Dec. 28: State-level regs to track; vendor news; Secondary marketing deals; Saturday Spotlight: Prudent AI
Can you imagine doing a mortgage in reverse? I know, farfetched. It popped into my mind watching this video of “evil” firefighters, in reverse. How about unwinding TRID, or Dodd Frank? It won’t happen. In fact, regulators like the CFPB are swinging for the fences via enforcement lawsuits, including a RESPA lawsuit against Rocket Mortgage’s real estate affiliate and another real estate company. Attorney and self-proclaimed RESPA nerd, Brian Levy, offers his thoughts on the Rocket case in his latest Mortgage Musings. (You can sign up here to receive an email whenever Levy posts a new edition.) Hopefully, lenders will be spending less money on defending themselves or trying to interpret vague rules and regulations going forward. Speaking of spending less, the European Union has lined up its Starlink competitor and signed a deal to launch a constellation of 290 communications satellites called IRIS² in low and medium Earth orbit, set to go live in 2030. The consortium of European satellite operators will be a direct competitor for Starlink’s 7,000 satellites. Competition in a free market is good, right?
Saturday Spotlight: Prudent AI
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“Get instant income certainty with fraud protection.”
In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth).
Prudent AI is the default income intelligence platform powering the top non-QM lenders, including Angel Oak, Newfi, Change Lending, Kind Lending, Logan finance and several others. Our intuitive UI and cutting-edge AI enables lenders to pre-qualify borrowers with a single click while providing day-one income certainty and proactive fraud screening.
Trusted by over 50 percent of the non-QM market, Prudent AI empowers lenders to double their loan volume, save 4 hours per application, and keep their operating costs in check as they scale.
Founded in July 2020, our mission is to revolutionize lending by equipping teams with tools that offer them unparalleled speed, accuracy, and confidence in their decision-making.
Looking ahead, Prudent AI is poised for explosive growth as we continue to transform the lending landscape. Our roadmap includes aggressive expansion into new market segments, strategic partnerships with industry giants, and the development of groundbreaking AI solutions that will redefine the way lenders operate. With our unrivalled technology and deep industry expertise, Prudent AI is not just shaping the future of lending – we are creating it.
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?
At Prudent AI, we prioritize the growth and development of our employees. We offer a dedicated budget for learning and development, allowing our team members to enroll in courses and training programs that align with their professional goals.
Additionally, we foster a culture of knowledge sharing through regular internal sessions. We also encourage innovation by providing our employees with the time and resources they need to work on new ideas.
We believe that we can achieve more when we trust each other, and we are committed to creating a high-trust environment for everyone on our team.
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.
At Prudent AI, we have adopted a flexible working model that balances the benefits of remote work with the collaborative spirit of in-person interactions. Our team members work from home three days a week and spend two days in the office. To further strengthen our company culture and promote cross-functional collaboration, we organize regular team dinners and off-site events that bring together teams from multiple locations.
Things you are most proud of that don’t have to do with sales.
At Prudent AI, we take immense pride in our technology, which has been developed with a deep understanding of our customers' needs. By working closely with lenders from the very beginning, we have built a platform that is intuitive, user-friendly, and incredibly fast. Our customers have become ardent fans of our app, appreciating its ease of use and the speed at which it delivers results.
(For more information on having your firm ’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
We gotta play by the rules, at the federal and state level
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The Consumer Finance Protection Bureau garners all the publicity, but Weiner Brodsky Kider does a fine job of reporting on state-level changes. These can’t be ignored by lenders and vendors in that particular state, or by regional or nationwide lenders. Who’s doing what out there in the last several weeks? From WBK:
Illinois Amends Community Reinvestment Act Fees, Implementation Period. The Illinois Department of Financial and Professional Regulation (IDFPR) recently amended its examination fees for the state’s community reinvestment act (CRA).
MD Implements New Regulations for Shared Appreciation Agreements. New regulations under the Maryland Mortgage Lender Law have become effective governing Shared Appreciation Agreements (SAAs) in Maryland.
