Mortgage – HousingWire |
- Fannie Mae: Affordability fears affecting housing inventory
- Wells Fargo, JPMorgan and the mortgage storm to come
- ALTA on new Fannie policy: title insurance “will always be essential”
- Fed retreat from MBS market sparks short-term uncertainty
- Purchase mortgages cross dreaded 5% threshold
- Some lenders won’t survive the purchase mortgage market of 2022
- The growing threat of phishing attacks on the mortgage industry
- Data automation is the next frontier of mortgage tech?
| Fannie Mae: Affordability fears affecting housing inventory Posted: 15 Apr 2022 04:00 AM PDT Fannie Mae's national housing survey from last year found that consumers believe that housing in their area is becoming less affordable and more difficult to find, contributing to their lack of enthusiasm to move. According to the survey conducted in the third quarter of 2021, 69% of participants share these sentiments. This marks a 20-plus percentage increase in consumer perception compared to five years ago, when only 45% of participants felt this way. A blog by two Fannie Mae researchers — Rachel Zimmerman, market research advisor, and Kim Betancourt, senior director of economics and multifamily research — published this week said that consumer perception around housing affordability is in part contributing to inventory constraints. The authors argue that homeowners may feel that their current housing costs are affordable in an otherwise unaffordable area, dissuading them from looking at other properties. "While this can be true for either homeowners or renters, in our view homeowners probably feel this pressure a bit more acutely, since a stable, affordable mortgage payment would likely disincentivize many from selling and having to go through the purchase process again," the researchers said in the blog post. By some accounts, housing inventory in America hit an all-time low in December 2021. The lack of inventory has been a pressing problem for a number of years, in part exacerbated by building delays caused by supply-chain pressures and building materials shortages. The survey found that a whooping 92% of mortgage holders think that their current home was "somewhat affordable." This sentiment might be a driver for disincentivizing people from listing their homes, Fannie Mae's researchers said. This perception has likely "constrained the supply of homes for sale and made it even more difficult for potential first-time homebuyers to take advantage of low mortgage rates and escape record-high rent increases," the blog said. Mortgage rates have sky-rocketed in the last couple of months, with Freddie Mac's most recent survey showing that mortgage rates crossed the 5% threshold. The notable rise may further discourage homeowners from listing their properties, or looking for other housing alternatives. Mark Palim, deputy chief economist at Fannie Mae, said that rising rates will “undoubtedly have an impact on listings.” “We know from the past that that when mortgage rates move up significantly, rapidly in a short period, that home sales slow,” Palim said. “So you know, people who have a 3% mortgage or a 3.5% rate mortgage. They’ve got to take that into account, right? They’re not going to want to give that mortgage up easily.” The 2021 survey found that consumers who did express the desire to move were driven by work/personal lifestyle, rent prices going up, and wanting more outdoor space. Per Fannie Mae’s data, rent prices increased by 10% in 2021 alone and prices are expected to increase by 4% to 5% in 2022. This is pushing renters to consider buying a house, the blog said. And many renters are eyeing rural areas as an oasis for affordable housing options. The researchers conclude that the insights from the survey suggest that the availability of homes or rental properties in slightly less dense areas "would likely be welcome relief for many households," the blog reads. "But with single-family housing prices expected to increase by 7.6% in 2022, as measured by the FHFA Purchase-Only Index, after rising an astonishing 17.6% in 2021, both current and potential homeowners may continue to have difficulty purchasing a home," the researchers wrote. The post Fannie Mae: Affordability fears affecting housing inventory appeared first on HousingWire. |
| Wells Fargo, JPMorgan and the mortgage storm to come Posted: 14 Apr 2022 01:30 PM PDT  Two of the nation’s largest banks – JPMorgan Chase and Wells Fargo & Co. – had their mortgage businesses hit hard by the higher interest rate landscape in the first quarter of 2022. The financial institutions reported double-digit declines in origination volume and net earnings from January to March, which were partially offset by strong performances in their respective servicing portfolios. That's a taste of what to expect from other mortgage lenders who have yet to report Q1 results. There are many storm clouds on the horizon, top executives at the banks said in earnings calls this week. "The mortgage origination market experienced one of its largest quarterly declines that I can remember, and it will take time for the industry to reduce excess capacity," Charlie Scharf, Wells Fargo's CEO, said during a call with analysts on Thursday. Mike Santomassimo, the bank's chief financial officer, added: "We believe the mortgage market experiences the largest quarterly decline since 2003, primarily due to lower refinance activity in response to higher mortgage rates." Wells Fargo, the 4th-largest U.S. mortgage lender by volume, originated $37.9 billion in the first quarter of 2022, down 21% quarter-over-quarter and 27% year-over-year. The share of refinancings declined from 64% in the first quarter of 2021 to 56% in the same period of this year. The bank's revenues in the home lending business reached $1.5 billion, declining 19% compared to the prior quarter and 33% in comparison with the same period of 2021. The mortgage banking noninterest income came in at $693 billion, down from $1.3 billion year-over-year. At JPMorgan, the fifth-biggest mortgage lender in the country, origination volume totaled $24.7 billion from January to March, a decline of 41% compared to the prior quarter, and down 37% in comparison with the first quarter of 2021. JPMorgan's home lending net revenue reached $1.2 billion in the first quarter, down 20% compared to the same quarter in 2021. However, compared to the fourth quarter 2021, the bank's mortgage business net revenue increased 8%. According to the Jamie Dimon-led bank, the mortgage business’ dip in performance in the first quarter was largely driven by lower production revenue, due to lower margins and origination volume. Originations in both correspondent and retail channels fell for both JPMorgan Chase and Wells Fargo in the first quarter. Wells Fargo's retail volume fell to $24 billion in Q1 2022, compared to $33.6 billion in the first quarter of 2021. Correspondent channel origination volume fell to $13.8 billion from $18.2 billion in Q1 2021 a year ago. JPMorgan Chase experienced a larger decline in correspondent business, originating $9.6 billion in the first quarter of 2022, down 41% year-over-year. Through its retail channel, origination volume reached $15.1 billion, a decrease of 34% year-over-year. The banks said the decline in originations revenue was largely offset by higher servicing revenue. Wells Fargo's mortgage servicing rights – carrying value (period-end)– increased 13%, from $7.5 billion in Q1 2021 to $8.5 billion in the first quarter of 2022. The net servicing income jumped from a loss of $123 million in Q1 2021 to a gain of $116 million in the same period this