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The U.S. economy expanded at a slightly slower rate at the end of last year as a downward revision to inventories masked stronger household spending and investment. Gross domestic product rose at a revised 3.2% annualized pace in the fourth quarter, compared with a prior estimate of 3.3%. Consumer spending advanced at a 3% rate, faster than initially estimated, Bureau of Economic Analysis figures showed Wednesday. Inflation was revised higher. Last year the economy expanded 2.5%, marking an acceleration from 2022 and far outperforming the broader eurozone and Japan.The economy last year ended up surprising many economists who expected the U.S. would slip into a recession after aggressive Federal Reserve interest-rate hikes. Instead, a robust labor market supported consumer spending and kept the economy moving forward.   While economists largely expect growth to cool somewhat this year as high borrowing costs restrain household demand and business investment, they still anticipate the U.S. can avoid a downturn.Inflation-adjusted final sales to private domestic purchasers, a key gauge of underlying demand, increased more than initially estimated."This all points to more domestic demand growth than previously thought and a hotter economy in general," James Knightley, chief international economist at ING, said in a note.The Fed's preferred inflation metric — the personal consumption expenditures price index — rose at a 1.8% annual rate in the fourth quarter. Excluding food and energy, the gauge increased at a 2.1% pace, the Bureau of Economic Analysis report showed. Both were marginally higher than initially estimated.Inventories subtracted 0.27 percentage point from GDP, compared with a slight boost in the initial fourth-quarter estimate. Personal consumption added 2 points. Spending was revised up on the back of more outlays for services.A separate report out Wednesday showed the widest US merchandise-trade deficit in six months. The January shortfall reflected a pickup in imports.

Home lending activity slowed for the fourth time in five weeks, even as interest rates tapped on the brakes after their recent acceleration, according to the Mortgage Bankers Association.The MBA's Market Composite Index, a measure of weekly application volume based on surveys of the trade group's members, pulled back a seasonally adjusted 5.6% for the period ending Feb. 23. The decline follows drops of 10.6% and 2.3% the previous two weeks. On a year-over-year basis, volumes were also 8.6% lower. Along with a recent surge in mortgage rates, a tight existing-home market continues to stymie lenders. The 30-year conforming fixed-rate for loans with balances below $766,550 in most markets edged down to 7.04% from 7.06% in the prior survey. Borrower points went in the other direction, rising to 0.67 from 0.66 for 80% loan-to-value ratio applications.But a 2-basis point fall wasn't enough to draw in borrowers. Both purchases and refinances dropped. "Higher rates in recent weeks have stalled activity," said Mike Fratantoni, MBA senior vice president and chief economist, in a press release. But a strong new-home market shows buyer enthusiasm exists, as evidenced by MBA's most recent survey of homebuilder mortgage affiliates, he said. January data saw applications for new single-family construction up over 19% annually and 38% from December. "This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume. However, mortgage rates above 7% sure don't help."Redfin's home buyer demand index also points to signs of engaged consumers as the spring gets underway. The index, which tracks tour requests and other queries to the brokerage's agents, increased from January levels, although severe weather helped suppress activity that month.But curious consumers didn't drive lending last week, as the MBA's seasonally adjusted Purchase Index dipped 4.5% from seven days earlier. It also landed 11.9% lower from the same survey period in 2023. The Refinance Index experienced a larger 7.3% weekly decline, and finished 1.1% below year-ago levels, with a majority of homeowners currently holding on to more favorable rates. Refinance applications shrank to a 31.2% share relative to overall activity, down from 32.6% seven days earlier. Federally backed lending slowed more compared to the overall market, with the Government Index taking a seasonally adjusted 7.5% fall. The slower pace of lending, particularly for refinances, led to a smaller portion of applications sponsored by government agencies. Federal Housing Administration-guaranteed mortgages garnered 13% of volume, decreasing from 13.2% in the previous survey. Meanwhile, loans backed by the Department of Veterans Affairs took a 11.7% share compared to 12.1% seven days earlier. The portion of activity coming from U.S. Department of Agriculture programs remained the same at 0.5% week over week.Interest rate movements among MBA lenders hovered, for the most part, near where they were in the prior survey period in all categories the association tracks. The average contract rate of the 30-year fixed jumbo mortgage rose 4 basis points to 7.2% from 7.16%. Points jumped to 0.57 from 0.45 the previous week for 80% LTV loans.The 30-year FHA-backed fixed contract rate decreased to 6.86% from 6.91% seven days earlier. A typical FHA borrower used 0.99 worth of points compared to 1.03 the prior week.The average of the 15-year fixed mortgage took the week's largest upward climb, rising 9 basis points to 6.7% from 6.61%. Points decreased to 0.68 from 0.77.The 5/1 adjustable-rate mortgage averaged 6.33%, sliding from 6.37% in the previous survey period. Points taken out for these types of loans also fell to 0.58 from 0.71. Overall ARM activity came in at a 7.5% share relative to total volume, inching up from 7.4% one week prior. The share grew, even as the ARM Index slipped 4.1%.

