Rates have been in retreat as bond market investors who fund most mortgage loans react to the latest economic news and scaleback in tightening by Fed policymakers.
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Mortgage rates retreated for the third day in a row Friday as the latest numbers from the Labor Department showed employers added fewer jobs than expected in April, pushing unemployment closer to 4 percent, a level not seen in more than two years.
The U.S. economy added 175,000 jobs in April, down from 315,000 in March and the most anemic growth since October 2023. Economists had expected April employment growth of 240,000 jobs.
The report came on the heels of Wednesday’s announcement by Federal Reserve policymakers that they intend to slow the pace of “quantitative tightening” — an unwinding of the central bank’s $7 trillion balance sheet — to $40 billion a month, less than half the pace envisioned two years ago.
Job growth cooled in April
Change in employment, by month. Red bars are the latest forecast, including revisions to previous estimates for February and March. Source: U.S. Bureau of Labor Statistics.
“This report is nothing like bad enough to trigger a wholesale rethink at the Fed, but things will be different if the July numbers are weaker still, as we expect,” economists at Pantheon Macroeconomics said in a note to clients. “The downshift in payroll growth has come exactly when the [National Federation of Independent Business] suggested it would, and the signal for the future is unambiguous.”
Futures markets tracked by the CME FedWatch Tool last week predicted that the odds were against the Fed making more than one 25-basis point rate cut this year. On Friday, investors had repositioned their bets in line with expectations that there’s a 61 percent chance of two or more Fed rate cuts by the end of the year, with the first move now expected in September rather than December.
Pantheon economists are sticking to their forecast that the central bank will bring the federal funds rate down by a full percentage point, starting in September.
“Businesses — especially small firms — are responding to the lagged effect of the huge increase in interest rates and the tightening in lending standards, which have made working capital much more expensive and harder to obtain,” Pantheon economists said. “At the margin, this is depressing hiring and lowering the bar to layoffs.”
Unemployment, which dipped below 4 percent in February 2022, is once again flirting with that level, hitting 3.9 percent in April, up half a percentage point from a year ago.
The Fed doesn’t have direct control over long-term rates, but bond market investors who fund most mortgage loans are reacting to this week’s news.
10-year Treasury yields down 25 basis points
Yields on 10-year Treasurys, which often predict trends in mortgage rates, fell 7 basis points Friday to 4.50 percent, a 25-basis point drop from the 2024 high of 4.75 percent registered on April 25.
Surveys of lenders by Mortgage News Daily showed rates for 30-year fixed-rate loans dropping for a third day in a row Friday, to 7.28 percent, down 24 basis points from a 2024 high of 7.52 percent, also registered on April 25.
Mortgage rates retreat from 2024 highs
Data tracked by Optimal Blue, which lags by one day, showed borrowers were locking in rates on 30-year fixed-rate mortgages Thursday at an average rate of 7.21 percent, down 6 basis points from the 2024 high of 7.27 percent recorded on April 25.
Borrowers taking out jumbo loans have seen spreads over conventional mortgages widen as higher interest rates and defaults on commercial loans weigh on regional banks that are often the source of those loans.
The rates published by Mortgage News Daily (MND) are higher than those reported by Optimal Blue because MND’s rate index is adjusted to account for points that borrowers often pay to get a lower rate. Optimal Blue uses actual rates provided to borrowers for rate locks, whether they paid points or not.
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Federal Reserve policymakers say they’ll slow the pace of “quantitative tightening” to $40 billion a month, less than half the pace envisioned 2 years ago.
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Mortgage rates looked poised to drop Wednesday after Federal Reserve policymakers said they’ll slow the pace of “quantitative tightening” — an unwinding of the central bank’s $7 trillion balance sheet that’s helped keep rates elevated — to less than half the pace envisioned two years ago.
At its latest meeting, the Fed left the short-term federal funds rates unchanged at its current target of 5.25 percent to 5.5 percent, as expected.
But following through on guidance Fed Chair Jerome Powell provided in March, on June 1 the Fed will slow the pace at which it trims its holdings of long-term Treasurys by $35 billion a month.
Because the Fed hasn’t been able to hit its targets for reducing its holdings of mortgage-backed securities (MBS), the Fed’s balance sheet easing will soon total only $40 billion a month — less than half of the $95 billion target set by policymakers in 2022.