year. JPMorgan's servicing rights increased to $7.2 billion in the first quarter of 2022 from $4.4 billion in the first quarter of 2021. The net mortgage servicing revenues also improved: from a $54 million loss in the Q1 2021 to a $245 million gain in the Q1 2022. Looking beyond the first quarter, executives still expect volatility in the mortgage market. Santomassimo said mortgage rates increased 156 basis points in the first quarter, choking demand for refis. Still, Wells Fargo expects to produce decent volume in the purchase market, where it’s known for jumbo originations. "But gain-on-sale margins will definitely be impacted, given that there's still a lot of excess capacity in the system," Santomassimo told analysts. "We expect in the second quarter originations and margins to remain under pressure, and mortgage banking revenue to decline. We started to reduce expenses in response." Jamie Dimon, chairman and chief executive officer at JP Morgan, told analysts on Wednesday that there are some difficult days ahead. On the bright side, customers have $2 trillion still in their savings and checking accounts, businesses are in good shape, home prices are up, and credit is extraordinarily good, which is going to continue in the second and third quarters, he said. However, it is hard to predict beyond that, due to factors such as inflation and the war in Ukraine. "Those are storm clouds on the horizon that may disappear, they may not. That's a fact," he said. After the earnings report, Wells Fargo stock closed at $46.35 on Thursday, down 4.51%. JP Morgan stock was at $126.12, a 0.93% decline from the prior day. The post Wells Fargo, JPMorgan and the mortgage storm to come appeared first on HousingWire. |
| ALTA on new Fannie policy: title insurance “will always be essential” Posted: 14 Apr 2022 12:56 PM PDT  Fannie Mae generated some buzz last week when it announced it would be accepting written attorney opinion letters in lieu of a title insurance policy "in limited circumstances." HousingWire wondered: just what were those limited circumstances? According to the government sponsored entity, the only transactions ineligible for an attorney title opinion letter are those that involve loans secured by a unit in a condo project, co-op share loans, loans secured by a dwelling on a leasehold estate, including leasehold estates on property owned by a community land trust, loans secured by a manufactured home, HomeStyle Energy and HomeStyle Renovation loans, Texas Section 50(a)(6) loans, loans secured by property subject to restrictive agreements or restrictive covenants, and loans executed using a power of attorney. "This update aligns with industry policy and gives lenders an option, typically used for refinance transactions," Fannie Mae wrote in response to HousingWire’s query. In May of 2020, Freddie Mac announced it would be accepting attorney opinion letters in lieu of title insurance policies under similar circumstances and with similar requirements for the letter and the attorney writing it. In an email, Fannie Mae confirmed that the impetus for this change was that the use of AOLs could potentially reduce title costs for borrowers. The GSE plans to track outcomes from AOLs to better understand the savings realized. "Depending on the state, potential borrower savings using an AOL in lieu of lender title insurance can range significantly, and AOL usage is largely driven by state-specific laws and practices," a Fannie Mae spokesperson wrote in an email. "We continue to look for ways to support lower origination costs for borrowers and lenders." Despite Fannie Mae’s optimism and the apparently large number of circumstances in which AOLs may be used, Bud Moscony, the president of Inspired Title Services, LLC, does not believe this announcement will result in any significant changes to the title industry. "What is interesting to me is that it appears that Fannie Mae has gone back to what was prevalent before title insurance; namely, an attorney opinion of title," Moscony wrote in an email. "Title insurance came to be because attorney title opinions were not adequate for the marketplace. Attorney opinions do not insure against undisclosed title claims, nor cover a situation where the attorney was not negligent but the county indexed the document improperly and hence it was missed and not excepted from coverage, among other reasons. So one can issue the attorney opinion product but it will NOT be a substitute for title insurance," Moscony wrote. The American Land Title Association, the primary trade organization for the title industry, expressed a similar view. "We strongly believe that title insurance is, and always will be, essential,” the organization said in a statement to HousingWire. “For over a century, title insurance has provided reassurance that a title is clear of defects and offers lenders and borrowers the highest level of confidence in ownership. Historically, lenders have overwhelmingly preferred the protection of a title insurance policy, and Fannie Mae itself has acknowledged that there may be additional risk in accepting attorney opinions." Like Moscony, ALTA advised home buyers and lenders to consider the potential risks involved when using an AOL in lieu of a title insurance policy. "We have a dependable and trustworthy real estate system in the United States, and any shortcuts to these well-established processes should be examined thoroughly," ALTA wrote in an email. Theodore Sprink, the managing director of iTitleTransfer, a Scottsdale-based proptech company, does not feel that title insurance is necessary. "Title insurance is a $25 billion revenue per year monopoly controlled by four title insurance corporate conglomerates, which pay only 3-5% in claims," Sprink wrote in an email. "ALTA has also published statements that traditional SFR search and examination functions reveal that 75% of residential properties are deemed ‘clean title,’ which renders title insurance unnecessary." Given that Freddie Mac's AOL announcement nearly two years ago has not greatly impacted the title industry, it is doubtful that Fannie Mae's recent move will have large ramifications for title purveyors, at least until lenders use the AOL option consistently. The post ALTA on new Fannie policy: title insurance “will always be essential” appeared first on HousingWire. |
| Fed retreat from MBS market sparks short-term uncertainty Posted: 14 Apr 2022 07:50 AM PDT  What happens when the Federal Reserve begins pulling back in a serious way from the mortgage-backed securities (MBS) market that it has helped to prop up through billions of dollars in bond purchases since the start of the pandemic in 2020 — to the point where it now holds a $2.7 trillion agency MBS portfolio? In short, uncertainty is the forecast, according to industry experts who weighed in on the subject. Long-term, however, they agree the market will work through the changes and likely wind up better off, assuming the Fed's so-called quantitative tightening strategy manages to tame runaway inflation and chases off its close cousin, a recession. "It doesn’t make sense to start raising interest rates [to fight inflation] without running off their MBS portfolio," said Laurie Goodman, vice president for housing finance policy and the founder of the Housing Finance Policy Center at the Urban Institute. How that policy of shrinking the Fed's MBS holdings will ultimately shake out short-term in the mortgage origination and secondary markets as it is played out, she said, is simply not knowable at this point, however. "It’s just hard to tell exactly what will happen because there’s so many