Lenders have renewed interest in establishing ties with builders this spring given the latter's increased role in supplying available home inventory at a time when many existing owners are still feeling locked in by lower-than-market mortgage rates.What the spring will bring remains to be seen, but so far new-home sales have been higher as 2024 has gotten underway. Between the reduction in upward pressure on rates compared to last year and a population spike, some anticipate strong demand in the next few months.This spring will follow a year of record growth in the U.S. population, according to John Burns Real Estate and Consulting's analysis of data from the Congressional Budget Office and the U.S. Census. That adds to the importance of supply.RELATED: As spring arrives, lenders adjust to a changing marketplace"You've got this massive pent-up demand, the biggest population bubble in American history, and not a lot of inventory," said Rick Arvielo, co-founder of New American Funding. He expects this will lead to a competitive new-home market this spring. Loan activity in this part of the market has been growing, with the non-adjusted Mortgage Bankers Association's builder application index in January hitting the highest level ever in the history of the series.January's index number of 270 also was the highest adjusted reading on the index since July 2020's 290, said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association. The index's baseline started at 100 in August 2012, when the market was slow.If the MBA's forecast for new home sales is any indication, application numbers will get even higher this spring, Kan said, noting that the association at the time of this writing was projecting a 12.6% increase in new home sales this year vs. 5% for existing properties."It might shake out a little differently on the application or origination side, but directionally I think we're going to see something similar," Kan said.The application index draws sample information solely from builders who don't partner with lenders but instead have captive mortgage units. However, it's considered likely to reflect broader new-home mortgage trends.It is worth remembering that there are limits to tapping builders as referral sources because large players tend to have captive units and a few of these sizable players have controlled much of the market, according to a report from Harvard University's Joint Center for Housing Studies.However, a small number of other relatively large builders and a lot of modest-sized home construction companies are open to working with lenders."There are a lot of builders, but many are not very big," Arvielo said.ALSO READ: 10 states whose residents are the most obsessed with real estateNew American serves as a backup lender to some home-construction companies and Arvielo says many of those business relationships started with proactive outreach by mortgage professionals on the company's lending team."It is really the loan officers' responsibility. Our loan officers have done a great job and earned the right to do more," he said. "If you want, you can make it more of a corporate initiative to assist them, and get a little bit bigger piece of that pie."One of the things the company does to help loan officers work with consumers who want to access new construction in a competitive market is to provide cash-offer equivalent financing, Arvielo said.Increased competitionMortgage originators looking to forge builder ties this spring are going to run up against a relatively crowded playing field, said Dan Peña, executive vice president of national joint ventures at Loandepot."We never really had much competition in going after the builder partnerships from the top. That's changed dramatically," he said. "Now you've got small regional lenders looking to get into the builder business."Before attempting to establish these relationships, a mortgage company's leadership should consider whether they're ready to commit long-term to a business that fluctuates in its attractions depending on the market cycle, particularly if they are a smaller firm with limited resources, Peña said."Builders get attractive for the industry when refinances aren't there or there's no inventory, but then rates drop, there's a refi boom and the other lenders disappear," Peña said.Builder sales are likely to continue to be important this year, even if policymakers seem poised to lower rates later in 2024, in part because so far economic indicators have remained relatively strong."I think new-home sales are going to continue to be an important part of the for-sale home market overall, because, while interest rates went down a little bit, there are still a lot of people locked into low mortgage rates," said Kelly Mangold, principal, RCLCO Real Estate Consulting.Options for partnershipsThere are benefits for a large company committed to formal builder partnerships through multiple business cycles the way Loandepot has been, Peña said."Loandepot manages the mortgage company for the builder. The entity has loan officers, production people and leadership, and then there's a servicing agreement with Loandepot. We provide all the mortgage services: processing, underwriting, closing, funding and warehouse management. We do everything, and we charge the joint venture a fee," he said. Various structures can be used to partner with builders, the most typical being a 50/50 joint venture."If a builder is giving me a bigger split, they're probably getting the money somewhere else anyway, whether it's in price, margin or whatever. So we just tend to be very transparent with it, and say, 'Hey, it's 50/50," Peña said.In some cases, that split may include an option to change over time."We've done deals in the past where we know their five- or 10-year plan is to be very large and so we'll say, 'Hey, let's get this thing up and running 50/50 and on year five, you have an option to buy another 5% at X price,'" he said. "We pre-set everything to make sure it's compliant."Other options for partnerships include marketing service agreements, in which one entity agrees to promote services for the other.Lenders who use MSAs generally say they ask their compliance experts to verify that they are within Consumer Financial Protection Bureau guidelines before they do, because the agreements may have the potential to violate the Real Estate Settlement Procedures Act.There also is another option."I would say for the majority of our relationships we're a preferred lender," said Bill Hitchcock, a senior vice president of business development at Atlantic Bay Mortgage Group. These generally resulted from company outreach. The company has JVs and other partnerships too.A mortgage company is most likely to be an exclusive preferred lender in cases where the builder is smaller.A larger builder might be more likely to work with a group of preferred lenders, generally those they consider to offer the most favorable service to homebuyers, said Emily Farley Gardner, chief lending officer at Atlantic Bay Mortgage Group.In some of the less competitive markets, builders and lenders have been offering buydowns and other incentives for new homes and associated loans. But Gardner said these generally don't hurt the new-home business' margins from a lending perspective."We don't see any sort of difference between the builder business we do and our other products," she said.Lenders looking to be preferred lenders have to be comfortable with what could be a long on-ramp to an origination as a property gets built and a full underwriting process rather than just a quick prequalification, followed by a need to conduct a fast closing, Gardner said."Things change pretty rapidly, so communication with the borrower about how things are going on the finance and marketing side is just as important as working with the builders," she said.

