Mortgage – HousingWire

Forbearance rate drops below 1%, lowest level since June 2020
Lessons from lenders’ Q1 earnings amid epic volume drop
Polly teams up with mortgage insurance providers to streamline service

Forbearance rate drops below 1%, lowest level since June 2020

Posted: 16 May 2022 02:31 PM PDT

Servicers' forbearance portfolio volume dropped in April to a level below 1%, with fewer than half a million borrowers remaining with an active plan, according to the monthly Loan Monitoring Survey conducted by the Mortgage Bankers Association (MBA).

That's good news after the economic impacts of the Covid-19 pandemic hit borrowers hard, making it difficult for Americans to pay their mortgages. In total, the share of loans in forbearance decreased by 11 basis points, to 0.94% in April from 1.05% in March.

The most notable decline was in the portfolio loans and private-label securities (PLS) category, dipping by 29 basis points to 2.15%. Ginnie Mae loans in forbearance decreased 9 bps, at 1.29% of servicers' portfolio volume. Meanwhile, Fannie Mae and Freddie Mac loans dropped by six basis points to 0.43%.

At the end of April, 470,000 homeowners were in forbearance plans.

According to Marina Walsh, vice president of industry analysis at MBA, the pace of monthly forbearance exits in April reached its lowest level since June 2020, when the association first started tracking exits.

"Servicers are expected to continue making small incremental inroads to the remaining loans in forbearance," Walsh said.

Total forbearance requests were 0.10% of servicing portfolio volume in April, while exits represented 0.21%. The survey also shows 28.9% of total loans were in the initial stage last month and 58.1% were in a forbearance extension. The remaining 13% were re-entries.

During the past 22 months, MBA data revealed that 29.3% of exits resulted in a loan deferral or partial claim, while almost 19% of borrowers continued to pay during the forbearance period. However, 17% were borrowers who did not make their monthly payments and did not have a loss mitigation plan.

The survey also shows loans serviced, not delinquent or in foreclosure, were 95.64% in April, up from 95.47% in March, an improvement despite potential headwinds such as high inflation and stock market volatility.

According to Walsh, the improvements are due to the U.S. unemployment rate remaining below 4%, which leaves borrowers in a good position to make their mortgage payments.

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Lessons from lenders’ Q1 earnings amid epic volume drop

Posted: 16 May 2022 01:57 PM PDT

As banks and nonbank lenders recently released earnings for the first quarter of 2022, two things became clear: Origination volume plummeted across the board, but those that managed to muster up a good quarter benefited from servicing portfolios. As refinancing became less appealing, lenders also sold off a large portion of mortgage servicing rights (MSRs), cut costs and diversified revenue stream to survive the mortgage storm.

Rocket Companies ($1 billion), United Wholesale Mortgage ($453.2 million) and Homepoint ($11.9 million) are among the nonbank lenders that benefited from the sale of MSRs, offsetting the decline in closed loan volume in the first quarter of 2022.

UWM, the nation's largest wholesale lender, sold MSR on loans with an aggregate unpaid principal balance of about $56.6 billion for processes of about $656.7 million, according to the firm's first quarter filing with the U.S. Securities and Exchange Commission (SEC).

With mortgage rates surging, 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 of time.

UWM's first quarter earnings were led by a $172 million increase in the fair value of MSRs. UWM had $303.4 billion in the unpaid principal balance of MSRs as of March 31, 2022 compared to $221 billion exactly a year earlier.

Proceeds from the sale of MSRs for Detroit-based Rocket Companies, the parent company of Rocket Mortgage, totaled $254 million in the first quarter of 2022, up from $10.2 million during the same period in 2021.

Why 2022 could open more opportunities for subservicing

With production volumes flattening out and non-QM originations increasing, the need for originators to focus resources and cost on the front end of the business could lead to more subservicing opportunities.

Presented by: Selene Finance

Rocket posted a 17% year-over-year increase of $546 billion in unpaid principal balance as of March 31 regarding its servicing book. Rocket has 2.6 million clients in the servicing portfolio and generates $1.4 billion annually in recurring servicing fee income, according to the firm.