currents," Goodman explained. "You don’t know what investor demand is going to be. At the end of the day, though, the product [agency MBS] will be absorbed at a price." Ray Perryman, president and CEO of The Perryman Group, an economic research and analysis firm based in Texas, added that the Federal Reserve must act now to get inflation under control. He, too, agrees that there are "too many moving parts" to predict with any degree of certainty what will happen to the agency MBS market, the origination market, or the private label securities (PLS) market in the short-term as rates continue to rise and the Fed pulls back further from MBS purchases. "Although we are not facing the same structural issues as the late 1970s and early 1980s, prices are rising at the fastest rate in decades and unemployment is trending below 4%," Perryman said. "There also seems to be adequate momentum to sustain growth with a more restrictive policy, although that patter will have to be monitored very carefully. "Of necessity, this [effort to battle inflation] will involve actions such as increasing baseline interest rates (likely in half-point increments) and reducing the Fed’s portfolio of mortgage backed (and other) securities. " The Federal Reserve, as part of its inflation-busting strategy, ceased making new purchases of agency mortgage-backed securities, or MBS, in early March. Its quantitative tightening efforts also included a quarter-point boost in its benchmark interest rate in March, with at least six more bumps planned yet as the year progresses. The Fed's agency MBS holdings now total about $2.7 trillion and, so far, it is continuing to replace maturing assets in that portfolio as they run off the books. That's about to end, however. Notes from the Fed's March gathering of its Federal Open Markets Committee (FOMC) indicate that there is consensus around a plan to cease replacing up to $35 billion of maturing MBS assets each month. For some context, in February, as the Fed was winding down its net new purchases of MBS at a pace of $10 billion a month, its gross monthly agency MBS purchases totaled about $60 billion, or 31.3% of total agency gross issuance for the month. The Feds existing $2.7 trillion portfolio represented about 25% of the total $10.7 trillion in agency MBS issuance outstanding as of year-end 2021, according to figures from the Securities Industry and Financial Markets Association, or SIFMA. Cutting another $35 billion from the Fed's monthly MBS purchase tally will create a significant amount of new supply in the market and likely further increase pressure on interest rates, which could be amplified by other potential world events, explained Lawrence Yun, chief economist for the National Association of Realtors. "Directionally, it means higher mortgage rates," Yun said. "… If China reduces its holdings of U.S. government bonds or GSE-related [government-sponsored enterprise] securities, then interest rates will rise even further. "The soaring federal deficit requires even more buyers of bonds, and some government bond sales may make it more difficult to issue MBS securities, unless with higher interest rates." The Fed, however, appears resolute in its path. The cost of doing nothing on the MBS front is too high. "All participants agreed that elevated inflation and tight labor market conditions warranted commencement of balance sheet runoff at a coming meeting," the FOMC March meeting notes state. "Participants generally agreed that monthly caps of … about $35 billion for agency MBS would likely be appropriate. Participants also generally agreed that the caps could be phased in over a period of three months or modestly longer if market conditions warrant." When new MBS runoff-replacement contraction program will begin is not clear at this point. The FOMC's next meeting is in early May. The ultimate impact on the origination and private label securities markets, and the broader housing market, of losing some $35 billion in monthly agency MBS buying power could be offset if other investors step up to the plate to fill the void. Some industry experts, however, expect the Fed's move to significantly decrease its reinvestment in agency MBS will likely create more short-term disruption in the nation's housing market. It's a market already under siege from a hawkish Fed policy that has sparked a sharp rise in interest rates, up 1.5 percentage points over the past three months — with the average 30-year fixed mortgage rate now over the 5% threshold, according to recent rate lock figures from Black Knight‘s Optimal Blue OBMMI. "As the Fed pursues quantitative tightening (the steady undoing of quantitative easing), more private bond investors have to step up to buy MBS securities of GSE and private labels, Yung said. "The soaring federal deficit requires even more buyers of bonds, and some government bond sales may make it more difficult to issue MBS securities, unless with higher interest rates. "All in all, the impact is likely to be the 30-year fixed-rate mortgage reaching 5.2 to 5.5% by the end of the year. Some homebuyers may get slight relief in taking the 5-year ARM at around 100 basis points below the 30-year rate." Mortgage-data analytics firm Recursion recently published an assessment of the major agency MBS investment sectors that might step in to replace the central bank's purchasing power. One of those sectors is the agency MBS issuers themselves — the GSEs Fannie Mae and Freddie Mac. Each agency has a $225 billion regulatory cap on the size of its asset portfolio, however, which includes mortgage loans and MBS holdings. As of January 2022, Fannie's asset portfolio stood at $108.5 billion and Freddie's at $102 billion, according to a report from the Urban Institute's Housing Finance Policy Center. The GSEs’ combined share of total MBS purchases has declined from 11.2% in 2009 to 1.9% today, according to Recursion, with little room to expand under the current caps. "This occurred under the auspices of the terms of conservatorship and subsequent amendments to the Preferred Stock Purchase Agreements (PSPAs) that govern the financial aspects of their relationship with Treasury and FHFA [the Federal Housing Finance Agency, which oversees the GSEs]," Recursion notes in its report, posted as a blog on its website. "It is possible that the caps will rise temporarily … but there is virtually no chance that this will account for more than a tiny amount of the upcoming decline in Fed [MBS] holdings in this administration." An April 2021 Congressional Research Service report notes: "The current … cap on the GSEs' asset portfolios (resulting from the PSPAs) may limit their ability to buy and sell MBSs at the volumes necessary to influence market pricing." Recursion also is skeptical about the prospects for the other major investment sectors to step in and fill the gap being opened by the Fed's plan to withdraw further from the agency MBS market. Those investor sectors, according to Recursion, and their estimated share of overall agency MBS purchases as of the end of last year are as follows: commercial banks, roughly 34%; money market and pension funds, 5% to 6%; and foreign investors, 11% to 12.5%. Making up the balance of the agency MBS purchaser sector are Life insurance companies, real estate investment trusts, credit unions, broker/dealers, state and local governments, households and nonprofits, Recursion notes. "The most important private market segment of agency MBS holdings is commercial banks," the Recursion report states. "This is the only segment whose share in Q4 2021 was bigger than the Fed's." Still, the banks tend to mirror