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Rocket latest lender to add debt service coverage mortgages
Rocket Mortgage has come out with a debt service coverage ratio product in both its wholesale and retail channels, joining a rather competitive landscape of both non-qualified mortgage specialists and more traditional lenders like its rival United Wholesale Mortgage, that already serve investors looking to finance rental properties.Another recent entrant with a suite of non-qualified loan products including DSCR is PHH Mortgage, whose parent company Onity approximately one month later announced the disposition of its reverse mortgage operations to Finance of America. Dan Sogorka, general manager at Rocket Pro TPO.Courtesy of Rocket Cos. "If you go back through the year, every quarter we added at least one new product," said Dan Sogorka, the general manager of Rocket Pro in an interview. "This was a really exciting one, because it's been a strong market for investors in terms of home buying."Why Rocket added a DSCR productWhen asked about why Rocket is jumping in at this point to a market niche others are already occupying, Sogorka replied that the company's partners asked for the offering because they want to do more with the Detroit-based lender."When you think about what really makes us stand apart, it's our best-in-class technology, operations, pricing, support, our AI suite, our Navigate product," he continued. "Our partners now want to continue to use all of these regardless of what product they're doing."Others have technology offerings specific to the DSCR market. Earlier this month, Angel Oak Mortgage Solutions launched a rental automated valuation model. The product incorporates Clear Capital's Rental AVM.It's very time consuming when an appraiser has to be hired to do a rent valuation and it does not come in as expected, said Tom Hutchens, president of Angel Oak Mortgage Solutions, in a recent interview. When that happens, the closing is likely to be delayed.This technology helps to come up with a more accurate valuation of the rent rolls which is used to underwrite a DSCR loan, helping to speed the process.Why lenders should add investor products to their menuAngel Oak is primarily a third party originator, and Hutchens was asked why mortgage lenders would want to offer investor loans."So many people in the last 10 years that have just become investors in real estate, given the lack of supply of housing, the demand for rental housing is just continuing to grow," Hutchens said. "I think that's why people, from an origination standpoint, believe, 'hey, I've got to participate in this space.'"Single-family rental is becoming a bigger part of the market and "they're just an excellent opportunity to lend upon," added Ben Fertig of Constructive Capital, another non-QM wholesaler, also in a recent interview."If you're an IMB and you want to retain and recruit loan officers, you better have products that you know are at least hitting the market," Fertig continued. "Both the DSCR rental loans and residential transitional loans do."UWM entered DSCR lending in March 2022 and expanded on its offering at a couple of points during 2023.For now, Rocket has no plans to enter the RTL market, Sogorka said.Investor mortgages growing market shareOptimal Blue, a product and pricing engine, finds non-QM lending is continuing to expand, both in terms of loan production and in the number of entities offering these loans, said Brennan O'Connell, director of data solutions."In October, the non-QM share of total rate lock volume hovered near its recent peak at 8%," O'Connell said. "DSCR loans, which represent nearly 30% of total non-QM lock activity tracked by Optimal Blue, were up more than 50% in October versus the same time last year."The category was up by 95 basis points from September, Optimal Blue's Market Advantage report said.Meanwhile bank statement loan share was just shy of 35%, while all other non-QM was 36%. Bank statement locks were 168 basis points higher than September but 216 basis points less than one year prior.At 16.6% of all locks in October, nonconforming (including jumbo as well as non-QM) was relatively flat from the prior month but up by 154 basis points from the same time in 2024. Rocket's DSCR mortgage parametersRocket is already processing applications for the DSCR loans.Its loan limits are up to $3 million for purchases and rate-and-term refinancings, along with $2.5 million for cash-out refis.If the amount is over $2 million, two appraisals will be required, with the lower valuation used to qualify the property.Most importantly, "the product's not eligible for first-time real estate investors," Sogorka warned. Borrowers will need to have a minimum of one-year property management experience within the past 36 months and/or one year of receiving rental property income."This is an experienced investor product," Sogorka said. "You can close it in an LLC, which was another big ask from the community." UWM's DSCR offering also allows the borrower to be an LLC, according to its November 2023 announcement.Rocket has several investors for this product but it declined to name them.
