Mortgage Bankers Association

Apache is functioning normally


Washington, DC
CNN
 — 

Mortgage rates edged further toward 7%, rising for the fifth consecutive week, as the Federal Reserve suggests rate increases will continue amid stubborn inflation.

The 30-year fixed-rate mortgage averaged 6.73% in the week ending March 9, up from 6.65% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 3.85%.

After hitting a 2022 high of 7.08% in November, rates had been trending down. However, they started climbing again in February, rising half a percentage point over the past month. Robust economic data continues to suggest the Federal Reserve is not done in its battle to cool the US economy and will likely continue hiking its benchmark lending rate.

“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy,” said Sam Khater, Freddie Mac’s chief economist. “Overall, consumers are spending in sectors that are not interest rate-sensitive, such as travel and dining out. However, rate-sensitive sectors, such as housing, continue to be adversely affected. As a result, would-be homebuyers continue to face the compounding challenges of affordability and low inventory.”

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

Fed signals it will continue with rate hikes

Coming into 2023, inflation seemed to be cooling. But strong employment numbers and a rising Consumer Price Index revealed inflation remains stubbornly high.

In testimony to Congress on Tuesday, Federal Reserve Chairman Jerome Powell said the central bank will likely raise interest rates higher than previously forecast to fight inflation.

“While last month Fed officials said that a smaller increase in the federal funds rate would help create a soft landing for the economy, Powell’s testimony on Tuesday made it clear that the central bank is prepared to return to a faster pace of rate increases if the incoming February economic indicators remain strong,” said Jiayi Xu, an economist at Realtor.com.

This suggests that investors were not fully prepared and are anxious about the Fed’s upcoming actions, she said.

The Fed’s next rate-setting meeting is scheduled for March 21-22, where a half-point rate hike is now back on the table.

“Uncertainty about how high rates will go and how long they will remain elevated makes it challenging for investors to make well-informed decisions,” Xu said. “Therefore, it’s crucial to keep a close eye on the latest developments from the Federal Reserve.”

The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

Housing market chilled

Rising mortgage rates have put a damper on the spring selling season.

While applications for a mortgage rose slightly last week after three weeks of declines, according to the Mortgage Bankers Association, activity is muted.

“Even with this jump in activity, both purchase and refinance applications remain well below year-ago levels when rates were much lower,” said Bob Broeksmit, MBA president and CEO. “The recent increase in mortgage rates, right at the start of the busy spring buying season, could cause prospective buyers to delay decisions until rates moderate.”

Home buyer sentiment returned to record lows in February, according to a survey from Fannie Mae. After three consecutive months of improvement, sentiment dropped, returning the index closer to its all-time survey low set last October. The most notable drops in sentiment were in those associated with job security and home-selling conditions.

“While the current housing market may not look promising for sellers due to factors such as an increasing number of unsold homes, longer time on market, and decelerating price growth driven by high mortgage rates, there are still opportunities to be found,” said Xu.

For example, Xu said, recent sales data show that the share of first-time homebuyers is up compared to one year ago.

“As a result, sellers with starter homes may see robust demand and retain some bargaining power,” she said.

In addition, she said, the lasting presence of hybrid working models offer home buyers more flexibility in where they choose to live. Rather than competing for a home in denser, more central areas, some buyers will move further away from work if they aren’t commuting every day.

“This trend could make homes with easy access to public transportation systems more attractive to home buyers which, in turn, enhances bargaining power for the sellers,” Xu said.

For sellers who are also buyers, she said, “it is important to note that they can still leverage their record-high equity, even if they have to adjust their expectations to lower asking prices.”

Source: cnn.com

Apache is functioning normally

Independent mortgage banks have been coping with a still-surging wave of loan-repurchase requests from Fannie Mae and Freddie Mac that represents yet another threat to lenders’ already stretched balance sheets.

Much of the problem stems from the huge volume of low-rate loans originated in 2020 and 2021 at a time when the industry was continuously working to build capacity to deal with the explosive origination growth. That capacity issue, industry experts contend, resulted in a higher rate of underwriting errors than in more normal times that the agencies, Fannie Mae and Freddie Mac, are still uncovering as part of their ongoing quality-control checks — sometimes months or even years after a loan was originated.

There is a concern among IMBs, however, that Fannie and Freddie are being too aggressive in pursuing the repurchase option on loans with minor underwriting defects that could be cured far short of a draconian buyback demand. An executive with the Mortgage Bankers Association (MBA) confirmed the industry group is currently in discussions with the agencies over that concern.

