Mortgage – HousingWire |
- Mortgage applications rise despite higher rates
- Despite rising rates, Rocket delivers $1B profit in Q1
- Doma lays off 15% of work force as Q1 revenue declines
- Now more than ever in the mortgage industry, it’s critical to know your KPIs
- MSR offerings selling like hotcakes so far in Q2
| Mortgage applications rise despite higher rates Posted: 11 May 2022 04:00 AM PDT Prospective homebuyers aren't deterred by the skyrocketing mortgage rates amid a slow start to the spring home-buying season this year. The Market Composite Index, a measure of loan application volume, rose 2 percent on a seasonally adjusted basis for the week ending May 6, from the previous week, according to the Mortgage Bankers Association. Conventional, Federal Housing Administration (FHA) and Veterans Affairs (VA) purchase loan application volume led the gain in mortgage application volume even as mortgage rates rose to 5.53%, marking the highest since 2009, according to Joel Kan, MBA's associate vice president of economic and industry forecasting. "Despite a slow start to this year's spring home buying season, prospective buyers The refinance share of mortgage activity dropped to 32.4% of total applications, from last week's 33.9%. "The rapid rise in mortgages rates continues to hit the refinance market, with activity 70 As mortgage rates surged, more borrowers continued to utilize adjustable-rate mortgages (ARMs). The ARM share of total applications rose to 10.8%, consisting of 19% of dollar volume, according to MBA. The average contract interest rate for 30-year-fixed mortgages with conforming loan balances ($647,200 or less) rose to 5.53% this week from the previous week's 5.36%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo-loan balances (greater than $647,200) increased to 5.08%, from 4.92% the prior week. The FHA share of total applications fell to 10.5% from 11.1% in the week prior. The share of VA applications rose marginally to 10.5% from 10.3% The USDA share slightly went up to 0.5% from 0.4%. The survey, conducted since 1990, covers more than 75% of the retail residential mortgage applications. The post Mortgage applications rise despite higher rates appeared first on HousingWire. |
| Despite rising rates, Rocket delivers $1B profit in Q1 Posted: 10 May 2022 03:59 PM PDT Detroit-based Rocket Companies, the parent of Rocket Mortgage, generated a whopping $1 billion profit in the first quarter, up from $865 million the previous quarter. Compared to its main competitors, the lender seems to be in a comfortable place. United Wholesale Mortgage (UWM) reported a much lower profit of $453.2 million from January to March, buoyed by adjustments in the fair value of mortgage servicing rights (MSRs). Meanwhile, LoanDepot had a $91.3 million loss in the same period. But Rocket has its own challenges. Loan origination is dropping, as purchase volumes need to increase fast to replace refis lost due to surging mortgage rates. Analysts have started to question whether the company will deliver profits in the coming quarters. Meanwhile, top executives say they will protect margins. “The rapid increase in interest rates this year has been the largest in over 40 years, with the 30-year fixed mortgage rate now north of 6% for the first time in more than a decade,” Jay Farner, vice chairman and CEO of Rocket Companies, said during a call with analysts. “Rocket has always navigated successfully through turbulent times by protecting margin and profitability.” The Detroit-based company reached $54 billion in closed loans from January to March, down from $75.8 billion in the previous quarter and $103.5 billion in 2021. The gain-on-sale margin grew 21 basis points to 3.01% in the first quarter. “Margins included one-time benefits due to the rapid move in bond markets, which increased gain on sale margin by 15 basis points,” said Julie Booth, CFO at Rocket Companies. Executives see more declines in origination and margins in the second quarter as the market experiences unprecedented rate increases. Closed loan volume is expected to be between $35 billion and $40 billion, and gain on sale margins between 2.60% and 2.90%. Executives said they are disciplined with expenses to deliver profits. “In the second quarter, we’ve taken significant cost reduction measures that included implementing a voluntary career transition program to certain team members; reducing our production costs including renegotiating large vendor contracts; and shifting our marketing spending,” Farner said. In late April, Rocket offered buyouts to 8% of its staff at its mortgage operations and title teams, bringing a one-time charge between $50 million and $60 million but saving $40 million per quarter. The company expects second-quarter expenses to be down approximately $200 million to roughly $1.4 billion due to lower production expenses and savings from a partial quarter of the buyout program. Besides cost reductions, Rocket is also