Mortgage – HousingWire

HW+ Member Spotlight: Omar Ennabe
Houston fugitives in custody on mortgage fraud charges
Guaranteed Rate moves beyond mortgage
GSEs bolster diversity with senior hires
Fannie Mae notches two more CIRT deals
Flyhomes lays off 20% of its employees as housing demand falls
Non-QM lenders are racing to stay ahead of rates
House votes to increase HUD budget by $12.6B

Posted: 22 Jul 2022 02:20 PM PDT

This week's HW+ member spotlight features Omar Ennabe, who serves as president at Ennkar, a reverse mortgage lender. Below, Ennabe answers questions about the housing industry:

HousingWire: What is your current favorite HW+ article and why?

Omar Ennabe: I enjoy reading anything Chris Clow writes. Chris Clow helps keep me apprised of what’s going on in my unique niche of the mortgage markets. I start my day with a cup of coffee and Chris Clow’s updates on the reverse mortgage market.

HousingWire: What is the best piece of advice you've ever received?

Omar Ennabe: To look inward. I have found that people can be grouped into 1 of 2 categories. Those that blame others when things go wrong and those that look inward and see what they could have done better.

Since I heard that from a person that I respect and admire, I have tried to reflect on situations with that in mind and think about what could I have done better as opposed to blaming someone or something else.

HousingWire: When do you feel like a success in your job?

Omar Ennabe: When we took people with zero mortgage experience and grew Ennkar to the 9th largest reverse mortgage lender in the country. Many thought we were going to fail and ignored us or chose not to work with us when we attended our first mortgage convention. Now those vendors may be kicking themselves for passing.

HousingWire: What is your most useful tech tool?

Omar Ennabe: My smartphone. The technology in my smartphone allows me to stay connected wherever I am in the world. It ensures my clients and my team can get a hold of me in the event of an urgent situation. It allows me to stay up to date with market news and ensures that I am well informed to make decisions that impact our business.

HousingWire: What are 2-3 trends that you’re closely following?

Omar Ennabe: The obvious trends I follow would be the ones related to our business, such as housing trends, home values and interest rates. On a personal level, I do try to stay on top of technology trends and viral video trends. I love being the first one with the new iPhone or tech gadget!

HousingWire: If you could change one piece of housing regulation, what would it be and why?

Omar Ennabe: I would like to see the document packages for reverse mortgages become much simpler. The current application packages and final doc sets have become very long and full of legal jargon that most laymens don’t understand.

It would be nice to simplify them for consumers and not require hundreds of signatures on pages that will likely not be read or understood by most. I also would love to see the FHA move faster when it comes to adopting new technology. They seem to be years behind traditional mortgages when it comes to electronic signatures as well as other related tech items.

HousingWire: What keeps you up at night and why?

Omar Ennabe: At the moment, it happens to be my 7-month-old. But, I am confident that this question was intended to reference the housing market. I am not too worried about the housing market in the long term.

I believe in the U.S. economy and it’s ability to self-correct. I am hopeful that investor demand for our product will return as we have seen a drop off in the number of investors buying mortgage-backed securities (specifically reverse mortgages). I also think product innovation will help my space as the demand from consumers for reverse mortgages has never been higher.

To become an HW+ member, click here.

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To view past issues of our HW+ exclusive HousingWire Magazine, go here.

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Houston fugitives in custody on mortgage fraud charges

Posted: 22 Jul 2022 02:04 PM PDT

Three alleged charlatans from Houston have been nabbed by federal authorities and taken into custody on charges related to mortgage fraud, credit repair and government loan fraud, the Department of Justice said on Friday.

The DOJ claims that Heather Ann Campos, David Lewis Best Jr. and Stephen Laverne Crabtree were evading law enforcement for "several months." Some of their alleged co-conspirators, including Steven Tetsuya Morizono, Melinda Moreno Munoz, Elvina Buckley, were indicted earlier this year.

