Affordability has improved in the mortgage market since December, thanks to declines in mortgage rates and a slowdown in home price appreciation

Here’s a spoiler: Industry experts believe this trend will continue for months, signaling that a good spring is ahead. 

“It’s been the rise in prices [and] interest rates that have constrained affordability,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in an interview. 

However, if the U.S. economy goes through a mild recession, as the economist expects, mortgage rates are likely to come down as a function of the job losses, causing home price appreciation to remain slow. 

“Those things will improve affordability,” Duncan said.  

Regarding mortgage rates, Freddie Mac’s latest report showed on Thursday morning that the 30-year fixed mortgages dropped to 6.13% as of January 26, down two basis points from the previous week. Rates were at 3.55% one year ago. At Mortgage News Daily, rates were at 6.18%, down three basis points from the previous day. 

According to industry experts, rates will continue to go down, reaching the high 5s at the end of the year. 

“Mortgage rates continue to tick down and, as a result, home purchase demand is thawing from the months-long freeze that gripped the housing market,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Potential homebuyers remain sensitive to changes in mortgage rates, but ample demand remains, fueled by first-time homebuyers.”

Regarding home prices, Holden Lewis, a home and mortgage expert at NerdWallet, said some home builders reduced prices to stimulate sales

“In December, the typical new home costs almost $50,000 less than in October. The combination of lower rates and lower prices boosted sales in December and might be doing the same in January,” Lewis said in a statement.  

A good spring ahead? 

Affordability deteriorated in 2022. Overall, mortgage payments increased by about 40%, or $534, according to the MBA purchase applications payment index (PAPI). 

However, the national median payment applied for by purchase applicants decreased to $1,920 in December, down from $1,977 in November and $2,012 in October, the data shows. 

“There was a slight improvement in homebuyer affordability last month as mortgage rates fell by 37 basis points from November,” Edward Seiler, MBA’s associate vice president for housing economics and executive director at the Research Institute for Housing America, said in a statement. 

Seiler added, “With inflation cooling slightly, MBA expects both mortgage rates and home-price growth to soften, which along with cooling inflation, should help bring more prospective buyers into the market during the spring homebuying season.”



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New home sales increased in December — a sign that new residential sales have continued to rebound in recent months. Last month, new home sales increased by 2.3% to a seasonally adjusted annual rate of 616,000, according to data published by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).

But while mortgage rates have been tumbling down, and while builders have been offering incentives to buyers, it wasn’t enough to prop up new residential sales across 2022. 

In addition, the median sales price of new houses that were sold in December dropped to $442,100, and the average sales price dipped to $528,400. In November, the median sales price for new houses was $471,200 and the average sales price was $543,600, according to the data.

The uptick in new home sales last month was largely due to mortgage rates dropping in December — which occurred after the 30-year mortgage rate peaked at above 7% in October and November. Incentives from builders also played a role, according to Holden Lewis, home and mortgage expert at NerdWallet.

“Home builders reduced prices to stimulate sales,” Lewis said in a statement. “In December, the typical new home cost almost $50,000 less than in October. The combination of lower rates and lower prices boosted sales in December and might be doing the same in January.”

The seasonally adjusted estimate of new houses for sale at the end of December was 461,000, which represents nine months of supply at the current sales rate.

While new home sales have been on an upward trend in the recent months, the rate lags behind 2021 levels. Compared to sales of 771,000 in 2021, about 644,000 new residential homes were sold in 2022 — a 16.4% decline year over year. 

“The housing market cooled off during the fall and early winter of 2022 , and new home sales followed suit with new sales lagging far behind 2021 and setting back closer to pre-pandemic levels,” Nicole Bachaud, senior economist at Zillow, said in a statement. 

Despite homebuilders’ attempts to attract buyers, affordability challenges made it harder for buyers to enter the market, Fannie noted.

And, the small dips in rates and home prices may not produce sufficient buying power for buyers, both of which are expected to limit buyers from entering the market.

“Builders are all but throwing incentives at buyers to attract them back to the new home market, but that doesn’t seem like enough to combat high mortgage rates and prices,” Bachaud said. 

Mortgage applications for new homes in December decreased by 5% from November and 25.2% year over year, according to the Mortgage Bankers Association

The decline in activity was in line with single-family housing starts, which were 32% lower than a year ago, and were indicative of higher mortgage rates and the weakening economy holding back buyers at the end of last year, according to Joel Kan, MBA’s vice president and deputy chief economist.

However, improved builder sentiment, declining rates and increased demand for mortgages offer optimism in January, according to economists. 

“The housing market is still in need of more starter and entry. About 644,000 new residential homes were sold in 2022, a decline of 16.4% from 2021-level homes, especially when current demographic trends point to the potential for more younger households to enter homeownership in the near future. New construction of these units will help these buyers entering the housing market,” Kan said. 

“We might see the market thaw out before the spring shopping season sets up, which will hopefully translate into more construction to add much needed housing supply when it’s needed the most,” Bachaud noted. 



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Chicago-based mortgage lender Guaranteed Rate launched a new program this week that will provide up to $8,000 in assistance to potential first-time homebuyers from underserved communities.

The initiative, called the Special Purpose Credit Program, aims to help homebuyers with down payments, deposit minimums, and move-in repair and maintenance costs.

“This program helps tear down these barriers and open more doors to the houses, neighborhoods, and lifestyles of our customers’ dreams, an investment that will help build a foundation for generations to come,” Kasey Marty, executive vice president of secondary marketing at Guaranteed Rate, said in a statement.

Among some of the benefits the initiative claims to offer are a minimum of $5,000 for down payment and closing cost assistance and up to an additional 1% of the sales price — or $3,000 — for a maximum of $8,000 in homebuyer assistance.

The program includes provisions for “improved” pricing for nontraditional credit loans, a title insurance credit applicable to certain properties and will remove the requirement for area median incomes, according to a statement from Guaranteed Rate.

In addition, the company will offer zero- and low-down-payment options to expand access to VA, USDA, HomeOne, HomeReady, Home Possible loans and home equity lines of credit (HELOCs).

First-time homebuyers in Atlanta, Baltimore, Chicago, Detroit, Memphis, and Philadelphia currently have access to this program. Buyers who qualify in these metro areas can use the assistance to purchase a house anywhere in the U.S., however.

