Optimal Blue: Rates Falling, Are Volumes Responding?

Optimal Blue recently released a suite of indices known as the Optimal Blue Mortgage Market Indices (OBMMI). These indices are calculated from actual locked rates with consumers across more than 30% of all mortgage transactions nationwide and are developed around the most popular mortgage loan products and specific borrower attributes.

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Rates have been falling steadily since mid-November 2018 and particularly sharply in March 2019. Specifically, the average 30-year conventional confirming 30-year rate fell from 5.16% in November 2018 to 4.55% in March 2019.  This drop was enough to spark a surge in mortgage consumer lock volume, with lock activity increasing by approximately 2.5% in Q1 2018 relative to Q1 2017. 

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Despite the drop in mortgage rates which is normally associated with signs of economic weakness, the economy has continued to show strong signs of growth, with unemployment at 3.8% in February and GDP growth at 2.6% in the fourth quarter of 2018. And signs of strength are also apparent in the housing market, with the monthly purchase only House Price Index showing a 0.57% increase in January. However, some market indicators suggest that an economic slowdown could be around the corner. In particular, the spread between 2-year and 10-year Treasury securities has narrowed since mid-2018 which is indicative of a weakening economy.  When the 10-year Treasury yield is near or less than the 2-year Treasury yield, it implies that markets expect the Federal Reserve to eventually reduce short term rates, a process which is generally associated with an economic slowdown. This expectation is supported by Federal Reserve Board statements indicating that they do not plan to raise rates the rest of the year and that they are slowing the runoff of the balance sheet. 

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The chart shows the Optimal Blue conforming 30-year fixed index plotted with the 2-10 yield spread, and indexed volumes of locked loans through the Optimal Blue product and pricing engine. Note that the yield spread has been low for a while, coinciding with the fall in rates. Unsurprisingly, the stark decline in rates has led to an uptick in mortgage activity.  


Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis;, April 2, 2019.

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Optimal Blue, OBMMI, Conforming 30-Year Fixed Rate index,, April 2, 2019

Optimal Blue, internal locks volume information

U.S. Federal Housing Finance Agency, Purchase Only House Price Index for the United States [HPIPONM226S], retrieved from FRED, Federal Reserve Bank of St. Louis;, April 2, 2019.

U.S. Bureau of Economic Analysis, Real Gross Domestic Product [A191RL1Q225SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis;, March 27, 2019.

U.S. Bureau of Labor Statistics, Civilian Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis;, April 2, 2019.

Embrace Home Loans Assists Banks & Credit Unions In Outperforming The Industry

While the Mortgage Bankers Association (MBA) indicates industry volume rose 16 percent in 2016 from the prior year, financial institutions supported by national lender Embrace Home Loans more than doubled that national average. Additionally, all financial institutions supported by Embrace received favorable regulatory and internal audit examinations, demonstrating the lender’s outstanding performance as well as its adherence to regulatory guidelines.

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Mortgage lending continues to be costly, risky and complex, forcing many financial institutions to exit. In fact, MBA President and CEO David Stevens wrote an open letter to The Wall Street Journal last year, explaining that the pullback of traditional banks from the lending business has been primarily due to a tightening regulatory environment. While these regulations serve to protect borrowers, many organizations continue to struggle to remain compliant, causing many banks and credit unions to rethink their role in the mortgage industry.In response, Embrace Home Loans has partnered with several banks and credit unions to provide a private-labeled operational support program, creating an exceptional experience for the institution’s customers, referral-partners and employees.

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According to Armando Carvalho, senior vice president of Rockland Trust, a partner of Embrace Home Loans, “Rockland Trust’s partnership with Embrace Home Loans has allowed us to focus on developing strong relationships with customers and referral sources, versus the loan processing, underwriting and closing functions. It is like having a large loan production center supporting our business without the costs and infrastructure associated with it.”

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The member and customer experience is crucial to the long-term success of any institution – and this is particularly the case for financial institutions like Rockland Trust, who have prided themselves on providing exceptional, personalized service. Mortgage products are no exception. Embrace Home Loans’ customer-centric approach versus process-centric places an emphasis on communication, creating a better experience and ensuring superior service. The lender operates at a 98 percent customer satisfaction rate, and their service-oriented culture goes hand in hand with the missions of community banks and credit unions across the country.

