2020 was a record year for mortgage originators

Vital Statistics:

S&P futures4,131-1.4
Oil (WTI)60.940.84
10 year government bond yield 1.63%
30 year fixed rate mortgage 3.22%

Stocks are flat this morning as we kick off earnings season. Bonds and MBS are up.

JP Morgan reported strong earnings this morning which included $5.2 billion in credit reserve releases. These are reserves the bank took for potential losses related to COVID which now look unlikely to materialize. Consumer lending has returned to pre-pandemic levels, and mortgage origination was up 40% YOY. Return on equity was an eye-popping 24%. JPM CEO Jamie Dimon is pretty bullish on the economy.

New Residential is buying Caliber for $1.675 billion in cash. That must explain why Caliber recently increased its investment property LLPAs to 7-9 points. Caliber earned $891 million in pre-tax income in 2020, so New Rez is paying 1.9 times pretax earnings for the company, which originated $80 billion last year. It also gets a $153 billion MSR portfolio.

Caliber is owned by Lone Star Funds, and this sale (along with Amerihome) shows that private equity is ringing the register on mortgage originators. I suspect these funds are going to re-deploy that cash into single-family rental strategies.

The MBA estimates that the industry did $3.8 trillion in mortgage originations last year, which would be the best year ever recorded.

“2020 was a banner year for the mortgage industry, despite the COVID-19 global health crisis essentially shutting down the U.S. economy in March and forcing personnel into remote work environments,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “A surge in housing and mortgage demand, record-low mortgage rates and widening credit spreads translated into soaring net production profits that reached their highest levels since the inception of MBA’s annual report in 2008.”

Average production volume was $4.5 billion per originator, up from $2.7 billion in 2019. Average production profit rose to 157 basis points from 58 in 2019. Total production revenues rose to 434 basis points, up from 356 in 2019. Surprisingly, loan production expenses, were more or less flat at $7,578. Productivity might have been the driver, which rose from 2.3 loans per employee to 3.3 loans per employee.

Mortgage applications fell 3.7% last week as purchases fell 1% and refis fell 5%. The 10 year reached 1.7% last week, and now seems to be heading lower, at least for the time being.

The MBA is urging Washington to allow some additional flexibility on the GSE caps for investment properties and high risk loans. MBA Senior Vice President of Legislative and Political Affairs Bill Killmer said a more flexible approach and timeline would allow the GSEs to come into compliance by making necessary adjustments to their automated underwriting systems on a prospective basis. “This solution would alleviate concerns about existing loan pipelines and make lender-specific caps unnecessary,” he said. “Gradual changes also would provide time for private capital alternatives to develop the operational capacity to better serve these market segments.”

Import prices rose 1.2% MOM and 6.9% YOY, while export prices rose 2.1% MOM and 9.1% YOY. The import number was driven by energy, while the export number was driven by agricultural. Take these numbers with a grain of salt; COVID-19 related shutdowns (especially during the heavy lockdown days) are going to produce some strange year-over-year comparisons.


Author: Brent Nyitray

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

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