9.9.26 Conforming Loan Limits; Curinos’ Ken Flaherty and Rich Martin on Market Trends; Specified Payups

Robbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Christman. Topics on today's episode include conference chatter, some talk about rocket and conforming loan limits, and my interview with Kirinosis, Ken Flaherty, and Rich Martin on the growing home equity opportunity, using speed as a competitive advantage, reaching the next generation of borrowers, and tracking key mortgage market trends over the next year. Here. Take a listen to a little preview. When we think about the next generation of borrowers, for so long it was millennials, millennials are living on their parents' couches, or maybe it's these these high earners in Silicon Valley that aren't necessarily rich yet. Rich, what do you think of when you think of next gen borrowers at this point? Rich MartinWell, we use the term segmentation at Curinos, but I but I think it's right is looking at what's the next big wave of consumer demand. Where is it gonna generate? I agree with you on the millennial. I I think now I somehow fall into that cohort group. I feel like the definition changes and I'm just on the outside cusp of it. But there's this next wave, I think I would characterize kind of a tagline would be more debt, less savings. Ken talked about where savings rates are earlier. I think that's where we are. More debt's gonna be, what does it look like? It's gonna be a profile of higher student debt burdens. We know student loan debt, I think, is an all-time high alongside credit card. Um, limited down payment funds. We see this a little bit in this dynamic playing out of co-investment, right? Where look, I just dislemented have a down payment. To meet it's not the 20% down that everyone thinks you need to know, but even first-time home buyers are programs. Oh, I need 10%, I only have five, and I can go through these new kind of more innovative esoteric products in co-investment, or, you know, I don't care in five or six years where I share an upside. I just want to get into a home now and I want to start building some equity. I think the other piece though is going to be, you know, stronger incomes. I think, you know, although wage growth isn't quite outpacing inflation, you look at, you know, and some of this is just the proliferation of big big tech. I think you got stronger incomes for early young professionals, relatives. So yeah, and then again, how that debt and savings, you got to translate it though, of the opportunity as it comes what products are gonna win in the market. And on the first mortgage side, that's gonna be you know, affordability programs. Again, that low-down payment will be key or DPA. I think non-QM is a huge piece. I feel like any you know, headline I read or interview I listen to, always talking about the emergence of non-QM, you're gonna have that, right? Where they have good, they're they're near credit worthy, I call it, and they should qualify. That's where non-QM, I think, can play a huge role. And then a little bit on just general community lending type programs where I think you're gonna have more of the the banks and credit unions involved in that. But it's that, you know, yes, much higher debt, don't have savings, but still kind of that what I'll call near credit worthy borrower, there's up uh where's it there's that opportunity. Rich MartinYeah, so on the equity side, I think this is more of a shift towards finding quality balances and borrowers, making that shift to not just focusing on borrowers that have the equity. Of course, that's great. But if you look at this by generation, the older generator, like the boomers, for example, they have the least amount of debt and they have the highest amount of homeownership and the highest amount of equity. So if you look at it as an equity lender, hey, this is a no-brainer, let's target the borrowers with all but in reality, you have to look at those middle generations, including the millennials, uh, where they don't have all the equity. They have some equity, but they don't have all the equity. Home ownership rates are at a lesser degree, but that's where the debt is, and that's where the opportunity is. And the tenure in the home is shorter as compared to the boomer generation. So it's this idea of home equity originations to really be sought after less on just what's always worked in the past and be a little bit more prescriptive. And so we have to start catering to the next generation. Guess what? The the younger generation not wanting to stand in line, they don't want to leave their house. They want things to be endless and being able to take an application and even close the loan from the convenience of not even leaving is becoming less of a preference and more of a requirement. So it's accepting your model to cater to the speed and convenience, but also hiring your products and solutions more to those generations that really truly need help. And, you know, again, from a debt perspective, that's where you're going to see that sweet spot of having a need and equity available as opposed to chasing empty HELOC dollars and equity-rich borrowers with minimal debt. Robbie ChrismanAre you looking for a fully branded or private label HELOC platform? Whether you're a bank, credit union, or broker. You can close in zero days with warehouse funding. Power your home equity lending with nifty door. To learn more, visit nftydo r.com. There's talk at conferences, not only about things being slower than expected in 2026, but potentially even slower in 2027. Of LO and branch movement. It reminds me of the adage if you came here for a signing bonus, you're going to leave for a signing bonus. Well, some people might have a decision to make here, as Everbank Financial Corp, the parent company of Everbank, and WaFd, the parent company of WaFd Bank, announced they have entered into a definitive merger