Mortgage Banking Profitability

Browse articles from all of our Newsletters related to Mortgage Banking Profitability.

April 18, 2014 - Inside The GSEs

Deutsche Bank Wins Dismissal Against FHFA $567M MBS Suit

A New York state judge last week dismissed with prejudice a $567 million legal action brought by the Federal Housing Finance Agency against Deutsche Bank in 2012 over the bank’s refusal to repurchase hundreds of millions of residential mortgage-backed securities from Freddie Mac. Judge Eileen Bransten of New York’s State Supreme Court in Manhattan ruled the FHFA’s suit is barred by New York’s six-year statute of limitations.The FHFA sought to have the bank cover Freddie’s losses on defective MBS purchased from a $1.4 billion transaction.

April 18, 2014 - Inside Mortgage Trends

Mortgage Hassles Prompt Cash House Purchases

Some 30.0 percent of homes purchased in March avoided the use of mortgage financing, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. While mostly associated with investors, a fair share of current homeowners rely on cash for home purchases as a way to avoid the hassles associated with mortgage closings. The cash share of home-purchase financing has increased fairly steadily since August, when 26.5 percent of home purchases ...

April 18, 2014 - Inside Mortgage Trends

Fannie: Second-Home Mortgages Rebounding

A new report by Fannie Mae finds that second-home mortgage market activity is in the midst of a strong rebound, representing a small yet significant corner of the mortgage market. Fannie’s report – Second Homes: Recovery Post Financial Crisis – noted that the uneven economic recovery has a benefit to the second-home buyer, who tends to be older, earns more and consequently has the means to make a larger downpayment ... [Includes one data chart]

April 18, 2014 - Inside Mortgage Trends

GSEs Get Less Volume From Top Sellers

Fannie Mae and Freddie Mac did significantly less business during the first quarter of 2014 along just about every metric you can think of, but the two government-sponsored enterprises saw out-sized declines from their biggest customers. The top five GSE sellers accounted for just 33.3 percent of single-family mortgage deliveries during the first quarter of this year, according to a new Inside Mortgage Trends analysis of ... [Includes two data charts]

April 18, 2014 - Inside Mortgage Trends

Big Banks Report Huge Decline in Mortgage Banking Income in 1Q14

Mortgage-banking income at nine major banks declined by 27.7 percent in the first quarter of 2014 compared with the previous quarter, according to an analysis by Inside Mortgage Trends. The declines were driven by a lack of refinance volume, changes in valuations on mortgage servicing rights and litigation costs. “Despite a relatively favorable interest-rate environment, the market got off to a slow start in 2014,” said Marianne Lake, CFO at JPMorgan Chase, during the bank’s ...

April 11, 2014 - Inside FHA Lending

Deficient Files, No. 1 Cause of ‘Unacceptable’ Grade

Deficient file documentation is the leading cause of initial “unacceptable” ratings in the FHA’s most recent post-endorsement technical review (PETR) of targeted single-family FHA loans. Published in the March 2014 issue of Lender Insight, review results showed that 50 percent of the 5,504 FHA loans selected for review in the fourth quarter of 2013 had missing or flawed documentation. Of that percentage, 65 percent of loans were rated “unacceptable.” Loans are selected for post-endorsement review based on a risk-targeting methodology and do not reflect the overall FHA portfolio. An “unacceptable” rating indicates that the loan endorsement file had a material defect at the time the loan was endorsed for FHA insurance. Such ratings are upgraded subsequently if the lender provides mitigating documentation. Unacceptable ratings are due to errors or flaws in ...