considering strategic acquisitions to increase origination volumes, mainly in purchase loans. The company’s purchase volume grew 43% year over year, but it represented only 16.7% of the lender’s total mix last year. “I’ve been very confident about our ability to grow purchases organically,” Farner said, answering an analyst about the possibility of making strategic investments. “That said, there are opportunities that may allow us to lean into the purchase market.” Regarding the servicing book, the unpaid principal balance increased 17% year-over-year to $546 billion as of March 31. Rocket has 2.6 million clients in the servicing portfolio and generates an annual $1.4 billion in recurring servicing fee income. Rocket Companies shares closed on Tuesday at $7.81, down 7.02% from the previous day. The stocks were down 3.33% in the aftermarket following the earnings report. The post Despite rising rates, Rocket delivers $1B profit in Q1 appeared first on HousingWire. |
| Doma lays off 15% of work force as Q1 revenue declines Posted: 10 May 2022 03:47 PM PDT Despite a 40% year-over-year increase in market share to 1.4% during the first quarter of 2022, Doma Holdings was unable to produce a net profit. During the first quarter of 2022, Doma recorded a GAAP net loss of $50.026 million, compared to a net loss of $11.8 million a year prior. In addition, the title insurer's revenue was down 12% year over year from $127.8 million in Q1 2021 to $112.2 million in Q1 2022. Executives attributed the lower revenue and increased net loss to an overall downturn in the mortgage market. "In the first quarter, the mortgage market rapidly readjusted with refinance transactions down industry-wide by 63% year over year, per the Mortgage Bankers Association," Max Simkoff, the CEO of Doma, said during the firm's first-quarter earnings call with investors on Tuesday. "Based on the recent trend in rates it is likely we will see a continued negative impact on the overall mortgage market. While the market could always change for the better, we believe the challenges the mortgage market faces will continue at least through the rest of 2022." In the first quarter of 2022, Doma opened 35,192 title orders and closed 27,347 orders, compared to 41,084 opened orders and 32,650 closed orders during the first quarter of 2021. When separated into purchase and refinance, Doma executives said that purchase orders were down 13%, while refinance orders had dropped by 20%. Due to the decline in the refinance market, Simkoff said Doma is refocusing its efforts on increasing its purchase volume. Unlike refinance transactions completed with Doma, as of Q1 2022 not all purchase title orders are completed through the Doma Intelligence platform, which is something Simkoff said the company plans to change by the end of next year. "We are refocusing resources from other areas of the company to a narrower set of strategic initiatives that will ensure we rise to solve the biggest pain points in a purchase focused market while also keeping the company on our previously communicated timeline to achieve adjusted EBITDA profitability in 2023," Simkoff said. Although Simkoff stressed that he was confident that Doma's technological offerings will be enticing enough to lenders and other consumers for the company to increase purchase transaction volume, the firm announced a 15% work force reduction last week. A total of 310 positions were cut, with 259 coming from the fulfillment department, reducing the department's workforce by 28%. "We have recently made significant reductions to our cost structure across every part of the company in service of helping us act more nimbly and to protect our healthy cash flow position," Simkoff said. "We expect this reduction will result in an annualized cost savings of $30 million." When discussing the firm's previously announced goals of expanding into appraisal and home warranty, executives sounded far more cautious than in the past. "In this current market, our investments in Doma Intelligence solutions for the home purchase market become even more critical," said acting CFO Mike Smith. "Nonetheless, given our outlook for the mortgage market overall in 2022, we are prudent in our spend in other parts of the business to preserve our healthy cash position. This has entailed some tough decisions, including rescoping our entry into the appraisal and home warranty adjacent markets to make better use of our partner resources and provide better returns on investment." Cautious and conservative also describe Doma's outlook on the future of the mortgage market. "I think we have reacted pretty quickly to what we see as a longer-term market down turn," Simkoff said. "We are certainly prepared to take further action if we see further deterioration, but we feel like the actions we have taken recently, and a more conservative outlook are the right approach today." The post Doma lays off 15% of work force as Q1 revenue declines appeared first on HousingWire. |