Fed patterns in their MBS purchasing activity, Recursion notes, therefore "the outlook for bank activity in the new monetary policy regime of a shrinking Fed balance sheet is highly uncertain." "Looking across these major asset classes, the most likely purchasers of MBS are real money investors [money market and pension funds], but it is far from certain that they will make up for falling holdings on the part of the Fed and commercial banks," the Recursion report continues. "[However], there is little reason for 'real money' investors such as these to catch a falling knife while the new policy regime unfolds. "…Investors and analysts cannot simply assume that the handoff from the central bank to private investors will be smooth." So, we are left with some glimmer of hope of a market adjustment, but mainly we again find uncertainty. Still, there are some market observers who see a potential upside to the shrinking Fed agency MBS balance sheet that will come from outside the agency MBS market. Michael Bright, CEO of the Structured Finance Association, said the winding down of the Fed's MBS portfolio will result in higher rates across all sectors of the industry, including the private label market. "But on a relative basis, the economics are still favoring some pickup in PLS versus agency execution," he added. "This dynamic will continue to be driven by product decisions and loan-level pricing adjustments from the FHFA and the GSEs [that it oversees], which have been favorable to PLS execution lately." Some evidence of the accuracy of Bright's assessment can be found in the bevy of recent PLS deals secured by agency-eligible investment property mortgages. A total of 22 securitization transactions backed by investment properties valued in total at $10.1 billion have found their way into the PLS channel so far this year, and at least 14 of those deals have been secured, in part or in whole, by agency-eligible mortgages on investment properties — with five of those deals scheduled to close this month. Those numbers, based on deals tracked by Kroll Bond Rating Agency, do seem to support Bright's contention that the PLS market does offer favorable pricing versus the agency MBS pipeline — at least for securitizations involving investment properties. "We are starting to see some indication of a resurgence in investor-loan issuance backed by agency-eligible loans," states a recent report from digital-mortgage exchange and loan aggregator MAXEX. "Many of these transactions continue to have some seasoning with newer originations starting to show up as liquidity away from the agencies for certain loans with specific criteria. "We have also seen an increase in the number of second-home loans being traded through the exchange to avoid the LLPA increase instituted by the FHFA for second-home and high-balance loans delivered to the agencies after April 1. We'll continue to watch this trend as it develops." Goodman added that there also exist other investment channels that are now off the radar of the MBS market, but which could yet come into play as market dynamics shift. In that sense, uncertainty doesn't always turn out long-term to be a negative, especially in a resilient market. "You also always have portfolio managers that can shift from corporates into mortgages," Goodman said. "They could sell their corporate bonds and buy mortgage-backed securities if that made sense. "So, you have money out there that can come in that is not necessarily in the [MBS] sector now. … We just need some stability in the market and then people will have to reevaluate where yields are on different asset classes and sort of redo their ideas of relative value." The post Fed retreat from MBS market sparks short-term uncertainty appeared first on HousingWire. |
| Purchase mortgages cross dreaded 5% threshold Posted: 14 Apr 2022 07:00 AM PDT The 5% threshold has been crossed, and given all the headwinds in the U.S. economy, it doesn’t appear that mortgage rates will be dropping below that mark anytime soon. Purchase mortgages this week averaged 5%, up 28 basis points from 4.72% a week ago, according to the latest Freddie Mac PMMS. A year ago at this time, rates were at 3.13%. The GSE's index accounts for just purchase mortgages reported by lenders over the past three days. “This week mortgage rates averaged 5% for the first time in over a decade,” said Sam Khater, Freddie Mac’s chief economist. “As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation.” The gulf between the average 30-year-fixed rate conforming mortgage and a 30-year jumbo, a product for wealthier borrowers, widened to 42 basis points, according to Black Knight's Optimal Blue OBMMI pricing engine, which considers refinancings and additional data from the Mortgage Bankers Association (MBA). Jumbos on Wednesday were locked at 4.69%. Rates on conforming 30-year fixed-rate mortgages overall averaged 5.12% on Wednesday, according to Black Knight, with LOs telling HousingWire that clients had locked loans in the low 5% range this week. On Thursday, New York Fed Chair John Williams said that a 50 basis point interest rate hike in May is a “reasonable option” to help control inflation. With mortgage rates on the rise here are some products originators should tap into HousingWire recently spoke with David Peskin, president of Reverse Mortgage Funding, who said entering the reverse mortgage business could allow originators to break into a growing market with significant demand that is largely untapped. Presented by: RMFThe central bank has signaled that it will raise rates another six times in 2022, and likely several more times in 2023, which will likely trigger a corresponding rise in mortgage rates. The Fed since early March has been letting its purchases of mortgage-backed securities run off. There is consensus from the Fed governors to stop replacing up to $35 billion of maturing MBS assets each month. The Fed's agency MBS holdings currently total about $2.7 trillion and, so far, it is continuing to replace maturing assets in that portfolio as they run off the books. Cutting another $35 billion from the Fed's monthly MBS purchase tally will create a lot of new supply in the market, which will likely further increase pressure on interest rates, which could be amplified by other potential world events, Lawrence Yun, chief economist for the National Association of Realtors, recently told HousingWire. "Directionally, it means higher mortgage rates," Yun said. "… If China reduces its holdings of U.S. government bonds or GSE-related [government-sponsored enterprise] securities, then interest rates will rise even further. "The soaring federal deficit requires even more buyers of bonds, and some government bond sales may make it more difficult to issue MBS securities, unless with higher interest rates." The 15-year fixed-rate purchase mortgage averaged 4.17% with an average of 0.9 points, up from 3.91% the week prior, according to Freddie Mac. The 15-year fixed-rate mortgage averaged 2.35% last year. The 5-year ARM averaged 3.69% with buyers on average paying for 0.3 points, up from last week’s average of 3.56%. The product averaged 2.80% a year ago. Mortgage applications dropped 1.3% from the past week, and refi applications were down 62% from a year ago. Less than 5% of homeowners can save on a refinancing these days. And despite incredible gains in equity owing to soaring home prices, inflation — which touched 8.5% in March — has sapped strength from the renovation market. The lumber futures fell to $870 per 1,000 board feet in Chicago on Monday, a 30% decline from the start of March, according to Bloomberg.