The problem for independent mortgage banks (IMBs), particularly smaller to mid-size IMBs ($1 billion in originations or less) is that they have few good options for dealing with 2020 or 2021 vintage loans they end up repurchasing from the agencies. Those mortgages were originated at interest rates of 3% or less, and rates now are more than 3 percentage points higher.

Industry experts said most small and even midsized IMBs don’t have the ability to hold repurchased loans on their balance sheets, so they will likely have to turn to the whole-loan market to sell them.

“Those loans are going to be 20 points underwater, for the 3% to 3.5% kind of coupons, the 2021 kind of vintage” said John Toohig, head of whole-loan trading on the Raymond James whole-loan desk and president of Raymond James Mortgage Co. “It’s going to be in the low 80 cents on the dollar range.”

“… So, they’re probably looking at a loss, and you have too many of those, and you’re a thinly capitalized mortgage company, it’s not exactly what you want to see coupled with current [low] mortgage volumes.”

Brett Ludden, managing director and co-head of the financial services team at Sterling Point Advisors, which specializes in mergers and acquisitions, said as rough ballpark figure, some 50% of agency loan-repurchase requests end up resulting in a lender having to repurchase the loan, though he stressed each case is unique as are the appeals. 

He added that loan defects often leading to repurchase requests include, among others, borrower income-related issues (i.e., debt-to-income ratios); appraisal issues; missing documentation; employment verification; and undisclosed liabilities — “people taking out a car loan the day before they close on their mortgage.”

“Issues related to appraisals and income are the highest areas of repurchases across the groups that we work with,” Ludden added.

Brian Hale, founder and CEO of consulting firm Mortgage Advisory Partners LLC, said lender decisions about how to handle repurchased loans in today’s market are typically made with the thinking, “What is the least-worst hit I’m going to take.”

The numbers

An analysis of recent U.S. Securities and Exchange Commission (SEC) filings by Fannie Mae and Freddie Mac shows that Fannie issued some $6.6 billion (based on unpaid principal balance, or UPB) in repurchase demands to bank and nonbank lenders and servicers on loans delivered to the agency over the 24 months ended March 31, 2022. That includes, current as of Dec. 31, 2022, $3.36 billion in repurchase demands for the 12 months ended March 31, 2021; and $3.24 billion for the 12 months ended March 31, 2022.  

As of yearend 2022, SEC filings show that repurchase demands outstanding from Fannie Mae stood at $783 million, down from $939 million at the end of the third quarter of 2022, but up from $757 million as of yearend 2021 and $589 million as of end of the third quarter of 2021. 

For Freddie Mac, which reports figures differently, some $4.2 billion (based on UPB) has been recovered via loan repurchase demands to bank and nonbank lenders since 2020, SEC filings show — with $3.3 billion recovered in total across 2021 ($1.4 billion) and 2022 ($1.9 billion). As of yearend 2022, repurchase requests issued and outstanding to bank and IMB loan sellers and servicers by Freddie stood at $1.3 billion, including requests for which appeals are pending. That’s the same level ($1.3 billion) at which outstanding repurchase requests stood as of yearend 2021, up from $500 million as of yearend 2020. 

Hale said the repurchase demands impact IMBs more than the banks because “the delivery [of loans] to the agencies is disproportionately from independent mortgage banks.”

“We had two of the biggest years ever in the history of the industry back-to-back [2020 and 2021, when interest rates were 3% or less], and neither systems nor people or companies, for the most part, were prepared to handle the volume, and they worked from behind all the time,” Hale added. “And so, the rush to deliver created some quality issues in the industry, which could have easily been foretold.”

Hale said the agencies have up to 36 months from the date of loan origination to demand a loan repurchase, longer if fraud is involved, so that means there is still at least another year for the agencies to issues loan-repurchase requests for 2021 vintage loans.

“I would say there’s probably a fair amount of volume from 2021 that is still being reviewed,” said Dean Kelker, senior vice president and chief risk officer at SingleSource Property Solutions, a leading provider of property-related services across the loan-origination process and servicing cycle. “There’s a lot of money [to be recouped] from the Fannie and Freddie perspective in sending loans back to the originator for repurchase. 

“The agencies got very aggressive after the Great Recession [as well] with repurchases. I think when they experience an inflow of money from repurchases, they become more aggressive.”

Ludden added that the rate of loan repurchases does appear to be increasing year over year, at least with Fannie Mae. He said an analysis of the loan-level data available publicly from Fannie Mae shows the following:

• “We are already over 90% of the way through 2020 repurchases. I believe we’ll end up with 1 loan repurchase for every 760 loans sold.