| Now more than ever in the mortgage industry, it’s critical to know your KPIs Posted: 10 May 2022 03:27 PM PDT As the first quarter unfolded, macroeconomic risks created strong headwinds for mortgage companies. The greatest concern is quickly rising mortgage rates, resulting in overall margin compression and essentially a nonexistent market for refinances. Fannie Mae forecasted in early March that mortgage rates would approximate between 3.7% and 3.9% this year, but by April 7, the national average for a 30-year mortgage had already reached 4.72%. The current volatility, combined with the likelihood of additional rate hikes on the horizon, has caused originators to focus on the purchase market as well as non-agency loan products like non-QM. Adaptability will be critical to navigating the rapidly changing market but it's just as important to have a comprehensive understanding of your business’ KPIs. Amid this challenging environment, mortgage companies must focus on their financial health, efficiency and effectiveness. One way to gain and maintain that knowledge is by utilizing key performance indicators, which allow a company to holistically assess critical components through relevant metrics. A few financial-related KPIs to consider include:
Driven by data In addition to KPIs, there should be a healthy focus on financial metrics such as debt to equity, tangible net worth, liquidity ratios, etc. It's also important to always know how your company is generating return on equity and which levers you can pull to increase profitability. To this end, conducting a DuPont Analysis could prove helpful. At any point in time, regardless of business cycle, you should have a good handle on your company and how it's performing. Building and consistently measuring applicable KPIs will enable you to keep a pulse on the business and ensure you can effectively adjust to changing conditions. Data is what fundamentally supports all KPIs. Accordingly, data integrity and quality are critical for generating reliable and accurate KPIs to help manage your business and improve adaptability in uncertain times. Ravi Correa is the CFO of Angel Oak Lending. The post Now more than ever in the mortgage industry, it’s critical to know your KPIs appeared first on HousingWire. |
| MSR offerings selling like hotcakes so far in Q2 Posted: 10 May 2022 03:01 PM PDT  The mortgage-servicing rights (MSR) market went on a tear at the start of 2022, and that hot streak has continued into the second quarter as interest rates on 30-year fixed mortgages continue to rise — now up 2 percentage points since the start of the year and still seemingly upward bound. As rates rise, MSR prepayment speeds drop — a byproduct of diminished refinancing activity. That, in turn, amplifies the value of MSRs because they pay out over a longer period. Those dynamics sparked some major MSR bulk offerings over the first quarter, as HousingWire reported previously. "If rates rise and refinances slow down [as they have], the cash flow stream on MSRs goes longer," explained John Toohig, managing director of whole loan trading at Raymond James in Memphis. "If that cash flow stream goes longer, it’s worth more, so slower CPR [prepayment] speeds mean a higher MSR value. "So yeah," Toohig added, "I’m not surprised to see that sellers right now are trying to lay off MSR because it’s the highest value we’ve seen in years because of slower prepayment speeds." So far through May 10, the robust MSR deal activity that marked the initial quarter of 2022 has carried forward now midway through the second quarter. Since April 1, Denver-based Incenter Mortgage Advisors has unveiled seven bulk MSR offerings involving Fannie Mae, Freddie Mac and/or Ginnie Mae servicing rights. The value of the loan portfolios tied to those servicing rights — which are being auctioned off in either April or May — ranges from $1.96 billion to an eye-popping $12.94 billion across the seven deals — with the overall value of the MSR offerings totaling $35.3 billion. The MSR package sizes reflect the value of the underlying book of mortgages being serviced, not the actual sales price. "Q1 2022 saw a fairly steep curve in the increase of MSR values from start to finish, as reflected in every public company [mortgage lender] reporting improved MSR values to offset lower net income from originations," said Tom Piercy, managing director of Incenter. "As we are about to enter the mid-point of the Q2 2022 secondary MSR market, interest rates continue to significantly reduce prepayment exposure, which supports strong MSR values." The Prestwick Mortgage Group, an Alexandria, Virginia-based MSR advisory and brokerage firm, is also in the thick of the MSR action. The firm brought to market at least three offerings with bid due dates in April — a $1.6 billion Fannie and Ginnie Mae offering; a $520 million Fannie offering; and a $1.8 billion Fannie and Freddie package, which is being