“The decision to slow the pace of runoff does not mean that our balance sheet will ultimately shrink by less than it would otherwise, but rather allows us to approach its ultimate level more gradually,” Powell said at a press conference following the Fed’s latest meeting.
“In particular, slowing the pace of runoff will help ensure a smooth transition, reducing the possibility that money markets experience stress, and thereby facilitating the ongoing decline in our securities holdings that are consistent with reaching the appropriate level of ample reserves.”
Yields on 10-year Treasury notes, which are a useful barometer of where mortgage rates are headed next, dropped nine basis points Wednesday, to 4.59 percent, a 15-basis-point decline from the 2024 high of 4.74 registered on April 25.
But Marty Green, principal at mortgage law firm Polunsky Beitel Green, noted that the odds of Fed rate cuts this year appear to be dwindling.
Marty Green
“With inflation data continuing to show a bumpy road toward the Fed’s 2 percent inflation target, it isn’t surprising that the Fed chose to leave interest rates unchanged and is delaying the prospect of interest rate cuts until later this year,” Green said in a statement.
“The question now is whether inflation proves to be so sticky that the Fed decides that rate cuts in 2024 are no longer in the cards and will instead be delayed into 2025.”
The CME FedWatch Tool, which tracks futures markets to predict the odds of future Fed moves, on Wednesday puts the odds of the Fed making more than one rate cut this year at just 42 percent, down from 85 percent on April 1.
Green characterized the Fed’s decision to scale back the pace of balance sheet tightening as “good news.”
“Over time, this adjustment should have some positive impact on interest rates without the Fed needing to adjust the Fed funds rate,” Green said.
While the Fed has tight control over short-term interest rates, long-term interest rates on government debt and MBS are driven by supply and investor demand.
To keep the economy from imploding during the pandemic, the Fed not only brought short-term interest rates down to 0 percent but was buying $120 billion in debt every month — $80 billion in long-term Treasury notes and $40 billion in MBS.
As its balance sheet neared $9 trillion, the Fed reversed course on “quantitative easing” and instituted “quantitative tightening” as part of its efforts to fight inflation.
In 2022, the Fed ramped up “quantitative tightening” with a goal of trimming $60 million in Treasurys and $35 billion in MBS from its balance sheet each month. Instead of replacing $95 billion in maturing assets to maintain the status quo, the Fed would let those assets roll off its books.
Now, instead of letting $60 billion in government debt roll of the books every month, the Fed has set a new cap on Treasury redemptions at $25 billion a month.
Although the Fed is leaving the $35 billion runoff cap on MBS in place, it’s been unable to hit that target. Because elevated mortgage rates have slowed the pace at which borrowers refinance their mortgages, the Fed has only been able to trim its mortgage holdings by $15 billion a month for some time.
Asked if there was a contradiction in the Fed holding short-term rates steady to try to cool the economy while reducing the pace of quantitative tightening, Powell said that rates are “the active tool of monetary policy.”
Fed policymakers are tapering the pace of quantitative tightening to avoid the kind of disruption that money markets experienced the last time it tried to trim its balance sheet in 2019, he said.
“This is a plan we’ve long had in place … not in order to provide accommodation to the economy or to be less restrictive to the economy,” Powell said. “Really it’s to ensure that the process of shrinking the balance sheet down to where we want to get it is a smooth one, and doesn’t wind up with financial market turmoil the way it did the last time the last time we did this — and the only other time we’ve ever done this.”
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Mortgage and banking technology provider Blend Labs Inc. has a new lease on life, with a $150 million investment from an Austin, Texas-based private equity firm that will allow it to pay off debt it took on when getting into the title insurance business in 2021.
In return for the cash injection, Haveli Investments is receiving preferred stock it can convert into Blend common stock at $3.25 per share. Haveli also has the right to purchase another 11 million shares in Blend anytime in the next two years for $4.50 per share, or $50 million.
Shares in Blend had closed at $2.25 Monday before the deal was announced, an indication that Haveli is optimistic that better times lie ahead for Blend.
Brian Sheth, Haveli’s founder and chief investment officer, will join Blend’s board of directors as part of the deal.
Brian Sheth
“We have known the Blend team for several years and have been impressed with their innovation and vision,” Sheth said in a statement. “With a blue-chip customer base and an improved balance sheet, we believe Blend is well positioned to succeed with its modern, next-gen platform.”