Embrace Home Loans is also 100 percent committed to the mortgage industry with no other business lines to divert its attention. In fact, John Brodrick, senior vice president of Eastern Bank, another partner of the lender’s, said, “The team at Embrace is an exemplary business partner. Top down, there is a can-do attitude, a commitment to excellence and an honest desire to both listen as well as improve on a daily basis. Embrace Home Loans is committed to the mortgage business and to getting loans to closing in a compliant way. We are very pleased with the way our relationship continues to develop.”

These institutions have experienced tremendous growth since partnering with Embrace, surpassing the industry averages. Rockland Trust, for instance, increased business volume 42 percent in 2015, and 38 percent in 2016 to now originating over $400 million annually. Additionally, Eastern Bank increased volume by 24 percent in 2016 well exceeding $500 million.

Entering its 35th year in business, Embrace has matured in the mortgage business, not the outsourcing business. This distinction is crucial in how Embrace serves their clients, and their client’s customers and members – recognizing the essential needs for honoring service, efficient operations, enabling technologies, with competitive products and pricing – all from the perspective of a lender, not a wholesaler. The lender centric operations show in the financial institution’s service scores and sales professional retention rates.

Embrace Home Loans offers customized fulfillment correspondent solutions for banks and credit unions originating volumes ranging from $15 million to $65 million per month. To learn more about how Embrace is uniquely positioned to provide community banks and credit unions with a solid mortgage solution, please call Kurt Noyce, President.

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Consolidation And Higher Loan Volumes Leading To Recruiting Challenges

With mortgage origination volume up and the industry experiencing substantial consolidation, lending executives face an increasingly competitive environment in acquiring key industry talent, according to recruiting expert Rick Glass, of Sacramento, California-based Rick Glass Executive Search. Glass, a 20-year search veteran who has placed hundreds of executives in the mortgage industry, finds the market for top talent especially competitive in the mortgage-centric markets like Dallas, Southern California, and the New York/New Jersey/Pennsylvania area.

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“Since the big banks started reducing their presence in mortgages, non-bank lenders have been picking up the slack by competing for former bank mortgage customers and new markets,” said Glass. “In order to compete successfully, C-level executives must hire leaders with the ability to identify, engage and develop origination talent in a progressively competitive ecosystem.”

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The market, the strategies and the tactics are changing, Glass noted, and management has to be prepared to address these changes, not only in recruiting, but in career management and long term incentive options. “Elite performers want to understand their own career paths as they go through the recruiting process, but all parties in the industry must be prepared with career management and retention strategies, whether hiring or being hired,” Glass said. “Unlike previous generations, careers are far less likely to be linear in nature and good people will expect to work for many companies over the years, thus amplifying the need for improved retention planning.”

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Glass spoke at MBA’s Annual Accounting & Financial Management Conference in San Diego in November, in a session entitled, “The growth in the market to pre-crisis levels and the downsizing and aging of the workforce mean tremendous opportunities for mortgage professionals at all levels in the years ahead,” Glass said. “Fortune favors the prepared, and it is essential that industry leaders appreciate and understand the fine points of acquiring and retaining the best talent, as well as managing their own careers over the long term.”

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Credit Scores On Closed Loans Drops

Credit scores on closed loans fell to their lowest level since Ellie Mae began reporting data in August 2011, according to the latest Origination Insight Report released by Ellie Mae. The average FICO score on all closed loans fell to 723. Credit availability on refinances appears to have increased in Q3 of 2015 as the overall average FICO and DTI have loosened materially from Q2 of 2015.

Ellie Mae’s data also showed that refinances represented 42 percent of overall loan volume in September, a 5 percent increase from August. This was likely driven by the recent dip in interest rates. Additionally, closing rates remained robust with over 66 percent of all loan applications closing for the third consecutive month. The closing rate on purchase loans increased to 71 percent.

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“Average credit scores declined to the lowest levels we’ve seen since 2011,” said Jonathan Corr, president and CEO of Ellie Mae. “We are also seeing rates fall while the time to close is also decreasing. It will be interesting to see if these trends continue as we begin to see impacts from TRID.”

