July 31, 2021

MP Now News

Mortgage News

Big banks see gains in mortgage originations

The quarter-to-quarter increase in mortgage origins at eight banks exceeded expectations, suggesting banks are regaining market share in mortgage lending, according to a report by Keefe, Bruyette & Woods.

The combined volume for the first quarter increased 3% from the fourth quarter and 21% from the first quarter of 2021 for the group of eight banks covered by KBW: Wells Fargo, JP Morgan Chase, US Bancorp, Bank of America, Truist Financial, First Republic, Citigroup and PNC Financial Services Group.

Bank of America, Citi, and JPMorgan Chase were among the major banks that posted gains on mortgage creation in the first quarter.

Bank of America, Citi, and JPMorgan Chase were among the major banks that posted gains on mortgage creation in the first quarter.

This implies that some banks, such as likely, have regained market share from non-bank lenders and may well outperform the industry for the period, said KBW analyst Bose George. The Mortgage Bankers Association and Freddie Mac had predicted that total origins would decrease by 13% from quarter to quarter.

“However, large volumes were not enough to offset the declining profit in sales margins as production yields for were declining most banksGeorge wrote in the report. The decline, he said, shows that first quarter revenue gains normalized after a year of strong gains.

Selling margin profit declined quarter over quarter for seven of the eight banks. The outlier was Wells Fargo, and the surge there was due to the bank’s early buyouts on loans from Ginnie Mae’s mortgage-backed pools of securities.

Financial results were largely determined by the origination channels that each bank highlighted, a report by Piper Sandler found.

“The banks with a greater proportion of origination that come from the retail channel or that further emphasize the retail channel (Wells Fargo, PNC) tended to report stronger results, while corresponding banks (Truist, US Bank, Citizens Financial Group) reported greater pressure on them performed last quarter mortgage banking results, “said Kevin Barker and R. Scott Siefers, Piper Sandler managing directors.

Meanwhile, mortgage servicing rights ratings rose quarter to quarter by a higher percentage – 27% for the five banks that provided this information – than KBW’s forecast 20%.

The valuation of service rights benefited from an 82 basis point increase in the 10-year treasury yield corresponding increase of 50 basis points in 30-year mortgage rates since the end of 2020.

“Also, MSR pricing is likely to improve as market risks (such as forbearance rates) have decreased,” said George. “We see MSR’s strength as a positive reading for service owners such as Mr. Cooper, New Residential, Two Harbors, PennyMac Financial Services, and PennyMac Mortgage Investment Trust.”

Piper Sandler noted that Mr. Cooper has one of the largest portfolios of unsecured mortgage services compared to the other publicly traded non-banks. The first quarter could see Mr. Cooper increase by $ 125 million MSR assessment according to the Piper Sandler forecast.

Wells Fargo, which has the largest portfolio of MSRs in the industry, continued to decline from $ 857 billion at the end of the fourth quarter to $ 801 billion as of March 31.

This decline was due to Wells Fargo reducing the number of loans it buys on its correspondence channel.

“Over the next year or two, we found that several non-banks like Rocket Cos., PennyMac Financial Services, New Residential or Mr. Cooper had a larger service market share than Wells Fargo,” said Piper Sandler. “Though we should point out that Wells Fargo has started raising Corresponding Compliant Loans again and could see more volume over time.”