If convicted, all three face up to 30 years in federal prison and a possible $1 million maximum fine, the DOJ said.

The DOJ said Campos and Best have been evading authorities since January after they were both indicted for allegedly participating in a conspiracy to defraud mortgage lending businesses, banks, the Small Business Administration and the Federal Trade Commission.

Initially, Campos and Best agreed to self-surrender, but then opted to hide instead. Crabtree, on the other hand, was released on bond earlier in January and became a fugitive, the DOJ claims.

DOJ alleges that Campos, a mortgage broker, and Best created a slew of credit repair companies dubbed KMD Credit, KMD Capital and Jeff Funding and "cleaned" their clients credit histories by filing false identity theft reports with the FTC. Buckley worked as a Realtor in this alleged scheme and Munoz was operating as a notary. Family and friends were also invited to join, the government claims.

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The DOJ alleges the fraudsters inflated client credit worthiness and obtained credit cards, disaster loans and mortgages for themselves and their clients. According to the DOJ, Campos and Best used false statements and documents to do so.

Further, the fraudsters used their clients' names to obtain rental properties and built a real estate portfolio worth "millions of dollars."

In addition, they allegedly obtained loans from the SBA's Economic Injury Disaster Loan Program and Paycheck Protection Program. They were created in the names of clients, friends, and family members through fake or altered documents, the DOJ said.

The DOJ did not specify how long the alleged ruse went on.

Prior to their arrest, Campos, Best and Crabtree allegedly sent numerous sovereign citizen letters to federal agencies and the federal court in Houston declaring themselves immune from prosecution and refusing to recognize the authority of the federal courts.

The Federal Housing Finance Agency's Office of Inspector General, the Postal Inspection Service and the Department of Housing and Urban Development's Office of Inspector General conducted the investigation.

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Guaranteed Rate moves beyond mortgage

Posted: 22 Jul 2022 01:52 PM PDT

Guaranteed Rate is looking to diversify its product mix amid the mortgage downturn. The mortgage lender has rolled out its first personal loan product.

Customers can apply for personal loans in 10 minutes and receive funds between $4,000 and $50,000 within hours, the firm said Tuesday. The unsecured loan, which doesn't have origination fees, late fees, nor non-sufficient funds fees, has flexible repayment options from one to five years, according to Guaranteed Rate. Standard fixed rate loans range from 5.74% APR and 19.99% APR.

"Personal loans are a really smart way for customers to reduce the cost of high-interest credit card debt or to help finance unexpected purchases," said Anand Cavale, executive vice president and head of unsecured lending product at Guaranteed Rate.

The introduction of a personal loan product follows the hiring of three executives last month, including Cavale, which the firm said was an investment to “rapidly develop end-to-end digital solutions to serve customers across a diverse array of financial products beyond mortgages.”

The personal loans could also be a good source of leads for mortgages down the road.

Chicago-based Guaranteed Rate this week also rolled out a new underwriting program for its clients to better compete against cash buyers and institutional investors.

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Dubbed “PowerBird Approval,” Guaranteed Rate said the program speeds up full underwriting approval to less than 24 hours in some cases, according to the firm.

“PowerBid Approval's priority turn times mean borrowers get our fastest approval, often in less than 24 hours,” the company said in a statement. “Less thorough approvals that aren't fully underwritten often lose out in competitive bidding situations. It's fast and easy to apply from anywhere, on any device, and a 90-day lock gives borrowers the time they need to find the home they really want.”

The program requires the customer to provide income, employment, asset and credit, all of which can be digitally validated or sourced from customer documentation for immediate review, said Paul Anastos, chief innovation officer. The approval is completed with an address or after having found a home so customers can compete with cash, he added.

In January, Guaranteed Rate closed its third-party wholesale channel, Stearns Wholesale Lending, a year after it acquired the lender from Blackstone Group. In acquiring Stearns for an undisclosed amount, the company had sought to boost retail loan originations, scale its joint venture platform and develop new multi channel capabilities.