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| Some lenders won’t survive the purchase mortgage market of 2022 Posted: 14 Apr 2022 05:00 AM PDT  Justin Woodward has experienced the best and the worst of the mortgage industry in only 18 months. A seasoned retail and commercial banking salesman in Fort Wayne, Indiana, the 39-year-old Woodward joined Interfirst Mortgage as a loan officer in October 2020 after a recommendation from an old college friend. “I had not done first mortgage lending before, but I was familiar with the basics of real estate lending. So, it wasn’t a huge leap for me,” he told HousingWire. The work was not complex, he said. Interfirst purchased refinance leads and sent them to Woodward to close. “When I began with Interfirst, it was all refis. I can count on one hand the number of purchases that I did.” It worked well for Woodward – and Interfirst – for about one year. Then, the mortgage industry showed why it is called a cyclical business: in the second half of 2021, the Federal Reserve signaled an increase in interest rates and an easing of the purchase of mortgage-backed securities, choking the refi market. “We know that the mortgage industry is about boom and bust," said Woodward. "It is just the nature of the industry, but it’s still not pleasant.” In fall of 2021, Chicago-based Interfirst laid off hundreds of employees. For Woodward, the pink slip arrived in October. He was unemployed for only a few weeks. Woodward quickly landed a job as an LO at American Pacific Mortgage, a California-based lender that had just opened a branch in Fort Wayne. But Woodward struggled to originate purchase loans. "I hadn't developed a network for mortgage lending with Realtors," Woodward said about his work at Interfirst in Indiana. "Without that being built, I was starting from scratch. And the rates started to go the wrong way. It just has not gone well." Triggered by the COVID-19 pandemic, a “gray swan” event that resulted in near-zero interest rates and the central bank buying mortgage-backed securities, mortgage originators – including Interfirst Mortgage – spent the last two years building up capacity to originate trillions of dollars in refinancings. Tens of thousands of workers were hired, new technologies were piloted and operational processes implemented to capitalize on what was a historic moment for the industry. Origination volumes eclipsed $4.3 trillion in 2020 and then $4.4 trillion in 2021, the vast majority of business coming from refis. With an abundance of refis, virtually no mortgage company in America lost money in 2020 or 2021. Taking advantage of the euphoria, half a dozen companies went public, raising billions of dollars and creating billionaires overnight. But things change quickly in mortgage. By the fourth quarter of 2021, rates had climbed into the high 3% range, several top originators reported thinning margins and shed thousands of jobs. It was inevitable that the cycle would end and a challenging period would begin. But few thought it would end so quickly. To close more purchase loans, forward-thinking lenders have invested gobs of money in technology, increased marketing budgets, and retooled their operations to reach new homebuyers in recent months. Spoiler alert: some companies seem to be ready for the transition, while others struggle, and others still will likely go under. HousingWire interviewed over a dozen analysts, mortgage executives, loan officers, and consultants to answer the trillion-dollar question: who is positioned to win in the purchase market, and who is at risk of biting the dust? The closer, the betterCompetition will be intense over the next 12 to 24 months, driving gain-on-sale margins down even further, Moody’s analysts wrote in March. Profitability may resemble the market in 2018, when around one-third of nonbank lenders failed to turn a profit. "Companies with above-average capitalization, strong market positions, and scale will be better able to navigate the challenging operating environment," the Moody’s analysts wrote. The consensus from mortgage executives and analysts alike is that lenders who did well with purchase mortgages in 2021 – and appear well-positioned to ride out the storm in 2022 – are those who can get closer to the borrower. Following this logic, the correspondent channel has an advantage, as this group is formed by local banks and credit unions where people go in their communities to get a new loan. "The whole industry is going to struggle with the transition from refi to a purchase market," Bose George, mortgage finance analyst at Keefe, Bruyette & Woods (KBW), told HousingWire. "But some channels just have more purchases, such as the correspondent, and are in a better position to fight the headwinds." That is why, so far, California-based nonbank mortgage lender Pennymac has been the leader in purchase originations, with $106.3 billion volume in 2021, up 33.7% year over year. That was just over 45% of the company’s mix, according to Inside Mortgage Finance. Pennymac estimates it has 17% market share in the correspondent channel, compared to 1.4% in consumer direct and 2.3% in the broker channel. Originators whose loan officers have close relationships with a professional network, such as real estate agents and financial advisors, are also in a good position to win in a purchase market, industry observers told HousingWire. It is not a coincidence that United Wholesale Mortgage (UWM), a pure-play wholesaler, was the second-biggest purchase lender in America last year, with $87.2 billion in originations, up 103.3% year-over-year, according to IMF. Purchases were 38.5% of UWM's mix in 2021, and company executives expect that number to grow in 2022 as rates climb. “We think the wholesale market is very well positioned here because the brokers are the people that have a close relationship with Realtors,” Brian Violino, equity research associate at Wedbush Securities, said. “We are not at a point yet where people are fully ready to purchase a mortgage completely online.” Traditional banks have proximity to borrowers due to a preponderance of local branches across the country. However, they are hampered by comparatively poor technology and the slow speed at which they can close a loan, analysts said. Wells Fargo was the third-biggest purchase lender in 2021, according to IMF, originating $86 billion in volume, down 15.2% compared to 2020. J.P. Morgan Chase, with $75.2 billion in origination volume, and up 63.8% year-over-year, was No. 5. The purchase share in these banks' mix was around 41% in 2021, according to IMF. Nonbank lender NewRez/Caliber was No. 4 in the 2021 purchase volume ranking, with $77.6 billion in purchase volume in 2021, more than four times the total in 2020, according to IMF data. In August, the company announced the payment of $1.7 billion to acquire Caliber, a heavy-hitter across multiple origination channels, with $80 billion in origination volume in 2020. The numbers suggest Guaranteed Rate, the No. 7 purchase lender last year, is well-placed to take advantage of a purchase environment. The retail lender originated $56.6 billion in purchase mortgages last year, with a 75.8% increase compared to 2020. Its overall mix of purchase mortgages was 49.5%, IMF data shows. Earlier this