Where is mortgage money going to come from?

David Goldsmith

All Powerful Moderator
Staff member

More mortgage lenders lay off staff as rates rise, applications slow​

Movement Mortgage let go 170 staffers last month, following mass layoffs at competitor Better.com​

Rising mortgage rates are putting pressure on lenders as applications decline.
Movement Mortgage is the latest to face struggles, laying off around 170 employees, HousingWire reported this week. Employees in the processing, underwriting and closing departments were most affected by the cuts, according to the report.
Co-founded in 2008 by former NFL player Casey Crawford, the company’s CEO, Movement Mortgage has more than 775 locations across the U.S. and employs upwards of 4,500 people, according to HousingWire. It has not commented on the layoff report.

The South Carolina-based firm is far from the only mortgage lender making cuts as mortgage rates climb to their highest level since the start of the pandemic. Interactive Mortgage and Freedom Mortgage also recently reduced staff, according to HousingWire.
Better.com, which laid off thousands of employees last month, has resorted to floating voluntary separation plans, to workers starting this week. Employees who accept could be entitled to as much as 60 days of severance and health insurance.

The cooling mortgage market is the likely culprit. Mortgage rates are surging, approaching levels not seen in years. Last week, the 30-year fixed mortgage rate increased for the fourth consecutive week, hitting 4.90 percent, according to the Mortgage Bankers Association.
As a result, demand for mortgage originations is declining. Applications last week dropped 6.3 percent from the previous week, reaching its lowest volume since the spring of 2019.

Movement Mortgage originated $33.1 billion in 2021, a jump of 10.7 percent over 2020, but activity appeared to plateau towards the end of the year, with originations falling 0.7 percent from the third quarter to the fourth quarter.

David Goldsmith

All Powerful Moderator
Staff member

Income needed to afford a typical mortgage payment up 34% annually​

Homebuyers nationwide needed to earn $76,414 annually to afford a typical monthly mortgage payment today — up $19,478 from just one year earlier, according to a new report from Redfin.

That’s a stark jump of 34.2% year over year, as low supply, torrid demand and, as of recently, rapidly increasing mortgage rates have pushed home sale prices up and affordability down. Per Redfin’s data, the typical monthly mortgage payment in March reached $1,910, up from $1,423 in March 2021 and $1,280 in March 2020.

Meanwhile, over the last year, average hourly wages rose just 5.6%, contributing to the affordability crunch.

“Housing is significantly less affordable than it was a year ago because the surge in housing costs has far outpaced the increase in wages, meaning many Americans are now priced out of homeownership,” said Redfin deputy chief economist Taylor Marr.

In all 50 of the largest metro areas tracked by Redfin, the income necessary to afford a home increased by more than 15% year over year, though the actual gain varied widely from city to city. For example in Pittsburgh, which saw the smallest gain among evaluated metros, homebuyers needed an income of $39,532 to afford the area’s median monthly mortgage payment ($988). That income threshold was up 16.3% from one year prior

Other cities with threshold increases nearest to the low end of the spectrum included Philadelphia (17.1%), Chicago (18.2%), Milwaukee (20.4%), and Detroit (21.3%).

The largest jump in income threshold was seen in Tampa, which saw a whopping climb of 47.8% (up to an income of $67,353, an increase of $21,791) year over year. The typical monthly mortgage payment in the city rose to $1,684 from the same time in 2021. Other cities with large jumps included Phoenix (45.7%) and Las Vegas (45.6%); metros with increases of 40% of more included Orlando, Jacksonville, Nashville and Austin

David Goldsmith

All Powerful Moderator
Staff member

U.S. Foreclosure Activity Sets Post Pandemic Highs in First Quarter of 2022​

Foreclosure Starts, Bank Repossessions at Highest Numbers in Two Years, But Still Well Below Normal Levels
ATTOM, licensor of the nation’s most comprehensive foreclosure data and parent company to RealtyTrac (www.realtytrac.com), the largest online marketplace for foreclosure and distressed properties, today released its Q1 2022 U.S. Foreclosure Market Report, which shows a total of 78,271 U.S. properties with a foreclosure filing during the first quarter of 2022, up 39 percent from the previous quarter and up 132 percent from a year ago.
The report also shows a total of 33,333 U.S. properties with foreclosure filings in March 2022, up 29 percent from the previous month and up 181 percent from a year ago — the 11th consecutive month with a year-over-year increase in U.S. foreclosure activity.
“Foreclosure activity has continued to gradually return to normal levels since the expiration of the government’s moratorium, and the CFPB’s enhanced mortgage servicing guidelines,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “But even with the large year-over-year increase in foreclosure starts and bank repossessions, foreclosure activity is still only running at about 57% of where it was in Q1 2020, the last quarter before the government enacted consumer protection programs due to the pandemic.”

Foreclosure starts increase in all 50 states
A total of 50,759 U.S. properties started the foreclosure process in Q1 2022, up 67 percent from the previous quarter and up 188 percent from a year ago.
States that had the greatest number of foreclosures starts in Q1 2022 included, California (5,378 foreclosure starts), Florida (4.707 foreclosure starts), Texas (4,649 foreclosure starts), Illinois (3,534 foreclosure starts), and Ohio (3,136 foreclosure starts).

Those major metros that had the greatest number of foreclosures starts in Q1 2022 included, Chicago, Illinois (3,101 foreclosure starts), New York, New York (2,580 foreclosure starts), Los Angeles, California (1,554 foreclosure starts), Houston, Texas (1,431 foreclosure starts), and Philadelphia, Pennsylvania (1,375 foreclosure starts).
Highest foreclosure rates in Illinois, New Jersey and Ohio
Nationwide one in every 1,795 housing units had a foreclosure filing in Q1 2022. States with the highest foreclosure rates were Illinois (one in every 791 housing units with a foreclosure filing); New Jersey (one in every 792 housing units); Ohio (one in every 991 housing units); South Carolina (one in every 1,081 housing units); and Nevada (one in every 1,090 housing units).
Among 223 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in Q1 2022 were Cleveland, Ohio (one in every 535 housing units); Atlantic City, New Jersey (one in 600); Jacksonville, North Carolina (one in 633); Rockford, Illinois (one in 634); and Columbia, South Carolina (one in 672).

Other major metros with a population of at least 1 million and foreclosure rates in the top 20 highest nationwide, included Cleveland, Ohio at No.1, Chicago, Illinois at No. 6, Detroit, Michigan at No. 10, Las Vegas, Nevada at No. 13, and Jacksonville, Florida at No. 16.
Bank repossessions increase 41 percent from last quarter
Lenders repossessed 11,824 U.S. properties through foreclosure (REO) in Q1 2022, up 41 percent from the previous quarter and up 160 percent from a year ago.

Those states that had the greatest number of REOs in Q1 2022 were Michigan (1,592 REOs); Illinois (1,288 REOs); Florida (673 REOs); California (655 REOs); and Pennsylvania (639 REOs).
Average time to foreclose decreases 3 percent from previous quarter
Properties foreclosed in Q1 2022 had been in the foreclosure process an average of 917 days, down slightly from 941 days in the previous quarter and down 1 percent from 930 days in Q1 2021.

