First quarter origination volume among the largest publicly traded mortgage lenders — both banks and nonbanks — was larger than forecast expectations for the industry, a sign these firms were managing margins, a Keefe, Bruyette & Woods report said.
Meanwhile volume guidance for the current period indicates these large lenders "are at least temporarily backing away from growth," the report written by Bose George, Michael Smyth and Thomas McJoynt-Griffith said. "We think this should help limit downside to margins, although profitability will depend on cutting costs."
Among the largest lenders, the volume dropped an average of 29% in the first quarter, compared with a 23% expectation from the Mortgage Bankers Association. On a year-over-year basis, it was down 36%.
Average gain-on-sale margins from the nine lenders KBW tracks — JPMorgan Chase, U.S. Bancorp, Flagstar, Rocket, United Wholesale Mortgage, PennyMac Financial, loanDepot, New Residential and Mr. Cooper — were 149 bps, flat with the fourth quarter's 151 bps. This is much better than
Earnings call guidance is indicative of a potential turning point for the mortgage business. Reduced expectations from this group countered previous management pronouncements of continued growth, the KBW report pointed out.
"The projected slowdown in growth at the large originators in 2Q has made us more constructive on the industry because we think the downturn could be less pronounced as lenders back away from share and focus more on cutting costs to deal with the lower volumes," KBW said.
The MBA data indicated first quarter costs were a record $10,600 per loan.
Several lenders have reduced headcount as a cost containment measure. Pennymac is in the midst of
Meanwhile, investors have been battering the stock of the six lenders that went public during the run-up to record mortgage loan production.
Rocket, the first company to do
Guild Holdings
The third company to conduct an IPO,
As for
The other two companies, United Wholesale Mortgage and Finance of America, became public during the wave of special purpose acquisition company deals; UWM was actually one of
Its first day trading under its current ticker on Jan. 22, 2021,
As for Finance of America, its first trading day opening price after the SPAC merger completion on April 5, 2021 was $9.50 per share. The price is now more than $7 per share lower, opening on May 23 at $2.45, a price not helped by
Fitch Ratings just downgraded its ratings outlook on FOA to negative, which is likely to further impact the company's view from investors.
"The revision of the Outlook reflects Fitch's expectation that FOA's leverage will remain elevated over the medium term, driven by weaker-than-expected 1Q22 financial performance given the impact of rising rates and widening spreads on origination volumes," the Fitch report said. "Market volatility in non-agency securitization spreads also resulted in negative fair value marks on loans held for investment of $96 million, which reduced the tangible equity base in 1Q22, and had a negative impact on leverage."
The leverage problem arose from
"While FOA had been on a de-leveraging path, progress stalled with rising rates and market volatility. If the firm cannot reduce and sustain leverage below 7.5 times over the outlook horizon, ratings could be downgraded," the report said.