Nov. 9: Changes in government personnel ahead? Thoughts on less regulation but higher rates; Saturday Spotlight: MoneyThumb

Money is a funny thing. Do you have a Starbucks gift card in your car’s glove box or purse? You’re not alone: in its report on Q3 performance, Starbucks said customers have $1.77 billion stored in unredeemed gift cards, up 9% from the previous year. Why not use them; it’s not like they go up in value. “Value” is an interesting concept. Is there “value” in gambling, in Las Vegas? All that money to staff and power those casinos comes from somewhere… “The House” is losing a bit more than usual, even if it is still generally and overwhelmingly winning, as gambling revenue for the Vegas Strip dropped for the third consecutive month in September, slipping 1.8 percent. It’s entirely because of baccarat, a high-stakes game that has much better odds for players than other casino games like roulette, craps, blackjack, and especially slot machines. Apparently, James Bond is not the only one who plays it. Ignoring baccarat, gambling revenue was up 7.6 percent on the Strip. The overall industry is sizeable: Commercial and tribal casinos support 1.8 million jobs, including 700,000 jobs at casinos themselves or related businesses, generating $104 billion in wages across the country… a fact not lost on underwriters.

Saturday Spotlight: Moneythumb.com

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“Digitize documents and detect fraud in seconds.”

In 3-5 sentences, describe your company.

MoneyThumb provides easy-to-use financial file converting and analysis tools to help lenders streamline their loan analysis, speed up their underwriting, and enhance fraud prevention, helping them underwrite loan applications faster and more confidently.

We were founded in 2015 to address the lack of automation in reading PDF bank statements to generate intelligent data. The first products were for accountants and bookkeepers, and broadened to include business lenders, consumer lenders, mortgage lenders, and banks with the launch of our PDF Insights bank analysis tool in 2017 . Our powerful fraud detection tool, Thumbprint® was launched in 2020 to help clients combat loan application fraud, and to further enhance our data security, MoneyThumb achieved SOC 2 compliance approval in 2021.

We continuously enhance our products and features to ensure we are delivering the best product with the highest degree of security and accuracy for our clients.

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?

As a company in the technology sector, MoneyThumb is fully aware that technology is advancing more quickly than ever before, not just creating an opportunity for learning but making it a necessity. Whether it is a particular technology that is changing or an employee's job requirements that are evolving, MoneyThumb monitors individual growth and development needs, and makes training available through outside classes and workshops.

Our culture is one that embraces innovation and encourages employees to, in turn, embrace new technologies, value experimentation, and seek opportunities for continuous development. In addition to company-mandated training, as part of our professional development program, employees are eligible to request reimbursement for any continuous learning opportunities they pursue on their own such as training programs, seminars, conferences, online classes, etc. Under our professional development policy, employees are encouraged to seek new learning opportunities while it is a manager’s responsibility to coach their team and identify employee development needs. Human Resources is responsible for overseeing all professional development needs, activities, and processes.

Tell us how your company maintains its culture in a work-from-home environment, or how you plan on bringing employees back into the office, if applicable.

MoneyThumb has a very robust Slack community where everyone greets each other every morning to start the day. We also have a channel for employees to share stories, random thoughts, wins, celebrations, and other information they wish to share with their team members. We are a remote company and have been able to maintain our close-knit culture through Slack and regular check-ins via Zoom.

We have a truly flexible schedule that allows our employees to work in different time zones and hours to maximize their personal time. In fact, it is not uncommon for our employees to take extended vacations out of the country. As long as they get their work done, we allow them to work their own schedules wherever they happen to be. Our culture is based on output, not time spent “in the office.” This philosophy is in part why we have such high employee engagement and tenure.

In addition, we make sure to celebrate and welcome every new hire with an interview conducted by our head of HR who has a knack for asking some very interesting questions that give the company a great picture of who their new co-worker is. 

Things you are most proud of that don’t have to do with sales.

We’ve bootstrapped our company from the ground up, from nothing to what it is now - a successful, client- and employee-centric, profitable company with 34K happy clients.

We make sure that our clients are taken care of and that we are responsive to their questions and ideas. When our clients ask for new features or enhancements, we prioritize those requests and implement them with remarkable speed. Our clients are happy with us because we listen to their feedback and do everything in our power to make our product better for them. Our employees and prospective employees love us because we treat them like adults and give them a lot of autonomy. Our vendors love us because we are easy to work with and we pay our invoices promptly.

