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In One Chart: How the 55% plunge in mortgage originations is hitting nonbanks: Fitch


Major U.S. banks already have been cutting staff and operations related to mortgage originations as interest rates have shot up and the roaring housing market has cooled in 2022.

For nonbank lenders, an even gloomier picture has emerged, particularly for players heavily reliant on the ability to make new loans to drive financial results that also face a lack of capital, according to a Fitch Ratings report.

“Smaller players such as real-estate tech startup Reali and Sprout Mortgage have shuttered, while First Guaranty Mortgage Corp filed for Chapter 11 bankruptcy,” a Fitch team led by Shampa Bhattacharya, director for non-bank financial institutions, wrote in a new report.

“LoanDepot exited the wholesale channel, with plans to sell its $1 billion pipeline and to refocus on consumer/retail channels.”

Here’s a closer look at how the roughly 55% drop in home loan originations has played out at major nonbank lenders, from Rocket Mortgage to loanDepot Inc.
based on second quarter volumes on a year-over-year basis.

Nonbank lenders grew into a powerful force in the U.S. mortgage market in the past decade, despite the role Countrywide Financial and other subprime mortgage lenders played in the housing market collapse and the 2007-08 global financial crisis.

Fitch said the plunge this year in mortgage originations “continues to surpass” its expectations, “and is likely to fall beneath published industry estimates,” including as mortgage rates have hit their highest level since 2006.

“Declining revenue from lower origination volumes is outpacing expense cuts,” the Fitch team warned. “Weakening gains on sale margins from intense competition, has led to outsized pressure in the wholesale channel, with margins also pressured by higher repurchase charges.”

0% home price appreciation

Like stocks

and bonds
the mortgage markets has been beset with volatility this year as the Federal Reserve has committed to bringing inflation down to 2%, through higher interest rates and a smaller balance sheet.

Against that backdrop, researchers at BofA Global said they now expect home price appreciation of 0% in 2023, “with risks to the downside” and project that won’t change for the next two to three years, but also potential for a 10%-15% decline over that time under a stress case.

Read: ‘No housing market is immune to home-price declines’: Home values are already falling in these pandemic boomtowns.

The housing market fallout likely points to industry consolidation for nonbank lenders and the exit of weaker players, Fitch said, although the team expects leading firms with access to capital “to withstand current market conditions” and potentially to gain market share.

Phil Shoemaker, president of originations at Homepoint, said in a statement to MarketWatch that its 100% wholesale lending business should benefit as “the pain is showing up as thousands of loan originators are leaving retail oriented non-bank lenders to join independent mortgage brokers” because of the pricing advantages they can offer consumers.

Rocket Mortgage, United Shore, PennyMac, Finance of America Mortgage and Provident didn’t immediately respond to requests for comment. A loanDepot spokeswoman declined to comment.

See: Fed is ‘dead serious’ about getting inflation down, Kashkari says

The Tell: Why the S&P 500 can fall another 11% as the Fed fights inflation: Mizuho Securities

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