“For many properties, a mortgage payment is not too much different than monthly rent; the difference being who benefits from home equity as it builds,” Marty said.

Guaranteed Rate specializes in streamlined loan applications and closing windows through its AI-generated task list and personalized mortgage dashboard, MyAccount, for which the company was featured among HousingWire’s 2022 Tech100 Mortgage Honorees. The platform provides a secure way to upload sensitive documents and automates underwriting.

The company has more than 850 branches across the country, serving customers in all 50 states and Washington, D.C. Its total loan volume amounted to $116 billion in 2021.

Guaranteed Rate renewed its contract with translation company TransPerfect on Tuesday to provide homebuyers with Spanish-speaking agents and other resources.



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Goldman Sachs’ latest home price predictions could be cause for concern. The multinational investment bank and financial services company says home prices, which have been on the decline since June 2022, will fall further this year than previously predicted.

The company notified its clients earlier this month that based on the S&P CoreLogic Case-Shiller US National Home Price NSA Index’s projected decline, the housing market has fallen out of favor with Goldman Sachs. The index projected a decline of 6.1% year over year by the fourth quarter of 2023, an increase from its previous prediction of 4.1%.

The company is eyeing the San Jose, Austin, Phoenix, and San Diego markets in particular. These “overheated” housing markets will see “peak-to-trough declines” of more than 25%, according to Goldman Sachs. This, in turn, will lead to risks of higher delinquencies for mortgages originated last year or late 2021, according to the company.

The expected declines in these markets are not far from what occurred during the 2008 housing crash, when home prices in the U.S. fell by approximately 27%, according to the index.

The national decline, on the other hand, is expected to balance out the decline in these four markets — and is predicted to be enough to avoid mortgage credit stress and a sudden hike in foreclosures across the U.S.

According to Redfin, San Diego and Phoenix are among the most popular markets for seller concessions. These concessions include offering buyers money for home repairs and mortgage-rate buydowns as homeowners continue to sell homes for below the asking price.

Lotfi Karoui, Goldman Sachs’ chief credit strategist, fixed income strategist Vinay Viswanathan and economist Ronnie Walker told Business Insider that since home prices peaked in June 2022, “the total decline on a national basis will end up being about 10%” and that prices will grow again in 2024.

Mortgage rates will also stay higher for longer than investors expected.

“Our 2023 revised forecast primarily reflects our view that interest rates will remain at elevated levels longer than currently priced in, with 10-year Treasury yields peaking in 2023 Q3,” company strategists wrote to clients. “As a result, we are raising our forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023 (representing a 30 bp increase from our prior expectation).”

This will worsen housing affordability, which has been dipping since the onset of the COVID-19 pandemic.

Among other predictions mentioned in the company’s note is an expectation of “milder corrections” in Northeastern, Southeastern and Midwestern markets to better meet supply and demand.

However, not all hope is lost.

“Assuming the economy remains on the path to a soft landing, avoiding a recession, and the 30-year fixed mortgage rate falls back to 6.15% by year-end 2024, home price growth will likely shift from depreciation to below-trend appreciation in 2024,” it added.

Although Goldman Sachs’ predictions are likely to concern real estate investors, a New Western report states that investors are confident going into 2023, despite the current housing market trends.



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Real estate valuation technology company Clear Capital has conducted a new round of layoffs as part of a company restructuring plan. The firm announced on Wednesday that it was eliminating about 24% of its workforce, or over 250 jobs, as it restructures departments and consolidates teams amid a tough housing market.  

Per the firm, this round of layoffs will include cuts to some leadership and managerial roles.

“We are consolidating different teams, so there’ll be some leadership roles eliminated because of redundancy,” Clear Capital CEO Duane Andrews said in an interview with HousingWire. “Folding up departments makes sense when volumes are so low that you can’t sustain as many managerial positions at that point. So, we did that in a way that really makes sense for our business.”

Employees were notified on Wednesday morning about the workforce reductions. Those who were affected by the layoffs will receive severance packages and outplacement services to help with the transition, Clear Capital said.

This is the second round of layoffs conducted by Clear Capital in recent months. The firm reduced its workforce by about 27%, or about 350 positions, in October following a slowdown in the housing market. 

According to Andrews, the goal of restructuring is to help the company weather the current industry headwinds and prepare for where the market will be over the longer term. 

“This reduction in force is really a restructuring of our company as opposed to a right-sizing of the company — a fundamental restructuring of our company to meet the market where it is today, and to be where it’s going to be in the future,” Andrews said.

Following this round of workforce reductions, Clear Capital’s total employee headcount will be about 800, according to the firm. The firm had about 1,400 employees at the end of 2021.

“We looked at this as not just an adjustment to the current market climate, but also looking at the current shift that’s happening in the valuation industry. We’ve been a company that’s been investing very heavily in bringing data analytics and technology into the valuation space. We’ve been very involved in appraisal modernization [and] investment over the past five years,” Kenon Chen, EVP of corporate strategy at Clear Capital, said. 

“We’re using this as an opportunity to restructure our company in a way that we think will allow these programs to be adopted and be successful moving forward.”

Chen said that the company took a holistic approach to the restructuring, and that in addition to the layoffs, the executive team will take a 10% pay cut at minimum.

“We don’t take for granted the impact that this has on people, the impact to their families and to their careers. We don’t take any of those things lightly,” Chen said. “This decision is being made with that in mind, but knowing that, it’s the right thing to do — not only for the health of the company moving forward, but also for the sake of our customers and those that we want to continue to serve, [to] continue to help move forward in the industry.”

The firm said the goal is to navigate the layoffs with “continued empathy.”

“We think this will put us in a very comfortable position to continue to reinvest in our technology and solutions for the foreseeable future. Of course, we’ll always have to continue to navigate market changes as it happens, but we feel confident that this structure is going to give us the operating approach we need to be very resilient, even if the market declines further,” Chen said.

The firm, one of the largest appraisal management companies in America, cited similar reasons for the layoffs that occurred late last year. At the time, Andrews said the company was restructuring all divisions to reduce expenses and support the future strategy — which would allow the company to refocus the business on key areas and ensure they were on track for sustainable growth.

