Mortgage – HousingWire

GSEs’ cash window loses some luster
Mortgage rates fall slowly after a month-long rise
Mortgage Coach and Sales Boomerang snag new investor

Posted: 27 Jan 2022 07:30 AM PST

Use of the cash window for delivering mortgages to Fannie Mae and Freddie Mac was disrupted in a big way over the course of last year as lenders reacted to expectations that a cap on cash transactions was slated to go into effect by the start of 2022.

Even though the cap was suspended in September of 2021, the wheels were already set in motion for larger lenders, particularly nonbanks, to convert their agency loan-sale pipelines to favor swap transactions with government-sponsored enterprises (GSEs) Fannie and Freddie.

The volume of mortgage deliveries switching from the cash window to security swaps last year is huge, according to data provided by mortgage-data analytics firm Recursion. And it's not likely to reverse course any time soon, predict market observers, such Brian Lan dy, managing director of Amherst Pierpont Securities.

As far as implications for the broader mortgage market, Landy said the shift from the cash window to swaps might be an overall plus, given price execution is generally better for larger lenders engaging in swap transactions. He also said lenders utilizing swaps may have more freedom to pursue loan-related innovation.

Landy explained that lenders selling their loans through the cash window can become "reliant on what the GSEs recognize as being worth a pay-up." By contrast, a lender selling loans to the GSEs via securities swaps has more freedom to "identify collateral they might think will perform better."

"You just need to find a particular investor that agrees with that and is willing to pay a little bit extra," Landy said. "So, I think that is where not going to the cash window should be better for innovation."

Landy added that the cash window still serves as a great loan-delivery platform for many smaller lenders who don't have the volume to justify setting up the infrastructure to handle securities swaps. It also will continue to serve as a "backstop" liquidity channel for all lenders, he said, in the event of a future market crisis "like we had two years ago" during the onset of the pandemic.

Fannie and Freddie provide two vehicles to lenders for delivering loans to the agencies. They can sell the loans for cash through the so-called cash window, or they can swap the loans for agency securities backed by the loans. The cash window works well for lenders who have not set up the backroom operations to deal with swap transactions and the sale of those securities to investors.

The F ederal Housing Finance Agency (FHFA) last January announced plans to cap the volume of loans sold to the GSEs through the cash window. That cap was set at $1.5 billion per lender over a trailing four-quarter period — or $3 billion on a combined basis across both agencies.

The cap wasn't supposed to become fully effective until January of this y ear, and it was suspended months prior to that effective date. Still, many larger lenders who feared breaching the pending cap were forced to react well in advance of the announced deadline in order to prepare adequately for the changes required, according to Landy and Ron Hayni e, senior vice president of mortgage finance police for the Independent Community Bankers of America (ICBA).

"The GSEs were pretty aggressive in telling their sellers [the lenders] that they were going to enforce the cap, so they had to put things in motion because it's not like flipping a switch," Haynie said. "You’ve got to set up trading lines. If you're a nonbank, you have to get approvals from your warehouse lender.

"You’ve got to get approvals from the GSEs themselves. You have to get a different kind of contract. There’s a lot of things that go into play when you decide to utilize an MBS [mortgage-backed securities swap] execution versus cash."

Haynie added that the move away from the cash window as a primary loan-delivery tool can be beneficial for larger lenders "doing over a billion dollars a year in production." For smaller lenders, however, the price execution may work better via the cash window.

"Bigger producers are going to gravitate toward utilizing swap execution," he said. "That’s the most efficient for them, and they get the best price execution by doing that," Haynie explained. FHFA's announcement of the planned cash-window cap simply accelerated that shift.

"When a [lender] makes an investment like they had to make, to be able to sell securities versus selling loans for cash for the bulk of their pipeline, they’re not going to flip back and forth," Haynie added.

Although Fannie's cash-window volume is eclipsed by Freddie's volume, both GSE's have experienced similar declines in cash-window use since the cash-window cap was announced by FHFA in January last year and later suspended, according to Landy and Recursion's analysis.

