Mortgage – HousingWire |
- Pennymac Financial Services’ profit sinks 31% in Q4
- Freddie Mac opens 2022 with two large CRT offerings
- Santander Bank to stop originating mortgages in the United States
- Here are 4 macro trends impacting the 2022 housing market
- Mortgage stocks are in free fall. So what’s next?
- Mortgage rates hold steady at 3.55%
| Pennymac Financial Services’ profit sinks 31% in Q4 Posted: 03 Feb 2022 04:31 PM PST California-based nonbank mortgage lender Pennymac Financial Services posted record loan production last year, but a significant decline in net profits. Reflecting the higher rate landscape, in the last three months of 2021, the servicing segment brought more returns to the company than production. The company reported a net income of $1 billion in 2021, down from a record of $1.6 billion in the previous year. In the fourth quarter, the pretax income was $234.1 million, a 31% decrease from the previous quarter and a 62% decline compared to the same period of 2020. In all, the nonbank brought in a record $234.5 billion in unpaid balance in 2021, up 19% from 2020, its latest earnings report showed. In the direct lending channel, origination volume was $59.8 billion, a year-over-year increase of 68%. David Spector, Pennymac's chairman and CEO, said that the results in the fourth quarter reflect a balanced mortgage banking model, "with pretax income from our servicing business exceeding that from our production business." Pennymac's servicing portfolio achieved $509.7 billion in December 2021, up 3% from the prior quarter and 19% from the same period a year prior. The production volume offset higher-than-usual prepayments. The servicing segment pretax income was $126.1 million in the fourth quarter, up from $8 million in the prior quarter and $42 million in the same period of 2020. The company had a $58 million fair value decline for MSRs in the fourth quarter. The production segment pretax income was $106.5 million, down 68% from the previous quarter and 81% year-over-year. The company said the performance was "primarily due to lower volumes and margins resulting from a transitioning mortgage market and a return to more normal seasonal trends." In the fourth quarter, Pennymac registered consumer direct interest lock commitments (IRLCs) of $14.2 billion in unpaid principal balance, a reduction of 13% from the previous quarter and 11% compared to the same period of 2020. Broker direct IRLCs declined (32%) more than government correspondent IRLCs (21%). Total loan acquisitions and originations during the fourth quarter came in at $47.1 billion in unpaid balance, down 20% from the prior quarter and 32% from the fourth quarter of 2020. According to Spector, the company increased market share in its most profitable channel, consumer direct, which is expected to improve the long-term earnings. Other aspects that will help the company to achieve its goals are a newly brand and marketing focus and the deployment of transformational technologies in the direct lending channel, the executive said in a statement. The company estimates its market share in the consumer direct channel at 1.4%, compared to 2.3% in the broker channel and 16.8% in correspondent production, where it is the market leader. In loan service, it is at 4.1%. Regarding the wholesale channel, in January, Pennymac Financial Services announced its launching a new technology platform and it has rebranded its broker division from PennyMac Broker Direct to Pennymac TPO. "As the market is transitioning to a higher rate environment with elevated levels of competition, we will remain disciplined, taking advantage of our operational scale, while staying focused on profitability and shareholder returns," Spector said. The mortgage lender has been using its profits in recent quarters to buy back shares of its stock. It repurchased about $257.3 million worth of stock during the fourth quarter, and $56 million in January. PFSI’s stock closed yesterday at $58.71, down 1.59%. In the after hours, following the earnings publication, the stocks were up 2.20% to $60. The post Pennymac Financial Services’ profit sinks 31% in Q4 appeared first on HousingWire. |