In July 2022, Clear Capital rolled out two application programming interfaces (APIs) — a property valuation API and risk assessment API — to make adopting and deploying modern valuation solutions easier, leading to faster loan closings. The desktop appraisal solutions were developed to meet new desktop appraisal guidelines introduced in April 2022. 

In January 2022, the firm launched ClearPhoto, a photo review system that automates collateral underwriting in compliance with government-sponsored enterprise guidelines and internal credit policies. The tool utilizes computer vision technology to highlight the correct files automatically — which allows underwriters to make more efficient and informed decisions, the company said.

The Reno, Nevada-headquartered company was established in 2001 and claims that with its desktop appraisal solutions, desktop appraisals can be completed as much as 50% faster compared to traditional appraisals.



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This article is part of our 2022 – 2023 Housing Market Update series. After the series wraps, join us on February 6 for the HW+ Virtual 2023 Housing Market Update. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the predictions for this year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.

After two years of runaway home prices, the Federal Reserve stepped in to reverse engineer rampant inflation, and it has been utilizing the housing market as one of the main economic engines to achieve its objective. They increased the Federal Funds Rate from nearly 0% at the start of 2022 to 4.5% in December 2022, its highest level since 2007 and its fastest rise in more than 40 years.

Long-term mortgage rates responded by rising from 3.25% in early 2022 to over 7.25% in October 2022, more than doubling. They eased below 6.5% recently as core inflation numbers improved for the third consecutive month. The Consumer Price Index core inflation, less the volatility of food and energy, is currently at 5.7%, after peaking at 6.7% in September 2022. The Fed’s core inflation goal is 2%, so they still have a long way to go. The overall U.S. economy has remained resilient, backed by a very strong labor market, sky-high job openings and low unemployment.

Mortgage interest rates

The unrelenting Fed policies to combat inflation will eventually instigate an economic recession sometime in 2023. The coming recession is more likely to have less of an impact on employment, more of a “soft-cession” than a typical recession. As a result, the local housing market is going to be subdued in 2023, especially in the first half of the year.  

Just as 2022 was all about rising mortgage rates and rising inflation, 2023 is going to be all about falling mortgage rates and falling inflation. After blowing past the 2% core inflation target in April 2021, it continuously rose for 18 months until peaking in September 2022. It did not hit 6.7% overnight.

It was more like a dimmer switch that was slowly increasing. Similarly, core inflation will not drop to 2% instantly, that same dimmer switch will apply in the future. It will take all of this year and into 2024 for it to come back down to the Fed’s target. As inflation eases, so will long term mortgage rates. Slowly, but surely, rates will drop below 6% and will continue their slow trajectory downward, dropping below 5.5% most likely by mid-year.

Inventory

What does that mean for housing? Until mortgage rates drop below 5.5%, we can expect low housing supply, which favors sellers. We can also expect low housing demand, which favors buyers. Higher mortgage rates have severely impacted demand. The insane, fast-paced housing market of the COVID-19 pandemic years has vanished.

Demand for housing is similar to Great Recession levels, but this time it is matched up against an extremely limited supply. As mortgage rates drop, expect demand to improve, especially in the second half of 2023. Until then, home values will slowly decline, most assuredly in high-cost areas and in areas of the country that benefited the most from rampant appreciation during the pandemic.  

Since the COVID-19 pandemic lockdowns of 2020, inventory has dropped to record-low levels both in 2021 and 2022. The inventory hit catastrophic, low levels due to a limited number of homes coming on the market coupled with insatiable demand driven by record-low rates.

The inventory changed last year as rates finally rose higher, eating into demand. Homes no longer sold instantly, they lingered on the market and over time the inventory grew. Yet, even with higher rates, the inventory stopped growing and it has fallen short of reaching pre-pandemic levels. 

The COVID-19 pandemic suppressed the inventory in 2020 and 2021. Fewer homeowners opted to sell. When COVID-19 took a back seat to normal life in 2022, it was to be the year when more homeowners were poised to enter the fray. That did not occur as many homeowners “hunkered down” and opted to not move.

Homeowners may not have been in love with their homes, but they certainly were in love with their loans. 86% of homeowners with a loan had an underlying mortgage rate at or below 5%. Nearly two-thirds had a rate at or below 4%. And a very fortunate 24% had a rate at or below 3%. As a result, fewer homeowners placed their homes on the market in comparison to the 3-year average prior to the COVID-19 pandemic (2017 to 2019).

Take a look at Southern California, for example, there were 51,000 missing sellers from the market compared to the 3-year average, which is roughly 19% fewer homes for sale. This trend grew significantly as 2022 progressed and severely limited the supply of homes from growing to its true potential. As mortgage rates drop this year, the “hunkering down” effect will wane.

The bottom line: 2023 will be sluggish compared to 2022 for the first half of the year. Remember, the market was hot through May, so year-over-year stats will look absurd. Yet, the second half of 2023 promises to be better than the second half of 2022 as rates ease, demand rises and more homeowners will be willing to sell.

The housing market is no longer insane, homes are for the most part not selling above their asking price, not selling immediately, not selling with multiple offers and there is far less activity and buyer competition. 

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com



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Market speculation that Wells Fargo is contemplating a huge bulk sale of mortgage servicing rights (MSRs) may well be a case of a rumor that is all hat and no cattle. Or it could signal a future MSR-market stampede.

To date, no Wells Fargo bulk MSR public offering has surfaced, market observers say. That doesn’t rule out that the banking behemoth might still have a such a deal in the works, however.

Wells Fargo officials have not commented on the rumors, so speculation is likely to persist over whether the lending giant is about to launch a potentially market-disrupting MSR offering.

One market source, asking not to be named, said that the package could potentially be up to $250 billion in all-agency MSRs across two mega offerings — as much as $150 billion in one Fannie Mae and Freddie Mac MSR asset deal, followed by a $100 billion Ginnie Mae MSR offering. Absent hard proof, that potential move by the lender is still in the arena of rumor at this point, but perceptions do affect buyer and seller choices in the market. 

Fueling the rumor in this case is Wells Fargo’s recently announced plans to reduce its MSR portfolio, valued on its books at $9.3 billion as of the end of 2022, U.S. Security and Exchange Commission (SEC) filings show. 

When something like this comes up [rumors of a big market transaction], that immediately makes its way to two or three people, and mortgage traders tend to have loose lips, so secrets don’t last very long.