Guaranteed Rate was the seventh-largest purchase mortgage lender in America in 2021, according to Inside Mortgage Finance. It originated $56.64 billion in purchase mortgages, just behind Rocket Mortgage, the nation’s largest overall mortgage lender.

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GSEs bolster diversity with senior hires

Posted: 22 Jul 2022 01:26 PM PDT

Both Fannie Mae and Freddie Mac this week made two senior hires that increase diversity in leadership at the enterprises, where the leadership skews toward white and male.

At Freddie Mac, Dennis Hermonstyne Jr., who previously worked at Santander Bank, will assume the role of senior vice president and chief compliance officer. Starting Sept. 19, he will report directly to Freddie Mac CEO Michael DeVito, and work closely with Anil Hinduja, Freddie Mac's chief risk officer.

Most recently, Hermonstyne was executive vice president and chief compliance officer at Santander Bank, in Boston, where he oversaw the bank's strategic compliance program and the policies and procedures for compliance vulnerability across the company. Before that, Hermonstyne was the deputy chief compliance officer at E*TRADE Bank.

Hermonstyne's role at Freddie Mac, a private company under government conservatorship, also marks his return to the federal government. Hermonstyne was previously a staff attorney in the division of consumer and community affairs at the Federal Reserve.

Hermonstyne fills a position left vacant by Freddie Mac's former chief compliance officer, Jerry Mauricio, who left the company in June, a Freddie Mac spokesperson said. Mauricio had been serving in that role on a permanent basis since July 2021.

Fannie Mae also this week brought Katie Jones on board as its chief human resources officer. Prior to joining Fannie Mae, Jones held the same position at PRA group, a global financial services firm. She previously served in roles at SunTrust Bank, AIG and Crestar Bank.

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In a prepared statement, Fannie Mae said Jones would work closely with the enterprise's office of minority and women inclusion.

Fannie Mae did not respond to a request to comment.

Hermonstyne, who is Black, will be one of DeVito’s few direct reports who is a person of color. Most of the Freddie Mac’s senior leadership, as at Fannie Mae, is not racially diverse.

While the workforces of both Fannie Mae and Freddie Mac are majority-minority, per their financial filings, their officers and boards are not. Two-thirds of Freddie Mac and Fannie Mae's boards are white. Less than a quarter of Fannie Mae's officers are minorities, according to its annual filing with the Securities and Exchange Commission. Most of Freddie Mac's officers are also white.

A Government Accountability Office report in 2020 found that the share of women and minorities in senior management at both of the GSEs had only slightly increased from 2011 to 2018. The enterprises did not have female directors on their boards until 2019.

That changed with the 2019 appointments of ex-Federal Deposit Insurance Corporation chair Sheila Bair as vice chair of Fannie Mae's board, and Sara Mathew, as chair of Freddie Mac's board. Bair, who was later elevated to chair Fannie Mae's board, departed in May, along with CEO Hugh Frater.

Fannie Mae has not yet announced a permanent CEO. Freddie Mac also has another high-level role to fill. Donna Corley, who led the single-family division, announced her resignation in May.

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Fannie Mae notches two more CIRT deals

Posted: 22 Jul 2022 12:16 PM PDT

Fannie Mae has executed two new Credit Insurance Risk Transfer (CIRT) deals — the seventh and eighth of 2022 — dubbed CIRT 2022-7 and CIRT 2022-8.

The two transactions convey a combined $1 billion in mortgage credit risk to private insurers and re-insurers as part of the agency's ongoing effort to share risk with the private sector.

Since the CIRT program's inception in 2013 to date, Fannie Mae has acquired some $21 billion in insurance coverage on a total of $709 billion of single-family loans, Fannie Mae states in the announcement of the latest CIRT deals.

"We appreciate our continued partnership with the 24 insurers and reinsurers that have committed to write coverage for these deals," said Rob Schaefer, Fannie Mae's vice president for capital markets.