• “The 2021 vintage had the most repurchases in Q4 2022, but it does look like we are turning a corner earlier. While we have some analysis to do in the next week or two, I believe our model will target a 0.165% end-point for 2021 (1 loan repurchase for every 600 loans sold).

• “At this point, it is a little too early to say definitively but we will likely model a similar assumption for the 2022 vintage end-point as we assume for 2021 (1 loan repurchase for every 600 loans sold). Hopefully, with extra capacity, lenders observed better quality originations in 2022.”

Ludden added that “unless you are behind the curtain at Fannie Mae [or Freddie Mac], you don’t know “whether or not they’re just doing things faster, or whether they’re digging in their heels and forcing more repurchases.”

“Our analysis only looks at the end result, and there is certainly the possibility that you’re going to see a higher [rate] of repurchases requests occurring [going forward]. The good news is that it will be on a base of substantially fewer origination once you get into 2022 [vintage loans].”

The conversation

Pete Mills, senior vice president of residential policy and strategic industry engagement at the MBA, said there are “concerns over the rep and warranty framework” for loan repurchases and how it’s being applied by the agencies. 

Mills explained that there are remedies far short of a loan repurchases for minor mortgage-manufacturing defects related to issues such as a borrower’s credit history, income or a problematic loan-to-value ratio — which fall short of fraud, misrepresentation, or eligibility issues. 

Often those defects can be corrected by supplying additional documentation or via a loan-price adjustment to better reflect what the value of the loan should have been if the defects had been known at the time it was originated and subsequently sold to one of the agencies, Mills said. 

“It’s especially important in this environment that [the agencies] don’t start every conversation with a repurchase request because you’re talking about buying a loan out that’s at [an interest rate of] 2.75% or 3% and it’s [now] a 6.5% market,” he said. “If there are alternative remedies that are appropriate, especially for a performing loan, then that’s how the conversation should roll.

“I do think it’s important in this environment, given the cost of originations and challenges we’re all facing, that people stay disciplined on both sides [lenders and the agencies] and [adhere] to the [rep and warranty] framework that we worked out, so that means the GSEs don’t start the conversation with repurchase when there is an alternative remedy for a performing loan,” Mills stressed.

 “… We’re all concerned about affordability and cost,” he added. “Going back and forth on repurchase demands for weeks and months on a performing loan, when a [far less draconian] pricing adjustment would have solved the problem, does seem to add a lot of friction to the whole process.”

Mills said that the MBA is “in conversations” with the GSEs “to address these issues,” and it’s “an ongoing conversation.”

Officials from Fannie Mae did not answer HousingWire’s questions on the MBA’s concerns or “the ongoing conversation” between the agencies and MBA officials over loan repurchases. 

In a statement sent to HousingWire after publication, a spokesperson for Freddie Mac said the enterprise “is always looking for ways to enhance our quality control processes. We continue to meet with lenders to find ways to improve loan quality while fostering sustainable homeownership.”

In a prior interview on the topic of loan repurchases, however, a Freddie Mac official, who asked not to be named, pointed out that a defective loan that violates the rep and warranty framework was “never eligible to be sold to us [the agency] in the first place.” 

“We do give them real opportunity to fix the problem,” the Freddie Mac official said. “Just because we issue a loan-repurchase request, that doesn’t mean the lender will end up having to purchase the loan back.”

Source: housingwire.com

Apache is functioning normally

The Refi Party Continues

If you thought the refinance party was over, it’s not. It just seems to keep on going, which is a great thing for lenders that specialize in offering refis.

It has been surprising how long it’s gone on given the fact that most Americans already refinanced over the past few years. And interest rates aren’t as low as they once were in recent history, despite being pretty darn low.

Still, borrowers were able to cut their rate by more than a full percentage point during the fourth quarter, this according to the February 2016 Insight & Outlook report from Freddie Mac.

Refi Rate Is 110 Basis Points Lower

In fact, borrowers on average cut their mortgage rate by 110 basis points during the last three months of 2015, a whopping 23% rate reduction.

For example, someone who previously had a rate of 5.125% on their 30-year fixed was able to lower it to 4% when they refinanced.

That’s a pretty compelling reason to refinance, and above the historical norm in terms of rate reduction.

On average, the typical rate reduction is just 13% during refinance, per Freddie Mac, so homeowners who refinanced in the fourth quarter were nearly doubling their benefit.

[The Refinance Rule of Thumb]

It Got Even Better in 2016

Amazingly, rates marched even lower at the start of 2016, and now sit about 40 basis points below levels seen in the fourth quarter.