Ben Hunsaker, a portfolio manager at Beach Point Capital Management

“The fact that we’ll be originating a lot less [mortgages] will certainly mean that over time, the MSR and the overall servicing book will come down very naturally based upon that, over a fairly long period of time,” said Wells Fargo’s CEO, Charles Scharf, in a recent earnings call with analysts. “But we’ll also look for intelligent and economic ways to reduce the complexity and the size of our servicing book between now and then. And if those present themselves, we’ll certainly be interested in doing that.”

If Scharf is to be believed, and Wells Fargo intends to “reduce” the size of its vast MSR portfolio, the options are limited. As of the start of this year, Wells Fargo’s all-agency MSR portfolio included some $608 billion in loans serviced based the unpaid principal balance, or 7.3% of the entire $8.4 trillion all-agency MSR market, according to mortgage-data analytics firm Recursion. So, one of the few options available to Wells Fargo for scaling down that portfolio, a mega MSR bulk sale, isn’t likely off the table yet.

“When something like this comes up [rumors of a big market transaction], that immediately makes its way to two or three people, and mortgage traders tend to have loose lips, so secrets don’t last very long,” said Ben Hunsaker, a portfolio manager focused on securitized credit for California-based Beach Point Capital Management. “Sometimes they [the rumors] are right. But sometimes they’re just rumors.”

Such a bulk sale, market experts say, if it were to take place, could be handled through a public MSR auction or via private direct transaction. In addition, the MSR offerings could be packaged in various ways, including as several mega MSR transactions appealing to a few huge buyers, or through a series of much smaller offerings appealing to a broader based of smaller buyers — and likely spread out over the course of months or even years. 

Wells Fargo also could simply allow the MSRs to run off its books as the loans being serviced expire. That process, however, would take years. 

Wells Fargo & market dynamics

Well Fargo’s all-agency MSR portfolio decreased from $648.4 billion as of end of 2021 to $608.2B as of first week of January 2023, Recursion’s data shows. A large part of that reduction in MSR assets was due to mortgage prepayments (usually the result of refinancing). 

Those prepayments registered at $294.3 billion in 2020 but declined to $67.8 billion in 2022 — which was marked by major run-up in interest rates. Wells did not engage in any significant MSR sales/transfers over the past three years, Recursion’s data shows.

The main dynamic is the companies that sat out the second half of 2022 because they already reached their capital [limits] dedicated to purchasing MSRs … they are coming back, so you’re seeing more buyers now.

Azad Rafat, senior director of MSR services at Mortgage Capital Trading

If prepayments continue at the lower volume seen in 2022 — and Wells Fargo has a huge legacy MSR portfolio, including a high volume of lower-rate loans — then it could take several years or more to wind down its all-agency portfolio in any significant way via attrition, assuming interest rates don’t retreat dramatically and fuel a refinancing boom and wave of loan prepayments.

Simply scaling back future MSR servicing and allowing existing MSRs to run off the balance sheet, then, seems a highly risky strategy for the bank. Several market advisors and traders said pricing in the MSR market is currently healthy, though well off its peak last June — and potentially under downward pressure moving forward. MSR values are highly sensitive to interest rates — with MSR pricing tending to decrease as rates decline.

“In an interest-rate environment where we’ve had elevated rates, and [loan]prepayments have slowed, it makes servicing more attractive,” explained Roelof Slump, managing director of structured-finance operational risk at Fitch Ratings. “I think, just in general, it’s perceived that now’s a good time to market servicing and, although rates are off their high, and there’s been a lot of focus around where prepayments are going to be headed, the valuation of that servicing strip still seems pretty attractive.”

MSR values also are impacted by inflation, as that increases the labor and administrative costs related to servicing portfolios. As a result, Wells Fargo could be leaving money on the table if it relies solely on a run-off strategy and fails to capitalize on the current relatively strong MSR market-pricing conditions.

“Pricing-wise [with MSRs] we really don’t know for sure where it’s going to head, but so far prices have been holding up and, if the market becomes active, with more buyers bidding, we probably will see some appreciation in value,” said Azad Rafat, senior director of MSR services at California-based Mortgage Capital Trading(MCT). “But again, that depends on whether there is a recession that everybody talks about and inflation. 

“The main dynamic is the companies that sat out the second half of 2022 because they already reached their capital [limits] dedicated to purchasing MSRs … they are coming back, so you’re seeing more buyers now. We are anticipating a high-volume market, especially in Q1 and Q2 [of 2023].”

Rafat added that the bulk MSR sale prices used to come in at up to a 5.5 multiple during the peak of the market last year “and currently they are in the 4 to 4.5 range, or about 1 multiple lower than the peak.” A multiple is a measure of the price of an MSR loan pool.

Bearing in mind that what goes up must come down on the interest rate front, Beach Point is treating MSR values as “potentially vulnerable to 15% to 20% downside risk longer term,” Hunsaker said.

“You have to be wary from here, if you think [there will be] very high interest rates forever, and a very low [loan] prepayment propensity for perpetuity,” he added. “…We know that some … hedge funds have been out there for the last three or four months trying to raise discreet capital vehicles to capitalize on what they expect to be MSR dislocations.”

Given existing and projected MSR pricing dynamics and other factors, Hunsaker said it makes some sense for Wells Fargo, and possibly other banks, to at least explore bulk MSR asset sales because the money raised from such transactions can be invested elsewhere for a “much better ROE [return on equity] for that gross asset utilization.” 

“It’s an easy way for them to make tactical asset allocations to better risk-weighted assets and grow the balance sheet in ways that they couldn’t otherwise,” Hunsaker added.

In the case of Wells Fargo, there also are some regulatory challenges the bank is now facing with respect to its MSR portfolio, according to Hunsaker. The Office of the Comptroller of the Currency fined Wells Fargo $250 million in the fall of 2021 for failing to timely and adequately upgrade its compliance risk-management systems. The regulator also limited the bank’s ability to acquire future MSRs from other companies, along with imposing other restrictions, “until existing problems in mortgage servicing are adequately addressed.”

“If you’re Wells … this [a large bulk MSR sale or series of them] could be an easy way for them to make tactical asset allocations to [invest in] better risk-weighted assets and grow the balance sheet in ways that they couldn’t otherwise,” Hunsaker said. “… The big U.S. banks [in this high-inflation/high-rate economy] really have to think about [strengthening] their Tier 1 capital [ratios].

