Vaultedge Newsletter - Measuring Nonbank Health, Labor Day

September 06, 2022

I was at the Founder500 conference here in Austin. This was a gathering of almost 100 SaaS founders, most of them with $500,000+ in revenue. My experience was extremely insightful. I mean you get to learn from people who are as enthusiastic as yourself about how to pursue your objectives, make wise strategic alterations, build strong cohesive team culture, learn about the mistakes that SaaS founders usually make, and how to avoid them. And hearing the founders’ stories made me realize a very important thing- there isn’t an end to learning.

This week I decided to tap into my writer’s side and wrote a few (well more than 2000) words for an article that talks about escalating mortgage interest rates and their dire effects on the housing market. The collective impact of higher mortgage rates, rising home prices, and dread of recession, has created a substantial dent in the housing-market activity. A few economists have predicted that sluggish demand will likely continue throughout the third quarter of this year. This will be characterized by year-over-year drops in home sales as well as a slowing of home price growth on a year-over-year basis. More price reductions will be detected too, partly due to seasonality, but also as sellers contend with the reality of slower buyer demand. _________________________________________

Mortgage rates are reportedly higher as the Federal Reserve aims to keep inflation under control, but with investors having mixed speculations about a possible recession, the economy may remain stable for a while. The 30-year fixed mortgage rate averaged 5.56% on Aug. 29, an increase of 12 basis points from a week before, Zillow claims. The rates have been above 5% since April, in contrast to being as low as 2.65% last year. The average percentage rate for the 15-year fixed rate rose to 4.86%, while the average rate on a five-year adjustable-rate mortgage rose to 5.19%. The increased mortgage rates are a sign of an expanding economy, but the latest economic reports were not encouraging enough to push it upward. As a result, the housing market is cooling off.

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There's no one perfect way to determine a company's financial health, let alone sustainability, despite investors' best efforts. Besides share price, another parameter of health is the value of a company’s debt. Currently, five of the six members of the IPO class of 2020-2021 have outstanding debt issuances, with prices ranging from 58 cents on the dollar to 92 cents. The worst performer in terms of the share price is loanDepot, whose stock now sells for just $1.69, an ugly 88% haircut to its IPO.

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The Federal Housing Agency (FHFA) has announced that it will be conducting a review of the Federal Home Loan Bank (FHLBank) System to ensure they remain a “critical source of liquidity.” According to Sandra Thompson, Director, FHFA, the function of the banks and its other regulated entities – Fannie Mae and Freddie Mac are a reliable source of liquidity and funding for housing finance and community investment. She added that as the FHL banks near their centennial, FHFA will conduct a review to assess whether these monetary bodies are suitable to meet the needs of the current times or not.

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Home Point Capital Inc. is letting go around 217 people in November in its Ann Arbor offices. The increased interest rates have swallowed the opportunities for refinancing, leaving greater competition around home purchases in a low-inventory environment. A few lenders across the nation and locally have taken actions to reduce their workforces that grew because of the booming number of originations just months ago.

Two of the nation’s lenders, AmeriSave Wholesale Mortgage Solutions (AWMS) and Phoenix-based, Suburban Mortgage Inc.abruptly closed their shutters. AWMS announced its closing on Facebook. In a message posted Thursday to a mortgage loan officer group, the company stated it is “closing its doors effective immediately.” Suburban Mortgage Inc’s website can no longer be reached, and according to published reports employee emails have been disabled.

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Bank of America is launching a mortgage with no down payment or closing costs that aims to promote homeownership in minority communities in five U.S. cities. The new program is aimed at first-time homebuyers, including in designated neighborhoods in Charlotte, Dallas, Detroit, Los Angeles, and Miami. Bank of America said the program will not consider a borrower's credit score when applying for a home loan. Instead, creditworthiness will be based on such factors as timely payment of rent as well as phone, auto insurance, and utility bills.

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Monday, Sep 5th was Labor Day. I am sure that most of us had begun the festivities on the weekend itself. I won’t get into the history of this historic day. Hope everyone had a great Labor Day!

Happy Reading!

Homeownership has long been acknowledged as a core element of the American dream, as it confers several economic benefits on homeowners, including the ability to collect wealth by accessing credit, building equity, and reducing housing costs.

Mortgage rates remain persistently high, inching closer to 6%. That’s putting additional strain on buyers trying to navigate a market that has seen skyrocketing home prices.

As most mortgage market watchers know, it hasn’t been a pretty picture for publicly traded nonbank lender/servicers this year — and that’s putting it lightly, especially for the IPO class of 2020-2021. Of the six companies new to the public market, two are trading under $2.00 a share, two others are trading under $4.00, and then there’s market leader Rocket Companies and retail specialist Guild Holdings.

Despite higher interest rates and volatility in the secondary market, expanded-credit mortgages generally fared well in the second quarter of 2022, according to a new ranking and analysis by Inside Nonconforming Markets. An estimated $17.0 billion of expanded-credit mortgages originated in the second quarter, a 6.4% increase from the first three months of the year.

"There's a need for an FHLB system that better reflects today's housing finance market" The FHLBanks consist of 11 government-sponsored banks that provide liquidity to the members of financial institutions during times of market stress, offering a variety of low-income housing and community development programs.

Homepoint is laying off 217 people in November at two offices in Ann Arbor, according to a worker adjustment and retraining notification filed with the state of Michigan on Wednesday. Spokesman Brad Pettiford says the layoffs are happening across the organization and beyond Michigan, though no specific total number of people affected was provided.

Lender says lowering mortgage costs can help promote homeownership for eligible Black and Hispanic families. Rates of homeownership vary dramatically across racial and ethnic groups, thanks to differences in wealth and the legacy of historic discrimination.

As the housing market continues to contract thanks to rising mortgage rates and shrinking affordability, the Thursday ahead of the long holiday weekend became a day of doom — two more mortgage lenders appear to have shut their doors, while a third lowered the boom on a significant number of it staff.

Major life events like having a kid or breaking up are now lower-tiered stressors