States with the longest average foreclosure timelines for homes foreclosed in Q1 2022 were Hawaii (2,578 days); Louisiana (1,976 days); Kentucky (1,891 days); Nevada (1,808 days); and Connecticut (1,632 days).
States with the shortest average foreclosure timelines for homes foreclosed in Q1 2022 were Montana (133 days); Mississippi (146 days); West Virginia (197 days); Wyoming (226 days); and Minnesota (228 days).
March 2022 Foreclosure Activity High-Level Takeaways
“March foreclosure activity was at its highest level in exactly two years – since March 2020, when there were almost 47,000 foreclosure filings across the country,” Sharga added. “It’s likely that we’ll continue to see significant month-over-month and year-over-year growth through the second quarter of 2022, but still won’t reach historically normal levels of foreclosures until the end of the year at the earliest, unless the U.S. economy takes a significant turn for the worse.”
  • Nationwide in March 2022, one in every 4,215 properties had a foreclosure filing.
  • States with the highest foreclosure rates in March 2022 were Illinois (one in every 1,825 housing units with a foreclosure filing); New Jersey (one in every 2,022 housing units); South Carolina (one in every 2,299 housing units); Delaware (one in every 2,579 housing units); and Ohio (one in every 2,604 housing units).
  • 22,360 U.S. properties started the foreclosure process in March 2022, up 35 percent from the previous month and up 248 percent from March 2021.
  • Lenders completed the foreclosure process on 4,406 U.S. properties in March 2022, up 67 percent from the previous month and up 180 percent from March 2021.
U.S. Foreclosure Market Data by State – Q1 2022
Rate RankState NameTotal Properties with Filings1/every X HU (Foreclosure Rate)%∆ Q4 2021%∆ Q1 2021
District of Columbia477,4550.00147.37
38New Hampshire1933,31047.3396.94
2New Jersey4,75279269.29311.79
25New Mexico3762,50215.6944.06
26New York3,2152,64025.54261.64
20North Carolina2,2652,07938.03102.59
47North Dakota3510,590-65.00-12.50
39Rhode Island1413,429-20.79147.37
4South Carolina2,1701,08176.42158.95
50South Dakota2217,72410.00-8.33
48West Virginia7910,831125.71119.44

David Goldsmith

All Powerful Moderator
Staff member
The Fed's $2.7 trillion mortgage problem
If you took out a mortgage over the last couple of years, there's a good chance the holder of that loan is America's central bank — a consequence of its monetary stimulus efforts throughout the pandemic.
Why it matters: The Fed will face a series of political and economic headaches as it attempts to move away from subsidizing home lending by shrinking its portfolio of mortgage-backed securities.
  • The problem: Extracting itself from this market risks crashing the housing industry and creating intense political blowback for incurring financial losses.
By the numbers: Back in February 2020, the Fed owned $1.4 trillion in mortgage-backed securities, and the number was falling rapidly. But when the pandemic took hold, the central bank began a new round of bond purchases (known as "quantitative easing"), swelling that number to $2.7 trillion.
  • The policy contributed to ultra-low mortgage rates that stimulated home buying and refinancing activity until recently.
State of play: Now, as the Fed seeks to tighten monetary policy to combat inflation, it wants to shrink that portfolio. It may turn out to be easier said than done.
  • The Fed says that by September it will reduce the mortgage portfolio by up to $35 billion per month. Emphasis on "up to."
In fact, the numbers will probably undershoot that.
  • The reason: For now, the Fed is just looking to let its holdings shrink as securities get paid off. But with mortgage rates way up in recent months, people have little incentive to sell their home or refinance a mortgage — so these mortgages are likely stay on the Fed's books longer.
That will leave the Fed with unappealing options. It could simply accept that it will continue to have an outsized role in the housing market and a bigger balance sheet than it might prefer.
  • Or it could begin selling the securities on the open market — a possibility that the minutes of its March policy meeting said could happen down the road.
What they're saying: "Let's get the program we've got underway and up to speed, but then once we've got it underway, I think it'll be worth taking a look at what is happening to the mortgage-backed [securities] on our balance sheet," Thomas Barkin, president of the Federal Reserve Bank of Richmond, tells Axios.
  • "I'm certainly open to a targeted and disciplined way to sell into the market if we're not headed toward the primarily Treasury balance sheet that we've said we want," he said.
Yes, but: That will create its own problems. If the Fed sells mortgage securities that pay low rates at a time when prevailing rates are much higher, it will incur big financial losses that reduce the funds the central bank returns to the Treasury.
  • In that scenario, expect officials to face tough questions from Capitol Hill to explain why they've lost billions of dollars on behalf of the American people.
  • Plus, the selling would likely push mortgage rates up further, at a time the housing industry is already starting to groan under the pressure of rising rates. Homebuilders, real estate agents, and other influential industry groups will make their unhappiness known to elected officials.
The bottom line: The Fed's pandemic actions fueled a housing boom. As it tries to withdraw that support, it could be bad news for housing — and the Fed's standing on Capitol Hill.

David Goldsmith

All Powerful Moderator
Staff member

Fed to begin quantitative tightening: What that means for financial markets​

The Federal Reserve’s almost $9 trillion asset portfolio is set to be reduced starting on Wednesday, in a process intended to supplement rate hikes and buttress the central bank’s fight against inflation.
While the precise impact of “quantitative tightening” in financial markets is still up for debate, analysts at the Wells Fargo Investment Institute and Capital Economics agree that it’s likely to produce another headwind for stocks. And that’s a dilemma for investors facing multiple risks to their portfolios at the moment, as government bonds sold off and stocks nursed losses on Tuesday.

In a nutshell, “quantitative tightening” is the opposite of “quantitative easing”: It’s basically a way to reduce the money supply floating around in the economy and, some say, helps to augment rate hikes in a predictable manner — though, by how much remains unclear. And it may turn out to be anything but as dull as “watching paint dry,” as Janet Yellen described it when she was Fed chair in 2017 — the last time when the central bank initiated a similar process.

QT’s main impact is in the financial markets: It’s seen as likely to drive up real or inflation-adjusted yields, which in turn makes stocks somewhat less attractive. And it should put upward pressure on Treasury term premia, or the compensation investors need for bearing interest-rate risks over the life of a bond.

What’s more, quantitative tightening comes at a time when investors are already in a pretty foul mood: Optimism about the short-term direction of the stock market is below 20% for the fourth time in seven weeks, according to the results of a sentiment survey released Thursday by the American Association of Individual Investors. Meanwhile, President Joe Biden met with Fed Chairman Jerome Powell Tuesday afternoon to address inflation, the topic at the forefront of many investors’ minds.

“I don’t think we know the impacts of QT just yet, especially since we haven’t done this slimming down of the balance sheet much in history,” said Dan Eye, chief investment officer of Pittsburgh-based Fort Pitt Capital Group. ”But it’s a safe bet to say that it pulls liquidity out of the market, and it’s reasonable to think that as liquidity is pulled out, it affects multiples in valuations to some degree.”

Starting on Wednesday, the Fed will begin reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities by a combined $47.5 billion per month for the first three months. After this, the total amount to be reduced goes up to $95 billion a month, with policy makers prepared to adjust their approach as the economy and financial markets evolve.

The reduction will occur as maturing securities roll off the Fed’s portfolio and proceeds are no longer reinvested. As of September, the rolloffs will be occurring at “a substantially faster and more aggressive” pace than the process which started in 2017, according to the Wells Fargo Investment Institute.

By the institute’s calculations, the Fed’s balance sheet could shrink by almost $1.5 trillion by the end of 2023, taking it down to around $7.5 trillion. And if QT continues as expected, “this $1.5 trillion reduction in the balance sheet could be equivalent to another 75 – 100 basis points of tightening,” at a time when the fed-funds rate is expected to be around 3.25% to 3.5%, the institute said in a note this month.

The target range of the fed-funds rate is currently between 0.75% and 1%.