Through the CIRT transaction, a portion of the credit risk on mortgages backed by Fannie Mae is shifted to insurers in the private sector. The agency pays monthly premiums in exchange for insurance coverage on a portion of the designated reference loan pools.

CIRT 2022-7 involves a covered loan pool composed of 64,000 single-family mortgages with a total unpaid principal balance of about $19.8 billion. The loans in the pool are fixed-rate mortgages with primarily 30-year terms and loan-to-value ratios ranging from 60.01% to 80% that were acquired by the agency in September 2021, according to Fannie's statement announcing the deal.

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With CIRT 2022-7, effective as of June 1, Fannie Mae will retain risk for the first 55 basis points of loss on the $19.8 billion loan pool. If that $109 billion retention layer is exhausted, then the 24 insurers and reinsurers that are party to the transaction will cover the next 335 basis points of loss on the pool, up to a maximum of $664 million.

CIRT 2022-8 involves a covered loan pool composed of 43,000 single-family mortgages with a total unpaid principal balance of about $12.9 billion. The loans in the pool also are fixed-rate mortgages with primarily 30-year terms and loan-to-value ratios ranging from 80.01% to 97% that were acquired by the agency between August and September 2021, according to Fannie's statement announcing the deal.

The transaction also is effective as of June 1, with Fannie Mae retaining risk for the first 65 basis points of loss on the $12.9 billion loan pool. If that $84 billion retention layer is exhausted, then the 19 insurers and reinsurers that are party to the transaction will cover the next 275 basis points of loss on the pool, up to a maximum of $354 million.

CIRT transactions 1, 2, 3, 4, 5 and 6 — executed this year — work similarly to CIRTs 7 and 8, with each transferring hundreds of millions of dollars of mortgage credit risk to the private sector.

In total, the eight CIRT deals so far this year provide insurance for potential losses on the covered loan pools up to a maximum of some $5.9 billion. The covered mortgage loan pools in the eight transactions to date include a total of some 566,000 mortgage loans valued at $172 billion — based on a tally of the announced CIRT deals.

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Flyhomes lays off 20% of its employees as housing demand falls

Posted: 22 Jul 2022 11:41 AM PDT

Flyhomes is the latest venture capital-fueled real estate company to fall victim to the slowdown in the housing market, opting to lay off 20% of its staff this week.

To operate in a fiscally “prudent and sustainable” manner in the face of uncertain economic conditions, Flyhomes said it made the “difficult decision to reduce the size of our team," in a LinkedIn post on Thursday.

“The past few months have brought the largest interest rate hike in nearly 30 years, and that has impacted the demand for housing," the brokerage and lender said.

The Seattle company confirmed it laid off 20% of its workforce, but declined to disclose the current headcount or provide details on severance payments.

According to LinkedIn posts from affected employees, 200 people in Seattle and India were laid off on Thursday. Eliminated positions included a video content specialist, regional sales manager and senior client success specialist in Washington and researchers and recruiters in India.

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The firm, which says it has between 501 and 1,000 employees on its LinkedIn page, has 762 LinkedIn members with the current employer listed as Flyhomes.

Through subsidiaries including Flyhome Brokerage, Flyhomes Mortgage and Flyhomes Closing, Flyhome claims to provide end-to-end home buying services. Founded in 2016, Flyhomes offers a cash offer program for homebuyers with a majority of its revenue coming from agent commissions.

The company, led by CEO and co-founder Tushar Garg, raised $190 million including a $150 million Series C funding round in June 2021 from investors including Norwest Venture Partners, Battery Ventures and Fifth Wall. Since then, the firm expanded to markets including Texas, Colorado and Idaho.

Amid a rise in interest rates and the slowing housing market, a string of vertically integrated real estate companies and “power buyers” have issued pink slips to cut costs. HomeLight laid off 19% of its employees, Sundae eliminated 15% and Orchard got rid of 10% of its workforce in June. Last month, Redfin and Compass combined laid off more than 900 employees.