| Freddie Mac opens 2022 with two large CRT offerings Posted: 03 Feb 2022 02:35 PM PST Freddie Mac recently announced that its credit-risk transfer (CRT) program is projecting note-issuance volume of at least $25 billion in 2022. The government-sponsored enterprise (GSE) has made its first down-payment on that projection by issuing two single-family CRT note offerings totaling $3.3 billion so far this year that are secured by reference loan pools valued at $78.6 billion. Both CRT offerings were issued through Freddie's Structured Agency Credit Risk (STACR) program. The initial deal closed on January 29 and the second offering is slated to close on February 11, according to Kroll Bond Rating Agency's presale reviews of the STACR securitizations. STACR 2022-DNA1 involves a $1.4 billion note issued against a reference loan pool of 190,774 residential mortgages with an outstanding principal balance of $33.6 billion. In the second offering, STACR 2022-DNA2, Freddie is issuing a $1.9 billion note against a reference pool of 143,889 single-family mortgages valued at about $45 billion. Through Freddie Mac's STACR CRT transactions, private investors participate with the agency in sharing a portion of the mortgage credit risk in the reference loan pools retained by the GSE. Investors receive principal and interest payments on the STACR notes they purchase, but if credit losses exceed a predefined threshold per the security issued, then investors are responsible for absorbing the losses exceeding that mark. The leading originators for the loan pool in the first STACR offering of 2022, according to KBRA's report, were United Wholesale Mortgage (UWM), 7%; Newrez LLC, 7%; Rocket Mortgage, 6.6%; Pennymac, 6.3%; J.P. Morgan Chase, 5.9%; and "other," 67.2% UWM also was the leading originator in the second STACR deal of 2022, at 9.1% of the loan pool. Rocket Mortgage also made a showing, at 8.3%, followed by Wells Fargo, 6.1%; JPMorgan Chase, 5.9%; Newrez, 5%; and other, 65.7% The Decision Tree That Is The MBS Market Many factors influence this decision to move from cash to MBS, including increased gain on sale opportunities driven by specified pool pay-ups. This white paper will discuss the MBS market and how lenders can use big data to compare loan prepayment performance. Presented by: RefinitivFreddie Mac's CRT program was founded with its issuance of the first STACR notes in July 2013. Freddie's other single-family CRT program, the Agency Credit Insurance Structure (ACIS) program, shares risk with re-insurance companies. It was introduced in November 2013. "Freddie Mac's Single-Family credit-risk transfer programs transfer credit risk away from U.S. taxpayers to global private capital via securities and re-insurance policies, providing stability, liquidity and affordability to the U.S. housing market," Freddie Mac states in a press release. Freddie Mac issued more than $18 billion in CRT notes across 10 STACR and 11 ACIS deals in 2021, according to the agency. Freddie’s counterpart, Fannie Mae, expects to issue about $15 billion in notes through Connecticut Avenue Securities real estate mortgage investment conduit in 2022, according to Devang Doshi, Fannie's senior vice president of single-family capital markets. The post Freddie Mac opens 2022 with two large CRT offerings appeared first on HousingWire. |
| Santander Bank to stop originating mortgages in the United States Posted: 03 Feb 2022 11:41 AM PST Amid higher rates, lower volumes, and fiercer competition, Santander Bank decided it will stop originating residential mortgages and home equity loans in the United States. On Wednesday, the bank announced that it will consider applications for residential mortgage or home equity line of credit (HELOC) on the portal EZApply only until Feb. 11. The Spanish bank said it will continue to service current loans and honor pending borrowers' applications. The decision will not impact the commercial mortgage business. The bank explained in a statement in its portal that the decision "allows us to focus our efforts and resources on products, services, and digital capabilities that let us better meet evolving consumer needs." Inside Mortgage Finance reported that Santander residential production totaled $2.7 billion in 2020, but there are no figures for 2021. In its earnings press release on Wednesday, the bank said it is restructuring its business in the country, mainly consumer products and services. The focus is on disciplined capital allocation and internal synergies. As part of the plan, in July, the bank announced a deal to acquire the broker Amherst Pierpont Securities, which is waiting for approval by the U.S. regulators. The acquisition will expand Santander's distribution of fixed income and structured products in the United States. In the United States, Santander Bank registered 2.3 billion euros in underlying attributable profit to the parent company in Spain in 2021, up 230% compared to the previous year. Santander's decision regarding mortgage and home equity is another sign that the good times of the U.S. mortgage industry are in the past. The Mortgage Bankers Association (MBA) estimates that originations are expected to decline 33% year-over-year to $2.59 trillion in 2022. The 30-year fixed rate mortgage is estimated to hit 4% this year, compared to 3.1% in 2021, according to the association. Due to the more challenging landscape, mortgage lenders are proactively shoring up vulnerabilities and playing to strengths. LoanDepot is serving more loans in-house, Rocket is expanding its business via acquisitions, Homepoint has reorganized its structure to contain costs, and Guaranteed Rate is focusing on profitable channels, leaving the wholesale channel. Santander was the first victim. The post Santander Bank to stop originating mortgages in the United States appeared first on HousingWire. |
