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Housing Supply, Career Opportunities, Vendor Services; How the Fed Impacts Rates

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It's Fed decision day today and another 75-basis point rate hike is expected. Mortgage rates have surged to 14-year highs, deterring both buyers and builders, who have begun making the shift to apartments. ArchMI released its quarterly Housing and Mortgage Market Review, which said that rates aren't expected to return to the sub-3 percent, or sub-4 percent, range any time soon. Existing home sales have declined sharply to sit nearly 30 percent below the January 2021 pandemic peak of 6.65 million and about 10 percent below the 2019 average of 5.24 million. Over the past year, home prices climbed another 13 percent and combined with increases in mortgage rates have caused the cost of homeownership to surge 48 percent year-over-year and 79 percent over two years. Bloomberg reported that "Months of supply has rarely increased as quickly as it has over the past six months. While we have a limited sample size of this kind of volatility, the size of this increase is normally associated with falling home prices 12 months forward." As a reminder, those impacted by mortgage companies downsizing can post their resume for free here and employers can view them for the nominal fee of $75. (Today's podcast is available here and this week's is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services in the mortgage industry and in banking.)

Lender and Vendor Services and Products

While seamless closings are ideal for everyone involved, life doesn't always work that way. There are several roadblocks that can delay the closing process, and sometimes there's just no way around it. The good news is that many of the problems that can arise are actually things you can control. Read Radian's article, 4 Home Loan Closing Delays & How You Can Avoid Them, to learn what the most common problems lenders and borrowers face and how each can be avoided.

Q1 2022 Critical Defect Rate Continues Downward Trend Despite Challenging Lending Environment. ACES Quality Management released its quarterly ACES Mortgage QC Trends Report covering the first quarter (Q1) of 2022. The latest report provides an analysis of post-closing quality control data derived from ACES Quality Management & Control® software. Notable findings include: The overall critical defect ended Q1 2022 at 1.93%, representing a .02% decline from Q4 2022. Declining volumes helped stabilize lender processes, but signs are emerging that the credit box is widening in the hunt for volume. Defects in the Income/Employment category continue to remain high. The share of appraisal-related defects fell in Q1 2022, but signs indicate lenders should pay special attention to this area going forward. Purchase defects increased specifically the FHA category given purchase loans' dominance in review share and the increase in FHA loans. Read More Today https://bit.ly/3eWsjzC.

As the mortgage industry continues to adopt an API-first mindset, lenders recognize this approach as necessary to meet borrower expectations, but also to support process automation and efficiency goals. By accelerating its API-first strategy, Polly is helping lenders to do just that. A robust Product and Pricing Engine (PPE) API quickly yields pricing results from a variety of granular borrower- and property-based parameters, either by user submission or on demand at the borrower's point of need - a powerful tool for retail marketing sites. The Initial Lock API enables lenders to easily run unique scenarios and lock in loan prices all from one unified system. Discover how hundreds of lenders are leveraging Polly's APIs to proactively engage borrowers with the best available products and create valuable long-term relationships.

It's surprising to learn that Mille High Life, Falstaff, and MeisterBrau are no longer tappable. What is increasingly tappable is Home Equity in the United States. According to a recent report from Black Knight, "tappable home equity" hit an all-time high for the 10th consecutive month. It grew to $11.5 trillion, which is 25% greater than it was at the same time last year. Lenders are easily hitting 2022 home equity production goals, but how will they keep up with all the tapping expected in 2023? LoanCraft offers a variety of Home Equity Automation tools, including pricing tools, income calculation, outsourced fulfillment and ViLO, the virtual loan officer for home equity. Contact Ron George for more information.

Rates and the TBA market have been volatile to say the least. This uncertainty has caused the bid/ask spreads (the difference between the price market makers will demand when buying and selling TBAs) to widen dramatically. We are seeing spreads of 10-30 basis points (bps) in the most relevant coupons! If you deliver to the Agencies' cash window but hedge in TBA's, this widening directly results in reducing your net gain on sale. A 10 bps bid/ask spread reduces your gain $1k for each $1 million hedged. There is a better way. Simplify your process with Blue Loans' Secondary Manager platform. Our comprehensive control center is filled with features to control your rate locks and secondary activity. Visit our booth at the MBA's Annual Conference or learn more here.