agreement, providing for a strategic combination of Everbank Financial Corp and WaFd Inc. Keefe, Bruyette & Woods, aka KBW served as exclusive financial advisor on its $3.9 billion reverse merger transaction. As you can see, there's not much news to open the week, so let's focus on some larger stories in the capital markets. Specified payups have eroded during the sell-off as investors have become less willing to pay a premium for pools with favorable prepayment characteristics when overall MBS valuations cheapen. Volatility rises, liquidity becomes more important, and the value of prepayment protection becomes harder to monetize. For lenders, this means the economics of originating and retaining specified pools can deteriorate quickly. Be cautious about assuming today's payups will persist, incorporate more conservative pay-up assumptions into pricing and hedging decisions, and pay close attention to which loan characteristics are actually commanding durable value rather than relying on historical premiums. Oh, an effective tomorrow, Rocket is once again getting out in front of FHFA on conforming loan limits, with Optimal Blue updating Rocket's conforming and high balance products ahead of the official agency announcement. Well, we don't know yet exactly what number Rocket is using. A back to the envelope estimate based on Q2 home price data would put the new baseline somewhere around $853,400 versus $832,750 today, with the actual 2027 limit ultimately driven by the year-over-year change in FHFA's Q3 expanded data HPI. Lenders can price and originate to the higher limit before the new limits are officially in effect, but they still face a timing gap before those loans can be delivered under the new year limits, which means somebody has to warehouse that production and carry the associated hedge, funding, and basis risk. Nobody wants to be the lender telling a borrower they need to stay jumbo when a competitor is willing to give them the higher conforming limit, but it also raises the question of how much early volume is actually worth chasing. For lenders, the impact is on competitive positioning and incremental gain on sale opportunity as moving the conforming ceiling higher, pulls some loans out of jumbo territory, expands the addressable agency borrower base, and potentially improves execution for borrowers sitting just above today's limit. The economics come down to how aggressively lenders compete for that incremental volume and how long they're willing to carry loans before the new limits become broadly deliverable. For today's interview, I wanted to welcome back to the show Curinosa's Ken Flaherty and Rich Martin to talk about the growing home equity opportunity, reaching the next generation of borrowers, and tracking key mortgage market trends over the next year. Rich is director of real estate lending solutions, and Ken is manager of home equity. Let's start by talking about the lock-in effect and maybe beyond the lock-in effect, the opportunity that exists out there. This industry is always shifting, and I come at it from a capital markets perspective. And if we were talking about the US-China trade war a couple years ago, and then it was Brexit, and then it was the transitory nature of inflation. These things change. The lock-in effect hasn't really gone away. It's been here for I think three plus years at this point, where rates have been really higher, higher than a lot of borrowers would have refinance incentive or feel comfortable moving and taking on a new rate. And so let's be proactive here and let's be uh optimistic and talk about the opportunity out there because there is a huge home equity opportunity. So, Rich, when I say to you the lock-in effect and the home equity opportunity out there, what comes to mind for you? Ken FlahertyA couple of pieces to it, Robbie. You're right. It's been over the past several years. We we've seen the headlines in creating this lock-in effect, which is really, you know, these preserving low first mortgage rates when everyone hopefully refined in rates were sub 3%. I know I'm one of those consumers, but it's keeping homeowners in their existing homes. So I think as you relate the lock-in effect to demand, uh, it's also impacting the supply side. And I'm going to stay in my home for longer until this industry can be figured out in a assumable mortgage, but on the rate and that transfers to property almost, right? I don't think we're going to see that in the next five to 10 years. But it's hitting both sides of the equation from a demand and supply perspective. I think the other thing it's done is using lock-in effect, is now it's moved this market. Think of 20 and 21, a $4 trillion plus mortgage origination market to from a mortgage-centric market to now a home equity-centric market, which Ken can talk more of. So it's it's been this structural trend and shift. It's created a lot of demand for the home equity products, a lot of consumer education that'll let Ken kind of dive into. But I think the maybe next phase of lock-in effect is ultimately going to be how it relates back to borrower psychology. Like I take lock-in effect, can that become new normal? And what I mean is our rates just going to stay. If you look at industry forecasts, we tend to be a little bit more optimistic at Curinos, but let's say that tenure sits at 450 over the next two and a half years, mortgage rates sit at about 650, like a 200 basis point spread. Folks may just at some point consumers accept that these are the rates. If you go back to the history lesson, our parents, Robbie, I'm sure your dad will tell you, I don't know if his rate was 14 or 18%, whatever my parents would would tell me over dinner, but it's like, you know, we're not going there. But I think if we see a true extended higher for longer, kind of what we thought inflation being transitory, if we think this lock and effect is not