Texas freeze, rate jump drive a week of stalled mortgage app activity

As interest rates hit the highest levels since September, mortgage application activity dropped for the third week in a row, according to the Mortgage Bankers Association.

Overall loan application volume fell 11.4% for the week ending Feb. 19 on a seasonally-adjusted basis and 10% unadjusted from the week prior. The refinance share of loan activity continues to tumble in contrast with growing mortgage rates, falling to 68.5% from 69.3% week-over-week.

The refi index dropped 11.3% weekly but sat 50% higher than the same time a year ago. The purchase share increased to 31.5% from 30.7% and the index declined 7.8% from last week while rising 7% annually. The average purchase loan size climbed to yet another new record high of $418,000 from $412,200 the previous week.

Brutal weather also contributed to a regional drop in activity. “The severe winter weather in Texas affected many households and lenders, causing more than a 40% drop in both purchase and refinance applications in the state last week,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a press release.

The total application share of loans guaranteed by the Federal Housing Administration jumped to 11.2% from 9% from the week before, the Department of Veterans Affairs loans dipped to 11.9% from 13.2% and U.S. Department of Agriculture loans edged down to 0.3% from 0.4%. The share of adjustable-rate mortgages rose to 2.56% from 2.47%.

Source: nationalmortgagenews.com

Americans’ mortgage debt increased to $10T in Q4

Overall household debt increased by $206 billion in the fourth quarter of 2020 to $14.56 trillion, according to the Federal Reserve Bank of New York. The Fed said that increase was primarily driven by a dramatic increase in mortgage originations.

Mortgage debt balances broached the $10 trillion mark in the fourth quarter, increasing by $182 billion from the third quarter to $10.04 trillion at the end of December, the Federal Reserve Bank of New York’s Center for Microeconomic Data said Wednesday.

New mortgage originations, driven by record-low interest rates that propelled refinancings, totaled $1.2 trillion in the fourth quarter, surpassing volumes seen during the historic refinance boom in the third quarter of 2003, the New York Fed said.

“2020 ended with a substantial increase in new extensions of credit, driven by record highs of new mortgages and auto loan originations,” said Wilbert Van Der Klaauw, senior vice president at the New York Fed. “Notably, the overall median mortgage origination credit scores jumped up, reflecting a high share of refinances.”

Delinquency rates also continued to decline in the fourth quarter, attributed to forbearance exits provided by the CARES Act. The share of mortgages that transitioned to early delinquency dropped to 0.4% in the fourth quarter, according to the New York Fed’s data. As of late December, the overall share of outstanding debt that was in some stage of delinquency was 1.6 percentage points lower than the rate observed prior to COVID-19 in the United States. 

From forbearance to post-forbearance: How to make the process effective

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Roughly 121,000 Americans had a bankruptcy notation added to their credit reports in the fourth quarter, a decline from the third quarter and a new series low, the New York Fed reported.

While mortgage activity increased dramatically, credit card balances increased by just $12 billion in the fourth quarter, $108 billion lower than they had been at the end of 2019. That represented the largest year-over-year decline since the Fed began tracking the series in 1999.

Student loan balances and auto debt increased by $9 billion and $14 billion, respectively. Overall, non-housing balances (including credit card, auto loan, student loan, and other debts) increased by $37 billion during the fourth quarter but were lower year over year.

On Wednesday, a number of Democratic U.S. senators, including Elizabeth Warren, D-MA, lobbied President Joe Biden to cancel $50,000 in student debt for those with student loans. Biden has said he is only willing to cancel up to $10,000 per debtor.

The New York Fed also found that the median credit score of refinancers and repeat buyers was just below 800 at the end of 2020, about 60 points higher than that of first-time buyers.

“With a look to the series history, new mortgages are more prime — for even first-time buyers, median credit scores have slowly drifted up since 2002-06, when they hovered in the high 600s,” the New York Fed said in an accompanying report, called Liberty Street Economics.

The New York Fed noted that some 7.2 million mortgages were refinanced in 2020, which, while spectacular, was still less than half the 2003 total of 15 million.

Source: housingwire.com

Cash-out refis help drive pandemic-era mortgage boom

A fuller picture of the factors that drove the great U.S. mortgage boom of 2020 is starting to emerge.

The homebuyers who took advantage of rock-bottom mortgage rates during the pandemic included many investors and purchasers of second homes who flocked to the market at levels unseen since before the Great Recession, according to new data from the Federal Reserve Bank of New York.

Cash-out refinancings also hit a post-financial-crisis high, as many households tapped into the equity they have accumulated as home prices have climbed over the last decade. Mortgage origination volume last year totaled $3.7 trillion, by far the highest level since 2003.

The data is most notable for one major contrast that it reveals between the current boom and the previous one: borrowers’ creditworthiness. Last year, roughly 70% of mortgage borrowers had credit scores of 760 or higher, compared with around 30% in 2003.