Sources: Federal Reserve, Bloomberg, Wells Fargo Investment Institute. Data as of April 29.
“Quantitative tightening may add to upward pressure on real yields,” the institute said. “Along with other forms of tightening in financial conditions, this represents a further headwind for risk assets.”

Andrew Hunter, a senior U.S. economist at Capital Economics, said that “we expect the Fed to reduce its asset holdings by more than $3 trillion over the next couple of years, enough to bring the balance sheet back in line with its prepandemic level as a share of GDP.” Though that shouldn’t have a major impact on the economy, the Fed might stop QT prematurely if economic conditions “sour,” he said.

“The main impact will come indirectly via the effects on financial conditions, with QT putting upward pressure on Treasury term premiums which, alongside a further slowdown in economic growth, will add to the headwinds facing the stock market,” Hunter said in a note. The key uncertainty is how long the Fed’s rundown will last, he said.

On Tuesday, all three major U.S. stock indexes finished lower, with Dow industrials DJIA sliding 0.7%, the S&P 500 SPX down 0.6%, and the Nasdaq Composite COMP off by 0.4%. Meanwhile, Treasury yields TY00 were higher as bonds sold off across the board.

David Goldsmith

All Powerful Moderator
Staff member

Vacant Zombie Properties Rising in Second Quarter Amid Jump in Foreclosure Activity​

ATTOM, a leading curator of real estate data nationwide for land and property data, today released its second-quarter 2022 Vacant Property and Zombie Foreclosure Report showing that 1.3 million (1,304,007) residential properties in the United States sit vacant. That represents 1.3 percent, or one in 76 homes, across the nation.
The report analyzes publicly recorded real estate data collected by ATTOM — including foreclosure status, equity and owner-occupancy status — matched against monthly updated vacancy data. (See full methodology below). Vacancy data is available for U.S. residential properties at https://www.attomdata.com/solutions/marketing-lists/.
The report also reveals that 259,166 residential properties in the U.S. are in the process of foreclosure in the second quarter of this year, up 12.7 percent from the first quarter of 2022 and up 15.9 percent from the second quarter of 2021. This is also the third straight quarter that the count of pre-foreclosure properties has gone up since a nationwide foreclosure moratorium, imposed early during the Coronavirus pandemic, was lifted at the end of July 2021.
Among those pre-foreclosure properties, 7,569 sit vacant in the second quarter of 2022, meaning that the number of zombie-foreclosure properties went up quarterly by 2.8 percent.

“The incidence of zombie-foreclosures tends to be higher in cases where the foreclosure process has dragged on for many months and sometimes even for years,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “We’re now seeing properties where the borrower was already in default prior to the government’s moratorium re-enter the foreclosure process, and undoubtedly some of these homes will have been vacated over the past 26 months.”
The number of zombie-foreclosures does remain down 6.3 percent from a year ago and continues to represent just a tiny segment of the nation’s total stock of 99.7 million residential properties. Just one of every 13,171 homes in the second quarter of 2022 are vacant and in foreclosure, meaning that most neighborhoods have none. The portion of pre-foreclosure properties that have been abandoned into zombie status also continues to decline, down from 3.6 percent a year ago to 3.2 percent in the first quarter of 2022 and 2.9 percent in the second quarter of this year.
But the recent increase in zombie properties is the first since the moratorium ended. The portion of all residential properties sitting empty in the foreclosure process has grown 1.9 percent in the second quarter, up from one in 13,424 in the first quarter of this year.
The upward second-quarter foreclosure trends – in both overall and zombie-property counts – add to a list of measures showing how the decade-long U.S. housing market boom remains strong but also faces a possible slowdown this year.
Median single-family home prices have shot up 17 percent over the past year and typical home-seller profits remain historically high, at nearly 50 percent. Homeowner equity continues rising, greatly limiting the likelihood that homeowners facing foreclosure will simply walk away from their homes.
“According to our equity report, almost 90 percent of homeowners in foreclosure have positive equity,” Sharga added. “Having equity gives financially-distressed homeowners an opportunity for a relatively soft landing – selling their home at a profit rather than losing everything to a foreclosure. That factor alone should keep the number of zombie-foreclosures from rising too much.”
The median home value nationwide went up just 3 percent from the third quarter of last year to the first quarter of this year and home-seller profits have ticked down in 2022. At the same time, investment returns for speculators who flip properties have hit their lowest point since 2008. Beyond that, an estimated 1.5 million to 2 million homeowners fell behind on mortgages after the pandemic wiped out millions of jobs prior to the economy recovering last year.
Zombie foreclosures up quarterly but still down annually
A total of 7,569 residential properties facing possible foreclosure have been vacated by their owners nationwide in the second quarter of 2022, up slightly from 7,363 in the first quarter of 2022 but still down from up from 8,078 in the second quarter of 2021.
Amid numbers that remain extremely low, the biggest increases from the first quarter of 2022 to the second quarter of 2022 in states with at least 50 zombie foreclosures are in Michigan, (zombie properties up 74 percent, from 54 to 94), Arizona (up 56 percent, from 32 to 50), Georgia (up 29 percent, from 62 to 80), Nevada (up 26 percent, from 68 to 86) and Iowa (up 17 percent, from 132 to 155).
The biggest quarterly decreases among states with at least 50 zombie foreclosures are in Massachusetts (zombie properties down 13 percent, from 62 to 54), Missouri (down 13 percent, from 63 to 55), New Jersey (down 7 percent, from 275 to 257), New Mexico (down 3 percent, from 78 to 76) and New York (down 2 percent, from 2,074 to 2,041).
Overall vacancy rates down annually in most of nation
The vacancy rate for all residential properties in the U.S. has dropped to 1.31 percent in the second quarter of 2022 (one in 76 properties). That’s down from 1.37 percent in the first quarter of 2022 (one in 73) and from 1.42 percent in the second quarter of last year (one in 70).
States with the biggest annual drops are Tennessee (down from 2.42 percent of all homes in the second quarter of 2021 to 1.55 percent in the second quarter of this year), Oregon (down from 1.84 percent to 1.01 percent), Maryland (down from 1.67 percent to 1.05 percent), Wisconsin (down from 1.36 percent to 0.76 percent) and Minnesota (down from 1.54 percent to 0.95 percent).
Other high-level findings from the second quarter of 2022:
  • Among metropolitan statistical areas in the U.S. with at least 100,000 residential properties and at least 100 properties facing possible foreclosure in the second quarter of 2022, the highest zombie rates are in Peoria, IL (11.3 percent of properties in the foreclosure process are vacant); Wichita, KS (11.2 percent); Cleveland, OH (9.5 percent); Syracuse, NY (8.9 percent) and South Bend, IN (8.6 percent).
  • Aside from Cleveland, the highest zombie-foreclosure rates in major metro areas with at least 500,000 residential properties and at least 100 homes facing foreclosure in the second quarter of 2022 are in Baltimore, MD (8.3 percent of homes in the foreclosure process are vacant); Portland, OR (6.5 percent); Indianapolis, IN (5.9 percent) and Pittsburgh, PA (5.9 percent).
  • In the 164 metro areas analyzed for this report, those where zombie homes represent the largest shares of all residential properties in the second quarter of 2022 are Cleveland, OH (one in 1,426 homes are empty and facing foreclosure); Peoria, IL (one in 1,565); Albany, NY (one in 1,725); Syracuse, NY (one in 2,195) and Rochester, NY (one in 2,964).
  • Among the 27.9 million investor-owned homes throughout the U.S. in the second quarter of 2022, about 905,000 are vacant, or 3.2 percent. The highest levels of vacant investor-owned homes are in Indiana (6.9 percent), Kansas (5.8 percent), Oklahoma (5.3 percent), Alabama (5.1 percent) and Ohio (5 percent).
  • Among the roughly 3,300 foreclosed, bank-owned homes in the U.S. during the second quarter of 2022, 10.8 percent are vacant. In states with at least 50 bank-owned homes, the largest vacancy rates are in Pennsylvania (19.9 percent vacant), Indiana (17.2 percent), Texas (16.4 percent), Ohio (16 percent) and Illinois (15.9 percent).
  • The highest zombie-foreclosure rates in U.S. counties with at least 500 properties in the foreclosure process during the second quarter of 2022 are in Broome County (Binghamton), NY (11.8 percent of pre-foreclosure homes are empty); Cuyahoga County (Cleveland), OH (10.8 percent); Onondaga County (Syracuse), NY (9.4 percent); Pinellas County (Clearwater), FL (9.3 percent); and Oneida County, NY (outside Syracuse) (8.3 percent).
  • The lowest zombie rates among counties with at least 500 properties in foreclosure in the second quarter of 2022 are in Contra Costa County, CA (outside Oakland) (no pre-foreclosure homes are empty); Hudson County, NJ (outside New York, NY) (0.3 percent); Atlantic County (Atlantic City), NJ (0.4 percent); Mecklenburg County (Charlotte), NC (0.5 percent) and Sacramento County, CA (0.6 percent).
  • Among 424 counties with at least 50,000 residential properties, those with the largest portion of total homes in zombie foreclosure status in the second quarter of 2022 are Broome County (Binghamton), NY (one of every 648 properties); Cuyahoga County (Cleveland), OH (one in 933); Peoria County, IL (one in 1,144); Suffolk County (eastern Long Island), NY (one in 1,165) and Oneida County, NY (outside Syracuse) (one in 1,437).