| Here are 4 macro trends impacting the 2022 housing market Posted: 03 Feb 2022 11:27 AM PST  This article is part of our HousingWire 2022 forecast series. After the series wraps, join us on February 8 for the HW+ Virtual 2022 Forecast Event. 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. Thanks to a boom in the housing market and a historic refinance market, the past two years have been a favorable period for the mortgage market. It was marked by hard work, innovation and resilience. In the process, a historic $9 trillion of mortgage loans were closed over two years. For many, it will represent a highlight in their careers. 2022 Forecast seriesNow is a good time to plan for the next phase of the mortgage industry, which will be a different market environment. Understanding and knowing the path ahead, as well as how to navigate the new environment, will be crucial. A potential strategy for 2022 will likely depend on whether the market transitions to a purchase-heavy mortgage market, understanding why people buy homes and implementing an effective system to work with potential buyers. The new 2022 houing market environmentThe new market environment expected in 2022 is underpinned by four macro trends in the economy:
What are the implications for the mortgage market? It means that the refinance business could potentially decrease as fewer borrowers will have an incentive to refinance in 2022. However, growth in the purchase origination market may continue, according to the MBA's Finance Forecast (December 2021), as more people buy and sell homes, and due to rising home prices. On balance, economists at the MBA expect that the total origination volume could be down for the year because growth in the purchase origination market may not be able to make up for losses in the refinance market. In 2022, growing the top line may be more of a challenge and could depend on mortgage lenders gaining enough business in the purchase market to offset headwinds in the refinance market. To achieve this difficult task, it will be important to understand what motivates buyers and how to help homebuyers. Why do they buy?Many potential reasons fuel home purchases, but job turnover, first-time homebuyers and migration are three main drivers, and they offer different opportunities for mortgage lenders to reach potential purchase borrowers. Here's just one possible strategy for each homebuyer type, however, many possible strategies are available to mortgage lenders. The large number of job turnovers will likely generate many home-buying and selling transactions in 2022. This is where various social media platforms offer mortgage lenders the opportunity to reach potential homebuyers immediately after a job change. Potential first-time homebuyers are also now reaching their peak homebuying age and starting families, prompting them to begin their search for a home to call their own. In the first half of 2021, according to Enact, around 2.5 million first-time homebuyers, on a seasonally adjusted annual rate basis, purchased homes. Around 80% of first-time homebuyers will put down less than 20% of the purchase price as down payment. That means mortgage lenders would potentially benefit from educating first-time homebuyers about private mortgage insurance, Home Ready and Home Possible products from the GSEs, and other low down payment products. Buy now or buy later is a big decision facing first-time homebuyers. "The Great Migration," as it's been called, has some people moving closer to family or into more affordable areas as remote work has freed them from previous location restraints. According to the 2021 United Van Lines Mover Study, Florida, the Carolinas, Maine, Idaho and Vermont were some of the states that experienced large inbound migrations in 2021, while California, New York, Illinois, New Jersey and Michigan experienced large outbound migrations. Shifting market presence and effort to the places where people are migrating to could be a winning strategy for mortgage lenders. In 2022, the mortgage market could potentially move into a different phase after two years of historic market opportunity from both purchases and refinances. One potential key to success in this new market environment may be a successful transition toward the growing purchase market, and, more specifically, having an effective strategy to reach different homebuyers, understand their needs, and deliver services to them. The post Here are 4 macro trends impacting the 2022 housing market appeared first on HousingWire. |