The 40-percentage-point gap is a reflection of both lenders’ reluctance to extend credit to borrowers with subpar credit and prime borrowers’ confidence in their ability to handle more debt. During the subprime lending boom, many borrowers with little equity took on more debt than they could afford.

“Researchers have concluded that the 2003 refi boom had long-running consequences, contributing to over-leveraged balance sheets as home prices fell,” experts at New York Fed noted in a blog post published Wednesday.

During the fourth quarter, total U.S. household debt outstanding hit an all-time high of $14.56 trillion, according to the report, which was based on a sample of credit data from Equifax.

Many Americans are eschewing public transit for cars during the pandemic, contributing to a boom in auto lending. Car loan originations of $616 billion in 2020 marked a record high.

Credit cards are one consumer lending segment where balances have sharply declined in recent quarters, as banks have tightened their lending criteria and many households have used increased savings and government benefits to pay down existing debt.

Card debt as a share of disposable income fell from around 5.5% to roughly 4.5% in the early months of the pandemic, according to a recent report by the American Bankers Association.

During the fourth quarter, credit card debt outstanding totaled $820 million, down $108 million from the same period a year earlier, the New York Fed found.

The spike in mortgage originations in 2020 was driven mostly by refinancing activity, but loans for home purchases also rose significantly, likely contributing to the recent increase in U.S. home prices. A national index of home prices developed by economists Karl Case and Robert Shiller rose by 9.5% between November 2019 and the same month last year.

In addition to investors, first-time homebuyers also helped fuel demand for mortgages. This group lagged behind repeat purchasers during much of the last decade but has recently caught up, according to the New York Fed’s data.

Still, young adults make up a relatively small portion of the market. In the fourth quarter of last year, adults ages 18 to 29 accounted for 7% of all mortgage originations, down from 11% in the third quarter of 2018, but still up from the low-water mark of 4% in the first quarter of 2013.

While U.S. homeowners withdrew $182 billion in equity last year, the comparable figures from 2003 to 2006 were higher, even without adjusting for inflation, according to the New York Fed researchers. The average amount withdrawn by a homeowner was also significantly lower in 2020 than it had been in 2019.

“The median cashout withdrawal in 2020 was only $6,700,” the researchers wrote, “suggesting that at least half of the refinancers borrowed only enough additional funds to cover the closing costs on the new mortgage.”

Source: nationalmortgagenews.com

Western Alliance to acquire AmeriHome for $1B

Depository bank Western Alliance has reached a deal to acquire correspondent lender AmeriHome for $1 billion in cash, the firms announced late Tuesday afternoon.

With the acquisition, Western Alliance will grab full control of America’s third-largest correspondent lender from an affiliate of financial giant Apollo Global.

AmeriHome purchased approximately $65 billion in conventional conforming and government-insured originations in 2020. The nonbank lender works with a network of over 700 independent mortgage banks and credit unions. It also manages a mortgage servicing portfolio estimated at around $100 billion in unpaid balance.

Acquisition talks began in the fourth quarter, not long after Western Alliance bought non-QM aggregator Galton Funding for an undisclosed amount and AmeriHome’s IPO was delayed.

“It just so happened that AmeriHome approached us about potentially completing a transaction and we decided to look at it, that was in the fourth quarter,” Stephen Curley, division president of Western Alliance, said in an interview with HousingWire. “It came together really quickly. We’ve known the management longer than the four years that they’ve been a customer.”

The management team at AmeriHome, led by CEO Jim Furash, will remain in place and there will be no layoffs, Curley said. Synergies will result in about $50 million in savings, mostly through offering warehouse lines that currently go to other banks, Western Alliance said.

The purchase price represents approximately 1.4x adjusted tangible book value of AmeriHome. Before the end of the second quarter, Western Alliance intends to raise approximately $275 million of primary capital through the sale of common stock. The acquisition is expected to close in the second quarter of 2021.

“It’s a very financially compelling transaction, which produces 30% EPS (earnings per share) accretion for a full year,” Curley said. “We feel like it’s a really good acquisition for shareholders because it grows our earnings per share. It also diversifies our revenue profile so we’re going to see a nice increase in fee income. We’ve normally been a spread income lender, and we haven’t had as much fee income, so buying AmeriHome brings in an important source of fee income.”

The other factor, he said, is that banks these days are awash in liquidity. “We feel like AmeriHome can help us deploy that liquidity in higher-yielding, low-credit risk assets,” Curley said. “We are very familiar with their manufacturing process, we know that they produce high quality assets. We believe that’s a good fit for our balance sheet.”

Western Alliance, which operates more as a business-to-business bank rather than a consumer-focused retail lender, said they are looking at AmeriHome for its long-term potential.

“People will ask us, ‘Are you buying at the peak?’ so to speak,” said Curley. “We really looked at 2019, 2018 volumes. We really didn’t factor in 2020 volumes and profits into our strategy” because it was an outsize year, he said.

Source: housingwire.com

Mega Capital Funding returns to non-QM lending space

Mega Capital Funding just became the latest company to re-enter the non-Qualified Mortgage space with the launch of several new product lines.