transitory, which it's proving it's not because it's lasted in the last few years, how much demand do we think will pull forward and just accepting rates are going to be in the sixes, maybe approach seven for the next few years? I still need to move, I still need to upgrade my home, all these life events, right? How much is that going to play a factor? Because there's going to be a need for that, necessitate the need to sell your home, buyer home. But that's kind of what I see as the next phase as this lock-in effect plays out. But I I think the biggest piece I'll can touch on next is how it shifted the market to be more home equity-centric. And then what has that done for consumer behavior? What are we seeing from a demand perspective for equity? Ken FlahertyYeah. So I think Rich hit on the high points there. The lock-in effect is certainly a big part of what's fueling a lot of the home equity demand and continued growth. It's certainly a big driver in some non-bank uh fintech origination and investor demand that we we see continuing to expand and drive the originations growth from those fintechs. But it also comes back to those bars which mentioned that are staying in their homes for longer and they're maintaining their equity position. Now, there's arguably some spots of the country where they are not maintaining that same level of equity, but they are still maintaining a positive equity position that's correlated alongside the consumer debt trends. You know, we look at you know, credit cards and auto. This isn't just the equities available, but the need is there. And I think that's the more important factor here is you have the right foundation, but borrowers really can benefit from home equity long term, the high debt levels of credit card, and borrowers need solutions. So, you know, average payrolls are not keeping up with the rates, you know, of the cost of living and household savings rates are like too so having solutions for debt consolidation alongside staying in the home for longer, needing funding for home improvements are huge drivers. And I certainly don't see much that respect that's going to take away the need, not just the opportunity, but the need of borrowers to continue to look to home equity, you know, as a real solution for them and their monthly cash flow. Robbie ChrismanOne thing I've noticed from the home equity uh space that I feel like the the first lien space could greatly benefit from is speed to close. And obviously for decades, hard money lending had a much faster speed to close, but a lot of borrowers didn't want to go that route. The home equity space has become much more prevalent. It's gotten over a lot of the uh, shall we call it, PR malaise in terms of, oh, you're you're gonna put a lien on my house and take it away from me. And obviously people see that uh there's a lot of benefits to utilizing a home equity product instead of a personal loan or a credit card for things. Speed to close as a weapon is kind of what I'm getting at here. And and I'd I'd like to see that that move into the first lien space sum. But Rich, where's your head go when I when I say speed is a competitive weapon across the lending landscape these days? Rich MartinYeah, I I like your example. Like, look, you can get a credit card probably approved in minutes, an auto loan in a few hours, but yet an equity loan is still going to take you north of 30, 40 days, and that's similar on the mortgage side. It's like it's been this prevailing problem in the industry when we talk cycle times and to think where we've gone from, at least in in first-lien in space of mortgage, like the market's contracted 60 plus percent, right, from the highs in 20 and 21. How have we not solved the problem? Because speed to some degree is related, obviously, to you know, to volume, right? The more volume you're funneling into the pipeline, longer in theory, it's going to elongate those turn times. But I think speed is, as you're saying, the competitive differentiator. I think it's because so many folks just think price, like rates tell the entire story in the marketplace. They just have to have the most competitive rates and the volume will come. It gets back to really what we at Kieran was talking about, like the holistic strategy of yes, pricing is important, but you need to think about your digital engagement, you think about your distribution, you think about your fulfillment, your what we call operational excellence. And it comes back to you know, what's in it for me is quicker turn times and cycle times are gonna drive borrower satisfaction and it's gonna improve economics from a pull-through. Like there are tangible costs to it. The quicker I can close, the higher my overall pull-through is gonna be. That's gonna minimize lower hedge cost, other components in terms of cost originate. So you kind of win on all fronts. I think kind of a good segue for Ken. I think the rhetorical question though becomes how fast is fast? Or think of it through the lens of better and better, you know, better versus best. How much do I need to improve? Because again, let's say your operation, you're you're funding equity loans in 35 days and mortgage you're funding in 36 days. You're not going to get to two weeks overnight. You know, you think of some of the fintechs that have really built a brand in the marketplace on speed. But I think it's overlooked and maybe it's it's deflated in terms of its overall performance. We see it driving those positive outcomes from that customer satisfaction from the higher pull-through. Ken will talk a little bit about inequity. We actually see speed driving better borrower behavior and higher utilization. But yeah, it's just something I think, again, in this market, and maybe it's just been beaten down to think, oh, can speed really matter? It's just got to come back to rate, rate committee only lever. We think, you know, cycle times