offered in conjunction with San Diego-based advisory firm Mortgage Capital Trading (MCT), offering circulars show. More recently, also in conjunction with MCT, Prestwick unveiled a "Texas/Southeast" offering of Fannie Mae MSRs valued at $1 billion, with bids due May 5. "As a result of a combination of declining origination volume and margin pressure [rising rates], we anticipate that many MSR asset holders will take advantage of these favorable conditions in the near term," Bill Shirreffs, head of MSR Services at MCT, said in a statement reflecting on MSR performance in the first quarter of the year. "Overall, the bulk MSR market should be incredibly robust throughout 2022." Another major advisory firm in the MSR space, New York-based Mortgage Industry Advisory Corp. (MIAC), has also been on a roll this year, including in the second quarter of 2022. MIAC so far in the current quarter has unveiled five MSR offerings featuring Fannie Mae, Freddie Mac and/or Ginnie Mae servicing rights with bid due dates in April or early May. The MSRs being auctioned in those bulk deals are tied to loan portfolios with a total value of $12.8 billion — ranging in value per bulk offering from $1.83 billion to $4 billion. "Political tension, the Russia and Ukraine conflict, inflation, I can go on and on, so it's nearly impossible to precisely predict where rates will end 2022," Michael Carnes, managing director of the MSR valuation group for MIAC, said in an interview conducted late in the first quarter of the year. "… [Still,] you’re looking at multiple Fed rate hikes this year, and the general market consensus is that rates will continue to go higher. "I don’t foresee there being any major disruptions in the supply chain or the buy side with respect to MSRs," Carnes continued, "largely because the demand for … MSRs is still very high. There has been a large amount [volume] of deals come to market, so it's shaping up to be a record year for MSR bulk transactions and at prices that are very competitive." A recently released report by New York-based mortgage-data analytics firm Recursion shows that year to date through the first week of May some $396.3 billion in agency MSRs were transferred between institutions, with nonbanks being both the leading purchasers and sellers. Banks acquired about $88.1 billion in agency MSRs sold by nonbanks ($72.3 billion) and other banks ($15.8 billion). Nonbanks acquired $308.2 billion in agency MSRs over the period sold by other nonbanks ($297.3 billion) and banks ($10.9 billion). The Recursion servicing-rights data reflect the agency-recorded transfer period and balance, not necessarily publicly announced sales volumes and dates. The top MSR buyers over the period, according to Recursion's data, were J.P. Morgan Chase, $52.8 billion; Mr. Cooper, $51.7 billion; Freedom Mortgage, $48.7 billion; Lakeview Loan Servicing, $40.9 billion; and Carrington Mortgage Services, $39.6 billion. The leading sellers to the top 10 servicers over the first four months of 2022 included United Wholesale Mortgage (UWM), with a total of $69.3 billion in MSRs sold, including $25.9. billion transferred to J.P. Morgan, $14.6 billion to Carrington and $28.8 to Matrix Financial Services Corp.; and Homepoint, a total of $45.2 billion in MSRs transferred to Freedom — which itself sold $22.3 billion in MSRs to three other lenders (Mr. Cooper, Lakeview and Rocket Mortgage) and also was the leading MSR purchaser in 2021 at $143.4 billion in MSRs acquired. Others in the mix in selling to the leading servicers this year through April include Rocket, a total of $48.5 billion in MSRs sold to Lakeview ($25 billion), Onslow Bay Financial ($18.6 billion) and Carrington ($4.9 billion). Rocket also acquired $15.5 billion in MSRs from two other nonbank lenders during the period. And finally, loanDepot, sold $20.5 billion in MSRs to Mr. Cooper, and Guaranteed Rate transferred $13.8. billion to J.P. Morgan. "Many small to mid-size originators who have not sold in this MSR bull market have now begun to offer all or most of their MSR assets as a result of [the] flattening of the price curve, to capitalize on current market conditions," Piercy said. "The result is a recent surge in offerings to the market with demand keeping up due to new buyers entering the space. "However, certain buyers who have been quite active are either much more selective in what they will bid or have pulled back entirely as they digest what they've acquired in the early months of 2022," Piercy added in a note of caution about the future. "We forecast a steady flow of bulk MSRs to be offered through the end of the [second] quarter [but] must wait to see what pricing will do as the Fed continues to fight inflation through their rate increases and volume continues to stay at current or even lower volumes in Q3." The post MSR offerings selling like hotcakes so far in Q2 appeared first on HousingWire. |
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