmon locations, a CNBC story said.
The home goods chain had been struggling for years, but things started going downhill in a big way after it dismissed chief executive Mark Tritton and its merchandising leader in the wake of a first-quarter flop in 2022 when it burned through nearly $500 million in Q1 alone. It also spent $589 million on share buybacks instead of investing in turnaround strategies.
Its other problem was Tritton’s turnaround plan, which saw the retailer triple the number of private brands to lift opening price points and bring in more value products for a customer base that was on the hunt for deals on national brands. More bad news followed the troubled chain when its former chief financial officer, Gustavo Arnal, committed suicide in September 2022 after being named in a lawsuit alleging securities violations that included investor Ryan Cohen and his firm RC Ventures as defendants. Arnal has since been removed as a named defendant.
Altmeyer Home Stores
The 81-year-old family-owned regional home chain Altmeyer Home Stores filed for Chapter 7 liquidation in July.
The company operated 11 stores. It was headed by a fourth-generation Altmeyer at the time it filed its Chapter 11 petition.
The company sold primarily soft home linens in bedding, rugs, window treatments and kitchen accessories. But like many in the home sector, it also faced sourcing problems and a slew of online competitors.
Mitchell Gold + Bob Williams
August saw one of the biggest surprises of the year with the abrupt shutdown of upscale home lifestyle retailer Mitchell Gold + Bob Williams after its lender pulled the plug on financing, resulting in the closure of about 35 retail stores and outlets. The company filed its Chapter 11 petition in September, and went into liquidation mode after failing to find a buyer. In November, Surya, a Cartersville, Ga.-based home furnishings firm that specializes in rugs, textiles, lighting, furniture and decor, stepped up to acquire the Mitchell Gold + Bob Williams assets, including its IP and manufacturing facilities.
Surya, which brought on co-founder Mitchell Gold as an advisor, plans to restore the home lifestyle brand to its former glory. It plans to begin shipping the brand’s product line in the first quarter of 2024.
August also saw the closure of furniture firm Klaussner, better known as Klaussner Home Furnishings. And Solid Comfort, a Fargo, N.D.-based maker of casegoods for firms such as Marriott and Hilton in the hospitality industry, also shut down.
Z Gallerie
Upscale home decor retailer Z Gallerie landed back in bankruptcy court for the third time following a Chapter 11 filing by its parent company DirectBuy Home Improvement Inc. in October.
Z Gallerie was sold to DirectBuy, as affiliate of CSC Generation Holdings, during its second tour of bankruptcy proceedings in 2019. Its first petition was filed in 2009. The retailer started out as a picture framing and poster shop in 1979. During its heyday, it operated about 60 locations. At the time the business shut down for good, there were only 21 stores left in operation.
Well, another year is nearly in the books, which means it’s time to look ahead to what the next 365 days have in store.
While 2022 felt like it couldn’t get any worse, 2023 surprised all of us by being an even rougher year.
Thanks to the highest mortgage rates in nearly a century, loan origination volume ground to a halt, as did home sales.
The only real bright spot was new home sales, though builders had to make some big concessions to unload their inventory.
So what does 2024 have in store? Well, the good news might just be that the worst is finally behind us.
1. Mortgage rates will drop below 6% (and maybe even 5%)
First things first, mortgage rates. While I (and many others) expected mortgage rates to fall in 2023, they defied expectations.
Rates began the year 2023 on a downward slope, but quickly reversed course and surpassed 7% by spring. Then things got even worse as rates climbed beyond 8% in October.
However, inflation has since cooled and economic reports continue to signal that the worst of it could be over.
The Fed has also gotten on board, with their latest dot plot signaling rate cuts for 2024. After raising rates 11 times in less than two years, there could be three or more cuts next year.
While the Fed doesn’t control mortgage rates, their monetary policy tends to correlate. So if they’re cutting rates due to a cooling economy, mortgage rates should also fall.
We’ve already seen mortgage rates ease in anticipation, and they’re expected to go even lower throughout 2024.
This should be helped on by normalizing mortgage rate spreads, which remain about 100 basis points above typical levels.
In my 2024 mortgage rate predictions post, I made the call for a 30-year fixed below 6% by next December.
The way things are going, it could come sooner. And rates could go even lower, potentially dropping into the high-4% range if paying discount points.
2. Homeowners will refinance their mortgages again
I expect 2023 to go down as one of the worst years for mortgage refinances in history.
Interest rates increased from around 3% in early 2022 to over 7% in about 10 months.
Then continued their ascent higher in 2023, meaning very few homeowners benefited from a refinance.
However, two things are working in homeowners’ favor as we head into 2024.
There were about $1.3 trillion in home purchase loan originations during 2023, despite it being a slow year.
And rates have since come down quite a bit from what could be their cycle highs.
If we consider all those high-rate mortgages that funded over the past year and change, we might have a new pool of refi-eligible borrowers, as seen in the chart above from ICE.
It’s also easier to be in the money when refinancing a high-rate mortgage since the interest savings are larger.
