Feb. 5: Primer on the Fed, higher rates, and mortgages; vendor news; Agency deal primer; digital identity tool; women drug humor
I think that jokes which can be tailored to whoever is President at the time of the Olympics are good jokes. “Speaking of bobsleds, did you hear that the U.S. Bobsled Team is naming their # 1 sled the ‘Joe Biden?’ Because nothing has made America go downhill faster.” (Repeat every four years regardless of who’s in power.) What is also pretty funny is this sales training video from PrimeLending. What isn’t funny is rates (most figured they were going up, but what are you going to do about it?) and fraud. But there is help, and know that this isn’t exciting or perhaps even interesting, but if it helps one of your borrowers… or you… Last month the Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) launched Digital Identity Tech Sprint to develop solutions for financial institutions and regulators to help measure the effectiveness of digital identity proofing. “The process used to collect, validate, and verify information about a person. Through the Tech Sprint, FDIC’s tech lab (FDITECH) and FinCEN seek to increase efficiency and account security; reduce fraud and other forms of identity-related crime, money laundering, and terrorist financing; and foster customer confidence in the digital banking environment.” Now, on with titillating mortgage news!
Primer on Fed Funds, mortgages, and borrowers
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The Federal Reserve Bank of the United States has a few missions, one of which is the stability of our economy. So when the economy begins to expand too fast, inflation and asset bubbles can get out of hand, threatening economic stability. That’s when the Fed steps in and raises interest rates, which helps cool down the economy and keep growth on a more orderly path.
Last week the Fed made it clear that rate increases were in the cards for 2022. Originators should know that when the Fed discusses raising interest rates, it is referring to the federal funds rate, also called the federal funds target rate. At its regular meetings, the Federal Open Market Committee (FOMC) sets a target range for the federal funds rate, which acts as a reference for the interest rates big depository commercial banks (think Wells Fargo, Chase, US Bank, Bank of America, and so on) charge each other for the overnight loans.
When the Federal Reserve raises the federal funds target rate, it increases the cost of credit throughout the economy. Higher interest rates in general make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments and less on other items. Companies that were going to borrow money to expand may shelve projects if the costs are too high. Higher rates encourage people to save money to earn higher interest payments. This reduces the supply of money in circulation, which tends to lower inflation and moderate economic activity.
Experienced mortgage loan originators are adept at selling payment, lifestyle, and products rather than rate. But rate is still a discussion topic… It always has been and always will be. If the Federal Reserve, throughout the next several months, raises the targeted Fed Funds rate by 1 percent, how will that impact mortgage rates and your client’s costs?
A $300,000 30-year, fixed-rate mortgage at 3.5 percent costs roughly $185,000 in interest over the 30 years. Monthly payments of principal and interest are about $1,340. There isn’t a 1:1 correlation between overnight Fed Funds and 30-year mortgage rates, but let’s say by the summer or autumn mortgages rates go to 4.50 percent. The interest costs go to $247,000 over those 30 years on a monthly payment of $1,520, or a difference of $62,000. That averages out to $172 per month.
MLOs, however, will remind their client of the tax advantages of paying money in interest instead of rent. And that they are creating wealth. Or perhaps put the person into a 15-year mortgage, or an adjustable-rate mortgage, with a lower interest rate. Perhaps the client will buy a smaller home. It is not as easy a discussion to have as has been the case over the last few years, but MLOs need to be prepared for it.
Vendor morsels
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CubiCasa, a global-reaching real estate software company and Accurate Group, a leading provider of technology-driven real estate appraisal, title data, analytics, and e-closing solutions announced a partnership. Professionals in Accurate Group’s network will be empowered to complete inspections and appraisal services with CubiCasa’s mobile scanning technology.
CubiCasa’s mobile capture technology can be used without prior training by anyone with a smartphone. From a simple walk-through of a home, the technology produces a highly-precise floor plan and calculates gross living area (GLA) aligned with American National Standards Institute (ANSI) standards in approximately five minutes.
CoreLogic introduced the newest addition to its LoanSafe® fraud and risk mitigation suite, CoreLogic LoanSafe Explorer™ service, designed to assist lenders and servicers to get a more accurate picture of their fraud risk. LoanSafe Explorer’s unique advantage is the ability to leverage CoreLogic’s one-of-a-kind Mortgage Fraud Consortium. Data from over 100 million member supplied mortgage loan applications drives an analytically derived fraud score that has been proven to identify 60% of all frauds in the highest 10% of scores. Using this data on a macro level can allow users to identify possible fraud trends. For instance, a loan officer that has a much higher incidence of high (over 900) fraud scores compared to their counterparts may be conducting business in a way that needs further investigation and monitoring by risk managers.