April 11, 2014 - Inside FHA Lending

FHA Volume by State Drops, State HECMs Rise

Overall FHA production fell significantly in all 50 states in 2013 apparently due to mortgage insurance premium increases and policy changes that made it difficult for even qualified borrowers to obtain an FHA-insured single-family loan. FHA volume by state dropped 27.5 percent in the fourth quarter to $35.8 billion, from $49.4 billion in the previous quarter, with all states showing varying percentages of decline during the period. Year over year, production by state declined by 9.2 percent, data showed. Total FHA originations were $211.3 billion for 2013, with the first quarter ending strongly with $63.7 billion. Production, however, lost steam over the next three quarters. Among the top five FHA states, Virginia suffered the largest quarterly drop, 35.2 percent, in FHA volume. California was the top FHA producer state with $35.2 billion for a ... [2 charts]

April 11, 2014 - Inside FHA Lending

BofA, Nutter Agree to Resolve HECM Violations

Bank of America and James Nutter & Co. have agreed to indemnify the Department of Housing and Urban Development to resolve allegations that they failed to perform due diligence in underwriting Home Equity Conversion Mortgage loans. An audit of the HECM program by the HUD Office of Inspector General found that the financial institutions allowed 33 HECM borrowers to take out more than one loan, a violation of program requirements. The program requires borrowers to reside in the mortgaged residence as their principal residence. In addition, borrowers may not have more than one principal residence at the same time. In BofA’s case, one borrower obtained two HECM loans on properties she owned in Massachusetts and Florida, both of which she identified as her principal residence. The HUD OIG said there was sufficient information to alert BofA and the underwriter that ...

April 11, 2014 - Inside FHA Lending

Industry Calls for Transparent Loan-Limit Process

The Mortgage Bankers Association is urging the Department of Housing and Urban Development to provide a transparent process by which interested parties could request a recalculation of the FHA loan limits and present supporting evidence. By statute, maximums for FHA loan limits in high-cost areas were reduced to $625,500 from $729,750 at the beginning of the year for one-unit residential properties, the same maximum loan limit for Fannie Mae and Freddie Mac for similar properties in high-cost areas. The MBA said HUD made further reductions in FHA FY 2014 loan limits in approximately 300 counties and county equivalents across the country, with many experiencing significant reductions. The trade group believes these changes were not required by statute. To the extent that the loan-limit reductions in those areas were discretionary, the MBA strongly urged HUD to moderate its ...

April 11, 2014 - Inside FHA Lending

FHA Rejects Industry Plea to Lower MIPs

FHA Commissioner Carol Galante quashed any industry hope of seeing mortgage insurance premiums lowered at this time, saying that while the Mutual Mortgage Insurance Fund has shown some improvement, full recovery is still far off. In remarks during the Mortgage Bankers Association’s National Advocacy Conference this week, Galante also defended a provision in the president’s FY 2015 budget proposal seeking statutory authority for the FHA to collect an administrative fee from lenders to help fund quality control improvements. Both issues are high up on the MBA’s lobbying priorities as members gathered in Washington, DC, this week to meet with lawmakers and their staff to discuss FHA and other key industry concerns. Galante said the Department of Housing and Urban Development is currently focused on strengthening the MMI Fund and expanding access to credit for all qualified borrowers. The FHA raised pricing five times from ...

April 4, 2014 - Inside Mortgage Trends

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...

April 4, 2014 - Inside Mortgage Trends

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...

April 4, 2014 - Inside Mortgage Trends

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.

April 3, 2014 - Inside MBS & ABS

Retroactive Recognition of Principal Forbearance on Non- Agency MBS Pops Up Again, Causing Unexpected Losses

At least 46 vintage non-agency MBS took principal forbearance-related losses in March, according to industry analysts. The losses are a concern for investors because they were taken without warning, based on forbearance that happened well before March. Most of the deals taking retroactive forbearance losses in March were issued by Bear Stearns from 2005 through 2007 and were largely serviced by JPMorgan Chase, according to analysts at Bank of America Merrill Lynch and Barclays Capital. Write-downs on the deals were as high as 6.8 percent for a single month. “When a servicer recognizes losses on loans previously modified with forbearance, it could significantly impact...

March 28, 2014 - Inside FHA Lending

Around the Industry

Old Republic Cancels Recapitalization Plan for its Mortgage Guaranty Subsidiaries. Old Republic International Corp. has withdrawn plans to secure capital market funding for its beleaguered consumer credit indemnity and mortgage guaranty subsidiaries for lack of investor interest. Both business segments are housed within the Republic Financial Indemnity Group and have been in a run-off mode since 2008 and 2011, respectively. ORI Chairman/CEO Al Zucaro said holding company funds would be used to shore up the regulatory capital of the mortgage guaranty subsidiaries. The completion of the recapitalization plan hinged on regulatory approvals in North Carolina, Florida and Vermont, as well as from the government-sponsored enterprises and the Federal Housing Finance Agency. ORI said that with all the complications, it could not be certain of getting the necessary approvals. A primary investor concern is that new capital would be used to pay for RMIC’s legacy problems, and investors want their money to ...

