Morning Report: No W-shaped recovery

Vital Statistics:

S&P futures34632.6
Oil (WTI)40.94-0.47
10 year government bond yield 0.71%
30 year fixed rate mortgage 2.90%

Stocks are higher this morning after a positive jobs report. Bonds and MBS are down.

Jobs report data dump:

Nonfarm payrolls up 1.4 million

Unemployment rate 8.4%

24.3% of people teleworked due to COVID

Labor force participation rate 61.7%

Overall, this is a strong report that pours cold water on the idea that we could be experiencing a W-shaped recovery (aka a double-dip recession). The labor force participation rate last year was 63.2%. It bottomed out just above 60% in April, which means we have retraced about half the COVID-related decrease.

I took a look at Quicken’s numbers and found some truly astounding things. First, their gain on sale margins are 519 basis points. I think the average according to the MBA is something like 429 bps. The more impressive number is the net profitability. Quicken made $3.5 billion on $72.3 billion in origination, or a whopping 484 basis points in net income. The MBA average for bankers was 167. Of course comparing Quicken to Pennymac or Mr. Cooper isn’t really the right model – those guys are largely aggregators while Quicken doesn’t really have much of a correspondent footprint (non-del only).

Another thing I found interesting from the conference call is that Quicken looks at its MSR book as a source of future business. In other words, they aren’t looking at the book solely as a return on assets game or even a hedge for the origination business – they are actively soliciting their borrowers for a refi. I wonder if people who are buying their spec pools are aware of this – prepay speeds are probably going to be quite higher than the rest of the industry.

Quicken is trying to build the infrastructure to get to $40 billion a month in origination and has a goal of achieving 25% market share by 2030. Finally, Quicken guided for $82 – $85 billion in origination in Q3, however margins are going to drop from 4.05% – 4.3%.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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