Shares in Blend, which in the past year have traded for as little as 53 cents and as much as $3.40, gained 9 percent Tuesday to close at $2.45.
Nima Ghamsari
“This investment represents a vote of confidence in Blend’s position for future growth and our ability to generate lasting shareholder value,” Blend CEO Nima Ghamsari said on a call with investment analysts. “Haveli is choosing to partner with us because of our track record of establishing an industry-leading position in mortgage, and successfully applying our playbook to other growth areas — notably deposit accounts, credit cards and the remaining components of the consumer banking business.”
Ghamsari said he has no doubt that Sheth — who as a co-founder of the legendary private equity firm Vista Equity Partners has been involved in more than $100 billion in deals and served as board chairman for dozens of companies — “will be a valuable adviser to us and keep us apprised of operational best practices.”
Bends in the road for Blend
Founded in 2012, Blend has built a software platform and marketplace that allow mortgage lenders and banks to service clients from application to close, helping process nearly $1.4 trillion in loan applications last year.
In 2021, Blend not only went public but acquired a 90 percent stake in national title insurance and settlement services provider Title365 from Mr. Cooper Group for $422 million — only to see rising mortgage rates suddenly curtail demand for its services.
After helping lenders handle 1.8 million mortgage transactions in 2021, Blend saw mortgage transaction volume plummet by 32 percent in 2022, to 1.234 million, and by another 35 percent in 2023, to 805,000.
Coming back from deep in the red
As what would eventually amount to a $763.8 million 2022 net loss started piling up, Blend began laying off employees and cutting costs.
Ultimately, the San Francisco-based lending tech provider would shed 1,400 workers, trimming its 2023 losses to $179.9 million and ending the year with 881 employees. All told, Blend has racked up a $1.34 billion accumulated deficit through Dec. 31, 2023.
To acquire Title365 in 2021, Blend took out a $225 million term loan and obtained access to $25 million in revolving credit.
According to its most recent annual report to investors, Blend ended 2023 with $138 million in debt, down from $217 million the year before.
Blend said Monday that it will use approximately $145 million of the proceeds from Haveli Investments to “repay all amounts payable under its existing credit agreement,” with the remainder earmarked “for general corporate purposes.”
Mortgage services are half of Blend’s business
Close to half of Blend’s 2023 revenue (49.5 percent) came from the services it provides to mortgage lenders, which amounted to $77.6 million last year.
But title insurance and closing services are the company’s second-biggest source of revenue, generating $47.3 million in billings, or 30 percent of revenue.
Blend offers a suite of title products and services, including “instant title” and other title search options, insurance solutions, closing and settlement services, mobile signing and e-sign capabilities, and post-closing solutions such as disbursement and recording handling.
(After racking up a $124.4 million 2023 loss, title tech provider Doma last month reached an agreement to go private through a merger with Dallas, Texas-based title insurance underwriter Title Resources Group.)
Consumer banking services accounted for $23.6 million in 2023 revenue, or 15 percent of the total, followed by $8.3 million in revenue from professional services.
In reporting 2023 earnings, Blend said it expects first quarter 2024 revenue of between $32.5 million and $35.5 million and a net operating loss of $12 million to $14 million.
Onboarding new clients
On the company’s fourth quarter earnings call, Ghamsari said Blend signed “two, multi-year eight-figure deals … which validates the trend that our large stable customer base has continued to expand their relationship with Blend across multiple products.”
Blend claims lenders using its suite of mortgage tools are shaving an average of 8 days off the time it takes to process and close loans, saving $914 per loan, on average.
Last month, Blend announced that it had signed Texas-based Randolph-Brooks Federal Credit Union — the 10th largest U.S. credit union, serving more than 1 million members through 62 branch locations — as a mortgage client.
“When we looked at all of our options, Blend was the best culture fit given their focus on member experience,” RBFCU executive Victor Williams said, in a statement. “We are thrilled to partner with Blend to further elevate our mortgage and home equity lending offerings. We believe this collaboration will not only enhance our operational efficiency but also enable us to better serve the evolving needs of our members.”
On April 14, Blend announced another new mortgage customer, Michigan Schools and Government Credit Union, which serves 145,000 members through 22 branch offices.