So that same borrower with the 5.125% rate can now get a rate closer to 3.625% on the 30-year fixed today.

That represents about a 30% discount in rate to the homeowner. On a $300,000 loan, the monthly payment drops from $1,633.46 to $1,368.15, roughly $300 lower per month.

I’m sure that $3,600 in annual savings will come in handy. A lower rate means more of the payment will go toward principal as well, allowing the borrower to gain equity faster.

Higher Refinance Share Projected in 2016

Speaking of equity, Freddie also noted that increases in home equity coupled with low rates should incent more borrowers to refinance.

As a result, the 2016 refinance share of originations has been boosted to 40%. It currently runs around ~60%, per the Mortgage Bankers Association, but purchases are expected to ramp up as home buying season gets in full swing.

Borrowers are also tapping their equity at a higher clip, with 43% of borrowers increasing their loan balance by at least five percent when refinancing (their minimum definition of cash out). That’s up four percentage points from the earlier period.

For the record, fixed-rate mortgages remain king, with more than 95% opting to go with a fixed loan, regardless of what they had prior.

And 83% of borrowers with a hybrid ARM chose a fixed loan in the fourth quarter, with just 17% choosing to jump into another ARM.

I actually mentioned the benefit of an ARM the other day if you’re planning in move in the next five years. You can get a lower rate and not worry about the rate adjustment, knowing the loan will be paid off before it ever adjusts.

Of course, I can see where folks just go with a fixed mortgage seeing how cheap they are at the moment.

Freddie expects the 30-year fixed to average 4.1% in 2016 and 4.8% in 2017, so the refis should continue to roll on in.

Source: thetruthaboutmortgage.com

Apache is functioning normally

The residential mortgage delinquency rate fell to a seasonally adjusted 8.22 percent in the fourth quarter, according to the Mortgage Bankers Association‘s (MBA) National Delinquency Survey released today.

It decreased from 9.13 percent in the third quarter and 9.47 percent a year ago, signaling that the worst is potentially behind us.

Meanwhile, foreclosure actions were started on 1.27 percent of loans, down from 1.34 percent in the third quarter, but up from 1.20 percent a year ago.

The percentage of loans in the foreclosure process at the end of the fourth quarter increased from 4.39 percent to 4.63 percent, and was up slightly from a year ago.

That brought the combined percentage of loans in foreclosure or at least one mortgage payment past due to 13.56 percent (on a non-seasonally adjusted basis), down from 13.78 percent last quarter and 15.02 percent a year ago.

MBA chief economist Jay Brinkmann noted that total delinquencies are at their lowest level since the end of 2008, and mortgages just a single payment behind are at the lowest level since the end of 2007.

“Perhaps most importantly, loans three payments (90 days) or more past due have fallen from an all-time high delinquency rate of 5.02 percent at the end of the first quarter of 2010 to 3.63 percent at the end of the fourth quarter of 2010, a drop of 139 basis points or almost 28% over the course of the year,” he said, in the report.

However, the percentage of loans in foreclosure equaled the all-time high, which the MBA attributed to the robosigning scandal that caused a temporary halt in foreclosure sales.

In Florida, over 24 percent of mortgages are one payment or more past due or in foreclosure, the highest rate in the nation, followed closely by Nevada at over 22 percent, and well above the 13.56 percent national average.

Compared to the fourth quarter of 2010, the delinquency rate decreased 135 basis points for prime fixed mortgages, 124 basis points for prime adjustable-rate mortgages, 284 basis points for subprime fixed mortgages, 152 basis points for subprime ARM mortgages, 154 basis points for FHA loans, and 91 basis points for VA loans.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Interest rates for mortgage loans broke five straight weeks of declines caused by the bank crisis. This week, the 30-year fixed rate rebounded due to recent data indicating a still-resilient economy, the potential continuity of the Federal Reserve’s tightening monetary policy, and pressures in the secondary market. 

“For the first time in over a month, mortgage rates moved up due to shifting market expectations,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Home prices have stabilized somewhat, but with supply tight and rates stuck above 6%, affordable housing continues to be a serious issue for many potential homebuyers. Unless rates drop into the mid-5% range, demand will only modestly recover.”

Freddie Mac’s Primary Mortgage Market Survey (PMMS) shows the 30-year fixed mortgage rate rose to 6.39% as of April 20, up 12 basis points from last week and 128 basis points from an average of 5.11% this time last year. The PMMS focuses on conventional, conforming loans for borrowers who put 20% down and have excellent credit.  

