The year-to-date drop-off in mortgage originations exceeded Fitch Ratings expectations, indicating a larger decline is likely than either the Mortgage Bankers Association or Fannie Mae predicted.
When combined with lagging reduction in capacity, it will create pressure on earnings at the nonbank lenders Fitch covers. Other factors include: continued monetary policy tightening; the Federal Reserve’s tapering of mortgage-backed security purchases; housing inventory deficits; and sustained double-digit home price appreciation.
"The challenging operating environment is pressuring all issuers, although issuer-specific effects will depend on the mix between origination and servicing as well as channel and strategy, with weaker players that lack scale or have outsized exposure to the wholesale channel facing potential consolidation," a Fitch report said.
The latest projection from
A growing number of lenders are laying off workers, the most recent being Tomo's reduction of nearly
The supply-and-demand imbalance in the homes-for-sale inventory is not expected to change in the near term. Supply shortages continue to fuel home-price appreciation even with rising mortgage rates. The current U.S. housing supply deficit is between 3.6 million units and 5.5 million units, Fitch estimated.
Among the good news, gain-on-sale margins seem to be stabilizing because of the reduction in capacity. But these are expected to remain under pressure relative to their historical averages, Fitch said.
"Despite the profitability pressures, leverage has come down with the reduction in the origination pipeline and improved mortgage servicing rights valuations given declines in prepayment speed estimates to single-digit levels resulting from rising mortgage rates," Fitch said. "
The average size of servicing portfolios grew 19% in the first quarter, aiding the growth in segment income.