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Non-QM lenders are racing to stay ahead of rates

Posted: 22 Jul 2022 08:40 AM PDT

Non-QM lender First Guaranty Mortgage Corp. (FGMC) filed for Chapter 11 bankruptcy protection at the end of June — leaving four warehouse lenders on the hook for more than $415 million.

Sprout Mortgage imploded in early July, leaving its employees out in the cold. The lender so suddenly shuttered its doors it failed to file advanced notice of the layoffs, as required under federal law. It has since been sued by its former employees.

Just weeks later, a leaked text message from Flagstar Bank provided an inside look at how dire the current climate is for many non-QM lenders. The bank calls out 16 non-QM lenders in the text message, indicating it is ramping up scrutiny of its loan reviews, prior to advancing warehouse funding.

The examples, all within about a month, illustrate a non-QM lending world in disarray, turned upside down in recent months as originators battle an unassailable force over which they have no control: fast-rising interest rates. It's an ongoing battle, which already has been lost by at least two lenders, FGMC and Sprout.

And others in the sector, warehouse lenders included, must now navigate the fallout, heed the warning signs and take action to avoid a similar fate. One executive said "it would be naïve" to think Sprout and FGMC will be the only casualties, given the current environment. In time, he said, they may well end up being "more of a trend than outliers."

The Flagstar text message leaked to the media in mid-July confirmed, going forward, funding advances for non-QM mortgages will require advance approval by the lender's warehouse lending arm. The bank also indicates it may adjust "haircuts" — the percentage of the loan the originator must fund itself to ensure it has skin in the game.

Thomas Yoon, president and CEO of Excelerate Capital, a full-service non-QM lender, said the move essentially means Flagstar now will "monitor every loan because they don't want [to fund loans] that will be hard to sell in the open market, and then they're stuck with that loan."

"So, they are going to babysit now," Yoon said, adding that from a business standpoint, it will slow down the loan originators' processes. "Someone at Flagstar has to physically look at the deal and make sure it aligns with what they want before they’re able to fund, and that’s going to cause delays."

Flagstar spokesperson Susan Cherry-Bergesen verified the authenticity of the text message when contacted by HousingWire and confirmed its content: The bank is adjusting its loan-review process. The leaked message included a list of 16 non-QM lenders that would be affected by the changes, according to published reports.

"We were at a meeting with one of our warehouse providers [recently] and … they asked a smart question: "Is Acra Lending on that list?" recalled Keith Lind, CEO of Acra Lending, a leading non-QM lender. "Of course we're not.

"…If lenders didn't take rates up fast enough, or they didn't liquidate their positions fast enough, there's going to be warehouse facilities where the loans [made to lenders] are worth less than the equity [skin in the game] that the originator posted. That's probably a little more common than people think."

Lind said many lenders are now trying to digest a plethora of lower-rate loans, essentially "orphaned by the market." During the height of the refi boom and earlier this year, scores of loans were originated at interest rates much lower than current market rates, which have risen dramatically in recent months.

As a result, there exists a mismatch between those legacy lower-rate mortgages and the new higher-rate loans. That's the case even though the lower-rate loans are widely considered to be well-underwritten, quality loans. As of mid-July, according to Freddie Mac's purchase mortgage-market survey, the 30-year fixed mortgage stood at 5.54%, compared with 3.22% as of the first week of January 2022 and 2.88% in July 2021.

The market's interest rate woes contributed to non-QM lender FGMC's downfall. FGMC and its affiliate, Maverick II Holdings LLC, filed for Chapter 11 bankruptcy protection June 30, leaving four of the country's major warehouse lenders with claims totaling $418 million, according to court filings.

Those warehouse lenders are Customers Bank, Flagstar Bank, JVB Financial Group and Texas Capital Bank.

