About five minutes after Rocket Companies announced its strategic partnership with Compass, I received a text: “Did you see the Rocket-Compass deal? Think that’s gone down well in Chicago?”

Chicago is in re. to the HQ of Rate, where founder Victor Ciardelli has several mortgage JVs w/ Compass-owned brokerages: Guaranteed Rate Affinity, Proper Rate & OriginPoint. Collectively, the JVs originated north of $10B in the last year, per RETR.

There has been some wild speculation about how the Rocket-Compass partnership affects Rate over the past 24 hours. Internally, Rate sources told The Scoop it’s viewed as basically a nothingburger 🍔. 

We’ve got a full breakdown on what the Compass-Rocket deal means for Rate in today’s edition. It’s only for paid subscribers, so what are you waiting for? 

Plus, we’ll share the real story behind why City Lending shut down, dive into Blend’s strange earnings delay & more.

(🙏 If you like what you’re reading, tell a fellow mortgage junkie to sign up here.)

City Lending officially shuttered last week, but in reality the death knell was sounded many months prior.

CEO Jorge Campodonico posted last week about the decision to unwind the Virginia-based IMB, which did about $500M in volume at its peak. 

“Organizations don’t fail because of market cycles alone — they weaken when values are compromised,” he wrote. “Leadership is not only about growth; it is about protecting culture, surrounding yourself with people who do what they say and say what they believe, and building with individuals whose character matches their ambition.”

Campodonico’s comment is in reference to needing accountability & strong controls in regulated industries. Why? Well, sources said multiple originators at City Lending submitted files containing false claims on funded loans, which triggered GSE buybacks & at least one investigation.

While there has been no criminal or institutional fraud determination made against City Lending, “certain loan-level issues were identified & addressed through appropriate compliance, reporting, and counterparty processes,” Campodonico wrote in an email to The Scoop. “In the current regulatory environment, those matters resulted in counterparty restrictions, including placement on Freddie Mac’s exclusionary list.” (This occurred in August, sources said.)

As a result, the decision was made to “wind down operations rather than continue operating under those constraints,” he added. 

Campodonico declined to comment further. But at least one LO was also placed on Freddie’s exclusionary list & company officers voluntarily surrendered their licenses, sources said. 

The unwinding never really made sense as a, “The IMB business is too hard” story. An IMB in good standing, w/ agency tickets & a roster of producing originators has value, probably a couple million bucks worth. The fact that there were no buyers was a signal that something was amiss. 

Blend was supposed to release Q4 earnings on Feb. 26 but it was pushed back to March 5 w/o explanation. It could be that Blend’s finance team is struggling pretty hard. Or perhaps there’s something much more interesting happening?

The stock price is down to $1.64 a share 😱 (down 6% today) & its market cap is now under $450M.

The POS player has been clear that on the mortgage side it’s fine letting smaller accounts go & prioritizing large IMBs like CCM & big banks…

Mortgage pricing has revolved around FICO Classic for decades. It drove models, prepayment curves, servicing values & LLPAs.

But w/ the GSEs’ approval of VantageScore 4.0 & the advent of “lender choice,” that dynamic could soon shift. The FHFA indicated that lenders will be able to pull both FICO and VantageScore scores & use whichever score is higher when underwriting & pricing a loan.

A new white paper by Milliman argues that this shift could ultimately push mortgage rates up by 12.5 basis points or more.

When Milliman analyzed historical GSE originations, they found something striking: only about 40% of loans fall into the same credit band under both FICO & Vantage. Vantage tends to run higher. Under FICO alone, about 32% of loans sit in the 780–850 tier. But under lender choice, that jumps to roughly 50%. So half the book suddenly looks super clean, but the borrower didn’t change—only the reported score did.

If more loans land in lower-LLPA buckets, the GSEs would collect less $$$ unless they reprice the grid. This change in buckets would also alter servicing valuations & investor models, which we’ll get to in a sec.

Let’s talk about the prepayment risk. Yes, credit scores predict default rates. But they also predict refi behavior. Higher scores generally correlate with faster prepays. Under lender choice, a good chunk of borrowers effectively migrates into higher score tiers at origination. Milliman estimates that roughly 7% of borrowers could immediately have a refinance incentive of at least 25 bps purely because of lender choice score differences.

So even if rates don’t fall, a subset of borrowers could refi into better pricing simply b/c the scoring regime changed. That potentially makes for a very interesting refi market, no?

On the investor side, new models would need to be built & historic datasets would lose comparability. Because markets demand compensation for uncertainty, MBS pricing would tick up.

Milliman modeled a conservative scenario where modest adjustments in MBS pricing & servicing values translate into roughly a 0.07% rate increase — which in real-world pricing increments rounds to about 0.125%. That estimate also excludes potential LLPA increases.

In theory, lenders could absorb the impact in margin & some would choose to eat it to win market share. Others will pass it onto the customer. For borrowers, Milliman estimates that a 12.5 basis point increase on a $375K loan equates to roughly $363 more per year—about $2,500 over a seven-year average life.

The Compass-Rocket pact could meaningfully reshape the real estate portal wars, even if the mortgage impact looks more muted—at least for now. We’ve got the full breakdown, so upgrade your sub to find out more.