Blend is helping MSGCU automate its origination process with instant asset, income and employment verifications, and providing mobile capabilities enabling loan officers to issue pre-approvals, run credit checks, input pricing and automate underwriting on the go.
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Up to 330,377 homeowners from whom Ocwen collected mortgage payments could be eligible to claim refunds of $60 per broker price opinion and $70 per hybrid valuation
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Loan servicing giant Ocwen has agreed to pay what could amount to tens of millions of dollars in refunds to settle allegations that it overcharged homeowners who got behind on their mortgage payments for “default-related services,” including broker price opinions (“BPOs”) performed by real estate brokers.
Ocwen continues to deny the claims leveled against it in a 2014 complaint, which alleged that Ocwen charged homeowners undisclosed mark-ups on BPOs and hybrid valuations to generate revenue for its loan servicing business.
“When home mortgage borrowers get behind on their payments and go into ‘default,’ Ocwen obtains a number of default-related services which purportedly are designed to protect the lender’s interest in the property,” the 2014 complaint alleged, such as property valuations. “To obtain these services, Ocwen funnels the work through its affiliated company, Altisource, who then orders these services using a network of third-party vendors.”
After marking up the fees charged by vendors — in some cases by 100 percent or more — Altisource would bill Ocwen, which would in turn bill homeowners, the complaint alleged.
While homeowners were informed in their mortgage disclosure that they’d be on the hook for default-related services if they fell behind on their loans, “Nowhere is it disclosed to borrowers that the servicer may engage in self-dealing to mark up the actual cost of those services to make a profit.”
A spokesman for Ocwen did not respond to Inman’s request for comment on the allegations, which it continues to deny, or the terms of the settlement.
If the settlement is approved by the court overseeing the case, as many as 330,377 homeowners who made their mortgage payments to Ocwen between 2010 and 2017 will have until Sept. 29, 2025 — more than a year and a half from now — to submit a claim entitling them to refunds estimated at $60 per BPO and $70 per hybrid valuation.
The deadline to request exclusion from the case comes up much sooner: July 12, 2024.
Details of the settlement, and instructions for filing a claim in the case, Weiner v. Ocwen Financial Corp., are available on a dedicated website, OcwenFeeSettlment.com.
While a refund of $60 or $70 may not sound like much, attorneys for Ocwen noted in a March 8 court brief that the company could, in theory, be on the hook to pay out as much as $53.83 million in refunds and “fee reversals,” plus as much as $8.95 million in attorneys fees’ and costs.
But Ocwen says many of the 330,377 homeowners it has identified as potentially eligible to file a claim didn’t actually pay for BPOs or hybrid valuations that were assessed to their accounts, “and therefore never suffered any losses.”
In their own court brief on the settlement, attorneys representing plaintiff David Weiner and others in the class-action lawsuit noted that the settlement doesn’t limit how many people can apply for refunds, and there is no cap on the total amount that can be paid to each borrower.
The amount actually paid out will ultimately depend on how many claims are submitted, and how many are deemed valid. But many of those who allegedly overpaid for BPOs and hybrid valuations are no longer Ocwen customers, and it could be difficult to track them down.
“During the lengthy period while this case was being litigated, a large percentage of class members severed their relationships with Ocwen due to foreclosures and other loan default-related events, as well as loan refinancings due to periods of lower interest rates,” attorneys for the plaintiffs said. “Because Ocwen no longer has the ability to send settlement checks directly to these class members, plaintiff’s counsel negotiated a settlement structure that allows class members a lengthy opportunity — a full 18 months from preliminary approval — to come forward and make claims for reimbursement of the fees at issue here.”
A court-appointed settlement administrator “will take active steps to locate and provide notice to class members, including via direct mail, email, and publication notice, with repeated outreach efforts being conducted by the settlement administrator during the claims period,” attorneys for the plaintiffs promised.
Going forward, the settlement would also require Ocwen to disclose to borrowers the markups charged by vendors providing BPO and hybrid valuations.
The Great Recession of 2007-09 and the resulting housing downturn created a number of legal issues for loan servicers, who in addition to collecting monthly payments for mortgage borrowers are also obligated to help distressed borrowers explore alternatives to foreclosure.
In 2013, Ocwen agreed to provide $2 billion in principal reductions to underwater borrowers and refund $125 million to nearly 185,000 foreclosed borrowers to settle allegations that it violated consumer protection laws and put thousands of homeowners at risk of foreclosure.