The Origination Insight Report mines its application data from a robust sampling of approximately 66 percent of all mortgage applications that were initiated on the Encompass mortgage management solution. Ellie Mae believes the Origination Insight Report is a strong proxy of the underwriting standards employed by lenders across the country.

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Other findings from the September report:

>> The average 30-year rate for all loans declined for the first time since May, falling to 4.280.
>> The time to close on all loans declined for the fourth consecutive month to 46 days.

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Key 2015 Predictions

AhlensdorfRon Ahlensdorf Jr., President of Summit Valuations, LLC, a full service valuation company, told his firm’s staff and clients in an e-mail today that in 2015 the home finance industry would be impacted by three major trends which, taken together, would spell more opportunities for firms like his as well as the mortgage loan servicers and investors they serve.

“Market forces will complete the work of shifting the industry away from massive industry giants to smaller firms in 2015,” Ahlensdorf wrote in the letter. “We saw this a couple of years back when loan origination fell off at the big banks, opening the doors for smaller community banks and credit unions, and we saw it again last year with the shift from big bank loan servicing operations to smaller non-bank servicers and special servicers. In 2015, we see a similar shift away from very large property valuation providers to smaller, more nimble shops.”

According to Ahlensdorf, the first trend is all about volume. At the height of the foreclosure crisis and shortly thereafter, servicers were sending tens of thousands of orders out to BPO shops for valuations. Even the largest of these companies was overwhelmed and over time the quality of the results suffered. While that wave has crested, the next one is already upon us as investors continue to buy up undervalued housing inventory for rental stock.

“Volume is both friend and foe in our industry,” Ahlensdorf said. “While higher volumes mean more business for everyone, those firms that are ill-equipped to deal with the increased work run high risks. That can also create higher risks for the companies they serve.”

Over the past couple of years, buy to rent investors have snapped up hundreds of thousands of properties around the country, but as the inventory of distressed properties diminishes and home prices rise, these investors are taking more time for their deliberations. This gives rise to the second trend, which is that opportunity is shifting away from the industry’s largest firms in favor of smaller, more nimble competitors, as companies seek out quality vendors.

“When deals were very affordable, it was easier to take risk and absorb any losses caused by bad collateral valuations, but as prices have risen this has fallen out of favor with these buyers,” Ahlensdorf said. “This has led to a flight to quality in the collateral valuation space and sent a lot of work to smaller companies that have a lower ratio of orders to employees.”

Today, Ahlensdorf says investors are seeking out viable partners who have a track record and suitable technology, but also sufficiently trained staff to provide a quality product. They want reports that are easy to read, informative and available whenever they want to access the data. Summit is already winning new business as a result of this trend and Ahlensdorf says his company is poised to see strong growth in 2015.

Providing Market Insight

Lenders’ share of mortgage refinancing volume rose for the fourth straight month in November as mortgage interest rates continued to fall, according to the latest Origination Insight Report released by Ellie Mae. Since July, refinances as a percentage of lenders’ overall loan volume has climbed 13 percent from a 2014 low of 32 percent.

In addition to higher refinance volume, total closing rates on purchase loans rose to 66.5 percent, the highest since Ellie Mae began tracking this figure in August 2011. Meanwhile, the average 30-year fixed interest rate dropped to 4.273 percent, its lowest level since June 2013.

“With 2014 coming to an end, lenders are hopeful for a steady improvement in market conditions,” said Jonathan Corr, president and COO of Ellie Mae. “Winter is normally a slow time for housing sales, yet the increase in refinancing volume is protecting many lenders from the cold. Meanwhile, lower interest rates and the return of the GSEs’ three-percent down payment loan programs may help lenders and homebuyers get off to a great start this New Year.”

The Origination Insight Report mines its application data from a robust sampling of approximately 57 percent of all mortgage applications that were initiated on the Encompass origination platform. Ellie Mae believes The Origination Insight Report is a strong proxy of the underwriting standards employed by lenders across the country.

Other findings of the report include:

>> The average length of time to close a purchase loan rose to 41 days, up one day since October.

>> The average time to close a refinance loan dipped to 37 days, tying the lowest mark of the year.

>> Credit requirements are roughly the same as one year ago, as 31 percent of borrowers had an average FICO score of under 700 compared to 30 percent in November 2013.

