The volume of mortgage applications remain well below year-ago levels, while one industry giant has announced plans to shrink its mortgage business.
Mortgage applications increased 1.2% last week, according to weekly Mortgage Bankers Association data. The increase was due to a pickup in refinance volume as mortgage rates fell to 6.42% from 6.58% the week prior. The trade group’s refinance index increased 5% from the previous week.
Applications for purchase loans, meanwhile, fell a seasonally-adjusted 1% from the prior week to its lowest level since 2014, the trade group said. “Purchase applications continued to be hampered by broader weakness in the housing market,” Joel Kan, the trade group’s deputy chief economist, said in a statement. The association’s index measuring refinance volume was 86% lower than the same week in 2022, while the purchase index was 44% lower.
The release is the latest signal of the ongoing chill in the housing market as mortgage rates remain above 6%. As the housing market has cooled, home sales have dropped and refinances have slowed, with knock-on effects for businesses in related industries. The number of National Association of Realtors members was about 1.58 million in December, the most recent month for which data is available, down from a high of 1.6 million in October.
The mortgage banking industry has also been impacted by the slowdown, says Marina Walsh, the Mortgage Bankers Association’s vice president of industry analysis.
“In order to get through this tough cycle, mortgage lenders are making those difficult choices,” she says. “We’ve seen quite a few layoffs.” Walsh says she expects employment in the mortgage industry, from its peak in volume in the fourth quarter of 2020 to its anticipated trough in the first quarter of 2023, to fall between 25% and 30%. “Some of that has already taken place, but there could be more ahead,” she says, adding that the industry could consolidate through mergers and acquisitions.
Mortgage application volume has fallen significantly at many top lenders, according to S&P Global Market Intelligence data. The dollar value of residential mortgages originated in the U.S. has fallen about 33% from the year prior, according to S&P’s data year-to-date through September 2022.
which according to S&P Global Market Intelligence was the third-largest mortgage lender by dollar value, said on Tuesday it would scale back its home lending business. The bank said it would end its correspondent lending business and reduce its loan servicing portfolio. In a release, Wells Fargo said its home lending would focus on bank customers and underserved communities.
“Mortgage is an important relationship product, and our goal is to continue to be the primary mortgage lender to Wells Fargo bank customers as well as minority homebuyers,” Kleber Santos, Wells Fargo’s CEO of consumer lending, said in a Tuesday statement. “We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus.” The company’s consumer lending division declined to comment beyond its statement published on Tuesday.
As of the third quarter of 2022, Wells Fargo originated loans through two different methods: retail, or directly to a consumer, and correspondent, or through a third-party. Correspondent was the smaller of the two channels, accounting for $9.1 billion of the bank’s $21.5 billion in originations in the third quarter of 2022, according to its most recent earnings. The bank will report its fourth-quarter earnings on Friday.
Wells Fargo’s exit from correspondent lending could be a plus for other lenders. “The correspondent lenders that make up the space would have the easiest time encroaching on the market share that Wells Fargo is sort of giving up,” says Eric Hagen, mortgage and specialty finance analyst at BTIG, naming
PennyMac Financial Services
(ticker: PFSI) and
Mr. Cooper Group
(COOP) among the non-bank lenders poised to gain market share.
Also of interest is the potential sale of mortgage servicing rights as Wells Fargo downsizes their mortgage portfolio, Hagen adds. The sale of mortgage servicing rights for borrowers’ home loans allows the purchaser “to potentially generate a relationship with that with that borrower,” Hagen says.
The Mortgage Bankers Association expects total 1- to 4-family loan origination dollar volume to fall to about $1.9 trillion this year, down about 15% from an expected $2.25 trillion in 2022 and less than half of the $4.44 trillion originated in 2021.
“We’re kind of in the thick of things right now,” says the association’s Walsh, adding that the outlook isn’t all bleak. “We do see things turning around.” The trade group expects volume to bottom in the first quarter, with improvements through the rest of the year and into 2024 and 2025.
Write to Shaina Mishkin at firstname.lastname@example.org