The U.S. Supreme Court seemed skeptical of both sides in a case involving state preemption of the National Banking Act.Whether national banks need to pay interest on mortgage escrow accounts in New York — and likely elsewhere — will turn on how the Court determines what constitutes substantial interference with their activities.But the justices in their questioning seemed to be "very uncomfortable" in trying to explain what is meant by the relevant statute, the National Banking Act, said Joseph Lynyak, a partner at the law firm of Dorsey & Whitney."The basis of the problem is the very poorly drafted statutory language that adopted Section 25b when Dodd-Frank was written," he said in a statement. "For example, several of the Justices wondered whether 'significantly interferes' should be understood purely as statutory language, or whether the term was intended to be understood as used in the Barnett Banks decision (which is directly named in Section 25b)."The justices asked tough questions for both sides: petitioners Alex Cantero, Saul Hymes and Ilana Harwayne-Gidansky and for Bank of America. The Solicitor General also appeared before the Court after the petitioners spoke. In hearing the arguments, the justices suggested that, depending on the interpretation, nothing or virtually every action could be preempted, Lynyak noted.Answering a question from Justice Brett Kavanaugh, petitioner attorney Jonathan Taylor admitted "I would concede that it's not a bright-line test. Congress didn't want a bright-line test."In response to Justice Sonia Sotomayor, Lisa Blatt, representing Bank of America, attempted to establish when the preemption would apply."When the state dictates the attribute of the product and service as opposed to the interaction with the consumer, it's preempted," said Blatt. "Under that definition, you have banking-specific laws that aren't preempted, like laws that prohibit racial discrimination and whatnot. You have laws that prohibit fraud by banks."Although the case dealt with a decision from the Second Circuit that ruled in favor of Bank of America, the Ninth Circuit in a similar case involving Flagstar said the bank had to comply with California law.Flagstar filed an amicus brief supporting Bank of America, and pointed to its own situation: "Under that incorrect ruling, Flagstar is subject to a $9 million judgment and a permanent injunction requiring it to pay interest on escrow to its California customers going forward."That case is on hold pending this decision.The Mortgage Bankers Association joined a number of bank groups — the Bank Policy Institute, the American Bankers Association, the Consumer Bankers Association and the Mid-Size Bank Coalition of America — also in support of Bank of America.But the Council of State Bank Supervisors and the American Association of Residential Mortgage Regulators supported the petitioners.Part of the conundrum for the court, said Matthew Lambert, CSBS' deputy general counsel of policy, is that the Dodd-Frank Act, which subsumed the National Banking Act, calls for a process in these matters."That process has not occurred in the 15 years or so that Dodd-Frank has been in existence," Lambert said. "The OCC is supposed to make a determination on a case by case basis with evidence on the record and that just has not happened."At one point, Justice Kavanaugh asked Taylor if the 1819 case of McCullough v. Maryland, which was cited in the Second Circuit decision, still holds.Taylor agreed it does, although in the CSBS amicus brief said that prior court erred.Lambert noted that the ruling in the case, which involved the Second National Bank of the United States, would not apply to "mere private corporations," then-Chief Justice John Marshall said in a subsequent ruling, Osborn v. Bank of the United States.What Lambert did find surprising is that current laws around escrow accounts were not raised during the arguments.Lambert is hopeful that the Supreme Court looks to the text of the law to find an answer to these substantive issues because procedure has not been followed. "If that procedure is followed, I think these cases become much easier."Another attorney that listened to the arguments did detect the likelihood of the justices upholding the Second Circuit ruling"It appeared to me that more of the justices in the way they asked their questions were looking at, in my opinion, favoring the preemption versus not," said Jay Beitel, a principal at the mortgage law firm of Polunsky Beitel Green.As an indicator of how they are likely to rule, he pointed to the justices' questions about a prior preemption ruling involving Franklin National Bank against New York in 1954, which held that a state prohibition on commercial banks using the term "savings" was unconstitutional.The Solicitor General, represented by Malcolm Stewart, in Lynyak's view, might have provided a solution."Perhaps the answer in this instance was the suggestion by the Department of Justice, which argued that further development by the lower courts was warranted, and that the case should be vacated and the preemption language of Section 25b and the standard to be employed postponed until additional lower court decisions could be issued," Lynyak said.