Another non-QM lender also was swept up in the "orphaned" loan market. Sprout Mortgage on July 6 closed its doors suddenly, leaving hundreds of employees without jobs and paychecks. Real estate agents and their clients also received no advance warning and multiple deals fell through as a result, sources told HousingWire. The lender also did not file a WARN Act notice — required of any employer of more than 100 that has a mass layoff at one location involving more than 50 employees.

"The New York State Department of Labor has not received a WARN notice from Sprout Mortgage," states an email from the department sent in response to a HousingWire inquiry. "We do not comment (confirm nor deny) on potential or pending investigations."

The failure to provide proper notice of the layoffs prompted a class-action lawsuit by former Sprout employees. The litigation — lodged in early July in U.S. District Court for the Eastern District of New York — seeks to recover wages due the workers.

The current interest-rate spread pressure-cooker tends to be even more acute in the non-QM sector, compared with the prime-mortgage market, according to John Toohig, managing director of whole loan trading at Raymond James in Memphis.

"[There's] a lot of underwater coupons due to rapidly rising rates," Toohig said. "The problem with non-QM is that most banks won't be the liquidity source for those loans in whole-loan form [purchasing] vs. the aggregators putting them into RMBS [private label securitization deals] — which doesn't work right now [either].

"So, I wouldn't be surprised that there is some pain coming at the warehouse-line level [revolving lines of credit used to fund mortgage originations] as loans start to age. The good news for prime jumbo [is] banks want to own those loans and balance-sheet them. The same cannot necessarily be said for non-QM."

Non-QM mortgages include loans that cannot command a government, or "agency," stamp through Fannie Mae or Freddie Mac. The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners, gig workers and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies.

Because non-QM, or non-prime, mortgages are deemed riskier than prime loans, in a normal market they generally command an interest rate about 150 basis points above conforming rates, according to Excelerate's Yoon.

Excelerate and Acra each raised rates rapidly starting early in the first quarter of this year to stay ahead of the fast-rising interest rate curve, according to Yoon and Lind. The rapid surge in rates in the market is being fueled, in part, by the Federal Reserve's ongoing benchmark rate bumps, intended to battle inflation. The consequence of failing to anticipate the velocity of rate increases could result in a lender getting stuck with millions of dollars in underwater loans — mortgages that are well-underwritten but valued under par, the lending executives said.

In other words, these lower-rate — now "scratch and dent" — loans are at a competitive disadvantage in terms of pricing in securitization and loan-trading liquidity channels because they are worth less than the newer crop of higher-rate mortgages. Lind put it this way: "These aren't bad loans, just bad prices."

"I don't think [Sprout and FGMC] are the only two lenders that are in a bind," Lind said. "I'm sure there's other originators that are in difficult situations, given this movement in rates and probably their inability to get liquidity or to sell loans fast enough."

Yoon said the Sprout and FGMC failures are likely going "to be more of a trend than outliers."

"A lot of lenders took on, or funded, these really low-coupon loans," Yoon continued. "And they probably had them sitting in their gestation pipelines thinking that the things will get better, and they could sell them off. That day never came.

"What I've been told through warehouse lenders and Wall Street aggregators is that there's several billion dollars' worth of these [low-coupon] loans out there, still sitting on balance sheets. At some point, they [lenders] will have to pay the piper, right? It's naive to assume we're not going to see more casualties."

***

Q&A

HousingWire contacted half a dozen non-QM lenders seeking interviews for this story, including Angel Oak Cos., Deephaven Mortgage, CarVal Investors, Verus Mortgage Capital, Acra Lending and Excelerate Capital. All the lenders, as well as the now-failed Sprout Mortgage, participated in a prior story on the same subject — the state of the non-QM market, which was published in April.

This time around, only Acra and Excelerate agreed to participate. Representatives of the other lenders declined to comment or make executives available for an interview, with most saying the executives didn't have time. The top executives at Acra and Excelerate, Lind and Yoon, respectively, each declined to comment on specific competitors in the non-QM market, but they did share their views on current market conditions and the challenges faced today by non-QM lenders in general.