Western Alliance Bank's Specialized Mortgage Services Group continues to be solution-oriented in changing markets by providing multiple financing vehicles and a comprehensive and robust suite of treasury management products and services. Our dedicated Deposit Services and Treasury Management teams understand the mortgage industry's business needs and can react quickly and efficiently to customer needs. Our Warehouse Lending team finances a wide spectrum of loan types and works with borrowers to customize terms to meet investor and execution needs. Additional synergies exist for loans being sold to Western Alliance Bank's wholly-owned subsidiary, AmeriHome Mortgage. MSR financing provides lines of credit that leverage Fannie Mae, Freddie Mac and Ginnie Mae collateral. Lines can be annual or bi-annual revolvers or revolvers followed by term finance. Flexible structures provide solutions to accommodate originators' MSR retention strategy. Contact Jennifer Schachterle, (720) 261-5774 or Mark Short, (469) 702-6212 for more information. Western Alliance Bank, Member FDIC.

"After a diligent search for a high-performance system and solutions that could support our operational and customer service goals, we decided to go with Black Knight," stated Union Home Mortgage President and CEO Bill Cosgrove. The servicer recently selected MSP®, Black Knight's loan servicing system, to deliver a world-class, personalized customer experience, as well as to gain efficiencies and mitigate risk. Union Home Mortgage's decision came after a thorough assessment of multiple servicing technologies, with the servicer determining that Black Knight offered an "unmatched combination of leading solutions and an experienced support team." Read more about Union Home Mortgage's selection of MSP and Black Knight's integrated servicing solutions in the press release.

Lenders are you headed to fall tradeshows looking for new tech stacks? Maybe a TPO solution that can handle bulk imports or a modern web-based servicing system that is supported by the industry's first bilingual servicing portal for your Spanish speaking customers? Now is the time to look at systems that can obtain you more customers and ones that can keep them happy once you do. If so please look out for us at the NEMBC this week in Newport, RI, the Mortgage Bankers of the Carolina's in Charleston in early October and the MBA Annual in Nashville. Contact John McCrea, www.mortgageflex.com.

How the Fed Impacts Mortgage Rates

With the Fed decision today, I'm being asked how Fed moves impact mortgage rates. MCT offers an excellent primer that reminds us, "Many people believe the Federal Reserve, through the actions of the Federal Open Market Committee, has a direct impact on mortgage rates. It's actually more so that speeches from Federal Reserve Committee members, announcements of what the Fed is doing, and its actions in the open market serve as useful predictors of future rate movement.

"Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and a range of economic variables (e.g. employment, output, and the prices of goods and services). The fed funds rate affects short-term loans, such as credit card debt and adjustable-rate mortgages. Long-term rates for fixed-rate mortgages are generally not affected by changes in the federal funds rate but track the 10-year U.S. Treasury yield much more closely."

Dennis C. Smith of Stratis Financial opines, "The Federal Reserve's stated purpose is, "Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit off full employment and stable prices. The Fed has several tools available to increase or decrease the amount of money in the economy. Full employment results in greater demand for goods and services, which puts upward pressure on prices, i.e. inflation. Less than full employment decreases overall purchasing power and ability. Lower demand leads to stable, or declining prices.

"Contrary to what many believe, the Federal Reserve only controls one interest rate, the federal funds rate (referred to often as the "benchmark rate"). This is the rate that banks lend money to each other, typically on an overnight basis. Mortgage rates are determined by investors who purchase mortgages as an investment. The mortgage market is generically known as MBS, or mortgage-backed-securities. Investors want to make a profit, their decisions to purchase or not purchase any investment is based upon their opinion as to what they think will happen in the future and if their investment will be worth more or less money. In the case of MBS, this includes what they feel interest rates will be, or should be, in the future. Part of their decision-making criteria is what they feel the Fed will do in regard to monetary policy, or what the Fed has announced it will do."