March 28, 2014 - Inside FHA Lending

MRB Sanctions 33 Lenders for Various Offenses

Thirty-three FHA lenders were sanctioned and 32 others lost their FHA approval between October and December 2013 because of actions taken by the Department of Housing and Urban Development’s Mortgagee Review Board. The board also imposed $516,500 in civil money penalties and entered into one settlement agreement to bring an unidentified lender into compliance. During the three-month period, one lender entered into an indemnification agreement with the MRB over one FHA-insured single-family loan. FHA lenders were subject to MRB disciplinary actions for various reasons, including failing to establish and implement a servicing quality control plan and failing to perform loss mitigation as required by the agency. Actions were also taken against lenders for failing to conduct monthly reviews of delinquent loans to determine the type of loss mitigation needed, as well as for failing to repay HUD losses in connection with indemnification agreements. Noncompliance with HUD’s annual recertification requirements also resulted in ...

March 28, 2014 - Inside FHA Lending

HUD Sued for Failing to Protect Spouses from Eviction

The Association of American Retired Persons hit the Department of Housing and Urban Development again with another class-action lawsuit for allegedly failing to protect four surviving spouses of Home Equity Conversion Mortgage borrowers against foreclosure and eviction. The complaint was filed in the U.S. District Court for the District of Columbia, where last September a federal judge found HUD in violation of federal law in a similar case. The court remanded the case to HUD to determine the appropriate remedy for the problem. The AARP Foundation Litigation and the law firm of Mehri & Skalet, the same entities that successfully litigated last year’s reverse mortgage case, represented the plaintiffs, none of them younger than 65 years of age. The suit challenges HUD’s promulgation of HECM regulations, which allegedly is ...

March 28, 2014 - Inside FHA Lending

HUD Proposes Change to FHA Prepayment Rules

The Department of Housing and Urban Development has published a proposal to eliminate the requirement that an FHA borrower be required to pay interest even after the loan is prepaid. Specifically, the proposed change would prohibit FHA lenders from charging post-payment interest, allowing them instead to charge interest only through the date the mortgage is paid. The proposed rule change is necessary to avoid FHA loans being prohibited under new Consumer Financial Protection Bureau ability-to-repay rules and revised higher-cost loan regulations starting in January 2015. It effectively aligns FHA prepayment rules with the new CFPB rules. Comments on the proposal are due by May 12, 2014. The FHA currently allows lenders to charge interest for the full month if the borrower prepays on a date other than the installment due date. Regardless of whether the loan is FHA or non-FHA, there were complaints among borrowers that ...

March 28, 2014 - Inside FHA Lending

Carrington Sees Opportunity in Low-FICO Market

Lenders are cautiously expanding their guidelines on FHA lending by reducing its minimum credit score to below 580 to qualify borrowers. Carrington Mortgage Servicers this week joined a cadre of some 80 FHA lenders that have lowered their minimum FICO scores and eased their overlays to better focus on borrowers, particularly those below the 640 FICO range. The Santa Ana, CA-based lender is doing it not only for its FHA business but also for its VA and USDA loan programs. Carrington lowered its minimum FICO score to 550 for FHA loans, showing more aggressiveness than Wells Fargo, which moved its own FHA FICO floor to 600 from 640 at the beginning of February for purchase mortgages originated through its retail channel. The FHA currently requires a minimum credit score of 580 for most borrowers for 3.5 percent downpayment loans. Borrowers below 580 undergo more stringent manual underwriting and ...

