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Volume 18 - Number 7

April 4, 2014

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Secondary Marketing Activity Slowed Significantly in Late 2013, Pipeline Low

Commercial banks and savings institutions reported severe declines in secondary market mortgage sales during 2013, including a sharp 38.4 percent drop in the fourth quarter. Bank and thrift mortgage sales totaled $1.208 trillion last year, according to an Inside Mortgage Trends analysis of call-report data. That was down 16.5 percent from 2012. Banks and thrifts originated fewer loans as well, but loan sales declined more than total originations, indicating that many lenders retained new production for their portfolios. The industry reported $618.4 billion in retail originations through their mortgage-banking operations, along with $801.2 billion in wholesale production. Both figures were down from the previous year, and [includes a two-page chart]...

Profit Margins Squeezed in Late 2013

Mortgage bankers reported sharp declines in profitability during the fourth quarter, and only a little more than half of them said they were profitable at all, according to the Mortgage Bankers Association’s latest performance report. The average pretax income reported by participating companies fell 58.9 percent from the third quarter to $681,000, the MBA said. Only 57.9 percent of the lenders said they had positive pretax income for the period. Back in the fourth quarter of 2012, 93.5 percent of lenders said they were profitable. And the average ratio of pretax income to equity shriveled to just 51 basis points in the fourth quarter, compared to 12.2 percent in the third quarter and 63.4 percent a year ago.

Buyback Woes Easing, But Defense Still Important

Fannie Mae and Freddie Mac at yearend wrapped up most of the massive amount of repurchase demands tied to their pre-2008 books of business, which likely means less business for law firms and companies that help lenders defend buyback demands. But Resolution Portfolio Management & Oversight sees the new buyback era as an opportunity, especially for boutique firms like itself. “A lot of our competitors are out of business,” said Andrew Henschel, RPM’s executive vice president. “Their business model was based on volume. We’re a boutique. If we don’t win, we don’t get paid.” Indeed, these are trying times for some due-diligence firms. Last fall, Allonhill LLC sold most of its assets to Stewart Lender Services. Then a few months later, Allonhill owner Sue Allon threw what was left of the firm into bankruptcy protection after...

Vacation Sales Rise in 2013, Investor Share Down

Sales of vacation homes increased 30 percent in 2013 from the previous year with 62 percent of buyers using a mortgage to finance their purchase and the rest paying in cash for their new properties, according to a survey from the National Association of Realtors. The NAR’s 2014 survey of investment and vacation homebuyers revealed that 717,000 vacation homes were purchased last year, the most since 2006. Overall, survey results showed that home sales in the first half of 2013 saw stronger recovery in many local markets. These sales were spurred by low mortgage interest rates and affordable house prices. However, the recovery slowed in the second half of the year in many areas due to low housing inventory. The median sales price of a vacation home last year was $168,000, up 12.5 percent from 2012. It was the second year with a price...

Housing Supply Curbing Purchase Market

Originations of purchase mortgages declined in the fourth quarter of 2013, and applications for purchase mortgages have been tepid in early 2014. While tight underwriting requirements could have played a role in the downward trend, industry analysts suggest that a number of other factors are also suppressing originations of purchase mortgages. Loan-level data on agency mortgages show a decline in underwriting standards for purchase mortgages during 2013, including an increase in average debt-to-income ratios and a decrease in average credit scores. The looser underwriting wasn’t enough to stave off declines in originations. Mark Fleming, chief economist at CoreLogic, said originations of purchase mortgages have been constrained in part by a lack of supply, not of loans, but of homes...

Cause for Optimism as Spring Season Begins?

Real estate agents, homebuilders and mortgage lenders alike are hoping the sluggish market really is due to the unusually severe winter seen across the nation – and something not deeper or more systemic. However, the critical spring homebuying season is getting underway, and the next three months may have much to say about whether 2014 will be a break-out year or just a middling performer. “Over the coming months, we believe it will become increasingly clear whether our estimate for a $1.2 trillion to $1.3 trillion market is still achievable or if originations will come in closer to the Mortgage Bankers Association’s long-standing target for $1.1 trillion,” analysts at FBR Capital Markets said recently. “Though we had long expected refinancing volumes to slow as rates rose and the pool of borrowers with an economic incentive...

No Bright Spots in Mortgage Geography

If you’re disappointed by the sluggish mortgage market where you are, you can take some comfort in knowing that the grass isn’t much greener anywhere else. A new Inside Mortgage Trends analysis of first-quarter mortgage activity by state shows that most areas of the country produced at least 40 percent fewer mortgages in early 2014 than during the same period last year. California, still the biggest housing market of all, saw a 67.2 percent decline in mortgages securitized by Fannie Mae and Freddie Mac. That was a couple ticks worse than the 63.7 percent nationwide. In contrast, the market was down “only” 44.9 percent in Texas, the second-largest source of agency mortgages. Third-ranked Florida was also in a little better shape than the overall market, though business was down 53.6 percent from the first quarter of 2013...

GSE Production by State: 1Q14

One full-page chart.

Poll

What do you think is the biggest hurdle to meeting the new QM standards in the CFPB’s ability-to-repay rule?

A debt-to-income (DTI) cap of 43%.

48%

A 3% cap on points and fees.

29%

An interest rate cap of the average prime offered rate (APOR) plus 1.5%.

23%

Housing Pulse