Lenders everywhere are looking forward to a great March given their swollen locked pipelines. As thousands of operations folks descend on Ellie's conference in Las Vegas, regulation will be the focus, and its impact on lenders and consumers. Is the cure worse than the disease? We'll see where TRID takes things. According to the December Origination Insight Report from Ellie Mae, the average time to close a loan in 2015 took 49 days. The average time to close a refinance dropped to 47 days, while the average time to close a purchase transaction increased to 50 days. Closing rates for all loans was 67 percent, while the closing rates for refinances reached the highest level of the year at 63 percent and closing rates for purchases declined slightly to 71 percent.
In spite of only 10-20% of current mortgage volume having mortgage insurance, many industry-watchers believe that the performance of mortgage insurance companies provides a good bellwether for lending in general. Last year things were decent for the mortgage insurance biz although the sector came under pressure as the market focused on price competition. Analysts think that in 2016 this competition will increase and there may be some market share loss for some monoline mortgage insurers. Regardless of individual companies it is good for folks to understand some basic terms.
"New Insurance Written" (NIW) is a good general measure of health. Many estimates for overall mortgage volume see it dropping in 2016, in spite of this current jump in refi volume. Analysts think that as an industry new insurance written will be roughly flat in 2016 at about $215 billion - which would be good if volume actually declines. This reflects the much higher penetration rate of purchase mortgages versus refinances.
"Insurance-In-Force" (IIF) is another good metric. Most estimates indicate that IIF for the industry to continue to grow at a roughly 6% annual pace that we saw in 2015 and stands between $800-900 billion. The growth is being driven by continued growth in the purchase mortgage market.
"Loss Ratio" is also a key statistic. In 2016 one can expect declining losses for the legacy companies and modestly rising losses for newer companies, and residential mortgage credit trends to remain very strong driven by the tight underwriting standards over the past few years and reasonably strong job growth.
What about "Average Premium Rates?" Experts think that declining premium rates for some of the big MI companies are in the cards. (National MI seems to have the hot-hand in pricing at the higher end of the market - but don't expect other MI companies to sit idly by letting that continue especially if they want more market share.) Most expect to see a roughly 10% decline in industry premiums through 2018, which in turn impact the earnings of those companies over future years since it would only apply to new business.
"Market Share" is always in flux - few are happy with the status quo. We may see that market share shifts away from some of the monolines (Radian, Essent, and MGIC) and toward "upstarts" such as National MI. In the third quarter of 2015, for example, NMIH's market share was almost 6%, but 56% of its production came from the single premium channel.
We find that United Guaranty is the "number one" MI company for the fifth consecutive year in terms of traditional New Insurance Written (NIW) according to Inside Mortgage Finance. For 2015, United Guaranty's first-lien NIW exceeded $50 billion. UG President and CEO Donna DeMaio noted that, "In 2016, our focus will continue to be on building on our strengths, including our solid capital base and our advanced technology, to continue to earn our customers' loyalty." Over the past seven years UG "has issued more than 1 million quotes with Performance Premium, saving borrowers millions of dollars in premium compared to rate card prices by precisely reflecting the credit risk of each loan."
For earnings UG, the mortgage insurance subsidiary of AIG, had pretax operating income of $644 million for 2015 - an improvement of nearly 9% over the $592 million of pretax operating income for 2014. As we know AIG has proposed spinning off 19.9% of UG in a public offering. AIG earned $2.2 billion for the full year, but lost $1.8 billion during the fourth quarter. Improvements were due to lower delinquency rates and higher cure rates. The fourth-quarter 2014 income was enhanced by $24 million due to a legal settlement in UG's favor.
For the full year, UG had $50.7 billion of new insurance written, up from $41.9 billion in 2014. However, UG's new insurance written in the fourth quarter declined by 1% to $10.6 billion, from $10.7 billion one year prior. UG ended 2015 with the largest volume of NIW, followed by MGIC at $43 billion, Radian at $41.4 billion and Genworth at $31.6 billion.
KBW's Bose George met with Essent's management recently and did a fine write-up on the impressions. "Management sees the transition to risk-based pricing and flatter rate cards as natural following the finalization of PMIERs and believes that returns remain compelling. We continue to see Essent as a growth story within the industry as its IIF share catches up to its NIW share. We see the industry as a whole as attractive given the sharp decline in valuations.
"Essent...noted that it is not seeing pressure from lenders to roll out a flatter rate card and noted that Essent's market share has remained unchanged for the last few quarters...The company said that while the new flatter rate cards could result in some market share moving to FHA, it remains too early to quantify the impact. Management noted that lenders prefer conventional lending to FHA lending and stronger borrowers will continue to go to the GSEs. Some move towards the FHA in the low end of the market would also help the future credit performance of the MI books of business."
Earnings-wise, Essent Group LTD, based in Bermuda, recently reported net income of $44.5 million in the fourth quarter, more than double the $19 million over the same period in 2014. Flow NIW of $6.0 billion was down from $7.4 billion in 3Q, and an estimate of the company's market share was about flat Q/Q at 12%. KBW noted that, "The single premium percentage increased to 24% from 22% Q/Q, similar to peers. Insurance-in-Force (IIF) increased Q/Q to $65.2 billion from $62.1 billion in 3Q. (New insurance written for the full year totaled $25.9 billion, up from $23 billion in 2014.)
During the year, Essent Group's reinsurance subsidiary reinsured $121 million of risk from Freddie Mac's Agency Credit Insurance Structure and Fannie Mae's Credit Insurance Risk Transfer programs as compared to $43.9 million in 2014.