David Goldsmith

All Powerful Moderator
Staff member
Some are probably get tired of my "Whose going to buy MBS now?" posts, but...
The CPI news this morning was so awful that it changed the bond market’s view of Fed trajectory, and the weakest sector broke. In bond jargon, MBS went “no-bid.” No buyers for MBS. Then a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. Overnight the retail consequence has been a leap from roughly 5.50% to 6.00% for low-fee 30-fixed loans.

David Goldsmith

All Powerful Moderator
Staff member

Mortgage Lenders Warned Us Trouble Was Coming​

Now we have a telltale indicator for when the market has reached a top.

Mortgage Companies Tried to Warn Us
In January 2021, the Covid heist movie “Locked Down” was on HBO Max, the Proud Boys hit “Hang Mike Pence” topped the Billboard charts, and the stock market was so hopped up on free money that Internet randos could make GameStop America’s hottest stock just for the lulz of it.

All were hallmarks and/or harbingers of continuing and/or impending doom. But that month a much quieter shoe dropped that truly foretold the economic dog’s breakfast we’re choking down today: Three mortgage companies sold shares to the public, at what Marc Rubinstein notes was the precise bottom for mortgage rates in the US.

Since then, borrowing costs have more than doubled, and all the free money has gone bye-bye faster than we forgot about the Covid heist movie “Locked Down.” Mortgage lending is the epitome of a cyclical business, Marc notes, and nothing rings the bell at the top of a cycle quite like selling shares to the unsuspecting suckers public.

And the cyclical downswing shows no sign of stopping. Rates are rising because the Fed is trying to squelch inflation. But Lisa Abramowicz points out high mortgage rates are chasing people into the rental market, causing a record-smashing surge in rents, which are a major component of, you guessed it, inflation. Central-bankin’ is hard.

Higher rates and lower demand are a nastier cocktail for real-estate investors than even the worst slurp juice. Those who loaded up with leverage could soon be sharing their pain with the rest of us, in a 2008 financial-crisis reenactment, warns John Authers. But at least now we know the signs to watch whenever we get back to the top of the cycle again.

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member

Mortgage Lenders Warned Us Trouble Was Coming​

Now we have a telltale indicator for when the market has reached a top.

Mortgage Companies Tried to Warn Us
In January 2021, the Covid heist movie “Locked Down” was on HBO Max, the Proud Boys hit “Hang Mike Pence” topped the Billboard charts, and the stock market was so hopped up on free money that Internet randos could make GameStop America’s hottest stock just for the lulz of it.

All were hallmarks and/or harbingers of continuing and/or impending doom. But that month a much quieter shoe dropped that truly foretold the economic dog’s breakfast we’re choking down today: Three mortgage companies sold shares to the public, at what Marc Rubinstein notes was the precise bottom for mortgage rates in the US.

Since then, borrowing costs have more than doubled, and all the free money has gone bye-bye faster than we forgot about the Covid heist movie “Locked Down.” Mortgage lending is the epitome of a cyclical business, Marc notes, and nothing rings the bell at the top of a cycle quite like selling shares to the unsuspecting suckers public.

And the cyclical downswing shows no sign of stopping. Rates are rising because the Fed is trying to squelch inflation. But Lisa Abramowicz points out high mortgage rates are chasing people into the rental market, causing a record-smashing surge in rents, which are a major component of, you guessed it, inflation. Central-bankin’ is hard.

Higher rates and lower demand are a nastier cocktail for real-estate investors than even the worst slurp juice. Those who loaded up with leverage could soon be sharing their pain with the rest of us, in a 2008 financial-crisis reenactment, warns John Authers. But at least now we know the signs to watch whenever we get back to the top of the cycle again.
this story is just getting started - 3% FFR by year end, we are halfway there

David Goldsmith

All Powerful Moderator
Staff member

A Long List of Mortgage Layoffs, Mergers, and Closures​

I first created this list of mortgage layoffs and closures in February 2007, back when scores of mortgage companies were consolidating, laying off employees, sending out scary warnings, and going out of business.

Around that time, some 2.33% of all U.S. mortgages were delinquent, a number which was sure to rise over the following years as the full extent of the mortgage crisis revealed itself.

Between the first and second quarter of 2006 alone, mortgage repurchase requests tripled thanks to shoddy underwriting that was prevalent during that era.

Adding to lender woes were declining home values in almost every metropolitan area throughout the United States, sky-high home prices at time of origination, rising mortgage rates, rampant fraud, a deteriorating secondary market, and unmanageable mortgage payments.

There were some 86,126 mortgage job cuts in 2007, and countless more in subsequent years as major institutions like Bear Stearns, Countrywide Financial, IndyMac, and Washington Mutual all shuttered.

Even though it has been roughly a decade since the downturn began, mortgage companies are still facing the consequences of getting involved in what was then a very risky housing market.

Amazingly, we continue to see layoffs and closures driven by what transpired many years ago. Given how bad things got, this isn’t too surprising.

Recently, mortgage layoffs have been driven by a major decrease in refinance demand and a dwindling pool of eligible home buyers thanks to significantly higher mortgage rates.

I’ve seen a surge of user comments from former mortgage employees who have been laid off. Those can be seen below the list at the bottom of the page.

Simply put, mortgage companies must “rightsize” as too many players chase far too few loans.