Fun fact about your company.

The original concept of reading PDF statements came from a customer suggestion. Our founder thought it was a great idea, and he went to work bringing the idea to reality.

Another fun fact is that we have exceptional employee retention which is over 95 percent. We do everything we can to make sure that our employees are happy and thrive in their jobs.

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.) 

Election results & Agency personnel: who’s in & who’s out

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Donald Trump and his advisors suggested this year that a president should have some measure of input into the activities of the independent Federal Reserve. Nearly everyone in financial services balked at that idea… After all, what president is ever going to recommend higher rates?

The head of the US central bank has hit back at speculation that his post might be in jeopardy as Donald Trump prepares to assume power in Washington. Federal Reserve chairman Jerome Powell said he would not step down if Trump asked and that it is "not permitted under law" for the White House to force him out.

But there are other jobs, especially in the regulatory arena, whose current occupants believe that Trump will force them out. Bank regulators and regulations are expected to change. “Servicing at the pleasure of the president” may be a term we hear. We may hear about the Office of the Comptroller of the Currency and the OCC’s acting chair Michael Hsu. Or the Security and Exchange Commission’s Caroline Crenshaw, who has never actually been confirmed.

Certain jobs have fixed end dates that may be accelerated by the new administration. The CFPB’s Rohit Chopra, Fed Chair Jay Powell, and Fed Vice-Chair Michael Barr fall into this category. And all of these fall into the dreaded “Basel III endgame” which, at this point, may just go away. Certainly we will see a move toward releasing Freddie and Fannie from conservatorship, and whoever supports that could be running the FHFA.

The election is over, the die has been cast

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Neither candidate for president discussed the dire deficits facing the United States, nor did either talk about a reduction in spending. As Dr. Elliot F. Eisenberg, Ph.D., sagely points out, “Portions of Trump’s 2017 tax cut have already sunset, others will expire in 2025. Extending the unexpired sections will cost $5 trillion through 2034 but will have no impact on GDP or inflation as they will simply extend existing policies. However, lowering corporate taxes, exempting tips, Social Security, and overtime from taxation, and making car loan interest and S.A.L.T deductible will boost GDP but raise the deficit by $4 trillion.”

It's always interesting to see how the stock market responds to a major news event. And this week is no exception. President Donald Trump won the election, and, on Wednesday, the stock market shot up, grabbing headlines, while bond prices sank. If you only care about equities, fine… the performance seemed to unequivocally endorse the result. Or did it?

Historically, the stock market has shown no clear performance difference whether Republicans or Democrats are in control of the White House. A look at 10-year Treasury yields over the last several decades show the same disregard for who’s in office. In addition, "presidential election cycle theory" states that the first two years of a presidential term tend to coincide with weaker stock market performance, as the new administration focuses on fulfilling campaign promises.

Most corporations (and investors) see elections differently than citizens. While many of us base our votes on a variety of issues, corporations tend to be much more single-minded: They care mostly about regulations, and whether an administration will add and enforce them, or eliminate and relax them. Certainly, the prior Trump presidency fell into this category, and there is no reason whatsoever that those policies won’t continue between 2025 and 2029.

Of course, macroeconomic factors, including assumptions about future policy, drive the stock market; no one person, even a president, ever has complete control. Long-term investors in stocks or bonds have a distant time horizon. Believe it or not, market movements driven by the news, even big news like a presidential election, aren’t particularly significant over years or decades. Most investors can safely shrug off short-term volatility, whether the market goes up or down. What’s most important is staying true to your strategy and remembering that the stock market has generally gone up.

For those whose livelihood depends on, in part, interest rates, sometimes a long-term perspective doesn’t quite work. The MBA’s forecast of gently lower rates in 2025 won’t help bring business in now.

This week’s Lenders One call discussed the election results and potential impact on residential lenders. The show prompted one person to write to host Robbie Chrisman, “Once again, thank you for driving this discussion in a rational manner. The psychological operation that the media did to people that bought into Harris is overwhelming and overrides logic. In an industry where the number one costs are regulatory burden and our interest rates from the Fed (‘fix inflation’ my a$$) are huge concerns.