Nearly 50 million consumers have a nonexistent or limited credit history. Without an existing credit report, lenders can’t verify a consumer’s identity and consumers are unable to access credit at fair and affordable rates. Often, these consumers are caught in cycles of predatory lending; can’t cover emergency expenses; and face limited housing options, higher
insurance premiums and interest rates, employment challenges, larger deposit requirements and more. Experian® launched a free, first-of-its-kind program available today that helps consumers establish their financial identity by creating an Experian credit report, Experian Go™, allowing millions of credit invisibles to start building credit in minutes and become scoreable without going into debt. The launch of Experian Go is a continuation of Experian’s mission to help consumers everywhere get access to fair and affordable credit.
ChainLogix, provider of services for the real estate tax, title insurance, settlement, and lending industries, has reached a milestone automating 65 of 67 Florida counties with over 25,000 automated property tax reports using TaxLogix, its proprietary tax research and reporting platform. TaxLogix makes it easy for basic and enterprise clients to place requests with flexible payment options. The platform’s real-time dashboard offers simplicity of use, enhanced order tracking, analytics, customized reports, and a plethora of other features. Jane Jaeger, Vice President of Property Tax Intelligence, said ChainLogix’s state-of-the-art property tax reporting platform leverages robotic process automation to solve challenges related to scalability and speed of delivery, which have never been achieved before in the real estate industry.
The mortgage industry is swiftly moving to a fully digital mortgage, including the secure storage and delivery of eNotes. With that in mind, IDS announced today that it has released its eVault, expanding the capabilities of its eClosing platform, Solitude Solution. Approved by Fannie Mae and Freddie Mac, the addition of the eVault to Solitude Solution, lenders now have the ability to
utilize secure eDelivery and eTransfer functionality for digital mortgage documents, quickly and easily register eNotes with MERS.
CondoTek has launched a new online ordering portal featuring Condo Project Warrant product for condo and co-op loans to streamline the delivery of its products and services. The CondoTek Ordering Portal provides clients with access to CondoTek’s expanded offerings resulting from its recent acquisition National Condo Advisors. Lenders can also use the portal to order CondoPak, CondoTek’s flagship product for streamlining documents and data. CondoPak enables lenders of any size to easily acquire and service a complex array of data and documents required for underwriting and approving condominium and homeowner association properties nationwide. Later this year, CondoTek plans to announce a series of new integrations designed to improve the user experience for lenders that originate and underwrite loans for condos and coops through its ordering platform.
The secondary markets driving rates in the primary markets
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Investors are typically interested in higher yields, and will sometimes accept taking on credit risk to reach those yields. (Think of lending money to the U.S. Government versus your ne’er-do-well brother-in-law.) With Fannie Mae and Freddie Mac making an active market in selling mortgages, transferring that credit risk in the form of CRTs (Credit Risk Transfer) is important. Andrew Netter, Senior Financial Consultant with Milliman (an actuarial and quantitative consulting firm specializing in mortgage credit modeling and providing quantitative solutions to investors, insurers, regulators, servicers and lenders) provided a white paper on GSE CRT market developments on the capital markets side: The GSE CRT market reopens post COVID-19 disruption: A new normal? Or more troubles on the horizon?
Why should an MLO care? The Agencies (aka Freddie and Fannie) continue to help borrowers both the primary and secondary markets, hoping to achieve competitive pricing in the secondary market while limiting risks borne by taxpayers. And if someone wants to own risk, why not sell it to them? Along those lines, billions of dollars of conforming conventional loans have been bundled into CRT (Credit Risk Transfer) bond deals, nonperforming, or multifamily deals, which help reduce taxpayer exposure to the large book of mortgages guaranteed by the two housing giants and help the Agencies manage their capital. In general, GSE reform needs to ensure stability in the MBS market, but also preserve price signaling from the private sector. Ensuring the smooth functioning of the conventional TBA market is paramount, and most believe that this requires a government backstop behind private capital.
These deals involve sharing, for a price, part of the credit risk with third party investors like insurance companies or pension funds. In the deals, the investors pay cash up front and purchase debt securities that are designed to absorb the credit losses on GSE (government sponsored enterprises) loan pools. The goal is to attract private capital into the mortgage market and shift some risk away from taxpayers since we are currently on the hook for Freddie & Fannie. Fannie Mae and Freddie Mac have still been pricing transactions to aid liquidity in the mortgage space, providing support for its borrowers and up-to-date disclosures for our investor base. And that helps rate sheet pricing for borrowers!