So I expect more rate and term refinances in 2024 as homeowners take advantage of recent mortgage rate improvements.
In addition, we might see homeowners tap equity via a cash out refinance if rates keep coming down and get closer to their existing rate.
Refi volume is forecast to nearly double, from around $250 billion this year to $450 billion in 2024.
3. Mortgage rate lock-in will be less of a thing
With less of a gulf between existing mortgage rate and potential new, more homeowners may opt to list their homes for sale.
One of the big stories of 2023 was the mortgage rate lock-in effect, whereby homeowners were deterred from selling because they’d lose their low mortgage rate in the process.
But if the 30-year fixed gets back to the low-5% range, or even the high-4s, more homeowners will be OK with moving.
This is one part affordability, and another part caring less about their low-rate mortgage.
Very few are willing to give up a 3% mortgage rate when rates are 8%+, but the story will change quickly if and when rates start with a 5.
The chart above from Freddie Mac quantifies the value of a low-rate mortgage.
Aside from allowing people to free themselves of their so-called golden handcuffs, it will also increase existing home sales.
The big question is will it increase available supply, or simply result in more transactions as sellers become buyers?
4. For-sale inventory will remain limited
While I do expect more sellers in 2024, at least when compared to 2023, it might not move the needle on housing supply.
The big story for years now has been a lack of available for-sale inventory. Everyone expected home prices to crash when mortgage rates more than doubled.
Instead, home prices went up because of simple supply and demand. There just aren’t enough homes for sale in most markets nationwide.
As such, prices have defied logic despite worsening affordability. Demand is low but so is supply. And I don’t expect things to get much better.
At last glance, months of supply was around 3.5 months, per Redfin, below the 4-5 months considered balanced.
Sure, lower rates and sky-high prices can get stubborn home sellers off the sidelines. But guess who else is waiting? Buyers. Lots of them who may have been priced out due to 8% mortgage rates.
In the end, it might be a zero-sum game, at least in terms of inventory as more sellers are met with more buyers.
Of course, it will be good for real estate agents, loan officers, and mortgage brokers thanks to a greater number of transactions.
5. Home prices may go down despite lower rates
Lately, there’s been a lot more optimism in the real estate market thanks to easing mortgage rates.
In fact, some folks think the boom days are going to return in 2024 if the 30-year fixed continues to trend lower.
While I’ve constantly pointed out that mortgage rates and home prices don’t share an inverse relationship, it doesn’t stop people from believing it.
Sure, the logic of falling rates and rising prices sounds correct, but you’ve got to look at why rates are being cut.
If the economy is headed toward a recession, even a mild one, home prices could also come down, despite lower interest rates.
Similar to how rates and prices rose in tandem, the opposite scenario is just as possible.
However, because rates are only expected to come off their recent highs, and only a small recession is projected, I believe home prices will continue to increase in 2024.
Interestingly, they may not rise as much in 2024 as they did in 2023, and could even fall in many markets nationwide.
Both Redfin and Zillow expect home prices to fall next year, by 0.2% and 1%, respectively. Fannie Mae is also a bit bearish, as seen in the chart above.
I’m a bit more bullish and believe home prices will climb 3-5% nationally. But this still feels like a modest gain given recent appreciation and the lower rates forecast.
6. The bidding wars won’t be back in 2024
Along the same lines as home prices stumbling in 2024, I don’t expect bidding wars to make a grand return either.
The narrative that lower mortgage rates are going to set off a feeding frenzy seems overly optimistic.
And even flat out wrong. Remember, affordability is historically terrible thanks to elevated mortgage rates and high home prices.
Just because rates ease to the 6s or 5s doesn’t mean it’s a seller’s market again. If anything, it might just be a more balanced market that allows for more transactions.
A lack of quality inventory will continue to plague the market and buyers will still be discerning about what they make offers on.
So the idea of getting in now before it’s too late will be misguided as it typically is. If you’re a prospective buyer, remain steadfast and don’t rush in for fear of missing out.
You might even be able to get a deal if you’re patient, including both a lower interest rate and sales price in 2024.
7. Home sales will increase slightly but remain depressed
Similar to mortgage rates peaking in 2023, I believe home sales may have bottomed as well.
NAR reported that November’s pending home sales were flat from last month and down 5.2% from a year ago. But things could begin to turn around in the New Year.
This means we should see home sales tick up in 2024, though not by much thanks to continued inventory constraints.
Remember, mortgage rates will remain at more than double their 2022 lows, despite some improvements from recent levels.
And while home builders have ramped up construction, there are still few homes available in most markets nationwide.
Most forecasts expect existing home sales to barely budge year-over-year, from maybe just below 4 million to just above.
Meanwhile, newly-built home sales may be relatively flat as well, perhaps rising from the high 600,000s to over 700,000 in 2024.
This will hinge on the direction of mortgage rates. The lower they go, the more sales we’ll likely see.
So things could turn out rosier than expected, though still quite low historically until the inventory picture changes.