Lind and Yoon stressed they are not predicting with certainty other non-QM lenders will fail, nor do they hope that will be the case. Both, however, predict due to the runup in rates, there will likely be painful losses incurred by some non-QM lenders, which will have to be dealt with somehow.

All non-QM lenders now face the same economic challenge — coping with the fallout from interest rates rising at a faster clip than the market has seen in decades. Following are comments from Acra's Lind and Excelerate's Yoon on a range of issues affecting the non-QM lending space.

Interest Rates

We saw the market [earlier in the year] and knew it would only get worse, at least in the short-run, and we put our rates above market at that time sharply. …We're positioned really well to navigate the current market. That doesn't mean it'll be easy, but you know, we're positioned better than most, so we feel fortunate about that. … When we raised our rates that significantly in the first quarter, it essentially blew up our pipeline in the short-run, but we felt like we needed to do that. …Going into October, November, December [of last year] and into January [2022], everyone was thinking, including us, that we're going to have a banner 2022. Then the market changed on us overnight. There was only a handful of us that that made the move [to raise rates sharply], and they are positioned well going forward. — Thomas Yoon of Excelerate Capital

We've moved rates 18 times in 2022 [to date] — mostly up, with maybe one or two down. Listen, everyone's got a different execution or [liquidity] outlet. I can just tell you that we're breaking even or making a little bit of money in the first few quarters [of this year], and our rates are higher than others. I don't know how some of these other people [lenders] have been able to do it. But if they have, then kudos to them. …You've probably heard this before: Don't fight the Fed [the Federal Reserve]. The Fed is bigger than everyone. Well, guess what? So is the housing market, and you don't fight the housing market. Everyone's like, "Oh, I'm going to keep rates low because I need market share." I think it's always better to be prudent and pay attention to rates. It's not a race [or sprint]. This is a marathon to be successful in this business. That's the way we look at it. — Keith Lind of Acra Lending

Warehouse Lenders

The biggest problem in non-QM right now is the fear of liquidity, right? It's whether they're able to sell off their closed loans. If they don't, then it becomes a burden and a debt. The biggest, I think, challenge that these non-QM platforms face — outside of what's happening in the market — is will they maintain a stable relationship with their warehouse lines. …I expect lower limits in warehouse funding capabilities and more haircuts, so that they [warehouse lenders] feel that they're protected. Oftentimes, warehouse divisions are a real profit-maker for banks, but we're going through a cycle change, and originations have dropped 40-plus percent nationally. It means that everyone's taken a hit. …Most warehouse lenders are banks and, of course, they're feeling it too. — Yoon of Excelerate Capital

Regional banks [who are warehouse lenders] have a lot more exposure now and could be holding loans that are underwater. I've heard some of them are comfortable with the risk, and they'll just wind down these positions over time. It's still a good return for the bank. Others are looking for exit strategies. … Some of these regional warehouse lenders may ultimately do a full turbo feature where they collect all interest and principal, and the originator gets nothing. It's going to be harder for the little guy [smaller originators] to come back because warehouse providers, as well as people that are lending money [generally], are going to demand more capital. — Lind of Acra Lending

Raising Capital

If you're a [non-QM] executive and have a $300 million negative on the balance sheet [due to underwater loans], any company that's going to provide capital is going to question whether [the leadership of the lender] knows how to run a mortgage-banking platform in this marketplace. …It's not like they will be using that capital to build technology or to hire more great talent or [launch] a new system. To be clear, it's to make themselves whole, right? That's a tough, tough sell in today's market. — Yoon of Excelerate Capital

You don't throw good money after bad, right? — Lind of Acra Lending

Market Share

We took flack for raising our rates and recalibrating ourselves. A lot of our competition, for example, kept their rates really low and kept them low for all of the first quarter. They took on a massive risk, and their logic was that the market will turn for the better … and they'll be able to sell these [loans] off at a profit, instead of just breakeven. They looked at it as an opportunity to gain market share. Everyone that did that, you know, they were wrong. — Yoon of Excelerate Capital

