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Vaultedge Newsletter - Is Fed's rate hike "already" triggering a domino effect ?

November 14, 2022

Moving from last week to this one - it seems that Fed interest rate hike, is something that's keeping the mortgage industry on its toes.

In some sense, a domino effect seems to have kicked off.

With interest rate hike for fourth straight time, purchase & refi originations have taken a massive hit. Lenders are not only looking at cost rationalization measures, but also at business restructuring & alternate revenue streams to tide over the slump.

Industry consolidation, with a view to leverage cross business synergies & arrest margin compression, is at an all time high. STRATMOR Group anticipates that nearly 50 merger or acquisition (M&A) transactions will be announced or closed, by end of 2022.

While this happens, lenders are looking at offloading their MSR portfolio, to add new non-mortgage revenue streams. Case in point - large lenders like UWM, Homepoint & Rocket Mortgage are turning net sellers of MSR portfolio.

On the other hand, servicers are preparing to ingest these bulk volume of MSRs, within a short window while ensuring all necessary compliance to regulatory requirements.

This means, they have to double down on their servicing infrastructure & technology adoption to handle this transition seamlessly.

At the same time, they also have to prepare for a surge in ARM loans - which is a natural outcome of the rise in 30-year fixed rate, as ARM loans offer better terms to home owners.

With so much flux, spotlight is on how servicers can maneuver such a challenging environment. Though, it is more of wait & watch play, to get fresh perspectives around these issues, our leadership team is at 8th Annual Residential Mortgage Servicing Rights Forum (Nov 14-15) at New York.

If you're attending the event, we would love to meet you. Hit us up at this email ID: [email protected]

So with so much going on, let's look at some of the key events from last week

Here's a quick weekly round up.

Weekly Roundup

Fed's interest rate hike of 75 basis point by Federal Reserve for fourth time straight has sent mortgage rates near 20 year high - to well above 7%. However, it is unlikely that rates are coming down any time soon. Though there has been a sharp demand pull back in the housing sector, prices still remain overheated. Some while analyst expect interest rates plateau at 7% or 7.5%, others see it going as high as 8% over 2023 […]

Mortgage applications fell for the seventh straight week, with rising mortgage rates pushing refinance applications to their lowest level since 2000.

The 30-year fixed rate remained above 7 percent for the third consecutive week, with increases for most loan types. This had a cascading effect on loan applications with both purchase & refi indices falling week on week. However, refi loans were hit harder. The unadjusted Refinance Index fell by 4 percent from the previous week and was 87 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 28.1 percent of total applications from 28.6 percent the previous week. […]

With rate hike, literally denting purchase & refi originations, how can lenders sail through this slump. Mortgage servicing rights (MSR) of loans have gotten a lot more attractive as an income booster, and lenders should capitalize on them in two ways. First, those that need cash could offload these MSR portfolios of loans with historically low interest rates that are unlikely to be prepaid any time soon. The biggest sellers of these portfolios so far this year are nonbank lenders: United Wholesale Mortgage, $107.4 billion; Home Point, $68.9 billion; Rocket Mortgage, $50.5 billion; and loanDepot, $25.3 billion, according to mortgage-data analytics firm Recursion […]

Adjustable-rate mortgages (ARMs) are making a comeback. In 2021, when the average 30-year fixed mortgage rate was 2.65%, there was little demand for ARMs. With interest rates rising, ARMs are now more appealing as they provide lower initial interest rate and lower monthly payments to buyers. This comes at a time when lenders & servicers are preparing for a transition from a LIBOR to SOFR based benchmark index. This means servicers have to deal with an increasing number of ARM loans in their portfolios combined with their approach to shifting from LIBOR to SOFR. The problem is that most ARMs […]

Ravi Shankar has joined Freddie Mac as as SVP and Head of Single-Family Portfolio and Servicing. Shankar will have broad responsibility over portfolio management, servicing and the operations and technology that support these activities. Prior to joining the GSE in 2013, Shankar spent seven years at JP Morgan Chase in a number of key roles, including CFO, Head of Capital Markets, and Portfolio Manager at Chase Home Finance.

Spotlight: What's new at Vaultedge

Vaultedge at 8th Annual Residential Mortgage Servicing Rights Forum

We're super excited to be closing the "eventful" year with 8th Annual Residential Mortgage Servicing Rights Forum. Having worked with some of the largest mortgage servicers in the country - PHH Ocwen, Valon Mortgage and BSI Financial, this is an event we can't miss. We're looking forward to industry perspectives on challenges faced during MSR portfolio life-cycle & roadmap for 2023.

If you’re at the, then let’s meet. Drop us a note at [email protected] & we’ll work out a meeting schedule with you.

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Till next time…stay happy, stay healthy 😊