8. Home equity lines of credit (HELOCs) will get more popular
The Fed doesn’t raise or lower mortgage rates, but its own rate cuts directly impact rates on home equity lines of credit (HELOCs).
With several rate cuts expected between now and the end of 2024, HELOCs are going to become more and more attractive.
In fact, the latest probabilities from the CME have the Fed cutting rates by 1.5 percentage points by December.
So someone holding a HELOC today will see their rate fall by the same amount, as the prime rate moves in lockstep with the fed funds rate.
For example, a HELOC set at 8% will drop to 6.5% if all pans out as expected.
And because most homeowners still hold 30-year fixed mortgages with rates of 4% or less, they’ll opt for a second mortgage like a HELOC or home equity loan.
If the trend continues into 2025, these HELOCs will be a cheap source of funds to pay for home improvements, college tuition, or even a subsequent home purchase.
All while retaining the ultra-low rate on the first mortgage.
9. More buyers and sellers will negotiate real estate agent commissions
You’ve heard about the many real estate agent commission lawsuits. And changes are already on the way as those cases move along.
While both agents will still get paid to represent buyer and seller, there should be greater transparency in how they’re compensated.
And we may see some different methods of remitting payment. For example, a home seller paying the buyer’s agent directly, not on the listing agent’s behalf.
Of course, this could just result in different paperwork and no real change for the buyer or seller.
However, agents will likely be more transparent about the ability to negotiate, and this could be the key to saving some money.
Instead of being told the commission is 2.5% or 3%, they may tell you that’s their rate, but it’s negotiable.
This could result in home buyers and sellers paying less and/or receiving credits for closing costs.
It’s a step in the right direction as many consumers weren’t even aware these fees could be haggled over.
In the end, it should get cheaper to transact but you’ll still need to be assertive and make your case to receive a discount.
10. The housing market won’t crash
Finally, as I’ve predicted in past years, the housing market won’t crash in 2024.
While we are continuing to experience an affordability crisis of epic proportions, the speculative mania isn’t as pervasive as it was in the early 2000s.
And we can continue to thank the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM) for that, as the screenshot from the Urban Institute illustrates.
After the early 2000s mortgage crisis, many types of exotic mortgages were banned, including interest-only home loans, neg-am loans, and even loans with mortgage terms over 30 years.
At the same time, lenders have to ensure a borrower has the ability to repay the loan, meaning no doc loans and stated income are mostly out as well.
While there are non-QM loans that live outside these rules, they represent a small share of total volume. And the minimum down payments are often 20% or more to ensure borrowers have skin in the game.
Interestingly, it is FHA loans and VA loans that are experiencing the biggest uptick in delinquencies, though they remain low overall.
Even if we see an increase in short sales or foreclosures, we’ve got a severe lack of inventory due to demographics and underbuilding for over a decade.
This explains why home prices are unaffordable today, and also why they’ve remained resilient.
A scenario likelier than a crash would be stagnant home price growth for a number of years, with inflation-adjusted prices potentially going negative at times.
But major declines seem unlikely for most metros nationwide. In the meantime, a combination of wage growth and moderating mortgage rates could make homes affordable again.
Guild Mortgage has an ambitious plan under the leadership of its new CEO, Terry Schmidt. The California-based retail lender has set a target of becoming a top-10 lender in the markets in which it has a presence, which would give it about a 2% market share.
It won’t be easy. United Wholesale Mortgage, the top lender in the country by volume, had just under 8% total market share over the first nine months of 2023. By the same measure, Guild had just 1.1% nationally, per Inside Mortgage Finance (IMF) estimates.
The company hopes to reach its goal by growing organically with more loan officers under a dozen business development managers. It’s also looking for companies to acquire — and it’s among the most aggressive lenders out there.
“Firstly, we’re growing our national footprint and we’ve been doing that for many years. We really feel like this [M&As] is an opportunity for us,” Schmidt said in an interview. “We’ve got a great capital base, so we have the opportunity to invest. When we’ve been in situations like this in the past, we’ve done the same thing where we want to continue to gain market share and, at the same time, add good sales and fulfillment talent to our franchise.”
Publicly traded Guild acquired three lenders in 2023 – Legacy Mortgagein February, Cherry Creek Mortgage in March and First Centennial Mortgage in August.
Some of their competitors are working off a similar playbook, acquiring top sales talent or mortgage servicing rights through M&A deals. Those who couldn’t find a dance partner shut down production channels or left the mortgage market behind entirely. There were also a few cases of bankruptcy.
HousingWire tracked 62 mergers, acquisitions, exits and bankruptcies covered by the newsroom in 2023. M&A deals comprised 79% of the total, followed by 17.7% exits and 3.2% bankruptcies. One caveat: our reporting likely shows only a fraction of what happened in 2023 because not all deals are public, as most mortgage companies are privately owned.
“This market consolidates very slowly. Except for the largest firms, virtually everybody is privately owned and sole proprietorships,” Warren Kornfeld, senior vice president of the financial institution’s group at Moody’s, said. “But given how hard this market has been and that scale is becoming more important with technology, smaller companies are under more pressure. We do expect a lot of those will say, ‘It’s time to sell,’ ‘It’s time to close up shop,’ and ‘I don’t want to support a losing operation.’ ‘I just really can’t compete.”