Freddie Mac announced that its Single-Family credit risk transfer (CRT) program expects issuance volume of at least $25 billion in 2022. The issuances are expected to include primarily STACR (Structured Agency Credit Risk) and ACIS® (Agency Credit Insurance Structure) transactions. “Freddie Mac is responding to the capital requirements established by the Enterprise Regulatory Capital Framework (ERCF) with plans to optimize our CRT offerings in 2022,” said Freddie Mac’s Mike Reynolds, Vice President of Single-Family CRT. The ERCF, which establishes risk-based and leverage capital requirements for Freddie Mac, requires Freddie Mac to hold significantly more capital than it did under the Conservatorship Capital Framework (CCF). For example, the pre-CRT capital requirement for the Freddie Mac STACR 2021-DNA7 reference pool is approximately 552 basis points under ERCF but would be approximately 312 basis points under CCF. In addition to anticipated greater issuance volume, the company expects to introduce new slices of the M-1 tranche to its STACR on-the-run offerings in 2022.
The stakes are large. Fannie Mae and Freddie Mac closed out 2021 with a record $2.632 trillion in combined single-family mortgage-backed securities issued. That was up 10.1% on an annual basis despite a $42.18 billion sequential decline in issuance in the fourth quarter.
Freddie Mac announced a Single-Family Green Bond Framework under its Single-Family Green Bond Program, supporting the company’s commitment to promote environmentally sustainable single-family housing to help reduce climate-related risks and increase affordability. Freddie Mac’s Single-Family Green Bond Framework recently received a Light Green Second Opinion rating from CICERO Shades of Green are available at FreddieMac.com. Freddie Mac has issued more than $600 million in Single-Family Green MBS since the first bond was issued in April 2021. Each Single-Family Green MBS issued to-date is backed by Freddie Mac GreenCHOICE Mortgages, where borrowers used refinance proceeds to finance energy efficient home improvements. Specifically, a portion of the proceeds from each refinanced mortgage backing these Single-Family Green MBS paid off existing debt that was used to finance the purchase and installation of solar panels as a renewable energy source. Mortgages backed by newly constructed homes with a renewable energy source and mortgages backed by newly constructed homes with a Home Energy Rating System Index Score of 60 or less now meet Freddie Mac’s requirements for the Single-Family Green MBS program. This expansion of eligible energy efficient mortgages will help encourage green construction and energy efficiency home improvements. The company plans to issue Single-Family Green MBS with additional eligible collateral, as defined by the Framework, in the coming months.
Freddie and Fannie are only slice of the pie. Ginnie Mae reported that its December 2021 issuance volume was $66.8 billion, maintaining the strong liquidity of the program and its value in meeting the financing needs of homeowners and rental property owners. Approximately 242,793 homes and apartment units were financed by Ginnie Mae guaranteed MBS in December. A breakdown of December 2021 issuance of $66.84 billion includes $62.31 billion of Ginnie Mae II MBS and $4.53 billion of Ginnie Mae I MBS, which in turn includes approximately $4.3 billion of loans for multifamily housing. Ginnie Mae’s total outstanding principal balance as of December 31 was $2.153 trillion, up from $2.143 trillion in the prior month, and up slightly from $2.103 trillion in December 2020.
Drug companies continue to do research on new drugs, many aimed at women.
DAMNITOL
Take 2 and the rest of the world can go to hell for up to 8 full hours.
EMPTYNESTROGEN
Suppository that eliminates melancholy and loneliness by reminding you of how awful they were as teenagers and how you couldn’t wait til they moved out!
ST. MOMMA’S WORT
Plant extract that treats mom’s depression by rendering preschoolers unconscious for up to two days.
PEPTOBIMBO
Liquid silicone drink for single women. Two full cups swallowed before an evening out increases breast size, decreases intelligence, and prevents conception.
DUMBEROL
When taken with Peptobimbo, can cause dangerously low IQ, resulting in enjoyment of country music and pickup trucks.
FLIPITOR
Increases life expectancy of commuters by controlling road rage and the urge to flip off other drivers.
MENICILLIN
Potent anti-boy-otic for older women. Increases resistance to such lethal lines as, “You make me want to be a better person”.
JACKASSPIRIN
Relieves headache caused by a man who can’t remember your birthday, anniversary, phone number, or to lift the toilet seat.
ANTI-TALKSIDENT
A spray carried in a purse or wallet to be used on anyone too eager to share their life stories with total strangers in elevators.
BUYAGRA
Injectable stimulant taken prior to shopping. Increases potency, duration, and credit limit of spending spree.
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Source: Rob Chrisman