Homepoint reduced its servicing portfolio and completed sales of MSRs of single-family mortgage loans of about $434.5 million in the first three months of 2022. The firm said it generated $83.2 million from servicing mortgages during that period, up $64.8 million from the same quarter in 2021 and $74.4 million from the previous quarter.

Other firms achieving a profitable first quarter by leaning on their servicing portfolios include California-based nonbank lender Pennymac ($173.6 million), nonbank mortgage lender and servicer New Residential Investment Corp. ($690 million), Mr. Cooper ($658 million) and Ocwen ($58 million).

Without an abundance of refis, lenders also have been tasked with increasing purchase mortgage volume. Mortgage executives, consultants and loan officers had forecast that players who perform well with purchase mortgages – or in other words, get closer to the borrower – are better positioned in the downmarket.

Rocket posted $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 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," said Jay Farner, vice chairman and chief executive officer of Rocket Companies, during its earnings call. "That said, there are opportunities that may allow us to lean into the purchase market."

Analysts say Rocket has advantages in the purchase market as it does most of its business through consumer direct retail and is also the second-biggest lender in wholesale. Rocket originated about $113.5 billion in the broker channel last year, according to Inside Mortgage Finance.

UWM originated $38.8 billion in mortgage loans in the first quarter of 2022, a 29.7% decrease compared to the previous quarter and a 20.8% decline year-over-year. Purchase loans grew 56% of the total origination volume in the first quarter of 2022 to $1.9 billion from 24.9% in the same period last year.

Refi-heavy loanDepot had a tough three months reporting a net loss of $91.3 million in the first quarter; it expects to be in the red for the remainder of 2022.

Loan origination volume dropped 26% to $21.6 billion from the previous quarter, bringing the company's market share down to 3.1%. The decrease in rate lock volume and gain-on-sale margin were responsible for the massive quarter-over-quarter decline, according to the firm.

"The increase in mortgage rates during the quarter happened much more quickly and sharply than anyone anticipated when the quarter began and resulted in significant and rapid decreases in profit margins," said Anthony Hsieh, loanDepot's founder and executive chairman, to analysts.

Rate lock volume in the first three months of 2022 dropped 13.7% to $30 billion from $34.8 billion in the previous quarter. Gain-on-sale margin was down to 1.96% in the first quarter from 2.23% in the previous quarter.

The firm's net loss of $68.4 million on the change in the fair value of its servicing rights didn't help its first quarter performance. The unpaid principal balance of the servicing portfolio dropped to $153 billion as of the first quarter this year from $162 billion in the last quarter 2021.

Two of the nation's largest banks, JPMorgan Chase and Wells Fargo & Co., reported double-digit declines in origination volume and net earnings, partially offset by strong performances in their respective servicing portfolios.

Wells Fargo, the fourth-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.

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.

"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," said Charlie Scharf, CEO of Wells Fargo, during its earnings call.

While both banks saw about a 20% decline of revenue in home lending business, higher servicing revenue offset the decline in origination revenue. Wells Fargo's mortgage servicing rights rose 13% to $8.5 billion in the first quarter of 2022 from $7.5 billion. JP Morgan's servicing rights increased to $7.2 billion in the first quarter of 2022 from $4.4 billion in the same period last year.

To manage business during the storm, headcount reductions were inevitable for some lenders.

Finance of America Companies, which reported a $64 million loss in the first quarter, cut 598 jobs between March 2021 and March 2022. With refis expected to drop more in the second quarter, it will keep the headcount aligned with the volume of business, although specific details were not released.

Pennymac announced layoffs of 236 employees in six California offices in March. Most of the reduced positions were specialists in home loans, including those with expertise in refinancing.

Layoffs also were imminent at loanDepot, which did not offer details regarding a timeline or positions affected.

"We are aggressively managing our cost structure to return to profitability by the end of the year," said Patrick Flanagan, loanDepot's chief financial officer. "We expect to achieve this goal by further reducing marketing expenses and personnel expenses through the addition of headcount reductions," Flanagan added.

Navigating the downturn in a cyclical industry also meant lenders rolled out new products and services.

