Goodbye, IRRRL

Congress has found a way to expand veterans benefits 😃 while making VA lending waaaaay more expensive 😢 .

With relatively little fanfare, the Republican-led House passed H.R. 6047 in May, a bill that would expand benefits for veterans & their survivors & create a supplemental monthly allowance for certain disabled veterans. The problem is how Congress plans to pay for it.

The bill funds the increase by sharply hiking fees on VA IRRRLs & purchase assumptions. For borrowers, that means dramatically higher costs — like $8,500+ over the course of the loan(!). For lenders already fighting for every basis point of VA volume, it’s pretty grim. And there’s a real chance this thing becomes law.

In today’s edition of The Mortgage Scoop, we break down how the “Sharri Briley & Eric Edmundson Veterans Benefits Expansion Act” would hit the mortgage industry. Plus: Team Trump loses on mortgage fraud, Nima Ghamsari’s side hustle, whether UWM’s plunging stock is undervalued, Kevin Warsh’s options, a whole host of industry comings-and-goings, another lender rolls out VantageScore & more.

H.R. 6047 would increase IRRRLs funding fees from 0.5% to 1.42% of the loan amount. The base funding fee for VA purchase assumptions would also increase from 0.5% to 1%. On average, the IRRL fee increase totals about $8,550 over the life of the loan, according to Brendan McKay at the Broker Action Coalition.

For a lender, a VA streamline that pencils out today w/ a recoupment period of about 18 months (comfortably inside the VA's two-year rule) would stretch to roughly five years once the higher fees are baked in. At that point, McKay said, "that transaction simply doesn't happen," leaving active-duty service members in more expensive housing than they should be carrying. The opportunity comes off the table entirely.

Shops that earn all their income on originations would be hit square in the jaw by H.R. 6047. It would be somewhat less brutal for lenders that both originate & service, where locking loans onto a servicing book carries a thin silver lining. VA loans are crazy easy to refinance — no need for pay stubs, tax returns or appraisals — which makes them simple to retain, but just as simple for competitors to snag. Servicers lacking a robust retention team get their IRRRL lunch money stolen before 3rd period French after rates drop.

Of course, higher IRRRL fees raise the value of existing VA servicing books even as it shrinks the origination business that creates new ones. The value of an MSR is driven largely by how long a loan stays on the books, & VA pools have long been the fastest-churning in the market (b/c they’re so freakin’ easy & cheap). By stretching recoupment periods & killing marginal refis, the higher fees slow those prepayment speeds, lengthen servicing duration, & firm up MSR valuations. The effect is sharpest on in-the-money loans now marked down on the expectation they will refi away.

The question is really replenishment. Slower runoff makes each existing loan worth more, but chokes off IRRRL volume that creates fresh servicing. I’m talking to some capital markets pros this week to learn more about it. B/c they’re big originators & servicers, Freedom & VU seem better positioned than most, but I can’t imagine they’re happy about the prospect of this bill potentially passing.

A Senate vote once feared as early as last week now appears to have slipped, buying industry lobbyists some time. The BAC is moving to fill the gap, mobilizing its base of brokers in a letter-writing push that drew roughly 650 letters to the Senate in 72 hours. "We're going to make as much noise as humanly possible," McKay said.

Nima Ghamsari’s lender LARP appears a bit slow-going. Per RETR, Athena AI Holdings, the lender he incorporated last year, has only originated 14 mortgages this year, all conventional refis. We’re talking a bit under $6M in volume. 

As The Mortgage Scoop reported exclusively back in April, Athena describes itself as a mortgage lender that “gives homeowners lower interest rates by cutting out the inefficiencies banks build into your loan.” It touts “$0 lender fees & $0 discount points.”

There’s been no mention of Ghamsari on Athena’s website/LinkedIn or in Blend’s SEC filings. How much the board/investors or Blend’s mortgage clients know about this side quest isn’t clear. According to NMLS data, Athena is licensed in 13 states. Pete Amstutz, billed as president & co-founder, describes Athena as “Tesla meets Costco for the mortgage world.”

Analysts are still bullish on UWM, whose stock is trading at $2.10 as of this writing. KBW recently upgraded UWM to outperform based on its valuation. "We expect a dividend cut, which should help to grow equity and stabilize the balance sheet," wrote Bose George, per NMN. "We see this as a positive near term catalyst.” 

BTIG kept the stock as a buy. "UWMC stock remains weak on both macro (interest rate) and company specific (leverage, dividend) concerns," said BTIG analyst Doug Harter. "These are headwinds for sure, but we see the shares offering attractive risk/reward at current levels given low valuation."

All Kevin Warsh has to do is tame inflation while simultaneously growing the economy. No biggie. How to do it? Well, under Warsh, the Fed may raise short-term interest rates but unwind the QE that was done starting during the housing crisis. The move would be to let the Treasury portfolio go in runoff mode, according to Ted Tozer, who shared his take on Alex Goldovsky’s podcast. As the 10-year bonds mature, the Fed’s not gonna buy more 10-year bonds or 5-year bonds, Tozer said. By doing that, the Fed won't take losses, but “they're not going to reinvest the money.”

Under Powell, the Fed quit reinvesting the amortization of MBS, so mortgages haven't been supported the way they were in the past, the ex-Ginnie head explained. The Fed used to reinvest the paydowns on the Fannie, Freddie, Ginnie bonds, but they have instead been reinvesting the money on the maturities of Treasuries. “I think [Warsh] will let everything run off until you get down to the trillion dollars that the Fed had prior to the housing crisis.” Were the benchmark rate to go up a quarter of half percent, Tozer said he doesn’t see it making a huge difference on mortgage rates.

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