MA Amends Law Regarding Certain Shared Appreciation Mortgages. Massachusetts recently amended its law to, among other things, include provisions specific to shared appreciation mortgages made by certain nonprofit entities.
Texas Adopts New Rules Governing Mortgage Companies and MLOs. The Texas Department of Savings and Mortgage Lending (SML) recently adopted new comprehensive rules governing mortgage loan companies, mortgage bankers, individual residential mortgage loan originators, and mortgage servicers. Tennessee Increases License Fees for Non-Depositories. The Tennessee Department of Financial Institutions recently announced its 2024-2025 non-depository financial institution annual supervision fees, which are paid at either application or renewal of a license.
NY DFS Issues Guidance on Strategies to Combat AI Risks. The New York Department of Financial Services (DFS) recently issued guidance on cybersecurity risks arising from artificial intelligence (AI) and provided strategies to combat related risks.
Vendor morsels
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Intercontinental Exchange, Inc., a leading global provider of technology and data, announced a new integration between Servicing Digital, the company’s web- and mobile-native consumer engagement app, and its Validate property valuation tool. The integration gives servicers’ customers a current estimate of how much tappable equity they have in their homes, and the ability to proactively complete a self-guided valuation of their property. Find out more on the ICE Mortgage Technology Blog.
The Community Home Lenders of America (CHLA) sent a letter to the Consumer Financial Protection Bureau on December 10, 2024, asking the CFPB to use the Fair Credit Reporting Act (FCRA) to effectively adopt the trigger lead provisions that were just dropped from the National Defense Authorization Act (NDAA) conference report. Since November 2022, CHLA has sent letters to the CFPB highlighting the "firm offer of credit" requirement in conjunction with trigger leads. In this latest letter, CHLA went on to argue that it does not see how a firm can meet this requirement without having debt to income and loan to value information on a loan unless the lender has had a relationship with the borrower (the standard under which trigger leads would have been allowed in the NDAA provision).
Secondary market deals drive primary market availability
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Ginnie Mae announced the finalized term sheet for its Home Equity Conversion Mortgage (HECM) Mortgage-Backed Securities (HMBS) 2.0 program. The finalization follows an extensive stakeholder engagement process and public comments received after the June 2024 release of the proposed HMBS 2.0 term sheet. The HMBS 2.0 program addresses liquidity challenges when HECM loans are bought out of traditional HMBS pools but cannot be immediately assigned to the Federal Housing Administration because of incomplete documentation or unresolved borrower defaults.
The program introduces revised pooling options that provide Issuers with durable liquidity solutions while maintaining protections for taxpayers. Key features of the finalized term sheet include defining HECM collateral criteria and Issuer eligibility requirements, extending the Mandatory Buyout threshold to 150 percent of the Maximum Claim Amount, tapping pooling participation at 95 percent to incentivize Issuers to mitigate risks to taxpayers, allowing securitization of certain loan advances, including those related to due and payable loans, and revising pool certification requirements to account for foreclosure or legal documentation challenges while incorporating alternative property valuation methods. These provisions aim to stabilize the reverse mortgage sector by addressing Issuers’ liquidity needs while preserving long-term market integrity. With the policy work completed, Ginnie Mae is now focused on program implementation and is working closely with vendors and contractors to establish a comprehensive work schedule and completion timeline.
Ellington Financial Inc. completed its first securitization of closed-end second mortgages, a $199 million deal backed by a pool of closed-end second lien residential mortgage loans. Ellington Financial contributed approximately 51% of the loans included in the securitization, with the remainder contributed by funds managed by Ellington Management Group, L.L.C. The debt tranches issued in the securitization were rated by Fitch and KBRA, with the senior-most tranches receiving AAAsf and AAA (sf) ratings, respectively.