year, Guaranteed Rate decided to discontinue its third-party wholesale channel Stearns Lending and laid off 348 workers, only one year after acquiring the company. The lender's focus has been in tripling down on its network of top retail LOs. And Shant Banosian is king of the hill. The Massachusetts-based top LO funded more than $2 billion last year, half of which was refi business. He expects to repeat the volume this year, but with only a 20% share of refis. In a purchase market, he emphasizes strong communication with clients and referral partners, such as Realtors and financial planners. “As a loan originator, you have to do what you can to best support and service your clients and referral partners, being able to close super fast,” he told HousingWire. “Our goal is always to make our clients as appealing as possible to a seller to help increase their conversion of getting their offer accepted. So, to me, in the purchase market, it’s all about speed, availability and great communication.” Others that leaned purchase in 2021, according to IMF, included depository U.S. Bank (53.3% of the mix), CrossCountry Mortgage (54.6%), Guild Mortgage (52.8%), multichannel lender Fairway Independent Mortgage (61.7%), and Movement Mortgage (67.3%). Of this group, Violino highlights California-based Guild, which “has a branch-based strategy so that you have agents that are in the communities, forming relationships with homebuyers,” he said. Violino added: “If a retail-focused company is able to tap into the purchase market, find a more effective way to do it without sacrificing margins, hypothetically, that combination would be better from an earnings perspective.” During a conference call with analysts in early March, Guild’s CEO Mary Ann McGarry said the company has “local infrastructure and boots on the ground, which engenders strong relationships and superior client service which has expanded across the country.” The company had $243 million in cash and $1.5 billion of unutilized loan funding capacity as of Dec. 31, 2021. It is looking for mergers and acquisitions, mainly businesses with a decent market share in their coverage areas. A hard missionSome companies need to pivot quickly from refis to purchase and other products to keep their heads above the water. That transition will be particularly painful for refi-heavy lenders, who are still trying to cash in on the product. “The refi boom is not entirely behind us,” Joe Garrett, partner at Garrett, McAuley & Co., told HousingWire in early March. “It’s diminished hugely, but you have a lot of lenders now switching to cash-out refis, particularly call center lenders. But it looks like they will have some limited success.” A Black Knight report showed that lenders originated $1.2 trillion in cash-out refis in 2021, up 20% compared to the prior year, the highest volume since 2005. Direct-to-consumer lenders and digital-only lenders typically struggle in purchase-focused markets. When it comes to selling more complex loan products, buyers still feel more comfortable with loan officers at banks and broker shops. A recent survey from ICE Mortgage Technology found that 31% borrowers were more likely to choose a bank and 25% a broker to close their loans. Meanwhile, only 13% mentioned an online entity. “As an industry, we need to continue to deploy digital offerings – but not at the expense of relationships, which are still an important factor in choosing a lender,” Joe Tyrrell, president of ICE Mortgage Technology, said in a statement. Better.com is perhaps the poster child of the coming conflict. Overall, just 19.9% of the company’s originations in 2021 were purchase loans, the third-lowest percentage after Rocket Mortgage and Freedom Mortgage among the 25 largest lenders in America. Better originated $10 billion in purchases in 2021, up 213% year-over-year, according to the IMF data. But having made limited headway with purchase lending, Better laid off almost 4,000 employees over the last few months, 900 of them via an infamous Zoom meeting conducted by the CEO, Vishal Garg. In its most recent cost-cutting plan, the company is now asking staff if they would simply volunteer to quit (so long as they receive benefits). There are several top 10 lenders in America that have feasted on the refi boom, but will have to prove to skeptics that they can pivot their operations to a purchase market. New Jersey-based Freedom Mortgage, which is the leading Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) lender in the country, was No. 23 among lenders in purchase volume in 2021, originating $19 billion, a 21.9% increase compared to 2020. Purchases were only 16.7% of the lender's total mix last year, and its sweet spot of government loans aren’t as competitive as agency product in a low-inventory environment. California-based LoanDepot was the 10th largest purchase lender in America in 2021 per IMF, with $39.3 billion in originations, up 38.9% from the prior year. But it was refi heavy – just 28.7% of its originations were purchase loans last year. Its executives say the lender will capitalize on its lead generation potential and diversified channel strategy to attract more purchase business in 2022. During the most recent earnings call, company founder Anthony Hsieh pointed out that loanDepot increased its market share in total originations last year to 3.4%. "If you look at our model, we are fishing from a lot more ponds," he said. "Last year we generated over 10 million top of the funnel leads, and we expect to have at least that level going forward this year in a market that’s decreasing 30-plus percent," he said. The challenging landscape inevitably reaches the top originator in the country, Rocket Mortgage. The company took advantage of the refi boom arguably better than anyone, but its executives know they'll have to ramp up purchase business in a big way in 2022. The company had only 16.2% of purchases in the mix last year, according to IMF data. In total, the lender originated a record $56.9 billion in purchases, up 42.7% year-over-year. Rocket announced plans to become the No. 1 retail purchase lender, excluding correspondent, in the nation by 2023. To get there, Jay Farner, CEO of Rocket Companies, said its strategy includes brand awareness and lead generation; operational systems that get clients a verified approval, such as an overnight underwriting; and the “pro network,” which includes brokers, real estate agents, credit unions and other financial providers. “We’ve taken our technology, and we’ve put it in the hands of all of these individuals that tend to be there when someone’s buying a home, and they can all send their clients through our Rocket platform, leveraging the technology and the client experience that we provide. That’s how we continue to grow down in this purchase market,” Farner told HousingWire. Analysts say Rocket has some key advantages in the purchase market. The company, which does most of its business through consumer direct retail, is also the second-biggest player in wholesale. Per IMF data, it originated about $113.5 billion in the broker channel in 2021. Beyond vanillaIn a more competitive environment, originators are also changing up their product mix, offering reverse mortgages, home equity loans, and home improvement