Fed hikes 25bps, IMBs production cost peaks, housing prices slip 3%
A weekly round-up of key events in mortgage lending & servicing
In this edition, we will do a round up of key developments of the past week.
What’s inside:
Fed hikes rate by 25 bps amid bank failures
IMBs lost $2,800+ per loan in Q4
Housing market cools: Prices slide 3% from record highs
Spring home-buying boosts mortgage prepayment
Here’s a complete low-down 👇
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Weekly Roundup
Fed hikes rate by 25 bps amid bank failures
The Federal Reserve (Fed) raised the benchmark rates by 25 basis points to 4.75%-5%, marking its ninth consecutive rate hike, despite several recent bank closures causing turbulence in financial markets.
Pointing at the resilience of US Banking system, FOMC noted that while the rate hike will tighten the credit conditions for households & businesses - it is a necessary step to tame inflationary pressures. The Fed's decision to hike the rate by 25 basis points was based on the cooling but still present inflation data. In February, the Consumer Price Index (CPI) rose by 6% before seasonal adjustment compared to one year ago, lower than the 6.4% increase recorded in the 12 months ending in January.
At the same time, FOMC acknowledged that given the recent bank failures, any further tightening is not warranted.
The Fed also revised its forecast on inflation, which it expects to be slightly higher than its December estimate. It also offered a slightly lower forecast for unemployment this year, which suggests a longer and more muted approach to tamping down inflation. The projected inflation rate for the year is now 3.3%, up from 3.1% in December while economic growth in 2023 is now forecast to be 0.4%, down from 0.5% in December…Read More
IMBs lost $2,800+ per loan in Q4
Independent mortgage bankers (IMBs) saw a net loss of $2,812 per loan originated in Q4 2022, according to a report from the Mortgage Bankers Association. This marks the third consecutive quarter of net losses for IMBs, which are largely nonbank lenders that originate and service loans. In Q3 2022, IMBs lost $4,299 per loan and in Q2 2022, they lost $1,675 per loan.
The main drivers of the losses were rising production expenses, primarily due to the cost of attracting and retaining employees, and higher hedging costs due to volatile mortgage rates. Refinance volume fell 39% from Q3 to Q4 2022, which also contributed to the losses.
In addition, the report found that profit margins for IMBs fell to 200 basis points in Q4, down from 261 basis points in Q3.
Despite the losses, the MBA expects the industry to rebound in the coming quarters.
"While the pandemic-related challenges from last year remain, the industry is poised for a solid year ahead. Higher volumes and a more favorable purchase market should create a tailwind for mortgage lenders, and we expect profitability to improve in the quarters ahead,"
said Marina Walsh, the MBA's vice president of industry analysis.
The MBA report also found that overall mortgage originations fell 9.2% in Q4 from the previous quarter, but were up 60.7% from a year earlier. Refinance originations fell 9.9% from Q3 to Q4, while purchase originations fell 8.7%. The MBA predicts that mortgage originations will reach $3.18tn in 2021, driven by a strong purchase market… Read More
Housing market cools: Prices slide 3% from record highs
The US housing market is experiencing a further cool down, with prices falling by 3% from their peak, according to a recent report by National Mortgage News. This decline comes after the market hit record highs amid the COVID-19 pandemic - fueled by historically low mortgage rates and increased demand from homebuyers seeking larger living spaces.
The demand slowdown is driven by several factors, including rising interest rates, affordability concerns, and reduced buyer demand.
The Federal Reserve's recent moves to combat inflation have resulted in higher mortgage rates, which in turn has dampened buyer enthusiasm. The affordability crisis has also contributed to the cooling market, as potential homebuyers struggle to keep up with skyrocketing prices.
Additionally, the market has seen a decline in buyer demand, as many individuals who had been waiting to purchase a home have already done so during the pandemic-driven housing boom.
Despite these challenges, the housing market remains resilient, and experts predict a more balanced market going forward…Read More
Spring home-buying boosts mortgage prepayment
Mortgage prepayment rates broke a four-month record-low streak in February, with the upward trend expected to continue into the spring home buying season, according to Black Knight's mortgage performance data. Andy Walden, VP of enterprise research and strategy at Black Knight, noted that the increase in prepayment activity suggests a potential rebound in both refinance and purchase origination volumes.
Typically, prepayment activity driven by home sales doubles between January and June. If this seasonal pattern holds in 2022, overall prepayment speeds could experience a 40-50% boost in the coming months, although they are still expected to remain historically low.
The national mortgage delinquency rate rose slightly to 3.45% in February but remained 12.6% lower year over year. At nearly 40 basis points below pre-pandemic levels, the mortgage market is in a strong position overall. Delinquencies of 90 days decreased by 17,000 or 3%, with serious delinquency volumes falling in 45 states.
However, Walden pointed out that early signs of broader economic impacts are emerging in some segments, particularly among FHA mortgages held by lower-income borrowers and first-time homebuyers. As the spring home buying season unfolds, it will be crucial to monitor these trends and their potential implications for the mortgage market… Read More
Spotlight: Vaultedge Showcase at MBA Tech Expo
Vaultedge is proud to showcase its AI powered loan boarding & verification automation at Tech Showcase at MBA’s upcoming Technology Solutions Conference & Expo.
Despite doldrums in the larger economy, MSR markets are still upbeat. The question is - what can lenders & servicers do to take advantage of this opportunity ?
As a lender or servicer, if you were to acquire a piece of this pie - how will you onboard these MSR portfolios into your systems - faster, cheaper and without errors ?
The answer lies in automating loan boarding and loan verification using AI so as to reduce cycle time by 50% and cost by 80% - putting oneself in a stronger position to buy more MSRs.
Sounds interesting ?
If you’re coming to MBA’s Tech Solutions & Expo, then let’s meet. Go here to book a meeting.