List last updated on June 25th, 2022​

Latest updates:​

Mid America Mortgage, Inc. to rebrand as Click n’ Close (6/25/22)
First Guaranty Mortgage Corporation cut ~500 jobs, stopped accepting applications (6/24/22) (source: HousingWire)
Barclays to acquire Kensington Mortgages (6/24/22)
Chase to cut 1,000 home lending jobs (6/22/22)
HomeLight acquires Accept.inc (6/16/22)
Notarize let go of 25% of staff (6/15/22)
Compass to cut 10% of its workforce (6/14/22)
Redfin to slash nearly 500 jobs (6/14/22)
Priority Mortgage to merge with Doorway Home Loans (6/10/22)
Wyndham Capital Mortgage to cut 48 jobs in Charlotte, NC (6/9/22)
Real Genius (FirstBank) laying off 74 employees in Charlotte, NC (6/2/22)
Tomo cuts 44 jobs (6/1/22)
Real Genius (FirstBank) laying off 35 employees in Nasville, TN (5/31/22)
Panorama Mortgage Group acquires Rely Home Loans (5/31/22)
Nationstar Mortgage (Mr. Cooper) cutting 120 jobs in Santa, Ana CA (5/20/22)
Mid America Mortgage to sell its retail channel to Legend Lending (5/16/22)
Panorama Mortgage Group acquires Vision Mortgage Group (5/13/22)
Costco Mortgage program no longer available as of May 1st, 2022 (5/1/22)
Intercontinental Exchange (ICE) to acquire Black Knight, Inc.
Pennymac to cut 45 jobs in Pasadena, CA
Mr. Cooper cut roughly 250 jobs during Q1 2022
Planet Home Lending to acquire Homepoint’s correspondent lending business
Primis Bank to acquire SeaTrust Mortgage Company
Owning to cut 189 jobs in Orange, CA
Union Home Mortgage layoffs in Strongsville, OH
Flagstar Bank cut 20% of mortgage staff (420 jobs)
Rocket Mortgage offering buyouts to 8% of staff
Wells Fargo cutting unspecified number of mortgage jobs
Blend Labs to lay off 200 employees
USAA Bank cut 90+ mortgage jobs
National Bank Holdings Corporation to acquire Bank of Jackson Hole
Movement Mortgage layoffs (based on industry reporting)
PennyMac to cut 227 jobs in Agoura/Moorpark/Westlake, CA
Prospect Home Finance to cut 5 jobs in La Jolla, CA
PennyMac to cut 81 jobs in Roseville, CA
All Cal Financial to merge with InstaMortgage
Knock to reduce its workforce by approximately 46%
Better Mortgage to cut additional 3,000 jobs in United States and India
TD Bank to acquire First Horizon Corp.
Ellington Financial to acquire reverse mortgage lender Longbridge Financial
WinnPointe Corporation dba Interactive Mortgage to cut 51 jobs in Orange, CA
Santander Bank halts all mortgage lending including HELOCs, layoffs (2/2/22)
KKR to acquire Merchants Mortgage Trust & Corporation, LLC
Mortgage Solutions Financial to acquire First American State Bank, will change name to MSF Bank
Redfin to acquire Bay Equity Home Loans, 121 layoffs (1/11/22)
Stearns Wholesale to shut down, 348 layoffs (1/6/22)
Genpact Mortgage Services Inc. cut 14 jobs in Irvine, CA
Texas Partners Bank to acquire Legacy Mutual Mortgage
Eustis Mortgage Corporation to acquire Signature Mortgage Corporation
Better Mortgage to cut roughly 900 jobs (9% of staff)
Interfirst Mortgage to cut 77 jobs in Charlotte, NC
Opendoor to acquire RedDoor
Zillow Offers shut down, 25% of staff to be let go
First Federal Community Bank to acquire Lighthouse Mortgage
Armed Forces Bank to acquire residential mortgage operations of KS StateBank
Athene to acquire non-QM lender Newfi
New Residential Investment Corp. to acquire Genesis Capital LLC
U.S. Bank to acquire MUFG Union Bank
Arcus Lending changes name to InstaMortgage

David Goldsmith

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As FGMC shuts down, lender partners question fate of loans in pipeline

Correspondent partners say the company, which laid off most staffers on Friday, has goneTech-fueled mortgage lender UpEquity just wants answers. Roughly a year ago, the Austin-based fintech began to sell its loans to First Guaranty Mortgage Corporation (FGMC), a lender that specializes in non-qualified mortgage loans and is controlled by behemoth investment management firm Pacific Investment Management Company (PIMCO).
UpEquity sent between 30 and 40 loans per month to FGMC, worth about $60 million in total volume, executives said. Depending on the month, FGMC bought between one-fourth and one-third of the loans UpEquity sold to investors through the correspondent channel.
One week ago, problems emerged: FGMC’s loan approval, which usually took one business day after due diligence was completed, was taking four days. Questioned by UpEquity, FGMC answered that nothing was wrong; they would approve and buy the loans.
Then, without apparent notice to its correspondent partners, FGMC on Friday cut most of its workforce, and former high-level employees said the company has essentially shuttered.
It’s caused frustration for FGMC’s lending partners.
“We have about 14 loans, $5 million worth of loans, in the process of being purchased by them,” said Louis Wilson, co-founder and chief operating officer at UpEquity. “On Friday, we stopped getting responses via email. Then, we read about the layoffs. On Monday, no one responded to my email.”
He added: “We’re sitting here wondering what will happen to those loans. We’ll probably sell to another investor. For us, it’s nowhere near life-threatening, but it’s a painful day.”
A West Coast-based lending executive told HousingWire that FGMC said it can’t or won’t honor locks in its correspondent pipeline, even loans that were cleared for funding and underwritten by FGMC.
“I have done this 30 years and not seen it done this poorly,” he said.
A spokesperson for FGMC, which stopped taking mortgage applications late last week ahead of the mass layoff, declined to answer HousingWire’s questions. However, the spokesperson said that the company is continuing to fund loans, engaging proactively with its customers and “working closely with financial stakeholders to navigate this challenging moment.”

Mispricing at FGMC?

Two mortgage executives whose companies sold loans to FGMC said the firm often paid 20 basis points higher than other investors on 30-year fixed-rate mortgages.
However, mortgage rates rose sharply in the last few weeks, largely due to news of higher-than-expected inflation and the anxiety leading up to the Federal Reserve‘s 75 basis point hike.
FGMC approved loans to purchase at a rate of 5.3%, locked 20 days ago, according to Wilson, but now rates are around 6%. And investors are asking for higher premiums to invest in these assets amid a flight to quality caused by the expectation of higher U.S. Treasury rates.
Days before the layoffs, FGMC was negotiating to purchase loans with more lenders, and all seemed business as usual, multiple sources told HousingWire.
“We signed up with them as a correspondent; we signed the paperwork on Monday, June 20. Then, on Friday, the 24th, they went out of business,” said Rich Weidel, the CEO of multichannel lender Princeton Mortgage. “This happens when companies get desperate, and they try to win loans by mispricing.”
According to Weidel, Princeton signed the papers but did not sell loans to FGMC.

Funding falls through

FGMC sent a WARN Notice to the Texas Workforce Commission on Friday, explaining the company has decided to terminate the employment of 428 of its 565 employees on June 24, 76% of the total workforce.
“FGMC has experienced significant operating losses and cash flow challenges due to unforeseen historical adverse market conditions for the mortgage lending industry, including unanticipated market volatility,” Cassie Vacante, senior vice-president of Human Resources, wrote in the document.
Vacante added that “in addition, FGMC’s recent efforts to obtain funding that could have prevented this layoff have proven unsuccessful.”
Former employees told HousingWire on Friday that they were laid off without severance pay. A spokesperson wrote that FGMC has paid salaries, accrued paid time off, and commissions that have come due. However, the spokesperson said, the company is in the process of making severance payments to those who are eligible.

David Goldsmith

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Bloodbath: Mortgage industry keeps cutting staff

The giant sucking sound in the home loan industry grew louder Wednesday when Sprout Mortgage told employees it’s going out of business.