| Mortgage stocks are in free fall. So what’s next? Posted: 03 Feb 2022 09:15 AM PST  Driven by a desire to achieve greater scale and gain access to cheaper capital, nonbank mortgage lenders dove headfirst into the public markets during the Covid-19 boom. How could they resist? It was, after all, a once-in-a-lifetime opportunity for founders and private equity backers to cash in on historic origination volume. During the euphoria, six mortgage companies – Rocket Companies (Rocket Mortgage's holding firm), United Wholesale Mortgage Holdings Corp., loanDepot, Guild Holdings Company, Home Point Capital (parent of wholesaler Homepoint), and Finance of America Companies – debuted on the stock market with a combined market capitalization of $69 billion, according to HousingWire estimates based on Yahoo! Finance data. But no one is popping the champagne these days. Executives of publicly traded nonbank mortgage lenders will instead have to sooth the fears of their investors in 2022, a consequence of the cyclical inevitability of higher rates, lower refinance volumes, and fiercer-than-ever competition, according to analysts who cover the sector. The six companies that went public over the last two years have, in the aggregate, lost around $36 billion in combined market cap value since the first nonbank, Rocket, debuted on the market in the summer of 2020, according to an analysis of stock values by HousingWire. Industry observers say the first few months of 2022 will represent a transition period to restore the supply and demand equilibrium in the mortgage industry, putting pressure on the stocks of the country's biggest lenders. "We assume more declines in the stocks this year, just because we haven't already seen the real competition intensifying. In the next few quarters, we should see a more challenging market," Bose George, mortgage finance analyst at Keefe, Bruyette & Woods (KBW), told HousingWire. Goldman Sachs's analysts wrote in a report to clients on January 6 that, overall, they remain negative on the group of nonbank mortgage originators for this year. They believe these companies will "remain range bound until the market gets comfortable with what refi will look like in a higher rate environment." To illustrate the challenge ahead, look no further than loanDepot's fourth quarter earnings. LoanDepot, which was the first nonbank to report fourth quarter results, disclosed that it made just $14.7 million in profit in the last three months of the year, down 90.5% from the $154.2 million it made in the third quarter. A year ago, largely on the strength of refis, loanDepot made $547.2 million in profit. The decrease in net income was primarily driven by a dramatic decline in gain-on-sale margins – 223 basis points, down roughly 60 bps from Q3. In an earnings call with investors, CEO Anthony Hsieh said loanDepot was "fishing from a lot more pond" than its biggest competitors – more diversified in its channel mix, able to generate tens of millions of top-of-funnel leads. They're positioned to capture market share in 2022, he said. Investors were nonplussed. LoanDepot's stock at the close of business Wednesday traded at just $4.02 a share, an all-time low and down roughly 82% from this time last year. Whether it's a harbinger won't be known until others begin reporting fourth quarter earnings, but analysts generally expect a big correction across the sector. Analysts at Cider Knoll Holdings, an equity research firm specializing in nonbank mortgage originators, project earnings per share for 10 nonbank mortgage companies to contract 30% in the fourth quarter, compared to the previous quarter. The pessimism about nonbank mortgage lenders reflects market conditions. Since the Federal Reserve began to normalize its monetary stimulus to the economy in November, mortgage rates have begun to rise and origination volumes have slipped. According to the Mortgage Bankers Association (MBA), the 30-year fixed-rate will hit 4% this year, compared to 3.1% in 2021. Mortgage originations are expected to decline 33% year-over-year, to $2.59 trillion in 2022, according to the trade