As 2024 is not expected to be stellar, analysts foresee more M&A and exits next year. However, some analysts believe these transactions will not happen at the same pace as in previous years.
“I would imagine that there are some companies that have survived long enough, but I think it’s fewer and fewer, and you’ll see less either consolidation or exits in the space,” Joseph Kyle, a specialty finance equity research analyst at Jefferies, said.
“If you’ve made it this far, maybe you’re through the woods at this point. But maybe there are a couple of stragglers and weaker competitors that still end up having to shut down in 2024 because by no means is it going to be like a heroic year of origination. But I don’t think you’ll see to nearly the same extent that you saw in the second half of 2022 and earlier in 2023,” Kyle said.
HousingWire spoke to two lenders to understand their M&A strategies for 2024. What are the companies’ goals with these transactions? Who are the potential targets?
Guild, the most active lender in terms of M&A deals on our list, wants to expand its retail business model nationwide to gain market share. Meanwhile, Planet Home Lending, the only lender among the top-14 to increase origination volumes from January to September, compared to the same period last year, said it wants to also grow its servicing business. Guild: growing the national footprint
Some companies engage in M&A to expand their sales force throughout the country without needing to change their business model.
Guild’s Schmidt said she has had many of these conversations – meaning M&A talks. According to Schmidt, the number of executives offering their businesses has been steady and hasn’t slowed down all year of 2023. But just a few usually caught the lender’s attention.
“First of all, we like the retail footprint because everything we’ve done with our platform has been built around the retail footprint. The cultural fit has to be strong to make this work going forward. If we don’t have a strong market in that geography, we like to bring in talent that knows the area because we are ‘boots on the ground’ with retail branch offices,” Schmidt said.
Despite having licenses everywhere, except in New York, Guild is interested in acquiring businesses where the company has a small market share, like the Southern states and Midwest. Guild is not focused on the target’s size but on how they can use the company’s platform to grow.
Sellers usually have an efficient sales force but can’t afford the back-office operations. Despite the refi boom years during the Covid-19 pandemic, some companies could not retain capital or excess cash on their balance sheet. Now under pressure in a shrinking market, they see their top loan officers transition to other competitors.
Ultimately, according to industry experts, the corporate administrative expenses, which represent 50 basis points or less of each loan during a booming market, double in relative costs when loans are scarce. That’s when M&As make sense.
“If it’s a smaller organization that maybe can’t afford the back office any longer, maybe that’s [M&As] a value added to them,” Schmidt said.
From a buyer perspective, Schmidt added that “you have to be realistic” because it’s going to take “a bit of time to get these organizations up to speed on your platform,” which can be “as short as 90 days or longer than that.”
According to Schmidt, Guild’s strategy is going to be very similar next year, including M&As.
“How much? That’s hard to tell. We feel like what we’ve done this year has added value to the organization. We still have the ability to continue to invest because of our capital,” Schmidt said. “As you know, this next year is still going to be problematic. There’s gonna be challenges. So, we still feel like it’s an opportunistic time.”
Planet Home Lending: Focusing on MSRs
Some M&A transactions are not motivated purely by the origination platform. Mortgage servicing rights (MSRs) are an attractive asset for some acquirers.
Take Planet Home Lending as an example. In April 2022, the company agreed to acquire assets from Homepoint’s delegated correspondent channel for $2.5 million in cash – later, Homepoint sold the wholesale business to The Loan Store and its parent company shut down, selling $84 billion in MSRs to Mr. Cooper. Planet’s transaction with Homepoint, however, doubled its client base in the correspondent space.
“The Homepoint acquisition worked really well for us. We had about 400 sellers on our own. Then, the net new sellers that came on with Homepoint was about 400 more. It was rare and unique to find something that fits so well for us,” John Bosley, the lender’s president of mortgage lending, said in an interview. “But acquisitions that are out there become less and less sort of attractive on that side. We’re not opposed to looking at them, but we just haven’t seen a lot that makes sense on the correspondent side.”
For Connecticut-based lender and servicer Planet, expanding its retail operation and servicing portfolio makes sense now.
In June 2023, Planet acquired Illinois-based retail lender Platinum Home Mortgage Corporation, inheriting most of the seller’s origination staff and branches throughout the country. The deal expanded Planet’s footprint in the Midwest, Northwest and West Coast markets – after this deal, the company is looking for more opportunities in the South East.
However, the Platinum transaction added more than geographical expansion.
“Platinum was interesting and exciting to us because we had the opportunity to do two things: grow our retail channel and expand our MSR portfolio,” Bosley said. “When we looked at it from a retail acquisition perspective, it made a lot of sense because they weren’t in the geographies that we were in. Then, since we’re actively expanding our MSR portfolio, what came along with it was a nice side MSR book, so it kind of fit really well with us on that side,” Bosley added.