Wall Street saw another busy session of bond sales as issuers looked to borrow before key economic data later this week.Treasuries were mixed after a $42 billion auction of seven-year notes and a heavy slate of new corporate debt. Eight companies are considering selling U.S. investment-grade bonds Tuesday, according to an informal survey of underwriters. The offerings come a day after 18 companies tapped the market, bringing February issuance to a record.Rates have climbed as Treasury investors contend with an erosion in expectations for how much the Federal Reserve will lower interest rates this year — a policy shift that would likely fuel a bond rally — and an onslaught of new corporate issuance that has given yield-seeking investors ample alternatives. "We continue to recommend investors act soon to lock in currently attractive bond yields," said Solita Marcelli at UBS Global Wealth Management. "We particularly like the five-year duration segment of quality bonds, as this part of the yield curve offers the best combination of high yields, stability, and sensitivity to falling interest rate expectations."Treasury 10-year yields were little changed at 4.29%. The S&P 500 hovered near 5,060. Megacaps edged lower. Chevron Corp. and Hess Corp. slipped after Exxon Mobil Corp. said it's considering a move that could break up the companies' $53 billion merger and increase its share of Guyana's giant offshore oil reserves. Macy's Inc. climbed on plans to close almost a third of its namesake U.S. locations. A bullish outlook from Norwegian Cruise Line Holdings Ltd. spurred an industry rally. Bitcoin hovered around $57,000.Traders refrained from making big bets ahead of Thursday's inflation data and a parade of central bank speakers. Fed Governor Michelle Bowman repeated her expectation that inflation will continue to decline further with interest rates held at their current level — but said it's too soon to begin rate cuts.Officials have stressed they're in no rush to lower borrowing costs and will only do so once they're confident that inflation is retreating on a sustained basis. The personal consumption expenditures price index will likely validate that stance and possibly further diminish market expectations for a rate cut in the coming months."Because market expectations for a Fed cut this quarter have already reset, we don't anticipate strong volatility resulting from this data print," said Lauren Goodwin at New York Life Investments. "However, since market activity is likely to be heavily driven by interest rate expectations for the foreseeable future, we are watching closely for any surprises."To Yung-Yu Ma at BMO Wealth Management, while the equity market seems due for a pause and a consolidation of its recent gains, key PCE inflation data on Thursday could be the next short-term catalyst for the market, as investors are looking for additional data to help confirm if inflation is truly re-accelerating."This is a 'teflon' stock market, which has shown a remarkable ability to shake off bad news and focus on what is positive," he noted. "Nothing bad has been able to stick to the markets for long – such as upside surprises in inflation data and delayed Fed rate cut expectations."Barclays Plc was the latest bank to ramp up its year-end target on the S&P 500 — following increases from Goldman Sachs Group Inc., UBS Group AG, and Piper Sandler & Co. Strategists led by Venu Krishna boost forecast on US equity benchmark to 5,300 from 4,800."The U.S. economy continues to defy rates headwinds in 2024, much as mega​-​cap tech continues to defy even the most bullish earnings targets," they wrote.Indeed, the "Magnificent Seven" group of tech megacaps saw its average earnings per share rise 55% in the fourth quarter compared to a year ago, according to data compiled by Bloomberg. Most of that group has helped power the Nasdaq 100 to a record high and its fourth consecutive monthly gain.S&P 500 companies are headed for their highest quarterly earnings beat rate since the fourth quarter of 2021, according to data compiled by Bloomberg Intelligence strategists Gina Martin Adams and Wendy Soong. With more than 90% of S&P 500 companies having reported results, the gauge is on track for 7.7% year-on-year earnings per share growth, blowing past the pre-season forecast for 1.2%.The stock market is responding, with the S&P 500 last week logging its 13th closing record of 2024, while the Dow Jones Industrial Average surpassed 39,000 for the first time. It's telling that the milestones all occurred while investors speculated that the Fed will be in no rush to cut interest rates after a batch of hot inflation news and pushback from officials.To Kristina Hooper at Invesco, there is a perception that the U.S. stock market is trading at very lofty valuations. While it is true that the S&P 500 is trading at an above-average price-to-earnings ratio, much of that is driven by just a few stocks, she noted."The good news is that this narrow group of stocks — dubbed the "Magnificent Seven" — have been meeting the high expectations set for them," Hooper said. "Given their collective performance, valuations for the Magnificent Seven remain elevated compared to the broader U.S. equity market, but their earnings growth is expected to be almost five times that of the remaining 493 stocks in the S&P 500 over the next years,""This isn't 'irrational exuberance' — it's more like 'rational exuberance,' she concluded.Matt Maley at Miller Tabak has a word of caution.He says that after the big run in equities, the market is showing signs of froth. While that doesn't mean stocks will roll over in a big way soon, it is a reason for investor to avoid being too complacent."The stock market could easily continue to advance," Maley noted. "However, we believe that it's important for investors to remain nimble and to have a plan in place — in advance — for what they will do if some sort of significant 'surprise' creates a big increase in volatility at some point in the coming months."