At HousingWire’s Mortgage Rates Center, Optimal Blue’s 30-year fixed conforming mortgage rate was 6.53% as of April 19, up compared to 6.33% the previous Wednesday. The rate is calculated using actual locked rates with consumers across 42% of all mortgage transactions nationwide. 

“Mortgage rates are the product of the larger economic environment, including inflation and employment data as well as banking stability and the Fed’s actions,” Hannah Jones, economic data analyst at Realtor.com, said in a statement. “Recent data points to a still-resilient, though cooling economy, leading many to believe the Fed will elect to raise the target rate at next month’s meeting.”  

Mortgage rates are following the gain in the 10-year Treasury, which moved from 3.2% in the first week of April to 3.6% this week, according to George Ratiu, the chief economist at Keeping Current Matters.  

“Investors are weighing the softening consumer sector and inflationary pressures, along with the shifts in real estate markets, looking for more clarity on the outlook,” Ratiu said in a statement. “Inflation remains a concern, keeping the Fed in a hawkish position, poised to push the policy rate up by another 25 basis points at its May meeting.”

Logan Mohtashami, the lead analyst at HousingWire, said that the banking stress has “gone away” and the 10-year Treasury yield is now stuck at its technical level between 3.21% and 4.25%.

“We are just in a range with the 10-year yield until something breaks in the economy,” Mohtashami said during an interview.

Pressures from the secondary market 

To Melissa Cohn, regional vice president of William Raveis Mortgage, the bank crisis still impacts mortgage rates, mainly through the secondary market. 

On April 6, the Federal Deposit Insurance Corporation (FDIC) announced a “gradual and orderly” move to sell a portfolio of $114 billion in mortgage-backed securities (MBS) it retained after seizing control of failed regional banks Signature Bank and Silicon Valley Bank (SVB). 

According to Cohn, the fact that MBS portfolios are “being dumped into the system” and the Fed is not acting as a buyer or seller is sending rates in the wrong direction.

“We’ve seen signs of a weakening economy, but we’ve also seen a couple of data points showing stronger than expected data,” Cohn said during an interview. “Combined with the fact that there’s so much mortgage debt being sold onto the market, that’s just pushed rates up.” 

Cohn explained that it’s all about supply and demand in the secondary market: “If you have more sellers than you have buyers, then that’s going to push prices down and push yields up basically.” 

The spring season 

Higher rates in the housing market are reducing hopes for a productive spring season. 

“While spring is typically a season marked by a lively housing market, this year is proving to be less energetic than previous ones,” Jones said. “Nevertheless, buyer demand shows signs of improvement with each gain in affordability. However, housing demand remains largely stifled as many buyers wait on the sidelines until the cost of purchasing a home becomes more doable.” 

According to Jones, a recent Realtor.com survey showed that 82% of homeowners feel locked in by their current mortgage rate. These borrowers got mortgage loans when rates were 2-3% during the Covid-19 pandemic.  

Another challenge to the market is the lack of inventory.

“The lack of housing inventory this spring buying season is also keeping many prospective buyers on the sidelines,” Bob Broeksmit, Mortgage Bankers Association (MBA) president and CEO, said in a statement. “While MBA expects mortgage rates to fall to around 5.5% by the end of this year, more housing supply is needed to improve affordability and meet demand.”

Source: housingwire.com

Apache is functioning normally


Washington, DC
CNN
 — 

Mortgage rates ticked down last week for the second week in a row, as progress on inflation is keeping rates calmer.

The 30-year fixed-rate mortgage averaged 6.35% in the week ending May 11, down from 6.39% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.30%.

“This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year,” said Sam Khater, Freddie Mac’s chief economist.

Mortgage rates topped 5% for the first time since 2011 a little more than a year ago, and have remained over 5% for all but one week during the past year. Since then they have gone as high as 7.08%, last reached in November. But over the last month rates have averaged about 6.37% and have been going up and down, but staying under 6.5%.

“While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023,” Khater added. “This should bode well for the trajectory of mortgage rates over the long term.”

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

Inflation is cooling

The rate for a fixed-rate 30-year loan held relatively steady at the lower end of the 6% range this week because the inflation picture is showing expected improvement.

“In light of a strong jobs report last week, April’s Consumer Price Index data reinforced that we are very likely at the end of the tightening cycle,” said Jiayi Xu, an economist at Realtor.com.

On Wednesday the Bureau of Labor Statistics said that headline CPI climbed by 4.9% in April year over year, slowing for the 10th consecutive month and hitting its lowest level in two years.