March 28, 2014 - Inside FHA Lending

HECM Volume Falls Due to Policy Changes

Origination of FHA-insured reverse mortgages fell in the fourth quarter as borrowing costs increased and loan amounts shrank due to tighter agency rules for these loan products, according to Inside FHA Lending’s analysis of agency data. The FHA reported $15.3 billion Home Equity Conversion Morgages originations for 2013, which was up 20.6 percent from $12.7 billion in 2012. Production, however, fell 12.6 percent quarter over quarter as policy changes designed to stabilize the ailing Mutual Mortgage Insurance Fund and help ensure that HECM borrowers can sustain themselves for longer periods of time took effect on Sept. 30. The changes include limiting disbursements at loan closing, or during the initial 12 months after closing, to 60 percent of the initial principal limit. Borrowers who draw more than 60 percent will pay ... [1 chart]

March 28, 2014 - Inside Nonconforming Markets

More FHFA Non-Agency MBS Lawsuits Settled

Bank of America this week agreed to settle lawsuits filed by the Federal Housing Finance Agency regarding non-agency mortgage-backed securities purchased by Fannie Mae and Freddie Mac. Eleven of the 18 non-agency MBS lawsuits filed by the FHFA in 2011 have now been settled and the claims against BofA and its affiliates were by far the largest. BofA said it agreed to make a total of $5.8 billion in payments to Fannie and Freddie as part of the settlement and spend $3.5 billion to ...

March 27, 2014 - Inside Mortgage Finance

Most Mortgage Firms Continue to Undervalue Their Servicing Rights; But are Some Being Too Conservative?

In general, newly-created mortgage servicing rights are being valued at 4 to 4.5 times the servicing fee, which has become the industry norm of late, but there’s a school of thought that says lenders are being a bit too conservative in their “marks.” “Whether your company is public or private you have to be within [generally accepted accounting principles] on these valuations,” said Ken Richey, managing partner in Richey & Co., an accounting and advisory firm based in Englewood, CO. “GAAP dictates that you have to book it at fair value. But what’s fair value?” On a Fannie Mae or Freddie Mac loan, 4 times the servicing fees translates...

March 21, 2014 - Inside The GSEs

GSEs Report Dramatic Increase in Total 2013 Buyback Settlements

Fannie Mae and Freddie Mac in 2013 wrapped up most of the massive amount of repurchase demands they made on legacy loans originated before 2008, but the GSEs are looking more closely at new production and, increasingly, servicer performance. Together, Fannie and Freddie reported a total of $37.87 billion in mortgage repurchases and other settlements of buyback claims, which typically means the lender indemnified the GSE for its losses.

March 21, 2014 - Inside Mortgage Trends

Mortgage Buybacks Surged in Late 2013

Mortgage lenders repurchased $3.05 billion of home loans from Fannie Mae and Freddie Mac during the fourth quarter of 2013, a 91.0 percent increase from the previous quarter, according to a new Inside Mortgage Trends analysis of repurchase disclosures. As “securitizers,” the two government-sponsored enterprises are required to file repurchase activity reports with the Securities and Exchange Commission. Fannie and Freddie have ... [Includes one data chart]

March 21, 2014 - Inside Mortgage Trends

New MI Master Policies Fall Short

New master policies announced recently by the Federal Housing Finance Agency for private mortgage insurers may not provide the touted improvements or additional clarity, warned attorneys with Reed Smith’s Insurance Recovery Group. The revised MI master policy requirements are designed to ensure consistent and reliable MI coverage for greater operational efficiency and transparency in the mortgage market. They are supposed to improve and clarify the various rights and ...

March 21, 2014 - Inside Mortgage Trends

CFPB Enforcement Reveals an Aggressive Cop

With nearly three dozen enforcement actions under the Consumer Financial Protection Bureau’s belt during its three years of existence, the bureau has shown itself to be willing and able to play hardball with lenders. “The first 35 cases show that the CFPB will be an aggressive enforcer, which is what its backers wanted and expected,” said K&L Gates partner Jon Eisenberg, who recently did an extensive analysis of the cases. “It has the luxury of relying on statutes that employ extraordinarily ...