Woodward Capital Management, an affiliate of Rocket Mortgage, is raising $369.9 million in mortgage-backed securities (MBS) backed by a pool of newly originated, closed-end and second-lien mortgages that Rocket originated.The transaction, RCKT 2024-CES1, has a slightly larger asset pool of loans, 5,261, than a previous transaction from the trust, the RCKT 2023-CES3, which had 4,846 loans, according to ratings analysts at Kroll Bond Rating Agency. The collateral is made up of fully amortizing, fixed-rate mortgages whose terms are almost entirely 20-year (94.8%) and 10-years (5.2%), KBRA said. All of the loans are cash out and second-lien, underwritten with Ability-to-Repay rules, and consistent with Fannie Mae guidelines, the rating agency said.BofA Securities, Barclays Capital, BMO Capital Markets and Citigroup Global Markets are lead underwriters and initial note purchasers on the deal, which closed February 23.RCKT 2024-CES1 will repay the notes sequentially, and the classes are exchangeable, KBRA said. Although second-lien loans have a high expected rate of loss severity, and the portfolio is exposed to potential home price declines, KBRA noted several attributes that offset these negative characteristics. The mortgages have an average balance of $70,312, and an average coupon, on a weighted average (WA) basis, of 10.06%. Also on a WA basis, the borrowers have an original credit score of 739.Other characteristics that counteract potentially negative credit aspects is a WA debt-to-income ratio of 37.2%, a non-zero WA annual income of $155,246, and they have WA liquid reserves of $40,671, according to the rating agency. Also, just 6.1% of borrowers in the pool are self-employed, suggesting that any variability of cashflow to the notes will be limited. The pool appears to be geographically diverse, with 12.9% of the mortgaged homes located in California, 10.1% located in Florida and 5.2% located in Georgia. On a more cumulative basis, the top 10 loans accounts for some 57.0% of the pool.Further, the notes will receive no principal and interest advancement, which creates liquidity risk, KBRA said.Credit enhancement ranges from 20.0% on the A1A notes to 0.25% on the B2 notes. KBRA assigns ratings of AAA to the A1A and A1B notes; AA+ to the A2 notes; A to the M1 notes; BBB+ to the M2 notes; BB+ to the B1 notes and B+ to the B2 notes.

A lender that funds Department of Veterans Affairs-guaranteed mortgages is now pioneering the use of an advanced credit score in its underwriting overlays for securitizations of these loans, according to FICO.Cardinal Financial, the 33rd largest VA lender in January, is reportedly the first public user of FICO 10-T for this purpose. FICO 10-T is one of the two scores government-related mortgage investors Fannie Mae and Freddie Mac eventually plan to use to replace a "classic" measure.While the VA does not have a specific credit score requirement, instead relying on other measures of consumers' ability-to-repay to manage risk, mortgage lenders often supplement their individual underwriting with other measures like the traditional FICO score.The traditional FICO score most lenders use as a cutoff for this type of loan, absent a down payment, is 620, according to the department. Use of an alternative score could broaden the credit box for VA loans.Cardinal's use of FICO 10-T comes at a time when broader adoption of advanced scores are pending in the larger Fannie and Freddie market. In part, that's a result of lender concerns about the price of credit measures and the need to potentially pay for more than one score. There's also generally more interest in testing new metrics."As people are waiting for the 60% of volume that goes through Fannie and Freddie, there is this other 40% of volume that's out there," said Joe Zeibert, vice president of mortgage and capital markets at FICO.Other reported uses of 10-T outside the Fannie and Freddie market have included nonbank originations of loans made outside the ability-to-repay rule's qualified-mortgage definition, some of which have a securitization execution. More recently banks have reported use of it."We had the first bank signup, now we have a VA securitization and we're trying to talk to all of the parts of the market that are able to use 10-T today because it does help customers and lenders," Zeibert said.Banks may be more familiar with advanced credit scores because they have been used more commonly to size up some other types of consumer loans. They're less often used in conjunction with mortgages because Freddie and Fannie have been underwriting loans they accept with classic FICO. Vantagescore 4.0, the other advanced credit metric Fannie and Freddie will be adopting, also recently has seen expanded use. The Federal Home Loan Bank of San Francisco recently greenlighted its use as the basis for mortgage portfolios securing financing the FHLB provides to financial institutions.While it may be possible to use a single metric with the advanced scores, some circumstances could require them to be coupled with traditional measures.When it comes to securitizations of Cardinal's VA loans, this may depend on whether investors are comfortable that the scores offer value in line with the underwriting and performance improvements providers promote."It's possible that when they do the securitization, they might put both scores on there just so that investors that only want Classic can see them, but they are going to be decisioning off of 10-T," Zeibert said, noting that Cardinal may use the advanced score for private loans as well.

