A Record Year for VA MI; Unprecedented Earnings from Rocket - IMFnews

Share Register Advertise February 26, 2021 The Final Tally for 2020: VA MI Volume Blows Past FHA jbancroft@imfpubs.com The VA home loan guaranty program posted the biggest gain in the explosion of primary mortgage insurance activity in 2020, according to a new Inside Mortgage Finance analysis. A total of $1.366 trillion of home loans with some form of primary MI coverage was originated in 2020, a 59.1% gain from the previous year. Meanwhile, the VA program posted a 94.9% increase to $422.41 billion in annual volume — zipping past the FHA program for the first time. The VA share of new primary MI business jumped from 25.2% in 2019 to 30.9% last year, while the FHA share slipped from 28.2% to 23.4%. Refinance activity explains the difference. For full details and exclusive rankings on the nation’s PMI firms and more, see the new edition of Inside Mortgage Finance, now available online. A Mouth-Watering 4Q20 Profit for Rocket – And a ‘Special’ Dividend pmuolo@imfpubs.com Rocket Companies, the parent of the nation’s number-one-ranked originator Quicken Loans, posted stellar income of $2.26 billion for the fourth quarter – just not as stellar as the $2.99 billion the company earned in 3Q20. According to figures released after the closing bell Thursday, the Rocket family of companies – of which Quicken is the largest – posted revenue of $4.66 billion compared to $4.74 billion in the prior three-month period. Total expenses for the fourth quarter came to $1.81 billion compared to $1.64 billion in the third. Bottom line: Lending increased, revenue fell and expenses became a larger burden. Still, never in the annals of mortgage banking has one nonbank put together a half-year where net profits landed north of $5.25 billion. One interesting note: Quicken’s gain-on-sale margin for 4Q20 was calculated at 441 basis points compared to 578 bps in 3Q20. In 4Q19 the GOS totaled 341 bps. For the full year, home lending at the Detroit-based nonbank came to $320.2 billion, up 121% from 2019. The company also announced a “special” dividend of $1.11 per share. In general, publicly traded nonbanks don’t pay dividends, PennyMac Financial Services being one of the exceptions. A Portion of GSE Loans Could Shift to Non-Agency Market bivey@imfpubs.com Thanks to an agreement between the Federal Housing Finance Agency and the Treasury Department in the waning days of the Trump administration, some business that has been flowing to the GSEs could shift to the non-agency market. The amended preferred stock purchase agreement between the FHFA and Treasury includes limitations on acquisitions by Fannie Mae and Freddie Mac of mortgages for investment properties, second homes and products with “high risk” characteristics. For the most part, the language has received little attention in the trade press. Unless the change is reversed, GSE acquisitions of such loans will now be limited to certain levels, measured at a 52-week moving average. High-risk mortgages cannot account for more than 6% of the GSEs’ acquisitions of purchase mortgages or more than 3% of acquisitions of refinances. High-risk mortgages are defined as those with at least two of these characteristics: a loan-to-value ratio greater than 90%, a debt-to-income ratio north of 45% or a credit score of less than 680. For full details, see the new edition of Inside Nonconforming Markets, available online Friday afternoon. Time for the Fed to Ease Up on MBS Purchases? Certainly Not dhollier@imfpubs.com Despite Republican lawmakers’ claims that the economy has largely recovered from the pandemic, Federal Reserve Chair Jerome Powell said the central bank will maintain its current monetary policy, including the purchase of at least $80 billion in Treasuries and $40 billion in agency MBS a month. In his semi-annual testimonies before Senate and House committees this week, Powell insisted the Fed would keep its foot on the gas pedal until both price stability and full employment are achieved. Sen. Pat Toomey, R-PA, ranking member of the Senate Banking Committee, argued that the Democrats’ $1.9 trillion COVID relief bill and the Fed’s ongoing bond purchases are no longer necessary, and that more targeted, less costly measures are the way to go. Toomey said the Democrats’ over-aggressive fiscal policies and the Fed’s downward pressure on interest rates threaten to trigger asset bubbles. For additional coverage, see the new edition of Inside MBS & ABS, now available online. Short Takes: Eye on the 10-Year / Coming Soon, a Higher MBS Coupon? / Past Predictions / The U.S. Debt Load / A Coming Recession? / Time to Sell MSRs pmuolo@imfpubs.com Last night the yield on the 10-year Treasury breached the 1.60% threshold, a yearly high, before receding. At press time, the reading was a more benign 1.49%. Are mortgage bankers nervous? A bit, sure, but as we’ve pointed out before, just because the 10-year moves, mortgage rates don’t necessarily move in tandem… But there are a few things to consider. The mortgage benchmark is still the UMBS 2.0 coupon, but as MBS Highway principal Barry Habib told us this morning, it’s ready to flip over to the 2.5… Habib, who makes his living telling lenders when to lock their rates, blames the rising 10-year on all the government stimulus that’s flooded the market the past year, including the pending $1.9 trillion shot in the arm, which could be reduced in size if the GOP gets its way… Not too long ago, Habib thought the yield on the government benchmark might fall to just 40 basis points but that was before the fall election and the Senate run-off races in January. Meanwhile, like Saul struck down on the road to Damascus, certain Republicans have discovered religion and are suddenly deficit hawks once again… As for the current U.S. debt load, it’s at $27.95 trillion ($223,441 per taxpayer). How does Uncle Sam fund this ever-growing tab? By selling Treasuries. If rates rise, such sales become more expensive for Uncle… And there’s this to consider: If stocks are truly overvalued, a brutal correction could be in the wind, which means money will flow back into bonds and rates will fall… Habib, for one, sees a recession coming in 2022 – once all the federal stimulus has run its course. For now, a word of advice: If you own mortgage servicing rights, now might be a good time to take some money off the table. Your Feedback Is Needed  Inside Mortgage Finance, the mortgage market’s leading source of detailed industry data, is conducting our annual Salary Survey, and we need to hear from you (and your peers)! It’ll take just a few minutes of your time to contribute to this important survey benchmarking industry compensation. In return for your help, we’ll send you a brief report on compensation levels in the industry (after the survey closes). The survey will close soon, so please take it today. To ensure delivery to your inbox, add news@imfpubs.com to your address book or safe sender list. Home | Update Your Account | Mortgage Data | User Agreement | Unsubscribe © Copyright 2020 Inside Mortgage Finance Publications 7910 Woodmont Ave., Suite 1000, Bethesda, MD 20814 Tel: (301) 951-1240; Fax: (301) 656-1709

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