Capital Markets

U.S. Treasuries faced some more selling leading into today's widely expected third consecutive 75-basis point Fed rate hike, pushing the 10-year Treasury yield above 3.5 percent for the first time since April 2011. The central bank will release its latest quarterly projections this afternoon in addition to raising their benchmark rate. We learned yesterday that total housing starts increased 12.2 percent month-over-month in August to a seasonally adjusted annual rate of 1.575 million units, beating expectations due to a 28 percent increase in multi-unit starts. Single-family starts were up 3.4 percent. Building permits, though, were down 10.0 percent month-over-month to a seasonally adjusted annual rate of 1.517 million, falling below 1.610 million expectations due to a 17.9 percent decline in multi-unit permits and a 3.5 percent decline in single-family units. The weakness in the permits data suggests the strength in starts is not sustainable, especially due to the rise of mortgage rates since the July-August period and recent declines in homebuilder sentiment.

Today's economic calendar is already under way, and we've learned that mortgage applications increased 3.8 percent from one week earlier, according to data from MBA. Last week's results include an adjustment for the Labor Day holiday. Mortgage applications were expected to remain subdued after last week's fifth straight weekly decline in the Market Index to the lowest level since 1997 as mortgage rates surged 25-basis points or more during the reporting period. Later today brings August existing home sales, and the results of the FOMC meeting (rate hike, updated summary of economic projections, and Chair Powell press conference). We begin the day with Agency MBS prices better by .250 and the 10-year yielding 3.54 after closing yesterday at 3.57 percent.



Employment

Would you willingly volunteer your time and energy to travel across the world to serve in a remote village in the Amazon? At Academy Mortgage, when this opportunity arises, the answer among their people is an overwhelming yes. Since 2019, Academy has partnered with the village of Verde Sumaco, Ecuador to help Inspire Hope within the village and help the residents work towards the life they have long desired. Most recently, 40 volunteers left home with the sole intent to serve but found that they returned from the experience with more than they ever expected. Watch this video to see how Academy's employee-sponsored Service Expeditions have impacted not only the villagers of Verde Sumaco, but the lives of the volunteers. Want to join a team where your work isn't just about numbers? Contact EVP of Growth Patrick Welberg to learn more about how you can Inspire Hope and create life-changing experiences, locally and abroad.

Evergreen Home LoansTM adds to their awards and product line-up. In 2022, the company was ranked #11 on the Best Workplaces for Millennials™ list and #12 on the Best Workplaces in Financial Services & Insurance™ list by Fortune and Great Place to Work®, plus #4 on the Puget Sound Business Journal Washington's Best Workplaces list. Additionally, they added innovative products designed to help originators close more loans. Evergreen recently launched StepUp by Evergreen and Lock-n-List. StepUp provides homebuyers a solution to step into their dream home with a strong offer before selling their current home, and Lock-n-List helps homebuyer listings stand out with a locked-in rate. Quick reaction as well as innovative resources provide loan officers with opportunities to develop new agent and customer relationships and close more transactions. Loan officers seeking a great place to work should visit their Careers page.

You have two seconds or less to make an impression. That's how long a potential borrower may look at your marketing. In an overcrowded field of loan officers, you can stand out by stepping up your marketing game. New American Funding can help position you as a mortgage lending leader in your community and keep you in front of new and repeat customers. This includes meeting them where they are - online - and building your brand digitally through a custom website, SEO-optimized Google Business profile, electronic loan application and lead referrals. You'll also enjoy automated, personalized email campaigns, a curated library of social posts, cobranded collateral and more. You can even request custom content, tailored specifically to your business and recipients. You won't just stand out from your competition, you'll be on the next level. Contact Jordyn Dexter - 855-458-2023 EOE - and discover your true potential today.

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