“While the US economy is moving in the right direction, the pace of improvement is likely slower than desired by the Federal Reserve, and inflation still remains significantly above the target of 2%,” said Xu. “As long as the economy continues to see progress on inflation, it is expected that mortgage rates will remain toward the lower end of the 6-7% range.”

Home sellers still “locked-in”

While mortgage rates have stayed under 6.5% for a month, they are about one percentage point above what some economists see as a tipping point of 5.5% rates that would motivate homeowners to sell.

Many homeowners bought or refinanced into ultra-low interest rates during the past few years. The idea of giving that up and buying another house at 5.5% sounds a lot better to them than buying something at 6.5%.

But buyers are responding positively when rates tick down, and both refinance and purchase applications saw strong gains last week, according to the Mortgage Bankers Association.

“The decline in mortgage rates is good news for prospective homebuyers, but housing supply is still too low in many parts of the country,” said Bob Broeksmit, MBA President and CEO. “Housing construction has slowed, and some would-be sellers are delaying decisions because of economic uncertainty and an unwillingness to give up their low-rate mortgage.”

In addition to the “locked-in effect” of mortgage rates, sellers are facing another issue caused by high inflation: the increasing costs of home improvements prior to selling.

A recent survey from Realtor.com shows that improving homes before selling is one of the top concerns among sellers.

“In April 2023, the household furnishing and supplies index increased 4.8% over the prior year, a welcomed improvement compared to the preceding two months, during which the growth in household furnishing exceeded the overall inflation rate,” said Xu.

However, certain items, such as floor covering, still experienced a faster price growth of 9.9% higher than a year ago.

“While this issue primarily affects sellers, buyers may also suffer the consequences, as the high cost of home repairs are likely to be passed on to them in the end.”

Source: cnn.com

Apache is functioning normally

In the first quarter of the year, California mortgage technology firm Blend Labs shrunk its financial losses amid efforts to cut costs, improve the mortgage business and grow the Blend Builder platform. 

Blend reported a non-GAAP net loss of $35.6 million in the first quarter, compared to $49.2 million in the prior quarter and $45 million in the same period last year. The company’s GAAP net loss in Q1 was $66.2 million, down from $81.4 million the previous quarter, according to documents filed with the Securities and Exchange Commission (SEC) on Tuesday. 

Nima Ghamsari, head of Blend, said the first-quarter earnings “came in ahead of our expectations,” with progress in the company’s three strategic priorities.  

“Our lower cost structure is driving improvements in operating performance. Our focus on driving success for our mortgage customers in a very tough margin environment is resulting in market share gains and industry outperformance. And finally, we are making early strides in proving our Blend Builder platform, highlighted by one of the largest new customer wins in Blend’s history with Navy Federal [Credit Union],” Ghamsari said in a statement. 

Blend’s white-label technology powers mortgage applications on the websites of major lenders such as Wells Fargo and U.S. Bank. Its software processed 23.2% of the mortgage market volume in the second half of 2022, compared to 14.5% in the same period of 2021, per the Mortgage Bankers Association (MBA) estimates.

The company notched $37.3 million in revenues in the first quarter, above the guidance provided by executives between $33 million and $35 million. Blend’s platform segment came in at $24.7 million in revenues and the Title365 segment revenue posted $12.6 million. 

Amid a shrinking mortgage market, the mortgage banking suite revenue declined by 33% year over year to $17.8 million in Q1. Meanwhile, the consumer banking suite revenue reached $5.2 million in the first quarter, up 34% year over year. Professional services revenue was at $1.7 million in Q1, down 12% year over year.  

On the expenses side, Ghamsari told analysts that Blend “came in well ahead of our expectations on operating expenses with a sequential improvement of $11 million and down $21 million from the same period last year.”

Non-GAAP operating costs for the first quarter totaled $47.1 million compared with $68.9 million in the previous year.

Despite the net loss, the firm has ample liquidity.

As of March 31, Blend had cash, cash equivalents, and marketable securities totaling $306.9 million, with total debt outstanding of $225 million in the form of Blend’s five-year term loan. Blend’s $25 million revolving line of credit remains undrawn.

Blend expects its second-quarter revenue to be between $39.5 million and $41 million — and platform revenue will post between $27 million and $28 million. Its title business revenue is expected to post between $12.5 million and $13 million. The guidance reflects an estimated 37% decline in volumes from Q2 2022 to Q2 2023, as projected by MBA. 

Ghamsari told analysts he expects the company’s net loss “will continue to decline each quarter from here forward.”