Perhaps one of the most confusing aspects of getting a mortgage is knowing who you actually pay once the thing funds. And to that end, when your first mortgage payment is due.While Bank X may have closed your loan, an entirely different company could send you paperwork and a payment booklet. What gives?Well, this highlights the difference between a mortgage lender and a mortgage servicer.The former funds your loan and the latter collects payments each month thereafter until the loan is paid off.Sometimes it’s the same company, sometimes it’s not, assuming your loan is sold off after closing.Mortgage Lender vs. Mortgage ServicerThe bank or mortgage lender processes and funds the home loanOnce it closes it may be sold off to a loan servicer or retained in portfolioThe job of a loan servicer is to collect monthly mortgage paymentsAnd manage escrow accounts if your home loan has impoundsAs noted, a mortgage loan servicer, also known simply as a loan servicer, is the company that collects your monthly mortgage payments once the loan funds.Each month, you will send payment to this company, which could go on for 30 years depending on how long you keep your loan.They will also manage your escrow account if your home loan has impounds, collecting a portion of property taxes and homeowners insurance each month, before making those payments on your behalf when due.So really, there’s a good chance you’ll deal with your loan servicer a lot more than your mortgage lender, who may have only been in the picture for a month or so while your loan was originated.You see, many mortgage lenders focus on loan origination as opposed to servicing. This means they fund loans, quickly sell them off for a profit, then rinse and repeat.The same goes for mortgage brokers, who fund your loan on behalf of a wholesale mortgage lender, which also may sell off the loan to a different servicing company shortly after it closes.Some Lenders Are Also Loan ServicersFurther complicating all this is the fact that your mortgage lender could also be your loan servicer because some big banks and mortgage companies can profit from it.So it’s possible that Bank X could also be your loan servicer once the loan funds. In this case, you’d deal with the same company from origination to loan payoff, many years down the road.As a rule of thumb, nonbank lenders typically sell off their mortgages, while depository banks often hold onto them. This comes down to basic liquidity, as it can be expensive to retain large loans.One thing mortgage companies figured out in recent years was that keeping in touch with their past customers was a great way to generate repeat business. Or cross-sell other services.If they sell all their home loans off to other companies, they may lose out if mortgage rates fall and these customers become ripe for a mortgage refinance.There are also mortgage subservicers, third-party companies that perform loan servicing tasks on behalf of a lender, instead of handling those things in-house.Anyway, without getting too convoluted here, it’s important to note this distinction between lender and servicer so you know who you’re dealing with.And to ensure you’re sending monthly mortgage payments to the right place!What Do Loan Servicers Do?Collect monthly mortgage paymentsManage escrow accounts (property taxes and homeowners insurance)Provide customer service if borrowers have any questionsGenerate loan payoff statementsPerform loss mitigation (loan default, loan modifications, foreclosure, credit reporting)Ensure compliance with federal, state, local regulationsThe list above should give you a better idea of what loan servicers do, and why banks and lenders may choose to outsource these tasks.It’s essentially a completely different business than mortgage lending, and one many lenders aren’t equipped to handle.Perhaps the simplest way to look at it is lenders fund loans, and loan servicers manage loans.If you have any questions regarding your home loan post-closing, it’s generally best to get in touch with your loan servicer as opposed to your mortgage broker or lender.They should be able to answer any questions you have, whether it’s knowing where to send payments, how to make extra payments or biweekly mortgage payments, loan amortization questions, and so on.Additionally, if having payment troubles in the future, your loan servicer should be the one to call to discuss options.Remember, the lender is typically just there to help process and close your loan, then hands off the reins to a servicer from there.Why Do Mortgages Get Sold?In a nutshell, it comes down to money. Doling out hundreds of millions of dollars in loans can get expensive. And if you’re not a big bank with lots of assets, liquidity will run dry pretty quickly.This means focusing on the loan origination aspect of the business, and selling the mortgages off to another company or investor to free up capital.The process is known as originate-to-distribute, with the loans not kept on the books of the lenders themselves.Instead, the loans are quickly sold off to investors and/or packaged into mortgage-backed securities (MBS) a month or two after funding.This allows the lender to continue originating more loans, without worrying about holding millions in mortgages.It also means they can focus on loan origination as opposed to loan servicing, which is an entirely different business.A company might be good at actual mortgage lending, but not be well equipped to deal with servicing loans over long periods of time.What Happens When My Home Loan Is Sold?As noted, it’s pretty common for mortgages to be sold shortly after loan origination. Obviously this can be aggravating, and also confusing. Who do you pay!?The same thing can happen periodically throughout the life of your loan, perhaps years into it.So your loan might