Non-Qualified Mortgages Heating Up, Upcoming Events, Banks and Lenders Adjusting Business Models

By rchrisman@robchrisman.com

(Here is a timeless classic, and a repeat, that surfaces with every new administration; feel free to change as you see fit.)

A young man named Donald bought a horse from a farmer for $250.

The farmer agreed to deliver the horse the next day.

The next day, the farmer drove up to Donald's house and said, "Sorry, but I have some bad news... the horse died."

Donald replied, "Well, then just give me my money back." The farmer said, "Can't do that. I went and spent it already."

Donald said, "Ok, then, just bring me the dead horse."

The farmer asked, "What ya gonna do with him?"

Donald said, "I'm going to raffle him off."

The farmer said, "You can't raffle off a dead horse!"

Donald said, "Sure I can... Watch me... I just won't tell anybody he's dead."

A month later, the farmer met up with Donald and asked, "What happened with that dead horse?" Donald said, "I raffled him off".

"I sold 500 tickets at $5 apiece and made a profit of $2245."

The farmer said, "Didn't anyone complain?"

Donald said, "Just the guy who won. So I gave him his $5 back."

Donald moved into the White House.

Boss: "Working hard here, Jimmy?" Jimmy: "Yep, ever since I heard you coming down the stairs!" Mortgage banks are working hard, but banks and other financial institutions have the inside track when it comes to offering other products - more a few paragraphs down. While we're talking about working, here's a column from the Sunday New York Times' Adam Bryant on how to hire the right person from his interviews with CEOs.

 Some events & training of note that I mistakenly did not mention Wednesday:

 Fannie Mae is offering three additional Day 1 Certainty eLearning courses: Implementing Day 1 Certainty focuses on the benefits, process, technical information, and quality control considerations for the DU validation service, Property Inspection Waiver (PIW), and certainty on appraised value. DU Validation Service Overview of Income, Employment, and Assets uses detailed examples to cover how income, employment, and assets are evaluated by the DU validation service. (DU and/or Fannie Mae Connect user credentials are required to access this course.) And DU Validation Service Quality Control Overview reviews Fannie Mae's requirements for lender QC in connection with the DU validation service, including process efficiencies.

 MGIC is offering a wide range of webinars throughout the month of March. Trainings include topics such as the fundamentals of the Mortgage Process, Millennials: Obstacles, Opinions and opportunities, and Analyzing Self-Employed borrowers business and personal tax returns.

 Are you looking for something more than the typical mortgage conference to attend this year? I recommend checking out Todd Duncan's Sales Mastery Event. I attended Sales Mastery last year and can tell you first hand that it is head and shoulders above the typical conference experience. This year is the 25th anniversary of this industry changing conference and will be in San Diego California October 3-6. I'll be there, how about you?

 Changing business models for financial institutions

 There is no law barring financial institutions from branching out into offering other services, and in fact many use this tool as a way to expand and recruit. SoFi, for example, notes that nearly 30% of its clients take advantage of other product the finance company offers. Lenders such as California's Opes Advisors gives loan originators the potential for training in financial planning consulting.

 I mention this because this week it was announced that PNC Bank ($366B, PA) will acquire the US equipment finance business of Canadian company ECN Capital for about $1.3B in cash. The move gives PNC $1.1B in loans and leases. Indiana's MainSource Bank ($4.1B will acquire independent investment advisory firm First Service Capital Management Inc. (KY). B. Riley Financial will acquire investment banking firm FBR for about $160mm in stock. Synchrony Bank ($72B, UT) will acquire health card portfolio Citi Health Card from Citibank for an undisclosed sum. The move gives Synchrony 110,000 consumer accounts and connections to more than 14,500 providers.

 And for various reasons depository banks continue to merge. In Indiana First Merchants Bank ($7.2B) will acquire the remaining portion of IAB Financial Bank ($1.1B) for about $251mm in stock, after purchasing 12% prior. West Town Bank & Trust ($280mm, IL) will acquire Sound Banking Co. ($185mm, NC) for about $24.6mm in cash (35%) and stock (65%) or roughly 1.4x tangible book. The mother's milk of banking is lending, of course, and earning the spread between what they pay for deposits versus what they earn by lending.

 And through it all lenders continue to want to help their clients in a compliant, cost-effective manner while keeping an eye on what is happening in Washington DC. Word went out this week about a "Call to Action" from the MBA and others to tell your Representative to support and assist H.R. 916, a bipartisan bill that prohibits unfair housing taxes. In other words, not to use the g-fee to support other government operations.

"Answer the Call to Action. It literally takes 2 minutes to support your clients, your neighbors, and your industry. Do you remember when G-Fees increased to pay for 2 week extension of unemployment benefits? Do you remember when Congress tried to raise G-Fees to pay for the Gulf Coast Cleanup? Do you remember when Congress tried to use G-Fees to pay for highways? When G-Fees go up, consumers pay more and housing affordability is already an issue in this country. The bottom line is simple. Artificially raising the price of homeownership to pay for non-housing items is bad policy and possibly unconstitutional. H.R. 916 is a great example of bipartisan 'make sense' legislation which will prohibit taxing homeowners to pay for non-housing related items. (READ THE BILL HERE)."

 We don't need to make loans more expensive for consumers, especially with some of the drop-offs in business many are already seeing. Freddie Mac has a somewhat gloomy outlook for origination this year, forecasting a drop of 25% from 2016's level of $2 trillion in origination. Their team sees the 30-year mortgage rate averaging 4.4% and total home sales falling from 6 million to 5.75 million. House price growth is expected to moderate to 4.7% from 6%. Freddie Mac is baking in some possibility of expansionary fiscal policy coming out of Washington, especially with respect to tax reform, where an increase in the standard deduction will reduce the incentive to itemize and reduce the subsidy from the mortgage interest deduction.

 Interest rate news

 Hah! There is none, except for, "There's more buyers than sellers." The only scrap of information may have come from Treasury Secretary Mnuchin who said that most of the administration's fiscal policies would have a larger growth impact starting in 2018. And that sure isn't this year. But remember that lender volumes are declining, and the laws of supply and demand suggest higher prices and lower rates. By the time the day ended the risk-free 10-year's price had improved .250 and the yield was 2.39%, and the 5-year and MBS prices rallied .125-.250 depending on coupon and security.

 There is some good news, and that is that the Fed does not appear to be in any rush to shrink the balance sheet, i.e., divest itself of its trillions of dollars in Treasury securities and agency MBS.

 There was no early morning news today, but at 10AM ET we have Michigan Sentiment (the final number for February) and New Home Sales for January. Out of the gate this morning the 10-year is at 2.36% and MBS prices are better by nearly .125.