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Rising Rates Are Battering Mortgage Lenders

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Mortgage lenders are struggling to survive the sharp decline in the number of homeowners refinancing their loans as demand runs out as interest rates rise.

Home prices continue to rise and while Americans are still buying homes Refinancing activity drop-off This is a big blow, as refinancing accounted for the majority of US mortgage composition throughout the pandemic.

According to industry executives and advisors, some lenders are considering selling themselves, convinced that it is the only way to succeed.

Steve Stein, a former executive at Stearns Lending, a mortgage lending company based in Lewisville, Texas, said: “Partnering can be a good strategic alternative.”

Last month, Stein and former CEO David Schneider launched an advisory firm to guide them in what they believe would be a wave of lenders wanting to float.

Some lenders sell assets such as the right to collect mortgage payments. Others are trying to inspire their business by offering lower rates or reducing their rates. In March, mortgage lenders made a profit of $ 2.36 for every $ 100 of a loan. This is the lowest amount since 2019. According to the Urban Institute.. By 2020, that figure reached $ 5.99.

“We’ve seen lenders panic a bit due to reduced origin,” said Richard Martin, director of real estate lending solutions at financial services research firm Curinos.

The slowdown in the mortgage market is another result of the Federal Reserve’s attempts to curb it. Bright red inflation.. The Federal Reserve has raised interest rates twice this year to cool the economy, ending the biggest rate hike. Mortgage Bond Purchasing Program This spring. This has pushed up mortgage borrowing costs, depleted the pandemic refinancing boom, and even kicked potential homebuyers out of the market.

With a 30-year average mortgage rate rising to 5%, home ownership can now be out of reach for millions of Americans. WSJ’s Dion Rabouin describes the potential buyers, sellers and impacts on the housing market.Illustration: Adele Morgan

According to industry research firm Inside Mortgage Finance, the origination of 50 major lenders in the first quarter was down 41% year-on-year. According to the Mortgage Bankers Association, the volume of mortgages is expected to decline by 37% in 2022 due to the decline in refinancing.

It can get worse. The housing market still looks hot by historical standards, and house prices are still rising. But the Fed’s move is questioning whether the United States is heading into recession. This can delay home sales and make it difficult for some homeowners to keep up with their monthly payments. April seasonally adjusted home sales rate Lowest since June 2020..

“Music seems to have stopped,” said Jeff Taylor, managing partner of Mphasis Digital Risk, a consulting firm that works with mortgage lenders on technology and risk.

According to mortgage lenders, the average interest rate on 30-year fixed rate mortgages was 5.25% as of last week.

Freddie Mac,

Increased from 3.11% near the beginning of the year You can add hundreds of dollars every month For borrowing costs of new purchasers.

The pain is expected to be particularly severe for non-bank mortgage lenders. Unlike banks, there aren’t many business lines to survive the mortgage slump. They also don’t take deposits, which means they rely on short-term loans. According to Inside Mortgage Finance, seven of the ten largest refinancing lenders in 2021 were non-bank companies.

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Some non-banks are celebrities such as rockets. Currently the largest mortgage company in the United StatesHowever, there are thousands of small lenders scattered all over the country. They are often the preferred route to home ownership for middle-income families and first-time homebuyers. According to Inside Mortgage Finance, Nonbank issued about 70% of US mortgages last year. This is the highest share ever.

When interest rates rise, lenders typically dismiss workers. Like 2018, And hire again when the price goes down. But towards 2008, mortgage lenders instead lowered lending standards to keep transaction volumes high, sowing the global financial crisis. This time, lenders have kept their mortgage standards relatively strict.

Tom Millon, CEO of Computershare Loan Services, a mortgage service provider, said:

Some of the measures lenders are taking to stop bleeding are short-term solutions. Cash from the sale of service rights that earns a fee for the company to perform back office work that collects monthly payments helps to fill the lender’s earnings. However, selling those rights also means giving up a stable flow of income.

Kalamazoo, Michigan-based AmerifirstHomeMortgage has sold nearly $ 1 billion in service rights since the beginning of the year after selling nothing in 2021, CEO Mark Jones said.

“We’re going to make adjustments here and there, cut costs, and mark our time until enough players leave the market or the market recovers,” Jones said.

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Loandepot Ltd.

Rocket share is down 43% this year

UWM Holdings Ltd.

When

Guild Holdings Ltd.

It is down between 29% and 38%, rather than the 17% down on the S & P 500. During the pandemic, at least eight major mortgage lenders have been publicly traded and their current stock prices are all below IPO prices.

Rocket said it had offered an acquisition to thousands of employees this spring. The company has been working to get more business out of purchased mortgages, which are usually less dependent on interest rates. Refinancing accounted for an estimated 82% of rocket origins in 2021, according to Inside Mortgage Finance.

Banks are not affected by stress.With Wells Fargo

JPMorgan Chase

& Co. Has fired a mortgage employee this year, the bank said. Wells Fargo said in a statement that layoffs are “a result of cyclical changes in the broader mortgage environment.”

Write to Orla McCaffrey at [email protected]

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