Bosley said Planet is more focused on the government MSRs space but can also do conventional. He said the company has about $100 billion in owned and sub-serviced MSRs. Obviously, “the bigger the portfolio gets, the cheaper the cost of servicing gets,” which is why the company wants to expand its MSR holdings.
Regarding the market overall, Bosley said he expects the end of 2023 and early 2024 to have “a decent amount” of M&A activity, slowing down in the second quarter of 2024 when volume is higher cyclically.
Remarkably, for Planet, he said, “I’m cautiously optimistic about our M&A activity.” That’s the best way to “move the needle faster,” Bosley said.
Every couple of weeks, someone asks me, “When is the GEM conference?”
Never say never. But, well, never.
I hope being an investor in Blueprint helps dispel any notions that I have ambitions to put on a scaled production. I don’t. Instead, I’d rather let the best-in-class event folks do their thing. No sense in re-creating the wheel.
Ever since meeting Brian Mommsen at CREtech in October of 2019 and then partnering with Resident on GEM’s first VIP Dinner right before Covid shut down the world, the dinner table has been the core relationship building block for GEM Diamond members. Deep conversations, vulnerability, and new connections across sectors. All overlaid with incredible cuisine.
That doesn’t mean dinners will be all we ever do—there is insatiable demand for deeper interactions. That’s the gap the conference circuit doesn’t, and can’t, deliver on.
Stagnation is the enemy of community. I am always thinking, “What’s the next iteration? How can GEM create more meaningful conversations and relationships?”
When Greg Fischer told me earlier this year, “I have an inside connection at a gorgeous resort space in Bend that would work for a GEM retreat,” I was immediately in. Having visited family in the area since I was a kid, I love Central Oregon. I’ve been wanting to do a multi-day GEM experience for a couple of years, to thread the needle between dinner and “conference.” And I’m always beyond excited to collaborate with Greg. A lava cave experience was icing on the cake.
Win-win-win.
Enter the inaugural GEM Proptech Getaway, an exclusive retreat bringing together visionaries, industry leaders, venture capitalists, and seasoned practitioners in the world of proptech. Taking place April 4-6 in a beautiful venue away from the distractions of a bustling urban core, this will be a deep foray into relationship building in a casual environment. We’ll blend cuisine and conversation with collaborative working opportunities, an exploration of a new startup idea using generative AI, and curated networking for personal and professional growth.
As I’ve said before, small is the new big. The Proptech Getaway will be centered around a Bend version of our flagship GEM Community Dinner—capped at 24. We already have more than a third of that committed.
If you’re in for a memorable escape that delivers growth, connection, and innovation—all in one go—grab your spot now. At $300 for the first 11 confirmed seats, and then $400 for the second 11, it’s a no brainer. This price point covers costs—GEM remains a community built to facilitate connection for members, not a profit-first events company.
And, don’t you want to say you attended the first ever GEM Proptech Getaway? Those in attendance will help mold it, and I’m confident it will become a signature GEM experience for years to come.
It was late 2022 and Mike was feeling the pressure. Mortgage rates had climbed close to the 7% range and he was determined to remain competitive on pricing with rival loan officers in North Carolina.
But there was a problem: pricing exceptions, in which the lender takes the hit, were becoming scarce at his company. So he did what a lot of retail loan officers in the industry were doing — Mike would reclassify a self-generated lead as a corporate-generated lead, thus slashing his compensation from 125 basis points down to as low as 50 bps, giving him a low enough rate to win the client and eventually close the deal. His manager and company bosses knew that he and other LOs were lying about where the lead source came from, he said.
The lower comp rate stung. After Mike paid his loan officer assistant, he was clearing just 40 bps. Still, it was better than nothing. After all, tens of thousands of loan officers had already exited the industry because they couldn’t generate enough business.
“At this time, I didn’t really think of it as an ethical issue,” Mike, whose last name is being withheld for fear of retaliation, told HousingWire in an interview in late November. “But it started to wear on me to where it was like, okay, I’m getting price-shopped left and right. I’m feeling the pressure to cut my pay, because when I do it, and my agent partners, they see that I do that, and then they’ll tell people they refer to me. ‘Hey, he can dig deeper if he really has to.’”
Mike continued: “Well, doesn’t that smack of bad faith if I’m not offering them my best price from jump? I would get people saying to me, ‘I’m not going to go in with you. I don’t feel comfortable with you, because you tried to get me to go for a higher pricing first, and then only offered a better deal once I told you I had another offer.”
Mike said he left that lender in early 2023 as a result of the ‘bucket game’ and refuses to manipulate where lead sources are coming from at his current shop.
“It’s a race to the bottom,” he said of the practice.
Over the past two months, HousingWire has interviewed more than a dozen loan officers, mortgage executives, attorneys and also reviewed several companies’ loan officer contracts and text messages between recruiters and prospects to shed light on the growing issue of pricing bucket manipulation, which critics say distorts market pricing and could represent a violation of fair lending laws.