Its new “Mega Elite” non-QM and debt service coverage ratio product lineup includes alternative income documentation products such as its three- and 12-month bank statement products, CPA and borrower prepared P&L and asset utilization, and its investment properties debt service coverage ratio with 1:1 and no ratio options.

According to the rate sheets, through its “Elite Non-QM” product, Mega Capital has loans between $250,000 and $2 million, with a max debt-to-income ration of 50%. The max LTV is 70% for purchase and 65% for refi.

The offering team will be led by Mega Captial Funding CEO Brian Na as well as non-QM veterans Rikki Danganan and Will Fisher.

“With our initial proprietary product offering we’ve set out to focus on a specific segment of non-QM, that will allow our brokers to provide enhanced solutions and our capital partners to achieve their yield goals,” Na said.

Non-QM lending is poised for growth in 2021

HousingWire recently spoke with Mike Fierman, managing partner and co-CEO of Angel Oak, about the non-QM lending outlook for 2021 and how Angel Oak’s “originate to hold” model benefits originators.

Presented by: Angel Oak

Back in March, Mega Capital Funding became one of many mortgage lenders that ceased all non-QM operations.

The company sent out a message to brokers that stated: “Due to retractions in the financial markets as a response to the coronavirus pandemic, and the uncertainty in the non-QM space, MCDI will suspend funding on any and all of our non-QM and non-QM related products. This includes registering, locking or pre-locking loans. Any loan with docs signed, we will fund. Any loan without signed docs will be suspended for the foreseeable future or until market stability returns.”

Now, many investors are once again returning to the non-QM space. Mike Fierman, Angel Oak managing partner and co-CEO, recently told HousingWire he expects the non-QM market in 2021 to grow quickly as the economy recovers from the pandemic.

He noted that, in a normal year, a healthy non-QM market should report approximately $300 billion in originations per annum. In 2020, Fierman said, non-QM origination totaled around $18 billion, so there is plenty of room for growth.

And in addition to an apparent increase in appetite for non-QM on the investor front, there is also room for significantly more risk in the market overall.

The Housing Finance Policy Center’s latest credit availability index shows that mortgage credit availability was just under 5% in the third quarter of 2020, down from 5.1% in the second quarter of 2020 and the lowest it has been since the introduction of the index.

Overall, credit availability in the mortgage market continues to loosen. Mortgage credit availability increased in January, according to the Mortgage Credit Availability index from the Mortgage Bankers Association. The MCAI increased by 2% to 124.6 in January. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012.

“The growth in credit availability in January coincides with a housing market that is poised for a strong start to the year,” said Joel Kan, MBA associate vice president of economic and industry forecasting. “Improvements were driven by the conventional segment of the mortgage market, as lenders added ARM loans with lower credit score and higher LTV requirements. Despite ARM loans accounting for a very small share of loan applications in recent months, lenders are likely looking ahead to a strong home buying season by expanding their product offerings.”

Source: housingwire.com

It’s still really difficult to get a mortgage, but getting easier

Mortgage credit is still the tightest it has been in more than six years, but steady loosening in January revealed lenders are preparing for a rebounding economy, the Mortgage Bankers Association said in a report on Tuesday.

The group’s Mortgage Credit Availability Index rose 2% to 124.6 last month, still hovering near levels previously seen in 2014, though it is the third month in the past four that credit availability has picked up as supply eases out. The index plunged from record highs seen in late 2019 after the COVID-19 pandemic caused the worst economic contraction since the Great Depression.

Measuring credit availability by loan type, the Conforming MCAI that tracks loans backed by Fannie Mae and Freddie Mac rose 7.7% while the Jumbo MCAI measuring high-balance loans rose 2.2%, and the Conventional MCAI that measures loans not backed by the government rose 4.8%.

The Government MCAI that includes mortgages backed by the Federal Housing Administration, the Veterans Administration and the U.S. Department of Agriculture fell by .1%, MBA said.

A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

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According to Joel Kan, MBA’s associate vice president of economic and industry forecasting, an uptick in credit availability coincides with a housing market that is poised for a strong start to the year.

“Improvements were driven by the conventional segment of the mortgage market, as lenders added ARM loans with lower credit score and higher LTV requirements,” Kan said.

Despite ARM loans accounting for a very small share of loan applications in recent months, Kan noted lenders are likely looking ahead to a strong home buying season by expanding their product offerings.

And even with tighter standards throughout the pandemic, the lowest mortgage rates on record still pushed $4 trillion in originations, insane year-over-year compensation for LO’s and opened the gate for several lenders to finally go public in 2020.

Fannie Mae’s economic and strategic group also upgraded its 2021 forecast in January setting expectations higher for GDP, increased home sale growth in the beginning of the year and even more purchase originations than the year prior.

“Ongoing strength in home-purchase applications and home sales continue to signal robust housing demand, even as low housing inventory remains a constraint,” Kan said.


Source: housingwire.com