“… I also think they [Wells Fargo] probably has a pretty high political impetus [because of regulatory pressures] to shrink their asset base in the first place and, secondarily, shrink their asset base in areas that might get them in trouble, with their servicing book being first and forefront among that.”

Capital commitment

A recent report by investment bank Keefe, Bruyette & Woods (KBW) focused on the potential for Wells Fargo to pursue a huge bulk sale of MSR assets involving up to $150 billion in Fannie and Freddie MSRs and some $100 billion in Ginnie MSRs. The report states that it would require a buyer, such as a publicly traded nonbank or real estate investment trust (REIT), to have an estimated “$3 billion (or so) of capital.”

“In terms of available liquidity, PFSI (Pennymac) has $2.8 billion, COOP (Mr. Cooper) has $2.3 billion, RITM (Rithm Capital/New Residential) has $1.8 billion, and NLY (REIT Annaly Capital Management) has $4.3 billion of cash and unencumbered agency MBS,” the KBW report states. “With that being said, we do not think any company would be comfortable parting with [an estimated] $1 billion (or more) of capital, given the macroeconomic uncertainty. 

“We think the size of [such a potential] offerings could potentially bring new capital to the [MSR] space,” the KBW report adds. “We think this could come in the form of secondary offerings, private funds, or potentially IPOs but that is less likely given the somewhat limited size.”

If Wells Fargo shakes up this [MSR] market… it could be really problematic for the smaller regional conforming-mortgage originators that just barely survived 2022 and are now coming into what would otherwise be a decent gain-on-sale [MSR] market, so they might get squeezed again.

Ben Hunsaker, portfolio manager at Beach Point Capital Management

If Wells Fargo did bring to market such a huge package of MSR offerings, Rafat said other MSR deals “below $10 billion will not materially get impacted.” 

“The $20 billion to $30 billion [MSR bulk-portfolio] deals, if there is such a transaction, may get impacted,” he said, “but the typical buyer of such a large transaction is not going to be the common buyers that we currently see in the market.”

The KBW report also notes that it’s possible Wells Fargo would break up the MSR packages into “smaller ones, which may make participation from public companies more likely.”

Hunsaker added, “If Wells Fargo shakes up this [MSR] market” in that way, “it could be really problematic for the smaller regional conforming-mortgage originators that just barely survived 2022 and are now coming into what would otherwise be a decent gain-on-sale [MSR] market, so they might get squeezed again.”

With respect to any mega Ginnie Mae MSR bulk sale, KBW said the universe of potential buyers is smaller than for conventional MSRs because the number of active Ginnie MSR servicers is much smaller. Ginnie Mae backs securities issued against government-insured loans originate through programs such as the Federal Housing Administration. Such mortgages tend to have higher delinquency rates, resulting in higher servicing costs and more administrative hurdles.

“We think that a sale of this size [a potential $100 billion Ginnie MSR bulk sale] could warrant scrutiny from regulators,” the KBW report states. “… From the perspective of the regulators, there would likely be a lot of emphasis on the buyer’s operations, capital levels and track record.

“… Worth noting, excluding [Pennymac] — who doesn’t usually buy in the bulk market — none of our coverage universe [of public companies] is very active in Ginnie Mae servicing,” the KBW report adds. “Other than [Pennymac], the two largest Ginnie Mae servicers are private companies, Lakeview/Bayview Loan Servicing and Freedom Mortgage.”

The KBW report also notes that there have been mega MSR bulk sales by banks in the past, specifically in the wake of the global financial crisis, when many lenders were struggling to shed “toxic” assets. For example, in 2013, Nationstar Mortgage (since rebranded Mr. Cooper) acquired $215 billion MSR assets from Bank of America. 

Rafat’s firm, MCT, is telling clients that over the next six months, if they have a sense of urgency about pulling the trigger on a bulk MSR offering because of their capital position, then going to market sooner is better than later — given the anticipated direction of future MSR pricing and the speculation surrounding a potential market-disrupting MSR offering from lending giant Wells Fargo.

“We have to base our results on actual facts,” Rafat stressed, “so, until a deal materializes, we really cannot take it into consideration. 

“However, clients do ask those questions,” he added. “And what we tell them is, you know, ‘These are the potential risks, but there could be advantages as well,’ [depending on the client and the contemplated MSR offering involved].

“But without seeing the [Wells Fargo MSR] deal go through and having something in hand, we really cannot make any assumptions related to the valuation.”

It’s also possible that news of any potential mega Wells Fargo MSR transaction would remain under wraps until the lender files a notice of the transaction with the SEC well after the deal has closed — if it is carried out as a private direct transaction.

“There is always a transaction going on somewhere — banks, nonbanks, investment companies,” Rafat said. “You do not hear about those transactions, and there’s a lot of investment firms that constantly buy and trade under the radar.

“And obviously, with the higher interest rates we’re experiencing right now, banks would always look for higher yields. The yield on the current MSR asset is around 10% to 11%. They could probably generate more by freeing up this capital, [depending on] the bank’s circumstance.”



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United Wholesale Mortgage‘s (UWM) aggressive moves to gain an edge on the competition tend to provoke controversy.

The ‘ultimatum’ it imposed two years ago effectively prohibited broker partners from also doing business with two of UWM’s rivals. It quickly prompted antitrust lawsuits. The lender’s price reduction by 50 to 100 basis points across all its loans last year led to accusations that UWM was making it impossible for some lenders to do business in the space. The strategy forced competitors to exit the space entirely, arguably weakening the channel overall.

Two weeks ago, UWM announced that it would be giving 125 basis points to brokers as a discount to be used on any loans, with up to 40 basis points per loan. 

“Sometimes 10-20 basis points is all an LO needs to win over a real estate agent or get creative on a borrower’s loan,” the lender said in a statement. 

Mortgage compliance attorneys interviewed by HousingWire said the program, dubbed “Control Your Price,” raises potential areas of concern across three subjects: rules that govern loan officers’ compensation; fair lending; and unfair, deceptive and abusive acts and practices. These areas of compliance fall under the umbrella of regulators such as the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Housing and Urban Development (HUD). 

