Who won’t make it out of the purchase market alive?

Origination volumes are projected to fall by more than a third in 2022 thanks to the gut punch of 5%-plus mortgage rates, paltry home inventory, increasing home prices, and inflation at 8.5%.

Good afternoon! Was this newsletter forwarded to you? Sign up here. Hello, LOs!    Origination volumes are projected to fall by more than a third in 2022 thanks to the gut punch of 5%-plus mortgage rates (the highest since early 2011), paltry home inventory, increasing home prices, and inflation at 8.5%.   Freddie Mac described the environment today as the most expensive market "in a generation."    For lenders that capitalized on the bountiful environment in 2020 and 2021, s**t just got real in a hurry. A 1.5 percentage point spike in rates over the last three months has presented a very challenging operating environment for pretty much every originator: fewer than 5% of homeowners can now save money with a refi. It's all about purchase loans these days.   In an HW+ feature published Thursday morning, Mortgage Reporter Flávia Furlan Nunes spoke to analysts, mortgage executives, LOs and industry consultants to get a sense of which mortgage originators are best positioned to thrive – or at least keep their heads above the water – and which will have to fold or be sold.    LOs – who do you expect to thrive now that market conditions have shifted so quickly to purchase? And who will struggle? Email me your thoughts anonymously at james@hwmedia.com.    Other stuff to know today   *At Wells Fargo, mortgage banking noninterest income in Q1 came in at $693 million, which was down from $1.3 billion year-over-year. Sequentially, revenue ticked down 19% from the prior quarter. Origination volume checked in at $37.9 billion, down from $48.1 billion the prior quarter. Gain-on-sale margins were down 20 bps from Q4 to 142 bps. The mortgage numbers are not great, and they're going to get worse. Mike Santomassimo, Wells Fargo's CFO, said second-quarter originations and margins will remain "under pressure" and revenue will continue to decline. "We started to reduce expenses in response to the decline in volume and expect expenses will continue to decline throughout the year as excess capacity is removed and aligned to lower business activity," Santomassimo said on the earnings call. Rival depository JPMorgan Chase originated $30.2 billion in home loans in the first quarter, a 37% decline from the previous quarter.   *How are margins doing? Well, based on the four depositories that reported earnings (the aforementioned depositories, plus PNC Bank and US Bank), Bose George at Keefe Bruyette & Woods says GOS was down 6% from the prior quarter. But "after stripping our channel mix shifts, we think that core GOS margins are down 5%-10% Q/Q. This is largely in line with our expectations. Further, lower than industry volumes (especially at JPM) likely benefited margins by allowing these originators to be more disciplined on price. We believe that most non-banks will not be able to give up market share to protect margins."   *So, uh, remember those racial equity plans I talked about yesterday? Well, the Biden administration left out the FHFA. The reason? Despite regulating the GSEs, the FHFA is not technically a cabinet-level agency. A FHFA spokesperson declined to give a timetable for the release of the equitable housing finance plans for Fannie Mae and Freddie Mac, which were due at the beginning of 2022, Georgia Kromrei reported.   *What will the Fed do about its $2.7 trillion portfolio of agency MBS? And when? Senior Mortgage Reporter Bill Conroy interviewed the experts and ran a few scenarios. The takeaway? A very topsy-turvy market in the short-run, but a resilient market in the long run. Check out his HW+ piece here.    *Hey, it's a day that ends in 'Y,' which means there's news of more blood being spilled at digital lender Better.com. Citing sources, TechCrunch is reporting that a third round of layoffs is imminent. I guess the volunteer 'I-quit-a-thon' didn't thin the herd enough. How the company can still be planning on going public is beyond me…   *...So having said that, let's check in on some mortgage stocks. ​​LoanDepot is currently trading at $3.34 a share, UWM at $3.89 a share, Blend Labs at $4.75 a share, Rocket at $9.42 a share, Guild Holdings at $9.49 a share, New Residential Investment Corp at $10.58 a share, Pennymac at $48.12, Home Point Capital at $3.08 a share and Mr. Cooper Group at $42.31 a share.    *Our friends at Recursion have a new analysis of the recently-released 2021 HMDA data. One of the findings is that nonbanks grew even bigger in 2021, with its "total share of the single-family market rising by 2.5% to a record 62.0%, following a spectacular 7.6% jump the prior year with the onset of the pandemic. This sector continues to benefit from superior technology, a lighter regulatory burden, and a fundamental trend away from on-site financial transactions that seems set to persist. Another notable development is that after losing 1.8% in share in 2020, the role of credit unions in the market stabilized in 2021, rising 0.1% to 9.2%."   *Some zig and others zag. Regarding my question on Tuesday about going back to basics and attending closings and open houses, one LO said no way. "After 20 years of originating, I feel like the basics have changed," he said. "I don't think that going to an open house is the best use of time in today's world given that you can reach so many more people leveraging social media (it's still good to stop by to support some of your top agents). I think it's important to become a hybrid loan officer these days since so many agents are on social media. The buyers are there too as millennials look online for just about everything."  LOs, what do you think? Time to get on TikTok and expand your digital presence?     Alright, that's it from me. Hope you all have a great rest of the week! We'll be back in your inbox on Monday!   James Kleimann Managing Editor, HousingWire Some lenders won't survive the purchase mortgage market of 2022 Mortgage, HW+ Exclusive Content HousingWire interviewed over a dozen analysts, mortgage executives, loan officers, and consultants to answer the trillion-dollar question: who is positioned to win in the purchase market, and who will likely bite the dust? Does your eClose platform have you saying "I'm Lovin' It"? IDS' Solitude Solution has Collins Community CU saying "I'm Lovin' It" with eSign and hybrid eClose. One LO loved conducting 8 purchase closings in a single day! Learn more about how one CU helped its members with a single click.  I want to love it! Sponsored by IDS, Inc. Non-QM in 2022: 5 Moves to Prepare for Success Presented by Angel Oak Non-QM is expected to make a resurgence this year, and originators should look toward non-QM lending to help restimulate their business. This white paper will cover the five key steps lenders and brokers can take to have a successful 2022 using non-QM. Purchase mortgages cross dreaded 5% threshold Mortgage The 5% threshold has been crossed, and given the headwinds in the U.S. economy, it doesn't appear that mortgage rates will be dropping soon. Count on Crews to add speed this purchase season. Get access to Crews: a dedicated team of mortgage experts who work on your loans from start to finish, helping you win more purchase business. Sponsored by RocketProTPO Fed retreat from MBS market sparks short-term uncertainty Mortgage, HW+ Exclusive Content What happens when the Federal Reserve begins pulling back in a serious way from the mortgage-backed securities (MBS) market that it has helped to prop up through billions of dollars in bond purchases since the start of the pandemic in 2020 — to the point where it now holds a $2.7 trillion agency MBS portfolio? HousingWire, 433 East Las Colinas Blvd., Suite 830, Irving, TX 75039 Manage preferences

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