loans. These products provide higher margins and a more stable origination volume than the traditional, vanilla 30-year-fixed rate mortgage. Finance of America (FoA) has been particularly active in diversifying its products portfolio, mainly through reverse mortgages, investor loans and commercial loans. "They’re going to be a bit steadier in their contribution to earnings. What’s going to be volatile is traditional mortgages," Patti Cook, FoA's CEO, told HousingWire. Last year, the company originated $13.3 billion in purchase loans, comprising 45.5% of the mix. Its purchase volume increased about 35% over 2020. In 2021, the company's best performing segment was commercial originations, increasing from $855 million to $1.7 billion, up 107%. Reverse originations also increased 57% year-over-year, to $4.26 billion. Other lenders are exploring non-agency loans to give their broker partners a better shot at serving homebuyers. Wholesalers UWM and Homepoint, for example, are developing new products for non-qualified mortgage borrowers, including bank statement loans for self-employed borrowers, and investor cash flow loans. Like most top originators, Homepoint did the bulk of its business in refis last year. It originated $29.8 billion in purchase loans, and its overall mix in 2021 was just 31% purchase mortgages. Interestingly, the Ann Arbor-based wholesaler managed to increase its purchase originations in Q4 to $7.7 billion from Q3's $7.1 billion, which was rare among originators and might be a sign of good things to come. Diversifying the portfolio to include non-QM loans is a smart strategy, but it will not "move the needle" much in the short term, observers said. The truth is that the transition from a refi to a purchase business can take years, mainly because it is challenging to build a network to reach new borrowers, for example, the relationship with Realtors. “There are many ways to get business, and we don’t have any secrets. Making the switch from refinancing to purchase business doesn’t happen overnight. But you can cut your cost overnight," said Garrett. Less money coming in, but less money going outCutting costs has meant reducing the ranks of processors, underwriters, LOs and closers at some lending shops. At least a half-dozen mid- or large-sized lenders have cut staffers in the last six months, though nothing at the scale of a Better.com-style layoff. In early March, HousingWire reported that Pennymac Financial Services would be laying off 236 employees at six different offices in five California cities. Also, retail lender Movement Mortgage, the 24th largest mortgage lender in the country in 2021, laid off between 165 and 170 employees in March, sources told HousingWire. Freedom Mortgage also trimmed its staff in the latter portion of 2021 and NewRez ousted 386 workers following the Caliber merger. Several smaller non-QM lenders have also given employees pink slips, largely due to the challenges presented by rapidly moving rates and the narrow window during which they can securitize assets. Inevitably, pay days are getting smaller for many in the industry as origination volume wanes and margins thin. "Usually, professionals will have their base employment plan. And, then, they’ll have an addendum that describes how they’re going to be paid a variable compensation, which is normally driven, the most part of it, by volume," said Lori Brewer, executive vice president and general manager at SimpleNexus. The changes affect loan officers, processors and underwriters, but also top executives. Guild's CEO Mary Ann McGarry, for example, went from a compensation package of $8.15 million in 2020 to $3.23 million in 2021, including salary, stock awards, non-equity incentives, and other compensations, according to a document filed to the Securities and Exchange Commission. Her salary remained the same, at $500,000, but the variable compensation was reduced by the challenging landscape. In some cases, however, cutting costs will not be enough. In the 2022 mortgage industry, there will likely be consolidation. "Some of the smaller guys will have to be either laying off employees, or gonna be tougher to survive and they will get taken out. You might see some private equity guys come in and purchase them if it becomes cheap enough," said Heal, the analyst at Argus Research. The market had already claimed its first victim in February: Santander Bank announced that it was shutting down its mortgage lending business in the U.S. and laying off its divisional staff. But, for the most part, the biggest mortgage lenders in America have cash from 2020 and 2021 and can gain market share. In addition, the switch from a refi to a purchase market is a relatively normal occurrence in the business, even if it's jumping from one extreme to another. "I’ve been in this business now for 26 years. The cycles are kind of all the same. What drives the underlying mortgage market is purchase. And what drives purchase businesses is physical distribution," Phil Shoemaker, president of originations at Homepoint, told HousingWire. Woodward knows first-hand how it is difficult to win in a purchase market. After his annual salary decreased by around $20,000 in the last 18 months, he has decided to change – again. He landed a branch sales manager position at Partners 1st Federal Credit Union, where he is tasked to originate not only mortgages, but car and personal loans as well. "In all fairness, I’m the guy who’s leaving the mortgage company because I couldn’t get enough purchase business. But, as far as I can see and know of the industry at this point, it is about being connected to Realtors and doing a good job with the clients that you have. There’s not a new secret sauce." James Kleimann contributed reporting to this story. The post Some lenders won’t survive the purchase mortgage market of 2022 appeared first on HousingWire. |
| The growing threat of phishing attacks on the mortgage industry Posted: 13 Apr 2022 10:22 AM PDT  Loan officers and mortgage executives alike continue to click on links in seemingly routine emails, ultimately giving bad actors complete access to lenders’ systems and mortgage transactions. Such mistakes can cost companies millions of dollars and expose sensitive data from millions of customers. Phishing schemes continue to be the most prominent form of attack on the mortgage industry because hackers have many avenues of planting themselves into a mortgage transaction, according to a panel of mortgage executives speaking at the Mortgage Bankers Association's Technology Solutions Conference & Expo 2022 in Las Vegas this week. And those hackers are getting smarter every year. Michele Buschman, chief information officer at American Pacific Mortgage, said that hackers will insert themselves within a mortgage transaction and pretend to either be a real estate agent, a title escrow company, or the LO, and send an email asking the borrower for a wire transfer, or will send them a link that needs to be clicked on. “It takes just one person in the transaction to have their email account compromised and they are able to mimic the signature of the LO or the lenders logo,” said Buschman. “They make this look so real that it’s difficult for a consumer to identify that it’s a fake.” David Townsend, CEO