If you are a residential lender and volume in the 3rd quarter was up about 10% over the 2nd quarter, you’re right in line. Industry sources, including Fannie Mae, Freddie Mac, and the MBA, are forecasting that industry volumes will be up roughly 8% Q/Q…and we’re seeing that with Wells, Chase, and Bank of America – more below on big bank home loan metrics.
As Madonna sang, "Some boys try and some boys lie but I don't let them play. Only boys who save their pennies make my rainy day." Most of us save their money in a bank, and there's a lot going on with banks, and the news usually provides non-bank lenders with a clue about trends and the general health of residential lending. This is especially true in dissecting the "Big Bank" quarterly earnings.
Wells Fargo reported earnings Friday. Origination was up 11% QOQ to $70 billion. Purchase activity accounted for 58% of originations. The banking giant beat revenue expectations - thanks in large part to a push from mortgage originations - despite an ongoing scandal and the loss of its CEO.
And JP Morgan Chase reported earnings Friday as well. Mortgage origination was up 8.4% QOQ to $27.1 billion. On an annualized basis, it is down 9.4%.
Bank of America reported this morning with solid earning numbers. Its mortgage banking income surged 45 percent to $589 million.
Mortgage banking earnings and volumes for both JPM and Wells Fargo came in largely in line with expectations. The gain-on-sale margin and MSR mark were also in line. These results showed a strong residential lending showing in the third quarter for the two. Chase's mortgage origination volume of $27.1 billion was up 8% Q/Q from $25.0 billion, while WFC's origination volume was up 11% to $70 billion from $63 billion Q/Q. JPM's volume was driven by an 11.6% increase in correspondent volume, while retail volume was up 4.5% Q/Q. JPM's retail volume as a percentage of total volume decreased to 43% from 45% in 2Q, per Bose George at KBW.
Bose George also reported at Chase & Wells, "Gain-on-sale (GOS) margins looked about in line with expectations. JPM's GOS was down to 0.91% from 1.04%, while WFC's was up to 1.81% from 1.66%. We believe that the decline in the GOS margin at JPM was at least partially driven by the mix shift as correspondent volume increased to 57% of production from 55% last quarter. We are expecting relatively flat gain-on-sale margins for the industry in 3Q given a slight tightening of primary secondary spreads, offset by an increase in application volume."
What about servicing? JPM's MSR capitalization rate declined to 80 bps from 81 bps last quarter (vs. a decline of 6 bps last quarter), and the multiple of the servicing fee declined to 2.29x from 2.31x. WFC's MSR capitalization rate rose slightly to 69 bps from 68 bps (vs. a decline of 4 bps last quarter), and the multiple of servicing fee rose to 3.59x from 3.32x. Many were expecting MSR marks to be minimal due to mortgage rates being relatively stable Q/Q. JPM's servicing portfolio declined to $609 billion of UPB from $630 billion Q/Q and WFC's portfolio decreased to $1.703 trillion from $1.728 trillion Q/Q.
Another big bank released its earnings: PNC. Of the mortgage-heavy banks that reported earnings Friday, MSR values increased +3% QoQ on average. PNC had the largest increase (+7% QoQ), which makes some sense given its MSR valuation had seen the largest YTD markdown as of 2Q16 (-29%). Average gain on sale (GoS) margin dropped -1.2% QoQ among JPM, PNC and WFC.
Citi is not the mortgage powerhouse it once was although its 3rd quarter numbers showed that mortgage originations increased 2% from last quarter's $6.4 billion to $6.5 billion. This is down, however, by 13% from last year's $7.5 billion. Earnings from Citigroup's mortgage division decreased 9% from last quarter, and down from last year by 30%.
Turning to...disasters, every part of the nation has its share, all of which impact residential lenders who lend in various areas and the investors who buy loans across the nation.
HUD's Secretary Julián Castro awarded a total of $500 million to help Louisiana, Texas and West Virginia to recover after severe flooding events that occurred earlier this year. Provided through HUD's Community Development Block Grant - Disaster Recovery (CDBG-DR) Program, these recovery funds will assist the most impacted communities that experienced the most serious damage to their housing stock. For this allocation, HUD allocates CDBG-Disaster Recovery funds based on the best available data from the Federal Emergency Management Agency (FEMA) to identify the areas of greatest level of 'unmet housing need.' In the hardest-hit counties of Louisiana (6 counties), Texas (3 counties), and West Virginia (2 counties), more than 102,000 households experienced some level of damage to their homes including more than 41,000 families who saw the most serious level of damage or destruction and unmet needs.
Last week FEMA issued Amendments No. 3 and 4 to DR-4285 granting 6 additional North Carolina counties individual assistance to supplement recovery efforts in the areas affected by Hurricane Matthew beginning October 4, 2016, and continuing. AmeriHome is reminding Sellers that they are responsible for determining potential impact to a property located in an area where a disaster is occurring or has occurred. Irrespective of whether a property was included in the area covered by the declaration, if a Seller has reason to believe that a property might have been damaged in a disaster the Seller must take appropriate action to ensure that the property is free from damage and meets AmeriHome requirements at the time of purchase by AmeriHome.
In response to the flooding along the east coast, effective immediately, Sellers must follow Wells Fargo standard Disaster Policy for all properties located in ZIP codes that Wells Fargo Funding has determined were impacted by Hurricane Matthew. Precautions must be taken for Loans originated within affected areas. Regardless of whether FEMA has formally declared a disaster, all transactions showing any indication of damage to the collateral should comply with the published Disaster Policy Guidelines as outlined in Seller Guide Section 820.19: Disaster Policy and 820.20: When Required both found in our Conforming Underwriting Guidelines. (Government Loans must follow FHA/VA guidance.)