group. Margins have been – and will continue to be – impacted. The industry built up the capacity to handle about $4 trillion in origination volume, but simply won't have that much business to vie for in 2022. It's simple economics. According to JPMorgan Chase's analysts, the primary secondary spread (the difference between newly originated mortgages and yields on securitized mortgage-backed securities), an indicator of profitability, has normalized after spiking in 2020. The spread, which was 1.94% in the second quarter of 2020, declined to 1.19% in the final quarter of 2021. Put simply, a wider spread implies greater profit margins for mortgage originators, less the agency guarantees and servicing fees. The refi landscape also changes dramatically with higher rates. Goldman Sachs says that at present, one-third of outstanding mortgage balances have at least a 50-basis point incentive to refinance, and if mortgage rates were to rise by 25 basis points, the eligible base would fall to 24%. Analysts noted that 24% represents around $2 trillion in potential volume, still a 'healthy' amount. But, by way of comparison, the share in the third quarter of 2020 was 88%. Winners and losers Despite a challenging landscape for all nonbank origination lenders, some are better positioned than others to weather the storm. Analysts are betting the biggest companies will fare better due to their scale and cash position. “We believe higher rates will add another cyclical headwind to already-pressured mortgage gain-on-sale margins while also leading to further normalization in refi volume. This should make profitability more challenging across the space but particularly for lower-scaled originators,” the Goldman Sachs' team wrote in the report. Bose, from KBW, added: “Rocket is the biggest in the retail channel, United Wholesale Mortgage is the biggest in the broker channel, and Pennymac is the biggest in the correspondent channel. Within those channels, each of them will continue to be dominant. I feel like all three of those are kind of long-term winners because they’ve got such scale and efficient operations. The losers are a lot of the smaller players.” JPMorgan's analysts wrote in a report their favorite name is Rocket, upgraded to overweight due to its ecosystem of personal lending and mortgage finance businesses, the largest and most profitable of which is Rocket Mortgage. “RKT’s defining opportunity is bringing scale and efficiency to a massive, fragmented, profitable, and proven market,” analysts said. In December, Rocket announced that it had acquired the personal finance app Truebill for $1.275 billion, a step toward creating a centralized platform for clients to manage their financial situations. It could be a big source of leads for a company that has ambitions far beyond mortgage – Rocket has its hands in solar, autos, title insurance, home search and likely isn't done yet. “Rocket is trying to transform themselves from a mortgage company into more of a fintech company, much like SoFi,” Kevin Heal, senior analyst and fixed income strategist at Argus Research, told HousingWire. Besides size, origination channel is an aspect that analysts are taking into account, said Henry Coffey, a mortgage and housing analyst at Wedbush Securities. "Rocket is the largest mortgage originator in the country, but they are there mainly because of the size and substance of their retail direct lending, the call center," he said. "That is a tough business for a purchase market. But they are putting a lot of resources into moving in that direction." Rocket didn't respond to a request to comment on its stock performance. During the third quarter 2021 earnings call with analysts, executives said Rocket is investing in its purchase-focused operations, shifting its advertising for purchase and cash out refinance. The company is pursuing the goal of becoming the number one retail purchase lender by 2023 and has also made big strides in the wholesale channel, traditionally a gateway to purchase business. As pure-play retail mortgage lenders go, Guild has been a bright spot. Its margins have been higher than competitors and the nonbank has been expanding into new territories over the last few years. Goldman Sachs maintained Guild’s overweight recommendation because its retail focus creates a differentiated model that should prove advantageous as the market shifts from refi to purchase. According to JPMorgan, Guild has a platform that offers back-office solutions for loan officers and capital market efficiency to attract smaller, independent originators seeking efficiency. "GHLD's track record of successful acquisitions and integration may also create an