Recession in 2H 2023, peaking critical defects & Credit Suisse takeover
A weekly round-up of key events in mortgage & banking.
In this edition, we will do a round up of key developments of the past week.
What’s inside:
Fannie Mae cuts mortgage origination forecast for 2023 by 8%
Critical loan defect hit new in 3Q, 2022 - ACES quality report
UBS, Credit Suisse takeover is a big relief to US mortgage financing
How does Credit Suisse takeover impact MSR markets
Here’s a complete low-down 👇
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Weekly Roundup
Fannie Mae cuts mortgage origination forecast for 2023 by 8%
Fannie Mae reduced its mortgage origination forecast for 2023 by 8%, citing financial stability concerns as a threat to sustained growth.
The government-sponsored enterprise (GSE) now expects $1.55tn of mortgage originations during 2023, down from $1.69tn in February. For 2024, the GSE is looking at $1.89tn of volume, versus $2.03tn a month ago.
Given that the economy is still in a pre-recessionary phase, Fannie Mae pushed out its timing for the start of a recession to the second half of this year.
"Inflation has now been joined by financial stability concerns as threats to sustained growth. These particular pre-recessionary conditions are not unusual, as bank failures often follow monetary tightening — but this may well be the catalyst for the modest recession we've been expecting since April 2022."
- Doug Duncan, chief economist, Fannie Mae
In Fannie Mae’s March report, Duncan upgraded his GDP estimate for the first quarter to 0.9% growth. But he called for contractions of 0.2%, 1.3% and 0.6% over the next three quarters… Read More
Critical loan defect hit new in 3Q, 2022 - ACES quality report
According to a report by Aces Quality Management, critical defects on mortgage applications increased to a new high in Q3 2018.
The report highlights that while originations fell sharply and competition intensified, material errors committed during underwriting increased for the third quarter in a row.
This hit a 2.47% share, which represented a jump of over 40 basis points from 2.05% from the previous three months. ACES attributes the impulse for lenders to "ride the line" as a factor in the higher rate.
Three out of ACES' four core underwriting categories posted a higher percentage of critical errors compared to the previous quarter. Asset, credit and liabilities all saw increases. Income and employment-related issues made up 24.66% of ACES' findings, although slightly lower than before - down from 26.92% in Q2.
Among the eight other categories - appraisal, insurance and loan documentation were the only three seeing improvement in their defect rate… Read More
UBS, Credit Suisse takeover is a big relief to US mortgage financing
The proposed $3.2bn acquisition of Credit Suisse by Swiss rival UBS could help stabilize the European financial institutions that support the US mortgage industry.
While neither bank is a major player in US mortgages, their support of warehouse financing is important to the sector.
Credit Suisse has also been involved in developing innovative warehouse and mortgage-servicing rights financing vehicles involving assets such as Ginnie Mae MSRs or non-QM loans. As part of its business, it held Select Portfolio Servicing, which had a portfolio of servicing rights tied to around 942,000 residential mortgages with an unpaid principal balance of $179.5bn as of 30 September 2022.
Credit Suisse's direct relevance to the US mortgage market is limited, and it has been downsizing its involvement in the sector. UBS, too, has little exposure to US home lending and servicing, and is expected to continue to distance itself from the securitized residential mortgage market in the US.
Some believe that UBS and Credit Suisse are unlikely to disrupt the market for securitizations with government-related backing, and that the sector would recover quickly were Credit Suisse to exit mortgages… Read More
How does Credit Suisse takeover impact MSR markets
The acquisition of Credit Suisse by UBS Group AG has brought to an end one of the most important periods of growth for independent mortgage banks (IMBs), particularly in the world of government-insured loans.
Over the past five years, the structured products group of Credit Suisse helped to finance billions in mortgage servicing rights in the bond market for IMBs, enabling their growth of market share as Ginnie Mae issuers.
Even though, a part of Credit Suisse's banking team moved to a new firm set up by Apollo Management, the sale of the structured products group of Credit Suisse to Apollo is incomplete. This is primarily because the buyer reportedly was not willing to take on a $20 billion Ginnie Mae loan book comprised of advances to several IMBs.
With the deterioration in the credit performance of government-insured loans, the Credit Suisse Ginnie Mae book may become near impossible to sell… Read More
Spotlight: Vaultedge Demo at MBA Tech Expo
MBA is back with its annual technology expo - Technology Solutions Conference & Expo (TECH23) and it’s timing couldn’t have been better.
Given the current market choppiness rooting from - a brewing banking crisis, a possible recession and Fed rate hike, MBA’s TECH23 conference is a much needed shot in the arm.
During the conference, we hope to witness technology solutions that can help improve cost efficiency & productivity in the short term — not in some promised distant future.
This is where we also want to play our part -
Vaultedge will demo its AI powered loan boarding & verification automation platform during the Tech Showcase.
If you are at the conference, we would love to meet you in person and understand more about you. Go here to book a meeting.