In the third quarter of this year, loanDepot is rolling out its new home equity line of credit (HELOC) product for which customers can apply and be approved in as few as seven days. The product is within its mello business unit, which was launched in 2017 and operates side-by-side with loanDepot's mortgage origination and servicing division.

In January, loanDepot announced it is bringing the servicing of the Federal Housing Administration, Department of Veterans' Affairs and United States Department of Agriculture-funded Ginnie Mae loans in-house. The move leverages "ongoing investment in the firm's servicing platform, allowing the company to scale for operational efficiency and enhanced customer service," loanDepot execs said at the time.

FoA is diversifying its portfolio beyond traditional mortgage products with the best performance in reverse originations for the quarter. The product's funded volume increased from $1.32 billion in Q4 2021 to $1.47 billion in Q1 2022, up 12%. Compared to the same period in 2021, when the volume was $769 million, it increased 92%.

"Our reverse and commercial originations businesses faced pressures in the first quarter as rates and spreads rose at the fastest pace in decades; however, the pipeline for reverse and commercial originations continues to be strong," said Patti Cook, CEO of FoA. "Our reverse pipeline has never been bigger, driven by strong home price appreciation over the past couple of years."

The pandemic delivered banner years for the mortgage industry, which originated more than $4.3 trillion in volume in 2020 and $4.4 trillion in 2021, according to Black Knight. While purchase lending posted an all-time high of $1.7 trillion in 2021, the $2.7 trillion in refinance lending was below 2020 levels.

Correction: This article was updated to reflect the percent by which UWM’s purchase loans grew from 2021.

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Polly teams up with mortgage insurance providers to streamline service

Posted: 16 May 2022 12:16 PM PDT

Polly, a software-as-service mortgage technology firm that operates a loan-trading platform, integrated with six mortgage insurance providers to streamline the mortgage process for loan officers and mortgage lenders.

The San Francisco-based fintech will embed quoting capabilities of Arch MI, Enact, Essent, MGIC, National MI and Radian to Polly's product and pricing engine to streamline the process of calculating, quoting and comparing mortgage insurance offerings across all providers, the firm said.

Through the integration, users will receive a list of rates, premiums and summaries on the impact of distributable net income – the maximum amount that can be distributed from a trust to a beneficiary. When a quote is selected, the user will receive documentation from the applicable mortgage insurance provider. Polly's cloud-based product also will provide an explanation when a quote is not provided, as well as suggestions for changing parameters.

The tech firm aims to provide customers with "the right tools and workflow automation to navigate an ever-changing market," Adam Carmel, chief executive officer of Polly, said in a statement.

“We often receive feedback that legacy processes remain cumbersome and time consuming, so we are thrilled to partner with all six essential mortgage insurance providers to streamline the mortgage insurance process for lenders and borrowers," Carmel added.

Mortgage loan-trading platforms benefited from the recent historic origination volume, but rising interest rates and regulatory actions have become a threat to these platforms. The Mortgage Bankers Association expects refinance originations to decline 64%, to about $840 billion, in 2022.

How should the current market impact lenders’ tech adoption?

HousingWire recently sat down with Polly CEO Adam Carmel to discuss how lenders can break old habits and redefine the mortgage process through innovation and modern, advanced technology.

Presented by: Polly

Some platforms also are expected to be affected by the suspension of the 7% cap for Fannie Mae and Freddie Mac‘s purchase investor property and second-home loans. When the cap was in place, private-label electronic mortgage clearinghouses with Wall Street investors benefited. With many investor property and second-home loans expected to return to Fannie Mae and Freddie Mac portfolios, some firms are expected to take a hit.

Polly raised about $57 million from three rounds of funding since its launch in 2019. Most recently, it raised $37 million in a Series B funding led by venture capital firm Menlo Ventures in January. Movement Mortgage, First American Financial and FinVC joined existing investors 8VC, Khosla Ventures and Fifth Wall.

At the time, the company said it planned to invest in artificial intelligence, machine learning tools and expand its client base. Carmel said it has increased customers by about three times during the past year – including some of the country’s top 100 lenders.

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Loans And Mortgage

Tuesday, May 17, 2022