be sold immediately after it funds, then resold five years later to another servicer.It can change hands several times during the life of the loan, depending on how long you keep it.The good news is your old and new loan servicer must notify you when transferring servicing rights to your loan.The old servicer should send notice at least 15 days before your loan’s servicing rights are transferred to the new servicer.And the new servicer should also send notice within 15 days after the servicing rights for your loan are transferred.Sometimes these notices can be combined if your loan is sold off immediately after origination, with your original lender directing you to the new servicer.But they must spell out important details including the date on which your old servicer will stop accepting payments, and when your new servicer will begin accepting payments.The new servicer’s company name and contact information must be included, along with the specific date the right to service your loan transferred to the new servicerMortgage Servicing TransfersMany home loans are transferred to loan servicing companies shortly after fundingYou should receive a letter within 15 days of your loan being transferredThe new company’s contact information should be prominently displayedIt will also include the date when the old servicer will no longer accept paymentsAnd the date when the new servicer will start accepting monthly paymentsOne of the most important things to do after your mortgage funds is to take note of who your loan servicer is.Unfortunately, mortgage servicing rights are frequently transferred shortly after your loan funds, which can make it confusing to know who to pay.Add in all the junk mail you might receive as a new homeowner (like mortgage protection insurance) and it could get really murky.The good news is lenders and loan servicers must adhere to certain rules regarding the transfer of servicing rights.After your mortgage funds, look out for a letter in the mail from the entity that closed your loan regarding a servicing transfer. You may also receive a letter from your new loan servicer as well.It should clearly explain who will be processing your mortgage payments going forward, and is required to be sent 15 days prior to your loan’s servicing rights being transferred to the new servicer.The letter should include all the relevant contact information you’ll need to ensure payments are sent to the right company at the right time.Take note of when they’ll begin accepting payments, and when the old company will stop accepting payments.In my opinion, it doesn’t hurt just to call the company and make sure everyone is on the same page before you send your payment, just to avoid a mess.If you do make a payment mistake, there are some protections in place if it’s within 60 days of the servicing transfer, per the CFPB.During this time, the new loan servicer can’t charge you a late fee or mark the payment as late if your payment was sent to your old servicer by its due date or within the grace period.Can I Pick My Loan Servicer?The answer is a little bit of yes and no. But mostly no. Allow me to explain.As noted, home loans are often sold off shortly after they fund. However, there are some banks and lenders that retain their loans and/or service them.So if you get your loan from one of these companies, you’ll effectively also select your loan servicer too.One example is Navy Federal, which services all their loans throughout the loan term. This means you’ll deal with them before your loan funds and after, which can be nice.But I don’t know if it makes sense to pick a lender simply because they’ll keep the loan, especially if their pricing is higher.It’s also possible that they’ll hold onto the loan initially, then sell it in the future. So there’s really no guarantee what happens long-term.Conversely, some mortgage companies sell all their loans. So you’ll know upfront that they won’t be your servicer.Either way, you don’t have too much control here unless you select a company that retains all servicing rights and manages loans in-house.I’ve had a loan be sold then resold back to the original company that held it.Who Are the Top Mortgage Servicers in the Country?1. Rocket Mortgage2. Guild Mortgage3. Chase4. Bank of America5. Huntington National Bank6. New American Funding7. Regions Mortgage8. CrossCountry Mortgage9. Citizens Mortgage10. Caliber Home Loans (owned by Newrez)Rocket Mortgage was the highest-ranked mortgage servicer in 2023, per the latest U.S. Mortgage Servicer Satisfaction Study from J.D. Power.In a close second was Guild Mortgage, followed by Chase, Bank of America, and Huntington National Bank.This list relates to the loan servicers that provided the highest level of customer satisfaction, thanks to being helpful, answering questions, solving problems, and keeping customers informed.Both USAA and Navy Federal actually have higher rankings than all the companies listed above, but don’t meet the survey’s award criteria.In other words, you should have a very good customer experience with those two companies as well.Who Are the Largest Mortgage Servicers in the Country?These are listed in alphabetical order since I don’t have figures available to rank them by total servicing volume. But they are some of the largest mortgage servicers in the country.Remember, big doesn’t necessarily mean good. It just means they are substantial players in the space.All of these companies service billions of dollars in home loans for customers, which they either originated themselves or acquired from other banks and mortgage lenders.If you have a mortgage, there’s a good chance one of the companies on this list handles your loan servicing.Tip: Always take the time to make sure you’re actually dealing with your loan servicer and not some phony entity.

