⏱ THE MORTGAGE MINUTE

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It happened. It FINALLY happened! After what has seemed like a lifetime of rampant speculation, the Fed cut rates by 50 basis points!

Suddenly, your estranged uncle texts you because he remembered that you “did something like this for a living.”

Of course, he didn’t have any questions for you. Just wanted to tell you everything that he knows as if you’re hearing it for the first time!

It’s fine, though, because you’ve got that whole backlog of clients to get to answering! It’s time to see if that lower rate news was just what your borrowers needed to get the ball rolling!

As many of us know, most of that anticipated rate drop was already built in. So when your client asks something to the effect of, “Can we get a better rate now that rates are lower?” you can tell them what you already know: that rates are always forward-looking; that the rate that you locked was already priced in; and, there’s always the chance that these rate drop trends will reverse.

Make sure you’re consulting your borrowers on that risk so that they lock in this already priced-in rate drop, if it hasn’t been locked already.

Can you feel it? Fall is upon us and excitement is in the air. Time for us to do what we do best. Close some deals!

Market Sentiment & Economic Calendar

We’re expecting two more Fed rate cuts on November 7th and December 18th, with the Fed projecting a total reduction of 175 bps by the end of 2025. Current expectations are for a plan to cut rates by 25 bps per meeting, aiming for a Fed funds rate of 3.5% by July 2025. This would likely bring 30-year conforming to 5% by mid-2025.

However, any significant shifts in the labor market or a slowdown in GDP could accelerate this timeline. 

For now, we recommend locking in some base hits for your current pipeline at today’s rates. 

If rates hit 5% by 2025, many borrowers will have a great opportunity to refinance again. Since the exact trajectory of mortgage rates remains uncertain, locking files at current rates as the market processes the Fed's recent moves is a sound strategy. 

We’ll keep a close eye on October earnings, GDP, and employment data to gauge the economy's strength.

Upcoming Fed Rate Decision Meetings

Major upcoming economic releases that will impact the rate markets

S&P Flash U.S. Services PMI – Monday, 9/23 at 9:45 AM EST

The S&P Flash U.S. Services PMI is a key indicator of economic health in the service sector. A high PMI signals strong economic activity, which could lead to higher interest rates, while a low PMI suggests a slowdown, potentially leading to rate cuts.

GDP and Fed talk – Thursday, 9/26 at 8:30 AM EST

GDP is the measure of the economy's growth or contraction. Strong GDP growth could signal rising interest rates to control inflation, while weaker growth may increase the likelihood of rate cuts, directly impacting mortgage rates. Keep an eye on it for potential market movements. 

Results from our previous survey:

What is your preferred LOS?

In this survey, “Other” won by overwhelming margins. Maybe there’s a need in the market for a simpler Loan Origination System. A lot of these LOS systems keep up to date with compliance documents, so hopefully everyone was just being nosy wanting to see what everyone else was using!

Pipeline Save of the Week

Too Many ADUs

In this week’s “too good to be true” news, we had a loan officer write in and tell us they had a jumbo purchase that was one of the cleanest files you’ve ever seen. If you’ve been in the real estate and mortgage business long enough, that enough should tell you something is bound to go sideways.

And, lo and behold…it did!

This deal had a 70% loan to value, 33% debt to income, 10 years with their employer on W-2 income as a single borrower. Rarely gets much better than that these days, right?

This loan was locked and loaded and on its way to closing.

Until it wasn’t.

Collateral sends an email to the broker notifying that the file has to be suspended due to an issue with the title. There is more than one accessory dwelling unit (ADU) on the property. These were attached to the property, with their own separate entrances.

One loophole you can look at if a deal like this comes your way is to see if the property is zoned multifamily.

This one was not.

So, how was this deal saved?

The broker flipped the loan to a non-QM. Not ideal, but better than dead. It’s rare, but there are a few lenders out there that will allow multiple ADUs on a property. 

*A few newsletters ago, we mentioned the importance of being approved with more than just a few lenders. This would be one of those times that having a deep bench might save your deal!

The loan is on its way to closing and the client is happy, but talk about a stressful couple of days for this “slam-dunk” deal!

Reminder to send in your Pipeline Saves of the Week to be featured in future newsletters!

Quality Control Takes a Hit

We’ve been known to give underwriters a lot of grief here at The Mortgage Minute, but this recent report highlights the importance of working together and getting it right.

We know, we know. Underwriters are still the bane of our existence, don’t get us wrong. We will continue to complain about them, because if not us, then who?

But in the first quarter of 2024, mortgage critical defect rates increased, after over a year of decline. Credit defects “nearly doubled,” and legal, regulatory, and compliance defects saw a meaningful increase, as well.

If you’re building a book of business, which means you want your first-time borrowers to be repeat borrowers, then it’s important that you set them up for success when they come back to you for a refinance or new purchase. A mortgage deal built on a house of cards isn’t going to be very strong when they come back around to you the next time.

A lot of deals are close calls, and we get that. Heck, most deals are close calls. But that doesn’t mean to skimp on quality control. A clean loan means repeat business. A messy loan is, well, just a headache for the next time.

Rocket Pro TPO to the MOON!!!

Rocket Pro TPO, the wholesale arm of Rocket Mortgage, increased its conforming loan limits, beating everyone to the punch.

New limits, already in effect, have been upped to $802,650 across 48 states.

Alaska and Hawaii are being raised to $1,204,000 if originated by Rocket Pro TPO and are Fannie Mae or Freddie Mac purchased. 

So, while other lenders may be playing catchup, you can look to Rocket Mortgage if you have any borderline deals that would work out better as a conforming loan ahead of the Federal Housing Finance Agency’s (FHFA) announcement, expected in November.

Stay Connected

See! We told you! Five minutes or less!

Crazy how much we packed in there, right?

Thank you for being a part of The Mortgage Minute community. Stay tuned for next week’s insights and tips!