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Wednesday, November 2, 2022
It’s no secret that the mortgage market is taking a hit.
But it’s not just sly homebuyers who are choking mortgage lenders. Secured over the past two years, it’s largely a non-existent refinancing market, down about 85% from last year because few homeowners want to sacrifice 3% mortgage rates. whole, Mortgage activity is at its lowest point Even before the millennium began in 1997.
This is a big problem for mortgage lenders, especially non-banks that don’t have a lot of non-mortgage income. For example, Mr. Cooper (Coop) saw a 26.6% QoQ decline in Q3 originations. Report your earnings Next up is Rocket Mortgage (RKT) Thursday, United Wholesale Mortgage (UWMC) and loanDepot (LDI) and Home Point Capital (HMPT) next week.
So how do these lenders keep ticking beyond worker cuts? there is.
Although originations remain weak, loans and refinancings initiated during the boom years of the last two years still need to be managed. Mortgage servicing rights (MSRs) on these loans are attractive as a means of increasing income, and the lender leverages them in two ways.
First, those in need of cash are offloading MSR portfolios of historically low interest rate loans that are unlikely to be prepaid any time soon.
The biggest sellers of these portfolios so far this year are non-bank lenders. Home Point, $68.9 billion. Rocket Mortgage, $50.5 billion. LoanDepot is $25.3 billion, according to Recursion, a mortgage data analytics firm.
On the other hand, those who buy these portfolios are also getting incentives. This is due to the increasing value of these MSR portfolios as origination tanks.
“They mark up the value and get the income, which is a natural hedge for lending companies,” Paul Muolo, executive editor of trade publication Inside Mortgage Finance, told Yahoo Finance. “That’s how the model is supposed to work. They can make a lot more money in lending than in servicing during boom times, but this will get them through.”
For example, Mr. Cooper. The company, which is the fourth top buyer in the MSR portfolio this year with $78.8 billion per recursive data, marked a portion of its quarterly net income with a “positive MSR mark,” said Chairman and CEO Jay Bray of the company. Speaking on its earnings call, CFO Jaime Gau said: “The MSR value he increased by 5%, reflecting the recent rise in mortgage rates.”
another bonus? The company could draw an additional $90 million from his MSR line, and “he continues to use the MSR line for necessary working capital and opportunistic acquisitions of his MSR,” Gow said. says.
Speaking of lines of credit, another tactic some lenders are using as mortgage rates weigh on the housing and refinancing markets. They are reducing or removing warehouse credit lines with so-called Wall Street “repo” lenders that were used to help finance new originations.
In September, loanDepot wound down the master repo agreement it signed in June 2016. JPMorgan Chase hits $600 million. Also, Financing line with a US bank same month.Similarly, Home Point is in his Sept. Master purchase and sale agreement with Morgan Stanley early and another CS First Boston in October.
“When the loan hits a wall, they don’t need that borrowing authority and they come back to Chase or whoever they say they don’t need the billion dollar warehouse line anymore,” Muoro said. If we close down, we will not have to pay usage fees, which will save us money.”
How much is it? Muolo said he’s usually between 12.5 and 25 basis points. It may not sound like a big deal, but with mortgage activity at its lowest level in 25 years, every penny counts.
what to see today
7:00 AM EST: MBA Mortgage Applicationfor the week ending Oct 28 (-1.7% for the previous week)
8:15 AM ET: ADP Employment ChangeOctober (forecast 180,000, last month 208,000)
2:00 AM ET: FOMC rate decision (lower limit)Nov. 2 (3.75% expected, 3.00% in advance)
2:00 AM ET: FOMC rate decision (upper world)Nov. 2 (4.00% expected, 3.25% in advance)
2:00 AM ET: reserve interest rateNov. 2 (3.90% expected, 3.15% in advance)
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