“The program raises the potential for violations,” said Troy Garris, co-managing partner at Garris Horn LLP. “It’s a risk management issue: some clients would say, ‘I understand there are some gray areas, but I’m willing to take the risk.’ Others would say, ‘This feels too risky to me, so I’m not going to do it.’”  

Colgate Selden, a former lawyer with the CFPB and current partner at the law firm Blank Rome LLP, agrees: “I think there’s a way you can do it to reduce your risk. But nothing is risk-free.”  

In a statement, Jeff Midbo, UWM’s deputy general counsel and chief compliance officer, defended the initiative and said there are “no unique regulatory risks with this program.”

Attorneys interviewed by HousingWire said nothing appeared to be clearly over the legal line with the Control Your Price initiative. However, some elements could prompt review from regulators, as explained below.

LO compensation 

Regulation Z under the Truth in Lending Act protects Americans when they use consumer credit. It prohibits a lender to pay its brokers based on a mortgage transaction’s terms or conditions and LOs from steering borrowers to loans that would result in more compensation, even when it means lower mortgage rates to customers. 

“The UWM program is great news because the borrower gets this more advantageous loan, maybe with a lower rate,” said a top mortgage compliance lawyer who requested anonymity to speak candidly about the UWM initiative. “But the rule doesn’t want loan originators, like brokers, to be able to play around on a case-by-case basis with their compensation, even though it could be a great thing for the consumer.”

The same lawyer added, “The industry has been trying to convince the CFPB to allow more compensation concessions, and the CFPB has refused or declined to do so.” 

According to Selden, the rule is clear. If UWM is not reducing brokers’ compensation to change the mortgage pricing, the initiative is only a pricing discretion, which would be permissible under the law. However, it requires monitoring. 

“Now, let’s say the LO uses its full pool of discounts. Then the next quarter the company reduces the broker’s compensation to account for that,” Selden said. “The CFPB does forensic accounting. That’s how they caught several of the alleged violations in the past by going through and matching later quarters to what happened in prior quarters.”

Midbo told HousingWire that the program does not impact brokers’ compensation.  

Disparate impact and UWM’s broker flexibility

Regulation B under the Equal Credit Opportunity Act, which protects applicants from discrimination in credit transactions, brings the “disparate impact” concept into focus. It occurs when a lender employs neutral policies or practices, but they have an adverse effect on a member of a protected class, even when there’s no intention. (When there’s intention, it’s called disparate treatment.) 

The exclusion is when the lenders’ policies and practices meet a legitimate business need. To illustrate, using credit scores could be considered a disparate impact because borrowers from specific races and ethnicities often have lower scores. Ultimately, they would be denied access to mortgages. But lenders justify using credit scores with the need to guarantee they will have their money back – a legitimate business need.

The Fair Housing Act and other similar laws in states also enforce fair lending in the housing sector.  

According to the lawyers, giving salespersons flexibility in discounts could inadvertently result in fair lending discrimination if not handled correctly. 

“If you take a group of people and say: ‘Here’s a bag of discounts. Go give them to whomever you want to,’ then you run the risk that they will give them only to people in a certain category of race, ethnicity or other prohibited basis,” Garris said. 

But the lawyers agreed that proper monitoring can prevent disparate impact discrimination. 

“I would advise any lender to conduct a risk assessment, monitor the use of that flexibility going forward and train the salespersons, remind them of their fair lending obligations,” said the mortgage attorney who requested anonymity. “It’s not necessarily a problem. But that’s certainly something that fair lending regulators see as a red flag.” 

On this subject, Midbo said that UWM “rigorously conducts fair lending testing on a quarterly basis, and should any irregularities arise, they will be addressed immediately.” 

UWM & the unexplored unfair practices question

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 covers unfair, deceptive, or abusive acts or practices (UDAAP). It happens, for example, when the practices interfere with a consumer’s ability to understand a product’s terms or conditions, such as its costs and risks.  

“It is an area of law that is mostly unexplored,” Garris said. “But the current director of the CFPB, Rohit Chopra, has incorporated into its exam manuals, fair lending concepts and has suggested, making public statements, that a fair lending violation, in addition to being a fair lending problem, is also a UDAAP violation.”

According to Garris, in UWM’s case specifically, the discounts are so “broad and unclear” that somebody could say the customer doesn’t realize that the broker has discounts to give them. In addition, the customer doesn’t have clear information and can’t make a clear choice based on what’s being disclosed. 

“It’s not necessarily true that any particular consumer is going to be mistreated under such a program,” said the lawyer who requested anonymity. “But it does seem kind of unfair if, under any circumstance, the broker is offering these great, innovative pricing flexibilities, but the next person who comes in looking for a loan doesn’t get those options.” 

The lawyer continued, “The counterargument is, as long as borrowers are obtaining the disclosure of all the terms that they’re agreeing to, and they’re shopping around the way a smart consumer would, they’re giving the terms that they bargained for.”  

On this subject, UWM said that unlike retail LOs, wholesale LO originators are required to disclose all pricing details, including broker compensation. “It’s also important to note that as a wholesale lender, the LOs we partner with do not work for UWM. While we provide training and have oversight, mortgage brokers are independent entrepreneurs.” 

Following the leader

Lawyers mentioned that one of the main reasons to discuss the regulatory risks of the Control Your Price initiatives is that other lenders may want to copy it. They are right. 

Tennessee-based First Community Mortgage, Inc. (FCM) has started to study how to implement a similar program, according to the company’s CEO, Keith Canter. 

“Well, I just asked our wholesale leader today if we could do this, and she said yes,” Canter said during an interview. “We are looking at if it’s something that would benefit our business partners and certainly contemplating implementing something along those same lines.” 

A wholly subsidiary of a bank, FCM has a “solid balance sheet” and “sits in a very nice cash position” to engage in these programs, Canter said. 

According to the lawyers, the big question is whether other lenders will have the risk assessment and controls in place to adopt a program like this. 

According to them, lenders are more likely to assume risk when the market is slowing down to gain market share – or to avoid closing doors. 

“The Bureau and the state regulators amp up their oversight during these periods because they know there’s a heightened risk of consumer harm,” Selden said. “When markets are down, there’s a high risk; and when the markets are up, there’s a heightened risk because everyone’s just trying to turn the volume through the door as fast as they can get it. And that’s when they make mistakes.”  