represent one of those largest advantages in lending today. Robbie ChrismanThat's a good point because not a lot of borrowers are ready to move in three days if you said, hey, you can close tomorrow, sort of thing. And so, yeah, there is a point at which might be a little too fast. But Ken, I'd I'd love to hear your thoughts. Rich MartinThe the biggest focus for funders today really should be focusing on the need. Um, and what I mean by that is, well, speed is important. It really should be viewed as you continue to originate the HELOC product, really trying to find those borrowers and cater to those borrowers that have intention of using the HELOC. A big problem many depositories struggle with is not in originating the widget. How do I get balances off of that HELOC widget? How do I those borrowers that are okay or not okay standing in line for 30 to 40 days to get money I needed yesterday, as opposed to those that, hey, I'm fine standing in line for 45 days because I don't sit for the foreseeable future. It's breaking that intersection to say how can I prioritize and find those characteristics of borrowers, whether it's in the application process or in the fulfillment process, done what is the borrower's likelihood that they're going to draw? How quickly do they need the funds? And escalating those borrowers to the front of the line. They have intent, they have need, therefore they should go faster. And as Rich kind of alluded to in the Curinos data, it shows a borrower that you close within 15 days, as opposed that takes over 30 days, is over two times greater likely on their HELOC. Uh, we're talking a difference between 50 utilization at close versus less than 20% uh utilization at close if uh they take greater than 30 days. So this to us tells us there absolutely is a need to move fast and create a better bar, but you better do so in a manner that is finding the words that are helpful for your balance sheet, that have the rustics that will bring balances in order to originate quality and profitable key lock originations. Ken FlahertyI was just gonna add like to Ken's last point. I mean, and the big thing on the speed is just certainty. I think that is what that new generation next wave is. It's the speed transparency behind the speed, the quicker you are, the quicker the certainty for your consumers. And that's driving a lot of that customer satisfaction. It's knowing earlier in the process that not just I'm pre-approved, I'm I'm fully approved, I can move forward. And they think the certainty is a big piece because that that plays back into just overall confidence. And I don't think it's the rate problem right now. I think it's a confidence piece. And as we look forward to the next six to 12 months, as you think about strategy evolving for lenders, it consumer confidence is going to play the largest role in those expectations. That's what's going to shape the next wave and where we see growth. You know, yes, we can look at rates and purchase demand and all of this, but it's the confidence piece. You know, we run through some of our models that we use to derive our future forecasts for equity for mortgage. It plays such a significant role. So I just wanted to underscore that speed drives that certainty, which is a huge value prop and a huge competitive advantage if you can deliver that consistently. Robbie ChrismanIn fact, I think the the last time I saw you in person was at figure headquarters in New York. And I've heard them use the phrase speed to certainty multiple times. So it's certainly something for lenders to pay attention to. I appreciate you bringing up that point. Let me close with this. Highly engaged users of the Christman media platform will see that every now and again we publish Curinos data in the opening paragraph of our daily email. We love the data that you all provide. It's uh does a great service to the industry. So I want to close by talking about market trends according to Curinos. Rich first, Ken second. Any metrics you're watching over the next 12 months or things that you're finding really interesting when we dive into the data? Rich MartinWell, maybe go first, uh, at least on the first-lien side. And again, we cover more than just mortgage equity. We also have a view into small business, into the personal unsecured space as well. So, what I think of like a true consumer lending view of lending that's happening. But I would say just trace it back to what's unique about our benchmark, and right, it's give to get. So we we track over 50% of all real estate secured transactions is uh is loan growth is happening. I think that's the headline. And so as you look at you know, inflated spreads, market uncertainty, profitability pressures, you know, look at the various publicly trade companies and uh and what that's saying about the industry. We keep coming back to loan growth is happening. It's moderated a bit in equity, Ken can talk about from a big breakout year in 25. But mortgage for us, my metric to share is year to date through July of this year, the mortgage market is up 26%. Now, a great degree of that was a little bit of a refi wave in the first quarter of it in a second. We're now seeing you know rates hovering back towards 7%, more uncertainty plaguing this war that that seemingly never is going to end, and and mortgage rates really more following direction of oil prices than anything. But when I say 26% to folks, we get a lot of weird reactions. To that, say, wow, how is your mortgage benchmark up 26%? And again, purchase within that's still up four or five. So you've got it reflected of a somewhat healthy purchase market. It's not just all refi business that's propping it up. That I think always grabs attention to it as loan growth is happening and we tend to get a reaction to say, well, we're not growing that much. Well, why is that? Right. And then we can get into our data, but really to the