The company estimates a non-GAAP net operating loss between $26.5 million and $25 million in the second quarter, compared to $30.7 million in the first quarter. 

Source: housingwire.com

Apache is functioning normally

This week’s mortgage rates declined slightly, continuing a recent “sideways trend” at the low 6% mark. Rates reflected a moderation in inflation and the banking crisis, and the consequent expectation that the Federal Reserve (Fed) is done hiking the federal funds rate. 

Per Freddie Mac‘s Primary Mortgage Market Survey, the 30-year fixed-rate mortgage averaged 6.35% as of May 11, down four basis points from last week’s 6.39%. The same rate was at 5.30% on average a year ago at this time. 

“This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

“While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023. This should bode well for the trajectory of mortgage rates over the long term,” Khater added. 

Overall, inflation cooled further in April. The Consumer Price Index (CPI) rose 4.9% year over year before seasonal adjustment, according to the Bureau of Labor Statistics (BLS). This is the 10th consecutive month of declines to the lowest level in two years. 

“The Freddie Mac fixed rate for a 30-year mortgage rate continued to move lower this week to 6.35% as 10-yr treasury yields trended down,” Jiayi Xu, Realtor.com‘s economist, said in a statement. “In light of a strong jobs report last week, April’s CPI data reinforced that we are very likely at the end of the tightening cycle.”

However, Xu highlighted that the U.S. economy is moving in the right direction, but at a slower pace than desired by the Fed, with inflation at double the 2% target. 

“Although the labor market figures are promising amidst concerns of a recession, it also gives the Fed little reason to cut rates in the short term,” Xu said. “In June, the Fed will release its updated economic projections, and we will have a clearer picture at that time after more data is available.”

Where is the market headed?  

Xu says that, as long as the economy continues to see progress on inflation, “it is expected that mortgage rates will remain toward the lower end of the 6-7% range.”

“Meanwhile, the housing market continues to face challenges as home sellers are less active this spring. In addition to the “locked-in effect” of mortgage rates, sellers are facing another issue caused by high inflation: the increasing costs of home improvements prior to selling.”  

Mortgage Bankers Association (MBA) president and CEO Bob Broeksmit said the recent decline in mortgage rates is good news for prospective homebuyers. However, the housing supply is still too low in many parts of the country.

“Housing construction has slowed, and some would-be sellers are delaying decisions because of economic uncertainty and an unwillingness to give up their low-rate mortgage,” Broeksmit said in a statement. 

Logan Mohtashami, HousingWire’s lead analyst, said mortgage rates are not where they should be, if considering their historical correlation with the 10-year U.S. Treasury yield. Spreads have been impacted by tighter financial credit, and the Fed is no longer buying mortgage-backed securities (MBS). 

“If mortgage spreads were normal, mortgage rates would be 5.25% today,” Mohtashami said. 

That’s below his range for mortgage rates in 2023. Mohtashami projects mortgage rates to be between 5.75% and 7.25% this year, but “as long as the labor market stays firm, meaning jobless claims don’t break over 323,000 on the four-week moving average.” 

Today’s number is 264,000, Mohtashami said. 

Source: housingwire.com

Apache is functioning normally


Washington, DC
CNN
 — 

Mortgage rates shot up for the fourth consecutive week, as inflation concerns remain.

The 30-year fixed-rate mortgage averaged 6.65% in the week ending March 2, up from 6.5% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 3.76%.

Rates had been trending downward after hitting 7.08% in November, but are now climbing again, up about half a percentage point in a month. Robust economic data continues to suggest the Federal Reserve is not done in its battle to cool the US economy and will likely continue hiking its benchmark lending rate.

“As we started the year, the 30-year fixed-rate mortgage decreased with expectations of lower economic growth, inflation and a loosening of monetary policy,” said Sam Khater, Freddie Mac’s chief economist. “However, given sustained economic growth and continued inflation, mortgage rates boomeranged and are inching up toward 7%.”

The lower rates in January brought buyers back into the market, Khater said.

“Now that rates are moving up, affordability is hindered and making it difficult for potential buyers to act, particularly for repeat buyers with existing mortgages at less than half of current rates,” he said.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less than ideal credit will pay more than the average rate.

Inflation expected to stay elevated longer

The benchmark rate continued to climb, building on the momentum from the past few weeks, as the 10-year Treasury hit 4% this week.

The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

“Investors are expecting inflation to remain elevated for longer, requiring the Federal Reserve to keep increasing its policy rate,” said George Ratiu, Realtor.com senior economist. “The Fed signaled that it sees its monetary tightening having an effect on price growth, but with a strong employment market, wages keep consumers spending.”