opportunity for market share gains as the mortgage industry consolidates." Several other top lenders have outlined strategies that are expected to bring in additional revenue and create better efficiencies in the coming quarters. LoanDepot, for example, has expanded its in-house servicing portfolio. According to Joe Garrett, a mortgage consultant at Garrett, McAuley & Co., a sub-servicer can take 23% to 30% of servicing revenues – and finding places to trim becomes more critical as rates rise and margins narrow. LoanDepot announced in 2021 a decision to begin servicing Fannie Mae, Freddie Mac and Ginnie Mae loans in-house. It also reduced its expenses from $744.7 million to $694.1 million from the third to the fourth quarter of 2021, which likely stemmed from a decision to redesign compensation earlier in the year. Home Point Capital, the smaller of the two publicly listed pure-play wholesalers, is in a fragile position, according to analysts. Goldman Sachs' team changed the recommendation for the stocks to sell from neutral, believing that the wholesale channel gain on sale margins will remain pressured for the foreseeable future. The company has a higher cost structure, given its lower scale, compared to its competitors, notably UWM, whose stock has also sunk to a low point. According to the report, Homepoint's management is working to lower the cost to originate a loan to $900 per loan in 2022 from $1,700 in the first quarter of 2021, largely through headcount reductions and process improvement. JPMorgan analysts also downgraded Homepoint to underweighted and suspended the price target, mentioning they see limited catalysts for growth, or a margin rebound. The profitability will remain a challenge, considering the relatively higher exposure to ongoing competition in the wholesale channel. The company declined to comment on analysts' opinions. According to Argus's Heal, it will take a multi-pronged approach to keep nonbank lenders' stocks in fighting shape throughout 2022. For now, it's a waiting game. “We won’t have an idea until at least the second quarter,” Heal said. The post Mortgage stocks are in free fall. So what's next? appeared first on HousingWire. |
| Mortgage rates hold steady at 3.55% Posted: 03 Feb 2022 07:00 AM PST The average 30-year-fixed rate mortgage remained flat for the third consecutive week at 3.55% for the week ending Feb. 3, reflecting the impacts of the Omicron variant in the economy, according to the latest Freddie Mac PMMS Mortgage Survey. A year ago, the 30-year fixed-rate mortgage averaged 2.73%. The PMMS report is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. "This stagnation reflects the economic impact of the Omicron variant of COVID-19, which we believe will subside in the coming months," Sam Khater, Freddie Mac's chief economist, said in a statement. Mortgage rates usually moves in concert with the 10-year Treasury yield, which reached 1.78% yesterday, compared to 1.85% on the previous Wednesday. The 15-year-fixed-rate mortgage averaged 2.77% last week, down from 2.80% the week prior. A year ago at this time, it averaged 2.21%. Even though rates remained unchanged this week, most economists believe they will climb in the months ahead – but will still be close to record-low levels. The MBA forecasts that 30-year mortgage rates will reach 4% by the end of 2022. "As economic recovery continues going into the spring and summer, mortgage rates are expected to resume their upward trajectory. In the meantime, recent data suggests that homebuyer demand continues to be elevated as supply remains low, driving higher home prices," Khater said. The originations landscape is shifting – is your business ready? HousingWire recently spoke with Jon Gerretsen, SitusAMC Managing Director of Residential New Originations and Fulfillment Services, about the home buying boom and how lenders can gain market share and drive profitability in a white-hot purchase mortgage market. Presented by: SitusAMCThe expectation of higher mortgage rates is based on the fact that the Federal Reserve will raise interest rates. 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. So far, borrowers are trying to secure a refinance before rates go even higher, increasing mortgage applications. The Mortgage Bankers Association (MBA) showed on Tuesday that mortgage applications grew 12% for the week ending Jan. 28. The increase was buoyed by the trade group's seasonally adjusted refinance index, which rose 18.4%. On the purchase front, the index was up 4% from the previous week. The post Mortgage rates hold steady at 3.55% appeared first on HousingWire. |
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