Pacific Union is monitoring the impact of recent severe storms, flooding and disaster declarations in additional states for which specific impacted areas have not been identified by FEMA. These include, but are not limited to: Hawaii, as well as states impacted by Hurricane Matthew including Florida, Georgia, North Carolina, and South Carolina. At this time, loans secured by properties located in impacted areas are subject to standard Pacific Union protocol. Standard requirements for disaster areas apply for these properties as they relate to expectations from appraisers for existing pipeline and new applications.
Due to the severe storms, flooding, landslides, and mudslides that occurred in Hawaii from September 11, 2016 (incident start date) to September 14, 2016 (incident end date), the President issued a federal disaster declaration on October 6, 2016 for the county of Maui. NewLeaf requires all subject properties in the areas impacted by the disaster require evidence that the subject sustained no damage from the identified disaster. NewLeaf's disaster requirements also include the effects of Hurricane Matthew.
A Flagstar announcement stated due to the recent damage done by Hurricane Matthew in Florida, Georgia, North Carolina, and South Carolina, affected counties will require a satisfactory re-inspection dated on or after October 10, 2016. If an appraisal was not required due to PIWs or product requirements, a satisfactory property inspection with photo will be required. Loans that have already been issued a Final Approval Clear to Close status will be placed in an Approved with Conditions status until a re-inspection is performed. Please note that appraisal re-inspections are not required to be completed by the original appraiser; however, a Flagstar Bank eligible appraiser must be utilized. For loans that have an appraisal that was ordered via Loantrac, an appraisal re-inspection may be requested via the Appraisal Management module by selecting "Yes" to the "Do you need a Property/Disaster Inspection" question.
Here's something impacting the demand for agency mortgage-backed securities. The Wall Street Journal reports that Japan's San-In Godo Bank is halting the purchases of JGBs (Japanese Government Bonds) andbuying $1 billion worth of Ginnie Maes. That has to make the Honorable Ted Tozier, who runs Ginnie Mae, happy!
Rates keep nudging higher. At least long term rates are moving higher, causing the yield curve to steepen. This actually helps bank earnings, as well as anyone else "lending long and borrowing short." On Friday Fed Chair Janet Yellen alluded to the desire to see inflation run above target. But heck, inflation has not reared its ugly head in decades. Still, Friday the 10-year worsened .5 in price settling at 1.79% while 5-year T-notes and agency MBS prices worsened about .125.
Still, practically every day it is a mixed bag. Friday, for example, producer price inflation ran hotter than expected in September while Michigan Sentiment fell to a one-year low for October. The Producer Price Index is more important, but it's still "two steps forward, one step back." Retail Sales were mostly in line with forecasts, and then we had Fed Chair Yellen saying that the FOMC should have a debate about running the economy a bit above capacity to try to entice people back into the labor force and to stimulate capital spending.
And this week we'll all have more numbers thrown at us so we can second guess the Federal Reserve's Open Market Committee. (It meets a few days before the election, but most of the telegraphing as pointed to a rate hike at the December meeting.) And this week includes a couple meetings by central bankers overseas. We've already had the October Empire Manufacturing figure (-6.8, worse than expected); September Industrial Production and Capacity Utilization are later. Tomorrow is September Consumer Price Index and Core CPI, and the October NAHB Housing Market Index.
On Hump Day we'll have the MBA's Mortgage Index for last week, September Housing Starts and Building Permits, and the October Fed Beige Book. Thursday is the usual Initial Jobless Claims (for the week ending 10/15), October Philadelphia Fed, and September Existing Home Sales. Friday is zip. In the early going the 10-year is yielding 1.78% with agency MBS prices better than Friday afternoon by .125.
Jobs and Announcements
In Ops job news, the Cedar Band Corporation is seeking an experienced Quality Control Manager to manage file submissions to Mortgage Compliance Advisors, respond to deficiencies, write Management Response reports, institute internal processes to address file defects, work with outside file review vendor to ensure such deficiencies to not recur, and provide training and guidance to employees. "Work with a rapidly growing, nationally chartered Housing Finance Authority. Candidate to help us carefully manage expansion in working with some of the nation's largest Correspondent Lenders." The Candidate will report directly to Executive Management. Apply directly here; confidential questions can be addressed to President Richard Ferguson (801.205.6227); the person can work remotely.
MIAC Analytics has an opening for a Senior Account Executive to manage sales in the Western United States. This position will be responsible for developing strategic prospects and maintaining decision-level relationships for the firm's complete products and services offerings. The Candidate should have proven experience in residential mortgage capital markets and secondary marketing, broad knowledge of mortgage lending, capital markets and mortgage servicing, general familiarity with secondary, valuation and risk management software solutions, and excellent selling, communication and negotiation skills. Learn more or apply here; inquiries can be addressed to Managing Director Rob Branthover.
And continuing in the Ops vein, Right Start Mortgage, Inc., which saw its retail production jump 45% last year, has openings for senior underwriters to work from its Pasadena, CA headquarters or remotely. Right Start Mortgage has in business for over 26 years and is a Fannie Mae and Ginnie Mae Seller/Servicer. "Underwriters will be provided world class technology, industry leading compensation structure and full suite of benefits including a matching 401k and full medical. Candidates must have at least 5 years' experience with FHA, VA and conventional products and full FHA DE and VA SAR designation. Please email confidential resumes to Pat Cox if would like to join our growing team!"
In personnel moves Ditech Financial's president David Schneider left the company, according to a filing with the Securities and Exchange Commission. I wish Mr. Schneider well; he was the EVP & COO of Walter Investment Management Corp. as well as President of Ditech Financial LLC. I don't keep track, but someone told me that Walter Investment has been through four CEOs in the last year.