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The Return Of Independent Mortgage Bankers

Richey May & Co has released its second quarter 2014 Trend Report for Independent Mortgage Bankers. The Trend Report includes the operating results of 37 independent mortgage companies throughout the US and covers all operating models and production volumes.  According to the report, loan production among independent mortgage bankers increased by 50 percent over the previous quarter, the first increase in the past three quarters. Purchase volume spiked 62 percent, while refinance volume increased 20 percent over the first quarter 2014.

Unfunded lock pipelines increased among independent mortgage bankers as well, rising 38 percent over the previous quarter. According to Kenneth Richey, managing partner of Richey May, this uptick indicates that the improved market conditions will continue through the coming months.

“The increase in unfunded lock pipelines suggests that we can expect to see similar, if not more improved, production in the third quarter of 2014 as well,” Richey said.

In addition to the increase in production, independent mortgage bankers improved profits by an average of 57 basis points, with many realizing up to 100 basis points in improved pre-tax profits over the previous quarter.

The Trend Report for Independent Mortgage Bankers was generated from the results of Richey May Select, the industry’s only benchmarking technology specifically for independent mortgage bankers. The software, which provides up-to-date peer-to-peer benchmarking information on various aspects of their businesses—such as financial, production, employment, warehousing and servicing operations—analyzes data submitted by independent mortgage bankers across the U.S., and compiles a report of the quarter’s notable trends. The quarterly Trend Report highlights key performance indicators, such as overall volume and volume by transaction type, as well as loan margins, operating costs, labor output, and more.

The data used in the report is gathered from Richey May Select subscribers and is provided at no additional costs to the participants.  All data sources are kept confidential.

“Independent mortgage bankers’ unit volume, expenses and margins were very close to those they experienced in the third quarter of 2013,” said Keith May, Richey May’s managing director, advisory services. “However, pre-tax profits in the second quarter of 2014 were much higher than in the third quarter of 2013. This is probably because third quarter 2013 was in the middle of a declining market, whereas second quarter of this year was in an improving market.”

Richey May Select is the only tool of its kind that provides independent mortgage bankers with fingertip access to a peer-to-peer comparison of how their businesses rank against other companies of similar size and operational focus. Unlike static benchmarking reports, with Richey May Select, all information is current and available approximately six weeks after the end of each quarter.

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Feeling The Pinch

You Can Download This Entire Article As A PDF HERE

There’s enough hurt to go around these days. Nobody is exempt. Richey May and Co. has released its first quarter 2014 Trend Report for Independent Mortgage Bankers. According to the report, loan production among independent mortgage bankers continued to decline in the first quarter of 2014, falling 18% since the fourth quarter of 2013. Purchase volume decreased for the third consecutive quarter, dropping 13.7%. Margins increased by 28 basis points – the result of an 11-basis point decrease in origination fees, and a 39-basis point increase in secondary gains.

“Independent mortgage bankers are taking less in origination fees, but are making more from gains on sale into the secondary market,” said Kenneth Richey, managing partner of Richey May.

“This suggests that lenders are responding to the QM fee cap,” he explained, speaking of the Qualified Mortgage rules that impose a three percent limit on the amount a lender can charge in origination fees. “Rather than earning on the front end, they’re increasing margins on the secondary sale.”

Each quarter, Richey May uses Richey May Select, a benchmarking technology specifically for independent mortgage bankers, to analyze data submitted by independent mortgage bankers across the U.S., and compile a report of the quarter’s outstanding trends. The report highlights key performance indicators, such as overall volume and volume by transaction type, margins, operating costs, labor output, and more. The data used in the report includes much of the same information that its confidential lender participants provide to the GSEs each quarter via the Mortgage Bankers’ Financial Reporting Form (MBFRF).

Additional findings in the first quarter 2014 trend report include the following:

>> The principle balance of unfunded locks increased by 40.5%, rebounding to levels last observed in the 3rd quarter of 2013

>> Pre-tax profits improved by 0.25%, primarily due to increased secondary marketing gains and gains related to bulk sales of servicing rights

>> While production continued its decline, the rate of decline slowed in the first quarter of 2014

>> Non-loan originator staffing was reduced by an average of 14 employees, or 6% of all non-loan originator staff, since the third quarter of 2013

>> Per-staff productivity has declined by 1.8 units per non-loan originator staff member, and by 1.6 units per loan originator, since 2012

Servicing revenue contributed 12 basis points to survey participants’ bottom lines during the 1st quarter of 2014, up from six basis points for the 4th quarter of 2013. The majority of servicing revenues resulted from bulk sales of servicing portfolios, which accounted for 83% of all net servicing revenues.