It’s unknown how many retail lenders are engaged in the practice of falsifying lead sources to lower loan officer pay, but industry practitioners say it’s widespread, and in most cases, reclassifying leads into different pricing buckets before they lock is not permitted by the Consumer Financial Protection Bureau’s rules under Regulation Z.
It’s also unclear whether the CFPB is policing the practice; HousingWire could find no record of enforcement actions taken, and the agency’s audits are not public record.
Evolution of the LO Comp rule
In the wake of the housing crash in 2008, the CFPB created new rules that reshaped how loan officers were compensated. The architects of the new rules wanted to prevent loan officers from taking advantage of borrowers, which was a common occurrence in the days leading up to the Great Recession.
Under an updated Regulation Z, lenders could no longer pay loan officers differently based on terms of loans other than the amount of credit extended. In theory, this means loan officers provide the same service and pricing on loans, reducing the risk of steering.
“LOs also can’t get paid on proxies, and they define proxies to be pretty straightforward: some factor that correlates to terms over a significant number of transactions, and the LOs have the ability to change that factor,” said Troy Garris, co-managing partner at Garris Horn LLP.
But the CFPB did allow loan officers to be compensated differently based on lead sources, which do not fall under the category of terms or proxies and are neither a right or an obligation.
For example, when an existing customer calls the lender’s call center for a new mortgage or refinance, and the lender redirects the loan to the LO, “the LO gets paid less because it was sourced from the company, and it is less work for the LO,” said Colgate Selden, a founding member of the CFPB and an attorney at SeldenLindeke LLP. When it’s an outside lead, “the LOs generated the lead themselves; they are spending time marketing to new borrowers, so they get paid more.”
Attorneys told HousingWire that in the current marketplace, violations of LO Comp rules can arise when lenders and LOs alter compensation by changing the lead source after the initial contact with the borrower to lower their rate and secure the deals. Regulation Z generally does not allow LOs to change which lead source was used.
But, in today’s competitive market, “I do think there’s an incentive, especially on the LO side, to find ways to do something different – and probably also for companies to decide to take more risk,” said Garris. “We believe this is happening because people are frequently asking if there’s a rule change.”
How the ‘bucket game’ works
LOs who spoke to HousingWire said managers often told them they wouldn’t get pricing exceptions on deals, so if they wanted to gain an edge it would have to come out of their pay. Three loan officers at three different retail lenders described it as a feature of their lender’s business model.
“You feel out a prospective client during the initial conversation, get a sense of whether they know how everything works, if they’ve spoken to another lender, if they’re going to shop you, right? And you quote them the best possible rate you could give them that day, knowing that you’ll put them in a bucket just before lock,” said one Wisconsin-based LO. “It doesn’t really matter what you quote them in the initial conversation as long as you can get it below competitors around lock time…either through a pricing exception or the bucket [manipulation].”
One top-producing California-based loan officer said she was excited when a top 35 mortgage lender tried to recruit her with the promise of multiple pricing buckets. Having the buckets would provide her flexibility that her current lender didn’t offer, she thought at the time.
“What the [recruiting] company told me explicitly was the loan originator, when they go to lock the loan, they check a box – is it self, branch or corp gen? And you only get to check one box, but it’s the loan officer’s choosing, not the branch,” she said. “So the loan originator is choosing, not the branch that says I’m going to give you a lead and this is the comp for it. Not the corporate advertisement or online group that says you’re getting this lead from us and here’s documentation that it occurred and now you’re going to get less comp. It’s the ultimate in legalized fraud. Because it’s not true.”
These days, many lenders have pricing buckets for corporate-generated leads, branch leads, builder leads, marketing service agreement (MSAs) leads, internet leads from aggregators and more. In and of itself, it’s legal, provided the lead really did come from the source and it’s diligently tracked by the lender.
Loan officers and mortgage executives interviewed by HousingWire said some lenders justify the practice of manipulating the buckets by telling LOs it’s legal and they’ve been audited by the CFPB, which has not found any wrongdoing. Several executives accused of the practice declined to comment on the record about pricing bucket manipulation, though they all said they track leads as required and are in full compliance with the law.
Selden, the former CFPB attorney, said that LOs are telling borrowers who complain about high mortgage rates that companies are “running a special offer.” Borrowers are directed to the company’s website, where, by indicating the LO name, they supposedly qualify for a special deal with a lower rate. In reality, at lenders without adequate controls to prevent lead source manipulation, this shifts the source from self-generated to an in-house lead.
LOs interviewed by HousingWire said that in some cases they would be able to change the lead referral source themselves, and in other cases they’d need a manager to alter the lead source in the loan origination system.
While many instances of price bucket manipulation were directed by managers, LOs would also self-select, said Mike.
“Most of the time you don’t have a loan estimate from a competitor, you’re just afraid that you’re going to lose it because you’re so embarrassed about the rate. And that’s why a lot of my comrades… were going to the corporate-generated lead bucket before they even confirmed that they had to. Partly because you wanted to lead with your best price.”