Fannie Mae announced its 2025 Connecticut Avenue Securities (CAS) Issuance Calendar as part of its efforts to ensure transparency in the market. Fannie Mae has the option to issue, or forgo issuance of, one or more CAS deals during each window. The expected 2025 total CAS volume is around $4 billion across 5-7 transactions, with the first return to market in mid-to-late January, with CAS 2025-R01, a low-LTV transaction. Volumes and decisions to utilize or forgo available windows continue to be dependent on market conditions and other factors.
To put things in perspective, since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance of approximately $3.2 trillion through its CRT efforts, including CAS, Credit Insurance Risk Transfer (CIRT), and other forms of risk transfer. CAS REMIC notes are issued by a bankruptcy-remote trust. The amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool. For more information on their approach to credit risk management, individual CAS transactions, and EU and UK investor resources, visit this website.
Credit-risk transfer issuance at the two government-sponsored entities varied during the third quarter, according to a new analysis by Inside MBS & ABS. “Combined sales of Fannie Mae's Connecticut Avenue Securities and Freddie Mac's Structured Agency Credit Risk notes totaled $2.47 billion in the third quarter and $7.67 billion for the first nine months of 2024, up 5.5% sequentially and 8.5% year to date. The size of the reference pool for these CRT notes also increased modestly, up 3.8% from the second quarter to the third and 2.3% year to date.
“But these increases weren't uniformly distributed between the two GSEs. Fannie issued $1.62 billion in CAS notes in the third quarter, which was a healthy 21.0% sequential increase. However, year-to-date CAS issuance was down 7.0% from the first nine months of 2023.
At Freddie, the trends were somewhat flipped. STACR issuance in the third quarter totaled just $853 million, a 15.1% decline from the second quarter. But its $3.14 billion STACR volume through the first nine months of 2024 was a nearly 43% improvement on its year-to-date issuance in 2023. Christian Valencia, head of credit risk transfer at Freddie, said the GSE is seeing strong demand for its CRT issuance from money managers, hedge funds and insurance companies.”
Of course, manufactured housing is a real thing, and many believe that it is a fine part of the answer to the housing shortage. Should these loans be segregated from loans on non-manufactured homes?
Fitch Ratings reviewed 65 rated classes across three Manufactured Housing (MH) deals. Two of the transactions were issued by First Key Mortgage and the third was issued by Cascade Financial Services. This portfolio was last reviewed in December 2023. “Across the entire portfolio, 61% of the classes were rated ‘AAAsf’ preceding October’s rating actions and therefore ineligible for upgrade. Of the remaining portfolio, approximately 31% was upgraded, 8% was affirmed at non ‘AAAsf’ ratings, and six classes were Paid in Full. All of the rated classes of the First Key transactions are now ‘AAAsf’ with a Stable Rating Outlook, or ‘AAsf’ with a Positive Rating Outlook following Fitch’s most recent rating action. These deals have experienced significant deleveraging, created overcollateralization, and increased credit enhancement as a percentage of the deal balance. As a result, all upgrades associated with these deals have experienced a two or three category upgrade as of these rating actions.”
A woman and a man get into a car accident, and it's a bad one.
Both cars are totally demolished, but amazingly neither of them is hurt.
After they crawl out of their cars, the woman says, "So you're a man, that's interesting. And I'm a woman... Wow! Just look at our cars. There's nothing left, but fortunately we are unhurt. This must be a sign from God that we should meet and become friends and live together in peace the rest of our days."
The man replied, "I agree with you completely; this must be a sign from God!"
The woman continued, "And look at this… Here's another miracle. My car is completely demolished but this bottle of Mogen David wine didn't break. Surely God wants us to drink this wine and celebrate our good fortune."
So, she hands the bottle to the man. The man nods his head in agreement, opens it and takes a few big swigs from the bottle, then hands it back to the woman.
The woman takes the bottle, immediately puts the cap back on, and hands it back to the man.
The man takes the bottle and asks, "Aren't you having any?"
The woman replies, "No. I think I will just wait for the police..."
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