Higher rates may push some mortgage players past others: KBW

The worsening rate environment may not hurt all lenders equally. 

The 30-year fixed rate mortgage was 6.73% for the week ending Oct. 25, a double-digit rise from the prior stretch, according to the Mortgage Bankers Association. The effective rate went up for all loan types tracked by the trade group, and the 30-year FRM is up 60 basis points from a month ago. 

The trend, a reversal from a cool-off leading into the Federal Reserve's interest rate cut in September, has softened mortgage activity sizably. The MBA's Market Composite Index measure fell just 0.1% from the week prior, but the Refinance Index was down 6%.

Refi activity is still up 84% compared to the same time a year ago, but a month ago was comparatively thriving. Those transactions also now make up just 43.1% of total applications, fading from the prior week and straying further from once accounting for the majority of activity.

The conditions could elevate some of the industry's largest players compared to others, according to a research note Wednesday morning by Keefe, Bruyette and Woods. 

"We continue to believe this backdrop is particularly negative for refi volume-sensitive names within our coverage (primarily Rocket)," wrote analysts, using the lender's stock symbol. "We prefer names which typically benefit more on a relative basis from higher purchase volumes."

The MBA's seasonally adjusted Purchase Index was up 4% compared to the prior week, and 10% higher than the year ago period.

KBW pointed to Pennymac Financial Services and United Wholesale Mortgage as purchase market beneficiaries, and three major title insurers: First American Financial, Fidelity National Financial, and Stewart. 

Some of those firms have yet to announce earnings, while early third quarter earnings reports by Stewart, First American Financial and Pennymac showed mixed results this summer.

The average contract interest rate for 30-year Federal Housing Administration loans is well in the mid-6% range, jumping 26 basis points to 6.55% last week. FHA and Department of Veterans Affairs-backed loan applications have dropped 41% in the past month. They're up 180% in the past 12 months, a stark rise because of a low 2023 base, KBW noted. 

The 15-year FRM and 5-1 adjustable mortgage rates are also leaving 5% behind, rising to 6.27% and 6.2% last week, respectively. 

The MBA meanwhile eyes reliable growth in at least one segment of the market. 

"We continue to expect housing demand from younger homebuyers to support purchase growth over the next few years as for-sale inventory loosens gradually," said Joel Kan, the MBA's vice president and deputy chief economist, in a press release.