point of where are you meeting your borrowers? Where's a segmentation exist? How are you thinking about your strategy, not just the economics, but the end strategy and what you're deploying from pricing and product and again, marketing, distribution, all these different levers. But I would go back to the mortgage market's up 26%. I think if you were just a you know everyday consumer uh or occasionally reading the Wall Street Journal, you would think it's in a bit more state of frailty, I'll call it. But I think, you know, growth is happening, it's discipline growth. You know, it's not just chasing uh, you know, against all odds, it's finding the different levers and then you know ultimately finding a way to sustain that over time. And so we've seen that as in just the seven months every month this year, we've been in a range of I think the low end was like 24%, the high end was 32%, we had a little bit more refi activity. So that would be my metric. And I'm sure Ken's got something similar to that, but it is. It's loan growth is happening. And if folks take a step back to understand, hey, is this just a you know temporary phenomenon? No, we see sustained growth through through next year in 28. It might be a little bit counter to the industry forecast for mortgage, but uh, but it is happening and it's underway. Rich MartinAnd home equity, it's a great time to continue to be in this industry and seeing what unfolds. To summarize, I think home equity continues to demonstrate remarkable stability. Uh, after 17% annualized growth rates last year, we finished the first half of 2026 up about four to five percent in annualized production uh growth. So a little bit lesser on the growth, but I look at this as sustained growth, and you have to go back 10 plus years to see consecutive years of annualized growth. And uh, we are projecting an additional 4% for the second half of this year. Uh one of the the leading contributors to that for investors uh as well as uh deposit vendors is these assets are performing phenomenally well. We are not seeing much really, if any, deterioration in portfolio. Uh we're seeing 30 and 60-day delinquency trend as expected uh and not seeing much deviation from that and uh early climate default. So the assets are performing fantastic. We certainly look forward to seeing what unfolds the rest of this year with the questionable rate environment. Do we get a rate increase? Do we stay flat? And what does that spell out for next year? Robbie ChrismanBut I definitely think home equity has a really good runway ahead of itself for sustained growth even into 27 Rich, before we go here, can you just can you reiterate the ways that lenders interact with Curinos and who you're looking for to add as clientele? Ken FlahertyYeah, so we so everything we do from from anything, think of go-to-market indicative rate pricing. Um, everything we do is on a subscription basis. So it's give to get, you get insights to the market based on those participating companies and clients of Curinos. In terms of profile, we're pretty unique. We have we have a large uh base of credit unions, a large base of IMBs or non-FIs or fintechs, uh, and then your traditional, you think, banking, FI, retail players out there in lending. And we engage across the entire enterprise, we like to say. So there's you know, risk components that are relevant to your credit risk teams. There are operational, this operational excellence theme we talked about, relevant to your ops folks and uh and distribution groups, et cetera. And then you've got the you know, the pricing um component that's gonna be risk for your business line CFOs, your cap markets and secretary marketing teams. So it's it's really enterprise-wide in terms of where we engage. But um, you know, I think for us, I'll go back to that loan growths happening. I think we're agnostic to profile, but it's those that are looking at lending as a true relationship product and looking to grow, um, albeit you know, disciplined and responsibly. And so I think it's a good entry point for us as it's happening. Where is it happening? Is it happening on product? Is it happening on geography? Short answer is it's happening on both, but it's it's having the right menu and that right offering to your to your members on the credit union side, your customers on the uh on the non-credit union side. Robbie ChrismanVery well put, guys. You know, I'd always love the insights and uh I look forward to our next conversations. Thank you very much. Rich MartinSounds good. Thanks, Robbie. Thanks, Robbie. Robbie ChrismanToday's economic calendar kicked off with MBA mortgage applications falling 2.7% for the weekending September 4th, driven by a 6% drop in refinancing activity as the 30-year fixed mortgage rate climbed to 6.85%, its highest level since June of 2025, amid renewed concerns over inflation and the federal deficit. Purchase activity was comparatively resilient, slipping to 0.2%, seasonally adjusted, and remaining 4% above last year, suggesting higher rates are weighing more heavily on the refinance market while home buyers continue to provide a modest floor for mortgage demand. Later today brings a $39 billion ten-year treasury note auction. We begin the day with agency MBS prices slightly better than yesterday's close, the two-year yielding 4.42%, and the ten-year yielding four point eight one percent after closing yesterday at four point eight one percent. Let's wrap up with a joke and some housekeeping. I told my wife I'd start investing in mortgage-backed securities. She said, What's the yield? Said enough to keep me interested, but not enough to make me happy. Thanks again to Nifty Door for sponsoring this week's podcasts. Nifty Door is the fully branded or private label HELOC platform for banks, credit unions, and brokers. Close in zero days with warehouse funding and power your home equity lending with Nifty Door.