Is anybody else astonished by the ridiculously swift decline in back-end pricing? I can’t believe how far it has fallen since November and how quiet the response has been. This type of behavior reminds me of my old roommate Jordan in San Diego. On several occasions partying late into the night in Pacific Beach, he would just vanish from the group without a peep and head home. Concerned at first, I was quickly informed by professionals that this informal exit is called the “Irish Goodbye.”
Although the diagnosis was in, it still bothers me when something important goes away into the night without a sound. This decline highlights another turn in this roller-coaster ride our industry has been on for some time now.
If you have been following the markets lately, you have seen some interesting behavior. First, we have watched lenders try to grow by luring brokers into their ranks with fearful predictions of the future. Talk of “broker begone” is scary but truth be told, it isn’t happening. I can’t deny its allure; I was even punch-drunk enough to write an article on it and encourage the “instant family.” But as soon as that went to print, the investor appetite for HECM mortgage-backed securities skyrocketed and wholesale departments declared war on each other. Lender conversations halted with brokers while account executives stormed CFOs’ offices and demanded price-matching to save coveted relationships. Back-end pricing spiked like TV ratings for Jersey Shore once Snooki got punched. Innovative lenders implemented new offerings to attract business, such as axing the servicing fee and ridding the origination altogether. The broker bonanza was in full swing.
Then, almost as fast as it came, the back-end has vanished into a mere image of itself. We have seen pricing rebates drop in some cases by two-thirds and now rumblings of lender-broker pairings are hot again. Right now interest rates are on the rise and origination fees are a necessity. The lowest fixed-interest loan is on the curb and no straight answers are coming from the window as to why the loss of appetite. Some are saying that a couple of buyers are sidelined, AWOL, reducing competition and price, while others point to the BofA exit as a cause.
We will never get a straight answer, like why those birds fell from the sky, or why millions of fish went belly-up in that Redondo Beach harbor. Regardless, the health of this industry is catching cold and too many have quietly disregarded the shrinking rebates. We can never accept revenue reduction without the proper exit interview. I believe many just experienced their first “Irish Goodbye.”