Ocwen Financial's earnings slipped into the red as an interest rate drop hurt the valuations for mortgage servicing rights the company owns.The mortgage company recorded a $47 million net loss for the fourth quarter. This compares to a positive $8 million in the third quarter and a negative $2 million for the fiscal period one year earlier.Ocwen also recorded a loss for the year due to negative MSR changes, the first seen since 2020. The negative $64 million in earnings in 2023 compared to $37 million in net income in 2022 and $18 million positive result in 2021.The rate drop during the quarter and associated valuation changes have been common concerns for servicers with higher coupons in their MSR portfolio, and Ocwen has taken aggressive steps to address the issue.The company has increased its hedge coverage ratio target to protect against another potential drop in rates this year, Glen Messina, the company's chairman, CEO and president said in an earnings call.This ratio refers to the percentage of a position that a hedge is designed to protect."Our fourth quarter unfavorable MSR fair value change was driven by an 82 basis point reduction in key interest rates, offset by hedge coverage of 69%, which was aligned with our average target for the quarter," he said. "In December, we increased our hedge coverage ratio target to 100% to protect book value if rates should fall in 2024 as anticipated."While the company recorded a loss under generally accepted account principles due to valuation shifts, when those changes are excluded, the company generated $11 million in adjusted, pretax income for the quarter, and $49 million for the year.Although the valuation changes on MSRs the company owns weighed down net earnings, servicing as a business line was the main driver of the gains in adjusted results.On an adjusted, pretax basis during the quarter, the company generated $37 million in income from traditional and reverse mortgage servicing and $1 million from origination. "Both our servicing and origination businesses continued their profitable trend," said Sean O'Neil, the company's executive vice president and chief financial officer, during the company's earnings call. Growing business lines include subservicing and investor partnerships.The origination number was down slightly due to what analysts at Keefe, Bruyette and Woods said was "primarily due to lower volumes in the correspondent and co-issue channels, some of which can likely be attributed to seasonality."The company may sell off some servicing rights if opportunities appear favorable, executives said. Ocwen also is looking into creating a separate vehicle for its Ginnie Mae servicing rights to address a new nonbank capital requirement the government guarantor will add at year-end."We've begun plans to launch a separate legal entity to hold our Ginnie Mae forward assets to meet the new Ginnie Mae risk-based capital ratio requirements, and have had preliminary discussions with Ginnie Mae to vet this approach," O'Neil said.At the time of this writing on Monday, Ocwen's shares were trading at a level largely in line with where they started the day at a little over $28 per share.

Close to 17 million former and current Loandepot customers had their Social Security numbers compromised during a data breach, the lender disclosed in a filing shared with the Office of the Main Attorney General.The attack, which the lender says took place from  Jan. 3 to Jan. 5, also may have exposed the names, addresses, financial account numbers, phone numbers and data of birth information of customers.Previously, Loandepot reported that 16.6 million customers had their personal identifiable information compromised, but it wouldn't confirm whether social security numbers were exposed. A spokesperson for the company declined to provide commentary regarding why there was a discrepancy in numbers. Loandepot also revealed the cybersecurity incident will have a "material impact on its first quarter 2024 results," it said in a filing with the Securities and Exchange Commission Monday. The mortgage lender expects to record approximately $12 to $17 million in expenses related to the cybersecurity incident, net of expected insurance recovery.Notorious ransomware gang Alphv, or Blackcat, has taken responsibility for the hack that shutdown some of Loandepot's systems at the beginning of 2024. It previously warned that Loandepot had not fully revealed the amount of customers impacted by the attack.The criminal organization claims Loandepot initially offered $6 million for the stolen data, but then asked for more time to secure a bigger ransomware payment. Soon after, the mortgage lender allegedly "disappeared," a post by Alphv shared by cybersecurity outlets, said. Alphv announced it is in the process of selling the customer information on the dark web after the alleged negotiations with the mortgage lender broke down. It previously threatened to do the same with data stolen from Academy Mortgage in May 2023. Allegedly, Alphv also targeted Fidelity National in December.As a result of the data breach, Loandepot is currently facing at least a dozen class action suits. One of the suits, which was brought by Loandepot borrower Jonathan Rosa, claims the company "[willfully failed] to prevent the data breach" by making claims that customer PII was safe when in reality it was not. Rosa's suit also accuses the mortgage company of not investing adequately in privacy and security protections.Despite the litigation, the "company currently does not expect that the cybersecurity incident will have a material impact on its overall financial condition or on its ongoing results of operations," the lender reiterated in its filing with the SEC.Loandepot is offering identity monitoring services for two years for customers via Experian at no charge, it reiterated in its filing with Maine's regulator in late-February.