The company broke the news to its more than 300 staffers during a conference call Wednesday, according to HousingWire. A former employee of the Long Island-based mortgage lender told the publication that Sprout had already slashed its workforce several times.

Sprout’s closure comes a week after Texas-based First Guarantee Mortgage essentially shuttered operations when it laid off most of its staff, according to ex-employees. Many other companies have shed workers as demand for mortgages hits record lows.

Rising interest rates, high home prices and a shortage of listings have sidelined some buyers and slowed sales, which means fewer purchase loans, and the rate hikes have ended a spate of refinancing. As a result, lenders no longer needed — and in many cases could not afford — the large number of people they had hired to handle applications.

Other companies that have been forced to reduce their mortgage workforce include:

JPMorgan Chase: The biggest bank in the country two weeks ago laid off hundreds of employees from its home-lending division.
Wells Fargo, the biggest banking mortgage lender in the country, laid off or reassigned employees around the same time.
Mr. Cooper, a Dallas-based lender, in June laid off 5 percent of its staff, or 450 employees, after cutting 250 employees earlier in the year. The company’s direct lending business was down 32 percent year-over-year.
Digital mortgage lender Tomo laid off 44 employees a month ago, or just under one-third of its staff, despite raising $40 million in March in a Series A round. In announcing the fundraise, with its valuation reaching $640 million, the company said it planned to double its headcount and expand into new markets by the end of the year.
The San Francisco-based mortgage lending startup and proptech unicorn Homelight laid off 19 percent of its staff last month.
Austin-based Keller Williams laid off employees in May from its mortgage lending arm, Keller Mortgage, after dropping 150 recent recruits in October.
Movement Mortgage in April laid off 170 of its roughly 4,500 employees. The news came shortly after two other mortgage lenders, Interactive Mortgage and Freedom Mortgage, announced layoffs.
Mortgage lender Better.com in March announced it was laying off 3,000 workers in the U.S. and India, or 34 percent of its workforce, just months after its CEO was forced to apologize for laying off 900 employees over Zoom.
Blend Labs, another digital lending platform, in April laid off 200 employees, or 10 percent of its staff, in a move that shed more than $34 million from its payroll.

David Goldsmith

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LoanDepot laying off thousands​

Direct-to-consumer lender cutting 4,800 jobs​

Another lender is resorting to layoffs as the mortgage market shrivels.
Tucked in near the end of a business plan released Tuesday morning, loanDepot announced it would shed 4,800 people, or 42 percent of its workforce.

About 2,800 of them have already been sent packing as the firm slashes headcount to 6,500 from 11,300. With demand for mortgages dropping, the company plans to make between $3.5 million and $4.5 million in severance and benefits payments in the second quarter alone.

“After two years of record-breaking volumes, the market has contracted sharply and abruptly in 2022,” loanDepot CEO Frank Martell said in a statement. “We are taking decisive action to meet this challenge head on.”
The company expects to save $375 million to $400 million annually by the end of the year by downsizing and other cost-cutting measures, such as reducing marketing, third-party spending and office space.

Additional changes involve centralizing the management of loan originations and fulfillment.

LoanDepot is targeting a return to run-rate profitability by the end of the year. The company is expected to release its second quarter earnings on Aug. 9.

Layoffs in the home loan industry have become a regular occurrence as rising mortgage rates and home prices and a dearth of listings cooled demand for home loans.
Last week, Long Island-based Sprout Mortgage announced it was going out of business. That came only a week after Texas-based First Guarantee Mortgage essentially shut down operations after making deep cuts to its staff.

Other companies reducing their mortgage personnel include JPMorgan Chase, Wells Fargo, Keller Williams and Better.com.
Still, the optics of loanDepot’s layoffs are not good, as they follow loanDepot founder Anthony Hsieh’s $30 million purchase of a waterfront Miami Beach mansion in January. Hsieh also bought a unit at One Thousand Museum in Miami for $19.5 million.

David Goldsmith

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Between this and the Fed claiming they are going to curtail buying MBS where is mortgage money going to come from?

Signature Bank to rein in real estate lending as deposits falter​

Multifamily lender says it will cut loan growth by up to $6B in Q3 due to crypto crash, rising interest rates​

Major multifamily lender Signature Bank reported record earnings in the second quarter, but said it will roll back in its commercial real estate lending in the coming months. The primary culprits: rising interest rates and plunging crypto markets.
At $339.2 million or $5.26 per share, Signature’s earnings jumped 58 percent from the same period last year as revenue surged 43 percent to $686.8 billion. But those figures masked underlying headwinds: Deposits declined after a cryptocurrency crash drove investors to pull funds from Signet, Signature’s blockchain-backed digital payments platform, while rising interest rates brought about a decline in non-interest-bearing income.

To maintain a healthy loan-to-deposit ratio, the bank said it would cut back on lending, including in commercial real estate, one of its largest sectors.
Signature will curtail loan growth to between $1 billion and $3 billion in the third quarter, down from the $4 billion to $7 billion it had initially projected, CEO Joseph DePaolo said on an earnings call Tuesday.

“Two areas we expect to slow or are focusing our intention to slow is commercial real estate and fund banking,” DePaola said.
The bank grew its overall lending portfolio to $72 billion, an increase of $5.6 billion or 8 percent from the previous quarter. As interest rates have risen, lending has driven steeper profits, and Signature said the majority of its lending portfolio is floating-rate debt, which is more sensitive to rate hikes in the near term.
But Signature also reported that deposits shrank to $104 billion in the quarter, about a $5 billion decline from the previous quarter. Fewer deposits mean less money to lend, and less growth to come. Signature’s stock was down about 8 percent in mid-day trading Tuesday.

DePaola noted that if the firm pulls in $10 billion in new deposits, it would use that money to fund new loans.
But Signature isn’t anticipating that type of growth. Despite holding a liquid loan-to-deposit ratio of 69 percent — the ideal range for banks is between 80 and 90 percent — the firm said it expects the macroeconomic “choppiness” that hampered deposits in the second quarter to continue.
In part, the collapse of crypto markets, which have hemorrhaged $2 trillion since November, drove that decline. Signet held about $29 billion, or 27 percent of Signature’s total deposits, as of March 2022, American Banker reported. The bank lost $2.4 billion in digital currency assets in the second quarter as crypto-sensitive customers withdrew funds.

“Clearly there are people leaving [the crypto] space, and therefore deposits are leaving,” said Chief Operating Officer Eric Howell, who added that the unpredictability of crypto would remain a pain point for digital banking.
As of July 19, the price of Bitcoin was down over 50 percent from the start of the year.
“The digital winter hasn’t quite gone away yet,” Howell said.
Meanwhile, the Federal Reserve’s interest rate hikes will likely deliver another blow to the firm’s non-interest-bearing deposits, about 40 percent of its holdings. If interest rates continue to spike, it’s likely that more investors will withdraw funds that aren’t reaping a higher rate of return and move them elsewhere.

In total, the bank lost $5.3 billion in non-interest-bearing deposits quarter over quarter, offset slightly by a small gain in interest-bearing liabilities.
“The rates have been increased by 75 basis points and couple that with the quantitative tightening, it’s unprecedented,” DePaolo said. “And it could make it tough on the deposits side, so we’re just being cautious.”

David Goldsmith

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Broken record: Mortgage demand hits (another) 22-year low
Rising rates among factors spurring low streak

Mortgage aficionados are becoming awfully familiar with 2000 as demand keeps cratering to Y2K levels.

For the week ending on July 15, the Mortgage Bankers Association’s index measuring mortgage loan application volume dropped 6.3 percent from the previous week. According to a release from the MBA, it’s at its lowest level in 22 years.