Despite continued rising costs, Richey May Select survey participants achieved nearly break-even pre-tax profits for the 1st quarter of 2014, showing a 25-basis point improvement over the previous quarter. Lenders generally compensated for heightened operating and personnel costs by increasing loan margins.

“Lenders are pin-pointing the most effective ways to compensate for lower production levels,” said Richey.

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Closing The Page On 2013

Origination vendor Ellie Mae released its Origination Insight Report for December 2013, as well as an infographic of key mortgage statistics and trends for 2013. The report draws its data and insights from a robust sampling of the significant volume of loan applications that flow through Ellie Mae’s Encompass LOS and the Ellie Mae Network.

“Purchases represented 54% of closed loans in December 2013, which was double the share of at the beginning of the year,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “Meanwhile, refinances ticked up by 1% over November to 46% in December, helped in part by the average 30-year note rate staying below 4.6%.”

To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the September 2013 applications) to calculate an overall closing rate of 54.3% in December, up from 53.1% in November 2013.

“HARP-related refinancing activity increased for the second month in a row, as conventional refinances at 95%-plus LTV rose to 12.1% in December, the highest they’ve been since August 2013,” said Corr.

The Origination Insight Report mines its application data from a robust sampling of approximately 57% of all mortgage applications that were initiated on the Encompass origination platform. Given the size of this sample and Ellie Mae’s market share, the Company believes the Origination Insight Report is a strong proxy of the underwriting standards that are being employed by lenders across the country.

Corr added, “2013 closed with the loosest credit requirements of the year. The average FICO score for all closed loans last month was 727, 11 points below the 2013 average of 738 and 21 points lower than December 2012, when the average was 748. Last month, 31% of closed loans had FICO scores below 700, compared to 21% in December 2012.

“In addition, both back-end DTI (39%) and average LTV (82%) for December were at their highest points for 2013.”


FHA Streamlined Refinances Boost Volume

*FHA Streamlined Refinances Boost Volume*
**Churchill Mortgage Profiled**

***Since the FHA Streamline Refinance incentive took effect in June 2011, Churchill Mortgage has realized a 540 percent increase in FHA refinance business. Churchill Mortgage is a leader in the mortgage industry providing conventional, FHA, VA and USDA residential mortgages across 26 states. Here’s how:

****Under the FHA streamline refinance program with no cash out, most borrowers can refinance to lower mortgage rates without the need of an appraisal. Borrowers must have a current FHA loan and a good mortgage payment history to qualify. In March 2012, FHA expanded the reduced mortgage insurance premium program to include loans endorsed or insured prior to June 1, 2009. In response, Churchill began contacting customers to inform them of their refinance options, helping many save thousands of dollars.

****According to Henry Rendleman, a borrower who purchased in 2009 and refinanced in 2011, “What we liked most about Churchill Mortgage is their willingness to work with homebuyers in the way the homebuyer prefers. If you want to be involved in every step and detail, you can. But if you prefer to let them handle it, they can do that too. Churchill truly makes you feel like you’re completely taken care of – and you are. Without hesitation, we would work with Churchill Mortgage again in the future.”

****Russell Mosier, who also purchased and refinanced through Churchill Mortgage, said, “We are extremely pleased with Churchill Mortgage. In fact, this is our third time working with them and we would not hesitate to finance through Churchill again. They go above and beyond to make the process as easy as possible, and each time has been an absolute pleasure.”

****“Combining the low mortgage insurance premiums offered through the FHA streamline refinance program with historical low interest rates, many borrowers like Henry and Russell have a perfect opportunity to save money,” said Mike Hardwick, president of Churchill Mortgage. “Committed to a consultative approach to lending and ensuring the right product for each borrower, we made it a priority to inform our customers of their options. In doing so, we’ve been able to save individuals and families thousands of dollars.”