"Unfortunately, only Freddie releases this information [in full]," said Richard Koss, chief research officer at Recursion. "Fannie does not. …We have some data from Fannie on cash loans, but it is incomplete."

What the Freddie data shows is clear, however. Mortgage lenders, particularly larger nonbanks whose loan production was likely to exceed the proposed cash-window caps, have retooled their operations and infrastructure to engage in swap transactions.

"We have seen the [overall] cash share [compared with swap transactions] experience a dramatic decline in deliveries from 60% at the end of 2020 to 30% in Q4 2021," states a January blog post on Recursion's website.

Recursion's data reveals that starting around June to July of 2021, the share of loan deliveries through Freddie's cash window declined drastically, mirrored by a large increase in loans delivered via swap transactions. This trend was most pronounced among nonbanks.

Recursion's analysis of loan-selling activity across both the cash window and swaps shows that in January 2021, the month the FHFA announced it would be imposing a cash-window cap, the share of deliveries to Freddie Mac by nonbanks via the cash window, versus swaps, was nearly 70%, compared with banks at 39%. As of December 2021, the nonbank cash-window share had plummeted to 29%, while the share of cash window deliveries by banks stood at 27%. — again, compared with the share delivered through swaps.

Nonbanks, by far, are the biggest users of the cash window, though their relative dominance shrank between 2020 and 2021, Recursion's data shows. In 2020, the top 10 nonbank users of Freddie's cash window delivered $241.1. billion in loan volume, compared with $44.8 billion in volume for the top 10 bank users. In 2021, the cash-window volume of the top 10 nonbank lenders declined to $199.7 billion, versus the top 10 banks at $30.5. billion.

The nonbank lenders leading the shift away from the cash window included United Wholesale Mortgage, or UWM (previously United Shore Financial Services); AmeriHome Mortgage Co. and Guaranteed Rate.

UWM delivered $58.8 billion in mortgages to Freddie Mac through the cash window in 2020, according to Recursion's data. That figure dropped to $23.9 billion last year, a $34.9 billion swing. AmeriHome delivered $31.8 billion in mortgages to Freddie through the cash widow in 2020, which dropped to $19.2 billion in 2021, a $12.6 billion decline.

Guaranteed Rate's 2020 cash window deliveries to Freddie totaled $27.8 billion. Its 2021 cash-window deliveries dropped to $21.6 billion, a $6.2 billion decline. Representatives from UWM, AmeriHome and Guaranteed Rate either failed to reply to requests for comment for this story or declined to comment.

"I think a lot of the smaller lenders still could be pretty heavy cash-window users, like, upwards of 90% of their production might go there," said Amherst Pierpont's Landy. "The bigger lenders that built the infrastructure, started selling their own [MBS] pools … and now can get better execution [via swaps], once they were kind of pushed in that direction, then there was really no need to go back to the cash window.

"Probably, in hindsight, they should not have been using the cash window that heavily in the first place."

The post GSEs' cash window loses some luster appeared first on HousingWire.

Mortgage rates fall slowly after a month-long rise

Posted: 27 Jan 2022 06:54 AM PST

The average 30-year-fixed rate mortgage declined one basis point from the week prior to 3.55% during the week ending Jan. 27, according to the latest Freddie Mac PMMS Mortgage Survey.

A year ago, the 30-year fixed-rate mortgage averaged 2.77%. Most economists believe rates will continue to climb in the weeks and months ahead.

"Following a month-long rise, mortgage rates effectively stayed flat this week," Sam Khater, Freddie Mac's chief economist, said in a statement. "We do expect rates to continue to increase but at a more gradual pace."

The rise in mortgage rates moved in concert with the 10-year Treasury yield, which reached 1.85% yesterday, compared to 1.83% on the previous Wednesday.

The expectation of higher mortgage rates is based on the fact that the Federal Reserve will raise interest rates. On Wednesday, the central bank said it will happen "soon," though an exact timetable has not yet been disclosed.

"With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate," the Federal Open Markets Committee said in a statement.

Loans And Mortgage

Thursday, January 27, 2022