This feels like déjà vu all over again. At the beginning of June, mortgage demand also hit its lowest point since 2000, according to the MBA’s index. Demand had a brief rebound afterwards, but has been on the decline for three straight weeks leading up to the latest report.

An uncertain economic outlook is one of the factors being cited for the drop in demand, as well as higher inflation and affordability challenges for homebuyers, including high home prices and relatively high mortgage rates. The average 30-year fixed rate for conventional loans was 5.82 percent last week, up from 5.74 percent the previous week.

The increased affordability challenges also led to drops in the MBA’s refinancing and purchasing indices.

The refinance index fell 4 percent from the previous week and 80 percent year over year. The purchase index, responsible for tracking mortgage applications to buy homes, dropped 7 percent from the previous week.

The drop in activity lined up with the struggles in the homebuilding sector, MBA’s Joel Kan said.

“The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs,” Kan said in a statement.

Points rose to 0.59 from 0.65 (including origination fee) for loans with a 20 percent down payment.

The share of applications through the FHA increased from 11.7 percent to 12.4 percent week over week, demonstrating an appetite from buyers looking to make a small down payment. The share of Veterans Administration applications decreased from 11.2 percent to 10.6 percent, while the USDA share of applications increased from 0.5 percent to 0.6 percent.

The rising mortgage rates — which were at 3.22 percent at the beginning of the year — has some wondering if the country’s housing boom is coming to an end.

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Will 5% Mortgage Rates Cushion the Housing Market?​

After reaching 6.28% on June 14th, 30-year mortgage rates have decreased to 5.05% as of yesterday according to Mortgagenewsdaily.com. The 10-year Treasury yield has risen this morning, so it is likely mortgage rates will increase some today.
Note: In April, I wrote: How High will Mortgage Rates Rise? In that post, I included a simple method for estimating 30-year mortgage rates based on the 10-year Treasury yield. Housing economist Tom Lawler explained that the relationship is more complicated in Lawler: Mortgage/Treasury Spreads, Part I and Lawler: Mortgage/Treasury Spreads Part II: “Decomposing” the Widening This Year.
Here is a graph from Mortgagenewsdaily.com that shows the 30-year mortgage rate since 2010. Although mortgage rates have fallen sharply over the last 6 weeks, rates are still much higher than earlier this year.

The housing market really started to slow in April and hit the brakes in June when rates jumped to above 6%. Rates around 5% will help at the margin, but it is the increase in monthly payments compared to earlier this year that is impacting the housing market.
The following graph shows the year-over-year change in principal & interest (P&I) assuming a fixed loan amount since 1977. Currently P&I is up about 30% year-over-year for a fixed amount (this doesn’t take into account the change in house prices).
This is less than the 35% year-over-year increase in June, but still up sharply.

If we include the increase in house prices, payments are up more than 50% year-over-year on the same home.
The bottom-line is the recent decline in mortgage rates will help at the margin, but the housing market will remain under pressure with mortgage rates at 5% (fewer sales, slowing house price growth).

David Goldsmith

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Wells Fargo Plans Major Retreat From Mortgage Business It Long Dominated​

Scandals spur a debate among new leaders at bank that once set records

During the 2008 financial crisis, many large lenders faced tens of billions of dollars in liability from mortgage-related operations and retreated. Wells Fargo held itself out as the exception.

Wells Fargo & Co. plans to shrink its vast mortgage empire, which once churned out one of every three home loans in the US and for a time made the bank the most valuable in the nation.
No longer committed to ranking No. 1 in the business, Wells Fargo’s leadership is preparing a retreat that will probably start with the bank’s ties to outside mortgage firms that generated roughly a third of its $205 billion in new home loans last year, according to people with knowledge of the decision. The strategy shift follows changes in the executive ranks and years of struggles to avoid costly regulatory probes and hits to the bank’s reputation.

In the past year alone, flareups have included a $250 million fine for lapses that hurt borrowers in distress, as well as revelations in a Bloomberg News report that Wells Fargo, more than any other major US lender, rejected refinancings for Black homeowners more often than White ones. Both topics are likely to come up when the heads of big banks go to Washington for congressional hearings slated for next month.

Wells Fargo was the lone holdout when giant US banks concluded after the 2008 financial crisis that mortgages are better done in moderation. Now, its executives are sketching plans that would curb new lending and related businesses such as loan servicing. One senior executive said it would be surprising if Wells Fargo’s mortgage business ends up as large as what JPMorgan Chase & Co.’s is today. With many details yet to be hashed out, the focus will be on lending to people with existing relationships to the bank, or in places where it’s already present.

“Wells Fargo is committed to supporting our customers and communities through our home-lending business,” the San Francisco-based company said in a statement. “Like others in the industry, we’re evaluating the size of our mortgage business to adapt to a dramatically smaller originations market. We’re also continuing to look across the company to prioritize and best position us to serve our customers broadly.”

Shrinking Operation​

Wells Fargo's mortgage business may end up smaller than JPMorgan's

Wells Fargo shares were down 1.13% at 10:07 a.m. in New York.

A debate inside Wells Fargo over what to do with the mortgage franchise has been heating up for months, with a consensus starting to take shape in recent weeks, according to the people. They asked not to be named discussing internal deliberations, which are continuing.

Retrenching will almost certainly include paring, or potentially even halting, so-called correspondent mortgage lending, in which Wells Fargo provides funding for loans arranged by outsiders, the people said. The channel offers benefits but also poses risks. Some banks use correspondent loans to diversify or round out portfolios they may keep on their balance sheets. A concern inside Wells Fargo is that when it finances large amounts of loans from other firms, it’s on the hook for any reputational damage if problems later surface.

Down the road, the bank’s third-party servicing business — which oversees billing and collections for some $700 billion in loans made by other lenders — will also shrink. One area Wells Fargo will likely examine is servicing of Federal Housing Administration loans. The bank already has pulled back from FHA lending. Some prominent bankers have complained over the years that handling FHA debts isn’t worth the risk that the government may fault their practices and impose heavy penalties.

Banks treat servicing rights as an asset that generates revenue over time. Wells Fargo valued the rights on its balance sheet at $10.4 billion as of midyear.
Job cuts inside Wells Fargo are already underway as the Federal Reserve’s interest-rate hikes slow applications. Insiders acknowledge those headcount reductions ultimately will go deeper as the firm recalibrates its size.
Less clear is what may happen long-term to the volume of home loans Wells Fargo makes directly, and how much the bank will stockpile on its balance sheet. Those decisions may depend more on how the economy and interest rates develop. But in one sign of the firm’s evolving philosophy, executives are already under orders to improve handling of applications from existing consumer-banking and wealth-management clients, rather than refer them to the same system used by non-customers.

In Crosshairs​

The hard look at Wells Fargo’s mortgage empire follows changes throughout the bank’s leadership.
Charlie Scharf joined as chief executive officer almost three years ago to deal with a series of scandals that began with the revelation that the bank had opened millions of unauthorized accounts for customers. The abuses angered the public, thrust the company into Capitol Hill’s crosshairs and set off a pile of regulatory sanctions, including a Fed-imposed cap on the firm’s size. He embarked on a review of the bank’s operations, selling an asset manager, corporate-trust unit and student-lending book.
The question of whether to pare back mortgage-related operations arose repeatedly, according to insiders, but a number of key executives favored continuing the franchise's dominance of the market. The firm hauled in more than $57 billion in fees from mortgage banking over the past decade, filings show. They don’t break out profits after covering costs.