Steve vonBerg, an attorney at law firm Orrick in Washington, D.C., worked as a loan officer and underwriter for seven years. He emphasized the potential trouble for lenders and LOs inaccurately classifying the lead source.
“Often, a [CFPB] examiner would see if the lead channel changed later in the process. That could be legitimate: the borrower starts working with an LO, and it’s a self-sourced lead for that LO, but then decides to buy a home in a different state in the middle of the process; the second LO that it has to be transferred to has now an internal-company referral, and so the lead source would legitimately change,” vonBerg said. “But, if there isn’t a legitimate reason for the lead source changing midstream, that would be fairly easy for an examiner to identify.”
“It’s wrong”
Victor Ciardelli is frustrated by the bucket game. Deeply frustrated. The Guaranteed Rate founder and CEO says he is losing money and loan officers to rivals because of a business practice that he says is flagrantly illegal, pervasive, and does not appear to be slowing down anytime soon.
Some rival retail lenders, he says, are creating up to a dozen pricing buckets for their loan officers. The tiered nature of the bucket comp structure in many cases — self generated being the highest at up to 150 bps, 100 bps for another ‘bucket,’ 80 bps for another, down to 60 bps, 40 bps and sometimes all the way to zero — proves that it is a deliberate business strategy, he said.
“It wasn’t intended that the loan officer at the time that they’re talking to the consumer and quoting them a rate, that the loan officer can put the consumer in any bucket they want,” he said in an interview with HousingWire. “But that is exactly what’s happening. What’s exactly happening is the fact that there’s all these different pricing buckets for a lot of these different companies out there. And that the loan officer is allowed to go in and offer the consumer whatever rate based on what the loan officer wants.”
He argued that LOs are maximizing their personal income per borrower.
“It’s no different than what happened prior to Dodd-Frank, where it was the wild, wild West and people were playing games with customers on rates and fees,” said Ciardelli. “It’s the same thing today. There’s no difference except the fact that there’s a law in place that tells the mortgage company and the individual loan officer. And the loan officers know that they’re violating the law. It’s greed.”
Ciardelli says the rival CEOs — he declined to name individuals and said it’s an industry-wide problem — are establishing these buckets and know “full well that the bucket is put in place in order to lie about where the lead source is coming from.”
They have an obligation to know where the leads are coming from, that the loan officers are putting them in the appropriate bucket and that they are being tracked, he said.
“The loan officer may take a hit on that loan, and may make less on that loan, but the company themselves doesn’t take the hit, their margin stays the same. So the company CEO is happy, because they’re like, ‘I’m giving my loan officers all this flexibility to go out and be competitive and win deals. And they’re going to win more deals than anybody else out there, because they’re going to be able to slot the individual borrower into these different lead channels. So the individual CEO is making all the money. They’re the ones killing it.”
Ciardelli says he asked about the bucket pricing game and attorneys all told him no, it’s not legal, he said.
“I’ll play by whatever the law is…But when the rules are set up to be a certain way and people are not following the rules, then that’s a problem.”
Two other executives at large retail lenders also said they’ve lost loan officers to competitors who are sanctioning, if not directing, the manipulation of pricing buckets.
“The LOs get told this is legal, it’s just pricing flexibility so they can compete, and they have a compliance team that monitors it,” said one executive at a regional lender in the South. “Obviously that’s not true… What’s happening is they [the lenders] are pricing high and basically forcing the LOs to cut from say 150 [basis points down to 50 [basis points] on some loans because otherwise they just won’t do enough business. It’s a feature, not a bug, as they say. We asked our attorneys if we could do this and they told us absolutely not.”
The Mortgage Bankers Association (MBA) is aware of the issue. The organization asked an outside attorney from Orrick Herrington & Sutcliffe LLP to study the permissibility of the practice. In a letter sent to members in February 2023, Orrick advised MBA members that changing the lead source of a loan after beginning work on the application in order to make a competitive pricing concession “is not permissible.”
The letter has had little meaningful impact, sources told HousingWire. If anything, the practice has increased over the last year.
Fair lending concerns
Another repercussion in the market is that savvy borrowers gain access to lower rates when lead sources are manipulated. Less educated applicants could be quoted higher rates for the same loan, raising concerns about fair lending practices.
But this argument prompts a broader discussion on the efficacy of the LO comp rule, with divergent opinions on the matter.
“I used to be an MLO for seven years. I was in the industry in the 2000s until it melted down, and then I ended up going to law school because I had lost my job. I originated hundreds of loans myself, and personally, I think overall the rule is a good rule,” vonBerg said.
vonBerg elaborated: “Under the old regime, LOs were not incentivized to offer their consumers the best loan and best pricing for them. They were incentivized to give them the loans and pricing where they would make more money. Although it has some issues that should be corrected, I think the LO comp rule makes a lot of sense, in that it removes a gigantic conflict of interest.”
Not everyone shares this viewpoint.
“The LO comp rulewas designed to prevent steering to high-cost loans. And really, those things don’t exist anymore. We can’t put borrowers in homes that they can’t afford,” said Brian Levy, Of Counsel at Katten and Temple, LLP.