March 14, 2014 - Inside FHA Lending

FHA Lenders Report Lower Volume, Jumbos Down

The Chinese Year of the Horse welcomed the FHA with a hard kick in the head as total originations fell 20 percent in January from December 2013. Even as rising interest rates slowed refinancing activity last year, the expected increase in purchase-mortgage lending barely materialized and, in fact, appears to be dropping off. Lenders reported $8.7 billion in new originations in January, down from $10.9 billion in December and $23.7 billion from a year ago. Most were fixed-rate mortgages and 77.1 percent were purchase transactions. Three of the top five FHA lenders – Quicken Loans, JPMorgan Chase and LoanDepot – reported purchase origination totals below 40 percent. Top-ranked Wells Fargo and Bank of America each reported 64.0 percent of total FHA originations as purchase transactions. Wells Fargo closed the month with $519.0 million despite a ... [2 charts]

March 7, 2014 - Inside Mortgage Trends

Nonbank Servicers Try to Goose Originations

Officials at nonbank special servicers said they will continue to work to acquire servicing from banks, but they prefer to generate their own servicing via originations. Officials at Nationstar Mortgage, Ocwen Financial and Walter Investment Management noted that creating mortgage-servicing rights via their own originations can be more cost effective than acquiring MSRs or subservicing from other lenders. Nationstar originated $24.0 billion in mortgages in 2013, making it the ...

March 7, 2014 - Inside Mortgage Trends

OCC Warns of Volatility in Mortgage Profits

In new guidance to examiners and bankers, the Office of the Comptroller of the Currency is stressing the risks posed by mortgage banking, particularly for banks that rely heavily on the mortgage industry to turn a profit. “A mortgage banking operation’s income and expense components can change at significantly different rates and in different directions over time, resulting in substantial shifts in profitability,” the OCC said in its new handbook on mortgage banking ...

March 7, 2014 - Inside Mortgage Trends

Buyers Still Show Strong Interest in Mortgage Sector

When the going gets tough in the mortgage industry, nonbank lending firms start pondering the once unthinkable: selling their franchises, hoping the cash will tide them over until the next upswing in the cycle. The situation is no different this time around. Investment banking advisors say there are plenty of potential acquirers – all hunting for bargains – but sellers are picky. “Cheap is the goal now,” said Chuck Klein, a managing partner at Mortgage Banking Solutions ...

March 7, 2014 - Inside Mortgage Trends

Bank Repurchase Volume Hits 5-Year Low

Commercial banks and savings institutions made $1.447 billion in mortgage repurchases and other indemnifications during the fourth quarter of 2013, according to a new Inside Mortgage Trends analysis of call-report data. Repurchase totals for the final three months of last year were the lowest quarterly volume since the second quarter of 2008, when the industry made $1.533 billion in mortgage repurchases and indemnifications. The fourth-quarter ... [Includes one data chart]

March 7, 2014 - Inside Mortgage Trends

GSEs Resolved Huge Portion of Buyback Disputes in 2013, Servicing More in Focus

Fannie Mae and Freddie Mac last year wrapped up most of the massive amount of repurchase demands they made on legacy loans originated before 2008, but the government-sponsored enterprises are looking more closely at new production and, increasingly, servicer performance. Together, Fannie and Freddie reported a total of $37.87 billion in mortgage repurchases and other settlements of buyback claims, which typically means ... [Includes one data chart]

March 7, 2014 - Inside The GSEs

Banner Profits for Fannie, Freddie During Fourth Quarter, 2013

Higher guaranty fees and improving housing markets propelled Fannie Mae and Freddie Mac to banner profits during the fourth quarter of 2013 and for the year as whole. The two GSEs reported a combined 2013 net income of $133 billion, helped by significant nonrecurring items related to deferred tax allowance valuation reversals, private-label residential mortgage-backed security lawsuit settlements, increased representation and warranty settlements, and sizeable decreases in loan-loss reserves.

March 7, 2014 - Inside The GSEs

First Horizon Settles Reps & Warrants Claim With Freddie

First Horizon National Corp. announced last week it entered into a “definitive resolution agreement” with Freddie Mac regarding loan repurchase issues. The agreement settles all representation and warranty claims related to loans sold by First Horizon to Freddie Mac from 2000 to 2008. First Horizon CEO Bryan Jordan said in a statement the agreement with the GSE is “a big step forward” in the company’s ongoing efforts to unwind from the mortgage business the firm sold in 2008.


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%.


A 3% cap on points and fees.


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


Housing Pulse