In recent months, the tide began turning. And in June, Scharf signaled Wells Fargo was taking a closer look at mortgages. Weeks later he noted that he wouldn’t be tethered to the firm’s past ambitions there.
“We’re not interested in being extraordinarily large in the mortgage business just for the sake of being in the mortgage business,” Scharf, 57, told analysts on a conference call last month. “We are in the home-lending business because we think home lending is an important product for us to talk to our customers about, and that will ultimately dictate the appropriate size of it.”

That week, Wells Fargo announced that its head of consumer lending, Mike Weinbach, would be replaced by Kleber Santos, the lender’s head of diverse segments, representation and inclusion. Talks about strategic changes have since accelerated.

‘Want to Be No. 1’​

It’s quite a turnaround from just a few years ago when Wells Fargo was defending its mortgage crown from the advance of online lenders led by Rocket Mortgage.

“We want to be No. 1 regardless of who we’re competing with, because that’s the position we hold and we’re enthusiastic about it,” John Shrewsberry, the bank’s then-finance chief, said in early 2018.
Since then, Wells Fargo’s mortgage unit has repeatedly featured in scandals, with the bank vowing to do better. That year, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau fined the company $1 billion for a variety of abuses including in mortgages. Among them, the firm overcharged some customers for locking in low interest rates.
Wells Fargo also disclosed that year that a software glitch caused the bank to deny loan modifications to some struggling buyers who would have qualified, leading it to foreclose on hundreds of them.
Then last year, the OCC punished the company again, citing a lack of progress in improving its systems for avoiding foreclosures and helping affected borrowers. The regulator ordered the bank to refrain from acquiring certain residential servicing rights from other firms and to ensure that certain borrowers aren’t transferred out of its servicing portfolio until it makes victims whole.

The latest issue in Wells Fargo’s mortgage business is a gap between the bank’s approval rates for Black and White homeowners who rushed to lower interest payments amid the Covid-19 pandemic. About 47% of Black people who filled out refinancing applications with Wells Fargo in 2020 were approved, compared with 72% of White homeowners. Since Bloomberg spotlighted the data, Wells Fargo has faced federal lawsuits and renewed scrutiny from lawmakers.

Wells Fargo has said it treats all potential borrowers consistently, regardless of their race or ethnicity, and that an internal review of 2020 refinancing decisions showed “additional, legitimate, credit-related factors” were responsible for the differences.

Mortgage Cowboys​

Shrinking — even in a downturn — will be complicated. Economic uncertainty and higher Fed rates can hurt the value of some mortgage assets. The bank will also have to navigate the OCC’s restriction on transferring many servicing customers out of the firm. Executives expect the process may take years.
Once done, it will close a chapter in the industry.

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Banks dominated the home-loan market heading into 2008 financial crisis. After the bust, many large lenders faced tens of billions of dollars in liability from mortgage-related operations and retreated. Bank of America Corp., for example, originated more than $100 billion of new home loans in a single quarter in 2009 after scooping up scandal-ridden Countrywide Financial. By 2018, it was originating less than 10% of that.
Wells Fargo held itself out as the exception. The firm avoided an annual loss in the crisis and then rode a surge in refinancings, making mortgages a key part of its identity. By early 2012, industry observers were estimating it commanded a record share of the US mortgage market with more than 33%.
Executives wanted to go further. At a gathering of more than 500 loan officers that year, sales managers dressed up as cowboys with fake mustaches on their lips and six shooters on their hips, urging staff to lend more. The invitation read: “40% or BUST!!”

Boosted by its mortgage engine, the bank would go on to post six straight years of record profits. And for much of that period, it had a greater market value than JPMorgan.
But the scandals that started erupting in 2016 ended that. Wells Fargo is now the third most valuable bank in the US with a market capitalization of $174 billion — less than half JPMorgan’s.

Meanwhile, a new breed of online mortgage lenders swelled to fill the void left by banks. Quicken Loans grew from the 34th-largest provider of mortgages when the housing market reached its previous peak in 2006 to eventually pass Wells Fargo in originating new home loans. Along the way, it changed its name to Rocket. The venture still holds and services far fewer mortgages than the bank.
Bankers grouse that they are beholden to more regulators, and with that comes greater odds of probes and scandals.
“It is very different today running a mortgage business inside a bank than it was 15 years ago,” Scharf said at a June conference. “That does force you to sit back and say, `What does that mean? How big do you want to be? Where does it fit in?’”

David Goldsmith

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Mortgage demand drops to turn-of-the-century levels

Not since 2000 has Americans’ desire for home loans been this low​

Home loan, anyone?
Mortgages are selling like ice cubes in Antarctica, and the numbers seem to get worse every week.

Applications for home loans fell another 2 percent last week to their lowest level since 2000, according to the Mortgage Bankers Association.
“Home purchase applications continued to be held down by rapidly drying up demand, as high mortgage rates, challenging affordability, and a gloomier outlook of the economy kept buyers on the sidelines,” said the MBA’s Joel Kan in a statement.
Rates are not actually high by historical standards; the average 30-year, fixed-rate loan was 5.47 percent Tuesday, according to BankRate. But that is a lot higher than below 3 percent, where they spent most of last year.

The increase, prompted by Federal Reserve actions to arrest inflation, has sidelined some buyers and virtually shut down refinancing. Residential refi activity also fell to a low not seen since 2000, the Mortgage Bankers Association reported.

The trade group’s refinance index, a measure of refi activity, dropped 5 percent last week and is down 82 percent in 12 months. Homeowners paying 3 percent or 4 percent on their mortgages are not inclined to accept a higher rate unless they are desperate for a cash-out loan.
And purchase loans are down not only for the reasons Kan cited, but because precious few homes are for sale. Some would-be sellers are not listing their homes because they dread the prospect of buying one in this market, while others don’t because in the work-from-home era they can switch jobs without having to uproot their families.

David Goldsmith

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"It's different this time because underwriting standards."

Bank of America piloting no-down payment mortgages​

Program targets first-time buyers in Black, Hispanic neighborhoods​

Bank of America is attempting to close the disparity between Black and white home ownership with a pilot program aimed at helping first-time buyers in Black and Hispanic neighborhoods.
The bank’s Community Affordable Loan Solution trial program will offer mortgages to first-time homeowners in certain predominantly Black and Hispanic neighborhoods, the New York Times reported. The program is being tested in several cities, including Dallas, Los Angeles and Miami.

Applicant eligibility will be determined by income and location. Buyers won’t be required to make down payments, closing costs or provide minimum credit scores. They also will not need to have mortgage insurance.

The bank hopes to expand the program to other cities, in addition to educational resources on homebuying.
Historically, non-white buyers have a more difficult time meeting the criteria to buy a home, as they are largely excluded from opportunities to build credit or accumulate generational wealth. The U.S. Census Bureau reported the rate of white homeownership was 75 percent in the second quarter, versus only 45 percent for Black homeownership.

Government and bank activity has largely exacerbated the problem. Redlining, the practice of denying mortgages to residents in neighborhoods deemed to be in risky investment areas, has been outlawed but has persisted in practice. The areas picked out for redlining disproportionately affect homeowners of color, who struggle to get government-backed loans or earn only a fraction of home equity seen in greenlined neighborhoods.

A Bloomberg News analysis showed Wells Fargo approved only 47 percent of refinance applications sent in by Black homeowners in 2020, well below the 71 percent acceptance rate from other lenders combined. The bank, meanwhile, approved 72 percent of applications from white homeowners.
Bank of America previously had its own issue with discrimination in the mortgage market. In 2011, it agreed to pay $335 million to settle a case with the Justice Department involving allegations that subsidiary Countrywide Financial charged higher rates and fees to Black and Hispanic borrowers due to their race or national origin.