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Does the Latest Data Offer Hints of New Housing Stability?

Phil Hall
Aug 27, 2014

Two new data reports from the Mortgage Bankers Association (MBA) offered back-to-back news of more vibrant market. But whether this new vibrancy can continue remains to be seen. According to the MBA’s Weekly Mortgage Applications Survey for the week ending Aug. 22, the Market Composite Index increased 2.8 percent on a seasonally adjusted basis and two percent on an unadjusted basis from one week earlier. The seasonally adjusted Purchase Index increased three percent from one week earlier, while the unadjusted Purchase Index increased one percent compared with the previous week and was 11 percent lower than the same week one year ago. The Refinance Index increased three percent from the previous week, while the refinance share of mortgage activity increased to 56 percent of total applications, the highest level since March 2014, from 55 percent the previous week. The uptick in the week’s applications followed positive news from yesterday that independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $954 on each loan they originated in the second quarter of 2014, up from a reported loss of $194 per loan in the first quarter of 2014. This data, which was released in the MBA’s latest Quarterly Mortgage Bankers Performance Report, found that the purchase share of total originations by dollar volume increased to 74 percent in the second quarter of 2014, up from 68 percent in the first quarter, while the share of total first mortgage originations continued to increase, rising to seven percent in the second quarter, the highest level since the inception of the Performance Report. Furthermore, the MBA found that total loan production expenses–defined as including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations–decreased to $6,932 per loan in the second quarter of 2014, from $8,025 in the first quarter, the largest decline in costs in any single quarter since the Performance Report was created. “The gains seen in the second quarter come after first quarter losses that were likely triggered by a variety of  factors including the implementation of new Dodd-Frank regulations and extremely low origination volumes,” said Marina Walsh, MBA’s vice president of industry analysis. “Some loan closings may have been pushed into the second quarter, resulting in an increase in profitability as per-loan production costs declined.” Reaction to the latest data was cautiously supportive. “The first quarter was horrendous across the board,” said Mark Greco, president of 360 Mortgage Group LLC, based in Austin, Texas. “You could hear crickets out there. We’ve seen a dramatic increase in business–it’s very competitive out there right now.” Mat Ishbia, president and CEO of Troy, Mich.-based United Shore Financial Services (USFS), believed that the second quarter data affirmed that harsh lessons from the first quarter were absorbed. “I think people began adjusting their business models to meet volume,” Ishbia said. “The first quarter was a wake-up call to people not doing that.” Yet Ishbia was not certain if this pointed to a new trend in expanding profitability. “It depends on the model,” he said, referring to the distinctive operating approaches of the mortgage bankers that were followed in the MBA study. “There are still a lot of people focused on refi. If you’re still heavily dependent on refi and have not figured out what happens next, you’re in trouble.” “My guess is that the independent mortgage bankers finally right-sized their operations,” said Rick Seehausen, CEO of Glendale, Colo.-based LenderLive Network Inc. “They were carrying excess capacity that resulted in a pretty substantial increase in their costs. In the second quarter, there was an increased volume that utilized their capacity.” However, Dr. Anthony B. Sanders, Distinguished Professor of Real Estate Finance at George Mason University in Fairfax, Va., and author of the Confounded Interest blog, stated that the weekly mortgage applications data did not offer encouragement of a better tomorrow. “So much for the much anticipated housing recovery of 2014,” Dr. Sanders wrote in his blog. “Like Cinderella, the end of the year is approaching and nothing is happening, at least in terms of residential mortgage lending. The non-seasonally adjusted Purchase Index increased 0.5 percent from the previous week, but remained down 10.6 percent since the same week from last year–and just wait for the Labor Day slump coming next week! The seasonally adjusted Purchase Index increased three percent from one week earlier, but still remain at pre-bubble, 1995 levels. Yes, the residential mortgage market remains in ‘The Land of the Dead.’”
Published
Aug 27, 2014
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