According to Levy, the rule creates “a tremendous amount of anxiety for the mortgage lending industry that doesn’t benefit consumers in any meaningful way.”
“The industry is frustrated. They’re unable to easily reduce prices. For example, in the past, before the rule was around, LOs were able to take less as a commission, just like any other salesperson – a car salesperson – to make the deal work. That’s illegal now for loan officers. The mortgage company can make that decision [of lowering their margins and reducing rate], but the loan officer cannot.”
Levy noted that some consider the LO comp rule to be a de facto fair lending rule.
“But we already have fair lending rules. The idea that if the loan officer is discounting their fees, they would end up discounting on a discriminatory basis would already be problematic under existing law, so you don’t need the LO comp rule to make that illegal. It’s already illegal to discriminate in pricing. That said, it’s not illegal for people to negotiate just like you can negotiate a car price.”
The CFPB has also taken issue with other forms of pricing concessions over the last year. In the summer of 2022, the agency reported that pricing exceptions, in which the lender offers a discount, had harmed protected classes, who were less likely to be offered discounts.
Where’s the CFPB?
Multiple sources said the CFPB audits about 20% of mortgage lenders per year, and because of the prevalence of this practice, would undoubtedly have come across lead bucket pricing manipulation by now.
Why there hasn’t been any enforcement to date or whether there’s a future enforcement action is just on the horizon is hard to know.
The CFPB, which is undertaking a broad review of the LO Comp rule, declined to make anyone available to speak on the issue.
“We cannot comment on any ongoing enforcement or supervision matters,” said Raul Cisneros, a Bureau spokesperson. “Those who witness potential industry misconduct should consider reporting it by going here. Additionally, we always welcome stakeholder feedback on any of our rules, including the loan officer compensation rules.”
In early 2023, the CFPB initiated a review of Regulation Z‘s mortgage loan originator rules, which include certain provisions regarding compensation. However, industry experts do not foresee substantial changes or anticipate the CFPB addressing the issue of lead source manipulation.
“In fact, there haven’t been a lot of public enforcement actions by the CFPB in several years [on the LO comp rule]. But having said that, we used to complain that the CFPB was participating in regulation by enforcement, and now they seem to be regulating by supervisory highlights,” Kris Kully, a law firm Mayer Brown partner, said.
The CFPB’s latest move regarding the LO Comp Rule was to issue a supervisory highlight in the summer stating that compensating an LO differently based on whether a loan product was originated in-house or brokered to an outside lender is prohibited.
Industry practitioners said the lack of enforcement from regulators has allowed the pricing bucket manipulation practice to flourish, creating an uneven playing field.
“You have all these companies that all of a sudden are starting to get a free pass,” Ciardelli said. “They’re like, ‘I’m not having any audits. I’m not having anybody come and say anything to me. I mean, nothing’s really happening. I’m pretty much unscathed here.’ And year after year goes by, there’s no auditors, there’s no issues. And then they start to move the needle on how they’re running their business and decisions they’re making. And they have less fear of the government, less fear of the existing rules that are in place, because the rules that were set up are not being enforced.”
Another mortgage executive speculated that the pricing bucket games will come to an end not because of CFPB enforcement, but because loan officers and executives will battle it out in court.
“I’ve got calls from loan officers who feel like they’ve been pushed into a lower commission scale than they thought they were going to get to start with,” he said. “I hired somebody from a well-known lender. When they hired her, they told her, ‘Hey, these are what the rates are and this is what the commission is.’ When she got over there, the rates they were quoting were the lead-based rates, not the hundred-based points they were promising her… I don’t think the enforcement will come from the CFPB. I think it’ll come from some type of lawsuit like that.”
The lasting impact of LOs cutting their comp to win clients and close deals won’t be clear until mortgage rates meaningfully fall for a sustained period.
But many fear that the genie can’t be put back in the bottle.
“We’ve done this so much that they’ve built it into their pricing,” said Mike, the loan officer in North Carolina. “They are pricing things higher, assuming that we’re going to cut our pay, and protect their margins. So to me that’s the bigger issue for us selfishly, is we start doing that, and it’s going to become the norm. The pricing system and everything is going to assume that we’ll do that.”
He mused that RESPA guidelines prohibit an LO from buying a Realtor partner a Big Mac after a closing but lying about a lead source is not policed.
“Personally being an LO, the biggest issue to me is, they’re screwing with us and just… That’s how all these shops are finding a lifeline to keep their doors open. ‘We don’t have to pay them 100 bps, we can just pay them 50, and they’ll take it on the chin.’ And it’s like, yeah, we’ll take it on the chin. Many of us are using the heck out of our credit cards right now to survive. It’s not cool.”
The donations will focus on giving support to organizations that address societal issues such as homelessness, financial literacy, education, workforce development, and minority small business development, among many others. What were the organizations that the foundation donated to? The following organizations received donations ranging from $10,000 to $50,000: El Centro Hispano (education) Girls Inc. (education) … [Read more…]