The industry's biggest non-bank lenders won't see green shoots until at least next spring, Moody's Investors Service said in a new report.
Analysts pin their predictions to
"Companies with stronger franchises and ample levels of capital continue to sacrifice profitability to increase market share, continuing to pressure weaker competitors," wrote analysts for the credit and data analysis firm.
The report aligns with recent
The 11 non-bank firms that Moody's tracked had recorded core profitability of 1.7% in the third quarter versus 1.2% in the second quarter and just 0.4% at the end of March. Those lenders' collective gain-on-sale margins rose to 1.37% from 1.35% in the quarter prior. Both retail and wholesale activity drove the increase, including an 11 basis point jump in wholesale GOS margins alone.
The aggregate sum of rate-lock volumes for the 11 major lenders was flat from the spring to the summer, and down 4% from the third quarter last year. Compared to the refinance boom of 2020 and 2021, rate-lock volume was down 62%, Moody's reported.
Lenders also benefited from positive fair value adjustments in mortgage servicing rights, the report noted.
Just two lenders,
Employee compensation alternatively rose 1% quarterly alongside the summer business gains. Salaries had trickled down to begin the year after a 23% decline between 2022 and 2021. Moody's anticipates
Non-banks also recorded declining capitalization from the second quarter with an increase in the loans-held-for-sale, the report found. Moody's metric, which measures tangible common equity against tangible managed assets, fell to 18.8% at the end of September from 20.1% at the end of June. Firms have largely strengthened their capitalization since 2021 because they were offloading loans as originations dwindled.
"Once origination volumes increase, capitalization will likely decline, since the change in retained earnings typically lags the change in origination volumes," the report said.