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In 2022, 41% of renters spent more than 35% of their income on rent. As rental and living costs rise, wages are struggling to keep up. Living in a major city is exceptionally expensive, so most young professionals live in older apartments farther away to save money. With so much spent on rent, it’s unfathomable for younger generations to even think about purchasing their own homes.

But what if there was a way to live in a new apartment and save 30%-40% on rent? Furthermore, the rent includes utilities, regular cleaning, furniture, and community events. Sounds too good to be true? It’s real, it’s called co-living, and it’s on the rise.

The Case For Co-Living

The world is moving toward a sharing economy. A decade ago, both riding a taxi with strangers and living in a stranger’s house sounded inconceivable, then Uber and Airbnb emerged and became multi-billion dollar businesses.

There’s no doubt that co-living will become a big part of our lives in the foreseeable future, but building homes is not quick. A co-living property typically needs to be built from scratch because of its unique characteristics and layout. 

Co-living is a complicated strategy and isn’t about simply filling up an existing unit with strangers. The building needs to be designed thoughtfully to have enough privacy, sound reduction, amenity space, and more. Property management is certainly more labor-intensive, and the developers have to navigate through local zoning ordinances and building codes to get a co-living project approved.

Although developing a co-living property is risky and time-consuming, it’s exceptionally fulfilling and rewarding. Now we’ll examine the pros and cons of co-living.

The Pros of Co-Living

Reduces loneliness

Not everyone is an extrovert, but most of us want to feel like we belong in a community. In this new digital era we live in, loneliness is on the rise everywhere you look. Isolation, especially after the pandemic, has become problematic for many individuals, young and old.

Co-living works to solve the loneliness problem by pairing residents that are likely to connect as well as organizing several community events like yoga and cooking classes. In some co-living communities, there are even budgets for weekly dinners.

Overall, co-living, from a social standpoint, is working to heal some of the broken fabrics of our society. 

Affordability

Perhaps the best advantage of living in a co-living space is affordability, which can save tenants several hundred dollars on rent per month. For example, a new studio in Los Angeles rents for about $2,000 per month. A co-living suite will only cost about $1,400, which includes furniture, utilities, and regular cleaning.

Combined with inflation, rising interest rates, and severe supply constraints, homes are becoming more and more unaffordable. A lot of young adults have no choice but to remain as renters. But when renting is just as expensive — if not more expensive than home ownership in several U.S. cities, it’s as difficult as ever to get ahead.

Community managers

Having a community manager is a great way to promote community events. Similar to a Resident Assistant (RA) in college, a community manager is responsible for addressing tenant needs or questions, resolving conflicts, organizing social events, keeping the apartment in order, and more. A great community manager can drastically improve the living conditions of the co-living tenants.

Convenience

Co-living is convenient in three ways. First is the property’s location since most co-living properties are built in a popular area close to restaurants and transportation. You can get to most places just by walking.

Second, moving in is easy. Most co-living properties are furnished and allow short-term leases, so you can just pack up and move in with some luggage. All the essentials like kitchenware, beds, couches, and a TV are already there. 

Third and lastly, befriending people in your building is a very convenient way to expand your network. There are tons of interesting and unique people who you could meet in a co-living space. Some of these people might own burgeoning businesses that you can work with. Others might be well-connected and can help you further your career. Some might simply become your best friends.

This is exceptionally convenient for someone who’s moving to a new city where they might not know anyone.

Higher property valuation

Although co-living properties charge less rent per person, the property is actually able to charge higher rent per square footage because of its density. For example, while traditional apartments rent at $3.00/square foot, a co-living property can charge around $4.00/square foot. Even with a higher exit cap rate, by 50 to 100 basis points, a co-living property’s valuation per square foot can still be better than a traditional apartment’s.

The Cons of Co-Living

The co-living strategy is not bulletproof. Here are some of the downsides.

The potential for bad roommates

If you’ve had roommates before, then you know it’s like drawing the lottery. You don’t really know their habits until you start living together. Unpleasant roommates can really affect your daily life. 

This is why some co-living properties have private bedroom locks and bathrooms, so you don’t have to worry about the other roommates’ cleanliness as much. Some buildings even have additional sound insulation, so your room is like a mini studio. Common areas like the kitchen and living room are also cleaned regularly. Many co-living operators also try their best by doing roommate matching and hiring community managers. A community manager can act as a peacekeeper, facilitating roommate conflicts. 

Nevertheless, it’s very difficult to eliminate all of the problems, so it’s a risk that co-living tenants or landlords need to be aware of.

Less privacy

In addition to cleanliness, privacy is also a main concern. Equipping bedrooms with locks, preferably digital locks, is a must. Noise complaints are also very common. Most co-living units don’t have upgraded sound insulation, such as adding resilient channels between adjacent bedrooms. If you’re a tenant moving into a co-living property, then you should ask the property managers how the bedroom walls are insulated.

A shared bathroom is usually a nightmare. Asking your roommate to clean the toilet or the sink is never a pleasant conversation. Providing tenants with private bathrooms is highly recommended. Adding additional bathrooms to an existing building is difficult, which is why the best co-living properties are designed from scratch and by industry experts.

Safety concerns

Depending on how you look at it, co-living could be better or worse in terms of safety. Living with strangers can obviously be unsafe. However, if background checks are done correctly, then it might make you feel safer. Depending on which neighborhood you live in, it can be dangerous to live by yourself. For example, property break-ins are becoming more common in some cities, so having a reliable roommate is actually safer than living alone.

Lack of parking

Co-living properties almost never have enough parking. This is another reason why co-living is not really for families or people who prefer driving. However, some communities offer car rentals, so you can just rent the car whenever you want instead of paying a monthly car payment and insurance. 

Of course, not having a car is another way that tenants can save money, but this isn’t feasible for most people in cities outside of New York and the Northeast.

Increased wear and tear

Because there are more tenants living in a unit together, the units get worn down quickly. Things like flooring, paint, baseboards, and doors get damaged easily and will need to be replaced. The property manager needs to check in more frequently to make sure that the property remains in good condition.

Lastly, because each bedroom lease ends at different times, the unit never really gets a full turnover, making it difficult to make repairs or maintenance. Material selection is extremely important. A property manager can save many headaches in the long run by choosing commercial-grade flooring and more durable paint.