The originators that have made it through the first two quarters in [good] financial shape absolutely I would expect all of us to gain market share. There are going to be [originators] that go out of business, as we've seen, and they're probably not the last, and then others are probably going to struggle. — Lind of Acra Lending

Survival Strategies

Our liquidity channels are still really viable. We have strong relationships with our aggregators and outlets. We're very fortunate, but we also recognize how volatile [this market] is. We have to be nimble. So, we have a plan A, but we also have plan B and C ready, just in case. …The market is moving so quickly, so we're shooting higher [on rates] than we normally would to make sure that the collateral bought is worth something when they securitize it — [a process that can take months]. The dramatic move [in rates] that we saw in the first quarter and second quarter, I don't think it's going to be that exaggerated [going forward], but we're constantly chasing the bogey here, so to speak. — Yoon of Excelerate Capital

There are three aspects that we focus on. First of all, we focus on rates. And I told you, we've moved rates 18 times since January 3. We were at a 4.5% coupon, and now we're low 8% [range] in terms of where our portfolio is. …Two is liquidity. If you don't have strong liquidity, and you're not getting off loan sales fast enough and at the [right] prices, that's going to be difficult. So, rates, liquidity and then lastly operational expenses. Are you managing your expenses? We took our headcount from 450 down to 350. We did that two months ago. And we're still looking at that, to make sure that that we are managing expenses and salaries. We've not only reduced headcount, but we've made adjustments to salaries. — Lind of Acra Lending

Downturn Duration

We're going to go into a recession — if we're not already in it right now. I hope that it's a mild recession. We're prepping as if this is going to be a 12- to 24-month downcycle for us as an industry. If it [ends] earlier, we look at that as very fortunate. But we anticipate that this year and the bulk of next year is going to be trying times for us. We're taking a very conservative approach. — Yoon of Excelerate Capital

I'm going to take the view that until we have a better understanding of where we are with inflation and taming it, that this market is going to be choppy. And when the overall market has a more comfortable understanding of where inflation is, and that it's under control, I would think that things will fall back into order. …There's still a lot of tailwinds in the housing market, however. We're short [some] 5 million homes [in the housing market], and I think from an investor perspective, depending on the price and the homes picked, there's good cash flow every month. I think that's why you're seeing more and more people, as far as mom-and-pops [small landlords, who are non-QM borrowers] getting into the housing market as opposed to the equity market moving forward. I like the tailwinds in housing, for sure. — Lind of Acra Lending

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House votes to increase HUD budget by $12.6B

Posted: 22 Jul 2022 08:12 AM PDT

The U.S. House of Representatives voted this week to give the Department of Housing and Urban Development an 18% increase in funding for information technology.

The Transportation, Housing and Urban Development appropriations bill, which was lumped in with five other bills, would set aside $73 billion in gross appropriations for the department. That is $12.6 billion more than the department’s 2022 final budget, and $1.1 billion more than President Joe Biden requested for 2023.

The measure passed in a 220 to 207 vote Wednesday afternoon. Further negotiations in Congress, however, will likely eat away at that figure. The U.S. Senate is set to deliberate its version of an appropriations bill in the weeks to come.

The House bill would allocate $383 million for HUD's information technology fund, an increase of $60 million from 2022. The bill would set aside $16.7 million specifically for “development, modernization, and enhancement projects."

The FHA has made an effort in recent years to update its decades-old single-family IT infrastructure. The Mortgage Bankers Association, in a letter to lawmakers ahead of the vote, argued that the bill should designate part of that $16.7 million for FHA Catalyst, FHA’s flagship IT modernization project.

The MBA wrote that FHA Catalyst is a “crucial project” to modernize FHA’s IT infrastructure, and “provide cloud-based platforms to reduce costs, risk, and fraud.”

Loans And Mortgage

Sunday, July 24, 2022