Meanwhile, Ratiu said, consumers have taken on a record amount of debt, including mortgage, personal, auto, and student loans.

“The personal savings rate has dropped significantly from the pandemic high, as high prices have been squeezing household budgets,” he said. “With rising interest rates, financial burdens are expected to increase, making consumer choices more difficult in the months ahead.”

Mortgage applications drop on rising rates

The brief boost in mortgage and home buying activity in January as rates dropped has ended, with mortgage applications falling last week to a 28-year low, according to the Mortgage Bankers Association.

“The recent jump in mortgage rates has led to a retreat in purchase applications, with activity down for three straight weeks,” said Bob Broeksmit, MBA’s CEO. “After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective home buyers pause about entering the housing market.”

Rates are trending back up and could even crest 7% again in the next couple of months, said Ratiu.

“For real estate markets, the rise in rates means higher mortgage payments, deepening the affordability challenge just as we move into the crucial spring homebuying season.”

Source: cnn.com

Apache is functioning normally

Did you hear that sound? That’s the entire mortgage industry shouting, “hip, hip hooray!” The Federal Housing Finance Agency (FHFA) on Wednesday announced that it would rescind a controversial loan-level pricing adjustment (LLPA) for conventional borrowers with debt-to-income (DTI) levels at or above 40%.

The FHFA, which regulates Fannie Mae and Freddie Mac, had previously delayed implementation of the DTI LLPA from May 1, 2023 to August 1, 2023 following a chorus of upset from mortgage industry stakeholders, including the influential Mortgage Bankers Association (MBA).

Mortgage industry lobbyists and practitioners alike complained that the fee was “unworkable” and would result in logistical and compliance nightmares, as well as confusion and mistrust from borrowers.

“I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee,” FHFA Director Sandra Thompson said in a statement on Wednesday. “To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting the Enterprises’ single-family guarantee fees and will request public input on this issue.”

The FHFA also put out a request for information on other new fees, including those imposed on borrowers with higher credit scores and moderate down payments.

In January, the FHFA announced a series of changes to LLPA fees with a revamped LLPA matrix that differentiates pricing by loan purpose, and a total of 81 grids for purchase loans, limited cash-out refi loans, cash-out refinance loans. Such changes prompted pushback from the National Association of Realtors and the MBA that it could hurt middle-wealth homebuyers and increase overall pricing. 

The non-DTI-based fees went into effect officially on May 1 but practically have been in effect since mid-March.

The FHFA also had to battle misinformation along the way, with false claims spreading that lower-credit borrowers would pay less than better-credit borrowers.

Still, no LLPA fee elicited a stronger response than the new DTI requirement. Lenders argued they would not be able to accurately determine a borrower’s actual income before rates had to be locked, and the timeline didn’t allow them to change terms of the loan if new information came in later in the process, which happens frequently.

Following the FHFA’s announcement on Wednesday, the MBA issued a statement cheering the demise of the DTI LLPA.

“The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience,” the trade group said. “We are pleased that FHFA engaged with industry stakeholders, recognized the negative impacts of the fee, and decided to rescind its implementation. MBA urges FHFA to continue its engagement to improve clarity and transparency regarding the GSEs’ pricing framework.”

The National Association of Realtors, America’s largest trade organization, also applauded Sandra Thompson for reversing course on the DTI fee.

“It would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier,” NAR President Kenny Parcell said. “Likewise, the FHFA’s decision to release a request for information on the other changes is a great example of good governance.”

Likewise, the Community Home Lenders Association, a coalition of smaller lenders, said the scrapping of the DTI LLPA was good policymaking.

“The GSE pricing grid is a complex balancing of the objectives of access to mortgage credit for underserved borrowers and safety and soundness – and CHLA believes today’s action to end the use of DTI LLPAs will enhance those dual objectives,” said Scott Olson, the group’s executive director.

Days before the DTI fee was killed, National Housing Conference President and CEO David Dworkin argued in a post that the risk-based pricing model the FHFA relies on is antiquated and has outlived its purpose.

“Guarantee fees on loans purchased by Fannie Mae and Freddie Mac are the appropriate mechanism for investors to pay for guarantees on the timely payment of principal and interest on mortgage-backed securities, ensuring a liquid and efficient market,” Dworkin wrote. “To create a fair playing field for first-time homebuyers across all income levels, Fannie Mae and Freddie Mac should should charge the same fee for everyone, as was the practice between 1938 and 2008, and as FHA loans do today.”

Source: housingwire.com