Conclusion

Co-living has a place in the future, especially as affordability continues to decline and younger generations feel less confident in their homeownership prospects.

Is co-living the right choice for families? No. But, for individuals between the ages of 18-30, it offers a cheaper, more connected, and more convenient alternative to traditional renting.

As investors, it’s important to take note of this trend and potentially find ways to profit from it.

New! The State of Real Estate Investing 2023

After years of unprecedented growth, the housing market has shifted course and has entered a correction. Now is your time to take advantage. Download the 2023 State of Real Estate Investing report written by Dave Meyer, to find out which strategies and tactics will profit in 2023. 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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This article is presented by RentRedi. Read our editorial guidelines for more information.

How do you classify yourself as a landlord or real estate investor? Are you a rookie emerging on the scene? Do you identify as an independent or small landlord? Or are you perhaps a property manager with a few rentals under your belt? 

How you see yourself in relation to the real estate world can depend largely on how others like you classify themselves. And this can include anywhere from a mom-and-pop landlord to a large multifamily corporation. However, with the advent of modern technology, there’s a new type of landlord on the scene — the digital landlord.

Previously being a real estate investor or landlord came with a lot of manual tasks. Things like collecting rent, sorting through paper applications, and even navigating maintenance issues were time-consuming and tedious. But with technological advances in the real estate landscape, tech is transforming historically manual pain points of the renting process into seamless, simple, and digital.

What Is A Digital Landlord?

A digital landlord is someone who uses technology to manage their properties. This can include anything from property management software to keyless tech to remote security measures.

Now, you might not even consider yourself a digital landlord, but I bet if you look around and examine your business operations, you’re more tech efficient than you think.

For example, most of us use spreadsheets of some kind to track and organize certain aspects of managing rentals. This can be anything from noting who’s paid rent and for what property, which leases are ending soon, who’s completed an application, and accounting.

So, even something as simple as a spreadsheet indicates that you’re likely more of a digital landlord than you might initially think. After all, even using your phone to check a text from a tenant can start to create this image of what a digital landlord is and how it can help define your business.

How Is Tech Creating Digital Landlords?

Tech is creating digital landlords with a wide range of offerings (everything from automated rent collection to accounting software) and use cases (landlords communicating with tenants or tenants electronically submitting rent payments) for landlords and real estate investors to adopt.

As widespread as digital technology is these days, it’s almost impossible not to be a digital landlord to some degree. As noted earlier, even using your phone or a spreadsheet has its technological advantages. These mechanisms make calculating, communications, and management easier with the tech they offer. It would be a different story just 10-15 years ago! Most communications likely weren’t done on a cellphone yet, and you might still have been using paper and pen to track rent payments!

However, the increase in technology has almost inadvertently created a digital landlord. After all, isn’t it much easier to get ahold of a tenant or teammate with email and text messages than it is trying to track someone down or pinpoint a mutually available time to meet? Firing off a quick text can easily resolve negotiating meeting times and efficiently communicates a message.

You can even get ideas or research the tech other real estate investors are using on TikTok! Yes, that’s right. Even social media apps where investors are offering content can be a great addition to your tech toolbelt and bring you one step closer to being a digital landlord.

In addition to phones, spreadsheets, and TikTok, property management software has increasingly become a way for digital landlords to manage their properties.

What Features To Look For In Digital Real Estate?

Property management software offers a lot of features that can make the digital landlord feel like managing investment properties is a breeze. When it comes to determining which parts of your business you can enhance using digital tech, examine where in your business you’re doing tasks manually, which pain points are holding you back from leading a rewarding real estate experience, and what tasks you’d like to make simpler.

Below, we’ve listed out some common pain points in real estate that can be simplified or strengthened with tech:

  • Rent collection
  • Tenant payments
  • Tenant screening
  • Late fees
  • Tenant communication
  • Maintenance requests

Property management software is a tech option that you can use to tackle all of these traditional pain points. For example, rent collection can be automated with customized charges that are auto-populated for tenants, automatically scheduled, and even automatically generate late fees.

Doesn’t that sound a whole lot easier than crunching numbers or picking up checks?

Tenant communication is another aspect of managing rentals that can be strengthened with digital technology. You can use property management software to send an email and push notifications to a tenant’s phone so that they’re reminded of upcoming rent payments, maintenance repairs, trash pickup, or any other notification you require!

Benefits Of Being A Digital Landlord

There are many benefits of being a digital landlord — the first being the ability to manage your rentals from anywhere. Because digital tech is so mobile and versatile these days, you’re likely to be able to manage most aspects of your business right from your smartphone.

And, because you’re able to manage your rentals using digital technology, this can free up more of your time by eliminating manual tasks. With more of your time back, you’re able to spend it doing what you love.

You can also increase the value of your rentals by offering tenants options like signing up for credit boosting to submit on-time rent payments to bureaus like TransUnion. Historically, if you’re collecting rent via check or cash, it isn’t possible for tenants to build their credit using rent payments.

To recap, the main benefits of being a digital landlord are:

  • You can manage your rentals from anywhere
  • You can spend more time doing what you love
  • You can increase the value of your rentals

How To Become A Digital Landlord

Finally, we’ve come to the question: “How do I become a digital landlord?”

As mentioned earlier, there are several aspects of technology you can adopt that will cement your image as a digital landlord. 

Looking to become a digital landlord and adopt these features? RentRedi’s property management apps can help! Automating your rent collection, tenant screening, late fees, e-lease signing, and electronic applications are key aspects of going digital and managing your entire real estate portfolio from an app.

RentRedi was developed to help landlords go digital and manage their properties from wherever, whenever. Easily collect rent, screen tenants, fill vacancies, sign leases, and manage maintenance with the tech you need to manage your rentals.

Get started using RentRedi today!

This article is presented by RentRedi

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RentRedi is a modern, end-to-end property management software transforming the real estate and rental property industry. 

RentRedi provides over 15,000+ landlords with simple and effortless web and mobile apps for online rent collection, tenant screening, listings to Zillow and Realtor.com, signing leases, maintenance & accounting management, and unlimited properties, tenants, and teammates

For tenants, RentRedi’s easy-to-use mobile app allows them to pay rent, set up auto-pay, report rent payments to TransUnion, prequalify & sign leases, and submit maintenance requests.

Learn More About RentRedi

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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