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Rising exchange rates are hurting mortgage lenders


Mortgage lenders are struggling to survive with a sharp drop in the number of homeowners refinancing their loans, with demand drying up as interest rates rise.

While home prices continue to rise and Americans are still buying homes, skip refinancing was a big blow because refinancing made up the bulk of US mortgage origination throughout the pandemic.

Some lenders are considering selling themselves, believing it to be the only way out, according to industry executives and advisors.

“Many lenders are losing money and have the prospect of losing money in the near future,” said Steve Stein, former chief executive officer of Stearns Lending, a lender based in Lewisville, Texas. “Cooperation can be a good strategic alternative.”

Last month, Mr. Stein and former Stearns CEO David Schneider set up a consulting firm to guide what they believe will be a wave of lenders looking to stay afloat.

Some lenders are selling assets, such as their right to collect mortgage payments. Others are trying to boost business by offering lower prices or cutting their fees. In March, mortgage lenders made $2.36 in profit on every $100 of a loan, the smallest amount since 2019, According to Urban Institute. In 2020, that number is as high as $5.99.

“You’ve seen lenders get a little freaked out with the drop,” said Richard Martin, director of real estate lending solutions at Curinos, a financial services research firm.

The mortgage market downturn is another consequence of the Federal Reserve’s efforts to contain it red hot inflation. The Fed raised interest rates twice this year to try to cool the economy, and it’s over Mortgage bond purchase program this spring. That has pushed up borrowing costs for mortgages, drained the refinancing pandemic and even pushed some homebuyers out of the market.

With the average 30-year mortgage rate rising to 5%, home ownership could be out of reach for millions of Americans. WSJ’s Dion Rabouin explains the impact on potential buyers, sellers and the housing market. Illustrated by: Adele Morgan

Origins at the 50 largest lenders fell 41% in the first quarter from a year earlier, according to industry research firm Inside Mortgage Finance. Mortgage volume is expected to drop 37% in 2022, according to the Mortgage Bankers Association, due to a drop in refinancing.

It could get worse: The housing market is still hot by historical standards, and home prices are still rising. But the Fed’s moves have raised questions about whether the US is headed for a recession, which will likely slow home sales and make it hard for some homeowners to keep up with payments. their monthly. April’s seasonally adjusted annual home sales rate was lowest since June 2020.

“It’s like the music has stopped,” said Jeff Taylor, a managing partner at Mphasis Digital Risk, a consulting firm that works with mortgage lenders on technology and risk.

The average rate on a 30-year fixed-rate mortgage was 5.25% last week, according to the mortgage finance giant.

Freddie Mac,

up from 3.11% near the beginning of the year, up can add hundreds of dollars per month for new buyers’ borrowing costs.

The pain is expected to be especially bad for non-bank mortgage lenders. Unlike banks, they don’t have much of a business line to weather the mortgage downturn. They also don’t take deposits, which means they depend on short-term loans. Seven of the 10 biggest refinancing lenders in 2021 are non-banks, according to Inside Mortgage Finance.

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Some non-banks are big names, such as Rocket, Currently the largest mortgage lender in the US, but there are thousands of smaller lenders scattered across the country. They are often the preferred route to home ownership for moderate-income families or first-time homebuyers. Nonbanks issued about 70% of US mortgages last year, the highest percentage on record, according to Inside Mortgage Finance.

Lenders often fire workers when interest rates rise, as they did in 2018, and then rent again when the price drops. However, in the period up to 2008, mortgage lenders lowered lending standards to keep loan volumes high, setting the stage for the global financial crisis. This time around, lenders have kept their standards for mortgage loans relatively strict.

“Decades have passed since interest rates rose so quickly, so it was a shock,” said Tom Millon, CEO of Computershare Loan Services, a mortgage lending service provider.

Some of the measures lenders are taking to stop the bleeding are short-term solutions. Money from the sale of servicing rights—for which a company earns a fee to perform monthly collection office work—can help boost a lender’s bottom line. But selling those rights also means giving up a steady source of income.

Amerifirst Home Mortgage, based in Kalamazoo, Mich., has sold nearly $1 billion in service rights since the start of the year after not selling any products in 2021, said CEO Mark Jones. .

“We’ll be tweaking here and there, cutting costs and marking our moment until enough players exit the market or the market comes back in,” Mr. Jones said.

Shares of

loan Inc.

down 43% this year and shares of Rocket,

UWM Holdings Corp.

and

Guild Holdings Co.

lost between 29% and 38%, all of which is worse than the S&P 500’s 17% drop. At least eight major mortgage lenders have gone public during the pandemic and all share prices are currently Their current prices have all fallen below the IPO price.

Rocket said it offered buybacks to thousands of employees this spring. The company has been working to get more business from buying mortgages, which are often less dependent on interest rates. Refinances are estimated to account for about 82% of Rocket’s funding in 2021, according to Inside Mortgage Finance.

Banks cannot avoid the stress. Wells Fargo and

JPMorgan Chase

Banks said & Co has laid off mortgage staff this year. Wells Fargo said in a statement that the layoffs were “the result of cyclical changes in the broader home loan environment.”

Write letter for Orla McCaffrey at [email protected]

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