Of course Arch turned heads when it released its Arch MI RateStar product, "Our risk-based pricing solution is available on any smart device that uses a browser, so you can always get your RateStar premium quotes instantly."
Over at MGIC it is continuing to buy back its own debt. Through early this month MTG has purchased or entered into an agreement to purchase some of its debt securities including $127.7 million par value of 5% notes for $132.4 million and $132.7 million par value of its 9% debentures for $150.7 million. MTG borrowed $155 million from the FHLB to buy back those 9% debentures which will not be retired but instead will be retained by MTG. Makes sense given that the borrowed funds have a fixed rate of 1.91% and mature in 7 years.
Radian saw its operating income beat many expectations primarily due to its lower-than-expected loss provision. Book value rose to $12.07 from $11.77 in 3Q15. RDN did not note any change on pricing. Radian's losses in the MI business came in at $56.8 million, down from $64.1 million in 3Q and below some forecasts. The number included a $2.2 million reserve benefit on existing delinquencies (about half a penny benefit to earnings). The company stated that as of December 31, 2015, it was compliant with PMIERs.
Radian's delinquency trends reflect that of the industry - which continues to show improvement. Primary delinquencies declined to 35,303 from 35,875 quarter over quarter. The total delinquency rate fell to 4.0% from 4.1%. New default notices totaled 11,650, up from 10,698 in 3Q. Cures of 9,751 were up from 9,676 in 3Q. Loss development on post-2008 loans remained very strong.
Radian introduced new monthly pricing, aligning its rate card with the pilot rate card put out by NMIH and generally slightly lower than MGIC. The company also announced the completion of its $100 million share buyback program. The company lowered rates on >740 FICOs and raised prices for <740 FICOs (with terms greater than 20 years). RDN also raised pricing on LPMI business: it will continue to provide customized rates for LPMI on a selective basis but plans to decline to participate significantly in discounted aggregated singles.
Turning away from MI and toward interest rates, yes it is Monday, but harken back to Friday. U.S. Treasuries lost ground after a raft of U.S. economic data beat expectations. U.S. GDP growth for the fourth quarter was revised up to 1.0% and personal income and spending grew at 0.5% in January. Michigan Sentiment was finalized at 91.7.
That was so... then. This week we have quite a stampede of numbers coming out. Today will be the February Chicago PMI and January Pending Home Sales. Tomorrow will be January Construction Spending and the February ISM Index. Wednesday is the MBA Mortgage Index, February ADP Employment Change, and the March Fed Beige Book. Thursday includes the February Challenger Job Cuts, Initial Jobless Claims, Q4 Productivity and Unit Labor Costs, January Factory Orders, and February ISM Services. Friday is The Big Daddy: February Employment Situation Report. We closed the 10-year at 1.76% and this morning we're at 1.75% with agency MBS prices roughly unchanged in the very early going.
Training and Events
Turn today's top talent into your top producers in Winning the Recruiting War, presented by XINNIX, The Mortgage Academy. You will not want to miss this valuable webinar on Wednesday, March 2nd from 1:00 to 2:00 PM EST where Casey Cunningham, CEO and Founder of XINNIX, will be sharing effective strategies and tactics you can immediately implement to begin Winning the Recruiting War. This live webinar is complimentary, but registration is required. Click here to learn more and register.
The Mortgage Bankers Association (MBA) will be hosting a Housing Policy education session at the Lenders One Winter Conference in New Orleans, March 6-9. The MBA's Pete Mills, Senior Vice President and Residential Policy and Member Engagement will be speaking about several housing topics including a look back at 2015 and milestones as well as the MBA's map of future goals and objectives for 2016 and beyond. The MBA works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. Lenders One members receive an annual $4,000 advocacy credit from their Lenders One dues if they are members of the MBA.
Dr. Elliot Eisenberg, Chief Economist for Graphs and Laughs, LLC, will be in Denver, Colorado March 14th for a regional economic forecast of the 2016 housing and real estate market. For more information and registration please visit the events tab in the CoAMP (Colorado Association of Mortgage Professionals) website or contact Adrienne L. Randol, CML.
CliftonLarsonAllen is providing a webinar on March 8th to discuss the Work Opportunity Tax Credit and how it can apply to your business. This webinar will provide members of the construction and real estate industry with a practical guide for implementing a program to capture the maximum benefit available for hiring members of targeted groups into their businesses.
Plaza Home Mortgage has posted its March webinar training calendar.
On March 16th, TMBA is providing "Accounting Updates for Mortgage Bankers" on March 16th. This webinar is an informative session about measuring loan level profitability, hedge accounting, and the unintended consequences of GAAP.
Jobs and Announcements
"Does your investor's delivery portal help you save time and money? The Money Source knows time is money, and has spent thousands of hours designing a best-in-class portal, appropriately named 'EASY.' EASY was designed by mortgage bankers, for mortgage bankers. The user-friendly EASY portal helps sellers deliver their loans in the quickest way possible. EASY's turn-key automation has resulted in industry leading purchasing times for The Money Source, which is one of the reasons TMS has consistently beat their peers in turn times for two years in a row. To learn more about how you can improve your best execution withEASY at The Money Source, email EVP of Correspondent Sales Jeff Vanderluit.
Stearns Lending LLC continues to grow rapidly in its wholesale channel. The #1 wholesale lender in 2013, 2014 and the first 3 quarters of 2015, per Inside Mortgage Finance, has experienced 152% growth in their wholesale channel since 2011, based on funded loan volume. Stearns' management is looking to add to their sales force by hiring wholesale AEs in key markets across the United States. The company broke records in 2015 with back-to-back record funding months and over $12.6 billion in total wholesale funded volume. Contact SVP Brad Hoke to learn about Stearns' career opportunities.