Correspondent Lending Takes Tentative Step Toward Recovery - IMFnews

Share Register Advertise February 08, 2021 A Mini Revival for Correspondent in 4Q20 but a Long Road Back jbancroft@imfpubs.com Correspondent production gained traction in the fourth quarter of 2020 but remained well below normal, according to an Inside Mortgage Trends analysis of agency mortgage-backed securities data. A total of $249.81 billion of newly originated correspondent-generated home loans was securitized by Fannie Mae, Freddie Mac and Ginnie Mae during the fourth quarter, up 20.3% from the prior period. This analysis covers 90.2% of the total agency market and excludes loans aged more than six months as well as those lacking information about channel and certain underwriting characteristics. That was the biggest gain in percentage terms among the three production channels. Securitization of retail-originated loans increased just 8.6% and deliveries of wholesale-broker loans rose 10.8%. The correspondent share of the agency market climbed to 27.1% in the final three months of 2020 after spending the second and third quarter at about 25.2%. The correspondent share was 39.3% for all of 2019. For full details and exclusive tables on channel breakdowns, see the new edition of Inside Mortgage Trends, now available online. GSE Delinquencies Much Higher Than Disclosed? dhollier@imfpubs.com In a recent blog post, the Federal Housing Finance Agency suggested that mortgage performance during the pandemic may be much worse than official numbers indicate. According to the agency, delinquencies across the board could be four times what they seem. The FHFA began by noting that all delinquencies have trended down steadily since 2009, with 30-day delinquencies plummeting sharply to just under 1% in early 2020. That pretty picture was marred by the arrival of the coronavirus. By March, the forbearance policies of FHFA and later the Coronavirus Aid, Relief and Economic Security Act meant that hundreds of thousands of homeowners were skipping their mortgage payments. From a market perspective, all those forbearances are cumulative. Fannie Mae and Freddie Mac estimate that one in four of the borrowers who entered into forbearance continued to make their payments, but the bulk of these COVID-impacted borrowers grew to enormous proportions, nevertheless. Officially, though, delinquency rates did not spike. Because of the terms of the CARES Act, not only are borrowers in forbearance allowed to skip their monthly payments, but servicers are prevented from reporting their mortgages as past due. For full details, see the new edition of Inside The GSEs, now available online. With a New Chairman in the Seat, NCUA Proposal on MSRs in Doubt bivey@imfpubs.com In December, Todd Harper cast a dissenting vote when his fellow board members at the National Credit Union Administration decided to allow federal credit unions to purchase mortgage servicing rights from other FCUs. A month later, in January, Harper was appointed NCUA chairman by President Biden. That puts the fate of the proposal — which received no opposing comments from stakeholders — in question, according to industry watchers. (The comment period closed just last week.) The two major CU trade associations, the Credit Union National Association and the National Association of Federally Insured Credit Unions, and a number of other state-specific industry groups submitted letters in support of the proposal. For more on the story, see the new edition of Inside Mortgage Finance, now available online. Lender Earnings Set to Slide in 2021? bivey@imfpubs.com The gravy train many lenders rode in 2020 to record profits will slow this year, according to projections by industry analysts. Eventually, demand for refinances is expected to decline, reducing margins and prompting excess capacity in the mortgage origination system. Jeff Babcock, a senior partner at Stratmor Group who’s set to retire after more than 40 years in the mortgage industry, said it’s “inevitable” that profits will decline in 2021. He said he can’t recall any “soft landings” after origination booms where market conditions gradually normalized, allowing executives time to develop an effective response. Babcock said the industry tends to operate in a three-year cycle. “The current cycle incorporates 2018: rotten market, 2019: good market and 2020: fantastic market,” he said. Based on projections for originations this year, Babcock said lenders have excess capacity near the level seen in 2018. According to Mike Fratantoni, chief economist of the Mortgage Bankers Association, in 2018 the industry had 20% excess capacity for a large portion of the year which triggered margin compression. Net production income for nonbank lenders declined to 13 basis points in 2018 from 32 bps in 2017, the trade group said. For more on 2021 lender earnings, see the current edition of Inside Mortgage Trends. Short Takes: For Sale: $1.25B of GSE MSRs / The Big ‘Flow’ Deal Seller… / Forbearance Improvement Limited / The Craig Phillips Game pmuolo@imfpubs.com, dhollier@imfpubs.com Servicing auction notices are coming at a steady clip these days. The latest: A $1.25 billion conventional bulk offering from Incenter Mortgage Advisors, Denver. The selling originator is described as a “well-capitalized independent mortgage banker with very experienced leadership originating through its predominantly retail channel.” The weighted average coupon is 2.96%, the average FICO 760. Bids are due later this week… IMA, by the way, is the broker on a recent flow MSR offering that could net the buyer $30 billion-plus a year in product. (IMFnews reported on the auction last week.) Although the seller was not identified, we have been told the name of the firm and are waiting on additional confirmation… According to the latest COVID-related tally from Black Knight, 2.72 million mortgagors were in forbearance as of Feb. 2, or 5.1% of outstanding residential loans. BK noted that “overall improvement continues to be limited.” Compared to the prior month, the relief reading fell by 1.5%. GSE WATCH: The favorite game in Washington has always been predicting who will hold the reins of power, albeit behind the scenes. For mortgage industry pros, that means asking: Who gets the housing-finance portfolio at Treasury? That’s especially true after former Treasury Secretary Steven Mnuchin appeared to get the better of Federal Housing Finance Agency Director Mark Calabria in their last-minute renegotiation of the preferred stock purchase agreement. For much of his term, Mnuchin appeared to delegate the responsibility of housing finance to Counselor to the Secretary Craig Phillips. As for who the “new” Craig Phillips might be, see the new edition of Inside The GSEs, now available online.   Read IMFnews Online at Any Time Don’t forget that you can access the industry news, trends, analysis and exclusive data you rely on from IMF 24/7 at our website, InsideMortgageFinance.com. Whether at your desk or on a mobile device, you can read current issues and archives of IMFnews, and connect to the data charts, industry studies, data reports, newsletters and articles you’ve purchased or subscribe to.  To ensure delivery to your inbox, add news@imfpubs.com to your address book or safe sender list. 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