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The leader of a five-person team that originated billions in loans for a New Jersey-based mortgage lender has been charged, along with one of his assistants, with allegedly engaging in a large-scale mortgage fraud scheme.
Christopher J. Gallo, 44, of Old Tappan, New Jersey, and Mehmet A. Elmas, 32, a U.S. citizen who resides in Turkey, “routinely misled mortgage lenders,” prosecutors said — often by claiming that their clients intended to live in homes that they were actually purchasing as investors.
Gallo and Elmas were arrested Wednesday and appeared before U.S. Magistrate Judge André M. Espinosa in Newark federal court. Each was released on a $200,000 unsecured bond, the U.S. Attorney’s Office for the District of New Jersey announced.
Inman was unable to reach either defendant at their current employer. An attorney for Gallo did not immediately respond to a request for comment.
Gallo and Elmas have each been charged with one count of conspiracy to commit bank fraud, which carries a maximum penalty of 30 years in prison and a $1 million fine, or twice the gross gain or loss from the offense, whichever is greater.
Their former employer, Little Falls, New Jersey-based NJ Lenders Corp., said in a statement that it is “fully cooperating with law enforcement and the ongoing investigation,” and that Gallo and Elmas’ actions “appear to have been coordinated to benefit them financially while taking advantage of the reputation and trust of the firm.”
Team Gallo
In their criminal complaint, prosecutors said Gallo was a senior loan officer who supervised four loan processors, and Elmas was a loan officer and assistant to Gallo. “Team Gallo” originated more than $1.4 billion in loans from 2018 through October 2023, the complaint said.
In some cases, prosecutors alleged, Gallo and Elmas would submit loan applications stating that borrowers were the primary residents of homes they were financing, when in fact the properties were to be used as rental or investment properties.
“By fraudulently misleading mortgage lenders about the true intended use of the properties, Gallo and Elmas secured and profited from mortgage loans that were approved at lower rates,” prosecutors said.
Gallo and Elmas are also accused of falsifying borrowers’ financial information and property records, including building safety information, to get loans approved.
In one instance cited in the complaint, Gallo and Elmas allegedly obtained an approval for a $353,000 condominium mortgage by falsely stating that the homeowners’ association had the 10 percent capital reserve required for loan approval, the complaint said.
The investigation that led to the charges was conducted by special agents of the FBI under the direction of Special Agent in Charge James E. Dennehy in Newark, and special agents of the Federal Housing Finance Agency, Office of Inspector General, under the direction of Special Agent in Charge Robert Manchak.
Top 10 US mortgage originator
During the period investigated, the industry publication Scotsman Guide ranked Gallo as one of the top 10 mortgage originators in the country for five years running.
In a 2020 profile, Scotsman Guide ranked Gallo 10th among all U.S. mortgage originators in 2019 by dollar volume, with $346 million in loans funded. The publication ranked Gallo first in New Jersey and 4th nationwide in 2020 and 2021, with more than $1 billion in loans originated each year. In 2022 and 2023, Gallo dropped back to 10th in the Scotsman Guide rankings, with refinancings accounting for more than 90 percent of his team’s business.
Licensed in 20 states and Washington, D.C., NJ Lenders Corp. sponsors 139 mortgage loan originators who work out of 18 branches, according to records maintained by the Nationwide Mortgage Licensing System (NMLS).
In 2019, NJ Lenders Corp. agreed to pay a $10,000 penalty to the New York State Department of Financial Services to resolve allegations that it failed to obtain authorizations to use the domain names and websites SilverBayLending.com and MyHomeBanker.com to solicit business in New York.
According to NMLS records, Gallo joined CrossCountry Mortgage in September 2023 as a mortgage loan originator in Rockaway, New Jersey, and became a branch manager at the lender’s Rutherford, New Jersey, office in January. Elmas followed Gallo to CrossCountry Mortgage in October and is listed by NMLS as a mortgage loan originator in the company’s Rockaway office.
In a statement, CrossCountry Mortgage would say only that “Chris Gallo is not employed by CrossCountry Mortgage. We do not comment on legal matters.”
Coincidentally, CrossCountry Mortgage employs another Christopher J. Gallo who is a branch manager in Blue Bell, Pennsylvania. That employee, Christopher Joseph Gallo, has not been accused of any wrongdoing.
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