of Agent National Title Insurance.Co., a national title insurance underwriting company, said that a lot of the time the weak link in a phishing scheme is the real estate agent. “Believe it or not, a lot of real estate agents are still using AOL emails,” Townsend said. “Nonsecure emails are most rampant among real estate agents and they have their emails on their signs, so it’s easy to get this readily identifiable information.” These emails can easily be spoofed and used for phishing schemes. Adam Chaudhary, president at FundingShield, a fraud preventions solutions fintech, said that data is disparately distributed among lenders, title and production systems and real estate companies , which presents ample opportunity for hackers. “You have multiple parties coming to a closing table with different levels of security and with a single motivation to close the thing as fast as they can…that presents cybersecurity challenges,” Chaudhary said. He noted that housing agencies have voiced an intention to better track cybersecurity breaches among lenders and their vendors. Chaudhary said that Freddie Mac recently sent FundingShield a letter asking the fintech to disclose any cyberattacks that may have impacted customers. “We are so centrally located in the ecosystem providing protections across the landscape to lenders that are contracting third-party services,” said Chaudhary. “They want us to disclose if we have any knowledge of a cybersecurity breach or data breach, even if we think it may happen.” Freddie Mac did not immediately respond to a request for comment. Buschman also noted that phishing attempts have noticeably increased at APM since Russia’s invasion of Ukraine in late February. However, she added that she couldn’t confidently state whether there is a correlation. In March, cybersecurity experts pointed to an increase in cyberattacks, with some speculating that these attacks were coming from Russia or China. To avoid hacks, the panel recommended creating a “human firewall” by educating consumers and everyone involved in the mortgage transaction about the potential for spoofed emails. The panel also said that multi-factor authentication and patching outdated systems is a must. The post The growing threat of phishing attacks on the mortgage industry appeared first on HousingWire. |
| Data automation is the next frontier of mortgage tech? Posted: 13 Apr 2022 08:00 AM PDT  Mortgage executives are aware of a problem: despite billions of dollars in technology investments, the mortgage industry still largely looks like it did two decades ago. After all, it still takes 43 days, on average, to close a loan. "Realistically, it's still basically the same industry," Brian Woodring, chief information officer at Rocket Mortgage, said on Tuesday during the Mortgage Bankers Association's Technology Solutions Conference & Expo in Las Vegas. He added: "We have a tremendous amount of proprietary technology being built. We have organizations [working] to create some standardization. But it’s a challenge. This is an industry where most significant lenders are still building a decent amount of their technology footprint." Rocket, the top lender in the country with $351 billion originated in 2021, according to Inside Mortgage Finance, has perhaps invested more than any other lender in America on mortgage tech over the last decade. It has a dedicated team of thousands of workers focused on algorithms, analytics, automation and technology, and likely has more data on consumers than any competitor. In the mortgage market of 2022, using technology to create operational efficiencies will be key, executives said at the conference in Vegas. Lender profitability is shrinking amid rising interest rates, lower refinance originations, and higher expenses. According to a recent MBA report, per-loan production expenses reached $8,664 in 2021, compared to $ 7,578 in 2020, the highest level since the inception of their report in 2008. It is fair to say that the recent refi boom, from 2020 and 2021, brought a higher level of automation than in prior cycles, mortgage executives said in Vegas. "We had a much higher level of automation with things like appraisals, title decisions, streamline income verifications that weren't quite there yet. We've made a lot of progress," said Thomas Wind, executive vice president of consumer lending at the U.S. Bank Home Mortgage. U.S. Bank Home Mortgage is the 10th-largest lender in the U.S. Last year, it originated $102 billion, up 14.7% year-over-year, according to data from Inside Mortgage Finance. According to Wind, despite recent developments in mortgage technology, there is still quite a bit of work to be done. "Hopefully, in a few years, we can get more and more automation through a refi cycle," he said. "So, then, we can focus on the purchase, which has always been a core part of our journey." The next frontier is data processing and automation, the executives in Vegas said. "I think what you’re going to start to see is a future-looking mortgage lender in the residential space to be a data processing company, not really a financial services company. I like to think of it as ultimately the investor is the finance company," Woodring said. A data processing company would, ideally, have borrowers' information as quickly as possible, without asking many questions upfront, and take automated decisions, according to the executive. Regarding technology development, big lenders are adopting different approaches. The Minnesota-based U.S. Bank Home Mortgage has a roadmap with a vision of where the bank wants to be over the next few years, the customer experience it wants to provide, and the deficiencies it wants to avoid. Based on that, the company is trying to figure out the little things it can do each year to achieve its goals. "That helps us control the risks in the process as well," Wind said. "We’ll try as always to make incremental improvements." The executive said he wants his team to do pilots as soon as possible, testing new technologies in a controlled way. U.S. Bank Home Mortgage has a model focused on partnering with vendors to develop technologies. "We really try to focus on being very well integrated, also thinking of the right partner for us," Wind said. At Rocket Mortgage, executives are trying to understand what technologies will change the world in five years, rather than being attached to the return on investment (ROI) in the short term. "The return on investment is great as a way of looking at going after one, two, three years, maybe even four," Woodring said. "But when you go beyond, you really have to focus on what’s really going to change the customer experience, not necessarily what saves you a little bit of money, which is important, top and bottom line are always going to be critical." The executive said Rocket develops in-house the technology that will "move the needle" for the company but, increasingly, is partnering with vendors that can bring more efficiency to the business. "Historically, at Rocket, we have tried to build everything. We want to control the things where we can get strategic differentiation." The post Data automation is the next frontier of mortgage tech? appeared first on HousingWire. |
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