Fed's Miran: Banks should hold more Treasuries, less reserves
Aaron Schwartz/Bloomberg Key Insight: Federal Reserve Gov. Stephen Miran said certain bank regulations are preventing the Fed from further shrinking its balance sheet.Expert Quote: "Trying to settle the ongoing debates on how monetary policy is best implemented before settling the regulatory framework is putting the cart before the horse." — Federal Reserve Gov. Stephen Miran.What's at stake: As the central bank moves to streamline its oversight processes, concerns are emerging that reducing proactive supervision could allow risks to build in the banking system.Federal Reserve Gov. Stephen Miran said further regulatory rollbacks could allow the central bank to continue shrinking its balance sheet in the future.Speaking Wednesday at a Bank Policy Institute event, Miran stressed that monetary policy and regulation are intertwined and that regulation can ultimately dictate policy outcomes.He argued that banks hold more reserves than necessary because regulations incentivize them to do so, leaving the Fed with a balance sheet that is larger than it needs to be."For all the talk about fiscal dominance of monetary policy, the reality is that the size of the balance sheet is a result of regulatory dominance," Miran said. "Regulations boost demand for reserves, which in turn requires us to end runoff or purchase securities for reserve management purposes."He added that debating "how monetary policy is best implemented before settling the regulatory framework is putting the cart before the horse."Miran's comments come as the Federal Reserve prepares to end its "quantitative tightening" on Dec. 1. The governor said during his BPI speech that he supported the move and had favored ending the runoff of the Fed's balance sheet "immediately" at the Federal Open Market Committee's October meeting rather than waiting until the end of the year.Miran highlighted that relaxing certain oversight measures, such as liquidity and capital requirements, would reduce banks' incentives to hold reserves and give the central bank more room to allow assets to roll off its balance sheet.Miran said banks should be encouraged to hold Treasurys instead of reserves because it would allow them to earn more."A consequence of the Fed's large balance sheet is significant payments of interest to the banking sector," he said. "Now, this is little different for banks' income than if they held Treasurys directly, as would occur in a scarce-reserves regime. In fact, an upward-sloping yield curve would suggest banks would earn more from holding Treasurys rather than reserves."He also said encouraging banks to hold Treasurys could reduce the perception that the Fed "is unfairly subsidizing the banking system with billions of dollars.""These perceptions can affect the Fed's credibility and thus its effectiveness," said Miran. "Several times now, the Senate has debated whether the Fed ought to be stripped of its statutory authority to pay [interest on reserve balances] despite its necessity as a tool for managing the federal funds rate."The regulatory arm of the Federal Reserve has already moved to loosen a number of oversight tools in recent months, including releasing the stress-testing models it uses to gauge the largest U.S. banks' resilience, as well as cutting back on bank supervision. The deprioritization of certain supervisory practices comes alongside plans to reduce the supervision and regulation division's staffing by 30% by the end of 2026.Miran expects the Fed to continue making "more progress peeling back regulations," which as a result will cause the "optimal level of reserves [to] drop below where it is now.""It is possible that in the future, it will be appropriate to resume shrinking the balance sheet; stopping runoff today does not necessarily mean stopping it forever," Miran added.
Senate Banking Committee approves Hill to lead FDIC
Key insight: Hill's continued tenure at the FDIC isn't likely to change the agency's direction on bank policy. Forward look: His nomination now goes to the full Senate, where he's expected to be confirmed. What's at stake: Hill's policies at the FDIC have included rescinding ILC rules and pursuing policies that he has said will lower capital requirements for small banks. WASHINGTON — Travis Hill, President Donald Trump's nominee to permanently lead the Federal Deposit Insurance Corp., passed through the Senate Banking Committee on a party-line vote. Hill's nomination hit an unexpected stumbling block in his confirmation hearing, as Sen. John Kennedy, R-La., said he might withhold his vote if Hill didn't produce a report showing the progress that the agency has made on the culture scandal at the agency. Last week, Kennedy said that a report released to his office showed that 26 employees linked to verified misconduct are no longer with the FDIC. "I am satisfied with the progress the agency is making," Kennedy said. "I intend to vote to confirm Mr. Travis Hill as FDIC Chairman." Hill's nomination was reported favorably to the full Senate in a 13-11 vote. He's expected to similarly receive a party-line vote and ultimately be confirmed by the upper chamber. Hill's confirmation will bring little in the way of change to the agency, as Hill has been serving as acting chair since former FDIC Chair Martin Gruenberg stepped down in January. Since taking the helm of the agency, Hill has repealed a Biden-era rule on industrial loan companies and proposed measures that he said would lessen regulatory burdens on small banks. The FDIC under his leadership has also made it easier for private equity to bid on failed banks, and he's said that the agency is working to implement stablecoin rules pursuant to the recently passed GENIUS Act. Democratic lawmakers voted against Hill's nomination. Senate Banking Committee ranking member Sen. Elizabeth Warren, D-Mass., said that she is unsatisfied with the information that the FDIC under Hill has released about the culture issues at the agency. "I have repeatedly requested copies of the monthly assessments conducted by the FDIC independent transformation monitor, a third party who was hired to track the agency's progress on its cultural improvement efforts," Warren said at the vote. "Not only has Mr. Hill failed to provide these documents to Congress, he has also explicitly blocked the independent monitor from sharing those reports with us." Warren said that her staff was able to get copies of those reports, and that they outlined a shortage of staffing in key offices meant to address the FDIC's workplace issues. "The reports are abysmal. The independent monitor found that parts of FDIC's action plan to resolve its cultural problems had been nullified by President Trump's policies, it found that 'the manner in which the FDIC communicates progress to FDIC staff, causes confusions and is at times inaccurate,' and two of the critical new offices that the FDIC set up to address its toxic workplace, the Office of Professional Conduct and the Office of Equal Employment Opportunity, offices that Mr. Hill, himself, touted in front of this very committee as critical to the FDIC cultural improvement efforts, are understaffed."
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