The latest market news continued to be strong for the mortgage industry, with the Mortgage Bankers Association (MBA) reporting growth in applications and 30-year fixed rates remaining at or near record-low levels.
MBA’s weekly survey of mortgage applications found that purchase applications rose 18 percent from a year earlier, while refinance applications were up 137 percent from the same week in 2019.
In a presentation at the MBA Technology Solutions virtual conference, Chief Economist Mike Fratantoni said overall, applications were 75 percent ahead of a year ago.
“The purchase market has demonstrated a sharp V recovery so far,” Fratantoni said at the conference. “Is this a bit of a false dawn? Maybe, that’s in our forecast.”
Fratantoni later said the MBA forecast calls for a slight dip in the purchase market for the year.
“We’ve been very impressed by the rebound in purchase originations,” Fratantoni said, adding the forecast calls for an overall 2 percent decrease in purchase originations for the year. Overall, MBA’s forecast is for a $2.439 trillion market in 2020, up from $2.173 trillion in 2019.
The 2021 forecast is for $2.075 trillion, with 2022 set at $1.907 trillion. MBA economists see three consecutive markets of $2 trillion or more and a fourth just shy of that level – the market reached $2 trillion in originations just twice from 2011-2018.
MBA reported in its application survey that 30-year fixed rates hit 3.37 percent in the week ending May 29, another new MBA survey low.
Freddie Mac reported 30-year fixed rates averaging 3.18 percent for the week ending June 4, up from 3.15 the week before. Mortgage rates touched as low as 3.04 percent on June 1, according to Mortgage News Daily, just one tick above the all-time low of 3.03 percent recorded May 21.
“While the economy is slowly rebounding, all signs continue to point to a solid recovery in home sales activity heading into the summer as prospective buyers jump back into the market,” Freddie Mac Chief Economist Sam Khater said in a release. “Low mortgage rates are a key factor in this recovery. While homebuyer demand is up and has been broad-based across most geographies, supply has been slower to improve. In fact, the gap between supply and demand has widened even further than the large gap that existed prior to the pandemic.”
MBA’s Associate Vice President of Economic and Industry Forecasting Joel Kan said in a release that high unemployment and low housing supply might restrain a more meaningful rebound in purchase applications in the coming months. But for now, the market looked strong.
“The pent-up demand from homebuyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring,” he said.
Meanwhile, MBA also released its report on profitability in the first quarter for independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks. The report found that they reported a net gain of $1,600 on each loan originated in the quarter, up 35 percent from the $1,182 profit reported in the previous quarter.
“Mortgage production profits were strong in the first three months of 2020 – despite a decline in production volume from the fourth quarter and March’s severe market volatility sparked by the COVID-19 pandemic,” MBA Vice President of Industry Analysis Marina Walsh said in a release. “As credit spreads widened, revenues grew by 25 basis points from the fourth quarter, offsetting a reported increase in expenses.”
Overall, MBA found the average pre-tax production profit in the quarter was 61 basis points, up 33 percent from 46 basis points in the fourth quarter.
Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 362 bps in the first quarter, up from 337 bps in the fourth quarter. On a per-loan basis, production revenues increased to $9,582 per loan in the first quarter, up from $8,707 per loan in the fourth quarter. Meanwhile, total expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $7,982 per loan in the first quarter, up from $7,525 per loan in the fourth quarter.
From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,535 per loan.
The average pull-through rate (loan closings to applications) fell to 67 percent in the first quarter from 78 percent in the fourth quarter. In all, 78 percent of firms surveyed showed first-quarter profits, down from 84 percent in the fourth quarter.