“Clearly, Trump wants to remove regulations and bring rates back to normal. This should be overwhelmingly celebrated by Mortgage Professionals. However, the psyop, or bias, that people have against Trump have people arguing that Harris would have been better for our industry. It’s madness and none of the data supports that at all, in fact proves the opposite. The proof is in the data. Less regulation and better interest rates will make our industry boom. Trump will bring that.”

Recently the Commentary noted, "If Donald Trump takes the White House, and the Republicans take both the Senate and the House, it is expected that the perceived pro-business, government bias would limit any fallout from higher nominal rates… Presumably, a Trump win would be bad for bonds as tariffs would raise prices, and a more pro-business regulatory regime would be better for the economy overall, which will keep the Fed from cutting rates as aggressively. A Trump Presidency would also bring back the debate over what to do with the GSEs."

Economists agreed that a win by Republican presidential nominee Donald Trump would lead to higher mortgage rates, as he is expected to impose tariffs on imported products, among other policies, which could drive up the cost of goods and contribute to inflation. Lenders know that the Federal Reserve, not the U.S. president, has the greatest control over the direction of mortgage rates, and that the Fed operates independently of political pressures (currently).

The Federal Reserve is expected to reduce its benchmark interest rate by 25 basis points this week given the slowing inflation rate. So, in theory, mortgage rates will likely be lower next year, not because of the president, but because inflation is pretty much under control now.

Indeed, there is no reason whatsoever to believe that the last Trump Administration’s move toward releasing F&F from conservancy would not continue this time around. That, however, will take 2-3 years, as it is much more complicated than simply pushing a switch. There are complicated policy, procedure, and legal issues that must be replaced or re-thought. Any holder of MBS issued since 2008 will wonder about who is going to stand behind the reps and warrants, for example. It is generally believed that F&F without government backing would increase mortgage rates 1-2 percent, bringing Agency rates closer to non-QM lender rates.

Neither candidate seemed too concerned about deficits, which is a problem. (In fact, has anyone in Congress brought up the topic in the last few decades?) No one in the industry wants any president to have direct influence over the Federal Reserve’s interest rate setting. And Harris’ proposal for first time home buyer credits is not a good policy: helping the demand of housing merely drives up prices and does nothing to motivate builders to build those homes. Yes, there are other proposals, but, like turning an aircraft carrier, they will all take time.

Aside from those things, in my travels there is a constant refrain that a Trump administration will lead to a less burdensome regulatory environment in general… banks, non-banks, DOJ, CFPB, and so on. It isn’t necessarily GSE reform that would ease regulations, but the overall tone of the Administration. As one person quipped, “Under Trump the CFPB will be neutered.”

Just two days after the U.S. presidential election, the Federal Reserve announced that it decided on a second rate cut this year. This comes after the Fed announced a 50-basis point cut to its benchmark interest rate in mid-September, the first cut in four years. These decisions are supported by inflation trending down to Fed target rates, despite the continued strong employment data and consumer spending.

Will the Fed’s rate cut help consumers in what is still a tough housing market? Probably not, as the Fed looks at prior data, but the bond market tends to be more forward thinking. Given how the 2-year through 10-year treasury yields shape mortgage rates, as does supply and demand, the cost of borrowing is likely to remain higher for longer. Of course, higher mortgage rates will also reduce the number of homes sold, as does the cost of insurance (which the Federal Government or presidential administrations have little or no control over).

Inflation reached 9.1% in June 2022, the highest 12-month increase in about 40 years, due to the COVID-19 pandemic. After a series of rate hikes, inflation fell to 2.1% in September, near the Fed’s target of 2%. Fed watchers know that the Federal Reserve is dependent on economic data, and the fiscal implications of President-elect Donald Trump’s policies have not yet made its way to the statistics yet. Should Trump implement fiscal policies as promised, it could ignite higher inflation by June 2025. And we know what the Fed does when that happens.

In this short video, Arthur C. Clarke, science fiction writer and futurist, predicts the future of communications in 1964. Uncanny. Instantaneous contact anywhere in the world… Think about it.

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you're interested, visit my periodic blog at the STRATMOR Group web site. The current STRATMOR blog is titled, “Help Borrowers Tap Into $36 trillion Available in Home Equity.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2024 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman. The views and opinions in this newsletter are mine alone unless otherwise specifically stated herein.)