Rate hike on cards, excess staffing fueled loan costs & Wells Fargo MSR sale sealed
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 mulling rate hike amidst surging inflation
Homeowners fear inflation, lack loss-mitigation knowledge
Excess staff pushes loan costs up 20% in 2022
Wells Fargo finalizes $50B MSR block sale
Here’s a complete low-down 👇
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Weekly Roundup
Fed mulling rate hike amidst surging inflation
Federal Reserve Governor Christopher Waller has expressed his support for further monetary policy tightening to counter high inflation. Waller said that the extent of tightening would depend on incoming data regarding inflation, the real economy, and credit conditions.
Policymakers anticipate one more quarter-point rate hike this year, with markets expecting a final rate increase on May 3. Despite recent inflation reports suggesting easing price pressures, most Fed officials have emphasized the need for more action to achieve the 2% inflation target.
Chicago Fed President Austan Goolsbee has urged caution with further rate hikes due to recent banking sector stress, while Atlanta Fed President Raphael Bostic supports one more rate increase followed by a pause. Waller, however, remains concerned about core inflation, which has shown little improvement.
Last month, Fed officials raised interest rates by a quarter percentage point, taking the policy benchmark to a target range of 4.75% to 5%. Waller acknowledges that recent bank collapses have caused uncertainty, but views bank stresses as easing. He believes that the tightening of credit conditions may reduce the need for aggressive rate hikes. Waller is prepared to adjust his stance based on new economic data and lending conditions. The Fed's next meeting is in over two weeks… Read More
Homeowners fear inflation, lack loss-mitigation knowledge
A new survey by mortgage technology firm Brace shows that 85% of homeowners are worried about inflation affecting their ability to pay their mortgage. In the past six months, 46% said the increased cost of living has impacted their home loan payments. The survey also revealed a lack of awareness about foreclosure triggers and loss mitigation options.
Brace's survey analyzed responses from 316 borrowers aged 25 to 74. Young and minority homeowners showed more concern about paying their mortgage and a higher interest in help from servicers. A total of 78% of respondents worried about rising interest rates impacting their ability to pay, even though only 2% had adjustable rate mortgages.
Many homeowners didn't know when missed payments would lead to foreclosure, and few understood the steps leading to it. Around 59% were aware of the forbearance grace period, and 27% knew about loan modifications to catch up on missed payments.
Homeowners want more education, with 69% interested in financial strategies from their servicer. Young borrowers prefer digital solutions, while older age groups are increasingly adopting digital options as well.
Disturbingly, 15% of respondents would turn to credit cards and 5% to payday loans to cover home loan costs… Read More
Excess staff pushes loan costs up 20% in 2022
In 2022, nonbank lenders experienced an average loss for each origination due to a rapid decrease in borrower demand and a surplus of staff, according to the Mortgage Bankers Association (MBA).
Net production income was negative for the first time since MBA's report inception in 2008. This decline resulted from surging interest rates, low inventory, and limited affordability, causing both purchases and refinances to plunge.
In dollar terms, the average loss per loan in 2022 was $301, compared to a net profit of $2,339 in 2021. Mortgage application volumes dropped by over two-thirds from the previous year, and mortgage companies responded with layoffs, but the reduced headcounts came too late for most to return to profitability.
Average production volume per company decreased by 47% in 2022. Revenue per loan also declined, while production expenses increased by 23% from 2021. The lower volume of new originations resulted in production employees closing an average of only 1.5 loans per month.
The industry needs to reduce staffing by another 25%-30% to right-size itself for lower volumes. Nonbank mergers and acquisitions have occurred due to a retrenching mortgage market and increased competition. Despite higher net income in servicing, only 32% of mortgage operations reported a profit, down from 98% two years earlier.
MBA predicts a challenging road ahead for mortgage companies in 2023, with a possible rebound in 2024 and 2025… Read More
Wells Fargo finalizes $50B MSR block sale
Wells Fargo has finalized the sale of a $50 billion mortgage-servicing rights (MSR) block, expected to close later this year. The deal was conducted through an open auction with pre-qualified bidders, managed by the bank's trading desk. Wells Fargo's CFO, Mike Santomassimo, confirmed the MSR sale during the bank's first-quarter earnings call but did not provide specific details.
The bank intends to continue looking for opportunities to simplify and reduce the size of its servicing business. Its total portfolio of loans serviced amounted to $666.8 billion, down from $679.2 billion at the end of 2022.
The actual pricing of the deal will be determined by the type or mix of MSRs sold, the volume of loans involved, the servicing-fee strip, and the quality of the collateral, among other factors. The price paid for an MSR package is expressed as a multiple of the average servicing fee of the portfolio. MSR pools involving legacy loans from 2020 and 2021 are currently selling for multiples of 4.75 to 5.25.
Conventional Fannie Mae and Freddie Mac legacy MSR portfolios are selling a full multiple above Ginnie Mae MSRs. In the Ginnie Mae space, the market has moved to a 3.5- to 3.8-type multiple. Ginnie Mae trades are currently seeing pools that are 18 to 24 months old, running in a 10% to 15% delinquent category already.
However, the bank has not yet commented specifically on the details of the $50 billion MSR offering… Read More
And that’s a wrap. Until next time, stay healthy & keep reading.. 😊